Print Page  Close Window

SEC Filings

424B1
DITECH HOLDING CORP filed this Form 424B1 on 09/16/1997
Entire Document
 
<PAGE>   91
 
95% of fair market value on the distribution date, then such cash distributions
qualify under the 95% distribution test. The terms of HCHI's DRP will comply
with the ruling. See "Dividend Reinvestment Plan."
 
     Under certain circumstances, HCHI may be able to rectify a failure to meet
the 95% distribution test for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in HCHI's deduction for
dividends paid for the earlier year. HCHI would be liable for interest based on
the amount of any deduction taken for the deficiency dividends. A deficiency
dividend is not permitted if the deficiency is due to fraud with intent to evade
tax or a willful failure to file timely tax returns.
 
RECORD KEEPING REQUIREMENTS
 
     A REIT is required to maintain records, including records regarding the
actual and constructive ownership of its shares, and, within 30 days after the
end of its taxable year, to demand statements from persons owning above a
specified level of the REIT's share (e.g., if HCHI has 2,000 or more
stockholders of record, from persons holding 5% or more of HCHI's outstanding
shares of stock; if HCHI has over 200 but fewer than 2,000 stockholders of
record, from persons holding 1% or more of HCHI's outstanding shares of stock;
and if HCHI has 200 or fewer shareholders of record, from persons holding 1/2%
or more of HCHI's outstanding shares of stock) regarding their ownership of
shares. In addition, HCHI must maintain, as part of its records, a list of those
persons failing or refusing to comply with this demand. Shareholders who fail or
refuse to comply with the demand must submit a statement with their tax returns
setting forth their actual stock ownership and other information. HCHI intends
to maintain the records and demand statements as required by these regulations.
 
TERMINATION OR REVOCATION OF REIT STATUS
 
     If HCHI fails to qualify for taxation as a REIT in any taxable year and the
relief provisions do not apply, HCHI will be subject to tax (including any
applicable alternative minimum tax) at regular corporate rates. Distributions to
stockholders in any year in which HCHI fails to qualify will not be deductible
by HCHI and will not be required to be made. As a result, HCHI's failure to
qualify as a REIT would substantially reduce the cash available for distribution
to its stockholders. In addition, if HCHI fails to qualify as a REIT,
distributions to stockholders will be taxable as ordinary income to the extent
of HCHI's current or accumulated earnings and profits (although, subject to
certain limitations, would be eligible for the dividends received deduction in
the hands of corporate distributees). Unless entitled to relief under specific
statutory provisions, HCHI will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification is lost. It
is not possible to state whether in all circumstances HCHI would be entitled to
such statutory relief. Failure to qualify for even one year could result in
HCHI's incurring substantial indebtedness (to the extent borrowings are
feasible) or liquidating substantial investments in order to pay the resulting
taxes.
 
TAXATION OF HCHI
 
     If HCHI qualifies for taxation as a REIT, it generally will not be subject
to federal income tax on that portion of its net income that is currently
distributed to its stockholders. HCHI will, however, be subject to federal
income tax as follows. First, HCHI will be taxed at regular corporate rates on
any undistributed "REIT taxable income," including undistributed net capital
gains. Generally, REIT taxable income is taxable income adjusted by disallowing
any dividends received deduction, allowing a deduction for dividends paid,
excluding any net income from foreclosure property (see "-- Requirements for
Qualification as a REIT -- Sources of Income") and excluding any net income from
"prohibited transactions" (as described below). Second, under certain
circumstances, HCHI may be subject to the "alternative minimum tax" on its items
of tax preference. Third, HCHI will be taxed at the highest corporate rate on
(i) net income from the sale or other disposition of foreclosure property which
is held primarily for sale to customers in the ordinary course of business or
(ii) other nonqualifying net income from foreclosure property. Fourth, HCHI will
be subject to a 100% tax on any net income from prohibited transactions (which
are, in general, certain sales or other dispositions of property, other than
foreclosure property, held primarily for sale to customers in the ordinary
course of business). Fifth, if HCHI should fail to satisfy the 75% of income
test or the 95% of income test (discussed above under "-- Requirements for
Qualification as a REIT -- Sources of Income") but has
 
                                       91