<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 1997
REGISTRATION NO. 333-25643
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
REDWOOD TRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MARYLAND 591 REDWOOD HIGHWAY, SUITE 3100 68-0329422
(STATE OR OTHER JURISDICTION OF MILL VALLEY, CA 94941 (I.R.S. EMPLOYER I.D. NUMBER)
INCORPORATION OR ORGANIZATION) (415) 389-7373
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
PRINCIPAL EXECUTIVE OFFICES)
------------------------
GEORGE E. BULL, III
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
REDWOOD TRUST, INC.
591 REDWOOD HIGHWAY, SUITE 3100
MILL VALLEY, CA 94941
(415) 389-7373
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DOUGLAS B. HANSEN PHILLIP R. POLLOCK, ESQ.
PRESIDENT AND CHIEF FINANCIAL OFFICER TOBIN & TOBIN
REDWOOD TRUST, INC. ONE MONTGOMERY STREET, 15TH FLOOR
591 REDWOOD HIGHWAY, SUITE 3100 SAN FRANCISCO, CA 94104
MILL VALLEY, CA 94941 (415) 433-1400
(415) 389-7373
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
At any time and from time to time after the effective date of this Registration
Statement in light of market conditions and other factors.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
- ---------------
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
------------------------
Pursuant to Rule 429(b), the Prospectus contained in this Registration
Statement also relates to Registration No. 333-11665, filed by Registrant and
declared effective September 19, 1996.
================================================================================
<PAGE> 2
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1997)
X,XXX,XXX SHARES
RWT
REDWOOD TRUST, INC.
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by Redwood
Trust, Inc. (the "Company"). The Company's Common Stock is traded on the
over-the-counter market and is quoted on the Nasdaq National Market under the
symbol "RWTI." On , 1997, the last reported sales price per share of
Common Stock, as reported by Nasdaq, was $ . See "Market Prices and
Dividend Data."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
=========================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Per Share................................ $ $ $
Total.................................... $ $ $
=========================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriter and other matters.
(2) Before deducting expenses payable by the Company estimated at $ .
The shares of Common Stock are offered by the Underwriter named herein,
when, as and if delivered to and accepted by the Underwriter, and subject to its
right to reject any order in whole or in part. It is expected that delivery of
the certificates representing the shares of Common Stock will be made against
payment therefor at the offices of Montgomery Securities on or about
, 1997.
------------------------
Montgomery Securities
, 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING BIDS AND PURCHASES, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING.".
CERTAIN INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT, THE RELATED
PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN AND THEREIN
CONSTITUTE "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, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE" OR
"CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE
TERMINOLOGY. THE STATEMENTS IN "RISK FACTORS" INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT
FACTORS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, WITH RESPECT TO SUCH
FORWARD-LOOKING STATEMENTS THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS.
S-2
<PAGE> 4
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements (including notes thereto) appearing
elsewhere in this Prospectus Supplement and the accompanying Prospectus or
incorporated herein or therein by reference. Capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Glossary to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
which is incorporated herein by reference.
THE COMPANY
Redwood Trust, Inc. ("Redwood Trust" or the "Company") was incorporated in
Maryland on April 11, 1994 and commenced operations on August 19, 1994. The
Company completed its initial public offering of 3,593,750 shares of common
stock, par value $0.01 per share ("Common Stock") on August 4, 1995 at a price
of $15.50 per share. The Company has had several additional public offerings of
its Common Stock between August 4, 1995 and March 31, 1997. On August 8, 1996
the Company completed its public offering of 1,006,250 shares of Class B 9.74%
Cumulative Convertible Preferred Stock (the "Class B Preferred Stock") at a
price of $31.00 per share. On April 4, 1997 the Company completed its fifth
public offering consisting of 1,100,000 shares of Common Stock at a price of
$42.375 per share.
The Company acquires and manages real estate mortgage assets ("Mortgage
Assets") which may be acquired as whole loans ("Mortgage Loans") or as mortgage
securities representing interests in or obligations backed by pools of mortgage
loans ("Mortgage Securities"). The Company acquires Mortgage Assets that are
secured by single-family real estate properties located throughout the United
States with a special emphasis on properties located in the State of California,
and may in the future acquire Mortgage Assets secured by multi-family and
commercial real estate properties. Because the Company has elected to be subject
to tax as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986, as amended (the "Code"), it will generally not be subject to tax
on its Federal income to the extent that it distributes its earnings to its
stockholders and it maintains its qualification as a REIT. The Company is
self-advised and self-managed. Its goal is to be an efficient long-term holder
of Mortgage Assets.
The Company was founded in 1994 by George E. Bull (Chairman and Chief
Executive Officer), Douglas B. Hansen (President and Chief Financial Officer)
and Frederick H. Borden (Vice Chairman and Secretary). This management team has
extensive experience in managing portfolios of Mortgage Assets, arranging
collateralized borrowings and utilizing asset/liability management techniques to
hedge balance sheet risks. Additionally, they have served in various capacities
in the banking, insurance, investment banking and investment management
industries and have managed both healthy and troubled financial institutions as
well as both performing and non-performing Mortgage Assets. This management team
founded Redwood Trust with the objective of building a company that could
compete favorably with its competitors by maintaining low operating expenses,
utilizing the team's expertise in managing Mortgage Assets and electing to be
subject to tax on its Federal income as a REIT.
From the commencement of operations on August 19, 1994 through March 31,
1997, the Company acquired Mortgage Assets that had a carrying value at March
31, 1997 of approximately $2.6 billion. As of March 31, 1997, 97% of the
Company's Mortgage Assets were investment grade equivalent (i.e., one of the
four highest rating levels by one or more nationally recognized mortgage
security rating agencies or the equivalent as determined by the Company), and
the Mortgage Asset portfolio had an average credit rating equivalent of AA+, as
determined by the Company.
All of these Mortgage Assets were acquired in the secondary market for
Mortgage Assets or directly from mortgage origination firms.
BUSINESS AND STRATEGY
The Company's principal business objective is to produce net interest
income on its Mortgage Assets while maintaining strict cost controls in order to
generate net income for distribution to stockholders. To
S-3
<PAGE> 5
achieve its business objective and generate dividend yields that provide a
relatively attractive rate of return for stockholders, the Company's strategy
is:
- to purchase Single-Family Mortgage Assets, the majority of which are
currently expected to have adjustable interest rates based on changes in
short-term market interest rates, with an emphasis on mortgage interests
on residential properties located in California;
- to manage the credit risk of its Mortgage Assets through, among other
activities: (i) carefully selecting Mortgage Assets to be acquired,
including an underwriting review of Mortgage Loans and lower-rated
Mortgage Securities, (ii) following the Company's policies with respect
to credit risk concentration which, among other things, require the
Company to maintain a Mortgage Asset portfolio with a weighted average
rating level of A- or better, (iii) actively monitoring the ongoing
credit quality and servicing of its Mortgage Assets, and (iv) maintaining
appropriate capital levels and allowances for possible credit losses;
- to finance such purchases with the proceeds of equity offerings and, to
the extent permitted by the Company's capital and liquidity policies, to
utilize leverage to increase potential returns to stockholders through
borrowings;
- to attempt to structure its borrowings to have interest rate adjustment
indices and interest rate adjustment periods that, on an aggregate basis,
generally correspond (within a range of one to six months) to the
interest rate adjustment indices and interest rate adjustment periods of
the adjustable-rate Mortgage Assets purchased by the Company;
- to utilize interest rate caps, swaps and similar instruments to mitigate
the risk of the cost of its variable rate liabilities increasing at a
faster rate than the earnings on its Mortgage Assets during a period of
rising interest rates;
- to seek to minimize prepayment risk by structuring a diversified
portfolio with a variety of prepayment characteristics and through other
means;
- to apply securitization techniques designed to enhance the value and
liquidity of the Company's Mortgage Assets acquired in the form of
Mortgage Loans by securitizing them into Mortgage Securities that are
tailored to the Company's objectives;
- to re-securitize portions of its Mortgage Securities portfolio when the
underlying Mortgage Loans have improved in credit quality through
seasoning or rising underlying property values, or when the credit
quality of a junior class of security improves due to the prepayment of
more senior classes, as such re-securitization transactions may result in
improved credit ratings, higher market values and lowered borrowing
costs;
- to use Mortgage Assets to collateralize the issuance of long term
collateralized mortgage bonds;
- to broaden the scope of its mortgage acquisitions over time to include
fixed rate single-family mortgages, multifamily mortgages and commercial
mortgages when management deems such purchases to be in the best
interests of shareholders; and
- to strive to become more cost-efficient and capital efficient over time.
The Company's principal competition in the business of acquiring and
managing Mortgage Assets are financial institutions such as banks, savings and
loans, life insurance companies, institutional investors such as mutual funds
and pension funds, and certain other mortgage REITs. While many of these
entities have significantly greater resources than the Company, the Company
anticipates that it will be able to compete effectively due to its relatively
low level of operating costs, relative freedom to securitize its assets, ability
to utilize prudent amounts of leverage through accessing the wholesale market
for collateralized borrowings, freedom from certain forms of regulation and the
tax advantages of its REIT status.
The Company plans to generate relatively attractive earnings and dividends
while holding Mortgage Assets of higher credit quality and maintaining a lower
interest rate risk profile as compared to its principal
S-4
<PAGE> 6
competitors. The Company will attempt to be increasingly cost-efficient by: (i)
seeking to raise additional capital from time to time in order to increase its
ability to invest in Mortgage Assets as operating costs are not anticipated to
increase as quickly as Mortgage Assets and because growth will increase the
Company's purchasing influence with suppliers of Mortgage Assets; (ii) striving
to lower its effective borrowing costs over time through seeking direct funding
with collateralized lenders rather than using Wall Street intermediaries and
investigating the possibility of using commercial paper and medium term note
programs; (iii) improving the efficiency of its balance sheet structure by
investigating the issuance of various forms of debt and capital; and (iv)
utilizing information technology to the fullest extent possible in its business.
MORTGAGE ASSETS
The Mortgage Assets purchased by the Company will consist primarily of
Single-family, Multifamily and Commercial Mortgage Assets. Although all of the
Company's Mortgage Assets purchased through March 31, 1997 were Single-Family
adjustable rate Mortgage Assets, the Company may acquire Multifamily Mortgage
Assets and Commercial Mortgage Assets from time to time in the future when this
strategy is consistent with its Asset Acquisition/Capital Allocation Policies.
At the present time, the Company expects a majority of its Mortgage Assets to
continue to be comprised of assets bearing adjustable interest rates. However,
fixed rate Mortgage Assets may be acquired when they satisfy the Company's Asset
Acquisition/Capital Allocation Policies and management believes they will
contribute to the Company's business objectives with respect to desired levels
of income and dividend distributions. From time to time, the Company may also
acquire common stock in other REITs that invest primarily in Mortgage Assets if
the Company believes the returns on such common stock are good and such
opportunities are as favorable or more favorable than investing in Mortgage
Assets directly. The Company may also acquire its own stock, when permitted by
applicable securities and state corporation laws.
The Company expects that a majority of its Mortgage Assets will have
investment grade ratings (the four highest rating levels) from one or more
nationally recognized mortgage security rating agencies or be deemed by the
Company to be of comparable credit quality. Based upon the Company's investment
strategy and the guidelines under the Company's Asset Acquisition/Capital
Allocation Policies, the Company expects that the weighted average rating of its
Mortgage Assets (including the Company's deemed equivalent ratings for unrated
Mortgage Assets) will be at least an "A-" rating level under the Standard &
Poor's Corporation ("S&P") rating system or at a comparable level under other
rating systems.
In no event will the Company acquire or retain any real estate mortgage
investment conduit ("REMIC") residual interest that may give rise to "excess
inclusion" income as defined under Section 860E of the Code.
Among the Mortgage Asset choices available to the Company, the Company
acquires those Mortgage Assets which the Company believes will generate the
highest returns on capital invested, after considering (i) the amount and nature
of the anticipated cashflows from the Mortgage Asset, (ii) the Company's ability
to pledge the Mortgage Asset to secure collateralized borrowings, (iii) the
increase in the Company's risk-adjusted capital requirement determined by the
Company's Risk-Adjusted Capital Policy resulting from the purchase and financing
of the Mortgage Asset, and (iv) the costs of financing, hedging, managing,
securitizing and reserving for the Mortgage Asset. Prior to acquisition,
potential returns on capital employed are assessed over the life of the Mortgage
Asset and in a variety of interest rate, yield spread, financing cost, credit
loss and prepayment scenarios.
Credit Risk Management Policies
The Company reviews credit risk, interest rate risks and other risk of loss
associated with each investment and determines the appropriate allocation of
capital to apply to such investment under its Risk-Adjusted Capital Policy. In
addition, the Company attempts to diversify its investment portfolio to avoid
undue geographic and other types of concentrations. The Board of Directors
monitors the overall portfolio risk and the appropriate levels of provision for
loss.
With respect to its Mortgage Securities, the Company is exposed to various
levels of credit and special hazard risk, depending on the nature of the
underlying Mortgage Securities and the nature and level of credit enhancements
supporting such securities. Most of the Mortgage Securities acquired by the
Company have
S-5
<PAGE> 7
some degree of protection from normal credit losses. At December 31, 1996 and
March 31, 1997, 45.0% and 39.0%, respectively, of the Company's Mortgage Assets
were Mortgage Securities covered by credit protection in the form of a 100%
guarantee from a government sponsored entity (GNMA, FNMA and FHLMC) ("Agency
Certificates").
An additional 30.6% and 32.9% of the Company's Mortgage Assets at December
31, 1996 and March 31, 1997, respectively, were Privately Issued Certificates
and represented interests in pools of residential mortgage loans with partial
credit enhancement; of these amounts, 96% and 97% were rated investment grade
equivalent, respectively. Credit loss protection for Privately Issued
Certificates is achieved through the subordination of other interests in the
pool to the interests held by the Company, through pool insurance or though
other means. However, the degree of credit protection varies substantially among
the Privately Issued Certificates held by the Company.
All of the Company's Mortgage Assets have received a credit rating from one
or more nationally recognized rating agencies or have been assigned a rating
deemed equivalent by the Company. At March 31, 1997, the average rating of the
Company's Mortgage Assets, as adjusted to a single format and weighted by
carrying value, was AA+. At March 31, 1997, the average rating of the non-agency
Mortgage Assets was AA+.
At March 31, 1997, the Company owned $730.0 million of whole Mortgage
Loans, which comprised 28.1% of the Company's total Mortgage Assets at such
date. The Company has developed a quality control program to monitor the quality
of loan underwriting at the time of acquisition and on an ongoing basis.
Capital and Leverage Policies
The Company's goal is to strike a balance between the under-utilization of
leverage, which reduces potential returns to stockholders, and the
over-utilization of leverage, which could reduce the Company's ability to meet
its obligations during adverse market conditions. The Company has established a
"Risk-Adjusted Capital Policy" which limits management's ability to acquire
additional Mortgage Assets during times when the actual capital base of the
Company is less than a guideline amount defined in the policy. In this way, the
use of balance sheet leverage is controlled.
Prior to the fourth quarter of 1996, under its Risk-Adjusted Capital
Policy, management was prohibited from acquiring additional Mortgage Assets
during periods when the actual capital base of the Company was less than the
minimum guideline amount as determined by the Risk-Adjusted Capital Policy
(except when such Mortgage Asset acquisitions may have been necessary to
maintain REIT status or the Company's exemption from the Investment Company Act
of 1940). As a result, the Company had generally grown in the past by issuing
equity and then seeking to acquire Mortgage Assets over time in order to fully
employ the capital raised. In order to employ new capital more efficiently, the
Board of Directors approved a permanent modification to the Company's
Risk-Adjusted Capital Policy on October 31, 1996. Management is now able to
acquire Mortgage Assets when attractive opportunities present themselves in
excess of the level at which the Company's capital base would have been fully
employed under the pre-modified Risk-Adjusted Capital Policy within certain
limitations and in certain circumstances.
The Board of Directors reviews on a periodic basis various analyses
prepared by management of the risks inherent in the Company's balance sheet,
including an analysis of the effects of various scenarios on the Company's net
cash flow, earnings, dividends, liquidity and net market value. Should the Board
of Directors determine that the minimum guideline capital level set by the
Company's Risk-Adjusted Capital Policy is either too low or too high, the Board
of Directors will raise or lower the capital guideline accordingly.
The Company expects that its aggregate minimum capital guideline under the
Risk-Adjusted Capital Policy will approximate 3% to 13% of the market value of
the Company's Mortgage Assets. This percentage will fluctuate over time, and may
fluctuate out of the expected range, as the composition of the balance sheet
changes, haircut levels required by lenders change, the market value of the
Mortgage Assets changes and as liquidity capital cushion percentages set by the
Board of Directors are adjusted over time. As of March 31, 1997 the aggregate
Risk-Adjusted Capital Policy guideline was 10.09% of Mortgage Assets, and the
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<PAGE> 8
Company's actual capital base was 9.28% of Mortgage Assets. Shortly thereafter,
the Company's actual capital level was raised to a level in excess of the
capital guideline through a common stock offering.
A substantial portion of the Company's borrowings are currently short-term
or adjustable-rate. The Company's borrowings currently consist of collateralized
borrowing arrangements of various types (reverse repurchase agreements, notes
payable and one revolving line of credit). In the future, however, the Company's
borrowings may also be obtained through loan agreements, Dollar-Roll Agreements
(an agreement to sell a security for delivery on a specified future date and a
simultaneous agreement to repurchase the same or a substantially similar
security on a specified future date) and other credit facilities with
institutional lenders and issuance of debt securities such as commercial paper,
medium-term notes, collateralized mortgage bonds and senior or subordinated
notes.
Interest Rate Risk Management Program
To the extent consistent with its election to qualify as a REIT, the
Company follows an interest rate risk management program intended to protect
against the effects of major interest rate changes. Specifically, the Company's
interest rate risk management program is formulated with the intent to offset
the potential adverse effects resulting from rate adjustment limitations on its
Mortgage Assets and the differences between interest rate adjustment indices and
interest rate adjustment periods of its adjustable-rate Mortgage Assets and
related borrowings.
In all of its interest rate risk management transactions, the Company follows
certain procedures designed to limit credit exposure to counterparties,
including dealing only with counterparties whose financial strength meets the
Company's requirements.
Although the Company believes it has developed a cost-effective
asset/liability management program to provide a level of protection against
major interest rate and prepayment risks, no strategy can completely insulate
the Company from the effects of interest rate changes, prepayments and defaults
by counterparties. Further, certain of the Federal income tax requirements that
the Company must satisfy to qualify as a REIT limit the Company's ability to
fully hedge its interest rate and prepayment risks.
Prepayment Risk Program
The Company seeks to minimize the effects of faster or slower than
anticipated prepayment rates through structuring a diversified portfolio with a
variety of prepayment characteristics, investing in Mortgage Assets with
prepayment prohibitions and penalties, investing in certain Mortgage Securities
structures which have prepayment protections, and balancing Mortgage Assets
purchased at a premium with Mortgage Assets purchased at a discount. In certain
operating environments, however, it may not be possible for the Company to
acquire assets with a net balance of discount and premium. In such
circumstances, the risk of earnings variability resulting from changes in
prepayment rates may rise. Prepayment risk is monitored by management and the
Board of Directors through periodic review of the impact of a variety of
prepayment scenarios on the Company's revenues, net earnings, dividends, cash
flow and net balance sheet market value.
DIVIDEND POLICY AND DISTRIBUTIONS
The Company intends to distribute to stockholders each year substantially
all of its net taxable income (which does not ordinarily equal net income as
calculated in accordance with GAAP) so as to qualify for the tax benefits
accorded to REITs under the Code. The Company intends to make dividend
distributions on the Common Stock at least quarterly; provided, however, that no
dividends will be paid or set apart for payment on shares of Common Stock unless
full cumulative dividends have been paid on the Class B Preferred Stock.
The Company has adopted a Dividend Reinvestment Plan and Stock Purchase
Plan ("DRP") (Reg. No. 333-18061) that allows stockholders to have their
dividends reinvested automatically in shares of Common Stock at 97% of the then
current market price. The DRP also allows existing and prospective shareholders
the opportunity to purchase shares of Common Stock directly from the Company at
97% of the then current market price by making optional cash payments of $500 to
$5,000 per month. Optional cash payments in excess of $5,000 may be made with
permission of the Company. The shares of Common Stock to
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<PAGE> 9
be acquired for distribution under the DRP will be purchased on the open market
or directly from the Company, at the option of the Company.
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
FOR THE FOR THE FOR THE FOR THE AUGUST 19,
3 MONTHS ENDED 3 MONTHS ENDED YEAR ENDED YEAR ENDED 1994 TO
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
-------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Interest Income........ $ 38,568 $ 9,131 $ 67,284 $ 15,726 $ 1,296
Interest and Hedge
Expenses............. 29,495 6,353 50,349 10,947 768
Net Interest Income.... 9,073 2,778 16,935 4,779 528
Net Income Available to
Common Stockholders.. 6,456 1,954 11,537 3,155 382
Primary Earnings per
Share................ $ 0.53 $ 0.32 $ 1.32 $ 0.85 $ 0.20
Dividends Declared per
Class A Preferred
Share(1)............. $ -- $ 0.500 $ 0.250
Dividends Declared per
Class B Preferred
Share(2)............. $ 0.755 $ -- $ 1.141 $ -- $ --
Dividends Declared per
Common Share......... $ 0.600 $ 0.460 $ 1.670 $ 0.460 $ --
</TABLE>
<TABLE>
<CAPTION>
AT AT AT
MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ -------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Total Mortgage Assets.......................... $2,604,714 $2,153,428 $ 432,244
Total Assets................................... 2,643,064 2,184,197 441,557
Short-term Borrowings.......................... 2,373,279 1,953,103 370,316
Stockholders' Equity........................... 245,662 211,005 68,290
</TABLE>
- ---------------
(1) All shares of Class A Preferred Stock were converted into Common Stock in
August 1995.
(2) All shares of Class B Preferred Stock were issued in August 1996.
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USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
x,xxx,xxx shares of Common Stock being offered by the Company pursuant to this
Offering are estimated to be approximately $xx,xxx,xxx after deducting
underwriting discounts and commissions and estimated expenses. The net proceeds,
together with borrowings, will be used to increase the Company's investment in
Mortgage Assets. Pending such use, the net proceeds will be applied to reduce
the Company's short-term or adjustable borrowings. The Company's short-term or
adjustable rate borrowings generally bear interest based on LIBOR or other
short-term index, have maturities of one year or less and are secured by
Mortgage Assets. Until the proceeds are fully utilized to invest in Mortgage
Assets, the Company's net earnings are expected to be lower than would be the
case if the aquisition strategy were fully implemented.
RISK FACTORS
See the risk factors beginning on page 26 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, which is incorporated by
reference, for a discussion of certain factors that should be considered by
prospective purchasers of shares of Common Stock offered herein.
MARKET PRICES AND DIVIDEND DATA
The following table sets forth, for the periods indicated, the high and low
sales prices per share of the Common Stock as reported on the Nasdaq National
Market composite tape and the cash dividends paid per share of outstanding
Common Stock.
<TABLE>
<CAPTION>
PRICE PER SHARE CASH
OF COMMON STOCK DIVIDENDS
---------------------- DECLARED
HIGH LOW PER SHARE(1)
------- ------- ------------
<S> <C> <C> <C>
1997
Third Quarter (through xxxx xx, 1997)........................ $ xx.xx $ xx.xx $ (1)
Second Quarter............................................... 57.50 39.25 0.60
First Quarter................................................ 56.75 36.50 0.60
1996
Fourth Quarter............................................... $ 37.50 $ 31.25 $ 0.41
Third Quarter................................................ 32.25 23.25 0.40
Second Quarter............................................... 28.00 19.38 0.40
First Quarter................................................ 21.75 18.75 0.46
1995
Fourth Quarter............................................... $ 22.00 $ 18.00 $ 0.26
Third Quarter(2)............................................. 22.00 16.88 0.20
</TABLE>
- ---------------
(1) As of the date of this Prospectus Supplement, the Company had not yet
declared a dividend for the third quarter.
(2) The Company's Common Stock began trading on August 4, 1995.
On Xxxx x, 1997, the last reported sales price for the Common Stock was
$xx.xx per share. As of June 30, 1997 the Company's xx,xxx,xxx shares of Common
Stock were held by approximately xxx holders of record.
The Company intends to pay quarterly dividends. The Company intends to make
distributions to its stock holders of all or substantially all of its taxable
income in each year (subject to certain adjustments) so as to qualify for the
tax benefits accorded to a REIT under the Code. All distributions will be made
by the Company at the discretion of the Board of Directors and will depend on
the earnings of the Company, the financial condition of the Company, maintenance
of REIT status and such other factors as the Board of Directors may deem
relevant from time to time. No dividends will be paid or set apart for payment
on shares of Common Stock unless full cumulative dividends have been paid on the
Class B Preferred Stock.
S-9
<PAGE> 11
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997, as adjusted for the April 1997 offering of 1,100,000 shares at a Price
to Public of $42.375 and as adjusted to give effect to the sale by the Company
of xxx,xxx shares of Common Stock at the Price to Public set forth on the cover
page of this Prospectus Supplement.
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------
AS ADJUSTED FOR
-----------------------
APRIL 1997 THIS
ACTUAL OFFERING OFFERING
-------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STOCKHOLDERS' EQUITY
Class B Preferred Stock, par value $0.01 per share:
999,638 shares authorized; 999,638 shares outstanding............ $ 29,383 $ 29,383 $ 29,383
Common Stock, par value $0.01 per share: 49,000,362 shares
authorized, 11,905,957, 13,005,957 and xx,xxx,xxx shares
issued and outstanding....................................... 119 130 xxx
Additional paid-in capital......................................... 219,461 265,600 xxx,xxx
Net unrealized gain on assets available for sale................... 118 118 118
Dividends in excess of income (1).................................. (3,419) (3,419) (3,419)
------- -------
Total Stockholders' Equity....................................... $245,662 $291,812 $XXX,XXX
</TABLE>
- ---------------
(1) Because the Company is a REIT, dividends are based on taxable income, which
differs from GAAP income as reported in the financial statements.
Cumulatively, total dividends have exceeded total GAAP income.
S-10
<PAGE> 12
SELECTED FINANCIAL DATA
The following selected financial data are derived from the audited
financial statements of the Company for the years ended December 31, 1996 and
December 31, 1995, the period from commencement of operations on August 19, 1994
to December 31, 1994, and for the quarters ended March 31, 1997 and March 31,
1996. See the Company's Report on Form 10-Q for the quarter ended March 31, 1997
incorporated by reference herein.
<TABLE>
<CAPTION>
PERIOD
FROM
FOR THE FOR THE AUGUST 19,
FOR THE QUARTER YEAR ENDED YEAR ENDED 1994 TO
ENDED MARCH 31, DECEMBER DECEMBER DECEMBER
------------------------- 31, 31, 31,
1997 1996 1996 1995 1994
----------- ----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Interest income.................... $ 38,568 $ 9,131 $ 67,284 $ 15,726 $ 1,296
Interest expense................... 28,900 6,202 49,191 10,608 760
Interest rate agreement expense.... 595 151 1,158 339 8
---------- ----------
Net interest income................ 9,073 2,778 16,935 4,779 528
Provision for credit losses........ 695 332 1,696 493 0
---------- ----------
Net interest income after provision
for credit losses................ 8,378 2,446 15,239 4,286 528
Operating expenses................. 1,167 492 2,554 1,131 146
---------- ----------
Net income......................... 7,211 1,954 12,685 3,155 382
Less cash dividends on Class B
Preferred Stock.................. 755 -- 1,148 -- --
---------- ----------
Net income available to holders of
Common Stock..................... $ 6,456 $ 1,954 $ 11,537 $ 3,155 $ 382
========== ==========
Net taxable income................. $ 7,157 $ 1,813 $ 14,020 $ 3,832 $ 353
Primary earnings per share......... $ 0.53 $ 0.32 $ 1.32 $ 0.85 $ 0.20
Dividends declared per Class A
preferred share.................. $ -- $ 0.500 $ 0.250
Dividends declared per Class B
preferred share.................. $ 0.755 $ -- $ 1.141 $ -- $ --
Dividends declared per Common
share............................ $ 0.600 $ 0.460 $ 1.670 $ 0.460 $ --
Weighted average shares of Common
Stock and Common Stock
equivalents...................... 12,116,867 6,129,587 8,744,184 3,703,803 1,916,846
</TABLE>
<TABLE>
<CAPTION>
AT AT
AT DECEMBER DECEMBER
MARCH 31, 31, 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA
Mortgage assets......................................... $ 2,604,714 $ 2,153,428 $432,244
Total assets............................................ 2,643,064 2,184,197 441,557
Short-term borrowings................................... 2,373,279 1,953,103 370,316
Total liabilities....................................... 2,397,402 1,973,192 373,267
Stockholders' equity.................................... 245,662 211,005 68,290
Number of Class B preferred shares outstanding.......... 999,638 1,006,250 0
Number of common shares outstanding..................... 11,905,957 10,996,572 5,517,299
</TABLE>
S-11
<PAGE> 13
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The Code provides special tax treatment for organizations that qualify and
elect to be taxed as REITs. The discussions below and in the Prospectus dated
Xxxx x, 1997 under the heading "Federal Income Tax Considerations" summarize the
material federal income tax provisions applicable to the Company as a REIT and
to investors in connection with their ownership of the Company's Common Stock.
However, it is impractical to set forth in this Prospectus Supplement all
aspects of federal, state, local and foreign tax law that may have tax
consequences with respect to an investor's purchase of the Company's Common
Stock and investors are therefore urged to consult their own tax advisors with
respect to their own particular
circumstances prior to making any investment decision. The discussions of
various aspects of Federal income taxation contained herein and in the
Prospectus are based on the Code, Treasury regulations, judicial decisions,
administrative rulings and practice, all of which are subject to change.
In brief, if certain detailed conditions imposed by the Code for REIT
qualification are met, entities that invest primarily in real estate investments
and mortgage loans, and that otherwise would be taxed as corporations are, with
certain limited exceptions, not taxed at the corporate level on their taxable
income that is currently distributed to their stockholders. This treatment
eliminates most of the "double taxation" (at the corporate level and then again
at the stockholder level when the income is distributed) that typically results
from investment in public corporations. If the Company fails to meet the
requirements of the Code for REIT qualification in any taxable year, it would
become subject to federal and state income taxation on its taxable income at
regular corporate rates. In such an event, the after tax earnings available for
distribution to the stockholders would be reduced.
The Company believes that it has complied, and intends to comply in the
future, with the requirements for qualification as a REIT under the Code. In the
opinion of Giancarlo & Gnazzo, A Professional Corporation, special tax counsel
to the Company ("Special Tax Counsel"), the Company has been organized and
operated in a manner that qualifies it as a REIT under the Code since the
commencement of its operations on August 19, 1994 through March 31, 1997, the
date of the Company's most recent unaudited financials reviewed by Special Tax
Counsel, and the Company's current and contemplated methods of operation, as
represented by the Company, will enable it to continue to so qualify. This
opinion is based on various assumptions relating to the organization and
operation of the Company to date and in the future and is conditioned upon
certain representations made by the Company as to certain factual matters. Such
opinion is not binding on the Internal Revenue Service or the courts and there
can be no assurance that the Company will in fact maintain compliance with those
assumptions and requirements at all times.
TAXATION OF HOLDERS OF THE COMPANY'S COMMON STOCK
The Company will notify stockholders after the close of the Company's
taxable year as to the portions of the distributions that constitute ordinary
income, return of capital and capital gain. Through March 31, 1997 all
distributions have represented ordinary income. Dividends and distributions
declared in the last quarter of any year payable to stockholders of record on a
specified date in such quarter will be deemed to have been received by the
stockholders and paid by the Company on December 31 of the record year, provided
that such dividends are paid before February 1 of the following year.
Distributions of the Company will not be eligible for the dividends received
deduction for corporations that are stockholders. Stockholders may not deduct
any net operating losses or capital losses of the Company.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THE UNDERLYING PROSPECTUS AND
THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
SECURITIES.
S-12
<PAGE> 14
UNDERWRITING
Montgomery Securities (the "Underwriter") has agreed, subject to the terms
and conditions set forth in an underwriting agreement (the "Underwriting
Agreement"), to purchase from the Company x,xxx,xxx shares of Common Stock at
the Price to Public, less the Underwriting Discounts and Commissions set forth
on the cover page of this Prospectus Supplement. The Underwriting Agreement
provides that the obligations of the Underwriter are subject to certain
conditions precedent and that the Underwriter is committed to purchase all of
such shares of Common Stock if any are purchased.
The Underwriter has advised the Company that it proposes initially to offer
the Common Stock to the public on the terms set forth on the cover page of this
Prospectus Supplement.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain civil liabilities, including civil liabilities under
the Securities Act, or will contribute to payments the Underwriter may be
required to make in respect thereof.
The Underwriter has in the past performed, and may continue to perform,
investment banking services, broker-dealer and financial advisory services for
the Company and has received customary compensation therefor.
Until the distribution of Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriter and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Underwriter is permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock. If the Underwriter creates a short position in
the Common Stock in connection with the Offering, i.e., if it sells more shares
of Common Stock than are set forth on the cover page of this Prospectus
Supplement, then the Underwriter may reduce that short position by purchasing
Common Stock in the open market. The Underwriter may also impose a penalty bid
on certain selling group members. This means that if the Underwriter purchases
shares of Common Stock in the open market to reduce the Underwriter's short
position or to stabilize the price of the Common Stock, it may reclaim the
amount of the selling concession from the selling group members who sold those
shares as part of the Offering. In general, purchases of a security for the
purpose of stabilization or to reduce a short position could cause the price of
the security to be higher than it might be in the absence of such purchases. The
imposition of a penalty bid might also have an effect on the price of a security
to the extent that it were to discourage resales of the security. Neither the
Company nor the Underwriter makes any representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the Common Stock. In addition, neither the Company nor the
Underwriter makes any representation that the Underwriter will engage in such
transactions, or that such transactions once commenced, will not be discontinued
without notice.
LEGAL MATTERS
Certain legal matters relating to the Common Stock will be passed on for
the Company by Tobin & Tobin, a professional corporation, San Francisco,
California. Legal matters relating to the tax status of the Company as a REIT
will be passed on by Giancarlo & Gnazzo, A Professional Corporation, San
Francisco, California. Certain legal matters will be passed upon for the
Underwriter by O'Melveny & Myers LLP, San Francisco, California. Tobin & Tobin,
a professional corporation, Giancarlo & Gnazzo, A Professional Corporation and
O'Melveny & Myers LLP will rely as to all matters of Maryland law upon the
opinion of special Maryland counsel to the Company, Piper & Marbury L.L.P.,
Baltimore, Maryland.
S-13
<PAGE> 15
COMMON STOCK, PREFERRED STOCK, WARRANTS,
AND SHAREHOLDER RIGHTS TO PURCHASE COMMON STOCK AND PREFERRED STOCK
$384,075,000
RWT
REDWOOD TRUST, INC.
------------------------
Redwood Trust, Inc., a Maryland corporation ("Redwood Trust" or the
"Company"), specializes in acquiring and managing real estate mortgage loans.
Such loans are originated by others to the Company's specifications or to
specifications approved by the Company. The Company has acquired mortgage loans
secured by single-family real estate properties throughout the United States,
with a special emphasis on properties located in the State of California, and
may in the future acquire mortgage loans secured by multifamily and commercial
real estate properties. The Company's mortgage loans may be acquired as whole
loans or as mortgage securities evidencing interests in pools of mortgage loans
(collectively, "Mortgage Assets"). The Company is self-advised and self-managed
and its principal business objective is to generate net income for distribution
to stockholders. The Company has elected to be subject to tax as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"), and generally will not be subject to tax on its Federal income to
the extent that it distributes its earnings to its stockholders and it maintains
its qualification as a REIT.
The Company, directly or through agents, dealers or underwriters designated
from time to time, may issue and sell from to time one or more of the following
types of its securities (the "Securities"): (i) shares of its common stock, par
value $0.01 per share ("Common Stock"); (ii) shares of its preferred stock, in
one or more classes or series ("Preferred Stock"), (iii) warrants to purchase
shares of Common Stock ("Common Stock Warrants"); (iv) warrants to purchase
Preferred Stock ("Preferred Stock Warrants"); (v) rights to purchase shares of
Common Stock or Preferred Stock issued to shareholders ("Shareholders Rights");
and (vi) any combination of the foregoing, either individually or as units
consisting of one or more of the foregoing types of Securities. The Securities
offered pursuant to this Prospectus may be issued in one or more classes or
series, in amounts, at prices and on terms to be determined at the time of the
offering of each such class or series and set forth in a supplement to this
Prospectus (a "Prospectus Supplement"). The Securities offered by the Company
pursuant to this Prospectus will be limited to $384,075,000 aggregate initial
public offering price, including the exercise price of any Common Stock
Warrants, Preferred Stock Warrants (collectively, "Securities Warrants") or
Shareholders Rights, an amount which includes the $84,075,000 remaining under
the Company's previous Universal Shelf Registration Statement, Registration No.
333-11665.
The specific terms of each offering of Securities in respect of which this
Prospectus is being delivered will be set forth in an accompanying Prospectus
Supplement relating to such offering of Securities. Such specific terms include,
without limitation, to the extent applicable (1) in the case of any class or
series of Preferred Stock, the specific designations, rights, preferences,
privileges and restrictions of such class or series of Preferred Stock,
including the dividend rate or rates or the method for calculating same,
dividend payment dates, voting rights, liquidations preferences, and any
conversion, exchange, redemption or sinking fund provisions; (2) in the case of
the Securities Warrants, Preferred Stock or Common Stock, as applicable, for
which each such warrant is exercisable, the exercise price, duration,
detachability and call provisions of each such warrant; (3) in the case of
Shareholder Rights, which entitles the shareholder to purchase Preferred Stock
or Common Stock, as applicable, the subscription price, duration,
transferabilities and the over subscription privilege of each of the Shareholder
Rights; and (4) in the case of any offering of Securities, to the extent
applicable, the initial public offering price or prices, listing on any
securities exchange, certain federal income tax consequences and the agents,
dealers or underwriters, if any, participating in the offering and sale of the
Securities.
The Company's Common Stock is currently quoted on the Nasdaq National Market
("Nasdaq" or the "Nasdaq National Market") under the symbol "RWTI." On July 2,
1997, the last reported sales price for the Common Stock was $45.75 per share.
The Company also currently has one class of authorized, issued and outstanding
Preferred Stock, the Class B 9.74% Cumulative Convertible Preferred Stock (the
"Class B Preferred Stock"), which is quoted on the Nasdaq National Market under
the symbol "RWTIP," and an issue of Stock Purchase Warrants, quoted under the
symbol "RWTIW." On July 2, 1997, the last reported sales price for the Class B
Preferred Stock and Stock Purchase Warrants was $45.375 per share and $30.375
per share, respectively. The shares of Common Stock and Class B Preferred Stock,
and the securities offered herein, are subject to repurchase by the Company
under certain conditions and are subject to certain restrictions on ownership
and transferability which prohibit any person (either alone or with others as a
group) from owning a number of shares in excess of 9.8% of the outstanding
shares of the Company's capital stock, subject to certain exceptions. See
"Description of Securities -- Repurchase of Shares and Restrictions on Transfer"
and "Plan of Distribution."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement. The delivery in any jurisdiction of this
Prospectus together with a Prospectus Supplement relating to specific Securities
shall not constitute an offer in such jurisdiction of any other Securities
covered by this Prospectus but not described in such Prospectus Supplement.
------------------------
The date of this Prospectus is July , 1997.
<PAGE> 16
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission" or "SEC"). Reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Seven World Trade Center, 13th Floor, New York, New York 10048, and at 500 West
Madison Street, Chicago, Illinois 60661. Copies may also be obtained from the
Public Reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Common Stock,
Stock Purchase Warrants and Class B Preferred Stock of the Company are currently
quoted on the Nasdaq National Market. Reports, proxy statements and other
information concerning the Company may be inspected at the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. In
addition, holders of the Common Stock and Class B Preferred Stock will receive
annual reports containing audited financial statements with a report thereon by
the Company's independent certified public accountants, and quarterly reports
containing unaudited summary financial information for each of the first three
quarters of each fiscal year.
The Company files information electronically with the Commission, and the
Commission maintains a Web Site that contains reports, proxy and information
statements and other information regarding registrants (including the Company)
that file electronically with the Commission. The address of the Commission's
Web Site is <http://www.sec.gov>.
Copies of the Registration Statement on Form S-3 of which this Prospectus
forms a part and exhibits thereto are on file at the offices of the Commission
pursuant to the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement for
further information with respect to the Company and the Securities offered
hereby. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to a copy of such contract or other document filed as
an exhibit to the Registration Statement or otherwise filed with the SEC and
incorporated by reference herein. Each such statement is qualified in its
entirety by such contract or other document reference.
The Company currently furnishes its shareholders with annual reports
containing financial statements audited by its independent auditors and with
quarterly reports containing unaudited summary financial information for each of
the first three quarters of each fiscal year.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference the following documents
heretofore filed by the Company with the Commission:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 filed on March 25, 1997 as amended by Form 10-K/A filed
on April 3, 1997 and by Form 10-K/A filed on July , 1997;
(b) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997;
(c) The Company's Current Report on Form 8-K filed on January 7, 1997;
and
(d) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, filed July 18, 1995 (Reg. No.
0-26436) and as amended by Form 8-A/A filed August 4, 1995, under the
Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Securities made hereby shall be deemed to
be incorporated by reference into this Prospectus.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement and this Prospectus to the extent
that a statement contained in the Registration Statement, this Prospectus, or
any other subsequently filed document that is also incorporated by reference
herein modifies or supersedes that
2
<PAGE> 17
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a Prospectus is delivered, upon written
or oral request of that person, a copy of any document incorporated herein by
reference (other than exhibits to those documents unless the exhibits are
specifically incorporated herein by reference into the documents that this
Prospectus incorporates by reference). Requests should be directed to Ms. Vickie
L. Rath, Vice-President, Treasurer and Controller, Redwood Trust, Inc., 591
Redwood Highway, Suite 3100, Mill Valley, California 94941, telephone (415)
389-7373.
3
<PAGE> 18
THE COMPANY
GENERAL
The Company was incorporated in the State of Maryland on April 11, 1994 and
commenced operations on August 19, 1994. It acquires and manages Mortgage Assets
financed by the proceeds of equity offerings and by borrowings. The Company
produces net interest income on Mortgage Assets qualifying as Qualified REIT
Real Estate Assets while maintaining strict cost controls in order to generate
net income for distribution to its stockholders. The Company intends to continue
operating in a manner that will permit it to maintain its qualification as a
REIT for Federal income tax purposes. Assuming it retains such REIT status, the
Company will generally not be subject to tax on its Federal income to the extent
that it distributes that income to stockholders in the form of dividends. The
principal executive offices of the Company are located at 591 Redwood Highway,
Suite 3100, Mill Valley, California 94941, telephone (415) 389-7373.
The Company is self-advised and self-managed. The management team of the
Company has considerable expertise in the acquisition and management of Mortgage
Assets, mortgage finance, asset/liability management and the management of
corporations in the real estate lending business, including banks, savings and
loans and life insurance companies. In addition to working with healthy real
estate assets and healthy real estate lending institutions, the management of
the Company also has experience managing the assets of several failed life
insurance companies during rehabilitation, managing and advising a number of
troubled savings and loans and banks, and overseeing the workout and liquidation
process for large portfolios of troubled commercial real estate mortgages and
equity investments. Reference to the "Company" herein shall include any taxable
or Qualified REIT Subsidiaries through which the Company may conduct its
business.
RECENT DEVELOPMENTS
On June 12, 1997, the Company declared a Common Stock dividend of $0.60 per
share and a Class B Preferred Stock dividend of $0.755 per share. The dividends
are payable on July 21, 1997 to stockholders of record as of June 30, 1997.
In the second quarter of 1997, the Company acquired or committed to acquire
$964 million of single-family adjustable-rate Mortgage Assets. These
acquisitions consist of approximately $471 million of "A" quality whole Mortgage
Loans, $213 million of private-label Mortgage Securities rated AAA or AA, and
$280 million of FHLMC- or FNMA-guaranteed Mortgage Securities. The Company
believes it currently has sufficient liquidity and borrowing capacity to close
all these transactions.
On March 4, 1997, Sequoia Mortgage Funding Corporation ("Sequoia"), a 100%
owned qualified REIT subsidiary of the Company, filed a debt shelf registration
statement with the Securities and Exchange Commission. The shelf became
effective on May 29, 1997. Sequoia intends to use the shelf from time to time to
issue non-recourse long-term debt in the form of collateralized mortgage bonds.
This debt will be collateralized by Mortgage Assets which will have been
transferred from the Company to Sequoia. The Company currently contemplates that
a majority of Sequoia's long-term debt issuance will be rated AAA. The Company,
as consolidated, will retain all of its Mortgage Assets (and will retain the
credit risk, mortgage principal repayment risk, and some of the shorter-term
interest rate risks of such assets). As Sequoia does not anticipate securitizing
or selling its assets, no gains or losses from sale will be booked.
If one or more issuances of long-term debt through Sequoia are completed,
the Company expects to use the proceeds from such issuances to pay down a
portion of its short-term borrowings. The Company expects that its cost of funds
for such long-term debt will exceed its current cost of funds and that, as a
result, its interest rate spread will narrow. As a compensating factor, the
Company believes that the issuance of long-
4
<PAGE> 19
term debt will eliminate or substantially reduce liquidity risk for that portion
of its balance sheet and may reduce some longer-term interest rate risks as
well. As a result of this risk reduction, the Company anticipates it will be
able to lower its Risk-Adjusted Capital Guideline levels for the portion of its
assets which have been transferred to and funded via Sequoia. The Company
currently believes that the combination of a higher cost of funds but a smaller
equity allocation may enable the Company to earn, on average over time, a
similar or higher return on equity from its investments in long-term funded
assets than it currently does on its short-term funded asset portfolio.
Although the Company may be able to reduce balance sheet risk, and possibly
increase average returns on equity, through the Sequoia program, it should be
noted that: (i) the Company may not be able to realize the benefits it
anticipates from Sequoia transactions, (ii) the current market demand for the
type of debt Sequoia anticipates issuing may not continue, (iii) the Company's
return on equity may be decreased for a period when Sequoia issues debt, as the
Company's cost of funds will rise but the capital made available for re-
allocation to new mortgages will not yet have been employed, and (iv) due to the
increased use of leverage, the equity invested in assets funded via Sequoia is
likely to have an increased variability of returns with respect to changes in
mortgage credit quality, mortgage principal repayment rates, certain types of
shorter-term interest rate changes and other factors.
The Company's dividends through March 31, 1997 have consisted entirely of
ordinary income. Although future dividends could potentially include a return of
capital or a pass-through of capital gains or losses, the Company has had and
will continue to have a policy of managing its operations so as to not
distribute to shareholders unrelated business taxable income, excess inclusion
income, or other types of income that may cause similar concerns for pension
plans, Individual Retirement Accounts (IRAs) or other types of tax-deferred
investors. The Company intends to structure its issuances of long-term debt
through Sequoia accordingly.
Additional information regarding the Company, including the audited
financial statements of the Company and descriptions of the Company's currently
outstanding common and preferred stock and warrants, is contained in the
documents incorporated by reference herein. See "Incorporation of Certain
Information by Reference," above.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement for any
offering of Securities, the net proceeds from the sale of Securities offered by
the Company will be available for acquisitions of Mortgage Assets and other
mortgage related products, repayment of maturing obligations, redemption of
outstanding indebtedness and general corporate purposes. Pending any such uses,
the Company may invest the net proceeds from the sale of any Securities or may
use them to reduce short-term or adjustable-rate indebtedness. If the Company
intends to use the net proceeds from a sale of Securities to finance a
significant acquisition of a business, a related Prospectus Supplement will
describe the material terms of such acquisition.
DESCRIPTION OF SECURITIES
The following is a brief description of the material terms of the Company's
Securities. This description does not purport to be complete and is subject in
all respects to applicable Maryland law and to the provision of the Company's
Articles of Incorporation and Bylaws, including any applicable amendments or
supplements thereto, copies of which are on file with the Commission as
described under "Available Information" and are incorporated by reference
herein.
GENERAL
The Company may offer under this Prospectus one or more of the following
categories of its Securities: (i) shares of its Common Stock, par value $0.01
per share; (ii) shares of its Preferred Stock, in one or more classes or series;
(iii) Common Stock Warrants; (iv) Preferred Stock Warrants; (v) Shareholder
Rights; and (vi) any combination of the foregoing, either individually or as
units consisting of one or more of the foregoing
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types of Securities. The terms of any specific offering of Securities, including
the terms of any units offered, will be set forth in a Prospectus Supplement
relating to such offering.
The Company's current authorized equity capitalization consists of 50
million shares which may be comprised of Common Stock and Preferred Stock. The
Common Stock and the only currently issued, authorized and outstanding Preferred
Stock, the Class B Preferred Stock, are listed on the Nasdaq National Market,
and the Company intends to list any additional shares of its Common Stock which
are issued and sold hereunder, as described in the Prospectus Supplement
relating to such Common Stock on Nasdaq or a national securities exchange
subject to official notice of issuance. The Company may elect to list any future
class or series of securities on Nasdaq or an exchange, but is not obligated to
do so. The Company's sole outstanding issue of warrants is the series of Stock
Purchase Warrants issued in connection with the Company's 1994 private
placement. Such warrants are exercisable for Common Stock and are listed on the
Nasdaq National Market. As of July 2, 1997, 253,464 such warrants remained
outstanding.
COMMON STOCK
As of July 2, 1997, there were 13,234,669 outstanding shares of Common
Stock held by approximately 200 holders of record. Holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of
Directors, out of funds legally available therefor. In the case of the Class B
Preferred Stock and possibly in the event any future class or series of
Preferred Stock is issued, dividends on any outstanding shares of Preferred
Stock are required to be paid in full before payment of any dividends on the
Common Stock. Upon liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in assets available for
distribution after payment of all debts and other liabilities and subject to the
prior rights of any holders of any Preferred Stock then outstanding. There are
no preemptive or other subscription rights, conversion rights, or redemption or
sinking fund provisions with respect to shares of Common Stock.
Holders of Common Stock are entitled to one vote per share with respect to
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the Common Stock entitled
to vote in any election of directors may elect all of the directors standing for
election, subject to the voting rights (if any) of any class or series of
Preferred Stock that may be outstanding from time to time. The Company's Charter
and Bylaws contain no restrictions on the repurchase by the Company of shares of
the Common Stock. All the outstanding shares of Common Stock are, and additional
shares of Common Stock will be, validly issued, fully paid and nonassessable.
PREFERRED STOCK
Subject to the terms of the outstanding Class B Preferred Stock, the Board
of Directors is authorized to designate with respect to each class or series of
Preferred Stock the number of shares in each such class or series, the dividend
rates and dates of payment, voluntary and involuntary liquidation preferences,
redemption prices, if any, whether or not dividends shall be cumulative, and, if
cumulative, the date or dates from which the same shall be cumulative, the
sinking fund provisions if any, and the terms and conditions on which shares can
be converted into or exchanged for shares of another class or series, and the
voting rights, if any. As of July 2, 1997, there were 909,518 shares of Class B
Preferred Stock issued and outstanding.
Any Preferred Stock issued will rank prior to the Common Stock as to
dividends and as to distributions in the event of liquidations, dissolution or
winding up of the Company. The ability of the Board of Directors to issue
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting powers of holders of Common Stock. The Class B Preferred Stock
is, and any future shares of Preferred Stock will be, validly issued, fully paid
and nonassessable.
SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Common Stock
or Preferred Stock. Such warrants are referred to herein as Common Stock
Warrants and Preferred Stock Warrants, as appropriate. Securities Warrants may
be issued independently or together with any other Securities covered by the
Registration Statement offered by this Prospectus and any accompanying
Prospectus Supplement and may
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be attached to or separate from such other Securities. Each issuance of
Securities Warrants will be issued under a separate agreement ("Securities
Warrant Agreement") to be entered into between the Company and a bank or trust
company, as agent ("Securities Warrant Agent"), all as set forth in the
Prospectus Supplement relating to the particular issue of offered Securities
Warrants. Each issue of Securities Warrants will be evidenced by warrant
certificates (the "Securities Warrant Certificates"). The Securities Warrant
Agent will act solely as an agent of the Company in connection with the
Securities Warrant Certificates and will not assume any obligation or
relationship of agency or trust for or with any holders of Securities Warrant
Certificates or beneficial owners of Securities Warrants.
If future Securities Warrants are offered pursuant to this prospectus, the
applicable Prospectus Supplement will describe the terms of such Securities
Warrants, including the following where applicable: (i) the offering price; (ii)
the aggregate number of shares purchasable upon exercise of such Securities
Warrants, and in the case of Securities Warrants for Preferred Stock, the
designation, aggregate number and terms of the class or series of Preferred
Stock purchasable upon exercise of such Securities Warrants; (iii) the
designation and terms of the Securities with which such Securities Warrants are
being offered and the number of such Securities Warrants being offered with each
such Security; (iv) the date on and after which such Securities Warrants and the
related Securities will be transferable separately; (v) the number of shares of
Preferred Stock or shares of Common Stock purchasable upon exercise of each such
Securities Warrant and the price at which such number of shares of Preferred
Stock of such class or series or shares of Common Stock may be purchased upon
such exercise; (vi) the date on which the right to exercise such Securities
Warrants shall commence and the expiration date on which such right shall
expire, (vii) certain Federal income tax consequences; and (viii) any other
material terms of such Securities Warrants.
No Rights as Stockholders. Holders of future Securities Warrants, if any,
will not be entitled by virtue of being such holders, to vote, to consent, to
receive dividends, to receive notice as shareholders with respect to any meeting
of stockholders for the election of directors of the Company or any other
matter, or to exercise any rights whatsoever as stockholders of the Company.
STOCKHOLDER RIGHTS
General. The Company may issue, as a dividend at no cost, Stockholder
Rights to holders of record of the Company's Securities or any class or series
thereof on the applicable record date. If Stockholder Rights are so issued to
existing holders of Securities each Stockholder Right will entitle the
registered holder thereof to purchase the Securities pursuant to the terms set
forth in the applicable Prospectus Supplement.
If Stockholder Rights are issued, the applicable Prospectus Supplement will
describe the terms of such Stockholder Rights including the following where
applicable: (i) record date; (ii) the subscription price; (iii) Subscription
Agent; (iv) the aggregate number of shares of Preferred Stock or shares of
Common Stock purchasable upon exercise of such Stockholder Rights and in the
case of Stockholder Rights for Preferred Stock, the designation, aggregate
number and terms of the class or series of Preferred Stock purchasable upon
exercise of such Stockholder Rights; (v) the date on and after which such
Stockholder Rights and the related Securities will be transferable separately;
(vi) the date on which the right to exercise such Stockholder Rights shall
commence and the expiration date on which such right shall expire; (vii) certain
Federal income tax consequences; and (viii) any other material terms of such
Stockholder Rights.
In addition to the terms of the Stockholder Rights and the Securities
issuable upon exercise thereof, the Prospectus Supplement will describe, for a
holder of such Stockholder Rights who validly exercises all Stockholder Rights
issued to such holder, how to subscribe for unsubscribed Securities (issuable
pursuant to unexercised Stockholder Rights issued to other holders) to the
extent such Stockholder Rights have not been exercised.
No Rights as Shareholders. Holders of Stockholder Rights will not be
entitled by virtue of being such holders, to vote, to consent, to receive
dividends, to receive notice as stockholders with respect to any meeting of
stockholders for the election of directors of the Company or any other matter,
or to exercise any rights whatsoever as stockholders of the Company.
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REPURCHASE OF SHARES AND RESTRICTIONS ON TRANSFER
In order that the Company may meet the requirements for qualification as a
REIT at all times, the Charter prohibits any person from acquiring or holding,
directly or constructively, ownership of a number of shares of Common Stock and
Preferred Stock (collectively, "Capital Stock") in excess of 9.8% (the
"Ownership Limit") of the outstanding shares. For this purpose the term
"ownership" generally means either direct ownership or constructive ownership in
accordance with the constructive ownership provisions of Section 544 of the
Code.
Under the constructive ownership provisions of Section 544 of the Code, a
holder of a warrant will be treated as owning the number of shares of Capital
Stock into which such warrant may be converted. In addition, the constructive
ownership rules generally attribute ownership of securities owned by a
corporation, partnership, estate or trust proportionately to its stockholders,
partners or beneficiaries, attribute ownership of securities owned by family
members to other members of the same family, and set forth rules as to when
securities constructively owned by a person are considered to be actually owned
for the application of such attribution provisions (i.e., "reattribution"). For
purposes of determining whether a person holds or would hold Capital Stock in
excess of the Ownership Limit, a person will thus be treated as owning not only
shares of Capital Stock actually owned, but also any shares of Capital Stock
attributed to such person under the attribution rules described above (including
any shares of Capital Stock attributed to such person by reason of such person's
ownership of warrants). Accordingly, a person who individually owns less than
9.8% of the shares outstanding may nevertheless be in violation of the Ownership
Limit.
Any transfer of shares of Capital Stock or warrants that would result in
disqualification of the Company as a REIT or that would (a) create a direct or
constructive ownership of shares of stock in excess of the Ownership Limit, (b)
result in the shares of stock being beneficially owned (within the meaning of
Section 856(a) of the Code) by fewer than 100 persons (determined without
reference to any rules of attribution), or (c) result in the Company being
"closely held" within the meaning of Section 856(h) of the Code, will be null
and void, and the intended transferee will acquire no rights to such shares or
warrants. The foregoing restrictions on transferability and ownership will not
apply if the Board of Directors determines that it is no longer in the best
interests of the Company to continue to qualify as a REIT. The Company's Board
of Directors, upon receipt of a ruling from the IRS, an opinion of counsel or
other evidence satisfactory to the Board of Directors, may also waive the
Ownership Limit with respect to a purported transferee. As a condition to such
waiver the intended transferee must give written notice to the Company of the
proposed transfer no later than the fifteenth day prior to any transfer which,
if consummated, would result in the intended transferee owning shares in excess
of the Ownership Limit. The Board of Directors may also take such other action
as it deems necessary or advisable to protect the Company's status as a REIT.
Any purported transfer of shares or warrants that would result in a person
owning (directly or constructively) shares in excess of the Ownership Limit
(except as otherwise waived by the Board of Directors as set forth above) due to
the unenforceability of the transfer restrictions set forth above will
constitute "Excess Securities," which will be transferred by operation of law to
the Company as trustee for the exclusive benefit of the person or persons to
whom the Excess Securities are ultimately transferred, until such time as the
purported transferee retransfers the Excess Securities. While the Excess
Securities are held in trust, a holder of such securities will not be entitled
to vote or to share in any dividends or other distributions with respect to such
securities and will not be entitled to exercise or convert such securities into
shares of Capital Stock. Subject to the Ownership Limit, Excess Securities may
be transferred by the purported transferee to any person (if such transfer would
not result in Excess Securities) at a price not to exceed the price paid by the
purported transferee (or, if no consideration was paid by the purported
transferee, the fair market value of the Excess Securities on the date of the
purported transfer), at which point the Excess Securities will automatically be
exchanged for the stock or warrants, as the case may be, to which the Excess
Securities are attributable. If a purported transferee receives a higher price
for designating an ultimate transferee, such purported transferee shall pay, or
cause the ultimate transferee to pay, such excess to the Company. In addition,
such Excess Securities held in trust are subject to purchase by the Company at a
purchase price equal to the lesser of (a) the price per share or per warrant, as
the case may be, in the transaction that created such Excess Securities (or, in
the case of a devise or gift, the market price at the time of such devise or
gift),
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reduced by the amount of any distributions received in violation of the Charter
that have not been repaid to the Company, and (b) the market price as reflected
in the last reported sales price of such shares of stock or warrants on the
trading day immediately preceding the date of the purchase by the Company as
reported on any exchange or quotation system over which such shares of stock or
warrants may be traded, or if not then traded over any exchange or quotation
system, then the market price of such shares of stock or warrants on the date of
the purported transfer as determined in good faith by the Board of Directors of
the Company, reduced by the amount of any distributions received in violation of
the Charter that have not been repaid to the Company.
From and after a purported transfer to the transferee of the Excess
Securities, the purported transferee shall cease to be entitled to
distributions, voting rights and other benefits with respect to such shares of
the stock or warrants except the right to payment of the purchase price for the
shares of stock or warrants or the retransfer of securities as provided above.
Any dividend or distribution paid to a purported transferee on Excess Securities
prior to the discovery by the Company that such shares of stock or warrants have
been transferred in violation of the provisions of the Company's Charter shall
be repaid to the Company upon demand. If the foregoing transfer restrictions are
determined to be void, invalid or unenforceable by a court of competent
jurisdiction, then the purported transferee of any Excess Securities may be
deemed, at the option of the Company, to have acted as an agent on behalf of the
Company in acquiring such Excess Securities and to hold such Excess Securities
on behalf of the Company.
All certificates representing shares of stock and warrants will bear a
legend referring to the restrictions described above.
Any person who acquires shares or warrants in violation of the Charter, or
any person who is a purported transferee such that Excess Securities results,
must immediately give written notice or, in the event of a proposed or attempted
transfer that would be void as set forth above, give at least 15 days prior
written notice to the Company of such event and shall provide to the Company
such other information as the Company may request in order to determine the
effect, if any, of such transfer on the Company's status as a REIT. In addition,
every record owner of more than 5.0% (during any period in which the number of
stockholders of record is 2,000 or more) or 1.0% (during any period in which the
number of stockholders of record is greater than 200 but less than 2,000) or
1/2% (during any period in which the number of stockholders is 200 or less) of
the number or value of the outstanding shares of Capital Stock of the Company
must give an annual written notice to the Company by January 31, stating the
name and address of the record owner, the number of shares held and describing
how such shares are held. Further, each stockholder shall upon demand be
required to disclose to the Company in writing such information with respect to
the direct and constructive ownership of shares of Capital Stock as the Board of
Directors deems reasonably necessary to comply with the REIT Provisions of the
Code, to comply with the requirements of any taxing authority or governmental
agency or to determine any such compliance.
Subject to certain limitations, the Board of Directors may increase or
decrease the Ownership Limit. In addition, to the extent consistent with the
REIT Provisions of the Code, the Board of Directors may waive the Ownership
Limit for and at the request of certain purchasers in an offering pursuant to
this Prospectus and any applicable Prospectus Supplement.
The provisions described above may inhibit market activity and the
resulting opportunity for the holders of the Company's Capital Stock and
Warrants to receive a premium for their shares or warrants that might otherwise
exist in the absence of such provisions. Such provisions also may make the
Company an unsuitable investment vehicle for any person seeking to obtain
ownership of more than 9.8% of the outstanding shares of Capital Stock.
CONTROL SHARE ACQUISITIONS
The Maryland General Corporation Law (the "Maryland GCL") provides that
"control shares" of a Maryland corporation acquired in a "control share
acquisition" have no voting rights except to the extent approved by a vote of
two-thirds of the votes entitled to be cast on the matter, excluding shares of
stock owned by the acquiror or by officers or directors who are employees of the
corporation. "Control shares" are voting
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shares of stock which, if aggregated with all other shares of stock previously
acquired by such a person, would entitle the acquiror to exercise voting power
in electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less than
a majority, or (iii) a majority or more of all voting power. "Control shares" do
not include shares of stock the acquiring person is then entitled to vote as a
result of having previously obtained stockholder approval. A "control share
acquisition" means, subject to certain exceptions, the acquisition of, ownership
of, or the power to direct the exercise of voting power with respect to, control
shares.
A person who has made or proposes to make a "control share acquisition,"
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the Board of Directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders' meeting. If voting rights are not
approved at the meeting or if the acquiring person does not deliver an acquiring
person statement as permitted by the statute, then, subject to certain
conditions and limitations, the corporation may redeem any or all of the
"control shares" (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights, as of the date of the last control share acquisition or of any meeting
of stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for "control shares" are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The fair
value of the stock as determined for purposes of such appraisal rights may not
be less than the highest price per share paid in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of "control share acquisitions."
The "control share acquisition" statute does not apply to stock acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by a provision of the
Charter or Bylaws of the corporation adopted prior to the acquisition of the
shares.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, LLC is the transfer agent and registrar
with respect to the Common Stock, the Class B Preferred Stock and the Warrants.
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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of Federal income tax
considerations to the Company and to holders of the Securities. It is based on
existing Federal income tax law, which is subject to change, possibly
retroactively. PROSPECTIVE INVESTORS ARE ADVISED TO REVIEW THE MORE SPECIFIC
DISCLOSURE IN THE APPLICABLE PROSPECTUS SUPPLEMENT AND TO CONSULT THEIR TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE SECURITIES,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME
AND OTHER TAX LAWS.
GENERAL
The Company has elected to become subject to tax as a REIT, for Federal
income tax purposes, commencing with the taxable year ending December 31, 1994.
The Board of Directors of the Company currently expects that the Company will
continue to operate in a manner that will permit the Company to maintain its
qualifications as a REIT for the taxable year ending December 31, 1997, and in
each taxable year thereafter. This treatment will permit the Company to deduct
dividend distributions to its stockholders for Federal income tax purposes, thus
effectively eliminating the "double taxation" that generally results when a
corporation earns income and distributes that income to its stockholders.
In the opinion of Giancarlo & Gnazzo, A Professional Corporation, special
tax counsel to the Company ("Special Tax Counsel"), the Company has been
organized and operated in a manner which qualifies it as a REIT under the Code
since the commencing of its operations on August 19, 1994 through March 31,
1997, the date of the Company's latest unaudited financial statements received
by Special Tax Counsel, and the Company's current and contemplated methods of
operation, as represented by the Company, will enable it to continue to so
qualify. This opinion is based on various assumptions relating to the
organization and operation of the Company to date and in the future and is
conditioned upon certain representations made by the Company as to certain
factual matters. The continued qualification and taxation of the Company as a
REIT will depend upon the Company's ability to meet, on a continuing basis,
distribution levels and diversity of stock ownership, and various other
qualification tests imposed by the Code. This opinion is based on the law
existing and in effect on the date hereof which is subject to change, possibly
retroactively.
There can be no assurance that the Company will continue to qualify as a
REIT in any particular taxable year, given the highly complex nature of the
rules governing REITs, the ongoing importance of factual determinations and the
possibility of future changes in the circumstances of the Company. If the
Company were not to qualify as a REIT in any particular year, it would be
subject to Federal income tax as a regular domestic corporation, and its
stockholders would be subject to potentially substantial income tax liability in
respect of each taxable year that it fails to qualify as a REIT, and the amount
of earnings and cash available for distribution to its stockholders could be
significantly reduced or eliminated.
TAXATION OF THE COMPANY
In any year in which the Company qualifies as a REIT, the Company will
generally not be subject to Federal income tax on that portion of its REIT
taxable income or capital gain which is distributed to its stockholders. The
Company will, however, be subject to Federal income tax at normal corporate
income tax rates upon any undistributed taxable income or capital gain and may
also be subject to tax in certain other circumstances.
If the Company fails to qualify as a REIT in any taxable year and certain
relief provisions of the Code do not apply, the Company would be subject to
Federal income tax (including any applicable alternative minimum tax) on its
taxable income at the regular corporate income tax rates. Distributions to
stockholders in any year in which the Company fails to qualify as a REIT would
not be deductible by the Company, nor would they generally be required to be
made under the Code. Further, unless entitled to relief under certain other
provisions of the Code, the Company would also be disqualified from re-electing
REIT status for the four taxable years following the year during which it became
disqualified.
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TAXATION OF SECURITIES HOLDERS
COMMON STOCK AND PREFERRED STOCK GENERALLY
Distributions (including constructive distributions) made to holders of
Common Stock or Preferred Stock, other than tax-exempt entities, will generally
be subject to tax as ordinary income to the extent of the Company's current and
accumulated earnings and profits as determined for Federal income tax purposes.
If the amount distributed exceeds a stockholder's allocable share of such
earnings and profits, the excess will be treated as a return of capital to the
extent of the stockholder's adjusted basis in its shares, which will not be
subject to tax, and thereafter as a taxable gain from the sale or exchange of a
capital asset.
Distributions designated by the Company as capital gain dividends will
generally be subject to tax as long-term capital gain to stockholders, to the
extent that the distribution does not exceed the Company's actual net capital
gain for the taxable year. Distributions by the Company, whether characterized
as ordinary income or as capital gain, are not eligible for the corporate
dividends received deduction. In the event that the Company realizes a loss for
the taxable year, stockholders will not be permitted to deduct any share of that
loss. Further, if the Company (or a portion of its assets) were to be treated as
a taxable mortgage pool, any "excess inclusion income" that is allocated to a
stockholder would not be allowed to be offset by a net operating loss of such
stockholder. Future Treasury Department regulations may require that the
stockholders take into account, for purposes of computing their individual
alternative minimum tax liability, certain tax preference items of the Company.
Dividends declared during the last quarter of a taxable year and actually
paid during January of the following taxable year are generally treated as if
received by the stockholder on the record date of the dividend payment and not
on the date actually received. In addition, the Company may elect to treat
certain other dividends distributed after the close of the taxable year as
having been paid during such taxable year, but stockholders still will be
treated as having received such dividend in the taxable year in which the
distribution is made.
Upon a sale or other disposition of either Common Stock or Preferred Stock,
a stockholder will generally recognize a capital gain or loss in an amount equal
to the difference between the amount realized and the stockholder's adjusted
basis in such stock, which gain or loss will be long-term if the stock has been
held for more than one year. Any loss on the sale or exchange of shares held by
a stockholder for six months or less will generally be treated as a long-term
capital loss to the extent of any long-term capital gain dividends received by
such stockholder. If either Common Stock or Preferred Stock is sold after a
record date but before a payment date for declared dividends on such stock, a
stockholder will nonetheless be required to include such dividend in income in
accordance with the rules above for distributions, whether or not such dividend
is required to be paid over to the purchaser.
The Company also maintains a Dividend Reinvestment and Stock Purchase Plan
(the "DRP" or "Plan") (Reg. No. 333-18061; effective January 2, 1997). DRP
Participants will generally be treated as having received a dividend
distribution equal to the fair market value on the Investment Date (as defined
in the Plan) of the Plan Shares that are purchased with the Participant's
reinvested dividends and/or optional cash payments on such date, plus the
brokerage commissions, if any, allocable to the purchase of such shares, and
participants will have a tax basis in the shares equal to such value. DRP
Participants may not, however, receive any cash with which to pay the resulting
tax liability. Shares received pursuant to the DRP will have a holding period
beginning on the day after their purchase by the Plan Administrator.
The Company is required under Treasury Department regulations to demand
annual written statements from the record holders of designated percentages of
its Capital Stock disclosing the actual and constructive ownership of such stock
and to maintain permanent records showing the information it has received as to
the actual and constructive ownership of such stock and a list of those persons
failing or refusing to comply with such demand.
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TAXATION OF TAX-EXEMPT ENTITIES
The Company does not expect to incur excess inclusion income and,
therefore, does not prohibit tax-exempt entities or "disqualified organizations"
from investing in its Securities. In general, a tax-exempt entity that is a
holder of the Company's Securities will not be subject to tax on distribution.
The Company does not intend to issue debt obligations with different
maturities secured by a single pool of Mortgage Assets and does not expect to
create or acquire taxable mortgage pools that can generate excess inclusion
income. In addition, the Company does not intend to create or acquire REMIC
residual interests that can generate excess inclusion income.
EXERCISE OF SECURITIES WARRANTS
Upon a holder's exercise of a Securities Warrant, the holder will, in
general, (i) not recognize any income, gain or loss for Federal income tax
purposes, (ii) receive an initial tax basis in the Security received equal to
the sum of the holder's tax basis in the exercised Securities Warrant and the
exercise price paid for such Security and (iii) have a holding period for the
Security received beginning on the date of exercise.
SALE OR EXPIRATION OF SECURITIES WARRANTS
If a holder of a Securities Warrant sells or otherwise disposes of such
Securities Warrant (other than by its exercise), the holder generally will
recognize capital gain or loss (long-term capital gain or loss if the holder's
holding period for the Securities Warrant exceeds twelve months on the date of
disposition; otherwise, short-term capital gain or loss) equal to the difference
between (i) the cash and fair market value of other property received, and (ii)
the holder's tax basis (on the date of disposition) in the Securities Warrant
sold. Such a holder generally will recognize a capital loss upon the expiration
of an unexercised Securities Warrant equal to the holder's tax basis in the
Securities Warrant on the expiration date.
TAXATION OF STOCKHOLDER RIGHTS
If the Company makes a distribution of Stockholder Rights ("Rights") with
respect to its Common Stock, such distribution generally will be tax-free and a
Stockholder's basis in the Rights received in such distribution will be zero. If
the fair market value of the Rights on the date of issuance is 15% or more of
the value of the Common Stock or, if the Stockholder so elects regardless of the
value of the Rights, the Stockholder will make an allocation between the
relative fair market values of the Rights and the Common Stock on the date of
issuance of the Rights. On exercise of the Rights, the Stockholder will
generally not recognize gain or loss. The Stockholder's basis in the shares
received from the exercise of the Rights will be the amount paid for the shares
plus the basis, if any, of the Rights exercised. Distribution of Rights with
respect to other classes of Securities holders generally would be taxable.
FOREIGN INVESTORS
In general, foreign investors will be subject to special withholding tax
requirements on income and capital gains distributions attributable to their
ownership of the Company's Securities subject to reduction pursuant to an
applicable income tax treaty.
PLAN OF DISTRIBUTION
The Company may sell Securities to or through one or more underwriters or
dealers for public offering and sale, to one or more investors directly or
through agents, to existing holders of its Securities directly through the
issuance of Stockholders Rights as a dividend, or through any combination of
these methods of sale. Any such underwriter or agent involved in the offer and
sale of the Securities will be named in the applicable Prospectus Supplement.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such
13
<PAGE> 28
prevailing market prices, or at negotiated prices (any of which may represent a
discount from the prevailing market prices). The Company may also sell its
Securities from time to time through one or more agents in ordinary brokers'
transactions on Nasdaq or a national securities exchange. Such sales may be
effected during a series of one or more pricing periods at prices related to the
prevailing market prices reported on Nasdaq or a national securities exchange,
as shall be set forth in the applicable Prospectus Supplement.
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities, for whom
they may act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concession or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution of
Securities may be deemed to be underwriters under the Securities Act, and any
discounts or commissions they receive from the Company and any profit on the
resale of Securities they realize may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from the Company will be
described, in the applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each class
or series of Securities will be a new issue with no established trading market,
other than the Common Stock which is currently listed on Nasdaq. Any shares of
Common Stock sold pursuant to a Prospectus Supplement will also be listed on the
Nasdaq or a national securities exchange, subject to official notice of
issuance. The Company may elect to list any future class or series of Securities
on Nasdaq or another exchange, but is not obligated to do so. It is possible
that one or more underwriters may make a market in a future class or series of
Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of, or the trading market for, the Securities.
Under agreements into which the Company may enter, underwriters, dealers
and agents who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act. Underwriters, dealers and agents may
engage in transactions with or perform services for the Company in the ordinary
course of business.
If so indicated in the applicable Prospectus Supplement, the Company may
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
at regular intervals over a fixed period of time pursuant to negotiated
subscription commitments. Institutions with which such subscription commitments
may be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and others,
but in all cases such institutions must be approved by the Company. The
obligations of any purchaser under any such subscription commitments will be
subject to certain conditions, including that the purchase of the Securities
shall not be prohibited under the laws of the jurisdiction to which such
purchaser is subject, as well as to the specific terms and conditions negotiated
that will be set forth in the applicable Prospectus Supplement. The underwriters
and such other agents will not have any responsibility in respect of the
validity or performance of such subscription commitments.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states Securities may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
14
<PAGE> 29
ERISA INVESTORS
Because the Common Stock will qualify as a "publicly offered security,"
employee benefit plans and Individual Retirement Accounts may purchase shares of
Common Stock and treat such shares, and not the Company's assets, as plan
assets. The status of Securities offered hereby other than the Common Stock will
be discussed in the relevant Prospectus Supplement. Fiduciaries of ERISA plans
should consider (i) whether an investment in the Common Stock and other
Securities offered hereby satisfies ERISA diversification requirements, (ii)
whether the investment is in accordance with the ERISA plan's governing
instruments and (iii) whether the investment is prudent.
LEGAL MATTERS
The validity of the Securities offered hereby and certain legal matters
will be passed on for the Company by Tobin & Tobin, a professional corporation,
San Francisco, California. Certain tax matters will be passed on by Giancarlo &
Gnazzo, A Professional Corporation, San Francisco, California. Tobin & Tobin and
Giancarlo & Gnazzo, A Professional Corporation, will rely as to all matters of
Maryland law upon the opinion of Piper & Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The Balance Sheets as of December 31, 1996 and 1995 and the Statements of
Operations, Stockholders' Equity and Cash Flows for the years ended December 31,
1996 and 1995 and for the period from August 19, 1994 (Commencement of
Operations) to December 31, 1994 incorporated by reference in this Prospectus
have been included therein in reliance on the report of Coopers & Lybrand,
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
15
<PAGE> 30
======================================================
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus Supplement and the accompanying Prospectus, and, if given or
made, such other information and representations must not be relied upon as
having been authorized by the Company, the Underwriter or any other person.
Neither the delivery of this Prospectus Supplement or the accompanying
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to its date. This Prospectus Supplement and the accompanying
Prospectus do not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the registered securities to which it relates.
This Prospectus Supplement and the accompanying Prospectus do not constitute an
offer to sell or a solicitation of an offer to buy such securities, nor shall
any sales of the Common Stock be made pursuant to this Prospectus Supplement or
the accompanying Prospectus, in any circumstances in which such offer or
solicitation or sale is unlawful.
----------------------------
TABLE OF CONTENTS
----------------------------
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement Summary......... S-3
Use of Proceeds....................... S-9
Risk Factors.......................... S-9
Market Prices and Dividend Data....... S-9
Capitalization........................ S-10
Selected Financial Data............... S-11
Federal Income Tax Considerations..... S-12
Underwriting.......................... S-13
Legal Matters......................... S-13
PROSPECTUS
Available Information................. 2
Incorporation of Certain Information
by Reference........................ 2
The Company........................... 4
Use of Proceeds....................... 5
Description of Securities............. 5
Federal Income Tax Considerations..... 11
Plan of Distribution.................. 13
ERISA Investors....................... 15
Legal Matters......................... 15
Experts............................... 15
</TABLE>
======================================================
======================================================
X,XXX,XXX SHARES
RWT
REDWOOD TRUST, INC.
COMMON STOCK
----------------------------
PROSPECTUS SUPPLEMENT
----------------------------
Montgomery Securities
July , 1997
======================================================
<PAGE> 31
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance and
distribution of the securities being registered are as set forth below. All such
expenses, except for the SEC registration and filing fees, are estimated:
<TABLE>
<S> <C>
SEC Registration................................................ $ 90,909.09
Legal Fees and Expenses......................................... $ 20,000.00
Accounting Fees and Expenses.................................... $ 5,000.00
Printing and Engraving Fees..................................... $ 10,000.00
Miscellaneous................................................... $ 4,090.91
-----------
Total................................................. $130,000.00
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 2-418 of the Corporations and Associations Article of the Annotated
Code of Maryland provides that a Maryland corporation may indemnify any director
of the corporation and any person who, while a director of the corporation, is
or was serving at the request of the corporation as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, or other enterprise or employee benefit plan,
is made a party to any proceeding by reason of service in that capacity unless
it is established that the act or omission of the director was material to the
matter giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty; or the director actually received an
improper personal benefit in money, property or services; or, in the case of any
criminal proceeding, the director had reasonable cause to believe that the act
or omission was unlawful. Indemnification may be against judgments, penalties,
fines, settlements, and reasonable expenses actually incurred by the director in
connection with the proceeding, but if the proceeding was one by or in the right
of the corporation, indemnification may not be made in respect of any proceeding
in which the director shall have been adjudged to be liable to the corporation.
Such indemnification may not be made unless authorized for a specific proceeding
after a determination has been made, in the manner prescribed by the law, that
indemnification is permissible in the circumstances because the director has met
the applicable standard of conduct. On the other hand, the director must be
indemnified for expenses if he has been successful in the defense of the
proceeding or as otherwise ordered by a court. The law also prescribes the
circumstances under which the corporation may advance expenses to, or obtain
insurance or similar protection for, directors.
The law also provides for comparable indemnification for corporate officers
and agents.
The Registrant's Articles of Incorporation provide that its directors and
officers shall, and its agents in the discretion of the Board of Directors may,
be indemnified to the fullest extent required or permitted from time to time by
the laws of Maryland.
The Maryland GCL permits the charter of a Maryland corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except to the extent that (i)
it is proved that the person actually received an improper benefit or profit in
money, property or services for the amount of the benefit or profit in money,
property or services actually received, or (ii) a judgment or other final
adjudication is entered in a proceeding based on a finding that the person's
action, or failure to act, was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated in the proceeding. The
Company's Articles of Incorporation contain a provision providing for
elimination of the liability of its directors and officers to the Company or its
stockholders for money damages to the maximum extent permitted by Maryland law
from time to time.
II-1
<PAGE> 32
The form of underwriting agreement included as Exhibit 1.1 to the
Registration Statement, provides for indemnification of the Registrant, its
directors and certain of its officers against certain liabilities, including
liabilities under the Securities Act.
ITEM 16. EXHIBITS.(1)
<TABLE>
<C> <S>
1.1(2) Form of underwriting agreement, including forms of opinions related thereto
5.1(2) Opinion of Tobin & Tobin, a professional corporation, as to legality (including
consent of such firm)
5.2(2) Opinion of Piper & Marbury L.L.P. as to legality (including consent of such
firm)
8.1 Opinion of Giancarlo & Gnazzo, A Professional Corporation, as to certain tax
matters (including consent of such firm)
23.1(2) Consent of Tobin & Tobin (included in Exhibit 5.1)
23.2(2) Consent of Piper & Marbury L.L.P. (included in Exhibit 5.2)
23.3 Consent of Giancarlo & Gnazzo, A Professional Corporation (included in Exhibit
8.1)
23.4 Consent of Coopers & Lybrand, L.L.P., independent accountants.
24.1(2) Power of Attorney (set forth on signature page)
</TABLE>
- ---------------
(1) Definitive exhibits with respect to specific issuances of Securities (other
than shares of Common Stock issued pursuant to an underwriting agreement
substantially in the form of Exhibit 1.1) covered by this Registration
Statement will be filed by amendment or incorporated by reference from
reports filed by the Company pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, at the time of issuance.
(2) Previously filed.
ITEM 17. 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 of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in the periodic reports filed by
the Registrant pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each 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: (1) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of Prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of Prospectus filed by the
II-2
<PAGE> 33
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
of 1933 shall be deemed to be part of this Registration Statement as of the time
it was declared effective; and (2) for the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment that contains a
form of Prospectus shall be deemed to be a new Registration Statement relating
to the securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant, pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities begin registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City and County of San Francisco, State of
California, on July 3, 1997.
REDWOOD TRUST, INC.
By: /s/ GEORGE E. BULL, III
------------------------------------
George E. Bull, III
(Chairman of the Board and
Chief Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT ON FORM S-3 HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE POSITION DATE
- ------------------------------------------ ------------------------------ -------------------
<C> <S> <C>
/s/ GEORGE E. BULL, III Chairman of the Board, Chief July 3, 1997
- ------------------------------------------ Executive Officer and Director
George E. Bull, III (Principal Executive Officer)
/s/ DOUGLAS B. HANSEN* President, Chief Financial July 3, 1997
- ------------------------------------------ Officer and Director
Douglas B. Hansen (Principal Financial Officer)
/s/ FREDERICK H. BORDEN* Vice Chairman of the Board, July 3, 1997
- ------------------------------------------ Secretary and Director
Frederick H. Borden
/s/ VICKIE L. RATH* Vice-President, Treasurer and July 3, 1997
- ------------------------------------------ Controller (Principal
Vickie L. Rath Accounting Officer)
/s/ DAN A. EMMETT* Director July 3, 1997
- ------------------------------------------
Dan A. Emmett
/s/ THOMAS F. FARB* Director July 3, 1997
- ------------------------------------------
Thomas F. Farb
/s/ NELLO GONFIANTINI* Director July 3, 1997
- ------------------------------------------
Nello Gonfiantini
/s/ CHARLES J. TOENISKOETTER* Director July 3, 1997
- ------------------------------------------
Charles J. Toeniskoetter
*By /s/ GEORGE E. BULL, III
- ------------------------------------------
George E. Bull, III
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 35
EXHIBIT INDEX(1)
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------ ----------------------------------------------------------------------------- ------
<C> <S> <C>
1.1 (2) Form of underwriting agreement, including forms of opinions related
thereto......................................................................
5.1 (2) Opinion of Tobin and Tobin, a professional corporation, as to legality
(including consent of such firm).............................................
5.2 (2) Opinion of Piper & Marbury L.L.P., as to legality (including consent of such
firm)........................................................................
8.1 Opinion of Giancarlo & Gnazzo, A Professional Corporation, as to certain tax
matters (including consent of such firm).....................................
23.1 (2) Consent of Tobin & Tobin, a professional corporation (included in Exhibit
5.1).........................................................................
23.2 (2) Consent of Piper & Marbury L.L.P. (included in Exhibit 5.2)..................
23.3 Consent of Giancarlo & Gnazzo, A Professional Corporation (included in
Exhibit 8.1).................................................................
23.4 Consent of Coopers & Lybrand, L.L.P., independent accountants................
24.1 (2) Power of Attorney (set forth on signature page)..............................
</TABLE>
- ---------------
(1) Definitive exhibits with respect to specific issues of Securities (other
than shares of Common Stock issued pursuant to an underwriting agreement
substantially in the form of Exhibit 1.1) covered by this Registration
Statement will be filed by amendment or incorporated by reference from
reports filed by the Company pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, at the time of issuance.
(2) Previously filed.
<PAGE> 1
Exhibit 8.1
[GIANCARLO & GNAZZO LETTERHEAD]
July 3, 1997
Redwood Trust, Inc.
591 Redwood Highway
Suite 3100
Mill Valley, CA 94941
Re: Universal Shelf Registration Statement on Form S-3;
filed July 3, 1997
Dear Ladies and Gentlemen:
You have requested our opinion in connection with the Form S-3 Shelf
Registration Statement, dated July 3, 1997 (the "Registration Statement") being
filed by Redwood Trust, Inc. (the "Company") with respect to an aggregate
$300,000,000.00 worth of the following securities which the Company may issue
and sell from time to time: (i) shares of its common stock, par value of $0.01
per share (the "Common Stock"); (ii) shares of its preferred stock, in one or
more classes or series (the "Preferred Stock"); (iii) warrants to purchase
shares of Common Stock or Preferred Stock; (iv) rights to purchase shares of
Common Stock or Preferred Stock issued to shareholders; and (v) any combination
of the foregoing, either individually or as units consisting of one or more of
the foregoing (collectively, the "Securities").
In connection with the Registration Statement, we have acted as your
special tax counsel and have assisted in the preparation of the tax summary for
such Registration Statement. In formulating our opinions, we have reviewed (i)
the Registration Statement, (ii) the Articles of Incorporation of the Company
and its wholly owned subsidiary, Sequoia Mortgage Funding Corporation
("Sequoia"), as amended and supplemented to date, (iii) the Bylaws, as amended,
of each of the Company and Sequoia, and (iv) such resolutions, certificates,
records, and other documents provided by the Company and Sequoia as we have
deemed necessary or appropriate as a basis for the opinions set forth below. In
addition, the Company has provided us with a certificate (the "Officer's
Certificate"), executed by a duly appointed and knowledgeable officer of the
Company, attached hereto and upon which we have relied, setting forth certain
representations relating to various factual matters including the prior, current
and future methods of operation of the Company and Sequoia. We have also
reviewed the opinions of Piper & Marbury L.L.P., and Tobin & Tobin, a
professional corporation, each dated as of April 22, 1997, with respect to
certain matters of Maryland and Delaware law, respectively.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or other copies, and the
authenticity of the originals of such copies.
<PAGE> 2
Redwood Trust, Inc.
July 3, 1997
Page 2
In rendering our opinions, we have assumed that the transactions
described in or contemplated by the foregoing documents have been or will be
consummated in accordance with such operative documents, and that such documents
accurately reflect the material facts of such transactions. In addition, our
opinions are based on the correctness of the following specific assumptions: (i)
each of the Company and Sequoia have been and will continue to be organized and
operated in the manner described in the Officer's Certificate, the Registration
Statement, and the other relevant documents referred to above; and (ii) there
have been no changes in the applicable laws of the State of Maryland, the
Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder by the Treasury Department (the "Treasury Regulations"),
and the interpretations of the Code and the Treasury Regulations by the courts
and the Internal Revenue Service, all as they exist on the date of this letter.
With respect to these assumptions, it should be noted that (x) in the case of
the former assumption, the representations set forth in the Officer's
Certificate are highly factual in nature and reflect an intention with respect
to the future conduct of the business of the Company and Sequoia which may not
be achievable if there are future changes in the circumstances of either and (y)
in the case of the latter assumption, statutes, regulations, judicial decisions,
and administrative interpretations are subject to change at any time and, in
some circumstances, with retroactive effect. Any material change that is made
after the date hereof in any of the foregoing bases for our opinions could
adversely affect our conclusions.
Based on the foregoing, we are of the opinion that the Company has been
organized and operated in conformity with the requirements for qualification as
a "real estate investment trust" under the Code since the commencement of its
operations on August 19, 1994 through March 31, 1997, the date of the most
recent unaudited financial statements of the Company reviewed by us, and the
Company's current and contemplated methods of operation, as described in the
Registration Statement and as represented by the Company, will enable it to
continue to so qualify.
Other than as expressly stated above, we express no opinion on any
issue relating to the Company, to Sequoia or to any investment therein or under
any law other than the Federal income tax laws.
We are furnishing this opinion to you solely in connection with the
filing of the Registration Statement and it is not to be relied upon, used,
circulated, quoted or otherwise referred to for any other purpose without our
express written permission.
We consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to Giancarlo & Gnazzo, A
Professional Corporation under the caption "Federal Income Tax Considerations"
in the Prospectus included in the Registration Statement.
Very truly yours,
/s/ Giancarlo & Gnazzo
A Professional Corporation
<PAGE> 3
[REDWOOD TRUST, INC. LETTERHEAD]
REDWOOD TRUST, INC.
OFFICER'S CERTIFICATE
The undersigned officer of REDWOOD TRUST, INC., a Maryland corporation
(the "Company"), hereby certifies, on behalf of the Company, that after due
inquiry, she has made the representations set forth below and hereby affirms as
of the date hereof the accuracy of such representations with the knowledge that
Giancarlo & Gnazzo, A Professional Corporation has relied on them in connection
with the preparation of the "Federal Income Tax Considerations" sections of the
Company's Shelf Registration Statement, Amendment No. 2, to be filed with the
Securities and Exchange Commission on July 2, 1997, and the rendering of its
opinions regarding the qualification of the Company as a "real estate investment
trust" under the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"). To the extent that any of the following representations relate to
future events, such representations represent the results that the Company
anticipates achieving based on the business plans and operational methods that
the Company has followed and intends to continue to follow:
1. The Company has operated, and will continue to operate, in accordance
with: (A) the statements and representations made by the Company in (i) its
current Registration Statements on file with the Securities and Exchange
Commission, including the S-3 and prospectus for the Company's dividend
reinvestment and stock purchase plan ("DRP"), and (ii) its annual and quarterly
financial reports with the Securities and Exchange Commission, and (B) the
provisions of (i) its organizational documents and (ii) the laws of the State of
Maryland.
2. The Company has adopted December 31 as its taxable year-end for
Federal income tax purposes.
3. The Company (i) has made a timely election, pursuant to section 856
(c) (1) of the Code,(1) to be subject to tax as real estate investment trust (a
"REIT") commencing with its 1994 taxable year and (ii) has not revoked, or
received any notice of termination, of such election under section 856 (g) of
the Code.
4. At all times after December 31, 1994, (i) the beneficial ownership of
the Company has been, and will continue to be, held by 100 or more persons,
determined without reference to any rules of attribution, under section 856 (a)
(5) of the Code and (ii) no more than 50 percent in value of the capital stock
of the Company has been, or will be, owned, directly or indirectly, by five or
fewer individuals as determined under section 856 (h) of the Code.
- ----------
(1) All section references to the Code set forth herein shall include
references to the applicable Treasury regulations promulgated
thereunder.
<PAGE> 4
5. The beneficial ownership of the Company has been, and will continue
to be, evidenced by transferable shares. The Company has not, and will not,
impose, and it is not aware of, any transfer restrictions on the Common Stock,
Class B Preferred Stock, or Warrants, other than restrictions (i) contained in
the Company's Articles of Incorporation, as amended through the date hereof (the
"Articles of Incorporation"), (ii) imposed by applicable Federal and state
securities laws, and (iii) imposed under the Amended and Restated 1994 Executive
and Non-Employee Director Stock Option Plan. The restrictions contained in the
Articles of Incorporation are intended to enable the Company to comply with
certain requirements, set forth in sections 856 (a) (5), (a) (6), and (h) of the
Code, which are necessary for its qualification as a REIT.
6. At least 75 percent of the gross income derived by the Company in any
taxable year has consisted, and will consist, of (i) interest on obligations
secured by mortgages on real property or on interests in real property, (ii)
amounts derived from the rental of real property, (iii) gain realized upon the
sale or other disposition of real property (including interests in mortgages on
real property) that is not property described in section 1221 (1) of the Code,
and (iv) amounts described in sections 856 (c) (3) (D) through 856 (c) (3) (I)
of the Code.(2)
7. At least 95 percent of the gross income derived by the Company in any
taxable year has consisted, and will consist, of (i) the items of income
described in Paragraph 6 above, (ii) certain interest rate agreements described
in section 856 (c) (6) (G) of the Code ("Qualifying Interest Rate Agreement"),
(iii) gain from the sale or other disposition of stock or securities which are
not property described in section 1221 (1) of the code, (iv) interest and
dividends, and (v) any other income qualifying under section 856 (c) (2) of the
Code. In 1996, the Company's income from interest rate caps and other hedging
instruments, did not exceed 1% of its gross income for such period.
8. Less than 30 percent of the gross income of the Company in any
taxable year has been, and will be, derived from the sale or other disposition
of (i) stock or securities held for less than one year, (ii) property in a
transaction which is prohibited transaction, as defined in section 857 (b) (6)
(B) of the Code, and (iii) real property (including interests in mortgages on
real property) held for less than four years, other than property compulsorily
or involuntarily converted within the meaning of section 1033 of the Code and
property that is foreclosure property within the definition of section 856 (e)
of the Code.
9. At the end of each calendar quarter, at least 75 percent of the total
value of the assets of the Company has consisted, and will consist, of real
estate assets within the meaning of sections 856 (c) (5) and 856 (c) (6) (B) of
the Code, cash and cash items (including receivables), and U.S. Government
securities.
- ----------
(2) For purposes of the representations set forth in Paragraphs 6, 7,
8, 9, 10 and 12 hereof, the Company is treated as receiving all
income received or accrued by, and owning all of the assets of,
any "qualified REIT subsidiary" owned by the Company within the
meaning of section 856 (i) (2) of the Code.
<PAGE> 5
10. At the end of each calendar quarter, not more than 25 percent of the
total value of the assets of the Company has consisted, and will consist, of
securities (other than those securities taken into account for purposes of
Paragraph 9 above) and the Company has not beneficially owned, and will not
beneficially own, any such securities of any one issuer, as determined under
section 856 (c) (5) of the Code, (i) having an aggregate value in excess of 5
percent of the value of the total assets of the Company or (ii) representing in
excess of 10 percent of the outstanding voting securities of such issuer, except
for the stock of any "qualified REIT subsidiary" within the meaning of section
856 (i) (2) of the Code.
11. The Company has closely monitored, and will continue to closely
monitor, its income, including income from hedging transactions and sales of
Mortgage Assets, and the purchase, holding, and disposition of its assets in
order to comply with the representations set forth in Paragraphs 6, 7, 8, 9, and
10 hereof. Specifically, the Company will continue to monitor it earnings from
interest rate caps and other hedging instruments for purposes of determining
whether such income constitutes income from Qualifying Interest Rate Agreements
and the proper characterization of such arrangements for purposes of the income
and asset tests described above. If it is anticipated that the Company may no be
able to comply with such representations, the Company will take appropriate
measures, including the disposition of non-qualifying assets and/or assets
generating non-qualifying income, to comply with such representations
12. The Company has not earned, and does not expect to earn, income from
mortgage servicing rights with respect to mortgage loans beneficially owned by
others.
13. The Company has held 100 percent of the capital stock of Sequoia
Mortgage Funding Corporation ("Sequoia") at all times since its formation and
will hold 100 percent of the capital stock of any other "qualified REIT
subsidiary" within the meaning of section 856 (i) (2) of the Code at all times
during the period such corporation is in existence. Sequoia has not issued any
securities or incurred any indebtedness to date and will not issue any
securities or incur any indebtedness without first seeking the advice of tax
counsel.
14. The Company at all times has complied, and will continue to comply,
with the record-keeping requirements prescribed by section 857 (a) (2) of the
Code and section 1.856-2 (d) (3) and 1.857-8 of the Treasury regulations.
15. The Company has distributed to its shareholders with respect to tax
years prior to 1997, and will continue to distribute to its shareholders with
respect to each taxable year thereafter, amounts equal in the aggregate to at
least 95 percent of its " real estate investment trust taxable income"
(determined without regard to the deduction for dividends paid and by excluding
any net capital gain) plus at least 95 percent of the excess of any "net income
from foreclosure property" over the tax imposed by the Code on such net income,
if any, as such terms are defined in sections 857 (b) (2) and 856 (b) (4) (B),
respectively, of the Code, during the relevant taxable year or during the period
thereafter as described in section 858 of the Code.
<PAGE> 6
16. The Company will neither modify its existing DRP to allow, nor adopt
a DRP that permits, its shareholders to reinvest their cash distributions in
shares of the Company at a purchase price less than 95% of the fair market value
of such shares on the distribution date. Such discount shall be computed to
include all brokerage charges until advised otherwise by counsel. In addition,
the Company will seek the advice of tax counsel prior to granting "waiver
discounts" in excess of that generally available to other participants in the
plan.
17. The Company will not form or acquire an interest in any taxable
subsidiary to undertake hedging or securitization activities without first
obtaining an opinion of counsel to the effect that the formation and
contemplated methods of operation of such corporation will not cause the Company
to fail to satisfy the representations set forth in Paragraph 6, 7, 8, 9, and 10
hereof.
18. The Company at all times has beneficially held, and will continue to
beneficially hold, its Mortgage Assets and all of its other material assets for
investment purposes and not as (i) stock in trade of other property of a kind
which would properly be includible in inventory if on hand at the close of the
taxable year, or (ii) property held primarily for sale to customers in the
ordinary course of the trade or business of the Company.
19. The representations set forth herein as to the Company's Mortgage
Assets will be true with respect to any mortgage assets acquired by the Company
after the date hereof.
IN WITNESS WHEREOF, I have, on behalf of Redwood Trust, Inc., signed
this Certificate as of the 2nd day of July, 1997.
REDWOOD TRUST INC.
/s/ Vickie L. Rath
---------------------------------------------
Vickie L. Rath
Vice President, Treasurer and Controller
<PAGE> 1
EXHIBIT 23.4
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Amendment No. 2 to the
Registration Statement on Form S-3 dated July 2, 1997 of our report dated
February 21, 1997 on our audits of the financial statements of Redwood Trust,
Inc. as of December 31, 1996 and 1995 and for the years ended December 31, 1996
and 1995 and for the period from August 19, 1994 to December 31, 1994. We also
consent to the reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
-------------------------------
Coopers & Lybrand L.L.P.
San Francisco, California
July 2, 1997
