<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 10, 1999.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
OCWEN FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 6035 65-0039856
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1675 PALM BEACH LAKES BOULEVARD
WEST PALM BEACH, FLORIDA 33401
(561) 682-8000
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM C. ERBEY
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
OCWEN FINANCIAL CORPORATION
1675 PALM BEACH LAKES BOULEVARD
WEST PALM BEACH, FLORIDA 33401
(561) 682-8000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPY TO:
DENNIS V. OSIMITZ
SIDLEY & AUSTIN
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60603
(312) 853-7000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly as practicable after this Registration Statement becomes effective and
the effective time of the proposed merger (the "Merger") of Ocwen Acquisition
Company, a wholly-owned indirect subsidiary of the Registrant, with and into
Ocwen Asset Investment Corp. ("OAC"), as described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE REGISTRATION FEE(2)
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value..... 12,371,750 Not applicable $90,392,187(2) $25,130
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</TABLE>
(1) Based upon the maximum number of shares to be issued pursuant to the Merger.
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended, and
computed pursuant to Rule 457(f)(1) thereunder on the basis of the market
value of the OAC Common Stock to be exchanged in the Merger, which was
computed, in accordance with Rule 457(c), as the product of (i) $5.1875 (the
average of the high and low prices per share of common stock, par value $.01
per share, of OAC ("OAC Common Stock") on August 5, 1999 as reported on the
New York Stock Exchange Composite Transactions Tape) and (ii) 17,425,000,
the aggregate number of shares of OAC Common Stock outstanding on August 5,
1999 (other than shares of OAC Common Stock owned by the Registrant and its
wholly-owned subsidiaries).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED AUGUST 9, 1999
(OCWEN LOGO)
OCWEN FINANCIAL CORPORATION
OCWEN ASSET INVESTMENT CORP.
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
Fellow shareholders:,
The Boards of Directors of Ocwen Financial Corporation and Ocwen Asset
Investment Corp. have approved a merger agreement and are seeking your vote on
this important transaction. An indirect subsidiary of Ocwen Financial would be
merged with OAC so that OAC would become an indirect subsidiary of Ocwen
Financial.
If the merger is completed, each holder of OAC common stock (other than Ocwen
Financial and its wholly-owned subsidiaries) will receive 0.71 shares of Ocwen
Financial common stock for each share of OAC common stock held. The shares of
Ocwen Financial common stock to be issued to OAC shareholders will represent
approximately 20.3% of the outstanding Ocwen Financial common stock after the
merger.
The merger cannot be completed unless (a) the shareholders of OAC approve the
plan of merger and the merger agreement and (b) the shareholders of Ocwen
Financial approve the issuance of the shares of Ocwen Financial common stock to
be issued in the merger. These proposals will be considered at the special
meetings of OAC and Ocwen Financial, respectively, for the purpose of
considering and voting on these matters. YOUR VOTE IS VERY IMPORTANT.
Whether or not you plan to attend a meeting, let me urge you to please take the
time to vote by completing and mailing the enclosed proxy card to us today. This
will not prevent you from voting in person, but will ensure that your vote is
counted if you are unable to attend. If you sign, date and mail your proxy card
without indicating how you want to vote, your proxy will be counted as a vote in
favor of the proposals submitted at your meeting. If you fail to return the
card, the effect will be a vote against the merger-related proposal submitted at
your meeting, unless you attend your meeting and vote in favor of such
proposals.
The dates, times and places of the meetings are as follows:
For Ocwen Financial shareholders:
___________ , 1999
9:00 a.m.
First Floor Offices of Ocwen Financial
1675 Palm Beach Lakes Boulevard
West Palm Beach, Florida
For OAC shareholders:
___________ , 1999
10:00 a.m.
First Floor Offices of OAC
1675 Palm Beach Lakes Boulevard
West Palm Beach, Florida
This Joint Proxy Statement/Prospectus provides you with detailed information
about the proposed merger. In addition, you may obtain information about Ocwen
Financial and OAC from documents that we have filed with the SEC. We encourage
you to read this entire document carefully.
William C. Erbey
Chairman and Chief Executive Officer, Ocwen Financial Corporation, and Chairman
and Chief Executive Officer, Ocwen Asset Investment Corp.
THE OCWEN FINANCIAL COMMON STOCK TO BE ISSUED UNDER THIS JOINT PROXY
STATEMENT/PROSPECTUS HAS NOT BEEN APPROVED BY THE SEC OR ANY STATE SECURITIES
COMMISSION, NOR HAS ANY OF THESE ORGANIZATIONS DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE, COMPLETE OR ADEQUATE, OR PASSED UPON THE
INVESTMENT MERITS OF THE SECURITIES OFFERED HEREBY. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
See "Risk Factors" starting on page 17 for a description of certain
material risks and uncertainties that shareholders of OAC and Ocwen Financial
should consider in determining whether to approve the merger.
Joint Proxy Statement/Prospectus dated , 1999, and first mailed to
shareholders on , 1999.
THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND
MAY BE CHANGED. OCWEN FINANCIAL CORPORATION MAY NOT SELL THESE SECURITIES UNTIL
THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 3
OCWEN FINANCIAL CORPORATION
1675 PALM BEACH LAKES BOULEVARD
WEST PALM BEACH, FLORIDA 33401
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [MONTH] [DATE], 1999
To the Shareholders of Ocwen Financial Corporation:
A Special Meeting of Shareholders (the "Special Meeting") of Ocwen
Financial Corporation, a Florida corporation ("Ocwen Financial"), will be held
on [Day], [Month] [Date], 1999, at the first floor offices of Ocwen Financial
located at 1675 Palm Beach Lakes Boulevard, West Palm Beach, Florida, commencing
at 9:00 a.m., for the following purposes:
(1) To consider and vote on a proposal to approve the issuance (the
"Share Issuance") of shares of common stock, par value $.01 per share (the
"Ocwen Financial Common Stock"), pursuant to the Agreement of Merger dated
as of July 25, 1999 (the "Merger Agreement") among Ocwen Financial, Ocwen
Acquisition Company, a Virginia corporation and a wholly-owned indirect
subsidiary of Ocwen Financial ("Acquisition Sub"), and Ocwen Asset
Investment Corp., a Virginia corporation ("OAC"), a copy of which is
attached as Annex I to the Joint Proxy Statement/Prospectus accompanying
this notice. The Merger Agreement provides for the merger of Acquisition
Sub with and into OAC (the "Merger"), resulting in OAC becoming a
wholly-owned indirect subsidiary of Ocwen Financial. In the Merger, each
OAC shareholder (other than Ocwen Financial and its wholly-owned
subsidiaries) will be entitled to receive, in exchange for each share of
common stock, par value $.01 per share, of OAC held by such shareholder,
0.71 shares of Ocwen Financial Common Stock.
(2) To consider and transact such other business as may properly be
brought before the Special Meeting or any adjournment thereof.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THAT THE MERGER AGREEMENT IS FAIR AND IN THE BEST INTERESTS OF OCWEN
FINANCIAL AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF OCWEN FINANCIAL HAS
UNANIMOUSLY APPROVED AND ADOPTED THE MERGER AGREEMENT AND APPROVED THE SHARE
ISSUANCE AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE SHARE
ISSUANCE AT THE SPECIAL MEETING. YOU ARE URGED TO READ THE ACCOMPANYING JOINT
PROXY STATEMENT/PROSPECTUS CAREFULLY FOR A DESCRIPTION OF THE MERGER AGREEMENT.
The Board of Directors has fixed [Month] [Date], 1999 as the record date
for the determination of shareholders entitled to notice of and to vote at the
Special Meeting. Only holders of Ocwen Financial Common Stock of record at the
close of business on such date will be entitled to notice of, and to vote at,
the Special Meeting or any adjournment thereof.
By Order of the Board of Directors,
John R. Erbey
Secretary
West Palm Beach, Florida
[Month] [Date], 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. SHAREHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE
THEIR PROXIES AND VOTE IN PERSON IF THEY DESIRE.
<PAGE> 4
OCWEN ASSET INVESTMENT CORP.
1675 PALM BEACH LAKES BOULEVARD
WEST PALM BEACH, FLORIDA 33401
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [MONTH] [DATE], 1999
To the Shareholders of Ocwen Asset Investment Corp.:
A Special Meeting of Shareholders (the "Special Meeting") of Ocwen Asset
Investment Corp., a Virginia corporation ("OAC"), will be held on [Day], [Month]
[Date], 1999, at the first floor offices of OAC, 1675 Palm Beach Lakes
Boulevard, West Palm Beach, Florida, commencing at 10:00 a.m., for the following
purposes:
(1) To consider and vote on a proposal to approve the Agreement of
Merger dated as of July 25, 1999 (the "Merger Agreement") among Ocwen
Financial Corporation, a Florida corporation ("Ocwen Financial"), Ocwen
Acquisition Company, a Virginia corporation and a wholly-owned indirect
subsidiary of Ocwen Financial ("Acquisition Sub"), and OAC, a copy of which
is attached as Annex I to the Joint Proxy Statement/Prospectus accompanying
this notice, and the Plan of Merger, a copy of which is attached as Annex
II to the Joint Proxy Statement/Prospectus accompanying this notice. The
Plan of Merger and the Merger Agreement provide for the merger of
Acquisition Sub with and into OAC (the "Merger"), resulting in OAC becoming
a wholly-owned indirect subsidiary of Ocwen Financial. In the Merger, each
OAC shareholder (other than Ocwen Financial and its wholly-owned
subsidiaries) will be entitled to receive, in exchange for each share of
common stock, par value $.01 per share (the "OAC Common Stock"), of OAC
held by such shareholder, 0.71 (the "Exchange Ratio") shares of common
stock, par value $.01 per share, of Ocwen Financial (the "Ocwen Financial
Common Stock").
(2) To consider and transact such other business as may properly be
brought before the Special Meeting or any adjournment thereof.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THAT THE MERGER AGREEMENT AND THE MERGER ARE FAIR TO AND IN THE BEST
INTERESTS OF OAC AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF OAC HAS
UNANIMOUSLY APPROVED AND ADOPTED THE PLAN OF MERGER AND THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE PLAN OF MERGER AND THE
MERGER AGREEMENT AT THE SPECIAL MEETING. YOU ARE URGED TO READ THE ACCOMPANYING
JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY FOR A DESCRIPTION OF THE MERGER
AGREEMENT.
Under Virginia law, holders of OAC Common Stock are not entitled to
dissenters' rights in connection with the Merger.
The Board of Directors has fixed [Month] [Date], 1999 as the record date
for the determination of shareholders entitled to notice of and to vote at the
Special Meeting. Only holders of OAC Common Stock of record at the close of
business on such date will be entitled to notice of, and to vote at, the Special
Meeting or any adjournment thereof.
By Order of the Board of Directors,
John R. Erbey
Secretary
West Palm Beach, Florida
[Month] [Date], 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. SHAREHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE
THEIR PROXIES AND VOTE IN PERSON IF THEY DESIRE. PLEASE DO NOT SEND YOUR STOCK
CERTIFICATES WITH YOUR PROXY CARDS AT THIS TIME. DO NOT SEND IN YOUR STOCK
CERTIFICATES UNTIL YOU RECEIVE A LETTER OF TRANSMITTAL.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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PAGE NO.
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<S> <C>
Questions and Answers About The Merger...................... iv
Summary..................................................... 1
The Companies............................................. 1
The Merger................................................ 3
What OAC Shareholders Will Receive in the Merger.......... 3
Reasons for the Merger.................................... 3
Risk Factors.............................................. 5
Regulatory Approvals...................................... 5
Conditions to the Merger.................................. 5
Termination of the Merger Agreement....................... 5
Termination Fee........................................... 6
No Solicitation of Competing Transactions................. 6
Dissenters' Rights........................................ 6
Certain Litigation........................................ 6
Material Federal Income Tax Consequences.................. 6
Forward-Looking Statements May Prove Inaccurate........... 7
Ocwen Financial Meeting................................... 7
OAC Meeting............................................... 7
Summary Selected Financial Data............................. 8
Selected Historical Financial Data of Ocwen Financial..... 9
Selected Historical Financial Data of OAC................. 12
Selected Unaudited Pro Forma Combined Financial Data of
Ocwen Financial........................................ 13
Comparative Unaudited Per Share Data...................... 14
Comparative Market Price Data............................. 15
Risk Factors................................................ 17
The Shareholder Meetings.................................... 20
General................................................... 20
The Ocwen Financial Meeting............................... 20
The OAC Meeting........................................... 21
Solicitation of Proxies................................... 22
The Merger.................................................. 22
Background of the Merger.................................. 22
Ocwen Financial's Reasons for the Merger; Recommendation
of the Ocwen Financial Board of Directors.............. 26
Opinion of Morgan Stanley................................. 27
OAC's Reasons for the Merger; Recommendation of the OAC
Board of Directors..................................... 32
Opinion of PaineWebber.................................... 33
</TABLE>
i
<PAGE> 6
<TABLE>
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PAGE NO.
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<S> <C>
Form of the Merger........................................ 38
Merger Consideration...................................... 38
Exchange Agent; Procedures for Exchange of OAC Common
Stock Certificates..................................... 38
Anticipated Accounting Treatment.......................... 39
Certain Other Effects of the Merger....................... 39
Forward-Looking Statements May Prove Inaccurate........... 40
Material Federal Income Tax Consequences.................. 41
Certain Litigation........................................ 42
Payment of 1998 REIT Dividend............................. 43
Dissenters' Rights........................................ 43
The Merger Agreement........................................ 44
Certain Representations and Warranties.................... 44
Certain Covenants and Agreements.......................... 46
Conditions Precedent to the Merger........................ 48
Termination............................................... 50
Fees and Expenses......................................... 51
Interim Financing of OAC's Operations..................... 52
Amendment; Waiver......................................... 52
Regulatory Matters.......................................... 52
Ocwen Financial Unaudited Pro Forma Condensed Financial
Information............................................... 54
Description of Ocwen Financial's Capital Stock.............. 60
Comparison of Rights of OAC Shareholders and Ocwen Financial
Shareholders.............................................. 62
Authorized Capital Stock.................................. 62
Number of Directors; Election; Classification............. 62
Removal of Directors...................................... 63
Special Meetings of Shareholders.......................... 63
Shareholder Voting Rights Generally....................... 64
Shareholder Voting in Certain Significant Transactions.... 65
Consent to Actions of Shareholders in Lieu of Meeting..... 67
Business Combinations..................................... 67
Business Conducted at Shareholders' Meetings.............. 68
Dividends................................................. 68
Indemnification........................................... 69
Director Conflict of Interest Transactions................ 73
Dissenters' Rights........................................ 74
Experts..................................................... 75
Legal Matters............................................... 75
</TABLE>
ii
<PAGE> 7
<TABLE>
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PAGE NO.
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Future Shareholder Proposals................................ 75
Where You Can Find More Information......................... 76
</TABLE>
<TABLE>
<S> <C>
Annex I Agreement of Merger
Annex II Form of Plan of Merger
Annex III Opinion of Morgan Stanley & Co. Incorporated
Annex IV Opinion of PaineWebber Incorporated
</TABLE>
iii
<PAGE> 8
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHEN AND WHERE ARE THE SHAREHOLDER MEETINGS?
A: Each company's meeting will take place on , 1999 in West Palm
Beach, Florida. The address of each meeting is on page 1.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope, as soon as
possible, so that your shares may be represented at your meeting. In order
to assure that your vote is obtained, please give your proxy as instructed
on your proxy card even if you currently plan to attend a meeting in person.
The Ocwen Financial Board of Directors recommends that its shareholders vote
in favor of the issuance of shares of Ocwen Financial common stock in the
merger. The OAC Board of Directors recommends that its shareholders vote in
favor of approval of the plan of merger and the merger agreement.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Just send in a later-dated, signed proxy card to your company's corporate
secretary. Or, you can attend your meeting in person and vote. You may also
revoke your proxy by sending a notice of revocation to your company's
corporate secretary at the address under "The Companies" on page 1.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker will not be permitted to vote them. You
should therefore be sure to provide your broker with instructions on how to
vote your shares.
If you are an Ocwen Financial shareholder and do not give voting
instructions to your broker, you will not be counted as voting for purposes
of the vote on the share issuance unless you appear in person at the Ocwen
Financial meeting.
If you are an OAC shareholder, you must give instructions to your broker in
order to vote in favor of the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, we will send OAC shareholders written
instructions for exchanging their share certificates. Ocwen Financial
shareholders will keep their existing certificates.
Q: WHAT WILL OAC SHAREHOLDERS RECEIVE FOR THEIR SHARES?
A: OAC shareholders will receive 0.71 shares of Ocwen Financial common stock
for each of their shares of OAC common stock. This exchange ratio will not
change even if the market price of Ocwen Financial or OAC common stock
increases or decreases between now and the date the merger is completed,
except in limited circumstances. Accordingly, OAC shareholders will not be
able to determine the value of the shares of Ocwen Financial common stock
they would receive in the merger at the time they vote on the merger at
their meeting. Ocwen Financial will not issue any fractional shares in the
merger. Instead, OAC shareholders will receive cash for any fractional share
of Ocwen Financial common stock owed to them in an amount based on the
market value of Ocwen Financial common stock on the date on which the merger
occurs.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working towards completing the merger as quickly as possible. We hope
to complete the merger shortly after the meetings, assuming the required
shareholder approvals are obtained at such meetings.
Q: WHO DO I CALL IF I HAVE QUESTIONS ABOUT THE MEETINGS OR THE MERGER?
A: Ocwen Financial and OAC shareholders should call Investor Relations at (561)
682-8000 or .
iv
<PAGE> 9
SUMMARY
This Summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" (page 76).
We have included page references parenthetically to direct you to more complete
descriptions of the topics presented in this Summary.
In the merger, Ocwen Acquisition Company, a newly formed indirect
subsidiary of Ocwen Financial, will merge with and into Ocwen Asset Investment
Corp. (OAC). OAC will be the surviving corporation in the merger and will become
a wholly-owned indirect subsidiary of Ocwen Financial. OAC shareholders (other
than Ocwen Financial and its wholly-owned subsidiaries) will receive Ocwen
Financial common stock in exchange for their shares of OAC common stock.
The merger agreement is attached as Annex I to this document. We encourage
you to read the merger agreement, as it is the legal document that governs the
merger.
THE COMPANIES
OCWEN ASSET INVESTMENT CORP.
1675 Palm Beach Lakes Boulevard
West Palm Beach, Florida 33401
(561) 682-8000
OAC is a real estate investment trust (a "REIT") based in West Palm Beach,
Florida that specializes in investments in real estate and real estate related
assets. OAC has invested in underperforming commercial real estate, subordinate
commercial mortgage-backed securities, and commercial and residential mortgage
loans.
OAC was incorporated in Virginia on January 22, 1997, and has elected to be
taxed as a real estate investment trust ("REIT") under the Internal Revenue Code
of 1986, as amended. As such, OAC will generally not be subject to federal
income taxation on that portion of its income that it distributes to its
shareholders if it distributes at least 95% of its taxable income to its
shareholders annually and meets certain other income and asset tests.
OAC's business and investment affairs are managed by Ocwen Capital
Corporation, a wholly-owned subsidiary of Ocwen Financial.
OAC conducts its business primarily through Ocwen Partnership, L.P., a
Virginia limited partnership. Ocwen General, Inc., a Virginia corporation and a
wholly-owned qualified REIT subsidiary of OAC, holds a 0.9% interest in Ocwen
Partnership and is the general partner of and controls Ocwen Partnership. In
addition, Ocwen Limited, Inc., a Virginia corporation and a wholly-owned
qualified REIT subsidiary of OAC, currently owns a 90.4% limited partnership
interest in Ocwen Partnership. The remaining 8.7% partnership interests in Ocwen
Partnership are limited partnership interests held by Ocwen Financial through a
wholly-owned subsidiary.
OCWEN FINANCIAL CORPORATION
1675 Palm Beach Lakes Boulevard
West Palm Beach, Florida 33401
(561) 682-8000
Ocwen Financial is a specialty financial services company which conducts
business primarily through Ocwen Federal Bank FSB, a federally chartered savings
bank and a wholly-owned subsidiary of Ocwen Financial, and, to a lesser extent,
through other non-bank subsidiaries.
Ocwen Financial is a registered savings and loan holding company subject to
regulation by the Office of Thrift Supervision. Ocwen Federal Bank is subject to
regulation by the Office of Thrift Supervision, as its chartering authority, and
by the Federal Deposit Insurance Corporation, as a result of its membership in
the Savings Association Insurance Fund, which insures Ocwen Federal Bank's
deposits up to the maximum extent permitted by law. Ocwen Federal Bank is also
subject to regulation by the Board of Governors of the Federal Reserve System
and currently is a member of the
1
<PAGE> 10
Federal Home Loan Bank of New York, one of the twelve regional banks which
comprise the FHLB System.
Ocwen Financial's strategy focuses on what it believes to be the current
trend toward the growth in the sale or outsourcing of servicing of nonperforming
and underperforming loans by financial institutions and government agencies,
particularly in the event that credit quality for a product line (such as
subprime mortgage loans) deteriorates. Ocwen Financial's strategy also focuses
on leveraging its technology infrastructure and core expertise to expand its
activities into related business lines both for itself and on a fee basis for
others.
On November 6, 1997, Ocwen Financial acquired AMOS, Inc., a
Connecticut-based company engaged primarily in the development of mortgage loan
servicing software. AMOS' products are Microsoft(R) Windows(R)-based, have
client/server architecture and feature real-time processing, are designed to be
year 2000 compliant, feature a scalable database platform and have strong
workflow capabilities. On January 20, 1998, Ocwen Financial acquired DTS
Communications, Inc., a real estate technology company located in San Diego,
California. DTS has developed technology tools to automate real estate
transactions. DTS has been recognized by Microsoft Corporation for the
Microsoft(R) component-based architecture to facilitate electronic data
interchange. On June 2, 1999, Ocwen Financial acquired substantially all of the
assets of Synergy Software, LLC, a leading developer of commercial and
multifamily loan servicing software located in Nashville, Tennessee. Synergy is
in the final stages of developing its
SynergyOPEN(TM) software, a 32-bit, Microsoft(R) Windows-based commercial and
multifamily mortgage servicing system that employs multi-tier architecture to
allow distributed computing. AMOS, DTS and Synergy are wholly-owned subsidiaries
of Ocwen Technology Xchange, Inc., which is a wholly-owned subsidiary of Ocwen
Financial.
The principal products of Ocwen Technology Xchange are REALTransSM and
OTX(TM) Mortgage Software Suite. REALTransSM is a web-based application that
facilitates the electronic purchase of real estate products and services via the
Internet. Products currently supported include title insurance, appraisals,
escrow, field services, inspections, warranty, broker price opinions, and real
property data. This application allows users remote access to send, receive, and
track information from any location. The user is able to track the status of
orders, and send and receive messages, as well as documents. In addition, the
REALTransSM application includes several forms that can be completed online,
thereby facilitating the sending of actual data, not just images of documents.
REALTransSM provides data integrity because all data is backed up and stored at
a secure off-site facility. Ocwen Financial is making its advanced loan
resolution technology, the OTX(TM) Mortgage Software Suite, available to third
parties through the marketing of software licenses. Ocwen Technology Xchange
also provides consulting services related to its software and Internet products.
On May 5, 1998, Ocwen Financial, through a wholly-owned subsidiary,
acquired 1,473,733 partnership units of Ocwen Partnership. This purchase was in
addition to the 160,000 units owned at December 31, 1997, and the 175,000 units
acquired on February 17, 1998, for which the subsidiary of Ocwen Financial
exchanged shares of OAC common stock, increasing the total number of units owned
by such subsidiary to 1,808,733 or 8.7% of the total partnership units
outstanding at December 31, 1998. OAC is managed by Ocwen Capital Corporation, a
wholly-owned subsidiary of Ocwen Financial formed in 1997. On July 31, 1999,
Ocwen Financial owned 1,540,000 or 8.1% of the outstanding common stock of OAC.
OCWEN ACQUISITION COMPANY
1675 Palm Beach Lakes Boulevard
West Palm Beach, Florida 33401
(561) 682-8000
Ocwen Acquisition Company is a company formed by Ocwen Financial on July
21, 1999 solely for use in the merger.
2
<PAGE> 11
THE MERGER
WHAT OAC SHAREHOLDERS WILL RECEIVE IN THE MERGER (PAGE 38)
If the merger agreement is approved and the merger is consummated, each OAC
shareholder (other than Ocwen Financial and its wholly-owned subsidiaries) will
receive, for each share of OAC common stock owned immediately prior to the
merger, 0.71 shares of Ocwen Financial common stock. OAC shareholders will
receive cash instead of any fractional shares of Ocwen Financial common stock.
REASONS FOR THE MERGER (PAGES 26 AND 32)
The Ocwen Financial Board of Directors unanimously approved the merger
agreement, the merger and the issuance of Ocwen Financial common stock in the
merger. The Ocwen Financial Board believes that the merger and the share
issuance are in the best interests of Ocwen Financial and its shareholders. In
reaching its decision, the Ocwen Financial Board considered a number of factors,
including the following:
- - the familiarity of Ocwen Financial, as the parent entity of the manager of
OAC, with OAC's assets and the Ocwen Financial Board's belief that this
familiarity, together with the larger equity base, greater liquidity and
access to funding that Ocwen Financial has compared to OAC, would facilitate
Ocwen Financial's repositioning of OAC's assets;
- - the results of operations, financial condition, competitive position and
prospects of OAC and Ocwen Financial as separate and combined entities;
- - presentations by Morgan Stanley & Co. Incorporated, discussions with Morgan
Stanley and its opinion that, as of July 25, 1999, based upon and subject to
the conditions set forth in the opinion, the exchange ratio pursuant to the
merger agreement is fair, from a financial point of view, to Ocwen Financial;
- - the Ocwen Financial Board's belief that the merger was the most effective way
to maximize the return on Ocwen Financial's investment in OAC, which
represents 8.1% of the outstanding OAC common stock and an 8.7% limited
partnership interest in Ocwen Partnership;
- - that the merger is not expected to trigger an obligation of OAC to offer to
purchase OAC's outstanding publicly traded debt;
- - the significant liquidity issues facing OAC, due to restrictive covenants in
its debt securities and the requirement to pay a dividend estimated in the
amount of $0.82 per share in order to maintain OAC's status as a REIT for
1998, and the difficulty of repositioning OAC's assets due to these liquidity
restrictions and OAC's size;
- - the trading prices and volumes (as well as prospects for future growth in
value) of OAC and Ocwen Financial common stock, including the poor market
performance of REIT equity securities in the last twelve months, which would
make the prospects for liquidating Ocwen Financial's investment in OAC
unlikely;
- - the Ocwen Financial Board's belief that the merger would provide OAC's other
shareholders with the opportunity to own an equity interest in Ocwen
Financial, a larger, diversified financial services company; and
- - the Ocwen Financial Board's belief that the merger would reduce certain
operating expenses of managing OAC's business and assets.
To review Ocwen Financial's reasons for the merger in greater detail, see
"The Merger -- Ocwen Financial's Reasons for the Merger; Recommendation of the
Ocwen Financial Board of Directors" starting on page 26.
The OAC Board of Directors unanimously approved the plan of merger and the
merger agreement and recommends that OAC shareholders vote to approve the plan
of merger and the merger agreement. The OAC Board believes that the merger
agreement and the merger are in the best interests of OAC and its shareholders.
In reaching its decision, the OAC
3
<PAGE> 12
Board considered a number of factors, including
the following:
- - OAC's substantial losses on its investments in mortgage-related securities
during 1998 and the first and second quarters of 1999, which losses were
attributed to increased prepayment speeds on underlying mortgage loans,
widening spreads on mortgage-related securities and declining market liquidity
for mortgage-related securities. This decreased liquidity and created a
situation in which OAC had limited amounts of cash to pay dividends to
maintain its REIT status, acquire additional assets, fund additional loans,
meet margin requirements or obtain new financing lines and as a result of
which OAC was in danger of violating certain minimum net worth covenant
restrictions with its financing sources, which ultimately could result in
certain financing lines being required to be paid in full prior to maturity;
- - the current and prospective economic and competitive environment facing OAC's
industry generally and OAC in particular;
- - the terms of the merger agreement and the merger, including the exchange
ratio, noting that it reflected a 19% premium for the holders of OAC common
stock based on the closing prices of Ocwen Financial common stock and OAC
common stock on July 23, 1999, the last trading day prior to the approval by
the OAC Board of the merger and a 38% premium based on the closing prices of
OAC Common Stock and Ocwen Financial Common Stock on April 15, 1999, the day
prior to the public announcement of Ocwen Financial's initial proposal;
- - the OAC Board's belief that, based on the exchange ratio and estimated
earnings for OAC and Ocwen Financial, the merger would be accretive to OAC's
shareholders based on net income received per share of OAC common stock
exchanged into 0.71 shares of Ocwen Financial common stock;
- - the process conducted by the Special Committee of the OAC Board and
PaineWebber Incorporated, its financial advisor, in exploring and determining
the potential value which could be realized by OAC's shareholders in a
business combination (including the contacts between OAC and its financial
advisor and certain third parties determined to be the most likely companies
to be both interested in and financially and otherwise capable of engaging in
a business combination transaction with OAC) relative to the prospects of OAC
continuing to operate on an independent basis (see "The Merger -- Background
of the Merger" starting on page 22);
- - the review by the OAC Board of alternatives to the merger for enhancing
shareholder value, the range of possible values to OAC's shareholders
obtainable through implementation of such alternatives, and the timing and
likelihood of actually achieving such value, and the OAC Board's belief, based
upon such review, that there existed significant uncertainty as to whether
such alternatives would result in greater value for OAC's shareholders than
the value to be realized in the merger;
- - the recommendation of the Special Committee of the OAC Board, which considered
the same factors described considered by the OAC Board as a whole and the
opinion, analyses and presentations of PaineWebber to the Special Committee to
the effect that, as of the date of the opinion and based upon and subject to
certain matters stated in the opinion, the merger consideration is fair, from
a financial point of view, to OAC's shareholders (other than Ocwen Financial);
and
- - the following additional factors:
- the reduction in voting power of OAC's shareholders after the merger,
- the possibility that the anticipated benefits of the merger might not be
fully realized,
- that the merger will expose OAC's shareholders to the benefits and risks
associated with the operations of Ocwen Financial,
4
<PAGE> 13
- the significant transaction costs involved in connection with
consummating the merger, and
- the potential obligation of OAC to pay a termination fee, under certain
circumstances, if the merger is not consummated.
To review OAC's reasons for the merger in greater detail, see "The
Merger -- Reasons for the Merger; Recommendation of the OAC Board of Directors"
starting on page 32.
RISK FACTORS (PAGE 17)
Shareholders of Ocwen Financial and OAC should consider, in addition to all
the other information in this Joint Proxy Statement/ Prospectus, the specific
risk factors associated with the merger discussed in the section entitled "Risk
Factors." These risk factors include: a fixed exchange ratio, the absence of a
right to terminate the merger agreement in the event of a material adverse
change in the business of the other party, uncertainty in the amount of one-
time merger-related costs and OAC's ability to pay the dividend required for it
to retain its REIT status for 1998. See "Risk Factors" and "The Merger
Agreement -- Interim Financing of OAC's Operations."
REGULATORY APPROVALS (PAGE 52)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 prohibits OAC and
Ocwen Financial from completing the merger until OAC and Ocwen Financial have
furnished certain information and materials to the Antitrust Division of the
Department of Justice and the Federal Trade Commission and the required waiting
period has ended. The waiting period may be extended by requests for additional
information. Ocwen Financial and OAC each filed the required notification and
report forms with the FTC and the Antitrust Division on , 1999.
CONDITIONS TO THE MERGER (PAGE 48)
Ocwen Financial and OAC will not complete the merger unless a number of
conditions are satisfied or waived by them. These include the following:
- - approval of the proposals relating to the merger presented at the Ocwen
Financial shareholder meeting and the OAC shareholder meeting;
- - approval for listing on the New York Stock Exchange of the Ocwen Financial
common stock issuable in the merger;
- - no order or injunction existing that would prevent the consummation of the
merger;
- - all material regulatory approvals and consents having been obtained;
- - applicable representations and warranties of each of Ocwen Financial and OAC
contained in the merger agreement being true and correct in all material
respects at the closing;
- - each of Ocwen Financial and OAC having performed in all material respects each
of its obligations under the merger agreement;
- - certain events involving bankruptcy with respect to Ocwen Financial not having
occurred; and
- - subject to certain exceptions, the Board of Directors of OAC having declared,
with a record date at least fourteen days prior to the merger, the dividend
required for OAC to maintain its status as a REIT for 1998.
The merger is expected to occur, and the OAC common stock to be converted
into Ocwen Financial common stock, no later than two business days after Ocwen
Financial and OAC satisfy or waive all the conditions specified in the merger
agreement.
TERMINATION OF THE MERGER AGREEMENT
(PAGE 50)
OAC and Ocwen Financial can agree at any time to terminate the merger
agreement without completing the merger, and the merger
5
<PAGE> 14
agreement may be terminated in the following
circumstances:
- - if the merger is not completed by December 31, 1999;
- - if either Ocwen Financial or OAC breaches its representations, warranties,
covenants or agreements and the breach cannot be cured within 30 days,
provided such breach would be reasonably likely to result in a material
adverse effect;
- - if an order enjoining the merger has become final and nonappealable;
- - if the average of the closing prices of Ocwen Financial common stock for the
ten trading days ending on the tenth day prior to the closing date of the
merger is less than $6.80, OAC may terminate the merger agreement. However,
Ocwen Financial may postpone the closing for fifteen trading days, during the
first ten of which a new average closing price will be determined, and if such
average closing price is more than $6.80, the merger agreement will not
terminate, but if the average closing price is $6.80 or less, Ocwen Financial
has the option to increase the exchange ratio in the merger pursuant to a
formula specified in the merger agreement;
- - if the approval of the OAC shareholders is not obtained at the OAC meeting;
and
- - if the Board of Directors of OAC has withdrawn or modified its recommendation
of the merger in a manner adverse to Ocwen Financial.
TERMINATION FEE (PAGE 51)
The merger agreement requires OAC to pay Ocwen Financial a termination fee
of $3 million under certain circumstances in connection with the termination of
the merger agreement. The termination fee may discourage persons from making a
competing offer for OAC common stock.
NO SOLICITATION OF COMPETING TRANSACTIONS (PAGE 47)
The merger agreement restricts OAC's ability to entertain or encourage
alternative acquisition transactions (other than participating in discussions
and negotiations with persons making unsolicited requests for information). OAC
must promptly notify Ocwen Financial if it receives offers or proposals for any
such alternative transactions.
DISSENTERS' RIGHTS (PAGE 43)
OAC shareholders have no dissenters' rights in connection with the merger.
CERTAIN LITIGATION (PAGE 42)
On April 20, 1999, a complaint was filed on behalf of a putative class of
public shareholders of OAC in the Circuit Court of the Fifteenth Judicial
Circuit, Palm Beach County, Florida against Ocwen Financial and OAC and certain
directors of Ocwen Financial and OAC. On April 23, 1999, a complaint was filed
on behalf of putative classes of public shareholders of OAC in the Circuit Court
of the Fifteenth Judicial Circuit, Palm Beach County, Florida against OAC and
certain directors of OAC. The plaintiffs in both complaints seek to enjoin the
consummation of the merger. Alternatively, in the event the merger is
consummated, the plaintiffs seek damages for alleged breaches of common law
fiduciary duties. See "THE MERGER -- Certain Litigation."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 41)
A shareholder of OAC generally will recognize gain or loss for federal
income tax purposes in the merger in an amount equal to the difference between
(a) the fair market value of the shares of Ocwen Financial common stock and any
cash in lieu of a fractional share received in the merger and (b) the adjusted
tax basis in such shareholder's OAC common stock.
YOU SHOULD CONSULT YOUR TAX ADVISOR TO UNDERSTAND FULLY THE TAX
CONSEQUENCES OF THE MERGER TO YOU. SEE "THE MERGER -- MATERIAL FEDERAL INCOME
TAX CONSEQUENCES." (PAGE 42)
6
<PAGE> 15
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 40)
We have made forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, in this document and in documents to which we
have referred you. These forward-looking statements, which are based on various
assumptions (some of which are beyond our control), may be identified by
reference to a future period 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. You will find many of these statements in the
following sections:
- - "The Merger -- Background of the Merger" (page 22)
- - "The Merger -- Ocwen Financial's Reasons for the Merger; Recommendation of the
Ocwen Financial Board of Directors" (page 26)
- - "The Merger -- OAC's Reasons for the Merger; Recommendation of the OAC Board
of Directors" (page 32)
- - "The Merger -- Opinion of Morgan Stanley" (page 27)
- - "The Merger -- Opinion of PaineWebber" (page 33)
Although we believe the anticipated results or other expectations reflected
in such forward-looking statements are based on reasonable assumptions, we can
give no assurance that those results or expectations will be attained. Actual
results could differ materially from those indicated in such statements due to
risks, uncertainties and changes with respect to a variety of factors,
including, but not limited to, those described in exhibits to Ocwen Financial's
and OAC's most recent Annual Reports on Form 10-K.
OCWEN FINANCIAL MEETING (PAGE 20)
At the Ocwen Financial meeting, the holders of Ocwen Financial common stock
will be asked to approve the issuance of shares of Ocwen Financial common stock
in the merger. The close of business on [Month] [Date], 1999 is the record date
for determining if an Ocwen Financial shareholder is entitled to vote at the
special meeting. At that date, there were [60,800,357] shares of Ocwen Financial
common stock outstanding. Each share is entitled to one vote at the Ocwen
Financial meeting. The affirmative vote of a majority of the votes cast by Ocwen
Financial shareholders is required to approve such issuance of shares, provided
that the total votes cast on the proposal represent over 50% of all securities
of Ocwen Financial entitled to vote on such proposal. On August 6, 1999,
directors and executive officers of Ocwen Financial owned and had the right to
vote 32,202,127 shares (approximately 53.0%) of the shares of Ocwen Financial
common stock then outstanding.
OAC MEETING (PAGE 21)
At the OAC meeting, the holders of OAC common stock will be asked to
approve the merger agreement. The close of business on [Month] [Date], 1999 is
the record date for determining if an OAC shareholder is entitled to vote at the
OAC meeting. At that date, there were 18,965,000 shares of OAC common stock
outstanding. Each share is entitled to one vote at the OAC meeting. The vote of
more than two-thirds of the outstanding shares is required to approve the merger
agreement. On August 6, 1999, a wholly-owned subsidiary of Ocwen Financial and
directors and executive officers of OAC owned and had the right to vote
1,732,000 shares (approximately 9.1%) of the shares of OAC common stock then
outstanding.
7
<PAGE> 16
SUMMARY SELECTED FINANCIAL DATA
The following tables present (i) summary selected financial data for each
of Ocwen Financial and OAC on an historical basis and (ii) summary selected
unaudited pro forma financial data reflecting the consummation of the merger.
The selected unaudited pro forma financial data has been prepared giving effect
to the merger using the purchase method of accounting. For a description of the
effect of purchase accounting on the merger and the historical financial
statements of Ocwen Financial, see "The Merger -- Anticipated Accounting
Treatment."
The summary selected unaudited pro forma financial data reflects the merger
based upon preliminary purchase accounting adjustments. Actual adjustments,
which may include adjustments to additional assets, liabilities and other items,
will be made on the basis of appraisals and evaluations as of the effective time
of the merger and, therefore, are likely to differ from those reflected in the
summary unaudited pro forma selected financial data. Ocwen Financial believes
that the actual adjustments, in the aggregate, will not be materially different
from those herein.
The summary unaudited pro forma selected financial data does not purport to
be indicative of the results of future operations.
The summary selected financial data for Ocwen Financial and OAC is based on
and derived from, and should be read in conjunction with, the historical
consolidated financial statements and the related notes thereto of Ocwen
Financial and OAC, which are incorporated herein by reference. The information
set forth in the summary selected unaudited pro forma financial data should be
read in connection with the unaudited pro forma condensed financial information
and notes thereto appearing elsewhere herein. Results of each of Ocwen Financial
and OAC for the six months ended June 30, 1999 are not necessarily indicative of
results expected for the entire year. In the opinion of Ocwen Financial and OAC,
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair statement of results of interim periods have been included. See "Where
You Can Find More Information."
8
<PAGE> 17
SELECTED HISTORICAL FINANCIAL DATA OF OCWEN FINANCIAL
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ----------------------------------------------------------
1999 1998 1998(1) 1997 1996 1995(2) 1994(2)
---------- ---------- ---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Interest income.......................... $ 129,081 $ 152,915 $ 307,694 $ 272,531 $ 193,894 $137,275 $131,458
Interest expense......................... 76,636 93,432 184,893 156,289 116,160 84,060 62,598
---------- ---------- ---------- ---------- ---------- -------- --------
Net interest income before provision
for loan losses...................... 52,445 59,483 122,801 116,242 77,734 53,215 68,860
Provision for loan losses................ 4,362 11,929 18,509 32,218 22,450 1,082 --
---------- ---------- ---------- ---------- ---------- -------- --------
Net interest income after provision for
loan losses.......................... 48,083 47,554 104,292 84,024 55,284 52,133 68,860
---------- ---------- ---------- ---------- ---------- -------- --------
Gain (loss) on interest-earning assets,
net.................................... 14,275 (23,261) (1,594) 82,212 21,682 6,916 5,727
Servicing fees and other charges......... 37,180 23,696 59,180 25,962 4,682 2,870 4,786
Gain on sale of branch offices........... -- -- -- -- -- 5,430 62,600
Gain on sale of real estate owned, net... 3,306 11,547 14,033 7,277 3,827 9,540 5,995
Other non-interest income................ 15,625 15,648 39,696 8,498 7,112 6,385 2,467
---------- ---------- ---------- ---------- ---------- -------- --------
Total non-interest income.............. 70,386 27,630 111,315 123,949 37,303 31,141 81,575
---------- ---------- ---------- ---------- ---------- -------- --------
Compensation and employee benefits....... 51,540 51,247 115,556 77,573 39,043 24,797 42,776
Other non-interest expense............... 48,368 39,013 110,838 49,301 30,563 20,776 26,082
---------- ---------- ---------- ---------- ---------- -------- --------
Total non-interest expense............. 99,908 90,260 226,394 126,874 69,606 45,573 68,858
---------- ---------- ---------- ---------- ---------- -------- --------
Distributions on Capital Securities...... 6,797 6,797 13,594 5,249 -- -- --
Equity in earnings (losses) of investment
in unconsolidated entities(3).......... (4,713) 544 (7,985) 23,688 38,320 -- --
Income tax benefit (expense)............. (1,396) 5,810 30,699 (21,309) (11,159) (4,562) (29,724)
Minority interest in net (income) loss of
consolidated subsidiary................ 128 (35) 467 703 -- -- --
---------- ---------- ---------- ---------- ---------- -------- --------
Income (loss) from continuing
operations............................. 5,783 (15,554) (1,200) 78,932 50,142 33,139 51,853
Discontinued operations(4)............... -- -- -- -- -- (7,672) (4,514)
---------- ---------- ---------- ---------- ---------- -------- --------
Net income (loss)........................ $ 5,783 $ (15,554) $ (1,200) $ 78,932 $ 50,142 $ 25,467 $ 47,339
========== ========== ========== ========== ========== ======== ========
Income (loss) from operations per
share(4):
Basic.................................. $ 0.10 $ (0.26) $ (0.02) $ 1.40 $ 0.99 $ 0.64 $ 0.81
Diluted................................ $ 0.10 $ (0.26) $ (0.02) $ 1.39 $ 0.94 $ 0.60 $ 0.76
Net (loss) income per share:
Basic.................................. $ 0.10 $ (0.26) $ (0.02) $ 1.40 $ 0.99 $ 0.49 $ 0.74
Diluted................................ $ 0.10 $ (0.26) $ (0.02) $ 1.39 $ 0.94 $ 0.46 $ 0.70
Weighted average shares outstanding:
Basic.................................. 60,765,485 60,682,432 60,736,950 56,185,956 50,556,572 51,712,415 --
Diluted................................ 60,807,036 60,682,432 60,736,950 56,836,484 53,378,882 55,538,160 --
</TABLE>
9
<PAGE> 18
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
----------------------- --------------------------------------------------------------
1999 1998 1998(1) 1997 1996 1995(1) 1994(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........... $3,012,267 $3,505,579 $3,308,079 $3,069,165 $2,483,685 $1,973,590 $1,226,403
Securities available
for sale............. 733,271 589,283 593,347 476,796 354,005 337,480 187,717
Loans available for
sale(5).............. 132,425 338,359 177,847 177,041 126,366 251,790 102,293
Investment
securities........... 10,825 87,378 10,825 10,825 8,901 18,665 17,011
Mortgage-related
securities held for
investment, net...... -- -- -- -- -- -- 91,917
Loan portfolio,
net(5)............... 133,678 280,951 230,312 266,299 402,582 295,605 57,045
Discount loan
portfolio, net(5).... 1,008,764 1,421,506 1,026,511 1,434,176 1,060,953 669,771 529,460
Investment in
low-income housing
tax credit
interests............ 180,566 132,983 144,164 128,614 93,309 81,362 49,442
Real estate owned,
net(6)............... 183,162 151,607 201,551 167,265 103,704 166,556 96,667
Investment in
unconsolidated
entities............. 79,958 -- 86,893 3,526 67,909 -- --
Excess of purchase
price over net assets
acquired, net........ 17,030 36,372 12,706 15,560 -- -- --
Deposits............... 1,874,553 2,144,377 2,175,016 1,982,822 1,919,742 1,501,646 1,023,268
Borrowings and other
interest-bearing
obligations.......... 507,016 680,896 476,336 453,529 300,518 272,214 25,510
Capital Securities..... 125,000 125,000 125,000 125,000 -- -- --
Shareholders'
equity(7)............ 435,987 427,299 436,376 419,692 203,596 139,547 153,383
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1999 1998 1998(1) 1997 1996 1995(1) 1994(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Average assets(8)......... $3,623,476 $3,586,985 $2,835,514 $2,013,283 $1,521,368 $1,714,953
Average equity............ 430,544 427,512 290,030 161,332 121,291 119,500
Return on average
assets(8)(9):
Income (loss) from
continuing
operations............ (0.86)% (0.03)% 2.78% 2.49% 2.18% 3.02%
Net income (loss)....... (0.86) (0.03) 2.78 2.49 1.67 2.76
Return on average
equity(9):
Income (loss) from
continuing
operations............ (7.23) (0.28) 27.22 31.08 27.32 43.39
Net income (loss)....... (7.23) (0.28) 27.22 31.08 21.00 39.61
Average equity to average
assets.................. 11.88 11.92 10.23 8.01 7.97 6.97
Net interest spread....... 2.91 3.98 4.81 5.46 5.25 4.86
Net interest margin....... 3.40 4.32 4.91 4.84 4.54 4.75
Efficiency ratio(10)...... 102.98 100.12 48.08 45.39 54.00 45.77
Allowance for loan losses
to total loans(11)...... 1.45 2.07 1.39 0.87 0.65 1.84
Bank regulatory capital
ratios at end of period:
Tangible................ 9.64 9.07 10.66 9.33 6.52 11.28
Core (Leverage)......... 9.64 9.07 10.66 9.33 6.52 11.28
Risk-based.............. 16.11 17.26 14.83 12.85 11.80 14.74
</TABLE>
10
<PAGE> 19
NOTES TO SELECTED CONSOLIDATED FINANCIAL INFORMATION
(1) Financial results for 1998 reflect pre-tax impairment charges of $152.8
million, of which $86.1 million related to Ocwen Financial's portfolio of
AAA-rated agency interest-only securities ("IOs"), $43.6 million related to
residual and subordinate securities available for sale, $13.0 million was
for the anticipated curtailment of its domestic subprime lending
operations, $8.2 million was for losses on its equity investments in OAC
and Ocwen Partnership, and $1.9 million related to an impaired commercial
real estate investment. Exclusive of these impairment charges and related
income taxes, net income for 1998 would have been $95.9 million.
(2) Financial data at December 31, 1995 and 1994, reflects Ocwen Financial's
sale of two and 23 branch offices, respectively, which resulted in the
transfer of deposits of $111.7 million and $909.3 million, respectively,
and resulted in a gain on sale of $5.4 million and $62.6 million during
1995 and 1994, respectively. Operations data for 1995 and 1994 reflect the
gains from these transactions. Exclusive of these gains and related income
taxes and profit sharing expense, Ocwen Financial's income from continuing
operations would have been $30.3 million and $24.0 million during 1995 and
1994, respectively.
(3) Results for 1998 related primarily to Ocwen Financial's 16.83% combined
investment in OAC and Ocwen Partnership, and its 36.07% investment in
Norland Capital Group plc, doing business as Kensington Mortgage Company, a
leading originator of non-conforming residential mortgages in the United
Kingdom. Results for 1997 and 1996 related to Ocwen Financial's investment
in BCBF, L.L.C., a 50% owned joint venture formed between Ocwen Financial
and BlackRock Capital Finance to acquire loans from the Department of
Housing and Urban Development in April 1996.
(4) In September 1995, Ocwen Financial announced its decision to dispose of its
automated banking division, which was substantially complete at December
31, 1995.
(5) The discount loan portfolio consists of mortgage loans purchased at a
discount to the unpaid debt, most of which were nonperforming or
subperforming at the date of acquisition. The loan portfolio and loans
available for sale consist of other loans which were originated or
purchased by Ocwen Financial for investment or for potential sale,
respectively. Data related to discount loans does not include discount
loans held by BCBF, L.L.C.
(6) Real estate owned consists of properties acquired by foreclosure or by
deed-in-lieu thereof and is primarily attributable to Ocwen Financial's
discount loan acquisition and resolution business.
(7) Reflects Ocwen Financial's repurchase of 17,630,120 shares of its common
stock during 1995 for an aggregate of $42.0 million.
(8) Includes Ocwen Financial's pro rata share of the average assets held by
BCBF, L.L.C. during 1997 and 1996.
(9) Exclusive of the after-tax impairment charges of $97.1 million recorded in
1998, the return on average assets would have been 2.64%, and the return on
average equity would have been 22.16%. Exclusive of the $7.1 million
one-time assessment to recapitalize the Savings Association Insurance Fund
in 1996 and of the gains from the sales of branch offices in 1995 and 1994
and related income taxes, (i) return on average assets on income from
operations would have been 2.54%, 2.00% and 1.40% during 1996, 1995 and
1994, respectively, and (ii) return on average equity on income from
operations would have been 33.35%, 25.02% and 20.06% during 1996, 1995 and
1994, respectively.
(10) The efficiency ratio represents non-interest expense divided by the sum of
net interest income before provision for loan losses, non-interest income
and equity in earnings of investment in unconsolidated entities. Exclusive
of the impairment charges of $152.8 million recorded in 1998, the
efficiency ratio would have been 58.05%. Exclusive of the Savings
Association Insurance Fund assessment in 1996 and gains from the sales of
branch offices in 1995 and 1994, the efficiency ratio would have been
41.33%, 56.34% and 64.14% during 1996, 1995 and 1994, respectively.
(11) Nonperforming loans and total loans do not include loans in Ocwen
Financial's discount loan portfolio or loans available for sale.
11
<PAGE> 20
SELECTED HISTORICAL FINANCIAL DATA OF OAC
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD MAY 14
JUNE 30, YEAR ENDED THROUGH
------------------------- DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997
----------- ----------- ------------ -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OPERATIONS DATA:
Interest income........................................... $ 37,256 $ 22,799 $ 62,958 $ 13,462
Interest expense.......................................... 19,036 6,241 27,528 --
----------- ----------- ----------- -----------
Net interest income before provision for loan losses.... 18,220 16,558 35,430 13,462
Provision for loan losses................................. 479 206 642 --
----------- ----------- ----------- -----------
Net interest income after provision for loan losses..... 17,741 16,352 34,788 13,462
(Loss) on interest earning assets......................... (31,362) (17,077) (86,267) --
Real estate (loss) income, net............................ (494) 548 1,140 1,494
Non-interest expenses..................................... 6,782 3,360 13,317 3,155
Extraordinary gain on repurchase of debt.................. -- -- 615 --
Minority interest in net loss (income) of consolidated
subsidiary.............................................. 1,946 (321) 4,855 (9)
----------- ----------- ----------- -----------
Net (loss) income....................................... $ (18,951) $ (3,858) $ (58,186) $ 11,792
=========== =========== =========== ===========
COMMON STOCK DATA:
Earning (loss) per share from operations before
extraordinary item:
Basic................................................... $ (1.00) $ (0.20) $ (3.10) $ 0.62
Diluted................................................. $ (1.00) $ (0.20) $ (3.10) $ 0.60
Net earnings (loss) per share:
Basic................................................... $ (1.00) $ (0.20) $ (3.07) $ 0.62
Diluted................................................. $ (1.00) $ (0.20) $ (3.07) $ 0.60
Weighted average common shares outstanding:
Basic................................................... 18,965,000 18,965,000 18,965,000 19,108,789
Diluted................................................. 18,965,000 18,965,000 18,965,000 19,564,770
Book value per share...................................... $ 10.97 $ 14.73 $ 11.66 $ 14.30
Cash dividends per share.................................. $ -- $ .74 $ 1.18 $ 0.73
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
------------------------- ----------------------------
1999 1998 1998 1997
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.............................................. $ 778,609 $ 822,050 $ 888,326 $ 288,003
Cash and cash equivalents................................. 32,373 13,101 53,365 48,677
Securities available for sale............................. 284,488 415,933 351,154 146,027
Commercial and multi-family loans, net.................... 79,478 44,866 65,283 9,481
Residential loans, net.................................... 6,064 138,669 8,058 6,350
Discount loan portfolio, net.............................. 5,618 8,512 5,618 26,979
Investment in real estate, net............................ 211,368 176,925 208,059 45,430
Minority interest......................................... 21,968 29,886 23,914 2,942
Securities sold under agreements to repurchase............ 73,847 223,820 138,612 --
Obligations outstanding under line of credit.............. 41,015 154,179 34,472 --
Obligations outstanding under line of credit -- secured by
real estate............................................. 143,756 115,236 142,557 --
11.5% Redeemable Notes due 2005........................... 143,000 -- 143,000 --
Shareholders' equity...................................... 208,008 273,681 221,176 271,258
SELECTED OTHER DATA AND RATIOS:
Average assets............................................ $ $ 521,025 $ 708,190 $ 289,215
Average equity............................................ 281,561 268,966 284,260
Return on average assets.................................. % (1.48)% (8.22)% 6.56%
Return on average equity.................................. % (2.74)% (21.63)% 6.67%
Net interest spread....................................... % 2.77% 3.21% 8.56%
Net interest margin....................................... % 6.76% 6.49% 8.56%
</TABLE>
12
<PAGE> 21
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF OCWEN FINANCIAL
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
---------- -----------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
OPERATIONS DATA:
Interest income............................................. $166,276 $370,531
Interest expense............................................ 95,611 212,300
-------- --------
Net interest income before provision for loan losses...... 70,665 158,231
Provision for loan losses................................... 4,841 19,151
-------- --------
Net interest income after provision for loan losses....... 65,824 139,080
-------- --------
Servicing fees and other charges............................ 35,828 56,780
(Loss) on interest earning assets........................... (17,087) (87,861)
Gain on sale of real estate owned, net...................... 3,306 14,033
Other non-interest income................................... 12,570 33,804
-------- --------
Total non-interest income................................. 34,617 16,756
-------- --------
Compensation and employee benefits.......................... 51,540 115,556
Other non-interest expense.................................. 46,358 104,965
-------- --------
Total non-interest expense................................ 97,898 220,521
Distributions on Capital Securities......................... 6,797 13,594
Equity in (losses) earnings of investment in unconsolidated
entities.................................................. (1,227) 716
Income tax benefit (expense)................................ (2,118) 15,133
Minority interest in net loss of consolidated subsidiary.... 128 467
-------- --------
Net (loss) income from operations before extraordinary
item...................................................... $ (7,471) $(61,963)
======== ========
Net (loss) income from operations before extraordinary item
per share:
Basic..................................................... $ (0.10) $ (0.85)
Diluted................................................... (0.10) (0.85)
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1999
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Total assets................................................ $3,708,498
Securities available for sale............................... 1,017,759
Loans available for sale.................................... 132,425
Investment securities....................................... 10,825
Loan portfolio.............................................. 218,386
Discount loan portfolio, net................................ 1,014,510
Match-funded residential loans.............................. 125,823
Investment in low-income housing tax credit interests....... 180,566
Real estate owned, net...................................... 183,162
Investment in real estate................................... 187,847
Investment in unconsolidated entities....................... 41,099
Excess of purchase price over net assets acquired, net...... 17,030
Deposits.................................................... 1,872,139
Borrowings and other interest-bearing obligations........... 890,240
Bonds -- match funded loan agreements....................... 124,648
Negative goodwill........................................... 48,790
Capital Securities.......................................... 125,000
Shareholders' equity........................................ 537,796
</TABLE>
13
<PAGE> 22
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth (i) selected comparative per share data for
each of Ocwen Financial and OAC on an historical basis and (ii) selected
unaudited pro forma comparative per share data reflecting the consummation of
the merger. The unaudited pro forma comparative per share data assumes the
merger had been consummated on January 1, 1998. The unaudited pro forma data has
been prepared giving effect to the merger as a purchase. For a description of
the effect of purchase accounting on the merger and the historical financial
statements of Ocwen Financial, see "The Merger -- Anticipated Accounting
Treatment." The OAC pro forma equivalent amounts are presented with respect to
each set of pro forma information, and have been calculated by multiplying the
corresponding pro forma combined amounts per share of Ocwen Financial common
stock by the exchange ratio of 0.71.
The unaudited pro forma comparative per share data reflects the merger
based upon preliminary purchase accounting adjustments. Actual adjustments,
which may include adjustments to additional assets, liabilities and other items,
will be made on the basis of appraisals and evaluations as of the effective time
of the merger and, therefore, are likely to differ from those reflected in the
unaudited pro forma comparative per share data. Ocwen Financial does not believe
the actual adjustments will be materially different from those herein.
The unaudited pro forma comparative per share data does not purport to be
indicative of the results of future operations.
The comparative per share data presented herein is based on and derived
from, and should be read in conjunction with, the historical consolidated
financial statements and the related notes thereto of Ocwen Financial and the
historical consolidated financial statements and the related notes thereto of
OAC, both of which are incorporated by reference herein. See "Where You Can Find
More Information" and "Ocwen Financial Unaudited Pro Forma Condensed Financial
Information." Results of each of Ocwen Financial and OAC for the six months
ended June 30, 1999 are not necessarily indicative of results expected for the
entire year, nor are pro forma amounts necessarily indicative of results of
operations or the combined financial position that would have resulted had the
merger been consummated on January 1, 1998. In the opinion of Ocwen Financial
and OAC, all adjustments, consisting of only normal recurring adjustments
necessary for a fair statement of results of interim periods, have been
included.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
---------------- -----------------
<S> <C> <C>
Earnings (loss) per common share from operations before
extraordinary item (basic and diluted)
Ocwen Financial
Historical.............................................. $ 0.10 $(0.02)
Pro forma combined...................................... (0.10) (0.85)
OAC
Historical.............................................. (1.00) (3.10)
Pro forma equivalent(1)................................. (0.07) (0.60)
Cash dividends declared per common share(2)
Ocwen Financial
Historical.............................................. -- --
Pro forma combined...................................... -- --
OAC
Historical(3)........................................... -- 1.18
Pro forma equivalent(1)................................. -- --
</TABLE>
14
<PAGE> 23
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
1999 1998
-------------- ------------------
<S> <C> <C>
Shareholders' equity per common share (period end)
Ocwen Financial
Historical........................................ $ 7.19 $ 7.18
Pro forma combined(4)............................. 7.37 --
OAC
Historical........................................ 10.97 11.66
Pro forma equivalent(1)(4)........................ 5.23 --
</TABLE>
- -------------------------
(1) Pro forma equivalent amounts for the merger are calculated by multiplying
the pro forma combined amounts of Ocwen Financial by the exchange ratio of
0.71.
(2) Ocwen Financial did not pay any dividends during the periods presented.
(3) The final 1998 dividend has been deferred by the OAC Board and is expected
to be approximately $0.82 per share. There can be no assurance, however, as
to whether or when that dividend will actually be paid. The OAC Board has
not declared a 1999 dividend.
(4) Not required for December 31, 1998.
COMPARATIVE MARKET PRICE DATA
The following table presents certain historical trading and dividend
declaration information for the OAC common stock and Ocwen Financial common
stock (as adjusted for the two-for-one stock split in November 1997) since the
initial public offering of OAC common stock on May 14, 1997 and the initial
public offering of Ocwen Financial common stock on September 25, 1996. OAC
common stock is traded on the New York Stock Exchange under the symbol "OAC."
Ocwen Financial common stock is traded on the New York Stock Exchange under the
symbol "OCN." OAC common stock was quoted on the Nasdaq Stock Market's National
Market from September 25, 1996 through July 31, 1997, and has been listed on the
New York Stock Exchange since August 1, 1997. There was no established market
for the OAC common stock prior to May 14, 1997 or for Ocwen Financial common
stock prior to September 25, 1996.
<TABLE>
<CAPTION>
OCWEN FINANCIAL
OAC COMMON STOCK COMMON STOCK
--------------------------- ---------------------------
DIVIDENDS DIVIDENDS
HIGH LOW PAID(1) HIGH LOW PAID
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1996
Third Quarter (from September 25).... N/A N/A N/A $10.50 $ 9.50 $--
Fourth Quarter....................... N/A N/A N/A 15.25 10.13 --
1997
First Quarter........................ N/A N/A N/A $17.38 $12.63 $--
Second Quarter....................... $20.13 $17.88 $0.10 16.44 12.75 --
Third Quarter........................ 24.88 19.75 0.24 22.63 15.75 --
Fourth Quarter....................... 24.00 17.50 0.39 28.81 21.00 --
</TABLE>
15
<PAGE> 24
<TABLE>
<CAPTION>
OCWEN FINANCIAL
OAC COMMON STOCK COMMON STOCK
--------------------------- ---------------------------
DIVIDENDS DIVIDENDS
HIGH LOW PAID(1) HIGH LOW PAID
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1998
First Quarter........................ $21.00 $16.75 $0.25 $30.75 $22.25 $--
Second Quarter....................... 18.88 15.88 0.49(2) 28.38 22.31 --
Third Quarter........................ 17.00 6.13 0.44 27.88 8.50 --
Fourth Quarter....................... 6.94 3.13 -- 16.19 5.69 --
1999
First Quarter........................ $ 5.38 $ 3.50 -- $11.63 $ 7.75 $--
Second Quarter....................... 5.69 3.63 -- 9.38 8.19 --
Third Quarter (through August 4,
1999).............................. 5.50 4.63 --(3) 8.75 7.56 --
</TABLE>
- -------------------------
(1) The dividends on OAC common stock have been based primarily on OAC's taxable
income in light of the REIT qualification rules under the Internal Revenue
Code.
(2) Includes June 1998 special dividend of $0.08 per share attributable to OAC's
remaining undistributed 1997 taxable income.
(3) The OAC Board has deferred the declaration and payment of OAC's final 1998
dividend, which is expected to be $0.82 per share. It is a condition to the
merger that, unless payment of the dividend would be prohibited under
Virginia law, the dividend be declared, and that the record date for the
dividend occur at least 14 days prior to the closing of the merger. See
"Risk Factors -- Payment of 1998 REIT Dividend," "The Merger -- Payment of
1998 REIT Dividend" and "The Merger Agreement -- Conditions Precedent to the
Merger."
Ocwen Financial has not declared or paid any cash dividends on the Ocwen
Financial common stock to date and does not anticipate that it will declare or
pay any dividends in the near future.
Set forth below are the last reported sale prices of Ocwen Financial common
stock and OAC common stock on July 23, 1999, the last trading day prior to the
public announcement of the execution of the merger agreement and on
, 1999, the last trading day prior to the date of this Joint Proxy
Statement/Prospectus, as reported on the NYSE Composite Tape, and the equivalent
pro forma sale price of OAC common stock on such dates, as determined by
multiplying the last reported sale price of Ocwen Financial common stock by the
exchange ratio of 0.71. Shareholders are urged to obtain current market
quotations prior to making any decisions with respect to the proposals on which
they will be voting.
<TABLE>
<CAPTION>
JULY 23, ,
1999 1999
-------- ----------
<S> <C> <C>
Ocwen Financial Common Stock................................ $7.75 $
OAC Common Stock............................................ $4.63 $
OAC Equivalent.............................................. $5.50 $
</TABLE>
16
<PAGE> 25
RISK FACTORS
In addition to the other information contained in this Joint Proxy
Statement/ Prospectus, shareholders of each of Ocwen Financial and OAC should
consider the following factors before voting on matters pertaining to the
merger. Further, shareholders of OAC will become shareholders of Ocwen Financial
after the merger and should consider the risks relating to an investment in
Ocwen Financial described in documents to which we have referred you. See "Where
You Can Find More Information."
FIXED EXCHANGE RATIO
The exchange ratio establishing the percentage of a share of Ocwen
Financial common stock into which each share of OAC common stock will be
converted is expressed in the merger agreement as a fixed ratio. Accordingly,
the exchange ratio will not be adjusted in the event of any increase or decrease
in the price of Ocwen Financial common stock or the price of OAC common stock.
The price of Ocwen Financial common stock at the effective time of the merger
may vary from its price at the date of this Joint Proxy Statement/Prospectus and
at the date of the respective shareholder meetings. Such variations may be the
result of changes in the business, operations or prospects of Ocwen Financial or
OAC, market assessments of the likelihood that the merger will be consummated
and the timing thereof, regulatory considerations, general market and economic
conditions and other factors. Because the effective time may occur at a date
later than the shareholder meetings, there can be no assurance that the price of
Ocwen Financial common stock on the date of the shareholder meetings will be
indicative of its price at the effective time. The effective time will occur as
soon as practicable following the shareholder meetings and the satisfaction or
waiver of the other conditions set forth in the merger agreement. Shareholders
of Ocwen Financial and OAC are urged to obtain current market quotations for
Ocwen Financial and OAC common stock. In addition, while OAC has the right to
terminate the merger agreement if the average of the closing prices of Ocwen
Financial common stock for the ten trading days ending on the tenth day prior to
the closing date of the merger is less than $6.80, Ocwen Financial may postpone
the closing for fifteen trading days, during the first ten of which a new
average closing price will be determined. If such average closing price is more
than $6.80, the merger agreement will not terminate, but we cannot assure you
that the market price will be more than $6.80 at the effective time of the
merger. If the average closing price is $6.80 or less, Ocwen Financial has the
option to increase the exchange ratio pursuant to a formula specified in the
merger agreement, but we cannot assure you that it will do so. See "The
Merger -- Merger Consideration."
NO TERMINATION RIGHT FOR MATERIAL ADVERSE CHANGE
Generally, neither Ocwen Financial nor OAC has the right to terminate the
merger agreement, or the right not to close the merger, in the event of a
material adverse change in the business of the other party to the merger. In
addition, some of the representations and warranties speak only as of the date
that the merger agreement was executed. As a result, the closing condition for
each of Ocwen Financial and OAC that the representations and warranties of the
other party in the merger agreement will be true and correct as of the closing
date of the merger as though made on and as of the closing date, except to the
extent the representation or warranty is expressly limited by its terms to
another date, will be satisfied even if certain materially adverse changes
occur. We cannot assure you that there will be no material adverse changes in
the business of Ocwen Financial and OAC.
17
<PAGE> 26
Ocwen Financial shareholders should also be aware that the condition to
Ocwen Financial's obligation to close the merger described above will be deemed
to be satisfied notwithstanding any failure of a representation or warranty of
OAC to be true and correct if the aggregate amount of economic losses that would
reasonably be expected to arise as a result of such failure does not exceed $10
million. Similarly, the condition to OAC's obligation to close the merger
described above will be deemed to be satisfied notwithstanding any failure of a
representation or warranty of Ocwen Financial to be true and correct if the
aggregate amount of economic losses that would reasonably be expected to arise
as a result of such failure does not exceed $20 million.
In addition, in the merger agreement, OAC has made no representation or
warranty with respect to any matter of which Ocwen Financial and any of its
subsidiaries (including Ocwen Capital Corporation, the manager of OAC) has
actual or constructive knowledge at any time up to and including the closing
date of the merger or which results from or arises out of any act or omission of
Ocwen Financial or any of its subsidiaries (including Ocwen Capital Corporation)
at any time up to and including the closing date.
UNCERTAINTY AS TO THE AMOUNT OF ONE-TIME MERGER-RELATED COSTS
In connection with the merger, Ocwen Financial expects to incur costs of
approximately $5 million (net of income taxes). Such costs include investment
banking, accounting, legal and regulatory fees and other costs associated with
the merger. Ocwen Financial cannot assure you that the amount of such costs will
not increase as more accurate estimates become possible. See "Ocwen Financial
Unaudited Pro Forma Condensed Financial Information."
FUTURE SALES AND PRICE OF OCWEN FINANCIAL COMMON STOCK
No prediction can be made as to the effect, if any, that future sales of
Ocwen Financial common stock, or the availability of shares for future sale,
will have on the market price of the Ocwen Financial common stock prevailing
from time to time. Sales of substantial amounts of Ocwen Financial common stock
(including shares issued upon the exercise of stock options or shares issued in
the merger), or the perception that such sales may occur, could adversely affect
prevailing market prices for Ocwen Financial common stock.
POTENTIAL ADVERSE TAX CONSEQUENCES OF OAC'S FAILURE TO QUALIFY AS A REIT AND
OTHER TAX LIABILITIES
CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. OAC believes that it has
been organized and operated so as to qualify as a REIT under Sections 856
through 860 of the Code, commencing with its short taxable year ended December
31, 1997. OAC believes that, assuming it meets the 95% distribution requirement
(described below) for its 1998 taxable year (as to which it cannot assure you),
OAC has been organized and operated in a manner that has enabled it to qualify
and to be taxed as a REIT under the Internal Revenue Code and that its method of
operation will enable it to continue to so qualify for its 1998 taxable year.
However, we cannot assure you that OAC is now or will continue to be organized
and operated in a manner as to so qualify or remain so qualified. If OAC were to
fail to qualify as a REIT for any taxable year or if OAC were to terminate its
REIT status, OAC would be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates.
18
<PAGE> 27
95% DISTRIBUTION REQUIREMENT AND OTHER TAX LIABILITIES. OAC must
distribute annually at least 95% of its net taxable income (excluding any net
capital gains) to avoid corporate income taxation on the earnings that it
distributes. In addition, OAC will be subject to a 4% nondeductible excise tax
on the amount, if any, by which certain distributions paid by it with respect to
any calendar year are less than the sum of (i) 85% of its ordinary income for
that year, (ii) 95% of its capital gain net income for that year and (iii) 100%
of its undistributed taxable income from prior years. OAC has incurred and paid
a nondeductible excise tax for 1998.
PAYMENT OF 1998 REIT DIVIDEND
It is a condition to Ocwen Financial's obligation to close the merger that
the OAC Board shall have declared prior to September 15, 1999 the dividend
necessary for OAC to retain its status as a REIT for 1998 and that the record
date for such dividend be at least fourteen days prior to the merger; provided,
however, that the dividend need not be declared, and the closing of the merger
will not be contingent on the payment of the dividend, if the dividend would not
be permitted under Virginia law. While Ocwen Financial has agreed to provide in
certain circumstances up to $25 million in financing for OAC's operations prior
to the merger, there can be no assurance that the dividend will be declared,
that, if declared, OAC will have sufficient funds to pay the dividend or that
the dividend would not be in a form other than cash. Declaration and payment of
a cash dividend could cause OAC to (i) sell assets in adverse market conditions,
(ii) distribute amounts that represent a return of capital or (iii) distribute
amounts that would otherwise be spent on future acquisitions, unanticipated
capital expenditures or repayment of debt. Gain from the disposition of any
asset held primarily for sale to customers in the ordinary course of business
may be subject to a 100% tax. "The Merger -- Payment of 1998 REIT Dividend" and
See "The Merger Agreement -- Interim Financing of OAC's Operations."
19
<PAGE> 28
THE SHAREHOLDER MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies by the Board of Directors (the "Ocwen Financial
Board") of Ocwen Financial Corporation ("Ocwen Financial") for use at the
special meeting of Ocwen Financial shareholders (the "Ocwen Financial Meeting")
and by the Board of Directors (the "OAC Board") of Ocwen Asset Investment Corp.
("OAC") for use at the special meeting of OAC shareholders (the "OAC Meeting").
This Joint Proxy Statement/ Prospectus, the attached Notices of Shareholders'
Meetings and the enclosed forms of proxy are first being mailed to shareholders
of Ocwen Financial and OAC on or about [Month] [Date], 1999.
THE OCWEN FINANCIAL MEETING
DATE, TIME AND PLACE. The Ocwen Financial Meeting will be held on
, 1999 at 9:00 a.m. (local time) at the first floor offices of
Ocwen Financial, 1675 Palm Beach Lakes Boulevard, West Palm Beach, Florida.
MATTERS TO BE CONSIDERED AT THE OCWEN FINANCIAL MEETING. At the Ocwen
Financial Meeting, holders of common stock, par value $.01 per share, of Ocwen
Financial (the "Ocwen Financial Common Stock") will be asked to consider and
vote on a proposal to approve the issuance (the "Share Issuance") of Ocwen
Financial Common Stock pursuant to the Agreement of Merger dated as of July 25,
1999 (the "Merger Agreement") among Ocwen Financial, Ocwen Acquisition Company,
a wholly-owned indirect subsidiary of Ocwen Financial ("Acquisition Sub"), and
Ocwen Asset Investment Corp. ("OAC"). Pursuant to the terms of the Merger
Agreement, Acquisition Sub will be merged with and into OAC (the "Merger"),
resulting in OAC becoming a wholly-owned indirect subsidiary of Ocwen Financial.
AFTER CAREFUL CONSIDERATION, THE OCWEN FINANCIAL BOARD HAS UNANIMOUSLY
DETERMINED THAT THE MERGER AGREEMENT IS FAIR AND IN THE BEST INTERESTS OF OCWEN
FINANCIAL AND ITS SHAREHOLDERS. THE OCWEN FINANCIAL BOARD HAS UNANIMOUSLY
APPROVED AND ADOPTED THE MERGER AGREEMENT AND APPROVED THE SHARE ISSUANCE AND
UNANIMOUSLY RECOMMENDS THAT HOLDERS OF OCWEN FINANCIAL COMMON STOCK VOTE FOR
APPROVAL OF THE SHARE ISSUANCE AT THE OCWEN FINANCIAL MEETING.
VOTING AND PROXIES. The Ocwen Financial Board has fixed the close of
business on [Month] [Date], 1999 as the record date for the determination of the
shareholders entitled to notice of, and to vote at, the Ocwen Financial Meeting.
At that date, there were outstanding shares of Ocwen Financial
Common Stock, the holders of which will be entitled to one vote per share on
each matter submitted to the Ocwen Financial Meeting. No other voting securities
of Ocwen Financial are outstanding.
The presence at the Ocwen Financial Meeting, in person or by proxy, of
shareholders entitled to cast a majority of all the votes entitled to be cast at
the Ocwen Financial Meeting constitutes a quorum for the transaction of business
at the Ocwen Financial Meeting. If a quorum should not be present, the Ocwen
Financial Meeting may be adjourned from time to time until a quorum is obtained.
Assuming a quorum is present, the affirmative vote of a majority of the votes
cast by Ocwen Financial shareholders is
20
<PAGE> 29
required to approve the Share Issuance, provided that the total votes cast on
the Share Issuance represent over 50% of all securities of Ocwen Financial
entitled to vote on that matter.
Shares of Ocwen Financial Common Stock represented by properly executed
proxies will, unless such proxies have been revoked, be voted in accordance with
the instructions indicated on such proxies or, if no instructions are indicated,
will be voted for approval of the Share Issuance, and in the best judgment of
the individuals named in the accompanying proxy on any other matters which may
properly come before the Ocwen Financial Meeting. Any proxy may be revoked by
the shareholder giving it, at any time prior to its being voted, by filing a
notice of revocation or a duly executed proxy bearing a later date with the
Secretary of Ocwen Financial at the address given on the Notice of Shareholders'
Meeting accompanying this Joint Proxy Statement/Prospectus. Any proxy may also
be revoked by the shareholder's attendance at the Ocwen Financial Meeting and
voting in person. A notice of revocation need not be on any specific form.
Abstentions may be specified with respect to the approval of the Share
Issuance by properly marking the "ABSTAIN" box on the proxy for such proposal,
and will be counted as present for the purpose of determining the existence of a
quorum. Abstentions and broker nonvotes will have no effect on the proposal to
approve the Share Issuance, unless holders of less than 50% in interest of all
securities entitled to vote on the proposal cast votes, in which event
abstentions and broker nonvotes will have the effect of votes cast against the
proposal.
THE OAC MEETING
DATE, TIME AND PLACE. The OAC Meeting will be held on ,
1999 at 10:00 a.m. (local time) at the first floor offices of OAC, 1675 Palm
Beach Lakes Boulevard, West Palm Beach, Florida.
MATTERS TO BE CONSIDERED AT THE OAC MEETING. At the OAC Meeting, holders
of common stock, par value $.01 per share, of OAC (the "OAC Common Stock") will
be asked to consider and vote on a proposal to approve the Plan of Merger, a
copy of which is attached as Annex II to this Joint Proxy Statement/Prospectus
(the "Plan of Merger"), and the Merger Agreement.
AFTER CAREFUL CONSIDERATION, THE OAC BOARD HAS UNANIMOUSLY DETERMINED THAT
THE MERGER AGREEMENT AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF OAC
AND ITS SHAREHOLDERS. THE OAC BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE
PLAN OF MERGER AND THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT HOLDERS
OF OAC COMMON STOCK VOTE FOR APPROVAL OF THE PLAN OF MERGER AND THE MERGER
AGREEMENT AT THE OAC MEETING.
VOTING AND PROXIES. The OAC Board has fixed the close of business on
[Month] [Date], 1999 as the record date for the determination of the
shareholders entitled to notice of, and to vote at, the OAC Meeting. At that
date, there were outstanding ______ shares of OAC Common Stock, the holders of
which will be entitled to one vote per share on each matter submitted to the OAC
Meeting. No other voting securities of OAC are outstanding.
The presence at the OAC Meeting, in person or by proxy, of shareholders
entitled to cast a majority of all the votes entitled to be cast at the OAC
Meeting constitutes a
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quorum for the transaction of business at the OAC Meeting. If a quorum should
not be present, the OAC Meeting may be adjourned from time to time until a
quorum is obtained. Assuming a quorum is present, the vote of more than two
thirds of the outstanding shares of OAC Common Stock entitled to be cast at the
OAC Meeting is required to approve the Plan of Merger and the Merger Agreement.
Shares of OAC Common Stock represented by properly executed proxies will,
unless such proxies have been revoked, be voted in accordance with the
instructions indicated on such proxies or, if no instructions are indicated,
will be voted for approval of the Plan of Merger and the Merger Agreement and in
the best judgment of the individuals named in the accompanying proxy on any
other matters which may properly come before the OAC Meeting. Any proxy may be
revoked by the shareholder giving it, at any time prior to its being voted, by
filing a notice of revocation or a duly executed proxy bearing a later date with
the Secretary of OAC at the address given on the Notice of Shareholders' Meeting
accompanying this Joint Proxy Statement/Prospectus. Any proxy may also be
revoked by the shareholder's attendance at the OAC Meeting and voting in person.
A notice of revocation need not be on any specific form. Abstentions may be
specified with respect to the approval of the Plan of Merger and the Merger
Agreement by properly marking the "ABSTAIN" box on the proxy for such proposal,
and will be counted as present for the purpose of determining the existence of a
quorum. Abstentions and broker nonvotes will have the same effect as a vote
against the approval of the Plan of Merger and the Merger Agreement.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the Ocwen Financial Board
and the OAC Board. Ocwen Financial and OAC will share equally all expenses
related to printing the Joint Proxy Statement/Prospectus. All mailing and SEC
and other regulatory filing fees incurred in connection with the Joint Proxy
Statement/Prospectus will be borne by Ocwen Financial. See "The Merger
Agreement -- Fees and Expenses." In addition to soliciting proxies by mail,
officers, directors and employees of OAC and Ocwen Financial, without receiving
additional compensation therefor, may solicit proxies by telephone, telegraph,
in person or by other means. Ocwen Financial and OAC have engaged the services
of to solicit proxies and to assist in the distribution of proxy
materials for $ , plus reimbursement of reasonable out-of-pocket
expenses. Arrangements also will be made with brokerage firms and other
custodians, nominees and fiduciaries to forward proxy solicitation material to
the beneficial owners of OAC Common Stock and Ocwen Financial Common Stock held
of record by such persons, and Ocwen Financial and OAC will reimburse such
brokerage firms, custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection therewith.
THE MERGER
BACKGROUND OF THE MERGER
During 1998, OAC incurred significant losses primarily related to its
investments in mortgage-related securities. These losses resulted mainly from
increased prepayments of underlying loans, widening spreads on mortgage-related
securities, declining market liquidity and a general "flight to quality" by
investors in subordinate and residual mortgage-backed securities. As a
consequence, OAC received several requests from its
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<PAGE> 31
lenders to pledge additional collateral or post additional cash margins pursuant
to the terms of its loan agreements.
The losses placed OAC in a difficult liquidity position, because of which
the OAC Board, on December 21, 1998, deferred OAC's final 1998 dividend and
approved a proposal to terminate OAC's status as a REIT, which would eliminate
the requirement that OAC distribute annually at least 95% of its net taxable
income. In the face of continuing losses and to accelerate the stabilization of
its existing assets and to increase its overall liquidity position, OAC decided
not to acquire additional assets or fund any additional loans.
Ocwen Financial from time to time examines and evaluates its businesses,
including its equity investments in unconsolidated entities. During the fall of
1998, Ocwen Financial, consistent with this practice, began to consider possible
alternatives regarding its equity investment in OAC. These alternatives
included, among other things, the sale of its investment in OAC and the holding
or increasing of such investment, including through an acquisition of OAC. At a
meeting of the Ocwen Financial Board on January 27, 1999, at the request of
William C. Erbey, Chairman and Chief Executive Officer of Ocwen Financial, a
member of Ocwen Financial's senior management made a presentation regarding such
alternatives, including the possible acquisition of OAC. During the first week
of February 1999, Ocwen Financial engaged Morgan Stanley & Co. Incorporated as
its financial advisor to assist it in connection with this review and retained
Sidley & Austin as its special legal counsel to assist it in connection with the
consideration of a possible transaction between Ocwen Financial and OAC.
On February 9, 1999, Mr. Erbey, in his capacity as Chairman and Chief
Executive Officer of Ocwen Financial, met separately and in person in New York
City or spoke by telephone with each of the independent directors of OAC. At
these meetings, Mr. Erbey communicated that Ocwen Financial was considering,
among other things, a possible transaction between Ocwen Financial and OAC and
suggested that, if Ocwen Financial were to proceed with such a transaction, the
OAC Board should form a special committee comprised solely of the independent
directors to be charged with evaluating such a transaction.
During the fourth week of February, OAC's independent directors retained
McGuire, Woods, Battle & Boothe LLP (the "Special Counsel") to advise them in
connection with, among other things, the possible formation of, and their
service on, a special committee.
On March 22, 1999, Mr. Erbey, on behalf of Ocwen Financial, communicated
via telephone conference with the independent directors to inquire about the
possible formation of, and their service on, a special committee. Based upon
Ocwen Financial's preliminary analysis, including the initial input of Morgan
Stanley, Mr. Erbey reaffirmed Ocwen Financial's potential interest in exploring
a possible transaction with OAC.
The Ocwen Financial Board held its regularly scheduled meeting on April 5,
1999, at which senior management of Ocwen Financial made a presentation
regarding several alternatives with respect to Ocwen Financial's investment in
OAC, including an acquisition of OAC by Ocwen Financial. At this meeting, the
Ocwen Financial Board scheduled a special meeting by telephone conference call
for April 8, 1999 to consider whether to proceed to make a proposal to acquire
OAC and if so, at what price.
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On April 6, 1999, Ocwen Financial and OAC signed a Confidentiality
Agreement to formalize the previous and future exchange of information between
Ocwen Financial and OAC.
On April 8, 1999, Mr. Erbey and Christine A. Reich, President of Ocwen
Financial, in their capacities as officers of Ocwen Financial, met in New York
City with representatives of Moody's Investor Service, Standard and Poor's and
Thompson BankWatch, Inc. and the Office of Thrift Supervision to obtain
preliminary reactions to the possible acquisition of OAC by Ocwen Financial.
Later that day, the Ocwen Financial Board held a special meeting by
telephone conference, during which representatives of Morgan Stanley made a
presentation regarding a specific proposal for the acquisition of OAC by Ocwen
Financial. This proposal contemplated that Ocwen Financial would acquire OAC
through the merger of a newly formed indirect subsidiary of Ocwen Financial into
OAC in a taxable transaction, whereby each outstanding share of OAC Common Stock
(other than those owned by Ocwen Financial or its subsidiaries) would be
converted into 0.57 shares of Ocwen Financial Common Stock. At this meeting, the
Ocwen Financial Board authorized certain Ocwen Financial officers to commence
negotiations with and to deliver the proposal to OAC.
On April 9, 1999, Ocwen Financial delivered to OAC the proposal described
above regarding a possible business combination. The Ocwen Financial proposal
also required OAC to pay its final 1998 dividend.
On April 16, 1999, Ocwen Financial and OAC each issued a press release
announcing Ocwen Financial's proposal.
On May 6, 1999, the OAC Board formed a Special Committee of the OAC Board
to review Ocwen Financial's offer and other strategic alternatives. The Special
Committee was comprised of the OAC Board's two independent directors, Peter M.
Small and Stuart L. Silpe. The Special Committee engaged PaineWebber
Incorporated to assist and advise the Special Committee in its evaluation of the
Ocwen Financial proposal and other strategic alternatives. Shortly after
PaineWebber's engagement, the Special Committee, the Special Counsel and
PaineWebber began conducting regular, periodic conference calls to discuss the
status of OAC's situation.
Representatives of PaineWebber discussed with the Special Committee the
possibility of formally approaching potential strategic partners and, during May
1999, contacted over 60 potential acquirers, over 40 of whom requested materials
on OAC.
On May 28, 1999, the Special Committee received four non-binding letters of
interest from potential acquirers. From June 7 to June 25, 1999, potential
acquirers visited OAC in West Palm Beach, Florida, to meet with management and
to review OAC documents in a specially designated and managed data room.
On June 17, 1999, the Special Committee, PaineWebber and the Special
Counsel met in New York City and discussed and reviewed the process to date,
potential acquirers, possible strategic alternatives and OAC's current financial
position.
On June 25, 1999, the Special Committee received three preliminary
indications of interest from persons other than Ocwen Financial in purchasing
OAC. The Special Committee asked PaineWebber to review the indications of
interest and the economic viability of each of these potential acquirers. In
reviewing these indications of interest,
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<PAGE> 33
PaineWebber considered, among other matters, financing issues, effect of the
offers on OAC's outstanding indebtedness and payment of OAC's final 1998
dividend.
Also on June 25, 1999, the Ocwen Financial Board held a special meeting by
telephone conference, at which a representative of Morgan Stanley made a
presentation regarding the status of the proposed transaction with OAC. At this
meeting, the Ocwen Financial Board authorized certain officers to reaffirm Ocwen
Financial's previous proposal.
From June 28, 1999 through July 19, 1999, the Special Committee, the
Special Counsel and PaineWebber continued to work with the potential acquirers
by responding to further due diligence requests, discussing applicable
representations and warranties and negotiating an initial draft of a definitive
agreement.
On the morning of July 15, 1999, the Special Committee met with PaineWebber
in New York City to review the process to date, the identified potential
acquirers, and proposed transaction-specific issues. These issues included,
among other things, break-up fees, walk away provisions, and timing. On the
afternoon of July 15, 1999, the Special Committee and PaineWebber conducted
meetings in person with two of the potential acquirors.
Also on July 15, 1999, the Ocwen Financial Board held a special meeting by
telephone conference, at which a representative of Morgan Stanley made a
presentation regarding the status of the proposed transaction with OAC,
including the status of the process being conducted by the Special Committee
with other potential acquirers. At this meeting, the Ocwen Financial Board
authorized no further action in respect of Ocwen Financial's proposal, thereby
maintaining its outstanding proposal without reaffimation.
On July 19, 1999, OAC received two final indications of interest, including
that of Ocwen Financial, to purchase OAC. On the afternoon of July 19, the
Special Committee convened telephonically with PaineWebber and the Special
Counsel, and proposed to work toward a definitive agreement with Ocwen
Financial. Between July 19 and 25, 1999, Ocwen Financial, OAC and their
respective representatives negotiated the terms of a definitive agreement
through a series of telephone conversations and exchanges of correspondence.
On July 22, 1999, the Ocwen Financial Board held a special meeting by
telephone conference, at which representatives of Morgan Stanley made a
presentation regarding the status of the proposed transaction with OAC,
including a discussion of materials previously provided to the Ocwen Financial
Board that included Morgan Stanley's analysis of raising the exchange ratio in
Ocwen Financial's proposal from 0.57 to 0.71. Representatives of Morgan Stanley
indicated that, subject to finalizing the Merger Agreement, and based upon and
subject to the conditions set forth in the opinion, Morgan Stanley would be
prepared to render an opinion with respect to the fairness from a financial
point of view, of the exchange ratio. The Ocwen Financial Board adjourned to
review the materials provided pending further developments with OAC.
On July 25, 1999, the Ocwen Financial Board held a special meeting by
telephone conference with representatives of Morgan Stanley and Ocwen
Financial's internal counsel to review the proposed definitive agreement and
related documents. Ocwen Financial's internal counsel reviewed various legal
aspects of the Merger Agreement. Representatives from Morgan Stanley reviewed
the proposed transaction from a financial point of view, and delivered its oral
opinion (which was confirmed by a written opinion, dated as of July 25, 1999)
stating that, subject to the various factors set forth in the opinion letter,
the
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<PAGE> 34
exchange ratio pursuant to the Merger Agreement is fair from a financial point
of view to Ocwen Financial. After deliberating with respect to the Merger
Agreement and transactions contemplated in connection therewith, the Ocwen
Financial Board unanimously approved and adopted the Merger Agreement and the
transactions contemplated thereby, including the Share Issuance, as being fair
and in the best interests of Ocwen Financial and its shareholders.
Also on July 25, 1999, the Special Committee convened telephonically with
PaineWebber and the Special Counsel to review the proposed definitive agreement
and related documents. The Special Counsel reviewed various legal aspects of the
Merger Agreement. Representatives from PaineWebber reviewed the proposed
transaction from a financial point of view, and delivered its oral opinion
(which was confirmed by a written opinion, dated as of July 25, 1999) stating
that, subject to the various factors set forth in the opinion letter, the
consideration to be received by OAC's shareholders pursuant to the Merger
Agreement was fair from a financial point of view to OAC's shareholders (other
than Ocwen Financial). After deliberating with respect to the Merger Agreement
and transactions contemplated in connection therewith, the Special Committee
unanimously recommended the Merger Agreement to the OAC Board. After the Special
Committee voted on July 25, 1999, the full OAC Board convened telephonically and
unanimously approved the Merger Agreement and related plan of merger and the
transactions contemplated thereby as being in the best interests of OAC and the
OAC shareholders.
On July 25, 1999, Ocwen Financial and OAC executed and delivered the Merger
Agreement. Each company issued a press release on July 26, 1999, prior to the
opening of the stock markets, announcing the execution of the Merger Agreement.
OCWEN FINANCIAL'S REASONS FOR THE MERGER; RECOMMENDATION OF THE OCWEN FINANCIAL
BOARD OF DIRECTORS
The Ocwen Financial Board has approved and adopted the Merger Agreement and
has approved the Share Issuance, believes that the Merger Agreement is fair and
in the best interests of Ocwen Financial and its shareholders and unanimously
recommends approval of the Share Issuance by the holders of Ocwen Financial
Common Stock at the Ocwen Financial Meeting.
At a meeting held on July 25, 1999, the Ocwen Financial Board, with the
assistance of Ocwen Financial's financial advisors and internal legal counsel,
considered the legal, financial and other terms of the Merger, at which meeting
the Ocwen Financial Board concluded that the Merger and the Share Issuance are
in the best interests of Ocwen Financial and its shareholders. In reaching its
decision to enter into the Merger Agreement and to recommend the approval of the
Share Issuance, the Ocwen Financial Board considered a number of factors,
including, without limitation, the following:
- the familiarity of Ocwen Financial, as the parent entity of the Manager
of OAC, with OAC's assets and its belief that this familiarity, together
with the larger equity base, greater liquidity and access to funding that
Ocwen Financial has compared to OAC, would facilitate Ocwen Financial's
repositioning of OAC's assets;
- the results of operations, financial condition, competitive position and
prospects of OAC and Ocwen Financial as separate and combined entities;
- Morgan Stanley's presentations to the Ocwen Financial Board, its
discussions with the Ocwen Financial Board and Morgan Stanley's opinion
that, as of July 25, 1999,
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based upon and subject to the conditions set forth in the opinion, the
exchange ratio pursuant to the Merger Agreement is fair, from a financial
point of view, to Ocwen Financial. The full text of Morgan Stanley's
opinion is attached as Annex III to this document, and you are urged to
read it carefully and in its entirety. See page 27;
- the Ocwen Financial Board's belief that the Merger was the most effective
way to maximize the return on Ocwen Financial's investment in OAC, which
represents 8.1% of the outstanding OAC Common Stock and an 8.7% limited
partnership interest in Ocwen Partnership;
- that the Merger is not expected to trigger an obligation of OAC to offer
to purchase OAC's outstanding publicly traded debt;
- the significant liquidity issues facing OAC, due to restrictive covenants
in its debt securities and the requirement to pay a dividend estimated in
the amount of $0.82 per share in order to maintain OAC's status as a REIT
for 1998, and the difficulty of repositioning OAC's assets due to these
liquidity restrictions and OAC's size;
- the trading prices and volumes (as well as prospects for future growth in
value) of OAC and Ocwen Financial Common Stock, including the poor market
performance of REIT equity securities in the last 12 months, which would
make the prospects for liquidating Ocwen Financial's investment in OAC
unlikely;
- the Ocwen Financial Board's belief that the Merger would provide OAC's
other shareholders with the opportunity to own an equity interest in
Ocwen Financial, a larger, diversified financial services company; and
- the Ocwen Financial Board's belief that the Merger would reduce certain
operating expenses of managing OAC's business and assets.
In view of the variety of factors considered by the Ocwen Financial Board
in connection with its evaluation of the Merger, the Ocwen Financial Board did
not find it practicable to, and did not, quantify or otherwise assign relative
weights to such factors.
The Ocwen Financial Board concluded, in light of these factors, that the
Merger Agreement is fair and in the best interests of Ocwen Financial and its
shareholders. THE OCWEN FINANCIAL BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND APPROVED THE SHARE ISSUANCE AND UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF OCWEN FINANCIAL COMMON STOCK VOTE TO APPROVE THE SHARE ISSUANCE AT
THE OCWEN FINANCIAL MEETING.
OPINION OF MORGAN STANLEY
Ocwen Financial retained Morgan Stanley to act as its financial advisor in
connection with the Merger and related matters based upon Morgan Stanley's
qualifications, expertise and reputation, as well as the firm's prior investment
banking relationship and familiarity with Ocwen Financial. At the July 25, 1999
meeting of the Ocwen Financial Board, Morgan Stanley delivered an oral opinion
to the Ocwen Financial Board, which opinion was subsequently confirmed in
writing, that, as of such date and subject to certain considerations set forth
in such opinion, the exchange ratio pursuant to the Merger Agreement was fair
from a financial point of view to Ocwen Financial.
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The full text of Morgan Stanley's opinion, dated as of July 25, 1999, which
sets forth, among other things, assumptions made, procedures followed, matters
considered and limitations on the review undertaken, is attached as Annex II to
this Joint Proxy Statement/Prospectus. Ocwen Financial shareholders are urged
to, and should, read the Morgan Stanley opinion carefully and in its entirety.
Morgan Stanley's opinion is directed to the Ocwen Financial Board and the
fairness of the Exchange Ratio from a financial point of view to Ocwen
Financial, and it does not address any other aspect of the Merger nor does it
constitute a recommendation to any holder of Ocwen Financial Common Stock as to
how to vote at the Ocwen Financial Meeting. The summary of the opinion of Morgan
Stanley set forth in this Joint Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of such opinion.
In connection with rendering its written opinion, Morgan Stanley, among
other things:
- reviewed certain publicly available financial statements and other
information of OAC and Ocwen Financial, respectively;
- reviewed certain internal financial information including near-term
budgets and other financial and operating data concerning OAC and Ocwen
Financial prepared by the managements of OAC and Ocwen Financial,
respectively;
- reviewed and discussed certain assets of OAC and Ocwen Financial,
including securities, loans and real property, and the past and current
operations and financial condition and the prospects of OAC and Ocwen
Financial with senior executives of OAC and Ocwen Financial,
respectively;
- reviewed the reported prices and trading activity for OAC Common Stock
and Ocwen Financial Common Stock;
- compared the financial performance of OAC and Ocwen Financial and the
prices and trading activity of OAC Common Stock and Ocwen Financial
Common Stock with that of certain other comparable publicly traded
companies and their securities;
- analyzed the pro forma impact of the Merger on the combined company's
earnings per share, consolidated capitalization and financial ratios;
- reviewed and discussed with the management of Ocwen Financial the
benefits of repositioning the assets of OAC;
- reviewed the financial terms, to the extent publicly available, of
certain comparable merger transactions;
- participated in discussions and negotiations among representatives of OAC
and Ocwen Financial and their financial and legal advisors;
- reviewed the Merger Agreement and certain related documents; and
- performed such other analyses and considered such other factors as it
deemed appropriate.
Morgan Stanley assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by Morgan Stanley for the
purposes of its opinion. With respect to the financial forecasts, including the
benefits expected to result from the Merger, Morgan Stanley has assumed that
they have been
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reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of OAC and Ocwen Financial.
Except as described below, Morgan Stanley has not made any independent valuation
or appraisal of the assets or liabilities of OAC and Ocwen Financial, nor has
Morgan Stanley been furnished with any such appraisals and Morgan Stanley has
not examined any individual loan files of OAC or Ocwen Financial. In addition,
Morgan Stanley has assumed the Merger will be consummated in accordance with the
terms and conditions set forth in the Merger Agreement. Morgan Stanley's opinion
is necessarily based on economic, market and other conditions as in effect on,
and the information made available to Morgan Stanley as of, the date of the
opinion.
The following is a summary of the financial analyses performed by Morgan
Stanley and reviewed with the Ocwen Financial Board on July 22, 1999 in
connection with rendering its opinion dated July 25, 1999. Certain of these
summaries of financial analyses include information presented in tabular format.
In order to fully understand the financial analyses used by Morgan Stanley, the
tables must be read together with the accompanying text of each summary. The
tables alone do not constitute a complete description of the financial analyses.
The following is a summary of the various methodologies underlying the
valuation analyses conducted by Morgan Stanley.
IMPLIED VALUE OF EXCHANGE RATIO. Morgan Stanley reviewed the terms of the
Merger and noted that each issued and outstanding share of OAC Common Stock
(other than those held by Ocwen Financial and its wholly-owned subsidiaries)
will be converted into 0.71 shares (the "Exchange Ratio") of Ocwen Financial
Common Stock. Based on a closing price of $8.00 on July 20, 1999 of Ocwen
Financial Common Stock, such exchange ratio translated to an implied value of
$5.68 per share of OAC Common Stock. The Exchange Ratio resulted in a premium of
approximately 42% to the closing price of OAC Common Stock on April 15, 1999
(the day prior to the public announcement of Ocwen Financial's initial offer)
and a discount of approximately 41% to the book value of OAC on July 20, 1999,
adjusted for the 1998 dividend payment.
COMPONENT VALUATION. Morgan Stanley performed a component valuation of OAC
Common Stock, which estimated the values for OAC's major assets (residential
securities, commercial mortgage-backed securities, construction loans, real
estate and other assets) less total liabilities and projected 1998 dividend
payment. The financial information used for this analysis was as of May 31,
1999.
As part of this analysis, Morgan Stanley estimated the value of the real
estate properties based on current expectations of cash flows and various
discount rates. Morgan Stanley also estimated the value of the residential
securities based on a discounted cash flow valuation with various assumptions
for discount rates, loss rates and prepayment speeds. In addition, Morgan
Stanley estimated the value of the other assets, commercial mortgage-backed
securities and construction loans. This analysis resulted in an implied value
for OAC Common Stock ranging from approximately $2.20 to $10.00 per share.
COMPARABLE COMPANY ANALYSIS. As part of its analysis, Morgan Stanley
compared certain OAC financial information with corresponding publicly available
information of comparable companies, which include Imperial Credit Commercial
Mortgage, Anthracite Capital, Inc., AMRESCO Capital Trust, Resource Asset
Investment Trust, Impac Commercial Holdings, Inc., Wilshire Real Estate
Investment Trust, Inc. and Clarion
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Commercial Holdings, Inc. (the "Comparables"). Morgan Stanley analyzed OAC's
relative performance and value by comparing certain market trading statistics of
OAC with those of the Comparables. Historical financial information used in
connection with the ratios described below with respect to the Comparables is
based on the latest reported quarterly disclosures and with respect to financial
information for OAC as of May 31, 1999. Market information used in ratios
provided below is as of July 20, 1999. The following table displays the results
of this analysis:
<TABLE>
<CAPTION>
PRICE/ PRICE/
52 WEEK HIGH BOOK VALUE
------------ -----------
<S> <C> <C>
OAC......................................... 28% 49%
Comparables (Low-High)...................... 21%-83% 52%-90%
</TABLE>
PRECEDENT TRANSACTION ANALYSIS. Morgan Stanley performed an analysis of
thirty precedent transactions ("Precedent Transactions") that Morgan Stanley
deemed comparable to the Merger in order to compare the premium to the
unaffected market price one month prior to announcement. The premium to the
unaffected market price of OAC was based on a closing price of $4.065 on March
16, 1999, one month prior to the public announcement of Ocwen Financial's
initial offer. The premiums resulting from this analysis ranged from a 40%
discount to market to a 70% premium to market. Morgan Stanley also noted that
70% of the premiums fell within a 10-50% premium range. The premium to OAC's
unaffected market price was 28%. No company or transaction used in the
comparable company, premium to market and precedent transaction analyses is
identical to OAC or the Merger, as the case may be. Accordingly, an analysis of
the results of the foregoing necessarily involves complex considerations and
judgments concerning financial and operating characteristics of OAC and other
factors that could affect the public trading value of the companies to which
they are being compared. Mathematical analysis (such as determining the average,
median, high or low) is not in itself a meaningful method of using comparable
transaction data or comparable company data.
PRO FORMA MERGER ANALYSIS. Morgan Stanley reviewed the financial impact of
the Merger on Ocwen Financial's estimated earnings per share and book value per
share using First Call ("First Call") earnings estimates and cost savings and
other synergies related to repositioning the assets estimated by Ocwen Financial
and OAC. Earnings estimates for Ocwen Financial were based on First Call
earnings estimates as of July 20, 1999 for 2000 and assumed a 21% growth rate
for 2001. Earnings estimates for OAC were based on First Call earnings estimates
as of July 20, 1999 for 1999 and assumed no growth for 2000 and 2001. First Call
is a data service that monitors and publishes compilations of earnings estimates
produced by selected research analysts regarding companies of interest to
institutional stockholders. Morgan Stanley observed that after giving effect to
the Merger, including the asset repositioning plan and timing for the
realization of the Merger synergies, Ocwen Financial's fully diluted earnings
per share would increase in 2000 and 2001, compared to Ocwen Financial on a
stand-alone basis. In addition, Morgan Stanley reviewed the financial impact of
the Merger on Ocwen Financial's book value per share. This analysis showed that,
after giving effect to the Merger, Ocwen Financial's book value per share would
increase, compared to Ocwen Financial on a stand-alone basis.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all its
analyses as a whole and did not attribute any particular weight to any analysis
or factor considered by it. Morgan Stanley believes that
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selecting any portion of its analysis, without considering all analyses, would
create an incomplete view of the process underlying its opinion. In addition,
Morgan Stanley may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Morgan Stanley's
view of the actual value of OAC.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Ocwen Financial or OAC.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as a part of Morgan
Stanley's analysis of the fairness from a financial point of view of the
exchange ratio pursuant to the Merger Agreement to Ocwen Financial and were
conducted in connection with the delivery of Morgan Stanley's opinion. The
analyses do not purport to be appraisals or to reflect the prices at which OAC
might actually be purchased.
As described above, Morgan Stanley's opinion and the information provided
by Morgan Stanley to the Ocwen Financial Board were two of a number of factors
taken into consideration by the Ocwen Financial Board in making its
determination to approve the Merger Agreement and the transactions contemplated
thereby. Consequently, the Morgan Stanley analyses described above should not be
viewed as determinative of the opinion of the entire Ocwen Financial Board or
the view of its management with respect to the value of Ocwen Financial. The
Exchange Ratio pursuant to the Merger Agreement was determined through
negotiations between Ocwen Financial and its advisors and OAC and its advisors
and was approved by the entire Ocwen Financial Board.
The Ocwen Financial Board retained Morgan Stanley based upon its experience
and expertise. Morgan Stanley is an internationally recognized investment
banking and advisory firm. As part of its investment banking business, Morgan
Stanley is regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuation for estate, corporate and other purposes. In the course
of its business, Morgan Stanley and its affiliates may actively trade the debt
and equity securities of Ocwen Financial and OAC for their own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. In the past, Morgan Stanley has provided financial
advisory and investment banking services to Ocwen Financial and OAC for which
services Morgan Stanley received customary fees.
Pursuant to a letter dated February 1, 1999, Ocwen Financial has agreed to
pay Morgan Stanley: (i) an advisory fee of $ million, which is payable
regardless of whether the Merger is consummated, and (ii) a transaction fee
equal to $ million, which is payable upon the consummation of the Merger.
Any advisory fee paid will be credited against the transaction fee. In addition,
Ocwen Financial has agreed, among other things, to reimburse Morgan Stanley for
all reasonable out-of-pocket expenses incurred in connection with the services
provided by Morgan Stanley, and to indemnify and hold harmless Morgan Stanley
and certain related parties from and against certain liabilities and expenses,
which may include certain liabilities under the federal securities laws, in
connection with its engagement.
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OAC'S REASONS FOR THE MERGER; RECOMMENDATION OF THE OAC BOARD OF DIRECTORS
On July 25, 1999, the OAC Board met to consider the Merger and to receive
the Special Committee's recommendation regarding the Merger. Based upon a review
of the terms of the Merger Agreement, consultation with its financial advisor
and legal counsel, consideration of the factors described below and the
unanimous recommendation of the Special Committee that the OAC Board approve the
Merger and the Merger Agreement, the OAC Board unanimously approved and adopted
the Plan of Merger and the Merger Agreement, and unanimously recommends that
OAC's shareholders vote for approval of the Plan of Merger and the Merger
Agreement.
In reaching its determination and recommendation, the OAC Board considered
the following material factors, both positive and negative:
- OAC's substantial losses on its investments in mortgage-related
securities during 1998 and the first and second quarters of 1999, which
losses were attributed to increased prepayment speeds on underlying
mortgage loans, widening spreads on mortgage-related securities and
declining market liquidity for mortgage-related securities. This
decreased liquidity and created a situation in which OAC had limited
amounts of cash to pay dividends to maintain its REIT status, acquire
additional assets, fund additional loans, meet margin requirements or
obtain new financing lines and as a result of which OAC was in danger of
violating certain minimum net worth covenant restrictions with its
financing sources, which ultimately could result in certain financing
lines being required to be paid in full prior to maturity;
- the current and prospective economic and competitive environment facing
OAC's industry generally and OAC in particular;
- the terms of the Merger Agreement and the Merger, including the exchange
ratio, noting that it reflected a 19% premium for the holders of OAC
Common Stock based on the closing prices of Ocwen Financial Common Stock
and OAC Common Stock on July 23, 1999, the last trading day prior to the
approval by the OAC Board of the Merger and a 38% premium based on the
closing price of OAC Common Stock on April 15, 1999, the day prior to the
public announcement of Ocwen Financial's initial proposal;
- the OAC Board's belief that, based on the exchange ratio and estimated
earnings for OAC and Ocwen Financial, the Merger would be accretive to
OAC's shareholders based on net income received per share of OAC Common
Stock exchanged into 0.71 shares of Ocwen Financial Common Stock;
- the process conducted by the Special Committee and PaineWebber in
exploring and determining the potential value which could be realized by
OAC's shareholders in a business combination (including the contacts
between OAC and its financial advisor and certain third parties
determined to be the most likely companies to be both interested in and
financially and otherwise capable of engaging in a business combination
transaction with OAC) relative to the prospects of OAC continuing to
operate on an independent basis (see "--Background of the Merger");
- the review by the OAC Board of alternatives to the Merger for enhancing
shareholder value, the range of possible values to OAC's shareholders
obtainable through implementation of such alternatives and the timing and
likelihood of
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actually achieving such value, including, without limitation, the OAC
Board's belief that OAC would likely be unable to liquidate its assets in
an orderly fashion, and the OAC Board's belief, based upon such review,
that there existed significant uncertainty as to whether such
alternatives would result in greater value for OAC's shareholders than
the value to be realized in the Merger;
- the recommendation of the Special Committee, which considered the same
factors described herein which were considered by the OAC Board as a
whole and the opinion, analyses and presentations of PaineWebber to the
Special Committee to the effect that, as of the date of such opinion and
based upon and subject to certain matters stated therein, the merger
consideration is fair, from a financial point of view, to OAC's
shareholders (other than Ocwen Financial). The full text of PaineWebber's
opinion is attached as Annex IV to this document and you are urged to
read it carefully in its entirety. See page 33; and
- the following additional factors:
- the reduction in voting power of OAC's shareholders after the Merger,
- the possibility that the anticipated benefits of the Merger might not
be fully realized,
- that the Merger will expose OAC's shareholders to the benefits and
risks associated with the operations of Ocwen Financial,
- the significant transaction costs involved in connection with
consummating the Merger, and
- the potential obligation of OAC to pay a termination fee, under
certain circumstances, if the Merger is not consummated.
The foregoing discussion of the information and factors considered by the
OAC Board and the Special Committee is not intended to be exhaustive, but
includes the material factors considered by the Board and the Special Committee.
The OAC Board and the Special Committee did not assign relative weights to the
above factors or determine that any factor was of greater importance than
another. A determination of various weightings would, in the view of the OAC
Board and the Special Committee, be impractical. Rather, each of the OAC Board
and the Special Committee viewed its position and recommendations as being based
on the totality of the information presented to and considered by it. In
addition, individual members of the OAC Board and the Special Committee may have
given different weight to different factors.
THE OAC BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE PLAN OF MERGER AND
THE MERGER AGREEMENT AND APPROVED THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER, AND RECOMMENDS THAT THE OAC SHAREHOLDERS VOTE FOR APPROVAL
OF THE PLAN OF MERGER AND THE MERGER AGREEMENT.
OPINION OF PAINEWEBBER
The Special Committee retained the investment banking firm of PaineWebber
to act as financial advisor to OAC. At a meeting of the Special Committee on
June 17, 1999, PaineWebber reviewed various valuation analyses. At meetings of
the Special Committee and the OAC Board on July 25, 1999, PaineWebber updated
and expanded certain of these analyses and delivered its opinion and based upon
and subject to the assumptions
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described in such opinion, determined that the consideration to be received by
OAC's shareholders pursuant to the Merger Agreement was fair to OAC's
shareholders (other than Ocwen Financial) from a financial point of view. The
full text of PaineWebber's opinion, dated July 25, 1999, which sets forth the
assumptions made, procedures followed, matters addressed and limitations on the
review undertaken, is attached as Annex IV to this document. Holders of OAC
Common Stock are urged to read the PaineWebber opinion carefully and in its
entirety. The summary of the PaineWebber opinion set forth in this document is
qualified in its entirety by reference to the full text of the opinion.
The PaineWebber opinion does not address the relative merits of the Merger
and any other transactions or business strategies discussed by the OAC Board as
alternatives to the Merger or the decision of the OAC Board to proceed with the
Merger. No opinion is expressed as to the price at which the securities to be
issued in the Merger to the OAC shareholders may trade at any time.
In arriving at its opinion, PaineWebber, among other things:
- Reviewed OAC's Annual Reports to Shareholders, Annual Reports on Form
10-K and related financial information for the fiscal years ended
December 31, 1998 and December 31, 1997 and OAC's Quarterly Report on
Form 10-Q and the related unaudited financial information for the three
months ended March 31, 1999;
- Reviewed Ocwen Financial's Annual Reports to Shareholders, Annual Reports
on Form 10-K and related financial information for the fiscal years ended
December 31, 1998 and December 31, 1997 and Ocwen Financial's Quarterly
Report on Form 10-Q and the related unaudited financial information for
the three months ended March 31, 1999;
- Reviewed certain information, including near-term financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of
OAC and Ocwen Financial;
- Conducted discussions with members of senior management of OAC and Ocwen
Financial concerning their respective businesses and prospects;
- Reviewed the historical market prices and trading activity for OAC Common
Stock and Ocwen Financial Common Stock and compared them with that of
certain publicly traded companies which it deemed to be relevant;
- Compared the financial performance and results of operations of OAC and
Ocwen Financial with that of certain companies which it deemed to be
relevant;
- Considered the pro forma effect of the Merger on Ocwen Financial's
earnings and book value per share;
- Reviewed a draft of the Merger Agreement dated July 25, 1999; and
- Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as it
deemed necessary, including an assessment of general economic, market and
monetary conditions.
In preparing its opinion, PaineWebber relied upon the accuracy and
completeness of all information publicly available, supplied or otherwise
communicated to PaineWebber by OAC and Ocwen Financial and PaineWebber did not
assume any responsibility to independently verify such information. With respect
to the near-term financial forecasts examined by PaineWebber, PaineWebber
assumed that they were reasonably prepared on
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bases reflecting the best currently available estimates and good faith judgments
of the management of OAC and Ocwen Financial as to the future performance of OAC
and Ocwen Financial, respectively. PaineWebber also relied upon assurances of
the management of OAC and Ocwen Financial that they were unaware of any facts
that would make the information or near-term financial forecasts provided to
PaineWebber incomplete or misleading. PaineWebber also assumed with OAC's
consent, that (i) the Merger will be accounted for under the purchase method of
accounting, (ii) the Merger will not be a tax free reorganization and (iii)
there are not material liabilities (contingent or otherwise) of OAC and Ocwen
Financial except as set forth in the consolidated financial statements of OAC
and Ocwen Financial, respectively. The opinion of PaineWebber is necessarily
based upon market, economic, and other conditions as they existed on, and can be
evaluated as of, the date thereof. PaineWebber's opinion is directed only to the
OAC Board and does not constitute a recommendation to any holder of OAC Common
Stock or Ocwen Financial Common stock as to how such shareholder should vote on
the Merger or the Share Issuance.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analysis and
the application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Furthermore, in arriving at its fairness opinion, PaineWebber did
not attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, PaineWebber believes that its analyses
must be considered as a whole and that considering any portions of such analyses
and of the factors considered, without considering all analyses and factors,
could create a misleading or incomplete view of the process underlying its
fairness opinion. In its analyses, PaineWebber made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of OAC and Ocwen Financial.
Any estimates contained in these analyses are not necessarily indicative of
actual values or predictive of future results or value, which may be
significantly more or less favorable than as set forth therein. Accordingly,
such estimates are inherently subject to substantial uncertainty and neither OAC
nor PaineWebber assumes responsibility for the accuracy of such estimates. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses actually may be sold.
The following paragraphs summarize the significant comparative analyses
performed by PaineWebber in arriving at its opinion:
LIQUIDATION ANALYSIS. PaineWebber performed an analysis to calculate
a range of values per share assuming OAC were to perform an orderly
liquidation of its portfolio. The range was calculated by using the low and
medium point market values of each asset class estimated by PaineWebber and
management as of March 31, 1999, and then adjusting each point to consider:
(i) the change in market value of the portfolio between March 31, 1999 and
May 31, 1999, (ii) the estimated impairments from securities for the period
of June 1, 1999 through June 30, 1999, (iii) the unpaid 1998 dividend, and
(iv) liquidation specific adjustments that include: (a) the right of
holders of limited partnership units in Ocwen Partnership to exchange such
units for OAC Common Stock under certain circumstances, (b) cash and other
assets markdowns, (c) the obligation of OAC to offer to purchase its
publicly traded debt upon the occurrence of certain change of control
events of OAC, (d) termination of
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the management agreement with Ocwen Capital Corporation, (e) financing
termination costs and (f) other costs associated with a liquidation,
including legal, accounting, and advisory fees. Applying the aforementioned
liquidation process, including the conversion of partnership units thereby
giving OAC approximately 20.8 million shares outstanding, PaineWebber
calculated the liquidation value per share of OAC Common Stock to range
from approximately $5.37 per share to $7.58 per share.
DISCOUNTED CASH FLOW ANALYSIS. PaineWebber performed an analysis to
calculate a range of present values per share of OAC Common Stock assuming
OAC continued to operate on a stand-alone basis under two different
scenarios. One scenario assumed OAC continued to operate as a REIT (the
"REIT Scenario") and the other assumed OAC converted into a C Corporation
(the "C-Corp Scenario"). Both scenarios assumed: (i) OAC sold its
commercial mortgage-backed securities portfolio at 90% of carrying value,
(ii) annual repayment rate on mortgage assets of 25% and (iii) excess cash
reinvested at 12%. The range of values was calculated through two methods:
(i) adding, for each of the annual periods from 1999 through 2003, the
present value of the estimated cumulative dividends through the end of each
such annual period to a terminal value ("dividend cash flow analysis") and
(ii) adding, for each of the annual periods from 1999 through 2003, the
present value of the estimated "free cash flows" or earnings before
interest, income tax, depreciation and amortization ("EBITDA") to a
terminal value ("EBITDA cash flow analysis"). Under the base case REIT
Scenario, PaineWebber assumed: (i) discount rates of 15% and 20% and a
terminal value multiple of 90% of book value (the greater of 6.6x 2003
earnings or 90% of book value) for the dividend cash flow analysis, and
(ii) discount rates of 15% and 20% and a terminal value multiple of 6.4x
2003 EBITDA for the EBITDA cash flow analysis. For the base case C-Corp
Scenario, PaineWebber assumed: (i) discount rates of 22% and 27% and a
terminal value multiple of 90% of book value (the greater of 6.3x 2003
earnings or 90% of book value) for the dividend cash flow analysis, and
(ii) discount rates of 17% and 22% and a terminal value multiple of 4.5x
2003 EBITDA for the EBITDA cash flow analysis. Terminal value multiples
were derived from comparable publicly traded mortgage REITs, for the REIT
Scenario, and comparable publicly traded specialty finance companies, for
the C-Corp Scenario, as of July 16, 1999. The group of comparable mortgage
REITs, which PaineWebber deemed relevant, consisted of: AMRESCO Capital
Trust, Anthracite Capital, Inc., Chastain Capital Corporation, Clarion
Commercial Holdings, Inc., Dynex Capital, Inc., Impac Commercial Holdings,
Inc., Imperial Credit Commercial Mortgage Investment Corp., Resource Asset
Investment Trust and Wilshire Real Estate Investment Trust. The group of
comparable specialty finance companies, which PaineWebber deemed relevant,
consisted of: Amresco, Inc., Capital Trust, First City Financial
Corporation, Imperial Credit Industries, Inc. and WMF Group Ltd. Applying
the aforementioned discount rates and terminal values, PaineWebber
calculated a per share value of OAC Common Stock to a range from
approximately $6.10 to $10.31 per share under the REIT Scenario and $1.82
to $5.36 per share under the C-Corp Scenario.
TRADING COMPARABLES ANALYSIS. Using publicly available information,
PaineWebber compared certain ratios of the financial performance to the
stock market capitalization of OAC at July 16, 1999, with the following
selected mortgage REITs (the "Comparable Group") deemed relevant by
PaineWebber: Anthracite Capital, Inc., Clarion Commercial Holdings, Inc.,
Impac Commercial Holdings, Inc., Imperial Credit Commercial Mortgage,
AMRESCO Capital Trust, Chastain Capital Corpora-
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tion, Resource Asset Investment Trust, and Wilshire Real Estate Investment
Trust, Inc. Such comparisons included market capitalization-to-book value
ratios (a median of 78% for the Comparable Group and 49% for OAC); market
capitalization-to-latest-12-months' earnings ratios (a median of 17.2x for
the Comparable Group and a negative or "not meaningful" multiple for OAC);
market capitalization-to-estimated-1999-earnings ratios (a median of 6.6x
for the Comparable Group and 6.0x for OAC); and market
capitalization-to-estimated-2000-earnings ratios (a median of 5.9x for the
Comparable Group and 5.4x for OAC). The market capitalization-to-latest-12-
months'-earnings ratios for the Comparable Group are for the period ended
March 31, 1999. The 1999 and 2000 earnings per share are estimates from
First Call (as of July 16, 1999). In connection with this analysis, all the
OAC balance sheet data was as of May 31, 1999 and book value calculations
were adjusted to reflect the payment of the 1998 dividend and estimated
June 1999 portfolio markdowns. Applying the aforementioned multiples for
the Comparable Group, PaineWebber calculated the value per share of OAC
Common Stock to range from approximately $4.27 to $9.07 per share.
PaineWebber also applied a control premium, based upon acquisitions of U.S.
real estate finance companies, mortgage banks and brokers of up to $500
million in deal value since January 1, 1992, as reported by Securities Data
Corporation. Based on this data, PaineWebber applied a 25% control premium
to the aforementioned OAC Common Stock values and calculated the value per
share of OAC Common Stock to range from $5.34 to $11.33.
PaineWebber is a prominent investment banking and financial advisory firm
and, as part of its investment banking activities, PaineWebber is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Special Committee selected
PaineWebber because of its expertise, its reputation and its familiarity with
the mortgage REIT industry.
PaineWebber has acted as financial advisor to OAC in connection with the
Merger. As compensation for its services in connection with the Merger, OAC has
agreed to pay PaineWebber (i) $ for its financial advisory role as defined
in its engagement letter, (ii) $ upon the signing of the fairness opinion
letter and (iii) a transaction fee of % of the final transaction value in
the event of a purchase, which fee would be approximately $ million based on
a share price for Ocwen Financial Common Stock of $ (the closing price per
share reported on the NYSE Composite Transaction Tape on , 1999).
OAC has paid PaineWebber $450,000 to date. All fees paid to PaineWebber prior to
closing the transaction will be deducted in whole from the transaction fee. In
addition, OAC has agreed to reimburse PaineWebber for all out-of-pocket expenses
incurred in connection with the Merger and to indemnify PaineWebber against
certain liabilities, including liabilities that may arise under the federal
securities law.
In the ordinary course of business, PaineWebber actively trades in the
securities of OAC and Ocwen Financial for its own account and for the accounts
of others and, accordingly, may at any time hold a long or short position in
such securities.
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FORM OF THE MERGER
If the holders of Ocwen Financial Common Stock approve the Share Issuance,
the holders of OAC Common Stock approve the Plan of Merger and the Merger
Agreement and all other conditions to the Merger are satisfied or waived, where
permissible, Acquisition Sub will be merged with and into OAC, with OAC being
the surviving corporation in the Merger (the "Surviving Corporation") and
becoming a wholly-owned indirect subsidiary of Ocwen Financial. The date on
which the closing of the Merger occurs is referred to in this Joint Proxy
Statement/Prospectus as the "Closing Date." Ocwen Financial and OAC anticipate
that the Closing Date will occur as promptly as practicable after the
shareholder meetings. The term "Effective Time" means the date and time that the
Virginia State Corporation Commission issues a certificate of merger in
connection with the filing of articles of merger relating to the Merger (or such
later time as may be agreed by the parties hereto and specified in the articles
of merger).
MERGER CONSIDERATION
The Merger Agreement provides that, at the Effective Time, each share of
OAC Common Stock issued and outstanding immediately prior to the Effective Time
(other than any shares held in treasury by OAC or its wholly-owned subsidiaries
or shares owned by Ocwen Financial or its wholly-owned subsidiaries) will be
converted into the right to receive 0.71 shares (the "Exchange Ratio") of Ocwen
Financial Common Stock.
If the average of the closing prices of Ocwen Financial Common Stock for
the ten trading days ending on the tenth day prior to the Closing Date is less
than $6.80, OAC, at any time during the five-day period preceding the fifth day
before the Closing Date, may terminate the Merger Agreement. However, during the
five-day period following the provision by OAC of written notice of termination,
Ocwen Financial shall have the option of postponing the Closing Date for fifteen
trading days, during the first ten trading days of which a new average of the
closing prices of Ocwen Financial Common Stock shall be determined based on the
closing sales price of Ocwen Financial Common Stock as reported on the
consolidated tape on the NYSE for each of such ten trading days. If the new
average closing price is more than $6.80, the Merger Agreement shall not
terminate. If the new average closing price is $6.80 or less, Ocwen Financial
shall have the option of increasing the consideration to be received by holders
of OAC Common Stock by adjusting the Exchange Ratio to equal a number equal to
the quotient obtained by dividing $4.83 by the new average closing price, in
which case Ocwen Financial shall give prompt written notice to OAC of such
election and the revised Exchange Ratio and the Merger Agreement shall not
terminate. In no event shall the modified Exchange Ratio be less than 0.71. See
"The Merger Agreement -- Termination."
EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF OAC COMMON STOCK CERTIFICATES
As soon as practicable after the Effective Time, Ocwen Financial will
deposit with a bank or trust company (the "Exchange Agent"), for the benefit of
holders of shares of OAC Common Stock, certificates representing the shares of
Ocwen Financial Common Stock issuable pursuant to the Merger in accordance with
the Merger Agreement. The Exchange Agent will deliver the certificates
representing shares of Ocwen Financial Common Stock upon surrender for exchange
of the OAC Certificates (as defined below).
As soon as reasonably practicable after the Effective Time, the Exchange
Agent will mail letters of transmittal and other transmittal forms, together
with exchange instructions,
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to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of OAC Common Stock
(the "OAC Certificates"), for use in effecting the surrender and exchange of OAC
Certificates for certificates representing shares of Ocwen Financial Common
Stock (and cash in lieu of any fractional shares) to which such holder has
become entitled. After receipt of such letters of transmittal and other
transmittal forms, each holder of OAC Certificates will be able to surrender the
certificates to the Exchange Agent, and each such holder will receive in
exchange a certificate representing the number of whole shares of Ocwen
Financial Common Stock (and cash in lieu of any fractional shares) to which such
holder is entitled. The transmittal forms will be accompanied by instructions
specifying other details of the exchange. OAC SHAREHOLDERS SHOULD NOT SEND IN
THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
Ocwen Financial or the Exchange Agent will be entitled to deduct and
withhold from the consideration otherwise payable pursuant to the Merger
Agreement the amounts that Ocwen Financial or the Exchange Agent are required to
deduct and withhold under the Internal Revenue Code of 1986, as amended (the
"Code"), or any provision of state, local or foreign tax law, with respect to
the making of such payment. To the extent that amounts are withheld by Ocwen
Financial or the Exchange Agent, the withheld amounts shall be treated for all
purposes of the Merger Agreement as having been paid to the person in respect of
whom such deduction and withholding was made by Ocwen Financial or the Exchange
Agent.
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for by Ocwen Financial under the purchase
method of accounting in accordance with generally accepted accounting
principles. Therefore, the aggregate consideration paid by Ocwen Financial in
connection with the Merger, together with the direct costs of acquisition, will
be allocated to OAC's assets and liabilities based on their fair market values
with any excess being treated as goodwill. The assets and liabilities and
results of operations of OAC will be consolidated into the assets and
liabilities and results of operations of Ocwen Financial after the Merger.
CERTAIN OTHER EFFECTS OF THE MERGER
If the Merger is consummated, shares of OAC Common Stock will cease to be
listed on the New York Stock Exchange. In addition, OAC will deregister the OAC
Common Stock under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
After the Merger, the articles of incorporation of OAC, as the surviving
corporation in the Merger, will be those of Acquisition Sub prior to the Merger,
a copy of which is attached as Exhibit A to the Plan of Merger. This amendment
to OAC's articles of incorporation is being made to eliminate the provisions
within OAC's existing articles (i) that require OAC to be a REIT and (ii) which
place restrictions on the percentage of outstanding OAC Common Stock that any
person or entity may own.
As a result of the Merger, shareholders of OAC will become shareholders of
Ocwen Financial. Upon consummation of the Merger, the rights of all such former
shareholders of OAC will be governed by applicable Florida law (rather than the
Virginia Stock Corporation Act (the "VSCA")), including the Florida Business
Corporation Act (the "FBCA"), and by the Amended and Restated Articles of
Incorporation and the Bylaws, as amended and restated, of Ocwen Financial. For a
description of the differences between
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the rights of Ocwen Financial and OAC shareholders, see "Comparison of Rights of
OAC Shareholders and Ocwen Financial Shareholders."
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
We have made forward-looking statements, within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Exchange Act, in this document and those documents to which we have
referred you that are subject to risks and uncertainties. These forward-looking
statements, which are based on various assumptions (some of which are beyond our
control), may be identified by reference to a future period 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. You will find many
of the statements in the following sections: "-- Ocwen Financial's Reasons for
the Merger; Recommendation of the Ocwen Financial Board of Directors,"
"-- Opinion of Morgan Stanley," "-- OAC's Reasons for the Merger; Recommendation
of the OAC Board of Directors" and "-- Opinion of PaineWebber."
Although we believe the anticipated results or other expectations reflected
in such forward-looking statements are based on reasonable assumptions, we 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 we operate),
government fiscal and monetary policies (particularly in the market areas where
we operate), prevailing interest or currency exchange rates, effectiveness of
interest rate, currency and other hedging strategies, laws and regulations
affecting financial institutions, real estate investment trusts, investment
companies and real estate (including regulatory fees, capital requirements,
income and property taxation, 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 we have), credit, prepayment, basis, default, subordination and
asset/liability risks, loan servicing effectiveness, ability to identify
acquisitions and investment opportunities meeting Ocwen Financial's or OAC's
investment strategy, course of negotiations and ability to reach agreement with
respect to material terms of any particular transaction, satisfactory due
diligence results, satisfaction or fulfillment of agreed upon terms and
conditions of closing or performance, timing of transaction closings, OCN's
recent decision to curtail certain business lines and discontinue investment
activities, acquisitions and integration of acquired businesses, dispositions of
existing OCN businesses, software integration, development and licensing, the
financial and securities markets, the availability of and costs associated with
obtaining adequate and timely sources of liquidity, dependence on existing
sources of funding, ability to repay or refinance indebtedness (at maturity or
upon acceleration), to meet collateral calls by lenders (upon re-valuation of
the underlying assets or otherwise), to generate revenues sufficient to meet
debt service payments and other operating expenses and to securitize whole
loans, taxable income exceeding cash flow, availability of discount loans for
purchase, size of, nature of and yields available with respect to the secondary
market for mortgage loans and 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,
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revenues, rental rates, occupancy levels and competing properties), adequacy of
insurance coverage in the event of a loss, known or unknown environmental
conditions, external management, conflicts of interest, Year 2000 compliance,
other factors generally understood to affect the real estate acquisition,
mortgage and leasing markets, securities investments and rapid growth companies,
and a significant delay in the expected completion of the Merger. Given these
uncertainties, you are cautioned not to place undue reliance on such statements.
We do not undertake, and specifically disclaim any obligation, to publicly
release the result 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.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the Merger. This summary does not discuss all aspects of taxation that may be
relevant to shareholders of OAC in light of their personal investment or tax
circumstances. Except as specifically provided, the discussion below does not
address foreign, state or local tax consequences, nor does it specifically
address the tax consequences to taxpayers subject to special treatment under the
federal income tax laws.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. The Merger will be a
taxable transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local or foreign tax laws. OAC shareholders
who are U.S. taxpayers will recognize gain or loss for federal income tax
purposes equal to the difference between (a) the fair market value of the shares
of Ocwen Financial Common Stock and any cash in lieu of a fractional share of
Ocwen Financial Common Stock received in the Merger and (b) the adjusted tax
basis in such taxpayer's OAC Common Stock. If, as of the Effective Time, an OAC
shareholder holds OAC Common Stock as a capital asset within the meaning of
Section 1221 of the Code, then any gain or loss will constitute a capital gain
or loss, and will be a long-term capital gain or loss if the shareholder has
held the shares of OAC Common Stock for more than one year as of the Effective
Time. Gain or loss will be calculated separately for each block of OAC Common
Stock (i.e., a group of OAC Common Stock with the same tax basis and holding
period) exchanged pursuant to the Merger. OAC shareholders incurring capital
losses as a result of the Merger may not be able to deduct the full amount of
such capital losses. Individuals incurring such losses may deduct them to the
extent of net capital gains recognized during the taxable year, plus $3,000.
Amounts in excess thereof may be carried forward to future years. Corporations
incurring such losses may deduct them to the extent of net capital gains
recognized during the taxable year. Amount in excess thereof may be carried back
to the three previous years and forward to the five subsequent tax years. An OAC
shareholder will have a tax basis in the Ocwen Financial Common Stock received
equal to its fair market value as of the Effective Time and an OAC shareholder's
holding period for the Ocwen Financial Common Stock will begin the day following
the date of the Effective Time. For OAC shareholders who are not U.S. taxpayers,
any gain upon an exchange of OAC Common Stock for Ocwen Financial Common Stock
and cash in lieu of a fractional share of Ocwen Financial Common Stock will not
be subject to U.S. federal income tax provided that (i) at all times the
shareholder held 5% or less of the outstanding OAC Common Stock, (ii) such gain
is not effectively connected with a U.S. trade or business conducted by the
shareholder and (iii) if the shareholder is a non-resident alien individual, he
or she is present in the United States for less than 183 days during his or her
taxable year that includes the date of the Merger.
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BACKUP FEDERAL INCOME TAX WITHHOLDING. In order to avoid "backup
withholding" of federal income tax on payments pursuant to the Merger of Ocwen
Financial Common Stock and any cash in lieu of a fractional share of Ocwen
Financial Common Stock in exchange for OAC Common Stock, an OAC shareholder
must, unless an exemption applies, provide the Exchange Agent with the
shareholder's correct taxpayer identification number ("TIN") on a substitute
Form W-9 ("Request for Taxpayer Identification Number and Certification") and
certify under penalties of perjury that such TIN is correct and that the
shareholder is not subject to backup withholding. If a correct TIN or the
certifications described above are not provided, the Internal Revenue Service
may impose a penalty and payments of Ocwen Financial Common Stock and any cash
in lieu of a fractional share of Ocwen Financial Common Stock received pursuant
to the Merger may be subject to backup withholding of 31%. All shareholders
surrendering OAC Common Stock pursuant to the Merger should complete and sign
the main signature form and the substitute Form W-9 included as part of the
transmittal forms that will be sent to OAC shareholders in order to provide the
information and certification necessary to avoid backup withholding (unless an
applicable exemption exists and is provided in a manner satisfactory to Ocwen
Financial and the Exchange Agent). Certain shareholders (including, among
others, all corporations and certain foreign individuals and entities) are not
subject to backup withholding. Noncorporate foreign shareholders of OAC should
complete and sign the main signature form and a Form W-8BEN ("Certificate of
Foreign Status of Beneficial Owner for United States Tax Withholding"), a copy
of which may be obtained from the Exchange Agent, in order to avoid backup
withholding.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. SHAREHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
TAX LAWS.
CERTAIN LITIGATION
On April 20, 1999, a complaint was filed on behalf of a putative class of
public shareholders of OAC in the Circuit Court of the Fifteenth Judicial
Circuit, Palm Beach County, Florida against Ocwen Financial and OAC and certain
directors of Ocwen Financial and OAC. On April 23, 1999, a complaint was filed
on behalf of a putative class of public shareholders of OAC in the Circuit Court
of the Fifteenth Judicial Circuit, Palm Beach County, Florida against OAC and
certain directors of OAC. The plaintiffs in both complaints seek to enjoin the
consummation of the Merger. Alternatively, in the event the Merger is
consummated, the plaintiffs seek damages for alleged breaches of common law
fiduciary duties. All defendants filed motions to dismiss the complaints, as
well as motions to consolidate the two actions. On July 22, 1999, the Court
entered an order consolidating the two actions for all purposes, including
discovery and trial, and directing the plaintiffs to file one consolidated
amended complaint no later than twenty days after OAC responds to the
outstanding offer from Ocwen Financial.
Ocwen Financial and OAC believe that the claims asserted in both complaints
are without merit and intend to vigorously defend against such actions.
It is a condition to the consummation of the Merger that no temporary
restraining order, preliminary or permanent issued by a court of competent
jurisdiction which would prevent consummation of the Merger be then in effect.
See "The Merger Agreement -- Conditions Precedent to the Merger."
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PAYMENT OF 1998 REIT DIVIDEND
It is a condition to Ocwen Financial's obligation to close the merger that
the OAC Board shall have declared prior to September 15, 1999 the dividend
necessary for OAC to retain its status as a REIT for 1998 (the "1998 REIT
Dividend) and that the record date for such dividend be at least fourteen days
prior to the Merger, provided, however, that the dividend need not be declared,
and the closing of the Merger will not be contingent on the payment of the
dividend, if the dividend would not be permitted under Virginia law. While Ocwen
Financial has agreed to provide in certain circumstances up to $25 million in
financing for OAC's operations prior to the Merger, there can be no assurance
that the 1998 REIT Dividend will be declared or that, if declared, OAC will have
sufficient funds to pay the dividend. In addition, the dividend could be
declared and paid in the form of a dividend of OAC preferred stock or some other
debt or equity security of OAC, or a combination of debt and equity securities
of OAC, the form, rights and privileges of which would be designed to satisfy
the REIT status distribution requirements.
DISSENTERS' RIGHTS
No dissenters' rights of appraisal are available in connection with the
Merger under Virginia law.
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement.
This summary is qualified in its entirety by reference to the Merger Agreement,
which is incorporated by reference in its entirety and attached to this Joint
Proxy Statement/ Prospectus as Annex I. Shareholders of OAC and Ocwen Financial
are urged to read the Merger Agreement in its entirety for a more complete
description of the Merger.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain representations and warranties by OAC
relating to a number of matters, including:
- the due organization, valid existence and good standing of OAC and its
subsidiaries;
- the capital structure of OAC;
- the authorization, execution, delivery and enforceability of the Merger
Agreement and related matters;
- the absence of any conflict with OAC's or its subsidiaries' charters and
bylaws, with certain types of agreements of OAC or its subsidiaries
(except as disclosed) or under any governmental order or law as a result
of the execution of the Merger Agreement and related matters and that,
subject to exceptions set forth in the Merger Agreement, no governmental
filings and approvals will be necessary to effect the Merger;
- the filing of documents and financial statements by OAC with the SEC and
the accuracy of information contained therein;
- the absence of certain changes or events in OAC's business or condition;
- OAC's possession of all environmental permits necessary to conduct its
business, the lack of violations by it or its subsidiaries under
applicable laws and regulations, and under orders of governmental
entities, and the absence of defaults under certain agreements;
- certain tax matters and the payment of taxes;
- the absence (except as disclosed) of material pending or threatened
litigation;
- the absence of certain compensation agreements and employee benefit
plans;
- the receipt of the opinion of OAC's financial advisor as to the fairness
of the Exchange Ratio;
- the inapplicability of Virginia's Control Share Acquisitions Statute to
the transactions contemplated by the Merger Agreement;
- environmental matters;
- title to OAC's assets; and
- brokers and finders.
However, in the Merger Agreement, OAC has made no representation or
warranty with respect to any matter of which Ocwen Financial and any of its
subsidiaries (including Ocwen Capital Corporation, the manager of OAC) has
actual or constructive knowledge at any time up to and including the Closing
Date or which results from or arises out of any
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act or omission of Ocwen Financial or any of its subsidiaries (including Ocwen
Capital Corporation) at any time up to and including the Closing Date.
The Merger Agreement also contains certain representations and warranties
by Ocwen Financial and Acquisition Sub relating to a number of matters,
including:
- the due organization, valid existence and good standing of Ocwen
Financial, Acquisition Sub and Ocwen Financial's other subsidiaries;
- the capital structure of Ocwen Financial;
- the authorization, execution, delivery and enforceability of the Merger
Agreement and related matters;
- the absence of any conflict with Ocwen Financial's or its subsidiaries'
charters and bylaws, with certain types of agreements of Ocwen Financial
or its subsidiaries or under any governmental order or law as a result of
the execution of the Merger Agreement and related matters and that,
subject to exceptions set forth in the Merger Agreement, no governmental
filings and approvals will be necessary to effect the Merger;
- the filing of documents and financial statements by Ocwen Financial with
the SEC and the accuracy of information contained therein;
- the absence of certain changes or events in Ocwen Financial's business or
condition;
- Ocwen Financial's possession of all environmental permits necessary to
conduct its business, the lack of violations by it or its subsidiaries
under applicable laws and regulations, and under orders of governmental
entities, and the absence of defaults under certain agreements;
- certain tax matters and the payment of taxes;
- the absence (except as disclosed) of material pending or threatened
litigation;
- the absence of changes to, and the qualification, operation and liability
under, employee benefit plans;
- labor matters;
- the receipt of the opinion of Ocwen Financial's financial advisor as to
the fairness of the Exchange Ratio;
- the vote required for approval of the Share Issuance by shareholders of
Ocwen Financial;
- environmental matters;
- title to Ocwen Financial's assets;
- the absence of certain governmental orders relating to the supervision or
regulation of financial institutions;
- the availability of funds or credit to provide interim financing to OAC;
and
- brokers and finders.
Many of the representations and warranties of OAC and Ocwen Financial
contained in the Merger Agreement are qualified by references to materiality.
The Merger Agreement defines a material adverse effect similarly for OAC and
Ocwen Financial to mean a material adverse effect on the business, properties,
assets, financial condition or
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results of operations of OAC or Ocwen Financial and their respective
subsidiaries taken as a whole, except that such term does not encompass any
"mark to market" or other revaluation of the book value of the assets of OAC or
Ocwen Financial effected pursuant to generally accepted accounting principles.
CERTAIN COVENANTS AND AGREEMENTS
CONDUCT OF BUSINESS OF OAC. OAC has agreed, for itself and its
subsidiaries, that during the period from the date of the Merger Agreement to
the Effective Time, it will carry on its businesses in the ordinary course as
currently conducted and use commercially reasonable efforts to preserve intact
its current business organization, goodwill, ongoing businesses and its status
as a REIT within the meaning of the Code. Without limiting the foregoing, with
certain exceptions, the Merger Agreement limits OAC's and its subsidiaries'
ability, without the prior recommendation or consent of the Manager, to:
- pay any dividends other than the 1998 REIT Dividend, split, combine or
reclassify its capital stock or authorize the issuance of any other
securities in respect of shares of its capital stock or acquire any
shares of its capital stock or any rights to acquire any such shares;
- except as otherwise contemplated by the Merger Agreement, amend its
charter, by-laws, partnership agreement or other comparable
organizational documents;
- with certain exceptions (including upon the exchange of limited
partnership units in Ocwen Partnership), issue, sell or otherwise
encumber capital stock or any related warrants or options;
- acquire or agree to acquire (i) by merging or consolidating with, or by
purchasing a substantial portion of the assets in, any business
organization or (ii) any assets that are material, individually or in the
aggregate, to OAC and its subsidiaries, taken as a whole;
- prepare or file any tax return inconsistent with past practice or take
any position, make any election, or adopt any method with respect to
taxes that is inconsistent with positions taken, elections made or
methods used in prior periods (unless required by law or necessary to
preserve or terminate OAC's status as a REIT as contemplated by the
Merger Agreement or the status of any OAC subsidiary that is a
partnership as a partnership for federal tax purposes);
- change in any material manner any of its accounting methods, principles
or practices;
- settle or compromise any material litigation relating to taxes;
- without Ocwen Financial's consent, which shall not be unreasonably
withheld, settle any stockholder derivative or class action claims
arising out of or in connection with the Merger;
- without Ocwen Financial's consent, enter into or amend any material
agreement or arrangement with affiliates, officers, directors or
employees;
- alter its corporate structure or ownership, except that OAC may, no
earlier than November 30, 1999, take such action in connection with
terminating its status as a REIT;
- incur any indebtedness or guarantee any such indebtedness or make any
loans, advances or capital contributions to any other person, except to
the extent permitted
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by existing indebtedness of OAC or any of its subsidiaries and except for
any indebtedness, guarantees, loans, advances or capital contributions
between OAC and any of its subsidiaries; or
- enter into, amend or terminate any agreement material to OAC and its
subsidiaries, taken as a whole.
NO SOLICITATION. Pursuant to the Merger Agreement, OAC has agreed that it,
its affiliates and their respective officers, directors, employees,
representatives and agents shall immediately cease any existing discussions or
negotiations, if any, with any parties conducted prior to the date of the Merger
Agreement with respect to any acquisition or exchange of all or any material
portion of the assets of, or any equity interest in, OAC or any of its
subsidiaries or any business combination with OAC or any of its subsidiaries. In
addition, subject to the right of the OAC Board to participate in discussions
and negotiations with persons making unsolicited requests for information, OAC
agreed that it would not directly or indirectly, through any officer, director,
employee, agent, investment banker, financial advisor, attorney, accountant,
broker, finder or other representative, initiate or solicit (including by way of
furnishing nonpublic information or assistance) any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to, any
Competing Transaction (as defined below), or authorize or permit any of its
officers, directors, employees, agents, attorneys, investment bankers, financial
advisors, accountants, brokers, finders or other representatives to take any
such action. OAC has agreed to notify Ocwen Financial in writing (as promptly as
practicable) of all of the material details relating to all inquiries and
proposals which it or any such officer, director, employee, agent, investment
banker, financial advisor, attorney, accountant, broker, finder or other
representative may receive relating to any transaction that constitutes, or may
reasonably be expected to lead to, any Competing Transaction and if such inquiry
or proposal is in writing, OAC has agreed to deliver to Ocwen Financial a copy
of such inquiry or proposal.
"Competing Transaction" means any of the following: (i) any merger,
consolidation, share exchange, business combination, or similar transaction
involving OAC (or any of its subsidiaries); (ii) any tender offer or exchange
offer for 5% or more of the outstanding shares of capital stock of OAC (or any
of its subsidiaries) or the filing of a registration statement under the
Securities Act in connection therewith; (iii) any proposal or offer to acquire
in any manner, directly or indirectly, an equity interest in, any voting
securities of, or all or substantially all of the assets of OAC or any of its
subsidiaries; or (iv) any public announcements of a proposal, plan or intention
to do any of the foregoing or any agreement to engage in any of the foregoing.
STOCK OPTIONS. The only outstanding option to purchase OAC Common Stock is
the option dated May 19, 1997 granted to Ocwen Capital Corporation under the OAC
1997 Stock Option Plan to acquire 1,912,500 shares of OAC Common Stock. Ocwen
Financial has agreed to cause such option to be terminated on or prior to the
Closing Date.
MANAGEMENT AGREEMENT. OAC has agreed that, so long as the Merger Agreement
is in effect, it will not terminate the Management Agreement, except for cause
as provided in the Management Agreement. In addition, OAC has agreed to extend
the Management Agreement through December 31, 1999 if the merger has not closed
by November 19, 1999.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. For a period of six
years from and after the Effective Time, Ocwen Financial has agreed to indemnify
the directors,
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officers, employees or agents of Ocwen who at any time prior to the Effective
Time were entitled to indemnification under the Articles of Incorporation and
Bylaws of OAC, or employment agreements or indemnity agreements between OAC and
its officers or directors existing on the date of the Merger Agreement to the
same extent as such directors, officers, employees or agents are entitled to
indemnification under such Articles of Incorporation and Bylaws or existing
employment agreements or indemnity agreements in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, the
transactions contemplated by the Merger Agreement).
Ocwen Financial has also agreed to provide "run-off" or "tail" director and
officer liability coverage to the current and prior directors and officers of
OAC without reduction of existing coverage (both as to dollar limits of coverage
and as to the subject matter insured against) for a period of six years after
the Effective Time; provided, that if, at any time during such six-year period,
such coverage is not reasonably available in the insurance market, Ocwen
Financial has agreed to provide such "run-off" or "tail" director and officer
liability coverage to such directors and officers as it is able to purchase for
an annual premium equal to twice the annual insurance premium paid by OAC for
director and officer liability insurance during 1999; and provided, further,
that in the sixth year, Ocwen Financial shall not be obligated to pay a premium
for such insurance in excess of the premium paid in the fifth year.
CONDITIONS PRECEDENT TO THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective
obligations of each party to effect the Merger are subject to the fulfillment of
the following conditions:
- SHAREHOLDER APPROVAL. Approval of the Merger Agreement by the requisite
vote of shareholders of OAC in accordance with applicable law and the OAC
Charter and the OAC Bylaws and approval of the Share Issuance by the
requisite vote of shareholders of Ocwen Financial in accordance with
applicable law and the Ocwen Financial Charter and the Ocwen Financial
Bylaws.
- STOCK EXCHANGE LISTING. The authorization of the Ocwen Financial Common
Stock issuable in the Merger for listing on the New York Stock Exchange,
subject to official notice of issuance.
- GOVERNMENTAL APPROVALS. All material actions by or in respect of filings
with any governmental entity required for the consummation of the Merger
or any of the other transactions contemplated by the Merger Agreement
having been obtained or made.
- REGISTRATION STATEMENT. The effectiveness of the registration statement
of which this Joint Proxy Statement/Prospectus is a part in accordance
with the provisions of the Securities Act; the absence of any stop order
suspending the effectiveness of the registration statement having been
issued by the SEC and the absence of any proceedings for that purpose
having been initiated or, to the knowledge of Ocwen Financial or OAC,
threatened by the SEC.
- NO INJUNCTIONS OR RESTRAINTS. The absence of any temporary restraining
order, preliminary or permanent injunction or other order having been
issued by any court of competent jurisdiction or other legal restraint or
prohibition which is then in effect and which would prevent the
consummation of the Merger or any of the other transactions contemplated
by the Merger Agreement.
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CONDITIONS TO OBLIGATION OF OAC TO EFFECT THE MERGER. The obligation of
OAC to effect the Merger shall be subject to the fulfillment of the following
additional conditions:
- REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Ocwen Financial set forth in the Merger Agreement being true and correct
in all material respects as of the date of the Merger Agreement and as of
the Closing Date, as though made on and as of the Closing Date, except to
the extent the representation or warranty is expressly limited by its
terms to another date, and OAC having received a certificate (which
certificate may be qualified by knowledge to the same extent as such
representations and warranties are so qualified) signed on behalf of
Ocwen Financial by its chief executive officer or chief financial officer
to such effect. This condition shall be deemed satisfied notwithstanding
any failure of a representation or warranty of Ocwen Financial to be true
and correct in all material respects as of the Closing Date if the
aggregate amount of Ocwen Financial Economic Losses (as defined below)
that would reasonably be expected to arise as a result of the failures of
such representations and warranties to be true and correct in all
material respects as of the Closing Date does not exceed $20,000,000.
"Ocwen Financial Economic Losses" means any and all net damage, net loss,
net liability or expense suffered by Ocwen Financial and its subsidiaries
taken as a whole, but shall not include any claims, damages, loss,
expense or other liability resulting from any class action or
shareholders' derivative lawsuits relating to the Merger against Ocwen
Financial, if any, filed subsequent to the date of the Merger Agreement,
any replacement, refinancing or extension of the maturity date of any
debt existing as of the date of the Merger Agreement to the extent such
replacement, refinancing or extension does not result in any additional
net liability of Ocwen Financial or its subsidiaries taken as a whole, or
any amounts paid or expenses or liabilities incurred by Ocwen Financial
in fulfilling its obligations under, or taking any action required or
permitted by, the Merger Agreement.
- PERFORMANCE OF OBLIGATIONS. Ocwen Financial having performed in all
material respects all obligations required to be performed by it under
the Merger Agreement at or prior to the Effective Time, and OAC having
received a certificate of Ocwen Financial signed on behalf of its chief
executive officer or chief financial officer to such effect.
- CONSENTS. All consents and waivers from third parties necessary in
connection with the consummation of the Merger by Ocwen Financial and the
other transactions contemplated by the Merger Agreement having been
obtained, other than such consents and waivers from third parties, which,
if not obtained, would not result, individually or in the aggregate, in
Ocwen Financial Economic Losses of $20,000,000 or more.
- SOLVENCY. A bankruptcy event, as described in the Indenture, dated as of
September 30, 1996, between Ocwen Financial and Bank One, Columbus, NA,
not having occurred and being continuing.
CONDITIONS TO OBLIGATIONS OF OCWEN FINANCIAL AND ACQUISITION SUB TO EFFECT
THE MERGER. The obligations of Ocwen Financial to effect the Merger are subject
to the fulfillment of the following additional conditions:
- REPRESENTATIONS AND WARRANTIES. The representations and warranties of
OAC set forth in the Merger Agreement being true and correct in all
material respects as of the date of the Merger Agreement and as of the
Closing Date, as though made on
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and as of the Closing Date, except to the extent the representation or
warranty is expressly limited by its terms to another date, and Ocwen
Financial having received a certificate (which certificate may be
qualified by knowledge to the same extent as such representations and
warranties are so qualified) signed on behalf of OAC by its Chairman or
President to such effect. This condition shall be deemed satisfied
notwithstanding any failure of a representation or warranty of OAC to be
true and correct in all material respects as of the Closing Date if the
aggregate amount of OAC Economic Losses (as defined below) that would
reasonably be expected to arise as a result of the failures of such
representations and warranties to be true and correct in all material
respects as of the Closing Date does not exceed $10,000,000. "OAC
Economic Losses" means any and all net damage, net loss, net liability or
expense suffered by OAC and its subsidiaries taken as a whole, but shall
not include any claims, damages, loss, expense or other liability
resulting from any class action or shareholders' derivative lawsuits
relating to the Merger against OAC, if any, filed subsequent to the date
of the Merger Agreement, any replacement, refinancing or extension of the
maturity date of any debt existing as of the date of the Merger Agreement
to the extent such replacement, refinancing or extension does not result
in any additional net liability of OAC or its subsidiaries taken as a
whole, any amounts paid or expenses or liabilities incurred by OAC in
fulfilling its obligations under, or taking any action required or
permitted by, the Merger Agreement, or any "mark to market" or other
revaluation of the book value of OAC's assets effected pursuant to GAAP.
- PERFORMANCE OF OBLIGATIONS. OAC having performed in all material
respects all obligations required to be performed by it under the Merger
Agreement at or prior to the Effective Time, and Ocwen Financial having
received a certificate signed on its behalf by its Chairman or President
to such effect.
- CONSENTS. All consents and waivers from third parties necessary in
connection with the consummation of the Merger by OAC and the other
transactions contemplated by the Merger Agreement having been obtained,
other than such consents and waivers from third parties, which, if not
obtained, would not result, individually or in the aggregate, in OAC
Economic Losses of $10,000,000 or more.
- 1998 REIT DIVIDEND. The Board of Directors of OAC having declared the
1998 REIT Dividend prior to September 15, 1999, with a record date at
least 14 days before the Merger. This condition shall not apply if after
giving effect to the 1998 REIT Dividend, the 1998 REIT Dividend would
have either of the effects under the provisions of the Virginia Stock
Corporation Act described under "Comparison of Rights of OAC Shareholders
and Ocwen Financial Shareholders -- Dividends."
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the shareholders of OAC and Ocwen
Financial of the matters presented in connection with the Merger:
(a) by the mutual written consent of Ocwen Financial and OAC;
(b) by either Ocwen Financial or OAC, upon a breach by the other party
of any representation, warranty, covenant or agreement by such other party
set forth in the Merger Agreement which breach cannot be cured within 30
days after the giving of written notice thereof to such other party,
provided that such breach would be
50
<PAGE> 59
reasonably likely, individually or in the aggregate with other breaches, to
result in a material adverse effect;
(c) by either Ocwen Financial or OAC, if any judgment, injunction,
order, decree or action by any governmental entity of competent authority
preventing the consummation of the Merger shall have become final and
nonappealable;
(d) by either Ocwen Financial or OAC, if the Merger shall not have
been consummated before December 31, 1999; provided, however, that the
right to terminate the Merger Agreement for this reason shall not be
available to any party whose failure to fulfill any of its obligations
contained in the Merger Agreement has been the cause of, or resulted in,
the failure of the Merger to have occurred on or prior to December 31,
1999;
(e) by either Ocwen Financial or OAC if, upon a vote at the OAC
Meeting or any adjournment thereof, approval by the OAC shareholders of the
Merger Agreement shall not have been obtained;
(f) by OAC, if prior to the OAC Meeting, the OAC Board shall have
withdrawn or modified in compliance with the Merger Agreement in any manner
adverse to Ocwen Financial its approval or recommendation of the Merger or
the Merger Agreement;
(g) by Ocwen Financial, if (i) prior to the OAC Meeting, the OAC Board
shall have withdrawn or modified in any manner adverse to Ocwen Financial
its approval or recommendation of the Merger or the Merger Agreement in
connection with, or approved or recommended, any Superior Competing
Transaction (as defined below), (ii) OAC shall have entered into any
agreement with respect to any Competing Transaction (other than a
confidentiality agreement as contemplated by the Merger Agreement), or
(iii) prior to the OAC Meeting, the OAC Board shall have withdrawn or
modified in any manner adverse to Ocwen Financial its approval or
recommendation of the Merger or the Merger Agreement for any reason other
than as specified in clause (i) above;
(h) by OAC, by action of its Board of Directors, in the circumstances
described under "The Merger -- Merger Consideration."
"Superior Competing Transaction" means a bona fide proposal of a Competing
Transaction made by a third party which a majority of the members of the OAC
Board determines in good faith to be more favorable to its shareholders than the
Merger and which is accompanied by, if applicable, an appropriate financing
commitment.
FEES AND EXPENSES
Except as described below or agreed in writing by the parties, all
out-of-pocket costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby shall be paid by the party
incurring such cost or expense, provided that all printing expenses associated
with this Joint Proxy Statement/Prospectus shall be divided equally between
Ocwen Financial and OAC.
OAC has agreed that if the Merger Agreement is terminated pursuant to
paragraph (f), (g)(i), (g)(ii) or (g)(iii) under "-- Termination" above, but in
the case of termination pursuant to paragraph (g)(iii), only if OAC agrees to a
Competing Transaction within three months after termination thereunder, then OAC
will pay to Ocwen Financial an amount equal to $3,000,000 (the "Break-Up Fee").
Payment of the
51
<PAGE> 60
Break Up Fee shall be made, as directed by Ocwen Financial, by wire transfer of
immediately available funds only and promptly after OAC shall have entered into
any agreement with respect to any Competing Transaction.
Each of Ocwen Financial and OAC has agreed that if the Merger Agreement is
terminated pursuant to paragraph (b) under "-- Termination" above, then the
breaching party will pay to the non-breaching party an amount equal to the
non-breaching party's out-of-pocket expenses incurred in connection with the
Merger Agreement, up to $1,000,000.
INTERIM FINANCING OF OAC'S OPERATIONS
If requested by the OAC Board following its reasonable good faith
determination that incurring such indebtedness is necessary, Ocwen Financial has
agreed to provide secured financing to OAC in the amount of up to $25 million,
to be provided on an arm's-length basis and on terms consistent with market
conditions and applicable debt covenants. However, the OAC Board has agreed to
consider in good faith the recommendation of the Manager regarding such
financing, including any alternatives recommended by the Manager, including the
sale of assets of OAC. OAC will be obligated to repay this financing immediately
upon termination of the Merger Agreement pursuant to paragraphs (f) or (g) under
"-- Termination" above.
AMENDMENT; WAIVER
The Merger Agreement may be amended by the parties in writing by action of
their respective Boards of Directors at any time before or after the approval of
the matters presented in connection with the Merger Agreement to the OAC
shareholders. After such approval is obtained, no such amendment, modification
or supplement may alter the amount or change the form of the consideration to be
delivered to OAC's shareholders.
Pursuant to the Merger Agreement, at any time prior to the Effective Time,
each of OAC and Ocwen Financial may (a) extend the time for the performance of
any of the obligations or other acts of the other party, (b) waive any
inaccuracies in the representations and warranties of the other party contained
in the Merger Agreement or in any document delivered pursuant to the Merger
Agreement or (c) waive compliance with any of the agreements or conditions of
the other party contained in the Merger Agreement. Any agreement on the part of
a party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
REGULATORY MATTERS
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the U.S. Department of Justice (the "Antitrust Division")
and specified waiting periods have been terminated or have expired. OAC and
Ocwen Financial each filed notification and report forms under the HSR Act with
the FTC and the Antitrust Division on , 1999. At any time before or
after consummation of the Merger, the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the consummation of the Merger or
seeking divestiture of substantial assets of OAC or Ocwen Financial. The
Antitrust Division has the authority to challenge the Merger on antitrust
grounds before or after the Merger is completed.
52
<PAGE> 61
Ocwen Financial and OAC are not aware of any material governmental or
regulatory approvals required to be obtained in order to consummate the Merger,
other than compliance with the HSR Act and compliance with applicable federal
and state securities and corporate laws.
53
<PAGE> 62
OCWEN FINANCIAL UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Financial Information and
explanatory Notes are presented to show the impact on the historical financial
position and results of operations of Ocwen Financial of the proposed
combination with OAC.
In accordance with the Merger Agreement, each share of OAC Common Stock
outstanding at the effective time of the Merger (other than shares owned by
Ocwen Financial or its subsidiaries) will be converted into the right to receive
0.71 of a share of Ocwen Financial Common Stock. Fractional shares will be paid
in cash.
The Unaudited Pro Forma Condensed Financial Information reflects the Merger
using the purchase method of accounting.
The Unaudited Pro Forma Condensed Balance Sheet assumes that the Merger was
consummated on June 30, 1999. The Unaudited Pro Forma Condensed Statements of
Income reflect the consolidation of the results of operations of Ocwen Financial
and OAC for the year ended December 31, 1998 and the six months ended June 30,
1999 as if the Merger had been consummated on January 1, 1998.
The Unaudited Pro Forma Condensed Financial Information reflects
preliminary purchase accounting adjustments. Estimates relating to the fair
value of certain assets, liabilities and other items have been made as more
fully described in the Notes to the Unaudited Pro Forma Condensed Financial
Information. Actual adjustments, which may include adjustments to additional
assets, liabilities and other items, will be made on the basis of appraisals and
evaluations as of the effective time of the Merger and, therefore, will differ
from those reflected in the Unaudited Pro Forma Condensed Financial Information.
Ocwen Financial does not believe the actual adjustments will be materially
different from those herein.
The pro forma earnings are not indicative of the results of future
operations.
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<PAGE> 63
UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
OCWEN PRO FORMA PRO FORMA
FINANCIAL OAC ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from depository institutions................... $ 107,476 $ 5,163 $ (2,414)(2) $ 110,225
Interest earning deposits................................... 18,127 27,210 -- 45,337
Federal funds sold.......................................... 75,000 -- -- 75,000
Securities available for sale............................... 733,271 284,488 -- 1,017,759
Loans available for sale.................................... 132,425 -- -- 132,425
Investment securities....................................... 10,825 -- -- 10,825
Loan portfolio.............................................. 133,678 85,542 (834)(1) 218,386
Match-funded residential loans.............................. -- 135,858 (10,035)(1) 125,823
Discount loan portfolio..................................... 1,008,764 5,618 128(1) 1,014,510
Investments in low income housing tax credits............... 180,566 -- -- 180,566
Investments in unconsolidated entities...................... 79,958 -- (38,859)(2) 41,099
Real estate owned........................................... 183,162 -- -- 183,162
Investment in real estate................................... 22,256 211,368 (45,777)(1) 187,847
Premises and equipment...................................... 43,805 -- -- 43,805
Income taxes receivable..................................... 36,627 -- -- 36,627
Deferred tax asset.......................................... 68,279 -- 23,143(1) 91,422
Excess of purchase price over net assets acquired........... 17,030 -- -- 17,030
Principal, interest and dividends receivable................ 11,798 4,353 -- 16,151
Escrow advances on loans.................................... 107,097 -- -- 107,097
Other assets................................................ 42,123 19,009 (5,809)(1) 53,402
(1,921)(2)
---------- -------- --------- ----------
$3,012,267 $778,609 $ (82,378) $3,708,498
========== ======== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Deposits.................................................... $1,874,553 $ -- $ (2,414)(2) $1,872,139
Securities sold under agreements to repurchase.............. 133,741 73,847 -- 207,588
Obligations outstanding under lines of credit............... 94,039 41,015 -- 135,054
Obligations outstanding under lines of credit -- secured by
real estate............................................... -- 143,756 -- 143,756
Notes, debentures and other interest bearing obligations.... 279,236 143,000 (18,394)(1) 403,842
Bonds -- match funded loan agreement........................ -- 124,209 439(1) 124,648
Accrued interest payable.................................... 27,318 -- -- 27,318
Accrued expenses, payables and other liabilities............ 41,928 22,806 19,289(1) 82,102
(1,921)(2)
Negative goodwill........................................... -- -- 48,790(1) 48,790
---------- -------- --------- ----------
Total liabilities....................................... 2,450,815 548,633 45,789 3,045,237
---------- -------- --------- ----------
Company-obligated, mandatorily redeemable securities of
subsidiary trust holding solely junior subordinated
debentures of the Company................................. 125,000 -- 125,000
Minority interest........................................... 465 21,968 (21,968)(1) 465
SHAREHOLDERS' EQUITY:
Preferred stock............................................. -- -- --
Common stock................................................ 608 190 (66)(1) 732
Treasury stock.............................................. (1,832) (1,832)
Additional paid-in capital.................................. 166,262 294,492 (192,807)(1) 267,947
Retained earnings........................................... 262,953 (65,345) 65,345(1) 262,953
Cumulative dividends declared............................... -- (36,278) 36,278(1) --
Accumulated other comprehensive income:
Unrealized gain (loss) on securities available for sale... 9,947 16,365 (16,365)(1) 9,947
Net unrealized foreign currency translation loss.......... (1,951) (1,416) 1,416(1) (1,951)
---------- -------- --------- ----------
Total shareholders' equity.............................. 435,987 208,008 (106,199) 537,796
---------- -------- --------- ----------
$3,012,267 $778,609 $ (82,378) $3,708,498
========== ======== ========= ==========
</TABLE>
55
<PAGE> 64
UNAUDITED CONDENSED PRO FORMA INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
OCWEN PRO FORMA PRO FORMA
FINANCIAL OAC ADJUSTMENTS COMBINED
----------- ---------- ------------- -----------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Federal funds sold and repurchase agreements.............. $ 5,454 $ 43 $ -- $ 5,497
Securities available for sale............................. 32,848 25,702 -- 58,550
Loans available for sale.................................. 19,144 -- -- 19,144
Loans..................................................... 15,044 4,147 -- 19,191
Discount loans............................................ 55,556 259 -- 55,815
Match-funded residential loans............................ -- 6,327 -- 6,327
Investment securities and other........................... 1,035 778 (61)(2) 1,752
-------- -------- --------- ---------
129,081 37,256 (61) 166,276
-------- -------- --------- ---------
INTEREST EXPENSE:
Deposits.................................................. 50,387 -- (61)(2) 50,326
Securities sold under agreements to repurchase............ 3,772 4,681 -- 8,453
Advances from the Federal Home Loan Bank.................. 37 -- -- 37
Obligations outstanding under lines of credit............. 9,017 1,313 -- 10,330
Notes, debentures and other interest bearing
obligations............................................. 13,423 8,266 -- 21,689
Bonds -- match-funded loan agreements..................... -- 4,776 -- 4,776
-------- -------- --------- ---------
76,636 19,036 (61) 95,611
-------- -------- --------- ---------
Net interest income before provision for loan losses...... 52,445 18,220 -- 70,665
Provision for loan losses................................... 4,362 479 -- 4,841
-------- -------- --------- ---------
Net interest income after provision for loan losses....... 48,083 17,741 -- 65,824
-------- -------- --------- ---------
NON-INTEREST INCOME:
Servicing fees and other charges.......................... 37,180 -- (1,352)(2) 35,828
(Loss) gain on interest earning assets, net............... 14,275 (31,362) -- (17,087)
Gain of real estate owned, net............................ 3,306 -- -- 3,306
Other non-interest income................................. 15,625 -- (3,055)(2) 12,570
-------- -------- --------- ---------
70,386 (31,362) (4,407) 34,617
-------- -------- --------- ---------
NON-INTEREST EXPENSE:
Compensation and employee benefits........................ 51,540 -- -- 51,540
Occupancy and equipment................................... 19,369 -- -- 19,369
Net operating loss on investments in real estate and
certain low-income housing tax credit interests......... 3,221 494 -- 3,715
Amortization of excess of purchase price over net assets
acquired and negative goodwill.......................... 487 -- (4,879)(3) (4,392)
Loan expenses............................................. 6,780 -- -- 6,780
Real estate due diligence expenses........................ -- 123 -- 123
Other non-interest expenses............................... 18,511 6,659 (4,407)(2) 20,763
-------- -------- --------- ---------
99,908 7,276 (9,286) 97,898
-------- -------- --------- ---------
Distributions on Company-obligated, mandatory redeemable
securities of subsidiary trust holding solely junior
subordinated debentures................................. 6,797 -- -- 6,797
Equity in (losses) earnings of investments in
unconsolidated entities................................. (4,713) -- 3,486(2) (1,227)
-------- -------- --------- ---------
(Loss) income before income taxes......................... 7,051 (20,897) 8,365 (5,481)
Income tax benefit (expense).............................. (1,396) -- (722)(4) (2,118)
Minority interest in net loss of consolidated
subsidiary.............................................. 128 1,946 (1,946)(2) 128
-------- -------- --------- ---------
Net income (loss)......................................... $ 5,783 $(18,951) $ 5,697 $ (7,471)
======== ======== ========= =========
Net income (loss) per share:
Basic..................................................... $ 0.10 $ (1.00) -- $ (0.10)
Diluted................................................... 0.10 (1.00) -- (0.10)
Weighted average shares outstanding:
Basic..................................................... 60,765 18,965 -- 73,137
Diluted................................................... 60,807 18,965 -- 73,179
</TABLE>
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<PAGE> 65
UNAUDITED CONDENSED PRO FORMA INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
OCWEN PRO FORMA PRO FORMA
FINANCIAL OAC ADJUSTMENTS COMBINED
----------- ---------- ------------- -----------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Federal funds sold and repurchase agreements.............. $ 7,930 $ 482 $ -- $ 8,412
Securities held for trading............................... -- 107 -- 107
Securities available for sale............................. 40,705 43,446 -- 84,151
Loans available for sale.................................. 56,791 -- -- 56,791
Loans..................................................... 38,609 14,160 -- 52,769
Discount loans............................................ 160,847 2,117 -- 162,964
Match-funded residential loans............................ -- 1,915 -- 1,915
Investment securities and other........................... 2,812 731 (121)(2) 3,422
-------- -------- -------- --------
307,694 62,958 (121) 370,531
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits.................................................. 116,584 -- (121)(2) 116,463
Securities sold under agreements to repurchase............ 6,514 11,683 -- 18,197
Advances from the Federal Home Loan Bank.................. 120 -- -- 120
Obligations outstanding under lines of credit............. 34,587 6,515 -- 41,102
Notes, debentures and other interest bearing
obligations............................................. 27,088 7,799 -- 34,887
Bonds -- match-funded loan agreements..................... -- 1,531 -- 1,531
-------- -------- -------- --------
184,893 27,528 (121) 212,300
-------- -------- -------- --------
Net interest income before provision for loan losses...... 122,801 35,430 -- 158,231
Provision for loan losses................................... 18,509 642 -- 19,151
-------- -------- -------- --------
Net interest income after provision for loan losses....... 104,292 34,788 -- 139,080
-------- -------- -------- --------
NON-INTEREST INCOME:
Servicing fees and other charges.......................... 59,180 -- (2,400)(2) 56,780
(Loss) gain on interest earning assets, net............... (1,594) (86,267) -- (87,861)
Gain on sale of real estate owned, net.................... 14,033 -- -- 14,033
Other non-interest income................................. 39,696 -- (5,892)(2) 33,804
-------- -------- -------- --------
111,315 (86,267) (8,292) 16,756
-------- -------- -------- --------
NON-INTEREST EXPENSE:
Compensation and employee benefits........................ 115,556 -- -- 115,556
Occupancy and equipment................................... 34,878 -- -- 34,878
Net operating loss (income) on investments in real estate
and certain low-income housing tax credit interests..... 6,753 (1,140) -- 5,613
Amortization and write-off of excess of purchase price
over net assets acquired and negative goodwill.......... 11,614 -- (9,758)(3) 1,856
Loan expenses............................................. 25,193 -- -- 25,193
Real estate due diligence expenses........................ -- 1,818 -- 1,818
Foreign currency loss..................................... -- (117) -- (117)
Other non-interest expenses............................... 32,400 11,616 (8,292)(2) 35,724
-------- -------- -------- --------
226,394 12,177 (18,050) 220,521
-------- -------- -------- --------
Distributions on Company-obligated, mandatory redeemable
securities of subsidiary trust holding solely junior
subordinated debentures................................... 13,594 -- -- 13,594
Equity in (losses) earnings of investments in unconsolidated
entities.................................................. (7,985) -- 8,701(2) 716
-------- -------- -------- --------
(Loss) before income taxes.................................. (32,366) (63,656) 18,459 (77,563)
Income tax benefit (expense)................................ 30,699 -- (15,566)(4) 15,133
Minority interest in net loss of consolidated subsidiary.... 467 4,855 (4,855)(2) 467
-------- -------- -------- --------
Net (loss) from operations before extraordinary item........ $ (1,200) $(58,801) $ (1,962) $(61,963)
======== ======== ======== ========
Net (loss) from operations before extraordinary item per
share:
Basic..................................................... $ (0.02) $ (3.10) -- $ (0.85)
Diluted................................................... (0.02) (3.10) -- (0.85)
Weighted average shares outstanding:
Basic..................................................... 60,737 18,965 -- 73,093
Diluted................................................... 60,737 18,965 -- 73,093
</TABLE>
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<PAGE> 66
NOTES TO THE UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT SHARE PRICE)
The Unaudited Pro Forma Condensed Financial Information is based on the
following adjustments and related assumptions; the actual purchase accounting
adjustments will be made on the basis of appraisals and evaluations as of the
date of consummation of the Merger and, therefore, will differ from those
reflected in the Unaudited Pro Forma Condensed Financial Information. Ocwen
Financial believes that the actual adjustments, in the aggregate, will not be
materially different from those herein.
NOTE 1 -- PRELIMINARY PURCHASE ACCOUNTING ADJUSTMENTS
The purchase accounting adjustments to record the merger used in the
preparation of the Unaudited Pro Forma Condensed Balance Sheet as of June 30,
1999 are summarized below:
<TABLE>
<S> <C>
Shares of OAC Common Stock outstanding, net of shares owned
by Ocwen Financial and its wholly-owned subsidiaries...... 17,425(A)
Exchange Ratio.............................................. 0.71
---------
Ocwen Financial Common Stock equivalent..................... 12,372
Assumed Ocwen Financial Share Price......................... $ 7.825(B)
---------
Preliminary purchase price.................................. $ 96,809
Estimated merger-related transaction costs.................. 5,000
---------
Total purchase price........................................ 101,809
Historical net assets of OAC acquired....................... 191,117
---------
Net assets in excess of purchase price...................... $ (89,308)
=========
Adjustments to fair value of net assets of OAC acquired:
Loan portfolio............................................ $ (834)(C)
Match-funded residential loans............................ (10,035)(C)
Discount loan portfolio................................... 128(C)
Investment in real estate................................. (45,777)(D)
Deferred tax asset........................................ 23,143(E)
Other assets.............................................. (5,809)(C)
Notes, debentures and other interest bearing
obligations............................................ 18,394(C)
Bonds -- match funded loan agreements..................... (439)(C)
Accrued expenses, payables and other liabilities.......... (19,289)(F)
Negative goodwill......................................... (48,790)(G)
---------
$ (89,308)
=========
</TABLE>
- -------------------------
(A) The number of shares of OAC Common Stock to be exchanged will be those
outstanding immediately prior to the effective time of the Merger (other
than those owned by Ocwen Financial and its wholly-owned subsidiaries). The
number of shares of OAC Common Stock outstanding on June 30, 1999 has been
used in the pro forma computations.
(B) Average Ocwen Financial Common Stock price for the five day period
immediately before and after the merger announcement date of July 26, 1999.
(C) Represents the amounts recorded to adjust the carrying values of the
respective OAC assets and liabilities to fair value.
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<PAGE> 67
(D) Primarily represents the allocation of a portion of the net assets in excess
of purchase price to certain investments in real estate.
(E) Represents the estimated net deferred tax asset, using an effective tax rate
of 37%, associated with the differences between the tax basis and book basis
of the net OAC assets acquired and the impact of the pro forma adjustments
net of a valuation allowance of $39,600.
(F) Represents the final 1998 OAC dividend which, subject to certain exceptions,
is to be declared as a condition to the merger and the estimated Ocwen
Financial merger-related transaction costs. The amount of the dividend
payable recorded is based on the number of outstanding OAC Common Stock,
excluding the OAC Common Stock owned by Ocwen Financial and its wholly-owned
subsidiaries which would be eliminated in consolidation.
(G) Represents the excess of net assets acquired over the purchase price.
NOTE 2 -- INTERCOMPANY ELIMINATIONS
All material intercompany transactions and balances have been eliminated.
In the Unaudited Pro Forma Condensed Balance Sheet, the eliminations relate
to Ocwen Financial's existing investment in OAC, OAC cash deposits at Ocwen
Financial and certain other operating payables and receivables.
In the Unaudited Pro Forma Condensed Income Statement, the eliminations
relate to management and servicing fees paid by OAC to Ocwen Financial, Ocwen
Financial's pro rata share of the loss of OAC from its existing investment, and
interest income and expense on the OAC cash deposits at Ocwen Financial.
NOTE 3 -- AMORTIZATION OF NEGATIVE GOODWILL
The negative goodwill is being amortized on a straight line basis over a
period of five years.
NOTE 4 -- INCOME TAX PROVISION
As a REIT, OAC was not generally subject to income tax. As a result of the
Merger, OAC's operating results would be included with those of Ocwen Financial
and would become subject to income tax.
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<PAGE> 68
DESCRIPTION OF OCWEN FINANCIAL'S CAPITAL STOCK
Set forth below is a description of the Ocwen Financial Common Stock. The
following statements are brief summaries of, and are subject to the detailed
provisions of, Ocwen Financial's Amended and Restated Articles of Incorporation
(the "Ocwen Financial Charter"), Ocwen Financial's Amended and Restated Bylaws
(the "Ocwen Financial Bylaws") and the relevant provisions of the Florida
Business Corporation Act. See "Where You Can Find More Information."
AUTHORIZED CAPITAL STOCK
Ocwen Financial currently is authorized to issue up to 200,000,000 shares
of Ocwen Financial Common Stock. Ocwen Financial is also authorized to issue up
to 20,000,000 shares of preferred stock, par value $.01 per share ("Ocwen
Financial Preferred Stock"), in series, but has not issued any such shares. If
such shares are issued, the Ocwen Financial Board may fix the designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions of the shares of each series.
At May 7, 1999, there were 60,800,357 shares of Ocwen Financial Common
Stock outstanding and no shares of Ocwen Financial Preferred Stock were
outstanding.
DIVIDENDS
Dividends may be paid on the Ocwen Financial Common Stock if, as and when
declared by the Ocwen Financial Board, subject to compliance with limitations
imposed by law. The holders of Ocwen Financial Common Stock are entitled to
receive and share equally in such dividends as may be declared by the Ocwen
Financial Board out of the funds legally available therefor. If Ocwen Financial
issues preferred stock, the holders thereof may have a priority over the holders
of the Ocwen Financial Common Stock with respect to dividends.
Ocwen Financial has not declared or paid any cash dividends on the Ocwen
Financial Common Stock to date and does not anticipate that it will declare or
pay any such distributions in the near future.
VOTING RIGHTS
The holders of Ocwen Financial Common Stock possess exclusive voting rights
in Ocwen Financial. They elect the Ocwen Financial Board and act on such other
matters as are required to be presented to them under applicable law or the
Ocwen Financial Charter or as are otherwise presented to them by the Ocwen
Financial Board. Each share of Ocwen Financial Common Stock entitles the holder
thereof to one vote at all meetings of shareholders, and such votes may not be
cumulated in the election of directors. If Ocwen Financial issues preferred
stock, holders of the preferred stock also may possess voting rights.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of Ocwen
Financial, the holders of the then outstanding Ocwen Financial Common Stock
would be entitled to receive, after payment or provision for payment of all its
debts and liabilities, all of the assets of Ocwen Financial available for
distribution. If Ocwen Financial Preferred Stock is
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<PAGE> 69
issued, the holders thereof may have a priority over the holders of the Ocwen
Financial Common Stock in the event of liquidation or dissolution.
MISCELLANEOUS
Each share of Ocwen Financial Common Stock has the same relative rights as,
and is identical in all respects to, each other share of Ocwen Financial Common
Stock. All shares of Ocwen Financial Common Stock currently outstanding are
fully paid and nonassessable. The Ocwen Financial Common Stock represents
nonwithdrawable capital and is not subject to call for redemption. The Ocwen
Financial Common Stock is not an account of an insurable type and is not insured
by the Federal Deposit Insurance Corporation or any other governmental
authority. Holders of Ocwen Financial Common Stock are not entitled to
preemptive rights with respect to any shares that may be issued in the future.
Thus, Ocwen Financial may sell shares of Ocwen Financial Common Stock without
first offering them to the then holders of the Ocwen Financial Common Stock.
The transfer agent and registrar for the Ocwen Financial Common Stock is
The Bank of New York.
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COMPARISON OF RIGHTS OF OAC SHAREHOLDERS
AND OCWEN FINANCIAL SHAREHOLDERS
The statements set forth under this heading with respect to the Virginia
Stock Corporation Act, OAC's Restated and Amended Articles of Incorporation, as
amended (the "OAC Charter"), and By-laws (the "OAC Bylaws"), the Florida
Business Corporation Act, the Ocwen Financial Charter and the Ocwen Financial
Bylaws (copies of which have been filed as Exhibits to the Registration
Statement) are brief summaries thereof and do not purport to be complete; such
statements are subject to the detailed provisions of the FBCA, the VSCA, the OAC
Charter, the OAC Bylaws, the Ocwen Financial Charter and the Ocwen Financial
Bylaws. See "Where You Can Find More Information."
Upon consummation of the Merger and delivery of their OAC Certificates to
the Exchange Agent, shareholders of OAC will become shareholders of Ocwen
Financial. Since Ocwen Financial is a Florida corporation, the rights of the
shareholders of Ocwen Financial are governed by the applicable laws of the State
of Florida, including the FBCA, and by the Ocwen Financial Charter and the Ocwen
Financial Bylaws. Since OAC is a Virginia corporation, the rights of the
shareholders of OAC are governed by the applicable laws of the Commonwealth of
Virginia, including the VSCA, and by the OAC Charter and the OAC Bylaws.
While there are similarities between the FBCA and the VSCA as well as
between the charters and bylaws of Ocwen Financial and OAC, a number of
differences do exist. The following is a summary of certain material differences
between the current rights of Ocwen Financial shareholders and OAC shareholders
under the FBCA and the VSCA, respectively, and under the respective charters and
bylaws of Ocwen Financial and OAC.
<TABLE>
<CAPTION>
OCWEN FINANCIAL
SHAREHOLDER RIGHTS OAC SHAREHOLDER RIGHTS
----------------------------- -----------------------------
<S> <C> <C>
AUTHORIZED CAPITAL STOCK Ocwen Financial's authorized OAC's authorized capital
capital stock consists of stock consists of 200,000,000
200,000,000 shares of common shares of common stock and
stock and 20,000,000 shares 25,000,000 shares of
of preferred stock. preferred stock, $.01 par
value per share.
NUMBER OF DIRECTORS; ELECTION; Under the FBCA, a board of Under the VSCA, the number of
CLASSIFICATION directors must consist of one directors constituting the
or more individuals, with the board of directors is
number specified in or fixed specified in the articles of
in accordance with the incorporation or bylaws.
articles of incorporation or Under the OAC Bylaws, the
bylaws. The Ocwen Financial number of directors may not
Charter provides that the be less than one nor more
number of directors shall be than nine. The OAC board, by
from three to seven, with the resolution, has fixed the
exact number to be fixed by number of directors at three.
the Ocwen Financial Board or
by the shareholders. The
Ocwen Financial Board, by
resolution, has fixed the
number of directors at five.
Under the FBCA, directors are Under the VSCA, directors are
elected by a plurality of the elected by a plurality of the
votes cast at a meeting of votes cast at a meeting of
shareholders shareholders
</TABLE>
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<TABLE>
<CAPTION>
OCWEN FINANCIAL
SHAREHOLDER RIGHTS OAC SHAREHOLDER RIGHTS
----------------------------- -----------------------------
<S> <C> <C>
by the holders of shares by the holders of shares
entitled to vote in the entitled to vote in the
election. election.
The Ocwen Financial Bylaws Any vacancy on the OAC board
provide that vacancies and may be filled by a majority
newly created directorships of the remaining directors,
may be filled by election at even if less than a quorum.
a meeting of shareholders or
by written consent of the Neither the OAC Charter nor
holders of stock entitled to the OAC Bylaws provides for
vote, or, except as otherwise cumulative voting in the
provided by law or the Ocwen election of directors.
Financial Charter, by a
majority of the directors
then in office, although less
than a quorum, or by a sole
remaining director.
The FBCA permits the None of the organizational
classification of a board of documents of Ocwen Financial
directors into up to three contains a classified board
classes. None of the provision.
organizational documents of
Ocwen Financial contains a
classified board provision.
REMOVAL OF DIRECTORS The FBCA and the Ocwen Under the VSCA, a director
Financial Bylaws provide that may generally be removed by
a director may be removed the shareholders, with or
with or without cause if the without cause, if the number
number of votes cast to of votes cast to remove the
remove the director exceeds director constitutes a
the number of votes cast not majority of the votes
to remove him or her. entitled to be cast at an
election of directors of the
voting group(s) by which the
director was elected.
The OAC Bylaws provide that
the shareholders may remove a
director, with or without
cause, by the affirmative
vote of the holders of not
less than two-thirds of all
the shares entitled to vote
in the election of directors.
SPECIAL MEETINGS OF SHAREHOLDERS Under the FBCA, a special Under the VSCA, a special
meeting of shareholders may meeting of shareholders may
be called by the board of be called by the chairman of
directors, such other persons the board, the president, the
as may be authorized in the board of directors or by any
articles of incorporation or person authorized to do so in
bylaws or the holders of not the articles of incorporation
less than 10% (unless a or bylaws. The OAC Bylaws
greater percentage, but not provide that special meetings
more than 50%, is required of the shareholders of
</TABLE>
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<TABLE>
<CAPTION>
OCWEN FINANCIAL
SHAREHOLDER RIGHTS OAC SHAREHOLDER RIGHTS
----------------------------- -----------------------------
<S> <C> <C>
by the articles of OAC may be called at any time
incorporation) of all the by the OAC Board, the
votes entitled to be cast on president or a majority of
any issue proposed to be the independent directors or
considered at the meeting. upon the written request of
holders of shares entitled to
The Ocwen Financial Bylaws cast not less than 10% of all
provide that special meetings the votes entitled to be cast
of shareholders may be called at such meeting.
by the chairman of the board
or the president, and shall
be called by the chairman of
the board, the president or
the secretary when directed
to do so by resolution of the
board of directors or at the
written request of
shareholders holding at least
10% of the corporation's
stock entitled to vote at
such meeting.
SHAREHOLDER VOTING RIGHTS Under the FBCA, if a quorum Under the VSCA, with respect
GENERALLY is present, action on a to matters other than the
matter (other than the election of directors, unless
election of directors) by a a greater number of
voting group is approved if affirmative votes is required
the votes cast within the by statute or the articles of
voting group favoring the incorporation, if a quorum
action exceed the votes cast exists, action on any matter
opposing the action, unless is approved by the
the articles of incorpora- shareholders if the votes
tion or the FBCA requires a cast favoring the action
greater number of affirmative exceed the votes cast
votes. The Ocwen Financial opposing the action.
Bylaws provide that whenever
corporation action (other
than the election of
directors) is to be taken by
vote of shareholders at a
meeting, it shall, except as
otherwise required by law or
the Ocwen Financial Charter
or Bylaws, be approved if the
votes cast by the holders of
the shares represented at the
meeting and entitled to vote
on the subject matter
favoring the action exceed
the votes cast opposing the
action.
Ocwen Financial common stock OAC common stock is not
is not divided into classes divided into classes and
and holders of Ocwen holders of OAC common stock
Financial common stock are are entitled to one vote for
entitled to one each share
</TABLE>
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<TABLE>
<CAPTION>
OCWEN FINANCIAL
SHAREHOLDER RIGHTS OAC SHAREHOLDER RIGHTS
----------------------------- -----------------------------
<S> <C> <C>
vote for each share held on held on each matter upon
each matter upon which which shareholders have the
shareholders have the right right to vote.
to vote.
SHAREHOLDER VOTING IN CERTAIN The FBCA requires that the Under the VSCA, a corporation
SIGNIFICANT TRANSACTIONS sale, lease, exchange, or may sell, lease, exchange or
other disposition of all, or otherwise dispose of all, or
substantially all, the substantially all, of its
property and assets of a property, other than in the
corporation or a plan or usual and regular course of
merger or plan of share business, if the proposed
exchange must be approved by transaction is approved by
the shareholders by a more than two-thirds of all
majority of all the votes the votes entitled to be cast
entitled to be cast thereon, thereon. A merger or share
unless the FBCA, the articles exchange plan must be
of incorporation or the board approved by each voting group
of directors requires a entitled to vote separately
greater vote or a vote by on the plan by more than
voting groups or classes. two-thirds of all the votes
entitled to be cast on the
plan by that voting group.
The articles of incorporation
may provide for a greater or
lesser vote, but not less
than a majority of all the
votes cast on the transaction
by each voting group entitled
to vote on the transaction.
The OAC Charter does not
provide for a greater or
lesser vote.
Under the FBCA, a board of The VSCA generally provides
directors may propose one or that the articles of
more amendments to the incorporation may be amended
articles of incorporation for through a proposal submitted
submission to the by the board of directors to
shareholders. Unless the the shareholders for their
FBCA, the articles of approval. Unless the articles
incorporation or the board of of incorporation provide
directors requires a greater otherwise, the amendment to
vote or a vote by voting be adopted must be approved
groups, the amendment to be by each voting group entitled
adopted must be approved by a to vote on the proposed
majority of the votes amendment by more than
entitled to be cast on the two-thirds of all the votes
amendment by any voting group entitled to be cast by that
with respect to which the voting group. The articles of
amendment would create incorporation may provide for
dissenters' rights and the a greater or lesser vote, but
votes required for other not less than a majority of
matters submitted to the all the votes cast on the
shareholders by every other amendment by each voting
voting group entitled to vote group entitled to vote on
on the amendment.
</TABLE>
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<TABLE>
<CAPTION>
OCWEN FINANCIAL
SHAREHOLDER RIGHTS OAC SHAREHOLDER RIGHTS
----------------------------- -----------------------------
<S> <C> <C>
the amendment. Class votes
are required in certain
circumstances that, in
general, affect a class of
shares adversely or uniquely.
In certain very limited
circumstances, which involve
certain ministerial actions
that are likely to be
immaterial to shareholders,
the VSCA permits the articles
of incorporation to be
amended by action of the
board of directors without
shareholder approval.
The OAC Charter provides
that, except for certain
provisions relating to the
OAC Board and the removal of
the ownership limit, each of
which requires the
affirmative vote of
two-thirds of the shares
entitled to vote thereon, the
OAC Charter may be amended by
an affirmative vote of a
majority of the shares of OAC
Common Stock entitled to vote
on such matter.
Under Florida law, a corpora- In general, under Virginia
tion's board of directors may law, the bylaws of a
amend or repeal the bylaws corporation may be amended by
unless the articles of the board of directors,
incorporation or the FBCA except in those instances in
reserve the power to amend which the VSCA or the
the bylaws generally or a corporation's articles of
particular bylaw provision incorporation or bylaws
exclusively to the share- provide otherwise. Action by
holders or the shareholders, shareholders to amend or
in amending or repealing the repeal amendments to the
bylaws generally or a bylaws can overrule action
particular provision, provide taken by the board of
expressly that the board of directors. The OAC Charter
directors may not amend or and Bylaws provide that the
repeal the bylaws or that Bylaws may be adopted,
provision. amended, or repealed by the
OAC Board, except for such
The Ocwen Financial Charter bylaws as may have been
does not reserve any powers adopted by the shareholders.
to amend bylaws exclusively In addition, the OAC Bylaws
to the shareholders. provide that amendments to
certain bylaws relating to
The Ocwen Financial Bylaws directors require the
provide that they may be affirmative vote of 80% of
altered, amended or repealed, the entire board of directors
and that and the holders of two-thirds
of all the
</TABLE>
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<TABLE>
<CAPTION>
OCWEN FINANCIAL
SHAREHOLDER RIGHTS OAC SHAREHOLDER RIGHTS
----------------------------- -----------------------------
<S> <C> <C>
new bylaws may be adopted, by outstanding shares entitled
the Ocwen Financial board or to vote on the election of
by the shareholders. directors, voting separately
as a class.
CONSENT TO ACTIONS OF SHAREHOLDERS The FBCA and the Ocwen The VSCA permits action
IN LIEU OF MEETING Financial Bylaws permit otherwise required or
action required or permitted permitted to be taken at a
to be taken at a meeting of shareholders' meeting to be
shareholders to be taken taken without a meeting if
without a meeting, without the action is taken by all
prior notice, and without a shareholders entitled to vote
vote if the action is taken on the action. The OAC Bylaws
by the holders of outstanding provide that action may be
stock of each voting group taken by shareholders without
entitled to vote thereon a meeting if a consent in
having not less than the writing, setting forth such
minimum number of votes with action, is signed by each
respect to each voting group shareholder entitled to vote
that would be necessary to on the matter and any other
authorize or take such action shareholder entitled to
at a meeting at which all notice of a meeting of
voting groups and shares shareholders has waived in
entitled to vote thereon were writing any right to dissent
present and voted. from such action.
BUSINESS COMBINATIONS The FBCA, except as to compa- The VSCA, except as to compa-
nies that elect not to be nies that elect not to be
covered, prohibits certain covered, prohibits certain
business combinations between business combinations between
a Florida corporation and any a Virginia corporation and
"interested shareholder." any "interested shareholder."
Ocwen Financial has elected An interest shareholder is,
not to be covered by this among others, a person who
provision of the FBCA. is, or an affiliate who was
within three years of the
transaction, a beneficial
owner of more than 10% of any
class of the outstanding
voting shares of the
applicable corporation. In
such a case, unless the
affiliated transaction
satisfies certain "fair
price" criteria or comes
within one of certain
exemptions, the affiliated
transaction must be approved
by the affirmative vote of a
majority of the disinterested
directors and by the
affirmative vote of the
holders of two-thirds of the
voting shares other than
shares beneficially owned by
the interested shareholder.
OAC has not made any election
in the OAC
</TABLE>
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<TABLE>
<CAPTION>
OCWEN FINANCIAL
SHAREHOLDER RIGHTS OAC SHAREHOLDER RIGHTS
----------------------------- -----------------------------
<S> <C> <C>
Charter not to be covered by
this provision of the VSCA.
Under Florida law, voting Under Virginia law, voting
rights for "control shares" rights for "control shares"
must be approved by a must be approved by a
corporation's shareholders, corporation's shareholders,
not including the shares held not including the shares held
by interested parties. by interested parties.
"Control shares" are shares "Control shares" are shares
whose acquisition entitles whose acquisition entitles
the acquirer to between 1/5 the acquirer to between 1/5
and 1/3, between 1/3 and and 1/3, between 1/3 and
1/2, or greater than 1/2 of a 1/2, or greater than 1/2 of a
corporation's voting power. corporation's voting power.
If a shareholder has acquired If a shareholder has acquired
control shares with a control shares with a
majority of all voting power majority of all voting power
and these shares have been and these shares have been
given voting rights, all given voting rights, all
other shareholders have other shareholders have
dissenters' rights. Florida dissenters' rights. Virginia
law exempts certain law exempts certain
acquisitions from these acquisitions from these
provisions, including a provisions, including a
merger where the corporation merger where the corporation
is a party to the governing is a party to the governing
merger agreement. Ocwen merger agreement. OAC has not
Financial has elected not to made any election in the OAC
be covered by this provision Charter not to be governed by
of Florida law. these provisions of Virginia
law.
BUSINESS CONDUCTED AT Under the FBCA, only business Under the VSCA and the OAC
SHAREHOLDERS' MEETINGS within the purposes described Bylaws, only business within
in the meeting notice is the purposes described in the
permitted to be conducted at meeting notice is permitted
any special meeting of to be conducted at any
shareholders. special meeting of
shareholders.
DIVIDENDS Under the FBCA, no Under the VSCA, no
distribution may be made if, distribution may be made if,
after giving it effect, after giving it effect,
either: either:
(1) the corporation would not (1) the corporation would not
be able to pay its debts be able to pay its debts as
as they become due in the they become due in the
usual course of business, usual course of business,
or or
(2) the corporation's total (2) the corporation's total
assets would be less than assets would be less than
the sum of its total the sum of its total
liabilities plus, unless liabilities plus, unless
the articles of incor- the articles of incor-
poration permit poration permit
otherwise, the amount otherwise, the amount
that would be that would be
</TABLE>
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<TABLE>
<CAPTION>
OCWEN FINANCIAL
SHAREHOLDER RIGHTS OAC SHAREHOLDER RIGHTS
----------------------------- -----------------------------
<S> <C> <C>
needed, if the needed, if the
corporation were to be corporation were to be
dissolved at the time of dissolved at the time of
the distribution, to the distribution, to
satisfy the preferential satisfy the preferential
rights upon dissolution rights upon dissolution
of shareholders whose of shareholders whose
preferential rights are preferential rights are
superior to those superior to those
receiving the receiving the
distribution. distribution.
INDEMNIFICATION The FBCA provides that a The VSCA provides that a
director is not personally director is not liable to the
liable for monetary damages corporation, its
to the corporation or any shareholders, or any person
other person for any asserting rights on behalf of
statement, vote, decision, or the corporation or its share-
failure to act, regarding holders for liabilities
corporate management or arising from a breach of, or
policy, by a director, unless failure to perform, any duty
(a) the director breached or resulting solely from his or
failed to perform his or her her status as director,
duties as a director and (b) unless the person asserting
the director's breach of, or liability proves that the
failure to perform, those breach or failure to perform
duties constitutes: was in violation of the
director's duty to discharge
- a violation of the criminal his duties as a director,
law, unless the director had including his duties as a
reasonable cause to believe member of a committee, in
his or her conduct was accordance with his good
lawful or had no reasonable faith, business judgment of
cause to believe his or her the best interests of the
conduct was unlawful, corporation, provided, that
the director, unless he has
- a transaction from which knowledge or information
the director derived an concerning the matter in
improper personal benefit, question that makes reliance
unwarranted, is entitled to
- circumstances that would rely on information,
give rise to director's opinions, reports or
liability for an unlawful statements, including
distribution to share- financial statements and
holders, other financial data, if
prepared or presented by (i)
- in a proceeding by or in one or more officers or
the right of the corporation employees of the corporation
to procure a judgment in whom the director believes,
its favor or by or in the in good faith, to be reliable
right of a shareholder, and competent in the matters
conscious disregard for the presented; (ii) legal
best interest of the counsel, public accountants,
corporation, or willful or other persons as to
misconduct, or matters the director
believes, in good faith, are
- in a proceeding by or in within the person's
the right of someone other professional or expert
than the corporation or a competence; or (iii) a
share- committee of the board of
directors of which
</TABLE>
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<TABLE>
<CAPTION>
OCWEN FINANCIAL
SHAREHOLDER RIGHTS OAC SHAREHOLDER RIGHTS
----------------------------- -----------------------------
<S> <C> <C>
holder, recklessness or an he is not a member if the
act or omission which was director believes, in good
committed in bad faith or faith, that the committee
with malicious purpose or merits confidence. In
in a manner exhibiting addition, the VSCA provides
wanton and willful that in any proceeding
disregard of human rights, brought by or in the right of
safety or property. a corporation or brought by
or on behalf of shareholders
of the corporation, the
damages assessed against an
officer or director arising
out of a single transaction,
occurrence or course of
conduct shall not exceed the
lesser of (i) the monetary
amount, including the
elimination of liability,
specified in the articles of
incorporation or, if approved
by the shareholders, in the
bylaws; or (ii) the greater
of (A) $100,000 or (2) the
amount of cash compensation
received by the officer or
director from the corporation
during the twelve months
immediately preceding the act
or omission for which
liability was imposed;
provided, that the liability
of an officer or director is
not limited if the officer or
director engaged in willful
misconduct or a knowing
violation of the criminal law
or of any federal or state
securities law, including,
without limitation, any claim
of unlawful insider trading
or manipulation of the market
for any security. The OAC
Charter eliminates the
statutory director and
officer liability, except for
liability resulting from a
director's or officer's
having engaged in willful
misconduct or a knowing
violation of the criminal law
or any federal or state
securities law or, in the
case of directors other than
independent directors, a
director's engaging in
misconduct or negligent
conduct.
</TABLE>
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<TABLE>
<CAPTION>
OCWEN FINANCIAL
SHAREHOLDER RIGHTS OAC SHAREHOLDER RIGHTS
----------------------------- -----------------------------
<S> <C> <C>
The VSCA provides that,
unless limited by its
articles of incorporation, a
corporation shall indemnify a
director or officer who
entirely prevails in the
defense of any proceeding to
which he was a party because
he is or was a director or
officer of the corporation
against reasonable expenses
incurred by him in connection
with the proceeding.
The FBCA permits a The VSCA permits a
corporation to indemnify any corporation to indemnify,
person who was or is a party after a determination has
to any proceeding (other than been made that indemni-
an action by, or in the right fication of the director is
of, the corporation), by permissible in the
reason of the fact that he or circumstances because he has
she is or was a director, met the following standard of
officer, employee or agent of conduct, an individual made a
the corporation or is or was party to a proceeding because
serving at the request of the he is or was a director
corporation as a director, against liability incurred in
officer, employee or agent of the proceeding if (i) he
another corporation, conducted himself in good
partnership, joint venture, faith, (ii) he believed (A)
trust, or other enterprise in the case of conduct in his
against liability incurred in official capacity with the
connection with such corporation, that his conduct
proceeding, if he or she was in its best interests and
acted in good faith and in a (B) in all other cases that
manner he or she reasonably his conduct was at least not
believed to be in, or not opposed to its best interests
opposed to, the best and (iii) in the case of any
interests of the corpo- criminal proceeding, he had
ration and, with respect to no reasonable cause to
any criminal action or believe his conduct was
proceeding, had no reasonable unlawful, but may not
cause to believe his or her indemnify a director under
conduct was unlawful. The that section in connection
FBCA permits a corporation to with a proceeding by or in
indemnify any person, who was the right of the corporation
or is a party to any in which the director was
proceeding by or in the right adjudged liable to the
of the corporation to procure corporation or in connection
a judgment in its favor by with any other proceeding
reason of the fact that the charging improper personal
person is or was a director, benefit to him, whether or
officer, employee or agent of not involving action in his
the corporation or is or was official capacity, in which
serving at the request of the he was adjudged liable on the
corporation as a director, basis that personal benefit
officer, employee or agent of was improperly received by
another him. In addition, the
</TABLE>
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<TABLE>
<CAPTION>
OCWEN FINANCIAL
SHAREHOLDER RIGHTS OAC SHAREHOLDER RIGHTS
----------------------------- -----------------------------
<S> <C> <C>
corporation, partnership, VSCA permits a corporation to
joint venture, trust, or make any further indemnity,
other enterprise, against including indemnity with
expenses and amounts paid in respect to a proceeding by or
settlement not exceeding, in in the right of the
the judgment of the board of corporation, and to make
directors, the estimated additional provision for
expense of litigating the advances and reimbursement of
proceeding to conclusion, expenses, to any director,
actually and reasonably officer, employee or agent
incurred in connection with that may be authorized by the
the defense or settlement of articles of incorporation or
such proceeding. Such any bylaw made by the share-
indemnification shall be holders or any resolution
authorized if such person adopted, before or after the
acted in good faith and in a event, by the shareholders,
manner he or she reasonably except an indemnity against
believed to be in, or not (i) his willful misconduct or
opposed to, the best (ii) a knowing violation of
interests of the corpo- the criminal law.
ration (except that no
indemnification may be made
under the relevant provision
of the FBCA if the director
has been adjudged to be
liable unless, and only to
the extent that, the court
determines that such person
is fairly and reasonably
entitled to indemnity). If a
director, officer, employee
or agent is successful on the
merits of any proceeding
referred to in the first two
sentences of this paragraph,
indemnification against
expenses actually and
reasonably incurred by him or
her is mandatory.
The Ocwen Financial Charter The OAC Charter provides that
provides that Ocwen Financial OAC shall indemnify (i) any
shall indemnify all persons person who was or is a party
when it has the power to to any proceeding, including
indemnify to the fullest a proceeding brought by a
extent permitted by Florida shareholder in the right of
law. OAC or brought by or on
behalf of shareholders of
The Ocwen Financial Bylaws OAC, by reason of the fact
provide that any person who that he is or was a director
was or is a party or is or officer, or (ii) any
threatened to be made a party director or officer who is or
to any threatened, pending or was serving at the request of
completed action, suit or OAC as a director, trustee,
proceeding, whether civil, partner, member or officer of
criminal, administrative or another corporation,
investigative (including any partnership, joint venture,
action or suit by or in the limited
</TABLE>
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<TABLE>
<CAPTION>
OCWEN FINANCIAL
SHAREHOLDER RIGHTS OAC SHAREHOLDER RIGHTS
----------------------------- -----------------------------
<S> <C> <C>
right of Ocwen Financial to liability company, trust,
procure a judgment in its employee benefit plan or
favor) by reason of the fact other enterprise, against any
that he or she is or was a liability incurred by him in
director, officer, employee connection with such
or agent of Ocwen Financial, proceeding if his conduct in
or is or was serving at the question was in the best
request of Ocwen Financial as interest of OAC and he was
a director, officer, employee acting on behalf of OAC or
or agent of another performing services for OAC
corporation, partnership, unless he engaged in gross
joint venture, trust or other negligence, willful
enterprise, shall be indem- misconduct or a knowing
nified by Ocwen Financial, violation of the criminal law
if, as and to the extent or in the case of directors,
authorized by applicable law, other than independent
against expenses (including directors, such director
attorneys' fees), judg- engaged in misconduct or
ments, liabilities, fines, negligent conduct. In
costs and amounts paid in addition, the OAC Charter
settlement actually and empowers the OAC Board, by a
reasonably incurred by him or majority vote of a quorum of
her in connection with the disinterested directors, to
defense or settlement of such enter into a contract to
action, suit or proceeding. indemnify any director or
officer in respect of any
proceedings arising from any
act or omission, whether
occurring before or after the
execution of the contract.
DIRECTOR CONFLICT OF INTEREST Generally, under the FBCA, a Generally, under the VSCA, a
TRANSACTIONS transaction in which a transaction in which a
director has a personal director has a personal
interest is not voidable by interest is not voidable by
the corporation solely the corporation solely
because of the director's because of the director's
interest in the transaction, interest in the transaction,
if any of the following is if any of the following is
true: true:
(1) the director's interest (1) the director's interest
in such transaction was in such transaction was
disclosed or known to the disclosed or known to the
board of directors or a board of directors or a
committee of the board of committee of the board of
directors and the board directors and the board
of directors or committee of directors or committee
authorized, approved or authorized, approved or
ratified the transaction ratified the transaction
by the affirmative vote by the affirmative vote
of a majority of the of a majority of the
directors on the board of directors on the board of
directors, or on the directors, or on the
committee, who have no committee, who have no
personal interest in the personal interest in the
</TABLE>
73
<PAGE> 82
<TABLE>
<CAPTION>
OCWEN FINANCIAL
SHAREHOLDER RIGHTS OAC SHAREHOLDER RIGHTS
----------------------------- -----------------------------
<S> <C> <C>
transaction; transaction (but not by a
single director);
(2) the material facts of the
transaction and the (2) the material facts of the
director's interest were transaction and the
disclosed to the director's interest were
shareholders entitled to disclosed to the
vote and they authorized, shareholders entitled to
approved or ratified the vote and they authorized,
transaction without approved or ratified the
counting for purposes of transaction without
such vote shares owned by counting for purposes of
or voted under the such vote shares owned by
control of a director (or or voted under the
an entity in which the control of a director (or
director has a material an entity in which the
financial interest or of director has a material
which he is a general financial interest or of
partner) who has a which he is a general
personal interest in the partner) who has a
transaction; or personal interest in the
transaction; or
(3) the transaction was fair
to the corporation. (3) the transaction was fair
to the corporation.
DISSENTERS' RIGHTS The FBCA provides that a Under the VSCA, a shareholder
shareholder is generally of a corporation is generally
entitled to dissent from, and entitled to dissent from and
obtain payment of the fair obtain payment of the fair
value of his or her shares in value of his, her or its
the event of, a merger or shares in the event of a
share exchange or sale or merger or share exchange or
exchange of all or sale or exchange of all or
substantially all the substantially all the
property of the corporation property and assets of the
(other than in the usual corporation. However, except
course of business). However, with respect to affiliated
dissenters' rights are not transactions that are not
available, unless the approved by a majority of
articles of incorporation disinterested directors,
otherwise provide, to holders dissenters' rights are not
of shares that are registered available to holders of
on a national securities shares that are listed on a
exchange. Currently, Ocwen national securities exchange
Financial common stock is unless, in the event of a
listed on the New York Stock merger or share exchange,
Exchange. such holders are to accept
for such shares anything
other than cash and/or shares
of the surviving corporation
or shares of any other
corporation that are listed
on a national securities
exchange. Currently, OAC
common stock is listed on the
New York Stock Exchange.
</TABLE>
74
<PAGE> 83
EXPERTS
The consolidated financial statements of OAC as of December 31, 1998 and
1997, and for the year ended December 31, 1998 and the period May 14, 1997 to
December 31, 1997, appearing in OAC's Annual Report on Form 10-K for the year
ended December 31, 1998, incorporated by reference herein, have been
incorporated herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Ocwen Financial as of December 31,
1998 and 1997, and for each of the three years in the period ended December 31,
1998, appearing in Ocwen Financial's Annual Report on Form 10-K for the year
ended December 31, 1998, incorporated by reference herein, have been
incorporated herein in reliance upon the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
LEGAL MATTERS
The legality of the Ocwen Financial Common Stock offered hereby will be
passed upon for Ocwen Financial by Trini L. Donato, Deputy General Counsel of
Ocwen Financial. Sidley & Austin, special tax counsel to Ocwen Financial, will
deliver an opinion concerning the federal income tax consequences of the Merger.
FUTURE SHAREHOLDER PROPOSALS
Any proposal which a shareholder desires to have included in Ocwen
Financial's proxy materials relating to the next annual meeting of shareholders,
which is scheduled to be held in May 2000, must be received at the executive
offices of Ocwen Financial no later than December 15, 1999. If notice of a
shareholder proposal relating to the annual meeting of Ocwen Financial
shareholders to be held in May 2000 (the "2000 Annual Meeting") is received by
Ocwen Financial after February 28, 2000 and the proposal is properly presented
at the 2000 Annual Meeting, Ocwen Financial will be able to exercise
discretionary authority when voting on the proposal. If notice of a shareholder
proposal is received on or prior to February 28, 2000, the proposal is not
included as an agenda item in the proxy statement and proxy card furnished to
shareholders in connection with the 2000 Annual Meeting (the "2000 Proxy
Statement"), and the proposal is properly presented at the 2000 Annual Meeting,
Ocwen Financial may exercise discretionary authority when voting on the proposal
if in the 2000 Proxy Statement Ocwen Financial advises shareholders on the
nature of the proposal and how Ocwen Financial intends to vote on the proposal,
unless the shareholder satisfies certain requirements of the SEC, including
mailing a separate proxy statement to Ocwen Financial's shareholders. All
proposals and nominations should be directed to John R. Erbey, Secretary, 1675
Palm Beach Lakes Boulevard, The Forum, West Palm Beach, Florida 33401. It is
urged that any shareholder proposals or nominations be sent certified mail,
return-receipt requested.
If the OAC shareholders approve the Merger, OAC does not expect to hold an
annual meeting of shareholders during 1999 prior to the Effective Time. If OAC
does determine to hold an annual meeting in 1999, OAC will announce in a filing
with the SEC the date by which shareholder proposals must be received in order
to be considered for inclusion in OAC's proxy materials for such meeting.
75
<PAGE> 84
WHERE YOU CAN FIND MORE INFORMATION
OAC and Ocwen Financial file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information filed by Ocwen Financial or OAC at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the Public Reference Room. SEC filings of Ocwen Financial and OAC are also
available to the public from commercial document retrieval services and are
available at the website maintained by the SEC at "http://www.sec.gov". You may
also access the SEC filings of OAC and Ocwen Financial through the website
maintained by Ocwen Financial, which is "http://www.ocwen.com".
Ocwen Financial has filed with the SEC a Registration Statement on Form S-4
to register the Ocwen Financial Common Stock to be issued pursuant to the Merger
Agreement. This Joint Proxy Statement/Prospectus is a part of that Registration
Statement and constitutes a prospectus of Ocwen Financial in addition to being a
proxy statement of Ocwen Financial for the Ocwen Financial Meeting and of OAC
for the OAC Meeting. As allowed by SEC rules, this Joint Proxy
Statement/Prospectus does not contain all the information you can find in the
Registration Statement and the exhibits to the Registration Statement.
The SEC allows us to "incorporate by reference" information into this Joint
Proxy Statement/Prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
Joint Proxy Statement/Prospectus, except for any information superseded by
information in this Joint Proxy Statement/ Prospectus. This Joint Proxy
Statement/Prospectus incorporates by reference the documents set forth below
that Ocwen Financial and OAC have previously filed with the SEC. These documents
contain important information about Ocwen Financial and OAC and their finances.
<TABLE>
<CAPTION>
OCWEN FINANCIAL COMMISSION FILINGS
(FILE NO. 1-00035) PERIOD
- ---------------------------------- --------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Reports on Form 10-Q Quarter ended March 31, 1999
Current Reports on Form 8-K Filed on February 11, 1999, April 16,
1999, May 7, 1999, June 17, 1999 and
July 26, 1999
</TABLE>
<TABLE>
<CAPTION>
OAC COMMISSION FILINGS
(FILE NO. 0-18724) PERIOD
- ---------------------- --------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Reports on Form 10-Q Quarter ended March 31, 1999
Current Reports on Form 8-K Filed on February 1, 1999, April 16,
1999, May 10, 1999, July 26, 1999 and
July 28, 1999
</TABLE>
Ocwen Financial and OAC also hereby incorporate by reference all additional
documents that Ocwen Financial and OAC file with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this Joint
Proxy Statement/
76
<PAGE> 85
Prospectus and the respective dates of the Ocwen Financial Meeting and the OAC
Meeting.
If you are a shareholder of Ocwen Financial or OAC, Ocwen Financial and OAC
may have sent you some of the documents incorporated by reference, but you can
obtain any of them through Ocwen Financial, OAC or the SEC. Documents
incorporated by reference are available from Ocwen Financial or OAC without
charge, excluding all exhibits unless such exhibits have been specifically
incorporated by reference in this Joint Proxy Statement/Prospectus. Shareholders
may obtain documents incorporated by reference in this Joint Proxy
Statement/Prospectus by requesting them in writing or by telephone at the
following address:
Ocwen Financial Corporation
Attention: Secretary
1675 Palm Beach Lakes Boulevard
West Palm Beach, Florida 33401
(561) 682-8000
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM OCWEN FINANCIAL OR OAC, PLEASE
DO SO BY [MONTH] [DATE], 1999 TO RECEIVE THEM BEFORE THE OCWEN FINANCIAL MEETING
AND THE OAC MEETING.
The Ocwen Financial Board does not intend to bring any other matters, and
does not know of any other matters to be brought, before the Ocwen Financial
Meeting.
The OAC Board does not intend to bring any other matters, and does not know
of any other matters to be brought, before the OAC Meeting.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS JOINT PROXY STATEMENT/ PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF OAC OR OCWEN FINANCIAL SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
YOU SHOULD RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS. NEITHER OCWEN FINANCIAL NOR OAC HAS
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. ALL INFORMATION CONTAINED
(OR INCORPORATED BY REFERENCE) IN THIS JOINT PROXY STATEMENT/PROSPECTUS WITH
RESPECT TO OAC AND ITS SUBSIDIARIES HAS BEEN PROVIDED BY OAC, AND ALL
INFORMATION CONTAINED (OR INCORPORATED BY REFERENCE) IN THIS JOINT PROXY
STATEMENT/PROSPECTUS WITH RESPECT TO OCWEN FINANCIAL AND ITS SUBSIDIARIES HAS
BEEN PROVIDED BY OCWEN FINANCIAL. NEITHER OCWEN FINANCIAL NOR OAC WARRANTS THE
ACCURACY OF INFORMATION RELATING TO THE OTHER PARTY. THIS JOINT PROXY
STATEMENT/PROSPECTUS IS DATED [MONTH] [DATE], 1999. YOU SHOULD NOT ASSUME THAT
THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE
AS OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THIS JOINT PROXY
STATEMENT/ PROSPECTUS NOR THE ISSUANCE OF OCWEN FINANCIAL COMMON STOCK IN THE
MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
77
<PAGE> 86
ANNEX I
AGREEMENT OF MERGER
DATED AS OF JULY 25, 1999
AMONG
OCWEN FINANCIAL CORPORATION,
OCWEN ASSET INVESTMENT CORP.,
AND
OCWEN ACQUISITION COMPANY
<PAGE> 87
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I................................................................... 1
Section 1.1 The Merger ................................................. 1
Section 1.2 Closing .................................................... 1
Section 1.3 Effective Time ............................................. 1
Section 1.4 Effects of the Merger ...................................... 2
Section 1.5 Articles and By-Laws ....................................... 2
ARTICLE II.................................................................. 2
Section 2.1 Effect on Capital Stock .................................... 2
Section 2.2 Exchange Procedures ........................................ 2
ARTICLE III................................................................. 4
Section 3.1 Representations and Warranties of Ocwen .................... 4
Section 3.2 Representations and Warranties of the Purchaser ............ 10
ARTICLE IV.................................................................. 18
Section 4.1 Financing .................................................. 18
ARTICLE V................................................................... 18
Section 5.1 Preparation of the Proxy Statement; Shareholders Meeting ... 18
Section 5.2 Access to Information; Confidentiality ..................... 19
Section 5.3 Best Efforts; Notification ................................. 21
Section 5.4 No Solicitation of Transactions ............................ 22
Section 5.5 Public Announcements ....................................... 22
Section 5.6 Transfer and Gains Taxes ................................... 22
Section 5.7 Indemnification ............................................ 22
Section 5.8 Efforts to Fulfill Conditions .............................. 23
Section 5.9 Cooperation of the Parties ................................. 23
Section 5.10 Conduct of Business by Ocwen ............................... 23
Section 5.11 Conduct of Business by Purchaser ........................... 25
Section 5.12 Adverse Actions ............................................ 25
Section 5.13 OTS Examination Reports .................................... 25
Section 5.14 Termination of Option ...................................... 25
Section 5.15 Management Agreement ....................................... 25
ARTICLE VI.................................................................. 26
Section 6.1 Conditions to Each Party's Obligation to Effect the 26
Merger .....................................................
Section 6.2 Conditions to Obligations of the Purchaser ................. 26
Section 6.3 Conditions to Obligations of Ocwen ......................... 27
ARTICLE VII................................................................. 28
Section 7.1 Ocwen Board Actions ........................................ 28
ARTICLE VIII................................................................ 29
Section 8.1 Termination ................................................ 29
Section 8.2 Expenses ................................................... 30
Section 8.3 Effect of Termination ...................................... 31
Section 8.4 Amendment .................................................. 31
Section 8.5 Extension; Waiver .......................................... 31
ARTICLE IX.................................................................. 31
Section 9.1 Nonsurvival of Representations and Warranties .............. 31
Section 9.2 Notices .................................................... 32
Section 9.3 Interpretation ............................................. 32
</TABLE>
i
<PAGE> 88
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 9.4 Counterparts ............................................... 32
Section 9.5 Entire Agreement; No Third-Party Beneficiaries ............. 32
Section 9.6 Governing Law .............................................. 33
Section 9.7 Assignment ................................................. 33
Section 9.8 Enforcement ................................................ 33
Section 9.9 Incorporation .............................................. 33
Section 9.10 Further Assurances ......................................... 33
ARTICLE X................................................................... 33
Section 10.1 Certain Definitions ........................................ 33
</TABLE>
ii
<PAGE> 89
AGREEMENT OF MERGER
AGREEMENT OF MERGER (the "Agreement"), dated as of July 25, 1999, among
OCWEN FINANCIAL CORPORATION, a Florida corporation (the "Purchaser"), OCWEN
ASSET INVESTMENT CORP., a Virginia corporation ("Ocwen"), and OCWEN ACQUISITION
COMPANY ("Acquisition Sub"), a Virginia corporation and subsidiary of Ocwen
Properties, Inc., a New York corporation and direct subsidiary of Investors
Mortgage Insurance Holding Company, a Delaware corporation and direct subsidiary
of Purchaser.
RECITALS
(a) The Boards of Directors of the Purchaser and Ocwen have determined that
it is advisable and in the best interest of their respective companies and their
shareholders to consummate the business combination involving Ocwen and the
Purchaser described herein, pursuant to which Acquisition Sub will merge with
and into Ocwen and Ocwen will be the surviving corporation (the "Surviving
Corporation") in such merger (the "Merger") and each issued and outstanding
common share, $0.01 par value, of Ocwen (the "Ocwen Common Shares") will be
converted into the right to receive the Merger Consideration (as defined below);
(b) Purchaser and Ocwen intend for the Merger to be a taxable stock
purchase; and
(c) Certain terms used herein shall have the meanings assigned to them in
Article X.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
Article I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Virginia Stock Corporation
Act (the "VSCA"), Acquisition Sub shall be merged with and into Ocwen at the
Effective Time (as defined herein) in accordance with this Agreement and a Plan
of Merger (the "Plan of Merger") reflecting the terms of, and consistent with,
this Agreement, and in a form required by the VSCA, with such completions,
additions and substitutions conforming to the terms of this Agreement as the
parties shall approve, such approval to be conclusively evidenced by their
causing the Plan of Merger containing such completions, additions or
substitutions to be filed in accordance with law. Following the Merger, the
separate corporate existence of Acquisition Sub shall cease and Ocwen shall
continue as the surviving corporation and shall succeed to and assume all of the
rights and obligations of Acquisition Sub in accordance with the VSCA.
Section 1.2 Closing. The closing of the Merger will take place at a
mutually agreeable time and place and on a date to be specified by the parties,
which (subject to satisfaction or waiver of the conditions set forth in Sections
6.2 and 6.3) shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Section 6.1 (the "Closing Date").
Section 1.3 Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI, the parties
shall file the articles of merger or other appropriate documents for the Merger
(the "Articles of Merger") executed in accordance with Section 13.1-720 of the
VSCA and shall make all other filings or recordings required under the VSCA to
effect the Merger. The Merger shall become effective at such time as the
Articles of
<PAGE> 90
Merger have been duly filed with the State Corporation Commission of the
Commonwealth of Virginia and the State Corporation Commission issues a
Certificate of Merger in connection therewith, or at such later time as the
Purchaser and Ocwen shall specify in the Articles of Merger (the time and the
day the Merger becomes effective being, respectively, the "Effective Time" and
the "Effective Date"), it being understood that the parties shall cause the
Effective Time to occur on the Closing Date.
Section 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the VSCA.
Section 1.5 Articles and By-Laws. On the Closing Date, the Articles of
Incorporation and By-Laws of Acquisition Sub and the Articles of Incorporation
of the Purchaser and the By-Laws of the Purchaser, in each case as in effect
immediately prior to the Effective Time, shall not be affected by the Merger,
and such Articles of Incorporation and By-Laws of Acquisition Sub shall be the
Articles of Incorporation and By-Laws of the Surviving Corporation, thereafter
to be amended, restated or repealed in accordance with their terms and
applicable law.
Article II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF OCWEN
Section 2.1 Effect on Capital Stock. By virtue of the Merger and without
any action on the part of the holder of any Ocwen Common Shares, at the
Effective Time (i) each issued and outstanding share of Common Stock, par value
$.01 per share, of Acquisition Sub shall be converted into one validly issued,
fully paid and nonassessable share of Common Stock of the Surviving Corporation,
(ii) all Ocwen Common Shares that are held in the treasury of Ocwen or by any
wholly owned Ocwen Subsidiary and any Ocwen Common Shares owned by Purchaser or
by any wholly owned Purchaser Subsidiary shall be cancelled and no capital stock
of Purchaser or other consideration shall be delivered in exchange therefor;
(iii) subject to the provisions of Section 2.2(h) each issued and outstanding
Ocwen Common Share shall be converted into the right to receive from the
Purchaser 0.71 (the "Conversion Number") validly issued, fully paid and
nonassessable Purchaser Common Shares (as defined below) (the "Merger
Consideration") issuable to the holder thereof upon surrender of the certificate
formerly representing such Ocwen Common Share and (iv) all such Ocwen Common
Shares shall no longer be outstanding and shall automatically be cancelled and
retired and all rights with respect thereto shall cease to exist, and each
holder of any such Ocwen Common Shares shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.2(d), in each case, without interest and less any required withholding
taxes.
Section 2.2 Exchange Procedures.
(a) Exchange Agent. Prior to the Effective Time, Purchaser shall
designate a bank or trust company to act as agent for the holders of Ocwen
Common Shares in connection with the Merger (the "Exchange Agent") to
receive the Merger Consideration to which holders of Ocwen Common Shares
shall become entitled pursuant to Section 2.1. At the Effective Time,
Purchaser will provide to the Exchange Agent sufficient Purchaser Common
Shares issuable in exchange for the Ocwen Common Shares pursuant to Section
2.2(b).
(b) Surrender of Certificates. Promptly after the Effective Time,
Purchaser shall cause to be mailed to each record holder, as of the
Effective Time, of an outstanding certificate or certificates which
immediately prior to the Effective Time represented Ocwen
-2-
<PAGE> 91
Common Shares (the "Certificates"), a form of letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent) and instructions for use in effecting
the surrender of the Certificates for issuance of the Merger Consideration
therefor. Upon surrender to the Exchange Agent of a Certificate, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may
be required pursuant to such instructions, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger Consideration
for each Ocwen Common Share formerly represented by such Certificate, and
such Certificate shall then be cancelled. No interest shall be paid or
accrued for the benefit of holders of the Certificates on the Merger
Consideration payable upon the surrender of the Certificates. If the Merger
Consideration is to be issued to a person other than the person in whose
name the surrendered Certificate is registered, it shall be a condition of
issuance that the Certificate so surrendered shall be properly endorsed or
shall be otherwise in proper form for transfer and that the person
requesting such payment shall have paid any transfer and other taxes
required by reason of the issuance of the Merger Consideration to a person
other than the registered holder of the Certificate surrendered or shall
have established to the satisfaction of Surviving Corporation that such tax
either has been paid or is not applicable.
(c) Stock Transfer Books. At the Effective Time, the stock transfer
books of Ocwen shall be closed and thereafter there shall be no further
registration of transfers of Ocwen Common Shares on the records of Ocwen.
From and after the Effective Time, the holders of Certificates evidencing
ownership of Ocwen Common Shares outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such Ocwen
Common Shares except as otherwise provided for herein or by applicable law.
(d) Distributions with Respect to Ocwen Common Shares. Ocwen may, at
the election of its Board of Directors, declare, set aside and pay to the
holders of Ocwen Common Shares a dividend (the "1998 REIT Dividend") at
such rate and in such form and with such declaration, record and payment
dates which Ocwen determines is necessary for Ocwen to maintain its status
as a real estate investment trust for the year ended December 31, 1998.
(e) No Further Ownership Rights in Ocwen Common Shares. All Merger
Consideration issued upon exchange of Ocwen Common Shares in accordance
with the terms of this Article II shall be deemed to have been issued in
full satisfaction of all rights pertaining to the Ocwen Common Shares,
subject, however, to the obligation of the Surviving Corporation to pay,
without interest and no later than December 31, 1999, any dividends or make
any other distributions with a record date prior to the Effective Time
which may have been declared or made by Ocwen on such shares in accordance
with the terms of this Agreement or prior to the date of this Agreement and
which remain unpaid at the Effective Time and have not been paid prior to
such exchange, and there shall be no further registration of transfers on
the stock transfer books of Ocwen of the Ocwen Common Shares which were
outstanding immediately prior to the Effective Time.
(f) No Liability. None of the Purchaser, Acquisition Sub, Ocwen or
the Exchange Agent shall be liable to any person in respect of any Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. Any portion of the Merger
Consideration delivered to the Exchange Agent pursuant to this Agreement
that remains unclaimed for twelve months after the Effective Time shall be
redelivered by the Exchange Agent to the Purchaser, upon demand, and any
holders of Ocwen Common Shares which have not been exchanged as
contemplated by this
-3-
<PAGE> 92
Section 2.2 shall thereafter look only to the Purchaser for delivery of the
Merger Consideration, subject to applicable abandoned property, escheat and
other similar laws.
(g) Withholding Rights. The Purchaser or the Exchange Agent shall be
entitled to deduct and withhold from the Merger Consideration otherwise
payable pursuant to this Agreement to any holder of Ocwen Common Shares
such amounts as the Purchaser or the Exchange Agent is required to deduct
and withhold with respect to the making of such payment under the Code, or
any provision of state, local or foreign tax law. To the extent that
amounts are so withheld by the Purchaser or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of Ocwen Common Shares in respect of which
such deduction and withholding was made by the Purchaser or the Exchange
Agent.
(h) Fractional Shares. No fraction of a share of Purchaser Common
Shares shall be issued in the Merger, and any Person otherwise entitled to
receive a fractional share of Purchaser Common Shares shall not be entitled
through such fractional share interest to any dividend, voting or other
rights of a holder of Purchaser Common Shares. In lieu of any such
fractional shares, each Person who would otherwise be entitled to receive
shares of Purchaser Common Shares in the Merger, shall be paid an amount in
cash (without interest), rounded to the nearest cent, determined by
multiplying (i) the per share closing price on the New York Stock Exchange,
Inc. (the "NYSE") of Purchaser Common Shares (as reported in the NYSE
Composite Transactions) on the date of the Effective Time (or if the
Purchaser Common Shares do not trade on the NYSE on such date, the first
date of trading of Purchaser Common Shares on the NYSE after the Effective
Time) by (ii) the fractional interest in Purchaser Common Shares to which
such Person would otherwise be entitled (after taking into account all
Ocwen Common Shares then held of record by such Person).
Article III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of Ocwen. Except as set forth
in the Ocwen Disclosure Letter, Ocwen represents and warrants to the Purchaser
as follows:
(a) Organization, Standing and Corporate Power. Ocwen is a
corporation duly organized and validly existing under the laws of Virginia
and has the requisite corporate power and authority to carry on its
business as now being conducted. Ocwen is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed, individually or in the
aggregate, would not have a material adverse effect on the business,
properties, assets, financial condition or results of operations of Ocwen
and the Ocwen Subsidiaries (as defined below) taken as a whole (an "Ocwen
Material Adverse Effect," except that such term shall not encompass any
"mark to market" or other revaluation of the book value of Ocwen's assets
effected pursuant to GAAP). As used herein, "Ocwen Subsidiary" shall mean
any corporation, partnership, limited liability company, joint venture or
other legal entity of which Ocwen (either directly or through or together
with another Ocwen Subsidiary) owns 50% or more of the capital stock or
other equity interests of such entity. Each Ocwen Subsidiary is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate power
(in the case of a subsidiary that is a corporation) or other power and
authority to carry on its business as now being conducted,
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except where the failure to be so organized, existing or in good standing
or to have such power or authority would not, individually or in the
aggregate, have an Ocwen Material Adverse Effect. No amendment has been
made to the Third Amended and Restated Agreement of Limited Partnership
(the "OPLP Partnership Agreement") of Ocwen Partnership, L.P. ("OPLP").
(b) Capital Structure. The authorized capital stock of Ocwen consists
of 200,000,000 Ocwen Common Shares and 25,000,000 shares of Preferred
Stock, par value $.01 per share ("Ocwen Preferred Stock"). On the date
hereof, (i) 18,965,000 Ocwen Common Shares were issued and outstanding,
(ii) 3,087,500 options to purchase Ocwen Common Shares were available for
issuance under Ocwen's stock option plans (the "Ocwen Share Plans"), (iii)
5,000,000 Ocwen Common Shares were reserved for issuance upon exercise of
stock options to purchase Ocwen Common Shares under the Ocwen Share Plans
or otherwise (the "Ocwen Common Shares Options") and (iv) 1,808,733 Ocwen
Common Shares were reserved for issuance pursuant to the conversion of
1,808,733 Partnership Units (as defined in the OPLP Partnership Agreement).
No shares of Ocwen Preferred Stock are outstanding. On the date of this
Agreement, except as set forth above in this Section 3.1(b), no shares of
capital stock or other voting securities of Ocwen were issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of Ocwen
are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. Except (A) for the Ocwen Common Shares
Options, (B) as set forth in Schedule 3.1(b) to the Ocwen Disclosure
Letter, and (C) as otherwise permitted under Section 5.10, there are no
outstanding securities, options, stock appreciation rights, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind to which Ocwen or any Ocwen Subsidiary is a party or by which such
entity is bound, obligating Ocwen or any Ocwen Subsidiary to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of
capital stock, voting securities or other ownership interests of Ocwen or
any Ocwen Subsidiary or obligating Ocwen or any Ocwen Subsidiary to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking.
(c) Authority; Noncontravention; Consents. On or prior to the date of
this Agreement, the Board of Directors of Ocwen has adopted this Agreement,
has recommended approval of this Agreement to its shareholders and has
directed that this Agreement be submitted to Ocwen's shareholders for
approval, all in accordance with the VSCA. Ocwen has the requisite
corporate power and authority to enter into this Agreement and, subject to
approval of the Merger, this Agreement and the other transactions
contemplated hereby by the requisite vote of the holders of the Ocwen
Common Shares (the "Ocwen Common Shareholder Approval"), to consummate the
Merger and the other transactions contemplated by this Agreement. The
execution and delivery of this Agreement by Ocwen and the consummation by
Ocwen of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of Ocwen, subject to receipt of
the Ocwen Common Shareholder Approval. This Agreement has been duly
executed and delivered by Ocwen and constitutes a valid and binding
obligation of Ocwen, enforceable against Ocwen in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights and general principles of
equity. The filing of the Proxy Statement/Prospectus (as defined below)
with the SEC has been duly authorized by Ocwen's Board of Directors. Except
as set forth in Schedule 3.1(c) to the Ocwen Disclosure Letter, the
execution and delivery of this Agreement by Ocwen do not, and the
consummation of the transactions contemplated hereby and compliance by
Ocwen with the provisions of this Agreement will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
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or acceleration of any obligation or to loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets
of Ocwen or any Ocwen Subsidiary under, (i) the charter or by-laws of Ocwen
or the comparable charter or organizational documents or partnership or
similar agreement (as the case may be) of any Ocwen Subsidiary, each as
amended or supplemented to the date of this Agreement, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, reciprocal easement
agreement, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Ocwen or any Ocwen Subsidiary or their
respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation
(collectively, "Laws") applicable to Ocwen or any Ocwen Subsidiary, or
their respective properties or assets, other than, in the case of clause
(ii) or (iii), any such conflicts, violations, defaults, rights or Liens
that individually or in the aggregate would not (x) have an Ocwen Material
Adverse Effect or (y) prevent the consummation of the Merger or the other
transactions contemplated hereby. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local government or any court, administrative or regulatory agency
or commission or other governmental authority or agency (a "Governmental
Entity"), is required by or with respect to Ocwen or any Ocwen Subsidiary
in connection with the execution and delivery of this Agreement by Ocwen or
the consummation by Ocwen of any of the transactions contemplated hereby
and thereby, except for (i) the filing with the Securities and Exchange
Commission (the "SEC") of (x) a proxy statement relating to the approval by
Ocwen shareholders of the Merger and the other transactions contemplated
hereby (as amended or supplemented from time to time, the "Proxy
Statement") and (y) such reports under Section 13(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (ii) the filing of a
notice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), as may be required in connection with this Agreement, the
Merger and the other transactions contemplated by this Agreement, (iii)
such filings as may be required in connection with the payment of any
Transfer and Gains Taxes (as defined herein), and (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings
(A) as are set forth in Schedule 3.1(c) to the Ocwen Disclosure Letter or
(B) as may be required under federal, state, local or foreign Environmental
Laws (as defined herein) or (C) which, if not obtained or made, would not
prevent or delay in any material respect the consummation of the Merger or
the other transactions contemplated hereby or otherwise prevent Ocwen from
performing its obligations under this Agreement in any material respect or
have, individually or in the aggregate, an Ocwen Material Adverse Effect.
(d) SEC Documents; Financial Statements; Undisclosed
Liabilities. Ocwen has filed all required reports, schedules, forms,
statements and other documents with the SEC since January 1, 1998 (the
"Ocwen SEC Documents"). Except as set forth in the Ocwen Disclosure Letter,
all of the Ocwen SEC Documents (other than preliminary material), as of
their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and, in
each case, the rules and regulations promulgated thereunder applicable to
such Ocwen SEC Documents. None of the Ocwen SEC Documents at the time of
filing contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading, except to the extent such statements have
been modified or superseded by later filed Ocwen SEC Documents. Other than
as set forth in Schedule 3.1(d) to the Ocwen Disclosure Letter, there is no
unresolved violation, criticism or exception by any Governmental Entity of
which Ocwen has received written notice with respect to any Ocwen report or
statement which, if resolved in a manner unfavorable to
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Ocwen, could have an Ocwen Material Adverse Effect. The consolidated
financial statements of Ocwen included in the Ocwen SEC Documents complied
as to form in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto,
have been prepared in accordance with generally accepted accounting
principles ("GAAP") (except, in the case of interim financial statements,
as permitted by Forms 10-Q or 8-K of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes
thereto) and fairly presented, in accordance with the applicable
requirements of GAAP, the consolidated financial position of Ocwen and the
Ocwen Subsidiaries taken as a whole, as of the dates thereof and the
consolidated results of operations and cash flows for the periods then
ended (subject, in the case of interim financial statements, to normal
year-end adjustments).
(e) Absence of Certain Changes or Events. Except as disclosed in the
Ocwen SEC Documents or in Schedule 3.1(e) to the Ocwen Disclosure Letter,
since June 30, 1999 (the "Ocwen Financial Statement Date") and to the date
of this Agreement, but not thereafter with respect to clause (ii)(a) of
this Section 3.1(e), (i) Ocwen and the Ocwen Subsidiaries have conducted
their business only in the ordinary course and (ii) there has not been (a)
any material adverse change in the business, financial condition or results
of operations of Ocwen and the Ocwen Subsidiaries taken as a whole, that
has resulted or would result, individually or in the aggregate, in Ocwen
Economic Losses (as defined in Section 6.2 below) of $10,000,000 or more
(an "Ocwen Material Adverse Change"), nor has there been any occurrence or
circumstance that with the passage of time would reasonably be expected to
result in an Ocwen Material Adverse Change, (b) except for distributions
(in the case of Ocwen) the purpose of which is for Ocwen to maintain its
status as a real estate investment trust, any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the Ocwen Common Shares, (c) any split,
combination or reclassification of any Ocwen Common Shares, (d) any damage,
destruction or loss, whether or not covered by insurance, that has or would
have an Ocwen Material Adverse Effect, (e) any change in accounting
methods, principles or practices by Ocwen or any Ocwen Subsidiary
materially affecting its assets, liabilities or business, except insofar as
may have been disclosed in Ocwen SEC Documents or required by a change in
GAAP or (f) any amendment of any employment, consulting, severance,
retention or any other agreement between Ocwen and any officer or director
of Ocwen.
(f) Litigation. Except as disclosed in the Ocwen SEC Documents or in
Schedule 3.1(f) to the Ocwen Disclosure Letter, and other than personal
injury and other routine tort litigation arising from the ordinary course
of operations of Ocwen and the Ocwen Subsidiaries which is covered by
adequate insurance, as of the date hereof, there is no suit, action or
proceeding pending or, to the knowledge of Ocwen, threatened against or
affecting Ocwen or any Ocwen Subsidiary that, individually or in the
aggregate, could reasonably be expected to (i) have an Ocwen Material
Adverse Effect or (ii) prevent the consummation of the Merger or any of the
other transactions contemplated hereby, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Ocwen or any Ocwen Subsidiary having, or which, insofar
as reasonably can be foreseen, in the future would have, any such effect.
(g) Taxes. To the knowledge of Ocwen,
(i) Each of Ocwen and each Ocwen Subsidiary has timely filed all
material Tax Returns (as defined herein) and reports required to be
filed by it as of the date of this Agreement (after giving effect to any
filing extension properly granted by a Governmental Entity having
authority to do so). Each such Tax
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Return is true, correct and complete in all material respects. Ocwen and
each Ocwen Subsidiary have paid (or Ocwen has paid on their behalf),
within the time and manner prescribed by law, all material Taxes (as
defined herein) that are due and payable. As used in this Agreement,
"Taxes" shall mean any federal, state, local or foreign income, gross
receipts, license, payroll, employment withholding, property, sales,
excise or other tax or governmental charges of any nature whatsoever,
together with any penalties, interest or additions thereto and "Tax
Return" shall mean any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
(ii) Subject to the declaration, set aside and payment of the 1998
REIT Dividend, Ocwen (A) has been subject to taxation as a real estate
investment trust under the Code ("REIT") within the meaning of Section
856 of the Code and has satisfied the requirements to qualify as a REIT
for all of its taxable years commencing with the year ending December
31, 1997 through the most recent December 31, and (B) has not taken or
omitted to take any action which could reasonably be expected to result
in a challenge to its status as a REIT for such period, and, to Ocwen's
knowledge, no such challenge is pending or threatened. Each Ocwen
Subsidiary which is a partnership or files Tax Returns as a partnership
for federal income tax purposes has since its inception been classified
for federal income tax purposes as a partnership and not as a
corporation or as an association taxable as a corporation.
(iii) Except as may be set forth in Schedule 3.1(g)(iii) to the
Ocwen Disclosure Letter, neither Ocwen nor any of its Subsidiaries is a
party to any pending action or proceeding by any governmental authority
for assessment or collection of Taxes, and no claim for assessment or
collection of Taxes has been asserted against it.
(h) Certain Agreements. Neither Ocwen nor any Ocwen Subsidiary has
any employees. Except as set forth in Section 3.1(h) of the Ocwen
Disclosure Letter, neither Ocwen nor any Ocwen Subsidiary is a party to any
oral or written agreement or plan, including any employment agreement,
severance agreement, stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement. No holder of any option to purchase Ocwen Common Shares, or
Ocwen Common Shares granted in connection with the performance of services
for Ocwen or any Ocwen Subsidiary, is or will be entitled to receive cash
from Ocwen or any Ocwen Subsidiary in lieu of or in exchange for such
option or shares as a result of the transactions contemplated by this
Agreement.
(i) Brokers; Schedule of Fees and Expenses. No broker, investment
banker, financial advisor or other person, other than PaineWebber
Incorporated (the "Ocwen Advisor"), the fees and expenses of which, as set
forth in a letter agreement between the Ocwen Special Committee (as defined
in Section 5.1(b) below) and the Ocwen Advisor, have previously been
disclosed to the Purchaser and will be paid by Ocwen, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of Ocwen or any Ocwen Subsidiary.
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(j) Compliance with Laws. Except as disclosed in the Ocwen SEC
Documents or as set forth in Schedule 3.1(j) to the Ocwen Disclosure
Letter, neither Ocwen nor any of the Ocwen Subsidiaries has violated or
failed to comply with any statute, law, ordinance, regulation, rule,
judgment, decree or order of any Governmental Entity applicable to its
business, properties or operations, except for violations and failures to
comply that would not, individually or in the aggregate, reasonably be
expected to result in an Ocwen Material Adverse Effect.
(k) Contracts; Debt Instruments. Neither Ocwen nor any Ocwen
Subsidiary is in violation of or in default under, in any material respect
(nor does there exist any condition which upon the passage of time or the
giving of notice or both would cause such a violation of or default under),
any material loan or credit agreement, note, bond, mortgage, indenture,
lease, or any agreement to acquire real property, or any other material
contract, agreement, arrangement or understanding, to which it is a party
or by which it or any of its properties or assets is bound, except as set
forth in Schedule 3.1(k) to the Ocwen Disclosure Letter, except as
disclosed in the Ocwen SEC Documents and except for violations or defaults
that would not, individually or in the aggregate, result in an Ocwen
Material Adverse Effect.
(l) Environmental Matters. Except as disclosed in the Ocwen SEC
Documents or as set forth in Schedule 3.1(l) to the Ocwen Disclosure Letter
or in the environmental audits/reports listed therein, each of Ocwen and
each Ocwen Subsidiary has obtained all licenses, permits, authorizations,
approvals and consents from Governmental Entities which are required in
respect of its business, operations, assets or properties under any
applicable Environmental Law (as defined below) and each of Ocwen and each
Ocwen Subsidiary is in compliance in all material respects with the terms
and conditions of all such licenses, permits, authorizations, approvals and
consents and with any applicable Law of any Governmental Entity relating to
human health, safety or protection of the environment ("Environmental
Laws"), except for violations and failures to comply which would not,
individually or in the aggregate, have an Ocwen Material Adverse Effect.
(m) Ocwen Properties. Except as listed in Schedule 3.1(m) to the
Ocwen Disclosure Letter or except as listed in the title insurance
policies, reports or the surveys, copies of which were made available for
review to the Purchaser: (i) Ocwen or an Ocwen Subsidiary owns fee simple
title to each of the real properties reflected on the most recent balance
sheet of Ocwen included in the Ocwen SEC Documents or as identified in
Schedule 3.1(m) to the Ocwen Disclosure Letter (the "Ocwen Properties"),
which are all of the real estate properties owned by them, free and clear
of liens, mortgages or deeds of trust, claims against title, charges which
are liens, security interests or other encumbrances on title
("Encumbrances"); (ii) the Ocwen Properties are not subject to any rights
of way, written agreements, laws, ordinances and regulations affecting
building use or occupancy, or reservations of an interest in title
(collectively, "Property Restrictions"), except for (a) Property
Restrictions imposed or promulgated by law or any Governmental Entity with
respect to real property, including zoning regulations, provided they do
not materially adversely affect the current use of the Ocwen Properties,
(b) mechanics', carriers', workmen's, repairmen's liens and other
Encumbrances, Property Restrictions and other limitations of any kind, if
any, which have heretofore been bonded or which individually or in the
aggregate do not exceed $200,000, do not materially detract from the value
of or materially interfere with the present use of any of the Ocwen
Properties subject thereto or affected thereby, and do not otherwise
materially impair business operations conducted by Ocwen and the Ocwen
Subsidiaries and which have arisen or been incurred only in its
construction or renovation activities or in the ordinary course of
business; (iii) valid policies of title insurance have been issued insuring
Ocwen's or an Ocwen Subsidiary's fee
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simple title to the Ocwen Properties except as noted therein, and such
policies are, at the date hereof, in full force and effect and no claim has
been made against any such policy; (iv) there is no certificate, permit or
license from any Governmental Entity having jurisdiction over any of the
Ocwen Properties or any agreement, easement or any other right which is
necessary to permit the lawful use and operation of the buildings and
improvements on any of the Ocwen Properties or which is necessary to permit
the lawful use and operation of all driveways, roads and other means of
egress and ingress to and from any of the Ocwen Properties that has not
been obtained and is not in full force and effect, or any pending threat of
modification or cancellation of any of same, except where the failure to
have such certificate, permit, license, agreement, easement or other right,
or such threat of modification or cancellation thereof, would not,
individually or in the aggregate, have an Ocwen Material Adverse Effect;
(v) neither Ocwen nor an Ocwen Subsidiary has received written notice of
any violation of any federal, state or municipal law, ordinance, order,
regulation or requirement affecting any portion of any of the Ocwen
Properties issued by any Governmental Entity, except where such violation
cannot reasonably be expected to be material, individually or in the
aggregate to Ocwen; (vi) neither Ocwen nor an Ocwen Subsidiary has received
notice to the effect that there are (a) condemnation or rezoning
proceedings that are pending or threatened with respect to any of the Ocwen
Properties or (b) zoning, building or similar laws, codes, ordinances,
orders or regulations that are or will be violated by the continued
maintenance, operation or use of any buildings or other improvements on any
of the Ocwen Properties or by the continued maintenance, operation or use
of the parking areas, except where such violation or proceeding cannot
reasonably be expected to be material, individually or in the aggregate to
Ocwen.
(n) Opinion of Financial Advisor. Ocwen has received the opinion of
PaineWebber Incorporated, satisfactory to Ocwen, with regard to the
fairness, from a financial point of view, to the holders of Ocwen Common
Shares (excluding the Purchaser) of the consideration to be paid to such
shareholders by the Purchaser pursuant to the Merger.
(o) Control Share Statute. The Merger is an excepted acquisition
under Virginia's Control Share Acquisitions Statute.
Section 3.2 Representations and Warranties of the Purchaser. Except as set
forth on the Purchaser Disclosure Letter, Purchaser represents and warrants to
Ocwen as follows:
(a) Organization, Standing and Corporate Power of the Purchaser. Each
of the Purchaser and Acquisition Sub is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated and has the requisite corporate power and
authority to carry on its business as now being conducted. Purchaser is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed, individually or in the aggregate, would not have a material
adverse effect on the business, properties, assets, financial condition or
results of operations of Purchaser and the Purchaser Subsidiaries (as
defined below) taken as a whole (an "Purchaser Material Adverse Effect"
except that such term shall not encompass any "mark to market" or other
revaluation of the book value of Purchaser's assets effected pursuant to
GAAP). As used herein, "Purchaser Subsidiary" shall mean any corporation,
including Acquisition Sub, partnership, limited liability company, joint
venture or other legal entity of which Purchaser (either directly or
through or together with another Purchaser Subsidiary) owns 50% or more of
the capital stock or other equity interests of such entity. Each Purchaser
Subsidiary is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized and has the requisite
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corporate power (in the case of a subsidiary that is a corporation) or
other power and authority to carry on its business as now being conducted,
except where the failure to be so organized, existing or in good standing
or to have such power or authority would not, individually or in the
aggregate, have a Purchaser Material Adverse Effect.
(b) Capital Structure. The authorized capital stock of Purchaser
consists of 200,000,000 shares of Common Stock, par value $.01 per share
("Purchaser Common Shares") and 20,000,000 shares of Preferred Stock, par
value $.01 per share (the "Purchaser Preferred Stock"). At the close of
business on July 23, 1999, (i) 60,806,456 Purchaser Common Shares were
issued and outstanding, (ii) 10,607,135 options to purchase Purchaser
Common Shares were available for issuance under Purchaser's stock option
plans, long-term incentive plans, annual incentive plans and stock
compensation plans (the "Purchaser Share Plans") and (iii) 12,373,551
Purchaser Common Shares were reserved for issuance upon exercise of stock
options to purchase Purchaser Common Shares under the Purchaser Share Plans
or otherwise (the "Purchaser Common Shares Options"). On the date of this
Agreement, except as set forth above in this Section 3.2(b), no shares of
capital stock or other voting securities of Purchaser were issued, reserved
for issuance or outstanding. All outstanding shares of capital stock of
Purchaser are duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. Except (A) for the Purchaser Common
Shares Options and (B) as set forth in Schedule 3.2(b) to the Purchaser
Disclosure Letter, there are no outstanding securities, options, stock
appreciation rights, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which Purchaser or any
Purchaser Subsidiary is a party or by which such entity is bound,
obligating Purchaser or any Purchaser Subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital
stock, voting securities or other ownership interests of Purchaser or any
Purchaser Subsidiary or obligating Purchaser or any Purchaser Subsidiary to
issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking.
(c) Authority; Noncontravention; Consents. On or prior to the date of
this Agreement, the Board of Directors of Acquisition Sub has adopted this
Agreement and has recommended this Agreement to its sole shareholder, and
the sole shareholder of Acquisition Sub has approved this Agreement, all
such actions being taken in accordance with the VSCA. On or prior to the
date of this Agreement, the Board of Directors of Purchaser has adopted
this Agreement, has declared the Merger advisable and fair to and in the
best interests of Purchaser and its shareholders, has recommended approval
of the issuance of Purchaser Common Shares pursuant to this Agreement (the
"Share Issuance") to its shareholders and has directed that this Agreement
be submitted to Purchaser's shareholders for approval, all in accordance
with the Florida Business Corporation Act (the "FBCA"). Purchaser has the
requisite corporate power and authority to enter into this Agreement and,
subject to approval of the Share Issuance by the requisite vote of the
holders of the Purchaser Common Shares (the "Purchaser Common Shareholder
Approval"), to consummate the Merger and the other transactions
contemplated by this Agreement. Acquisition Sub has the requisite corporate
power and authority to enter into this Agreement and to consummate the
Merger and the other transactions contemplated by this Agreement. The
execution and delivery of this Agreement by Purchaser and the consummation
by Purchaser of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Purchaser,
subject to receipt of the Purchaser Common Shareholder Approval. This
Agreement has been duly executed and delivered by Purchaser and Acquisition
Sub and constitutes the valid and binding obligation of each of Purchaser
and Acquisition Sub, enforceable against each of them in accordance with
its terms, subject to applicable bankruptcy, insolvency,
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moratorium or other similar laws relating to creditors' rights and general
principles of equity. The filing of the Form S-4 (as hereinafter defined)
has been authorized by the Purchaser's Board of Directors. Except as set
forth in Schedule 3.2(c) to the Purchaser Disclosure Letter, the execution
and delivery of this Agreement by Purchaser and Acquisition Sub do not, and
the consummation of the transactions contemplated hereby and compliance by
Purchaser and Acquisition Sub with the provisions of this Agreement will
not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under, or result in the creation of any Lien upon any of
the properties or assets of Purchaser or any Purchaser Subsidiary under,
(i) the charter or by-laws of Purchaser or the comparable charter or
organizational documents or partnership or similar agreement (as the case
may be) of any Purchaser Subsidiary, each as amended or supplemented to the
date of this Agreement, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, reciprocal easement agreement, lease or other
agreement, instrument, permit, concession, franchise or license applicable
to Purchaser or any Purchaser Subsidiary or their respective properties or
assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any Laws applicable to Purchaser or
any Purchaser Subsidiary, or their respective properties or assets, other
than, in the case of clause (ii) or (iii), any such conflicts, violations,
defaults, rights or Liens that individually or in the aggregate would not
(x) have a Purchaser Material Adverse Effect or (y) prevent the
consummation of the Merger or the other transactions contemplated hereby.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Purchaser or any Purchaser Subsidiary in connection with the
execution and delivery of this Agreement by Purchaser or the consummation
by Purchaser of any of the transactions contemplated hereby and thereby,
except for (i) the filing with the SEC of (x) the Form S-4 and the Proxy
Statement/Prospectus and (y) such reports under Section 13(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii)
the filing of a notice under the HSR Act, as may be required in connection
with this Agreement, the Merger and the other transactions contemplated by
this Agreement, (iii) such filings as may be required in connection with
the payment of any Transfer and Gains Taxes (as defined herein), and (iv)
such other consents, approvals, orders, authorizations, registrations,
declarations and filings (A) as are set forth in Schedule 3.2(d) to the
Purchaser Disclosure Letter or (B) as may be required under federal, state,
local or foreign Environmental Laws or (C) which, if not obtained or made,
would not prevent or delay in any material respect the consummation of the
Merger or the other transactions contemplated hereby or otherwise prevent
Purchaser or Acquisition Sub from performing their obligations under this
Agreement in any material respect or have, individually or in the
aggregate, a Purchaser Material Adverse Effect.
(d) SEC Documents; Financial Statements; Undisclosed
Liabilities. Purchaser has filed all required reports, schedules, forms,
statements and other documents with the SEC since January 1, 1998 (the
"Purchaser SEC Documents"). All of the Purchaser SEC Documents (other than
preliminary material), as of their respective filing dates, complied in all
material respects with all applicable requirements of the Securities Act
and the Exchange Act and, in each case, the rules and regulations
promulgated thereunder applicable to such Purchaser SEC Documents. None of
the Purchaser SEC Documents at the time of filing contained any untrue
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading,
except to the extent such statements have been modified or superseded by
later filed Purchaser SEC Documents. Other than as set forth in Schedule
3.2(d) to the Purchaser Disclosure Letter, there is no unresolved
violation, criticism or exception by any Governmental Entity
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of which Purchaser has received written notice with respect to any
Purchaser report or statement which, if resolved in a manner unfavorable to
Purchaser, could have a Purchaser Material Adverse Effect. The consolidated
financial statements of Purchaser included in the Purchaser SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance GAAP (except, in the case
of interim financial statements, as permitted by Forms 10-Q or 8-K of the
SEC) applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly presented, in accordance
with the applicable requirements of GAAP, the consolidated financial
position of Purchaser and the Purchaser Subsidiaries taken as a whole, as
of the dates thereof and the consolidated results of operations and cash
flows for the periods then ended (subject, in the case of interim financial
statements, to normal year-end adjustments).
(e) Absence of Certain Changes or Events. Except as disclosed in the
Purchaser SEC Documents or in Schedule 3.2(e) to the Purchaser Disclosure
Letter, since the date of the most recent financial statements included in
the Purchaser SEC Documents (the "Purchaser Financial Statement Date") and
to the date of this Agreement, but not thereafter with respect to clause
(ii)(a) of this Section 3.2(e), (i) Purchaser and the Purchaser
Subsidiaries have conducted their business only in the ordinary course and
(ii) there has not been (a) any material adverse change in the business,
financial condition or results of operations of Purchaser and the Purchaser
Subsidiaries taken as a whole, that has resulted or would result,
individually or in the aggregate, in Purchaser Economic Losses (as defined
in Section 6.3 below) of $20,000,000 or more (a "Purchaser Material Adverse
Change"), nor has there been any occurrence or circumstance that with the
passage of time would reasonably be expected to result in a Purchaser
Material Adverse Change, (b) except for dividends in the ordinary course of
business consistent with past practice and having customary record and
payment dates, any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to the
Purchaser Common Shares, (c) any split, combination or reclassification of
any Purchaser Common Shares, (d) any damage, destruction or loss, whether
or not covered by insurance, that has or would have a Purchaser Material
Adverse Effect, (e) any change in accounting methods, principles or
practices by Purchaser or any Purchaser Subsidiary materially affecting its
assets, liabilities or business, except insofar as may have been disclosed
in Purchaser SEC Documents or required by a change in GAAP or (f) any
amendment of any employment, consulting, severance, retention or any other
agreement between Purchaser and any officer or director of Purchaser.
(f) Litigation. Except as disclosed in the Purchaser SEC Documents or
in Schedule 3.2(f) of the Purchaser Disclosure Letter, and other than
personal injury and other routine tort litigation arising from the ordinary
course of operations of Purchaser and the Purchaser Subsidiaries which is
covered by adequate insurance, as of the date hereof, there is no suit,
action or proceeding pending or, to the knowledge of Purchaser or
Acquisition Sub, threatened against or affecting the Purchaser or
Acquisition Sub that, individually or in the aggregate, could reasonably be
expected to (i) have a Purchaser Material Adverse Effect or (ii) prevent
the consummation of the Merger or any of the other transactions
contemplated hereby, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against the
Purchaser or any Subsidiary of the Purchaser having, or which, insofar as
reasonably can be foreseen, in the future would have, any such effect.
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(g) Benefit Plans; ERISA Compliance.
(i) All employee benefits plans and other benefit arrangements
covering employees of Purchaser and the Purchaser Subsidiaries will be
listed in the Purchaser Disclosure Letter or are disclosed in the
Purchaser SEC Documents. True and complete copies of the Purchaser
Benefit Plans (as defined herein) have been made available to Ocwen.
Except as disclosed in the Purchaser SEC Documents or in Schedule
3.2(g)(i) to the Purchaser Disclosure Letter, since the date of the most
recent audited financial statements included in the Purchaser SEC
Documents, there has not been any adoption or amendment in any material
respect by Purchaser or any Purchaser Subsidiary of any bonus, pension,
profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical
or other employee benefit plan, arrangement or understanding (whether or
not legally binding) providing benefits to any current or former
employee, officer or director of Purchaser or any Purchaser Subsidiary
or any person affiliated with Purchaser under Section 414(b), (c), (m)
or (o) of the Code (collectively, " Purchaser Benefit Plans").
(ii) Except as described in the Purchaser SEC Documents or in
Schedule 3.2(g)(ii) to the Purchaser Disclosure Letter or as would not
have a Purchaser Material Adverse Effect, (A) all Purchaser Benefit
Plans, including any such plan that is an "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), are in compliance with all applicable
requirements of law, including ERISA and the Code, and (B) neither
Purchaser nor any Purchaser Subsidiary has any liabilities or
obligations with respect to any such Purchaser Benefit Plan, whether
accrued, contingent or otherwise (other than obligations to make
contributions and pay benefits and administrative costs incurred in the
ordinary course), nor to the knowledge of Purchaser are any such
liabilities or obligations expected to be incurred. Except as set forth
in Schedule 3.2(g)(ii) to the Purchaser Disclosure Letter, the execution
of, and performance of the transactions contemplated in, this Agreement
will not (either alone or together with the occurrence of any additional
or subsequent events) constitute an event under any Purchaser Benefit
Plan, policy, arrangement or agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
employee or director. The only severance agreements or severance
policies applicable to Purchaser or the Purchaser Subsidiaries are the
agreement and policies specifically referred to in Schedule 3.2(g)(ii)
to the Purchaser Disclosure Letter or in the Purchaser SEC Documents.
(iii) Except as may be set forth in Schedule 3.1(g)(iii) to the
Purchaser Disclosure Letter or in the Purchaser SEC Documents, there are
no pending or threatened claims against or otherwise involving any of
the Purchaser Benefit Plans and no suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of
Purchaser Benefit Plan activities) has been brought against or with
respect to any such Purchaser Benefit Plan, except for any of the
foregoing which would not have a Purchaser Material Adverse Effect.
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(h) Taxes. To the knowledge of Purchaser,
(i) Each of Purchaser and each Purchaser Subsidiary has timely
filed all material Tax Returns (as defined herein) and reports required
to be filed by it as of the date of this Agreement (after giving effect
to any filing extension properly granted by a Governmental Entity having
authority to do so). Each such Tax Return is true, correct and complete
in all material respects. Purchaser and each Purchaser Subsidiary have
paid (or Purchaser has paid on their behalf), within the time and manner
prescribed by law, all material Taxes (as defined herein) that are due
and payable.
(ii) Purchaser has not agreed to any extension of time for the
assessment or payment of any Tax due with respect to the period covered
by any such Tax Return. All Tax withholding requirements and all
requirements to pay Tax without regard to the filing of a Tax Return
imposed on or with respect to the Purchaser and each Purchaser
Subsidiary have been satisfied in full. The financial statements of
Purchaser reflect and include adequate provision for the payment in full
of any and all Taxes payable by or with respect to the Purchaser and
Purchaser Subsidiaries for any and all periods through the date of this
Agreement for which no Tax Return has yet been filed.
(iii) Except as may be set forth in the Purchaser Disclosure
Letter, there is no claim, audit, action, suit or proceeding related to
Taxes pending or threatened against or with respect to Purchaser or any
Purchaser Subsidiary.
(iv) Purchaser does not know or have reason to know of any
inaccuracy in any representation set forth in Section 3.1(g) of this
Agreement.
(i) Certain Agreements. Except as set forth in Section 3.2(i) of the
Purchaser Disclosure Letter, neither Purchaser nor any Purchaser Subsidiary
is a party to any oral or written agreement or plan, including any
employment agreement, severance agreement, stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan, any
of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement. No holder of any option to purchase Purchaser Common
Shares, or Purchaser Common Shares granted in connection with the
performance of services for Purchaser or any Purchaser Subsidiary, is or
will be entitled to receive cash from Purchaser or any Purchaser Subsidiary
in lieu of or in exchange for such option or shares as a result of the
transactions contemplated by this Agreement.
(j) Brokers. No broker, investment banker, financial advisor or other
person, other than Morgan Stanley & Co. Incorporated and Friedman,
Billings, Ramsey & Co., Inc. (the "Purchaser Advisors"), the fees and
expenses of which, as set forth in letter agreements between the Purchaser
and the Purchaser Advisors, have previously been disclosed to Ocwen and
will be paid by the Purchaser, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated hereby based upon arrangements made by or on
behalf of Purchaser or any Purchaser Subsidiary.
(k) Compliance with Laws. Except as disclosed in the Purchaser SEC
Documents or as set forth in Schedule 3.2(k) to the Purchaser Disclosure
Letter, neither Purchaser nor any of the Purchaser Subsidiaries has
violated or failed to comply with any statute, law, ordinance, regulation,
rule, judgment, decree or order of any Governmental Entity applicable to
its business, properties or operations, except for violations and failures
to
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comply that would not, individually or in the aggregate, reasonably be
expected to result in a Purchaser Material Adverse Effect.
(l) Regulatory Matters. Except as disclosed in the Purchaser SEC
Documents or as would not, individually or in the aggregate, reasonably be
expected to result in a material adverse change in the business, financial
condition or results of operations of Purchaser and the Purchaser
Subsidiaries taken as a whole, (i) neither Purchaser nor any Purchaser
Subsidiary or any of the properties of Purchaser or any Purchaser
Subsidiary is a party to or is subject to any order, decree, memorandum of
understanding or similar arrangement with, or a commitment letter or
similar submission to, or extraordinary supervisory letter from, any
federal or state governmental agency or authority charged with the
supervision or regulation of financial institutions or issuers of
securities or engaged in the insurance of deposits, (including, without
limitation, the Officer of the Comptroller of the Currency, the Office of
Thrift Supervision ("OTS"), the Federal Reserve Board and the Federal
Deposit Insurance Corporation) or the supervision or regulation of it or
any Purchaser Subsidiary (collectively, the "Regulatory Authorities"); and
(ii) neither Purchaser nor any Purchaser Subsidiary has been advised by any
Regulatory Authority that such Regulatory Authority is contemplating
issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding,
commitment letter, supervisory letter or similar submission.
(m) Contracts; Debt Instruments. Neither Purchaser nor any Purchaser
Subsidiary is in violation of or in default under, in any material respect
(nor does there exist any condition which upon the passage of time or the
giving of notice or both would cause such a violation of or default under),
any material loan or credit agreement, note, bond, mortgage, indenture,
lease, or any agreement to acquire real property, or any other material
contract, agreement, arrangement or understanding, to which it is a party
or by which it or any of its properties or assets is bound, except as set
forth in Schedule 3.2(l) to the Purchaser Disclosure Letter, except as
disclosed in the Purchaser SEC Documents and except for violations or
defaults that would not, individually or in the aggregate, result in a
Purchaser Material Adverse Effect.
(n) Environmental Matters. Except as disclosed in the Purchaser SEC
Documents or as set forth in Schedule 3.2(m) to the Purchaser Disclosure
Letter or in the environmental audits/reports listed therein, each of
Purchaser and each Purchaser Subsidiary has obtained all licenses, permits,
authorizations, approvals and consents from Governmental Entities which are
required in respect of its business, operations, assets or properties under
any applicable Environmental Law (as defined below) and each of Purchaser
and each Purchaser Subsidiary is in compliance in all material respects
with the terms and conditions of all such licenses, permits,
authorizations, approvals and consents and with any applicable Law of any
Governmental Entity relating to human health, safety or protection of the
environment ("Environmental Laws"), except for violations and failures to
comply which would not, individually or in the aggregate, have a Purchaser
Material Adverse Effect.
(o) Purchaser Properties. Except as listed in Schedule 3.2(n) to the
Purchaser Disclosure Letter or except as listed in the title insurance
policies, reports or the surveys, copies of which were made available for
review to the Purchaser: (i) Purchaser or a Purchaser Subsidiary owns fee
simple title to each of the real properties reflected on the most recent
balance sheet of Purchaser included in the Purchaser SEC Documents or as
identified in Schedule 3.2(n) to the Purchaser Disclosure Letter (the
"Purchaser Properties"), and those that have been purchased or otherwise
acquired in the ordinary course of Purchaser's business after the date of
the most recent balance sheet of Purchaser included in the Purchaser SEC
Documents but excluding those that have been sold or
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otherwise disposed of in the ordinary course of Purchaser's business, which
are all of the real estate properties owned by them, free and clear of
liens, mortgages or deeds of trust, claims against title, charges which are
liens, security interests or other encumbrances on title ("Encumbrances");
(ii) the Purchaser Properties are not subject to any rights of way, written
agreements, laws, ordinances and regulations affecting building use or
occupancy, or reservations of an interest in title (collectively, "Property
Restrictions"), except for (a) Property Restrictions imposed or promulgated
by law or any Governmental Entity with respect to real property, including
zoning regulations, provided they do not materially adversely affect the
current use of the Purchaser Properties, (b) mechanics', carriers',
workmen's, repairmen's liens and other Encumbrances, Property Restrictions
and other limitations of any kind, if any, which have heretofore been
bonded or which individually or in the aggregate do not exceed $400,000, do
not materially detract from the value of or materially interfere with the
present use of any of the Purchaser Properties subject thereto or affected
thereby, and do not otherwise materially impair business operations
conducted by Purchaser and the Purchaser Subsidiaries and which have arisen
or been incurred only in its construction or renovation activities or in
the ordinary course of business; (iii) valid policies of title insurance
have been issued insuring Purchaser's or a Purchaser Subsidiary's fee
simple title to the Purchaser Properties except as noted therein, and such
policies are, at the date hereof, in full force and effect and no claim has
been made against any such policy; (iv) there is no certificate, permit or
license from any Governmental Entity having jurisdiction over any of the
Purchaser Properties or any agreement, easement or any other right which is
necessary to permit the lawful use and operation of the buildings and
improvements on any of the Purchaser Properties or which is necessary to
permit the lawful use and operation of all driveways, roads and other means
of egress and ingress to and from any of the Purchaser Properties that has
not been obtained and is not in full force and effect, or any pending
threat of modification or cancellation of any of same, except where the
failure to have such certificate, permit, license, agreement, easement or
other right, or such threat of modification or cancellation thereof, would
not, individually or in the aggregate, have a Purchaser Material Adverse
Effect; (v) neither Purchaser nor a Purchaser Subsidiary has received
written notice of any violation of any federal, state or municipal law,
ordinance, order, regulation or requirement affecting any portion of any of
the Purchaser Properties issued by any Governmental Entity, except, in the
case of clause (vi)(a) or (vi)(b) where such violation cannot reasonably be
expected to be material, individually or in the aggregate, to Purchaser;
(vi) neither Purchaser nor a Purchaser Subsidiary has received notice to
the effect that there are (a) condemnation or rezoning proceedings that are
pending or threatened with respect to any of the Purchaser Properties or
(b) zoning, building or similar laws, codes, ordinances, orders or
regulations that are or will be violated by the continued maintenance,
operation or use of any buildings or other improvements on any of the
Purchaser Properties or by the continued maintenance, operation or use of
the parking areas, except where such violation or proceeding cannot
reasonably be expected to be material, individually or in the aggregate to
the Purchaser.
(p) Opinion of Financial Advisor. Purchaser has received the opinion
of Morgan Stanley & Co. Incorporated, satisfactory to Purchaser, with
regard to the fairness, from a financial point of view, to Purchaser of the
consideration to be paid by Purchaser pursuant to the Merger.
(q) Vote Required. The affirmative vote of a majority of the votes
cast on the Share Issuance is required to approve such issuance; provided
that the total votes cast on such proposal represent a majority of the
outstanding shares of Purchaser Common Shares. No other vote of the
outstanding Purchaser Common Shares is necessary (under applicable
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law or otherwise) to approve the Merger, this Agreement and the other
transactions contemplated hereby.
(r) Financing. The Purchaser has as of the date hereof and will have
available to it at the Effective Time, immediately available funds or
immediately available credit necessary to consummate the transactions
contemplated by this Agreement and operate Ocwen after the Closing,
including the financing contemplated by Article IV of this Agreement.
(s) Labor Matters. Neither Purchaser nor any Purchaser Subsidiary is
a party to, or bound by, any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor union
organization. There is no unfair labor practice or labor arbitration
proceeding pending or, to the knowledge of Purchaser threatened against
Purchaser or any Purchaser Subsidiary relating to their business, except
for any such proceeding as would not have a Purchaser Material Adverse
Effect. To the knowledge of Purchaser, there are no organizational efforts
with respect to the formation of a collective bargaining unit presently
being made or threatened involving employees of Purchaser or any Purchaser
Subsidiary.
Article IV
FINANCING
Section 4.1 Financing. If requested by the Board of Directors of Ocwen
following its reasonable good faith determination that incurring such
indebtedness is necessary, then Purchaser shall provide secured financing to
Ocwen in the amount of up to $25 million, such financing to be provided on an
arms' length basis and on terms consistent with market conditions and applicable
debt covenants at the time of incurrence; provided, however, that in connection
with the aforesaid determination, the Board of Directors of Ocwen shall have
considered in good faith the recommendation of the Manager under the First
Amended and Restated Management Agreement dated as of May 19, 1997, as amended
to the date of this Agreement (the "Management Agreement"), between Ocwen and a
subsidiary of Purchaser, as Manager (the "Manager"), regarding such financing,
including, without limitation, any alternatives recommended by the Manager,
including, without limitation, the sale of assets of Ocwen. Ocwen shall be
obligated to repay such financing immediately upon termination of this Agreement
pursuant to Sections 8.1(g) or (h) or upon the insolvency of Ocwen.
Article V
COVENANTS
Section 5.1 Preparation of the Proxy Statement; Shareholders Meeting.
(a) Purchaser and Ocwen shall cooperate and promptly prepare and Ocwen
shall file with the SEC the Proxy Statement and the Purchaser shall file
with the SEC as soon as practicable a registration statement on Form S-4
(the "Form S-4") under the Securities Act, with respect to the Purchaser
Common Shares issuable in the Merger, a portion of which registration
statement shall also serve as the joint proxy statement with respect to the
meetings of the shareholders of Ocwen and Purchaser in connection with the
Merger (the "Proxy Statement/Prospectus"). The respective parties will
cause the Proxy Statement/Prospectus and the Form S-4 to comply as to form
in all material respects with the applicable provisions of the Securities
Act, the Exchange Act and the rules and regulations promulgated thereunder.
The Purchaser shall use all reasonable efforts, and
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Ocwen will cooperate with the Purchaser to have the Form S-4 declared
effective by the SEC as promptly as practicable. The Purchaser shall use
its reasonable best efforts to obtain, prior to the effective date of the
Form S-4, all necessary state securities law or "Blue Sky" permits or
approvals required to carry out the transactions contemplated by this
Agreement and will pay all expenses incident thereto. The Purchaser agrees
that the Proxy Statement/Prospectus and each amendment or supplement
thereto, at the time of mailing thereof and at the time of the respective
meetings of shareholders of the Purchaser and Ocwen, or, in the case of the
Form S-4 and each amendment or supplement thereto, at the time it is filed
or becomes effective, will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. Ocwen agrees that the written
information provided by it specifically for inclusion in the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time
of mailing thereof and at the time of the respective meetings of
shareholders of the Purchaser and Ocwen, or, in the case of written
information provided by Ocwen specifically for inclusion in the Form S-4 or
any amendments or supplements thereto, at the time it is filed or becomes
effective, will not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Purchaser will advise Ocwen, promptly after it
receives notice thereof, of the time when the Form S-4 has become effective
or any supplement or amendment has been filed, the issuance of any stop
order, the suspension of the qualification of the Purchaser Common Shares
issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for additional information.
(b) Ocwen covenants that the Proxy Statement/Prospectus shall include
the recommendation of the Board of Directors of Ocwen in favor of the
approval of the Merger, this Agreement and the other transactions
contemplated hereby; provided, that such recommendations may not be
included or may be withdrawn, modified or amended if Ocwen shall approve or
recommend a Superior Competing Transaction (as defined herein) or enter
into an agreement with respect to such Superior Competing Transaction and
the Board of Directors of Ocwen determines in good faith that it is in
compliance with Section 7.1. Purchaser covenants that the Proxy
Statement/Prospectus shall include the recommendation of the Board of
Directors of Purchaser in favor of the approval of the Share Issuance.
(c) Each of Ocwen and Purchaser will promptly take such action as is
necessary in accordance with applicable law and its Articles of
Incorporation and Bylaws to convene a meeting of its shareholders
(respectively, the "Ocwen Common Shareholders Meeting" and the "Purchaser
Common Shareholders Meeting") as promptly as practicable to consider and
vote upon or otherwise to obtain the consent of its shareholders, as
required, to the transactions contemplated hereby. The Board of Directors
of Purchaser and, subject to Section 5.1(b), the Board of Directors of
Ocwen shall each take all lawful action to solicit such consent, including,
without limitation, timely mailing the Proxy Statement/ Prospectus. Ocwen
and Purchaser shall coordinate and cooperate with respect to the timing of
such meetings and shall use their best efforts to hold such meetings on the
same day.
Section 5.2 Access to Information; Confidentiality.
(a) Subject to the requirements of confidentiality agreements with
third parties, Ocwen and Purchaser shall, and shall cause each of their
Subsidiaries to, afford to the other and the other's officers, employees,
accountants, counsel, financial advisors and other representatives,
reasonable access during normal business hours during the period prior to
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the Effective Time to all their properties, books, contracts, commitments,
personnel and records and, during such period, Ocwen and Purchaser shall,
and shall cause each of their Subsidiaries to, furnish promptly to the
other (a) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of
federal or state securities laws and (b) all other information concerning
its business, properties and personnel as the other may reasonably request.
(b) As used herein, "Confidential Material" means, with respect to
either party hereto (the "Providing Party"), all information (written or
oral) furnished (whether before or after the date hereof) by the Providing
Party and its directors, officers, employees, affiliates or representatives
of advisors, including counsel, lenders and financial advisors
(collectively, the "Providing Party Representatives") to the other party
hereto (the "Receiving Party") or the Receiving Party's directors,
officers, employees, affiliates or representative of advisors, including
counsel, lenders and financial advisors (collectively the "Receiving Party
Representatives") and all analyses, compilations, forecasts and other
studies or other documents prepared by the Providing Party or the Providing
Party Representatives in connection with its or their review of the
transactions contemplated by this Agreement which contain or reflect such
information. The term "Confidential Material" does not include, however,
information which (i) at the time of disclosure or thereafter is generally
available to and known by the public other than as a result of a disclosure
directly or indirectly by the Receiving Party or the Receiving Party
Representatives in violation of this Agreement, (ii) at the time of
disclosure was available on a nonconfidential basis from a source other
than the Providing Party or the Providing Party Representatives, provided,
however, that such source is not and was not bound by a confidentiality
agreement with the Providing Party, (iii) was known by the Receiving Party
prior to receiving the Confidential Material from the Providing Party or
has been independently acquired or developed by the Receiving Party without
violating any of its obligations under this Agreement, or (iv) is contained
in any Ocwen SEC Documents or Purchaser SEC Documents.
(c) Subject to paragraph (d) below or except as required by law, the
Confidential Material will be kept confidential and will not, without the
prior written consent of the Providing Party, be disclosed by the Receiving
Party or its Representatives, in whole or in part and will not be used by
the Receiving Party or its Representatives, directly or indirectly, for any
purpose other than in connection with this Agreement, the Merger or the
evaluating, negotiating or advising with respect to a transaction
contemplated herein. Moreover, the Receiving Party agrees to transmit
Confidential Material to its Representatives only if and to the extent that
such Representatives need to know the Confidential Material for purposes of
such transaction and are informed by the Receiving Party of the
confidential nature of the Confidential Material and of the terms of this
Section.
(d) In the event that the Receiving Party, any of the Receiving Party
Representatives or anyone to whom the Receiving Party or any of the
Receiving Party Representatives supply the Confidential Material, are
requested or required (by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigative demand, any
informal or formal investigation by any government or governmental agency
or authority or otherwise in connection with legal processes) to disclose
any Confidential Material, the Receiving Party agrees (i) immediately to
notify the Providing Party of the existence, terms and circumstances
surrounding such a request, (ii) to consult with the Providing Party on the
advisability of taking legally available steps to resist or narrow such
request and (iii) if disclosure of such information is required, to furnish
only that portion of the Confidential Material which, in the opinion of the
Receiving Party's counsel, the Receiving Party is legally compelled to
disclose and to cooperate with any action by the Providing
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Party to obtain an appropriate protective order or otherwise reliable
assurances that confidential treatment will be accorded the Confidential
Material (it being agreed that the Providing Party shall reimburse the
Receiving Party for all reasonable out-of-pocket expenses incurred by the
Receiving Party in connection with such cooperation).
(e) In the event of the termination of this Agreement in accordance
with its terms, promptly upon request from either Providing Party, the
Receiving Party shall, except to the extent prevented by law, redeliver to
the Providing Party or destroy all tangible Confidential Material and will
not retain any copies, extracts or other reproductions thereof in whole or
in part. Any such destruction shall be certified in writing to the
Providing Party by an authorized officer of the Receiving Party supervising
the same. Notwithstanding the foregoing, each Receiving Party and one
Receiving Party Representative designated by each Receiving Party shall be
permitted to retain one permanent file copy of each document constituting
Confidential Material.
Section 5.3 Best Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the Purchaser and Ocwen agrees to use its best efforts
to take, or cause to be taken, all actions, and to do, or cause to be done,
and to assist and cooperate with the other in doing, all things necessary,
proper or advisable to fulfill all conditions applicable to such party
pursuant to this Agreement and to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated hereby, including (i) the obtaining of all necessary actions
or nonactions, waivers, consents and approvals from Governmental Entities
and the making of all necessary registrations and filings and the taking of
all reasonable steps as may be necessary to obtain an approval, waiver or
exemption from, or to avoid an action or proceeding by, any Governmental
Entity, (ii) the obtaining of all necessary consents, approvals, waivers or
exemption from non-governmental third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging the Merger, this Agreement or the consummation of any of the
other transactions contemplated hereby, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental
Entity vacated or reversed, and (iv) the execution and delivery of any
additional instruments necessary to consummate the transactions
contemplated by and to fully carry out the purposes of, this Agreement.
Notwithstanding any provision of this Agreement to the contrary, Ocwen
shall not be required in connection with the efforts described in the first
sentence of this Section 5.3(a) to make any payments or incur any
liabilities to any third parties which in the aggregate exceed $500,000
other than payments which arise from explicit contractual rights or
obligations of Ocwen existing as of the date of this Agreement.
(b) Ocwen shall use its reasonable best efforts to give prompt notice
to the Purchaser, and the Purchaser shall use its reasonable best efforts
to give prompt notice to Ocwen, if (i) any representation or warranty made
by it contained in this Agreement that is qualified as to materiality
becomes untrue or inaccurate in any respect or any such representation or
warranty that is not so qualified becomes untrue or inaccurate in any
material respect or (ii) it fails to comply in a timely manner with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations
of the parties under this Agreement or the remedies available hereunder to
the party receiving such notice.
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Section 5.4 No Solicitation of Transactions. Ocwen, its affiliates and
their respective officers, directors, employees, representatives and agents
shall immediately cease any existing discussions or negotiations, if any, with
any parties conducted heretofore with respect to any acquisition or exchange of
all or any material portion of the assets of, or any equity interest in, Ocwen
or any Ocwen Subsidiary or any business combination with Ocwen or any Ocwen
Subsidiary. Subject to Section 7.1, Ocwen shall not directly or indirectly,
through any officer, director, employee, agent, investment banker, financial
advisor, attorney, accountant, broker, finder or other representative, initiate
or solicit (including by way of furnishing nonpublic information or assistance)
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Competing Transaction (as defined herein), or
authorize or permit any of its officers, directors, employees, agents,
attorneys, investment bankers, financial advisors, accountants, brokers, finders
or other representatives to take any such action. Ocwen shall notify the
Purchaser in writing (as promptly as practicable) of all of the material details
relating to all inquiries and proposals which it or any such officer, director,
employee, agent, investment banker, financial advisor, attorney, accountant,
broker, finder or other representative may receive relating to any transaction
that constitutes, or may reasonably be expected to lead to, any Competing
Transaction (as defined herein) and if such inquiry or proposal is in writing,
Ocwen shall deliver to the Purchaser a copy of such inquiry or proposal. For
purposes of this Agreement, "Competing Transaction" shall mean any of the
following (other than the transactions contemplated by this Agreement): (i) any
merger, consolidation, share exchange, business combination, or similar
transaction involving Ocwen (or any of its Subsidiaries); (ii) any tender offer
or exchange offer for 5% or more of the outstanding shares of capital stock of
Ocwen (or any of its Subsidiaries) or the filing of a registration statement
under the Securities Act in connection therewith; (iii) any proposal or offer to
acquire in any manner, directly or indirectly, an equity interest in, any voting
securities of, or all or substantially all of the assets of Ocwen or any Ocwen
Subsidiary; or (iv) any public announcements of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
Section 5.5 Public Announcements. The Purchaser and Ocwen will consult
with each other before issuing, and provide the executive officers of each other
the opportunity to review and comment upon, any press release or other public
statements with respect to the Merger or the other transactions contemplated
hereby, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
law, court process or by obligations pursuant to any listing agreement with any
national securities exchange, in which case the other party shall be advised and
the parties shall use their best efforts to cause a mutually agreeable release
or statement to be issued.
Section 5.6 Transfer and Gains Taxes. The Purchaser and Ocwen shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding (i) any withholding
tax obligations required pursuant to Section 897 of the Internal Revenue Code of
1986, as amended, and the regulations issued thereunder, and comparable
provisions of state or local law, (ii) any other real property transfer or
gains, sales, use, transfer, value added stock transfer and stamp taxes, and
(iii) any transfer, recording, registration and other fees and any similar taxes
which become payable in connection with the Merger (together with any related
interests, penalties or additions to tax, "Transfer and Gains Taxes").
Section 5.7 Indemnification.
(a) Indemnification Rights. For a period of six years from and after
the Effective Time, the Purchaser shall indemnify the directors, officers,
employees or agents of Ocwen who at any time prior to the Effective Time
were entitled to indemnification under the Articles of Incorporation and
Bylaws of Ocwen, employment agreements or indemnity agreements between
Ocwen and its officers or directors existing on the date hereof to the
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same extent as such directors, officers, employees or agents are entitled
to indemnification under such Articles of Incorporation and Bylaws or
existing employment agreements or indemnity agreements in respect of
actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by this
Agreement).
(b) Liability Coverage. The Purchaser shall provide "run-off" or
"tail" director and officer liability coverage to the current and prior
directors and officers of Ocwen without reduction of existing coverage
(both as to dollar limits of coverage and as to the subject matter insured
against) for a period of six years after the Effective Time; provided, that
if, at any time during such six-year period, such coverage is not
reasonably available in the insurance market, the Purchaser shall provide
such "run-off" or "tail" director and officer liability coverage to such
directors and officers as it is able to purchase for an annual premium
equal to twice the annual insurance premium paid by Ocwen for director and
officer liability insurance during the year 1999; and provided, further,
that in the sixth year, Purchaser shall not be obligated to pay a premium
for such insurance in excess of the premium paid in the fifth year.
(c) Successors and Assigns. The provisions of this Section 5.7 are
intended to be for the benefit of, and shall be enforceable by, each
indemnified party, his or her heirs and his or her personal representatives
and shall be binding on all successors and assigns of the Purchaser and
Ocwen.
Section 5.8 Efforts to Fulfill Conditions. The Purchaser and Ocwen each
shall use commercially reasonable efforts to insure that all conditions
precedent to its obligations hereunder are fulfilled at or prior to the Closing
Date.
Section 5.9 Cooperation of the Parties. The Purchaser and Ocwen each shall
cooperate with the other in supplying such information as may be reasonably
requested by the other in connection with obtaining consents or approvals to the
transactions contemplated by this Agreement.
Section 5.10 Conduct of Business by Ocwen. During the period from the date
of this Agreement to the Effective Time, Ocwen shall, and shall cause the Ocwen
Subsidiaries to, carry on its businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and, to the
extent consistent therewith, use commercially reasonable efforts to preserve
intact its current business organization, goodwill, ongoing businesses and its
status as a REIT within the meaning of the Code. Without limiting the generality
of the foregoing, the following additional restrictions shall apply: During the
period from the date of this Agreement to the Effective Time, except as set
forth in Schedule 5.10 to the Ocwen Disclosure Letter or as otherwise
contemplated by this Agreement, Ocwen shall not and shall cause the Ocwen
Subsidiaries not to (and not to authorize or commit or agree to) without the
prior recommendation or consent of the Manager:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of Ocwen's capital shares, except that
Ocwen may declare, set aside and pay the dividends and distributions
constituting the 1998 REIT Dividend, (ii) split, combine or reclassify any
capital stock or partnership interests or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of such capital stock or partnership interests or (iii) purchase,
redeem or otherwise acquire any shares of capital stock of Ocwen or any
other securities thereof or any rights, warrants or options to acquire any
such shares or other securities;
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(b) except as otherwise contemplated by this Agreement or in Schedule
5.10(b) of the Ocwen Disclosure Letter, amend the charter, by-laws,
partnership agreement or other comparable organizational documents of Ocwen
or any Ocwen Subsidiary;
(c) except for (i) dividends and distributions constituting the 1998
REIT Dividend and (ii) the issuance of Ocwen Common Shares pursuant to the
terms of the Third Amended and Restated Agreement of Limited Partnership of
Ocwen Partnership in exchange for partnership units in such partnership,
issue, deliver, sell, pledge, dispose of or otherwise encumber, or grant
any option or other right in respect of, any shares of capital stock or
debt securities, any other voting or redeemable securities of Ocwen or any
Ocwen Subsidiary or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible or redeemable securities except to Ocwen or an Ocwen
Subsidiary;
(d) acquire or agree to acquire (i) by merging or consolidating with,
or by purchasing a substantial portion of the assets or equity in, or by
any other manner, any business or any corporation, limited liability
company, partnership, association or other business organization or
division thereof or (ii) any assets that are material, individually or in
the aggregate, to Ocwen and the Ocwen Subsidiaries, taken as a whole;
(e) prepare or file any Tax Return inconsistent with past practice or,
on any Tax Return, take any position, make any election, or adopt any
method that is inconsistent with positions taken, elections made or methods
used in preparing or filing similar Tax returns in prior periods (unless
required by law or necessary to preserve or terminate Ocwen's status as a
REIT as contemplated by this Agreement or the status of any Ocwen
Subsidiary that is a partnership as a partnership for federal tax
purposes);
(f) (i) change in any material manner any of its methods, principles
or practices of accounting in effect at the Ocwen Financial Statement Date,
or (ii) settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
Taxes, except in the case of settlements or compromises in an amount not to
exceed, individually or in the aggregate, $250,000, or change any of its
methods of reporting income or deductions for federal income tax purposes
from those employed in the preparation of its federal income tax return for
the taxable year ending December 31, 1998, except, in the case of clause
(i), as may be required by the SEC, applicable law or GAAP and with notice
thereof to the Purchaser;
(g) without the Purchaser's consent, which shall not be unreasonably
withheld, settle any stockholder derivative or class action claims arising
out of or in connection with the Merger or the other transactions
contemplated hereby;
(h) without the consent of the Purchaser, enter into or amend or
otherwise modify any material agreement or arrangement with Persons that
are affiliates or, as of the date hereof, are officers, directors or
employees of Ocwen or any Ocwen Subsidiary;
(i) alter (through merger, liquidation, reorganization, restructuring
or in any other fashion) the corporate structure or ownership of Ocwen or
any Ocwen Subsidiary, except that, notwithstanding the first part of this
Section 5.10(i), Ocwen may no earlier than November 30, 1999 take such
action in connection with terminating its status as a real estate
investment trust;
(j) incur any indebtedness for borrowed money or guarantee any such
indebtedness or make any loans, advances or capital contributions to, or
other investments in, any other person, except (i) to the extent permitted
by the existing covenants within or the terms of those agreements and
documents evidencing indebtedness of Ocwen or any Ocwen
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Subsidiary as of the date of this Agreement or (ii) any indebtedness,
guarantees, loans, advances, capital contributions or investments between
Ocwen and any Ocwen Subsidiary or between Ocwen Subsidiaries; or
(k) enter into, amend or terminate any agreement or contract material
to Ocwen and the Ocwen Subsidiaries, taken as a whole.
Notwithstanding any provision of this Agreement to the contrary, no
provision of this Agreement alters, amends or changes in any way the right of
Ocwen or any Ocwen Subsidiary (i) to choose under the Third Amended and Restated
Agreement of Limited Partnership of Ocwen Partnership, L.P. (the "Partnership")
whether to pay either cash or Ocwen Common Shares to a limited partner electing
to have its interests in the Partnership redeemed pursuant to the terms thereof
or (ii) to choose under the option dated May 19, 1997 granted to Ocwen Capital
Corporation under the Ocwen 1997 Stock Option Plan to acquire 1,912,500 Ocwen
Common Shares to deliver, or cause to be delivered, upon exercise of such option
either Partnership units or Ocwen Common Shares or to deliver, or cause to be
delivered, cash if required by the terms of such option or Plan.
Section 5.11 Conduct of Business by Purchaser. During the period from the
date of this Agreement to the Effective Time, Purchaser shall not (i) declare,
set aside or pay any dividends on, or make any other distributions in respect
of, any capital stock of Purchaser or (ii) issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares of
Purchaser's capital stock.
Section 5.12 Adverse Actions. Purchaser agrees not to (i) knowingly take
any action that is intended or reasonably likely to result in a material adverse
effect on its ability to consummate the Merger, or (ii) knowingly take any
action that is intended or reasonably likely to result in any conditions to the
Merger set forth in Sections 6.1 or 6.3 not being satisfied or a material
violation of any provision of this Agreement.
Section 5.13 OTS Examination Reports. Purchaser agrees to use its
reasonable best efforts to obtain permission from the OTS and all other
applicable regulatory or other authorities to allow Ocwen to review, read and
examine as soon as possible after the date of this Agreement and prior to the
Closing Date those reports issued by OTS relating to, resulting from or setting
forth the results of the examination by OTS from time to time of Purchaser and
its federal savings bank operations.
Section 5.14 Termination of Option. Purchaser agrees to cause to be
terminated on or prior to the Closing Date the option dated May 19, 1997 granted
to Ocwen Capital Corporation under the Ocwen 1997 Stock Option Plan to acquire
1,912,500 Ocwen Common Shares.
Section 5.15 Management Agreement. So long as this Agreement has not been
terminated, Ocwen agrees not to terminate (except for cause as provided in the
Management Agreement) and, if the Closing Date shall not have occurred prior to
November 19, 1999, to extend the Management Agreement through December 31, 1999.
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Article VI
CONDITIONS PRECEDENT
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of Ocwen and the Purchaser to effect the
Merger and to consummate the other transactions contemplated hereby is subject
to the satisfaction or waiver on or prior to the Effective Time of the following
conditions:
(a) Shareholder Approval. The Ocwen Common Shareholder Approval and
the Purchaser Common Shareholder Approval shall have been obtained.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger or any of the other transactions
contemplated hereby shall be in effect.
(c) Certain Actions and Consents. All material actions by or in
respect of or filings with any Governmental Entity required for the
consummation of the Merger or any of the other transactions contemplated
hereby shall have been obtained or made.
(d) Stock Exchange Listings. The Purchaser Common Shares issuable in
the Merger shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
(e) Form S-4. The Form S-4 shall have become effective in accordance
with the provisions of the Securities Act. No stop order suspending the
effectiveness of the Form S-4 shall have been initiated or to the Knowledge
of Purchaser or Ocwen, threatened by the SEC. All necessary state
securities or blue sky authorizations shall have been received.
Section 6.2 Conditions to Obligations of the Purchaser. The obligations of
the Purchaser to issue the Merger Consideration to the Ocwen Common Shareholders
and to consummate the other transactions contemplated hereby are further subject
to the following conditions, any one or more of which may be waived by the
Purchaser:
(a) Representations and Warranties. The representations and
warranties of Ocwen set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the
Closing Date, as though made on and as of the Closing Date, except to the
extent the representation or warranty is expressly limited by its terms to
another date, and the Purchaser shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as such
representations and warranties are so qualified) signed on behalf of Ocwen
by the Chairman or President of Ocwen to such effect. This condition shall
be deemed satisfied notwithstanding any failure of a representation or
warranty of Ocwen to be true and correct in all material respects as of the
Closing Date if the aggregate amount of Ocwen Economic Losses (as defined
herein) that would reasonably be expected to arise as a result of the
failures of such representations and warranties to be true and correct in
all material respects as of the Closing Date does not exceed $10,000,000
(such amount to be calculated by counting in all cases from the first
dollar of such Ocwen Economic Losses without giving effect to the
$10,000,000 limitation set forth in Section 3.1(e)). "Ocwen Economic
Losses," as used in this Agreement, shall mean any and all net damage, net
loss, net liability or expense suffered by Ocwen and the Ocwen Subsidiaries
taken as a whole, but shall not include any claims, damages, loss, expense
or other liability resulting from any class action or shareholders'
derivative lawsuits relating to the Merger against Ocwen, if any, filed
subsequent to the date of this Agreement, any replacement, refinancing or
extension of the
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maturity date of any debt existing as of the date of this Agreement to the
extent such replacement, refinancing or extension does not result in any
additional net liability of Ocwen or the Ocwen Subsidiaries taken as a
whole, any amounts paid or expenses or liabilities incurred by Ocwen in
fulfilling its obligations under, or taking any action required or
permitted by, this Agreement, or any "mark to market" or other revaluation
of the book value of Ocwen's assets effected pursuant to GAAP.
(b) Performance of Obligations of Ocwen. Ocwen shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Effective Time, and the Purchaser
shall have received a certificate signed on behalf of Ocwen by the Chairman
or President of Ocwen to such effect.
(c) Consents. All consents and waivers from third parties necessary
in connection with the consummation of the Merger by Ocwen and the other
transactions contemplated hereby shall have been obtained, other than such
consents and waivers from third parties, which, if not obtained, would not
result, individually or in the aggregate, in Ocwen Economic Losses of
$10,000,000 or more.
(d) 1998 REIT Dividend. The Board of Directors of Ocwen shall have
declared the 1998 REIT Dividend prior to September 15, 1999, having a
record date at least 14 days before the Merger, provided however, that this
section shall not apply if after giving effect to the 1998 REIT Dividend,
the 1998 REIT Dividend would have either of the effects set forth in VSCA
Section 13.1-653 C.1 or C.2 or would otherwise be prohibited by law.
Section 6.3 Conditions to Obligations of Ocwen. The obligations of Ocwen
to effect the Merger and to consummate the other transactions contemplated
hereby are further subject to the following conditions, any one or more of which
may be waived by Ocwen:
(a) Representations and Warranties. The representations and
warranties of the Purchaser set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of
the Closing Date, as though made on and as of the Closing Date, except to
the extent the representation or warranty is expressly limited by its terms
to another date, and Ocwen shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as such
representations and warranties are so qualified) signed on behalf of the
Purchaser by the chief executive officer or the chief financial officer of
the Purchaser to such effect. This condition shall be deemed satisfied
notwithstanding any failure of a representation or warranty of Purchaser to
be true and correct in all material respects as of the Closing Date if the
aggregate amount of Purchaser Economic Losses (as defined herein) that
would reasonably be expected to arise as a result of the failures of such
representations and warranties to be true and correct in all material
respects as of the Closing Date does not exceed $20,000,000 (such amount to
be calculated by counting in all cases from the first dollar of such
Purchaser Economic Losses without giving effect to the $20,000,000
limitation set forth in Section 3.2(e)). "Purchaser Economic Losses," as
used in this Agreement, shall mean any and all net damage, net loss, net
liability or expense suffered by Purchaser and the Purchaser Subsidiaries
taken as a whole, but shall not include any claims, damages, loss, expense
or other liability resulting from any class action or shareholders'
derivative lawsuits relating to the Merger against Purchaser, if any, filed
subsequent to the date of this Agreement, any replacement, refinancing or
extension of the maturity date of any debt existing as of the date of this
Agreement to the extent such replacement, refinancing or extension does not
result in any additional net liability of Purchaser or the Purchaser
Subsidiaries taken as a whole, or any amounts paid or expenses or
liabilities incurred by Purchaser in fulfilling its obligations under, or
taking any action required or permitted by, this Agreement.
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(b) Performance of Obligations of the Purchaser. The Purchaser shall
have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Effective Time, and
Ocwen shall have received a certificate of the Purchaser signed on behalf
of the Purchaser by the chief executive officer or the chief financial
officer of such party to such effect.
(c) Consents. All consents and waivers from third parties necessary
in connection with the consummation of the Merger by Purchaser and the
other transactions contemplated hereby shall have been obtained, other than
such consents and waivers from third parties, which, if not obtained, would
not result, individually or in the aggregate, in Purchaser Economic Losses
of $20,000,000 or more.
(d) Solvency of Purchaser. A bankruptcy event, as described in clause
(viii) of the definition of Event of Default in the Indenture, dated as of
September 30, 1996, between Purchaser and Bank One, Columbus, NA, shall not
have occurred and be continuing.
Article VII
OCWEN BOARD ACTIONS
Section 7.1 Ocwen Board Actions. Notwithstanding Section 5.4 or any other
provision of this Agreement to the contrary, to the extent required by the
fiduciary obligations of the Board of Directors of Ocwen, as determined in good
faith by a majority of the members of the Board of Directors of Ocwen on the
advice of independent counsel, Ocwen may:
(a) disclose to its shareholders any information required to be
disclosed under applicable law;
(b) directly or indirectly furnish information and access to any
Person, pursuant to a confidentiality agreement no less favorable to Ocwen
than the provisions of Section 5.2 of this Agreement, in response to a
request for such information or access by such Person made after the date
hereof which was not encouraged, solicited or initiated after the date
hereof by Ocwen or any of its affiliates or any of its or their respective
officers, directors, employees, representatives or agents, and may
participate in discussions and negotiate with such Person concerning any
Competing Transaction; and
(c) approve or recommend (and in connection therewith withdraw or
modify its approval or recommendation of this Agreement and the Merger) a
Superior Competing Transaction (as defined below) which is accompanied by,
if applicable, an appropriate financing commitment, or enter into an
agreement with respect to such Superior Competing Transaction (for purposes
of this Agreement, "Superior Competing Transaction" means a bona fide
proposal of a Competing Transaction made by a third party which a majority
of the members of the Board of Directors of Ocwen determines in good faith
to be more favorable to its shareholders than the Merger).
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Article VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated at any time
prior to the filing of the Articles of Merger for the Merger with the State
Corporation Commission of the Commonwealth of Virginia, whether before or after
the Ocwen Common Shareholder Approval is obtained:
(a) by mutual written consent duly authorized by the respective Boards
of Directors of the Purchaser and Ocwen;
(b) by the Purchaser, upon a breach of any representation, warranty,
covenant or agreement on the part of Ocwen set forth in this Agreement
which breach cannot be cured within 30 days after the giving of written
notice thereof to Ocwen, provided that such breach would be reasonably
likely, individually or in the aggregate with other breaches, to result in
an Ocwen Material Adverse Effect;
(c) by Ocwen, upon a breach of any representation, warranty, covenant
or agreement on the part of Purchaser set forth in this Agreement which
breach cannot be cured within 30 days after the giving of written notice
thereof to Purchaser, provided that such breach would be reasonably likely,
individually or in the aggregate with other breaches, to result in a
Purchaser Material Adverse Effect;
(d) by either the Purchaser or Ocwen, if any judgment, injunction,
order, decree or action by any Governmental Entity of competent authority
preventing the consummation of the Merger shall have become final and
nonappealable;
(e) by either the Purchaser or Ocwen, if the Merger shall not have
been consummated before December 31, 1999; provided, however, that the
right to terminate this Agreement pursuant to this Section 8.1(e) shall not
be available to any party whose failure to fulfill any of its obligations
contained in this Agreement has been the cause of, or resulted in, the
failure of the Merger to have occurred on or prior to the aforesaid date;
(f) by either the Purchaser or Ocwen if, upon a vote at a duly held
Ocwen Common Shareholders Meeting or any adjournment thereof, the Ocwen
Common Shareholder Approval shall not have been obtained;
(g) by Ocwen, if prior to the Ocwen Common Shareholders Meeting, the
Board of Directors of Ocwen shall have withdrawn or modified in compliance
with Section 7.1 hereof in any manner adverse to the Purchaser its approval
or recommendation of the Merger or this Agreement;
(h) by the Purchaser, if (i) prior to the Ocwen Common Shareholders
Meeting, the Board of Directors of Ocwen shall have withdrawn or modified
in any manner adverse to the Purchaser its approval or recommendation of
the Merger or this Agreement in connection with, or approved or
recommended, any Superior Competing Transaction, (ii) Ocwen shall have
entered into any agreement with respect to any Competing Transaction (other
than a confidentiality agreement as contemplated by Section 7.1(b)), or
(iii) prior to the Ocwen Common Shareholders Meeting, the Board of
Directors of Ocwen shall have withdrawn or modified in any manner adverse
to the Purchaser its approval or recommendation of the Merger or this
Agreement for any reason other than as specified in Section (h)(i) above;
(i) by Ocwen, by action of its Board of Directors, at any time during
the five-day period prior to the fifth day prior to the Closing Date; if
the Average Closing Price as
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defined below of Purchaser Common Shares shall be $6.80 or less, provided,
however, that during the five-day period following the provision by Ocwen
of written notice of termination to Purchaser pursuant to this Section
8.1(i), Purchaser shall have the option of postponing the Closing Date for
15 trading days, during the first 10 trading days of which a new Average
Closing price of Purchaser Common Shares shall be determined based on the
closing sales price of Purchaser Common Stock as reported on the
consolidated tape on the New York Stock Exchange for each of such 10
trading days (the "Adjusted Average Closing Price"). If the Adjusted
Average Closing Price is more than $6.80, no termination shall be deemed to
have occurred pursuant to this Section 8.1(i) and this Agreement shall
remain in full force and effect in accordance with its terms. If the
Adjusted Average Closing Price is $6.80 or less, Purchaser shall have the
option of increasing the consideration to be received by holders of Ocwen
Common Shares hereunder by adjusting the Conversion Number to equal a
number equal to the quotient obtained by dividing $4.83 by the Adjusted
Average Closing Price, in which case Purchaser shall give prompt written
notice to Ocwen of such election and the revised Conversion Number and no
termination shall be deemed to have occurred pursuant to this Section
8.1(i) and this Agreement shall remain in full force and effect in
accordance with its terms (except as the Conversion Number shall have been
so modified and any reference herein to " Conversion Number" shall
thereafter be deemed to refer to the Conversion Number as adjusted pursuant
to this Section 8.1(i)). In no event shall the modified Conversion Number
be less than 0.71 shares of Purchaser Common Shares for each Ocwen Common
Share.
For purposes of this Section 8.1(i); the "Average Closing Price" shall be
the mean of the closing sales price of Purchaser Common Shares as reported on
the consolidated tape on the New York Stock Exchange for each of the 10 trading
days ending on the 10th day prior to the Closing Date established pursuant to
Section 1.2 of this Agreement.
Section 8.2 Expenses.
(a) Except as otherwise specified in this Section 8.2 or agreed in
writing by the parties, all out-of-pocket costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such cost or expense, provided that
all printing expenses associated with the Proxy Statement shall be divided
equally between Purchaser and Ocwen.
(b) Ocwen agrees that if this Agreement shall be terminated pursuant
to Section 8.1(g), 8.1(h)(i), 8.1(h)(ii) or 8.1(h)(iii), but in the case of
termination pursuant to Section 8.1(h)(iii), only if Ocwen agrees to a
Competing Transaction within 3 months after termination thereunder, then
Ocwen will pay to the Purchaser an amount equal to $3,000,000 (the
"Purchaser Break-Up Fee"). Payment of the Purchaser Break Up Fee shall be
made, as directed by the Purchaser, by wire transfer of immediately
available funds only and promptly after Ocwen shall have entered into any
agreement with respect to any Competing Transaction.
(c) The Purchaser agrees that if this Agreement shall be terminated
pursuant to Section 8.1(c), then the Purchaser will pay to Ocwen an amount
equal to the Ocwen Break-Up Expenses (as defined herein) up to $1,000,000.
Payment of any of such amounts shall be made, as directed by Ocwen, by wire
transfer of immediately available funds promptly, after the amount is due
as provided herein. The "Ocwen Break-Up Expenses" shall be an amount equal
to the Ocwen's out-of-pocket expenses incurred in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, all attorneys', accountants' and investment bankers' fees and
expenses).
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(d) Ocwen agrees that if this Agreement shall be terminated pursuant
to Section 8.1 (b) (other than by reason of a breach of Ocwen's
representation under Section 3.1(g)), then Ocwen will pay to the Purchaser
an amount equal to the Purchaser Break-Up Expenses (as defined herein) up
to $1,000,000. Payment of such amounts shall be made, as directed by the
Purchaser, by wire transfer of immediately available funds promptly, after
the amount is due as provided herein. The "Purchaser Break-Up Expenses"
shall be an amount equal to Purchaser's out-of-pocket expenses incurred in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, all attorneys', accountants' and investment
bankers' fees and expenses).
(e) In the event that the Purchaser or Ocwen is required to file suit
to seek all or a portion of the amounts payable under this Section 8.2, and
such party prevails in such litigation, such party shall be entitled to
receive, in addition to all amounts that it is otherwise entitled to
receive under this Section 8.2 all expenses, including attorney's fees and
expenses which it has incurred in enforcing its rights hereunder.
Section 8.3 Effect of Termination. In the event of termination of this
Agreement by either Ocwen or the Purchaser as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of the Purchaser, or Ocwen, other than Section 5.2,
Section 8.2, this Section 8.3 and Article IX and except to the extent that such
termination results from a breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement (it being
understood and agreed that such termination shall not otherwise affect any
obligations between Ocwen or any Ocwen Subsidiary and Purchaser or any Purchaser
Subsidiary, including the obligation of Ocwen to pay the termination fee to the
Manager under the Management Agreement).
Section 8.4 Amendment. This Agreement may be amended by the parties in
writing by action of their respective Boards of Directors at any time before or
after the Ocwen Shareholder Approval is obtained and prior to the filing of the
Articles of Merger with the State Corporation Commission of the Commonwealth of
Virginia; provided, however, that, after the Ocwen Shareholder Approval is
obtained, no such amendment, modification or supplement shall alter the amount
or change the form of the consideration to be delivered to Ocwen's shareholders.
Section 8.5 Extension; Waiver. At any time prior to the Effective Time,
each of Ocwen and the Purchaser may (a) extend the time for the performance of
any of the obligations or other acts of the other party, (b) waive any
inaccuracies in the representations and warranties of the other party contained
in this Agreement or in any document delivered pursuant to this Agreement or (c)
subject to the proviso of Section 8.4, waive compliance with any of the
agreements or conditions of the other party contained in this Agreement. Any
agreement on the part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of those rights.
Article IX
GENERAL PROVISIONS
Section 9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 9.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
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Section 9.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, sent by overnight courier (providing proof of
delivery) to the parties or sent by telecopy (providing confirmation of
transmission) at the following addresses or telecopy numbers (or at such other
address or telecopy number for a party as shall be specified by like notice):
(a) if to the Purchaser or Acquisition Sub, to:
Ocwen Financial Corporation
1675 Palm Beach Lakes Boulevard
West Palm Beach, Florida 33401
Attn: Secretary
Fax: (561) 682-8177
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Attn: Dennis V. Osimitz, Esq.
Fax: (312) 853-7036
(b) if to Ocwen, to:
Special Committee of Ocwen Asset Investment Corp.
c/o Secretary, Ocwen Asset Investment Corp.
West Palm Beach, Florida 33401
Fax: (561) 682-8177
with a copy to:
McGuire, Woods, Battle & Boothe LLP
Washington Square, Suite 1200
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Attention: William G. Miller, Esq.
Fax: (202) 828-2983
Section 9.3 Interpretation. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
Section 9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 9.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement
and the other agreements entered into in connection with the transactions
contemplated hereby (a) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter of this Agreement and, (b) except for the
provisions of Article II and Section 5.7 are not intended to confer upon any
person other than the parties hereto any rights or remedies.
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<PAGE> 121
Section 9.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia,
regardless of the laws that might otherwise govern under applicable principles
of conflict of laws thereof.
Section 9.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or delegated, in
whole or in part, by operation of law or otherwise by any party without the
prior written consent of the other party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns. Notwithstanding
anything to the contrary herein, at the election of Purchaser, any direct or
indirect wholly owned Purchaser Subsidiary may be substituted for Acquisition
Sub as a constituent corporation in the Merger. In such event, the parties agree
to execute an appropriate amendment to this Agreement, in form and substance
reasonably satisfactory to Purchaser and Ocwen, in order to reflect such
substitution.
Section 9.8 Enforcement. Each of the parties hereto (a) consents to submit
itself (without making such submission exclusive) to the personal jurisdiction
of any federal court located in the Commonwealth of Virginia or any Virginia
state court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement and (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court.
Section 9.9 Incorporation. The Ocwen Disclosure Letter and the Purchaser
Disclosure Letter and all Exhibits attached hereto and thereto and referred to
herein and therein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
Section 9.10 Further Assurances. If at any time after the Effective Time
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm of record or otherwise, in
the Surviving Corporation its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the constituent corporations in the Merger, or (b) otherwise to carry out the
purpose of this Agreement, the Surviving Corporation and its proper officers and
directors or their designees shall be authorized to execute and deliver, in the
name and on behalf of either of the constituent corporations in the Merger, all
such deeds, bills of sale, assignments and assurances and to do, in the name and
on behalf of either such constituent corporation, all such other acts and things
as may be necessary, desirable or proper to vest, perfect or confirm the
Surviving Corporation's right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of such constituent
corporation and otherwise to carry out the purposes of this Agreement.
Article X
CERTAIN DEFINITIONS
Section 10.1 Certain Definitions. For purposes of this Agreement:
An "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
"Ocwen Disclosure Letter" means the letter dated July 25, 1999 previously
delivered to the Purchaser by Ocwen disclosing certain information in connection
with this Agreement.
"Purchaser Disclosure Letter" means the letter dated July 25, 1999
previously delivered to Ocwen by the Purchaser disclosing certain information in
connection with this Agreement.
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"Knowledge" where used herein with respect to either Ocwen or Purchaser
shall mean the actual knowledge of any of their respective directors or
officers. "Knowledge" shall not include the "constructive" or deemed knowledge
of any such persons, or the existence of facts or circumstances which might
constitute "reason to know" by such person or which might lead to the conclusion
that such person "should have known" unless, in any such case, such person has
actual knowledge of the matter in question.
"Person" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or other
entity.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Purchaser, Acquisition Sub and Ocwen have caused
this Agreement to be signed by their respective persons thereunto duly
authorized, all as of the date first written above.
OCWEN FINANCIAL CORPORATION
By: /s/ William C. Erbey
-----------------------------------
Name: William C. Erbey
---------------------------------
Title: Chairman and Chief Executive
Officer
----------------------------------
OCWEN ASSET INVESTMENT CORP.
By: /s/ Peter M. Small
-----------------------------------
Name: Peter M. Small
---------------------------------
Title: Director
----------------------------------
OCWEN ACQUISITION COMPANY
By: /s/ William C. Erbey
-----------------------------------
Name: William C. Erbey
---------------------------------
Title: Chairman and Chief Executive
Officer
----------------------------------
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<PAGE> 124
ANNEX II
[FORM OF PLAN OF MERGER]
PLAN OF MERGER (this "Plan") of Ocwen Financial Corporation, a Florida
corporation (the "Purchaser"), Ocwen Asset Investment Corp., a Virginia
corporation ("Ocwen"), and Ocwen Acquisition Company ("Acquisition Sub"), a
Virginia corporation.
ARTICLE I
DEFINITIONS
"Acquisition Common Shares" means the common stock, par value $0.01 per
share, of Acquisition Sub.
"Closing Date" means the Closing Date of the Merger as set forth in the
Merger Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Effective Date" means the effective date of the Merger.
"Effective Time" means the effective time of the Merger.
"Merger Agreement" means the Agreement of Merger, dated as of July 25,
1999, by and among Purchaser, Ocwen and Acquisition Sub.
"Ocwen Common Share(s)" means the common stock, par value $0.01 per share,
of Ocwen.
"Purchaser Common Share(s)" means the common stock, par value $.01 per
share, of Purchaser.
"VSCA" means the Virginia Stock Corporation Act.
ARTICLE II
TERMS OF THE MERGER
Section 2.1 The Merger. The names of the corporations to be merged are
Ocwen Acquisition Company ("Acquisition Sub") and Ocwen Asset Investment Corp.
("Ocwen"). At the Effective Time, Acquisition Sub shall merge with and into
Ocwen (the "Merger"), the separate corporate existence of Acquisition Sub shall
cease and Ocwen shall survive and continue to exist as a Virginia corporation
(Ocwen, as the surviving corporation in the Merger, sometimes being referred to
herein as the "Surviving Corporation") in accordance with the VSCA, and Ocwen
shall succeed to and assume all the rights and obligations of Acquisition Sub in
accordance with the VSCA.
Section 2.2 Effect of the Merger. The Merger shall become effective upon
the occurrence of the filing in the office of the Virginia State Corporation
Commission (the "Corporation Commission") of articles of merger in accordance
with Section 13.1-720 of the VSCA or at such later date and time as may be set
forth in such articles and the issuance of a certificate of merger by the
Corporation Commission under the VSCA. The Merger shall have the effects
prescribed in the VSCA.
<PAGE> 125
Section 2.3 Articles. The Articles of Incorporation of Acquisition Sub in
effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation immediately after the Merger. A copy
of such Articles are attached hereto as Exhibit A.
Section 2.4 Directors and Officers. The directors and officers of Ocwen
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation immediately after the Effective Time, until such time
as their successors shall be duly elected and qualified.
ARTICLE III
MANNER AND BASIS OF CONVERTING SHARES
Section 3.1 Merger Consideration. At the Effective Time, automatically by
virtue of the Merger and without any action on the part of any person:
(a) Outstanding Ocwen Common Shares. Each Ocwen Common Share issued
and outstanding immediately prior to the Effective Time (excluding Ocwen
Common Shares held by Purchaser or any of its direct or indirect
subsidiaries) shall be converted into 0.71 Purchaser Common Shares (the
"Conversion Number").
If the Average Closing Price (as defined below) of Ocwen Common Shares
shall be $6.80 or less, Ocwen may terminate the Merger Agreement, by action
of its Board of Directors, at any time during the five-day period preceding
the fifth day before the Closing Date; provided, however, that during the
five-day period following the provision by Ocwen of written notice of
termination to Purchaser, Purchaser shall have the option of postponing the
Closing Date for 15 trading days, during the first 10 trading days of which
a new Average Closing Price of Purchaser Common Shares shall be determined
based on the closing sales price of Purchaser Common Shares as reported on
the consolidated tape on the New York Stock Exchange for each of such 10
trading days (the "Adjusted Average Closing Price"). If the Adjusted
Average Closing Price is more than $6.80, no termination shall be deemed to
have occurred and the Merger Agreement and this Plan of Merger shall remain
in full force and effect in accordance with their terms. If the Adjusted
Average Closing Price is $6.80 or less, Purchaser shall have the option of
increasing the consideration to be received by holders of Ocwen Common
Shares by adjusting the Conversion Number to equal a number equal to the
quotient obtained by dividing $4.83 by the Adjusted Average Closing Price,
in which case Purchaser shall give prompt written notice to Ocwen of such
election and the revised Conversion Number and no termination shall be
deemed to have occurred and the Merger Agreement and this Plan of Merger
shall continue in full force and effect in accordance with their terms
(except as the Conversion Number shall have been so modified any reference
herein or therein to "Conversion Number" shall thereafter be deemed to
refer to the Conversion Number as so adjusted). In no event shall the
modified Conversion Number be less than 0.71 shares of Purchaser Common
Shares for each Ocwen Common Share. "Average Closing Price" means the mean
of the closing sales price of Purchaser Common Shares as reported on the
consolidated tape on the NYSE for each of the 10 trading days ending on the
10th day prior to the Closing Date.
(b) Outstanding Acquisition Sub Common Shares. Each Acquisition Sub
Common Share issued and outstanding immediately prior to the Effective Time
shall be converted into one Ocwen Common Share.
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<PAGE> 126
(c) Other Shares. Each Ocwen Common Share held by Ocwen or any of its
subsidiaries or by Purchaser or any of its subsidiaries immediately prior
to the Effective Time shall be canceled and retired at the Effective Time
and no consideration shall be issued in exchange therefor.
Section 3.2 Rights as Stockholders; Stock Transfers. At the Effective
Time, holders of Ocwen Common Shares shall cease to be, and shall have no rights
as, stockholders of Ocwen, other than to receive (i) Purchaser Common Shares as
provided for herein, (ii) cash in lieu of fractional shares as provided for
herein and (iii) any dividend or other distribution with respect to such Ocwen
Common Shares with a record date occurring prior to the Effective Time. After
the Effective Time, there shall be no transfers on the stock transfer books of
Ocwen or the Surviving Corporation of shares of Ocwen Common Shares.
Section 3.3 Fractional Shares. No fraction of a share of Purchaser Common
Shares shall be issued in the Merger, and any holder otherwise entitled to
receive a fractional share of Purchaser Common Shares shall not be entitled
through such fractional share interest to any dividend, voting or other rights
of a holder of Purchaser Common Shares. In lieu of any such fractional shares,
each holder who would otherwise be entitled to receive shares of Purchaser
Common Shares in the Merger, shall be paid an amount in cash (without interest),
rounded to the nearest cent, determined by multiplying (x) the per share closing
price on the New York Stock Exchange, Inc. (the "NYSE") of Purchaser Common
Shares (as reported by the NYSE Composite Transactions) on the date of the
Effective Time (or if the Purchaser Common Shares do not trade on the NYSE on
such date, the first date of trading of Purchaser Common Shares on the NYSE
after the Effective Time by (y) the fractional interest in Purchaser Common
Shares to which such holder would otherwise be entitled (after taking into
account all Ocwen Common Shares then held of record by such holder).
Section 3.4 Manner of Converting Shares. (a) At or prior to the Effective
Time, Purchaser shall deposit, or shall cause to be deposited, with
[ ] (in such capacity, the "Exchange Agent"), for the benefit of
the holders of certificates formerly representing Ocwen Common Shares ("Old
Certificates"), for exchange, certificates representing Purchaser Common Shares
("New Certificates") and an estimated amount of cash (such cash and New
Certificates, together with any dividends or distributions with respect thereto
(without any interest on any such cash, dividends or distributions) being
hereinafter referred to as the "Exchange Fund") to be paid in exchange for
outstanding Ocwen Common Shares.
(b) As promptly as practicable after the Effective Date, Purchaser shall
send or cause to be sent to each former holder of record of Ocwen Common Shares
immediately prior to the Effective Time transmittal materials for use in
exchanging such shareholder's Old Certificates. Purchaser shall cause the New
Certificates into which a stockholder's Ocwen Common Shares are converted on the
Effective Date and/or any check in respect of any fractional share interests or
dividends or distributions which such person shall be entitled to receive to be
delivered to such stockholder upon delivery to the Exchange Agent of Old
Certificates representing such Ocwen Common Shares (or indemnity reasonably
satisfactory to Purchaser and the Exchange Agent, if any of such certificates
are lost, stolen or destroyed) owned by such stockholder. No interest will be
paid on any such cash to be paid in lieu of fractional share interests or in
respect of dividends or distributions which any such person shall be entitled to
receive upon such delivery.
(c) Notwithstanding the foregoing, none of the Exchange Agent, Purchaser or
Ocwen shall be liable to any former holder of Ocwen Common Shares for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
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<PAGE> 127
(d) At the election of Purchaser, no dividends or other distributions with
respect to Purchaser Common Shares with a record date occurring after the
Effective Time shall be paid to the holder of any Old Certificate representing
Ocwen Common Shares converted in the Merger into the right to receive Purchaser
Common Shares until such Old Certificate is surrendered for exchange pursuant to
this Plan of Merger. After such surrender for exchange, the record holder
thereof shall be entitled to receive any such dividends or other distributions,
without any interest thereon, which theretofore had become payable with respect
to Purchaser Common Shares such holder had the right to receive upon surrender
of the Old Certificate. At the election of the Purchaser, no Ocwen Common Shares
represented by an Old Certificate shall be eligible to vote until the holder of
such Old Certificate surrenders such Old Certificate for exchange pursuant to
this Plan of Merger.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Ocwen for twelve months after the Effective Time shall be paid
to Purchaser. Any stockholders of Ocwen who have not theretofore complied with
the exchange procedures shall thereafter look only to Purchaser for payment of
the Purchaser Common Shares, cash in lieu of any fractional shares and unpaid
dividends and distributions on Purchaser Common Shares deliverable in respect of
each Ocwen Common Share such stockholder holds as determined pursuant to this
Plan, in each case, without any interest thereon and Purchaser shall make such
payment.
ARTICLE IV
CONDITIONS TO THE MERGER AND TERMINATION
Section 4.1 Consummation of the Merger is subject to satisfaction or
waiver of the conditions set forth in Article VI of the Merger Agreement.
Section 4.2 This Plan may be terminated prior to the Effective Time as
provided in Article VIII of the Merger Agreement.
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<PAGE> 128
EXHIBIT A
ARTICLES OF INCORPORATION
OF
OCWEN ACQUISITION COMPANY
The undersigned, being an individual, does hereby act as incorporator in
adopting the following Articles of Incorporation for the purpose of organizing a
corporation authorized by law to issue shares, pursuant to the provisions of the
Virginia Stock Corporation Act, Chapter 9 of Title 13.1 of the Code of Virginia.
FIRST: The name of this Corporation shall be as follows:
Ocwen Acquisition Company
SECOND: The number of shares which the Corporation is authorized to issue
is 1,000, all of which are of a par value of $.01 each and are of the same class
and are to be common shares.
THIRD: The post office address with street and number of the initial
registered office of the Corporation in the Commonwealth of Virginia is c/o
McSweeney Burtch & Crump, P.C., 11 South 12th Street, Richmond, Virginia 23219.
The county or city in the Commonwealth of Virginia in which the said registered
office of the corporation is located is the City of Richmond. The name of the
initial registered agent of the corporation at the said registered office is
Beverley L. Crump. The said initial registered agent meets the requirements of
Section 13.1-619 of the Virginia Stock Corporation Act, inasmuch as she is a
resident of the Commonwealth of Virginia and a member of the Virginia State Bar.
The business office of the said registered agent of the Corporation is identical
with the said registered office of the Corporation.
FOURTH: No holder of any of the shares of any class of the Corporation
shall be entitled as of right to subscribe for, purchase, or otherwise acquire
any shares of any class of the Corporation which the Corporation proposes to
issue or any rights or options which the Corporation proposes to grant for the
purchase of shares of any class of the Corporation or for the purchase of any
shares, bonds, securities, or obligations of the corporation which are
convertible into or exchangeable for, or which carry any rights, to subscribe
for, purchase, or otherwise acquire shares of any class of the Corporation; and
any and all of such shares, bonds, securities, or obligations of the
corporation, whether now or hereafter authorized or created, may be issued, or
may be reissued if the same have been reacquired and if their reissue is not
prohibited, and any and all of such rights and options may be granted by the
Board of Directors to such individuals and entities, and for such lawful
consideration, and on such terms, as the Board of Directors in its discretion
may determine, without first offering the same, or any thereof, to any said
holder.
FIFTH: The purposes for which the Corporation is organized are as follows:
To transact any or all lawful business for which corporations may be
incorporated under the provisions of the Virginia Stock Corporation Act.
SIXTH: The name and the address of the individual who is to serve as the
initial director of the corporation is:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
William C. Erbey 1675 Palm Beach Lakes Blvd.
West Palm Beach, FL 33401
</TABLE>
<PAGE> 129
SEVENTH: The Corporation shall, to the fullest extent permitted by the
provisions of the Virginia Stock Corporation Act, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said provisions from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said provisions, and
the indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any Bylaw, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
EIGHTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, the undersigned incorporator has executed these
Articles of Incorporation this 15th day of July, 1999.
/s/ TIMOTHY J. REYNOLDS
--------------------------------------
Timothy J. Reynolds, Sole Incorporator
2
<PAGE> 130
ANNEX III
MORGAN STANLEY DEAN WITTER
1585 BROADWAY
NEW YORK, NY 10036
(212) 761-4000
July 25, 1999
Board of Directors
Ocwen Financial Corporation
1675 Palm Beach Lakes Blvd.
West Palm Beach, FL 33401
Members of the Board:
We understand that Ocwen Asset Investment Corp ("OAC"), Ocwen Financial
Corporation ("Ocwen Financial") and Ocwen Acquisition Sub, a wholly owned
subsidiary of Ocwen Financial ("Acquisition Sub") propose to enter into an
Agreement and Plan of Merger, dated as of July 25, 1999 (the "Merger Agreement")
which provides, among other things, for the merger of Acquisition Sub with and
into OAC and OAC will be the surviving corporation. Pursuant to the Merger, each
issued and outstanding share of common stock, par value $.01 per share, of OAC
(the "OAC Common Stock"), other than shares held in treasury or held by Ocwen
Financial or any wholly owned subsidiary of Ocwen Financial, will be converted
into the right to receive 0.71 (the "Exchange Ratio") shares of common stock,
par value $.01 per share, of Ocwen Financial (the "Ocwen Financial Common
Stock"). The terms and conditions of the Merger are more fully set forth in the
Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to Ocwen Financial.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of OAC and Ocwen Financial, respectively;
(ii) reviewed certain internal financial information including
near-term budgets and other financial and operating data concerning OAC and
Ocwen Financial prepared by the managements of OAC and Ocwen Financial,
respectively;
(iii) reviewed and discussed certain assets of OAC and Ocwen
Financial, including securities, loans and real property and the past and
current operations and financial condition and the prospects of OAC and
Ocwen Financial with senior executives of OAC and Ocwen Financial,
respectively;
(iv) reviewed the reported prices and trading activity for the OAC
Common Stock and the Ocwen Financial Common Stock;
(v) compared the financial performance of OAC and Ocwen Financial and
the prices and trading activity of the OAC Common Stock and the Ocwen
Financial Common Stock with that of certain other comparable
publicly-traded companies and their securities;
(vi) analyzed the pro forma impact of the Merger on the combined
Company's earnings per share, consolidated capitalization and financial
ratios;
(vii) reviewed and discussed with the management of Ocwen Financial
the benefits of repositioning the assets of OAC;
<PAGE> 131
(viii) reviewed the financial terms, to the extent publicly available,
of certain comparable merger transactions;
(ix) participated in discussions and negotiations among
representatives of OAC and Ocwen Financial and their financial and legal
advisors;
(x) reviewed the Merger Agreement and certain related documents; and
(xi) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the near-term budgets, including the benefits
expected to result from the Merger, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of OAC and Ocwen Financial. We
have not made any independent valuation or appraisal of the assets or
liabilities of OAC and Ocwen Financial, nor have we been furnished with any such
appraisals and we have not examined any individual loan files of OAC or Ocwen
Financial. In addition, we have assumed the Merger will be consummated in
accordance with the terms and conditions set forth in the Merger Agreement. Our
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Ocwen
Financial in connection with this transaction and will receive a fee for our
services. In the past, Morgan Stanley & Co. Incorporated and its affiliates have
provided financial advisory and financing services for Ocwen Financial and OAC
and have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Ocwen Financial. This opinion may be included in its entirety in
any filing with the Securities and Exchange Commission in connection with the
Merger. In addition, Morgan Stanley expresses no opinion or recommendation as to
how the holders of Ocwen Financial Common Stock should vote at the shareholders'
meeting in connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to Ocwen Financial.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ KRISTEN S. HUNTLEY
---------------------------------------
Kristen S. Huntley
Managing Director
<PAGE> 132
ANNEX IV
PAINEWEBBER INCORPORATED
1285 AVENUE OF THE AMERICAS
NEW YORK, NY 10019
(212) 713-2000
July 25, 1999
Board of Directors
Ocwen Asset Investment Corp.
1675 Palm Beach Lakes Blvd.
The Forum, Suite 1000
West Palm Beach, FL 33401
Gentlemen:
Ocwen Asset Investment Corp. (the "Company") and Ocwen Financial
Corporation (the "Acquiring Company") propose to enter into an agreement (the
"Agreement") pursuant to which the Company will be merged with the Acquiring
Company or a wholly-owned subsidiary of the Acquiring Company in a transaction
(the "Merger") in which each share of the Company's common stock, par value
$0.01 per share (the "Shares"), will be converted into the right to receive 0.71
shares of the Acquiring Company's common stock, par value $0.01 per share (the
"Merger Consideration"). The Merger is expected to be considered by the
shareholders of the Company at a special meeting and consummated shortly
thereafter.
You have asked us whether or not, in our opinion, the proposed Merger
Consideration to be received by the shareholders of the Company other than the
Acquiring Company pursuant to the Merger is fair to such shareholders from a
financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the fiscal years ended December 31, 1998 and
December 31, 1997 and the Company's Form 10-Q and the related unaudited
financial information for the three months ended March 31, 1999;
(2) Reviewed the Acquiring Company's Annual Reports, Forms 10-K and
related financial information for the fiscal years ended December 31, 1998
and December 31, 1997 and the Acquiring Company's Form 10-Q and the related
unaudited financial information for the three months ended March 31, 1999;
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of the
Company and the Acquiring Company, furnished to us by the Company and the
Acquiring Company, respectively; Conducted discussions with members of
senior management of the Company and the Acquiring Company concerning their
respective businesses and prospects;
<PAGE> 133
Board of Directors
Ocwen Asset Investment Corp.
July 25, 1999
Page 2
(4) Reviewed the historical market prices and trading activity for the
Shares and the Acquiring Company's common stock and compared them with that
of certain publicly traded companies which we deemed to be relevant;
(5) Compared the financial performance and results of operations of
the Company and the Acquiring Company with that of certain companies which
we deemed to be relevant;
(6) Considered the pro forma effect of the Merger on the Acquiring
Company's earnings and book value per share;
(7) Reviewed a draft of the Agreement dated July 25, 1999; and
(8) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information publicly available, supplied or otherwise communicated to us
by the Company and the Acquiring Company, and we have not assumed any
responsibility to independently verify such information. With respect to the
financial forecasts examined by us, we have assumed that they were reasonably
prepared on bases reflecting the best currently available estimates and good
faith judgments of the management of the Company and the Acquiring Company as to
the future performance of the Company and the Acquiring Company, respectively.
We have also relied upon assurances of the management of the Company and the
Acquiring Company, that they are unaware of any facts that would make the
information or financial forecasts provided to us incomplete or misleading. We
have also assumed with your consent, that (i) the Merger will be accounted for
under the purchase method of accounting, (ii) the Merger will not be a tax free
reorganization and (iii) any material liabilities (contingent or otherwise,
known or unknown) of the Company and the Acquiring Company are as set forth in
the consolidated financial statements of the Company and the Acquiring Company,
respectively. This opinion is directed to the Board of Directors of the Company
and does not constitute a recommendation to any shareholder of the Company as to
how any such shareholder should vote on the Merger. This opinion does not
address the relative merits of the Merger and any other transactions or business
strategies discussed by the Board of Directors of the Company or the Special
Committee of the Board of Directors of the Company as alternatives to the Merger
or the decision of the Board of Directors of the Company to proceed with the
Merger. No opinion is expressed herein as to the price at which the securities
to be issued in the Merger to the shareholders of the Company may trade at any
time. Our opinion is based on economic, monetary and market conditions existing
on the date hereof.
In the ordinary course of business, PaineWebber Incorporated may trade in
the securities of the Company and the Acquiring Company for our own account and
for the accounts of our customers and, accordingly, may at any time hold long or
short positions in such securities.
PaineWebber Incorporated is currently acting as financial advisor to the
Special Committee of the Board of Directors of the Company in connection with
the Merger and will be receiving a fee in connection with the rendering of this
opinion and upon consummation of the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Merger Consideration to be received by the shareholders of the
Company other than the
<PAGE> 134
Board of Directors
Ocwen Asset Investment Corp.
July 25, 1999
Page 3
Acquiring Company pursuant to the Merger is fair to such shareholders from a
financial point of view.
This opinion has been prepared for the information of the Board of
Directors of the Company in connection with the Merger and shall not be
reproduced, summarized, described or referred to, provided to any person or
otherwise made public or used for any other purpose without the prior written
consent of PaineWebber Incorporated, provided, however, that this letter may be
reproduced in full in the Proxy Statement related to the Merger.
Very truly yours,
/s/ PAINEWEBBER INCORPORATED
PAINEWEBBER INCORPORATED
<PAGE> 135
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article V of the Registrant's Articles of Incorporation provides as
follows:
This corporation shall, to the fullest extent permitted by the
provisions of Fla. Stat. Section 607.0850, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said section,
and the indemnification provided for herein shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under any
Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of
such a person.
Section 607.0850 of the Florida Business Corporation Act provides as
follows:
(1) A corporation shall have power to indemnify any person who was or
is a party to any proceeding (other than an action by, or in the right of,
the corporation), by reason of the fact that he or she is or was a
director, officer, employee, or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or
other enterprise against liability incurred in connection with such
proceeding, including any appeal thereof, if he or she acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The termination of any proceeding by judgment, order,
settlement, or conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed
to be in, or not opposed to, the best interests of the corporation or, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
(2) A corporation shall have power to indemnify any person, who was or
is a party to any proceeding by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that the person is or
was a director, officer, employee, or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or
other enterprise, against expenses and amounts paid in settlement not
exceeding, in the judgment of the board of directors, the estimated expense
of litigating the proceeding to conclusion, actually and reasonably
incurred in connection with the defense or settlement of such proceeding,
including any appeal thereof. Such indemnification shall be authorized if
such person acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification shall be made under this
subsection in respect of any claim, issue, or matter as to which such
person shall have been adjudged to be liable unless, and only to the extent
that, the court in which such proceeding was brought, or any other court of
competent jurisdiction, shall determine
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<PAGE> 136
upon application that, despite the adjudication of liability but in view of
all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
(3) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of
any proceeding referred to in subsection (1) or subsection (2), or in
defense of any claim, issue, or matter therein, he or she shall be
indemnified against expenses actually and reasonably incurred by him or her
in connection therewith.
(4) Any indemnification under subsection (1) or subsection (2), unless
pursuant to a determination by a court, shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper in
the circumstances because he or she has met the applicable standard of
conduct set forth in subsection (1) or subsection (2). Such determination
shall be made:
(a) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such proceeding;
(b) If such a quorum is not obtainable or, even if obtainable, by
majority vote of a committee duly designated by the board of directors
(in which directors who are parties may participate) consisting solely
of two or more directors not at the time parties to the proceeding;
(c) By independent legal counsel:
1. Selected by the board of directors prescribed in paragraph
(a) or the committee prescribed in paragraph (b); or
2. If a quorum of the directors cannot be obtained for
paragraph (a) and the committee cannot be designated under
paragraph (b), selected by majority vote of the full board of
directors (in which directors who are parties may participate); or
(d) By the shareholders by a majority vote of a quorum consisting
of shareholders who were not parties to such proceeding or, if no such
quorum is obtainable, by a majority vote of shareholders who were not
parties to such proceeding.
(5) Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination of
permissibility is made by independent legal counsel, persons specified by
paragraph (4)(c) shall evaluate the reasonableness of expenses and may
authorize indemnification.
(6) Expenses incurred by an officer or director in defending a civil
or criminal proceeding may be paid by the corporation in advance of the
final disposition of such proceeding upon receipt of an undertaking by or
on behalf of such director or officer to repay such amount if he or she is
ultimately found not to be entitled to indemnification by the corporation
pursuant to this section. Expenses incurred by other employees and agents
may be paid in advance upon such terms or conditions that the board of
directors deems appropriate.
(7) The indemnification and advancement of expenses provided pursuant
to this section are not exclusive, and a corporation may make any other or
further
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<PAGE> 137
indemnification or advancement of expenses of any of its directors,
officers, employees, or agents, under any bylaw, agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in
his or her official capacity and as to action in another capacity while
holding such office. However, indemnification or advancement of expenses
shall not be made to or on behalf of any director, officer, employee, or
agent if a judgment or other final adjudication establishes that his or her
actions, or omissions to act, were material to the cause of action so
adjudicated and constitute:
(a) A violation of the criminal law, unless the director, officer,
employee, or agent had reasonable cause to believe his or her conduct
was lawful or had no reasonable cause to believe his or her conduct was
unlawful;
(b) A transaction from which the director, officer, employee, or
agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of (S)607.0834 are applicable; or
(d) Willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or
in the right of a shareholder.
(8) Indemnification and advancement of expenses as provided in this
section shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer, employee,
or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person, unless otherwise provided when authorized
or ratified.
(9) Unless the corporation's articles of incorporation provide
otherwise, notwithstanding the failure of a corporation to provide
indemnification, and despite any contrary determination of the board or of
the shareholders in the specific case, a director, officer, employee, or
agent of the corporation who is or was a party to a proceeding may apply
for indemnification or advancement of expenses, or both, to the court
conducting the proceeding, to the circuit court, or to another court of
competent jurisdiction. On receipt of an application, the court, after
giving notice that it considers necessary, may order indemnification and
advancement of expenses, including expenses incurred in seeking
court-ordered indemnification or advancement of expenses, if it determines
that:
(a) The director, officer, employee, or agent is entitled to
mandatory indemnification under subsection (3), in which case the court
shall also order the corporation to pay the director reasonable expenses
incurred in obtaining court-ordered indemnification or advancement of
expenses;
(b) The director, officer, employee or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the
exercise by the corporation of its power pursuant to subsection (7); or
(c) The director, officer, employee, or agent is fairly and
reasonably entitled to indemnification or advancement of expenses, or
both, in view of all the relevant circumstances, regardless of whether
such person met the standard of conduct set forth in subsection (1),
subsection (2), or subsection (7).
(10) For purposes of this section, the term "corporation" includes, in
addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger, so that any person who is or was a
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director, officer, employee, or agent of a constituent corporation, or is
or was serving at the request of a constituent corporation as a director,
officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, is in the same position under this
section with respect to the resulting or surviving corporation as he or she
would have with respect to such constituent corporation if its separate
existence had continued.
(11) For purposes of this section:
(a) The term "other enterprises" includes employee benefit plans;
(b) The term "expenses" includes counsel fees, including those for
appeal;
(c) The term "liability" includes obligations to pay for a
judgment, settlement, penalty, fine (including an excise tax assessed
with respect to any employee benefit plan), and expenses actually and
reasonably incurred with respect to a proceeding;
(d) The term "proceeding" includes any threatened, pending, or
completed action, suit, or other type of proceeding, whether civil,
criminal, administrative, or investigative and whether formal or
informal;
(e) The term "agent" includes a volunteer;
(f) The term "serving at the request of the corporation" includes
any service as a director, officer, employee, or agent of the
corporation that imposes duties on such persons, including duties
relating to an employee benefit plan and its participants or
beneficiaries; and
(g) The term "not opposed to the best interest of the corporation"
describes the actions of a person who acts in good faith and in a manner
he or she reasonably believes to be in the best interests of the
participants and beneficiaries of an employee benefit plan.
(12) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against
any liability asserted against the person and incurred by him or her in any
such capacity or arising out of his or her status as such, whether or not
the corporation would have the power to indemnify the person against such
liability under the provisions of this section.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following is a list of Exhibits included as part of this Registration
Statement. The Registrant agrees to furnish supplementally a copy of any omitted
exhibit or schedule to the SEC upon request.
<TABLE>
<S> <C>
*2.1 Agreement of Merger, dated as of July 25, 1999, among Ocwen
Financial Corporation, Ocwen Acquisition Company and Ocwen
Asset Investment Corp. (included as Annex I to the Joint
Proxy Statement/Prospectus).
4.1 The Amended and Restated Articles of Incorporation of Ocwen
Financial (incorporated by reference to the
similarly-described exhibit filed in connection with Ocwen
Financial's Registration Statement on Form S-1, File No.
333-5153, declared effective by the SEC on September 25,
1996).
</TABLE>
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<TABLE>
<S> <C>
4.2 By-laws, as amended and restated, of the Registrant
(incorporated by reference to the similarly-described
exhibit filed in connection with Ocwen Financial's Annual
Report on Form 10-K for the year ended December 31, 1998).
4.3 Form of certificate of Common Stock of Ocwen Financial
(incorporated by reference to the similarly- described
exhibit filed in connection with Ocwen Financial's
Registration Statement on Form S-1, File No. 333-5153,
declared effective by the SEC on September 25, 1996).
4.4 The instruments defining the rights of holders of long-term
debt securities of Ocwen Financial and its subsidiaries are
omitted pursuant to item 601(b)(4)(iii)(A) of Regulation
S-K. Ocwen Financial hereby agrees to furnish copies of
these instrument to the SEC upon request.
*5.1 Opinion of Trini L. Donato, Deputy General Counsel of Ocwen
Financial, as to the legality of the securities being
registered.
*8.1 Opinion of Sidley & Austin as to the United States federal
income tax consequences of the Merger.
*23.1 Consent of PricewaterhouseCoopers LLP.
*23.2 Consent of PricewaterhouseCoopers LLP.
*23.3 Consent of Morgan Stanley & Co. Incorporated.
*23.4 Consent of PaineWebber Incorporated.
*23.5 Consent of Trini L. Donato (included in Exhibit 5.1 to this
Registration Statement).
*23.6 Consent of Sidley & Austin (included in Exhibit 8.1 to this
Registration Statement).
*24.1 Powers of Attorney (included in the signature pages hereto).
*99.1 Form of proxy card to be mailed to shareholders of Ocwen
Financial.
*99.2 Form of proxy card to be mailed to shareholders of OAC.
</TABLE>
- -------------------------
* Filed herewith.
(b) Not applicable.
(c) The opinions of Morgan Stanley & Co. Incorporated and PaineWebber,
Incorporated (included as Annexes III and IV, respectively, to the
Joint Proxy Statement/Prospectus).
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the Joint Proxy Statement/Prospectus any facts
or events arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of
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securities offered (if the total dollar amount of securities offered
would not exceed that which was registered) and any deviation from the
low or high end of the estimated offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post- effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) (1) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this Registration Statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Securities Act and is used
in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any
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action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Joint Proxy
Statement/Prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form S-4,
within one business day of receipt of such requests, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
requests.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of West Palm
Beach, State of Florida, on August , 1999.
OCWEN FINANCIAL CORPORATION
By: /s/ WILLIAM C. ERBEY
------------------------------------
William C. Erbey
Chairman and Chief Executive
Officer
We, the undersigned officers and directors of Ocwen Financial Corporation,
hereby severally and individually constitute and appoint William C. Erbey, John
R. Erbey and Christine, A. Reich, and each of them, the true and lawful
attorneys and agents of each of us to execute in the name, place and stead of
each of us (individually and in any capacity stated below) any and all
amendments and post-effective amendments to this Registration Statement and all
instruments necessary or advisable in connection therewith including, without
limitation, a registration statement under Rule 462, which amendments,
instruments and registration statements may make such changes in and additions
to this Registration Statement as such attorneys and agents may deem necessary
or appropriate, and to file the same with the Securities and Exchange
Commission, each of said attorneys and agents to have the power to act with or
without the others and to have full power and authority to do and perform in the
name and on behalf of each of the undersigned every act whatsoever necessary or
advisable to be done on the premises as fully and to all intents and purposes as
any of the undersigned might or could do in person, and we hereby ratify and
confirm our signatures as they may be signed by or said attorneys and agents or
each of them to any and all such amendments and instruments.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ WILLIAM C. ERBEY Chairman and Chief Executive August 9, 1999
- --------------------------------------------------- Officer (Principal
William C. Erbey Executive Officer)
/s/ MARK S. ZEIDMAN Senior Vice President and August 9, 1999
- --------------------------------------------------- Chief Financial Officer
Mark S. Zeidman (Principal Financial and
Accounting Officer)
/s/ THOMAS F. LEWIS Director August 9, 1999
- ---------------------------------------------------
Hon. Thomas F. Lewis
/s/ W. C. MARTIN Director August 9, 1999
- ---------------------------------------------------
W. C. Martin
/s/ HOWARD H. SIMON Director August 9, 1999
- ---------------------------------------------------
Howard H. Simon
/s/ BARRY N. WISH Director August 9, 1999
- ---------------------------------------------------
Barry N. Wish
</TABLE>
II-8
<PAGE> 143
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -------
<S> <C>
*2.1 Agreement of Merger, dated as of July 25, 1999, among Ocwen
Financial Corporation, Ocwen Acquisition Company and Ocwen
Asset Investment Corp. (included as Annex I to the Joint
Proxy Statement/Prospectus).
4.1 The Amended and Restated Articles of Incorporation of Ocwen
Financial (incorporated by reference to the
similarly-described exhibit filed in connection with Ocwen
Financial's Registration Statement on Form S-1, File No.
333-5153, declared effective by the SEC on September 25,
1996).
4.2 By-laws, as amended and restated, of Ocwen Financial
(incorporated by reference to the similarly-described
exhibit filed in connection with Ocwen Financial's Annual
Report on Form 10-K for the year ended December 31, 1998).
4.3 Form of certificate of Common Stock of Ocwen Financial
(incorporated by reference to the similarly-described
exhibit filed in connection with Ocwen Financial's
Registration Statement on Form S-1, File No. 333-5153,
declared effective by the SEC on September 25, 1996).
4.4 The instruments defining the rights of holders of long-term
debt securities of Ocwen Financial and its subsidiaries are
omitted pursuant to item 601(b)(4)(iii)(A) of Regulation
S-K. Ocwen Financial hereby agrees to furnish copies of
these instrument to the SEC upon request.
*5.1 Opinion of Trini L. Donato, Deputy General Counsel of Ocwen
Financial, as to the legality of the securities being
registered.
*8.1 Opinion of Sidley & Austin as to the United States federal
income tax consequences of the Merger.
*23.1 Consent of PricewaterhouseCoopers LLP.
*23.2 Consent of PricewaterhouseCoopers LLP.
*23.3 Consent of Morgan Stanley & Co. Incorporated.
*23.4 Consent of PaineWebber Incorporated.
*23.5 Consent of Trini L. Donato (included in Exhibit 5.1 to this
Registration Statement).
*23.6 Consent of Sidley & Austin (included in Exhibit 8.1 to this
Registration Statement).
*24.1 Powers of Attorney (included in the signature pages hereto).
*99.1 Form of proxy card to be mailed to shareholders of Ocwen
Financial.
*99.2 Form of proxy card to be mailed to shareholders of OAC.
</TABLE>
- -------------------------
* Filed herewith
<PAGE> 1
EXHIBIT 5.1
OCWEN FINANCIAL CORPORATION
1875 PALM BEACH LAKES BOULEVARD
WEST PALM BEACH, FLORIDA 33401
TELEPHONE: (561) 682-8000
[OPINION OF TRINI L. DONATO]
August 9, 1999
Board of Directors
Ocwen Financial Corporation
1675 Palm Beach Lakes Boulevard
West Palm Beach, Florida 33401
Ladies and Gentlemen:
I am Vice President and Assistant Secretary and serve as Deputy General
Counsel of Ocwen Financial Corporation, a Florida corporation (the "Company").
At your request, I and other members of the Company's Law Department have
examined the Registration Statement on Form S-4 (the "Registration Statement")
being filed by the Company in connection with the registration under the
Securities Act of 1933, as amended, of shares of common stock, par value $.01
per share, of the Company (the "Common Stock") to be issued pursuant to that
certain Agreement of Merger dated as of July 25, 1999, as amended, among the
Company, Ocwen Asset Investment Corp. and Ocwen Acquisition Company.
In rendering the opinions expressed below, I or other members of the
Company's Law Department have examined and relied upon a copy of the
Registration Statement and the exhibits filed therewith. I or other members of
the Company's Law Department have also examined originals, or copies of
originals certified to our satisfaction, of such agreements, documents,
certificates and statements of government officials and other instruments, and
have examined such questions of law and have satisfied ourselves as to such
matters of fact, as we have considered relevant and necessary as a basis for
this opinion. We have assumed the authenticity of all documents submitted to us
as originals, the genuineness of all signatures, the legal capacity of all
persons and the conformity with the original documents of any copies thereof
submitted to us for examination.
Based on the foregoing, and subject to the qualifications and limitations
hereinafter set forth, I am of the opinion that:
1. The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of Florida.
2. When the Common Stock has been issued in the manner described in
the Registration Statement, any amendment thereto and the Joint Proxy
Statement/Prospectus contained therein, such Common Stock will be duly
authorized, validly issued, fully paid and nonassessable.
I do not find it necessary for the purposes of this opinion to cover, and
accordingly I express no opinion as to, the application of the securities or
blue sky laws of the various states or the State of Florida to the sale of the
securities to be registered pursuant to the Registration Statement.
<PAGE> 2
August 9, 1999
Page 2
I am a member of the bar of the State of Florida. My opinion expressed
herein is limited to the laws of the State of Florida.
I hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to all references to me in the Registration
Statement. In giving such consent, I do not thereby admit that I am within the
category of persons for whom consent is required by Section 7 of the Securities
Act or the related rules promulgated by the Commission thereunder.
<PAGE> 3
August 9, 1999
Page 3
This opinion is being delivered solely for the benefit of the person to
whom it is addressed and, except as provided in the immediately preceding
paragraph, may not be quoted, filed with any governmental authority or other
regulatory agency or otherwise circulated or utilized for any other purpose
without my prior written consent.
Sincerely,
/s/ TRINI L. DONATO
------------------------------------------
<PAGE> 1
EXHIBIT 8.1
SIDLEY & AUSTIN
875 Third Avenue
New York, New York 10022
Telephone (232) 906-2000
Facsimile (212) 906-2021
August 9, 1999
Ocwen Financial Corporation
1675 Palm Beach Lakes Boulevard
West Palm Beach, Florida 33401
Ladies and Gentlemen:
We refer to the Agreement of Merger dated as of July 25, 1999 (the
"Agreement") among Ocwen Financial Corporation, a Florida corporation
("Purchaser"), Ocwen Asset Investment Corp., a Virginia corporation ("Ocwen"),
and Ocwen Acquisition Company ("Sub"), a Virginia corporation and subsidiary of
Ocwen Properties, Inc., a New York corporation and direct subsidiary of
Investors Mortgage Insurance Holding Company, a Delaware corporation and direct
subsidiary of Purchaser, which provides for the merger (the "Merger") of Sub
with and into Ocwen, with Ocwen as the surviving corporation and the common
shareholders of Ocwen becoming shareholders of Purchaser, all on the terms and
conditions therein set forth, the time at which the Merger becomes effective
being hereinafter referred to as the "Effective Time." Capitalized terms used
but not defined herein have the meanings specified in the Agreement.
As provided in the Agreement, at the Effective Time, by reason of the
Merger: (i) each then issued and outstanding common share of Ocwen ("Ocwen
Common Shares") shall be converted into the right to receive 0.71 validly
issued, fully paid and nonassessable shares of common stock of Purchaser
("Purchaser Common Shares"), with cash paid in lieu of fractional shares of
Purchaser Common Shares (the "Merger Consideration"); and (ii) all Ocwen Common
Shares that are held in the treasury of Ocwen or by any wholly-owned Ocwen
Subsidiary and any Ocwen Common Shares owned by Purchaser or by any wholly-owned
Purchaser Subsidiary shall be cancelled and no capital stock of Purchaser or
other consideration shall be delivered in exchange therefor. All such Ocwen
Common Shares, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and all rights with respect thereto shall
cease to exist, and each holder of any such Ocwen Common Shares shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration and, if a holder of Ocwen Common Shares on the record date for the
1998 REIT Dividend, the 1998 REIT Dividend, in each case, without interest and
less any required withholding taxes.
The Merger and the Agreement are more fully described in Purchaser's
Registration Statement on Form S-4 (the "Registration Statement") relating to
the registration of Purchaser Common Shares and to which this opinion is an
exhibit, which has been filed by Purchaser with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended. The Registration
Statement includes the Joint Proxy Statement/Prospectus (the "Prospectus") of
Purchaser and Ocwen.
<PAGE> 2
Ocwen Financial Corporation
August 9, 1999
Page 2
In rendering the opinion expressed below, we have relied upon the accuracy
of the facts, information and representations and the completeness of the
covenants contained in the Agreement, the Registration Statement, the Prospectus
and such other documents as we have deemed relevant and necessary (including,
without limitation, those described above). Such opinion is conditioned, among
other things, not only upon such accuracy and completeness as of the date
hereof, but also the continuing accuracy and completeness thereof as of the
Effective Time. Moreover, we have assumed the absence of any change to any of
such documents between the date thereof and the Effective Time.
We have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures, the legal capacity of all natural
persons and the conformity with original documents of all copies submitted to us
for our examination. We have further assumed that the transactions related to
the Merger or contemplated by the Agreement will be consummated (i) in
accordance with the Agreement and (ii) as described in the Prospectus.
In rendering the opinion expressed below, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
regulations promulgated thereunder by the United States Treasury Department (the
"Regulations"), pertinent judicial authorities, rulings and interpretations of
the Internal Revenue Service and such other authorities as we have considered
relevant. It should be noted that the Code, the Regulations and such judicial
decisions, rulings, administrative interpretations and other authorities are
subject to change at any time and, in some circumstances, with retroactive
effect; and any such change could affect the opinion stated herein. Furthermore,
the opinion expressed below might not be applicable to Ocwen shareholders who or
which, for United States federal income tax purposes, are nonresident alien
individuals, foreign corporations, foreign partnerships, foreign trusts or
foreign estates, or who acquired their Ocwen Common Shares pursuant to the
exercise of employee stock options or otherwise as compensation.
Based upon and subject to the foregoing, it is our opinion that the
discussion set forth in the section of the Registration Statement entitled "The
Merger -- Material Federal Income Tax Consequences" constitutes, in all material
respects, a fair and accurate summary of the federal income tax consequences
that are likely to be material to the shareholders of Ocwen.
Except as expressly set forth above, you have not requested, and we do not
herein express, any opinion concerning the tax consequences of, or any other
matters related to, the Merger.
We assume no obligation to update or supplement this letter to reflect any
facts or circumstances which may hereafter come to our attention with respect to
the opinion expressed above, including any changes in applicable law which may
hereafter occur.
This opinion is provided to you only, and without our prior consent, may
not be relied upon, used, circulated, quoted or otherwise referred to in any
manner by any person, firm, governmental authority or entity whatsoever other
than reliance thereon by you. Notwithstanding the foregoing, we hereby consent
to the filing of this letter as an exhibit to the Registration Statement and to
all references to our firm included in or made part of the Registration
Statement.
Very truly yours,
/s/ SIDLEY & AUSTIN
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Ocwen Financial Corporation (the "Company") of our
report dated January 29, 1999 relating to the financial statements appearing in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
- --------------------------------
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
August 6, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Ocwen Financial Corporation of our report dated January
28, 1999 relating to the financial statements appearing in Ocwen Asset
Investment Corp.'s Annual Report on Form 10-K for the year ended December 31,
1998. We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
- --------------------------------
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
August 6, 1999
<PAGE> 1
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
OCWEN FINANCIAL CORPORATION
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement of Ocwen
Financial Corporation ("Ocwen Financial") relating to the proposed merger of a
wholly owned subsidiary of Ocwen Financial with and into Ocwen Asset Investment
Corp. ("OAC"), of our opinion letter to the Board of Directors of Ocwen
Financial in the Joint Proxy Statement/Prospectus of Ocwen Financial and OAC
which is a part of the Registration Statement, and to the references of our firm
name therein. In giving such consent, we do not thereby admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations adopted by the
Securities and Exchange Commission thereunder nor do we admit that we are
experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Kristen S. Huntley
------------------------------
Kristen S. Huntley
Managing Director
August 9, 1999
<PAGE> 1
INVESTMENT BANKING DIVISION
PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY 10019
212 713-2000
PAINEWEBBER
Consent to Use of
Fairness Opinion in S-4
Registration Statement
----------------------
We hereby consent to the use of our opinion letter dated July 25,
1999 to the Board of Directors of Ocwen Asset Investment Corp. included as Annex
III to the Prospectus/Proxy Statement which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of Ocwen Asset Investment
Corp. with and into Ocwen Financial Corporation and to the references to such
opinion in such Prospectus/Proxy Statement under the captions "The Merger." In
giving such consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations issued by the Securities and Exchange
Commission thereunder.
Very truly yours,
PAINEWEBBER INCORPORATED
By /s/ James W. Kilman, Jr.
------------------------------
James W. Kilman, Jr.
Managing Director
August 9, 1999
New York, New York
<PAGE> 1
EXHIBIT 99.1
REVOCABLE PROXY
OCWEN FINANCIAL CORPORATION
1675 PALM BEACH LAKES BOULEVARD
WEST PALM BEACH, FLORIDA 33401
SPECIAL MEETING OF SHAREHOLDERS
[MONTH] [DAY], 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF OCWEN
FINANCIAL CORPORATION FOR USE ONLY AT THE SPECIAL MEETING OF SHAREHOLDERS TO BE
HELD ON [MONTH] [DAY], 1999, AND ANY ADJOURNMENTS THEREOF.
The undersigned hereby appoint(s) , , and
, and each of them, as proxies for the undersigned (and if the
undersigned is a proxy, substitute proxies), with full power of substitution,
for and in the name, place and stead of the undersigned, to vote all Common
Stock of the undersigned in Ocwen Financial Corporation (the "Company") at the
Special Meeting of Shareholders to be held at of at
, , , on [Day of Week], [Month] [Day], 1999
at 9:00 a.m., local time, and at any adjournments thereof, as specified below.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders and the accompanying Joint Proxy Statement/Prospectus and releases
any proxy heretofore given with respect to such meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE SHARE ISSUANCE.
[Please sign and date on reverse side of this proxy.]
<PAGE> 2
OCWEN FINANCIAL CORPORATION PROXY FOR SPECIAL MEETING
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
PROPOSALS
The Board of Directors recommends a vote "FOR" the listed proposal.
1. Proposal for approval of the issuance of shares of Common Stock of the
Company pursuant to and in accordance with the Agreement of Merger dated as
of July 25, 1999 among the Company, Ocwen Acquisition Company and Ocwen Asset
Investment Corp.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
2. In their discretion, the proxies (and if the undersigned is a proxy, any
substitute proxies) are authorized to vote upon such other business as may
properly come before the meeting.
The undersigned hereby ratifies and confirms all that said attorneys and
proxies, or any one or more of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof and any prior proxies are
hereby revoked.
Please sign your name exactly as
it appears hereon. When shares
are held by joint tenants, both
should sign. When signing as
attorney, as executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name by President or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
--------------------------------
Signature
Dated: , 1999
--------------- --------------------------------
Signature
PLEASE DATE, SIGN AND RETURN IN THE ENCLOSED POSTMARKED ENVELOPE PROMPTLY.
<PAGE> 1
EXHIBIT 99.2
REVOCABLE PROXY
OCWEN ASSET INVESTMENT CORP.
1675 PALM BEACH LAKES BOULEVARD
WEST PALM BEACH, FLORIDA 33401
SPECIAL MEETING OF SHAREHOLDERS
[MONTH] [DAY], 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF OCWEN ASSET
INVESTMENT CORP. FOR USE ONLY AT THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
ON [MONTH] [DAY], 1999, AND ANY ADJOURNMENTS THEREOF.
The undersigned hereby appoint(s) , , and
, and each of them, as proxies for the undersigned (and if the
undersigned is a proxy, substitute proxies), with full power of substitution,
for and in the name, place and stead of the undersigned, to vote all Common
Stock of the undersigned in Ocwen Asset Investment Corp. (the "Company") at the
Special Meeting of Shareholders to be held at of at
, , , on [Day of Week], [Month] [Day], 1999
at 10:00 a.m., local time, and at any adjournments thereof, as specified below.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders and the accompanying Joint Proxy Statement/Prospectus and releases
any proxy heretofore given with respect to such meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE MERGER AGREEMENT.
[Please sign and date on reverse side of this proxy.]
<PAGE> 2
OCWEN ASSET INVESTMENT CORP. PROXY FOR SPECIAL MEETING
[ ] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
PROPOSALS
The Board of Directors recommends a vote "FOR" the listed proposal.
1. Proposal for approval of the Agreement of Merger dated as of July 25, 1999
among Ocwen Financial Corporation, Ocwen Acquisition Company and the Company
and the Plan of Merger attached as Annex II to the Joint Proxy
Statement/Prospectus.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
2. In their discretion, the proxies (and if the undersigned is a proxy, any
substitute proxies) are authorized to vote upon such other business as may
properly come before the meeting.
The undersigned hereby ratifies and confirms all that said attorneys and
proxies, or any one or more of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof and any prior proxies are
hereby revoked.
Please sign your name exactly as
it appears hereon. When shares
are held by joint tenants, both
should sign. When signing as
attorney, as executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name by President or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
--------------------------------
Signature
Dated: , 1999
--------------- --------------------------------
Signature
PLEASE DATE, SIGN AND RETURN IN THE ENCLOSED POSTMARKED ENVELOPE PROMPTLY.
