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SEC Filings

DITECH HOLDING CORP filed this Form 424B1 on 09/16/1997
Entire Document
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interests or assets issued by any one issuer ever to exceed 5% of the value of
its assets. Moreover, HCHI intends to closely monitor (on not less than a
quarterly basis) the purchase and holding of the assets of HCHI to ensure
compliance with the asset tests.
     Since HCHI will not own any voting securities of HCP, the ownership of the
HCP Preferred by HCHI will not cause HCHI to violate the 10% of voting
securities limit. If the value of the HCP Preferred exceeds 5% of the value of
HCHI's total assets, however, HCHI will violate the 5% of assets limit. See
"-- Termination or Revocation of REIT Status." In that regard, the HCP Preferred
will initially be valued at $10,750,005 and may thereafter be revalued at
$15,750,010 if additional shares of Common Stock are issued to the Principals
upon the vesting of the Earn-Out. HCHI intends to monitor the value of the HCP
Preferred and believes that the value of the HCP Preferred will not exceed 5% of
the total value of its assets. Counsel is relying on the representation of HCHI
to such effect, which representation is based on the assumption that the Company
will own sufficient assets purchased with borrowing proceeds (by the close of
each quarter beginning with the third quarter of 1997) to cause the value of the
HCP Preferred to be less than 5% of the value of HCHI's total assets. No
independent appraisals have been obtained to support this conclusion. There can
be no assurance that the Company will be able to maintain sufficient levels of
borrowings to avoid a violation of the 5% of assets limit or that the IRS will
agree with the Company's determination of the value of the HCP Preferred.
     When purchasing mortgage-related securities, HCHI may rely on opinions of
counsel for the issuer or sponsor of such securities given in connection with
the offering of such securities, or statements made in related offering
documents, for purposes of determining whether and to what extent those
securities (and the income therefrom) constitute Qualified REIT Assets (and
income) for purposes of the 75% of assets test (and the source of income tests
discussed below). A regular or residual interest in a REMIC will be treated as a
Qualified REIT Asset for purposes of the REIT asset tests (and income derived
with respect to such interest will be treated as interest on obligations secured
by mortgages on real property) if at least 95% of the assets of the REMIC are
Qualified REIT Assets. If less than 95% of the assets of the REMIC are Qualified
REIT Assets, only a proportionate share of the assets of and income derived from
the REMIC will qualify under the REIT asset and income tests.
     If a failure to satisfy any of the asset tests discussed above results from
an acquisition of securities or other property during a quarter, the failure may
be cured by the disposition of sufficient nonqualifying assets within 30 days
after the close of such quarter. HCHI intends to maintain adequate records of,
and closely monitor the value of its assets to determine its compliance with the
asset tests, and intends to take such actions as may be required to cure any
failure to satisfy the test within 30 days after the close of any quarter.
     Sources of Income.  HCHI must satisfy three separate income-based tests for
each year in order to qualify as a REIT.
     Under the first test (the "75% of income test"), at least 75% of HCHI's
gross income (excluding gross income from "prohibited transactions;" see
"-- Taxation of HCHI") for the taxable year must be derived directly or
indirectly from the following sources: (i) rents from real property; (ii)
interest (other than interest based in whole or in part on the income or profits
of any person) on obligations secured by mortgages on real property or on
interests in real property; (iii) gains from the sale or other disposition of
interests in real property and real estate mortgages not held primarily for sale
to customers in the ordinary course of business ("dealer property"); (iv)
dividends or other distributions on shares in REITs and, provided such shares
are not dealer property, gain from the sale of such shares; (v) abatements and
refunds of real property taxes; (vi) income from the operation, and gain from
the sale, of property acquired at or in lieu of a foreclosure of the mortgage
secured by such property (or as a result of a default under a lease of such
property) and which is not held for more than two years or, for taxable years
beginning after August 5, 1997, the close of the third taxable year following
the year of an acquisition ("foreclosure property"); (vii) amounts (other than
amounts the determination of which depend in whole or in part on the income or
profits of any person) received or accrued as consideration for entering into
agreements (a) to make loans secured by mortgages on real property or on
interests in real property or (b) to purchase or lease real property (including
interests in real property and interests in mortgages on real property (for
example, commitment fees); and (viii) income attributable to