As filed with the Securities and Exchange Commission on August 22, 1997
Registration No. 333-___________AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1997.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OFUnder The Securities Act of 1933
_____________________________----------------
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
_____________________________
MARYLAND 33-0675505
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
20371 IRVINE AVENUE
SANTA ANA HEIGHTS, CA 92707
MARYLAND (714) 556-0122 33-0675505
(STATE OR OTHER (ADDRESS, INCLUDING ZIP CODE, (I.R.S. EMPLOYER
JURISDICTION OF AND TELEPHONE NUMBER, INCLUDING IDENTIFICATION NUMBER)
INCORPORATION OR AREA CODE, OF REGISTRANTS'
ORGANIZATION) PRINCIPAL EXECUTIVE OFFICES)
JOSEPH R. TOMKINSON
CHIEF EXECUTIVE OFFICER
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
20371 Irvine Avenue
Santa Ana Heights, CaliforniaIRVINE AVENUE
SANTA ANA HEIGHTS, CA 92707
(714) 556-0122
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Joseph R. Tomkinson
Chief Executive Officer
Imperial Credit Mortgage Holdings, Inc.
20371 Irvine Avenue
Santa Ana Heights, California 92707
(714) 556-0122
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
_____________________________
Copy to:
Thomas(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
THOMAS J. Poletti, Esq.
Freshman, Marantz, Orlanski,
CooperPOLETTI, ESQ.
KATHERINE J. BLAIR, ESQ.
FRESHMAN, MARANTZ, ORLANSKI,
COOPER & KleinKLEIN
9100 Wilshire Blvd., 8th Floor East
Beverly Hills, CaliforniaWILSHIRE BOULEVARD, 8TH FLOOR
BEVERLY HILLS, CALIFORNIA 90212
Telephone:TELEPHONE (310) 273-1870
Facsimile: (310) 274-8357
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME
TO TIME AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this formForm are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box.box: [_]
If any of the securities being registered on thisthe Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.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.offering: [_]
If delivery of the prospectusesprospectus is expected to be made pursuant to Rule 434,
please check the following box.box: [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
REGISTERED BE REGISTERED PER SECURITY(1) PRICE(1) FEE(3)
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Proposed Maximum
Title of each class of Amount to be Proposed Maximum Aggregate Aggregate Offering Amount of
Securities to be Registered Registered(1) Price Per Share(2) Price(1)(2) Registration Fee(3)
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Preferred Stock, $.01 per
value per share(4)
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Preferred Stock Warrants(4)
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Common Stock, $.01 perpar
value per share (4)(5)share........ 1,342,144 $26.22 $35,191,016 $10,664
- -----------------------------
Common Stock Warrants(4)(5)
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Debt Securities
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Debt Securities Warrants
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Total: $200,000,000 $60,606
============ =======
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(1) In no event willEstimated solely for the aggregate maximum offering pricepurpose of all securities
issued pursuant to this Registration Statement exceed $200,000,000.00. Any
securities registered hereunder may be sold separately or as units with
other securities registered hereunder.
(2) The proposed maximum offering price per share will be determined, from time
to time, bycalculating the Registrant in connection with the issuance by the
Registrant of the securities registered hereunder.
(3) Calculatedregistration fee
pursuant to Rule 457(o)457(c), based on the average of the ruleshigh and registrationslow sales
prices of the Common Stock on October 20, 1997 as reported on the American
Stock Exchange.
(2) Pursuant to Rule 429 under the Securities Act, of 1933, as amended.
(4) Subject to Footnote (1), there is being registered hereunder an
indeterminate number of34,286 shares of Preferred Stock and Common Stock as may
be sold, from time to time, by the Registrant, or as may be issued pursuant
to the conversion of Preferred Stock or the exercise of warrants.
(5) The aggregate amount of Common
Stock registered hereunder is limited,
solely for purposesare being carried forward from the Registrant's Registration
Statement No. 333-22051. Accordingly, the registration fee of any at$244.16
associated with such securities was previously paid on February 19, 1997
upon the market offering,filing of said Registration Statement.
(3) Paid by wire transfer to that which is
permissible under Rule 415(a)(4) of the Securities Act ofand Exchange Commission's account
at Mellon Bank.
----------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, as amended.
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 ofAS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, as amended, or until the registration statement
shall become effective on such date as the Commission acting pursuant to said
Section 8(a), may determine.AS AMENDED, THE
PROSPECTUS WHICH IS A PART OF THIS REGISTRATION STATEMENT IS A COMBINED
PROSPECTUS RELATING ALSO TO REGISTRATION STATEMENT NO. 333-22051.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment.+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.+
+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 August _____,SUBJECT TO COMPLETION, DATED OCTOBER 23, 1997
PROSPECTUS
[LOGO OF IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
Common]
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Dividend Reinvestment and Stock Preferred Stock, Debt Securities,
Warrants to Purchase Common Stock, Preferred Stock and
Debt SecuritiesPlan (the "Plan") of Imperial
Credit Mortgage Holdings, Inc., a Maryland corporation (the "Company") provides holders of record and
beneficial owners of shares of Common Stock, $.01 par value, of the Company
(the "Common Stock") with a simple and convenient method of investing cash
dividends in additional shares of stock at a 3% discount (subject to change)
from the market price (as determined in accordance with the Plan), to the
extent shares are acquired directly or through agents, dealers or underwriters designatedfrom the Company. If the shares are
acquired in open market transactions by the Plan Administrator (as defined in
Question 4), the discount will not be available. Common Stock may also be
purchased on a monthly basis with optional cash payments made by participants
in the Plan at a 2.5% discount (subject to change) from the market price (as
determined in accordance with the Plan). Each of the discounts is subject to
change (but will not vary from the range of 0% to 5%) from time to time or
discontinuance at the Company's discretion after a review of current market
conditions, the level of participation in the Plan and the Company's current
and projected capital needs. PARTICIPANTS MAY ASCERTAIN THE APPLICABLE DISCOUNT
RATE BY CONTACTING THE COMPANY'S INVESTOR RELATIONS DEPARTMENT AT (714) 438-
2100.
Brokers and nominees may issuereinvest dividends and sell from time to time one or moremake optional cash payments
on behalf of the following
typesbeneficial owners. Those holders of its securities (the "Securities"): (i) shares of its Common Stock $0.01 par value per share ("Common Stock"); (ii) shareswho do not
participate in the Plan will receive cash dividends, as declared, in the usual
manner.
To enroll in the Plan, simply complete the enclosed Authorization Form and
return it in the envelope provided. Enrollment in the Plan is entirely
voluntary and participants in the Plan may terminate their participation at any
time. A broker, bank or other nominee may reinvest dividends and make optional
cash payments on behalf of beneficial owners. Stockholders who are presently
enrolled in the existing Imperial Credit Mortgage Holdings, Inc. Dividend
Reinvestment and Stock Purchase Plan will continue to be enrolled in the Plan
unless you notify the Company otherwise. The Plan amends and restates in its
Preferredentirety the existing Imperial Credit Mortgage Holdings, Inc. Dividend
Reinvestment and Stock $0.01 par value per share,Purchase Plan.
A participant in one or more series ("Preferred Stock"); (iii) debt
securities, in one or more series, any series of whichthe Plan may be either senior debt
securities or subordinated debt securities (collectively, "Debt Securities" and,
as appropriate, "Senior Debt Securities" or "Subordinated Debt Securities");
(iv) warrants to purchaseobtain additional shares of Common Stock ("by (i)
reinvesting dividends on all or part of the shares of Common Stock Warrants");
Preferred Stock ("Preferred Stock Warrants");held by the
participant, (ii) making optional cash payments of not less than $50 and Debt Securities ("Debt
Warrantsup to
$10,000 per month, whether or not dividends on shares held by the participant
are being reinvested, and together(iii) making optional cash payments in excess of
$10,000 per month with Common Stock Warrants and Preferred Stock Warrants,
collectively, "Securities Warrants"); and (v) any combinationthe permission of the foregoing,
either individuallyCompany whether or as units consisting of one or more of the foregoing types
of Securities. The Securities offered pursuant to this Prospectus may be issued
in one or more series, in amounts, at prices andnot dividends
on terms to be determined at
the time of the offering of each such series. The Securities offeredshares held by the Company pursuant to this Prospectus will be limited to $200,000,000 aggregate
initial public offering price, including the exercise price of any Securities
Warrants.
SEE "RISK FACTORS" STARTING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASES.
The specific terms of each offering of Securities in respect of which this
Prospectus isparticipant are being delivered are set forth in an accompanying Prospectus
Supplement (each, a "Prospectus Supplement") relating to such offering of
Securities. Such specific terms include, without limitation, to the extent
applicable; (1) in the case of any series of Preferred Stock, the specific
designations, preferences, conversion and other rights, voting powers and
restrictions, limitations as to dividends and other distributions,
qualifications or terms or conditions of redemption of such series of Preferred
Stock; (2) in the case of any series of Debt Securities, the specific
designations, rights and restrictions of such series of Debt Securities,
including without limitation whether the Debt Securities are Senior Debt
Securities or Subordinated Debt Securities, the currency in which such Debt
Securities are denominated and payable, the aggregate principal amount, stated
maturity, method of calculating and dates for payment of interest and premium,
if any, and any conversion, exchange, redemption or sinking fund provisions; (3)
in the case of the Securities Warrants, the Debt Securities, Preferred Stock or
Common Stock, as applicable, for which each such warrant is exercisable, and the
exercise price, duration, detachability and call provisions of each such
warrant; and (4) in the case of any offering of Securities, to the extent
applicable, the initial public offering price or prices, listingreinvested.
(Continued on any
securities exchange, certain federal income tax consequences and the agents,
dealers or underwriters, if any, participating in the offering and sale of the
Securities. If so specified in the applicable Prospectus Supplement, any series
of Securities may be issued in whole or in part in the form of one or more
temporary or permanent Global Securities, as defined herein.next page)
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.
1The date of this Prospectus is , 1997
The Company(Continued from previous page)
Optional cash payments in excess of $10,000 may sell all orbe made only pursuant to an
accepted request for waiver. It is expected that a portion of the shares of
Common Stock available for issuance under the Plan will be issued pursuant to
such waivers. The price to be paid for shares of Common Stock purchased under
the Plan in excess of $10,000 pursuant to the optional cash payment feature of
the Plan will be a price reflecting a discount of 0% to 5% (the "Waiver
Discount") (see Question 18) from the applicable Market Price (as defined in
Question 13). Currently, under the Plan, the price per share purchased in
excess of $10,000 will be at a 2.5% discount and shares may be purchased
either directly from the Company or on the open market. There is no pre-
established maximum limit applicable to optional cash payments that may be
made pursuant to accepted requests for waiver. Optional cash payments that do
not exceed $10,000 and the reinvestment of dividends in additional shares of
Common Stock will not be subject to the Waiver Discount. Participants in the
Plan may request that any offeringor all of itstheir shares held in Plan accounts be sold
by the Plan Administrator. See Question 28.
To the extent that shares of Common Stock issued hereunder are authorized
but previously unissued shares rather than shares acquired in the open market,
the Plan will raise additional capital for the Company. The Company currently
intends to issue such shares and, therefore, the Plan is expected to raise
capital for the Company. Each month a portion of the shares available for
issuance under the Plan may be purchased by owners of shares (including
brokers or dealers) who, in connection with any resales of such shares, may be
deemed to be underwriters within the meaning of the Securities through agents, to or through underwriters or dealers, or directly to other
purchasers.Act of 1933, as
amended (the "Securities Act"). See "Plan of Distribution." The related Prospectus Supplement for
each offeringThese sales will
be effected through the Company's ability to waive limits applicable to the
amounts which participants may invest pursuant to the Plan's optional cash
payment feature.
From time to time, financial intermediaries, including brokers and dealers,
may engage in positioning transactions in order to benefit from the discount
from market price of Securities sets forth the nameCommon Stock acquired through the reinvestment of
any agents, underwriters or
dealers involveddividends under the Plan. Such transactions may cause fluctuations in the
saletrading volume of suchthe Common Stock. Financial intermediaries which engage in
positioning transactions may be deemed to be underwriters within the meaning
of the Securities and any applicable fee,
commission, discount or indemnification arrangement with any such party.Act. See "Use"Plan of Proceeds.Distribution."
This Prospectus may not be usedrelates to consummate sales1,376,430 shares of Securities unless
accompanied by a Prospectus Supplement. The delivery in any jurisdiction ofCommon Stock offered hereby
and registered for sale under the Plan. Participants should retain this
Prospectus together with afor future reference.
This Prospectus Supplement relating to specific
Securities shalldoes not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful to make such an offer or solicitation in such
jurisdictionjurisdiction. No person has been authorized to give any information or to make
any representations other than those contained in this Prospectus in
connection with the offering made hereby, and if given or made, such
information or representations must not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that information herein is correct as of any other
Securities covered by this Prospectus but not described in such Prospectus
Supplement.
Thetime subsequent to the date
of this prospectus is _____________, 1997.hereof.
2
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR THE ACCOMPANYING PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER,
AGENT OR DEALER. NEITHER THE DELIVERYTABLE OF THIS PROSPECTUS OR THE ACCOMPANYING
PROSPECTUS SUPPLEMENT NOR ANY DISTRIBUTION OF SECURITIES BEING OFFERED PURSUANT
TO THIS PROSPECTUS AND AN ACCOMPANYING PROSPECTUS SUPPLEMENT SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT THE INFORMATION
CONTAINED HEREIN OR THEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF
OR THEREOF. THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT DO NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE
SECURITIES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.CONTENTS
AVAILABLE INFORMATION....................................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 4
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC...................................... 5
SUMMARY OF PLAN............................................................. 5
THE PLAN.................................................................... 7
PURPOSE..................................................................... 7
OPTIONS AVAILABLE TO PARTICIPANTS........................................... 7
ADVANTAGES AND DISADVANTAGES................................................ 8
ADMINISTRATION.............................................................. 9
PARTICIPATION............................................................... 9
PURCHASE AND PRICES OF SHARES............................................... 14
DIVIDENDS ON FRACTIONS...................................................... 20
CERTIFICATES FOR COMMON SHARES.............................................. 20
WITHDRAWALS AND TERMINATION................................................. 20
OTHER INFORMATION........................................................... 21
DIVIDENDS................................................................... 26
USE OF PROCEEDS............................................................. 26
PLAN OF DISTRIBUTION........................................................ 26
LEGAL OPINION............................................................... 27
EXPERTS..................................................................... 27
INDEMNIFICATION............................................................. 27
GLOSSARY.................................................................... 28
SCHEDULE A.................................................................. 30
3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports proxy statements and other information with the Securities
and Exchange Commission (the "Commission"). Such reports,Reports, proxy statements and
other information filed byconcerning the Company maycan be inspected and copied, at
prescribed rates, at the public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 Room 1024, as well
asand at the
following regional offices of the Commission at SevenCommission: New York (Seven World Trade
Center, 13th
Floor,Suite 1300, New York, New York 10048, the Northwestern10048), and Chicago (Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601. Copies60661-
2511), and copies of such material may
alsocan be obtained at prescribed rates by writing tofrom the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549.20549, at prescribed rates. The Commission maintains a websiteweb
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission. The address of the site is http:\//www.sec.gov. The Common
Stock is listed on the American Stock Exchange. Reports, proxy
statements and other information described aboveconcerning the Company also may also be inspected and copied
at the offices of the American Stock Exchange at 86 Trinity Place, New York, New York
10006.
The Company has filed withwhere the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Securities offered hereby.Company's Common Stock
is listed. This Prospectus does not contain all
of the information set forth in the
Registration Statement certain parts ofand Exhibits thereto which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
Securities offered hereby, reference is made to the Registration Statement and
the exhibits and schedules thereto. Statements contained herein concerning the
provisions of any documents are necessarily summaries of those documents, and
each statement is qualified in its entirety by reference to the copy of the
applicable documenthas filed with
the Commission. The Registration StatementCommission under the Securities Act and any amendments thereto, including exhibits filed as a part thereof, are
available for inspection and copying as set forth above.to which reference is hereby made.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Securities and Exchange Commission by
the Company are incorporated herein by reference:reference in this Prospectus: (1) Thethe
Company's Annual Report on Form 10-K for the year ended December 31, 1996; (2)
The Company's Proxy Statement for the Annual Meeting of Stockholders held
on July 22, 1997;
(3) The description of the Common Stock contained in the Company's Registration
Statement on Form 8-A, including all amendments and reports filed for the
purpose of updating such description;
(4) The Company's Quarterly Report on Form 10-Q for the quarterly periodquarter ended June 30,March 31,
1997; and
(5) The(4) the Company's Quarterly Report on Form 10-Q for the quarterly periodquarter ended
March 31, 1997.
3
June 30, 1997; (5) the Company's current report on Form 8-K filed on October
17, 1997; and (6) the section of the Company's Registration Statement on Form
S-11, filed with the Commission on October 25, 1996 and as amended by
Amendment No. 1 filed with the Commission on November 4, 1996, entitled
"Description of Securities."
All documents filed by the Company pursuant to SectionsSection 13(a), 13(c), 14 or
15(d) of the Exchange Act aftersubsequent to the date of this Prospectus and prior
to the termination of the offering of all Securitiesthe securities offered hereby shall be
deemed to be incorporated by reference ininto this Prospectus and to be a part hereof
from the date of filing
of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein or in any accompanying Prospectus Supplement relating to a
specific offering of Securities or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any accompanying Prospectus Supplement. Subject to the foregoing,
all information appearing inProspectus.
Any person receiving a copy of this Prospectus is qualified in its entirety by the
information appearing in the documents incorporated herein by reference.
The Company will furnishmay obtain without charge,
to each person to whom this
Prospectus is delivered, on the written or oralupon request, of any such person, a copy of any and all of the documents described above under "Incorporation of
Certain Documentsincorporated by Reference," other thanreference herein,
except for the exhibits to such documents, unless
such exhibits are specifically incorporated by reference therein. Suchdocuments. Written requests should be
directed to:addressed to Investor Relations, Imperial Credit Mortgage Holdings, Inc.,
20371 Irvine Avenue, Santa Ana Heights, California 92707, Attention: Investor Relations,
Telephone:92707. TELEPHONE REQUESTS
MAY BE DIRECTED TO INVESTOR RELATIONS AT (714) 556-0122.438-2100.
4
THE COMPANY
Unless the context otherwise requires, references herein to the "Company"
refer to Imperial Credit Mortgage Holdings, Inc. ("IMH"), ICI Funding
Corporation ("ICIFC") and its wholly owned subsidiary ICIFC Secured Assets
Corp., IMH Assets Corp. ("IMH Assets"), and Imperial Warehouse Lending Group,
Inc. ("IWLG"), collectively.
GENERALIMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
Imperial Credit Mortgage Holdings, Inc. is a specialty finance company
which, together with its subsidiaries and related companies, operates three
businesses: (1) the Long-Term Investment Operations, (2) the Conduit
Operations, and (3) the Warehouse Lending Operations. The Long-Term Investment
Operations invests primarily in non-conforming residential mortgage loans and
securities backed by such loans. The Conduit Operations purchases and sells or
securitizes primarily non-conforming mortgage loans, and the Warehouse Lending
Operationsoperations provides warehouse and repurchase financing to originators of
mortgage loans. These latter two businesses include certain ongoing operations contributed to
theThe Company in 1995 by Imperial Credit Industries, Inc. ("ICII"), a leading
specialty finance company (the "Contribution Transaction"). IMH is organized as a real estate investment trust
("REIT") for federal income tax purposes, which generally allows it to pass
through qualified income to stockholders without federal income tax at the
corporate level. Long-Term Investment Operations. The Long-Term Investment Operations,
conducted by IMH, invests primarily in non-conforming residential mortgage loans
and mortgage-backed securities secured by or representing interests in such
loans and, to a lesser extent, in second mortgage loans. Non-conforming
residential mortgage loans are residential mortgages that do not qualify for
purchase by government-sponsored agencies such as the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
Such loans generally provide higher yields than conforming loans. TheCompany's principal differences between conforming loans and non-conforming loans include the
applicable loan-to-value ratios, the credit and income histories of the
mortgagors, the documentation required for approval of the mortgagors, the type
of properties securing the mortgage loans, the loan sizes, and the mortgagors'
occupancy status with respect to the mortgaged properties. Second mortgage loans
are higher yielding mortgage loans secured by a second lien on the property and
made to borrowers owning single-family homes for the purpose of debt
consolidation, home improvements, education and a variety of other purposes.
Conduit Operations. The Conduit Operations, conducted by ICIFC, purchases
primarily non-conforming mortgage loans and, to a lesser extent, second mortgage
loans from its network of third party correspondents and subsequently
securitizes or sells such loans to permanent investors, including the Long-Term
Investment Operations. ICIFC's ability to design non-conforming mortgage loans
which suit the needs of its correspondent loan originators and their borrowers
while providing sufficient credit quality to investors, as well as its efficient
loan purchasing process, flexible purchase commitment options and competitive
pricing, enable it to compete effectively with other non-conforming mortgage
loans conduits. In addition to earnings generated from ongoing securitizations
and sales to third party investors, ICIFC supports the Long-Term Investment
Operations of the Company by supplying IMH with non-conforming mortgage loans
and securities backed by such loans. Prior to the Contribution Transaction,
ICIFC was a division or subsidiary of ICII since 1990. IMH owns 99% of the
economic interest in ICIFC, while Joseph R. Tomkinson, the Company's Chief
Executive Officer, William S. Ashmore, the Company's President, and Richard J.
Johnson, the Company's Chief Financial Officer, are the holders of all the
outstanding voting stock of, and 1% of the economic interest in, ICIFC.
Warehouse Lending Operations. The Warehouse Lending Operations, conducted
by IWLG, provides warehouse and repurchase financing to ICIFC and to approved
mortgage banks, most of which are correspondents of ICIFC, to finance mortgage
loans during the time from the closing of the loans to their sale or other
settlement with pre-approved investors.
IMH's principal sources of net income are (1) net income from the Long-Term
Investment Operations, (2) net income from the Warehouse Lending Operations, and
(3) equity in net income of the Conduit Operations. In addition, the Company
expects to receive dividend income from its investment in the Common Stock of
IMH
5
Commercial Holdings, Inc. ("ICH"), a REIT in which IMH currently holds shares of
Common Stock and shares of non-voting Class A Common Stock which are convertible
into an equivalent number of shares of ICH's Common Stock. The net income of the
Conduit Operations is fully subject to federal and state income taxes. The
principal source of income from IMH's Long-Term Investment Operations is net
interest income, which is the net spread between interest earned on mortgage
loans and securities held for investment and the interest costs associated with
the borrowings used to finance such loans and securities, including CMO debt.
The principal sources of income from the Warehouse Lending Operations are net
interest income, which is the net spread between interest earned on warehouse
loans and the interest costs associated with the borrowings used to finance such
loans, and the fee income received from the borrowers in connection with such
loans. The principal sources of income from the Conduit Operations are gains
recognized on the sale of mortgage loans and securities, net interest income
earned on loans purchased by ICIFC pending their securitization or resale,
servicing fees, commitment fees and processing fees.
The Companyexecutive office is located at 20371
Irvine Avenue, Santa Ana Heights, California 9270792707.
SUMMARY OF PLAN
The Plan provides owners of Common Stock with a convenient and its telephone numberattractive
method of investing cash dividends (in some cases, at a discount from the
Market Price (as defined in Question 13) and without payment of any brokerage
commission or service charge), and investing optional cash payments in
additional shares of Common Stock. See Question 22 regarding brokerage
commissions. The price to be paid for shares of Common Stock purchased under
the Plan will be a price reflecting (i) a discount of 3% (subject to change)
from the Market Price for the reinvestment of cash dividends, to the extent
shares are purchased directly from the Company, (ii) no discount (subject to
change) from the market price for the reinvestment of cash dividends, to the
extent shares are purchased on the open market, (iii) a 0% to 5% discount,
which is (714) 556-0122.
OPERATING STRATEGY
Thecurrently at 2.5%, (subject to change) from the Market Price for the
investment of optional cash payments of up to $10,000, whether purchased
directly from the Company believesor on the open market, and (iv) a discount of 0% to
5% (the "Waiver Discount") from the Market Price for the investment of
optional cash payments that exceed $10,000. Each of the discounts is subject
to change (but will not vary from the range of 0% to 5%) from time to time or
discontinuance at the Company's discretion after a structural change has occurredreview of current market
conditions, the level of participation in the mortgage
banking industry which has increased demand for higher yielding non-conforming
mortgage loans. This change has been caused by a number of factors, including:
(1) investors' demand for higher yielding assets due to historically low
interest rates over the past few years; (2) increased securitization of high-
yielding non-conforming mortgage loans by the investment banking industry; (3)
quantificationPlan and development of standardized credit criteria by credit rating
agencies for securities backed by non-conforming mortgage loans; (4) increased
competition in the securitization industry, which has reduced borrower interest
rates and fees, thereby making non-conforming mortgage loans more affordable;
and (5) the end of the refinance "boom" of 1992 and 1993, which has caused many
mortgage banks, attempting to sustain origination volume, to seek out non-
conforming mortgage loan borrowers.
The Company's strategy is to take advantage of the increased demand for
non-conforming mortgage loans through ICIFC's network of correspondents, which
sell non-conforming mortgage loans to ICIFC for resale or securitization. The
Company's strategic objective is to exploit the structural changes in the non-
conforming mortgage loan market through the Conduit Operations and to invest in
the non-conforming mortgage loans and mortgage-backed securities originated and
created by the Conduit Operations. Management believes that the Long-Term
Investment Operations complements the Conduit Operations by providing ICIFC with
a reliable investor for a portion of its loan sales and securitizations while
ICIFC supports the Long-Term Investment Operations by providing non-conforming
mortgage loans and securities backed by non-conforming mortgage loans. The
Company believes the Warehouse Lending Operations provides synergies with the Company's other operations because it provides funding to the Conduit Operationscurrent
and extends the scopeprojected capital needs. PARTICIPANTS MAY ASCERTAIN THE APPLICABLE
DISCOUNT RATE BY CONTACTING THE COMPANY'S INVESTOR RELATIONS DEPARTMENT AT
(714) 438-2100. In addition, Participants are currently responsible for their
share of the Company's relationshipsbrokerage commissions incurred in connection with certain of its
correspondent loan originators.
The Company purchases, through its network of correspondents, and invests a
substantial portion of its long-term investment portfolio in non-conforming
mortgage loans because management believes that non-conforming mortgage loans
provide an attractive net income earnings profile and produce higher yields
without commensurately higher credit risks, when compared with conforming
mortgage loans. Although a substantial majority of the non-conforming loans
purchased by the Conduit Operations are "A" and "A-" grade mortgage loans, the
Company's strategy includes the purchase of
"B" and "C" grade mortgage loans.
In general, "B" and "C" grade mortgage loans are residential mortgage loans made
to borrowers with lower credit ratings than borrowers of "A" grade mortgage
loans, and are normally subject to greater frequency of losses and delinquency.
As a result, "B" and "C" grade mortgage loans normally bear a higher rate of
interest and higher fees.
Management believes that IMH's tax and corporate structure as a REIT
provides it with an advantage over other financial institutions and mortgage
banking competitors. As a REIT, IMH can generally pass through qualifying
earnings as dividends to stockholders without federal income tax atshares on the corporate level. Thus, the Company expects to be able to pay higher annual
dividends than traditional mortgage lending institutions, which are subject to
federal income tax. In addition, management believes that the Company provides
a more attractive
6
method of investing in mortgages than regulated financial institutions because
the Company is not subject to most of the federal and state regulations imposed
upon insured financial institutions, and therefore, does not incur their related
costs.
DIVIDEND POLICY AND DISTRIBUTIONS
To maintain its qualification as a REIT, IMH intends to make annual
distributions to stockholders of at least 95% of its taxable income (which does
not necessarily equal net income as calculated in accordance with GAAP)
determined without regard to the deduction for dividends paid and excluding any
net capital gains. Any taxable income remaining after the distribution of
regular quarterly dividends or other dividends will be distributed annually, on
or prior to the date of the first regular quarterly dividend payment date of the
following taxable year. The dividend policy is subject to revision at the
discretion of the Board of Directors. All distributions in excess of those
required for IMH to maintain REIT status will be made by IMH at the discretion
ofopen market. However, the Board of Directors andmay in the future
determine that the Company will dependpay such brokerage commissions on behalf of
Participants if, based on the taxable earningsadvice of IMH,tax counsel or a favorable ruling from
the financial conditionInternal Revenue Service ("IRS"), it determines that the Company's payment
of IMH and such other factorsexpenses will not jeopardize the Company's status as a REIT.
Subject to the Boardavailability of Director deems
relevant. The Boardshares of Directors has not establishedCommon Stock registered for
issuance under the Plan, there is no minimum or maximum limitation on the
amount of dividends a Participant may reinvest under the Plan. See Question 2.
Participants electing to invest optional cash payments in additional shares
of Common Stock are subject to a minimum per month purchase limit of $50 and a
maximum per month purchase limit of $10,000 (subject to waiver). See Question
18. Optional cash payments in excess of $10,000 may be made only upon
acceptance by the Company of a completed Request for Waiver form from a
Participant. See Question 18. Each month, at least three business days prior
to each record date (as defined in Question 19), the Company will establish
the Waiver Discount (as defined in Question 18), applicable to optional cash
payments that exceed $10,000. The Waiver Discount, which may vary each month,
will be established in the Company's sole discretion after a review of
5
current market conditions, the level of participation in the Plan and the
Company's current and projected capital needs. Optional cash payments that do
not exceed $10,000 and the reinvestment of dividends in additional shares of
Common Stock will not be subject to the Waiver Discount. Optional cash
payments of less than $50 and that portion of any optional cash payment which
exceeds the maximum monthly purchase limit of $10,000, unless such limit has
been waived, are subject to return to the Participant without interest.
Participants may request that any or all shares held in the Plan be sold by
the Plan Administrator on behalf of such Participants. See Question 28.
Subject to the availability of shares of Common Stock registered for
issuance under the Plan, there is no total maximum number of shares that can
be issued pursuant to the reinvestment of dividends and no pre-established
maximum limit applies to optional cash payments that may be made pursuant to
Requests for Waiver. As of the date hereof, 1,376,430 shares of Common Stock
have been registered and are available for sale under the Plan.
The Company expects to grant Requests for Waiver to financial
intermediaries, including brokers and dealers, and other Participants in the
future. Grants of Requests for Waiver will be made in the sole discretion of
the Company based on a variety of factors, which may include: the Company's
current and projected capital needs, the alternatives available to the Company
to meet those needs, prevailing market prices for Common Stock, general
economic and market conditions, expected aberrations in the price or trading
volume of the Common Stock, the potential disruption of the price of the
Common Stock by a financial intermediary, the number of shares of Common Stock
held by the Participant submitting the waiver request, the past actions of a
Participant under the Plan, the aggregate amount of optional cash payments for
which such waivers have been submitted and the administrative constraints
associated with granting such waivers. If such Requests for Waiver are
granted, a portion of the shares available for issuance under the Plan will be
purchased by Participants (including brokers or dealers) who, in connection
with any resales of such shares, may be deemed to be underwriters within the
meaning of the Securities Act. See "Plan of Distribution."
To the extent that Requests for Waiver are granted, it is expected that a
greater number of shares will be issued under the optional cash payment
feature of the Plan as opposed to the dividend reinvestment feature of the
Plan.
Financial intermediaries may purchase a significant portion of the shares of
Common Stock issued pursuant to the optional cash payment feature of the Plan.
The Company does not have any formal or informal understanding with any such
organizations and, therefore, the extent of such financial intermediaries'
participation under the Plan cannot be estimated at this time. Participants
that are financial intermediaries that acquire shares of Common Stock under
the Plan with a view to distribution level.
DIVIDEND REINVESTMENT AND STOCK PURCHASEof such shares or that offer or sell
Shares for the Company in connection with the Plan may be deemed to be
underwriters within the meaning of the Securities Act.
From time to time, financial intermediaries, including brokers and dealers,
may engage in positioning transactions in order to benefit from the discount
from the Market Price of the shares of Common Stock acquired through the
reinvestment of dividends under the Plan. Such transactions may cause
fluctuations in the trading volume of the Common Stock. Financial
intermediaries which engage in positioning transactions may be deemed to be
underwriters within the meaning of the Securities Act. The Plan is intended
for the benefit of investors in the Company and not for individuals or
investors who engage in transactions which may cause aberrations in the price
or trading volume of the Common Stock.
6
THE PLAN
The Company has established aexisting Imperial Credit Mortgage Holdings, Inc. Dividend Reinvestment
and Stock Purchase Plan pursuant(the "Original Plan") was adopted by the Board of
Directors of Imperial Credit Mortgage Holdings, Inc. (the "Company") on
February 14, 1997 and was amended and restated by the Board of Directors on
October 21, 1997, including but not limited to which holdersauthorizing additional shares
to be issued under the Plan. Because the Company currently expects to continue
the Plan indefinitely, it expects to authorize for issuance and register under
the Securities Act additional shares from time to time as necessary for
purposes of recordthe Plan. The following questions and beneficial owners of shares of Common
Stock of IMH may elect to haveanswers explain and
constitute the Plan. Stockholders who do not participate in the Plan will
receive cash dividends, reinvestedas declared, and paid in the usual manner. A person
participating in the Original Plan will be enrolled automatically in additionalthe Plan,
unless the person gives written notice to the contrary. See Question 11.
PURPOSE
1. WHAT IS THE PURPOSE OF THE PLAN?
The primary purpose of the Plan is to provide eligible holders of shares of
Common Stock of the Company generallywith a convenient and simple method of increasing
their investment in the Company by investing cash dividends in additional
shares of Common Stock without payment of any brokerage commission or service
charge and at a discount from the Market Price (as defined in Question 13), to
the extent shares are purchased directly from the Company, and by investing
optional cash payments in additional shares of Common Stock at a discount from
the Market Price (and without payment of any brokerage commission or service
charge, to the extent shares are purchased directly from the Company). See
Question 5 for a description of the holders who are eligible to participate in
the Plan. The Plan may also be used by the Company to raise additional capital
through the sale each month of a portion of the shares available for issuance
under the Plan to owners of shares (including brokers or dealers) who, in
connection with any resales of such shares, may be deemed to be underwriters.
These sales will be effected through the Company's ability to waive
limitations applicable to the amounts which Participants (as defined in
Question 2) may invest pursuant to the Plan's optional cash payment feature.
See Question 18 for information concerning limitations applicable to
optional cash payments and certain of the factors considered by the Company in
granting waivers. To the extent shares are purchased from the Company under
the Plan, it will receive additional funds for general corporate purposes. The
Plan is intended for the benefit of investors in the Company and not for
individuals or investors who engage in transactions which may cause
aberrations in the price or trading volume of Common Stock. From time to time,
financial intermediaries may engage in positioning transactions in order to
benefit from the discount from the Market Price of the shares of Common Stock
acquired through the reinvestment of dividends under the Plan. Such
transactions may cause fluctuations in the trading volume of the Common Stock.
The Company reserves the right to modify, suspend or terminate participation
in the Plan by otherwise eligible holders of Common Stock in order to
eliminate practices which are not consistent with the purposes of the Plan.
OPTIONS AVAILABLE TO PARTICIPANTS
2. WHAT OPTIONS ARE AVAILABLE TO ENROLLED PARTICIPANTS?
Dividend Reinvestment
---------------------
Eligible holders of Common Stock who wish to participate in the Plan (each a
"Participant") may elect to have cash dividends paid on all or a portion of
their shares of Common Stock automatically reinvested in additional shares of
Common Stock. Cash dividends are paid on the Common Stock when and as declared
by the Company's Board of Directors. Subject to the availability of shares of
Common Stock registered for issuance under the Plan, there is no minimum
limitation on the amount of dividends a Participant may reinvest under the
dividend reinvestment feature of the Plan.
7
Optional Cash Payments
----------------------
Each month, Participants may also elect to invest optional cash payments in
additional shares of Common Stock, subject to a minimum per month purchase
limit of $50 and a maximum per month purchase limit of $10,000, subject to
waiver. See Question 18 for information concerning limitations applicable to
optional cash payments and the availability of waivers with respect to such
limitations. Participants may make optional cash payments each month even if
dividends on their shares of Common Stock are not being reinvested and whether
or not a dividend has been declared.
ADVANTAGES AND DISADVANTAGES
3. WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF THE PLAN?
Advantages:
----------
(a) The Plan provides Participants with the opportunity to reinvest cash
dividends paid on all or a portion of their shares of Common Stock in
additional shares of Common Stock without payment of any brokerage
commission or service charge and at a 3% discount from the Market Price
(subject to change), to the market
price andextent shares are purchased directly from the
Company.
(b) The Plan provides Participants with the opportunity to make monthly
investments of optional cash purchasespayments, subject to minimum and maximum
amounts, for the purchase of additional shares of Common Stock at the
Market Price (subject to change) (and without payment of any brokerage
commission or service charge, to the extent shares are purchased directly
from the Company).
(c) Subject to the availability of shares of Common Stock registered for
issuance under the Plan, all cash dividends paid on Participants' shares
can be fully invested in additional shares of Common Stock because the Plan
permits fractional shares to be credited to Plan accounts. Dividends on
such fractional shares, as well as on whole shares, will also be reinvested
in additional shares which will be credited to Plan accounts.
(d) The Plan Administrator, at no charge to Participants, provides for
the safekeeping of stock certificates for shares credited to each Plan
account.
(e) Periodic statements reflecting all current activity, including share
purchases and latest Plan account balance, simplify Participants' record
keeping. See Question 23 for information concerning reports to
Participants.
Disadvantages:
-------------
(a) No interest will be paid by the Company or the Plan Administrator on
dividends or optional cash payments held pending reinvestment or
investment. See Question 12.
(b) With respect to optional cash payments, the actual number of shares
to be issued to a Participant's Plan account will not be determined until
the end of the Company.relevant Pricing Period. Therefore, during the Pricing
Period Participants will not know the actual number of shares they have
purchased.
8
(c) Even if a Discount from the Market Price is in effect during the
Pricing Period, the Market Price, as so discounted, may exceed the price at
which shares of the Common Stock are trading on the Investment Date (as
defined in Question 12) when the shares are issued or thereafter.
(d) Because optional cash payments must be received by the Plan
Administrator prior to the related Pricing Period, such payments may be
exposed to changes in market conditions for a longer period of time than in
the case of typical secondary market transactions. In addition, optional
cash payments once received by the Plan Administrator will not be returned
to Participants unless a written request is directed to the Plan
Administrator at least two business days prior to the Investment Date with
respect to which optional cash payments have been delivered by such
Participant. See Questions 19 and 21.
(e) Resales of shares of Common Stock credited to a Participant's account
under the Plan will involve a brokerage commission and any applicable stock
transfer taxes on the resales. See Questions 22 and 28.
ADMINISTRATION
4. WHO ADMINISTERS THE MANAGER
Imperial Credit Advisors, Inc. ("ICAI"PLAN?
The Company has retained Boston Equiserve, L.P. as plan administrator (the
"Plan Administrator"), to administer the Plan, keep records, send statements
of account activity to each Participant and perform other duties relating to
the Plan. See Question 23 for information concerning reports to Participants.
Shares purchased under the Plan and held by the Plan Administrator will be
registered in the Plan Administrator's name or the "Manager"), a wholly-owned
subsidiaryname of ICII, overseesits nominee for the
day-to-day operationsbenefit of the Company, subject
to the supervision of the Company's Board of Directors, pursuant to a management
agreement (as amended, the "Management Agreement"). The Manager is involved in
three primary activities: (1) asset-liability management--primarily the analysis
and oversight of the acquisition, financing and disposition of Company assets;
(2) capital management--primarily the oversight of the Company's structuring,
analysis, capital raising and investor relations activities; and (3) operations
management--primarily the oversight of IMH's operating subsidiaries. The
Management Agreement expires on January 31, 2002 and is renewable thereafter
annually by agreement between the Company and the Manager, subject to approval
of a majority of those members of the Board of Directors of IMH who are not
affiliates of the Manager or ICII (the "Unaffiliated Directors").Participants. In the event that the Management Agreement is terminatedPlan Administrator resigns
or not renewed byotherwise ceases to act as plan administrator, the Company without cause,will appoint a
new plan administrator to administer the Company is obligated to pay the Manager a termination or non-
renewal fee determined by an independent appraisal.Plan.
The Manager is entitled to receive a per annum base management fee payable
monthly in arrears in an amount equal to seventy five percent (75%) of the sum
of (1) 3/8 of 1% of Gross Mortgage Assets of IMH composed of other than Agency
Certificates, conforming mortgage loans or mortgage-backed securities secured by
or representing interests in conforming mortgage loans, plus (2) 1/8 of 1% of
the remainder of Gross Mortgage Assets of IMH plus (3) 1/5 of 1% of the average
daily asset balance of the outstanding amounts under IWLG's warehouse lending
facilities. The remaining twenty-five percent (25%) of the per annum base
management fee is paid by IMHPlan Administrator also acts as dividend disbursing agent, transfer
agent and registrar for distribution to participants in its executive
bonus pool in amounts to be determined in the sole discretion of IMH's Chief
Executive Officer. Such payment is made in lieu of payment of a like amount to
the Manager under the Management Agreement. The Company also pays the Manager,
as incentive compensation for each fiscal quarter, an amount equal to 25% of the
Net Income of the Company, before deduction of such incentive compensation, in
excess of the amount that would produce an annualized Return on Equity equal to
the Ten Year U.S. Treasury Rate plus 2%, provided that such incentive
compensation payment will not reduce IMH's annualized Return on Equity to less
than the Ten Year U.S. Treasury Rate plus 2% (the "25% Incentive 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 income of the Company
determined in accordance with net taxable income before the Manager's incentive
compensation, the deduction for dividends paid and any net operating loss
deductions arising from losses in prior periods. A deduction
7
for all of the Company's interest expenses for borrowed money is also taken in
calculating Net Income. "Average Net Worth" means the arithmetic average of the
sum of the gross proceeds from any sale of equity securities by the Company,
before deducting any underwriting discounts and commissions and other expenses
and costs relating to a public offering of the Company's Common Stock.
PARTICIPATION
For purposes of this section, responses will generally be based upon the
method by which the stockholder holds his or her shares of Common Stock.
Generally, stockholders are either Record Owners or Beneficial Owners. A
Record Owner is a stockholder who owns shares of Common Stock plusin his or her
own name. A Beneficial Owner is a stockholder who beneficially owns shares of
Common Stock that are registered in a name other than his or her own name (for
example, the Company's retained earnings (without taking into account any losses incurredshares are held in prior periods) computed by taking the daily averagename of such values during such
period. "Gross Mortgage Assets" means for any month the weighted average book
value of the Mortgage Assets, before reserves for depreciation or bad debtsa broker, bank or other similar noncash reserves, computednominee).
A Record Owner may participate directly in the Plan, whereas a Beneficial
Owner will have to either become a Record Owner by having one or more shares
transferred into his or her own name or coordinate his or her participation in
the Plan through the broker, bank or other nominee in whose name the
Beneficial Owner's shares are held. IF A BENEFICIAL OWNER WHO DESIRES TO
BECOME A PARTICIPANT ENCOUNTERS ANY DIFFICULTIES IN COORDINATING HIS OR HER
PARTICIPATION IN THE PLAN WITH HIS OR HER BROKER, BANK OR OTHER NOMINEE, HE OR
SHE SHOULD CALL THE COMPANY'S INVESTOR RELATIONS DEPARTMENT AT (714) 438-2100.
5. WHO IS ELIGIBLE TO PARTICIPATE?
All Record Owners or Beneficial Owners of at least one share of Common Stock
are eligible to participate in the endPlan. A Record Owner may participate
directly in the Plan. A Beneficial Owner must either become a
9
Record Owner by having one or more shares transferred into his or her own name
or arrange with the broker, bank or other nominee who is the record holder to
participate on his or her behalf. See Question 6.
To facilitate participation by Beneficial Owners, the Company has made
arrangements with the Plan Administrator to reinvest dividends, on a per
dividend basis, and accept optional cash payments under the Plan by record
holders such as brokers, banks and other nominees, on behalf of such month. "Ten Year
U.S. Treasury Rate" meansBeneficial
Owners. See Question 6. Notwithstanding anything in the arithmetic average of the weekly average yield to
majority for U.S. Treasury fixed interest rate securities (adjusted to a
constant maturity of 10 years) as published weekly by the Federal Reserve Board
during a quarter. The 25% Incentive PaymentPlan to the Manager is calculated
quarterly in arrears before any income distributions are made to stockholders
for the corresponding period. Pursuant to the Management Agreement,contrary,
the Company provides upreserves the right to 1/4 ofexclude from participation in the Company's 25% Incentive Payment for distributionPlan, at
any time, persons or entities who attempt to circumvent the Plan's standard
$10,000 per month maximum by accumulating accounts over which they have
control or any other persons or entities, as
bonuses to participants in its executive bonus pool in amounts to be determined in the sole discretion
of the Company's Chief Executive Officer. Such payment is
made in lieu of payment of a like amount to the Manager under the Management
Agreement.
TAX STATUS OF IMH
IMH has elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code"), commencing with its
taxable year ended December 31, 1995, and believes its organization and manner
of operation have enabled and will continue to enable it to meet the
requirements for qualification as a REIT. To maintain REIT status, any entity
must meet a number of organizational and operational requirements, including a
requirement that it currently distribute at least 95% of its taxable income
(determined without regard to the dividends paid deduction and excluding net
capital gains) to its stockholders. As a REIT, IMH generally will not be
subject to federal income tax on net income it distributes currently to its
stockholders. If IMH fails to qualify as a REIT in any taxable year, it will be
subject to federal income tax at regular corporate rates.Company. See "Federal Income
Tax Considerations" and "Risk Factors--Consequences of Failure to Maintain REIT
Status; IMH Subject to Tax as a Regular Corporation." Even if IMH qualifies for
taxation as a REIT, IMH may be subject to certain federal, state and local taxes
on its income. In addition, ICIFC is subject to federal and state income tax at
regular corporate rates on its net income.
8
RISK FACTORS
Before investing in the Securities, prospective investors should give
special consideration to the information set forth below, in addition to the
information set forth elsewhere in this Prospectus. The following risk factors
are interrelated and, consequently, investors should treat such risk factors as
a whole.
This Prospectus contains forward-looking statements that inherently 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 in the following risk factors and
elsewhere in this Prospectus.
NET INTEREST INCOME MAY BE ADVERSELY AFFECTED BY INTEREST RATE FLUCTUATIONS;
PREPAYMENT'S OF MORTGAGE LOANS MAY ADVERSELY AFFECT NET INCOME
The Company's income may be affected by changes in market interest rates.
In conducting its Conduit Operations, the Company is subject to the risk of
rising mortgage interest rates between the time the Company commits to purchase
mortgage loans at a fixed price and the time the Company sells or securitizes
those mortgage loans. An increase in interest rates will generally result in a
decrease in market value of loans that the Company has committed to purchase at
a fixed price, but has not yet sold or securitized.
Higher rates of interest may discourage potential mortgagors from
refinancing mortgage loans, borrowing to purchase a home or seeking a second
mortgage loan, thus decreasing the volume of mortgage loans available to be
purchased by the Conduit Operations. In addition, an increase in short-term
interest rates may decrease or eliminate or, under certain circumstances, cause
to be negative, the Company's net interest spread during the accumulation of
mortgage loans held for sale or the net interest spread on mortgage loans held
for investment when such loans are financed through reverse repurchase
agreements. Should short-term interest rates exceed long- term interest rates
(an "inverted yield curve" scenario), the negative effect on the Company's net
interest spread would likely be coupled with a reduction in any income on any
servicing portfolio held by the Company to the extent prepayments on the
underlying mortgage loans increased as long-term interest rates declined.
In conducting its Long-Term Investment Operations, a significant portion of
the Company's mortgage assets held for long-term investment bear adjustable
interest ("ARMs") or pass-through rates based on short-term interest rates, and
substantially all of the Company's borrowings bear interest at fixed rates and
have maturities of less than 60 days. Consequently, changes in short-term
interest rates may significantly influence the Company's net interest income.
Mortgage loans owned by the Company that are ARMs or mortgage-backed securities
backed by ARMs are subject to periodic interest rate adjustments based on
objective indices such as the CMT Index, which is the one year constant maturity
Treasury index, or LIBOR, the London interbank offered rate. Interest rates on
the Company's borrowings are also based on short-term indices. To the extent any
of the Company's mortgage assets are financed with borrowings bearing interest
based on an index different from that used for the related mortgage assets, so-
called "basis" interest rate risk will arise. In such event, if the index used
for the subject mortgage assets is a "lagging" index (such as the 11th District
Cost of Funds) that reflects market interest rate changes on a delayed basis,
and the rate borne by the related borrowings reflects market rate changes more
rapidly, the Company's net interest income will be adversely affected in periods
of increasing market interest rates. Additionally, the Company's mortgage assets
are subject to periodic interest rate adjustments that may be less frequent than
the increases or decreases in rates borne by the borrowings or financings
utilized by the Company. Accordingly, in a period of increasing interest rates,
the Company could experience a decrease in net interest income or a net interest
loss because the interest rates on borrowings could adjust faster than the
interest rates on the Company's ARMs or mortgage-backed securities backed by
ARMs. Moreover, ARMs are typically subject to periodic and lifetime interest
rate caps, which limit the amount an ARMs interest rate can change during any
given period. The Company's borrowings are not subject to similar restrictions.
Hence, in a period of rapidly increasing interest rates, the Company could also
experience a decrease in net interest income or a net interest loss in the
absence of effective hedging because the interest rates on borrowings could
increase without limitation by caps while the interest rates on the Company's
ARMs and mortgage-backed securities backed by ARMs would be so limited. Further,
some ARMs may be subject to periodic payment caps that result in some portion of
the interest accruing on the ARMs being deferred and added to the principal
outstanding. This could result in less cash received by the Company on its ARMs
than is required to pay interest on the related borrowings, which will not have
such payment caps. The
9
Company expects that the net effect of these factors, all other factors being
equal, will be to lower the Company's net interest income or cause a net
interest loss during periods of rapidly rising interest rates, which could
negatively impact the market price of the Securities. No assurance can be given
as to the amount or timing of changes in income. To the extent that the Company
utilizes short-term debt financing for fixed rate mortgages or mortgage-backed
securities backed by fixed rate mortgages,Question 1.
Furthermore, the Company may alsoterminate, by written notice, at any time any
Participant's individual participation in the Plan if such participation would
be subject to
interest rate risks. To the extent that somein violation of the warehouse loans made by the
Company bear interest based upon an intermediate-term index while the Company's
borrowings to fund such loans bear interest based upon a short-term index, the
Company will be subject to the risk of narrowing interest rate spreads.
Higher rates of interest may have a negative effect, in particular, on the
yield of any Company portfolio of "principal-only" securities and other types of
mortgage-backed securities purchased at a discount. If the Company were required
to dispose of any "principal-only" securities held in its portfolio in a rising
rate environment, a loss could be incurred. Lower long-term rates of interest
may negatively affect the yield on any Company portfolio of "interest-only"
securities, servicing fees receivable, and other mortgage loan and mortgage-
backed securities purchased at a premium. It is also possible that in certain
low interest rate environments the Company would not fully recoup any initial
investment in such securities or investments.
Mortgage prepayment rates vary from time to time and may cause changesrestrictions contained in the amount of the Company's net interest income. Prepayments on ARMs and
mortgage-backed securities backed by ARMs generally increase when mortgage
interest rates fall below the then current interest rates on such ARMs.
Conversely, prepayments of such mortgage loans generally decrease when mortgage
interest rates exceed the then-current interest rate on such mortgage loans.
Prepayment experience also may be affected by the geographic location of the
property securing the mortgage loans, the credit grade of the mortgage loan, the
assumability of the mortgage loans, the ability of the borrower to convert to a
fixed-rate loan, conditions in the housing and financial markets and general
economic conditions. In addition, prepayments on ARMs are affected by conditions
in the fixed-rate mortgage market. If the interest rates on ARMs increase at a
rate greater than the interest rates on fixed-rate mortgage loans, prepayments
on ARMs will tend to increase. In periods of fluctuating interest rates,
interest rates on ARMs may exceed interest rates on fixed-rate mortgage loans,
which may tend to cause prepayments on ARMs to increase at a greater rate than
anticipated. Prepayment rates also vary by credit grade. Second mortgage loans
generally have smaller average principal balances than first mortgage loans and
are not viewed by borrowers as permanent financing. Accordingly, second mortgage
loans may experience a higher rate of prepayment than first mortgage loans. In
addition, any future limitations on the right of borrowers to deduct interest
payments on mortgage loans for Federal income tax purposes may result in a
higher rate of prepayment on mortgage loans.
Prepayments of mortgage loans could affect the Company in several adverse
ways. A substantial portion of the ARMs acquired by the Company (either directly
as mortgage loansCharter or through mortgage-backed securities backed by ARMs) have
been newly originated within six months of purchase and generally bear initial
interest rates which are lower than their "fully-indexed" rates (the applicable
index plus the margin). In the event that such an ARM is prepaid prior to or
soon after the time of adjustment to a fully-indexed rate, the Company will have
experienced an adverse effect on its net interest income during the time it held
such ARM compared with holding a fully-indexed ARM and will have lost the
opportunity to receive interest at the fully-indexed rate over the expected life
of the ARM.
The prepayment of any mortgage loan that had been purchased at a premium by
the Company would result in the immediate write-off of any remaining capitalized
premium amount and a consequent decrease in the Company's interest income. The
Conduit Operations' strategy at the present time is to purchase mortgage loans
on a "servicing released" basis (i.e., the Company will acquire both the
mortgage loans and the rights to service them). This strategy requires payment
of a higher purchase price by the Company for the mortgage loans, and to the
extent a premium is paid, the Company is more exposed to the adverse effects of
early prepayments of the mortgage loans, as described above.
10
COMPANY OPERATIONS MAY BE ADVERSELY AFFECTED IF THE COMPANY FAILS TO EFFECTIVELY
HEDGE AGAINST INTEREST RATE CHANGES OR IF LOSSES ARE INCURRED IN CONNECTION WITH
HEDGING ACTIVITIES
To mitigate risks associated with its Conduit Operations, the Company,
through ICIFC, enters into transactions designed to hedge interest rate risks,
which may include mandatory and optional forward selling of mortgage loans or
mortgage-backed securities, interest rate caps, floors and swaps and buying and
selling of futures and options on futures. To mitigate risks associated with its
Long-Term Investment Operations, the Company's policy is to attempt to match the
interest rate sensitivities of its adjustable rate mortgage assets held for
investment with the associated liabilities. The Company may purchase interest
rate caps, interest rate swaps or similar instruments to attempt to mitigate the
cost of its variable rate liabilities increasing at a faster rate than the
earnings on its subject assets during a period of rising interest rates. The
nature and quantity of the hedging transactions for the Conduit Operations and
the Long-Term Investment Operations is determined by the management of the
Company based on various factors, including market conditions and the expected
volume of mortgage loan purchases, and there have been no limitations placed on
management's use of certain instruments in such hedging transactions. No
assurance can be given that such hedging transactions will offset the risks of
changes in interest rates, and it is possible that there will be periods during
which the Company could incur losses after accounting for its hedging
activities.
ACQUIRING AND INVESTING IN MORTGAGE LOANS MAY ENTAIL SUBSTANTIAL RISKS
The Company makes long-term investments in mortgage loans and mortgage-
backed securities. The Company does not obtain credit enhancements such as
mortgage pool or special hazard insurance for its mortgage loans and investments
other than private mortgage insurance and only when specified by its
underwriting criteria. Accordingly, during the time it holds mortgage loans for
investment, the Company is subject to risks of borrower defaults and
bankruptcies and special hazard losses that are not covered by standard hazard
insurance (such as those occurring from earthquakes or floods). In the event of
a default on any mortgage loan held by the Company, the Company bears the risk
of loss of principal to the extent of any deficiency between the value of the
related mortgaged property, plus any payments from an insurer or guarantor, and
the amount owing on the mortgage loan. Defaulted mortgage loans will also cease
to be eligible collateral for borrowings, and will have to be financed by the
Company out of other funds until ultimately liquidated.
Credit risks associated with non-conforming mortgage loans, especially "B"
and "C" grade loans, may be greater than those associated with conforming
mortgage loans that comply with FNMA and FHLMC guidelines. Non-conforming
mortgage loans generally consist of jumbo mortgage loans (loans with a principal
balance in excess of $214,000) or loans that are originated in accordance with
underwriting or product guidelines that differ from those applied by FNMA or
FHLMC. The principal differences between conforming loans and the non-conforming
loans purchased by the Company include the applicable loan-to-value ratios, the
credit and income histories of the mortgagors, the documentation required for
approval of the mortgagors, the types of properties securing the mortgage loans,
loan sizes and the mortgagors' occupancy status with respect to the mortgaged
property. As a result of these and other factors, the interest rates charged on
non-conforming loans are often higher than those charged for conforming loans.
The combination of different underwriting criteria and higher rates of interest
may lead to higher delinquency rates and/or credit losses for non-conforming as
compared to conforming loans and could have an adverse effect on the Company's
operations to the extent that the Company invests in such loans or securities
evidencing interests in such loans.
In addition, with respect to second mortgage loans, the Company's security
interest in the property securing such loans is subordinated to the interest of
the first mortgage holder. If the value of the property securing the second
mortgage loan is not sufficient to repay the borrower's obligation to the first
mortgage holder upon foreclosure or if there is no additional value in such
property after satisfying the borrower's obligation to the first mortgage loan
holder, the borrower's obligation to the Company will likely not be satisfied.
The yield derived from certain classes of mortgage-backed securities
created in connection with securitizations by ICIFC and subsequently retained by
the Company, including, but not limited to, "interest-only," "principal-only"
and subordinated securities, is particularly sensitive to interest rate,
prepayment and credit risks. The Company's investment portfolio includes each of
these classes of securities. See "--Net Interest Income May be
11
Adversely Affected by Interest Rate Fluctuations; Prepayment's of Mortgage Loans
May Adversely Affect Net Income." Because subordinated securities, in general,
bear all credit losses prior to the related senior securities, the amount of
credit risk associated with any investment in such subordinated securities is
significantly greater than that associated with a comparable investment in the
related senior securities and, on a percentage basis, the risk is greater than
holding the underlying mortgage loans directly. See -"Value of Interest-Only,
Principal-Only, Residual Interest and Subordinated Securities Subject to
Fluctuation."
The Company also bears risk of loss on any mortgage-backed securities it
purchases in the secondary mortgage market. To the extent third parties have
been contracted to insure against these types of losses, the Company would be
dependent in part upon the creditworthiness and claims paying ability of the
insurer and the timeliness of reimbursement in the event of a default on the
underlying obligations. Further, the insurance coverage for various types of
losses is limited, and losses in excess of the limitation would be borne by the
Company.
As a warehouse lender, the Company is a secured creditor of mortgage
bankers and is subject to the risks associated with such businesses, including
the risks of fraud, borrower default and bankruptcy, any of which could result
in credit losses for the Company. Any claim of the Company as a secured lender
in a bankruptcy proceeding may be subject to adjustment and delay.
In connection with its Conduit Operations, ICIFC has engaged in
securitizations and bulk whole loan sales. In connection with the issuance of
mortgage-backed securities by ICIFC, such securities have been non-recourse to
ICIFC, except in the case of a breach of the standard representations and
warranties made by ICIFC when mortgage loans are securitized. While ICIFC has
recourse to the sellers of mortgage loans for any such breaches, there can be no
assurance of the sellers' abilities to honor their respective obligations. ICIFC
has engaged in bulk whole loan sales pursuant to agreements that provide for
recourse by the purchaser against ICIFC (and, in certain cases, IMH as
guarantor) in the event of a breach of representation or warranty made by ICIFC,
any fraud or misrepresentation during the mortgage loan origination process or
upon early default on such mortgage loans. ICIFC has generally limited the
remedies of such purchasers to the remedies ICIFC receives from the persons from
whom ICIFC purchased such mortgage loans. However, in some cases, the remedies
available to a purchaser of mortgage loans from ICIFC are broader than those
available to ICIFC against its seller, and should a purchaser exercise its
rights against ICIFC, ICIFC may not always be able to enforce whatever remedies
ICIFC may have against its sellers. ICIFC may from time to time make provisions
for loan losses related to estimated losses from the breach of a standard
representation and warranty.
DEPENDENCE ON SECURITIZATIONS MAY CREATE LIQUIDITY RISKS
The Company securitizes a substantial portion of the mortgage loans it
purchases. ICIFC relies significantly upon securitizations to generate cash
proceeds for repayment of its warehouse line and to create credit availability.
Further, gains on sales from ICIFC's securitizations represent a significant
portion of ICIFC's earnings. Several factors affect the Company's ability to
complete securitizations of its mortgage loans, including conditions in the
securities markets generally, conditions in the asset-backed securities market
specifically, the credit quality of the mortgage loans purchased by the Conduit
Operations and the Company's ability to obtain credit enhancement. If ICIFC were
unable to securitize profitably a sufficient number of its mortgage loans in a
particular financial reporting period, then ICIFC's revenues for such period
would decline, which could result in lower income or a loss for such period. In
addition, unanticipated delays in closing a securitization could also increase
ICIFC's interest rate risk by increasing the warehousing period for its mortgage
loans.
ICIFC endeavors to effect quarterly public securitizations of its loan
pools. However, market and other considerations, including the volume of ICIFC's
mortgage acquisitions and the conformity of such loan pools to the requirements
of insurance companies and rating agencies, may affect the timing of such
transactions. Any delay in the sale of a loan pool beyond the end of a fiscal
quarter would postpone the recognition of gain related to such loans and would
likely result in lower income or a loss for such quarter being reported by
ICIFC.
In order to gain access to the securitization market, the Company has
relied, and in the future may rely, on credit enhancements provided by insurance
companies to guarantee senior interests in the related trusts to enable them to
obtain "AAA/Aaa" ratings for such interests. Any unwillingness of insurance
companies to guarantee the
12
senior interests in the Company's loan pools could have a material adverse
effect on the Company's results of operations and financial condition.
The Company also relies on securitizations in the form of CMO borrowings to
finance a substantial portion of the loans held by the Long-Term Investment
Operations. Any reduction in the Company's ability to complete additional
securitizations would require the Company to utilize other sources of financing
which may be on less favorable terms.
VALUE OF INTEREST-ONLY, PRINCIPAL-ONLY, RESIDUAL INTEREST AND SUBORDINATED
SECURITIES SUBJECT TO FLUCTUATION
The Company's assets include "interest-only," "principal-only," residual
interest and subordinated securities, valued by the Company in accordance with
SFAS No. 115, "Accounting for Certain Debt and Equity Securities," if purchased
by the Company in the secondary market or in accordance with SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," if created in connection with the securitization of mortgages
held for sale by ICIFC. IMH records its retained interest in ICIFC
securitizations (including "interest-only," "principal-only" and subordinated
securities) as investments classified as trading securities and records its
purchased residual interests and subordinated securities as available for sale
securities. Realization of these "interest-only," "principal-only," residual
interest and subordinated securities in cash is subject to the timing and
ultimate realization of cash flows associated therewith, which is in turn
effected by the prepayment and loss characteristics of the underlying loans.
Because subordinated securities, in general, bear all credit losses prior to the
related senior securities, the amount of credit risk associated with any
investment in such subordinated securities is significantly greater than that
associated with a comparable investment in the related senior securities and, on
a percentage basis, the risk associated with holding subordinated securities is
greater than holding the underlying mortgage loans directly due to the
concentration of losses in such subordinated securities and because subordinated
securities receive payments of principal and interest after such payments on
related senior securities and the underlying mortgages. The Company estimates
future cash flows from these "interest-only," "principal-only," residual
interest and subordinated securities and values such securities utilizing
assumptions that it believes to be consistent with those that would be utilized
by an unaffiliated third party purchaser. If actual experience differs from the
assumptions used in the determination of the asset value, future cash flows and
earnings could be negatively impacted, and the Company could be required to
reduce the value of its "interest-only," "principal-only," residual interest and
subordinated securities in accordance with SFAS No. 115 and SFAS 125. The value
of such securities can fluctuate widely and may be extremely sensitive to
changes in discount rates, projected mortgage loan prepayments and loss
assumptions. The Company believes that its aggregate delinquency and loan loss
experience will increase as its mortgage portfolio matures. To the Company's
knowledge, the market for the sale of the "interest-only," "principal-only,"
residual interest and subordinated securities is limited. No assurance can be
given that "interest-only," "principal-only," residual interest and subordinated
securities could be sold at their reported value, if at all.
The risks of investing in mortgage-backed securities include risks that the
existing credit support will prove to be inadequate, either because of
unanticipated levels of losses or, if such credit support is provided by a third
party, because of difficulties experienced by such credit support provider.
Delays or difficulties encountered in servicing mortgage-backed securities may
cause greater losses and, therefore, greater resort to credit support than was
originally anticipated, and may cause a rating agency to downgrade a security.
The Company also bears risk of loss on any mortgage-backed securities it
purchases in the secondary market. To the extent third parties have contracted
to insure against these types of losses, the Company would be dependent in part
upon the creditworthiness and claims paying ability of the insurer and the
timeliness of reimbursement in the event of a default on the underlying
obligations. Further, the insurance coverage for various types of losses is
limited, and losses in excess of the limitation would be borne by the Company.
MORTGAGE SERVICING RIGHTS SUBJECT TO VOLATILITY
When ICIFC purchases loans that include the associated servicing rights or
originates loans, the allocated cost of the servicing rights will be reflected
on its financial statements as Mortgage Servicing Rights ("MSRs"). MSRs are
amortized in proportion to, and over the period of, expected future net
servicing income.
13
SFAS No. 125 requires that a portion of the cost of acquiring a mortgage
loan be allocated to the mortgage loan servicing rights based on its fair value
relative to the loan as a whole. To determine the fair value of the servicing
rights created, ICIFC uses a valuation model that calculates the present value
of future net servicing revenues to determine the fair value of the servicing
rights. In using this valuation method, ICIFC incorporates assumptions that it
believes market participants would use in estimating future net servicing income
which include estimates of the cost of servicing, an inflation rate, ancillary
income per loan, a prepayment rate, a default rate and a discount rate
commensurate with the risks involved.
MSRs are subject to some degree of volatility in the event of unanticipated
prepayments or defaults. Prepayments in excess of those anticipated at the time
MSRs are recorded could result in a decline in the fair value of the MSRs below
their carrying value requiring a provision to increase the MSRs' valuation
allowance. The rate of prepayment of loans is affected by a variety of economic
and other factors, including prevailing interest rates and the availability of
alternative financing. The effect of those factors on loan prepayment rates may
vary depending on the particular type of loan. Estimates of prepayment rates
are made based on management's expectations of future prepayment rates, which
are based, in part, on the historical rate of prepayment of ICIFC's loans, and
other considerations. There can be no assurance of the accuracy of the
Company's prepayment estimates. If actual prepayments with respect to loans
serviced occur more quickly than were projected at the time such loans were
sold, the carrying value of the MSRs may have to be reduced through a provision
recorded to increase the MSRs' valuation allowance in the period the fair value
declined below the MSRs' carrying value. If actual prepayments with respect to
loans occur more slowly than estimated, the carrying value of MSRs would not
increase except for the impact of a reduction in the valuation allowance.
BORROWINGS AND SUBSTANTIAL LEVERAGE HAVE THE POTENTIAL FOR NET INTEREST AND
OPERATING LOSSES; LIQUIDITY
The Company has employed a financing strategy to increase the size of its
investment portfolio by borrowing a substantial portion (up to approximately
98%, depending on the nature of the underlying asset) of the market value of
substantially all of its investments in mortgage loans and mortgage-backed
securities. The Company initially intended to maintain a ratio of equity capital
(book value of stockholders' equity) to total assets of approximately 15%. This
target ratio was developed on the assumption that the Company would utilize the
sale of pass-through mortgage-backed securities as its primary securitization
technique, as compared to financing the loans in the Company's long-term
investment portfolio through CMOs. Subsequently, the Company has elected to
utilize CMO borrowings to a substantial degree because CMOs are more consistent
with IMH's maintenance of its REIT tax status. CMOs receive financing treatment
as opposed to sale treatment. Financing treatment allows the Company to
recognize spread income over time as qualifying interest income under the REIT
gross income tests, as compared to gains at ICIFC from the issuance of pass-
through securities, which receives sale treatment and is fully taxable. The
value of the assets collateralizing CMO borrowings are reflected on the
Company's balance sheet, while the value of the assets backing pass- through
securities are not reflected on the balance sheet. Consequently, CMO borrowings
tend to increase the assets of the Company and to reduce the Company's ratio of
equity capital to total assets, as compared to the sale of pass-through
securities. It is currently expected that the continued use of CMOs will likely
result in a ratio of equity capital to total assets generally between 8% to 13%,
although such ratio may vary substantially depending upon, among other things,
the timing of ICIFC's securitizations and the Company's offerings of equity
capital.
The use of CMOs as financing vehicles tends to increase the Company's
leverage as mortgage loans held for CMO collateral are retained for investment
rather than sold in a secondary market transaction. Retaining mortgage loans as
CMO collateral exposes the Company to greater potential credit losses than from
the use of securitization techniques that are treated as sales. The creation of
a CMO involves an equity investment by the Company to fund collateral in excess
of the amount of the securities issued. Should the Company experience credit
losses greater than expected, the value of the Company's equity investment in
its CMOs would decrease and the Company's financial condition and results of
operations would be materially adversely affected.
A majority of other Company borrowings are collateralized, primarily in the
form of reverse repurchase agreements, which are based on the market value of
the Company's assets pledged to secure the specific borrowings. The cost of
borrowings under a reverse repurchase agreement corresponds to the referenced
interest rate (e.g., the CMT Index or LIBOR) plus or minus a margin. The margin
over or under the referenced interest rate varies
14
depending upon the lender, the nature and liquidity of the underlying
collateral, the movement of interest rates, the availability of financing in the
market and other factors. If the returns on the assets and mortgage-backed
securities financed with borrowed funds fail to cover the cost of the
borrowings, the Company will experience net interest losses and may experience
net losses.
The ability of the Company to achieve its investment objectives depends not
only on its ability to borrow money in sufficient amounts and on favorable terms
but also on the Company's ability to renew or replace on a continuous basis its
maturing short-term borrowings. The Company's business strategy relies on short-
term borrowings to fund long-term mortgage loans and investment securities
available for sale. In the event the Company is not able to renew or replace
maturing borrowings, the Company could be required to sell, under adverse market
conditions, all or a portion of its mortgage loans and investment securities
available for sale, and could incur losses as a result. In addition, in such
event the Company may be required to terminate hedge positions, which could
result in further losses to the Company. Such events could have a materially
adverse effect on the Company.
Certain of the Company's mortgage loans may be cross-collateralized to
secure multiple borrowing obligations of the Company to a single lender. A
decline in the market value of such assets could limit the Company's ability to
borrow or result in lenders initiating margin calls (i.e., requiring a pledge of
cash or additional mortgage loans to reestablish the ratio of the amount of the
borrowing to the value of the collateral). The Company could be required to sell
mortgage loans under adverse market conditions in order to maintain liquidity.
If these sales were made at prices lower than the carrying value of its mortgage
loans, the Company would experience losses. A default by the Company under its
collateralized borrowings could also result in a liquidation of the collateral,
including any cross-collateralized assets, and a resulting loss of the
difference between the value of the collateral and the amount borrowed.
Additionally, in the event of a bankruptcy of the Company, certain reverse
repurchase agreements may qualify for special treatment under the Bankruptcy
Code, the effect of which is, among other things, to allow the creditors under
such agreements to avoid the automatic stay provisions of the Bankruptcy Code
and to liquidate the collateral under such agreements without delay. Conversely,
in the event of a bankruptcy of a party with whom the Company had a reverse
repurchase agreement, the Company might experience difficulty repurchasing the
collateral under such agreement if it were to be repudiated and the Company's
claim against the bankrupt lender for damages resulting therefrom were to be
treated simply as one of an unsecured creditor. Should this occur, the Company's
claims would be subject to significant delay and, if and when received, may be
substantially less than the damages actually suffered by the Company. Although
the Company has entered into reverse repurchase agreements with several
different parties and has developed procedures to reduce its exposure to such
risks, no assurance can be given that the Company will be able to avoid such
third party risks.
To the extent the Company is compelled to liquidate mortgage loans or
mortgage-backed securities classified as Qualified REIT Assets to repay
borrowings, IMH may be unable to comply with the REIT asset and income tests,
possibly jeopardizing IMH's status as a REIT. Gain from the sale or other
disposition of such assets may be included under the 30% gross income test,
which requires, in general, that short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions, and gain
on the sale or other disposition of real property held for less than four years
represent less than 30% of the REIT's gross income for each taxable year. The
Code does not provide for any mitigating provisions with respect to the 30%
gross income test. Accordingly, if IMH failed to meet the 30% gross income test,
its status as a REIT would terminate automatically. See "Federal Income Tax
Considerations--Taxation of IMH--Income Tests." The 30% gross income test,
however, has been repealed effective January 1, 1998. See "Federal Income Tax
Considerations - Taxpayer Relief Act of 1997".
The REIT provisions of the Code require IMH to distribute to its
stockholders substantially all of its taxable income. As a result, such
provisions restrict the Company's ability to retain earnings and replenish the
capital committed to its business activities.
The Company's liquidity is also affected by its ability to access the debt
and equity capital markets. To the extent that the Company is unable to
regularly access such markets, the Company could be forced to sell assets at
unfavorable prices or discontinue various business activities in order to meet
its liquidity needs. As a result, any such inability to access the capital
markets could have a negative impact on the Company's earnings.
15
Substantially all of the assets of the Conduit Operations have been pledged
to secure the repayment of mortgage-backed securities issued in the
securitization process, reverse repurchase agreements or other borrowings. In
addition, substantially all of the mortgage loans that the Company has acquired
and will in the future acquire have been or will be pledged to secure borrowings
pending their securitization or sale or as a part of their long- term financing.
The cash flows received by the Company from its investments that have not yet
been distributed, pledged or used to acquire mortgage loans or other investments
may be the only unpledged assets available to unsecured creditors and
stockholders in the event of liquidationBylaws of the
Company. REDUCTION IN DEMAND FOR RESIDENTIAL MORTGAGE LOANS AND THE COMPANY'S NON-
CONFORMING LOAN PRODUCTS MAY ADVERSELY AFFECT THE COMPANY'S OPERATIONS
The availability of mortgage loans meetingBecause the Company's criteria is
dependent upon, among other things, the size and level of activity in the
residential real estate lending market and, in particular, the demand for non-
conforming mortgage loans. The size and level of activity in the residential
real estate lending market depend on various factors, including the level of
interest rates, regional and national economic conditions and inflation and
deflation in residential property values, as well as the general regulatory and
tax environment as it relates to mortgage lending. To the extent the Company is
unable to obtain sufficient mortgage loans meeting its criteria, the Company's
business will be adversely affected.
FNMA and FHLMC are not currently permitted to purchase mortgage loans with
original principal balances above $214,000. If this dollar limitation is
increased without a commensurate increase in home prices, the Company's ability
to maintain or increase its current acquisition levels could be adversely
affected as the size of the non-conforming mortgage loan market may be reduced,
and FNMA and FHLMC may be in a position to purchase a greater percentage of the
mortgage loans in the secondary market than they currently acquire.
In general, lower interest rates prompt greater demand for mortgage loans,
because more individuals can afford to purchase residential properties, and
refinancing and second mortgage loan transactions increase. However, if low
interest rates are accompanied by a weak economy and high unemployment, demand
for housing and residential mortgage loans may decline. Conversely, higher
interest rates and lower levels of housing finance and refinance activity may
decrease mortgage loan purchase volume levels, resulting in decreased economies
of scale and higher costs per unit, reduced fee income, smaller gains on the
sale of non-conforming mortgage loans and lower net income.
Although the Company seeks geographic diversification of the properties
underlying the Company's mortgage loans and mortgage-backed securities, it does
not set specific limitations on the aggregate percentage of its portfolio
composed of such properties located in any one area (whether by state, zip code
or other geographic measure). Concentration in any one area will increase
exposure of the Company's portfolio to the economic and natural hazard risks
associated with such area. In addition, management estimates that a majority of
the loans included in securitizations in which IMH holds subordinated interests
are secured by properties in California. Certain parts of California have
experienced an economic downturn in past years, particularly in areas of high
defense industry concentration, and have suffered the effects of certain natural
hazards such as earthquakes, fires and floods, as well as riots.
DELINQUENCY RATIOS AND COMPANY PERFORMANCE MAY BE AFFECTED BY CONTRACTED SUB-
SERVICING
ICIFC currently contracts for the sub-servicing of all loans it purchases
and holds for sale or investment with third-party sub-servicers. This
arrangement allows the Conduit Operations to increase the volume of loans it
originates and purchases without incurring the expenses associated with
servicing operations. As with any external service provider, ICIFC is subject to
risks associated with inadequate or untimely services. Many of ICIFC's borrowers
require notices and reminders to keep their loans current and to prevent
delinquencies and foreclosures. A substantial increase in the ICIFC's
delinquency rate or foreclosure rate could adversely affect its ability to
access profitably the capital markets for its financing needs, including future
securitizations. ICIFC regularly reviews the delinquencies of its servicing
portfolio. Although the Conduit Operations periodically reviews the costs
associated with establishing operations to service the loans it purchases, it
has no plans to establish and perform servicing operations at this time.
16
Each of ICIFC's sub-servicing agreements with its third-party sub-servicers
provides that if ICIFC terminates the agreement without cause (as defined in the
agreement), ICIFC will be required to pay the third-party sub-servicer a fee.
Further, one such agreement provides that ICIFC shall pay the third-party sub-
servicer a transfer fee per loan for any mortgage loan which ICIFC transfers to
another sub-servicer without terminating the agreement. Depending upon the size
of ICIFC's loan portfolio sub-serviced at any point in time, the termination
penalty that ICIFC would be obligated to pay upon termination without cause, may
be substantial.
ICIFC also subcontracts with sub-servicers to service the loans in each of
the Company's public securitizations. With respect to such loans, the related
pooling and servicing agreements permit ICIFC to be terminated as servicer under
specific conditions described in such agreements, which generally include the
failure to make payments, including advances, within specific time periods. Such
termination would generally be at the option of the trustee and/or the financial
guaranty insurer for such securitization, if applicable, but not at the option
of the Company. If, as a result of a sub-servicer's failure to perform
adequately, ICIFC were terminated as servicer of a securitization, the value of
any servicing rights held by ICIFC would be adversely impacted. In addition,
poor performance by a sub-servicer with respect to any such securitization may
result in greater than expected delinquencies and losses on the related loans,
which would adversely impact the value of any "interest-only," "principal-only"
and subordinated securities held by the Company in connection with such
securitization, which are more sensitive to credit risk. See "-Value of
Interest-Only, Principal-Only, Residual Interest and Subordinated Securities
Subject to Fluctuation."
LIMITED HISTORY OF OPERATIONS OF LIMITED RELEVANCE IN PREDICTING FUTURE
PERFORMANCE
The Company commenced operations on November 20, 1995. Prior to the date of
the Contribution Transaction, ICIFC was a division or subsidiary of ICII, and
IWLG was a division of Southern Pacific Thrift and Loan Association ("SPTL"), a
subsidiary of ICII. Although the Company was profitable for the years ended
December 31, 1996 and 1995 and for the six months ended June 30, 1997, and has
experienced substantial growth in mortgage loan originations and total revenues,
there can be no assurance that the Company will be profitable in the future or
that these rates of growth will be sustainable or indicative of future results.
Prior to the Company's initial public offering in November 1995 (the "Initial
Public Offering"), each of ICIFC and IWLG benefited from the financial,
administrative and other resources of ICII and SPTL, respectively.
In light of this growth, the historical financial performance of the
Company may be of limited relevance in predicting future performance. Since the
Company commenced operations in November 1995, its growth in purchasing loans
has been significant. Also, the loans purchased by the Company and included in
the Company's securitizations have been outstanding for a relatively short
period of time. Consequently, the delinquency and loss experience of the
Company's loans to date may not be indicative of future results. It is unlikely
that the Company will be able to maintain delinquency and loan loss ratios at
their present levels as the portfolio becomes more seasoned.
COMPETITION FOR MORTGAGE LOANS MAY ADVERSELY AFFECT THE COMPANY'S OPERATIONS
In purchasing non-conforming mortgage loans and issuing securities backed
by such loans, the Company competes with established mortgage conduit programs,
investment banking firms, savings and loan associations, banks, thrift and loan
associations, finance companies, mortgage bankers, insurance companies, other
lenders and other entities purchasing mortgage assets. Continued consolidation
in the mortgage banking industry may also reduce the number of current sellers
to the Conduit Operations, thus reducing the Company's potential customer base,
resulting in the Company purchasing a larger percentage of mortgage loans from a
smaller number of sellers. Such changes could negatively impact the Conduit
Operations. Mortgage-backed securities issued through the Conduit Operations
face competition from other investment opportunities available to prospective
investors. See "--Reduction in Demand for Residential Mortgage Loans and the
Company's Non-Conforming Loan Products May Adversely Affect the Company's
Operations."
The Company's operations may be affected by the activities of ICII and its
affiliates. As an end-investor in non-conforming mortgage loans, SPTL may
compete with the Company; this activity is restricted by an agreement not to
compete executed by and among the Company, SPTL and ICII in connection
with the Contribution
17
Transaction (the "Non-Compete Agreement"). Also, Southern Pacific Funding
Corporation ("SPFC") is an affiliate of ICII whose business is primarily to act
as a wholesale originator and a bulk purchaser of non- conforming mortgage
loans. These activities are not restricted by the Non- Compete Agreement. In
addition, after the expiration of the Non-Compete Agreement in November 1997,
ICII or any 25% entity may compete with the Company's Long-Term Investment
Operations, the Conduit Operations and the Warehouse Lending Operations. A "25%
entity" means any entity of which ICII owns 25% or more of the voting
securities. While the Company believes such activities will not have a material
adverse effect on the Company's operations, there can be no assurance of this.
See "--Relationship with ICII and its Affiliates; Conflicts of Interest."
NO ASSURANCE OF CONTINUED EXPANSION
The Company's total revenues and net income have grown significantly since
the Company's inception, primarily due to increased mortgage purchasing, sales
and investing activities. The Company intends to continue to pursue a growth
strategy for the foreseeable future, and its future operating results will
depend largely upon its ability to expand its Long-Term Investment Operations,
its Conduit Operations and its Warehouse Lending Operations. Each of these plans
requires additional personnel and assets and there can be no assurance that the
Company will be able to successfully expand and operate its expanded operations
profitably. There can be no assurance that the Company will anticipate and
respond effectively to all of the changing demands that its expanding operations
will have on the Company's management, information and operating systems, and
the failure to adapt its systems could have a material adverse effect on the
Company's results of operations and financial condition. There can be no
assurance that the Company will successfully achieve its continued expansion or,
if achieved, that the expansion will result in profitable operations.
LACK OF EXPERIENCE OF THE MANAGER IN MANAGING A REIT MAY HAVE AN ADVERSE AFFECT
ON THE COMPANY
The Company is dependent for the selection, structuring and monitoring of
its assets and associated borrowings on the diligence and skill of its officers
and the officers and employees of the Manager or ICII who's experience in
managing a REIT extends only to the commencement of the Company's operations in
November 1995.
RELATIONSHIP WITH ICII AND ITS AFFILIATES; CONFLICTS OF INTEREST
The Company is subject to conflicts of interest arising from its
relationship with its manager, ICAI, and ICAI's affiliates. ICAI, through its
affiliation with ICII, has interests that may conflict with those of the Company
in fulfilling certain of its duties. In addition, certain of the officers and
Directors of ICII or its affiliates are also officers and Directors of the
Company, including H. Wayne Snavely and Joseph R. Tomkinson, Chairman of the
Board and Chief Executive Officer of IMH, respectively. The Company also relies
upon ICAI (which has entered into a subcontract with ICII to provide certain
management services to the Company as ICAI deems necessary) for the oversight of
day-to-day operations of its business. All other operations of the Company are
conducted through ICIFC and IWLG. No assurance can be given that the Company's
relationships with ICAI and its affiliates will continue indefinitely. The
failure or inability of ICAI to provide the services required of it under the
Management Agreement (or of ICII to perform its obligations under its
subcontract with ICAI) or any other agreements or arrangements with the Company
would have a material adverse effect on the Company's business.
It is the intention of the Company and ICII that any agreements and
transactions, taken as a whole, between the Company, on the one hand, and ICII
or its affiliates, on the other hand, are fair to both parties. To minimize or
avoid potential conflicts of interests, all three Unaffiliated Directors must
independently and by majority vote approve all such agreements and transactions.
However, there can be no assurance that each of such agreements or transactions
will be on terms at least as favorable to the Company as could have been
obtained from unaffiliated third parties.
Pursuant to the Non-Compete Agreement, except as set forth below, ICII and
any 25% entity may not compete with the Warehouse Lending Operations and may not
establish a network of third party correspondent loan originators or another
end-investor in non-conforming mortgage loans. Pursuant to the Non- Compete
Agreement, SPTL may continue to act as an end-investor in non-conforming
mortgage loans and SPFC, may continue its
18
business, which is primarily to act as a wholesale originator and bulk purchaser
of non-conforming mortgage loans. Pursuant to a right of first refusal agreement
executed by and between ICIFC and ICII in connection with the Contribution
Transaction (the "Right of First Refusal Agreement"), ICII has granted ICIFC a
right of first refusal to purchase all non-conforming mortgage loans that ICII
or any 25% entity originates or acquires and subsequently offers for sale and
ICIFC has granted ICII or any 25% entity designated by ICII a right of first
refusal to purchase all conforming mortgage loans that ICIFC acquires and
subsequently offers for sale. The Common Stock of ICIFC is currently owned by
Joseph R. Tomkinson, Chief Executive Officer of IMH and ICIFC, William S.
Ashmore, President of IMH and Executive Vice President of ICIFC and Richard J.
Johnson, Senior Vice President, Chief Financial Officer and Secretary of IMH and
ICIFC.
CONSEQUENCES OF FAILURE TO MAINTAIN REIT STATUS MAY INCLUDE IMH BEING SUBJECT TO
TAX AS A REGULAR CORPORATION
Commencing with its taxable year ended December 31, 1995, IMH has operated
and intends to continue to operate so as to qualify as a REIT under the Code.
Although IMH believes that it has operated and will continue to operate in such
a manner, no assurance can be given that IMH was organized or has operated, or
will be able to continue to operate, in a manner which will allow it to qualify
as a REIT. Qualification as a REIT involves the satisfaction of numerous
requirements (some on an annual and others on a quarterly basis) established
under highly technical and complex Code provisions for which there are only
limited judicial and administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within
IMH's control. For example, in order to qualify as a REIT, at least 95% of IMH's
gross income (including the gross income of IWLG and IMH Assets) in any year
must be derived from qualifying sources, and IMH must pay distributions to
stockholders aggregating annually at least 95% of its (including IWLG's and IMH
Assets') taxable income (determined without regard to the dividends paid
deduction and by excluding net capital gains). No assurance can be given that
legislation, new regulations, administrative interpretations or court decisions
will not significantly change the tax laws with respect to qualification as a
REIT or the federal income tax consequences of such qualification. IMH has
received an opinion from Latham & Watkins, tax counsel to IMH, as of
______________, 1997, to the effect that, commencing with IMH's taxable year
ended December 31, 1995, IMH has been organized in conformity with the
requirements for qualification as a REIT, and its proposed method of operation
has enabled and will enable it to meet the requirements for qualification and
taxation as a REIT under the Code. See "Federal Income Tax Considerations--
Taxation of IMH" and "Legal Matters." Such legal opinion is based on various
assumptions and factual representations by IMH regarding IMH's ability to meet
the various requirements for qualification as a REIT, and no assurance can be
given that actual operating results will meet these requirements. Such legal
opinion is not binding on the Internal Revenue Service (the "Service") or any
court.
Among the requirements for REIT qualification is that the value of any one
issuer's securities held by a REIT may not exceed the value of 5% of the REIT's
total assets on certain testing dates. See "Federal Income Tax Considerations--
Taxation of IMH--Requirements for Qualification." IMH believes that the
aggregate value of the securities of ICIFC held by IMH have been and will
continue to be less than 5% of the value of IMH's total assets. In rendering its
opinion as to the qualification of IMH as a REIT, Latham & Watkins is relying on
the representation of IMH regarding the value of its securities in ICIFC.
If IMH were to fail to qualify as a REIT in any taxable year, IMH would be
subject to federal income tax (including any applicable alternative minimum tax)
on its (including IWLG's and IMH Assets') taxable income at regular corporate
rates and would not be allowed a deduction in computing its taxable income for
amounts distributed to its stockholders. Moreover, unless entitled to relief
under certain statutory provisions, IMH also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net income of IMH
available for investment or distribution to stockholders because of the
additional tax liability to IMH for the years involved. In addition,
distributions to stockholders would no longer be required to be made. See
"Federal Income Tax Considerations--Taxation of IMH--Requirements for
Qualification."
Even if IMH maintains its REIT status, it may be subject to certain
federal, state and local taxes on its income. For example, if IMH has net income
from a prohibited transaction, such income will be subject to a 100% tax. See
"Federal Income Tax Considerations--Taxation of IMH." In addition, the net
income, if any, from the
19
Conduit Operations conducted through ICIFC is subject to federal income tax at
regular corporate tax rates. See "Federal Income Tax Considerations--Other Tax
Consequences."
COMPANY'S OPERATIONS MAY BE ADVERSELY AFFECTED IF THE COMPANY IS SUBJECT TO THE
INVESTMENT COMPANY ACT
The Company at all times intends to conduct its business so as not to
become regulated as an investment company under the Investment Company Act.
Accordingly, the Company does not expect to be subject to the restrictive
provisions of the Investment Company Act. The Investment Company Act exempts
entities that are "primarily engaged in the business of purchasing or otherwise
acquiring mortgages and other liens on and interests in real estate"
("Qualifying Interests"). Under the current interpretation of the staff of the
Commission, in order to qualify for this exemption, the Company must maintain at
least 55% of its assets directly in mortgage loans, qualifying pass-through
certificates and certain other Qualifying Interests in real estate. In addition,
unless certain mortgage securities represent all the certificates issued with
respect to an underlying pool of mortgages, such mortgage securities may be
treated as securities separate from the underlying mortgage loans and, thus, may
not qualify as Qualifying Interests for purposes of the 55% requirement. The
Company's ownership of certain mortgage loans therefore may be limited by the
provisions of the Investment Company Act. In addition, in meeting the 55%
requirement under the Investment Company Act, the Company intends to consider
privately issued certificates issued with respect to an underlying pool as to
which the Company holds all issued certificates as Qualifying Interests. If the
Commission, or its staff, adopts a contrary interpretation with respect to such
securities, the Company could be required to restructure its activities to the
extent its holdings of such privately issued certificates did not comply with
the interpretation. Such a restructuring could require the sale of a substantial
amount of privately issued certificates held by the Company at a time it would
not otherwise do so. Further, in order to insure that the Company at all times
continues to qualify for the above exemption from the Investment Company Act,
the Company may be required at times to adopt less efficient methods of
financing certain of its mortgage loans and investments in mortgage-backed
securities than would otherwise be the case and may be precluded from acquiring
certain types of such mortgage assets whose yield is somewhat higher than the
yield on assets that could be purchased in a manner consistent with the
exemption. The net effect of these factors will be to lower at times the
Company's net interest income, although the Company does not expect the effect
to be material. If the Company fails to qualify for exemption from registration
as an investment company, its ability to use leverage would be substantially
reduced, and it would be unable to conduct its business as described herein. Any
such failure to qualify for such exemption could have a material adverse effect
on the Company.
FUTURE REVISIONS IN POLICIES AND STRATEGIES AT THE DISCRETION OF THE BOARD OF
DIRECTORS MAY BE AFFECTED WITHOUT STOCKHOLDER CONSENT
The Board of Directors, including a majority of the Unaffiliated Directors,
has established the investment policies and operating policies and strategies.
With respect to other matters, the Company may, in the future, but currently has
no present plans to, invest in the securities of other REITs for the purpose of
exercising control, offer securities in exchange for property or offer to
repurchase or otherwise reacquire its shares or other securities. The Company
may also, but does not currently intend to underwrite the securities of other
issuers. However, any of the policies, strategies and activities referenced
above or described in this Prospectus may be modified or waived by the Board of
Directors, subject in certain cases to approval by a majority of the
Unaffiliated Directors, without stockholder consent.
EFFECT OF FUTURE OFFERINGS MAY ADVERSELY AFFECT MARKET PRICE OF THE SECURITIES
The Company in the future intends to increase its capital resources by
making additional private or public offerings of Securities. The actual or
perceived effect of such offerings, the timing of which cannot be predicted, may
be the dilution of the book value or earnings per share of the Company's Common
Stock or other Securities then outstanding, which may result in the reduction of
the market price of such Common Stock or other Securities.
20
RISK RELATING TO COMMON STOCK
Shares Eligible for Future Sale May Adversely Affect the Market Price of
the Securities. Sale of substantial amounts of the Company's Common Stock in
the public market or the prospect of such sales could materially and adversely
affect the market price of such Common Stock or other Securities then
outstanding.
RISK RELATING TO PREFERRED STOCK
Issuance of Preferred Stock Could Adversely Affect Common Stockholders.
IMH's charter (the "Charter") authorizes the Board of Directors to issue shares
of Preferred Stock and to classify or reclassify any unissued shares of Common
Stock or Preferred Stock into one or more classes or series of stock. The
Preferred Stock may be issued from time to time with such designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption as shall be determined by the Board of Directors
subject to the provisions of the Charter regarding restrictions on transfer of
stock. Preferred Stock is available for possible future financing of, or
acquisitions by, IMH and for general corporate purposes without further
stockholder authorization. Thus, the Board could authorize the issuance of
shares of Preferred Stock with terms and conditions which could have the effect
of delaying, deferring or preventing a change in control of IMH by means of a
merger, tender offer, proxy contest or other transaction which could involve a
premium price for holders of Common Stock or otherwise be in their best
interest. The Preferred Stock, if issued, may have a preference on dividend
payments which could reduce the assets available to IMH to make distributions to
the common stockholders. As of the date hereof, no shares of Preferred Stock
have been issued but such securities may be offered hereby. The issuance of any
shares of Preferred Stock covered by this Prospectus would require further
action by the Board of Directors. See "Description of Securities."
RISK RELATING TO DEBT SECURITIES
Substantial Leverage; Ability to Service Outstanding Indebtedness. The
Company's ability to make scheduled payments of the principal of, or to pay the
interest on, any Debt Securities will depend upon its future performance which,
to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond its control. There can be no
assurance, however, that the Company's business will generate sufficient cash
flow from operations or that future borrowings will be available in an amount
sufficient to enable the Company to service any Debt Securities. It may be
necessary for the Company to refinance all or a portion of the principal of any
Debt Securities on or prior to maturity, under certain circumstances, but there
can be no assurance that the Company will be able to effect such refinancing on
commercially reasonable terms or at all.
The degree to which the Company is leveraged following the issuance of any
Debt Securities could have material adverse effects on the Company and the
holders of any Debt Securities, including, but not limited to, the following:
(i) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, and general corporate or
other purposes may be impaired, (ii) a substantial portion of the Company's cash
flow from operations will be dedicated to debt service and will be unavailable
for other purposes, (iii) certain of the Company's borrowings may be at variable
rates of interest, which could result in higher interest expense in the event of
increases in interest rates and (iv) the Company will likely be subject to a
variety of restrictive covenants, the failure to comply with which could result
in events of default that, if not cured or waived, could restrict the Company's
ability to make payments of principal of, and interest on any Debt Securities.
LEGAL RESTRICTIONS ON SALES OF SECURITIES UNDERLYING THE SECURITIES
WARRANTS AND THE SECURITIES WARRANTS
The Securities Warrants are not exercisable unless, at the time of the
exercise, the Company has a current prospectus covering the Securities issuable
upon exercise of the Securities Warrants, and such shares have been registered,
qualified or deemed to be exempt under the securities laws of the state of
residence of the exercising holder of the Securities Warrants. Although the
Company will use its best efforts to have all the Securities issuable upon
exercise of the Securities Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Securities Warrants, there can be no assurance that it will be
able to do so. Further, although the Company intends to seek to qualify the
Securities underlying the
21
Securities Warrants for sale in those states in which such Securities are to be
offered, no assurance can be given that such qualification will be achieved. The
Securities Warrants may be deprived of any value if a current prospectus
covering the Securities issuable upon the exercise thereof is not filed and kept
effective or if such underlying Securities are not, or cannot be, registered in
the applicable states.
SUBSTANTIAL SHARES OF COMMON STOCK RESERVED FOR EXERCISE OF WARRANTS
The existence of the Securities Warrants may prove to be a hindrance to
future equity financing by the Company. Further, the holders of such Securities
Warrants may exercise them at a time when the Company would otherwise be able to
obtain additional equity capital on terms more favorable to the Company.
ABSENCE OF PUBLIC MARKET FOR THE PREFERRED STOCK, DEBT SECURITIES AND WARRANTS
All of the Securities when issued will be a new issue of securities with no
established trading market, other than the Common Stock, which is listed on the
AMEX. Any Common Stock sold pursuant to a Prospectus Supplement will be listed
on the AMEX, subject to official notice of issuance. Any underwriters to whom
Securities are sold by the Company for public offering and sale may make a
market in such Securities, but such underwriters will not be obligated to do so
and may discontinue any market making at any time without notice. No assurance
can be given as to the liquidity of the secondary market for any such
Securities.
RESTRICTIONS ON OWNERSHIP OF COMMON STOCK MAY INHIBIT MARKET ACTIVITY; POSSIBLE
ANTI-TAKEOVER EFFECT MAY DETER TAKE-OVER OF THE COMPANY
In order for IMH to maintain its qualification as a REIT, not more than 50%
in value of the outstanding shares of IMH's capital stock, including Common
Stock, may be owned, actually or constructively, by or for five or fewer
individuals (as defined in the Code to include certain entities) during the last
half of a taxable year (other than the first year for which the election to be
treated as a REIT has been made). Furthermore, after the first taxable year for
which the REIT election was made, IMH's shares of capital stock, including
Common Stock, must be held by a minimum of 100 persons for at least 335 days of
a 12-month taxable year (or a proportionate part of a shorter taxable year). In
order to protect IMH against the risk of losing REIT status due to a
concentration of ownership among its stockholders, the Charter limits actual or
constructive ownership of (i) the outstanding shares of Common Stock by any
person to 9.5% (the "Ownership Limit") (in value or in number of shares,
whichever is more restrictive) of the then outstanding shares of Common Stock or
(ii) the outstanding shares of stock of IMH by any person to 9.5% in value (the
"Aggregate Ownership Limit"). See "Description of Capital Stock--Repurchase of
Shares and Restrictions on Transfer." Although the Board of Directors presently
has no intention of doing so (except as described below), the Board of
Directors, in its sole discretion, could waive the Ownership Limit or the
Aggregate Ownership Limit with respect to a particular person if it were
satisfied, based upon the advice of tax counsel or otherwise, that ownership by
such person in excess of the Ownership Limit would not jeopardize IMH's status
as a REIT. The Board of Directors may from time to time increase or, subject to
certain limitations, decrease the Ownership Limit or the Aggregate Ownership
Limit.
Actual or constructive ownership of shares of stock in excess of the
Ownership Limit or the Aggregate Ownership Limit, or, with the consent of the
Board of Directors, such other limit, which would cause IMH not to qualify as a
REIT, will cause the violative transfer of ownership to be void with respect to
the intended transferee or owner as to that number of shares in excess of such
limit, and such shares will be automatically transferred to a trustee for the
benefit of a trust for the benefit of a charitable beneficiary. The trustee of
such trust shall sell such shares and distribute the net proceeds generally as
follows: the intended transferee shall receive the lesser of (i) the price paid
by the intended transferee for such excess shares and (ii) the sales proceeds
received by the trustee for such excess shares. Any proceeds in excess of the
amount distributable to the intended transferee will be distributed to the
charitable beneficiary. In addition, shares of stock held in trust shall be
deemed to have been offered for sale to IMH, or its designee, at a price per
share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the trust and (ii) the Market Price (as defined
below) on the date IMH, or its designee, accepts such offer. IMH shall have the
right to accept such offer until the trustee has sold the shares held in the
trust. Upon such a sale to IMH, the interest of the charitable beneficiary in
the shares sold shall terminate and the trustee shall distribute the net
proceeds of the sale to the intended transferee. Also, such intended transferee
shall have no
22
right to vote such shares or be entitled to dividends or other distributions
with respect to such shares. See "Description of Capital Stock--Repurchase of
Shares and Restrictions on Transfer" for additional information regarding the
Ownership Limit.
These provisions may inhibit market activity in shares of Common Stock and
the opportunity for IMH's stockholders to receive a premium for their shares
that might otherwise exist if any person were to attempt to assemble a block of
shares of Common Stock in excess of the number of shares permitted under the
Charter. Such provisions also may make IMH an unsuitable investment vehicle for
any person seeking to obtain ownership of more than 9.5% of the outstanding
shares of Common Stock.
In addition, certain provisions of the Maryland General Corporation Law
("MGCL") and of IMH's Charter and Bylaws may also have the effect of delaying,
deferring or preventing a change in control of the Company or other transaction
that may involve a premium price for holders of Common Stock or otherwise be in
their best interest. See "Certain Provisions of Maryland Law and of the
Company's Charter and Bylaws."
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement for any
offering of Securities, the net proceeds from the sale of Securities offered by
the Company will be available for the general corporate purposes of the Company.
These general corporate purposes may include, without limitation, funding the
Long-Term Investment Operations, the Conduit Operations and the Warehouse
Lending Operations repayment of maturing obligations, redemption of outstanding
indebtedness, financing future acquisitions (including acquisitions of mortgage
loans and other mortgage-related products), capital expenditures and working
capital. Pending any such uses, the Company may invest the net proceeds from
the sale of any Securities or may use them to reduce short-term indebtedness.
If the Company intends to use the net proceeds from a sale of Securities to
finance a significant acquisition, the related Prospectus Supplements will
describe the material terms of such acquisition.
If Debt Securities are issued to one or more persons in exchange for the
Company's outstanding debt securities, if any, the accompanying Prospectus
Supplement related to such offering of Debt Securities will set forth the
aggregate principal amount of the outstanding debt securities which the Company
will receive in such exchange and which will cease to be outstanding, the
residual cash payment, if any, which the Company may receive from such persons
or which such persons may receive from the Company, as appropriate, the dates
from which the Company will pay interest accrued on the outstanding debt
securities to be exchanged for the offered Debt Securities and an estimate of
the Company's expenses in respect of such offering of the Debt Securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following is the computation of ratio of earnings to fixed charges
including CMO debt(1)
Six Months
Ended June 30 Year Ended December 31
------------- ----------------------------------------------
1997 1996 1996 1995(2) 1994(2) 1993(2) 1992(2)
----- ---- ----- ------- ------- ------- -------
Ratio of earnings to fixed charges 1.2x 1.1x 1.2x 1.6x 1.6x 9.9x 5.0x
===== ==== ==== ======= ===== ======= =======
- -------------
(1) Earnings used in computing the ratio of earnings to fixed charges consist
of net income before income taxes plus fixed charges. Fixed charges
consist of interest expense on long-term debt (including amortization of
loan premiums and the portion of rental expense deemed to represent the
interest factor).
(2) Data prior to the Contribution Transaction is based upon the historical
operations of IWLG, as a division of SPTL, and includes the Company's
equity interest in ICIFC, as a division of ICII.
These ratios represent a measure of the ability to meet debt service
obligations from funds generated from operations.
23
DESCRIPTION OF SECURITIES
The following is a brief description of the material terms of the
Securities. This description does not purport to be complete and is subject in
all respects to applicable Maryland law and the Company's Charter and Bylaws,
copies of which are on file with the Commission, and are incorporated by
reference herein. See "Available Information."
GENERAL
The Company may offer under this Prospectus one or more of the following
categories of its Securities: (i) shares of its Common Stock, $0.01 par value
per share; (ii) shares of its Preferred Stock, $0.01 par value per share, in one
or more series; (iii) Debt Securities, in one or more series, any series of
which may be either Senior Debt Securities or Subordinated Debt Securities; (iv)
Common Stock Warrants; (v) Preferred Stock Warrants; (vi) Debt Warrants; and
(vii) any combination of the foregoing, either individually or as units
consisting of one or more of the types of Securities described in clauses (i)
through (vi). The terms of any specific offering of securities, including the
terms of any units offered, will be set forth in a Prospectus Supplement
relating to such offering.
The authorized stock of IMH consists of 50,000,000 shares of Common Stock,
$0.01 par value per share, and 10,000,000 shares of Preferred Stock, $0.01 par
value per share. It is expected that meetings of the stockholders of IMH will
be held annually. Special meetings of the stockholders may be called by the
President, Chief Executive Officer, a majority of the entire Board of Directors
or a majority of the Unaffiliated Directors and must be called upon the written
request of holders of shares entitled to cast at least 25% of all the votes
entitled to be cast at the meeting. The Charter reserves to IMH the right to
amend any provision thereof in the manner prescribed by Maryland law upon the
affirmative vote of stockholders entitled to cast at least a majority of all the
votes entitled to be cast on the matter, except that the provision requiring the
affirmative vote of the holders of two-third of votes entitled to be cast in the
election of directors to remove a director may only be amended upon the
affirmative vote of the holders of two-thirds of the votes entitled to be cast
in the election of directors. The Common Stock is listed on the American Stock
Exchange. The Company intends to list any additional shares of its Common Stock
which are issued and sold hereunder. The Company may list any series of its
Preferred Stock which are offered and sold hereunder, as described in the
Prospectus Supplement relating to such series of Preferred Stock.
CAPITAL STOCK
COMMON STOCK
Each share of Common stock is entitled to participate equally in dividends
when and as authorized by the Board of Directors and in the distribution of
assets of IMH upon liquidation. Each share of Common Stock is entitled to one
vote, subject to the provisions of the Charter regarding restrictions on
transfer of stock, and will be fully paid and nonassessable by IMH upon
issuance. Shares of Common Stock have no preference, conversion, exchange,
preemptive or cumulative voting rights. The authorized stock of IMH may be
increased and altered from time to time in the manner prescribed by Maryland law
upon the affirmative vote of stockholders entitled to cast at least a majority
of all the votes entitled to be cast on the matter. The Charter authorizes the
Board of Directors to reclassify any unissued shares of its Common Stock in one
or more classes or series of stock.
PREFERRED STOCK
The Charter authorizes the Board of Directors to issue shares of Preferred
Stock and to classify or reclassify any unissued shares of Preferred Stock into
one or more classes or series. The Preferred Stock may be issued from time to
time with such designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption as shall be determined by
the Board of Directors subject to the provisions of the Charter regarding
restrictions on transfer of stock. Preferred Stock is available for possible
future financing of, or acquisitions by, IMH and for general corporate purposes
without further stockholder authorization, Thus, the Board could authorize the
issuance of shares of Preferred Stock with terms and conditions which could have
the effect of delaying, deferring or preventing a
24
change in control of IMH by means of a merger, tender offer, proxy contest or
otherwise. The Preferred Stock, if issued, may have a preference on dividend
payments which could reduce the assets available to IMH to make distributions to
the common stockholders. As of the date hereof, no shares of Preferred Stock
have been issued. The particular terms of any series of Preferred Stock offered
hereby will be described in the applicable Prospectus Supplement.
REPURCHASE OF SHARES AND RESTRICTIONS ON TRANSFER
For IMH to qualify as a REIT under the Code, no more than 50% in value of
its outstanding shares of stock may be owned, actually or constructively, by or
for five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year (other than the first year for
which an election to be treated as a REIT has been made). In addition, a REIT's
stock must be beneficially owned by 100 or more persons during the last 335 days
of a taxable year of 12 months or during a proportionate part of a shorter
taxable year (other than the first year for which an election to be treated as a
REIT has been made).
Because IMH expects to continue to qualify as a REIT, the
Charter contains restrictions on the transfer of Common Stock which are
intended to assist IMHthe Company in complying with these requirements. The
CharterOwnership Limit (as defined in the Charter) prohibits any person, subject to
certain specified exceptions, discussed below, from owning, actually or constructively, (i) shares
of Common Stock in excess of 9.5% (in value or in number, whichever is more
restrictive) of the outstanding shares of Common Stock
or (ii) shares of stock of IMH in excess of 9.5% in value the aggregate value of
the outstanding shares of stock of the Company (the "Aggregate Ownership
Limit").Stock. The constructive
ownership rules are complex, and may cause shares of stockCommon Stock owned
actually or constructively by a group of related individuals and/or entities
to be constructively owned by one individual or entity. As a result, the
acquisition of less than 9.5% of the outstanding shares of Common Stock (or the
acquisition of an interest in an entity that owns, actually or constructively,
shares of Common Stock) by an individual or entity, could nevertheless cause
that individual or entity, or another individual or entity, to own
constructively shares of stock in excess of 9.5% of the Ownership Limit oroutstanding shares of Common Stock and
thus violate the
Aggregate Ownership Limit, or such other limit as provided in the
Charter or as otherwise permitted by the Board of Directors. The Board of
Directors may, but in no event will be required to, exempt a person from the
Ownership Limit or the
Aggregate Ownership Limit if it determines that such person's ownership of shares of
stock in excess of such limitsCommon Stock will not jeopardize IMH'sthe Company's status as a REIT. As a
condition of such waiver, the Board of Directors may require a ruling from the
Internal Revenue ServiceIRS or opinionsopinion of counsel satisfactory to it and/or undertakings or
representations from the applicant with respect to IMH'sthe Company's status as a
REIT.
IMH's Charter further prohibits (a) any person from actually or
constructively owing shares of Common Stock that would result in IMH being
"closely held" under Section 856(h) of the Code or otherwise cause IMH to fail
to qualify as a REIT, and (b) any person from transferring shares of Common
Stock if such transfer would result in shares of Common Stock being owned by
fewer than 100 persons. Any person who acquires or attempts or intends to
acquire actual or constructive ownership of shares of stock of IMH that will or
may violate any of the foregoing restrictions on transferability and ownership
is required to give written notice immediately to IMH and provide IMH with such
other information as it may request in order to determine the effect of such
transfer on its status as a REIT. The foregoing restrictions on transferability
and ownership will not apply if the Board of Directors determines that it is no
longer in the best interest of IMH to attempt to qualify, or to continue to
qualify, as a REIT. The Board of Directors may from time to time increase or,
subject to certain limitations, decrease the Ownership Limit and the Aggregate
Ownership Limit. Pursuant to the Charter, if any purported transfer of Common Stock or
any other event would otherwise result in any person owning shares of stockCommon
Stock in excess of the Ownership Limit or otherwise cause the Aggregate Ownership Limit or in IMH being
"closely held" as described above or otherwise failingCompany to fail
to qualify as a REIT, then that number of shares of stockCommon Stock the actual or
constructive ownership of which otherwise would cause such person to violate
such restrictions (rounded to the nearest whosewhole share) will be automatically
transferred to a trustee (the
"Trustee") as trustee of a trust (the "Trust") for the exclusive benefit of
one or more charitable beneficiaries, (the "Charitable Beneficiary"), and the intended transferee will not
acquire any rights in such shares.
Shares held6. HOW DOES AN ELIGIBLE STOCKHOLDER PARTICIPATE?
Stockholders who are presently enrolled in the existing Imperial Credit
Mortgage Holdings, Inc. Dividend Reinvestment and Stock Purchase Plan will
continue to be enrolled in the Plan unless you notify the Company otherwise.
The Plan amends and restates in its entirety the existing Imperial Credit
Mortgage Holdings, Inc. Dividend Reinvestment and Stock Purchase Plan.
Stockholders who are not participants in the Plan and who do not want to
become participants need do nothing and will continue to receive their cash
dividend, if and when declared, as usual.
10
Record Owners
-------------
Record Owners may join the Plan by completing and signing the Authorization
Form included with the Plan and returning it to the Plan Administrator. A
postage-paid envelope is provided for this purpose. If shares are registered
in more than one name (e.g., joint tenants, trustees), all registered holders
of such shares must sign the Authorization Form exactly as their names appear
on the account registration. Authorization Forms may be obtained at any time
by written request to:
Boston Equiserve, L.P.
Dividend Reinvestment Unit
Mail Stop: 45-01-20, P.O. Box 1681
Boston, Massachusetts 02105-1681
Telephone: (617) 575-3120
Beneficial Owners
-----------------
Beneficial Owners who wish to join the Plan must instruct their broker, bank
or other nominee to complete and sign the Authorization Form. The broker, bank
or other nominee will forward the completed Authorization Form to its
securities depository and the securities depository will provide the Plan
Administrator with the information necessary to allow the Beneficial Owner to
participate in the Plan. See Question 8 for a discussion of the Broker and
Nominee Form (the "B&N Form"), which is required to be used for optional cash
payments of a Beneficial Owner whose broker, bank or other nominee holds the
Beneficial Owner's shares in the name of a major securities depository. See
also Question 17.
Incomplete Forms
----------------
If a Record Owner or the broker, bank or other nominee on behalf of a
Beneficial Owner submits a properly executed Authorization Form without
electing an investment option, such Authorization Form will be deemed to
indicate the intention of such Record Owner or Beneficial Owner, as the case
may be, to apply all cash dividends and optional cash payments, if applicable,
toward the purchase of additional shares of Common Stock. See Question 7 for
investment options.
7. WHAT DOES THE AUTHORIZATION FORM PROVIDE?
The Authorization Form appoints the Plan Administrator as agent for the
Participant and directs the Company to pay to the Plan Administrator each
Participant's cash dividends on all or a specified number of shares of Common
Stock owned by the Trustee will constitute issuedParticipant on the applicable record date ("Participating
Shares"), as well as on all whole and outstandingfractional shares of stock.Common Stock
credited to a Participant's Plan account ("Plan Shares"). The intended transfereeAuthorization
Form directs the Plan Administrator to purchase on the Investment Date (as
defined in Question 12) additional shares of Common Stock with such dividends
and optional cash payments, if any, made by the Participant. See Question 8
for a discussion of the B&N Form which is required to be used for optional
cash payments of a Beneficial Owner whose broker, bank or other nominee holds
the Beneficial Owner's shares in the name of a major securities depository.
The Authorization Form also directs the Plan Administrator to reinvest
automatically all subsequent dividends on Plan Shares. Dividends will not benefit economicallycontinue
to be reinvested on the number of Participating Shares and on all Plan Shares
until the Participant specifies otherwise by contacting the Plan
Administrator, in writing, withdraws from ownershipthe Plan (see Questions 27 and 28),
or the Plan is terminated. See Question 6 for additional information about the
Authorization Form.
11
The Authorization Form provides for the purchase of additional shares of
Common Stock through the following investment options:
(1) If "Full Dividend Reinvestment" is elected, the Plan Administrator
will apply all cash dividends on all shares of Common Stock then or
subsequently registered in the Participant's name, and all cash dividends
on all Plan Shares, together with any optional cash payments, toward the
purchase of additional shares of Common Stock.
(2) If "Partial Dividend Reinvestment" is elected, the Plan Administrator
will apply all cash dividends on only the number of Participating Shares
registered in the Participant's name and specified on the Authorization
Form and all cash dividends on all Plan Shares, together with any optional
cash payments, toward the purchase of additional shares of Common Stock.
(3) If "Optional Cash Payments Only" is elected, the Participant will
continue to receive cash dividends on shares of Common Stock registered in
that Participant's name in the usual manner. However, the Plan
Administrator will apply all cash dividends on all Plan Shares, together
with any optional cash payments received from the Participant, toward the
purchase of additional shares of Common Stock. See Question 8 for a
discussion of the B&N Form which is required to be used for optional cash
payments of a Beneficial Owner whose broker, bank or other nominee holds
the Beneficial Owner's shares in the name of a major securities depository.
Each Participant may select any one of these three options. In each case,
dividends will be reinvested on all Participating Shares and on all Plan
Shares held in the Trust, will have no rightsPlan account, including dividends on shares of Common Stock
purchased with any optional cash payments, until a Participant specifies
otherwise by contacting the Plan Administrator, in writing, or withdraws from
the Plan altogether (see Questions 27 and 28), or until the Plan is
terminated. If a Participant would prefer to receive cash payments of
dividends paid on Plan Shares rather than reinvest such dividends, those
shares must be withdrawn from the Plan by written notification to the Plan
Administrator. See Questions 27 and will not possess28 regarding withdrawal of Plan Shares.
Participants may change their investment options at any rightstime by requesting a
new Authorization Form and returning it to votethe Plan Administrator at the
address set forth in Question 38. See Question 12 for the effective date for
any change in investment options.
8. WHAT DOES THE B&N FORM PROVIDE?
The B&N Form provides the only means by which a broker, bank or other
rights attributablenominee holding shares of a Beneficial Owner in the name of a major securities
depository may invest optional cash payments on behalf of such Beneficial
Owner. A B&N Form must be delivered to the Plan Administrator each time such
broker, bank or other nominee transmits optional cash payments on behalf of a
Beneficial Owner. The B&N Form must be executed by the broker, bank or other
nominee for the Beneficial Owner. A broker, bank or other nominee holding
shares heldfor a Beneficial Owner in the Trust.
The Trusteename of a major securities depository may
also participate in the Plan through the Depository Trust Company ("DTC").
Currently, only the dividend reinvestment option is available through DTC. B&N
Forms will have all voting rights and rightsbe furnished at any time upon request to 25the Plan Administrator at:
Boston EquiServe, L.P.
Dividend Reinvestment Unit
Mail Stop: 45-01-20, P.O. Box 1681
Boston, Massachusetts 02105-1681
Telephone: (617) 575-3120
PRIOR TO SUBMITTING THE B&N FORM, THE BROKER, BANK OR OTHER NOMINEE FOR A
BENEFICIAL OWNER MUST SUBMIT A COMPLETED AUTHORIZATION FORM ON BEHALF OF THE
BENEFICIAL OWNER. SEE QUESTIONS 6 AND 7.
12
dividendsTHE B & N FORM AND APPROPRIATE INSTRUCTIONS MUST BE RECEIVED BY THE PLAN
ADMINISTRATOR NOT LATER THAN THE APPLICABLE RECORD DATE OR THE OPTIONAL CASH
PAYMENT WILL NOT BE INVESTED UNTIL THE FOLLOWING INVESTMENT DATE.
9. IS PARTIAL PARTICIPATION POSSIBLE UNDER THE PLAN?
Yes. Record Owners or the broker, bank or other distributionsnominee for Beneficial
Owners may designate on the Authorization Form a number of shares for which
dividends are to be reinvested. Dividends will thereafter be reinvested only
on the number of shares specified, and the Record Owner or Beneficial Owner,
as the case may be, will continue to receive cash dividends on the remainder
of the shares.
10. WHEN MAY AN ELIGIBLE STOCKHOLDER JOIN THE PLAN?
A Record Owner or a Beneficial Owner may join the Plan at any time. Once in
the Plan, a Participant remains in the Plan until he or she withdraws from the
Plan, the Company terminates his or her participation in the Plan or the
Company terminates the Plan. See Question 28 regarding withdrawal from the
Plan.
11. WILL A STOCKHOLDER PRESENTLY ENROLLED IN THE ORIGINAL PLAN CONTINUE TO BE
ENROLLED IN THE PLAN?
Yes. A stockholder enrolled in the Original Plan will continue to be
enrolled in the Plan in accordance with the investment option chosen under the
Original Plan, provided he or she is an eligible stockholder as set forth in
Question 5, and thus entitled to participate in the Plan.
If an eligible stockholder enrolled in the Original Plan does not wish to
participate in the Plan, he or she should withdraw from the Plan in the manner
described in Questions 27 and 28. If an eligible stockholder wishes to change
the nature of his or her participation from that in the Original Plan, he or
she should return an Authorization Form as described in Question 6. If an
eligible stockholder enrolled in the Original Plan does not wish to withdraw
or change the nature of his or her participation, he or she will continue to
be enrolled in the Plan and the nature of his or her investment option will
remain the same under the Plan.
12. WHEN WILL DIVIDENDS BE REINVESTED AND/OR OPTIONAL CASH PAYMENTS BE
INVESTED?
When shares are purchased from the Company, such purchases will be made on
the "Investment Date" in each month. The Investment Date with respect to
shares heldCommon Stock acquired directly from the Company and relating to a dividend
reinvestment will be the dividend payment date declared by the Board of
Directors (unless such date is not a business day in which case it is the
first business day immediately thereafter) or, in the Trust,case of open market
purchases, no later than ten business days following the dividend payment
date. The Investment Date with respect to Common Stock acquired directly from
the Company and relating to an optional cash payment will generally be on or
about the twenty-ninth day of each month or, in the case of open market
purchases, no later than ten business days following the related Investment
Date. In no event, however, will the Investment Date relating to dividend
reinvestments be less than ten days from the Investment Date relating to
optional cash payments.
When open market purchases are made by the Plan Administrator, such
purchases may be made on any securities exchange where the shares are traded,
in the over-the-counter market or by negotiated transactions, and may be
subject to such terms with respect to price, delivery and other matters as
agreed to by the Plan Administrator. Neither the Company nor any Participant
shall have any authorization or power to direct the time
13
or price at which rightsshares will be exercised forpurchased or the exclusive benefitselection of the Charitable
Beneficiary. Any dividendbroker or
other distribution paiddealer through or from whom purchases are to be made by the Plan
Administrator. However, when open market purchases are made by the Plan
Administrator, the Plan Administrator shall use its best efforts to purchase
the shares at the lowest possible price.
If the Authorization Form is received prior to the discoveryrecord date for a
dividend payment, the election to reinvest dividends will begin with that
dividend payment. If the Authorization Form is received on or after any such
record date, reinvestment of dividends will begin on the dividend payment date
following the next record date if the Participant is still a stockholder of
record. Record dates for payment of dividends normally precede payment dates
by IMHapproximately two to three weeks.
See Question 18 for information concerning limitations on the minimum and
maximum amounts of optional cash payments that shares of stock have been transferredmay be made each month and
Question 19 for information as to the Trusteewhen optional cash payments must be received
to be invested on each Investment Date.
Shares will be paid with
respectallocated and credited to suchParticipants' accounts as follows:
(1) shares topurchased from the Trustee upon demand and any dividend or other
distribution authorized but unpaidCompany will be paid when due toallocated and credited on the
Trustee. Any
dividends or distributions so paid over to the Trusteeappropriate Investment Date; and (2) shares purchased in market transactions
will be held in trust for
the Charitable Beneficiary. Subject to Maryland law, effectiveallocated and credited as of the date thaton which the Plan Administrator
completes the purchases of the aggregate number of shares to be purchased on
behalf of all Participants with dividends to be reinvested or optional cash
payments, as the case may be, during the month.
NO INTEREST WILL BE PAID ON CASH DIVIDENDS OR OPTIONAL CASH PAYMENTS PENDING
INVESTMENT OR REINVESTMENT UNDER THE TERMS OF THE PLAN. SINCE NO INTEREST IS
PAID ON CASH HELD BY THE PLAN ADMINISTRATOR, IT NORMALLY WILL BE IN THE BEST
INTEREST OF A PARTICIPANT TO DEFER OPTIONAL CASH PAYMENTS UNTIL SHORTLY BEFORE
COMMENCEMENT OF THE PRICING PERIOD.
PURCHASE AND PRICES OF SHARES
13. WHAT WILL BE THE PRICE TO PARTICIPANTS OF SHARES PURCHASED UNDER THE PLAN?
Dividend Reinvestment
---------------------
With respect to reinvested dividends, the price per share of Common Stock
acquired directly from the Company will be 97% (subject to change) of the
average of the high and low sales prices, computed to three decimal places, of
the Common Stock on the AMEX on the Investment Date (as defined in Question
12), or if no trading occurs in the Common Stock on the Investment Date, the
average of the high and low sales prices for the first trading day immediately
preceding the Investment Date for which trades are reported.
No discount will be available for dividends reinvested in Common Stock
acquired in open market purchases. See Question 16. The price per share of
Common Stock acquired through open market purchases with reinvested dividends
will be the weighted average of the actual prices paid, computed to three
decimal places, for all of the Common Stock purchased by the Plan
Administrator with all Participants' reinvested dividends for the related
quarter. Additionally, each Participant will be charged a pro rata portion of
any brokerage commissions or other fees or charges paid by the Plan
Administrator in connection with such shares have been transferredopen market purchases. (If a Participant
desires to opt out of the dividend reinvestment feature of the Plan when the
Common Stock relating to dividend reinvestments will be purchased in the open
market, a Participant must notify the Plan Administrator no later than the
record date for the related dividend payment date. For information as to the
Trustee,source of the TrusteeCommon Stock to be purchased under the Plan see Question 16.)
14
Optional Cash Payments
----------------------
With respect to optional cash payments that do not exceed $10,000 (see
Question 18 for a discussion of the discount applicable to optional cash
payments in excess of $10,000), the price per share of Common Stock acquired
directly from the Company will havebe 97.5% (subject to change) of the authority (ataverage of
the Trustee's sole discretion) (i)high and low sales prices, computed to rescindthree decimal places, of the Common
Stock as void any vote
castreported on the AMEX for the three Trading Days immediately preceding
the relevant Investment Date (as defined in Question 12 above) or, if no
trading occurs in the Common Stock on one or more of such Trading Days, for
the three Trading Days immediately preceding the Investment Date for which
trades are reported. A "Trading Day" means a day on which trades in the Common
Stock are reported on the AMEX. With respect to all optional cash payments,
regardless of the amount being invested, the period encompassing the three
Trading Days which relate to an Investment Date constitutes the relevant
"Pricing Period."
The price per share of Common Stock acquired through open market purchases
with optional cash payments will be 100% (subject to change) of the weighted
average of the actual prices paid, computed to three decimal places, for all
of the Common Stock purchased by an intended transfereethe Plan Administrator with all Participants'
optional cash payments for the related month.
The Discount
The price per share of Common Stock purchased with dividends reinvested in
Common Stock acquired directly from the Company and all optional cash
payments, currently reflects a discount which is subject to change (but will
not vary from the range of 0% to 5%) from time to time or discontinuance at
the Company's discretion after a review of current market conditions, the
level of participation in the Plan and the Company's current and projected
capital needs.
Each month, at least three business days prior to the discovery by IMHapplicable Record
Date, the Company, in its sole discretion, may establish a discount from the
Market Price that such shares
have been transferredotherwise would be applicable for reinvested dividends,
optional cash payments and optional cash payments pursuant to a Request for
Waiver. Participants may ascertain the discount applicable to the Trustee and (ii)next Pricing
Period by contacting the Company's Investor Relations Department at (714) 438-
2100. Setting a discount for a particular month will not affect the setting of
a discount for any subsequent month.
Neither the Company nor any Participant shall have any authorization or
power to recast such vote in accordance
withdirect the desirestime or price at which shares will be purchased or the
selection of the Trustee actingbroker or dealer through or from whom purchases are to be
made by the Plan Administrator. However, when open market purchases are made
by the Plan Administrator, the Plan Administrator shall use its best efforts
to purchase the shares at the lowest possible price.
Market Price
All references in the Plan to the "Market Price" when it relates to dividend
reinvestments which will be reinvested in Common Stock acquired directly from
the Company shall mean the average of the high and low sales prices, computed
to three decimal places, of the Common Stock on the AMEX on the Investment
Date, or if no trading occurs in the Common Stock on the Investment Date, the
average of the high and low sales prices for the benefitfirst trading day immediately
preceding the Investment Date for which trades are reported. With respect to
dividend reinvestments which will be reinvested in Common Stock purchased in
the open market, "Market Price" shall mean the weighted average of the Charitable
Beneficiary.
Within 20 daysactual
prices paid, computed to three decimal places, for all of receiving notice from IMH that shares of stock have been
transferredthe Common Stock
purchased by the Plan Administrator with all Participants' reinvested
dividends for the related
15
quarter. All references in the Plan to the Trust,"Market Price" for optional cash
payments which will be invested in Common Stock acquired directly from the
TrusteeCompany shall mean the average of the high and low sales prices, computed to
three decimal places, of the Common Stock as reported on the AMEX during the
Pricing Period (as defined above). With respect to optional cash payments
which will sell the shares heldbe reinvested in Common Stock purchased in the Trustopen market, "Market
Price" shall mean the weighted average of the actual prices paid, computed to
a person designatedthree decimal places, for all of the Common Stock purchased by the Trustee whose ownershipPlan
Administrator with all Participants' optional cash payments for the related
month.
14. WHAT ARE THE RECORD DATES AND INVESTMENT DATES FOR DIVIDEND REINVESTMENT?
For the reinvestment of dividends, the shares will not
violate"Record Date" is the ownership restrictions set forth inrecord date
declared by the Charter. UponBoard of Directors for such sale,dividend. Likewise, the interestdividend
payment date declared by the Board of Directors constitutes the Charitable Beneficiary in the shares sold will terminate and
the Trustee will distribute the net proceeds of the saleInvestment
Date applicable to the intended
transferee andreinvestment of such dividend with respect to Common
Stock acquired directly from the Charitable Beneficiary as follows:Company, except that if any such date is not
a business day, the intended
transfereefirst business day immediately following such date shall
be the Investment Date. The Investment Date with respect to Common Stock
purchased in open market transactions will receivebe no later than ten business days
following the lesser of (1)dividend payment date. Dividends will be reinvested on the
price paid byInvestment Date using the intended
transferee for the shares or, if the intended did not give value for the shares
in connection with the event causing the shares to be held in the Trust (e.g.,
in the case of a gift, devise or other such transaction), theapplicable Market Price (as defined below)in Question 13).
Generally, record dates for quarterly dividends on the Common Stock will
precede the dividend payment dates by approximately two to three weeks. Please
refer to Question 19 for a discussion of the Record Dates and Investment Dates
applicable to optional cash payments.
15. HOW WILL THE NUMBER OF SHARES PURCHASED FOR A PARTICIPANT BE DETERMINED?
A Participant's account in the Plan will be credited with the number of
shares, onincluding fractions computed to three decimal places, equal to the
day of the event causing the sharestotal amount to be held ininvested on behalf of such Participant divided by the
Trust and (2) thepurchase price per share receivedas calculated pursuant to the methods described in
Question 13, as applicable. The total amount to be invested will depend on the
amount of any dividends paid on the number of Participating Shares and Plan
Shares in such Participant's Plan account and available for investment on the
related Investment Date, or the amount of any optional cash payments made by
such Participant and available for investment on the Trusteerelated Investment Date.
Subject to the availability of shares of Common Stock registered for issuance
under the Plan, there is no total maximum number of shares available for
issuance pursuant to the reinvestment of dividends.
16. WHAT IS THE SOURCE OF COMMON STOCK PURCHASED UNDER THE PLAN?
Plan Shares will be purchased either directly from the saleCompany, in which
event such shares will be authorized but unissued shares, or on the open
market, at the option of the Company, after a review of current market
conditions and the Company's current and projected capital needs. The Company
will determine the source of the Common Stock to be purchased under the Plan
at least three business days prior to the relevant Record Date, and will
notify the Plan Administrator of the same. Neither the Company nor the Plan
Administrator shall be required to provide any written notice to Participants
as to the source of the Common Stock to be purchased under the Plan, but
current information regarding the source of the Common Stock may be obtained
by contacting the Company's Investor Relations at (714) 438-2100.
17. HOW DOES THE OPTIONAL CASH PAYMENT FEATURE OF THE PLAN WORK?
All Record Holders who have timely submitted signed Authorization Forms
indicating their intention to participate in this feature of the Plan, and all
Beneficial Owners whose brokers, banks or other dispositionnominees have
16
timely submitted signed Authorization Forms indicating their intention to
participate in this feature of the Plan (except for Beneficial Owners whose
brokers, banks or other nominees hold the shares heldof the Beneficial Owners in
the Trust. Any net sales
proceedsname of a major securities depository), are eligible to make optional cash
payments during any month, whether or not a dividend is declared. If a broker,
bank or other nominee holds shares of a Beneficial Owner in excessthe name of a
major securities depository, optional cash payments must be made through the
use of the amount payableB&N Form. See Question 8. Optional cash payments must be
accompanied by an Authorization Form or a B&N Form, as applicable. Each month
the Plan Administrator will apply any optional cash payment received from a
Participant no later than one business day prior to the intended transfereecommencement of that
month's Pricing Period (as defined in Question 13) to the purchase of
additional shares of Common Stock for the account of the Participant on the
following Investment Date (as defined in Question 12).
The discount from the Market Price applicable to optional cash payments will
be immediately paid2.5% (subject to the Charitable Beneficiary.
In addition, shareschange) of stock held in Trust will be deemed to have been
offered for sale to IMH, or its designee, at a price per share equal to the
lesser of (i) the price per share in the transaction that resulted in such
transfer to the Trust (or, in the case of a devise or gift, the Market Price (as defined in Question 13).
Refer to Question 18 for a discussion of the Charter) at the time of such devise or gift) and (ii) the Market
Pricepossible limitations on the
date IMH, or its designee, accepts such offer, IMH will have the
right to accept such offer until the Trustee has sold the shares held in the
Trust. Upon such a sale to IMH, the interest of the Charitable Beneficiary in
the shares sold will terminate and the Trustee will distribute the net proceeds
of the salepurchase price applicable to the intended transferee.
The Charter definespurchase of shares made with optional cash
payments.
18. WHAT LIMITATIONS APPLY TO OPTIONAL CASH PAYMENTS?
Optional Cash Payments up to $10,000
------------------------------------
Each optional cash payment is subject to a minimum per month purchase limit
of $50 and a maximum per month purchase limit of $10,000. For purposes of
these limitations, all Plan accounts under the term "Market Price" oncommon control or management of
a Participant will be aggregated. Generally, optional cash payments of less
than $50 and that portion of any date, with respect to
any class or seriesoptional cash payment which exceeds the
maximum monthly purchase limit of outstanding shares of IMH's stock, as the Closing Price
(as defined below) for$10,000, unless such shares on such date. The "Closing Price" on any
date shall mean the last sale price for such shares, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, for such shares, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the NYSE or, if such shares are not listed or
admitted to trading on the NYSE, as reported on the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which such shares are listed or admitted to
trading or, if such shares are not listed or admitted to trading on any national
securities exchange, the last quoted price, or, if not so quoted, the average of
the high bid and low asked prices in the over-the-customer market, as reportedlimit has been waived
by the National Association of Securities Dealers, Inc. Automated Quotation
System or, if such system is no longer in use, the principal other automated
quotation system that may then be in use or, if such shares are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in such shares selected
by the Board of Directors or, in the event that no trading price is available
for such shares, the fair market value of the shares, as determined in good
faith by the Board of Directors.
If any purported transfer of shares of stock of IMH shall cause IMH to be
beneficially owned be fewer than 100 persons, such transferCompany, will be null and
void in its entirety and the intended transferee will acquire no rightspromptly returned to such
shares.
All certificates representing shares of Common Stock bear a legend
referring to the restrictions described above.
Every owner of more than 5% (or such lower percentage as required by the
Code or the regulations promulgated thereunder) of all classes or series of the
Company's stock, including shares of Common Stock, within
26
30 days afterParticipants without interest at
the end of the relevant Pricing Period.
Requests for Waiver
-------------------
Participants may make optional cash payments of up to $10,000 each taxable year,month
without the prior approval of the Company. Optional cash payments in excess of
$10,000 may be made by a Participant only upon acceptance by the Company of a
completed Request for Waiver form from such Participant. There is requiredno pre-
established maximum limit applicable to give written noticeoptional cash payments that may be
made pursuant to accepted Requests for Waiver. A Request for Waiver form must
be received and accepted by the Company each month no later than the Record
Date (as defined in Question 19) for the applicable Investment Date. Request
for Waiver forms will be furnished at any time upon request to the Plan
Administrator at the address or telephone number specified in Question 38.
Participants interested in obtaining further information about a Request for
Waiver should contact the Company's Investor Relations Department at (714)
438-2100.
The Company expects to grant Requests for Waiver to financial
intermediaries, including brokers and dealers, and other Participants in the
future. Waivers will be considered on the basis of a variety of factors, which
may include the Company's current and projected capital needs, the
alternatives available to the Company stating the name and address of such owner, the number of shares
of each class and series of stock of the Company beneficially owned and a
description of the manner in which such shares are held. Each such owner shall
provide to the Company such additional information as the Company may request in
order to determine the effect, if any, of such beneficial ownership on IMH's
status as a REIT and to ensure compliance with the Ownership Limit.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrarmeet those needs, prevailing market
prices for the Company's Common Stock is Boston
EquiServe, L.P., North Quincy, Massachusetts.
SECURITIES WARRANTS
GENERAL
Theand other Company may issue Securities Warrants for the Purchase of Common Stock,
Preferred Stock or Debt Securities. Such warrants are referred to herein as
Common Stock Warrants, Preferred Stock Warrants or Debt Warrants, as
appropriate. Securities Warrants may be issued independently or together with
any other Securities covered by the Registration Statementsecurities, general economic and
offered by this
Prospectus and any accompanying Prospectus Supplement and may be attached to or
separate from such other Securities. Each series of Securities Warrants will
be issued under a separate agreement (each, a "Securities Warrant Agreement") to
be entered into between the Company and a bank or trust company, as agent (each,
a "Securities Warrant Agent"), all as set forthmarket conditions, expected aberrations in the Prospectus Supplement
relating to the particular issue of offered evidenced by warrant certificates
(the "Securities Warrant Certificates"). The Securities Warrant Agent will act
solely as an agentprice or trading volume of the Company in connection with the Securities Warrant
Certificates and will not assume any obligation or relationship of agency or
trust for or with any holders of Securities Warrant Certificates or beneficial
owners of Securities Warrants. Copies of the definitive Securities Warrant
Agreements and Securities Warrant Certificates will be filed with the Commission
by means of a Current Report on Form 8-K in connection with the offering of such
series of Securities Warrants.
If Securities Warrants are offered, the applicable Prospectus Supplement
will describe the terms of such Securities Warrants, including in the case of
Securities Warrants for the purchase of Debt Securities, the following where
applicable: (i) the offering price; (ii) the currencies in which such Debt
Warrants are being offered; (iii) the designation, aggregate principal amount,
currencies, denominations and terms of the series of Debt Securities purchasable
upon exercise of such Debt Warrants; (iv) the designation and terms of any
Securities with which such Debt Warrants are being offered and the number of
such Debt Warrants being offered with each such Security; (v) the date on and
after which such Debt Warrants and the related Securities will be transferable
separately; (vi) the principal amount of the series of Debt Securities
purchasable upon exercise of each such Debt Warrant and the price at which the
currencies in which such principal amount of Debt Securities of such series may
be purchased upon such exercise; (vii) the date on which the right to exercise
such Debt Warrants shall commence and the date on which such right shall expire
(the "Expiration Date"); (viii) whether the Debt Warrant will be issued in
registered or bearer form; (ix) certain federal income tax consequences; and (x)
any other material terms of such Debt Warrants.
In the case of Securities Warrants for the purchase of Preferred Stock or
Common Stock, the applicable Prospectus Supplement will describe the terms of
such Securities Warrants, including the following where applicable: (i) the
offering price; (ii) the aggregate number of shares purchasable upon exercise of
such Securities Warrants, and in the case of Securities Warrants for Preferred
Stock, the designation, aggregate number and termspotential disruption of the series of Preferred
Stock purchasable upon exercise of such Securities Warrants; (iii) the
designation and termsprice of the Securities with which such Securities Warrants are
being offered and the number of such Securities Warrants being offered with each
such Security; (iv) the date on and after which such Securities Warrants and the
related Securities will be transferable separately; (v) the number of shares of
Preferred Stock or shares of Common Stock purchasable upon exercise of each such
Securities Warrant and the price at which such number of shares of Preferred
Stock of such series or shares of Common Stock may be purchased upon such
exercise; (vi) the date on which the right to exercise such Securities Warrants
shall commence and the Expiration Date on which such right shall expire; (vii)
certain federal income tax consequences; and (viii) any other material terms of
such Securities Warrants.
27
Securities Warrant Certificates may be exchanged for new Securities Warrant
Certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the appropriate Securities Warrant Agent or other office
indicated in the applicable Prospectus Supplement. Prior to the exercise of any
Securities Warrant to purchase Debt Securities, holders of such Debt Warrants
will not have any of the rights of Holders of the Debt Securities purchasable
upon such exercise, including the right to receive payments of principal,
premium, if any, or interest, if any, on the Debt Securities purchasable upon
such exercise or to enforce covenants in the applicable Indenture. Prior to the
exercise of any Securities Warrants to purchase Preferred Stock or Common Stock,
holders of such Preferred Stock Warrants or Common Stock Warrants will not have
any rights of holders of the respective Preferred Stock or Common Stock
purchasable upon such exercise, including the right to receive payments of
dividends, if any, on the Preferred Stock or Common Stock purchasable upon such
exercise or to exercise any applicable right to vote.
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase such
principal amount of Debt Securities or number of shares of Preferred Stock or
shares of Common Stock, as the case may be, at such exercise price as shall in
each case be set forth in, or calculable from, the Prospectus Supplement
relating to the offered Securities Warrants. After the close of business on the
Expiration Date (or such later date to which such Expiration Date may be
extended by the Company), unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to the Securities
Warrant Agent payment, as provided in the applicable Prospectus Supplement, of
the amount required to purchase the applicable Debt Securities, Preferred Stock
or Common Stock purchasable upon such exercise together with certain information
set forth on the reverse side of the Securities Warrant Certificate. Upon
receipt of such payment and the definitive Securities Warrant Certificates
properly completed and duly executed at the corporate trust office of the
Securities Warrant Agent or any other office indicated in the applicable
Prospectus Supplement, the Company will, as soon as practicable, issue and
deliver the applicable Debt Securities, Preferred Stock or Common Stock
purchasable upon such exercise. If fewer than all of the Securities Warrants
represented by such Securities Warrant Certificate are exercised, a
new
Securities Warrant Certificate will be issued for the remaining amount of
Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO SECURITIES WARRANT AGREEMENTS
Each Securities Warrant Agreement may be amended or supplemented without
the consent of the holders of the Securities Warrants issued thereunder to
effect changes that are not inconsistent with the provisions of the Securities
Warrants and that do not adversely affect the interests of the holders of the
Securities Warrants.
COMMON STOCK WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, andfinancial intermediary, the number of shares of Common Stock coveredheld by the
Participant submitting the waiver request, the past actions of a Common
Stock WarrantParticipant
under the Plan, the aggregate amount of optional cash payments for which such
waivers have been submitted and the administrative constraints associated with
granting such waivers. Grants of waivers will be made in the absolute
discretion of the Company.
17
PARTICIPANTS IN THE PLAN ARE NOT OBLIGATED TO PARTICIPATE IN THE OPTIONAL
CASH PAYMENT FEATURE OF THE PLAN AT ANY TIME. OPTIONAL CASH PAYMENTS NEED NOT
BE IN THE SAME AMOUNT EACH MONTH.
The Waiver Discount
Each month, at least three business days prior to the applicable Record Date
(as defined in Question 19), the Company will establish the discount from the
Market Price applicable to optional cash payments made pursuant to Requests
for Waiver and will notify the Plan Administrator of the same. Such discount
(the "Waiver Discount") will be between 0% and 5% of the Market Price and may
vary each month, but once established will apply uniformly to all optional
cash payments made pursuant to Requests for Waiver during that month. The
Waiver Discount will be established in the Company's sole discretion after
advice from counsel, a review of current market conditions, the level of
participation in the Plan, and the Company's current and projected capital
needs. The Waiver Discount applies only to optional cash payments made
pursuant to Requests for Waiver and does not apply to other optional cash
payments. NEITHER THE COMPANY NOR THE PLAN ADMINISTRATOR SHALL BE REQUIRED TO
PROVIDE ANY WRITTEN NOTICE TO PARTICIPANTS AS TO THE WAIVER DISCOUNT, BUT
CURRENT INFORMATION REGARDING THE WAIVER DISCOUNT APPLICABLE TO THE NEXT
INVESTMENT DATE MAY BE OBTAINED BY CONTACTING THE COMPANY'S INVESTOR RELATIONS
AT (714) 438-2100. Setting a Waiver Discount applicable to the next Investment
Date shall not affect the setting of a Waiver Discount for any subsequent
Investment Date. The Waiver Discount feature discussed above applies only to
optional cash payments made pursuant to Requests for Waiver and does not apply
to the reinvestment of dividends.
Shares acquired from optional cash payments in excess of $10,000 that are
subjectgranted pursuant to adjustmenta Request for Waiver may be acquired either directly from
the Company or through open market purchases. See Question 13 for a
description of the price per share in certain events, including: (i)each case.
ONLY OPTIONAL CASH PAYMENTS MADE PURSUANT TO REQUESTS FOR WAIVER WILL BE
AFFECTED BY THE WAIVER DISCOUNT. ALL OTHER OPTIONAL CASH PAYMENTS WILL BE MADE
AT A 2.5% (SUBJECT TO CHANGE) DISCOUNT FROM THE MARKET PRICE, WITHOUT REGARD
TO ANY WAIVER DISCOUNT.
19. WHAT ARE THE RECORD DATES AND INVESTMENT DATES FOR OPTIONAL CASH PAYMENTS?
Optional cash payments will be invested every month on the issuancerelated
Investment Date. The "Record Date" for optional cash payments is two business
days prior to the related Pricing Period and the "Investment Date" is
generally on or about the twenty-ninth day of each month or, in the case of
open market purchases, no later than ten business days following the
Investment Date. In no event, however, will the Investment Date relating to
optional cash payments be less than ten days from the Investment Date relating
to dividend reinvestments.
Optional cash payments received by the Plan Administrator at least one
business day prior to the commencement of a Pricing Period will be applied to
the purchase of shares of Common Stock as a dividend or distribution on the Common Stock; (ii)
subdivisions and combinationsInvestment Date which relates to
that Pricing Period. No interest will be paid by the Company or the Plan
Administrator on optional cash payments held pending investment. Generally,
optional cash payments received on or after the commencement of a Pricing
Period will be promptly returned to Participants without interest at the end
of the Common Stock; (iii)Pricing Period; such optional cash payments may be resubmitted by a
Participant prior to the issuancenext or a later Pricing Period.
For a schedule of expected Record Dates and Investment Dates in 1997, see
Schedule A.
18
20. WHEN MUST OPTIONAL CASH PAYMENTS BE RECEIVED BY THE PLAN ADMINISTRATOR?
Each month the Plan Administrator will apply any optional cash payment for
which good funds are timely received to all
holdersthe purchase of shares of Common Stock
of certain rights or warrants entitling them to
subscribe for or purchase Common Stock within the number of days, specified in
the applicable Prospectus Supplement, after the date fixed for the determinationaccount of the stockholders entitledParticipant on the next Investment Date. See Question
19. In order for funds to receive such rightsbe invested on the next Investment Date, the Plan
Administrator must have received a check, money order or warrants, at less thanwire transfer by the
current market price (as defined in the Securities Warrant Agreement
governing such series of Common Stock Warrants); and (iv) the distribution to
all holders of Common Stock of evidences of indebtedness or assetsend of the Company (excluding certain cash dividendsbusiness day immediately preceding the ensuing Pricing Period and
distributions described below).
Thesuch check, money order or wire transfer must have cleared on or before the
related Investment Date. Wire transfers may be used only if approved verbally
in advance by the Plan Administrator. Checks and money orders are accepted
subject to timely collection as good funds and verification of compliance with
the terms of the Plan. Checks or money orders should be made payable to Boston
Equiserve--Imperial Credit Mortgage Holdings, Inc. DRIP. Checks returned for
any such adjustment will be specified in the related Prospectus
Supplement for such Common Stock Warrants.
NO RIGHTS AS STOCKHOLDERS
Holders of Common Stock Warrantsreason will not be entitled by virtue of being
such holders,resubmitted for collection.
NO INTEREST WILL BE PAID BY THE COMPANY OR THE PLAN ADMINISTRATOR ON
OPTIONAL CASH PAYMENTS HELD PENDING INVESTMENT. SINCE NO INTEREST IS PAID ON
CASH HELD BY THE PLAN ADMINISTRATOR, IT NORMALLY WILL BE IN THE BEST INTEREST
OF A PARTICIPANT TO DEFER OPTIONAL CASH PAYMENTS UNTIL SHORTLY BEFORE
COMMENCEMENT OF THE PRICING PERIOD.
In order for payments to vote, to consent, to receive dividends, to receive notice as
stockholders with respect to any meeting of stockholders for the
28
election of directors of the Company of any other matter, or to exercise any
rights whatsoever as stockholders of the Company.
EXISTING SECURITIES HOLDERS
The Company may issue, as a dividend at no cost, such Securities Warrants
to holders of record of the Company's Securities or any class thereofbe invested on the applicable record date. If Securities Warrants are so issued to existing
holders of Securities, the applicable Prospectus Supplement will describe,Investment Date, in addition to
the termsreceipt of good funds by the end of the Securities Warrantsbusiness day immediately preceding
the commencement of a Pricing Period, the Plan Administrator must be in
receipt of an Authorization Form or a B&N Form, as appropriate, as of the same
date. See Questions 6 and 8.
21. MAY OPTIONAL CASH PAYMENTS BE RETURNED?
Upon telephone or written request to the Securities issuable
upon exercise thereof,Plan Administrator received at
least two business days prior to the provisions, if any, for a holder ofInvestment Date with respect to which
optional cash payments have been delivered to the Plan Administrator, such
Securities
Warrants who validly exercises all Securities Warrants issuedoptional cash payments will be returned to the Participant as soon as
practicable. Requests received less than two business days prior to such holder to
subscribe for unsubscribed Securities (issuable pursuant to unexercised
Securities Warrants issued to other holders)date
will not be returned but instead will be invested on the next related
Investment Date. Also, each optional cash payment, to the extent such Securities
Warrants havethat it does
not been exercised.
DEBT SECURITIES
GENERAL
The Company may offer oneeither conform to the limitations described in Question 19 or more series of its Debt Securities
representing general, unsecured obligations ofclear within
the Company. Any series of Debt
Securities may either (1) rank prior to all subordinated indebtedness of the
Company and pari passu with all other unsecured indebtedness of the Company
outstanding on the date of the issuance of such Debt Securities ("Senior Debt
Securities") or (2) be subordinatedtime limit described in right of payments to certain other
obligations of the Company outstanding on the date of issuance ("Subordinated
Debt Securities"). In this Prospectus, any indenture relating to Subordinated
Debt Securities is referred to as a "Subordinated Indenture," any indenture
relating to Senior Debt Securities is referred to as a "Senior Indenture" and
the term "Indenture" refers to Senior and Subordinated Indentures, collectively.
The aggregate principal amount of Debt Securities which may be issued by
the Company will be set from time to time by the Board of Directors. Further,
the amount of Debt Securities which may be offered by this ProspectusQuestion 20, will be subject to return to the
aggregate initial offering priceParticipant as soon as practicable.
22. ARE THERE ANY EXPENSES TO PARTICIPANTS IN CONNECTION WITH THEIR
PARTICIPATION UNDER THE PLAN?
Participants will have to pay brokerage fees or commissions on shares of
Securities specifiedCommon Stock purchased with reinvested dividends and optional cash payments on
the open market, which sums are not expected to exceed $.15 per share (subject
to change) and which will be first deducted before determining the number of
shares to be purchased. However, the Board of Directors may in the Registration Statement. Each Indenture will permit the issuance of an unlimited
amount of Debt Securities thereunder from time to time in one or more series.
Additional debt securities may be issued pursuant to another registration
statement for issuance under any Indenture. Any offering of Debt Securities may
be denominated in any currency composite designated by the Company.
The following description of the Debt Securities which may be offered byfuture
determine that the Company hereunder describes certain general termswill pay such brokerage fees or commissions. The
Plan Administrator will effect open market purchases and provisionssales of shares for
the Debt
Securities to which any Prospectus Supplement may relate. The particular termsPlan through itself and provisions of the Debt Securities and the extent to which the following
general provisions may apply toit will not receive a commission for effecting
such offering of Debt Securitiestransactions. Participants will be
described in the accompanying Prospectus Supplement relating to such offering of
Debt Securities. The following descriptions of certain provisions of the
Indentures do not purport to be complete and are qualified in their entirety by
reference to the form of Senior Indentureincur no brokerage commissions or Subordinated Indenture, as
appropriate. The definitive Indenture relating to each offering of Debt
Securities will be filed with the Commission by means of a Current Report on
Form 8-Kservice
charges in connection with the offeringreinvestment of such Debt Securities. All articledividends and section references appearing hereinoptional cash
purchases when shares of Common Stock are referencesacquired directly from the Company.
The Company will pay all other costs of administration of the Plan. However,
Participants that request that the Plan Administrator sell all or any portion
of their shares (see Question 28) must pay any related brokerage commissions
and applicable stock transfer taxes.
19
23. WHAT KIND OF REPORTS WILL BE SENT TO PARTICIPANTS IN THE PLAN?
Each Participant in the Plan will receive a statement of his or her account
following each purchase of additional shares. These statements are
Participants' continuing record of the cost of their purchases and should be
retained for income tax purposes. In addition, Participants will receive
copies of other communications sent to holders of the Common Stock, including
the Company's annual report to its Stockholders, the notice of annual meeting
and proxy statement in connection with its annual meeting of Stockholders and
Internal Revenue Service information for reporting dividends paid.
DIVIDENDS ON FRACTIONS
24. WILL PARTICIPANTS BE CREDITED WITH DIVIDENDS ON FRACTIONS OF SHARES?
Yes.
CERTIFICATES FOR COMMON SHARES
25. WILL CERTIFICATES BE ISSUED FOR SHARES PURCHASED?
No. Common Stock purchased for Participants will be held in the name of the
Plan Administrator or its nominee. No certificates will be issued to
Participants for shares in the Plan unless a Participant submits a written
request to the articles and
sectionsPlan Administrator or until participation in the Plan is
terminated. At any time, a Participant may request the Plan Administrator to
send a certificate for some or all of the appropriate Indenture and, unless defined herein, all
capitalized terms have the respective meanings specified in the appropriate
Indenture.
The Prospectus Supplement relatingwhole shares credited to any offering of Debt Securities will
set forth the following terms and other informationa
Participant's account. This request should be mailed to the extent applicable
with respect toPlan Administrator
at the Debt Securities being offered thereby; (1) the designation,
aggregate principal amount, authorized denominations and priority of such Debt
Securities; (2) the price (expressed as a percentage of the aggregate principal
amount of such Debt Securities) at which such Debt Securities will be issued;
(3) the currency or currency units for which the Debt Securities may be
purchased and in which; (4) the stated maturity of such Debt Securities or means
by which a maturity date may be determined; (5) the rate at which such Debt
Securities will bear interest or the method by which such rate of interest is to
be calculated (which rate may be zero in the case of certain Debt Securities
issued at a price representing a discount from the principal amount payable at
maturity); (6) the periods during which
29
such interest will accrue, the dates on which such interest will be payable (or
the method by which such dates may be determined; including without limitation
that such rate of interest may bear an inverse relationship to some index or
standard) and the circumstances under which the Company may defer payment of
interest; (7) redemption provisions, including any optional redemption, required
repayment or mandatory sinking fund provisions; (8) any terms by which such Debt
Securities may be convertible into shares of the Company's Common Stock,
Preferred Stock or any other Securities of the Company, including a description
of the Securities into which any such Debt Securities are convertible; (9) any
terms by which the principal of such Debt Securities will be exchangeable for
any other Securities of the Company; (10) whether such Debt Securities are
issuable as definitive Fully- Registered Securities (as defined below) or Global
Securities and, if Global Securities are to be issued, the terms thereof,
including the manner in which interest thereon will be payable to the beneficial
owners thereof and other book-entry procedures, any terms for exchange of such
Global Securities into definitive Fully-Registered Securities (as defined below)
and any provisions relating to the issuance of a temporary Global Security; (11)
any additional restrictive covenants included for the benefit of the holders of
such Debt Securities; (12) any additional events of default provided with
respect to such Debt Securities; (13) the terms of any Securities being offered
together with such Debt Securities, (14) whether such Debt Securities represent
general, unsecured obligations of the Company and (15) any other material terms
of such Debt Securities.
If any of the Debt Securities are sold for foreign currency units, the
restrictions, elections, tax consequences, specific terms, and other information
with respect to such issue of Debt Securities and such currencies or currency
units will beaddress set forth in the Prospectus Supplement relatinganswer to thereto.
INDENTURE PROVISIONS
The Debt Securities mayQuestion 38. Any remaining whole
shares and any fractions of shares will remain credited to the Plan account.
Certificates for fractional shares will not be issued in definitive, fully registered form
without coupons ("Fully Registered Securities"), or in a form registered as to
principal only with coupons or in bearer form with coupons. Unless otherwise
specifiedunder any circumstances.
26. IN WHOSE NAME WILL CERTIFICATES BE REGISTERED WHEN ISSUED?
Each Plan account is maintained in the Prospectus Supplement,name in which the Debt Securities will only be Fully
Registered Securities. In addition, Debt Securitiesrelated
Participant's certificates were registered at the time of a series may be issuableenrollment in the
form of one or more Global Securities, whichPlan. Stock certificates for whole shares purchased under the Plan will be
denominated in an
amount equalsimilarly registered when issued upon a Participant's request. If a
Participant is a Beneficial Owner, such request should be placed through such
Participant's banker, broker or other nominee. See Question 6. A Participant
who wishes to pledge shares credited to such Participant's Plan account must
first withdraw such shares from the account.
WITHDRAWALS AND TERMINATION
27. WHEN MAY PARTICIPANTS WITHDRAW FROM THE PLAN?
Participants may withdraw from the Plan with respect to all or a portion of
the aggregate principal amount of such Debt
Securities. See "Global Securities" below.
Oneshares held in his or more series of Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
that at the time of issuance is below market rates. Federal income tax
consequences and special considerations applicable to any such series will be
describedher account in the Prospectus Supplement relating thereto.
Unless otherwise indicated inPlan at any time. If the related Prospectus Supplement for a
series of Debt Securities, there are no provisions contained in the Indentures
that would afford holders of Debt Securities protection in the event of a highly
leveraged transaction involving the Company.
Global Securities. Any series of Debt Securities may be issued in whole or
in part in the form of one or more Global Securities that will be deposited
with, or on behalf of, the Depositary identified in the Prospectus Supplement
relatingrequest
to such series. Unless and until itwithdraw is exchanged in whole or in part
for Debt Securities in individually certificated form, a Global Security may not
be transferred except as a wholereceived prior to a nominee of the Depositary for such Global
Security, or by a nominee for the Depositary to the Depositary, or to a
successor of the Depositary or a nominee of such successor.
The specific terms of the Depositary arrangement with respect to any
series of Debt Securities and the rights of, and limitations on, owners of
beneficial interests in a Global Security representing all or a portion of a
series of Debt Securities will be described in the Prospectus Supplement
relating to such series.
Modification of Indentures. Unless otherwise specified in the related
Prospectus Supplement, each Indenture, the rights and obligations of the
Company, and the rights of the Holders may be modified with respect to one or
more series of Debt Securities issued under such Indenture with the consent of
the Holders of not less than a majority in principal amount of the outstanding
Debt Securities of each such series affected by the modification or amendment.
No modification of the terms of payment of principal or interest, and no
modification reducing the percentage required for modification, is effective
against any Holder without his consent.
30
Events of Default. Unless otherwise specified in the related Prospectus
Supplement, each Indenture, will provide that the following are Events of
Default with respect to any series of Debt Securities issued thereunder: (1)
default in the payment of the principal of any Debt Security of such series when
and as the same shall be due and payable; (2) default in making a sinking fund
payment, if any, when and as the same shall be due and payable by the terms of
the Debt Securities of such series; (3) default for 30 days in payment of any
installment of interest on any Debt Securities of such series; (4) default for a
specified number of days after notice in the performance of any other covenants
in respect of the Debt Securities of such series contained in the Indenture; (5)
certain events of bankruptcy, insolvency or reorganization, or court appointment
of a receiver, liquidator, or trustee of the Company or its property; and (6)
any other Event of Default provided in the applicable supplemental indenture
under which such series of Debt Securities is issued. An Event of Default with
respect to a particular series of Debt Securities issued under an Indenture will
not necessarily constitute an Event of Default with respect to any other series
of Debt Securities issued under such Indenture. The trustee under an Indenture
may withhold notice to the Holders of any series of Debt Securities of any
default with respect to such series (except in the payment of principal or
interest) if it considers such withholding in the interests of such Holders.
If an Event of Default with respect to any series of Debt Securities shall
have occurred and be continuing, the appropriate trustee under the Indenture or
the Holders of not less than 25% in the aggregate principal amount of the Debt
Securities of such series may declare the principal, or in the case of
discounted Debt Securities, such portion thereof as may be described in the
Prospectus Supplement, of all the Debt Securities of such series to be due and
payable immediately.
Within four months after the close of each fiscal year, the Company will
file with each trustee under the indentures a certificate, signed by specified
officers, stating whether or not such officers have knowledge of any default,
and, if so, specifying each such default and the nature thereof.
Subject to provisions relating to its duties in case of default, a trustee
under the Indentures shall be under no obligation to exercise any of its rights
or powers under the applicable Indenture at the request, order, or direction of
any Holder, unless such Holders shall have offered to such trustee reasonable
indemnity. Subject to such provisions for indemnification, the Holders of a
majority in principal amount of the Debt Securities of any series may direct the
time, method, and place of conducting any proceeding for any remedy available to
the appropriate trustee, or exercising any trust or power conferred upon such
trustee, with respect to the Debt Securities of such series.
Payment and Transfer. Principal of, and premium and interest, if any, on,
Fully Registered Securities will be payable at the Place of Payment as specified
in the applicable Prospectus Supplement, provided that payment of interest, if
any, may be made, unless otherwise provided in the applicable Prospectus
Supplement, by check mailed to the person in whose names such Debt Securities
are registered at the close of business on the day or days specified in the
Prospectus Supplement or transfer to an account maintained by the payee located
inside the United States. The principal of, and premium and interest, if any,
on, Debt Securities in other forms will be payable in the manner and at the
place or places as designated by the Company and specified in the applicable
Prospectus Supplement. Unless otherwise provided in the Prospectus Supplement,
payment of interest may be made, in the case of a Bearer Security by the
transfer to an account maintained by the payee with a bank outside the United
States.
Fully Registered Securities may be transferred or exchanged at the
corporate trust office of the trustee or any other office or agency maintained
by the Company for such purposes, subject to the limitations in the applicable
Indenture, without the payment of any service charge except for any tax or
governmental charge incidental thereto. Provisions with respect to the transfer
and exchange of Debt Securities in other forms will bedividend record date set forth in the
applicable Prospectus Supplement.
Defeasance. The indentures provide that each will cease to be of further
effect with respect to a certain series of Debt Securities (except for certain
obligations to register the transfer or exchange of Securities) if (a) the
Company delivers to the Trustee for the Securities of such series for
cancellation of all Securities of all series and the coupons, if any,
appertaining thereto, or (b) if the Company deposits into trust with the Trustee
money or United States government obligations, that, through the payment of
interest thereon and principal thereof in accordance with their terms, will
provide money in an amount sufficient to pay all of the principal of, and
interest on, the
31
Securities of such series on the dates such payments are due or redeemable in
accordance with the terms of such Securities.
CERTAIN PROVISIONS OF MARYLAND LAW AND
OF THE COMPANY'S CHARTER AND BYLAWS
The following summary of certain provisions of the MGCL and of the Charter
and the Bylaws of IMH does not purport to be complete and is subject to and
qualified in its entirety by reference to Maryland law and to the Charter and
the Bylaws of IMH, copies of which are filed with the Commission. See
"Available Information." For a description of additional restrictions on
transfer of the Common Stock, see "Description of Securities--Repurchase of
Shares and Restrictions on Transfer."
REMOVAL OF DIRECTORS
The Charter provides that a director may be removed from office at any time
but only by the affirmative vote of the holders of at least two-thirds of the
votes entitled to be cast in the election of directors.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then outstanding voting stock of
the corporation (an "Interested Stockholder") or an affiliate of such an
Interested Stockholder are prohibited for five years after the most recent date
on which the Interested Stockholder becomes an Interested Stockholder.
Thereafter, any such business combination must be recommended by the board of
directors of such corporation and approved by the affirmative vote of at least
(a) 80% of the votes entitled to be cast by holders of outstanding shares of
voting stock of the corporation and (b) two-thirds of the votes entitled to be
cast by holders of voting stock of the corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other conditions, the corporation's
common stockholders receive a minimum price (as defined in the MGCL) for their
shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares. These provisions
of Maryland law do not apply, however, to business combinations that are
approved or exempted by the board of directors of the corporation prior to the
time that the Interested Stockholder becomes an Interested Stockholder.
Pursuant to the statute, IMH has exempted any business combinations involving
ICII and, consequently, the five-year prohibition and the super- majority vote
requirements of the statute will not in any event apply to business combinations
between ICII and IMH. As a result, ICII may be able to enter into business
combinations with IMH, which may not be in the best interest of the
stockholders, without compliance by IMH with the super- majority vote
requirements and the other provisions of the statute.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, by officers or by directors who
are employees of the corporation. "Control shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
the acquiror or in respect of which the acquiror is able to exercise or direct
the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquiror to exercise voting power in electing directors within
one of the following ranges of voting power: (1) one-fifth or more but less than
one-third, (2) one-third or more but less than a majority, or (3) a majority or
more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
stockholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.
32
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation.
The Bylaws of IMH contain a provision exempting from the control share
acquisition statute any and all acquisitions by any person of IMH's shares of
stock. There can be no assurance that such provision will not be amended or
eliminated at any time in the future.
AMENDMENT TO THE CHARTER
IMH reserves the right from time to time to make any amendment to its
Charter, now or hereafter authorized by law, including any amendment which
alters the contract rights as expressly set forth in the Charter, of any shares
of outstanding stock. The Charter may be amended only by the affirmative vote of
holders of shares entitled to cast not less than a majority of all the votes
entitled to be cast on the matter; provided, however, that provisions on removal
of directors may be amended only by the affirmative vote of holders of shares
entitled to cast not less than two- thirds of all the votes entitled to be cast
in the election of directors.
DISSOLUTION OF THE COMPANY
The dissolution of IMH must be approved by the affirmative vote of holders
of shares entitled to cast not less than a majority of all the votes entitled to
be cast on the matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws provide that (a) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors and
the proposal of business to be considered by stockholders may be made only (1)
pursuant to IMH's notice of the meeting, (2) by the Board of
Directors for determining stockholders of record entitled to receive a
dividend, the request will be processed on the day following receipt of the
request by the Plan Administrator.
If the request to withdraw is received by the Plan Administrator on or (3) byafter
a dividend record date, but before payment date, the Plan Administrator, in
its sole discretion, may either pay such dividend in cash or
20
reinvest it in shares for the Participant's account. The request for
withdrawal will then be processed as promptly as possible following such
dividend payment date. All dividends subsequent to such dividend payment date
or Investment Date will be paid in cash unless a stockholder who is entitled to vote at the meeting and has complied with the
advance notice procedures set forthre-enrolls in the
BylawsPlan, which may be done at any time. Any optional cash payments which have
been sent to the Plan Administrator prior to a request for withdrawal will
also be invested on the next Investment Date unless a Participant expressly
requests return of that payment in the request for withdrawal, and (b)the request
for withdrawal is received by the Plan Administrator at least two business
days prior to the commencement of the Pricing Period.
28. HOW DOES A PARTICIPANT WITHDRAW FROM THE PLAN?
A Participant who wishes to withdraw from the Plan with respect to
special meetings of stockholders, only the business specified in IMH's notice of
meeting may be brought before the meeting of stockholders and nominations of
persons for election to the Board of Directors may be made only (1) pursuant to
IMH's notice of the meeting, (2) by the Board of Directors or (3) provided that
the Board of Directors has determined that directors shall be elected at such
meeting, by a stockholder who is entitled to vote at the meeting and has
complied with the advance notice provisions set forth in the Bylaws.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
CHARTER AND BYLAWS
The business combination provisions and, if the applicable provision in the
Bylaws is rescinded, the control share acquisition provisions of the MGCL, the
provisions of the Charter on removal of directors and the advance notice
provisions of the Bylaws could delay, defer or prevent a transaction or a change
in control of IMH or other transaction that might involve a premium price for
holders of Common Stock or otherwise be in their best interest.
33
PLAN OF DISTRIBUTION
The Company may sell Securities (1) to or through underwriters or dealers,
(2) directly to one or more purchasers, or (3) through agents. Each
Prospectus Supplement will set forth the terms of the offering of the Securities
offered thereby, including the name or names of any underwriters, the purchase
price of the Securities, and the proceeds to the Company from the sale, any
underwriting discounts and other items constituting underwriters' compensation,
any initial public offering price, any discounts or concessions allowed or
reallowed or paid to dealers, and any securities exchange on which the
Securities may be listed. Only underwriters so named in the Prospectus
Supplement are deemed to be underwriters in connection with the Securities
offered thereby.
If underwriters are used in the sale in a firm commitment underwriting, the
Securities will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The obligations of the underwriters to purchase the
Securities will be subject to certain conditions precedent, and the underwriters
will be obligated to purchase all the Securities of the series offered by the
Company's Prospectus Supplement if any of the Securities are purchased. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
The Company may grant underwriters who participate in the distribution of
Securities an option to purchase additional Securities to cover over-allotments,
if any.
The place and date of delivery for the Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Securities in respect of which this Prospectus is being delivered (other than
Common Stock) will be a new issue of securities, will not have an established
trading market when issued and may not be listed on any securities exchange.
Any underwriters or agents to or through whom such Securities are sold by the
Company for public offering and sale may make a market in such Securities, but
such underwriters or agents will not be obligated to do so and may discontinue
any market making at any time without notice. No assurance can be given as to
the liquidity of the trading market for any such Securities.
Securities may also be sold directly by the Company or through agents
designated by the Company from time to time. The Securities offered hereby may
also be sold from time to time through agents for the Company by means of (i)
ordinary broker's transactions, (ii) block transactions (which may involve
crosses) in accordance with the rules of the Exchanges, in which such agents may
attempt to sell Securities as agent but may purchase and resell all or a
portion of the blocks as principal, (iii) "fixed price offerings"shares held in accordance with the
rules of the Exchanges,his or (iv) a combination of any such methods of sale. In
connection therewith, distributors' or sellers' commissions may be paid or
allowed which will not exceed those customaryher account in the types of transactions
involved. A Prospectus Supplement sets forthPlan must notify the
terms of any such "fixed price
offering," "exchange distributions" and "special offerings." If the agent
purchases Securities as principal, it may sell such Securities by any of the
methods described above. Any agent involvedPlan Administrator in the offering and sale of
Securities in respect of which this Prospectus is delivered is named, and any
commissions payable by the Company to such agent arewriting at its address set forth in the Prospectus Supplement. Unless otherwise indicated hereinanswer to
Question 38. Upon a Participant's withdrawal from the Plan or termination of
the Plan by the Company, certificates for the appropriate number of whole
shares credited to his or her account under the Plan will be issued. A cash
payment will be made for any fraction of a share.
Upon withdrawal from the Plan, a Participant may also request in writing
that the Plan Administrator sell all or part of the shares credited to his or
her account in the Prospectus
Supplement,Plan. The Plan Administrator will sell the shares as
requested within ten business days after processing the request for
withdrawal. The Participant will receive the proceeds of the sale, less any
brokerage fees or commissions and any applicable stock transfer taxes,
generally within five business days of the sale.
29. ARE THERE ANY AUTOMATIC TERMINATION PROVISIONS?
Participation in the Plan will be terminated if the Plan Administrator
receives written notice of the death or adjudicated incompetency of a
Participant, together with satisfactory supporting documentation of the
appointment of a legal representative, at least five business days before the
next Record Date for purchases made through the reinvestment of dividends or
optional cash payments, as applicable. In the event written notice of death or
adjudicated incompetency and such agentsupporting documentation is actingreceived by the
Plan Administrator less than five business days before the next Record Date
for purchases made through the reinvestment of dividends or optional cash
payments, as applicable, shares will be purchased for the Participant with the
related cash dividend or optional cash payment and participation in the Plan
will not terminate until after such dividend or payment has been reinvested.
Thereafter, no additional purchase of shares will be made for the
Participant's account and the Participant's shares and any cash dividends paid
thereon will be forwarded to such Participant's legal representative.
OTHER INFORMATION
30. WHAT HAPPENS IF A PARTICIPANT SELLS OR TRANSFERS ALL OF THE SHARES
REGISTERED IN THE PARTICIPANT'S NAME?
If a Participant disposes of all shares registered in his or her name, and
is not shown as a Record Owner on a best-efforts basis fordividend record date, the periodParticipant may
be terminated from the Plan as of its appointment.
If so indicatedsuch date and such termination treated as
though a withdrawal notice had been received prior to the record date.
31. WHAT HAPPENS IF THE COMPANY DECLARES A DIVIDEND PAYABLE IN SHARES OR
DECLARES A STOCK SPLIT?
Any dividend payable in shares and any additional shares distributed by the
Company in connection with a stock split in respect of shares credited to a
Participant's Plan account will be added to that account. Stock
21
dividends or split shares which are attributable to shares registered in a
Participant's own name and not in his or her Plan account will be mailed
directly to the Participant as in the Prospectus Supplement,case of stockholders not participating
in the Plan.
32. HOW WILL SHARES HELD BY THE PLAN ADMINISTRATOR BE VOTED AT MEETINGS OF
STOCKHOLDERS?
If the Participant is a Record Owner, the Participant will receive a proxy
card covering both directly held shares and shares held in the Plan. If the
Participant is a Beneficial Owner, the Participant will receive a proxy
covering shares held in the Plan through his or her broker, bank or other
nominee.
If a proxy is returned properly signed and marked for voting, all the shares
covered by the proxy will be voted as marked. If a proxy is returned properly
signed but no voting instructions are given, all of the Participant's shares
will be voted in accordance with recommendations of the Board of Directors of
the Company, unless applicable laws require otherwise. If the proxy is not
returned, or if it is returned unexecuted or improperly executed, shares
registered in a Participant's name may be voted only by the Participant in
person.
33. WHAT ARE THE RESPONSIBILITIES OF THE COMPANY AND THE PLAN ADMINISTRATOR
UNDER THE PLAN?
The Company and the Plan Administrator will authorize
agents, underwriters,not be liable in administering
the Plan for any act done in good faith or dealersrequired by applicable law or for
any good faith omission to solicit offers by certain institutional
investorsact including, without limitation, any claim of
liability arising out of failure to purchase Securities providing for payment and delivery onterminate a future
date specifiedParticipant's account upon his
or her death, with respect to the prices at which shares are purchased and/or
the times when such purchases are made or with respect to any fluctuation in
the Prospectus Supplement. Theremarket value before or after purchase or sale of shares. Notwithstanding
the foregoing, nothing contained in the Plan limits the Company's liability
with respect to alleged violations of federal securities laws.
The Company and the Plan Administrator shall be entitled to rely on
completed forms and the proof of due authority to participate in the Plan,
without further responsibility of investigation or inquiry.
34. MAY THE PLAN BE CHANGED OR DISCONTINUED?
Yes. The Company may suspend, terminate, or amend the Plan at any time.
Notice will be limitations onsent to Participants of any suspension or termination, or of
any amendment that alters the minimum amount which may be purchased by anyPlan terms and conditions, as soon as
practicable after such institutional investor or on
the portion of the aggregate principal amount of the particular Securities which
may be sold pursuant to such arrangements. Institutional investors to which such
offers may be made, when authorized, include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and such other institutions as may be approvedaction by the Company.
The obligationsCompany may substitute another administrator or agent in place of the
Plan Administrator at any time; Participants will be promptly informed of any
such purchasers pursuant to such delayed
delivery and payment arrangements will not be subject to any conditions except
(1) the purchase by an institutionsubstitution.
Any questions of the particular Securities shall not at the
time of
34
delivery be prohibitedinterpretation arising under the laws of any jurisdiction in the United States
to which such institution is subject, and (2) if the particular Securities are
being sold to underwriters, the Company shall have sold to such underwriters the
total principal amount of such Securities less the principal amount thereof
covered by such arrangements. UnderwritersPlan will not have any responsibility in
respect of the validity of such arrangements or the performance of the Company
or such institutional investors thereunder.
Agents and underwriters may be entitled under agreements entered into with
the Company to indemnificationdetermined by
the Company against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which the agents or underwriters and their affiliates may from time
to timeany such determination will be required to make in respect thereof. Agents and underwriters may
engage in transactions with, or perform services for, the Company in the
ordinary course of business and receive customary compensation therefor.
35
final.
35. WHAT ARE THE FEDERAL INCOME TAX CONSIDERATIONSCONSEQUENCES OF PARTICIPATION IN THE PLAN?
The following summary of certain federal income tax considerations toregarding
the CompanyPlan is based on current law, is for general information only, and is not
tax advice. The tax treatment of a holder of any of the Securities will vary
depending upon the terms of the specific Securities acquired by such holder, as
well as his particular situation, and thisThis discussion provides only a general
summary of certain limited aspects of federal income taxation relating to
holders of Securities. This summary does not purport to deal with theall aspects of
taxation that may be relevant to prospective holders of Securitiesparticular investors in light of such holder's particulartheir
personal investment or tax circumstances, or to certain types of holdersinvestors subject to
special treatment under the federal income tax laws, including, without
limitation, life insurance companies, certain financial institutions, broker-dealers, holdersdealers
in securities or currencies, stockholders
22
holding SecuritiesCommon Stock as part of a conversion transaction, as part of a hedge
or hedging transaction, or as a position in a straddle for tax purposes, tax-exempttax-
exempt organizations, or foreign corporations, foreign partnerships andor persons
who are not citizens or residents of the United States. Furthermore,In addition, the
summary below does not consider the effect of any foreign, state, local or
other tax laws that may be applicable to the Company or
holders of Securities. Certain federal income tax considerations relevant to
holders of the Securities will be provided in the applicable Prospectus
Supplement relating thereto.prospective Participants.
EACH PROSPECTIVE PURCHASERS ARE URGEDPARTICIPANT IS ADVISED TO CONSULT THEIRHIS OR HER OWN TAX
ADVISORS AND THE
APPLICABLE PROSPECTUS SUPPLEMENTADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEMHIM OR HER THAT MAY RESULT
FROM PARTICIPATING IN THE PLAN AND DISPOSING OF SHARES ACQUIRED PURSUANT TO
THE PURCHASE, OWNERSHIP AND SALE OF THE SECURITIES,PLAN, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIPPARTICIPATION AND SALEDISPOSITION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF IMH
General. IMH electedDividend Reinvestment. Dividends paid with respect to Common Stock that a
Participant reinvests in Common Stock that is acquired directly from the
Company will be taxed as a REIT under Sections 856 through 860
of the Code, commencing with its taxable year ended December 31, 1995. IMH
believes that, commencing with such taxable year, it has been organized and has
operated in such a manner as to qualifytreated for taxation as a REIT under the Code
commencing with such taxable year, and IMH intends to continue to operate in
such a manner, but no assurance can be given that it has operated or will
continue to operate in such a manner so as to qualify or remain qualified.
The sections of the Code and Treasury Regulations governing REITs are
highly technical and complex. The following summary sets forth the material
aspects of the sections that govern the federal income tax treatmentpurposes as having been
received by the Participant in the form of a REIT
and its stockholders. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations promulgated thereunder, and
administrative and judicial interpretations thereof.
Latham & Watkins, tax counsel to IMH, has renderedtaxable stock distribution. In
that case, an opinion to IMH as of
__________amount equal to the effect that commencing with IMH's taxable year ended December
31, 1995, IMH has been organized in conformity withfair market value on the requirements for
qualificationdate of purchase of
the Common Stock acquired directly from the Company will be treated as a
REIT, and its proposed method of operation has enabled and
will enable it to meet the requirements for qualification and taxation as a REIT
under the Code. It must be emphasized that this opinion is based on various
factual assumptions relatingdividend to the organizationextent the Company has current or accumulated earnings and
operation of IMH and is
conditioned upon certain representations made by IMH as to factual matters. In
addition, this opinion is based upon the factual representations of IMH
concerning its business and assets as set forth in this Prospectus. Furthermore,
this opinion relies on, and assumes the accuracy of, the opinions, dated as of
________, of Thacher Proffitt & Wood with respect to the characterization, as
debt, of the CMOs issued by Imperial CMB Trust Series 1996-1 ("1996 CMB Trust")
and issued by Imperial CMB Trust Series 1997-1 (the "1997 CMB Trust"), each on
behalf of IMH Assets in August 1996, and May 1997, respectively, and with
respect to the classification of each of 1996 CMB Trust and the 1997 CMB Trustprofits for federal income tax purposes. Moreover, such qualificationFor federal income tax purposes, the
Company intends to take the position that the fair market value of the shares
acquired directly from the Company with reinvested dividends under the Plan
will be equal to the average of the high and taxationlow sale prices of shares on the
related Investment Date.
Alternatively, dividends paid with respect to Common Stock that a
Participant reinvests in Common Stock through purchases by the Plan
Administrator in the open market will be treated for federal income tax
purposes as having been received by the Participant in the form of a taxable
cash distribution. The amount of the cash distribution, plus the amount of any
discount, will be treated as a REIT depends upon IMH's abilitydividend to meet (through actual annual operating
results, distribution levelsthe extent the Company has current
or accumulated earnings and diversityprofits for federal income tax purposes.
Distributions in excess of stock ownership) the various
qualification tests imposed under the Code discussed below, the results of which
have not beenCompany's current and accumulated earnings
and profits will not be reviewed by Latham & Watkins. Accordingly, no
assurance cantaxable to a Participant to the extent that such
distributions do not exceed the adjusted basis of the Participant's shares. To
the extent such distributions exceed the adjusted basis of a Participant's
shares, they will be givenincluded in income as capital gain. In addition, in the
event that the actual resultsCompany designates a part or all of IMH's operationthe amount so distributed
as a capital gain dividend, such amount may be treated by the Participant as
gain from the sale or exchange of a capital asset held for more than one year,
without regard to the period for which the Participant has held its Common
Stock. It is not clear whether such amounts will be taxable at mid-term
capital gain rates (applicable to gains from the sale of capital assets held
for more than one year but not more than eighteen months), long-term capital
gain rates (applicable to gains from the sale of capital assets held for more
than eighteen months), or some other rate. This uncertainty may be clarified
by future legislation or regulations. Participants' statements of account will
show the fair market value on the date of purchase of the Common Stock
purchased with reinvested dividends, and a Form 1099-DIV mailed to
Participants at year-end will show total dividend income, the amount of any
particular taxable year have satisfied or will satisfyreturn of capital distribution and the amount of any capital gain dividend.
The IRS has ruled in private letter rulings that brokerage commissions paid
by a corporation with respect to open market purchases on behalf of
participants in a dividend reinvestment plan were to be treated as
constructive distributions to such requirements.
Further, the anticipatedparticipants. Such constructive
distributions were subject to income tax treatment described in this Prospectus maythe same manner as distributions
and includible in the Participants' cost basis of the shares purchased.
Accordingly, in the event the Board of Directors determines that the Company
will pay brokerage commissions with respect to any open market purchases made
by the Plan Administrator, the Company intends to take the position that
23
Participants received their proportionate amount of such commissions as
additional distributions. While the matter is not free from doubt, the Company
intends to take the position that administrative expenses of the Plan paid by
the Company are not constructive distributions to Participants.
The tax basis of newly issued Common Stock purchased directly from the
Company for a Participant under the Plan by reinvestment of dividends will be
changed, perhaps retroactively,equal to the fair market value of the Common Stock on the relevant Investment
Date. The tax basis of Common Stock purchased in the open market pursuant to
the dividend reinvestment feature of the Plan will be equal to the amount paid
for such shares, plus the amount of any income recognized by legislative, administrative or judicial
action at any time. See "Risk Factors--Consequences of Failure to Maintain REIT
Status; IMH Subject to Taxthe Participant
upon such purchase as a Regular Corporation" and "Failure to Qualify."
36
If IMH qualifies for taxation as a REIT, it generallyresult of any discount or the Company's payment of the
Participant's share of brokerage commissions, if any. The holding period of
Common Stock acquired under the Plan will begin on the day following the
Investment Date.
A Participant in the Plan will not realize any taxable income when the
Participant receives certificates for whole shares of Common Stock credited to
the Participant's account, either upon a Participant's request for such
certificates or upon withdrawal from or termination of the Plan. However, a
Participant will recognize gain or loss when whole shares of Common Stock or
rights applicable to Common Stock acquired under the Plan are sold or
exchanged. A Participant will also recognize gain or loss when the Participant
receives a cash payment for a fractional share of Common Stock credited to the
Participant's account upon withdrawal from or termination of the Plan. The
amount of such gain or loss will be subjectthe difference between (i) the amount
received for the Participant's shares or fractional shares of Common Stock or
rights applicable to Common Stock and (ii) the tax basis thereof.
Optional Cash Purchases. To the extent the Company offers Common Stock at a
discount from the fair market value of such shares on the Investment Date, or
pays brokerage commissions with respect to the purchase of such shares,
pursuant to the optional cash purchase feature of the Plan, the tax treatment
of such activities is unclear. The Company presently intends to take the
position that any such discount or payment of brokerage commissions does not
constitute a distribution from the Company to Participants in the optional
cash payment feature of the Plan. However, it is possible that Participants
will be treated as having received a distribution from the Company, upon the
purchase of Common Stock with an optional cash payment, in an amount equal to
the excess, if any, of the fair market value of the shares on the Investment
Date over the amount of the optional cash payment, plus the amount of
brokerage commissions paid by the Company, if any. The Company may take this
position in future reports to Participants or the I.R.S. Participants are
urged to consult their own tax advisors with respect to the tax treatment of
any such actions. Shares acquired under the optional cash payment feature of
the Plan will have a tax basis equal to the amount of the optional cash
payment plus the income, if any, recognized by the Participant upon such
acquisition.
Participants will recognize gain or loss when shares of Common Stock
acquired pursuant to optional cash purchases are sold or exchanged. The amount
of such gain or loss will be the difference between the amount received for
the Participant's shares and the tax basis thereof.
36. HOW ARE INCOME TAX WITHHOLDING PROVISIONS APPLIED TO STOCKHOLDERS WHO
PARTICIPATE IN THE PLAN?
If a Participant fails to provide certain federal corporate income taxestax certifications
in the manner required by law, dividends on its net income that is currently
distributed to stockholders. This treatment substantially eliminatesshares of Common Stock, proceeds
from the "double
taxation" (atsale of fractional shares and proceeds from the corporate and stockholder levels) that generally results from
investment insale of shares held
for a regular corporation. However, IMHParticipant's account will be subject to federal income tax as follows: First, IMHwithholding
at the rate of 31%. If withholding is required for any reason, the appropriate
amount of tax will be taxed at regular corporate rates onwithheld. Certain stockholders (including most
corporations) are, however, exempt from the above withholding requirements.
24
Participants which are foreign stockholders are urged to consult their tax
advisors regarding the tax consequences to them of participation in the Plan.
In general, if a Participant is a foreign stockholder, the appropriate amount
will be withheld and the balance in shares will be credited to such
Participant's account.
37. WHO BEARS THE RISK OF MARKET FLUCTUATIONS IN THE COMPANY'S COMMON STOCK?
A Participant's investment in shares held in the Plan account is no
different from his or her investment in directly held shares. The Participant
bears the risk of any undistributed "REIT taxable income," including undistributed net capital
gains. Second,loss and enjoys the benefits of any gain from market
price changes with respect to such shares.
38. WHO SHOULD BE CONTACTED WITH QUESTIONS ABOUT THE PLAN?
All correspondence regarding the Plan should be directed to:
BOSTON EQUISERVE, L.P.
DIVIDEND REINVESTMENT UNIT
MAIL STOP: 45-01-20, P.O. BOX 1681
BOSTON, MASSACHUSETTS 02105-1681
TELEPHONE: (617) 575-3120
Please mention Imperial Credit Mortgage Holdings, Inc. and this Plan in all
correspondence.
39. HOW IS THE PLAN INTERPRETED?
Any question of interpretation arising under certain circumstances, IMHthe Plan will be determined by
the Company and any such determination will be final. The Company may adopt
rules and regulations to facilitate the administration of the Plan. The terms
and conditions of the Plan and its operation will be governed by the laws of
the State of California.
40. WHAT ARE SOME OF THE PARTICIPANT RESPONSIBILITIES UNDER THE PLAN?
Plan Shares are subject to escheat to the "alternative minimum tax" on its items of tax preference. Third, if IMH has (i)
net income fromstate in which the sale or other disposition of "foreclosure property" (defined
generally as property acquired through foreclosure or otherwise as a result of a
default on a loan securedParticipant
resides in the event that such shares are deemed, under such state's laws, to
have been abandoned by the property or a leaseParticipant. Participants, therefore, should notify
the Plan Administrator promptly in writing of such property) which is
held primarily for saleany change of address. Account
statements and other communications to customers in the ordinary course of business, or (ii)
other nonqualifying net income from foreclosure property, itParticipants will be subjectaddressed to taxthem
at the highest corporate rate on such income. Fourth, if IMH has net income
from prohibited transactions (which are, in general, certain sales or other
dispositionslast address of property held primarily for sale to customers in the ordinary
course of business other than foreclosure property), such income will be subject
to a 100% tax. Fifth, if IMH should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed below), but has nonetheless maintained
its qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (a) the gross income
attributablerecord provided by Participants to the greater ofPlan
Administrator.
Participants will have no right to draw checks or drafts against their Plan
accounts or to instruct the amount by which IMH fails the 75% or 95% test
multiplied by (b) a fraction intended to reflect IMH's profitability. Sixth, if
IMH should fail to distribute during each calendar year at least the sum of (i)
85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain
net income for such year, and (iii) any undistributed taxable income from prior
periods, IMH would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if IMH has excess
inclusion income (attributable to its interest, if any, in a residual interest
in a REMIC or if all or a portion of IMH, IMH Assets, or IWLG is treated as a
taxable mortgage pool) and a disqualified organization (generally, tax-exempt
entities not subject to tax on unrelated business income, including governmental
organizations) holds shares of stock in IMH, IMH will be taxed at the highest
corporate tax rate on the amount of excess inclusion income for the taxable year
allocable to the shares held by such disqualified organization. Eighth,Plan Administrator with respect to any asset (a "Built-In Gain Asset") acquired by IMH from a
corporation which is or has been a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in a transaction in which the basis of the
Built-In Gain Asset in the hands of IMH is determined by reference to the basis
of the asset in the hands of the C corporation, if IMH recognizes gain on the
disposition of such asset during the ten-year period (the "Recognition Period")
beginning on the date on which such asset was acquired by IMH, then, to the
extent of the Built-In Gain (i.e., the excess of (a) the fair market value of
such asset over (b) IMH's adjusted basis in such asset, determined as of the
beginning of the Recognition Period), such gain will be subject to tax at the
highest regular corporate rate pursuant to Treasury Regulations that have not
yet been promulgated. The results described above with respect to the
recognition of Built-In Gain assume that IMH will make an election pursuant to
IRS Notice 88- 19.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) which would be
taxable as a domestic corporation but for Sections 856 through 859 of the Code;
(iv) which is neither a financial institution nor an insurance company subject
to certain provisions of the Code; (v) the beneficial ownership of which is held
by 100 or more persons; (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, actually or
constructively, by or for five or fewer individuals (as defined in the Code to
include certain entities); and (vii) which meets certain other tests, described
below, regarding the nature of its income and assets and the amount of its
distributions. The Code provides that conditions (i) to (iv), inclusive, must be
met during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of twelve months, or during a proportionate
part of a taxable year of less than twelve months. For purposes of conditions
(v) and (vi), pension funds and certain other tax-exempt entities are treated as
individuals, subject to a "look-through" exception in the case of condition
(vi).
The Company believes that it has previously issued sufficient shares of
Common Stock with sufficient diversity of ownership to allow IMH to satisfy
conditions (v) and (vi). In addition,or cash held by the Charter provides for restrictions
regarding the transfer and ownership of shares, which restrictions are intended
to assist IMH in continuing to satisfy the share ownership requirements
described in (v) and (vi) above. Such ownership and transfer restrictions are
described in "Description of Capital Stock--Repurchase of Shares and
Restrictions on Transfer." These restrictions, however, may not ensure that IMH
will, in all cases, be able to satisfy the share ownership
37Plan Administrator except as expressly
provided herein.
25
requirements described above. If IMH fails to satisfy such share ownership
requirements, IMH's status as a REIT will terminate. See "--Failure to Qualify."
In addition, a corporation may not elect to become a REIT unlessDIVIDENDS
The Company has paid dividends since its taxable year is the calendar year. IMH has a calendar taxable year.
Ownership of IWLG and IMH Assets. IMH has owned 100% of the stock of IWLG
and IMH Assets (the "QRSs") at all times such QRSs have been in existence. As a
result, the QRSs will be treated as "qualified REIT subsidiaries." Code Section
856(i) provides that a corporation which is a "qualified REIT subsidiary" will
not be treated as a separate corporation, and all assets, liabilities, and items
of income, deduction, and credit of a "qualified REIT subsidiary" will be
treated as assets, liabilities and such items (as the case may be) of the REIT
for all purposes of the Code including the REIT qualification tests. Thus, in
applying the requirements described herein, the QRSs will be ignored, and all
assets, liabilities and items of income, deduction and credit of such
subsidiaries will be treated as assets, liabilities and such items (as the case
may be) of IMH. For this reason, references under "Federal Income Tax
Considerations" to the income and assets of IMH shall include the income and
assets of the QRSs. Because the QRSs will be treated as a "qualified REIT
subsidiaries" they will not be subject to federal income tax. In addition, IMH's
ownership of the voting stock of the QRSs will not violate the restrictions
against ownership of securities of any one issuer which constitute more than 10%
of such issuer's voting securities or more than 5% of the value of IMH's total
assets, described below under "-- Asset Tests."
Income Tests.incorporation. In order to
maintain its qualification as a REIT, IMH
annually must satisfy three gross income requirements. First, at least 75%accommodate the provisions of IMH's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from: (i) rents from
real property; (ii) interest on obligations secured by mortgages on real
property or on interests in real property; (iii) gain fromthis Plan, the sale or other
disposition of real property (including interests in real property and interests
in mortgages on real property) not held primarily for sale to customers in the
ordinary course of business; (iv) dividends or other distributions on, and gain
(other than gain from prohibited transactions) from the sale or other
disposition of, transferable shares in other real estate investment trusts; (v)
abatements and refunds of taxes on real property; (vi) income and gain derived
from foreclosure property; (vii) amounts (other than amounts the determination
of which depend in whole or in part on the income or profits of any person)
received or accrued as consideration for entering into agreements (a) to make
loans secured by mortgages on real property or on interests in real property or
(b) to purchase or lease real property (including interests in real property and
interests in mortgages on real property); (viii) gain from the sale or other
disposition of a real estate asset which is not a prohibited transaction; and
(ix) qualified temporary investment income. Second, at least 95% of IMH's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from the sources described above with respect to the 75%
gross income test, dividends, interest, and gain from the sale or disposition of
stock or securities (or from any combination of the foregoing). Third, subject
to certain exceptions in the year in which IMH is liquidated, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions, and gain on the sale or other disposition of real property held
for less than four years (apart from involuntary conversions and sales or other
dispositions of foreclosure property) must represent less than 30% of IMH's
gross income (including gross income from prohibited transactions) for each
taxable year.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
Generally, if a loan is secured by both personal property and real
property, interest must be allocated between the personal property and the real
property, with only the interest allocable to the real property
qualifying as mortgage interest under the 75% gross income test. Treasury
Regulations provideCompany anticipates that if a loan is secured by both personal and real property
and the fair market value of the real property as of the commitment date
(generally, the date on which the REIT's obligation to make the loan becomes
binding) equals or exceeds the amount of the loan, the entire interest amount
will qualify under the 75% gross income test. If the amount of the loan exceeds
the fair market value of the real property as of the commitment date, the
interest income allocated to the real property is an amount equal to the
interest income multiplied by a fraction, the numerator of which is the
38
fair market value of the real property as of the commitment date, and the
denominator of which is the amount of the loan. The interest income allocated to
the personal property is an amount equal to the excess of the total interest
income over the interest income allocated to the real property.
Interest earned on mortgage loans, and mortgage-backed securities secured
by or representing an interest in such loans, will qualify as "interest" for
purposes of both the 95% and 75% gross income tests to the extent such assets
are treated as obligations secured by mortgages on real property or on interests
in real property. However, income attributable to securities or other
obligations that are not treated as obligations secured by mortgages on real
property or on interests in real property (and which are not otherwise
"Qualified REIT Assets"), dividends on stock (including any dividends IMH
receives from ICIFC, but not including dividends IMH receives from other
qualifying REITs or from the QRSs), and gains from the sale or disposition of
such stock or such securities or other obligations will not qualify under the
75% gross income test. Such income will qualify under the 95% gross income test,
however, if such income constitutes interest, dividends or gain from the sale or
disposition of stock or securities. Income from loan guarantee fees, mortgage
servicing contracts or other contracts will not qualify under either the 95% or
75% gross income test if such income constitutes fees for services rendered by
IMH or is not treated as interest (on obligations secured by mortgages on real
property or on interests in real property for purposes of the 75% gross income
test). Similarly, income from hedging, including the sale of hedges, will not
qualify under the 75% or 95% gross income tests unless such hedges constitute
certain qualified hedges, in which case such income will qualify under the 95%
gross income test. For purposes of the discussion herein, the term "Qualified
REIT Assets" shall mean (i) real property (including interests in real property
and interests in mortgages on real property), (ii) shares (or transferable
certificates of beneficial interest) in other REITs which meet the requirements
of Sections 856-859 of the Code, (iii) stock or debt instruments (not otherwise
described in (i), (ii) or (iv)) held for not more than one year that were
purchased with the proceeds of (a) an offering of stock in IMH (other than
amounts received pursuant to a dividend reinvestment plan) or (b) a public
offering of debt obligations of IMH which have maturities of at least five
years, and (iv) a regular or residual interest in a REMIC, but only if 95% or
more of the assets of such REMIC are assets described in (i) through (iii).
Furthermore, ICIFC receives servicing and processing fees and income from
gain on the sale of certain mortgage loans and mortgage securities. Such fees do
not accrue to IMH, but IMH receives dividends on its nonvoting preferred stock
in ICIFC. Such
dividends will qualify underbe payable on or about the 95% gross income test, but will
not qualify underfifteenth business day of January,
April, July and October. However, the 75% gross income test.
In order to comply with the 95% and 75% gross income tests, IMH has limited
and will continue to limit substantially all of the assets that it acquires to
mortgage loans or other securities or obligations that are treated as
obligations secured by mortgages on real property or on interests in real
property or to other Qualified REIT Assets. As a result, IMHactual dates may limit the type
of assets, including hedging contracts, that it otherwise might acquire and,
therefore, the type of income it otherwise might receive, including income from
hedging, other than income from certain qualified hedges.
In addition, to comply with the 30% gross income test, IMH may have to hold
mortgage loans and mortgage-backed securities for four or more years and other
securities and hedges for one year or more at times when IMH might otherwise
have opted for the disposition of such assets for short term gains.
In order to comply with the REIT gross income tests, IMH has monitored and
will continue to monitor its income, including income from dividends, warehouse
lending, hedging transactions, futures contracts, servicing and sales of
mortgage assets, gains on the sale of securities, and other income not derived
from Qualified REIT Assets. IMH believes that the aggregate amount of any
nonqualifying income in any taxable year has not exceeded and will not exceed
the limit on nonqualifying income under the gross income tests.
If IMH fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, it may nevertheless qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if IMH's failure to meet such tests was
due to reasonable cause and not due to willful neglect, IMH attaches a schedule
of the sources of its income to its federal income tax return, and any incorrect
information on the schedule was not due to fraud with intent to evade tax. It is
not possible, however, to state whether in all circumstances IMH would be
entitled to the benefit of these relief provisions. For example, if
39
IMH fails to satisfy the gross income tests because nonqualifying income that
IMH intentionally incurs exceeds the limits on such income, the Service could
conclude that IMH's failure to satisfy the tests was not due to reasonable
cause. If these relief provisions are inapplicable to a particular set of
circumstances involving IMH, IMH will not qualify as a REIT. As discussed above
in "Federal Income Tax Considerations--Taxation of IMH--General," even if these
relief provisions apply and IMH retains its status as a REIT, a 100% tax would
be imposed on an amount equal to (a) the gross income attributable to the
greater of the amount by which IMH failed the 75% or 95% test multiplied by (b)
a fraction intended to reflect IMH's profitability. There can be no assurance
that IMH will always be able to maintain compliance with the gross income tests
for REIT qualification despite its periodic monitoring procedures. No similar
mitigation provision provides relief if IMH fails the 30% gross income test. In
such case, IMH would cease to qualify as a REIT. See "--Failure to Qualify."
Any gain realized by IMH on the sale of any property (including mortgage
loans and mortgage-backed securities) held as inventory or other property held
primarily for sale to customers in the ordinary course of business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. Such prohibited transaction income may also have an adverse effect
upon IMH's ability to satisfy the income tests for qualification as a REIT.
Under existing law, whether property is held as inventory or primarily for sale
to customers in the ordinary course of a trade or business is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. ICIFC securitizes mortgage loans and sells the resulting mortgage
securities. See "Business--Conduit Operations-- Securitization and Sale
Process." If IMH were to sell such mortgage securities on a regular basis, there
is a substantial risk that such sales would constitute prohibited transactions
and that all of the profits therefrom would be subject to a 100% tax. Therefore,
such sales have been madevary and will be
made only by ICIFC. ICIFC is not subject
to the 100% penalty tax on income from prohibited transactions, which is only
applicable to a REIT.
Asset Tests. IMH,determined at the close of each quarter of its taxable year, must
also satisfy three tests relating to the nature of its assets. First, at least
75%discretion of the valueBoard of IMH's total assets must be represented by Qualified REIT
Assets, cash, cash items and government securities. Second, not more than 25% of
IMH's total assets may be represented by securities other than those in the 75%
asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by IMH may not exceed 5% of the value
of IMH's total assets and IMH may not own more than 10% of any one issuer's
outstanding voting securities. IMH believes that substantially all of its
assets, other than the nonvoting preferred stock of ICIFC, and the amount of any
loans made to ICCC, are Qualified REIT Assets.
As described above, IMH will be treated as owning all assets, liabilities
and items of income, deduction, and credit of the QRSs. IWLG provides short-
term lines of credit ("warehouse loans") to ICIFC and approved mortgage banks,
most of which are correspondents of ICIFC, to finance mortgage loans during the
time from the closing of the loans to their sale or other settlement with pre-
approved investors, including IMH. IWLG's warehouse loans are secured by
assignments of first priority perfected security interests in and liens on,
among other items of collateral, mortgages loans and related mortgage notes
owned by the customer that in turn are secured by mortgages on real property.Directors.
USE OF PROCEEDS
The Service has issued a Revenue Ruling in which it ruled that loans similar to
IWLG's warehouse loans were obligations secured by mortgages on real property
and interests in mortgages on real property, and therefore that such loans were
Qualified REIT Assets. Based on such Revenue Ruling, IMH believes that IWLG's
warehouse loans are Qualified REIT Assets. However, in the event that the
IWLG's warehouse loans are not treated as Qualified REIT Assets, IMH would
likely fail the 5% asset test and fail to qualify as a REIT. See "---Failure to
Qualify."
As described above, IMH owns 100% of the nonvoting preferred stock of
ICIFC. IMHCompany does not and will not own any ofknow either the voting securities of ICIFC, and
therefore IMH will not be considered to own more than 10% of the voting
securities of ICIFC. In addition, IMH believes that the aggregate value of its
securities of ICIFC has not at any time exceeded 5% of the total value of IMH's
assets, and will not exceed such amount in the future. Latham & Watkins, in
rendering its opinion as to the qualification of IMH as a REIT, is relying on
the representation of IMH to such effect. There can be no assurance that the
Service will not contend that the value of the securities of ICIFC held by IMH
exceeds the 5% value limitation.
40
The 5% value test requires that IMH revalue its assets at the end of each
calendar quarter in which IMH acquires additional securities in ICIFC for the
purpose of applying such test. Although IMH plans to take steps to ensure that
it satisfies the 5% value test for any quarter with respect to which retesting
is to occur, there can be no assurance that such steps will always be
successful, or will not require a reduction in IMH's overall interest in ICIFC.
IMH has taken and will continue to take measures to prevent the value of
securities issued by any one entity that do not constitute Qualified REIT Assets
from exceeding 5% of the value of IMH's total assets as of the end of each
calendar quarter. In particular, as of the end of each calendar quarter, IMH has
limited and diversified and will continue to limit and diversify its ownership
of securities of ICIFC and other securities that do not constitute Qualified
REIT Assets as necessary to satisfy the REIT asset tests described above.
When purchasing mortgage-related securities, IMH and its counsel may rely
on opinions of counsel for the issuer or sponsor of such securities given in
connection with the offering of such securities, or statements made in related
offering documents, for purposes of determining whether and to what extent those
securities constitute Qualified REIT Assets for purposes of the REIT asset tests
and produce income which qualifies under the REIT gross income tests discussed
above. The inaccuracy of any such opinions may have an adverse impact on IMH's
qualification as a REIT.
A regular or residual interest in a REMIC will be treated as a Qualified
REIT Asset for purposes of the REIT asset tests and income derived with respect
to such interests will be treated as interest on obligations secured by
mortgages on real property, assuming that at least 95% of the assets of the
REMIC are Qualified REIT Assets. If less than 95% of the assets of the REMIC are
Qualified REIT Assets, only a proportionate share of the assets of and income
derived from the REMIC will be treated as qualifying under the REIT asset and
income tests. IMH believes that its REMIC interests fully qualify for purposes
of the REIT gross income and asset tests. IMH has not acquired and does not
expect to acquire or retain residual interests issued by REMICs.
If IMH invests in a partnership, it will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to the
income of the partnership attributable to such share. In addition, the character
of the assets and gross income of the partnership shall retain the same
character in the hands of IMH for purposes of the REIT gross income and asset
tests.
After initially meeting the asset tests at the close of any quarter, IMH
will not lose its status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset tests results from an acquisition of securities or
other property during a quarter, the failure can be cured by the disposition of
sufficient nonqualifying assets within 30 days after the close of that quarter.
IMH intends to maintain adequate records of the value of its assets to ensure
compliance with the asset tests and to take such other actions within 30 days
after the close of any quarter as may be required to cure any noncompliance. If
IMH fails to cure noncompliance with the asset tests within such time period,
IMH would cease to qualify as a REIT.
Annual Distribution Requirements. IMH, in order to qualify as a REIT, is
required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (i) the sum of (a) 95% of IMH's
"REIT taxable income" (generally, income of IMH computed without regard to the
dividends paid deduction and by excluding its net capital gain) and (b) 95% of
the excess of the net income, if any, from foreclosure property over the tax
imposed on such income, minus (ii) the excess of the sum of certain items of
noncash income over 5% of "REIT taxable income." In addition, if IMH disposes of
any Built-In Gain Asset during its Recognition Period, IMH will be required,
pursuant to Treasury Regulations which have not yet been promulgated, to
distribute at least 95% of the Built-in Gain (after tax), if any, recognized on
the disposition of such asset. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
IMH timely files its tax return for such year and if paid on or before the first
regular dividend payment date after such declaration and if IMH so elects and
specifies the dollar amount on its tax return. Such distributions are taxable to
holders of Common Stock (other than certain tax-exempt entities, as discussed
below) in the year in which paid, even if such distributions relate to the prior
year for purposes of IMH's 95% distribution requirement. The amount distributed
must not be preferential (e.g., each holdernumber of shares of Common Stock must
receive the same distribution per share). To the extent that IMH does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%,
41
of its "REIT taxable income," as adjusted, it
will be subject to tax on the
undistributed portion at regular ordinary and capital gain corporate tax rates.
Furthermore, if IMH should fail to distribute during each calendar year at least
the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its
REIT capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, IMH would be subject to a 4% excise tax on the excess
of such required distributions over the amounts actually distributed. IMH
intends to make timely distributions sufficient to satisfy these annual
distribution requirements.
IMH anticipates that it will generally have sufficient cash or liquid
assets to enable it to satisfy the distribution requirements described above. It
is possible, however, that IMH, from time to time, may not have sufficient cash
or other liquid assets to meet these distribution requirements due to timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of such
expenses in arriving at taxable income of IMH. For instance, IMH may realize
income without a corresponding cash payment, as in the case of original issue
discount or accrued interest on defaulted mortgage loans. In the event that such
timing differences occur, in order to meet the distribution requirements, IMH
may find it necessary to sell assets, arrange for short-term, or possibly long-
term, borrowings, or pay dividends in the form of taxable stock dividends.
The Service has ruled that if a REIT's dividend reinvestment plan allows
stockholders of the REIT to elect to have cash distributions reinvested in
shares of the REIT at a purchase price equal to at least 95% of fair market
value on the distribution date, then such cash distributions reinvestedultimately sold pursuant to the Plan or the prices at which such
a plan qualify under the 95% distribution test. IMH expects that the
terms of its DRP will comply with this ruling.
Under certain circumstances, IMH may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in IMH's deduction for
dividends paid for the earlier year. Thus, IMH may be able to avoid being taxed
on amounts distributed as deficiency dividends; however, IMHshares will be requiredsold. However, the Company proposes to pay interest based uponuse the amountnet proceeds
from the sale of any deduction taken for deficiency
dividends.
RECORDKEEPING REQUIREMENTS
A REIT is required to maintain certain records, including records regarding
the actual and constructive ownership of its shares, and within 30 days after
the end of its taxable year, to demand statements from persons owning above a
specified level of the REIT's shares (e.g., if IMH has 2,000 or more
stockholders of record, from persons holding 5% or more of IMH's outstandingnewly issued shares of Common Stock; if IMH has over 200 but fewer than 2,000 stockholders of
record, from persons holding 1% or more of IMH's outstanding shares of Common
Stock; and if IMH has 200 or fewer shareholders of record, from persons holding
1/2% or more of IMH's outstanding shares of Common Stock) regarding their
ownership of shares. In addition, IMH must maintain, as part of its records, a
list of those persons failing or refusing to comply with this demand.
Shareholders who fail or refuse to comply with the demand must submit a
statement with their tax returns setting forth the actual stock ownership and
other information. IMH has maintained and will continue to maintain the records
and demand statements as required by Treasury Regulations.
FAILURE TO QUALIFY
If IMH fails to qualifyStock for taxation as a REIT in any taxable year, and the
relief provisions do not apply, IMH will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regulargeneral corporate
rates. Distributions to stockholders in any year in which IMH fails to qualify
will not be deductible by IMH nor will they be required to be made. As a result,
IMH's failure to qualify as a REIT would substantially reduce the cash available
for distribution by IMH to its stockholders. In addition, if IMH fails to
qualify as a REIT, all distributions to stockholders will be taxable as ordinary
income,purposes.
PLAN OF DISTRIBUTION
Except to the extent the Plan Administrator purchases Common Stock in open
market transactions, the Common Stock acquired under the Plan will be sold
directly by the Company through the Plan. The Company may sell Common Stock to
owners of IMH's current and accumulated earnings and profits,
and, subject to certain limitationsshares (including brokers or dealers) who, in connection with any
resales of the Code, corporate distributeessuch shares, may be eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, IMH will also be disqualified from taxation as a
REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether in all circumstances IMH would be
entitled to such statutory relief. Failure to
42
qualify for even one year could result in the IMH's incurring substantial
indebtedness (to the extent borrowings are feasible) or liquidating substantial
investments in order to pay the resulting taxes.
TAXPAYER RELIEF ACT OF 1997
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (H.R. 2014), which will have the effect of modifying certain REIT-
related Code provisions for tax years beginning on or after January 1, 1998.
Some of the potentially significant REIT-related changes contained in this
legislation include: (i) the rule disqualifying a REIT for any year in which it
fails to comply with certain regulations requiring the REIT to monitor its stock
ownership is replaced with an intermediate financial penalty; (ii) the rule
disqualifying a REIT in any year that it is "closely held" does not apply if
during such year the REIT complied with certain regulations which require the
REIT to monitor its stock ownership, and the REIT did not know or have reason to
know that it was closely held; (iii) the 30% gross income test is repealed; (iv)
any corporation wholly-owned by a REIT is permitteddeemed to be treated as a qualified
REIT subsidiary regardless of whether such subsidiary has always been owned by
the REIT; (v) the ordering rule for purposes of the requirement that newly-
electing REITs distribute earnings and profits accumulated in non-REIT years is
modified; (vi) the class of excess noncash items for purposes of the REIT
distribution requirements is expanded; (vii) the rules regarding the treatment
of hedges are modified; and (viii) certain other Code provisions relatingunderwriters. Such shares,
including shares acquired pursuant to REITs are amended. Some or all of the provisions could affect both IMH's
operations and its ability to maintain its REIT status for its taxable years
beginning in 1998.
TAXATION OF HOLDERS OF SECURITIES
Set forth below is a brief summary of certain federal income tax
consequences to holders of Securities. Holders are urged to consult the
applicable Prospectus Supplement for a more detailed description of such tax
consequences.
Common Stock and Preferred Stock. In general, as long as IMH qualifies as
a REIT, distributions made by IMHwaivers granted with respect to the
Common Stock oroptional cash payment feature of the Preferred Stock outPlan, may be resold in market
transactions (including coverage of IMH's current or accumulated earnings and profits (and
not designated as capital gain dividends) will constitute dividends taxable as
ordinary income to holdersshort positions) on any national
securities exchange on which shares of Common Stock trade or Preferredin privately
negotiated transactions. The Common Stock asis currently listed on the case may
be. Such distributions will not be eligible forAmerican
Stock Exchange. Under certain circumstances, it is expected that a portion of
the dividends received
deduction in the case of holdersshares of Common Stock or Preferred Stock that are
corporations. Under certain other circumstances, distributions made by IMH with
respectavailable for issuance under the Plan will be
issued pursuant to such waivers. The difference between the price such owners
pay to the Company for shares of Common Stock oracquired under the Preferred StockPlan, after
deduction of the applicable discount from the Market Price, if any, and the
price at which such shares are resold, may be deemed to constitute
return of
capital and/or capital gainunderwriting commissions received by such owners in connection with such
transactions.
Subject to the holder.
In general, any gain or loss realized upon a taxable dispositionavailability of shares of Common Stock or Preferred Stock will be treated as mid-term or long-term
capital gain or loss ifregistered for
issuance under the shares have been held as a capital asset for more
than twelve months or eighteen months, respectively, and otherwise as short-term
capital gain or loss. However, any loss realized upon a taxable dispositionPlan, there is no total maximum number of shares held for six months or less willthat can
be treated as long-term capital lossissued pursuant to the extentreinvestment of any capital gaindividends. From time to time,
financial intermediaries may engage in positioning transactions in order to
benefit from the discount from the Market Price of Common Stock acquired
through the reinvestment of dividends receivedunder the Plan.
Except with respect to such sharesopen market purchases of Common Stock, or Preferred Stock.
Debt Securities. Interestthe Company
will pay any and original issue discount, if any, on a Debt
Security will be treated as ordinary income to a holder. Any special tax
considerations applicable to a Debt Security will be describedall brokerage commissions and related expenses incurred in
the related
Prospectus Supplement.
Securities Warrants. Upon a holder's exercise of a Securities Warrant, the
holder will, in general, (i) not recognize any income, gain or loss for federal
income tax purposes, (ii) receive an initial tax basis in the Security received
equal to the sum of the holder's tax basis in the exercised Securities Warrant
and the exercise price paid for such Security and (iii) have a holding period
for the Security received beginning on the date of exercise. If a holder of a
Securities Warrant sells or otherwise disposes of such Securities Warrant (other
than by its exercise), the holder generally will recognize capital gain or loss
(mid-term or long-term capital gain or loss if the holder holds such Securities
Warrants as a capital asset and its holding period for the Securities Warrant
exceeds twelve months or eighteen months, respectively, on the date of
disposition; otherwise, short term capital gain or loss) equal to the difference
between (i) the cash and fair market value of other property received and (ii)
the holder's tax basis (on the date of disposition) in the Securities Warrant
sold. Such a holder generally will recognize a capital loss upon the
43
expiration of an unexercised Securities Warrant equal to the holder's tax basis
in the Securities Warrant on the expiration date.
WITHHOLDING
IMH will report to holdersconnection with purchases of Common Stock Preferredunder the Plan. Upon withdrawal by a
Participant from the Plan by the sale of Common Stock held under the Plan, the
Participant will receive the proceeds of such sale less any related brokerage
commissions and Debt
Securities andany applicable transfer taxes.
Common Stock may not be available under the Service the amount of dividends or interest paid during each
calendar year, and the amount of tax withheld, if any. Under the backup
withholding rules, a holder may be subject to backup withholding at the rate of
31% with respect to dividends or interest paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A holder
thatPlan in all states. This
Prospectus does not provide IMH with his correct taxpayer identification number may
also be subjectconstitute an offer to penalties imposed by the Service. Any amount paid as backup
withholding will be creditable against the holder's income tax liability. In
addition, IMH may be requiredsell, or a solicitation of an offer
to withhold a portion of capital gain
distributionsbuy, any Common Stock or other securities in any state or any other
jurisdiction to any holders who failperson to certify their non-foreign statuswhom it is unlawful to IMH.
OTHER TAX CONSEQUENCES
ICIFC does not qualify as a REIT and will pay federal, state and local
income taxes on its taxable income at normal corporate rates. As a result, ICIFC
is able to distribute only its net after-tax earnings to its shareholders,
including IMH, as dividend distributions, thereby reducing the cash available
for distribution by IMH to its stockholders.
STATE AND LOCAL TAXES
IMH and holders of Securities may be subject to state or local taxationmake such offer in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of IMH and
holders of Securities may not conform to the federal income tax consequences
discussed above. Consequently, prospective holders of Securities should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in IMH.such
jurisdiction.
26
LEGAL MATTERSOPINION
The validity of the Securitiessecurities offered hereby will behas been passed on for the
Companyupon by
Freshman, Marantz, Orlanski, Cooper & Klein, Beverly Hills, California,
certain legal matters, including certain tax matters, will be passed
on forcounsel to the Company by Latham & Watkins, Los Angeles, California, and certain legal matters with respect to Maryland law will be passed on for the Company
by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland.
EXPERTS
The financial statements of Imperial Credit Mortgage Holdings, Inc. and ICI
Funding Corporation incorporated in thisthe Prospectus by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 have
been so incorporated by references hereinreference therein in reliance upon the reports of KPMG
Peat Marwick LLP, independent auditors, and upon the authority of said firm as
experts in auditing and accounting. Each of the reports of KPMG Peat Marwick
LLP covering the December 31, 1996 financial statements containcontains an
explanatory paragraph that states the Company adopted the provisions of
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights" for the year ended December 31, 1995.
44INDEMNIFICATION
The Company's Charter contains a provision which limits the liability of its
directors and officers to the Company and its stockholders for money damages
except for liability resulting from (a) actual receipt of an improper benefit
or profit in money, property or services or (b) active and deliberate
dishonesty established by a final judgment as being material to the cause of
action. The Company's Charter and Bylaws also provide that the Company shall
indemnify directors and officers under certain circumstances for liabilities
and expenses incurred by reason of their actions in such capacities. In
addition, the Company maintains an insurance policy that indemnifies directors
and officers against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in said Act and is therefore unenforceable.
27
GLOSSARY
"AMEX" means the American Stock Exchange.
"Beneficial Owners" means stockholders who beneficially own shares of Common
Stock that are registered in a name other than their own (for example, in the
name of a broker, bank or other nominee).
"B&N Form" means a Broker and Nominee form.
"business day" means any day other than Saturday, Sunday or legal holiday on
which the AMEX is closed or a day on which the Plan Administrator is
authorized or obligated by law to close.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $.01 par value, of the Company.
"Company" means Imperial Credit Mortgage Holdings, Inc.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"IRS" means Internal Revenue Service.
"Investment Date" means, with respect to Common Stock acquired directly from
the Company and relating to a dividend reinvestment, the dividend payment date
declared by the Board of Directors (unless such date is not a business day in
which case it is the first business day immediately thereafter) or, in the
case of open market purchases, no later than ten business days following the
dividend payment date; and with respect to Common Stock acquired directly from
the Company and relating to an optional cash payment, generally on or about
the twenty-ninth day of each month; or, in the case of open market purchases,
no later than ten business days following the Investment Date. In no event,
however, will the Investment Date relating to dividend reinvestments be less
than ten days from the Investment Date relating to optional cash payments.
"Market Price" means, with respect to Common Stock acquired directly from
the Company and relating to a dividend reinvestment, the average of the high
and low sales prices, computed to three decimal places, of the Common Stock on
the AMEX on the Investment Date, or if no trading occurs in the Common Stock
on the Investment Date, the average of the high and low sales prices for the
first trading day immediately preceding the Investment Date for which trades
are reported. With respect to dividend reinvestments which will be reinvested
in Common Stock purchased in the open market, "Market Price" shall mean the
weighted average of the actual prices paid, computed to three decimal places,
for all of the Common Stock purchased by the Plan Administrator with all
Participants' reinvested dividends for the related quarter. With respect to
Common Stock acquired directly from the Company and relating to optional cash
payments, "Market Price" shall mean the average of the high and low sales
prices, computed to three decimal places, of the Common Stock as reported on
the AMEX during the Pricing Period. With respect to optional cash payments
which will be reinvested in Common Stock purchased in the open market, "Market
Price" shall mean the weighted average of the actual prices paid, computed to
three decimal places, for all of the Common Stock purchased by the Plan
Administrator with all Participants' optional cash payments for the related
month.
"Original Plan" means the Imperial Credit Mortgage Holdings, Inc. Dividend
Reinvestment and Stock Purchase Plan as approved by the Company's Board of
Directors on February 14, 1997.
"Participant" means an eligible holder of Common Stock who wishes to
participate in the Plan.
28
"Participating Shares" means shares of Common Stock owned by a Participant
on the applicable record date as to which such Participant has directed the
Company to pay the related cash dividends to the Plan Administrator.
"Plan" means the Imperial Credit Mortgage Holdings, Inc. Dividend
Reinvestment and Stock Purchase Plan which amended and restated the Original
Plan.
"Plan Administrator" means a plan administrator that administers the Plan,
keeps records, sends statements of account to each Participant and performs
other duties related to the Plan. Boston Equiserve, L.P. currently serves as
Plan Administrator of the Plan.
"Plan Shares" means all whole and fractional shares of Common Stock credited
to a Participant's Plan account.
"Pricing Period" means the period encompassing the three Trading Days
preceding the relevant optional cash payment Investment Date.
"REIT" means real estate investment trust.
"Record Date" means, with respect to reinvestments of dividends, the record
date declared by the Board of Directors for such dividend; and with respect to
optional cash payments, two business days prior to the commencement of the
Pricing Period.
"Record Owners" means stockholders who own shares of Common Stock in their
own names.
"Requests for Waiver" means a written request from a Participant to make
optional cash payments in excess of $10,000.
"Securities Act" means the Securities Act of 1933, as amended.
"Trading Day" means a day on which trades in the Common Stock are reported
on the AMEX.
"Waiver Discount" means the discount from the Market Price applicable to
optional cash payments made pursuant to Requests for Waiver. Such discount
will vary between 0% and 5% of the Market Price and may vary each month.
29
SCHEDULE A
OPTIONAL CASH PAYMENTS
The following table sets forth the applicable dates for optional cash payments
for 1997 and 1998. The Company will typically set these dates two months
before the end of each year and they will be available from Investor Relations
at (714) 438-2100 on the 1st of December of each year.
WAIVER
DISCOUNT OPTIONAL CASH PRICING PERIOD INVESTMENT
SET DATE RECORD DATE PAYMENT DUE DATE COMMENCE DATE DATE
----------------- ------------------ ------------------ ------------------ ------------------
November 14, 1997 November 19, 1997 November 20, 1997 November 21, 1997 November 26, 1997
December 16, 1997 December 19, 1997 December 22, 1997 December 23, 1997 December 29, 1997
January 19, 1998 January 22, 1998 January 23, 1998 January 26, 1998 January 29, 1998
February 17, 1998 February 20, 1998 February 23, 1998 February 24, 1998 February 27, 1998
March 18, 1998 March 23, 1998 March 24, 1998 March 25, 1998 March 30, 1998
April 17, 1998 April 22, 1998 April 23, 1998 April 24, 1998 April 29, 1998
May 19, 1998 May 22, 1998 May 25, 1998 May 26, 1998 May 29, 1998
June 17, 1998 June 22, 1998 June 23, 1998 June 24, 1998 June 29, 1998
July 17, 1998 July 22, 1998 July 23, 1998 July 24, 1998 July 29, 1998
August 18, 1998 August 21, 1998 August 24, 1998 August 25, 1998 August 28, 1998
September 17, 1998 September 22, 1998 September 23, 1998 September 24, 1998 September 29, 1998
October 19, 1998 October 22, 1998 October 23, 1998 October 26, 1998 October 29, 1998
November 16, 1998 November 19, 1998 November 20, 1998 November 23, 1998 November 30, 1998
December 16, 1998 December 21, 1998 December 22, 1998 December 23, 1998 December 29, 1998
SUMMARY DATE INFORMATION
. The Investment Date is, with respect to Common Stock acquired directly from
the Company and relating to a dividend reinvestment, the dividend payment
date declared by the Board of Directors (unless such date is not a business
day in which case it is the first business day immediately thereafter) or,
in the case of open market purchases, no later than ten business days
following the dividend payment date; and with respect to Common Stock
acquired directly from the Company and relating to an optional cash payment,
generally on or about the twenty-ninth day of each month; or, in the case of
open market purchases, no later than the ten business days following the
Investment Date. In no event, however, will the Investment Date relating to
dividend reinvestments be less than ten days from the Investment Date
relating to optional cash payments.
. The Pricing Period for optional cash payments which are invested in Common
Stock acquired directly from the Company is the three Trading Days preceding
the relevant Investment Date.
. Optional cash payments must be received by the Plan Administrator by the end
of the business day immediately preceding the commencement of the relevant
Pricing Period.
. The Record Date for dividends is set by the Board of Directors. The Record
Date for optional cash payments is two business days prior to the related
Pricing Period.
. The Waiver Discount is set three business days prior to the applicable
Record Date.
30
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ItemITEM 14. Other Expenses of Issuance and Distribution
The estimated expenses, other than underwriting discounts and commissions,
in connection with the offerings of Securities are:OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION:
Registration Fee $60,606fee................................................... $10,664.00
Listing fees....................................................... $17,500.00
Printing expenses.................................................. $20,000.00*
Accounting fees and expenses....................................... $ 3,000.00*
Legal Feesfees and Expenses *
Accounting Feesexpenses............................................ $20,000.00*
Blue sky fees and Expenses *
Blue Sky Qualification and Expenses including Counsel Fees *
American Stock Exchange Listing Fee *
NASD Filing Fees *
Printing and Engraving Expenses *
Transfer Agent and Registrar Fees *expenses......................................... $ 1,500.00*
Miscellaneous *
--
TOTAL $*
===== ==expenses............................................. $ 2,336.00*
----------
TOTAL............................................................ $75,000.00*
==========
* To be supplied by amendment.
Item- --------
*Estimated
ITEM 15. Indemnification of Directors and OfficersINDEMNIFICATION OF DIRECTORS AND OFFICERS.
The MGCLMaryland General Corporation Law, as amended from time to time ("MGCL")
permits a Maryland corporation to include in its charter a provision limiting
the liability of its directors and officers to the corporation and its
stockholders for money damages except for liability resulting from (a) actual
receipt of an improper benefit or profit in money, property or services or (b)
active and deliberate dishonesty established by a final judgment as being
material to the cause of action. The charterCharter of the Company contains such a
provision which eliminates such liability to the maximum extent permitted by
Maryland law.
The charterCharter of the Company authorizes it, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a)(1) any
present or former directorDirector or officer or (b)(2) any individual who, while a
directorDirector of the Company and at the request of the Company, serves or has
served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise from and against any claim or liability to
which such person may become subject or which such person may incur by reason
of his or her staturestatus as a present or former directorDirector or officeofficer of the Company. The
Bylaws of the Company obligate it, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (a)(1) any present or former directorDirector or
officer who is made a party to the proceeding by reason of his service in that
capacity or (b)(2) any individual who, while a directorDirector of the Company and at the
request of the Company, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of such corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The charterCharter
and Bylaws also permit the Company to indemnify and advance expenses to any
person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor
of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's charterCharter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a
II-1
corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those or other
capacities unless it is established that (a)(1) the act ofor omission of the
director or officer was material to the matter giving rise to the proceeding
and (i) was committed in bad faith or (ii) was the result of active and
deliberate dishonesty, (b)(2) the director or officer actually received an
improper personal benefit in money, property or services or (c)(3) in the case of
any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, under the MGCL, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis
that personal benefit was improperly received, unless in either case a court
orders indemnification and then only for expenses. In addition, the MGCL
permits a corporation to advance reasonable expenses to a director or officer
upon the corporation's receipt of (a)(1) a written affirmation by the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification by the corporation and (b)(2) a written statementundertaking
by or on his behalf to repay the amount paid or reimbursed by the corporation
if it shall ultimately be determined that the standard of conduct was not met.
ItemIn addition, the Registrant has entered into an Indemnity Agreement (Exhibit
10.4 of its Registration Statement on Form S-11 (File No. 33-96670) and
Amendments No. 1, 2 and 3 filed with the Securities and Exchange Commission on
September 7, 1995, October 23, 1995, October 30, 1995 and November 8, 1995,
respectively) with its officers and Directors.
ITEM 16. ExhibitsEXHIBITS.
*1.1 - Form of Underwriting Agreement
4.1 - Form of Common4. --Dividend Reinvestment and Stock Certificate (incorporated herein by reference to
Amendment No. 3 ofPurchase Plan (included in the
Company's Registration Statement on Form S-11
(No. 33-96670) dated November 8, 1995
4.2 - Articles of Incorporation (incorporated herein by reference to the
Company's Registration Statement on Form S-11 (No. 33-96670), dated
November 8, 1995
*4.3 - Specimen of Articles Supplementary relating to Preferred Stock
*4.4 - Form of Senior Indenture
*4.5 - Form of Subordinated Indenture
*4.6 - Form of Common Stock Warrant Agreement
*4.7 - Form of Preferred Stock Warrant Agreement
*4.8 - Form of Debt Warrant Agreement
*5.1 - OpinionProspectus)
5.1 --Opinion of Freshman, Marantz, Orlanski, Cooper & Klein
*5.2 - Opinion5.2 --Opinion of Ballard SpharSpahr Andrews & Ingersoll
*8.1 - Opinion of Latham & Watkins
12.1 - Ratio of Available Earnings to Fixed Charges
23.1 - Consent--Consent of KPMG Peat Marwick LLP regarding the Registrant
23.2 - Consent--Consent of KPMG Peat Marwick LLP regarding ICI Funding Corporation
*23.3- Consent23.3 --Consent of Freshman, Marantz, Orlanski, Cooper & Klein (contained(included in
Exhibit 5.1)
*23.4- Consent23.4 --Consent of Ballard Spahr Andrews & Ingersoll (contained(included in Exhibit 5.2)
*23.5- Consent of Latham & Watkins (contained in Exhibit 8.1)
II-2
24.1 - Power--Power of Attorney of Certain Officers and Directors (included on
signature page)
*25.1 - StatementSignature Page)
99.1 --Form of Eligibility of Trustee on Form T-1Letter to Stockholders with respect to Dividend Reinvestment
and Stock Purchase Plan
* To be filed by amendment or incorporated by reference to periodic reports
filed by the Company pursuant to Section 13 of the Securities Exchange Act
of 1934.
ITEM 17. UNDERTAKINGS
(a)UNDERTAKINGS.
The undersigned registrantRegistrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-
effectivepost-effective amendment to this registration statement:Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statementRegistration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement.Registration Statement. Notwithstanding the foregoing, any increase or
decrease in valuevolume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.Registration Statement;
II-2
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statementRegistration Statement or any
material change to such information in the registration statement;Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this Registration
Statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statementRegistration 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.thereof; and
(3) To remove from the registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrantRegistrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual reportRegistrant's Annual Report pursuant to Section 13(a) ofor Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statementRegistration Statement shall be deemed to be a new registration statementRegistration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrantRegistrant pursuant to the response to Item 15,foregoing provisions, or otherwise, the registrantRegistrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefor,therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrantRegistrant of expenses
incurred or paid by a director, officer or controlling person of the
registrantRegistrant 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 registrantRegistrant 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.
II-3
(d) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifiesCertifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned,Undersigned, thereunto duly
authorized, in the City of Santa Ana Heights, and the State of California, on AugustOctober
21, 1997.
IMPERIAL CREDIT MORTGAGE HOLDINGS,
INC.
By: /s/ Joseph R. Tomkinson
---------------------------------------By:____________________________________
Joseph R. Tomkinson
Chief Executive Officer and
Vice Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and Chief Executive Officer
We, the undersigned directorsappoints, jointly and officers of Imperial Credit Mortgage
Holdings, Inc., do hereby constitute and appointseverally, Joseph R. Tomkinson and
Richard J. Johnson or eitherand each one of them, ourindividual and without the other, his
or her true and lawful attorneysattorneys-in-fact and agents, to dowith full powers of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all acts and things in our name and behalf in our capacities, as
directors and officers and to execute any and all instruments for us and in our
names in the capacities indicated below, which said attorneys and agents, or
either of them, may deem necessary or advisable to enable said corporation to
comply with the Securities Act of 1933, as amended, and any rules, regulations,
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but without limitation,
power and authority to sign for us or any of us in our names and in the
capacities indicated below, any and all amendments
(including post-effective amendment)amendments) to this Registration Statement, orand any
related registration statement relating to the same offering as the Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) underof the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as amended;fully to all
intents and wepurposes as he or she might or could do in person, hereby
ratifyratifying and confirmconfirming all that the said attorneysattorneys-in-fact and agents, each
acting alone, or either of them, shallhis substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
- --------------------------------- ---------------------------------- ------------------------ ----- ----
/s/ Joseph R. Tomkinson Vice Chairman of the Board and AugustOctober 21, 1997
- ---------------------------------____________________________________ and Chief Executive Officer
(Principal
Joseph R. Tomkinson (Principal Executive
Officer)
/s/ Richard J. Johnson Chief Financial Officer (Principal AugustOctober 21, 1997
- ---------------------------------____________________________________ (Principal Financial and
Accounting Officer)
Richard J. Johnson Accounting Officer)
/s/ H. Wayne Snavely Chairman of the Board AugustOctober 21, 1997
- ---------------------------------____________________________________
H. Wayne Snavely
/s/ James Walsh Director AugustOctober 21, 1997
- ---------------------------------____________________________________
James Walsh
/s/ Frank Filipps Director AugustOctober 21, 1997
- ---------------------------------____________________________________
Frank Filipps
/s/ Stephan R. Peers Director AugustOctober 21, 1997
- ---------------------------------____________________________________
Stephan R. Peers
/s/ WilliamWilliams S. Ashmore Director AugustOctober 21, 1997
- ---------------------------------____________________________________
William S. Ashmore
II-5II-4
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT
------- -------
4. --Dividend Reinvestment and Stock Purchase Plan (included in the
Prospectus)
5.1 --Opinion of Freshman, Marantz, Orlanski, Cooper & Klein
5.2 --Opinion of Ballard Spahr Andrews & Ingersoll
23.1 --Consent of KPMG Peat Marwick LLP regarding the Registrant
23.2 --Consent of KPMG Peat Marwick LLP regarding ICI Funding Corporation
23.3 --Consent of Freshman, Marantz, Orlanski, Cooper & Klein (included in
Exhibit 5.1)
23.4 --Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit
5.2)
24.1 --Power of Attorney of Certain Officers and Directors (included on
Signature Page)
99.1 --Form of Letter to Stockholders with respect to Dividend Reinvestment
and Stock Purchase Plan