UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
Amendment No. 1
to
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ______________________
to_____________________
Commission File Number: 0-13091
-------------------------
IMPAC COMMERCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Maryland 33-0745075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1401 Dove Street, Newport Beach, California
92660 (Address of principal executive
offices)
(949) 475-3600
(Registrant's telephone number, including area code)
-------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------------- -----------------------------------------
Common Stock $0.01 par value American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes[X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K.[ ]
On February 16, 1999, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $48.9 million, based on
the closing sales price of the Common Stock on the American Stock Exchange. For
purposes of the calculation only, in addition to affiliated companies, all
directors and executive officers of the registrant have been deemed affiliates.
The number of shares of Common Stock outstanding as of February 16, 1999, was
8,625,000.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
The following table sets forth certain information concerning the directors
and executive officers of Impac Commercial Holdings, Inc. ("ICH") and Impac
Commercial Capital Corporation ("ICCC"):
<S> <C> <C>
NAME AGE POSITION
---- --- --------
Joseph R. Tomkinson..................... 51 Chairman of the Board and Chief Executive Officer of ICH and ICCC
William S. Ashmore ..................... 49 President and Chief Operating Officer of ICH, Executive Vice
President and Director of ICCC
Richard J. Johnson ..................... 36 Executive Vice President, Chief Financial Officer and
Treasurer of ICH and ICCC and Director of ICCC
William D. Endresen .................... 44 Senior Vice President of ICH and President and Director of ICCC
Mary C. Glass-Schannault ............... 45 Senior Vice President of ICH and Senior Vice President of ICCC
Ronald M. Morrison ..................... 48 General Counsel and Secretary of ICH and ICCC
James Walsh............................. 49 Director
Frank P. Filipps 0 ..................... 51 Director
Stephan R. Peers 0, (S)................. 45 Director
Thomas J. Poletti +, (S)................ 40 Director
Timothy R. Busch +, 0, (S) ............. 44 Director
Key Employees
Lawrence R. Goswiller .................. 45 Senior Vice President of Loan Administration and Chief Credit Officer
Gretchen D. Verdugo .................... 33 Senior Vice President, Chief Accounting Officer
Todd R. Taylor ......................... 33 Vice President, Controller
- --------------------
+........Unaffiliated Director
0........Member of Audit Committee
(S)......Member of Compensation Committee
</TABLE>
Joseph R. Tomkinson has been Chairman of the Board and Chief Executive
Officer of ICH and Chairman of the Board and Chief Executive Officer of ICCC
since their formation. Mr. Tomkinson has been the Vice Chairman of the Board and
Chief Executive Officer of Impac Mortgage Holdings, Inc. ("IMH") (AMEX-IMH) and
Chairman of the Board and Chief Executive Officer of Impac Funding Corporation
("IFC") and Impac Warehouse Lending Group, Inc. ("IWLG") since August 1995. In
April 1998, he became Chairman of the Board of IMH. Mr. Tomkinson served as
President and Chief Operating Officer of Imperial Credit Industries, Inc.
("ICII") from January 1992 to February 1996 and, from 1986 to January 1992, he
was President of Imperial Bank Mortgage, a subsidiary of Imperial Bank, one of
the companies that combined to become ICII in 1992. Mr. Tomkinson has been a
Director of ICII since December 1991 (Nasdaq-ICII). Mr. Tomkinson is also
director of BNC Mortgage, Inc. (Nasdaq-BNCM). Mr. Tomkinson brings 22 years of
combined experience in real estate, real estate financing and mortgage banking
to the Company.
<PAGE>
William S. Ashmore has been President and Chief Operating Officer of ICH
and Executive Vice President and a Director of ICCC since their formation. Mr.
Ashmore has been President and Chief Operating Officer of IMH, Executive Vice
President and a Director of IFC and President and a Director of IWLG since
August 1995. In March 1997, Mr. Ashmore became President of IFC and in July 1997
he became a Director of IMH. From August 1993 to February 1996, he was Executive
Vice President and Director of Secondary Marketing at ICII, having been its
Senior Vice President of Secondary Marketing since January 1988. From 1985 to
1987, he was Chief Executive Officer and Vice Chairman of the Board of Century
National Mortgage Corporation, a wholesale mortgage banking company. Mr. Ashmore
has over 20 years of combined experience in real estate, real estate financing
and mortgage banking.
Richard J. Johnson has been Chief Financial Officer of ICH and ICCC and a
Director of ICCC since their formation (and Secretary until July 1998). In
January 1998, Mr. Johnson became Executive Vice President of ICH after being
Senior Vice President since ICH's formation. Mr. Johnson has been Executive Vice
President since January 1998 (after being Senior Vice President since August
1995), and Chief Financial Officer of IMH and IFC since August 1995, and a
Director of IFC and IWLG since February 1996. He was also Secretary of IMH, IWLG
and IFC until July and August 1998. From September 1992 to March 1995, Mr.
Johnson was Senior Vice President and Chief Financial Officer of ICII. From
November 1989 to September 1992, Mr. Johnson was Vice President and Controller
of ICII. From February 1988 to October 1989, he was Vice President and Chief
Financial Officer of Bayhill Service Corporation, a mortgage banking company,
and Vice President of Capital Savings and Loan, the parent of Bayhill Service
Corporation. Mr. Johnson is a Certified Public Accountant.
William D. Endresen has been Senior Vice President of ICH and President and
Director of ICCC since their formation. From 1995 through February 1997, Mr.
Endresen was the Chairman and a Director of American Capital Resource, Inc., a
commercial mortgage banking company which originated and closed bulk condominium
and multi-family transactions in the Western United States. Mr. Endresen was
President of Butterfield Mortgage Corporation from May 1993 through 1995 and
developed, originated and closed numerous bulk condominium and multi-family
transactions. From 1987 to 1992, Mr. Endresen was Director of Acquisitions and
Project Finance for Monnig Development, Inc., a Southern California based real
estate development company. In July 1995, Mr. Endresen filed a petition for
Chapter 7 bankruptcy in federal court, Santa Ana, California. The bankruptcy was
discharged in November 1995. Mr. Endresen has more than 24 years of combined
experience in real estate, real estate financing and commercial mortgage
banking.
Mary C. Glass-Schannault has been Senior Vice President, Managing Director
of Structured Transactions of ICH and ICCC since their formation. Ms.
Glass-Schannault has been Senior Vice President of IMH and Senior Vice President
and Managing Director of Structured Transactions of IFC and IWLG since September
1995. From April 1995 through November 1995, Ms. Glass-Schannault was the Senior
Vice President Managing Director of Imperial Capital Markets Group, a
division of ICII, and from February 1993 to April 1995, she was Senior Vice
President of ICI Funding Corporation, a division of ICII. From 1991 through
1993, Ms. Glass-Schannault acted as a mortgage banking consultant. From 1990
through 1991 she was an Executive Vice President at PriMerit Mortgage
Corporation.
Ronald M. Morrison became General Counsel of the Company in July 1998. In
July and August 1998, he was also elected Secretary of the Company and ICCC,
respectively. Mr. Morrison has also been General Counsel and Secretary of IMH
since July 1998 and IFC and IWLG since August 1998. From 1978 until joining the
Company, Mr. Morrison was a partner at the law firm of Morrison & Smith.
James Walsh has been a Director of ICH since February 1997 and a Director
of IMH since August 1995. Mr. Walsh is an Executive Vice President of Walsh
Securities, Inc. where he directs mortgage loan production, sales and
securitization. Mr. Walsh was an executive of Donaldson, Lufkin and Jenrette
Securities Corporation from January 1989 through March 1996 where he oversaw
residential mortgage securitization, servicing brokerage and mortgage banking
services. From February 1987 to December 1988, Mr. Walsh was an executive in the
mortgage banking department at Bear Stearns & Company. From December 1985 to
February 1987, Mr. Walsh was a senior banking officer at Carteret Savings Bank.
<PAGE>
Frank P. Filipps has been a Director of ICH since February 1997 and a
Director of IMH since August 1995. Mr. Filipps was elected President of CMAC
Investment Corp. and Chairman, President and Chief Executive Officer of
Commonwealth Mortgage Assurance Company ("CMAC") in January 1995. In May 1995,
Mr. Filipps was elected a director of CMAC Investment Corp. (NYSE-CMT), and in
January 1996, he was elected Chief Executive Officer of CMAC Investment Corp.
Mr. Filipps joined CMAC in 1992 as Senior Vice President and Chief Financial
Officer, where he was responsible for the company's financial, investment and
data processing operations, as well as the legal and human resources functions.
In 1994, Mr. Filipps was promoted to Executive Vice President and Chief
Operating Officer for both CMAC Investment Corp. and CMAC, where his additional
responsibilities included the company's sales, marketing, underwriting and risk
management operations.
Stephan R. Peers has been a Director of ICH since February 1997 and a
Director of IMH since October 1995. From January 1998 to April 1998, Mr. Peers
was an executive at Aames Financial Corporation, a mortgage loan company. Mr.
Peers served as a Managing Director of Resource Bancshares Corporation from
August 1995 to October 1997. From April 1994 to December 1997, Mr. Peers was an
Executive Vice President of International Strategic Finance Corporation, Ltd.,
where he performed corporate finance services for overseas issuers. From April
1989 to April 1993, Mr. Peers was a Vice President in corporate finance at
Montgomery Securities where he specialized in financial services institutions.
Thomas J. Poletti has been a Director of ICH since March 1997. Mr.
Poletti has been with the law firm of Freshman, Marantz, Orlanski, Cooper &
Klein since 1983 and a partner of the firm since 1989. Freshman, Marantz,
Orlanski, Cooper & Klein acts as counsel to the Company and IMH. See "Certain
Transactions."
Timothy R. Busch has been a director of ICH since March 1997. Since October
1985, Mr. Busch has been the President of T. R. Busch Realty Corporation, a
licensed real estate corporation, which was a general partner of European Hotel
Investors, II, a California limited partnership that filed a voluntary petition
pursuant to Chapter 11 of the Bankruptcy Code on February 22, 1994; a
confirmation order was issued on or about December 23, 1994. Since 1985, Mr.
Busch has been President of TRB Management, Inc., a California corporation,
which was the sole general partner of Mercado del Sol Investors Limited
Partners, an Arizona limited partnership. Mercado del Sol Investors Limited
Partnership filed a voluntary petition pursuant to Chapter 11 of the Bankruptcy
Code on August 10, 1993 and converted to a Chapter 7 bankruptcy in 1995. The
assets of the entity were liquidated and the partnership was dissolved. Since
1984, Mr. Busch has been President of The Busch Firm, a professional corporation
law firm. Since 1990, he has been the President of T.R. Busch Realty Corporation
II, d/b/a Busch Financial Services, a licensed Real Estate Corporation and since
1998 he has been chairman and chief executive officer of Pacific Hospitality
Group, a hotel management and development company. Mr. Busch is currently a
director and Chairman of Advanced Materials Group (Nasdaq-ADMG).
Key Employees
Lawrence R. Goswiller has been Senior Vice President of Loan Administration
and Chief Credit Officer of ICCC since its formation. From 1993 to February
1997, Mr. Goswiller was the Manager of the Real Estate Department for Marine
National Bank and from 1987 to 1993, he was self-employed as a real estate
broker arranging construction and permanent financing for developers of
residential and commercial projects. From 1984 to 1987, Mr. Goswiller worked for
Bay Development Corporation, an Orange County, California based commercial real
estate development company.
Gretchen D. Verdugo has been Senior Vice President and Chief Accounting
Officer of ICH since August 1997. From 1996 to August 1997, Ms. Verdugo was a
Senior Manager with KPMG LLP in the Mortgage and Structured Finance Group. From
1993 to 1996, Ms. Verdugo was Treasurer, and in 1996, she became Chief Financial
Officer and Vice President of Finance for Bay Federal Credit Union. From 1991 to
1996, she was also Controller of Santa Cruz Cellular Telephone, Inc. Ms. Verdugo
was a Senior Accountant with KPMG LLP from 1988 to 1991. Ms. Verdugo is a
certified public accountant and received her bachelor's degree from California
State University at Long Beach.
<PAGE>
Todd R. Taylor has been Vice President and Controller of ICCC since March
1998. From 1996 to March 1998, Mr. Taylor was a Senior Accountant for KPMG LLP
specializing in the financial services industry and from 1992 to December 1995,
Mr. Taylor was employed by ICII as an accountant. Mr. Taylor received his
Bachelor of Arts degree in 1996 from California State University at Fullerton.
There are no family relationships between any of the directors or executive
officers of the Company.
All Directors are elected at each annual meeting of the Company's
stockholders for a term of one year, and hold office until their successors are
elected and qualify. Any vacancy on the Board of Directors for any cause other
than an increase in the number of directors may be filled by a majority of the
remaining directors. Replacements for vacancies occurring among the unaffiliated
directors will be elected by a majority vote of the remaining Directors,
including a majority of the unaffiliated directors (the "Unaffiliated
Directors"). The Company pays an annual director's fee of $20,000 to each
Unaffiliated Director plus $1,000 per each meeting attended and reimburses such
Unaffiliated Director's costs and expenses for attending such meetings.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Act of 1934 requires the Company's
Directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of the Common Stock of the Company. Officers, Directors and greater
than ten percent stockholders are required by the Commission's regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during the fiscal year which ended December
31,1998, all Section 16(a) filing requirements applicable to its officers,
Directors and greater than ten percent stockholders were satisfied by such
persons except for the following: William D. Endresen and Thomas J. Poletti each
inadvertently filed late a Form 5 with respect to 10,000 shares underlying
option grants and Timothy R. Busch inadvertently filed late a Form 4 with
respect to the purchase of 6,000 shares of Common Stock.
ITEM 11. EXECUTIVE COMPENSATION
Joseph R. Tomkinson, William S. Ashmore, Richard J. Johnson and Mary C.
Glass-Schannault, who are executive officers of ICH are also officers of IMH and
IFC and are officers of RAI Advisors, LLC ("RAI"), the Manager. See Item 13.
"Certain Relationships and Related Transactions." In August 1997, these officers
modified their employment agreements with IFC to also become officers of the
Manager (and of ICH and ICCC). The Manager has agreed to cause each of its
officers to devote as much of his or her time to the operations of the Company
as is reasonably necessary. The Company reimburses the Manager which reimburses
IFC on a dollar for dollar basis (including the service charge referenced below)
for the actual cost of providing the services of these officers to the Company,
based upon the compensation payable to them by IFC plus a 15% service charge.
Salary, other annual compensation and all other compensation are allocated to
the Company at a rate of one-third and to IMH at a rate of two-thirds for
services performed by the executive officers (except Mr. Endresen) as part of
the Submanagement Agreement among IMH, IFC and RAI. The following is the amount
of compensation allocated to the Company for services performed by Messrs.
Tomkinson, Ashmore, and Johnson and Ms. Glass-Schannault and cash compensation
paid to William D. Endresen for the period from January 15, 1997 (commencement
of operations) through December 31, 1997 and the year ended December 31, 1998
(the "Named Executive Officers").
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
<S> <C> <C> <C> <C> <C> <C>
Annual Compensation
-------------------------------------------------------------
Long-Term
Compensation
Awards
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary($)(1) Bonus ($)(2) Compensation ($)(4) Options(#)(5) Compensation($)(7)
- ----------------------------- --------- ------------ -------------- -------------------- ------------- -------------------
Joseph R. Tomkinson........ 1998 101,193 13,000 6,260 10,000 480
Chairman of the Board and 1997 100,000 5,300 252,992 10,000 480
CEO of ICH and ICCC
William S. Ashmore......... 1998 76,861 13,000 3,460 10,000 419
President and COO of 1997 75,000 5,300 250,192 10,000 290
ICH, Executive Vice President
and Director of ICCC
Richard J. Johnson......... 1998 38,431 13,000 3,460 10,000 102
Executive Vice President, 1997 37,500 5,300 204,256 10,000 88
CFO and Treasurer of ICH
and ICCC and Director of ICCC
Mary C. Glass-Schannault... 1998 31,636 32,733(3) 2,460 10,000 244
Senior Vice President of 1997 30,870 27,790(3) 42,317 10,000 119
ICH and ICCC
William D. Endresen........ 1998 175,922 118,750 9,381 60,000 (6) 553
Senior Vice President of 1997 120,000 49,000(3) 43,280 50,000 468
ICH and President and
Director of ICCC
</TABLE>
(1) Pursuant to their respective employment agreements with IFC, total current
base salaries for Messrs. Tomkinson, Ashmore and Johnson and Ms.
Glass-Schannault are $303,578, $230,584, $115,292 and $94,908,
respectively.
(2) Pursuant to dividend equivalent rights ("DERs"), each person in the above
table is entitled to be paid a quarterly bonus equal to the aggregate
dividend such person would have received from the Company on all shares of
Common Stock underlying unexercised stock options held by such person
which are outstanding. Messrs. Tomkinson, Ashmore and Johnson and Ms.
Glass-Schannault each received related DERs covering 10,000 shares
underlying options in each of 1998 and 1997, and Mr. Endresen received
related DERs covering 100,000 shares and 50,000 shares underlying options
in 1998 and 1997, respectively.
(3) Includes a performance and profitability bonus.
(4) Consists of (i) a car allowance paid by the Company and (ii) contributions
paid by the Company under the 401(k) plan. With respect to 1997, such
amounts also include the dollar value of the difference between the price
paid by Messrs. Tomkinson and Ashmore for 76,800 shares of ICH Common
Stock, Mr. Johnson for 62,400 shares of ICH Common Stock and Ms.
Glass-Schannault and Mr. Endresen for 12,000 shares of ICH Common Stock,
respectively, in February 1997 and the fair market value of such stock
($3.20) on the date of purchase.
(5) Consists of options granted under ICH's Stock Option and Awards Plan (as
described below). Options granted in 1997 were granted with related
"current-pay" DERs.
(6) With regards to 50,000 shares underlying options, Mr. Endresen was
also granted "current-pay" DERs.
(7) For each person, consists of payments on group term-life insurance.
<PAGE>
Option Grants, Exercises and Year-End Values
The following table sets forth stock options granted to the Named Executive
Officers under the Stock Option and Awards Plan during the fiscal year ended
December 31, 1998:
<TABLE>
<CAPTION>
Options Granted in Fiscal Year Ended December 31, 1998
<S> <C> <C> <C> <C> <C>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term (5)
--------------------------------------------------------------- ------------------------------
Number of
Shares Percentage of
Underlying Options Exercise
Options Granted to Price Expiration
Name Granted (#) Employees (%)(3) ($/sh) (4) Date 5% ($) 10% ($)
- ----------------------------- --------------- ------------------ ------------ --------------- ------------ --------------
Joseph R. Tomkinson.......... 10,000 (1) 4.3 6.00 November 2003 16,577 36,631
William S. Ashmore........... 10,000 (1) 4.3 6.00 November 2003 16,577 36,631
Richard J. Johnson........... 10,000 (1) 4.3 6.00 November 2003 16,577 36,631
Mary C. Glass-Schannault..... 10,000 (1) 4.3 6.00 November 2003 16,577 36,631
William D. Endresen.......... 10,000 (1) 4.3 6.00 November 2003 16,577 36,631
50,000 (2) 21.4 17.63 February 2001 243,473 538,012
</TABLE>
(1) Such stock options vest one year from the anniversary of the date of grant
(November 1998).
(2) Such stock options vest one third per year on each anniversary of the
date of grant (February 1998) and have been granted with related
"current-pay" DERs.
(3) The total number of options granted to employees (not including 60,000
shares underlying options granted to non-employee directors) during 1998
was 233,510.
(4) The exercise price for all options equals the fair market value of such
shares at the date of grant as determined by the Administrator.
(5) Amounts reflect assumed risks of appreciation set forth in the executive
compensation disclosure rules of the Securities and Exchange Commission.
The actual value, if any, an executive officer may realize will depend on
the excess of the stock price over the exercise price on the date the
option is exercised. Stock appreciation gains do not represent the
Company's estimate or projection of the future Common Stock price.
<PAGE>
On November 24, 1998, the Company also granted to each of Messrs. Walsh,
Filipps, Peers and Poletti options to purchase 10,000 shares of ICH Common
Stock, respectively, and granted Mr. Busch options to purchase 20,000 shares of
ICH Common Stock at a per share exercise price of $6.00, vesting on the first
anniversary of the date of grant.
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1998 and Year-End Option Values
<S> <C> <C> <C> <C>
Value of Unexercised
Number of Securities In-The-Money Options
Shares Underlying Options At Fiscal At Fiscal Year-End
Acquired on Value Year-End Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable (#) (1) Unexercisable ($) (2)
- ------------------------------ ------------- ---------------- ---------------------------- ------------------------
Joseph R. Tomkinson.......... -- -- 3,333/16,667 --/--
William S. Ashmore........... -- -- 3,333/16,667 --/--
Richard J. Johnson........... -- -- 3,333/16,667 --/--
Mary C. Glass-Schannault..... -- -- 3,333/16,667 --/--
William D. Endresen.......... -- -- 16,666/93,334 --/--
</TABLE>
(1) For a description of the terms of such options, see "--Stock Option
and Awards Plan."
(2) Based on a price per share of $5.375, which was the price of a share of
Common Stock as quoted on the American Stock Exchange at the close of
business on December 31, 1998. As of December 31, 1998, none of the options
were "in-the-money."
Employment Agreements
In August 1997, in connection with ICH's initial public offering, each
officer's employment agreement with IFC was amended and restated to allow him or
her to become an officer of RAI (and of ICH and ICCC). See "--Executive
Compensation--Summary Compensation Table" for annual salary descriptions. RAI
has agreed to cause each of its officers to devote as much of his or her time to
the operations of ICH as is necessary. ICH reimburses RAI, who reimburses IFC,
on a dollar for dollar basis (see Item 13. "Certain Relationships and Related
Transactions-- Relationships with the Manager--Management Agreement"), for the
actual cost of providing the services of its officers to ICH based upon the
compensation payable to them by IFC, plus a 15% service charge. In August 1997,
Mr. Endresen entered into an employment agreement with ICCC for a term of five
years. His base salary is currently $175,000 per year subject to an annual
review and cost of living adjustment.
Pursuant to the employment agreements, if the officer is terminated without
cause (as defined therein) then the officer will receive (i) his or her base
salary for a period of one year following the date of termination, (ii) any
bonus or incentive compensation prorated through the date of termination;
provided that if the bonus or incentive compensation is discretionary, then the
officer will receive a payment at least equal to the last previous payment made
to the officer, if any, for the previous year prorated to the date of
termination, and (iii) any expense reimbursements. Each officer agreed that for
a period of one year from the date of termination he or she will not compete
with the Company if the agreement is voluntarily terminated by the officer. Upon
any merger, transfer of assets, dissolution, liquidation or consolidation, the
surviving corporation or transferee is bound by such employment agreement, and
the Company has agreed to take all action to ensure such.
Stock Option and Awards Plan
In April 1997, the Company adopted the 1997 Stock Option and Awards Plan
(the "Stock Option and Awards Plan") which provides for the grant of qualified
incentive stock options ("ISOs") which meet the requirements of section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), stock options not so
qualified ("NQSOs"), deferred stock, restricted stock, performance shares, stock
appreciation and limited stock appreciation rights awards ("Awards") and DERs.
<PAGE>
The purpose of the Stock Option and Awards Plan is to provide a means of
performance-based compensation in order to attract and retain qualified
personnel and to provide an incentive to others whose job performance affects
the Company. The Stock Option and Awards Plan is administered by the Board of
Directors or a Committee appointed by the Board of Directors (the
"Administrator"). ISOs may be granted to the officers and key employees of the
Company. Under current law, ISOs may not be granted to any director of the
Company who is not also an employee, or to directors, officers and other
employees of entities unrelated to the Company. NQSOs and Awards may be granted
to the directors, officers, key employees, agents and consultants of the
Company, any of its subsidiaries or parent corporation, of RAI, and to the
directors, officers and key employees of ICCC.
The Stock Option and Awards Plan provides for the granting of DERs in
tandem with options granted under the Stock Option and Awards Plan. The Stock
Option and Awards Plan permits DERs to be granted with certain characteristics.
First, DERs can be issued in "current-pay" form so that payments can be made to
the optionee at the same time as dividends are paid to holders of outstanding
Common Stock. "Current-pay" DERs are payable in cash, stock or such other
property as may be distributed to stockholders. The second form, "accrued DERs,"
accrue shares of Common Stock for the account of the optionee upon the payment
of cash dividends on outstanding shares of Common Stock and may also include the
value of any stock or other property distributed to stockholders. The number of
shares accrued is determined by a formula and such shares are currently
transferred to the optionee only upon exercise of the related option. Shares of
Common Stock accrued for the account of the optionee pursuant to a DER grant may
also be made eligible to receive dividends and distributions. Finally, DERs can
be made "performance based" by conditioning the right of the holder of the DER
to receive any dividend equivalent payment or accrual upon the satisfaction of
specified performance objectives.
Subject to anti-dilution provisions for stock splits, stock dividends and
similar events, the Stock Option and Awards Plan currently authorizes the grant
of options to purchase, and Awards of, an aggregate of 632,500 shares. At March
31, 1999, options to acquire 52,500 shares were outstanding at a per share
exercise price of $17.625, options to acquire 1,000 shares were outstanding at a
per share exercise price of $18.875, options to acquire 171,000 shares were
outstanding at a per share exercise price of $15.00 and options to acquire
193,922 shares were outstanding at a per share exercise price of $6.00. If an
option granted under the Stock Option and Awards Plan expires or terminates, or
an Award is forfeited, the shares subject to any unexercised portion of such
option or Award will again become available for the issuance of further options
or Awards under the Stock Option and Awards Plan.
Options granted under the Stock Option and Awards Plan will become
exercisable in accordance with the terms of the grant made by the Administrator.
Awards will be subject to the terms and restrictions of the Award made by the
Administrator. The Administrator has discretionary authority to select
participants from among eligible persons and to determine at the time an option
or Award is granted when and in what increments shares covered by the option or
Award may be purchased and, in the case of options, whether it is intended to be
an ISO or a NQSO provided, however, that certain restrictions applicable to ISOs
are mandatory, including a requirement that ISOs not be issued for less than
100% of the then fair market value of the Common Stock (110% in the case of a
grantee who holds more than 10% of the outstanding Common Stock) and a maximum
term of ten years (five years in the case of a grantee who holds more than 10%
of the outstanding Common Stock).
No options or Awards may be granted under the Stock Option and Awards Plan
to any person who, assuming exercise of all options held by such person, would
own or be deemed to own more than 9.8% of the outstanding shares of equity stock
of the Company.
Each option must terminate no more than 10 years from the date it is
granted (or five years in the case of ISOs granted to an employee who is deemed
to own in excess of 10% of the combined voting power of the Company's
outstanding equity stock). Options may be granted on terms providing for
exercise either in whole or in part at any time or times during their respective
terms, or only in specified percentages at stated time periods or intervals
during the term of the option.
ISOs generally are exercisable only by the optionee. NQSO's may be granted
to permit transfer of the option to immediate family members (as defined in the
Stock Option and Awards Plan).
<PAGE>
The exercise price of any option granted under the Stock Option Plan is
payable in full (1) in cash, (2) by surrender of shares of the Company's Common
Stock already owned by the option holder having a market value equal to the
aggregate exercise price of all shares to be purchased including, in the case of
the exercise of NQSOs, restricted stock subject to an Award under the Stock
Option and Awards Plan, (3) by cancellation of indebtedness owed by the Company
to the option holder, (4) by a full recourse promissory note executed by the
option holder, or (5) by any combination of the foregoing. The terms of any
promissory note may be changed from time to time by the Board of Directors to
comply with applicable United States Internal Revenue Service or Securities and
Exchange Commission regulations or other relevant pronouncements.
The Company may make loans available to stock option holders, subject to
the Board of Directors' approval, in connection with the exercise of stock
options granted under the Stock Option and Awards Plan. Such loans will be
evidenced by a promissory note and secured by a pledge of Common Stock. If
shares of Common Stock are pledged as collateral for such indebtedness, such
shares may be returned to the Company in satisfaction of such indebtedness. If
so returned, such shares shall again be available to future stock options and
Awards under the Stock Option and Awards Plan.
The Board of Directors may from time to time revise or amend the Stock
Option and Awards Plan, and may suspend or discontinue it at any time. However,
no such revision or amendment may impair the rights of any participant under any
outstanding Award without his consent.
In the event of a change in control, all stock options, any stock
appreciation rights outstanding for at least 6 months, restricted stock,
deferred stock and performance share awards will fully vest and the value of all
such awards, including DERs, will be cashed out by payment of cash or other
property, as determined by the Administrator, on the basis of a "change of
control price." Furthermore, any indebtedness incurred in connection with the
Stock Option and Awards Plan will be forgiven. A "change of control" generally
occurs when (i) any person becomes the beneficial owner, directly or indirectly,
of 30% or more of the combined voting power of the Company's securities, (ii)
during any consecutive two-year period, individuals who at the beginning of such
period constitute the Board, and any new director, with certain exceptions, who
was approved by at least two-thirds of the directors still in office who either
were directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to constitute at
least a majority of the Board of Directors, (iii) in some circumstances, the
stockholders approve a merger or consolidation, or (iv) the stockholders approve
the complete liquidation, sale or disposition of all or substantially all of the
Company's assets. The "change of control price" generally means the higher of
(i) the highest price per share paid or offered in any transaction related to a
change of control or (ii) the highest price per share paid in any transaction
reported on the exchange on which the Company's Common Stock is listed at any
time preceding the 60 day period as determined by the Administrator.
Unless previously terminated by the Board of Directors, the Stock Option
and Awards Plan will terminate in April 2007, and no options or Awards may be
granted under the Stock Option and Awards Plan thereafter.
401(k) Plan
The Company participates in the ICII contributory retirement plan ("401(k)
Plan") for all full-time employees with at least six months of service, which is
designed to be tax deferred in accordance with the provisions of Section 401(k)
of the Code. The 401(k) Plan provides that each participant may contribute from
2% to 14% of his or her salary, and the Company will contribute to the
participant's plan account at the end of each plan year 50% of the first 4% of
salary contributed by a participant. Under the 401(k) Plan, employees may elect
to enroll on the first day of any month, provided that they have been employed
for at least six months.
Subject to the rules for maintaining the tax status of the 401(k) Plan, an
additional Company contribution may be made at the discretion of the Company, as
determined by the Unaffiliated Directors. Should a discretionary contribution be
made, the contribution would first be allocated to those employees deferring
salaries in excess of 4%. The matching contribution would be 50% of any deferral
in excess of 4% up to a maximum deferral of 8%. Should discretionary
contribution funds remain following the allocation outlined above, any remaining
Company matching funds would be allocated as a 50% match of employee
contributions, on the first 4% of the employee's deferrals. Company matching
contributions will be made as of December 31st each year in the form of Company
Common Stock. The Company contributed matching and discretionary amounts to the
401(k) plan for the year ended December 31, 1998 of $63,000.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of April
15, 1999 by (1) each person known to the Company to beneficially own more than
five percent of the Company's Common Stock, (2) each Director, (3) the Company's
executive officers, and (4) all Directors and executive officers as a group.
As of April 15, 1999 there were 8,418,200 shares outstanding of common stock.
Unless otherwise indicated in the footnotes to the table, the beneficial owners
named have, to the knowledge of the Company, sole voting and investment power
with respect to the shares beneficially owned, subject to community property
laws where applicable.
<TABLE>
<S> <C> <C>
Number of Percentage
Shares of Shares
Beneficially Beneficially
Name of Beneficial Owner Owned Owned
- -------------------------------------------------------------------------- -------------------- -------------------
Ryback Management Corporation (1)....................................... 438,000 5.2
Joseph R. Tomkinson (2)................................................. 121,283 1.4
William S. Ashmore (3).................................................. 89,339 1.1
Richard J. Johnson (4).................................................. 76,806 *
William D. Endresen (5)................................................. 45,332 *
Mary C. Glass-Schannault (6)............................................ 16,371 *
James Walsh (7)......................................................... 17,000 *
Frank P. Filipps (7).................................................... 17,000 *
Stephan R. Peers (7)(8)................................................. 17,835 *
Thomas J. Poletti (7)................................................... 17,000 *
Timothy R. Busch (9).................................................... 60,700 *
All Directors and Executive Officers as a group (11 persons) (10)....... 461,166 5.5%
*less than 1%
</TABLE>
(1) Based on a Schedule 13G filed on February 10, 1999, Ryback's address is
7711 Carondelete Avenue, Box 16800, St. Louis, Missouri 63105. Ryback has
sole voting and dispostive power as to 431,200 shares and shared voting
and dispostive power as to 6,800 shares. All 438,000 shares were held in a
fiduciary capacity by Ryback Management Corporation (a registered
Investment Company Advisor) and/or Lindner Investment Series Trust (a
registered Investment Company) as of December 31, 1998.
(2) Includes options to purchase 3,333 shares which are currently exercisable
and 7,500 shares held in a trust with Mr. Tomkinson as trustee.
(3) Includes (i) options to purchase 3,333 shares which are currently
exercisable, (ii) 1,000 shares held in a profit sharing plan with Mr.
Ashmore and his wife as trustees, (iii) 2,200 shares held in a trust with
Mr. Ashmore and his wife as trustees, and (iv) 1,000 shares held as
custodian for a child.
(4) Includes options to purchase 3,333 shares which are currently exercisable
and 420 shares held as custodian for minor children.
(5) Includes options to purchase 33,332 shares which are currently
exercisable.
(6) Includes options to purchase 3,333 shares which are currently exercisable
and 675 shares which are owned jointly with her husband.
(7) Includes options to purchase 5,000 shares which are currently exercisable.
(8) Includes 835 shares which are owned jointly.
(9) Includes 55,700 shares which are owned in a trust with David Keligean
and Greg Busch as trustees and of which Mr. Busch and his family are the
beneficiaries.
(10) Includes options to purchase a total of 51,664 shares which are currently
exercisable.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships with the Manager
The Manager, RAI, commenced operations in August 1997. Each of the persons
who are executive officers of the Manager has significant experience in
purchasing, financing, servicing, securitizing and investing in mortgage loans
and mortgage securities and all of such persons are officers of IMH and IFC;
however, they have not previously managed a commercial mortgage REIT. RAI is a
recently formed entity with no significant assets and no prior history of
operations. RAI is owned equally by each of Messrs. Tomkinson, Ashmore, and
Johnson. IMH owns all of the outstanding shares of non-voting preferred stock of
IFC, its conduit operations, representing 99% of the economic interest in IFC,
and Messrs. Tomkinson, Johnson and Ashmore own all of the outstanding shares of
common stock of IFC, representing 1% of the economic interest. In August 1997,
the officers of RAI modified their employment agreements with IFC to allow them
to become officers of the Manager (and of ICH and ICCC). The Manager has agreed
to cause each of its officers to devote as much of his or her time to the
operations of the Company as is reasonably necessary. ICH reimburses the
Manager, who reimburses IFC on a dollar for dollar basis (including the service
charge referenced below), for the actual cost of providing the services of these
officers to the Company based upon the compensation payable to them by IFC, plus
a 15% service charge. ICH reimburses the Manager for expenses incurred by the
Manager, plus a service charge of 15% on all expenses owed by the Manager to IFC
for costs and expenses owed by the Manager to IFC for costs and services under
any submanagement agreement between IFC and the Manager. The Manager pays all
such third parties on a dollar for dollar basis for the aforementioned amounts
received by it from the Company; no such 15% service charge is paid to third
party service providers other than IFC. For the first three years of the
Management Agreement there is a minimum amount of $500,000 per annum (including
the 15% service charge) payable by ICH in connection with services provided and
expenses incurred by the Manager and payable by RAI to IFC. After the third
year, ICH is only responsible for reimbursing expenses and services provided,
with the 15% service charge for amounts due to IFC.
The address of the Manager is 1401 Dove Street, Newport Beach, California
92660, telephone (949) 475-3600.
Managers and Executive Officers
<TABLE>
<CAPTION>
The managers and executive officers of RAI are as follows:
<S> <C>
Name Position
- ----------------------------- -------------------------------------------------------------
Joseph R. Tomkinson* Chairman and Chief Executive Officer
William S. Ashmore* President and Manager
Richard J. Johnson* Executive Vice President, Chief Financial Officer and Manager
Mary C. Glass-Schannault* Senior Vice President
*Each of these persons also serves as directors or executive officers of the Company.
</TABLE>
For biographical information on these persons, see Item 10. "Directors and
Executive Officers of the Registrant."
Management Agreement
In August 1997, the Company entered into a Management Agreement with the
Manager for an initial term expiring on December 31, 2002. Successive
extensions, each for a period not to exceed one year, may be made by agreement
between the Company and the Manager. The Management Agreement may be terminated
by the Company without cause at any time upon 60 days' written notice. Any such
termination or failure to extend by the Company without cause shall result in
the payment of a termination or non-renewal fee to the Manager determined by an
independent appraisal. In addition, the Company and the Manager will have the
right to terminate the Management Agreement upon the occurrence of a breach by
the other party of any provision contained in the Management Agreement which
remains uncured for 30 days. In addition, the Company may renew or terminate the
Management Agreement by a majority vote of its Unaffiliated Directors or by a
vote of the holders of a majority of the outstanding shares of Common Stock.
<PAGE>
The terms of the Management Agreement, including management fees, were
determined by what the management of both RAI and ICH believe are comparable
with other advisory relationships and have been approved by the Board of
Directors of RAI and the Unaffiliated Directors of ICH. ICH's Bylaws provide
that the Unaffiliated Directors shall determine at least annually that the
compensation paid to the Manager is reasonable in relation to the nature and
quality of the services performed by the Manager.
The Manager is at all times subject to the supervision of the Company's
Board of Directors and provides advisory services to the Company in accordance
with the terms of the Management Agreement. The Manager is involved in three
primary activities: (1) capital management--primarily the oversight of the
Company's structuring, analysis, capital raising and investor relations
activities; (2) asset management--primarily the analysis and oversight of the
acquisition, management, securitization and disposition of Company assets; and
(3) operations management--primarily the oversight of ICH's operating
subsidiaries. Specifically, the Manager performs such services and activities
relating to the assets and operations of the Company as may be appropriate,
including:
(1) serving as the Company's consultant with respect to the formulation
of investment criteria and interest rate risk management by its Board
of Directors;
(2) advising as to the issuance of commitments on behalf of the Company
to purchase Commercial Mortgages or purchasing Commercial Mortgages and
Commercial Mortgage-Backed Securities ("CMBSs") meeting the investment
criteria set from time to time by the Company's Board of Directors;
(3) advising, negotiating, and overseeing the securitization of the
Company's Commercial Mortgages in real estate mortgage investment
conduits ("REMICs") or collateralized mortgage obligations ("CMOs") and
negotiating terms with rating agencies and coordinating with investment
bankers as to structure and pricing of the securities formed by the
Company;
(4) advising the Company in connection with and assisting in its
Long-Term Investment Operations;
(5) furnishing reports and statistical and economic research to the
Company regarding the Company's activities and the services performed
for the Company by the Manager;
(6) monitoring and providing to the Board of Directors on an on-going
basis price information and other data obtained from certain
nationally-recognized dealers who maintain markets in Commercial
Mortgages identified by the Board of Directors from time to time, and
providing data and advice to the Board of Directors in connection with
the identification of such dealers;
(7) providing the executive and administrative personnel, office space
and services required in rendering services to the Company, which
includes contracting with appropriate third parties, which may include
IMH and its affiliates, to provide various services including
facilities and costs related therewith, technology, management
information systems, human resource administration, general ledger
accounts, check processing, accounts payable and other similar
operational or administrative services;
(8) overseeing the day-to-day operations of ICH and supervising the
performance of such other administrative functions necessary in the
management of ICH as directed by the Board of Directors of ICH;
(9) advising and negotiating agreements on behalf of the Company with
banking institutions and other lenders to provide for the short-term
borrowing of funds by the Company;
(10) communicating on behalf of the Company with the holders of the
equity and debt securities of the Company as required to satisfy the
reporting and other requirements of any governmental bodies or agencies
and to maintain effective relations with such holders;
<PAGE>
(11) subject to an agreement executed by the Company, advising as to
the designation of a servicer for those loans sold by ICCC whereby ICCC
elected not to service such loans;
(12) counseling the Company in connection with policy decisions to be
made by its Board of Directors; and
(13) upon request by and in accordance with the direction of the Board
of Directors of the Company, investing or reinvesting any money of the
Company.
In August 1997, RAI entered into a Submanagement Agreement with IFC, the
conduit operations of IMH, to provide administrative services as required by the
Company, including facilities and costs associated therewith, technology, human
resources, management information systems, general ledger accounts, check
processing and accounts payable as RAI deems necessary. The Manager may also
enter into additional contracts with other parties, which may include IMH or its
affiliates, to provide any such services for the Manager, which third party
shall be approved by the Company's Board of Directors. See "--Expenses."
RAI currently has a total of four officers and three managers who
participate in the oversight of the Company's operations.
Management Fees
The Manager is entitled to receive for each fiscal quarter, an amount equal
to 25% of the Net Income of the Company, before deduction of such compensation,
in excess of the amount that would produce an annualized Return on Equity equal
to the daily average ten year U.S. Treasury rate plus 2% (the "25% Payment").
The term "Return on Equity" is calculated for any quarter by dividing the
Company's Net Income for the quarter by its Average Net Worth for the quarter.
For such calculations, the "Net Income" of the Company means the net income of
the Company determined in accordance with the Internal Revenue Code before the
Manager's compensation, the deduction for dividends paid and any net operating
loss deductions arising from losses in prior periods. A deduction for all of the
Company's interest expenses for borrowed money is also taken in calculating Net
Income. "Average Net Worth" for any period means the arithmetic average of the
sum of the gross proceeds from any offering of its equity securities by the
Company, before deducting any underwriting discounts and commissions and other
expenses and costs relating to the offering, plus the Company's retained
earnings less dividends declared (without taking into account any losses
incurred in prior periods) computed by taking the daily average of such values
during such period. The 25% Payment to the Manager is calculated quarterly in
arrears before any income distributions are made to stockholders for the
corresponding period.
The Manager's fees are calculated by the Manager within 60 days after the
end of each calendar quarter, with the exception of the fourth quarter for which
compensation will be computed within 30 days, and such calculation shall be
promptly delivered to the Company. The Company is obligated to pay the fee
within 90 days after the end of each calendar quarter. For the year ended
December 31, 1998, ICH paid $745,000 to RAI in connection with the 25% Payment.
Expenses
Pursuant to the Management Agreement, ICH pays all operating expenses
incurred by the Manager under the Management Agreement. The operating expenses
generally required to be incurred by the Manager and reimbursed by ICH include
out-of-pocket costs, equipment and other personnel required for the Company's
operations, including amounts payable by RAI pursuant to submanagement
agreements with outside third parties, which include IMH and its affiliates, to
provide various services to the Company including facilities and costs related
therewith, technology, management information systems, human resource
administration, general ledger accounts, check processing, accounts payable and
other similar operational services ("Reimbursable Expenses"). Reimbursable
Expenses also include issuance and transaction costs associated with the
purchase, disposition and financing of investments, regular legal and auditing
fees and expenses of the Company, the fees and expenses of the Company's
Directors, premiums for directors' and officers' liability insurance, premiums
for fidelity and errors and omissions insurance, servicing and sub-servicing
expenses, the costs of printing and mailing proxies and reports to stockholders,
and the fees and expenses of the Company's custodian and transfer agent, if any.
<PAGE>
The Company reimburses the Manager for all Reimbursable Expenses, plus a
service charge of 15% on all Reimbursable Expenses owed by RAI to IFC for costs
and services under any subcontract between RAI and IFC. RAI pays all such third
parties on a dollar-for-dollar basis the aforementioned amounts received by it
from the Company; no such 15% service charge will be paid to third party service
providers other than IFC.
All of the persons who are officers of the Manager are also officers of
IMH, IFC, ICH and ICCC. IMH owns all of the outstanding shares of the non-voting
preferred stock of IFC, its conduit operations, representing 99% of the economic
interest in IFC, and Messrs. Tomkinson, Johnson and Ashmore own all of the
outstanding shares of common stock of IFC, representing 1% of the economic
interest. Each of these officers have modified their employment agreements with
IFC to allow them to become officers of the Manager (and of ICH and ICCC). The
Manager has agreed to cause each of its officers to devote as much of his or her
time to the operations of the Company as is reasonably necessary. The Company
will reimburse the Manager, who will reimburse IFC on a dollar for dollar basis,
for the actual cost (the "Reimbursable Executive Amounts") of providing the
services of these officers to the Company based upon compensation payable to
them by IFC, plus a 15% service charge.
For the first three years of the Management Agreement, there is a minimum
amount of $500,000 per annum (which includes the 15% service charge) payable by
ICH to RAI for Reimbursable Expenses and Reimbursable Executive Amounts. After
the third year, ICH is responsible for paying RAI the actual amount of
Reimbursable Expenses and Reimbursable Executive Amounts, with the 15% service
charge for amounts due to IFC.
The Company does not believe that its operations are adversely affected as
a result of these relationships. Payments of Reimbursable Expenses and
Reimbursable Executive Amounts by the Company to RAI are made monthly. For the
year ended December 31, 1998, ICH and ICCC recorded an aggregate of
approximately $521,000 and $574,000, respectively, representing Reimbursable
Expenses and Reimbursable Executive amounts payable to RAI.
Tabular Presentation of Amount Payable to Manager
The following table presents all compensation, fees, profits and other
benefits (including reimbursement of out-of-pocket expenses) which RAI and its
affiliates may earn or receive in connection with the Management Agreement.
<TABLE>
<S> <C> <C>
Recipient Payor Amount
- ---------------------- ------------- ------------------------------------------------------------
RAI (1) ICH 25% Payment (2)
RAI (3) ICH Reimbursable Expense, plus a 15% service charge (4)
RAI (3) ICH Reimbursable Executive Amounts, plus a 15% service charge (4)
</TABLE>
(1) RAI is equally owned by each of Messrs. Tomkinson, Ashmore and Johnson;
the 25% Payment to RAI will be retained by RAI, resulting in a direct
benefit to its owners.
(2) For a more detailed explanation of the 25% Payment, see "--Management
Fees." There is no minimum or maximum amount of the 25% Payment due in any
year.
(3) All amounts payable by ICH to RAI for Reimbursable Expenses and
Reimbursable Executive Amounts, plus the 15% service charge, are payable
by RAI to IFC.
(4) For a more detailed explanation of Reimbursable Expenses and Reimbursable
Executive Amounts see "--Expenses." For the first three years of the
Management Agreement, there is a minimum amount of $500,000 per annum
(which includes the 15% service charge) payable by ICH to RAI for
Reimbursable Expenses and Reimbursable Executive Amounts due in any year.
There is no maximum amount of Reimbursable Expenses or Reimbursable
Executive Amounts due in any year.
Stock Option and Awards Plan
The Company has adopted the Stock Option and Awards Plan and the directors,
officers and employees of the Manager will be granted certain options or rights
under the Stock Option and Awards Plan and may in the future be granted
additional options or rights under the Stock Option and Awards Plan. See
"Executive Compensation--Stock Option and Awards Plan."
<PAGE>
Limits of Responsibility
Pursuant to the Management Agreement, the Manager will not assume any
responsibility other than to render the services called for thereunder and will
not be responsible for any action of the Company's Board of Directors in
following or declining to follow its advice or recommendations. The Manager, its
directors, officers, equity holders and employees will not be liable to the
Company, any mortgage security issuer, any subsidiary of the Company, the
Unaffiliated Directors, the Company's stockholders or any subsidiary's
shareholders for acts performed in accordance with and pursuant to the
Management Agreement, except by reason of acts or omissions constituting bad
faith, willful misconduct, gross negligence or reckless disregard of their
duties under the Management Agreement. The Manager is a recently formed entity
and does not have significant assets. Consequently, there can be no assurance
that the Company would be able to recover any damages for claims it may have
against the Manager. The Company has agreed to indemnify the Manager, and its
managers, officers, equity holders and employees with respect to all expenses,
losses, damages, liabilities, demands, charges and claims arising from any acts
or omissions of the Manager made in good faith in the performance of its duties
under the Management Agreement.
Relationships With IMH
Non-Compete Agreement and Right of First Refusal Agreement
The Company's operations may be affected by the activities of IMH and IFC.
Pursuant to a non-compete agreement (the "Non-Compete Agreement") between IMH,
IFC, ICH and ICCC which became effective upon the closing of ICH's initial
public offering in August 1997, for a period of the earlier of nine months from
August 1997 or the date upon which the Company accumulated (for investment or
sale) $300.0 million of Commercial Mortgages and/or CMBSs, neither IMH nor IFC
would originate or acquire any Commercial Mortgages; however, this Agreement did
not preclude IMH (either directly or through IFC) from purchasing any Commercial
Mortgages or CMBSs under the Right of First Refusal Agreement discussed below.
The Non-Compete Agreement terminated in March 1998. Subject to the Right of
First Refusal Agreement, as defined below, IMH, as a mortgage REIT, and IFC, as
its conduit operations, may compete with the operations of the Company.
It is anticipated that RAI will act as the Manager for other REITs, some of
which may have been or will be Affiliated REITs. In such an event, any
Affiliated REIT utilizing RAI as its Manager may be in competition with the
Company. In August 1997, RAI, ICH, ICCC, IMH and IFC entered into a ten-year
right of first refusal agreement (the "Right of First Refusal Agreement"). It is
expected that any Affiliated REIT utilizing RAI as its Manager will become a
party to the Right of First Refusal Agreement, but such event is outside the
control of the Company and there can be no assurance that any or all Affiliated
REITs (other than IMH) will actually become parties to the Right of First
Refusal Agreement. Pursuant to this Agreement, RAI agrees that any mortgage loan
or mortgage-backed security investment opportunity (an "Investment Opportunity")
which is offered to it on behalf of either the Company, IMH or any Affiliated
REIT will first be offered to that entity (the "Principal Party") whose initial
primary business as described in its initial public offering documentation (the
"Initial Primary Business") most closely aligns with such Investment
Opportunity. In addition, both IMH and IFC on the one hand and ICH and ICCC on
the other agree that any Investment Opportunity offered to either of them which
falls outside the scope of its Initial Primary Business should be offered to the
Principal Party. Should the Principal Party decline to take advantage of an
Investment Opportunity offered to RAI, RAI will make an independent evaluation
of which REITs business is more greatly enhanced by such Investment Opportunity.
Should all of such REITs decline such Investment Opportunity RAI may offer the
Investment Opportunity to any third party. Should the Principal Party decline to
take advantage of an Investment Opportunity offered to a REIT which is a party
to the Right of First Refusal Agreement, said REIT shall then be free to pursue
the Investment Opportunity. In such an event there can be no assurance that the
Company will be able to take advantage of any such Investment Opportunity or
that any competitive activity of IMH, IFC or any Affiliated REIT will not
adversely affect the Company's operations. In addition, the Company may become
further prejudiced by the Right of First Refusal Agreement to the extent that
the Company desires to pursue or pursues a business outside its Initial Primary
Business.
<PAGE>
Submanagement and Servicing Agreements
RAI has entered into a Submanagement Agreement with IFC, the conduit
operations of IMH, to provide administrative services as required by the Company
including facilities and costs associated therewith, technology, human
resources, management information systems, general ledger accounts, check
processing and accounts payable as RAI deems necessary. IFC charges RAI for
these services based upon usage which charges management believes are
reasonable. IFC is paid for the services rendered on a dollar for dollar basis
plus a 15% service charge to the extent the services are rendered under the
Management Agreement. Total cost allocations IFC charged to RAI for the year
ended December 31, 1998 were $1.1 million. For a general description of the
persons who are officers of the Manager and the terms of the Management
Agreement, see "--Relationships with the Manager."
ICCC acts as a servicer of Commercial Mortgages acquired on a "servicing-
released" basis by the Company in its Long-Term Investment Operations pursuant
to the terms of a Servicing Agreement which became effective in February 1997.
ICCC subcontracts all of its servicing obligations under such loans to
independent third parties pursuant to sub-servicing agreements.
Credit Arrangements
In August 1997, ICH entered into a revolving credit arrangement with IMH
whereby ICH agreed to advance to IMH up to a maximum amount of $15.0 million.
Advances under the revolving credit arrangement were at an interest rate and
maturity to be determined at the time of each advance (typically, prime plus 1%)
with interest and principal paid monthly. During 1998, the largest aggregate
amount outstanding under the credit arrangement was $13.2 million at an interest
rate of 9.5%. As of December 31, 1998, there were no amounts outstanding under
the credit arrangement.
The credit arrangement was terminated in January 1999.
In August 1997, ICH entered into a revolving credit arrangement with IMH
whereby IMH agreed to advance to ICH up to maximum amount of $15.0 million.
Advances under the revolving credit arrangement were at an interest rate and
maturity to be determined at the time of each advance (typically, prime plus 1%)
with interest and principal paid monthly. During 1998, the largest aggregate
amount outstanding under the credit arrangement was $9.1 million at an interest
rate of 9.5%. As of December 31, 1998, there were no amounts outstanding under
the credit arrangement.
The credit arrangement was terminated in January 1999.
ICCC has entered into an uncommitted warehouse line agreement with IMH to
provide financing as needed. The margins on the warehouse line agreement are at
8% of the fair market value of the collateral provided. The interest rates on
the borrowings are at Bank of America's prime rate (7.75% at March 31, 1999).
The largest aggregate amount outstanding during 1998 was $25.3 million. As of
March 31, 1999, outstanding amounts on the warehouse line agreement were $4.1
million.
Purchase of Commercial Office Building
On October 27, 1998, the Company purchased from IMH its remaining 50%
ownership interest in a commercial office building located in Newport Beach,
California for $6.0 million (the "Dove Street Property"). After the purchase of
the 50% ownership interest from IMH, the Company has a 100% ownership interest
in the Dove Street Property.
Dove Street Lease Agreement
In June 1998, IMH and IFC entered into a premises operating lease with
IMH/ICH Dove Street, LLC to rent approximately 74,000 square feet of office
space located at the Dove Street Property. The lease was transferred to ICH when
IMH sold to ICH its interest in the Dove Street Property. The lease agreement is
for a term of 10 years expiring in May 2008 with monthly lease payments of
approximately $145,000 per month. For the year ended December 31, 1998, IMH and
IFC paid an aggregate of approximately $888,000 under the lease.
<PAGE>
Repurchase of Capital Stock
On October 21, 1998, the Company repurchased from IMH 937,084 shares of
Common Stock and 456,916 shares of Class A Common Stock at a per share price of
$4.375, based upon the closing price of the Common Stock on the American Stock
Exchange on October 19, 1998, for a total repurchase of $6.1 million. The
repurchase represented 100% of IMH's ownership of ICH Common Stock.
Relationships with Affiliates
General
With a view toward protecting the interests of ICH's stockholders, the
Bylaws of ICH provide that a majority of the Board of Directors (and at least a
majority of each committee of the Board of Directors) must not be "Affiliates"
of RAI, as that term is defined in the Bylaws, and that the investment policies
of ICH must be reviewed annually by the Unaffiliated Directors. Such policies
and restrictions thereon may be established from time to time by the Board of
Directors, including a majority of the Unaffiliated Directors. In addition, any
transaction between ICH and any Affiliated Person requires the affirmative vote
of a majority of the Unaffiliated Directors. Moreover, approval, renewal or
termination of the Management Agreement requires the affirmative vote of a
majority of the Unaffiliated Directors. The Management Agreement may be
terminated by ICH upon 60 days' notice. Any such termination or failure to
extend by ICH without cause shall result in the payment of a termination or
non-renewal fee to the Manager determined by an independent appraisal. See
"--Relationships with the Manager--Management Agreement."
Many of the affiliates of IMH, IFC, RAI and ICCC have interlocking
executive positions and share common ownership. Joseph R. Tomkinson, ICH's
Chairman of the Board and Chief Executive Officer, is the Chief Executive
Officer and Chairman of the Board of IMH, a one-third owner of RAI, and an owner
of one-third of the common stock of IFC. William S. Ashmore, ICH's President and
Chief Operating Officer, is the President and a Director of IMH, a one-third
owner of RAI, and an owner of one-third of the common stock of IFC. Richard J.
Johnson, ICH's Executive Vice President, Chief Financial Officer and Treasurer,
is Executive Vice President, Chief Financial Officer and Treasurer of IMH, a
one-third owner of RAI, and an owner of one-third of the common stock of IFC.
Mary Glass-Schannault, ICH's Senior Vice President, is a Senior Vice President
of IMH and IFC. Each of James Walsh, Frank P. Filipps and Stephan R. Peers,
Directors of ICH, are Directors of IMH. In March 1999, Messrs. Tomkinson,
Ashmore, Johnson and Endresen each sold to ICH their shares of common stock of
ICCC for $1.00. ICH currently owns all of the outstanding shares of common stock
of ICCC.
Credit Arrangements
ICCC has entered into warehouse line agreements with ICH which provide up
to an aggregate of $900.0 million to finance ICCC's operations as needed. Terms
of the warehouse line agreements require that the Commercial Mortgages be held
by an independent third party custodian, which gives the Company the ability to
borrow against the collateral as a percentage of the fair market value of the
Commercial Mortgages. The borrowing rates on the warehouse line agreements are
at Bank of America's prime rate (7.75% at March 31, 1999). The margins on the
warehouse line agreements are up to 90% of the fair market value of the
collateral provided. During 1998, the highest aggregate amount outstanding under
the credit arrangements was $285.3 million. As of March 31, 1999, amounts
outstanding on ICCC's warehouse line with ICH were $45.9 million.
On December 31, 1997, IMH/ICH Dove Street, LLC (of which ICH has a 50%
interest) financed its acquisition of the Dove Street Property with a loan for
$5.2 million from ICCC, of which $2.6 million represented ICH's portion. During
1998, the highest amount outstanding under the loan was $5.2 million. Terms of
the loan were a 25-year amortization period due in 10 years at an adjustable
rate of 9.0% with monthly principal and interest payments of $44,000, of which
ICH paid $22,000. ICCC received loan fees of $71,000 upon origination of the
loan in 1997. The loan was paid in full in the fourth quarter of 1998 with
proceeds from the sale of Commercial Mortgages.
<PAGE>
On November 9, 1998, IFC borrowed $5.0 million from ICH on a demand note
secured by mortgage servicing rights of $1.1 billion at an interest rate of 10%.
This rate was adjusted to 15% on December 15, 1998. The largest amount
outstanding under the note was $5.0 million. On December 22, 1998, this note was
paid in full.
During the normal course of business, ICH may advance or borrow funds on a
short-term basis with affiliated companies. Advances to affiliates are reflected
as "Due from affiliates" while borrowings are reflected as "Due to affiliates"
on the Company's balance sheet. These short-term advances and borrowings bear
interest at a fixed rate of 8.00% per annum. As of December 31, 1998, due from
affiliates was $22.1 million and due to affiliates was $11.2 million.
During the normal course of business, ICCC may advance or borrow funds on a
short-term basis with affiliated companies. Advances to affiliates are reflected
as "Due from affiliates" while borrowings are reflected as "Due to affiliates"
on ICCC's balance sheet. These short-term advances and borrowings bear interest
at a fixed rate of 8.00% per annum. As of December 31, 1998, due from affiliates
was $5.7 million and due to affiliates was $21.1 million.
Cash and Cash Equivalents
As of December 31, 1998, ICH had $60,000 of cash and cash equivalents on
deposit with Southern Pacific Bank ("SPB"), a subsidiary of ICII of which Joseph
R. Tomkinson is a director.
Purchase of Commercial Mortgages
During 1998, ICH purchased $525.2 million of Commercial Mortgages from ICCC
at net discounts of $3.1 million.
During 1998, Bankers Capital Resource, Inc., of which Mr. Endresen's
brother is a principal, brokered an aggregate of approximately $12.9 million of
loans to ICCC. Relative to those loans, Bankers Capital Resource, Inc.
was paid broker fees of approximately $137,000 for that period.
Sale of Commercial Mortgages
During the year ended December 31, 1998, ICH sold $43.2 million of
Commercial Mortgages to ICCC at no gain or loss.
Unsecured Promissory Note
In July 1998, William D. Endresen, Senior Vice President of ICH and
President and Director of ICCC, and his wife, the makers, signed an unsecured
promissory note for $100,000 with ICH, the holder, which was modified in
November 1998 and states that the makers are to repay the note and accrued
interest at a rate of 9% per annum with 50% of the after tax dividend equivalent
payments made to Mr. Endresen in accordance with the Stock Options and Awards
Plan. During 1998, the highest balance outstanding under the note was $101,000.
As of March 31, 1999, the balance outstanding on the note was $101,000.
Consulting Arrangement
In May 1998, Stephan R. Peers, a Director of the Company, entered into an
agreement with RAI to perform business consulting services for IMH and ICH.
Under the agreement Mr. Peers is paid a fee of approximately $15,000
semi-monthly and he is reimbursed for reasonable out of pocket expenses. During
the year ended December 31, 1998, Mr. Peers was paid approximately $76,000, of
which $38,000 was allocated to ICH. If Mr. Peers is terminated without cause, as
defined in the agreement, then he is entitled to receive the entire amount due
under the contract during the time mutually agreed upon. The agreement expired
on December 31, 1998.
<PAGE>
Other Transactions
Thomas J. Poletti, a Director of ICH, is a partner in the law firm
Freshman, Marantz, Orlanski, Cooper & Klein, which is counsel to the Company and
IMH. Mr. Poletti owns 12,000 shares of the Company's Common Stock and options to
purchase 20,000 shares of Common Stock.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Newport
Beach, State of California, on the 29th day of April, 1999.
IMPAC COMMERCIAL HOLDINGS, INC.
BY: /s/ JOSEPH R. TOMKINSON
-------------------------
Joseph R. Tomkinson
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statements has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
--------- ----- ----
* Chairman of the Board and Chief April 29, 1999
------------------- Executive Officer (Principal Executive
Joseph R. Tomkinson Officer)
/s/ Richard J. Johnson Chief Financial Officer (Principal April 29, 1999
---------------------- Financial and Accounting Officer)
Richard J. Johnson
* Director April 29, 1999
-------------------
James Walsh
* Director April 29, 1999
-------------------
Frank P. Filipps
* Director April 29, 1999
-------------------
Stephan R. Peers
* Director April 29, 1999
-------------------
Thomas J. Poletti
* Director April 29, 1999
-------------------
Timothy R. Busch
</TABLE>
*By: /s/ Richard J. Johnson
----------------------
Richard J. Johnson
Attorney in Fact
