As filed with the Securities and Exchange Commission on July 31,August 28, 2001
--
Registration No. 333-63456
---------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 12
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IMPAC MORTGAGE HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its charter)
Maryland 33-0675505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1401 Dove Street
Newport Beach, California 92660
(949) 475-3600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Joseph R. Tomkinson
Chief Executive Officer
Impac Mortgage Holdings, Inc.
1401 Dove Street
Newport Beach, California 92660
(949) 475-3600
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
Thomas J. Poletti, Esq.
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 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 form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of 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. [_]
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*$14,152,541.00(1) $3,538.14(2)
par share
================================================================================
===========================-----------------------------------------------------------------------------------------------------------
Common Stock,
$0.01 par value 4,232,288 $6.76 $28,610,266.00(3) $7,152.57
par share
===========================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as
amended, and based on the average of the high and low sale prices of
the common stock reported as of June 14, 2001.
*(2) A filing fee of in the amount of $3,538.14 was previously paid.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as
amended, and based on the average of the high and low sale prices of
the common stock reported as of August 27, 2001.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion, dated July 31,August 28, 2001
2,118,6446,350,932 Shares
IMPAC MORTGAGE HOLDINGS, INC.
COMMON STOCK
This prospectus relates to the offer and sale from time to time by Impac
Funding Corporation, Inc., a California corporation, (theand HBK Master Fund L.P.
(each a "selling stockholder" and together the "selling stockholders"), of up
to 2,118,6446,350,932 shares of our common stock.
The selling stockholderstockholders will receive all of the proceeds from the sale of
the common stock, less any discounts, commissions or other compensation that
itthey may pay 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.
Our common stock is traded on the American Stock Exchange under the symbol
"IMH." On June 18,August 24, 2001, the last reported sale price for the common stock on
the American Stock Exchange was $6.78$7.15 per share.
------------------------
Your purchase of the common stock involves a high degree of risk.
See "Risk Factors" beginning at page 1.
------------------------
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.............................................................Summary................................................................. i
Risk Factors........................................................Factors............................................................ 1
Use of Proceeds..................................................... 15Proceeds......................................................... 14
Selling Security HolderHolders and Plan of Distribution.................... 15Distribution....................... 14
Description of Capital Stock........................................Stock............................................ 16
Material Federal Income Tax Consequences............................Consequences................................ 18
Legal Matters....................................................... 26
Experts............................................................. 26Matters........................................................... 25
Experts................................................................. 25
Where You Can Find More Information................................. 27Information..................................... 26
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 shareholderImpac Funding Corporation 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). HBK Master Fund
L.P. purchased 400,000 shares of our Series C 10.5% Cumulative Convertible
Preferred Stock from us in December 1998 and 400,000 shares from LBP, Inc. on
February 20, 2001. The shares offered under this prospectus were issued pursuant
to the conversion of the preferred stock.
Our principal executive offices are located at1401at 1401 Dove Street, Newport
Beach, California, 92660. Our telephone number is (949) 475-3600.
In this prospectus, the terms "Company," "we," "us," and "our" refer to
Impac Mortgage Holdings, Inc., a Maryland corporation. The term "IFC" or
"selling stockholder" refers to Impac Funding Corporation, a California
corporation. 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 FACTORS
An investment in our common stock involves a high degree of risk. You should
consider the following factors carefully before deciding to purchase shares of
our common stock. Additional risks not presently known to us or that we
currently deem immaterial may also impair our business operations.
Inability to Generate Liquidity May Adversely Affect Our Operations
If we cannot generate sufficient liquidity, we will be unable to continue
our operations, grow our asset base and pay dividends. We have traditionally
derived our liquidity from three sources:
. financing facilities provided to us by others to acquire mortgage
assets;
. whole loan sales and securitizations of acquired mortgage loans; and
. our issuance of equity securities.
However, 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. If we cannot raise cash by selling debt and 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 ability to pay dividends.
Margin Calls on Financing 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' securitization
interests, and
. the widening of returns expected by institutional investors on
securitization interests over the prevailing Treasury rate.
As a result, many mortgage loan originators, including our company, were
unable to access the securitization market on favorable terms, which 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. 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 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. 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 Securitizations for Liquidity
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 may be on less than favorable terms. In addition, gains on
sales from our securitizations represent a significant portion of our earnings.
1
Several factors could affect our ability to complete securitizations of our
mortgages, including:
. conditions in the securities markets;
. credit quality of the mortgage loans originated or purchased by our
mortgage operations;
. volume of our mortgage loan originations and purchases; and
. ability to obtain credit enhancement.
If we are unable to profitably securitize a significant number of our
mortgage loans in a particular financial reporting period, then it could result
in 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 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 connections with our 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 earnings and 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 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 Losses
Risks of Use of Collateralized 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
mortgage-backed securities. 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 collateralized mortgage obligation collateral exposes our
operations to greater credit losses than the use of securitization techniques
that are treated as sales. In creating a collateralized mortgage obligation, we
make a cash equity investment to fund collateral in excess of the amount of the
securities issued. If we experience credit losses on the pool of loans subject
to the collateralized mortgage obligation greater than we expected, the value
of our equity investment decreases and we would have to adjust the value of the
investment in our financial statements.
2
Cost of Borrowings May Exceed Return on Assets
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.
Default Risks Under Financing Facilities
If we default under our collateralized borrowings, 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.
Risk of Lack of Return of Investment on Liquidation
We have pledged a substantial portion of our assets to secure the repayment
of collateralized mortgage obligations issued in securitizations, our financing
facilities or 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 were liquidated.
Interest Rate Fluctuations May Adversely Affect Our Operating Results
Our operations, each as a mortgage loan originator and 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 by our mortgage operations and decrease the
demand for warehouse financing 3
provided by our warehouse lending operations to
originators of mortgage loans. 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 mortgage loans at lower long-term
interest rates. Increased loan prepayments could lead to a reduction in the
number of loans we service, the fees we receive for loan servicing and our loan
servicing 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 yet sold or securitized.
Risks of Repricing of Assets and Liabilities
Our principal source of revenue is net interest income or net interest
spread, 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 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.
3
Additionally, the rates paid on our borrowings and the rates received on our
assets may be based upon different indices (i.e., 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 Mortgages
A significant portion of the mortgage assets held by our long-term
investment operations are adjustable rate mortgages or bear interest based upon
short-term interest rate indices. We generally fund these mortgage assets with
borrowings. To the extent that there is a difference between the interest rate
index used to determine the interest rate on our adjustable rate mortgage
assets and the interest rate index used to determine the borrowing rate for our
related financing, our business may be negatively impacted.
Interest Rate Caps
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. 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
Some of 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.
4
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 and general economic conditions. Most of our
adjustable rate mortgages and those backing mortgage-backed securities are
originated within six months of the time we purchased the 5
mortgages and
generally bear initial interest rates which 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, we would not have received interest at the
fully-indexed rate during such period. 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 our
mortgage loans that we acquired 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 future interest income.
Value of Our Portfolio of Mortgage-Backed Securities May be Adversely Affected
We invest in mortgage-backed securities known as "interest-only,"
"principal-
only,"principal-only," residual interest and 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 losses prior to the related senior securities. On a
percentage basis, the risk associated with holding residual interest and
subordinated securities is greater than holding the underlying mortgage loans
directly due to the concentration of losses in the subordinated securities.
5
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 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.
We Undertake Additional Risks by Acquiring and Investing in Mortgage Loans
Risk of Failure to Obtain 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
private mortgage insurance, but we only require this insurance in limited
circumstances. 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. In addition,
since defaulted mortgage loans are not considered eligible collateral under our
borrowing arrangements, we bear the risk of being required to own these loans
without the use of borrowed funds until they are ultimately liquidated.
Greater Risks from Non-Conforming Mortgage Loans
Non-conforming residential mortgage loans are residential mortgages that do
not qualify for purchase by government sponsored agencies such as the Federal
National Mortgage Association 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 such loans. Credit risks
associated with non-conforming mortgage loans are greater than conforming
mortgage loans. The interest rates we charge on non-conforming 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 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, lower levels of liquidity may cause us to hold loans or other
mortgage-related assets supported by these loans. 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.
Second Mortgages Entail Greater Risks
Our security interest in the property securing second mortgages is
subordinated to the interest of the first mortgage holder. 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.
6
Geographic Concentration of Mortgage 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 subordinated interests are secured by properties in California. Certain
parts of California have experienced an economic downturn in past years and
have suffered the effects of certain natural hazards.
Potential Losses Related to Recourse 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 the sellers of mortgage loans, we cannot assure you
that they will honor their obligations. We also engaged 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.
7
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.
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 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.
7
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-
backedmortgage-backed securities with:
. other mortgage conduit programs;
. investment banking firms;
. savings and loan associations;
. banks;
. thrift and loan associations;
. finance companies;
. mortgage bankers;
8
. 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 to 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 could
cause us to have to pay higher premiums for loans.
9
If We Fail to Maintain Our REIT Status We May be Subject to Taxation as a
Regular Corporation
Consequences if We Fail to Qualify as a REIT
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
Federal 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 Federal income tax at regular corporate rates. We also could be
subject to the Federal 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.
Effect of Distribution 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 Liabilities
Even if we qualify as a REIT, we may be subject to certain Federal, state,
and local taxes on our income, property and operations that could reduce
operating cash flow.
Recent Developments
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
9
subsidiary will constitute 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 that 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 Characterization of Distributions or Gain on Sale as Unrelated
Business Taxable Income to Tax-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 Us to Increased
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 IRS
may successfully maintain that our financing arrangements do qualify as a
taxable mortgage pool. In addition, we may enter into arrangements creating
excess inclusion income in the future.
Our Operations May be Adversely Affected if We are Subject 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.
1110
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 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 Revisions in Policies and Strategies at the Discretion of Our Board of
Directors May be Affected 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 Price of Our 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 Relating to Common 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 more of the voting power of our then-
outstanding
11
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-
yearfive-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. 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
12
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;
. will consider the shares held in trust for the benefit of our Company;
and
. will either direct the affected person to sell the shares and turn over
any profit to us, or
. we will redeem the shares. If we redeem the shares, it will be at a
price equal to the lesser of:
(a) the price paid by the transferee 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.
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.
Limitations on Acquisition and Change in Control 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.
1413
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of common shares
pursuant to this prospectus.
SELLING SECURITY HOLDERHOLDERS AND PLAN OF DISTRIBUTION
All of the common stock registered for sale under this prospectus is owned
by the selling stockholder. All of thestockholders. The shares offered in this prospectus by IFC were
acquired from LBP, Inc. (OTC Bulletin Board: LBPI.OB). The shares offered in
this prospectus by HBK Master Fund L.P. were acquired from us and LBP, Inc.
The following table sets forth the namenames of the selling stockholder,stockholders, the
number of shares of common stock which may be deemed to be beneficially owned
by the selling stockholderstockholders and the maximum number of shares which may be
offered by the selling stockholder.
-----------------------------------------------------------------------
Name of Shares of Number of Shares of Common
selling stock Common Stock Shares of Stock Beneficially
holder Beneficially Common Stock Owned After
Owned Prior to Being Offered Offering
Offering
-----------------------------------------------------------------------stockholders.
Shares of Number of Shares of
Common Stock Shares of Common Stock
Beneficially Common Stock Beneficially
Owned Prior to Being Owned After
Name of selling stockholders Offering Offered Offering
---------------------------- -------------- ------------ ------------
Impac Funding Corporation, Inc. ... 2,118,644 2,118,644 0
HBK MasterFund L.P. ............... 4,232,288 4,232,288 0
Funding
Corporation,
Inc.
-----------------------------------------------------------------------
IMH owns 100% of the non-voting preferred stock of, and 99% of the economic
interest in, IFC. Joseph R. Tomkinson, IMH's Chairman of the Board and Chief
Executive Officer and IFC's Chief Executive Officer and a director is an owner
of one-third of the common stock of IFC. William S. Ashmore, IMH's President,
Chief Operating Officer and a director and IFC's President and a director is an
owner of one-third of the common stock of IFC. Richard J. Johnson, IMH's
Executive Vice President and Chief Financial Officer and Executive Vice
President, Chief Financial Officer and a director of IFC, is an owner of one-
third of the common stock of IFC.
HBK Investments L.P. has voting and investment control over the securities
held in the name of HBK Master Fund L.P. pursuant to an Investment Management
Agreement. Each of Harlan B. Korenvaes, Kenneth M. Hirsh, Laurence H. Lebowitz,
William E. Rose, Richard L. Booth, David C. Haley and Jamiel A. Akhtar may be
deemed to have voting and investment control over such securities as the
members of HBK Management LLC, the general partner of HBK Partners II L.P.,
which is the general partner of HBK Investments L.P. William E. Rose is a
director of IMH.
The selling stockholderstockholders 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 commissions to be received
by the underwriters, dealers or agents;
14
. 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.
The selling stockholderstockholders and any underwriters, broker/dealers or agents that
participate in the distribution of the shares may be deemed to be
"underwriters" within the meaning of the Securities Act.
15
DESCRIPTION OF CAPITAL STOCK
The following is a brief description of the material terms of the securities
to be registered. This description is not complete and is subject and qualified
by reference to Maryland law and our charter and 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."
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.
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.
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.
16
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 of
. 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 trust
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 of
. 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.
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 Code 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
stating
. the name and address of such owner
. the number of shares of each class and series of our stock beneficially
owned 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.
17
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
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. 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;
. stockholders whose functional currency is not the United States dollar;
or
. stockholders that are tax-exempt organizations or foreign taxpayers.
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 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.
18
REIT Qualification Requirements
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
(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--
(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,
and
(3) we may not hold securities that have a value of more than 10
percent 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
19
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 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 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 just 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" 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 least 90% of the Built
in Gain recognized net of the tax we would pay on such gain. Built in Gain 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
shareholders 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.
20
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" 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 21
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
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 Stockholders
Unless you are a tax-exempt entity, distributions that we make to you,
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.
21
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 the stock, which gain or loss will be long-termlong-
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 the stock and (2) your proportionate
share of any long-term capital gains that we retain (see the discussion under
the caption Distribution Requirements).
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
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 Withholding
For each calendar year, we will report to our domestic 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 domestic 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.
22
Taxation of Tax-Exempt Entities
The discussion under this heading only applies to you if you are a tax-
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 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 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, "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.
23
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%, 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.
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 as United States real property interests as defined by
FIRPTA, the FIRPTA provisions should not apply to investment in 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.
24
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's estate for
United States Federal 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 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.
LEGAL MATTERS
The validity of the issuance of the shares offered in this prospectus will
be passed upon for us by Kirkpatrick & Lockhart LLP, Los Angeles, California.
Certain legal matters described under "Material Federal Income Tax
Consequences" and certain matters with respect to Maryland law will be passed
upon for us by McKee Nelson LLP, Washington, D.C.
EXPERTS
The consolidated financial statements of Impac Mortgage Holdings, Inc. and
of Impac Funding Corp. as of December 31, 2000 and 1999, and for each of the
years in the three-year period ending 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.
2625
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 ReportReports on Form 10-Q for the quarter
ended March 31, 2001 filed with the Securities and Exchange Commission on
May 15, 2001 and for the quarter ended June 30, 2001 filed with the
Securities and Exchange Commission on August 14, 2001.
. Impac Mortgage Holding's Current Reports on Form 8-K filed with the SEC
on July 31, 2001, June 27, 2001, 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.Stockholders.
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.
2726
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 3,53910,700
Printing and engraving expenses 10,000
Legal fees and expenses 20,000
Accounting fees and expenses 10,000
Miscellaneous expenses 7,50015,000
---------------
Total $51,039.00$65,700.00
===============
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 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 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.
Item 16. Exhibits
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)
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)
- ------------
* Previously filed
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 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.
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.
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 31/st/28th day
of July,August, 2001.
IMPAC MORTGAGE HOLDINGS, INC.
By: /s/ RICHARD J. JOHNSON
-----------------------------
Richard J. Johnson
Chief Financial Officer and
Executive Vice President
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/ * Chairman of the Board and Chief Executive Officer
----------------------- (Principal Executive Officer) July 31,August 28, 2001
Joseph R. Tomkinson
/S/ Richard J. JOHNSON Chief Financial Officer and Executive Vice President
------------------------- (Principal Accounting and Financial Officer) July 31,August 28, 2001
Richard J. Johnson
/S/ *
-------------------------
William S. Ashmore Director July 31,August 28, 2001
/S/ *
-------------------------
James Walsh Director July 31,August 28, 2001
/S/ *
-----------------------
Frank P. Filipps Director July 31,August 28, 2001
/S/ *
----------------------
Stephan R. Peers Director July 31,August 28, 2001
/S/ *
---------------------
William E. Rose Director July 31,August 28, 2001
/S/ *
---------------------
Leigh J. Abrams Director July 31,August 28, 2001
* By: /s/ Richard J. Johnson
----------------------
Richard J. Johnson
Attorney-in-fact
II-5