<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1998
REGISTRATION NO. 333-34137
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 3 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
IMPAC MORTGAGE HOLDINGS, INC.
(FORMERLY IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<CAPTION>
MARYLAND 33-0675505
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<S> <C>
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
20371 IRVINE AVENUE
SANTA ANA HEIGHTS, CALIFORNIA 92707
(714) 556-0122
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JOSEPH R. TOMKINSON
CHIEF EXECUTIVE OFFICER
IMPAC MORTGAGE HOLDINGS, INC.
20371 IRVINE AVENUE
SANTA ANA HEIGHTS, CALIFORNIA 92707
(714) 556-0122
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPY TO:
THOMAS J. POLETTI, ESQ.
KATHERINE J. BLAIR, ESQ.
FRESHMAN, MARANTZ, ORLANSKI,
COOPER & KLEIN
9100 WILSHIRE BLVD., 8TH FLOOR EAST
BEVERLY HILLS, CALIFORNIA 90212
TELEPHONE: (310) 273-1870
FACSIMILE: (310) 274-8357
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: 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, 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 prospectuses expected to be made pursuant to Rule 434,
check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
2,105,192 SHARES
[IMH LOGO APPEARS HERE]
COMMON STOCK
----------------
Impac Mortgage Holdings, Inc. ("IMH" or the "Company") intends to enter into
a Sales Agency Agreement (the "Sales Agency Agreement") with PaineWebber
Incorporated ("PaineWebber"), a copy of the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus Supplement is a
part and is incorporated by reference herein. Subject to the terms and
conditions of the Sales Agency Agreement, the Company may issue and sell up to
6,065,000 shares of Common Stock, $.01 par value per share (the "Common
Stock"), from time to time through PaineWebber, as exclusive sales agent for
the Company; up to 2,105,192 of such shares are being offered under this
Prospectus Supplement. Such sales, if any, will be made by means of ordinary
brokers' transactions on the American Stock Exchange (the "AMEX").
The compensation to PaineWebber for sales of Common Stock will equal a fixed
percentage of the gross sales price of any shares sold, in the form of a
commission, as follows: 3.0% for the first 2,500,000 shares of Common Stock
that may be sold under the Sales Agency Agreement, 2.5% for the next 2,500,000
shares that may be sold thereunder, and 2.25% for the remaining 1,065,000
shares that may be sold thereunder. The remaining sales proceeds, after
deducting any transaction fees imposed by any governmental or self-regulatory
organization in respect of such sales, shall constitute the net proceeds to
the Company for the sale of such shares (the "Net Proceeds").
Settlement for sales of Common Stock will occur on the third business day
following the date on which any such sales are made. Purchases of Common Stock
from PaineWebber as sales agent for the Company will settle the regular way on
the national securities exchange where such purchases were executed. On the
third business day following the date on which shares of Common Stock are sold
by PaineWebber, the Company will deliver such shares against payment of the
Net Proceeds therefor. There is no arrangement for funds to be received in an
escrow, trust or similar arrangement.
On or prior to the second business day after the end of each calendar week
during which sales of Common Stock were made by PaineWebber (each such week a
"Reporting Period"), the Company will file a Prospectus Supplement under the
applicable paragraph of Rule 424(b) promulgated under the Securities Act,
which Prospectus Supplement will set forth the dates included in such
Reporting Period, the number of such shares of Common Stock sold through
PaineWebber as sales agent, the net proceeds to the Company and the
compensation payable by the Company to PaineWebber with respect to sales of
Common Stock pursuant to the Sales Agency Agreement. Unless otherwise
indicated in a Prospectus Supplement, PaineWebber as sales agent will act on a
reasonable efforts basis.
SEE "RISKS FACTORS" COMMENCING ON PAGE S-3 HEREOF AND PAGE 7 OF THE
PROSPECTUS FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus Supplement is , 1998.
<PAGE>
In connection with the sale of the Common Stock on behalf of the Company,
PaineWebber may be deemed to be an "underwriter" within the meaning of the
Securities Act, and the compensation of PaineWebber may be deemed to be
underwriting commissions or discounts. The Company has agreed to provide
indemnification and contribution to PaineWebber against certain civil
liabilities, including liabilities under the Securities Act. PaineWebber has
in the past, and in the future may engage in transactions with, or perform
services for, the Company in the ordinary course of business. PaineWebber has
provided financial advisory services to the Company for which PaineWebber will
receive customary fees.
If either the Company or PaineWebber has reason to believe that the
exemptive provisions set forth in Rule 101(c)(1) of Regulation M under the
Exchange Act are not satisfied, it shall promptly notify the other and sales
of Stock under the Sales Agency Agreement shall be suspended until that or
other exemptive provisions have been satisfied in the judgment of the Company
and PaineWebber.
The offering of Common Stock pursuant to the Sales Agency Agreement will
terminate upon the earlier of (i) the sale of all shares of Common Stock
subject thereto and (ii) termination of the Sales Agency Agreement. The Sales
Agency Agreement may be terminated by the Company in its sole discretion on
the first anniversary of the date of the Sales Agency Agreement, and may be
terminated by PaineWebber in its sole discretion at any time after the first
anniversary of the date of the Sales Agency Agreement.
S-2
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus Supplement
and the accompanying Prospectus, the following risk factors and the
information under the caption "Risk Factors" in the accompanying Prospectus
should be carefully considered in evaluating the Company and its business
before purchasing any of the shares of Common Stock offered hereby.
RISKS REGARDING PURCHASE OF MORTGAGE LOANS FROM PREFERRED
New Product Offerings May Entail Substantial Risks
Pursuant to a mortgage loan purchase agreement (the "Preferred Purchase
Agreement") entered into in July 1997, as amended and restated in August 1997,
with Preferred Credit Corporation ("Preferred"), the Company agreed to
purchase up to $500.0 million in mortgage loans. As of December 31, 1997, the
Company has purchased an aggregate of $526.1 million in principal balance of
mortgage loans from Preferred. The Company has limited experience with the
type of mortgage loans originated by Preferred, and there can be no assurance
that the return on the Company's investment in these new products will be
consistent with the Company's historical financial results.
Representations and Warranties
Resale of mortgage loans purchased from Preferred may subject the Company to
risk. As of December 31, 1997, $218.9 million in principal balance of mortgage
loans purchased from Preferred have been sold by the Company. Impac Funding
Corporation ("IFC"), IMH's conduit operations, currently intends to securitize
the remaining mortgage loans purchased from Preferred. In connection with the
issuance of mortgage backed securities by IFC, such securities have been, and
are expected, to be non-recourse to IFC, except in the case of a breach of the
standard representations and warranties made by IFC when the mortgage loans
are securitized. While IFC may have recourse to Preferred for any such
breaches, there can be no assurance of Preferred's ability to honor its
obligations. IFC has generally limited the remedies of such purchasers to the
remedies IFC receives from Preferred. However, in some cases, the remedies
available to a purchaser of mortgage loans from IFC may be broader than those
available to IFC against Preferred and should a purchaser exercise its
remedies against IFC, IFC may not always be able to enforce whatever remedies
IFC may have against Preferred. Furthermore, even if IFC were able to enforce
remedies available against Preferred, the effect of such enforcement may be
limited by the current financial position and operations of Preferred. There
can be no assurance that sanctions imposed on Preferred by the Department of
Real Estate or the effect of the settlement with the Department of
Corporations will not have a material adverse effect on the financial
condition and results of operations of Preferred, the effect of which could
adversely affect the ability of Preferred to honor its repurchase or indemnity
obligations under the Preferred Purchase Agreement.
Limited Information Regarding Loss and Prepayment History; Lack of Seasoning
Preferred has had a limited operating history and as a result, Preferred's
historical loss and prepayment experience may be of limited relevance in
quantifying delinquency, loss, prepayment or other characteristics of these
loans. Furthermore, Preferred's mortgage loans represent a relatively new loan
product within the consumer finance industry and accordingly the Company
cannot rely on the historical experience of other companies issuing a
comparable product. Any material change in delinquencies, prepayments and
losses from management's assumptions and estimates may adversely affect the
Company's financial condition and results of operations including the value of
any residual interest retained in any securitization of such loans. The actual
performance of such mortgage loans will not be known until sometime in the
future.
S-3
<PAGE>
Credit Risk Associated with Preferred's Loan Products
Although mortgage loans originated by Preferred and purchased by the Company
under the Preferred Purchase Agreement are secured by real estate, because of
the relatively high loan-to-value ("LTV") of said loans, in most cases the
value of the underlying collateral will be less than the principal amount of
the mortgage loans, and effectively unsecured. Accordingly, in making
underwriting decisions, Preferred relies principally on the creditworthiness
of the borrower, rather than the underlying collateral for repayment. Because
of the relatively high combined LTV ratios of such mortgage loans and because
the mortgage loans are second mortgages giving the Company a position as a
subordinate lien holder with respect to the collateral underlying such
mortgage loans, the Company is likely to incur a total loss in the event that
a customer defaults on its mortgage loan obligations to the Company or to the
senior lien holder.
Credit Risks Associated With Mortgage Loans Not Securitized
Mortgage loans purchased from Preferred may not be readily securitizeable,
or may be securitizeable only after individual mortgage loan portfolio
characteristics become apparent over time. To the extent that such mortgage
loans are not securitized, the Company must fund such assets with borrowings
or internally generated funds and bear the credit risk associated with such
assets. The Company's inability ultimately to sell or securitize substantially
all of the mortgage loans it purchases from Preferred could have a material
adverse effect on the Company's business and results of operations.
RISKS REGARDING PURCHASE OF MORTGAGE LOANS FROM GREENWICH
Representations and Warranties
In August 1997, IFC purchased $80.2 million of non-conforming residential
mortgage loans from Greenwich Capital Financial Products, Inc. ("Greenwich")
pursuant to a mortgage loan purchase agreement (the "WSI Purchase Agreement").
Greenwich previously purchased such loans from Walsh Securities, Inc. ("WSI")
a firm affiliated with James Walsh, a Director of the Company. Resale of
mortgage loans purchased from Greenwich may subject the Company to risk. As of
December 31, 1997, an aggregate of $68.8 million in principal balance of the
mortgage loans have been sold, of which $7.3 million were repurchased by WSI.
The Company recorded a loss of $112,000 on the resale of the mortgage loans to
WSI. IFC intends to continue to sell, through bulk whole loans sales conducted
by IFC, substantially all of the mortgage loans purchased from Greenwich. In
connection with such bulk whole loan sales IFC has entered into, and expects
to continue to enter into, agreements that provide for recourse by the
purchaser against IFC (and, in certain cases, IMH as guarantor) in the event
of a breach of representation or warranty made by IFC, any fraud or
misrepresentation during the mortgage loan origination process or upon early
default on such mortgage loans. IFC has generally limited the remedies of such
purchasers to the remedies IFC receives from WSI and Greenwich. However, in
some cases, the remedies available to a purchaser of mortgage loans from IFC
may be broader than those available to IFC against WSI or Greenwich, and
should a purchaser exercise its remedies against IFC, IFC may not always be
able to enforce whatever remedies IFC may have against WSI or Greenwich.
Furthermore, even if IFC were able to enforce remedies available against WSI
or Greenwich, the effect of such enforcement may be limited by the current
financial position and operations of WSI or Greenwich. Pursuant to the WSI
Purchase Agreement, WSI and Greenwich made representations and warranties
regarding the mortgage loans. In the event of a breach of their respective
representations and warranties, WSI and Greenwich would be responsible for the
repurchase of an affected mortgage loan or for indemnifying IFC for losses
suffered in connection with such loan. According to published reports, WSI
financed loans for independent mortgage loan brokers that engaged in
fraudulent misconduct in connection with the origination of such mortgage
loans. There can be no assurance that the effect of such fraudulent activity
will not result in a material adverse effect on the financial condition and
results of operations of WSI which would adversely affect its ability to
repurchase any mortgage loan or honor any indemnification obligations under
the WSI Purchase Agreement.
S-4
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
TO HOLDERS OF COMMON STOCK
The following summary of certain federal income tax considerations to
holders of Common Stock is based on current law, is for general information
only and is not tax advice. The tax treatment of a holder of Common Stock will
vary depending on his or her particular situation, and this summary does not
purport to deal with all aspects of taxation that may be relevant to
prospective purchasers of Common Stock in light of such purchasers' particular
investment or tax circumstances, or to certain types of purchasers subject to
special treatment under the federal income tax laws, including, without
limitation, insurance companies, certain financial institutions, broker-
dealers, stockholders holding Common Stock as part of a conversion
transaction, as part of a hedge or hedging transaction, or as a position in a
straddle for tax purposes, tax-exempt organizations (except to the extent
discussed under the heading "--Taxation of Tax-Exempt Stockholders"), or
foreign corporations, foreign partnerships and persons who are not citizens or
residents of the United States. This discussion should be read in conjunction
with the discussion under "Federal Income Tax Considerations" in the
Prospectus. In addition, the summary below does not consider the effect of any
foreign, state, local or other tax laws that may be applicable to prospective
purchasers of Common Stock.
This discussion does not address any aspects of federal income taxation to
IMH relating to its election to be taxed as a real estate investment trust. A
summary of certain federal income tax considerations to IMH is provided in the
Prospectus.
The discussion set forth below assumes that IMH qualifies as a REIT under
the Code. If in any taxable year IMH were to fail to qualify as a REIT, IMH
would not be allowed a deduction for dividends paid to stockholders in
computing taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. As a result, the funds available
for distribution to IMH's stockholders would be reduced. See "Risk Factors--
Consequences of Failure to Maintain REIT Status May Include IMH Being Subject
to Tax as a Regular Corporation" and "Federal Income Tax Considerations--
Failure to Qualify" in the Prospectus.
PROSPECTIVE PURCHASERS SHOULD REFER TO THE PROSPECTUS FOR A SUMMARY OF THE
FEDERAL INCOME TAX CONSIDERATIONS TO IMH OF ITS ELECTION TO BE TAXED AS A
REIT. PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
SALE OF COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES
IN APPLICABLE TAX LAWS.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of shares of
Common Stock who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership,
or other entity created or organized in or under the laws of the United States
or of any state thereof or the District of Columbia (unless, in the case of a
partnership, Treasury regulations provide otherwise), (iii) is an estate the
income of which is subject to United States federal income taxation regardless
of its source, or (iv) is a trust, the administration of which is subject to
the primary supervision of a United States court and which has one or more
United States persons who have the authority to control all substantial
decisions of the trust. Notwithstanding the preceding sentence, to the extent
provided in regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date that elect to continue to
be treated as United States persons, shall also be considered U.S.
Stockholders.
As long as IMH qualifies as a REIT, distributions made by IMH out of its
current or accumulated earnings and profits (and not designated as capital
gain dividends) will constitute dividends taxable to its taxable U.S.
Stockholders as ordinary income. Such distributions will not be eligible for
the dividends received deduction in the case of U.S. Stockholders that are
corporations. Distributions made by IMH that are properly designated by IMH as
capital gain dividends will be taxable to taxable U.S. Stockholders as gain
(to the extent that they do not exceed IMH's actual net capital gain for the
taxable year) from the sale or disposition of a capital asset (provided that
the shares have been held as a capital asset). Depending upon the period of
time that IMH held the assets to
S-5
<PAGE>
which such gains were attributable, and upon certain designations, if any,
which may be made by IMH, such gains will be taxable to non-corporate U.S.
Stockholders at a rate of either 20%, 25% or 28%. U.S. Stockholders that are
corporations may, however, be required to treat up to 20% of certain capital
gain dividends as ordinary income. To the extent that IMH makes distributions
(not designated as capital gain dividends) in excess of its current and
accumulated earnings and profits, such distributions will be treated first as
a tax-free return of capital to each U.S. Stockholder, reducing the adjusted
basis which such U.S. Stockholder has in his shares of Common Stock for tax
purposes by the amount of such distribution (but not below zero), with
distributions in excess of a U.S. Stockholder's adjusted basis in his shares
taxable as capital gains (provided that the shares have been held as a capital
asset). With respect to non-corporate U.S. Stockholders, amounts described as
being treated as capital gains in the preceding sentence will be taxable as
long-term capital gains if the shares to which such gains are attributable
have been held for more than eighteen months, mid-term capital gains if the
shares have been held for more than one year but not more than eighteen
months, or short-term capital gains if the shares have been held for one year
or less. Dividends declared by IMH in October, November, or December of any
year and payable to a stockholder of record on a specified date in any such
month shall be treated as both paid by IMH and received by the stockholder on
December 31 of such year, provided that the dividend is actually paid by IMH
on or before January 31 of the following calendar year. Stockholders may not
include in their own income tax returns any net operating losses or capital
losses of IMH.
IMH may elect to retain, rather than distribute as a capital gain dividend,
its net long-term capital gains. In such event, IMH would pay tax on such
retained net long- term capital gains. In addition, to the extent designated
by IMH, a U.S. Stockholder generally would (i) include its proportionate share
of such undistributed long-term capital gains in computing its long-term
capital gains in its return for its taxable year in which the last day of
IMH's taxable year falls (subject to certain limitations as to the amount so
includable), (ii) be deemed to have paid the capital gains tax imposed on IMH
on the designated amounts included in such U.S. Stockholder's long-term
capital gains, (iii) receive a credit or refund for such amount of tax deemed
paid by it, (iv) increase the adjusted basis of its shares of Common Stock by
the difference between the amount of such includable gains and the tax deemed
to have been paid by it, and (v) in the case of a U.S. Stockholder that is a
corporation, appropriately adjust its earnings and profits for the retained
capital gains in accordance with Treasury Regulations to be prescribed by the
Service.
Distributions made by IMH and gain arising from the sale or exchange by a
U.S. Stockholder of shares of Common Stock will not be treated as passive
activity income, and, as a result, U.S. Stockholders generally will not be
able to apply any "passive losses" against such income or gain. Distributions
made by IMH (to the extent they do not constitute a return of capital)
generally will be treated as investment income for purposes of computing the
investment interest limitation. Gain arising from the sale or other
disposition of Common Stock (or distributions treated as such), however, will
not be treated as investment income unless the U.S. Stockholder elects to
reduce the amount of such U.S. Stockholder's total net capital gain eligible
for the maximum capital gains rate by the amount of such gain with respect to
such Common Stock.
Upon any sale or other disposition of Common Stock, a U.S. Stockholder will
recognize gain or loss for federal income tax purposes in an amount equal to
the difference between (i) the amount of cash and the fair market value of any
other property received on such sale or other disposition and (ii) the
holder's adjusted basis in such shares of Common Stock for tax purposes. Such
gain or loss will be capital gain or loss if the shares have been held by the
U.S. Stockholder as a capital asset, and, with respect to non-corporate U.S.
Stockholders, will be mid-term or long-term gain or loss if such shares have
been held for more than one year or eighteen months, respectively. In general,
any loss recognized by a U.S. Stockholder upon the sale or other disposition
of shares of Common Stock that have been held for six months or less (after
applying certain holding period rules) will be treated as a long- term capital
loss, to the extent of distributions received by such U.S. Stockholder from
IMH which were required to be treated as long-term capital gains.
IMH has not acquired and does not expect to acquire or retain residual
interests issued by REMICs. Such residual interests, if acquired by a REIT,
could generate excess inclusion income taxable to the REIT's stockholders in
proportion to the dividends received from the REIT. Excess inclusion income
cannot be offset
S-6
<PAGE>
by net operating losses of a stockholder. If the stockholder of a REIT holding
a residual interest in a REMIC is a tax-exempt entity, the excess inclusion
income is fully taxable to such stockholder as unrelated business taxable
income. If allocated to a Non-U.S. Stockholder (as defined below), the excess
inclusion income is subject to federal income tax withholding without
reduction pursuant to any otherwise applicable tax treaty. Potential
investors, and in particular, tax-exempt entities, are urged to consult with
their tax advisors concerning this issue. A REIT, rather than its
stockholders, will be taxed (at the highest corporate tax rate) on the amount
of excess inclusion income for the taxable year allocable to shares of capital
stock of IMH held by disqualified organizations (generally, tax-exempt
entities not subject to tax on unrelated business income, including
governmental organizations).
IMH (either directly or through its QRSs) has financed and intends to
continue to finance the acquisition of mortgage assets by entering into
reverse repurchase agreements (which are essentially loans secured by IMH's
mortgage assets), CMOs or other secured lending transactions. If the Service
were to successfully take the position that such transactions result in IMH
having issued debt instruments (i.e., the reverse repurchase agreements, CMOs
or other secured loans) with differing maturity dates secured by a pool of
mortgage loans, IMH or either of the QRSs could be treated, in whole or in
part, as a taxable mortgage pool. In this case, a portion of IMH's income
could be characterized as excess inclusion income which would subject
stockholders (or IMH, to the extent Common Stock is held by disqualified
organizations) to the tax treatment described above with respect to residual
interests in REMICs. IMH intends to take the position that its existing
arrangements do not create a taxable mortgage pool or excess inclusion income.
In the absence of any definitive authority on this issue, there can be no
assurance regarding whether IMH's reverse repurchase agreements, CMOs or other
secured loans will not cause IMH to realize excess inclusion income.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Generally, a tax-exempt investor that is exempt from tax on its investment
income, such as an individual retirement account (IRA) or a 401(k) plan, that
holds Common Stock as an investment will not be subject to tax on dividends
paid by IMH. However, if such tax-exempt investor is treated as having
purchased its Common Stock with borrowed funds, some or all of its dividends
from the Common Stock will be subject to tax. In addition, under some
circumstances certain pension plans (including 401(k) plans but not including
IRAs and government pension plans) that own more than 10% (by value) of IMH's
outstanding stock, including Common Stock, could be subject to tax on a
portion of their Common Stock dividends even if their Common Stock is held for
investment and is not treated as acquired with borrowed funds. The ownership
limit set forth in the Company's Charter with respect to the Company's capital
stock, however, should prevent this result. Tax-exempt investors may also be
subject to tax on distributions from IMH to the extent IMH has excess
inclusion income. See "--Taxation of Taxable U.S. Stockholders."
TAXATION OF NON-U.S. STOCKHOLDERS
The preceding discussion does not address the rules governing United States
federal income taxation of the ownership and disposition of Common Stock by
persons that are not U.S. Stockholders ("Non-U.S. Stockholders"). In general,
Non-U.S. Stockholders may be subject to special withholding tax requirements
on distributions from IMH and with respect to their sale or other disposition
of Common Stock, except to the extent reduced or eliminated by an income tax
treaty between the United States and the Non-U.S. Stockholder's country. A
Non-U.S. Stockholder who is a stockholder of record and is eligible for
reduction or elimination of withholding must file an appropriate form with IMH
in order to claim such treatment. Non-U.S. Stockholders should consult their
own tax advisors concerning the federal income tax consequences to them of a
purchase of shares of IMH's Common Stock including the federal income tax
treatment of dispositions of interests in, and the receipt of distributions
from, IMH.
S-7
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 27, 1998
PROSPECTUS
IMPAC MORTGAGE HOLDINGS, INC.
COMMON STOCK, PREFERRED STOCK, DEBT SECURITIES,
WARRANTS TO PURCHASE COMMON STOCK, PREFERRED STOCK AND
DEBT SECURITIES
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Impac Mortgage Holdings, Inc., a Maryland corporation (the "Company"),
directly or through agents, dealers or underwriters designated from time to
time, may issue and sell from time to time one or more of the following types
of its securities (the "Securities"): (i) shares of its Common Stock, $0.01 par
value per share ("Common Stock"); (ii) shares of its Preferred Stock, $0.01 par
value per share, in one or more series ("Preferred Stock"); (iii) debt
securities, in one or more series, any series of which may be either senior
debt securities or subordinated debt securities (collectively, "Debt
Securities" and, as appropriate, "Senior Debt Securities" or "Subordinated Debt
Securities"); (iv) warrants to purchase shares of Common Stock ("Common Stock
Warrants"); Preferred Stock ("Preferred Stock Warrants"); and Debt Securities
("Debt Warrants" and together with Common Stock Warrants and Preferred Stock
Warrants, collectively, "Securities Warrants"); and (v) any combination of the
foregoing, either individually or as units consisting of one or more of the
foregoing types of Securities. The Securities offered pursuant to this
Prospectus may be issued in one or more series, in amounts, at prices and on
terms to be determined at the time of the offering of each such series. The
Securities offered by the Company pursuant to this Prospectus will be limited
to $200,000,000 aggregate initial public offering price, including the exercise
price of any Securities Warrants. As of the date of this Prospectus, the
Company has issued 3,400,000 shares of Common Stock with an aggregate initial
public offering price of $92,650,000.
SEE "RISK FACTORS" STARTING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES.
The specific terms of each offering of Securities in respect of which this
Prospectus is being delivered are set forth in an accompanying Prospectus
Supplement (each, a "Prospectus Supplement") relating to such offering of
Securities. Such specific terms include, without limitation, to the extent
applicable; (1) in the case of any series of Preferred Stock, the specific
designations, preferences, conversion and other rights, voting powers and
restrictions, limitations as to dividends and other distributions,
qualifications or terms or conditions of redemption of such series of Preferred
Stock; (2) in the case of any series of Debt Securities, the specific
designations, rights and restrictions of such series of Debt Securities,
including without limitation whether the Debt Securities are Senior Debt
Securities or Subordinated Debt Securities, the currency in which such Debt
Securities are denominated and payable, the aggregate principal amount, stated
maturity, method of calculating and dates for payment of interest and premium,
if any, and any conversion, exchange, redemption or sinking fund provisions;
(3) in the case of the Securities Warrants, the Debt Securities, Preferred
Stock or Common Stock, as applicable, for which each such warrant is
exercisable, and the exercise price, duration, detachability and call
provisions of each such warrant; and (4) in the case of any offering of
Securities, to the extent applicable, the initial public offering price or
prices, listing on any securities exchange, certain federal income tax
consequences and the agents, dealers or underwriters, if any, participating in
the offering and sale of the Securities. If so specified in the applicable
Prospectus Supplement, any series of Securities may be issued in whole or in
part in the form of one or more temporary or permanent Global Securities, as
defined herein.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The Company may sell all or a portion of any offering of its Securities
through agents, to or through underwriters or dealers, or directly to other
purchasers. See "Plan of Distribution." The related Prospectus Supplement for
each offering of Securities sets forth the name of any agents, underwriters or
dealers involved in the sale of such Securities and any applicable fee,
commission, discount or indemnification arrangement with any such party. See
"Use of Proceeds."
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement. The delivery in any jurisdiction of
this Prospectus together with a Prospectus Supplement relating to specific
Securities shall not constitute an offer in such jurisdiction of any other
Securities covered by this Prospectus but not described in such Prospectus
Supplement.
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The date of this Prospectus is , 1998.
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR THE ACCOMPANYING PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER,
AGENT OR DEALER. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING
PROSPECTUS SUPPLEMENT NOR ANY DISTRIBUTION OF SECURITIES BEING OFFERED
PURSUANT TO THIS PROSPECTUS AND AN ACCOMPANYING PROSPECTUS SUPPLEMENT SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT THE
INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THEREOF. THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS
SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO PURCHASE SECURITIES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied, at prescribed rates, at the public reference facilities of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024, as
well as at the regional offices of the Commission at Seven World Trade Center,
13th Floor, New York, New York 10048, and the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60601. Copies of such
material may also be obtained at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. The Commission maintains a website that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission. The address of the site is
http:\www.sec.gov. The Common Stock is listed on the American Stock Exchange
(the "AMEX"). Reports, proxy statements and other information described above
may also be inspected and copied at the offices of the American Stock Exchange
at 86 Trinity Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Securities offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
Securities offered hereby, reference is made to the Registration Statement and
the exhibits and schedules thereto. Statements contained herein concerning the
provisions of any documents are necessarily summaries of those documents, and
each statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission. The Registration Statement and
any amendments thereto, including exhibits filed as a part thereof, are
available for inspection and copying as set forth above.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Commission are
incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the year ended December
31, 1997;
(2) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A, including all amendments and reports
filed for the purpose of updating such description; and
(3) The Company's Current Reports on Form 8-K, dated December 19, 1997,
as amended, and January 28, 1998, as amended.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of all Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any accompanying Prospectus Supplement
relating to a specific offering of Securities or in any other subsequently
filed document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus or any accompanying Prospectus
Supplement. Subject to the foregoing, all information appearing in this
Prospectus is qualified in its entirety by the information appearing in the
documents incorporated herein by reference.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any and all of the documents described above under "Incorporation of
Certain Documents by Reference," other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference therein. Such
requests should be directed to: Impac Mortgage Holdings, Inc., 20371 Irvine
Avenue, Santa Ana Heights, California 92707, Attention: Investor Relations,
Telephone: (714) 438-2100.
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THE COMPANY
Unless the context otherwise requires, references herein to the "Company"
refer to Impac Mortgage Holdings, Inc. ("IMH"), Impac Funding Corporation
(together with its wholly owned subsidiary, Impac Secured Assets Corp.,
"IFC"), IMH Assets Corp. ("IMH Assets"), IMH/ICH Dove Street, LLC, and Impac
Warehouse Lending Group, Inc. ("IWLG"), collectively.
GENERAL
Impac Mortgage Holdings, Inc. is a specialty finance company, which,
together with its subsidiaries and related companies, operates three
businesses: (1) the Long-Term Investment Operations, (2) the Conduit
Operations, and (3) the Warehouse Lending Operations. The Long-Term Investment
Operations invests primarily in non-conforming residential mortgage loans and
securities backed by such loans. The Conduit Operations purchases and sells or
securitizes primarily non-conforming mortgage loans, and the Warehouse Lending
Operations provides warehouse and repurchase financing to originators of
mortgage loans. These latter two businesses include certain ongoing operations
contributed to the Company in 1995 by Imperial Credit Industries, Inc.
("ICII"), a leading specialty finance company (the "Contribution
Transaction"). IMH is organized as a real estate investment trust ("REIT") for
federal income tax purposes, which generally allows it to pass through
qualified income to stockholders without federal income tax at the corporate
level.
Long-Term Investment Operations. The Long-Term Investment Operations,
conducted by IMH, invests primarily in non-conforming residential mortgage
loans and mortgage-backed securities secured by or representing interests in
such loans and, to a lesser extent, in second mortgage loans. Non-conforming
residential mortgage loans are residential mortgages that do not qualify for
purchase by government-sponsored agencies such as the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). Such loans generally provide higher yields than conforming loans.
The principal differences between conforming loans and non-conforming loans
include the applicable loan-to-value ratios, the credit and income histories
of the mortgagors, the documentation required for approval of the mortgagors,
the type of properties securing the mortgage loans, the loan sizes, and the
mortgagors' occupancy status with respect to the mortgaged properties. Second
mortgage loans are higher yielding mortgage loans secured by a second lien on
the property and made to borrowers owning single-family homes for the purpose
of debt consolidation, home improvements, education and a variety of other
purposes.
Conduit Operations. The Conduit Operations, conducted by IFC, purchases
primarily non-conforming mortgage loans and, to a lesser extent, second
mortgage loans from its network of third party correspondents and subsequently
securitizes or sells such loans to permanent investors, including the Long-
Term Investment Operations. IFC's ability to design non-conforming mortgage
loans which suit the needs of its correspondent loan originators and their
borrowers while providing sufficient credit quality to investors, as well as
its efficient loan purchasing process, flexible purchase commitment options
and competitive pricing, enable it to compete effectively with other non-
conforming mortgage loans conduits. In addition to earnings generated from
ongoing securitizations and sales to third party investors, IFC supports the
Long-Term Investment Operations of the Company by supplying IMH with non-
conforming mortgage loans and securities backed by such loans. Prior to the
Contribution Transaction, IFC was a division or subsidiary of ICII since 1990.
IMH owns 99% of the economic interest in IFC, while Joseph R. Tomkinson, the
Company's Chief Executive Officer, William S. Ashmore, the Company's
President, and Richard J. Johnson, the Company's Chief Financial Officer, are
the holders of all the outstanding voting stock of, and 1% of the economic
interest in, IFC.
Warehouse Lending Operations. The Warehouse Lending Operations, conducted by
IWLG, provides warehouse and repurchase financing to IFC and to approved
mortgage banks, most of which are correspondents of IFC, to finance mortgage
loans during the time from the closing of the loans to their sale or other
settlement with pre-approved investors.
IMH's principal sources of income are (1) income from the Long-Term
Investment Operations, (2) income from the Warehouse Lending Operations, and
(3) income from IMH's equity investment in the Conduit
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Operations. In addition, the Company expects to receive dividend income from
its investment in the common stock of Impac Commercial Holdings, Inc.
(formerly IMH Commercial Holdings, Inc.) ("ICH"), a REIT in which IMH
currently holds shares of Common Stock and shares of non-voting Class A Common
Stock which are convertible into an equivalent number of shares of ICH's
Common Stock. The income of the Conduit Operations is fully subject to federal
and state income taxes. The principal source of income from IMH's Long-Term
Investment Operations is net interest income, which is the net spread between
interest earned on mortgage loans and securities held for investment and the
interest costs associated with the borrowings used to finance such loans and
securities, including CMO debt. "CMO" means an adjustable or fixed-rate debt
obligation (bond) that is collateralized by mortgage loans or mortgage
certificates and issued by the Government National Mortgage Association. The
principal sources of income from the Warehouse Lending Operations are net
interest income, which is the net spread between interest earned on warehouse
loans and the interest costs associated with the borrowings used to finance
such loans, and the fee income received from the borrowers in connection with
such loans. The principal sources of income from the Conduit Operations are
gains recognized on the sale of mortgage loans and securities, net interest
income earned on loans purchased by IFC pending their securitization or
resale, servicing fees, commitment fees and processing fees.
The Company is located at 20371 Irvine Avenue, Santa Ana Heights, California
92707 and its telephone number is (714) 556-0122.
OPERATING STRATEGY
The Company believes that a structural change has occurred in the mortgage
banking industry which has increased demand for higher yielding non-conforming
mortgage loans. This change has been caused by a number of factors, including:
(1) investors' demand for higher yielding assets due to historically low
interest rates over the past few years; (2) increased securitization of high-
yielding non-conforming mortgage loans by the investment banking industry; (3)
quantification and development of standardized credit criteria by credit
rating agencies for securities backed by non-conforming mortgage loans; (4)
increased competition in the securitization industry, which has reduced
borrower interest rates and fees, thereby making non-conforming mortgage loans
more affordable; and (5) the end of the refinance "boom" of 1992 and 1993,
which has caused many mortgage banks, attempting to sustain origination
volume, to seek out non-conforming mortgage loan borrowers.
The Company's strategy is to take advantage of the increased demand for non-
conforming mortgage loans through IFC's network of correspondents, which sell
non-conforming mortgage loans to IFC for resale or securitization. The
Company's strategic objective is to exploit the structural changes in the non-
conforming mortgage loan market through the Conduit Operations and to invest
in the non-conforming mortgage loans and mortgage-backed securities originated
and created by the Conduit Operations. Management believes that the Long-Term
Investment Operations complements the Conduit Operations by providing IFC with
a reliable investor for a portion of its loan sales and securitizations while
IFC supports the Long-Term Investment Operations by providing non-conforming
mortgage loans and securities backed by non-conforming mortgage loans. The
Company believes the Warehouse Lending Operations provides synergies with the
Company's other operations because it provides funding to the Conduit
Operations and extends the scope of the Company's relationships with certain
of its correspondent loan originators.
The Company purchases mortgage assets, through its network of correspondents
and through bulk purchases, and invests a substantial portion of its long-term
investment portfolio in, non-conforming mortgage loans because management
believes that non-conforming mortgage loans provide an attractive net income
earnings profile and produce higher yields without commensurately higher
credit risks, when compared with conforming mortgage loans. Although a
substantial majority of the non-conforming loans purchased by the Conduit
Operations are "A" and "A-" grade mortgage loans, the Company's strategy
includes the purchase of "B" and "C" grade mortgage loans. In general, "B" and
"C" grade mortgage loans are residential mortgage loans made to borrowers with
lower credit ratings than borrowers of "A" grade mortgage loans, and are
normally subject to greater frequency of losses and delinquency. As a result,
"B" and "C" grade mortgage loans normally bear a higher rate of interest and
higher fees.
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Management believes that IMH's tax and corporate structure as a REIT
provides it with an advantage over other financial institutions and mortgage
banking competitors. As a REIT, IMH can generally pass through qualifying
earnings as dividends to stockholders without federal income tax at the
corporate level. Thus, the Company expects to be able to pay higher annual
dividends than traditional mortgage lending institutions, which are subject to
federal income tax. In addition, management believes that the Company provides
a more attractive method of investing in mortgages than regulated financial
institutions because the Company is not subject to most of the federal and
state regulations imposed upon insured financial institutions, and therefore,
does not incur their related costs.
DIVIDEND POLICY AND DISTRIBUTIONS
To maintain its qualification as a REIT, IMH intends to make annual
distributions to stockholders of at least 95% of its taxable income (which
does not necessarily equal net income as calculated in accordance with
generally accepted accounting principles) determined without regard to the
deduction for dividends paid and excluding any net capital gains. Any taxable
income remaining after the distribution of regular quarterly dividends or
other dividends will be distributed annually, on or prior to the date of the
first regular quarterly dividend payment date of the following taxable year.
The dividend policy is subject to revision at the discretion of the Board of
Directors. All distributions in excess of those required for IMH to maintain
REIT status will be made by IMH at the discretion of the Board of Directors
and will depend on the taxable earnings of IMH, the financial condition of IMH
and such other factors as the Board of Director deems relevant. The Board of
Directors has not established a minimum distribution level.
TAX STATUS OF IMH
IMH has elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code"), commencing with its
taxable year ended December 31, 1995, and believes its organization and manner
of operation have enabled and will continue to enable it to meet the
requirements for qualification as a REIT. To maintain REIT status, any entity
must meet a number of organizational and operational requirements, including a
requirement that it currently distribute at least 95% of its taxable income
(determined without regard to the dividends paid deduction and excluding net
capital gains) to its stockholders. As a REIT, IMH generally will not be
subject to federal income tax on net income it distributes currently to its
stockholders. If IMH fails to qualify as a REIT in any taxable year, it
generally will be subject to federal income tax at regular corporate rates.
See "Federal Income Tax Considerations" and "Risk Factors--Consequences of
Failure to Maintain REIT Status May Include IMH Being Subject to Tax as a
Regular Corporation." Even if IMH qualifies for taxation as a REIT, IMH may be
subject to certain federal, state and local taxes on its income. In addition,
IFC is subject to federal and state income tax at regular corporate rates on
its net income.
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RISK FACTORS
Before investing in the Securities, prospective investors should give
special consideration to the information set forth below, in addition to the
information set forth elsewhere in this Prospectus. The following risk factors
are interrelated and, consequently, investors should treat such risk factors
as a whole.
Certain information contained in this Prospectus and the documents
incorporated by reference herein constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act, and Section 21e of
the Exchange Act, which can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate" or
"continue" or the negatives thereof or other variations thereon or comparable
terminology. The statements under the captions "Risk Factors" in this
Prospectus constitute cautionary statements identifying important factors,
including certain risks and uncertainties, with respect to such forward-
looking statements that could cause the actual results, performance or
achievements of the Company to differ materially from those reflected in such
forward-looking statements.
NET INTEREST INCOME MAY BE ADVERSELY AFFECTED BY INTEREST RATE FLUCTUATIONS;
PREPAYMENTS OF MORTGAGE LOANS MAY ADVERSELY AFFECT NET INCOME
The Company's income may be affected by changes in market interest rates. In
conducting its Conduit Operations, the Company is subject to the risk of
rising mortgage interest rates between the time the Company commits to
purchase mortgage loans at a fixed price and the time the Company sells or
securitizes those mortgage loans. An increase in interest rates will generally
result in a decrease in market value of loans that the Company has committed
to purchase at a fixed price, but has not yet sold or securitized.
Higher rates of interest may discourage potential mortgagors from
refinancing mortgage loans, borrowing to purchase a home or seeking a second
mortgage loan, thus decreasing the volume of mortgage loans available to be
purchased by the Conduit Operations. In addition, an increase in short-term
interest rates may decrease or eliminate or, under certain circumstances,
cause to be negative, the Company's net interest spread during the
accumulation of mortgage loans held for sale or the net interest spread on
mortgage loans held for investment when such loans are financed through
reverse repurchase agreements. Should short-term interest rates exceed long-
term interest rates (an "inverted yield curve" scenario), the negative effect
on the Company's net interest spread would likely be coupled with a reduction
in any income on any servicing portfolio held by the Company to the extent
prepayments on the underlying mortgage loans increased as long-term interest
rates declined.
In conducting its Long-Term Investment Operations, a significant portion of
the Company's mortgage assets held for long-term investment bear adjustable
interest ("ARMs") or pass-through rates based on short-term interest rates,
and substantially all of the Company's borrowings bear interest at fixed rates
and have maturities of less than 60 days. Consequently, changes in short-term
interest rates may significantly influence the Company's net interest income.
Mortgage loans owned by the Company that are ARMs or mortgage-backed
securities backed by ARMs are subject to periodic interest rate adjustments
based on objective indices such as the CMT Index, which is the one year
constant maturity Treasury index, or LIBOR, the London interbank offered rate.
Interest rates on the Company's borrowings are also based on short-term
indices. To the extent any of the Company's mortgage assets are financed with
borrowings bearing interest based on an index different from that used for the
related mortgage assets, so-called "basis" interest rate risk will arise. In
such event, if the index used for the subject mortgage assets is a "lagging"
index (such as the 11th District Cost of Funds) that reflects market interest
rate changes on a delayed basis, and the rate borne by the related borrowings
reflects market rate changes more rapidly, the Company's net interest income
will be adversely affected in periods of increasing market interest rates.
Additionally, the Company's mortgage assets are subject to periodic interest
rate adjustments that may be less frequent than the increases or decreases in
rates borne by the borrowings or financings utilized by the Company.
Accordingly, in a period of increasing interest rates, the Company could
experience a decrease in net interest income or a net interest loss because
the interest rates on borrowings could adjust faster than the interest rates
on the Company's ARMs or mortgage-backed securities backed by ARMs. Moreover,
ARMs are typically subject to periodic and lifetime interest rate caps, which
limit the amount an ARMs interest rate can change during any given period. The
Company's borrowings are not subject to similar restrictions. Hence, in a
period of rapidly increasing interest rates, the Company could also experience
a decrease
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in net interest income or a net interest loss in the absence of effective
hedging because the interest rates on borrowings could increase without
limitation by caps while the interest rates on the Company's ARMs and
mortgage-backed securities backed by ARMs would be so limited. Further, some
ARMs may be subject to periodic payment caps that result in some portion of
the interest accruing on the ARMs being deferred and added to the principal
outstanding. This could result in less cash received by the Company on its
ARMs than is required to pay interest on the related borrowings, which will
not have such payment caps. The Company expects that the net effect of these
factors, all other factors being equal, will be to lower the Company's net
interest income or cause a net interest loss during periods of rapidly rising
interest rates, which could negatively impact the market price of the
Securities. No assurance can be given as to the amount or timing of changes in
income. To the extent that the Company utilizes short-term debt financing for
fixed rate mortgages or mortgage-backed securities backed by fixed rate
mortgages, the Company may also be subject to interest rate risks. To the
extent that some of the warehouse loans made by the Company bear interest
based upon an intermediate-term index while the Company's borrowings to fund
such loans bear interest based upon a short-term index, the Company will be
subject to the risk of narrowing interest rate spreads.
Higher rates of interest may have a negative effect, in particular, on the
yield of any Company portfolio of "principal-only" securities and other types
of mortgage-backed securities purchased at a discount. If the Company were
required to dispose of any "principal-only" securities held in its portfolio
in a rising rate environment, a loss could be incurred. Lower long-term rates
of interest may negatively affect the yield on any Company portfolio of
"interest-only" securities, servicing fees receivable, and other mortgage loan
and mortgage-backed securities purchased at a premium. It is also possible
that in certain low interest rate environments the Company would not fully
recoup any initial investment in such securities or investments.
Mortgage prepayment rates vary from time to time and may cause changes in
the amount of the Company's net interest income. Prepayments on ARMs and
mortgage-backed securities backed by ARMs generally increase when mortgage
interest rates fall below the then current interest rates on such ARMs.
Conversely, prepayments of such mortgage loans generally decrease when
mortgage interest rates exceed the then-current interest rate on such mortgage
loans. Prepayment experience also may be affected by the geographic location
of the property securing the mortgage loans, the credit grade of the mortgage
loan, the assumability of the mortgage loans, the ability of the borrower to
convert to a fixed-rate loan, conditions in the housing and financial markets
and general economic conditions. In addition, prepayments on ARMs are affected
by conditions in the fixed-rate mortgage market. If the interest rates on ARMs
increase at a rate greater than the interest rates on fixed-rate mortgage
loans, prepayments on ARMs will tend to increase. In periods of fluctuating
interest rates, interest rates on ARMs may exceed interest rates on fixed-rate
mortgage loans, which may tend to cause prepayments on ARMs to increase at a
greater rate than anticipated. Prepayment rates also vary by credit grade.
Second mortgage loans generally have smaller average principal balances than
first mortgage loans and are not viewed by borrowers as permanent financing.
Accordingly, second mortgage loans may experience a higher rate of prepayment
than first mortgage loans. In addition, any future limitations on the right of
borrowers to deduct interest payments on mortgage loans for Federal income tax
purposes may result in a higher rate of prepayment on mortgage loans.
Prepayments of mortgage loans could affect the Company in several adverse
ways. A substantial portion of the ARMs acquired by the Company (either
directly as mortgage loans or through mortgage-backed securities backed by
ARMs) have been newly originated within six months of purchase and generally
bear initial interest rates which are lower than their "fully-indexed" rates
(the applicable index plus the margin). In the event that such an ARM is
prepaid prior to or soon after the time of adjustment to a fully-indexed rate,
the Company will have experienced an adverse effect on its net interest income
during the time it held such ARM compared with holding a fully-indexed ARM and
will have lost the opportunity to receive interest at the fully-indexed rate
over the expected life of the ARM.
The prepayment of any mortgage loan that had been purchased at a premium by
the Company would result in the immediate write-off of any remaining
capitalized premium amount and a consequent decrease in the Company's interest
income. The Conduit Operations' strategy at the present time is to purchase
mortgage loans on a "servicing released" basis (i.e., the Company will acquire
both the mortgage loans and the rights to service
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them). This strategy requires payment of a higher purchase price by the
Company for the mortgage loans, and to the extent a premium is paid, the
Company is more exposed to the adverse effects of early prepayments of the
mortgage loans, as described above.
COMPANY OPERATIONS MAY BE ADVERSELY AFFECTED IF THE COMPANY FAILS TO
EFFECTIVELY HEDGE AGAINST INTEREST RATE CHANGES OR IF LOSSES ARE INCURRED IN
CONNECTION WITH HEDGING ACTIVITIES
To mitigate risks associated with its Conduit Operations, the Company,
through IFC, enters into transactions designed to hedge interest rate risks,
which may include mandatory and optional forward selling of mortgage loans or
mortgage-backed securities, interest rate caps, floors and swaps and buying
and selling of futures and options on futures. To mitigate risks associated
with its Long-Term Investment Operations, the Company's policy is to attempt
to match the interest rate sensitivities of its adjustable rate mortgage
assets held for investment with the associated liabilities. The Company may
purchase interest rate caps, interest rate swaps or similar instruments to
attempt to mitigate the cost of its variable rate liabilities increasing at a
faster rate than the earnings on its subject assets during a period of rising
interest rates. The nature and quantity of the hedging transactions for the
Conduit Operations and the Long-Term Investment Operations is determined by
the management of the Company based on various factors, including market
conditions and the expected volume of mortgage loan purchases, and there have
been no limitations placed on management's use of certain instruments in such
hedging transactions. No assurance can be given that such hedging transactions
will offset the risks of changes in interest rates, and it is possible that
there will be periods during which the Company could incur losses after
accounting for its hedging activities.
ACQUIRING AND INVESTING IN MORTGAGE LOANS MAY ENTAIL SUBSTANTIAL RISKS
The Company makes long-term investments in mortgage loans and mortgage-
backed securities. The Company does not obtain credit enhancements such as
mortgage pool or special hazard insurance for its mortgage loans and
investments other than private mortgage insurance and only when specified by
its underwriting criteria. Accordingly, during the time it holds mortgage
loans for investment, the Company is subject to risks of borrower defaults and
bankruptcies and special hazard losses that are not covered by standard hazard
insurance (such as those occurring from earthquakes or floods). In the event
of a default on any mortgage loan held by the Company, the Company bears the
risk of loss of principal to the extent of any deficiency between the value of
the related mortgaged property, plus any payments from an insurer or
guarantor, and the amount owing on the mortgage loan. Defaulted mortgage loans
will also cease to be eligible collateral for borrowings, and will have to be
financed by the Company out of other funds until ultimately liquidated.
Credit risks associated with non-conforming mortgage loans, especially "B"
and "C" grade loans, may be greater than those associated with conforming
mortgage loans that comply with FNMA and FHLMC guidelines. Non-conforming
mortgage loans generally consist of jumbo mortgage loans (loans with a
principal balance in excess of $227,400) or loans that are originated in
accordance with underwriting or product guidelines that differ from those
applied by FNMA or FHLMC. The principal differences between conforming loans
and the non-conforming loans purchased by the Company include the applicable
loan-to-value ratios, the credit and income histories of the mortgagors, the
documentation required for approval of the mortgagors, the types of properties
securing the mortgage loans, loan sizes and the mortgagors' occupancy status
with respect to the mortgaged property. As a result of these and other
factors, the interest rates charged on non-conforming loans are often higher
than those charged for conforming loans. The combination of different
underwriting criteria and higher rates of interest may lead to higher
delinquency rates and/or credit losses for non-conforming as compared to
conforming loans and could have an adverse effect on the Company's operations
to the extent that the Company invests in such loans or securities evidencing
interests in such loans.
In addition, with respect to second mortgage loans, the Company's security
interest in the property securing such loans is subordinated to the interest
of the first mortgage holder. If the value of the property securing the second
mortgage loan is not sufficient to repay the borrower's obligation to the
first mortgage holder upon foreclosure or if there is no additional value in
such property after satisfying the borrower's obligation to the first mortgage
loan holder, the borrower's obligation to the Company will likely not be
satisfied.
The yield derived from certain classes of mortgage-backed securities created
in connection with securitizations by IFC and subsequently retained by the
Company, including, but not limited to, "interest-
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only," "principal-only" and subordinated securities, is particularly sensitive
to interest rate, prepayment and credit risks. The Company's investment
portfolio includes each of these classes of securities. See "--Net Interest
Income May be Adversely Affected by Interest Rate Fluctuations; Prepayment's
of Mortgage Loans May Adversely Affect Net Income." Because subordinated
securities, in general, bear all credit losses prior to the related senior
securities, the amount of credit risk associated with any investment in such
subordinated securities is significantly greater than that associated with a
comparable investment in the related senior securities and, on a percentage
basis, the risk is greater than holding the underlying mortgage loans
directly. See "--Value of Interest-Only, Principal-Only, Residual Interest and
Subordinated Securities Subject to Fluctuation."
The Company also bears risk of loss on any mortgage-backed securities it
purchases in the secondary mortgage market. To the extent third parties have
been contracted to insure against these types of losses, the Company would be
dependent in part upon the creditworthiness and claims paying ability of the
insurer and the timeliness of reimbursement in the event of a default on the
underlying obligations. Further, the insurance coverage for various types of
losses is limited, and losses in excess of the limitation would be borne by
the Company.
As a warehouse lender, the Company is a secured creditor of mortgage bankers
and is subject to the risks associated with such businesses, including the
risks of fraud, borrower default and bankruptcy, any of which could result in
credit losses for the Company. Any claim of the Company as a secured lender in
a bankruptcy proceeding may be subject to adjustment and delay.
In connection with its Conduit Operations, IFC has engaged in
securitizations and bulk whole loan sales. In connection with the issuance of
mortgage-backed securities by IFC, such securities have been non-recourse to
IFC, except in the case of a breach of the standard representations and
warranties made by IFC when mortgage loans are securitized. While IFC has
recourse to the sellers of mortgage loans for any such breaches, there can be
no assurance of the sellers' abilities to honor their respective obligations.
IFC has engaged in bulk whole loan sales pursuant to agreements that provide
for recourse by the purchaser against IFC (and, in certain cases, IMH as
guarantor) in the event of a breach of representation or warranty made by IFC,
any fraud or misrepresentation during the mortgage loan origination process or
upon early default on such mortgage loans. IFC has generally limited the
remedies of such purchasers to the remedies IFC receives from the persons from
whom IFC purchased such mortgage loans. However, in some cases, the remedies
available to a purchaser of mortgage loans from IFC are broader than those
available to IFC against its seller, and should a purchaser exercise its
rights against IFC, IFC may not always be able to enforce whatever remedies
IFC may have against its sellers. IFC may from time to time make provisions
for loan losses related to estimated losses from the breach of a standard
representation and warranty.
DEPENDENCE ON SECURITIZATIONS MAY CREATE LIQUIDITY RISKS
The Company securitizes a substantial portion of the mortgage loans it
purchases. IFC relies significantly upon securitizations to generate cash
proceeds for repayment of its warehouse line and to create credit
availability. Further, gains on sales from IFC's securitizations represent a
significant portion of IFC's earnings. Several factors affect the Company's
ability to complete securitizations of its mortgage loans, including
conditions in the securities markets generally, conditions in the asset-backed
securities market specifically, the credit quality of the mortgage loans
purchased by the Conduit Operations and the Company's ability to obtain credit
enhancement. If IFC were unable to securitize profitably a sufficient number
of its mortgage loans in a particular financial reporting period, then IFC's
revenues for such period would decline, which could result in lower income or
a loss for such period. In addition, unanticipated delays in closing a
securitization could also increase IFC's interest rate risk by increasing the
warehousing period for its mortgage loans.
IFC endeavors to effect quarterly public securitizations of its loan pools.
However, market and other considerations, including the volume of IFC's
mortgage acquisitions and the conformity of such loan pools to the
requirements of insurance companies and rating agencies, may affect the timing
of such transactions. Any delay in the sale of a loan pool beyond the end of a
fiscal quarter would postpone the recognition of gain related to such loans
and would likely result in lower income or a loss for such quarter being
reported by IFC.
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In order to gain access to the securitization market, the Company has
relied, and in the future may rely, on credit enhancements provided by
insurance companies to guarantee senior interests in the related trusts to
enable them to obtain "AAA/Aaa" ratings for such interests. Any unwillingness
of insurance companies to guarantee the senior interests in the Company's loan
pools could have a material adverse effect on the Company's results of
operations and financial condition.
The Company also relies on securitizations in the form of CMO borrowings to
finance a substantial portion of the loans held by the Long-Term Investment
Operations. Any reduction in the Company's ability to complete additional
securitizations would require the Company to utilize other sources of
financing which may be on less favorable terms.
VALUE OF INTEREST-ONLY, PRINCIPAL-ONLY, RESIDUAL INTEREST AND SUBORDINATED
SECURITIES SUBJECT TO FLUCTUATION
The Company's assets include "interest-only," "principal-only," residual
interest and subordinated securities, valued by the Company in accordance with
SFAS No. 115, "Accounting for Certain Debt and Equity Securities," if
purchased by the Company in the secondary market or in accordance with SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," if created in connection with the
securitization of mortgages held for sale by IFC. IMH records its retained
interest in IFC securitizations (including "interest-only," "principal-only"
and subordinated securities) as investments classified as trading securities
and records its purchased residual interests and subordinated securities as
available for sale securities. Realization of these "interest-only,"
"principal-only," residual interest and subordinated securities in cash is
subject to the timing and ultimate realization of cash flows associated
therewith, which is in turn effected by the prepayment and loss
characteristics of the underlying loans. Because subordinated securities, in
general, bear all credit losses prior to the related senior securities, the
amount of credit risk associated with any investment in such subordinated
securities is significantly greater than that associated with a comparable
investment in the related senior securities and, on a percentage basis, the
risk associated with holding subordinated securities is greater than holding
the underlying mortgage loans directly due to the concentration of losses in
such subordinated securities and because subordinated securities receive
payments of principal and interest after such payments on related senior
securities and the underlying mortgages. The Company estimates future cash
flows from these "interest-only," "principal-only," residual interest and
subordinated securities and values such securities utilizing assumptions that
it believes to be consistent with those that would be utilized by an
unaffiliated third party purchaser. If actual experience differs from the
assumptions used in the determination of the asset value, future cash flows
and earnings could be negatively impacted, and the Company could be required
to reduce the value of its "interest-only," "principal-only," residual
interest and subordinated securities in accordance with SFAS No. 115 and
SFAS 125. The value of such securities can fluctuate widely and may be
extremely sensitive to changes in discount rates, projected mortgage loan
prepayments and loss assumptions. The Company believes that its aggregate
delinquency and loan loss experience will increase as its mortgage portfolio
matures. To the Company's knowledge, the market for the sale of the "interest-
only," "principal-only," residual interest and subordinated securities is
limited. No assurance can be given that "interest-only," "principal-only,"
residual interest and subordinated securities could be sold at their reported
value, if at all.
The risks of investing in mortgage-backed securities include risks that the
existing credit support will prove to be inadequate, either because of
unanticipated levels of losses or, if such credit support is provided by a
third party, because of difficulties experienced by such credit support
provider. Delays or difficulties encountered in servicing mortgage-backed
securities may cause greater losses and, therefore, greater resort to credit
support than was originally anticipated, and may cause a rating agency to
downgrade a security.
The Company also bears risk of loss on any mortgage-backed securities it
purchases in the secondary market. To the extent third parties have contracted
to insure against these types of losses, the Company would be dependent in
part upon the creditworthiness and claims paying ability of the insurer and
the timeliness of reimbursement in the event of a default on the underlying
obligations. Further, the insurance coverage for various types of losses is
limited, and losses in excess of the limitation would be borne by the Company.
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MORTGAGE SERVICING RIGHTS SUBJECT TO VOLATILITY
When IFC purchases loans that include the associated servicing rights or
originates loans, the allocated cost of the servicing rights will be reflected
on its financial statements as Mortgage Servicing Rights ("MSRs"). MSRs are
amortized in proportion to, and over the period of, expected future net
servicing income.
SFAS No. 125 requires that a portion of the cost of acquiring a mortgage
loan be allocated to the mortgage loan servicing rights based on its fair
value relative to the components of the loan. To determine the fair value of
the servicing rights created, IFC uses a valuation model that calculates the
present value of future net servicing revenues to determine the fair value of
the servicing rights. In using this valuation method, IFC incorporates
assumptions that it believes market participants would use in estimating
future net servicing income which include estimates of the cost of servicing,
an inflation rate, ancillary income per loan, a prepayment rate, a default
rate and a discount rate commensurate with the risks involved.
MSRs are subject to some degree of volatility in the event of unanticipated
prepayments or defaults. Prepayments in excess of those anticipated at the
time MSRs are recorded could result in a decline in the fair value of the MSRs
below their carrying value requiring a provision to increase the MSRs'
valuation allowance. The rate of prepayment of loans is affected by a variety
of economic and other factors, including prevailing interest rates and the
availability of alternative financing. The effect of those factors on loan
prepayment rates may vary depending on the particular type of loan. Estimates
of prepayment rates are made based on management's expectations of future
prepayment rates, which are based, in part, on the historical rate of
prepayment of IFC's loans, and other considerations. There can be no assurance
of the accuracy of the Company's prepayment estimates. If actual prepayments
with respect to loans serviced occur more quickly than were projected at the
time such loans were sold, the carrying value of the MSRs may have to be
reduced through a provision recorded to increase the MSRs' valuation allowance
in the period the fair value declined below the MSRs' carrying value. If
actual prepayments with respect to loans occur more slowly than estimated, the
carrying value of MSRs would not increase except for the impact of a reduction
in the valuation allowance.
BORROWINGS AND SUBSTANTIAL LEVERAGE HAVE THE POTENTIAL FOR NET INTEREST AND
OPERATING LOSSES; LIQUIDITY
The Company has employed a financing strategy to increase the size of its
investment portfolio by borrowing a substantial portion (up to approximately
98%, depending on the nature of the underlying asset) of the market value of
substantially all of its investments in mortgage loans and mortgage-backed
securities. The Company initially intended to maintain a ratio of equity
capital (book value of stockholders' equity) to total assets of approximately
15%. This target ratio was developed on the assumption that the Company would
utilize the sale of pass-through mortgage-backed securities as its primary
securitization technique, as compared to financing the loans in the Company's
long-term investment portfolio through CMOs. Subsequently, the Company has
elected to utilize CMO borrowings to a substantial degree because CMOs are
more consistent with IMH's maintenance of its REIT tax status. CMOs receive
financing treatment as opposed to sale treatment. Financing treatment allows
the Company to recognize spread income over time as qualifying interest income
under the REIT gross income tests, as compared to gains at IFC from the
issuance of pass-through securities, which receives sale treatment and is
fully taxable. The value of the assets collateralizing CMO borrowings are
reflected on the Company's balance sheet, while the value of the assets
backing pass-through securities are not reflected on the balance sheet.
Consequently, CMO borrowings tend to increase the assets of the Company and to
reduce the Company's ratio of equity capital to total assets, as compared to
the sale of pass-through securities. It is currently expected that the
continued use of CMOs will likely result in a ratio of equity capital to total
assets generally between 8% to 13%, although such ratio may vary substantially
depending upon, among other things, the timing of IFC's securitizations and
the Company's offerings of equity capital.
The use of CMOs as financing vehicles tends to increase the Company's
leverage as mortgage loans held for CMO collateral are retained for investment
rather than sold in a secondary market transaction. Retaining mortgage loans
as CMO collateral exposes the Company to greater potential credit losses than
from the use of securitization techniques that are treated as sales. The
creation of a CMO involves an equity investment by the
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Company to fund collateral in excess of the amount of the securities issued.
Should the Company experience credit losses greater than expected, the value
of the Company's equity investment in its CMOs would decrease and the
Company's financial condition and results of operations would be materially
adversely affected.
A majority of other Company borrowings are collateralized, primarily in the
form of reverse repurchase agreements, which are based on the market value of
the Company's assets pledged to secure the specific borrowings. The cost of
borrowings under a reverse repurchase agreement corresponds to the referenced
interest rate (e.g., the CMT Index or LIBOR) plus or minus a margin. The
margin over or under the referenced interest rate varies depending upon the
lender, the nature and liquidity of the underlying collateral, the movement of
interest rates, the availability of financing in the market and other factors.
If the returns on the assets and mortgage-backed securities financed with
borrowed funds fail to cover the cost of the borrowings, the Company will
experience net interest losses and may experience net losses.
The ability of the Company to achieve its investment objectives depends not
only on its ability to borrow money in sufficient amounts and on favorable
terms but also on the Company's ability to renew or replace on a continuous
basis its maturing short-term borrowings. The Company's business strategy
relies on short-term borrowings to fund long-term mortgage loans and
investment securities available for sale. In the event the Company is not able
to renew or replace maturing borrowings, the Company could be required to
sell, under adverse market conditions, all or a portion of its mortgage loans
and investment securities available for sale, and could incur losses as a
result. In addition, in such event the Company may be required to terminate
hedge positions, which could result in further losses to the Company. Such
events could have a materially adverse effect on the Company.
Certain of the Company's mortgage loans may be cross-collateralized to
secure multiple borrowing obligations of the Company to a single lender. A
decline in the market value of such assets could limit the Company's ability
to borrow or result in lenders initiating margin calls (i.e., requiring a
pledge of cash or additional mortgage loans to reestablish the ratio of the
amount of the borrowing to the value of the collateral). The Company could be
required to sell mortgage loans under adverse market conditions in order to
maintain liquidity. If these sales were made at prices lower than the carrying
value of its mortgage loans, the Company would experience losses. A default by
the Company under its collateralized borrowings could also result in a
liquidation of the collateral, including any cross-collateralized assets, and
a resulting loss of the difference between the value of the collateral and the
amount borrowed. Additionally, in the event of a bankruptcy of the Company,
certain reverse repurchase agreements may qualify for special treatment under
the Bankruptcy Code, the effect of which is, among other things, to allow the
creditors under such agreements to avoid the automatic stay provisions of the
Bankruptcy Code and to liquidate the collateral under such agreements without
delay. Conversely, in the event of a bankruptcy of a party with whom the
Company had a reverse repurchase agreement, the Company might experience
difficulty repurchasing the collateral under such agreement if it were to be
repudiated and the Company's claim against the bankrupt lender for damages
resulting therefrom were to be treated simply as one of an unsecured creditor.
Should this occur, the Company's claims would be subject to significant delay
and, if and when received, may be substantially less than the damages actually
suffered by the Company. Although the Company has entered into reverse
repurchase agreements with several different parties and has developed
procedures to reduce its exposure to such risks, no assurance can be given
that the Company will be able to avoid such third party risks.
The REIT provisions of the Code require IMH to distribute to its
stockholders substantially all of its taxable income. As a result, such
provisions restrict the Company's ability to retain earnings and replenish the
capital committed to its business activities.
The Company's liquidity is also affected by its ability to access the debt
and equity capital markets. To the extent that the Company is unable to
regularly access such markets, the Company could be forced to sell assets at
unfavorable prices or discontinue various business activities in order to meet
its liquidity needs. As a result, any such inability to access the capital
markets could have a negative impact on the Company's earnings.
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Substantially all of the assets of the Conduit Operations have been pledged
to secure the repayment of mortgage-backed securities issued in the
securitization process, reverse repurchase agreements or other borrowings. In
addition, substantially all of the mortgage loans that the Company has
acquired and will in the future acquire have been or will be pledged to secure
borrowings pending their securitization or sale or as a part of their long-
term financing. The cash flows received by the Company from its investments
that have not yet been distributed, pledged or used to acquire mortgage loans
or other investments may be the only unpledged assets available to unsecured
creditors and stockholders in the event of liquidation of the Company.
REDUCTION IN DEMAND FOR RESIDENTIAL MORTGAGE LOANS AND THE COMPANY'S NON-
CONFORMING LOAN PRODUCTS MAY ADVERSELY AFFECT THE COMPANY'S OPERATIONS
The availability of mortgage loans meeting the Company's criteria is
dependent upon, among other things, the size and level of activity in the
residential real estate lending market and, in particular, the demand for non-
conforming mortgage loans. The size and level of activity in the residential
real estate lending market depend on various factors, including the level of
interest rates, regional and national economic conditions and inflation and
deflation in residential property values, as well as the general regulatory
and tax environment as it relates to mortgage lending. To the extent the
Company is unable to obtain sufficient mortgage loans meeting its criteria,
the Company's business will be adversely affected.
FNMA and FHLMC are not currently permitted to purchase mortgage loans with
original principal balances above $227,400. If this dollar limitation is
increased without a commensurate increase in home prices, the Company's
ability to maintain or increase its current acquisition levels could be
adversely affected as the size of the non-conforming mortgage loan market may
be reduced, and FNMA and FHLMC may be in a position to purchase a greater
percentage of the mortgage loans in the secondary market than they currently
acquire.
In general, lower interest rates prompt greater demand for mortgage loans,
because more individuals can afford to purchase residential properties, and
refinancing and second mortgage loan transactions increase. However, if low
interest rates are accompanied by a weak economy and high unemployment, demand
for housing and residential mortgage loans may decline. Conversely, higher
interest rates and lower levels of housing finance and refinance activity may
decrease mortgage loan purchase volume levels, resulting in decreased
economies of scale and higher costs per unit, reduced fee income, smaller
gains on the sale of non-conforming mortgage loans and lower net income.
Although the Company seeks geographic diversification of the properties
underlying the Company's mortgage loans and mortgage-backed securities, it
does not set specific limitations on the aggregate percentage of its portfolio
composed of such properties located in any one area (whether by state, zip
code or other geographic measure). Concentration in any one area will increase
exposure of the Company's portfolio to the economic and natural hazard risks
associated with such area. In addition, management estimates that a majority
of the loans included in securitizations in which IMH holds subordinated
interests are secured by properties in California. Certain parts of California
have experienced an economic downturn in past years, particularly in areas of
high defense industry concentration, and have suffered the effects of certain
natural hazards such as earthquakes, fires and floods, as well as riots.
DELINQUENCY RATIOS AND COMPANY PERFORMANCE MAY BE AFFECTED BY CONTRACTED SUB-
SERVICING
IFC currently contracts for the sub-servicing of all loans it purchases and
holds for sale or investment with third-party sub-servicers. This arrangement
allows the Conduit Operations to increase the volume of loans it originates
and purchases without incurring the expenses associated with servicing
operations. As with any external service provider, IFC is subject to risks
associated with inadequate or untimely services. Many of IFC's borrowers
require notices and reminders to keep their loans current and to prevent
delinquencies and foreclosures. A substantial increase in the IFC's
delinquency rate or foreclosure rate could adversely affect its ability to
access profitably the capital markets for its financing needs, including
future securitizations. IFC regularly reviews the delinquencies of its
servicing portfolio. Although the Conduit Operations periodically reviews the
costs associated with establishing operations to service the loans it
purchases, it has no plans to establish and perform servicing operations at
this time.
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Each of IFC's sub-servicing agreements with its third-party sub-servicers
provides that if IFC terminates the agreement without cause (as defined in the
agreement), IFC will be required to pay the third-party sub-servicer a fee.
Further, one such agreement provides that IFC shall pay the third-party
sub-servicer a transfer fee per loan for any mortgage loan which IFC transfers
to another sub-servicer without terminating the agreement. Depending upon the
size of IFC's loan portfolio sub-serviced at any point in time, the
termination penalty that IFC would be obligated to pay upon termination
without cause, may be substantial.
IFC also subcontracts with sub-servicers to service the loans in each of the
Company's public securitizations. With respect to such loans, the related
pooling and servicing agreements permit IFC to be terminated as servicer under
specific conditions described in such agreements, which generally include the
failure to make payments, including advances, within specific time periods.
Such termination would generally be at the option of the trustee and/or the
financial guaranty insurer for such securitization, if applicable, but not at
the option of the Company. If, as a result of a sub-servicer's failure to
perform adequately, IFC were terminated as servicer of a securitization, the
value of any servicing rights held by IFC would be adversely impacted. In
addition, poor performance by a sub-servicer with respect to any such
securitization may result in greater than expected delinquencies and losses on
the related loans, which would adversely impact the value of any
"interest-only," "principal-only" and subordinated securities held by the
Company in connection with such securitization, which are more sensitive to
credit risk. See "--Value of Interest-Only, Principal-Only, Residual Interest
and Subordinated Securities Subject to Fluctuation."
LIMITED HISTORY OF OPERATIONS OF LIMITED RELEVANCE IN PREDICTING FUTURE
PERFORMANCE
The Company commenced operations on November 20, 1995. Prior to the date of
the Contribution Transaction, IFC was a division or subsidiary of ICII, and
IWLG was a division of Southern Pacific Bank (formerly Southern Pacific Thrift
and Loan Association) ("SPB"), a subsidiary of ICII. Although the Company has
experienced substantial growth in mortgage loan originations and total
revenues, there can be no assurance that the Company will be profitable in the
future or that these rates of growth will be sustainable or indicative of
future results. Prior to the Company's initial public offering in November
1995 (the "Initial Public Offering"), each of IFC and IWLG benefited from the
financial, administrative and other resources of ICII and SPB, respectively.
In light of this growth, the historical financial performance of the Company
may be of limited relevance in predicting future performance. Since the
Company commenced operations in November 1995, its growth in purchasing loans
has been significant. Also, the loans purchased by the Company and included in
the Company's securitizations have been outstanding for a relatively short
period of time. Consequently, the delinquency and loss experience of the
Company's loans to date may not be indicative of future results. It is
unlikely that the Company will be able to maintain delinquency and loan loss
ratios at their present levels as the portfolio becomes more seasoned.
COMPETITION FOR MORTGAGE LOANS MAY ADVERSELY AFFECT THE COMPANY'S OPERATIONS
In purchasing non-conforming mortgage loans and issuing securities backed by
such loans, the Company competes with established mortgage conduit programs,
investment banking firms, savings and loan associations, banks, thrift and
loan associations, finance companies, mortgage bankers, insurance companies,
other lenders and other entities purchasing mortgage assets. Continued
consolidation in the mortgage banking industry may also reduce the number of
current sellers to the Conduit Operations, thus reducing the Company's
potential customer base, resulting in the Company purchasing a larger
percentage of mortgage loans from a smaller number of sellers. Such changes
could negatively impact the Conduit Operations. Mortgage-backed securities
issued through the Conduit Operations face competition from other investment
opportunities available to prospective investors. See "--Reduction in Demand
for Residential Mortgage Loans and the Company's Non-Conforming Loan Products
May Adversely Affect the Company's Operations."
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The Company's operations may be affected by the activities of ICII and its
affiliates. As an end-investor in non-conforming mortgage loans, SPB may
compete with the Company. Also, Southern Pacific Funding Corporation ("SPFC")
is an affiliate of ICII whose business is primarily to act as a wholesale
originator and a bulk purchaser of non-conforming mortgage loans. ICII or any
of its affiliates may compete with the Company's Long-Term Investment
Operations, the Conduit Operations and the Warehouse Lending Operations. While
the Company believes such activities will not have a material adverse effect
on the Company's operations, there can be no assurance of this. See "--
Relationship with ICII and its Affiliates; Conflicts of Interest."
NO ASSURANCE OF CONTINUED EXPANSION
The Company's total revenues and net income (before non-recurring charges in
1997) have grown significantly since the Company's inception, primarily due to
increased mortgage purchasing, sales and investing activities. The Company
intends to continue to pursue a growth strategy for the foreseeable future,
and its future operating results will depend largely upon its ability to
expand its Long-Term Investment Operations, its Conduit Operations and its
Warehouse Lending Operations. Each of these plans requires additional
personnel and assets and there can be no assurance that the Company will be
able to successfully expand and operate its expanded operations profitably.
There can be no assurance that the Company will anticipate and respond
effectively to all of the changing demands that its expanding operations will
have on the Company's management, information and operating systems, and the
failure to adapt its systems could have a material adverse effect on the
Company's results of operations and financial condition. There can be no
assurance that the Company will successfully achieve its continued expansion
or, if achieved, that the expansion will result in profitable operations.
CONFLICTS OF INTEREST WITH AFFILIATED ENTITIES
Benefit to Insiders; Interlocking Relationships; Other Considerations
The Company is subject to conflicts of interest arising from its
relationships with ICH, RAI Advisors, LLC ("RAI") and their officers,
directors and affiliates. First, IMH owns a substantial number of shares of
ICH's common stock. Second, RAI renders management services to ICH and will be
paid certain incentive compensation for each quarter, resulting in a direct
benefit to its owners, who are officers or directors of ICH and IMH. Third,
IFC has entered into a submanagement agreement with RAI pursuant to which ICH
will pay IFC (through RAI) for all costs and services under such contract,
plus a 15% service charge. Fourth, many of the officers and directors of the
Company are officers, directors and owners of ICH, RAI and Impac Commercial
Capital Corporation (formerly Imperial Commercial Capital Corporation)
("ICCC").
RAI oversees the day-to-day operations of ICH, pursuant to a management
agreement (the "RAI Management Agreement") entered into in August 1997. RAI is
owned one-third by Joseph R. Tomkinson, IMH's Vice Chairman of the Board and
Chief Executive Officer 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 one-third by Richard J. Johnson, IMH's and ICH's Senior
Vice President, Chief Financial Officer, Treasurer and Secretary. Pursuant to
the RAI Management Agreement, ICH pays incentive compensation to RAI on a
quarterly basis, resulting in a direct benefit to its owners.
The Company is subject to conflicts of interest arising from its
relationship with RAI, and with RAI's affiliates. RAI has interests that may
conflict with those of the Company in fulfilling certain of its duties.
Specifically, all of the persons who are officers of RAI are also officers or
directors of IMH and ICH. In order to utilize the IMH infrastructure, RAI has
entered into a submanagement agreement with IMH and IFC to provide
substantially all of the administrative services required by ICH. IMH owns all
of the outstanding shares of non-voting preferred stock of IFC, representing
99% of the economic interest in IFC, and Messrs. Tomkinson, Johnson and
Ashmore own all of the outstanding shares of common stock of IFC, representing
1% of the economic interest. Each of 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).
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
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his or her time to the operations of ICH as is necessary. ICH will reimburse
RAI, who will reimburse IFC, on a dollar for dollar basis, 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. ICH will reimburse 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 the submanagement agreement with IFC
and RAI will pay all such third parties on a dollar for dollar basis for the
aforementioned amounts received by it from the ICH; no such 15% service charge
will be paid to third party service providers other than IFC. For the first
three years of the RAI Management Agreement, there will be 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 will only be responsible for reimbursing expenses
and services provided, plus the 15% service charge for amounts due to IFC.
RAI's officers are expected to devote the majority of their time and effort
towards the management and operations of IMH and 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 could have
a material adverse effect on the Company's business and results of operations.
Many of the affiliates of IMH, RAI and IFC have interlocking executive
positions and share common ownership. Joseph R. Tomkinson, IMH's Vice 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 and IFC's Senior
Vice President, Chief Financial Officer, Treasurer and Secretary, and a
Director of IFC, is a Senior 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 a 25% owner 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. Each of James Walsh, Frank P. Filipps and Stephan R.
Peers, Directors of IMH, are Directors of ICH. 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.
Effect of 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 an event, any
Affiliated REIT utilizing RAI as its Manager may be in competition with the
Company. RAI, ICH, ICCC, IMH and IFC have 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 clearly aligns
with such Investment Opportunity. In addition, both IMH and IFC on the one
hand and ICH and ICCC on the other have agreed that any Investment Opportunity
offered to either of them which falls outside the scope of its Initial Primary
Business shall 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
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is more greatly enhanced by such Investment Opportunity. Should all of said
REITs decline such Investment Opportunity, RAI may offer the investment
opportunity to any third party. Should the Principal Party 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 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.
Effect of Termination Agreement
In December 1997, IMH and IFC entered into a termination agreement with
Imperial Credit Advisors, Inc. ("ICAI") and ICII and Joseph R. Tomkinson,
William S. Ashmore and Richard J. Johnson (the "Termination Agreement"),
pursuant to which ICAI discontinued providing management services to the
Company under a management agreement entered into in November 1995, and as
amended and restated in January 1997 (the "Management Agreement"), in return
for a $44.0 million termination payment consisting of $35.0 million or
2,009,310 shares of Common Stock of IMH and other assets comprising the
balance. The $44.0 million termination payment was treated as a non-recurring,
non-cash expense and resulted in a charge of $44.4 million to the earnings for
the three months ended December 31, 1997. The Company is currently negotiating
with the principals of RAI to provide the management services. See "Benefit to
Insiders; Interlocking Relationships; Other Considerations" for a description
of affiliations between the Company and RAI. In either case, 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. The inability of the Company to contract with the
principals of RAI would have a material adverse effect on the Company's
operations. Furthermore, if RAI or its principals are contracted with to
provide management services to the Company, there may be conflicts of interest
as described in "--Conflicts of Interest with Affiliated Entities."
RISKS OF INVESTMENT IN ICH
As of March 31, 1998, IMH owned 719,789 shares of ICH Common Stock and
674,211 shares of ICH non-voting Class A Common Stock which are convertible
into an equivalent number of shares of ICH Common Stock. IMH's investment in
ICH is recorded on the Company's financial statements in "Investment in Impac
Commercial Holdings, Inc." Of the net income or loss of ICH, 17.4% is
recognized on a pre-tax basis in the Company's financial statements. Any such
recognized net loss may adversely affect the Company's ability to conduct
future activities under borrowing facilities. As an originator of mortgage
loans, each of ICH and/or ICCC is or may be subject to many of the same risks
applicable to IMH and IFC. In addition, as an originator of commercial
mortgages, each of ICH and/or ICCC is or may be specifically subject to
additional risks relating to the following:
Limited History of Operations of Limited Relevance in Predicting Future
Performance
Since each of ICH and ICCC recently commenced operations in 1997, their
historical performance may be of limited relevance in predicting future
performance. In addition, the commercial mortgages purchased to date by ICH
have been outstanding for a relatively short period of time. Consequently, the
delinquency and loss experience of ICH's commercial mortgages to date may not
be indicative of future results. It is unlikely that ICH will be able to
maintain delinquency and loan loss ratios at their present levels as the
portfolio grows and becomes more seasoned. ICH intends to pursue a growth
strategy for the foreseeable future, and its future operating results will
depend largely upon its ability to expand its operations. These plans require
additional personnel and assets and there can be no assurance that ICH will be
able to successfully expand and operate its expanded operations profitably.
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Competition in the Commercial Mortgage Industry May Adversely Affect ICH's
Operations
Other multifamily residences, self-storage facilities, retail shopping
facilities, office buildings and combination warehouse/industrial facilities
located in the areas of the mortgaged properties securing ICH's commercial
mortgages will compete with the mortgaged properties of such types to attract
residents, retail correspondents, tenants and customers. Increased competition
could adversely affect income from, and the market value, of the mortgaged
properties. In addition, the business conducted at each mortgaged property may
face competition from other industries and industry segments.
Originating and Investing in Commercial Mortgages May Entail Substantial
Risks
ICH makes long-term investments in commercial mortgages. Accordingly, during
the time it holds commercial mortgages for investment, ICH is subject to risks
of borrower defaults, bankruptcies and losses that are not covered by
insurance (such as those occurring from earthquakes or floods). Commercial
mortgage lending is generally viewed as exposing the lender to a greater risk
of loss than residential mortgage lending in part, because it typically
involves larger loans to single borrowers or groups of related borrowers than
residential mortgage loans. Further, the repayment of commercial mortgages
secured by income-producing properties is typically dependent upon the tenants
ability to meet its obligations under the lease relating to such property,
which in turn depends upon profitable operation of the related property.
Furthermore, the value of commercial mortgages may be adversely affected due
to characteristics of underlying commercial properties and facilities.
Balloon Payment at Maturity and Extension Maturity Increases Lender Risks
It is expected that a substantial percentage of ICH's commercial mortgages
will have a balloon payment due for each such commercial mortgage at its
respective maturity date. Commercial mortgages with balloon payments involve a
greater risk to a lender than self-amortizing loans, because the ability of a
borrower to pay such amount will normally depend on its ability to fully
refinance the commercial mortgage or sell the related property at a price
sufficient to permit the borrower to make the balloon payments. The ability of
a borrower to effect a refinancing or sale will be affected by a number of
factors, including, without limitation, the value of the related property, the
level of available mortgage interest rates at the time of refinancing, the
related borrower's equity in the property, the financial condition and
operating history of the borrower and the related property, the strength of
the commercial and multifamily real estate markets, tax laws, and prevailing
general economic conditions.
Environmental Risks May Adversely Affect Value of Underlying Commercial
Mortgages
Contamination of real property may give rise to a lien on that property to
assure payment of the cost of clean-up or, in certain circumstances, may
result in liability to the lender for that cost. Such contamination may also
reduce the value of the property. Environmental clean-up costs may be
substantial. It is possible that such costs could become a liability of ICH
reducing the return to holders of its Common Stock if such remedial costs were
incurred.
RELATIONSHIP WITH ICII AND ITS AFFILIATES; CONFLICTS OF INTEREST
The Company is subject to conflicts of interest arising from its
relationship with ICAI, and ICAI's affiliates. In December 1997, IMH and IFC
entered into a services agreement (the "Services Agreement") with ICAI
pursuant to which ICAI agreed to provide certain human resource, data and
phone communications services for IMH and IFC. ICAI, through its affiliation
with ICII, has interests that may conflict with those of the Company in
fulfilling certain of its duties. In addition, certain of the officers and
Directors of ICII or its affiliates are also officers and Directors of the
Company, including H. Wayne Snavely and Joseph R. Tomkinson, Chairman of the
Board and Chief Executive Officer of IMH, respectively. The Company also
relies upon ICAI to provide the services under the Services Agreement. All
other operations of the Company are conducted through IFC and IWLG. No
assurance can be given that the Company's relationships with ICAI and its
affiliates will continue
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indefinitely. The failure or inability of ICAI to provide the services
required of it under the Services Agreement or any other agreements or
arrangements with the Company would have a material adverse effect on the
Company's business.
It is the intention of the Company and ICII that any agreements and
transactions, taken as a whole, between the Company, on the one hand, and ICII
or its affiliates, on the other hand, are fair to both parties. To minimize or
avoid potential conflicts of interests, all three Unaffiliated Directors must
independently and by majority vote approve all such agreements and
transactions. However, there can be no assurance that each of such agreements
or transactions will be on terms at least as favorable to the Company as could
have been obtained from unaffiliated third parties.
CONSEQUENCES OF FAILURE TO MAINTAIN REIT STATUS MAY INCLUDE IMH BEING SUBJECT
TO TAX AS A REGULAR CORPORATION
Commencing with its taxable year ended December 31, 1995, IMH has operated
and intends to continue to operate so as to qualify as a REIT under the Code.
Although IMH believes that it has operated and will continue to operate in
such a manner, no assurance can be given that IMH was organized or has
operated, or will be able to continue to operate, in a manner which will allow
it to qualify as a REIT. Qualification as a REIT involves the satisfaction of
numerous requirements (some on an annual and others on a quarterly basis)
established under highly technical and complex Code provisions for which there
are only limited judicial and administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within
IMH's control. For example, in order to qualify as a REIT, at least 95% of
IMH's gross income (including the gross income of IWLG and IMH Assets) in any
year must be derived from qualifying sources, and IMH must pay distributions
to stockholders aggregating annually at least 95% of its (including IWLG's and
IMH Assets') taxable income (determined without regard to the dividends paid
deduction and by excluding net capital gains). No assurance can be given that
legislation, new regulations, administrative interpretations or court
decisions will not significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. IMH has received an opinion from Latham & Watkins, tax counsel
to IMH, as of September 8, 1997, to the effect that, commencing with IMH's
taxable year ended December 31, 1995, IMH has been organized in conformity
with the requirements for qualification as a REIT, and its proposed method of
operation has enabled and will enable it to meet the requirements for
qualification and taxation as a REIT under the Code. See "Federal Income Tax
Considerations--Taxation of IMH" and "Legal Matters." Such legal opinion is
based on various assumptions and factual representations by IMH regarding
IMH's ability to meet the various requirements for qualification as a REIT,
and no assurance can be given that actual operating results will meet these
requirements. Such legal opinion is not binding on the Internal Revenue
Service (the "Service") or any court.
Among the requirements for REIT qualification is that the value of any one
issuer's securities held by a REIT may not exceed the value of 5% of the
REIT's total assets on certain testing dates. See "Federal Income Tax
Considerations--Taxation of IMH--Requirements for Qualification." IMH believes
that the aggregate value of the securities of IFC held by IMH have been and
will continue to be less than 5% of the value of IMH's total assets. In
rendering its opinion as to the qualification of IMH as a REIT, Latham &
Watkins is relying on the representation of IMH regarding the value of its
securities in IFC.
IMH owns 100% of the nonvoting preferred stock of IFC, which represents
approximately 99% of the economic value of all classes of stock of IFC. IMH
does not and will not own any of the voting securities of IFC, and therefore
IMH will not be considered to own more than 10% of the voting securities of
IFC (which would be prohibited by the REIT asset tests currently set forth in
the Code). President Clinton's 1999 federal budget proposal contains a
provision which would amend the REIT asset tests so as to prohibit REITs from
owning stock of a corporation possessing more than 10% of the vote or value of
all classes of stock of the corporation. This proposal would be effective with
respect to stock acquired on or after the date of the first Congressional
committee action with respect to the proposal (the "Action Date"). In
addition, to the extent that a REIT's stock ownership is grandfathered by
virtue of this effective date, such grandfathered status would
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terminate if the subsidiary corporation engages in a trade or business that it
is not engaged in on the Action Date or acquires substantial new assets on or
after such date. Accordingly, if this provision of the budget proposal were
enacted in its present form, IMH's stock ownership in IFC would be
grandfathered, but such grandfathered status would terminate if IFC engages in
a trade or business that it is not engaged in on the Action Date or acquires
substantial new assets (including additional mortgage loans) on or after such
date, even if such activities are underaken or assets are acquired prior to
the adoption of the proposal. In such case, IMH's continued ownership of more
than 10% of the economic value of IFC beyond IMH's next quarterly asset
testing date following the Action Date (which could occur prior to the
adoption of the proposal) could cause IMH to fail to qualify as a REIT. See
"Federal Income Tax Considerations--Failure to Qualify." It is presently
uncertain whether any proposal regarding REIT subsidiaries, such as IFC, will
be enacted, or if enacted, what the terms of such proposal (including its
effective date) will be. At this time, it is expected that IFC will continue
to acquire additional mortgage loans notwithstanding the proposed legislation
regarding REIT subsidiaries. Furthermore, if the proposal passes, then in
order to maintain its REIT status, IMH may be required to dispose of its
ownership of IFC either through a sale of IFC or a distribution of the shares
of IFC to IMH's stockholders in connection with a spin-out. It is anticipated
that upon any distribution of the shares in connection with a spin-out, that a
right of first refusal would be entered into between IMH and IFC so that IFC
will be obligatged to first offer mortgage assets to IMH. A sale of IFC,
whether if required pursuant to the proposal or otherwise, would leave IMH
without a concentrated origination source which would require IMH to purchase
mortgage assets from other sources. As such, approval of the proposal may have
a material adverse effect on the Company's business and result of operations.
Lastly, any distribution of shares to IMH's stockholders would have a number
of tax consequences including, without limitation, the possibility of IMH's
stockholders recognizing a material amount of dividend income.
If IMH were to fail to qualify as a REIT in any taxable year, IMH would be
subject to federal income tax (including any applicable alternative minimum
tax) on its (including IWLG's and IMH Assets') taxable income at regular
corporate rates and would not be allowed a deduction in computing its taxable
income for amounts distributed to its stockholders. Moreover, unless entitled
to relief under certain statutory provisions, IMH also would be disqualified
from treatment as a REIT for the four taxable years following the year during
which qualification is lost. This treatment would reduce the net income of IMH
available for investment or distribution to stockholders because of the
additional tax liability to IMH for the years involved. In addition,
distributions to stockholders would no longer be required to be made. See
"Federal Income Tax Considerations--Taxation of IMH--Requirements for
Qualification."
Even if IMH maintains its REIT status, it may be subject to certain federal,
state and local taxes on its income. For example, if IMH has net income from a
prohibited transaction, such income will be subject to a 100% tax. See
"Federal Income Tax Considerations--Taxation of IMH." In addition, the net
income, if any, from the Conduit Operations conducted through IFC is subject
to federal income tax at regular corporate tax rates. See "Federal Income Tax
Considerations--Other Tax Consequences."
COMPANY'S OPERATIONS MAY BE ADVERSELY AFFECTED IF THE COMPANY IS SUBJECT TO
THE INVESTMENT COMPANY ACT
The Company at all times intends to conduct its business so as not to become
regulated as an investment company under the Investment Company Act.
Accordingly, the Company does not expect to be subject to the restrictive
provisions of the Investment Company Act. The Investment Company Act exempts
entities that are "primarily engaged in the business of purchasing or
otherwise acquiring mortgages and other liens on and interests in real estate"
("Qualifying Interests"). Under the current interpretation of the staff of the
Commission, in order to qualify for this exemption, the Company must, among
other things, maintain at least 55% of its assets directly in mortgage loans,
qualifying pass-through certificates and certain other Qualifying Interests in
real estate. In addition, unless certain mortgage securities represent all the
certificates issued with respect to an underlying pool of mortgages, such
mortgage securities may be treated as securities separate from the underlying
mortgage loans and, thus, may not qualify as Qualifying Interests for purposes
of the 55% requirement. The Company's ownership of certain mortgage loans
therefore may be limited by the provisions of the Investment
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Company Act. In addition, in meeting the 55% requirement under the Investment
Company Act, the Company intends to consider privately issued certificates
issued with respect to an underlying pool as to which the Company holds all
issued certificates as Qualifying Interests. If the Commission, or its staff,
adopts a contrary interpretation with respect to such securities or otherwise
believes the Company does not satisfy the above exception, the Company could
be required to restructure its activities to the extent its holdings of such
privately issued certificates did not comply with the interpretation. Such a
restructuring could require the sale of a substantial amount of privately
issued certificates held by the Company at a time it would not otherwise do
so. Further, in order to insure that the Company at all times continues to
qualify for the above exemption from the Investment Company Act, the Company
may be required at times to adopt less efficient methods of financing certain
of its mortgage loans and investments in mortgage-backed securities than would
otherwise be the case and may be precluded from acquiring certain types of
such mortgage assets whose yield is somewhat higher than the yield on assets
that could be purchased in a manner consistent with the exemption. The net
effect of these factors will be to lower at times the Company's net interest
income, although the Company does not expect the effect to be material. If the
Company fails to qualify for exemption from registration as an investment
company, its ability to use leverage would be substantially reduced, and it
would be unable to conduct its business as described herein. Any such failure
to qualify for such exemption could have a material adverse effect on the
Company.
FUTURE REVISIONS IN POLICIES AND STRATEGIES AT THE DISCRETION OF THE BOARD OF
DIRECTORS MAY BE AFFECTED WITHOUT STOCKHOLDER CONSENT
The Board of Directors, including a majority of the Unaffiliated Directors,
has established the investment policies and operating policies and strategies.
With respect to other matters, the Company may, in the future, but currently
has no present plans to, invest in the securities of other REITs for the
purpose of exercising control, offer securities in exchange for property or
offer to repurchase or otherwise reacquire its shares or other securities. The
Company may also, but does not currently intend to underwrite the securities
of other issuers. However, any of the policies, strategies and activities
referenced above or described in this Prospectus may be modified or waived by
the Board of Directors, subject in certain cases to approval by a majority of
the Unaffiliated Directors, without stockholder consent.
EFFECT OF FUTURE OFFERINGS MAY ADVERSELY AFFECT MARKET PRICE OF THE SECURITIES
The Company in the future intends to increase its capital resources by
making additional private or public offerings of Securities. The actual or
perceived effect of such offerings, the timing of which cannot be predicted,
may be the dilution of the book value or earnings per share of the Company's
Common Stock or other Securities then outstanding, which may result in the
reduction of the market price of such Common Stock or other Securities.
Risk Relating to Common Stock
Shares Eligible for Future Sale May Adversely Affect the Market Price of the
Securities. Sale of substantial amounts of the Company's Common Stock in the
public market or the prospect of such sales could materially and adversely
affect the market price of such Common Stock or other Securities then
outstanding.
Risk Relating to Preferred Stock
Issuance of Preferred Stock Could Adversely Affect Common
Stockholders. IMH's charter (the "Charter") authorizes the Board of Directors
to issue shares of Preferred Stock and to classify or reclassify any unissued
shares of Common Stock or Preferred Stock into one or more classes or series
of stock. The Preferred Stock may be issued from time to time with such
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption as shall be determined by
the Board of Directors subject to the provisions of the Charter regarding
restrictions on transfer of stock. Preferred Stock is available for possible
future financing of, or acquisitions by, IMH and for general corporate
purposes without further stockholder authorization. Thus, the Board could
authorize the
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issuance of shares of Preferred Stock with terms and conditions which could
have the effect of delaying, deferring or preventing a change in control of
IMH by means of a merger, tender offer, proxy contest or other transaction
which could involve a premium price for holders of Common Stock or otherwise
be in their best interest. The Preferred Stock, if issued, may have a
preference on dividend payments which could reduce the assets available to IMH
to make distributions to the common stockholders. As of the date hereof, no
shares of Preferred Stock have been issued but such securities may be offered
hereby. The issuance of any shares of Preferred Stock covered by this
Prospectus would require further action by the Board of Directors. See
"Description of Securities."
Risk Relating to Debt Securities
Substantial Leverage; Ability to Service Outstanding Indebtedness. The
Company's ability to make scheduled payments of the principal of, or to pay
the interest on, any Debt Securities will depend upon its future performance
which, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors beyond its control.
There can be no assurance, however, that the Company's business will generate
sufficient cash flow from operations or that future borrowings will be
available in an amount sufficient to enable the Company to service any Debt
Securities. It may be necessary for the Company to refinance all or a portion
of the principal of any Debt Securities on or prior to maturity, under certain
circumstances, but there can be no assurance that the Company will be able to
effect such refinancing on commercially reasonable terms or at all.
The degree to which the Company is leveraged following the issuance of any
Debt Securities could have material adverse effects on the Company and the
holders of any Debt Securities, including, but not limited to, the following:
(i) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, and general corporate or
other purposes may be impaired, (ii) a substantial portion of the Company's
cash flow from operations will be dedicated to debt service and will be
unavailable for other purposes, (iii) certain of the Company's borrowings may
be at variable rates of interest, which could result in higher interest
expense in the event of increases in interest rates and (iv) the Company will
likely be subject to a variety of restrictive covenants, the failure to comply
with which could result in events of default that, if not cured or waived,
could restrict the Company's ability to make payments of principal of, and
interest on any Debt Securities.
Legal Restrictions on Sales of Securities Underlying the Securities Warrants
and the Securities Warrants
The Securities Warrants are not exercisable unless, at the time of the
exercise, the Company has a current prospectus covering the Securities
issuable upon exercise of the Securities Warrants, and such shares have been
registered, qualified or deemed to be exempt under the securities laws of the
state of residence of the exercising holder of the Securities Warrants.
Although the Company will use its best efforts to have all the Securities
issuable upon exercise of the Securities Warrants registered or qualified on
or before the exercise date and to maintain a current prospectus relating
thereto until the expiration of the Securities Warrants, there can be no
assurance that it will be able to do so. Further, although the Company intends
to seek to qualify the Securities underlying the Securities Warrants for sale
in those states in which such Securities are to be offered, no assurance can
be given that such qualification will be achieved. The Securities Warrants may
be deprived of any value if a current prospectus covering the Securities
issuable upon the exercise thereof is not filed and kept effective or if such
underlying Securities are not, or cannot be, registered in the applicable
states.
Substantial Shares of Common Stock Reserved for Exercise of Warrants
The existence of the Securities Warrants may prove to be a hindrance to
future equity financing by the Company. Further, the holders of such
Securities Warrants may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable
to the Company.
ABSENCE OF PUBLIC MARKET FOR THE PREFERRED STOCK, DEBT SECURITIES AND WARRANTS
All of the Securities when issued will be a new issue of securities with no
established trading market, other than the Common Stock, which is listed on
the AMEX. Any Common Stock sold pursuant to a Prospectus
23
<PAGE>
Supplement will be listed on the AMEX, subject to official notice of issuance.
Any underwriters to whom Securities are sold by the Company for public
offering and sale may make a market in such Securities, but such underwriters
will not be obligated to do so and may discontinue any market making at any
time without notice. No assurance can be given as to the liquidity of the
secondary market for any such Securities.
RESTRICTIONS ON OWNERSHIP OF COMMON STOCK MAY INHIBIT MARKET ACTIVITY;
POSSIBLE ANTI-TAKEOVER EFFECT MAY DETER TAKEOVER OF THE COMPANY
In order for IMH to maintain its qualification as a REIT, not more than 50%
in value of the outstanding shares of IMH's stock, including Common Stock, may
be owned, actually or constructively, by or for five or fewer individuals (as
defined in the Code to include certain entities) at any time during the last
half of a taxable year (other than the first year for which the election to be
treated as a REIT has been made). Furthermore, after the first taxable year
for which the REIT election was made, IMH's shares of stock, including Common
Stock, must be held by a minimum of 100 persons for at least 335 days of a 12-
month taxable year (or a proportionate part of a shorter taxable year). In
order to protect IMH against the risk of losing REIT status due to a
concentration of ownership among its stockholders, the Charter limits actual
or constructive ownership of (i) the outstanding shares of Common Stock by any
person to 9.5% (the "Ownership Limit") (in value or in number of shares,
whichever is more restrictive) of the then outstanding shares of Common Stock
or (ii) the outstanding shares of stock of IMH by any person to 9.5% in value
(the "Aggregate Ownership Limit"). See "Description of Securities--Capital
Stock--Repurchase of Shares and Restrictions on Transfer." Although the Board
of Directors presently has no intention of doing so (except as described
below), the Board of Directors, in its sole discretion, could waive the
Ownership Limit or the Aggregate Ownership Limit with respect to a particular
person if it were satisfied, based upon the advice of tax counsel or
otherwise, that ownership by such person in excess of the Ownership Limit
would not jeopardize IMH's status as a REIT. The Board of Directors may from
time to time increase or, subject to certain limitations, decrease the
Ownership Limit or the Aggregate Ownership Limit.
Actual or constructive ownership of shares of stock in excess of the
Ownership Limit or the Aggregate Ownership Limit, or, with the consent of the
Board of Directors, such other limit, which would cause IMH not to qualify as
a REIT, will cause the violative transfer of ownership to be void with respect
to the intended transferee or owner as to that number of shares in excess of
such limit, and such shares will be automatically transferred to a trustee for
the benefit of a trust for the benefit of a charitable beneficiary. The
trustee of such trust shall sell such shares and distribute the net proceeds
generally as follows: the intended transferee shall receive the lesser of (i)
the price paid by the intended transferee for such excess shares and (ii) the
sales proceeds received by the trustee for such excess shares. Any proceeds in
excess of the amount distributable to the intended transferee will be
distributed to the charitable beneficiary. In addition, shares of stock held
in trust shall be deemed to have been offered for sale to IMH, or its
designee, at a price per share equal to the lesser of (i) the price per share
in the transaction that resulted in such transfer to the trust and (ii) the
Market Price (as defined below) on the date IMH, or its designee, accepts such
offer. IMH shall have the right to accept such offer until the trustee has
sold the shares held in the trust. Upon such a sale to IMH, the interest of
the charitable beneficiary in the shares sold shall terminate and the trustee
shall distribute the net proceeds of the sale to the intended transferee.
Also, such intended transferee shall have no right to vote such shares or be
entitled to dividends or other distributions with respect to such shares. See
"Description of Securities--Capital Stock--Repurchase of Shares and
Restrictions on Transfer" for additional information regarding the Ownership
Limit.
These provisions may inhibit market activity in shares of Common Stock and
may delay, defer or prevent a change of control or other transaction involving
the opportunity for IMH's stockholders to receive a premium for their shares
that might otherwise exist if any person were to attempt to assemble a block
of shares of Common Stock in excess of the number of shares permitted under
the Charter. Such provisions also may make IMH an unsuitable investment
vehicle for any person seeking to obtain ownership of more than 9.5% of the
outstanding shares of Common Stock.
In addition, certain provisions of the Maryland General Corporation Law
("MGCL") and of IMH's Charter and Bylaws may also have the effect of delaying,
deferring or preventing a change in control of the Company or other
transaction that may involve a premium price for holders of Common Stock or
otherwise be in their best interest. See "Certain Provisions of Maryland Law
and of the Company's Charter and Bylaws."
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USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement for any
offering of Securities, the net proceeds from the sale of Securities offered
by the Company will be available for the general corporate purposes of the
Company. These general corporate purposes may include, without limitation,
funding the Long-Term Investment Operations, the Conduit Operations and the
Warehouse Lending Operations, repayment of maturing obligations, redemption of
outstanding indebtedness, financing future acquisitions (including
acquisitions of mortgage loans and other mortgage-related products), capital
expenditures and working capital. Pending any such uses, the Company may
invest the net proceeds from the sale of any Securities or may use them to
reduce short-term indebtedness. If the Company intends to use the net proceeds
from a sale of Securities to finance a significant acquisition, the related
Prospectus Supplements will describe the material terms of such acquisition.
If Debt Securities are issued to one or more persons in exchange for the
Company's outstanding debt securities, if any, the accompanying Prospectus
Supplement related to such offering of Debt Securities will set forth the
aggregate principal amount of the outstanding debt securities which the
Company will receive in such exchange and which will cease to be outstanding,
the residual cash payment, if any, which the Company may receive from such
persons or which such persons may receive from the Company, as appropriate,
the dates from which the Company will pay interest accrued on the outstanding
debt securities to be exchanged for the offered Debt Securities and an
estimate of the Company's expenses in respect of such offering of the Debt
Securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following is the computation of ratio of earnings to fixed charges,
including CMO debt(1):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
PRO FORMA
1997(2) 1997(3) 1996 1995(4) 1994(4) 1993(4)
--------- ------- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges.................... 1.2x -- 1.2x 1.6x 1.6x 9.9x
==== === ==== ==== ==== ====
</TABLE>
- --------
(1) Earnings used in computing the ratio of earnings to fixed charges consist
of net income before income taxes plus fixed charges. Fixed charges
consist of interest expense on long-term debt (including amortization of
loan premiums and the portion of rental expense deemed to represent the
interest factor).
(2) Earnings used in computing the pro forma ratio of earnings to fixed
charges consist of net income before income taxes, excluding the non-
recurring charge of $44.4 million incurred in connection with the
Termination Agreement, effective December 19, 1997, entered into among the
Company, ICII, ICAI, Richard J. Johnson, William S. Ashmore and Joseph R.
Tomkinson.
(3) Earnings were insufficient to cover fixed charges by $16,029,000.
(4) Data prior to the Contribution Transaction is based upon the historical
operations of IWLG, as a division of SPB, and includes the Company's
equity interest in IFC, as a division of ICII.
These ratios represent a measure of the ability to meet debt service
obligations from funds generated from operations.
25
<PAGE>
DESCRIPTION OF SECURITIES
The following is a brief description of the material terms of the
Securities. This description does not purport to be complete and is subject
and qualified in its entirety by reference to applicable Maryland law and to
the Company's Charter and Bylaws, copies of which are on file with the
Commission, and are incorporated by reference herein. See "Incorporation of
Certain Documents by Reference" and "Available Information."
GENERAL
The Company may offer under this Prospectus one or more of the following
categories of its Securities: (i) shares of its Common Stock, $0.01 par value
per share; (ii) shares of its Preferred Stock, $0.01 par value per share, in
one or more series; (iii) Debt Securities, in one or more series, any series
of which may be either Senior Debt Securities or Subordinated Debt Securities;
(iv) Common Stock Warrants; (v) Preferred Stock Warrants; (vi) Debt Warrants;
and (vii) any combination of the foregoing, either individually or as units
consisting of one or more of the types of Securities described in clauses (i)
through (vi). The terms of any specific offering of securities, including the
terms of any units offered, will be set forth in a Prospectus Supplement
relating to such offering.
The authorized stock of IMH consists of 50,000,000 shares of Common Stock,
$0.01 par value per share, and 10,000,000 shares of Preferred Stock, $0.01 par
value per share. It is expected that meetings of the stockholders of IMH will
be held annually. Special meetings of the stockholders may be called by the
President, Chief Executive Officer, a majority of the entire Board of
Directors or a majority of the Unaffiliated Directors and must be called upon
the written request of holders of shares entitled to cast at least 25% of all
the votes entitled to be cast at the meeting. The Charter reserves to IMH the
right to amend any provision thereof in the manner prescribed by Maryland law
upon the affirmative vote of stockholders entitled to cast at least a majority
of all the votes entitled to be cast on the matter, except that the provision
requiring the affirmative vote of the holders of two-third of votes entitled
to be cast in the election of directors to remove a director may only be
amended upon the affirmative vote of the holders of two-thirds of the votes
entitled to be cast in the election of directors. The Common Stock is listed
on the American Stock Exchange. The Company intends to list any additional
shares of its Common Stock which are issued and sold hereunder. The Company
may list any series of its Preferred Stock which is offered and sold
hereunder, as described in the Prospectus Supplement relating to such series
of Preferred Stock.
CAPITAL STOCK
Common Stock
Each share of Common stock is entitled to participate equally in dividends
when and as authorized by the Board of Directors and in the distribution of
assets of IMH upon liquidation. Each share of Common Stock is entitled to one
vote, subject to the provisions of the Charter regarding restrictions on
transfer of stock, and will be fully paid and nonassessable by IMH upon
issuance. Shares of Common Stock have no preference, conversion, exchange,
preemptive or cumulative voting rights. The authorized stock of IMH may be
increased and altered from time to time in the manner prescribed by Maryland
law upon the affirmative vote of stockholders entitled to cast at least a
majority of all the votes entitled to be cast on the matter. The Charter
authorizes the Board of Directors to reclassify any unissued shares of its
Common Stock in one or more classes or series of stock.
Preferred Stock
The Charter authorizes the Board of Directors to issue shares of Preferred
Stock and to classify or reclassify any unissued shares of Preferred Stock
into one or more classes or series of stock. The Preferred Stock may be issued
from time to time with such designations, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption
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<PAGE>
as shall be determined by the Board of Directors for each class or series of
stock subject to the provisions of the Charter regarding restrictions on
transfer of stock. Preferred Stock is available for possible future financing
of, or acquisitions by, IMH and for general corporate purposes without further
stockholder authorization unless such authorization is required by applicable
law or the rules of either the AMEX or the principal national securities
exchange on which such stock is listed or admitted for trading. Thus, the
Board could authorize the issuance of shares of Preferred Stock with terms and
conditions which could have the effect of delaying, deferring or preventing a
change in control of IMH by means of a merger, tender offer, proxy contest or
otherwise. The Preferred Stock, if issued, may have a preference on dividend
payments which could reduce the assets available to IMH to make distributions
to the common stockholders. As of the date hereof, no shares of Preferred
Stock have been issued. The particular terms of any series of Preferred Stock
offered hereby will be described in the applicable Prospectus Supplement.
Repurchase of Shares and Restrictions on Transfer
For IMH to qualify as a REIT under the Code, no more than 50% in value of
its outstanding shares of stock may be owned, actually or constructively, by
or for five or fewer individuals (as defined in the Code to include certain
entities) at any time during the last half of a taxable year (other than the
first year for which an election to be treated as a REIT has been made). In
addition, a REIT's stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year (other than the first year for
which an election to be treated as a REIT has been made).
Because IMH expects to continue to qualify as a REIT, the Charter contains
restrictions on the transfer of Common Stock which are intended to assist IMH
in complying with these requirements. The Charter prohibits any person,
subject to certain specified exceptions discussed below, from owning, actually
or constructively, (i) shares of Common Stock in excess of 9.5% (in value or
in number, whichever is more restrictive) of the outstanding shares of Common
Stock or (ii) shares of stock of IMH in excess of 9.5% in value the aggregate
value of the outstanding shares of stock of the Company (the "Aggregate
Ownership Limit"). The constructive ownership rules are complex, and may cause
shares of stock owned actually or constructively by a group of related
individuals and/or entities to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9.5% of the outstanding
shares of Common Stock (or the acquisition of an interest in an entity that
owns, actually or constructively, shares of Common Stock) by an individual or
entity, could nevertheless cause that individual or entity, or another
individual or entity, to own constructively shares of stock in excess of the
Ownership Limit or the Aggregate Ownership Limit, or such other limit as
provided in the Charter or as otherwise permitted by the Board of Directors.
The Board of Directors may, but in no event will be required to, exempt a
person from the Ownership Limit or the Aggregate Ownership Limit if it
determines that such person's ownership of shares of stock in excess of such
limits will not jeopardize IMH's status as a REIT. As a condition of such
waiver, the Board of Directors may require a ruling from the Internal Revenue
Service or opinions of counsel satisfactory to it and/or undertakings or
representations from the applicant with respect to IMH's status as a REIT.
IMH's Charter further prohibits (a) any person from actually or
constructively owing shares of Common Stock that would result in IMH being
"closely held" under Section 856(h) of the Code or otherwise cause IMH to fail
to qualify as a REIT, and (b) any person from transferring shares of Common
Stock if such transfer would result in shares of Common Stock being owned by
fewer than 100 persons. Any person who acquires or attempts or intends to
acquire actual or constructive ownership of shares of stock of IMH that will
or may violate any of the foregoing restrictions on transferability and
ownership is required to give written notice immediately to IMH and provide
IMH with such other information as it may request in order to determine the
effect of such transfer on its status as a REIT. The foregoing restrictions on
transferability and ownership will not apply if the Board of Directors
determines that it is no longer in the best interest of IMH to attempt to
qualify, or to continue to qualify, as a REIT. The Board of Directors may from
time to time increase the Ownership Limit and the Aggregate Ownership Limit.
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<PAGE>
Pursuant to the Charter, if any purported transfer of Common Stock or any
other event would otherwise result in any person owning shares of stock in
excess of the Ownership Limit or the Aggregate Ownership Limit or in IMH being
"closely held" as described above or otherwise failing to qualify as a REIT,
then that number of shares of stock the actual or constructive ownership of
which otherwise would cause such person to violate such restrictions (rounded
to the nearest whose share) will be automatically transferred to a trustee
(the "Trustee") as trustee of a trust (the "Trust") for the exclusive benefit
of one or more charitable beneficiaries (the "Charitable Beneficiary"), and
the intended transferee will not acquire any rights in such shares. Shares
held by the Trustee will constitute issued and outstanding shares of stock.
The intended transferee will not benefit economically from ownership of any
shares held in the Trust, will have no rights to dividends and will not
possess any rights to vote or other rights attributable to the shares held in
the Trust. The Trustee will have all voting rights and rights to dividends or
other distributions with respect to shares held in the Trust, which rights
will be exercised for the exclusive benefit of the Charitable Beneficiary. Any
dividend or other distribution paid prior to the discovery by IMH that shares
of stock have been transferred to the Trustee will be paid with respect to
such shares to the Trustee upon demand and any dividend or other distribution
authorized but unpaid will be paid when due to the Trustee. Any dividends or
distributions so paid over to the Trustee will be held in trust for the
Charitable Beneficiary. Subject to Maryland law, effective as of the date that
such shares have been transferred to the Trustee, the Trustee will have the
authority (at the Trustee's sole discretion) (i) to rescind as void any vote
cast by an intended transferee prior to the discovery by IMH that such shares
have been transferred to the Trustee and (ii) to recast such vote in
accordance with the desires of the Trustee acting for the benefit of the
Charitable Beneficiary.
Within 20 days of receiving notice from IMH that shares of stock have been
transferred to the Trust, the Trustee will sell the shares held in the Trust
to a person designated by the Trustee whose ownership of the shares will not
violate the ownership restrictions set forth in the Charter. Upon such sale,
the interest of the Charitable Beneficiary in the shares sold will terminate
and the Trustee will distribute the net proceeds of the sale to the intended
transferee and to the Charitable Beneficiary as follows: the intended
transferee will receive the lesser of (1) the price paid by the intended
transferee for the shares or, if the intended did not give value for the
shares in connection with the event causing the shares to be held in the Trust
(e.g., in the case of a gift, devise or other such transaction), the Market
Price (as defined below) of the shares on the day of the event causing the
shares to be held in the Trust and (2) the price per share received by the
Trustee from the sale or other disposition of the shares held in the Trust.
Any net sales proceeds in excess of the amount payable to the intended
transferee will be immediately paid to the Charitable Beneficiary.
In addition, shares of stock held in Trust will be deemed to have been
offered for sale to IMH, or its designee, at a price per share equal to the
lesser of (i) the price per share in the transaction that resulted in such
transfer to the Trust (or, in the case of a devise or gift, the Market Price
(as defined below) at the time of such devise or gift) and (ii) the Market
Price on the date IMH, or its designee, accepts such offer. IMH will have the
right to accept such offer until the Trustee has sold the shares held in the
Trust. Upon such a sale to IMH, the interest of the Charitable Beneficiary in
the shares sold will terminate and the Trustee will distribute the net
proceeds of the sale to the intended transferee.
The Charter defines the term "Market Price" on any date, with respect to any
class or series of outstanding shares of IMH's stock, as the Closing Price (as
defined below) for such shares on such date. The "Closing Price" on any date
shall mean the last sale price for such shares, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, for such shares, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the NYSE or, if such shares are not listed or
admitted to trading on the NYSE, as reported on the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which such shares are listed or
admitted to trading or, if such shares are not listed or admitted to trading
on any national securities exchange, the last quoted price, or, if not so
quoted, the average of the high bid and low asked prices in the over-the-
customer market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no longer in
use, the principal other automated
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<PAGE>
quotation system that may then be in use or, if such shares are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in such shares
selected by the Board of Directors or, in the event that no trading price is
available for such shares, the fair market value of the shares, as determined
in good faith by the Board of Directors.
If any purported transfer of shares of stock of IMH shall cause IMH to be
beneficially owned be fewer than 100 persons, such transfer will be null and
void in its entirety and the intended transferee will acquire no rights to
such shares.
All certificates representing shares of Common Stock bear a legend referring
to the restrictions described above.
Every owner of more than 5% (or such lower percentage as required by the
Code or the regulations promulgated thereunder) of all classes or series of
the Company's stock, including shares of Common Stock, within 30 days after
the end of each taxable year, is required to give written notice to the
Company stating the name and address of such owner, the number of shares of
each class and series of stock of the Company beneficially owned and a
description of the manner in which such shares are held. Each such owner shall
provide to the Company such additional information as the Company may request
in order to determine the effect, if any, of such beneficial ownership on
IMH's status as a REIT and to ensure compliance with the Ownership Limit.
Dividend Reinvestment and Stock Purchase Plan
The Company has established a Dividend Reinvestment and Stock Purchase Plan
pursuant to which holders of record and beneficial owners of shares of Common
Stock of IMH may elect to have dividends reinvested automatically in
additional shares of Common Stock of the Company, generally at a discount to
the market price, and to make optional cash purchases of Common Stock of the
Company.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is Boston
EquiServe, L.P., North Quincy, Massachusetts.
SECURITIES WARRANTS
General
The Company may issue Securities Warrants for the Purchase of Common Stock,
Preferred Stock or Debt Securities. Such warrants are referred to herein as
Common Stock Warrants, Preferred Stock Warrants or Debt Warrants, as
appropriate. Securities Warrants may be issued independently or together with
any other Securities covered by the Registration Statement and offered by this
Prospectus and any accompanying Prospectus Supplement and may be attached to
or separate from such other Securities. Each series of Securities Warrants
will be issued under a separate agreement (each, a "Securities Warrant
Agreement") to be entered into between the Company and a bank or trust
company, as agent (each, a "Securities Warrant Agent"), all as set forth in
the Prospectus Supplement relating to the particular issue of offered
evidenced by warrant certificates (the "Securities Warrant Certificates"). The
Securities Warrant Agent will act solely as an agent of the Company in
connection with the Securities Warrant Certificates and will not assume any
obligation or relationship of agency or trust for or with any holders of
Securities Warrant Certificates or beneficial owners of Securities Warrants.
Copies of the definitive Securities Warrant Agreements and Securities Warrant
Certificates will be filed with the Commission by means of a Current Report on
Form 8-K in connection with the offering of such series of Securities
Warrants.
If Securities Warrants are offered, the applicable Prospectus Supplement
will describe the terms of such Securities Warrants, including in the case of
Securities Warrants for the purchase of Debt Securities, the
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<PAGE>
following where applicable: (i) the offering price; (ii) the currencies in
which such Debt Warrants are being offered; (iii) the designation, aggregate
principal amount, currencies, denominations and terms of the series of Debt
Securities purchasable upon exercise of such Debt Warrants; (iv) the
designation and terms of any Securities with which such Debt Warrants are
being offered and the number of such Debt Warrants being offered with each
such Security; (v) the date on and after which such Debt Warrants and the
related Securities will be transferable separately; (vi) the principal amount
of the series of Debt Securities purchasable upon exercise of each such Debt
Warrant and the price at which the currencies in which such principal amount
of Debt Securities of such series may be purchased upon such exercise; (vii)
the date on which the right to exercise such Debt Warrants shall commence and
the date on which such right shall expire (the "Expiration Date"); (viii)
whether the Debt Warrant will be issued in registered or bearer form; (ix)
certain federal income tax consequences; and (x) any other material terms of
such Debt Warrants.
In the case of Securities Warrants for the purchase of Preferred Stock or
Common Stock, the applicable Prospectus Supplement will describe the terms of
such Securities Warrants, including the following where applicable: (i) the
offering price; (ii) the aggregate number of shares purchasable upon exercise
of such Securities Warrants, and in the case of Securities Warrants for
Preferred Stock, the designation, aggregate number and terms of the series of
Preferred Stock purchasable upon exercise of such Securities Warrants; (iii)
the designation and terms of the Securities with which such Securities
Warrants are being offered and the number of such Securities Warrants being
offered with each such Security; (iv) the date on and after which such
Securities Warrants and the related Securities will be transferable
separately; (v) the number of shares of Preferred Stock or shares of Common
Stock purchasable upon exercise of each such Securities Warrant and the price
at which such number of shares of Preferred Stock of such series or shares of
Common Stock may be purchased upon such exercise; (vi) the date on which the
right to exercise such Securities Warrants shall commence and the Expiration
Date on which such right shall expire; (vii) certain federal income tax
consequences; and (viii) any other material terms of such Securities Warrants.
Securities Warrant Certificates may be exchanged for new Securities Warrant
Certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the appropriate Securities Warrant Agent or other office
indicated in the applicable Prospectus Supplement. Prior to the exercise of
any Securities Warrant to purchase Debt Securities, holders of such Debt
Warrants will not have any of the rights of Holders of the Debt Securities
purchasable upon such exercise, including the right to receive payments of
principal, premium, if any, or interest, if any, on the Debt Securities
purchasable upon such exercise or to enforce covenants in the applicable
Indenture. Prior to the exercise of any Securities Warrants to purchase
Preferred Stock or Common Stock, holders of such Preferred Stock Warrants or
Common Stock Warrants will not have any rights of holders of the respective
Preferred Stock or Common Stock purchasable upon such exercise, including the
right to receive payments of dividends, if any, on the Preferred Stock or
Common Stock purchasable upon such exercise or to exercise any applicable
right to vote.
Exercise of Securities Warrants
Each Securities Warrant will entitle the holder thereof to purchase such
principal amount of Debt Securities or number of shares of Preferred Stock or
shares of Common Stock, as the case may be, at such exercise price as shall in
each case be set forth in, or calculable from, the Prospectus Supplement
relating to the offered Securities Warrants. After the close of business on
the Expiration Date (or such later date to which such Expiration Date may be
extended by the Company), unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to the Securities Warrant
Agent payment, as provided in the applicable Prospectus Supplement, of the
amount required to purchase the applicable Debt Securities, Preferred Stock or
Common Stock purchasable upon such exercise together with certain information
set forth on the reverse side of the Securities Warrant Certificate. Upon
receipt of such payment and the definitive Securities Warrant Certificates
properly completed and duly executed at the corporate trust office of the
Securities Warrant Agent or any other office indicated in the applicable
Prospectus Supplement, the Company will, as soon as
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<PAGE>
practicable, issue and deliver the applicable Debt Securities, Preferred Stock
or Common Stock purchasable upon such exercise. If fewer than all of the
Securities Warrants represented by such Securities Warrant Certificate are
exercised, a new Securities Warrant Certificate will be issued for the
remaining amount of Securities Warrants.
Amendments and Supplements to Securities Warrant Agreements
Each Securities Warrant Agreement may be amended or supplemented without the
consent of the holders of the Securities Warrants issued thereunder to effect
changes that are not inconsistent with the provisions of the Securities
Warrants and that do not adversely affect the interests of the holders of the
Securities Warrants.
Common Stock Warrant Adjustments
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of shares of Common Stock covered by, a
Common Stock Warrant are subject to adjustment in certain events, including:
(i) the issuance of Common Stock as a dividend or distribution on the Common
Stock; (ii) subdivisions and combinations of the Common Stock; (iii) the
issuance to all holders of Common Stock of certain rights or warrants
entitling them to subscribe for or purchase Common Stock within the number of
days, specified in the applicable Prospectus Supplement, after the date fixed
for the determination of the stockholders entitled to receive such rights or
warrants, at less than the current market price (as defined in the Securities
Warrant Agreement governing such series of Common Stock Warrants); and (iv)
the distribution to all holders of Common Stock of evidences of indebtedness
or assets of the Company (excluding certain cash dividends and distributions
described below). The terms of any such adjustment will be specified in the
related Prospectus Supplement for such Common Stock Warrants.
No Rights as Stockholders
Holders of Common Stock Warrants will not be entitled by virtue of being
such holders, to vote, to consent, to receive dividends, to receive notice as
stockholders with respect to any meeting of stockholders for the election of
directors of the Company of any other matter, or to exercise any rights
whatsoever as stockholders of the Company.
Existing Securities Holders
The Company may issue, as a dividend at no cost, such Securities Warrants to
holders of record of the Company's Securities or any class thereof on the
applicable record date. If Securities Warrants are so issued to existing
holders of Securities, the applicable Prospectus Supplement will describe, in
addition to the terms of the Securities Warrants and the Securities issuable
upon exercise thereof, the provisions, if any, for a holder of such Securities
Warrants who validly exercises all Securities Warrants issued to such holder
to subscribe for unsubscribed Securities (issuable pursuant to unexercised
Securities Warrants issued to other holders) to the extent such Securities
Warrants have not been exercised.
DEBT SECURITIES
General
The Company may offer one or more series of its Debt Securities representing
general, unsecured obligations of the Company. Any series of Debt Securities
may either (1) rank prior to all subordinated indebtedness of the Company and
pari passu with all other unsecured indebtedness of the Company outstanding on
the date of the issuance of such Debt Securities ("Senior Debt Securities") or
(2) be subordinated in right of payments to certain other obligations of the
Company outstanding on the date of issuance ("Subordinated Debt Securities").
In this Prospectus, any indenture relating to Subordinated Debt Securities is
referred to as a "Subordinated Indenture," any indenture relating to Senior
Debt Securities is referred to as a "Senior Indenture" and the term
"Indenture" refers to Senior and Subordinated Indentures, collectively.
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The aggregate principal amount of Debt Securities which may be issued by the
Company will be set from time to time by the Board of Directors. Further, the
amount of Debt Securities which may be offered by this Prospectus will be
subject to the aggregate initial offering price of Securities specified in the
Registration Statement. Each Indenture will permit the issuance of an
unlimited amount of Debt Securities thereunder from time to time in one or
more series. Additional debt securities may be issued pursuant to another
registration statement for issuance under any Indenture. Any offering of Debt
Securities may be denominated in any currency composite designated by the
Company.
The following description of the Debt Securities which may be offered by the
Company hereunder describes certain general terms and provisions of the Debt
Securities to which any Prospectus Supplement may relate. The particular terms
and provisions of the Debt Securities and the extent to which the following
general provisions may apply to such offering of Debt Securities will be
described in the accompanying Prospectus Supplement relating to such offering
of Debt Securities. The following descriptions of certain provisions of the
Indentures do not purport to be complete and are qualified in their entirety
by reference to the form of Senior Indenture or Subordinated Indenture, as
appropriate. The definitive Indenture relating to each offering of Debt
Securities will be filed with the Commission by means of a Current Report on
Form 8-K in connection with the offering of such Debt Securities. All article
and section references appearing herein are references to the articles and
sections of the appropriate Indenture and, unless defined herein, all
capitalized terms have the respective meanings specified in the appropriate
Indenture.
The Prospectus Supplement relating to any offering of Debt Securities will
set forth the following terms and other information to the extent applicable
with respect to the Debt Securities being offered thereby; (1) the
designation, aggregate principal amount, authorized denominations and priority
of such Debt Securities; (2) the price (expressed as a percentage of the
aggregate principal amount of such Debt Securities) at which such Debt
Securities will be issued; (3) the currency or currency units for which the
Debt Securities may be purchased and in which; (4) the stated maturity of such
Debt Securities or means by which a maturity date may be determined; (5) the
rate at which such Debt Securities will bear interest or the method by which
such rate of interest is to be calculated (which rate may be zero in the case
of certain Debt Securities issued at a price representing a discount from the
principal amount payable at maturity); (6) the periods during which such
interest will accrue, the dates on which such interest will be payable (or the
method by which such dates may be determined; including without limitation
that such rate of interest may bear an inverse relationship to some index or
standard) and the circumstances under which the Company may defer payment of
interest; (7) redemption provisions, including any optional redemption,
required repayment or mandatory sinking fund provisions; (8) any terms by
which such Debt Securities may be convertible into shares of the Company's
Common Stock, Preferred Stock or any other Securities of the Company,
including a description of the Securities into which any such Debt Securities
are convertible; (9) any terms by which the principal of such Debt Securities
will be exchangeable for any other Securities of the Company; (10) whether
such Debt Securities are issuable as definitive Fully- Registered Securities
(as defined below) or Global Securities and, if Global Securities are to be
issued, the terms thereof, including the manner in which interest thereon will
be payable to the beneficial owners thereof and other book-entry procedures,
any terms for exchange of such Global Securities into definitive Fully-
Registered Securities (as defined below) and any provisions relating to the
issuance of a temporary Global Security; (11) any additional restrictive
covenants included for the benefit of the holders of such Debt Securities;
(12) any additional events of default provided with respect to such Debt
Securities; (13) the terms of any Securities being offered together with such
Debt Securities, (14) whether such Debt Securities represent general,
unsecured obligations of the Company and (15) any other material terms of such
Debt Securities.
If any of the Debt Securities are sold for foreign currency units, the
restrictions, elections, tax consequences, specific terms, and other
information with respect to such issue of Debt Securities and such currencies
or currency units will be set forth in the Prospectus Supplement relating to
thereto.
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Indenture Provisions
The Debt Securities may be issued in definitive, fully registered form
without coupons ("Fully Registered Securities"), or in a form registered as to
principal only with coupons or in bearer form with coupons. Unless otherwise
specified in the Prospectus Supplement, the Debt Securities will only be Fully
Registered Securities. In addition, Debt Securities of a series may be
issuable in the form of one or more Global Securities, which will be
denominated in an amount equal to all or a portion of the aggregate principal
amount of such Debt Securities. See "Global Securities" below.
One or more series of Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
that at the time of issuance is below market rates. Federal income tax
consequences and special considerations applicable to any such series will be
described in the Prospectus Supplement relating thereto.
Unless otherwise indicated in the related Prospectus Supplement for a series
of Debt Securities, there are no provisions contained in the Indentures that
would afford holders of Debt Securities protection in the event of a highly
leveraged transaction involving the Company.
Global Securities. Any series of Debt Securities may be issued in whole or
in part in the form of one or more Global Securities that will be deposited
with, or on behalf of, the Depositary identified in the Prospectus Supplement
relating to such series. Unless and until it is exchanged in whole or in part
for Debt Securities in individually certificated form, a Global Security may
not be transferred except as a whole to a nominee of the Depositary for such
Global Security, or by a nominee for the Depositary to the Depositary, or to a
successor of the Depositary or a nominee of such successor.
The specific terms of the Depositary arrangement with respect to any series
of Debt Securities and the rights of, and limitations on, owners of beneficial
interests in a Global Security representing all or a portion of a series of
Debt Securities will be described in the Prospectus Supplement relating to
such series.
Modification of Indentures. Unless otherwise specified in the related
Prospectus Supplement, each Indenture, the rights and obligations of the
Company, and the rights of the Holders may be modified with respect to one or
more series of Debt Securities issued under such Indenture with the consent of
the Holders of not less than a majority in principal amount of the outstanding
Debt Securities of each such series affected by the modification or amendment.
No modification of the terms of payment of principal or interest, and no
modification reducing the percentage required for modification, is effective
against any Holder without his consent.
Events of Default. Unless otherwise specified in the related Prospectus
Supplement, each Indenture, will provide that the following are Events of
Default with respect to any series of Debt Securities issued thereunder: (1)
default in the payment of the principal of any Debt Security of such series
when and as the same shall be due and payable; (2) default in making a sinking
fund payment, if any, when and as the same shall be due and payable by the
terms of the Debt Securities of such series; (3) default for 30 days in
payment of any installment of interest on any Debt Securities of such series;
(4) default for a specified number of days after notice in the performance of
any other covenants in respect of the Debt Securities of such series contained
in the Indenture; (5) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator, or trustee of
the Company or its property; and (6) any other Event of Default provided in
the applicable supplemental indenture under which such series of Debt
Securities is issued. An Event of Default with respect to a particular series
of Debt Securities issued under an Indenture will not necessarily constitute
an Event of Default with respect to any other series of Debt Securities issued
under such Indenture. The trustee under an Indenture may withhold notice to
the Holders of any series of Debt Securities of any default with respect to
such series (except in the payment of principal or interest) if it considers
such withholding in the interests of such Holders.
If an Event of Default with respect to any series of Debt Securities shall
have occurred and be continuing, the appropriate trustee under the Indenture
or the Holders of not less than 25% in the aggregate principal amount of the
Debt Securities of such series may declare the principal, or in the case of
discounted Debt Securities, such
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portion thereof as may be described in the Prospectus Supplement, of all the
Debt Securities of such series to be due and payable immediately.
Within four months after the close of each fiscal year, the Company will
file with each trustee under the indentures a certificate, signed by specified
officers, stating whether or not such officers have knowledge of any default,
and, if so, specifying each such default and the nature thereof.
Subject to provisions relating to its duties in case of default, a trustee
under the Indentures shall be under no obligation to exercise any of its
rights or powers under the applicable Indenture at the request, order, or
direction of any Holder, unless such Holders shall have offered to such
trustee reasonable indemnity. Subject to such provisions for indemnification,
the Holders of a majority in principal amount of the Debt Securities of any
series may direct the time, method, and place of conducting any proceeding for
any remedy available to the appropriate trustee, or exercising any trust or
power conferred upon such trustee, with respect to the Debt Securities of such
series.
Payment and Transfer. Principal of, and premium and interest, if any, on,
Fully Registered Securities will be payable at the Place of Payment as
specified in the applicable Prospectus Supplement, provided that payment of
interest, if any, may be made, unless otherwise provided in the applicable
Prospectus Supplement, by check mailed to the person in whose names such Debt
Securities are registered at the close of business on the day or days
specified in the Prospectus Supplement or transfer to an account maintained by
the payee located inside the United States. The principal of, and premium and
interest, if any, on, Debt Securities in other forms will be payable in the
manner and at the place or places as designated by the Company and specified
in the applicable Prospectus Supplement. Unless otherwise provided in the
Prospectus Supplement, payment of interest may be made, in the case of a
Bearer Security by the transfer to an account maintained by the payee with a
bank outside the United States.
Fully Registered Securities may be transferred or exchanged at the corporate
trust office of the trustee or any other office or agency maintained by the
Company for such purposes, subject to the limitations in the applicable
Indenture, without the payment of any service charge except for any tax or
governmental charge incidental thereto. Provisions with respect to the
transfer and exchange of Debt Securities in other forms will be set forth in
the applicable Prospectus Supplement.
Defeasance. The indentures provide that each will cease to be of further
effect with respect to a certain series of Debt Securities (except for certain
obligations to register the transfer or exchange of Securities) if (a) the
Company delivers to the Trustee for the Securities of such series for
cancellation of all Securities of all series and the coupons, if any,
appertaining thereto, or (b) if the Company deposits into trust with the
Trustee money or United States government obligations, that, through the
payment of interest thereon and principal thereof in accordance with their
terms, will provide money in an amount sufficient to pay all of the principal
of, and interest on, the Securities of such series on the dates such payments
are due or redeemable in accordance with the terms of such Securities.
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CERTAIN PROVISIONS OF MARYLAND LAW AND
OF THE COMPANY'S CHARTER AND BYLAWS
The following summary of certain provisions of the MGCL and of the Charter
and the Bylaws of IMH does not purport to be complete and is subject to and
qualified in its entirety by reference to Maryland law and to the Charter and
the Bylaws of IMH, copies of which are filed with the Commission. See
"Available Information." For a description of additional restrictions on
transfer of the Common Stock, see "Description of Securities--Capital Stock--
Repurchase of Shares and Restrictions on Transfer."
REMOVAL OF DIRECTORS
The Charter provides that a director may be removed from office at any time
but only by the affirmative vote of the holders of at least two-thirds of the
votes entitled to be cast in the election of directors.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting
power of the corporation's shares or an affiliate of the corporation who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then outstanding
voting stock of the corporation (an "Interested Stockholder") or an affiliate
of such an Interested Stockholder are prohibited for five years after the most
recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative
vote of at least (a) 80% of the votes entitled to be cast by holders of
outstanding shares of voting stock of the corporation and (b) two-thirds of
the votes entitled to be cast by holders of voting stock of the corporation
other than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its shares. These provisions of Maryland law do not apply, however, to
business combinations that are approved or exempted by the board of directors
of the corporation prior to the time that the Interested Stockholder becomes
an Interested Stockholder. Pursuant to the statute, IMH has exempted any
business combinations involving ICII and, consequently, the five-year
prohibition and the super-majority vote requirements of the statute will not
in any event apply to business combinations between ICII and IMH. As a result,
ICII may be able to enter into business combinations with IMH, which may not
be in the best interest of the stockholders, without compliance by IMH with
the super-majority vote requirements and the other provisions of the statute.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting
power: (1) one-fifth or more but less than one-third, (2) one-third or more
but less than a majority, or (3) a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A
"control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
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A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for the control shares, as of the date of the
last control share acquisition by the acquiror or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiror in the
control share acquisition.
The control share acquisition 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 and adopted at any time before the acquisition of
shares.
The Bylaws of IMH contain a provision exempting from the control share
acquisition statute any and all acquisitions by any person of IMH's shares of
stock. There can be no assurance that such provision will not be amended or
eliminated at any time in the future.
AMENDMENT TO THE CHARTER
IMH reserves the right from time to time to make any amendment to its
Charter, now or hereafter authorized by law, including any amendment which
alters the contract rights as expressly set forth in the Charter, of any
shares of outstanding stock. The Charter may be amended only by the
affirmative vote of holders of shares entitled to cast not less than a
majority of all the votes entitled to be cast on the matter; provided,
however, that provisions on removal of directors may be amended only by the
affirmative vote of holders of shares entitled to cast not less than two-
thirds of all the votes entitled to be cast in the election of directors.
DISSOLUTION OF THE COMPANY
The dissolution of IMH must be approved by the affirmative vote of holders
of shares entitled to cast not less than a majority of all the votes entitled
to be cast on the matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws provide that (a) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(1) pursuant to IMH's notice of the meeting, (2) by the Board of Directors or
(3) by a stockholder who is entitled to vote at the meeting and has complied
with the advance notice procedures set forth in the Bylaws and (b) with
respect to special meetings of stockholders, only the business specified in
IMH's notice of meeting may be brought before the meeting of stockholders and
nominations of persons for election to the Board of Directors may be made only
(1) pursuant to IMH's notice of the meeting, (2) by the Board of Directors or
(3) provided that the Board of Directors has determined that directors shall
be elected at such meeting, by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice provisions set forth in the
Bylaws.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
CHARTER AND BYLAWS
The business combination provisions and, if the applicable provision in the
Bylaws is rescinded, the control share acquisition provisions of the MGCL, the
provisions of the Charter on ownership and transfer of stock and on removal of
directors and the advance notice provisions of the Bylaws could delay, defer
or prevent a transaction or a change in control of IMH or other transaction
that might involve a premium price for holders of Common Stock or otherwise be
in their best interest.
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PLAN OF DISTRIBUTION
The Company and the Selling Stockholders may sell Securities (1) to or
through underwriters or dealers, (2) directly to one or more purchasers, or
(3) through agents. Each Prospectus Supplement will set forth the terms of the
offering of the Securities offered thereby, including the name or names of any
underwriters, the purchase price of the Securities, and the proceeds to the
Company and the Selling Stockholders from the sale, any underwriting discounts
and other items constituting underwriters' compensation, any initial public
offering price, any discounts or concessions allowed or reallowed or paid to
dealers, and any securities exchange on which the Securities may be listed.
Only underwriters so named in the Prospectus Supplement are deemed to be
underwriters in connection with the Securities offered thereby.
If underwriters are used in the sale in a firm commitment underwriting, the
Securities will be acquired by the underwriters for their own account and may
be resold from time to time 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 precedent, and the
underwriters will be obligated to purchase all the Securities of the series
offered by the Company's Prospectus Supplement if any of the Securities are
purchased. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
The Company or the Selling Stockholders may grant underwriters who
participate in the distribution of Securities an option to purchase additional
Securities to cover over-allotments, if any.
The place and date of delivery for the Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Securities in respect of which this Prospectus is being delivered (other than
Common Stock) will be a new issue of securities, will not have an established
trading market when issued and may not be listed on any securities exchange.
Any underwriters or agents to or through whom such Securities are sold by the
Company for public offering and sale may make a market in such Securities, but
such underwriters or agents will not be obligated to do so and may discontinue
any market making at any time without notice. No assurance can be given as to
the liquidity of the trading market for any such Securities.
Securities may also be sold directly by the Company, the Selling
Stockholders or through agents designated by the Company from time to time.
The Securities offered hereby may also be sold from time to time through
agents for the Company or the Selling Stockholders by means of (i) ordinary
broker's transactions, (ii) block transactions (which may involve crosses) in
accordance with the rules of the Exchanges, in which such agents may attempt
to sell Securities as agent but may purchase and resell all or a portion of
the blocks as principal, (iii) "fixed price offerings" in accordance with the
rules of the Exchanges, or (iv) a combination of any such methods of sale. A
Prospectus Supplement sets forth the terms of any such "fixed price offering,"
"exchange distributions" and "special offerings." If the agent purchases
Securities as principal, it may sell such Securities by any of the methods
described above. Any agent involved in the offering and sale of Securities in
respect of which this Prospectus is delivered is named, and any commissions
payable by the Company or the Selling Stockholders to such agent are set
forth, in the Prospectus Supplement. Unless otherwise indicated herein or in
the Prospectus Supplement, any such agent is acting on a best-efforts basis
for the period of its appointment.
If so indicated in the Prospectus Supplement, the Company and the Selling
Stockholders will authorize agents, underwriters, or dealers to solicit offers
by certain institutional investors to purchase Securities providing for
payment and delivery on a future date specified in the Prospectus Supplement.
There may be limitations on the minimum amount which may be purchased by any
such institutional investor or on the portion of the aggregate principal
amount of the particular Securities which may be sold pursuant to such
arrangements. Institutional investors to which such offers may be made, when
authorized, include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions, and
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such other institutions as may be approved by the Company and the Selling
Stockholders. The obligations of any such purchasers pursuant to such delayed
delivery and payment arrangements will not be subject to any conditions except
(1) the purchase by an institution of the particular Securities shall not at
the time of delivery be prohibited under the laws of any jurisdiction in the
United States to which such institution is subject, and (2) if the particular
Securities are being sold to underwriters, the Company and the Selling
Stockholders shall have sold to such underwriters the total principal amount
of such Securities less the principal amount thereof covered by such
arrangements. Underwriters will not have any responsibility in respect of the
validity of such arrangements or the performance of the Company and the
Selling Stockholders or such institutional investors thereunder.
Agents and underwriters may be entitled under agreements entered into with
the Company and the Selling Stockholders to indemnification by the Company and
the Selling Stockholders against certain civil liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments which the agents or underwriters and their affiliates may from time
to time be required to make in respect thereof. Agents and underwriters may
engage in transactions with, or perform services for, the Company or the
Selling Stockholders in the ordinary course of business and receive customary
compensation therefor.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations to the
Company is based on current law, is for general information only, and is not
tax advice. The tax treatment of a holder of any of the Securities will vary
depending upon the terms of the specific Securities acquired by such holder,
as well as his particular situation, and this discussion provides only a
general summary of certain limited aspects of federal income taxation relating
to holders of Securities. This summary does not purport to deal with the
aspects of taxation that may be relevant to prospective holders of Securities
in light of such holder's particular investment or tax circumstances, or to
certain types of holders subject to special treatment under the federal income
tax laws, including, without limitation, insurance companies, certain
financial institutions, broker-dealers, holders holding Securities as part of
a conversion transaction, as part of a hedge or hedging transaction, or as a
position in a straddle for tax purposes, tax-exempt organizations, or foreign
corporations, foreign partnerships and persons who are not citizens or
residents of the United States. Furthermore, the summary below does not
consider the effect of any foreign, state, local or other tax laws that may be
applicable to the Company or holders of Securities. Certain federal income tax
considerations relevant to holders of the Securities will be provided in the
applicable Prospectus Supplement relating thereto.
The information in this section is based on the Code, current, temporary and
proposed Treasury Regulations promulgated under the Code, the legislative
history of the Code, current administrative interpretations and practices of
the Service (including its practices and policies as expressed in certain
private letter rulings which are not binding on the Service except with
respect to the particular taxpayers who requested and received such rulings),
and court decisions, all as of the date hereof. No assurance can be given that
future legislation, Treasury Regulations, administrative interpretations and
practices and/or court decisions will not adversely affect existing
interpretations. Any such change could apply retroactively to transactions
preceding the date of the change. IMH has not requested, and does not plan to
request, any ruling from the Service concerning the tax treatment of IMH.
Thus, no assurance can be provided that the statements set forth herein (which
are, in any event, not binding on the Service or courts) will not be
challenged by the Service or will be sustained by a court if so challenged.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AND THE
APPLICABLE PROSPECTUS SUPPLEMENT REGARDING THE SPECIFIC TAX CONSEQUENCES TO
THEM OF THE PURCHASE, OWNERSHIP AND SALE OF THE SECURITIES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
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TAXATION OF IMH
General. IMH elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with its taxable year ended December 31, 1995. IMH
believes that, commencing with such taxable year, it has been organized and
has operated in such a manner as to qualify for taxation as a REIT under the
Code, and IMH intends to continue to operate in such a manner. However, no
assurance can be given that IMH has operated or will continue to operate in
such a manner so as to qualify or remain qualified as a REIT.
The sections of the Code and Treasury Regulations governing REITs are highly
technical and complex. The following summary sets forth the material aspects
of the sections that govern the federal income tax treatment of a REIT and its
stockholders. This summary is qualified in its entirety by the applicable Code
provisions, rules and regulations promulgated thereunder, and administrative
and judicial interpretations thereof.
Latham & Watkins, tax counsel to IMH, rendered an opinion to IMH as of
September 8, 1997 to the effect that commencing with IMH's taxable year ended
December 31, 1995, IMH has been organized in conformity with the requirements
for qualification as a REIT, and its proposed method of operation has enabled
and will enable it to meet the requirements for qualification and taxation as
a REIT under the Code. It must be emphasized that this opinion was based on
various factual assumptions relating to the organization and operation of IMH
and was conditioned upon certain representations made by IMH as to factual
matters. In addition, this opinion was based upon the factual representations
of IMH concerning its business and assets as set forth in this Prospectus.
Furthermore, this opinion relied on, and assumed the accuracy of, the
opinions, dated as of September 8, 1997, of Thacher Proffitt & Wood with
respect to the characterization, as debt, of the CMOs issued by Imperial CMB
Trust Series 1996-1 ("1996 CMB Trust") and Imperial CMB Trust Series 1997-1
(the "1997 CMB Trust"), each on behalf of IMH Assets in August 1996, and May
1997, respectively, and with respect to the classification of each of 1996 CMB
Trust and the 1997 CMB Trust for federal income tax purposes. Moreover, such
qualification and taxation as a REIT depends upon IMH's ability to meet
(through actual annual operating results, distribution levels and diversity of
stock ownership) the various qualification tests imposed under the Code
discussed below, the results of which have not been and will not be reviewed
by Latham & Watkins. Accordingly, no assurance can be given that the actual
results of IMH's operation for any particular taxable year have satisfied or
will satisfy such requirements. Further, the anticipated income tax treatment
described in this Prospectus may be changed, perhaps retroactively, by
legislative, administrative or judicial action at any time. See "Risk
Factors--Consequences of Failure to Maintain REIT Status May Include IMH Being
Subject to Tax as a Regular Corporation" and "--Failure to Qualify."
If IMH qualifies for taxation as a REIT, it generally will not be subject to
federal corporate income taxes on its net income that is currently distributed
to stockholders. This treatment substantially eliminates the "double taxation"
(at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, IMH will be subject to federal
income tax as follows: First, IMH will be taxed at regular corporate rates on
any undistributed "REIT taxable income," including undistributed net capital
gains. Second, under certain circumstances, IMH may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if IMH has
(i) net income from the sale or other disposition of "foreclosure property"
(defined generally as property acquired through foreclosure or otherwise as a
result of a default on a loan secured by the property or a lease of such
property) which is held primarily for sale to customers in the ordinary course
of business, or (ii) other nonqualifying net income from foreclosure property,
it will be subject to tax at the highest corporate rate on such income.
Fourth, if IMH has net income from prohibited transactions (which are, in
general, certain sales or other dispositions of property held primarily for
sale to customers in the ordinary course of business other than foreclosure
property), such income will be subject to a 100% tax. Fifth, if IMH should
fail to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which IMH fails the 75% or 95% test multiplied by (b) a fraction
intended to reflect IMH's profitability. Sixth, if IMH should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
IMH
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would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if IMH has excess
inclusion income (attributable to its interest, if any, in a residual interest
in a REMIC or if all or a portion of IMH, IMH Assets, or IWLG is treated as a
taxable mortgage pool) and a disqualified organization (generally, tax-exempt
entities not subject to tax on unrelated business income, including
governmental organizations) holds shares of stock in IMH, IMH will be taxed at
the highest corporate tax rate on the amount of excess inclusion income for
the taxable year allocable to the shares held by such disqualified
organization. Eighth, with respect to any asset (a "Built-In Gain Asset")
acquired by IMH from a corporation which is or has been a C corporation (i.e.,
generally a corporation subject to full corporate-level tax) in a transaction
in which the basis of the Built-In Gain Asset in the hands of IMH is
determined by reference to the basis of the asset in the hands of the C
corporation, if IMH recognizes gain on the disposition of such asset during
the ten-year period (the "Recognition Period") beginning on the date on which
such asset was acquired by IMH, then, to the extent of the Built-In Gain
(i.e., the excess of (a) the fair market value of such asset over (b) IMH's
adjusted basis in such asset, determined as of the beginning of the
Recognition Period), such gain will be subject to tax at the highest regular
corporate rate pursuant to Treasury Regulations that have not yet been
promulgated. The results described above with respect to the recognition of
Built-In Gain assume that IMH will make an election pursuant to IRS Notice 88-
19 and that the availability or nature of such election is not modified as
proposed in President Clinton's 1999 federal budget proposal. Ninth, IMH may
be subject to tax on any "excess inclusion income" (as defined in the Code) to
the extent that shares of its capital stock are held by certain disqualified
organizations.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or
directors; (ii) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest; (iii) which
would be taxable as a domestic corporation but for Sections 856 through 859 of
the Code; (iv) which is neither a financial institution nor an insurance
company subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) during the last half
of each taxable year not more than 50% in value of the outstanding stock of
which is owned, actually or constructively, by or for five or fewer
individuals (as defined in the Code to include certain entities); and (vii)
which meets certain other tests, described below, regarding the nature of its
income and assets and the amount of its distributions. The Code provides that
conditions (i) to (iv), inclusive, must be met during the entire taxable year
and that condition (v) must be met during at least 335 days of a taxable year
of twelve months, or during a proportionate part of a taxable year of less
than twelve months. For purposes of conditions (v) and (vi), pension funds and
certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (vi). In addition, a
corporation may not elect to become a REIT unless its taxable year is the
calendar year. IMH has a calendar taxable year.
The Company believes that it has previously issued sufficient shares of
Common Stock with sufficient diversity of ownership to allow IMH to satisfy
conditions (v) and (vi). In addition, the Charter provides for restrictions
regarding the transfer and ownership of shares, which restrictions are
intended to assist IMH in continuing to satisfy the share ownership
requirements described in (v) and (vi) above. Such ownership and transfer
restrictions are described in "Description of Capital Stock--Repurchase of
Shares and Restrictions on Transfer." These restrictions, however, may not, in
all cases, ensure that IMH will be able to satisfy the share ownership
requirements described above. If IMH fails to satisfy such share ownership
requirements, IMH's status as a REIT will terminate; provided, however, that
if IMH complies with the rules contained in the applicable Treasury
Regulations requiring IMH to attempt to ascertain the actual ownership of its
shares, and IMH does not know, and would not have known through the exercise
of reasonable diligence, whether it failed to meet the requirement set forth
in condition (vi) above, IMH will be treated as having met such requirement.
See "--Failure to Qualify."
Ownership of IWLG and IMH Assets. IMH has owned 100% of the stock of IWLG
and IMH Assets at all times that IWLG and IMH Assets have been in existence.
As a result, IWLG and IMH Assets will be treated as "qualified REIT
subsidiaries" ("QRSs"). Code Section 856(i) provides that a corporation which
is a "qualified REIT subsidiary" will not be treated as a separate
corporation, and all assets, liabilities, and items of income,
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deduction, and credit of a "qualified REIT subsidiary" will be treated as
assets, liabilities and such items (as the case may be) of the REIT for all
purposes of the Code including the REIT qualification tests. Thus, in applying
the requirements described herein, the QRSs will be ignored, and all assets,
liabilities and items of income, deduction and credit of such subsidiaries
will be treated as assets, liabilities and such items (as the case may be) of
IMH. For this reason, references under "Federal Income Tax Considerations" to
the income and assets of IMH shall include the income and assets of the QRSs.
Because the QRSs will be treated as "qualified REIT subsidiaries" they will
not be subject to federal income tax. In addition, IMH's ownership of the
voting stock of the QRSs will not violate the restrictions against ownership
of securities of any one issuer which constitute more than 10% of such
issuer's voting securities or more than 5% of the value of IMH's total assets,
described below under "--Asset Tests."
Income Tests. In order to maintain its qualification as a REIT, IMH annually
must satisfy two gross income requirements. First, at least 75% of IMH's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived directly or indirectly from: (i) rents from real
property; (ii) interest on obligations secured by mortgages on real property
or on interests in real property; (iii) gain from the sale or other
disposition of real property (including interests in real property and
interests in mortgages on real property) not held primarily for sale to
customers in the ordinary course of business; (iv) dividends or other
distributions on, and gain (other than gain from prohibited transactions) from
the sale or other disposition of, transferable shares in other real estate
investment trusts; (v) abatements and refunds of taxes on real property; (vi)
income and gain derived from foreclosure property; (vii) amounts (other than
amounts the determination of which depend in whole or in part on the income or
profits of any person) received or accrued as consideration for entering into
agreements (a) to make loans secured by mortgages on real property or on
interests in real property or (b) to purchase or lease real property
(including interests in real property and interests in mortgages on real
property); (viii) gain from the sale or other disposition of a real estate
asset which is not a prohibited transaction; and (ix) qualified temporary
investment income. Second, at least 95% of IMH's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
from the sources described above with respect to the 75% gross income test,
dividends, interest, and gain from the sale or disposition of stock or
securities (or from any combination of the foregoing). In addition, for
taxable years beginning prior to August 5, 1997, short-term gain from the sale
or other disposition of stock or securities, gain from prohibited
transactions, and gain on the sale or other disposition of real property held
for less than four years (apart from involuntary conversions and sales or
other dispositions of foreclosure property) must represent less than 30% of
IMH's gross income (including gross income from prohibited transactions). The
30% gross income test has been repealed and will not apply beginning with
IMH's 1998 taxable year.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales.
Generally, if a loan is secured by both personal property and real property,
interest must be allocated between the personal property and the real
property, with only the interest allocable to the real property qualifying as
mortgage interest under the 75% gross income test. Treasury Regulations
provide that if a loan is secured by both personal and real property and the
fair market value of the real property as of the commitment date (generally,
the date on which the REIT's obligation to make the loan becomes binding)
equals or exceeds the amount of the loan, the entire interest amount will
qualify under the 75% gross income test. If the amount of the loan exceeds the
fair market value of the real property as of the commitment date, the interest
income allocated to the real property is an amount equal to the interest
income multiplied by a fraction, the numerator of which is the fair market
value of the real property as of the commitment date, and the denominator of
which is the amount of the loan. The interest income allocated to the personal
property is an amount equal to the excess of the total interest income over
the interest income allocated to the real property.
Interest earned on mortgage loans, and mortgage-backed securities secured by
or representing an interest in such loans, will qualify as "interest" for
purposes of both the 95% and 75% gross income tests to the extent
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such assets are treated as obligations secured by mortgages on real property
or on interests in real property. However, income attributable to securities
or other obligations that are not treated as obligations secured by mortgages
on real property or on interests in real property (and which are not otherwise
"Qualified REIT Assets", as defined below), dividends on stock (including any
dividends IMH receives from IFC, but not including dividends IMH receives from
other qualifying REITs or from the QRSs), and gains from the sale or
disposition of such stock or such securities or other obligations will not
qualify under the 75% gross income test. Such income will qualify under the
95% gross income test, however, if such income constitutes interest, dividends
or gain from the sale or disposition of stock or securities. Income from loan
guarantee fees, mortgage servicing contracts or other contracts will not
qualify under either the 95% or 75% gross income test if such income
constitutes fees for services rendered by IMH or is not treated as interest
(on obligations secured by mortgages on real property or on interests in real
property for purposes of the 75% gross income test). Similarly, income from
hedging, including the sale of hedges, will not qualify under the 75% or 95%
gross income tests unless such hedges constitute certain qualified hedges, in
which case such income will qualify under the 95% gross income test. For
purposes of the discussion herein, the term "Qualified REIT Assets" shall mean
(i) real property (including interests in real property and interests in
mortgages on real property), (ii) shares (or transferable certificates of
beneficial interest) in other REITs which meet the requirements of Sections
856-859 of the Code, (iii) stock or debt instruments (not otherwise described
in (i), (ii) or (iv)) held for not more than one year that were purchased with
the proceeds of (a) an offering of stock in IMH (other than amounts received
pursuant to a dividend reinvestment plan) or (b) a public offering of debt
obligations of IMH which have maturities of at least five years, and (iv) a
regular or residual interest in a REMIC, but only if 95% or more of the assets
of such REMIC are assets described in (i) through (iii).
Furthermore, IFC receives servicing and processing fees and income from gain
on the sale of certain mortgage loans and mortgage securities. Such fees do
not accrue to IMH, but IMH receives dividends on its nonvoting preferred stock
in IFC. Such dividends will qualify under the 95% gross income test, but will
not qualify under the 75% gross income test.
In order to comply with the 95% and 75% gross income tests, IMH has limited
and will continue to limit substantially all of the assets that it acquires to
mortgage loans or other securities or obligations that are treated as
obligations secured by mortgages on real property or on interests in real
property or to other Qualified REIT Assets. As a result, IMH may limit the
type of assets, including hedging contracts, that it otherwise might acquire
and, therefore, the type of income it otherwise might receive, including
income from hedging, other than income from certain qualified hedges.
In order to comply with the REIT gross income tests, IMH has monitored and
will continue to monitor its income, including income from dividends,
warehouse lending, hedging transactions, futures contracts, servicing and
sales of mortgage assets, gains on the sale of securities, and other income
not derived from Qualified REIT Assets. IMH believes that the aggregate amount
of any nonqualifying income in any taxable year has not exceeded and will not
exceed the limit on nonqualifying income under the gross income tests.
If IMH fails to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, it may nevertheless qualify as a REIT for such year if it is
entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if IMH's failure to meet such tests was
due to reasonable cause and not due to willful neglect, IMH attaches a
schedule of the sources of its income to its federal income tax return, and
any incorrect information on the schedule was not due to fraud with intent to
evade tax. It is not possible, however, to state whether in all circumstances
IMH would be entitled to the benefit of these relief provisions. For example,
if IMH fails to satisfy the gross income tests because nonqualifying income
that IMH intentionally incurs exceeds the limits on such income, the Service
could conclude that IMH's failure to satisfy the tests was not due to
reasonable cause. If these relief provisions are inapplicable to a particular
set of circumstances involving IMH, IMH will not qualify as a REIT. As
discussed above in "Federal Income Tax Considerations--Taxation of IMH--
General," even if these relief provisions apply and IMH retains its status as
a REIT, a 100% tax would be imposed on an amount equal to (a) the gross income
attributable to the greater of the amount by which IMH failed the 75% or 95%
test multiplied by (b) a fraction intended to reflect IMH's profitability.
There
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can be no assurance that IMH will always be able to maintain compliance with
the gross income tests for REIT qualification despite its periodic monitoring
procedures. No similar mitigation provision provides relief if IMH fails the
30% gross income test. In such case, IMH would cease to qualify as a REIT. See
"--Failure to Qualify."
Any gain realized by IMH on the sale of any property (including mortgage
loans and mortgage-backed securities) held as inventory or other property held
primarily for sale to customers in the ordinary course of business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. Such prohibited transaction income may also have an adverse
effect upon IMH's ability to satisfy the income tests for qualification as a
REIT. Under existing law, whether property is held as inventory or primarily
for sale to customers in the ordinary course of a trade or business is a
question of fact that depends on all the facts and circumstances with respect
to the particular transaction. IFC securitizes mortgage loans and sells the
resulting mortgage securities. If IMH were to sell such mortgage securities on
a regular basis, there is a substantial risk that such sales would constitute
prohibited transactions and that all of the profits therefrom would be subject
to a 100% tax. Therefore, such sales have been made and will be made only by
IFC. IFC is not subject to the 100% penalty tax on income from prohibited
transactions, which is only applicable to a REIT.
Asset Tests. IMH, at the close of each quarter of its taxable year, must
also satisfy three tests relating to the nature of its assets. First, at least
75% of the value of IMH's total assets must be represented by Qualified REIT
Assets, cash, cash items and government securities. Second, not more than 25%
of IMH's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class,
the value of any one issuer's securities owned by IMH may not exceed 5% of the
value of IMH's total assets and IMH may not own more than 10% of any one
issuer's outstanding voting securities. IMH believes that substantially all of
its assets, other than the nonvoting preferred stock of IFC, and the amount of
any loans made to ICCC and certain loans made to IFC, are Qualified REIT
Assets.
As described above, IMH will be treated as owning all assets, liabilities
and items of income, deduction, and credit of the QRSs. IWLG provides short-
term lines of credit ("warehouse loans") to IFC and approved mortgage banks,
most of which are correspondents of IFC, to finance mortgage loans during the
time from the closing of the loans to their sale or other settlement with pre-
approved investors, including IMH. IWLG's warehouse loans are secured by
assignments of first priority perfected security interests in and liens on,
among other items of collateral, mortgages loans and related mortgage notes
owned by the customer that in turn are secured by mortgages on real property.
The Service has issued a Revenue Ruling in which it ruled that loans similar
to IWLG's warehouse loans to IFC were obligations secured by mortgages on real
property and interests in mortgages on real property, and therefore that such
loans were Qualified REIT Assets. Based on such Revenue Ruling, IMH believes
that IWLG's warehouse loans are Qualified REIT Assets. However, in the event
that the IWLG's warehouse loans are not treated as Qualified REIT Assets, IMH
would likely fail the 5% asset test and fail to qualify as a REIT. See "--
Failure to Qualify."
As described above, IMH owns 100% of the nonvoting preferred stock of IFC,
which represents approximately 99% of the economic value of all classes of
stock of IFC. IMH does not and will not own any of the voting securities of
IFC, and therefore IMH will not be considered to own more than 10% of the
voting securities of IFC (which would be prohibited by the REIT asset tests
currently set forth in the Code). President Clinton's 1999 federal budget
proposal contains a provision which would amend the REIT asset tests so as to
prohibit REITs from owning stock of a corporation possessing more than 10% of
the vote or value of all classes of stock of the corporation. This proposal
would be effective with respect to stock acquired on or after the date of the
first Congressional committee action with respect to the proposal (the "Action
Date"). In addition, to the extent that a REIT's stock ownership is
grandfathered by virtue of this effective date, such grandfathered status
would terminate if the subsidiary corporation engages in a trade or business
that it is not engaged in on the Action Date or acquires substantial new
assets on or after such date. Accordingly, if this provision of the budget
proposal were enacted in its present form, IMH's stock ownership in IFC would
be grandfathered, but such grandfathered status would terminate if IFC engages
in a trade or business that it is not engaged in on the Action Date or
acquires substantial new assets (including additional mortgage loans) on or
after such date, even if such activities
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are undertaken or assets are acquired prior to the adoption of the proposal.
In such case, IMH's continued ownership of more than 10% of the economic value
of IFC beyond IMH's next quarterly asset testing date following the Action
Date (which could occur prior to the adoption of the proposal) could cause IMH
to fail to qualify as a REIT. See "--Failure to Qualify." It is presently
uncertain whether any proposal regarding REIT subsidiaries, such as IFC, will
be enacted, or if enacted, what the terms of such proposal (including its
effective date) will be. At this time, it is expected that IFC will continue
to acquire additional mortgage loans notwithstanding the proposed legislation
regarding REIT subsidiaries.
IMH believes that the aggregate value of its securities of IFC has not at
any time exceeded 5% of the total value of IMH's assets, and will not exceed
such amount in the future. Latham & Watkins, in rendering its opinion as to
the qualification of IMH as a REIT, relied on the representation of IMH to
such effect. There can be no assurance that the Service will not contend that
the value of the securities of IFC held by IMH exceeds the 5% value
limitation.
The 5% asset test requires that IMH revalue its assets at the end of each
calendar quarter in which IMH acquires additional securities in IFC for the
purpose of applying such test. Although IMH plans to take steps to ensure that
it satisfies the 5% asset test for any quarter with respect to which retesting
is to occur, there can be no assurance that such steps will always be
successful, or will not require a reduction in IMH's overall interest in IFC.
IMH has taken and will continue to take measures to prevent the value of
securities issued by any one entity that do not constitute Qualified REIT
Assets from exceeding 5% of the value of IMH's total assets as of the end of
each calendar quarter. In particular, as of the end of each calendar quarter,
IMH has limited and diversified and will continue to limit and diversify its
ownership of securities of IFC and other securities that do not constitute
Qualified REIT Assets as necessary to satisfy the REIT asset tests described
above.
When purchasing mortgage-related securities, IMH and its counsel may rely on
opinions of counsel for the issuer or sponsor of such securities given in
connection with the offering of such securities, or statements made in related
offering documents, for purposes of determining whether and to what extent
those securities constitute Qualified REIT Assets for purposes of the REIT
asset tests and produce income which qualifies under the REIT gross income
tests discussed above. The inaccuracy of any such opinions or statements may
have an adverse impact on IMH's qualification as a REIT.
A regular or residual interest in a REMIC will be treated as a Qualified
REIT Asset for purposes of the REIT asset tests and income derived with
respect to such interests will be treated as interest on obligations secured
by mortgages on real property, assuming that at least 95% of the assets of the
REMIC are Qualified REIT Assets. If less than 95% of the assets of the REMIC
are Qualified REIT Assets, only a proportionate share of the assets of and
income derived from the REMIC will be treated as qualifying under the REIT
asset and income tests. Based on information provided to IMH by each REMIC in
which IMH holds an interest, IMH believes that its REMIC interests fully
qualify for purposes of the REIT gross income and asset tests. IMH has not
acquired and does not expect to acquire or retain residual interests issued by
REMICs.
If IMH invests in a partnership, it will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to
the income of the partnership attributable to such share. In addition, the
character of the assets and gross income of the partnership shall retain the
same character in the hands of IMH for purposes of the REIT gross income and
asset tests.
After initially meeting the asset tests at the close of any quarter, IMH
will not lose its status as a REIT for failure to satisfy the asset tests at
the end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset tests results from an acquisition of securities
or other property during a quarter, the failure can be cured by the
disposition of sufficient nonqualifying assets within 30 days after the close
of that quarter. IMH intends to maintain adequate records of the value of its
assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to
cure any
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noncompliance. If IMH fails to cure noncompliance with the asset tests within
such time period, IMH would cease to qualify as a REIT.
Annual Distribution Requirements. IMH, in order to maintain its
qualification as a REIT, is required to distribute dividends (other than
capital gain dividends) to its stockholders in an amount at least equal to (i)
the sum of (a) 95% of IMH's "REIT taxable income" (generally, income of IMH
computed without regard to the dividends paid deduction and by excluding its
net capital gain) and (b) 95% of the excess of the net income, if any, from
foreclosure property over the tax imposed on such income, minus (ii) the
excess of the sum of certain items of noncash income over 5% of "REIT taxable
income." In addition, if IMH disposes of any Built-In Gain Asset during its
Recognition Period, IMH will be required, pursuant to Treasury Regulations
which have not yet been promulgated, to distribute at least 95% of the Built-
in Gain (after tax), if any, recognized on the disposition of such asset. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before IMH timely files its tax return for
such year and if paid on or before the first regular dividend payment date
after such declaration and if IMH so elects and specifies the dollar amount on
its tax return. Such distributions are taxable to holders of Common Stock
(other than certain tax-exempt entities, as discussed below) in the year in
which paid, even if such distributions relate to the prior year for purposes
of IMH's 95% distribution requirement. The amount distributed must not be
preferential (e.g., each holder of shares of Common Stock must receive the
same distribution per share). To the extent that IMH does not distribute all
of its net capital gain or distributes at least 95%, but less than 100%, of
its "REIT taxable income," as adjusted, it will be subject to tax on the
undistributed portion at regular ordinary and capital gain corporate tax
rates. Furthermore, if IMH should fail to distribute during each calendar year
(or, in the case of distributions with declaration and record dates falling in
the last three months of the calendar year, by the end of January immeidately
following such year) at least the sum of (i) 85% of its REIT ordinary income
for such year, (ii) 95% of its REIT capital gain net income for such year, and
(iii) any undistributed taxable income from prior periods, IMH would be
subject to a 4% excise tax on the excess of such required distributions over
the amounts actually distributed. Any REIT taxable income and net capital gain
on which this excise tax is imposed for any year is treated as an amount
distributed that year for purposes of calculating such tax. IMH believes that
it has and intends to continue to make timely distributions sufficient to
satisfy these annual distribution requirements.
IMH anticipates that it will generally have sufficient cash or liquid assets
to enable it to satisfy the distribution requirements described above. It is
possible, however, that IMH, from time to time, may not have sufficient cash
or other liquid assets to meet these distribution requirements due to timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of IMH. For instance, IMH may
realize income without a corresponding cash payment, as in the case of
original issue discount or accrued interest on defaulted mortgage loans. In
the event that such timing differences occur, in order to meet the
distribution requirements, IMH may find it necessary to sell assets, arrange
for short-term, or possibly long-term, borrowings, or pay dividends in the
form of taxable stock dividends.
The Service has ruled 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 fair market
value on the distribution date, then such cash distributions reinvested
pursuant to such a plan qualify under the 95% distribution test. IMH expects
that the terms of its DRP will comply with this ruling.
Under certain circumstances, IMH may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in IMH's deduction for
dividends paid for the earlier year. Thus, IMH may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, IMH will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
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RECORDKEEPING REQUIREMENTS
A REIT is required to maintain certain records, including records regarding
the actual and constructive ownership of its shares, and within 30 days after
the end of its taxable year, to demand statements from persons owning above a
specified level of the REIT's shares (e.g., if IMH has 2,000 or more
stockholders of record, from persons holding 5% or more of IMH's outstanding
shares of Common Stock; if IMH has over 200 but fewer than 2,000 stockholders
of record, from persons holding 1% or more of IMH's outstanding shares of
Common Stock; and if IMH has 200 or fewer shareholders of record, from persons
holding 1/2% or more of IMH's outstanding shares of Common Stock) regarding
their ownership of shares. In addition, IMH must maintain, as part of its
records, a list of those persons failing or refusing to comply with this
demand. Shareholders who fail or refuse to comply with the demand must submit
a statement with their tax returns setting forth the actual stock ownership
and other information. IMH has maintained and will continue to maintain the
records and demand statements as required by Treasury Regulations.
FAILURE TO QUALIFY
If IMH fails to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, IMH will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to stockholders in any year in which IMH fails to qualify
will not be deductible by IMH nor will they be required to be made. As a
result, IMH's failure to qualify as a REIT would substantially reduce the cash
available for distribution by IMH to its stockholders. In addition, if IMH
fails to qualify as a REIT, all distributions to stockholders will be taxable
as ordinary income, to the extent of IMH's current and accumulated earnings
and profits, and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, IMH will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether
in all circumstances IMH would be entitled to such statutory relief. Failure
to qualify for even one year could result in the IMH's incurring substantial
indebtedness (to the extent borrowings are feasible) or liquidating
substantial investments in order to pay the resulting taxes. In addition,
President Clinton's 1999 federal budget proposal contains a provision which,
if enacted in its present form, would result in the immediate taxation of all
gain inherent in a C corporation's assets upon an election by the corporation
to become a REIT in taxable years beginning after January 1, 1999, and thus
could effectively preclude IMH from re-electing to be taxed as a REIT
following a loss of its REIT status.
TAXATION OF HOLDERS OF SECURITIES
Set forth below is a brief summary of certain federal income tax
consequences to holders of Securities. Holders are urged to consult the
applicable Prospectus Supplement for a more detailed description of such tax
consequences.
Common Stock and Preferred Stock. In general, as long as IMH qualifies as a
REIT, distributions made by IMH with respect to the Common Stock or the
Preferred Stock out of IMH's current or accumulated earnings and profits (and
not designated as capital gain dividends) will constitute dividends taxable as
ordinary income to holders of Common Stock or Preferred Stock, as the case may
be. For purposes of determining whether distributions are out of current or
accumulated earnings and profits, the earnings and profits of IMH will be
allocated first to IMH's Preferred Stock, and then to IMH's Common Stock. Such
distributions will not be eligible for the dividends received deduction in the
case of holders of Common Stock or Preferred Stock that are corporations.
Under certain other circumstances, distributions made by IMH with respect to
the Common Stock or the Preferred Stock may constitute return of capital
and/or capital gain to the holder.
In general, any gain or loss realized upon a taxable disposition of shares
of Common Stock or Preferred Stock will be treated as capital gain or loss
and, in the case of a non-corporate stockholder, mid-term or long-term capital
gain or loss if the shares have been held as a capital asset for more than
twelve months or eighteen months, respectively, and otherwise as short-term
capital gain or loss. However, any loss realized upon a taxable
46
<PAGE>
disposition of shares held for six months or less will be treated as long-term
capital loss to the extent of any capital gain dividends previously received
with respect to such shares of Common Stock or Preferred Stock.
Debt Securities. Interest and original issue discount, if any, on a Debt
Security will be treated as ordinary income to a holder. Any special tax
considerations applicable to a Debt Security will be described in the related
Prospectus Supplement.
Securities Warrants. Upon a holder's exercise of a Securities Warrant, the
holder will, in general, (i) not recognize any income, gain or loss for
federal income tax purposes, (ii) receive an initial tax basis in the Security
received equal to the sum of the holder's tax basis in the exercised
Securities Warrant and the exercise price paid for such Security and (iii)
have a holding period for the Security received beginning on the date of
exercise. If a holder of a Securities Warrant sells or otherwise disposes of
such Securities Warrant in a taxable transaction (other than by its exercise),
the holder generally will recognize capital gain or loss (in the case of an
individual, mid-term or long-term capital gain or loss if the holder holds
such Securities Warrant as a capital asset and its holding period for the
Securities Warrant exceeds twelve months or eighteen months, respectively, on
the date of disposition, and otherwise, short term capital gain or loss) equal
to the difference between (i) the cash and fair market value of other property
received and (ii) the holder's tax basis (on the date of disposition) in the
Securities Warrant sold. Such a holder generally will recognize a capital loss
upon the expiration of an unexercised Securities Warrant equal to the holder's
tax basis in the Securities Warrant on the expiration date.
BACKUP WITHHOLDING
IMH will report to holders of Common Stock, Preferred Stock and Debt
Securities and the Service the amount of dividends or interest paid during
each calendar year, and the amount of tax withheld, if any. Under the backup
withholding rules, a holder may be subject to backup withholding at the rate
of 31% with respect to dividends or interest paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when
required, demonstrates this 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 holder that does not provide IMH with his correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding will be creditable against the holder's
income tax liability. In addition, IMH may be required to withhold a portion
of capital gain distributions to any holders who fail to certify their non-
foreign status to IMH.
OTHER TAX CONSEQUENCES
IFC does not qualify as a REIT and will pay federal, state and local income
taxes on its taxable income at normal corporate rates. As a result, IFC is
able to distribute only its net after-tax earnings to its shareholders,
including IMH, as dividend distributions, thereby reducing the cash available
for distribution by IMH to its stockholders.
STATE AND LOCAL TAXES
IMH and holders of Securities may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of IMH and
holders of Securities may not conform to the federal income tax consequences
discussed above. Consequently, prospective holders of Securities should
consult their own tax advisors regarding the effect of state and local tax
laws on an investment in IMH.
47
<PAGE>
LEGAL MATTERS
The validity of the Securities offered hereby will be passed on for the
Company by Freshman, Marantz, Orlanski, Cooper & Klein, a law corporation,
Beverly Hills, California, certain tax matters will be passed on for the
Company by Latham & Watkins, Los Angeles, California, and certain legal
matters with respect to Maryland law will be passed on for the Company by
Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland.
EXPERTS
The financial statements of Impac Mortgage Holdings, Inc. and Impac Funding
Corporation incorporated in this Prospectus by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 have been so
incorporated by reference herein in reliance upon the reports of KPMG Peat
Marwick LLP, independent auditors, and upon the authority of said firm as
experts in auditing and accounting.
48
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses, other than underwriting discounts and commissions,
in connection with the offerings of Securities are:
<TABLE>
<S> <C>
Registration Fee.................................................... $60,606
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Blue Sky Qualification and Expenses including Counsel Fees.......... *
American Stock Exchange Listing Fee................................. *
NASD Filing Fees.................................................... 20,500
Printing and Engraving Expenses..................................... *
Transfer Agent and Registrar Fees................................... *
Miscellaneous....................................................... *
-------
TOTAL............................................................. $ *
=======
</TABLE>
- --------
*To be supplied by amendment or incorporated by reference to periodic reports
filed by the Company pursuant to Section 13 of the Securities Exchange Act
of 1934.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The 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
Company contains such a provision which eliminates such liability to the
maximum extent permitted by Maryland law.
The charter of the Company authorizes it, to the maximum extent permitted by
Maryland law, to obligate itself 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 of the Company and at the request of the Company, serves or has
served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, 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 stature as a present or former director or office of the
Company. The Bylaws of the Company obligate 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 who is made a party to the proceeding by reason of
his service in that capacity or (b) any individual who, while a director of
the Company and at the request of the Company, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a director, officer, partner or trustee of such
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and who is made a party to the proceeding by reason of his service
in that capacity. The charter and Bylaws also permit the Company to indemnify
and advance expenses to any person who served a predecessor of the Company in
any of the capacities described above and to any employee or agent of the
Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company'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 is made a party by reason of his 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 a party by reason of their
service in those or other capacities unless it is
II-1
<PAGE>
established that (a) the act of 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 reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written statement by or on his
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
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement
1.2 Form of Sales Agency Agreement between the Registrant and PaineWebber
Incorporated
4.1 Form of Common Stock Certificate (incorporated herein by reference to
Amendment No. 3 of the Company's Registration Statement on Form S-11
(No. 33-96670) dated November 8, 1995)
4.2 Articles of Incorporation (incorporated herein by reference to the
Company's Registration Statement on Form S-11 (No. 33-96670), dated
November 8, 1995 and to the Company's Current Report on Form 8-K,
dated January 28, 1998, as amended)
*4.3 Specimen of Articles Supplementary relating to Preferred Stock
+4.4 Form of Senior Indenture
+4.5 Form of Subordinated Indenture
*4.6 Form of Common Stock Warrant Agreement
*4.7 Form of Preferred Stock Warrant Agreement
*4.8 Form of Debt Warrant Agreement
+5.1 Opinion of Freshman, Marantz, Orlanski, Cooper & Klein
+5.2 Opinion of Ballard Sphar Andrews & Ingersoll, LLP
+8.1 Opinion of Latham & Watkins
12.1 Ratio of Available Earnings to Fixed Charges
23.1 Consent of KPMG Peat Marwick LLP regarding the Registrant
23.2 Consent of KPMG Peat Marwick LLP regarding Impac Funding Corporation
Consent of Freshman, Marantz, Orlanski, Cooper & Klein (contained in
+23.3 Exhibit 5.1)
+23.4 Consent of Ballard Spahr Andrews & Ingersoll (contained in Exhibit 5.2)
+23.5 Consent of Latham & Watkins (contained in Exhibit 8.1)
+24.1 Power of Attorney (included on signature page)
*25.1 Statement of Eligibility of Trustee on Form T-1
</TABLE>
- --------
* To be filed by amendment or incorporated by reference to periodic reports
filed by the Company pursuant to Section 13 of the Securities Exchange Act
of 1934.
+ Previously filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in value of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective 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;
(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 the registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, 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) of 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit 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.
(c) 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 response to Item 15, 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, therefor, 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 being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a 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.
(d) The undersigned registrant hereby undertakes that:
(1) For the 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 shall be deemed to be
part of this registration statement as of the time it was declared
effective.
II-3
<PAGE>
(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.
(e) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
II-4
<PAGE>
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 CAUSED THIS POST-EFFECTIVE
AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SANTA ANA HEIGHTS, AND
THE STATE OF CALIFORNIA, ON APRIL 24TH, 1998.
Impac Mortgage Holdings, Inc.
/s/ Richard J. Johnson
By: _________________________________
Richard J. Johnson
Executive Vice President, Chief
Financial
Officer, Treasurer and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Vice Chairman of the Board April 24, 1998
____________________________________ and Chief Executive Officer
Joseph R. Tomkinson (Principal Executive
Officer)
/s/ Richard J. Johnson Chief Financial Officer April 24, 1998
____________________________________ (Principal Financial and
Richard J. Johnson Accounting Officer)
* Chairman of the Board April 24, 1998
____________________________________
H. Wayne Snavely
* Director April 24, 1998
____________________________________
James Walsh
* Director April 24, 1998
____________________________________
Frank Filipps
* Director April 24, 1998
____________________________________
Stephan R. Peers
* Director April 24, 1998
____________________________________
William S. Ashmore
</TABLE>
*By: /s/ Richard J. Johnson
----------------------------
Richard J. Johnson
Attorney-in-fact
II-5
<PAGE>
EXHIBIT 1.2
IMPAC MORTGAGE HOLDINGS, INC.
6,065,000 Shares of Common Stock
(par value $.01 per share)
SALES AGENCY AGREEMENT
April [ ], 1998
PAINEWEBBER INCORPORATED
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Impac Mortgage Holdings, Inc., a Maryland corporation (the "Company"),
confirms its agreement with PaineWebber Incorporated (the "Agent"), as follows:
SECTION 1. Description of Securities. The Company proposes to issue and
-------------------------
sell through the Agent, as sales agent, up to 6,065,000 shares (the "Maximum
Amount") of Common Stock, par value $.01 per share (the "Stock"), on the terms
set forth in Section 3 hereof.
SECTION 2. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to, and agrees with, the Agent that:
(a) The Company meets the requirements for use of Form S-3 under the
Securities Act of 1933 (the "Act") and the rules and regulations thereunder
("Rules and Regulations"). A registration statement on Form S-3 (Registration
No. 333-34137) with respect to the Stock, including a form of prospectus, has
been prepared by the Company in conformity with the requirements of the Act and
the Rules and Regulations and filed with the Securities and Exchange Commission
(the "Commission") and has become effective. Such registration statement and
prospectus may have been amended or supplemented prior to the date of this
Agreement. Any such amendment or supplement was so prepared and filed, and any
such
<PAGE>
amendment or supplement filed after the effective date of such registration
statement has become effective. No stop order suspending the effectiveness of
the registration statement or any post-effective amendment thereto has been
issued, and no proceeding for that purpose has been instituted or, to the
knowledge of the Company, threatened by the Commission. Copies of such
registration statement and prospectus, any such amendment or supplement and all
documents incorporated by reference therein that were filed with the Commission
on or prior to the date of this Agreement have been delivered to the Agent. Such
registration statement, as it may have heretofore been amended, is referred to
herein as the "Registration Statement," and the final form of prospectus
included in the Registration Statement, as amended or supplemented from time to
time, is referred to herein as the "Prospectus." Any reference herein to the
Registration Statement, the Prospectus, or any amendment or supplement thereto
shall be deemed to refer to and include the documents incorporated (or deemed to
be incorporated) by reference therein, and any reference herein to the terms
"amend," "amendment" or "supplement" with respect to the Registration Statement
or Prospectus shall be deemed to refer to and include the filing after the
execution hereof of any document with the Commission deemed to be incorporated
by reference therein. As of the close of business on [April 23, 1998], 2,105,192
shares of Stock were available for issuance pursuant to the Registration
Statement, which permits their sale in the manner contemplated by this
Agreement. To the extent the Company desires to sell more than 2,105,192 shares
of Stock pursuant to this Agreement or to the extent the amount of Stock
registered under the Registration Statement is otherwise depleted, the Company
shall file a new registration statement with respect to such shares and shall
cause such registration statement to become effective. After the effectiveness
of said registration statement, all references to "Registration Statement"
included in this Agreement shall be deemed to include such new registration
statement.
(b) Each part of the Registration Statement, when such part became or
becomes effective, and the Prospectus and any amendment or supplement thereto,
on the date of filing thereof with the Commission and at each Filing Date (as
hereinafter defined), conformed or will conform in all material respects with
the requirements of the Act and the Rules and Regulations; each part of the
Registration Statement, when such part became or becomes effective, did not or
will not contain an untrue statement of a
2
<PAGE>
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and the Prospectus and
any amendment or supplement thereto, on the date of filing thereof with the
Commission and at each Filing Date, did not or will not include an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; except that the foregoing shall not apply to statements in
or omissions from any such document in reliance upon, and in conformity with,
written information relating to the Agent furnished to the Company by or on
behalf of the Agent, specifically for use in the Registration Statement, the
Prospectus or any amendment or supplement thereto.
(c) The documents incorporated by reference in the Registration Statement
or the Prospectus, or any amendment or supplement thereto, when they became or
become effective under the Act or were or are filed with the Commission under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the
case may be, conformed or will conform in all material respects with the
requirements of the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder.
(d) The financial statements of the Company and its subsidiaries (defined
herein to include entities consolidated with the Company for the purposes of
generally accepted accounting principles), together with the related notes and
schedules, set forth or incorporated by reference in the Registration Statement
and Prospectus fairly present the financial condition and the results of
operations and cash flows of the Company and its subsidiaries as of the dates
indicated or for the periods therein specified and were prepared in conformity
with generally accepted accounting principles consistently applied throughout
the periods involved (except as otherwise stated therein).
(e) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of its incorporation
with power and authority (corporate and other) to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and Prospectus; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the
3
<PAGE>
ownership or leasing of property or the conduct of business, except where the
failure to so qualify and be in good standing, considering all such cases in the
aggregate, would not have a material adverse effect on the condition, financial
or otherwise, or the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise.
(f) Each "significant subsidiary" (as defined in Section 1-02 of
Regulation S-X and indicated below) of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to own,
lease and operate its properties and conduct its business as described in the
Registration Statement and Prospectus and is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to so
qualify and be in good standing would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise; and
all of the issued and outstanding capital stock of each subsidiary has been duly
authorized and validly issued, is fully paid and nonassessable and is owned by
the Company, directly or through subsidiaries (other than the outstanding common
stock of Impac Funding Corporation, which is owned by Joseph R. Tomkinson,
William S. Ashmore and Richard J. Johnson), free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity. The only
significant subsidiaries (as defined in Section 1-02 of Regulation S-X) of the
Company are Impac Secured Assets Corp., IMH Assets Corp., Impac Warehouse
Lending Group, Inc. and IMH/ICH Dove Street, LLC.
(g) The outstanding shares of capital stock of the Company and the Stock
have been duly authorized and are, or when issued as contemplated hereby will
be, validly issued, fully paid and nonassessable and conform, or when so issued
will conform, to the description thereof in the Prospectus. The stockholders of
the Company have no preemptive rights with respect to the Stock.
(h) Except as set forth in the Prospectus, subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus and prior to the
4
<PAGE>
termination of this Agreement, neither the Company nor any of its subsidiaries
has incurred any liabilities or obligations, direct or contingent, or entered
into any transactions, not in the ordinary course of business, that are material
to the Company and its subsidiaries considered as a whole, and there has not
been any material change in the capital stock, short-term debt or long-term debt
of the Company and its subsidiaries, or any material change, or any development
involving a prospective material change, in the condition, financial or
otherwise, or the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise.
(i) Except as set forth in the Prospectus, there is not pending or, to the
knowledge of the Company, threatened any action, suit or proceeding to which the
Company or any of its subsidiaries is a party, before or by any court or
governmental agency or body, that could reasonably be expected to result in any
material adverse change in the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, or that could reasonably be expected
to materially and adversely affect the properties or assets thereof considered
as a whole.
(j) There are no contracts or documents of the Company or any of its
subsidiaries that are required to be filed as exhibits to the Registration
Statement or to any of the documents incorporated by reference therein by the
Act or the Exchange Act or by the rules and regulations of the Commission
thereunder that have not been so filed.
(k) All necessary action has been duly and validly taken by the Company to
authorize the execution, delivery and performance of this Agreement. This
Agreement has been duly and validly authorized, executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles.
(l) The performance of this Agreement and the consummation of the
transactions contemplated herein will not result in a breach or
5
<PAGE>
violation of any of the terms and provisions of, or constitute a default under,
any agreement or instrument to which the Company or any of its subsidiaries is a
party or by which it is bound or to which any of the property of the Company or
any of its subsidiaries is subject except for such breaches or defaults that
would not in the aggregate have a material adverse effect on the Company's
ability to perform its obligations under this Agreement or on the condition,
financial or otherwise, or the earnings, business affairs or business prospects
of the Company and its subsidiaries considered as one enterprise, nor will such
action result in the violation of the Company's charter or by-laws, or any
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or any of
its properties, the effect of any of which would have a material adverse effect
on the Company's ability to perform its obligations under this Agreement, or on
the condition, financial or otherwise, or the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise; no consent, approval, authorization or order of, or filing with, any
court or governmental agency or body is required for the consummation by the
Company of the transactions contemplated by this Agreement, except such as may
be required by state securities or blue sky laws and rules of the National
Association of Securities Dealers, Inc. (the "NASD") in connection with the
purchase and sale by the Agent of the Stock.
(m) Each of the Company and its subsidiaries has (i) good and marketable
title to all of the properties and assets described in the Prospectus as owned
by it, free and clear of all liens, charges, encumbrances or restrictions,
except such as are described in the Prospectus or are not material to the
business, condition, financial or otherwise, or the earnings, business affairs
or business prospects of the Company and its subsidiaries considered as one
enterprise, (ii) peaceful and undisturbed possession under all material leases
to which it is party as lessee, (iii) all governmental or regulatory licenses,
certificates, permits, authorizations, approvals, franchises or other rights
necessary to engage in the business currently conducted by it, except such as
are not material to the business, condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, (iv) no reason to believe that any
governmental body or agency is considering limiting, suspending or revoking any
such license,
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certificate, permit, authorization, approval, franchise or right and (v) not
received any notice of and has no reason to believe that any governmental body
or agency is considering enacting, amending or repealing any statute, law,
ordinance or regulation required to be described in the Registration Statement
and Prospectus that is not so described as required. All material leases to
which the Company or any of its subsidiaries is a party are valid and binding
and, to the Company's knowledge, no default has occurred and is continuing
thereunder, and, to the knowledge of the Company, no material defaults by the
landlord are existing under any such leases.
(n) Each of the Company and its subsidiaries owns or possesses all of the
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names presently employed by them in connection with the business now
operated by them, and neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any of the foregoing which, if singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
result in any material adverse change in the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise.
(o) The Company and its subsidiaries have not materially violated and are
in compliance in all material respects with all material laws, statutes,
ordinances, regulations, rules and orders of any foreign, federal, state or
local government and any other governmental department or agency, and any
judgment, decision, decree or order of any court or governmental agency,
department or authority, including, without limitation, environmental laws
applicable to it or its business. Neither the Company nor any of its
subsidiaries has received any notice to the effect that, or otherwise been
advised that, it is not in compliance with any such statutes, regulations,
rules, judgments, decrees, orders, ordinances or other laws, and the Company is
not aware of any existing circumstances which are likely to result in material
violations of any of the foregoing.
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(p) The Company and its qualified real estate investment trust subsidiaries
are organized in conformity with the requirements for qualification as, and
operate in a manner that qualifies them as, a real estate investment trust under
the Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations thereunder and intends to be so qualified after consummation of the
transactions contemplated by this Agreement.
(q) The Company is not, and upon the issuance and sale of the Stock as
herein contemplated and the application of the net proceeds therefrom as
described in the Prospectus will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended (the "1940 Act").
(r) Except as described in the Registration Statement and except as would
not, singly or in the aggregate, result in a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise, (A)
neither the Company nor any of its subsidiaries is in violation of any federal,
state, local or foreign statute, law, rule, regulation, ordinance, code policy
or rule of common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or judgment,
relating to pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials (collectively, "Environmental
Laws"), (B) the Company and its subsidiaries have all permits, authorizations
and approvals required under any applicable Environmental Laws and are each in
compliance with their requirements, (C) there are no pending or, to the
knowledge of the Company, threatened administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of noncompliance
or violation, investigations or proceedings relating to any Environmental Law
against the Company
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or any of its subsidiaries and (D) there are no events or circumstances that
might reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of its
subsidiaries relating to Hazardous Materials or any Environmental Laws.
SECTION 3. Sale and Delivery of Securities. On the basis of the
-------------------------------
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
through the Agent, as sales agent, and the Agent agrees to sell, as sales agent
for the Company, on a reasonable efforts basis, up to the Maximum Amount of
Stock on the terms set forth herein.
The Stock, up to the Maximum Amount, is to be sold on a daily basis or
otherwise as shall be agreed to by the Company and the Agent. The Company will
designate the maximum amount of Stock to be sold by the Agent daily as
reasonably agreed to by the Agent and in any event not in excess of the amount
available for issuance under the currently effective Registration Statement.
Subject to the terms and conditions hereof, the Agent shall use its reasonable
efforts to sell all of the designated Stock up to the Maximum Amount.
Notwithstanding the foregoing the Company may instruct the Agent by
telephone (confirmed promptly by telecopy) not to sell Stock if such sales
cannot be effected at or above the price designated by the Company in any such
instruction; furthermore, the Company shall not authorize the issuance and sale
of, and the Agent shall not be obligated to use its reasonable efforts to sell,
any Stock at a price lower than the minimum price therefor designated from time
to time by the Company's Board of Directors and notified to the Agent in
writing. In addition, the Company or the Agent may, upon notice to the other
party hereto by telephone (confirmed promptly by telecopy), suspend the offering
of the Stock; provided, however, that such suspension or termination shall not
-------- -------
affect or impair the parties' respective obligations with respect to the Stock
sold hereunder prior to the giving of such notice.
If either party has reason to believe that the exemptive provisions set
forth in Rule 101(c)(1) of Regulation M under the Exchange Act are not satisfied
with respect to the Stock, it shall
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promptly notify the other party and sales of Stock under this Agreement shall be
suspended until that or other exemptive provisions have been satisfied in the
judgment of each party. Unless otherwise agreed by the Company and the Agent,
the Agent shall sell the Stock only by means of ordinary brokers' transactions
on the American Stock Exchange (the "AMEX"). Unless otherwise agreed to by the
Company and the Agent, the Agent shall not solicit or arrange for the
solicitation of customer's orders in anticipation of or in connection with such
transactions, nor shall it sell short as principal shares of Stock of the
Company, except in connection with customary market making activities in the
Company's outstanding securities. The Agent shall not engage in any special
selling efforts or selling methods relating to the Stock within the meaning of
Rule 100 of Regulation M under the Exchange Act. The Agent shall calculate on a
weekly basis the average daily trading volume of the Stock.
The compensation to the Agent for sales of Stock shall be (i) 3.0% of the
gross sales price of the first 2,500,000 shares of Stock that may be sold
pursuant to this Agreement, (ii) 2.5% of the gross sales price of the second
2,500,000 shares that may be sold pursuant to this Agreement, and (iii) 2.25% of
the gross sales price of the remaining 1,065,000 shares that may be sold
pursuant to this Agreement. The remaining proceeds, after further deduction for
any transaction fees imposed by any governmental or self-regulatory organization
in respect of such sales, shall constitute the net proceeds to the Company for
such Stock (the "Net Proceeds").
The Agent shall provide written confirmation to the Company following the
close of trading on the AMEX each day in which Stock is sold under this
Agreement setting forth the amount of Stock sold on such day, the Net Proceeds
to the Company, and the compensation payable by the Company to the Agent with
respect to such sales.
Settlement for sales of Stock will occur on the third business day
following the date on which such sales are made (each such day, a "Settlement
Date"). On each Settlement Date, the Stock sold through the Agent for
settlement on such date shall be delivered by the Company to the Agent against
payment of the Net Proceeds for the sale of such Stock. Settlement for all
Stock shall be effected by free delivery of Stock to the Agent's account at The
Depository Trust Corporation in return for payments in same day funds
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delivered to the account designated by the Company. If the Company shall default
on its obligation to deliver Stock on any Settlement Date, the Company shall (i)
hold the Agent harmless against any loss, claim or damage arising from or as a
result of such default by the Company and (ii) pay the Agent any commission to
which it would otherwise be entitled absent such default. If the Agent breaches
this Agreement by failing to deliver proceeds on any Settlement Date for Stock
delivered by the Company, the Agent will pay the Company interest based on the
effective overnight Federal Funds rate.
At each Settlement Date, the Company shall be deemed to have affirmed each
representation, warranty, covenant and other agreement contained in this
Agreement, and on each Filing Date (as defined below), the Company shall affirm
in writing each representation, warranty, covenant and other agreement contained
in this Agreement. The Company covenants and agrees with the Agent that on or
prior to the second business day after the end of each calendar week during
which sales of Stock were made by the Agent (each such week a "Reporting
Period"), the Company will (i) file a prospectus supplement with the Commission
under the applicable paragraph of Rule 424(b) (each a "Filing Date"), which
prospectus supplement will set forth, with regard to such Reporting Period, the
dates included within the Reporting Period, the amount of Stock sold through the
Agent, the Net Proceeds to the Company and the compensation payable by the
Company to the Agent with respect to sales of Stock pursuant to this Agreement
and (ii) deliver such number of copies of each such prospectus supplement to the
AMEX as are required by such Exchange. Any obligation of the Agent to use its
reasonable efforts to sell the Stock shall be subject to the continuing accuracy
of the representations and warranties of the Company herein, to the performance
by the Company of its obligations hereunder and to the continuing satisfaction
of the additional conditions specified in Section 5 of this Agreement.
SECTION 4. Covenants of the Company. The Company covenants and agrees
------------------------
with the Agent that:
(a) During the period in which a prospectus relating to the Stock is
required to be delivered under the Act, the Company will notify the Agent
promptly of the time when any subsequent amendment to the Registration Statement
has become effective or any subsequent supplement to the Prospectus has been
filed and of any
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<PAGE>
request by the Commission for any amendment or supplement to the Registration
Statement or Prospectus or for additional information; it will prepare and file
with the Commission, promptly upon the Agent's request, any amendments or
supplements to the Registration Statement or Prospectus that, in the Agent's
reasonable opinion, may be necessary or advisable in connection with the
distribution of the Stock by the Agent; the Company will not file any amendment
or supplement to the Registration Statement or Prospectus unless a copy thereof
has been submitted to the Agent a reasonable period of time before the filing
and the Agent has not reasonably objected thereto; and it will furnish to the
Agent at the time of filing thereof a copy of any document that upon filing is
deemed to be incorporated by reference in the Registration Statement or
Prospectus; and the Company will cause each amendment or supplement to the
Prospectus to be filed with the Commission as required pursuant to the
applicable paragraph of Rule 424(b) of the Rules and Regulations or, in the case
of any document to be incorporated therein by reference, to be filed with the
Commission as required pursuant to the Exchange Act, within the time period
prescribed.
(b) The Company will advise the Agent, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement, of the
suspension of the qualification of the Stock for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceeding for any such
purpose; and it will promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such a stop order should be
issued.
(c) Within the time during which a prospectus relating to the Stock is
required to be delivered under the Act, the Company will comply as far as it is
able with all requirements imposed upon it by the Act and by the Rules and
Regulations, as from time to time in force, so far as necessary to permit the
continuance of sales of or dealings in the Stock as contemplated by the
provisions hereof and the Prospectus. If during such period any event occurs as
a result of which the Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances then
existing, not misleading, or if during such period it is necessary to amend or
supplement the Registration Statement or Prospectus to comply with the Act, the
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<PAGE>
Company will promptly notify the Agent to suspend the offering of Stock during
such period and the Company will amend or supplement the Registration Statement
or Prospectus so as to correct such statement or omission or effect such
compliance.
(d) The Company will use its best efforts to qualify the Stock for sale
under the securities laws of such jurisdictions as the Agent designates and to
continue such qualifications in effect so long as required for the distribution
of the Stock, except that the Company shall not be required in connection
therewith to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction.
(e) The Company will furnish to the Agent and its counsel (at the expense
of the Company) copies of the Registration Statement, the Prospectus (including
all documents incorporated by reference therein) and all amendments and
supplements to the Registration Statement or Prospectus that are filed with the
Commission during the period in which a prospectus relating to the Stock is
required to be delivered under the Act (including all documents filed with the
Commission during such period that are deemed to be incorporated by reference
therein), in each case as soon as available and in such quantities as the Agent
may from time to time reasonably request and will also furnish copies of the
Prospectus to the AMEX in accordance with Rule 153 of the Rules and Regulations.
(f) The Company will make generally available to its security holders as
soon as practicable, but in any event not later than 15 months after the end of
the Company's current fiscal quarter, an earnings statement (which need not be
audited) covering a 12-month period that satisfies the provisions of Section
11(a) of the Act and Rule 158 of the Rules and Regulations.
(g) The Company, whether or not the transactions contemplated hereunder
are consummated or this Agreement is terminated, will pay all of its expenses
incident to the performance of its obligations hereunder (including, but not
limited to, any transaction fees imposed by any governmental or self-regulatory
organization with respect to transactions contemplated by this Agreement and any
blue sky fees) and will pay the expenses of printing all documents relating to
the offering. The Agent will pay its own out-of-pocket costs and expenses
incurred in connection with the entering into of
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<PAGE>
this Agreement and the transactions contemplated by this Agreement, including,
without limitation, travel, reproduction, printing and similar expenses as well
as the fees and disbursements of its legal counsel; provided, however, that if
100,000 shares of Stock are not sold by the Agent pursuant to the terms of this
Agreement within one year of the date of this Agreement then the Company will
promptly, upon the request of the Agent, reimburse the Agent for the fees and
disbursements of the Agent's legal counsel incurred in connection with the
entering into of this Agreement and the matters contemplated hereby.
(h) The Company will apply the net proceeds from the sale of the Stock as
set forth in the Prospectus.
(i) The Company will not, directly or indirectly, offer or sell any shares
of the Company's common stock, par value $.01 per share ("Common Stock") (other
than the Stock offered pursuant to the provisions of this Agreement) or
securities convertible into or exchangeable for, or any rights to purchase or
acquire, Common Stock during the period from the date of this Agreement through
the final Filing Date for the sale of Stock hereunder without (a) giving the
Agent at least five business days' prior written notice specifying the nature of
the proposed sale and the date of such proposed sale and (b) suspending activity
under this program for such period of time as may reasonably be determined by
agreement of the Company and the Agent; provided, however, that no such notice
-------- -------
and suspension shall be required in connection with the Company's issuance or
sale of (i) shares of Common Stock pursuant to any employee or director stock
option or benefits plan, stock ownership plan, dividend reinvestment plan or
Stockholder Investment Program of the Company now in effect as such plans may be
amended from time to time, and (ii) Common Stock issuable upon conversion of
securities or the exercise of warrants, options or other rights in effect or
outstanding on the date hereof.
(j) The Company will, at any time during the term of this Agreement, as
supplemented from time to time, advise the Agent immediately after it shall have
received notice or obtain knowledge thereof, of any information or fact that
would alter or affect any opinion, certificate, letter and other document
provided to the Agent pursuant to Section 5 herein.
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<PAGE>
(k) Each time that (i) the Registration Statement or the Prospectus shall
be amended or supplemented (other than a supplement filed pursuant to Rule
424(b) under the Act that contains solely the information set forth in the final
paragraph of Section 3 of this Agreement) or (ii) there is filed with the
Commission any document incorporated by reference into the Prospectus (other
than a Current Report on Form 8-K, unless the Agent shall otherwise reasonably
request), the Company shall furnish or cause to be furnished to the Agent
forthwith a certificate dated the date of effectiveness of such amendment, or
the date of filing with the Commission of such supplement or other document, as
the case may be, in form satisfactory to the Agent to the effect that the
statements contained in the certificate referred to in Section 5(f) hereof which
were last furnished to the Agent are true and correct at the time of such
amendment, supplement, or filing, as the case may be, as though made at and as
of such time (except that such statements shall be deemed to relate to the
Registration Statement and the Prospectus as amended and supplemented to such
time) or, in lieu of such certificate, a certificate of the same tenor as the
certificate referred to in said Section 5(f), modified as necessary to relate to
the Registration Statement and the Prospectus as amended and supplemented to the
time of delivery of such certificate.
(l) Upon commencement of any sale of Stock under this Agreement, and each
time that (i) the Registration Statement or the Prospectus is amended or
supplemented (other than a supplement filed pursuant to Rule 424(b) under the
Act that contains solely the information set forth in the final paragraph of
Section 3 of this Agreement) or (ii) there is filed with the Commission any
document incorporated by reference into the Prospectus (other than a Current
Report on Form 8-K, unless the Agent shall otherwise reasonably request), the
Company shall furnish or cause to be furnished forthwith to the Agent and to
counsel to the Agent a written opinion of Freshman, Marantz, Orlanski, Cooper &
Klein, counsel to the Company ("Company Counsel"), or other counsel satisfactory
to the Agent, dated the date of effectiveness of such amendment, or the date of
filing with the Commission of such supplement or other document, as the case may
be, in form and substance satisfactory to the Agent, of the same tenor as the
opinion referred to in Section 5(d) hereof, but modified as necessary to relate
to the Registration Statement and the
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<PAGE>
Prospectus as amended and supplemented to the time of delivery of such opinion.
(m) Each time that the Registration Statement or the Prospectus shall be
amended or supplemented to include additional amended financial information or
there is filed with the Commission any document incorporated by reference into
the Prospectus which contains additional amended financial information, the
Company shall cause KPMG Peat Marwick LLP, or other independent accountants
satisfactory to the Agent, forthwith to furnish the Agent a letter, dated the
date of effectiveness of such amendment, or the date of filing of such
supplement or other document with the Commission, as the case may be, in form
satisfactory to the Agent, of the same tenor as the letter referred to in
Section 5(e) hereof but modified to relate to the Registration Statement and the
Prospectus, as amended and supplemented to the date of such letter.
(n) The Company hereby consents to the Agent trading in the Company's
Common Stock for the Agent's own account and at the same time as the Company's
sales pursuant to this Agreement.
SECTION 5. Conditions of Agent's Obligations. The obligations of the
---------------------------------
Agent to sell the Stock as provided herein shall be subject to the accuracy, as
of the date hereof, and as of each Settlement Date, of the representations and
warranties of the Company herein, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company or the Agent, threatened by
the Commission, and any request of the Commission for additional information (to
be included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the Commission's satisfaction.
(b) The Agent shall not have advised the Company that the Registration
Statement or Prospectus, or any amendment or supplement thereto, contains an
untrue statement of fact that in the Agent's opinion is material, or omits to
state a fact that in the Agent's opinion is material and is required to be
stated therein or is necessary to make the statements therein not misleading.
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<PAGE>
(c) Except as contemplated in the Prospectus, subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, there shall not have been any material change, on a consolidated
basis, in the capital stock of the Company and its subsidiaries, or any material
adverse change, or any development that may reasonably be expected to cause a
material adverse change, in the condition (financial or other), business,
prospects, net worth or results of operations of the Company and its
subsidiaries.
(d) The Agent shall have received at every date specified in Section 4(l)
hereof, opinions of Company Counsel, dated as of such date, to the effect that:
(i) The Company is a corporation duly incorporated and existing under
and by virtue of the laws of the State of Maryland and is in good standing
with the State Department of Assessments and Taxation, has full corporate
power and authority to conduct its business as described in the
Registration Statement and Prospectus and is duly qualified to do business
in each jurisdiction where such qualification is required, except where the
failure to so qualify would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise;
(ii) Each "significant subsidiary" (as such term is defined in Rule
1-02 of Regulation S-X under the Act) of the Company has been duly
incorporated and has corporate power and authority to own, lease and
operate its properties and conduct its business as described in the
Registration Statement and Prospectus; each of the Company's significant
subsidiaries is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation; and all of the issued
outstanding capital stock of each significant subsidiary of the Company has
been duly authorized and validly issued, is fully paid and nonassessable,
is owned by the Company, directly or indirectly, except for the Preferred
Stock of Impac Funding Corporation, free and clear of any mortgage, pledge,
lien, encumbrance, claim or equity;
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(iii) The shares of Stock have been duly and validly authorized,
and, when issued and delivered to and paid for by the purchasers thereof
pursuant to this Agreement, will be fully paid and nonassessable and
conform in all material respects to the description thereof in the
Prospectus under the caption "Capital Stock" and the stockholders of the
Company have no preemptive rights with respect to the Stock; all corporate
action required to be taken for the authorization, issuance and sale of the
Stock has been validly and sufficiently taken; and the shares of Stock are
the subject of an effective registration statement permitting their sale in
the manner contemplated by this Agreement;
(iv) The Registration Statement has become effective under the Act;
to the knowledge of such counsel no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceeding for that
purpose has been instituted or, to our knowledge, threatened by the
Commission;
(v) The Registration Statement, when it became effective, and the
Prospectus and any amendment or supplement thereto, on the date of filing
thereof with the Commission (and at each Filing Date on or prior to the
date of the opinion), complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations; and the documents
incorporated by reference in the Registration Statement or Prospectus or
any amendment or supplement thereto, when filed with the Commission under
the Exchange Act, complied as to form in all material respects with the
requirements of the Act or the Exchange Act, as applicable, and the rules
and regulations of the Commission thereunder (except that we express no
opinion as to financial statements, schedules and other financial and
statistical data contained in the Registration Statement or the Prospectus,
or incorporated by reference therein);
(vi) The description in the Registration Statement and Prospectus of
statutes, legal and governmental proceedings, contracts and other documents
are accurate in all material respects and fairly present the information
required to be shown; and such counsel does not know of any statutes or
legal or governmental proceedings required to be described in the
Prospectus that are not described as required, or of any
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contracts or documents of a character required to be described in the
Registration Statement or Prospectus (or required to be filed under the
Exchange Act if upon such filing they would be incorporated by reference
therein) or to be filed as exhibits to the Registration Statement that are
not described and filed as required;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated herein by
the Company do not and will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any agreement
or instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which it is bound or to which any of the
property of the Company or any of its subsidiaries is subject except for
such breaches or defaults that would not in the aggregate have a material
adverse effect on the Company's ability to perform its obligations under
this Agreement or on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, nor will such action result in
the violation of the Company's charter or by-laws, or any statute or any
order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of its properties; and no consent, approval,
authorization or order of, or filing with, any court or governmental agency
or body is required for the consummation of the transactions contemplated
by this Agreement in connection with the issuance or sale of the Stock by
the Company, except such as have been obtained under the Act and such as
may be required under state securities or blue sky laws or rules of the
NASD in connection with the sale and distribution of the Stock by the
Agent;
(ix) Except as may be disclosed in the Prospectus, such counsel
knows of no actions, suits or proceedings pending or threatened against or
affecting the Company or any of its subsidiaries or the business,
properties, business prospects, condition (financial or otherwise) or
results of operations of
19
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the Company or any of its subsidiaries, or any of their respective officers
in their capacities as such, before or by any Federal or state or foreign
court, commission, regulatory body, wherein an unfavorable ruling, decision
or finding might materially and adversely affect the Company or any of its
subsidiaries or its business, properties, business prospects, condition
(financial or otherwise) or results of operations; and
(x) Commencing with the Company's taxable year ended December 31,
1995, the Company has been organized in conformity with the requirements
for qualification as a "real estate investment trust," and its proposed
method of operation has enabled and will enable it to meet the requirements
for qualification and taxation as a "real estate investment trust" under
the Code. The information presented in the Registration Statement under
the caption "Federal Income Tax Considerations," to the extent it
constitutes matters of law or legal conclusions, is accurate in all
material respects.
(xi) The Company is not, and upon the issuance and sale of the
Stock and the application of the net proceeds therefrom as described in the
Prospectus will not be, an "investment company" within the meaning of the
1940 Act.
In addition, such counsel shall state that such counsel has no reason to
believe that either the Registration Statement, at the time it (including each
Post-Effective Amendment thereto) became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus and any amendments or supplements thereto, on the date of
filing thereof with the Commission and at each Filing Date on or prior to the
date of the opinion, included an untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; it being
understood that such counsel need express no opinion as to the financial
statements or other financial and statistical data included in any of the
documents mentioned in this paragraph.
(e) At the dates specified in Section 4(m) hereof, the Agent shall have
received a letter from KPMG Peat Marwick LLP,
20
<PAGE>
independent public accountants for the Company, or other independent accountants
satisfactory to the Agent, dated the date of delivery thereof, substantially in
the form attached hereto as Annex I and otherwise in form and substance
satisfactory to Agent.
(f) The Agent shall have received from the Company a certificate, or
certificates, signed by the Chairman of the Board, the President or a Vice
President and by the principal financial or accounting officer of the Company,
dated as of the next business day following each Filing Date (each, a
"Certificate Date"), to the effect that, to their knowledge:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made at and as of the Certificate
Date, and the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to
the Commencement Date and each such each such Certificate Date;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceeding for that purpose has been
instituted or is threatened, by the Commission;
(iii) Since the date of this Agreement there has occurred no event
required to be set forth in an amendment or supplement to the Registration
Statement or Prospectus that has not been so set forth and there has been
no document required to be filed under the Exchange Act and the rules and
regulations of the Commission thereunder that upon such filing would be
deemed to be incorporated by reference in the Prospectus that has not been
so filed; and
(iv) Since the date of this Agreement, there has not been any
material adverse change, on a consolidated basis, in the business,
financial condition or results of operations of the Company and its
subsidiaries considered as one enterprise which has not been described in
an amendment or supplement to the Registration Statement or Prospectus.
In addition, on each Certificate Date the certificate shall also state that
the shares of Stock to be sold on that date have been duly and validly
authorized by the Company and that all
21
<PAGE>
corporate action required to be taken for the authorization, issuance and sale
of the Stock on that date has been validly and sufficiently taken.
The Company will furnish the Agent with such conformed copies of such opinions,
certificates, letters and other documents as the Agent shall reasonably request.
SECTION 6. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless the Agent, the
directors, officers, employees and agents of the Agent and each person, if any,
who controls the Agent within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, from and against any and all losses, claims, liabilities,
expenses and damages (including, but not limited to, any and all investigative,
legal and other expenses reasonably incurred in connection with, and any and all
amounts paid in settlement of, any action, suit or proceeding between any of the
indemnified parties and any indemnifying parties or between any indemnified
party and any third party, or otherwise, or any claim asserted), as and when
incurred, to which the Agent, or any such person, may become subject under the
Act, the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, liabilities, expenses
or damages arise out of or are based on (i) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement to the
Registration Statement or the Prospectus, or in any application or other
document executed by or on behalf of the Company or based on written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Stock under the securities laws thereof or filed with the
Commission, or (ii) the omission or alleged omission to state in such document a
material fact required to be stated in it or necessary to make the statements in
it not misleading, or (iii) any breach by any of the indemnifying parties of any
of their respective representations, warranties and agreements contained in
this Agreement, or (iv) the engagement of the Agent pursuant to, and the
performance by the Agent of the services contemplated by, this Agreement;
provided that this indemnity agreement shall not apply to the extent that such
loss, claim, liability, expense or damage arises from the sale of the Stock
pursuant to this Agreement
22
<PAGE>
and is based on an untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to the
Agent furnished in writing to the Company by the Agent expressly for inclusion
in any document described in clause (a)(i) above (provided that the Company
shall not liable under this clause (iv) to the extent it is finally judicially
determined by a court of competent jurisdiction that such loss, claim,
liability, expense or damage resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Agent through its gross negligence
or willful misconduct). This indemnity agreement will be in addition to any
liability that the Company might otherwise have.
(b) The Agent agrees to indemnify and hold harmless the Company and its
directors and each officer of the Company who signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendments thereto) or any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto) in reliance upon and
in conformity with written information concerning the Agent furnished to the
Company by the Agent expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectus (or any
amendment or supplement thereto). This indemnity will be in addition to any
liability that the Agent might otherwise have; provided, however, that in no
case shall the Agent be liable or responsible for any amount in excess of the
total commissions received by the Agent.
(c) Any party that proposes to assert the right to be indemnified under
this Section 6 will, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 6, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission so to notify such indemnifying party will not
relieve it from (i) any liability that it might have to any indemnified party
otherwise than under this Section 6 and (ii) any liability that it may have to
any indemnified party under the
23
<PAGE>
foregoing provisions of this Section 6 unless, and only to the extent that, such
omission results in the forfeiture of substantive rights or defenses by the
indemnifying party. If any such action is brought against any indemnified party
and it notifies the indemnifying party of such commencement, the indemnifying
party will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the commencement of the action from the indemnified party, jointly
with any other indemnifying party similarly notified, to assume the defense of
the action, with counsel satisfactory to the indemnified party, and after notice
from the indemnifying party to the indemnified party of its election to assume
the defense, the indemnifying party will not be liable to the indemnified party,
for any legal or other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the indemnified party
in connection with the defense. The indemnified party will have the right to
employ its own counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such indemnified party unless
(1) the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based on advice of counsel) that there may be legal defenses
available to it or other indemnified parties that are different from or in
addition to those available to the indemnifying party, (3) a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (4) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm admitted to
practice in such jurisdiction at any one time for all such indemnified party or
parties. All such fees, disbursements and other charges will be reimbursed by
the indemnifying party promptly as they are incurred. An indemnifying party will
not be liable for any settlement of any
24
<PAGE>
action or claim effected without its written consent (which consent will not be
unreasonably withheld). No indemnifying party shall, without the prior written
consent of each indemnified party, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action or proceeding
relating to the matters contemplated by this Section 6 (whether or not any
indemnified party is a party thereto), unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising or that may arise out of such claim, action or proceeding.
Notwithstanding any other provision of this Section 6 (c), if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement effected without its written
consent if (i) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 6 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Agent, the Company
and the Agent will contribute to the total losses, claims, liabilities, expenses
and damages (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted, but after deducting any contribution
received by the Company from persons other than the Agent, such as persons who
control the Company within the meaning of the Act, officers of the Company who
signed the Registration Statement and directors of the Company, who also may be
liable for contribution) to which the indemnified party may be subject in such
proportion as shall be appropriate to reflect the relative benefits received by
the Company on the one hand and the Agent on the other. The relative benefits
received by the Company on the one hand and the Agent on the other hand shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company
25
<PAGE>
bear to the total commissions received by the Agent from the sale of Stock on
behalf of the Company. If, but only if, the allocation provided by the foregoing
sentence is not permitted by applicable law, the allocation of contribution
shall be made in such proportion as is appropriate to reflect not only the
relative benefits referred to in the foregoing sentence but also the relative
fault of the Company, on the one hand, and the Agent, on the other, with respect
to the statements or omissions which resulted in such loss, claim, liability,
expense or damage, or action in respect thereof, as well as any other relevant
equitable considerations with respect to such offering. Such relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Agent, the intent of
the parties and their relative knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the Agent
agree that it would not be just and equitable if contributions pursuant to this
Section 6(d) were to be determined by pro rata allocation or by any other method
of allocation which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, liability, expense or damage, or action in respect
thereof, referred to above in this Section 6(d) shall be deemed to include, for
the purpose of this Section 6(d), any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the foregoing provisions of this
Section 6(d), the Agent shall not be required to contribute any amount in excess
of the total commissions received by it under this Agreement and no person found
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) will be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 6(d), any person
who controls a party to this Agreement within the meaning of the Act will have
the same rights to contribution as that party, and each officer of the Company
who signed the Registration Statement will have the same rights to contribution
as the Company, subject in each case to the provisions hereof. Any party
entitled to contribution, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim for contribution may
be made under this Section 6(d), will notify any such party or parties from whom
26
<PAGE>
contribution may be sought, but the omission so to notify will not relieve that
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 6(d). Except for a settlement entered
into pursuant to the last sentence of Section 6(c) hereof, no party will be
liable for contribution with respect to any action or claim settled without its
written consent (which consent will not be unreasonably withheld).
(e) The indemnity and contribution agreements contained in this Section 6
and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any investigation made by or on behalf of the Agent, (ii) acceptance of the
Stock and payment therefore or (iii) any termination of this Agreement.
SECTION 7. Representations and Agreements to Survive Delivery. All
--------------------------------------------------
representations, warranties and agreements of the Company herein or in
certificates delivered pursuant hereto, and the agreements of the Agent
contained in Section 6 hereof, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Agent or any
controlling persons, or the Company (or any of their officers, directors or
controlling persons), and shall survive delivery of and payment for the Stock.
SECTION 8. Termination.
-----------
(a) The Agent shall have the right by giving notice as hereinafter
specified at any time at or prior to any Filing Date, to terminate this
Agreement if (i) any material adverse change, or any development has occurred
that is reasonably expected to cause material adverse change, in the business,
financial condition or results of operations of the Company and its subsidiaries
has occurred which, in the judgment of such Agent, materially impairs the
investment quality of the Stock, (ii) the Company shall have failed, refused or
been unable, at or prior to the Filing Date, to perform any agreement on its
part to be performed hereunder, (iii) any other condition of the Agent's
obligations hereunder is not fulfilled, (iv) any suspension or limitation of
trading in the Stock on the AMEX, or any setting of minimum prices for trading
of the Stock on such exchange, shall have occurred, (v) any banking moratorium
shall have been declared by Federal or New York
27
<PAGE>
authorities or (vi) an outbreak or material escalation of major hostilities in
which the United States is involved, a declaration of war by Congress, any other
substantial national or international calamity or any other event or occurrence
of a similar character shall have occurred since the execution of this Agreement
that, in the sole judgment of the Agent, makes it impractical or inadvisable to
proceed with the completion of the sale of and payment for the Stock to be sold
by the Agent on behalf of the Company. Any such termination shall be without
liability of any party to any other party except that the provisions of Section
4(g), Section 6 and Section 7 hereof shall remain in full force and effect
notwithstanding such termination.
(b) The Company shall have the right, by giving written notice as
hereinafter specified, to terminate this Agreement in its sole discretion on the
first anniversary of the date of this Agreement. Any such termination shall be
without liability of any party to any other party except that the provisions of
Section 4(g), Section 6 and Section 7 hereof shall remain in full force and
effect notwithstanding such termination.
(c) The Agent shall have the right, by giving written notice as
hereinafter specified, to terminate this Agreement in its sole discretion at any
time after the first anniversary of the date of this Agreement. Any such
termination shall be without liability of any party to any other party except
that the provisions of Section 4(g), Section 6 and Section 7 hereof shall remain
in full force and effect notwithstanding such termination.
(d) This Agreement shall remain in full force and effect unless terminated
pursuant to Sections 8(a), (b) or (c) above or otherwise by mutual agreement of
the parties; provided that any such termination by mutual agreement shall in all
cases be deemed to provide that Section 4(g), Section 6 and Section 7 shall
remain in full force and effect.
(e) Any termination of this Agreement shall be effective on the date
specified in such notice of termination; provided that such termination shall
--------
not be effective until the close of business on the date of receipt of such
notice by the Agent or the Company, as the case may be. If such termination
shall occur prior to the Settlement Date for any sale of Stock, such sale shall
settle in
28
<PAGE>
accordance with the provisions of the second to last paragraph of Section 3
hereof.
SECTION 9. Notices. All notices or communications hereunder shall be in
-------
writing and if sent to the Agent shall be mailed, delivered, telexed or
telecopied and confirmed to the Agent at PaineWebber Incorporated, 1285 Avenue
of the Americas, New York, New York 10019, telecopy no. (212) 713-4205,
attention: Corporate Finance Department, or if sent to the Company, shall be
mailed, delivered, telexed or telecopied and confirmed to the Company at 20371
Irvine Avenue, Santa Ana Heights, California 92707, telecopy no. (714) 438-2150,
attention: Richard J. Johnson. Each party to this Agreement may change such
address for notices by sending to the parties to this Agreement written notice
of a new address for such purpose.
SECTION 10. Parties. This Agreement shall inure to the benefit of and be
-------
binding upon the Company and the Agent and their respective successors and the
controlling persons, officers and directors referred to in Section 6 hereof, and
no other person will have any right or obligation hereunder.
SECTION 11. Adjustments for Stock Splits. The parties acknowledge and
----------------------------
agree that all share related numbers contained in this Agreement (including,
without limitation, the Maximum Amount) shall be adjusted to take into account
any stock split effected with respect to the Stock.
SECTION 12. Entire Agreement. This Agreement constitutes the entire
----------------
agreement and supersedes all other prior and contemporaneous agreements and
undertakings, both written and oral, among the parties hereto with regard to the
subject matter hereof.
SECTION 13. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
--------------
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 14. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
29
<PAGE>
If the foregoing correctly sets forth the understanding between the Company
and the Agent, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between the Company
and the Agent. Alternatively, the execution of this Agreement by the Company
and its acceptance by or on behalf of the Agent may be evidenced by an exchange
of telegraphic or other written communications.
Very truly yours,
IMPAC MORTGAGE HOLDINGS, INC.
By:
----------------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
ACCEPTED as of the date
first above written
PAINEWEBBER INCORPORATED
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
30
<PAGE>
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
The following is the computation of ratio of earnings to fixed charges
including CMO debt(1):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------
PRO FORMA
1997(2) 1997 1996 1995(3) 1994(3) 1993(3)
--------- -------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed charges........... $127,808 $127,808 $77,573 $3,549 $ 769,899 $ 533,611
Net income.............. 28,346 (16,029) 11,879 2,134 460,033 4,747,417
-------- -------- ------- ------ ---------- ----------
Total earnings(1)....... 156,154 $111,779 $89,452 $5,683 $1,229,932 $5,281,028
======== ======== ======= ====== ========== ==========
Ratio of earnings to
fixed charges.......... 1.2x 0.9x 1.2x 1.6x 1.6x 9.9x
======== ======== ======= ====== ========== ==========
</TABLE>
- --------
(1) Earnings used in computing the ratio of earnings to fixed charges consist
of net income before income taxes plus fixed charges. Fixed charges
consist of interest expense on long-term debt (including amortization of
loan premiums and the portion of rental expense deemed to represent the
interest factor).
(2) Earnings used in computing the ratios of earnings to fixed charges consist
of net income before income taxes, excluding the non-recurring charge of
$44.4 million incurred in connection with the Termination Agreement,
effective December 19, 1997, entered into among the Registrant, ICII,
ICAI, Richard J. Johnson, William S. Ashmore and Joseph R. Tomkinson.
(3) Data prior to the Contribution Transaction is based upon the historical
operations of IWLG, as a division of SFB, and includes the Company's
equity interest in IFC, as a division of ICII.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Impac Mortgage Holdings, Inc.:
We consent to the use of our report, dated February 9, 1998, incorporated
herein by reference and to the reference to our firm under the heading
"Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Orange County, California
April 23, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Impac Funding Corporation:
We consent to the use of our report, dated February 9, 1998, incorporated
herein by reference and to the reference to our firm under the heading
"Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Orange County, California
April 23, 1998
