<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1997
REGISTRATION NO. 333-21823
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
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 OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</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)
------------------------
<TABLE>
<CAPTION>
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO
THE AGENT FOR SERVICE, SHOULD BE SENT TO:
<S> <C>
PETER S. KOLEVZON, ESQ. STEVEN R. FINLEY, ESQ.
KRAMER, LEVIN, NAFTALIS & FRANKEL GIBSON, DUNN & CRUTCHER LLP
919 THIRD AVENUE 200 PARK AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10166
(212) 715-9100 (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>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 28, 1997
PROSPECTUS
7,000,000 SHARES
IMC MORTGAGE COMPANY
COMMON STOCK
------------------------
[LOGO]
Of the 7,000,000 shares of common stock (the 'Common Stock') offered hereby
(the 'Offering'), 5,600,000 shares are being offered by IMC Mortgage Company
('IMC' or the 'Company') and 1,400,000 shares are being offered by certain
stockholders of the Company (the 'Selling Stockholders'). See 'Principal and
Selling Stockholders.' The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholders. See 'Use of Proceeds.'
The Common Stock is traded on the Nasdaq National Market ('Nasdaq') under
the symbol 'IMCC.' On March , 1997, the last reported sales price as reported
by Nasdaq of the Common Stock was $ per share. See 'Price Range of Common
Stock and Dividend Policy.'
------------------------
SEE 'RISK FACTORS' COMMENCING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF 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.
------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2) SELLING STOCKHOLDERS
Per Share.................... $ $ $ $
Total (3).................... $ $ $ $
</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 $400,000, payable by the Company,
including expenses of the Selling Stockholders. See 'Principal and Selling
Stockholders.'
(3) The Company and certain of the Selling Stockholders have granted the
Underwriters a 30-day option to purchase up to 1,050,000 additional shares
of Common Stock, at the same price and subject to the same Underwriting
Discount as set forth above, solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the Price to Public will total
$ , Underwriting Discount will total $ , Proceeds to Company
will total $ and Proceeds to Selling Stockholders will total $ .
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 , 1997 at the
offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.
------------------------
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
NATWEST SECURITIES LIMITED
OPPENHEIMER & CO., INC.
, 1997
<PAGE>
<PAGE>
[Strip in the Map of U.S.A. with all new acquisition offices indicated.]
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 10b-6a UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE 'UNDERWRITING.'
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, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
FOR UNITED KINGDOM PURCHASERS: THE COMMON STOCK MAY NOT BE OFFERED OR SOLD
IN THE UNITED KINGDOM OTHER THAN TO PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE
THEM IN ACQUIRING, HOLDING, MANAGING OR DISPOSING OF INVESTMENTS, WHETHER AS
PRINCIPAL OR AGENT (EXCEPT IN CIRCUMSTANCES THAT DO NOT CONSTITUTE AN OFFER TO
THE PUBLIC WITHIN THE MEANING OF THE PUBLIC OFFERS OF SECURITIES REGULATIONS
1995 OR THE FINANCIAL SERVICES ACT 1986), AND THIS PROSPECTUS MAY ONLY BE ISSUED
OR PASSED ON TO ANY PERSON IN THE UNITED KINGDOM IF THAT PERSON IS OF A KIND
DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES ACT 1986 (INVESTMENT
ADVERTISEMENTS) (EXEMPTIONS) ORDER 1996.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
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. Unless the context otherwise requires, the terms
the 'Company' and 'IMC' refer to IMC Mortgage Company, its subsidiaries,
including its wholly owned subsidiary Industry Mortgage Company, L.P. (the
'Partnership'), and their respective operations. Unless otherwise indicated, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option and has been adjusted to reflect a two-for-one stock split
of the Common Stock paid on February 13, 1997. This Prospectus contains
forward-looking statements which involve risks and uncertainties. Actual events
or results may differ materially as a result of various factors, including those
set forth under 'Risk Factors' and elsewhere in this Prospectus.
THE COMPANY
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 such individuals
to consolidate debt, to finance home improvements, to pay educational expenses
and for a variety of other uses. 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 originators of
non-conforming home equity loans (the 'Industry Partners') and certain members
of management. The original Industry Partners included: Approved Financial Corp.
(formerly American Industrial Loan Association) ('Approved'); Champion Mortgage
Co. Inc.; Cityscape Corp.; Equitysafe, a Rhode Island General Partnership;
Investors Mortgage, a Washington LP ('Investors Mortgage'); Mortgage America
Inc. ('Mortgage America'); Residential Money Centers; First Government Mortgage
and Investors Corp.; Investaid Corp.; and New Jersey Mortgage and Investment
Corp. In 1994, TMS Mortgage Inc., a wholly-owned subsidiary of The Money Store
Inc., ('The Money Store'), and Equity Mortgage, a Maryland LP ('Equity
Mortgage'), became Industry Partners. Branchview, Inc., a wholly-owned
subsidiary of Lakeview Savings Bank ('Lakeview'), became an Industry Partner in
1995.
IMC purchases and originates non-conforming home equity loans through a
diversified network of correspondents (which includes the Industry Partners) and
mortgage loan brokers and on a retail basis through its direct consumer lending
effort. As of December 31, 1996, IMC had a network of 374 approved
correspondents, including the Industry Partners, 1,693 approved mortgage loan
brokers and 17 Company-owned retail branches. During January and February 1997,
IMC added 49 retail branches through the acquisition of four retail
non-conforming mortgage lenders. 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 $1.77 billion
in 1993, 1994, 1995 and 1996, respectively. IMC's direct consumer lending
effort, which began in 1995, contributed approximately 1.8% and 3.8% of loan
production in 1995 and 1996, respectively. IMC is continuing to expand its
direct consumer lending by opening branch offices and expanding its use of
advertising, direct mail and other marketing strategies, as well as through
acquisitions.
As of December 31, 1996, a majority of the Industry Partners were required
to sell to IMC, on prevailing market terms and conditions, an aggregate of
$162.0 million of home equity loans per year. IMC has consistently purchased
loan production from the Industry Partners in excess of such aggregate annual
commitment. Actual sales to IMC by the Industry Partners aggregated $337.5
million for the year ended December 31, 1996. As a result of IMC's acquisition
of two of the Industry Partners (Mortgage America and Equity Mortgage) effective
January 1, 1997, the contractual annual sales commitment from the Industry
Partners was reduced by $36.0 million to $126.0 million. The two
3
<PAGE>
<PAGE>
acquired Industry Partners originated an aggregate of approximately $284 million
residential loans in 1996. These acquisitions reflect IMC's business strategy to
increase its retail loan origination channels through acquisitions of retail
non-conforming lenders. See 'Business -- Acquisitions and Strategic Alliances'
and 'Certain Relationships and Related Transactions.'
IMC sells the majority of its loans through its securitization program and
retains rights to service such loans. Through December 31, 1996, IMC had
completed eight securitizations totaling $1.4 billion of loans. The Company
earns servicing fees on a monthly basis of 0.50% per year and ancillary fees on
the loans it services in the securitization pools. As of December 31, 1995 and
1996, IMC had a servicing portfolio of $535.8 million and $2.15 billion,
respectively.
The Company's total revenues increased from $19.7 million for the year
ended December 31, 1995 to $65.7 million for the year ended December 31, 1996,
while pro forma net income increased from $4.0 million to $17.9 million in those
periods. Gain on sale of loans, net represented $15.1 million, or 76.9% of total
revenues, for the year ended December 31, 1995 compared to $42.1 million, or
64.1% of total revenues, for the year ended December 31, 1996. Servicing income,
net warehouse interest income and other revenues in the aggregate increased from
$4.5 million, or 23.0% of total revenues, for the year ended December 31, 1995
to $23.6 million, or 35.9% of total revenues, for the year ended December 31,
1996. IMC's strategy is to continue to increase its servicing portfolio and
portfolio of loans held for sale in order to generate increased revenues from
these two sources.
The Company is a Florida corporation. Its principal offices are located at
3450 Buschwood Park Drive, Tampa, Florida 33618 and its telephone number is
(813) 932-2211.
BUSINESS STRATEGY
The Company utilizes the following strategies to maintain and expand its
core business:
Expansion through Acquisitions. The Company is actively pursuing a strategy
of acquiring originators of non-conforming home equity loans. IMC's acquisition
strategy focuses on entities that originate non-conforming mortgages either
directly from the consumer or through broker networks. In 1996, IMC acquired
Mortgage Central Corp. ('Equitystars,' an affiliate of Equitysafe) and in
January and February 1997 completed the acquisitions of Mortgage America,
CoreWest Banc ('CoreWest'), Equity Mortgage and American Mortgage Reduction,
Inc. ('American Reduction'). Equitystars, Mortgage America and Equity Mortgage
were Industry Partners. Management believes that the acquisition of
non-conforming home equity loan originators will benefit IMC by: (i) increasing
IMC's loan production volume by capturing all of the acquired company's
production instead of only a portion; (ii) improving IMC's profitability and
profit margins because broker and direct-to-consumer originated loans typically
result in better profit margins than loans purchased from correspondents; (iii)
adding experienced management; and (iv) broadening IMC's distribution system for
offering new products. In order to incent management of the acquired companies,
IMC typically structures its acquisitions to include an initial payment upon
closing of the transaction and to provide for contingent payments tied to future
production and profitability of the acquired company.
Expansion of Direct Consumer Lending. IMC intends to expand its direct
consumer lending efforts by opening additional branch offices which will allow
the Company to focus on developing contacts with individual borrowers, local
brokers and referral sources such as accountants, attorneys and financial
planners. Through December 31, 1996, IMC opened 17 retail branch offices. In
January and February 1997, IMC added 49 retail branches through acquisitions.
Expansion of Correspondent and Broker Networks. The Company intends to
continue to increase its loan production from correspondents and brokers by
increasing its market share through geographic expansion, tailored marketing
strategies and a continued focus on servicing smaller correspondents in regions
that historically have not been actively served by non-conforming home equity
lenders.
Broadening of Product Offerings. The Company continues to introduce new
non-conforming home equity loan products to meet the needs of its
correspondents, brokers and borrowers and to expand its market share by
attracting new customers. The Company is in the process of introducing two such
products, Home Equity Lines of Credit ('HELOCs') and secured credit cards.
4
<PAGE>
<PAGE>
Strategic Alliances and Joint Ventures. In order to increase the Company's
volume and diversify its sources of loan originations over the long term, the
Company seeks to enter into strategic alliances with selected mortgage lenders,
pursuant to which the Company provides working capital and financing
arrangements and a commitment to purchase qualifying loans. In return, the
Company expects to receive a more predictable flow of loans and, in some cases,
an option to acquire an equity interest in the strategic partner. To date, the
Company has entered into two strategic alliances in the United States and a
joint venture in the United Kingdom.
Maintenance of Underwriting Quality and Loan Servicing. The Company's
underwriting and servicing staff have extensive experience in the non-conforming
home equity loan industry. The management of IMC believes that the depth and
experience of its underwriting and servicing staff provide the Company with the
infrastructure necessary to sustain its recent growth and maintain its
commitment to high standards in its underwriting and loan servicing. As the
Company continues to grow, it is committed to applying consistent underwriting
procedures and criteria and to attracting, training and retaining experienced
staff.
Maximize Financial Flexibility and Improve Cash Flow. The Company intends
to maximize its financial flexibility in a number of ways, including by
maintaining a significant quantity of mortgage loans held for sale on its
balance sheet. Maintenance of a substantial amount of mortgage loans held for
sale, which the Company can sell when necessary or desirable either through
securitizations or whole loans sales, permits IMC to improve management of its
cash flow by increasing its net interest income and to reduce its exposure to
the volatility of the capital markets. During 1996, the Company securitized
approximately 53% of its loan production.
RECENT DEVELOPMENTS
Acquisitions. Pursuant to its strategy to expand direct lending origination
channels through acquisitions of non-conforming home equity lenders, IMC
acquired Mortgage America, CoreWest, Equity Mortgage and American Reduction in
January and February 1997. The purchase price for each acquisition was paid in
either cash or Common Stock and most acquisitions included earn-out arrangements
that provide the sellers with additional consideration if the acquired company
reaches certain performance targets after acquisition. While the Company
believes that the acquisitions described below are important to the Company's
business strategy, none of the acquisitions individually, or in the aggregate,
represents a significant amount of revenues, income or assets in relation to the
Company. See 'Business -- Acquisitions and Strategic Alliances.'
Acquisition of Mortgage America. Effective January 1, 1997, IMC
acquired all of the assets of Mortgage America, an Industry Partner.
Mortgage America is a non-conforming lender based in Bay City, Michigan
that originates residential mortgage loans from a network of 32 retail
offices located in 29 states. Mortgage America originated over $248 million
of residential mortgage loans in 1996, including over $69 million during
the last quarter of 1996. IMC purchased $45.3 million of residential
mortgage loans from Mortgage America during 1996, including $21.1 million
during the last quarter of 1996.
Acquisition of CoreWest. Effective January 1, 1997, IMC acquired all
of the outstanding common stock of CoreWest, a non-conforming lender based
in Los Angeles, California. CoreWest, which commenced operations in early
1996, originates residential mortgage loans primarily through a network of
nine mortgage centers located in California, Colorado, Washington, Utah and
Oregon. CoreWest originated over $48 million of residential mortgage loans
in 1996, including over $22 million during the last quarter of 1996. IMC
purchased $10.3 million of residential mortgage loans from CoreWest during
1996, all of which was during the last quarter of 1996.
Acquisition of Equity Mortgage. Effective January 1, 1997, IMC
acquired all of the assets of Equity Mortgage, an Industry Partner. Equity
Mortgage is a non-conforming lender that originates residential mortgage
loans from its offices in the greater Baltimore metropolitan region,
Delaware and Pennsylvania. Equity Mortgage originated over $36 million of
residential mortgage loans in 1996, including over $11 million during the
last quarter of 1996. IMC purchased $12.5 million of
5
<PAGE>
<PAGE>
residential mortgage loans from Equity Mortgage during 1996, including $3.3
million during the last quarter of 1996.
Acquisition of American Reduction. Effective February 1, 1997, IMC
acquired all of the assets of American Reduction, a non-conforming lender
based in Owings Mills, Maryland. American Reduction originates residential
mortgage loans from its main office in Owings Mills, and four satellite
offices located in Pennsylvania. American Reduction originated over $80
million of residential mortgage loans in 1996, including over $28 million
during the last quarter of 1996. IMC did not purchase a significant amount
of residential mortgage loans from American Reduction in 1996.
Recent Securitizations. In January 1997, the Company completed a
securitization in the amount of $325 million, its ninth securitization.
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.'
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
the Company............................. 5,600,000 shares
the Selling Stockholders................ 1,400,000 shares
Common Stock to be outstanding after the
Offering(1)................................ 28,149,142 shares
Use of proceeds.............................. For general corporate purposes, including the repayment of
outstanding indebtedness, funding of loan purchases and
originations, funding of future acquisitions and expansion of
the Company's direct lending branch office network. See 'Use of
Proceeds.'
Nasdaq National Market symbol................ IMCC
</TABLE>
- ------------
(1) Excludes (a) 1,865,764 shares of Common Stock reserved for issuance upon
exercise of outstanding options, (b) 2,100,000 of the 2,700,000 shares of
Common Stock reserved for issuance upon exercise of the warrant (the 'Conti
Warrant') issued to ContiFinancial Corporation ('ContiFinancial') and (c)
any shares that may become payable under contingent payout arrangements with
respect to IMC's acquisitions of Equitystars, Mortgage America, CoreWest and
American Reduction. Includes 600,000 of the 2,700,000 shares of Common Stock
reserved for issuance upon exercise of the Conti Warrant. See
'Management -- Stock Option Plans,' 'Business -- Acquisitions and Strategic
Alliances' and 'Certain Relationships and Related Transactions -- Agreements
with ContiFinancial -- Conti Warrant.'
6
<PAGE>
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The historical Statement of Operations and Balance Sheet data set forth
below as of and for the period from inception to December 31, 1993 and the
fiscal years ended December 31, 1994, 1995 and 1996 have been derived from the
Consolidated Financial Statements and Notes thereto of the Company included
elsewhere herein, which have been audited by Coopers & Lybrand L.L.P.,
independent accountants. 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 Notes thereto.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 12, 1993) YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, -------------------------
1993 1994 1995
----------------- ---------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)(2)............................................... $ 438,774 $8,583,277 $20,680,848
Additional securitization transaction expense(3).......................... -- (560,137) (5,547,037)
-------- ---------- -----------
Gain on sale of loans, net............................................ 438,774 8,023,140 15,133,811
-------- ---------- -----------
Warehouse interest income................................................. 97,159 2,510,062 7,884,679
Warehouse interest expense................................................ (50,709) (1,610,870) (6,006,919)
-------- ---------- -----------
Net warehouse interest income......................................... 46,450 899,192 1,877,760
-------- ---------- -----------
Servicing fees............................................................ -- 99,224 1,543,339
Other..................................................................... 28,235 1,072,855 1,117,903
-------- ---------- -----------
Total servicing fees and other........................................ 28,235 1,172,079 2,661,242
-------- ---------- -----------
Total revenues.................................................... 513,459 10,094,411 19,672,813
-------- ---------- -----------
Expenses:
Compensation and benefits................................................. 507,904 3,348,236 5,139,386
Selling, general and administrative expenses(2)........................... 355,526 2,000,401 3,477,677
Other..................................................................... -- 14,143 297,743
Sharing of proportionate value of equity(4)............................... -- 1,689,000 4,204,000
-------- ---------- -----------
Total expenses........................................................ 863,430 7,051,780 13,118,806
-------- ---------- -----------
Pre-tax income (loss)......................................................... (349,971) 3,042,631 6,554,007
Pro forma provision (benefit) for income taxes................................ (134,000) 1,187,000 2,522,000
-------- ---------- -----------
Pro forma net income (loss)(2)................................................ $(215,971) $1,855,631 $ 4,032,007
-------- ---------- -----------
-------- ---------- -----------
Pro forma per share data:
Pro forma net income per share(2)......................................... $ 0.25
Weighted average number of shares outstanding............................. 15,871,504
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)(2)............................................... $46,229,615
Additional securitization transaction expense(3).......................... (4,157,644)
-----------
Gain on sale of loans, net............................................ 42,071,971
-----------
Warehouse interest income................................................. 37,463,583
Warehouse interest expense................................................ (24,534,896)
-----------
Net warehouse interest income......................................... 12,928,687
-----------
Servicing fees............................................................ 6,749,995
Other..................................................................... 3,903,638
-----------
Total servicing fees and other........................................ 10,653,633
-----------
Total revenues.................................................... 65,654,291
-----------
Expenses:
Compensation and benefits................................................. 16,006,553
Selling, general and administrative expenses(2)........................... 15,652,381
Other..................................................................... 2,321,413
Sharing of proportionate value of equity(4)............................... 2,555,000
-----------
Total expenses........................................................ 36,535,347
-----------
Pre-tax income (loss)......................................................... 29,118,944
Pro forma provision (benefit) for income taxes................................ 11,190,000
-----------
Pro forma net income (loss)(2)................................................ $17,928,944
-----------
-----------
Pro forma per share data:
Pro forma net income per share(2)......................................... $ 0.94
Weighted average number of shares outstanding............................. 19,165,304
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
DECEMBER 31, 1996
----------------------------------------- --------------
1993 1994 1995 ACTUAL
---------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Mortgage loans held for sale...................................... $7,971,990 $28,995,750 $193,002,835 $ 914,586,703
Interest-only and residual certificates........................... -- 3,403,730 14,072,771 86,246,674
Warehouse finance facilities...................................... 7,212,915 27,731,859 189,819,046 895,132,545
Term debt......................................................... -- -- 11,120,642 47,430,295
Stockholders' equity.............................................. 1,449,092 5,856,011 5,608,844 89,336,582
Total assets...................................................... 8,861,144 36,641,991 354,551,434 1,707,348,185
<CAPTION>
DECEMBER 31, 1996
AS ADJUSTED(5)
--------------
<S> <C>
BALANCE SHEET DATA:
Mortgage loans held for sale......................................
Interest-only and residual certificates...........................
Warehouse finance facilities......................................
Term debt.........................................................
Stockholders' equity..............................................
Total assets......................................................
</TABLE>
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION
(AUGUST 12, 1993) YEAR ENDED DECEMBER
THROUGH 31,
DECEMBER 31, --------------------
1993 1994 1995
----------------- -------- --------
<S> <C> <C> <C>
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated..................................................... $29,608 $282,924 $621,629
Loans sold through securitization................................................. -- 81,637 388,363
Whole loan sales.................................................................. 21,636 180,263 70,400
Serviced loan portfolio (period end).............................................. -- 92,003 535,798
DELINQUENCY DATA:
Total delinquencies as a percentage of loans serviced (period end)(6)............. 0.00% 0.87% 3.43%
Defaults as a percentage of loans serviced (period end)(7)........................ 0.00 0.12 1.00
Net losses as a percentage of average loans serviced for period................... 0.00 0.00 0.09
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
----------
<S> <C>
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated..................................................... $1,770,312
Loans sold through securitization................................................. 935,000
Whole loan sales.................................................................. 128,868
Serviced loan portfolio (period end).............................................. 2,148,068
DELINQUENCY DATA:
Total delinquencies as a percentage of loans serviced (period end)(6)............. 5.30%
Defaults as a percentage of loans serviced (period end)(7)........................ 1.47
Net losses as a percentage of average loans serviced for period................... 0.13
</TABLE>
7
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<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)(2)......................... $10,875,466 $11,315,433 $12,537,421 $11,501,295
Additional securitization transaction expense(3).... (2,828,591) (1,329,053) -- --
----------- ----------- ------------- ------------
Gain on sale of loans, net...................... 8,046,875 9,986,380 12,537,421 11,501,295
----------- ----------- ------------- ------------
Warehouse interest income............................... 5,160,943 6,453,721 10,634,571 15,214,348
Warehouse interest expense.............................. (3,375,244) (4,457,415) (6,672,572) (10,029,665)
----------- ----------- ------------- ------------
Net warehouse interest income................... 1,785,699 1,996,306 3,961,999 5,184,683
----------- ----------- ------------- ------------
Servicing fees.......................................... 995,439 1,466,803 1,753,139 2,534,614
Other................................................... 628,536 835,709 1,513,446 925,947
----------- ----------- ------------- ------------
Total revenues.................................. 11,456,549 14,285,198 19,766,005 20,146,539
----------- ----------- ------------- ------------
Expenses:
Compensation and benefits........................... 3,666,685 4,372,965 3,947,843 4,019,060
Selling, general and administrative expenses(2)..... 2,240,856 2,895,854 5,279,887 5,235,784
Other............................................... 342,534 1,005,057 473,202 500,620
Sharing of proportionate value of equity(4)......... 2,555,000 -- -- --
----------- ----------- ------------- ------------
Total expenses.................................. 8,805,075 8,273,876 9,700,932 9,755,464
----------- ----------- ------------- ------------
Pre-tax income.......................................... 2,651,474 6,011,322 10,065,073 10,391,075
Pro forma provision for income taxes (actual provision
for the three months ended September 30 and December
31)................................................... 1,026,000 2,358,522 4,012,986 3,792,492
----------- ----------- ------------- ------------
Pro forma net income (actual for the three months ended
September 30 and December 31)......................... $ 1,625,474 $ 3,652,800 $ 6,052,087 $ 6,598,583
----------- ----------- ------------- ------------
----------- ----------- ------------- ------------
Pro forma per share data:
Pro forma (actual for the three months ended
September 30 and December 31) net income per
share............................................. $0.10 $0.22 $0.26 $0.28
Weighted average number of shares outstanding....... 15,871,504 16,434,386 23,431,704 23,507,830
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated........................... $ 263,987 $ 402,237 $ 480,232 $ 623,856
Loans sold through securitization....................... 175,000 200,000 250,000 310,000
Whole loan sales........................................ 21,272 39,140 43,180 25,276
Serviced loan portfolio (period end).................... 783,367 1,103,920 1,486,803 2,148,068
DELINQUENCY DATA:
Total delinquencies as a percentage of loans serviced
(period end)(6)....................................... 2.31% 3.06% 3.67% 5.30 %
Defaults as a percentage of loans serviced (period
end)(7)............................................... 1.10 1.18 1.73 1.47
Net losses as a percentage of average loans serviced for
period................................................ 0.01 0.03 0.04 0.04
</TABLE>
- ------------
(1) Prior to June 1996, 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) Beginning January 1, 1996, the Company adopted SFAS No. 122 'Accounting for
Mortgage Servicing Rights' ('SFAS 122') which resulted in additional gain on
sale of $7.8 million and additional amortization expense of $1.2 million for
the year ended December 31, 1996. The effect on unaudited pro forma net
income and pro forma net income per common share for the year ended December
31, 1996 was an increase of $4.1 and $0.21, respectively.
(3) In 1994, 1995 and 1996, ContiFinancial received interest-only and residual
certificates with estimated values of $3.0 million, $25.1 million and $13.4
million in exchange for cash payments of $2.1 million, $18.4 million and
$8.6 million, respectively. In addition, ContiFinancial paid IMC $0.4
million, $1.1 million and $0.7 million in 1994, 1995 and 1996, respectively,
in expenses related to securitizations.
(footnotes continued on next page)
8
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<PAGE>
(footnotes continued from previous page)
See 'Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Transactions with ContiFinancial -- Additional
Securitization Transaction Expense.'
(4) Reflects expenses recorded in connection with the value sharing arrangement
with ContiFinancial (the 'Conti VSA') which terminated in March 1996. The
Company's pre-tax income before the Conti VSA for 1994, 1995 and 1996 was
$4.7 million, $10.8 million and $31.7 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 5 of Notes to Consolidated Financial Statements.
(5) Adjusted to give effect to the sale of 5,600,000 shares of Common Stock
offered by the Company hereby, assuming a public offering price of $ per
share (the closing price of the Common Stock on March , 1997). See
'Capitalization.'
(6) Represents the percentages of account balances contractually past due 30
days or more, exclusive of home equity loans in foreclosure, bankruptcy and
real estate owned.
(7) Represents the percentages of account balances of loans in foreclosure and
bankruptcy, exclusive of real estate owned.
9
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<PAGE>
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. This Prospectus
contains forward-looking statements which involve risks and uncertainties.
Discussions containing such forward-looking statements may be found in the
material set forth under 'Prospectus Summary,' 'Risk Factors,' 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
'Business,' as well as in the Prospectus generally. Actual events or results may
differ as a result of various factors, including, without limitation, those set
forth under 'Risk Factors' below and elsewhere in this Prospectus.
LIQUIDITY -- NEGATIVE CASH FLOW
The Company has an ongoing need for substantial capital to finance its
lending activities. This need is expected to increase as the volume of the
Company's loan purchases and originations increases. 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 1996, the Company operated on a negative cash flow basis using $165.3
million and $776.7 million, respectively, more in operations than was generated,
due primarily to an increase in mortgage loans 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 the cash from its
interest-only ('I/O') and residual certificates is received by the Company over
the actual life of the loans securitized. Additionally, the Company incurs
significant cash expenses in connection with its securitization transactions.
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 existing capital sources of the Company were to
decrease significantly, or if additional capital sources are not available to
the Company when required, the rate of growth of the Company and its results of
operations and financial condition could be materially and adversely affected.
The documents governing the Company's securitizations require the Company
to build, within each securitization trust, over-collateralization levels by
delaying distributions of amounts with respect to the Company's residual
interest and applying such amounts to reduce the principal balances of the
senior interests issued by the related trust. This reduction in the outstanding
principal balances of the senior interests issued by the trust causes the
aggregate principal amount of the loans in the related pool to exceed the
aggregate principal balance of the senior interests. 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 amounts otherwise payable to
the Company on account of its residual interests are required to be retained or
applied to reduce principal from time to time. Such retained amounts are
pre-determined by the entity providing a guarantee of the related senior
interests and are a condition to obtaining an AAA/Aaa rating on such interests.
In addition, such over-collateralization delays cash distributions that
otherwise would flow to the Company through its retained interest in the
securitization trust, thereby slowing 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
The Company sells loans through securitizations and retains a residual
interest in the loans and, on occasion, also retains an I/O certificate. The I/O
and residual certificates are initially recorded at their allocated cost based
on an estimate of the discounted present value of the cash flows that the
Company will realize from the interests. This estimate is based in turn on
certain assumptions as to the prepayment speeds (relating to the average life of
the loans sold) and credit losses of the loans sold. At December 31, 1996, the
Company had recorded I/O and residual interests in the amount of approximately
$86.2 million on its balance sheet.
10
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<PAGE>
The actual prepayment speeds and credit losses experienced over short
periods of time have varied from the assumptions utilized by the Company in
estimating the value of its I/O and residual certificates. To date, prepayment
speeds over short periods of time have been higher than the assumptions utilized
by the Company. The Company has not adjusted the value of such certificates when
the actual results have differed from the assumptions for short periods of time
because the Company believes that the actual results should, other than for
short periods of time, prove to be consistent with the Company's original
assumptions.
If, however, the actual prepayment speed or credit losses of a loan
portfolio materially and adversely vary from the Company's original assumptions
over time, the Company would be required to adjust the value of the I/O and
residual certificates, and such adjustment could have a material adverse effect
on the Company's financial condition and results of operations. Higher than
anticipated rates of loan prepayments or credit losses over a substantial period
of time would require the Company to write down the value of the I/O and
residual certificates, adversely affecting earnings. There can be no assurance
that the Company's assumptions as to prepayment speeds and credit losses will
prove to be reasonable. To the Company's knowledge, there is a limited market
for the sale of I/O and residual classes of certificates and there can be no
assurance that these assets can be sold for the value reflected on the balance
sheet. See ' -- Contingent Risks.'
In June 1996, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards No. 125 ('SFAS 125'), 'Accounting
for Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities.' SFAS 125 addresses the accounting for all types of securitization
transactions, securities lending and repurchase agreements, collateralized
borrowing arrangements and other transactions involving the transfer of
financial assets. SFAS 125 is generally effective for transactions that occur
after December 31, 1996, and will be applied prospectively. SFAS 125 requires
the Company to allocate the total cost of mortgage loans sold to the mortgage
loans sold (servicing released), I/O and residual certificates and servicing
rights based on their relative values. The Company is required to assess the
retained certificates and servicing rights for impairment based upon the fair
value of those rights. The pronouncement also requires the Company to provide
additional disclosure about the retained certificates in its securitizations and
to account for these assets at fair value in accordance with SFAS No. 115,
'Accounting for Certain Investments in Debt and Equity Securities' ('SFAS 115').
The Company will apply the new rules prospectively beginning in the first
quarter of 1997. There can be no assurance that the implementation by the
Company of SFAS 125 will not reduce the Company's gain on sale of loans in the
future or otherwise adversely affect the Company's results of operations or
financial condition. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent Accounting Pronouncements.'
COMPETITION
As a purchaser and originator of mortgage loans, the proceeds of which are
used for a variety of purposes, including to consolidate debt, to finance home
improvements and to pay educational expenses, the Company faces intense
competition. Such competition comes primarily from other mortgage banking
companies and commercial banks, credit unions, thrift institutions, credit card
issuers and finance companies. Many of these competitors are substantially
larger and have more capital and other resources than the Company. Furthermore,
numerous large national finance companies and originators of conforming
mortgages have expanded from their conforming origination programs and have
allocated resources to the origination of non-conforming loans. In addition,
many 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 requires the Company to pay higher premiums for loans it purchases,
increases the likelihood of earlier prepayments through refinancings and could
have a material adverse effect on the Company's results of operations and
financial condition. In addition, competition could also result in the purchase
or origination of loans with lower interest rates and higher loan-to-value
ratios, which could have a material adverse effect on the Company's results of
operations and financial condition. Premiums paid to correspondents as a
percentage of loans purchased from correspondents by the Company were 4.7%,
4.2%, 5.0% and 5.8% for the three months ended March 31, June 30, September 30
and December 31, 1996, respectively. The weighted average interest rate for
loans purchased or
11
<PAGE>
<PAGE>
originated by the Company decreased from 12.1% for the year ended December 31,
1995 to 11.5% for the year ended December 31, 1996. The combined weighted
average loan-to-value ratio of loans purchased or originated by the Company
increased from 70.9% for the year ended December 31, 1995 to 72.9% for the year
ended December 31, 1996. See 'Business -- Loans -- Purchases and Originations.'
Competition takes 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 be materially and adversely affected by fluctuations in the volume and cost
of its wholesale loans resulting from competition from other purchasers of such
loans, market conditions and other factors. There can be no assurance that the
Company will be able to continue to compete effectively.
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 size of securitizations. If
securitizations do not close when expected, the Company's results of operations
would be adversely affected for that period.
DEPENDENCE ON FUNDING SOURCES
The Company funds substantially all of the cost of the loans it purchases
and originates through borrowings under warehouse facilities that are secured by
pledges of the 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 and
financing or internally generated cash, or through 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, which would 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.'
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
12
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<PAGE>
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 I/O and residual
certificates have been recorded 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 I/O and residual certificates, thereby adversely
affecting earnings.
Fluctuating interest rates also may affect the net interest income earned
by the Company. Net interest income represents 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 affect 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 intended 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.
RISKS ASSOCIATED WITH ACQUISITIONS
IMC's growth strategy includes acquisitions of existing non-conforming
lenders. IMC's approach to acquisitions encourages acquired companies to act as
independent lending units of IMC following the closing. While these operations
may have enjoyed profitability and growth prior to their acquisition by the
Company, there can be no assurance that they will continue to be profitable and
grow or that they will maintain their underwriting standards after the
acquisition is complete. Further there can be no assurance that such company's
underwriting standards will be consistent with IMC's or that there will be no
loss of key employees of the acquired company. Over the longer term, the Company
intends to assimilate the operations of the companies it acquires and to assume
certain administrative and other operating functions, but there can be no
assurance that the Company will be able to do so successfully. Future
acquisitions by the Company could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and
amortization expenses of additional goodwill and other intangible assets, which
could materially affect the Company's results of operations or financial
condition. There can be no assurance that the Company will be able to identify
other appropriate acquisition candidates or that any identified candidates will
be acquired. There can be no assurance that the financing necessary to complete
such acquisitions can be obtained by the Company on favorable terms, if at all.
See 'Business -- Acquisitions and Strategic Alliances.'
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, 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 and recessions.
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 that permits 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.
The Company is also dependent on other senior members of management and its
ability to retain existing and hire additional experienced personnel, especially
13
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<PAGE>
underwriting and servicing personnel. See ' -- Dependence on Funding Sources'
and 'Management -- Executive Compensation.'
DEPENDENCE ON CREDIT ENHANCEMENT
In order to gain access to the securitization market, the Company has
relied on credit enhancements provided by monoline insurance carriers to
guarantee outstanding senior interests in the related real estate mortgage
investment conduit ('REMIC') trusts 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 reduction 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
The Company commenced operations in August 1993 and has a limited operating
history. In 1996, 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.'
RISKS ASSOCIATED WITH RAPID GROWTH
The Company has expanded into new geographic regions and substantially
increased its volume of loans originated and purchased. The Company's continued
growth and expansion will place additional pressures on the Company's personnel
and systems. Any future growth may be limited by, among other things, the
Company's (i) need for continued funding sources and access to capital markets,
(ii) ability to attract and retain qualified personnel, (iii) ability to
maintain appropriate procedures, policies and systems to ensure that the
Company's loans have an acceptable level of credit risk and loss and (iv)
ability to establish new relationships and maintain existing relationships with
correspondents, brokers and borrowers in states where the Company is active and
in additional states. The Company's need for additional operating procedures,
personnel and facilities is expected to increase as a result of further growth
which the Company anticipates over the near term. The Company is assessing the
purchase of new systems and software to support its servicing operations, and
plans to continue to procure hardware and software that will require additional
corresponding investments in training and education. There can be no assurance
that the Company will successfully obtain or apply the human, operational and
financial resources needed to manage a developing and expanding business.
Failure by the Company to manage its growth effectively, or to sustain its
historical levels of performance in underwriting and loan servicing with respect
to its increased loan origination and purchase volume and its larger servicing
portfolio, 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 Operation' and 'Business -- Business
Strategy.'
RELIANCE ON THE INDUSTRY PARTNERS
The Company purchases a portion of its loans from the Industry Partners,
which accounted for 23.9% and 19.1% of total loan purchases and originations by
the Company, or $148.4 million and $337.5 million, respectively, in the years
ended December 31, 1995 and 1996. The Company had contractual annual loan sale
commitments from the majority of the Industry Partners as of December 31, 1996
aggregating $162.0 million. The contractual annual loan sales commitment was
reduced by $36.0 million to $126.0 million as a result of the acquisition of two
Industry Partners (Mortgage America and Equity Mortgage) in January and February
1997. See 'Business -- Acquisitions and Strategic Alliances.' In
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<PAGE>
1995 and 1996, a number of Industry Partners sold more loans to the Company than
they were obligated to sell. Certain of the Industry Partners could, therefore,
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. If the
Industry Partners, individually or in the aggregate, become unable to meet their
loan sale commitments or choose not to sell loans to the Company after the
expiration of their commitment, the Company's results of operations and
financial condition would be materially and adversely affected.
CONTINGENT RISKS
Although the Company sells on a nonrecourse basis substantially all loans
that it purchases and originates, 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 trust's collections in succeeding months.
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 duties, 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 assumptions used to value the
Company's I/O and residual certificates, the Company will recognize a loss. As a
result of any such loss, the Company's results of operations or financial
condition could be materially and adversely affected. See ' -- Valuation and
Potential Impairment of Interest-only and Residual Certificates.'
CONCENTRATION OF OPERATIONS IN MID-ATLANTIC REGION
For the year ended December 31, 1996, 32.7% of the aggregate principal
balance of the home equity loans purchased and originated by the Company and
31.6% of the home equity loans serviced by the Company were secured by
properties located in 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
underwriting policies and collection procedures of the Company or of entities
acquired by the Company 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 and financial condition could be materially and adversely affected.
15
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<PAGE>
LOSS OF SERVICING RIGHTS AND SUSPENSION OF FUTURE CASH FLOWS; DELINQUENCIES;
NEGATIVE IMPACT ON CASH FLOW
The Company is entitled to receive servicing income on the loans it has
sold servicing retained. Any loss of servicing rights could have a material
adverse effect on the Company's results of operations and financial condition.
The Company's right to service the loans sold in its securitizations can be
terminated by the monoline insurance carrier, as certificate insurer, upon the
occurrence of certain servicer termination events (as defined in the pooling and
servicing agreements, the 'Servicer Termination Events'). 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; (iii) failure of the
Company to cure any breaches of its representations and warranties which
materially and adversely affect the underlying loans; and (iv) failure to
maintain certain delinquency or loss standards. As of December 31, 1996, none of
the pools of securitized loans exceeded the foregoing delinquency standards and
no servicing rights had been terminated. However, there can be no assurance that
delinquency rates with respect to the Company's securitized loan pools will not
exceed these standards in the future and, if exceeded, that servicing rights
will not be terminated, which would have a material adverse effect on the
Company's results of operations and financial condition.
The Company's cash flow can also be adversely affected by high delinquency
and loss rates with respect to the loans in the securitization trusts.
Generally, provisions in the pooling and servicing agreement have the effect of
requiring the over-collateralization account, which is funded primarily by the
cash flow that would otherwise be distributed to the Company in respect of its
residual certificates, to be increased when the delinquency and the loss rates
exceed various specified limits.
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
non-tax deductible interest financing, could be eliminated or seriously impaired
if the mortgage interest deduction for income tax purposes is reduced or
eliminated. Accordingly, the reduction or elimination of these tax benefits
could have a material adverse effect on the demand for loans of the kind
purchased and originated by the Company and on the Company's results of
operations and financial condition.
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, the
Federal Debt Collection Practices Act, as well as other federal and state
statutes and regulations. 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 licenses or 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
16
<PAGE>
<PAGE>
action lawsuits and administrative enforcement actions. There can be no
assurance that the Company will be able to 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 or more expensive 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 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.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock may fluctuate 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 would 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
Numerous stockholders have received restricted shares of Common Stock which
are subject to certain lock-up restrictions with respect to their ability to
sell or otherwise dispose of such shares for a period of up to two years from
the date the shares were issued. 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. In addition, the
Company has provided registration rights pursuant to the Conti Warrant and with
respect to shares issued or issuable in connection with the Company's
acquisitions. Also, the Company intends to file a registration statement on Form
S-8 with respect to the Company's stock option plans. 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
'Business -- Acquisitions and Strategic Alliances' and '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
17
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<PAGE>
'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 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 even if a majority of the Company's stockholders
approves such change. See 'Management -- Terms of Directors and Officers' and
'Description of Capital Stock.'
CONTROL BY CERTAIN STOCKHOLDERS
As of January 31, 1997, management and Industry Partners and their
affiliates beneficially owned an aggregate of 65% (approximately 49% after
giving effect to the Offering) of the outstanding shares of Common Stock.
Accordingly, such persons, if they were to act in concert, presently 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. After the Offering, such
persons, if they were to act in concert, would have near majority control and
the ability substantially to influence the management of the Company. See
'Principal and Selling Stockholders.'
18
<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
5,600,000 shares of Common Stock offered hereby by the Company, after deduction
of the underwriting discount and estimated offering expenses payable by the
Company, are estimated to be $ million, assuming an offering price of $
per share (the closing price of the Common Stock on March , 1997). The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Stockholders.
Approximately $27.0 million of the net proceeds is expected to be used to
retire or reduce certain indebtedness of the Company incurred after December 31,
1996, including: (i) repayment of up to $20.0 million to The First National Bank
of Boston ('Bank of Boston') under the Bank of Boston credit facility which is
used for general corporate purposes, bears interest at the Bank of Boston Base
Rate (8.25% at January 31, 1997) and is payable six months after incurrence; and
(ii) repayment of up to $7.0 million to Lakeview under the Lakeview unsecured
credit facility which was used for general corporate purposes, bears interest at
a fixed rate of 10.0% per year and expires July 31, 1999. See Note 15 of Notes
to Consolidated Financial Statements.
The remaining net proceeds will be used to fund future loan purchases and
originations, to support securitization transactions, to fund acquisitions of
non-conforming home equity loan originators and expenses associated with the
opening of new direct lending branch offices and for general corporate purposes.
See 'Business -- Loans' and 'Business -- Acquisitions and Strategic Alliances.'
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 will be used to
reduce outstanding debt of the Company.
19
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<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on Nasdaq under the symbol 'IMCC.' The following
table sets forth, for the periods indicated, the high and low sales price for
the Common Stock as reported on Nasdaq, and reflects a two-for-one stock split
paid on February 13, 1997 to stockholders of record on February 6, 1997.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1996
Second Quarter (from June 25, 1996)(1).......................................... $11.50 $ 9.38
Third Quarter................................................................... 17.44 10.75
Fourth Quarter.................................................................. 20.50 13.63
Fiscal 1997
First Quarter (through February 27, 1997)....................................... 25.30 16.38
</TABLE>
- ------------
(1) The Common Stock commenced trading on Nasdaq on June 25, 1996.
------------------------
On March , 1997, the last reported sales price of the Common Stock on
Nasdaq was $ per share. As of February 11, 1997, there were approximately
106 holders of record of the Common Stock.
As the Company intends to retain all of its future earnings to finance its
operations, the Company has not paid, and currently has no intention to pay, any
cash dividends on its Common Stock. Any decision to declare dividends in the
future will be made by the Company's Board of Directors and 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 the Common Stock.
20
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1996, and as adjusted as of such date to give effect to completion
of the sale of the 5,600,000 shares of Common Stock offered hereby by the
Company, assuming an offering price of $ per share (the closing price of
the Common Stock on March , 1997).
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Warehouse finance facilities..................................................... $895,132 $
-------- -----------
-------- -----------
Term debt............................................................................. $ 47,430 $
Stockholders' equity:
Preferred Stock, par value $0.01 per share; 10,000,000 shares authorized; no
shares issued and outstanding................................................... 0 0
Common Stock, par value $0.01 per share; 50,000,000 shares authorized; 19,669,666
shares issued and outstanding, actual; and 25,269,666 shares issued and
outstanding, as adjusted........................................................ 196
Additional paid-in capital....................................................... 76,490
Retained earnings................................................................ 12,651
-------- -----------
Total stockholders' equity.................................................. 89,337
-------- -----------
Total capitalization................................................... $136,767 $
-------- -----------
-------- -----------
</TABLE>
21
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The historical Statement of Operations and Balance Sheet data set forth
below as of and for the period from inception to December 31, 1993 and the
fiscal years ended December 31, 1994, 1995 and 1996 have been derived from the
Consolidated Financial Statements and Notes thereto of the Company included
elsewhere herein, which have been audited by Coopers & Lybrand L.L.P.,
independent accountants. 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 Notes thereto.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 12, 1993) YEAR ENDED DECEMBER 31,
THROUGH DECEMBER --------------------------
31, 1993 1994 1995
----------------- ---------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)(2)............................................. $ 438,774 $8,583,277 $20,680,848
Additional securitization transaction expense(3)........................ -- (560,137) (5,547,037)
-------- ---------- -----------
Gain on sale of loans, net.......................................... 438,774 8,023,140 15,133,811
-------- ---------- -----------
Warehouse interest income............................................... 97,159 2,510,062 7,884,679
Warehouse interest expense.............................................. (50,709) (1,610,870) (6,006,919)
-------- ---------- -----------
Net warehouse interest income....................................... 46,450 899,192 1,877,760
-------- ---------- -----------
Servicing fees.......................................................... -- 99,224 1,543,339
Other................................................................... 28,235 1,072,855 1,117,903
-------- ---------- -----------
Total servicing fees and other...................................... 28,235 1,172,079 2,661,242
-------- ---------- -----------
Total revenues.................................................. 513,459 10,094,411 19,672,813
-------- ---------- -----------
Expenses:
Compensation and benefits............................................... 507,904 3,348,236 5,139,386
Selling, general and administrative expenses(2)......................... 355,526 2,000,401 3,477,677
Other................................................................... -- 14,143 297,743
Sharing of proportionate value of equity(4)............................. -- 1,689,000 4,204,000
-------- ---------- -----------
Total expenses...................................................... 863,430 7,051,780 13,118,806
-------- ---------- -----------
Pre-tax income (loss)....................................................... (349,971) 3,042,631 6,554,007
Pro forma provision (benefit) for income taxes.............................. (134,000) 1,187,000 2,522,000
-------- ---------- -----------
Pro forma net income (loss)(2).............................................. $(215,971) $1,855,631 $ 4,032,007
-------- ---------- -----------
-------- ---------- -----------
Pro forma per share data:
Pro forma net income per share(2)....................................... $0.25
Weighted average number of shares outstanding........................... 15,871,504
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans(1)(2)............................................. $46,229,615
Additional securitization transaction expense(3)........................ (4,157,644)
-----------
Gain on sale of loans, net.......................................... 42,071,971
-----------
Warehouse interest income............................................... 37,463,583
Warehouse interest expense.............................................. (24,534,896)
-----------
Net warehouse interest income....................................... 12,928,687
-----------
Servicing fees.......................................................... 6,749,995
Other................................................................... 3,903,638
-----------
Total servicing fees and other...................................... 10,653,633
-----------
Total revenues.................................................. 65,654,291
-----------
Expenses:
Compensation and benefits............................................... 16,006,553
Selling, general and administrative expenses(2)......................... 15,652,381
Other................................................................... 2,321,413
Sharing of proportionate value of equity(4)............................. 2,555,000
-----------
Total expenses...................................................... 36,535,347
-----------
Pre-tax income (loss)....................................................... 29,118,944
Pro forma provision (benefit) for income taxes.............................. 11,190,000
-----------
Pro forma net income (loss)(2).............................................. $17,928,944
-----------
-----------
Pro forma per share data:
Pro forma net income per share(2)....................................... $0.94
Weighted average number of shares outstanding........................... 19,165,304
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1993 1994 1995
---------- ----------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Mortgage loans held for sale.................................................. $7,971,990 $28,995,750 $193,002,835
Interest-only and residual certificates....................................... -- 3,403,730 14,072,771
Warehouse finance facilities.................................................. 7,212,915 27,731,859 189,819,046
Term debt..................................................................... -- -- 11,120,642
Stockholders' equity.......................................................... 1,449,092 5,856,011 5,608,844
Total assets.................................................................. 8,861,144 36,641,991 354,551,434
<CAPTION>
DECEMBER 31,
1996
--------------
<S> <C>
BALANCE SHEET DATA:
Mortgage loans held for sale.................................................. $ 914,586,703
Interest-only and residual certificates....................................... 86,246,674
Warehouse finance facilities.................................................. 895,132,545
Term debt..................................................................... 47,430,295
Stockholders' equity.......................................................... 89,336,582
Total assets.................................................................. 1,707,348,185
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED DECEMBER
INCEPTION (AUGUST 31,
12, 1993) THROUGH ---------------------
DECEMBER 31, 1993 1994 1995
----------------- -------- --------
<S> <C> <C> <C>
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated.................................................... $29,608 $282,924 $621,629
Loans sold through securitization................................................ -- 81,637 388,363
Whole loan sales................................................................. 21,636 180,263 70,400
Serviced loan portfolio (period end)............................................. -- 92,003 535,798
DELINQUENCY DATA:
Total delinquencies as a percentage of loans serviced (period end)(5)............ 0.00% 0.87% 3.43%
Defaults as a percentage of loans serviced (period end)(6)....................... 0.00 0.12 1.00
Net losses as a percentage of average loans serviced for period.................. 0.00 0.00 0.09
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
----------
<S> <C>
OPERATING DATA (DOLLARS IN THOUSANDS):
Loans purchased or originated.................................................... $1,770,312
Loans sold through securitization................................................ 935,000
Whole loan sales................................................................. 128,868
Serviced loan portfolio (period end)............................................. 2,148,068
DELINQUENCY DATA:
Total delinquencies as a percentage of loans serviced (period end)(5)............ 5.30%
Defaults as a percentage of loans serviced (period end)(6)....................... 1.47
Net losses as a percentage of average loans serviced for period.................. 0.13
</TABLE>
(1) Prior to June 1996, 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) Beginning January 1, 1996, the Company adopted SFAS 122 which resulted in
additional gain on sale of $7.8 million and additional amortization expense
of $1.2 million for the year ended
(footnotes continued on next page)
22
<PAGE>
<PAGE>
(footnotes continued from previous page)
December 31, 1996. The effect on unaudited pro forma net income and pro
forma net income per common share for the year ended December 31, 1996 was
an increase of $4.1 and $0.21, respectively.
(3) In 1994, 1995 and 1996, ContiFinancial received interest-only and residual
certificates with estimated values of $3.0 million, $25.1 million and $13.4
million in exchange for cash payments of $2.1 million, $18.4 million and
$8.6 million, respectively. In addition, ContiFinancial paid IMC $0.4
million, $1.1 million and $0.7 million in 1994, 1995 and 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.'
(4) Reflects expenses recorded in connection with the Conti VSA which was
terminated in March 1996. The Company's pre-tax income before the Conti VSA
for 1994, 1995 and 1996 was $4.7 million, $10.8 million and $31.7 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 5 of Notes to
Consolidated Financial Statements.
(5) Represents the percentages of account balances contractually past due 30
days or more, exclusive of home equity loans in foreclosure, bankruptcy and
real estate owned.
(6) Represents the percentages of account balances of loans in foreclosure and
bankruptcy, exclusive of real estate owned.
23
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of the Company's
financial condition and results of operations contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under 'Risk
Factors' and elsewhere in this Prospectus. The following discussion should be
read in conjunction with the Consolidated Financial Statements of the Company
and the Notes thereto set forth elsewhere herein.
GENERAL
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 are typically used by such individuals
to consolidate debt, to finance home improvements, to pay educational expenses
and for a variety of other uses. By focusing on individuals with impaired credit
profiles and 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.
CERTAIN ACCOUNTING CONSIDERATIONS
INTEREST-ONLY AND RESIDUAL CERTIFICATES
The Company purchases and originates loans for the purpose of sale
primarily through securitizations. In a securitization transaction, the Company
sells a pool of mortgages to a REMIC trust which simultaneously sells senior
interests to third-party investors. The Company retains the residual interests
(or a portion thereof) represented by residual class certificates and I/O
certificates. The Company retains the rights to service the pool of mortgages
owned by the REMIC. In addition, by retaining the residual class certificates,
the Company is entitled to receive the excess cash flows generated by the
securitized loans calculated as the difference between (a) the monthly interest
payments from the loans and (b) the sum of (i) pass-through interest paid to
third-party investors, (ii) trustee fees, (iii) third-party credit enhancement
fees, (iv) servicing fees and (v) anticipated loan losses. The Company's right
to receive this excess cash flow stream begins after certain over-
collateralization requirements have been met, which are specific to each
securitization and are used as a means of credit enhancement. The I/O and
residual classes of certificates are initially recorded based upon their
relative fair values as a percentage of the total cost of the securitized loans,
based upon the present value of the anticipated excess cash flows utilizing
assumptions appropriate for each securitization. These assumptions relate to the
anticipated average lives of the loans sold and anticipated loan losses. The
weighted average discount rate used to discount the cash flow for the years
ended December 31, 1995 and 1996 ranged from 11% to 11.5%, and the assumed loss
rate was 0.50% per year.
MORTGAGE SERVICING RIGHTS
Effective January 1, 1996, the Company adopted SFAS 122. Because SFAS 122
prohibited retroactive application, the historical accounting results for the
periods ended December 31, 1994, and 1995 have not been restated and,
accordingly, the accounting results for the year ended December 31, 1996 are not
comparable to any previous period. In June 1996, the FASB released SFAS 125
which superseded SFAS 122 effective January 1, 1997.
SFAS 122 required 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 between the mortgage servicing rights and the mortgage loans. The
Company was also required to assess capitalized mortgage servicing rights for
impairment based upon the fair value of
24
<PAGE>
<PAGE>
those rights. The impact of the adoption of SFAS 122 on the Company's Statement
of Operations for the year ended December 31, 1996 resulted in additional
operating income of approximately $6.6 million and an additional pro forma
provision for income tax expense of approximately $2.6 million. The effect on
unaudited pro forma net income and pro forma net income per common share for the
year ended December 31, 1996 was an increase of $4.0 million and $0.21,
respectively.
SFAS 125 addresses the accounting for all types of securitization
transactions, securities lending and repurchase agreements, collateralized
borrowing arrangements and other transactions involving the transfer of
financial assets. SFAS 125 distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. SFAS 125 is generally
effective for transactions that occur after December 31, 1996, and will be
applied prospectively. SFAS 125 requires the Company to allocate the total cost
of mortgage loans sold among the mortgage loans sold (servicing released), I/O
and residual certificates and servicing rights based on their relative fair
values. The Company is required to assess the I/O and residual certificates and
servicing rights for impairment based upon the fair value of those assets. SFAS
125 also requires the Company to provide additional disclosure about the I/O and
residual certificates in its securitizations and to account for these assets
each quarterly reporting period at fair value in accordance with SFAS 115. The
Company will apply the new rules prospectively beginning January 1, 1997. The
actual effect of implementing this new statement on the Company's financial
condition and results of operations will depend on various factors determined at
the end of a reporting period, including the amount of loans purchased and
originated during the period, the level of interest rates and estimates of
future prepayment and loss rates. Accordingly, the Company cannot determine at
this time the ultimate impact on its future earnings of applying the provisions
of SFAS 125, but does not expect the results under SFAS 125 to differ materially
from the results which would have emerged under SFAS 122. There can be no
assurance, however, that the implementation by the Company of SFAS 125 will not
reduce the Company's gain on sale of loans in the future or otherwise adversely
affect the Company's results of operations or financial condition.
GAIN ON SALE OF LOANS, NET
Gain on sale of loans, net, which arises 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.'
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. The Company
generally sells loans in its inventory within 180 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.
TRANSACTIONS WITH CONTIFINANCIAL
ADDITIONAL SECURITIZATION TRANSACTION EXPENSE
IMC, in conjunction with the start up of its operations, maintained an
investment banking relationship with ContiFinancial from August 1993 to June
1996. As part of this relationship, ContiFinancial provided warehouse and
revolving credit facilities to IMC and acted as placement agent and underwriter
of certain of its securitizations. In addition, as part of its cash flow
management strategy, the first six securitizations were structured so that
ContiFinancial received, in exchange for cash, a portion of the I/O and 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 $4.2
million in 1996. ContiFinancial also has a warrant to purchase 2.7 million
shares of Common Stock (subject to certain
25
<PAGE>
<PAGE>
adjustments) for a de minimis amount. IMC continues to maintain a financing
relationship with ContiFinancial.
SHARING OF PROPORTIONATE VALUE OF EQUITY
Prior to March 26, 1996, the Company's financing and investment banking
agreements with ContiFinancial included the Conti VSA. The existence of the
Conti VSA had no cash impact on the Company, but resulted in reductions of $1.7
million, $4.2 million and $2.6 million in the Company's pre-tax income for the
years ended December 31, 1994, 1995 and 1996, respectively. The Conti VSA was
converted into an option entitling ContiFinancial on exercise to approximately
18% of the equity of the Partnership for a de minimus amount (the 'Conti
Option') on March 26, 1996. Consequently, subsequent to March 26, 1996, no
liability has been reflected on the Company's balance sheet and no expense has
been reflected on the Company's income statement with respect to the Conti VSA
subsequent to that date.
The Company's pre-tax income before the Conti VSA were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Total revenues............................................... $10,094,411 $19,672,813 $65,654,291
Total expenses............................................... 7,051,780 13,118,806 36,535,347
----------- ----------- -----------
Pre-tax income (loss) after Conti VSA........................ 3,042,631 6,554,007 29,118,944
Conti VSA.................................................... 1,689,000 4,204,000 2,555,000
----------- ----------- -----------
Pre-tax income (loss) before Conti VSA....................... $ 4,731,631 $10,758,007 $31,673,944
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Pro forma net income for the year ended December 31, 1996 was $17.9 million
representing an increase of $13.9 million or 344.7% over pro forma net income of
$4.0 million for the year ended December 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.
The increase in pro forma net income resulted principally from increases in
net gain on sale of loans of $27.0 million or 178.0% to $42.1 million for the
year ended December 31, 1996 from $15.1 million for the year ended December 31,
1995. Also contributing to the increase in pro forma net income was a $11.0
million or 588.5% increase in net warehouse interest income to $12.9 million for
the year ended December 31, 1996 from $1.9 million for the year ended December
31, 1995, a $5.2 million or 337.4% increase in servicing fees to $6.7 million
for the year ended December 31, 1996 from $1.5 million for the year ended
December 31, 1995 and a $2.8 million or 249.2% increase in other revenues to
$3.9 million for the year ended December 31, 1996 from $1.1 million for the year
ended December 31, 1995.
The increase in income was partially offset by a $10.9 million or 211.4%
increase in compensation and benefits to $16.0 million for the year ended
December 31, 1996 from $5.1 million for the year ended December 31, 1995 and a
$12.2 million or 350.1% increase in selling, general and administrative expenses
to $15.7 million for the year ended December 31, 1996 from $3.5 million for the
year ended December 31, 1995. The increase in income was further offset by a
$2.0 million or 679.7% increase in other expense to $2.3 million for the year
ended December 31, 1996 from $ 0.3 million for the year ended December 31, 1995.
Finally, income was favorably affected by a $1.6 million or 39.2% decrease in
the Conti VSA to $2.6 million for the year ended December 31, 1996 from $4.2
million for the year ended December 31, 1995. See ' -- Transactions with
ContiFinancial -- Sharing of Proportionate Value of Equity,' 'Certain Accounting
Considerations Relating to the Conti VSA' and Note 5 of Notes to Consolidated
Financial Statements.
26
<PAGE>
<PAGE>
Income before taxes was reduced by pro forma provision for income taxes of
$11.2 million for the year ended December 31, 1996 compared to $2.5 million for
the year ended December 31, 1995, representing an effective tax rate of
approximately 38.5%. The provision for income taxes prior to June 24, 1996 are
pro forma amounts because prior to that date the Company operated as a
partnership and did not pay income taxes.
Revenues
The following table sets forth information regarding components of the
Company's revenues for the years ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Gain on sale of loans.......................................... $20,680,848 $46,229,615
Additional securitization transaction expense.................. (5,547,037) (4,157,644)
----------- -----------
Gain on sale of loans, net..................................... 15,133,811 42,071,971
----------- -----------
Warehouse interest income...................................... 7,884,679 37,463,583
Warehouse interest expense..................................... (6,006,919) (24,534,896)
----------- -----------
Net warehouse interest income.................................. 1,877,760 12,928,687
----------- -----------
Servicing fees................................................. 1,543,339 6,749,995
Other.......................................................... 1,117,903 3,903,638
----------- -----------
Total revenues................................................. $19,672,813 $65,654,291
----------- -----------
----------- -----------
</TABLE>
Gain on Sale of Loans, Net. For the year ended December 31, 1996, gain on
sale of loans increased to $46.2 million from $20.7 million for the year ended
December 31, 1995, an increase of 123.5%, reflecting increased loan production
and securitizations for the year ended December 31, 1996 and the adoption of
SFAS 122. The total volume of loans produced increased by 184.8% to $1.8 billion
for the year ended December 31, 1996 as compared with a total volume of $621.6
million for the year ended December 31, 1995. Originations by the Company's
correspondent network increased 191.0% to $1.6 billion for the year ended
December 31, 1996 from $543.6 million for the year ended December 31, 1995,
while production from the Company's broker network and direct lending operations
increased to $188.3 million or 141.4% for the year ended December 31, 1996 from
$78.0 million for the year ended December 31, 1995. Production volume increased
during the 1996 period due to: (i) the Company's expansion program; (ii) the
increase of its securitization activity; (iii) the growth of its loan servicing
capability; and (iv) the acquisition of the assets and business of Equitystars
in January 1996. For the year ended December 31, 1996, the Company experienced
higher gains as it sold more loans through securitizations. Securitizations
increased by $555 million, an increase of 146.1%, to $935 million for the year
ended December 31, 1996 from $380 million for the year ended December 31, 1995.
The number of approved correspondents increased by 161 or 75.6% to 374 at
December 31, 1996 from 213 at December 31, 1995 and the number of brokers
increased by 595 or 54.2% to 1,693 at December 31, 1996 from 1,098 at December
31, 1995. Additional securitization expense decreased to $4.2 million for the
year ended December 31, 1996, a decrease of 25.0%, from $5.5 million for the
year ended December 31, 1995. For the year ended December 31, 1996, gain on sale
of loans, net, increased to $42.1 million from $15.1 million for the year ended
December 31, 1995, an increase of 178.0%, reflecting increased loan production
and securitizations in the 1996 period.
Net Warehouse Interest Income. Net warehouse interest income increased to
$12.9 million for the year ended December 31, 1996 from $1.9 million for the
year ended December 31, 1995, an increase of 588.5%. The increase in the 1996
period reflected higher interest income resulting from increased mortgage loan
production and mortgage loans held for sale which was partially offset by
interest costs associated with warehouse facilities. The mortgage loans held for
sale increased to $914.6 million at December 31, 1996, an increase of 373.9%,
from $193.0 million at December 31, 1995.
Servicing Fees. Servicing fees increased to $6.7 million for the year ended
December 31, 1996 from $1.5 million for the year ended December 31, 1995, an
increase of 337.4%. Servicing fees for the year
27
<PAGE>
<PAGE>
ended December 31, 1996 were positively affected by an increase in mortgage
loans serviced over the prior period. During 1996, the Company increased its
servicing portfolio $1.6 billion or 300.9% to $2.15 billion as of December 31,
1996, from $535.8 million as of December 31, 1995.
Other. Other revenues, consisting principally of interest on I/O and
residual certificates, increased to $5.3 million or 370.0% in the year ended
December 31, 1996 from $1.1 million in the year ended December 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 years ended December 31, 1995 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Compensation and benefits...................................... $ 5,139,386 $16,006,553
Selling, general and administrative expenses................... 3,477,677 15,652,381
Other.......................................................... 297,743 2,321,413
Sharing of proportionate value of equity....................... 4,204,000 2,555,000
----------- -----------
Total expenses................................................. $13,118,806 $36,535,347
----------- -----------
----------- -----------
</TABLE>
Compensation and benefits increased by $10.9 million or 211.4% to $16.0
million for the year ended December 31, 1996 from $5.1 million for the year
ended December 31, 1995, principally due to an increase in the number of
employees to service the Company's increased mortgage loan production, the
acquisition of the assets and business of Equitystars and an increase in
executive bonuses.
Selling, general and administrative expenses increased by $12.2 million or
350.1% to $15.7 million for the year ended December 31, 1996 from $3.5 million
for the year ended December 31, 1995, principally due to an increase in the
volume of mortgage loan production, the opening of retail branches, the
acquisition of the assets and business of Equitystars and increases in the cost
to carry of securities purchased under agreements to resell and loan losses.
Other expenses increased by $2.0 million or 679.7% to $2.3 million for the
year ended December 31, 1996 from $0.3 million for the year ended December 31,
1995 principally as a result of increased term debt borrowings.
The sharing of proportionate value of equity, representing the amount
payable under the Conti VSA, decreased to $2.6 million or 39.2% for the year
ended December 31, 1996 from $4.2 million for the year ended December 31, 1995.
The Company's obligation to make payments under the Conti VSA terminated in
March 1996.
Pro Forma Income Taxes. The effective pro forma income tax rate for the
year ended December 31, 1996 was approximately 38.5%, which differed from the
federal tax rate of 35% primarily due to state income taxes. The increase in pro
forma provision for income taxes of $8.7 million or 343.7% to $11.2 million for
the year ended December 31, 1996 from $2.5 million for the year ended December
31, 1995 was proportionate to the increase in pre-tax income.
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
28
<PAGE>
<PAGE>
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 the 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 the Conti VSA 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 increased to $20.7
million for the year ended December 31, 1995 from $8.6 million for the year
ended December 31, 1994, 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 for the year ended
December 31, 1994. Originations by the correspondent network increased 132.9% to
$543.6 million for the year ended December 31, 1995 from $233.5 million for the
year ended December 31, 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 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 securitizations. Securitizations increased by $290.0 million
or 322.2% to $380.0 million for the year ended December 31, 1995 from $90.0
million for 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 $5.5
million for the year ended December 31, 1995 from $0.6 million for 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 for the year ended
December 31, 1994, an increase of 88.6%, reflecting increased loan production
and securitizations in the 1995 period. See ' -- Transactions with
ContiFinancial -- Additional Securitization Transaction Expense.'
29
<PAGE>
<PAGE>
Net Warehouse Interest Income. 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, 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 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 by an increase in loans serviced over the prior year.
Other. Other revenues increased by a negligible amount to $1.1 million for
the year ended December 31,1995 from $1.1 million for 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 for the year ended December 31, 1995 from $3.3 million for the year
ended December 31, 1994, principally due to an increase in the number of
employees servicing the Company's increased loan production.
Selling, general and administrative expenses increased by $1.5 million or
73.8% to $3.5 million for the year ended December 31, 1995 from $2.0 million for
the year ended December 31, 1994, principally due to an increase in the volume
of loan production.
Other expenses increased to $0.3 million for the year ended December 31,
1995 from a negligible amount for the year ended December 31, 1994 as a result
of increased loan production and securitization volume in 1995.
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
for the year ended December 31, 1995 from $1.7 million for 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 5 of 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% compared to 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 for the year ended December 31, 1995 from
$1.2 million for the year ended December 31, 1994 was proportionate to the
increase in pre-tax income.
FINANCIAL CONDITION
DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
Mortgage loans held for sale at December 31, 1996 were $914.6 million,
representing an increase of $721.6 million or 373.9% over mortgage loans held
for sale of $193.0 million at December 31, 1995. This increase was a result of
increased loan purchases and originations as the Company expanded into new
states and increased purchasing and origination efforts in states in which the
Company had an existing
30
<PAGE>
<PAGE>
market presence. This increase was also a result of the Company's strategy to
increase its financial flexibility by increasing its balance of mortgage loans
held for sale.
I/O and residual certificates at December 31, 1996 were $86.2 million,
representing an increase of $72.1 million or 512.9% over I/O and residual
certificates of $14.1 million at December 31, 1995. This increase was a result
of the Company completing four securitizations, one in each of the four quarters
of 1996, for an aggregate of $935.0 million in securitizations for 1996.
Borrowings under warehouse financing facilities at December 31, 1996 were
$895.1 million, representing an increase of $705.3 million or 371.6% over
warehouse financing facilities of $189.8 million at December 31, 1995. This
increase was a result of increased mortgage loans held for sale.
Term debt at December 31, 1996 was $47.4 million, representing an increase
of $36.3 million or 326.5% over term debt of $11.1 million at December 31, 1995.
This increase was primarily a result of financing the increase in I/O and
residual certificates.
Stockholders' equity as of December 31, 1996 was $89.3 million,
representing an increase of $83.7 million over stockholders' equity of $5.6
million at December 31, 1995. This increase was primarily a result of the
Company's initial public offering of 7.1 million shares of common stock for
$9.00 per share, the net proceeds of which amounted to $58.2 million, the
conversion of the Conti VSA into the Conti Option of $8.5 million, and net
income for the year ended December 31, 1996, offset by $9.8 million of
distributions to former partners of the Partnership for taxes payable by these
former partners with respect to the income of the Partnership.
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 increased its origination and purchasing efforts in states in which
the Company had 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 the Company completing two securitizations.
Warehouse financing facilities at December 31, 1995 were $189.8 million,
representing an increase of $162.1 million or 584.5% over 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 at December 31, 1995 totaled $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 the sale of loans through
securitizations, whole loan sales, loan origination fees, processing fees, net
interest income, servicing fees and borrowings under its warehouse facilities
and term debt to meet its working capital needs. The Company's cash requirements
include the funding of loan purchases and originations, payment of interest
costs, funding of over-collateralization requirements for securitizations,
operating expenses, income taxes, acquisitions and capital expenditures.
The Company has an ongoing need for capital. 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
31
<PAGE>
<PAGE>
to operate, on a negative cash flow basis. During the year ended December 31,
1996, the Company used cash flow for operating activities of $776.7 million,
an increase of $611.4 million, or 369.9%, over cash flows used for operating
activities of $165.3 million during the year ended December 31, 1995. During the
year ended December 31, 1996, the Company received cash flows from financing
activities of $788.7 million, an increase of $621.0 million or 370.3% over cash
flows received from financing activities of $167.7 million during the year
ended December 31, 1995. The cash flows used for operating activities related
primarily to the funding of mortgage loan purchases or originations and cash
flows received from financing activities related primarily to the funding of
the mortgage loan purchases or originations and net proceeds of $58.2 million
from the Company's initial public offering of 7.1 million shares in June 1996.
The Company's sale of loans through securitizations has resulted in an
increase in the amount of gain on sale recognized by the Company. The
recognition of this gain on sale results in significant cash costs being
incurred upon closing of a securitization transaction. The Company does not,
however, receive the cash representing the gain until later periods when the
related loans are repaid or otherwise collected. During the year ended December
31, 1996, the Company received cash of approximately $4.8 million 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 December 31, 1996, the Company had a $400 million uncommitted warehouse
facility with Bear Stearns Home Equity Trust 1996-1 which also provides
additional warehouse financing on an as offered basis and which may result in
amounts borrowed to be in excess of $400 million. This facility bears interest
at LIBOR plus 0.875% and expires in March 1997. Approximately $441.0 million was
outstanding under this facility at December 31, 1996. In February 1997, the
warehouse facility was increased to $500 million.
Additionally, at December 31, 1996, the Company had approximately $580.6
million available under numerous other warehouse lines of credit, of which
approximately $454.1 million was outstanding. Interest rates ranged from 6.5% to
7.2% as of December 31, 1996, and all borrowings mature within one year.
Outstanding borrowings on the Company's warehouse financing facilities are
collateralized by mortgage loans held for sale and warehouse financing due from
correspondents at December 31, 1996 and servicing rights on approximately $250
million of mortgage loans. Upon the sale of these loans and the repayment of
warehouse financing due from correspondents, the borrowings under these lines
will be repaid.
At December 31, 1996, the Company also had term debt outstanding of $47.4
million which expire through January 2000. Outstanding borrowings under these
facilities are secured by I/O and residual certificates and accrue interest at
rates ranging from 6.70% to 8.13%.
In December 1996, the Company executed an agreement with Bank of Boston
pursuant to which Bank of Boston will provide a $25 million one year revolving
credit facility subject to the following sublimits and terms: (i) $5 million
warehouse line of credit due June 30, 1998, (ii) $25 million to finance
interest-only and residual certificates, to be repaid according to a repayment
schedule calculated by Bank of Boston with a maximum amortization period after
the revolving period of three years; and (iii) $20 million for acquisitions or
bridge financing due within six months from the initial borrowing date of each
takedown of the bridge financing, but in no event later than June 30, 1998. No
amounts were outstanding under this facility at January 31, 1997, but it is
anticipated that amounts up to $20.0 million may be borrowed for an acquisition
or on a bridge basis.
The Company's warehouse lines and term debt 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 credit facility with Bank of Boston also contains
certain financial covenants requiring the maintenance of certain debt-to-equity
or debt-to-net worth ratios, 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 within the next 12
months. Management believes the Company is in compliance with all such covenants
under these agreements.
32
<PAGE>
<PAGE>
The Company's current warehouse lines generally are subject to one-year
terms. Certain warehouse lines have automatic renewal features subject to the
absence of defaults and permit the lender to terminate the facility on notice to
the Company. 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 obtain additional credit lines.
Funds available under the Company's current warehouse and other credit
facilities and the net proceeds from the Offering are expected to be sufficient
to fund the Company's liquidity requirements, including the implementation of
its business strategy, through December 1997. However, the Company has
substantial capital requirements and it anticipates that it may need to arrange
for additional external cash resources in 1998 through additional financings or
offerings. See 'Risk Factors.'
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 executes the sale of the treasury
securities with large, reputable securities firms 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 many of its competitors.
INFLATION
Inflation historically 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.
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 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 which would have a material adverse effect on the Company's results
of operations and
33
<PAGE>
<PAGE>
financial condition. Fluctuating interest rates also may affect the net interest
income earned by the Company 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 term rates.
RECENT EVENTS AND ACQUISITIONS
Pursuant to the Company's acquisition strategy, in January and February
1997 IMC acquired the outstanding stock of CoreWest and all of the assets of
American Reduction, Equity Mortgage and Mortgage America. During 1996, IMC
acquired all of the assets of Equitystars and also formed a joint venture in the
United Kingdom. Several acquisitions include earn-out arrangements that provide
the sellers with additional consideration if the acquired company reaches
certain performance targets after the acquisition. Any such contingent payments
will result in an increase in the amount of goodwill recorded on IMC's balance
sheet related to each acquisition. Goodwill represents the excess of cost over
fair market value of the net tangible assets acquired in each acquisition and is
amortized through periodic charges to earnings for up to 30 years. See
'Business -- Acquisitions and Strategic Alliances.'
CHANGE IN INDEPENDENT ACCOUNTANT
TERMINATION OF INDEPENDENT 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. The decision to terminate D&T was approved by
the Board of Directors of the general partner of the Partnership.
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 or for the fiscal year ended December 31, 1994, or in any
subsequent interim period through the date of their termination 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.
ENGAGEMENT OF INDEPENDENT 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, and for
the years ended December 31, 1994, 1995 and 1996.
34
<PAGE>
<PAGE>
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 such individuals
to consolidate debt, to finance home improvements, to pay educational expenses
and for a variety of other uses. 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 purchases and originates non-conforming home equity loans through a
diversified network of correspondents (which includes the Industry Partners) and
mortgage loan brokers and on a retail basis through its direct consumer lending
effort. As of December 31, 1996, IMC had a network of 374 approved
correspondents, including the Industry Partners, 1,693 approved mortgage loan
brokers and 17 Company-owned retail branches. During January and February 1997,
IMC added 49 retail branches through the acquisition of four retail
non-conforming mortgage lenders. 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 $1.77 billion
in 1993, 1994, 1995 and 1996, respectively. IMC's network of correspondents
accounted for 82.5%, 87.5% and 89.4% of IMC's loan production in 1994, 1995 and
1996, respectively. Through its network of mortgage brokers, IMC generated
17.5%, 10.7% and 6.8% of its loan production in 1994, 1995 and 1996,
respectively. IMC's direct consumer lending effort, which began in 1995,
contributed approximately 1.8% and 3.8% of loan production in 1995 and 1996,
respectively. IMC is continuing to expand its direct consumer lending by opening
branch offices and expanding its use of advertising, direct mail and other
marketing strategies, and through strategic acquisitions.
As of December 31, 1996, a majority of the Industry Partners were required
to sell to IMC, on prevailing market terms and conditions, an aggregate of
$162.0 million of home equity loans per year. IMC has consistently purchased
loan production from the Industry Partners in excess of such aggregate annual
commitment. Actual sales to IMC by the Industry Partners aggregated $337.5
million for the year ended December 31, 1996. As a result of IMC's acquisition
of two of the Industry Partners (Mortgage America and Equity Mortgage) in
January and February 1997, the contractual annual sales commitment from the
Industry Partners was reduced by $36.0 million to $126.0 million. The two
acquired Industry Partners originated an aggregate of approximately $284 million
residential loans in 1996. These acquisitions reflect IMC's business strategy to
increase its retail loan origination channels through acquisitions of retail
non-conforming lenders.
IMC sells the majority of its loans through its securitization program and
retains rights to service such loans. Through December 31, 1996, IMC had
completed eight securitizations totaling $1.4 billion of loans. The Company
earns servicing fees on a monthly basis at a rate of 0.50% per year and
ancillary fees on the loans it services in the securitization pools. As of
December 31, 1995 and 1996, IMC had a servicing portfolio of $535.8 million and
$2.15 billion, respectively.
The Company's total revenues increased from $19.7 million for the year
ended December 31, 1995 to $65.7 million for the year ended December 31, 1996,
while pro forma net income increased from $4.0 million to $17.9 million in those
periods. Gain on sale of loans, net, represented $15.1 million, or 76.9% of
total revenues, for the year ended December 31, 1995 as compared to $42.1
million, or 64.1% of total revenues, for the year ended December 31, 1996.
Servicing income, net warehouse interest income and other revenues in the
aggregate increased from $4.5 million, or 23.1% of total revenues, for the year
ended December 31, 1995 to $23.6 million, or 35.9% of total revenues, for the
year ended December 31, 1996. IMC's strategy is to continue to increase its
servicing portfolio and portfolio of loans held for sale in order to generate
increased revenues from these two sources.
35
<PAGE>
<PAGE>
BUSINESS STRATEGY
The Company utilizes the following strategies to maintain and expand its
core business:
EXPANSION THROUGH ACQUISITIONS
The Company is actively pursuing a strategy of acquiring originators of
non-conforming home equity loans. IMC's acquisition strategy focuses on entities
that originate non-conforming mortgages either directly from the consumer or
through broker networks. In 1996, IMC acquired Equitystars and in January and
February 1997 completed the acquisitions of Mortgage America, CoreWest, Equity
Mortgage and American Reduction. Equitystars, Mortgage America and Equity
Mortgage were Industry Partners. Management believes that the acquisition of
non-conforming home equity loan originators will benefit IMC by: (i) increasing
IMC's loan production volume by capturing all of the acquired company's
production instead of only a portion; (ii) improving IMC's profitability and
profit margins because broker and direct-to-consumer originated loans typically
result in better profit margins than loans purchased from correspondents; (iii)
adding experienced management; and (iv) broadening IMC's distribution system for
offering new products. In order to incent management of the acquired companies,
IMC typically structures its acquisitions to include an initial payment upon
closing of the transaction and to provide for contingent payments tied to future
production and profitability of the acquired company.
EXPANSION OF DIRECT CONSUMER LENDING
IMC intends to continue to expand its direct consumer lending efforts by
opening additional branch offices which will allow IMC to focus on developing
contacts with individual borrowers, local brokers and referral sources such as
accountants, attorneys and financial planners. Through December 31, 1996, IMC
opened 17 retail branch offices. In January and February 1997, IMC added 49
retail branches through acquisitions. 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 Company's 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 high startup costs for office equipment, furniture and
leasehold improvements and allows IMC to exit the market easily if the office
does not meet expectations.
EXPANSION OF CORRESPONDENT AND BROKER NETWORKS
The Company intends to continue to increase loan production from
correspondents and brokers by increasing its market share through geographic
expansion, tailored marketing strategies and a continued focus on servicing
smaller correspondents in regions that historically have not been actively
served by non-conforming home equity lenders. IMC believes that providing
attractive products and responsive service in conjunction with consistent
underwriting and competitive prices strengthens its relationships with
correspondents and brokers.
BROADENING OF PRODUCT OFFERINGS
The Company continues to introduce new non-conforming home equity loan
products to meet the needs of its correspondents, brokers and borrowers and to
expand its market share to new customers. The Company is in the process of
introducing two such products, HELOCs and secured credit cards. See ' -- New
Products and Services.'
STRATEGIC ALLIANCES AND JOINT VENTURES
In order to increase the Company's volume and diversify its sources of loan
originations over the long term, the Company seeks to enter into strategic
alliances with selected mortgage lenders, pursuant to which the Company provides
working capital and financing arrangements and a commitment to
36
<PAGE>
<PAGE>
purchase qualifying loans. In return, the Company expects to receive a more
predictable flow of loans and, in some cases, an option to acquire an equity
interest in the strategic partner. To date, the Company has entered into two
strategic alliances in the United States and a joint venture in the United
Kingdom.
MAINTENANCE OF UNDERWRITING QUALITY AND LOAN SERVICING
The Company's underwriting and servicing staff have extensive experience in
the non-conforming home equity loan industry. The management of IMC believes
that the depth and experience of its underwriting and servicing staff provide
the Company with the infrastructure necessary to sustain its recent growth and
maintain its commitment to high standards in its underwriting and loan
servicing. As the Company continues to grow, it is committed to applying
consistent underwriting procedures and criteria and to attracting, training and
retaining experienced staff.
MAXIMIZE FINANCIAL CASH FLOW AND IMPROVE CASH FLOW
The Company intends to maximize its financial flexibility in a number of
ways, including by maintaining a significant quantity of mortgage loans held for
sale on its balance sheet. Maintenance of a substantial amount of mortgage loans
held for sale, which the Company can sell when necessary or desirable either
through securitizations or whole loans sales, permits IMC to improve management
of its cash flow by increasing its net interest income and to reduce its
exposure to the volatility of the capital markets. During 1996, the Company
securitized approximately 53% of its loan production.
LOANS
OVERVIEW
IMC's consumer finance activities consist primarily of purchasing,
originating, selling and servicing mortgage loans. The vast majority of these
loans are non-conforming mortgage loans that 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 securitization or on a whole loan basis directly to institutional
purchasers. IMC retains the right to service the loans that it securitizes and
may or may not release the right to service the loans it sells through whole
loan sales.
LOAN PURCHASES AND ORIGINATIONS
As of December 31, 1996, IMC purchased and originated loans in 48 states
and the District of Columbia through its networks of 374 approved correspondents
and 1,693 approved brokers and through its 17 retail branch offices.
Additionally, 49 new retail branches were added through acquisitions in January
and February of 1997.
37
<PAGE>
<PAGE>
The following table shows channels of loan purchases and originations for the
periods shown:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 12, 1993) YEAR ENDED DECEMBER 31,
THROUGH DECEMBER 31, ----------------------------------
1993 1994 1995 1996
----------------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Correspondent(1):
Principal balance.................................. $28,008 $233,460 $543,635 $1,582,048
Average principal balance per loan................. 66 66 62 66
Weighted average loan-to-value ratio(2)............ 66.6% 69.2% 70.6% 72.8%
Weighted average interest rate..................... 10.2% 11.2% 12.1% 11.5%
Broker:
Principal balance.................................. $ 1,600 $ 49,376 $ 66,584 $ 120,700
Average principal balance per loan................. 55 56 47 54
Weighted average loan-to-value ratio(2)............ 70.9% 71.8% 72.6% 73.4%
Weighted average interest rate..................... 11.2% 12.0% 12.0% 11.5%
Direct consumer loan originations:
Principal balance.................................. $ -- $ 88 $ 11,410 $ 67,564
Average principal balance per loan................. -- 88 49 58
Weighted average loan-to-value ratio(2)............ 0.0% 80.0% 72.6% 72.5%
Weighted average interest rate..................... 0.0% 11.3% 11.7% 10.7%
Total loan purchases and originations:
Principal balance.................................. $29,608 $282,924 $621,629 $1,770,312
Average principal balance per loan................. 65 64 60 65
Weighted average loan-to-value ratio(2)............ 66.8% 69.7% 70.9% 72.9%
Weighted average interest rate..................... 10.3% 11.4% 12.1% 11.5%
</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 $337.5 million, or 19.1% of total purchases and originations, for the
year ended December 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.
38
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<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, JUNE 30, SEPTEMBER 30,
1995 1995 1995 1995 1996 1996 1996
--------- -------- ------------- ------------ --------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Correspondent(1):
Principal balance.............. $103,296 $104,727 $ 133,857 $201,755 $236,537 $370,359 $ 428,136
Average principal balance per
loan......................... 66 58 60 64 65 66 67
Weighted average loan-to-value
ratio(2)..................... 69.7% 70.1% 70.8% 71.2% 71.2% 71.9% 72.3%
Weighted average interest
rate......................... 12.5% 12.6% 12.1% 11.8% 11.5% 11.4% 11.6%
Broker:
Principal balance.............. $ 14,948 $ 17,327 $ 17,297 $ 17,012 $ 21,079 $ 25,098 $ 30,625
Average principal balance per
loan......................... 52 46 45 48 54 53 53
Weighted average loan-to-value
ratio(2)..................... 72.7% 72.5% 72.7% 72.6% 74.6% 72.8% 74.3%
Weighted average average
interest rate................ 12.5% 12.3% 11.8% 11.2% 11.2% 11.6% 11.8%
Direct consumer loan originations:
Principal balance.............. $ 1,141 $ 2,613 $ 3,836 $ 3,820 $ 6,371 $ 6,780 $ 21,471
Average principal balance per
loan......................... 52 47 49 50 48 52 59
Weighted average loan-to-value
ratio(2)..................... 73.8% 70.0% 73.3% 73.2% 73.9% 73.7% 71.3%
Weighted average interest
rate......................... 12.4% 11.9% 11.6% 11.4% 11.1% 11.0% 11.0%
Total loan purchases and
originations:
Principal balance.............. $119,385 $124,667 $ 154,990 $222,587 $263,987 $402,237 $ 480,232
Average principal balance per
loan......................... 64 56 57 62 64 64 66
Weighted average loan-to-value
ratio(2)..................... 70.1% 70.5% 71.0% 71.4% 71.5% 72.0% 72.2%
Weighted average interest
rate......................... 12.5% 12.5% 12.0% 11.8% 11.4% 11.4% 11.4%
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1996
------------
(DOLLARS IN THOUSANDS)
<S> <C>
Correspondent(1):
Principal balance.............. $547,016
Average principal balance per
loan......................... 66
Weighted average loan-to-value
ratio(2)..................... 74.7%
Weighted average interest
rate......................... 11.6%
Broker:
Principal balance.............. $ 43,898
Average principal balance per
loan......................... 54
Weighted average loan-to-value
ratio(2)..................... 73.1%
Weighted average average
interest rate................ 11.4%
Direct consumer loan originations:
Principal balance.............. $ 32,942
Average principal balance per
loan......................... 63
Weighted average loan-to-value
ratio(2)..................... 72.8%
Weighted average interest
rate......................... 10.4%
Total loan purchases and
originations:
Principal balance.............. $623,856
Average principal balance per
loan......................... 65
Weighted average loan-to-value
ratio(2)..................... 74.4%
Weighted average interest
rate......................... 11.6%
</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 $337.5 million, or 19.1% of total
purchases and originations, for the year ended December 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.
------------------------
The following table shows lien position, weighted average interest rates
and loan-to-value ratios for the periods shown.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION YEAR ENDED
(AUGUST 12, 1993) DECEMBER 31,
THROUGH ------------------------
DECEMBER 31, 1993 1994 1995 1996
--------------------- ---- ---- ----
<S> <C> <C> <C> <C>
First mortgages:
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 loan-to-value ratio(1).................... 67.3 69.8 70.7 72.6
Second mortgages:
Percentage of total purchases and originations............. 11.7% 17.6% 23.0% 9.7%
Weighted average interest rate............................. 11.1 11.7 12.4 12.2
Weighted average loan-to-value ratio(1).................... 61.9 68.8 71.7 75.6
</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.
39
<PAGE>
<PAGE>
Correspondents. The majority of IMC's loan volume is purchased through
correspondents. For the year ended December 31, 1996, $1.6 billion or 89.4% of
IMC's total loan purchases and originations were purchased through the mortgage
correspondent network as compared with $543.6 million or 87.5% of IMC's total
loan purchases and originations for the year ended December 31, 1995. For the
year ended December 31, 1994, $233.5 million or 82.5% of IMC's total loan
purchases and originations were so acquired. The Industry Partners contributed
$337.5 million or 19.1% of IMC's total loan purchases and originations for the
year ended December 31, 1996, $148.4 million or 23.9% of such purchases and
originations for the year ended December 31, 1995, $116.0 million or 41.0% of
such purchases and originations for the year ended December 31, 1994 and $14.3
million or 48.3% of such purchases and originations for the period ended
December 31, 1993. The largest correspondent contributed 7.1% and 9.7% of total
loan production in 1994 and 1995, respectively. In 1996, GMAC and its
wholly-owned subsidiary Residential Funding Corp. contributed 14.3% of IMC's
total loan production. No other correspondent contributed 10% or more of IMC's
loan purchases and originations in 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 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 yet 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
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 years ended December 31, 1995 and 1996, IMC originated
$66.6 million, or 10.7% of the total, and $120.7 million, or 6.8% of the total,
respectively, of the loans it purchased and originated 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 obtained
by a broker from a prospective borrower and grant or deny preliminary approval
of the application generally within one business day. In the case of an
application denial, IMC will make all reasonable attempts to ensure 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. IMC believes that consistent underwriting, quick
response times and personal service are critical to successfully originating
loans through brokers.
Direct Consumer Loans. For the years ended December 31, 1995 and 1996, IMC
originated $11.4 million, or 1.8% of the total, and $67.6 million, or 3.8% of
the total, respectively, of loans it purchased
40
<PAGE>
<PAGE>
and originated directly to borrowers through its retail branch offices. As of
December 31, 1996, IMC had 17 retail branch offices located in Arizona,
Arkansas, California, Colorado, Florida, Iowa, Kansas, Kentucky, Massachusetts,
Missouri, Nebraska, New Mexico, Oklahoma, Oregon and Wisconsin. 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 Company's 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 high startup costs for office equipment, furniture and leasehold
improvements and allows IMC to exit the market easily if the office does not
meet expectations. 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 or other centralized underwriting locations. 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 increased loan production. Negative
pre-testing results could limit expansion into new locations, but should also
limit the size of potential losses. IMC plans to continue to open new branch
offices nationwide 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 to be less than $50,000 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.
Since January 1, 1997, IMC added 49 new retail branches through the
acquisitions of American Reduction, Equity Mortgage, CoreWest and Mortgage
America. These acquired branches are located in Arizona, California, Colorado,
Delaware, Florida, Georgia, Illinois, Indiana, Maryland, Michigan, Minnesota,
Missouri, New Jersey, North Carolina, Ohio, Oregon, Pennsylvania, South
Carolina, Tennessee, Utah, Washington and West Virginia.
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, the borrower usually has 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 14.0% and 7.6%, respectively, of such volume
for the year ended December 31, 1996. IMC intends to expand and geographically
diversify its loan purchase and origination activities through acquisitions,
strategic alliances, continued correspondent expansion, expansion of its
nationwide retail branch office network, the Preferred Partners Program and
opportunities outside the United States. See ' -- New Products and
Services -- Preferred Partners Program.'
41
<PAGE>
<PAGE>
The following table shows geographic distribution of loan purchases and
originations for the periods shown.
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION YEAR ENDED DECEMBER
(AUGUST 12, 1993) 31,
THROUGH --------------------
DECEMBER 31, 1993 1994 1995 1996
----------------- ---- ---- ----
<S> <C> <C> <C> <C>
States(1):
New York................................................. 17.5% 11.7% 12.4% 14.0%
Michigan................................................. 10.0 7.3 8.8 7.8
New Jersey............................................... 4.0 6.6 9.9 7.6
Maryland................................................. 14.4 18.6 12.8 7.3
Florida.................................................. 1.8 4.2 6.2 6.7
Georgia.................................................. 5.6 3.2 3.5 5.2
Illinois................................................. 0.1 2.0 3.0 4.3
Ohio..................................................... 4.5 4.9 4.7 4.3
Pennsylvania............................................. 3.3 5.3 4.3 3.8
Virginia................................................. 2.0 5.4 3.8 3.0
California............................................... -- -- 0.3 3.0
All other states......................................... 36.8 30.8 30.3 33.0
</TABLE>
- ------------
(1) States are listed in order of percentage of loan purchases and originations
for the year ended December 31, 1996.
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 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 experienced underwriters based in its Florida,
Pennsylvania, New Jersey, Ohio, California, Michigan, Maryland 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,
42
<PAGE>
<PAGE>
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 underwriters to
scrutinize an 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 type of 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 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.
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.
43
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
'A' RISK 'B' RISK 'C' RISK 'D' RISK
<S> <C> <C> <C> <C>
General repayment............................ Has repaid Has generally May have May have
installment or repaid experienced experienced
revolving debt installment or significant past significant past
revolving credit credit problems credit problems
Existing mortgage loans...................... Current at Current at May not be Must be paid in
application time application time current at full from loan
and a maximum of and a maximum of application time proceeds and no
two 30-day late three 30-day and a maximum of more than 149
payments in the late payments in four 30-day late days delinquent
last 12 months the last 12 payments and one at closing and
months 60-day late an explanation
payment in the is required
last 12 months
Non-mortgage credit.......................... Minor derogatory Some prior Significant Significant
items allowed defaults allowed prior prior defaults
with a letter of but major credit delinquencies may have
explanation; no or installment may have occurred, but
open collection debt paid as occurred, but must demonstrate
accounts or agreed may major credit or an ability to
charge-offs, offset some installment debt maintain
judgements or delinquency; paid as agreed regularity in
liens open may offset some payment of
charge-offs, delinquency credit
judgments or obligations in
liens are the future
permitted on a
case-by-case
basis
Bankruptcy filings........................... Discharged more Discharged more Discharged more Discharged prior
than four years than two years than one year to closing
prior to closing prior to closing prior to closing
and credit and credit and credit
reestablished reestablished reestablished
Debt service-to-income ratio................. Generally 45% or Generally 45% or Generally 50% or Generally 50% or
less less less less
Maximum loan-to-value ratio:
Owner-occupied............................... Generally 80% Generally 80% Generally 75% Generally 65%
(or 90%*) for a (or 85%*) for a (or 80% for (or 70% for
one- to two- one- to two- first liens*) first liens*)
family family residence for a one- to for a one- to
residence; 75% two- family four- family
for a residence; 65% residence; 60%
condominium for a for a three- to
condominium; 60% four-family
for a three-to residence or
four-family condominium
residence
Non-owner-occupied........................... Generally 70% Generally 70% Generally 60% Generally 55%
for a one- to for a one- to for a one- to for a one- to
four-family two-family two-family four-family
residence residence residence residence
</TABLE>
- ------------
* On an exception 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.
44
<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,
---------------------------------------------------------------------------------------------------
1994 1995 1996
----------------------------- ----------------------------- -------------------------------
WEIGHTED WEIGHTED WEIGHTED
BORROWER % OF AVERAGE % OF AVERAGE % OF AVERAGE
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% $ 883,094 49.9% 10.9%
'B' Risk......... 74,527 26.3 11.6 177,149 28.5 12.0 442,629 25.0 11.5
'C' Risk......... 38,022 13.5 13.0 125,811 20.2 13.0 338,330 19.1 12.3
'D' Risk......... 14,646 5.2 14.4 42,549 6.9 14.4 106,259 6.0 13.6
-------- ----- -------- ----- ---------- -----
Total....... $282,924 100.0% $621,629 100.0% $1,770,312 100.0%
-------- ----- -------- ----- ---------- -----
-------- ----- -------- ----- ---------- -----
</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, 1995 and 1996, IMC sold $261.9 million,
$458.8 million and $1.06 billion of loan production, respectively.
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 ------------------------------------------------------------
DECEMBER 31,
1993 1994 1995 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>
Securitizations............... $ -- 0.0% $ 81,637 31.2% $388,363 84.7% $ 935,000 87.9%
Whole loan sales.............. 21,636 100.0 180,263 68.8 70,400 15.3 128,868 12.1
------- ----- -------- ----- -------- ----- ---------- -----
Total loan sales......... $21,636 100.0% $261,900 100.0% $458,763 100.0% $1,063,868 100.0%
------- ----- -------- ----- -------- ----- ---------- -----
------- ----- -------- ----- -------- ----- ---------- -----
</TABLE>
Securitizations. Through December 31, 1996, the Company completed eight
securitizations totaling $1.4 billion. The securities sold in each
securitization, which were enhanced by an insurance policy, received a credit
rating of AAA by Standard and Poor's and Aaa by Moody's.
During the year ended December 31, 1996, IMC sold $935.0 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. 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.
Of IMC's eight securitizations through December 31, 1996, five were public
offerings and three were private offerings. When IMC securitizes loans, it sells
a portfolio of loans to a REMIC that issues classes of certificates representing
undivided ownership interests in the REMIC. 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
a portfolio of loans is sold through a securitization. In its capacity as
servicer for each securitization, the Company collects and remits principal and
interest
45
<PAGE>
<PAGE>
payments to the appropriate REMIC, 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 of the REMIC.
Each REMIC is supported by an insurance policy 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 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 certificate holders of the senior
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
Company's residual class certificate. If payment defaults exceed the amount of
over-collateralization, the insurance policy maintained by the REMIC will pay
any further losses experienced by certificate holders of the senior interests in
the REMIC.
As part of IMC's cash flow management strategy, the first six
securitizations were structured so that ContiFinancial received a portion of the
I/O and residual interest in the related REMIC. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Transactions with
ContiFinancial.'
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 68.8%, 15.3% and 12.1% of total loan sales for the
years ended December 31, 1994, 1995 and 1996, respectively. Upon the sale of a
loan portfolio, IMC generally receives a premium, representing a value 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 a loan in the event that its
representations and warranties with respect to such loans prove to be
inaccurate. 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 more than one year. For the years ended December 31, 1994,
1995 and 1996, IMC was required to rebate $287,347, $167,951, and $99,578,
respectively, in premiums when certain loans were prepaid during the 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, 1995 and 1996, premium rebates due to IMC were $89,113, $1.4 million
and $2.9 million, respectively.
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 of the loans it sold in 1995 and to 90.5% or $963.2 million of the loans
it sold in 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 payment dates.
46
<PAGE>
<PAGE>
As of December 31, 1996, IMC was servicing loans representing an aggregate
of $2.15 billion. Revenues generated from loan servicing amounted to 7.8% and
10.3% of IMC's total revenues for the years ended December 31, 1995 and 1996,
respectively. IMC anticipates that loan servicing will contribute a larger
portion of total revenues in future periods. Management believes that the
Company's loan servicing provides a consistent 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 address delinquency problems quickly and,
when necessary, to act to preserve equity before a property goes into
foreclosure. IMC believes that these policies, combined with the experience
level of independent appraisers engaged by IMC, help to reduce the incidence of
charge-offs on 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 respect to 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 occurs.
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.
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, $535.8 million and $2.15 billion at December 31, 1993, 1994, 1995
and 1996, respectively.
47
<PAGE>
<PAGE>
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 DECEMBER 31,
------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Delinquency percentages(1):
30-59 days.................................................... 0.72% 2.54% 3.01%
60-89 days.................................................... 0.15 0.59 1.01
90+ days...................................................... 0.00 0.30 1.28
---- ---- ----
Total delinquency........................................ 0.87% 3.43% 5.30%
---- ---- ----
Default percentages(2):
Foreclosure................................................... 0.00% 0.75% 0.94%
Bankruptcy.................................................... 0.12 0.25 0.53
---- ---- ----
Total default............................................ 0.12% 1.00% 1.47%
---- ---- ----
Total delinquency and default...................................... 0.99% 4.43% 6.77%
---- ---- ----
---- ---- ----
</TABLE>
- ------------
(1) Represents the percentages of account balances contractually past due,
exclusive of home equity loans in foreclosure, bankruptcy and real estate
owned.
(2) Represents the percentages of account balances on loans in foreclosure and
bankruptcy, exclusive of real estate owned.
48
<PAGE>
<PAGE>
The following table provides certain delinquency and default experience as
a percentage of outstanding principal balance for each of the Company's
securitization trusts completed through December 31, 1996, prior to any
potential recoveries:
DELINQUENCY AND DEFAULTS FOR THE COMPANY'S SECURITIZATIONS(1)(2)
<TABLE>
<CAPTION>
1994-1 1995-1 1995-2
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1996:
Delinquency:
30-59 days................................... $ 1,316,812 2.07% $2,286,637 2.80% $ 1,028,339 0.99%
60-89 days................................... 273,899 0.43 242,681 0.30 580,192 0.56
90 days and over............................. 38,834 0.06 190,960 0.23 119,429 0.11
----------- ---- ---------- ---- ----------- ----
Total....................................... $ 1,629,545 2.56% $2,720,278 3.33% $ 1,727,960 1.66%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,128,767 3.35% $1,967,810 2.41% $ 2,642,563 2.54%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
As of June 30, 1996:
Delinquency:
30-59 days................................... $ 1,001,798 1.74% $1,678,736 2.33% $ 3,232,465 3.37%
60-89 days................................... 386,579 0.67 238,285 0.33 800,972 0.84
90 days and over............................. 120,648 0.21 147,389 0.20 2,122 0.00
----------- ---- ---------- ---- ----------- ----
Total....................................... $ 1,509,025 2.62% $2,064,410 2.86% $ 4,035,559 4.21%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 1,611,169 2.80% $1,920,443 2.67% $ 3,053,366 3.19%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
As of September 30, 1996:
Delinquency:
30-59 days................................... $ 2,131,473 4.01% $1,602,212 2.45% $ 2,541,594 2.96%
60-89 days................................... 299,147 0.56 321,059 0.49 1,150,718 1.34
90 days and over............................. 222,911 0.42 141,310 0.22 466,260 0.54
----------- ---- ---------- ---- ----------- ----
Total....................................... $ 2,653,531 4.99% $2,064,582 3.16% $ 4,158,572 4.84%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,287,599 4.31% $1,961,704 3.00% $ 4,115,802 4.79%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
As of December 31, 1996:
Delinquency:
30-59 days................................... $ 2,615,101 5.42% $1,351,891 2.30% $ 3,314,742 4.31%
60-89 days................................... 461,981 0.96 562,719 0.96 849,593 1.10
90 days and over............................. 264,199 0.55 103,720 0.18 1,527,337 1.99
----------- ---- ---------- ---- ----------- ----
Total..................................... $ 3,341,281 6.93% $2,018,330 3.44% $ 5,691,672 7.40%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,568,471 5.32% $2,229,011 3.80% $ 3,597,044 4.68%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
<CAPTION>
1995-3
--------------------
<S> <C> <C>
As of March 31, 1996:
Delinquency:
30-59 days................................... $ 2,451,357 1.74%
60-89 days................................... 102,685 0.07
90 days and over............................. 358,533 0.26
----------- ----
Total....................................... $ 2,912,575 2.07%
----------- ----
----------- ----
Total defaults............................... $ 1,665,789 1.19%
----------- ----
----------- ----
As of June 30, 1996:
Delinquency:
30-59 days................................... $ 5,086,087 3.86%
60-89 days................................... 505,242 0.38
90 days and over............................. 477,597 0.36
----------- ----
Total....................................... $ 6,068,926 4.60%
----------- ----
----------- ----
Total defaults............................... $ 2,703,193 2.05%
----------- ----
----------- ----
As of September 30, 1996:
Delinquency:
30-59 days................................... $ 999,636 0.85%
60-89 days................................... 664,704 0.55
90 days and over............................. 340,822 0.29
----------- ----
Total....................................... $ 1,985,162 1.69%
----------- ----
----------- ----
Total defaults............................... $ 3,072,556 2.62%
----------- ----
----------- ----
As of December 31, 1996:
Delinquency:
30-59 days................................... $ 5,797,400 5.44%
60-89 days................................... 899,318 0.84
90 days and over............................. 702,633 0.66
----------- ----
Total..................................... $ 7,399,351 6.94%
----------- ----
----------- ----
Total defaults............................... $ 3,319,749 3.11%
----------- ----
----------- ----
<PAGE>
<CAPTION>
1996-1 1996-2 1996-3
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1996:
Delinquency:
30-59 days................................... $ 3,462,018 2.04%
60-89 days................................... 628,949 0.37
90 days and over............................. 533,810 0.31
----------- ----
Total....................................... $ 4,624,777 2.72%
----------- ----
----------- ----
Total defaults............................... $ 484,716 0.29%
----------- ----
----------- ----
As of June 30, 1996:
Delinquency:
30-59 days................................... $ 3,544,403 2.20% $4,045,730 2.09%
60-89 days................................... 1,090,040 0.68 916,283 0.47
90 days and over............................. 641,525 0.40 843,325 0.44
----------- ---- ---------- ----
Total....................................... $ 5,275,968 3.28% $5,805,338 3.00%
----------- ---- ---------- ----
----------- ---- ---------- ----
Total defaults............................... $ 1,710,018 1.06% $ 470,978 0.24%
----------- ---- ---------- ----
----------- ---- ---------- ----
As of September 30, 1996:
Delinquency:
30-59 days................................... $ 5,206,575 3.44% $3,598,472 1.96% $ 6,948,738 2.88%
60-89 days................................... 1,665,750 1.10 1,451,115 0.79 3,222,051 1.34
90 days and over............................. 852,773 0.56 1,222,661 0.67 1,670,647 0.69
----------- ---- ---------- ---- ----------- ----
Total....................................... $ 7,725,098 5.10% $6,272,248 3.41% $11,841,436 4.91%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,671,238 1.76% $4,286,773 2.33% $ 1,693,101 0.70%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
As of December 31, 1996:
Delinquency:
30-59 days................................... $ 8,386,098 6.10% $3,661,557 2.17% $ 3,324,516 1.46%
60-89 days................................... 2,462,853 1.79 1,635,260 0.97 3,404,998 1.50
90 days and over............................. 2,820,700 2.05 1,823,195 1.08 5,651,334 2.48
----------- ---- ---------- ---- ----------- ----
Total....................................... $13,669,651 9.94% $7,120,012 4.22% $12,380,848 5.44%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
Total defaults............................... $ 2,723,282 1.98% $4,665,216 2.76% $ 3,175,997 1.39%
----------- ---- ---------- ---- ----------- ----
----------- ---- ---------- ---- ----------- ----
1996-4
--------------------
<S> <C> <C>
As of March 31, 1996:
Delinquency:
30-59 days...................................
60-89 days...................................
90 days and over.............................
Total.......................................
Total defaults...............................
As of June 30, 1996:
Delinquency:
30-59 days...................................
60-89 days...................................
90 days and over.............................
Total.......................................
Total defaults...............................
As of September 30, 1996:
Delinquency:
30-59 days...................................
60-89 days...................................
90 days and over.............................
Total.......................................
Total defaults...............................
As of December 31, 1996:
Delinquency:
30-59 days................................... $ 6,440,166 2.17%
60-89 days................................... 2,481,880 0.84
90 days and over............................. 4,942,472 1.67
----------- ----
Total....................................... $13,864,518 4.68%
----------- ----
----------- ----
Total defaults............................... $ 629,253 0.21%
----------- ----
----------- ----
</TABLE>
(footnotes on next page)
49
<PAGE>
<PAGE>
(footnotes from previous page)
(1) Delinquency is the dollar value of account balances contractually past due,
excluding loans in foreclosure, bankruptcy and real estate owned.
(2) Defaults are the dollar value of account balances contractually past due on
loans in foreclosure and bankruptcy, exclusive of real estate owned.
------------------------
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, 1995 and 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1994 1995 1996
------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average amount outstanding(1)........................................... $52,709 $294,252 $1,207,172
Losses(2)............................................................... -- 279 1,580
Losses as a percentage of average amount outstanding.................... 0.00% 0.09% 0.13%
</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. During 1996, IMC marketed its direct consumer
lending services through 17 branch offices. IMC added 49 branches through
acquisitions in January and February 1997 and intends to continue to open new
retail branches during 1997. 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, and
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 Company's 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 high startup costs for office equipment, furniture and leasehold
improvement and allows IMC to exit the market easily if the office does not meet
expectations. The branch office network is used for marketing to and meeting
with IMC's local borrowers and brokers.
50
<PAGE>
<PAGE>
ACQUISITIONS AND STRATEGIC ALLIANCES
The Company is actively pursuing a strategy of acquiring originators of
non-conforming home equity loans. IMC's acquisition strategy focuses on entities
that originate non-conforming mortgages either directly from the consumer or
through broker networks. In 1996, IMC acquired Equitystars and in January and
February 1997 completed the acquisitions of Mortgage America, CoreWest, Equity
Mortgage and American Reduction. Equitystars, Mortgage America and Equity
Mortgage were Industry Partners. Management believes that the acquisitions of
these and similar non-conforming home equity loan originators will benefit IMC
by: (i) increasing IMC's loan production volume by capturing all of the acquired
company's production instead of only a portion; (ii) improving IMC's
profitability and profit margins because broker and direct-to-consumer
originated loans typically result in better profit margins than loans purchased
from correspondents; (iii) adding experienced management; and (iv) broadening
IMC's distribution system for offering new products. In order to incent
management of the acquired companies, IMC typically structures its acquisitions
to include an initial payment upon closing of the transaction and to provide for
contingent payments tied to future production and profitability of the acquired
company.
IMC believes that by using a 'family of companies' approach to potential
acquisitions it is able to differentiate itself from other potential acquirers
competing for acquisitions of non-conforming mortgage lenders. Under this
approach, IMC seeks to derive the benefit of the entrepreneurial energies and
organizational and marketing skills already developed by existing companies by
allowing those companies to operate after acquisition by the Company as
relatively independent lending units. IMC believes this approach appeals to
owners of certain existing companies who see a number of benefits from IMC's
concept, including: (i) the benefit of being allowed to continue to run their
companies as subsidiaries or independent divisions of IMC after acquisition;
(ii) the assurance that the previous owner controls the employees of the
acquired company following the acquisition; and (iii) the benefit of financial
support from IMC, which provides warehouse and working capital lines as needed
on an agreed business plan, thereby allowing the former owners to concentrate on
growing their business and obtaining efficient execution of the loan marketing
process.
Pursuant to this strategy, IMC has acquired during January and February
1997 the outstanding common stock of CoreWest and all of the assets of American
Reduction, Equity Mortgage, and Mortgage America. During 1996, IMC acquired all
of the assets of Equitystars and also formed a joint venture in the United
Kingdom. Each of the foregoing acquisitions will be accounted for under the
purchase method of accounting. Most acquisitions include earn-out arrangements
that provide the sellers with additional consideration if the acquired company
reaches certain performance targets after the acquisition. Any such contingent
payments will result in an increase in the amount of goodwill recorded on IMC's
balance sheet related to such acquisition. Goodwill represents the excess of
cost over fair market value of the net tangible assets acquired and is amortized
through periodic charges to earnings for up to 30 years.
51
<PAGE>
<PAGE>
The Company's acquisitions are summarized in the table below:
<TABLE>
<CAPTION>
AMERICAN
EQUITYSTARS MORTGAGE AMERICA COREWEST EQUITY MORTGAGE REDUCTION
---------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Industry Partner..... Yes Yes No Yes No
Effective date of
acquisition........ 1/1/96 1/1/97 1/1/97 1/1/97 2/1/97
Initial purchase
price:
Common Stock..... 239,666 shares 1,790,000 shares 488,404 shares -- --
Cash............. -- -- -- $150,000 in $9,150,000
excess of net
assets
Approximate 1996
originations....... $100 million $248 million $48 million $36 million $80 million
1996 originations
purchased by IMC... N/A $45 million $10 million $12 million $2 million
Headquarters......... Providence, RI Bay City, MI Los Angeles, CA Baltimore, MD Owings Mills, MD
Retail branch
offices............ 2 32 9 3 5
Primary states of
operations......... CT, ME, MA, NH, AZ, AK, CO, DE, CA, CO, OR, UT, DE, DC, GA, MD, MD, PA
NY, RI FL, GA, IL, IA, WA PA, VA
IN, KS, KY, MD,
MI, MN, MO, NJ,
NC, OH, OK, PA,
SC, TN, TX, VT,
VA, WA, WV, WI,
WY
</TABLE>
ACQUISITION OF EQUITYSTARS
Effective January 1, 1996, IMC acquired all of the assets of Equitystars,
one of the Industry Partners. Equitystars is a non-conforming lender that
purchases and originates residential mortgage loans in Rhode Island, New York,
Connecticut, Massachusetts, Maine and New Hampshire.
The purchase price for all of the assets of Equitystars consisted of a $2.0
million base payment in the form of 239,666 shares of Common Stock, and up to an
aggregate of $2.55 million of contingent payments, to be paid over two years
based on a formula keyed to the performance of the non-conforming and conforming
mortgage loan business of Equitystars during the two years subsequent to
closing.
ACQUISITION OF MORTGAGE AMERICA
Effective January 1, 1997, IMC acquired all of the assets of Mortgage
America, an Industry Partner. Mortgage America is a non-conforming lender based
in Bay City, Michigan that originates residential mortgage loans from a network
of 32 retail offices located in 29 states. Mortgage America originated over $248
million of residential mortgage loans in 1996, including over $69 million during
the last quarter of 1996. IMC purchased $45.3 million of residential mortgage
loans from Mortgage America during 1996, including $21.1 million during the last
quarter of 1996.
The purchase price for all of the assets of Mortgage America was an initial
payment of 1,790,000 shares of Common Stock and assumption of a stock option
plan which could result in issuance of an additional 334,596 shares of Common
Stock and a contingent payment of up to 2,770,000 additional shares of Common
Stock at the end of three years based on the growth and profitability of
Mortgage America during that period.
ACQUISITION OF COREWEST
Effective January 1, 1997, IMC acquired all of the outstanding common stock
of CoreWest, a non-conforming lender based in Los Angeles, California. CoreWest,
which commenced operations in early 1996, originates residential mortgage loans
primarily through a network of nine mortgage centers located in California,
Colorado, Washington, Utah and Oregon. CoreWest originated over $48 million of
residential mortgage loans in 1996, including over $22 million during the last
quarter of 1996. IMC
52
<PAGE>
<PAGE>
purchased $10.3 million of residential mortgage loans from CoreWest during 1996,
all of which was during the last quarter of 1996.
The purchase price for all of the outstanding common stock of CoreWest was
an initial payment of 488,404 shares of Common Stock and a contingent payment of
additional shares of Common Stock at the end of a two year period based on the
profitability of CoreWest during that period. There is no cap on the number of
shares which may be required to be issued as the contingent payment.
ACQUISITION OF EQUITY MORTGAGE
Effective January 1, 1997, IMC acquired all of the assets of Equity
Mortgage, an Industry Partner. Equity Mortgage is a non-conforming lender that
originates residential mortgage loans from its offices in the greater Baltimore
metropolitan region, Delaware and Pennsylvania. Equity Mortgage originated
approximately $36 million of residential mortgage loans in 1996, including over
$11 million during the last quarter of 1996. IMC purchased $12.5 million of
residential mortgage loans from Equity Mortgage during 1996, including $3.3
million during the last quarter of 1996.
The purchase price for Equity Mortgage was a cash payment of $150,000 in
excess of its net assets. In connection with the acquisition, the Company
entered into a four year employment agreement with the former owner of Equity
Mortgage, Mr. Mark Greenberg, pursuant to which the Company is obligated to pay
Mr. Greenberg 1.5% of the principal amount of non-conforming loans originated by
the Equity Mortgage division of the Company during such four years, up to a
maximum amount that does not exceed the net income of the division.
ACQUISITION OF AMERICAN REDUCTION
Effective February 1, 1997, IMC acquired all of the assets of American
Reduction, a non-conforming lender based in Owings Mills, Maryland. American
Reduction originates residential mortgage loans from its main office in Owings
Mills, and four satellite offices located in Pennsylvania. American Reduction
originated over $80 million of residential mortgage loans in 1996, including
over $28 million during the last quarter of 1996. IMC did not purchase a
significant amount of residential mortgage loans from American Reduction in
1996.
The purchase price for all of the assets of American Reduction was an
initial payment of $9.15 million and a cash contingent payment based on a
multiple of the average after-tax earnings of American Reduction for the two
year period ending December 31, 1999. At the Company's election, the contingent
payment may be made in shares of Common Stock.
STRATEGIC ALLIANCES
In order to increase the Company's volume and diversify its sources of loan
originations, the Company seeks to enter into strategic alliances with selected
mortgage lenders, pursuant to which the Company provides working capital and
financing arrangements and a commitment to purchase qualifying loans. In return,
the Company expects to receive a more predictable flow of loans and, in some
cases, an option or obligation to acquire an equity interest in the related
strategic participant. To date, the Company has completed two strategic
alliances.
UK JOINT VENTURE
In April 1996, the Company formed Preferred Mortgages, a UK joint venture.
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 explore
opportunities 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 has a `L'47.5
million (approximately $76 million as of January 31, 1997) line of credit from
National Westminster Bank, Plc for the purchase and origination of mortgage
loans (the 'NatWest Facility'), and FSA has provided an insurance policy as
credit enhancement for the NatWest Facility. Preferred Mortgages is currently
originating loans at a
53
<PAGE>
<PAGE>
rate of approximately `L'1.2 million, (or $1.9 million, as of January 31, 1997)
per month. Additionally, IMC intends to explore opportunities to serve
underserved nonconforming segments of the home equity loan markets in other
locations outside the United States.
NEW PRODUCTS AND SERVICES
SECURED CREDIT CARDS
In late 1996, IMC, through its wholly owned subsidiary, IMC Credit Card,
Inc. ('IMCCI'), entered into a joint venture (the 'Credit Card Joint Venture')
with Lakeview Credit Card Services, Inc. ('Lakeview Credit'), a wholly owned
subsidiary of Lakeview, the parent of one of the Industry Partners. The Credit
Card Joint Venture is owned 50% by IMCCI and 50% by Lakeview Credit. If a
customer wishes to borrow an amount less than that permitted by the Company's
underwriting guidelines, the Company will offer the borrower an opportunity to
borrow an additional amount up to the limit permitted by underwriting guidelines
and use the excess proceeds as collateral for a secured credit card. Those
excess proceeds are deposited in an interest-bearing account at Lakeview and are
used as collateral for a secured credit card issued by IMCCI.
HOME EQUITY LINE OF CREDIT ('HELOC')
In late 1996, IMC introduced the HELOC product, which enables 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 increases 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 developed the methodology to
facilitate the HELOC program through an agreement with a large commercial bank.
This new product offers the convenience of a revolving mortgage credit line to
the non-conforming borrower. IMC offers HELOCs to borrowers using the same
general underwriting criteria IMC uses for its non-conforming lending business.
PREFERRED PARTNERS PROGRAM
As originally conceived, the Preferred Partners Program was for the benefit
of mortgage companies attempting to diversify their product offering and enter
the non-conforming loan business. Now, however, the Preferred Partners Program
has expanded to encompass a diverse group of projects with a common goal: to
introduce certain entities not previously involved in non-conforming lending to
the business. The entities taking part in the Preferred Partners Program now
include credit unions, banks and brokerage houses. Under the program, IMC acts
as a consultant in certain aspects of the non-conforming loan business,
including marketing, regulatory compliance, underwriting, risk-adjusted pricing,
processing, funding, servicing and selling loans. Working with the companies
either on-site or out of IMC's offices, IMC helps the entities develop new
product lines that they would not typically underwrite on their own. In return,
IMC anticipates receiving a part of the production generated by the entity. To
date, the Preferred Partners Program has not generated a significant amount of
loan production for the Company.
COMPETITION
As a purchaser and originator of mortgage loans the proceeds of which are
used for a variety of purposes, including to consolidate debt, to finance home
improvements and to pay educational expenses, the Company faces intense
competition primarily from other mortgage banking companies and commercial
banks, credit unions, thrift institutions, credit card issuers and finance
companies. Many of these competitors are substantially larger and have more
capital and other resources than the Company. Furthermore, numerous large
national finance companies and originators of conforming mortgages have expanded
from their conforming origination programs and have allocated resources to the
origination of non-conforming loans. In addition, many 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 requires the Company to
pay higher premiums for loans it purchases, increases the likelihood of
54
<PAGE>
<PAGE>
earlier prepayments through refinancings and could have a material adverse
effect on the Company's results of operations and financial condition. In
addition, competition could also result in the purchase or origination of loans
with lower interest rates and higher loan-to-value ratios, which could have a
material adverse effect on the Company's results of operations and financial
condition. Premiums paid to correspondents as a percentage of loans purchased
from correspondents by the Company were 4.7%, 4.2%, 5.0% and 5.8% for the three
months ended March 31, June 30, September 30 and December 31, 1996,
respectively. The weighted average interest rate for loans purchased or
originated by the Company decreased from 12.1% for the year ended December 31,
1995 to 11.5% for the year ended December 31, 1996. The combined weighted
average loan-to-value ratio of loans purchased or originated by the Company
increased from 70.9% for the year ended December 31, 1995 to 72.9% for the year
ended December 31, 1996.
Competition takes 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 into this market, including at least one quasi-governmental agency,
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.
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,
selling 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, however, 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
55
<PAGE>
<PAGE>
IMC could be required to investigate and clean up hazardous or toxic substances
or chemical releases at such properties after acquisition by IMC, and could 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 December 31, 1996, IMC had a total of 380 employees, 198 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. As a result of its recent acquisitions, since December 31,
1996 IMC has added in excess of 500 employees. IMC believes that it will be
necessary to continue to increase its staff to support its growth.
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 $331,000. The
lease expires in August 1998 and the Company intends to vacate these premises
when its new corporate headquarters are ready for occupation.
In January 1997, the Company purchased a 60,000 square foot building in
Tampa, Florida which will serve as the Company's corporate headquarters after
renovations are completed later in 1997. The purchase price for the building was
$2.6 million, and the Company anticipates spending at least an additional $2.2
million to renovate the space prior to occupation.
IMC maintains full-service offices in Ft. Washington, Pennsylvania;
Cincinnati, Ohio; Cherry Hill, New Jersey; Lincoln, Rhode Island; Bellevue,
Washington; Roselle, Illinois; Baltimore, Maryland; Los Angeles, California; and
Bay City, Michigan. The Company also maintains short-term leases for retail
branch offices in executive spaces in 66 locations throughout the United States.
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.
56
<PAGE>
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and executive officers of IMC and their ages as of January
31, 1997 and positions are:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------ ---- ---------------------------------------------------------------
<S> <C> <C>
George Nicholas........................... 54 Chairman of the Board of Directors, Chief Executive Officer and
Assistant Secretary, Member of the Compensation and Executive
Committees
Thomas G. Middleton....................... 50 Director, President, Chief Operating Officer and Assistant
Secretary, Member of the Compensation and Executive
Committees
Stuart D. Marvin.......................... 37 Chief Financial Officer
Joseph P. Goryeb.......................... 66 Director, Member of the Audit and Option Committees
Mitchell W. Legler........................ 54 Director, Member of the Compensation and Audit Committees
Allen D. Wykle............................ 50 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 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 led 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 of Shawmut National Corporation and from
February 1991 until April 1992, Mr. Middleton was Managing Director of SAG
Financial Inc. Mr. Middleton served as Executive Vice President and Chief Credit
Officer of Equimark Corp. from June 1987 until February 1991.
Stuart D. Marvin joined the Company as its Chief Financial Officer on
August 1, 1996. Mr. Marvin is a certified public accountant and was most
recently a partner in the Jacksonville, Ft. Lauderdale and Miami, Florida
offices of Coopers & Lybrand L.L.P. Mr. Marvin has over 12 years of public
accounting experience with Coopers & Lybrand L.L.P. and Arthur Young & Company.
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. 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.
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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 Approved
Financial Corp. (formerly 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 remodeling 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 consists of such number of persons as shall be fixed by the Board of
Directors from time to time by resolution and is 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. Mr. Legler serves
until the 1997 annual meeting of stockholders. Messrs. Wykle and Goryeb serve
until the 1998 annual meeting of stockholders. Messrs. Nicholson and Middleton
serve until the 1999 annual meeting of stockholders. 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 shall be filled by the Board of Directors, with the
director so elected to serve until the next annual meeting of stockholders. 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 by the Board of Directors 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 makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and results of the audit engagement, approves professional services
provided by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of the Company's internal accounting controls.
Compensation Committee. The Compensation Committee consists of Messrs.
Nicholas, Middleton and Legler. The Compensation Committee determines the
compensation of the Company's executive officers.
Option Committee. The Option Committee consists of Messrs. Goryeb and Wykle
and has authority to administer the Company's stock option plans and to grant
options thereunder.
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 12,932 shares
of Common Stock pursuant to the Directors' Plan. See ' -- Stock Option
Plans -- Directors' Plan.' The Company pays non-employee directors $6,000 per
year plus $2,500 for each meeting attended. All directors 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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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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. Messrs. Nicholas, Middleton and
Legler serve on the Compensation Committee and Messrs. Nicholas and Middleton
are executive officers of the Company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid and accrued during fiscal 1996 to the Company's Chief Executive Officer and
the other executive officers of the Company whose compensation exceeded $100,000
for that year (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................. 1996 $475,000 $1,425,000 $ 4,750 --
Thomas G. Middleton, President, Chief
Operating Officer....................... 1996 380,000 1,140,000 9,500 --
Stuart D. Marvin, Chief Financial
Officer(3).............................. 1996 111,677 93,750 -- 120,000
</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.
(3) Represents compensation from commencement of employment on August 1, 1996,
and includes reimbursement of $17,927 for relocation costs to Tampa,
Florida.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made to Stuart D. Marvin, the only Named Executive Officer to receive stock
options during the year ended December 31, 1996. No stock appreciation rights
were granted 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(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -------------------------------------------------
NAME GRANTED FISCAL YEAR PRICE(1) DATE 0% 5% 10%
- --------------------- ---------- ------------- --------- ---------- --------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stuart D. Marvin..... 120,000 31.6% $8.00 8/1/01 $480,000 $1,385,608 $2,774,989
</TABLE>
- ------------
(1) 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.
On the date of grant of this option, the fair market value of the Common
Stock was $12 per share.
(2) 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
(footnotes continued on next page)
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(footnotes continued from previous page)
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 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 at December 31,
1996. No options or stock appreciation rights were exercised during 1996 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 OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
George Nicholas...................................... 452,586 113,146 $ 6,517,238 $1,629,302
Thomas G. Middleton.................................. 226,292 56,574 3,258,605 814,666
Stuart D. Marvin..................................... 10,000 110,000 87,500 962,500
</TABLE>
- ------------
(1) Based on the closing price of $16.75 per share, adjusted for the two-for-one
stock split, of the Common Stock on Nasdaq on December 31, 1996, the last
trading day of the Company's fiscal year.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with George Nicholas, its Chairman
and Chief Executive Officer, Thomas G. Middleton, its President and Chief
Operating Officer, and Stuart D. Marvin, its Chief Financial Officer
('Employment Agreements').
Mr. Nicholas' current Employment Agreement commenced on January 1, 1996 and
terminates on December 31, 2001 (subject to automatic five-year extensions,
unless either the Company or Mr. Nicholas gives a notice of termination six
months prior to the extension). The Employment Agreement provides for an annual
salary of $475,000, plus an increase each year equal to the greater of (i) the
change in the cost of living in 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 per share of 10% or more in that year. 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 per share exceeds 10% up to a maximum of 300% of his base salary. For
example, if the increase in net income per share 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 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 by Mr. Nicholas after a material
breach by the Company, and (v) voluntary termination after a 'change of control'
(defined as any (A) acquisition of 25% or more of the voting power or equity of
the Company, (B) change in a majority of the members of the Board excluding any
change 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
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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. 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 his 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 or
otherwise materially breaches the Employment Agreement. The Employment Agreement
also provides that the Company shall indemnify Mr. Nicholas for any and all
liabilities to which he may be subject as a result of his services to the
Company.
Mr. Middleton's Employment Agreement commenced on January 1, 1996 and
contains terms that 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.
Mr. Marvin's Employment Agreement commenced on August 1, 1996 and extends
until December 31, 1999. The terms of the Employment Agreement provide for an
annual salary of $225,000 commencing August 1, 1996, plus an increase each
calendar year equal to the greater of (i) the change in the cost of living in
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 per share
of 10% or greater. In addition, the Employment Agreement provides for a payment
of a bonus equal to 5% of the base salary of the relevant year for each one
percent by which the increase in net income per share exceeds 10% up to a
maximum of 100% of his base salary.
STOCK OPTION PLANS
On December 11, 1995, the Partnership approved the Partnership Option Plan.
In April 1996, in anticipation of the Company's initial public offering, 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'). 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 equity 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 1,915,454 shares and 130,000 shares, respectively.
Pursuant to the acquisition of Mortgage America in January 1997, the
Company assumed the stock options issued under the Mortgage America Stock Option
Plan. The holders of such options have the right to purchase up to 334,596
shares of Common Stock at an exercise price of $4.19 per share. Such options are
immediately exercisable and expire on December 30, 2006.
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.
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
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<PAGE>
in 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.
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 Common Stock as of the date of each grant. The Committee is authorized to
grant appreciation rights to participants in lieu of options.
Upon completion of the Company's initial public offering, the Company
assumed, subject to vesting, options exercisable into 1,616,000 shares of Common
Stock at an exercise price of $2.35 per share. Sixty percent of these options
vested upon their grant on December 11, 1995, 20% vested on the first
anniversary of the grant date and the remaining 20% will vest on the second
anniversary of the grant date.
During 1996, the Committee granted options to new employees, existing
employees and advisors exercisable into an aggregate of 360,302 shares of Common
Stock. These options vest over two- to five-year periods from the date of grant
and are exercisable at prices ranging from $8.00 per share to $16.00 per share.
All of these options expire ten years after the date of grant. As of December
31, 1996, the Company had granted options to purchase an aggregate of 1,531,168
shares of Common Stock under the Incentive Plan.
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 Participant is
terminated by the Company without cause. Additionally, all unvested options will
vest upon the occurrence of a change of control. 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 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 substantially all 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 Incentive 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.
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<PAGE>
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 12,932
shares of Common Stock at an exercise price of $2.35 per share. Any other person
who becomes an outside director will receive on the date of election to the
Board, options to purchase 12,932 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 each of the first and second anniversaries of
the date of grant. 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.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 31, 1997, and as adjusted to reflect
the sale of the shares of Common Stock offered hereby, of: (i) each person known
by the Company to own beneficially five percent or more of the outstanding
Common Stock immediately prior to the Offering; (ii) each of the Selling
Stockholders; (iii) each of the Company's directors; (iv) each of the Named
Executive Officers; and (v) all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BEING OWNED AFTER
THE OFFERING OFFERED(1) THE OFFERING(1)
----------------------- ------------ -----------------------
PERCENT OF PERCENT OF
NAME OF BENEFICIAL OWNER NUMBER CLASS NUMBER CLASS
- ------------------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
ContiTrade Services Corporation(2) .............. 2,700,000 10.95% 600,000 2,100,000 6.94%
277 Park Avenue
New York, New York 10172
Branchview, Inc.(3) ............................. 1,661,856 7.57 -- 1,661,856 5.90
989 McBride Avenue
West Patterson, New Jersey 07424
Approved Financial Corp. ........................ 1,205,018 5.49 -- 1,205,018 4.28
3420 Holland Road, Suite 107
Virginia Beach, Virginia 23452
George Nicholas(4) .............................. 1,543,496 6.89 -- 1,543,496 5.40
3450 Buschwood Park Drive
Tampa, Florida 33618
Thomas G. Middleton(5) .......................... 440,767 1.99 -- 440,767 1.55
3450 Buschwood Park Drive
Tampa, Florida 33618
Stuart D. Marvin(6) ............................. 16,000 * -- 16,000 *
3450 Buschwood Park Drive
Tampa, Florida 33618
Joseph P. Goryeb(7)(8) .......................... 1,183,460 5.39 -- 1,183,460 4.20
Waterview Corporate Centre
20 Waterview Boulevard
Parsippany, New Jersey 07054-1267
Allen D. Wykle(7)(9) ............................ 21,456 * -- 21,456 *
3420 Holland Road
Virginia Beach, Virginia 23452
Mitchell W. Legler(7)(10) ....................... 90,062 * -- 90,062 *
Independent Drive, Suite 3104
Jacksonville, Florida 32202
Thomas P. LaPorte Trust(11) ..................... 1,229,274 5.60 152,284 1,076,990 3.83
2230 Groveland
Bay City, MI 48708
Mary M. Reid Trust(11) .......................... 1,229,270 5.60 152,284 1,076,986 3.83
2230 Groveland
Bay City, MI 48708
Selling Employees
David MacDonald................................ 546,826 2.49 55,914 490,912 1.74
Glenn Tourtellot............................... 17,980 * 17,980 -- --
Mike Derderian 17,980 * 17,980 -- --
Douglas Brown.................................. 17,980 * 17,980 -- --
Andrew MacDonald............................... 55,914 * 55,914 -- --
Ronald Staake.................................. 153,854 * 20,000 133,854 *
Timothy Charles Hayes.......................... 153,854 * 20,000 133,854 *
</TABLE>
(table continued on next page)
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(table continued from previous page)
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BEING OWNED AFTER
THE OFFERING OFFERED(1) THE OFFERING(1)
----------------------- ------------ -----------------------
PERCENT OF PERCENT OF
NAME OF BENEFICIAL OWNER NUMBER CLASS NUMBER CLASS
- ------------------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Mark Bishop.................................... 51,692 * 15,202 36,490 *
Steven M. Curry................................ 32,968 * 8,236 24,732 *
Norman Steeg................................... 16,264 * 4,048 12,216 *
Brian Levine................................... 51,692 * 15,202 36,490 *
Jon Maddox..................................... 23,200 * 5,600 17,600 *
Industry Partners................................ 241,376
All directors and executive officers as a group
(6 persons)(12)................................ 3,295,241 14.50% -- 3,295,241 11.39%
</TABLE>
- ------------
* Represents less than one percent.
(1) Assumes no exercise of the Underwriters' over-allotment option. See Notes
(3)(4)(8) and (9).
(2) Consists of 2,700,000 shares of Common Stock issuable upon the exercise of
the Conti Warrant, which is currently exercisable for a de minimus amount.
(3) Excludes 110,000 registered shares purchased by shareholders of Branchview,
Inc. in the Company's intial public offering. In the event that the
Underwriters' over-allotment option is exercised in full, Branchview, Inc.
may sell up to shares of Common Stock and would then own
shares of Common Stock upon the completion of the Offering or %
of the then outstanding Common Stock.
(4) Includes 452,586 shares of Common Stock issuable upon the exercise of
options under the Incentive Plan. In the event that the Underwriters'
over-allotment option is exercised in full, George Nicholas may sell up to
shares of Common Stock and would then own shares of
Common Stock upon the completion of the Offering or % of the then
outstanding Common Stock.
(5) Includes 226,293 shares of Common Stock issuable upon the exercise of
options under the Incentive Plan.
(6) Includes 16,000 shares of Common Stock issuable upon the exercise of
options under the Incentive Plan.
(7) Includes 10,346 shares of Common Stock issuable upon the exercise of
options under the Directors' Plan.
(8) Includes 1,145,338 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. In the event that the Underwriters' over-allotment option
is exercised in full, JRJ Associates, Inc. may sell up to shares
of Common Stock and would then own shares of Common Stock upon
the completion of the Offering or % of the then outstanding Common Stock.
(9) Excludes 1,199,768 shares of Common Stock and 5,250 shares of Common Stock
issuable upon the exercise of options under the Incentive Plan owned by
Approved. Mr. Wykle, who owns 32% of the voting stock of Approved, has
voting, but not investment, control of the Common Stock owned by Approved.
Mr. Wykle disclaims beneficial ownership of the shares of Common Stock
owned by Approved and issuable upon the exercise of such options. In the
event that the Underwriters' over-allotment option is exercised in full,
Approved may sell up to shares of Common Stock and would then own
shares of Common Stock upon the completion of the Offering or %
of the then outstanding Common Stock.
(footnotes continued on next page)
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(footnotes continued from previous page)
(10) Includes 48,940 shares of Common Stock issuable upon the exercise of
options under the Incentive Plan, 27,776 shares held by Mr. Legler jointly
with his spouse and 3,000 shares held in his IRA.
(11) Includes 4,282 shares of Common Stock issuable upon the exercise of options
issued to Mortgage America under the Incentive Plan. Thomas P. LaPorte and
Mary M. Reid are husband and wife and have voting and investment control of
Mortgage America. Each acts as co-trustee of the trust.
(12) See Notes (1) and (4)-(10).
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.
AGREEMENTS WITH CONTIFINANCIAL
Warehouse Facility. The Company and ContiFinancial are party to the Amended
and Restated Loan and Security 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 and expires on August 31, 1997. Amounts
outstanding under the Warehouse Facility bear interest at a rate of LIBOR plus
1.5% per year. During 1994, 1995 and 1996, the Company made interest payments
under the Warehouse Facility of $0.5 million, $5.1 million and $6.0 million,
respectively.
Standby Agreement. The Company and ContiFinancial are party to a Standby
Agreement through which the Company funds the income taxes payable as a result
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. The Company has borrowed the full $15.0 million available under the
Standby Agreement. During 1994, 1995 and 1996, the Company made interest
payments to ContiFinancial under the Standby Agreement of $0, $0.2 million and
$1.4 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 underwriting of
securitizations and whole loan acquisitions or dispositions of the Company's
mortgage loans (the 'Mortgage Transaction'). 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, to ContiFinancial for
services as Mortgage Banker in 1994, 1995 and 1996, respectively.
Conti Warrant. In August 1993, the Company entered into the 1993 Agreement
with ContiFinancial which provided IMC with the $15.0 million Standby Agreement
to fund retention of I/O and residual
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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 Company's initial
public offering in June 1996, the Conti Option was converted into the Conti
Warrant. The Conti Warrant grants ContiFinancial certain registration rights.
The Conti Warrant is exercisable for 2.7 million shares (after giving effect to
ContiFinancial's sale in June 1996 of 10% of its interest in the Conti Warrant)
of Common Stock for a de minimus amount, subject to adjustment if the Company
issues Common Stock below fair market value and certain anti-dilution
adjustments.
ADDITIONAL SECURITIZATION TRANSACTION EXPENSE
Through June 1996, the Company had an I/O and residual certificate sharing
arrangement with ContiFinancial in connection with its securitizations pursuant
to which the Company arranged 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 and 25% of the residual interests
(valued at $3.9 million) in the Company's 1996-2 securitization in exchange for
$2.5 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.
GENERAL COUNSEL
The Company paid $230,000 in legal fees in 1996 to Mr. Legler who acted as
general counsel for the Company through his professional association, Mitchell
W. Legler, P.A. The Company has an arrangement with Mitchell W. Legler, P.A.
pursuant to which it pays that firm $17,500 per month for Mr. Legler's services
as general counsel.
In addition, Mitchell W. Legler, P.A. earns a contingent cash fee for
acting in the primary role in identifying potential acquisition candidates and
in analyzing, negotiating and closing acquisitions of other non-conforming
lenders and strategic alliances with other non-conforming lenders. The
contingent fees are determined based on a percentage of the expected increase in
IMC's earnings per share
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resulting from an acquisition or strategic alliance based on the first year
following the closing of the acquisition and based on the first three years
following the closing of a strategic alliance. Fifty percent of contingent fee
as to acquisitions is paid following the closing and the remainder is paid at
the end of the first year based on actual results achieved. The contingent fee
as to strategic alliances is paid at the end of the first three years following
closing based on actual results. No fee is due to Mitchell W. Legler, P.A. for
unsuccessful acquisition or strategic alliance efforts.
As a result of this contingent fee arrangement, Mitchell W. Legler, P.A.
received fees in the aggregate of $468,167 in connection with the acquisitions
of CoreWest, Mortgage America, American Reduction and Equity Mortgage. The
balance of the fees, if any, due as a result of those acquisitions will be paid
in 1998.
In addition, on December 11, 1995, Mr. Legler was granted options to
purchase 42,026 shares of Common Stock at an exercise price of $2.35 per share
pursuant to the Incentive Plan for advisory services to the Company and options
to purchase 12,932 shares of Common Stock at an exercise price of $2.35 per
share pursuant to the Directors' Plan and options to purchase 20,000 shares of
Common Stock at an exercise price of $8.00 per share pursuant to the Incentive
Plan.
TAX DISTRIBUTIONS
Under the terms of the partnership agreement governing the Partnership, the
Company was 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 ('Tax
Distributions'). Tax Distributions to partners in 1996 related to partnership
income prior to June 24, 1996, the effective date of the exchange of the
partnership interests for Common Stock of the Company, and included $790,281 to
George Nicholas, $898,703 to Mortgage America, $898,703 to JRJ Associates, Inc.,
$898,703 to Branchview, $898,703 to Approved and $898,703 to Cityscape Corp.
TRANSACTIONS WITH INDUSTRY PARTNERS
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 more mortgage loans than required under
their commitments, the Company created an incentive option plan for Industry
Partners (the 'Industry Partners' Incentive Plan'). Under that Plan, options
exercisable for five years after grant to acquire a total of 20,000 shares of
Common Stock at $9.00 per share were awarded to Industry Partners for the
quarter ending September 30, 1996. The 20,000 options were allocated among those
Industry Partners that doubled their commitments, pro rata, to the extent the
Industry Partners exceeded that doubled commitment for the quarter. The plan was
amended and for each quarter beginning December 31, 1996, Industry Partners that
doubled their commitments will be eligible to receive on a pro rata basis fully
paid shares of Common Stock equal to $150,000 divided by the market price of the
Common Stock at the end of each quarter. The fully paid shares of Common Stock
will be issued among those Industry Partners that doubled their commitments, pro
rata, to the extent the Industry Partner exceeded its doubled commitment for the
quarter. The Industry Partners Incentive Plan continues through the quarter
ended June 30, 2000.
LAKEVIEW
The Company entered into the Lakeview Facility in January 1996 with
Lakeview, an affiliate of Branchview, Inc., one of the Industry Partners. The
Company repaid all outstanding amounts under the Lakeview Facility with a
portion of the proceeds of the Company's initial public offering in June 1996.
The Company has re-borrowed approximately $5 million under the Lakeview
Facility, effective in January 1997. In 1996, IMC, through its wholly owned
subsidiary, IMCCI, entered into the Credit Card Joint Venture with Lakeview
Credit. The Credit Card Joint Venture is owned 50% by IMCCI and 50% by Lakeview
Credit. See 'Business -- New Products and Services -- Secured Credit Cards.'
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JRJ ASSOCIATES INC.
JRJ Associates Inc. sold loans in the aggregate amount of $24.9 million to
the Company during 1996 and has agreed to sell $24.0 million in loans to the
Company in 1997. 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. contributed $420,000 to the Company in lieu of additional
loan sales in satisfaction of its aggregate loan sale commitments for 1996 and
will contribute $360,000 in satisfaction of its commitments for 1997.
MORTGAGE AMERICA
Effective January 1, 1997, IMC acquired all of the assets of Mortgage
America, one of the Industry Partners. IMC purchased $45.3 million of
residential mortgage loans from Mortgage America during 1996. The purchase price
for all of the assets of Mortgage America was an initial payment of 1,790,000
shares of Common Stock and assumption of a stock option plan which could result
in issuance of an additional 334,596 shares of Common Stock and a contingent
payment of up to 2,770,000 additional shares of Common Stock at the end of three
years based on the growth and profitability of Mortgage America during that
period.
EQUITY MORTGAGE
Effective January 1, 1997, IMC acquired all of the assets of Equity
Mortgage, one of the Industry Partners. IMC purchased $12.5 million of
residential mortgage loans from Equity Mortgage during 1996. The purchase price
for Equity Mortgage was a cash payment of $150,000 in excess of its net assets.
In connection with the acquisition, the Company entered into a four year
employment agreement with the former owner of Equity Mortgage, Mr. Mark
Greenberg, pursuant to which the Company is obligated to pay Mr. Greenberg 1.5%
of the principal amount of non-conforming loans originated by the Equity
Mortgage division of the Company during such four years, up to a maximum amount
that does not exceed the net income of the division.
INVESTORS MORTGAGE
Investors Mortgage sold loans in the aggregate amount of $12.1 million to
IMC during 1996. Investors Mortgage has agreed to sell $12.0 million in loans to
the Company in 1997.
APPROVED FINANCIAL CORP.
Approved, formerly American Industrial Loan Association, sold loans in the
aggregate amount of $100.1 million to IMC during 1996 and has agreed to sell $24
million in loans to IMC in 1997. Mr. Wykle, a member of the Board of Directors
of IMC, is Chairman and Chief Executive Officer of Approved. In January 1996,
IMC and Approved entered into a warehouse financing facility pursuant to which
IMC committed to lend Approved $8.0 million secured by mortgage loans.
Borrowings under the facility bear interest at a rate of LIBOR plus 1.75%, and
Approved paid IMC $137,189 in interest payments during 1996.
CERTAIN ACCOUNTING CONSIDERATIONS RELATING TO THE CONTI VSA
BACKGROUND
IMC was initially formed as Industry Mortgage Company, L.P., a Delaware
limited partnership (the 'Partnership') with Industry Mortgage Corporation (an
entity owned by George Nicholas) as general partner and various of the Industry
Partners and certain employees as limited partners. In June 1996, in preparation
for the Company's initial public offering, the partnership interests of all
limited partners and Mr. Nicholas' ownership interest in the general partner
were all exchanged for Common Stock resulting in the Partnership being wholly
owned by IMC.
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As originally conceived by the founders of IMC, the common 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.
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 shares
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 the Conti VSA (a 'call') by paying ContiFinancial 25% of
the fair market value of the Company.
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
converted into the Conti Warrant exercisable for 3.0 million shares of the
Common Stock (subject to certain adjustments). The Conti Warrant does not
contain any put feature permitting ContiFinancial to require the Company to pay
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.
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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 the 1993 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 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 was 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. Neither the Conti Option nor the Conti Warrant affects earnings of the
Company after March 26, 1996.
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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'). As of February 11,
1997, there were no shares of Preferred Stock outstanding and there were
21,949,142 shares of Common Stock outstanding held by 106 holders of record.
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.
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 'Price Range of Common Stock and 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 non-assessable.
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 and 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 tend to 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. The Florida Business Corporation Act (the 'Florida Act') 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 approve the granting of voting rights as to the shares acquired in the
control share acquisition in the manner provided in the Florida Act. A control
share acquisition is defined as an acquisition that immediately thereafter
entitles the acquiring party to vote in the election of directors within any 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; or (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.
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AFFILIATED TRANSACTIONS
The Florida Act also 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 majority of disinterested directors before the
person becomes an interested stockholder; (ii) the interested stockholder has
been the beneficial owner of at least 80% of the Company's outstanding voting
shares for at least five years; (iii) the interested stockholder is the
beneficial owner of at least 90% of the outstanding voting shares, exclusive of
shares acquired from the corporation in a transaction not approved by a majority
of the disinterested directors of the corporation; or (iv) 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 the corporation and an officer or director. See
'Management -- Employment Agreements.' 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
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Directors shall be filled only by the affirmative vote of a majority of the
directors then in office, even if less than a quorum.
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 only be amended 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 only be called by 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 a 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 Offering, the Company will have outstanding an
aggregate of 28,149,142 shares of Common Stock. Of these shares, 13,330,000
shares 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.
The remaining 18,310,922 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 780,700 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, or
approximately 281,491 shares immediately after the Offering, excluding the
exercise of any options and 2.1 million shares issuable pursuant to the Conti
Warrant, or the average weekly trading volume in the Common Stock on Nasdaq
during the four calendar weeks 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
74
<PAGE>
<PAGE>
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
2,045,454 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 Conti Warrant provides for certain rights to register shares issued
upon exercise of such warrant in a secondary offering by the Company and, after
December 31, 1998, certain demand registration rights with respect to such
shares.
In connection with the acquisition of Equitystars, Mortgage America and
CoreWest, the persons who received Common Stock in the tax-free exchange entered
into registration rights agreements (the 'Registration Agreements') with IMC
relating to such Common Stock (the 'Registrable Securities') Pursuant to the
Registration Agreements, IMC agreed to afford an opportunity to register a
portion of the Registrable Securities in any secondary offering being undertaken
by IMC, subject, however, to rights of other holders of unregistered Common
Stock to participate on a pro-rata basis and further subject to a priority in
favor of IMC in the event that it is not practicable to register all securities
sought to be registered.
In addition, the Registration Agreements provide certain demand
registration rights with respect to the Registrable Securities, subject to the
right of IMC to delay the registration in certain circumstances. In the case of
Mortgage America, the demand registration rights permit registration of the
lesser of 15% of the Registrable Securities and Registrable Securities with a
market value of $7.5 million on or before September 30, 1997, and, to the extent
not previously registered, registration of Registrable Securities with a market
value of $5.5 million with respect to two holders by June 29, 1997. Fifty
percent of the Registrable Securities delivered in payment of the future
contingent payment of the purchase price are to be registered when issued in
early 2000.
In the case of CoreWest, the demand registration rights permit registration
of the lesser of approximately 25% of the Registrable Securities in each of 1997
and 1998 (plus, in 1998, any unregistered Registrable Securities that were
permitted to be registered in 1997), except that IMC is required to register
only 15% of the Registrable Securities held by management of CoreWest unless
CoreWest has then achieved a certain portion of its business plan. The
Registrable Securities delivered in payment of the future contingent payment of
the purchase price are to be registered when issued in early 1999.
In the case of Equitystars, all 239,999 shares are presently subject to
demand registration rights.
The expenses of any required registrations are to be paid by IMC, but the
holders of the Registrable Securities are required to pay any related
underwriting commissions.
The Company has 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 90 days after the completion of the Offering, without the prior
written consent of Bear, Stearns & Co. Inc., subject to certain limited
exceptions. Certain officers and directors of the Company and the Selling
Stockholders have agreed with the Underwriters that they will not, without the
prior written consent of Bear, Stearns & Co. Inc., 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 90 days after the
completion of the Offering, subject to certain limited exceptions. See
'Underwriting.'
75
<PAGE>
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Bear, Stearns & Co. Inc., J.P.
Morgan Securities Inc., NatWest Securities Limited 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 and the Selling Stockholders 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 OF
UNDERWRITER COMMON STOCK
- ------------------------------------------------------------------------------ ------------
<S> <C>
Bear, Stearns & Co. Inc. .....................................................
J.P. Morgan Securities Inc. ..................................................
NatWest Securities Limited....................................................
Oppenheimer & Co., Inc. ......................................................
------------
Total.................................................................... 7,000,000
------------
------------
</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 $ per share, and the Underwriters may allow, and such dealers may
re-allow, a concession of not more than $ per share to certain other
dealers. After the 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 & Co. Inc. and its affiliates, Bear Stearns Mortgage Capital
Corporation and Bear, Stearns International Limited, provide the Company a $30.0
million credit facility which extends through October 23, 1997, and is
collateralized by the I/O and residual certificates owned by the Company from
the 1996-4 and 1997-1 securitizations. In addition, Bear, Stearns & Co. Inc. has
acted as lead manager for six of the Company's securitizations. Bear Stearns
Home Equity Trust 1996-1, an affiliate of Bear, Stearns & Co. Inc., provides the
Company with a $500.0 million warehouse borrowing facility which extends through
March 1997.
NatWest Securities Limited ('NatWest'), a United Kingdom broker-dealer and
a member of the Securities and Futures Authority Limited, has agreed that, as
part of the distribution of the Common Stock offered hereby and subject to
certain exceptions, it will not offer or sell any Common Stock within the United
States, its territories or possessions or to persons who are citizens thereof or
residents therein. The Underwriting Agreement does not limit the sale of the
Common Stock offered hereby outside of the United States.
NatWest has also represented and agreed that (i) it has not offered or sold
and will not offer or sell any Common Stock to persons in the United Kingdom
prior to admission of the Common Stock to listing in accordance with Part IV of
the Financial Services Act 1986 (the 'Act') except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purpose of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 or the Act, (ii) it has complied and will
comply with all applicable provisions of the Act with respect to anything done
by it in relation to the Common Stock in, from or otherwise involving the United
Kingdom and (iii) it has only issued or passed on, and will only issue or pass
on, in the United Kingdom any document received by it in connection with the
issue of the Common Stock, other than any document which consists of or any part
of listing particulars, supplementary listing particulars or any other document
required or permitted to be published by listing rules under Part IV of the Act,
to a person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a
person to whom the document may otherwise lawfully be issued or passed on.
National Westminster Bank Plc, the parent of NatWest, provides the Company
with a $20.0 million credit facility collateralized by the I/O and residual
certificates owned by the Company from the 1996-2
76
<PAGE>
<PAGE>
and 1996-3 securitizations. National Westminster Bank Plc intends to assign this
facility to Greenwich Capital Markets, Inc., a wholly owned subsidiary of
National Westminster Bank Plc. National Westminster Bank Plc also provides the
Company with a $100.0 million warehouse borrowing facility which extends through
February 28, 1997. The Company and Greenwich Capital Financial Products, Inc., a
wholly owned subsidiary of National Westminster Bank Plc, are currently in
negotiations to renew this facility. In addition, National Westminster Bank Plc
provides a `L'47.5 million (approximately $76 million as of January 31, 1997)
credit facility, which extends through May 1999, to a special purpose vehicle
which has an agreement with Preferred Mortgages, the Company's UK joint venture,
to purchase Preferred Mortgages' loans. In addition, NatWest Capital Markets
Limited, an affiliate of NatWest, has acted as co-manager for the Company's
1995-3 and 1996-3 securitizations.
The Company and certain of the Selling Stockholders have granted a 30-day
option to the Underwriters to purchase up to a maximum of 1,050,000 additional
shares of Common Stock to cover over-allotments, if any, at the same price per
share as the initial 7,000,000 shares to be purchased by the Underwriters. To
the extent the Underwriters 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.
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 90 days after the completion of the Offering, without the
prior written consent of Bear, Stearns & Co. Inc., subject to certain limited
exceptions. The executive officers and directors of the Company and the Selling
Stockholders have agreed with the Underwriters that they will not, without the
prior written consent of Bear, Stearns & Co. Inc., 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 90 days after the
completion of the Offering, subject to certain limited exceptions. See 'Shares
Eligible for Future Sale.'
In connection with the Offering, certain Underwriters and selling group
members (and any of their affiliated purchasers) who are qualified registered
market makers on the Nasdaq National Market may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Exchange Act during the two business day period
before commencement of offers or sales of the Common Stock in the Offering. The
passive market making transactions must comply with the applicable volume and
price limits and be identified as such. In general, a passive market maker may
display its bid at a price not in excess of the highest independent bid for the
security, and, if all independent bids are lowered below the passive market
maker's bid, then such bid must be lowered when certain purchase limits are
exceeded.
LEGAL MATTERS
The legality of the Common Stock being offered hereby will be passed upon
for the Company by Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New
York, New York 10022, 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,
1995 and 1996, and for each of the three years in the period ended December 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
<PAGE>
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement on Form S-1 under the Securities Act,
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. The Commission also
maintains a web site that contains reports, proxy and information statements and
other information regarding the Company. The web site can be accessed at
http://www.sec.gov.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files 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 to
make available to its stockholders upon request quarterly reports containing
unaudited condensed financial statements for each of the first three quarters of
each fiscal year.
78
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
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, 1995 and 1996.......................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996............ F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and
1996................................................................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996............ F-6
Notes to Consolidated Financial Statements............................................................ F-7
</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, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 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, 1995 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 4, effective January 1, 1996 the Company changed its
method of accounting for mortgage servicing rights.
/S/ COOPERS & LYBRAND L.L.P.
Tampa, Florida
February 21, 1997
F-2
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
------------ --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents...................................................... $ 5,133,718 $ 13,289,128
Securities purchased under agreements to resell................................ 138,058,262 659,490,000
Accrued interest receivable.................................................... 1,872,129 8,311,530
Accounts receivable............................................................ 1,179,907 3,689,540
Mortgage loans held for sale................................................... 193,002,835 914,586,703
Interest-only and residual certificates........................................ 14,072,771 86,246,674
Warehouse financing due from correspondents.................................... 53,200 5,045,385
Furniture, fixtures and equipment -- net...................................... 679,950 1,676,822
Capitalized mortgage servicing rights.......................................... -- 6,621,347
Investment in joint venture.................................................... -- 1,738,760
Goodwill....................................................................... -- 1,843,144
Other assets................................................................... 498,662 4,809,152
------------ --------------
Total................................................................ $354,551,434 $1,707,348,185
------------ --------------
------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse finance facilities.............................................. $189,819,046 $ 895,132,545
Term debt................................................................. 11,120,642 47,430,295
Accrued and other liabilities............................................. 547,707 7,766,858
Accrued interest payable.................................................. 1,055,550 4,077,744
Securities sold but not yet purchased..................................... 139,200,000 661,061,161
Amounts payable for taxes................................................. 1,306,645 2,543,000
Accrual for sharing of proportionate value of equity (Note 5)............. 5,893,000 --
------------ --------------
Total liabilities.................................................... 348,942,590 1,618,011,603
------------ --------------
Commitments (Note 14)
Stockholders' equity:
Preferred stock, par value $.01 per share; 10,000,000 shares authorized;
none issued and outstanding............................................. -- --
Common stock, par value $.01 per share; 50,000,000 authorized; 12,000,000
and 19,669,666 shares issued and outstanding............................ 60,000 196,696
Additional paid-in capital................................................ 3,844,601 76,489,738
Retained earnings......................................................... 1,704,243 12,650,148
------------ --------------
Total stockholders' equity........................................... 5,608,844 89,336,582
------------ --------------
Total................................................................ $354,551,434 $1,707,348,185
------------ --------------
------------ --------------
</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 YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Gain on sales of loans......................................... $ 8,583,277 $20,680,848 $46,229,615
Additional securitization transaction expense (Note 5)......... (560,137) (5,547,037) (4,157,644)
----------- ----------- -----------
Net gain on sale of loans................................. 8,023,140 15,133,811 42,071,971
----------- ----------- -----------
Warehouse interest income...................................... 2,510,062 7,884,679 37,463,583
Warehouse interest expense..................................... (1,610,870) (6,006,919) (24,534,896)
----------- ----------- -----------
Net warehouse interest income............................. 899,192 1,877,760 12,928,687
----------- ----------- -----------
Servicing fees................................................. 99,224 1,543,339 6,749,995
Other revenues................................................. 1,072,855 1,117,903 3,903,638
----------- ----------- -----------
Total servicing fees and other............................ 1,172,079 2,661,242 10,653,633
----------- ----------- -----------
Total revenues............................................ 10,094,411 19,672,813 65,654,291
----------- ----------- -----------
Expenses:
Compensation and benefits...................................... 3,348,236 5,139,386 16,006,553
Selling, general and administrative expenses................... 2,000,401 3,477,677 15,652,381
Sharing of proportionate value of equity (Note 5).............. 1,689,000 4,204,000 2,555,000
Other.......................................................... 14,143 297,743 2,321,413
----------- ----------- -----------
Total expenses............................................ 7,051,780 13,118,806 36,535,347
----------- ----------- -----------
Income before income taxes..................................... 3,042,631 6,554,007 29,118,944
Provision for income taxes..................................... -- -- (4,206,000)
----------- ----------- -----------
Net income.......................................................... $ 3,042,631 $ 6,554,007 $24,912,944
----------- ----------- -----------
----------- ----------- -----------
Unaudited Pro Forma Data (giving effect to provision for income
taxes):
Income before provision for income taxes....................... $ 6,554,007 29,118,944
Pro forma provision for income taxes (Note 4).................. 2,522,000 11,190,000
----------- -----------
Pro forma net income........................................... $ 4,032,007 17,928,944
----------- -----------
----------- -----------
Pro forma net income per common share.......................... $ 0.25 $ 0.94
Weighted average number of shares outstanding.................. 15,871,504 19,165,304
</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>
Stockholders' equity at January 1,
1994................................... 6,000,000 $ 60,000 $ 1,739,063 $ (349,971) $ 1,449,092
Cash contributions....................... -- -- 1,554,959 -- 1,554,959
Contributions in foregone premiums....... -- -- 530,579 -- 530,579
Net income............................... -- -- -- 3,042,631 3,042,631
Distributions for taxes (Note 3)......... -- -- -- (721,250) (721,250)
---------- -------- ----------- ----------- -----------
Stockholders' equity at December 31,
1994................................... 6,000,000 60,000 3,824,601 1,971,410 5,856,011
Cash contributions....................... -- -- 20,000 -- 20,000
Net income............................... -- -- -- 6,554,007 6,554,007
Distributions for taxes (Note 3)......... -- -- -- (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 5)............................... -- -- 8,448,000 -- 8,448,000
Common stock issued in public offering... 3,565,000 35,650 58,167,727 -- 58,203,377
Reclassification of partnership
earnings............................... -- -- 4,124,456 (4,124,456) --
Conversion of convertible preferred
stock.................................. 119,833 1,198 2,004,802 -- 2,006,000
Stock options exercised.................. 150,000 1,500 (1,500) -- --
Net income............................... -- -- -- 24,912,944 24,912,944
Distributions for taxes (Note 3)......... -- -- -- (9,842,583) (9,842,583)
Two-for-one stock split (Note 1)......... 9,834,833 98,348 (98,348) -- --
---------- -------- ----------- ----------- -----------
Stockholders' equity at December 31,
1996................................... 19,669,666 $196,696 $76,489,738 $12,650,148 $89,336,582
---------- -------- ----------- ----------- -----------
---------- -------- ----------- ----------- -----------
</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 YEAR ENDED DECEMBER
31,
-----------------------------
1994 1995
------------ -------------
<S> <C> <C>
Operating activities:
Net income.............................................................................. $ 3,042,631 $ 6,554,007
Adjustments to reconcile net income to net cash used in operating activities:
Sharing of proportionate value of equity................................................ 1,689,000 4,204,000
Foregone premiums....................................................................... 530,579 --
Depreciation and amortization........................................................... 98,285 163,798
Capitalized mortgage servicing rights................................................... -- --
Net loss in joint venture............................................................... -- --
Non-recurring benefit associated with the conversion of
Partnership to C Corporation............................................................ -- --
Deferred taxes.......................................................................... -- --
Net change in operatng assets and liabilities, net of effects from purchase of Mortgage
Central Corp.:
Increase in mortgage loans held for sale................................................ (21,023,760) (164,007,085)
Decrease (increase) in securities purchased under agreement to resell and securities
sold but not yet purchased............................................................ -- 1,141,738
Increase in accrued interest receivable................................................. (175,470) (1,653,412)
Decrease (increase) in warehouse financing due from correspondents...................... -- 3,800
Increase in interest-only and residual certificates..................................... (2,953,130) (10,669,041)
(Increase) decrease in other assets..................................................... 13,338 (370,667)
Increase in accounts receivable......................................................... (292,053) (884,904)
Increase in accrued interest payable.................................................... 486,828 546,974
Decrease in deferred income............................................................. -- (450,600)
Increase in amounts payable for taxes................................................... -- --
Increase in accrued and other liabilities............................................... 185,596 141,762
------------ -------------
Net cash used in operating activities................................................... (18,398,156) (165,279,630)
------------ -------------
Investing activities:
Investment in joint venture............................................................. -- --
Purchase of furniture, fixtures and equipment........................................... (292,809) (391,132)
------------ -------------
Net cash used in investing activities................................................... (292,809) (391,132)
------------ -------------
Financing activities:
Issuance of common stock................................................................ -- --
Contributions from partners............................................................. 1,554,959 20,000
Distributions to partners for taxes..................................................... (721,250) (5,514,529)
Borrowings -- warehouse................................................................. 288,530,292 711,907,906
Borrowings -- term debt................................................................. -- 11,120,642
Repayments of borrowings -- warehouse................................................... (268,008,343) (549,820,719)
Repayments of borrowings -- term debt................................................... -- --
------------ -------------
Net cash provided by financing activities............................................... 21,355,658 167,713,300
------------ -------------
Net increase in cash and cash equivalents............................................... 2,664,693 2,042,538
Cash and cash equivalents, beginning of period.......................................... 426,487 3,091,180
------------ -------------
Cash and cash equivalents, end of period................................................ $ 3,091,180 $ 5,133,718
------------ -------------
------------ -------------
Supplemental disclosure cash flow information: Cash paid during the year for interest..... $ 1,364,920 $ 5,459,945
------------ -------------
------------ -------------
Cash paid during the year for taxes....................................................... $ -- $ --
------------ -------------
------------ -------------
Supplemental disclosure of noncash financing and investing activities: Contributed capital
via foregone premiums (Note 3).......................................................... $ 530,579 $ --
------------ -------------
------------ -------------
Acquisition of assets of Mortgage Central Corp. (Note 6).................................. $ -- $ --
------------ -------------
------------ -------------
Amounts payable for taxes (Note 3)........................................................ $ -- $ 1,306,645
------------ -------------
------------ -------------
Issuance of options to ContiFinancial..................................................... $ -- $ --
------------ -------------
------------ -------------
<CAPTION>
1996
----------------
<S> <C>
Operating activities:
Net income.............................................................................. $ 24,912,944
Adjustments to reconcile net income to net cash used in operating activities:
Sharing of proportionate value of equity................................................ 2,555,000
Foregone premiums....................................................................... --
Depreciation and amortization........................................................... 1,649,621
Capitalized mortgage servicing rights................................................... (7,861,913)
Net loss in joint venture............................................................... 852,250
Non-recurring benefit associated with the conversion of
Partnership to C Corporation............................................................ (3,600,000)
Deferred taxes.......................................................................... 879,000
Net change in operatng assets and liabilities, net of effects from purchase of Mortgage
Central Corp.:
Increase in mortgage loans held for sale................................................ (721,346,574)
Decrease (increase) in securities purchased under agreement to resell and securities
sold but not yet purchased............................................................ 429,423
Increase in accrued interest receivable................................................. (6,439,401)
Decrease (increase) in warehouse financing due from correspondents...................... (4,992,185)
Increase in interest-only and residual certificates..................................... (72,173,903)
(Increase) decrease in other assets..................................................... (1,610,356)
Increase in accounts receivable......................................................... (2,509,633)
Increase in accrued interest payable.................................................... 3,022,194
Decrease in deferred income............................................................. --
Increase in amounts payable for taxes................................................... 2,543,000
Increase in accrued and other liabilities............................................... 6,977,434
----------------
Net cash used in operating activities................................................... (776,713,099)
----------------
Investing activities:
Investment in joint venture............................................................. (2,591,010)
Purchase of furniture, fixtures and equipment........................................... (1,217,782)
----------------
Net cash used in investing activities................................................... (3,808,792)
----------------
Financing activities:
Issuance of common stock................................................................ 58,203,377
Contributions from partners............................................................. --
Distributions to partners for taxes..................................................... (11,149,228)
Borrowings -- warehouse................................................................. 1,796,117,164
Borrowings -- term debt................................................................. 51,065,610
Repayments of borrowings -- warehouse................................................... (1,090,803,665)
Repayments of borrowings -- term debt................................................... (14,755,957)
----------------
Net cash provided by financing activities............................................... 788,677,301
----------------
Net increase in cash and cash equivalents............................................... 8,155,410
Cash and cash equivalents, beginning of period.......................................... 5,133,718
----------------
Cash and cash equivalents, end of period................................................ $ 13,289,128
----------------
----------------
Supplemental disclosure cash flow information: Cash paid during the year for interest..... $ 23,834,115
----------------
----------------
Cash paid during the year for taxes....................................................... $ 796,310
----------------
----------------
Supplemental disclosure of noncash financing and investing activities: Contributed capital
via foregone premiums (Note 3).......................................................... $ --
----------------
----------------
Acquisition of assets of Mortgage Central Corp. (Note 6).................................. $ 2,190,791
----------------
----------------
Amounts payable for taxes (Note 3)........................................................ $ --
----------------
----------------
Issuance of options to ContiFinancial..................................................... $ 8,448,000
----------------
----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
IMC Mortgage Company (the 'Company') was formed in 1993 by a team of
executives experienced in the non-conforming home equity loan industry. The
Company was originally structured as a partnership, Industry Mortgage Company,
L.P. (the 'Partnership'), which became a wholly owned subsidiary of the Company
in June 1996 when the limited partners (the 'Partners') and the general partner
exchanged their partnership interests for voting common shares (the 'exchange'
or 'recapitalization') of IMC Mortgage Company. The exchange was consummated on
an historical cost basis as all entities were under common control. Accordingly,
since June 1996, IMC Mortgage Company (the 'Company') has owned 100% of the
limited partnership interests in the Partnership and 100% of the general
partnership interest in the Partnership. At the time of the exchange, the
retained earnings previously reflected by the Partnership were transferred to
additional paid-in capital.
The accompanying consolidated financial statements include the accounts of
the Company, the Partnership and their wholly owned subsidiaries, after giving
effect to the exchange as if it had occurred at inception. All inter-company
transactions have been eliminated in the accompanying consolidated financial
statements.
On January 27, 1997, the Board of Directors declared a two-for-one split of
common stock payable on February 13, 1997 to stockholders of record as of
February 6, 1997. A total of $98,348 was transferred from additional
paid-in-capital to the stated value of common stock in connection with the stock
split. This transaction has been recorded herein in the year ended December 31,
1996. The par value of the common stock remains unchanged. All share and per
share amounts have been restated retroactively herein to reflect the stock split
except with respect to periods presented in the consolidated statements of
stockholders' equity prior to December 31, 1996.
2. NATURE OF BUSINESS
The Company purchases and originates mortgage loans made to borrowers who
may not otherwise qualify for conventional loans for the purpose of
securitization and sale. The Company securitizes these mortgages into the form
of a Real Estate Mortgage Investment Conduit ('REMIC'). A significant portion of
the mortgages are sold on a servicing retained basis.
3. DESCRIPTION OF PARTNERSHIP AGREEMENT
CAPITAL CONTRIBUTIONS
Each Partner 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
between the amount paid by the Partnership for mortgage loans to Partners who
opted to make additional contributions in loan volume and the value set forth in
a pricing schedule (estimated fair value) delivered to the Partners at the time
of purchase.
PURCHASES FROM PARTNERS
As of December 31, 1996, a majority of the Partners were required to sell
to the Company on prevailing market terms and conditions, an aggregate of $162.0
million of home equity loans per year. As a result of the Company's acquisition
of two of the Partners (Mortgage America and Equity Mortgage -- see Note 16)
effective January 1, 1997, the contractual annual sales commitment of the
F-7
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Partners was reduced by $36.0 million to $126.0 million. Loans purchased from
Partners during 1994, 1995 and 1996 approximated $115,976,000, $148,420,000 and
$337,505,000, respectively.
INCOME TAXES
All the tax effects of the Partnership's income or loss were passed through
to the partners individually, therefore, no Federal income taxes were payable by
the Partnership. State and Federal income taxes related to the Partnership's
corporate subsidiaries were not material.
Under the terms of the partnership agreement, the Company was 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 with
respect to their partnership interests. Distributions to partners for income
taxes were $721,250, $6,821,174 and $9,842,583 for the years ended December 31,
1994, 1995 and 1996, respectively. Distributions include cash paid to partners
as well as distributions accrued but not yet paid. The amount payable to
partners for taxes (including interest) at December 31, 1995 and 1996 was
$1,306,645 and $0, respectively.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 $5,133,718 and $13,289,128 at December 31, 1995 and 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 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 amount
of senior classes of REMICs outstanding at December 31, 1995 and 1996 was
$418,251,000 and $1,133,644,000, respectively. During 1995, the Company
securitized $380 million of loans through three REMICs and, during 1996, the
Company securitized $935 million of loans through four REMICs.
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 range
from 11% to 11.5%, and the assumed loss rate is 50 basis points per year.
In 1994, the Company adopted Statement of Financial Accounting Standards
(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 `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.
F-8
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
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 MORTGAGE SERVICING RIGHTS
Effective January 1, 1996, the Company adopted SFAS No. 122 'Accounting for
Mortgage Servicing Rights' ('SFAS 122'), superseded in June 1996 by SFAS No. 125
'Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities' ('SFAS 125'), which is effective in January 1997. The SFAS's
require that upon sale or securitization of 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. Under SFAS 122, the Company
capitalized and amortized approximately $7,818,000 and $1,197,000, respectively,
of capitalized mortgage servicing rights, resulting in additional operating
income of approximately $6,621,000 for the year ended December 31, 1996. The
effect on unaudited pro forma net income and pro forma net income per common
share for the year ended December 31, 1996 was an increase of $4,050,000 and
$0.21, respectively.
Prior to the adoption of SFAS 122, servicing rights acquired through loan
origination activities were recorded in the period the loans were serviced.
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 more 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. The carrying amount of
capitalized mortgage servicing rights is deemed to be a reasonable estimate of
their fair value.
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 fixed rate
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 market value. The unrealized gain or loss on these
instruments is deferred and recognized upon securitization as an adjustment to
the carrying value of the hedged mortgage loans. The cost to carry securities
purchased under agreements to resell 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.
F-9
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
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 aggregate cost
or market. The 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. The allowance for loan losses at December 31, 1995 and 1996
was $0 and $1,100,000, respectively.
REVENUE RECOGNITION
Gains on the sale of mortgage loans representing the difference between the
sales price and the net carrying amount (which includes any hedging gains and
losses) 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 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, included in
other revenues in the statement of operations, is recognized on the interest
method as earned and deemed collectible. Other income consists primarily of
interest on interest-only and residual certificates and earnings on deposits.
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 fees are
generally earned at a rate of approximately 1/2 of 1%, on an annualized basis,
of the unamortized loan balance being serviced. Servicing fee income is
recognized as collected.
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 by acquisition through December 31, 1996. Such excess of cost
over fair value of net tangible assets acquired in 1996 is being amortized on a
straight-line basis over twenty-five years. Amortization expense was $71,404 for
the year ended December 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS
125, which is effective for transactions that occur after December 31, 1996, and
will be applied prospectively. SFAS
F-10
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
125 requires the Company to allocate the total cost of mortgage loans sold among
the mortgage loans sold, interest-only and residual certificates and servicing
rights based on their relative values. The Company will apply the new rules
prospectively beginning in the first quarter of 1997. The actual effect of
implementing this new statement on the Company's financial condition and results
of operations will depend on various factors determined at the end of a
reporting period, including the amount of originated and purchased production,
the level of interest rates and market estimates of future prepayment and loss
rates. Accordingly, the Company can not determine at this time the ultimate
impact on its future earnings of applying the provision of SFAS 125, but does
not expect the results under SFAS 125 to differ materially from results which
would have emerged under SFAS 122.
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 1994 and 1995 financial statements have been
reclassified to conform with the 1996 classifications.
UNAUDITED 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 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 June 24, 1996, the
effective date of the exchange. The unaudited 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 periods.
The following unaudited pro forma information reflects the income tax
expense that the Company would have incurred if it had been subject to Federal
and state income taxes for the entire year ended December 31, 1995 and 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Pro forma current:
Federal.............................................................. $ 3,904,000 $ 8,910,000
State................................................................ 649,000 1,894,000
----------- -----------
4,553,000 10,804,000
----------- -----------
Pro forma deferred:
Federal.............................................................. (1,843,000) 318,000
State................................................................ (188,000) 68,000
----------- -----------
(2,031,000) 386,000
----------- -----------
Pro forma provision for income taxes...................................... $ 2,522,000 $11,190,000
----------- -----------
----------- -----------
</TABLE>
F-11
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
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 Company would have incurred had the
Partnership been subject to federal and state income taxes.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1995 1996
---------- -----------
<S> <C> <C>
Income tax at federal statutory rate....................................... $2,272,000 $10,192,000
State taxes, net of federal benefit........................................ 232,000 1,310,000
Nondeductible expenses..................................................... 18,000 36,000
Other, net................................................................. -- (348,000)
---------- -----------
Pro forma provision for income taxes....................................... $2,522,000 $11,190,000
---------- -----------
---------- -----------
</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 public offering
price of $9 per share during the twelve months immediately preceding the 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.
Weighted average number of shares outstanding is comprised of the following
for the years ended December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Weighted average number of common shares outstanding........................ 12,000,000 15,981,520
Additional shares deemed to be outstanding:
Cheap stock............................................................ 3,871,504 3,169,090
Employee stock options................................................. -- 14,694
---------- ----------
Weighted average number of common shares and common share equivalents....... 15,871,504 19,165,304
---------- ----------
---------- ----------
</TABLE>
5. STRATEGIC ALLIANCE
The Company relied on ContiFinancial Corporation and its subsidiaries and
affiliates ('ContiFinancial') to provide the original credit facility for
funding its loan purchases and originations as well as their expertise and
assistance in loan securitization. In 1994, 1995 and 1996, the securitizations
were structured so that ContiFinancial received, in exchange for cash of
$2,109,011, $18,424,827 and $8,632,647, respectively, interest-only and residual
certificates with estimated values of $3,035,000, $25,054,000 and $13,444,000,
respectively. In addition, ContiFinancial paid $365,852, $1,082,136 and $653,709
in expenses related to securitizations in 1994, 1995 and 1996, respectively. 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
$4,157,644 in 1994, 1995 and 1996, respectively, and has been recorded as
additional securitization transaction expense.
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,
F-12
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
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 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 (sharing of proportionate value of equity) to reflect the contingent
fee payable of $1,689,000 at December 31, 1994 with a corresponding charge in
the statement of operations.
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 independent 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 was 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. On June 24, 1996, the effective date of the
exchange described in Note 1, the option was converted into a warrant
exercisable for a de minimus amount for 3,000,000 shares of the Company's common
stock. The warrant contains normal anti-dilution provisions. ContiFinancial has
certain rights to join in registration of additional shares of 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 reclassified 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 year
ended December 31, 1996, representing the excess of the estimated fair value of
the option at the date of grant over the amount accrued at December 31, 1995
pursuant to the 1995 Agreement.
6. 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 initial purchase price ($2,006,000) for
certain assets of MCC was paid by delivery to MCC of Series A voting,
convertible preferred stock of the Company, with contingency payments (capped at
$2,550,000) over
F-13
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
two years based on performance. The preferred stock had 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 was
converted into 239,666 shares of the Company's common stock upon closing of the
Company's initial public offering in June 1996.
The acquisition was 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. Additional purchase price consideration of approximately $185,000 was
recorded as goodwill in 1996 related to the contingent payment terms of the
acquisition. Any additional consideration will also be accounted for as
goodwill.
The operating results of MCC 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 approximated $24,193,000 for the year ended December 31,
1995. Consolidated income would not have been materially different from the
reported amount for the year ended December 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.
7. 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 original investment in the joint venture represents the
acquisition of 675,000 shares of the joint venture stock for $1,031,737 and a
note receivable from the joint venture for $1,031,737. Additionally, at December
31, 1996, the Company had loaned to the joint venture $527,536. The note and
loan bear 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. The loan is due upon demand. To the
extent not previously repaid, all principal is due December 31, 2040. The
investment in the joint venture is accounted for under the equity method and
through December 31, 1996 was not material in relation to the financial position
or results of operations of the Company.
8. COLLATERALIZED OBLIGATIONS
WAREHOUSE FINANCE FACILITIES
The Company has a $400 million uncommitted warehouse facility with Bear
Stearns Home Equity Trust 1996-1 which also provides additional warehouse
financing on an as offered basis and, which may result in amounts borrowed to be
in excess of $400.0 million. This facility bears interest at LIBOR plus 0.875%
and expires in March 1997. Approximately $441.0 million was outstanding under
this facility at December 31, 1996. In February 1997, the warehouse facility was
increased to $500 million.
Additionally, the Company had approximately $580.6 million available under
numerous other warehouse lines of credit, of which approximately $454.1 million
was outstanding at December 31, 1996 ($113.2 million was through
ContiFinancial). Interest rates ranged from 6.5% to 7.2% as of December 31, 1996
and all borrowings mature within one year. Outstanding borrowings on the
Company's warehouse financing facilities are collateralized by mortgage loans
held for sale and warehouse financing due from correspondents at December 31,
1996 and servicing rights on approximately $250 million of
F-14
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
mortgage loans. Upon the sale of these loans and the repayment of warehouse
financing due from correspondents, the borrowings under these lines will be
repaid.
TERM DEBT
The Company has available a line of credit under a term debt with
ContiFinancial for $15,000,000, the entire amount of which was outstanding at
December 31, 1996. Outstanding borrowings bear interest based on LIBOR plus
1.70% (which was 7.3% at December 31, 1996) and are collateralized by the
Company's interest in certain interest-only and residual certificates. This
agreement terminates in January 2000.
The Company also has available a $20,000,000 credit facility which matures
in August 1999 and bears interest at 2.75% per annum in excess of LIBOR. At
December 31, 1996, $11,299,291 was outstanding under this credit facility and is
collateralized by the Company's interest in a residual certificate. In January
1997, the Company borrowed an additional $6,218,183 under this facility.
In 1996, Bear, Stearns & Co. Inc. and its affiliates, Bear Stearns Mortgage
Capital Corporation and Bear, Stearns International Limited, agreed to provide
the Company with a $30 million credit facility which extends through October
1997 and is collateralized by certain interest-only and residual certificates
owned by the Company. At December 31, 1996, $14,127,595 was outstanding under
this credit facility, which bears interest at 1.75% per annum in excess of
LIBOR. In January 1997, the Company borrowed an additional $15,250,000 under
this facility.
At December 31, 1996, the Company had borrowed $7,003,409 under agreements
which mature through August 1998, bearing interest at rates ranging from 1.25%
to 2.00% per annum in excess of LIBOR which were collateralized by certain
interest-only and residual certificates.
The Company also has available a $7 million credit facility which matures
July 31, 1999 and bears interest at 10% per annum from an affiliate of a
stockholder. At December 31, 1996, no amounts were outstanding under this credit
facility. In February 1997, the Company borrowed approximately $6,800,000 under
the facility.
In December 1996, the Company executed an agreement with the Bank of Boston
whereby Bank of Boston provides a $25 million one year revolving credit facility
subject to the following sublimits and terms: (i) $5 million warehouse line of
credit due June 30, 1998, (ii) $25 million to finance interest-only and residual
certificates, to be repaid according to a repayment schedule calculated by Bank
of Boston with a maximum amortization period after the revolving period of three
years; and (iii) $20 million for acquisition or bridge financing due within six
months from the initial borrowing date of each takedown of the bridge financing,
but in no event later than June 30, 1998. No amounts were outstanding under this
credit facility at December 31, 1996.
The warehouse notes and term debt have requirements that the Company
maintain certain debt to equity ratios and certain agreements restrict the
Company's ability to pay dividends on common stock. Capital expenditures are
limited by certain agreements. Management believes the Company is in compliance
with all such covenants of these agreements.
F-15
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
9. OTHER ASSETS
Other assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Prepaid expenses.................................................... $214,206 $ 912,708
Real estate owned................................................... 141,840 460,280
Organization costs, net............................................. 54,014 33,148
Other assets........................................................ 88,602 682,016
Net deferred tax asset.............................................. -- 2,721,000
-------- ----------
$498,662 $4,809,152
-------- ----------
-------- ----------
</TABLE>
10. SERVICING PORTFOLIO
The total servicing portfolio of loans was approximately $92 million, $536
million and $2.15 billion at December 31, 1994, 1995 and 1996, respectively.
11. FINANCIAL INSTRUMENTS AND OFF BALANCE SHEET ACTIVITIES
FINANCIAL INSTRUMENTS
SFAS No. 105 'Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risks and Financial Instruments with Concentrations of Credit
Risk' and SFAS No. 119, 'Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments' require 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 and $1,571,000
at December 31, 1995 and 1996, respectively.
MARKET RISK
The Company is subject to market risk from financial instruments, including
short sales of treasury securities, 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 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.
F-16
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
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 is 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 $196,577,000 and $931,635,200 at December
31, 1995 and 1996, respectively.
Interest-only and residual certificates: The fair value is 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.
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 the 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 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, 1995 and 1996, the Company had outstanding commitments
to extend credit at fixed rates or purchase loans in the amounts of $92,397,000
and $121,000,000 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.
F-17
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
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,
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,
1995 and 1996, the majority of mortgage loans with on balance sheet and off
balance sheet risks were collateralized by properties located in the
mid-atlantic region of the United States.
WAREHOUSE EXPOSURE
The Company makes available to certain correspondents warehouse financing
which bear interest at rates ranging from 1.75% to 2.50% per annum in excess of
LIBOR. As of December 31, 1996 the Company had $23,000,000 of committed
warehousing available to these correspondents, of which $5,045,385 was
outstanding, including $3,514,800 due from a stockholder. There was $53,200
outstanding as of December 31, 1995 under warehouse facilities due from
correspondents. Interest income on these warehouse financing facilities was
$23,299 and $190,506 for 1995 and, 1996, respectively. The warehouse commitments
are for terms of less than one year. Mortgage loans originated by the
correspondents remain in the warehouse for a period of 30 days at which point
the mortgage loans are either purchased by the Company or sold to another
investor.
12. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment at December 31 consists of the following:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Computer systems.................................................... $523,150 $1,089,375
Office equipment.................................................... 174,107 589,041
Furniture........................................................... 196,283 484,956
Leasehold improvements.............................................. 11,068 28,655
Other............................................................... 3,487 3,487
-------- ----------
Total..................................................... 908,095 2,195,514
Less accumulated depreciation....................................... (228,145) (518,692)
-------- ----------
Furniture, fixtures and equipment, net.............................. $679,950 $1,676,822
-------- ----------
-------- ----------
</TABLE>
Depreciation expense was $76,662, $142,932 and $316,785 for 1994, 1995 and
1996, respectively.
13. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PLAN
The Company 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 $277,372 for 1995
and 1996, respectively.
F-18
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
KEY EMPLOYEE AND ADVISOR OPTIONS
On December 11, 1995, the Partnership adopted the Partnership Option Plan
pursuant to which the Partnership 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
Partnership. In April 1996, the Company adopted the Company Incentive Plan and
the Directors Stock Option Plan. All options granted under the Partnership
Option Plan were assumed by the Company pursuant to the Company Incentive Plan
and the Directors Stock Option Plan. The aggregate equity interest in the
Company available under the Company Incentive Plan and the Director Stock Option
Plan is not to exceed 12% of all equity interests in the Company as of the date
the plan was adopted.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. SFAS No. 123 'Accounting for
Stock-Based Compensation' ('SFAS 123') was issued by the FASB in 1995 and, if
fully adopted, changes the method for recognition of cost on plans similar to
those of the Company. The Company has adopted the disclosure alternative
established by SFAS 123. Therefore pro forma disclosures as if the Company
adopted the cost recognition requirements under SFAS 123 are presented below.
The Company's stock option plans provide primarily for the granting of
nonqualified stock options to certain key employees, non-employee directors and
non-employee advisors. Generally, options outstanding under the Company's stock
option plans: (1) are granted at prices which are equal to the market value of
the stock on the date of grant, (2) vest at various rates over a three or five
year period and (3) expire ten years subsequent to award.
A summary of the status of the Company's stock options as of December 31,
1995 and 1996 and the changes during the year is presented below:
<TABLE>
<CAPTION>
1995 1996
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.................................. 0 1,150,866 $ 2.35
Granted........................................................... 1,150,866 $ 2.35 360,302 $10.00
Exercised......................................................... 0 0
Canceled.......................................................... 0 0
--------- ---------
Outstanding at end of year........................................ 1,150,866 $ 2.35 1,511,168 $ 4.18
--------- ---------
--------- ---------
Options exercisable at end of year................................ 690,520 1,010,456
--------- ---------
--------- ---------
Options available for future grant................................ 894,588 534,286
--------- ---------
--------- ---------
Weighted average fair value of options granted during year........ $ 1.10 $ 5.75
--------- ---------
--------- ---------
</TABLE>
The fair value of each option granted during 1996 is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions: (1) dividend yield of zero, (2) expected volatility of 53%, (3)
risk-free interest rate of 5.68% and (4) expected life of 4 years.
F-19
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------ OPTIONS EXERCISABLE
WEIGHTED --------------------------
NUMBER AVERAGE WEIGHED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
1996 LIFE PRICE 1996 PRICE
--------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
Range of exercise prices
$2.35...................................... 1,150,866 9.0 $ 2.35 920,692 $ 2.35
$8.00...................................... 310,302 9.5 $ 8.00 87,092 $ 8.00
$12.00 to $16.00........................... 50,000 9.7 $12.80 2,672 $12.00
--------------- --------------
Total................................. 1,511,168 9.1 $ 4.18 1,010,456 $ 2.86
--------------- --------------
--------------- --------------
</TABLE>
Had compensation cost for the Company's 1995 and 1996 grants for
stock-based compensation plans been determined consistent with SFAS 123, the
Company's pro forma net income and pro forma net income per common share for
1995 and 1996 would approximate the pro forma amounts below.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------------ ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Pro forma net income....................................... $ 4.0 $ 3.6 $17.9 $17.3
Pro forma net income per common share...................... $0.25 $0.23 $0.94 $0.90
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. There were no awards prior to 1995 and additional
awards in future years are anticipated.
14. COMMITMENTS
INDUSTRY PARTNERS INCENTIVE PLAN
In 1996, the Company created an incentive plan (the 'Industry Partners
Incentive Plan') to encourage partners to sell more mortgage loans to the
Company than required under their commitments. Partners that double their
original commitments to the Company are eligible to receive on a pro rata basis
shares of common stock equal to $150,000 divided by the market price of the
common stock at the end of each quarter. The shares of common stock
(representing $150,000) will be issued among those partners that doubled their
commitments, pro rata, to the extent the partner exceeded its doubled commitment
for the quarter. The Industry Partners Incentive Plan continues through the
quarter ending June 30, 2000.
OPERATING LEASES
The Company leases office space in various cities under operating lease
agreements. The lease agreements have lease terms ranging from 6 to 36 months.
Future minimum lease payments under noncancellable lease agreements at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING
YEARS ENDING DECEMBER 31, LEASES
- -------------------------------------------------------------------------------- ----------
<S> <C>
1997............................................................................ 931,715
1998............................................................................ 748,739
1999............................................................................ 369,530
----------
$2,049,984
----------
----------
</TABLE>
F-20
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Rent expense under operating leases was $210,063, $362,946 and $753,197 in
1994, 1995 and 1996.
EMPLOYMENT AGREEMENTS
Certain members of management entered into employment agreements expiring
through 2001 which, among other things, provide for aggregate annual
compensation of approximately $1,175,000 plus bonuses ranging from 5% 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.
15. INCOME TAXES
The Partnership which is included in the consolidated financial statements
became a wholly owned subsidiary of the Company after the plan of 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 June
24, 1996, the effective date of the exchange and began accounting for the effect
of income taxes under SFAS No. 109, 'Accounting for Income Taxes,' on that date.
Taxable income for 1996 is calculated on the days method whereby the previous
partners are responsible for the tax liability generated through June 24, 1996.
The components of the provision for income taxes allocable to the Company
consist of the following:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Current income tax expense:
Federal.............................................................................. $5,713,000
State................................................................................ 1,214,000
----------
6,927,000
----------
Deferred income tax expense:
Federal.............................................................................. 725,000
State................................................................................ 154,000
----------
879,000
----------
Non-recurring benefit associated with the conversion of Partnership to C Corporation...... (3,600,000)
----------
Total provision for income taxes.......................................................... $4,206,000
----------
----------
</TABLE>
Total provision for income taxes differs from the amount which would be
provided by applying the statutory federal income tax rate to income before
income taxes as indicated below:
<TABLE>
<CAPTION>
Income tax at federal statutory rate.................................................... $ 10,192,000
<S> <C>
State income taxes, net of federal benefit.............................................. 1,310,000
Non-recurring benefit associated with the conversion of the Partnership to a C
Corporation........................................................................... (3,600,000)
Nondeductible items..................................................................... 36,000
Other, net.............................................................................. (348,000)
Effect of applying statutory federal and state income tax rates to partnership income... (3,384,000)
------------
Total provision for income taxes................................................... $ 4,206,000
------------
------------
</TABLE>
F-21
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
The effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
Deferred tax assets:
<S> <C>
Stock warrants....................................................................... $ 3,003,000
Allowance for loan losses............................................................ 435,000
Interest-only and residual certificates.............................................. 531,000
REMIC income......................................................................... 322,000
Loss on joint venture................................................................ 320,000
Amortization of mortgage servicing rights............................................ 204,000
Other................................................................................ 246,000
Deferred tax liabilities:
Securitization income................................................................ (1,228,000)
Mortgage servicing rights............................................................ (934,000)
Other................................................................................ (178,000)
-----------
Net deferred tax asset............................................................... $ 2,721,000
-----------
-----------
</TABLE>
16. SUBSEQUENT EVENTS
ACQUISITION OF AMERICAN MORTGAGE
Effective February 1, 1997, the Company acquired all of the assets of
American Mortgage Reduction, Inc. (`American Reduction'), a non-conforming
mortgage lender based in Owings Mills, Maryland. The purchase price for all of
the assets of American Reduction was an initial payment of approximately
$9,150,000 and a contingent payment based on the average after-tax earnings of
American Reduction for the two year period ending December 31, 1999.
ACQUISITION OF EQUITY MORTGAGE
Effective January 1, 1997, the Company acquired all of the assets of Equity
Mortgage Co., Inc. ('Equity Mortgage'), a non-conforming mortgage lender based
in Baltimore, Maryland, for a cash payment of $150,000 in excess of the net
assets of Equity Mortgage.
ACQUISITION OF MORTGAGE AMERICA
Effective January 1, 1997, the Company acquired all of the assets of
Mortgage America, Inc. ('Mortgage America'), a non-conforming mortgage lender
based in Bay City, Michigan. The purchase price for all of the assets of
Mortgage America was an initial payment of 1,790,000 shares of common stock of
the Company and assumption of a stock option plan which could result in issuance
of an additional 334,596 shares of IMC stock and a contingent payment of up to
2,770,000 additional shares of the Company's common stock at the end of three
years based on the future growth and profitability of Mortgage America. The
acquisition has been accounted for by the purchase method of accounting.
ACQUISITION OF COREWEST
Effective January 1, 1997, the Company acquired all of the outstanding
common stock of CoreWest Banc ('CoreWest'), a non-conforming mortgage lender
based in Los Angeles, California. The purchase price for all of the outstanding
common stock of CoreWest was an initial payment of 488,404 shares of common
stock of the Company and a contingent payment of additional shares of the
Company's common stock at the end of a two year period based on the future
profitability of CoreWest. The acquisition has been accounted for by the
purchase method of accounting.
F-22
<PAGE>
<PAGE>
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
RECENT SECURITIZATION
In January 1997, the Company completed a securitization in the amount of
$325 million, its ninth securitization. The securities sold in the
securitization were rated AAA/Aaa and were sold in a public offering.
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following unaudited quarterly results of operations are presented in
thousands, except earnings per share amounts.
<TABLE>
<CAPTION>
FISCAL QUARTER
----------------------------------------
1996 FIRST SECOND THIRD FOURTH
- ---------------------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues.............................................................. $11,456 $14,285 $19,766 $20,147
Pro forma net income (actual for third and fourth quarters)........... $ 1,625 $ 3,653 $ 6,052 $ 6,599
Pro forma earnings per share (actual for third and fourth quarters)... $ 0.10 $ 0.22 $ 0.26 $ 0.28
1995
Revenues.............................................................. $ 3,432 $ 3,752 $ 6,226 $ 6,263
Pro forma net income.................................................. $ 690 $ 650 $ 1,458 $ 1,234
Pro forma earnings per share.......................................... $ 0.04 $ 0.04 $ 0.09 $ 0.08
</TABLE>
F-23
<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................................... 10
Use of Proceeds................................ 19
Price Range of Common Stock and Dividend
Policy....................................... 20
Capitalization................................. 21
Selected Consolidated Financial Data........... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 24
Business....................................... 35
Management..................................... 57
Principal and Selling Stockholders............. 64
Certain Relationships and Related
Transactions................................. 66
Certain Accounting Considerations Relating to
the Conti VSA................................ 69
Description of Capital Stock................... 72
Shares Eligible For Future Sale................ 74
Underwriting................................... 76
Legal Matters.................................. 77
Experts........................................ 77
Additional Information......................... 78
Index to Consolidated Financial Statements..... F-1
</TABLE>
__________________________________ __________________________________
__________________________________ __________________________________
7,000,000 SHARES
IMC MORTGAGE
COMPANY
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
NATWEST SECURITIES LIMITED
OPPENHEIMER & CO., INC.
, 1997
__________________________________ __________________________________
<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>
<CAPTION>
<S> <C>
Registration Fee -- Securities and Exchange Commission (actual).......... $45,739
Nasdaq National Market Listing Fee (actual).............................. 17,500
NASD Filing Fee (actual)................................................. 15,594
Blue Sky fees and expenses...............................................
Accountants' fees and expenses...........................................
Legal fees and expenses..................................................
Printing and engraving expenses..........................................
Transfer agent and registrar fees........................................
Miscellaneous............................................................
-------
Total............................................................... $
-------
-------
</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
imprfit. 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 $5.0
million.
II-1
<PAGE>
<PAGE>
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 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.
The Company has employment agreements with certain of its executive
officers which require the Company to indemnify such officers under certain
conditions. See 'Management -- Employment Agreements' in the Prospectus forming
a part of this Registration Statement.
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 had 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 price to the public in the
Company's initial public offering. The Company paid all amounts due under the
Rotch Debenture from the proceeds of the Company's initial public offering in
June 1996. 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 became a warrant for 3.0 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, 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 and management 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.
In January 1997, the Company acquired all of the assets of Mortgage
America, a non-conforming lender based in Bay City, Michigan. The purchase price
for all of the assets of Mortgage America included the issuance of 1,790,000
shares of Common Stock to fewer than 10 persons, each of which acquired such
shares for investment purposes. The issuance of the Common Stock was exempt from
registration under the Securities Act by virtue of Section 4(2) thereof.
In January 1997, the Company acquired all of the assets of CoreWest, a
non-conforming lender based in Los Angeles, California. The purchase price for
all the common stock of CoreWest included the issuance of 488,404 shares of
Common Stock to fewer than 10 persons, each of which acquired such shares for
investment purposes. 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>
<S> <C>
1.1 -- Form of Underwriting Agreement.[DEL]
2.1 -- Pre-IPO Agreement between the Partnership, the General Partners and each Limited Partner.*
3.1 -- Articles of Incorporation of the Registrant, as amended.*
3.2 -- Bylaws of the Registrant, as amended.*
4.1 -- Specimen of Certificate for Common Stock.*
4.2 -- Indenture Agreement between the Partnership and Rotch Property Group Limited.*
4.3 -- Substitution Agreement between the Partnership and ContiTrade Services Corporation.*
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<S> <C>
4.4 -- Incentive Plan of the Company and related assumption agreements.*
4.5 -- Outside Directors' Option Plan of the Company and related assumption agreements.*
4.6 -- Form of Common Stock Warrant issued to ContiTrade Services Corporation.*
5.1 -- Opinion of Kramer, Levin, Naftalis & Frankel.[DEL]
10.1 -- Employment Agreement dated January 1, 1996 between the Partnership and George Nicholas, as amended.*
10.2 -- Employment Agreement dated January 1, 1996 between the Partnership and Thomas G. Middleton, as amended.*
10.3 -- Employment Agreement dated January 1, 1996 between the Partnership and David MacDonald.*
10.4 -- Lease Agreements between the Partnership and CLW Realty Asset Group Inc.*
10.5 -- Share Subscription and Shareholders' Agreement between the Partnership and Foxgard Limited, Financial
Security Assurance Holdings, Inc. and Preferred Mortgages Limited.*
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.*
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.*
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.*
10.9 -- Registration Rights Agreement between the Partnership and the shareholders of Mortgage Central Corp.*
10.10 -- Investment Banking Services Agreement between the Partnership and ContiTrade Services Corporation.*
10.11 -- Standby Facility Agreement between the Partnership and ContiTrade Services Corporation and Supplement
thereto.*
10.12 -- Amended and Restated Loan and Security Agreement between the Partnership and ContiTrade Services
Corporation.*
10.13 -- Secured Note from the Partnership to ContiTrade Services Corporation.*
10.14 -- Amended and Restated Custodial Agreement among the Partnership, ContiTrade Services Corporation and Bank
of Boston.*
10.15 -- 1995 Agreement between the Partnership and ContiTrade Services Corporation.*
10.16 -- Assignment, Assumption and Consent Agreement among the Partnership, ContiTrade, ContiTrade Services LLC
and First National Bank of Boston.*
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.*
10.18 -- Master Repurchase Agreement between the Partnership and Nomura Securities International, Inc.*
10.19 -- Global Master Repurchase Agreement between the Partnership and Nomura Grand Cayman, Ltd.*
10.20 -- Custodial Agreement among the Partnership, The First National Bank of Boston and Nomura Asset Capital
Corporation.*
10.21 -- Loan and Security Agreement between the Partnership and First National Bank of Boston and amendments
thereto.*
10.22 -- Interim Loan and Security Agreement between the Partnership and National Westminster Bank PLC, New York
Branch.*
10.23 -- Custodial Agreement among the Partnership, National Westminster Bank PLC and First National Bank of
Boston.*
10.24 -- Promissory Note between the Partnership and Lakeview Savings Bank.*
10.25 -- Security Agreement Collateralizing Promissory Note between the Partnership and Lakeview Savings Bank.*
10.26 -- Master Repurchase Agreement among the Partnership and Bear Stearns Home Equity Trust 1996-1.*
10.27 -- Custody Agreement among the Partnership, IMC Corporation of America, Bear Stearns Home Equity Trust 1996-1
and Bank of Boston.*
10.28 -- Warehousing Credit and Security Agreement among the Partnership, IMC Corporation of America and
Residential Funding Corporation, as amended.`D'*
</TABLE>
II-3
<PAGE>
<PAGE>
<TABLE>
<S> <C>
10.29 -- Custodial Agreement among the First National Bank of Boston, the Partnership, IMC Corporation of America
and Residential Funding Corporation.*
10.30 -- Loan and Security Agreement between the Partnership and Approved Financial Corp., Approved Residential
Mortgage, Inc. and Armada Residential Mortgage, LLC.*
10.31 -- Loan and Security Agreement between the Partnership and Mortgage Central Corp.*
10.32 -- Custodial Agreement among the Partnership, Mortgage Central Corp. and the First National Bank of Boston.*
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.*
10.34 -- Employment Agreement dated August 1, 1996 between the Registrant and Stuart D. Marvin.**
10.35 -- Asset Purchase Agreement and Plan of Reorganization between the Registrant, Mortgage America, Inc. and the
shareholders of Mortgage America, Inc.***
10.36 -- First Amendment to the Asset Purchase Agreement and Plan of Reorganization between the Registrant,
Mortgage America, Inc. and the shareholders of Mortgage America, Inc.***
10.37 -- Form of Registration Rights Agreement between the Registrant and the Shareholders of Mortgage America,
Inc.***
10.38 -- Agreement and Plan of Reorganization between the Registrant, CWB Acquisitions, Inc., CoreWest Banc and the
shareholders of CoreWest Banc.***
10.39 -- Registration Rights Agreement between the Registrant and the shareholders of CoreWest Banc.***
10.40 -- Form of Amended and Restated Loan Agreement between the Registrant, the Partnership, IMC Corporation of
America and Nomura Asset Capital Corporation.***
10.41 -- Form of Custodial Agreement between the Registrant, the Partnership, IMC Corporation of America, Nomura
Asset Capital Corporation and LaSalle National Bank.***
10.42 -- Form of Loan and Security Agreement among the Registrant, the Partnership and The First National Bank of
Boston.***
10.43 -- Form of Asset Purchase Agreement between the Registrant, American Mortgage Reduction, Inc., and the
Shareholders of American Mortgage Reduction, Inc.***
10.44 -- Form of Asset Purchase Agreement between the Registrant and Equity Mortgage Co., Inc.***
10.45 -- Employment Agreement dated as of January 1, 1997 between the Registrant and Mark J. Greenberg.***
10.46 -- Form of Warehouse Security Agreement among the Registrant, the Partnership and GE Capital Mortgage
Services, Inc.***
10.47 -- Form of Warehouse Credit Agreement among the Registrant, the Partnership and GE Capital Mortgage Services,
Inc.***
11.1 -- Statement re computation of earnings per share (See Note 4 of the Notes to the Consolidated Financial
Statements).
16.1 -- Letter dated April, 1996 from Deloitte & Touche, LLP to the Registrant.*
21.1 -- Subsidiaries of the Registrant.*
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Kramer, Levin, Naftalis & Frankel (contained in Exhibit 5.1).[DEL]
27.1 -- Financial Data Schedule.
99.1 -- Third Amended and Restated Agreement of Limited Partnership.*
</TABLE>
- ------------
[DEL] To be filed by amendment.
`D' Confidential treatment granted with respect to certain provisions.
* Incorporated by reference to the same exhibit to the Registrant's
Registration Statement on Form S-1 declared effective by the Securities and
Exchange Commission on June 25, 1996 (Registration No. 333-3954).
** Incorporated by reference to Exhibit 1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.
*** Previously filed with this Registration Statement.
------------------------
(b) Financial Statement Schedules
None
II-4
<PAGE>
<PAGE>
ITEM 17. UNDERTAKINGS
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 provisions described in Item 14 above, 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 or amendment thereto to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Tampa,
State of Florida, on February 27, 1997.
IMC MORTGAGE COMPANY
By /S/ THOMAS G. MIDDLETON
..................................
THOMAS G. MIDDLETON,
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or amendment thereto has been signed by the following
persons in the capacities indicated on February 27, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ --------------------------------------------
<C> <S> <C>
/S/ GEORGE NICHOLAS Chairman of the Board and Chief Executive
......................................... Officer (Principal Executive Officer)
(GEORGE NICHOLAS)
/S/ STUART D. MARVIN Chief Financial Officer (Principal
......................................... Accounting Officer and Principal Financial
(STUART D. MARVIN) Officer)
/S/ JOSEPH P. GORYEB Director
.........................................
(JOSEPH P. GORYEB)
/S/ MITCHELL W. LEGLER Director
.........................................
(MITCHELL W. LEGLER)
/S/ THOMAS G. MIDDLETON Director
.........................................
(THOMAS G. MIDDLETON)
/S/ ALLEN D. WYKLE Director
.........................................
(ALLEN D. WYKLE)
</TABLE>
II-6
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ------- --------------------------------------------------------------------------------------- -------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement[DEL].................................................
2.1 -- Pre IPO Agreement between the Partnership, the General Partners and each Limited
Partner*............................................................................
3.1 -- Articles of Incorporation of the Registrant, as amended*............................
3.2 -- Bylaws of the Registrant, as amended*...............................................
4.1 -- Specimen of Certificate for Common Stock*...........................................
4.2 -- Indenture Agreement between the Partnership and Rotch Property Group Limited*.......
4.3 -- Substitution Agreement between the Partnership and ContiTrade Services
Corporation*........................................................................
4.4 -- Incentive Plan of the Company and related assumption agreements*....................
4.5 -- Outside Directors' Option Plan of the Company and related assumption agreements*....
4.6 -- Form of Common Stock Warrant issued to ContiTrade Services Corporation*.............
5.1 -- Opinion of Kramer, Levin, Naftalis & Frankel[DEL]...................................
10.1 -- Employment Agreement dated January 1, 1996 between the Partnership and George
Nicholas, as amended*...............................................................
10.2 -- Employment Agreement dated January 1, 1996 between the Partnership and Thomas G.
Middleton, as amended*..............................................................
10.3 -- Employment Agreement dated January 1, 1996 between the Partnership and David
MacDonald*..........................................................................
10.4 -- Lease Agreements between the Partnership and CLW Realty Asset Group Inc.*...........
10.5 -- Share Subscription and Shareholders' Agreement between the Partnership and Foxgard
Limited, Financial Security Assurance Holdings, Inc. and Preferred Mortgages
Limited*.............................................................................
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.*....................................
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*.........................................................
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.*..............................................................................
10.9 -- Registration Rights Agreement between the Partnership and the shareholders of
Mortgage Central Corp.*.............................................................
10.10 -- Investment Banking Services Agreement between the Partnership and ContiTrade
Services Corporation*...............................................................
10.11 -- Standby Facility Agreement between the Partnership and ContiTrade Services
Corporation and Supplement thereto*.................................................
10.12 -- Amended and Restated Loan and Security Agreement between the Partnership and
ContiTrade Services Corporation*....................................................
10.13 -- Secured Note from the Partnership to ContiTrade Services Corporation*...............
10.14 -- Amended and Restated Custodial Agreement among the Partnership, ContiTrade Services
Corporation and Bank of Boston*.....................................................
10.15 -- 1995 Agreement between the Partnership and ContiTrade Services Corporation*.........
10.16 -- Assignment, Assumption and Consent Agreement among the Partnership, ContiTrade,
ContiTrade Services LLC and First National Bank of Boston*..........................
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*...........................................................................
10.18 -- Master Repurchase Agreement between the Partnership and Nomura Securities
International, Inc. *...............................................................
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ------- --------------------------------------------------------------------------------------- -------------------
<C> <C> <C>
10.19 -- Global Master Repurchase Agreement between the Partnership and Nomura Grand Cayman,
Ltd*...............................................................................
10.20 -- Custodial Agreement among the Partnership, The First National Bank of Boston and
Nomura Asset Capital Corporation*..................................................
10.21 -- Loan and Security Agreement between the Partnership, First National Bank of Boston
and Nomura Asset Capital Corporation and amendments thereto*.......................
10.22 -- Interim Loan and Security Agreement between the Partnership and National
Westminster Bank PLC, New York Branch*.............................................
10.23 -- Custodial Agreement among the Partnership, National Westminster Bank PLC and First
National Bank of Boston*...........................................................
10.24 -- Promissory Note between the Partnership and Lakeview Savings Bank*.................
10.25 -- Security Agreement Collateralizing Promissory Note between the Partnership and
Lakeview Savings Bank*.............................................................
10.26 -- Master Repurchase Agreement among the Partnership and Bear Stearns Home Equity
Trust 1996-1*......................................................................
10.27 -- Custody Agreement among the Partnership, IMC Corporation of America, Bear Stearns
Home Equity Trust 1996-1 and Bank of Boston*.......................................
10.28 -- Warehousing Credit and Security Agreement among the Partnership, IMC Corporation of
America and Residential Funding Corporation, as amended`D'*........................
10.29 -- Custodial Agreement among the First National Bank of Boston, the Partnership, IMC
Corporation of America and Residential Funding Corporation*........................
10.30 -- Loan and Security Agreement between the Partnership and American Industrial Loan
Association, Approved Residential Mortgage, Inc. and Armada Residential Mortgage,
LLC*...............................................................................
10.31 -- Loan and Security Agreement between the Partnership and Mortgage Central Corp.*....
10.32 -- Custodial Agreement among the Partnership, Moorp. and the First National Bank of
Boston*............................................................................
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*...........................................................
10.34 -- Employment Agreement dated August 1, 1996 between the Registrant and Stuart D.
Marvin.**..........................................................................
10.35 -- Asset Purchase Agreement and Plan of Reorganization between the Registrant,
Mortgage America, Inc. and the Shareholders of Mortgage America, Inc.***...........
10.36 -- First Amendment to the Asset Purchase Agreement and Plan of Reorganization between
the Registrant, Mortgage America, Inc. and the Shareholders of Mortgage America,
Inc.***............................................................................
10.37 -- Form of Registration Rights Agreement between the Registrant and the Shareholders
of Mortgage America, Inc.***.......................................................
10.38 -- Agreement and Plan of Reorganization between the Registrant, CWB Acquisitions,
Inc., CoreWest Banc and the Shareholders of CoreWest Banc***.......................
10.39 -- Registration Rights Agreement between the Registrant and the Shareholders of
CoreWest Banc***...................................................................
10.40 -- Form of Amended and Restated Loan Agreement between the Registrant, the
Partnership, IMC Corporation of America and Nomura Asset Capital
Corporation***.....................................................................
10.41 -- Custodial Agreement between the Registrant, the Partnership, IMC Corporation of
America, Nomura Asset Capital Corporation and LaSalle National Bank***.............
10.42 -- Form of Loan and Security Agreement among the Registrant, the Partnership, and The
First National Bank of Boston***...................................................
10.43 -- Form of Asset Purchase Agreement between the Registrant and American Mortgage
Reduction, Inc. and the Shareholders of American Mortgage Reduction***.............
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ------- --------------------------------------------------------------------------------------- -------------------
<C> <C> <C>
10.44 -- Form of Asset Purchase Agreement between the Registrant and Equity Mortgage Co.,
Inc.***............................................................................
10.45 -- Employment Agreement dated as of January 1, 1997 between the Registrant and Mark J.
Greenberg***.......................................................................
10.46 -- Form of Warehouse Security Agreement among the Registrant, the Partnership and GE
Capital Mortgage Services, Inc.*** ................................................
10.47 -- Form of Warehouse Credit Agreement among the Registrant, the Partnership and GE
Capital Mortgage Services, Inc.*** ................................................
11.1 -- Statement re computation of earnings per share (See Note 4 of the Notes to the
Consolidated Financial Statements) ................................................
16.1 -- Letter dated April, 1996 from Deloitte & Touche, LLP to the Registrant*............
21.1 -- Subsidiaries of the Registrant*....................................................
23.1 -- Consent of Coopers & Lybrand L.L.P.................................................
23.2 -- Consent of Kramer, Levin, Naftalis & Frankel (contained in Exhibit 5.1)[DEL].......
27.1 -- Financial Data Schedule............................................................
99.1 -- Third Amended and Restated Agreement of Limited Partnership*.......................
</TABLE>
- ------------
[DEL] To be filed by amendment.
`D' Confidential treatment granted with respect to certain provisions.
* Incorporated by reference to the same exhibit to the Registrant's
Registration Statement on Form S-1 declared effective by the Securities and
Exchange Commission on June 25, 1996 (Registration No. 333-3954).
** Incorporated by reference to Exhibit 1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.
*** Previously Filed with this Registration Statement.
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as.....'D'
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
333-21823) of our report, which includes an explanatory paragraph with respect
to a change in the Company's method of accounting for mortgage servicing rights,
dated February 21, 1997 on our audit of the consolidated financial statements of
IMC Mortgage Company and Subsidiaries. We also consent to the reference to our
firm under the captions "Summary Consolidated Financial Data," "Selected
Consolidated Financial Data," and "Experts."
COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
February 27, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,133,718
<SECURITIES> 0
<RECEIVABLES> 12,001,070
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,676,822
<DEPRECIATION> 316,785
<TOTAL-ASSETS> 1,707,348,185
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 196,696
0
0
<OTHER-SE> 89,139,886
<TOTAL-LIABILITY-AND-EQUITY> 1,707,348,185
<SALES> 42,071,971
<TOTAL-REVENUES> 65,654,291
<CGS> 0
<TOTAL-COSTS> 4,157,644
<OTHER-EXPENSES> 36,535,347
<LOSS-PROVISION> 1,100,000
<INTEREST-EXPENSE> 24,534,896
<INCOME-PRETAX> 29,118,944
<INCOME-TAX> 4,206,000
<INCOME-CONTINUING> 24,912,944
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,912,944
<EPS-PRIMARY> .94
<EPS-DILUTED> .92
<PAGE>
