Presentation to the Special Committee of the Board of
Directors of Impac Commercial Holdings, Inc.
October 5, 2000
Table of Contents
Section
1 Review of Proposed Transaction
2 Summary of Bear Stearns' Information Review to Date
3 Impac's Recent History and Current Situation
4 A Summary of Company Valuation Analyses
5 Summary of Management Agreement Valuation Analyses
Appendices
[A] Impac Consolidated Financials
[B] Premium to Historical Market Stock Prices
[C] Comparable Companies Analysis
[D] Net Proceeds from Liquidation
[E] Comparable Mortgage REIT M&A and Liquidation Transactions
[F] NAV Sensitivity Analysis
[G] Projected Manager Income Statement
[H] Management Agreement Discounted Cash Flows in a Liquidation and as an
Ongoing Entity
[I] Comparable REIT Manager/Advisor M&A Transactions
[J] Summary of Management Agreements for Selected REITs
Section 1
Review of Proposed Transaction
Summary of the Proposed Transaction
Key Terms
Impac Commercial Holdings, Inc. ("Impac" or the "Company"),
Fortress Impac Acquisition Corp. ("Purchaser") and Fortress
Investment Corp. ("Fortress"), intend to enter into an Agreement
and Plan of Merger (the "Agreement") pursuant to which Purchaser
will commence a tender offer (the "Offer") to purchase for $7.55
cash (the "Purchase Price") all of the issued and outstanding
common stock of Impac not already owned by Fortress and its
affiliates followed by a merger of Purchaser with and into Impac
(the "Merger") pursuant to which holders of the remaining
outstanding shares of common stock, other than Fortress and its
affiliates, will receive the Purchase Price in exchange for their
shares (the Offer and Merger, collectively the "Transaction")
The Purchaser will tender for 69.0% of fully diluted common
shares it does not already own
Total Equity Valuation for the Company of $60.4 million for
100% of 8.0 million fully diluted common shares
Form of Offer
Cash tender offer
Upon closing of the tender offer, parties will complete a
merger in a timely manner
Fortress and its affiliates will own 100% of the Company
immediately following the transaction with the purchase
price for all shares not already owned by Fortress and its
affiliates totaling approximately $41.5 million
Other Provisions
Board may consider and accept a higher offer should one
emerge once the proposed merger is announced
No break-up fee or "no-shop" provisions
Reimbursement of out-of-pocket expenses to the Purchaser
No conditions for financing or due diligence
Significant Conditions to Closing
Minimum amount to be tendered: 90%
The Purchaser's offer is not conditioned upon obtaining financing
for the Transaction
There is no public information on the Purchaser, but Fortress has
assured the Special Committee that the Purchaser has the resources
to complete the Transaction
It should be noted in connection with our review of the Proposed
Transaction that:
In the ordinary course of business, Bear Stearns may actively
trade in the equity and debt securities of companies in which
Fortress affiliates have invested or proposed to invest, and may
at any time hold a long or short position in such securities. Bear
Stearns has also been engaged by Fortress affiliates during the
last 18 months in connection with several investment banking and
underwriting assignments for which we received customary fees
Bear Stearns, through an affiliated investment partnership, has
committed $10 million in equity to Fortress Investment Fund,
L.L.C. (the "Fortress Fund"). Through its investment in the
Fortress Fund, Bear Stearns may have an indirect economic interest
in the Proposed Transaction
We have relied upon and assumed, without independent verification,
the accuracy and completeness of the financial and other
information, including without limitation the projections and
expense estimates for the Company and for FIC Management Inc. (the
"Manager") provided to us by Company executives, including Randal
Nardone, COO; Greg Hughes, CFO; and Pete Smith, VP
We have been informed by management that there have been
pre-payments made to the collateral underlying the CMO. These
prepayments will have an impact on the Company's interest income
and the financial performance of the Manager. At this time we have
not received updated projections but have been informed by the
Manager that the changes will not be material
During the course of our engagement we were not asked to solicit
bids or offers for the Company from other parties
With respect to Impac's projected financial results, we have
assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of
the senior management of the Manager as to the expected future
performance of Impac
We have not assumed any responsibility for the independent
verification of any such information or of the projections
provided to us, and we have further relied upon the assurances of
the senior management of the Manager that they are unaware of any
facts that would make the information and projections provided to
us incomplete or misleading
We did not make or receive any independent evaluation or appraisal
of the assets or liabilities of the Company nor was Bear Stearns
furnished with any such evaluation or appraisal
We have necessarily based our review on economic, market and other
conditions, and the information made available to us, as of the
date hereof
It is understood that this review is intended for the benefit and
use of the Special Committee of the Board of Directors of Impac
and does not constitute a recommendation to the Board of Directors
of Impac or any holders of Impac common stock as to how to vote in
connection with the Proposed Transaction
This review does not address Impac's underlying business decision
to pursue the Proposed Transaction; and
This review is not to be used for any other purpose, or
reproduced, disseminated, quoted to or referred to at any time, in
whole or in part, without our prior written consent
Proposed Transaction Value
(Data in millions, except
Proposed Transaction Value per share amounts)
-------------------------- -------------------------
Tender Price per Share(1) $7.55
Fully Diluted Shares Outstanding(2) 8.00
------
Total Common Equity Value $60.4
Plus: Debt(3) 362.2
Plus: Other Liabilities(3) 1.1
Less: Cash(3) (9.7)
------
Total Transaction Enterprise Value $414.0
------
(1) Represents price per share offered by the Purchaser.
(2) 8,001,000 diluted shares outstanding per the Company.
(3) Based on Company provided 9/30/2000 estimated balance sheet.
Selected Stock Price Statistics(1)
ICH Closing Stock Price Proposed Transaction Premium
-------------------------------------- ----------------------------
Proposed Transaction Price $7.55
Self-Tender Price (05/22/00)(2) 5.75 31.3%
Closing Price as of 10/04/00 6.38 18.4
52-Week High (08/17/00) 6.69 12.9
52-Week Low (03/21/00) 4.69 61.0
52-Week Average as of 09/29/00 5.49 37.5
90-day Average Beginning 05/24/00 5.96 26.7
(1) Source: FactSet.
(2) Cash price paid by Company for approximately 2.1 million shares in
a self-tender announced 4/24/00 and completed on 5/22/00. Source:
Company, Bloomberg.
Trading Volume Statistics(1)
ICH Average Daily Trading Volume Statistics
-------------------------------------------
Average Daily Volume for Week Ending 09/29/00 10,240
52-Week High (10/28/99) 683,900
52-Week Average as of 09/29/00 22,115
90-Day Average for period beginning 05/24/00 5,296
52-Week Low (05/18/00) 200
(1) Source: FactSet.
Section 2
Summary of Bear Stearns'
Information Review to Date
Summary of Bear Stearns' Information Review to Date
Reviewed a draft of the Merger Agreement (which you have advised
us is substantially in final form)
Reviewed Impac's Annual Reports on form 10-K for the years ended
December 31, 1997-1999, its quarterly reports on form 10-Q for
the periods ended March 31, 2000 and June 30, 2000, its reports on
form 8-K during the three years ended October 5, 2000 and its self
tender documents on forms SC TO-I dated April 4, 2000 and June 6,
2000
Reviewed certain operating and financial information, including
projections through December 31, 2001 provided to us by management
of the Manager relating to Impac's business, operations and
prospects
Reviewed the Management Agreement between the Company and the
Manager dated May 6, 1999 (the "Management Agreement")
Reviewed the Manager's projections of revenues, expenses and
incentive fees related to the Management Agreement
Reviewed the terms of the Series B Convertible Preferred Stock and
the provisions of the Merger Agreement related thereto
Attended meetings with Counsel to the Special Committee and
discussed the Management Agreement, the Series B Convertible
Preferred Stock, and the Merger Agreement
Met with certain members of Impac's senior management, all of whom
are employees of Fortress and the Manager, to discuss Impac's
business, operations, historical and projected financial results
and future prospects
Obtained from the management of Impac third party marks of the
estimated market value of the Company's CMBS investments as of
June 30, 2000
Met with representatives of Fortress and the Manager to discuss
the Offer and their views as to the Company's business
Met with the Special Committee and discussed, among other things,
the Special Committee's views of the financial projections of
Impac furnished to us by the Manager's management and strategic
alternatives pursued by the Company and prospects for the Company
Reviewed historical trading prices and events, multiples and
volume of the common shares of Impac
Reviewed publicly available financial data, stock market
performance data and trading multiples of companies which we
deemed generally comparable to the Company
Reviewed the terms of recent merger, acquisition and liquidation
transactions involving companies we deemed comparable to Impac
Reviewed the terms of recent merger and acquisition transactions
involving the acquisition of REITs by advisors to the REITs, or by
third parties in connection with their acquisition of a REIT
Performed discounted cash flow analyses of the Company based on
projections for a hypothetical liquidation of Impac and third
party marks of the estimated of fair market value of Impac's CMBS
Performed discounted cash flow analyses based on projections for
the Manager under the Management Agreement
Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate
Section 3
Impac's Recent History and Current Situation
Structural Overview
<Chart>
Impac Stock Ownership Profile(1)
<TABLE>
<CAPTION>
Number of Common
Insiders Shares Held % Ownership
-------- ---------------- -----------
<S> <C> <C>
Fortress Partners L.P.(2) 2,512,000(2) 31.0%
----------- ------
Total 2,512,000 31.4%
4% Holders
James Grosfeld 825,000 10.3%
Robert A. Day (TCW) 627,000 7.8
Farallon Capital Management 356,000 4.4
----------- ------
Total 1,808,000 22.5%
Other Stockholders 3,681,000 46.0%
----------- ------
TOTAL FULLY DILUTED COMMON SHARES: 8,001,000 100.0%
----------- ------
(1) Based on CDA/Spectrum reports as of 12/99, and updated Fortress
ownership as reported in last 13D dated May 17, 2000.
(2) Assuming conversion of Series B Convertible Preferred to 1.68
million common shares.
</TABLE>
Chronology of Key Corporate Events(1)
<TABLE>
<CAPTION>
Date Closing Stock Price
---- -------------------
<S> <C> <C> <C>
08/04/97 $15.00 IMH Commercial Holdings (name later changed to "Impac Commercial Holdings, Inc.")
sells 5.5 million shares at $15 per share in an IPO, floating 86.3% of the Company.
Ticker: ICH.
06/22/98 15.31 Prices a secondary equity offering of 2 million common shares at 15-5/16, netting
approximately $29.1 million for the Company.
10/08/98 3.38 ICH announces that it will delay payment of the previously declared dividend of $.45 per
share until January 6, 1999 and further dividend payments are suspended.
The Company also announces that it will record a loss for the third quarter and the fourth
quarter earning will be lower than originally forecast.
The Board of Directors approved a stock repurchase program of up to $5.0 million shares.
The Company announced a Stockholder Rights Plan in which one Preferred Stock Purchase Right
was distributed to each common stockholder. The rights begin to exercise when a party
acquires 10% of the Company. The Rights expire October 2008.
10/21/98 4.25 ICH announced the repurchase of 1,394,000 of the Company's outstanding shares in a private
transaction with an affiliate. The price of the transaction was $4.375 per share.
04/30/99 5.06 ICH announced results for the first quarter 1999: total losses of ($202,000) or
($.03) per diluted share. (Total losses for 1998 amounted to ($11,013,000) or $1.26)
per share.) Staffing in the conduit operations were reduced 35%, overall corporate
staffing was reduced 67%.
05/06/99 4.94 ICH announced that Fortress purchased approximately $12 million of convertible
preferred stock in ICH. The terms of the deal were announced as follows: 8.5% coupon
and convertible at $7.13 per share. Separately, but related, the Manager purchased
the ICH management contract for $6.0 million. Joining the Board of ICH as Fortress
designees were Wes Edens, Robert Kauffman and Christopher Mahowald (unaffiliated).
ICH also announced a pro rata $.50 per share dividend.
A 08/05/99 6.06 AMRESCO Capital Trust (NASDAQ: AMCT) and ICH announced the signing of a definitive merger
agreement. With the following terms:
Shares in ICH will be exchanged for 0.661 shares of AMCT
An affiliate of Fortress to manage the combined entity
B 09/07-08/99 5.38 Apex Mortgage Capital, Inc. (NYSE: AXM) announced it had acquired a 7.5% stake in ICH and
that it will make a merger proposal to ICH to exchange 0.60328 AXM shares for each share of
ICH in a tax-free merger.
C 10/25/99 5.44 The Board of ICH unanimously rejects AXM's merger proposal.
D 11/16/99 5.25 ICH reported a net loss of the third quarter of approximately ($5.5) million, or
($.65) per share. Of the reported losses, $5.0 million were related to a write down
of the Company's residual interests in securitizations held for trading.
E 11/18-30/99 5.19-5.815 Fortress acquires 420,000 shares at $5.19-$5.88.
F 12/01/99 5.88 Fortress acquires 282,400 shares at $5.75 to $6.00.
G 01/04/00 5.25 ICH and AMCT jointly announce termination of the merger.
H 04/24/00 5.0625 ICH announced that the Company expects to purchase for cash approximately 2.1 million shares
at a tender price of $5.75 per share.
05/22/00 5.44 ICH tender completed.
I 08/03/00 5.88 ICH announced earnings of approximately $1.9 million, or $.20 per diluted common share for
the quarter ended June 30, 2000. These earnings are after a one-time charge for settling
litigation of approximately $490,000, or $.06 per share.
(1) Sources: Bloomberg, FreeEdgar and FactSet
</TABLE>
Chronology of Key Corporate Events
<Chart>
Wall Street Commentary on Impac Stock
Currently, Impac has very little Wall Street research coverage.
<TABLE>
<CAPTION>
Date Firm Recommendation EPS/Growth Estimate Price Target/Term Analyst's Comments
---- ---- -------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
08/07/00 PaineWebber Buy Rating 2000E EPS $0.60, 12 month price Price target reduced to $6
2001E EPS estimate objective $6.00 from $7 due to lower than
decreased to $0.70 expected operating EPS as a
from $0.75 result of write-offs of bad
loans. Speculative, but
remains a buy.
05/05/00 PaineWebber Buy Rating 2000E EPS decreased 12 month price Stock remains cheap as it trades
from $0.90 to $0.60, objective $7.00 at 5.5x new 2000 operating EPS
2001E EPS decreased estimate.
from $1.00 to $0.70
04/13/00 PaineWebber Buy Rating 2000E EPS $0.20 No change Lower operating EPS than
decreased from expected because of write-
$1.00, downs, but a higher dividend
2001E EPS $1.00 than expected. Core business
doing well, and tax loss
carry forward should run out
around 2002 so that dividends
match earning. Reiterate buy.
02/01/00 PaineWebber Buy Rating 2000E EPS $1.00 No change Good Q4 but stock seems cheap
trading at only 4x 2000E
forecast.
12/14/99 PaineWebber Buy Rating 2000E EPS $1.00 down 12 month price Stock is cheap, trading at
from $1.25 objective $8.00 4x 2000E EPS. Stock is also
trading at a discount to REIT
peers. Confident company can
reach 2000E EPS by growing
loan volume.
08/09/99 PaineWebber Neutral 1999E EPS of $0.52 Lower rating in response to
decreased from 2000E EPS of $0.80 announced merger as analyst
Attractive is unfamiliar with AMCT and
speculative of combined business
strategies.
07/28/99 PaineWebber Buy Rating 1999E EPS reduced 12 month price EPS reports below expectations
from $1.10 to $0.95 objective $9.00 because of material securities
2000E EPS $1.25 losses. Lending operations
remain good, but more write-
downs are possible.
</TABLE>
Section 4
Summary of Company Valuation Analyses
Summary of Company Valuation
For purposes of reviewing the Proposed Transaction we have employed the
following methodologies:
Premium to Historical Market Stock Prices
Comparable Companies Trading Analysis
Net Proceeds from Liquidation
Comparable Merger and Acquisition and Liquidation Transactions Analysis
In addition we have compared the results of these methodologies with a) a
calculated range of Net Asset Value (NAV) for the Company's common stock
based on estimated market values of the Company's CMBS assets and b) the
pricing of comparable companies and transactions vs. the estimated NAV's of
those comparable companies. The following pages herein more fully describe
these analyses.
Premium to Historical Stock Prices
The Proposed Transaction price of $7.55 per share represents a premium to
several market indications of the stock. These include a fully subscribed
self-tender initiated by Impac.
Measure Price Premium
------- ----- -------
Self-Tender Price (05/22/00)(1) $5.75 31.3%
Paine Webber Research Target(2) 6.00 25.8
Closing Price as of 10/04/00(3) 6.38 18.4
52-Week High (08/17/00)(3) 6.69 12.9
52-Week Low (03/21/00)(3) 4.69 61.0
52-Week Average as of 09/29/00(3) 5.49 37.5
90-Day Average Beginning 05/24/00(3) 5.96 26.7
(1) Source: Company, Bloomberg.
(2) Source: Investext.
(3) Source: FactSet.
Comparable Company Trading Multiples
Reviewed a group of selected publicly traded commercial mortgage
REITs with similar characteristics:
Examined various valuation multiples, including: Price/LTM EPS;
Price to forward EPS; Price/Book Equity, Price/NAV and Dividend
Yield (See Appendix C)
Examined historical trends within the comparable trading group
including market reaction to earnings announcements, relationships
between stock price and book value and dividend yields
Comparable companies' recent trading prices suggest a range of
Price/2000 EPS multiples of 4.5x to 6.4x, or a valuation for Impac
of $5.58 to $7.94 per share, based on projected basic 2001
earnings of $1.24 per share. We applied the multiple to projected
2001 basic earnings because (a) non-recurring expenses during the
first two quarters of 2000 depressed Impac's earnings for 2000 and
(b) there is no basis for assuming that Fortress and, or its
affiliates would elect to convert their holdings of Series B
Preferred, thereby giving up structural seniority and a higher
yield, absent a liquidity event
The Trading Multiples also point to a range of Price/Book or
Price/NAV, as appropriate based on the comparable companies'
methods of accounting for their assets, of .6x to 1.Ox. Note that
some companies mark most of their assets to market, and others do
not. Based on our estimated range of Net Asset Values per share
for Impac (see Appendix F) these multiples suggest a per share
value, net of a range of estimated values for the Management
Agreement (see Section 5), of $4.19 to $8.13 per share
Impac's book value substantially overstates the estimated market
value or NAV of the Company's assets because one of the Company's
largest CMBS assets (the "CMO") is carried at original cost which
predates the CMBS market correction in 1998. The Company reports
"estimated fair value" per share quarterly to shareholders in a
footnote to its financial statements. Its estimated NAV per
diluted common share was most recently reported as of June 30th,
at $8.27 per diluted common share versus carrying value of $10.82
per share
Survey of Selected Commercial Mortgage REIT's
<TABLE>
<CAPTION>
Resource
Impac Amresco Anthracite Clarion Asset
Commercial Capital Capital, Commercial Investment
Holdings Trust(1) Inc. Holdings Trust Mean(2) Median(2)
---------- -------- ---------- ---------- ----------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ticker ICH AMCT AHR CLR RAS
Stock Price as of l0/04/OO $6.38 $10.69 $8.00 $5.63 $12.08 $9.10 $9.34
Price/LTM EPS (l9.lx)(3)(4)(5) 9.lx(3)(6) 8.0x(3) 5.4x(3) 4.9x(3) 6.9x 6.7x
Price/Last Quarter Annualized EPS 5.4 5.2 6.3 29.5(7) 5.1 5.5(8) 5.2(8)
Price/Est. EPS '00 7.1(9) 6.6(9) 6.4(10) 4.5(9) 5.0(10) 5.6 5.7
Price/Est. EPS '01 NA NA 6.2(10) NA 5.0(10) 5.6 5.6
Equity Market Capitalization $51,006 $107,041 $233,741 $22,855 $76,025 $109,915 $91,533
Total Net Debt(11) 356,578 38,708 953,634 55,035(12) 137,308 296,171 96,172
Total Capitalization 407,584 145,749 1,187,375 77,890 213,333 406,087 179,541
Total Book Equity 86,757 119,951 240,513 38,609 86,260 121,333 103,106
Price/Book 0.6x 0.9x l.0x 0.6x 0.9x 0.8x 0.9x
Price/NAV 0.8 0.8(13) 1.0 0.6 NA 0.8 0.8
Debt/Book 4.1 0.3 4.0 1.4 1.6 1.8 1.5
Debt/Total Cap. 0.9 0.3 0.8 0.7 0.6 0.6 0.7
Dividend Yield 7.5%(14)(15) 12.7%(16) 14.5%(14) 14.2%(14) 16.9%(14) 14.6% 14.4%
2001E Dividend Payout Ratio(15)(17) 40.3(18) NA 89.9 NA 85.0 87.5 87.5
(1) Has approved a plan of liquidation per shareholder vote on September 26, 2000.
(2) All mean and median calculations exclude Impac.
(3) Based on price divided by LTM FF0/share.
(4) LTM FF0 excludes a $600 settlement of litigation charge in 1999.
(5) LTM/LQA FF0 excludes a $490 settlement of litigation charge for the quarter ended 6/30/00.
(6) LTM FF0 number excludes a $1,737 merger expense.
(7) Figure includes a loss on securities of $759,666 for the quarter ended 6/30/00.
(8) Excludes Clarion.
(9) Estimated EPS based on Bloomberg estimates as of August 25, 2000.
(10) Estimated EPS based on First Call consensus estimates as of August 25, 2000.
(11) Based on each company's respective 10-Q dated 6/30/00.
(12) Includes securities sold short.
(13) NAV Based on nominal projected liquidation proceeds.
(14) Based on annualized second quarter dividends.
(15) As a result of NOLs, the Company incurred in 1998, the Company
does not need to pay any dividend for several years to maintain
its REIT status, but has elected for the present time to maintain
an annual dividend of $.50 per share (approximately 50% of current
run-rate EPS).
(16) Based on annualized first quarter dividend.
(17) Based on earnings estimated for 2001 and most recent dividend.
(18) Based on most recent dividend and Company's estimated EPS for 2001.
</TABLE>
Net Proceeds from Liquidation
Performed a sum-of-the-parts valuation
Valued each of the classes of securities separately
- Utilized third party marks provided by the Manager and
by Bear Stearns, adjusted as needed to reflect future
sale dates, but otherwise assuming current market
conditions
- Estimated the timing of (a) shareholder approval of
liquidation plan and (b) sales of various assets based
on their liquidity
- Used Bear Stearns' estimates of costs to engage an
agent to market the assets
- Used Impac's estimates of interest income, interest
expense and operating costs
- Applied discount rates ranking from 15% to 20%
Assumed that all assets could be sold for cash beginning in
the first quarter of 2001 and ending by the end of 2001
Valued tangible assets other than at book value
Based on guidance from the Special Committee's counsel, assumed
the Manager would not receive incentive fees or termination fees
under the Management Agreement
Discounted net cash flows to common shareholders--assumed no
taxes or tax benefits for the Company's NOLs
Assumed that Fortress converted its Series B preferred to common
stock only in cases where the present value of net liquidation
proceeds exceeded the Series B conversion price of $7.13 per
share, otherwise the preferred treated as debt
The resulting implied valuation ranges from $6.10 to $7.44 per
Impac common share (See Appendix D)
Comparable M&A and Liquidation Transactions Analysis
We reviewed selected transactions involving mergers and
acquisitions and liquidation plans pursued by mortgage REITs,
taking into account
Limited public disclosure on certain transactions
Limited universe of pure-play mergers
Earnings data skewed by extraordinary losses associated with
late 1998 market dislocations
While the data surrounding traditional earnings metrics are
inconclusive, we believe the multiples of book value can provide
some guidance with respect to relative value. The survey suggests
a multiple of Book Value of 0.6x to 0.8x per share
Impac's book value substantially overstates the current market
value or NAV of the Company's assets because one of the Company's
largest CMBS assets (the "CMO") is carried at its original cost
which predates the CMBS market correction in 1998. The Company
reports "estimated fair value" per share quarterly to shareholders
in a footnote to its financial statements. Its estimated NAV per
diluted common share was most recently reported as of June 30, at
$8.27 per diluted common share versus reported carrying value of
$10.82 per share
Utilizing Impac's updated NAV per share and the M&A comparables'
multiple range of 0.6x to 0.8x Book Value suggests a range of
values for Impac's common stock from $4.71 to $7.05 per share
As another reference point, the Proposed Transaction price
represents .93x to 1.08x estimated NAV per fully diluted Impac
common share, after deducting a range of estimated values for the
Management Agreement (see Section 5) from NAV
Selected Mortgage REIT M&A and Liquidation Transactions
<TABLE>
<CAPTION>
M&A Transactions ($ in thousands except per share amounts)
Last
Net Quarter
Date Date Transaction Equity LTM Annualized 2000E 2001E
Announced Effective Acquiror/Target Description Value FFO FFO EPS EPS
--------- --------- --------------- ----------- ------ ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
02/09/00 05/15/00 Anthracite Cash and $71.1 $20.8(1) NA(1) NA NA
Acquisition Corp. Preferred
(AHR)/CoreCap, Stock
Inc. (private)
Acquisition
07/26/99 10/07/99 Ocwen Financial Cash 95.8(2) (76.6)(3) (74.8) 0.6(4) NA
Corp. (OCN)/Ocwen
Acquisition
Asset Investment
Corp. (OAC)
07/22/99 03/28/00 Imperial Credit Cash 329.9(5) 22.4(6) 40.3(7) 0.4(4) 0.9(4)
Industries (ICII)
Acquisition
/Imperial Credit
Commercial
Mortgage (ICMI)
Mean 165.6 21.6(14) 40.3(14) 0.5 0.9
(Continuation of Chart)
Acquisition Price
------------------------------------------------------
Transaction
Date Value/ 1999 Quarter 2000E 2001E
Announced Book Value EPS LTM Annualized EPS EPS
--------- ----------- ----- ----- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
02/09/00 0.6x 2.4x 2.3x NA NA NA
07/26/99 0.5 NA (1.4)(3) (3.9)(3) 9.2(4) NA
07/22/99 0.8 l2.6(8) l4.7(6) 8.2(7) 30.5(4) 12.7(4)
0.6 7.5 8.5(14) 8.2(14) 19.85 12.7
</TABLE>
Liquidations
<TABLE>
<CAPTION>
Expected Last
Liquidation Net Quarter
Date Date Acquiror/ Transaction Trading Proceeds Equity LTM Annualized
Announced Effective Target Description Price(15) Per Share(10) Value FFO FF0
--------- --------- --------- ----------- ------- --------- ------ ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
08/23/00 09/26/00(9) None/ Liquidation $10.88 $12.85 $128.7(10) $10.1 $9.2
Amresco Plan
Capital
Trust
(AMCT)
05/14/99 10/01/99(12) None/ Liquidation 7.16 7.45 54.7(13) (47.0) (5.8)
Chastain Plan
Capital
Corp.
(CHAS)
(Continuation of Chart)
Trading Price(15)
Trading/Price -----------------------------------------------
Expected Last
Date 2000E 2001E Liquidation 1999 Quarter 2000E 2001E
Announced EPS EPS Proceeds(15) EPS LTM Annualized EPS EPS
--------- ----- ----- ----------- ----- ----- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
08/23/00 $1.6(11) NA 0.85x 7.7x(8) 10.8x 11.9x 6.8x(11) NA
05/14/99 NA NA 0.96 1l.4(8) (1.1) (9.1) NA NA
(1) Because CoreCap is a private company, quarterly data is unavailable and numbers shown reflect values for the period ending
December 31, 1999.
(2) Figure is based on the share price on the day before the announcement, July 25, 1999, $7.75 multiplied by the exchange ratio
of 7.1 Net equity value is based on 18,965,000 shares outstanding as of June 30, 1999 less the 8% already owned by a
subsidiary of OCN.
(3) Includes $23.9 in losses during the second quarter of 1999 attributable, in varying degrees, to increased prepayment speeds
on underlying mortgage loans, widening spreads on mortgage-related securities and declining market liquidity for
mortgage-related securities.
(4) Based on Zacks estimates as of August 25, 2000.
(5) Net Equity Value based on 28,500,000 shares outstanding per 10-Q dated March 31, 1999 and a purchase price of $11.58 per
share based on the Proxy statement dated February 18, 2000.
(6) LTM figures based on numbers from June 30, 1998--June 30, 1999.
(7) LQA figures based on the quarter ending June 30, 1999.
(8) Based on First Call consensus estimate as of September 6, 2000.
(9) Date of shareholder vote.
(10) Figure is a nominal value and is the average of the range of aggregate distributions management expects shareholders to
receive upon liquidation.
(11) Based on I/B/E/S estimates as of August 25, 2000.
(12) The date of the shareholder meeting at which the plan was approved.
(13) Figure is the average of the range of aggregate distributions (nominal amount) management expects shareholders to receive
upon liquidation as indicated in 8-K dated November 19, 1999.
(14) Excludes Ocwen.
(15) Reflects trading price per share on the day following the announcement of approval of liquidation plan for AMCT and nine
days following the approval of the liquidation plan for CHAS.
</TABLE>
Summary of Estimated Valuation Ranges
<TABLE>
<CAPTION>
($ per share)
Comparable
Comparable Companies'
Companies' P/E Price/Book DCF of Asset-by Asset Precedent M&A Proposed
Multiples (or NAV) Ratios Liquidation Comparables Transaction
-------------- --------------- --------------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Low $5.58 $4.19 $6.10 $4.71 $7.55
High 7.94 8.13 7.44 7.05 7.55
</TABLE>
Summary of Estimated Valuation Ranges
<Chart>
Relative Value Analysis
To compare the value of the Proposed Transaction to values observed in
other comparable transactions as well as to the theoretical NAV(1) of the
Company's common stock, we have performed the following calculations.
The Transaction Price represents 86%-96% of NAV(1) before any
deduction for the estimated value of the Management Agreement, and
93%-l08% of NAV(1) after deducting a range of estimated values for the
Management Agreement
Our estimate of the present value of net proceeds from a liquidation
range from 75%-107% of NAV(1) after deduction for the estimated value
range of the Management Agreement
Precedent merger transactions resulted in ratios of price to book
value/NAV of 60%-80%
We have estimated the nominal net proceeds from a liquidation of
Impac. The ratio of the Transaction Price to estimated nominal
liquidation proceeds is 83%-86%
Two comparable companies, Amresco Capital Trust and Chastain Capital
Corp., have announced plans to pursue liquidation. In gaining
shareholder approval, these companies estimated the nominal
distributions that shareholders would receive. The ratio of the stock
prices at which AMCT and CHAS traded immediately following approval of
liquidation plans relative to estimated nominal distributions per
share range from 85%-96%
It should be noted that the proceeds of the Transaction are expected
to be paid in approximately one month while adopting and implementing
a plan of liquidation would be expected to take approximately 12 to 18
months. Therefore, if one discounted the proceeds with appropriate
cost of capital, the Transaction Price represents approximately
101%-124% of the PV of estimated net liquidation proceeds and 83%-86%
of the nominal estimated proceeds
Relative Valuation Comparison
<TABLE>
<CAPTION>
Category Low High
-------- ----- ------
<S> <C> <C>
Comparable Mortgage REIT trading prices as a percentage of Book Value/NAV(1) 60.0% 100.0%
Comparable M&A Transactions as a Percentage of Book Value(2) 60.0 80.0
Transaction Price as a Percentage of NAV
Before deduction for estimated value of the Management Agreement(3) 86.0 96.0
After deduction for estimated value of the Management Agreement(4) 93.0 108.0
NPV of Proceeds from Liquidation/NAV(5)
High 92.0 107.0
Low 75.0 88.0
Comparable Liquidating Companies' Trading prices as a percent of projected nominal 85.0 96.0
liquidation proceeds(2)
Proposed Transaction Price as a Percentage of:
Nominal Net Asset-by-Asset Liquidation Proceeds(6) 83.0 86.0
NPV of Asset-by-Asset Liquidation Proceeds(6) 101.0 124.0
(1) See Appendix C: Comparable Company Analysis.
(2) See Appendix E: Comparable M&A Transactions.
(3) See Appendix F: NAV Sensitivity Analysis.
(4) See Appendices F and I.
(5) After deduction for estimated value of the Management Agreement. See Appendix D: Present Value of Net
Proceeds from Liquidation and Appendix F: NAV Sensitivity Analysis.
(6) See Appendix D: Present Value of Net Proceeds from Liquidation.
</TABLE>
Section 5
Summary of Management
Agreement Valuation Analyses
Summary of Management Agreement Valuation Analyses
As an externally advised REIT, Impac relies on the Manager to provide all
administrative and strategic functions. This relationship is governed by a
Management Agreement that the Manager purchased for $6.0 million in May
1999. The Management Agreement provides for compensation to the Manager and
governs termination and renewal of the contract. We have abstracted the key
terms of the Management Agreement, as well as selected other agreements in
Appendix J.
We have employed several methods to derive a range of values for the
Management Agreement.
Earnings multiples implied by comparable REIT manager Merger and
Acquisition transactions
Discounted Cash Flow in the context of a liquidation
Discounted Cash Flow assuming an on-going agreement
In order to derive projections for these valuations, we relied on the
Manager's projections of manager base billed expenses ($100,000 per month),
service charges (15% of expenses) and incentive fees. These are detailed in
Appendices A, G, and H. We also relied on guidance from the Special
Committee's Counsel, Willkie, Farr & Gallagher, regarding fees that might
be owed to the Manager under various scenarios.
The valuation of the Management Agreement is relevant in estimating the
portion of the Company's value which accrues to the common stockholders net
of the value conveyed to the Manager through the Management Agreement.
Comparable Acquisitions of REIT Advisors
We analyzed transactions involving the acquisition of external advisors by
mortgage and equity REITs, as well as the recent cash purchase of mortgage
REITs by the owner of the REIT's manager in which a valuation was imputed
to the management contract and was reflected as a reduction in the cash
proceeds received by common shareholders. (See Appendix I)
This data provided relative valuation measures and precedent for
treatment of managers in certain transactions, notwithstanding
limited public disclosure on certain transactions
The relevant range of multiples observed in the comparable REIT
Advisor acquisitions after excluding outliers with higher
multiples, is 6.2x to 8.lx last quarter annualized EBITDA
As previously discussed, non-recurring charges taken by Impac
during the first two quarters of 2000 depressed Impac's earnings
during this period and therefore reduced the incentive fees
payable to the Manager; the last six months of 2000 are more
reflective of Impac and the Manager's stabilized earnings. Based
on projected annualized EBITDA to the Manager of Impac of $870,000
for the six months ended December 31, 2000, this range of
multiples supports a valuation for the Manager of $5.4 to $7.0
million, or $0.68 to $0.88 per fully diluted Impac share
Discounted Cash Flow to the Manager in a Liquidation
We calculated the discounted cash flow of potential revenues and
expenses to the Manager if the Company were to adopt a plan of
liquidation
Followed Special Committee Counsel's guidance that a plan of
liquidation would be considered a termination with cause
such that the Manager would receive no incentive or
termination fees
Utilized the same assumptions regarding timing as the
Company liquidation model
Utilized the Manager's projections for Manager revenues
Assumed the Manager is engaged to market assets for
estimated market level sales fees
Applied discount rates of 15%-20%
Based on our analysis (See Appendix H), we estimate the NPV of
cash flows from the management agreement in a liquidation scenario
as follows: a) between $1.9 and $2.1 million, or approximately
$0.25 to $0.26 per fully diluted Impac share, if the Manager's
overhead allocation is treated as the Manager's actual cost or b)
between $4.0 and $4.2 million, or $0.50 and $0.53 per Impac share,
if the Manager's revenues under the Management Agreement are
treated as profit
Discounted Cash Flow Assuming an On-going Agreement
We utilized the Manager's forecasts regarding base expenses/fees,
incentive management fees and service charges for five years
We treated the Manager's estimated cost allocations as actual
costs to the Manager in order to estimate the Manager's EBITDA
Assumed an exit at the end of year five at a multiple of 3.2x
forward revenues
Applied discount rates of 15.0% to 20.0% to the Cash Flows
Based on this analysis (See Appendix H), the indicated present
value of future cash flows from the Management Agreement is $7.5
to $8.9 million or $0.93 to $1.11 per fully diluted Impac share
Appendices
Appendix A
Impac Consolidated Financials
<TABLE>
<CAPTION>
Income Statement Projections--Post-incentive Fee
Actual FYE(1) Proj. FYE(1)
Dec. 31, 1999 Dec. 31,2000
------------- ------------
Interest income Commercial mortgage securities:
<S> <C> <C>
Fixed-rate $781 $791
Adjustable-rate 385 9,755
Interest-only 1,141 721
Residual 1,083 702
Loan receivables:
CMO collateral 24,519 24,188
Premium amortization --
Loans held for investment $2,476 ($87)
------------- ------------
$30,385 $36,070
Cash equivalents and due from affiliates 826 894
------------- ------------
Total interest income $31,211 $36,964
------------- ------------
Interest expense:
CMO borrowings 21,166 19,890
CMO bonds 18,318 18,014
Discount amortization 1,109 731
Amortization of issue costs 1,739 1,145
Reverse repurchase and warehouse
line agreements 1,332 5,502
------------- ------------
Total interest expense $22,498 $25,392
------------- ------------
Net interest income $8,713 $11,572
Provision for loan losses -- (984)
------------- ------------
Net interest income after provision for loan losses $8,713 $10,588
Other revenue (expense):
Gain (loss) on sale of loans and real estate 691 (70)
Writedown of securities held for trading (5,114) --
Settlement of litigation (600) (490)
Rental and other income 1,507 48
General and administrative (8,882) (701)
Other expense:
Manager allocation (1,566) (1,200)
Manager Service Charge (180) (180)
Submanager allocation (464) (239)
Management incentive fees(2) -- (162)
------------- ------------
Total other revenue (expense) ($14,608) ($2,994)
------------- ------------
Net earnings ($5,895) $7,594
------------- ------------
Net earnings available to common stockholders:
Net earnings ($5,895) $7,936
Less cash dividends on preferred stock (669) (1,020)
------------- ------------
Net earnings available to common stockholders ($6,564) $6,916
------------- ------------
Net earnings per common share:
Basic EPS ($0.78) $0.97
Diluted EPS (0.78) 0.90
Weighted average common shares outstanding:
Basic 8,462 7,149
Diluted 10,146 8,833
(Continuation of Chart)
($ in thousands except per share amounts)
Annualized
----------------------------------------------------------------------------
Actual Qtr Actual Qtr Proj. Qtr Proj. Qtr
Ending(1) Ending(1) Ending(1) Ending(1) Proj. FYE(1)
Mar. 31, 2000 June 30, 2000 Sept. 30, 2000 Dec. 31, 2000 Dec. 31, 2001
------------- ------------- -------------- ------------- -------------
Interest income Commercial mortgage securities:
<S> <C> <C> <C> <C> <C>
Fixed-rate $788 $764 $808 $804 $804
Adjustable-rate 4,028 11,036 11,996 11,960 13,760
Interest-only 952 692 648 592 592
Residual 508 784 764 752 752
Loan receivables: 0 0 0 0 0
CMO collateral 23,292 25,264 24,292 23,904 23,904
Premium amortization -- -- -- -- -
Loans held for investment ($316) ($16) ($16) - -
------------- ------------- -------------- ------------- -----------
$29,252 $38,524 $38,492 $38,012 $39,812
Cash equivalents and due from affiliates 1,272 852 652 800 800
------------- ------------- -------------- ------------- -----------
Total interest income $30,524 $39,376 $39,144 $38,812 $40,612
------------- ------------- -------------- ------------- -----------
Interest expense: -- -- -- -
CMO borrowings 20,808 19,864 19,528 19,360 19,360
CMO bonds 18,172 18,224 17,936 17,724 17,724
Discount amortization 1,048 960 452 464 464
Amortization of issue costs 1,588 680 1,140 1,172 1,172
Reverse repurchase and warehouse -- -- -- -
line agreements 1,620 6,512 6,952 6,924 7,974
------------- ------------- -------------- ------------- -----------
Total interest expense $22,428 $26,376 $26,480 $26,284 $27,334
------------- ------------- -------------- ------------- -----------
Net interest income $8,096 $13,000 $12,664 $12,528 $13,278
Provision for loan losses -- (1,348) (1,276) (1,312) (1,312)
------------- ------------- -------------- ------------- -----------
Net interest income after provision for loan losses $8,096 $11,652 $11,388 $11,216 $11,966
Other revenue (expense): -- -- -- --
Gain (loss) on sale of loans and real estate -- -- -- -- --
Writedown of securities held for trading -- -- -- -- --
Settlement of litigation -- -- -- -- -
Rental and other income 12 164 8 8 8
General and administrative (828) (912) (701) (701) (532)
Other expense: -- -- -- --
Manager allocation (1,200) (1,200) (1,200) (1,200) (1,200)
Manager Service Charge (180) (180) (180) (180) (180)
Submanager allocation (232) (244) (240) (240) (240)
Management incentive fees(2) -- (524) (76l) (619) (969)
------------- ------------- -------------- ------------- -----------
Total other revenue (expense) ($2,428) ($2,896) ($3,074) ($2,932) ($3,113)
------------- ------------- -------------- ------------- -----------
Net earnings $5,668 $8,756 $8,314 $8,284 $8,853
------------- ------------- -------------- ------------- -----------
Net earnings available to common stockholders:
Net earnings $5,668 $8,756 $8,314 $8,284 $8,853
Less cash dividends on preferred stock (1,020) (1,020) (1,020) (1,020) (1,020)
------------- ------------- -------------- ------------- -----------
Net earnings available to common stockholders $4,648 $7,736 $7,294 $7,264 $7,833
------------- ------------- -------------- ------------- -----------
Net earnings per common share:
Basic EPS $0.74 $1.22 $1.15 $1.15 $1.24
Diluted EPS 0.71 1.09 1.04 1.04 1.11
Weighted average common shares outstanding:
Basic 6,317 6,317 6,317 6,317 6,317
Diluted 8,001 8,001 8,001 8,001 8,001
(1) Source: Manager actual and projected quarterly and year end data. Annualized figures calculated using this data.
(2) See Appendix G which details the calculation of projected incentive fees to Manager.
</TABLE>
Appendix B
Premium to Historical Market
Stock Prices
Premium to Historical Stock Prices
The Proposed Transaction price of $7.55 per share represents a premium to
several market indications of the stock. These include an over-subscribed
self-tender initiated by Impac.
Measure Price Premium
------- ----- -------
Self-Tender Price (05/22/00)(1) $5.75 31.3%
Paine Webber Research Target(2) 6.00 25.8
Closing Price as of 10/04/00(3) 6.38 18.4
52-Week High (08/17/00)(3) 6.69 12.9
52-Week Low (03/21/00)(3) 4.69 61.0
52-Week Average as of 09/29/00(3) 5.49 37.5
90-Day Average Beginning 05/24/00(3) 5.96 26.7
-------------
(1)Source: Company, Bloomberg.
(2)Source: Investext.
(3)Source: FactSet.
Appendix C
Comparable Companies Analysis
<TABLE>
<CAPTION>
Survey of Selected Commercial Mortgage REIT's
Resource
Impac Amresco Clarion Asset
Commercial Capital Anthracite Commercial Investment
Holdings Trust(1) Capital, Inc. Holdings Trust Mean(2) Median(2)
----------- --------- ------------- ----------- --------- ------ --------
Ticker ICH AMCT AHR CLR RAS
<S> <C> <C> <C> <C> <C> <C> <C>
Stock Price as of 10/04/00 $6.38 $10.69 $8.00 $5.63 $12.08 $9.10 $9.34
Price/LTM EPS (l9.lx)(3)(4)(5) 9.1x(3)(6) 8.Ox(3) 5.4x(3) 4.9x(3) 6.9x 6.7x
Price/Last Quarter Annualized EPS 5.4 5.2 6.3 29.5(7) 5.1 5.5(8) 5.2(8)
Price/Est. EPS '00 7.1(9) 6.6(9) 6.4(10) 4.5(9) 5.O(10) 5.6 5.7
Price/Est. EPS 'Ol NA NA 6.2(10) NA 5.0(10) 5.6 5.6
Equity Market Capitalization $51,006 $107,041 $233,741 $22,855 $76,025 $109,915 $91,533
Total Net Debt(11) 356,578 38,708 953,634 55,035(12) 137,308 296,171 96,172
Total Capitalization 407,584 145,749 1,187,375 77,890 213,333 406,087 179,541
Total Book Equity 86,757 119,951 240,513 38,609 86,260 121,333 103,106
Price/Book 0.6x 0.9x 1.Ox 0.6x 0.9x 0.8x 0.9x
Price/NAV 0.8 0.8(13) 1.0 0.6 NA 0.8 0.8
Debt/Book 4.1 0.3 4.0 1.4 1.6 1.8 1.5
Debt/Total Cap. 0.9 0.3 0.8 0.7 0.6 0.6 0.7
Dividend Yield 7.5%(14)(15) 12.7%(16) 14.5%(14) 14.2%(14) 16.9% 14.6% 14.4%
2001E Dividend Payout Ratio(15)(17) 40.3(18) NA 89.9 NA 85.0 87.5 87.5
(l) Has approved a plan of liquidation per shareholder vote on September 26, 2000.
(2) All mean and median calculations exclude Impac.
(3) Based on price divided by LTM FFO/share.
(4) LTM FFO excludes a $600 settlement of litigation charge in 1999.
(5) LTM/LQA FFO excludes a $490 settlement of litigation charge for the quarter ended 6/30/00.
(6) LTM FFO number excludes a $1,737 merger expense.
(7) Figure includes a loss on securities of $759,666 for the quarter ended 6/30/00.
(8) Excludes Clarion.
(9) Estimated EPS based on Bloomberg estimates as of August 25, 2000.
(10) Estimated EPS based on First Call consensus estimates as of August 25, 2000.
(l1) Based on each company's respective 10-Q dated 6/30/00.
(12) Includes securities sold short.
(13) NAV Based on nominal projected liquidation proceeds.
(14) Based on annualized second quarter dividends.
(15) As a result of NOLs, incurred in 1998, the Company does not need to
pay any dividend for several years to maintain its REIT status, but
has elected for the present time to maintain an annual dividend of
$.50 per share (approximately 50% of current run-rate EPS).
(16) Based on annualized first quarter dividend.
(17) Based on earnings estimated for 2001 and most recent dividend.
(18) Based on most recent dividend and Company's estimated EPS for 2001.
</TABLE>
Trading Multiple Trends for Selected Commercial Mortgage REITs
<<Chart>>
Trading Multiple Trends for Commercial Mortgage REITs
<<Chart>>
Trading Multiple Trends for Selected Commercial Mortgage REITs
<<Chart>>
<TABLE>
<CAPTION>
Trading Multiple Trends for Commercial Mortgage REITs
Amresco Impac Clarion
Capital Commercial Anthracite Commercial Resource Asset
Trust Holdings Capital, Inc. Holdings Investment Trust
--------- ---------- ------------- ---------- ----------------
Q1 '99:
<S> <C> <C> <C> <C> <C>
Date as of End of Quarter 03/31/99 03/31/99 03/31/99 03/31/99 03/31/99
Stock Price as of End of Quarter $9.75 $5.19 $7.50 $5.75 $11.75
Announcement Date 04/22/99 04/30/99 05/12/99 05/06/99 04/14/99
Stock Price as of Announcement Date $9.75 $5.06 $7.56 $6.81 $11.00
Stock Price as of Announcement Date +2 9.88 5.00 7.46 6.75 11.13
Book Value 131,897,000 101,773,000 180,814,000 39,219,905 85,312,540
Book Value per Share 13.18 12.09 8.61 9.06 13.68
Price/Book Value 0.7x 0.4x 0.9x 0.7x 0.8x
NAV/Share $13.2 $12.1 $8.6 $9.1 $13.68
Price/NAV 0.7x 0.4x 0.9x 0.7x 0.8x
LQA EPS $0.92 ($0.12) $1.32 $1.56 $1.92
Price/LQA EPS 10.7x (41.7x) 5.6x 4.3x 5.8x
Dividend Declared $0.36 NA $0.29 $0.2 $0.51
Implied Yield at Announcement Date 14.8% NA 15.3% 11.7% 18.5%
Shares Outstanding(1) 10,006,111 8,418,200 20,998,334 4,328,050 6,237,143
Q2 '99:
Date as of End of Quarter 06/30/99 06/30/99 06/30/99 06/30/99 06/30/99
Stock Price as of End of Quarter $9.50 $6.31 $6.56 $6.75 $12.63
Announcement Date 07/22/99 07/02/99 09/16/99 08/02/99 07/19/99
Stork Price as of Announcement Date $10.13 $6.50 $6.88 $7.00 $12.44
Stock Price as of Announcement Date +2 10.75 6.69 6.94 6.81 12.63
Book Value 129,364,000 114,995,000 178,256,000 41,089,174 85,049,838
Book Value per Share 12.92 13.66 8.49 9.50 13.61
Price/Book Value 0.8x 0.5x 0.8x 0.7x 0.9x
NAV/Share $12.9 $13.7 $8.5 $9.5 $13.6
Price/NAV 0.8x 0.5x 0.8x 0.7x 0.9x
LQA EPS $1.08 $0.32 $1.36 $1.68 $1.88
Price/LQA EPS l0.0x 20.9x 5.1x 4.1x 6.7x
Dividend Declared $0.39 $0.125 $0.29 $0.2 $0.51
Implied Yield at Announcement Date 15.4% 7.7% 16.9% 11.4% 16.4%
Shares Outstanding(1) 10,015,111 8,418,200 20,998,334 4,327,329 6,248,594
Q3 '99:
Date as of End of Quarter 09/30/99 09/30/99 09/30/99 09/30/99 09/30/99
Stock Price as of End of Quarter $8.75 $5.75 $6.88 $7.25 $11.13
Announcement Date 10/21/99 11/16/99 10/26/99 10/29/99 10/21/99
Stock Price as of Announcement Date $9.00 $5.31 $6.75 $7.31 $10.50
Stock Pries as of Announcement Date +2 9.25 5.25 6.75 7.06 10.38
Book Value 127,833,000 98,477,000 176,214,000 42,009,490 85,249,875
Book Value per Share 12.76 9.75 8.41 9.83 13.65
Price/Book Value 0.7x 0.5x 0.8x 0.7x 0.8x
NAV/Share $12.8 $9.8 $8.4 $9.8 $13.8
Price/NAV 0.7x 0.5x 0.8x 0.7x 13.8x
LQA EPS $0.96 ($2.60) $1.24 $1.80 $2.16
Price/LQA EPS 9.6x (2.0x) 5.4x 3.9x 4.8x
Dividend Declared $0.4 $0.125 $0.29 $0.2 $0.51
Implied Yield at Announcement Date 17.8% 9.4% 17.2% 10.9% 19.4%
Shares Outstanding(1) 10,015,111 10,101,835 20,964,034 4,272,363 6,247,306
Q4 '99:
Date as of End of Quarter 12/31/99 12/31/99 12/31/99 12/31/99 12/31/99
Stock Price as of End of Quarter $8.50 $5.25 $6.38 $7.75 $10.81
Announcement Date 02/03/00 04/03/00 02/11/00 03/15/00 01/26/00
Stock Price as of Announcement Date $9.09 $5.13 $6.44 $5.06 $10.50
Stock Price as of Announcement Date +2 9.31 5.06 6.38 5.44 10.50
Book Value 117,951,000 96,794,000 168,261,000 40,594,799 86,238,298
Book Value per Share 11.78 9.58 6.48 8.98 13.48
Price/Book Value 0.8x 0.5x 1.0x 0.6x 0.8x
NAV/Share $11.8 $7.7 $6.5 $9.0 $13.5
Price/NAV 0.8x 0.7x 1.0x 0.6x 0.8x
LQA EPS ($0.4) ($0.64) $1.12 $0.28 $2.4
Price/LQA EPS (23.3x) (7.9x) 5.7x 19.4x 4.4x
Dividend Declared $0.44 $0.125 $0.29 $0.2 $0.51
Implied Yield at Announcement Date 19.4% 9.8% 18.0% 15.8% 19.4%
Shares Outstanding(1) 10,015,111 10,101,835 20,814,000 4,520,004 6,398,792
Ql '00:
Date as of End of Quarter 03/31/00 03/31/00 03/31/00 03/31/00 03/31/00
Stock Price as of End of Quarter $10.19 $5.25 $7.13 $5.75 $10.75
Announcement Date 04/25/00 04/06/00 05/04/00 05/09/00 04/26/00
Stock Price as of Announcement Date $10.38 $5.06 $7.13 $5.63 $10.38
Stock Price as of Announcement Date +2 10.44 5.13 7.00 5.75 10.38
Book Value 119,984,000 98,432,000 137,465,000 39,219,905 86,120,231
Book Value per Share 11.98 9.74 6.56 9.66 13.35
Price/Book Value 0.9x 0.5x l.lx 0.6x 0.8x
NAV/Share(2) $12.0 NA $6.6 $9.7 $13.4
Price/NAV(2) 0.9x NA 1.1x 0.6x 0.8x
LQA EPS $0.48 $0.56 $1.16 $1.64 $2.00
Price/LQA EPS 21.7x 9.2x 6.0x 3.5x 5.2x
Dividend Declared $0.34 $0.125 $0.29 $0.2 $0.51
Implied Yield at Announcement Date 13.1% 9.9% 16.3% 14.2% 19.7%
Shares Outstanding(1) 10,021,111 10,101,835 20,955,434 4,061,019 6,448,552
Q2 '00:
Date as of End of Quarter 06/30/00 06/30/00 06/30/00 06/30/00 06/30/00
Stock Price as of End of Quarter $10.13 $5.81 $7.13 $5.38 $11.00
Announcement Date 07/28/00 08/03/00 O8/11/00 08/04/00 07/28/00
Stock Price as of Announcement Date $10.31 $5.88 $7.56 $5.94 $11.13
Stock Price as of Announcement Date +2 10.38 5.75 7.56 5.81 11.13
Book Value 119,951,000 86,757,000 149,788,000 38,609,000 86,260,000
Book Value per share 11.98 10.84 5.96 9.50 13.29
Price/Book 0.9x 0.5x 1.3x 0.6x 0.8x
NAV/Share $12.0 $18.27 $5.9 $9.5 $13.3
Price/NAV 0.9x 0.7x 1.3x 0.6x 0.8x
LQA EPS $1.88 $0.8 $1.28 $0.2 $1.92
Price/LQA EPS 5.5x 7.2x 5.9x 29.1x 5.8x
Dividend Declared NA $0.125 $0.29 $0.2 $0.51
Implied Yield at Announcement Date NA 8.5% 15.3% 13.5% 18.3%
Shares Outstanding(1) 10,021,111 8,000,746 25,135,986 4,063,155 6,492,737
-----------------
(1) Share counts based on diluted shares outstanding and assumes the
conversion of Impac's Series B Cumulative Convertible Preferred Stock.
(2) Impac does not disclose NAVIN 10-Q dated as of 3/31/00.
</TABLE>
Appendix D
Net Proceeds from Liquidation
Liquidation Analysis--Summary Sensitivities
We have analyzed the potential of the Company liquidating its assets and
returning capital to the shareholders. The following assumptions have been
made to develop these scenarios:
1. The Company would complete the process of having a plan of
liquidation approved by the middle of Q1 2001.
2. All assets could be liquidated during 2001.
3. Fees would need to be paid to the Manager to market the
assets, in lieu of incentive management fees. Our estimates,
based on what Bear Stearns would charge, expressed as a
percentage or fraction asset of values are as follows:
Adjustable Rate CMBS 0.50%
I/O Securities 2/32 to 4/32
USGI bond 5.00%
Southern Pacific residual 5.00
CMO Class G and residual 5.00
Loans Held for Investment 3.00
4. In scenarios that result in an equity value of less than
$7.13 per share, it has been assumed that Fortress would not
convert its preferred position.
<TABLE>
<CAPTION>
Average Backstop
Discount Rate High Indication Case Indication Case Indication Case
--------------- -------------------- --------------- ---------------
<S> <C> <C> <C> <C>
15.0% 7.44 7.26 6.72
17.5 7.17 6.79 6.41
20.0 6.86 6.48 6.10
</TABLE>
<TABLE>
<CAPTION>
Liquidation Analysis--Average Marks
(US$ nominal)
Sales Proceeds for the Quarter Ending
-------------------------------------------------------------------------
Assets 12/31/00 03/31/01 06/30/01 09/30/01 12/31/01
----------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Gross Sales Proceeds - $124,542,312 - $2,627,833 22,827,289
Interest Income $5,915,151 5,839,930 $1,525,000 1,525,000 1,324,000
Interest Expense (1,695,392) (1,695,392) (38,743) (38,743) -
Preferred Dividends - - - - -
Ordinary course overhead(1) (133,000) (133,000) (133,000) (133,000) (133,000)
Manager Allocation and Service Charge(2) (345,000) (345,000) (345,000) (345,000) (345,000)
Submanager Allocation(3) (61,000) (61,000) (61,000) (61,000) (61,000)
Corporate Liquidation Plan Costs(4) (500,000) - - - -
Asset Sales Expenses(5) - - - (50,000) (200,000)
Asset Sales Fees(6) - (840,021) - (131,392) (1,054,335)
------------ -------------- ----------- ----------- ------------
Cash Flow 3,180,758 $127,307,829 $947,257 $3,393,699 $22,357,954
Total Net Present Value $143,713,267
Less: Net Debt(7) 85,616,103
Number of Shares (diluted) 8,001,000
NPV per Share 7.26
Total Net Nominal Proceeds 71,571,394
Net Nominal Proceeds Per Share 8.95
---------------
(1) Corporate expenses related to maintaining Impac as a public company. Based on Impac projected annual expenses
for 2001.
(2) Based on current monthly Manager allocated overhead of $100,000, and a 15% service charge (per Agreement).
(3) Third party expenses incurred by the Manager and billed to Impac. Based on 6/30/00 quarter numbers.
(4) Estimate corporate/legal costs to approve plan of liquidation.
(5) Estimated costs of $250,000 associated with illiquid assets to cover due diligence, legal and documentation
costs.
(6) Per Bear Stearns' Mortgage Trading estimates to sell assets, see summary for exact assumptions.
(7) Net of projected cash held on the balance sheet as of 9/30/2000.
</TABLE>
<TABLE>
<CAPTION>
Liquidation Analysis--Lesser of Backstop or Low Marks
(US$ nominal)
Sales for the Quarter Ending
----------------------------------------------------------------------------
Assets 12/31/00 03/31/01 06/30/01 09/30/01 12/31/01
------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Gross Sales Proceeds - $124,308,604 - $1,942,000 $20,498,460
Interest Income $5,915,151 5,839,930 $1,525,000 1,525,000 1,324,000
Interest Expense (1,695,392) (1,695,392) (38,743) (38,743) -
Preferred Dividends (255,000) (255,000) (255,000) (255,000) (255,000)
Ordinary course overhead(1) (133,000) (133,000) (133,000) (133,000) (133,000)
Manager Allocation and Service Charge(2) (345,000) (345,000) (345,000) (345,000) (345,000)
Submanager Allocation(3) (61,000) (61,000) (61,000) (61,000) (61,000)
Corporate Liquidation Plan Costs(4) (500,000) - - - -
Asset Sales Expenses(5) - - - (50,000) (200,000)
Asset Sales Fees(6) - (727,417) - (97,100) (937,870)
------------ ------------- ---------- ----------- ------------
Cash Flow $2,925,758 $126,931,725 $692,257 $2,487,157 $19,890,590
Total Net Present Value $140,054,783
Less: Net Debt(7)(8) 97,616,103
Number of Shares (diluted)(8) 6,317,000
NPV per Share 6.72
Total Net Nominal Proceeds 55,311,384
Net Nominal Proceeds Per Share 8.76
-----------------
(1) Corporate expenses related to maintaining Impac as a public company. Based on Impac projected annual expenses
for 2001.
(2) Based on current monthly Manager allocated overhead of $100,000, and a 15% service charge (per Agreement).
(3) Third party expenses incurred by the Manager and billed to Impac. Based on 6/30/00 quarter numbers.
(4) Estimate corporate/legal costs to approve plan of liquidation.
(5) Estimated costs of $250,000 associated with illiquid assets to cover due diligence, legal and documentation
costs.
(6) Per Bear Stearns' Mortgage Trading estimates to sell assets, see summary for exact assumptions.
(7) Net of projected cash held on the balance sheet as of 9/30/2000.
(8) Because NAV per share is below $7.13 we assume that Fortress does not convert their convertible preferred
interest. The $12 million is included in the net Debt calculation and dividends are included in cash flows.
</TABLE>
<TABLE>
<CAPTION>
Liquidation Analysis - High Marks
(US$ nominal)
Sales Proceeds for the Quarter Ending
-------------------------------------------------------------------------------
Assets 12/31/00 03/31/01 06/30/01 09/30/01 12/31/01
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Gross Sales Proceeds - $125,218,248 - $2,720,123 $23,587,571
Interest Income $5,915,151 5,839,930 $1,525,000 1,525,000 1,324,000
Interest Expense (1,695,392) (1,695,392) (38,743) (38,743) -
Preferred Dividends - - - - -
Ordinary course overhead(1) (133,000) (133,000) (133,000) (133,000) (133,000)
Manager Allocation and Service Charge(2) (345,000) (345,000) (345,000) (345,000)
Submanager Allocation(3) (61,000) (61,000) (61,000) (61,000) (61,000)
Corporate Liquidation Plan Costs(4) (500,000)
Asset Sales Expenses(5) - - (50,000) (200,000)
Asset Sales Fees(6) - (733,980) _ (136,006) (1,092,325)
------------ ------------ ---------- ----------- ------------
Cash Flow $3,180,758 $128,089,806 $947,257 $3,481,374 $23,080,245
Total Net Present Value $145,116,265
Less: Net Debt(7) 85,616,103
Number of Shares (diluted) 8,001,000
NPV per Share 7.44
Total Net Nominal Proceeds: 73,163,338
Net Nominal Proceeds Per Share 9.14
(1) Corporate expenses related to maintaining Impac as a public company. Based on Impac projected annual expenses
for 2001.
(2) Based on current monthly Manager allocated overhead of $100,000, and a 15% service charge (per Agreement).
(3) Third party expenses incurred by the Manager and billed to Impac. Based on 6/30/00 quarter numbers.
(4) Estimate corporate/legal costs to approve plan of liquidation.
(5) Estimated costs of $250,000 associated with illiquid assets to cover due diligence, legal and documentation
costs.
(6) Per Bear Steams' Mortgage Trading estimates to sell assets, see summary for exact assumptions.
(7) Net of projected cash held on the balance sheet as of 9/30/2000.
</TABLE>
Appendix E
Comparable Mortgage REIT
M&A and Liquidation
Transactions
<TABLE>
<CAPTION>
Selected Mortgage REIT M&A and Liquidation Transactions
M&A Transactions
Last
Date Date Acquiror/Target Transaction Net LTM Quarter
Announced Effective Description Equity FFO Annualized
Value FFO
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
O2/09/00 05/15/00 Anthracite Acquisition Cash and Preferred Stock $71.1 $20.8 (1) NA
Corp.AHR/CoreCap, Acquisition
Inc. (private)
07/26/99 10/07/99 Ocwen Financial Corp. Cash Acquisition 95.8(2) (76.6)(3) (74.8)
(OCN)/Ocwen Asset
Investment Corp. (OAC)
07/22/99 03/28/00 Imperial Credit Cash Acquisition 329.9(5) 22.4(6) 40.3(7)
Industries
(ICU)/Imperial Credit
Commercial Mortgage
(ICMI)
Mean 165.6 21.6(14) 40.3(14)
---------------------------------------------------------------------------------------------------------------------------------
(Continuation of Chart)
($ in thousands except per share amounts)
Acquisition Price
--------------------------------------------------
Date 2000E 2001E Transaction 1999 LTM Last 2000E 2001E
Announced EPS EPS Value/ EPS Quarter EPS EPS
Book Value Annualized
---------- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
O2/09/00 NA NA 0.6x 2.4x 2.3x NA NA NA
07/26/99 0.6(4) NA 0.5 NA (1.4)(3) (3.9)(3) 9.2(4) NA
07/22/99 0.4(4) 0.9(4) 0.8 12.6(8) 14.7(6) 8.2(7) 30.5(4) 12.7(4)
0.5 0.9 0.6 7.5 8.5(14) 8.2(14) 19.85 12.7
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LIQUIDATIONS
-----------------------------------------------------------------------------------------------------------------------------
Date Date Acquiror Transaction Trading Expected Net LTM Last
Announced Effective /Target Description Price(15) Liquidation Equity FFO Quarter
Proceeds Value Annualized
per Share(10) FFO
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
08/23/00 09/26/OO(9) None/Amresco Liquidation $10.88 $12.85 $128.7(10) $10.1 $9.2
Capital Trust Plan
(AMCT)
05/14/99 10/01/99(12) None/Chastain Liquidation 7.16 7.45 54.7(13) (47.0) (5.8)
Capital Corp. Plan
(CHAS)
--------------------------------------------------------------------------------------------------------------------------
(Continuation of Chart)
-------------------------------------------------------------------------------------------------------------------
Trading Price(15)
----------------------------------------------------
Date 2000E 2001E Trading Price/ 1999 LTM Last 2000E 20001E
Announced EPS EPS Expected EPS Quarter EPS EPS
Liquidation Annualized
Proceeds(15)
------------- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
08/23/00 $1.6(11) NA 0.85x 7.7x(8) 10.8x 11.9x 6.8x(11) NA
05/14/99 NA NA 0.96 11.4(8) (1.1) (9.1) NA NA
--------------------------------------------------------------------------------------------------------------------
(1) Because CoreCap a private company, quarterly data is unavailable and numbers shown reflect values for the
period ending December 31, 1999.
(2) Figure is based on the share price on the day before the announcement, July 25, 1999, $7.75 multiplied by the
exchange ratio of 7.1 Net equity value is based on 18,965,000 shares outstanding as of June 30, 1999 less the
8% already owned by a subsidiary of OCN.
(3) Includes $23.9 in losses during the second quarter of 1999 attributable, in varying degrees, to increased
prepayment speeds on underlying mortgage loans, widening spreads on mortgage-related securities and declining
market liquidity for mortgage-related securities.
(4) Based on Zacks estimates as of August 25, 2000.
(5) Net Equity Value based on 28,500,000 shares outstanding per 10-Q dated March 31, 1999 and a purchase price of
$11.58 per share based on the Proxy statement dated February 18, 2000.
(6) LTM figures based on numbers from June 30, 1998-June 30, 1999.
(7) LQA figures based on the quarter ending June 30, 1999.
(8) Based on First Call consensus estimate as of September 6, 2000.
(9) Date of shareholder vote.
(10) Figure is a nominal value and is the average of the range of aggregate distributions management expects
shareholders to receive upon liquidation.
(11) Based on I/B/E/S estimates as of August 25, 2000.
(12) The date of the shareholder meeting at which the plan was approved.
(13) Figure is the average of the range of aggregate distributions (nominal amount) management expects shareholders
to receive upon liquidation as indicated in 8-K dated November 19, 1999.
(14) Excludes Ocwen.
(15) Reflects trading price per share on the day following the announcement of approval of liquidation plan for AMCT
and nine days following the approval of the liquidation plan for CHAS.
</TABLE>
Appendix F
NAV Sensitivity Analysis
Net Asset Value (NAV) Sensitivity Analysis
We constructed a range of NAV's for the Company's common shares as follows:
o Five indicative bid-side marks were provided by street dealers for
each of the Company's CMBS assets as of June 30, 2000
o The "estimated market value" or NAV reported in the Company's June
30, 2000 10-Q reflects the average of the aforementioned dealer
marks as of June 30, 2000
o High and low marks for each CMBS asset allowed us to construct a
range of NABS
o Obtained two additional indicative values for each CMBS asset from
Bear Stearns' head
CMBS trader based on current market conditions
- Indicative bid-side valuation
- Estimated level that he might be willing to bid as a principal
("Backstop Indication")
o Rolled forward value of interest only (IO) CMBS to August 30, 2000
because IO securities have no principal amount and their values
can change rapidly as the remaining length of the IO cash flow
shortens
o Cash balance, debt, other assets and liabilities are per September
30, 2000 Balance Sheet provided by Impac
o Treated balance of non-recourse repo financings as floor value
when indicated asset values were lower than related debt amounts
o Not included in the NAV analysis is a guaranty entered into the
Company for the ultimate payment of principal on the CMO class F
bonds. The face amount of this tranche is approximately $18.3
million; the Company does not currently reserve for this, nor is a
liability recorded for this contingency
o The Company has approximately $17.5 million in federal NOL
carry-forwards as of December 31, 1999 that can be used to reduce
required dividend payments but have as cash benefit as the Company
is not a taxpayer. We have not attributed any value to the NOL's
in our NAV analysis since, as REIT, Impac is not a taxable entity.
Thus the NOLs effect the Company's required distributions to
maintain REIT status but not its earnings
o The resulting range of implied NAV's is $7.85 to $8.81 per fully
diluted common share before deducting any value attributable to
the Management Agreement and $6.97 to $8.13 per fully diluted
share after deducting the estimated value of the Management
Agreement
<TABLE>
<CAPTION>
Estimated Net Asset Value Balance Sheet as of September 30, 2000(1)(2)(3)
($ in thousands, except per share data)
Lower of
Low Mark or
Average Mark Backstop Backstop
(Reported NAV) High Mark Low Mark BSC Mark Indication Indication
-------------- --------- -------- -------- ---------- -----------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $9,333 $9,729 $9,729 $9,729 $9,729 $9,729
Commercial mortgage-backed
securities:
Fixed-rate CMBS 2,628 2,720 2,536 2,720 1,942 1,942
Adjustable-rate CMBS 122,731 123,342 121,465 123,095 122,467 121,465
Interest-only securities 3,028 2,777 2,529 2,841 2,636 2,529
Residual interest in
securitization 4,093 4,286 3,901 3,956 1,978 1,978
------- ------- ------- ------- ------- -------
132,480 133,124 130,430 132,612 129,023 127,914
------- ------- ------- ------- ------- -------
Loan receivables:
CMO collateral 266,165 268,500 266,863 268,555 266,055 266,055
Loans held for investment 4,355 4,355 4,355 4,355 4,355 4,355
------- ------- ------- ------- ------- -------
270,520 272,855 271,218 272,910 270,410 270,410
------- ------- ------- ------- ------- -------
Accrued interest receivable 2,490 2,490 2,490 2,490 2,490 2,490
Other assets 759 759 759 759 759 759
------- ------- ------- ------- ------- -------
$415,582 $418,958 $414,626 $418,500 $412,411 $411,302
======== ======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Collateralized mortgage obligations $251,887 $251,887 $251,887 $251,887 $251,887 $251,887
Borrowings under repurchase
arrangements 95,401 95,511 95,511 95,511 95,511 95,511
Other liabilities 2,113 1,065 1,065 1,065 1,065 1,065
------- ------- ------- ------- ------- -------
349,401 348,463 348,463 348,463 348,463 348,463
------- ------- ------- ------- ------- -------
Stockholders' equity:
Preferred stock 5 5 5 5 5 5
Common stork 63 63 63 63 63 63
Paid-in capital 125,330 129,643 125,312 129,185 123,097 121,987
Net present value adjustment (27,603) (27,603) (27,603) (27,603) (27,603) (27,603)
Accumulated deficit (31,614) (31,614) (31,614) (31,614) (31,614) (31,614)
------- ------- ------- ------- ------- -------
Net Shareholders' Equity 66,181 70,494 66,163 70,036 63,948 62,838
------- ------- ------- ------- ------- -------
$415,582 $418,958 $414.626 $418,500 $412,411 $411,302
======== ======== ======== ======== ======== ========
Number of shares at month end:
Common 6,317 6,317 6,317 6,317 6,317 6,317
Diluted 8,001 8,001 8,001 8,001 8.001 8,001
Liquidation/redemption value of
preferred shares $12,000 $12,000 $12,000 $12,000 $12,000 $12,000
BV and NAV per common share:
Basic $8.82 $9.26 $8.57 $9.19 $8.22 $8.05
Diluted 8.27 8.81 8.27 8.75 7.99 7.85
(1) All bid indications are based on factors as of 6/30/00 except for
interest only securities which are based on factors as of 8/30/00.
(2) Reflects bid indications and NAV variations only for Commercial
Mortgage Backed Securities and CMO collateral. All other assets
and liabilities stated at reported book value.
(3) Reflects 9/30/2000 estimated Balance Sheet items for cash, accrued
interest receivable, other assets and other liabilities.
</TABLE>
Appendix G
Projected Manager Income Statement
<TABLE>
<CAPTION>
Projected Manager Income Statement
($ in thousands)
Annualized
----------------------------------------------------------------------
Projected Projected
Actual Actual Estimated FYE FYE
Quarter Ending Quarter Ending Quarter Ending Projected December 31, December 31,
March 31, 2000(1) June 30, 2000(1) September 30, 2000 Quarter Ending 2000 2000
-------------- ------------- ------------------ -------------- ------------ ------------
Base Management Fee:
<S> <C> <C> <C> <C> <C> <C>
Manager Overhead(2) $1,200 $1,200 $1,200 $1,200 $1,200 $1,200
Service Charge
(15%)(3) 180 180 180 180 180 180
Incentive Fee(1) - 524 761 619 163 970
-------- -------- -------- -------- -------- --------
TOTAL REVENUES $1,380 $1,904 $2,141 $1,999 $1,543 $2,350
======== ======== ======== ======== ======== ========
Operating costs(4) ($1,200) ($1,200) ($1,200) ($1,200) ($1,200) ($1,200)
-------- -------- -------- -------- -------- --------
EBITDA $180 $704 $941 $799 $343 $1,150
======== ======== ======== ======== ======== ========
Average EBITDA Six Months ending December 31, 2000 $870
(1) See detailed schedules on the following pages for supporting
calculation of incentive fees. This calculation excludes effects
of non-recurring expense items incurred by Impac during the 1st
and 2nd quarters of 2000 on incentive fees.
(2) Incentive fee is calculated using the pre-incentive fee income statement and
management fee calculation table on the following pages.
(3) Has not been charged by Manager to date, but Manager is entitled
to charge under the management agreement, according to Special
Committee's Counsel.
(4) Operating costs of $1.2 million are based on allocations of total
Fortress overhead to the management of Impac provided by the
Manager.
</TABLE>
<TABLE>
<CAPTION>
Pre-Incentive Fee Projected Impac Income Statement
Annualized
---------------------------------------------------------------------------------------
Actual Estimated Projected Projected Projected
Actual Projected Quarter Quarter Quarter Quarter For Year
FYE FYE Ending Ending Ending Ending Ended
Dec. 31, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
1999(1) 2001(1) 2000(2) 2000(2) 2000 2000 2000(1)
------- ------- --------- -------- --------- --------- ---------
Interest income:
Commercial mortgage
securities:
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed-rate $781 $791 $788 $764 $808 $804 $804
Adjustable-rate 385 9,755 4,028 11,036 11,996 11,960 13,760
Interest-only 1,141 721 952 692 648 592 592
Residual 1,083 702 508 784 764 752 752
Loan receivables: 0 0 0 0 0
CMO collateral 24,519 24,188 23,292 25,264 24,292 23,904 23,904
Premium amortization - - - - -
Loans held for investment 2,476 (87) (316) (16) (16) - -
30,385 36,070 29,252 38,524 38,492 38,012 39,812
Cash equivalents and due
from affiliates 826 894 1,272 852 652 800 800
------ ------ ------ ------ ------ ------ -------
Total interest income 31,211 36,964 30,524 39,376 39,144 38,812 40,612
Interest expense: - - - -
CMO borrowings 21,166 19,890 20,808 19,864 19,528 19,360 19,360
CMO bonds 18,318 18,014 18,172 18,224 17,936 17,724 17,724
Discount amortization 1,109 731 1,048 960 452 464 464
Amortization of issue costs 1,739 1,145 1,588 680 1,140 1,172 1,172
Reverse repurchase and
warehouse - - - - -
line agreements 1,332 5,502 1,620 6,512 6,952 6,924 7,974
------ ------ ------ ------ ------ ------ ------
Total interest expense 22,498 25,392 22,428 26,376 26,480 26,284 27,334
Net interest income 8,713 11,572 8,096 13,000 12,664 12,528 13,278
Provision for loan losses - (984) - (1,348) (1,276) (1,312) (1,312)
------ ------ ------ ------- ------- ------- -------
Net interest income after
provision for loan losses 8,713 10,588 8,096 11,652 11,388 11,216 11,966
Other revenue (expense): - - - - -
Gain (loss) on sale of loans
and real estate 691 (70) - - - - -
Writedown of securities held
for trading (5,114) - - - - - -
Settlement of litigation (600) (490) - - - - -
Rental and other income 1,507 48 12 164 8 8 8
General and administrative (8,882) (701) (828) (912) (701) (701) (532)
Other expense: - - - - -
Manager Allocation (1,566) (1,200) (1,200) (1,200) (1,200) (1,200) (1,200)
Manager Service Charge (180) (180) (180) (180) (181) (180) (180)
Submanager allocation (464) (239) (232) (244) (240) (240) (240)
Management incentive fees - - - - - - -
------- ------- ------- ------- ------- ------- --------
Total other revenue
(expense) (14,608) (2,652) (2,428) (2,372) (2,313) (2,313) (2,144)
-------- ------- ------- ------- ------- ------- -------
Net earnings (5,895) 7,936 5,668 9,280 9,075 8,903 9,822
Net earnings available to
common stockholders:
Net earnings (5,895) 7,936 5,668 9,280 9,075 8,903 9,822
Less cash dividends on
preferred stock (669) (1,020) (1,020) (1,020) (1,020) (1,020) (1,020)
Net earnings available
to common stockholders: (6,564) 6,916 4,648 8,260 8,055 7,883 8,802
(1) Source: Manager actual and projected quarterly and year end data. Annualized figures calculated
using this data.
(2) Figures exclude non-recurring litigation fees.
</TABLE>
<TABLE>
<CAPTION>
BACKUP OF INCENTIVE MANAGEMENT FEE CALCULATIONS
Description: # of Days FYE 1999 1st Q 2000 2nd Q 2000 3rd Q 2000
Annualized Annualized Annualized
--------------------------------------------- ---------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total days in the period 90
TOTAL EQUITY
Initial Capitalization of Company by IMH 15.00 15.00 15.00 15.00
Number of Shares 90 l,000,000 l,000,000 1,000,000 1,000,000
Stock Price IPO 15.00 15.00 15.00 15.00
Number of Shares 90 6,325,000 6.325,000 6,325,000 6,325,000
Purchase of ICCC from IMH 15.00 15.00 15.00 15.00
Number of Shares 90 95,000 95,000 95,000 95,000
Issuance of Founders Shares 0.01 0.01 0.01 0.01
Number of Shares 90 599,000 599,000 599,000 599,000
Stock Price- 15.31 15.31 15.31 15.31
Number of Shares 90 2,000,000 2,000,000 2,000,000 2,000,000
Stock Price- (15.00) (15.00) (15.00) (15.00)
Number of Shares 90 1,394,000 1,394,000 1,394,000 1,394,000
Stock Price- (15.00) (15.00) (15.00) (15.00)
Number of Shares 90 8,400 8,400 8,400 8,400
Stock Price- (15.00) (15.00) (15.00) (15.00)
Number of Shares 90 8,400 8,400 8,400 8,400
Stock Price- (15.00) (15.00) (15.00) (15.00)
Number of Shares 90 190,000 190,000 190,000 190,000
FICMI Preferred Stock offering 25.00 25.00 25.00 25.00
Number of Shares 90 479,999 479,999 479,999 479,999
May 19, 2000 Tender (15.00) (15.00)
Number of Shares 42 2,100,123 2,100,123
------------ --------------
Equity Outstanding 129,918,965 129,918,965 115,218,104 98,417,120
---------------- -------------- ------------ --------------
RETAINED EARNINGS
12/98 RE per 10K (23,777,000)
12/99 RE per 10K (33,320,000) (33,320,000)
3/00 Annualized (32,881,100) (32,881,100)
6/00 Annualized - (27,780,139) (27,780,139)
9/00 Estimate - _ (22,884,177)
12/00 Estimate - - -
2000 Estimate - - -
2001 Estimate - - -
Quarterly Average Retained Earnings (28,548,500) (33,100,550) (30,330,619) (25,332,158)
---------------- -------------- ------------ --------------
PRIOR PERIOD LOSSES 2,811,000 2,811,000
1997 Income per 10-K 2,811,000 2,811,000 (11,013,000) (11,013,000)
1998 Loss per l0-K (11,013,000) (11,013,000) (5,015,000) (5,015,000)
1999 Loss per 10-K (2,947,500) (5,015,000) 5,668,000 5,668,000
1st quarter annualized income - 2,834,0011 4,640,000 9,280,000
2nd quarter annualized income - - - 4,537,500
3rd quarter annualized income - - _ _
fourth quarter annualized income - -
2000 estimated income -
2001 income estimate - - - -
---------------- --------------
Prior Period Cumulative Income (Losses) (11,149,500) (10,383,000) (2,909,000) 6,268,500
AVERAGE NET WORTH A 112,519,965 107,201,415 87,796,485 73,084,962
---------------- -------------- ------------ --------------
Net Income (before dividends) (5,895,000) 5,668,000 9,280,000 9,075,000
Adj for Taxable income: -
Book to tax adjustments - - -
---------------- -------------- ------------ --------------
Taxable Net Income B (5,895,000) 5,668,000 9,280,000 9,075,000
--------------------------------------------------------------------------------------------------- ---------------
Common Dividends 4,209,100 3,159,039 3,159,039
Preferred Dividends 669,000 1,020,000 1,020,000 1,020,000
Return on Equity (B / A X 4) C (5.24%) 5.29% 10.57% 12.42%
Estimated from 3Q'00-'04 5.63% 6.47% 6.18% 6.25%
Hurdle Rate 2.00 2.00 2.00 2.00
---------------- -------------- ------------
UST Plus 2% D 7.63% 8.47% 8.18% 8.25%
---------------- -------------- ------------ --------------
Over (Under) Performance (12.87%) (3.18%) 2.39% 4.17%
Base Return Net Income b4 bonus ((A x D) /4) E 8,585,273 9,075,853 7,185,630 6,029,509
Excess Net Income (B - E) F (14,480,273) (3,407,853) 2,094,370 3,045,491
---------------- -------------- ------------ --------------
25% of Excess Net Income (F x 25%) (3,620,068) (851,963) 523,592 761,373
---------------- -------------- ------------ --------------
Manager Incentive Fee: - - 523,592 761,373
---------------- ------------- ------------ --------------
(Continuation of Chart)
Description: 4th Q 2000 2000 2001
Annualized
--------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C>
Total days in the period
TOTAL EQUITY
Initial Capitalization of Company by IMH 15.00 15.00 15.00
Number of Shares 1,000,000 1,000,000 l,000,000
Stock Price IPO 15.00 15.00 15.00
Number of Shares 6,325,000 6,325,000 6,325,000
Purchase of ICCC from IMH 15.00 15.00 15.00
Number of Shares 95,000 95,000 95,000
Issuance of Founders Shares 0.01 0.0l 0.01
Number of Shares 599,000 599,000 599,000
Stock Price- 15.31 15.31 15.31
Number of Shares 2,000,000 2,000,000 2,000,000
Stock Price- (15.00) (15.00) (15.00)
Number of Shares 1,394,000 1,394,000 1,394,000
Stock Price- (15.00) (15.00) (15.00)
Number of Shares 8,400 8,400 8,400
Stock Price- (15.00) (15.00) (15.00)
Number of Shares 8,400 8,400 8,400
Stock Price- (15.00) (15.00) (15.00)
Number of Shares 190,000 190,000 190,000
FICMI Preferred Stock offering 25.00 25.00 25.00
Number of Shares 479,999 479,999 479,999
May 19, 2000 Tender (15.00) (15.00) (15.00)
Number of Shares 2,100,123 2,100,123 2,100,123
--------------- --------------- ----------------
Equity Outstanding 98,417,120 110,492,827 98,417,120
--------------- --------------- ----------------
RETAINED EARNINGS
12/98 RE per 10K
12/99 RE per 10K (33,320,000)
3/00 Annualized -
6/00 Annualized - -
9/00 Estimate (22,884,177) -
12/00 Estimate (18,160,216) - -
2000 Estimate - (29,563,039) (29,563,039)
2001 Estimate - - (23,920,077)
----------------
Quarterly Average Retained Earnings (20,522,196) (31,441,519) (26,741,558)
--------------- --------------- ----------------
PRIOR PERIOD LOSSES 2,811,000 2,811,000 2,811,000
1997 Income per 10-K (11,013,000) (11,013,000) (11,013,000)
1998 Loss per l0-K (5,015,000) (5,015,000) (5,015,000)
1999 Loss per 10-K 5,668,000 -
1st quarter annualized income 9,280,000
2nd quarter annualized income 9,075,000
3rd quarter annualized income 4,451,500 -
fourth quarter annualized income 3,968,000 7,936,000
2000 estimated income 4,911,000
2001 income estimate -
Prior Period Cumulative Income (Losses) l5,257,500 (9,249,000) (370,000)
AVERAGE NET WORTH 77,894,924 88,300,308 72,045,562
--------------- --------------- ----------------
Net Income (before dividends) 8,903,000 7,936,000 9,822,000
Adj for Taxable income:
Book to tax adjustments - - -
--------------- --------------- ----------------
Taxable Net Income 8,903,000 7,936,000 9,822,000
----------------------------------------------- ---------------- ---------------------------------
Common Dividends 3,159,039 3,159,039 3,159,039
Preferred Dividends 1,020,000 1,020,000 1,020,000
Return on Equity (B / A X 4) 11.43% 8.99% 13.63%
Estimated from 3Q'00-'04 6.25% 6.25% 6.25%
Hurdle Rate 2.00 2.00 2.00
UST Plus 2% 8.25% 8.25% 8.25%
--------------- --------------- ----------------
Over (Under) Performance 3.18% 0.74% 5.38%
Base Return Net Income b4 bonus ((A x D) /4) 6,426,331 7,284,775 5,943,759
Excess Net Income (B - E) 2,476,669 651,225 3,878,241
--------------- --------------- ----------------
25% of Excess Net Income (F x 25%) 619,167 162,806 969,560
--------------- --------------- ----------------
Manager Incentive Fee: 619,167 162,806 969,560
-------------- --------------- ----------------
(1) Treasury Rate assumption based on the weekly average for year-to-date 2000 through August 18, 2000
</TABLE>
APPENDIX H
MANAGEMENT AGREEMENT
DISCOUNTED CASH FLOWS IN A
LIQUIDATION AND AS AN
ONGOING ENTITY
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
CASE 1: LIQUIDATION DCF THROUGH EXPIRATION OF
MANAGEMENT CONTRACT ($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
---------------------------------------------------------------------------------------------------------------------------
Q4 2000 2001 2002
----------- ---------- ----------
<S> <C> <C> <C>
Overhead Allocation $300 $1,200 $1,200
Service Charge 45 180 180
Incentive Management Fees(1) 160 - _
Asset Sales Fees(2)(3) - 1,899 -
----------- ---------- ----------
Total Revenues $505 $3,279 $1,380
Operating Expenses(4) (300) (1,200) (1,200)
Terminal Value _ _ _
----------- ---------- ----------
Total Cash Flow $205 $2,079 $180
NPV of Cash Flow (2001-2002) $2,074
NPV of Revenue (2001-2002) $4,247
NPV of Cash Flow Sensitivity NPV of Revenue Sensitivity
------------------------------------------------- ------------------------------------------
Per Share Per Share
------------------------ -----------------------
Rate Value Basic Diluted Rate Value Basic Diluted
------------------------------------------------- ------------------ -----------------------
<C> <C> <C> <C> <C> <C> <C> <C>
15.0% 2,074 0.33 0.26 15.0% 4,247 0.67 0.53
20.0 1,970 0.31 0.25 20.0 4,007 0.63 0.50
-------------------------------------------------------------------------------------------------------------------------------
(1) Manager projections based on existing business and investment strategy.
(2) Assuming shareholder vote to approve liquidation occurs on December 31, 2000.
(3) See assumptions in Exhibit 1--"Asset-by-Asset" liquidation analysis.
(4) Based on Manager's cost allocation estimates.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
MANAGER VALUATION RANGES-CASE 2: NO CHANGES
TO BUSINESS PLAN, FIVE YEAR DCF ($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------------------------------------------------------------------
2000 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Overhead Allocation $300 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200
Service Charge 45 180 180 180 180 180 180
Operating Expenses(1) (300) (1200) (1200) (1200) (1200) (1200) (1200)
Incentive Management Fees(2) 160 906 1,090 1,311 1,390 1,390 1,390
Asset Sales Fees - - _ _ - _ -
Terminal Value"(3) - - - - - 8864 -
------- -------- ------- -------- ------- ------- -------
Total Cash Flow $205 $1,086 $1,270 $1,491 $1,570 $10,434 $1,570
NPV (2000-2005) $8,860
DISCOUNT RATE SENSITIVITY
-------------------------------------------------------------
PER SHARE
-------------------------------
RATE VALUE BASIC DILUTED
------------ -------------- -------------- ---------------
15.0 % 8,860 1.40 1.11
20.0 7,457 1.18 0.93
---------------------------------------------------------------------------------------------------------------
-----------------
(1) Based on Manager's cost allocation estimates.
(2) Manager's projections based on existing business and investment strategy.
(3) 3.2x 2006 revenue.
</TABLE>
APPENDIX I
COMPARABLE REIT
MANAGER/ADVISOR
M&A TRANSACTIONS
<TABLE>
<CAPTION>
MANAGER/ADVISOR ACQUISITION TRANSACTION SURVEY
Announcement Effective
Date Date Acquirer Target Transaction Type
---- ---- -------- ------ ----------------
<S> <C> <C> <C> <C>
11/99 06/00 Carey Diversified LLC WP Carey & Co. Stock acquisition of the manager
07/99 03/00 Imperial Credit Imperial Credit Commercial Imputed Value of manager in a cash
Industries, Inc. Mortgage Investment Corp. acquisition of ICMI
06/99 11/99 Starwood Financial Starwood Financial Advisors Stock acquisition of manager in
Trust conjunction with a stock
acquisition of TriNet Corp. Realty
09/97 11/97 Asset Investors Corp. Financial Asset Mgt. LLC Stock acquisition of manager
09/97 09/97 Security Capital Security Capital Industrial, Stock acquisition of the manager
Industrial Inc. (9)(10)
09/97 09/97 Security Capital Security Capital Pacific, Inc. Stock acquisition of the manager
Pacific Trust (9)(10)(11)
09/97 09/97 Security Capital Security Capital Atlantic Stock acquisition of the manager
Atlantic, Inc. (9)(10)(12)
09/97 09/97 AMB Property AMB Realty Advisors (17) Stock acquisition of the manager in
Corporation conjunction with the acquiror's IPO
06/97 10/97 U.S. Restaurant QSV Properties (General Stock acquisition of manager
Properties Master L.P. Partner)
05/97 01/98 Commercial Net Lease CNL Realty Advisors (14) Stock acquisition of the manager
Realty
11/96 07/97 CWM Mortgage Holdings Countrywide Asset Management Stock acquisition of manager
Inc. Corp. (15)
(Continuation of Chart)
Transaction Transaction
Value/Equity Value/Book
Manager Agreement Mkt. Cap @ Value @
Announcement Expiration/Renewal Date Transaction Transaction Transaction
Date as of Announcement Date Value Date Date Transaction Value/ Equity Value
---- ----------------------- ----- ---- ---- ------------------ ------------
Revenue(1) EBITDA(1) FFO(1) Net Income
------- ------ --- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11/99 12/31/00 $166.3(2) 38.9% (2) 32.2%(2) 5.0x(3) 9.9x(3) 9.9x(3) 9.4x (3)
07/99 10/22/99 33.1(4) 11.3 13.7 4.6 8.1 8.1 NA
06/99 11/01/03 101.5(5) 7.6 10.2 5.1(6) 6.8(6) 6.8 6.8
09/97 12/31/97 11.7(7) 12.2 13.4 3.7(8) 6.2(8) 8.4(8) NA(8)
09/97 12/01/97 81.9 4.0 5.1 2.2 9.5 11.3 11.4
09/97 03/01/98 75.8 4.2 6.0 2.6 13.6 15.7 16.2
09/97 12/31/97 54.6 5.4 7.8 3.0 9.0 9.5 9.5
09/97 Long-term 99.7 5.1 8.9 3.2 8.3 8.3 8.3
06/97 12/31/35 39.9(13) 18.0 36.7 NA 16.9 16.9 NA
(Partnership Termination
Date)
05/97 01/01/97 34.9 9.1 12.0 3.2 32.7 33.2 69.0
11/96 05/31/97 78.7(16) 7.2 16.8 6.7 6.7 6.7 11.0
-------- --- ---- --- --- --- ----
MEAN: $56.7(18) 7.3%(19) 10.6%(21) 3.4x(21) 8.7x(22) 9.4x(22) 9.4x(23)
HARMONIC MEAN: 38.1(18) 6.3(19) 9.1(20) 3.2(21) 8.2(22) 8.8(22) 9.1(23)
HARMONIC MEAN INCLUDING OUTLIERS: 43.7 2.7 2.5 3.5 9.3 9.9 10.9
(1) Calculations are based on annualized figures for the quarter ending prior to the announcement of the
acquisitions.
(2) Includes the $133 million initial transaction value plus an additional $33.25 million (two million additional
shares) which will be issued over time if W.P. Carey meets certain benchmarks. This value is computed based on
the share price of $16.625 at the record date. The target, which has total assets of approximately $95,317,000
million, provides advisory services to other entities in addition to Carey Diversified.
(3) Based on annualized numbers from the quarter ending March 31, 2000 as reported in the proxy statement dated May
17, 2000.
(4) Imputed value of the management contract calculated by multiplying the per share value of the contract,
approximately $1.16 assigned by Eastdil the third appraiser engaged to value the merger, by the number of
shares outstanding at the time of the transaction, approximately 28,500,000.
(5) Based on TriNet share price as of date of merger announcement (June 16, 1999) divided by negotiated exchange
ratio of 1.15. TriNet share price was used to value transaction as Starwood Financial Trust shares have limited
float.
(6) Revenues and EBITDA per Starwood-TriNet joint proxy statement "Question and Answer" section dated September 22,
1999. Per proxy, annualized revenues for the three months ended June 30, 1999 were approximately $20.0 million.
Annualized advisor expenses for the six months ended June 30, 1999 were approximately $5.0 million.
(7) Calculated using share price as of September 8, 1997, the last full day of trading preceding the announcement,
and share count as reported in 10-Q as of June 30, 1997.
(8) Multiples are based on annualized numbers for the six months ended June 30, 1997 and exclude a one time gain of
$2,072,000 during that period.
(9) Multiples are based on annualized numbers for Security Capital Industrial, Inc. for the three months ended
March 31, 1997. FFO adds back only real estate depreciation of $5,000 while EBITDA contains $348,000.
(10) In each transaction involving Security Capital, Security Capital calculated the projected REIT Advisory feed
and property management fees, net of the operating costs that would have been received under existing
agreements for the respective REIT's existing properties, remaining acquisitions budgeted for 1997 as well as
the development properties scheduled to begin constructions prior to December 31, 1997. Security Capital then
multiplied the 1999 net fee stream by a multiple of 9.0x to create a residual value and discounted the fee
stream back to the present using an annual discount rate of 17.5%. The residual value estimate was based on
1999's net fee stream because that is the first year in which all budgeted properties under development or to
be acquired were expected to be stabilized.
(11) Multiples are based on annualized numbers for Security Capital Pacific, Inc. for the three months ended March
31, 1997. FFO adds back only real estate depreciation of $41,000 while EBITDA adds back $221,000 of
depreciation.
(12) Multiples are based on annualized numbers for Security Capital Pacific, Inc. for the three months ended March
31, 1997. FFO adds back only real estate depreciation of $0 while EBITDA adds back $71,000 of depreciation.
(13) Calculated using the 850,000 bases shares issued plus the 550,000 additional shares to be issued over time as
specific benchmarks are met, and the USV share price as of the announcement date.
(14) Multiples are based on annualized numbers of CNL Advisors for the six months ended September 30,1997. As
consideration for the merger, the Advisor stockholders will receive up to 2.2 million shares of common stock
with a value of approximately $34.9 million. Ten percent of the total will be paid to the Advisor stockholders
over time to the extent the company expands its operations after the merger for a period of up to five years.
(15) Multiples based on the year end calculations as of February 28, 1997 found in merger proxy dated May 21, 1997.
(16) Based on the closing price as of November 4, 1996, the last full day of trading before the announcement of the
merger.
(17) There is no earnout provision in the deal.
(18) Values excludes Carey Diversified and Starwood Financial.
(19) Values exclude Carey Diversified and U.S. Restaurant Properties.
(20) Values exclude Carey Diversified and U.S. Restaurant Properties.
(21) Values exclude Starwood Financial and CWM Mortgage Holdings.
(22) Values exclude U.S. Restaurant Properties and Commercial Net Lease Realty.
(23) Values exclude Security Capital Pacific Trust and Commercial Net Lease Realty.
</TABLE>
APPENDIX J
SUMMARY OF MANAGEMENT
AGREEMENTS FOR SELECTED REITS
<TABLE>
<CAPTION>
Summary of FIC Management Inc. Management Agreement
<S> <C>
Base Fee Intended to cover Manager expenses with a year-end "true-up" of actual costs
to amounts paid. Manager currently allocates expenses of $100,000 per month.
Service Charge 15% of direct expenses billed to Company by the manager. The Manager has not
historically charged this service charge, but the Special Committee's
Counsel advises that the Manager is entitled to Service Charges.
Incentive Fee 25% of Net Income before incentive compensation or dividends paid in excess
of hurdle.
Incentive Fee Hurdle Return Return on Average Equity greater than average 10-Year Treasury Yield + 2.00%
for the quarter.
Term Five years; expires December 31, 2002 unless renewed with the approval of
the unaffiliated directors.
Renewal/Extension By mutual agreement, executed in writing, subject to the approval of the
unaffiliated directors.
Termination Fee For Cause: No compensation owed. Without Cause: Based on a comparative
appraisal process.
Exclusivity/Non-compete Manager may engage in other businesses or render services, including
investment in, or advisory services to others investing in, any type of real
estate investment, including investments which meet the principal investment
objective of the Company.
</TABLE>
<TABLE>
<CAPTION>
Summary of Management Agreements for Selected REITs
Company Management Fee Incentive Fee Other Fees Term
------- --------------- ------------- ---------- ----
<S> <C> <C> <C> <C>
Carey Diversified LLC Monthly management fee at an Incentive fee of 15% of Carey Management is paid One Year
annual rate of 0.5% of the amount of the net proceeds acquisition fees of 2.5%
total capitalization of received from the sale of of the purchase price
Carey diversified, less one a property previously held of properties purchased
half of the amount Carey by a CPA(R) Partnership in on behalf of Carey
management receives from the excess of the appraised Diversified, paid at the
partnership controlled by value of the equity time of acquisition, plus
Carey Diversified for interest in that property 2% of the purchase price if
property management or used for purposes of the certain performance goals
leasing fees and Consolidation, less an are met, payable over eight
distributions of cash from adjustment for the share years. In addition, they
operations. This fee is paid of the net proceeds in also receive 15% of the
in the form of cash or excess of the appraised amount of the net proceeds
restricted shares of Carey value of the equity received from the sale of
Diversified which vest interest attributable to a property previously held
ratably over five years. Carey Management's by a CPA(R) Partnership in
interest in the Shares of excess of the appraised
Carey Diversified. value of the equity
interest in that
property used for
purposes of the
consolidation, less an
adjustment for the
share of the net
proceeds in excess of
the appraised value of
the equity interest
attributable to Carey
Management's interest
in Carey Diversified.
Imperial Credit Management fee of 1% of the Incentive fee of 25% of Two Years
Industries, Inc. first $1 billion of average return on investment in
invested assets, 0.75% of excess of the 10-year
next $250 million average Treasury plus 4%.
invested assets, and .5% of
average invested assets in
excess of $1.25 billion.
Starwood Financial Trust Quarterly base management Quarterly incentive fee of
fee of 0.3125% (1.25% an amount equal to 5.0% of
annually) of the book equity Starwood Financial's
value of Starwood Financial. adjusted net income,
payable only during
those quarters in which
the adjusted net income
meets certain
thresholds.
Asset Investors Corp. Management Fee of 3/8% of Incentive fee of 20% of In addition, REIT One Year
average 0 invested assets in return on investment in manager receives a fee
addition to $3,500 per annum excess of the 10-year of 0.2% per year on
administration fee per non- treasury plus 1%. the average daily
agency MBS. balance of cash
equivalent
instruments.
Security Capital REIT manager is reimbursed Fee of 16% of cash flow as One Year
Industrial for third party and out-of- defined as cash flow from
pocket expenses relating to operations plus fees paid
travel, transaction costs, to REIT manager,
and other costs relating to extraordinary items
the acquisition, incurred at the request of
development, or disposition the Independent Trustees
of assets or the obtaining of SCI, 33% of any
of financing for Atlantic interest paid by SCI on
and its operations. convertible subordinated
debentures, and after
deducting actual or
assumed regularly
scheduled principal and
interest payments for
long-term debt and
distributions paid with
respect to
non-convertible
preferred shares of
beneficial interest.
Security Capital Pacific Base annual fee of $855,000. 16% of cash flow (as One Year
Trust In addition, REIT manager is defined above for Security
reimbursed for third party Capital Industrial) in
and out-of-pocket expenses excess of $4,837,000
relating to travel, payable monthly in
transaction costs, and other addition to a fee of 0.25%
costs relating to the per year on the average
acquisition, development, or daily balance of cash
disposition of assets or the equivalent instruments.
obtaining financing for
Atlantic and its operations.
Security Capital REIT manager is reimbursed Fee of 16% of cash flow as In addition, REIT One Year
Atlantic for third party and out-of- defined as cash flow from manager receives a fee
pocket expenses relating to operations plus fees paid of 0.2% per year on
travel, transaction costs, to REIT manager, the average daily
and other costs relating to extraordinary items balance of cash
the acquisition, incurred at the request of equivalent
development, or disposition the Independent Trustees instruments.
of assets or the obtaining of SCI, 33% of any
of financing for Atlantic interest paid by SCI on
and its operations. convertible subordinated
debentures, and after
deducting actual or
assumed regularly
scheduled principal and
interest payments for
long-term debt and
distributions paid with
respect to
non-convertible
preferred shares of
beneficial interest.
Commercial Net Lease Expense reimbursement equal An annual fee based on FFO Acquisition fees for One Year
Realty to one-half percent of the which is payable monthly the acquisition of new
total contract price of each equal to (a) 7% of annual properties subject to
acquisition, for costs FFO up to $10,000,000, (b) a commercial net lease
incurred on behalf of the 6% of annual FFO in excess for the company's
company in site selection of $10,000,000 but less portfolio in an amount
and acquisition activities than $20,000,000, and (c) equal to one and
of the advisor. 5% of annual FFO in excess one-half percent of
of $20,000,000. the total contract
price for each
acquisition.
Reimbursement fees
equal to one-half
percent of the total
contract price of each
acquisition, for costs
incurred on behalf of
the Company in site
selection and
acquisition activities
of the advisor.
CWM Mortgage Holdings, Management fee of 1/8% per Incentive compensation in One Year
Inc. annum of average invested the amount of 25% of
assets of CWM's mortgage annualized return on
conduit and a warehouse equity during any fiscal
lending management fee equal quarter in excess of the
to 1/5% of the average daily 10-year Treasury plus 2%.
balance of the outstanding
amounts under CWM's
warehouse lending
facilities. In addition, the
Company will reimburse CAMC
for its operating expenses
on a monthly basis is
conditions are met.
</TABLE>
