<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1996
REGISTRATION NO. 333-3954
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IMC MORTGAGE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
FLORIDA 6162 59-3350574
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
3450 BUSCHWOOD PARK DRIVE
TAMPA, FLORIDA 33618
(813) 932-2211
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GEORGE NICHOLAS
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
IMC MORTGAGE COMPANY
3450 BUSCHWOOD PARK DRIVE
TAMPA, FLORIDA 33618
(813) 932-2211
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE
AGENT FOR SERVICE, SHOULD BE SENT TO:
<TABLE>
<S> <C>
MARK R. BAKER, ESQ. STEVEN R. FINLEY, ESQ.
MARK W. LORIMER, ESQ. SEAN P. GRIFFITHS, ESQ.
DEWEY BALLANTINE GIBSON, DUNN & CRUTCHER LLP
1301 AVENUE OF THE AMERICAS 200 PARK AVENUE
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10166
(212) 259-8000 (212) 351-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
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, as amended, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]_________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]_________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND HEADING LOCATION IN THE PROSPECTUS
--------------------------------------------------------- ------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus............................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................. Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges....................................... Prospectus Summary; Business; Risk Factors
4. Use of Proceeds.......................................... Outside Front Cover Page; Prospectus Summary;
Use of Proceeds
5. Determination of Offering Price.......................... Underwriting
6. Dilution................................................. Dilution
7. Selling Security Holders................................. Not Applicable
8. Plan of Distribution..................................... Outside Front Cover Page; Underwriting
9. Description of Securities To Be Registered............... Description of Capital Stock
10. Interests of Named Experts and Counsel................... Not Applicable
11. Information With Respect to the Registrant:
(a) Description of Business............................ Prospectus Summary; Recent Events; Business
(b) Description of Property............................ Business -- Property
(c) Legal Proceedings.................................. Business -- Legal Proceedings
(d) Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters...... Outside Front Cover Page; The Reorganization
Plan; Dividend Policy; Selected Consolidated
Financial Data; Description of Capital Stock;
Shares Eligible for Future Sale; Available
Information
(e) Financial Statements............................... Consolidated Financial Statements
(f) Selected Financial Data............................ Selected Consolidated Financial Data
(g) Supplementary Financial Information................ Not Applicable
(h) Management's Discussion and Analysis of Financial
Condition and Results of Operations................ Management's Discussion and Analysis of
Financial Condition and Results of Operations
(i) Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ Management's Discussion and Analysis of
Financial Condition and Results of Operations
(j) Directors and Executive Officers................... Management
(k) Executive Compensation............................. Management
(l) Security Ownership of Certain Beneficial Owners and
Management......................................... Principal Stockholders
(m) Certain Relationships and Related Transactions..... Certain Relationships and Related Transactions;
Certain Accounting Considerations Relating to
The Conti VSA
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities............................. Not Applicable
</TABLE>
<PAGE>
<PAGE>
PROSPECTUS
3,100,000 SHARES
IMC MORTGAGE COMPANY
COMMON STOCK
[LOGO]
------------------------------
The 3,100,000 shares of common stock (the 'Common Stock') offered hereby
(the 'Public Offering') are being offered and sold by IMC Mortgage Company
('IMC' or the 'Company'). Prior to the Public Offering, there has been no public
market for the Common Stock. See 'Underwriting' for a discussion of the factors
considered in determining the initial public offering price.
At the request of the Company, the Underwriters have reserved up to 310,000
shares of Common Stock for sale at the initial public offering price to certain
employees, Industry Partners (as defined herein) and their affiliates (the
'Directed Share Program'). The number of shares of Common Stock available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any such reserved shares which are not so purchased will
be offered by the Underwriters to the general public on the same basis as other
shares offered thereby.
The Common Stock has been approved for listing on The Nasdaq National
Market ('Nasdaq') under the symbol IMCC.
------------------------------
SEE 'RISK FACTORS' ON PAGES 8 THROUGH 15 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
------------------------------
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.
------------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share.............................. $18.00 $1.26 $16.74
Total (3).............................. $55,800,000 $3,906,000 $51,894,000
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the 'Securities Act'). See 'Underwriting.'
(2) Before deducting estimated expenses of $1,000,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
465,000 additional shares of Common Stock, on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public will be $64,170,000,
Underwriting Discount will be $4,491,900 and Proceeds to Company will be
$59,678,100. See 'Underwriting.'
------------------------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if delivered to and accepted by the Underwriters, and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
said offer and to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made on or about June 28, 1996 at the
offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.
BEAR, STEARNS & CO. INC. OPPENHEIMER & CO., INC.
JUNE 25, 1996
<PAGE>
<PAGE>
HEADQUARTERS, FULL SERVICE, AND RETAIL LOCATIONS
[MAP OF THE UNITED STATES OF AMERICA]
<TABLE>
<S> <C>
Headquarters Tampa, FL
Top Ten States Maryland, New York, New Jersey, Michigan, Florida, Ohio, Pennsylvania, Virginia, Georgia, District of Columbia
Full Service Cincinnati, OH; Ft. Washington, PA; Cherry Hill, NJ; Lincoln, RI
Retail Atlanta, GA; Englewood, CO; W. Des Moines, IA; St. Louis, MO; Brookfield, WI; Phoenix, AZ; Jacksonville, FL;
Roselle, IL; Bellevue, WA.
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The Company was formerly known as IMC Acquisitions, Inc., a Florida
corporation ('IMC Acquisitions'), and is a wholly-owned subsidiary of Industry
Mortgage Company, LP, a Delaware limited partnership (the 'Partnership'). In
connection with the Public Offering, the Partnership became a subsidiary of the
Company, pursuant to a plan in which the Partnership retained all of its assets,
operations and liabilities (the 'Reorganization Plan'). See 'The Reorganization
Plan.' This Prospectus gives effect to the Reorganization Plan and, unless the
context otherwise requires, the terms the 'Company' and 'IMC' refer to IMC
Mortgage Company, its subsidiaries and their respective operations, and include
the Partnership. The following summary is qualified in its entirety by the more
detailed information and consolidated financial statements and related notes
appearing elsewhere in this Prospectus.
THE COMPANY
Overview. IMC is a specialized consumer finance company engaged in
purchasing, originating, servicing and selling home equity loans secured
primarily by first liens on one- to four-family residential properties. The
Company focuses on lending to individuals whose borrowing needs are generally
not being served by traditional financial institutions due to such individuals'
impaired credit profiles and other factors. Loan proceeds typically are used by
the Company's borrowers for a variety of purposes such as to consolidate debt,
to finance home improvements and to pay educational expenses. By focusing on
individuals with impaired credit profiles and by providing prompt responses to
their borrowing requests, the Company has been able to charge higher interest
rates for its loan products than typically are charged by conventional mortgage
lenders.
IMC was formed in 1993 by a team of executives experienced in the
non-conforming home equity loan industry. IMC was originally structured as a
partnership, with the limited partners consisting of correspondents and other
originators of home equity loans (the 'Industry Partners') and certain members
of management. The original Industry Partners included: American Industrial Loan
Association; Champion Mortgage Co. Inc.; Cityscape Corp.; Equitysafe, a Rhode
Island General Partnership; Investors Mortgage, a Washington LP; Mortgage
America Inc.; Residential Money Centers; First Government Mortgage and Investors
Corp.; Investaid Corp.; and New Jersey Mortgage and Investment Corp. TMS
Mortgage Inc., a wholly-owned subsidiary of The Money Store Inc., ('The Money
Store') and Equity Mortgage, a Maryland LP, became Industry Partners in 1994.
Branchview, Inc. became an Industry Partner in 1995.
IMC purchases and originates home equity loans through a diversified
network of 248 correspondents, which includes the Industry Partners, and 1,348
mortgage loan brokers and, to a lesser extent, on a retail basis through its
recently initiated direct consumer lending effort. Since its inception in
August, 1993, IMC has experienced considerable growth in loan production, with
total purchases and originations of $29.6 million, $282.9 million, $621.6
million and $264.0 million in 1993, 1994, 1995 and the first three months of
1996, respectively. IMC's network of correspondents accounted for 82.5%, 87.5%
and 89.6% of IMC's loan production in 1994, 1995 and the first three months of
1996, respectively, with the largest correspondent contributing 7.1%, 9.7% and
9.5% of total loan production in such periods. Through its network of approved
mortgage brokers, IMC generated 17.5%, 10.7% and 8.0% of its loan production in
1994, 1995 and the first three months of 1996, respectively. IMC's direct
consumer lending effort contributed approximately 1.8% and 2.4% of loan
production in 1995 and the first three months of 1996. IMC is seeking to expand
its direct consumer lending by opening branch offices and expanding its use of
advertising, direct mail and other marketing strategies.
The Industry Partners are currently required to sell to IMC, under market
terms and conditions, an aggregate of $102.0 million, on average, of home equity
loans per year. IMC has consistently purchased loan production from the Industry
Partners in excess of such aggregate annual commitment. Concurrent with the
Public Offering, the majority of the Industry Partners have agreed to increase
their annual loan sale commitment, or the economic equivalent, to an aggregate
of $162.0 million. See 'Certain Relationships and Related Transactions.'
3
<PAGE>
<PAGE>
IMC sells its loans through securitizations, which involve the private
placement or public offering of asset-backed securities, and whole loan sales,
which involve selling blocks of loans to institutional purchasers. Whole loan
sales have declined from 100% of total loan sales in 1993 (prior to IMC's first
securitization of its loans) to 15.3% of total loan sales in 1995. Each of IMC's
securitizations has been credit-enhanced by an insurance policy provided through
a monoline insurance company to receive ratings of Aaa from Moody's Investors
Service, Inc. ('Moody's') and AAA from Standard & Poor's Ratings Group
('Standard & Poor's'). Through April 30, 1996, IMC had completed six real estate
mortgage investment conduit ('REMIC') securitizations totalling $845.0 million.
As of December 31, 1995 and March 31, 1996, IMC had a servicing portfolio of
$535.8 million and $783.4 million, respectively.
IMC has maintained a financing and investment banking relationship with
ContiFinancial Corporation and its subsidiaries and affiliates
('ContiFinancial') since 1993. As part of this relationship, ContiFinancial has
provided warehouse and revolving credit facilities to IMC and acted as placement
agent and underwriter of its securitizations. In addition, as part of its cash
flow management strategy, the securitizations were structured so that
ContiFinancial received, in exchange for cash, a portion of the residual
interest in such securitizations. These transactions reduced IMC's gain on sale
of loans by approximately $0.6 million in 1994, $5.5 million in 1995 and $2.8
million during the first three months of 1996. ContiFinancial also has an option
which, prior to the completion of the Public Offering, was converted into a
warrant to purchase 1.5 million shares of Common Stock (subject to certain
adjustments) for a de minimis amount (the 'Conti Option').
Loan purchases and originations increased 119.7% from $282.9 million in
1994 to $621.6 million in 1995, and the Company's servicing portfolio increased
482.4% from $92.0 million to $535.8 million. During this same period, the
Company's total revenues increased 94.9% from $10.1 million to $19.7 million,
pro forma net income increased 117.3% from $1.9 million to $4.0 million and
pre-tax income before the partnership equity value sharing arrangement with
ContiFinancial (the 'Conti VSA') increased 127.4% from $4.7 million to $10.8
million. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Transactions with ContiFinancial -- Sharing of
Proportionate Value of Equity' and Note 4 to Notes to Consolidated Financial
Statements.
Business Strategy. IMC is following these strategies for expansion: (i)
increasing the number of correspondents and brokers in its networks and
increasing the amount of loans purchased or originated from correspondents
(including the Industry Partners) and brokers; (ii) expanding its direct
consumer lending; (iii) acquiring additional loan production capability through
acquisitions of correspondents; (iv) generating loan production in the home
equity market in the United Kingdom ('UK'); and (v) broadening its product
offerings. See 'Business -- Business Strategy.'
Recent Securitization. In April, 1996, the Company completed its sixth
securitization in the aggregate amount of $200.0 million. The securities sold in
the securitization were rated AAA/Aaa and were sold in a public offering. As
part of its cash flow management strategy, this securitization was structured so
that ContiFinancial received, in exchange for cash, 25% of the residual
interests of such securitization. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources.'
RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider all of the information set forth in this Prospectus and, in
particular, should evaluate the factors set forth in 'Risk Factors.' Such risks
include, among others, effect of adverse economic conditions, interest rate
risk, dependence on funding sources, liquidity-negative cash flow, valuation and
potential impairment of interest-only and residual certificates, dependence on
securitizations, dependence on credit enhancement, limited operating history,
recent expansion and competition.
4
<PAGE>
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 3,100,000 shares
Common Stock to be outstanding after the
Public Offering............................ 11,065,092 shares
Use of proceeds.............................. For general corporate purposes, including the repayment of certain
indebtedness of approximately $22.9 million, the funding of loan
purchases and originations, the funding of future acquisitions
and the expansion of its direct lending branch office network.
See 'Use of Proceeds.'
Approved Nasdaq symbol....................... IMCC
</TABLE>
------------------------
Except as otherwise specified, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option (see
'Underwriting'), (ii) regarding outstanding shares excludes: (a) 107,527 shares
of Common Stock reserved for issuance upon the conversion of a convertible
secured debenture (the 'Rotch Debenture') due September 18, 1996 held by Rotch
Property Group Limited ('Rotch'), (b) 325,323 shares of Common Stock reserved
for issuance upon exercise of outstanding options, and (c) 141,666 shares of
Common Stock reserved for issuance when and if earned under the contingent
payout arrangement with respect to IMC's acquisition (the 'Equitystars
Acquisition') of the assets of Mortgage Central Corp. ('Equitystars') and (iii)
regarding outstanding shares includes: (a) 119,833 shares of Common Stock
reserved for issuance upon conversion of the Company's Series A Voting
Convertible Preferred Stock (the 'Convertible Preferred Stock') issued pursuant
to the Equitystars Acquisition, (b) 345,259 shares of Common Stock reserved for
issuance upon exercise of outstanding options and (c) 1,500,000 shares of Common
Stock reserved for issuance upon exercise of the warrant (the 'Conti Warrant')
issued to ContiFinancial upon the conversion of the Conti Option. See 'The
Reorganization Plan,' 'Certain Relationships and Related
Transactions -- Agreements with ContiFinancial -- Conti Warrant' and
'Management -- Stock Option Plans.'
5
<PAGE>
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The historical and pro forma data reflect the exchange of all of the
partnership interests in the Partnership for shares of Common Stock as described
in the Reorganization Plan, giving effect to such exchange as if it had occurred
at the inception of the Partnership.
<TABLE>
<CAPTION>
PERIOD THREE MONTHS
FROM INCEPTION ENDED
(AUGUST 12, 1993) YEAR ENDED DECEMBER 31, MARCH 31,
THROUGH ------------------------- -------------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
----------------- ---------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)................. $438,774 $8,583,277 $20,680,848 $3,297,408 $10,875,466
Additional securitization transaction
expense(2)............................. 0 (560,137) (5,547,037) (254,507) (2,828,591)
----------------- ---------- ----------- -------------- --------------
Gain on sale of loans, net........... 438,774 8,023,140 15,133,811 3,042,901 8,046,875
----------------- ---------- ----------- -------------- --------------
Warehouse interest income................ 97,159 2,510,062 7,884,679 1,090,933 5,160,943
Warehouse interest expense............... (50,709) (1,610,870) (6,006,919) (1,019,643) (3,375,244)
----------------- ---------- ----------- -------------- --------------
Net warehouse interest income........ 46,450 899,192 1,877,760 71,290 1,785,699
----------------- ---------- ----------- -------------- --------------
Servicing fees........................... 0 99,224 1,543,339 109,167 995,439
Other.................................... 28,235 1,072,855 1,117,903 208,243 628,536
----------------- ---------- ----------- -------------- --------------
Total servicing fees and other....... 28,235 1,172,079 2,661,242 317,410 1,623,975
----------------- ---------- ----------- -------------- --------------
Total revenues................... 513,459 10,094,411 19,672,813 3,431,601 11,456,549
----------------- ---------- ----------- -------------- --------------
Expenses:
Compensation and benefits................ 507,904 3,348,236 5,139,386 1,021,815 3,666,685
Selling, general and administrative
expenses............................... 355,526 2,000,401 3,477,677 553,910 2,240,856
Other.................................... 0 14,143 297,743 16,084 342,534
Sharing of proportionate value of
equity(3).............................. 0 1,689,000 4,204,000 718,952 2,555,000
----------------- ---------- ----------- -------------- --------------
Total expenses....................... 863,430 7,051,780 13,118,806 2,310,761 8,805,075
----------------- ---------- ----------- -------------- --------------
Pre-tax income (loss).................... (349,971) 3,042,631 6,554,007 1,120,840 2,651,474
Pro forma provision (benefit) for income
taxes.................................. (134,000) 1,187,000 2,522,000 431,299 1,026,000
----------------- ---------- ----------- -------------- --------------
Pro forma net income (loss).............. $(215,971) $1,855,631 $4,032,007 $689,541 $1,625,474
----------------- ---------- ----------- -------------- --------------
----------------- ---------- ----------- -------------- --------------
Pro forma per share data:
Pro forma net income per share:
Primary.............................. $0.51 $0.20
Fully diluted........................ $0.51 $0.20
Weighted average common and common share
equivalents:
Primary.............................. 7,935,752 7,935,752
Fully diluted........................ 7,935,752 8,304,778
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
DECEMBER 31, -------------------------------
---------------------------------------------- AS
1993 1994 1995 ACTUAL ADJUSTED(4)
----------------- ----------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Mortgage loans held for sale............ $ 7,971,990 $28,995,750 $193,002,835 $257,458,182 $257,458,182
Interest-only and residual
certificates.......................... 0 3,403,730 14,072,771 22,905,311 22,905,311
Warehouse finance facilities............ 7,212,915 27,731,859 189,819,046 261,417,193 220,467,956
Term debt............................... 0 0 11,120,642 21,879,297 17,879,297
Convertible debenture................... 0 0 0 1,800,000 0
Stockholders' equity(5)................. 1,449,092 5,856,011 5,608,844 12,122,435 72,245,170
Total assets(5)......................... 8,861,144 36,641,991 354,551,434 525,200,197 532,422,932
</TABLE>
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION YEAR ENDED THREE MONTHS ENDED
(AUGUST 12, 1993) DECEMBER 31, MARCH 31,
THROUGH ------------------- -------------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
----------------- -------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated.................. $29,608 $282,924 $621,629 $119,385 $263,987
Loans sold through securitization.............. 0 81,637 388,363 74,782 175,000
Whole loan sales............................... 21,636 180,263 70,400 20,765 21,272
Serviced loan portfolio (period end)........... 0 92,003 535,798 166,914 783,367
DELINQUENCY DATA:
Total delinquencies as a percentage of loans
serviced (period end)(6)..................... 0.00% 0.87% 3.43% 1.32% 2.31%
Defaults as a percentage of loans serviced
(period end)(7).............................. 0.00 0.12 1.16 0.12 1.40
Net losses as a percentage of average loans
serviced for period.......................... 0.00 0.00 0.09 0.01 0.01
</TABLE>
6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
MARCH 31, 1995 JUNE 30, 1995 SEPTEMBER 30, 1995 DECEMBER 31, 1995
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)......................... $3,297,408 $2,823,232 $7,303,333 $7,256,875
Additional securitization transaction
expense(2)..................................... (254,507) (176,860) (2,424,000) (2,691,670)
-------------- ------------- ------------------ -----------------
Gain on sale of loans, net................... 3,042,901 2,646,372 4,879,333 4,565,205
-------------- ------------- ------------------ -----------------
Warehouse interest income........................ 1,090,933 1,703,094 2,430,904 2,659,748
Warehouse interest expense....................... (1,019,643) (1,192,707) (1,814,957) (1,979,612)
-------------- ------------- ------------------ -----------------
Net warehouse interest income................ 71,290 510,387 615,947 680,136
-------------- ------------- ------------------ -----------------
Servicing fees................................... 109,167 322,564 423,476 688,132
Other............................................ 208,243 272,773 307,425 329,462
-------------- ------------- ------------------ -----------------
Total revenues............................... 3,431,601 3,752,096 6,226,181 6,262,935
-------------- ------------- ------------------ -----------------
Expenses:
Compensation and benefits........................ 1,021,815 1,263,021 1,364,344 1,490,206
Selling, general and administrative expenses..... 553,910 662,627 940,033 1,321,107
Other............................................ 16,084 92,540 31,028 158,091
Sharing of proportionate value of equity(3)...... 718,952 677,575 1,520,433 1,287,040
-------------- ------------- ------------------ -----------------
Total expenses............................... 2,310,761 2,695,763 3,855,838 4,256,444
-------------- ------------- ------------------ -----------------
Pre-tax income................................... 1,120,840 1,056,333 2,370,343 2,006,491
Pro forma provision for income taxes............. 431,299 406,477 912,108 772,116
-------------- ------------- ------------------ -----------------
Pro forma net income................................. $689,541 $649,856 $1,458,235 $1,234,375
-------------- ------------- ------------------ -----------------
-------------- ------------- ------------------ -----------------
Pro forma per share data:
Pro forma net income per share................... $0.09 $0.08 $0.18 $0.16
Weighted average common and common share
equivalents.................................... 7,935,752 7,935,752 7,935,752 7,935,752
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated.................... $119,385 $124,667 $154,990 $222,587
Loans sold through securitization................ 74,782 43,581 120,000 150,000
Whole loan sales................................. 20,765 31,763 8,224 9,648
Serviced loan portfolio (period end)............. 166,914 271,522 355,374 535,798
DELINQUENCY DATA:
Total delinquencies as a percentage of loans
serviced (period end)(6)....................... 1.32% 1.09% 2.42% 3.43%
Defaults as a percentage of loans serviced
(period end)(7)................................ 0.12 0.45 0.98 1.16
Net losses as a percentage of average loans
serviced for period............................ 0.01 0.00 0.03 0.04
</TABLE>
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(1) Includes interest-only and residual certificates received by ContiFinancial
in connection with IMC's agreement with ContiFinancial. See
'Business -- Loans -- Loan Sales -- Securitizations' and 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Transactions with ContiFinancial -- Additional Securitization
Transaction Expense.'
(2) In 1994 and 1995 and the three months ended March 31, 1996, ContiFinancial
received interest-only and residual certificates with estimated values of
$3.0 million, $25.1 million and $9.5 million in exchange for $2.1 million,
$18.4 million and $6.2 million, respectively. In addition, ContiFinancial
paid IMC $0.4 million, $1.1 million and $0.5 million in 1994, 1995 and the
three months ended March 31, 1996, respectively, in expenses related to
securitizations. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Transactions with
ContiFinancial -- Additional Securitization Transaction Expense.'
(3) Reflects expenses recorded in connection with the Conti VSA which was
superseded by the Conti Option in March, 1996. The Company's pre-tax income
before the Conti VSA for 1994 and 1995 and the three months ended March 31,
1996 was $4.7 million, $10.8 million and $5.2 million, respectively. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Transactions with ContiFinancial -- Sharing of Proportionate
Value of Equity,' 'Certain Accounting Considerations Relating to the Conti
VSA' and Note 4 to Notes to Consolidated Financial Statements.
(4) Adjusted to give effect to the sale of 3,100,000 shares of Common Stock
offered by the Company hereby and the application of the estimated net
proceeds therefrom. See 'Use of Proceeds' and 'Capitalization.'
(5) Total assets and Stockholders' equity include the effect of recording a
deferred tax asset of $5.6 million in connection with the conversion from a
partnership to a taxable corporation.
(6) Represents the percentages of account balances contractually past due 30
days or more, exclusive of home equity loans in foreclosure, bankruptcy or
real estate owned.
(7) Represents the percentages of account balances on loans in foreclosure,
bankruptcy or real estate owned.
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RISK FACTORS
Before purchasing the shares of Common Stock offered hereby, a prospective
investor should carefully consider the factors set forth below as well as the
other information set forth elsewhere in this Prospectus.
EFFECT OF ADVERSE ECONOMIC CONDITIONS
The Company's business may be adversely affected by periods of economic
slowdown or recession which may be accompanied by decreased demand for consumer
credit and declining real estate values. Any material decline in real estate
values reduces the ability of borrowers to use home equity to support borrowings
and increases the loan-to-value ratios of loans previously made by the Company,
thereby weakening collateral coverage and increasing the possibility of a loss
in the event of default. In addition, delinquencies, foreclosures and losses
generally increase during economic slowdowns or recessions.
INTEREST RATE RISK
Profitability may be directly affected by the levels of and fluctuations in
interest rates, which affect the Company's ability to earn a spread between
interest received on its loans and the costs of borrowings. The profitability of
the Company is likely to be adversely affected during any period of unexpected
or rapid changes in interest rates. For example, a substantial or sustained
increase in interest rates could adversely affect the ability of the Company to
purchase and originate loans and would reduce the value of loans held for sale
and the interest rate differential between newly originated loans and the
pass-through rate on loans that are securitized. A significant decline in
interest rates could decrease the size of the Company's loan servicing portfolio
by increasing the level of loan prepayments. Additionally, to the extent excess
servicing spread has been capitalized on the books of the Company, higher than
anticipated rates of loan prepayments or losses could require the Company to
write down the value of such excess servicing spread, adversely impacting
earnings.
Fluctuating interest rates also may affect the net interest income earned
by the Company, resulting from the difference between the yield to the Company
on loans held pending sale and the interest paid by the Company for funds
borrowed under the Company's warehouse facilities. In addition, inverse or
flattened interest yield curves could have an adverse impact on the
profitability of the Company because the loans pooled and sold by the Company
have long-term rates, while the senior interests in the related REMIC trusts are
priced on the basis of intermediate rates. While the Company monitors the
interest rate environment and employs a hedging strategy designed to mitigate
the impact of changes in interest rates, there can be no assurance that the
profitability of the Company would not be adversely affected during any period
of changes in interest rates.
DEPENDENCE ON FUNDING SOURCES
The Company funds substantially all of the loans which it purchases and
originates through borrowings under warehouse facilities, secured by pledges of
its loans, through repurchase agreements and through internally generated funds.
These borrowings are in turn repaid with the proceeds received by the Company
from selling such loans either through securitizations or whole loan sales. The
Company is dependent upon a few lenders to provide the primary credit facilities
for its loan purchases and originations. Any failure to renew or obtain adequate
funding under these warehouse facilities or other financings, or any substantial
reduction in the size of or pricing in the markets for the Company's loans,
could have a material adverse effect on the Company's operations. To the extent
that the Company is not successful in maintaining or replacing existing
financing, it would not be able to hold a large volume of loans pending
securitization and therefore would have to curtail its loan production
activities or sell loans either through whole loan sales or in smaller
securitizations, thereby having a material adverse effect on the Company's
results of operations. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources.'
The Company has relied upon a Standby Agreement (the 'Standby Agreement')
with ContiFinancial and its interest-only and residual certificate sharing
arrangements with ContiFinancial
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and its affiliates to fund the tax consequences of the recognition of the
securitization gain on sale and other working capital needs prior to receipt of
any cash flow from the residual interests and interest-only ('I/O') classes in
its securitizations. ContiFinancial has agreed to lend the Company an additional
$10.0 million (the 'Additional Draw') under the Standby Agreement, which must be
repaid with a portion of the net proceeds from the Public Offering. The Company
has borrowed the full $25.0 million available under the Standby Agreement and
the Additional Draw. The Standby Agreement expires on January 12, 2000. If
ContiFinancial fails to renew the Standby Agreement in 2000, and the Company is
unable to find similar alternative financing, the Company's growth and
profitability will be adversely affected. ContiFinancial has not agreed to
increase the Standby Agreement beyond the Additional Draw. If the Company is
unable to secure funding or financing for the tax consequences of its future
securitizations, it may be forced to either curtail its growth, or seek out
increased or additional I/O and residual certificate sharing arrangements,
either of which would have an adverse impact on its future profitability.
In connection with the Company's prefunding commitments in its
securitization transactions, investors deposit in cash a prefunded amount into
the related trust to purchase the loans the Company commits to sell on a forward
basis. This prefunded amount is invested pending use in short-term obligations
which pay a lower interest rate than the interest rate the trust is obligated to
pay the certificate investors on the outstanding balance of the prefunded
amount. The Company is required to deposit at the closing of the related
transaction an amount sufficient to make up the difference between these rates.
If the Company were unable to make such deposits, it would be unable to access
the prefunding mechanism, which could result in less efficient execution of the
Company's securitizations. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources.'
LIQUIDITY -- NEGATIVE CASH FLOW
As a result of its increased volume of loan purchases and originations and
its growing use of securitizations, the Company has operated since November,
1994, and expects to continue to operate, on a negative cash flow basis. Prior
to the Company's first securitization in November, 1994, the Company sold loans
primarily through whole loan sales which generate immediate cash flow on the
date of sale. During 1995 and the three months ending March 31, 1996, the
Company operated on a negative cash flow basis using $165.3 million and $78.7
million, respectively, more in operations than was generated, due primarily to
an increase in mortgages purchased and originated and the Company's sale of
loans through securitizations. In securitizations, the Company recognizes a gain
on sale of the loans securitized upon the closing of the securitization and the
delivery of the loans, but does not receive the cash representing such gain
until it receives the excess servicing spread, which is payable over the actual
life of the loans securitized. The Company incurs significant expenses in
connection with securitizations and incurs tax liabilities as a result of the
gain on sale. The Company must maintain short- and long-term external sources of
cash to fund its operations and therefore must maintain warehouse lines of
credit and other external funding sources. If the capital sources of the Company
were to decrease significantly, the rate of growth of the Company would be
negatively affected.
The documents governing the Company's securitizations require the Company
to build over-collateralization levels through retention within each
securitization trust of excess servicing distributions and application thereof
to reduce the principal balances of the senior interests issued by the related
trust. This retention causes the aggregate principal amount of the loans in the
related pool to exceed the aggregate principal balance of the outstanding
investor certificates. Such over-collateralization amounts serve as credit
enhancement for the related trust and therefore are available to absorb losses
realized on loans held by such trust. The Company continues to be subject to the
risks of default and foreclosure following the sale of loans through
securitizations to the extent excess servicing distributions are required to be
retained or applied to reduce principal from time to time. Such retained amounts
are pre-determined by the entity issuing the guarantee of the related senior
interests and are a condition to obtaining an AAA/Aaa rating thereon. In
addition, such retention delays cash distributions that otherwise would flow to
the Company through its retained interest in the transaction, thereby slowing
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the flow of cash to the Company. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
VALUATION AND POTENTIAL IMPAIRMENT OF INTEREST-ONLY AND RESIDUAL CERTIFICATES
At March 31, 1996, the Company's balance sheet reflected investment in I/O
and residual classes of certificates of approximately $22.9 million. The Company
derives a significant portion of its income by recognizing gains upon the sale
of loans through securitizations due to the excess servicing spread associated
with such loans recorded at the time of sale. If the Company's assumptions used
in deriving the value of I/O and residual certificates differ from the actual
results, there can be a material adverse impact on the Company's financial
condition and results of operations. The principal assumptions relate to
prepayment speeds, discount rates and anticipated credit losses. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Accounting Considerations -- Interest-only and Residual
Certificates.'
Higher than anticipated rates of loan prepayments or losses would require
the Company to write down the value of the I/O and residual certificates,
adversely impacting earnings. Similarly, if delinquencies or liquidations were
to be greater than were initially assumed, the I/O and residual certificates
could be impaired, which would have an adverse effect on income in the period of
such adjustment. To the Company's knowledge, there is no liquid market for the
sale of I/O and residual classes of certificates. No assurance can be given that
this asset could in fact be sold at its stated value on the balance sheet, if at
all. See ' -- Contingent Risks.'
DEPENDENCE ON SECURITIZATIONS
Since its first securitization in November, 1994, the Company has pooled
and sold through securitizations an increasing percentage of the loans that it
purchases or originates. Adverse changes in the securitization market could
impair the Company's ability to purchase, originate and sell loans through
securitizations on a favorable or timely basis. Any such impairment could have a
material adverse effect upon the Company's results of operations and financial
condition. Furthermore, the Company's quarterly operating results can fluctuate
significantly as a result of the timing and level of securitizations. If
securitizations do not close when expected, the Company's results of operations
may be adversely affected for that period.
DEPENDENCE ON CREDIT ENHANCEMENT
In addition, in order to gain access to the securitization market, the
Company has relied on credit enhancements provided by a monoline insurance
carrier to guarantee outstanding senior interests in the related REMIC trusts to
enable it to obtain an AAA/Aaa rating for such interests. The Company has not
attempted to structure a mortgage loan pool for sale through a securitization
based solely on the internal credit enhancements of the pool or the Company's
credit. Any substantial reductions in the size or availability of the
securitization market for the Company's loans, or the 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. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources.'
LIMITED OPERATING HISTORY; RECENT EXPANSION
The Company commenced operations in August, 1993 and has a limited
operating history. In 1995, the Company purchased and originated a significantly
greater number of loans than previously. In light of this growth, the historical
performance of the Company may be of limited relevance in predicting future
performance. Any credit or other problems associated with the larger number of
loans purchased and originated in the recent past will not become apparent until
sometime in the future. Consequently, the Company's historical results of
operations may be of limited relevance to an investor seeking to predict the
Company's future performance. See 'Business -- Loans -- Loan Purchases and
Originations.'
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The Company's significant growth and expansion have placed substantial new
and increased pressures on the Company's personnel and systems. Failure by the
Company to manage its growth effectively, or to sustain its historical levels of
performance in credit analysis and transaction structuring with respect to the
increased loan purchase and origination volume could have a material adverse
effect on the Company's results of operations and financial condition.
COMPETITION
As a purchaser and originator of mortgage loans, the Company faces intense
competition, primarily from mortgage banking companies, commercial banks, credit
unions, thrift institutions, credit card issuers and finance companies. Many of
these competitors in the financial services business are substantially larger
and have more capital and other resources than the Company. Furthermore, certain
large national finance companies and conforming mortgage originators have
announced their intention to adapt their conforming origination programs and
allocate resources to the origination of non-conforming loans. In addition,
certain of these larger mortgage companies and commercial banks have begun to
offer products similar to those offered by the Company, targeting customers
similar to those of the Company. The entrance of these competitors into the
Company's market could have a material adverse effect on the Company's results
of operations and financial condition.
Competition can take many forms, including convenience in obtaining a loan,
service, marketing and distribution channels and interest rates. Furthermore,
the current level of gains realized by the Company and its competitors on the
sale of the type of loans purchased and originated is attracting additional
competitors, including at least one quasi-governmental agency, into this market
with the effect of lowering the gains that may be realized by the Company on
future loan sales. Competition may be affected by fluctuations in interest rates
and general economic conditions. During periods of rising rates, competitors
which have 'locked in' low borrowing costs may have a competitive advantage.
During periods of declining rates, competitors may solicit the Company's
borrowers to refinance their loans. During economic slowdowns or recessions, the
Company's borrowers may have new financial difficulties and may be receptive to
offers by the Company's competitors.
The Company depends largely on brokers, financial institutions and other
mortgage bankers for its purchases and originations of new loans. The Company's
competitors also seek to establish relationships with the Company's brokers and
financial institutions and other mortgage bankers. The Company's future results
may become more exposed to fluctuations in the volume and cost of its wholesale
loans resulting from competition from other purchasers of such loans, market
conditions and other factors.
RELIANCE ON THE INDUSTRY PARTNERS
The Company purchases a significant portion of its loans from the Industry
Partners, which accounted for 23.9% and 24.2% of total loan purchases and
originations by the Company, or $148.4 million and $63.9 million, respectively,
in the year ended December 31, 1995 and the three months ended March 31, 1996.
Immediately prior to the Public Offering, the Company had contractual annual
loan sale commitments from the Industry Partners of an aggregate of $102.0
million, on average. Increased loan sale commitments, or the economic
equivalent, to an aggregate of $162.0 million (a 58.8% increase) to the Company
from the majority of the Industry Partners will become effective simultaneously
with the Public Offering. There can be no assurance that the commitments to
increase loan production will result in an actual increase in the dollar amount
of loans purchased by the Company from the Industry Partners. At the present
time, a number of Industry Partners are selling more loans to the Company than
they are obligated to sell, even under the new higher commitments. Certain of
the Industry Partners could reduce their loan sales to the Company without
violating their commitments to the Company, resulting in an overall decrease in
the volume of loans available to the Company for purchase. The commitments to
sell loans to the Company by the Industry Partners will expire in April, 2001,
after which date the Industry Partners will be under no obligation to sell loans
to the Company, which could negatively affect the Company's results of
operations. If the Industry Partners, individually or in the aggregate, become
unable to meet their loan sale commitments, it would have a negative effect on
the Company's results of operations and financial condition. See 'Restrictions
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on Future Sales by Stockholders; Effect on Share Price of Shares Available for
Future Sale' and 'Shares Eligible for Future Sale.'
MARKET CONDITIONS IN THE UK
The Company has recently entered into a joint venture in the UK. There can
be no guarantee that the joint venture will be able to purchase or originate
loans in sufficient volume to make the joint venture profitable. Currently, the
joint venture has arrangements with a single lender for its funds. There can be
no guarantee that the joint venture will be able to obtain sufficient financing
to fulfill its capital requirements. Further, no assurances can be given that
the Company will be successful in structuring, marketing and completing
securitizations of UK mortgage loans or, if such securitizations were
unsuccessful, that a viable market for whole loan sales would develop. Failure
to securitize or sell UK mortgage loans would have a material adverse effect on
the Company's joint venture.
CONTINGENT RISKS
Although the Company sells substantially all loans that it purchases and
originates on a nonrecourse basis, the Company retains some degree of credit
risk on substantially all loans purchased or originated. During the period of
time that loans are held pending sale, the Company is subject to the various
business risks associated with lending, including the risk of borrower default,
the risk of foreclosure and the risk that an increase in interest rates would
result in a decline in the value of loans to potential purchasers. In addition,
documents governing the Company's securitizations require the Company to commit
to repurchase or replace loans that do not conform to the representations and
warranties made by the Company at the time of sale. When borrowers are
delinquent in making monthly payments on loans included in a REMIC trust, the
Company is required to advance interest payments with respect to such delinquent
loans to the extent that the Company deems such advances ultimately recoverable.
These advances require funding from the Company's capital resources but have
priority of repayment from the succeeding month's collections.
In the ordinary course of its business, the Company is subject to claims
made against it by borrowers and private investors arising from, among other
things, losses that are claimed to have been incurred as a result of alleged
breaches of fiduciary obligations, misrepresentations, errors and omissions of
employees, officers and agents of the Company (including its appraisers),
incomplete documentation and failures by the Company to comply with various laws
and regulations applicable to its business. If the loans in the Company's
securitizations experience losses in excess of the projections used to value the
Company's I/O and residual certificates, the Company will recognize a loss in
such assets. See ' -- Valuation and Potential Impairment of Interest-only and
Residual Certificates.'
CONCENTRATION OF OPERATIONS IN MID-ATLANTIC REGION
For the three months ended March 31, 1996, 38.7% of the aggregate principal
balance of the home equity loans purchased or originated by the Company were
secured by properties located in four mid-Atlantic states (New York, New Jersey,
Maryland and Pennsylvania). Although the Company has expanded its mortgage
origination network outside the mid-Atlantic region, the Company's origination
business is likely to remain concentrated in that region for the foreseeable
future. Consequently, the Company's results of operations and financial
condition are dependent upon general trends in the economy and the residential
real estate market in the mid-Atlantic region.
CREDIT-IMPAIRED BORROWERS
The Company targets credit-impaired borrowers. Loans made to such borrowers
generally entail a higher risk of delinquency and possibly higher losses than
loans made to more creditworthy borrowers. No assurance can be given that the
Company's underwriting policies and collection procedures will alleviate such
risks. In the event that pools of loans warehoused, sold and serviced by the
Company experience higher delinquencies, foreclosures or losses than
anticipated, the Company's results of operations or financial condition would be
adversely affected.
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LOSS OF SERVICING RIGHTS AND SUSPENSION OF FUTURE CASH FLOWS
The Company is entitled to receive servicing income only while it acts as a
servicer for loans it does not own, including securitizations and third-party
servicing. Any loss of servicing rights would have a material adverse effect on
the Company's results of operations and financial condition. The Company's right
to act as servicer under its securitizations can be terminated by FSA, as
certificate insurer, upon the occurrence of certain servicer termination events
(as defined in the pooling and servicing agreements, the 'Servicer Termination
Events'). The Servicer Termination Events include: (i) bankruptcy or the
inability of the Company to pay its debts; (ii) failure of the Company to
perform its obligations; and (iii) failure of the Company to cure any breaches
of its representations and warranties which materially and adversely affect the
underlying loans.
LEGISLATIVE RISK
Members of Congress and government officials from time to time have
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of the Company's loans are made to borrowers
for the purpose of consolidating consumer debt or financing other consumer
needs, the competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for loans of the
kind offered by the Company.
REGULATORY RISK
The Company's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. The Company's consumer lending
activities are subject to the Federal Truth-in-Lending Act and Regulation Z
(including the Home Ownership and Equity Protection Act of 1994), the Federal
Equal Credit Opportunity Act and Regulation B, as amended ('ECOA'), the Fair
Credit Reporting Act of 1994, as amended, the Federal Real Estate Settlement
Procedures Act ('RESPA') and Regulation X, the Home Mortgage Disclosure Act and
the Federal Debt Collection Practices Act, as well as other federal and state
statutes and regulations affecting the Company's activities. The Company is also
subject to the rules and regulations of, and examinations by, the Department of
Housing and Urban Development ('HUD') and state regulatory authorities with
respect to originating, processing, underwriting, selling and servicing loans.
These rules and regulations, among other things, impose licensing obligations on
the Company, establish eligibility criteria for mortgage loans, prohibit
discrimination, provide for inspections and appraisals of properties, require
credit reports on loan applicants, regulate assessment, collection, foreclosure
and claims handling, investment and interest payments on escrow balances and
payment features, mandate certain disclosures and notices to borrowers and, in
some cases, fix maximum interest rates, fees and mortgage loan amounts. Failure
to comply with these requirements can lead to loss of approved status,
termination or suspension of servicing contracts without compensation to the
servicer, demands for indemnifications or mortgage loan repurchases, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions. There can be no assurance that the Company
will maintain compliance with these requirements in the future without
additional expenses, or that more restrictive local, state or federal laws,
rules and regulations will not be adopted that would make compliance more
difficult for the Company.
POSSIBLE ENVIRONMENTAL LIABILITIES
In the ordinary course of its business, the Company from time to time
forecloses on properties securing loans. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real estate may be required to investigate and clean up hazardous or
toxic substances or chemical releases at such property and may be held liable to
a governmental entity or to third parties for property damage, personal injury,
and investigation and
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cleanup costs incurred by such parties in connection with the contamination.
Such laws typically impose cleanup responsibility. Liability under such laws has
been interpreted to be joint and several unless the harm is divisible, and there
is a reasonable basis for allocation of responsibility. The costs of
investigation, remediation or removal of such substances may be substantial, and
the presence of such substances, or the failure to properly remediate such
property, may adversely affect the owner's ability to sell or rent such property
or to borrow using such property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances also may be liable for
the costs of removal or remediation of such substances at a disposal or
treatment facility, whether or not the facility is owned or operated by such
person. In addition, the owner or former owners of a contaminated site may be
subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from such property.
ABSENCE OF ACTIVE PUBLIC TRADING MARKET
Prior to the Public Offering, there has been no market for the Common
Stock. Although the Common Stock has been approved for quotation on Nasdaq,
there can be no assurance that an active public trading market for the Common
Stock will develop after the Public Offering or that, if developed, it will be
sustained. The public offering price of the Common Stock offered hereby was
determined by negotiations among the Company and Bear, Stearns & Co. Inc. and
Oppenheimer & Co., Inc. acting as representatives of the Underwriters (the
'Representatives') and may not be indicative of the price at which the Common
Stock will trade after the Public Offering. See 'Underwriting.' Consequently,
there can be no assurance that the market price for the Common Stock will not
fall below the public offering price.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock may experience fluctuations that are
unrelated to the operating performance of the Company. In particular, the price
of the Common Stock may be affected by general market price movements as well as
developments specifically related to the consumer finance industry such as,
among other things, interest rate movements and delinquency trends. In addition,
the Company's operating income on a quarterly basis is significantly dependent
upon the Company's ability to access the securitization market and complete
significant securitization transactions in a particular quarter. Failure to
complete securitizations in a particular quarter may have a material adverse
impact on the Company's results of operations for that quarter and could
negatively affect the price of the Common Stock.
RESTRICTIONS ON FUTURE SALES BY STOCKHOLDERS; EFFECT ON SHARE
PRICE OF SHARES AVAILABLE FOR FUTURE SALE
Persons who purchase shares of Common Stock pursuant to the Directed Share
Program, if any, will be subject to certain lock-up restrictions with respect to
their ability to sell or otherwise dispose of such shares for a period of 180
days from the date of the completion of the Public Offering without the prior
written consent of the Representatives. When such lock-up restrictions lapse,
such shares of Common Stock may be sold in the public market or otherwise
disposed of, subject to compliance with applicable securities laws. Sales of a
substantial number of shares of Common Stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Stock. See 'Shares Eligible for Future Sale.'
EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation, equity
incentive plans, Bylaws and Florida law may significantly delay or defer, or
even prevent, a change in control of the Company and may adversely affect the
voting and other rights of the holders of Common Stock. In particular, the
existence of the Company's classified Board of Directors, the ability of the
Board of Directors to issue 'blank check' preferred stock without further
stockholder approval, limitations on the ability of stockholders to take action
by written consent or call special stockholders' meetings and the advance
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notice requirements governing proposals submitted for stockholder vote,
including nominations for election to the Board of Directors, may have the
effect of delaying, deferring or preventing a change in control of the Company.
See 'Management -- Terms of Directors and Officers' and 'Description of Capital
Stock.'
DILUTION
Purchasers of the Common Stock will experience immediate and substantial
dilution in net tangible book value per share of Common Stock from the public
offering price per share of Common Stock from $18.00 to $6.37. See 'Dilution.'
DEPENDENCE ON KEY PERSONNEL
The Company's growth and development to date have been largely dependent
upon the services of George Nicholas, Chairman of the Board and Chief Executive
Officer, and Thomas G. Middleton, President and Chief Operating Officer. The
loss of Mr. Nicholas' or Mr. Middleton's services for any reason could have a
material adverse effect on the Company. Certain of the Company's principal
credit agreements contain a provision which permit the lender to accelerate the
Company's obligations in the event that Mr. Nicholas were to leave the Company
for any reason and not be replaced with an executive acceptable to such lender.
See ' -- Dependence on Funding Sources' and 'Management -- Executive
Compensation.'
CONTROL BY CERTAIN STOCKHOLDERS
Immediately prior to the Public Offering and pursuant to the Reorganization
Plan, the Industry Partners, Mr. George Nicholas, and certain members of IMC's
senior management, key employees and Board of Directors (the 'Management
Partners') have received shares of Common Stock of the Company. As a result, the
Industry Partners will beneficially own an aggregate of 85.0% of the outstanding
shares of Common Stock (56.9% following the completion of the Public Offering
assuming no exercise of the Underwriters' over-allotment option). Also, the
Management Partners and Mr. Nicholas will beneficially own an aggregate of 16.9%
of the outstanding shares of Common Stock (11.7% following the completion of the
Public Offering assuming no exercise of the Underwriters' over-allotment
option). Accordingly, such persons, if they were to act in concert, would have
majority control of the Company, with the ability to approve certain fundamental
corporate transactions (including mergers, consolidations and sales of assets)
and to elect all members of the Board of Directors. See 'The Reorganization
Plan' and 'Principal Stockholders.'
15
<PAGE>
<PAGE>
RECENT EVENTS
COMMENCEMENT OF UK OPERATIONS
IMC commenced operations in the UK in April, 1996 through Preferred
Mortgages Limited ('Preferred Mortgages'), a UK joint venture. The participants
in the joint venture (together, the 'Joint Venture Partners') are IMC, Foxgard
Limited ('Foxgard') and Financial Security Assurance Inc. ('FSA'). Preferred
Mortgages is owned 45% by IMC, 45% by Foxgard and 10% by FSA. Through Preferred
Mortgages, IMC intends to serve what management believes to be an underserved
segment of the home equity market in the UK by lending to borrowers with
impaired credit profiles similar to its domestic customers. Preferred Mortgages
plans to actively market its products and services directly to UK borrowers by
means of newspaper, radio and television advertising, in addition to direct
mail. Preferred Mortgages plans to adapt IMC's loan application procedures,
appraisal procedures and underwriting procedures to the UK market, while
directing its underwriting and processing staff to provide prompt, efficient and
reliable service to the UK broker community. Preferred Mortgages has received a
commitment for a `L'47.5 million (approximately $73.1 million as of June 20,
1996) line of credit from National Westminster Bank, PLC for the purchase and
origination of mortgage loans (the 'NatWest Facility'), and FSA has agreed to
provide an insurance policy as credit enhancement for the NatWest Facility.
In connection with the agreements among the Joint Venture Partners, IMC has
issued to Rotch, an affiliate of Foxgard, the Rotch Debenture due September 18,
1996, pursuant to which IMC agrees to pay Rotch $1.8 million plus interest at a
rate of LIBOR plus 1.0% per annum. The Company intends to repay the Rotch
Debenture in full with a portion of the proceeds from the Public Offering.
ACQUISITION OF EQUITYSTARS
In order to increase the flow of loans for purchase, IMC seeks to acquire
loan originators that would enhance or enlarge IMC's market penetration or
product offerings. Pursuant to this strategy, on January 1, 1996, IMC acquired
all of the assets of Equitystars, a mortgage banking company which does business
primarily in Rhode Island, New York, Connecticut and Massachusetts, with smaller
operations in Maine and New Hampshire. Equitystars originated over $95 million
of residential mortgage loans during 1995. Of the loans originated,
approximately $17 million or 18% were conforming loans and approximately $78
million or 82% were non-conforming loans. During 1995, IMC purchased a total of
$11.3 million of non-conforming loans from Equitystars. At the time of the
Equitystars Acquisition, the Partnership created IMC Acquisitions to act as the
holding company for the assets of Equitystars. See
'Business -- Loans -- Acquisition of Equitystars.'
The purchase price for all of the assets of Equitystars was $2.0 million
base payment in the form of 20,060 shares of Convertible Preferred Stock, and up
to an aggregate of $2.55 million of contingent payments, to be paid over two
years based on formulae keyed to the performance of the non-conforming and
conforming mortgage loan business of Equitystars. In accordance with the terms
of the provisions governing the 20,060 shares of Convertible Preferred Stock
issued in the Equitystars Acquisition, such shares will be automatically
converted upon the completion of any public offering of the Common Stock to a
number of shares of Common Stock having a value, at 93% of the public offering
price, of $2.0 million plus interest of 8.0% per annum.
If a public offering does not occur by June 30, 1996, holders of the
Convertible Preferred Stock have the right to 'put' those shares to IMC for an
amount equal to the liquidation preference of $100 per share plus interest at
8.0% per annum. If the put is exercised, the contingency payment that IMC owes
in the Equitystars Acquisition will be paid in cash.
RECENT SECURITIZATIONS
In February and April, 1996, the Company completed its fifth and sixth
securitizations in the aggregate amount of $175.0 million and $200.0 million,
respectively. The securities sold in the securitizations were rated AAA/Aaa and
were sold in public offerings. As part of its cash flow
16
<PAGE>
<PAGE>
management, the securitizations were structured so that ContiFinancial received,
in exchange for cash, 50% and 25%, respectively of the residual interests of the
February and April, 1996 securitizations.
THE COMPANY
The Company was formed in 1995 to serve as a holding company for interests
in Equitystars and the Partnership. The Partnership has conducted the business
described in this Prospectus since its formation in 1993. The Partnership was
formed by Mr. George Nicholas, the Management Partners and the Industry
Partners, which included: American Industrial Loan Association; Champion
Mortgage Co. Inc.; Cityscape Corp.; Equitysafe, a Rhode Island General
Partnership, an affiliate of which, Equitystars, was acquired by the Company on
January 1, 1996; Investors Mortgage, a Washington LP; Mortgage America Inc.;
Residential Money Centers; First Government Mortgage and Investors Corp.;
Investaid Corp.; and New Jersey Mortgage and Investment Corp. In 1994, The Money
Store and Equity Mortgage, a Maryland LP became Industry Partners. Also in 1994,
Portfolio Placement Partners and Equitysafe divided ownership in an interest in
the Partnership initially purchased in the name of Equitysafe. In 1995,
Branchview, Inc. purchased an interest in the Partnership previously owned by
Residential Money Centers.
The principal executive offices of the Company are located at 3450
Buschwood Park Drive, Tampa, Florida 33618 and the Company's telephone number is
(813) 932-2211.
THE REORGANIZATION PLAN
Prior to the Public Offering, the Industry Partners, the Management
Partners and Mr. Nicholas contributed their interests in the Partnership to the
Company and Mr. Nicholas contributed the common stock of Industry Mortgage
Corporation, general partner of the Partnership ('IMCI'), to the Company. In
exchange, the Industry Partners, the Management Partners and Mr. Nicholas
received Common Stock. At the same time, ContiFinancial surrendered the Conti
Option to purchase limited partnership interests in the Partnership in exchange
for the Conti Warrant, entitling the holder upon exercise to 1.5 million shares
of the Common Stock (subject to certain adjustments) for a de minimis amount.
These actions converted the Partnership into a subsidiary of the Company, 99%
directly owned by the Company and 1% owned by IMCI (the stock of which is, in
turn, held by the Company). Simultaneously, the Partnership's option plan was
terminated, and all options granted thereunder were assumed by the Company
pursuant to the Company Incentive Plan and the Directors' Stock Option Plan.
The Company has been informed that, prior to the effectiveness of the
Registration Statement of which this Prospectus is a part, certain Industry
Partners and ContiFinancial transferred among themselves the limited partnership
interests (or options to purchase limited partnership interests) in transactions
not involving the Company. The Company has been informed that such transactions
involved no greater than 10%, in the aggregate, of all limited partnership
interests. The Company has been informed that, as a result of these
transactions, ContiFinancial's beneficial ownership of shares of Common Stock
was reduced by 150,000 shares from 1.5 million to 1.35 million.
In accordance with the provisions governing the Company's Convertible
Preferred Stock, in connection with the Public Offering, all outstanding
Convertible Preferred Stock will be automatically converted into Common Stock.
After the closing of the Public Offering, the Partnership will retain title
to all of its assets and remain liable for all of its obligations, including all
of the liabilities and encumbrances relating to its credit facilities and its
joint venture in the UK. The Company will become a joint and several obligor on
the principal agreements governing the Partnership's indebtedness.
17
<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Common
Stock offered hereby, after deduction of the underwriting discount and estimated
offering expenses, are estimated to be $50.9 million.
Approximately $22.9 million of the net proceeds is expected to be used to
retire or reduce certain indebtedness of the Company, including: (i) repayment
of up to $10.0 million to ContiFinancial representing the Additional Draw under
the Standby Agreement, which amount bears interest at a rate of LIBOR plus 8.0%
per annum; (ii) repayment of up to $7.0 million to Lakeview Savings Bank
('Lakeview') under the Lakeview unsecured bridge credit facility (the 'Lakeview
Facility'), which bears interest at a fixed rate of 12.0% per annum; (iii)
repayment of the $1.8 million Rotch Debenture, which bears interest at a rate of
LIBOR plus 1.0% per annum; and (iv) repayment of an aggregate of $4.1 million to
certain of the Industry Partners and Mr. Nicholas, representing amounts owed to
such Industry Partners and Mr. Nicholas for accrued and unpaid tax distributions
pursuant to the Partnership Agreement, which amount bears interest at 10.0% per
annum.
The remaining net proceeds will be used to fund future loan purchases and
originations, to support securitization transactions, to fund acquisitions of
loan originators and expenses associated with the opening of new direct lending
branch offices and for general corporate purposes. Prior to such use, the
remaining net proceeds will be invested in high quality short-term investment
instruments such as short-term corporate investment grade or United States
Government interest-bearing securities or used to pay down warehouse lines.
18
<PAGE>
<PAGE>
DILUTION
The following data reflect the exchange of all of the partnership interests
in the Partnership for shares of Common Stock as described in the Reorganization
Plan, giving effect to such exchange as if it had occurred at the inception of
the Partnership.
The net tangible book value of the Company as of March 31, 1996, as
adjusted for the conversion of the Convertible Preferred Stock and the exercise
of all dilutive Common Stock equivalents, was approximately $19.6 million or
$2.47 per share of Common Stock. Net tangible book value per share, as adjusted,
represents the amount of the Company's total tangible assets, the recording of a
deferred tax asset of approximately $5.6 million in connection with the exchange
of all partnership interests in the partnership for shares of Common Stock
pursuant to the Reorganization Plan, less total liabilities, divided by the
number of shares of Common Stock outstanding. After giving effect to the sale of
the 3,100,000 shares of Common Stock offered by the Company hereby and after
deducting the underwriting discount and estimated offering expenses, the net
tangible book value of the Company as of March 31, 1996, as adjusted, would have
been approximately $6.37 per share. This represents an immediate increase of
$3.90 per share to existing stockholders and an immediate dilution of $11.63 per
share to investors purchasing shares of Common Stock in the Public Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share....................................................... $18.00
Net tangible book value per share, as adjusted, before the Public Offering....... $2.47
Increase per share attributable to new investors................................. 3.90
-----
Net tangible book value per share after the Public Offering........................... 6.37
------
Dilution per share to new investors................................................... $11.63
------
------
</TABLE>
The following table sets forth the difference between the existing
stockholders and new investors purchasing shares of Common Stock in the Public
Offering with respect to the number of shares initially purchased from the
Company, the total consideration paid to the Company, (before deducting the
underwriting discount and estimated offering expenses) and the average
consideration per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 7,965,092 72.0% $7,533,336 11.9% $0.95
New investors.................... 3,100,000 28.0 55,800,000 88.1 18.00
---------- ------- ----------- -------
Total....................... 11,065,092 100.0% $63,333,336 100.0%
---------- ------- ----------- -------
---------- ------- ----------- -------
</TABLE>
DIVIDEND POLICY
The Company has not paid, and currently has no intention to pay, any cash
dividends on its Common Stock. The Company intends to retain all of its future
earnings to finance its operations and does not anticipate paying cash dividends
in the foreseeable future. Any decision made by the Company's Board of Directors
to declare dividends in the future will depend upon the Company's future
earnings, capital requirements, financial condition and other factors deemed
relevant by the Company's Board of Directors. In addition, certain agreements to
which the Company is a party restrict the Company's ability to pay dividends on
common equity.
19
<PAGE>
<PAGE>
CAPITALIZATION
The following data reflect the exchange of all of the partnership interests
in the Partnership for shares of Common Stock as described in the Reorganization
Plan, giving effect to such exchange as if it had occurred at the inception of
the Partnership.
The following table sets forth the capitalization of the Company at March
31, 1996, and as adjusted as of such date to give effect to completion of the
Reorganization Plan, the sale of the 3,100,000 shares of Common Stock offered by
the Company hereby (before deducting the underwriting discount and estimated
offering expenses) and the application of the estimated net proceeds therefrom
as described under 'Use of Proceeds.'
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Warehouse finance facilities............................................................ $261,417 $ 220,468
Term debt............................................................................... 21,879 17,879
Convertible debenture................................................................... 1,800 0
-------- -----------
Total debt.................................................................... $285,096 $ 238,347
-------- -----------
-------- -----------
Convertible Preferred Stock, Series A, par value $100.00 per share; 10,000,000 shares
authorized; 20,060 shares issued and outstanding, actual; no shares issued and
outstanding, as adjusted.............................................................. $2,006 $0
Stockholders' equity:
Common Stock, par value $0.01 per share; 50,000,000 shares authorized; 6,000,000
shares issued and outstanding, actual; and 11,065,092 shares issued and
outstanding, as adjusted.......................................................... 60 111
Additional paid-in capital......................................................... 12,293 66,764
Retained earnings.................................................................. (230) 5,370
-------- -----------
Total stockholders' equity.................................................... 12,123 72,245
-------- -----------
Total capitalization..................................................... $299,225 $ 310,592
-------- -----------
-------- -----------
</TABLE>
20
<PAGE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The historical financial data set forth below as of and for the period from
inception to December 31, 1993 and the fiscal years ended December 31, 1994 and
1995 and the three months ended March 31, 1996, have been derived from, and
should be read in conjunction with, the Consolidated Financial Statements of the
Company included elsewhere herein, which have been audited by Coopers & Lybrand
L.L.P., independent accountants. The historical financial data set forth below
as of and for the three months ended March 31, 1995 have been derived from the
unaudited consolidated financial statements of the Company that have been
prepared on the same basis as the audited Consolidated Financial Statements and
include all adjustments, consisting of normal recurring accruals, that the
Company considers necessary for a fair presentation of the financial position
and results of operations for such period. Operating results for the three
months ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. The historical and pro
forma data reflect the exchange of all of the partnership interests in the
Partnership for shares of Common Stock as described in the Reorganization Plan,
giving effect to such exchange as if had occurred at the inception of the
Partnership. This data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and related Notes.
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION THREE MONTHS ENDED MARCH
(AUGUST 12, 1993) YEAR ENDED DECEMBER 31, 31,
THROUGH ------------------------- -------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
----------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1).................. $438,774 $8,583,277 $20,680,848 $3,297,408 $10,875,466
Additional securitization transaction
expense(2).............................. 0 (560,137) (5,547,037) (254,507) (2,828,591)
----------------- ---------- ----------- ---------- -----------
Gain on sale of loans, net............ 438,774 8,023,140 15,133,811 3,042,901 8,046,875
----------------- ---------- ----------- ---------- -----------
Warehouse interest income................. 97,159 2,510,062 7,884,679 1,090,933 5,160,943
Warehouse interest expense................ (50,709) (1,610,870) (6,006,919) (1,019,643) (3,375,244)
----------------- ---------- ----------- ---------- -----------
Net warehouse interest income......... 46,450 899,192 1,877,760 71,290 1,785,699
----------------- ---------- ----------- ---------- -----------
Servicing fees............................ 0 99,224 1,543,339 109,167 995,439
Other..................................... 28,235 1,072,855 1,117,903 208,243 628,536
----------------- ---------- ----------- ---------- -----------
Total servicing fees and other........ 28,235 1,172,079 2,661,242 317,410 1,623,975
----------------- ---------- ----------- ---------- -----------
Total revenues........................ 513,459 10,094,411 19,672,813 3,431,601 11,456,549
----------------- ---------- ----------- ---------- -----------
Expenses:
Compensation and benefits................. 507,904 3,348,236 5,139,386 1,021,815 3,666,685
Selling, general and administrative
expenses................................ 355,526 2,000,401 3,477,677 553,910 2,240,856
Other..................................... 0 14,143 297,743 16,084 342,534
Sharing of proportionate value of
equity(3)............................... 0 1,689,000 4,204,000 718,952 2,555,000
----------------- ---------- ----------- ---------- -----------
Total expenses........................ 863,430 7,051,780 13,118,806 2,310,761 8,805,075
----------------- ---------- ----------- ---------- -----------
Pre-tax income (loss)......................... (349,971) 3,042,631 6,554,007 1,120,840 2,651,474
Pro forma provision (benefit) for income
taxes................................... (134,000) 1,187,000 2,522,000 431,299 1,026,000
----------------- ---------- ----------- ---------- -----------
Pro forma net income (loss)............... $(215,971) $1,855,631 $4,032,007 $689,541 $1,625,474
----------------- ---------- ----------- ---------- -----------
----------------- ---------- ----------- ---------- -----------
Pro forma per share data:
Pro forma net income per share:
Primary................................. $0.51 $0.20
Fully diluted........................... $0.51 $0.20
Weighted average common and common share
equivalents:
Primary................................. 7,935,752 7,935,752
Fully diluted........................... 7,935,752 8,304,778
Supplemental pro forma per share data:(5)
Pro forma net income per share:
Primary................................. $0.50 $0.20
Fully diluted........................... $0.50 $0.19
Weighted average common and common share
equivalents:
Primary................................. 8,007,974 8,541,307
Fully diluted........................... 8,007,974 8,910,333
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
------------------------------------------ ------------------------------
1993 1994 1995 ACTUAL AS ADJUSTED(4)
----------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Mortgage loans held for sale............. $7,971,990 $28,995,750 $193,002,835 $257,458,182 $257,458,182
Interest-only and residual
certificates........................... 0 3,403,730 14,072,771 22,905,311 22,905,311
Warehouse finance facilities............. 7,212,915 27,731,859 189,819,046 261,417,193 220,467,956
Term debt................................ 0 0 11,120,642 21,879,297 17,879,297
Convertible debenture.................... 0 0 0 1,800,000 0
Stockholders' equity(6).................. 1,449,092 5,856,011 5,608,844 12,122,435 72,245,170
Total assets(6).......................... 8,861,144 36,641,991 354,551,434 525,200,197 532,422,932
</TABLE>
21
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION YEAR ENDED DECEMBER THREE MONTHS ENDED
(AUGUST 12, 1993) 31, MARCH 31,
THROUGH -------------------- ---------------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
----------------- -------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated......... $29,608 $282,924 $621,629 $119,385 $ 263,987
Loans sold through securitization..... 0 81,637 388,363 74,782 175,000
Whole loan sales...................... 21,636 180,263 70,400 20,765 21,272
Serviced loan portfolio (period
end)................................ 0 92,003 535,798 166,914 783,367
DELINQUENCY DATA:
Total delinquencies as a percentage of
loans serviced (period end)(7)...... 0.00% 0.87% 3.43% 1.32% 2.31%
Defaults as a percentage of loans
serviced (period end)(8)............ 0.00 0.12 1.16 0.12 1.40
Net losses as a percentage of average
loans serviced for period........... 0.00 0.00 0.09 0.01 0.01
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
MARCH 31, 1995 JUNE 30, 1995 SEPTEMBER 30, 1995 DECEMBER 31, 1995
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)........................ $3,297,408 $ 2,823,232 $7,303,333 $ 7,256,875
Additional securitization transaction
expense(2).................................... (254,507) (176,860) (2,424,000) (2,691,670)
-------------- ------------- ------------------ -----------------
Gain on sale of loans, net.................. 3,042,901 2,646,372 4,879,333 4,565,205
-------------- ------------- ------------------ -----------------
Warehouse interest income....................... 1,090,933 1,703,094 2,430,904 2,659,748
Warehouse interest expense...................... (1,019,643) (1,192,707) (1,814,957) (1,979,612)
-------------- ------------- ------------------ -----------------
Net warehouse interest income............... 71,290 510,387 615,947 680,136
-------------- ------------- ------------------ -----------------
Servicing fees.................................. 109,167 322,564 423,476 688,132
Other........................................... 208,243 272,773 307,425 329,462
-------------- ------------- ------------------ -----------------
Total revenues.............................. 3,431,601 3,752,096 6,226,181 6,262,935
-------------- ------------- ------------------ -----------------
Expenses:
Compensation and benefits....................... 1,021,815 1,263,021 1,364,344 1,490,206
Selling, general and administrative expenses.... 553,910 662,627 940,033 1,321,107
Other........................................... 16,084 92,540 31,028 158,091
Sharing of proportionate value of equity(3)..... 718,952 677,575 1,520,433 1,287,040
-------------- ------------- ------------------ -----------------
Total expenses.............................. 2,310,761 2,695,763 3,855,838 4,256,444
-------------- ------------- ------------------ -----------------
Pre-tax income.................................. 1,120,840 1,056,333 2,370,343 2,006,491
Pro forma provision for income taxes............ 431,299 406,477 912,108 772,116
-------------- ------------- ------------------ -----------------
Pro forma net income................................ $ 689,541 $ 649,856 $1,458,235 $ 1,234,375
-------------- ------------- ------------------ -----------------
-------------- ------------- ------------------ -----------------
Pro forma per share data:
Pro forma net income per share.................. $0.09 $0.08 $0.18 $0.16
Weighted average common and common share
equivalents................................... 7,935,752 7,935,752 7,935,752 7,935,752
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated................... $119,385 $124,667 $154,990 $222,587
Loans sold through securitization............... 74,782 43,581 120,000 150,000
Whole loan sales................................ 20,765 31,763 8,224 9,648
Serviced loan portfolio (period end)............ 166,914 271,522 355,374 535,798
DELINQUENCY DATA:
Total delinquencies as a percentage of loans
serviced (period end)(7)...................... 1.32% 1.09% 2.42% 3.43%
Defaults as a percentage of loans serviced
(period end)(8)............................... 0.12 0.45 0.98 1.16
Net losses as a percentage of average loans
serviced for period........................... 0.01 0.00 0.03 0.04
</TABLE>
- ------------
(1) Includes I/O and residual certificates received by ContiFinancial
in connection with IMC's agreement with ContiFinancial. See
'Business -- Loans -- Loan Sales -- Securitizations' and 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Transactions with ContiFinancial -- Additional Securitization
Transaction Expense.'
(footnotes continued on next page)
22
<PAGE>
<PAGE>
(footnotes continued from previous page)
(2) In 1994 and 1995 and the three months ended March 31, 1996, ContiFinancial
received I/O and residual certificates with estimated values of $3.0
million, $25.1 million and $9.5 million in exchange for $2.1 million, $18.4
million and $6.2 million, respectively. In addition, ContiFinancial paid IMC
$0.4 million, $1.1 million and $0.5 million in 1994, 1995 and the three
months ended March 31, 1996, respectively, in expenses related to
securitizations. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Transactions with
ContiFinancial -- Additional Securitization Transaction Expense.'
(3) Reflects expenses recorded in connection with the Conti VSA which was
superseded by the Conti Option in March, 1996. The Company's pre-tax income
before the Conti VSA for 1994 and 1995 and the three months ended March 31,
1996 was $4.7 million, $10.8 million and $5.2 million, respectively. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Transactions with ContiFinancial -- Sharing of Proportionate
Value of Equity,' 'Certain Accounting Considerations Relating to the Conti
VSA' and Note 4 to Notes to Consolidated Financial Statements.
(4) Adjusted to give effect to the sale of 3,100,000 shares of Common Stock
offered by the Company hereby and the application of the estimated net
proceeds therefrom. See 'Use of Proceeds' and 'Capitalization.'
(5) Adjusted to give effect to the number of shares of Common Stock which would
have been issued for the retirement of debt in the application of the
estimated net proceeds therefrom.
(6) Total assets and Stockholders' equity include the effect of recording a
deferred tax asset of $5.6 million in connection with the conversion from a
partnership to a taxable corporation.
(7) Represents the percentages of account balances contractually past due 30
days or more, exclusive of home equity loans in foreclosure, bankruptcy or
real estate owned.
(8) Represents the percentages of account balances on loans in foreclosure,
bankruptcy or real estate owned.
23
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and accompanying Notes set
forth herein.
GENERAL
The Company is a specialized consumer finance company engaged in
purchasing, originating, servicing and selling home equity loans secured
primarily by first liens on one- to four-family residential properties. The
Company focuses on lending to individuals whose borrowing needs are generally
not being served by traditional financial institutions due to such individuals'
impaired credit profiles and other factors. The Company derives its income from
gain on sale of loans, reflecting excess servicing spread income from loans sold
through securitizations, gains recognized from premiums on loans sold through
whole loan sales to institutional purchasers, net warehouse interest earned on
loans held for sale, servicing fees and origination, processing and other fees
received as part of the loan application process.
CERTAIN ACCOUNTING CONSIDERATIONS
Interest-only and Residual Certificates
The Company purchases and originates loans for the purpose of sale and
primarily securitizes these loans in the form of REMICs, deriving its monthly
principal paydowns from a pool of underlying mortgages. Most of the regular
interests of the REMICs are sold, with the residual class certificates (or a
portion thereof) retained by the Company. Excess servicing spread represents the
excess of the interest rate receivable from the borrower on a loan over the
interest rate passed through to the purchaser acquiring an interest in such
loans, less the Company's normal servicing fee, expected losses and other
applicable recurring costs and fees. These residual classes of certificates are
initially recorded at their allocated cost based upon the present value of the
interest in the cash flows retained by the Company after considering various
economic factors, including interest rates, collateral value and estimates of
the value of future cash flows from the REMIC mortgage pools under expected loss
and prepayment assumptions discounted at a market yield. The weighted average
rate used to discount the cash flows for the year ended December 31, 1995, and
the three months ended March 31, 1996, was approximately 11%, and the assumed
loss ratio was 50 basis points per annum.
Mortgage Servicing Rights
On May 12, 1995, the Financial Accounting Standards Board released SFAS
122 -- Accounting for Mortgage Servicing Rights, an amendment to SFAS 65.
Effective January 1, 1996, the Company adopted SFAS 122. Because SFAS 122
prohibits retroactive application, the historical accounting results for the
periods ended December 31, 1993, 1994, and 1995 have not been restated and,
accordingly, the accounting results for the three months ended March 31, 1996
are not directly comparable to any previous period.
SFAS 122 requires that a mortgage banking entity recognize as a separate
asset the rights to service mortgage loans for others. Mortgage banking entities
that acquire or originate loans and subsequently sell or securitize those loans
and retain the mortgage servicing rights are required to allocate the total cost
of the loans to the mortgage servicing rights and the mortgage loans. The
Company is also required to assess capitalized mortgage servicing rights for
impairment based upon the fair value of those rights. The impact of the adoption
of SFAS 122 on the Company's Statement of Operations for the three months ended
March 31, 1996 resulted in additional income of approximately $1.4 million,
reported as gain on sale of loans and an additional pro forma provision for
income tax expense of approximately $0.5 million. The continuing effects of SFAS
122 on the Company's financial position and results of operations will depend on
several factors, including, among other things, the amount of acquired or
originated loans subsequently sold or securitized, the type, term and credit
quality of loans, and estimates of future prepayments rates.
24
<PAGE>
<PAGE>
TRANSACTIONS WITH CONTIFINANCIAL
Additional Securitization Transaction Expense
The Company has relied on ContiFinancial to provide credit facilities for
funding its loan purchases and originations and the financing of I/O and
residual classes of certificates, as well as ContiFinancial's expertise and
assistance in loan securitization. In order to provide immediate cash flow to
the Company, in the years ended December 31, 1994 and 1995 and the three months
ended March 31, 1996, ContiFinancial received I/O and residual certificates with
estimated values of $3.0 million, $25.1 million and $9.5 million, respectively.
See 'Certain Relationships and Related Transactions -- Agreements with
ContiFinancial' and ' -- Additional Securitization Transaction Expense.'
In exchange for the I/O and residual certificates, ContiFinancial paid $2.1
million, $18.4 million and $6.2 million in the years ended December 31, 1994 and
1995 and the three months ended March 31, 1996, respectively, in the form of
premiums paid for I/Os and the residual classes of certificates. In addition,
ContiFinancial paid $0.4 million, $1.1 million and $0.5 million in expenses
related to securitization in the years ended December 31, 1994 and 1995 and the
three months ended March 31, 1996, respectively.
The difference between the estimated value of the I/O and residual
certificates received by ContiFinancial and the total amount paid by
ContiFinancial has been recorded as additional securitization transaction
expense of $0.6 million in the year ended December 31, 1994, $5.5 million in the
year ended December 31, 1995, $0.3 million in the three months ended March 31,
1995 and $2.8 million in the three months ended March 31, 1996.
Sharing of Proportionate Value of Equity
In August, 1993, the Company entered into a five-year agreement (the '1993
Agreement') with ContiFinancial which provided the Company with a standby credit
facility to fund retention of I/O and residual classes of certificates and
certain investment banking services and also committed ContiFinancial to provide
a warehouse facility to the Company, subject to the satisfaction of certain
conditions. Pursuant to the 1993 Agreement, the Company agreed to share a
portion of its equity with ContiFinancial through an agent fee based on a
percentage of increases in equity (as defined in the 1993 Agreement) at the
termination of the 1993 Agreement.
On January 12, 1995, the Company and ContiFinancial entered into a revised
10-year agreement (the '1995 Agreement') which replaced the 1993 Agreement and
provided for agent fees to ContiFinancial based on the fair market value of the
Company (as defined). The amount of the agent fee ranged from 15% to 25% of the
fair market value of the Company depending upon whether ContiFinancial or the
Company elected to terminate the agreement.
The 1993 Agreement and the 1995 Agreement included a value sharing
agreement with ContiFinancial (the 'Conti VSA'). The existence of the Conti VSA
had no cash impact on the Company, but resulted in a $1.7 million, $4.2 million,
$0.7 million and $2.6 million reduction in the Company's pre-tax income for the
years ended December 31, 1994 and 1995 and the three months ended March 31, 1995
and 1996, respectively. Since ContiFinancial had the right, pursuant to the
Conti VSA, to require cash payments, the Conti VSA was reflected on the balance
sheet as a liability, and any increase in the value of the Conti VSA from
accounting period to accounting period was reflected as an expense in the income
statement for the relevant period.
The Conti VSA was converted into the Conti Option by an agreement executed
March 26, 1996. Pursuant to the Conti Option, there is no ongoing right to
receive cash. Consequently, no liability will be reflected on the balance sheet
and no expense will be reflected on the income statement after March 26, 1996
with respect to any future increases in value. See 'Certain Accounting
Considerations Relating to the Conti VSA' and Note 4 to Notes to Consolidated
Financial Statements.
25
<PAGE>
<PAGE>
The Company's earnings before the Conti VSA were as follows:
<TABLE>
<CAPTION>
PERIOD
ENDED YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
DECEMBER 31, -------------------------- -------------------------------
1993 1994 1995 1995 1996
------------ ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Total revenues.......... $513,459 $10,094,411 $19,672,813 $3,431,601 $11,456,549
Total expenses.......... 863,430 7,051,780 13,118,806 2,310,761 8,805,075
------------ ----------- ----------- ------------ ---------------
Pre-tax income (loss)
after Conti VSA....... (349,971) 3,042,631 6,554,007 1,120,840 2,651,474
Conti VSA............... 0 1,689,000 4,204,000 718,952 2,555,000
------------ ----------- ----------- ------------ ---------------
Pre-tax income (loss)
before Conti VSA...... $ (349,971) $4,731,631 $10,758,007 $1,839,792 $5,206,474
------------ ----------- ----------- ------------ ---------------
------------ ----------- ----------- ------------ ---------------
</TABLE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Pro forma net income for the three months ended March 31, 1996 was $1.6
million, representing an increase of $0.9 million or 135.7% over pro forma net
income of $0.7 million for the three months ended March 31, 1995. This increase
resulted principally from a $5.0 million or 164.4% increase in gain on sale of
loans, net of additional securitization transaction expense, to $8.0 million for
the three months ended March 31, 1996 from $3.0 million for the three months
ended March 31, 1995. Pro forma net income is calculated on the basis of
historical net income, adjusted for a pro forma income tax expense as if the
Company had been taxable as a corporation since its inception. In addition, a
$1.7 million or 2,404.8% increase in net warehouse interest income to $1.8
million for the three months ended March 31, 1996 from $0.1 million for the
three months ended March 31, 1995, a $0.9 million or 811.8% increase in
servicing fees to $1.0 million for the three months ended March 31, 1996 from
$0.1 million for the three months ended March 31, 1995 and a $0.4 million or
201.8% increase in other revenues to $0.6 million for the three months ended
March 31, 1996 from $0.2 million for the three months ended March 31, 1995 also
contributed to this increase in pro forma net income. The increase was partially
offset by a $2.7 million or 258.8% increase in compensation and benefits to $3.7
million for the three months ended March 31, 1996 from $1.0 million for the
three months ended March 31, 1995 and a $1.6 million or 304.6% increase in
selling, general and administrative expenses to $2.2 million for the three
months ended March 31, 1996 from $0.6 million for the three months ended March
31, 1995. The increase in pro forma net income was further offset by a $0.3
million increase in other expenses to $0.3 million for the three months ended
March 31, 1996 from a negligible amount for the three months ended March 31,
1995, a $1.9 million or 255.4% increase in sharing of proportionate value of
equity to $2.6 million for the three months ended March 31, 1996 from $0.7
million for the three months ended March 31, 1995 and a $0.6 million or 137.9%
increase in pro forma income tax expense to $1.0 million for the three months
ended March 31, 1996 from $0.4 million for the three months ended March 31,
1995.
26
<PAGE>
<PAGE>
Revenues. The following table sets forth information regarding components
of the Company's revenues for the three months ended March 31, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Gain on sale of loans........................................... $3,297,408 $10,875,466
Additional securitization transaction expense................... (254,507) (2,828,591)
----------- -----------
Gain on sale of loans, net................................. 3,042,901 8,046,875
----------- -----------
Warehouse interest income....................................... 1,090,933 5,160,943
Warehouse interest expense...................................... (1,019,643) (3,375,244)
----------- -----------
Net warehouse interest income.............................. 71,290 1,785,699
----------- -----------
Servicing fees.................................................. 109,167 995,439
Other........................................................... 208,243 628,536
----------- -----------
Total revenues............................................. $3,431,601 $11,456,549
----------- -----------
----------- -----------
</TABLE>
Gain on Sale of Loans, Net. Gain on sale of loans, net, which arose
primarily from securitizations, includes all related revenues and costs,
including the proceeds from sales of residual class certificates, the value of
such certificates, hedging gains or losses and underwriting fees and other
related securitization expenses and fees. See ' -- Transactions with
ContiFinancial -- Additional Securitization Transaction Expense.' For the three
months ended March 31, 1996, gain on sale of loans increased to $10.9 million
from $3.3 million for the three months ended March 31, 1995, an increase of
229.8%, reflecting increased loan production and securitizations for the three
months ended March 31, 1996 and the adoption of the Financial Accounting
Standards Board's SFAS 122 -- Accounting for Mortgage Servicing Rights. The
total volume of loans produced increased by 121.1% to $264.0 million for the
three months ended March 31, 1996 as compared with a total volume of $119.4
million for the three months ended March 31, 1995. Originations by the
correspondent network increased 129.0% to $236.5 million for the three months
ended March 31, 1996 from $103.3 million for the three months ended March 31,
1995, while production from the Company's broker network and direct lending
operations increased to $27.5 million or 70.6% for the three months ended March
31, 1996 from $16.1 million for the three months ended March 31, 1995.
Production volume increased during the 1996 period due to: (i) the Company's
expansion program; (ii) the growth of its securitization capability; (iii) the
growth of its loan servicing capability; (iv) the acquisition of the assets and
business of Equitystars acquired by the Company; and (v) the Company's ability
to finance its growth. For the three months ended March 31, 1996, the Company
experienced higher gains as it sold more loans through securitization.
Securitizations increased by $65.0 million or 59.1% to $175.0 million in the
three months ended March 31, 1996 from $110.0 million in the three months ended
March 31, 1995. The number of approved correspondents increased by 113 or 83.7%
to 248 at March 31, 1996 from 135 at March 31, 1995 and the number of brokers
increased by 705 or 109.6% to 1,348 at March 31, 1996 from 643 at March 31,
1995. Additional securitization transaction expense increased by $2.6 million or
1,011.4% to $2.8 million in the three months ended March 31, 1996 from $0.2
million in the three months ended March 31, 1995. For the three months ended
March 31, 1996, gain on sale of loans, net, increased to $8.0 million from $3.0
million for the three months ended March 31, 1995, an increase of 164.4%,
reflecting increased loan production and securitizations in the 1996 period. See
' -- Transactions with ContiFinancial -- Additional Securitization Transaction
Expense.'
Net Warehouse Interest Income. Net warehouse interest income is interest
earned from the Company's mortgage loans which generally carry long-term
interest rates, less interest expense on borrowings to finance the funding of
such mortgage loans pending receipt of proceeds from their sale. The Company
generally sells loans in its inventory within 150 days and finances such loans
under its secured borrowing facilities, which bear short-term interest rates.
Ordinarily, short-term interest rates are lower than long-term interest rates,
and the Company earns net interest income from this difference, or spread,
during the period the mortgage loans are held by the Company.
27
<PAGE>
<PAGE>
Net warehouse interest income increased to $1.8 million for the three
months ended March 31, 1996 from $0.1 million for the three months ended March
31, 1995, an increase of 2,404.8%. The increase in the 1996 period reflected
higher interest income resulting from increased mortgage loan production which
was offset by interest costs associated with warehouse facilities. The holding
period of loans increased in the three months ended March 31, 1996 from the
three months ended March 31, 1995 as the Company increased the portion of its
loans in warehouse sold through securitizations.
Servicing Fees. Servicing fees increased to $1.0 million for the three
months ended March 31, 1996 from $0.1 million for the three months ended March
31, 1995, an increase of 811.8%. Servicing fees for the three months ended March
31, 1996 were positively affected due to an increase in loans serviced over the
prior year. The increase in loans serviced came from the Company's normal
purchase and origination channels.
Other. Other revenues, consisting principally of interest on I/O and
residual certificates, increased by $0.4 million or 201.8% to $0.6 million in
the three months ended March 31, 1996 from $0.2 million in the three months
ended March 31, 1995 as a result of increased securitization volume.
Expenses. The following table sets forth information regarding components
of the Company's expenses for the three months ended March 31, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Compensation and benefits......................................... $1,021,815 $3,666,685
Selling, general and administrative expenses...................... 553,910 2,240,856
Other............................................................. 16,084 342,534
Sharing of proportionate value of equity.......................... 718,952 2,555,000
---------- ----------
Total expenses............................................... $2,310,761 $8,805,075
---------- ----------
---------- ----------
</TABLE>
Compensation and benefits increased by $2.7 million or 258.8% to $3.7
million in the three months ended March 31, 1996 from $1.0 million in the three
months ended March 31, 1995, principally due to an increase in the number of
employees to service the Company's increased loan production, the acquisition of
the assets and business of Equitystars and an increase in executive bonuses.
Selling, general and administrative expenses increased by $1.6 million or
304.6% to $2.2 million in the three months ended March 31, 1996 from $0.6
million in the three months ended March 31, 1995, principally due to an increase
in the volume of loan production and the acquisition of the assets and business
of Equitystars.
Other expenses increased to $0.3 million in the three months ended March
31, 1996 from a negligible amount in the three months ended March 31, 1995 as a
result of increased loan production and securitization volume in 1996.
The sharing of proportionate value of equity, representing the amount
payable under the Conti VSA, increased by $1.9 million or 255.4% to $2.6 million
in the three months ended March 31, 1996 from $0.7 million in the three months
ended March 31, 1995. See ' -- Transactions with ContiFinancial -- Sharing of
Proportionate Value of Equity,' 'Certain Accounting Considerations Relating to
the Conti VSA' and Note 4 to Notes to Consolidated Financial Statements.
Pro Forma Income Taxes. The effective pro forma income tax rate for the
three months ended March 31, 1996 was 38.7% which differed from the federal tax
rate of 35% primarily due to state income taxes. The increase in pro forma
income taxes of $0.6 million or 137.9% to $1.0 million in the three months ended
March 31, 1996 from $0.4 million in the three months ended March 31, 1995 was
proportionate to the increase in pre-tax income.
Acquisition of Equitystars. On January 1, 1996, the Company acquired all of
the assets of Equitystars, a Rhode Island corporation and a mortgage banking
company, operating primarily in Rhode Island, New York, Connecticut and
Massachusetts, with smaller operations in Maine and New Hampshire. Equitystars
originated over $95 million of residential loans during 1995, of which
approximately $17 million or 18% was conforming loan origination and
approximately $78 million or 82% was non-conforming loan origination. During
1995, IMC purchased $11.3 million of non-
28
<PAGE>
<PAGE>
conforming loans from Equitystars. The purchase price of all the assets of
Equitystars was paid by delivery to Equitystars of Convertible Preferred Stock.
There may be a contingent payout based on the results of operations of
Equitystars. See 'Recent Events' and 'Business -- Loans -- Acquisition of
Equitystars.'
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Pro forma net income for the year ended December 31, 1995 was $4.0 million,
representing an increase of $2.1 million or 117.3% over pro forma net income of
$1.9 million for the year ended December 31, 1994. This increase resulted
principally from a $7.1 million or 88.6% increase in gain on sale of loans, net
of additional securitization transaction expense, to $15.1 million for the year
ended December 31, 1995 from $8.0 million for the year ended December 31, 1994.
Pro forma net income is calculated on the basis of historical net income,
adjusted for a pro forma income tax expense as if the Company had been taxable
as a corporation since its inception. In addition, a $1.0 million or 108.8%
increase in net warehouse interest income to $1.9 million for the year ended
December 31, 1995 from $0.9 million for the year ended December 31, 1994 and a
$1.4 million or 1,445.4% increase in servicing fees to $1.5 million for the year
ended December 31, 1995 from $0.1 million for the year ended December 31, 1994
also contributed to this increase in pro forma net income. The increase was
partially offset by a $1.8 million or 53.5% increase in compensation and
benefits to $5.1 million for the year ended December 31, 1995 from $3.3 million
for the year ended December 31, 1994 and a $1.5 million or 73.8% increase in
selling, general and administrative expenses to $3.5 million for the year ended
December 31, 1995 from $2.0 million for the year ended December 31, 1994. The
increase in pro forma net income was further offset by a $0.3 million increase
in other expenses to $0.3 million for the year ended December 31, 1995 from a
negligible amount for the year ended December 31, 1994, a $2.5 million or 148.9%
increase in sharing of proportionate value of equity to $4.2 million for the
year ended December 31, 1995 from $1.7 million for the year ended December 31,
1994 and a $1.3 million or 112.5% increase in pro forma income tax expense to
$2.5 million for the year ended December 31, 1995 from $1.2 million for the year
ended December 31, 1994.
Revenues. The following table sets forth information regarding components
of the Company's revenues for the years ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Gain on sale of loans.......................................... $8,583,277 $20,680,848
Additional securitization transaction expense.................. (560,137) (5,547,037)
----------- -----------
Gain on sale of loans, net................................ 8,023,140 15,133,811
----------- -----------
Warehouse interest income...................................... 2,510,062 7,884,679
Warehouse interest expense..................................... (1,610,870) (6,006,919)
----------- -----------
Net warehouse interest income............................. 899,192 1,877,760
----------- -----------
Servicing fees................................................. 99,224 1,543,339
Other.......................................................... 1,072,855 1,117,903
----------- -----------
Total revenues............................................ $10,094,411 $19,672,813
----------- -----------
----------- -----------
</TABLE>
Gain on Sale of Loans, Net. Gain on sale of loans, net, which arose
primarily from securitizations, includes all related revenues and costs,
including the proceeds from sales of residual class certificates, the value of
such certificates, hedging gains or losses and underwriting fees and other
related securitization expenses and fees. See ' -- Transactions with
ContiFinancial -- Additional Securitization Transaction Expense.' For the year
ended December 31, 1995, gain on sale of loans increased to $20.7 million from
$8.6 million, an increase of 140.9%, reflecting increased loan production and
securitizations in the 1995 period. The total volume of loans produced increased
by 119.7% to $621.6 million for the year ended December 31, 1995 as compared
with a total volume of $282.9 million in 1994. Originations by the correspondent
network increased 132.9% to $543.6 million in 1995 from $233.5 million in 1994,
while production from the Company's broker network and direct lending operations
increased to $78.0 million or 57.6% for the year ended December 31, 1995 from
$49.5 million for the year ended
29
<PAGE>
<PAGE>
December 31, 1994. Production volume increased during the period due to: (i) the
Company's expansion program; (ii) the development of a securitization
capability; (iii) the development of a loan servicing capability; and (iv) the
Company's ability to finance its growth. In 1995 the Company experienced higher
gains as it sold more loans through securitization. Securitizations increased by
$290.0 million or 322.2% to $380.0 million in the year ended December 31, 1995
from $90.0 million in the year ended December 31, 1994. The number of approved
correspondents increased by 108 or 102.9% to 213 at December 31, 1995 from 105
at December 31, 1994 and the number of brokers increased by 600 or 120.5% to
1,098 at December 31, 1995 from 498 at December 31, 1994. Additional
securitization transaction expense increased by $5.0 million or 890.3% to $5.6
million in the year ended December 31, 1995 from $0.6 million in the year ended
December 31, 1994. For the year ended December 31, 1995, gain on sale of loans,
net, increased to $15.1 million from $8.0 million, an increase of 88.6%,
reflecting increased loan production and securitizations in the 1995 period. See
' -- Transactions with ContiFinancial -- Additional Securitization Transaction
Expense.'
Net Warehouse Interest Income. Net warehouse interest income is interest
earned from the Company's mortgage loans which generally carry long-term
interest rates, less interest expense on borrowings to finance the funding of
such mortgage loans pending receipt of proceeds from their sale. The Company
generally sells loans in its inventory within 150 days and finances such loans
under its secured borrowing facilities, which bear short-term interest rates.
Ordinarily, short-term interest rates are lower than long-term interest rates,
and the Company earns net interest income from this difference, or spread,
during the period the mortgage loans are held by the Company.
Net warehouse interest income increased to $1.9 million for the year ended
December 31, 1995 from $0.9 million for the year ended December 31, 1994, an
increase of 108.8%. The increase in 1995 reflected higher interest income
resulting from increased mortgage loan production which was offset by interest
costs associated with warehouse facilities. The holding period of loans
increased in 1995 from 1994 as the Company increased the portion of its loans in
warehouse sold through securitizations.
Servicing Fees. Servicing fees increased to $1.5 million for the year ended
December 31, 1995 from $0.1 million for the year ended December 31, 1994, an
increase of 1,455.4%. Servicing fees for the year ended December 31, 1995 were
positively affected due to an increase in loans serviced over the prior year.
The increase in loans serviced came from the Company's normal purchase and
origination channels.
Other. Other revenues increased by a negligible amount to $1.1 million in
the year ended December 31, 1995 from $1.1 million in the year ended December
31, 1994.
Expenses. The following table sets forth information regarding components
of the Company's expenses for the years ended December 31, 1994 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995
---------- -----------
<S> <C> <C>
Compensation and benefits........................................ $3,348,236 $5,139,386
Selling, general and administrative expenses..................... 2,000,401 3,477,677
Other............................................................ 14,143 297,743
Sharing of proportionate value of equity......................... 1,689,000 4,204,000
---------- -----------
Total expenses.............................................. $7,051,780 $13,118,806
---------- -----------
---------- -----------
</TABLE>
Compensation and benefits increased by $1.8 million or 53.5% to $5.1
million in the year ended December 31, 1995 from $3.3 million in the year ended
December 31, 1994, principally due to an increase in the number of employees to
service the Company's increased loan production.
Selling, general and administrative expenses increased by $1.5 million or
73.8% to $3.5 million in the year ended December 31, 1995 from $2.0 million in
the year ended December 31, 1994, principally due to an increase in the volume
of loan production.
Other expenses increased to $0.3 million in the year ended December 31,
1995 from a negligible amount in the year ended December 31, 1994 as a result of
increased loan production and securitization volume in 1995.
30
<PAGE>
<PAGE>
The sharing of proportionate value of equity, representing the amount
payable under the Conti VSA, increased by $2.5 million or 148.9% to $4.2 million
in the year ended December 31, 1995 from $1.7 million in the year ended December
31, 1994. See ' -- Transactions with ContiFinancial -- Sharing of Proportionate
Value of Equity,' 'Certain Accounting Considerations Relating to the Conti VSA'
and Note 4 to Notes to Consolidated Financial Statements.
Pro Forma Income Taxes. The effective pro forma income tax rate for the
year ended December 31, 1995 was 38.5% which differed from the federal tax rate
of 35% primarily due to state income taxes. The increase in pro forma income
taxes of $1.3 million or 112.5% to $2.5 million in the year ended December 31,
1995 from $1.2 million in the year ended December 31, 1994 was proportionate to
the increase in pre-tax income.
Year Ended December 31, 1994 Compared to the Period from August 12, 1993
(Inception) to December 31, 1993
The Company commenced operations on August 12, 1993. The period from August
12, 1993 to December 31, 1993 was a start-up period which had low production
levels and resulted in a loss. Due to the nature of the period ended December
31, 1993, the inclusion of percentage comparisons would not be meaningful.
Pro forma net income for the year ended December 31, 1994 was $1.9 million
representing an increase of $2.1 million over the $0.2 million pro forma loss
for the period ended December 31, 1993. This increase resulted principally from
a $7.6 million increase in gain on sale of loans, net of additional
securitization transaction expense to $8.0 million for the year ended December
31, 1994 from $0.4 million for the period ended December 31, 1993. Pro forma net
income is calculated on the basis of historical net income, adjusted for a pro
forma income tax expense as if the Company had been taxable as a corporation
since its inception. In addition, a $0.9 million increase in net warehouse
interest income to $0.9 million for the year ended December 31, 1994 from a
negligible amount for the period ended December 31, 1993, a $0.1 million
increase in servicing fees to $0.1 million for the year ended December 31, 1994
from $0 for the period ended December 31, 1993 and a $1.1 million increase in
other revenues to $1.1 million for the year ended December 31, 1994 from a
negligible amount for the period ended December 31, 1993 also contributed to the
increase in pro forma net income. The increase was partially offset by a $2.8
million increase in compensation and benefits to $3.3 million for the year ended
December 31, 1994 from $0.5 million for the period ended December 31, 1993 and a
$1.6 million increase in selling, general and administrative expenses to $2.0
million for the year ended December 31, 1994 from $0.4 million for the period
ended December 31, 1993. The increase in pro forma net income was further offset
by a $1.7 million increase in sharing of proportionate value of equity to $1.7
million for the year ended December 31, 1994 from $0 for the period ended
December 31, 1993 and a $1.3 million increase in pro forma income tax expense to
$1.2 million for the year ended December 31, 1994 from an income tax credit of
$0.1 million for the period ended December 31, 1993.
Revenues. The following table sets forth information regarding the
components of the Company's revenues for the periods shown:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Gain on sale of loans................................. $ 438,774 $8,583,277
Additional securitization transaction expense......... 0 (560,137)
----------------- -----------------
Gain on sale of loans, net....................... 438,774 8,023,140
----------------- -----------------
Warehouse interest income............................. 97,159 2,510,062
Warehouse interest expense............................ (50,709) (1,610,870)
----------------- -----------------
Net warehouse interest income.................... 46,450 899,192
----------------- -----------------
Servicing fees........................................ 0 99,224
Other................................................. 28,235 1,072,855
----------------- -----------------
Total revenues................................... $ 513,459 $10,094,411
----------------- -----------------
----------------- -----------------
</TABLE>
31
<PAGE>
<PAGE>
Gain on sale of loans in the year ended December 31, 1994 increased by $8.2
million to $8.6 million from $0.4 million in the period ended December 31, 1993
due to an increase in loan production to $282.9 million in 1994 from $29.6
million in 1993 and the Company's initial securitization in November, 1994.
Additional securitization transaction expense increased to $0.6 million in the
year ended December 31, 1994 from $0 in the period ended December 31, 1993. Gain
on sale of loans, net, increased by $7.6 million to $8.0 million in the year
ended December 31, 1994 from $0.4 million in the period ended December 31, 1993.
See ' -- Transactions with ContiFinancial -- Additional Securitization
Transaction Expense.'
Net Warehouse Interest Income. Net warehouse interest income is interest
earned from the Company's mortgage loans which generally carry long-term
interest rates, less interest expense on borrowings to finance the funding of
such mortgage loans pending receipt of proceeds from their sale. The Company
generally sells loans in its inventory within 150 days and finances such loans
under its secured borrowing facilities, which bear short-term interest rates.
Ordinarily, short-term interest rates are lower than long-term interest rates,
and the Company earns net interest income from this difference, or spread,
during the period the mortgage loans are held by the Company.
Net warehouse interest income increased to $0.9 million in the year ended
December 31, 1994 from a negligible amount in the period ended December 31,
1993, resulting primarily from increased production and a longer holding period
for loans towards the end of the year as a result of the Company's initial
securitization.
Servicing Fees. The Company commenced servicing during 1994 and generated
servicing revenues of approximately $0.1 million during the year ended December
31, 1994.
Other. Other revenues, primarily consisting of origination and processing
fees, increased to $1.1 million in the year ended December 31, 1994 from a
negligible amount in the period ended December 31, 1993 due to increased
production and the expansion of the broker network and direct lending operations
which generate origination income and processing fees.
Expenses. The following table sets forth information regarding components
of the Company's expenses for the periods shown:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Compensation and benefits....................................... $ 507,904 $ 3,348,236
Selling, general and administrative expenses.................... 355,526 2,000,401
Other........................................................... 0 14,143
Sharing of proportionate value of equity........................ 0 1,689,000
----------------- -----------------
Total expenses............................................. $ 863,430 $ 7,051,780
----------------- -----------------
----------------- -----------------
</TABLE>
Compensation and benefits increased by $2.8 million to $3.3 million in the
year ended December 31, 1994 from $0.5 million in the period ended December 31,
1993. This increase was generated by the increase in loan production due to the
growth of the business and the increase in the period of operations to 12 months
from approximately four months.
Selling, general and administrative expenses increased by $1.6 million to
$2.0 million in the year ended December 31, 1994 from $0.4 million in the period
ended December 31, 1993. This increase was generated by the increased production
due to the growth of the business and the increase in the period of operations
to 12 months from approximately four months.
There was no material change in other expenses between periods.
Sharing of proportionate value of equity increased to $1.7 million in the
year ended December 31, 1994 from $0 in the period ended December 31, 1993 as a
result of the increase in the equity of the Company. See ' -- Transactions with
ContiFinancial -- Sharing of Proportionate Value of Equity.'
Pro Forma Income Taxes. The effective pro forma income tax rates for the
year ended December 31, 1994 and the period ended December 31, 1993 were 39.0%
and 38.3%, respectively, which differed from the federal tax rate of 35%
primarily due to state income taxes. The increase in pro forma income tax
expense of $1.3 million from a $0.1 million pro forma income tax benefit in the
1993 period to $1.2
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million income tax provision in the year ended December 31, 1994 was
proportionate to the change in pre-tax income.
FINANCIAL CONDITION
March 31, 1996 Compared to December 31, 1995
Mortgage loans held for sale at March 31, 1996 were $257.5 million,
representing an increase of $64.5 million or 33.4% over mortgage loans held for
sale of $193.0 million at December 31, 1995. This increase was a result of
increased loan origination and purchasing as the Company expanded into new
states and as well as increased origination and purchasing efforts in states in
which the Company had an existing market presence.
I/O and residual certificates at March 31, 1996 were $22.9 million,
representing an increase of $8.8 million or 62.8% over I/O and residual
certificates of $14.1 million at December 31, 1995. This increase was a result
of the completion of one securitization.
Warehouse financing facilities at March 31, 1996 were $261.4 million,
representing an increase of $71.6 million or 37.7% more than warehouse financing
facilities of $189.8 million at December 31, 1995. This increase was primarily a
result of increased loan originations and purchases.
Term debt at March 31, 1996 was $23.7 million, representing an increase of
$12.6 million or 112.9% more than term debt of $11.1 million at December 31,
1995. This increase was primarily a result of financing the additional
securitization.
Stockholders' equity at March 31, 1996 was $12.1 million, representing an
increase of $6.5 million or 116.1% over stockholders' equity of $5.6 million at
December 31, 1995. This increase was primarily a result of the conversion of the
Conti VSA into the Conti Option.
December 31, 1995 Compared to December 31, 1994
Mortgage loans held for sale at December 31, 1995 were $193.0 million,
representing an increase of $164.0 million or 565.6% over mortgage loans held
for sale of $29.0 million at December 31, 1994. This increase was a result of
increased loan origination and purchasing as the Company expanded into new
states and as well as increased its origination and purchasing efforts in states
in which the Company has an existing market presence.
I/O and residual certificates at December 31, 1995 were $14.1 million,
representing an increase of $10.7 million or 313.5% over I/O and residual
certificates of $3.4 million at December 31, 1994. This increase was the result
of completing two securitizations.
Warehouse financing facilities at December 31, 1995 were $189.8 million,
representing an increase of $162.1 million or 584.5% more than warehouse
financing facilities of $27.7 million at December 31, 1994. This increase was
primarily a result of the Company's increased loan purchases and originations.
Term debt and convertible debenture at December 31, 1995 was $11.1 million,
representing an increase of $11.1 million over December 31, 1994. This increase
was primarily a result of the Company's securitizations and the financing
thereof.
Stockholders' equity at December 31, 1995 was $5.6 million, representing a
decrease of $0.3 million or 4.2% from stockholders' equity of $5.9 million at
December 31, 1994. This decrease, which is negligible, represents the difference
between net income and distributions.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses its cash flow from loans sold through securitizations,
whole loan sales, loan origination fees, processing fees, net interest income,
servicing fees and borrowings under its warehouse facility and standby facility
to meet its working capital needs. The Company's cash requirements include the
funding of loan purchases and originations, payment of interest expenses,
funding the over-collateralization requirements for securitizations, operating
expenses, income taxes and capital expenditures.
33
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Adequate credit facilities and other sources of funding, including the
ability of the Company to sell loans, are essential to the continuation of the
Company's ability to purchase and originate loans. As a result of increased loan
purchases and originations and its growing securitization program, the Company
has operated, and expects to continue to operate, on a negative cash flow basis.
During fiscal 1994 and 1995 and the three months ended March 31, 1996, the
Company raised through its financing activity cash of $21.4 million, $167.7
million and $83.4 million, respectively. The Company's sale of loans through
securitizations has resulted in a significant increase in the amount of gain on
sale recognized by the Company. The recognition of this excess servicing spread
has a negative impact on the cash flow of the Company because significant costs
are incurred upon closing of the securitization transactions and the Company is
required to pay state and federal income taxes on the gain on sale in the period
recognized. The Company does, however, receive the cash representing the gain in
later periods, as the related loans are repaid or otherwise collected. During
the same periods, the Company received cash of $0.1 million, $1.2 million and
$0.8 million, respectively, related to I/O and residual certificates. The
Company borrows funds on a short-term basis to support the accumulation of loans
prior to sale. These short-term borrowings are made under warehouse lines of
credit with various lenders.
At March 31, 1996, the Company had available warehouse lines of credit
totaling $645.0 million for financing the acquisition of mortgage loans held for
sale, $261.4 million of which was outstanding at March 31, 1996. Of the
warehouse lines of credit available at March 31, 1996, the full amount matures
within one year. Interest rates on these facilities ranged from 6.3% to 6.9% as
of March 31, 1996. Outstanding borrowings under these lines of credit are
secured by all of the Company's mortgage loans held for sale and warehouse
financing due from stockholders. Upon the sale of these loans and repayment of
warehouse financing due from stockholders, the related amounts outstanding under
the lines will be repaid.
At March 31, 1996, the Company also had available a standby facility
totaling $25.0 million. Outstanding borrowings under this facility are secured
by the Company's interest in the I/O and residual certificates. At March 31,
1996, outstanding borrowings under this facility were $15.0 million, accruing
interest at a rate of 7.1% per annum. This agreement terminates in January,
2000. The facility includes the $10.0 million Additional Draw which must be
repaid with a portion of the net proceeds from the Public Offering. The Company
intends to borrow the full $25.0 million available under this facility by the
time of the Public Offering.
On March 20, 1996, the Company issued the $1.8 million convertible secured
Rotch Debenture. The Rotch Debenture matures on September 20, 1996 at which time
the Company may extend the maturity for an additional six-month period, subject
to a 1% gross renewal fee. Interest is calculated at a rate of LIBOR plus 1%.
Rotch has the right to convert the Rotch Debenture into Common Stock at any time
prior to maturity at a conversion price per share of 93% of the price at which
the Company sells its Common Stock in the Public Offering. The Rotch Debenture
is expected to be repaid in full from a portion of the proceeds of the Public
Offering.
In February, 1996, the Company borrowed $2.9 million under a one-year
agreement bearing interest at 1.25% per annum in excess of LIBOR to finance
certain I/O and residual classes of certificates which were secured by such I/O
and residual certificates.
On January 12, 1996, Lakeview, an affiliate of one of the Industry
Partners, extended the $7.0 million Lakeview Facility to the Company. Such
credit facility, which had an outstanding balance of $4.0 million as of March
31, 1996, is expected to be repaid in full from a portion of the proceeds of the
Public Offering. The Lakeview Facility provides that if it is still outstanding
on September 30, 1996, then Lakeview has the right to require that the Company
grant to Lakeview a second lien on the Company's I/O and residual certificates.
The Company's warehouse lines and standby facility contain various
affirmative and negative covenants customary for credit arrangements of their
type and which the Company believes will not have a material effect on its
operations, growth and financial flexibility. The warehouse lines and standby
facility also contain certain financial covenants requiring the maintenance of
certain debt-to-equity or debt-to-net worth ratios, restricting distributions to
equity holders and capital expenditures as well as establishing limits on the
ability of the Company to incur unsecured indebtedness. The Company does not
believe that the existing financial covenants will restrict its operations or
growth within the
34
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next 12 months. Management believes the Company is in compliance with all such
covenants under these agreements.
The Company purchases and originates mortgage loans and then sells them
primarily through securitizations. At the time of securitization and the
delivery of the loans, the Company recognizes gain on sale based on a number of
factors including the difference, or 'spread' between the interest rate on the
loans and the interest rate on the treasury security with a maturity
corresponding to the anticipated life of the loans. If interest rates rise
between the time the Company originates or purchases the loans and the time the
loans are priced at securitization, the spread narrows, resulting in a loss in
value of the loans. To protect against such losses, the Company hedges the value
of the loans through the short sale of treasury securities. Prior to hedging,
the Company performs an analysis of its loans taking into account, among other
things, interest rates and maturities to determine the amount, type (usually
three and five years), duration (usually less than three months) and proportion
of each treasury security to sell short so that the risk to the value of the
loans is more effectively hedged. The Company will execute the sale of the
treasury securities (with large, reputable securities firms including
ContiFinancial) and uses the proceeds received to acquire treasury securities
under repurchase agreements. These securities are designated as hedges in the
Company's records and are closed out when the loans are sold.
If the value of the hedges decreases, offsetting an increase in the value
of the loans, the Company, upon settlement with its counterparty, will pay the
hedge loss in cash and realize the corresponding increase in the value of the
loans as part of its I/O and residual certificates. Conversely, if the value of
the hedges increase, offsetting a decrease in the value of the loans, the
Company, upon settlement with its counterparty, will receive the hedge gain in
cash and realize the corresponding decrease in the value of the loans through a
reduction in the value of the corresponding I/O and residual certificates.
The Company believes that its hedging activities using treasury securities
are substantially similar in purpose, scope and execution to customary hedging
activities using treasury securities engaged in by its competitors.
While most of the Company's strategies for expansion have been formulated
so as to require minimal cash outlay to implement, establishing branch offices
for direct originations and other strategies may require greater cash
commitments. If any of the Company's strategies are successful, they will result
in greater loan purchases and originations, larger or more frequent
securitizations and, therefore, greater liquidity needs. Funds available under
the Company's current warehouse and other credit facilities and the net proceeds
from the Public Offering are expected to be sufficient to fund the Company's
liquidity requirements, including the implementation of each of its business
strategies, for the next 12 months. Consequently, the Company anticipates that
it will need to arrange for additional external cash resources by July, 1997
through additional financing. The Company has no commitments for additional
external financing and there can be no assurance that the Company will be
successful in consummating any such financing transactions in the future on
terms the Company would consider favorable. The Company's current warehouse and
credit facilities generally are subject to one-year terms. Certain agreements
have automatic renewal features subject to the absence of defaults and creditor
notification of termination. The Company's business and growth strategies over
the next twelve months are dependent on the Company's ability to maintain its
current warehouse and credit facilities and the Company's growth beyond the next
12 months is dependent on the ability to acquire additional credit lines. While
the Company anticipates that it will be able to meet its warehouse and credit
needs for the next 12 months through its current facilities, and has no reason
to believe that additional credit facilities will be unavailable if future
operations are consistent with current performance, there can be no assurance
either that the Company's current creditors will renew their facilities as they
expire or that the Company will be able to acquire additional credit lines. See
'Risk Factors -- Dependence on Funding Sources.'
INFLATION
Inflation has had no material effect on the Company's results of
operations. Inflation affects the Company most significantly in the area of loan
originations and can have a substantial effect on interest rates. Interest rates
normally increase during periods of high inflation and decrease during periods
of low inflation.
35
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Profitability may be directly affected by the level and fluctuation in
interest rates which affect the Company's ability to earn a spread between
interest received on its loans and the costs of its borrowings. The
profitability of the Company is likely to be adversely affected during any
period of unexpected or rapid changes in interest rates. A substantial and
sustained increase in interest rates could adversely affect the ability of the
Company to purchase and originate loans and affect the mix of first and second
mortgage loan products. Generally, first mortgage production increases relative
to second mortgage production in response to low interest rates and second
mortgage production increases relative to first mortgage production during
periods of high interest rates. A significant decline in interest rates could
decrease the size of the Company's loan servicing portfolio by increasing the
level of loan prepayments. Additionally, to the extent servicing rights and I/O
and residual classes of certificates have been capitalized on the books of the
Company, higher than anticipated rates of loan prepayments or losses could
require the Company to write down the value of such servicing rights and I/O and
residual certificates that has been capitalized on the books of the Company,
adversely impacting earnings. Fluctuating interest rates also may affect the net
interest income earned by the Company resulting from the difference between the
yield to the Company on loans held pending sales and the interest paid by the
Company for funds borrowed under the Company's warehouse facilities. In
addition, inverse or flattened interest yield curves could have an adverse
impact on the profitability of the Company because the loans pooled and sold by
the Company have long-term rates, while the senior interests in the related
REMIC trusts are priced on the basis of intermediate rates.
Since 1994, ContiFinancial has received certain I/O and residual
certificates in exchange for cash to provide a source of cash flow to fund the
Company's growing securitization program and other liquidity needs. Although the
Company intends to lessen its reliance on the disposition of I/O and residual
certificates to third parties to meet its cash flow needs, no assurance can be
given that such transactions will not be necessary in the future.
The net proceeds from the Public Offering will be used by the Company for
the repayment of debt, general corporate purposes, including funding loan
originations and purchases, supporting securitization transactions (including
the retention of I/O and residual certificates) and other working capital needs.
See 'Use of Proceeds.'
RECENT EVENTS
Commencement of UK Operations
The Company commenced operations in the UK in April, 1996 through Preferred
Mortgages, a joint venture formed in March, 1996, of which the Company owns 45%.
Through Preferred Mortgages, the Company intends to serve what management
believes to be an underserved segment of the home equity market in the UK by
lending to borrowers with impaired credit profiles similar to its domestic
customers. The Company paid $2.1 million, 50% of which was paid for in Common
Stock and 50% of which was paid for with a note receivable, for its interest in
Preferred Mortgages.
Recent Securitization
In April, 1996, the Company completed its sixth securitization through a
public offering of securities in the aggregate amount of $200.0 million. The
securities sold in the securitization were rated AAA/Aaa and had a weighted
average pass-through rate of 7.0% for the fixed-rate tranches plus an adjustable
rate tranche initially set at 7.3%. As part of its cash flow management
strategy, the securitization was structured so that ContiFinancial received, in
exchange for cash, 25% of the residual interests of such securitization.
CHANGE IN CERTIFYING ACCOUNTANT
Termination of Certifying Accountant
IMC terminated the engagement of Deloitte & Touche LLP ('D&T') as its
independent accountants, effective December, 1995 after completing the audit for
the year ended December 31, 1994.
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The decision to terminate D&T was approved by the Board of Directors of IMCI,
the general partner of IMC.
The audit reports of D&T on the financial statements of IMC for the period
from inception to December 31, 1993 and for the year ended December 31, 1994,
did not contain an adverse opinion or a disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
There were no disagreements with D&T during the period from inception to
December 31, 1993 and for the fiscal year ended December 31, 1994, or in any
subsequent interim period through the date of this Prospectus on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to the satisfaction of D&T, would have
caused D&T to make reference to such disagreement in connection with its opinion
on IMC's financial statements.
A letter from D&T is filed with the registration statement of which this
Prospectus is a part as Exhibit 16.1.
Engagement of New Certifying Accountant
Effective December, 1995, IMC engaged Coopers & Lybrand L.L.P. to serve as
independent accountants to audit and certify IMC's financial statements.
Pursuant to this engagement, Coopers & Lybrand L.L.P. has audited IMC's
financial statements for the period from inception to December 31, 1993, the
years ended December 31, 1994 and 1995 and the three months ended March 31,
1996.
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BUSINESS
IMC is a specialized consumer finance company engaged in purchasing,
originating, servicing and selling home equity loans secured primarily by first
liens on one- to four-family residential properties. The Company focuses on
lending to individuals whose borrowing needs are generally not being served by
traditional financial institutions due to such individuals' impaired credit
profiles and other factors. Loan proceeds typically are used by the Company's
borrowers for a variety of purposes such as to consolidate debt, to finance home
improvements and to pay educational expenses. By focusing on individuals with
impaired credit profiles and by providing prompt responses to their borrowing
requests, the Company has been able to charge higher interest rates for its loan
products than typically are charged by conventional mortgage lenders.
IMC was formed in 1993 by a team of executives experienced in the
non-conforming home equity loan industry. IMC was originally structured as a
partnership, with the limited partners consisting of the Industry Partners and
certain members of management. The original Industry Partners included: American
Industrial Loan Association; Champion Mortgage Co. Inc.; Cityscape Corp.;
Equitysafe, a Rhode Island General Partnership; Investors Mortgage, a Washington
LP; Mortgage America Inc.; Residential Money Centers; First Government Mortgage
and Investors Corp.; Investaid Corp.; and New Jersey Mortgage and Investment
Corp.; The Money Store and Equity Mortgage, a Maryland LP, became Industry
Partners in 1994. Branchview, Inc. became an Industry Partner in 1995.
IMC purchases and originates home equity loans through a diversified
network of 248 correspondents, which includes the Industry Partners, and 1,348
mortgage loan brokers and, to a lesser extent, on a retail basis through its
recently initiated direct consumer lending effort. Since its inception in
August, 1993, IMC has experienced considerable growth in loan production, with
total purchases and originations of $29.6 million, $282.9 million, $621.6
million and $264.0 million in 1993, 1994, 1995 and the first three months of
1996, respectively. IMC's network of correspondents accounted for 82.5%, 87.5%
and 89.6% of IMC's loan production in 1994, 1995 and the first three months of
1996, respectively, with the largest correspondent contributing 7.1%, 9.7% and
9.5% of total loan production in such periods. Through its network of approved
mortgage brokers, IMC generated 17.5%, 10.7% and 8.0% of its loan production in
1994, 1995 and the first three months of 1996, respectively. IMC's direct
consumer lending effort contributed approximately 1.8% and 2.4% for 1995 and for
the first three months of 1996, respectively. IMC is seeking to expand its
direct consumer lending by opening branch offices and expanding its use of
advertising, direct mail and other marketing strategies.
The Industry Partners are currently required to sell to IMC, under market
terms and conditions, an aggregate of $102.0 million, on average, of home equity
loans per year. IMC has consistently purchased loan production from the Industry
Partners in excess of their aggregate annual commitment. Concurrent with the
Public Offering, the majority of the Industry Partners have agreed to increase
their annual loan sale commitment, or the economic equivalent, to an aggregate
of $162.0 million. See 'Certain Relationships and Related Transactions.'
IMC sells its loans through securitizations, which involve the private
placement or public offering of asset-backed securities, and whole loan sales,
which involve selling blocks of loans to individual purchasers. Whole loan sales
have declined from 100% of total loan sales in 1993 (prior to IMC's first
securitization of its loans) to 15.3% of total loan sales in 1995. Each of IMC's
securitizations has been credit-enhanced by an insurance policy provided through
a monoline insurance company to receive ratings of Aaa from Moody's and AAA from
Standard & Poor's. Through April 30, 1996, the Company had completed six
AAA/Aaa-rated REMIC securitizations totaling $845.0 million. As of December 31,
1995 and March 31, 1996, IMC had a servicing portfolio of $535.8 million and
$783.4 million, respectively.
IMC has had a financing and investment banking relationship with
ContiFinancial since 1993. As part of this relationship, ContiFinancial has
provided warehouse and revolving credit facilities to IMC and acted as placement
agent and underwriter of its securitizations. In addition, as part of its cash
flow management strategy, the securitizations were structured so that
ContiFinancial received, in exchange for cash, a portion of the residual
interests in such securitizations. These transactions reduced IMC's gain on sale
of loans by approximately $0.6 million in 1994, $5.5 million in 1995 and $2.8
million during the first three months of 1996. ContiFinancial also holds the
Conti Warrant.
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Loan purchases and originations increased 119.7% from $282.9 million in
1994 to $621.6 million in 1995, and the Company's servicing portfolio increased
482.4% from $92.0 million to $535.8 million. During this same period, the
Company's total revenues increased 94.9% from $10.1 million to $19.7 million,
pro forma net income increased 117.3% from $1.9 million to $4.0 million and
pre-tax income before the Conti VSA increased 127.4% from $4.7 million to $10.8
million. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Transactions with ContiFinancial -- Sharing of
Proportionate Value of Equity,' 'Certain Accounting Considerations Relating to
the Conti VSA' and Note 4 to Notes to Consolidated Financial Statements.
BUSINESS STRATEGY
IMC is following these strategies for expansion: (i) increasing the number
of correspondents and brokers in its networks and increasing the amount of loans
purchased or originated from correspondents (including the Industry Partners)
and brokers; (ii) expanding its direct consumer lending; (iii) acquiring
additional loan production capability through acquisitions of correspondents;
(iv) generating loan production in the home equity market in the UK; and (v)
broadening its product offerings.
Expansion of Correspondent and Broker Networks
In 1995 and the three months ended March 31, 1996, 87.5% and 89.6% of IMC's
loan production was purchased or originated through its correspondent network,
respectively, and 10.7% and 8.0% was purchased or originated through its broker
network, respectively. IMC intends to continue to increase its loan production
from correspondents and brokers by expanding its networks to include new
correspondents and brokers and increasing the efficiency and production of the
correspondents and brokers that are a part of IMC's network. IMC plans to
implement this strategy of increasing its market share through geographic
expansion, tailored marketing strategies and a continued focus on servicing
smaller correspondents in cities which have historically been underserved. IMC
believes that it strengthens its relationships with correspondents and brokers
by providing attractive products and responsive service in conjunction with
consistent underwriting, substantial funding sources and competitive prices.
Expansion of Direct Consumer Lending
IMC intends to expand its direct consumer lending efforts by opening eight
new branch offices nationwide to reach a total of 17 by the end of 1996. The
branch offices will allow IMC to focus on developing contacts with individual
borrowers, local brokers and referral sources such as accountants, attorneys and
financial planners, with a view toward expanding its direct consumer loan
business. In addition, IMC's direct consumer loan expansion strategy involves:
(i) targeting cities where the population density and economic indicators are
favorable for home equity lending, the foreclosure rate is within normal ranges
and the non-conforming loan market has been underserved; (ii) testing the target
market prior to the establishment of a branch office, where local regulations
permit, via newspaper, radio, direct mail advertising and through a toll-free
telephone number which routes borrower inquiries directly to a loan officer in
the Tampa, Florida office; (iii) if test marketing is positive, establishing a
small branch office, generally with an initial staff of two business development
representatives; and (iv) setting up branch offices in executive office space
with short-term leases, which eliminates the need for IMC to pay high startup
costs for office equipment, furniture and leasehold improvements, and allows IMC
to exit the market easily if the office is not successful.
Expansion Through Acquisitions
IMC intends to strengthen its loan production capabilities not only through
internal growth, but also through acquisitions from time to time. IMC's
management believes that acquisitions not only accelerate the pace of growth,
but also are often the most cost-effective growth strategy, enabling IMC to
realize significant economies of scale in the securitization and mortgage
servicing businesses. IMC will continue to seek out candidates for acquisition
which operate in geographic and product areas that complement its existing
businesses. These candidates may include both correspondents and brokers. In
January, 1996, IMC completed the Equitystars Acquisition which expanded the
Company's operations in New England in both the non-conforming and conforming
mortgage loan markets. See ' -- Loans -- Acquisition of Equitystars.'
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Commencement of UK Operations
IMC commenced operations in the UK in April, 1996 through Preferred
Mortgages, a UK joint venture. The participants in the joint venture are IMC,
Foxgard and FSA. Preferred Mortgages is owned 45% by IMC, 45% by Foxgard and 10%
by FSA. Through Preferred Mortgages, IMC intends to serve what management
believes to be an underserved segment of the home equity market in the UK by
lending to borrowers with impaired credit profiles similar to its domestic
customers. Preferred Mortgages plans to market its products and services
directly to UK borrowers by means of newspaper, radio and television
advertising, in addition to direct mail. Preferred Mortgages plans to adapt the
loan application procedures, appraisal procedures and underwriting procedures
used by IMC to the UK market, while directing its underwriting and processing
staff to provide prompt, efficient and reliable service to the UK broker
community. Preferred Mortgages has received a commitment for a `L'47.5 million
(approximately $73.1 million as of June 20, 1996) line of credit from National
Westminster Bank, PLC for the purchase and origination of mortgage loans (the
'NatWest Facility'), and FSA has agreed to provide an insurance policy as credit
enhancement for the NatWest Facility.
Broadening Product Offerings
IMC frequently reviews its pricing and loan offerings for competitiveness
relative to the market. IMC introduces new loan products to meet the needs of
its correspondents, brokers and borrowers and to expand its market share to new
customers who are not traditionally a part of IMC's market.
Preferred Partners Program. IMC designed a program for traditional mortgage
lenders (the 'Preferred Partners Program') for the benefit of mortgage companies
that are attempting to diversify their product offering in the non-conforming
loan business. For correspondents participating in the Preferred Partners
Program (the 'Preferred Partners'), IMC acts as a consultant in all critical
areas of the non-conforming loan business, including marketing, regulatory
compliance, underwriting, risk-adjusted pricing, processing, funding, servicing
and selling loans. Experienced personnel from IMC work on-site with a Preferred
Partner, conducting internal training of employees of the Preferred Partner to
introduce an understanding of the credit profile of the non-conforming borrower.
In return, IMC is contractually granted the right of first refusal to purchase
all non-conforming mortgage originations of the Preferred Partner for the first
24 months of its participation in the Preferred Partners Program.
Since inception in November, 1995, three Preferred Partner relationships
have been formed with companies ranging in conforming production size from
approximately $300 million per year to $3 billion per year. IMC believes that
the Preferred Partners Program provides an opportunity for increasing its volume
of loan purchases. IMC's initial target is to develop 15 Preferred Partners,
each producing from $2 million to $3 million per month in non-conforming loan
originations for sale to IMC.
Home Equity Line of Credit ('HELOC'). IMC is developing a HELOC product,
which will enable customers to borrow on a revolving basis against the equity of
their homes. After repayment of the initial advance, the availability of credit
under the line will increase in proportion to the amount repaid. In the past,
this type of product has been offered primarily by commercial banks due to the
complexity of the methodology necessary to process and maintain the loans. IMC
has developed the methodology to facilitate the HELOC program through an
agreement with a large commercial bank. This new product will offer the
convenience of a revolving mortgage credit line to the non-conforming borrower.
IMC will offer HELOCs to borrowers using the same general underwriting criteria
IMC uses for its non-conforming lending business. IMC expects to introduce the
HELOC program to its customers in the second half of 1996.
LOANS
Overview
IMC's consumer finance activities consist primarily of purchasing,
originating, selling and servicing mortgage loans. The vast majority of these
loans are secured by first or second mortgages on one- to four-family residences
with the balance secured by small multi-family residences and mixed-use
properties. Once loan applications have been received, the underwriting process
completed and the loans funded, IMC typically packages the loans in a portfolio
and sells the portfolio, either through a
40
<PAGE>
<PAGE>
securitization or directly on a whole loan basis to institutional purchasers.
IMC retains the right to service the loans that it securitizes and may release
the right to service the loans it sells through whole loan sales.
Loan Purchases and Originations
IMC purchases and originates loans in 48 states and the District of
Columbia through its networks of 248 correspondents and 1,348 brokers, and
through its nine branch offices.
The following table shows channels of loan purchases and originations for
the periods shown:
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION
(AUGUST 12,
1993) YEAR ENDED THREE MONTHS
THROUGH DECEMBER 31, ENDED
DECEMBER 31, -------------------- MARCH 31,
1993 1994 1995 1996
------------ -------- -------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Correspondent(1):
Principal balance.................................. $ 28,008 $233,460 $543,635 $ 236,537
Average principal balance per loan................. 66 66 62 65
Combined weighted average loan-to-value ratio(2)... 66.6% 69.2% 70.6% 71.2%
Weighted average interest rate..................... 10.2 11.2 12.1 11.5
Broker:
Principal balance.................................. $1,600 $49,376 $66,584 $21,079
Average principal balance per loan................. 55 56 47 54
Combined weighted average loan-to-value ratio(2)... 70.9% 71.8% 72.6% 74.6%
Weighted average interest rate..................... 11.2 12.0 12.0 11.2
Direct consumer loan originations:
Principal balance.................................. $0 $88 $11,410 $6,371
Average principal balance per loan................. 0 88 49 48
Combined weighted average loan-to-value ratio(2)... 0.0% 80.0% 72.6% 73.9%
Weighted average interest rate..................... 0.0 11.3 11.7 11.1
Total loan purchases and originations:
Principal balance.................................. $ 29,608 $282,924 $621,629 $ 263,987
Average principal balance per loan................. 65 64 60 64
Combined weighted average loan-to-value ratio(2)... 66.8% 69.7% 70.9% 71.5%
Weighted average interest rate..................... 10.3 11.4 12.1 11.4
</TABLE>
- ------------
(1) Includes purchases from the Industry Partners with principal balances of
$14.3 million, or 48.3% of total purchases and originations, for the period
ended December 31, 1993, $116.0 million, or 41.0% of total purchases and
originations, for the year ended December 31, 1994, $148.4 million, or 23.9%
of total purchases and originations, for the year ended December 31, 1995
and $63.9 million, or 24.2% of total purchases and originations, for the
three months ended March 31, 1996.
(2) The weighted average loan-to-value ratio of a loan secured by a first
mortgage is determined by dividing the amount of the loan by the lesser of
the purchase price or the appraised value of the mortgaged property at
origination. The weighted average loan-to-value ratio of loans secured by a
second mortgage is determined by taking the sum of the loans secured by the
first and second mortgages and dividing by the lesser of the purchase price
or the appraised value of the mortgaged property at origination.
41
<PAGE>
<PAGE>
The following table shows channels of loan purchases and originations on a
quarterly basis for the fiscal quarters shown:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1995 1996
--------- -------- ------------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Correspondent(1):
Principal balance.............. $ 103,296 $104,727 $ 133,857 $201,755 $ 236,537
Average principal balance per
loan......................... 66 58 60 64 65
Combined weighted average
loan-to-value ratio(2)....... 69.7% 70.1% 70.8% 71.2% 71.2%
Weighted average interest
rate......................... 12.5 12.6 12.1 11.8 11.5
Broker:
Principal balance.............. $14,948 $17,327 $17,297 $17,012 $21,079
Average principal balance per
loan......................... 52 46 45 48 54
Combined weighted average
loan-to-value ratio(2)....... 72.7% 72.5% 72.7% 72.6% 74.6%
Weighted average average
interest rate................ 12.5 12.3 11.8 11.3 11.2
Direct consumer loan originations:
Principal balance.............. $1,141 $2,613 $3,836 $3,820 $6,371
Average principal balance per
loan......................... 52 47 49 50 48
Combined weighted average
loan-to-value ratio(2)....... 73.8% 70.0% 73.3% 73.2% 73.9%
Weighted average interest
rate......................... 12.4 11.9 11.6 11.4 11.1
Total loan purchases and
originations:
Principal balance.............. $ 119,385 $124,667 $154,990 $222,587 $ 263,987
Average principal balance per
loan......................... 64 56 57 62 64
Combined weighted average
loan-to-value ratio(2)....... 70.1% 70.5% 71.0% 71.4% 71.5%
Weighted average interest
rate......................... 12.5 12.5 12.0 11.8 11.4
</TABLE>
- ------------
(1) Includes purchases from the Industry Partners of an aggregate principal
balance of $148.4 million, or 23.9% of total purchases and originations, for
the year ended December 31, 1995 and $63.9 million, or 24.2% of total
purchases and originations, for the three months ended March 31, 1996.
(2) The weighted average loan-to-value ratio of a loan secured by a first
mortgage is determined by dividing the amount of the loan by the lesser of
the purchase price or the appraised value of the mortgaged property at
origination. The weighted average loan-to-value ratio of loans secured by a
second mortgage is determined by taking the sum of the loans secured by the
first and second mortgages and dividing by the lesser of the purchase price
or the appraised value of the mortgaged property at origination.
42
<PAGE>
<PAGE>
The following table shows lien position, weighted average interest rates
and loan-to-value ratios for the periods shown.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 12,
1993) YEAR ENDED THREE MONTHS
THROUGH DECEMBER 31, ENDED
DECEMBER 31, --------------- MARCH 31,
1993 1994 1995 1996
------------ ---- ---- ------------
<S> <C> <C> <C> <C>
First mortgage:
Percentage of total purchases and originations............. 88.3% 82.4% 77.0% 90.3%
Weighted average interest rate............................. 10.2 11.3 12.1 11.4
Weighted average initial loan-to-value ratio(1)............ 67.3 69.8 70.7 71.4
Second mortgage:
Percentage of total purchases and originations............. 11.7% 17.6% 23.0% 9.7%
Weighted average interest rate............................. 11.1 11.7 12.4 11.7
Weighted average initial loan-to-value ratio(1)............ 61.9 68.8 71.7 71.9
</TABLE>
- ------------
(1) The weighted average loan-to-value ratio of a loan secured by a first
mortgage is determined by dividing the amount of the loan by the lesser of
the purchase price or the appraised value of the mortgaged property at
origination. The weighted average loan-to-value ratio of loans secured by a
second mortgage is determined by taking the sum of the loans secured by the
first and second mortgages and dividing by the lesser of the purchase price
or the appraised value of the mortgaged property at origination.
Correspondents. The majority of IMC's loan volume is purchased through
correspondents. For the year ended December 31, 1995, $543.6 million or 87.5% of
IMC's loan purchases and originations were purchased through the mortgage
correspondent network as compared with $233.5 million or 82.5% of IMC's loan
purchases and originations for the year ended December 31, 1994. During the
three months ended March 31, 1996, $236.5 million or 89.6% of IMC's loan
purchases and originations were so acquired. The Industry Partners contributed
$14.3 million or 48.3% of total purchases and originations for the period ended
December 31, 1993, $116.0 million or 41.0% for the year ended December 31, 1994,
$148.4 million or 23.9% for the year ended December 31, 1995 and $63.9 million
or 24.2% for the three months ended March 31, 1996. No single correspondent
contributed 10.0% or more of IMC's total loan purchases and originations in
1994, 1995 or the first three months of 1996.
IMC has a list of approved correspondents from which it will purchase loans
on a wholesale basis. Prior to approving a financial institution or mortgage
banker as a loan correspondent, IMC performs an extensive investigation of,
among other things, the proposed loan correspondent's lending operations, its
licensing or registration and the performance of its previously originated
loans. The investigation includes contacting the agency that licenses or
registers such loan correspondent and other purchasers of the correspondent's
loans and reviewing the correspondent's financial statements. IMC requires that
the correspondent remain current on all licenses required by federal and state
laws and regulations and that it maintain sufficient equity to fund its loan
operations. IMC periodically reviews and updates the information it has relating
to each approved correspondent to insure that all legal requirements are current
and that lending operations continue to meet IMC's standards.
Before purchasing loans from correspondents, IMC requires that each loan
correspondent enter into a purchase and sale agreement with customary
representations and warranties regarding such loans. Correspondents will then
sell loans to IMC either on a flow basis or through block sales. IMC will make a
flow basis purchase when a correspondent approaches IMC with the application of
a prospective borrower. Because the correspondent has not granted a loan, IMC
has the opportunity to preapprove the loan. In the preapproval process, the
correspondent provides IMC with information about the borrower and the
collateral for the potential loan, including the applicant's credit, employment
history, current assets and liabilities, a copy of recent tax returns and the
estimated property value of the collateral. If IMC pre-approves the loan, the
correspondent lends to the borrower pursuant to certain IMC guidelines. After
the correspondent has made the loan, IMC purchases the loan from the
43
<PAGE>
<PAGE>
correspondent. A block purchase occurs when the correspondent has made numerous
loans without seeking preapproval from IMC. The correspondent offers a block of
loans to IMC, and IMC will purchase those loans in the block that meet its
underwriting standards.
Brokers. For the year ended December 31, 1995 and the three months ended
March 31, 1996, IMC originated $66.6 million or 10.7% and $21.1 million or 8.0%,
respectively, of loans through broker transactions. As with correspondents, IMC
maintains an approved list of brokers. Brokers become part of IMC's network
after IMC performs a thorough license and credit check. If a broker is approved,
IMC will accept loan applications from the broker for prospective borrowers.
Because brokers may submit loan applications to several prospective lenders
simultaneously, IMC makes every effort to provide a quick response. IMC will
process each application given by a broker from a prospective borrower and grant
or deny preliminary approval of the application within one business day. In the
case of an application denial, IMC will make all reasonable attempts to insure
that there is no missing information concerning the borrower that might change
the decision on the loan. In addition, IMC emphasizes service to the broker and
loan applicant by having loan processors follow the loan from the time of the
initial application, through the underwriting verification and audit process, to
the funding and closing process. Because brokers collect fees from the borrower
and are not compensated by IMC, IMC believes that consistent underwriting, quick
response times and personal service are critical to successfully originating
broker loans.
Direct Consumer Loans. For the year ended December 31, 1995 and the three
months ended March 31, 1996, IMC originated $11.4 million or 1.8% and $6.4
million or 2.4%, respectively, of loans directly to borrowers through its branch
offices. IMC has nine branch offices in Iowa, Georgia, Missouri, Wisconsin,
Colorado, Florida, Arizona, Washington and Illinois. Prior to the establishment
of a branch office, where local regulations permit, IMC tests the target market
via newspaper radio and direct mail advertising and through a toll-free
telephone number which routes borrower inquiries directly to a loan officer in
the Tampa, Florida office. If test marketing is positive, the branch offices are
staffed with two business development representatives and established in
executive office space with short-term leases, which eliminates the need for IMC
to pay high startup costs for office equipment, furniture and leasehold
improvements and allows IMC to exit the market easily if the office is not
successful. IMC plans to use the branch office network for marketing to and
meeting with individual borrowers, local brokers and referral sources such as
accountants, attorneys and financial planners. All advertising, payment of
branch expenses, regulatory disclosure, appraisals, title searches, loan
processing, underwriting and funding of branch office loans take place in the
Tampa, Florida office of IMC. The centralization of loan origination and
processing allows IMC to control branch expenses, supervise regulatory
compliance and offer consistent underwriting and processing to its customers.
IMC believes that this strategy will result in a more efficient use of its
capital and a higher success rate. Negative pre-testing results could limit
expansion into new locations, but would also limit the size of potential losses.
IMC plans to open eight new branch offices nationwide to reach a total of 17 by
the end of 1996, and estimates that new branches will reach a monthly operating
break-even point by the fourth or fifth month of operation. The start-up costs
and operating expenses prior to this break-even point are estimated at $25,000
per branch, with half of that expense allocated to marketing and advertising.
Additionally, IMC feels that, by centralizing its marketing and advertising
efforts in Tampa, Florida, economies of scale will be obtained and expenses will
be controlled.
Because borrowers may submit loan applications to several prospective
lenders simultaneously, IMC makes every effort to provide a quick response. IMC
will process each application from a borrower and grant or deny preliminary
approval for the application generally within one business day from receipt of
the application. In addition, IMC ensures direct contact with an underwriter in
the Tampa, Florida office who follows the loan from the application to the
closing process. IMC believes that consistent underwriting, quick response times
and personal service are critical to successfully originating loans directly
with potential borrowers.
Geographic Distribution of Loans. Although IMC is licensed or registered in
48 states and the District of Columbia, it has historically concentrated its
business in the mid-Atlantic states. While this concentration has declined,
Maryland and New York contributed 12.8% and 12.4%, respectively, of IMC's total
loan purchase and origination volume for the year ended December 31, 1995, and
New York and New Jersey contributed 14.6% and 10.9%, respectively, for the three
months ended March 31, 1996.
44
<PAGE>
<PAGE>
IMC intends to expand and geographically diversify its loan purchase and
origination activities through its nationwide branch office network, the
Preferred Partners Program and its joint venture in the UK. See ' -- Business
Strategy -- Broadening Product Offerings -- Preferred Partners Program' and
'Recent Events -- Commencement of UK Operations.'
The following table shows geographic distribution of loan purchases and
originations for the periods shown.
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION YEAR ENDED
(AUGUST 12, 1993) DECEMBER 31, THREE MONTHS
THROUGH ------------------- ENDED
DECEMBER 31, 1993 1994 1995 MARCH 31, 1996
----------------- ------- ------- --------------
<S> <C> <C> <C> <C>
States(1):
New York.................................. 17.5% 11.7% 12.4% 14.6%
New Jersey................................ 4.0 6.6 9.9 10.9
Maryland.................................. 14.4 18.6 12.8 9.3
Michigan.................................. 10.0 7.3 8.8 8.7
Florida................................... 1.8 4.2 6.2 6.8
Ohio...................................... 4.5 4.9 4.7 5.6
Georgia................................... 5.6 3.2 3.5 5.6
Pennsylvania.............................. 3.3 5.3 4.3 3.9
Virginia.................................. 2.0 5.4 3.8 3.6
District of Columbia...................... 3.2 4.6 3.3 2.8
All other states(39)...................... 33.7 28.2 30.3 28.2
</TABLE>
- ------------
(1) States are listed in order of percentage of loan purchases and originations
for the three months ended March 31, 1996.
Acquisition of Equitystars
In order to increase the flow of loans for purchase, IMC seeks to acquire
loan originators that would enhance or enlarge IMC's market penetration or
product offerings. Pursuant to that strategy, on January 1, 1996, IMC acquired
all of the assets of Equitystars, a mortgage banking company which does business
primarily in Rhode Island, New York, Connecticut and Massachusetts, with smaller
operations in Maine and New Hampshire. Equitystars originated over $95 million
of residential mortgage loans during 1995. Of the loans originated,
approximately $17 million or 18% were conforming loans and approximately $78
million or 82% were non-conforming loans. During 1995, IMC purchased a total of
$11.3 million of non-conforming loans from Equitystars.
The purchase price for the Equitystars Acquisition was a $2.0 million base
payment in the form of 20,060 shares of Convertible Preferred Stock, and up to
an aggregate of $2.55 million of contingent payments, based on formulae keyed to
the performances of the non-conforming and conforming mortgage loan business of
Equitystars. In accordance with the provisions governing the Convertible
Preferred Stock, the 20,060 shares of Convertible Preferred Stock issued in the
Equitystars Acquisition will be automatically converted upon the completion of
any public offering of the Common Stock to a number of shares of Common Stock
having a value, at 93% of the public offering price, of $2.0 million plus
interest at 8.0% per annum. Pursuant to the agreement governing the Equitystars
Acquisition, the contingent payments, if any, will be made at the end of 1996
and 1997 and, if the Convertible Preferred Stock has been converted into Common
Stock, will be made in Common Stock valued at the then-current market price. If
a public offering does not occur by June 30, 1996, holders of the Convertible
Preferred Stock have the right to 'put' those shares to IMC for an amount equal
to the liquidation preference of $100 per share plus interest at 8.0% per annum.
If the put is exercised, any contingency payments owed in respect of the
Equitystars Acquisition will be paid in cash.
Loan Underwriting
IMC's origination volume is generated primarily from correspondents selling
loans to IMC either on a flow basis or through block sales. For correspondents
and brokers that originate loans on a flow
45
<PAGE>
<PAGE>
basis, IMC provides them with its underwriting guidelines. Loan applications
received from correspondents and brokers on a flow basis are classified
according to certain characteristics including available collateral, loan size,
debt ratio, loan-to-value ratio and the credit history of the applicant. Loan
applicants with less favorable credit ratings generally are offered loans with
higher interest rates and lower loan-to-value ratios than applicants with more
favorable credit ratings. IMC also purchases loans on a block sale basis, in
which a correspondent makes several loans without the preapproval of the Company
and offers them to the Company for block purchase. Because IMC only chooses
loans that meet its underwriting requirements and reunderwrites them, block
loans follow the same underwriting guidelines as flow loan purchases.
IMC maintains a staff of 36 underwriters based in its Florida,
Pennsylvania, New Jersey, Ohio and Rhode Island offices. IMC's loan application
and approval process generally is conducted via facsimile submission of the
credit application to IMC's underwriters. An underwriter reviews the applicant's
credit history based on the information contained in the application and reports
available from credit reporting bureaus in order to determine if the applicant's
credit history is acceptable under IMC's underwriting guidelines. Based on this
review, the underwriter assigns a preliminary rating to the application. The
proposed terms of the loan are then communicated to the correspondent or broker
responsible for the application who in turn discusses the proposal with the loan
applicant. When a potential borrower applies for a loan through a branch office,
the underwriter will discuss the proposal directly with the applicant. IMC
endeavors to respond, and in most cases does respond, to the correspondent,
broker or borrower within one business day from when the application is
received. If the applicant accepts the proposed terms, the underwriter will
contact the broker or the loan applicant to gather additional information
necessary for the closing and funding of the loan.
All loan applicants must have an appraisal of their collateral property
prior to closing the loan. IMC requires correspondents and brokers to use
licensed appraisers that are listed on or qualify for IMC's approved appraiser
list. IMC approves appraisers based upon a review of sample appraisals,
professional experience, education, membership in related professional
organizations, client recommendations and review of the appraiser's experience
with the particular types of properties that typically secure IMC's loans. In
the case of loans purchased in blocks, if an appraisal was performed by an
appraiser that is not approved by IMC, IMC will review the appraisal and accept
it if the appraisal meets its underwriting standards.
The decision to provide a loan to an applicant is based upon the value of
the underlying collateral, the applicant's creditworthiness and IMC's evaluation
of the applicant's ability to repay the loan. A number of factors determine a
loan applicant's creditworthiness, including debt ratios (the borrower's average
monthly expenses for debts, including fixed monthly expenses for housing, taxes
and installment debt, as a percentage of gross monthly income), payment history
on existing mortgages and the combined loan-to-value ratio for all existing
mortgages on a property.
Assessment of the applicant's ability to pay is one of the principal
elements in distinguishing IMC's lending specialty from methods employed by
traditional lenders, such as thrift institutions and commercial banks. All
lenders utilize debt ratios and loan-to-value ratios in the approval process.
Many lenders simply use software packages to score an applicant for loan
approval and fund the loan after auditing the data provided by the borrower. In
contrast, IMC employs experienced non-conforming mortgage loan credit
underwriters to scrutinize the applicant's credit profile and to evaluate
whether an impaired credit history is a result of previous adverse circumstances
or a continuing inability or unwillingness to meet credit obligations in a
timely manner. Personal circumstances including divorce, family illnesses or
deaths and temporary job loss due to layoffs and corporate downsizing will often
impair an applicant's credit record. Among IMC's specialties is the ability to
identify and assist this borrower in the establishment of improved credit.
Upon completion of the loan's underwriting and processing, the closing of
the loan is scheduled with a closing attorney or agent approved by IMC. The
closing attorney or agent is responsible for completing the loan closing
transaction in accordance with applicable law and IMC's operating procedures.
Title insurance that insures IMC's interest as mortgagee and evidence of
adequate homeowner's insurance naming IMC as an additional insured are required
on all loans.
46
<PAGE>
<PAGE>
IMC has established classifications with respect to the credit profiles of
loans based on certain of the applicant's characteristics. Each loan applicant
is placed into one of four letter ratings 'A' through 'D,' with subratings
within those categories. Ratings are based upon a number of factors including
the applicant's credit history, the value of the property and the applicant's
employment status, and are subject to the discretion of IMC's trained
underwriting staff. Terms of loans made by IMC, as well as the maximum
loan-to-value ratio and debt service-to-income coverage (calculated by dividing
fixed monthly debt payments by gross monthly income), vary depending upon the
classification of the borrower. Borrowers with lower credit ratings generally
pay higher interest rates and loan origination fees. The general criteria
currently used by IMC's underwriting staff in classifying loan applicants are as
set forth below.
<TABLE>
<CAPTION>
'A' RISK 'B' RISK 'C' RISK 'D' RISK
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
General repayment.... Has repaid Has generally repaid May have experienced May have experienced
installment or installment or credit significant past significant past
revolving debt problems credit problems credit problems
Existing mortgage
loans.............. Current at Current at May not be current at Must be paid in full
application time and application time and application time and from loan proceeds
a maximum of two a maximum of three a maximum of four and no more than 149
30-day late payments 30-day late payments 30-day late payments days delinquent at
in the last 12 months in the last 12 months and one 60-day late closing and an
payment in the last explanation is
12 months required
Non-mortgage
credit............. Minor derogatory Some prior defaults Significant prior Significant prior
items allowed with a allowed but major delinquencies may defaults may have
letter of credit or installment have occurred, but occurred, but must
explanation; no open debt paid as agreed major credit or demonstrate an
collection accounts may offset some installment debt paid ability to maintain
or charge-offs, delinquency; open as agreed may offset regularity in payment
judgments or liens charge-offs, some delinquency of credit
judgments or liens obligations in the
are permitted on a future
case-by-case basis
Bankruptcy filings... Discharged more than Discharged more than Discharged more than Discharged prior to
four years prior to two years prior to one year prior to closing
closing and credit closing and credit closing and credit
reestablished reestablished reestablished
Debt service-to-
income ratio....... Generally 45% or less Generally 45% or less Generally 50% or less Generally 50% or less
Maximum loan-to-value
ratio:
Owner-occupied... Generally 80% (or Generally 80% (or Generally 75% (or 80% Generally 65% (or 70%
90%*) for a one- to 85%*) for a one- to for first liens*) for for first liens*) for
two-family residence; two-family residence a one- to two- family a one- to four- family
75% for a condominium residence; 65% for a residence; 60% for a
condominium; 60% for three- to four- family
a three- to residence or
four-family residence condominium
Non-owner-
occupied....... Generally 70% for a Generally 70% for a Generally 60% for a Generally 55% for a
one- to four-family one- to two-family one- to two-family one- to four-family
residence residence residence residence
</TABLE>
- ------------
* On an exceptional basis.
The Company uses the foregoing categories and characteristics as guidelines
only. On a case-by-case basis, the Company may determine that the prospective
borrower warrants an exception. Exceptions may generally be allowed if the
application reflects certain compensating factors such as loan-to-value ratio,
debt ratio, length of employment and other factors. For example, a higher debt
ratio may be acceptable with a lower loan-to-value ratio. Accordingly, the
Company may classify in a more favorable risk category certain mortgage loans
that, in the absence of such compensating factors, would satisfy only the
criteria of a less favorable risk category.
47
<PAGE>
<PAGE>
The following table sets forth certain information with respect to IMC's
loan purchases and originations by borrower classification, along with weighted
average coupons, for the periods shown.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
THREE MONTHS ENDED
1994 1995 MARCH 31, 1996
---------------------------- ---------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
% OF AVERAGE % OF AVERAGE % OF AVERAGE
BORROWER CLASSIFICATION TOTAL TOTAL COUPON TOTAL TOTAL COUPON TOTAL TOTAL COUPON
- --------------------------- -------- ----- -------- -------- ----- -------- -------- ----- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
'A' Risk................... $155,729 55.0% 10.6% $276,120 44.4% 11.4% $113,890 43.1% 10.7%
'B' Risk................... 74,527 26.3 11.6 177,149 28.5 12.0 74,444 28.2 11.3
'C' Risk................... 38,022 13.5 13.0 125,811 20.2 13.0 56,367 21.4 12.3
'D' Risk................... 14,646 5.2 14.4 42,549 6.9 14.4 19,286 7.3 13.5
-------- ----- -------- ----- -------- -----
Total...................... $282,924 100.0% $621,629 100.0% $263,987 100.0%
-------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- -----
</TABLE>
Loan Sales
Currently, IMC sells the loans it purchases or originates through one of
two methods: (i) securitization, which involves the private placement or public
offering of pass-through mortgage-backed securities; and (ii) whole loan sales,
which involve selling blocks of loans to single purchasers. This dual approach
allows IMC the flexibility to better manage its cash flow, take advantage of
favorable conditions in either the securitization or whole loan market when
selling its loan production, diversify its exposure to the potential volatility
of the capital markets and maximize the revenues associated with the gain on
sale of loans given market conditions existing at the time of disposition. For
the years ended December 31, 1994 and 1995 and the three months ended March 31,
1996, IMC sold $261.9 million, $458.8 million and $196.3 million, respectively,
of loan production.
The following table sets forth certain information with respect to IMC's
channels of loan sales by type of sale for the periods shown.
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION
(AUGUST 12, 1993)
YEAR ENDED DECEMBER 31,
THROUGH ---------------------------------------- THREE MONTHS
DECEMBER 31, 1993 ENDED
1994 1995 MARCH 31, 1996
----------------- ------------------ ------------------ ------------------
% OF % OF % OF % OF
TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
------- ----- -------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Whole loan sales.................... $21,636 100.0% $180,263 68.8% $70,400 15.3% $21,272 10.8%
Securitizations..................... 0 0.0 81,637 31.2 388,363 84.7 175,000 89.2
------- ----- -------- ----- -------- ----- -------- -----
Total loan sales............... $21,636 100.0% $261,900 100.0% $458,763 100.0% $196,272 100.0%
------- ----- -------- ----- -------- ----- -------- -----
------- ----- -------- ----- -------- ----- -------- -----
</TABLE>
Whole Loan Sales. Whole loan sales represented all of IMC's loan sales
during 1993. With the initiation of the sale of loans through securitizations,
whole loan sales declined to 15.3% and 10.8% of total loan sales for the year
ended December 31, 1995 and the three months ended March 31, 1996, respectively.
For each of the years ended December 31, 1994 and 1995, IMC sold loans to five
institutional investors. Upon the sale of a loan portfolio, IMC generally
receives a premium, representing a cash payment in excess of the par value of
the loans (par value representing the unpaid balance of the loan amount). IMC
maximizes its premium on whole loan sale revenue by closely monitoring
institutional investors' requirements and focusing on originating the types of
loans that meet those requirements and for which institutional purchasers tend
to pay higher rates.
IMC will sell some of its loan volume to various institutional investors on
a non-recourse basis with customary representations and warranties covering
loans sold. IMC may be required to repurchase loans pursuant to its
representation and warranties. Occasionally, IMC will agree to rebate a portion
of the premium earned if a loan is prepaid during a limited period of time after
sale, usually six months and no greater than one year. For the years ended
December 31, 1994 and 1995, IMC was required to rebate $287,347 and $167,951,
respectively, in premiums when certain loans prepaid during the
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<PAGE>
<PAGE>
contractual rebate period. In its purchase agreements with its correspondents,
IMC requires its correspondents to rebate premium payments if loans sold to IMC
are prepaid within a specified period of time after the sale. For the years
ended December 31, 1994 and 1995, related premium rebates due to IMC were
$89,113 and $1.4 million, respectively. For the fiscal quarter ended March 31,
1996, $22,309 in premium rebates was required to be paid by IMC and $946,510 was
due to IMC under premium rebate agreements.
Securitizations. To date, IMC has completed six securitizations. The
following table sets forth certain information with respect to IMC's
securitizations by offering size, (including prefunded amounts) weighted average
pass-through rate and credit rating of securities sold.
<TABLE>
<CAPTION>
WEIGHTED CREDIT
AVERAGE RATING OF
OFFERING SIZE PASS-THROUGH SECURITIES
SECURITIZATION COMPLETED (MILLIONS) RATE SOLD(1)
- --------------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
1994 - 1 11/18/94 $90.0 8.4 % AAA/Aaa
1995 - 1 03/17/95 110.0 8.2 AAA/Aaa
1995 - 2 07/26/95 120.0 7.0 AAA/Aaa
1995 - 3 11/16/95 150.0 6.6 AAA/Aaa
1996 - 1 02/07/96 175.0 6.1 AAA/Aaa
1996 - 2 04/24/96 200.0 7.0(2) AAA/Aaa
</TABLE>
- ------------
(1) Ratings by Standard & Poor's and Moody's, respectively.
(2) Fixed-rate tranches only.
During the year ended December 31, 1995, IMC sold $388.4 million of its
loan volume through securitizations. IMC markets its loan inventory through
securitization when management believes that employing this strategy will create
greater long-term economic benefit to IMC stockholders. Outstanding
securitizations include three public and three private offerings. When IMC
securitizes loans, it sells a portfolio of loans to a trust (the 'Home Equity
Loan Trust') and issues classes of certificates representing undivided ownership
interests in the Home Equity Loan Trust. In its capacity as servicer for each
securitization, the Company collects and remits principal and interest payments
to the appropriate Home Equity Loan Trust which in turn passes through payments
to certificate owners. IMC retains the servicing rights and an interest in the
I/O and residual classes of certificates.
Each Home Equity Loan Trust has purchased insurance policies from a
monoline insurance company, which insures the timely payment of interest and the
ultimate payment of principal of the AAA/Aaa-rated interests in the related
REMIC. In addition to such insurance policies, credit enhancement is provided by
over-collateralization, which is intended to result in receipts and collections
on the loans in excess of the amounts required to be distributed to holders of
senior certificate interests. Although expected loss is calculated into the
pricing of the REMIC, to the extent that borrowers default on the payment of
principal and interest above the expected rate of default, such loss will reduce
the value of the residual class certificate. If payment defaults exceed the
amount of over-collateralization, the insurance policy maintained by the Home
Equity Loan Trust will pay any further losses experienced by certificate holders
of the senior interests in the related REMIC trust. IMC partially owns the
residual interest of its completed securitizations. Management believes that
lessening IMC's reliance on the ContiFinancial I/O and residual certificate
sharing agreement will enhance the profit potential for IMC from future Home
Equity Loan Trust offerings. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Transactions with
ContiFinancial.' The remaining interests in the residual interests have been
transferred to ContiFinancial in exchange for cash at the time of the completion
of the securitization transaction.
IMC may be required either to repurchase or to replace loans which do not
conform to the representations and warranties made by IMC in the pooling and
servicing agreements entered into when the portfolios of loans are sold through
a securitization. IMC intends to continue to conduct loan sales through
securitizations, either in private placements or in public offerings, when
market conditions are attractive for such loan sales.
49
<PAGE>
<PAGE>
Loan Servicing and Collections
IMC has been servicing loans since April, 1994. IMC's loan servicing
operation is divided into three departments: (i) collections; (ii) customer
service for both borrowers and investors; and (iii) tax, insurance, and tax and
insurance escrow. These departments monitor loans, collect current payments due
from borrowers, remit principal and interest payments to current owners of loans
and pay taxes and insurance. The collections department furnishes reports and
enforces the holder's rights, including recovering delinquent payments,
instituting loan foreclosures and liquidating the underlying collateral. IMC
intends to increase its loan servicing operations and thus its revenue stream by
continuing to retain the servicing rights on all its securitized loans and
certain whole loan sales. IMC retained the servicing rights to 87.3% or $400.5
million in loans it sold in 1995 and to 98.9% or $194.1 million in loans it sold
in the three months ended March 31, 1996.
IMC funds and closes loans throughout the month. Most of IMC's loans
require a first payment 30 days after funding. Accordingly, IMC's servicing
portfolio consists of loans with payments due at varying times each month. This
system ameliorates the cyclical highs and lows that some servicing companies
experience as a result of heavily concentrated due dates.
As of March 31, 1996, IMC was servicing loans representing an aggregate of
$783.4 million. Revenues generated from loan servicing amounted to 7.8% of total
revenues for 1995 and 8.7% of total revenues for the three months ended March
31, 1996. IMC anticipates that loan servicing will contribute a larger portion
of total revenues in future periods. Management believes that the business of
loan servicing provides a consistent and profitable revenue stream to augment
its loan purchasing and originating activities.
IMC's collections policy is designed to identify payment problems
sufficiently early to permit IMC to quickly address delinquency problems and
when necessary, to act to preserve equity in a preforeclosure property. IMC
believes that these policies, combined with the experience level of independent
appraisers engaged by IMC, help to reduce the incidence of charge-offs of a
first or second mortgage loan.
Collection procedures commence upon identification of a past due account by
IMC's automated servicing system. If the first payment due is delinquent, a
collector will telephone to remind the borrower of the payment. Five days after
any payment is due, a written notice of delinquency is sent to the borrower.
Eleven days after payment is due, the account is automatically placed in the
appropriate collector's queue and the collector will send a late notice to the
borrower. During the delinquency period, the collector will continue to
frequently contact the borrower. Company collectors have computer access to
telephone numbers, payment histories, loan information and all past collection
notes. All collection activity, including the date collection letters were sent
and detailed notes on the substance of each collection telephone call, is
entered into a permanent collection history for each account. Additional
guidance with the collection process is derived through frequent communication
with IMC's senior management.
IMC's loan servicing software also tracks and maintains homeowners'
insurance information. Expiration reports are generated weekly listing all
policies scheduled to expire within 30 days. When policies lapse, a letter is
issued advising the borrower of the lapse and that IMC will obtain force-placed
insurance at the borrower's expense. IMC also has an insurance policy in place
that provides coverage automatically for IMC in the event that IMC fails to
obtain force-placed insurance.
Notwithstanding the above, there are occasions when a charge-off may be
necessary. Prior to a foreclosure sale, IMC performs a foreclosure analysis with
respect to the mortgaged property to determine the value of the mortgaged
property and the bid that IMC will make at the foreclosure sale. This analysis
includes: (i) a current valuation of the property obtained through a drive-by
appraisal conducted by an independent appraiser; (ii) an estimate of the sale
price of the mortgaged property obtained by sending two local realtors to
inspect the property; (iii) an evaluation of the amount owed, if any, to a
senior mortgagee and for real estate taxes; and (iv) an analysis of marketing
time, required repairs and other costs such as real estate broker fees, that
will be incurred in connection with the foreclosure sale.
50
<PAGE>
<PAGE>
All foreclosures are assigned to outside counsel located in the same state
as the secured property. Bankruptcies filed by borrowers are also assigned to
appropriate local counsel who are required to provide monthly reports on each
loan file.
The Company's servicing portfolio had aggregate principal balances of $0,
$92.0 million and $535.8 million at December 31, 1993, 1994 and 1995,
respectively, and $783.4 million at March 31, 1996.
The following table provides certain delinquency and default experience as
a percentage of outstanding principal balances of IMC's servicing portfolio for
the periods shown.
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, MARCH 31,
--------------- ---------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Delinquency percentages(1):
30-59 days.................................... 0.72% 2.54% 1.00% 1.73%
60-89 days.................................... 0.15 0.59 0.32 0.32
90+ days...................................... 0.00 0.30 0.00 0.26
---- ---- ---- ----
Total delinquency........................ 0.87% 3.43% 1.32% 2.31%
---- ---- ---- ----
---- ---- ---- ----
Default percentages(2):
Foreclosure................................... 0.00% 0.75% 0.12% 0.92%
Bankruptcy.................................... 0.12 0.25 0.00 0.30
Real estate owned............................. 0.00 0.16 0.00 0.18
---- ---- ---- ----
Total default............................ 0.12% 1.16% 0.12% 1.40%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
- ------------
(1) Represents the percentages of account balances contractually past due,
exclusive of home equity loans in foreclosure, bankruptcy or real estate
owned.
(2) Represents the percentages of account balances on loans in foreclosure,
bankruptcy or real estate owned.
The following table provides certain delinquency and default experience as
a percentage of outstanding principal balance for each of the Company's
securitization trusts, prior to any potential recoveries, as of March 31, 1996.
<TABLE>
<CAPTION>
1994-1 1995-1 1995-2 1995-3 1996-1
------------------ ------------------ ------------------ ------------------ ------------------
DOLLAR PERCENTAGE DOLLAR PERCENTAGE DOLLAR PERCENTAGE DOLLAR PERCENTAGE DOLLAR PERCENTAGE
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Delinquency(1):
30-59 days.............. $1,317 2.07% $2,287 2.80% $1,028 0.99% $2,451 1.74% $3,462 2.04%
60-89 days.............. 274 0.43 243 0.30 580 0.56 103 0.07 629 0.37
90+ days................ 39 0.06 191 0.23 120 0.11 359 0.26 534 0.31
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total.............. $1,630 2.56% $2,721 3.33% $1,728 1.66% $2,913 2.07% $4,625 2.72%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total defaults(2)....... $2,690 4.24% $2,241 2.75% $2,888 2.77% $1,666 1.19% $485 0.29%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
</TABLE>
- ------------
(1) Delinquency is the dollar value of account balances contractually past due,
excluding loans in foreclosure, bankruptcy or real estate owned.
(2) Defaults are the dollar value of account balances contractually past due on
loans in foreclosure, bankruptcy or real estate owned.
51
<PAGE>
<PAGE>
The following table describes certain loan loss experience of IMC's
servicing portfolio of home equity loans for the fiscal years ended December 31,
1994 and 1995 and for the three months ended March 31, 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1994 1995 1996
------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average amount outstanding(1).................................................. $52,709 $294,252 $ 706,357
Losses(2)...................................................................... 0 279 72
Losses as a percentage of average amount outstanding........................... 0.00% 0.09% 0.01%
</TABLE>
- ------------
(1) Average amount outstanding during the period is the arithmetic average of
the principal balances of home equity loans outstanding on the last business
day of each month during the period.
(2) Losses are actual losses incurred on liquidated properties for each
respective period. Losses include all principal, foreclosure costs and
accrued interest to date.
MARKETING
Correspondent and Broker Networks
Marketing to correspondents and brokers is conducted through IMC's business
development representatives who establish and maintain relationships with IMC's
principal sources of loan purchases and originations, including financial
institutions and mortgage bankers. The business development representatives
provide various levels of information and assistance to correspondents and
brokers and are principally responsible for maintaining IMC's relationships with
its networks. Business development representatives endeavor to increase the
volume of loan originations from brokers and correspondents located within the
geographic territory assigned to that representative. The representatives visit
customers' offices, attend trade shows and supervise advertisements in broker
trade magazines. The representatives also provide IMC with information relating
to correspondents, borrowers and brokers, and products and pricing offered by
competitors and new market entrants, all of which assist IMC in refining its
programs in order to offer competitive products. The business development
representatives are compensated with a base salary and commissions based on the
volume of loans that are purchased or originated as a result of their efforts.
Direct Consumer Lending
IMC markets its direct consumer lending services through nine branch
offices nationwide and intends to open eight new locations in 1996. IMC's direct
consumer loan expansion strategy involves: (i) targeting cities where the
population density and economic indicators are favorable for home equity
lending, the foreclosure rate is within normal ranges and the non-conforming
loan market has been underserved; (ii) testing the target market prior to the
establishment of a branch office, where local regulations permit, via newspaper,
radio and direct mail advertising and through a toll-free telephone number which
routes borrower inquiries directly to a loan officer in the Tampa, Florida
office; (iii) if test marketing is positive, establishing a small branch office,
generally with an initial staff of two business development representatives; and
(iv) setting up branch offices in executive office space with short-term leases,
which eliminates the need for IMC to pay high startup costs for office
equipment, furniture and leasehold improvements, and allows IMC to exit the
market easily if the office is not successful. The branch office network is used
for marketing to and meeting with IMC's local borrowers and brokers.
COMPETITION
As a mortgage banking company, IMC faces intense competition. Traditional
competitors in the financial services business include other mortgage banking
companies, commercial banks, credit unions, thrift institutions, credit card
issuers and insurance and finance companies. Many of these competitors in the
consumer finance business are substantially larger and have considerably greater
financial, technical
52
<PAGE>
<PAGE>
and marketing resources than IMC. In addition, many financial service
organizations have formed national networks for loan originations which are
substantially similar to IMC's loan programs. Competition can take many forms,
including convenience in obtaining a loan, service, marketing and distribution
channels, amount and term of the loan and interest rates. The current level of
gains realized by IMC and its existing competitors on the sale of loans is
attracting additional competitors into this market with the effect of lowering
gain on loan sales through increased loan origination competition. However, IMC
believes that the talents and experience of its employees together with its
large network of customer relationships in the non-conforming mortgage business
make it a strong competitor in the industry.
REGULATION
IMC's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. IMC's consumer lending activities
are subject to the Federal Truth-in-Lending Act and Regulation Z (including the
Home Ownership and Equity Protection Act of 1994), ECOA, the Fair Credit
Reporting Act of 1970, as amended, RESPA, and Regulation X, the Home Mortgage
Disclosure Act and the Federal Debt Collection Practices Act, as well as other
federal and state statutes and regulations affecting IMC's activities. IMC is
also subject to the rules and regulations of, and examinations by, HUD and state
regulatory authorities with respect to originating, processing, underwriting,
and servicing loans. These rules and regulations, among other things, impose
licensing obligations on IMC, establish eligibility criteria for mortgage loans,
prohibit discrimination, provide for inspections and appraisals of properties,
require credit reports on loan applicants, regulate assessment, collection,
foreclosure and claims handling, investment and interest payments on escrow
balances and payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan
amounts. Failure to comply with these requirements can lead to loss of approved
status, termination or suspension of servicing contracts without compensation to
the servicer, demands for indemnifications or mortgage loan repurchases, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions. IMC believes that it is in compliance in all
material respects with applicable federal and state laws and regulations.
ENVIRONMENTAL MATTERS
To date, IMC has not been required to perform any investigation or clean up
activities, nor has it been subject to any environmental claims. There can be no
assurance, however, that this will remain the case in the future. In the
ordinary course of its business, IMC from time to time forecloses on properties
securing loans. Although IMC primarily lends to owners of residential
properties, there is a risk that IMC could be required to investigate and clean
up hazardous or toxic substances or chemical releases at such properties after
acquisition by IMC, and may be held liable to a governmental entity or to third
parties for property damage, personal injury and investigation and cleanup costs
incurred by such parties in connection with the contamination. In addition, the
owner or former owners of a contaminated site may be subject to common law
claims by third parties based on damages and costs resulting from environmental
contamination emanating from such property.
EMPLOYEES
As of March 31, 1996, IMC had a total of 236 employees, 126 of whom were
working at its Tampa, Florida headquarters. None of IMC's employees is covered
by a collective bargaining agreement. IMC considers its relations with its
employees to be good. Several members of senior management have previously
worked as a team at other lending institutions. Many employees have been
associated with senior management in previous employment positions. IMC believes
that these long-term working relationships will continue to contribute to its
growth and success.
53
<PAGE>
<PAGE>
PROPERTIES
IMC's executive and administrative offices, including its servicing
operation and full-service production office, are located at 3450 Buschwood Park
Drive, Suite 250, Tampa, Florida, where IMC leases approximately 21,300 square
feet of office space at an aggregate annual rent of approximately $310,572. The
lease provides for certain scheduled rent increases and expires in August, 1998.
IMC maintains full-service offices in Ft. Washington, Pennsylvania,
Cincinnati, Ohio, Cherry Hill, New Jersey, Lincoln, Rhode Island, Bellevue,
Washington and Roselle, Illinois. The Ft. Washington office is located at 501
Office Center Drive, 4th floor, Ft. Washington, Pennsylvania 19034. The
Cincinnati office is located at 144 Merchant Street, Cincinnati, Ohio 45246. The
Cherry Hill office is located at 1060 North Kings Highway, Suite 303, Cherry
Hill, New Jersey 08034. The Lincoln office is located at 25 Blackstone Valley
Place, Lincoln, Rhode Island 02865. The Bellevue office is located at 10900 N.E.
8th Street, Suite 900, Bellevue, Washington 98004. The Roselle office is located
at E. Nerge Rd., Suite N140, Roselle, Illinois 60172. Further, IMC maintains
short-term leases for its branch offices in executive office space in West Des
Moines, Iowa, Atlanta, Georgia, St. Louis, Missouri, Brookfield, Wisconsin,
Englewood, Colorado, Jacksonville, Florida and Phoenix, Arizona. Preferred
Mortgages, IMC's joint venture in the UK, is located at Leconfield House, 7th
floor, Curzon Street, London, UK W147FB.
LEGAL PROCEEDINGS
IMC is a party to various routine legal proceedings arising out of the
ordinary course of its business. Management believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on the
results of operations or financial condition of IMC.
54
<PAGE>
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and executive officers of IMC and their ages and positions
are:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------ ---- -----------------------------------------------------
<S> <C> <C>
George Nicholas........................... 53 Chairman of the Board of Directors, Chief Executive
Officer and Assistant Secretary, Member of the
Compensation and Executive Committees
Thomas G. Middleton....................... 49 Director, President, Chief Operating Officer and
Assistant Secretary, Member of the Compensation and
Executive Committees
George Freeman............................ 59 Chief Financial Officer
Timothy W. Griffin........................ 40 Vice President
Susan W. McCarthy......................... 39 Vice President
Karen S. Bausman.......................... 43 Vice President
Laurie S. Wockenfuss...................... 32 Vice President and Secretary
David B. MacDonald........................ 39 Vice President
Dennis J. Pitocco......................... 43 Vice President/Director of European Operations
Jean S. Schwindt.......................... 40 Vice President/Director of Investor Relations and
Strategic Planning
Joseph P. Goryeb.......................... 65 Director, Member of the Audit and Option Committees
Mitchell W. Legler........................ 54 Director, Member of the Compensation and Audit
Committees
Allen D. Wykle............................ 49 Director, Member of the Audit and Option Committees
</TABLE>
George Nicholas has served as Chief Executive Officer and Chairman of the
Board of IMC since the formation of the corporation in December, 1995 and as
Assistant Secretary of IMC since April, 1996. Since his founding of the
Partnership in August, 1993, Mr. Nicholas has served as Chief Executive Officer
of the Partnership and Chairman of the Board and sole stockholder of IMCI, its
general partner. Mr. Nicholas' experience in the lending business spans 32
years. He has previously held positions at General Electric Credit Corp.,
Household Finance Corp. and American Financial Corporation of Tampa ('AFC'), a
company of which he was owner and Chief Executive Officer from its formation in
February, 1986 until it was acquired by Equibank in 1988. From February, 1988
until May, 1992, Mr. Nicholas was president of AFC, a subsidiary of Equibank
which was a wholesale lending institution specializing in the purchase of
non-conforming mortgage loans. From June, 1992 until July, 1993, Mr. Nicholas
was an independent mortgage industry consultant. In 1993, Mr. Nicholas organized
the original Industry Partners and headed negotiations with investment bankers
for the Partnership.
Thomas G. Middleton has served as Director and President of IMC since
December, 1995 and as Assistant Secretary of IMC since April, 1996. Mr.
Middleton has served as Chief Operating Officer of the Partnership since August,
1993 and as President of the Partnership since July, 1995. Mr. Middleton has 26
years of experience in the lending business. From April, 1992 until August, 1993
Mr. Middleton was Senior Vice President with Shawmut National Corporation and
from February, 1991 until April, 1992, Mr. Middleton was Managing Director of
STG Financial Inc. Mr. Middleton served as Executive Vice President and Chief
Credit Officer of Equimark Corp. from June, 1987 until February, 1991.
George Freeman has served as Chief Financial Officer of IMC since April,
1996. Mr. Freeman has served as Chief Financial Officer of IMCI since April,
1995. Mr. Freeman has 23 years of experience in the lending business. From
November, 1991 until January, 1995 Mr. Freeman was a Senior Vice President of
Margaretten & Company, Inc., a lending institution specializing in purchasing,
originating and servicing mortgage loans. Mr. Freeman was responsible for the
areas of taxes, servicing acquisitions and finance. From 1987 until 1991, Mr.
Freeman was Senior Vice President and Chief Financial Officer of Margaretten &
Company, Inc. Mr. Freeman is a certified public accountant.
55
<PAGE>
<PAGE>
Timothy W. Griffin has served as a Vice President of IMC since April, 1996.
Mr. Griffin has served as Vice President of the Partnership since its inception
in August, 1993. Mr. Griffin has 16 years of experience in the mortgage lending
business. Mr. Griffin is primarily responsible for managing the loan
underwriting department in IMC's Tampa, Florida office and directing loan
acquisition activity. Mr. Griffin served as Vice President and National Sales
Manager for AFC from 1990 through 1993. He held the position of Vice President
with Essex Mortgage Corporation from 1980 to 1990.
Susan W. McCarthy has served as a Vice President of IMC since April, 1996.
Ms. McCarthy has served as Vice President of the Partnership since September,
1993. Ms. McCarthy is primarily responsible for the underwriting, funding and
acquisition of loans for the Pennsylvania regional office. Ms. McCarthy has 14
years of experience in the mortgage lending business. From December, 1988 to
September, 1993, Ms. McCarthy was Senior Vice President of AFC, where she was
responsible for managing the direct loan division. From April, 1982, to
December, 1988, Ms. McCarthy was Vice President of Advanta Mortgage USA/Apex
Financial Corporation, where she was an underwriter of non-conforming loans.
Karen S. Bausman, Vice President of IMC, joined the Company in April, 1994.
Ms. Bausman has 17 years of experience in the mortgage lending business and was
director of national credit and client support for Advanta Mortgage, a
non-conforming mortgage company from March, 1992 to April, 1994. From March,
1991 to April, 1992, Ms. Bausman ran an independent credit portfolio consulting
firm. Ms. Bausman's prior experience includes positions with Landmark Financial
Services Inc. and Associates Financial Services Company.
Laurie S. Wockenfuss joined the Company in November, 1993 and has served as
Vice President and Secretary of IMC since April, 1996. Ms. Wockenfuss is
primarily responsible for trust administration of asset-backed securities,
administration of state mortgage lending licenses and federal Home Mortgage
Disclosure Act reporting. Ms. Wockenfuss has nine years of experience in the
mortgage lending industry, having served as Vice President of AFC from October,
1991 to October, 1993 and as Secondary Marketing Officer of The Dime Savings
Bank of New York from October, 1988 to June, 1990. From January, 1991 to
October, 1991, Ms. Wockenfuss attended The Crummer Graduate School of Business
at Rollins College.
David B. MacDonald has served as Vice President of IMC since January, 1996,
as of IMC's acquisition of Equitystars. Mr. MacDonald has 17 years of experience
in the lending business. Mr. MacDonald was the owner of Equitystars since its
inception in 1979. Mr. MacDonald owned and operated Equitysafe, one of the
original Industry Partners.
Dennis J. Pitocco has served as Vice President/Director of European
Operations of IMC since March, 1996. Mr. Pitocco has 22 years of experience in
the consumer financial services industry, having served in executive level
positions at a number of major banking institutions. From June, 1995 to
February, 1996 Mr. Pitocco served as Senior Vice President and General Manager
of Boatmen's Bancshares. From July, 1992 to April, 1995, Mr. Pitocco served as
Senior Vice President and General Manager of PNC Bank. From 1986 to July, 1992,
Mr. Pitocco served as Senior Vice President of Equimark Corporation, also
serving as Executive Vice President of AFC from May, 1991 to July, 1992.
Jean S. Schwindt has served as Vice President/Director of Investor
Relations and Strategic Planning since March, 1996. Ms. Schwindt has 19 years of
experience in the financial services industry, having served from April, 1989 to
March, 1996 as Senior Vice President/Director and Secretary of Anderson and
Strudwick Inc., a member of the New York Stock Exchange and full-service broker.
Since 1992 Ms. Schwindt has served as a director of American Industrial Loan
Association, a non-conforming mortgage lending institution. Ms. Schwindt is a
Chartered Financial Analyst and is a Registered Investment Advisor.
Joseph P. Goryeb has served as a director of IMC since April, 1996. Mr.
Goryeb is the Chairman and Chief Executive Officer of Champion Mortgage Co.
Inc., a leading non-conforming residential mortgage institution that was founded
by Mr. Goryeb in 1981. His 40 years of experience in the consumer lending
industry include previous positions with Beneficial Finance Company and Suburban
Finance Company.
Mitchell W. Legler has served as a director of IMC since April, 1996. Mr.
Legler is the sole stockholder of Mitchell W. Legler, P.A. and has been general
counsel to IMC since August, 1995. Mr.
56
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Legler is currently a director of Stein Mart, Inc. a Nasdaq listed company. From
January, 1991 to August, 1995, Mr. Legler was a partner of Foley & Lardner,
prior to which he was a partner of Commander, Legler, Werver, Daws, Sadler &
Howell, P.A.
Allen D. Wykle has served as a director of IMC since April, 1996. Mr. Wykle
has been the Chairman of the Board and Chief Executive Officer of American
Industrial Loan Association, a non-conforming mortgage lending institution since
1984, for which Mr. Wykle negotiated the initial public offering in April, 1992.
Mr. Wykle was owner, President and Chief Executive Officer of Best Homes of
Tidewater, Inc., a residential construction and remolding company in Virginia
from 1972 to 1986.
TERMS OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provide that the Company's Board of
Directors consist of such number of persons as shall be fixed by the Board of
Directors from time to time by resolution and to be divided into three classes,
with each class to be as nearly equal in number of directors as possible. The
Company's Bylaws provide that the Board of Directors shall consist of no fewer
than one nor more than 10 persons (currently there are five directors). The term
of office of the directors in each of the three classes expires at the annual
meetings of stockholders in 1997 through 1999, respectively. At each annual
meeting, the successors to the class of directors whose term expires at that
time are to be elected to hold office for a term of three years, and until their
respective successors are elected and qualified, so that the term of one class
of directors expires at each such annual meeting. In the case of any vacancy on
the Board of Directors, including a vacancy created by an increase in the number
of directors, the vacancy will be filled by election of the Board of Directors,
with the director so elected to serve for the remainder of the term of the
director being replaced; any newly-created directorships or decreases in
directorships are to be assigned by the Board of Directors so as to make all
classes as nearly equal in number as possible. Directors may be removed only for
cause. See 'Description of Capital Stock -- Provisions of Articles of
Incorporation and Bylaws.' Officers are elected annually and serve at the
discretion of the Board of Directors.
COMMITTEES OF THE BOARD
Audit Committee. The Audit Committee consists of Messrs. Goryeb, Legler and
Wykle. The Audit Committee will make recommendations concerning the engagement
of independent public accountants, review with the independent public
accountants the plans and results of the audit engagement, approve professional
services provided by the independent public accountants, review the independence
of the independent public accountants, consider the range of audit and non-audit
fees and review the adequacy of the Company's internal accounting controls.
Compensation Committee. The Compensation Committee consists of Messrs.
Nicholas, Middleton and Legler. The Compensation Committee will determine the
compensation of the Company's executive officers. Previously, Messrs. Nicholas
and Middleton have determined the compensation of the executive officers of the
Partnership.
Other Committees. The Board of Directors may establish other committees as
deemed necessary or appropriate from time to time, including, but not limited
to, an Executive Committee of the Board of Directors.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive stock options
pursuant to the Directors' Stock Option Plan (the 'Directors' Plan'). Each of
Messrs. Goryeb, Legler and Wykle has received options to purchase 6,466 shares
of Common Stock pursuant to the Directors' Plan. See ' -- Stock Option
Plans -- Directors' Plan.' None of the directors of the Company has received any
separate compensation for service on the Board of Directors or on any committee
thereof. Following the consummation of the Public Offering, the Company expects
to pay non-employee directors $6,000 per year plus $2,500 for each meeting
attended. All directors will receive reimbursement of reasonable out-of-pocket
expenses incurred in connection with meetings of the Board of Directors. No
director who is an employee of the Company will receive separate compensation
for services rendered as a director.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made to each of the Named Executive Officers for the year ended December 31,
1995. No stock appreciation rights were granted to these individuals during such
year:
<TABLE>
<CAPTION>
INDIVIDUAL GRANT POTENTIAL REALIZABLE
----------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PER SHARE OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE ----------------------------------
NAME GRANTED(1) FISCAL YEAR PRICE(2) EXPIRATION DATE 5% 10%
- ------------------------------------- --------- ------------- --------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
George Nicholas...................... 282,866 49.16% $4.70 12/11/05 $836,097 $2,118,833
Thomas G. Middleton.................. 141,433 24.58 4.70 12/11/05 418,048 1,059,474
Timothy W. Griffin................... 21,013 3.65 4.70 12/11/05 62,110 157,400
Susan W. McCarthy.................... 21,013 3.65 4.70 12/11/05 62,110 157,400
Karen S. Bausman..................... 12,931 2.25 4.70 12/11/05 38,224 96,866
</TABLE>
- ------------
(1) Each option was granted on December 11, 1995 and was immediately exercisable
to the extent of 60% of the option shares, with an additional 20% to vest on
the first anniversary of the grant date and the remaining 20% to vest on the
second anniversary of the grant date.
(2) The exercise price may be paid in cash, in shares of Common Stock valued at
fair market value on the date of exercise or pursuant to a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company may
also allow the optionee to pay the aggregate exercise price plus any tax
liability incurred in connection with the exercise with a promissory note.
The plan administrator has the discretionary authority to reprice the
options through the cancellation of those options and grant of replacement
options with an exercise price based on the fair market value of the option
shares on the regrant date.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are permitted by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants made to
the executive officers.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information concerning the value of
unexercised options held by each of the Named Executive Officers for the year
ended December 31, 1995. No options or stock appreciation rights were exercised
during such year and no stock appreciation rights were outstanding at the end of
that year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END(1)
---------------------------- -------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- ------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C>
George Nicholas.......... 169,720 113,146 $ 0 $ 0
Thomas G. Middleton...... 84,860 56,573 0 0
Timothy W. Griffin....... 12,608 8,405 0 0
Susan W. McCarthy........ 12,608 8,405 0 0
Karen S. Bausman......... 7,759 5,172 0 0
</TABLE>
- ------------
(1) Based on the fair market value of the option shares at fiscal year-end
($4.70 per share) less the exercise price ($4.70 per share) payable for such
shares.
58
<PAGE>
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS
No interlocking relationship exists between the Company's Board of
Directors or officers responsible for compensation decisions and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding compensation
paid and accrued during fiscal 1995 to the Company's Chief Executive Officer and
the other executive officers of the Company whose compensation exceeded $100,000
(collectively, the 'Named Executive Officers').
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS (#)(2)
- ------------------------------------------------ ---- -------- -------- --------------- --------------
<S> <C> <C> <C> <C> <C>
George Nicholas, Chairman of the Board, Chief
Executive Officer and Assistant Secretary..... 1995 $233,492 $100,000 $ 4,927 282,866
Thomas G. Middleton, President, Chief Operating
Officer and Assistant Secretary............... 1995 208,144 25,000 6,500 141,433
Timothy W. Griffin, Vice President.............. 1995 95,185 10,000 2,925 21,013
Susan W. McCarthy, Vice President............... 1995 95,185 10,000 2,925 21,013
Karen S. Bausman, Vice President................ 1995 103,493 0 2,250 12,931
</TABLE>
- ------------
(1) Represents matching contributions by IMC under the IMC Savings Plan, a
defined contribution plan under Section 401(k) of the Internal Revenue Code,
as amended.
(2) Represents number of shares of Common Stock underlying options. Includes
options granted under the Partnership Option Plan, as amended.
Employment Agreements
The Company has employment agreements with George Nicholas, its Chairman
and Chief Executive Officer, and Thomas G. Middleton, its President and Chief
Operating Officer (the 'Employment Agreements').
Mr. Nicholas' previous employment agreement commenced on July 1, 1993 and
was replaced as of January 1, 1996. The previous agreement provided for an
annual salary of $220,000, plus an increase of $25,000 commencing each
September. In addition, the agreement provided for payment of a bonus of
$100,000 for the first 12-month period and $125,000 for each 12-month period
thereafter if the pre-tax gross operating income of the Company exceeded certain
specified levels.
Mr. Nicholas' current Employment Agreement commenced on January 1, 1996 and
terminates on December 31, 2001 (subject to a five-year extension). The
Employment Agreement provides for an annual salary of $475,000, plus an increase
each year of the greater of (i) the change in the cost of living in the Tampa,
Florida, or (ii) an amount equal to 10% of the base salary for the prior year,
but only if the Company has achieved an increase in net income on an earnings
per share basis of 10% or greater. In addition, the Employment Agreement
provides for payment of a bonus equal to 15% of the base salary of the relevant
year for each one percent by which the increase in net income on an earnings per
share basis exceeds 10% up to a maximum of 300% of his base salary. For example,
if the increase in net income on an earnings per share basis for a particular
year were 20%, the bonus payment would equal 150% of the base salary for such
year. The Employment Agreement also provides that the Company shall use its best
efforts to elect Mr. Nicholas to the Company's Board of Directors and to its
Executive Committee, if constituted. Mr. Nicholas' employment may be terminated
by the Company at any time for 'cause' (including material breach of the
Employment Agreement, certain criminal or intentionally dishonest and misleading
acts, breaches of confidentiality and failure to follow directives of
59
<PAGE>
<PAGE>
the Board). If Mr. Nicholas is terminated for cause or voluntarily terminates
his employment (in the absence of a Company breach or a 'change of control') he
does not receive any deferred compensation. Mr. Nicholas is entitled to deferred
compensation upon (i) his termination by the Company without cause, (ii) the
Company's failure to renew his Employment Agreement on expiration, (iii) death
or disability, (iv) voluntary termination after a material breach by the
Company, and (v) voluntary termination after a 'change of control' (defined as
any (A) acquisition of 50% or more of the equity of the Company before a public
offering, or 25% after a public offering, has occurred, (B) change in a majority
of the members of the Board excluding any change which was approved by the
Board, or (C) approval by the Company's stockholders of a liquidation or
dissolution of the Company, the sale of substantially all of its assets, or a
merger in which the Company's stockholders own a minority interest of the
surviving entity). The amount, if any, of deferred compensation payable to Mr.
Nicholas will be determined at the time of termination equal to the greater of
(i) his base salary for the remainder of the then-current term of the Employment
Agreement, or (ii) an amount equal to 150% of the highest annualized
compensation earned by him during the preceding three years; provided, however,
that if the deferred compensation calculation is made prior to January 1, 1997,
the deferred compensation shall be $3.0 million. Receipt of deferred
compensation is Mr. Nicholas' sole remedy in the event of a wrongful termination
by the Company. Mr. Nicholas' Employment Agreement contains a restrictive
covenant prohibiting him, for a period of 18 months following the termination of
employment for any reason, from competing with the Company within the
continental United States or from soliciting any employees from the Company who
are earning in excess of $50,000 per year. However, this restrictive covenant is
not applicable if Mr. Nicholas is terminated without cause or if the Company
defaults in the payment of deferred compensation to Mr. Nicholas.
Mr. Middleton's previous employment agreement commenced on September 1,
1993 and was replaced as of January 1, 1996. The previous agreement provided for
an annual salary of $200,000. Upon a change of control or an initial public
offering of stock of the Company, Mr. Middleton would have been entitled to a
payment of $250,000.
Mr. Middleton's current Employment Agreement commenced on January 1, 1996
and extends until December 31, 2001 (subject to a five-year extension). The
terms of Mr. Middleton's Employment Agreement are substantially the same as
those of Mr. Nicholas' Employment Agreement, with the exception that Mr.
Middleton's annual salary is $380,000, plus increases as provided therein.
The Company also has an employment agreement with David MacDonald, Vice
President. Mr. MacDonald's employment agreement commenced on January 1, 1996 and
extends until December 31, 1998, unless terminated upon 30 days' notice by
either party. The agreement provides for an annual salary of $145,000, plus
increases based on the percentage increase, if any, in the Consumer Price Index.
STOCK OPTION PLANS
On December 11, 1995, the Partnership approved the Partnership Option Plan.
In April, 1996, in anticipation of the transactions to be effected pursuant to
the Reorganization Plan, the Company's Board of Directors adopted and the
stockholders of the Company approved two separate plans: the Company Incentive
Plan (the 'Incentive Plan') and the Directors' Stock Option Plan (the
'Directors' Plan'). In connection with the Reorganization Plan, all options
granted under the Partnership Option Plan were assumed by the Company pursuant
to the Incentive Plan and the Directors' Plan.
The maximum aggregate ownership interest in the Company which can be
granted pursuant to the Incentive Plan and the Directors' Plan is 12.0% of the
outstanding interest of the Company as such outstanding equity interests existed
as of December 11, 1995. Accordingly, the maximum number of shares which may be
subject to the grant of options under the Incentive Plan and the Directors' Plan
is 957,727 shares and 65,000 shares, respectively.
Incentive Plan
Purpose. The purpose of the Incentive Plan is to promote the interests of
the Company and its stockholders by attracting and retaining highly competent
individuals to serve as key employees and as non-employee advisors who will
contribute to the Company's success and to motivate such persons to achieve
long-term objectives which will inure to the benefit of the Company.
60
<PAGE>
<PAGE>
Administration/Eligible Participants. The Incentive Plan is administered by
a committee (the 'Committee') appointed by the Company's Board of Directors. The
persons eligible to receive stock option grants under the Incentive Plan are any
officer or other key employee of the Company or any affiliate who is in a
position to make a significant contribution to the management, growth or
profitability of the Company or any affiliate as determined by the Committee
('Key Employees'), and any consultant or independent contractor who is not an
employee of the Company or an affiliate but is in a position to make a
significant contribution to the management, growth or profitability of the
Company or any affiliate as determined by the Committee ('Non-Employee
Advisors').
The Committee has the sole power and authority, among other things to: (i)
designate persons to be participants in the Incentive Plan ('Participants'),
(ii) determine the type, amount, duration and other terms and conditions of
grants awarded to Participants, (iii) interpret and administer the Incentive
Plan and (iv) waive any condition or other restriction with respect to any
option granted pursuant to such plan.
Awards. The Company has granted options under the Incentive Plan to acquire
8.2% of the Common Stock of the Company. Of those grants, the following persons
received options:
<TABLE>
<CAPTION>
PARTICIPANT SHARES SUBJECT TO OPTIONS
- ------------------------------------------------------------------------------ -------------------------
<S> <C>
George Nicholas
Chairman and Chief Executive Officer........................................ 282,866
Thomas G. Middleton
President and Chief Operating Officer....................................... 141,433
Other key employees, directors and advisors................................... 246,283
----------
Total.................................................................... 670,582
----------
----------
</TABLE>
On December 11, 1995, the Partnership granted Mr. William Dacey an option
to acquire a 0.08% interest in the Partnership at an exercise price of $3,802
for each 0.01% interest in return for Mr. Dacey's assistance in organizing the
Partnership and negotiating the Partnership's initial credit facility.
Terms and Conditions of Options Granted Under the Incentive Plan.
Non-qualified and incentive stock options granted under the Incentive Plan are
subject to such terms, including exercise price, conditions and timing of
exercise, as may be determined by the Committee. However, all options shall be
granted with an exercise price of not less than 100% of the fair market value of
the interest in the Company subject to such options as of the date of each
grant. The Committee is authorized to grant appreciation rights to participants
in lieu of options.
Options granted on December 11, 1995 were granted at an exercise price of
$3,802 for each 0.01% interest in the Company as of December 11, 1995. Upon
completion of the Public Offering, options for each 0.01% interest in the
Partnership will, subject to vesting, be exercisable into 808.2 shares of Common
Stock at an exercise price of $4.70 per share. Sixty percent of all options
granted on December 11, 1995 vested upon their grant, with an additional 20% to
vest on the first anniversary of the grant date and the remaining 20% to vest on
the second anniversary of the grant date.
On May 22, 1996, the Option Committee granted options to new employees and
additional options to certain existing key employees and advisors. Options
exercisable into 40,000 shares of common stock at an exercise price of $16 per
share were granted to new employees, to vest 20% at the end of their first year
of employment and 1 2/3% each month thereafter, in order to be fully vested at
the end of five years. In addition, options exercisable into 55,151 shares were
also granted to existing employees and advisors at an exercise price of $16 per
share, to vest 60% on grant and 1 2/3% each month thereafter, in order to be
fully vested at the end of two years.
If the employment or advisor relationship of any Participant is terminated
for any reason other than death or disability, all unvested options held by such
Participant shall be automatically canceled, provided that all unvested options
of a Key Employee or Non-Employee Advisor will vest when the employee is
terminated by the Company without cause. Additionally, all unvested options will
vest upon the occurrence of a change of control. In effect, a change of control
is: (i) the adoption of a plan of reorganization, merger, share exchange or
consolidation of the Company with one or more other entities as a result of
which the holders of Common Stock as a group would receive less than 50% of the
voting power of the capital stock or other interests of the surviving or
resulting entity; (ii) the adoption
61
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<PAGE>
of a plan of liquidation or the approval of the dissolution of the Company;
(iii) the approval by the Board of Directors of an agreement providing for the
sale or transfer of the assets of the Company; or (iv) the acquisition of more
than 20% of the outstanding shares of Common Stock by any person within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended, if
such acquisition is not preceded by a prior expression of approval by the Board
of Directors.
The options granted under the Incentive Plan are exercisable for a period
of 10 years, provided, however, that if a Key Employee or Non-Employee Advisor
is terminated for cause, all unexercised options (whether vested or non-vested)
shall be immediately forfeited. In addition, if a Key Employee or Non-Employee
Advisor terminates such Participant's relationship with the Company voluntarily,
then all unexercised but vested options may be exercised for a period of six
months following such termination. If termination is as a result of disability
or death, the Participant (or such Participant's personal representative) shall
have a period of one year following such termination to exercise vested options.
All awards made to date under the Incentive Plan have been non-qualified
options.
Adjustments. In the event that the Committee determines any corporate
transaction or event affects the interest in the Company subject to options
granted pursuant to the 1995 Stock Plan, then the Committee may take such steps
to adjust the benefits due under the Incentive Plan in such a manner as to
prevent dilution or enlargement of benefits or potential benefits intended to be
made available under the Incentive Plan.
Transferability. Each award under the Incentive Plan shall be exercisable
only by the Participant (or the Participant's legal representative) and is not
subject to transfer except with the permission of the Committee to family
members without consideration.
Directors' Plan
The Directors' Plan provides for the automatic grant of non-qualified stock
options to directors who are not employees of the Company or any affiliate. Each
of Messrs. Goryeb, Legler and Wykle has received options to purchase 6,466
shares of Common Stock at an exercise price of $4.70 per share. Any other person
who becomes an outside director will receive on the date of election to the
Board, options to purchase 6,466 shares of Common Stock at an exercise price
equal to the fair market value of the Common Stock on the date of grant. All
options granted under the Directors' Plan are 60% vested on the date of grant,
with an additional 20% vesting on the first and second anniversary dates of
grant, respectively. All unvested options will vest upon the occurrence of a
change of control. Options granted under the Directors' Plan will expire on the
earlier of the tenth anniversary date of grant, the date that the director
ceases to be a director for any reason other than death or disability, or one
year after a director ceases to be a director by reason of death or disability.
Industry Partners' Incentive Plan
At the time the Partnership became a subsidiary of the Company, the
Industry Partners were given an opportunity to double the monthly dollar amount
of mortgage loans which they committed to sell to the Company. To encourage
Industry Partners to continue to sell even more mortgage loans than required
under their commitments, the Company has created an incentive option plan for
Industry Partners (the 'Industry Partners' Incentive Plan'). Under that Plan,
options to acquire 10,000 shares of the Company's common stock at the price at
which shares are sold to the public in the Public Offering will be awarded to
Industry Partners each calendar quarter beginning September 30, 1996. The 10,000
options will be allocated among those Industry Partners which doubled their
commitments, pro rata, to the extent the Industry Partners exceeded that doubled
commitment for the calendar quarter. The Industry Partners' Incentive Plan will
continue for five years, with a total of 200,000 options available under such
Plan. All options granted will be exercisable for five years after their
respective dates of grant.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of the Common Stock after giving effect to the transactions described in the
Reorganization Plan, of: (i) each person known by the Company to own
beneficially five percent or more of the outstanding Common Stock immediately
prior to the Public Offering; (ii) each of the Company's directors; (iii) each
of the executive officers named in the Summary Compensation Table; and (iv) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE PUBLIC OFFERING THE PUBLIC OFFERING(1)
----------------------------- -----------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OF CLASS NUMBER PERCENT OF CLASS
- ----------------------------------------------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
ContiTrade Services Corporation(2) .................. 1,350,000 17.72% 1,350,000 12.59%
277 Park Avenue
New York, New York 10172
Branchview, Inc.(14) ................................ 830,928 13.25 830,928 8.87
989 McBride Avenue
West Patterson, New Jersey 07424
JRJ Associates Inc. ................................. 572,669 9.13 572,669 6.11
20 Waterview Blvd.
Parsippany, New Jersey 07054
Cityscape Corp.(15) ................................. 545,455 8.70 545,455 5.82
565 Taxter Road
Elmsford, New York 10523-2300
Mortgage America(16) ................................ 567,226 9.05 567,226 6.05
305 5th Street, Suite 200
Bay City, Michigan 48708
Investors Mortgage, a Washington LP(3) .............. 494,988 7.89 494,988 5.28
10220 N.E. Points Drive, Suite 200
Kirkland, Washington 98033
American Industrial Loan Association ................ 599,884 9.57 599,884 6.40
3420 Holland Road, Suite 107
Virginia Beach, Virginia 23452
The Money Store(17) ................................. 381,584 6.09 381,584 4.07
3301 C Street, Suite 100M
Sacramento, California 95816
George Nicholas(4) .................................. 715,175 11.11 715,175 7.50
3450 Buschwood Park Drive
Tampa, Florida 33618
Thomas G. Middleton(5) .............................. 188,209 2.96 192,097 2.03
3450 Buschwood Park Drive
Tampa, Florida 33618
Karen S. Bausman(6) ................................. 13,759 0.22 14,037 0.15
3450 Buschwood Park Drive
Tampa, Florida 33618
Susan W. McCarthy(7) ................................ 104,733 1.67 104,733 1.12
3450 Buschwood Park Drive
Tampa, Florida 33618
Timothy W. Griffin(7) ............................... 32,962 0.52 33,517 0.36
3450 Buschwood Park Drive
Tampa, Florida 33618
David McDonald(8) ................................... 273,412 4.36 273,412 2.92
3450 Buschwood Park Drive
Tampa, Florida 33618
Joseph P. Goryeb(9)(13) ............................. 576,549 9.19 590,437 6.30
Waterview Corporate Centre
20 Waterview Boulevard
Parsippany, New Jersey 07054-1267
</TABLE>
(table continued on next page)
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<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE PUBLIC OFFERING THE PUBLIC OFFERING(1)
----------------------------- -----------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OF CLASS NUMBER PERCENT OF CLASS
- ----------------------------------------------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Allen D. Wykle(9)(12) ............................... 3,880 0.06% 9,435 0.10%
3420 Holland Road
Virginia Beach, Virginia 23452
Mitchell W. Legler(9)(10) ........................... 22,487 0.36 36,375 0.39
Independent Drive, Suite 3104
Jacksonville, Florida 32202
All directors and executive officers as a group (13
persons)(11)....................................... 1,958,923 29.53 2,011,141 20.66
</TABLE>
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(1) Gives effect to shares of Common Stock issued pursuant to the Directed Share
Program.
(2) Includes 1,350,000 shares of Common Stock issuable upon the exercise of the
immediately exercisable Conti Warrant.
(3) Shares owned through Investors Mortgage, a Washington LP. The voting power
with respect to these shares is held by Seattle Management Company the
general partner of Investors Mortgage, a Washington LP.
(4) Includes vested options to purchase 169,720 shares of Common Stock pursuant
to the Incentive Plan.
(5) Includes vested options to purchase 84,860 shares of Common Stock pursuant
to the Incentive Plan.
(6) Includes vested options to purchase 13,759 shares of Common Stock held
pursuant to the Incentive Plan.
(7) Includes vested options to purchase 18,608 shares of Common Stock held
pursuant to the Incentive Plan.
(8) Includes 245,455 shares of Common Stock owned by Equitysafe. Mr. McDonald,
who owns 61% of the partnership interest of Equitysafe, has voting and
investment control of the Common Stock owned by Equitysafe. Also includes
18,095 shares of Common Stock issuable to Mr. McDonald upon conversion of
the Convertible Preferred Stock.
(9) Includes vested options to purchase 3,880 shares of Common Stock held
pursuant to the Director's Plan.
(10) Includes vested options to purchase 22,487 shares of Common Stock held
pursuant to the Incentive Plan.
(11) Includes vested options to purchase 363,559 shares of Common Stock held
pursuant to various stock option plans.
(12) Excludes 599,884 shares of Common Stock owned by American Industrial Loan
Association. Mr. Wykle, who owns 32% of the voting stock of American
Industrial Loan Association, has voting, but not investment control of the
Common Stock owned by American Industrial Loan Association. Mr. Wykle
disclaims beneficial ownership of the 599,884 shares of Common Stock owned
by American Industrial Loan Association.
(13) Includes 572,669 shares of Common Stock owned by JRJ Associates, Inc. Mr.
Goryeb has voting and investment control of the Common Stock owned by JRJ
Associates, Inc.
(14) Excludes 55,000 shares bought in the Directed Share Program by shareholders
of Branchview, Inc.
(15) Excludes 4,500 shares bought in the Directed Share Program by shareholders
of Cityscape Corp.
(16) Excludes 8,000 shares bought in the Directed Share Program by shareholders
of Mortgage America.
(17) Excludes 8,000 shares bought in the Directed Share Program by shareholders
of The Money Store.
The following Industry Partners are not included in this table because they
own less than 5% of the Common Stock: Joel E. Furst and Stan L. Furst,
Equitysafe, Portfolio Placement Partners, Mr. Lillienfield, Equity Mortgage, a
Maryland LP and Investaid Corporation.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since its inception, the Company has had business relationships and engaged
in certain transactions with affiliated companies and parties as described
below. It is the policy of the Company to engage in transactions with related
parties only on terms that, in the opinion of the Company, are no less favorable
to the Company than could be obtained from unrelated parties and each of the
transactions described below conforms to that policy.
PARTNERSHIP AGREEMENT
The Partnership was formed as a limited partnership in 1993 and capitalized
pursuant to the Original Partnership Agreement (the 'Original Partnership
Agreement') dated as of July 1, 1993 among American Industrial Loan Association;
Champion Mortgage Co. Inc.; Cityscape Corp.; Equitysafe, a Rhode Island General
Partnership; Investors Mortgage, a Washington LP; Mortgage America Inc.;
Residential Money Centers; First Government Mortgage and Investors Corp.;
Investaid Corp.; New Jersey Mortgage and Investment Corp.; George Nicholas;
certain members of management; and IMCI, the general partner. Pursuant to the
Reorganization Plan and prior to the closing of the Public Offering, the
Partnership will become a wholly-owned subsidiary of the Company. The
Partnership is divided into Full Shares (representing a 9.090% ownership
interest) and Half Shares (representing a 4.545% ownership interest). The
Industry Partners each own either a Full Share or a Half Share of the
Partnership. The Management Partners own a Half Share in the aggregate, and Mr.
Nicholas owns an 8.09% interest and an additional 1% interest through IMCI. The
Industry Partners, the Management Partners and Mr. Nicholas are collectively
referred to as the 'LPs.' Each LP owning a Full Share contributed $100,000 to
the Partnership upon formation and each LP owning a Full Share, except for Mr.
Nicholas, was required to make additional contributions in either loan volume
(via foregone premiums) or in cash until their respective capital contribution
reached $380,000. Foregone premiums represent the difference in the amount paid
by the Partnership for mortgage loans and the value set forth in a price
schedule (estimated fair value) delivered to the LP at the time the mortgage
loans are purchased. As of December 31, 1993, the LPs, with the exception of Mr.
Nicholas, had contributed to the Partnership the aggregate amount of $1.43
million, with total contributions increasing from $1.8 million to $3.9 million
at December 31, 1994. Additional contributions in the amount of $20,000 were
received during 1995. Mr. Nicholas, who is also the Chief Executive Officer of
the Company, was required to make an additional contribution up to a total
capital balance of $380,000. For this purpose, Mr. Nicholas received a special
allocation of profits, as defined in the Original Partnership Agreement, for the
gain on sale of any loans originated from non-LP sources, up to a maximum of
$40,000 per month. Mortgage sales gains represent the excess of the sales price
over the amount paid by the Partnership. As of December 31, 1994, Mr. Nicholas
had contributed special allocation profits of $280,000.
Pursuant to the First Amended and Restated Partnership Agreement, the
Partnership was obligated to make aggregate cash distributions to the LPs equal
to 45% of the Partnership's net profits to enable the LPs to pay taxes owed in
respect of their Partnership interest (the 'Tax Distributions'). At March 31,
1996, the Partnership was required to make Tax Distributions in the aggregate
amount of $5.1 million. The following LPs agreed to forego receipt of cash in
respect of the Tax Distributions: George Nicholas; Branchview, Inc.; JRJ
Associates Inc.; Cityscape Corp.; New Jersey Mortgage and Investment Corp.;
American Industrial Loan Association; Investaid Corp.; Equity Mortgage, a
Maryland LP; First Government Mortgage and Investors Corp.; and The Money Store.
All such debt will be repaid from the proceeds of the Public Offering. See 'Use
of Proceeds.'
Under the terms of the First Amended and Restated Partnership Agreement,
each of the LPs owning a Full Share is required to sell to the Partnership, on
average, $1.0 million per month in loan volume ($500,000 per month for each LP
owning a Half Share), at market prices (the 'Mortgage Loan Commitments').
The First Amended and Restated Partnership Agreement was amended by the
First Amendment as of March 15, 1994 and the Second Amendment as of July 8,
1994, and later restated as the Second Amended and Restated Partnership
Agreement (the 'Second Amended and Restated Partnership Agreement') on November
1, 1994. Equity Mortgage, a Maryland LP, joined the Partnership on
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February 1, 1994. The Money Store joined the Partnership on November 29, 1994.
On October 1, 1994, Equitysafe sold one half of its Full Share in the
Partnership to Portfolio Placement Partners.
The Second Amended and Restated Partnership Agreement was amended and
restated as the Third Amended and Restated Partnership Agreement (the 'Third
Amended and Restated Partnership Agreement') in November, 1995. During 1995,
four partnership changes occurred: Residential Money Centers sold its interest
to Branchview, Inc. on July 31, 1995; Champion Mortgage Co. Inc. transferred its
interest to JRJ Associates Inc. on September 29, 1995; First Government Mortgage
and Investors Corp. sold its interest to Gerald S. Lilienfield on December 28,
1995; and New Jersey Mortgage and Investment Corp. transferred its interest to
Stan L. Furst and Joel E. Furst on December 31, 1995.
PRE-IPO AGREEMENT
Pursuant to the Pre-IPO Agreement, dated as of March 28, 1996 and executed
by each LP, the Partnership and the Company prior to the filing of the
Registration Statement of which this Prospectus is a part, each of the LPs
irrevocably committed that it would exchange its partnership interests for
shares of Common Stock as described in the Reorganization Plan.
Pursuant to the Third Amended and Restated Partnership Agreement, each LP
had a Mortgage Loan Commitment to sell a certain volume of mortgage loans to the
Partnership. Pursuant to the Pre-IPO Agreement, certain LPs have agreed to
double their Mortgage Loan Commitments or its economic equivalent to $2.0
million a month ($1.0 million for LPs owning a Half Share). In addition,
pursuant to the Pre-IPO Agreement, the LPs will be eligible for 10,000 options
('Incentive Options') to be divided each fiscal quarter among those LPs that
have (i) committed to double their monthly loan volumes and (ii) exceeded their
doubled commitment. The Company believes the Incentive Options will encourage
LPs to increase their loan volume sold to the Company.
AGREEMENTS WITH CONTIFINANCIAL
Warehouse Facility. The Company and ContiFinancial are party to the Amended
and Restated Loan and Security Agreement (the 'Wholesale Warehouse Mortgage
Agreement'), dated as of September 1, 1995 (together with its predecessor
agreement, the 'Warehouse Facility'). Pursuant to the Warehouse Facility, the
Company has a $125.0 million line of credit that is secured by its mortgage
loans. Amounts outstanding under the Warehouse Facility bear interest at a rate
of LIBOR plus 1.5% per annum. During fiscal years 1994 and 1995 and the three
months ended March 31, 1996, the Company made interest payments under the
Warehouse Facility of $0.5 million, $5.1 million and $2.0 million, respectively.
Standby Agreement. The Company and ContiFinancial are party to the Standby
Agreement through which the Company funds the tax consequences of the
recognition of the securitization gain on sale and other working capital needs
prior to receipt of any cash flow from the residual interests in its
securitizations. Amounts borrowed under the Standby Agreement bear interest at a
rate of LIBOR plus 1.7% per annum. The Standby Agreement expires on January 12,
2000. ContiFinancial has agreed to lend the Company the Additional Draw of $10.0
million under the Standby Agreement which bears interest at a rate of LIBOR plus
8.0% and which amount must be repaid with a portion of the net proceeds from the
Public Offering. The Company has borrowed the full $15.0 million available under
the Standby Agreement and $10.0 million under the Additional Draw. During fiscal
years 1994 and 1995 and the three months ended March 31, 1996, the Company made
interest payments to ContiFinancial under the Standby Agreement of $0, $0.2
million and $0.3 million, respectively.
Investment Banking Relationship. As part of the 1995 Agreement, the Company
and ContiFinancial entered into an agreement for investment banking services
dated January 12, 1995 (the '1995 Investment Banking Agreement'). The 1995
Investment Banking Agreement replaced a prior agreement between the parties
under the 1993 Agreement (together with the 1995 Investment Banking Agreement,
the 'Investment Banking Agreements'). Pursuant to the 1995 Investment Banking
Agreement, unless the Company determines, in its sole discretion, that
materially better terms are available from others, ContiFinancial has a right
(the 'Retention Right') to act as underwriter, placement agent or sponsor
('Mortgage Banker') with respect to $2.0 billion of placement or
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underwriting of securitizations and whole loan acquisitions or dispositions of
the Company mortgage loans (the 'Mortgage Transactions'). In addition,
ContiFinancial may retain all underwriting fees from the Mortgage Transaction in
any instance in which it acts as Mortgage Banker for the Company, receive
information from the Company regarding any Mortgage Transaction in which it is
not chosen to be the Mortgage Banker and receive certain minimum allocations of
Retention Rights on a per annum basis which, if not fulfilled, are rolled over
into the minimum allocation of Retention Rights for the following year. The 1995
Investment Banking Agreement expires in 2000, unless extended through the mutual
agreement of the parties. Under the Investment Banking Agreements, the Company
paid $0.3 million, $0.2 million and $0 million, respectively, for services as
Mortgage Banker in 1994, 1995 and the three months ended March 31, 1996.
Conti Warrant. In August, 1993, the Company entered into the 1993 Agreement
with Conti-Financial which provided IMC with the $15.0 million Standby Agreement
to fund retention of I/O and residual classes of certificates and certain
investment banking services and also committed ContiFinancial to provide a
warehouse facility to IMC, subject to the satisfaction of certain conditions.
Pursuant to the 1993 Agreement, IMC agreed to share a portion of its equity with
ContiFinancial through an agent fee based on a percentage of increases in equity
(as defined) at the termination of the 1993 Agreement. On January 12, 1995, IMC
and ContiFinancial entered into the 1995 Agreement which replaced the 1993
Agreement and provided for agent fees to ContiFinancial based on the fair market
value of the Company (as defined in the 1995 Agreement). The amount of the agent
fee ranges from 15% of the fair market value of the Company in the event
ContiFinancial elects to terminate the 1995 Agreement to 25% of the fair market
value of the Company in the event IMC elects to terminate the 1995 Agreement.
Pursuant to the 1995 Agreement, the Conti VSA was established. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Transactions with ContiFinancial -- Sharing of Proportionate Value
of Equity.' A professional valuation firm valued the Company as of December 31,
1995 in order to calculate the value of the Conti VSA at that time. The Conti
VSA was valued at $5.9 million. The Conti VSA was converted into the Conti
Option effective December 31, 1995 by an agreement executed March 26, 1996.
Prior to the Public Offering, the Conti Option was converted into the Conti
Warrant. The Conti Warrant contains certain dilution protections in favor of
ContiFinancial, and grants ContiFinancial certain registration rights. After the
Public Offering, the Conti Warrant will be exercisable for 1.35 million shares
(after giving effect to Conti-Financial's sale of 10% of its interest in the
Conti Warrant) of Common Stock subject to adjustment if the Company issues
Common Stock below fair market value. See 'The Reorganization Plan.'
ADDITIONAL SECURITIZATION TRANSACTION EXPENSE
The Company has entered into I/O and residual certificate sharing
arrangements with ContiFinancial in connection with its securitizations pursuant
to which the Company arranges to have issued to ContiFinancial a percentage of
the residual interest in the related REMIC trust in exchange for cash.
ContiFinancial received 50% of the residual interests (valued at $3.0 million)
in the Company's 1994-1 securitization in exchange for $2.1 million, 50% of the
residual interests (valued at $4.2 million) in the Company's 1995-1
securitization in exchange for $3.3 million, 100% of the residual interests
(valued at $12.4 million) in the Company's 1995-2 securitization in exchange for
$10.0 million, 55% of the residual interests (valued at $8.5 million) in the
Company's 1995-3 securitization in exchange for $5.1 million, 50% of the
residual interests (valued at $9.5 million) in the Company's 1996-1
securitization in exchange for $6.2 million. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Transactions with
ContiFinancial -- Additional Securitization Transaction Expense.'
IMC ASSOCIATES, INC.
IMC Associates, Inc. ('IMC Associates') was formed to lease a skybox suite
in the Ice Palace stadium for games of the Tampa Bay Lightning, a national
hockey league franchise. The Company purchases tickets for the hockey games from
IMC Associates for an aggregate amount equal to the $75,000 annual lease cost of
the skybox. IMC Associates is owned by George Nicholas, the Chairman of the
Board and Chief Executive Officer of the Company.
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GENERAL COUNSEL
The Company paid $28,000 in legal fees in 1995 to Mr. Legler who acted as
general counsel for the Company through his professional association, Mitchell
W. Legler, P.A. The Company anticipates it will pay approximately $250,000 in
legal fees to Mr. Legler in 1996. In addition, on December 11, 1995, Mr. Legler
was granted options to purchase 21,013 shares of Common Stock at an exercise
price of $4.70 per share pursuant to the 1995 Plan for advisory services to the
Company and options to purchase 6,466 shares of Common Stock at an exercise
price of $4.70 per share pursuant to the Directors' Plan and options to purchase
10,000 shares of Common Stock at an exercise price of $16.00 per share pursuant
to the Incentive Plan.
TRANSACTIONS WITH PARTNERS
Lakeview
The Company entered into the Lakeview Facility in January, 1996 with
Lakeview, an affiliate of Branchview, Inc. The Company expects to repay
outstanding amounts under the Lakeview Facility with a portion of the proceeds
of the Public Offering. See 'Use of Proceeds.'
JRJ Associates Inc.
JRJ Associates Inc. sold loans in the aggregate amount of $15.6 million to
the Company during 1995 and has agreed to sell $24.0 million in loans to the
Company in 1996. Mr. Goryeb, a member of the Board of Directors of IMC, is
Chairman and Chief Executive Officer of Champion Mortgage Co. Inc., an affiliate
of JRJ Associates Inc.
Cityscape Corp.
Cityscape Corp. sold loans in the aggregate amount of $8.7 million to the
Company and contributed $420,000 to the Company in lieu of additional loan sales
in satisfaction of its aggregate loan sale commitments for 1995 and 1996.
Mortgage America Inc.
Mortgage America Inc. sold loans in the aggregate amount of $9.4 million to
the Company during 1995. The Partnership determined that $9.4 million of loan
sales was sufficient to meet Mortgage America's loan sale commitment to the
Company for 1995 based on several factors, including Mortgage America's sale to
the Company of substantially more mortgage loans than its commitment in 1994.
Mortgage America has agreed to sell $24.0 million in loans to the Company in
1996.
Investors Mortgage, a Washington LP
Investors Mortgage, a Washington LP ('Investors Mortgage'), sold loans in
the aggregate amount of $5.5 million to IMC during 1995. The Partnership
determined that $5.5 million of loan sales was sufficient to meet Investors
Mortgage's loan sale commitment to the Company for 1995 based on several
factors, including Investors Mortgage's commitment to sell at least $6.5 million
of mortgage loans in excess of its commitment to the Company in 1996. Investors
Mortgage has agreed to sell $12.0 million in loans to the Company in 1996.
American Industrial Loan Association
American Industrial Loan Association sold loans in the aggregate amount of
$38.1 million to IMC during 1995 and has agreed to sell $24.0 million in loans
to IMC in 1996. Mr. Wykle, a member of the Board of Directors of IMC, is
Chairman and Chief Executive Officer of American Industrial Loan Association. In
January, 1996, IMC and American Industrial Loan Association entered into a
warehouse financing facility pursuant to which IMC committed to lend American
Industrial Loan Association $8.0 million secured by mortgage loans. Borrowings
under the facility bear interest at a rate
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of LIBOR plus 1.75%, and American Industrial Loan Association paid IMC $35,100
in interest payments during the first three months of 1996.
TRANSACTIONS WITH EQUITYSTARS
At the time IMC acquired the assets of Equitystars, Equitystars was
licensed as a mortgage banker in certain states in which IMC was not so
licensed. In order to enable IMC to benefit immediately from the Equitystars
assets, IMC and Equitystars entered into a warehouse credit facility (the
'Equitystars Warehouse') and a management agreement pursuant to which IMC
directs substantially all of the business activities of Equitystars (the
'Management Agreement'). Pursuant to the Equitystars Warehouse, IMC has
committed to fund, from time to time, up to $10 million of Equitystars' mortgage
loan origination, subject to certain conditions. Amounts outstanding under the
Equitystars Warehouse bear interest at an annual rate equal to LIBOR. The
Equitystars Warehouse is for a term of one year (from January 2, 1996) and may
be terminated by IMC quarterly, on 30 days notice. Pursuant to the Management
Agreement, IMC controls all business activities of Equitystars, and Equitystars
sells all of its mortgage loans to IMC. IMC receives a management fee for its
services substantially equal to the difference between the interest earned on
the mortgage loans during the time they are funded through the Equitystars
Warehouse and the LIBOR due to IMC under the Equitystars Warehouse. David
McDonald is the general partner and 61% owner of Equitysafe, an Industry Partner
and owns a portion of the shares of the Convertible Preferred Stock. Equitysafe
owns 4.5% of the limited partnership interests of IMC (which was exchanged for
272,000 shares of Common Stock pursuant to the Reorganization Plan). The shares
of Common Stock issuable upon the conversion of the Convertible Preferred Stock
will be subject to certain incidental registration rights for public offerings
of the Common Stock subsequent to the completion of the Public Offering.
CERTAIN ACCOUNTING CONSIDERATIONS RELATING TO THE CONTI VSA
BACKGROUND
As originally conceived by the founders of IMC, the general equity of the
Company would be allocated (i) 65% to the limited partners which were to sell
loans to the Company to provide its core business volume, (ii) 15% to management
and (iii) 20% to ContiFinancial which was to provide the initial credit
facilities necessary for the Company's business. However, due to
ContiFinancial's lender position and the complexity of ContiFinancial's being a
partner in a partnership (as opposed to a stockholder in a corporation),
ContiFinancial did not wish to take a 20% partnership interest in the Company.
Instead, since the formation of IMC in 1993, IMC has operated under three value
sharing agreements with ContiFinancial (the 'Conti VSA').
1993 Agreement
The 1993 Agreement between ContiFinancial and the Company was entered into
at the time of the founding of the Company. That agreement provided for
ContiFinancial to receive an amount calculated as an increasing percentage of
the partners' capital account in excess of the amount actually contributed by
the partners.
1995 Agreement
On January 12, 1995, the 1993 Agreement was replaced by the 1995 Agreement
which granted ContiFinancial a right to receive an amount equal to 20% of the
fair market value (as defined) of the Company at the end of the ten-year term of
the agreement, or upon any disposition or windup of the Company, as well as 20%
of any distributions to partners of the Company in excess of the distributions
necessary to allow the partners to pay income taxes on their respective share of
the Company's earnings. ContiFinancial also had the right to demand payment (a
'put') at 15% of the fair market value of the Company, and the Company had the
right to satisfy ContiFinancial's VSA (a 'call') by paying ContiFinancial 25% of
the fair market value of the Company.
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1996 Conti Warrant
In March, 1996, the 1995 Agreement was replaced by the Conti Option
entitling ContiFinancial upon exercise to approximately 18% of the equity in the
Partnership. Upon the exchange by the Industry Partners of their partnership
interests in the Partnership for Common Stock, the Conti Option automatically
converts into the Conti Warrant exercisable for 1.5 million shares of the Common
Stock (subject to certain adjustments). The Conti Warrant does not contain any
put feature permitting ContiFinancial to require cash for the Conti Warrant.
ACCOUNTING PRINCIPLES
Under Emerging Issues Task Force Issue 88-9 ('EITF 88-9'), the accounting
task force reached a consensus that securities such as put warrants, where the
issuer can be required to redeem the securities for cash, are treated as a
liability on the issuer's balance sheet at the value assigned to that put
warrant at the time of issue. Moreover, EITF 88-9 concluded that where a
security has a mandatory redemption feature or put at an amount which varies
based, for example, upon the value of the issuer, then any increase in value
from accounting period to accounting period is treated as an increase in the
amount of liability recorded and as an additional expense in the period of
increased value.
ACCOUNTING TREATMENT OF CONTI VSA
Applying generally accepted accounting principles ('GAAP'), the Company
concluded that as the 1993 Agreement provided for ContiFinancial to receive a
cash amount at the end of the agreement's term or earlier on the happening of
certain contingencies (such as default), the amount which was due to
ContiFinancial from time to time should be booked as a liability. Applying the
task force determinations described above, the existence of the put feature of
the 1995 Agreement required the Company to record a liability for the value
assigned to the put feature at issuance. Moreover, any increase in the value of
the put feature of the 1995 Agreement was treated by the Company as a charge to
earnings for the period during which the increase in value occurred.
CALCULATION OF BOOK ENTRIES FOR CONTI VSA
The partner's capital account balance did not exceed the amounts
contributed by the Industry Partners when the 1993 Agreement was executed. Thus,
no liability was initially booked upon execution of that agreement. Moreover, as
the formula for calculating the value of the Conti VSA produced no value during
1993 (when the Company had a loss) no charge to earnings was booked during the
year. However, in 1994, the Company earned $4.7 million (without consideration
of the value of the Conti VSA) and the corresponding increase in the partner's
capital accounts in excess of contributions resulted in the Conti VSA under the
1993 Agreement having a value of $1.7 million. Accordingly, during 1994, the
Company booked a liability and an expense of $1.7 million.
The 1995 Agreement provided a calculation of the value of Conti VSA based
not on the partners' capital account but on fair market value. A professional
valuation firm valued the Company as of December 31, 1995 in order to calculate
the value of the Conti VSA at that time. As ContiFinancial could exercise its
put for 15% of the fair market value of the Company, that 15% was calculated at
$5.9 million as of December 31, 1995. The Company, as reflected above, had
already valued the Conti VSA at the end of 1994 at $1.7 million. Thus, the
increase over that amount, or $4.2 million, was recorded as an expense in 1995.
The appraisal of the fair market value of the Company as of December 31,
1995, was based on the assumption that the Conti VSA under the 1995 Agreement
was outstanding as a put. The appraisal firm arrived at the fair market value of
the Company as a non-public company by applying a multiplier of eight times the
Company's 1995 earnings (reduced by a 40% income tax rate) of $6.5 million
producing a gross value for the Company of approximately $51 million. The
appraisers determined that it was unlikely that the Company would find a willing
buyer to purchase the Company unless that buyer simultaneously eliminated the
Conti VSA. The Company could call the Conti VSA only by paying ContiFinancial
25% of the Company's fair market value. Thus, the appraisers determined that the
fair market value of the Company as of December 31, 1995 was approximately $40
million. The Company
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therefore concluded that the value of the Conti VSA (the put for 15% of the
Company's value) was approximately $5.9 million.
FIRST QUARTER 1996
On March 26, 1996, the Conti VSA under the 1995 Agreement was replaced by
the Conti Option which has no put feature or right for ContiTrade to demand that
it be redeemed for cash. Accordingly, the periodic determination of the
liability and charge to earnings which had applied to the Conti VSA under the
1993 and 1995 Agreements does not apply to the Conti Option and will not apply
to the Conti Warrant. However, the fair market value of the Conti Option on the
date of grant, March 26, 1996, in excess of amounts previously recorded amounted
to $2.6 million and has been charged to expense in the first quarter of 1996 in
accordance with GAAP.
RECLASSIFICATION OF LIABILITY TO STOCKHOLDERS' EQUITY
Under GAAP, ContiFinancial's right to receive cash for the Conti VSA under
the 1993 and the 1995 Agreements resulted in a charge against earnings and an
equivalent reduction in the Company's stockholders' equity. The substitution of
the Conti Option for the 1995 Agreement on March 26, 1996 eliminated any put or
other right for ContiFinancial to obtain cash from the Company for the Conti
VSA. That substitution resulted in the reclassification of the liabilities
associated with the value of the Conti VSA to the Company's stockholders'
equity. Accordingly, on March 26, 1996, the Company's stockholders' equity was
increased by the sum of the 1994 liability of $1.7 million, the 1995 additional
liability of $4.2 million and the additional liability reflected in the first
quarter of 1996 for the value of the Conti VSA on March 26, 1996. Also on March
26, 1996 the value of the Conti Option in excess of amounts previously recorded
was charged to expense with a corresponding amount reflected in stockholders'
equity. Moreover, neither the Conti Option nor the Conti Warrant will affect
earnings of the Company after March 26, 1996.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $0.01 per share, and 10,000,000 shares of Preferred
Stock, par value $0.01 per share (the 'Preferred Stock'). Immediately prior to
the completion of the Public Offering, there will be issued and outstanding
6,269,833 shares of Common Stock held of record by 25 stockholders and an escrow
agent. Immediately prior to the completion of the Public Offering, 5,331,820
shares of Common Stock will be held by the Industry Partners, 272,727 shares
will be held by the Management Partners and 545,455 shares will be held by Mr.
Nicholas, and the shares held by the Partnership will be cancelled. In addition,
pursuant to the terms thereof, all the outstanding shares of Convertible
Preferred Stock will be converted immediately prior to the completion of the
Public Offering into the number of shares of Common Stock arrived at by
dividing the aggregate liquidation preference thereof ($2,006,000) by 93%
of the initial public offering price per share of the Common Stock. An
additional 670,582 shares of Common Stock will be issuable upon the exercise
of stock options held by officers, directors and key outside advisors. See
'Management -- Stock Option Plans.' Of the shares of Common Stock issuable upon
the mandatory conversion of the Convertible Preferred Stock, the shares
issuable upon conversion of 2,750 shares of Convertible Preferred Stock
will be held in escrow pending the satisfaction by June 30, 1998 of
certain conditions in connection with the Equitystars Acquisition. Depending
on the extent to which such conditions are satisfied, the shares will be
released to the stockholders of Equitystars, with any remaining shares
returned to the Company and cancelled. In certain circumstances,
additional shares of Common Stock may be issued to the stockholders
of Equitystars. See 'Business -- Loans -- Acquisition of Equitystars.'
The following description is qualified in its entirety by reference to the
Company's Articles of Incorporation and Bylaws, which are filed as exhibits to
the registration statement of which this Prospectus is a part. No information is
set forth concerning the Convertible Preferred Stock, which will not be
outstanding following the completion of the Public Offering.
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COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Cumulative voting in
the election of directors is not permitted, which means that holders of more
than one half of the outstanding shares of Common Stock can elect all the
directors of the Company. Subject to preferences that may be granted to holders
of Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See 'Dividend Policy.' In the event of liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preference, if any, which may be payable to the holders of Preferred
Stock. Holders of Common Stock have no conversion, preemptive or other rights to
subscribe for additional shares or other securities, and there are no redemption
or sinking fund provisions with respect to such shares. The issued and
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be upon payment therefor, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 10,000,000 shares
of Preferred Stock and to fix the number of shares constituting any such class
or series and the rights and preferences thereof, including dividend rights,
terms of redemption (including sinking fund provisions), redemption price or
prices, voting rights, conversion rights and liquidation preferences of the
shares constituting such class or series, without any further vote or action by
the Company's stockholders.
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued and unreserved
Common Stock and Preferred Stock may enable the Board of Directors to issue
shares to persons friendly to current management which could render more
difficult or discourage an attempt to obtain control of the Company by means of
a proxy contest, tender offer, merger, or otherwise, and thereby protect the
continuity of the Company's management.
CERTAIN STATUTORY PROVISIONS
Control Share Acquisitions
The Company is subject to several anti-takeover provisions under Florida
law that apply to a public corporation organized under Florida law unless the
corporation has elected to opt out of such provisions in its Articles of
Incorporation or (depending on the provision in question) its Bylaws. The
Company has not elected to opt out of these provisions. The Florida Business
Corporation Act (the 'Florida Act') contains a provision that prohibits the
voting of shares in a publicly held Florida corporation which are acquired in a
'control share acquisition' unless the board of directors approves the control
share acquisition or the holders of a majority of the corporation's voting
shares (exclusive of shares held by officers of the corporation, inside
directors or the acquiring party) approve the granting of voting rights as to
the shares acquired in the control share acquisition. A control share
acquisition is defined as an acquisition that immediately thereafter entitles
the acquiring party to vote in the election of directors within each of the
following ranges of voting power: (i) one-fifth or more but less than one-third
of such voting power; (ii) one-third or more but less than a majority of such
voting power and; (iii) a majority or more of such voting power. This statutory
voting restriction is not applicable in certain circumstances set forth in the
Florida Act.
Affiliated Transactions
The Florida Act also contains an 'affiliated transaction' provision that
prohibits a publicly-held Florida corporation from engaging in a broad range of
business combinations or other extraordinary corporate transactions with an
'interested stockholder' unless (i) the transaction is approved by a
72
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<PAGE>
majority of disinterested directors before the person becomes an interested
stockholder, (ii) the interested stockholder has owned at least 80% of the
Company's outstanding voting shares for at least five years, or (iii) the
transaction is approved by the holders of two-thirds of the Company's voting
shares other than those owned by the interested stockholder. An interested
stockholder is defined as a person who, together with affiliates and associates,
beneficially owns (as defined in Section 607.0901(1)(e), Florida Statutes) more
than 10% of the Company's outstanding voting shares.
Indemnification
The Florida Act authorizes Florida corporations to indemnify any person who
was or is a party to any proceeding (other than an action by, or in the right
of, the corporation), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation or other entity, against liability incurred in connection with such
proceeding, including any appeal thereof, if he or she acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or on behalf of a corporation, indemnification may
not be made if the person seeking indemnification is adjudged liable, unless the
court in which such action was brought determines such person is fairly and
reasonably entitled to indemnification. The indemnification provisions of the
Florida Act require indemnification if a director or officer has been successful
on the merits or otherwise in defense of any action, suit or proceeding to which
he or she was a party by reason of the fact that he or she is or was a director
or officer of the corporation. The indemnification authorized under Florida law
is not exclusive and is in addition to any other rights granted to officers and
directors under the Articles of Incorporation or Bylaws of the corporation or
any agreement between officers and directors and the corporation. A corporation
may purchase and maintain insurance or furnish similar protection on behalf of
any officer or director against any liability asserted against the officer or
director and incurred by the officer or director in such capacity, or arising
out of the status, as an officer or director, whether or not the corporation
would have the power to indemnify him or her against such liability under the
Florida Act.
Limitation of Liability
Under the Florida Act, a director is not personally liable for monetary
damages to the Company or any other person for acts or omissions in his or her
capacity as a director except in certain limited circumstances such as certain
violations of criminal law and transactions in which the director derived an
improper person benefit. As a result, stockholders may be unable to recover
monetary damages against directors for actions taken by them which constitute
negligence or gross negligence or which are in violation of their fiduciary
duties, although injunctive or other equitable relief may be available. These
provisions will not limit the liability of the Company's directors under the
Federal securities laws.
PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS
Certain provisions of the Company's Articles of Incorporation and Bylaws
summarized in the following paragraphs may have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.
Classified Board of Directors
Under the Company's Articles of Incorporation and Bylaws, the Board of
Directors of the Company is divided into three classes, with staggered terms of
three years each. Each year the term of one class expires. The Company's
Articles of Incorporation provide that any vacancies on the Board of Directors
shall be filled only by the affirmative vote of a majority of the directors then
in office, even if less than a quorum.
73
<PAGE>
<PAGE>
Supermajority Required for Actions by Written Consent
The Company's Articles of Incorporation provide that all actions taken by
the stockholders must be taken at an annual or special meeting of the
stockholders or by the written consent of the holders of 90% of the Company's
outstanding voting shares. This provision may be amended only with the
affirmative vote of the holders of 90% of the Company's outstanding voting
shares.
Special Meetings of Stockholders
The Articles of Incorporation provide that special meetings of the
stockholders may be called by only a majority of the members of the Board of
Directors, the Chairman of the Board or the holders of not less than 35% of the
Company's outstanding voting shares. This provision will make it more difficult
for stockholders to take actions opposed by the Board of Directors.
Advance Notice Requirements
Under the Company's Bylaws, stockholders will be required to comply with
advance notice provisions with respect to any proposal submitted for stockholder
vote, including nominations for elections to the Board of Directors. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
received no later than the close of business on the 10th day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. These provisions may preclude some stockholders from
bringing matters before the stockholders at an annual or special meeting or from
making nominations for directors at an annual or special meeting.
TRANSFER AGENT
The transfer agent for the Common Stock is American Stock Transfer and
Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Public Offering, the Company will have outstanding
an aggregate of 11,065,092 shares (assuming the exercise of all vested options
and the Conti Warrant) of Common Stock. Of these shares, 3,100,000 of the shares
sold in the Public Offering will be freely tradable without restriction or
further registration under the Securities Act, except for any shares purchased
by 'affiliates' of the Company as that term is defined under the Securities Act
and all of the 310,000 shares purchased pursuant to the Directed Share Program
will be subject to the lock-up agreement described below.
The remaining 7,965,092 shares (assuming the exercise of all vested options
and the Conti Warrant) held by existing stockholders of the Company (including
the Industry Partners) are 'restricted securities' within the meaning of Rule
144 under the Securities Act and will become eligible for sale subject to the
provisions of Rule 144 (subject to certain exceptions provided by Rule 701 under
the Securities Act with respect to approximately 390,350 of such shares issuable
upon the exercise of vested options granted under the Incentive Plan or the
Directors' Plan). Of such shares, none of such shares of Common Stock have been
held for more than two years by stockholders who are not affiliates of the
Company and will be eligible for sale in the public market upon the expiration
of the referenced lock-up agreements in reliance on Rule 144(k) under the
Securities Act.
In general, under Rule 144 under the Securities Act as currently in effect,
a person (or persons whose shares are aggregated), including an affiliate, may
sell an amount of restricted securities which were last purchased from the
issuer or an affiliate of the issuer a minimum of two years prior to such sale,
such that, within any three-month period, such person's sales do not exceed the
greater of 1% of the then outstanding shares of the Company's Common Stock
(93,698 shares immediately after the Public Offering excluding any exercise of
options or 1.35 million shares pursuant to the Conti Warrant), or the average
weekly trading volume in the Common Stock on Nasdaq during the four calendar
weeks
74
<PAGE>
<PAGE>
preceding the date on which notice of such sale is filed under Rule 144(h) of
the Securities Act, or if no such notice is required, the date of receipt of the
order to execute the transaction. In addition, under Rule 144(k), a stockholder
who is not deemed an affiliate, and has not been an affiliate for at least three
months prior to the sale, is entitled to sell restricted securities which were
last purchased from the issuer or an affiliate of the issuer a minimum of at
least three years prior to such sale without complying with the foregoing
requirements. In calculating the two and three year holding periods described
above, a holder of restricted securities can include the holding period of a
prior owner who was not an affiliate.
Notwithstanding the limitations on sale described above, otherwise
restricted securities may be sold at any time through an effective registration
statement pursuant to the Securities Act. The Company intends to file a
registration statement on Form S-8 under the Securities Act to register the
1,022,727 shares of Common Stock reserved for issuance under the Incentive Plan
and the Directors' Plan (whether or not such options have been granted or
vested). As a result, any shares issued upon exercise of stock options granted
under such plans will be available, subject to the referenced lock-up agreements
and special rules for affiliates, for resale in the public market after the
effective date of such registration statement.
The Company has agreed with the Underwriters that it will not, without the
prior written consent of the Representatives, offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any security convertible or
exchangeable for Common Stock, for a period of 180 days after the date of the
completion of the Public Offering, subject to certain limited exceptions.
Certain persons purchasing shares of Common Stock pursuant to the Directed Share
Program have agreed with the Underwriters that they will not, without the
prior written consent of the Representatives, offer, sell, contract to sell or
otherwise dispose of any such shares for a period of 180 days after the
completion of the Public Offering, subject to certain limited exceptions. The
executive officers and directors of the Company have agreed with the
Underwriters that they will not, without the prior written consent of the
Representatives, offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or securities convertible into or exchangeable for Common
Stock, for a period of 180 days after the completion of the Public Offering,
subject to certain limited exceptions. See 'Underwriting.'
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<PAGE>
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Bear, Stearns & Co. Inc. and
Oppenheimer & Co., Inc. are acting as representatives (the 'Representatives'),
have severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company the number of shares of Common Stock set
forth opposite their respective names below. The Underwriters are committed to
purchase and pay for all of such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERWRITER OF COMMON STOCK
- --------------------------------------------------------------------------- ---------------
<S> <C>
Bear, Stearns & Co. Inc. .................................................. 815,000
Oppenheimer & Co., Inc. ................................................... 815,000
Alex. Brown & Sons Incorporated............................................ 70,000
Dillon, Read & Co. Inc. ................................................... 70,000
A.G. Edwards & Sons, Inc. ................................................. 70,000
Goldman, Sachs & Co. ...................................................... 70,000
Hambrecht & Quist LLC...................................................... 70,000
Lehman Brothers Inc. ...................................................... 70,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................. 70,000
Montgomery Securities...................................................... 70,000
Morgan Stanley & Co. Incorporated.......................................... 70,000
NatWest Securities Corporation............................................. 70,000
Nomura Securities International, Inc. ..................................... 70,000
Prudential Securities Incorporated......................................... 70,000
Salomon Brothers Inc ...................................................... 70,000
Smith Barney Inc. ......................................................... 70,000
Allen & Company Incorporated............................................... 35,000
Anderson & Strudwick, Incorporated......................................... 35,000
First Albany Corporation................................................... 35,000
First Equity Corporation of Florida........................................ 35,000
Friedman, Billings, Ramsey & Co., Inc. .................................... 35,000
Gerard Klauer Mattison & Co., L.L.C........................................ 35,000
Johnson Rice & Company L.L.C. ............................................. 35,000
Keefe, Bruyette & Woods, Inc. ............................................. 35,000
Ladenburg, Thalmann & Co. Inc. ............................................ 35,000
Piper Jaffray Inc. ........................................................ 35,000
Principal Financial Securities, Inc. ...................................... 35,000
Raymond James & Associates, Inc. .......................................... 35,000
Stephens Inc. ............................................................. 35,000
Wheat First Butcher Singer, Inc............................................ 35,000
---------------
Total................................................................. 3,100,000
---------------
---------------
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Common Stock to the public on the terms set forth on the cover page of this
Prospectus. The Underwriters may allow selected dealers a concession of not more
than $0.76 per share, and the Underwriters may allow, and such dealers may
re-allow, a concession of not more than $0.10 per share to certain other
dealers. After the Public Offering, the price and concessions and re-allowances
to dealers may be changed by the Underwriters. The Common Stock is offered
subject to receipt and acceptance by the Underwriters and to certain other
conditions, including the right to reject orders in whole or in part.
Bear Stearns Home Equity Trust 1996-1, an affiliate of Bear, Stearns & Co.
Inc., currently provides the Company with a $200.0 million warehouse borrowing
facility which extends through March, 1997. Bear Stearns Home Equity Trust
1996-1 has informed the Company that, subject to the completion of appropriate
documentation, it has approved an increase to $300.0 million in the warehouse
borrowing facility. In addition, Bear, Stearns & Co. Inc. acted as lead manager
for the Company's November, 1995, February, 1996 and April, 1996
securitizations.
The Company has granted a 30-day option to the Underwriters, to purchase up
to a maximum of 465,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial 3,100,000
shares to be purchased by the Underwriters. To the extent the Underwriters
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<PAGE>
exercise this option, each of the Underwriters will be committed, subject to
certain conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with the sale of Common
Stock offered hereby.
At the request of the Company, the Underwriters have reserved up to 310,000
shares of Common Stock for sale at the initial public offering price to certain
employees, Industry Partners and their affiliates. The number of shares of
Common Stock available for sale to the general public will be reduced to the
extent such persons purchase such reserved shares. Any such reserved shares
which are not so purchased will be offered by the Underwriters to the general
public on the same basis as other shares offered thereby.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
The Company has also agreed not to offer, issue, sell, contract to sell,
grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or any rights to acquire Common
Stock for a period of 180 days after the completion of the Public Offering,
without the prior written consent of the Representatives, subject to certain
limited exceptions. Certain persons have agreed with the Underwriters that
they will not, without the prior written consent of the Representatives, offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock
purchased pursuant to the Directed Share Program for a period of 180 days after
the completion of the Public Offering, subject to certain limited exceptions.
The executive officers and directors of the Company have agreed with the
Underwriters that they will not, without the prior written consent of the
Representatives, offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or securities convertible into or exchangeable for Common
Stock for a period of 180 days after the completion of the Public
Offering, subject to certain limited exceptions. See 'Shares Eligible for Future
Sale.' Prior to the Public Offering, there has been no public market for the
Common Stock. The initial public offering price for the Common Stock offered
hereby was determined by negotiation among the Company and the Representatives.
In determining such price, consideration was given to various factors, including
the market valuation of comparable companies, market conditions for initial
public offerings, the history of and prospects for the consumer finance
industry, the Company's past and present operations, its past and present
earnings and current financial position, an assessment of the Company's
management, the general condition of the securities markets and other relevant
factors.
LEGAL MATTERS
Certain legal matters relating to the Common Stock being offered hereby
will be passed upon for the Company by Dewey Ballantine, 1301 Avenue of the
Americas, New York, New York 10019 and for the Underwriters by Gibson, Dunn &
Crutcher LLP, 200 Park Avenue, New York, New York 10166.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994, 1995 and March 31, 1996, and for the period from inception (August 12,
1993) through December 31, 1993 and for each of the two years in the period
ended December 31, 1995 and the first three months ended March 31, 1996,
appearing in this Prospectus have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as stated in its report appearing elsewhere herein, and
are included in reliance upon the report of such firm given upon its authority
as experts in accounting and auditing.
77
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<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933, with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and the schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement and exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and, with respect to any
contract or other document filed as an exhibit to the Registration Statement,
each such statement is qualified in all respects by reference to such exhibit.
Copies of the Registration Statement and the exhibits thereto are on file at the
offices of the Commission and may be obtained upon payment of the prescribed fee
or may be examined without charge at the Commission's Public Reference Section,
Room 1024, 450 Fifth Street, N.W., Washington D.C. 20549, as well as at the
Commission's Regional Offices at Seven World Trade Center, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained in person
from the Public Reference Section of the Commission at its principal office
located at 450 Fifth Avenue, N.W., Washington, D.C. 20549, upon payment of the
prescribed fees.
Upon completion of the Public Offering, the Company will be subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, and
in accordance therewith will file annual and quarterly reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information may be inspected, and copies of such material may be obtained
upon payment of the prescribed fees, at the Commission's Public Reference
Section at the addresses set forth above.
The Company intends to furnish to its stockholders annual reports
containing financial statements of the Company audited by its independent
auditors and quarterly reports containing unaudited condensed financial
statements for each of the first three quarters of each fiscal year.
78
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1994, 1995 and March 31, 1996.......................... F-3
Consolidated Statements of Operations for the period August 12, 1993 (inception) through December 31,
1993 and for the years ended December 31, 1994 and 1995 and the three months ended March 31, 1996.... F-4
Consolidated Statements of Stockholders' Equity for the period August 12, 1993 (inception) through
December 31, 1993 and for the years ended December 31, 1994 and 1995 and the three months ended March
31, 1996............................................................................................. F-5
Consolidated Statements of Cash Flows for the period August 12, 1993 (inception) through December 31,
1993 and for the years ended December 31, 1994 and 1995 and the three months ended March 31, 1996.... F-6
Notes to Consolidated Financial Statements............................................................ F-8
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
IMC MORTGAGE COMPANY AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of IMC
Mortgage Company and Subsidiaries as of December 31, 1994, 1995, and March 31,
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the period August 12, 1993 (inception) through
December 31, 1993 and for each of the two years in the period ended December 31,
1995 and the three month period ended March 31, 1996. These financial statements
are the responsibility of IMC Mortgage Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IMC Mortgage
Company and Subsidiaries as of December 31, 1994, 1995 and March 31, 1996, and
the consolidated results of their operations and their cash flows for the period
August 12, 1993 (inception) through December 31, 1993 and for each of the two
years in the period ended December 31, 1995 and the three month period ended
March 31, 1996, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Jacksonville, Florida
May 21, 1996, except for the third paragraph of Note 1 and the 23rd and 24th
paragraphs of
Note 3, as to which the date is June 24, 1996
F-2
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................................ $ 3,091,180 $ 5,133,718 $ 7,566,695
Securities purchased under agreements to resell.................. 0 138,058,262 218,835,000
Accrued interest receivable...................................... 218,717 1,872,129 1,993,853
Accounts receivable.............................................. 295,003 1,179,907 3,002,890
Mortgage loans held for sale..................................... 28,995,750 193,002,835 257,458,182
Furniture, fixtures and equipment -- net......................... 431,750 679,950 914,725
Interest-only and residual certificates.......................... 3,403,730 14,072,771 22,905,311
Warehouse financing due from stockholders (Note 10).............. 57,000 53,200 6,677,044
Capitalized mortgage servicing rights............................ 0 0 1,322,180
Other assets..................................................... 148,861 498,662 851,092
Investment in joint venture...................................... 0 0 1,960,456
Goodwill......................................................... 0 0 1,712,769
----------- ------------ ------------
Total.................................................. $36,641,991 $354,551,434 $525,200,197
----------- ------------ ------------
----------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse finance facilities................................ $27,731,859 $189,819,046 $261,417,193
Term debt................................................... 0 11,120,642 21,879,297
Convertible debenture....................................... 0 0 1,800,000
Securities sold but not yet purchased....................... 0 139,200,000 216,479,966
Accrual for sharing of proportionate value of equity (Note
4)........................................................ 1,689,000 5,893,000 0
Accrued interest payable.................................... 508,576 1,055,550 1,323,311
Amounts payable to stockholders for taxes (Note 2).......... 0 1,306,645 5,126,471
Accrued and other liabilities............................... 405,945 547,707 2,522,323
Deferred income............................................. 450,600 0 523,201
----------- ------------ ------------
Total liabilities...................................... 30,785,980 348,942,590 511,071,762
----------- ------------ ------------
Commitments (Note 14)
Convertible preferred stock...................................... 0 0 2,006,000
Stockholders' equity:
Common stock, par value $.01 per share; 50,000,000
authorized; 6,000,000 shares issued and outstanding....... 60,000 60,000 60,000
Additional paid-in capital.................................. 3,824,601 3,844,601 12,292,601
Retained earnings (deficit)................................. 1,971,410 1,704,243 (230,166)
----------- ------------ ------------
Total stockholders' equity............................. 5,856,011 5,608,844 12,122,435
----------- ------------ ------------
Total.................................................. $36,641,991 $354,551,434 $525,200,197
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE
AUGUST 12, 1993 FOR THE YEAR THREE MONTHS ENDED
(INCEPTION) ENDED DECEMBER 31, MARCH 31,
THROUGH DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
-------------------- ----------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Gain on sales of loans.......... $ 438,774 $ 8,583,277 $20,680,848 $ 3,297,408 $10,875,466
Additional securitization
transaction expense (Note
4)............................ 0 (560,137) (5,547,037) (254,507) (2,828,591)
-------------------- ----------- ----------- ----------- -----------
Net gain on sale of
loans.................... 438,774 8,023,140 15,133,811 3,042,901 8,046,875
-------------------- ----------- ----------- ----------- -----------
Warehouse interest income....... 97,159 2,510,062 7,884,679 1,090,933 5,160,943
Warehouse interest expense...... (50,709) (1,610,870) (6,006,919) (1,019,643) (3,375,244)
-------------------- ----------- ----------- ----------- -----------
Net warehouse interest
income................... 46,450 899,192 1,877,760 71,290 1,785,699
-------------------- ----------- ----------- ----------- -----------
Servicing fees.................. 0 99,224 1,543,339 109,167 995,439
Other........................... 28,235 1,072,855 1,117,903 208,243 628,536
-------------------- ----------- ----------- ----------- -----------
Total servicing fees and
other.................... 28,235 1,172,079 2,661,242 317,410 1,623,975
-------------------- ----------- ----------- ----------- -----------
Total revenues............. 513,459 10,094,411 19,672,813 3,431,601 11,456,549
-------------------- ----------- ----------- ----------- -----------
Expenses:
Compensation and benefits....... 507,904 3,348,236 5,139,386 1,021,815 3,666,685
Selling, general and
administrative expenses....... 355,526 2,000,401 3,477,677 553,910 2,240,856
Other........................... 0 14,143 297,743 16,084 342,534
Sharing of proportionate value
of equity (Note 4)............ 0 1,689,000 4,204,000 718,952 2,555,000
-------------------- ----------- ----------- ----------- -----------
Total expenses............. 863,430 7,051,780 13,118,806 2,310,761 8,805,075
-------------------- ----------- ----------- ----------- -----------
Net income (loss).................... $ (349,971) $ 3,042,631 $ 6,554,007 $ 1,120,840 $ 2,651,474
-------------------- ----------- ----------- ----------- -----------
-------------------- ----------- ----------- ----------- -----------
Unaudited Pro Forma Data (giving
effect to provision for income
taxes):
Income before provision for
income taxes.................. $ 6,554,007 $ 2,651,474
Pro forma provision for income
taxes (Note 3)................ 2,522,000 1,026,000
----------- -----------
Pro forma net income............ $ 4,032,007 $ 1,625,474
----------- -----------
----------- -----------
Pro forma net income per common
share......................... $0.51 $0.20
Weighted average number of
shares outstanding............ 7,935,752 7,935,752
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
-------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Initial equity contributions (August 12, 1993)................ 6,000,000 $60,000 $ 810,000 $ 0 $ 870,000
Cash contributions............................................ 0 0 696,488 0 696,488
Contributions in foregone premiums............................ 0 0 232,575 0 232,575
Net loss...................................................... 0 0 0 (349,971) (349,971)
--------- ------- ----------- ----------- -----------
Stockholders' equity at December 31, 1993..................... 6,000,000 60,000 1,739,063 (349,971) 1,449,092
Cash contributions............................................ 0 0 1,554,959 0 1,554,959
Contributions in foregone premiums............................ 0 0 530,579 0 530,579
Net income.................................................... 0 0 0 3,042,631 3,042,631
Distributions for taxes (Note 2).............................. 0 0 0 (721,250) (721,250)
--------- ------- ----------- ----------- -----------
Stockholders' equity at December 31, 1994..................... 6,000,000 60,000 3,824,601 1,971,410 5,856,011
Additional cash contributions................................. 0 0 20,000 0 20,000
Net income.................................................... 0 0 0 6,554,007 6,554,007
Distributions for taxes (Note 2).............................. 0 0 0 (6,821,174) (6,821,174)
--------- ------- ----------- ----------- -----------
Stockholders' equity at December 31, 1995..................... 6,000,000 60,000 3,844,601 1,704,243 5,608,844
Issuance of options to ContiFinancial (Note 4)................ 0 0 8,448,000 0 8,448,000
Net income.................................................... 0 0 0 2,651,474 2,651,474
Distributions for taxes (Note 2).............................. 0 0 0 (4,585,883) (4,585,883)
--------- ------- ----------- ----------- -----------
Stockholders' equity at March 31, 1996........................ 6,000,000 $60,000 $12,292,601 $ (230,166) $12,122,435
--------- ------- ----------- ----------- -----------
--------- ------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 12, 1993 FOR THE
(INCEPTION) FOR THE YEAR ENDED THREE MONTHS ENDED
THROUGH DECEMBER 31, DECEMBER 31, MARCH 31,
-------------------- ----------------------------- ----------------------------
1993 1994 1995 1996
-------------------- ------------- ------------- 1995 -------------
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)............................ $ (349,971) $ 3,042,631 $ 6,554,007 $ 1,120,840 $ 2,651,474
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Sharing of proportionate value of
equity.................................. 0 1,689,000 4,204,000 718,952 2,555,000
Foregone premiums......................... 232,575 530,579 0 0 0
Depreciation and amortization............. 17,651 98,285 163,798 34,423 112,344
Deferred hedge............................ 0 0 (1,141,738) 0 3,496,772
Capitalized mortgage servicing rights..... 0 0 0 0 (1,360,366)
Net loss in joint venture................. 0 0 0 0 103,018
Net change in operating assets and
liabilities, net of effects from
purchase of Mortgage Central Corp.:
Mortgages purchased or originated....... (29,608,000) (282,924,000) (621,628,753) (119,385,000) (263,987,237)
Sales of mortgage loans................. 21,636,010 261,900,240 458,763,406 95,547,000 196,272,412
Decrease (increase) in securities
purchased under agreement to resell
and securities sold but not yet
purchased............................ 0 0 1,141,738 0 (3,496,772)
Increase in organization costs.......... (104,330) 0 0 0 0
Increase in accrued interest receivable
on mortgage loans held for sale...... (43,247) (175,470) (1,653,412) (252,327) (121,724)
Decrease (increase) in warehouse
financing due from stockholders...... 0 0 3,800 (50,350) (6,623,844)
Increase in interest-only and residual
certificates......................... 0 (2,953,130) (10,669,041) (4,690,246) (8,832,540)
(Increase) decrease in other assets..... (87,663) 13,338 (370,667) 73,654 (357,646)
Increase in accounts receivable......... (2,950) (292,053) (884,904) (585,917) (1,822,983)
Increase (decrease) in accrued interest
payable.............................. 21,748 486,828 546,974 (334,630) 267,761
Increase (decrease) in deferred
income............................... 0 0 (450,600) 2,929,060 523,201
Increase in accrued and other
liabilities.......................... 108,871 185,596 141,762 (112,226) 1,917,690
-------------------- ------------- ------------- ------------ -------------
Net cash used in operating
activities......................... (8,179,306) (18,398,156) (165,279,630) (24,986,767) (78,703,440)
-------------------- ------------- ------------- ------------ -------------
Investing activities:
Investment in joint venture.................. 0 0 0 0 (2,063,474)
Purchase of furniture, fixtures and
equipment................................. (225,427) (292,809) (391,132) (100,198) (190,854)
-------------------- ------------- ------------- ------------ -------------
Net cash used in investing
activities......................... (225,427) (292,809) (391,132) (100,198) (2,254,328)
-------------------- ------------- ------------- ------------ -------------
</TABLE>
F-6
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 12, 1993 FOR THE
(INCEPTION) FOR THE YEAR ENDED THREE MONTHS ENDED
THROUGH DECEMBER 31, DECEMBER 31, MARCH 31,
-------------------- ----------------------------- ----------------------------
1993 1994 1995 1995 1996
-------------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Financing activities:
Contributions from stockholders.............. $ 1,566,488 $ 1,554,959 $ 20,000 $ 20,000 $ 0
Distributions to stockholders for taxes...... 0 (721,250) (5,514,529) (1,891,184) (766,057)
Borrowings -- warehouse...................... 28,803,402 288,530,292 711,907,906 120,792,822 312,026,441
Borrowings -- term debt...................... 0 0 11,120,642 4,496,694 12,558,655
Repayments of borrowings -- warehouse........ (21,538,670) (268,008,343) (549,820,719) (98,380,320) (240,428,294)
-------------------- ------------- ------------- ------------ -------------
Net cash provided by financing
activities......................... 8,831,220 21,355,658 167,713,300 25,038,012 83,390,745
-------------------- ------------- ------------- ------------ -------------
Net increase (decrease) in cash and cash
equivalents.................................. 426,487 2,664,693 2,042,538 (48,953) 2,432,977
Cash and cash equivalents, beginning of
period....................................... 0 426,487 3,091,180 3,091,180 5,133,718
-------------------- ------------- ------------- ------------ -------------
Cash and cash equivalents, end of period....... $ 426,487 $ 3,091,180 $ 5,133,718 $ 3,042,227 $ 7,566,695
-------------------- ------------- ------------- ------------ -------------
-------------------- ------------- ------------- ------------ -------------
Supplemental disclosure cash flow information:
Cash paid during the year for interest....... $ 30,424 $ 1,364,920 $ 5,459,945 $ 1,329,786 $ 3,299,900
-------------------- ------------- ------------- ------------ -------------
-------------------- ------------- ------------- ------------ -------------
Supplemental disclosure of noncash financing
and investing activities:
Contributed capital via foregone premiums
(Note 2)................................ $ 232,575 $ 530,579 $ 0 $ 0 $ 0
-------------------- ------------- ------------- ------------ -------------
-------------------- ------------- ------------- ------------ -------------
Acquisition of assets of Mortgage Central
Corp. (Note 5).......................... $ 0 $ 0 $ 0 $ 0 $ 2,006,000
-------------------- ------------- ------------- ------------ -------------
-------------------- ------------- ------------- ------------ -------------
Amounts payable to stockholders for taxes
(Note 2)................................ $ 0 $ 0 $ 1,306,645 $ 0 $ 3,819,826
-------------------- ------------- ------------- ------------ -------------
-------------------- ------------- ------------- ------------ -------------
Issuance of options to ContiFinancial..... $ 0 $ 0 $ 0 $ 0 $ 8,448,000
-------------------- ------------- ------------- ------------ -------------
-------------------- ------------- ------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Industry Mortgage Company, LP and its subsidiaries (the 'Partnership') is a
limited partnership which was organized under the laws of the state of Delaware
on August 12, 1993 (inception). The Partnership's equity is owned 1% by its
corporate general partner, Industry Mortgage Corporation (the 'General Partner')
and 99% by a number of voting limited partners and certain key employee
(nonvoting) partners (collectively the 'Limited Partners'). The Partnership in
turn owns 100% of the common stock of its subsidiaries, IMC Corporation of
America, IMC Securities, Inc. and IMC Mortgage Company.
The Partnership purchases and originates mortgages made to borrowers who
may not otherwise qualify for conventional loans for the purpose of
securitization and sale. The Partnership securitizes these mortgages on a
non-recourse basis into the form of a Real Estate Mortgage Investment Conduit
('REMIC'). A significant portion of the mortgages are sold on a servicing
retained basis.
On June 24, 1996, in contemplation of a proposed public offering, the
Limited Partners exchanged their limited partnership interest and the General
Partner exchanged the voting common stock of the General Partner for 100% of the
voting common shares (the exchange or recapitalization) of IMC Mortgage Company.
The exchange was consummated on an historical cost basis as all entities are
under common control. After the exchange, IMC Mortgage Company (the 'Company')
owns 100% of the limited partnership interests in the Partnership and 100% of
the general partnership interest in the Partnership.
The accompanying consolidated financial statements include the accounts of
the Partnership, IMC Corporation of America, IMC Securities, Inc. and IMC
Mortgage Company, after giving effect to the exchange as if it had occurred at
inception. All intercompany transactions have been eliminated in the
accompanying consolidated financial statements.
2. DESCRIPTION OF PARTNERSHIP AGREEMENT:
CAPITAL CONTRIBUTIONS
Each voting limited partner ('VLP') owning a full partnership share
contributed $100,000 in cash and was required to make additional contributions
in either loan volume (via foregone premiums) or in cash until its respective
capital contribution reached $380,000, which occurred in 1994. Foregone premiums
represent the difference in the amount paid by the Partnership for mortgage
loans to VLPs who opted to make additional contributions in loan volume and the
value set forth in a pricing schedule (estimated fair value) delivered to the
VLP at the time of purchase. As of December 31, 1993, 1994, 1995 and March 31,
1996, contributions from VLPs totaled $1,601,063, $3,684,601, $3,704,601 and
$3,704,601, respectively, and contributions from certain key employee
(nonvoting) partners were $188,000, $190,000, $190,000 and $190,000,
respectively. Additionally, total contributions from the General Partner were
$10,000 as of December 31, 1993, 1994, and 1995 and March 31, 1996.
PURCHASES/SALES TO PARTNERS
Under the terms of the partnership agreement, each of the VLPs is required
to sell to the Partnership $1,000,000 per month in loan volume for each full
share ($500,000 per month for a 1/2 share), at market prices. Loans purchased
from limited partners during 1993, 1994, 1995, and the first quarter of 1996,
approximated $14,314,000, $115,976,000, $148,420,000 and $63,920,000,
respectively.
INCOME TAXES
All the tax effects of the Partnership's income or loss are passed through
to the partners individually, therefore, no Federal income taxes are payable by
the Partnership. State and Federal income taxes related to the Partnership's
corporate subsidiaries were not material.
F-8
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of the partnership agreement, the Company is obligated to
make quarterly cash distributions to the partners equal to 45% of profits (as
defined in the partnership agreement) to enable the partners to pay taxes in
respect of their partnership interests. Distributions to partners for income
taxes were $721,250, $6,821,174 and $4,585,883 for the years ended December 31,
1994, 1995 and the three months ended March 31, 1996, respectively.
Distributions include cash paid to partners as well as distributions accrued but
not yet paid. Certain partners agreed to forego the receipt of the cash
distributions until the public offering, at which time they will receive the
accrued amount plus 10% interest per annum. The amount payable to stockholders
for taxes (including interest) at December 31, 1995 and March 31, 1996 was
$1,306,645 and $5,126,471, respectively.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements, as of March 31, 1995 (unaudited) and
March 31, 1996, and for the three months ended March 31, 1995 (unaudited) and
the three months ended March 31, 1996, reflect all adjustments (consisting
solely of normal recurring adjustments) which, in the opinion of management, are
necessary to present fairly the financial position and results of operations for
the period presented. The results of operations for the three months ended March
31, 1995 and 1996 are not necessarily indicative of the results for a full year.
Certain information and footnote disclosures as of March 31, 1995 and for the
three months ended March 31, 1995 normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, although the Company believes that the disclosures are
adequate to make the information not misleading.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and on deposit at
financial institutions. Cash and cash equivalents include interest bearing
deposits of $2,789,580, $5,133,718 and $7,566,695 at December 31, 1994, 1995,
and March 31, 1996, respectively.
INTEREST-ONLY AND RESIDUAL CERTIFICATES
The Company originates and purchases mortgages for the purpose of
securitization and whole loan sale. The Company securitizes these mortgages on a
non-recourse basis into the form of a REMIC. A REMIC is a multi-class security
with certain tax advantages which derives its monthly principal paydowns from a
pool of underlying mortgages. The senior classes of the REMICs are sold, with
the subordinated classes (or a portion thereof) retained by the Company. The
subordinated classes are in the form of interest-only and residual securities.
The amount of senior classes of REMICs outstanding at December 31, 1994, 1995
and March 31, 1996 was $89,103,000, $418,251,000 and $559,508,000, respectively.
During 1994, the Company securitized $90 million of loans through one REMIC;
during 1995, the Company securitized $380 million of loans through three REMICs;
and during the three months ended March 31, 1996, the Company securitized $175
million of loans through one REMIC.
The Company initially records these securities at their allocated cost
based upon the present value of the interest in the cash flows retained by the
Company after considering various economic factors, including interest rates,
collateral value, and estimates of the value of future cash flows from the REMIC
mortgage pools under expected loss and prepayment assumptions discounted at a
market yield. The weighted average rate used to discount the cash flows was
approximately 11%, and the assumed loss ratio was 50 basis points per year.
In 1994, the Company adopted SFAS No. 115, 'Accounting for Certain
Investments in Debt and Equity Securities' ('SFAS 115') which requires fair
value accounting for these securities. In accordance with the provisions of SFAS
115, the Company classifies interest-only and residual certificates as
F-9
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
'trading securities' and, as such, they are recorded at fair value with the
resultant unrealized gain or loss recorded in the results of operations in the
period of the change in value. The Company determines fair value at inception
and on an ongoing basis based on a discounted cash flow analysis. The cash flows
are estimated as the excess of the weighted average coupon on each pool of
mortgage loans sold over the sum of the pass-through interest rate plus a normal
servicing fee, a trustee fee, an insurance fee and an estimate of annual future
credit losses related to the mortgage loans securitized over the life of the
mortgage loans.
These cash flows are projected over the life of the mortgage loans using
prepayment, default, and interest rate assumptions that market participants
would use for similar financial instruments subject to prepayment, credit and
interest rate risk. The fair valuation includes consideration of the following
characteristics: loan type, size, interest rate, date of origination, term and
geographic location. The Company also used other available information such as
externally prepared reports on prepayment rates, interest rates, collateral
value, economic forecasts and historical default and prepayment rates of the
portfolio under review.
CAPITALIZED SERVICING FEES RECEIVABLE
Effective January 1, 1996, the Company adopted SFAS No. 122 'Accounting for
Mortgage Servicing Rights' ('SFAS 122') which requires that upon sale or
securitization mortgages, companies capitalize the cost associated with the
right to service mortgage loans based on their relative fair values. The Company
determines fair value based on the present value of estimated net future cash
flows related to servicing income. The cost allocated to the servicing rights is
amortized in proportion to and over the period of estimated net future servicing
fee income.
Prior to the adoption of SFAS 122, servicing rights acquired through loan
origination activities were recorded in the period the loans were serviced.
Under SFAS 122, the Company capitalized, at fair value, $1,360,366 of such costs
during the three months ended March 31, 1996. During the same period,
amortization of capitalized servicing rights was $38,186. At March 31, 1996, the
capitalized servicing rights approximated fair value. The Company periodically
reviews capitalized servicing fees receivable for impairment. This review is
performed on a disaggregated basis for the predominant risk characteristics of
the underlying loans which are loan type, term and credit quality. The Company
generally makes loans to borrowers whose borrowing needs may not be met by
traditional financial institutions due to credit exceptions. The Company has
found that these borrowers are payment sensitive rather than interest rate
sensitive. As such the Company does not consider interest rates a predominant
risk characteristic for purposes of impairment. Impairment is recognized in a
valuation allowance for each disaggregated stratum in the period of impairment.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL/SECURITIES SOLD BUT NOT YET
PURCHASED
To hedge the interest rate risk on loan purchases, the Company sells short
United States Treasury securities which match the duration of the mortgage loans
held for sale and borrows the securities under agreements to resell.
Securities sold but not yet purchased are recorded on a trade date basis
and are carried at their sale amount. The unrealized gain or loss on these
instruments is deferred and recognized upon securitization as an adjustment to
the carrying value of the hedged asset. Interest expense on the securities sold
but not yet purchased is recorded as incurred.
Securities purchased under agreements to resell are recorded on a trade
date basis and are carried at the amounts at which the securities will be
resold, plus accrued interest.
F-10
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are mortgages the Company plans to sell or
securitize. Mortgage loans held for sale are stated at lower of cost, the
origination cost, or market. The cost or origination cost is net of any deferred
hedging gain or loss. Market value is determined by outstanding commitments from
investors, if any, or current investor yield requirements on the aggregate
basis. The Company evaluates the need for an allowance for loan losses to cover
losses related to mortgage loans held for sale based upon periodic analysis of
the portfolio, economic conditions and trends, historical credit loss
experience, borrowers ability to repay and collateral values. There was no
allowance for loan losses at December 31, 1994, 1995 and March 31, 1996.
REVENUE RECOGNITION
Gains on the sale of mortgage loans representing the difference between the
sales price and the net carrying amount of the loan, are recognized when
mortgage loans are sold and delivered to investors. For securitizations of
mortgage loans, the gain on the sale of the loans includes any hedging gains or
losses and represents the present value of the differential between interest
earned on the portion of loans sold and interest paid to investors less related
costs over the expected life of the loans, adjusted for projected prepayments,
expected charge-offs, foreclosure expenses, and a normal servicing fee.
Interest income on the interest-only and residual certificates is recorded
as earned, which is the recognition of the increased time value of such
discounted interest over time. Warehouse interest income on mortgage loans held
for sale is recognized on the accrual method.
The Company generally retains servicing rights and recognizes servicing
income from fees, prepayment penalties and late payment charges earned for
servicing the loans owned by certificate holders and others. Servicing and other
fees are generally earned at a rate of approximately 1/2 of 1% of the
unamortized loan balance being serviced. Servicing fee income is recognized as
collected.
Other income consists primarily of interest on interest-only and residual
certificates and earnings on deposits.
FURNITURE, FIXTURES AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
Furniture, fixtures and equipment are carried at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets. Leasehold
improvements are amortized over the useful life of the improvements.
GOODWILL
Goodwill represents the excess of cost over fair value of net tangible
assets acquired through acquisition. Such excess of cost over fair value of net
tangible assets acquired is being amortized on a straight-line basis over
twenty-five years. Amortization expense was $17,000 for the three months ended
March 31, 1996. Management periodically reviews the potential impairment of
goodwill on a non-discounted cash flow basis to assess recoverability. If the
estimated future cash flows are projected to be less than the carrying amount,
an impairment write-down (representing the carrying amount of the goodwill which
exceeds the present value of estimated expected future cash flows) would be
recorded as a period expense.
ORGANIZATION COSTS
Organization costs incurred in connection with the formation of the Company
amounted to $104,330, and are being amortized over five years. At December 31,
1994, 1995 and March 31, 1996, accumulated amortization was $29,450, $50,316 and
$55,533, respectively.
F-11
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In 1996, the Company will adopt SFAS No. 123, 'Accounting for Stock-Based
Compensation.' This standard establishes a fair value method for accounting for
stock-based compensation plans, either through recognition or disclosure. The
Company intends to adopt this standard by disclosing in the period options are
issued the pro forma net income and earnings per share amounts assuming the fair
value method was adopted on January 1, 1995. The adoption of this standard will
not have a material impact on results of operations, financial position or cash
flows.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1993, 1994 and 1995 financial statements have been
reclassified to conform with the 1996 classifications.
PRO FORMA DATA
The Partnership which is included in the consolidated financial statements
became a wholly owned subsidiary of the Company after the plan of the exchange
described in Note 1 was consummated. The Partnership made no provision for
income taxes since the Partnership's income or losses were passed through to the
partners individually.
The Partnership became subject to income taxes as of the effective date of
the exchange described in Note 1. The pro forma data included in the
consolidated statements of operations of the Company includes a pro forma
provision for income taxes to indicate what these taxes would have been had the
exchange occurred in prior years. Also, deferred income taxes reflecting the tax
effect of the temporary differences between the Company's financial statement
and tax bases of certain assets and liabilities became a net asset of the
Company as of the effective date of the exchange and will be reflected on the
consolidated balance sheet with a corresponding non-recurring benefit being
reflected in the consolidating statement of operations in the period when the
exchange became effective. Deferred taxes relate primarily to mark-to-market
adjustments recognized for tax purposes under IRS Section 475, accrued
contingent fees, and REMIC income recognition. The approximate amount of such
net deferred tax asset computed using the provisions of SFAS No. 109 'Accounting
for Income Taxes' would have been approximately $5,600,000 at March 31, 1996.
The following unaudited pro forma information reflects the incremental
income tax expense that the Company would have incurred if it had been subject
to Federal and State income taxes for the year ended December 31, 1995 and the
three months ended March 31, 1996.
F-12
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------------- ------------------
<S> <C> <C>
Pro forma current:
Federal........................................... $ 3,904,000 $ 2,919,000
State............................................. 649,000 485,000
----------------------- ------------------
4,553,000 3,404,000
----------------------- ------------------
Pro forma deferred:
Federal........................................... (1,843,000) (2,157,000)
State............................................. (188,000) (221,000)
----------------------- ------------------
(2,031,000) (2,378,000)
----------------------- ------------------
Pro forma provision for income taxes................... $ 2,522,000 $ 1,026,000
----------------------- ------------------
----------------------- ------------------
</TABLE>
The following unaudited pro forma information reflects the reconciliation
between the statutory provision for income taxes and the pro forma provision
relating to the income tax expense the Partnership would have incurred as it had
been subject to federal and state income taxes.
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------------- ------------------
<S> <C> <C>
Income tax at federal statutory rate................... $ 2,272,000 $ 928,000
State taxes, net of federal benefit.................... 232,000 95,000
Nondeductible expenses................................. 18,000 3,000
----------------------- ------------------
Pro forma provision for income taxes................... $ 2,522,000 $1,026,000
----------------------- ------------------
----------------------- ------------------
</TABLE>
PRO FORMA EARNINGS PER SHARE
Pro forma net income per common share has been computed using the weighted
average number of common shares and dilutive common share equivalents
outstanding during the period after giving effect to the recapitalization
described in Note 1. Dilutive common share equivalents consist of stock options
(calculated using the treasury stock method) and convertible preferred stock.
Pursuant to the requirements of the Securities and Exchange Commission, common
shares and common equivalent shares issued at prices below the estimated public
offering price of $18 per share during the twelve months immediately preceding
the proposed date of the initial filing of the Registration Statement have been
included in the calculation of common shares and common share equivalents, using
the treasury stock method, as if they were outstanding for all periods
presented.
4. STRATEGIC ALLIANCE:
The Company relies on ContiFinancial Corporation and its subsidiaries and
affiliates ('ContiFinancial') to provide a credit facility for funding its loan
purchases and originations as well as their expertise and assistance in loan
securitization. In 1994, 1995 and the three months ended March 31, 1996, the
securitizations were structured so that ContiFinancial received, in exchange for
cash of $2,109,011, $18,424,827 and $6,157,647, respectively, interest-only and
residual certificates with estimated values of $3,035,000, $25,054,000 and
$9,454,000, respectively. In addition, ContiFinancial paid $365,852, $1,082,136
and $467,762 in expenses related to securitizations in 1994, 1995, and the three
months ended March 31, 1996. The difference between the estimated value of the
interest-only and residual certificates provided to ContiFinancial and the total
amount of cash received and expenses paid by ContiFinancial amounts to $560,137,
$5,547,037 and $2,828,591 in 1994, 1995 and the three months ended March 31,
1996, respectively, and has been recorded as additional securitization
transaction expense.
F-13
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1993, the Company entered into a five-year agreement ('1993
Agreement') with ContiFinancial which provided the Company with a warehouse line
of credit, a standby credit facility, and certain investment banking services.
In compensation for these services, the Company agreed to pay a commitment fee
to ContiFinancial equal to 0.50% of the agreement limit ($10 million) in the
first year and 0.75% of the agreement limit minus the weighted average advance
balance for the prior year, payable on each anniversary of the first purchase
date. Total commitment fees paid to ContiFinancial pursuant to this aspect of
the 1993 agreement were $50,000 in 1994.
Pursuant to the 1993 Agreement, the Company agreed to share the value of
the partnership through a contingent fee based on a percentage of Residual
Company Equity (as defined in the 1993 Agreement) to be paid in cash at the
termination of the agreement. At December 31, 1993, there was no Residual
Company Equity and accordingly no liability was recorded. At December 31, 1994,
the Company had Residual Company Equity and accordingly the Company accrued a
liability to reflect the contingent fee payable at December 31, 1994. This
accrual has been recorded as sharing of proportionate value of equity of
$1,689,000 in the accompanying balance sheet with a corresponding charge in the
statement of operations.
The Company has previously issued financial statements for the year ended
December 31, 1994 which did not include the accrual or corresponding charge for
the sharing of proportionate value of equity. Accordingly, the Company's 1994
financial statements presented herein have been restated for the effect of
sharing of residual partnership value. The restatement reduced both net income
and partnership equity as previously reported by $1,689,000.
On January 12, 1995, the Company and ContiFinancial entered into a revised
ten-year agreement (the '1995 Agreement') which replaced the 1993 Agreement and
provided for contingent fees based on the fair market value of the Company (as
defined). The amount of the contingent fee ranged from 15% to 25% of the fair
market value of the Company if ContiFinancial or the Company, respectively,
elected to terminate these arrangements. In the event that the agreement expired
with neither ContiFinancial nor the Company electing to terminate the
arrangements, the fee would have been 20% of the fair market value of the
Company. If the Company made any distributions to the partners other than those
made as tax distributions and returns of partnership equity, the Company would
have been required to distribute an amount to ContiFinancial equal to 25% of
these other distributions. At December 31, 1995, the Company accrued $5,893,000
(based on an appraisal of the fair market value of the Company) representing the
estimated amount that would have been payable to ContiFinancial had
ContiFinancial elected to terminate the 1995 Agreement as of December 31, 1995.
The increase in the amount of the accrual at December 31, 1995 related to the
1995 Agreement over the amount accrued at December 31, 1994 related to the 1993
Agreement has been recorded as a charge to earnings for 1995.
In March 1996, the Company and ContiFinancial replaced the 1995 Agreement
with an agreement (the '1996 Agreement') which eliminated the ability of
ContiFinancial to obtain or require a cash payment as provided for in the 1993
and 1995 Agreements and provided ContiFinancial options to acquire an interest
in the Company for a nominal amount. The interest is subject to dilution for
options granted to key employees and non-employee advisors as described in Note
13. The option automatically converts into warrants for a proportionate number
of shares in any corporation into which the Company may be converted. The option
also contains normal anti-dilution provisions. In the event of a public offering
of interest in the Company or its successors, ContiFinancial has certain rights
to join in registration of additional shares of the Company's stock and under
certain conditions after the expiration of a four-year time period, to require
that shares subject to ContiFinancial's warrants be registered by the Company or
its successor. The liability that had been established under the 1995 Agreement
was reclassed to paid in capital in March 1996 in conjunction with the issuance
of the ContiFinancial option. The fair value of the option at the date of grant
(March 26, 1996) was estimated to be $8,448,000 based on an independent
appraisal of the option. The Company recorded expense of $2,555,000 for the
three months ended March 31, 1996 representing the excess of the estimated fair
F-14
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value of the option at the date of grant over the amount accrued at December 31,
1995 pursuant to the 1995 Agreement.
5. ACQUISITION OF ASSETS OF MORTGAGE CENTRAL CORPORATION:
On January 1, 1996, the Company acquired certain assets of Mortgage Central
Corp., a Rhode Island corporation ('MCC'), a mortgage banking company which did
business under the name 'Equitystars', primarily in Rhode Island, New York,
Connecticut and Massachusetts. The Partnership acquired MCC through a wholly
owned subsidiary, IMC Acquisitions, Inc., a Florida corporation
('Acquisitions'), which was formed for that purpose and which was subsequently
renamed IMC Mortgage Company. The purchase price ($2,006,000) for certain assets
of MCC was paid by delivery to MCC of Series A voting, convertible preferred
stock of Acquisitions, with contingency payments (capped at $2,550,000) over two
years based on performance. The preferred stock has a liquidation preference of
$100 per share plus preferred dividends accruing at 8% per annum from the date
of issuance until redemption or liquidation. The preferred stock is mandatorily
convertible into common shares of the Company upon closing of a public offering.
If no public offering occurs prior to June 30, 1996, the preferred stockholders
have the right to require the Company to purchase their shares at the
liquidation preference. If the Company fails to complete a public offering prior
to January 2, 2001, the Company may redeem the outstanding shares of the
convertible preferred stock at the liquidation preference.
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price of $2,006,000 has been
allocated to the assets purchased and the liabilities assumed based upon the
fair values at the date of acquisition. The excess of the purchase price of
$2,006,000 over the fair values of the net assets was approximately $1,730,000
and was recorded as goodwill.
The operating results of these acquired businesses have been included in
the consolidated statement of income from the date of acquisition on January 1,
1996. On the basis of a pro forma consolidation of the results of operations as
if the acquisition had taken place at the beginning of 1995, consolidated total
revenues would have been $4,560,000 for the three months ended March 31, 1995.
Consolidated income would not have been materially different from the reported
amount for the three months ended March 31, 1995. Such amounts are not
necessarily indicative of what the actual consolidated results of operations
might have been if the acquisition had been effective at the beginning of 1995.
6. JOINT VENTURE:
In March 1996, the Company entered into an agreement to form a joint
venture (Preferred Mortgages Limited) in the United Kingdom to originate and
purchase mortgages made to borrowers who may not otherwise qualify for
conventional loans for the purpose of securitization and sale. The Company and a
second party each own 45% of the joint venture, and a third party owns the
remaining 10%. The investment in the joint venture represents the acquisition of
675,000 shares of the joint venture stock and a $1,031,737 note from the joint
venture bearing interest at 3% per annum above LIBOR. Principal repayment on the
note is to begin when the joint venture's Board of Directors determine the joint
venture has sufficient available profits. To the extent not previously repaid,
all principal is due December 31, 2040.
The investment in the joint venture accounted for under the equity method,
through March 31, 1996, was not material in relation to the financial position
or results of operations of the Company.
In addition, the Company issued a $1,800,000 convertible debenture due
September 1996, bearing interest at one percent per annum in excess of LIBOR, to
Rotch Property Group Limited, an affiliate of the other 45% joint venture
partner. The convertible debenture is convertible into common stock of the
Company during or after the initial public offering at 93% of the public
offering price per share.
F-15
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COLLATERALIZED OBLIGATIONS:
<TABLE>
<CAPTION>
BALANCE OUTSTANDING
---------------------------------------------
DECEMBER 31,
TOTAL AVAILABLE ---------------------------
AT MARCH 31, 1996 1994 1995 MARCH 31, 1996
----------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Warehouse finance facilities........ $ 592,256,873 $27,731,859 $114,820,450 $208,674,066
Warehouse finance facilities --
under Repurchase Agreement........ 52,743,127 0 74,998,596 52,743,127
----------------- ----------- ------------ --------------
645,000,000 27,731,859 189,819,046 261,417,193
Term debt........................... 34,879,297 0 11,120,642 21,879,297
----------------- ----------- ------------ --------------
$ 679,879,297 $27,731,859 $200,939,688 $283,296,490
----------------- ----------- ------------ --------------
----------------- ----------- ------------ --------------
</TABLE>
WAREHOUSE FINANCE FACILITIES
The Company has available numerous lines of credit totaling $645,000,000 of
which $125,000,000 was through ContiFinancial, at March 31, 1996, for financing
the acquisition of mortgage loans held for sale. Of the total available,
$645,000,000 matures within 1 year. Interest rates ranged from 6.3% to 6.9% as
of March 31, 1996. Outstanding borrowing under these lines of credit are
collateralized by mortgage loans held for sale and warehouse financing due from
stockholders at March 31, 1996. Upon the sale of these loans and repayment of
warehouse financing due from stockholders, the lines will be repaid.
REPURCHASE AGREEMENT
At March 31, 1996, the Company had sold mortgage loans with a principle
balance of $49,993,485 to ContiFinancial under a repurchase agreement in
exchange for a premium of $2,749,642, which is included in warehouse notes.
TERM DEBT
The Company has available an additional line of credit under a Standby
Agreement with ContiFinancial for $15,000,000, the entire amount of which was
outstanding at March 31, 1996. Outstanding borrowings under this line are
accruing interest, based on LIBOR plus 1.70%, which was 7.1% at March 31, 1996
and collateralized by the Company's interest in the interest-only and residual
certificates. This agreement terminates in January, 2000. On March 26, 1996,
ContiFinancial agreed to lend the Company an additional $10,000,000 under the
Standby Agreement, bearing interest at LIBOR plus 8% per annum, which amounts
would be repaid with a portion of the net proceeds from the proposed public
offering. At March 31, 1996, no amounts were outstanding under this additional
Standby Agreement.
The Company also has available a $7,000,000 credit facility which matures
January 1, 1998 and bears interest at 12% per annum from an affiliate of a
stockholder. The outstanding balance of this line of credit is to be repaid from
the proceeds of the proposed initial public offering. In the event the line is
still outstanding at September 30, 1996, the lender has the right to require
that the Company grant a second lien on the Company's interest-only and residual
certificates. At March 31, 1996, $4,000,000 was outstanding under this credit
Facility.
The Company borrowed $2,879,297 under a one-year agreement bearing interest
at 1.25% per annum in excess of LIBOR to finance certain interest-only and
residual certificates which was collateralized by those interest-only and
residual certificates.
The warehouse notes and term debt have requirements that the Company
maintain certain debt to equity ratios. Additionally, distributions (other than
tax distributions) cannot exceed the total equity.
F-16
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capital expenditures are limited by certain agreements. Management believes they
are in compliance with all such covenants of these agreements.
8. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995 MARCH 31, 1996
-------- -------- --------------
<S> <C> <C> <C>
Prepaid expenses........................... $ 21,742 $214,206 $320,824
Real estate owned.......................... 0 141,840 402,889
Organization costs, net.................... 74,880 54,014 48,797
Other assets............................... 52,239 88,602 78,582
-------- -------- --------------
$148,861 $498,662 $851,092
-------- -------- --------------
-------- -------- --------------
</TABLE>
9. SERVICING PORTFOLIO:
The total servicing portfolio of loans was approximately $92,003,000,
$535,798,000 and $783,367,000 at December 31, 1994 and 1995 and March 31, 1996,
respectively. The Company did not service any loans at December 31, 1993.
10. FINANCIAL INSTRUMENTS AND OFF BALANCE SHEET ACTIVITIES:
FINANCIAL INSTRUMENTS
SFAS 105 'Disclosure of Information about Financial Instruments with
Concentrations of Credit Risk' and SFAS 119, 'Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments' requires the
disclosure of the notional amount or contractual amounts of financial
instruments.
The Company regularly securitizes and sells fixed and variable rate
mortgage loan receivables. As part of its interest rate risk management
strategy, the Company may choose to hedge its interest rate risk related to its
mortgage loans held for sale by utilizing treasury securities. The Company
classifies these transactions as hedges. The gains and losses derived from these
financial securities are deferred and included in the carrying amounts of the
mortgage loans held for sale and ultimately recognized in income when the
related mortgage loans are sold. Deferred losses on the treasuries used to hedge
the anticipated transactions amounted to approximately $1,140,000 at December
31, 1995, and deferred gains on the treasuries used to hedge the anticipated
transactions amounted to approximately $2,355,000 at March 31, 1996. There was
no unrecognized hedge position at December 31, 1994.
MARKET RISK
The Company is subject to market risk from financial instruments including
short sales in that changes in market conditions can unfavorably affect the
market value of such contracts.
FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, 'Disclosures about Fair Values of Financial Instruments,'
requires disclosure of fair value information about financial instruments,
whether or not recognized in the financial statements, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based upon estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and the estimated future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to
F-17
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts do not represent the underlying
value of the Company.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
the value:
Cash and cash equivalents: The carrying amount of cash on hand and on
deposit at financial institutions is considered to be a reasonable estimate
of fair market value.
Accrued interest receivable and accounts receivable: The carrying
amounts are considered to approximate fair value. All amounts that are
assumed to be uncollectible within a reasonable time are written off.
Mortgage loans held for sale: The estimate of fair values was based on
current pricing of whole loan transactions that a purchaser unrelated to
the seller would demand for a similar loan. The fair value of the mortgage
loans held for sale approximated $29,831,000, $196,577,000 and $266,444,000
at December 31, 1994, 1995, and March 31, 1996, respectively.
Interest-only and Residual Certificates: The fair value was determined
by discounting the estimated cash flow over the life of the certificate
using prepayment, default, and interest rate assumptions that market
participants would use for similar financial instruments subject to
prepayment, credit and interest rate risk. The carrying amount is
considered to be a reasonable estimate of fair market value.
Collateralized borrowings: Collateralized borrowings consist of
warehouse finance facilities and term debt. The warehouse finance
facilities have maturities of less than one year and bear interest at
market interest rates and therefore, the carrying value is a reasonable
estimate of fair value. The carrying amount of outstanding term debt, which
bear market rates of interest, approximates its fair value.
Convertible debenture: The convertible debenture has a maturity of
less than one year and bears a market rate of interest. Therefore, the
carrying value is a reasonable estimate of fair value.
Capitalized mortgage servicing rights: The fair value was determined
by estimating the present value of future cash flows related to servicing
income. In using this valuation method, the Company incorporated
assumptions that market participants would use in estimating future net
servicing income which included estimates of the cost of servicing per
loan, the discount rate, an inflation rate, ancillary income per loan,
prepayment speeds and default rates. The carrying amount is deemed to be a
reasonable estimate of fair value.
CREDIT RISK
The Company uses securities purchased under agreements to resell as part of
its interest rate management strategy. These instruments expose the Company to
credit risk which is measured as the loss the Company would record if
counterparties failed to perform pursuant to terms of their contractual
obligations and the value of the collateral held, if any, was not adequate to
cover such losses. The Company's policy is to keep the securities at the
financial institution which instituted the trade on behalf of the Company. The
Company monitors the market value of the assets acquired to ensure their
adequacy as compared to the amount at which the securities will be resold. The
interest rate of these instruments depends upon, among other things, the
underlying collateral, the term of the agreement and the credit quality of the
counterparty. The Company transacts these resale agreements with institutional
broker/dealers.
The Company is a party to financial instruments with off-balance sheet
credit risk in the normal course of business. These financial instruments
include commitments to extend credit to borrowers, and
F-18
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commitments to purchase loans from correspondents. The Company has a first or
second lien position on all of its loans, and the maximum combined loan-to-value
ratio ('CLTV') permitted by the Company's underwriting guidelines is 100%. The
CLTV represents the combined first and second mortgage balances as a percentage
of the lesser of appraised value or the selling price of the mortgaged property,
with the appraised value determined by an appraiser with appropriate
professional designations. A title insurance policy is required for all loans.
As of December 31, 1994, 1995 and March 31, 1996, the Company had
outstanding commitments to extend credit at fixed rates or purchase loans in the
amount of $100,512,000, $92,397,000 and $114,800,000, respectively.
Commitments to extend credit or to purchase a loan are granted for a period
of thirty days and are contingent upon the borrower and the borrower's
collateral satisfying the Company's underwriting guidelines. Since many of the
commitments are expected to expire without being exercised, the total commitment
amount does not necessarily represent future cash requirements or future credit
risk.
The Company is exposed to on-balance sheet credit risk related to its
mortgage loans held for sale and interest-only and residual certificates. The
Company is also exposed to off-balance sheet credit risk related to loans which
the Company has committed to originate or buy.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and mortgages held for sale, securities purchased under agreements to resell,
and securities sold but not yet purchased. The Company places its cash and cash
equivalents with what management believes to be high-quality financial
institutions and thereby limits its exposure to credit risk. As of December 31,
1994, 1995 and March 31, 1996, the majority of mortgage loans with on balance
sheet and off balance sheet risks were collateralized by properties located in
the Eastern United States.
WAREHOUSE EXPOSURE
The Company makes available to two stockholders warehouse financing which
bear interest at LIBOR and LIBOR plus 1.75%, respectively. As of March 31, 1996
the Company had $10,000,000 and $8,000,000, respectively, of committed
warehousing available to these stockholders, of which $2,749,862 and $3,927,182,
respectively, was drawn down. Interest income on these warehouse financing
facilities approximated $54,000 for the three months ended March 31, 1996. The
warehouse commitments are for terms of less than one year. Assets from the
stockholders remain in the warehouse for a period of 30 days at which point they
are purchased by the Company or sold by the stockholders to another investor.
There were $57,000 and $53,200 outstanding as of December 31, 1994 and 1995,
respectively, under warehouse facilities, due from stockholders.
F-19
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FURNITURE, FIXTURES AND EQUIPMENT:
Furniture, fixtures and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Computer systems............................. $304,827 $523,150 $ 620,512
Office equipment............................. 104,059 174,107 193,894
Furniture.................................... 96,037 196,283 355,484
Leasehold improvements....................... 8,553 11,068 21,447
Other........................................ 3,487 3,487 3,487
-------- -------- ----------
Total................................... 516,963 908,095 1,194,824
-------- -------- ----------
Less accumulated depreciation................ (85,213) (228,145) (280,099)
-------- -------- ----------
Furniture, fixtures and equipment, net....... $431,750 $679,950 $ 914,725
-------- -------- ----------
-------- -------- ----------
</TABLE>
Depreciation expense was $9,033, $76,662, $142,932 and $51,954 for 1993,
1994, 1995 and the three months ended March 31, 1996, respectively.
13. EMPLOYEE BENEFIT PLANS:
DEFINED CONTRIBUTION PLAN
The partnership adopted a defined contribution plan (401(k)) for all
eligible employees during August 1995. Contributions to the plan are in the form
of employee salary deferrals which may be subject to an employer matching
contribution up to a specified limit at the discretion of the Company. The
Company's contribution to the plan amounted to $107,031 and $65,000 for the year
ended 1995 and the three months ended March 31, 1996, respectively.
KEY EMPLOYEE AND ADVISOR OPTIONS
On December 11, 1995, the Company adopted the Industry Mortgage Company
1995 Incentive Plan (the 'Partnership Option Plan') pursuant to which the
Company was authorized to grant certain key employees, directors of the General
Partner and certain non-employee advisors (collectively, 'Eligible Persons')
options to acquire an equity interest in the Company. The aggregate equity
interest in the Company available under the Partnership Option Plan is not to
exceed 12% of all equity interests in the Company. At March 31, 1996, the
Company had granted options to employees and advisors which, if exercised, would
aggregate a 7% interest in the Company. All of those options were granted on
December 11, 1995 at an exercise price of $3,802 representing the estimated fair
market value at the date of grant for each .01% interest in the Company based on
an independent appraisal of the Company. The options vest 60% on the date of
their grant, with an additional 20% to vest on each of the first and second
anniversary dates of each grant. The options are exercisable for a ten-year
period and all unexercised options become void in the event the holder of any
such option's relationship with the Company is terminated for cause. The options
are not transferable except as a result of death.
14. COMMITMENTS:
OPERATING LEASES
The Company leases office space in various cities under operating lease
agreements. The lease agreements require monthly rent of approximately $43,000
including sales taxes, and are subject to certain annual increases. The lease
agreements have lease terms ranging from 6 to 48 months.
Rent expense under operating leases was $57,297, $210,063, $362,946 and
$159,683 in 1993, 1994, 1995 and the three months ended March 31, 1996.
F-20
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancelable lease agreements are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING OPERATING
DECEMBER 31, LEASES
- ------------------------------------------------------------ ----------
<S> <C>
1996..................................................... $ 590,914
1997..................................................... 495,181
1998..................................................... 377,109
1999..................................................... 297,698
----------
$1,760,902
----------
----------
</TABLE>
EMPLOYMENT AGREEMENTS
Certain members of management entered into employment agreements expiring
2001, which among other things, provide for aggregate annual compensation of
approximately $850,000 plus bonuses equal to 15% of base salary in the relevant
year for each one percent by which the increase in net income on an earnings per
share basis of the Company over the prior year exceeds 10%, up to a maximum of
300% of annual compensation. Each employment agreement contains a restrictive
covenant which prohibits the executive from competing with the Company for a
period of 18 months after termination.
F-21
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<PAGE>
<PAGE>
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<PAGE>
<PAGE>
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<PAGE>
<PAGE>
_____________________________ _____________________________
NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Recent Events.................................. 16
The Company.................................... 17
The Reorganization Plan........................ 17
Use of Proceeds................................ 18
Dilution....................................... 19
Dividend Policy................................ 19
Capitalization................................. 20
Selected Consolidated Financial Data........... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 24
Business....................................... 38
Management..................................... 55
Principal Stockholders......................... 63
Certain Relationships and Related
Transactions................................. 65
Certain Accounting Considerations Relating to
the Conti VSA................................ 69
Description of Capital Stock................... 71
Shares Eligible For Future Sale................ 74
Underwriting................................... 76
Legal Matters.................................. 77
Experts........................................ 77
Additional Information......................... 78
Index to Consolidated Financial Statements..... F-1
</TABLE>
UNTIL JULY 20, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3,100,000 SHARES
IMC MORTGAGE COMPANY
[LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
BEAR, STEARNS & CO. INC.
OPPENHEIMER & CO., INC.
JUNE 25, 1996
_____________________________ _____________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
Common Stock offered hereby, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission.................................... $ 23,357
Nasdaq National Market Listing Fee........................................................ 47,500
NASD Filing Fee........................................................................... 7,274
Blue Sky fees and expenses................................................................ 35,000
Accountants' fees and expenses............................................................ 300,000
Legal fees and expenses................................................................... 350,000
Printing and engraving expenses........................................................... 130,000
Transfer agent and registrar fees......................................................... 10,000
Miscellaneous............................................................................. 96,869
----------
Total................................................................................ $1,000,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Act authorizes Florida corporations to indemnify any person who
was or is a party to any proceeding (other than an action by, or in the right
of, the corporation), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation or other entity, against liability incurred in connection with such
proceeding, including any appeal thereof, if he or she acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or on behalf of a corporation, indemnification may
not be made if the person seeking indemnification is adjudged liable, unless the
court in which such action was brought determines such person is fairly and
reasonably entitled to indemnification. The indemnification provisions of the
Florida Act require indemnification if a director or officer has been successful
on the merits or otherwise in defense of any action, suit or proceeding to which
he or she was a party by reason of the fact that he or she is or was a director
or officer of the corporation. The indemnification authorized under Florida law
is not exclusive and is in addition to any other rights granted to officers and
directors under the Articles of Incorporation or Bylaws of the corporation or
any agreement between officers and directors and the corporation.
Under the Florida Act, a director is not personally liable for monetary
damages to the Company or any other person for acts or omissions in his or her
capacity as a director except in certain limited circumstances such as certain
violations of criminal law and transactions in which the director derived an
improper person benefit. As a result, shareholders may be unable to recover
monetary damages against directors for actions taken by them which constitute
negligence or gross negligence or which are in violation of their fiduciary
duties, although injunctive or other equitable relief may be available. These
provisions will not limit the liability of the Company's directors under the
Federal securities laws.
The Company's Certificate of Incorporation provides that the Company shall
indemnify officers and directors, and to the extent authorized by the Board of
Directors, employees and agents of the Company, to the full extent permitted by
and in the manner permissible by law in existence either now or hereafter. In
addition, the Certificate of Incorporation also permits the Board of Directors
to authorize the Company to purchase and maintain insurance against any
liability asserted against any director, officer, employee or agent of the
Company arising out of his capacity as such. The Company presently maintains
policies of directors' and officers' liability insurance in the amount of $2.0
million.
The Underwriting Agreement filed as Exhibit 1 hereto contains reciprocal
agreements of indemnity between the Company and the Underwriters as to certain
liabilities, including liabilities under the
II-1
<PAGE>
<PAGE>
Securities Act, and in certain circumstances provides for the indemnification of
the Company's directors, officers, and controlling persons.
Certain registration rights agreements between the Company and certain of
its shareholders contain reciprocal agreements between the Company and such
shareholders as to certain liabilities, including liabilities under the
Securities Act, and in certain circumstances provide for indemnification of the
Company's directors, officers and controlling persons.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In March, 1996, the Partnership issued a debenture due September 18, 1996
to Rotch Property Group Limited for $1.8 million. Pursuant to the debenture,
Rotch Property Group Limited has the right to convert the debenture into shares
of Common Stock of the Registrant and receive shares of Common Stock, $.01 par
value per share, at a price equal to 93% of the public offering price. The
Company will pay all amounts due under the Rotch Debenture from the proceeds of
the Public Offering. The issuance of the Rotch Debenture was exempt from
registration under the Securities Act by virtue of Section 4(2) thereof.
As of December 31, 1995, the Partnership entered into an agreement with
ContiTrade Services Corporation in which the Partnership issued an option to
purchase limited partnership interests which, in connection with the
Reorganization Plan, became a warrant for 1.5 million shares of the Registrant's
Common Stock, $.01 par value per share. Both the issuance of the Conti Option
and its exchange for the Conti Warrant were transactions exempt from
registration under the Securities Act by virtue of Section 4(2) thereof.
Pursuant to the Pre-IPO Agreement, dated as of March 30, 1996, prior to the
effectiveness of the Registration Statement, the Company issued 6,150,000 shares
of Common Stock (including 150,000 shares issued in exchange for limited
partnership interests acquired upon exercise by Branchview, Inc. of a portion of
the Conti Option acquired in a transaction to which the Company was not a party)
to the Industry Partners, the Management Partners and Mr. George Nicholas in
exchange for their interests in the Partnership. The issuance of the Common
Stock was exempt from registration under the Securities Act by virtue of Section
4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 -- Form of Underwriting Agreement.'ch'
2.1 -- Pre IPO Agreement between the Partnership, the General Partners and each Limited Partner.'ch'
3.1 -- Articles of Incorporation of the Registrant, as amended.'ch'
3.2 -- Bylaws of the Registrant, as amended.'ch'
4.1 -- Specimen of Certificate for Common Stock.'ch'
4.2 -- Indenture Agreement between the Partnership and Rotch Property Group Limited.'ch'
4.3 -- Substitution Agreement between the Partnership and ContiTrade Services Corporation.'ch'
4.4 -- Incentive Plan of the the Company and related assumption agreements.'ch'
4.5 -- Outside Directors' Option Plan of the the Company and related assumption agreements.'ch'
4.6 -- Form of Common Stock Warrant issued to ContiTrade Services Corporation.'ch'
5.1 -- Opinion of Dewey Ballantine.'ch'
10.1 -- Employment Agreement dated January 1, 1996 between the Partnership and George Nicholas, as amended.'ch'
10.2 -- Employment Agreement dated January 1, 1996 between the Partnership and Thomas G. Middleton, as
amended.'ch'
10.3 -- Employment Agreement dated January 1, 1996 between the Partnership and David MacDonald.'ch'
10.4 -- Lease Agreements between the Partnership and CLW Realty Asset Group Inc.'ch'
10.5 -- Share Subscription and Shareholders' Agreement between the Partnership and Foxgard Limited, Financial
Security Assurance Holdings, Inc. and Preferred Mortgages Limited.'ch'
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<C> <S>
10.6 -- Transfer Agreement between the Partnership and Curzon Equity Finance Corporation Limited, Preferred
Mortgages Limited, Rotch Property Group Limited, Foxgard Limited and Financial Security Assurance Holdings,
Inc.'ch'
10.7 -- Side letter relating to the Share Subscription and Shareholders' Agreement between the Partnership and
Foxgard Limited, Financial Security Assurance Holdings, Inc. and Preferred Mortgage Limited.'ch'
10.8 -- Asset Purchase Agreement and Plan of Reorganization between the Partnership, IMC Acquisition, Inc.,
Mortgage Central Corp. and the shareholders of Mortgage Central Corp.'ch'
10.9 -- Registration Rights Agreement between the Partnership and the shareholders of Mortgage Central Corp.'ch'
10.10 -- Investment Banking Services Agreement between the Partnership and ContiTrade Services Corporation.'ch'
10.11 -- Standby Facility Agreement between the Partnership and ContiTrade Services Corporation and Supplement
thereto.'ch'
10.12 -- Amended and Restated Loan and Security Agreement between the Partnership and ContiTrade Services
Corporation.'ch'
10.13 -- Secured Note from the Partnership to ContiTrade Services Corporation.'ch'
10.14 -- Amended and Restated Custodial Agreement among the Partnership, ContiTrade Services Corporation and Bank
of Boston.'ch'
10.15 -- 1995 Agreement between the Partnership and ContiTrade Services Corporation.'ch'
10.16 -- Assignment, Assumption and Consent Agreement among the Partnership, ContiTrade, ContiTrade Services LLC
and First National Bank of Boston.'ch'
10.17 -- Master Repurchase Agreement Governing Purchase and Sales of Mortgage Loans between the Partnership and
Nomura Asset Capital Corporation and related Power of Attorney.'ch'
10.18 -- Master Repurchase Agreement between the Partnership and Nomura Securities International, Inc.'ch'
10.19 -- Global Master Repurchase Agreement between the Partnership and Nomura Grand Cayman, Ltd.'ch'
10.20 -- Custodial Agreement among the Partnership, The First National Bank of Boston and Nomura Asset Capital
Corporation.'ch'
10.21 -- Loan and Security Agreement between the Partnership and First National Bank of Boston and amendments
thereto.'ch'
10.22 -- Interim Loan and Security Agreement between the Partnership and National Westminster Bank PLC, New York
Branch.'ch'
10.23 -- Custodial Agreement among the Partnership, National Westminster Bank PLC and First National Bank of
Boston.'ch'
10.24 -- Promissory Note between the Partnership and Lakeview Savings Bank.'ch'
10.25 -- Security Agreement Collateralizing Promissory Note between the Partnership and Lakeview Savings Bank.'ch'
10.26 -- Master Repurchase Agreement among the Partnership and Bear Stearns Home Equity Trust 1996-1.'ch'
10.27 -- Custody Agreement among the Partnership, IMC Corporation of America, Bear Stearns Home Equity Trust 1996-1
and Bank of Boston.'ch'
10.28 -- Warehousing Credit and Security Agreement among the Partnership, IMC Corporation of America and
Residential Funding Corporation, as amended.`D'ch'
10.29 -- Custodial Agreement among the First National Bank of Boston, the Partnership, IMC Corporation of America
and Residential Funding Corporation.'ch'
10.30 -- Loan and Security Agreement between the Partnership and American Industrial Loan Association, Approved
Residential Mortgage, Inc. and Armada Residential Mortgage, LLC.'ch'
10.31 -- Loan and Security Agreement between the Partnership and Mortgage Central Corp.'ch'
10.32 -- Custodial Agreement among the Partnership, Mortgage Central Corp. and the First National Bank of
Boston.'ch'
10.33 -- Custodial Agreement among the Partnership, American Industrial Loan Association, Approved Residential
Mortgage, Inc., Armada Residential Mortgage, LLC and the First National Bank of Boston.'ch'
11.1 -- Statement re computation of earnings per share (See Note 1 to the Consolidated Financial Statements).'ch'
16.1 -- Letter dated April, 1996 from Deloitte & Touche, LLP to the Registrant.'ch'
21.1 -- Subsidiaries of the Registrant.'ch'
</TABLE>
II-3
<PAGE>
<PAGE>
<TABLE>
<C> <S>
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Dewey Ballantine (contained in Exhibit 5.1).'ch'
24.1 -- Power of Attorney (included on page II-4).'ch'
27.1 -- Financial Data Schedule'ch'
99.1 -- Third Amended and Restated Agreement of Limited Partnership.'ch'
</TABLE>
- ------------
`D' Confidential treatment granted.
'ch' Previously filed.
(b) Financial Statement Schedules
None
II-4
<PAGE>
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, 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.
(2) For the purpose of determining any liability under the Securities
Act, 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.
II-5
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Tampa, state of Florida,
on June 25, 1996.
IMC MORTGAGE COMPANY
By /S/ THOMAS MIDDLETON
..................................
THOMAS MIDDLETON,
PRESIDENT, CHIEF OPERATING OFFICER,
ASSISTANT SECRETARY AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
* Chairman of the Board, Chief June 25, 1996
......................................... Executive Officer and Assistant
(GEORGE NICHOLAS) Secretary (Principal Executive Officer)
* Director June 25, 1996
.........................................
(JOSEPH P. GORYEB)
* Director June 25, 1996
.........................................
(ALLEN D. WYKLE)
* Director June 25, 1996
.........................................
(MITCHELL W. LEGLER)
/S/ THOMAS G. MIDDLETON President, Chief Operating Officer, June 25, 1996
......................................... Assistant Secretary and Director
(THOMAS G. MIDDLETON)
* Chief Financial Officer (Principal June 25, 1996
......................................... Accounting Officer and Principal
(GEORGE FREEMAN) Financial Officer
*By: /S/ THOMAS G. MIDDLETON
.........................................
(THOMAS G. MIDDLETON
AS ATTORNEY-IN-FACT)
</TABLE>
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<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ------- --------------------------------------------------------------------------------------- -------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement'ch'..................................................
2.1 -- Pre IPO Agreement between the Partnership, the General Partners and each Limited
Partner'ch'..........................................................................
3.1 -- Articles of Incorporation of the Registrant, as amended'ch'.........................
3.2 -- Bylaws of the Registrant, as amended'ch'............................................
4.1 -- Specimen of Certificate for Common Stock'ch'........................................
4.2 -- Indenture Agreement between the Partnership and Rotch Property Group Limited'ch'....
4.3 -- Substitution Agreement between the Partnership and ContiTrade Services
Corporation'ch'......................................................................
4.4 -- Incentive Plan of the the Company and related assumption agreements'ch'.............
4.5 -- Outside Directors' Option Plan of the the Company and related assumption
agreements'ch'.......................................................................
4.6 -- Form of Common Stock Warrant issued to ContiTrade Services Corporation'ch'..........
5.1 -- Opinion of Dewey Ballantine'ch'.....................................................
10.1 -- Employment Agreement dated January 1, 1996 between the Partnership and George
Nicholas, as amended'ch'.............................................................
10.2 -- Employment Agreement dated January 1, 1996 between the Partnership and Thomas G.
Middleton, as amended'ch'............................................................
10.3 -- Employment Agreement dated January 1, 1996 between the Partnership and David
MacDonald'ch'........................................................................
10.4 -- Lease Agreements between the Partnership and CLW Realty Asset Group Inc.'ch'........
10.5 -- Share Subscription and Shareholders' Agreement between the Partnership and Foxgard
Limited, Financial Security Assurance Holdings, Inc. and Preferred Mortgages
Limited'ch'..........................................................................
10.6 -- Transfer Agreement between the Partnership and Curzon Equity Finance Corporation
Limited, Preferred Mortgages Limited, Rotch Property Group Limited, Foxgard Limited
and Financial Security Assurance Holdings, Inc.'ch'..................................
10.7 -- Side letter relating to the Share Subscription and Shareholders' Agreement between
the Partnership and Foxgard Limited, Financial Security Assurance Holdings, Inc. and
Preferred Mortgage Limited'ch'.......................................................
10.8 -- Asset Purchase Agreement and Plan of Reorganization between the Partnership, IMC
Acquisition, Inc., Mortgage Central Corp. and the shareholders of Mortgage Central
Corp.'ch'............................................................................
10.9 -- Registration Rights Agreement between the Partnership and the shareholders of
Mortgage Central Corp.'ch'...........................................................
10.10 -- Investment Banking Services Agreement between the Partnership and ContiTrade
Services Corporation'ch'.............................................................
10.11 -- Standby Facility Agreement between the Partnership and ContiTrade Services
Corporation and Supplement thereto'ch'...............................................
10.12 -- Amended and Restated Loan and Security Agreement between the Partnership and
ContiTrade Services Corporation'ch'..................................................
10.13 -- Secured Note from the Partnership to ContiTrade Services Corporation'ch'............
10.14 -- Amended and Restated Custodial Agreement among the Partnership, ContiTrade Services
Corporation and Bank of Boston'ch'...................................................
10.15 -- 1995 Agreement between the Partnership and ContiTrade Services Corporation'ch'......
10.16 -- Assignment, Assumption and Consent Agreement among the Partnership, ContiTrade,
ContiTrade Services LLC and First National Bank of Boston'ch'........................
10.17 -- Master Repurchase Agreement Governing Purchase and Sales of Mortgage Loans between
the Partnership and Nomura Asset Capital Corporation and related Power of
Attorney'ch'.........................................................................
10.18 -- Master Repurchase Agreement between the Partnership and Nomura Securities
International, Inc. 'ch'.............................................................
10.19 -- Global Master Repurchase Agreement between the Partnership and Nomura Grand Cayman,
Ltd'ch'..............................................................................
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<C> <S> <C>
10.20 -- Custodial Agreement among the Partnership, The First National Bank of Boston and
Nomura Asset Capital Corporation'ch'.................................................
10.21 -- Loan and Security Agreement between the Partnership and First National Bank of
Boston and amendments thereto'ch'....................................................
10.22 -- Interim Loan and Security Agreement between the Partnership and National Westminster
Bank PLC, New York Branch'ch'........................................................
10.23 -- Custodial Agreement among the Partnership, National Westminster Bank PLC and First
National Bank of Boston'ch'..........................................................
10.24 -- Promissory Note between the Partnership and Lakeview Savings Bank'ch'...............
10.25 -- Security Agreement Collateralizing Promissory Note between the Partnership and
Lakeview Savings Bank'ch'............................................................
10.26 -- Master Repurchase Agreement among the Partnership and Bear Stearns Home Equity Trust
1996-1'ch'...........................................................................
10.27 -- Custody Agreement among the Partnership, IMC Corporation of America, Bear Stearns
Home Equity Trust 1996-1 and Bank of Boston'ch'......................................
10.28 -- Warehousing Credit and Security Agreement among the Partnership, IMC Corporation of
America and Residential Funding Corporation, as amended`D'ch'........................
10.29 -- Custodial Agreement among the First National Bank of Boston, the Partnership, IMC
Corporation of America and Residential Funding Corporation'ch'.......................
10.30 -- Loan and Security Agreement between the Partnership and American Industrial Loan
Association, Approved Residential Mortgage, Inc. and Armada Residential Mortgage,
LLC'ch'..............................................................................
10.31 -- Loan and Security Agreement between the Partnership and Mortgage Central
Corp. 'ch'...........................................................................
10.32 -- Custodial Agreement among the Partnership, Mortgage Central Corp. and the First
National Bank of Boston'ch'..........................................................
10.33 -- Custodial Agreement among the Partnership, American Industrial Loan Association,
Approved Residential Mortgage, Inc., Armada Residential Mortgage, LLC and the First
National Bank of Boston'ch'..........................................................
11.1 -- Statement re computation of earnings per share (See Note 1 to the Consolidated
Financial Statements)'ch'............................................................
16.1 -- Letter dated April, 1996 from Deloitte & Touche, LLP to the Registrant'ch'..........
21.1 -- Subsidiaries of the Registrant'ch'..................................................
23.1 -- Consent of Coopers & Lybrand L.L.P..................................................
23.2 -- Consent of Dewey Ballantine (contained in Exhibit 5.1)'ch'..........................
24.1 -- Power of Attorney (included on page II-4)'ch'.......................................
27.1 -- Financial Data Schedule'ch'.........................................................
99.1 -- Third Amended and Restated Agreement of Limited Partnership'ch'.....................
</TABLE>
- ------------
`D' Confidential treatment granted.
'ch' Previously filed.
STATEMENT OF DIFFERENCES
------------------------
The British pound sign shall be expressed as 'L'
The dagger symbol shall be expressed as `D'
The check mark shall be expressed as 'ch'
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
IMC MORTGAGE COMPANY
We consent to the inclusion in this Registration Statement on Form S-1
(File No. 333-3954) of our report dated May 21, 1996, except for the third
paragraph of Note 1 and the 23rd and 24th paragraphs of Note 3, as to which the
date is June 24, 1996, on our audits of the consolidated financial statements of
IMC Mortgage Company and Subsidiaries. We also consent to the reference to our
firm under the caption 'Experts.'
COOPERS & LYBRAND L.L.P.
Jacksonville, Florida
June 24, 1996
<PAGE>
