<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
20371 IRVINE AVENUE
SANTA ANA HEIGHTS, CALIFORNIA 92707
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of IMPERIAL CREDIT MORTGAGE HOLDINGS,
INC., a Maryland corporation (the "Company"), will be held at the Sutton Place
Hotel, 4500 MacArthur Boulevard, Newport Beach, California 92660, on July 22,
1997, at 9:00 a.m. Pacific Standard Time. Only stockholders of record at the
close of the business on May 28, 1997, (the "Record Date") will be entitled to
vote.
The Annual Meeting of the Stockholders of the Company is being held for the
following purposes:
1. To elect a Board of Directors to serve for the ensuing year;
2. To consider and act upon a proposal to ratify the appointment of KPMG
Peat Marwick LLP as the independent accountants of the Company for the year
ending December 31, 1997; and
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only holders of Common Stock of record at the close of business on May 28,
1997, will be entitled to vote at the meeting.
Your proxy is enclosed. You are cordially invited to attend the meeting, but
if you do not expect to attend, or if you plan to attend, but desire the proxy
holders to vote your shares, please date and sign your proxy and return it in
the enclosed postage paid envelope. The giving of this proxy will not affect
your right to vote in person in the event you find it convenient to attend.
Please return the proxy promptly to avoid the expense of additional proxy
solicitation.
Dated: June 13, 1997
For the Board of Directors
/s/ Richard J. Johnson
Richard J. Johnson, Secretary
<PAGE>
[LOGO OF IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.]
----------------
PROXY STATEMENT
----------------
FOR ANNUAL MEETING TO BE HELD
JULY 22, 1997, AT 9:00 A.M. PACIFIC STANDARD TIME
The Annual Meeting of Stockholders of Imperial Credit Mortgage Holdings,
Inc. (the "Company") will be held on July 22, 1997 at 9:00 a.m. Pacific
Standard Time at the Sutton Place Hotel, 4500 MacArthur Boulevard, Newport
Beach, California 92660 (the "Meeting"). The approximate mailing date for this
proxy statement and the enclosed proxy is June 13, 1997. If a proxy in the
accompanying form is duly executed and returned, the shares represented by the
proxy will be voted as directed. If no direction is given, the shares
represented by the proxy will be voted for the election of the six (6)
nominees for Director named herein and for the ratification of the appointment
of KPMG Peat Marwick LLP as the Company's independent accountants for the year
ending December 31, 1997. Any proxy given may be revoked at any time prior to
its exercise by notifying the Secretary of the Company in writing of such
revocation, by giving another proxy bearing a later date, or by attending and
voting in person at the Meeting.
The cost of this solicitation of proxies will be borne by the Company.
Solicitations will be made by mail. In addition, the officers and regularly
engaged employees of the Company may, in a limited number of instances,
solicit proxies personally or by telephone. The Company will reimburse banks,
brokerage firms, other custodians, nominees and fiduciaries for reasonable
expenses incurred in sending proxy materials to beneficial owners of Common
Stock of the Company.
The Company's Annual Report to Stockholders for the year ended December 31,
1996, is concurrently being provided to each stockholder.
Holders of Common Stock of record at the close of business on May 28, 1997
will be entitled to vote at the Meeting. There were 9,639,784 shares of Common
Stock, $.01 par value per share, outstanding at that date. Each share is
entitled to one vote and a majority of the shares of Common Stock outstanding
is necessary to constitute a quorum for the Meeting. The affirmative vote of a
plurality of all of the votes cast at a meeting at which a quorum is present
is necessary for the election of a director. For purposes of the election of
directors, abstentions will not be counted as votes cast and will have no
effect on the result of the vote, although they will count toward the presence
of a quorum. The affirmative vote of a majority of all votes cast at a meeting
at which a quorum is present is necessary for any other matter which may
properly come before the meeting, unless more than a majority of votes cast is
required by statute or by the Charter of the Company. For purposes of the vote
on other matters, abstentions will not be counted as votes cast and will have
no effect on the result of the vote, although they will count toward the
presence of a quorum.
1
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Directors are elected annually to serve until the next annual
meeting of stockholders and thereafter until their successors are elected. The
Company's Amended and Restated Articles of Incorporation and amendments
thereto (the "Charter") and Bylaws currently provide for a variable Board of
Directors with a range of between three and 15 members. The Company's Bylaws
give the Board the authority to establish, increase or decrease the number of
directors. The size of the Company's Board is currently set at six. No proxy
will be voted for more than six nominees for Director.
Unless otherwise directed by stockholders, the proxy holders will vote all
shares represented by proxies held by them for the election of the maximum
number of the following nominees, all of whom are now members of and
constitute the Company's Board of Directors. The Company is advised that all
of the nominees have indicated their availability and willingness to serve if
elected. In the event that any nominee becomes unavailable or unable to serve
as a Director of the Company prior to the voting, the proxyholders will
refrain from voting for the unavailable nominee or will vote for a substitute
nominee in the exercise of their best judgment.
INFORMATION CONCERNING NOMINEES
The following table sets forth certain information concerning the nominees
of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
H. Wayne Snavely(2)..... 55 Chairman of the Board
Joseph R. Tomkinson(1).. 49 Vice Chairman of the Board and Chief
Executive Officer
William S. Ashmore...... 47 President, Chief Operating Officer and Director
James Walsh+(1)(2)...... 46 Director
Frank P. Filipps+(1)(2). 49 Director
Stephan R. Peers+(1)(2). 44 Director
</TABLE>
- --------
+ Unaffiliated Director
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
H. WAYNE SNAVELY has been Chairman of the Board of the Company since its
formation. He has been Chairman of the Board and Chief Executive Officer of
Imperial Credit Industries, Inc. ("ICII") (NASDAQ-ICII) since December 1991.
Mr. Snavely is also Chairman of the Board of Southern Pacific Funding
Corporation (NYSE-SFC) ("SPFC"), and of Imperial Credit Advisors, Inc.
("ICAI"), the Manager. He has been a Director of Imperial Bancorp and Imperial
Bank since 1993, and was a Director of Imperial Bank from 1975 to 1983. From
1983 to February 1991, Mr. Snavely served as Executive Vice-President of
Imperial Bancorp and Imperial Bank. During the years 1983 through 1986, Mr.
Snavely was employed as Chief Financial Officer of Imperial Bancorp and
Imperial Bank. Mr. Snavely is a Certified Public Accountant.
JOSEPH R. TOMKINSON has been Vice Chairman of the Board and Chief Executive
Officer of the Company and Chairman of the Board and Chief Executive Officer
of ICI Funding Corporation ("ICIFC") and Imperial Warehouse Lending Group,
Inc. ("IWLG") since their formation. Mr. Tomkinson is also Vice Chairman of
the Board of ICAI. Mr. Tomkinson served as President of ICII from January 1992
to February 1996 and, from 1986 to January 1992, he was President of Imperial
Bank Mortgage, a subsidiary of Imperial Bank, one of the companies that
combined to become ICII in 1992. Mr. Tomkinson has been a Director of ICII
since December 1991. From 1984 to 1986, he was employed as Executive Vice
President of Loan Production for American Mortgage Network, a privately owned
mortgage banker. Mr. Tomkinson brings 22 years of combined experience in real
estate, real estate financing and mortgage banking to the Company.
2
<PAGE>
WILLIAM S. ASHMORE has been President and Chief Operating Officer of the
Company, Executive Vice President and a Director of ICIFC and President and a
Director of IWLG since their formation. In March 1997, Mr. Ashmore became
President of ICIFC. From August 1993 to February 1996, he was Executive Vice
President and a Director of Secondary Marketing at ICII, having been its
Senior Vice President of Secondary Marketing since January 1988. From 1985 to
1987, he was Chief Executive Officer and Vice Chairman of the Board of Century
National Mortgage Corporation, a wholesale mortgage banking company. From 1978
to 1985, Mr. Ashmore was President and co-owner of Independent Homes Real
Estate Company, which evolved in 1980 into a mortgage banking firm that was
sold to Century National Bank in 1985. Mr. Ashmore has over 20 years of
combined experience in real estate, real estate financing and mortgage
banking.
JAMES WALSH has been a Director of the Company since August 1995. Mr. Walsh
is an Executive Vice President of Walsh Securities, Inc. where he directs
mortgage loan production, sales and securitization. Mr. Walsh was an executive
of Donaldson, Lufkin and Jenrette Securities Corporation from January 1989
through March 1996 where he oversaw residential mortgage securitization,
servicing brokerage and mortgage banking services. From February 1987 to
December 1988, Mr. Walsh was an executive in the mortgage banking department
at Bear Stearns & Company. From December 1985 to February 1987, Mr. Walsh was
a senior banking officer at Carteret Savings Bank.
FRANK P. FILIPPS has been a Director of the Company since August 1995. Mr.
Filipps was elected President of CMAC Investment Corporation and Chairman,
President and Chief Executive Officer of Commonwealth Mortgage Assurance
Company ("CMAC") in January 1995. In May 1995, Mr. Filipps was elected a
Director of CMAC Investment Corporation, and in January 1996, he was elected
Chief Executive Officer of CMAC Investment Corporation. Mr. Filipps joined
CMAC in 1992 as Senior Vice President and Chief Financial Officer, where he
was responsible for the company's financial, investment and data processing
operations, as well as legal and human resources functions. In 1994, Mr.
Filipps was promoted to Executive Vice President and Chief Operating Officer
for both CMAC Investment Corporation and CMAC, where his additional
responsibilities included the company's sales, marketing, underwriting and
risk management. In 1975, Mr. Filipps joined American International Group and,
from 1989 to 1992, he was Vice President and Treasurer. Prior to that, he was
a Second Vice President for Chase Manhattan Bank, N.A., in New York.
STEPHAN R. PEERS has been a Director of the Company since October 1995.
Since April 1993, Mr. Peers has been an Executive Vice President of
International Strategic Finance Corporation, Ltd., where he performs corporate
finance services for overseas issuers. From April 1989 to April 1993, Mr.
Peers was a Vice President in corporate finance at Montgomery Securities where
he specialized in financial services institutions. From March 1987 to March
1989, Mr. Peers was a Vice President at The First Boston Corporation in
mortgage finance specializing in mortgage related products. Mr. Peers has
served as a Managing Director of Resource Bancshares Corporation since August
1995.
There are no family relationships between any of the directors or executive
officers of the Company.
All Directors are elected at each annual meeting of the Company's
stockholders for a term of one year, and hold office until their successors
are elected and qualify. Replacements for vacancies occurring among the
unaffiliated directors will be elected by a majority vote of the remaining
Directors, including a majority of the unaffiliated directors (the
"Unaffiliated Directors"). The Company will pay an annual director's fee to
each Unaffiliated Director equal to $20,000 and will reimburse such
Unaffiliated Director's costs and expenses for attending such meetings.
3
<PAGE>
COMMITTEES AND ATTENDANCE AT BOARD MEETINGS
Twelve monthly meetings of the Board of Directors were held in 1996. Four
quarterly Board of Directors meetings were held at the Company's main offices
while eight meetings were held via teleconference. Each Director attended at
least 75% of the aggregate of all meetings held by (i) the Board of Directors
and (ii) those committees of the Board of Directors on which such Director
served.
The Audit Committee, established by the Board of Directors on November 1,
1995, reviews the scope of auditing activities performed by the Company's
independent accountants. The Audit Committee met two times during 1996. The
Compensation Committee was established by the Board of Directors on November
16, 1995. The Compensation Committee met two times during 1996. The Board of
Directors presently has no nominating committee.
EXECUTIVE COMPENSATION
During 1995, none of the executive officers of the Company earned more than
$100,000 in total compensation. The following table sets forth all
compensation paid by the Company to its Chief Executive Officer and the other
executive officers whose annual salary and bonus were in excess of $100,000
during 1996.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ------------
RESTRICTED
NAME AND PRINCIPAL BONUS OTHER ANNUAL STOCK ALL OTHER
POSITION(1) YEAR SALARY($) ($)(2)(3) COMPENSATION($) AWARD(S)($) COMPENSATION($)(9)
------------------ ---- --------- --------- --------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph R. Tomkinson..... 1996 250,000 471,197(4) 24,648(5) -- 870
Vice Chairman of the
Board and Chief
Executive Officer of
the Company and
Chairman of the Board
and CEO of ICIFC and
IWLG
William S. Ashmore...... 1996 200,000 237,878(4) 16,248(6) -- 839
President and Chief Op-
erating Officer of the
Company and President
and Director of ICIFC
and IWLG
Richard J. Johnson...... 1996 100,000 68,250 16,248(6) 15,090(8) 216
Senior Vice President,
Chief Financial
Officer, Treasurer, and
Secretary of the
Company, ICIFC and IWLG
and Director of ICIFC
Mary C. Glass-
Schannault.............. 1996 90,000 99,148 6,755(7) -- 357
Vice President of the
Company and Senior Vice
President, Structured
Transactions, of ICIFC
and IWLG
</TABLE>
- --------
(1) On November 20, 1995, each of the persons in the above table entered into
a five-year employment agreement at an annual salary as stated in the
table, subject to adjustment for inflation, plus bonuses described in
footnote (3) and in the case of Messrs. Tomkinson and Ashmore, those
additional bonuses described in footnote (4).
(2) During 1996, pursuant to the Management Agreement, the Company reserved up
to 1/5 of the Company's 25% Incentive Payment for distribution as bonuses
to its employees in amounts determined by the Company's Board of
Directors. Such payment was made in lieu of payment of a like amount to
ICAI under
4
<PAGE>
the Management Agreement. Pursuant to the Amended and Restated Management
Agreement, dated January 31, 1997, the Company will pay 1/4 of the
Company's 25% Incentive Payment for distribution as bonuses to participants
in its executive bonus pool in amounts to be determined in the sole
discretion of the Company's Chief Executive Officer and 25% of the per
annum base management fee shall be paid to participants in the Company's
executive bonus pool in amounts to be determined in the sole discretion of
the Company's Chief Executive Officer. Such payment shall be made in lieu
of payment of a like amount to ICAI under the Amended and Restated
Management Agreement. See "Certain Relationships and Related Transactions--
Relationships with the Manager--Management Agreement--Management Fees."
(3) Includes a quarterly bonus equal to the aggregate dividend such person
would have received from the Company on all shares of Common Stock
underlying unexercised stock options held by such person which were
outstanding on the date of payment of said bonus, provided however that
(1) no such bonus was paid in calendar 1995, (2) quarterly bonuses were
paid for each of the first three quarters of calendar 1996 since the
dividend that would be payable by the Company on shares of its Common
Stock for the subject quarter after payment of all such quarterly bonuses
equaled or exceeded ten percent (10%) (on an annualized basis) of $13.00,
and (3) quarterly bonuses were paid for the fourth quarter of 1996 since
the dividend that would be payable by the Company on shares of its Common
Stock for the subject quarter after payment of all such quarterly bonuses
equaled or exceeded fifteen percent (15%) (on an annualized basis) of
$13.00. Quarterly bonuses will be paid for the next three calendar
quarters thereafter only if the dividend that would be payable by the
Company on shares of its Common Stock for the subject quarter after
payment of all such quarterly bonuses equals or exceeds fifteen percent
(15%) (on an annualized basis) of $13.00 and quarterly bonuses will be
paid for each calendar quarter thereafter, if the dividend that would be
payable by the Company on shares of its Common Stock for the subject
quarter equals or exceeds such level as determined by a majority of the
Unaffiliated Directors. Such persons will not be required to refund any
portion of such bonuses previously earned regardless of the level of
dividends in subsequent quarters.
(4) Messrs. Tomkinson and Ashmore are each entitled to performance and
profitability bonuses but, in no event to exceed their respective base
salaries.
(5) Consists of (i) a car allowance paid by the Company of $14,400 and (ii)
aggregate contributions paid by the Company of $10,248 under the 401(k)
plan.
(6) Consists of (i) a car allowance paid by the Company of $6,000 and (ii)
aggregate contributions paid by the Company of $10,248 under the 401(k)
plan.
(7) Consists of (i) a car allowance paid by the Company of $3,000 and (ii)
aggregate contributions paid by the Company of $3,755 under the 401(k)
plan.
(8) Consists of 1,006 shares acquired on April 12, 1996 and based on a closing
price on that date of $15.00 per share as quoted on the American Stock
Exchange. As of December 31, 1996, based on a closing price of $23.75 per
share as quoted on the American Stock Exchange, the value of the stock was
$23,893.
(9) For each person, consists of payments on group term-life insurance.
5
<PAGE>
OPTION GRANTS, EXERCISES AND YEAR-END VALUES
The following table sets forth stock options granted to executive officers
under the Stock Option Plan as of December 31, 1996:
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SHARES PERCENTAGE PRICE APPRECIATION FOR
UNDERLYING OF OPTIONS EXERCISE OPTION TERM
OPTIONS GRANTED TO PRICE EXPIRATION ----------------------
NAME GRANTED EMPLOYEES ($/SH) DATE 5%($) 10%($)
---- ---------- ---------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Joseph R. Tomkinson..... -- N/A N/A N/A N/A N/A
William S. Ashmore...... -- N/A N/A N/A N/A N/A
Richard J. Johnson...... -- N/A N/A N/A N/A N/A
Mary C. Glass-
Schannault............. -- N/A N/A N/A N/A N/A
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(#)(1) UNEXERCISABLE($)(2)
---- ----------- ----------- ------------------- -------------------
<S> <C> <C> <C> <C>
Joseph R. Tomkinson..... -- -- --/95,000 --/1,187,500
William S. Ashmore...... -- -- --/50,000 --/ 625,000
Richard J. Johnson...... -- -- --/25,000 --/ 312,500
Mary C. Glass-
Schannault............. -- -- --/25,000 --/ 312,500
</TABLE>
- --------
(1) For a description of the terms of such options, see "--Stock Option Plan."
(2) Based on a price per share of $23.75, which was the price of a share of
Common Stock as quoted on the American Stock Exchange at the close of
business on December 31, 1996.
STOCK OPTION PLAN
The Company has adopted a Stock Option, Deferred Stock and Restricted Stock
Plan (the "Stock Option Plan") which provides for the grant of qualified
incentive stock options ("ISOs") that meet the requirements of Section 422 of
the Internal Revenue Code of 1986, as amended, (the "Code") stock options not
so qualified ("NQSOs") and deferred stock, restricted stock, stock
appreciation rights and limited stock appreciation rights awards ("Awards").
The Stock Option Plan is administered by a committee of directors appointed by
the Board of Directors (the "Stock Option Committee"). ISOs may be granted to
the officers and key employees of the Company. NQSOs and Awards may be granted
to the directors, officers and key employees of the Company or any of its
subsidiaries, to the directors, officers and key employees of the Manager, or
to the Manager itself, and to the directors, officers and key employees of
ICIFC. The exercise price for any option granted under the Stock Option Plan
may not be less than 100% (or 110% in the case of ISOs granted to an employee
who is deemed to own in excess of 10% of the outstanding Common Stock) of the
fair market value of the shares of Common Stock at the time the option is
granted. The purpose of the Stock Option Plan is to provide a means of
performance-based compensation in order to attract and retain qualified
personnel and to provide an incentive to those whose job performance affects
the Company. The effective date of the Stock Option Plan was August 31, 1995.
Subject to anti-dilution provisions for stock splits, stock dividends and
similar events, the Stock Option Plan currently authorizes the grant of
options to purchase, and Awards of, up to 299,500 shares as of March 31, 1997.
6
<PAGE>
If an option granted under the Stock Option Plan expires or terminates, or an
Award is forfeited, the shares subject to any unexercised portion of such
option or Award will again become available for the issuance of further
options or Awards under the Stock Option Plan.
Under the Stock Option Plan, the Company may make loans available to stock
option holders, subject to Board of Directors' approval, in connection with
the exercise of stock options granted under the Stock Option Plan. See "--
Stock Option Loan Plan." If shares of Common Stock are pledged as collateral
for such indebtedness, such shares may be returned to the Company in
satisfaction of such indebtedness. If so returned, such shares shall again be
available for issuance in connection with future stock options and Awards
under the Stock Option Plan.
Unless previously terminated by the Board of Directors, no options or Awards
may be granted under the Stock Option Plan after August 31, 2005.
Options granted under the Stock Option Plan will become exercisable in
accordance with the terms of the grant made by the Stock Option Committee.
Awards will be subject to the terms and restrictions of the award made by the
Stock Option Committee. The Stock Option Committee has discretionary authority
to select participants from among eligible persons and to determine at the
time an option or Award is granted and, in the case of options, whether it is
intended to be an ISO or a NQSO, and when and in what increments shares
covered by the option may be purchased.
Under current law, ISOs may not be granted to any individual who is not also
an officer or employee of the Company. To ensure that the Company qualifies as
a Real Estate Investment Trust ("REIT"), the Stock Option Plan provides that
no options may be granted under the Stock Option Plan to any person who,
assuming exercise of all options held by such person, would own or be deemed
to own more than 9.5% of the outstanding shares of Common Stock of the
Company.
Each option must terminate no more than 10 years from the date it is granted
(or 5 years in the case of ISOs granted to an employee who is deemed to own in
excess of 10% of the combined voting power of the Company's outstanding Common
Stock). Options may be granted on terms providing for exercise in whole or in
part at any time or times during their respective terms, or only in specified
percentages at stated time periods or intervals during the term of the option,
as determined by the Stock Option Committee.
The exercise price of any option granted under the Stock Option Plan is
payable in full (1) in cash, (2) by surrender of shares of the Company's
Common Stock already owned by the option holder having a market value equal to
the aggregate exercise price of all shares to be purchased including, in the
case of the exercise of NQSOs, restricted stock subject to an Award under the
Stock Option Plan, (3) by cancellation of indebtedness owed by the Company to
the option holder, (4) by a full recourse promissory note executed by the
option holder, or (5) by any combination of the foregoing. The terms of any
promissory note may be changed from time to time by the Board of Directors to
comply with applicable United States Internal Revenue Service or Commission
regulations or other relevant pronouncements.
The Board of Directors may from time to time revise or amend the Stock
Option Plan, and may suspend or discontinue it at any time. However, no such
revision or amendment may impair the rights of any participant under any
outstanding Award without his consent or may, without stockholder approval,
increase the number of shares subject to the Stock Option Plan or decrease the
exercise price of a stock option to less than 100% of fair market value on the
date of grant (with the exception of adjustments resulting from changes in
capitalization), materially modify the class of participants eligible to
receive options or Awards under the Stock Option Plan, materially increase the
benefits accruing to participants under the Stock Option Plan or extend the
maximum option term under the Stock Option Plan.
7
<PAGE>
STOCK OPTION LOAN PLAN
In December 1996, the Board of Directors adopted the Imperial Credit
Mortgage Holdings, Inc. 1996 Stock Option Loan Plan (the "Loan Plan") under
which loans may be made to officers, directors and key employees of the
Company, the Manager and ICIFC in connection with the exercise of stock
options granted under the Stock Option Plan. Under the Loan Plan, the
principal of any loan may not exceed the sum of (x) the exercise price less
the par value of the shares of Common Stock covered by the stock option
exercised by the holder and (y) any Federal, state, or local income tax
attributable to such exercise. Any loan proceeds must be paid directly to the
Company in connection with the exercise of such options. Loans may be extended
for a period of five years and can be extended annually for up to two more
years, but in no event may the term be longer than seven years, including
extensions. The interest rate on each loan will be adjusted annually from the
date of the loan with a rate approved by the Compensation Committee, with such
interest rate to be at all times at least sufficient to avoid imputed interest
under the Code. The loans under the Loan Plan are evidenced by a promissory
note, they are full recourse loans and are secured by pledges of the Common
Stock purchased upon the exercise of the stock options to which they relate.
In the event of the sale or transfer of any of the shares of the Common Stock
pledged as security, except under certain limited conditions, the unpaid
principal balance and accrued interest shall become immediately due and
payable to the extent of the proceeds realized from such sale or transfer. The
principal and interest on the loans made under the Loan Plan are payable
quarterly only upon the payment of dividends by the Company to holders of its
Common Stock. The loans may be prepaid without penalty at any time.
In December 1996 and March 1997, the Unaffiliated Directors of the Company
and Directors of ICAI exercised 45,000 and 55,000 stock options, respectively.
In connection with the exercise of stock options by the Unaffiliated Directors
of the Company and Directors of ICAI, the Company made loans secured by the
related Common Stock totaling $1,546,875. See "Certain Relationships and
Related Transactions--Other Transactions--Related Party Loans."
401(k) PLAN
On the effective date of its Initial Public Offering, the Company commenced
participation in the ICII contributory retirement plan ("401(k) Plan") for all
full time employees with at least six months of service, which is designed to
be tax deferred in accordance with the provisions of Section 401(k) of the
Code. The 401(k) Plan provides that each participant may contribute from 2% to
14% of his or her salary, and the Company will contribute to the participant's
plan account at the end of each plan year 50% of the first 4% of salary
contributed by a participant. Under the 401(k) Plan, employees may elect to
enroll on the first day of any month, provided that they have been employed
for at least six months.
Subject to the rules for maintaining the tax status of the 401(k) Plan, an
additional Company contribution may be made at the discretion of the Company,
as determined by the Unaffiliated Directors. Should a discretionary
contribution be made, the contribution would first be allocated to those
employees deferring salaries in excess of 4%. The matching contribution would
be 50% of any deferral in excess of 4% up to a maximum deferral of 8%. Should
discretionary contribution funds remain following the allocation outlined
above, any remaining Company matching funds would be allocated as a 50% match
of employee contributions, on the first 4% of the employee's deferrals.
Company matching contributions will be made as of December 31st of each year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Messrs. Snavely, Walsh,
Filipps and Peers. The Company's Audit Committee consists of Messrs.
Tomkinson, Walsh, Filipps and Peers.
James Walsh, a director of the Company, is an Executive Vice President of
Walsh Securities, Inc. During the year ended December 31, 1996, ICIFC
purchased from Walsh Securities, Inc. mortgage loans of 30-year fully
8
<PAGE>
amortizing, six-month adjustable LIBOR and 15-year fixed rate second trust
deed mortgages having a principal balance of $22.0 million with net premiums
paid of $1.1 million. Servicing rights on all mortgage loans were retained by
ICIFC.
On November 6, 1996, the Company purchased Walsh Acceptance Corporation
mortgage pass-through certificates series 1996-1, Class B issued September 30,
1996. The principal balance of the Class B Certificates was $10.7 million, net
of a discount of $1.2 million to yield 9.3%.
In September 1996, ICIFC issued a $1.25 million secured residential first
mortgage loan to H. Wayne Snavely. Terms of the loan include monthly interest-
only payments at 8% per annum, with the principal balance due in full on
October 1, 1997. See "Certain Relationships and Related Transactions--Other
Transactions--Related Party Loans."
H. Wayne Snavely, Chairman of the Board of the Company, is also Chairman of
the Board, Chief Executive Officer and President of ICII. Joseph R. Tomkinson,
Vice Chairman of the Board and Chief Executive Officer of the Company, is also
a Director of ICII. See "Certain Relationships and Related Transactions--
Relationships with Affiliates--Arrangements and Transactions With ICII."
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee sets and administers the policies governing the
Company's compensation program, including incentive and stock option plans.
The Company participates in studies and surveys of comparable compensation
practices. The Committee considers these studies and surveys in determining
base salary, bonus and long-term stock-based compensation. The Committee
discusses and considers executive compensation matters and makes its
decisions, subject to review by the Company's Board of Directors.
The Company's compensation policies are structured to link the compensation
of the Chief Executive Officer and other executives of the Company with
corporate performance. Through the establishment of short-and long-term
compensation programs, the Company has aligned the financial interests of its
executives with the results of the Company's performance, which is designed to
put the Company in a competitive position regarding executive compensation and
also to ensure corporate performance, which will enhance stockholder value.
The Company's executive compensation philosophy is to set base salary at a
conservative market rate and then to provide performance-based variable
compensation which allows total compensation to fluctuate according to the
Company's earnings as well as value received by stockholders. Targeted levels
of executive compensation are set at levels that the Committee believes to be
consistent with others in the Company's industry, with such compensation
increasingly weighted towards programs contingent upon the Company's level of
annual and long-term performance. As a result, the Named Executive Officers',
those whose annual salary exceeds $100,000, actual compensation levels in any
particular year may be above or below those of the Company's competitors,
depending upon the Company's performance.
In line with the overall compensation program and the annual objectives set
by the Board of Directors, the Company's executive officers have a high
percentage of their total compensation at risk, dependent upon the Company's
financial performance. The compensation for the Named Executive Officers was
set on November 20, 1995.
Section 162(m) was added to the Internal Revenue Code as part of the Omnibus
Budget Reconciliation Act of 1933. Section 162(m) limits the deduction for
compensation paid to the Chief Executive Officer and the other Named Executive
officers to the extent that compensation of a particular executive exceeds
$1,000,000, unless such compensation was based upon performance goals or paid
pursuant to a binding contract that was in effect on February 17, 1993.
Proposed regulations to implement this new limitation were published in
December 1993. Based upon a review of the proposed regulations, the
compensation to be paid in 1996 to the Named Executive
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Officers will be deductible. The Committee will review the Company's existing
compensation program to determine the deductibility of the future compensation
paid or awarded pursuant thereto and will seek guidance with respect to
changes to the Company's existing compensation program that will enable the
Company to continue to attract and retain key individuals while optimizing the
deductibility to the Company of amounts paid as compensation.
The Committee believes that its overall executive compensation program will
be successful in providing competitive compensation appropriate to attract and
retain highly qualified executives and also to encourage increased performance
from the executive group which will create added stockholder value.
COMPENSATION COMMITTEE
H. Wayne Snavely
James Walsh
Frank P. Filipps
Stephan R. Peers
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STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a performance graph comparing the cumulative total
stockholder return on the Company's Common Stock, the S & P 500 Stock Index and
an index average of the Company's peer group, composed of comparable publicity-
traded companies in the mortgage banking business, in each case for the period
commencing on November 21, 1995 through December 31, 1996. Such peer groups
include CWM Mortgage Holdings, Inc., Mortgage Capital, Inc., Capstead Mortgage
Corporation, Thornburg Mortgage Asset Corporation, and Redwood Trust, Inc. The
graph assumes $100 invested on November 21, 1995, in the Company's Common
Stock, the S & P 500 Stock Index and the Stock Index of the peer group.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION> IMPERIAL
Measurement Period CREDIT PEER S&P
(Fiscal Year Covered) HOLDING GROUP 500 INDEX
- ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-11/21/1995 $100 $100 $100
FYE 12/29/1995 $101.92 $109.04 $101.93
FYE 1/31/1996 $114.12 $116.70 $105.40
FYE 2/29/1996 $116.05 $107.19 $106.38
FYE 3/29/1996 $117.98 $112.96 $107.40
FYE 4/30/1996 $122.84 $111.86 $108.98
FYE 5/31/1996 $132.75 $123.43 $111.79
FYE 6/28/1996 $130.40 $128.90 $112.22
FYE 7/31/1996 $136.51 $132.90 $107.26
FYE 8/30/1996 $143.64 $140.06 $109.53
FYE 9/30/1996 $172.36 $144.58 $115.69
FYE 10/31/1996 $181.76 $155.72 $118.88
FYE 11/29/1996 $185.13 $162.65 $127.87
FYE 12/31/1996 $206.84 $172.70 $125.33
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities Act of 1934 requires the Company's Directors
and executive officers, and persons who own more than ten percent of a
registered class of the Company's securities, to file with the Commission
initial reports of ownership and reports of changes in ownership of the Common
Stock and other equity securities of the Company. Officers, Directors and
greater than ten percent stockholders are required by the Commission's
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during the fiscal year which ended December
31, 1996, all Section 16(a) filing requirements applicable to its officers,
Directors and greater than ten percent beneficial owners were satisfied by such
persons.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIPS WITH THE MANAGER
GENERAL
The Manager, ICAI, commenced operations as of January 23, 1995. Prior to
November 20, 1995, ICAI had no prior experience in managing or operating a
REIT. Each of the executive officers of the Manager has significant experience
in purchasing, financing, servicing and investing in mortgage loans and
mortgage securities; however, they have not previously managed a REIT. ICAI is
a wholly-owned subsidiary of ICII.
The Company has selected an outside advisor and in particular an advisor
associated with ICII in order to efficiently and economically coordinate,
assist and manage the duties and responsibilities of the Company. The Company
believes that ICAI is more adequately suited than the Company to provide or
advise it with contract negotiation, market information, implementation of
cost controls, asset/liability modeling and management, servicing systems and
management information systems. In addition, the Company believes that ICAI is
better equipped than the Company to manage human resources and facilities
because ICAI and ICII, with which ICAI has entered into a submanagement
agreement to perform such administrative services for the Company as ICAI
deems necessary, has experienced teams in these areas. The Company believes
that ICAI, as an affiliate of ICII, is particularly appropriate to act as the
Company's advisor because ICAI provides continuity to those businesses
contributed pursuant to the Contribution Transaction (as discussed below) and
because of ICII's familiarity with such businesses.
The address of the Manager is 20371 Irvine Avenue, Santa Ana Heights,
California 92707, telephone (714) 474-8500.
MANAGEMENT AGREEMENT
The Company has entered into a Management Agreement with the Manager
effective on November 20, 1995, for an initial term expiring on January 31,
1997. The Company renewed the Management Agreement for an additional five year
term (See "--Management Fees"). The Management Agreement may be terminated by
the Company or the Manager without cause at any time upon 60 days' written
notice. Any such termination or failure to extend by the Company without cause
shall result in the payment of a termination or non-renewal fee to the Manager
determined by an independent appraisal. In addition, the Company and the
Manager will have the right to terminate the Management Agreement upon the
occurrence of certain specified events, including a breach by the other party
of any provision contained in the Management Agreement which remains uncured
for 30 days. The Company may renew or terminate the Management Agreement by a
majority vote of its Unaffiliated Directors or by a vote of the holders of a
majority of the outstanding shares of Common Stock. The Manager may terminate
the Management Agreement by a majority vote of its Board of Directors.
The terms of the Management Agreement, including the management fees, were
determined by arms-length discussion based upon what management of both ICAI
and the Company believe are comparable with other advisory relationships and
have been approved by the Board of Directors of ICAI and the Unaffiliated
Directors of the Company. The Company's Bylaws provide that the Unaffiliated
Directors shall determine at least annually that the compensation paid to the
Manager is reasonable in relation to the nature and quality of the services
performed by the Manager.
The Manager is at all times subject to the supervision of the Company's
Board of Directors and provides advisory services to the Company in accordance
with the terms of the Management Agreement. The Manager is involved in three
primary activities: (1) capital management--primarily the oversight of the
Company's structuring, analysis, capital raising and investor relations
activities; (2) asset management--primarily the analysis and oversight of the
acquisition, management and disposition of Company assets; and (3) operations
management--primarily the oversight of the Company's operating subsidiaries.
Specifically, the Manager
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<PAGE>
performs such services and activities relating to the assets and operations of
the Company as may be appropriate, including:
(a) serve as the Company's consultant with respect to formulation of
investment criteria and interest rate risk management by the Board of
Directors;
(b) advise as to the insurance of commitments on behalf of the Company to
purchase Mortgage Loans or purchasing Mortgage Loans and Agency
Certificates meeting the investment criteria set from time to time by the
Board of Directors;
(c) advise the Company in connection with and assist in its long-term
investment operations;
(d) provide personnel and technical assistance to support securitization
activities of the Company by reviewing documents and assisting in the
determination and negotiation of the terms and features of securities
issued in connection therewith;
(e) furnish reports and statistical and economic research to the Company
regarding the Company's activities and the services performed for the
Company by the Manager;
(f) monitor and provide to the Board of Directors on an on-going basis
price information and other data, obtained from certain nationally-
recognized dealers who maintain markets in Mortgage Loans identified by the
Board of Directors from time to time, and provide data and advice to the
Board of Directors in connection with the selection and identification of
such dealers;
(g) provide the executive and administrative personnel, office space and
services required, including, without limitation, legal services and
contract review from in-house counsel, human resources payroll, and 401K or
benefits administration, in rendering services to the Company;
(h) monitor and provide a full time asset liability manager with the
proper computer hardware and software to perform research and analysis to
provide data about the Company's portfolio of Mortgage Loans and
recommended hedging strategies to the Board of Directors;
(i) provide Management Information Systems voice and data phone line and
equipment support;
(j) advise on the negotiation of agreements on behalf of the Company with
banking institutions and other lenders to provide for the short-term
borrowing of funds by the Company;
(k) communicate on behalf of the Company with the holders of the equity
and debt securities of the Company as required to satisfy the reporting and
other requirements of any governmental bodies or agencies and maintain
effective relations with such holders of the Company's securities,
including hiring and retaining a public relations firm to market and
promote the Company.
(l) assist in the administration of any stock option plan of the Company
by providing personnel, administrative services, data processing and other
systems and controls;
(m) upon request by and in accordance with the direction of the Board of
Directors, invest or reinvest any money of the Company; and
(n) as approved and directed by the Board of Directors, perform such
other services as may be required for management and other activities
relating to the assets of the Company as the Manager shall deem appropriate
under the particular circumstances.
The Manager has entered into a submanagement agreement with ICII to perform
such administrative services for the Company as the Manager deems necessary.
The Manager may enter into additional contracts with other parties, including
ICII, to provide any such services for the Manager, which third party shall be
approved by the Company's Board of Directors.
As of March 31, 1997, ICAI had a total of seven officers and directors who
participate in the oversight of the Company's operations.
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<PAGE>
MANAGEMENT FEES
Prior to January 31, 1997, the Manager was entitled to a per annum base
management fee payable monthly in arrears of an amount equal to (1) 3/8 of 1%
of Gross Mortgage Assets of the Company comprised of other than Agency
Certificates, conforming mortgage loans or mortgage-backed securities secured
by or representing interests in conforming mortgage loans, plus (2) 1/8 of 1%
of the remainder of Gross Mortgage Assets of the Company plus (3) 1/5 of 1% of
the average daily asset balance of the outstanding amounts under IWLG's
warehouse lending facilities. A base management fee of $2.1 million and
$37,888 was accrued for the year ended December 31, 1996 and 1995,
respectively.
As incentive compensation, the Manager was entitled to receive for each
fiscal quarter, an amount equal to 25% of the net income of the Company,
before deduction of such incentive compensation, in excess of the amount that
would produce an annualized Return on Equity equal to the daily average Ten
Year U.S. Treasury Rate plus 2%. The term "Return on Equity" is calculated for
any quarter by dividing the Company's Net Income for the quarter by its
Average Net Worth for the quarter. For such calculations, the "Net Income" of
the Company means the income of the Company determined in accordance with GAAP
before the Manager's incentive compensation, the deduction for dividends paid
and any net operating loss deductions arising from losses in prior periods. A
deduction for all of the Company's interest expenses for borrowed money is
also taken in calculating Net Income. "Average Net Worth" for any period means
the arithmetic average of the sum of the gross proceeds from any offering of
its equity securities by the Company, before deducting any underwriting
discounts and commissions and other expenses and costs relating to the
offering, plus the Company's retained earnings (without taking into account
any losses incurred in prior periods) computed by taking the daily average of
such values during such period. The definition "Return on Equity" is only for
purposes of calculating the incentive compensation payable, and is not related
to the actual distributions received by stockholders. The 25% Incentive
Payment to the Manager will be calculated quarterly in arrears before any
income distributions are made to stockholders for the corresponding period.
For the year ended December 31, 1996 and for the year ended December 31, 1995,
the Manager earned $1,274,336 and zero, respectively, for the Manager's
Incentive Payment. Pursuant to the Management Agreement, the Company provides
up to 1/5 of the Company's 25% Incentive Payment for distribution as bonuses
to its employees in amounts to be determined by the Company's Board of
Directors. Such payment is made in lieu of payment of a like amount to the
Manager under the Management Agreement. For the year ended December 31, 1996,
the Company recorded $154,751 pursuant to this provision of the Management
Agreement.
The Management Agreement described above expired on January 31, 1997 and a
new five year agreement was executed with similar terms except as follows: (1)
75% of the per annum base management fee as calculated above shall be paid to
the Manager for services rendered under the agreement, 25% of the per annum
base management fee as calculated above shall be paid to participants in its
executive bonus pool in amounts to be determined in the sole discretion of the
Company's Chief Executive Officer; (2) the Company will pay 1/4 versus 1/5 of
the above incentive compensation for distribution as bonuses to participants
in its executive bonus pool in amounts to be determined in the sole discretion
of the Company's Chief Executive Officer; and (3) Net Income included in the
Return on Equity calculation was changed from net income in accordance with
GAAP to net taxable income.
The Manager's base and incentive fees are calculated by the Manager within
60 days after the end of each calendar quarter, with the exception of the
fourth quarter for which compensation will be computed within 30 days, and
such calculation shall be promptly delivered to the Company. The Company is
obligated to pay the base fee within 90 days after the end of each calendar
quarter.
EXPENSES
Pursuant to the Management Agreement, the Company also pays all operating
expenses except those specifically required to be borne by the Manager under
the Management Agreement. The operating expenses generally required to be
borne by the Manager include the compensation and other employment costs of
the
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<PAGE>
Manager's officers in their capacities as such and the cost of office space
and out-of-pocket costs, equipment and other personnel required for oversight
of the Company's operations. The expenses paid by the Company include issuance
and transaction costs incident to the acquisition, disposition and financing
of investments, regular legal and auditing fees and expenses of the Company,
the fees and expenses of the Company's Directors, premiums for directors' and
officers' liability insurance, premiums for fidelity and errors and omissions
insurance, servicing and sub-servicing expenses, the costs of printing and
mailing proxies and reports to stockholders, and the fees and expenses of the
Company's custodian and transfer agent, if any. Reimbursements of expenses
incurred by the Manager which are the responsibility of the Company are made
monthly. For the year ended December 31, 1996 and for the year ended December
31, 1995, there were no monies paid to the Manager as reimbursement of
expenses.
STOCK OPTION PLAN
The Company has adopted the Stock Option Plan and the Manager and the
directors, officers and employees of the Manager have been granted certain
options or rights under the Stock Option Plan, and may in the future be
granted additional options or rights under the Stock Option Plan. See
"Executive Compensation--Stock Option Plan."
LIMITS OF RESPONSIBILITY
Pursuant to the Management Agreement, the Manager does not assume any
responsibility other than to render the services called for thereunder and is
not responsible for any action of the Company's Board of Directors in
following or declining to follow its advice or recommendations. The Manager,
its directors, officers, shareholders and employees are not liable to the
Company, any mortgage security issuer, any subsidiary of the Company, the
Unaffiliated Directors, the Company's stockholders or any subsidiary's
shareholders for acts performed in accordance with and pursuant to the
Management Agreement, except by reason of acts or omissions constituting bad
faith, willful misconduct, gross negligence or reckless disregard of their
duties under the Management Agreement. The Manager is a recently formed
company and does not have significant assets. Consequently, there can be no
assurance that the Company would be able to recover any damages for claims it
may have against the Manager. The Company has agreed to indemnify the Manager,
and its directors, officers, shareholders and employees with respect to all
expenses, losses, damages, liabilities, demands, charges and claims arising
from any acts or omissions of the Manager made in good faith in the
performance of its duties under the Management Agreement.
RELATIONSHIPS WITH AFFILIATES
ICII is a publicly traded company whose shares of common stock are listed on
the Nasdaq National Market. ICAI, a wholly-owned subsidiary of ICII, is the
Manager and provides advisory services to the Company in accordance with the
terms of the Management Agreement. As previously described, the Company
utilizes the mortgage banking experience, management expertise and resources
of ICII and ICAI in conducting its business. At March 31, 1997, ICII, ICAI and
Southern Pacific Thrift and Loan Association ("SPTL"), a wholly-owned
subsidiary of ICII, owned in the aggregate 462,269 shares of the Common Stock
of the Company. In addition, a number of Directors and officers of the Company
and ICIFC also serve as Directors and/or officers of ICII and ICAI. The
Company currently utilizes ICII as a resource for technology, human resources
services and management information services. The amount of services provided
by ICII has decreased as the Company takes on certain of these
responsibilities. As of December 31, 1996, ICII owned all of the voting common
stock, representing a 1% economic interest in ICIFC, and the Company owned all
of the non-voting preferred stock of ICIFC, representing 99% of the economic
interest in ICIFC. ICII has the power to elect all of the directors of ICIFC
and the ability to control the outcome of all matters for which the consent of
the holders of the common stock of ICIFC is required. On March 31, 1997, ICII
divested itself of its interest in ICIFC by contributing 100% of ICIFC's
common stock to certain officers and directors of the Company.
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With a view toward protecting the interests of the Company's stockholders,
the Bylaws of the Company provide that a majority of the Board of Directors
(and at least a majority of each committee of the Board of Directors) must not
be "Affiliates" of ICAI, as that term is defined in the Bylaws, and that the
investment policies of the Company must be reviewed annually by the
Unaffiliated Directors. Such policies and restrictions thereon may be
established from time to time by the Board of Directors, including a majority
of the Unaffiliated Directors. In addition, any transaction between the
Company and any Affiliated Person requires the affirmative vote of a majority
of the Unaffiliated Directors. Moreover, approval, renewal or termination of
the Management Agreement requires the affirmative vote of a majority of the
Unaffiliated Directors. The Management Agreement may be terminated by either
the Company or the Manager upon 60 days' notice. Any such termination or
failure to extend by the Company without cause shall result in the payment of
a termination or non-renewal fee to the Manager determined by an independent
appraisal.
Certain activities of ICII and its affiliates may adversely affect the
Company's operations. For a further description of such activities and the
possible effects to the Company therefrom, including the terms and conditions
of the Non-Compete Agreement and the Right of First Refusal Agreement, see "--
Other Transactions--The Contribution Transaction."
OTHER TRANSACTIONS
THE CONTRIBUTION TRANSACTION
On November 20, 1995, ICII contributed to ICIFC certain of the operating
assets and certain customer lists of ICII's mortgage conduit operations
including all of ICII's mortgage conduit operations' commitments to purchase
mortgage loans subject to rate locks from correspondents (having a principal
balance of $44.3 million at November 20, 1995), in exchange for shares
representing 100% of the common stock and 100% of the outstanding non-voting
preferred stock of ICIFC. Simultaneously, on November 20, 1995, in exchange
for 500,000 shares of Common Stock, ICII (1) contributed to the Company all of
the outstanding non-voting preferred stock of ICIFC, which represents 99% of
the economic interest in ICIFC, (2) caused SPTL to contribute to the Company
certain of the operating assets and certain customer lists of SPTL's warehouse
lending division, and (3) executed the Non-Compete Agreement and the Right of
First Refusal Agreement, each having a term of two years from November 20,
1995. Of the 500,000 shares issued pursuant to the Contribution Transaction,
450,000 shares were issued to ICII and 50,000 shares were issued to SPTL. All
of the outstanding shares of common stock of ICIFC were retained by ICII.
Lastly, the Company contributed all of the aforementioned operating assets of
SPTL's warehouse lending operations contributed to it by SPTL to IWLG in
exchange for shares representing 100% of the common stock of IWLG thereby
forming it as a wholly owned subsidiary. At November 20, 1995, the net
tangible book value of the assets contributed pursuant to the Contribution
Transaction was $525,000. ICII and SPTL retained all other assets and
liabilities related to the contributed operations which at November 20, 1995
consisted mostly of $11.7 million of mortgage servicing rights, $22.4 million
of finance receivables and $26.6 million in advances made by ICII and SPTL to
fund mortgage conduit loan acquisitions and to fund finance receivables,
respectively.
Pursuant to the Non-Compete Agreement, ICII, except as set forth below, and
any 25% entity may not compete with the Warehouse Lending Operations and may
not establish a network of third party correspondent loan originators or
another end-investor in non-conforming mortgage loans. ICII has also agreed
(1) that, in addition to any other remedy that may be available to the
Company, it will sell all of the outstanding shares of common stock of ICIFC
retained by ICII pursuant to the Contribution Transaction to any third party
reasonably acceptable to the Company in the event that ICII or a 25% entity
establishes a network of third party correspondent loan originators during the
term of the Non-Compete Agreement and (2) that any sale by ICIFC of shares of
its capital stock or sale or transfer by ICII of any shares of the common
stock of ICIFC which ICII owns may only be made to a party reasonably
acceptable to the Company. Pursuant to the Non-Compete Agreement, SPTL may
continue to act as an end-investor in non-conforming mortgage loans and SPFC,
an affiliate of ICII, may continue its business, which is primarily to act as
a wholesale originator and bulk
16
<PAGE>
purchaser of non-conforming mortgage loans. Pursuant to the Right of First
Refusal Agreement, ICII has granted ICIFC a right of first refusal to purchase
all non-conforming mortgage loans that ICII or any 25% entity originates or
acquires and subsequently offers for sale, and ICIFC has granted ICII, or any
25% entity designated by ICII, a right of first refusal to purchase all
conforming mortgage loans that ICIFC acquires and subsequently offers for
sale.
ARRANGEMENTS AND TRANSACTIONS WITH ICII
The Company and ICII have entered into agreements for the purpose of
defining their ongoing relationships. These agreements were developed in the
context of a parent/subsidiary relationship and therefore were not the result
of arms length negotiations between independent parties. It is the intention
of the Company and ICII that such agreements and the transactions provided for
therein, taken as a whole, are fair to both parties, while continuing certain
mutually beneficial arrangements. However, there can be no assurance that each
of such agreements, or the transactions provided for therein, have been
effected on terms at least as favorable to the Company as could have been
obtained from unaffiliated third parties.
The Company has entered into a sublease with ICII to lease a portion of its
facilities as the Company's executive offices and administrative facilities.
The Company believes that the terms of the sublease are at least as favorable
as could have been obtained from an unaffiliated third party. For the year
ended December 31, 1996 and for the period from November 20, 1995 through
December 31, 1995 (the "Interim Period"), $154,800 and $12,900, respectively,
were paid by the Company to ICII under the sublease.
Additional or modified arrangements and transactions may be entered into by
the Company, ICII, and their respective subsidiaries, in the future. Any such
future arrangements and transactions will be determined through negotiation
between the Company and ICII, and it is possible that conflicts of interest
will be involved. The Unaffiliated Directors, consisting of directors
independent of the Company, any manager of the Company (including ICAI) and
ICII and its Affiliated Persons, must independently approve all transactions
by and between the Company and ICII.
TAX AGREEMENT
The Company has entered into an agreement (the "Tax Agreement") effective
November 20, 1995 with ICII for the purposes of (1) providing for filing
certain tax returns, (2) allocating certain tax liability and (3) establishing
procedures for certain audits and contests of tax liability.
Under the Tax Agreement, ICII has agreed to indemnify and hold the Company
harmless from any tax liability attributable to periods ending on or before
November 20, 1995, in excess of such taxes as the Company has already paid or
provided for. For periods ending after November 20, 1995, the Company will pay
its tax liability directly to the appropriate taxing authorities. To the
extent (1) there are audit adjustments that result in a tax detriment to the
Company or (2) the Company incurs losses that are carried back to an earlier
year and any such adjustment described in (1) or loss described in (2) results
in a tax benefit to ICII or its affiliates, then ICII will pay to the Company
an amount equal to the tax benefit as that benefit is realized. ICII will also
agree to indemnify the Company for any liability associated with the
contribution of the preferred stock of ICIFC and certain operational assets of
SPTL's warehouse lending division or any liability arising out of the filing
of a federal consolidated return by ICII or any return filed with any state or
local counterpart liability. To the extent there are audit adjustments that
result in any tax detriment to ICII or any of its affiliates with respect to
any period ending on or before November 20, 1995, as a result thereof, the
Company for any taxable period after November 20, 1995 realizes a tax benefit,
then the Company shall pay to ICII the amount of such benefit at such time or
times as the Company actually realizes such benefit.
ICII generally controls audits and administrative and judicial proceedings
with respect to periods ending on or before November 20, 1995, although ICII
cannot compromise or settle any issue that increases the Company's liability
without first obtaining the consent of the Company. The Company generally
controls all other audits and administrative and judicial proceedings.
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<PAGE>
SERVICES AGREEMENT
Prior to November 20, 1995, the predecessors of ICIFC and IWLG were
historically allocated expenses of various administrative services provided by
ICII. The costs of such services were not directly attributable to a specific
division or subsidiary and primarily included general corporate overhead, such
as accounting and cash management services, human resources and other
administrative functions. These expenses were calculated as a pro rata share
of certain administrative costs based on relative assets and liabilities of
the division or subsidiary, which management believed was a reasonable method
of allocation. The allocations of expenses for the period January 1, 1995 to
November 19, 1995, and for the year ended December 31, 1994 were $269,000 and
$517,000, respectively, for ICIFC and IWLG combined.
The Company and ICII have entered into a services agreement effective as of
November 20, 1995 (the "Services Agreement") under which ICII provides various
services to the Company, including data processing, human resource
administration, general ledger accounts, check processing and payment of
accounts payable. ICII charges fees for each of the services which it provides
under the Services Agreement based upon usage. The Services Agreement has an
initial term that ends on December 31, 1996 and is renewable annually
thereafter. The Company may terminate the Services Agreement, in whole or in
part, upon one month's written notice. As part of the services to be provided
under the Services Agreement, ICII provides the Company with insurance
coverage and self-insurance programs, including health insurance. The charge
to the Company for coverage will be based upon a pro rata portion of the costs
to ICII for the various policies. Management believes that the terms of the
Services Agreement are as favorable to the Company as could be obtained from
independent third parties. For the year ended December 31, 1996 and for the
Interim Period, total expenses allocated to the Company related to these
services were $441,000 and $29,000, respectively.
MANAGEMENT AND SUB-SERVICING AGREEMENTS
ICAI, a wholly-owned subsidiary of ICII, oversees the day-to-day operations
of the Company, subject to the supervision of the Company's Board of
Directors, pursuant to the Management Agreement which became effective on
November 20, 1995. For a description of the terms of the Management Agreement,
see "--Relationships with the Manager--Management Agreement."
ICIFC acts as a servicer of mortgage loans acquired on a "servicing-
released" basis by the Company in its Long-Term Investment Operations pursuant
to the terms of a Servicing Agreement which became effective on November 20,
1995. ICIFC subcontracts all of its servicing obligations under such loans to
independent third parties pursuant to sub-servicing agreements.
MORTGAGE LOANS PURCHASES
During the year ended December 31, 1996, ICIFC purchased from ICII bulk
mortgage loans packages of 30-year fully amortizing six-month adjustable LIBOR
and 30- and 15-year fixed rate first and second trust deed mortgages having a
principal balance of $224.7 million with net premiums paid of $3.8 million.
Servicing rights on all mortgage loans were released to ICIFC.
During the year ended December 31, 1996, ICIFC purchased from Walsh
Securities mortgage loans of 30-year fully amortizing, six-month adjustable
LIBOR and 15-year fixed rate second trust deed mortgages having a principal
balance of $22.0 million with net premiums paid of $1.1 million. Servicing
rights on all mortgage loans were retained by ICIFC. James Walsh, a director
of the Company, is an Executive Vice President of Walsh Securities, Inc.
On March 29, 1996, the Company purchased from ICIFC bulk mortgage loan
packages of 30-year fully amortizing six-month adjustable LIBOR and 15-year
fixed rate second trust deed mortgages having a principal balance of $276.3
million and $34.7 million with premiums paid of $2.8 million and $1.2 million,
respectively. Servicing rights on all mortgage loans were retained by ICIFC.
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On August 28, 1996, the Company purchased from ICIFC bulk mortgage loan
packages of 30-year fully amortizing six-month and two-year adjustable LIBOR
and 15-year fixed rate second trust deed mortgages having a principal balance
of $255.8 million and $9.6 million with premiums of $10.8 million and
$408,000, respectively. Servicing rights on all mortgage loans were retained
by ICIFC.
PURCHASE OF SUBORDINATED LEASE RECEIVABLES
On December 29, 1995, the Company purchased a subordinated interest in a
lease receivable securitization from Imperial Business Credit, Inc. ("IBC") a
wholly-owned subsidiary of ICII. The lease receivables underlying the security
were originated by IBC. The Company purchased the subordinated lease
receivable at the present value of estimated cash flows based on a discount
rate of 12% amounting to a purchase price of $8.4 million. On May 31, 1996,
the Company sold the subordinated interest to IBC at no gain or loss.
PURCHASE OF MORTGAGE-BACKED SECURITIES
On November 6, 1996, the Company purchased Walsh Acceptance Corporation
mortgage pass-through certificates series 1996-1, Class B issued September 30,
1996. The principal balance of the Class B Certificates was $10.7 million, net
of a discount of $1.2 million to yield 9.3%. James Walsh, a director of the
Company, is an Executive Vice President of Walsh Securities, Inc.
During the year ended December 31, 1996, the Company purchased $32.5 million
of subordinated mortgage-backed securities in connection with ICIFC's REMIC
securitizations for $26.8 million, resulting in discounts of $5.7 million.
PURCHASE OF OTHER INVESTMENTS
On March 8, 1996, the Company purchased from ICII $5.0 million of its Senior
Note obligations for $4.5 million plus accrued interest. On January 24, 1997,
the Company redeemed the Senior Notes for $5.2 million, resulting in a gain of
$648,000.
On March 28, 1996, the Company purchased from ICII the beneficial interest
in the Class A Trust Certificate for the Franchisee Loan Receivables Trust
1995-B. The trust is securitized by loans originated by Franchise Mortgage
Acceptance Corporation LLC, a subsidiary of ICII. The purchase price was $2.8
million based upon a discount rate of 16%. On January 30, 1997, the Company
sold its beneficial interest in the Franchisee Loan Receivables to ICIFC at
carrying value, which approximated fair value. No gain or loss was recorded on
the sale.
On December 31, 1996, the Company purchased FMAC Loan Receivables Trust
1996-B Class D and E securities. The securities are collateralized by loans
originated by Franchise Mortgage Acceptance Corporation LLC, a subsidiary of
ICII. The Company purchased the Class D and E securities for $2.3 million and
$5.1 million, respectively, a discount of $1.9 million and $2.4 million,
respectively.
BORROWINGS
ICIFC has a $600 million warehouse borrowing agreement with IWLG of which
$327.4 million and $550.3 million was outstanding at December 31, 1996 and
1995, respectively. Interest expense recorded related to this borrowing was
$32.8 million and $1.3 million for the years ended December 31, 1996 and 1995,
respectively.
ICIFC's residual interests in securitizations are financed by an
intercompany payable with ICII and is included in the balance sheet as due to
affiliate. The $46.9 million of borrowings has a current interest rate of
12.0% with interest payable monthly and no stated maturity.
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PURCHASE OF RESIDUAL INTERESTS IN SECURITIZATIONS
On December 31, 1996, ICIFC purchased from ICII eight residual interests in
securitizations of primarily REMIC's for $46.9 million. ICIFC and ICII have
estimated future cash flows from these residuals and priced them utilizing
assumptions that they believe are consistent with those that would be utilized
by an unaffiliated third-party purchaser.
The Company may, from time to time, enter into additional transactions in
the ordinary course of business with institutions with which certain of the
Unaffiliated Directors are employed.
RELATED PARTY LOANS
In September 1996, ICIFC issued a $1.25 million secured residential first
mortgage loan to the Chairman of the Company. Terms of the loan include
monthly interest-only payments at 8% per annum, with the principal balance due
in full on October 1, 1997.
In December 1996 and March 1997, in connection with the exercise of stock
options, the Company loaned $239,438 to each of Messrs. Peers, Filipps and
Walsh and $300,000 to Mr. Snavely, respectively, pursuant to the Company's
Stock Option Loan Plan. All of the loans have an interest rate of 5.63% per
annum. As of April 30, 1997, the outstanding balance of each loan to Messrs.
Peers, Filipps and Walsh was $235,811 and Mr. Snavely's loan remained
unchanged. See "Executive Compensation--Stock Option Loan Plan" for the terms
of the loans granted thereunder.
RELATIONSHIPS WITH IMPERIAL CREDIT COMMERCIAL HOLDINGS, INC. AND AFFILIATES
GENERAL
Imperial Credit Commercial Holdings, Inc. ("ICH") is a recently formed
Maryland corporation that will elect to be taxed at the corporate level as a
real estate investment trust for federal income tax purposes. ICH was
incorporated in February 1997 for the purpose of originating, purchasing,
securitizing and selling commercial mortgages and investing in commercial
mortgages and commercial mortgage-backed securities. ICH has filed a
registration statement with the Securities and Exchange Commission pursuant to
a proposed public offering of its Common Stock, $.01 par value per share ("ICH
Common Stock"), through a rights offering to holders of record of the Company
(the "ICH Offering"). Before the closing of the ICH Offering, all of the
officers and directors of the Company owned an aggregate of 276,000 shares, or
92% of the outstanding shares, of ICH's Common Stock. The Company, itself,
owned all of the outstanding shares of Class A Preferred Stock, $.01 par value
per share, of ICH ("ICH Preferred Stock") and all of the outstanding shares of
Class A Common Stock, $.01 par value per share, of ICH ("ICH Class A Stock").
Upon the closing of the ICH Offering and assuming that all of the shares
offered are purchased at the maximum price, the Company will own up to 9.8% of
the outstanding shares of ICH Common Stock and all of the outstanding shares
of ICH Class A Stock. See "--Organizational Transactions."
Messrs. Tomkinson, Johnson and Ashmore also own an aggregate of 375 shares,
or 75%, of the outstanding common stock, no par value, of Imperial Commercial
Capital Corporation ("ICCC"), a California corporation which was formed in
January 1997. ICCC acts as the conduit operations for ICH by originating,
purchasing, and selling or securitizing commercial mortgages. In February
1997, the Company purchased all of the non-voting preferred stock of ICCC,
which represents 95% of the economic interest in ICCC, for $500,000.
REIT Advisors, Inc. ("RAI") will be owned by persons all of whom are
officers of ICH and the Company and who will become officers of RAI upon the
closing of the ICH Offering. RAI will provide advisory services to ICH in
accordance with the terms of a management agreement, as described below. ICH
will utilize the mortgage banking experience, management expertise and
resources of RAI in conducting its business. A number of directors and
officers of ICH and ICCC also serve as directors and/or officers of the
Company. In order to utilize the Company's infrastructure, RAI intends to
enter into a submanagement agreement with the Company upon the closing of the
ICH Offering to provide substantially all of the administrative services
required by ICH including facilities and costs associated therewith,
technology, management information systems, general ledger accounts, human
resources and payroll, check processing and accounts payable as RAI deems
necessary. See""--REIT Advisors, Inc."
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ORGANIZATIONAL TRANSACTIONS
The following is a summary of transactions entered into by the Company in
connection with the organization of ICH. In February 1997, the officers and
directors of ICH, as a group, and the Company purchased 300,000 and 299,000
shares of the Common Stock of ICH, respectively. In February 1997, ICCC
brokered ICH's purchase of $7.3 million and $10.2 million of condominium
conversion loans which were financed with $16.6 million in borrowings under a
warehouse lending facility provided by a subsidiary of the Company and
$900,000 in borrowings from the Company. All of condominium conversion loans
were purchased from ICIFC. In March 1997, the Company lent ICH $15.0 million
evidenced by a promissory note convertible into one share of ICH Preferred
Stock for each $5.00 principal amount of said note.
In March 1997, the Company converted the aforementioned $15.0 million
principal amount promissory note into an aggregate of 3,000,000 shares of ICH
Preferred Stock. All ICH Preferred Stock is automatically convertible upon the
closing of the ICH Offering into shares of ICH Common Stock determined by
multiplying the number of shares of ICH Preferred Stock to be converted by a
fraction, the numerator of which is $5.00 and the denominator of which is the
price at which the ICH Common Stock is sold in the ICH Offering.
Notwithstanding the foregoing, consistent with the Company's classification as
a REIT, the Company shall not be entitled to have converted into ICH Common
Stock more than that number of shares of ICH Preferred Stock whereby the
Company would own, immediately after such conversion, greater than 9.8% of
ICH's outstanding Common Stock. Any shares of ICH Preferred Stock not
converted into ICH Common Stock upon the closing of the ICH Offering shall on
such date automatically convert into shares of ICH Class A Stock at the same
rate as the ICH Preferred Stock converted into Common Stock on said date.
Shares of ICH Class A Stock convert into shares of the ICH Common Stock on a
one-for-one basis and each such class of Common Stock is entitled to cash
dividends on a pro rata basis. Upon any subsequent issuances of Common Stock
by ICH or sales of ICH Common Stock held by the Company, shares of ICH Class A
Stock shall automatically continue to convert into additional shares of the
ICH Common Stock, subject to said 9.8% limitation.
Also in March 1997, ICH purchased a $10.1 million mortgage-backed security
from ICIFC which was financed with a promissory note. In March 1997, the
promissory note was repaid with cash from the Company's above referenced $15.0
million investment. Concurrently therewith, ICH repaid the $900,000 owed to
the Company in connection with its purchase of condominium conversion loans.
In April 1997, the Company exchanged the 299,000 shares of ICH Common Stock
held by it for an equivalent number of shares of ICH Class A Stock.
On the closing of the ICH Offering, the Company will contribute to ICH (the
"Contribution") 100% of the Non-Voting Preferred Stock of ICCC for that number
of shares of ICH Class A Stock equal to the product of 95% of the estimated
fair value of ICCC on the date of the Contribution divided by the price at
which the ICH Common Stock is sold in the ICH Offering.
Prior to the Contribution, ICCC will had been allocated expenses of various
administrative services provided by the Company. The costs of such services
were not directly attributable to a specific division or subsidiary and
primarily included general corporate overhead, such as accounting and cash
management services, human resources and other administrative functions. These
expenses were calculated as a pro rata share of certain administrative costs
based on head count or relative assets and liabilities of the division or
subsidiary, which management believed was a reasonable method of allocation.
NON-COMPETE AGREEMENT AND RIGHT OF FIRST REFUSAL AGREEMENT
ICH's operations may be affected by the activities of the Company. Pursuant
to a non-compete agreement (the "Non-Compete Agreement") between the Company
and ICH which will become effective upon the closing of the ICH Offering, for
a period of the earlier of nine months from the closing of the ICH Offering or
the date upon which ICH accumulates (for investment or sale) $300.0 million of
Commercial Mortgages (as defined therein) and/or commercial mortgage-backed
securities, the Company will not originate or acquire any
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Commercial Mortgages or commercial mortgage backed-securities; however, this
Non-Compete Agreement shall not preclude the Company from purchasing any
Commercial Mortgages or commercial mortgage-backed securities as permitted
under the Right of First Refusal Agreement (as discussed below) or the Company
chooses not to bid for or with respect to which ICCC's or the Company's bid is
not accepted. After the termination of the Non-Compete Agreement, and subject
to the Right of First Refusal Agreement, as defined below, the Company, as a
mortgage REIT, may compete with the operations of ICH.
It is likely that RAI will act as the manager for other REITs, some of which
may have been or will be affiliated with ICH or the Company (an "Affiliated
REIT"). In such an event, any Affiliated REIT utilizing RAI as its manager may
be in competition with ICH. Upon the closing of the ICH Offering, RAI, ICH and
the Company will enter into a ten-year right of first refusal agreement (the
"Right of First Refusal Agreement"). It is expected that any Affiliated REIT
utilizing RAI as its manager will become a party to the Right of First Refusal
Agreement, but such event is outside the control of ICH and there can be no
assurance that any or all affiliated REITs (other than the Company) will
actually become parties to the Right of First Refusal Agreement. Pursuant to
this Agreement, RAI will agree that any mortgage loan or mortgage-backed
security investment opportunity (an "Investment Opportunity") which is offered
to it on behalf of either ICH, the Company or any Affiliated REIT will first
be offered to that entity (the "Principal Party") whose initial primary
business as described in its initial public offering documentation (the
"Initial Primary Business") most closely aligns with such Investment
Opportunity. In addition, both the Company and ICH will agree that any
Investment Opportunity offered to either of them which falls outside the scope
of its Initial Primary Business should be offered to the Principal Party.
Should the Principal Party decline to take advantage of an Investment
Opportunity offered to RAI, RAI will make an independent evaluation of which
REITs business is more greatly enhanced by such Investment Opportunity. Should
all of said REITs decline such Investment Opportunity, RAI may offer the
Investment Opportunity to any third party. Should the Principal Party decline
to take advantage of an Investment Opportunity offered to a REIT which is a
party to the Right of First Refusal Agreement, said REIT shall then be free to
pursue the Investment Opportunity. In such an event there can be no assurance
that ICH will be able to take advantage of any such Investment Opportunity or
that any competitive activity of the Company or any Affiliated REIT will not
adversely affect ICH's operations. In addition, ICH may become further
prejudiced by the Right of First Refusal Agreement to the extent that ICH
desires to pursue or pursues a business outside its Initial Primary Business.
REIT Advisors, Inc.
THE MANAGER
RAI will commence operations as of the closing of the ICH Offering. Each of
the persons who will become executive officers of RAI upon the closing of the
ICH Offering has significant experience in purchasing, financing, servicing,
securitizing and investing in mortgage loans and mortgage securities and all
of such persons are officers of the Company; however, they have not previously
managed a Commercial Mortgage REIT. RAI will be owned by its officers. The
officers of RAI will modify their employment agreements with the Company to
allow them to become officers of RAI upon the closing of the ICH Offering. RAI
will agree to cause each of its officers to devote as much of his or her time
to the operations of ICH as is reasonably necessary. ICH will reimburse RAI,
who will reimburse the Company on a dollar for dollar basis (including the
service charge referenced below), for the actual cost of providing the
services of these officers to ICH based upon the compensation payable to them
by the Company, plus a 15% service charge. ICH will reimburse RAI for expenses
incurred by RAI, plus a service charge of 15% on all expenses owed by RAI to
the Company for costs and expenses owed by RAI to the Company for costs and
services under any submanagement agreement between the Company and RAI. RAI
will pay all such third parties on a dollar for dollar basis for the
aforementioned amounts received by it from ICH; no such 15% service charge
will be paid to third party service providers other than the Company. For the
first three years of the RAI Management Agreement (as discussed below) there
will be a minimum amount of $500,000 per annum (including the 15% service
charge) payable by ICH in connection with services provided and expenses
incurred by RAI and payable by RAI to the Company. After the third year, ICH
will only be responsible for reimbursing expenses and services provided, with
the 15% service charge for amounts due to the Company. See "--Management
Agreement--Expenses."
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ICH has selected an outside advisor in order to efficiently and economically
coordinate, assist and manage the duties and responsibilities of ICH. ICH
believes that RAI will be more adequately suited to provide the following
services relating to the operations of ICH due to the expertise of RAI's
senior officers: securitization oversight, contract negotiation, market
information, implementation of cost controls, asset liability modeling and
management and servicing systems.
DIRECTORS AND EXECUTIVE OFFICERS
The persons who will become directors and executive officers of RAI upon the
closing of the ICH Offering are as follows:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Joseph R. Tomkinson*.... Chairman of the Board and Chief Executive Officer
William S. Ashmore*..... President and Director
Richard J. Johnson*..... Executive Vice President, Chief Financial Officer and Director
Mary C. Glass-
Schannault*............ Senior Vice President
H. Wayne Snavely*....... Director
</TABLE>
- --------
* Each of these persons also serve as directors or executive officers of ICH
and the Company.
MANAGEMENT AGREEMENT
ICH will enter into a Management Agreement (the "RAI Management Agreement")
with RAI to become effective upon the closing of the ICH Offering, for an
initial term expiring on December 31, 2002. Successive extensions, each for a
period not to exceed one year, may be made by agreement between ICH and RAI.
The RAI Management Agreement may be terminated by either party without cause
at any time upon 60 days' written notice. Any such termination or failure to
extend by ICH without cause shall result in the payment of a termination or
non-renewal fee to RAI determined by an independent appraisal. In addition,
ICH and RAI will have the right to terminate the RAI Management Agreement upon
the occurrence of a breach by the other party of any provision contained in
the RAI Management Agreement which remains uncured for 30 days. In addition,
ICH may renew or terminate the RAI Management Agreement by a majority vote of
its unaffiliated directors or by a vote of the holders of a majority of the
outstanding shares of Common Stock.
The terms of the RAI Management Agreement, including the management fees,
were determined by what management of both RAI and ICH believe are comparable
with other advisory relationships and have been approved by the Board of
Directors of RAI and the unaffiliated directors of ICH. ICH's Bylaws provide
that the unaffiliated directors shall determine at least annually that the
compensation paid to RAI is reasonable in relation to the nature and quality
of the services performed by RAI.
RAI is at all times subject to the supervision of ICH's Board of Directors
and provides advisory services to ICH in accordance with the terms of the RAI
Management Agreement. RAI is involved in three primary activities: (1) capital
management--primarily the oversight of ICH's structuring, analysis, capital
raising and investor relations activities; (2) asset management--primarily the
analysis and oversight of the acquisition, management, securitization and
disposition of ICH assets; and (3) operations management--primarily the
oversight of ICH's operating subsidiaries. Specifically, RAI performs such
services and activities relating to the assets and operations of ICH as may be
appropriate, including:
(1) serving as ICH's consultant with respect to formulation of investment
criteria and interest rate risk management by its Board of Directors;
(2) advising as to the issuance of commitments on behalf of ICH to
purchase Commercial Mortgages or purchasing commercial mortgages and
commercial mortgage-backed securities meeting the investment criteria set
from time to time by ICH's Board of Directors;
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(3) advising, negotiating, and overseeing the securitization of ICH's
commercial mortgages in REMIC or CMOs and negotiating terms with rating
agencies and coordinate with investment-bankers as to structure and pricing
of the securities formed by ICH;
(4) advising ICH in connection with and assisting in its long-term
investment operations;
(5) furnishing reports and statistical and economic research to ICH
regarding ICH's activities and the services performed for ICH by RAI;
(6) monitoring and providing to the Board of Directors of ICH on an on-
going basis price information and other data, obtained from certain
nationally-recognized dealers who maintain markets in commercial mortgages
identified by the Board of Directors from time to time, and providing data
and advice to the Board of Directors in connection with the identification
of such dealers;
(7) providing the executive and administrative personnel, office space
and services required in rendering services to ICH, which includes
contracting with appropriate third parties, which may include the Company,
and its affiliates, to provide various services including facilities and
costs related therewith, technology, management information systems, human
resource administration, general ledger accounts, check processing,
accounts payable and other similar operational or administrative services;
(8) overseeing the day-to-day operations of ICH and supervising the
performance of such other administrative functions necessary in the
management of ICH as directed by the Board of Directors of ICH;
(9) advising and negotiating of agreements on behalf of ICH with banking
institutions and other lenders to provide for the short-term borrowing of
funds by ICH;
(10) communicating on behalf of ICH with the holders of the equity and
debt securities of ICH as required to satisfy the reporting and other
requirements of any governmental bodies or agencies and to maintain
effective relations with such holders;
(11) subject to an agreement executed by ICH, advising as to the
designation of a servicer for those loans sold by ICCC whereby ICCC elected
not to service such loans;
(12) counseling ICH in connection with policy decisions to be made by its
Board of Directors; and
(13) upon request by and in accordance with the direction of the Board of
Directors of ICH, investing or reinvesting any money of ICH.
In order to utilize the Company's infrastructure, RAI intends to enter into
a submanagement agreement with the Company upon the closing of the ICH
Offering to provide substantially all of the administrative services required
by ICH including facilities and costs associated therewith, technology,
management information systems, general ledger accounts, human resources and
payroll, check processing and accounts payable as RAI deems necessary. RAI may
also enter into additional contracts with other parties, which may include the
Company, or its affiliates, to provide any such services for RAI, which third
party shall be approved by ICH's Board of Directors. See "--Expenses."
MANAGEMENT FEES
RAI will be entitled to receive for each fiscal quarter, an amount equal to
25% of the Net Income of ICH, before deduction of such compensation, in excess
of the amount that would produce an annualized Return on Equity equal to the
daily average Ten Year U.S. Treasury Rate plus 2%. The term "Return on Equity"
is calculated for any quarter by dividing ICH's Net Income for the quarter by
its Average Net Worth for the quarter. For such calculations, the "Net Income"
of ICH means the income of ICH determined in accordance with the Code before
RAI's incentive compensation, the deduction for dividends paid and any net
operating loss deductions arising from losses in prior periods. A deduction
for all of ICH's interest expenses for borrowed money is also taken in
calculating Net Income. "Average Net Worth" for any period means the
arithmetic average of the sum of the gross proceeds from any offering of its
equity securities by ICH, before deducting any
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<PAGE>
underwriting discounts and commissions and other expenses and costs relating
to the offering, plus ICH's retained earnings less dividends declared (without
taking into account any losses incurred in prior periods) computed by taking
the daily average of such values during such period. The payment to the RAI
will be calculated quarterly in arrears before any income distributions are
made to stockholders for the corresponding period.
RAI's fees will be calculated by RAI within 60 days after the end of each
calendar quarter, with the exception of the fourth quarter for which
compensation will be computed within 30 days, and such calculation shall be
promptly delivered to ICH. ICH will be obligated to pay the base fee within 90
days after the end of each calendar quarter.
EXPENSES
Pursuant to the RAI Management Agreement, ICH will also pay all operating
expenses incurred by RAI under the RAI Management Agreement. The operating
expenses generally required to be incurred by RAI and reimbursed by ICH
include out-of-pocket costs, equipment and other personnel required for ICH's
operations, including amounts payable by RAI pursuant to submanagement
agreements with outside third parties, which may include the Company and its
affiliates, to provide various services to ICH including facilities and costs
related therewith, technology, management information systems, human resource
administration, general ledger accounts, check processing, accounts payable
and other similar operational services ("Reimbursable Expenses"). Reimbursable
Expenses also include issuance and transaction costs associated with the
purchase, disposition and financing of investments, regular legal and auditing
fees and expenses of ICH, the fees and expenses of ICH's directors, premiums
for directors' and officers' liability insurance, premiums for fidelity and
errors and omissions insurance, servicing and sub-servicing expenses, the
costs of printing and mailing proxies and reports to stockholders, and the
fees and expenses of ICH's custodian and transfer agent, if any.
ICH will reimburse RAI for all Reimbursable Expenses, plus a service charge
of 15% on all Reimbursable Expenses owed by RAI to the Company for costs and
services under any subcontract between RAI and the Company. RAI will pay all
such third parties on a dollar-for-dollar basis the aforementioned amounts
received by it from ICH; no such 15% service charge will be paid to third
party service providers other than the Company.
All of the persons designated to become officers of RAI upon the closing of
the ICH Offering are officers of the Company and ICH. Each of these officers
will modify their employment agreements with the Company to allow them to
become officers of RAI upon the closing of the ICH Offering. RAI will agree to
cause each of its officers to devote as much of his or her time to the
operations of ICH as is reasonably necessary. ICH will reimburse RAI, who will
reimburse the Company on a dollar for dollar basis, for the actual cost (the
"Reimbursable Executive Amounts") of providing the services of these officers
to ICH based upon compensation payable to them by the Company, plus a 15%
service charge.
For the first three years of the RAI Management Agreement, there will be a
minimum amount of $500,000 per annum (which includes the 15% service charge)
payable by ICH to RAI for Reimbursable Expenses and Reimbursable Executive
Amounts and payable by RAI to the Company. After the third year, ICH will only
be responsible for paying RAI the actual amount of Reimbursable Expenses and
Reimbursable Executive Amounts, with the 15% service charge for amounts due to
the Company.
LIMITS OF RESPONSIBILITY
Pursuant to the RAI Management Agreement, RAI will not assume any
responsibility other than to render the services called for thereunder and
will not be responsible for any action of ICH's Board of Directors in
following or declining to follow its advice or recommendations. RAI, its
directors, officers, equity holders and employees will not be liable to ICH,
any mortgage security issuer, any subsidiary of ICH, the Unaffiliated
Directors of ICH, ICH's stockholders or any subsidiary's shareholders for acts
performed in accordance with and pursuant to the RAI Management Agreement,
except by reason of acts or omissions constituting bad faith, willful
misconduct, gross negligence or reckless disregard of their duties under the
RAI Management Agreement.
25
<PAGE>
RAI is a recently formed entity and does not have significant assets.
Consequently, there can be no assurance that ICH would be able to recover any
damages for claims it may have against RAI. ICH has agreed to indemnify RAI,
and its directors, officers, equity holders and employees with respect to all
expenses, losses, damages, liabilities, demands, charges and claims arising
from any acts or omissions of RAI made in good faith in the performance of its
duties under the Management Agreement.
STOCK OPTION PLAN
ICH has adopted a Stock Option and Awards Plan and RAI and the directors,
officers and employees of RAI will be granted certain options or rights under
the Stock Option and Awards Plan upon the closing of the ICH Offering, and may
in the future be granted additional options or rights under the Stock Option
and Awards Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of April 30,
1997 by (1) each person known to the Company to beneficially own more than
five percent of the Company's Common Stock, (2) each Director, (3) the
Company's executive officers, and (4) all Directors and executive officers as
a group. Unless otherwise indicated in the footnotes to the table, the
beneficial owners named have, to the knowledge of the Company, sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------ ------------------ ------------------
<S> <C> <C>
H. Wayne Snavely......................... 20,000 *
Joseph R. Tomkinson...................... 27,613 *
William S. Ashmore....................... 10,977 *
Richard J. Johnson....................... 10,702.808 *
Mary C. Glass-Schannault................. -- *
James Walsh.............................. 15,000 *
Frank P. Filipps......................... 15,000 *
Stephan R. Peers......................... 15,000 *
All directors and executive officers as a
group (8 persons)........................ 93,376 *
</TABLE>
- --------
* less than 1%
26
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected and appointed KPMG Peat
Marwick LLP to act as the Company's independent accountants for the year
ending December 31, 1997. In recognition of the important role of the
independent accountants, the Board of Directors has determined that its
selection of such accountants should be submitted to the stockholders for
review and ratification on an annual basis.
KPMG Peat Marwick LLP has examined the financial statements of the Company
since its inception. Management is satisfied with their performance to date.
The affirmative vote of a majority of the shares voting on this proposal is
required for its adoption. In view of the difficulty and the expense involved
in changing independent accountants on short notice, if the proposal is not
approved, it is contemplated that the appointment for 1997 may be permitted to
stand, unless the Board of Directors finds other compelling reasons for making
a change. Disapproval of this Proposal will be considered as advice to the
Board of Directors to select other independent accountants for the following
year. Representatives of KPMG Peat Marwick LLP are expected to be present at
the Annual Meeting and will have the opportunity to make a statement if they
desire to do so. They will also be available to respond to appropriate
questions.
STOCKHOLDERS' PROPOSALS
Stockholders' proposals intended to be presented at the Company's next
Annual Meeting of Stockholders to be held in 1998 must be received at the
Company's principal executive offices no later than February 12, 1998, in
order to be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
OTHER BUSINESS
The Board of Directors knows of no other matter to be acted upon at the
meeting. However, if any other matter shall properly come before the meeting,
the proxyholders named in the proxy accompanying this Proxy Statement will
have discretionary authority to vote all proxies in accordance with their best
judgment.
By Order of the Board of Directors
/s/ RICHARD J. JOHNSON
---------------------------
Richard J. Johnson, Secretary
Dated: June 13, 1997
Santa Ana Heights, California
27
<PAGE>
1443-PS-97
<PAGE>
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON JULY 22, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
The undersigned hereby appoints Joseph R. Tomkinson and Richard J. Johnson,
or either of them, each with full power of substitution, as proxies of the
undersigned to attend the Annual Meeting of Stockholders of Imperial Credit
Mortgage Holdings, Inc., at the Sutton Place Hotel, 4500 MacArthur Boulevard,
Newport Beach, California 92660, on the 22nd day, July, 1997, at 9:00 A.M.
Pacific Standard Time, and any adjournment or postponement thereof, and to vote
the number of shares the undersigned would be entitled to vote if personally
present on the following matters set forth on the reverse side.
This proxy shall be voted in accordance with such instructions as may be
given on the reverse side of this proxy card. It is understood, however, that
the proxy will be voted FOR the election of directors and ratification of the
selection of certified public accountants unless contrary instructions are
specified. The spaces for your votes and signature are set forth on the reverse
side. Please vote, sign and return promptly.
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
<PAGE>
[X] Please mark
votes as in
this example.
The Board of Directors recommends a vote FOR each of the nominees and
FOR the other proposals.
<TABLE>
<S> <C>
1. Election of Directors 2. To ratify the appointment of KPMG FOR AGAINST ABSTAIN
NOMINEES: H. Wayne Snavely, Joseph R. Tomkinson, Peat Marwick LLP as independent [_] [_] [_]
William S. Ashmore, James Walsh, Frank P. Filipps, accountants for the year ending
Stephan R. Peers December 31, 1997.
FOR WITHHELD
[_] [_] 3. In their discretion, upon any and all such other matters as
may properly come before the meeting or any adjournment or
[_] postponement thereof.
--------------------------------------
For all nominees except as noted above MARK HERE MARK HERE
FOR ADDRESS [_] IF YOU PLAN [_]
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
Note: Please sign exactly as name appears. Joint owners
should each sign. Trustees, executors, etc. should indicate
capacity in which they are signing.
Signature: Date: Signature: Date:
----------------------- ------ ------------------------------ -------
</TABLE>
