IMPAC MORTGAGE HOLDINGS INC
10-K/A, 1998-06-05
REAL ESTATE INVESTMENT TRUSTS
Previous: ELANTEC SEMICONDUCTOR INC, 8-K, 1998-06-05
Next: ADVENT SOFTWARE INC /DE/, 8-K, 1998-06-05



<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                AMENDMENT NO. 1
                                  FORM 10-K/A
 
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
   EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
   OR
 
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
   EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM       TO      .
 
                        COMMISSION FILE NUMBER: 0-19861
 
                         IMPAC MORTGAGE HOLDINGS, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                   MARYLAND                            33-0675505
 (STATE OR OTHER JURISDICTION OFINCORPORATION
               OR ORGANIZATION)
                                           (I.R.S. EMPLOYERIDENTIFICATION NO.)
 
             20371 IRVINE AVENUE                          92707
        SANTA ANA HEIGHTS, CALIFORNIA                  (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 556-0122
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
<TABLE>
<CAPTION>
                                      NAME OF EACH EXCHANGE
                                               ON
           TITLE OF EACH CLASS          WHICH REGISTERED
           -------------------       -----------------------
       <S>                           <C>
       Common Stock $0.01 par value  American Stock Exchange
</TABLE>
 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X]    No [_]
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [_]
 
  AT MARCH 24, 1998, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $364.4 MILLION, BASED ON
THE CLOSING SALES PRICE OF THE COMMON STOCK ON THE AMERICAN STOCK EXCHANGE.
FOR PURPOSES OF THE CALCULATION ONLY, IN ADDITION TO AFFILIATED COMPANIES, ALL
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT HAVE BEEN DEEMED
AFFILIATES. THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 24,
1998 WAS 23,257,036.
 
                   DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
 
                                   PART III
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
RELATIONSHIPS WITH THE MANAGER
 
  The Company entered into the Management Agreement with ICAI, the Manager,
effective on November 20, 1995, for an initial term that expired on January
31, 1997 which the Company renewed for an additional five year term. (See "--
Management Fees"). Effective December 19, 1997, the Company terminated its
Management Agreement with the Manager. The termination fee was paid with
2,009,310 shares of the Company's Common Stock representing a value of $35.0
million in addition to other assets comprising the balance. See "--Termination
of Management Agreement."
 
  The Company is currently negotiating with the principals of RAI to provide
management services. The arrangement pursuant to which management services
will be provided to the Company will be on terms no less favorable to the
Company on a pro rata basis than the terms of the agreement with ICAI.
 
 Management Fees
 
  Prior to January 31, 1997, the Manager was entitled to a per annum base
management fee payable monthly in arrears of an amount equal to (1) 3/8 of 1%
of Gross Mortgage Assets (as defined in the Management Agreement) of IMH
comprised of other than Agency Certificates (as defined in the Management
Agreement), conforming mortgage loans or mortgage-backed securities secured by
or representing interests in conforming mortgage loans, plus (2) 1/8 of 1% of
the remainder of Gross Mortgage Assets of IMH plus (3) 1/5 of 1% of the
average daily asset balance of the outstanding amounts under IWLG's warehouse
lending facilities. A base management fee of $4.0 million, $2.1 million,
$38,000 was accrued for the years ended December 31, 1997, 1996 and the
Interim Period, respectively.
 
  Prior to January 31, 1997, as incentive compensation (the "Incentive
Payment"), the Manager was entitled to receive for each fiscal quarter, an
amount equal to 25% of the net income of the Company, before deduction of such
incentive compensation, in excess of the amount that would produce an
annualized Return on Equity equal to the daily average Ten Year U.S. Treasury
Rate plus 2%. The term "Return on Equity" was calculated for any quarter by
dividing the Company's Net Income for the quarter by its Average Net Worth for
the quarter. For such calculations, the "Net Income" of the Company means the
income of the Company determined in accordance with GAAP before the Manager's
incentive compensation, the deduction for dividends paid and any net operating
loss deductions arising from losses in prior periods. A deduction for all of
the Company's interest expenses for borrowed money was also taken in
calculating Net Income. "Average Net Worth" for any period means the
arithmetic average of the sum of the gross proceeds from any offering of its
equity securities by the Company, before deducting any underwriting discounts
and commissions and other expenses and costs relating to the offering, plus
the Company's retained earnings (without taking into account any losses
incurred in prior periods) computed by taking the daily average of such values
during such period. The definition "Return on Equity" was only for purposes of
calculating the incentive compensation payable, and was not related to the
actual distributions received by stockholders. The 25% Incentive Payment to
the Manager was calculated quarterly in arrears before any income
distributions were made to stockholders for the corresponding period. For the
years ended December 31, 1997, 1996 and the Interim Period, the Manager earned
$2.3 million, $1.3 million, and none, respectively, for the Manager's
Incentive Payment.
 
  Pursuant to the Management Agreement, the Company provided up to 1/5 of the
Company's 25% Incentive Payment for distribution as bonuses to its employees
in amounts determined by the Company's Board of Directors. Such payment were
made in lieu of payment of a like amount to the Manager under the Management
Agreement. For the years ended December 31, 1997, 1996 and the Interim Period,
the Company recorded $307,000, $155,000 and none, pursuant to this provision
of the Management Agreement.
 
  The Management Agreement described above expired on January 31, 1997 and a
new five year agreement was executed with similar terms except as follows: (1)
75% of the per annum base management fee as calculated
 
                                       2
<PAGE>
 
above was paid to the Manager for services rendered under the agreement; (2)
25% of the per annum base management fee as calculated above was paid to
participants in its executive bonus pool in amounts determined in the sole
discretion of the Company's Chief Executive Officer; (3) the Company reserved
up to 1/4 versus 1/5 of the above incentive compensation for distribution as
bonuses to participants in its executive bonus pool in amounts determined in
the sole discretion of the Company's Chief Executive Officer; and (4) net
income included in the Return on Capital calculation was changed from net
income in accordance with GAAP to net taxable income.
 
  The Manager's base and incentive fees were calculated by the Manager within
60 days after the end of each calendar quarter, with the exception of the
fourth quarter for which compensation was computed within 30 days, and such
calculation was promptly delivered to the Company. The Company was obligated
to pay the base fee within 90 days after the end of each calendar quarter.
 
 Expenses
 
  Pursuant to the Management Agreement, the Company also paid all operating
expenses except those specifically required to be borne by the Manager under
the Management Agreement. The operating expenses generally required to be
borne by the Manager include the compensation and other employment costs of
the Manager's officers in their capacities as such and the cost of office
space and out-of-pocket costs, equipment and other personnel required for
oversight of the Company's operations. The expenses paid by the Company
included issuance and transaction costs incident to the acquisition,
disposition and financing of investments, regular legal and auditing fees and
expenses of the Company, the fees and expenses of the Company's Directors,
premiums for directors' and officers' liability insurance, premiums for
fidelity and errors and omissions insurance, servicing and sub-servicing
expenses, the costs of printing and mailing proxies and reports to
stockholders, and the fees and expenses of the Company's custodian and
transfer agent, if any. Reimbursements of expenses incurred by the Manager
which are the responsibility of the Company are made monthly. For the years
ended December 31, 1997, 1996 and for the Interim Period, there were no monies
paid to the Manager as reimbursement of expenses.
 
 Termination of Management Agreement
 
  Effective December 19, 1997, the Company terminated its Management Agreement
with ICAI. A termination fee in the aggregate of $44.0 million was paid with
2,009,310 shares of the Company's Common Stock representing a value of $35.0
million in addition to equity in IFC's residual interests in securitizations
originally purchased from ICII during 1996 representing $9.0 million. IMH
purchased the equity in residual interests in securitizations from IFC for
$9.0 million and simultaneously retired IFC's borrowings with IMH for the
equity in residual interests in securitizations of $9.0 million. No gain or
loss on the sale of residual interests in securitizations was recorded by IMH
or IFC. For financial accounting purposes, the termination fee was treated as
a non-recurring, non-cash expense and resulted in a charge of $44.4 million to
the Company's fourth quarter earnings.
 
RELATIONSHIPS WITH ICII
 
 General
 
  ICII is a publicly traded company whose shares of common stock are listed on
the Nasdaq National Market. ICAI, a wholly-owned subsidiary of ICII, was the
Manager and provided advisory services to IMH in accordance with the terms of
the Management Agreement during 1997. At March 24, 1998, ICII owned 2,009,310
shares of IMH Common Stock that was acquired by ICAI in December 1997 in
connection with the termination of the Management Agreement. ICAI subsequently
transferred the shares of stock to ICII. In addition, a number of Directors
and officers of IMH and IFC also serve as Directors and/or officers of ICII.
See "Item 10. Directors and Executive Officers of the Registrant." IMH
currently utilizes ICAI as a resource for human resources services. See "--
Services Agreement with ICAI."
 
  With a view toward protecting the interests of IMH's stockholders, the
Charter and the Bylaws of IMH provide that a majority of the Board of
Directors (and at least a majority of each committee of the Board of
 
                                       3
<PAGE>
 
Directors) must not be "Affiliates" of ICAI, as that term is defined in the
Bylaws, and that the investment policies of IMH must be reviewed annually by
the Unaffiliated Directors. Such policies and restrictions thereon may be
established from time to time by the Board of Directors, including a majority
of the Unaffiliated Directors. In addition, any transaction between IMH and
any Affiliated Person requires the affirmative vote of a majority of the
Unaffiliated Directors. Moreover, approval, renewal or termination of the
Management Agreement requires the affirmative vote of a majority of the
Unaffiliated Directors.
 
 The Contribution Transaction
 
  On November 20, 1995, ICII contributed to IFC certain of the operating
assets and certain customer lists of ICII's mortgage conduit operations
including all of ICII's mortgage conduit operations' commitments to purchase
mortgage loans subject to rate locks from correspondents (having a principal
balance of $44.3 million at November 20, 1995), in exchange for shares
representing 100% of the common stock and 100% of the outstanding non-voting
preferred stock of IFC. Simultaneously, on November 20, 1995, in exchange for
500,000 shares of Common Stock, ICII (1) contributed to IMH all of the
outstanding non-voting preferred stock of IFC, which represents 99% of the
economic interest in IFC, (2) caused SPB to contribute to IMH certain of the
operating assets and certain customer lists of SPB's warehouse lending
division, and (3) executed the Non-Compete Agreement and the Right of First
Refusal Agreement, each having a term of two years from November 20, 1995. Of
the 500,000 shares issued pursuant to the Contribution Transaction, 450,000
shares were issued to ICII and 50,000 shares were issued to SPB. Such shares
have subsequently been sold by ICII and SPB. All of the outstanding shares of
common stock of IFC were retained by ICII (the shares of Common Stock of IFC
have subsequently been transferred to Messrs. Tomkinson, Ashmore and Johnson).
Lastly, IMH contributed all of the aforementioned operating assets of SPB's
warehouse lending operations contributed to it by SPB to IWLG in exchange for
shares representing 100% of the common stock of IWLG thereby forming it as a
wholly owned subsidiary. At November 20, 1995, the net tangible book value of
the assets contributed pursuant to the Contribution Transaction was $525,000.
ICII and SPB retained all other assets and liabilities related to the
contributed operation, which at November 20, 1995 consisted mostly of $11.7
million of MSRs, $22.4 million of finance receivables and $26.6 million in
advances made by ICII and SPB to fund mortgage conduit loan acquisitions and
to fund finance receivables, respectively.
 
  Pursuant to the Non-Compete Agreement, ICII and any entity of which ICII
owned more than 25% of the voting securities (a 25% entity) could not compete
with the Company's Warehouse Lending Operationsand could not establish a
network of third party correspondent loan originators or another end-investor
in non-conforming mortgage loans. This agreement expired on November 20, 1997.
 
  Pursuant to the Right of First Refusal Agreement, ICII granted IFC a right
of first refusal to purchase all non-conforming mortgage loans that ICII or
any 25% entity originated or acquired and subsequently offered for sale, and
IFC granted ICII, or any 25% entity designated by ICII, a right of first
refusal to purchase all conforming mortgage loans that IFC acquired and
subsequently offered for sale. This agreement expired on November 20, 1997.
 
 Arrangements and Transactions With ICII
 
  The Company and ICII have entered into agreements for the purpose of
defining their ongoing relationships. These agreements were developed in the
context of a parent/subsidiary relationship and therefore were not the result
of arms length negotiations between independent parties. It is the intention
of the Company and ICII that such agreements and the transactions provided for
therein, taken as a whole, are fair to both parties, while continuing certain
mutually beneficial arrangements. However, there can be no assurance that each
of such agreements, or the transactions provided for therein, have been
effected on terms at least as favorable to the Company as could have been
obtained from unaffiliated third parties.
 
  The Company has entered into a sublease with ICII to lease a portion of its
facilities as the Company's executive offices and administrative facilities.
The Company believes that the terms of the sublease are at least
 
                                       4
<PAGE>
 
as favorable as could have been obtained from an unaffiliated third party. For
the year ended December 31, 1997, 1996 and the Interim Period, $395,672,
$180,861 and $12,210, respectively, were paid by the Company to ICII under the
sublease. See "Item 2. Properties."
 
  Additional or modified arrangements and transactions may be entered into by
the Company, ICII, and their respective subsidiaries, in the future. Any such
future arrangements and transactions will be determined through negotiation
between the Company and ICII, and it is possible that conflicts of interest
will be involved. The Unaffiliated Directors, consisting of directors
independent of the Company, any manager of the Company (including ICAI) and
ICII and its Affiliates, must independently approve all transactions by and
between the Company and ICII.
 
 Tax Agreement
 
  IMH entered into an agreement (the "Tax Agreement") effective November 20,
1995 with ICII for the purposes of (1) providing for filing certain tax
returns, (2) allocating certain tax liability and (3) establishing procedures
for certain audits and contests of tax liability.
 
  Under the Tax Agreement, ICII has agreed to indemnify and hold IMH harmless
from any tax liability attributable to periods ending on or before November
20, 1995, in excess of such taxes as IMH has already paid or provided for. For
periods ending after November 20, 1995, IMH will pay its tax liability
directly to the appropriate taxing authorities. To the extent (1) there are
audit adjustments that result in a tax detriment to IMH or (2) IMH incurs
losses that are carried back to an earlier year and any such adjustment
described in (1) or loss described in (2) results in a tax benefit to ICII or
its affiliates, then ICII will pay to IMH an amount equal to the tax benefit
as that benefit is realized. ICII agrees to indemnify IMH for any liability
associated with the contribution of the preferred stock of IFC and certain
operational assets of SPB's warehouse lending division or any liability
arising out of the filing of a federal consolidated return by ICII or any
return filed with any state or local counterpart liability. To the extent
there are audit adjustments that result in any tax detriment to ICII or any of
its affiliates with respect to any period ending on or before November 20,
1995, as a result thereof, IMH for any taxable period after November 20, 1995
realizes a tax benefit, then IMH shall pay to ICII the amount of such benefit
at such time or times as IMH actually realizes such benefit.
 
  ICII generally controls audits and administrative and judicial proceedings
with respect to periods ending on or before November 20, 1995, although ICII
cannot compromise or settle any issue that increases IMH's liability without
first obtaining the consent of IMH. IMH generally controls all other audits
and administrative and judicial proceedings.
 
 Services Agreement with ICII
 
  Prior to November 20, 1995, the predecessors of IFC and IWLG were
historically allocated expenses of various administrative services provided by
ICII. The costs of such services were not directly attributable to a specific
division or subsidiary and primarily included general corporate overhead, such
as accounting and cash management services, human resources and other
administrative functions. These expenses were calculated as a pro rata share
of certain administrative costs based on relative assets and liabilities of
the division or subsidiary, which management believed was a reasonable method
of allocation. The allocations of expenses for the period January 1, 1995 to
November 19, 1995 were $269,226 for IFC and IWLG combined.
 
  The Company and ICII entered into a services agreement effective as of
November 20, 1995 (the "Services Agreement") under which ICII provides various
services to the Company, including data processing, human resource
administration, general ledger accounts, check processing and payment of
accounts payable. ICII charges fees for each of the services which it provides
under the Services Agreement based upon usage. The Company may terminate the
Services Agreement, in whole or in part, upon one month's written notice. As
part of the services to be provided under the Services Agreement, ICII
provides the Company with insurance coverage and self-insurance programs,
including health insurance. The charge to the Company for coverage will be
based
 
                                       5
<PAGE>
 
upon a pro rata portion of the costs to ICII for the various policies.
Management believes that the terms of the Services Agreement are as favorable
to the Company as could be obtained from independent third parties. For the
year ended December 31, 1997, 1996 and for the Interim Period, total expenses
related to these services that were allocated to IFC and IWLG combined were
$160,080, $440,782 and $29,131, respectively.
 
 Services Agreement with ICAI
 
  In connection with the Termination Agreement, the Company entered into a
services agreement with ICAI for a term of one year. ICAI agreed to provide
certain human resource and data and phone communication services based on an
arranged fee.
 
ARRANGEMENTS WITH ICH
 
  In February 1997, the Company incorporated ICH, a specialty commercial
property finance company which will elect to be taxed as a REIT. ICH
purchases, sells and securitizes commercial mortgage loans and invests in such
mortgage loans and securities backed by such loans. In connection with the
organization of ICH and its initial public offering in August 1997, the
Company capitalized ICH with $15.0 million and as of December 31, 1997 held
719,789 shares of ICH common stock representing 9.8% of the outstanding shares
of common stock, from which it expects to receive dividend income, and 674,211
shares of ICH's non-voting Class A Common Stock, which are convertible into an
equivalent amount of shares of common stock.
 
  Many of the affiliates of IMH, RAI and IFC have interlocking executive
positions and share common ownership. Joseph R. Tomkinson, IMH's Chairman of
the Board and Chief Executive Officer and IFC's Chief Executive Officer and a
Director, is the Chief Executive Officer and Chairman of the Board of ICH, a
one-third owner of RAI, an owner of one-third of the common stock of IFC, and
an owner of 25% of the common stock of ICCC. William S. Ashmore, IMH's
President, Chief Operating Officer, and a Director and IFC's President and a
Director, is the President and Chief Operating Officer of ICH, a one-third
owner of RAI, an owner of one-third of the common stock of IFC, and an owner
of 25% of the common stock of ICCC. Richard J. Johnson, IMH's Executive Vice
President, Chief Financial Officer, Treasurer and Secretary, and a Senior Vice
President, Chief Financial, Officer Secretary and Director of IFC, is
Executive Vice President, Chief Financial Officer, Treasurer and Secretary of
ICH, a one-third owner of RAI, an owner of one-third of the common stock of
IFC, and an owner of 25% of the common stock of ICCC. Mary C. Glass-
Schannault, IMH's and IFC's Senior Vice President, is a Senior Vice President
of ICH and ICCC. Each of James Walsh, Frank P. Filipps and Stephan R. Peers,
Directors of IMH, are Directors of ICH. Messrs. Tomkinson, Ashmore, Johnson
and Ms. Glass-Schannault and Messrs. Snaveley, Walsh, Filipps and Peers hold
76,800, 76,800, 62,400 and 12,000 and 12,000 shares of the common stock of
ICH. Messrs. Tomkinson, Ashmore and Johnson and Ms. Glass-Schannault also hold
options to purchase 10,000 shares of ICH common stock with related dividend
equivalent rights, and Messrs. Walsh, Filipps and Peers hold options to
purchase 10,000 shares of common stock. In addition, as owners of all of the
outstanding shares of voting stock of IFC, Messrs. Tomkinson, Ashmore, and
Johnson, have the right to elect all directors of IFC and the ability to
control the outcome of all matters for which the consent of the holders of the
common stock of IFC is required. Ownership of 100% of the common stock of IFC
entitles the owners thereof to an aggregate of 1% of the economic interest in
IFC. Messrs. Tomkinson, Ashmore and Johnson received their shares of IFC from
ICII.
 
  The oversight of the day-to-day operations of ICH is conducted by RAI
pursuant to a Management Agreement (the "RAI Management Agreement") entered
into in August 1997. The officers of RAI, Joseph R. Tomkinson, William S.
Ashmore, Richard J. Johnson and Mary C. Glass-Schannault, are also officers of
IMH and IFC. RAI is owned one-third by Joseph R. Tomkinson, IMH's and ICH's
Chairman of the Board and Chief Executive Officer, one-third by William S.
Ashmore, IMH's and ICH's President and Chief Operating Officer and a Director
of IMH, and one-third by Richard J. Johnson, IMH's and ICH's Executive Vice
President, Chief Financial Officer, Treasurer and Secretary.
 
  Each Messrs. Tomkinson, Ashmore and Johnson and Mrs. Glass-Schannault has
modified his or her employment agreement with IFC to allow him or her to
become an officer of RAI (and of ICH and ICCC).
 
                                       6
<PAGE>
 
However, such officers are expected to devote the majority of their time and
effort towards the management and operations of IMH and IFC. RAI has agreed to
cause each of its officers to devote as much of his or her time to the
operations of ICH as is necessary. ICH reimburses RAI, who reimburses IFC, on
a dollar for dollar basis (including the service charge referenced below), for
the actual cost of providing the services of its officers to ICH based upon
the compensation payable to them by IFC, plus a 15% service charge. See "Item
11. Executive Compensation." ICH reimburses RAI for expenses incurred by RAI,
plus a service charge of 15% on all expenses owed by RAI to IFC for costs and
services under any submanagement agreement between IFC, and RAI pays all such
third parties on a dollar for dollar basis for the aforementioned amounts
received by it from ICH; no such 15% service charge is paid to third party
service providers other than IFC. For the first three years of the RAI
Management Agreement, there is a minimum amount of $500,000 (including the 15%
service charge) payable by ICH in connection with services provided and
expenses incurred by RAI and payable by RAI to IFC. After the third year, ICH
is only responsible for reimbursing expenses and services provided, with the
15% service charge for amounts due to IFC. Should the operations of ICH and
ICCC and those of the Company require immediate attention or action by RAI or
any of its officers, there can be no assurance that the officers of RAI will
be able to properly allocate sufficient time to the operations of the Company.
The failure or inability of the Company's officers and directors to provide
the services required of them under their respective employment agreements or
any other agreements or arrangements with the Company would have a material
adverse effect on the Company's business.
 
 Non-Competition Agreement
 
  IFC and IMH entered into a non-compete agreement, (the "Non-Compete
Agreement") with ICH, effective as of August 8, 1997, under which neither IMH
nor IFC will originate or acquire any commercial mortgages or CMBSs for a
period of the earlier of nine months from August 1997 or the date upon which
ICH accumulates (for investment or sale) $300.0 million of commercial
mortgages and/or commercial mortgage-backed securities ("CMBSs"). However, the
Non-Compete Agreement does not preclude IMH (either directly or through IFC)
from purchasing any commercial mortgages or CMBSs as permitted under the Right
of First Refusal Agreement (as defined below). After the termination of the
Non-Compete Agreement, and subject to the Right of First Refusal Agreement,
IMH, as a mortgage REIT, and IFC may compete with the operations of ICH.
 
 Right of First Refusal Agreement
 
  It is anticipated that RAI will act as the manager for other REITs, some of
which may have been or will be affiliated with the Company, ICH, or their
respective conduit operations (an "Affiliated REIT"). In such event, any
Affiliated REIT utilizing RAI as its manager may be in competition with the
Company. In August 1997, RAI, ICH, ICCC, IMH and IFC entered into a ten-year
right of first refusal agreement (the "Right of First Refusal Agreement"). It
is expected that any Affiliated REIT utilizing RAI as its manager will become
a party to the Right of First Refusal Agreement, but such event is outside the
control of the Company and there can be no assurance that any or all
Affiliated REITs will actually become parties to the Right of First Refusal
Agreement. Pursuant to this Agreement, RAI has agreed that any mortgage loan
or mortgage-backed security investment opportunity (an "Investment
Opportunity") which is offered to it on behalf of either the Company, ICH or
any Affiliated REIT will first be offered to that entity (the "Principal
Party") whose initial primary business as described in its initial public
offering documentation (the "Initial Primary Business") most closely aligns
with such Investment Opportunity. In addition, both IMH and IFC on the one
hand, and ICH and ICCC on the other, agree that any Investment Opportunity
offered to either of them which falls outside the scope of its Initial Primary
Business should be offered to the Principal Party. Should the Principal Party
decline to take advantage of an Investment Opportunity offered to RAI, RAI
will make an independent evaluation of which REIT's business is more greatly
enhanced by such Investment Opportunity. Should all of said REIT's decline to
take advantage of an Investment Opportunity offered to a REIT which is a party
to the Right of First Refusal Agreement, said REIT shall then be free to
pursue the Investment Opportunity. In such an event there can be no assurance
that the Company will be able to take advantage of any such Investment
Opportunity or that any
 
                                       7
<PAGE>
 
competitive activity of ICH or any Affiliated REIT will not adversely affect
the Company's operations. In addition, the Company may become further
prejudiced by the Right of First Refusal Agreement to the extent that the
Company desires to pursue or pursues a business outside its Initial Primary
Business.
 
  After the termination of the Non-Compete Agreement, and subject to the Right
of First Refusal Agreement, IMH, as a mortgage REIT, and IFC may compete with
the operations of ICH.
 
 Submanagement Agreement
 
  IFC entered into a submanagement agreement with RAI under which IMH and IFC
provide various services to ICH as RAI deems necessary, including facilities
and costs associated therewith, technology, human resources, management
information systems, general ledger accounts, check processing and accounts
payable, plus a 15% service charge. IFC charges ICH and ICCC for these
services based upon usage which management believes is reasonable. Total cost
allocations IFC charged to ICH and ICCC for the year ended December 31, 1997
were $525,174 and $456,122, respectively.
 
 Credit Arrangements
 
  IMH maintains an uncommitted warehouse financing facility with an interest
rate indexed to the prime rate with ICCC of which $8.5 million was outstanding
on the warehouse line at December 31, 1997. The largest aggregate balance
outstanding during the year ended December 31, 1997 was $8.5 million. Interest
income recorded by IMH related to warehouse financing due from ICCC for the
year ended December 31, 1997 was $262,000.
 
  During 1997, IWLG maintained a warehouse financing facility with ICH, in
part, to finance ICH's purchase of $17.5 million in commercial mortgages from
IFC, until ICH obtained a warehouse financing facility with a third-party
lender. The largest aggregate balance outstanding during the year ended
December 31, 1997 was $16.7 million. IWLG recorded interest income on the
amounts advanced to ICH at 6.3% per annum which totaled $453,000.
 
  In February 1997, IMH provided a loan to ICH in the amount of $900,000 in
connection with the purchase of the $17.5 million in commercial mortgage loans
referenced above. In March 1997, ICH repaid the $900,000 in other borrowings
from IMH. Interest income recorded by IMH related to other borrowings was
$53,000 for the year ended December 31, 1997.
 
  In August 1997, IMH entered into a revolving credit arrangement with ICH
whereby IMH would advance to ICH up to a maximum amount of $15.0 million. The
agreement expires on August 8, 1998. Advances under the revolving credit
arrangement are evidenced by an unsecured promissory note and at an interest
rate and maturity to be determined at the time of each advance (typically,
prime plus 1%) with interest and principal paid monthly. During 1997, the
largest aggregate amount outstanding under the credit arrangement was $15.0
million at an interest rate of 9.5%. As of December 31, 1997, the outstanding
balance on the line of credit was $9.1 million. Interest income recorded by
IMH related to such borrowings from ICH was approximately $55,000.
 
  In August 1997, ICH entered into a revolving credit arrangement with IMH
whereby ICH agreed to advance to IMH up to a maximum amount of $15.0 million.
The agreement expires on August 8, 1998. Advances under the revolving credit
arrangement are at an interest rate and maturity to be determined at the time
of each advance (typically, prime plus 1%) with interest and principal paid
monthly. During 1997, the largest aggregate amount outstanding under the
credit arrangement was $12.6 million at an interest rate of 9.5%. As of
December 31, 1997, there were no amounts outstanding under the credit
arrangement. Interest income recorded by ICH related to such advances to IMH
was approximately $68,000.
 
  In October 1997, IFC entered into a revolving credit arrangement with ICH
whereby ICH would advance to IFC up to a maximum amount of $15.0 million.
Advances under the revolving credit arrangement were evidenced by an unsecured
promissory note and at an interest rate and maturity determined at the time of
each
 
                                       8
<PAGE>
 
advance (typically, prime plus 1%) with interest and principal paid monthly.
The largest aggregate balance outstanding under the revolving credit
arrangement during the year ended December 31, 1997 was $2.0 million at an
interest rate of 9.5%. The revolving credit arrangement expired in December
1997 and as of December 31, 1997 there were no amounts outstanding.
 
  On December 31, 1997, the Company financed its 50% interest, through its
ownership in Dove, in a commercial office building located in Newport Beach,
California with a loan for $5.2 million from ICCC of which $2.6 million
represents IMH's portion. Terms of the loan are at 25-year amortization
maturing in 10 years, an adjustable rate of 9.0% with current monthly
principal and interest payments of $44,097 of which IMH pays $22,049. ICCC
recorded loan fees of $70,085 on the loan. See "Item 2. Properties."
 
 Purchase of Mortgage Loans
 
  In February 1997, IFC sold $17.5 million in unpaid principal balance of
mortgage loans to ICH. See "--Credit Arrangements" above for a discussion of
borrowings in connection with the sale of loans to ICH.
 
 Sale of Residual Interests in Securitizations
 
  In March 1997, IFC sold a residual interest in securitization of $10.1
million to ICH at a carrying value which approximated fair value.
 
RELATIONSHIPS WITH AFFILIATES
 
 Related Party Cost Allocations
 
  IMH and IWLG are allocated data processing, executive and operations
management, and accounting services that IFC incurs during the normal course
of business. IFC charges IMH and IWLG for these services based upon usage
which management believes was reasonable. Total cost allocations charged to
IMH and IWLG by IFC for the year ended December 31, 1997 were $384,767.
 
  IMH has entered into a premises operating sublease agreement with ICII to
rent approximately 29,000 square feet of office space in Santa Ana Heights,
California, for a two-year term expiring in February 1999. IMH allocates
monthly rental expense on the basis of square footage occupied. The majority
of occupancy charges incurred during 1997 were allocated to IFC as most of the
Company's employees are employed by the Conduit Operations. Total lease
charges for the years ended December 31, 1997, 1996 and for the Interim Period
were $395,672, $180,861, and $12,210, of which $384,691, $179,049, and $12,210
was allocated to IFC (see "Item 2. Properties").
 
 Sub-Servicing Agreements
 
  IFC acts as a servicer of mortgage loans acquired on a "servicing-released"
basis by the Company in its Long-Term Investment Operations pursuant to the
terms of a Servicing Agreement which became effective on November 20, 1995.
For a general description of the terms of such a Servicing Agreement, see
"Item 1. Business--Servicing and Master Servicing." IFC subcontracts all of
its servicing obligations under such loans to independent third parties
pursuant to sub-servicing agreements.
 
 Credit Arrangements
 
  IWLG maintains a warehouse financing facility with IFC. Advances under such
warehouse facilities bear interest at rates indexed to prime. The largest
aggregate balance outstanding during 1997 was $682.8 million at a rate of
8.5%. As of December 31, 1997, 1996 and 1995, finance receivables outstanding
to IFC were $454.8 million, $327.4 million and $550.3 million, respectively.
Interest income recorded by IWLG related to finance receivables due from IFC
for the years ended December 31, 1997, 1996, and for the Interim Period was
$33.4 million, $31.8 million and $1.3 million, respectively.
 
                                       9
<PAGE>
 
  In June 1997, IMH canceled debt in the amount of $9.0 million owed to IMH by
IFC. Of the canceled amount, $8.91 million was contributed to IFC as a
contribution to preferred stock and $90,000 was contributed on behalf of IFC's
common shareholders, Messrs. Tomkinson, Ashmore, and Johnson, so as to
maintain their 1% economic interest.
 
  As part of the Company's termination of its Management Agreement with ICAI,
IMH purchased the equity in residual interests in securitizations from IFC for
$9.0 million and simultaneously retired IFC's borrowings with IMH for the
equity in residual interests in securitizations for $9.0 million. No gain or
loss on the sale of residual interests in securitizations was recorded by IMH
or IFC.
 
  During the normal course of business, IMH may advance or borrow funds on a
short-term basis with affiliated companies. Advances to affiliates are
reflected as "Due From Affiliates" while borrowings are reflected as "Due To
Affiliates" on IMH's balance sheet. These short-term advances and borrowings
bear interest at a fixed rate of 8.00% per annum. Interest income recorded by
IMH related to short-term advances due from affiliates was $219,416 for the
year ended December 31, 1997. Interest expense recorded by IMH related to
short-term advances due to affiliates was $195,689 for the year ended December
31, 1997.
 
  During the normal course of business, IFC may advance or borrow funds on a
short-term basis with affiliated companies. Advances to affiliates are
reflected as "Due From Affiliates" while borrowings are reflected as "Due To
Affiliates" on IFC's balance sheet. These short-term advances and borrowings
bear interest at a fixed rate of 8.00% per annum. Interest income recorded by
IFC related to short-term advances due from affiliates was $500,044 for the
year ended December 31, 1997. Interest expense recorded by IFC related to
short-term advances due to affiliates was $687,675 for the year ended December
31, 1997.
 
  In March 1997, IWLG extended a $5.0 million line of credit to WSI, a firm
affiliated with James Walsh, a Director of the Company, which was increased to
$7.5 million in November 1997. Advances under the line of credit bear interest
at a rate determined at the time of each advance. During the year ended
December 31, 1997, the largest aggregate balance outstanding to WSI was $5.9
million at an interest rate of 11.5%. As of December 31, 1997, WSI had an
aggregate of $5.9 million outstanding under the WSI Credit Lines.
 
  In September 1996, IFC issued a $1.25 million secured residential first
mortgage loan to H. Wayne Snavely, the Director of IMH at an interest rate of
8.0%. During 1997, the largest outstanding balance on the loan was
$1.25 million. As of December 31, 1997, $1.24 million was outstanding at an
interest rate of 8.0% per annum. The loan was in the ordinary course of
business, substantially on the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons.
 
 Purchase of Mortgage-Backed Securities
 
  During the year ended December 31, 1997 and 1996, the Company purchased
$15.0 million and $32.5 million, respectively, of mortgage-backed securities
issued by IFC for $12.6 million and $26.8 million, respectively, net of
discounts of $2.4 million and $5.7 million, respectively. IFC issued the
mortgage-backed securities during 1997 and 1996 in connection with its REMIC
securitizations.
 
  During 1997, the Company purchased Walsh Acceptance Corporation mortgage
pass-through certificates series 1997-1 and 1996-1, Class B, for $6.7 million
and $10.7 million, respectively, net of a discount of $916,000 and $1.2
million, respectively, with a current yield of 8.9% and 10.8%, respectively.
James Walsh, a director of the Company, is an Executive Vice President of
Walsh Securities, Inc.
 
 Purchase of Mortgage Loans
 
  During each of the years ended December 31, 1997 and 1996, the Company
purchased adjustable rate first trust deed and fixed rate second trust deed
residential mortgages having a principal balance of $839.5 million and
$576.4 million, respectively, with premiums of $37.5 million and $15.2
million, respectively, from IFC. Servicing rights on all adjustable rate
mortgages were retained by IFC, while servicing rights on all second trust
deed mortgages were not originally acquired by IFC.
 
                                      10
<PAGE>
 
  In August 1997, IFC purchased $80.2 million of non-conforming residential
mortgage loans from Greenwich pursuant to a mortgage loan purchase agreement.
Greenwich previously purchased such loans from WSI. In December 1997, WSI
repurchased $7.3 million of the loans that IFC originally purchased from
Greenwich at a loss to the Company of $112,000. In connection with the
repurchase, IWLG extended loans of approximately $5.1 million to WSI at rates
ranging from prime plus 2% per annum to prime plus 4% per annum. Of the
$5.1 million, 100% and 90% were financed on approximately $2.3 million and
$3.1 million, respectively, of unpaid principal balance of mortgage loans
repurchased by WSI. The largest aggregate principal balance outstanding during
1997 was $5.1 million. As of December 31, 1997, WSI had an aggregate of $5.1
million outstanding under the loans.
 
  IFC has entered into a forward commitment with WSI to purchase or broker
approximately $500.0 million of certain mortgage loans until April 30, 1998.
The premium at which IFC purchases the loans depends on whether the loans are
resold or brokered by IFC. As of December 31, 1997, IFC has brokered
approximately $20.0 million of mortgage loans for WSI.
 
 Redemption of Senior Notes
 
  On January 24, 1997, IMH redeemed ICII senior note obligations for $5.2
million resulting in a gain of $648,000.
 
 Sale of Franchise Loans Receivables
 
  In January 1997, IMH sold the beneficial interest in the Class A Trust
Certificate for the Franchisee Loan Receivables Trust 1995-B ("Franchise Loans
Receivables") and the beneficial interest in the Class E Trust Certificate for
the Franchisee Loan Receivables Trust 1996-B to IFC at carrying value which
approximated fair value. No gain or loss was recorded on the sale and the
Company was under no obligation to sell the securities.
 
 Indebtedness of Management
 
  In connection with the exercise of options during the years ended December
31, 1997 and 1996, the Company made loans secured by the related stock
totaling $939,000 and $720,000, respectively, at a current interest rate of
5.63% for a five-year term. Interest on the loans is payable quarterly upon
receipt of the dividend payment and the interest rate is set annually by the
compensation committee. At each dividend payment date, 50% of excess quarterly
stock dividends, after applying the dividend payment to interest due, is
required to reduce the principal balance outstanding on the loans. The
interest rate on these loans adjusts annually at the discretion of the Board
of Directors. As of December 31, 1997 and 1996, total notes receivable from
common stock sales was $1.3 million and $720,000, respectively. See "Item 11.
Executive Compensation--Stock Option Loan Plan."
 
 General
 
  The Company may from time to time, enter into additional transactions in the
ordinary course on the business with institutions with which certain of the
affiliated directors are employed.
 
                                      11
<PAGE>
 
                                  SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to
its report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on the 5th day of
June, 1998.
 
                                          IMPAC MORTGAGE HOLDINGS, INC.
 
                                          by /s/   Richard J. Johnson
                                              ---------------------------
                                                  Richard J. Johnson
                                                Executive Vice President,
                                                Chief Financial Officer
                                                  and Secretary
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS
BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE
CAPACITIES AND ON THE DATES INDICATED.
 
<TABLE>
<CAPTION>
             SIGNATURE                              TITLE                     DATE
             ---------                              -----                     ----
<S>                                  <C>                                  <C>
                *                    Chairman of the Board and            June 5, 1998
- ------------------------------------  Chief Executive Officer
        Joseph R. Tomkinson           (Principal Executive Officer)
 
        Richard J. Johnson           Chief Financial Officer (Principal
- ------------------------------------  Financial and Accounting Officer)   June 5, 1998
         Richard J. Johnson
 
                *                    Director                             June 5, 1998
- ------------------------------------
          H. Wayne Snavely
 
                *                    Director                             June 5, 1998
- ------------------------------------
            James Walsh
 
                *                    Director                             June 5, 1998
- ------------------------------------
          Frank P. Filipps
 
                *                    Director                             June 5, 1998
- ------------------------------------
          Stephan R. Peers
 
                *                    Director                             June 5, 1998
- ------------------------------------
         William S. Ashmore
</TABLE>
 
     /s/ Richard J. Johnson
*By: __________________________
      Richard J. Johnson
       Attorney-in-Fact
 
                                      12
<PAGE>
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
  (C) EXHIBITS
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.
 -------
 <C>     <S>
 23.1    Consent of KPMG Peat Marwick LLP regarding the Registrant.
 23.2    Consent of KPMG Peat Marwick LLP regarding Impac Funding Corporation.
 24.     Power of Attorney.*
</TABLE>
- --------
 *   previously filed

<PAGE>
 
                                                                    EXHIBIT 23.1

                        CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Impac Mortgage Holdings, Inc.:

We consent to incorporation by reference in the registration statements (No. 
333-12025) on Form S-8 and registration statements (No. 333-34137 and No. 
333-38517) each on Form S-3 of Impac Mortgage Holdings, Inc. of our report dated
February 9, 1998, relating to the consolidated balance sheets of Impac Mortgage
Holdings, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997, which report
appears in the December 31, 1997 annual report on Form 10-K of Impac Mortgage
Holdings, Inc.


/s/ KPMG Peat Marwick LLP


Orange County, California
June 5, 1998

<PAGE>
 
                                                                    EXHIBIT 23.2

                                                                    
                        CONSENT OF INDEPENDENT AUDITORS


The Board of Directors
Impac Funding Corporation:

We consent to incorporation by reference in the registration statements (No. 
333-12025) on Form S-8 and registration statements (No. 333-34137 and No. 333-
38517) each on Form S-3 of Impac Mortgage Holdings, Inc. of our report dated
February 9, 1998, relating to the balance sheets of Impac Funding Corporation as
of December 31, 1997 and 1996, and the related statements of operations, changes
in shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997, which report appears in the December 31, 1997
annual report on Form 10-K of Impac Mortgage Holdings, Inc.

/s/ KPMG Peat Marwick LLP

Orange County, California
June 5, 1998


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission