<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock (including the associated preferred stock purchase
---------------------------------------------------------------
rights)
-------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
25,930,000 shares being acquired in the merger plus 1,437,250 shares
--------------------------------------------------------------------
subject to outstanding stock options
--------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$11.50 (price per share being paid for outstanding shares pursuant to the
-------------------------------------------------------------------------
merger), $1.10 (price per share being paid for 815,500 outstanding stock
-------------------------------------------------------------------------
options with an exercise price of $15.00 per share) and $2.50 (price per
-------------------------------------------------------------------------
share being paid for 621,750 outstanding stock options with an exercise
-------------------------------------------------------------------------
price of $9.00 per share). The $11.50 per share price for outstanding
-------------------------------------------------------------------------
shares of common stock and the $2.50 per share price for certain stock
-------------------------------------------------------------------------
options are based on the currently proposed cash payment in the merger.
-------------------------------------------------------------------------
These cash payments are subject to possible increase based on a not yet
-------------------------------------------------------------------------
completed appraisal process. If such increase becomes applicable, an
-------------------------------------------------------------------------
additional filing fee will be paid with an amended filing as contemplated
-------------------------------------------------------------------------
by Rule 0-11(a)(3).
-------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$300,646,425
-------------------------------------------------------------------------
5) Total fee paid:
$ 60,129
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was previously
paid. Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
(1) Amount Previously Paid:_____________________________________
(2) Form, Schedule or Registration Statement No.:_______________
(3) Filing Party:_______________________________________________
(4) Date Filed:_________________________________________________
<PAGE>
PELIMINARY COPY Subject to Completion, dated October 21, 1999
[LOGO OF IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.]
___________, 1999
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders
of Imperial Credit Commercial Mortgage Investment Corp. ("ICCMIC") to be held at
______________________________ Los Angeles, California ___________, on ________,
________________, 1999. at ____:00 ____.m, local time.
At the special meeting, you will be asked to approve the merger agreement
between ICCMIC and Imperial Credit Industries, Inc. and the proposed merger of a
wholly-owned subsidiary of Imperial Credit Industries into ICCMIC, pursuant to
which ICCMIC will become a wholly-owned subsidiary of Imperial Credit
Industries. Currently, Imperial Credit Industries and certain of its affiliates
own approximately 9.4% of ICCMIC's outstanding common stock. ICCMIC's manager,
Imperial Credit Commercial Asset Management Corp., is a wholly-owned subsidiary
of Imperial Credit Industries.
If we complete the proposed merger, which would be a taxable transaction to
you, you will receive $11.50 in cash for each share of ICCMIC common stock you
own. The amount of cash you will receive per share is subject to possible
increase, as described in the attached proxy statement. In addition, you will
continue to receive regular quarterly dividends, if applicable, and a special
final dividend from ICCMIC, as described in greater detail in the attached proxy
statement.
A special committee of ICCMIC's board of directors, comprised of ICCMIC's
four independent directors, negotiated the terms of the merger agreement and the
proposed merger with Imperial Credit Industries. The special committee has
received an opinion from its financial advisor, Prudential Securities
Incorporated, to the effect that the consideration to be received in the
proposed merger by ICCMIC's stockholders, other than Imperial Credit Industries
and certain of its affiliates, is fair to such ICCMIC stockholders from a
financial point of view. The board of directors of ICCMIC, acting on the
unanimous recommendation of the special committee, has unanimously approved and
adopted the merger agreement and the proposed merger. The special committee and
the full board of directors believe that the merger agreement and the proposed
merger are fair to, and in the best interests of, ICCMIC's stockholders other
than Imperial Credit Industries and certain of its affiliates. Accordingly, the
ICCMIC board of directors recommends that you vote FOR the merger agreement and
the proposed merger.
The attached proxy statement provides detailed information concerning the
special meeting and the proposed merger. Please read these materials carefully.
<PAGE>
Your vote is very important. Whether or not you plan to attend the special
meeting, I urge you to complete, date, sign and promptly return the enclosed
proxy card, or follow the instructions for telephone or Internet voting on the
enclosed proxy card, to ensure that your shares will be voted at the meeting.
The proposed merger will only be completed if it is approved by the affirmative
vote of ICCMIC stockholders representing a majority of the total number of
outstanding shares of ICCMIC common stock, and by a majority of shares entitled
to vote at the special meeting that are not held by Imperial Credit Industries
and certain of its affiliates. If you fail to return your proxy card and
otherwise fail to vote by telephone, via the Internet or in person at the
special meeting, the effect will be the same as a vote against the merger
agreement and the proposed merger.
On behalf of the board of directors, I thank you for your support and urge you
to vote FOR approval of the merger agreement and the proposed merger.
Sincerely,
[Signature]
Mark S. Karlan
President and Chief Executive Officer
-------------------------------
This proxy statement is dated ______, 1999 and is first being mailed to
stockholders of ICCMIC on or about ______, 1999.
<PAGE>
[LOGO OF IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.]
Imperial Credit Commercial Mortgage Investment Corp.
Notice of Special Meeting of Stockholders
To Be Held _____________, 1999
To the stockholders of Imperial Credit Commercial Mortgage Investment Corp.
A special meeting of the stockholders of Imperial Credit Commercial
Mortgage Investment Corp. will be held at the ____________________, Los Angeles,
California _______ on _________________, 1999, at __:00 a.m., local time, so
that stockholders may consider and vote on a proposal to approve the merger
agreement, dated as of July 22, 1999, by and among ICCMIC, Imperial Credit
Industries and ICCMIC Acquisition Corp., under which, among other things, ICCMIC
Acquisition Corp. will merge into ICCMIC. We have attached a copy of the merger
agreement as Appendix A to the proxy statement.
The board of directors has set the close of business on ___________,
1999 as the record date to determine the stockholders entitled to notice of and
to vote at the special meeting or any meeting resulting from an adjournment or
postponement of the special meeting.
The board of directors of ICCMIC unanimously recommends that you vote
FOR approval of the merger agreement and the proposed merger.
You are cordially invited to attend the special meeting. You may vote
in person or by proxy. You may also vote by telephone or via the Internet.
Whether or not you plan to attend, please act promptly to vote your shares for
approval of the merger agreement and the proposed merger. We have included
with this notice a proxy statement to explain the proposed merger in detail,
and a proxy card for your use. If you attend the special meeting, you may vote
your shares in person, even if you have previously submitted a proxy in
writing.
By Order of the Board of Directors,
[Signature]
Norbert M. Seifert
Secretary
Los Angeles, California
Your vote is important. Please date and sign the enclosed proxy card
and return it in the enclosed envelope as soon as possible.
Please do not send your common stock certificates at this time. If
the proposed merger is completed, you will be sent instructions regarding the
surrender of your certificates.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
Questions and Answers About the Proposed Merger....................................... 2
Who Can Help Answer Your Questions?................................................... 6
Summary............................................................................... 7
Our Reasons for the Proposed Merger and Our Recommendation.......................... 7
ICII's Reasons for the Proposed Merger.............................................. 8
The Proposed Merger................................................................. 9
The Special Meeting................................................................. 9
Record Date; Stock Entitled to Vote................................................. 9
Votes Required...................................................................... 9
Share Ownership by Management....................................................... 10
What Stockholders Will Receive in the Proposed Merger............................... 10
Management Agreement; Appraisal..................................................... 10
Treatment of Outstanding ICCMIC Stock Options....................................... 13
Solicitation of Alternative Transactions............................................ 14
Standstill; Qualifying Alternative Transaction...................................... 15
Opinion of Financial Advisor........................................................ 16
Completion and Termination of the Merger Agreement.................................. 16
Accounting Treatment................................................................ 17
Potential Conflicts of Interest of ICCMIC's Directors and Officers.................. 17
Financing; Source of Funds.......................................................... 20
Market Price of ICCMIC Shares....................................................... 21
Cautionary Statement Concerning Forward-Looking Statements............................ 21
The Companies......................................................................... 23
Imperial Credit Commercial Mortgage Investment Corp................................. 23
Imperial Credit Industries, Inc..................................................... 24
ICCMIC Acquisition Corp............................................................. 25
Information Concerning the Special Meeting............................................ 25
Time, Date, Place and Purpose of the Special Meeting................................ 25
Record Date; Outstanding Common Stock Entitled to Vote; Quorum...................... 26
Votes Required...................................................................... 26
Voting of Proxies................................................................... 26
Proxy Solicitation.................................................................. 28
Special Factors: Background, Purpose and Effects of the Proposed Merger............... 29
Background of the Proposed Merger................................................... 29
60-Day Market Check................................................................. 44
Recommendation of the Special Committee and the Board of
Directors; Reasons for the Proposed Merger.................................... 44
Opinion of the Financial Advisor to the Special Committee........................... 48
Financial Projections Relating to ICCMIC............................................ 54
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Management Agreement; Appraisal..................................................... 57
Benefits and Detriments to Nonaffiliated Stockholders............................... 58
ICII's Purpose for Pursuing the Proposed Merger; Structure of the Proposed Merger... 58
ICII's Analysis of the Proposed Merger.............................................. 60
Consequences of the Proposed Merger................................................. 62
Potential Asset Sales Prior to the Proposed Merger.................................. 63
Plans for ICCMIC after the Proposed Merger.......................................... 63
Conduct of the Business of ICCMIC if the Proposed Merger is not Completed........... 63
Financing; Source of Funds.......................................................... 64
No Appraisal Rights................................................................. 64
Material Tax Consequences........................................................... 64
Accounting Treatment................................................................ 66
Pending Litigation.................................................................. 67
Interests of Certain Persons in the Proposed Merger................................... 67
General............................................................................. 67
Overlapping Directors and Officers.................................................. 67
Treatment of Stock Options.......................................................... 68
Agreements between Mark S. Karlan, ICII and the Manager............................. 70
Indemnification of Directors and Officers........................................... 71
ICII/Manager Employment Retention Plan.............................................. 71
The Merger Agreement.................................................................. 72
The Proposed Merger................................................................. 72
Effective Time...................................................................... 72
Merger Consideration................................................................ 73
Cancellation of ICCMIC Common Stock................................................. 73
Payment Procedures.................................................................. 74
Transfer of Common Stock............................................................ 74
Stock Option and Other Plans........................................................ 74
Directors and Officers.............................................................. 75
Solicitation Period and Superior Proposals.......................................... 75
ICII Standstill Agreement........................................................... 76
SPB Loans........................................................................... 77
Representations and Warranties...................................................... 77
Covenants; Conduct of Business Pending the Proposed Merger.......................... 78
Conditions.......................................................................... 81
Termination; Withdrawal of Recommendations.......................................... 82
Termination Fees and Expenses....................................................... 83
Amendment and Waiver................................................................ 83
Fees and Expenses..................................................................... 84
Regulatory Requirements............................................................... 85
Selected Historical Financial Data of ICCMIC.......................................... 86
Common Stock Market Price and Dividend Information.................................... 87
Market Prices....................................................................... 87
Dividend Policy..................................................................... 88
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Relationships and Transactions Between ICII, ICCMIC and Affiliates.................... 89
Relationships with the Manager...................................................... 89
Other Contractual Relationships Between ICII and its Affiliates and ICCMIC.......... 90
Purchases and Sales of Common Stock by ICII and its Affiliates...................... 91
Management of ICCMIC.................................................................. 92
Management of ICII and ICCMIC Acquisition Corp........................................ 92
Management of ICII.................................................................. 92
Management of ICCMIC Acquisition Corp............................................... 94
Securities Ownership.................................................................. 95
Proposals by Stockholders of ICCMIC................................................... 96
Independent Auditors.................................................................. 97
Where You Can Find More Information................................................... 97
</TABLE>
<TABLE>
<S> <C>
APPENDIX A - Merger Agreement
APPENDIX B - Opinion of Prudential Securities Incorporated
APPENDIX C - Summary of Appraisals of Robert A. Stanger & Co., Inc., Houlihan Lokey Howard
& Zukin Financial Advisors, Inc. and Eastdil Realty, L.L.C.
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSED MERGER
_________________________________________________________________
_______________________________________________________________________
<TABLE>
<S> <C>
Q: What will I receive in the A: If the proposed merger is completed, you will receive
proposed merger? at least $11.50 in cash in exchange for each share of
ICCMIC common stock that you own at the time of the
proposed merger. You may receive additional cash,
depending upon the results of the appraisal process
described below that will be completed prior to the
proposed merger.
You will also receive a final dividend of any previously
undistributed taxable income of ICCMIC to be paid promptly
after the proposed merger, if it is completed. See "What will
happen to my dividends?"
If you sell shares of ICCMIC common stock after the
___________, 1999 record date and prior to the proposed
merger, you will retain your right to vote at the special
meeting unless you give a proxy to the purchaser of your
stock. However, the right to receive the cash price in
the proposed merger will transfer with the shares of
common stock.
Q: What is the appraisal process, A: ICCMIC is an "externally managed" real estate
and how will it affect what I investment trust - meaning that the day-to-day operations
receive in the proposed merger? of the company are conducted by a third party "manager."
ICCMIC's manager, Imperial Credit Commercial Asset
Management Corp., is a wholly-owned subsidiary of Imperial
Credit Industries, Inc. ("ICII").
ICCMIC's management agreement with the manager provides
that if ICCMIC terminates or fails to renew the management
agreement, then ICCMIC must pay to the manager a
termination fee. The merger agreement between ICCMIC and
ICII requires that independent appraisers appraise the
value of the termination fee. If the appraised value of
the termination fee is less than $35 million, the $11.50
per share cash payment for each of your shares in the
proposed merger will be increased by an amount of cash
equal to the quotient of:
. the difference between $35 million and the appraised
value of the termination fee, divided by
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
. the sum of the number of shares held by ICCMIC
stockholders other than ICII and its subsidiaries, and the
number of shares subject to ICCMIC stock options that have
an exercise price of less than $11.50 per share.
The actual increase in cash consideration, if any, will
depend on the results of the appraisal process and the
actual number of outstanding relevant shares and stock
options at the time of the proposed merger.
The merger agreement does not entitle ICII or the manager
to any cash payment as a part of the merger transaction.
The appraisal of the termination fee was undertaken to
determine the amount, if any, by which to increase the
$11.50 per share merger consideration and the amount that
a third party would be required to pay in an alternative
transaction or that ICCMIC would be required to pay if the
merger agreement is terminated without an alternative
transaction. The appraisal process will also determine
the amount of the termination fee payable if ICCMIC
terminates or fails to renew the management agreement.
However, the parties have agreed that ICCMIC will not
be required to pay the termination fee unless the merger
agreement is terminated, in which event the termination
fee will be due and payable at that time.
The appraisal of the termination fee will not reduce the
amount of cash you receive in the proposed merger under
any circumstances. If the appraised value of the
termination fee exceeds $35 million, each ICCMIC
stockholder other than ICII and its subsidiaries will
receive $11.50 in cash per share.
Q: How did you determine the A: The price and other terms of the proposed merger were
price to be paid in the proposed negotiated with ICII by a special committee of ICCMIC's
merger? board of directors, consisting of the four independent
ICCMIC directors who are neither officers or employees of
ICCMIC nor directors, officers, employees or affiliates of
ICII. The special committee retained its own legal
counsel and was assisted in this process by its financial
advisor, Prudential Securities Incorporated, which
provided the special committee with its written opinion
that the consideration to be received in the proposed
merger by ICCMIC's stockholders, other than ICII and
certain of its affiliates, is fair to such ICCMIC
stockholders from a financial point of view.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Q: What will happen to my A: The merger agreement permits ICCMIC to declare and
dividends? pay regular quarterly dividends, in an amount up to 105%
of its quarterly taxable income, if any, until the
proposed merger is completed and we expect to do so. See
"Common Stock Market Price and Dividend Information." In
addition, immediately prior to the proposed merger, ICCMIC
will declare a final cash dividend in an amount up to 100%
of its taxable income, if any, during its then current tax
year through the date of the proposed merger, reduced (but
not below zero) by the amount of all prior dividends
already paid with respect to that tax year. The record
date for this final dividend will be the business day
immediately before the closing of the proposed merger.
The final dividend, if any, will be paid promptly after
the proposed merger is completed.
Q: What do I need to do now? A: After carefully considering the information contained
in this proxy statement, please complete, date and sign
your proxy card. Then mail your proxy card in the postage
paid envelope as soon as possible, so that your shares may
be voted in accordance with your instructions at the
special meeting. Alternatively, you may follow the
instructions on the enclosed proxy card for telephone and
Internet voting. The ICCMIC board of directors
unanimously recommends that you vote FOR approval of the
merger agreement and the proposed merger.
Q: What do I do if I want to A: You may change your vote:
change my vote?
. by sending a written notice stating that you would like
to revoke your proxy which must be received by ICCMIC's
transfer agent prior to the vote at the special meeting;
. by signing a later dated proxy card and mailing it
promptly so that is received by the ICCMIC transfer agent
prior to the vote at the special meeting;
. by following the instructions for telephone and Internet voting; or
. by attending the special meeting and
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
voting your shares in person.
Q: Should I send in my stock A: No, you should not send in your stock certificates
certificates now? with your proxy card. If the proposed merger is
completed, you will be sent written instructions for
exchanging your ICCMIC stock certificates for the merger
consideration.
Q: If my shares are held in A: Your broker will vote your shares only if you provide
"street name" by my broker, will instructions on how to vote to your broker. Please tell
my broker vote my shares for me? your broker how you would like him or her to vote your
shares. If you do not tell your broker how to vote, your
shares will not be voted, which will have the same effect
as a vote against the merger agreement and the proposed
merger.
Q: When do you expect the A: We are working to complete the proposed merger as
proposed merger to be completed? quickly as possible. If it is approved, we expect to
complete the proposed merger within several days of the
special meeting.
Q: What are the tax consequences A: The exchange of ICCMIC common stock for cash in the
of the proposed merger? proposed merger will be a taxable transaction for federal
income tax purposes and will also be a taxable transaction
under most state and local tax laws. You will recognize
gain or loss on your receipt of cash to the extent that
the amount you receive exceeds, or is less than, your tax
basis in your ICCMIC common stock. In addition, if you
are a foreign stockholder, you may be subject to tax and
withholding under the Foreign Investment in Real Property
Tax Act of 1980.
We describe the material United States federal income tax
consequences of the proposed merger in more detail on
pages 64 through 66. See "Special Factors: Background,
Purpose and Effects of the Proposed Merger - Material Tax
Consequences."
Q: What other matters will be A: Maryland law and ICCMIC's bylaws do not permit any
voted on at the special meeting? other matters to be presented at the special meeting
except related procedural matters, including adjournment
of the special meeting to a later date.
Q: Do I have the right to have A: No. ICCMIC is organized under Maryland law. Under
the value of my shares appraised Maryland law, ICCMIC stockholders do not have the right to
if I dissent from the proposed dissent and receive the appraised value of their shares in
merger? connection with the proposed merger. If you vote against
the proposed merger and it takes place anyway, you will be
bound by the terms of the merger agreement.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Q: Where can I find more A: Both companies file reports and other information
information about ICCMIC and ICII? with the Securities and Exchange Commission. You may read
and copy this information at the SEC's public reference
facilities. You may call 1-800-SEC-0330 for information
about these facilities. This information is also
available at the Internet site the SEC maintains at
http://www.sec.gov. You can also request copies of these
documents from ICCMIC and ICII. Also, you can get
information about ICII at its Internet site at
http://www.icii.com. For more information, see "Where You
Can Find More Information."
</TABLE>
Who can help answer your questions?
If you have more questions about the proposed merger or would like
additional copies of this proxy statement, you should contact our proxy
solicitor:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
1-800-769-5414
6
<PAGE>
SUMMARY
This summary, together with the "Questions and Answers About the
Proposed Merger" on pages 2 through 6, highlights selected information included
in this proxy statement. It may not contain all of the information that is
important to you. We have included page references directing you to a more
complete description of each item presented in this summary. To understand the
proposed merger fully and for a more detailed description of the legal terms of
the transaction, you should read carefully this entire proxy statement and the
other documents to which we have referred you. For more information about
ICCMIC and ICII, see "Where You Can Find More Information." The actual terms of
the proposed merger are contained in the merger agreement, a copy of which is
attached as Appendix A to this proxy statement.
All information contained in this proxy statement relating to ICII and
ICCMIC Acquisition Corp. and their affiliates (other than ICCMIC and its
subsidiaries) or to their respective actions, purposes, beliefs, intentions or
plans has been supplied by ICII for inclusion herein and has not been
independently verified by ICCMIC. This information includes, without
limitation, certain information set forth under the captions "Summary - ICII's
Reasons for the Proposed Merger," "- Financing; Source of Funds," "The Companies
- - Imperial Credit Industries, Inc.," "- ICCMIC Acquisition Corp.," "Special
Factors: Background, Purpose and Effects of the Proposed Merger - ICII's
Purpose for Pursuing the Proposed Merger," " Structure of the Proposed Merger,"
"- ICII's Analysis of the Proposed Merger," "- Consequences of the Proposed
Merger," "- Management Agreement; Appraisal," "- Potential Asset Sales Prior to
the Proposed Merger," "- Plans for ICCMIC after the Proposed Merger," "-
Financing; Source of Funds," "- Accounting Treatment," "Regulatory Requirements"
(with respect to ICII), "Relationships and Transactions Between ICII, ICCMIC and
Affiliates," "Management of ICII and ICCMIC Acquisition Corp." and "Securities
Ownership."
_________________________________________________________________
_______________________________________________________________________
<TABLE>
<S> <C>
Our Reasons for the Proposed Our primary reason for the proposed merger is to provide
Merger and Our Recommendation ICCMIC stockholders other than ICII and its subsidiaries with
(pages 44 through 48) the opportunity to liquidate their investment in ICCMIC for
cash at a price representing a significant premium to the
market price for ICCMIC common stock prior to the
announcement of ICII's initial acquisition offer.
The ICCMIC board of directors, acting on the unanimous
recommendation of its special committee, has unanimously
approved and adopted the merger agreement and the proposed
merger and recommends that you vote FOR approval of the
merger agreement and the proposed merger. The board of
directors and the special committee believe that the merger
agreement and the proposed merger are advisable, fair to and
in the best interests of ICCMIC stockholders other than ICII
and certain of its affiliates (i.e., Messrs. H. Wayne Snavely
and Kevin E. Villani).
In reaching their decision to recommend the proposed merger,
the board of directors and the special committee considered a
number of factors, including the price (see "- What
Stockholders Will Receive in the Proposed Merger") and the
right given to ICCMIC for a period of 60 days to solicit
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
alternative proposals that might be superior to the proposed
merger (see "- Solicitation of Alternative Transactions").
The special committee also considered the fairness opinion of
Prudential Securities Incorporated (see below) and the board
of directors relied on the recommendation of the special
committee. See "Special Factors: Background, Purpose and
Effects of the Proposed Merger - Recommendation of the
Special Committee and the Board of Directors; Reasons for the
Proposed Merger."
ICII's Reasons for the Proposed ICII believes that the proposed merger will result in several
Merger (pages 58 through 62) benefits to it, including:
. the reacquisition of mortgage loans originated by ICII's
wholly-owned subsidiary, Southern Pacific Bank ("SPB"), and
the acquisition of other loans that are consistent with the
loan origination and investment strategies of SPB will
enhance SPB's portfolio of commercial mortgage loans;
. the reduction of the separate operational and
administrative costs of ICCMIC, including its on-going costs
as a public company; and
. the increased ability of the surviving corporation to
retain capital for future investment rather than being
required to comply with the federal tax law dividend
requirements for REITs.
See "Special Factors: Background, Purpose and Effects of the
Proposed Merger - ICII's Purpose for Pursuing the Proposed
Merger; Structure of the Proposed Merger."
In addition, ICII believes that the proposed merger provides
an opportunity for ICCMIC stockholders to sell their
investment in ICCMIC at a price representing a substantial
premium to the trading price of ICCMIC's common stock
immediately prior to the initial announcement of ICII's
interest in acquiring ICCMIC. ICII also believes that the
merger price is attractive to it and in the best interest of
its own stockholders based on ICII's knowledge of the assets
of ICCMIC and the potential risks and rewards of holding or
selling those assets over time. Lastly, ICII believes that
the merger transaction, taken as a whole, fairly compensates
ICII for the value of the management agreement that ICII's
wholly-owned subsidiary, the manager, has with ICCMIC in a
tax advantaged manner
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
resulting from the fact that the tax basis of ICCMIC's assets
exceeds the merger price and related merger transaction costs.
The Proposed Merger (pages 62 and If the proposed merger is completed, ICCMIC Acquisition
63) Corp., a wholly-owned subsidiary of ICII, will merge into
ICCMIC. ICCMIC will continue as the surviving company.
If the proposed merger is completed, ICCMIC will become a
wholly-owned subsidiary of ICII, public trading of ICCMIC
common stock will cease and ICCMIC's common stock will be
delisted from the Nasdaq Stock Market. Stockholders other
than ICII and its subsidiaries will no longer have any
ownership interest in ICCMIC and will no longer participate
in the future earnings and growth of ICCMIC or benefit from
any increase in the value of ICCMIC common stock.
The Special Meeting (pages 25 and We will hold a special meeting of ICCMIC stockholders to vote
26) on the merger on ____________, 1999 at __:00 a.m. local time,
at the__________ , Los Angeles, California _______, subject
to adjournments or postponements. At the special meeting, we
will ask you to approve the merger agreement and the proposed
merger.
Record Date; Stock Entitled to You are entitled to vote at the special meeting if you owned
Vote (page 26) shares of ICCMIC common stock at the close of business on
________ __, 1999.
On September 30, 1999, 28.5 million shares of ICCMIC common
stock were outstanding and held by 44 record holders on
behalf of approximately 3,000 beneficial holders. Of those
shares, 2,690,053 shares, or approximately 9.4%, are
beneficially owned by ICII and certain of its affiliates.
You will have one vote on the proposal to approve the merger
agreement and the proposed merger for each share of ICCMIC
common stock that you owned on that date.
Votes Required (page 26) The approval of the merger agreement and the proposed merger
requires the following votes:
. the affirmative vote of ICCMIC stockholders holding at
least a majority of the outstanding shares of ICCMIC common
stock, and
. the affirmative vote of ICCMIC stockholders holding at
least a majority of the shares of ICCMIC common stock
entitled to vote at the special meeting, other than the
shares held by ICII and Messrs. Snavely and Villani.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Share Ownership by Management As of October 20, 1999, the directors and executive officers
(pages 95 and 96) of ICCMIC were entitled to vote 229,103 shares of ICCMIC
common stock, excluding ICCMIC stock options. These shares
represent less than 1% of the outstanding shares of ICCMIC
common stock. All of the directors and executive officers of
ICCMIC have indicated to us that they intend to vote their
shares in favor of the merger agreement and the proposed
merger. In addition to their shares of ICCMIC common stock,
as of October 20, 1999, the directors and executive officers
of ICCMIC held stock options to acquire 1,164,250 shares of
ICCMIC common stock, including stock options to acquire
623,583 shares that are currently exercisable or are
exercisable within the next 60 days.
What Stockholders Will Receive in If the proposed merger is completed, you will receive $11.50
the Proposed Merger (page 73) in cash for each share of ICCMIC common stock you own
immediately before the completion of the proposed merger.
In addition, you may receive an additional amount in cash for
each share you own if the fee payable upon the termination of
ICCMIC's management agreement is appraised below $35 million.
The appraisal of the management agreement termination fee
will not reduce the amount of cash you receive in the
proposed merger. If the appraised value of the management
agreement termination fee exceeds $35 million, you will still
receive $11.50 in cash for each share of ICCMIC common stock
that you own.
For each calendar quarter prior to the one in which the
proposed merger occurs, you will continue to receive regular
quarterly dividends, based on ICCMIC's estimated taxable
income. In addition, ICCMIC will declare a final cash
dividend for the calendar quarter in which the proposed
merger occurs, in an amount not in excess of 100% of its
estimated taxable income, if any, during ICCMIC's then
current tax year through the date of the proposed merger,
reduced by the amount of all prior dividends already paid
with respect to that tax year.
Management Agreement; Appraisal ICCMIC is an "externally managed" real estate investment
(pages 57 and 58) trust. This means that the day-to-day operations of the
company are conducted by a third party "manager." ICCMIC's
manager is Imperial Credit Commercial Asset Management Corp.,
which is a wholly-owned subsidiary of ICII.
The management agreement provides that if ICCMIC terminates
or fails to renew the management agreement, then ICCMIC must
pay a termination fee to the manager determined by an
independent appraisal process. ICCMIC's
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
management agreement with its manager is expected to expire on
October 22, 1999. However, the parties have agreed that ICCMIC
will not be required to pay the termination fee unless the merger
agreement is terminated, in which event the termination fee will
be due and payable at that time.
In accordance with the procedures indicated in the merger
agreement and the management agreement, the special committee
(on behalf of ICCMIC) and the manager each selected an
independent appraisal firm to conduct an appraisal of the
value of the termination fee. ICCMIC selected Robert A.
Stanger & Co., Inc. The manager selected Houlihan Lokey
Howard & Zukin Financial Advisors, Inc. Under the procedures
set forth in the merger agreement and the management
agreement, the appraised value of the termination fee is to
be determined as follows:
. If Stanger and Houlihan Lokey were to arrive at appraised
values that are identical or that differ by an amount that
does not exceed 20% of the higher of the two values, the
appraised value of the termination fee would equal the
average of the two appraised values.
. If, on the other hand, Stanger and Houlihan Lokey were to
arrive at appraised values that differ by more than 20% of
the higher of the two values, then the two firms would
jointly select a third independent appraisal firm to conduct
another appraisal. In that case, the appraised value that
would control for purposes of the merger agreement would be
the appraised value arrived at by the third appraiser, but
could not be less than the lower of the two initial appraised
values nor more than the higher of the two initial appraised
values.
However, the merger agreement provides that the final
appraised value of the termination fee may not exceed $35
million.
Each of Stanger and Houlihan Lokey has completed an appraisal
of the value of the termination fee. Stanger arrived at an appraised
value of the termination fee of $18 million. Houlihan
Lokey arrived at an appraised value of the termination fee
of $45 million. Because the two appraised values
differ by more than 20% of the higher of the two values, a
third independent appraiser, Eastdil Realty, L.L.C., has been
selected by Stanger and Houlihan Lokey. The appraised value
arrived at by Eastdil will be the appraised
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
value of the termination fee unless:
. the Eastdil appraised value is less than $18 million (in
which case the appraised value of the termination fee will be
$18 million), or
. the Eastdil appraised value is more than $35 million (in
which case the appraised value of the termination fee will be
$35 million).
If the appraised value of the termination fee is less than
$35 million, in addition to the $11.50 per share cash payment
in the proposed merger, you will receive an amount of cash
for each of your shares equal to the following per share
amount:
. the difference between $35 million and the appraised
value, divided by
. the sum of the number of shares held by ICCMIC
stockholders other than ICII and its subsidiaries and the
number of shares subject to ICCMIC stock options that have an
exercise price of less than $11.50 per share.
The following table illustrates how differences in the
appraised value of the management agreement termination fee
would affect the per share consideration to be received by
ICCMIC stockholders. For this purpose, assume that there are
25,930,000 shares of ICCMIC common stock outstanding,
excluding 2,570,000 shares held by ICII and its subsidiaries
(as there were on September 30, 1999). Also assume that
there are 621,750 shares issuable on exercise of outstanding
ICCMIC stock options with an exercise price below $11.50 per
share (as there were on September 30, 1999).
Appraised Value of the Additional Aggregate
Termination Fee Amount Per Share Payment Per Share Consideration
--------------------------------------------------------------------
(in millions)
$18 $0.64 $12.14
$25 $0.38 $11.88
$30 $0.19 $11.69
$35 $0.00 $11.50
$45 $0.00 $11.50
The amount in the middle column is the additional amount, if
any, per share (above $11.50) you would receive in the
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
merger if the management agreement termination amount were appraised
at varying amounts stated in the left column. The amount in
the right column is the total you would receive in the merger
for each of your shares of ICCMIC common stock if the
termination amount is appraised at varying amounts stated in
the left column.
The "Additional Per Share Payment" amount is calculated by
dividing
. the difference between $35 million and the hypothetical
appraised value (capped at $35 million) of the termination
fee amount (varying values of the amount are listed above in
the left column), by
. 26,551,750, which is the sum assumed above of the
outstanding shares (not including shares held by ICII and its
subsidiaries) and the shares subject to ICCMIC options (with
exercise prices below $11.50).
Of course, these are only hypothetical examples, and the
actual increase, if any, will depend on the results of the
appraisal by Eastdil (see "Appendix C-Summary of Appraisals
of Robert A. Stanger & Co., Inc., Houlihan Lokey Howard &
Zukin Financial Advisors, Inc. and Eastdil Realty, L.L.C.")
and the number of relevant outstanding shares of ICCMIC
common stock and ICCMIC stock options at the time of the
proposed merger.
The merger agreement does not entitle ICII or the manager to
any cash payment as a part of the merger transaction. The
appraisal of the termination fee was undertaken to determine
the amount, if any, by which to increase the $11.50 per share
merger consideration and the amount that a third party would
be required to pay in an alternative transaction or that
ICCMIC would be required to pay if the merger agreement is
terminated without an alternative transaction. The appraisal
process will also determine the amount of the termination fee
payable if ICCMIC terminates or fails to renew the management
agreement. However, the parties have agreed that ICCMIC will
not be required to pay the termination fee unless the merger
agreement is terminated, in which event the termination fee
will be due and payable at that time.
Treatment of Outstanding ICCMIC As part of the proposed merger, all outstanding ICCMIC stock
Stock Options (pages 68 through options will become immediately exercisable, and will either
70) be converted into immediately exercisable options to purchase
ICII common stock or, at the election of the option holder,
exchanged for cash.
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
. Conversion into New ICII Stock Options. The exercise
price of the new ICII stock options and the number of shares
of ICII stock to be received on exercise of the new ICII
stock options will be set so that the fair value of ICCMIC
stock options held before the proposed merger will equal the
fair value of the ICII stock options into which the ICCMIC
stock options will be converted. Alternatively, incentive
stock options will be converted into new ICII options under
the formula of the Internal Revenue Code for incentive stock
options if the holder of such incentive stock options fails
to waive this method.
. Exchange for Cash. Alternatively, holders of ICCMIC stock
options may elect to exchange their options for cash instead
of converting them into new ICII stock options. For ICCMIC
stock options having an exercise price that is less than the
cash per share merger consideration to be paid in the
proposed merger, the cash payment will be the greater of the
fair value of the ICCMIC stock options and the amount by
which the per share merger consideration exceeds the exercise
price of the stock options. For ICCMIC stock options having
an exercise price that is more than the cash per share merger
consideration, the cash-out price will be $1.10 per share,
which is the amount ICCMIC and ICII have agreed is the fair
value of those stock options.
Prior to the approval of the merger agreement and the
proposed merger by ICCMIC's board of directors, H. Wayne
Snavely, Chairman of the ICCMIC board, and Kevin E. Villani,
Vice Chairman of the ICCMIC board, each agreed to the
cancellation of the ICCMIC stock options held by him. ICII
has informed ICCMIC that, following the completion of the
proposed merger, ICII will reimburse Messrs. Snavely and
Villani for their cancelled stock options according to the
option pricing formula, described above, provided in the
merger agreement for exchange of ICCMIC stock options.
Solicitation of Alternative During the 60-day period that expired at 12:01 a.m. on
Transactions (page 75) October 13, 1999, ICCMIC was permitted by the merger
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
agreement to seek an alternative transaction that is more
favorable to ICCMIC stockholders than the proposed merger.
Both during and after this period, ICCMIC has the right to
terminate the merger agreement in favor of an alternative
transaction if, after consulting with an independent
financial advisor, the ICCMIC board decides in good faith
that the alternative transaction is more favorable than the
ICII merger proposal and is reasonably capable of being
consummated. In that case, ICCMIC would have to reimburse
ICII for certain of its actual out-of-pocket transaction
expenses up to a maximum of $2 million, as described below
under "- Expense Reimbursement."
With the assistance of its financial advisor, Prudential
Securities, the special committee sought alternative
transactions during the 60-day market check period that
expired on October 13, 1999. The special committee, with
advice from Prudential Securities, has determined that none
of the proposals received during the solicitation period
constituted a superior proposal. See "Special Factors,
Background, Purpose and Effects of the Proposed Merger -
60-Day Market Check."
Beginning October 13, 1999, ICCMIC may not solicit
alternative transactions, and ICCMIC may not engage in
discussions with third parties concerning an alternative
transaction unless, after consulting with independent
financial and legal advisors, the ICCMIC board decides in
good faith that the alternative transaction is a superior
proposal.
Standstill; Qualifying The Merger Agreement provides that ICII, alone or with
Alternative Transaction (pages others, may not seek to acquire ICCMIC or any of its
76 and 77) securities or assets other than through the ICII merger
proposal or a "qualifying alternative transaction." ICII
will be permitted, alone or with others, to propose a
qualifying alternative transaction if the merger agreement is
terminated by ICII after ICCMIC accepts a superior
alternative transaction and the consideration to be paid in
the superior alternative transaction does not consist
entirely of cash or cash equivalent securities or
instruments. A "qualifying alternative transaction" would be
an increased all cash offer made by ICII and having terms and
conditions that, in general, are no less favorable than the
terms and conditions of the merger agreement, to the extent
that the merger agreement's terms and conditions are
applicable to the qualifying alternative transaction.
ICCMIC's stockholders rights plan and charter substantially
restrict ICII's ability to consummate a qualifying
alternative transaction unless the ICCMIC board ultimately
consents to such a transaction.
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Opinion of Financial Advisor In deciding to recommend that the full ICCMIC board approve
(pages 48 through 54) and adopt the merger agreement and the proposed merger, the
special committee considered, among other factors, the
opinion of its financial advisor, Prudential Securities, that
the consideration to be received in the proposed merger by
ICCMIC's stockholders, other than ICII and certain of its
affiliates, is fair to such ICCMIC stockholders from a
financial point of view. We have attached the opinion of
Prudential Securities as Appendix B to this proxy statement.
Please read it carefully. See "Special Factors: Background,
Purpose and Effects of the Proposed Merger - Recommendation
of the Special Committee and the Board of Directors; Reasons
for the Proposed Merger," for a description of the factors
considered by the special committee.
Completion and Termination of the
Merger Agreement (pages 81
through 83)
Conditions to Completion of the We will complete the proposed merger only if a number of
Proposed Merger (pages 81 and conditions are satisfied or waived, including:
82)
. ICCMIC stockholders approve the merger agreement and the
proposed merger by the votes required under the merger
agreement;
. No law or court order prohibits the proposed merger; and
. The representations and warranties made by each party to
the merger agreement continue to be true and correct.
Termination of the Merger ICCMIC and ICII can jointly agree to terminate the merger
Agreement (pages 82 and 83) agreement, before or after stockholder approval, without
completing the proposed merger. In addition, either company
may terminate the merger agreement if:
. We do not complete the proposed merger by January 31, 2000;
. The ICCMIC stockholders fail to approve the
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
merger agreement and the proposed merger by the required
votes; or
. a governmental authority permanently prohibits the
proposed merger.
ICII also may terminate the merger agreement if:
. ICCMIC's board no longer recommends that ICCMIC
stockholders vote to approve the merger agreement and the
proposed merger;
. ICCMIC's board approves an alternative transaction; or
. ICCMIC's representations and warranties in the merger
agreement are untrue with respect to a material matter, or
ICCMIC fails in a material respect to comply with its
obligations under the merger agreement.
ICCMIC also may terminate the merger agreement if:
. ICCMIC's board approves a superior alternative
transaction; or
. ICII's representations and warranties in the merger
agreement are untrue with respect to a material matter, or
ICII fails in a material respect to comply with its
obligations under the merger agreement.
Accounting Treatment (pages 66 As required by generally accepted accounting principles, ICII
and 67) will use the purchase method of accounting to account for the
proposed merger, which means that ICII will reflect ICCMIC's
assets and liabilities on its books based on their estimated
fair value when the proposed merger is completed.
Potential Conflicts of Interest Directors and officers of ICCMIC may have interests in the
of ICCMIC's Directors and proposed merger that differ from, or are in addition to, your
Officers (pages 67 through 72) interests as a stockholder, including the following:
. Mr. Snavely, a director and executive officer
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
of ICII, and Mr. Villani, a director and former executive
officer of ICII (Mr. Villani resigned as an executive officer
of ICII as of September 30, 1999), are directors of ICCMIC and,
as a result, have fiduciary duties to the stockholders of both
companies. In addition, until October 22, 1999, the date of
the anticipated expiration of the management agreement, Mark
S. Karlan (President, Chief Executive Officer and a director
of ICCMIC), Michael Meltzer (Chief Financial Officer and
Treasurer of ICCMIC) and Norbert M. Seifert (General Counsel,
Senior Vice President and Secretary of ICCMIC) hold the same
executive officer positions at ICCMIC's manager, Imperial
Credit Commercial Asset Management Corp., which is a
wholly-owned subsidiary of ICII. Therefore, each of them may
be confronted by issues, including the proposed merger, that
present them with conflicts of interest. Because of their
potentially conflicting fiduciary duties, and because their
economic interests in the proposed merger may differ from
your interests as a stockholder, the ICCMIC board of
directors empowered the special committee to represent the
interests of ICCMIC's stockholders in the evaluation and
negotiation of the proposed merger.
. Each of the directors and executive officers of ICCMIC,
other than Messrs. Snavely and Villani, owns outstanding
options to purchase ICCMIC common stock, some of which have
exercise prices that exceed the per share merger price, and
some of which are not yet exercisable. Upon approval of the
merger agreement and the proposed merger by ICCMIC
stockholders, all of these stock options will become
immediately exercisable. See "-Treatment of Outstanding
ICCMIC Stock Options."
. Mr. Karlan entered into an employment agreement with the
manager at the time of ICCMIC's initial public offering that,
among other things, gives him the right to receive 15% of the
economic value of the manager upon the occurrence of certain
events. Mr.
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
Karlan and the manager have agreed that upon either the payment
to the manager of a termination fee pursuant to a termination or
buyout of the management agreement, or upon completion of the
proposed merger, ICII will pay Mr. Karlan an amount equal to 15%
of the appraised value of the termination fee (provided that such
termination fee shall not exceed $35 million) reduced by certain
appraisal and other costs.
. Some of the directors and officers of ICCMIC, including
Messrs. Karlan, Meltzer and Seifert, are also officers of the
manager and, as such, participate in an "employment retention
plan" that covers certain employees of ICII and the manager.
The retention plan provides significant benefits to a
participant if his or her employment with ICII, the manager
or ICCMIC is terminated without cause or if he or she resigns
for good reason following a change of control of any of those
companies, or if his or her employment is terminated prior to
a change in control at the request or suggestion of a person
acquiring one of those companies. A supplemental letter
agreement between Mr. Karlan and the manager states that
completion of the proposed merger will constitute a change of
control of ICCMIC for purposes of the retention plan. The
employment of each of the manager's employees is expected to
terminate as of October 22, 1999, the date of the anticipated
expiration of the management agreement. In that event, those
directors and officers of ICCMIC who participate in the
retention plan would receive severance and/or other
termination benefits upon the completion of the proposed
merger. See "The Companies - Imperial Credit Commercial
Mortgage Investment Corp.; Recent Developments." Mr.
Karlan's benefits under the retention plan will be offset by
the amount of any payment of similar severance benefits he
receives under his employment agreement.
. In the merger agreement, ICII has agreed to honor existing
rights of indemnification and exculpation currently provided
to ICCMIC's
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
directors and officers, to indemnify them against liability for acts
occurring prior to the proposed merger and to maintain directors' and
officers' liability insurance covering such acts for a period of six years
following the proposed merger.
See "Interests of Certain Persons in the Proposed Merger" and
"Relationships and Transactions Between ICII, ICCMIC and
Affiliates."
Financing; Source of Funds (page ICII estimates that the total amount of funds required to pay
64) the merger consideration to the ICCMIC stockholders other
than ICII and its subsidiaries will be approximately $300
million (assuming no adjustment following appraisal of the
termination fee). In addition, ICII and ICCMIC estimate that
there will be approximately $[____] in filing, legal,
accounting and other fees and expenses payable by ICII and
ICCMIC as described in more detail below under "Fees and
Expenses."
ICII has advised ICCMIC that:
. ICII will obtain those funds from a combination of (i)
cash and liquid assets held by ICII and its subsidiaries,
(ii) cash and cash equivalents held by ICCMIC, excluding
amounts that ICCMIC expects to pay as dividends in accordance
with the merger agreement (ICCMIC had approximately $120
million of cash and cash equivalents as of September 30,
1999), and (iii) anticipated proceeds from sales of ICCMIC
assets at or before the closing of the merger;
. To the extent, if any, that additional cash may be
required to complete the merger, ICII will obtain those funds
from borrowings or other financing arrangements with third
parties;
. While ICII has had preliminary discussions regarding those
financing arrangements, it currently believes that no third
party financing arrangements will be necessary and it has not
entered into any specific agreements or arrangements for that
purpose.
The merger is not subject to a financing contingency and ICII
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
will be required, subject to satisfaction of all of the
conditions to its obligations under the merger agreement, to
complete the merger whether or not ICII enters into any third
party financing arrangements or is able to arrange for sale
of ICCMIC assets at or following the closing of the merger.
Market Price of ICCMIC Shares ICCMIC's common stock is traded on the Nasdaq Stock Market
(page 87) under the symbol "ICMI." On May 12, 1999, the day before
ICII publicly announced its initial $11.00 per share merger
proposal to the ICCMIC board, the closing price of ICCMIC
common stock on the Nasdaq Stock Market was $9.875. On July
22, 1999, the last trading day before we announced the
signing of the merger agreement, the closing price of ICCMIC
common stock on the Nasdaq Stock Market was $10.875. On
_________, 1999, the most recent practicable trading day on
the Nasdaq Stock Market prior to the mailing of this proxy
statement, the closing price of ICCMIC common stock on the
Nasdaq Stock Market was _________.
The market price of shares of ICCMIC common stock fluctuates.
These fluctuations may affect your determination as to the
attractiveness of the proposed merger. You are urged to
obtain current market quotations for ICCMIC common stock
prior to making any decision with respect to the proposed
merger.
</TABLE>
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
We have made statements in this proxy statement and in the documents
that are incorporated by reference in this proxy statement that constitute
"forward-looking statements." These statements relate, among other things, to
information or assumptions about earnings per share, capital and other
expenditures, dividends, financing plans, capital structure, cash flows, pending
legal proceedings and claims, future economic performance, operating income
improvements, cost savings and management's plans, goals and objectives for
future operations. These forward-looking statements generally may be identified
by their reference to a future period or periods or by the use of forward-
looking terminology such as "may," "will," "intend," "should," "expect,"
"anticipate," "believe," "estimate," "continue," the negatives of those terms or
similar expressions. You should understand that forward-looking statements are
necessarily estimates reflecting the judgment of management of ICCMIC, not
guarantees of future performance. Forward-looking statements are subject to a
number of assumptions, risks and uncertainties that could cause actual results
to differ materially from those expressed or implied in such statements and that
are difficult to predict and beyond ICCMIC's control.
Important factors that could cause actual results to differ materially
from estimates or projections contained in forward-looking statements include,
among others, the following:
. changes in national, regional or local economic environments;
21
<PAGE>
. the highly competitive nature of the real estate acquisition,
mortgage, leasing and securitization markets, including products
and pricing;
. the uncertainty concerning the future attractiveness of the real
estate acquisition, mortgage, leasing and securitization markets
generally;
. the appraised value of the termination fee payable under the
management agreement;
. whether and on what terms ICCMIC will receive a proposal for an
alternative transaction that is, or is believed by ICCMIC's board
to be, more attractive than the ICII merger proposal;
. government fiscal and monetary policies;
. changes in prevailing interest rates;
. the course of negotiations, if any, between ICCMIC and potential
alternative bidders;
. the fulfillment of contractual conditions by the parties to the
merger agreement;
. factors inherent in the valuation and pricing of interests in
commercial mortgage-backed securities; and
. other factors generally understood to affect the real estate
acquisition, mortgage and leasing markets and security investments.
These factors and other factors that could cause actual results to
differ materially from estimates and projections contained in forward-looking
statements are described in ICCMIC's periodic reports filed with the Securities
and Exchange Commission (the "SEC") on Forms 10-K, 10-Q and 8-K, and any
amendments we have filed with respect to these periodic reports and any other
filings we have made with the SEC, all of which we have incorporated by
reference in this proxy statement.
The information set forth in "Special Factors: Background, Purpose and
Effects of the Proposed Merger - Opinion of Financial Advisor to the Special
Committee", "- Financial Projections Relating to ICCMIC" and "Appendix C -
Summary of Appraisals of Robert A. Stanger & Co., Inc., Houlihan Lokey Howard &
Zukin Financial Advisors, Inc. and Eastdil Realty, L.L.C." also includes
forward-looking statements concerning projected financial information. ICCMIC
does not, as a matter of course, publicly disclose internal budgets, plans,
estimates, forecasts or projections as to future revenues, earnings or other
financial information. In addition, ICCMIC has had only a relatively short
operating history and therefore does not have a substantial history to measure
the accuracy of its internal budgets, plans, estimates, forecasts and
projections. Such information has been included or described in this proxy
statement for the limited purpose of giving ICCMIC stockholders information
concerning financial projections that (i) in the case of those financial
projections described in "Special Factors: Background, Purpose and Effects of
the Proposed Merger - Financial Projections Relating to ICCMIC," reflect
information contained in projections prepared by Prudential Securities, based
substantially on information and assumptions provided by ICCMIC's management,
which were presented to ICCMIC's special committee in its consideration of the
proposed merger, and (ii) in the case of those financial projections described
in Appendix C, were prepared by the manager and provided to each of Robert A.
Stanger & Co., Inc. ("Stanger"), Houlihan Lokey Howard & Zukin Financial
Advisors, Inc. ("Houlihan Lokey") and Eastdil Realty, L.L.C. ("Eastdil") in
connection with their appraisals of the amount payable in connection with a
termination or non-renewal of the management agreement.
All such financial projections were prepared for internal use and not with a
view to publication or compliance with the published guidelines of the SEC or
the guidelines established by the American Institute of Certified Public
Accountants regarding projections and forecasts. All such information was
22
<PAGE>
based on estimates and assumptions concerning ICCMIC's future business
prospects, revenues and operations. While they are presented with numerical
specificity, the estimates and assumptions underlying the projections involved
judgments with respect to, among other things, future economic, competitive and
financial market conditions and future business decisions. These estimates and
assumptions may not be realized and are, by their nature, subject to significant
business, economic and competitive uncertainties including those set forth
above. As a result, the matters to which these estimates and assumptions relate
are difficult to predict and many of the relevant factors are beyond ICCMIC's
control.
We do not guarantee that the projections will be accurate. Actual
results may be significantly higher or lower than those shown. Also, ICCMIC's
independent auditors have not examined or performed any procedures on this
information. In light of these uncertainties, you should not regard these
projections as a representation by ICCMIC or any other person that the projected
or indicated results will be achieved. We caution you not to place undue
reliance on this information.
Except to the extent required under the federal securities laws,
ICCMIC does not intend to make publicly available any update or other revisions
to the projections to reflect the occurrence of unanticipated events or
circumstances existing after the date of preparation. In connection with your
review of the financial projections referred to above, you should read the
information contained in ICCMIC's Annual Report on Form 10-K, as amended, for
the year ended December 31, 1998 and the other information included or
incorporated by reference in this proxy statement.
All subsequent written and oral forward-looking statements
attributable to ICCMIC or any person acting on its behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to in this section. Except to the extent required under the federal securities
laws, ICCMIC does not intend to make publicly available any updates or revisions
to forward-looking statements to reflect circumstances arising after the date of
the preparation of such forward-looking statements.
THE COMPANIES
Imperial Credit Commercial Mortgage Investment Corp.
ICCMIC was organized as a Maryland corporation on July 31, 1997. ICCMIC
commenced operations on October 22, 1997, the date of completion of its initial
public offering. ICCMIC is taxed as a real estate investment trust under the
Internal Revenue Code of 1986, as amended (the "Code"). Imperial Credit
Commercial Asset Management Corp. (the "manager"), which is a wholly-owned
subsidiary of ICII, manages the day-to-day operations of ICCMIC, subject to the
supervision of ICCMIC's board of directors. ICCMIC's executive offices are
located at 11601 Wilshire Boulevard, Suite 2080, Los Angeles, California 90025,
and its telephone number is (310) 231-1280.
In October 1997, the SEC declared effective registration statements on Form
S-11 relating to ICCMIC's initial public offering of 34,500,000 shares of common
stock at a price of $15.00 per share. As part of ICCMIC's initial public
offering, 2,970,000 shares of common stock were sold to ICII and approximately
500,000 shares of common stock were sold to directors, officers and employees of
ICCMIC, the manager and ICII and members of their immediate families, in each
case net of the underwriting discount. On October 22, 1997, ICCMIC completed
the offering of the 34,500,000 shares, including 4,500,000 shares to cover over-
allotments, with gross proceeds of $513.9 million and net proceeds to ICCMIC of
$479.3 million. During 1998, ICCMIC repurchased six million shares of its
common stock at an average price of $9.39 per share, pursuant to previous
authorizations of its board of directors. The highest and lowest prices at
which these repurchases were made were $10.625 and $6.923, respectively.
23
<PAGE>
ICCMIC invests primarily in real estate related assets with a view to
maximizing both income for distribution to stockholders and stockholder value,
consistent with levels of risk that it perceives as acceptable. ICCMIC
determines whether risk levels are acceptable in making investment decisions
through asset and collateral analyses and by evaluating investment risks and
potential rewards. Pending investment of its funds in real estate related
assets, ICCMIC invests its funds in readily marketable securities or interest
bearing deposit accounts, consistent in each case with maintaining its status as
a REIT.
ICCMIC's real estate related assets primarily consist of multifamily and
commercial mortgage loans, commercial real property, and interests in
multifamily and commercial mortgage-backed securities ("CMBS"). A majority of
ICCMIC's mortgage loans and all of its CMBS interests were acquired from ICII
and two of ICII's affiliates, SPB and Franchise Mortgage Acceptance Company
("FMAC"). ICCMIC operates in four principal business segments for financial
reporting purposes. These four business segments are:
. small balance mortgage loan pools acquired,
. individual large balance mortgage loans originated or acquired,
. real property, and
. securities available-for-sale.
Further business segment information is presented in note 13 to ICCMIC's
consolidated financial statements, included in ICCMIC's Annual Report on Form
10-K/A for the year ended December 31, 1998, which is incorporated by reference
in this proxy statement. See "Where You Can Find More Information."
In the past, ICCMIC has acquired investments from ICII, SPB, which is one
of ICII's wholly-owned subsidiaries, and FMAC, a 38%-owned affiliate of ICII, as
well as from unrelated third parties.
Recent Developments. ICCMIC's management agreement with the manager is
expected to expire on October 22, 1999. ICCMIC's board of directors intends to
hire approximately 16 employees of the manager on a full-time salaried basis to
manage ICCMIC's day-to-day operations. ICCMIC's board of directors believes
that this internalization of management operations will result in significant
cost savings to ICCMIC.
Imperial Credit Industries, Inc.
ICII is a diversified commercial lending, financial services and investment
holding company with headquarters in Torrance, California.
ICII's principal business activities are primarily conducted through its
wholly and majority owned subsidiaries including SPB, Imperial Business Credit
Inc. ("IBC"), Imperial Credit Commercial Asset Management Corp., Imperial Credit
Lender Services, Inc. and Imperial Credit Asset Management, Inc. ICII also has
an approximate 38% equity interest in FMAC, which was a former ICII consolidated
24
<PAGE>
subsidiary. ICII was incorporated in 1986, and had consolidated assets of $2.0
billion as of June 30, 1999. Its principal executive offices are located at
23550 Hawthorne Boulevard, Building 1, Suite 210, Torrance, California 90505,
and its telephone number is (310) 791-8080.
ICII's core businesses originate loans and leases funded primarily by FDIC
insured deposits and its business strategy currently emphasizes:
. holding the majority of the loans and leases that it originates for
investment, except for certain multifamily and commercial real
estate loans originated by SPB and leases originated by IBC for
sale;
. investing in and managing businesses in high margin niche segments
of the financial services industry;
. maintaining conservative, disciplined underwriting and credit risk
management;
. originating loans and leases on a wholesale basis, where possible;
. managing and advising investment funds;
. providing investment banking and broker/dealer services to middle
market companies and private individuals; and
. maintaining business and financial flexibility to take advantage of
changing market conditions with respect to specific financial
services businesses.
ICII has diversified its business lines to include investment products
and asset management services in order to reduce its dependence on residential
and commercial mortgage lending. It now provides financial services products in
the following sectors: business lending, commercial mortgage lending, asset
management services and investment banking and brokerage services.
ICCMIC Acquisition Corp.
ICCMIC Acquisition Corp. is a Maryland corporation formed on June 24,
1999 by ICII solely for the purpose of accomplishing the proposed merger.
ICCMIC Acquisition Corp. has no significant assets or liabilities and its
offices are located at the principal executive offices of ICII.
INFORMATION CONCERNING THE SPECIAL MEETING
Time, Date, Place and Purpose of the Special Meeting
We are sending you this proxy statement in connection with the
solicitation of proxies by the board of directors for use at the special meeting
of stockholders of ICCMIC that has been called to vote on the merger agreement
and the proposed merger described in this proxy statement, including any
25
<PAGE>
meeting resulting from adjournments or postponements of the special meeting. The
merger agreement is attached as Appendix A to this proxy statement. We will hold
the special meeting on ____________, 1999 at __:00 a.m. local time, at the
_______________, Los Angeles, California _______.
Record Date; Outstanding Common Stock Entitled To Vote; Quorum
The record date for the special meeting has been fixed as the close of
business on __________, 1999. Only holders of ICCMIC common stock of record on
the record date are entitled to notice of and to vote at the special meeting.
You will have one vote on the proposal to approve the merger agreement and the
merger for each share of ICCMIC common stock that you own on that date.
On the record date, _____ million shares of ICCMIC common stock were
outstanding and were held by _____ record holders on behalf of approximately
_________ beneficial holders. The presence in person or by proxy of a majority
of the shares of common stock outstanding will constitute a quorum for the
transaction of business at the special meeting. If a quorum is not present at
the special meeting, or a quorum is present but additional time is desired to
solicit proxies, we expect that the meeting will be adjourned or postponed.
Votes Required
Under the Maryland General Corporation Law and ICCMIC's charter,
approval of the merger agreement and the proposed merger requires the
affirmative vote of the holders of a majority of the total number of outstanding
shares of ICCMIC common stock.
The merger agreement also requires the approval of the holders of a
majority of the total number of shares of ICCMIC common stock entitled to vote
at the special meeting, that are not held by ICII or by Messrs. Snavely and
Villani, who are affiliates of ICII. As of the record date, ICII and these
other persons beneficially owned an aggregate of 2,690,053 shares of ICCMIC
common stock (approximately 9.4% of the outstanding common stock), which they
are required under the merger agreement to vote for approval of the merger
agreement and the proposed merger.
Failure to return an executed proxy card or to vote by telephone, via
the Internet or in person at the special meeting, broker non-votes, which we
describe below under "- Voting of Proxies," or abstentions will constitute, in
effect, a vote against approval of the merger agreement and the proposed merger.
Voting of Proxies
Submitting Proxies. ICCMIC stockholders may vote their shares by attending
the special meeting and voting their shares in person, at the meeting, by voting
by telephone or via the Internet, or by completing, signing and mailing the
enclosed proxy card in the enclosed, postage prepaid envelope. All proxy cards
in the enclosed form that are properly executed and returned to the transfer
agent, U.S. Stock Transfer Corporation, prior to the special meeting, and not
properly revoked, will be voted, at the special meeting or any meeting resulting
from an adjournment or postponement of the special meeting, in accordance with
the instructions contained on the proxy card. If a proxy card is signed by a
stockholder and returned without instructions, the shares represented by the
proxy will be voted FOR approval of the merger agreement and the proposed merger
and, as appropriate, FOR adjournment for the purpose of soliciting additional
proxies.
26
<PAGE>
ICCMIC stockholders whose shares are held in the name of a broker, bank or
other record holder must either direct the record holder of their shares as to
how to vote their shares or obtain a proxy from the record holder to vote at the
special meeting.
Under applicable rules of the National Association of Securities Dealers,
brokers who hold shares in street name for customers who are the beneficial
owners of those shares are prohibited from giving a proxy to vote those
customers' shares with respect to the proposal to be voted on at the special
meeting in the absence of specific instructions from the customer. A broker's
failure to vote because of the absence of customer instructions is commonly
referred to as a broker non-vote.
Shares of ICCMIC common stock represented at the special meeting for which
proxies have been received, but with respect to which holders of shares have
abstained from voting, will be treated as present at the special meeting for
purposes of determining the presence or absence of a quorum. For ICCMIC
stockholders, an abstention or a broker non-vote will have the same effect as a
vote against approval of the merger agreement and the proposed merger.
Maryland law and ICCMIC's bylaws do not permit any matters to be presented
at the special meeting other than those described in this proxy statement and
procedural matters relating to the meeting.
Stockholders should not send in any stock certificates with their proxy
cards. A letter of transmittal with instructions for the surrender of
certificates representing ICCMIC common stock will be mailed to ICCMIC
stockholders shortly after the proposed merger is completed. See "The Merger
Agreement - Payment Procedures."
Revoking Proxies. ICCMIC stockholders may revoke their proxies at any time
prior to the time their proxies are voted at the special meeting by:
. giving written notice to ICCMIC's transfer agent, as provided
below;
. mailing a signed, later dated proxy that is received by ICCMIC's
transfer agent before the taking of the vote at the special
meeting;
. telephone or Internet proxy, using the instructions included on the
enclosed proxy card; or
. voting in person at the special meeting.
Attendance at the special meeting will not in and of itself constitute a
revocation of a proxy previously given.
Any written notice of revocation of a proxy must be sent so as to be
delivered before the taking of the vote at the special meeting to the following
address:
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, California 91204-2991
Attention: Mr. Richard Brown
ICCMIC stockholders who require assistance in changing or revoking a
proxy should contact D.F. King & Co., Inc. ("D.F. King") at the address and
phone number provided in this proxy statement under the heading "Who Can Help
Answer Your Questions?"
27
<PAGE>
Proxy Solicitation
The expense of preparing, printing and mailing this proxy statement
and the proxies solicited hereby will be borne by ICCMIC. In addition to the
use of the mails, proxies may be solicited by directors, officers and regular
employees of ICCMIC, without additional compensation, by personal interviews,
written communications, telephone, telegraph or facsimile transmission or via
the Internet or other means of communication. ICCMIC also will request
brokerage firms, nominees, custodians and fiduciaries to forward proxy materials
to beneficial owners and will, upon request, reimburse those record holders for
their costs of forwarding the materials at customary rates.
ICCMIC has retained D.F. King to assist in the solicitation of
proxies. D.F. King will receive a fee of $5,000 as compensation for its
services and will receive reimbursement of its related out-of-pocket expenses,
including reimbursement for completed phone calls to stockholders. ICCMIC has
agreed to indemnify D.F. King against certain liabilities arising out of the
engagement.
28
<PAGE>
SPECIAL FACTORS:
BACKGROUND, PURPOSE AND EFFECTS OF THE PROPOSED MERGER
Background of the Proposed Merger
The Initial Public Offering and the Ensuing Market Changes. ICCMIC
completed its initial public offering on October 22, 1997 at an offering price
of $15.00 per share. It was intended that the proceeds of the offering would be
used to invest primarily in performing multifamily and commercial mortgage
loans, real estate and interests in multifamily and commercial mortgage-backed
securities. The loans and mortgage-backed securities were to be acquired from
ICII, including its SPB subsidiary and unrelated parties. ICCMIC fully invested
the proceeds from its initial public offering by mid-1998. In order to permit
further investment, ICCMIC obtained a $500 million warehouse line of credit from
Morgan Guaranty Trust Company of New York in March 1998.
During the 12 month period following ICCMIC's initial public offering,
ICCMIC's stock price, along with those of most other mortgage REITs, declined
significantly. ICCMIC's stock price dropped from its high of $19.00 per share
shortly after the completion of its initial public offering to prices
substantially below its per share book value, reaching a low closing price of
$6.875 per share on October 8, 1998.
The Stock Repurchase Plans. In response to the low market price of
ICCMIC common stock, ICCMIC's board began discussing a potential stock
repurchase plan at its June 4, 1998 meeting. At a special meeting of the board
held on July 29, 1998, ICCMIC's board approved the repurchase of up to 3,000,000
shares of ICCMIC's common stock. The board recognized that the repurchase would
decrease the amount of capital available to ICCMIC for investments but
determined that, given market conditions and the decline in net yields on
ICCMIC's investments, the stock repurchase program, on balance, would be in the
best interests of ICCMIC's stockholders. In approving the repurchase program,
ICCMIC intended to provide liquidity to those of its stockholders who wanted to
sell their stock, while at the same time increasing ICCMIC's future per share
net income, funds from operations and dividends. These stock repurchases were
completed on August 26, 1998, with 3,000,000 shares being repurchased at prices
ranging from a high of $10.625 per share to a low of $9.125 per share, with an
average repurchase price of $10.20 per share.
Following these stock repurchases, ICCMIC's stock price continued to
decline, dipping to a closing price of $9.00 per share in August of 1998. On
August 28, 1998, in response to this further decline, the board, after
consulting with its investment banker at the time, Friedman, Billings, Ramsey &
Co., Inc. ("Friedman Billings"), authorized an additional stock repurchase
program of 3,000,000 shares at prices not to exceed $11.00 per share. This
second stock repurchase program was completed on October 19, 1998, with an
additional 3,000,000 shares being repurchased at prices ranging from a high of
$8.875 per share to a low of $6.923 per share, with an average repurchase price
of $8.58 per share.
The Wilshire Proposal. By letter dated September 11, 1998, Wilshire
Real Estate Investment Trust Inc., a REIT whose securities are traded on the
Nasdaq Stock Market, made an unsolicited offer to acquire ICCMIC. The offer
stated that the exchange ratio for ICCMIC's stock would be based upon the
respective net asset values of each of ICCMIC and Wilshire and Wilshire's stock
price at that time. ICCMIC's stockholders would have had the right to receive
up to 20% of their consideration in cash. According to Wilshire's September 17,
1998 press release, Wilshire's offer valued ICCMIC's stock at $11.33 per share.
29
<PAGE>
On September 18, 1998, ICCMIC's board met to consider the Wilshire
offer, as well as certain other matters. At the meeting, Friedman Billings
advised the board that accepting the Wilshire offer would not be in the best
interests of ICCMIC's stockholders. Friedman Billings also advised the board
that, given the Wilshire offer and the prevailing stock market conditions that
valued ICCMIC below its net asset value, the board should consider appropriate
protective measures as well as an expansion of its stock repurchase plan.
After extensive discussion, the board rejected the Wilshire offer
based on a number of factors, including:
. the board's belief that the Wilshire offer was inadequate and did
not reflect the inherent value of ICCMIC and its portfolio of
assets;
. the advice of Friedman Billings that the Wilshire offer was
inadequate and not in the best interests of ICCMIC and its
stockholders;
. the belief that continued pursuit of ICCMIC's business plan would
produce greater short-term and long-term value for ICCMIC's
stockholders than would the Wilshire proposal;
. the belief that the substantial discount to the book value of
ICCMIC's assets at which ICCMIC's common stock then traded would
decrease significantly as then-current dislocations in the equity
and mortgage backed securities markets were resolved;
. the belief that the highly leveraged nature and risk profile of the
assets held by Wilshire would expose stockholders of an entity
holding such assets to significant risks;
. Wilshire's apparent lack of liquidity reflected on its balance
sheet;
. the fact that Wilshire's management was not exclusively dedicated
to Wilshire; and
. the fact that Wilshire's stock was very thinly traded.
Also at the September 18, 1998 meeting, the board adopted a
stockholders rights plan. The rights plan was designed to enable ICCMIC's
stockholders to realize the long-term value of their investment in ICCMIC by
encouraging potential acquirers to negotiate with the board prior to attempting
a takeover. The board also authorized the repurchase of an additional 6,000,000
shares of ICCMIC common stock, bringing the total authorized repurchases to 12
million shares. On September 21, 1998, ICCMIC publicly announced the rejection
of the Wilshire offer, the additional 6,000,000 share repurchase authorization
and the adoption of the stockholders rights plan.
Additional Proposals. In the next several days, ICCMIC was contacted
through Mr. Snavely by a number of parties who indicated an interest in pursuing
a merger transaction. ICCMIC also received a
30
<PAGE>
new proposal from Wilshire (which included a proposal to purchase ICCMIC's
management agreement with its manager for $60 million and which refined the
terms of the exchange ratio). At a September 24, 1998 special meeting of
ICCMIC's board, the board discussed the additional indications of interest that
had been received and Wilshire's revised proposal, as well as ICCMIC's strategy
for responding to them.
The board determined that the revised Wilshire proposal was inadequate
for the same reasons expressed with respect to Wilshire's earlier proposal and
because ICCMIC's stockholders would bear a significant risk of a potential
decline in Wilshire's stock price. The board also determined to suspend
ICCMIC's stock repurchase plan temporarily because of the discussions regarding
potential transactions.
At the September 24, 1998 meeting, the board also discussed its
procedure for considering future proposals. First, the board appointed Mr.
Snavely and one of the four independent directors, Joseph A. Jaconi, Jr., to act
as a strategic planning committee to receive and report on any future proposals
that ICCMIC might receive. Second, in view of the fact that Friedman Billings
had significant investment banking relationships with ICII, the board charged
the strategic planning committee with developing suggestions regarding the
retention of an independent investment banker to advise ICCMIC on its strategic
options.
During November 1998, ICCMIC received a number of written proposals
from third parties. At a special meeting of ICCMIC's board on November 24, 1998,
Mr. Karlan reported that he and Messrs. Jaconi, Snavely and Villani had met with
four such third parties, and intended to meet with others, subject to the review
of the board. The board extensively discussed and reviewed each of the following
proposals:
. a common stock for common stock merger with a private equity REIT
(the "Private Equity REIT"), with the exchange ratio based on the
respective net asset values of ICCMIC and the Private Equity REIT,
and which provided that the surviving company would internalize
management by acquiring and terminating the existing management
agreement and the manager's stock options in ICCMIC for a $50
million cash payment to the manager;
. a common stock for preferred stock merger with a public equity REIT
(the "Public Equity REIT"), with the value of the preferred stock
based on ICCMIC's net asset value, and which provided for either a
$52 million cash payment to the manager for termination of the
management agreement, subject to the review of the independent
members of the ICCMIC board, or the appraised value of the
manager's termination fee under the management agreement (which the
Public Equity REIT's proposal stated could justify a $52 million
value);
. a common stock for common stock merger with a public commercial
mortgage REIT (the "Commercial Mortgage REIT"), with the exchange
ratio based on the respective share prices of ICCMIC and the
Commercial Mortgage REIT, which provided to the manager the option
of either payments of 30% of the fees earned by the Commercial
Mortgage REIT's external manager, up to a maximum of $5 million per
year or the Commercial Mortgage REIT's lump-sum payment to the
manager equal to the 15% discounted present value of this income
stream; and
31
<PAGE>
. a common stock for common stock merger with a public financial
services REIT (the "Financial Services REIT"), with the exchange
ratio based on the market price of the common stock of the
Financial Services REIT relative to ICCMIC's book value per share,
which provided for a $25 million cash payment to the manager for
the acquisition and termination by the Financial Services REIT's
advisor of the management agreement, and a $25 million cash payment
to the manager for the acquisition by the Financial Services REIT
of the manager's stock options in ICCMIC and other consideration,
which included a noncompetition agreement and a right of first
refusal to acquire certain loans owned by the manager and its
affiliates.
In addition, the board discussed the following: a proposal by a
private real estate entrepreneur to acquire all of ICCMIC's common stock at a
price of $12.50 per share in cash, conditioned upon a payment to the manager of
$40 million ($35 million in cash and $5 million in other assets of ICCMIC) for
termination of the management agreement, subject to a due diligence and
financing contingency; a proposal by a mortgage banking company in which ICCMIC
stockholders would have received $10 in cash and $3 in the common stock of the
mortgage banking company for each share of ICCMIC common stock, provided that
the management agreement was to be terminated for a then unspecified payment
that would have reduced dollar for dollar the total consideration payable to
ICCMIC stockholders, all subject to a due diligence contingency; a proposal by a
title insurance company to acquire the management agreement and ICII's 3,070,000
shares of ICCMIC common stock for $68 million in cash or, in the alternative,
$50 million in cash and $23 million of the title insurance company's stock,
subject to a due diligence contingency; and a proposal for a sale to ICCMIC of a
loan origination company for $50 million, coupled with a purchase of up to 10
million shares of ICCMIC's common stock at a cash price of $12.00 per share, and
a cash payment for termination of the management agreement equal to the greater
of $25 million and the appraised value of the termination fee, all subject to a
due diligence contingency.
Following the board's discussion of all of these proposals, and discussion
of whether ICCMIC should pursue other alternatives, including liquidation, the
board determined that it was in the best interests of ICCMIC and its
stockholders to pursue the proposal made by the Private Equity REIT. The
Private Equity REIT proposed a merger in which ICCMIC stockholders would receive
one share of the common stock of the Private Equity REIT for each 1.55 shares of
ICCMIC common stock, and the Private Equity REIT would pay $50 million in cash
to the manager to terminate the management agreement and to acquire and
terminate the manager's stock options in ICCMIC. This ratio was based upon the
Private Equity REIT's $22.50 estimate of its net asset value per share and the
Private Equity REIT's $14.50 estimate of ICCMIC's net asset value per share, all
subject to due diligence verification by both parties. Stockholders of the
Private Equity REIT would also receive, for each six shares of the Private
Equity REIT held by them, a warrant to purchase one share of the surviving
company's common stock at a $14.50 exercise price. The proposal provided
ICCMIC's stockholders with a limited amount of downside protection, in the form
of contingent value rights, in the event that the surviving company's stock were
to trade for less than $14.50 per share on December 31, 2001. The Private
Equity REIT proposal was viewed as attractive by the board for a number of
reasons, including the board's high opinion of the quality of the Private Equity
REIT's management, its relationships in the investment banking and commercial
real estate communities, and the fact that it was an equity REIT (in light of
the higher trading multiples of the common stock of equity REITs compared to
that of mortgage REITs.). The board expressed varying concerns about the other
proposals, including the liquidity of the securities to be received, the ability
to consummate the transactions, failure to provide for the acquisition of all of
ICCMIC's stock and the adequacy of the offered consideration.
Negotiations with the Private Equity REIT. Between November 24, 1998
and December 14, 1998, a number of meetings were held between representatives of
ICCMIC and the Private Equity REIT,
32
<PAGE>
and the parties conducted due diligence investigations of each other. On
November 25, 1998, ICCMIC and the Private Equity REIT executed an exclusivity
agreement in which they agreed to negotiate exclusively with each other for a
period of time initially expiring on December 15, 1998, and later extended to
January 6, 1999.
On December 14, 1998, representatives of the Private Equity REIT made
a presentation to ICCMIC's board. After excusing the Private Equity REIT's
representatives, the board discussed the Private Equity REIT proposal
extensively. Thereafter, the four independent members of the board, Mr. Jaconi,
Patric H. Hendershott, Kenneth A. Munkacy and Louis H. Masotti, convened a
separate meeting attended by an attorney from Sonnenschein Nath & Rosenthal,
counsel to ICCMIC. After discussing the proposal, the independent board members
unanimously voted to continue due diligence efforts and to commence negotiating
definitive merger documents with the Private Equity REIT. The independent
directors also unanimously voted to retain Prudential Securities as their
financial advisor to analyze and report on the proposed transaction. On
December 22, 1998, the full board approved the retention of Prudential
Securities as financial advisor to the independent directors by unanimous
written consent.
After further due diligence and negotiations over a period of several
weeks, ICCMIC's management concluded that the Private Equity REIT's original
proposal was not attractive in light of concerns about the amount of its debt,
and the parties began discussing alternate deal structures. At a January 22,
1999 special meeting, the board, including the independent directors, accepted
the recommendation of Prudential Securities and ICCMIC's management to reject
the Private Equity REIT's final proposal and the board voted to terminate
exclusive negotiations with that party.
Following the January 22, 1999 meeting, Prudential Securities received
new proposals from the Commercial Mortgage REIT (see "Negotiations with the
Commercial Mortgage REIT" below), the Financial Services REIT and the Public
Equity REIT, and a proposal from a bank holding company (the "Bank Holding
Company"). The Financial Services REIT's new proposal was for a common stock
for common stock merger and provided for a payment to the manager, at the
manager's option, of either $50 million in cash or $25 million in cash and $25
million in the Financial Services REIT's stock for the acquisition and
termination of the management agreement, acquisition of the manager's stock
options in ICCMIC and other consideration. The new proposal from the Public
Equity REIT was for a common stock for preferred stock merger and provided for a
payment to the manager of $50 million in cash to terminate the management
agreement. The Bank Holding Company's proposal, which was subject to a
financing contingency, was for an acquisition of ICCMIC in which ICCMIC's
stockholders would have the option to receive $11.00 per ICCMIC share in cash or
Bank Holding Company stock, provided that the cash consideration could not
exceed 67% of the total consideration. The Bank Holding Company would pay $25
million in cash to ICII for the management contract and an additional $20
million to ICII for the acquisition of the manager's stock options, certain
noncompetition agreements and the right of first refusal to purchase loans from
SPB. With the assistance of Prudential Securities, these four proposals were
revised and improved in March. The terms of these four proposals were reviewed
in depth by the board at its March 16, 1999 regular board meeting.
In reviewing the four proposals, the board considered various factors
presented by Prudential Securities that weighed in favor of ICCMIC pursuing a
merger or sale transaction, including, among others, the following:
. the importance of greater size and scale in the capital markets and
in the mortgage REIT sector;
33
<PAGE>
. the attractiveness to a third party of ICCMIC's strategic and
financial assets; and
. market conditions at that time limiting ICCMIC's ability to
substantially grow as a stand-alone organization.
Prudential Securities then recommended that the board focus its
evaluation on the proposals of the Commercial Mortgage REIT and the Financial
Services REIT. Prudential Securities noted that each of the four proposals
included the payment to the manager of a significant cash fee ($45 million in
the case of the Bank Holding Company and $50 million in the case of the
Commercial Mortgage REIT, the Financial Services REIT and the Public Equity
REIT) for the termination of ICCMIC's management agreement and, in two of those
proposals, additional consideration from the manager. In addition, Prudential
noted that the cost of these termination fee payments would be borne by ICCMIC
stockholders to the extent of their interest in the combined company in the case
of the Commercial Mortgage REIT and the Financial Services REIT but would be
borne entirely by ICCMIC stockholders in the case of the Bank Holding Company
and Public Equity REIT proposals (because those proposals had been based on
ICCMIC net asset values reflecting adjustment for the termination fee). In
addition, the Bank Holding Company's relatively small capital base and the
Public Equity REIT's apparent goal of liquidating ICCMIC limited the value of
the stock to be issued in those proposed transactions to ICCMIC's stockholders.
In contrast, Prudential Securities was of the view that the proposals from the
Commercial Mortgage REIT and the Financial Services REIT had strategic benefits
to ICCMIC. Under these two proposals, there was the potential for the combined
company to achieve a value for ICCMIC stockholders over the medium- to long-term
that was significantly greater than ICCMIC's liquidation value.
Following the presentation by Prudential Securities, the independent
directors again convened in private session with legal and financial advisors in
attendance. In this session, the independent directors discussed the four
proposals. The independent directors also discussed the conflicts of interest of
Messrs. Snavely, Villani and Karlan due to their direct or indirect interest in
ICCMIC's management agreement. The independent directors concluded that ICCMIC
should follow the recommendations of Prudential Securities and pursue
negotiations with the Commercial Mortgage REIT and the Financial Services REIT.
After the full board reconvened, upon the recommendation of the independent
directors, the board approved the independent directors' recommendation to
pursue negotiations with the Commercial Mortgage REIT and the Financial Services
REIT. The board also approved an amendment to its engagement letter with
Prudential Securities to increase Prudential Securities' fee from $1.5 million
to $3.75 million upon the consummation of a successful merger transaction due to
the expanded scope of Prudential Securities' assignment.
Following this meeting, ICCMIC, through Prudential Securities and the
independent directors, conducted negotiations with the Commercial Mortgage REIT.
ICCMIC also sought to discuss a transaction with the Financial Services REIT,
but focused principally on the Commercial Mortgage REIT after concluding that
the Financial Services REIT would not proceed expeditiously with its due
diligence if it were not given exclusive bidder status. In addition, during
this period, Messrs. Snavely and Villani held discussions with the Bank Holding
Company.
Negotiations with the Commercial Mortgage REIT. The Commercial
Mortgage REIT proposal was, as of March 19, 1999, a stock for stock exchange
with each ICCMIC stockholder to receive 1.4 shares of the Commercial Mortgage
REIT's stock for each share of ICCMIC common stock. In addition, ICCMIC would
have the right to designate two of the eight members of the surviving company's
board of directors. The Commercial Mortgage REIT conditioned its offer on
ICCMIC's exercising its rights to resell for cash to two ICII affiliates (SPB
and FMAC) various loans ICCMIC had previously acquired from those parties. Those
loans included loans, in the aggregate principal amount of approximately $50
34
<PAGE>
million, which had been removed from ICCMIC's March 1999 collateralized mortgage
obligation securitization transaction. The Commercial Mortgage REIT proposal
also contained an agreement for the surviving company to pay to the manager $50
million in cash to terminate the management agreement. ICCMIC stockholders would
have owned 65% of the surviving company if the Commercial Mortgage REIT proposal
had been consummated. On April 3, 1999, the Commercial Mortgage REIT revised its
proposal to include a reduced payment to the manager of $45 million in cash to
terminate the management agreement.
Immediately prior to the board meeting of May 3, 1999, the Commercial
Mortgage REIT again revised its proposal to provide that each ICCMIC stockholder
would receive 1.43 shares of the Commercial Mortgage REIT's stock rather than
1.4 shares for each share of ICCMIC common stock. In addition, the Bank Holding
Company revised its offer on April 30, 1999, increasing its bid from $11.00 to
$11.125 per ICCMIC share in cash or Bank Holding Company stock, but reduced the
ceiling on the cash consideration to 50% of the total consideration.
At the meeting of May 3, 1999, ICCMIC's directors heard an evaluation
of the revised Commercial Mortgage REIT proposal and a summary of the Bank
Holding Company proposal. After hearing summaries of these proposals, the
independent directors, in private session, discussed the terms of each proposal
and the ramifications of the management agreement termination fee payment. At
that meeting, the independent directors retained Wachtell, Lipton, Rosen & Katz
as their counsel. After consulting with its financial and legal advisors, the
independent directors reached the following conclusions:
. subject to favorable resolution of the management agreement
termination fee payment (described in the third bullet below),
ICCMIC should pursue a transaction with the Commercial Mortgage
REIT;
. the Bank Holding Company offer should be rejected, and if the
Commercial Mortgage REIT transaction were not consummated, the
alternatives would be for ICCMIC to pursue its strategic or other
alternatives;
. the independent directors would not approve a transaction which
included a cash payment of more than $35 million to terminate the
management agreement; and
. if, within 48 hours, ICII did not agree to accept a $35 million cash
payment to terminate the management agreement, rather than the $45
million cash payment that had been offered by the Commercial
Mortgage REIT in its most recent proposal, the independent directors
would not authorize the final negotiation of the proposed Commercial
Mortgage REIT transaction.
ICII did not respond to the independent directors' demands within 48 hours, and
negotiations with the Commercial Mortgage REIT did not proceed.
35
<PAGE>
ICII's Initial Proposal and Formation of the Special Committee. On May
13, 1999, ICII announced in a press release its proposal to acquire all of the
outstanding shares of ICCMIC common stock not already owned by ICII for a price
of $11.00 per share in cash. In response to this proposal, a special meeting of
the ICCMIC board of directors was convened on May 18, 1999, and upon the
recommendation of counsel to the independent directors, a special committee of
the board was formed, consisting of the four independent directors. The purpose
of the special committee was to review, evaluate and negotiate the terms of any
proposed extraordinary transaction between ICCMIC and ICII to ensure fairness to
ICCMIC's stockholders and to recommend to the board any extraordinary
transaction involving ICCMIC. The ICCMIC board voted unanimously to give the
special committee full authority to retain separate legal counsel, financial
advisors, accountants, appraisers and other experts it needed to perform its
duties, and to pay each member of the special committee additional compensation
of $25,000. The special committee then retained the financial and legal advisors
that had previously been retained by the independent directors.
Joint Proposal of ICII and Commercial Mortgage REIT. Immediately prior
to and during the May 18, 1999 board meeting, ICII, in addition to its all cash
proposal, communicated to the independent directors a joint proposal by ICII and
the Commercial Mortgage REIT to acquire ICCMIC. At a meeting of the special
committee immediately following the May 18, 1999 board meeting, the special
committee directed its financial advisors to meet with representatives of ICII
and the Commercial Mortgage REIT, as well as their respective financial
advisors, to determine the precise terms of the proposal.
During the period from May 18 through May 21, 1999, Prudential
Securities met with ICII and the Commercial Mortgage REIT and their respective
financial advisors. At a telephonic meeting of the special committee on May 21,
1999, Prudential Securities reported to the special committee the revised terms
of the joint proposal from ICII and the Commercial Mortgage REIT. The terms of
the revised joint proposal included the following points:
. the structure of the joint proposal would take the form of a merger
of ICCMIC into a subsidiary of ICII, with ICII simultaneously
selling selected assets of ICCMIC to the Commercial Mortgage REIT in
exchange for shares of the Commercial Mortgage REIT's stock;
. ICCMIC stockholders would be given the individual right to choose
between receiving $11.25 in cash or 1.43 shares of the Commercial
Mortgage REIT's common stock for each ICCMIC share (or a combination
of cash and stock);
. the cash portion of the transaction consideration would be subject
to an aggregate cap of 60% of the consideration; and
. due to the proposed structure of the transaction, ICCMIC's
management agreement with Imperial Credit Commercial Asset
Management Corp. would not be terminated and no amounts would be due
under the termination provisions of that agreement.
These terms reflected an increase from the original terms communicated
by ICII on May 18, 1999 of $11.00 per share for the cash consideration and 1.40
shares of the Commercial Mortgage REIT's common stock for the stock
consideration. At its May 21, 1999 meeting, the special committee determined
that because of the lack of more favorable strategic alternatives available to
ICCMIC at that time, it was desirable to proceed with the negotiation of the
joint proposal, subject to the following conditions:
36
<PAGE>
. a written term sheet from ICII and the Commercial Mortgage REIT;
. the greatest possible freedom among ICCMIC stockholders regarding
the election between cash or stock;
. an increase in the cash consideration above $11.25 per share and
the stock consideration above 1.43 per share; and
. an understanding of the proposed treatment of ICCMIC's employees.
The special committee, after discussion with its legal and financial
advisors, then established preferred procedures regarding communications and
conduct among the parties, in consideration of the potential conflicts involved
in the proposed transaction. These procedures were subsequently communicated to
ICII and the Commercial Mortgage REIT.
During the weekend of May 22 and 23, 1999, discussions continued among
Prudential Securities, ICII and the Commercial Mortgage REIT regarding the terms
of the joint proposal and the conditions outlined at the May 21 special
committee meeting. On May 24, 1999, a term sheet was provided by ICII and the
Commercial Mortgage REIT outlining in writing the terms previously communicated
to the special committee.
At a telephonic meeting of the special committee held on May 25, 1999,
Prudential Securities communicated to the special committee the results of its
discussions with ICII and the Commercial Mortgage REIT since the May 21 meeting.
Among other things, Prudential Securities reported that ICII and the Commercial
Mortgage REIT could not increase the 60% cap on aggregate cash consideration
under their proposed structure. Prudential Securities also reported that ICII
was not willing to increase the per share cash consideration above $11.25 per
share, having already increased its offer from $11.00. At the conclusion of
that meeting, the special committee directed its legal and financial advisors to
continue discussions with ICII and the Commercial Mortgage REIT in order to
develop the terms of the transaction for a more formal review by the special
committee.
During the week of May 25, negotiations continued between the special
committee and its legal and financial advisors, on the one hand, and ICII and
the Commercial Mortgage REIT, and their respective legal and financial advisors,
on the other hand. During this period, the precise terms of the transaction
were elaborated and clarified for the parties in the form of a draft transaction
agreement. Although substantial progress was made in negotiating the overall
terms of the transaction, little progress was made in improving the economic
terms of the joint proposal from ICCMIC's perspective.
On May 31, ICII delivered to the special committee a message that if
the special committee did not approve the joint proposal by the end of the day
on June 1, 1999, then ICII would commence an unsolicited tender offer for ICCMIC
at $11.00 per share in cash. On that same day, one of ICCMIC's large
institutional stockholders communicated to ICCMIC that it would oppose a merger
transaction in which the consideration to be received by ICCMIC's stockholders
was all stock.
On June 1, 1999, the special committee again met by telephone
conference call. At this meeting, Prudential Securities summarized for the
special committee the negotiations during the course of the past week.
Prudential Securities also noted the lack of progress made in negotiating a more
favorable transaction from an economic perspective. The special committee then
reviewed the events over the previous nine months, including the lack of viable
alternative transactions with third parties at that time other than ICII and the
Commercial Mortgage REIT. Prudential Securities then reviewed with the special
committee the strategic alternatives available to ICCMIC at the time of the June
1 meeting, including:
37
<PAGE>
. the joint transaction with ICII and the Commercial Mortgage REIT;
. a transaction with the Commercial Mortgage REIT alone, if the
Commercial Mortgage REIT was still amenable to such a transaction;
. a sale of ICCMIC for cash to ICII or to a third party pursuant to a
formal auction;
. remaining independent and continuing to pursue ICCMIC's long term
strategy; and
. liquidation.
After discussing these options with its legal and financial advisors,
the special committee determined that, at the present time and in light of
ICCMIC's long term prospects, it made sense to attempt to complete an
extraordinary transaction and not continue independently. The special committee
also determined that it was not yet willing to commence a liquidation of
ICCMIC's assets. The special committee based this conclusion in part on an
estimate of the net liquidation value of ICCMIC's assets of $12.12 per share
prepared by Prudential Securities (without any independent valuation or
appraisal and before taking into account an estimate of the termination fee
payable by ICCMIC upon termination of its management agreement). In reaching
this conclusion, the special committee also considered the uncertainties of a
liquidation process. The special committee then determined that, at the time of
the June 1 meeting, it was not yet willing to commit to sell ICCMIC for cash to
the highest bidder, considering the potential gains from a strategic
combination, including such a combination with the Commercial Mortgage REIT.
At the June 1 meeting, the special committee also discussed concerns
raised by a stock for stock transaction, including the possibility that such a
transaction would not be accepted by ICCMIC's stockholders. However, the special
committee determined that it was unwilling at that time to continue to negotiate
a transaction with ICII, whether or not ICII commenced an unsolicited tender
offer, given the special committee's view as to the then current offer price
level. The special committee concluded the meeting by directing its legal and
financial advisors to determine if the Commercial Mortgage REIT was still
interested in pursuing a strategic business combination rather than the joint
proposal and, if so, to commence negotiations on that basis.
Special Committee Negotiations with the Commercial Mortgage REIT.
During the week of June 1, 1999, the financial and legal advisors to the special
committee commenced negotiations with the Commercial Mortgage REIT and its legal
and financial advisors. The parties discussed a proposed stock for stock merger
of ICCMIC with the Commercial Mortgage REIT on the following terms:
. an exchange ratio of 1.43 shares of the Commercial Mortgage REIT's
common stock for each share of ICCMIC common stock;
. in addition, stockholders would receive, for each share of ICCMIC
common stock, a contingent value right that would pay up to $1 if
the Commercial Mortgage REIT's common stock failed to trade above
$8 per share for 20 consecutive days during the three year period
following the merger. On a comparative per share basis, the
contingent value right provided for a minimum aggregate merger
consideration of approximately $11.44 of the Commercial Mortgage
REIT's common stock per share of ICCMIC common stock; and
38
<PAGE>
. an assumed payment to ICII by the Commercial Mortgage REIT of $40
million in cash as a termination fee under the management
agreement.
At a telephonic meeting of the special committee held on June 7, 1999,
the special committee reviewed the proposed terms of the stock for stock merger
with the Commercial Mortgage REIT. At that meeting, Prudential Securities noted
that the liquidation value of ICCMIC's assets, after taking into account a
termination fee, if one were to be paid under ICCMIC's management agreement in
the event of a liquidation of ICCMIC's assets, approximated the value of the
stock to be received in the merger with the Commercial Mortgage REIT.
Negotiations Resulting in the Proposed Merger. Also at the June 7
meeting, Prudential Securities advised the special committee of a revised
proposal it had received from ICII. ICII that day had informed Prudential
Securities that it was now willing to enter into a transaction with ICCMIC
providing for the following terms:
. an $11.50 per share, all cash offer for all of the outstanding
shares of ICCMIC common stock not already owned by ICII;
. a market check opportunity for ICCMIC to solicit alternative offers
from third parties for a limited period of time after signing an
agreement with ICII; and
. a $40 million cash payment by ICCMIC for termination of the
management agreement.
ICII also indicated that it would either enter into this all cash
transaction or the joint proposal with the Commercial Mortgage REIT. However,
if neither transaction were acceptable to the special committee, ICII advised
that it would promptly commence an unsolicited tender offer for ICCMIC.
The special committee viewed the economics of ICII's new proposal as
promising. The special committee determined that ICII's offer would be much
stronger if it could be structured to provide for a fair process with a level
playing field for the solicitation of alternative bids. At the conclusion of
the June 7 meeting, the special committee directed its legal and financial
advisors to negotiate with ICII in order to further develop the precise terms of
ICII's new proposal. At the same time, the special committee directed its legal
and financial advisors to continue negotiations with the Commercial Mortgage
REIT and to try to obtain more favorable terms.
During the period from June 7 through June 9, 1999, members of the
special committee and its financial and legal advisors held discussions with
ICII and the Commercial Mortgage REIT as directed at the June 7 meeting. The
special committee's counsel prepared a term sheet and a definitive transaction
agreement containing the special committee's position with respect to ICII's new
all cash proposal.
A telephonic meeting of the special committee was held on June 9, 1999
to discuss the progress made with each of ICII and the Commercial Mortgage REIT
since the June 7 meeting. At that meeting, the special committee was informed
that, based on ICII's negotiation positions, ICII was not willing to commit to a
market check process on the terms considered appropriate by the special
committee.
At that same meeting, Mr. Jaconi, the chairman of the special
committee, informed the rest of the committee that prior to this meeting he had
received from the Commercial Mortgage REIT a further revised proposal with the
following terms:
. a cash election merger, providing ICCMIC stockholders with a choice
of $12.00 cash or 1.45 shares of the Commercial Mortgage REIT's
common stock (which, given the market
39
<PAGE>
price of the Commercial Mortgage REIT's common stock at the time,
was worth approximately $10.50 per share);
. a cap on the cash consideration of 25% of the aggregate
consideration; and
. a contingent value right that would provide ICCMIC stockholders
with 75% of the amount, if any, by which $30 million exceeded the
appraised value of ICCMIC's management agreement termination fee.
Because of the enhanced proposal by the Commercial Mortgage REIT and
ICII's unwillingness to agree to the proposed "market check" process, the
special committee determined at that meeting to proceed with the negotiation of
a definitive agreement with the Commercial Mortgage REIT. Prudential Securities
was further directed to report to ICII that the special committee would not
consider ICII's proposal on the terms communicated by ICII prior to that
meeting.
During the period from June 9 through June 13, 1999, the chairman of
the special committee, together with the special committee's legal and financial
advisors and ICCMIC's management, proceeded to negotiate and finalize terms of a
definitive agreement with the Commercial Mortgage REIT. During that period,
representatives of ICCMIC and the Commercial Mortgage REIT met in person and by
telephone conference call to discuss issues remaining between the parties. On
June 11, 1999, ICII announced in a press release its revised all cash proposal
to acquire ICCMIC at $11.50 per share.
On June 13, 1999, the board of directors of the Commercial Mortgage
REIT approved the form of definitive merger agreement between the Commercial
Mortgage REIT and the Company and delivered a letter to the special committee to
that effect. The letter further stipulated that the approval would remain
outstanding on the condition that the ICCMIC board of directors approve the
merger with the Commercial Mortgage REIT that same date.
On that same date, ICII delivered to the chairman of the special
committee a revised proposal, including the following points:
. ICII would agree to the termination of the management agreement
without the payment of cash consideration to ICII if a merger with
ICII were to be consummated;
. ICII would agree to a $40 million cap on the appraised value of the
management agreement termination fee;
. ICII would agree to return to ICCMIC's stockholders up to $10
million if the appraised value of the management agreement
termination fee were less than $30 million;
. ICII would agree to accept the appraised value of the management
agreement termination fee from third parties submitting superior
proposals; and
. ICII would agree to cause the repurchase from ICCMIC of all
remaining disputed mortgage loans with SPB and FMAC.
A meeting of the special committee was held on June 13, 1999 in San
Francisco, California at which the special committee considered the letter
received from the Commercial Mortgage REIT and the revised proposal received
from ICII. Prudential Securities advised the special committee that it had
revised its estimate of ICCMIC's net liquidation value to $12.57 per share
(without any independent valuation or appraisal) and had contrasted this value
with management's estimated liquidation value of
40
<PAGE>
$13.10 per share. In each case, the estimated amount was expressed before taking
into account the termination fee payable under ICCMIC's management agreement
(which, estimated at $35 million in the aggregate, amounted to approximately
$1.23 per share). After taking into account an assumed value of $35 million for
the management agreement termination fee, the result was a net expected
realization in liquidation of approximately $11.34 per share, which was less
than the value of the latest ICII proposal. In addition, the special committee
considered the perceived timing and valuation risks associated with a
liquidation process.
In assessing the merits of the latest ICII proposal, the special committee
concluded that the market check process envisioned by ICII's latest proposal was
not acceptable to the special committee. The special committee then prepared a
list of terms it viewed as important to provide for a fair process with a level
playing field including, among other provisions, a confidentiality and
standstill agreement, a 60-day market check period and no right of first refusal
for ICII, which provisions the special committee determined, based on the advice
of its financial advisors, would provide ICCMIC with an effective market test.
These terms were communicated by the special committee to Messrs. Snavely and
Villani during the meeting. The chairman of the special committee then polled
the members of the special committee and determined that, in light of ICII's
revised proposal, there were insufficient votes to carry a resolution to
recommend the merger with the Commercial Mortgage REIT. At the conclusion of
the meeting, the special committee directed its legal and financial advisors to
negotiate and prepare a term sheet with ICII reflecting the additional and
revised terms acceptable to the special committee.
Immediately after the meeting, Prudential Securities informed the
Commercial Mortgage REIT of the special committee's determination that it would
then proceed with negotiations with ICII.
During the week of June 14, the chairman of the special committee, together
with the special committee's legal and financial advisors, negotiated a term
sheet reflecting mutually acceptable terms for ICII's all cash offer, including
a 60-day market check process.
At a telephonic meeting of the special committee on June 17, 1999, the
special committee received an update on the status of negotiations between ICII
and the special committee's legal and financial advisors. The chairman of the
special committee reported to the special committee that, among other things,
ICII was insisting on the ability to launch an unsolicited offer if the merger
agreement were terminated for an alternative proposal that was not an all cash
transaction. In addition, he reported that ICII was insisting on a break-up fee
if the merger agreement was terminated for an alternative transaction.
On June 18, 1999, ICCMIC held its annual meeting of stockholders in
Torrance, California. After the meeting, the special committee again met to
discuss the further progress made negotiating with ICII. At that meeting, the
chairman of the special committee noted for the other independent directors that
the previous night substantial progress had been made in the negotiations with
ICII and a term sheet had been agreed upon with ICII. The special committee
concluded this meeting by directing its legal and financial advisors to promptly
negotiate a definitive merger agreement which the special committee could
formally consider and reflecting the terms agreed upon by ICII and the special
committee.
During the week of June 21, 1999, representatives of the special committee,
together with its legal and financial advisors and ICCMIC's management,
continued to negotiate with representatives of ICII and its legal and financial
advisors.
On June 25, 1999, the special committee met in Los Angeles, California to
consider the approval of the draft merger agreement with ICII. The special
committee's financial and legal advisors made presentations and reviewed, among
other things, the matters set forth in "- Recommendation of the Special
Committee and the Board of Directors; Reasons for the Proposed Merger."
Prudential Securities also
41
<PAGE>
presented analyses of the terms of the proposed merger with ICII, including a
review of the analyses presented in "- Opinion of the Financial Advisor to the
Special Committee." The special committee was informed that there were still
certain unresolved issues with ICII, including, among other things, ICII's
desire for a break-up fee, the refinement of the "qualifying alternative
transaction" concept under the merger agreement (see "The Merger Agreement -
ICII Standstill Agreement") and the receipt of legal opinions in appropriate
form. At the conclusion of this meeting, the special committee again directed
its advisors to finalize negotiations with ICII, including the resolution of all
remaining outstanding issues and to report on the progress at the next meeting
of the special committee.
The special committee next met telephonically on July 1, 1999. At this
meeting, a representative of ICCMIC's Maryland counsel, Piper & Marbury L.L.P.,
reviewed with the special committee aspects of Maryland law related to the
transaction. The special committee also addressed the remaining issues not yet
resolved under the merger agreement. In particular, the special committee was
opposed to waiving ICCMIC's shareholder rights plan for the limited purpose of
permitting ICII to bring a "qualifying alternative transaction" in response to a
non-cash superior proposal.
The special committee's financial and legal advisors reviewed the material
terms of the latest draft of the merger agreement. Representatives of Prudential
Securities discussed the 60-day market check process permitted by the draft
agreement, as well as the economics of the proposed merger agreement provisions
relating to the management agreement termination fee. The special committee was
informed that, as drafted, the merger agreement fixed the maximum value of the
termination fee payable under the management agreement at $35 million. If the
appraised value of that termination fee were less than $35 million, the amount
of the shortfall would be paid to ICCMIC's stockholders as an increase in the
merger consideration. In addition, the special committee was advised that the
appraised value of the termination fee would be equally binding on a third party
superior proposal. Prudential Securities noted that the fixed economics of the
termination fee enabled the market check process to proceed without a formal
valuation having been obtained. Third party bidders would have to account for
$35 million of value in any case, whether the amount was distributed to ICCMIC
stockholders or paid to the manager as a termination fee.
At the meeting, the chairman of the special committee polled the members of
the special committee regarding their support for the transaction. The chairman
of the special committee determined that there were insufficient votes to carry
a resolution to recommend the ICII transaction on the terms as then negotiated.
Immediately after the July 1 meeting, the chairman of the special committee
communicated to the full board of directors of ICCMIC on behalf of the special
committee the special committee's determination with respect to ICII's proposal.
During the course of the first two weeks of July discussions continued
among the members of the special committee, their legal and financial advisors
and ICII and its legal and financial advisors in an effort to finalize a
negotiated agreement on terms acceptable to all members of the special
committee.
The special committee again met telephonically on July 19, 1999 to discuss
the progress made with ICII since the last meeting. At that meeting,
representatives of Prudential Securities reviewed with the special committee the
timing of the proposed transaction with ICII generally, as well as the timing of
the 60-day market check process and the management agreement appraisal process.
At that meeting, the special committee made a list of the final issues to be
addressed by the parties prior to signing a definitive merger agreement between
ICCMIC and ICII.
42
<PAGE>
At a telephonic meeting of the full board of directors of ICCMIC, the
chairman of the special committee communicated to ICII the special committee's
final position on the issues discussed at the meeting just ended.
During the period from July 19 through July 21, 1999, negotiations
continued between the parties. On July 21, 1999 a final draft of the merger
agreement was distributed reflecting the parties' resolution of the various
issues communicated to ICII after the July 19 meeting. In addition, on July 21,
the special committee and the full ICCMIC board received the opinion of Piper &
Marbury that the transaction was not prohibited by the Maryland Business
Combination Statute.
Approval of Transaction with ICII. At a meeting of the special committee
on July 22, 1999 held in Torrance, California, the special committee met to
consider the revised merger agreement with ICII. Prudential Securities, as the
special committee's financial advisor, updated its presentation previously
delivered at the June 25 meeting, and covering the analyses set forth in "-
Opinion of the Financial Advisor to the Special Committee." Prudential
Securities then rendered an oral opinion, which was subsequently confirmed in
writing, that, as of the date of that meeting and based on and subject to the
matters stated in the written fairness opinion, the consideration to be received
in the proposed merger by ICCMIC stockholders, other than ICII and its
subsidiaries, was fair to the ICCMIC stockholders from a financial point of
view. The special committee's legal counsel reviewed for the special committee
the terms of the proposed merger agreement and ICCMIC's Maryland counsel
reviewed for the special committee the relevant provisions of Maryland law
applicable to the proposed transaction.
The special committee then considered, in addition to the presentations of
its legal and financial advisors, among other things, the various strategic and
other alternatives then available to ICCMIC, as well as the other factors set
forth in "- Recommendation of the Special Committee and the Board of Directors;
Reasons for the Proposed Merger." The special committee concluded that the
terms of the ICII transaction, described more fully in "The Merger Agreement,"
were preferable to any other alternative available to ICCMIC and that the
transaction was in the best interest of ICCMIC's shareholders. After further
discussion and consideration, the special committee unanimously adopted
resolutions recommending that the full ICCMIC board of directors approve and
adopt the merger agreement with ICII.
After the special committee's meeting, a meeting of the full ICCMIC board
was convened to consider the special committee's recommendation. At the board
meeting, the chairman of the special committee summarized for the full board the
special committee's analysis and recommendations, including, among other things,
the various strategic and other alternatives then available to ICCMIC, as well
as the other factors set forth in "-Recommendation of the Special Committee and
the Board of Directors; Reasons for the Proposed Merger". Prudential Securities
then reviewed with the board the materials that it had delivered to the special
committee on June 25 and July 22. Prudential Securities then reviewed in detail
the various techniques it had used in evaluating ICCMIC and the proposed merger,
including the analyses set forth under "- Opinion of the Financial Advisor to
the Special Committee." Prudential Securities then reviewed its oral opinion,
later confirmed in writing, that the consideration to be received in the
proposed merger by ICCMIC stockholders, other than ICII and its subsidiaries,
was fair to the ICCMIC stockholders from a financial point of view. The special
committee's legal counsel next reviewed for the full board the terms of the
merger agreement and the proposed merger. ICCMIC's legal counsel then reviewed
in detail the fiduciary obligations of the directors to ICCMIC and its
stockholders.
The board next discussed the potential conflicts of interest of Messrs.
Snavely, Villani and Karlan, as well as relevant provisions of the merger
agreement. The board then unanimously determined that the merger agreement and
the proposed merger were fair to, and in the best interests of, ICCMIC and its
stockholders, and approved and adopted the merger agreement and the proposed
merger. The board
43
<PAGE>
next proceeded to discuss in detail, and approve, the provisions for the
conversion of ICCMIC stock options described under "Interests of Certain Persons
in the Proposed Merger - Treatment of Stock Options." At the conclusion of the
July 22 meeting, Mr. Snavely, on behalf of ICII, and Mr. Karlan, on behalf of
ICCMIC, executed the merger agreement.
60-Day Market Check
The merger agreement permitted ICCMIC to conduct an unrestricted
solicitation of potentially superior proposals for a period of 60 days. This
60-day "market check" period commenced on August 13, 1999, the date on which
ICCMIC retained Stanger, and ended at 12:01 a.m. on October 13, 1999. In
connection with the market check, Prudential Securities, on behalf of the
special committee, contacted 47 parties that it viewed as potential acquirors of
ICCMIC, including investment advisors, specialty finance investors, financial
institutions, opportunity funds, large capitalization property REITs and
strategic investors.
Indications of interest were received from 23 of the 47 parties that were
contacted, and Prudential Securities distributed confidential offering memoranda
to those 23 interested parties. No indications of interest were received from
parties outside of the group of potential acquirors contacted by Prudential
Securities. The deadline for initial proposals from these parties was September
24, 1999. On September 24 and 27, 1999, Prudential Securities received
proposals from four of the 23 parties.
Prudential Securities advised the special committee that the proposals
received during the market check period represented the likely parties
interested in ICCMIC and that Prudential Securities did not expect that there
would be any other potential acquirers. The 60-day market check period has
expired and the special committee, with advice from Prudential Securities, has
determined that none of the proposals received during the market check period
constituted a superior proposal.
Recommendation of the Special Committee and the Board of Directors; Reasons for
the Proposed Merger
At a meeting held on July 22, 1999, the special committee unanimously
determined:
. that the proposed merger and the other transactions contemplated by the
merger agreement are fair to, and in the best interests of, the ICCMIC
stockholders other than ICII and certain of its affiliates;
. to recommend that the board of directors approve and adopt the merger
agreement and the proposed merger; and
. to recommend that the board of directors recommend to the ICCMIC
stockholders that they vote to approve the merger agreement and the
proposed merger.
At a meeting of the ICCMIC board of directors held promptly after the
conclusion of the July 22 special committee meeting, at which all of the members
of the board of directors were present, the board of directors, based on the
unanimous recommendation of the special committee, unanimously:
44
<PAGE>
. determined that the merger agreement and the proposed merger are
advisable, fair to, and in the best interests of, ICCMIC and the
ICCMIC stockholders;
. approved and adopted the merger agreement and the proposed merger;
and
. determined to recommend to the ICCMIC stockholders that they vote
to approve the merger agreement and the proposed merger.
See "- Background of the Proposed Merger" and "- ICII's Purpose for Pursuing the
Proposed Merger; Structure of the Proposed Merger."
The Special Committee. In determining that the merger agreement and
the proposed merger are fair to, and in the best interests of, the ICCMIC
stockholders other than ICII and certain of its affiliates, the special
committee considered, among other things, the following factors to support the
special committee's fairness determination:
. the minimum cash payment of $11.50 per share to be received by
ICCMIC stockholders other than ICII and its subsidiaries;
. the fact that ICII agreed to increase the per share merger
consideration to the extent that the appraised value of the
termination fee payable under the management agreement is less than
$35 million, without any corresponding decrease in the merger
consideration if the appraised value exceeds $35 million;
. the special committee's view of the business, assets, values and
prospects of ICCMIC, including discussions with ICCMIC's senior
management (consisting solely of employees of the manager, a
subsidiary of ICII) and the special committee's financial advisors
regarding ICCMIC's business, assets, values and prospects;
. the opinion of Prudential Securities, described below, that, as of
the date of the opinion and based on and subject to the matters
contained in the written fairness opinion, the consideration to be
received by ICCMIC's stockholders, other than ICII and certain of
its affiliates, is fair to such ICCMIC stockholders from a
financial point of view (see "- Opinion of the Financial Advisor to
the Special Committee");
. the stockholder approval condition, under which completion of the
proposed merger requires the affirmative vote of a majority of the
outstanding shares of common stock entitled to vote at the special
meeting other than the shares held by ICII and Messrs. Snavely and
Villani;
45
<PAGE>
. ICCMIC's opportunity under the merger agreement, during the 60-day
period following the engagement of the initial appraisers, to
explore and solicit alternative proposals that might be superior to
the proposed merger, and during that period and thereafter, to
terminate the merger agreement upon receiving and approving an
alternative transaction superior to the proposed merger;
. ICII's agreement that, if the merger agreement is terminated (other
than as a result of a breach of the merger agreement by ICCMIC),
the manager would accept the lesser of the appraised value of the
termination fee and $35 million in full satisfaction of the amount
payable because of the termination or non-renewal of the management
agreement;
. the fact that ICII agreed to purchase approximately $3.9 million of
mortgage loans previously acquired by ICCMIC from SPB (if not first
repurchased by SPB);
. its review of the other potential mergers and strategic
alternatives that may have been available to ICCMIC at that time,
including the contacts, discussions and analyses described in "-
Background of the Proposed Merger" and "- Opinion of the Financial
Advisor to the Special Committee" regarding possible mergers,
acquisitions and business combinations;
. the fact that the minimum $11.50 per share cash price represented a
premium of approximately 16.5% to the closing price of ICCMIC's
common stock on the Nasdaq Stock Market of $9.875 on May 12, 1999,
the day before ICII made its initial $11.00 offer, and exceeds the
highest closing price for ICCMIC's common stock since August 1998;
. the fact that the 16.5% premium above the pre-announcement ICCMIC
stock price is more than the average percentage premium paid in
acquisitions since 1996 involving REITs and financial services
companies that, like ICCMIC, had book values between $200 million
and $1.5 billion;
. current industry, economic and market conditions and trends in the
real estate acquisition, mortgage and leasing markets generally,
including the highly competitive nature of these markets and the
uncertainty concerning the future success of participants in these
markets;
. the fact that the valuation multiples achieved by ICCMIC based upon
the minimum $11.50 per share cash price payable in the proposed
merger exceeded current price to earnings and price to funds from
operations multiples for almost all comparable public mortgage
REITs;
. the fact that the minimum $11.50 per share cash price exceeded the
per share estimated net present value of the projected future cash
flows of ICCMIC;
46
<PAGE>
. the net present value of the liquidation of ICCMIC's assets of
$12.57 per share as previously estimated by Prudential Securities
(without any independent valuation or appraisal of such assets),
before deducting the termination fee payable upon termination or
non-renewal of the management agreement;
. the ability of ICII to complete the proposed merger including, in
particular, its ability to fund the aggregate purchase price; and
. the terms and conditions of the merger agreement, in addition to
those noted above, including:
. ICCMIC's right to continue to declare and pay regular quarterly
dividends and a final dividend constituting the remainder of its
taxable income, if any, for the year through the date of the
proposed merger not previously paid to ICCMIC stockholders,
. the limited scope of the parties' representations, warranties
and covenants, and
. the limited number of conditions to the obligations of ICII to
perform under the merger agreement.
In determining that the proposed merger is fair to, and in the best
interests of, ICCMIC stockholders other than ICII and certain of its affiliates,
the special committee also considered a number of potential countervailing
factors in its deliberations concerning the proposed merger, including:
. the fact that, following the proposed merger, ICCMIC stockholders
other than ICII will no longer participate in the future earnings
or growth of ICCMIC or benefit from any increases in the value of
ICCMIC's common stock or its assets;
. potential or actual conflicts of interest of the directors and
officers of ICCMIC in connection with the proposed merger, which
are more fully described in "Interests of Certain Persons in the
Proposed Merger" and "Relationships and Transactions Between ICII,
ICCMIC and Affiliates"; and
. the fact that ICCMIC stockholders may, depending on their tax basis
in their ICCMIC stock, recognize a taxable gain upon the completion
of the proposed merger.
In the view of the special committee, these potential countervailing
factors did not, individually or together, outweigh the advantages of the
proposed merger.
The special committee believes that the proposed merger is
procedurally fair because:
. the special committee consisted exclusively of independent
directors appointed and empowered to review, evaluate and negotiate
on an arm's-length basis the terms of any proposed extraordinary
transaction and to ensure fairness to ICCMIC's stockholders;
47
<PAGE>
. the special committee retained and was advised by independent legal
counsel;
. the special committee retained and was advised by Prudential
Securities as its independent financial advisor to assist it in
evaluating the proposed merger; and
. under the terms of the merger agreement, completion of the proposed
merger requires stockholder approval of the merger agreement and
the proposed merger by a majority of the outstanding shares of
common stock entitled to vote at the special meeting other than the
shares held by ICII and certain of its affiliates (namely, Messrs.
Snavely and Villani).
The Board of Directors. The board of directors, at its July 22, 1999
meeting, heard and considered the analysis and report of Prudential Securities,
the unanimous recommendation of the special committee and the factors enumerated
above that were considered by the special committee. Based on these
considerations, the board unanimously determined that the merger agreement and
the proposed merger are fair to, and in the best interests, of ICCMIC
stockholders other than ICII and certain of its affiliates. The board then
unanimously approved and adopted the merger agreement and the proposed merger
and unanimously recommended that ICCMIC's stockholders vote to approve the
merger agreement and the proposed merger.
You should be aware, in considering the recommendation of the special
committee that was adopted by the board of directors, that three members of the
board of directors, Messrs. Snavely, Villani and Karlan, are also directors and
officers of ICII or the manager. Those relationships could present these
directors with conflicts of interest. The board of directors and the special
committee considered the potential and actual conflicts of interest in making
their recommendation and in approving and adopting the merger agreement and the
proposed merger. See "Interests of Certain Persons in the Proposed Merger" and
"Relationships and Transactions Between ICII, ICCMIC and Affiliates."
General. The above discussion regarding the information and factors
considered by the special committee and the board of directors is not intended
to be exhaustive. We believe, however, that it includes all material factors
considered by them in making their respective decisions. In view of the variety
of factors considered in connection with their respective evaluations of the
merger agreement and the proposed merger, the special committee and the board of
directors could not quantify or otherwise attempt to assign relative weights to
the specific factors they considered in reaching their respective
determinations. In addition, individual members of the special committee or the
board of directors may have given different weight to different factors. In the
course of their deliberations, neither the special committee nor the board of
directors established a range of values for ICCMIC.
Opinion of the Financial Advisor to the Special Committee
On July 22, 1999, Prudential Securities delivered its written opinion
to the special committee to the effect that, as of that date, the $11.50 per
share price payable in cash was fair to ICCMIC's stockholders, other than ICII
and certain of its affiliates, from a financial point of view. In its opinion,
Prudential Securities noted that the $11.50 per share price is subject to
potential increase under the terms of the merger agreement. Prudential
Securities made a presentation of the financial analysis underlying its oral
opinion at meetings of the special committee on June 25 and July 22, 1999 and at
a meeting of the board of directors on July 22, 1999. This analysis is
summarized below. All of the members of the special committee and the board of
directors participated in their respective meetings on July 22, 1999 and had an
opportunity to ask questions regarding Prudential Securities' presentation.
48
<PAGE>
In requesting the Prudential Securities opinion, the special committee
did not give any special instructions to Prudential Securities or impose any
limitations upon the scope of the investigation that Prudential Securities
deemed necessary to enable it to deliver its opinion, although Prudential
Securities was not engaged to solicit alternative transactions, except in
connection with the 60-day market check contemplated by the merger agreement. A
copy of the Prudential Securities opinion, which sets forth the assumptions
made, matters considered and scope of the review undertaken, is attached to this
proxy statement as Appendix B and is incorporated by reference in this proxy
statement. The summary of the Prudential Securities opinion set forth below is
qualified in its entirety by reference to the full text of the Prudential
Securities opinion. We urge you to read the Prudential Securities opinion in
its entirety. A copy of the full Prudential Securities report given to the
special committee is available for inspection and copying at the principal
executive offices of ICCMIC during regular business hours. You, or your
representative, may inspect or copy the Prudential Securities report during
those hours.
The Prudential Securities opinion is directed only to the fairness of
the merger consideration offered to holders of ICCMIC common stock (other than
ICII and certain of its affiliates) from a financial point of view and does not
constitute a recommendation to any stockholder as to how he or she should vote
at the special meeting or as to any other action he or she should take regarding
the proposed merger.
In conducting its analysis and arriving at its opinion, Prudential
Securities reviewed such information and considered such financial data and
other factors as it deemed relevant under the circumstances, including, among
other things, the following:
. ICCMIC's historical financial statements, including those included
in ICCMIC's Annual Reports on Form 10-K for the fiscal years ended
December 31, 1997 and 1998 and ICCMIC's Quarterly Reports on Form
10-Q for the fiscal quarters ended March 31, 1999, September 30,
1998, June 30, 1998 and March 31, 1998, including any amendments
thereto;
. information furnished to Prudential Securities by ICCMIC relating
to the business, earnings, cash flow, assets and prospects of
ICCMIC;
. the historical market prices and trading volumes of ICCMIC's common
stock and the common stock of selected publicly traded companies
Prudential Securities deemed reasonably similar to ICCMIC, and the
historical and projected results of operations of ICCMIC and the
historical and selected future earnings estimates of those
companies Prudential Securities deemed to be reasonably similar to
ICCMIC;
. publicly available financial and operating data concerning selected
companies engaged in businesses Prudential Securities deemed
comparable to ICCMIC or otherwise relevant to its inquiry;
. the financial terms of other transactions Prudential Securities
deemed relevant;
. the merger agreement; and
49
<PAGE>
. such other financial studies, analyses and investigations and
matters as Prudential Securities deemed necessary.
In connection with its review and analysis and in arriving at its
opinion, Prudential Securities relied upon the accuracy and completeness of the
financial and other information provided by ICCMIC's management (consisting
solely of employees of the manager, which is a subsidiary of ICII). Prudential
Securities has not undertaken or been provided with any independent verification
of such information or any independent valuation or appraisal of the assets or
liabilities of ICCMIC. Prudential Securities assumed that information furnished
by ICCMIC with respect to future financial performance was reasonable and
reflected the best currently available estimates and judgment of ICCMIC's
management. Further, the Prudential Securities opinion is necessarily based on
economic, financial and market conditions as they existed on, and can only be
evaluated as of, July 22, 1999.
The Prudential Securities opinion does not address, nor should it be
construed to address, the relative merits of the proposed merger and alternative
business strategies that may be available to ICCMIC.
The Prudential Securities opinion and the presentation to the special
committee was one of the many factors taken into consideration by the special
committee in making its determination to recommend approval and adoption of the
merger agreement and the proposed merger. The Prudential Securities
presentation to the ICCMIC board of directors was one of the many factors taken
into consideration by the board in making its decision to enter into the merger
agreement. Consequently, the analyses of Prudential Securities described below
should not be viewed as determinative of the opinions of the special committee
and the board of directors with respect to the merger consideration to be paid
in the proposed merger to ICCMIC stockholders other than ICII and certain of its
affiliates. The merger consideration was determined through arm's-length
negotiations between the special committee and ICII and was approved by the
special committee. The decision to enter into the merger agreement and to
accept the merger consideration was solely that of the ICCMIC board of
directors, acting upon the recommendation of the special committee.
In arriving at its opinion, Prudential Securities performed a variety
of financial analyses, including those summarized herein. The preparation of a
fairness opinion is a complex process that involves various determinations as to
the most appropriate and relevant methods of financial analysis and, therefore,
such an opinion is not necessarily susceptible to partial analysis or summary
description. Prudential Securities believes its analysis must be considered as
a whole and that selecting portions thereof or portions of the factors
considered by it, without considering all such analyses and factors, could
create an incomplete view of the evaluation process underlying its opinion.
Prudential Securities made numerous assumptions with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond ICCMIC's control. Any
estimates contained in Prudential Securities' analyses are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses. Additionally, estimates of
the values of businesses and securities do not purport to be appraisals and do
not necessarily reflect the prices at which businesses or securities may be
sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. Subject to the foregoing, the following is a summary
of the material financial analyses presented to the special committee and the
board of directors on July 22, 1999.
Comparable Companies Analysis. Prudential Securities used a
comparable companies analysis to establish implied ranges for the merger
consideration to be offered to ICCMIC stockholders. Prudential Securities
analyzed publicly available historical and projected financial results of
selected companies
50
<PAGE>
Prudential Securities considered reasonably comparable to ICCMIC, including
multiples of current stock price to:
. funds from operations per share for the three months ended March
31, 1999 on an annualized basis ("LQA FFO");
. earnings per share for the three months ended March 31, 1999 on an
annualized basis ("LQA EPS");
. estimated 1999 earnings per share ("1999 Projected EPS");
. estimated 2000 earnings per share ("2000 Projected EPS"); and
. book value per share as of March 31, 1999.
The companies analyzed included: Amresco Capital Trust, Anthracite Capital Inc.,
Chastain Capital Corp., Clarion Commercial Holdings, Inc., CRIIMI MAE, Inc.,
IMPAC Commercial Holdings, Ocwen Asset Investment Corp., PMC Commercial Trust,
Resource Asset Investment Trust, Starwood Financial Trust and Wilshire Real
Estate Investment Trust Inc. (the "Comparable Companies"). All of the trading
multiples of the Comparable Companies were based on closing stock prices on June
21, 1999 (the "June 21 Closing Price"). The earnings per share estimates were
obtained from publicly available information. Estimates were not available for
all of the Comparable Companies for all periods.
The Comparable Companies were found to have a June 21 Closing Price
estimated to be within a range of 3.3x to 7.6x LQA FFO, 3.4x to 9.3x LQA EPS,
4.8x to 10.9x 1999 Projected EPS, 4.9x to 7.9x 2000 Projected EPS and 0.5x to
1.0x book value per share. Applying the $11.50 offer price to such valuation
measures results in implied multiples of 9.4x LQA FFO, 10.4x LQA EPS, 9.8x 1999
Projected EPS, 8.5x 2000 Projected EPS and 0.8x book value per share,
respectively. Prudential Securities orally informed the special committee that
the closing price on July 20, 1999 did not result in a meaningful change in the
results cited above.
Precedent Transaction Premium Analysis. Prudential Securities
reviewed certain information regarding all cash acquisition transactions meeting
the following criteria:
. the acquired company operated either as a REIT or a financial
services company;
. the transactions were announced in 1996 or later; and
. the acquired company had a book value between $200 million and $1.5
billion.
Prudential Securities reviewed the prices paid in these transactions as a
percentage premium over the closing price of the acquired company in each
transaction. Prudential Securities then determined the
51
<PAGE>
mean of the premiums paid in these transactions, and found that the mean premium
was 9.0% over the price one day prior to the announcement, 7.8% over the price
one week prior to the announcement and 7.8% over the price four weeks prior to
the announcement. By comparison, the minimum $11.50 per share price reflected a
16.5% premium over ICCMIC's closing stock price one day prior to the
announcement of ICII's initial $11.00 per share proposal on May 13, 1999, a
24.3% premium over the closing price one week before that announcement and a
26.0% premium over the closing price four weeks prior to that announcement.
Prudential Securities also calculated the implied multiple of the
price paid in these acquisitions to the preceding twelve months earnings per
share. The mean multiple for these transactions was 19.5 times actual earnings
per share. Applying this calculation to the $11.50 per share cash price in the
proposed merger and ICCMIC's earnings per share for the last twelve months of
$0.62 yields a multiple of 18.5 times earnings per share.
None of the Comparable Companies or the acquired entities in any of
the precedent transactions is identical to ICCMIC. Accordingly, a complete
analysis of the results of the foregoing calculations cannot be limited to a
quantitative review of such results and involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the Comparable Companies and the applicable transactions and acquired companies
and other factors that could affect the public trading value and consideration
paid for each of the Comparable Companies and acquired entities, as well as
ICCMIC.
Stock Trading Analysis. Prudential Securities reviewed the latest
twelve months ended June 21, 1999 historical trading prices for ICCMIC's common
stock and noted that the low stock price was $6.50 per share (reached in October
1998), that the high stock price was $13.94 per share (reached in June 1998) and
that ICCMIC common stock last traded at $11.50 per share in July of 1998.
Stand-Alone Projections. Prudential Securities also considered
ICCMIC's prospects as a continuing stand-alone entity. Four-year financial
projections were developed based on the following assumptions:
. the revaluation of ICCMIC's assets to their estimated fair market
value;
. the resale to SPB of the loans to be repurchased by ICII or SPB
under the merger agreement; and
. the resale to FMAC of loans previously acquired from it.
The projections also assumed that ICCMIC's principal business activities would
include:
. small balance first mortgage loan pool acquisitions;
. real property acquisitions;
. mezzanine lending; and
52
<PAGE>
. small balance first mortgage loan pool securitizations.
The projections further assumed that these business activities would be
primarily financed through:
. secured warehouse loan facilities for small balance loan pool
acquisitions;
. first mortgage debt for real property acquisitions; and
. equity financing from available cash resources for mezzanine
lending and equity financing for the subordinated classes of
mortgage-backed securities investments.
The projections also assumed certain asset sales with concurrent paydown of
associated debt, and that no incremental equity capital would be raised during
the projection period, that the stock price would equal the equity book value
per share by the end of the projection period and that dividends would grow at a
rate of 5% per year. Applying these assumptions, Prudential Securities
performed a discounted cash flow analysis of ICCMIC using a 15% discount rate.
Applying this analysis, Prudential Securities arrived at a net present value per
share for ICCMIC of $10.85.
Projected financial and other information concerning ICCMIC and the
impact of the proposed merger on ICCMIC stockholders are not necessarily
indicative of future results. All projected financial information is subject to
numerous contingencies, many of which are beyond the control of ICCMIC
management. The preceding discussion of financial projections should be read
together with the discussion under the caption "Cautionary Statement Concerning
Forward-Looking Statements."
The special committee selected Prudential Securities to provide a
fairness opinion because it is an internationally recognized investment banking
firm engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions and for other purposes and has substantial
experience in transactions similar to the proposed merger. Pursuant to an
engagement letter agreement between Prudential Securities and the independent
directors of ICCMIC, Prudential Securities agreed to act as financial advisor to
the independent directors who constitute the special committee in connection
with the evaluation of proposed strategic and sale transactions regarding
ICCMIC. Pursuant to this engagement letter, ICCMIC paid Prudential Securities a
fee of $100,000 upon execution of the letter and $400,000 plus expenses when
Prudential Securities rendered its fairness opinion to the special committee.
Upon the closing of the proposed merger or a superior alternative transaction,
ICCMIC will be required to pay Prudential Securities an additional fee of $3.25
million plus expenses. In the event a superior alternative transaction is
consummated, ICCMIC will be required to pay Prudential Securities an additional
fee equal to 4% of the amount by which the value to be received by ICCMIC
stockholders other than ICII and its subsidiaries in the superior alternative
transaction exceeds the value to be received by ICCMIC stockholders other than
ICII and its subsidiaries in the proposed merger. ICCMIC will also indemnify
Prudential Securities and certain related persons against certain liabilities,
including liabilities under securities laws, arising out of the proposed merger
or Prudential Securities' engagement.
In April 1999, an affiliate of Prudential Securities entered into a
lending agreement with ICCMIC pursuant to which that affiliate made available to
ICCMIC a secured warehouse lending facility of up to $300 million. That
facility was terminated by ICCMIC in June 1999 because ICCMIC had a substantial
cash position at the time and wished to avoid incurring loan facility fees that
would otherwise have been payable under that facility. In addition, Prudential
Securities may actively trade ICCMIC common stock
53
<PAGE>
for its own account or for the accounts of its customers and, accordingly, may
at any time hold a long or short position in ICCMIC common stock.
Financial Projections Relating to ICCMIC
The following financial projections relating to ICCMIC should be read
together with the discussion under the caption "Cautionary Statement Concerning
Forward-Looking Statements."
Projected Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total Assets $912,335 $839,081 $763,535 $688,939
======== ======== ======== ========
Total Liabilities 547,004 473,783 399,492 327,136
Total Stockholders' Equity 365,331 365,298 364,043 361,803
-------- -------- -------- --------
Total Liabilities & Stockholder $912,335 $839,081 $763,535 $688,939
Equity ======== ======== ======== ========
28,500 28,500 28,500 28,500
Common Shares Outstanding
$ 12.82 $ 12.82 $ 12.77 $ 12.69
Book Value per Share/1/
- -----------------------------------
/1/ Marked to estimated market values.
</TABLE>
54
<PAGE>
Projected Income Statement
(in thousands)
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total Revenue $81,009 $85,477 $88,398 $92,916
Total Expenses 45,894 49,600 51,948 55,565
------- ------- ------- -------
Net Earnings $35,115 $35,877 $36,450 $37,351
======= ======= ======= =======
Funds from Operations/1/ $38,570 $39,982 $41,355 $43,056
======= ======= ======= =======
Diluted Earnings per Share $ 1.23 $ 1.26 $ 1.28 $ 1.31
Diluted Funds from Operations/1/ per Share $ 1.35 $ 1.40 $ 1.45 $ 1.51
Funds from Operations/1/ Annual Growth Rate 18.4% 3.7% 3.4% 4.1%
Dividends $34,200 $35,910 $37,706 $39,591
Dividends per Share $ 1.20 $ 1.26 $ 1.32 $ 1.39
Funds from Operations/1/ Payout Ratio 88.7% 89.8% 91.2% 92.0%
Diluted Common Shares Outstanding 28,500 28,500 28,500 28,500
</TABLE>
__________________________
1/ Funds from Operations means net earnings adjusted by adding back non-cash
- -
charges, such as depreciation, certain amortization expenses and most non-
recurring gains and losses.
55
<PAGE>
Projected Cash Flow Statement
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Total Cash Provided (Used) by $ 38,773 $ 39,531 $ 41,370 $ 42,536
Operating Activities
Total Cash Provided (Used) for Investing Activities (322,204) 69,286 49,811 56,178
Total Cash Provided (Used) by Financing Activities 204,171 (109,558) (112,445) (112,418)
--------- --------- --------- ---------
Net Increase (Decrease) in Cash and Cash (79,260) (741) (21,264) (13,704)
Equivalents
Cash and Cash Equivalents at Beginning of Period 116,539 37,279 36,537 15,273
--------- --------- --------- ---------
Cash and Cash Equivalents at End of Period $ 37,279 $ 36,537 $ 15,273 $ 1,569
========= ========= ========= =========
</TABLE>
56
<PAGE>
Management Agreement; Appraisal
General. ICCMIC's management agreement with the manager provides that if
ICCMIC terminates or fails to renew the management agreement after October 22,
1999, then ICCMIC shall pay the manager a termination fee. The merger agreement
between ICCMIC and ICII provides for an appraisal of the value of the
termination fee pursuant to a process set forth in the management agreement,
except that the merger agreement imposes a $35 million cap on the termination
fee, and for the merger consideration payable to ICCMIC stockholders other than
ICII and its subsidiaries to be adjusted depending on the results of the
appraisal process. If the appraised value of the termination fee is less than
$35 million, then the $11.50 per share cash payment for each share of ICCMIC
common stock (other than shares held by ICII and its subsidiaries) will be
increased by an amount of cash equal to the quotient of:
. the difference between $35 million and the appraised value of the
termination fee, divided by
. the sum of the number of shares held by ICCMIC stockholders (other than
ICII and its subsidiaries) and the number of shares subject to ICCMIC
stock options that have an exercise price of less than $11.50 per
share.
The merger consideration will not be reduced if the appraised value of the
termination fee is greater than $35 million. See "The Merger Agreement - Merger
Consideration."
ICCMIC's management agreement with the manager is expected to expire on
October 22, 1999. However, the parties have agreed that ICCMIC will not be
required to pay the termination fee unless the merger agreement is terminated,
in which event the termination fee will be due and payable at that time.
In accordance with the procedures indicated in the merger agreement and the
management agreement, the special committee (on behalf of ICCMIC) and the
manager each selected an independent appraisal firm to conduct an appraisal of
the value of the manager's termination fee. The special committee selected
Stanger, while the manager selected Houlihan Lokey. Under the procedures
indicated in the merger agreement and the management agreement, the appraised
value of the termination fee is to be determined as follows:
. If Stanger and Houlihan Lokey were to arrive at appraised values that
are identical or that differ by an amount that does not exceed 20% of
the higher of the two appraised values, the appraised value of the
termination fee would equal the average of the two appraised values.
. If, on the other hand, Stanger and Houlihan Lokey were to arrive at
appraised values that differ by more than 20% of the higher of the two
appraised values, then the two firms would jointly select a third,
independent appraisal firm to conduct another appraisal (or, if they
were unable to agree on a third appraisal firm within 45 days, either
would be able to request that the American Arbitration Association
select the third appraiser). In that case, the appraised value that
would control for purposes of the merger agreement would be the value
arrived at by the third appraiser, but that final appraised value could
not be less than the lower of the two initial appraised values nor more
than the higher of the two initial appraised values.
57
<PAGE>
Each of Stanger and Houlihan Lokey has completed an appraisal of the value
of the termination fee. Stanger arrived at an appraised value of the termination
fee of $18 million. Houlihan Lokey arrived at an appraised value of the
termination fee of $45 million. Each of these appraisals is qualified by certain
assumptions, limitations and conditions described in Appendix C. Because the two
appraised values differ by more than 20% of the higher of the two values, a
third appraiser, Eastdil, has been jointly selected by Stanger and Houlihan
Lokey. The appraised value arrived at by Eastdil will be the appraised value of
the termination fee unless it is less than $18 million (in which case the
appraised value of the termination fee will be $18 million), or more than $35
million (in which case the appraised value of the termination fee will be $35
million and there will be no adjustment to the merger consideration). We expect
to receive Eastdil's appraisal report no later than November 1999. [To be
updated to describe the third appraisal.]
For a summary of the Stanger, Houlihan and Eastdil appraisals, please read
Appendix C in its entirety.
Benefits and Detriments to Nonaffiliated Stockholders
ICII and ICCMIC believe that the proposed merger will allow stockholders
other than ICII to realize the value of their investment in ICCMIC common stock
in cash at a price higher than the highest trading price of ICCMIC's common
stock in the year prior to the mailing of this proxy statement. This price
represents a significant premium to the market price for ICCMIC's common stock
immediately prior to the announcement of ICII's initial offer. The proposed
merger would eliminate the risk to ICCMIC stockholders of a decline in the value
of ICCMIC's common stock.
The primary detriment of the proposed merger to ICCMIC stockholders other
than ICII is that they will cease to have any ownership interest in ICCMIC and
will cease to participate in the future earnings, cash flow or growth of ICCMIC
or benefit from any increases in the value of ICCMIC's assets and common stock.
In addition, stockholders other than ICII may recognize a taxable gain upon the
completion of the proposed merger, depending upon the tax basis of their ICCMIC
common stock.
ICII's Purpose for Pursuing the Proposed Merger; Structure of the Proposed
Merger
Purpose. The purpose of the proposed merger is for ICII to acquire
all of the outstanding common stock of ICCMIC not already owned by ICII, while
providing ICCMIC stockholders other than ICII and its subsidiaries with the
opportunity to liquidate their investment in ICCMIC for cash at a price
representing a significant premium to the market price for ICCMIC common stock
prior to the initial announcement of ICII's acquisition offer.
ICII is proposing to acquire ICCMIC on the terms described herein because
of its belief that the potential benefits, after taking into account the
potential detriments, of the merger as discussed above are superior to the
potential benefits ICCMIC stockholders, including ICII, might have received, and
the benefit that ICII, as the owner of the manager, might have received, from
the Commercial Mortgage REIT proposal or any of the other proposals described
herein.
Alternatives. Prior to reaching its decision to pursue the proposed merger,
ICII considered various alternatives to entering into the merger agreement,
including:
. a two-step acquisition of ICCMIC, consisting of a first step tender
offer and a second step merger;
58
<PAGE>
. pursuing the joint proposal with the Commercial Mortgage REIT described
under the caption "Special Factors: Background, Purpose and Effects of
the Proposed Merger - Background of the Proposed Merger" and "-
Negotiations with the Commercial Mortgage REIT"; and
. continuing ICII's existing ownership interest in ICCMIC and approving
the Commercial Mortgage REIT proposal.
The primary benefit to ICII of the two-step acquisition alternative would
have been the possibility of completing an acquisition of ICCMIC in a short time
period and, possibly, avoiding the time and expense of seeking stockholder
approval at a meeting of ICCMIC's stockholders. ICII ultimately decided against
this alternative, however, primarily because it preferred to negotiate a
transaction that the ICCMIC board would support as being fair to, and in the
best interests of, ICCMIC's stockholders. ICII also believed that the two-step
structure would have increased the total transaction costs of its acquisition of
ICCMIC.
The principal benefit that the joint proposal with the Commercial Mortgage
REIT appeared to offer to ICII was the possibility of reducing ICII's overall
transaction costs and of enabling ICII to acquire those assets in which it has
the greatest investment interest and to obtain potential related tax benefits.
It also would have enabled ICCMIC stockholders to exchange their ICCMIC shares
for shares in the surviving entity, thereby preserving the possibility of their
participating in its future results of operations. ICII and the Commercial
Mortgage REIT were not ultimately able to reach agreement with the special
committee on the terms of such a transaction, however, and it was abandoned.
See "Special Factors: Background, Purpose and Effects of the Proposed Merger-
Negotiations with the Commercial Mortgage REIT."
ICII also considered maintaining ICII's current investment in ICCMIC and
accepting the Commercial Mortgage REIT proposal. ICII decided against this
alternative due to the potential benefits of the merger discussed below.
Benefits and Detriments of the Proposed Merger to ICII. The primary
benefits of the merger to ICII are as follows:
. the re-acquisition of mortgage loans originated by SPB and the
acquisition of a portfolio of other loans that are consistent with the
loan origination and investment strategies of SPB will enhance SPB's
portfolio of commercial mortgage loans;
. the reduction of overall operational and administrative costs by
eliminating the costs associated with the separate public ownership of
ICCMIC, including the costs of investor relations, public reporting,
mailings to shareholders, directors' and officers' liability insurance,
directors' fees, administration of ICCMIC's treasury department, legal
expenses and consultant fees;
. the compensation received by ICII in the merger transaction, taken as a
whole, which ICII believes fairly compensates it for the value of the
management agreement that its subsidiary has with ICCMIC in a tax
advantaged manner resulting from the fact that the
59
<PAGE>
tax basis of ICCMIC's assets exceeds the merger price and related
merger transaction costs; and
. the increase in the resulting corporation's ability to retain capital
by eliminating the need in the year 2000 to comply with the
distribution requirements imposed by the federal tax law dividend
requirements for REITs.
The primary detriments of the completion of the merger to ICII are as
follows: (i) the substantial amount of cash that will be required to complete
the transaction, including both the merger consideration payable to ICCMIC
stockholders and the associated transaction costs, including those of both ICII
and ICCMIC, and (ii) the significant investment and other market risks that ICII
will incur in acquiring from ICCMIC and ultimately disposing of those assets
that are not consistent with ICII's long term business objectives.
ICII's Analysis of the Proposed Merger
ICII believes that the merger agreement and the proposed merger are fair to
ICCMIC's stockholders, including those that are unaffiliated with ICII or its
affiliates. In determining that the merger agreement and the proposed merger are
fair to the ICCMIC stockholders, ICII considered the following material factors:
. the fact that the minimum $11.50 per share cash price to be received by
ICCMIC stockholders other than ICII and its subsidiaries represented a
premium of approximately 16.5% to the closing price of ICCMIC's common
stock on the Nasdaq Stock Market of $9.875 on May 12, 1999, the day
before ICII made its initial $11.00 offer, and exceeds the highest
closing price for ICCMIC's common stock since August, 1998;
. the fact that the minimum $11.50 per share cash price exceeds the per
share estimated net present value of the projected future cash flows of
ICCMIC;
. the estimated net present value of the liquidation of ICCMIC's assets
of $12.57 per share as previously estimated by Prudential Securities
(without any independent evaluation or appraisal), before deducting the
termination fee payable upon termination or non-renewal of the
management agreement;
. the fact that ICII agreed to increase the per share merger
consideration to the extent that the appraised value of the termination
fee payable under the management agreement is determined to be less
than $35 million, without any corresponding decrease in the merger
consideration if the appraised value is determined to exceed $35
million;
. ICCMIC's opportunity under the merger agreement, during the 60-day
period following the engagement of the initial appraisers, to solicit
alternative proposals that might be superior to the proposed merger,
and during that period and thereafter, to terminate the merger
agreement upon receiving and approving an alternative transaction
superior to the proposed merger; and the fact that as of the
60
<PAGE>
filing of this proxy statement ICII has been informed that neither
ICCMIC nor the special committee has received an alternative
transaction proposal deemed superior to the proposed merger;
. ICII's agreement that, if the merger agreement is terminated (other
than as a result of a breach of the merger agreement by ICCMIC), the
manager would accept the lesser of the appraised value of the
termination fee and $35 million in full satisfaction of the amount
payable because of the termination or non-renewal of the management
agreement;
. ICII's review of the other potential mergers and strategic
alternatives, including the contacts, discussions and analyses
described in "-Background of the Proposed Merger" regarding possible
mergers, acquisitions and business combinations involving ICCMIC;
. the fact that ICII agreed to purchase approximately $3.9 million of
mortgage loans previously acquired by ICCMIC from SPB (if not first
repurchased by SPB);
. current industry, economic and market conditions and trends in the real
estate acquisition, mortgage and leasing markets generally, including
the highly competitive nature of these markets and the uncertainty
concerning the future success of these markets; and
. the terms and conditions of the merger agreement, in addition to those
noted above, including:
. ICCMIC's right to continue to declare and pay regular quarterly
dividends and a final dividend constituting the remainder of its
taxable income, if any, for the year through the date of the merger
not previously paid to ICCMIC stockholders,
. the limited scope of the parties' representations, warranties and
covenants, and
. the limited number of conditions to the obligations of ICII to
perform under the merger agreement.
ICII also believes that the proposed merger is procedurally fair because:
. the special committee that approved the proposed merger consisted
exclusively of independent directors appointed and empowered to review,
evaluate and negotiate the terms of any proposed extraordinary
transaction between ICCMIC and ICII and to ensure fairness to ICCMIC's
stockholders;
. the special committee retained and was advised by independent legal
counsel;
. the special committee retained Prudential Securities as its independent
financial advisor to assist it in evaluating the proposed merger, and
received an opinion from Prudential Securities concluding that the
merger consideration to be received by ICCMIC
61
<PAGE>
stockholders is fair from a financial point of view, as described in "-
Opinion of the Financial Advisor to the Special Committee" above;
. the proposed merger requires stockholder approval of the merger
agreement and the proposed merger by a majority of the outstanding
shares of ICCMIC common stock entitled to vote at the special meeting
that are not held by ICII and Messrs. Snavely and Villani;
. the cash price of $11.50 per share is subject to increase, and the
other terms and conditions of the merger agreement resulted from active
arm's-length negotiations between the special committee and ICII; and
. ICCMIC's opportunity under the merger agreement, during the 60-day
period following the engagement of the initial appraisers, to
solicit alternative proposals that might be superior to the proposed
merger, and during that period and thereafter, to terminate the merger
agreement upon receiving and approving an alternative transaction
superior to the proposed merger.
In light of the number and variety of factors ICII considered in connection with
its evaluation of the proposed merger, and the fact that various directors of
ICII may have attributed greater importance to some of these factors than
others, ICII is unable to assign relative weights to the foregoing factors.
Consequences of the Proposed Merger
Surviving Corporation. If the proposed merger is completed, ICCMIC
Acquisition Corp. will be merged with and into ICCMIC. ICCMIC will continue as
the surviving corporation after the proposed merger as a wholly-owned subsidiary
of ICII. Following the completion of the proposed merger, stockholders other
than ICII will cease to participate in the future earnings, cash flow or growth
of ICCMIC or benefit from any increases in the value of ICCMIC common stock or
assets. Conversely, they will no longer bear the risk of any decreases in the
value of ICCMIC`s common stock or assets.
Delisting. Because all of ICCMIC's common stock that is outstanding
immediately prior to the date of completion of the proposed merger will be
canceled in exchange for payment of the cash merger consideration as a result of
the proposed merger, the common stock will be delisted from the Nasdaq Stock
Market.
Dividends and Distributions. Dividends and other distributions by ICCMIC
having a record date prior to the date of completion of the proposed merger will
remain payable to ICCMIC's stockholders who held their shares on the record
date. This applies even if the payment date is after the completion of the
proposed merger, as in the case of the final dividend, which ICCMIC will declare
prior to completion of the proposed merger and pay as promptly as possible after
the proposed merger is completed. All other distributions by the surviving
corporation after completion of the proposed merger will be paid to ICII and not
to ICCMIC's current stockholders.
Deregistration. ICCMIC's common stock is currently registered under the
Exchange Act. ICII has stated its intention to terminate the registration of
ICCMIC's common stock under the Exchange Act following the proposed merger.
After deregistration, ICCMIC will be relieved of its obligation to comply with
the requirements of the Exchange Act, including its obligations to comply with
the following:
62
<PAGE>
. the filing of periodic reports pursuant to Section 13 of the Exchange
Act;
. the proxy rules of Exchange Act Regulation 14A;
. the short-swing trading profits provision of Exchange Act Section 16;
and
. with respect to future transactions involving ICCMIC, the "going
private" provisions of Exchange Act Rule 13e-3.
Directors and Officers. The directors and officers of ICCMIC Acquisition
Corp. immediately prior to the proposed merger will be the directors and
officers of the surviving company immediately after the proposed merger.
Charter and Bylaws. The charter and bylaws of ICCMIC Acquisition Corp. in
effect immediately prior to the proposed merger will be the charter and bylaws
of the surviving company immediately after the proposed merger.
Potential Asset Sales Prior to the Proposed Merger
ICII intends to discuss with the board of directors of ICCMIC the sale or
other disposition prior to completion of the merger of those ICCMIC assets that
ICII believes to be desirable to sell as promptly as practicable. Sales or other
dispositions proposed by ICII will only take place prior to completion of the
merger if the ICCMIC board determines that the relevant assets will be sold or
otherwise disposed of on terms that would be advantageous to ICCMIC as a
separate ongoing entity in the event that the merger is not completed.
Plans for ICCMIC after the Proposed Merger
ICII intends to sell those assets of ICCMIC that do not conform with ICII's
long term business objectives. ICII also expects to terminate ICCMIC's status as
a REIT under the federal tax laws following completion of the merger. ICII does
not currently have any other plans or proposals for extraordinary corporate
transactions involving ICCMIC. ICII's plans with respect to ICCMIC may change in
light of changes in market conditions and other considerations and ICII reserves
the right to alter its plans at any time following the merger.
Conduct of the Business of ICCMIC if the Proposed Merger is not Completed
Since September of 1998, ICCMIC's investment activities have been suspended
while ICCMIC has been exploring opportunities for mergers, acquisitions and
other strategic transactions. If the proposed merger with ICCMIC Acquisition
Corp. is not completed and no superior proposal is accepted, ICCMIC's board will
at that time evaluate the strategic and other alternatives available to ICCMIC.
ICCMIC's management agreement with the manager is expected to expire on
October 22, 1999. ICCMIC's board of directors intends to hire 16 employees of
the manager on a full-time salaried basis to manage ICCMIC's day-to-day
operations. ICCMIC's board of directors believes that this internalization of
management operations will result in significant cost savings to ICCMIC compared
to the payments that ICCMIC would have made to the manager if the term of the
management agreement were extended and if none of the other terms of the
management agreement were changed.
63
<PAGE>
Financing; Source of Funds
ICII estimates that the total amount of funds required to pay the merger
consideration to the ICCMIC stockholders other than ICII and its subsidiaries
will be approximately $300 million. In addition, ICII and ICCMIC estimate that
there will be approximately $[_____] in filing, legal, accounting and other fees
and expenses payable by ICII and ICCMIC as described in more detail below under
"Fees and Expenses."
ICII has advised ICCMIC that ICII will obtain those funds from a
combination of (i) cash and liquid assets held by ICII and its subsidiaries,
(ii) cash and cash equivalents held by ICCMIC, excluding amounts that ICCMIC
expects to pay as dividends in accordance with the merger agreement (ICCMIC had
approximately $120 million of cash and cash equivalents as of September 30,
1999) and (iii) anticipated proceeds of sales or other dispositions of ICCMIC
assets prior to or at the closing of the merger. To the extent, if any, that
additional cash may be required to complete the merger, ICII will obtain those
funds from borrowings or other financing arrangements with third parties. While
ICII has had preliminary discussions regarding those financing arrangements, it
currently believes that no third party financing arrangements will be necessary
and it has not entered into any specific agreements or arrangements for that
purpose. The merger is not subject to a financing contingency and ICII will be
required, subject to satisfaction of all of the conditions to its obligations
under the merger agreement, to complete the merger whether or not ICII enters
into any third party financing arrangements or is able to arrange for sale of
ICCMIC assets at or following the closing of the merger.
No Appraisal Rights
ICCMIC stockholders who vote against the merger agreement and the proposed
merger, i.e., dissent, are not entitled to seek appraisal rights or other
similar rights. If the merger agreement and the proposed merger are approved by
the required votes, stockholders that vote against the merger agreement and the
proposed merger, like stockholders who vote to approve the merger agreement and
the proposed merger, will be bound by the terms of the merger agreement to the
same extent as those who vote in favor of it. The Maryland General Corporation
Law does not provide appraisal rights or any other similar remedy to
stockholders of a corporation in connection with a merger if the corporation's
shares are listed on a national securities exchange, such as the Nasdaq Stock
Market, on the record date for determining stockholders entitled to vote on the
proposed merger. All of the shares of ICCMIC common stock outstanding on the
record date for determining stockholders entitled to vote on the merger
agreement and the proposed merger were listed on the Nasdaq Stock Market.
Material Tax Consequences
The exchange of ICCMIC common stock for cash by a stockholder in the
proposed merger will be a taxable transaction under the Code and will also be a
taxable transaction under state and local and other tax laws.
The following discussion addresses only those stockholders who hold their
ICCMIC common stock as a capital asset, and does not address all of the United
States federal income tax consequences that may be relevant to particular
stockholders in light of their individual circumstances or to stockholders who
are subject to special rules (including, without limitation, financial
institutions, tax exempt organizations, insurance companies, dealers in
securities or foreign currencies, foreign holders, persons who hold such shares
as a hedge against currency risk or a constructive sale or conversion
transaction, or stockholders who acquired their shares pursuant to the exercise
of employee stock options or otherwise as compensation).
64
<PAGE>
In general, a stockholder will recognize gain or loss equal to the
difference between the tax basis of the stockholder's ICCMIC common stock and
the amount of cash received in exchange therefor. Such gain or loss will be
capital gain or loss if the ICCMIC common stock is a capital asset in the hands
of the stockholder and will be long-term gain or loss if the stockholder has
held the ICCMIC common stock for more than 12 months as of the effective time of
the proposed merger.
Any loss recognized by a stockholder who has held his or her ICCMIC common
stock for six months or less (after applying certain holding period rules),
however, will be treated as a long-term capital loss to the extent of
distributions from ICCMIC required to be treated by such stockholder as long-
term capital gain.
If the ICCMIC common stock is treated as a "United States real property
interest," then, subject to the following discussion, under the Foreign
Investment in Real Property Tax Act of 1980, as amended ("FIRPTA"), a foreign
stockholder would be subject to:
. United States federal income tax at regular graduated rates on gain
recognized on the disposition of ICCMIC common stock pursuant to the
proposed merger, and
. withholding in respect of this tax at a rate of 10% of the amount
realized by the foreign stockholder in the proposed merger.
A "foreign stockholder" generally is a person or entity that, for United States
federal income tax purposes, is a nonresident alien individual, a foreign
corporation, a foreign partnership or a foreign estate or trust.
In general, however, the gain recognized on the disposition of ICCMIC
common stock by a foreign stockholder would not be subject to this tax under
FIRPTA if:
. ICCMIC is a "domestically controlled REIT," which is defined generally
under the Code as a REIT in which, at all times during the five-year
period preceding the proposed merger (or the period of the REIT's
existence, if shorter), less than 50% of the fair market value of the
REIT's outstanding stock was held directly or indirectly by foreign
stockholders; or
. ICCMIC's common stock is regularly traded on an established securities
market within the meaning of the Code, and the foreign stockholder does
not own, actually or constructively under attribution rules provided in
the Code, in excess of 5% of the fair market value of all common stock
outstanding at any time during the shorter of the five-year period
preceding the proposed merger or the foreign stockholder's holding
period.
Although it has made no investigation, ICCMIC has no reason to believe that it
is not a "domestically controlled REIT." ICCMIC's common stock is regularly
traded on an established securities market within the meaning of the Code.
Foreign stockholders are urged to consult their tax advisors concerning the
potential applicability of these provisions and the consequences of a sale or
other disposition of their ICCMIC common stock in advance of the proposed merger
or as part of the proposed merger.
65
<PAGE>
Gain recognized that is not subject to FIRPTA will nevertheless be taxable
to a foreign stockholder if:
. the foreign stockholder's investment in ICCMIC common stock is
effectively connected with a U.S. trade or business engaged in by such
stockholder, in which case the foreign stockholder will be subject to
the same treatment as U.S. stockholders with respect to such gain; or
. the foreign stockholder is a nonresident alien individual who was
present in the U.S. for 183 days or more during the taxable year and
certain other conditions apply, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital
gains.
If the gain on the sale of ICCMIC common stock were subject to taxation
under FIRPTA, the foreign stockholder would be subject to similar treatment as
U.S. stockholders with respect to such gain (subject to applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident alien
individuals, and the possible application of the 30% branch profits tax in the
case of non-U.S. corporations).
To avoid withholding, non-foreign stockholders should certify their non-
foreign status by completing the certification form that will be included with
the letter of transmittal sent after the proposed merger.
The exchange of ICCMIC common stock for cash by a stockholder will be
reported to the Internal Revenue Service. "Backup" withholding at a rate of 31%
will apply to payments made to a non-foreign stockholder (other than a
corporation or any other exempt non-foreign stockholder) unless the non-foreign
stockholder furnishes its taxpayer identification number in the manner
prescribed in applicable Treasury regulations, certifies that such number is
correct, certifies as to no loss of exemption from backup withholding and meets
certain other conditions. A foreign stockholder will be exempt from backup
withholding if the certification requirements described above are satisfied.
Payment of the proceeds from the disposition of the ICCMIC common stock to or
through the United States office of a broker is subject to information reporting
and backup withholding unless the stockholder establishes an exemption from
information reporting and backup withholding.
Any amounts withheld from a stockholder under the withholding rules
described above will be allowed as a refund or a credit against the
stockholder's United States federal income tax liability, if the required
information is furnished to the Internal Revenue Service on a timely basis.
The federal income tax discussion set forth above is included for general
information purposes only and is based upon present law. Due to the individual
nature of tax consequences, stockholders are urged to consult their tax advisors
as to the specific tax consequences to them of the proposed merger, including
the effects of applicable state, local or other tax laws.
Accounting Treatment
The proposed merger will be accounted for by ICII as a purchase of an
approximately 91.0% interest in ICCMIC under the "purchase" method of accounting
in accordance with generally accepted accounting principles.
66
<PAGE>
Under this accounting method, ICCMIC's historical results for the periods
before the proposed merger will remain unchanged. On the date of the proposed
merger, ICII will record ICCMIC's assets and liabilities on its books based on
their estimated fair value when the proposed merger is completed.
Pending Litigation
ICCMIC, its directors and ICII have been named as defendants in a putative
class action lawsuit filed on July 22, 1999 by Riviera-Enid, a Florida limited
partnership, in the Superior Court of the State of California for Los Angeles
County, California, docket number BC213902. The complaint alleges that the
proposed merger constitutes a breach of fiduciary duty by the defendants because
the merger price is alleged to be less than the liquidation value of ICCMIC's
assets. The complaint also alleges that the defendants have acted to the
detriment of ICCMIC's non-ICII stockholders in that: (i) they allegedly failed
to solicit arm's-length bids to sell ICCMIC; (ii) the proposed price allegedly
represents a low premium over the market price and is below the book value of
ICCMIC's common stock; (iii) ICII allegedly had an advantage over other
potential bidders as a result of the management agreement termination fee and
(iv) the proposed merger allegedly does not "give fair valuation" to ICCMIC-
owned property. The complaint also alleges that ICII will receive $4 million
more than it otherwise would have received but for the proposed merger, in
connection with a termination fee received on an unidentified mortgage loan
secured by property in the United Kingdom. Finally, the complaint alleges that
some of the directors have conflicts of interest because of their affiliation
with ICII and that the proposed merger will benefit ICII at the expense of
ICCMIC's other stockholders.
The complaint seeks certification of a class of all stockholders of ICCMIC
whose stock will be acquired in connection with the proposed merger and seeks
injunctive relief that would, if granted, prevent the completion of the proposed
merger. The complaint also seeks damages in an unspecified amount and other
relief. No motion for preliminary injunction has been filed. The defendants
believe that the material allegations of the complaint are without merit.
INTERESTS OF CERTAIN PERSONS IN THE PROPOSED MERGER
General
You should be aware that directors and officers of ICCMIC may have
interests in the proposed merger or relationships, including those described
below, that are different from, or in addition to, your interests as a
stockholder. The special committee and the board of directors were aware of
these potential or actual conflicts of interest and considered them along with
the other matters described under "- Recommendation of the Special Committee and
the Board of Directors; Reasons for the Proposed Merger." See also
"Relationships and Transactions Between ICII, ICCMIC and Affiliates."
Overlapping Directors and Officers
Mr. Snavely is a director of ICCMIC and a director and executive officer of
ICII. Mr. Villani is a director of ICCMIC and a director and former executive
officer of ICII. Mr. Snavely is the chairman of both companies. In addition, the
executive officers of ICCMIC, Messrs. Karlan, Meltzer and Seifert, are executive
officers of ICCMIC's manager, which is a subsidiary of ICII. Messrs. Snavely,
Villani and Karlan are also directors of the manager and Mr. Karlan is also a
director of ICCMIC.
Messrs. Snavely and Villani, as a result of their respective positions
with ICII and the manager, and Mr. Karlan, as a result of his position with the
manager, owe fiduciary duties to the stockholders of
67
<PAGE>
either ICII or the manager, as the case may be, in addition to the fiduciary
duties they owe to the stockholders of ICCMIC. At times, they may be confronted
by issues, including the proposed merger, that present them with potentially
conflicting interests and obligations. Because of the conflicting fiduciary
duties of these individuals, ICCMIC's board of directors empowered the special
committee to represent the interests of ICCMIC stockholders in the review,
evaluation and negotiation of the proposed merger. Due to their potential or
actual conflicts, Messrs. Snavely, Villani and Karlan were not appointed as
members of the special committee.
Treatment of Stock Options
Each of the directors and executive officers of ICCMIC, other than Messrs.
Snavely and Villani, whose stock options were cancelled, owns outstanding
options to purchase ICCMIC common stock that were issued pursuant to ICCMIC's
1997 Stock Option Plan, as amended (the "1997 Stock Option Plan"). Upon approval
of the merger agreement and the proposed merger by ICCMIC's stockholders, all
outstanding ICCMIC stock options will become immediately exercisable. Upon
completion of the proposed merger, these stock options will either be:
. converted into immediately exercisable options to purchase a number of
shares of ICII common stock at an exercise price determined based on
the fair value of the respective stock options, or determined under the
formula required by the Internal Revenue Code for converting incentive
stock options if the holder of an incentive stock options so elects; or
. exchanged for cash based on:
. for stock options whose exercise price is less than the merger
price per share, the greater of (x) the difference between the
exercise price and the merger consideration and (y) the fair value
of the stock option; or
. for stock options whose exercise price is greater than the merger
price per share, $1.10 per share (which the parties have agreed is
the fair value of such stock options).
Conversion for New ICII Stock Options. The conversion ratio and exercise
price of ICII stock options to be received in exchange for ICCMIC stock options
will be determined so that the fair value of the ICCMIC stock options held
before the proposed merger equals the fair value of the ICII stock options held
after the proposed merger. ICCMIC and ICII will determine the fair value of in-
the-money ICCMIC stock options using the Black-Scholes option pricing model. The
Black-Scholes option pricing model is a commonly used formula that option
traders and other option pricing experts use when attempting to price stock
options. This model determines the value of an option based on six variables:
. the current price of the common stock,
. the exercise price for the stock option,
. the risk-free interest rate,
. the expected duration of the stock option,
. the volatility of the common stock, and
. the dividend policies of the issuer.
ICCMIC and ICII have agreed that the Black-Scholes value of an ICCMIC stock
option whose exercise price exceeds the merger price is $1.10 per share.
68
<PAGE>
Incentive stock options will be converted into new ICII options under the
formula prescribed by the Internal Revenue Code for converting incentive stock
options if the holder of such incentive stock options fails to waive this
method. That formula preserves the aggregate spread (the difference between the
option exercise price and the fair market value of the shares subject to the
option, determined immediately before and immediately after the conversion) of
the options, which is not necessarily the Black-Scholes value of the options.
The ICII stock options received in exchange for ICCMIC stock options will
remain exercisable for one year following the completion of the proposed merger
if the option holder does not become or remain an employee of ICII or the
manager immediately after completion of the proposed merger. The ICII stock
options will remain exercisable for one year following termination of employment
with ICCMIC or the manager (or, after the effective time, ICII or a subsidiary)
if the option holder is terminated without cause or pursuant to a constructive
termination or voluntarily terminates his or her employment for good reason
under an employment or severance agreement.
Exchange for Cash. Alternatively, under the merger agreement, a holder of
an in-the-money stock option can elect to exchange all or part of the stock
option for cash equal to the greater of:
. the difference between the per share merger consideration, i.e., $11.50
plus any increase resulting from the appraisal of the management
agreement termination fee, and the exercise price of the stock option,
and
. the fair value of the stock option, using the Black Scholes option
pricing model.
All or any part of an out-of-the-money stock option can also be cashed out for
$1.10 per share, which ICII and ICCMIC agree represents the fair value of those
out-of-the-money stock options. The fair values of in-the-money ICCMIC stock
options have not yet been determined.
69
<PAGE>
The table below shows the number of ICCMIC stock options held by each of
the ICCMIC directors and executive officers as of the date of this proxy
statement and their respective exercise prices:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Name Option Shares Exercise Price
- ---- ------------- --------------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Patric H. Hendershott 30,000 $15.00
15,000 $ 9.00
- ------------------------------------------------------------------------------------------------------------
Joseph A. Jaconi, Jr. 30,000 $15.00
45,000 $ 9.00
- ------------------------------------------------------------------------------------------------------------
Louis H. Masotti 30,000 $15.00
15,000 $ 9.00
- ------------------------------------------------------------------------------------------------------
Kenneth A. Munkacy 30,000 $15.00
15,000 $ 9.00
- ------------------------------------------------------------------------------------------------------
Mark S. Karlan 517,500 $15.00
258,750 $ 9.00
- ------------------------------------------------------------------------------------------------------
Michael Meltzer 40,000 $15.00
34,500 $ 9.00
- ------------------------------------------------------------------------------------------------------
Norbert M. Seifert 69,000 $15.00
34,500 $ 9.00
- ------------------------------------------------------------------------------------------------------
H. Wayne Snavely 0 N/A
- ------------------------------------------------------------------------------------------------------
Kevin E. Villani 0 N/A
- ------------------------------------------------------------------------------------------------------
</TABLE>
Prior to, and in connection with, the signing of the merger agreement,
ICCMIC's manager, Imperial Credit Commercial Asset Management Corp., along with
Messrs. Snavely and Villani, cancelled all of their ICCMIC stock options. These
stock options were cancelled for a nominal payment from ICCMIC. ICII has
informed ICCMIC that, following the completion of the proposed merger, ICII will
reimburse Messrs. Snavely and Villani for their cancelled stock options
according to the option pricing formula, described above, provided in the merger
agreement for exchange of ICCMIC stock options. The following table shows the
number of these cancelled stock options and their respective exercise prices:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Name Option Shares Exercise Price
- ---- ------------- --------------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
H. Wayne Snavely 258,750 $15.00
129,375 $ 9.00
- ------------------------------------------------------------------------------------------------------
Kevin E. Villani 258,750 $15.00
129,375 $ 9.00
- ------------------------------------------------------------------------------------------------------
Imperial Credit Commercial Asset 1,691,250 $15.00
Management Corp.
- ------------------------------------------------------------------------------------------------------
</TABLE>
Agreements between Mark S. Karlan, ICII and the Manager
Mr. Karlan, who is President, Chief Executive Officer and a member of the
ICCMIC board, is also President, Chief Executive Officer and a member of the
board of directors of Imperial Credit Commercial Asset Management Corp.,
ICCMIC's manager. Mr. Karlan entered into an employment agreement with the
manager at the time of ICCMIC's initial public offering in October, 1997 which
provided for Mr. Karlan's employment as president and chief executive officer of
the manager for a term of five years. Among other things, the employment
agreement gives Mr. Karlan the right to receive 15% of the total economic value
of the manager upon certain events, including a buyout of the management
agreement by ICCMIC or sale of the management agreement to a third party.
70
<PAGE>
The manager and Mr. Karlan entered into a supplemental letter agreement
dated July 6, 1999 to clarify certain provisions of Mr. Karlan's employment
agreement in light of the prospect of the ICII merger proposal. In the
supplemental letter agreement, Mr. Karlan and the manager have agreed that if
the ICII merger proposal is completed, or if there is a payment to the manager
of a termination fee pursuant to a termination or buyout of the management
agreement then the manager will satisfy its contractual obligation to pay 15% of
the total economic value of the manager to Mr. Karlan by a single cash lump sum
payment equal to 15% of the appraised value of the management agreement
termination fee (subject to a maximum valuation of $35 million), reduced by
certain appraisal costs. The supplemental letter agreement also provides that,
in the event that Mr. Karlan's employment with the manager is terminated before
the expiration of his five year employment term in 2002, other than by the
manager for cause, the manager will pay Mr. Karlan liquidated damages in a
single cash lump sum equal to the greater of (x) the sum of his base salary (at
the rate in effect on July 6, 1999) and bonus (as earned in respect of the
calendar year 1998) multiplied by the remainder of his five year employment
agreement term and (y) the severance benefits to which Mr. Karlan would be
entitled under the employment retention plan with ICII and the manager.
Indemnification of Directors and Officers
In the merger agreement, ICII and the surviving corporation agreed that for
six years after the completion of the proposed merger they will honor all
existing rights of indemnification or exculpation, whether under ICCMIC's bylaws
or charter, an agreement or otherwise, currently provided to directors,
officers, employees and agents of ICCMIC and its subsidiaries and the manager.
ICII and the surviving corporation have also jointly agreed to indemnify all
current directors and officers of ICCMIC, any of its subsidiaries and the
manager against all liabilities relating to acts or omissions taken in their
corporate capacities before completion of the proposed merger.
Additionally, ICII shall, or shall cause the surviving corporation to,
maintain directors' and officers' liability insurance for all persons covered by
ICCMIC's current insurance for six years after the completion of the proposed
merger. Directors' and officers' liability insurance is a standard form of
corporate insurance and covers the acts or omissions of these persons in their
capacities as directors and officers occurring prior to the proposed merger.
The coverage of this insurance will be equivalent to existing coverage.
However, if the annual cost of that insurance would exceed 300% of the annual
cost of the current insurance coverage, ICII and the surviving corporation will
only be required to obtain the maximum coverage that can be obtained for that
300% amount.
ICII/Manager Employment Retention Plan
Messrs. Karlan, Meltzer and Seifert, who are officers (and, in the
case of Mr. Karlan, a director) of ICCMIC, are also officers (and, in the case
of Mr. Karlan, a director) of the manager and participants in the "Imperial
Credit Industries, Inc. and Imperial Credit Commercial Asset Management Corp.
Employment Retention Plan," which was executed as of January 27, 1999. The
retention plan provides benefits to a participant if his or her employment with
ICII, the manager or ICCMIC is terminated following a change in control of ICII,
the manager or ICCMIC by his or her employer without cause, or by the
participant with good reason. "Good reason" for resignation means any reduction
in salary below the higher of the rate in effect on the date of the change in
control or the rate in effect on the termination date; reduction of a
participant's bonus below his or her average bonus over the last two full fiscal
years before the change in control; a material diminution of the participant's
duties, titles or responsibilities; a diminution in the participant's coverage
by incentive compensation programs, welfare and pension plans; relocation of the
participant's principal place of business by more than 25 miles, after the
change in control, without his or her consent; or failure of ICII or the manager
to cause a successor to assume and perform the retention plan. In addition, if
a participant's employment with ICCMIC or the manager is
71
<PAGE>
terminated prior to a "change in control" at the request or suggestion of an
entity acquiring ownership and control of ICCMIC or the manager, the participant
will be deemed to have incurred a termination immediately following the change
in control so as to be entitled to benefits under the plan.
Mr. Karlan's supplemental letter agreement (see "- Agreements Between Mark
S. Karlan, ICII and the Manager") states that the proposed merger will be deemed
a "change in control" for purposes of the retention plan. In addition, it is
expected that ICII, which will acquire ownership of ICCMIC upon completion of
the proposed merger, will request or suggest, upon ICCMIC's anticipated
internalization of management on October 22, 1999, that employees of the manager
terminate their employment with the manager and become employees of ICCMIC.
Accordingly, employees of the manager who cease to be employees of the manager
and become employees of ICCMIC upon ICCMIC's internalization of management will
become entitled to benefits under the retention plan, payable upon the
completion of the proposed merger.
Benefits under the retention plan consist, generally, of a lump sum cash
payment of a percentage of annual base salary and bonuses for the calendar year
1998. The percentages for the participants who are directors or officers of
ICCMIC are: 300% for Mr. Karlan, 250% for Mr. Meltzer and 200% for Mr. Seifert.
The participant is also entitled to continuation of medical and other welfare
benefits for two years following his or her termination date, and the immediate
acceleration and payment of deferred compensation under ICII's deferred
compensation plan, any accrued but unused vacation pay and any accrued but
unpaid bonus. No mitigation of damages is required. Mr. Karlan's payments under
the retention plan would be reduced by the amount of any payment he receives
from similar benefits under his employment agreement as clarified by his
supplemental letter agreement. Payments under the retention plan are limited to
the amount (generally, three times average compensation) that can be made
without subjecting the participant to an excise tax under the "golden parachute"
provisions of Section 4999 of the Code.
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement and may not contain all of the information that you would consider to
be important. The summary is qualified in its entirety by reference to the
merger agreement, which is attached as Appendix A to this proxy statement.
The Proposed Merger
The merger agreement provides for the merger of ICCMIC Acquisition Corp.
with and into ICCMIC. ICCMIC will continue as the surviving corporation
following completion of the proposed merger as a wholly-owned subsidiary of
ICII. ICCMIC's stockholders other than ICII and its subsidiaries will receive
solely cash in exchange for their ICCMIC shares and none will continue as
shareholders of the surviving corporation.
Effective Time
The proposed merger will be effective when articles of merger have been
filed and accepted for record by the State Department of Assessments and
Taxation of Maryland or at such other time as is agreed to by ICCMIC and ICII.
The articles of merger will be filed as soon as practicable after the ICCMIC
stockholders approve the merger agreement and the proposed merger by the
required votes and the other conditions to the completion of the proposed merger
have been satisfied or waived. See "- Conditions."
72
<PAGE>
Merger Consideration
In the proposed merger, each outstanding share of ICCMIC common stock,
other than shares of common stock held by ICII and its subsidiaries, will be
converted into the right to receive $11.50 in cash from ICII, subject to
increase as described below.
The management agreement provides that ICCMIC must pay to the manager a
termination fee if ICCMIC terminates or does not renew the management agreement
at any time on or after October 22, 1999. In addition, the merger agreement
requires that appraisal firms be hired to appraise the value of the fee payable
on termination of the management agreement. In the proposed merger, if the
appraised value is less than $35 million, then the $11.50 per share cash payment
for each share of ICCMIC common stock will be increased by an amount of cash
equal to the quotient of:
. the difference between $35 million and the appraised value of the
termination fee, divided by
. the sum of the number of shares held by ICCMIC stockholders other than
ICII and its subsidiaries and the number of shares subject to ICCMIC
stock options that have an exercise price of less than $11.50 per
share.
The merger consideration will not be reduced if the appraised value of the
termination fee is greater than $35 million.
For a more detailed description of the process by which the termination fee
is being appraised, see "Special Factors: Background, Purpose and Effects of the
Proposed Merger - Management Agreement; Appraisal."
The merger consideration was determined as the result of arm's-length
negotiations between the special committee and ICII. See "Special Factors:
Background, Purpose and Effects of the Proposed Merger - Background of the
Proposed Merger," "- ICII's Purpose for Pursuing the Proposed Merger; Structure
of the Proposed Merger," "- Recommendation of the Special Committee and the
Board of Directors; Reasons for the Proposed Merger" and "- Opinion of the
Financial Advisor to the Special Committee."
Cancellation of ICCMIC Common Stock
Any shares of ICCMIC common stock held by persons other than ICII and its
subsidiaries will automatically be canceled and converted into the right to
receive the merger consideration.
Any shares of ICCMIC common stock held by ICII or its subsidiaries will
also automatically be canceled and retired in the proposed merger and will cease
to exist. No cash payment will be made in respect of these shares in the
proposed merger. ICCMIC and its subsidiaries own no shares of ICCMIC common
stock.
73
<PAGE>
Payment Procedures
ICII or ICCMIC will appoint a paying agent that will pay the merger
consideration in exchange for certificates representing ICCMIC shares. ICII or
ICCMIC Acquisition Corp. will deposit sufficient cash with the paying agent in
order to permit the payment of the merger consideration. Promptly after the
completion of the proposed merger, the paying agent will send ICCMIC
stockholders (other than ICII and its subsidiaries) a letter of transmittal and
instructions explaining how to send their stock certificates to the paying
agent. The paying agent will mail checks for the appropriate merger
consideration to ICCMIC stockholders promptly following the paying agent's
receipt and processing of their ICCMIC stock certificates and properly completed
transmittal documents.
After the closing of the merger, each certificate that previously
represented shares of ICCMIC common stock will represent only the right to
receive the merger consideration and any dividends permitted by the merger
agreement. No interest will be paid on the merger consideration or the dividend
amounts.
Stockholders should not send their common stock certificates now. They
should send them only pursuant to instructions set forth in the letters of
transmittal to be mailed to stockholders as soon as practicable after the
effective time of the proposed merger. In all cases, the merger consideration
will be provided only in accordance with the procedures set forth in this proxy
statement, the merger agreement and the letters of transmittal.
ICCMIC and ICII strongly recommend that certificates representing common
stock and letters of transmittal be transmitted only by registered United States
mail, return receipt requested, appropriately insured. Any stockholder whose
certificates are lost will be required, at the holder's expense, to furnish a
lost certificate affidavit and bond acceptable in form and substance to the
paying agent.
Any merger consideration held by the paying agent that remains unclaimed by
stockholders for 180 days after the effective time of the proposed merger will
be delivered to the surviving corporation, and, subject to escheat laws, any
stockholders who have not theretofore made an exchange must thereafter look only
to the surviving corporation for payment of their claim for the merger
consideration.
ICII will pay all charges and expenses of the paying agent in connection
with the proposed merger and the payment and issuance of the merger
consideration.
Any questions concerning exchange and payment procedures and requests for
letters of transmittal may be addressed to the paying agent.
Transfer of Common Stock
No transfer of common stock will be recorded on the stock transfer books of
ICCMIC, or otherwise recognized, after the effective time of the proposed
merger. If, at or after the proposed merger, certificates of ICCMIC common stock
are presented, they will be canceled and exchanged for the right to receive the
merger consideration, as provided in "- Payment Procedures. "
Stock Option and Other Plans
The effect of the merger on ICCMIC's outstanding employee stock options is
described under "Interests of Certain Persons in the Proposed Merger - Treatment
of Stock Options."
74
<PAGE>
Directors and Officers
The merger agreement provides that the directors and officers of ICCMIC
Acquisition Corp. immediately before the completion of the proposed merger will
be the directors and officers of the surviving corporation.
Solicitation Period and Superior Proposals
The merger agreement provided ICCMIC with a 60-day solicitation period,
during which it was allowed to:
. encourage, solicit, initiate, participate in or provide non-public
information to facilitate discussions or negotiations with third
parties concerning an alternative transaction involving the sale or
other disposition of all or substantially all of the assets or equity
securities of ICCMIC and its subsidiaries, or any tender offer or
exchange offer for, or resulting in issuance of, 50% or more of the
outstanding equity securities of ICCMIC; and
. enter into an agreement respecting fees and expenses in connection with
an alternative or competing transaction.
The solicitation period began on August 13, 1999 and expired at 12:01 a.m.
on October 13, 1999 with no superior proposal having been received. See "Special
Factors: Background, Purpose and Effects of the Proposed Merger - 60-Day Market
Check." Since the solicitation period has expired, ICCMIC now may not, directly
or indirectly, solicit or initiate discussions or negotiations concerning an
alternative or competing transaction and may not otherwise engage in the
foregoing activities, except in connection with an unsolicited superior proposal
(which for this purpose, means any proposal that, in the good faith judgment of
the ICCMIC board of directors, is more favorable to ICCMIC stockholders than the
ICII merger proposal and is reasonably capable of being consummated). However,
nothing in the merger agreement prevents either the ICCMIC board of directors or
the special committee from:
. taking, and disclosing to ICCMIC stockholders, a position complying
with Rule 14e-2(a) or Rule 14d-9 of the Exchange Act regarding a
competing transaction;
. making any disclosure to ICCMIC stockholders, if, in the good faith
judgment of the ICCMIC board of directors or the special committee,
after receiving advice of outside legal counsel, failure to disclose
would be reasonably likely to constitute a breach of its fiduciary
duties to ICCMIC or ICCMIC stockholders under applicable law;
. issuing a press release or publicly disclosing the terms of the merger
agreement in accordance with the provisions of the merger agreement; or
. taking any action which, in the good faith judgment of the ICCMIC board
of directors or the special committee, after receiving advice of
outside legal counsel, is required by a court order.
75
<PAGE>
ICII Standstill Agreement
Except with respect to the proposed merger or any "qualifying alternative
transaction," which we describe more fully below, ICII, together with its
affiliates, has agreed to be subject to restrictions on its ability to engage in
transactions with, and take actions in respect of, ICCMIC and its securities. In
particular, among other things, ICII may not do any of the following:
. acquire any ICCMIC equity securities other than the shares of ICCMIC
common stock it owned prior to July 22, 1999;
. except as contemplated by the merger agreement, acquire ownership of
any of the assets or businesses of ICCMIC or any securities issued by
ICCMIC, or any rights or options to do so;
. solicit proxies to vote or communicate with, or seek to advise or
influence any person or entity with respect to the voting of, any
voting securities of ICCMIC, or become a participant in any election
contest with respect to ICCMIC;
. make any proposal for the acquisition of ICCMIC or any of ICCMIC's
assets or securities or for any extraordinary transaction involving
ICCMIC;
. initiate, propose or otherwise solicit ICCMIC stockholders for the
approval of one or more stockholder proposals with respect to ICCMIC or
the ICCMIC board of directors, or seek the removal of any member of the
ICCMIC board of directors;
. participate in a group with respect to any ICCMIC voting securities;
. otherwise seek to control or influence ICCMIC's management, ICCMIC's
board of directors or ICCMIC's policies, except as permitted or
required by the management agreement or by such person's status as an
ICCMIC director or officer;
. disclose any intention or plan inconsistent with any of the above or
assist or encourage or finance any other person in connection with any
of the above; or
. request a waiver of any of the above.
If ICCMIC terminates the merger agreement in favor of a superior proposal
which provides for payment of non-cash consideration to ICCMIC stockholders in
exchange for their shares, then the above standstill restrictions will not
prevent ICII from proposing a qualifying alternative transaction. A "qualifying
alternative transaction" means any transaction:
. by which ICII acquires or seeks to acquire all of the shares of ICCMIC
common stock for a cash payment of not less than $11.50 per share plus
any amount of increase in the merger consideration from the appraisal
of the management agreement termination fee, adjusted to take into
account any extraordinary cash distribution made by ICCMIC following
termination of the merger agreement or any issuance or repurchase by
ICCMIC of ICCMIC capital stock, and
. which includes other terms and conditions substantially similar to the
terms and conditions of the merger agreement.
76
<PAGE>
The price requirement described in the first bullet of the above definition
of "qualifying alternative transaction" does not apply if the amount of any
break-up fee payable by ICCMIC to a third party regarding a superior proposal
with the third party exceeds $6 million. The merger agreement contains
additional restrictions on ICII if the proposed qualifying alternative
transaction is a tender or exchange offer.
ICCMIC's stockholders rights plan and charter substantially restrict ICII's
ability to consummate a qualifying alternative transaction unless the ICCMIC
board ultimately consents to such a transaction.
SPB Loans
The merger agreement required ICII to purchase from ICCMIC 16 SPB mortgage
loans having an aggregate outstanding principal balance of approximately $3.9
million if those loans were not repurchased by SPB. The repurchase was required
to be at the prices provided for in the agreements under which ICCMIC originally
acquired the loans from SPB and was to be completed by the later of 60 days from
the signing of the merger agreement or 5 days after the termination of the
merger agreement. See "Relationships and Transactions Between ICII, ICCMIC and
Affiliates - Other Contractual Relationships Between ICII and its Affiliates and
ICCMIC." All of the loans have been repurchased.
Representations and Warranties
The merger agreement contains representations and warranties made by ICCMIC
to ICII, including representations and warranties relating to:
. the due organization, corporate power and valid existence of ICCMIC and
its subsidiaries and similar corporate matters;
. the capitalization of ICCMIC and its subsidiaries;
. the authorization, execution and delivery of the merger agreement by
ICCMIC;
. the accuracy of ICCMIC's SEC reports and financial statements;
. required consents, approvals, permits and authorizations of regulatory
entities relating to the merger agreement;
. the receipt by the special committee of a fairness opinion from
Prudential Securities;
. brokers and finders fees with respect to the proposed merger;
. the accuracy of the information provided by ICCMIC for inclusion in
this proxy statement and in the Schedule 13E-3 prepared by ICII with
regard to the proposed merger;
77
<PAGE>
. the inapplicability of the ICCMIC stockholders rights plan to the
proposed merger; and
. compliance with applicable laws.
The merger agreement also contains representations and warranties made by
ICII and ICCMIC Acquisition Corp. to ICCMIC, including representations and
warranties relating to:
. the due organization, corporate power and valid existence of ICII and
its subsidiaries and similar corporate matters;
. the authorization, execution and delivery of the merger agreement by
ICII;
. the accuracy of ICII's SEC reports and financial statements;
. required consents, approvals, permits and authorizations of regulatory
entities relating to the merger agreement;
. brokers and finders fees with respect to the proposed merger;
. ICII's ownership of ICCMIC common stock;
. the accuracy of the information provided by ICII and ICCMIC Acquisition
Corp. for inclusion in this proxy statement and in the Schedule 13E-3
prepared by ICII with regard to the proposed merger;
. ICII's access to funds sufficient to complete the proposed merger; and
. the purposes for which ICCMIC Acquisition Corp. was formed.
The representations and warranties made by each of the parties to the
merger agreement will expire upon completion of the proposed merger.
Covenants; Conduct of Business Pending the Proposed Merger
Conduct of Business. ICCMIC and its subsidiaries have agreed to conduct
their operations from July 22, 1999 through the completion of the proposed
merger in the ordinary course of business, consistent with past practice, except
as otherwise contemplated in the merger agreement.
In addition, ICCMIC has agreed that, except as provided in the merger
agreement or with the prior written consent of ICII, ICCMIC will not, and will
not permit any of its subsidiaries to:
78
<PAGE>
. amend its charter or bylaws;
. issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any securities of ICCMIC or any of its subsidiaries except
as required by any existing employee benefit plans;
. split, combine or reclassify any stock, or declare, set aside, or pay
any dividend or any other distribution, except for:
. regular quarterly dividends not exceeding 105% of its
taxable income;
. any distributions not exceeding 105% of its taxable income
that may be necessary to maintain REIT status; and
. a final dividend for the taxable year ending as of the
completion of the proposed merger not exceeding 100% of its
taxable income for such taxable year, less the amount of all
prior dividends paid in respect of that taxable year;
. subject to specified exceptions, acquire, sell, lease, license or
otherwise dispose of material assets or enter into any material
contract outside of the ordinary course of business;
. except as required by a change in law or in generally accepted
accounting principles, change any of its accounting principles or
practices;
. merge, consolidate or make any corporate acquisitions;
. subject to specified exceptions, pay, discharge or satisfy any claims,
liabilities or obligations, other than in the ordinary course of
business in accordance with past practice;
. settle or compromise any claim, suit or other litigation or matter in
an arbitration proceeding for an amount in excess of $100,000 (less
insurance proceeds to which ICCMIC or any of its subsidiaries is
entitled), or otherwise on terms that would be material to ICCMIC and
its subsidiaries;
. create or assume with respect to any of its assets any mortgage, lien,
or similar encumbrance of any kind that would reasonably be expected to
be material to ICCMIC and its subsidiaries;
79
<PAGE>
. subject to specified exceptions, make any loan, advance or capital
contribution exceeding $500,000; or
. take or omit to take any action that would terminate ICCMIC's status as
a REIT.
Reasonable Best Efforts. Each of the parties to the merger agreement has
agreed to use its reasonable best efforts to complete the proposed merger as
soon as practicable after the stockholder vote with respect to the merger
agreement and the proposed merger.
Notices. In the merger agreement, each party has agreed to give
prompt notice to the other of:
. any event that would be likely to cause any representation or warranty
made by it in the merger agreement to become untrue in any material
respect;
. the material failure by it to comply with or satisfy any covenant,
condition or agreement required to be complied with or satisfied by it
under the merger agreement;
. any notice of a default or potential default under any material
contract;
. any notice from a third party alleging that its consent is necessary in
connection with the proposed merger; and
. any change, event or circumstance that has had or would have a material
adverse effect on ICCMIC or ICII.
The merger agreement further provides that ICCMIC and ICII will provide to
each other copies of all reports filed with the SEC after the date of the merger
agreement.
Special Meeting; Disclosure. ICCMIC and ICII have agreed in the merger
agreement to prepare and file with the SEC this proxy statement and a Rule 13e-3
Transaction Statement on Schedule 13E-3, and to use all reasonable best efforts
to cause this proxy statement (including the information contained in the
Schedule 13E-3) to be disseminated to stockholders. The merger agreement further
provides that ICCMIC will afford ICII and its representatives reasonable access
to its and its subsidiaries' business, properties and personnel.
The merger agreement provides that ICCMIC's board of directors will:
. call and convene the special meeting for the purpose of obtaining the
required stockholder approval as soon as reasonably practicable
following expiration of the 60-day solicitation period described in this
proxy statement, and
. subject to the ICCMIC directors' fiduciary duties and their rights to
solicit and deal with "superior proposals," recommend to the
stockholders that they approve the merger agreement. See "- Solicitation
Period and Superior Proposals."
80
<PAGE>
Exemption from "Excess Share" Provision of ICCMIC's Charter. ICCMIC's
charter provides that, subject to specified exceptions, no person may own, or be
deemed to own, more than 9.9% of the outstanding shares of ICCMIC common stock.
In the merger agreement, ICCMIC's board of directors agreed to exempt the
transactions contemplated by the merger agreement from this excess share
provision if the conditions specified in ICCMIC's charter are satisfied. In
addition, the parties agreed that any application of the excess share provision
to the proposed merger would not constitute a breach of the merger agreement.
Indemnification and Insurance. ICII and ICCMIC Acquisition Corp. have
agreed that all rights to indemnification that the directors, officers,
employees and agents of ICCMIC currently possess with respect to actions or
omissions occurring prior to the completion of the proposed merger will continue
for six years after the completion of the proposed merger. In addition, all
rights to indemnification in respect of any claim asserted or made within that
six-year period will continue until the disposition of the claim. After the
completion of the proposed merger, ICII and the surviving corporation jointly
and severally will indemnify, hold harmless and defend all current and former
directors and officers of the manager and/or ICCMIC and any of their
subsidiaries against all losses, claims, damages, liabilities, judgments, costs
or expenses arising out of or pertaining to acts or omissions (or alleged acts
or omissions) by them in their capacities as directors or officers. That
indemnification is mandatory rather than permissive to the extent permitted by
Maryland law. Immediately upon completion of the proposed merger, ICII and the
surviving corporation will jointly and severally assume ICCMIC's obligations
under any indemnification agreements entered into by ICCMIC for the benefit of
its directors and officers.
ICII has agreed to maintain policies of directors' and officers' liability
and fiduciary insurance in effect for not less than six years after the
completion of the proposed merger, on terms no less favorable than ICCMIC's
current policies. This obligation is subject to the exception that ICII is not
required to pay premiums for this insurance exceeding 300% of the current
aggregate annual premium paid by ICCMIC as of the date of the merger agreement.
If the premiums for this insurance coverage are greater than 300% of the
aggregate premium paid by ICCMIC, ICII must purchase an insurance policy with
the greatest coverage available for 300% of the aggregate annual premium.
Conditions
The obligations of ICCMIC, ICII and ICCMIC Acquisition Corp. to complete
the proposed merger are subject to the satisfaction or waiver at or prior to the
effective time of the proposed merger of the following conditions:
. the approval of the merger agreement and the proposed merger by the
holders of a majority of the total number of outstanding shares, as
well as by a majority of the ICCMIC shares entitled to vote at the
special meeting (other than shares held by ICII and Messrs. Snavely and
Villani); and
. the absence of any statute, rule, regulation, executive order, decree,
rule or injunction making the proposed merger illegal or prohibiting
its completion.
The obligations of ICII and ICCMIC Acquisition Corp. to complete the
proposed merger are further subject to the satisfaction or waiver of the
following additional conditions:
81
<PAGE>
. the representations and warranties of ICCMIC in the merger agreement or
in any other document delivered pursuant to the merger agreement must
be true and correct in all material respects as of the effective time
of the proposed merger;
. ICCMIC must have performed its obligations under the merger agreement
in all material respects; and
. the "excess share" provision of ICCMIC's charter will have been waived.
The obligation of ICCMIC to complete the proposed merger is subject to the
satisfaction or waiver of the following additional conditions:
. the representations and warranties of ICII and ICCMIC Acquisition Corp.
in the merger agreement or in any other document delivered pursuant to
the merger agreement must be true and correct in all material respects
as of the effective time of the proposed merger;
. ICII and ICCMIC Acquisition Corp. will have performed their obligations
under the merger agreement in all material respects; and
. the opinions and agreements necessary for waiver of the "excess share"
provision of ICCMIC's charter will have been received.
Termination; Withdrawal of Recommendations
The merger agreement may be terminated, and the proposed merger abandoned,
at any time prior to the effective time, whether before or after approval by the
stockholders:
. by mutual written consent of ICII and ICCMIC;
. by either ICII or ICCMIC if:
. any regulatory body has issued an order or taken any other action
permanently restraining, enjoining or otherwise prohibiting the
proposed merger and the order or other action has become final and
nonappealable;
. the representations and warranties made by the other party in the
merger agreement were materially untrue when made or later become
materially untrue;
. the other party breaches in any material respect any of its
obligations under the merger agreement, and fails to cure the
breach within 20 days;
. the proposed merger has not been completed by January 31, 2000; or
82
<PAGE>
. the requisite approval of ICCMIC stockholders is not obtained at
the special meeting or any adjournment or postponement thereof;
. by ICII if:
. prior to the effective time of the proposed merger, ICCMIC's board
of directors approves or recommends, or resolves to approve or
recommend, a superior proposal (in which case ICII must vote,
tender or exchange its shares of ICCMIC common stock in favor of
the superior proposal if the superior proposal is an all cash
proposal); or
. prior to the effective time of the proposed merger, ICCMIC's full
board of directors withdraws or modifies its approval or
recommendation of the ICII merger proposal in a manner adverse to
ICII; and
. by ICCMIC if, prior to the effective time of the proposed merger,
ICCMIC's board of directors approves or recommends a superior proposal
(in which case, as stated above, ICII must vote, tender or exchange its
shares in favor of the superior proposal, provided it is an all cash
proposal).
As a general matter, however, neither party may terminate the merger
agreement if it has failed to use its reasonable best efforts to carry out the
proposed merger.
Termination Fees and Expenses
ICII and ICCMIC have agreed that all expenses incurred in connection with
the merger agreement and the proposed merger are to be paid by the party that
incurs them. Nonetheless, if ICCMIC's board of directors recommends a superior
proposal and the merger agreement is terminated as a result, ICCMIC must pay all
of ICII's actual expenses (not including investment banking expenses other than
the investment bankers' out-of-pocket expenses, and not including expenses
relating to ICII's financing arrangements), up to a maximum of $2 million. In
addition, if the merger agreement is deemed void or voidable under Maryland law
pursuant to Maryland's "business combinations" statute, ICII must pay ICCMIC's
actual expenses in connection with the merger agreement and the proposed merger.
The merger agreement provides that if the merger agreement terminates
(other than as a result of a breach by ICCMIC of the merger agreement), the
management agreement between ICCMIC and the manager will also terminate, in
which case ICCMIC must pay to the manager a termination fee equal to the lesser
of $35 million and the appraised value of the termination fee. For a detailed
discussion of the appraisal of the manager's termination fee, see "Special
Factors: Background, Purpose and Effects of the Proposed Merger - Management
Agreement; Appraisal." (ICCMIC's management agreement with the manager
is expected to expire on October 22, 1999. However, the parties have agreed
that ICCMIC will not be required to pay the termination fee unless the merger
agreement is terminated, in which event the termination fee will be due and
payable at that time).
Amendment and Waiver
The merger agreement may be amended at any time before or after approval of
the merger agreement and the proposed merger by the stockholders of ICCMIC.
After stockholder approval, however, no amendment may be made that requires
further approval by the stockholders of ICCMIC under applicable law without
obtaining that further approval. In general, after stockholder approval, a
merger agreement may not be amended in a manner that materially adversely
affects stockholders without
83
<PAGE>
their prior approval. No such amendment is currently contemplated by ICCMIC or
ICII. If such an amendment is made, ICCMIC will resolicit proxies and obtain the
approval of stockholders prior to completing the proposed merger.
The merger agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties thereto. At any time prior to the
effective time of the proposed merger, each of the parties to the merger
agreement may:
. extend the time for the performance of any of the obligations or other
acts of the other parties;
. waive any inaccuracies in the representations and warranties of the
other parties contained in the merger agreement or in any document
delivered pursuant to the merger agreement; and
. waive compliance by the other parties of any of the agreements or
conditions contained in the merger agreement.
Any agreement on the part of a party to the merger agreement to any
extension or waiver will be valid only if set forth in a written instrument
signed on behalf of such party and expressly referring to the merger agreement.
FEES AND EXPENSES
The estimated aggregate costs and fees of ICCMIC and ICII in connection
with the merger agreement and the proposed merger are as follows:
<TABLE>
<CAPTION>
To Be To Be
Paid By Paid By
ICCMIC ICII
-------- --------
<S> <C> <C>
Investment Banking Fees and Expenses....................
Filing Fees.............................................
Legal Fees and Expenses.................................
Bank Fees and Services..................................
Board of Directors Fees and Expenses....................
Accounting Fees and Advisory Services...................
Appraisal Fees..........................................
Printing, Mailing and Vote Solicitation Fees............
Miscellaneous Fees......................................
___________ __________
Total........................................
</TABLE>
The merger agreement provides that each party is to pay the fees and
expenses incurred by it, except under certain circumstances. See "The Merger
Agreement - Termination Fees and Expenses."
84
<PAGE>
REGULATORY REQUIREMENTS
Except for the filing of articles of merger with the State Department of
Assessments and Taxation of Maryland after the approval of the merger agreement
and the proposed merger by ICCMIC's stockholders, and compliance with federal
and state securities laws, neither ICCMIC nor ICII is aware of any material
United States federal or state or foreign governmental regulatory requirement
that must be complied with, or approval that must be obtained, in connection
with the proposed merger.
ICCMIC and ICII believe that the proposed closing of the merger will not
violate any antitrust laws and also that the merger may be completed without
notification being given or information being furnished to the Federal Trade
Commission or the Antitrust Division of the Department of Justice pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976. At any time before or
after the completion of the proposed merger, however, either the FTC or the
Antitrust Division could take any action under the antitrust laws as it deems
necessary or desirable in the public interest. Other persons could also take
action under the antitrust laws, including an attempt to enjoin the proposed
merger. Accordingly, there can be no assurance, however, that a challenge to the
proposed merger on antitrust grounds will not be made or, if a challenge is
made, what the result will be.
85
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF ICCMIC
The following table presents selected historical financial data and other
operating information for ICCMIC as of and for each of the periods indicated. We
derived the financial data in the table from ICCMIC's consolidated financial
statements. In the case of the column headed "1997", the data relate to ICCMIC's
initial short period of operations from the date of completion of its initial
public offering on October 22, 1997 until December 31, 1997. The data should be
read in conjunction with the consolidated financial statements, related notes
and other financial information included or incorporated by reference in this
proxy statement. See "Where You Can Find More Information."
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the six months For the year ended For the short period
ended June 30 December 31, ended December 31,
1999 1998 1998 1997
---- ---- ------------------ --------------------
<S> <C> <C> <C> <C>
Statement of Earnings Data:
Interest Income............................................ $30,993 $21,382 $49,737 $6,467
Real Property Rental Income................................ 6,994 993 7,684 --
------- ------- ------- ------
Total Income............................................. 37,987 22,375 57,421 6,467
------- ------- ------- ------
Operating Expenses:
Management fees............................................ 3,704 2,565 6,319 940
Interest expense........................................... 9,753 1,034 11,165 --
Provision for loan losses.................................. 4,633 100 6,300 --
Write-down of securities available-
for-sale................................................ -- -- 4,554 --
Depreciation of real property.............................. 1,582 242 1,755 --
Real property operating expenses........................... 1,601 214 1,872 --
Due diligence expenses..................................... 1,957 524 1,659 487
Stock options issued to manager and
its employees........................................... -- -- 97 2,550
Other...................................................... 673 670 1,456 331
------- ------- ------- ------
Total Expenses.......................................... 23,903 5,349 35,177 4,308
------- ------- ------- ------
Net Earnings............................................ $14,084 $17,026 $22,244 $2,159
======= ======= ======= ======
Earnings per share - Basic and diluted....................... $0.49 $0.49 $0.68 $ 0.06
Ratio of earnings to fixed charges(1)........................ 2.44 to 1 17.18 to 1 2.98 to 1 --
Cash dividends declared per share............................ $0.60 $0.52 $1.18 $ 0.13
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
As of As of
As of December 31, December 31,
June 30, 1999 1998 1997
----------------- ------------------- -------------------
<S> <C> <C> <C>
Balance Sheet Data:
Total invested assets........................................ $579,631 $721,982 $331,330
Total assets................................................. 703,870 757,174 495,137
Total outstanding borrowings................................. 285,332 331,132 --
Total liabilities............................................ 300,768 348,365 15,435
Total stockholders' equity................................... 403,102 408,809 479,702
Ratio of debt to total capitalization........................ 41% 45% --
Book value per share......................................... $14.14 $14.34 $ 13.90
</TABLE>
____________________________
(1) For the purpose of calculating the ratios of earnings to fixed charges,
earnings consist of net earnings before income taxes, extraordinary items
and certain fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing costs and that portion of rental expense
representative of the interest factor in leases.
COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION
ICCMIC's common stock is listed on the Nasdaq Stock Market under the symbol
"ICMI." As of September 30, 1999, there were approximately 44 record holders and
3,000 beneficial holders of ICCMIC's common stock.
Market Prices
The following table shows, for the periods indicated, the high and low sale
prices for ICCMIC common stock as reported by the Nasdaq Stock Market.
<TABLE>
<CAPTION>
High Low
------------- ----------------
<S> <C> <C>
1997:
Fourth quarter (commencing October
17, 1997)................................ $19.125 $14.230
1998:
First quarter............................ $16.750 $14.125
Second quarter........................... $16.500 $12.875
Third quarter............................ $13.063 $ 8.563
Fourth quarter........................... $10.375 $ 6.500
1999
First quarter............................ $10.875 $ 8.313
Second quarter........................... $11.500 $ 8.500
Third quarter............................ $11.250 $10.500
Fourth quarter (through October 20, 1999) $11.000 $10.438
</TABLE>
On May 12, 1999, the last full trading day prior to ICII's public
announcement of its initial proposal, and on July 21, 1999, the last full
trading day prior to the public announcement of the merger agreement, the
closing sale prices of ICCMIC common stock reported on the Nasdaq Stock Market
were $9.875 and $10.75 per share, respectively. On ___________, 1999, the most
recent practicable date prior
87
<PAGE>
to the printing of this proxy statement, the closing price of ICCMIC common
stock reported on the Nasdaq Stock Market was $______. Stockholders should
obtain current market quotations for ICCMIC common stock prior to making any
decision with respect to the proposed merger.
Dividend Policy
To maintain its qualification as a REIT, ICCMIC is required to pay
dividends to stockholders equal to at least 95% of its taxable income, which may
not necessarily equal its net earnings, as calculated in accordance with
generally accepted accounting principles. Calculation of taxable income is
determined without regard to the deduction for dividends paid and excludes any
net capital gains. To satisfy this requirement, ICCMIC declares regular
quarterly dividends.
The merger agreement permits ICCMIC to declare and pay regular quarterly
dividends in an amount not to exceed 105% of its quarterly taxable income, if
any, and we expect to do so for each calendar quarter prior to the one in which
the proposed merger occurs. The merger agreement also permits ICCMIC to declare
a final dividend, the record date of which will be the business day immediately
prior to the completion of the proposed merger. This final dividend may not
exceed 100% of ICCMIC's taxable income, if any, for its taxable year up to the
date of the proposed merger, reduced by the amount of any dividends already paid
during the year. We expect to declare the final dividend, if any, shortly before
completion of the proposed merger. The final dividend, if declared, will be paid
as soon as practicable after the completion of the proposed merger.
Distributions to stockholders are generally taxable as ordinary income, but
a portion of such distributions may be capital gains or may constitute a tax-
free return of capital. ICCMIC furnishes an annual statement to each of its
stockholders of record listing the distributions ICCMIC has paid during the
preceding year and their characterization as ordinary income, capital gain or
return of capital.
The following table lists the cash dividends declared by ICCMIC for 1997,
1998 and 1999 to date.
<TABLE>
<CAPTION>
Amount Per
Share Record Date Payment date
--------- ----------- ------------
<S> <C> <C> <C>
1997 - Initial period of operations........................... $0.13 12/31/97 1/16/98
=====
1998:
First quarter............................................... $0.24 3/31/98 4/14/98
Second quarter.............................................. $0.28 7/9/98 7/23/98
Third quarter............................................... $0.33 9/30/98 10/14/98
Fourth quarter.............................................. $0.33 12/31/98 1/21/99
-----
Year..................................................... $1.18
=====
1999:
First quarter............................................... $0.30 3/31/99 4/15/99
Second quarter.............................................. $0.30 6/30/99 7/15/99
Third quarter............................................... $0.22 10/8/99 10/15/99
</TABLE>
The dividends for 1997 and 1998 presented in the above table were all
characterized for tax purposes as ordinary income.
88
<PAGE>
The declaration of future dividends, if any, will depend upon business
conditions, the earnings and financial position of ICCMIC, ICCMIC's plans with
respect to operating and capital expenditures, tax requirements and such other
matters as ICCMIC's board of directors determines to be relevant.
RELATIONSHIPS AND TRANSACTIONS
BETWEEN ICII, ICCMIC AND AFFILIATES
Relationships with the Manager
General. Until October 22, 1999, ICCMIC's day-to-day operations will
continue to be conducted by its manager, Imperial Credit Commercial Asset
Management Corp., subject to the supervision of ICCMIC's board of directors. The
manager is a wholly-owned subsidiary of ICII. ICCMIC currently does not employ
any salaried personnel. Rather, it relies on the facilities, personnel and
resources of the manager to conduct its operations.
ICCMIC anticipates that ICCMIC's management agreement with the manager will
expire as of October 22, 1999. ICCMIC's board of directors intends to hire 16
employees of the manager on a full-time salaried basis to manage ICCMIC's day-
to-day operations following the expiration of the management agreement. Those
employees would be expected at such time to be terminated from their positions
with the manager.
Directors and Executive Officers of the Manager. The directors and
executive officers of the manager are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- ---- --------
<S> <C> <C>
H. Wayne Snavely 58 Chairman of the Board of Directors
Kevin E. Villani 51 Vice Chairman of the Board of Directors
Mark S. Karlan 41 President, Chief Executive Officer and Director
Michael Meltzer 53 Chief Financial Officer and Treasurer
Norbert M. Seifert 43 General Counsel, Senior Vice President and Secretary
</TABLE>
Each of these persons also serves as a director and/or executive officer of
ICCMIC.
Biographical information on ICCMIC's directors and officers can be found in
ICCMIC's Annual Report on Form 10-K for the year ended December 31, 1998, as
amended, which is incorporated by reference in this proxy statement.
Management Agreement Fees. Under the management agreement, the manager
receives a base management fee calculated as a percentage of ICCMIC's average
invested assets for each calendar quarter. The base management fee percentage
decreases as the amount of assets being managed increases, in accordance with
the following schedule:
. 1% per year for the first $1 billion of average invested assets,
. 0.75% per year for the next $250 million of average invested assets,
and
. 0.50% per year for all average invested assets above $1.25 billion.
For these purposes, "average invested assets" means the daily average of the
aggregate book value of ICCMIC's assets, including the assets of all of its
subsidiaries, before reserves for depreciation, bad debts or similar non-cash
items.
89
<PAGE>
In addition to its base management fee, the manager is entitled to receive
a quarterly incentive fee if its performance target is met. The performance
target requires that ICCMIC's funds from operations, on a per share basis,
exceed a target rate of return equal to 4% above the 10-year U.S. treasury rate.
The following table shows the fees that the manager has earned to date. An
incentive fee was earned by, and paid to, the manager for the second quarter of
1999.
(Dollars in thousands)
<TABLE>
<CAPTION>
Base Incentive Total
------------------ ------------------ ------------------
Management Fee Management Fee Management Fee
------------------ ------------------ ------------------
<S> <C> <C> <C>
Period ended December 31, 1997............ $ 940 -- $ 940
Year ended December 31, 1998.............. $6,319 -- $6,319
January 1, 1999 through June 30, 1999..... $3,663 $41 $3,704
</TABLE>
Termination Fee. The merger agreement provides that if the merger
agreement terminates (other than as a result of a breach of the merger agreement
by ICCMIC), the management agreement between ICCMIC and the manager will also
terminate (if it has not already been terminated), in which case ICCMIC must pay
to the manager a termination fee equal to the lesser of $35 million and the
appraised amount of the termination fee provided for in the management
agreement. For a detailed discussion of the amount payable in connection with
the termination or non-renewal of the management agreement, see "Special
Factors: Background, Purpose and Effects of the Proposed Merger - Management
Agreement; Appraisal."
Other Contractual Relationships Between ICII and its Affiliates and ICCMIC
ICII and its affiliates, including SPB, are in the business of originating
mortgage loans and interests in commercial mortgage-backed securities. SPB has
entered into an agreement that grants ICCMIC, as long as the management
agreement is in effect, the first right to purchase not less than $150 million
annually of mortgage loans originated by SPB that are typical of those
originated by SPB.
In 1997 and 1998, ICCMIC purchased 1,049 multifamily and commercial
mortgage loans from SPB for a price of approximately $400 million. The mortgage
loans purchased had an aggregate principal balance of approximately $388 million
and had original terms to maturity of not more than 360 months. SPB represented
that each mortgage loan was secured by a mortgage or deed of trust on real
property, including:
. multifamily homes,
. retail properties,
. office properties,
. industrial properties,
90
<PAGE>
. mobile homes,
. mixed use properties, including mixed commercial uses and mixed
commercial and residential uses, and
. other commercial real property.
SPB has performed the primary servicing of these and other SPB originated
mortgage loans on behalf of ICCMIC. SPB stopped being the primary servicer of
almost all of these loans in July 1999, when ICCMIC transferred the primary
servicing to Banc One Mortgage Capital Markets, LLC (now ORIX Real Estate
Capital Markets).
In 1997, ICCMIC purchased certain CMBS interests for $55 million from ICII
and SPB.
In 1997 and 1998, ICCMIC also purchased from FMAC, another of ICII's
affiliates, 97 mortgage loans originated by FMAC for a price of $101 million,
which approximately equaled the aggregate principal amount of those loans. At
the time of those purchases, FMAC granted ICCMIC the right to resell those loans
to FMAC on demand. FMAC has repurchased all of those mortgage loans. The
repurchase by FMAC resulted in a gain to ICCMIC of $818,000. In 1997 and 1998,
ICCMIC also acquired from FMAC approximately $6 million of asset-backed
securities. Those securities are backed by mortgage loans originated or
acquired by FMAC.
Since September 1998, ICCMIC has not purchased any loans or other
assets from ICII, SPB, FMAC or any of their affiliates. During 1999, SPB
repurchased from ICCMIC certain multifamily and commercial real estate loans
with an aggregate principal balance of $45.5 million. ICCMIC is presently
negotiating with ICII to resolve certain claims that ICCMIC may have against
SPB, ICII or both in connection with the repurchased loans and other loans that
ICCMIC previously purchased from SPB. ICII has informed ICCMIC that it believes
ICCMIC's claims, which aggregate to approximately $1.8 million, are largely
without merit.
Additional information concerning ICCMIC's transactions with ICII and its
affiliates is contained in ICCMIC's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, as amended, which is incorporated by reference in
this document.
Purchases and Sales of Common Stock by ICII and its Affiliates
On the date of completion of ICCMIC's initial public offering on October
22, 1997, ICII purchased 2,970,000 shares of ICCMIC common stock at a price
equal to the initial public offering price, net of underwriting discounts and
commissions, or $13.95 per share. In connection with this purchase, Friedman
Billings, the lead underwriter for ICCMIC's initial public offering, required
ICII to enter into a lock-up agreement. The lock-up agreement required ICII to
retain its shares of ICCMIC common stock for two years after the initial public
offering. If ICCMIC terminates the management agreement, ICII may dispose of its
shares at any time thereafter.
On December 11, 1997, ICII purchased an additional 100,000 shares of ICCMIC
common stock in an open market transaction at a price of $15.00 per share.
ICII's stock purchases and ICCMIC's subsequent repurchase of 6,000,000 shares of
its common stock resulted in ICII's direct ownership of 10.8% of the total
shares of common stock of ICCMIC. ICII subsequently reduced its direct ownership
to 9.0% through a sale of 500,000 shares at a per share price of $10.875 on June
24, 1999.
91
<PAGE>
On October 16, 1997, ICCMIC granted a non-qualified option for 1,691,250
shares of ICCMIC common stock to the manager pursuant to the 1997 Stock Option
Plan. The stock option had an exercise price of $15.00 per share and would have
expired on October 16, 2007. The manager's stock option was canceled on July 22,
1999, prior to the signing of the merger agreement, for nominal payment from
ICCMIC.
Prior to execution of the merger agreement, Messrs. Snavely and Villani
agreed to the cancellation of their respective ICCMIC stock options for nominal
payment from ICCMIC. ICII has informed ICCMIC that, following the completion of
the proposed merger, ICII will reimburse Messrs. Snavely and Villani for their
cancelled stock options according to the option pricing formula, described
above, provided in the merger agreement for exchange of ICCMIC stock options.
On August 18, 1999, Mr. Snavely sold 100,000 shares of ICCMIC common stock
at a price of $10.6875 per share.
ICII has not made any purchases or sales of ICCMIC common stock during the
past 60 days.
Additional information (including information about transactions between
ICCMIC and ICII) is set forth in ICCMIC's Annual Report on Form 10-K for the
year ended December 31, 1998, as amended, which is incorporated by reference in
this proxy statement.
MANAGEMENT OF ICCMIC
Information about the management of ICCMIC is set forth in Part III of
ICCMIC's Annual Report on Form 10-K for the year ended December 31, 1998, as
amended, which is incorporated by reference in this proxy statement. All
directors and officers of ICCMIC are citizens of the United States.
MANAGEMENT OF ICII AND ICCMIC ACQUISITION CORP.
Management of ICII
The name, principal business address, title and present and five-year
historical principal occupation or employment of each of the directors and
executive officers of ICII are set forth below. If no business address is given,
the director's or officer's business address is 23550 Hawthorne Blvd., Suite
110, Torrance, CA 90503. If no dates are indicated with respect to a position,
the individual has served in that capacity for at least the past five years. All
of the persons listed below are citizens of the United States of America.
92
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment
Material Positions Held During the Past
Name and Current Business Address Five Years and Business Addresses Thereof
- --------------------------------- -------------------------------------------
<S> <C>
H. Wayne Snavely Chairman of the Board and Chief Executive Officer of ICII
since December 1991 and President since February 1996.
Chairman of the Board of ICCMIC since its inception in
July 1997.
Chairman of the Board of FMAC, 2029 Century Park East,
Suite 1190, Los Angeles, CA 90067, since November 1997.
Brad S. Plantiko Executive Vice President and Chief Financial Officer of
ICII since July 1998.
From July 1994 until July 1998, Mr. Plantiko was a partner
at KPMG LLP, 725 South Figueroa Street, Los Angeles, CA.
A Director of FMAC since November 1998.
Kevin E. Villani Executive Vice President, Finance of ICII from July 1998
until October 1999, a Director of ICII since 1997 and
Chief Financial Officer of ICII from September 1995 to
July 1998.
Vice Chairman of the Board of ICCMIC since its inception
in July 1997.
Mr. Villani joined the University of Southern California,
Los Angeles, CA as the Wells Fargo Visiting Professor of
Finance and from 1993 to 1996 was Associate Professor of
Clinical Finance and Real Estate.
Irwin L. Gubman General Counsel and Secretary of ICII since October 1996.
Mr. Gubman was a Partner at Coudert Brothers, 4
Embarcadero Center, Suite 3300, San Francisco, CA 94111,
from January 1992 to September 1996.
Paul B. Lasiter Senior Vice President and Controller of ICII since
December 1992.
John G. Getzelman President of SPB, 12300 Wilshire Boulevard, Los Angeles,
California 90025, since December 1998.
President, Community Bank of Pasadena, 505 East Colorado
Blvd., Pasadena, CA, from July 1992 to December 1998.
</TABLE>
93
<PAGE>
<TABLE>
<S> <C>
Steven J. Shugerman Director of ICII since December 1991.
President of SPB from June 1987 to November 1998.
Robert S. Muehlenbeck Director of ICII since December 1991.
Executive Vice President of Imperial Bank, 9920 South La
Cienega Blvd., Inglewood, CA 90301, from July 1994 to
October 1998.
Perry A. Lerner Director of ICII since May 1992.
Director of FMAC since November 1997
Principal in Crown Capital Group, Inc., 660 Madison
Avenue, 15th Floor, New York, NY 10021 since 1996.
Mr. Lerner was a Partner at O'Melveny & Myers, 153 East
53rd Street, 54th Floor, New York, NY 10022 from 1984 to
1996.
</TABLE>
Management of ICCMIC Acquisition Corp.
The name, business address, title and present and five-year historical
principal occupation or employment of each of the executive officers of ICCMIC
Acquisition Corp. are discussed in this paragraph. Messrs. Snavely and Villani
(for whom such information is presented above under "ICII") are the sole
directors and respectively president and treasurer, and Irwin L. Gubman (for
whom such information is also presented above under "ICII") is the secretary of
ICCMIC Acquisition Corp. The business address of each executive officer is
23550 Hawthorne Blvd., Suite 110, Torrance, CA 90503. Each of Messrs. Snavely,
Villani and Gubman is a citizen of the United States of America.
94
<PAGE>
SECURITIES OWNERSHIP
The following table sets forth certain information known to ICCMIC with
respect to beneficial ownership of ICCMIC common stock as of October 20, 1999 by
(1) each person known to ICCMIC to beneficially own more than five percent of
its common stock, (2) each director of ICCMIC, (3) each executive officer of
ICCMIC, (4) all the directors and executive officers of ICCMIC as a group and
(5) each director and executive director of ICII. Unless otherwise indicated in
the footnotes to the table, the beneficial owners named have, to the knowledge
of ICCMIC, sole voting and investment power with respect to the shares
beneficially owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Percentage
------------------------
Number of Shares Of Shares
---------------------- ------------------------
Name of Beneficial Owner Beneficially Owned Beneficially Owned/1/
- ------------------------- ---------------------- ------------------------
<S> <C> <C>
Merrill Lynch Asset Management(2)............. 3,265,897 11.5%
Imperial Credit Industries, Inc............... 2,570,000 9.0%
ITLA Capital Corp(3).......................... 1,426,000 5.0%
Mark S. Karlan(4)............................. 461,250 1.6%
Norbert M. Seifert(5)......................... 114,500 *
Kevin E. Villani.............................. 76,684 *
Joseph A. Jaconi, Jr.(6)...................... 50,000 *
H. Wayne Snavely.............................. 43,369 *
Kenneth A. Munkacy(7)......................... 28,600 *
Michael Meltzer(8)............................ 27,283 *
Louis H. Masotti(7)........................... 26,000 *
Patric H. Hendershott(7)...................... 25,000 *
All ICCMIC directors and executive
officers as a group (9 persons)............... 852,686 2.9%
Brad S. Plantiko.............................. 6,400 *
Irwin L. Gubman............................... 3,500 *
Stephen J. Shugerman.......................... 5,000 *
Perry A. Lerner............................... 1,000 *
</TABLE>
_________________
*less than 1%
(1) Based on 28,500,000 shares of common stock issued and outstanding as of
June 30, 1999.
(2) According to a Schedule 13G dated February 4, 1999, Merrill Lynch & Co.,
Inc. ("ML"), on behalf of Merrill Lynch Asset Management Group ("MLAM"),
has shared voting and dispositive power over such shares but disclaims
beneficial ownership pursuant to Section 13d-4 of the Exchange Act. Merrill
Lynch Global Allocation Fund, Inc. ("MLG") has shared voting and
dispositive power and beneficial ownership with respect to 3,042,500 of
such shares. The address of ML on behalf of MLAM is World Financial Center,
North Tower, 250 Vesey Street, New York, NY, 10381. The address of MLG is
800 Scudders Mill Road, Plainsboro, NJ 08536.
(3) According to a Schedule 13D dated June 3, 1999, ITLA Capital Corp. has sole
voting and dispositive power with respect to such shares.
(4) Includes 431,250 shares that may be acquired upon exercise of stock options
exercisable currently and within 60 days hereof.
(5) Includes 43,000 shares held jointly by Mr. Seifert and his spouse, 5,800
shares held in the name of their children for which the parents have voting
and investment power, and 8,200 shares held by Mr. Seifert individually.
Includes 57,500 shares that may be acquired upon exercise of stock options
exercisable currently and within 60 days hereof.
95
<PAGE>
(6) Includes 35,000 shares that may be acquired upon exercise of stock options
exercisable currently and within 60 days hereof.
(7) Includes 25,000 shares that may be acquired upon exercise of stock options
exercisable currently and within 60 days hereof.
(8) Includes 850 shares held by Mr. Meltzer's spouse for which he disclaims
beneficial ownership, and includes 24,833 shares that may be acquired upon
exercise of stock options exercisable currently and within 60 days hereof.
See "Relationships and Transactions Between ICCMIC, ICII and Affiliates -
Purchases and Sales of Common Stock by ICII and its Affiliates".
Except as set forth in this proxy statement, none of ICII, ICCMIC
Acquisition Corp. or any other person controlling ICII or ICCMIC Acquisition
Corp. nor, to the best of any of their knowledge, any director or executive
officer of ICII or ICCMIC Acquisition Corp., beneficially owns any ICCMIC common
stock.
Additional information with respect to the securities ownership of ICCMIC
is set forth in Part III of ICCMIC's Annual Report on Form 10-K for the year
ended December 31, 1998, as amended, which is incorporated by reference in this
proxy statement.
PROPOSALS BY STOCKHOLDERS OF ICCMIC
If the proposed merger is completed, there will be no public stockholders
of ICCMIC and no public participation in any future meetings of ICCMIC
stockholders. If the proposed merger is not completed, ICCMIC intends to hold
its next annual meeting of stockholders in June, 2000. In that case, ICCMIC's
stockholders would continue to be entitled to attend and participate in ICCMIC's
stockholder meetings.
ICCMIC's advance notice bylaw provides that any proposals by stockholders
intended to be presented at the 2000 annual meeting and submitted outside the
processes of Rule 14a-8 must be delivered to ICCMIC no earlier than March 20,
2000 and no later than April 19, 2000. If the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60-days from the
anniversary date of the previous annual meeting, proposals must be delivered to
ICCMIC no earlier than the 90th day prior to the annual meeting and no later
than the later of the 60th day prior to the annual meeting and the 10th day
following the public announcement of the date of the annual meeting by ICCMIC.
In order for a stockholder to bring other business before a stockholder
meeting, timely notice must be received by ICCMIC within the time limits
described above. Such notice must include a description of the proposed
business, the reasons therefor, and other specific matters. In each case, the
notice must be given to the Secretary of ICCMIC at ICCMIC's principal address.
If you would like a copy of ICCMIC's bylaws, we will furnish one without charge
upon written request to the Secretary at the address under "Where You Can Find
More Information."
SEC rules establish standards as to which stockholder proposals are
required to be included in a proxy statement for an annual meeting. ICCMIC will
only consider proposals meeting the requirements of applicable SEC rules.
96
<PAGE>
INDEPENDENT AUDITORS
The consolidated balance sheets of ICCMIC as of December 31, 1998 and 1997
and the related consolidated statements of earnings, changes in stockholders'
equity and comprehensive income and cash flows for the year ended December 31,
1998 and the period from July 31, 1997 (the date of ICCMIC's inception) through
December 31, 1997 have been incorporated by reference into this proxy statement
in reliance upon the report of KPMG LLP, independent certified public
accountants. We expect that representatives of KPMG LLP will be present at the
special meeting, both to respond to appropriate questions of stockholders and to
make a statement, if they so desire.
WHERE YOU CAN FIND MORE INFORMATION
As required by law, ICCMIC files reports, proxy statements and other
information with the SEC. Because the proposed merger is a "going private"
transaction, ICII and ICCMIC Acquisition Corp. have filed a Rule 13e-3
Transaction Statement on Schedule 13E-3 with respect to the proposed merger. The
Schedule 13E-3 and such reports, proxy statements and other information contain
additional information about ICCMIC. You can inspect and copy these materials at
the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the SEC: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, Suite 1300, New York, New York 10048. For further
information concerning the SEC's public reference rooms, you may call the SEC at
1-800-SEC-0330. Some of this information may also be accessed via the World Wide
Web through the SEC's Internet address at http://www.sec.gov. ICCMIC common
stock is listed on the Nasdaq Stock Market, and materials may be inspected at
their offices at 1735 K Street NW, Washington D.C. 20006.
The SEC allows ICCMIC to "incorporate by reference" information into this
proxy statement. This means that ICCMIC can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be part of this proxy
statement, and later information filed with the SEC will update and supercede
the information in this proxy statement.
ICCMIC incorporates by reference each document it files pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
proxy statement and prior to the special meeting. ICCMIC also incorporates by
reference into this proxy statement the following documents filed by it with the
SEC (File No. 000-23089) pursuant to the Exchange Act:
. ICCMIC's Annual Report on Form 10-K for the year ended December 31,
1998, as amended;
. ICCMIC's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1999 and June 30, 1999; and
. ICCMIC's Current Reports on Form 8-K, filed on February 11, 1999, March
11, 1999, March 23, 1999, April 30, 1999, May 13, 1999, June 22, 1999,
July 7, 1999, July 23, 1999, August 17, 1999 and September 29, 1999.
97
<PAGE>
All subsequent documents filed by us with the SEC pursuant to
Sections13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after
the date of this proxy statement and prior to the date of the special meeting
shall be deemed to be incorporated by reference into this proxy statement and to
be a part of it from the date of filing of those documents.
You should rely only on the information contained in (or incorporated
by reference into) this proxy statement. ICCMIC has not authorized anyone to
give any information different from the information contained in (or
incorporated by reference into) this proxy statement. This proxy statement is
dated ___________, 1999. You should not assume that the information contained
in this proxy statement is accurate as of any later date, and the mailing of
this proxy statement to stockholders shall not create any implication to the
contrary.
Documents incorporated by reference are available from ICCMIC without
charge, excluding all exhibits (unless ICCMIC has specifically incorporated by
reference an exhibit into this proxy statement). You may obtain documents
incorporated by reference by requesting them in writing or by telephone as
follows:
Imperial Credit Commercial Mortgage Investment Corp.
11601 Wilshire Blvd.
Suite 2080
Los Angeles, California 90025
Attention: Michael Meltzer, Chief Financial Officer and Treasurer
Telephone: (310) 231-1280
If you would like to request documents from us, please do so by _________,
1999 in order to ensure timely receipt before the special meeting.
By Order of the Board of Directors,
Secretary
___________, 1999
98
<PAGE>
APPENDIX A
MERGER AGREEMENT
DATED AS OF JULY 22, 1999
BY AND AMONG
IMPERIAL CREDIT INDUSTRIES, INC.
ICCMIC ACQUISITION CORP.
AND
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
<S> <C> <C>
THE MERGER.................................................................................................. 2
Section 1.1 The Merger............................................................................. 2
Section 1.2 Effective Time......................................................................... 2
Section 1.3 Closing of the Merger.................................................................. 2
Section 1.4 Effects of the Merger.................................................................. 2
Section 1.5 Charter and Bylaws; Amendments of Governing
Documents of Surviving Corporation Subsidiaries........................................ 2
Section 1.6 Board and Officers of the Surviving Corporation........................................ 3
Section 1.7 Conversion of Shares, Cancellation of Shares........................................... 3
Section 1.8 Appraisal of the Management Contract Termination
Fee.................................................................................... 3
Section 1.9 Payment for Shares..................................................................... 5
Section 1.10 Stock Option and Other Plans........................................................... 6
Section 1.11 Stockholders' Meeting; SEC Materials................................................... 9
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................... 11
Section 2.1 Organization and Qualification of the Company.......................................... 11
Section 2.2 Corporate Authorization................................................................ 11
Section 2.3 SEC Reports; Financial Statements...................................................... 12
Section 2.4 Consents and Approvals; No Violations.................................................. 12
Section 2.5 Opinion of Financial Advisor........................................................... 12
Section 2.6 Brokers................................................................................ 13
Section 2.7 Information............................................................................ 13
Section 2.9 Rights Agreement; Charter.............................................................. 13
Section 2.10 Capitalization of the Company and Its Subsidiaries..................................... 13
Section 2.11 No Defaults............................................................................ 14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ICII AND MERGER SUB....................................................... 14
Section 3.1 Organization and Qualification of ICII and Merger
Sub.................................................................................... 14
Section 3.2 Corporate Authorization................................................................ 15
Section 3.3 SEC Reports; Financial Statements...................................................... 15
Section 3.4 Consents and Approvals; No Violations.................................................. 15
Section 3.5 Brokers................................................................................ 16
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 3.6 Ownership of Company Capital Stock..................................................... 16
Section 3.7 Information............................................................................ 16
Section 3.8 Financing.............................................................................. 16
Section 3.9 Conduct of Business of Merger Sub...................................................... 17
ARTICLE IV
COVENANTS................................................................................................... 17
Section 4.1 Conduct of Business of the Company..................................................... 17
Section 4.2 Other Actions.......................................................................... 19
Section 4.3 Solicitation........................................................................... 19
Section 4.4 Additional Agreements; Reasonable Best Efforts......................................... 21
Section 4.5 Consents............................................................................... 21
Section 4.6 Public Announcements................................................................... 21
Section 4.7 Indemnification; Directors' and Officers' Insurance.................................... 22
Section 4.8 Notification of Certain Matters........................................................ 24
Section 4.9 SEC and Other Filings.................................................................. 24
Section 4.10 Stockholder Litigation................................................................. 25
Section 4.11 SPB Loans.............................................................................. 25
Section 4.12 Final Company Dividend................................................................. 25
Section 4.13 Employee Matters....................................................................... 25
Section 4.14 Standstill............................................................................. 25
Section 4.15 Transfer and Gains Taxes............................................................... 27
Section 4.16 Access to Information.................................................................. 28
Section 4.17 Excess Share Provision................................................................. 28
Section 4.18 State Takeover Statutes................................................................ 29
ARTICLE V
CONDITIONS TO CONSUMMATION OF THE MERGER.................................................................... 29
Section 5.1 Conditions to Each Party's Obligations to Effect the
Merger................................................................................. 29
Section 5.2 Conditions to the Obligations of the Company........................................... 30
Section 5.3 Conditions to the Obligations of ICII and Merger
Sub.................................................................................... 30
Section 5.4 Frustration of Closing Conditions...................................................... 31
ARTICLE VI
TERMINATION; AMENDMENT; WAIVER.............................................................................. 31
Section 6.1 Termination............................................................................ 31
Section 6.2 Effect of Termination.................................................................. 32
Section 6.3 Expenses............................................................................... 32
Section 6.4 Amendment.............................................................................. 33
Section 6.5 Extension; Waiver...................................................................... 33
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VII
<S> <C> <C>
MISCELLANEOUS............................................................................................... 33
Section 7.1 Non-survival of Representations and Warranties......................................... 33
Section 7.2 Entire Agreement; Assignment........................................................... 33
Section 7.3 Notices................................................................................ 33
Section 7.4 Governing Law.......................................................................... 35
Section 7.5 Descriptive Headings; Schedules, Interpretation........................................ 35
Section 7.6 Parties in Interest.................................................................... 36
Section 7.7 Severability........................................................................... 36
Section 7.8 Consent to Jurisdiction................................................................ 36
Section 7.9 Enforcement............................................................................ 37
Section 7.10 Counterparts........................................................................... 37
</TABLE>
-iii-
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
Cross Reference
Term in Agreement Page
<S> <C> <C>
Actions...................................... Section 4.7(a)......................... 22
Adjusted Company Option...................... Section 1.10(a)........................ 6
Affiliate.................................... Section 1.10(f)........................ 8
Agreement.................................... Preamble............................... 1
Appraiser.................................... Section 1.8............................ 3
Appraised Value.............................. Section 1.8(a)......................... 4
Articles of Merger........................... Section 1.2............................ 2
Certificates................................. Sections 1.7(b)........................ 3
Closing...................................... Section 1.3............................ 2
Closing Date................................. Section 1.3............................ 2
Code......................................... Section 1.10(a)........................ 6
Company...................................... Preamble............................... 1
Company Board................................ Recitals............................... 1
Company Charter.............................. Section 2.8............................ 13
Company Disclosure Schedule.................. Section 2.4............................ 12
Company Material Adverse Effect.............. Section 2.1(b)......................... 11
Company SEC Reports.......................... Section 2.3............................ 12
Company Securities........................... Section 2.9 13
Company Stockholders......................... Recitals............................... 1
Company Stock Option......................... Section 1.10(a)........................ 6
Company Stock Option Plan.................... Section 1.10(a)........................ 6
Competing Transaction........................ Section 4.3(c)......................... 20
Confidentiality Agreement.................... Section 4.16(b)........................ 28
Control...................................... Section 7.5(b)......................... 35
Controlled by................................ Section 7.5(b)......................... 35
Effective Time............................... Section 1.2............................ 2
Exemption.................................... Section 4.17........................... 28
Exchange Act................................. Section 1.10(e)........................ 8
Final Company Dividend....................... Section 4.12........................... 25
Financial Advisor............................ Recitals............................... 1
FBR.......................................... Section 3.5............................ 16
GAAP......................................... Section 2.3............................ 12
ICII......................................... Preamble............................... 1
ICII Common Stock............................ Section 1.10(a)........................ 6
ICII Material Adverse Effect................. Section 3.1(b)......................... 14
ICII SEC Reports............................. Section 3.3............................ 15
ICII Shares.................................. Recitals............................... 1
Indemnified Party............................ Section 4.7(a)......................... 22
Individual Ownership Limit................... Section 4.17........................... 28
Knowledge.................................... Section 7.5(b)......................... 36
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Liens........................................ Section 4.1(i)......................... 18
Management Agreement......................... Section 1.8(a)......................... 3
Management Contract Amount................... Section 1.8(a)......................... 3
Manager...................................... Section 1.8(a)......................... 3
Maryland Department.......................... Section 1.2............................ 2
Merger....................................... Recitals............................... 1
Merger Consideration......................... Recitals............................... 1
Merger Sub................................... Preamble............................... 1
Merger Sub Common Stock...................... Section 1.7(c )........................ 3
MGCL......................................... Recitals............................... 1
Opinion...................................... Section 4.17........................... 28
Other Filings................................ Section 2.7............................ 13
Paying Agent................................. Section 1.9(a)......................... 5
Payment Fund................................. Section 1.9(a)......................... 5
Person....................................... Section 7.5(b)......................... 35
Proxy Statement.............................. Section 1.11(a)........................ 9
Qualifying Alternative Transaction........... Section 4.14(b)........................ 26
Regulatory Entity............................ Section 2.4............................ 12
REIT......................................... Section 4.1(c)......................... 17
Rights Agreement............................. Section2.8............................. 13
S-8.......................................... Section 1.10(f)........................ 8
Schedule 13D................................. Section 4.14(a)........................ 26
Schedule 13E-3............................... Section 1.11(d)........................ 10
SEC.......................................... Section 1.10(e)........................ 8
Securities Act............................... Section 1.10(f)........................ 8
Shares....................................... Recitals............................... 1
Solicitation Period.......................... Section 4.3(a)......................... 19
SPB.......................................... Section 4.11........................... 25
SPB Loans.................................... Section 4.11........................... 25
Special Committee............................ Recitals............................... 1
Special Meeting.............................. Section 1.11(a)........................ 9
Superior Proposal............................ Section 4.3(c)......................... 21
Surviving Corporation........................ Recitals............................... 1
Surviving Corporation Common Stock........... Section 1.7(c)......................... 3
Transfer and Gains Taxes.................... Section 4.15........................... 27
Under Common Control With.................... Section 7.5(b)......................... 35
</TABLE>
-v-
<PAGE>
MERGER AGREEMENT
THIS MERGER AGREEMENT, dated as of July 22, 1999 (this "Agreement"),
---------
by and among Imperial Credit Commercial Mortgage Investment Corp., a Maryland
corporation (the "Company"), Imperial Credit Industries, Inc., a California
-------
corporation ("ICII"), and ICCMIC Acquisition Corp., a Maryland corporation and
----
wholly owned subsidiary of ICII ("Merger Sub").
----------
WHEREAS, ICII and certain of its subsidiaries and affiliates as set
forth on Schedule I beneficially own 2,790,053 shares (the "ICII Shares") of the
---------- -----------
common stock, par value $0.0001 per share, of the Company (the "Shares");
------
WHEREAS, it is proposed that Merger Sub will merge with and into the
Company (the "Merger"), with the Company continuing as the surviving corporation
------
(the "Surviving Corporation"), in accordance with the Maryland General
---------------------
Corporation Law ("MGCL"), pursuant to which Merger each issued and outstanding
----
Share other than Shares held by ICII and its subsidiaries will be converted into
the right to receive $11.50 per Share in cash, subject to adjustment as provided
herein (as so adjusted, the "Merger Consideration"), upon the terms and subject
--------------------
to the conditions provided herein;
WHEREAS, a special committee (the "Special Committee") comprised of
-----------------
the four independent directors of the Board of Directors of the Company (the
"Company Board") has received the written opinion of Prudential Securities
- --------------
Incorporated (the "Financial Advisor") that, based on, and subject to, the
-----------------
various assumptions and qualifications set forth in such opinion, as of the date
of such opinion, the Merger Consideration to be received by the holders of
Shares (other than ICII and its subsidiaries and affiliates listed on Schedule
I) pursuant to the Merger is fair to such holders from a financial point of
view;
WHEREAS, the Special Committee has determined that it is in the best
interests of the stockholders of the Company (the "Company Stockholders") to
--------------------
approve this Agreement and, subject to the provisions hereof, the Merger, and
has voted to recommend to the Company Board that the Company Board recommend
that the Company Stockholders approve this Agreement and, subject to the
provisions hereof, the Merger; and
WHEREAS, the Company Board has determined that it is in the best
interests of the Company Stockholders to approve this Agreement and, subject to
the provisions hereof, the Merger, has declared the Merger advisable, and has
voted to approve the Merger upon the terms and subject to the conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, intending to be legally bound hereby, the Company, ICII and
Merger Sub hereby agree as follows:
<PAGE>
ARTICLE I
THE MERGER
Section 1.1 The Merger. At the Effective Time (as defined in Section
----------
1.2) and upon the terms and subject to the conditions of this Agreement and in
accordance with the MGCL, Merger Sub shall be merged with and into the Company
in the Merger. Following the Merger, the Company shall continue as the
Surviving Corporation and the separate corporate existence of Merger Sub shall
cease.
Section 1.2 Effective Time. Subject to the terms and conditions set
--------------
forth in this Agreement, as soon as practicable on the Closing Date (as defined
in Section 1.3), the Company and Merger Sub will cause articles of merger (the
"Articles of Merger") with respect to the Merger to be executed and filed with
------------------
the State Department of Assessments and Taxation of Maryland (the "Maryland
--------
Department") pursuant to the MGCL. The Merger shall become effective at such
- ----------
time on or after October 1, 1999 as the Articles of Merger have been duly filed
with and accepted for record by the Maryland Department or at such subsequent
time as is agreed between the parties and specified in the Articles of Merger,
and such time is hereinafter referred to as the "Effective Time."
--------------
Section 1.3 Closing of the Merger. Subject to the satisfaction or
---------------------
waiver of all of the conditions contained in Article V, but in no event prior to
the expiration of the Solicitation Period (as defined in Section 4.3(a)), the
closing of the Merger (the "Closing") will take place at a time and on a date to
-------
be specified by the parties, which shall be no later than the second business
day after satisfaction or waiver of all of the conditions set forth in Article V
(the "Closing Date"), at the offices of Wachtell, Lipton, Rosen & Katz, 51 West
------------
52/nd/ Street, New York, New York 10019, unless another time, date or place is
agreed to in writing by the parties hereto.
Section 1.4 Effects of the Merger. From and after the Effective
---------------------
Time, the Merger shall have the effects set forth in Section 3-114 of the MGCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the properties, rights, privileges, powers and franchises,
of a public or private nature, of the Company and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of the Company and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.5 Charter and Bylaws; Amendments of Governing Documents of
--------------------------------------------------------
Surviving Corporation Subsidiaries.
- ----------------------------------
(a) The charter of the Surviving Corporation shall be amended and
restated as of the Effective Time so as to conform in all material respects with
the terms of the charter of Merger Sub.
(b) The bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
-2-
<PAGE>
Section 1.6 Board and Officers of the Surviving Corporation.
-----------------------------------------------
(a) The directors of Merger Sub immediately prior to the Effective
Time shall be the initial directors of the Surviving Corporation following the
Merger, each to hold office until the earlier of such person's resignation or
removal or until a successor is duly elected and qualified, as the case may be.
(b) The officers of Merger Sub immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation following the Merger,
each to hold office until the earlier of such person's resignation or removal or
until a successor is duly elected and qualified, as the case may be.
Section 1.7 Conversion of Shares, Cancellation of Shares.
--------------------------------------------
(a) At the Effective Time, each Share issued and outstanding
immediately prior to the Effective Time (other than Shares held by ICII or the
Company or any subsidiary of ICII or the Company, which Shares, by virtue of the
Merger and without any action on the part of the holder thereof, shall be
cancelled and retired and shall cease to exist with no payment being made with
respect thereto) shall be converted into the right to receive the Merger
Consideration.
(b) At the Effective Time, the holders of such certificates previously
evidencing the Shares outstanding immediately prior to the Effective Time (the
"Certificates") shall cease to have any rights with respect to such Shares other
------------
than the right to receive the Merger Consideration for each such Share or as
otherwise provided herein or by law (including the right to receive dividends
permitted hereby). Such Shares shall, by virtue of the Merger and without any
action on the part of Merger Sub, the Company or the holder thereof, be
cancelled, retired and cease to exist, and no payment shall be made with respect
thereto except as provided for herein.
(c) At the Effective Time, each share of common stock, par value
$0.0001 per share, of Merger Sub ("Merger Sub Common Stock") issued and
-----------------------
outstanding immediately prior to the Effective Time shall be converted into an
equal number of fully paid and nonassessable shares of common stock of the
Surviving Corporation, par value $0.0001 per share ("Surviving Corporation
---------------------
Common Stock").
- ------------
Section 1.8 Appraisal of the Management Contract Termination Fee.
----------------------------------------------------
(a) ICII and the Company shall cause one of the appraisal firms listed
on Schedule II (or, in the event they cannot agree on a mutually acceptable firm
-----------
from such list, they shall appoint one or more independent, nationally
recognized appraisal firms in accordance with the procedures set forth in
Section 15 of the Management Agreement (as defined below)) (the "Appraiser"), to
---------
determine, by an independent appraisal, the amount (the "Management Contract
-------------------
Amount") that would be payable to Imperial Credit Commercial Asset Management
- ------
Corp. (the "Manager") pursuant to Section 15 of the Management Agreement, dated
-------
as of October 22, 1997 by and among the Company and the Manager (the "Management
----------
Agreement") if the Management Agreement were not renewed by the Company and
- ---------
expired on October 22, 1999. The Ap-
-3-
<PAGE>
praiser shall complete the determination of the Management Contract Amount
within 30 days of the date of this Agreement. The amount of the Management
Contract Amount as determined by the Appraiser shall be referred to as the
"Appraised Value". The Appraiser shall be instructed to fix the Appraised
---------------
Value at a single dollar amount; provided, however, that in the event the
Appraiser cannot for any reason provide a single dollar amount for the Appraised
Value, despite the specific request of ICII and the Company, the Appraiser shall
provide a range of values for the Appraised Value not greater than $5 million,
in which case the Appraised Value shall be deemed to equal the average of the
maximum and minimum dollar amounts of such range. ICII and the Company agree to
share equally the fees and expenses of the Appraiser.
(b) The Merger Consideration in respect of each Share shall be
increased by an amount, if greater than zero, equal to the quotient of (i) the
amount by which $35 million exceeds the Appraised Value, divided by (ii) the sum
of (x) the number of issued and outstanding Shares as of the date hereof
entitled to receive the Merger Consideration and (y) the aggregate number of
Shares issuable pursuant to Company Stock Options having an exercise price less
than $11.50 per share. The Merger Consideration shall not be reduced in the
event the Appraised Value is greater than $35 million. ICII and Merger Sub
shall, not later than the next business day after the determination of the
Appraised Value, make a public announcement as to the determination thereof,
and, if applicable, amend the Schedule 13E-3 (as defined in Section 1.11) to
reflect the adjustment, if any, of the Merger Consideration contemplated and
required hereby.
(c) The Company and ICII agree, and ICII shall cause the Manager to
agree, that, in the event this Agreement is terminated, other than as a result
of a breach by the Company, the Management Agreement shall be terminated on the
earlier of the consummation of any Superior Proposal (as defined in Section
4.3), October 22, 1999, or such earlier date as the Company may request, and,
thereafter, the Management Agreement shall be of no further force and effect,
other than with respect to the payment of accrued but unpaid amounts then due
thereunder. Anything to the contrary herein or in the Management Agreement
notwithstanding, as a result of the termination of the Management Agreement as
contemplated by the foregoing sentence, the Manager shall be entitled to
receive, following the termination of this Agreement and the Management
Agreement, a payment from the Company of the lesser of (i) $35 million and (ii)
the Appraised Value, which payment shall constitute payment in full of any
obligations that exist or may hereafter arise pursuant to the Management
Agreement, other than with respect to the payment of accrued but unpaid amounts
then due thereunder. In no event shall the Company be held responsible to ICII,
the Manager or any of their respective affiliates for damages (whether actual,
punitive, consequential or otherwise) resulting from the termination of the
Management Agreement as contemplated by this Section. ICII shall cause the
Manager to take any such further action as the Company may reasonably require to
evidence the agreements contemplated by this Section and ICII shall hold the
Company and any successor-in-interest to the Company and their respective
affiliates harmless from and against any and all claims arising from any
assertion by the Manager as to any different or greater entitlement pursuant to
the Management Agreement.
-4-
<PAGE>
Section 1.9 Payment for Shares.
------------------
(a) From and after the Effective Time, such bank or trust company as
shall be mutually acceptable to ICII and the Company, shall act as paying agent
(the "Paying Agent") in effecting the payment of the aggregate Merger
------------
Consideration in respect of Certificates that, prior to the Effective Time,
represented Shares entitled to payment of the Merger Consideration pursuant to
Section 1.7(a). As of the Effective Time, ICII and Merger Sub shall, jointly
and severally, for the benefit of the Company Stockholders, deposit with the
Paying Agent for payment in accordance with this Article I, by the Paying Agent,
the aggregate Merger Consideration for all of the Shares entitled to payment of
the Merger Consideration pursuant to Section 1.7(a) (the "Payment Fund").
------------
(b) Promptly after the Effective Time, the Paying Agent shall mail to
each holder of Certificates entitled to payment of the Merger Consideration
pursuant to Section 1.7(a), a form of letter of transmittal which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Paying Agent
and instructions for use in surrendering such Certificates and receiving the
aggregate Merger Consideration in respect thereof. Upon the surrender of each
such Certificate, the Paying Agent shall pay the holder of such Certificate, by
check or by wire transfer of immediately available funds, in consideration
therefor, the Merger Consideration multiplied by the number of Shares formerly
represented by such Certificate, and such Certificate shall be cancelled. Until
so surrendered, each such Certificate entitled to payment of the Merger
Consideration pursuant to Section 1.7(a) shall represent solely the right to
receive the aggregate Merger Consideration relating thereto (and the right to
receive dividends permitted hereby). No interest shall be paid or accrued on
the Merger Consideration. If the Merger Consideration (or any portion thereof)
is to be delivered to any person other than the person in whose name the
Certificate formerly representing Shares surrendered therefor is registered, it
shall be a condition to such right to receive such Merger Consideration that the
Certificate so surrendered shall be properly endorsed or otherwise be in proper
form for transfer and that the person surrendering such Shares shall pay to the
Paying Agent any transfer or other taxes required by reason of the payment of
the Merger Consideration to a person other than the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Paying
Agent that such tax has been paid or is not applicable.
(c) Promptly following the date which is 180 days after the Effective
Time (or such later date as the Surviving Corporation shall request), the Paying
Agent shall deliver to the Surviving Corporation any undistributed portion of
the Payment Fund and any other documents in its possession relating to the
Merger, and the Paying Agent's duties shall thereupon terminate. Thereafter,
each holder of a Certificate formerly representing Shares may surrender such
Certificate to the Surviving Corporation and (subject to applicable abandoned
property, escheat and similar laws) receive in consideration therefor the
aggregate Merger Consideration relating thereto, without any interest or
dividends thereon.
(d) In the event that any Certificate shall have been lost, stolen or
destroyed, the Paying Agent shall pay or issue (as applicable) in exchange
therefor, upon the making of an affidavit of that fact and, if the Surviving
Corporation so requires, the delivery of a reasonably
-5-
<PAGE>
suitable bond or indemnity by the holder thereof, such Merger Consideration as
may be required pursuant to this Agreement.
(e) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates formerly representing Shares are presented to the Surviving
Corporation or the Paying Agent, they shall be surrendered and cancelled in
return for the payment of the Merger Consideration relating thereto, as provided
in this Section, subject to applicable law.
(f) None of the Company, ICII, Merger Sub, the Paying Agent or the
Surviving Corporation shall be liable to any holder of Shares for cash from the
Payment Fund delivered to a public official as required pursuant to any
applicable abandoned property, escheat or similar law.
(g) The provisions in this Section are intended to be for the benefit
of, and shall be enforceable by, each holder of Certificates previously
evidencing the Shares outstanding immediately prior to the Merger entitled to
payment of the Merger Consideration pursuant to Section 1.7(a) (it being
expressly agreed that such persons shall be the third party beneficiaries of
this Section).
Section 1.10 Stock Option and Other Plans.
----------------------------
(a) As of the Effective Time, (i) each outstanding option to purchase
Shares (each, a "Company Stock Option") issued pursuant to the Company's 1997
--------------------
Stock Option Plan, as amended (the "Company Stock Option Plan"), shall be
-------------------------
converted into an immediately exercisable option (each, an "Adjusted Company
----------------
Option") to purchase a number of shares of common stock, no par value, of ICII
- ------
("ICII Common Stock"), at an exercise price as shall be determined in accordance
-----------------
with the provisions hereof so that the Fair Value (as defined below) of each
such Company Stock Option equals the Fair Value of the Adjusted Company Options
to purchase ICII Common Stock into which such Company Stock Option is converted,
and all references in each such Company Stock Option (including the plans and
agreements under which they were issued) to the Company shall be deemed to refer
to ICII, where appropriate; provided, however, that the adjustments provided in
this paragraph with respect to any options which are "incentive stock options"
(as defined in Section 422 of the Internal Revenue Code of 1986, as amended,
(the "Code"), shall be effected in a manner consistent with the requirements of
----
Section 424(a) of the Code, unless the option holder, in his or her sole
discretion, waives such requirement, and (ii) ICII shall assume the obligations
of the Company under the Company Stock Option Plan. Approval of the Merger
Agreement by the Company Stockholders shall constitute a "Change of Control" (as
defined in the Company Stock Option Plan) and as a result each Company Stock
Option shall vest and become exercisable in full on the date of such Change of
Control. The other terms of each Adjusted Company Option, and the plans or
agreements under which they were issued, in each case as amended in accordance
herewith, shall continue to apply in accordance with their terms. The date of
grant of each Adjusted Company Option shall be the date on which the
corresponding Company Stock Option was granted. For the purposes hereof, the
"Fair
-6-
<PAGE>
Value" of the Company Stock Options and of the Adjusted Company Options to
purchase ICII Common Stock into which the Company Stock Options are converted
shall be determined in the manner set forth on Schedule III and utilizing the
Black-Scholes option pricing model incorporating historical data available on
the Bloomberg system and reflecting, among other things, the relative current
price, strike price, the risk-free rate, expected duration, volatility and
dividend policies of each of ICII and the Company and of the Company Stock
Options and the Adjusted Company Options into which they will be converted,
based on the principle of preserving for the holders of the Company Stock
Options the current value and upside potential of the Company Stock Options, as
well as the level of the Merger Consideration (including any adjustment pursuant
to Section 1.8(b) in respect of the Appraised Value of the Management
Agreement). The Company and ICII shall work together during the 30-day period
following the date hereof to determine the precise methodology to be used in
determining Fair Value and with respect to the conversion of the Company Stock
Options into the Adjusted Company Options. In the event they are unable to agree
within such 30-day period, their respective positions on the subject shall be
submitted to the Appraiser, and the Appraiser shall be directed to select one of
the positions or any other intermediate position.
(b) Each holder of Company Stock Options may, prior to or within 90
days following the later of the Effective Time or the date of the notices set
forth in paragraph (d) below, elect to receive, in lieu of all or a portion of
such holder's Adjusted Company Options as provided in Section 1.10(a), the
following: (i) with respect to all or a portion of each Company Stock Option
which has an option exercise price less than the Merger Consideration, a cash
payment from ICII equal to the product of (A) the amount by which the Merger
Consideration amount exceeds the exercise price of such Company Stock Option and
(B) the number of shares issuable upon exercise of such Company Stock Option or
portion thereof, as applicable, and/or (ii) with respect to all or a portion of
each Company Stock Option (including those referred to in clause (i) above in
lieu of the payment contemplated by clause (i)), a cash payment from ICII equal
to the Fair Value of such option or portion thereof, as applicable, determined
in accordance with Section 1.10(a). All cash payments shall be subject to any
applicable withholding taxes and shall be made as promptly as practicable upon
ICII's receipt of such holder's election pursuant to this paragraph.
(c) ICII and the Company agree that the Company Stock Option Plan
shall be amended (or the Company Board or the Compensation Committee of the
Company Board shall take other appropriate actions), such amendment to be
effective as of the Effective Time, (i) to provide that, with respect to any
particular holder of Company Stock Options, unless such option holder shall
remain or become an employee of ICII or the Manager immediately after the
Effective Time, the employee shall be considered to have had a Voluntary
Termination of Affiliation (as defined in the Company Stock Option Plan) and, as
a result, such holder's Company Stock Options shall remain exercisable by such
holder for a period of one year from the Effective Time, and (ii) to reflect the
transactions contemplated hereby, including the conversion of Shares held or to
be awarded or paid pursuant to such benefit plans, programs or the Company Stock
Option Plan into shares of ICII Common Stock (or fractions thereof) on a basis
consistent with the transactions contemplated by this Agreement. The parties
agree that any "voluntary" termination of employment by an employee of the
Company or the Manager pursuant to a constructive termina-
-7-
<PAGE>
tion or a termination for good reason in an employment or severance agreement
shall be treated as a Voluntary Termination of Affiliation for which the
employee's Adjusted Company Options shall remain exercisable for a period of at
least one year following such termination.
(d) Prior to or as soon as practicable after the Effective Time, ICII
shall deliver to the holders of Company Stock Options appropriate notices
setting forth such holders' rights pursuant to the Company Stock Option Plan and
the agreements evidencing the grants of such Company Stock Options and informing
such holders that such Company Stock Options and the related agreements shall be
assumed by ICII at the Effective Time and that such Company Stock Options shall
continue in effect on the same terms and conditions as in effect immediately
prior to the Effective Time (subject to the adjustments required by this Section
after giving effect to the Merger).
(e) ICII and the Company shall take all such steps as may be required
or reasonably requested to cause the transactions contemplated by this Section
and any other dispositions of Company equity securities (including derivative
securities) or acquisitions of ICII equity securities (including derivative
securities) in connection with this Agreement by each individual who (a) is a
director or officer of the Company or (b) at the Effective Time, will become a
director or officer of ICII, to be exempt under Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
------------
regulations promulgated thereunder, such steps to be taken in accordance with
the No-Action Letter dated January 12, 1999, issued by the Securities and
Exchange Commission (the "SEC") to Skadden, Arps, Slate, Meagher & Flom LLP, or
as may otherwise be reasonably requested by the Company.
(f) ICII shall (i) prior to the Effective Time, reserve for issuance
the maximum number of shares of ICII Common Stock that may become subject to the
Adjusted Company Options referred to in this Section and (ii) issue or cause to
be issued the appropriate number of shares of ICII Common Stock (or fractions
thereof) pursuant to the terms of the Adjusted Company Options upon the exercise
thereof. No later than the Effective Time, ICII shall prepare and file with the
SEC one or more registration statements on Form S-8 (or on any other appropriate
form) (the "S-8") registering the number of shares of ICII Common Stock
---
necessary to fulfill ICII's obligations under this Section. ICII shall also file
a supplemental listing application with the Nasdaq Stock Market in respect of
such shares and use its reasonable best efforts to cause such shares to be
approved for listing on the Nasdaq Stock Market, subject to official notice of
issuance prior to the Effective Time. Such registration statement shall be kept
effective (and the current status of the prospectus required thereby shall be
maintained) for at least as long as until the later of (i) the last date on
which any Adjusted Company Options remain outstanding, or (ii) the last date on
which shares of ICII Common Stock issued on exercise of Adjusted Company Options
are held by an affiliate, as defined by Rule 144 of the General Rules and
Regulations (an "Affiliate") under the Securities Act of 1933, as amended
---------
(the "Securities Act") of ICII and any of such shares of ICII Common Stock
cannot be otherwise sold immediately pursuant to Rule 144.
(g) The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, each holder of Company Stock Options or
Adjusted Company Options
-8-
<PAGE>
and such Affiliate of ICII holding shares of ICII Common Stock issued on
exercise of Adjusted Company Options (it being expressly agreed that such
persons shall be the third party beneficiaries of this Section).
Section 1.11 Stockholders' Meeting; SEC Materials.
------------------------------------
(a) The Company, acting through the Company Board, shall, in
accordance with applicable law and the Company's Charter and By-laws, and
provided that this Agreement shall not have been terminated as contemplated by
Section 4.3:
(i) duly call, give notice of, convene and hold a special
meeting of its stockholders (the "Special Meeting"), which meeting
---------------
shall be held as soon as reasonably practicable following the
expiration of the Solicitation Period for the purpose of considering
and taking action upon this Agreement, but in no event prior to
October 1, 1999;
(ii) together with ICII, prepare and file with the SEC a
preliminary proxy statement relating to this Agreement in form and
substance reasonably satisfactory to ICII and the Company, and,
together with ICII, use their reasonable efforts (x) to obtain and
furnish the information required to be included by the SEC in the
Proxy Statement (as defined below) and, after consultation with each
other, to respond promptly to any comments made by the SEC or its
staff with respect to the preliminary proxy statement and cause a
definitive proxy statement (the "Proxy Statement"), which the parties
---------------
agree shall comply as to form in all material respects with all
applicable requirements of law, to be mailed to the Company
Stockholders and (y) subject to the fiduciary duties of the Company
Board under applicable law and subject to the provisions of Section
4.3, to obtain the necessary approval of this Agreement by the Company
Stockholders representing a majority of the outstanding Shares
entitled to vote at the Special Meeting (other than the ICII Shares);
and
(iii) subject to the fiduciary obligations of the Company Board
and the Special Committee under applicable law and subject to the
provisions of Section 4.3, include in the Proxy Statement the
recommendation of the Company Board and the Special Committee that the
Company Stockholders vote in favor of the approval of this Agreement.
(b) ICII shall, and shall cause the other holders of ICII Shares to,
vote (whether in person or by proxy) for the approval of this Agreement at the
Special Meeting or any adjournment or postponement thereof.
(c) Whenever any event occurs which is required to be set forth in an
amendment or supplement to the Proxy Statement, ICII or the Company, as the case
may be, shall promptly inform the other of such occurrences and cooperate in
filing with the SEC and/or mailing to the Company Stockholders such amendment or
supplement. Each of the parties agree that the information provided by it for
inclusion in the Proxy Statement and each amendment or
-9-
<PAGE>
supplement thereto, at the time of mailing thereof and at the time of the
Special Meeting, will not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If, at any time prior to the Effective Time, any information
pertaining to one of the parties or, to such party's knowledge, any of its
affiliates or its officers or directors, contained in or omitted from the Proxy
Statement makes statements contained therein materially false or misleading,
such party shall promptly so advise the other parties and provide such other
parties with the information necessary to make the statements contained therein
not false or misleading. In the event of such advice being given pursuant to the
preceding sentence, the Company and ICII shall cooperate to promptly file with
the SEC (after reasonable opportunity to ICII and the Company to review and
comment thereon) any required amendments or supplements to the Proxy Statement
and, to the extent required by law, disseminate such amendments or supplements
to the Company Stockholders. No filings of the Proxy Statement (or any
amendments or supplements thereto) shall be made without the prior approval of
both ICII and the Company (which consent shall not be unreasonably withheld,
conditioned or delayed).
(d) Simultaneously with the filing of the preliminary proxy statement
contemplated by Section 1.11(a)(ii), ICII shall file with the the SEC a Rule
13e-3 Transaction Statement on Schedule 13E-3, including the exhibits thereto
(together with all amendments and supplements thereto, the "Schedule 13E-3")
--------------
with respect to the Merger and the other transactions contemplated hereby. The
Schedule 13E-3 shall include the information required to be included by the SEC
in a Rule 13e-3 Transaction Statement. ICII shall cause the information
contained in the Schedule 13E-3 to be disseminated to Company Stockholders as
and to the extent required by applicable law. ICII, Merger Sub and the Company
agree to correct promptly any information provided by any of them for use in the
Schedule 13E-3 which shall have become materially incorrect or misleading, and
ICII and Merger Sub further agree to take all steps necessary to cause the
Schedule 13E-3 as so corrected to be filed with the SEC and to be disseminated
to Company Stockholders as and to the extent required by applicable law. The
Company, the Special Committee and their respective counsel shall be given a
reasonable opportunity to review and comment on the Schedule 13E-3 and any
amendments thereto prior to the filing thereof with the SEC or dissemination
thereof to the Company Stockholders. ICII and Merger Sub shall promptly inform
the Company, the Special Committee and their respective counsel of any comments,
whether oral or written that ICII or Merger Sub may receive from the SEC or its
staff with respect to the Schedule 13E-3 promptly after the receipt thereof and
shall promptly provide the Company, the Special Committee and their respective
counsel with copies of any such written comments. ICII and Merger Sub shall
provide the Company and the Special Committee, and their respective counsel,
with a reasonable opportunity to participate in all communications with the SEC
and its staff, including any meetings and telephone conferences, relating to the
Schedule 13E-3 or the Merger.
-10-
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to ICII and Merger Sub as
follows:
Section 2.1 Organization and Qualification of the Company.
---------------------------------------------
(a) The Company and each of its subsidiaries is a corporation or other
legal entity duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is organized and has all requisite
corporate or other power, as the case may be, and authority to own, lease and
operate its properties and to carry on its businesses as now being conducted.
(b) Each of the Company and its subsidiaries is duly qualified or
licensed and in good standing (with respect to jurisdictions which recognize
such concept) to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions where
the failure to be so duly qualified or licensed and in good standing would not
have a Company Material Adverse Effect. The term "Company Material Adverse
------------------------
Effect" means any change or effect that individually or in the aggregate is or
- ------
would reasonably be expected to be materially adverse to (i) the business,
properties, assets, results of operations or financial condition of the Company
and its subsidiaries, taken as a whole, other than any change or effect arising
out of (x) a decline or deterioration in the economy in general or the real
estate or capital markets in which the Company and its subsidiaries operate, or
(y) this Agreement or the transactions contemplated hereby or the announcement
thereof or (ii) the ability of the Company to consummate the transactions
contemplated hereby without material delay.
Section 2.2 Corporate Authorization. The Company has all necessary
-----------------------
corporate power and authority to execute and deliver this Agreement and,
subject, in the case of the Merger, to approval by the Company Stockholders, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Company Board and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby (other than, with respect
to the Merger, the approval and adoption of this Agreement by Company
Stockholders representing a majority of the outstanding Shares entitled to vote
at the Special Meeting (other than the ICII Shares)). This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by each of ICII and Merger Sub,
constitutes the valid, legal and binding agreement of the Company, enforceable
against the Company in accordance with its respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
-11-
<PAGE>
Section 2.3 SEC Reports; Financial Statements. The Company has filed
---------------------------------
all required forms, reports and documents with the SEC since January 1, 1998
(the "Company SEC Reports"). As of their respective dates and giving effect to
-------------------
any amendments thereto, each of the Company SEC Reports complied as to form in
all material respects with all applicable requirements of the Securities Act or
the Exchange Act, as the case may be, each as in effect on the dates such forms,
reports and documents were filed. None of the Company SEC Reports contained,
when filed, any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of the Company included
in the Company SEC Reports complied as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and fairly present, in conformity with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
----
relevant periods (except as may be indicated in the notes thereto and, except in
the case of unaudited quarterly statements, as permitted by Form 10-Q of the
SEC), the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and changes in financial position and cash flows for the periods then
ended (subject, in the case of unaudited interim financial statements, to normal
year-end adjustments).
Section 2.4 Consents and Approvals; No Violations. Except as set
-------------------------------------
forth in Section 2.4 of the Company's Disclosure Schedule (the "Company
-------
Disclosure Schedule") and except for such filings, permits, authorizations,
- -------------------
consents and approvals as may be required under, and other applicable
requirements of, the Securities Act, the Exchange Act, the rules and regulations
of the Nasdaq Stock Market, state takeover laws, state securities or "blue sky"
laws and the filing and recordation of the Articles of Merger as required by the
MGCL and such other filings, permits, authorizations, consents and approvals the
failure of which to be obtained or made would not, in the aggregate, reasonably
be expected to have a Company Material Adverse Effect, no filing or registration
with or notice to, and no permit, authorization, consent or approval of, any
court or tribunal of competent jurisdiction in any jurisdiction or any foreign,
federal, state or municipal governmental, regulatory or other administrative
agency, department, commission, board, bureau, political subdivision or other
authority or instrumentality including the National Association of Securities
Dealers, Inc. and the SEC (each a "Regulatory Entity") is necessary in
-----------------
connection with the execution and delivery by the Company of this Agreement or
the consummation by the Company of the transactions contemplated hereby.
Section 2.5 Opinion of Financial Advisor. The Financial Advisor has
----------------------------
delivered to the Special Committee its written opinion, dated the date of this
Agreement, to the effect that, based on, and subject to the various assumptions
and qualifications set forth in such opinion, as of the date of such opinion,
the Merger Consideration to be received by the Company Stockholders (other than
ICII and Merger Sub and any other holders of ICII Shares listed on Schedule I)
is fair to such Company Stockholders from a financial point of view, a signed
copy of which opinion has been delivered to the Special Committee, and such
opinion has not been withdrawn or modified.
-12-
<PAGE>
Section 2.6 Brokers. Other than the Financial Advisor, no broker,
-------
finder, investment banker or other intermediary is entitled to any brokerage,
finder's or other similar fee or commission or expense reimbursement in
connection with the transactions contemplated by this Agreement based upon
arrangements made by and on behalf of the Company or any of its affiliates.
Section 2.7 Information. None of the information supplied or to be
-----------
supplied by the Company in writing specifically for inclusion or incorporation
by reference in (i) the Proxy Statement, (ii) the Schedule 13E-3, or (iii) any
other document to be filed with the SEC or any other Regulatory Entity prior to
the Effective Time (the "Other Filings") will, at the respective times filed
-------------
with the SEC or other Regulatory Entity and, in addition, in the case of the
Proxy Statement and the Schedule 13E-3, at the date it or any amendment or
supplement is mailed to the stockholders, at the time of the Special Meeting and
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading.
Section 2.8 Rights Agreement; Charter. The Company has taken or will
-------------------------
take all action necessary to exempt the Merger from the provisions of the Rights
Agreement, dated as of September 21, 1998, between the Company and U.S. Stock
Transfer Corporation (the "Rights Agreement") and to provide for expiration of
----------------
the Rights thereunder at the time immediately prior to the Effective Time. The
Company will not exercise any rights or ability it may have under the Rights
Agreement or its charter (the "Company Charter") to nullify or delay the
---------------
consummation of the Merger.
Section 2.9 Capitalization of the Company and Its Subsidiaries. As
--------------------------------------------------
of the date hereof, the authorized capital stock of the Company consists of
500,000,000 shares of capital stock, of which: (i) 496,500,000 are classified
as Common Stock, par value $0.0001 per share, 28,500,000 shares are issued and
outstanding, and (ii) 3,500,000 are classified as Series A Junior Participating
Preferred Stock, par value $0.0001 per share, none of which shares are issued or
outstanding. The Series A Junior Participating Preferred Stock has been
reserved for issuance upon the exercise of the preferred share purchase rights
in accordance with the Rights Agreement. As of the date hereof, there are
outstanding Company Stock Options in respect of 1,437,250 Shares at the exercise
prices set forth in Section 2.9(a) of the Company Disclosure Schedule. Except
as set forth above or as set forth in Section 2.9(a) of the Company Disclosure
Schedule, there are outstanding (i) no shares of capital stock or other voting
securities of the Company, (ii) no securities of the Company or its subsidiaries
convertible into or exchangeable or exercisable for shares of capital stock or
voting securities of the Company, (iii) no options, calls or other rights
(including warrants or other contractual rights, including contingent rights) to
acquire from the Company or its subsidiaries, and no obligations of the Company
or its subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, any capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting securities of the
Company and (iv) no equity equivalents, interests in the ownership or earnings
of the Company or its subsidiaries or other similar rights (including stock
appreciation rights) (collectively, "Company Securities"). Except for the
------------------
Company Stock Option Plan or as set forth
-13-
<PAGE>
in Section 2.9(a) of the Company Disclosure Schedule, there are no outstanding
obligations of the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any Company Securities or any capital stock, voting securities
or other ownership interests in any subsidiary of the Company.
Section 2.10 No Defaults. As of the date hereof, none of the Company
-----------
or any of its subsidiaries is in default or violation (and no event has occurred
which with notice or the lapse of time or both would constitute a default or
violation) of any term, condition or provision of (i) its charter or bylaws (or
similar governing documents), (ii) any note, bond, mortgage, collateralized
mortgage obligation, reverse repurchase agreement, indenture, letter of credit,
warehouse line of credit, other evidence of indebtedness, franchise, permit,
guarantee, lease, license, contract, agreement or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which any of
them or any of their respective properties or assets is bound, or (iii) any
order, writ, injunction, decree, law, statute, rule or regulation applicable to
the Company, its subsidiaries or any of their respective properties or assets,
except in the cases referred to in the preceding clauses (ii) and (iii) for
violations, breaches or defaults that would not have a Company Material Adverse
Effect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF ICII AND MERGER SUB
ICII and Merger Sub, jointly and severally, hereby represent and
warrant to the Company as follows:
Section 3.1 Organization and Qualification of ICII and Merger Sub.
-----------------------------------------------------
(a) ICII and each of its subsidiaries is a corporation or other legal
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction in which it is organized and has all requisite corporate or
other power, as the case may be, and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted.
(b) Each of ICII and its subsidiaries is duly qualified or licensed
and in good standing (with respect to jurisdictions which recognize such
concept) to do business in each jurisdiction in which the property owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed and in good standing would not have
an ICII Material Adverse Effect. The term "ICII Material Adverse Effect" means
----------------------------
any change or effect that individually or in the aggregate is or would
reasonably be expected to be materially adverse to (i) the business, properties,
assets, results of operations or financial condition of ICII and its
subsidiaries, taken as a whole, other than any change or effect arising out of
(x) a decline or deterioration in the economy in general or the real estate or
capital markets in which ICII and its subsidiaries operate, or (y) this
Agreement or the transactions contemplated hereby or the announcement thereof or
(ii) the ability of ICII or Merger Sub to consummate the transactions
contemplated hereby without material delay.
-14-
<PAGE>
Section 3.2 Corporate Authorization. Each of ICII and Merger Sub has
-----------------------
all necessary corporate power and authority to execute and deliver this
Agreement, and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
board of directors of each of ICII and Merger Sub and by ICII as sole
stockholder of Merger Sub and no other corporate proceedings on the part of
either of them is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by ICII and Merger Sub and, assuming the due
authorization, execution and delivery hereof by the Company, constitutes the
valid, legal and binding agreement of each of ICII and Merger Sub, enforceable
against each of them in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
Section 3.3 SEC Reports; Financial Statements. ICII has filed all
---------------------------------
required forms, reports and documents with the SEC since January 1, 1998 (the
"ICII SEC Reports"). As of their respective dates and giving effect to any
----------------
amendments thereto, each of the ICII SEC Reports complied as to form in all
material respects with all applicable requirements of the Securities Act or the
Exchange Act, as the case may be, each as in effect on the dates such forms,
reports and documents were filed. None of the ICII SEC Reports, including any
financial statements, contained, when filed, any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The consolidated financial
statements of ICII included in the ICII SEC Reports complied as to form, as of
their respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto and fairly present, in conformity with GAAP applied
on a consistent basis throughout the relevant periods (except as may be
indicated in the notes thereto and, except in the case of unaudited quarterly
statements, as permitted by Form 10-Q of the SEC), the consolidated financial
position of ICII and its consolidated subsidiaries as of the dates thereof and
the consolidated results of their operations and changes in financial position
and cash flows for the periods then ended (subject, in the case of unaudited
interim financial statements, to normal year-end adjustments).
Section 3.4 Consents and Approvals; No Violations.
-------------------------------------
(a) Except as set forth in Section 3.4 of the ICII Disclosure Schedule
and except for such filings, permits, authorizations, consents and approvals as
may be required under, and other applicable requirements of, the Securities Act,
the Exchange Act, the rules and regulations of the Nasdaq Stock Market, state
takeover laws, state securities or "blue sky" laws and the filing and
recordation of the Articles of Merger as required by the MGCL, filings to
maintain the good standing of the Surviving Corporation and such other filings,
permits, authorizations, consents and approvals the failure of which to be
obtained or made would not, in the aggregate, reasonably be expected to have an
ICII Material Adverse Effect, no filing or registration with or notice to, and
no permit, authorization, consent or approval of, any Regulatory Entity is
necessary
-15-
<PAGE>
in connection with the execution and delivery by ICII or Merger Sub of this
Agreement or the consummation by ICII or Merger Sub of the transactions
contemplated hereby.
(b) Upon consummation of the transactions contemplated hereby, each of
ICII and the Surviving Corporation (i) will not become insolvent, (ii) will not
be left with unreasonably small capital, (iii) will not have incurred debts
beyond its ability to pay all of its debts as they mature, and (iv) will not
have its capital impaired.
Section 3.5 Brokers. Other than Friedman, Billings, Ramsey & Co.,
-------
Inc. ("FBR"), no broker, finder, investment banker or other intermediary is
---
entitled to any brokerage, finder's or other similar fee or commission or
expense reimbursement in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of ICII, Merger Sub or
any of their affiliates (other than the Company). In the event this Agreement
is terminated in accordance with Section 6.1, no broker, finder, investment
banker or other intermediary is or will be entitled to any brokerage, finder's
or other similar fee or commission or expense reimbursement in connection with
the transactions contemplated by this Agreement based upon arrangements made by
and on behalf of ICII, Merger Sub or any of their affiliates (other than the
Company), except that FBR shall be entitled to reimbursement from ICII for its
reasonable out-of-pocket expenses incurred in connection with the negotiation
and preparation of this Agreement.
Section 3.6 Ownership of Company Capital Stock. Except for the ICII
----------------------------------
Shares and except as listed on Section 3.6 of the ICII Disclosure Schedule,
neither ICII nor, to its knowledge, any of its subsidiaries or affiliates (other
than the Company), (i) beneficially owns (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, or (ii) is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company.
Section 3.7 Information. None of the information supplied or to be
-----------
supplied by ICII and Merger Sub in writing specifically for inclusion in (i) the
Schedule 13E-3, (ii) the Proxy Statement, or (iii) the Other Filings will, at
the respective times filed with the SEC or such other Regulatory Entity and, in
addition, in the case of the Schedule 13E-3 and the Proxy Statement, at the date
it or any amendment or supplement is mailed to the stockholders, at the time of
the Special Meeting and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
Section 3.8 Financing. ICII has available, and shall provide Merger
---------
Sub with, all of the funds necessary to consummate the Merger and the
transactions contemplated hereby in accordance with the terms hereof. In no
event shall the receipt or availability of any funds or financing by ICII or any
affiliate or any other financing or other transaction be a condition to any of
ICII's obligations hereunder or to the consummation of the Merger.
-16-
<PAGE>
Section 3.9 Conduct of Business of Merger Sub. Merger Sub was formed
---------------------------------
solely for the purpose of engaging in the transactions contemplated hereby, has
engaged in no other business activities and has conducted its operations only as
contemplated hereby.
ARTICLE IV
COVENANTS
Section 4.1 Conduct of Business of the Company. Except as expressly
----------------------------------
contemplated by this Agreement or as set forth in Section 4.1 of the Company
Disclosure Schedule, during the period from the date hereof to the Effective
Time, the Company will, and will cause each of its subsidiaries to, conduct its
operations only in the ordinary course of business consistent with past
practice, seek to preserve intact its current business organizations, seek to
keep available the service of its current officers and seek to preserve its
relationships with customers, suppliers and others having business dealings with
them. Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement or as set forth in Section 4.1 of the
Company Disclosure Schedule, after the date hereof and prior to the earlier of
the (i) Effective Time or (ii) termination of this Agreement, the Company will
not and will cause its subsidiaries not to, without the prior written consent of
ICII, such consent not to be unreasonably withheld, conditioned or delayed:
(a) amend its charter or bylaws or the articles or other similar
governing instrument of any of its subsidiaries;
(b) except pursuant to the Rights Agreement, authorize for issuance,
issue, sell, deliver or agree or commit to issue, sell or deliver (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class or any
other securities or equity equivalents (including any stock options or stock
appreciation rights), except for the issuance of Shares (and the associated
rights) upon the exercise of Company Stock Options outstanding at the date of
this Agreement under the Company Stock Option Plan, in accordance with the terms
of such Company Stock Option Plan and Company Stock Options as in effect on the
date hereof;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock
(other than (i) regular quarterly dividends not in excess of 105% of its
taxable income for each quarter or (ii) distributions not in excess of 105% of
its taxable income for the applicable period as may be necessary to maintain the
Company's status as a real estate investment trust for federal income tax
purposes ("REIT")), make any other actual, constructive or deemed distribution
----
in respect of any shares of its capital stock or otherwise make any payments to
Company Stockholders in their capacity as such or redeem or otherwise acquire
any of its securities or any securities of any of its subsidiaries; provided,
however, that notwithstanding the foregoing, the Company shall be permitted to
declare and pay the Final Company Dividend (as defined in Section 4.12) in
accordance with Section 4.12;
-17-
<PAGE>
(d) acquire, sell, lease, license or dispose of any assets, or enter
into any material contract outside the ordinary course of business consistent
with past practice;
(e) except as may be required as a result of a change in law or in
GAAP, change any of the accounting principles or practices used by it and
maintain its books and records other than in accordance with GAAP consistently
applied;
(f) acquire, whether by merger, consolidation or acquisition of stock
or assets or otherwise, any corporation, partnership or other business
organization or division thereof;
(g) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business
consistent with past practice or in accordance with their terms, of claims,
liabilities or obligations reflected or reserved against in, or contemplated by,
the most recent consolidated financial statements (or the notes thereto) of the
Company and its subsidiaries included in the Company SEC Reports or arising in
the ordinary course of business since the date thereof or reflecting debt
between the Company and its wholly owned subsidiaries or between its wholly
owned subsidiaries or which are not otherwise material to the business of the
Company or its subsidiaries;
(h) settle or compromise, or agree to settle or compromise, any claim,
suit or other litigation or matter in an arbitration proceeding for an amount in
excess of $100,000 (after taking into account any insurance proceeds to which
the Company or any of its subsidiaries receives), or otherwise on terms which
would constitute a Company Material Adverse Effect;
(i) create or assume with respect to any asset of the Company
(including any security), any mortgage, lien, pledge, charge, security interest,
assignment of leases, revenues, rents and/or profits, fixture, filing or other
encumbrance of any kind in respect of such asset (the "Liens") other than Liens
-----
which would not have, or reasonably be expected to have, a Company Material
Adverse Effect;
(j) make any loans, advances or capital contributions in excess of
$500,000 to, or investments in, any other Person, other than (i) pursuant to
previous commitments listed in Section 4.1 of the Company Disclosure Schedule or
in Company SEC Reports filed prior to the date hereof, and (ii) loans, advances
and capital contributions to wholly owned subsidiaries of the Company;
(k) take any action, or omit to take any action, which action or
omission would terminate the Company's continuing status as a REIT; and
(l) take, or agree in writing or otherwise to take, (i) any of the
actions described in Sections 4.1(a) through 4.1(k) to the extent that such
actions would be prohibited thereby, except to the extent such actions would not
have, or reasonably be expected to have, a Company Material Adverse Effect, or
(ii) any action which would result in any of the material conditions to the
Merger set forth herein not being satisfied.
-18-
<PAGE>
Notwithstanding anything to the contrary herein, Section 4.1 shall not be deemed
violated by any action taken by the Company as a result of any action by an
officer of the Company that is not specifically approved by the Special
Committee.
Section 4.2 Other Actions. Each of the Company, on the one hand, and
-------------
ICII and Merger Sub, on the other hand, shall not, and shall use commercially
reasonable efforts to cause their respective subsidiaries and affiliates not to,
take any action that would result in (i) any representations and warranties of
such party (without giving effect to any "knowledge" qualification) set forth in
this Agreement that are qualified as to materiality becoming untrue, (ii) any of
such representations and warranties (without giving effect to any "knowledge"
qualification) that are not so qualified becoming untrue in any material
respect, or (iii) any of the conditions to the Merger set forth in Article V not
being satisfied.
Section 4.3 Solicitation.
------------
(a) For a period of 60 days following the later of (x) the date of
this Agreement or (y) the date on which the Appraiser is engaged (the
"Solicitation Period"):
-------------------
(i) Nothing contained in this Agreement shall prohibit the
Company or any third party or any of the affiliates, officers,
directors, employees, representatives or agents of the Company,
directly or indirectly, from encouraging, soliciting, participating
in, initiating discussions or negotiations with, providing any
information or offering access to the properties, books or records of
the Company, or entering into any agreement respecting fees and
expenses or similar matters with any Person or group concerning any
Competing Transaction (as defined below), and it is contemplated and
expected that the Company and such persons will do so for the purpose
of determining if any Competing Transaction constituting a Superior
Proposal is available to the Company.
(ii) Notwithstanding anything to the contrary herein, after
consultation with and based upon the advice of both an outside legal
counsel and an independent financial adviser, the Company Board may
enter into an agreement with respect to, or approve or recommend, a
Superior Proposal; provided, however, that the Company shall
concurrently with entering into such an agreement terminate this
Agreement and pay, or cause to be paid, to ICII the expenses required
by Section 6.3.
(b) Following the expiration of the Solicitation Period:
(i) The Company shall not (whether directly or indirectly through
advisors, agents or other intermediaries) and shall use its reasonable
efforts to cause its officers, directors, employees, affiliates,
agents and representatives, not to directly or indirectly encourage,
solicit, participate in or initiate discussions or negotiations with,
or provide any information or offer access to the properties, books or
records of the Company, to any Person or group (other than ICII or any
designees of ICII) concerning any Competing Transaction.
Notwithstanding the fore-
-19-
<PAGE>
going, the Company may furnish information and access, in each case
only in response to an unsolicited written proposal that constitutes a
Superior Proposal (provided that the Company shall use its reasonable
efforts to enter into a confidentiality agreement with such third
party) and participate in discussions and negotiate with the Person or
group making such Superior Proposal. The Company shall provide a copy
of such written proposal (which shall identify the party making such
proposal) and any amendments thereto to ICII promptly upon receipt
thereof and, thereafter, shall keep ICII promptly advised of material
developments with respect thereto; provided, however, that, nothing
contained in this Section 4.3(b) shall prevent the Company, the
Company Board or the Special Committee from (i) taking, and disclosing
to the Company's stockholders, a position complying with Rule 14e-2(a)
or Rule 14d-9 promulgated under the Exchange Act with respect to a
Competing Transaction, (ii) making any disclosure to its stockholders,
if, in the good faith judgment of the Company Board or the Special
Committee, after receiving advice of outside legal counsel, failure to
disclose would be reasonably likely to constitute a breach of its
fiduciary duties to the Company or its stockholders under applicable
law (including a duty of candor) or otherwise be a violation of any
applicable law, (iii) issuing a press release or publicly disclosing
the terms of this Agreement in accordance with Section 4.6, or (iv)
taking any action which, in the good faith judgment of the Company
Board or the Special Committee, after receiving advice of outside
legal counsel, is required pursuant to an order entered by a court of
competent jurisdiction.
(ii) Except as set forth in this Section, neither the Company
Board nor any committee thereof shall approve or recommend, or cause
the Company to enter into any agreement or letter of intent with
respect to, any Competing Transaction. Notwithstanding the foregoing,
prior to the Effective Time, after consultation with and based upon
the advice of both an outside legal counsel and an independent
financial adviser, the Special Committee may recommend and the Company
Board may authorize and cause the Company to enter into an agreement
with respect to, or approve or recommend, a Superior Proposal;
provided, however, that the Company shall concurrently with entering
into such an agreement terminate this Agreement and pay, or cause to
be paid, to ICII the expenses required by Section 6.3.
(c) For purposes of this Agreement:
(i) "Competing Transaction" shall mean any of the following with
---------------------
respect to the Company or any subsidiary thereof (other than the
transactions contemplated by this Agreement (including all schedules
and exhibits attached hereto or referred to herein)): any merger,
consolidation, share exchange, business combination or similar
transaction, or any sale, exchange, mortgage, pledge, transfer or
other disposition of all or substantially all of the assets or equity
securities of the Company and its subsidiaries taken as a whole, in a
single transaction or series of related transactions; any tender offer
or exchange offer for 50% or more of the
-20-
<PAGE>
outstanding shares of beneficial interest of the Company or any
transaction resulting in the issuance of shares representing 50% or
more of the outstanding shares of beneficial interest of the Company,
or the filing of a registration statement under the Securities Act in
connection therewith.
(ii) "Superior Proposal" shall mean any bona fide proposal
-----------------
relating to a Competing Transaction which is on terms which the
Company Board determines in its good faith judgment (after consulting
with an independent financial advisor of nationally recognized
reputation) (i) to be more favorable to the Company Stockholders than
the Merger and (ii) is reasonably capable of being consummated.
Section 4.4 Additional Agreements; Reasonable Best Efforts. Subject
----------------------------------------------
to the terms and conditions herein provided, each of the parties hereto agrees
to use its reasonable best efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, including (i) contesting any
legal proceeding challenging the Merger and (ii) the execution of any additional
instruments, including the Articles of Merger, necessary to consummate the
transactions contemplated hereby. Subject to the terms and conditions of this
Agreement, each party hereto agrees to use reasonable best efforts to cause the
Effective Time to occur as soon as practicable after the stockholder vote with
respect to the Merger. In case at any time after the Effective Time any further
action is necessary to carry out the purposes of this Agreement, the proper
officers and directors of each party hereto shall take all such necessary
action.
Section 4.5 Consents. Without in any way limiting Section 4.4, ICII,
--------
Merger Sub and the Company each will use its reasonable best efforts to obtain
consents, approvals or waivers of all third parties and Regulatory Entities
necessary, proper or advisable for the consummation of the transactions
contemplated by this Agreement; provided that, nothing contained herein shall
require either party to dispose of any business, properties or assets or cease
engaging in any business which, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on the business,
assets, results of operations or financial condition of the Surviving
Corporation and its subsidiaries, taken as a whole, after giving effect to the
Merger.
Section 4.6 Public Announcements. ICII, Merger Sub and the Company
--------------------
will consult with each other and give each other reasonable advance notice
before issuing any press release or otherwise making any public statements with
respect to the transactions contemplated hereby, including the Merger (but
excluding any press release or announcement by the Company relating to any
Competing Transaction or Superior Proposal). Each party hereto shall
incorporate in the press release or other public statement such information as
shall reasonably be requested to be included therein by the other party hereto.
Notwithstanding the foregoing, either party hereto may, without the prior
consent of the other party, issue any press release or make any public
an-
-21-
<PAGE>
nouncement that may be required by law or the rules or requirements of the
Nasdaq Stock Market, if it has used its reasonable best efforts to consult with
the other party but has been unable to do so in a timely manner, and the Company
may issue any press release or make any public announcement as it may desire
with respect to any Competing Transaction or Superior Proposal. The parties
agree that the initial press release to be issued with respect to the Merger
shall be in the form heretofore agreed to by the parties.
Section 4.7 Indemnification; Directors' and Officers' Insurance.
---------------------------------------------------
(a) ICII and Merger Sub agree that all rights to indemnification or
exculpation (whether contained in the charter, by-laws or other similar
governing instruments, or in any indemnification agreements, each as in effect
as of the date hereof, or otherwise available) now existing in favor of the
directors, officers, employees and agents (and their respective heirs,
representatives, successors and assigns) of the Manager and/or the Company and
its subsidiaries (each an "Indemnified Party") with respect to actions or
-----------------
omissions occurring prior to the Effective Time shall survive the Merger and
shall continue in full force and effect for a period of six years from the
Effective Time; provided, however, that, all rights to indemnification in
respect of any claim asserted or made within such period shall continue until
the disposition of such claim. In addition to the foregoing, from and after the
Effective Time, ICII and the Surviving Corporation, jointly and severally, shall
indemnify, hold harmless and defend each person who is a current or former
officer or director of the Manager and/or the Company or any of its subsidiaries
against all losses, claims, damages, liabilities, judgments, costs or expenses
(including attorneys' fees) arising out of or pertaining to acts or omissions
(or alleged acts or omissions) by them in their capacities as such
(collectively, "Actions"), which Actions occurred at or prior to the Effective
-------
Time. To the maximum extent permitted by the MGCL, the indemnification and
related rights hereunder shall be mandatory rather than permissive and ICII
and/or the Surviving Corporation shall promptly advance expenses in connection
with such indemnification to the fullest extent permitted under applicable law,
provided that, to the extent required by law, the person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification. Notwithstanding
anything to the contrary herein, immediately upon consummation of the Merger,
ICII and the Surviving Corporation shall (and ICII agrees to cause the Surviving
Corporation to), jointly and severally, expressly assume the obligations of the
Company under any indemnification agreements entered into by the Company for the
benefit of its directors and officers.
(b) ICII shall cause the Surviving Corporation to maintain in effect
for not less than six years from the Effective Time policies of directors' and
officers' liability and fiduciary insurance, which may be in the form of tail
coverage under the Company's current policies of such insurance (if and to the
extent that such tail coverage is available and provides insurance coverage that
meets all of the requirements of this Section), on terms with respect to
coverage and amount no less favorable than those of such policy or policies in
effect on the date hereof pursuant to which the Company's directors and officers
currently are insured with respect to claims arising from facts or events
occurring prior to the Effective Time to the extent required to cover the types
of actions and omissions with respect to which the Company's directors and
officers are currently insured; provided, that in no event shall ICII or the
Surviving Corporation be required to pay aggregate annual premiums for insurance
under this paragraph (b) in excess of 300% of the aggregate annual premium paid
by the Company as of the date of this Agreement for such purpose; provided,
further, that if the premium for such coverage exceeds such amount,
-22-
<PAGE>
ICII shall, or shall cause the Surviving Corporation to, purchase a policy with
the greatest coverage available for such 300% of the aggregate annual premium.
In the event that any person is or would have been entitled to coverage under a
directors' and officers' liability and fiduciary insurance policy pursuant to
this Section and such policy has lapsed, not been purchased, terminated, been
repudiated or is otherwise in breach or default or affords lesser coverage than
is required under this Section as a result of the Surviving Corporation's
failure to maintain and fulfill its obligations pursuant to this Section or for
any other reason, ICII shall pay to such persons such amounts and provide any
other coverage or benefits as such person would have received pursuant to such
policy.
(c) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section, upon actually learning of any such Action, shall
promptly notify ICII thereof; provided, however, that any failure of an
Indemnified Party to promptly so notify ICII shall not excuse ICII or the
Surviving Corporation from any of its obligations hereunder except to the extent
of any actual harm suffered by ICII or the Surviving Corporation as a result of
such delay. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) ICII and
the Surviving Corporation shall have the right, from and after the Effective
Time, to assume the defense thereof if the relief sought therein is solely
monetary (and provided that ICII or the Surviving Corporation, jointly and
severally, admit and covenant in writing their liability to indemnify and hold
the Indemnified Party harmless from and against any losses, damages, expenses
and liabilities arising out of such matter), (ii) the Indemnified Party (or
Parties, if more than one) shall have the right to engage separate counsel to
represent its or their interests, and ICII and the Surviving Corporation shall,
jointly and severally, bear the reasonable expenses of such counsel (such
counsel or counsels, as the case may be, to coordinate with counsel for ICII in
order to avoid unreasonable duplication of legal expenses among ICII and the
Indemnified Parties); provided, however, that ICII and the Surviving Corporation
shall, jointly and severally, be obligated to bear the expenses of only one such
separate counsel unless there exists or may exist one or more legal defenses
available to an Indemnified Party that are not available to, or the assertion of
which would be adverse to the interest of, one or more of the other Indemnified
Parties (it being further understood and agreed that if and to the extent one or
more of the Independent Directors of the Company (as such term is defined in the
Company's charter) are Indemnified Parties with respect to any particular
Action, ICII and the Surviving Corporation shall, jointly and severally, be
obligated to bear the expenses of one counsel for the Independent Directors with
no other representation in the matter, and shall be so obligated with respect to
individual counsel for any Independent Director in the event there exists or may
exist one or more legal defenses available to such Independent Director that are
not available to, or the assertion of which would be adverse to the interest of,
one or more of the other Independent Directors), (iii) the Indemnified Parties
will reasonably cooperate in the defense of any such matter, (iv) ICII and the
Surviving Corporation shall not be liable for any settlement effected without
ICII's prior written consent (which consent shall not be unreasonably withheld,
conditioned or delayed), and (v) neither ICII, nor the Surviving Corporation,
nor any of their affiliates shall consent to a settlement of, or the entry of
any judgment arising from, any such matter, without the prior written consent of
each Indemnified Party that is a party to such matter, unless the Indemnified
Party is the beneficiary of a full and complete release from any losses,
damages, expenses
-23-
<PAGE>
and liabilities arising out of such claim or Action by the person or persons
bringing such claim or Action, in form and substance reasonably satisfactory to
the Indemnified Party.
(d) Notwithstanding any other provisions hereof, the obligations of
ICII and the Surviving Corporation shall be binding upon the successors and
assigns of each of them. In the event ICII or the Surviving Corporation or any
of their successors or assigns (i) consolidates with or merges into any other
Person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers or conveys all or any substantial
portion of its properties and assets to any Person, then, and in each such case,
proper provision shall be made so that the successors and assigns of such party
assume the obligations set forth in this Section.
(e) The obligations of the Surviving Corporation hereunder shall be
the joint and several obligations of ICII and the Surviving Corporation and
their respective successors and assigns, whether or not expressly provided in
this Section.
(f) The provisions in this Section (i) are intended to be for the
benefit of, and shall be enforceable by, each person entitled to indemnification
hereunder, and each such person's heirs, representatives and successors or
assigns (it being expressly agreed that such persons shall be the third party
beneficiaries of this Section) and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
Section 4.8 Notification of Certain Matters. The Company shall give
-------------------------------
prompt notice to ICII, and ICII shall give prompt notice to the Company, of (i)
the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any of its representations or warranties
contained in this Agreement to be untrue or inaccurate in any material respect
at or prior to the Effective Time, (ii) any material failure by it to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder, (iii) any notice of, or other communication relating
to, a default or event which, with notice or lapse of time or both, would become
a default, if received by it or any of its subsidiaries subsequent to the date
of this Agreement and prior to the Effective Time, under any contract material
to the financial condition, properties, assets, businesses or results of
operations of it and its subsidiaries taken as a whole to which it or any of its
subsidiaries is a party or is subject, (iv) any notice or other communication
from any third party alleging that the consent of such third party is or may be
required in connection with the transactions contemplated by this Agreement (but
notice to ICII or the Company, as the case may be, shall be required only if the
absence of such consent would have an ICII Material Adverse Effect or Company
Material Adverse Effect, as the case may be), or (v) any Company Material
Adverse Effect or ICII Material Adverse Effect, as the case may be; provided,
however, that the delivery of any notice pursuant to this Section shall not cure
such breach or non-compliance or limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
Section 4.9 SEC and Other Filings. The Company and ICII each shall
---------------------
provide the other and its counsel with copies of all filings made by it or any
of its subsidiaries with the
-24-
<PAGE>
SEC after the date hereof and the Company and ICII each shall provide the other
and its counsel with copies of all filings made by it with any other Regulatory
Entity in connection with this Agreement and the transactions contemplated
hereby.
Section 4.10 Stockholder Litigation. Each of ICII and the Company
----------------------
shall give the other the reasonable opportunity to participate in the defense of
any stockholder litigation against ICII, Merger Sub or the Company, as
applicable, and/or their respective officers and directors relating to the
transactions contemplated hereby.
Section 4.11 SPB Loans. ICII shall repurchase (unless Southern
---------
Pacific Bank ("SPB") has previously repurchased) the 16 real estate mortgage
---
loans previously sold by SPB to the Company that (i) had an aggregate principal
balance of $3,911,864.85 as of June 30, 1999, (ii) were described in that
certain notice from the Company to SPB, dated May 21, 1999, and (iii) have not
been repurchased by SPB from the Company as of the date hereof (collectively,
the "SPB Loans"; provided that, in those instances in which a foreclosure sale
---------
of the real property underlying one or more SPB Loans has already occurred, all
references in this Agreement to SPB Loans shall be deemed to be references to
such real property, and in those instances, ICII shall purchase such real
property from the Company in lieu of purchasing such mortgage loans), by the
later of (x) 60 days from the date of this Agreement or (y) 5 days after the
termination of this Agreement, at a price per SPB Loan as provided for in the
relevant Agreement for Purchase and Sale of Real Estate Loans between the
Company and SPB pursuant to which such SPB Loan was acquired by the Company.
Section 4.12 Final Company Dividend. The Company shall declare a
----------------------
cash dividend (the "Final Company Dividend") to the Company Stockholders, the
----------------------
record date for which shall be the close of business on the last business day
prior to the Effective Time, in an amount not in excess of (x) 100% of the
Company's taxable income for the taxable year through the Effective Time reduced
by (y) the amount of all prior dividends paid in respect of the Company's
taxable year ending as of the Effective Time, to be paid to Company Stockholders
as promptly as practicable after the Effective Time.
Section 4.13 Employee Matters. ICII shall cause the Manager to fully
----------------
honor and pay all existing employment and severance arrangements with respect to
its employees. The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, each employee of the Manager (it being
expressly agreed that each such person shall be a third party beneficiary of
this Section).
Section 4.14 Standstill.
----------
(a) Except with respect to the Merger or any Qualifying Alternative
Transaction (including, in either case, any of the matters permitted by this
Agreement in connection with the negotiation, approval or consummation of the
Merger), ICII (including its affiliates, each of its and their directors,
officers, employees, agents and representatives, and any "group", within the
meaning of Section 13(d)(3) of the Exchange Act, in which it, any of its
affiliates, or any of its or their directors, officers, employees, agents or
representatives, is a member) shall not directly or indirectly: (i) acquire
beneficial ownership or control of any equity securities of the
-25-
<PAGE>
Company, other than the ICII Shares owned prior to the date of this Agreement;
(ii) other than certain mortgage loans (or underlying real property) that may be
resold to SPB and/or Franchise Mortgage Acceptance Corp., in any manner acquire
or agree, attempt, seek or propose to acquire (or make any request for
permission with respect thereto), by purchase, merger, through the acquisition
of control of another person, by joining a partnership, limited partnership,
syndicate or other group, or otherwise, ownership (including, but not limited
to, beneficial ownership as defined in Rule 13d-3 under the Exchange Act) of any
of the assets or businesses of the Company or any securities issued by the
Company, or any rights or options to acquire such ownership (including from a
third party); (iii) make, or in any way cause or participate in, any
"solicitation" of "proxies" to vote (as such terms are defined in Regulation 14A
under the Exchange Act), or communicate with, seek to advise, encourage or
influence any person or entity, in any manner, with respect to the voting of,
any voting securities of the Company, or become a "participant" in any "election
contest" (as such terms are defined or used in Rule 14a-11 promulgated under the
Exchange Act) with respect to the Company, or execute any written consent with
respect to the Company; (iv) make or cause to be made or reasserted any proposal
for the acquisition of the Company or any assets or securities thereof or for
any extraordinary transaction involving the Company, including any merger, or
other business combination, restructuring, recapitalization, liquidation or
similar transaction; (v) initiate, propose or otherwise solicit stockholders for
the approval of one or more stockholder proposals with respect to the Company or
induce or attempt to induce any other person to initiate any stockholder
proposal, or seek election to or seek to place a representative on the Board of
Directors of the Company (other than existing members of the Company Board on
the date hereof) or seek the removal of any member of the Company Board; (vi)
form, join or in any way participate in a "group" (within the meaning of Section
13(d)(3) of the Exchange Act) with respect to any voting securities of the
Company; (vii) otherwise act, alone or in concert with others, to seek to
control or influence the management, the Company Board or the policies of the
Company (except as permitted or required by the Management Agreement or by such
person's status as a director or officer of the Company); (viii) disclose any
intention, plan or arrangement, or make any public announcement inconsistent
with the foregoing; (ix) advise, assist or encourage or finance (or assist or
arrange financing to or for) any other person in connection with any of the
foregoing; (x) enter into any discussions, negotiations, arrangements or
understandings with any other person in connection with any of the foregoing; or
(xi) request a waiver of any of the foregoing. In the event ICII shall determine
to do any of the foregoing with respect to a Qualifying Alternative Transaction,
it shall promptly amend its Schedule 13D filed with respect to the (a) Except
with respect to the Merger or any Qualifying Alternative Transaction (including,
in either case, any of the matters permitted by this Agreement in connection
with the negotiation, approval or consummation of the Merger), ICII (including
its affiliates, each of its and their directors, officers, employees, agents and
representatives, and any "group", within the meaning of Section 13(d)(3) of the
Exchange Act, in which it, any of its affiliates, or any of its or their
directors, officers, employees, agents or representatives, is a member) shall
not directly or indirectly: (i) acquire beneficial ownership or control of any
equity securities of the Shares (the "Schedule 13D") to reflect such change.
------------
(b) A "Qualifying Alternative Transaction" shall refer to any
----------------------------------
transaction (i) by which ICII, alone or with others, acquires or seeks to
acquire all of the Shares for cash consideration to the holders of Shares
(payable in U.S. dollars) at a price that is not less than the Merger
Consideration (except that such price may be adjusted to take account of any
extraordinary distribution made by the Company following the termination of the
Merger Agreement, or any issuance or repurchase by the Company of interests or
instruments convertible or exchangeable into or for capital stock of the Company
following the termination of the Merger Agreement) (provided, however, that the
amount of any break-up fee agreed to be paid by the Company to a third party
pursuant to an agreement relating to a Superior Proposal with such third party
shall
-26-
<PAGE>
not exceed $6 million); (ii) proposed after the Merger Agreement is terminated
by ICII solely in response to a definitive Superior Proposal for which the
consideration to be paid thereunder does not consist entirely of cash or cash
equivalent securities or instruments; and (iii) (x) not subject to any
conditions to consummation not contained in this Agreement with respect to the
Merger and (y) in connection with which ICII shall undertake and remain subject
to (A) all the terms and conditions of this Agreement that are for benefit of
any third party (whether or not such party is a third party beneficiary hereof)
as contemplated herein and (B) all of the terms and conditions of this Agreement
set forth on Schedule IV, and the consummation of any Qualifying Alternative
Transaction by ICII shall constitute an agreement by ICII to abide by the terms
hereof referred to in this clause (y), mutatis mutandis.
(c) If such Qualifying Alternative Transaction is effected by tender
offer (i) such offer shall have a non-waivable minimum condition that ICII shall
not accept for payment any tendered Shares, unless there are validly tendered
and not properly withdrawn prior to the expiration date for such offer, that
number of Shares representing a majority of the total number of issued and
outstanding Shares, other than the ICII Shares, and (ii) if such offer is
consummated, ICII shall effect a second-step merger in which Company
Stockholders not tendering in such offer shall receive the same per share
consideration as they would have received had they tendered in the tender offer.
ICII shall, in accordance with Section 1.11, promptly amend its Schedule 13E-3
and its Schedule 13D to reflect the terms of any Qualifying Alternative
Transaction it may propose.
(d) ICII covenants and agrees that it shall not (i) with respect to
any Qualifying Alternative Transaction to be effected by tender offer or by the
purchase of any Shares, permit the tender of any Shares to become irrevocable or
purchase any Shares tendered or offered to be sold in connection with such
Qualifying Alternative Transaction, or (ii) with respect to any Qualifying
Alternative Transaction to be effected in any other manner, obtain the required
approval of the Company Stockholders for such Qualifying Alternative
Transaction, consummate such Qualifying Alternative Transaction or make the
consummation of such Qualifying Alternative Transaction otherwise not subject to
further approval by Company Stockholders, in either case before two business
days following the date of the meeting of the Company Stockholders called for
the purpose of approving a Superior Proposal, with the purpose and effect that
the Company Stockholders shall in fact have the opportunity to accept and
benefit from such Superior Proposal should they so desire, without any timing
advantage being afforded to such Qualifying Alternative Transaction.
Section 4.15 Transfer and Gains Taxes. The Company and ICII shall
------------------------
cooperate in the preparation, execution and filing of any returns,
questionnaires, applications or other documents regarding any real property
transfer or gains, sales, use, transfer, value added, stock transfer or stamp
taxes, any transfer, recording, registration or other fees or any similar taxes
which may become payable in connection with the Merger (together with any
related interests, penalties or additions to tax, "Transfer and Gains Taxes").
------------------------
The Surviving Corporation shall pay, and not deduct or withhold, any Transfer
and Gains Taxes from any amounts payable to the former holders of the Company's
Shares.
-27-
<PAGE>
Section 4.16 Access to Information.
---------------------
(a) Between the date hereof and the Effective Time, the Company, upon
reasonable notice and during the Company's ordinary business hours, (i) will not
prevent ICII and its authorized representatives from having reasonable access to
the employees of the Manager, and to the offices and other facilities and the
books and records of the Company and its subsidiaries, (ii) will permit ICII and
its authorized representatives to make such inspections as ICII and its
authorized representatives may, from time to time, reasonably request and will
cause the Company's officers and those of its subsidiaries, and their respective
accountants and outside legal counsel, to furnish ICII and its authorized
representatives with such financial and operating data and other information
with respect to the business, properties and personnel of the Company and its
subsidiaries as ICII and its authorized representatives may from time to time
reasonably request, provided that no investigation pursuant to this Section
4.16(a) shall affect or be deemed to modify any of the representations or
warranties made by the Company.
(b) ICII agrees that all information received from the Company or the
Manager as contemplated by this Section shall be deemed received pursuant to the
Confidentiality Agreement, dated as of June 22, 1999, between the parties (the
"Confidentiality Agreement"), and that ICII shall, and shall cause its
-------------------------
subsidiaries, affiliates and their respective directors, officers, employees,
agents and representatives to, comply with the provisions of the Confidentiality
Agreement with respect to such information, and the provisions of the
Confidentiality Agreement are hereby incorporated by reference with the same
effect as if fully set forth herein.
Section 4.17 Excess Share Provision. The parties agree that the
----------------------
provisions of Article VII of the Company Charter may apply to the transactions
contemplated by this Agreement. Therefore, prior to the Effective Time, the
Board of Directors of the Company shall, pursuant to the second sentence of
Section 7.1.7 of the Company Charter and subject to and conditioned upon receipt
of the items contemplated by clauses (i), (ii) and (iii) below, exempt the
transactions contemplated hereby, including the Merger (the "Exemption"), from
---------
the restrictions set forth in Section 7.1.2(a) of the Company Charter. In
furtherance of the foregoing, prior to the Effective Time, ICII shall cooperate
with the Company in obtaining, or shall cause to be delivered to the Company's
Board of Directors, as applicable, the following:
(i) an opinion of Piper & Marbury L.L.P. (the "Opinion") to the
-------
effect that the restrictions contained in Section 7.1.2(b), Section
7.1.2(c) and/or Section 7.1.2(d) of the Company Charter will not be
violated by the consummation of the transactions contemplated by this
Agreement,
(ii) such representations and undertakings contemplated by
Section 7.1.7 of the Company Charter and such representations and
warranties appropriate for the tax opinion certificate to be delivered
to support the legal opinion described in clause (i), in each case
including the representations and undertakings set forth in Exhibit A
---------
to this Agreement, as are reasonably necessary to ascertain that no
individual's "Beneficial Ownership" or "Constructive Ownership" of
shares of "Equity Stock" will violate the "Ownership Limit" (as each
of those
-28-
<PAGE>
terms is defined in Section 7.1.1 of the Company Charter;
such Ownership Limit being referred to herein as the "Individual
----------
Ownership Limit"), and
---------------
(iii) the written agreement of ICII that any violation or
attempted violation of the Individual Ownership Limit will result in
the Shares acquired pursuant to this Agreement being transferred to a
trust contemplated by Section 7.1.3 of the Company Charter to the
extent necessary to avoid such violation.
The parties agree that application of Article VII of the Company Charter to the
Merger shall not be deemed to constitute a breach of any representation,
warranty, covenant or agreement contained in this Agreement, nor the failure to
satisfy any condition to the consummation of the transactions contemplated
hereby (except as provided in Section 5.2(c), with respect to the Company, and
Section 5.3(c), with respect to ICII).
Section 4.18 State Takeover Statutes. The Company will use its
-----------------------
reasonable efforts to take all permissible actions it believes necessary to
exempt the Merger from the operation of any applicable "fair price,"
"moratorium," "business combination," "control share acquisition" or any other
applicable anti-takeover statute enacted under the state or federal laws of the
United States or any similar statute or regulation. The Company will not
exercise any rights it may have under applicable anti-takeover statutes to
nullify or delay this Agreement or the consummation of the transactions
contemplated hereby.
ARTICLE V
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 5.1 Conditions to Each Party's Obligations to Effect the
----------------------------------------------------
Merger. The respective obligations of ICII, Merger Sub and the Company to
- ------
effect the transactions contemplated hereby are subject to the satisfaction or
waiver at or prior to the Effective Time of the following conditions:
(a) this Agreement and the transactions contemplated hereby shall have
been approved at the Special Meeting held after October 1, 1999 (i) by Company
Stockholders in accordance with the Company Charter and (ii) by Company
Stockholders representing a majority of the outstanding Shares entitled to vote
at the Special Meeting (other than the ICII Shares); and
(b) no existing or future statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
enforced by any Regulatory Entity which has the effect of making the
consummation of the Merger illegal or prevents or prohibits consummation of the
Merger. Each party agrees that, in the event that any such statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or enforced, such party shall use its reasonable
best efforts to cause such statute, rule, regulation, executive order, decree,
ruling or injunction to be complied with, lifted or vacated.
-29-
<PAGE>
Section 5.2 Conditions to the Obligations of the Company. The
--------------------------------------------
obligation of the Company to effect the Merger and the transactions contemplated
hereby is subject to the satisfaction or waiver at or prior to the Effective
Time of the following conditions:
(a) The representations and warranties of ICII and Merger Sub
contained in this Agreement or in any other document delivered pursuant hereto
shall be true and correct at and as of the Effective Time with the same effect
as if made at and as of the Effective Time (except to the extent expressly made
as of an earlier date, in which case, as of such date), except where the failure
of such representations and warranties to be true and correct (without giving
effect to any supplement to the ICII Disclosure Schedule after the date hereof
or any materiality or material adverse effect qualifier) does not constitute an
ICII Material Adverse Effect and at the Closing ICII and Merger Sub shall have
delivered to the Company a certificate signed by their respective Chief
Executive Officers to that effect;
(b) Each of the obligations of ICII and Merger Sub to be performed at
or before the Effective Time pursuant to the terms of this Agreement shall have
been duly performed at or before the Effective Time, except for such non-
performances as would not, in the aggregate, either have an ICII Material
Adverse Effect or prevent or prohibit consummation of the Merger, and at the
Closing ICII and Merger Sub shall have delivered to the Company a certificate
signed by their respective Chief Executive Officers to that effect; and
(c) The deliveries contemplated by clauses (i), (ii) and (iii) of
Section 4.17 shall have been made.
Section 5.3 Conditions to the Obligations of ICII and Merger Sub.
----------------------------------------------------
The obligation of ICII and Merger Sub to effect the Merger and the transactions
contemplated hereby is subject to the satisfaction or waiver at or prior to the
Effective Time of the following conditions:
(a) the representations and warranties of the Company contained in
this Agreement or in any other document delivered pursuant hereto shall be true
and correct at and as of the Effective Time with the same effect as if made at
and as of the Effective Time (except to the extent expressly made as of an
earlier date, in which case, as of such date), except where the failure of such
representations and warranties to be true and correct (without giving effect to
any supplement to the Company Disclosure Schedule after the date hereof or any
materiality or material adverse effect qualifier) does not have and would not
have a Company Material Adverse Effect and at the Closing the Company shall have
delivered to ICII a certificate signed by its Chief Executive Officer to that
effect;
(b) each of the obligations of the Company to be performed at or
before the Effective Time pursuant to the terms of this Agreement shall have
been duly performed at or before the Effective Time, except for such non-
performances as would not, in the aggregate, have a Company Material Adverse
Effect or prevent or prohibit consummation of the Merger, and at the Closing the
Company shall have delivered to ICII a certificate signed by its Chief Executive
Officer to that effect; and
-30-
<PAGE>
(c) The Exemption shall have been granted; provided, however, that
-------- -------
neither ICII nor Merger Sub may rely on the failure of this condition if any of
the deliveries contemplated by clauses (ii) and (iii) of Section 4.17 required
to be delivered by ICII have not been made (or if the delivery contemplated by
clause (i) of Section 4.17 has not been made as a result of the failure of such
deliveries).
Section 5.4 Frustration of Closing Conditions. Neither ICII, Merger
---------------------------------
Sub nor the Company may rely on the failure of any condition set forth in
Sections 5.1 through 5.3 to be satisfied if such failure was caused by such
party's failure to use reasonable best efforts to consummate the Merger and the
transactions contemplated hereby, as required by and subject to Section 4.4.
ARTICLE VI
TERMINATION; AMENDMENT; WAIVER
Section 6.1 Termination. This Agreement may be terminated and the
-----------
Merger and the transactions contemplated hereby may be abandoned at any time
prior to the Effective Time, whether before or after the Company Stockholders
approve the Merger:
(a) by mutual written consent of ICII and the Company;
(b) by ICII or the Company if (i) any Regulatory Entity shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the acceptance for payment of,
or payment for Shares and such order, decree, ruling or other action is or shall
have become final and nonappealable; provided that no party may terminate this
Agreement pursuant to this paragraph if such party has failed to fulfill its
obligations under Section 5.1(b) of this Agreement; (ii) the Merger has not been
consummated prior to January 31, 2000; or (iii) the approval of this Agreement
by the Company Stockholders as provided in Section 5.1(a) shall not have been
obtained at the Special Meeting or any adjournment or postponement thereof;
(c) by the Company if, prior to the Effective Time, the Company Board
approves or recommends another offer or an agreement to effect a proposal made
by a third party to effect a Superior Proposal in accordance with Section 4.3;
(d) by ICII if, prior to the Effective Time, the full Company Board
(i) shall have withdrawn or modified in a manner adverse to ICII or Merger Sub
its approval or recommendation of this Agreement or the Merger, (ii) shall have
approved or recommended another offer or an agreement to effect a proposal made
by a third party (other than an affiliate of ICII) to effect a Superior
Proposal, or (iii) shall have resolved to effect any of the foregoing;
(e) by the Company if prior to the consummation of the Merger (i)(A)
any of the representations and warranties of ICII or Merger Sub contained in
this Agreement and qualified as to materiality or ICII Material Adverse Effect
were untrue or incorrect when made or have since become untrue or incorrect or
(B) any other representations or warranties of ICII or Merger
-31-
<PAGE>
Sub contained in this Agreement were when made or have since become untrue or
incorrect and, except as to the representations and warranties in Section 3.9 as
to which the following qualification shall not apply, such breach could
reasonably be expected, individually or in the aggregate, to have an ICII
Material Adverse Effect, or (ii) ICII or Merger Sub shall have breached or
failed to comply in any material respect with any of their respective agreements
or obligations under this Agreement, which breach shall not have been cured
prior to 20 business days following notice of such breach (provided that such
notice and grace period shall not be applicable to ICII's covenants in Section
4.11 as to the SPB Loans);
(f) by ICII if prior to the consummation of the Merger (i) (A) any of
the representations or warranties of the Company contained in this Agreement and
qualified as to materiality or Company Material Adverse Effect were untrue or
incorrect when made or have since become untrue or incorrect or (B) any other
representations or warranties of the Company contained in this Agreement were
when made or have become untrue or incorrect and such breach could reasonably be
expected, individually or in the aggregate, to have a Company Material Adverse
Effect, or (ii) the Company shall have breached or failed to comply in any
material respect with any of its agreements or obligations under this Agreement,
which breach shall not have been cured 20 business days following notice of such
breach.
The party desiring to terminate this Agreement pursuant to this Section 6.1
shall give written notice of such termination to the other party. Neither party
may terminate this Agreement pursuant to this Section if such party has failed
to use reasonable best efforts to consummate the Merger and the transactions
contemplated hereby, as required by and subject to Section 4.4.
In the event this Agreement is terminated pursuant to Section 6.1(c) or
6.1(d)(ii) as the result of a Superior Proposal entered into as contemplated by
Section 4.3(a), ICII hereby agrees to vote, tender or exchange, and to use its
reasonable best efforts to cause any other ICII Shares to be voted, tendered or
exchanged, in favor of such Superior Proposal; provided, that such Superior
--------
Proposal is an all-cash transaction.
Section 6.2 Effect of Termination. In the event of the termination
---------------------
and abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party hereto or its affiliates, directors, officers or stockholders, other
than the provisions of this Section and Sections 1.8, 2.6, 3.5, 4.11, 4.14, 6.3
and Article VII. Nothing contained in this Section shall relieve any party from
liability for any willful breach of this Agreement.
Section 6.3 Expenses.
--------
(a) Upon the termination of this Agreement pursuant to Section 6.1(c)
or 6.1(d)(ii), the Company shall promptly pay ICII an amount equal to the lesser
of (x) two million dollars ($2,000,000) and (y) ICII's actual expenses related
to this Agreement and the transactions contemplated hereby (not including any
investment banking fees other than the reimbursement of out-of-pocket expenses
and not including any fees relating to arrangements related to the financing of
the transactions contemplated hereby).
-32-
<PAGE>
(b) In the event that this Agreement shall be deemed void or voidable
pursuant to Section 3-602 of the MGCL by a final, non-appealable order, ICII
shall promptly after such determination pay to the Company an amount equal to
the Company's actual expenses related to this Agreement and the transactions
contemplated hereby.
(c) Except as specifically provided in this Section, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby.
Section 6.4 Amendment. This Agreement may be amended by action taken
---------
by the Company, ICII and Merger Sub at any time before or after approval of the
Merger by the Company Stockholders but, after any such approval, no amendment
shall be made which requires the approval of such stockholders under applicable
law without such approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of the parties hereto.
Section 6.5 Extension; Waiver. At any time prior to the Effective
-----------------
Time, each party hereto may (i) extend the time for the performance of any of
the obligations or other acts of the other parties, (ii) waive any inaccuracies
in the representations and warranties of the other parties contained herein or
in any document, certificate or writing delivered pursuant hereto, or (iii)
waive compliance by the other parties with any of the agreements or conditions
contained herein. Any agreement on the part of any party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party and expressly referring to this Agreement. The
failure of any party hereto to assert any of its rights hereunder shall not
constitute a waiver of such rights.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Non-survival of Representations and Warranties. The
----------------------------------------------
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement. This Section shall not limit
any covenant or agreement which by its terms contemplates performance after the
Effective Time.
Section 7.2 Entire Agreement; Assignment. This Agreement (including
----------------------------
the documents and instruments referred to herein) (i) constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and (ii)
shall not be assigned by operation of law or otherwise.
Section 7.3 Notices. All notices, requests, demands and other
-------
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand (including recognized
courier service) or mailed, certified or registered mail with postage prepaid,
or communicated by facsimile transmission (receipt confirmed), as follows:
-33-
<PAGE>
if to ICII or Merger Sub:
Imperial Credit Industries Inc.
23550 Hawthorne Boulevard, Building-1
Torrance, California 90505
Attention: H. Wayne Snavely
Fax: (310) 791-9955
with copies to:
Imperial Credit Industries Inc.
23550 Hawthorne Boulevard, Building-1
Torrance, California 90505
Attention: Irwin Gubman
Fax: (310) 791-8230
and:
Mayer, Brown & Platt
350 South Grand Avenue, 25/th/ Floor
Los Angeles, California 90071-1503
Attention: James R. Walther, Esq.
Fax: (213) 625-0248
if to the Company:
Imperial Credit Commercial
Mortgage Investment Corp.
11601 Wilshire Boulevard, Suite 2080
Los Angeles, California 90023
Attention: Mark S. Karlan
Fax: (310) 231-1281
with copies to:
Joseph A. Jaconi, Jr.
Chairman of the Special Committee
of the ICCMIC Board of Directors
Joseph Jaconi Company, Inc.
P.O. Box 3907
Palo Verdes Peninsula, California 90274
Fax: (310) 373-8140
and:
-34-
<PAGE>
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606-6404
Attention: Andrew L. Weil, Esq.
Fax: (312) 876-7934
and:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Adam O. Emmerich, Esq.
Fax: (212) 403-2000
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
Each such notice, request, demand, application, service of process and
other communication shall be deemed to have been given (i) as of the date faxed
or delivered (which, with respect to a recognized courier service, shall be
deemed to mean the business day following the date sent), (ii) as of the fifth
business day after the date mailed, or (iii) if given by any other means, only
when actually received by the addressee.
Section 7.4 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Maryland without regard to
the principles of conflicts of law thereof.
Section 7.5 Descriptive Headings; Schedules, Interpretation.
-----------------------------------------------
(a) The descriptive headings herein are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. Any matter disclosed pursuant to any Section
of the Company Disclosure Schedule or the ICII Disclosure Schedule shall be
deemed to qualify each representation and warranty of the Company, ICII and
Merger Sub, respectively. Any matter set forth in the Company SEC Reports or
the ICII SEC Reports, as the case may be, shall be deemed to be set forth in the
applicable Section of the Company Disclosure Schedule or the ICII Disclosure
Schedule, as the case may be, and no matter disclosed in the Company SEC Reports
or the ICII SEC Reports shall be deemed to constitute a breach of any
representation or warranty of the Company, ICII or Merger Sub, as the case may
be, set forth herein.
(b) As used in this Agreement, (i) the term "includes" and the word
--------
"including" and words of similar import shall be deemed to be followed by the
- ----------
words "without limitation"; (ii) "control" (including its correlative meanings,
-------
"controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of
management or policies of a person, whether through the ownership of securities
or partnership or other interests, by contract or otherwise; (iii) "Person"
------
means, as appli-
-35-
<PAGE>
cable, a natural person, firm, partnership, limited liability company, joint
venture, corporation, association, business enterprise, joint stock company,
unincorporated association, trust, Regulatory Entity (as defined in Section 2.4
hereof) or any other entity, whether acting in an individual, fiduciary or other
capacity; (iv) references to "knowledge" in this Agreement, or words of similar
---------
import, shall mean the actual knowledge of the Persons named in Section 7.5 of
the Company Disclosure Schedule (where used herein with respect to the Company)
and shall mean the actual knowledge of the Persons named in Section 7.5 of the
ICII Disclosure Schedule (where used with respect to ICII); (v) definitions
contained in this Agreement apply to singular as well as the plural forms of
such terms and to the masculine as well as to the feminine and neuter genders of
such terms; (vi) words in the singular shall be held to include the plural and
vice versa and words of one gender shall be held to include the other gender
as the context requires; (vii) the terms "hereof," "herein," and "herewith"
------ ------ --------
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section, paragraph, Schedule and Exhibit references are
to the Articles, Sections, paragraphs, Schedules and Exhibit to this Agreement
unless otherwise specified; (viii) the word "or" shall not be exclusive; (ix)
--
provisions shall apply, when appropriate, to successive events and transactions
; and (x) the terms "subsidiary" and "affiliate", as used herein with reference
---------- ---------
to ICII, shall be deemed not to include the Company and its subsidiaries, and
the term "affiliate", as used herein with reference to the Company, shall be
---------
deemed not to include ICII and its subsidiaries and affiliates, other than the
Company and its subsidiaries.
Section 7.6 Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto and its successors and
permitted assigns, and except as provided in Sections 1.9, 1.10, 4.7 and 4.13
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 7.7 Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or unenforceable, all other provisions of this
Agreement shall remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
Section 7.8 Consent to Jurisdiction. Each of the parties hereto (i)
-----------------------
consents to submit itself to the personal jurisdiction of any federal court
located in the State of Maryland or any Maryland state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated
hereby, (ii) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (iii)
agrees that it will not bring any action relating to this Agreement in any court
other than a federal court sitting in the State of Maryland or a Maryland state
court.
-36-
<PAGE>
Section 7.9 Enforcement. The parties hereto agree that irreparable
-----------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any federal court
sitting in the State of Maryland or in any Maryland state court, in addition to
any other remedy to which any party is entitled at law or in equity.
Section 7.10 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed to be an original, but both of which
shall constitute one and the same agreement.
-37-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be duly executed on its behalf as of the day and year first above written.
IMPERIAL CREDIT COMMERCIAL
MORTGAGE INVESTMENT CORP.
By: /s/ Mark Karlan
-----------------------------
Name: Mark Karlan
Title: President and CEO
IMPERIAL CREDIT INDUSTRIES, INC.
By: /s/ H. Wayne Snavely
-----------------------------
Name: H. Wayne Snavely
Title: Chairman
ICCMIC ACQUISITION CORP.
By: /s/ H. Wayne Snavely
-----------------------------
Name: H. Wayne Snavely
Title: Chairman
-38-
<PAGE>
APPENDIX B
July 22, 1999
The Independent Members of the Board of Directors
Imperial Credit Commercial Mortgage Investment Corp.
11601 Wilshire Blvd., Suite 2080
Los Angeles, CA 90025
Gentlemen:
We understand that Imperial Credit Commercial Mortgage Investment Corp.
("ICMI"), a Maryland corporation, Imperial Credit Industries, Inc. ("ICII"), a
California corporation and ICCMIC Acquisition Corp., a Maryland corporation and
wholly-owned subsidiary of ICII (the "Merger Sub"), propose to enter into a
Merger Agreement (the "Merger Agreement"), pursuant to which ICII will purchase
each outstanding share of ICMI common stock, par value $.0001, (a "Share") for
$11.50 in cash (the "Consideration"). We note each Share could receive an
additional cash payment equal to the quotient of (a) the amount by which $35
million exceeds the independently appraised value of the amount that would be
payable to Imperial Credit Commercial Asset Management Corp., a California
corporation and wholly-owned subsidiary of ICII (the "Manager") pursuant to
Section 15 of the Management Agreement, dated October 22, 1997 (the "Management
Agreement"), between ICMI and the Manager if the Management Agreement were not
renewed by ICMI and expired October 22, 1999, divided by (b) the sum of (x) the
number of ICMI shares issued and outstanding as of the Merger Agreement date
entitled to receive the Consideration and (y) the aggregate number of Shares
issuable pursuant to ICMI stock options having an exercise price less than
$11.50 per share.
You have asked us whether, in our opinion, the Consideration to be received
by the ICMI shareholders (other than ICII, the Merger Sub and certain other ICII
affiliates) is fair to such ICMI shareholders from a financial point of view.
In conducting our analysis and arriving at the opinion set forth below, we
have reviewed such materials and considered such financial and other factors as
we considered relevant, including:
1. ICMI's historical financial statements including (a) ICMI's reports on Form
10-K for the fiscal years ended December 31, 1998 and December 31, 1997 and
(b) ICMI's reports on Form 10-Q for the quarters ended March 31, 1999,
September 30, 1998, June 30, 1998 and March 31, 1998;
2. certain information furnished to us by ICMI, including financial
projections, relating to the business, earnings, cash flow, assets and
prospects of ICMI;
3. the historical market prices and trading volumes of the Shares and the
common stock of certain publicly traded companies we deemed to be
reasonably similar to ICMI and the
B-1
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
July 22, 1999
Page 2
historical and projected results of operations of ICMI and the historical
and certain future earnings estimates of such companies we deemed to be
reasonably similar to ICMI;
4. publicly available financial and operating data concerning certain
companies engaged in businesses we deemed comparable to ICMI or otherwise
relevant to our inquiry;
5. the financial terms of certain transactions we deemed relevant;
6. the Merger Agreement, dated July 22, 1999 (the "Agreement"); and
7. such other financial studies, analyses and investigations and matters as we
deemed necessary.
We have met with senior management of ICMI to discuss: (i) the prospects
for their business, (ii) senior management's estimates of ICMI's future
financial performance and (iii) such other matters as we deemed relevant.
In preparing our opinion, we have relied on the accuracy and completeness
of publicly available information and all of the information supplied or
otherwise made available to us by ICMI and we have not independently verified
such information. With respect to the projections furnished by ICMI, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgment of ICMI's management as to the expected future
financial performance of ICMI.
We have not made or been provided with an independent evaluation or
appraisal of the assets of ICMI. Our opinion is necessarily based upon
information available to us, and financial and other conditions and
circumstances existing and disclosed to us, as of the date hereof.
In connection with the preparation of this opinion we have not, prior to
the date hereof, been authorized by the Independent Members of the Board of
Directors to solicit, nor have we solicited, third party indications of
interest for the acquisition of all or part of ICMI. We have, however, pursuant
to Section 4.3 of the Merger Agreement, been asked by the Special Committee of
the Board of Directors (the "Special Committee"), consisting of the Independent
Members of the Board of Directors, to solicit third party indications of
interest for the acquisition of all or part of ICMI (as contemplated by the
Merger Agreement) for a period of 60 days following the execution of the Merger
Agreement.
As you know, we have been retained by the Independent Members of the Board
of Directors to render this opinion and other financial advisory services in
connection with the Merger and will receive a fee for such services. We may
actively trade the ICMI common stock for our own account or for the accounts of
customers and accordingly, may at any time hold a
B-2
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
July 22, 1999
Page 3
long or short position in such securities. Additionally, in April 1999, an
affiliate of Prudential Securities entered into a lending agreement with ICMI
pursuant to which Prudential Securities made available to ICMI a secured
warehouse lending facility up to $300 million. The lending agreement was
terminated on June 30, 1999.
This letter and the opinion expressed herein may not be reproduced,
summarized, excerpted from or otherwise publicly referred to or disclosed in any
manner, without our prior written consent, which consent shall not be
unreasonably withheld or delayed; provided that, ICMI may set forth in full this
letter in any proxy statement relating to the Merger sent to ICMI's
shareholders.
Our advisory services and the opinion expressed herein are solely for the
benefit of the Special Committee in the evaluation of the Merger, and our
opinion is not intended to be, and does not constitute, a recommendation to any
shareholder of ICMI.
On the basis of, and subject to, the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be received by the ICMI shareholders
(other than ICII, the Merger Sub and certain other ICII affiliates) is fair to
such ICMI shareholders from a financial point of view.
Very truly yours,
/s/ Prudential Securities Incorporated
PRUDENTIAL SECURITIES INCORPORATED
B-3
<PAGE>
APPENDIX C
Summary of Appraisals of Robert A. Stanger & Co., Inc., Houlihan Lokey Howard &
Zukin Financial Advisors, Inc. and Eastdil Realty, L.L.C.
Stanger. Stanger, an independent financial advisory and investment banking
firm, was engaged by the special committee on behalf of ICCMIC to perform an
appraisal and deliver a report (which included its valuation opinion) of the
estimated value of the management agreement termination fee pursuant to an
agreement dated August 13, 1999. Stanger delivered its report to the special
committee on September 13, 1999. The full text of the Stanger valuation opinion,
which contains a description of the assumptions and qualifications applicable to
the review and analysis by Stanger, has been filed with the SEC as an exhibit to
the Schedule 13E-3 relating to this transaction, and such valuation opinion is
incorporated by reference in this proxy statement. The summary of the Stanger
valuation opinion set forth below is qualified in its entirety by reference to
the full text of the Stanger valuation opinion. A copy of the full Stanger
report is available for inspection and copying at the principal executive
offices of ICCMIC during regular business hours. You, or your representative,
may inspect or copy the Stanger report during those hours.
Stanger, founded in 1978, has provided investment banking and consulting
services to clients located throughout the United States, including major New
York Stock Exchange member firms and insurance companies and over seventy
companies engaged in the management and operation of real estate and real estate
related assets. The investment banking activities of Stanger include financial
advisory services, asset and securities valuations, industry and company
research and analysis, litigation support and expert witness services, and due
diligence investigations in connection with both publicly registered and
privately placed securities transactions. Stanger's valuation practice involves
the valuation of real estate, mortgages secured by real estate, real estate
management companies and related management contracts and other real estate
related assets. The special committee selected Stanger through a process in
which it initially considered a number of nationally recognized valuation firms,
then eliminated any of those firms which had any material relationships with
either ICCMIC, ICII or the affiliates of ICCMIC or ICII, and, with the
assistance of its financial advisor, interviewed certain reputable firms
regarding Stanger and finally selected Stanger because of its nationally
recognized reputation in the REIT industry and its experience in the valuation
of real estate management companies and related management contracts and the
recommendation of prior clients of Stanger.
Summary of Materials Considered and Investigation Undertaken
------------------------------------------------------------
Neither the merger agreement nor ICCMIC's management agreement with the
manager prescribed the factors that Stanger, or any other person, must take into
account in appraising the termination fee. Similarly, Stanger's retention
agreement did not specify what factors or information Stanger would take into
account in its valuation of the termination fee.
Stanger's analysis of the value of the management agreement termination fee
involved a review of the following information:
. the management agreement;
. the prospectus for the initial public offering of common shares of
ICCMIC;
C-1
<PAGE>
. policies and guidelines of ICCMIC as set by the board of directors;
. quarterly and annual financial statements for ICCMIC for 1998 and 1999,
as available;
. a summary of fees paid to the manager during 1998 and the first six
months of 1999;
. management agreements for comparable mortgage REITs;
. fees charged by comparable mortgage REITs;
. the financial performance of comparable mortgage REITs;
. actual operating performance of the manager for the year ended December
31, 1998 and the six months ended June 30, 1999, as reported by the
manager;
. annualized 1999 and budgeted 2000 operating performance of the manager,
as estimated by the manager;
. offers for the manager received during the past two years;
. the merger agreement;
. a memorandum prepared by the special committee's legal counsel, on
behalf of and at the request of the special committee;
. the financial terms of comparable transactions involving similar
companies; and
. certain other data provided by ICCMIC and the special committee.
Stanger also interviewed representatives of the special committee, its
legal and financial advisors; representatives of the manager and ICII; a
representative of legal counsel to ICCMIC; and a representative of Friedman
Billings, the dealer manager for the initial public offering for ICCMIC
(Friedman Billings is currently acting as financial advisor to ICII).
Stanger considered the utilization of a capitalization of earnings analysis
as the most appropriate analysis to value the management agreement termination
fee. Capitalization of earnings analysis requires the development of an
estimate of earnings before interest, taxes, depreciation and amortization
("EBITDA") and the capitalization of such earnings based upon an earnings
multiple (the "EBITDA
C-2
<PAGE>
Multiple") derived from comparable transactions. Stanger advised the special
committee that the capitalization of earnings analysis is an appropriate method
of analysis for the management agreement termination fee for the following
reasons, among others:
. EBITDA, as adjusted for normalized operations, is readily determinable
from the information available with respect to the valuation of the
management agreement termination fee;
. sufficient data from comparable transactions is available to derive an
appropriate EBITDA multiple; and
. capitalization of earnings analysis is a commonly used valuation
technique in determining the value of a manager and related contract
rights by buyers and sellers of such companies and rights.
For these reasons, Stanger prepared a capitalization of earnings analysis in
connection with the valuation of the management agreement termination fee.
Capitalization of Earnings Analysis
-----------------------------------
In its capitalization of earnings analysis, Stanger first established a
normalized level of EBITDA based upon a review of the historical results of the
manager. Stanger noted that, for the year ended December 31, 1998, the manager
reported EBITDA of $3,350,000 during a period of substantial investment activity
by ICCMIC. Stanger further noted that the manager reported EBITDA of $1,995,000
for the six months ended June 30, 1999 and the manager estimated full year 1999
EBITDA of $4,407,000. In addition, Stanger observed that the manager estimated
EBITDA for the year ending 2000 at $11,113,000 based upon substantial growth
from fees associated with a substantial increase in assets of ICCMIC from
approximately $700 million to more than $1.4 billion of average invested assets.
Stanger advised the special committee that, in Stanger's view, it is
appropriate to establish a base level of EBITDA for the manager based upon the
current level of assets under management. Stanger observed that the management
agreement provides for termination, which in Stanger's view, precludes
consideration of growth in company assets under the management of the manager.
Stanger further observed that the merger agreement appears to limit transactions
other than in the ordinary course of business, thereby minimizing, at this time,
opportunities to reduce assets under management. As a result, Stanger estimated
the stabilized management fee based upon invested assets as of June 30, 1999.
As of June 30, 1999, Stanger estimated average invested assets of ICCMIC at
$717.2 million and the related management fee of 1% at $7,172,000.
Stanger observed that actual manager operating expenses were reported at
$2,990,000 for 1998 and $1,768,000 for the six months ended June 30, 1999.
Stanger observed that the manager's estimate of operating expenses for the full
year 1999 was $3,080,000 and for the year 2000 was $3,530,000, predicated on
increases in assets under management. Stanger observed that expenses of the
manager are broadly chargeable to ICCMIC in accordance with Section 9 of the
management agreement and that the prospectus for the initial public offering
(the "IPO Prospectus") indicates that compensation to officers and employees of
ICCMIC shall not be paid by ICCMIC. Stanger observed that while the management
agreement appears to clearly indicate that expenses of the manager incurred on
behalf of ICCMIC are chargeable to ICCMIC, it was not clear to Stanger from its
review of the IPO Prospectus and other
C-3
<PAGE>
information, that general and administrative expenses such as rent are
chargeable to ICCMIC. Based upon Stanger's review of the matters set forth above
with respect to expenses of the manager, Stanger estimated a stabilized level of
operating expenses equal to 50% of revenues or $3,586,000.
Based upon Stanger's estimate of the management fee at $7,172,000 and
Stanger's estimate of operating expenses of $3,586,000, Stanger estimated the
stabilized level of EBITDA for the manager derived from the management agreement
at $3,586,000.
Stanger considered two primary sources of comparable data to estimate an
EBITDA multiple for the valuation of the management agreement termination fee.
First, Stanger considered EBITDA multiples for public companies in the real
estate services business such as Jones Lang LaSalle, Trammel Crow, CB Richard
Ellis and Grubb & Ellis. Stanger concluded that such companies (i) generally
were much larger than the manager (based on the value ascribable to the
management agreement termination fee); (ii) generally had more diverse sources
of revenue; and (iii) possessed few attributes which could be deemed comparable
to the manager's cash flow from the management agreement. Stanger then
considered selected transactions involving the acquisition of private management
companies in connection with consolidation transactions involving assets managed
by such management companies. Stanger observed that such transactions:
. involved the valuation of management agreements which are terminable;
. involved, generally, management agreements which cover the management
of assets owned by a limited number of ownership interests; and
. involved transactions in which investor approval was sought or would be
sought and obtained and in which subsequent trading of the security
resulting from the transaction confirmed the reasonableness of the
overall value utilized in connection with such valuation.
Stanger concluded that the EBITDA multiple data derived from private
management company transactions provides a reasonable and supportable range of
data from which to derive an appropriate EBITDA multiple for the valuation of
the management agreement termination fee.
Stanger's review of private management company transactions indicated that
EBITDA multiples have ranged from 5.0 to 11.4 during the past five years and
such range has narrowed during the last three years to 5.0 to 8.76 with an
average of 7.0. Stanger attributed the narrowing of this range primarily to a
general lowering of expectations with respect to management companies and the
real estate related assets managed by them. Stanger advised the special
committee that in Stanger's view the appropriate EBITDA multiple for the
management agreement termination fee should be at the low end of the range
because of several factors, including the following:
. the management agreement, like others in this industry, is terminable;
. growth expectations for the manager, ICCMIC and the mortgage REIT
industry are low as the financial performance of such industry has been
negative during the past two years;
C-4
<PAGE>
. the manager does not directly or indirectly control ICCMIC as a
controlling stockholder or as a general partner of a partnership;
. the language contained in Section 15 of the management agreement
regarding the determination of the termination fee is vague;
. the level of expense reimbursements to be received by the manager
pursuant to the management agreement is unclear; and
. the board of directors of ICCMIC has the authority to revise the
investment policies and guidelines of ICCMIC and reduce the level of
assets under management, in the absence of the merger agreement.
Based upon Stanger's review of the above factors, Stanger estimated an EBITDA
multiple for the determination of the management agreement termination fee in
the range of 4.5 to 5.5 and concluded that an EBITDA multiple of 5.0 would be
appropriate.
Stanger's value conclusion was based upon its estimate of EBITDA associated
with the management agreement of $3,586,000 and an EBITDA multiple of 5.0
resulting in a value of $17,930,000 which Stanger rounded to $18,000,000.
Assumptions and Limitations
---------------------------
In preparing and rendering the Stanger valuation opinion, Stanger relied,
without independent verification, on the completeness and accuracy, in all
material respects, of all financial and other information furnished or otherwise
communicated to Stanger by ICCMIC, the manager and/or their respective agents,
advisors or representatives. With respect to information provided to Stanger by
ICCMIC, the manager and/or their respective agents, advisors, and
representatives, Stanger assumed that:
. data provided to Stanger was accurate and complete in all material
respects;
. all budgets and projections provided to Stanger were reasonably
prepared on bases consistent with actual historical experience and
reflect the best currently available estimates and good faith
judgments;
. no material changes have occurred in the information reviewed between
the date the information was provided to Stanger and the date of the
Stanger valuation opinion, and
. ICCMIC, the manager and/or their respective agents, advisors and
representatives are not aware of any facts that would cause the
information supplied to Stanger to be incomplete or misleading in a
material respect.
In preparing and rendering the Stanger valuation opinion, Stanger advised
ICCMIC and the special committee that they are not attorneys. Stanger advised
ICCMIC and the special committee that in
C-5
<PAGE>
determining the value of the management agreement termination fee and preparing
its report, Stanger made assumptions regarding the interpretation of certain
terms of the management agreement and other agreements. ICCMIC and the special
committee authorized Stanger to make such assumptions and ICCMIC and the special
committee were advised that such assumptions made by Stanger may have affected
the conclusion reached by Stanger in its valuation opinion on the value of the
management agreement termination fee. Stanger's estimate of value is based on
certain assumptions, which include the following:
. no action or inaction on the part of ICCMIC or the manager has occurred
or will occur in the near future which would enable ICCMIC to terminate
the management agreement for cause and without the payment of a
termination fee;
. the management agreement does not require that the termination fee
payable pursuant to Section 15 of the management agreement be
determined on the basis of an assumed liquidation of the assets of
ICCMIC and an immediate payment of liquidation proceeds to the
shareholders of ICCMIC (although such a basis for valuation is not
prohibited);
. neither ICCMIC nor the board of directors has the authority to
unilaterally change the terms of the management agreement to reduce the
charges thereunder without the consent of the manager and the manager
has not agreed and does not intend to agree to a reduction in fees
payable pursuant to the management agreement;
. all fees paid by ICCMIC to the manager are proper and consistent with
the terms of the management agreement;
. neither ICCMIC nor its board of directors has altered the investment
policies and guidelines of ICCMIC, nor adopted a plan of liquidation;
. upon termination of the management agreement, a termination fee, if
such were payable, would be based upon the assets then under
management, using reasonable valuation parameters and techniques
determined by independent parties and without regard to the actual
financial performance of ICCMIC prior to the time of such termination;
and
. neither the management agreement, merger agreement nor any other
agreement, whether written, oral or otherwise, serves to define, limit
or otherwise determine the amount of the management agreement
termination fee, other than Section 15 of the management agreement and
Section 1.8 of the merger agreement.
Stanger advised ICCMIC and the special committee that they have not been
requested to and therefore did not:
. render any opinion as to the fairness, from a financial point of view,
or reasonableness of the terms, of the management agreement (including,
without limitation, Section 15
C-6
<PAGE>
thereof) and the merger agreement (including, without limitation,
Section 1.8 thereof); and
. make any recommendation to the special committee, the board of
directors of ICCMIC, ICCMIC or its stockholders with respect to (a)
whether to approve or reject the proposed merger; (b) alternatives to
the proposed merger; (c) the tax consequences of the proposed merger;
or (d) any other aspect of the management agreement or the merger
agreement other than Stanger's estimate of the value of the management
agreement termination fee.
Compensation
------------
Stanger was paid a fee of $250,000 for its services as described herein,
without regard to the results of its appraisal or the successful completion of
the merger or any other transaction. In addition, Stanger and its affiliates
were reimbursed for all reasonable out-of-pocket expenses, including legal fees,
and will be indemnified by ICCMIC against certain liabilities, including certain
liabilities under the securities laws. The fee was negotiated between the
special committee, on behalf of ICCMIC, and Stanger.
Houlihan Lokey. Pursuant to an agreement dated August 6, 1999, the manager
retained Houlihan Lokey on its own behalf to prepare a written report expressing
its conclusions as to valuation of the termination fee payable to the manager
upon termination or non-renewal of its management agreement with ICCMIC.
Houlihan Lokey is a nationally recognized investment banking firm that provides
financial advisory services in connection with mergers and acquisitions,
leveraged buyouts, business valuations for a variety of regulatory and planning
purposes, recapitalizations, financial restructurings, and private placements of
debt and equity securities. The manager selected Houlihan Lokey through a
process in which it initially considered a number of nationally recognized
valuation firms, then eliminated any of those firms which had any material
relationships with either ICCMIC, ICII or the affiliates of ICCMIC or ICII, and
finally selected Houlihan Lokey due to its extensive experience and local
knowledge in the valuation of REITs and related management companies and
agreements.
The full text of the Houlihan Lokey valuation opinion, which sets forth the
assumptions made, matters considered and scope of the review taken, has been
filed with the SEC as an exhibit to the Schedule 13E-3 relating to this
transaction, and such valuation opinion is incorporated by reference in this
proxy statement. The summary of the Houlihan Lokey valuation opinion set forth
below is qualified in its entirety by reference to the full text of the Houlihan
Lokey valuation opinion. A copy of the full Houlihan Lokey report is available
for inspection and copying at the principal executive offices of ICCMIC during
regular business hours. You, or your representative, may inspect or copy the
Houlihan Lokey report during those hours.
The Houlihan Lokey valuation opinion is directed only to Houlihan Lokey's
valuation of the manager's termination fee and does not constitute a
recommendation to any stockholder as to how he or she should vote at the special
meeting or as to any other action he or she should take regarding the proposed
merger. Further, Houlihan was engaged by the manager on its own behalf and not
on behalf of the stockholders or any other party.
The Houlihan Lokey valuation opinion did not address, nor should it be
construed to address, the relative merits of the merger and alternative business
strategies that may be available to ICCMIC.
C-7
<PAGE>
Houlihan Lokey has stated that it understands that the manager and any
other party will consult with and rely solely upon their own legal counsel with
respect to the management agreement and that Houlihan Lokey's valuation is not a
representation as to any legal matter.
Neither the merger agreement nor ICCMIC's management agreement with the
manager prescribed the factors that Houlihan Lokey, or any other person, must
take into account in appraising the termination fee. Similarly, Houlihan Lokey's
retention agreement did not specify what factors or information Houlihan Lokey
would take into account in its valuation of the termination fee.
In conducting its valuation and arriving at its determination of the fair
market value of the manager's termination fee, Houlihan Lokey made such reviews,
analyses and inquiries as it deemed necessary and appropriate under the
circumstances. Among other things, Houlihan Lokey:
. held discussions with the manager's senior management to discuss the
proposed merger and the operations, financial condition, future
prospects, projected operations and performance of the manager and
ICCMIC;
. held discussions with certain independent members of ICCMIC's board of
directors;
. reviewed Prudential Securities' presentations to ICCMIC's board of
directors dated March 16, 1999, May 3, 1999 and June 25, 1999;
. reviewed ICCMIC's annual audited financial statements for the years
ended December 31, 1998 and December 31, 1997;
. reviewed the unaudited financial statements of ICCMIC for the six
months ended June 30, 1999 and June 30, 1998;
. reviewed the management agreement between ICCMIC and the manager;
. reviewed two-year projections for ICCMIC and the manager as prepared by
the manager as of August 1999;
C-8
<PAGE>
. reviewed the 1999 budget for the manager as prepared by the manager as
of August 1999;
. reviewed minutes from meetings of ICCMIC's board of directors;
. reviewed proposals to purchase ICCMIC or merge with ICCMIC, including
proposals to purchase the manager, from various public and private en-
tities;
. reviewed publicly available information on companies Houlihan Lokey
deemed comparable to the manager and ICCMIC; and
. conducted such other analyses, studies and investigations as Houlihan
Lokey deemed appropriate under the circumstances for rendering the
opinion expressed in its report.
In connection with its valuation, Houlihan Lokey relied upon and assumed,
without independent verification, that the financial forecasts and projections
provided to it by the manager were reasonably prepared and reflected the best
currently available estimates of the future financial results and conditions of
ICCMIC and the manager, and that there had been no material change in the
assets, financial condition, business or prospects of ICCMIC or the manager
since the date of the most recent financial statements made available to it. In
addition, Houlihan Lokey's conclusions were based upon the assumption that
present management of ICCMIC and the manager would continue to maintain the
character and integrity of their enterprises through any sale, reorganization or
diminution of the owners' participation. Further, the Houlihan Lokey valuation
was necessarily based on business, economic, market and other conditions as they
existed on, September 10, 1999.
Houlihan Lokey has not independently verified the accuracy and completeness
of the information supplied to it with respect to ICCMIC or the manager and does
not assume any responsibility with respect to such information. Houlihan Lokey
has not made any physical inspection or independent appraisal of any of the
properties or assets of ICCMIC or the manager.
In determining the fair market value of the manager's termination fee,
Houlihan Lokey took into consideration the income- and cash-generating
capability of the manager through the management agreement and associated
rights. Typically, in Houlihan Lokey's view, an investor contemplating an
investment with income- and cash-generating capability similar to ICCMIC's
management agreement with the manager will evaluate the risks and returns of its
investment on a going-concern basis. Accordingly, after due consideration of
other appropriate and generally accepted valuation methodologies, Houlihan,
Lokey developed the fair market value of the termination fee primarily on the
basis of the capitalization of earnings and discounted cash flow approaches.
Furthermore, Houlihan Lokey valued the termination fee viewing the manager
as a going concern, meaning that the underlying tangible assets of ICCMIC were
presumed to attain their highest values as integral components of a business
entity in continued operation and that liquidation of such assets would likely
diminish the value of the whole to the stockholders and creditors of ICCMIC.
All valuation methodologies that estimate the worth of an enterprise as a
going concern are predicated on numerous assumptions pertaining to prospective
economic and operating conditions. Unanticipated events and circumstances may
occur which cause the actual results to vary from those assumed, and the
variations may be material.
C-9
<PAGE>
The term "fair market value," as used by Houlihan Lokey, is defined as the
price at which an asset (or in this case the management agreement) would change
hands between a willing buyer and a willing seller when the former is not under
any compulsion to buy and the latter is not under any compulsion to sell, and
both parties are able, as well as willing, to trade and are well-informed about
the asset and the market for that asset.
ICCMIC's manager delivered projections to Houlihan Lokey for
the purpose of assisting Houlihan Lokey in performing its valuation of the
termination fee payable under the management agreement. Houlihan Lokey treated
these projections as a "Best Case Scenario" with respect to ICCMIC's future
performance and therefore as presenting a scenario likely to result in a larger
appraised value for the manager's termination fee. See "Cautionary Statement
Concerning Forward-Looking Statements."
Houlihan Lokey discounted the "Best Case" projections to arrive at "Base
Case" and "Worst Case" projections. Then, for each of these three scenarios,
Houlihan Lokey developed a valuation range for the termination fee based on the
market capitalization and discounted cash flow analyses described below. In
addition, Houlihan Lokey developed valuation ranges for the termination fee
based on the comparable transaction analysis and the value from prior offers
analysis described below.
Market Capitalization Approach
------------------------------
Houlihan Lokey reviewed certain financial information for two types of
comparable public companies: real estate management companies and asset
management companies. The comparable real estate management companies included
the following seven publicly traded companies selected solely by Houlihan Lokey:
CB Richard Ellis Services, Inc., Grubb & Ellis Co., Insignia Financial Group,
Inc., Intergroup Corporation, Jones Lang LaSalle Inc., Trammell Crow Company and
DeWolfe Companies, Inc. (the "Real Estate Management Comparables"). The
comparable asset management companies included the following nine publicly
traded companies selected solely by Houlihan Lokey: Affiliated Managers Group,
Inc., Alliance Capital Management L.P., Atalanta/Sosnoff Capital Corp., Conning
Corp, Eaton Vance Corp, Lexington Global Asset Managers, Inc., Phoenix
Investment Partners, Ltd, PIMCO Advisors Holdings L.P. and United Asset
Management Corp. (the "Asset Management Comparables" and together with the Real
Estate Management Comparables, the "Advisor Comparables"). Houlihan Lokey
calculated certain financial ratios of the Advisor Comparables based on the most
recent publicly available information with respect to such companies.
The financial ratios for the Advisor Comparables reviewed by Houlihan
Lokey ranged from (i) enterprise value ("EV") to the latest twelve months ended
June 30, 1999 ("LTM") EBITDA multiples: a low of 4.0x to a high of 22.5x, (ii)
EV to the next fiscal year ended December 31, 1999 ("NFY") EBITDA multiples: a
low of 3.6x to a high of 12.1x, (iii) EV to the next twelve months ended June
30, 2000 ("NTM") EBITDA multiples: a low of 3.6x to a high of 10.7x, and (iv) EV
to the next fiscal year +1 ending December 31, 2000 ("NFY + 1") EBITDA
multiples: a low of 3.6x to a high of 10.0x.
Based on the Advisor Comparables, Houlihan Lokey selected a ratio of EV/LTM
EBITDA multiples for the manager ranging from a low of 7.0x to a high of 8.0x ,
a ratio of EV/NFY EBITDA multiples for the manager ranging from a low of 6.5x to
a high of 7.5x, a ratio of EV/NTM EBITDA multiples ranging from a low of 5.0x to
a high of 6.0x, and a ratio of EV/NFY + 1 EBITDA multiples ranging from a low of
4.0x to a high of 5.0x (collectively the "Manager EBITDA Multiples").
Houlihan Lokey determined an indication of the value of the termination fee
under the management agreement by applying the Manager EBITDA Multiples to the
manager's historical EBITDA (after considering certain cost adjustments) for the
LTM, the forecast for the NFY based on the Best Case, Base Case and Worst Case
projections, the forecast for the NTM based on such projections, and the
forecast for the NFY + 1 based on such projections. Such analyses resulted in an
indication of a range of value for the termination fee under the management
agreement of $29.2 million to $41.3 million.
C-10
<PAGE>
Comparable Transaction Analysis
-------------------------------
Houlihan Lokey reviewed the consideration paid in certain acquisitions of
real estate advisory and management companies by publicly traded real estate
investment trusts, as well as certain acquisitions of publicly traded real
estate management companies. Such analysis yielded mean multiples of 10.3x
EBITDA and 22.1x EBIT (i.e. earnings before interest and taxes). In performing
its analysis, Houlihan Lokey considered that the merger and acquisition
transaction environment varies over time because of, among other things,
interest rate and equity market fluctuations and industry results and growth
expectations.
No company or transaction used in the comparable transaction analysis was
directly comparable to the manager, the termination of the management agreement
or the proposed transaction. Accordingly, Houlihan Lokey reviewed the foregoing
transactions to understand the range of multiples of EBITDA and EBIT paid for
companies in the real estate advisory and management industry and the real
estate management industry. Based upon the manager's LTM EBITDA and the
manager's latest quarter ended June 30, 1999 annualized ("LQA") EBITDA, Houlihan
Lokey selected a range of multiples of EV/LTM EBITDA and EV/LQA EBITDA with a
low of 8.0x and a high of 10.0x determined under the comparable transaction
analysis.
Houlihan Lokey also reviewed the consideration in certain acquisitions of
affiliated real estate advisory and management companies by publicly traded real
estate investment trusts selected solely by Houlihan Lokey in terms of
percentage of stock outstanding of the acquiror provided to the acquired company
as consideration for such acquisition. Such analysis yielded average
consideration of 8.7% of total stock outstanding paid to the target managers in
certain transactions since 1995. The transactions produced a range of between
3.4% and 15.3% of stock consideration. Houlihan Lokey also calculated the
relative contribution of the manager's revenue and EBITDA as a percentage of
ICCMIC's revenue and EBITDA at 10.4% and 9.6% respectively. Houlihan Lokey
applied the selected range of consideration with a low of 9.0% to a high of
10.0% to the transaction value to arrive at indications of the value of the
termination fee under the management agreement.
Under the two comparable transaction approaches presented above, Houlihan
Lokey calculated an indication of the value of the termination fee under the
management agreement to be between $41.3 million and $46.2 million.
Discounted Cash Flow Approach
-----------------------------
Houlihan Lokey utilized cash flow projections received from the manager
covering fiscal years 1999, 2000 and 2001. After calculating the net present
value of cash flows for the applicable periods under the Best Case, Base Case
and Worst Case projections using discount rates of 14.0% to 22.0%, a terminal
value was calculated based upon exit EBITDA multiples of 5.0x to 7.0x. Based on
the manager's projections and this analysis, Houlihan Lokey calculated
indications of the range of value for the termination fee under the management
agreement to be between $33.3 million and $76.2 million.
Indications of Value from Prior Offers
--------------------------------------
Houlihan Lokey reviewed the consideration offered for ICCMIC and the
manager in offers received from third parties during the period from September
1998 to March 1999. The consideration offered for the manager ranged from a low
of $45 million to a high of $60 million with a mean of $50 million. Based on
these indications of value for the manager, Houlihan Lokey calculated the range
of value for the termination fee under the management agreement to be between
$45.0 million and $60.0 million.
C-11
<PAGE>
Conclusion
----------
Based upon the investigation, premises, provisos, and analyses outlined
above, and subject to the limiting factors and other assumptions set forth in
its valuation opinion, Houlihan determined that as of September 10, 1999, the
fair market value of the termination fee is reasonably stated in the amount of
$45 million.
The summary set forth above describes the material points of more
detailed analyses performed by Houlihan Lokey in arriving at its valuation of
the termination fee. The preparation of a valuation is a complex analytical
process involving various determinations as to the most appropriate and
relevant methods of financial analysis and application of those methods to the
particular circumstances and is therefore not readily susceptible to summary
description. In arriving at its valuation, Houlihan Lokey made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Houlihan Lokey believes that its analyses and summary set forth
above must be considered as a whole and that selecting portions of its
analyses, without considering all analyses and factors, or portions of this
summary, could create an incomplete view of the processes underlying the
analyses set forth in Houlihan Lokey's valuation. In its analysis, Houlihan
Lokey made numerous assumptions with respect to the manager, ICCMIC, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of the respective entities.
The estimates contained in such analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be more or
less favorable than suggested by such analyses.
Compensation
------------
The manager agreed to pay Houlihan Lokey a fee of $250,000 for its
preparation and delivery of the valuation of the termination fee. No portion of
Houlihan Lokey's fee is contingent upon the results of the valuation or the
successful completion of the merger or any other transaction. The retention
agreement provides that ICII and the manager will defend and indemnify Houlihan
Lokey and its affiliates for damages and expenses arising in connection with its
engagement.
Eastdil [Summary of Eastdil appraisal to be provided.]
C-12
<PAGE>
PRELIMINARY COPY DATED __________, 1999
[FRONT OF PROXY CARD]
P R O X Y
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
11601 Wilshire Boulevard, Suite 2080, Los Angeles, CA 90025
Proxy for Special Meeting of Stockholders on __________, _____
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Mark S. Karlan and Norbert M. Seifert or
either of them, each with full power of substitution, as proxies to attend the
special meeting of the Stockholders of Imperial Credit Commercial Mortgage
Investment Corp. at (location) on (date) at (time), and at any adjournment or
postponement thereof, and to vote the number of shares the undersigned would be
entitled to vote if personally present on the following matters set forth
herein.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. YOU NEED NOT MARK ANY BOX IF YOU WISH TO
VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATION. THE PROXIES
CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
[Continued and to be signed on reverse side]
<PAGE>
[BACK OF PROXY CARD]
[X] Please mark your vote as in this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1
1. Approve the Agreement and Plan of Merger dated as of July 22, 1999, which
provides for the merger of ICCMIC ACQUISITION CORP., a wholly owned subsidiary
of IMPERIAL CREDIT INDUSTRIES, INC, with and into IMPERIAL CREDIT COMMERCIAL
MORTGAGE INVESTMENT CORP.
[_] FOR [_] AGAINST [_] ABSTAIN
______________________________________________________________________________
MARK HERE [ ] IF YOU PLAN TO MARK HERE [ ] FOR ADDRESS
ATTEND MEETING CHANGE AND NOTE AT LEFT
Note: Please sign exactly as name appears hereon.
When shares are held by joint tenants, both
should sign. When signing as an attorney,
executor, administrator, trustee or guardian,
give full title as such. If a corporation, sign
in full corporate name
by President or other authorized officer. If a
partnership, sign in partnership name by authorized
person.
DATE: ___________________________________
_________________________________________
Signature
The above named proxies of the undersigned are authorized to initiate and vote
for proposals to recess or adjourn the Special Meeting for any reason, including
to allow inspectors to certify the outcome of the Proposal described above or to
allow the solicitation of additional votes, if necessary, for such Proposal, to
vote against proposals to recess or adjourn the Special Meeting, and to vote, in
their discretion, upon such other matters as may properly come before the
Special Meeting and any adjournment or postponement thereof.
