Registration No. 333-
As filed with the United States Securities and Exchange Commission on June 20,December
3, 2001
Registration No. 333-_________- --------------------------------------------------------------------------------
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
-----------------
IMPAC MORTGAGE HOLDINGS, INC.
(Exact Namename of Registrant as Specifiedspecified in Itsits charter)
Maryland 33-0675505
(State or other jurisdiction of (I.R.S. Employer Identification No.)
of incorporation or organization)
Identification Number)-----------------
1401 Dove Street
Newport Beach, California 92660
(949) 475-3600
(Address, including zip code,Including Zip Code, and telephone number, including area code,Telephone Number, Including Area Code, of
registrant's principal executive offices)
Joseph R. Tomkinson
Chiefeach Registrant's Principal Executive OfficerOffices)
-----------------
Ronald M. Morrison
General Counsel
Impac Mortgage Holdings, Inc.
1401 Dove Street
Newport Beach, California 92660
(949) 475-3600
(Name,(name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:-----------------
Copy To:
Thomas J. Poletti
Esq.Katherine J. Blair
Kirkpatrick & Lockhart LLP
10100 Santa Monica Blvd., 7/th/ Floor
Los Angeles, CA 90067
Telephone: (310) 552-5000
Facsimile: (310) 552-5001
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following box.
[_]
If any of the securities being registered on this formForm 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][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. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.box: [_]
CALCULATION OF REGISTRATION FEE
===========================================================================================================
Title of each class
of Proposed maximum Proposed maximum
securities to be Amount to be offering price per aggregate Amount of
registered Registered unit offering price (1) registration fee
-----------------------------------------------------------------------------------------------------------
Common Stock,
$0.01 par value 2,118,644 $6.68 $14,152,541.00 $3,538.14
par share
===========================================================================================================
(1) Estimated solely for-----------------
Continued on the purpose of calculating the registration fee in
accordance with Rule 457(c)next page.
Pursuant to rule 429 under the Securities Act of 1933, as
amended, and based on the averageprospectus
included in this registration statement will also be used in connection with
the issuance of the high and low sale prices of
thedebt securities, warrants, common stock reported as of June 14, 2001.and preferred stock
registered pursuant to Registration Statement No. 333-34137 previously filed by
the registrant on Form S-3.
The Registrantregistrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrantregistrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 as amended, or until the registration statement shall become
effective on such date as the Commission,commission, acting pursuant to said Section 8(a),
may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not completeContinued from previous page.
CALCULATION OF REGISTRATION FEES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Maximum
Proposed Proposed
Maximum Aggregate Amount of
Title Of Each Class Securities To Be Amount to be Offering Price Offering Registration
Registered Registered(1) Per Unit(1)(2) Price(1)(2) Fee(3)
- ---------------------------------------------------------------------------------------------
Common Stock, $.01 par value.........
Preferred Stock, $.01 par value......
Senior Notes.........................
Subordinated Notes...................
Warrants to purchase Common Stock
$.01 par value.....................
Warrants to purchase Preferred Stock,
$.01 par value.....................
Total................................ $262,557,850 100% $262,557,850 $62,751.33
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Includes such indeterminate number of shares of common stock and associated
preferred stock purchase rights and preferred stock and warrants with
respect thereto, and such indeterminate principal amount of senior notes
and subordinated notes as may from time to time be issued at indeterminate
prices, and, such indeterminate number of shares of common stock and
preferred stock as may be changed. Weissued upon conversion of, or in exchange for, or
upon exercise of warrants or convertible or exchangeable debt securities or
preferred stock that provides for exercise or conversion into such
securities (including any securities issuable upon stock splits and similar
transactions pursuant to Rule 416 under the Securities Act). Also includes
an indeterminate amount of shares of common stock as may +
+not sell these securities untilfrom time to time
be sold at indeterminate prices by the selling stockholders.
(2) Estimated solely for the purpose of calculating the registration statement filed withfee
pursuant to Rule 457.
(3) Pursuant to Rule 429 under the +
+SecuritiesSecurities Act, the Prospectus that forms a
part of this Registration Statement, as such prospectus may be amended or
supplemented from time to time, shall also relate to $37,442,150 of
aggregate principal amount of debt securities, warrants, common stock, and
Exchange Commission is effective. This prospectus is not an +
+offerpreferred stock previously registered pursuant to sell these securities and it is not soliciting an offer to buy these +
+securitiesRegistration Statement on
Form S-3, Registration No. 333-34137, as amended. The Company paid a
registration fee of $11,346.09 (calculated at the fee in any state whereeffect at the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++time
of filing) in connection therewith.
Subject to completion dated June 20,December 3, 2001
2,118,644 SharesPROSPECTUS
$300,000,000
IMPAC MORTGAGE HOLDINGS, INC.
COMMON STOCK, This prospectus relatesPREFERRED STOCK,
DEBT SECURITIES AND WARRANTS
-----------------
Impac Mortgage Holdings, Inc. may sell to the offer and sale from time to time by Impac
Funding Corporation, Inc., a California corporation, (the "selling
stockholder"), of up to 2,118,644 shares of our common stock.
The selling stockholder will receive all of the proceeds from the sale of thepublic:
. common stock
less any discounts, commissions or other compensation that it may
pay. preferred stock
. debt securities
. warrants to the underwriters, broker-dealers or other selling agents effecting the
sales. We will pay all the costs of registering the common shares under this
prospectus.
Ourpurchase common stock
is traded on. warrants to purchase preferred stock
Unless the American Stock Exchange under the symbol
"IMH." On June 18, 2001, the last reported sale price for the common stock on
the American Stock Exchange was $6.78 per share.
-------------
Your purchase of the common stock involves a high degree of risk.
See "Risk Factors" beginning at page 1.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities offered or sold
under this prospectus, nor have these organizations determined that this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-------------
The date of this prospectus is , 2001.
We have not authorized any dealer, salesperson or any other person to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information. This prospectus does not offer
to sell or seek an offer to buy any shares in any jurisdiction where it is
unlawful. The information contained in this prospectus is correct only as of
the date of this prospectus, regardless of the time of the delivery of this
prospectus or any sale of the shares.
Certain information contained in this prospectus and the reports
incorporated herein constitute forward-looking statements under the Securities
Act of 1933 and the Exchange Act of 1934. These forward-looking statements can
be identified by the use of forward-looking terminology including, but not
limited to, "may," "will," "expect," "intend," "should," "anticipate,"
"estimate," or "believe" or comparable terminology. Our actual results may
differ materially from those contained in the forward-looking statements.
Purchasers of our common shares should not place undue reliance on these
forward-looking statements, which speak only as of the date of this
prospectus.
Table of Contents
Page
----
Summary............................................................. i
Risk Factors........................................................ 1
Use of Proceeds..................................................... 15
Selling Security Holder and Plan of Distribution.................... 15
Description of Capital Stock........................................ 16
Material Federal Income Tax Consequences............................ 18
Legal Matters....................................................... 26
Experts............................................................. 26
Where You Can Find More Information................................. 27
SUMMARY
We are a mortgage real estate investment trust, commonly known as a REIT,
which, together with our subsidiaries and related companies, primarily
operates three businesses: (1) our long-term investment operations, (2) our
mortgage operations, and (3) our warehouse lending operations. Our long-term
investment operations invests primarily in non-conforming residential mortgage
loans and securities backed by such loans. Our mortgage operations purchases
or originates and sells and securitizes primarily non-conforming residential
mortgage loans. Non-conforming residential mortgage loans are residential
mortgages that generally do not qualify for purchase by government-sponsored
agencies such as the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation. Our warehouse lending operations provides
warehouse and repurchase financing to originators of mortgage loans. We have
elected to be taxed as a REIT for federal income tax purposes, which generally
allows us to pass through income to stockholders without payment of federal
income tax at the corporate level.
On February 21, 2001 and March 30, 2001, the selling shareholder purchased a
total of 400,000 shares of our Series C 10.5% Cumulative Convertible Preferred
Stock from LBP, Inc. (OTC Bulletin Board: LBPI.OB). The shares offered under
this prospectus were issued pursuant to the conversion of the preferred stock.
Our principal executive offices are located at1401 Dove Street, Newport
Beach, California, 92660. Our telephone number is (949) 475-3600.
In this prospectus,context otherwise requires, the terms "Company," "we," "us," and
"our" in this prospectus refer to Impac Mortgage Holdings, Inc., a Maryland
corporation. The term "IFC" or
"selling stockholder" refers tocorporation, and its subsidiaries, IMH Assets Corp., and Impac Warehouse
Lending Group, Inc. and its affiliate, Impac Funding Corporation a California
corporation.(together with
its wholly-owned subsidiaries Impac Secured Assets Corp. and Novelle Financial
Services, Inc.). Unless the context otherwise indicates, "common stock" refers
to the common stock, par value $0.01 per share, of Impac Mortgage Holdings,
Inc. i
RISK FACTORSand the associated preferred stock purchase rights issued under our rights
agreement, as amended, dated October 7, 1998.
We will provide specific terms of each issuance of these securities in
supplements to this prospectus. Shares of common stock may also be offered by
certain selling stockholders pursuant to this prospectus. We will not receive
any of the proceeds from the sale of common stock by selling stockholders. We
urge you to read this prospectus and any accompanying prospectus supplement,
which will describe the specific terms of the common stock, the preferred
stock, the debt securities and the warrants, carefully before you make your
investment decision.
Our company, or any selling stockholder, may sell these securities to or
through underwriters, dealers or agents, or we may sell the securities directly
to investors on our own behalf.
Our common stock is listed on the American Stock Exchange under the symbol
"IMH."
An investment in our common stockthe securities being offered involves significant risks.
See "Risk Factors" beginning on page 1.
This prospectus may not be used to consummate sales of these securities
unless it is accompanied by a high degreeprospectus supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of risk.these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is , 2001
The information contained in this prospectus is not complete and may be
changed. You should considerrely only on the following factors carefully before decidinginformation incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not
authorized anyone else to purchaseprovide you with different information. We are not
making or soliciting an offer of these securities in any state where the offer
is not permitted. You should not assume that the information in this prospectus
or any prospectus supplement is accurate as of any date other than the date on
the front of those documents.
Table of Contents
Page
----
About This Prospectus........................................................................... i
Where You Can Find More Information............................................................. ii
Cautionary Statement Concerning Forward-Looking Statements...................................... iii
Risk Factors.................................................................................... 1
Use Of Proceeds................................................................................. 16
Ratio Of Earnings To Fixed Charges And Ratio Of Earnings To Combined Fixed Charges And Preferred
Stock Dividends............................................................................... 16
Description Of Securities....................................................................... 16
Description Of Capital Stock.................................................................... 17
Description Of Debt Securities.................................................................. 23
Selling Stockholders............................................................................ 29
Federal Income Tax Considerations............................................................... 29
Plan Of Distribution............................................................................ 37
Legal Matters................................................................................... 38
Experts......................................................................................... 39
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a "shelf" registration process. Under
this shelf process, we may sell any combination of the securities described in
this prospectus in one of more offerings up to a total dollar amount of
proceeds of $300,000,000. Under this shelf process, the selling stockholders
also may from time to time offer shares of our common stock. Additional risks not presently knownThis prospectus
provides you with a general description of the securities we and the selling
stockholders may offer. Each time we sell securities, we will provide a
prospectus supplement that will contain specific information about the terms of
that offering. That prospectus supplement may include a discussion of any risk
factors or other specific considerations applicable to us or that we
currently deem immaterialthose securities The
prospectus supplement may also impairadd, update or change information contained in
this prospectus. If there is any inconsistency between the information in this
prospectus and any prospectus supplement, you should rely on the information in
the prospectus supplement. You should read both this prospectus and any
prospectus supplement together with additional information described under the
heading "Where You Can Find More Information."
The registration statement containing this prospectus, including the
exhibits to the registration statement provides additional information about us
and the securities offered under this prospectus. The registration statement,
including the exhibits, can be read at the SEC website or at the SEC offices
mentioned under the heading "Where You Can Find More Information."
i
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements, and other information with the SEC. Such
reports, proxy statements, and other information concerning us can be read and
copied at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Room. The SEC maintains an Internet site at
http://www.sec.gov that contains reports, proxy and information statements and
other information from issuers, including us, that file such documents
electronically with the SEC. Our common stock is listed and traded on the
American Stock Exchange. These reports, proxy statements and other information
are also available for inspection at the offices of the American Stock
Exchange, 86 Trinity Place, New York, New York 10006.
This prospectus is part of a registration statement we filed with the SEC.
The full registration statement can be obtained from the SEC as indicated
above, or directly from us, as indicated below.
The SEC allows us to "incorporate by reference" the information we file with
the SEC. This permits us to disclose important information to you by
referencing these filed documents. Any information referenced this way is
considered part of this prospectus, and any information filed with the SEC
subsequent to this prospectus will automatically be deemed to update and
supersede this information. We incorporate by reference the following documents
which we have filed with the SEC (File No. 0-19861) under the Securities
Exchange Act of 1934 (the "Exchange Act"), and these documents are incorporated
herein by reference:
. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2000
as filed on March 30, 2001 and as amended by Form 10-K/A filed on October
17, 2001;
. Our Definitive Proxy Statement filed April 30, 2001 and amended on May 17,
2001;
. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 as
filed on May 15, 2001;
. Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 as
filed on August 14, 2001 and as amended by Form 10-Q/A filed on October
12, 2001;
. Our Quarterly Report on Form 10-Q for the quarter ended September 30, 2001
as filed on November 14, 2001;
. Our Current Reports on Form 8-K dated October 26, 2001, October 24, 2001
and September 5, 2001; and
. The description of our common stock contained in our registration
statement on Form 8-A, including all amendments and reports filed for the
purpose of updating such description.
We incorporate by reference the documents listed above and any future
filings made with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act from the date of this prospectus until we file a post-effective
amendment which indicates the termination of the offering of the securities
made by this prospectus. Nothing in this prospectus shall be deemed to
incorporate information furnished by us but not filed with the SEC pursuant to
Item 9 of Form 8-K.
Any statement contained in a document incorporated or considered to be
incorporated by reference in this prospectus shall be considered to be modified
or superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus or in any subsequently filed document that is or
is considered to be incorporated by reference modifies or supersedes the
statement. Each statement about the contents of any contracts or other document
is qualified in all material respects by reference to such contract or other
document. Any statement that is so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus.
We will provide without charge upon written or oral request, a copy of any
or all of the documents which are incorporated by reference to this prospectus.
You may direct your requests to Investor Relations, Impac Mortgage Holdings,
Inc., 1401 Dove Street, Suite 100, Newport Beach, CA 92660, or by calling (949)
475-3600.
ii
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus and any accompanying prospectus supplements contain or
incorporate by reference certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements, some of which are based on
various assumptions and events that are beyond our control, may be identified
by reference to a future period or periods or by the use of forward-looking
terminology, such as "may," "will," "believe," "expect," "anticipate,"
"continue," or similar terms or variations on those terms or the negative of
those terms. Actual results could differ materially from those set forth in
forward-looking statements due to a variety of factors, including, but not
limited to, adverse economic conditions, changes in interest rates, changes in
yield curves, changes in prepayment rates, the availability of financing and,
if available, the terms of any financing. For a discussion of the risks and
uncertainties that could cause actual results to differ from those contained in
the forward-looking statements, see ''Risk Factors" in this prospectus and any
accompanying supplements. We do not undertake, and specifically disclaim any
obligation, to publicly release the results of any revisions that may be made
to any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
The following information may not contain all of the information that is
important to you. We encourage you to read this prospectus and any accompanying
prospectus supplements, as well as the information that is incorporated by
reference in this prospectus and any accompanying prospectus supplements, in
their entireties. You should carefully consider the factors set forth under
''Risk Factors" on page 1 of this prospectus before making an investment
decision to purchase our securities.
iii
SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the securities we or the selling
stockholders may offer in this prospectus, and our consolidated financial
statements and related notes included or incorporated by reference in this
prospectus.
IMPAC MORTGAGE HOLDINGS, INC.
Our company, Impac Mortgage Holdings, Inc., is a mortgage real estate
investment trust, or "REIT." Together with our subsidiaries and affiliate,
Impac Funding Corporation, we are a leading nationwide acquirer and originator
of non-conforming Alt-A mortgage loans. "Alt-A" mortgage loans consist
primarily of mortgage loans that are first lien mortgage loans made to
borrowers whose credit is generally within typical Fannie Mae or Freddie Mac
guidelines, but that have loan characteristics that make them non-conforming
under those guidelines. For instance, the loans may have higher loan-to-value,
or "LTV," ratios than allowable or may have excluded certain documentation or
verifications. Therefore, in making our credit decisions, we are more reliant
upon the borrower's Fair Issac Credit Score, or "FICO," and the adequacy of the
underlying collateral. We also provide warehouse and repurchase financing to
originators of mortgage loans. Our goal is to generate consistent reliable
income for distribution to our stockholders, primarily from the earnings of our
core businesses.
We operate three core businesses: our long-term investment operations, our
mortgage operations, and our warehouse lending operations.
Our long-term investment operations invests primarily in non-conforming
Alt-A mortgage loans. This business generates income based on the excess of the
interest it earns on its investment portfolio and the expense associated with
its borrowings against its investment portfolio. Our investment in
non-conforming Alt-A mortgage loans and, to a lesser extent, mortgage-backed
securities, is financed with collateralized mortgage obligations, or "CMO,"
borrowings and proceeds from the sale of capital stock. Our mortgage operations
acquires, originates, sells and securitizes primarily non-conforming Alt-A
mortgage loans. Our mortgage operations generates income by securitizing and
selling loans to permanent investors, including our long-term investment
operations. Our mortgage operations primarily uses warehouse lines of credit to
finance the acquisition and origination of mortgage loans. Our warehouse
operations provides short-term financing to mortgage loan originators by
funding mortgage loans from their closing date until they are sold to
pre-approved investors, including our long-term investment operations. Our
warehouse lending operations earns fees, as well as a spread, from the
difference between its cost of borrowings and the interest earned on advances
against the loans prior to their sale. Generally, we seek to acquire the
non-conforming Alt-A mortgage loans funded with facilities provided by our
warehouse lending operations, which provides synergies with our long-term
investment operations and mortgage operations.
Our principal executive offices are located at 1401 Dove Street, Newport
Beach, California 92660. Our telephone number is (949) 475-3600.
RISK FACTORS
A prolonged economic downturn or recession would adversely affect our
operations and financial condition
Although we have not operated during a period of prolonged general economic
downturn or a recession, these events have historically resulted in a reduction
in mortgage origination activity and an increase in the rate of mortgage
defaults. The United States economy is currently undergoing a period of
slowdown, which some observers view as a recession. This economic condition has
been worsened by the September 11, 2001 terrorist
1
attacks in New York, N.Y. and Washington, D.C., and Somerset County,
Pennsylvania. A continued economic downturn or recession may have a significant
adverse impact on our operations and our financial condition. For example, a
reduction in new mortgages will adversely affect our ability to expand our
mortgage portfolio, our principal means of increasing our earnings. In
addition, a decline in new mortgage activity will likely result in reduced
activity for our warehouse lending operations and our long-term investment
portfolio operations. In the case of our mortgage operations, a decline in
mortgage activity may result in fewer loans that meet its criteria for purchase
and securitization, thus resulting in a reduction in interest income and fees
and gain on sale of loans. We may also experience larger than previously
reported losses on our portfolio due to a higher level of defaults on our
mortgage loans.
Inability to Generate Liquidity May Adversely Affect Our Operationsgenerate liquidity may adversely affect our operations
If we cannot generate sufficient liquidity, we will be unable to continue to
grow our operations, grow our asset base, maintain our current hedging policy,
and pay dividends. We have traditionally derived our liquidity from threefour
sources:
. financing facilities provided to us by others to acquire or originate
mortgage assets;
. whole loan sales and securitizations of acquired or originated mortgage
loans; and
. our issuance of equity securities.
However, weand debt securities; and
. earnings from operations.
We cannot assure you that any of these alternatives will be available to us,
or if available, that we will be able to negotiate favorable terms. Our ability
to meet our long-term liquidity requirements is subject to the renewal of our
credit and repurchase facilities and/or obtaining other sources of financing,
including additional debt or equity from time to time. Any decision by our
lenders and/or investors to make additional funds available to us in the future
will depend upon a number of factors, such as our compliance with the terms of
our existing credit arrangements, our financial performance, industry and
market trends in our various businesses, the lenders' and/or investors' own
resources and policies concerning loans and investments, and the relative
attractiveness of alternative investment or lending opportunities. If we cannot
raise cash by selling debt andor equity securities, we may be forced to sell our
assets at unfavorable prices or discontinue various business activities. Our
inability to access the capital markets could have a negative impact on our
earnings and hence, our ability to pay dividends.
Margin Callscalls on Financing Facilities May Adversely Affect Our Operationsfinancing facilities may adversely affect our operations
Prior to the fourth quarter of 1998, we generally had no difficulty in
obtaining favorable financing facilities or in selling acquired mortgage loans.
However, during the fourth quarter of 1998, the mortgage industry experienced
substantial turmoil as a result of a lack of liquidity in the secondary
markets. At that time, investors expressed unwillingness to purchase interests
in securitizations due, in part, to:
. higher than expected credit losses on many companies'the lack of financing to acquire these securitization interests, andinterests;
. the widening of returns expected by institutional investors on
securitization interests over the prevailing Treasury rate.rate; and
. market uncertainty.
As a result, many mortgage loan originators, including our company, were
unable to access the securitization market on favorable terms, whichterms. This resulted in
some companies declaring bankruptcy. Originators, like our company, were
required to sell loans on a whole loan basis and liquidate holdings of
mortgage-backed securities to repay financing facilities.short-term borrowings. However, the large
amount of loans available for sale on a whole loan basis affected the pricing
offered for these loans, which in turn reduced the value of the collateral
underlying the financing facilities. Therefore, many providers of financing
facilities initiated margin calls. Margin calls resulted
2
when our lenders evaluated the market value of the collateral securing our
financing facilities and required us to provide them with additional equity or
collateral to secure our borrowings.
Our financing facilities were short-term borrowings and due to the turmoil
in the mortgage industry during the latter part of 1998 many traditional
providers of financing facilities were unwilling to provide facilities on
favorable terms, or at all. Our current financing facilities continue to be
short-term borrowings and we expect this to continue. If we cannot renew or
replace maturing borrowings, we may have to sell, on a whole loan basis, the
loans securing these facilities which, depending upon market conditions, may
result in substantial losses.
1
Dependence on Securitizationssecuritizations for Liquidityliquidity
We rely significantly upon securitizations to generate cash proceeds to
repay borrowings and to create credit availability. Any reduction in our
ability to complete securitizations may require us to utilize other sources of
financing, which, if available at all, may be on less than favorableunfavorable terms. In
addition, delays in closing securitizations of our mortgage loans increase our
risk by exposing our company to credit risks for this extended period of time.
Furthermore, gains on sales from our securitizations represent a significant
portion of our earnings.
Several factors could affect our ability to complete securitizations of our
mortgages, including:
. conditions in the securities and secondary markets;
. credit quality of the mortgage loans acquired or originated or purchased bythrough our
mortgage operations;
. volume of our mortgage loan originationsacquisitions and purchases; andoriginations;
. our ability to obtain credit enhancement.enhancements; and
. lack of investors purchasing higher risk components of the securities.
If we are unable to profitably securitize a significant number of our
mortgage loans in a particular financial reporting period, then itwe could
result inexperience lower income or a loss for that period. As a result of turmoil in
the securitization market during the latter part of 1998, many mortgage
lenders, including our company, were required to sell mortgage loans on a whole
loan basis under adverse market conditions in order to generate liquidity. Many
of these sales were made at prices lower than our carrying value of the
mortgage loans and we experienced substantial losses. We cannot assure you that
we will be able to continue to profitably securitize or sell our loans on a
whole loan basis, or at all.
Gains on sales from our securitizations have historically represented a
substantial portion of our earnings. Our ability to complete securitizations
is dependent upon general conditions in the securities and secondary markets
and the credit quality of the mortgage loans. In addition, delays in closing
sales of our loans increases our risk by increasing the warehousing period for
the loans, further exposing our company to credit risk.
The market for first loss risk securities, which are securities that take
the first loss when mortgages are not paid by the borrowers, is generally
limited. In connectionsconnection with our REMIC securitizations, we will endeavor to sell all
securities subjecting us to a first loss risk. If we cannot sell these
securities, then we may be required to hold them for an extended period, subjecting
us to a first loss risk.
We May Not Pay Dividends to Stockholders
REIT provisions of the Internal Revenue Code require us to distribute to our
stockholders substantially all of our taxable income. These provisions
restrict our ability to retain earningsOur borrowings and renew capital for our business
activities. Wesubstantial leverage may decide at a future time not to be treated as a REIT, which
would cause us to be taxed at the corporate level and to cease paying regular
dividends. Also, to date a portion of our dividends to stockholders consisted
of distributions by our mortgage operations subsidiary to our long-term
investment operations entity. However, our mortgage operations was not, and is
not, required under the REIT provisions to make these distributions. Since we
are trying to retain earnings for future growth, we may not cause our mortgage
operations subsidiary to make these distributions in the future. This would
materially affect the amount of dividends, if any, paid by us to our
stockholders.
2
Our Borrowings and Substantial Leverage May Cause Losseslosses
Risks of Useuse of Collateralized Mortgage Obligationscollateralized mortgage obligations
To grow our investment portfolio, we borrow a substantial portion of the
market value of substantially all of our investments in mortgage loans and our
remaining mortgage-backed securities.securities portfolio. We currently prefer to use collateralized
mortgage obligations as financing vehicles to increase our leverage, since
mortgage loans held for collateralized mortgage obligation collateral are
retained for investment rather than sold in a secondary market transaction.
Retaining mortgage loans as collateral for collateralized mortgage obligation collateralobligations
exposes our operations to greater credit losses than does the use of other
securitization techniques that are treated as sales. In creatingAlthough our liability
under a collateralized mortgage obligation is limited to the collateral used to
create the collateralized mortgage obligation, we generally are required to
make a cash equity investment to fund collateral in excess of the amount of the
securities issued. If we experience greater credit losses than expected on the
pool of loans
3
subject to the collateralized mortgage obligation, greater than we expected,
the value of our equity
investment decreaseswill decrease and we would have to adjustincrease the value of the investment inallowance for loan
losses on our financial statements.
Cost of Borrowings May Exceed Returnborrowings may exceed return on Assetsassets
The cost of borrowings under our financing facilities corresponds to a
referenced interest rate plus or minus a margin. The margin varies depending on
factors such as the nature and liquidity of the underlying collateral and the
availability of financing in the market. We will experience net interest losses
if the returns on our assets financed with borrowed funds fail to cover the
cost of our borrowings.borrowings, and we did not implement any applicable financial
hedges.
Default Risks Under Financing Facilitiesrisks under financing facilities
If we default under our collateralized borrowings,financing facilities, our lenders could force us to
liquidate the collateral. If the value of the collateral is less than the
amount borrowed, we could be required to pay the difference in cash. If we were
to declare bankruptcy, some of our reverse repurchase agreements may obtain
special treatment and our creditors would then be allowed to liquidate the
collateral without any delay. On the other hand, if a lender with whom we have
a reverse repurchase agreement declares bankruptcy, we might experience
difficulty repurchasing our collateral, or enforcing our claim for damages, and
it is possible that our claim could be repudiated and we could be treated as an
unsecured creditor. If this occurs, our claims would be subject to significant
delay and we may receive substantially less than our actual damages.damages or nothing
at all.
Risk of Lacklack of Returnreturn of Investment on Liquidationinvestment upon liquidation
We have pledged a substantial portion of our assets to secure the repayment
of collateralized mortgage obligations issued in securitizations, our financing
facilities orand our other borrowings. We will also pledge substantially all of
our current and future mortgage loans to secure borrowings pending their
securitization or sale. The cash flows we receive from our 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 our unsecured
creditors and you if our company werewas liquidated.
Interest Rate Fluctuations May Adversely Affect Our Operating Resultsrate fluctuations may adversely affect our operating results
Our operations, each as a portfolio manager, a mortgage loan acquirer and
originator andor a warehouse lender, may be adversely affected by rising and
falling interest rates. Higher interest rates may discourage potential
borrowers from refinancing mortgages, borrowing to purchase homes or seeking
second mortgages. This may decrease the amount of mortgages available to be
acquired or originated by our mortgage operations and decrease the demand for
warehouse financing 3
provided by our warehouse lending operations to originators of mortgage loans.operations. If short-term
interest rates exceed long-term interest rates, there is a higher risk of
increased loan prepayments, as borrowers may seek to refinance their fixed and
adjustable rate mortgage loans at lower long-term fixed interest rates.
Increased loan prepayments could lead to a reduction in the number of loans we service, the
fees we receive for loan servicingin
our investment portfolio and reduce our loan servicingnet interest income.
We are subject to the risk of rising mortgage interest rates between the
time we commit to purchase mortgages at a fixed price and the time we sell or
securitize those mortgages. An increase in interest rates will generally result
in a decrease in the market value of mortgages that we have committed to
purchase at a fixed price, but have not yetbeen sold or securitized.securitized or have not
been properly hedged.
Risks of Repricingrepricing of Assetsassets and Liabilitiesliabilities
Our principal source of revenue is net interest income or net interest
spread from our investment portfolio, which is the difference between the
interest we earn on our interest earning assets and the interest we pay on our
interest bearing liabilities. The rates we pay on our borrowings are
independent of the rates we earn on our assets
4
and may be subject to more frequent periodic rate adjustments. Therefore, we
could experience a decrease in net interest income or a net interest loss
because the interest rates on our borrowings could increase faster than the
interest rates on our assets. If our net interest spread becomes negative, we
will be paying more interest on our borrowings than we will be earning on our
assets and we will be exposed to a risk of loss.
Additionally, the rates paid on our borrowings and the rates received on our
assets may be based upon different indices (i.e.(e.g., LIBOR, U.S. Treasuries,
etc.). If the index used to determine the rate on our borrowings increases
faster than the index used to determine the rate on our assets, we will
experience a declining net interest spread, which will have a negative impact
on our profitability, and may result in losses.
Risks of Adjustable Rate Mortgagesadjustable rate mortgages
A significantsubstantial portion of the mortgage assets held by our long-term
investment operations are fixed for a period of time then become adjustable
rate mortgages or bear interest based upon short-term interest rate indices. We
generally fund these mortgage assets with variable borrowings. To the extent
that there is a difference betweenan increase in the interest rate index used to determine the interest rate on our
adjustable rate mortgage
assetsborrowings and that increase is not covered by our current
hedging policy, the net interest margin will decrease or become negative.
Interest rate index used to determine the borrowing rate for
our related financing, our business may be negatively impacted.
Interest Rate Capscaps
Adjustable rate mortgages typically have interest rate caps, which limit
interest rates charged to the borrower during any given period. Our borrowings
are not subject to similar restrictions. InAs a result, in a period of rapidly
increasing interest rates, the interest rates we pay on our borrowings could
increase without limitation, while the interest rates we earn on our adjustable
rate mortgage assets would be capped. If this occurs, our net earnings could be
significantly reduced or we could suffer a net interest loss.
Payment Caps
SomePrepayments of adjustable rate mortgage loans may adversely affect our
operations
Mortgage prepayments generally increase on our adjustable rate mortgages may be subject to payment caps meaning
some portion of the interest accruing on the mortgage is deferred and added to
the principal outstanding. Our borrowings do not have similar provisions. This
could cause us to receive less cash on our adjustable rate assets than the
interest due on our related borrowings. Also, the increased principal amount
outstanding as a result of interest deferral may result in a higher rate of
defaults on these loans.
4
Our Quarterly Operating Results May Fluctuate
Our results of operations, and more specifically our earnings, may
significantly fluctuate from quarter to quarter based on several factors,
including:
. changes in the amount of loans we originate;
. between our cost of funds on borrowings and the average interest rates
earned on our loans;
. inability to complete or decisions not to complete significant bulk whole
loan sales or securitizations in a particular quarter; and
. generally affecting the mortgage loan industry.
A delay in closing a particular mortgage loan sale or securitization would
also increase our exposure to interest rate fluctuations by lengthening the
period during which our variable rate borrowings under our warehouse
facilities are outstanding. If we were unable to sell a sufficient number of
mortgage loans at a premium during a particular reporting period, our revenues
for that period would decline, which could have a material adverse affect on
our operations. As a result, our stock price could also fluctuate.
Our Share Prices Have Been and May Continue to be Volatile
Historically, the market price of our common stock has been volatile. During
2000, our stock reached a high of $4.38 and a low of $1.83. On June 1, 2001,
the closing sale price was $5.75. The market price of our common stock is
likely to continue to be highly volatile and could be significantly affected
by factors including:
. availability of liquidity in the securitization market;
. loan sale pricing;
. calls by warehouse lenders or changes in warehouse lending rates;
. unanticipated fluctuations in our operating results;
. prepayments on mortgages;
. valuations of securitization related assets;
. cost of funds; and
. general market conditions.
In addition, significant price and volume fluctuations in the stock market
have particularly affected the market prices for the common stocks of mortgage
REIT companies such as ours. These broad market fluctuations have adversely
affected and may continue to adversely affect the market price of our common
stock. If our results of operations fail to meet the expectations of
securities analysts or investors in a future quarter, the market price of our
common stock could also be materially adversely affected.
Prepayments of Mortgage Loans May Adversely Affect Our Operations
Mortgage prepayments generally increase
when fixed mortgage interest rates fall below the then-current interest rates
on outstanding adjustable rate mortgage loans. Prepayments on mortgage loans
are also affected by the terms and credit grades of the loans, conditions in
the housing and financial markets and general economic conditions. Most of ourthe
adjustable rate mortgages and those backing mortgage-backed securitiesthat we acquire are originated within sixthree months of
the time we purchased the 5
mortgages and generally bear initial interest rates
whichthat are lower than their "fully-indexed"fully-indexed amount (the applicable index plus the
margin). If we acquire these mortgages at a premium and they are prepaid prior
to or soon after the time of adjustment to a fully-indexed rate without payment
of any prepay penalty, we would not have received interest at the fully-indexed
rate during such period.period and we must expense the unamortized premium that was
paid for the loan at the time of the prepayment. This means we would lose the
opportunity to earn interest at that rate over the expected life of the
mortgage. Also, if prepayments on our adjustable rate mortgage loans increase
when interest rates are declining, our net interest income may decrease if we
cannot reinvest the prepayments in mortgage assets bearing comparable rates.
We generally acquire mortgages on a "servicing released" basis, meaning we
acquire both the mortgages and the rights to service them. This strategy
requires us to pay a higher purchase price or premium for the mortgages. If ourthe
mortgage loans that we acquiredacquire at a premium prepay faster than originally
projected, generally accepted accounting principles require us to write down
the remaining capitalized premium amounts at a faster speed than was originally
projected, which would decrease our futurecurrent net interest income.
Value of Our Portfolioour portfolio of Mortgage-Backed Securities Maymortgage-backed securities may be Adversely Affected
We investadversely affected
Prior to 1998, we invested in mortgage-backed securities known as
"interest-only,"
"principal-only,"interest-only, principal-only, residual interest andor other subordinated
securities. These
securities are generally created through our own securitizations. Investments in residual interest and subordinated securities are
much riskier than investments in senior mortgage-backed securities because
these subordinated securities bear all credit
5
losses prior to the related senior securities. On a
percentage basis, theThe risk associated with holding
residual interest and subordinated securities is greater than holding the
underlying mortgage loans directly due to the concentration of losses
inattributed to the subordinated securities.
We estimate future cash flows from these securities and value them utilizing
assumptions based in part on projected discount rates, mortgage loan
prepayments and credit losses. If our actual experience differs from our
assumptions, we would be required to reduce the value of these securities. The
market for our asset-backed securities is extremely limited and we cannot
assure you that we could sell these securities at their reported value, or at
any value or that we could recoup our initial investment.
We also bear the risk of loss on any mortgage-backed securities we purchase
in the secondary mortgage market. If third parties have been contracted to
insure against these types of losses, we 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. The
insurance coverage for various types of losses is limited, and we bear the
risk of any losses in excess of the limitation or outside of the insurance
coverage.
In addition, we may not obtain our anticipated yield or we may incur losses
if the credit support available within certain mortgage-backed securities is
inadequate due to unanticipated levels of losses, or due to difficulties
experienced by the credit support provider. Delays or difficulties encountered
in servicing the mortgages in 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 certain classes of our
securities.mortgage-backed securities, which might then equate to a reduction of the value
of the security.
We Undertake Additional Risksundertake additional risks by Acquiringacquiring and Investinginvesting in Mortgage Loansmortgage loans
Risk of Failurefailure to Obtain Credit Enhancementsobtain credit enhancements
We do not obtain credit enhancements such as mortgage pool or special hazard
insurance for all of our mortgage loans and investments. Borrowers may obtain
privateGenerally, we require
mortgage insurance but we only require this insurance in limited
circumstances.on any loan with a loan-to-value ratio greater than 80%.
During the time we hold mortgage loans for investment, we are subject to
6
risks
of borrower defaults and bankruptcies and special hazard losses that are not
covered by standard hazard insurance. If a borrower defaults on a mortgage loan
that we hold, we bear the risk of loss of principal to the extent there is any
deficiency between the value of the related mortgaged property and the amount
owing on the mortgage loan.loan and any insurance proceeds available to us through
the mortgage insurer. In addition, since defaulted mortgage loans, which under
our financing arrangements are notmortgage loans that are generally 60 to 90 days
delinquent in payments, may be considered eligibleineligible collateral under our
borrowing arrangements, we could bear the risk of being required to own these
loans without the use of borrowed funds until they are ultimately liquidated.liquidated or
possibly sold at a loss.
Greater Risksrisks from Non-Conforming Mortgage Loans
Non-conformingnon-conforming Alt-A mortgage loans
We are an acquirer and originator of non-conforming Alt-A residential
mortgage loansloans. These are residential mortgages that do not qualify for
purchase by government sponsored agencies such as the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation. Our operations may
be negatively affected due to our investments in non-
conforming loans or securities evidencing interests in suchnon-conforming Alt-A mortgage
loans. Credit risks associated with non-conforming Alt-A mortgage loans are
greater than conforming mortgage loans. The interest rates we charge on
non-conforming Alt-A loans are often higher than those charged for conforming
loans. The purchase
market of non-conforming loans has typically provided for higher interest
rates in order to compensate for the higher risk and lower liquidity. Due to the lower level
of liquidity in the non-conforming loan market, we may realize higher returns
upon securitization of loans than would be realized upon securitization of
conforming loans. However, lowerLower
levels of liquidity may cause us to hold loans or other mortgage-related assets
supported by these loans.loans that we otherwise would not hold. By doing this, we
assume the potential risk of increased delinquency rates and/or credit losses
as well as interest rate risk. Additionally, the combination of different
underwriting criteria and higher rates of interest leads to greater risk,
including higher prepayment rates and higher delinquency rates and/or credit
losses.
Risks related to lending to non-conforming Alt-A borrowers
As a lender of non-conforming Alt-A mortgage loans, our market includes
borrowers who may be unable to obtain mortgage financing from conventional
mortgage sources. Loans made to such non-conforming Alt-A borrowers generally
entail a higher risk of delinquency and higher losses than loans made to
borrowers who utilize conventional mortgage sources. Delinquency, foreclosures
and losses generally increase during economic
6
slowdowns or recessions. The actual risk of delinquencies, foreclosures and
losses on loans made to non-conforming Alt-A borrowers could be higher under
adverse economic conditions than those currently experienced in the mortgage
lending industry in general. Further, any material decline in real estate
values increases the loan-to-value ratios of loans previously made by us,
thereby weakening collateral coverage and increasing the possibility of a loss
in the event of a borrower default. Any sustained period of increased
delinquencies, foreclosures or losses after the loans are sold could adversely
affect the pricing of our future loan sales and our ability to sell or
securitize our loans in the future. In the past, certain of these factors have
caused revenues and net income of many participants in the mortgage industry,
including us, to fluctuate from quarter to quarter.
Second Mortgages Entail Greater Risksmortgages entail greater risks
Our security interest in the property securing second mortgages is
subordinated to the interest of the first mortgage holder.holder and the second
mortgages have a higher cumulative loan-to-value ratio. If the value of the
property is equal to or less than the amount needed to repay the borrower's
obligation to the first mortgage holder upon foreclosure, all or a portion of
our second mortgage
loan will not be repaid.
Geographic Concentrationconcentration of Mortgage Loans Has Higher Risksmortgage loans has higher risks
We do not set limitations on the percentage of our mortgage asset portfolio
composed of properties located in any one area (whether by state, zip code or
other geographic measure). Concentration in any one area increases our exposure
to the economic and natural hazard risks associated with that area. We estimate
that a high concentration of the loans included in securitizations in which we
hold subordinatedresidual interests are secured by properties in California.California and Florida.
Certain parts of California and Florida have experienced an economic downturn
in past years and have suffered in the past the effects of certain natural
hazards.
Potential Losses Relatedlosses related to Recourse Obligationsrecourse obligations
Mortgage-backed securities issued in connection with our securitizations
have been non-recourse to us, except in the case of a breach of standard
representations and warranties made by us when the loans are securitized. While
we have recourse against our customers, the correspondent sellers and mortgage
brokers of mortgage loans, we cannot assure you that they will honor their
obligations. We also engagedengage in bulk whole loan sales pursuant to agreements
that provide for recourse by the purchaser against us. In some cases, the
remedies available to a purchaser of mortgage loans from us are broader than
those available to us against those who sell us these loans. If a purchaser
exercises its rights against us, we may not always be able to enforce whatever
remedies we may have against our sellers.customers.
Risks related to representations and warranties in loan sales and
securitizations
In connection with our securitizations, we transfer loans acquired or
originated by us into a trust in exchange for cash and, in the case of a CMO,
residual certificates issued by the trust. The trustee will have recourse to us
with respect to the breach of the standard representations and warranties made
by us at the time such loans are transferred. While we generally have recourse
to our customers for any such breaches, there can be no assurance of our
customers' abilities to honor their respective obligations. Also, we engage in
bulk whole loan sales pursuant to agreements that generally provide for
recourse by the purchaser against us in the event of a breach of one of our
representations or warranties, any fraud or misrepresentation during the
mortgage loan origination process, or upon early default on such mortgage loan.
We generally limit the potential remedies of such purchasers to the potential
remedies we receive from the people from whom we acquired or originated the
mortgage loans. However, in some cases, the remedies available to a purchaser
of mortgage loans from us may be broader than those available to us against the
sellers of the loans and should a purchaser enforce its remedies against us, we
may not always be able to enforce whatever remedies we have against our
customers.
In the ordinary course of our business, we are subject to claims made
against us by borrowers and trustees in our securitizations arising from, among
other things, losses that are claimed to have been incurred as a result of
7
alleged breaches of fiduciary obligations, misrepresentations, errors and
omissions of our employees, officers and agents (including our appraisers),
incomplete documentation and our failure to comply with various laws and
regulations applicable to our business. Any claims asserted against us may
result in legal expenses or liabilities that could have a material adverse
effect on our results of operations or financial condition.
We Undertake Additional Risksface risks related to our use of IDASL
We utilize the Internet in Providing Warehouse Financingour business principally for the implementation
of our automated loan origination program, IDASL. IDASL may be interrupted if
the Internet experiences periods of poor performance, if our computer systems
or the systems of our third-party service providers contain defects, or if
customers are reluctant to use or have inadequate connectivity to the Internet.
Increased government regulation of the Internet could also adversely affect our
use of the Internet in unanticipated ways and discourage our customers from
using our services. If our ability to use the Internet in providing our
services is impaired, our ability to originate or acquire loans on an automated
basis could be delayed or reduced. Any substantial delay and reduction in our
mortgage loan acquisitions and originations will reduce our net earnings for
the applicable period.
We are subject to risks of operational failure that are beyond our control
Substantially all of our operations are located in Newport Beach,
California. Our systems and operations are vulnerable to damage and
interruption from fire, flood, telecommunications failure, break-ins,
earthquake and similar events. Our operations may also be interrupted by power
disruptions, including rolling black-outs implemented in California due to the
state's continuing acute power shortage. We do not maintain alternative power
sources. Furthermore, our security mechanisms may be inadequate to prevent
security breaches to our computer systems, including from computer viruses,
electronic break-ins and similar disruptions. Such security breaches or
operational failures could expose us to liability, impair our operations,
result in losses, and harm our reputation.
We rely on third-party software for the implementation of IDASL
We have a licensing agreement with a third-party vendor for the use of
hardware and software for IDASL. Substantially all of our correspondents are
submitting loans through IDASL and 100% of all of our wholesale loans delivered
by brokers are directly underwritten through the use of IDASL. The termination
or impairment of this license could result in delays and reductions in the
acquisition and origination of mortgage loans until equivalent hardware and
software could be licensed and integrated, if at all possible, which may harm
our business. In addition, we would be harmed if the provider from whom we
license software ceases to deliver and support reliable products, enhance their
current products or respond to emerging industry standards. If the hardware or
software provided by our vendor fails for any reason, and the back-up hardware
and software is not implemented in a timely manner, it may also delay and
reduce those mortgage loan acquisitions and originations done through IDASL.
The third-party hardware and software also may not continue to be available to
us on commercially reasonable terms or at all. Any substantial delay and
reduction in our mortgage loan acquisitions and originations will reduce our
net earnings for the applicable period.
Intense competition for mortgage loans may adversely affect our operations
We compete in acquiring and originating non-conforming Alt-A mortgage loans
and issuing mortgage-backed securities with:
. other mortgage conduit programs;
. investment banking firms;
. savings and loan associations;
. banks;
. thrift and loan associations;
8
. finance companies;
. mortgage bankers;
. insurance companies;
. other lenders; and
. other entities purchasing mortgage assets.
Some of our competitors are larger and have greater resources than we do.
Consolidation in the mortgage banking industry may adversely affect us by
reducing the number of current customers of our mortgage operations and our
potential customer base. As a result, we may have to purchase a larger
percentage of mortgage loans from a smaller number of customers, which may
reduce our profit margins, or increase the cost to acquire these types of loans.
We undertake additional risks in providing warehouse financing
As a warehouse lender, we lend money to mortgage bankers on a secured basis
and we are subject to the risks associated with lending to mortgage banks,
including the risks of fraud, borrower default and bankruptcy, any of which
could result in credit losses for us. Our claims as a secured lender in a
bankruptcy proceeding may be subject to adjustment and delay.
ValueWe may not pay dividends to stockholders
REIT provisions of the Internal Revenue Code generally require us to
distribute to our stockholders at least 90% of all of our Mortgage Servicing Rights is Subjecttaxable income. These
provisions restrict our ability to Adjustment
When we purchase loans that includeretain earnings and thereby renew capital
for our business activities. We may decide at a future time not to be treated
as a REIT, which would cause us to be taxed at the associated servicing rights, the
allocated cost of the servicing rights is reflected on our financial
statements as mortgage servicing rights. To determine the fair value of these
servicing rights, we use assumptionscorporate level and to estimate future net servicing income
including projected discount rates, mortgage loan prepayments and credit
losses. If actual prepayments or defaults with respectcease
paying regular dividends. Also, to loans serviced occur
more quickly than we originally assumed, we would have to reduce the carrying
valuedate, a portion of our mortgage servicing rights. We do not know if our assumptions will
prove correct.
Our Operating Results Will be Affectedtaxable income
consists of distributions by the Results of Our Hedging
Activities
To offset the risks associated with our mortgage operations we enter into
transactions designedsubsidiary to hedge our interest rate risks. To offset the risks
associated with our
long-term investment operations we attempt to match the
interest rate sensitivities of our adjustable rate mortgage assets held for
investment with the associated financing liabilities. Our management
determines the nature and quantity of the hedging transactions based on
various factors, including market conditions and the expected volume of
mortgage loan purchases. We do not limit management's use of certain
instruments in such hedging transactions. While the Company believes that it
is properly hedging its interest rate risk, the accounting for such hedging
activities do not generally qualify for hedge accounting under accounting
principles generally accepted in the United States of America and FAS 133. The
effect of the Company's hedging strategy may result in some volatility in its
quarterly earnings as interest rates go up or down. The volatility in earning
is a result of the Company marking to market its hedges but not being allowed
to mark to market the underlying loans related to the hedges in place. While
the Company believes it is properly hedging its interest rate risk, we cannot
assure you that our hedging transactions will offset our risks of losses.
Reduction in Demand for Residential Mortgage Loans and Our Non-Conforming Loan
Products May Adversely Affect Our Operations
The availability of sufficient mortgage loans meeting our criteria is
dependent in part upon the size and level of activity in the residential real
estate lending market and, in particular, the demand for non-conforming
mortgage loans, which is affected by:
. interest rates;
. national economic conditions;
. residential property values; and
. regulatory and tax developments.
If our mortgage loan purchases decrease, we will have:
. decreased economies of scale;
. higher origination costs per loan;
8
. reduced fee income;
. smaller gains on the sale of non-conforming mortgage loans; and
. an insufficient volume of loans to effect securitizations which requires
us to accumulate loans over a longer period.
Our Delinquency Ratios and Our Performance May be Adversely Affected by the
Performance of Parties Who Sub-Service our Loans
We contract with third-party sub-servicers for the sub-servicing of all our
loans, including those in our securitizations, and our operations are subject
to risks associated with inadequate or untimely servicing. Poor performance by
a sub-servicer may result in greater than expected delinquencies and losses on
our loans. A substantial increase in our delinquency or foreclosure rate could
adversely affect our ability to access the capital and secondary markets for
our financing needs. Also, with respect to loans subject to a securitization,
greater delinquencies would adversely impact the value of any interest-only,
principal-only and subordinated securities we hold in connection with that
securitization.
In a securitization, relevant agreements permit us to be terminated as
servicer under specific conditions described in these agreements, such as the
failure of a sub-servicer to perform certain functions within specific time
periods. If, as a result of a sub-servicer's failure to perform adequately, we
were terminated as servicer of a securitization, the value of any servicing
rights held by us would be adversely affected.
Intense Competition for Mortgage Loans May Adversely Affect Our Operations
We compete in purchasing non-conforming mortgage loans and issuing mortgage-
backed securities with:
. other 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.
Consolidation in the mortgage banking industry may adversely affect us by
reducing the number of current sellers toentity. However, our mortgage operations were
not, and our
potential customer base. As a result,are not, required under the REIT provisions to make these
distributions. Since we are trying to retain earnings for future growth, we may
havenot cause our mortgage operations subsidiary to purchase a larger
percentagemake these distributions in the
future. This would materially affect the amount of mortgage loans from a smaller numbertaxable income generated by
us and the amount of customers, which could
causedividends required to be paid by us to our stockholders.
Due to losses incurred in 2000, we did not declare any dividends from
September 2000 until September 25, 2001. To the extent we do not generate any
taxable income, we would not be required to declare and pay dividends to
maintain REIT status.
Potential alternative minimum tax liability
To the extent we have a net operating loss carryover for federal income tax
purposes, we can offset our regular taxable income for the 2001 taxable year
with the net operating loss carryover and thereby eliminate our liability for
regular corporate income tax on the amount of income so offset. In computing
alternative minimum tax, however, we will be allowed to pay higher premiumsuse only 90% of the net
operating loss deduction allowable for loans.purposes of computing the regular income
tax. Thus, to the extent we shelter our income with the net operating loss
carryover deduction, we will be subject to alternative minimum tax at a rate of
20% on 10% of the income offset by the net operating loss for regular tax
purposes. In other words, the effective federal income tax rate on the amount
offset by the net operating loss deduction is 2%.
9
If We Failwe fail to Maintain Ourmaintain our REIT Status We Maystatus, we may be Subjectsubject to Taxationtaxation as a
Regular Corporation
Consequences if We Fail to Qualify as a REITregular corporation
We believe that we have operated and intend to continue to operate in a
manner that enables us to meet the requirements for qualification as a REIT for
Federalfederal income tax purposes. We have not requested, and do not plan to request,
a ruling from the Internal Revenue Service that we qualify as a REIT.
Moreover, 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. Our continued qualification as a REIT will
depend on our satisfaction of certain asset, income, organizational and
stockholder ownership requirements on a continuing basis.
If we fail to qualify as a REIT, we would not be allowed a deduction for
distributions to stockholders in computing our taxable income and would be
subject to Federalfederal income tax at regular corporate rates. We also couldmay be
subject to the Federalfederal alternative minimum tax. Unless we are entitled to
relief under specific statutory provisions, we could not elect to be taxed as a
REIT for four taxable years following the year during which we were
disqualified. Therefore, if we lose our REIT status, the funds available for
distribution to you would be reduced substantially for each of the years
involved. Failure to qualify as a REIT could adversely affect the value of our
common stock.
Effect of Distribution Requirementsdistribution requirements
As a REIT, we are subject to annual distribution requirements, which limit
the amount of cash we have available for other business purposes, including
amounts to fund our growth.
Other Tax Liabilitiestax liabilities
Even if we qualify as a REIT, we may be subject to certain Federal,federal, state,
and local taxes on our income, property and operations that could reduce
operating cash flow.
Our quarterly operating results may fluctuate
Our results of operations, and more specifically our earnings, may
significantly fluctuate from quarter to quarter based on several factors,
including:
. changes in the amount of mortgage loans we acquire or originate;
. differences between our cost of funds on borrowings and the average
interest rates earned on our mortgage loans;
. our inability to complete, or decisions not to complete, significant bulk
whole loan sales or securitizations in a particular quarter; and
. problems generally affecting the mortgage loan industry.
A delay in closing a particular mortgage loan sale or securitization would
also increase our exposure to interest rate fluctuations by lengthening the
period during which our variable rate borrowings under our warehouse facilities
are outstanding. If we were unable to sell a sufficient number of mortgage
loans at a premium during a particular reporting period, our revenues for that
period would decline, which could have a material adverse affect on our
operations. As a result, our stock price could also fluctuate.
Our share prices have been and may continue to be volatile
Historically, the market price of our common stock has been volatile. During
2000, our stock reached a high of $4.38 per share and a low of $1.83 per share.
For the first nine months of 2001, our common stock reached a
10
high of $8.15 per share and a low of $2.85 per share. The market price of our
common stock is likely to continue to be highly volatile and could be
significantly affected by factors including:
. the amount of dividends paid;
. availability of liquidity in the securitization market;
. loan sale pricing;
. calls by warehouse lenders or changes in warehouse lending rates;
. unanticipated fluctuations in our operating results;
. prepayments on mortgages;
. valuations of securitization related assets;
. cost of funds; and
. general market conditions.
In addition, significant price and volume fluctuations in the stock market
have particularly affected the market prices for the common stock of mortgage
REIT companies such as ours. These broad market fluctuations have adversely
affected and may continue to adversely affect the market price of our common
stock. If our results of operations fail to meet the expectations of securities
analysts or investors in a future quarter, the market price of our common stock
could also be materially adversely affected.
Value of our mortgage servicing rights is subject to adjustment
When we purchase loans that include the associated servicing rights, the
allocated cost of the servicing rights is reflected on our financial statements
as mortgage servicing rights. To determine the fair value of these servicing
rights, we use assumptions to estimate future net servicing income including
projected discount rates, mortgage loan prepayments and credit losses. If
actual prepayments or defaults with respect to loans serviced occur more
quickly than we originally assumed, we would have to reduce the carrying value
of our mortgage servicing rights. We do not know if our assumptions will prove
correct.
Our operating results will be affected by the results of our hedging activities
To offset the risks associated with our mortgage operations, we enter into
transactions designed to hedge our interest rate risks. To offset the risks
associated with our long-term investment operations, we attempt to match the
interest rate sensitivities of our adjustable rate mortgage assets held for
investment with the associated financing liabilities. Our management determines
the nature and quantity of the hedging transactions based on various factors,
including market conditions and the expected volume of mortgage loan purchases.
We do not limit management's use of certain instruments in such hedging
transactions. While the Company believes that it is properly hedging its
interest rate risk, the accounting for such hedging activities may not, and in
some cases do not, qualify for hedge accounting under accounting principles
generally accepted in the United States of America and FAS 133. The effect of
the Company's hedging strategy may result in some volatility in its quarterly
earnings as interest rates go up or down. While the Company believes it is
properly hedging its interest rate risk, we cannot assure you that our hedging
transactions will offset the risk of adverse changes in net interest margins.
11
Reduction in demand for residential mortgage loans and our non-conforming loan
products may adversely affect our operations
The availability of sufficient mortgage loans meeting our criteria is
dependent in part upon the size and level of activity in the residential real
estate lending market and, in particular, the demand for non-conforming
mortgage loans, which is affected by:
. interest rates;
. national economic conditions;
. residential property values; and
. regulatory and tax developments.
If our mortgage loan purchases decrease, we will have:
. decreased economies of scale;
. higher origination costs per loan;
. reduced fee income;
. smaller gains on the sale of non-conforming mortgage loans; and
. an insufficient volume of loans to generate securitizations which thereby
causes us to accumulate loans over a longer period.
Our delinquency ratios and our performance may be adversely affected by the
performance of parties who sub-service our loans
We contract with third-party sub-servicers for the sub-servicing of all the
loans in which we retain servicing rights, including those in our
securitizations. Our operations are subject to risks associated with inadequate
or untimely servicing. Poor performance by a sub-servicer may result in greater
than expected delinquencies and losses on our loans. A substantial increase in
our delinquency or foreclosure rate could adversely affect our ability to
access the capital and secondary markets for our financing needs. Also, with
respect to loans subject to a securitization, greater delinquencies would
adversely impact the value of any interest-only, principal-only and
subordinated securities we hold in connection with that securitization.
In a securitization, relevant agreements permit us to be terminated as
servicer or master servicer under specific conditions described in these
agreements, such as the failure of a sub-servicer to perform certain functions
within specific time periods. If, as a result of a sub-servicer's failure to
perform adequately, we were terminated as servicer of a securitization, the
value of any servicing rights held by us would be adversely affected.
Recent Developmentsdevelopments
The Tax Relief Extension Act of 1999 was enacted and it contains several tax
provisions regarding REITs. It includes a provision, which reduces the annual
distribution requirement for REIT taxable income from 95% to 90%. It also
changes the 10% voting securities test under current law to a 10% vote or value
test. Thus, subject to certain exceptions, a REIT will no longer be allowed to
own more than 10% of the vote or value of the outstanding securities of any
issuer, other than a qualified REIT subsidiary or another REIT. One exception
to this new test, which is also an exception to the 5% asset test under current
law, allows a REIT to own any or all of the securities of a taxable REIT
subsidiary. A taxable REIT subsidiary can perform non-customary services as
well as engage in non-real estate activities. A taxable REIT subsidiary will be
taxed as a regular C corporation but will be subject to earnings stripping
limitations on the deductibility of interest paid to its REIT. In addition, the
REIT will be subject to a 100% excise tax to the extent any transaction between
the taxable REIT subsidiary and the REIT is not conducted on an arm's length
basis. Securities of a taxable REIT subsidiary will constitute
12
non-real-estate assets for purposes of determining whether at least 75% of a
REIT's assets consist of real estate assets. In addition, no more thatthan 20% of a
REIT's total assets can consist of securities of taxable REIT subsidiaries.
These new tax provisions became effective January 1, 2001. In addition,
grandfather protection is provided with respect to the 10% value test for
securities of a corporation held by a REIT on July 12, 1999, but such
protection ceases to apply after the corporation engages in a substantial new
line of business or acquires 10
any substantial asset and also ceases to apply
after the acquisition of additional securities of the corporation by the REIT
after July 12, 1999.
Because we currently own more than 10% of the value of IFC, we have made an
election to have IFC become a taxable REIT subsidiary as of January 1, 2001.
Potential Characterizationcharacterization of Distributionsdistributions or Gaingain on Salesale as Unrelated
Business Taxable Incomeunrelated
business taxable income to Tax-Exempt Investorstax-exempt investors
If (1) all or a portion of our assets are subject to the rules relating to
taxable mortgage pools, (2) we are a "pension-held REIT," (3) a tax-exempt
stockholder has incurred debt to purchase or hold our common stock, or (4) the
residual REMIC interests we buy generate "excess inclusion income," then a
portion of the distributions to and, in the case of a stockholder described in
(3), gains realized on the sale of common stock by, such tax-exempt stockholder
may be subject to Federal income tax as unrelated business taxable income under
the Internal Revenue Code.
Classification as a Taxable Mortgage Pool Could Subject Ustaxable mortgage pool could subject us to Increased
Taxationincreased taxation
If we have borrowings with two or more maturities and, (1) those borrowings
are secured by mortgage loans or mortgage-backed securities and, (2) the
payments made on the borrowings are related to the payments received on the
underlying assets, then the borrowings and the pool of mortgage loans or
mortgage backed securities to which such borrowings relate may be classified as
a taxable mortgage pool under the Internal Revenue Code. If any part of our
company were to be treated as a taxable mortgage pool, then our REIT status
would not be impaired, but a portion of the taxable income we recognize may,
under regulations to be issued by the Treasury Department, be characterized as
"excess inclusion" income and allocated among our stockholders to the extent of
and generally in proportion to the distributions we make to each stockholder.
Any excess inclusion income would:
. not be allowed to be offset by a stockholder's net operating losses;
. be subject to a tax as unrelated business income if a stockholder were a
tax-exempt stockholder;
. be subject to the application of federal income tax withholding at the
maximum rate (without reduction for any otherwise applicable income tax
treaty) with respect to amounts allocable to foreign stockholders; and
. be taxable (at the highest corporate tax rate) to us, rather than to our
stockholders, to the extent the excess inclusion income relates to stock
held by disqualified organizations (generally, tax-exempt companies not
subject to tax on unrelated business income, including governmental
organizations).
Based on advice of our tax counsel, we take the position that our existing
financing arrangements do not create a taxable mortgage pool.
However, the IRSOur operations may successfully maintain that our financing arrangements do qualify as a
taxable mortgage pool. In addition,be adversely affected if we may enter into arrangements creating
excess inclusion income in the future.
Our Operations May be Adversely Affected if We are Subjectsubject to the Investment
Company Act
We intend to conduct our business at all times so as not to become regulated
as an investment company under 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.
11
In order to qualify for this exemption we must maintain at least 55% of our
assets directly in mortgage loans, qualifying pass-through certificates and
certain other qualifying interests in real estate. Our ownership of
13
certain mortgage assets may be limited by the provisions of the Investment
Company Act. If the Securities and Exchange Commission adopts a contrary
interpretation with respect to these securities or otherwise believes we do not
satisfy the above exception, we could be required to restructure our activities
or sell certain of our assets. To insure that we continue to qualify for the
exemption we may be required at times to adopt less efficient methods of
financing certain of our mortgage assets and we may be precluded from acquiring
certain types of higher-yielding mortgage assets. The net effect of these
factors will be to lower at times our net interest income. If we fail to
qualify for exemption from registration as an investment company, our ability
to use leverage would be substantially reduced, and we would not be able to
conduct our business as described. Our business will be materially and
adversely affected if we fail to qualify for this exemption.
Future Revisionsrevisions in Policiespolicies and Strategiesstrategies made at the Discretiondiscretion of Our Boardour board
of Directors Maydirectors may be Affected Without Stockholder Consentaffected without stockholder consent
Our board of directors, including a majority of our unaffiliated directors,
has established our investment and operating policies and strategies. We may:
. invest in the securities of other REITs for the purpose of exercising
control;
. issue securities in exchange for property; and
. repurchase or otherwise reacquire our shares or other securities in the
future.
In October 1998, we adopted a repurchase plan to repurchase up to $5.0
million of our common stock in the open market. In 1999, the board of directors
approved common stock repurchases up to an additional $5.0 million, or a total
of $10.0 million. During 1999, we repurchased 2.0 million shares of our common
stock for $9.9 million. During 2000, we adopted a repurchase plan to repurchase
up to $3.0 million of our common stock in the open market. As of December 31,
2000, we had repurchased 991,000 shares for $2.3 million. We may also
underwrite the securities of other issuers, although we have no present
intention to do so. Any of the policies, strategies and activities may be
modified or waived by our board of directors, subject in certain cases to
approval by a majority of our unaffiliated directors, without stockholder
consent.
Effect of Future Offerings May Adversely Affect Market Pricefuture offerings may adversely affect market price of Our Securitiesour securities
We may elect to increase our capital resources by making additional private
or public offerings of securities in the future. We do not know:
. the actual or perceived effect of these offerings;
. the timing of these offerings;
. the dilution of the book value or earnings per share of our securities
then outstanding; and
. the effect on the market price of our securities then outstanding.
Risk Relatingrelating to Common Stockcommon stock
The sale or the proposed sale of substantial amounts of our common stock in
the public market could materially adversely affect the market price of our
common stock or other outstanding securities.
12
Maryland Business Combination Statute
The Maryland General Corporation Law establishes special requirements for
"business combinations" between a Maryland corporation and "interested
stockholders" unless exemptions are applicable. An interested stockholder is
any person who beneficially owns 10% or morePossible adverse consequences of the voting powerlimits on ownership of our then-
outstanding voting stock. Among other things, the law prohibits for a period
of five years a merger and other similar transactions between our company and
an interested stockholder unless the board of directors approved the
transaction prior to the party becoming an interested stockholder. The five-
year period runs from the most recent date on which the interested stockholder
became an interested stockholder. The law also requires a supermajority
stockholder vote for such transactions after the end of the five-year period.
This means that the transaction must be approved by at least:
. 80% of the votes entitled to be cast by holders of outstanding voting
shares
. 66% of the votes entitled to be cast by holders of outstanding voting
shares other than shares held by the interested stockholder with whom the
business combination is to be effected.
The business combination statute could have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
Maryland Control Share Acquisition Statute
Maryland law 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 stockholder vote. Two-thirds of the shares eligible to
vote must vote in favor of granting the "control shares" voting rights.
"Control shares" are shares of stock that, taken together with all other
shares of stock the acquirer previously acquired, would entitle the acquirer
to exercise at least 10% of the voting power in electing directors. Control
shares do not include shares of stock the acquiring person is 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.
If a person who has made (or proposes to make) a control share acquisition
satisfies certain conditions (including agreeing to pay expenses), he may
compel our board of directors to call a special meeting of stockholders to be
held within 50 days to consider the voting rights of the shares. If such a
person makes no request for a meeting, we have the option to present the
question at any stockholders' meeting.
If voting rights are not approved at a meeting of stockholders then we may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value. We will determine the fair
value of the shares, without regard to voting rights, as of the date of
either:
. the last control share acquisition, or
. the meeting where stockholders considered and did not approve voting
rights of the control shares.
If voting rights for control shares are approved at a stockholders' meeting
and the acquirer becomes entitled to vote a majority of the shares of stock
entitled to vote, all other stockholders may exercise appraisal rights. This
means that you would be able to force us to redeem your stock for fair value.
Under Maryland law, the fair value may not be less than the highest price per
share paid in the control share acquisition. Furthermore, certain limitations
otherwise applicable to the exercise of dissenters' rights would not apply in
the context of a control share acquisition. The control share acquisition
statute would not apply to shares acquired in a merger,
13
consolidation or share exchange if we were a party to the transaction. The
control share acquisition statute could have the effect of discouraging offers
to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
Possible Adverse Consequences of Limits on Ownership of Shares
Our charter limits ownership of our capital stock by any single stockholder
to 9.5% of our outstanding shares.shares unless waived by the board of directors. Our
board of directors may increase the 9.5% ownership limit. In addition, to the
extent consistent with the REIT provisions of the Internal Revenue Code, our
board of directors may, pursuant to our articles of incorporation, waive the
9.5% ownership limit for a stockholder or purchaser of our stock. In order to
waive the 9.5% ownership limit our board of directors must require the
stockholder
14
requesting the waiver to provide certain representations to the Company to
ensure compliance with the REIT provisions of the Internal Revenue Code. Our
charter also prohibits anyone from buying shares if the purchase would result
in us losing our REIT status. This could happen if a share transaction results
in fewer than 100 persons owning all of our shares or in five or fewer persons,
applying certain broad attribution rules of the Internal Revenue Code, owning
more than 50% (by value) of our shares. If you or anyone else acquires shares
in excess of the ownership limit or in violation of the ownership requirements
of the Internal Revenue Code for REITs, we:
. will consider the transfer to be null and void;
. will not reflect the transaction on our books;
. may institute legal action to enjoin the transaction;
. will not pay dividends or other distributions with respect to those shares;
. will not recognize any voting rights for those shares;
. we may redeem the shares; and
. will consider the shares held in trust for the benefit of our Company;
and
. will either direct the affected person toa charitable
beneficiary as designated by us.
The trustee shall sell the shares held in trust and turn over
any profit to us, or
. we will redeem the shares. If we redeemowner of the excess
shares it will be at a price
equalentitled to the lesser of:
(a) the price paid by the transfereeowner;
(b) if the owner did not purchase for the excess shares, the closing
price for the shares on the national securities exchange on which the
company is listed; or
(c) the price received by the trustee from the sale of the shares, or
(b) the average of the last reported sales prices on the American Stock
Exchange on the ten trading days immediately preceding the date fixed
for redemption by our board of directors.shares.
An individual who acquires shares that violate the above rules bears the
risk that (1) he may lose control over the power to dispose of his shares, (2)
he may not recognize profit from the sale of his shares if the market price of
the shares increases, and (3) he may be required to recognize a loss from the sale
of his shares if the market price decreases.decreases, (4) he may not receive dividends
declared and (5) he may not be able to vote the shares.
Limitations on Acquisitionacquisition and Changechange in Control Ownership Limitcontrol ownership limit
The 9.5% ownership limit discussed above may have the effect of precluding
acquisition of control of our company by a third party without consent of our
board of directors.
1415
USE OF PROCEEDS
Unless otherwise specified in a prospectus supplement, we intend to use the
proceeds of any securities sold for general corporate purposes.
We will not receive any of the proceeds from the sale of common shares
pursuantstock that
may be sold by selling stockholders.
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table displays our ratio of earnings to this prospectus.
SELLING SECURITY HOLDER AND PLANfixed charges and
ratio of earnings to combined fixed charges and preferred stock dividends (1):
For the Nine
Months Ended For the Year Ended December 31,
September 30, --------------------------------
2001 2000 1999 1998 1997 1996
------------- ---- ----- ---- ---- -----
Ratio of earnings to fixed charges............. 1.21x -- (2) 1.25x -- (3) -- (4) 1.27x
===== === ===== === === =====
Ratio of earnings to combined fixed charges and
preferred stock dividends.................... 1.19x -- (2) 1.20x -- (3) -- (4) 1.27x
===== === ===== === === =====
- --------
(1) Earnings used in computing the ratio of earnings to fixed charges consist
of net earnings before income taxes plus fixed charges. Fixed charges
include interest expense on debt and the portion of rental expense deemed
to represent the interest factor.
(2) Earnings were insufficient to cover fixed charges. The amount of the
coverage deficiency for the year ended December 31, 2000 was $54.2 million,
which represented the Company's net loss. The net loss included
non-recurring, non-cash accounting charges of $68.9 million. Excluding the
accounting charges, the ratio of earnings to fixed charges was 1.12x and
the ratio of earnings to combined fixed charges and preferred stock
dividends was 1.09x.
(3) Earnings were insufficient to cover fixed charges. The amount of the
coverage deficiency for the year ended December 31, 1998 was $5.9 million,
which represented the Company's net loss. There were no preferred stock
dividends due or paid during the year ended December 31, 1998.
(4) Earnings were insufficient to cover fixed charges. The amount of the
coverage deficiency for the year ended December 31, 1997 was $16.0 million,
which represented the Company's net loss. The net loss included an
accounting charge of $44.4 million. Excluding the accounting charge, the
ratio of earnings to fixed charges was 1.34x. There were no preferred stock
dividends due or paid during the year ended December 31, 1997.
DESCRIPTION OF DISTRIBUTION
AllSECURITIES
This prospectus contains a summary of the common stock, registered for sale under this prospectus is owned
by the selling shareholder. All of the shares offered in this prospectus were
acquired from LBP, Inc. (OTC Bulletin Board: LBPI.OB). Priorpreferred stock,
debt securities and warrants to this offering
the only shares of our capital stock held by the selling stockholder were the
shares ofpurchase our common stock being offered by this prospectus and it is
anticipated that the selling shareholder willor preferred stock.
These summaries are not hold any shares of our
capital stock after completion of this offering. The selling stockholder may
sell the common stock:
. directly to purchasers;
. to or through underwriters;
. through dealers, agents or institutional investors; or
. through a combination of such methods.
Regardless of the method used to sell the common stock, we will provide a
prospectus supplement that will disclose:
. the identity of any underwriters, dealers, agents or investors who
purchase the common stock;
. the material terms of the distribution, including the number of shares
sold and the consideration paid;
. the amount of any compensation, discounts or commissionsmeant to be received
by the underwriters, dealers or agents;
. the terms of any indemnification provisions, including indemnification
from liabilities under the federal securities laws; and
. the nature of any transaction by an underwriter, dealer or agent during
the offering that is intended to stabilize or maintain the market price
of our common stock.
15
DESCRIPTION OF CAPITAL STOCK
The following is a briefcomplete description of the material terms of the securities
to be registered. This description is not completeeach security and
is subject and qualified by reference to Maryland law and our charter and
Bylaws,bylaws, copies of which are on file with the Securities and Exchange
Commission, and are incorporated by reference herein. Please see "Where You Can Find More
Information."However, this prospectus
and the accompanying prospectus supplement contain the material terms and
conditions for each security.
16
DESCRIPTION OF CAPITAL STOCK
General
Our authorized stock 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. Our stockholder meetings are held annually. Pursuant to our charter,
we reserve the right to amend any provision of our charter upon the affirmative
vote of stockholders entitled to cast at least a majority of all the votes
entitled to be cast on the matter.
Common Stock
Each share of our common stock is entitled to participate equally in
dividends when authorized by our board of directors and in the distribution of
our assets upon liquidation. Each share of common stock is entitled to one
vote, subject to the provisions of our charter regarding restrictions on
transfer of stock, and will be fully paid and nonassessable upon issuance.
Shares of common stock have no preference, conversion, exchange, redemption,
appraisal, preemptive or cumulative voting rights. Our authorized stock 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. Our charter
authorizes our board of directors to reclassify any unissued shares of common
stock in one or more classes or series of stock.
Transfer Agent and Registrar
Our transfer agent and registrar is American Stock Transfer and Trust
Company, New York, New York.
Preferred Stock
Our charter authorizes our board of directors to issue shares of preferred
stock and to classify or reclassify any unissued shares of preferred stock into
one or more classes or series of stock. The preferred stock may be issued from
time to time with such designations, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption as shall be
determined by the board of directors for each class or series of stock subject
to the provisions of our charter regarding restrictions on transfer of stock.
Preferred stock is available for possible future financings or acquisitions and
for general corporate purposes without further stockholder authorization,
unless such authorization is required by applicable law or the rules of the
principal national securities exchange on which such stock is listed or
admitted to trading.
A prospectus supplement relating to any series of preferred stock being
offered will include specific terms relating to the offering. They will include:
. the title and stated value of the preferred stock;
. the number of shares of the preferred stock offered, the liquidation
preference per share and the offering price of the preferred stock;
. the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to the preferred stock;
. whether dividends shall be cumulative or non cumulative and, if
cumulative, the date from which dividends on the preferred stock shall
accumulate;
. the procedures for an auction and remarketing, if any, for the preferred
stock;
. the provisions for a sinking fund, if any, for the preferred stock;
. any voting rights of the preferred stock;
. the provisions for redemption, if applicable, of the preferred stock;
17
. any listing of the preferred stock on any securities exchange;
. the terms and conditions, if applicable, upon which the preferred stock
will be convertible into our common stock, including the conversion price
or the manner of calculating the conversion price and conversion period;
. if appropriate, a discussion of Federal income tax consequences applicable
to the preferred stock;
. any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to assist us in qualifying as
a REIT;
. all series of preferred stock will rank on a parity with each other unless
otherwise specified in the charter and will rank senior to common stock
with respect payment of dividends and distribution of assets upon
liquidation; and
. any other specific terms, preferences, rights, limitations or restrictions
of the preferred stock.
The terms, if any, on which the preferred stock may be convertible into or
exchangeable for our common stock or other securities will be stated in the
preferred stock prospectus supplement. The terms will include provisions as to
whether conversion or exchange is mandatory, at the option of the holder or at
our option, and may include provisions pursuant to which the number of shares
of our common stock or other securities to be received by the holders of
preferred stock would be subject to adjustment.
Description of Warrants
We may issue warrants for the purchase of preferred stock or common stock.
Warrants may be issued independently or together with any offered securities
and may be attached to or separate from such securities. Each series of
warrants will be issued under a separate warrant agreement to be entered into
between a warrant agent specified in the agreement and us. The warrant agent
will act solely as our agent in connection with the warrants of that series and
will not assume any obligation or relationship of agency or trust for or with
any holders or beneficial owners of warrants.
The applicable prospectus supplement will describe the following terms,
where applicable, of the warrants in respect of which this prospectus is being
delivered:
. the title of the warrants;
. the aggregate number of the warrants;
. the price or prices at which the warrants will be issued;
. the currencies in which the price or prices of the warrants may be payable;
. the designation, amount and terms of the offered securities purchasable
upon exercise of the warrants;
. the designation and terms of the other offered securities, if any, with
which the warrants are issued and the number of the warrants issued with
the security;
. if applicable, the date on and after which the warrants and the offered
securities purchasable upon exercise of the warrants will be separately
transferable;
. the price or prices at which and currency or currencies in which the
offered securities purchasable upon exercise of the warrants may be
purchased;
. the date on which the right to exercise the warrants shall commence and
the date on which the right shall expire;
. the minimum or maximum amount of the warrants that may be exercised at any
one time;
. information with respect to book-entry procedures, if any;
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. if appropriate, a discussion of Federal income tax consequences; and
. any other material terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants.
Repurchase of Shares and Restrictions on Transfer
Pursuant to our charter, if certain proposed transfers of common stock or
other events occur that result in a person owning shares in excess of our
ownership limits and, consequently, we fail to qualify as a REIT, then that
number of shares of stock actually or constructively owned by that person in
violation of the ownership limits will be automatically transferred to a
trustee of a trust for the exclusive benefit of one or more charitable
beneficiaries. The intended transferee will not acquire any rights in the
shares. Shares held by the trustee will constitute issued and outstanding
shares of stock. The trustee will have all voting rights and rights to
dividends or other distributions with respect to shares held in the trust,
which rights will be exercised for the exclusive benefit of the charitable
beneficiary. Any dividend or other distribution paid prior to our discovery
that shares of stock have been transferred to the trustee will be paid to the
trustee upon demand and any dividend or other
16
distribution authorized but
unpaid will be paid when due to the trustee. Any dividends or distributions
paid to the trustee will be held in trust for the charitable beneficiary.
Subject to Maryland law, effective as of the date that such shares have been
transferred to the trustee, the trustee will have the authority (at the
trustee's sole discretion) (1) to rescind as void any vote cast by an intended
transferee prior to our discovery that such shares have been transferred to the
trustee and (2) to recast such vote in accordance with the desires of the
trustee acting for the benefit of the charitable beneficiary.
Within 20 days of receiving notice from us that shares of stock have been
transferred to the trust, the trustee will sell the shares held in the trust to
a person designated by the trustee whose ownership of the shares will not
violate the ownership restrictions set forth in our charter. Upon such sale,
the interest of the charitable beneficiary in the shares sold will terminate
and the trustee will distribute the net proceeds of the sale to the intended
transferee and to the charitable beneficiary as follows: the intended
transferee will receive the lesser ofof:
. the price paid by the intended transferee for the shares or, if the
intended did not give value for the shares in connection with the event
causing the shares to be held in the trust, the market price of the shares
on the day of the event causing the shares to be held in the trusttrust; and
. the price per share received by the trustee from the sale or other
disposition of the shares held in the trust.
Any net sales proceeds in excess of the amount payable to the intended
transferee will be immediately paid to the charitable beneficiary.
In addition, shares of stock held in trust will be deemed to have been
offered for sale to us, or our designee, at a price per share equal to the
lesser ofof:
. 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 at the
time of such devise or gift); and
. the market price on the date we, or our designee, accept such offer.
We will have the right to accept such offer until the trustee has sold the
shares held in the trust. If the shares are sold to us, the interest of the
charitable beneficiary in the shares sold will terminate and the trustee will
distribute the net proceeds of the sale to the intended transferee.
Market price is defined in our charter as the closing price for shares on a
particular date. The closing price on any date shall mean the last sale price
for such shares, or, in case no such sale takes place on such day, the average
of the closing bid and asked prices, for such shares, in either case as
reported on the American Stock Exchange or the principal national securities
exchange on which shares are listed or admitted to trading.
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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
Internal Revenue CodeCode) of all classes or series of our stock, within 30 days
after the end of each taxable year, is required to give us written notice
statingstating:
. the name and address of such ownerowner;
. the number of shares of each class and series of our stock beneficially
ownedowned; and
. a description of the manner in which the shares are held.
Each owner shall provide us any additional information that we may request
in order to determine the effect, if any, of such beneficial ownership on our
status as a REIT and to ensure compliance with the ownership limit.
17Maryland Business Combination Act
The Maryland General Corporation Law establishes special requirements for
"business combinations" between a Maryland corporation and "interested
stockholders" unless exemptions are applicable. An interested stockholder is
any person who beneficially owns 10% or more of the voting power of our
then-outstanding voting stock. Among other things, the law prohibits for a
period of five years a merger and other similar transactions between our
company and an interested stockholder unless the board of directors approved
the transaction prior to the party becoming an interested stockholder. The
five-year period runs from the most recent date on which the interested
stockholder became an interested stockholder. The law also requires a
supermajority stockholder vote for such transactions after the end of the
five-year period. This means that the transaction must be approved by at least:
. 80% of the votes entitled to be cast by holders of outstanding voting
shares, and
. two-thirds of the votes entitled to be cast by holders of outstanding
voting shares other than voting shares held by the interested stockholder
or an affiliate of the interested stockholder with whom the business
combination is to be effected.
The business combination statute could have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our stockholders' best interests.
Maryland Control Share Acquisition Act
Maryland law 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 the other stockholders. Two-thirds of the shares
eligible to vote must vote in favor of granting the "control shares" voting
rights. "Control shares" are shares of stock that, taken together with all
other shares of stock the acquirer previously acquired, would entitle the
acquirer to exercise voting power in electing directors within one of the
following ranges of voting power:
. one-tenth or more but less than one-third of all voting power;
. one-third or more but less than a majority of all voting power; or
. a majority or more of all voting power.
Control shares do not include shares of stock the acquiring person is
entitled to vote as a result of having previously obtained stockholder
approval. A "control share acquisition" means the acquisition of control
shares, subject to certain exceptions.
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MATERIALIf a person who has made (or proposes to make) a control share acquisition
satisfies certain conditions (including agreeing to pay expenses), he may
compel our board of directors to call a special meeting of stockholders to
consider the voting rights of the shares. If such a person makes no request for
a meeting, we have the option to present the question at any stockholders'
meeting.
If voting rights are not approved at a meeting of stockholders then, subject
to certain conditions and limitations, we may redeem any or all of the control
shares (except those for which voting rights have previously been approved) for
fair value. We will determine the fair value of the shares, without regard to
voting rights, as of the date of either:
. the last control share acquisition; or
. the meeting where stockholders considered and did not approve voting
rights of the control shares.
If voting rights for control shares are approved at a stockholders' meeting
and the acquirer becomes entitled to vote a majority of the shares of stock
entitled to vote, all other stockholders may obtain rights as objecting
stockholders and, thereunder, exercise appraisal rights. This means that you
would be able to force us to redeem your stock for fair value. Under Maryland
law, the fair value may not be less than the highest price per share paid in
the control share acquisition. Furthermore, certain limitations otherwise
applicable to the exercise of dissenters' rights would not apply in the context
of a control share acquisition. The control share acquisition statute would not
apply to shares acquired in a merger, consolidation or share exchange if we
were a party to the transaction. The control share acquisition statute could
have the effect of discouraging offers to acquire us and of increasing the
difficulty of consummating any such offers, even if our acquisition would be in
our stockholders' best interests.
Stockholder Rights Plan
Our Board of Directors has adopted a stockholder rights plan. Under the
rights plan, one right has been issued and is attached to each outstanding
share of common stock. Except as set forth below, each right, when it becomes
exercisable, entitles the registered holder to purchase from us one
one-hundredth of a share of our Series A preferred stock, $0.01 par value per
share, at a price of $30.00 per one one-hundredth of a Series A preferred
share, subject to adjustment. The rights agreement is filed as an exhibit to
the registration statement of which this prospectus is a part and is also
available upon request to us. You should read the rights agreement carefully to
fully understand the terms of the stockholder rights plan.
Initially, the rights will be attached to all certificates representing
common stock then outstanding, and no separate right certificates will be
distributed. The rights will become exercisable and separate from the common
stock upon the earliest to occur of:
. 10 days after a person has acquired beneficial ownership of 10% or more of
our outstanding common stock (unless the offer to acquire the shares is
approved by a majority of the board of directors who are not affiliates of
the acquiring person); or
. (ii) 10 business days (or such later date as our board may determine)
following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer for 10% or more of our outstanding common
stock.
Until the distribution of certificates representing the rights, the rights
will be transferred solely with the common stock. From and after the
distribution of certificates representing the rights, the shares of common
stock issued after this distribution will not be issued with rights. Separate
right certificates alone will evidence the rights.
The rights expire on October 19, 2008, unless earlier redeemed by us as
described below.
If any person acquires 10% or more of our outstanding common stock in a
transaction that has not been approved by a majority of our independent and
disinterested board of directors, each holder of a right, other than
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that person and other related parties, whose rights will automatically become
null and void, will be entitled to receive upon exercise of the right the
number of shares of common stock, or, in certain circumstances, other
securities of Impac Mortgage Holdings, Inc. having a market value (immediately
before the triggering event) equal to two times the exercise price of the right.
If at any time after a person acquires 10% or more of our outstanding common
stock, (i) Impac Mortgage Holdings, Inc. is acquired in a merger or other
business combination transaction in which the holders of all of the outstanding
common shares immediately before the consummation of the transaction are not
the holders of all of the surviving corporation's voting power, or (ii) more
than 50% of our assets or earning power are sold or transferred, in either case
with or to a person who acquires 10% or more of our outstanding common stock,
or, if in such transaction all holders of common stock are not treated alike,
then each holder of a right (except rights which previously have been voided as
described above) shall have the right to receive, upon exercise, common shares
of the acquiring company having a value equal to two times the exercise price
of the right.
The purchase price payable, and the number of Series A preferred shares,
shares of common stock or other securities issuable upon exercise of the rights
are subject to adjustment from time to time to prevent dilution (i) in the
event of a stock dividend on, or a subdivision, combination or reclassification
of the Series A preferred shares, (ii) upon the grant to holders of the Series
A preferred shares of certain rights or warrants to subscribe for or purchase
Series A preferred shares at a price (or conversion price as the case may be),
less than the then current market price of the Series A preferred shares or
(iii) upon the distribution to holders of the Series A preferred shares of
evidences of indebtedness or assets (excluding regular quarterly cash
dividends) or of subscription rights or warrants (other than those referred to
above).
The number of outstanding rights and the number of one one-hundredth of a
Series A preferred share issuable upon exercise of each right are also subject
to adjustment in the event of a stock split of the common stock or a stock
dividend on the common stock payable in common stock or subdivisions,
consolidations or combinations of the common stock occurring, in any such case,
before the date on which a person acquires 10% or more of our outstanding
common stock.
Series A preferred shares purchasable upon exercise of the rights will not
be redeemable. Each Series A preferred share will be entitled to 100 votes on
all matters submitted to a vote of the Company's stockholders. Each Series A
preferred share will be entitled to a minimum preferential quarterly dividend
payment of $1.00 per share but, if greater, will be entitled to an aggregate
dividend per share of 100 times the dividend declared per share of common
stock. In the event of liquidation, the holders of the Series A preferred
shares will be entitled to a minimum preferential liquidation payment of $100
per share, plus accrued and unpaid dividends; thereafter, and after the holders
of the common stock receive a liquidation payment of $1.00 per share (as
adjusted), the holders of the Series A preferred shares and the holders of the
common stock will share the remaining assets in the ratio of 100 to 1 (as
adjusted) for each Series A preferred share and share of common stock so held,
respectively. Finally, in the event of any merger, consolidation or other
transaction in which common stock is exchanged, each Series A preferred share
will be entitled to receive 100 times the amount received per share of common
stock. The rights are protected by customary antidilution provisions. In the
event that the amount of accrued and unpaid dividends on the Series A preferred
shares is equivalent to six full quarterly dividends or more (whether or not
consecutive), the holders of the Series A preferred shares shall have the
right, voting as a class, to elect two directors until all cumulative dividends
on the Series A preferred shares have been paid through the last quarterly
dividend payment date or until non-cumulative dividends have been paid
regularly for at least one year.
With certain exceptions, no adjustment to the purchase price will be
required until cumulative adjustments require an adjustment of at least 1% in
the purchase price. No fractional Series A preferred shares will be issued
(other than fractions which are one one-hundredth or integral multiples of one
one-hundredth of a Series A preferred share, which may, at our election, be
evidenced by depository receipts). Cash will be issued in lieu of fractional
shares.
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At any time before the earlier to occur of (i) a person acquiring 10% or
more of our outstanding common stock, or (ii) the expiration of the rights, we
may redeem all but not less than all of the rights at a price of $.0001 per
right.
All of the provisions of the rights agreement may be amended by our board of
directors prior to the date the rights become exercisable. After the rights
become exercisable, the provisions of the rights agreement may be amended by
the board in order to cure any ambiguity, defect or inconsistency, to make
changes which do not adversely affect the interests of holders of rights, or,
subject to certain limitations, to shorten or lengthen any time period under
the rights agreement.
The rights have anti-takeover effects. The rights will cause substantial
dilution to any person or group that attempts to acquire our company without
the approval of our board. As a result, the overall effect of the rights may be
to render more difficult or discourage any attempt to acquire our company, even
if the acquisition may be in the interest of our stockholders. Because our
board can redeem the rights or approve a permitted offer, the rights will not
interfere with a merger or other business combination approved by our board of
directors.
DESCRIPTION OF DEBT SECURITIES
The following description contains general terms and provisions of the debt
securities to which any prospectus supplement may relate. The particular terms
of the debt securities offered by any prospectus supplement and the extent, if
any, to which such general provisions may not apply to the debt securities so
offered will be described in the prospectus supplement relating to such debt
securities. If there are any differences between the applicable prospectus
supplement and this prospectus, the applicable prospectus supplement will
control. For more information please refer to the senior indenture among a
trustee to be selected and us, relating to the issuance of the senior notes,
and the subordinated indenture among a trustee to be selected and us, relating
to issuance of the subordinated notes. Forms of these documents are filed as
exhibits to the registration statement, which includes this prospectus.
As used in this prospectus, the term indentures refers to both the senior
indenture and the subordinated indenture. The indentures will be qualified
under the Trust Indenture Act. As used in this section, the term trustee refers
to either the senior trustee or the subordinated trustee, as applicable.
The following are summaries of material provisions of the senior indenture
and the subordinated indenture. They do not restate the indentures in their
entirety. We urge you to read the indentures applicable to a particular series
of debt securities because they, and not this description, define your rights
as the holders of the debt securities. Except as otherwise indicated, the terms
of the senior indenture and the subordinated indenture are identical.
General
Each prospectus supplement will describe the following terms relating to a
series of notes:
. the title;
. any limit on the amount that may be issued;
. whether or not such series of notes will be issued in global form, the
terms and who the depository will be;
. the maturity date(s);
. the annual interest rate(s) (which may be fixed or variable) or the method
for determining the rate(s) and the date(s) interest will begin to accrue,
the date(s) interest will be payable and the regular record dates for
interest payment dates or the method for determining such date(s);
23
. the place(s) where payments shall be payable;
. our right, if any, to defer payment of interest and the maximum length of
any such deferral period;
. the date, if any, after which, and the price(s) at which, such series of
notes may, pursuant to any optional redemption provisions, be redeemed at
our option, and other related terms and provisions;
. the date(s), if any, on which, and the price(s) at which we are obligated,
pursuant to any mandatory sinking fund provisions or otherwise, to redeem,
or at the holder's option to purchase, such series of notes and other
related terms and provisions;
. the denominations in which such series of notes will be issued, if in
other than denominations of $1,000 and any integral multiple thereof;
. any mandatory or optional sinking fund or similar provisions;
. the currency or currency units of payment of the principal of, premium, if
any, and interest on the notes;
. any index used to determine the amount of payments of the principal of,
premium, if any, and interest on the notes and the manner in which such
amounts shall be determined;
. the terms pursuant to which such notes are subject to defeasance;
. the terms and conditions, if any, pursuant to which such notes are
secured; and
. any other terms (which terms shall not be inconsistent with the Indenture).
The notes may be issued as original issue discount securities. An original
issue discount security is a note, including any zero-coupon note, which:
. is issued at a price lower than the amount payable upon its stated
maturity; and
. provides that upon redemption or acceleration of the maturity, an amount
less than the amount payable upon the stated maturity, shall become due
and payable.
United States federal income tax consequences applicable to notes sold at an
original issue discount will be described in the applicable prospectus
supplement. In addition, United States federal income tax or other consequences
applicable to any notes that are denominated in a currency or currency unit
other than United States dollars may be described in the applicable prospectus
supplement.
Under the indentures, we will have the ability, in addition to the ability
to issue notes with terms different from those of notes previously issued,
without the consent of the holders, to reopen a previous issue of a series of
notes and issue additional notes of that series, unless the reopening was
restricted when the series was created, in an aggregate principal amount
determined by us.
Conversion or Exchange Rights
The terms, if any, on which a series of notes may be convertible into or
exchangeable for our common stock or other securities will be described in the
prospectus supplement relating to that series of notes. The terms will include
provisions as to whether conversion or exchange is mandatory, at the option of
the holder or at our option, and may include provisions pursuant to which the
number of shares of our common stock or other securities to be received by the
holders of the series of notes would be subject to adjustment.
Consolidation, Merger or Sale
The indentures do not contain any covenant that restricts our ability to
merge or consolidate, or sell, convey, transfer or otherwise dispose of all or
substantially all of our assets. However, any successor or acquirer of such
assets must assume all of our obligations under the indentures or the notes, as
appropriate.
24
Events of Default Under the Indenture
The following are events of default under the indentures with respect to any
series of notes issued:
. failure to pay interest when due and such failure continues for 30 days
and the time for payment has not been extended or deferred;
. failure to pay the principal (or premium, if any) when due;
. failure to observe or perform any other covenant contained in the notes or
the indentures (other than a covenant specifically relating to another
series of notes), and such failure continues for 90 days after we receive
notice from the trustee or holders of at least 25% in aggregate principal
amount of the outstanding notes of that series; and
. certain events of bankruptcy, insolvency or reorganization of Impac
Mortgage Holdings, Inc.
If an event of default with respect to notes of any series occurs and is
continuing, the trustee or the holders of at least 25% in aggregate principal
amount of the outstanding notes of that series, by notice in writing to us (and
to the trustee if notice is given by such holders), may declare the unpaid
principal of, premium, if any, and accrued interest, if any, due and payable
immediately.
The holders of a majority in principal amount of the outstanding notes of an
affected series may waive any default or event of default with respect to such
series and its consequences, except defaults or events of default regarding:
. payment of principal, premium, if any, or interest; or
. certain covenants containing limitations on our ability to pay dividends
and make payments on debt securities in certain circumstances.
Any such waiver shall cure such default or event of default.
Subject to the terms of the indentures, if an event of default under an
indenture shall occur and be continuing, the trustee will be under no
obligation to exercise any of its rights or powers under such indenture at the
request or direction of any of the holders of the applicable series of notes,
unless such holders have offered the trustee reasonable indemnity. The holders
of a majority in principal amount of the outstanding notes of any series will
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee, or exercising any trust or
power conferred on the trustee, with respect to the notes of that series,
provided that:
. it is not in conflict with any law or the applicable indenture;
. the trustee may take any other action deemed proper by it which is not
inconsistent with such direction; and
. subject to its duties under the Trust Indenture Act, the trustee need not
take any action that might involve it in personal liability or might be
unduly prejudicial to the holders not involved in the proceeding.
A holder of the notes of any series will only have the right to institute a
proceeding under the indentures or to appoint a receiver or trustee, or to seek
other remedies if:
. the holder has given written notice to the trustee of a continuing event
of default with respect to that series;
. the holders of at least 25% in aggregate principal amount of the
outstanding notes of that series have made written request, and such
holders have offered reasonable indemnity to the trustee to institute such
proceedings as trustee; and
. the trustee does not institute such proceeding, and does not receive from
the holders of a majority in the aggregate principal amount of the
outstanding notes of that series other conflicting directions within 60
days after such notice, request and offer.
25
These limitations do not apply to a suit instituted by a holder of notes if
we default in the payment of the principal, premium, if any, or interest on,
the notes.
We will periodically file statements with the trustee regarding our
compliance with certain of the covenants in the indentures.
Modification of Indenture; Waiver
Impac Mortgage Holdings, Inc. and the trustee may change an indenture
without the consent of any holders with respect to certain matters, including:
. to fix any ambiguity, defect or inconsistency in such indenture; and
. to change anything that does not materially adversely affect the interests
of any holder of notes of any series.
In addition, under the indentures, the rights of holders of a series of
notes may be changed by us and the trustee with the written consent of the
holders of at least a majority in aggregate principal amount of the outstanding
notes of each series that is affected. However, we can make the following
changes only with the consent of each holder of any outstanding notes affected:
. extend the fixed maturity of such series of notes;
. change any of our obligations to pay additional amounts;
. reduce the principal amount, reduce the rate of or extend the time of
payment of interest, or any premium payable upon the redemption of any
such notes;
. reduce the percentage of notes, the holders of which are required to
consent to any amendment;
. reduce the amount of principal of an original issue discount security or
any other note payable upon acceleration of the maturity thereof;
. change currency in which any note or any premium or interest is payable;
. impair the right to enforce any payment on or with respect to any note;
. adversely change the right to convert or exchange, including decreasing
the conversion rate or increasing the conversion price of, such note, if
applicable;
. in the case of the subordinated indenture, modify the subordination
provisions in a manner adverse to the holders of the subordinated notes;
. if the notes are secured, change the terms and conditions pursuant to
which the notes are secured in a manner adverse to the holders of the
secured notes;
. reduce the percentage in principal amount of outstanding notes of any
series, the consent by the holders of such notes is required for
modification or amendment of the applicable indenture or for waiver of
compliance with certain provisions of the applicable indenture or for
waiver of certain defaults;
. reduce the requirements contained in the applicable indenture for quorum
or voting;
. change any of our obligations to maintain an office or agency in the
places and for the purposes required by the indentures; or
. modify any of the above provisions.
26
Form, Exchange, and Transfer
The notes of each series will be issuable only in fully registered form
without coupons and, unless otherwise specified in the applicable prospectus
supplement, in denominations of $1,000 and any integral multiple thereof. The
indentures will provide that notes of a series may be issuable in temporary or
permanent global form and may be issued as book-entry securities that will be
deposited with, or on behalf of, The Depository Trust Company or another
depository named by us and identified in a prospectus supplement with respect
to such series.
At the option of the holder, subject to the terms of the indentures and the
limitations applicable to global securities described in the applicable
prospectus supplement, notes of any series will be exchangeable for other notes
of the same series, in any authorized denomination and of like tenor and
aggregate principal amount.
Subject to the terms of the indentures and the limitations applicable to
global securities described in the applicable prospectus supplement, notes may
be presented for exchange or for registration of transfer, duly endorsed or
with the form of transfer endorsed, duly executed if so required by us or the
security registrar, at the office of the security registrar or at the office of
any transfer agent designated by us for such purpose. Unless otherwise provided
in the notes to be transferred or exchanged, we will not require a service
charge for any registration of transfer or exchange, but we may require payment
of any taxes or other governmental charges. The security registrar and any
transfer agent initially designated by us for any notes will be named in the
applicable prospectus supplement. We may at any time designate additional
transfer agents or rescind the designation of any transfer agent or approve a
change in the office through which any transfer agent acts, except that we will
be required to maintain a transfer agent in each place of payment for the notes
of each series.
If the notes of any series are to be redeemed, we will not be required to:
. issue, register the transfer of, or exchange any notes of that series
during a period beginning at the opening of business 15 days before the
day of mailing of a notice of redemption of any such notes that may be
selected for redemption and ending at the close of business on the day of
such mailing; or
. register the transfer of or exchange any notes so selected for redemption,
in whole or in part, except the unredeemed portion of any such notes being
redeemed in part.
Information Concerning the Trustee
The trustee, other than during the occurrence and continuance of an event of
default under an indenture, undertakes to perform only such duties as are
specifically described in the indentures and, upon an event of default under an
indenture, must use the same degree of care as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision, the
trustee is under no obligation to exercise any of the powers given it by the
indentures at the request of any holder of notes unless it is offered
reasonable security and indemnity against the costs, expenses and liabilities
that it might incur. The trustee is not required to spend or risk its own money
or otherwise become financially liable while performing its duties unless it
reasonably believes that it will be repaid or receive adequate indemnity.
Payment and Paying Agents
Unless otherwise indicated in the applicable prospectus supplement, payment
of the interest on any notes on any interest payment date will be made to the
person in whose name such notes or one or more predecessor securities are
registered at the close of business on the regular record date for such
interest.
Principal of and any premium and interest on the notes of a particular
series will be payable at the office of the paying agents designated by us,
except that unless otherwise indicated in the applicable prospectus supplement,
interest payments may be made by check mailed to the holder. Unless otherwise
indicated in such prospectus supplement, the corporate trust office of the
trustee in New York will be designated as our sole paying agent for payments
with respect to notes of each series. Any other paying agents initially
designated by us for the
27
notes of a particular series will be named in the applicable prospectus
supplement. We will be required to maintain a paying agent in each place of
payment for the notes of a particular series.
All moneys paid by us to a paying agent or the trustee for the payment of
the principal of or any premium or interest on any notes which remains
unclaimed at the end of two years after the principal, premium or interest has
become due and payable will be repaid to us, and the holder of the security may
then look only to us for payment.
Governing Law
The indentures and the notes will be governed by and construed in accordance
with the laws of the State of New York except to the extent that the Trust
Indenture Act shall be applicable.
Subordination of Subordinated Notes
The subordinated notes will be unsecured and will be subordinate and junior
in priority of payment to certain of our other indebtedness to the extent
described in a prospectus supplement. The subordinated indenture does not limit
the amount of subordinated notes which we may issue, nor does it limit us from
issuing any other secured or unsecured debt.
28
SELLING STOCKHOLDERS
The selling stockholders may be our directors, executive officers, former
directors, employees or other holders of our common stock. The prospectus
supplement for any offering of the common stock by selling stockholders will
include the following information:
. the names of the selling stockholders;
. the number of shares held by each of the selling stockholders;
. the percentage of the common stock held by each of the selling
stockholders; and
. the number of shares of the common stock offered by each of the selling
stockholders.
The selling stockholders will be responsible for the expenses and fees of
the registration and sale of the shares of common stock sold by the selling
stockholders.
FEDERAL INCOME TAX CONSEQUENCESCONSIDERATIONS
Based on various assumptions and factual representations made by us regarding our
operations, in the opinion of McKee Nelson LLP, our tax counsel, commencing
with our taxable year ended December 31, 1995, we have been and will continue
to be organized in conformity with the requirements for qualification as a REIT
under the Code, and our method of operating has enabled us, and our proposed
method of operating in the future will enable us, to meet the requirements for
qualification and taxation as a REIT. Our qualification as a REIT depends upon
our ability to meet the various requirements imposed under the Code through our
actual operations. McKee Nelson LLP will not review our operations, and no
assurance can be given that our actual operations will meet the requirements
imposed under the Code. The opinion of McKee Nelson LLP is not binding on the
IRS or any court. The opinion of McKee Nelson LLP is based upon existing law,
Treasury regulations, currently published administrative positions of the IRS,
and judicial decisions, all of which are subject to change either prospectively
or retroactively.
The provisions of the Code pertaining to REITs are highly technical and
complex. Under the Code, if certain requirements are met in a taxable year, a
REIT generally will not be subject to federal income tax with respect to income
that it distributes to its shareholders.stockholders. If we fail to qualify during any
taxable year as a REIT, unless certain relief provisions are available, we will
be subject to tax (including any applicable alternative minimum tax) on our
taxable income at regular corporate rates, which could have a material adverse
effect upon our stockholders.
The following discussion summarizes the material United States federal
income tax consequences that relate to our qualification and taxation as a REIT
and that flow from an investment in our stock. No assurance can be given that
the conclusions set out below, if challenged by the IRS, would be sustained by
a court. This discussion deals only with stock that is held as a capital asset,
which generally means property that is held for investment. In addition, except
to the extent discussed below, this summary does not address tax consequences
applicable to you if you are subject to special tax rules. For instance, the
discussion does not address tax consequences applicable to the following
categories of stockholders:
. dealers or traders in securities;
. financial institutions;
. insurance companies;
. stockholders that hold our stock as a hedge, part of a straddle,
conversion transaction or other arrangement involving more than one position; or
. stockholders whose functional currency is not the United States dollar;
or
. stockholders that are tax-exempt organizations or foreign taxpayers.dollar.
29
The discussion set out below is intended only as a summary of the material
United States federal income tax consequences of our treatment as a REIT and of
an investment in our stock. Taxpayers and preparers of tax returns (including
returns filed by any partnership or other arrangement) should be aware that
under Treasury regulations a provider of advice on specific issues of law is
not considered an income tax return preparer unless the advice is (i) given
with respect to events that have occurred at the time the advice is rendered
and is not given with respect to the consequences of contemplated actions, and
(ii) is directly relevant to the determination of an entry on a tax return.
Accordingly, we are not income tax return preparers and we urge you to consult
your own tax advisors regarding the tax consequences of an investment in our
stock, including the application to your particular situation of the tax
matters discussed below, as well as the application of state, local or foreign
tax laws. The statements of United States tax law set out below are based on
the 18
laws in force and their interpretation as of the date of this prospectus,
and are subject to changes occurring after that date.
REIT Qualification RequirementsRequirement
The following is a brief summary of the material technical requirements
imposed by the Code that we must satisfy on an ongoing basis to qualify, and
remain qualified, as a REIT.
Stock Ownership Requirements
We must meet the following stock ownership requirements:
(1) our capital stock must be transferable;
(2) our capital stock must be held by at least 100 persons during at
least 335 days of a taxable year of 12 months (or during a proportionate
part of a taxable year of less than 12 months); and
(3) no more than 50% of the value of our capital stock may be owned,
directly or indirectly, by five or fewer individuals at any time during
the last half of the taxable year. In applying this test, the Code
treats some entities as individuals. Tax-exempt entities, other than
private foundations and certain unemployment compensation trusts, are
generally not treated as individuals for these purposes.
The requirements of items (2) and (3) above did not apply to the first
taxable year for which we made an election to be taxed as a REIT. However,
these stock ownership requirements must be satisfied in each subsequent taxable
year. Our charter imposes restrictions on the transfer of our shares to help us
meet the stock ownership requirements. In addition, Treasury regulations
require us to demand from the record holders of designated percentages of our
capital stock, annual written statements disclosing actual and constructive
ownership of our stock. The same regulations require us to maintain permanent
records showing the information we have received regarding actual and
constructive stock ownership and a list of those persons failing or refusing to
comply with our demand.
Asset Requirements
We generally must meet the following asset requirements at the close of each
quarter of each taxable year:
(a) at least 75% of the value of our total assets must be "qualified REIT
real estate assets" (described below), government securities, cash and cash
items;
(b) no more than 25% of the value of our total assets may be securities
other than securities in the 75% asset class (for example, government
securities and certain mortgage-backed securities);
(c) no more than 20% of the value of our total assets may be securities
of one or more Taxable REIT subsidiaries (described below); and
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(d) except for securities in the 75% asset class, securities in a Taxable
REIT subsidiary or "qualified REIT subsidiary," and certain partnership
interests and debt obligations--obligations
(1) no more than 5% of the value of our total assets may be
securities of any one issuer,
(2) we may not hold securities that possess more than 10% percent of the
total voting power of the outstanding securities of any one issuer,issuer; and
(3) we may not hold securities that have a value of more than 10
percent10% of
the total value of the outstanding securities of any one issuer.
19
"Qualified REIT real estate assets" means assets of the type described in
section 856(c)(5)(B) of the Code, and generally include (among other assets)
interests in mortgages on real property and certain mortgage-backed securities,
and shares in other REITs.
A "Taxable REIT subsidiary" is a corporation that may earn income that would
not be qualifying income if earned directly by the REIT. A REIT may hold up to
100% of the stock in a Taxable REIT subsidiary. Both the subsidiary and the
REIT must jointly elect to treat the subsidiary as a Taxable REIT subsidiary by
jointly filing a Form 8875 with the IRS. A Taxable REIT subsidiary will pay tax
at the corporate rates on any income it earns. Moreover, the Code contains
rules to ensure contractual arrangements between a Taxable REIT subsidiary and
the parent REIT are at arm's length. We have, together with IFC, filed an
election to have IFC treated as our Taxable REIT subsidiary as of January 1,
2001.
If we fail to meet any of the asset tests as of the close of a calendar
quarter due to the acquisition of securities or other assets, the Code allows
us a 30-day period following the close of the calendar quarter to come into
compliance with the asset tests. If we do cure a failure within the 30-day
period, we will be treated as having satisfied the asset tests at the close of
the calendar quarter.
Gross Income Requirements
We generally must meet the following gross income requirements for each
taxable year:
(a) at least 75% of our gross income must be derived from the real estate
sources specified in section 856(c)(3) of the Code, including interest
income on obligations secured by mortgages on real property or on interests
in real property and gain from the disposition of qualified REIT real estate
assets, and "qualified temporary investment income" (generally, income we
earn from investing new capital, provided we received or accrued that income
within one year of acquiring such new capital); and
(b) at least 95% of our gross income for each taxable year must be
derived from sources of income specified in section 856(c)(2) of the Code,
which includes the types of gross income described justin (a) above, as well as
dividends, interest, and gains from the sale of stock or other financial
instruments (including interest rate swap and cap agreements, options,
futures contracts, forward rate agreements or similar financial instruments
entered into to reduce interest rate risk with respect to debt incurred or
to be incurred to acquire or carry qualified REIT real estate assets) not
held for sale in the ordinary course of business.
Distribution Requirements
We generally must distribute dividends (other than capital gain dividends)
to our stockholders in an amount at least equal to (1) the sum of (a) 90% of
our REIT taxable income (computed without regard to the dividends paid
deduction and net capital gains) and (b) 90% of the net income (after tax, if
any) from foreclosure property, minus (2) the sum of certain items of non-cash
income. In addition, if we were to recognize "Built in Gain" (as defined below)
on disposition of any assets acquired from a "C"C corporation in a transaction in
which Built in Gain was not recognized (for instance, assets acquired in a
statutory merger), we would be required to distribute at
31
least 90% of the Built in Gain recognized net of the tax we would pay on such
gain. Built"Built in GainGain" is the excess of (a) the fair market value of an asset
(measured at the time of acquisition) over (b) the basis of the asset (measured
at the time of acquisition). We do not hold any assets having Built in Gain.
We are not required to distribute our net capital gains. Rather than
distribute them, we may elect to retain and pay the federal income tax on them,
in which case our stockholders will (1) include their proportionate share of
the undistributed net capital gains in income, (2) receive a credit for their
share of the federal income tax we pay and (3) increase the bases in their
stock by the difference between their share of the capital gain and their share
of the credit.
20
Failure to Qualify
If we fail to qualify as a REIT in any taxable year and the relief
provisions provided in the Code do not apply, we will be subject to federal
income tax, including any applicable alternative minimum tax, on our taxable
income in that taxable year and all subsequent taxable years at the regular
corporate income tax rates. We will not be allowed to deduct distributions to
shareholdersstockholders in these years, nor will the Code require us to make
distributions. Further, unless entitled to the relief provisions of the Code,
we also will be barred from re-electing REIT status for the four taxable years
following the year in which we fail to qualify. It is not possible to state in
what circumstances we would be entitled to any statutory relief. We intend to monitor on an
ongoing basis our compliance with the REIT requirements described above. To
maintain our REIT status, we will be required to limit the types of assets that
we might otherwise acquire, or hold some assets at times when we might
otherwise have determined that the sale or other disposition of these assets
would have been more prudent.
Taxation as a REIT
In any year in which we qualify as a REIT, we generally will not be subject
to federal income tax on that portion of our REIT taxable income or capital
gain that we distribute to our stockholders. We will, however, be subject to
federal income tax at regular corporate income tax rates on any undistributed
taxable income or capital gain.
Notwithstanding our qualification as a REIT, we may also be subject to tax
in the following other circumstances:
. If we fail to satisfy either the 75% or the 95% gross income test, but
nonetheless maintain our qualification as a REIT because we meet other
requirements, we generally will be subject to a 100% tax on the greater of
the amount by which we fail either the 75% or the 95% gross income test
multiplied by a fraction intended to reflect our profitability.
. We will be subject to a tax of 100% on net income derived from any
"prohibited transaction"prohibited transaction which is, in general, a sale or other disposition
of property held primarily for sale to customers in the ordinary course of
business.
. If we have (1) net income from the sale or other disposition of
foreclosure property that is held primarily for sale to customers in the
ordinary course of business or (2) other non-qualifying income from
foreclosure property, it will be subject to federal income tax at the
highest corporate income tax rate.
. If we fail to distribute during each calendar year at least the sum of (1)
85% of our REIT ordinary income for such year, (2) 95% of our REIT capital
gain net income for such year and (3) any amount of undistributed ordinary
income and capital gain net income from preceding taxable years, we will
be subject to a 4% federal excise tax on the excess of the required
distribution over the amounts actually distributed during the taxable year.
. If we acquire a Built in Gain asset from a C corporation in a transaction
in which the basis of the asset is determined by reference to the basis of
the asset in the hands of the C corporation and we recognize Built
2132
in Gain upon a disposition of such asset occurring within 10 years of its
acquisition, then we will be subject to federal tax to the extent of any
such Built in Gain at the highest corporate income tax rate.
. We may also be subject to the corporate alternative minimum tax, as well
as other taxes in situations not presently contemplated.
Taxation of U.S. Stockholders
For purposes of this discussion, a "U.S. Stockholder" is a stockholder who
is a "U.S. Person." A U.S. Person is a person who is:
. a citizen or resident of the United States;
. a corporation, partnership, or other entity created or organized in the
United States or under the laws of the United States or of any political
subdivision thereof;
. an estate whose income is includible in gross income for United States
federal income tax purposes regardless of its source; or
. a trust, if (1) a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
U.S. persons have authority to control all substantial decisions of the
trust, or (2) the trust was in existence on August 26, 1996, was treated
as a domestic trust prior to such date, and has made an election to
continue to be treated as a U.S. person.
Unless you are a tax-exempt entity, distributions that we make to you,a U.S.
Stockholder, including constructive distributions, generally will be subject to
tax as ordinary income to the extent of our current and accumulated earnings
and profits as determined for federal income tax purposes. If the amount we
distribute to you exceeds your allocable share of current and accumulated
earnings and profits, the excess will be treated as a return of capital to the
extent of your adjusted basis in your stock, which will reduce your basis in
your stock but will not be subject to tax. To the extent the amount we
distribute to you exceeds both your allocable share of current and accumulated
earnings and profits and your adjusted basis, this excess amount will be
treated as a gain from the sale or exchange of a capital asset. Distributions
to our corporate stockholders, whether characterized as ordinary income or as
capital gain, are not eligible for the corporate dividends received deduction.
Distributions that we designate as capital gain dividends generally will be
taxable in your hands as long-term capital gains, to the extent such
distributions do not exceed our actual net capital gain for the taxable year.
In the event that we realize a loss for the taxable year, you will not be
permitted to deduct any share of that loss. Further, if we, or a portion of our
assets, were to be treated as a taxable mortgage pool, any excess inclusion
income that is allocated to you could not be offset by any losses or other
deductions you may have. Future Treasury regulations may require you to take
into account, for purposes of computing your individual alternative minimum tax
liability, some of our tax preference items.
Dividends that we declare during the last quarter of a calendar year and
actually pay to you during January of the following taxable year, generally are
treated as if we had paid, and you had received them on December 31 of the
calendar year and not on the date actually paid. In addition, we may elect to
treat other dividends distributed after the close of the taxable year as having
been paid during the taxable year, so long as they meet the requirements
described in the Code, but you will be treated as having received these
dividends in the taxable year in which the distribution is actually made.
If you sell or otherwise dispose of our stock, you will generally recognize
a capital gain or loss in an amount equal to the difference between the amount
realized and your adjusted basis in theour stock, which gain or loss will be
long-term if the stock is held for more than one year. Any loss recognized on
the sale or exchange of stock held for six months or less generally will be
treated as a long-term capital loss to the extent of (1) any long-term capital
gain dividends you receive with respect to theour stock and (2) your proportionate
share of any long-term capital gains that we retain (see the discussion under
the caption Distribution Requirements)''Distribution Requirements").
33
If we fail to qualify as a REIT in any year, distributions we make to you
will be taxable in the same manner discussed above, except that:
. we will not be allowed to designate any distributions as capital gain
dividends;
. distributions (to the extent they are made out of our current and
accumulated earnings and profits) will be eligible for the corporate
dividends received deduction;
. the excess inclusion income rules will not apply to the stockholders; and
. you will not receive any share of our tax preference items.
22
items; and
. dividends that we declare in the last quarter of the calendar year but pay
to you in January would not be treated as though we had paid them to you
on the immediately preceding December 31.
In this event, however, we could be subject to substantial federal income
tax liability as a C corporation, and the amount of earnings and cash available
for distribution to you and other stockholders could be significantly reduced
or eliminated.
Information Reporting and Backup WithholdingWithholding--U.S. Stockholders
For each calendar year, we will report to our domesticU.S. stockholders and to the
IRS the amount of distributions that we pay, and the amount of tax (if any)
that we withhold on these distributions. Under the backup withholding rules,
you may be subject to backup withholding tax at a rate of 31% with respect to distributions paid
unless you:
. are a corporation or come within another exempt category and demonstrate
this fact when required; or
. provide a taxpayer identification number, certify as to no loss of
exemption from backup withholding tax and otherwise comply with the
applicable requirements of the backup withholding tax rules.
A domesticU.S. stockholder may satisfy this requirement by providing us an
appropriately prepared Form W-9. If you do not provide us with your correct
taxpayer identification number, then you may also be subject to penalties
imposed by the IRS.
Backup withholding tax is not an additional tax. Any amounts withheld under
the backup withholding tax rules will be refunded or credited against your
United States federal income tax liability, provided you furnish the required
information to the IRS.
Taxation of Tax-Exempt Entities
The discussion under this heading only applies to you if you are a
tax-
exempttax-exempt entity. Subject to the discussion below regarding a pension-held
REIT, distributions received from us or gain realized on the sale of our stock
will not be taxable as unrelated business taxable income (UBTI), provided that:
. you have not incurred indebtedness to purchase or hold our stock;
. you do not otherwise use our stock in a trade or business unrelated to
your exempt purpose; and
. we, consistent with our present intent, do not hold a residual interest in
a REMIC that gives rise to excess inclusion income as defined under
section 860E of the Code.
If all or a portion of our assets were to be treated as a taxable mortgage
pool, however, a substantial portion of the dividends you receive may be
subject to tax as UBTI.
In addition, a substantial portion of the dividends you receive may
constitute UBTI if we are treated as a "pension-held REIT" and you are a
"qualified pension trust" that holds more than 10% by value of our stock at any
time during a taxable year. For these purposes, a "qualified pension trust" is
any pension or other retirement
34
trust that satisfies the requirements imposed under section 401(a) of the Code.
We will be treated as a "pension-held REIT" if (1) we would not be a REIT if we
had to treat stock held in a qualified pension trust as owned by the trust
(instead of as owned by the trust's multiple beneficiaries) and (2) (a) at
least one qualified pension trust holds more than 25% of our stock by value, or
(b) one or more qualified pension trusts (each owning more than 10% of our
stock by value) hold in the aggregate more than 50% of our stock by value.
Assuming compliance with the ownership limit provisions set forth in our
articles of incorporation, it is unlikely that pension plans will accumulate
sufficient stock to cause us to be treated as a pension-held REIT.
23
If you qualify for exemption under sections 501(c)(7), (c)(9), (c)(17), and
(c)(20) of the Code, then distributions received by you may also constitute
UBTI. We urge you to consult your tax advisors concerning the applicable set
aside and reserve requirements.
United States Federal Income Tax Considerations Applicable to Foreign
Stockholders
The discussion under this heading only applies to you if you are not a U.S.
person (hereafter,(hereinafter, a "foreign stockholder"). A U.S. person is a person who is:
. a citizen or resident of the United States;
. a corporation, partnership, or other entity created or organized in the
United States or under the laws of the United States or of any political
subdivision thereof;
. an estate whose income is includible in gross income for United States
Federal income tax purposes regardless of its source; or
. a trust, if (1) a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
U.S. persons have authority to control all substantial decisions of the
trust, or (2) the trust was in existence on August 26, 1996, was treated
as a domestic trust prior to such date, and has made an election to
continue to be treated as a U.S. person.
This discussion is only a brief summary of the United States federal tax
consequences that apply to you, which are highly complex, and does not consider
any specific facts or circumstances that may apply to you and your particular
situation. We urge you to consult your tax advisors regarding the United States
federal tax consequences of acquiring, holding and disposing of our stock, as
well as any tax consequences that may arise under the laws of any foreign,
state, local or other taxing jurisdiction.
Distributions
Except for distributions attributable to gain from the disposition of real
property interests or distributions designated as capital gains dividends,
distributions you receive from us generally will be subject to the extent of
our earnings and profits, to federal
withholding tax at the rate of 30%, to the extent of our earnings and profits,
unless reduced or eliminated by an applicable tax treaty or unless the
distributions are treated as effectively connected with your United States
trade or business. If you wish to claim the benefits of an applicable tax
treaty, you may need to satisfy certification and other requirements, such as
providing Form W-8BEN. If you wish to claim distributions are effectively
connected with your United States trade or business, you may need to satisfy
certification and other requirements such as providing Form W-8ECI.
Distributions you receive that are in excess of our earnings and profits
will be treated as a tax-free return of capital to the extent of your adjusted
basis in your stock. If the amount of the distribution also exceeds your
adjusted basis, this excess amount will be treated as gain from the sale or
exchange of your stock as described below. If we cannot determine at the time
we make a distribution whether the distribution will exceed our earnings and
profits, the distribution will be subject to withholding at the same rate as
dividends. These withheld amounts, however, will be refundable or creditable
against your United States federal tax liability if it is subsequently
determined that the distribution was, in fact, in excess of our earnings and
profits. If you receive a dividend that is treated as being effectively
connected with your conduct of a trade or business within the United States,
the dividend will be subject to the United States federal income tax on net
income that applies to United States persons generally, and may be subject to
the branch profits tax if you are a corporation.
24
Distributions that we make to you and designate as capital gains dividends,
other than those attributable to the disposition of a United States real
property interest, generally will not be subject to United States federal
income taxation, unless:
. your investment in our stock is effectively connected with your conduct of
a trade or business within the United States; or
. you are a nonresident alien individual who is present in the United States
for 183 days or more in the taxable year, and other requirements are met.
35
Distributions that are attributable to a disposition of United States real
property interests are subject to income and withholding taxes pursuant to the
Foreign Investment in Real Property Act of 1980 (FIRPTA), and may also be
subject to branch profits tax if you are a corporation that is not entitled to
treaty relief or exemption. However, because we do not expect to hold assets
that would be treated asrecognize gain
attributable to the disposition of United States real property interests as
defined by FIRPTA, the FIRPTA provisions should not apply to investment indistributions we
make with respect to our stock.
Gain on Disposition
You generally will not be subject to United States federal income tax on
gain recognized on a sale or other disposition of our stock unless:
. the gain is effectively connected with your conduct of a trade or business
within the United States;
. you are a nonresident alien individual who holds our stock as a capital
asset and are present in the United States for 183 or more days in the
taxable year and other requirements are met; or
. you are subject to tax under the FIRPTA rules discussed below.
Gain that is effectively connected with your conduct of a trade or business
within the United States will be subject to the United States federal income tax on
net income that applies to United States persons generally and may be subject
to the branch profits tax if you are a corporation. However, these effectively
connected gains will generally not be subject to withholding. We urge you to
consult applicable treaties, which may provide for different rules.
Under FIRPTA, you may be subject to tax on gain recognized from a sale or
other disposition of your stock if we were to both (1) hold United States real
property interests and (2) fail to qualify as a domestically controlled REIT. A
REIT qualifies as a domestically-controlled REIT as long as less than 50% in
value of its shares of beneficial interest are held by foreign persons at all
times during the shorter of (1) the previous five years and (2) the period in
which the REIT is in existence. As mentioned above, we do not expect to hold
any United States real property interests. Furthermore, we will likely qualify
as a domestically controlled REIT, although no assurances can be provided
because our shares are publicly traded.
Information Reporting and Backup Withholding Tax
The information reporting and backup withholding tax requirements (discussed
above) will generally not apply to foreign holders in the case of distributions
treated as (1) dividends subject to the 30% (or lower treaty rate) withholding
tax (discussed above), or (2) capital gain dividends. Also, as a general
matter, backup withholding and information reporting will not apply to the
payment of proceeds from shares sold by or through a foreign office of a
foreign broker. However, in some cases (for example, a sale of shares through
the foreign office of a U.S. broker), information reporting is required unless
the foreign holder certifies under penalty of 25
perjury that it is a foreign
holder, or otherwise establishes an exemption. A foreign stockholder may
satisfy this requirement by using an appropriately prepared Form W-8 BEN.
Federal Estate Taxes
In general, if an individual who is not a citizen or resident (as defined in
the Code) of the United States owns (or is treated as owning) our stock at the
date of death, such stock will be included in the individual'sindividual 's estate for
United States Federalfederal estate tax purposes, unless an applicable treaty provides otherwise.
State and Local Taxes
We and our stockholders may be subject to state or local taxation in various
jurisdictions, including those in which we or they transact business or reside.
The state and local tax treatment that applies to us and our
36
stockholders may not conform to the federal income tax consequences discussed
above. Consequently, we urge you to consult your own tax advisors regarding the
effect of state and local tax laws.
PLAN OF DISTRIBUTION
We and any selling stockholders may sell the securities offered pursuant to
this prospectus and any accompanying prospectus supplements to or through one
or more underwriters or dealers, or to investors directly or through agents.
Each prospectus supplement will describe the terms of the securities to which
such prospectus supplement relates, the names of the selling stockholders and
the number of shares of common stock to be sold by each, the name or names of
any underwriters or agents with whom we or the selling stockholders, or both,
have entered into arrangements with respect to the sale of such securities, the
public offering or purchase price of such securities and the net proceeds we or
the selling stockholders will receive from such sale. Any underwriter or agent
involved in the offer and sale of the securities will be named in the
applicable prospectus supplement. We may sell securities directly to investors
on our own behalf in those jurisdictions where we are authorized to do so.
Underwriters may offer and sell the securities at a fixed price or prices,
which may be changed, at market prices prevailing at the time of sale, at
prices related to the prevailing market prices or at negotiated prices. We also
may, from time to time, authorize dealers or agents to offer and sell these
securities upon such terms and conditions as may be set forth in the applicable
prospectus supplement. In connection with the sale of any of these securities,
underwriters may receive compensation from us in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
the securities for whom they may act as agent. Underwriters may sell the
securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters or
commissions from the purchasers for which they may act as agents.
Shares may also be sold in one or more of the following transactions:
(a) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of the shares as agent but may
position and resell all or a portion of the block as principal to facilitate
the transaction;
(b) purchases by a broker-dealer as principal and resale by the
broker-dealer for its own account pursuant to a prospectus supplement;
(c) a special offering, an exchange distribution or a secondary
distribution in accordance with applicable American Stock Exchange or other
stock exchange rules;
(d) ordinary brokerage transactions and transactions in which a
broker-dealer solicits purchasers;
(e) sales "at the market" to or through a market maker or into an
existing trading market, on an exchange or otherwise, for shares; and
(f) sales in other ways not involving market makers or established
trading markets, including direct sales to purchasers.
Broker-dealers may also receive compensation from purchasers of the shares
which is not expected to exceed that customary in the types of transactions
involved.
Any underwriting compensation paid by us to underwriters or agents in
connection with the offering of these securities, and any discounts or
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable prospectus supplement. Any selling
stockholder, underwriter, dealer or agent participating in the distribution of
the securities may be deemed to be an underwriter, as that term is defined in
the Securities Act, of the securities so offered and sold and any discounts or
commissions received by
37
them, and any profit realized by them on the same or resale of the securities
may be deemed to be underwriting discounts and commissions under the Securities
Act.
Underwriters, dealers and agents may be entitled, under agreements entered
into with us, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act. Unless otherwise
set forth in the accompanying prospectus supplement, the obligations of any
underwriters to purchase any of these securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all of
the series of securities, if any are purchased. Underwriters, dealers and
agents may engage in transactions with, or perform services for, us and our
affiliates in the ordinary course of business.
In connection with the offering of the securities hereby, certain
underwriters, and selling group members and their respective affiliates, may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the applicable securities. These transactions may include
stabilization transactions effected in accordance with Rule 104 of Regulation M
promulgated by the SEC pursuant to which these persons may bid for or purchase
securities for the purpose of stabilizing their market price.
The underwriters in an offering of securities may also create a "short
position" for their account by selling more securities in connection with the
offering than they are committed to purchase from us. In that case, the
underwriters could cover all or a portion of the short position by either
purchasing securities in the open market following completion of the offering
of these securities or by exercising any over-allotment option granted to them
by us. In addition, the managing underwriter may impose "penalty bids" under
contractual arrangements with other underwriters, which means that they can
reclaim from an underwriter (or any selling group member participating in the
offering) for the account of the other underwriters, the selling concession for
the securities that are distributed in the offering but subsequently purchased
for the account of the underwriters in the open market. Any of the transactions
described in this paragraph or comparable transactions that are described in
any accompanying prospectus supplement may result in the maintenance of the
price of the securities at a level above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph or in an
accompanying prospectus supplement are required to be taken by any underwriters
and, if they are undertaken, may be discontinued at any time.
Each series of securities will be a new issue of securities and will have no
established trading market other than the common stock which is listed on the
American Stock Exchange. Any common stock sold pursuant to a prospectus
supplement will be listed on the American Stock Exchange, subject to official
notice of issuance. Any underwriters to whom we sell securities for public
offering and sale may make a market in the securities, but such underwriters
will not be obligated to do so and may discontinue any market making at any
time without notice. The securities, other than the common stock, may or may
not be listed on a national securities exchange.
LEGAL MATTERS
The validitylegality of the issuance of the shares offered in this prospectussecurities will be passed upon for us by Kirkpatrick &
Lockhart LLP, Los Angeles, California. Certain legalAll matters described under "Material Federal Income Tax
Consequences" and certain matters with respect toof Maryland law will be
passed upon for us by McKee Nelson LLP, Washington, D.C. In addition, McKee
Nelson LLP, Washington, D.C., is providing the legal opinions referred to under
"Material federal income tax consequences" in this prospectus.
38
EXPERTS
The consolidated financial statements of Impac Mortgage Holdings, Inc. and
of Impac Funding Corp.Corporation as of December 31, 2000 and 1999, and for each of
the years in the three-year period endingended December 31, 2000, have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG LLP, independent auditors, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
26
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document it files at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., in Washington, D.C. 20549. Please
call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the operation of the public reference room. In addition, the
Securities and Exchange Commission maintains an Internet site that contains
our reports, proxy and information statements and other information at
http://www.sec.gov.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information it files with it, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is part of this prospectus, and later
information that we file with the Securities and Exchange Commission will
automatically update and supersede this information. We incorporate by
reference the documents listed below. We also incorporate by reference any
future filings made with the Securities and Exchange Commission under Sections
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934. This
prospectus is part of a registration statement that Impac Mortgage Holdings
has filed with the Securities and Exchange Commission.
. Impac Mortgage Holding's Annual Report on Form 10-K for the year ended
December 31, 2000 filed with the Securities and Exchange Commission on
March 30, 2001.
. Impac Mortgage Holdings's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2001 filed with the Securities and Exchange Commission on
May 15, 2001.
. Impac Mortgage Holding's Current Reports on Form 8-K filed with the SEC
on June 1, 2001, March 30, 2001, March 5, 2001 and January 19, 2001.
. Impac Mortgage Holdings Definitive Proxy Statement dated June 1, 2001
relating to the 2001 Annual Meeting of Stockholders to be held on July
24, 2001.
You may request a copy of these filings, at no cost, by writing our Investor
Relations Department us at the following address: 1401 Dove Street, Suite 100,
Newport Beach, CA 92660, or by calling (949) 475-3700.
2739
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of the common stock being registered
hereby, other than underwriting commissions and discounts, all of which are
estimated except for the Securities and Exchange Commission filing fees.
Item Amount
---- ------
Securities and Exchange Commission registration fee 3,539
Printing and engraving expenses 10,000
Legal fees and expenses 20,000
Accounting fees and expenses 10,000
Miscellaneous expenses 7,500
---------------
Total $51,039.00
===============
Item Amount
---- -----------
Securities and Exchange Commission registration fee $ 62,751.33
Printing and engraving expenses.................... 5,000.00
Legal fees and expenses............................ 50,000.00
Accounting fees and expenses....................... 15,000.00
Miscellaneous expenses............................. 7,248.67
-----------
Total........................................... $140,000.00
===========
Item 15. Indemnification of Directors and Officers.
The Maryland General Corporation Law, as amended from time to time, 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 or bad faith established by a final judgment as being
material to the cause of action. The Registrant's charter contains such a
provision which eliminates such liability to the maximum extent permitted by
Maryland law.
The Registrant's charter 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 (1) any
present or former director or officer or (2) any individual who, while a
director of Registrant and at our request, serves or has served another
corporation, real estate investment trust partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner
or trustee of such corporation, real estate investment trust 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 status as a present or former director or officer of
Registrant. Our bylaws obligate us, 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 (1) any present or former director or
officer who is made a party to the proceeding by reason of his service in that
capacity or (2) any individual who, while a director of Registrant and at our
request, serves or has served another corporation, real estate investment trust
partnership, joint venture, trust, employee benefit plan or any other
enterprise as a director, officer, partner or trustee of such corporation, real
estate investment trust partnership, joint venture, trust, employee benefit
plan or other enterprise and who is II-1
made a party to the proceeding by reason of
his service in that capacity. The charter and bylaws of the Registrant also
permit it to indemnify and advance expenses to any person who served a
predecessor of Registrant in any of the capacities described above and to any
of our employees or agents or a predecessor of Registrant.
The Maryland General Corporation Law requires a corporation (unless its
charter provides otherwise, which our charter does not) to indemnify a director
or officer who has been successful, on the merits or otherwise, in the defense
of any proceeding to which he is made a party by reason of his service in that
capacity. Maryland law permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (1)
the act or omission of the director or officer was material to the matter
giving rise to the
II-1
proceeding and (i) was committed in bad faith or (ii) was the result of active
and deliberate dishonesty, (2) the director or officer actually received an
improper personal benefit in money, property or services or (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 Maryland law, 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 Maryland law
permits a corporation to advance reasonable expenses to a director or officer
upon the corporation's receipt of (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 (2) a written undertaking
by him 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.
In 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. The Registrant maintains for the
benefit of its officers and directors, officers' and directors' insurance.
Item 16. Exhibits
1.1 The form of any Underwriting Agreement will be filed as an exhibit to a current report of the Registrant
on Form 8-K and incorporated by reference herein.
3.1 Charter of the Registrant (incorporated by reference to the corresponding exhibit number to the
Registrant's Registration Statement on Form S-11, as amended (File No. 33-96670), filed with the
Securities and Exchange Commission on September 7, 1995).
3.1(a) Certificate of correction of the Registrant (incorporated by reference to exhibit 3.1(a) of the Registrant's
10-K for the year ended December 31, 1998).
3.1(b) Articles of Amendment of the Registrant (incorporated by reference to exhibit 3.1(b) of the Registrant's
10-K for the year ended December 31, 1998).
3.1(c) Articles of Amendment for change of name to charter of the Registrant (incorporated by reference to
exhibit number 3.1(a) of the Registrant's Current Report on Form 8-K, filed February 11, 1998).
3.1(d) Articles Supplementary and Certificate of Correction for Series A Junior Participating Preferred Stock of
the Registrant (incorporated by reference to exhibit 3.1(d) of the Registrant's 10-K for the year ended
December 31, 1998).
3.1(e) Articles Supplementary for Series B 10.5% Cumulative Convertible Preferred Stock of the Registrant
(incorporated by reference to exhibit 3.1(b) of the Registrant's Current Report on Form 8-K,
December 23, 1998).
3.1(f) Articles Supplementary for Series C 10.5% Cumulative Convertible Preferred Stock of the Registrant
(incorporated by reference to the corresponding exhibit number of the Registrant's Quarterly Report
on Form 10-Q for the period ending September 30, 2000).
3.1(g) Certificate of Correction for Series C Preferred Stock of the Registrant (incorporated by reference to the
corresponding exhibit number of the Registrant's Quarterly Report on Form 10-Q for the period
ending September 30, 2000).
3.2 Bylaws of the Registrant, as amended and restated (incorporated by reference to the corresponding
exhibit number of the Registrant's Quarterly Report on Form 10-Q for the period ending March 31,
1998).
4 Form of Common Stock certificate (incorporated by reference to Exhibit 4.1 of Registrant's Registration
Statement of Form S-11 as amended (File No. 33-96670), filed with the Securities and Exchange
Commission on September 7, 1995).
II-2
3.1(d) Articles Supplementary and Certificate of Correction for Series A
Junior Participating Preferred Stock of the Registrant
(incorporated by reference to exhibit 3.1(d) of the Registrant's
10-K for the year ended December 31, 1998)
3.1(e) Articles Supplementary for Series B 10.5% Cumulative Convertible
Preferred Stock of the Registrant (incorporated by reference to
exhibit 3.1(b) of the Registrant's Current Report on Form 8-K,
filed December 23, 1998)
3.1(f) Articles Supplementary for Series C 10.5% Cumulative Convertible
Preferred Stock of the Registrant (incorporated by reference to
the corresponding exhibit number of the Registrant's Quarterly
Report on Form 10-Q for the period ending September 30, 2000)
3.1(g) Certificate of Correction for Series C Preferred Stock of the
Registrant (incorporated by reference to the corresponding
exhibit number of the Registrant's Quarterly Report on Form 10-Q
for the period ending September 30, 2000)
3.2 Bylaws of the Registrant, as amended and restated (incorporated
by reference to the corresponding exhibit number of the
Registrant's Quarterly Report on Form 10-Q for the period ending
March 31, 1998)
4 Form of Common Stock certificate (incorporated by reference to
Exhibit 4.1 of Registrant's Registration Statement of Form S-11
as amended (File No. 33-96670), filed with the Securities and
Exchange Commission on September 7, 1995)
5.1 Opinion of Kirkpatrick & Lockhart LLP as to the validity of the
securities being registered
5.2 Opinion of McKee Nelson LLP as to the validity of the securities
being registered
8 Opinion of McKee Nelson LLP as to tax matters
23.1 Consent of KPMG LLP regarding Impac Mortgage Holdings, Inc.
23.2 Consent of KPMG LLP regarding Impac Funding Corporation
23.3 Consent of Kirkpatrick & Lockhart LLP (contained in Exhibit 5.1)
23.4 Consent of McKee Nelson LLP (contained in Exhibit 5.2)
23.5 Consent of McKee Nelson LLP (contained in Exhibit 8)
24 Power of Attorney (contained on Signature page)
- ------------
4.2 Rights Agreement between the Registrant and BankBoston, N.A. (incorporated by reference to
exhibit 4.2 of the Registrant's Registration Statement on Form 8-A as filed with the Securities and
Exchange Commission on October 14, 1998).
4.2(a) Amendment No. 1 to Rights Agreement between the Registrant and BankBoston, N.A. (incorporated by
reference to Exhibit 4.1(a) of the Registrant's Registration Statement on Form 8-A/A as filed with the
Securities and Exchange Commission on December 23, 1998).
4.3 Form of Senior Indenture.
4.4 Form of Subordinated Indenture.
4.5 The form of any Senior Note with respect to each particular series of Senior Notes issued hereunder will
be filed as an exhibit to a current Report of the Registrant on Form 8-K and incorporated by reference
herein.
4.6 The form of any Subordinated Note with respect to each particular series of Subordinated Notes issued
hereunder will be filed as an exhibit to a current Report of the Registrant on Form 8-K and
incorporated by reference herein.
4.7 The form of any articles supplementary with respect to any preferred stock issued hereunder will be
filed as an exhibit to a current Report of the Registrant on Form 8-K and incorporated by reference
herein.
4.8 The form of any Warrant Agreement with respect to any warrant served hereunder will be filed as an
exhibit to a current Report of the Registrant on Form 8-K and incorporated by reference herein.
4.9 The form of any warrant with respect to each series of warrants will be filed as an exhibit to a current
Report of the Registrant on Form 8-K and incorporated by reference herein.
5.1 Opinion of Kirkpatrick & Lockhart LLP.
5.2 Opinion of McKee Nelson LLP.
8 Opinion of McKee Nelson LLP as to tax matters.
12 Computation of Ratio of Earnings to Fixed Charges and Preference Dividends.
23.1 Consent of KPMG LLP regarding Impac Mortgage Holdings, Inc.
23.2 Consent of KPMG LLP regarding Impac Funding Corporation.
23.3 Consent of Kirkpatrick & Lockhart LLP (contained in Exhibit 5.1).
23.4 Consent of McKee Nelson LLP (contained in Exhibit 5.2).
23.5 Consent of McKee Nelson LLP (contained in Exhibit 8).
24 Power of Attorney (contained on signature page).
25 The form T-1 Statement of Eligibility of Trustee under the Trust Indenture Act of 1934 will be filed as
an exhibit to a current report of the Registrant on Form 8-K and incorporated by reference herein.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding
II-3
the foregoing, any increase or decrease in volume 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 end 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 a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
II-3
(c) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement.Statement;
provided, however, that the undertakings set forth in paragraph (a) and (b)
above shall not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") 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 statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
For 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 of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective. For the
purpose of determining any liability under the Securities Act of 1933, each
post-effective 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.
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
certifies 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, thereunto duly
authorized, in the City of Newport Beach, State of California, on the 19th30/th/
day of June,November, 2001.
IMPAC MORTGAGE HOLDINGS, INC.
By: /s/ JOSEPH R. TOMKINSON
-----------------------------__________________________________
Joseph R. Tomkinson,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes anand appoints Joseph R. Tomkinson and Richard J. Johnson and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution for him in any and all capacities, to sign (1) any and
all amendments (including post-effective amendments) to this Registration
Statement and (2) any registration statement or post-effective amendment
thereto to be filed with the Securities and Exchange Commission pursuant to
Rule 462(b) under 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, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his 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 by the following persons in the
capacities and on the dates indicated.
Names Title Date
- --------- ----- ----
/S//s/ JOSEPH R. TOMKSONTOMKINSON Chairman of the Board and Chief Executive November 30, 2001
- ----------------------- Officer
----------------------- (Principal Executive Officer)
June 19, 2001
Joseph R. Tomkinson
/S//s/ WILLIAM S. ASHMORE Chief Operating Officer, President and November 30, 2001
- ----------------------- Director
William S. Ashmore
/s/ RICHARD J. JOHNSON Chief Financial Officer and Executive Vice November 30, 2001
- ----------------------- President
------------------------- (Principal Accounting and
Financial Officer) June 19, 2001
Richard J. Johnson /S/ WILLIAM S. ASHMORE
-------------------------
William S. Ashmore Director June 19, 2001
/S/Financial Officer)
/s/ JAMES WALSH -------------------------Director November 30, 2001
- -----------------------
James Walsh
Director June 19, 2001
/S//s/ FRANK P. FILIPPS Director November 30, 2001
- -----------------------
Frank P. Filipps
Director June 19, 2001
/S//s/ STEPHAN R. PEERS ----------------------Director November 30, 2001
- -----------------------
Stephan R. Peers
Director June 19, 2001
/S//s/ WILLIAM E. ROSE ---------------------Director November 30, 2001
- -----------------------
William E. Rose
Director June 19, 2001
/S//s/ LEIGH J. ABRAMS ---------------------Director November 30, 2001
- -----------------------
Leigh J. Abrams Director June 19, 2001
II-5