AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON November 24, 2004
REGISTRATION NO. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------------
REDWOOD TRUST, INC.
(Exact name of registrant as specified in charter)
MARYLAND 68-0329422
(State or other jurisdiction of (I.R.S. employer
Incorporation or organization) identification number)
ONE BELVEDERE PLACE, SUITE 300
MILL VALLEY, CA 94941
(415) 389-7373
(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.
ONE BELVEDERE PLACE, SUITE 300
MILL VALLEY, CA 94941
(415) 389-7373
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------------
copies to:
DOUGLAS B. HANSEN JAMES J. HANKS, JR., ESQ.
PRESIDENT MELISSA ALLISON WARREN, ESQ.
REDWOOD TRUST, INC. VENABLE LLP
One Belvedere Place, Suite 300 Two Hopkins Plaza, Suite 1800
Mill Valley, CA 94941 Baltimore, MD 21201
(415) 389-7373 (410) 244-7400
------------------------------
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.
================================================================================
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: [ ]
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES AMOUNT TO AGGREGATE PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE(3)
-------------------------------------------- ---------------- ---------------- ------------------ -------------
Preferred Stock, $.01 par value per share(4)
Preferred Stock Warrants(4)
Common Stock, $.01 par value per share(4)(5)
Common Stock Warrants(4)(5)
Stockholder Rights
Total $ 500,000,000 $ 500,000,000 $ 63,350
(1) In no event will the aggregate maximum offering price of all securities
issued pursuant to this registration statement exceed $500,000,000. Any
securities registered hereunder may be sold separately or as units with
other securities registered hereunder.
(2) The proposed maximum aggregate price per share will be determined, from
time to time, by the registrant in connection with the issuance by the
registrant of the securities registered hereunder.
(3) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended (the "Rule(s)").
(4) Subject to note (1), there is being registered hereunder an indeterminate
number of shares of preferred stock and common stock as may be sold, from
time to time, by the registrant, or as may be issued pursuant to the
conversion of preferred stock or the exercise of warrants or shareholder
rights.
(5) The aggregate amount of Common Stock registered hereunder is limited, to
that which is permissible under Rule 415(a)(4), to the extent applicable.
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.
SUBJECT TO COMPLETION, DATED November 24, 2004
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
$500,000,000
[LOGO]
REDWOOD TRUST, INC.
BY THIS PROSPECTUS, WE MAY OFFER, FROM TIME TO TIME -
- Shares of our common stock
- Shares of our preferred stock
- Warrants to purchase shares of our common stock or preferred
stock
- Rights issuable to our stockholders to purchase shares of
our common stock or preferred stock
- Any combination of the foregoing
Our common stock is listed on the New York Stock Exchange under the symbol
"RWT."
We will provide specific terms of these securities in supplements to this
prospectus. You should read this prospectus and any supplement carefully before
you purchase any of our securities.
This prospectus may not be used to offer and sell securities unless
accompanied by a prospectus supplement.
To ensure we qualify as a real estate investment trust, among other
purposes, our charter provides that no person may own more than 9.8% of the
outstanding shares of any class of our stock, unless our Board of Directors
waives this limitation.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This prospectus is dated ___________, 2004
TABLE OF CONTENTS
PAGE
About This Prospectus............................................................. 2
Where You Can Find More Information............................................... 2
Incorporation of Certain Information by Reference................................. 3
Cautionary Statement.............................................................. 3
Redwood Trust, Inc................................................................ 5
Use of Proceeds................................................................... 6
Description of Securities......................................................... 7
Federal Income Tax Considerations................................................. 14
Plan of Distribution.............................................................. 23
Legal Matters..................................................................... 24
Experts........................................................................... 24
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, or the SEC, using a "shelf" registration
process. Under the shelf process, we may, from time to time, issue and sell to
the public any part of all of the securities described in the registration
statement in one or more offerings up to an aggregate dollar amount of
$500,000,000.
This prospectus provides you with a general description of the securities
we may offer. Each time we offer securities, we will provide you with a
prospectus supplement that will describe the specific amounts, prices, and terms
of the securities we offer. The prospectus supplement also may add, update, or
change information contained in this prospectus.
We may sell the securities to or through underwriters, dealers, or agents
or directly to purchasers. We and our agents reserve the sole right to accept
and to reject in whole or in part any proposed purchase of securities. A
prospectus supplement, which we will provide to you each time we offer
securities, will provide the names of any underwriters, dealers, or agents
involved in the sale of the securities, and any applicable fee, commission, or
discount arrangements with them.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission or the SEC. Our SEC
filings are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the SEC's
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C., 20549. Please call the SEC at
1-800-SEC-0300 for further information on the public reference rooms.
We have filed a registration statement, of which this prospectus is a
part, covering the securities offered hereby. As allowed by SEC rules, this
prospectus does not contain all the information set forth in the registration
statement and the exhibits, financial statements and schedules thereto. We refer
you to the registration statement, the exhibits, financial statements and
schedules thereto for further information. This prospectus is qualified in its
entirety by such other information. You may request a free copy of any of the
above filings by writing or calling:
Redwood Trust, Inc.
One Belvedere Place, Suite 300
Mill Valley, California 94941
(415) 389-7373
You should rely only on the information provided in this prospectus. We
have not authorized anyone else to provide you with different information. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the cover page of this prospectus.
-2-
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We "incorporate by reference" our documents listed below and any future
filings we make with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the
Exchange Act until this offering is completed. This means that we can disclose
important business, financial and other information in this prospectus by
referring you to the documents containing that information. All information
incorporated by reference is part of this prospectus, unless and until that
information is updated and superseded by a prospectus supplement, or by
information filed with the SEC and incorporated later. Any information that we
subsequently file with the SEC that is incorporated by reference will
automatically update and supersede any previous information that is part of this
prospectus. We incorporate by reference the following:
- Annual Report on Form 10-K for the fiscal year ended December 31,
2003;
- Quarterly Reports on Form 10-Q for the quarters ended March 31,
2004, June 30, 2004 and September 30, 2004;
- Current Report on Form 8-K filed on November 23, 2004;
- Proxy Statement for our annual meeting of stockholders held on May
6, 2004;
- The description of our common stock contained in our registration
statement on Form 8-A, as amended (Reg. No. 0-26436), filed July 17,
1996; and
- All documents filed by us pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of the filing of the
registration statement on Form S-3 and prior to the termination of
the offering of the securities offered by this prospectus.
We will provide without charge to each person to whom a prospectus is
delivered, upon written or oral request of that person, a copy of any document
incorporated by reference (other than exhibits to those documents unless the
exhibits are specifically incorporated herein by reference into the documents
that this prospectus incorporates). Requests should be directed to:
Redwood Trust, Inc.
One Belvedere Place, Suite 300
Mill Valley, California 94941
(415) 389-7373
CAUTIONARY STATEMENT
This prospectus and the documents incorporated by reference herein contain
forward-looking statements within the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Statements that are not historical in
nature, including the words "anticipate," "estimate," "should," "expect,"
"believe," "intend," and similar expressions, are intended to identify
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties, including, among other things, those described in a
prospectus supplement under the caption "Risk Factors." Other risks,
uncertainties and factors that could cause actual results to differ materially
from those projected are detailed from time to time in reports filed by us with
the Securities and Exchange Commission, or SEC, including Forms 10-Q and 10-K.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events mentioned, discussed in, or incorporated by reference
into this prospectus supplement and the accompanying prospectus might not occur.
Accordingly, our actual results may differ from our current expectations,
estimates, and projections.
Important factors that may impact our actual results include changes in
interest rates and market values; changes in prepayment rates; general economic
conditions, particularly as they affect the price of
-3-
earning assets and the credit status of borrowers; the level of liquidity in the
capital markets as it affects our ability to finance our real estate asset
portfolio; and other factors not presently identified.
-4-
REDWOOD TRUST, INC.
Redwood Trust is a financial institution located in Mill Valley,
California. We invest in, credit-enhance, and securitize residential and
commercial real estate loans and securities. Our primary focus is investing in
real estate loans by acquiring and owning securities backed by high-quality real
estate loans, particularly jumbo residential loans, that have features such as
low loan-to-value ratios, borrowers with strong credit histories, and other
indications of quality relative to the range of loans within U.S. real estate
markets as a whole.
We are taxed under the Internal Revenue Code of 1986, as amended, or the
Code, as a real estate investment trust, or REIT. As such, we are not required
to pay corporate income taxes on the REIT taxable income that we distribute to
stockholders as dividends. We pay corporate income taxes on REIT taxable income
that we retain (i.e., that portion of our REIT taxable income that we do not
distribute as dividends), which is limited to 10% of annual REIT taxable income,
and we also pay corporate income taxes on income we earn in our taxable (i.e.,
non-REIT) subsidiaries.
Our GAAP consolidated balance sheet reflects our five types of earning
assets: residential real estate loans; home equity lines of credit; residential
real estate loan credit-enhancement securities; commercial real estate loans;
and a securities portfolio consisting of diverse residential and commercial real
estate securities, primarily investment-grade and BB-rated. Each of these
portfolios is a component of our single business of investing in real estate
loans and securities. Our current intention is to focus on investing in and
managing assets in these five portfolios. We manage our real estate loan
investments as a single business, with common staff and management, common
financing relationships and flexible capital allocations.
Our "permanent investment portfolio" consists of securities we have
acquired and intend to hold in portfolio for the long term to earn interest
income. These securities represent securitized ownership interests in pools of
real estate loans and securities. We acquire our permanent investment portfolio
assets from securitizations sponsored by others and also from securitizations we
have sponsored. We generally do not borrow against or leverage this portfolio
and we generally fund the acquisition of and hold these securities solely with
our equity. The majority of our earnings and cash flows consist of interest
income and capital gains generated from our permanent investment portfolio.
We generally use the remainder of our balance sheet to support our
securitization activities. We acquire and accumulate real estate loans and
securities for sale (usually within a few weeks or months) to a legally
independent and bankruptcy-remote entity that securitizes these loans or
re-securitizes these securities. While we are holding assets temporarily prior
to securitization, we typically utilize collateralized short-term debt to fund
the acquisition of the bulk of these assets. Our holding period for these assets
typically ranges from one week to five months, depending on asset type and the
frequency of the securitizations we sponsor. We sell these assets to a
securitization entity that issues (sells) various securities (asset-backed
securities or ABS) backed by the assets of the entity. The entity pays us for
the assets it purchases from us using the funds it raises from the sale of ABS.
We then use the asset sale proceeds we receive from the securitization entity to
repay the short-term debt we used to finance the acquisition of these assets.
Most of the residential real estate loan securitizations we sponsor are a part
of our "Sequoia" securitization program and most of the re-securitizations of
residential and commercial real estate securities we sponsor are a part of our
"Acacia" securitization program.
We often acquire for our permanent investment portfolio a small portion of
the ABS issued by the Sequoia securitization and Acacia re-securitization
entities we sponsor. Generally, we acquire the securities that have the most
concentrated credit and/or prepayment risk (and/or interest rate risk, if any)
with respect to the underlying loans or securities. Our goal for our
securitization programs is to create attractive assets, particularly with
respect to asset quality, that we can acquire for our permanent investment
portfolio. In addition, we seek to make an economic profit with each
securitization. A securitization is profitable when the cash received by us from
an entity (which equals the market value of the ABS sold by the entity less
securitization expenses) exceeds our cost of acquiring the assets that we sold
to the entity.
-5-
The bulk of our permanent investment portfolio consists of securities
created from pools of high-quality residential real estate loans. These include
securities with concentrated credit risk (credit-enhancement securities, or CES)
or concentrated loan prepayment risk (interest-only securities, or IOS). We
acquire the bulk of our residential loan CES from securitizations sponsored by
others, while we acquired the bulk of our IOS from the Sequoia securitizations
we have sponsored. In our permanent investment portfolio, we also own ABS issued
from re-securitizations of diverse pools of residential and commercial real
estate loan securities. These re-securitizations are typically referred to as
collateralized debt obligations, or CDOs. The CDO securities we acquire and own
are "equity", "preference share", and "non-investment grade" securities.
Collectively, we refer to these as "CDO equity securities." The bulk of the CDO
equity securities in our permanent investment portfolio was acquired from the
Acacia CDO re-securitizations we have sponsored. These CDO equity securities
generally have concentrated credit risk (as well as some prepayment, interest
rate, and other risks) with respect to the underlying pool of diverse real
estate securities. In addition to residential and CDO securities, a small but
growing component of our permanent investment portfolio consists of commercial
real estate assets such as commercial real estate CES, mezzanine commercial
loans, junior commercial loan participations, and commercial real estate CDO
equity securities.
As a result of the form of securitization we have chosen to utilize for
most of the securitizations we sponsor, we consolidate and report all of the
assets of the securitization entities we have sponsored as assets on our GAAP
consolidated balance sheet, and we consolidate and report all of the ABS issued
by those entities and held by unrelated third parties as liabilities on our GAAP
consolidated balance sheet. The ABS we acquire for our permanent investment
portfolio from securitizations we sponsor are not shown as specific assets on
our GAAP consolidated balance sheet, but rather are represented by the excess of
the securitized pool of assets over liabilities that have been consolidated from
the securitization trusts we have sponsored. As a result of this GAAP treatment,
in a securitization transaction, no gain on sale is recognized for GAAP purposes
even if a securitization is economically profitable. Instead, any economic gain
from a securitization is implicitly recognized as a lower net basis of
consolidated assets and liabilities. The profits in a securitization are thus
recognized over time as part of our GAAP income rather than as a one-time
gain-on-sale event.
Redwood Trust was incorporated under the laws of the State of
Maryland on April 11, 1994, and commenced operations on August 19, 1994. Our
executive offices are located at One Belvedere Place, Suite 300, Mill Valley,
California, 94941 and the telephone number is (415) 389-7373.
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement
for any offering of securities, we intend to use the net proceeds from the sale
of securities for the acquisition of real estate assets and for general
corporate purposes. Pending such uses, we may use the net proceeds from the sale
of any securities to reduce short-term indebtedness.
-6-
DESCRIPTION OF SECURITIES
The following is a brief description of the material terms of our
securities that may be offered under this prospectus. This description does not
purport to be complete and is subject in all respects to applicable Maryland law
and to the provisions of our charter and bylaws, including any amendments or
supplements thereto, copies of which are on file with the SEC as described under
"Where You Can Find Information" and are incorporated by reference herein.
GENERAL
We may offer under this prospectus one or more of the following types of
securities: shares of common stock, par value $0.01 per share, in one or more
classes or series; shares of preferred stock, par value $0.01 per share, in one
or more classes or series; common stock warrants; preferred stock warrants;
rights issuable to our stockholders to purchase shares of our common stock or
preferred stock; and any combination of the foregoing, either individually or
as units consisting of one or more of the foregoing 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.
Our charter provides that we have authority to issue up to 50,000,000
shares of stock, par value $0.01 per share, all of which is currently classified
as common stock. Our common stock is listed on the New York Stock Exchange, and
we intend to so list any additional shares of our common stock which are issued
and sold hereunder. We may elect to list any future class or series of our
securities issued hereunder on an exchange, but we are not obligated to do so.
Under Maryland law, our stockholders generally are not liable for our debts or
obligations.
COMMON STOCK
All shares of common stock offered by this prospectus will be duly
authorized, fully paid and nonassessable. Holders of our common stock are
entitled to receive dividends if, as and when authorized by our board of
directors and declared by us out of assets legally available for the payment of
dividends. They are also entitled to share ratably in our assets legally
available for distribution to our stockholders in the event of our liquidation,
dissolution or winding up, after payment of or adequate provision for all of our
known debts and liabilities. These rights are subject to the preferential rights
of any other class or series of our stock and to the provisions of our charter
regarding restrictions on transfer of our stock.
Subject to our charter restrictions on transfer of our stock, each
outstanding share of common stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors. Except
as provided with respect to any other class or series of stock, the holders of
our common stock will possess the exclusive voting power. There is no cumulative
voting in the election of directors, which means that the holders of a majority
of the outstanding shares of common stock can elect all of the directors then
standing for election, and the holders of the remaining shares will not be able
to elect any directors.
Holders of our common stock have no preference, conversion, exchange,
sinking fund, redemption or, if listed on the New York Stock Exchange, appraisal
rights and have no preemptive rights to subscribe for any of our securities.
Subject to our charter restrictions on transfer of our stock, all shares of
common stock will have equal dividend, liquidation and other rights.
POWER TO RECLASSIFY SHARES OF OUR STOCK; ISSUANCE OF ADDITIONAL SHARES
Our charter authorizes our board of directors to classify and reclassify
from time to time any unissued shares of our stock into other classes or series
of stock, including preferred stock, and to cause the issuance of such shares.
Prior to issuance of shares of each class or series, the board of directors is
required by Maryland law and by our charter to set, subject to our charter
restrictions on transfer of our stock, the terms, preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
class or
-7-
series. We believe that the power to issue additional shares of common stock or
preferred stock and to classify or reclassify unissued shares of common or
preferred stock and thereafter to issue the classified or reclassified shares
provides us with increased flexibility in structuring possible future financings
and acquisitions and in meeting other needs which might arise. These actions can
be taken without stockholder approval, unless stockholder approval is required
by applicable law or the rules of any stock exchange or automated quotation
system on which our securities may be listed or traded. Although we have no
present intention of doing so, we could issue a class or series of stock that
could delay, defer or prevent a transaction or a change in control of Redwood
Trust that might involve a premium price for holders of common stock or
otherwise be in their best interest. We have no shares of preferred stock
presently outstanding.
PREFERRED STOCK
Our charter authorizes our board of directors to classify from time to
time any unissued shares of stock in one or more classes or series of preferred
stock and to reclassify any previously classified but unissued preferred stock
of any class or series, in one or more classes or series. If we offer preferred
stock pursuant to this prospectus in the future, the applicable prospectus
supplement will describe the terms of such preferred stock, including the
following, where applicable:
- the designation of the shares and the number of shares that
constitute the class or series;
- the dividend rate (or the method of calculating dividends), if any,
on the shares of the class or series and the priority as to payment
of dividends with respect to other classes or series of our shares
of stock;
- whether dividends will be cumulative or non-cumulative and, if
cumulative, the date from which dividends on the preferred stock
will accumulate;
- the dividend periods (or the method of calculating the dividend
periods);
- the voting rights of the preferred stock, if any;
- the liquidation preference and the priority as to payment of the
liquidation preference with respect to other classes or series of
our stock and any other rights of the shares of the class or series
upon our liquidation or winding-up;
- whether or not and on what terms the shares of the class or series
will be subject to redemption or repurchase at our option;
- whether the shares of the class or series of preferred stock will be
listed on a securities exchange or quoted on an inter-dealer
quotation system;
- any limitations on direct or beneficial ownership and restrictions
on transfer applicable to the preferred stock, in addition to those
already set forth in our charter, that may be necessary to preserve
our status as a real estate investment trust; and
- the other rights and privileges and any qualifications, limitations
or restrictions of the rights or privileges of the class or series.
SECURITIES WARRANTS
We may issue securities warrants for the purchase of common stock or
preferred stock, respectively referred to as common stock warrants and preferred
stock warrants. Securities warrants may be issued independently or together with
any other securities offered by this prospectus and any accompanying prospectus
supplement and may be attached to or separate from such other securities. Each
issuance of the securities warrants will be issued under a separate securities
warrant agreement to be entered into by us and a bank or trust company, as
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 securities warrant certificates. The securities
warrant agent will act solely as an agent of ours in connection with the
securities warrant certificates and will not assume any obligation or
relationship of agency or trust for or with any holder of securities warrant
certificates or beneficial owners of securities warrants.
-8-
If we offer securities warrants pursuant to this prospectus in the future,
the applicable prospectus supplement will describe the terms of such securities
warrants, including the following, where applicable:
- the offering price;
- 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;
- the designation and terms of the securities with which such
securities warrants are being offered, if any, and the number of
such securities warrants being offered with each such security;
- the date on and after which such securities warrants and any related
securities will be transferable separately;
- the number of shares of preferred stock or shares of common stock
purchasable upon exercise of each of such securities warrants and
the price at which such number of shares of preferred stock or
common stock may be purchased upon such exercise;
- the date on which the right to exercise such securities warrants
shall commence and the expiration date on which such right shall
expire;
- federal income tax considerations; and
- any other material terms of such securities warrants.
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 with respect to any meeting of stockholders for the election of
our directors or any other matter, or to exercise any rights whatsoever as
stockholders of Redwood Trust.
RIGHTS TO PURCHASE SHARES OF COMMON OR PREFERRED STOCK
We may issue, as a dividend at no cost, to holders of record of our
securities or any class or series thereof on the applicable record date rights
to purchase shares of our common stock or preferred stock. In this prospectus,
we refer to such rights as "stockholder rights." If stockholders rights are so
issued to existing holders of securities, each stockholder right will entitle
the registered holder thereof to purchase the securities issuable upon exercise
of the rights 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:
- record date;
- subscription price;
- subscription agent;
- 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;
- the date on which the right to exercise such stockholder rights
shall commence and the expiration date on which such right shall
expire;
- federal income tax considerations; and
- 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 may 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.
Holders of stockholder rights will not be entitled by virtue of being such
holders, to vote, to consent, to receive dividends, to receive notice with
respect to any meeting of stockholders for the
-9-
election of our directors or any other matter, or to exercise any rights
whatsoever as stockholders of Redwood Trust, except to the extent described in
the related prospectus supplement.
RESTRICTIONS ON OWNERSHIP AND TRANSFER AND REPURCHASE OF SHARES
In order that we may meet the requirements for qualification as a REIT at
all times, among other purposes, our charter prohibits any person from acquiring
or holding beneficial ownership of shares of our common stock or preferred stock
(collectively, "capital stock") in excess of 9.8%, in number of shares or value,
of the outstanding shares of the related class of capital stock. For this
purpose, the term "beneficial ownership" means beneficial ownership, as
determined under Rule 13d-3 under the Securities Exchange Act of 1934, of
capital stock by a person, either directly or constructively under the
constructive ownership provisions of Section 544 of the Code and related
provisions.
Under the constructive ownership rules of Section 544 of the Code, a
holder of a warrant generally 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, respectively. The rules may also
attribute ownership of securities owned by family members to other members of
the same family and treat securities with respect to which a person has an
option to purchase as actually owned by that person. The rules further provide
when securities constructively owned by a person will be considered to be
actually owned for the further application of such attribution provisions. To
determine whether a person holds or would hold capital stock in excess of the
9.8% ownership limit, a person will be treated as owing not only shares of
capital stock actually owned, but also any shares on capital stock attributed to
that person under the attribution rules described above. Accordingly, a person
who individually owns less than 9.8% of the shares outstanding may nevertheless
be in violation of the 9.8% ownership limit.
Any transfer of shares of capital stock or warrants that would cause us to
be disqualified as a REIT or that would create a direct or constructive
ownership of shares of capital stock in excess of the 9.8% ownership limit, or
result in the shares of capital stock being beneficially owned, within the
meaning of Section 856(a) of the Code, by fewer than 100 persons, determined
without any reference to any rules of attribution, or result in our 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 those shares or
warrants. These restrictions on transferability and ownership will not apply if
our board of directors determines that it is no longer in our best interests to
continue to qualify as a REIT.
Any purported transfer of shares of capital stock or warrants that would
result in a purported transferee owning, directly or constructively, shares in
excess of the 9.8% ownership limit due to the unenforceability of the transfer
restrictions described above will constitute excess securities. Excess
securities will be transferred by operation of law to Redwood Trust 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 9.8% 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 us. In addition, such
excess securities held in trust are subject to purchase by us 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),
reduced by the amount of any distributions received in violation of the charter
that have not been repaid to us, 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 us as reported on any exchange
or quotation system over which such shares of stock or warrants may be
-10-
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 our board of directors, reduced by the
amount of any distributions received in violation of the charter that have not
been repaid to us.
Upon a purported transfer of excess securities, the purported transferee
shall cease to be entitled to distributions, voting rights and other benefits
with respect to the shares of capital stock or warrants except the right to
payment of the purchase price for the shares of capital stock or warrants on the
retransfer of securities as provided above. Any dividend or distribution paid to
a purported transferee on excess securities prior to our discovery that shares
of capital stock have been transferred in violation of our charter shall be
repaid to us upon demand. If these 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 our option, to
have acted as an agent on our behalf in acquiring the excess securities and to
hold the excess securities on our behalf.
All certificates representing shares of capital stock and warrants will
bear a legend referring to the restrictions described above.
Any person who acquires shares or warrants in violation of our charter, or
any person who is a purported transferee such that excess securities result,
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 us of such event and shall provide us such other information
as we may request in order to determined the effect, if any, of the transfer on
our status as a REIT. In addition, every record owner of more than 5.0%, during
any period in which the number of record stockholders is 2,000 or more, or 1.0%,
during any period in which the number of record stockholders is greater than 200
but less than 2,000 or more, or 1/2%, during any period in which the number of
record stockholders is 200 or less, of the number or value of our outstanding
shares will receive a questionnaire from us by January 31 requesting information
as to how the shares are held. Further, each stockholder upon demand is required
to disclose to us in writing such information with respect to the direct and
constructive ownership of shares and warrants as our 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.
Our board of directors may increase or decrease the 9.8% ownership limit.
In addition, to the extent consistent with the REIT provisions of the Code, our
board of directors may, pursuant to our charter, waive the 9.8% ownership limit
for a purchaser of our stock. As a condition to such waiver the intended
transferee must give written notice to the board of directors 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. Our board of directors may also take such other action as
it deems necessary or advisable to protect our status as a REIT. Pursuant to our
charter, our board of directors has, from time to time, waived the ownership
limit for certain of our stockholders.
The provisions described above may inhibit market activity and the
resulting opportunity for the holders of our 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 us an unsuitable
investment vehicle for any person seeking to obtain ownership of more than 9.8%
of the outstanding shares of our capital stock.
MARYLAND BUSINESS COMBINATION ACT
Under the Maryland Business Combination Act, "business combinations"
between a Maryland corporation and an interested stockholder or an affiliate of
an interested stockholder, as such terms are defined in the Act, are prohibited
for five years after the most recent date on which the interested stockholder
becomes an interested stockholder. These business combinations include a merger,
consolidation, share exchange, or, in circumstances specified in the statute, an
asset transfer or issuance or reclassification of equity securities. The statute
permits various exemptions from its provisions, including business combinations
that are exempted by provision in the charter of the corporation. Our
-11-
charter provides that we elect not to be governed by the provisions of the
Maryland Business Combination Act.
MARYLAND CONTROL SHARE ACQUISITION ACT
The Maryland Control Share Acquisition Act causes persons who acquire
beneficial ownership of stock at levels of 10%, 33% and more than 50% (control
share acquisitions) to lose the voting rights of such stock unless voting rights
are restored by the stockholders at a meeting by vote of two-thirds of all the
votes entitled to be cast on the matter (excluding stock held by the acquiring
stockholder or the corporation's officers or employee directors). The Maryland
Control Share Acquisition Act affords a cash-out election for stockholders other
than the acquiring stockholder, at an appraised value (but not less than the
highest price per share paid by the acquiring person in the control share
acquisition), payable by the corporation, if voting rights for more than 50% of
the outstanding stock are approved for the acquiring person. Under certain
circumstances, the corporation may redeem shares acquired in a control share
acquisition if voting rights for such shares have not been approved. The statute
does not apply (a) to shares acquired in a merger, consolidation or share
exchange if the corporation is a party to the transaction or (b) to acquisitions
approved or exempted by the charter or bylaws of the corporation. A
corporation's board of directors has an "opt-out" power, exercisable through
amendment of the corporation's bylaws (which could be changed by the
stockholders), to exempt in advance any control share acquisition from the
Maryland Control Share Acquisition Act. Our bylaws contain a provision exempting
from the Maryland Control Share Acquisition Act acquisitions by certain persons
of shares of our common stock in accordance with waivers from the ownership
limit in our charter granted to such persons by our board of directors.
The Maryland Control Share Acquisition Act could have the effect of
discouraging offers to acquire us and of increasing the difficulty of
consummating any such offers.
CLASSIFICATION OF BOARD OF DIRECTORS, VACANCIES AND REMOVAL OF DIRECTORS
Our charter and bylaws provide for a board of directors with staggered
terms divided in to three classes, with terms of three years each. The number of
directors in each class and the expiration of each class term, as of the date of
this prospectus, are as follows:
Class I..................................................... 3 Directors Expires 2007
Class II.................................................... 3 Directors Expires 2005
Class II.................................................... 2 Directors Expires 2006
At each annual meeting of our stockholders, successors of the class of
directors whose term expires at that meeting will be elected to serve for a
three-year term and until their successors are elected and qualify and the
directors in the other two classes will continue in office. A board of directors
with staggered terms may delay, defer or prevent a change in our control or
other transaction that might involve a premium over the then prevailing market
price for our common stock or other attributes that our stockholders may
consider desirable. In addition, a board of directors with staggered terms could
prevent stockholders who do not agree with the policies of our board of
directors from replacing a majority of the board of directors in two years.
Pursuant to our election to be subject to certain provisions of the
Maryland General Corporation Law, any vacancy on our board of directors may be
filled only by the affirmative vote of a majority of the remaining directors in
office, even if the remaining directors do not constitute a quorum, and any
director elected to fill a vacancy shall serve for the remainder of the full
term of the directorship in which such vacancy occurred and until a successor is
elected and qualifies. Under the Maryland General Corporation Law, if the
directors have been divided into classes, unless the charter provides otherwise
(which our charter does not), a director may be removed only for cause by the
affirmative vote of a majority of all the votes entitled to be cast generally
for the election of directors.
CHARTER AMENDMENTS AND EXTRAORDINARY CORPORATE ACTIONS
Under Maryland law, a Maryland corporation generally cannot dissolve,
amend its charter, merge, sell all or substantially all of its assets, engage in
a share exchange or engage in similar transactions outside the ordinary course
of business, unless approved by the affirmative vote of stockholders entitled
-12-
to cast at least two-thirds of the votes entitled to be cast on the matter.
However, a Maryland corporation may provide in its charter for approval of these
matters by a lesser percentage, but not less than a majority of all of the votes
entitled to be cast on the matter. Our charter provides for approval of these
matters by the affirmative vote of the holders of a majority of the total number
of shares entitled to vote on the matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
Our bylaws provide that with respect to an annual meeting of stockholders,
nominations of individuals for election to the board of directors and the
proposal of business to be considered by stockholders may be made only (i)
pursuant to our notice of the meeting, (ii) by the board of directors or (iii)
by a stockholder who is entitled to vote at the meeting and who has complied
with the advance notice procedures of the bylaws. With respect to special
meetings of stockholders, only the business specified in our notice of the
meeting may be brought before the meeting.
TRANSFER AGENT AND REGISTRAR
Computershare Investor Services, LLC is the transfer agent and registrar
with respect to our common stock.
-13-
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain federal income tax
considerations relevant to Redwood Trust and its stockholders. This discussion
is based on existing United States federal income tax law, which is subject to
change, possibly retroactively. This discussion does not address all aspects of
United States federal income taxation that may be relevant to a particular
stockholder in light of its personal investment circumstances or to certain
types of investors subject to special treatment under the federal income tax
laws (including financial institutions, insurance companies, broker-dealers and,
except to the limited extent discussed below, tax-exempt entities and foreign
taxpayers) and it does not discuss any aspects of state, local or foreign tax
law. This discussion assumes that stockholders will hold their common stock as a
"capital asset" (generally, property held for investment) under the Internal
Revenue Code of 1986, as amended, or the Code. Stockholders are advised to
consult their tax advisors as to the specific tax consequences to them of
purchasing, holding, and disposing of the common stock, including the
application and effect of federal, state, local, and foreign income and other
tax laws.
In reading the tax disclosure set forth below, it should be noted that
although Redwood Trust is combined with all of its subsidiaries for financial
accounting purposes, for federal income tax purposes only Redwood Trust and
Sequoia Mortgage Funding Corporation (and their assets and income) constitute
the REIT, and Redwood Trust's remaining domestic subsidiaries constitute a
separate consolidated group subject to regular corporate income taxes. Redwood's
foreign subsidiaries (i.e., Acacia CDO 1, Ltd., Acacia CDO 2, Ltd., Acacia CDO
3, Ltd., Acacia CDO 4, Ltd., Acacia CDO 5, Ltd. and Acacia CDO 6, Ltd.) are not
generally subject to U.S. corporate income taxes (see " -- Taxable REIT
Subsidiaries" below).
GENERAL
In the opinion of Chapman and Cutler LLP, our special tax counsel, Redwood
Trust, exclusive of any taxable REIT subsidiaries, has been organized and
operated in a manner which qualifies it as a REIT under the Code since the
commencement of its operations on August 19, 1994 through June 30, 2004,
the date of our latest unaudited financial statements reviewed by special tax
counsel. However, whether we do and continue to so qualify will depend on actual
operating results and compliance with the various tests for qualification as a
REIT relating to its income, assets, distributions, ownership and certain
administrative matters, the results of which are not reviewed by special tax
counsel on an ongoing basis. No assurance can be given that the actual results
of our operations for any one taxable year will satisfy those requirements.
Moreover, certain aspects of our operations have not been considered by the
courts or the Internal Revenue Service in any published authorities that
interpret the requirements for REIT status. There can be no assurance that the
courts or the Internal Revenue Service will agree with this opinion. In
addition, qualification as a REIT depends on future transactions and events that
cannot be known at this time. Accordingly, special tax counsel will be unable to
opine whether we will in fact qualify as a REIT under the Code in all events and
for all periods.
The opinions of special tax counsel are based upon existing law, including
the Code, existing Treasury Department regulations, revenue rulings, revenue
procedures, proposed regulations and case law, all of which are subject to
change both prospectively or retroactively. Moreover, relevant laws or other
legal authorities may change in a manner that could adversely affect us or our
stockholders.
If we failed to qualify as a REIT in any particular year, we would be
subject to federal income tax as a regular, domestic corporation, and our
stockholders would be subject to tax in the same manner as stockholders of a
regular corporation. In such event, we could be subject to potentially
substantial income tax liability in respect of each tax year that we fail to
qualify as a REIT as well as the four tax years following the year of the
failure and, as a result, the amount of earnings and cash available for
distribution to our stockholders could be significantly reduced.
-14-
The following is a brief summary of certain technical requirements that we
must meet on an ongoing basis in order to qualify, and remain qualified, as a
REIT under the Code.
STOCK OWNERSHIP TESTS
Our capital stock must be held by at least 100 persons for at least 335
days of a twelve-month year, or a proportionate part of a short tax year. In
addition, no more than 50% of the value of our capital stock may be owned,
directly or indirectly, by five or fewer individuals at all times during the
last half of the tax year. Under the Code, most tax-exempt entities, including
employee benefit trusts and charitable trusts (but excluding trusts described in
Section 401(a) and exempt under Section 501(a) of the Code), are generally
treated as individuals for these purposes. We must satisfy these stock ownership
requirements each tax year. We must solicit information from certain of our
stockholders to verify ownership levels and must maintain records regarding
those who do not respond. Our charter imposes certain repurchase obligations and
restrictions regarding the transfer of our shares in order to aid in meeting the
stock ownership requirements. If we were to fail either of the stock ownership
tests, we would generally be disqualified from REIT status, unless, in the case
of the "five or fewer" requirement, the "good faith" exemption is available.
ASSET TESTS
We must generally meet the following asset tests (the REIT Asset Tests) at
the close of each quarter of each tax year:
- at least 75% of the value of the REIT's total assets must consist of
qualified real estate assets, government securities, cash, and cash items
(the 75% Asset Test);
- the value of the REIT's assets consisting of securities (other than those
includible under the 75% Asset Test) must not exceed 25% of the total
value of the REIT's assets;
- the value of the REIT's assets consisting of securities of one or more
taxable REIT subsidiaries must not exceed 20% of the value of the REIT's
total assets; and
- the value of securities held by the REIT, other than those of a taxable
REIT subsidiary or taken into account for purposes of the 75% Asset Test,
must not exceed either (i) 5% of the value of the REIT's total assets in
the case of securities of any one non-government issuer, or (ii) 10% of
the outstanding vote or value of any such issuer's securities.
For purposes of the above tests, the term "value" generally means, with
respect to securities for which market quotations are readily available, the
market value of such securities, and with respect to other securities and
assets, fair value as determined in good faith by the REIT.
In applying the above tests, a REIT is generally required to re-value all
of its assets at the end of any quarter in which it acquires a substantial
amount of new securities or other property other than qualified real estate
assets. We intend to closely monitor the purchase, holding, and disposition of
the REIT's assets in order to comply with the REIT Asset Tests. We expect that
substantially all of our assets will be qualified real estate assets and intend
to limit or hold through taxable REIT subsidiaries any assets not qualifying as
qualified real estate assets so as to comply with the above REIT Asset Tests. If
it is anticipated that the above limits would be exceeded, we intend to take
appropriate measures to avoid exceeding such limits, including the disposition
of non-qualifying assets within the permitted time periods for cure.
Beginning in 2005, if we fail the REIT Asset Tests we may nonetheless
avoid losing our REIT status if we satisfy either (i) a de minimis exception or
(ii) certain reasonable cause and disclosure requirements and pay certain
penalties. The de minimis exception applies to only certain of the REIT Asset
Tests and is limited to violations not exceeding the lesser of 1% of our total
assets at the end of such quarter or $10 million. The reasonable cause exception
requires that we make certain disclosures to the IRS, establish that the failure
was due to reasonable cause and not willful neglect and pay a penalty equal to
the greater of $50,000 or an amount equal to tax at the highest corporate tax
rate on the
-15-
income derived from such assets during period from identification to cure. Both
exceptions also require that we dispose of the related assets within six months
after the last day of the quarter in which we identify the failure or otherwise
satisfy the failed requirement within the same time period by, for instance,
increasing our holding of other qualified assets.
GROSS INCOME TESTS
We must generally meet the following gross income tests (the REIT Gross
Income Tests) for each tax year:
- at least 75% of the REIT's gross income must be derived from certain
specified real estate sources including interest income and gain from the
disposition of qualified real estate assets, foreclosure property or
"qualified temporary investment income" (i.e., income derived from "new
capital" within one year of the receipt of such capital) (the 75% Gross
Income Test); and
- at least 95% of the REIT's gross income for each tax year must be derived
from sources of income qualifying for the 75% Gross Income Test, or from
dividends, interest, and gains from the sale of stock or other securities
not held for sale in the ordinary course of business (the 95% Gross Income
Test).
We intend to maintain our REIT status by carefully monitoring our income,
including income from hedging transactions and sales of mortgage assets, to
comply with the REIT Gross Income Tests. In computing compliance with the 95%
Gross Income Test, we must evaluate whether and how income generated by interest
rate caps and other hedging instruments undertaken by the REIT fit within this
test. Generally speaking, to the extent an interest rate cap or other hedging
instrument was acquired to reduce the interest rate risks with respect to any
indebtedness incurred or to be incurred by the REIT to acquire or carry real
estate assets and was properly identified at inception, we treat periodic income
and gains generated by dispositions or terminations of such hedging instruments
by the REIT as qualifying for purposes of the 95% Gross Income Test. Otherwise,
income and gains from hedges undertaken at the REIT must fit within the 5%
basket for non-qualifying income in order for the REIT to continue to meet the
REIT Income Tests. Under certain circumstances, for example, (i) the sale of a
substantial amount of mortgage assets by the REIT to repay borrowings in the
event that other credit is unavailable or (ii) an unanticipated decrease in
qualifying income of the REIT which results in the non-qualifying income
exceeding 5% of gross income, we may be unable to comply with certain of the
REIT Gross Income Tests. Inadvertent failures to comply with the REIT Gross
Income Tests will not result in disqualification of the REIT if certain
disclosure and reasonable cause criteria are met and a 100% tax on the amount
equal to the qualified income shortfall is paid. See " -- Taxation of Redwood
Trust" below for a discussion of the tax consequences of failure to comply with
the REIT provisions of the Code.
DISTRIBUTION REQUIREMENTS
We generally are required to distribute to our stockholders an amount
equal to at least 90% of our REIT taxable income determined before deduction of
dividends paid and by excluding net capital gains. Such distributions must be
made in the tax year to which they relate or, if declared before the timely
filing of our tax return for such year and paid not later than the first regular
dividend payment after such declaration, in the following tax year.
The Internal Revenue Service, or IRS, has ruled generally that if a REIT's
dividend reinvestment plan allows stockholders of the REIT to elect to have cash
distributions reinvested in shares of the REIT at a purchase price equal to at
least 95% of the fair market value of such shares on the distribution date, then
such distributions generally qualify towards this distribution requirement. We
maintain a Direct Stock Purchase and Dividend Reinvestment Plan, or DRP, and
intend that the terms of our DRP will comply with the IRS public ruling
guidelines for such plans.
If we fail to meet the distribution test as a result of a retroactive
adjustment to our REIT taxable income, we may be able to avoid disqualification
as a REIT by paying a "deficiency" dividend within a specified time period and
in accordance with other requirements set forth in the Code. We would be liable
for interest based on the amount of the deficiency dividend. A deficiency
dividend is not permitted if the deficiency is due to fraud with intent to evade
tax or to a willful failure to file a timely tax return.
-16-
QUALIFIED REIT SUBSIDIARIES
A Qualified REIT Subsidiary is any corporation in which a REIT owns 100%
of the stock issued by such corporation and for which no election has been made
to classify it as a taxable REIT subsidiary. Sequoia Mortgage Funding
Corporation, our wholly-owned subsidiary, is treated as a Qualified REIT
Subsidiary. As such its assets, liabilities, and income are generally treated as
assets, liabilities, and income of the REIT for purposes of each of the above
REIT qualification tests.
-17-
TAXABLE REIT SUBSIDIARIES
A Taxable REIT Subsidiary is any corporation in which a REIT owns stock
(directly or indirectly) and for which the REIT and such corporation make a
joint election to classify the corporation as a Taxable REIT Subsidiary.
Effective January 1, 2001, RWT Holdings, Inc., or Holdings, and Redwood Trust
elected to treat Holdings, Sequoia Residential Funding, and Holdings' other
subsidiaries as Taxable REIT Subsidiaries of Redwood Trust. Since 2001, Redwood
Trust has made Taxable REIT Subsidiary elections for Acacia CDO 1, Ltd., Acacia
CDO 2, Ltd., Acacia CDO 3, Ltd., Acacia CDO 4, Ltd. and Acacia CDO 5, Ltd. As
Taxable REIT Subsidiaries, they are not subject to the REIT asset, income, and
distribution requirements nor are their assets, liabilities, or income treated
as assets, liabilities, or income of Redwood Trust for purposes of each of the
above REIT qualification tests.
We generally intend to engage in securitization transactions (other than
certain non-REMIC, debt-for-tax securitizations) through our Taxable REIT
Subsidiaries. In addition, we generally intend to make a Taxable REIT Subsidiary
election with respect to any other corporation in which we acquire equity or
equity-like securities constituting more than 10% by vote or value of such
corporation's equity and that is not otherwise a Qualified REIT Subsidiary.
However, the aggregate value of all of our Taxable REIT Subsidiaries must be
limited to 20% of the total value of the REIT's assets. In addition, we will be
subject to a 100% penalty tax on any rent, interest, or other charges that we
impose on any Taxable REIT Subsidiary in excess of an arm's length price for
comparable services. We expect that any rents, interest, or other charges
imposed on Holdings or any other Taxable REIT Subsidiary will be at arm's length
prices.
We generally expect to derive income from our Taxable REIT Subsidiaries by
way of dividends. Such dividends are not real estate source income for purposes
of the 75% Gross Income Test. Therefore, when aggregated with our other non-real
estate source income, such income must be limited to 25% of the REIT's gross
income each year. We will monitor the value of our investment in, and the
distributions from, our Taxable REIT Subsidiaries to ensure compliance with all
applicable REIT income and asset tests.
Taxable REIT Subsidiaries doing business in the United States are
generally subject to corporate-level tax on their net income and generally will
be able to distribute only net after-tax earnings to their stockholders,
including Redwood Trust, as dividend distributions. The Acacia entities are
considered foreign subsidiaries not engaged in trade or business in the United
States for tax purposes and therefore are not subject to U.S. corporate income
taxation (although income from our equity investments in the Acacia entities is
generally includable in REIT taxable income or the taxable income of our other
Taxable REIT Subsidiaries that are its stockholders). There is no guarantee that
the IRS will not take the position that the Acacia entities are doing business
in the U.S., which position, if sustained, would subject the Acacia entities to
corporate level tax on their effectively connected U.S. trade or business
income. If this were to occur, then the Acacia entities would generally only be
able to contribute net after-tax earnings to REIT dividend distributions.
TAXATION OF REDWOOD TRUST
In any year in which Redwood Trust qualifies as a REIT, we generally will
not be subject to federal income tax on that portion of our REIT taxable income
or capital gain that is distributed to our stockholders. We will, however, be
subject to federal income tax at normal corporate income tax rates upon any
undistributed taxable income or capital gain.
In addition, notwithstanding our qualification as a REIT, we may also be
subject to tax in certain other circumstances. As described above, if the REIT
fails to satisfy the REIT Gross Income Tests, but nonetheless maintains its
qualification as a REIT because certain other requirements are met, we will
generally be subject to a 100% tax on the greater of the amount by which the
REIT fails either the 75% or the 95% Gross Income Test. We will also be subject
to a tax of 100% on net income the REIT derives from any "prohibited
transaction," which refers to dispositions of property held by the REIT
classified as "property held for sale to customers in the ordinary course of
business" of the REIT (i.e., "dealer" property). We do not believe that we have
engaged or will engage in transactions that would result in the REIT being
classified as a dealer or deemed to have disposed of dealer property; however,
there can be no
-18-
assurance that the IRS will agree. If the REIT has (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 non-qualifying
income from foreclosure property, we will be subject to federal income tax on
such income at the highest corporate income tax rate. In addition, a
nondeductible excise tax, equal to 4% of the excess of required distributions
over the amounts actually distributed, will be imposed on us for each calendar
year to the extent that dividends paid during the year, or declared during the
last quarter of the year and paid during January of the succeeding year, are
less than the sum of (1) 85% of the REIT "ordinary income," plus (2) 95% of the
REIT capital gain net income, plus (3) any undistributed income remaining from
earlier years. We may also be subject to the corporate alternative minimum tax,
as well as other taxes in certain situations not presently contemplated.
The JOBS Act of 2004 added and modified several provisions in the Code
that would allow us to cure good faith or de minimis violations of the
requirements for maintaining REIT status. In addition to those already
described, beginning in 2005, we can also cure REIT qualification failures if we
establish that such failure was due to reasonable cause and not willful neglect
and we pay a penalty of $50,000 for each such failure. However, if we fail any
of the REIT qualification tests described previously in any tax year and the
cure provisions provided by the Code do not apply, the REIT 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 we fail to qualify as a REIT would not be
deductible by us, nor would distributions generally be required to be made under
the Code. Further, unless entitled to relief under certain other provisions of
the Code, we would also be disqualified from re-electing REIT status for the
four tax years following the year in which it became disqualified.
We may also voluntarily revoke our election to be taxed as a REIT,
although we have no intention of doing so, in which event we will be prohibited,
without exception, from electing REIT status for the year to which the
revocation relates and the following four tax years.
We intend to monitor on an ongoing basis our compliance with the REIT
requirements described above. In order to maintain our REIT status, we may be
required to limit the types of assets that the REIT might otherwise acquire, or
hold certain assets at times when we might otherwise have determined that the
sale or other disposition of such assets would have been more prudent.
TAXATION OF STOCKHOLDERS
For any tax year in which we are treated as a REIT for federal income tax
purposes, distributions (including constructive or in-kind distributions) made
to holders of common stock other than tax-exempt entities (and not designated as
capital gain dividends) will generally be subject to tax as ordinary income to
those holders to the extent of the REIT'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 the common stock, 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 us 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 REIT's actual net capital gain for the tax
year. Alternatively, we can also elect by written notice to our stockholders to
designate a portion of the REIT's net capital gain income as being retained and
pay directly the tax on such net capital gains. In that instance, each
stockholder that generally would be required to include the deemed capital gains
dividend in its income, will be entitled to claim a credit or refund on its tax
return for the tax paid by the REIT with respect to such deemed dividend, and
will be entitled to increase its tax basis in our shares by an amount equal to
the excess of the deemed capital gain dividend over the tax deemed paid by it.
Distributions by us, whether characterized as ordinary income or as
capital gain, are not eligible for the corporate dividends received deduction
that exists under current law. Furthermore, distributions by us characterized as
ordinary income generally will not be subject to the reduced 15% and 5% tax
rates otherwise effective for certain types of dividends as of January 1, 2003.
However, dividend distributions by us characterized as capital gain
distributions recognized subsequent to May 5, 2003, will be subject to
-19-
the reduced 5% and 15% tax rates made effective by the Jobs and Growth Relief
Reconciliation Tax Act of 2003.
In the event that we realize a loss for the tax year, stockholders will
not be permitted to deduct any share of that loss. Further, if we (or a portion
of our assets) were to be treated as a taxable mortgage pool, or if we were to
hold residual interests in real estate mortgage investment conduits, or REMICs,
or financial asset securitization investment trusts, or FASITs, any "excess
inclusion" income derived therefrom and allocated to a stockholder would not be
allowed to be offset by a net operating loss of such stockholder.
Dividends declared during the last quarter of a tax year and actually paid
during January of the following tax year are generally treated as if received by
the stockholder on December 31 of the tax year in which they are declared and
not on the date actually received. In addition, we may elect to treat certain
other dividends distributed after the close of the tax year as having been paid
during such tax year, but stockholders will be treated as having received such
dividend in the tax year in which the distribution is made.
Generally, a dividend distribution of earnings from a REIT is considered
for estimated tax purposes only when the dividend is made. However, any person
owning at least 10% of the vote or value of a closely-held REIT must accelerate
recognition of year-end dividends received from the REIT in computing estimated
tax payments. We are not currently, and do not expect to be, a closely-held
REIT.
Upon a sale or other disposition of common 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 generally will be long-term if the stock was held for more
than twelve months. Any loss on the sale or exchange of common stock held by a
stockholder for six months or less will generally be treated as a long-term
capital loss to the extent of designated capital gain dividends received by such
stockholder. If 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.
DRP participants will generally be treated as having received a dividend
distribution, subject to tax as ordinary income, in an amount equal to the fair
market value of the common stock purchased with the reinvested dividend proceeds
generally on the date we credit such common stock to the DRP participant's
account, plus brokerage commissions, if any, allocable to the purchase of such
common stock. DRP 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.
If we make a distribution of stockholder rights with respect to its common
stock, such distribution generally will not be treated as taxable when made.
However, 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 must make an allocation
of its existing tax basis between the rights and the common stock based on their
relative value on the date of the issuance of the rights. On the 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 stockholder rights with respect to other classes of
securities holders generally would be taxable based on the value of the rights
on the date of distribution.
We are required under Treasury Department regulations to demand annual
written statements from the record holders of designated percentages of our
stock disclosing the actual and constructive ownership of such stock and to
maintain permanent records showing the information we have 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.
-20-
In any year in which we do not qualify as a REIT, distributions made to
our stockholders would be taxable in the same manner discussed above, except
that no distributions could be designated as capital gain dividends,
distributions would be eligible for the corporate dividends received deduction
and may be eligible for the reduced tax rates on dividends (if paid out of
previously-taxed earnings), the excess inclusion income rules would not apply,
and stockholders would not receive any share of our tax preference items. In
such event, however, we would be subject to potentially substantial federal
income tax liability, and the amount of earnings and cash available for
distribution to our stockholders could be significantly reduced or eliminated.
TAXATION OF TAX-EXEMPT ENTITIES
Subject to the discussion below regarding a "pension-held REIT," a
tax-exempt stockholder is generally not subject to tax on distributions from us
or gain realized on the sale of the common stock or preferred stock, provided
that such stockholder has not incurred indebtedness to purchase or hold our
common stock or preferred stock, that its shares are not otherwise used in an
unrelated trade or business of such stockholder, and that we, consistent with
our stated intent, do not form taxable mortgage pools or hold residual interests
in REMICs or FASITs that give rise to "excess inclusion" income as defined under
the Code. However, if the REIT were to hold a residual interest in a REMIC or
FASIT, or if a pool of the REIT's assets were to be treated as a "taxable
mortgage pool," a portion of the dividends paid to a tax-exempt stockholder may
be subject to tax as unrelated business taxable income, or UBTI. Although we do
not intend to acquire such residual interests at the REIT or believe that we, or
any portion of our assets, will be treated as a taxable mortgage pool, no
assurance can be given that the IRS might not successfully maintain that such a
taxable mortgage pool exists.
If a qualified pension trust (i.e., any pension or other retirement trust
that qualifies under Section 401(a) of the Code) holds more than 10% by value of
the interests in a "pension-held REIT" at any time during a tax year, a
substantial portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For these purposes, a "pension-held REIT" is a REIT
(i) that would not have qualified as a REIT but for the provisions of the Code
which look through qualified pension trust stockholders in determining ownership
of stock of the REIT and (ii) in which at least one qualified pension trust
holds more than 25% by value of the equity interest of such REIT or one or more
qualified pension trusts (each owning more than a 10% interest by value in the
REIT) hold in the aggregate more than 50% by value of the equity interests in
such REIT. Assuming compliance with the ownership limit provisions in our
charter, it is unlikely that pension plans will accumulate sufficient stock to
cause us to be treated as a pension-held REIT.
Distributions to certain types of tax-exempt stockholders exempt from
federal income taxation under Section 501 (c)(7), (c)(9), (c)(17), and (c)(20)
of the Code may also constitute UBTI, and such prospective investors should
consult their tax advisors concerning the applicable "set aside" and reserve
requirements.
STATE AND LOCAL TAXES
We and our stockholders may be subject to state or local taxation in
various jurisdictions, including those in which it or they transact business or
reside. The state and local tax treatment of Redwood Trust and our stockholders
may not conform to the federal income tax consequences discussed above.
Consequently, prospective stockholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the common
stock.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO FOREIGN
HOLDERS
The following discussion summarizes certain United States federal tax
consequences of the acquisition, ownership and disposition of common stock or
preferred stock by an initial purchaser that, for United States federal income
tax purposes, is a "Non-United States Holder." A Non-United States Holder is any
beneficial holder that is: not a citizen or resident of the United States; not a
corporation, partnership, or other entity created or organized in the United
States or under the laws of the United States or of any political subdivision
thereof; and not an estate or trust whose income is includable in gross income
for United States federal income tax purposes regardless of its source. This
discussion
-21-
does not consider any specific facts or circumstances that may apply to any
particular Non-United States Holder's acquiring, holding, and disposing of
common stock or preferred stock, or any tax consequences that may arise under
the laws of any foreign, state, local, or other taxing jurisdiction.
DIVIDENDS
Dividends paid by us out of earnings and profits, as determined for United
States federal income tax purposes, to a Non-United States Holder will generally
be subject to withholding of United States federal income tax at the rate of
30%, unless reduced or eliminated by an applicable tax treaty or unless such
dividends are treated as effectively connected with a United States trade or
business. Distributions paid by us in excess of our earnings and profits will be
treated as a tax-free return of capital to the extent of the holder's adjusted
basis in his shares, and thereafter as gain from the sale or exchange of a
capital asset as described below. If it cannot be determined at the time a
distribution is made whether such distribution will exceed our earnings and
profits, the distribution will be subject to withholding at the same rate as
dividends. Amounts so withheld, however, will be refundable or creditable
against the Non-United States Holder's United States federal tax liability if it
is subsequently determined that such distribution was, in fact, in excess of our
earnings and profits. If the receipt of the dividend is treated as being
effectively connected with the conduct of a trade or business within the United
States by a Non-United States Holder, the dividend received by such holder will
be subject to the United States federal income tax on net income that applies to
United States persons generally (and, with respect to corporate holders and
under certain circumstances, to the branch profits tax).
For tax years prior to 2005, certain capital gains distributions by a REIT
to a Non-United States Holder that are attributable to gain from the sales or
exchanges by us of "United States real property interests" will be treated as if
such gain were effectively connected with a United States business and will thus
be subject to tax at the normal capital gain rates applicable to United States
stockholders (subject to applicable alternative minimum tax) under the
provisions of the Foreign Investment in Real Property Tax Act of 1980, or
FIRPTA. Also, distributions subject to FIRPTA may be subject to a 30% branch
profits tax in the hands of a foreign corporate stockholder not entitled to a
treaty exemption. We are required to withhold 35% of any distribution that could
be designated by us as a capital gains dividend. This amount may be credited
against the Non-United States Holder's FIRPTA tax liability. Effective for tax
years beginning in 2005, FIRPTA does not apply to REIT capital gain
distributions (so long as they are made with respect to a class of REIT stock
that is regularly traded on an established securities market in the United
States) to a foreign investor that does not own more than 5% of the REIT's stock
during the taxable year in which such distribution is received. Such
distributions are instead treated by the investor as a regular, rather than
capital gains, dividend. It should also be noted that mortgage loans without
substantial equity or with shared appreciation features generally would not be
classified as "United States real property interests."
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
federal income tax on gain recognized on a sale or other disposition of its
shares of either common or preferred stock unless (i) the gain is effectively
connected with the conduct of a trade or business within the United States by
the Non-United States Holder, (ii) in the case of a Non-United States Holder who
is a nonresident alien individual and holds such shares as a capital asset, such
holder is present in the United States for 183 or more days in the tax year and
certain other requirements are met, or (iii) the Non-United States Holder is
subject to tax under the FIRPTA rules because we are not a "domestically-
controlled REIT" (as further discussed below). Gain that is effectively
connected with the conduct of a business in the United States by a Non-United
States Holder will be subject to the United States federal income tax on net
income that applies to United States persons generally (and, with respect to
corporate holders and under certain circumstances, to the branch profits tax)
but will not be subject to withholding. Non-United States Holders should consult
applicable treaties, which may provide for different rules.
Gain recognized by a Non-United States Holder upon a sale of either common
stock or preferred stock will generally not be subject to tax under FIRPTA if we
are a "domestically-controlled REIT," which is defined generally as a REIT in
which at all times during a specified testing period less than 50% in value of
its shares were held directly or indirectly by non-United States persons.
Because only a minority
-22-
of our stockholders are believed to be Non-United States Holders, we anticipate
that we will qualify as a "domestically-controlled REIT." Accordingly, a
Non-United States Holder should not be subject to United States federal income
tax from gains recognized upon disposition of its shares.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We will report to our U.S. stockholders and the Internal Revenue Service
the amount of distributions paid during each calendar year, and the amount of
tax withheld, if any. Under the backup withholding rules, a stockholder may be
subject to backup withholding with respect to distributions paid (at the rate
generally equal to the fourth lowest rate of federal income tax then in effect)
unless such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates that fact; or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A stockholder that does not provide us with its correct
taxpayer identification number may also be subject to penalties imposed by the
IRS. Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, we may be required to withhold
a portion of dividends and capital gain distributions to any stockholders that
do not certify under penalties of perjury their non-foreign status to us.
PLAN OF DISTRIBUTION
We may sell the offered securities
- through underwriters or dealers;
- through agents;
- directly to one or more purchasers; or
- through a number of direct sales.
We may distribute the securities from time to time in one or more
transactions at a fixed price or prices, which may be changed, or at market
prices prevailing at the time of sale, at prices related to the prevailing
market prices or at negotiated prices.
SALE THROUGH UNDERWRITERS
If we use underwriters in the sale, such underwriters will acquire the
securities for their own account. The underwriters may resell the securities in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
obligations of the underwriters to purchase the securities will be subject to
certain conditions. The underwriters will be obligated to purchase all the
securities of the series offered if any of the securities are purchased. The
underwriters may change from time to time any initial public offering price and
any discounts or concessions allowed or re-allowed or paid to dealers.
SALE THROUGH AGENTS
We may sell offered securities through agents designated by us. Unless
indicated in the prospectus supplement, the agents have agreed to use their
reasonable best efforts to solicit purchases for the period of their
appointment.
DIRECT SALES
We may also sell offered securities directly. In this case, no
underwriters or agents would be involved.
GENERAL INFORMATION
-23-
Underwriters, dealers and agents that participate in the distribution of
the offered securities may be underwriters as defined in the Securities Act of
1933, and any discounts or commissions received by them from us and any profit
on the resale of the offered securities by them may be treated as underwriting
discounts and commissions under the Securities Act. We will identify any
underwriters or agents, and describe their compensation, in a prospectus
supplement.
We may have agreements with the underwriters, dealers and agents to
indemnify them against certain civil liabilities, including liabilities under
the Securities Act, or to contribute with respect to payments which the
underwriters, dealers or agents may be required to make. Underwriters, dealers
and agents may engage in transactions with, or perform services for, us or our
subsidiaries in the ordinary course of their businesses.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be passed
on by Venable LLP, Baltimore, Maryland. Certain tax matters will be passed on by
Chapman and Cutler LLP, San Francisco, California.
EXPERTS
The financial statements incorporated in this prospectus by reference to
the Annual Report on Form 10-K for the year ended December 31, 2003 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent registered public accounting firm, given on the authority of said
firm as experts in accounting and auditing.
-24-
$500,000,000
[LOGO]
REDWOOD TRUST, INC.
COMMON STOCK, PREFERRED STOCK, WARRANTS, AND
SHAREHOLDER RIGHTS TO PURCHASE COMMON STOCK
AND PREFERRED STOCK
PROSPECTUS
__________________, 2004
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 fee, are estimated:
SEC Registration Fee....................................................... $ 63,350
Legal Fees and Expenses.................................................... $ 40,000
Accountant's Fees and Expenses............................................. $ 10,000
Printing Expenses.......................................................... $ 10,000
Miscellaneous.............................................................. $ 1,650
---------
Total............................................................. $125,000
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Maryland General Corporation Law, or MGCL, permits a Maryland
corporation to include in its charter a provision limiting the liability of its
directors and officers to the corporation and its stockholders for money damages
except for liability resulting from (a) actual receipt of an improper benefit or
profit in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
charter of the registrant contains such a provision which eliminates such
liability to the maximum extent permitted by Maryland law.
The charter of the registrant requires it, to the maximum extent permitted
by Maryland law, to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer or (b) any individual who, while a director or officer of
the registrant and at the request of the registrant, serves or has served
another corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or other enterprise
from and against any claim or liability to which such person may become subject
or which such person may incur by reason of his or her service in any such
capacity. The bylaws of the registrant establish certain procedures for
indemnification and advance of expenses pursuant to applicable law and the
registrant's charter. The charter and bylaws also permit the registrant to
indemnify and advance expenses to any person who served a predecessor of the
registrant in any of the capacities described above and to any employee or agent
of the registrant or a predecessor of the registrant.
The MGCL requires a corporation (unless its charter provides otherwise,
which the registrant's charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he or she is made, or threatened to be made, a party by
reason of his or her service in that capacity. The MGCL permits a corporation to
indemnify its present and former directors and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made, or
threatened to be made, a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification,
and then only for expenses. In addition, the MGCL permits a corporation to
advance
II-1
reasonable expenses to a director or officer upon the corporation's receipt of
(a) a written affirmation by the director or officer of his or her good faith
belief that he or she has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or her
or on his or her behalf to repay the amount paid or reimbursed by the
corporation if it shall ultimately be determined that the standard of conduct
was not met.
ITEM 16. EXHIBITS. *
1 Form of underwriting agreement
5 Opinion of Venable LLP as to legality (including consent of such firm)
8 Opinion of Chapman and Cutler LLP as to certain tax matters (including
consent of such firm)
23.1 Consent of Venable LLP (included in Exhibit 5)
23.2 Consent of Chapman and Cutler LLP (included in Exhibit 8)
23.3 Consent of PricewaterhouseCoopers LLP, independent registered public
accounting firm (filed herewith)
24 Power of Attorney (set forth on signature page)
* Definitive exhibits with respect to specific issuances of securities
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.
ITEM 17. UNDERTAKINGS.
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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit
II-2
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
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
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.
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
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mill Valley and County of Marin, State of California,
on November 23, 2004.
REDWOOD TRUST, INC.
By: /s/ GEORGE E. BULL, III
--------------------------
George E. Bull, III
(Chairman of the Board and
Chief Executive Officer)
POWER OF ATTORNEY
We, the undersigned directors and officers of Redwood Trust, Inc., do
hereby constitute and appoint George E. Bull III, Douglas B. Hansen and Harold
F. Zagunis our true and lawful attorneys and agents, to do any and all acts and
things in our name and behalf in our capacities as directors, officers and to
execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents may deem necessary or advisable
to enable said corporation to comply with the Securities Act of 1933, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this registration statement, including
specifically, but without limitation, power and authority to sign for us or any
of us in our names and in the capacities indicated below, any and all amendments
(including post-effective amendments) hereof; and we do hereby ratify and
confirm all that the said attorneys and agents shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Form S-3
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE POSITION DATE
--------- -------- ----
/s/ GEORGE E. BULL, III Chairman of the Board, Chief November 23, 2004
--------------------------------- Executive Officer and Director
George E. Bull, III (Principal Executive Officer)
/s/ DOUGLAS B. HANSEN President and Director November 23, 2004
---------------------------------
Douglas B. Hansen
/s/ HAROLD F. ZAGUNIS Chief Financial Officer, November 23, 2004
--------------------------------- Vice President, and Secretary
Harold F. Zagunis (Principal Financial Officer and
Accounting Officer)
/s/ THOMAS C. BROWN Director November 23, 2004
------------------------------
Thomas C. Brown
/s/ MARIANN BYERWALTER Director November 23, 2004
------------------------------
Mariann Byerwalter
/s/ RICHARD D. BAUM Director November 23, 2004
------------------------------
Richard D. Baum
/s/ CHARLES J. TOENISKOETTER Director November 23, 2004
------------------------------
Charles J. Toeniskoetter
II-4
SIGNATURE POSITION DATE
---------- --------- ----
/s/ DAVID L. TYLER Director November 23, 2004
------------------------------
David L. Tyler
/s/ GREG H. KUBICHEK Director November 23, 2004
------------------------------
Greg H. Kubichek
II-5
EXHIBIT INDEX*
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
1 Form of underwriting agreement
5 Opinion of Venable LLP as to legality (including consent of such firm)
8 Opinion of Chapman and Cutler LLP as to certain tax matters (including consent of such firm)
23.1 Consent of Venable LLP (included in Exhibit 5)
23.2 Consent of Chapman and Cutler LLP (included in Exhibit 8)
23.3 Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm (filed herewith )
24 Power of Attorney (set forth on signature page)
* Definitive exhibits with respect to specific issues of securities covered
by this Registration Statement will be filed as exhibits to reports filed
by the Company pursuant to Section 13 of the Securities Exchange Act of
1934, as amended, at the time of issuance.
II-6