<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
March 17, 2000
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Date of Report (Date of earliest event reported)
Imperial Credit Commercial Mortgage Investment Corp.
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(Exact name of registrant as specified in its charter)
Maryland 0-23089 95-4648345
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
11601 Wilshire Blvd., Suite 2080, Los Angeles, CA 90025
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(Address of principal executive offices) (Zip Code)
(310) 231-1280
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(Registrant's telephone number)
<PAGE>
Item 5. Other Events.
On March 17, 2000, Imperial Credit Commercial Mortgage Investment Corp.
(the "Registrant") was served with a putative class action lawsuit alleging
violations of federal securities law in connection with the Registrant's initial
public offering of 34,500,000 shares of common stock on or about October 22,
1997. The Registrant believes that the material allegations of the complaint
are without merit. A copy of the complaint is attached as Exhibit 99.1 to this
Form 8-K and is incorporated herein by reference.
Item 7. Exhibit
Exhibit 99.1 Class action complaint filed on March 17, 2000
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
By: /s/ MICHAEL MELTZER
----------------------------------------------
Michael Meltzer, Chief Financial
Officer and Treasurer
Dated: March 24, 2000
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
--- ----------------
<C> <S>
99.1 Class action complaint filed on March 17, 2000
</TABLE>
<PAGE>
EXHIBIT 99.1
BRUCE C. FISHELMAN, STATE BAR NO. 117945
ALEC B. WISNER, STATE BAR NO. 63221
H. SCOTT LEVIANT, STATE BAR NO. 200834
STANBURY FISHELMAN WISNER & ADSIT
West Hollywood Office
9200 Sunset Boulevard, Penthouse 30
West Hollywood, CA 90069-3601
Tel: (310) 278-1800
Fax: (310) 278-1802
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
JOHN HUSTON, Individually and On Case No.:
Behalf of All Others Similarly Situated,
Plaintiff,
CLASS ACTION COMPLAINT FOR
vs. VIOLATIONS OF FEDERAL
SECURITIES LAW AND UNFAIR
IMPERIAL CREDIT COMMERCIAL MORTGAGE BUSINESS PRACTICES
INVESTMENT CORP., a
Maryland Corporation; MARK S. DEMAND FOR JURY TRIAL
KARLAN, Individually and as a Director of ---------------------
Imperial Credit Commercial Mortgage
Investment Corp.; H. WAYNE SNAVELY,
Individually and as a Director of Imperial
Credit Commercial Mortgage Investment Corp.;
KEVIN E. VILLANI, Individually and as a
Director of Imperial Credit Commercial
Mortgage Investment Corp.;
Defendants.
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Plaintiff JOHN HUSTON, individually and on behalf of all others similarly
situated, makes the following allegations upon information and belief, except as
to allegations pertaining specifically to the named Plaintiff and his counsel,
based on the facts alleged below, which are predicated upon, inter alia, a
review of relevant filings made with the Securities and Exchange Commission,
press releases, news and analysts' reports and the investigation undertaken by
and
<PAGE>
through Plaintiff's counsel. Plaintiff believes that further substantial
evidentiary support will exist for the allegations set forth below after a
reasonable opportunity for discovery.
I. NATURE OF THE ACTION
1. This is a federal securities class action under the Securities Act of
1933 (hereinafter the "Securities Act") brought in connection with an initial
public offering on or about October 22, 1997 (hereinafter "the IPO") of
approximately 34,500,000 shares of the common stock of an investment fund named
Imperial Credit Commercial Mortgage Investment Corp. (hereinafter "ICCMIC"). It
is brought on behalf of a class of Plaintiffs (hereinafter the "Class")
consisting of purchasers of the common stock of ICCMIC between October 22, 1997
and October 21, 1999, inclusive (hereinafter the "Class Period"). Purchases by
Plaintiff and members of the Class were made pursuant to a registration
statement (hereinafter the "Registration Statement") and prospectus (hereinafter
the "Prospectus") filed by ICCMIC with the Securities and Exchange Commission on
or about August 1, 1997, and made effective October 16, 1997. As demonstrated
herein, the Prospectus given to prospective purchasers for the IPO of ICCMIC's
common shares contains materially false and misleading statements and omits from
disclosure material facts and risks, particularly concerning compensation to be
paid under ICCMIC's contract with a company hired to select and manage
investments for the fund (hereinafter "the Manager"). Plaintiff and members of
the Class were injured, inter alia, by the payment of undisclosed compensation
to the Manager, by the payment of a termination fee of undisclosed magnitude,
and by actions detrimental to ICCMIC taken by persons having undisclosed
conflicts of interest and the related decline in the stock price of ICCMIC.
II. JURISDICTION AND VENUE
1. This action arises under section 11 of the Securities Act of 1933
(hereinafter "the Securities Act"), 15 U.S.C. (S) 77k. This Court has
jurisdiction over the subject matter of this action pursuant to section 22 of
the Securities Act, 15 U.S.C. (S) 77v, and sections 1331 and 1337(a) of the
Judicial Code, 28 U.S.C. (S)(S) 1331, 1337(a).
<PAGE>
2. Venue is proper in this District under section 22 of the Securities
Act. The wrongs alleged in this Complaint occurred as a result of activities
which took place, in substantial part, in this District, including the offer and
sale of securities and the preparation and dissemination to the investing public
of false and misleading information, including a registration statement pursuant
to which securities were offered. In addition, at all relevant times, ICCMIC and
the Manager had their principal offices in and conducted business in this
District.
2. In connection with the acts, conduct, and other wrongs complained of
herein, Defendants, directly and indirectly, used the means and
instrumentalities of interstate commerce and the United States mails and the
facilities of the national securities markets.
III. PARTIES AND RELATED ENTITIES
3. Plaintiff JOHN HUSTON (hereinafter "HUSTON" or "PLAINTIFF') is an
Individual residing in the state of Michigan. HUSTON purchased 1500 shares of
ICCMIC on or about October 22, 1997, pursuant to or traceable to the Offering,
and has been damaged thereby.
4. Defendant MARK S. KARLAN, (hereinafter "KARLAN") is, and, at all
pertinent times herein has been, a Director, President and Chief Executive
Officer of Defendant ICCMIC, as well as a Director, President and Chief
Executive Officer of the Manager. Defendant KARLAN signed the registration
statement as a director and as President and CEO. Defendant KARLAN is a resident
of California in the Central District of this Court.
5. Defendant H. WAYNE SNAVELY, (hereinafter "SNAVELY") is, and, at all
pertinent times herein has been, Chairman of the Board of Directors of Defendant
ICCMIC, Chairman of the Board of Directors of the Manager, as well as Chairman
of the Board and Chief Executive Officer of ICII. Defendant SNAVELY signed the
registration statement as a director. Defendant SNAVELY is a resident of
California in the Central District of this Court.
6. Defendant KEVIN E. VILLANI, (hereinafter "VILLANI") is, and, at all
pertinent times herein has been, Vice-Chairman of the Board of Directors of
Defendant ICCMIC, Vice-Chairman of the Board of Directors of the Manager. At
various times, including the time of the IPO, Defendant VILLANI was Executive
Vice President and Chief Financial Officer of ICII.
<PAGE>
Defendant VILLANI signed the registration statement as a director. Defendant
VILLANI is a resident of California.
7. Defendants KARLAN, SNAVELY and VILLANI shall be referred to
collectively as the "INDIVIDUAL DEFENDANTS."
8. Defendant IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
(hereinafter "ICCMIC") was organized as a Maryland corporation on or about July
31, 1997. At all times herein, the principal place of business of Defendant
ICCMIC has been located in Los Angeles County, State of California, in the
Central District of this Court.
9. At all times the seven members of the Board of Directors of Defendant
ICCMIC were Defendant SNAVELY (Chairman), Defendant VILLANI (Vice-Chairman),
Defendant KARLAN (President & CEO), Patrick H. Hendershott, Joseph A. Jaconi,
Louis Massoti, and Kenneth A. Munkacy. ICCMIC common stock was registered to
trade on the NASDAQ securities exchange under the symbol ICMI.
10. ICCMIC hired Imperial Credit Commercial Mortgage Asset Management
Corp. (hereinafter "the Manager"), a California corporation, to select and
manage the assets of ICCMIC. The three members of the board of directors of the
Manager are Defendants SNAVELY, VILLANI and KARLAN.
11. The majority owner of the Manager was Imperial Credit Industries Inc.,
("ICII). The Board of Directors of ICII included Defendant SNAVELY as Chairman
and CEO and Defendant VILLANI. ICII also owned approximately 10% of ICCMIC after
the IPO. Further, ICII was the largest seller of investments to ICCMIC.
IV. CLASS ACTION ALLEGATIONS
12. PLAINTIFF brings this action on his own behalf and as a class action
pursuant to rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure on
behalf of a class (hereinafter the "Class") consisting of those individuals and
entities who purchased ICCMIC common stock sold pursuant to the IPO up to and
including October 21,1999 (the "Class Period").
13. Excluded from the Class are Defendant ICCMIC; the INDIVIDUAL
DEFENDANTS; the directors of ICCMIC or its subsidiaries; corporations, including
ICII, whose
<PAGE>
board includes any of the INDIVIDUAL DEFENDANTS; persons who signed the
Registration statement or Prospectus; underwriters of the IPO; or any law firms
that opined on the documents for the IPO; and the legal representatives, heirs,
successors and assigns of any excluded person.
14. Because approximately 34,500,000 shares of ICCMIC common stock were
issued pursuant to the Offering and actively traded on the NASDAQ National
Market System, the members of the class are so numerous that joinder of all
members is impracticable. While the exact number of members of the Class can
only be determined by appropriate discovery, PLAINTIFF believes that Class
members number over one thousand.
15. PLAINTIFF'S claims are typical of the claims of the members of the
Class.
16. PLAINTIFF and all members of the Class sustained damages as a result
of Defendants' wrongful conduct complained of herein.
17. PLAINTIFF will fairly and adequately protect the interest of the
members of the Class and has retained counsel competent and experienced in class
action and securities litigation.
18. A class action is superior to other available methods for the fair and
efficient adjudication of this controversy. Because the damages suffered by
individual Class members may be relatively small, the expense and burden of
individual litigation make it virtually impossible for Class members
individually to seek redress for the wrongful conduct alleged herein.
19. Common questions of law and fact exist as to all members of the Class
and predominate over questions affecting solely individual members of the Class.
Among the questions of law and fact common to the Class are:
a. whether section 11 of the Securities Act was violated by Defendants'
acts as alleged herein;
b. whether the Prospectus contained materially false and misleading
information;
c. whether the Prospectus omitted material information; and
d. whether PLAINTIFF and other members of the Class have sustained
damages and, if so, the appropriate measure thereof.
20. PLAINTIFF knows of no difficulty that will be encountered in the
management of this litigation that would preclude its maintenance as a class
action.
<PAGE>
21. The names and addresses of the purchasers of ICCMIC common stock on
the Offering and during the Class Period are available from Defendant ICCMIC's
transfer agent. Notice can be provided to such record owners via first class
mail using techniques and a form of notice similar to those customarily used in
class actions.
V. GENERAL FACTUAL ALLEGATIONS
A. The Prospectus and Registration Statement
22. This is a federal securities class action on behalf of a class
consisting of those individuals and entities who purchased the common stock of
Defendant ICCMIC pursuant to a Registration Statement filed with the SEC on or
about August 1, 1997, and which became effective on or about October 16, 1997.
The Registration Statement was a registration statement within the meaning of
the Securities Act, 15 U.S.C. (S) 77b(a)(8)
23. The Registration Statement contained a Prospectus, which was filed
with the SEC at or about the same time as the Registration Statement, and was
distributed in connection with the Offering of ICCMIC common stock. The
Prospectus was a prospectus within the meaning of the Securities Act, 15 U.S.C.
(S) 77b(a)(10).
24. Shares of ICCMIC's common stock are "securities" within the meaning of
the Securities Act, 15 U.S.C. (S) 77b(a)(1). The Registration Statement covered
the sale to the public of approximately 34,500,000 shares of ICCMIC common
stock, most at $15.00 per share, with proceeds (after expenses and underwriting
fees) of approximately $480,000,000. ICCMIC's common stock is listed and traded
on the NASDAQ National Market System under the symbol "ICMI."
25. The purpose of Defendant ICCMIC was to invest the monies of ICCMIC.
26. The entity responsible for advising Defendant ICCMIC on investing the
monies of ICCMIC was the Manager.
27. The fees and expenses to be paid to the Manager for the duties of
investing the monies of ICCMIC were set forth in a management contract
(hereinafter the "Management Contract") entered into between Defendant ICCMIC
and the Manager.
<PAGE>
28. The Prospectus describes five components of compensation to the
Manager. These are the base management fee, reimbursement of third party out-of-
pocket due diligence expenses, an incentive fee, an option grant, and a
conditional termination fee.
29. The Prospectus describes the base management fee, under Management
Fees, at page 45:
The Manager will receive a base management fee calculated as a percentage
of the Average Invested Assets of the Company for each calendar quarter and
equal to 1% per annum of the first $1 billion of such Average Invested
Assets, 0.75% of the next $250 million of such Average Invested Assets, and
0.50% of Average Invested Assets above $1.25 billion;
30. The Prospectus describes the reimbursement of expenses to the Manager,
under Management Fees, at page 46:
The Manager will be reimbursed for (or charge the Company directly for) the
Manager's costs and expenses in employing third-parties to perform due
diligence tasks on assets purchased or considered for purchase by the
Company.
31. The Prospectus describes the incentive fee, under Management Fees, at
page 45:
The Manager shall be entitled to receive incentive compensation for each
fiscal quarter in an amount equal to the product of (A) 25% of the dollar
amount by which (1)(a) Funds From Operations of the Company (before the
incentive fee) per share of Common Stock (based on the weighted average
number of shares outstanding) plus (b) gains (or minus losses) from debt
restructuring and sales of property per share of Common Stock (based on the
weighted average number of shares outstanding), exceed (2) an amount equal
to (a) the weighted average of the price per share at the initial offering
and the prices per share at any secondary offerings by the Company
multiplied by (b) the Ten-Year U.S. Treasury Rate plus four percent per
annum multiplied by (B) the weighted average number of shares of Common
Stock outstanding during such quarter;
32. The Prospectus describes the option grant, under 1997 Stock Option
Plan, at page 47:
The Company has adopted and its sole shareholder approved the Imperial
Credit Investment Corp. 1997 Stock Option Plan (the "Option Plan") under
which the Compensation Committee of the Board or, if none, the Board (the
"Committee") is authorized to grant options to purchase shares of Common
Stock ("Options"). The maximum number of shares that may be subject to
Options granted as of the date of the pricing of the Offering (the "pricing
Date") is 10% of the number of shares to be issued pursuant to the Offering
(assuming the underwriters fully exercise their over allotment option).
<PAGE>
33. The Prospectus mentions a termination fee, under The Management
Agreement, at page 43, stating that:
The Company may terminate, or decline to renew the term of, the Management
Agreement without cause at any time after the first two years upon 60 days'
written notice by a majority vote of the Independent Directors; provided
that the Company shall pay a termination fee determined by independent
appraisal;
34. At no time did the Prospectus refer to any compensation to be paid to
the Manager other than the base management fee, out-of-pocket expenses of the
Manager paid to third parties in connection with due diligence, incentive
compensation, the option grant, and the termination fee.
B. Misstatements and Omissions Regarding the Manager's Payment of all
Operating Expenses of ICCMIC
35. The Prospectus contains false or misleading statements that the
Manager would pay for all the expenses involved in operating ICCMIC,
specifically including expenses for facilities, i.e., office space rent. The
Prospectus stated, under Costs and Expenses, at page 46
The company does not expect to employ full-time personnel. Instead, it
expects to rely on the facilities, personnel and resources of the Manager
to conduct its operations. The Manager will be reimbursed for (or charge
the Company directly for) the Manager's costs and expenses in employing
third-parties to perform due diligence tasks on assets purchased or
considered for purchase by the Company;
By relying on the facilities and personnel of the Manager to conduct operations
and with the only reimbursable expense being third party due diligence costs,
the Prospectus indicates that no operating expenses would be incurred by ICCMIC.
36. The Prospectus omits any mention of a clause in the Management
Contract under which the Manager apparently claims reimbursement for operating
expenses. An explanation of that reimbursement clause was essential to make the
statements regarding operational expenses not misleading.
37. The Prospectus also contains the false or misleading statements that
all the compensation to the Manager is disclosed when, in fact, the primary
reimbursement clause in paragraph 40 of this Complaint is not disclosed in the
Prospectus at page 46, under Tabular Presentation of Amounts Payable to the
Manager, as follows:
<PAGE>
The following table presents all compensation fees and other benefits
(including reimbursement of out-of-pocket expenses) that the Manager may earn or
receive under the terms of the Management Agreement.
<TABLE>
<CAPTION>
Recipient Payor Amount
- --------- ----- ------
<S> <C> <C>
Manager(l) ICCMIC Base management fee equal to a percentage of the
Average Invested Assets of the Company.(2)
Manager(l) ICCMIC Incentive compensation based on the amount if any
by which the Company's Funds from operations and
certain net gains exceed a hurdle rate.(3)
Manager(1) ICCMIC Out-of-pocket expenses of Manager paid to third
parties in connection with due diligence.
Footnotes omitted
</TABLE>
Note that this table purports to list all compensation (including reimbursement)
to the Manager.
38. Further evidence that the Prospectus states that the Manager is
responsible for all operating expenses of ICCMIC, and which supports the
reasonableness of PLAINTIFF's reading of the Prospectus, was provided by the
published report initiating coverage by the lead underwriter of the IPO,
Friedman, Billings, Ramsey & Co., dated November 11, 1997, providing a detailed
description of the expenses of ICCMIC as follows on page 6:
The management company will receive a "base fee" in lieu of G & A
(there is no G&A)
and again on page 8:
The operating costs of the REIT are covered by the manager, which is
compensated in the base and incentive fees. The base fee is 1% of the first
billion in assets invested, .75% on the assets between $1 billion and $1.25
billion, and .5% on subsequent assets. The incentive fee is structured at
25% of the income over a hurdle of 10-year Treasuries plus 4% return on
shareholders equity. The REIT bears no other general or administrative
expenses. (Emphasis added.)
39. PLAINTIFF was first reasonably able to discover the material
misrepresentations and omissions contained in the Registration Statement and
Prospectus on or about October 21, 1999, when Defendant ICCMIC filed a
Preliminary Proxy Statement (hereinafter "Proxy Statement") with the SEC
pursuant to Section 14(a) of the Securities Exchange Act of 1934. In the Proxy
Statement, PLAINTIFF and members of the Class learned, for the first time, that:
<PAGE>
a. the Manager had been charging its actual operating expenses to ICCMIC
throughout 1998 and the first half of 1999 (Proxy Statement, Appendix
C);
b. the Management Contract contained contractual provisions, which
apparently permitted such additional compensation to the Manager,(Proxy
Statement, Appendix C); and
c. one purpose of the proposed merger was: "the reduction of the separate,
operational and administrative costs of ICCMIC" (Proxy Statement, p. 8).
40. In that Proxy Statement, an independent appraiser hired to value the
management contract, Robert Stanger & Co. (hereinafter "Stanger"), noted that
the fact the Manager has been charging expenses to ICCMIC is in direct conflict
with the Prospectus statement requiring the Manager to pay such expenses. The
report by independent appraiser Stanger states on p c-2 and c-3:
Stanger observes 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 information that general and administrative
expenses such as rent are chargeable to ICCMIC.
41. Approximately 4.5 million dollars of expenses have been paid by
ICCMIC. Not all of that expense was for third party due-diligence, although
other expenses have never been separately disclosed. Particularly, certain
operating expenses, including the expense for the rented office space that was
used by the Manager, were charged to ICCMIC and were not deducted from the base
fee paid to the Manager.
42. PLAINTIFF was damaged through the diminished price of ICCMIC stock, in
an amount equal to each dollar of operating expense paid by ICCMIC.
43. PLAINTIFF was further damaged through the diminished price of ICCMIC
stock, in an amount equal to approximately ten dollars for every dollar of
operating expense paid by ICCMIC. This is because the termination fee was
determined by an appraiser that multiplied net income of the Manager, which
failed to subtract undisclosed expenses, by a factor of ten to arrive at a
valuation of the $33,000,000.
C. Misstatements that the Board had the Power to Reduce the Base
Management Fee.
<PAGE>
44. The Prospectus contains false or misleading statements to the effect
that the Board of Directors of ICCMIC had the unilateral power to reduce the 1%
base management fee if, as actually occurred, the base management fee exceeded
the actual expense of operating the Manager. This statement occurs, inter alia,
in the Prospectus, under Management Fees, at p. 45:
The base management fee is intended to compensate the Manager, among other
things, for its costs in providing management services to the Company. The
Board of Directors may adjust the base management fee in the future if
necessary to align the fee more closely with the costs of such service;
(Emphasis added.)
45. The Prospectus states that the Board of Directors of Defendant ICCMIC
had the unilateral power to reduce the 1% base management fee if, as actually
occurred, the base management fee exceeded the actual expense of operating the
Manager.
46. In fact, the Board of Directors of Defendant ICCMIC has never reduced
the base management fee even though the costs were substantially less than the
fee. Further, PLAINTIFF now believes that the Board never had the power to
unilaterally reduce the base management fee, based on statements in the Proxy
Statement of October 21, 1999.
47. On or about October 21,1999, Defendant ICCMIC agreed, under certain
conditions, to pay a $33,000,000 fee to terminate the Management Contract with
the Manager based solely on an interpretation of the amount by which the base
management fee exceeded the costs and expenses of the Manager. Independent
appraisers relying substantially on expense statements given to them by the
Manager arrived at this $33,000,000 figure.
48. One independent appraiser, Stanger, noted the false and materially
misleading statements in the Prospectus and addressed them, in the assumption
section, stating that:
[N]either ICCMIC nor the board of directors has the power 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 to a reduction in fees payable pursuant to the management agreement.
49. Had Stanger not made this assumption, Stanger's appraised value of the
termination fee would have been zero. To determine a valuation of the
termination fee, Stanger multiplied by five the amount by which the base
management fee exceeded the salaries and the expenses that the Manager actually
paid. If the Board of Directors of Defendant ICCMIC had taken the action
represented to be within its power in the Prospectus, the calculation would have
been five times
<PAGE>
zero, resulting in a termination fee of zero. Application of this analysis to
the other appraisals would have, similarly, resulted in a zero valuation.
50. PLAINTIFF was damaged through the diminished price of ICCMIC stock, in
an amount equal to all profit earned by the Manager solely as a result of the
base management fee.
51. PLAINTIFF was further damaged through the diminished stock price of
ICCMIC in a sum equal to any amount of the $33,000,000 termination fee.
D. Material Omission of an Estimate of the Size of the Loss to ICCMIC in
the Event of a Termination of the Manager
52. The Prospectus is materially misleading because it omits to provide an
estimate of the size of the loss to ICCMIC in the event of a termination of the
Manager. The Prospectus omits any estimate of the potential size of the
termination fee either in absolute terms, in proportion to the size of the fund,
or in proportion to the other risks mentioned in the Prospectus.
53. The Prospectus is materially misleading because it omits to provide
any formula such independent appraisers would use to calculate the value of any
termination fee. The Prospectus also omits any discussion of formulas or
methodologies typically used by appraisers, and any discussion of how the facts
in this transaction could mandate minimum sizes of any termination fee.
54. The Prospectus is materially misleading because it states that the
termination fee is payable only when the Manager is terminated without "cause",
but does not indicate that "cause" does not include the common meaning of poor
performance by the Manager.
55. Any description of the termination fee that does not include a numeric
estimate, such as a potential amount or threshold figure, is a materially
insufficient notice.
56. The Prospectus indicates that the risk of the undefined termination
fee was not greater than the risk of other, far smaller, potential losses the
risk of which received proportionately greater discussion and prominence in the
Prospectus.
57. The Prospectus indicates that (a) the Manager would pay all salaries
and operating expenses of ICCMIC, (b) the board could adjust the management fee
to more closely align it with costs, and therefore, (c) that the value of the
termination fee would be approximately zero,
<PAGE>
unless the Manager was earning incentive fees by making extraordinary returns
for the ICCMIC shareholders.
58. The first time that the magnitude of the termination fee was
discoverable by PLAINTIFF was through the Proxy Statement, on or about October
21, 1999. At that time, Defendant ICCMIC announced that the Manager would agree
to "cap" it termination fee at $35,000,000.
59. The termination fee awarded to the Manager was $33,000,000, resulting
in a loss to the shareholders of nearly 10% of the current fund value, which was
the single largest operating loss sustained by ICCMIC after its inception.
60. PLAINTIFF was damaged through the diminished stock price of ICCMIC in
an amount equal to the termination fee.
E. Undisclosed Conflicts between the Manager and ICCMIC
61. The Prospectus omitted to describe the base management fee as a fixed
entitlement and failed to disclose the conflict inherent between the Manager and
ICCMIC regarding possible reduced levels of managerial service when a fixed
entitlement is used as a method of compensation.
62. If the base management fee is a fixed entitlement, then the Manager
has an economic motivation to cut costs. An example of that would be to fire
staff any time it appears unlikely that incentive fees can be achieved and
unlikely that the option strike price of the stock can be achieved. Firing staff
to cut costs reduces the level of service provided and therefore is directly
contrary to the interests of ICCMIC, especially when the incentive targets are
not being met, unless the Board of Directors of Defendant ICCMIC can recover
those costs savings by reducing the base fee.
63. The Prospectus indicates that the relationship between the Manager and
Defendant ICCMIC was one of aligned financial interests due to the payment of
the Manager's profit in incentive fees and options.
64. Further evidence that the Manager was supposed to have aligned
financial interests with the shareholders of ICCMIC, and which further
corroborates the meaning of the Prospectus, was provided by the published report
initiating coverage by the lead underwriter of the IPO,
<PAGE>
Friedman, Billings, Ramsey & Co., dated November 11, 1997, providing a detailed
description of the expenses of ICCMIC as follows on page 5:
Given that management upside is largely tied to the performance of the
REIT, we believe that management and shareholder interests are well
aligned.
65. The Prospectus indicates that the Manager had every positive incentive
and no negative incentive to use the full 1% fee to hire talented personnel so
that ICCMIC would become as successful as possible for the shareholders.
66. This conflict was not reasonably discoverable by PLAINTIFF before
October 21, 1999.
67. Since inception, the Manager failed to use the entire 1% fee to
benefit ICCMIC, and, instead, fired numerous staff and lost others due to cost
cutting measures.
68. Because the entire base management fee was not spent on Manager
employees providing services to ICCMIC, shareholders were denied the opportunity
to receive the quality and quantity of investment service described in the
Prospectus and accordingly were denied the opportunity to achieve better
investment results and a correspondingly higher stock price.
69. PLAINTIFF was damaged by the conflict of interest between the Manager
and Defendant ICCMIC through the resulting decline in the stock price of ICCMIC.
F. Undisclosed Conflicts between Defendant KARLAN and ICCMIC
70. The Prospectus contains the materially false and misleading statement
that ICII is the 100% owner of the Manager.
71. The Prospectus omitted to disclose that Defendant KARLAN at all times
had a 15% ownership interest in the profits of the Manager. Defendant KARLAN
was, therefore, not only an agent of the Manager, he was, in substance, an
undisclosed principal of the Manager.
72. Despite his fiduciary duty to the ICCMIC shareholders as a Director of
ICCMIC, and despite his contractual duty to ICCMIC as its President and CEO,
Defendant KARLAN actively worked to the detriment of ICCMIC during the process
of appraising the termination fee due from ICCMIC to the Manager by presenting
arguments for the highest possible termination fee.
73. Defendant KARLAN is scheduled to receive 15% or approximately five
million dollars of the $33,000,000 termination fee.
<PAGE>
74. The Prospectus indicates that Defendant KARLAN's 1% stake in options
of Defendant ICCMIC was the largest financial motivational force in his decision
making.
75. This conflict was not reasonably discoverable by PLAINTIFF prior to
October 21, 1999.
76. PLAINTIFF was damaged through the diminished price of ICCMIC stock, in
an amount equal to the termination fee.
VI. NO SAFE HARBOR
77. The statutory safe harbor provided for forward-looking statements
under certain circumstances does not apply to any of the allegedly false
statements pleaded in this complaint. Many of the statements alleged to be false
and misleading herein were made in connection with an initial public offering.
In addition, none of the statements pleaded herein were identified as "forward-
looking statements" when made. Nor was it stated with respect to any of the
statements forming the basis of this complaint that actual results "could differ
materially from those projected." To the extent there were any forward-looking
statements, there were no meaningful cautionary statements identifying important
factors that could cause actual results to differ materially from those in the
purportedly forward-looking statements.
VII. SUMMARY
78. The Prospectus indicates that:
a. The Manager and not ICCMIC would bear the burden of all operating
expenses of ICCMIC other than due diligence expenses paid to third
parties;
b. The Board of Directors of ICCMIC had the unilateral power to reduce
the 1% base management fee if, as actually occurred, the base
management fee exceeded the actual expense of operating the Manager;
c. That any termination fee would not result in a significant dollar loss
to the ICCMIC shareholders at any time when the manager was not
earning incentive fees;
<PAGE>
d. That the Manager's interests under the fee agreement were aligned with
ICCMIC's so that no actions directly contrary to the welfare of ICCMIC
were encouraged;
e. That Karlan was an agent for the Manager and not a beneficial
principal of the Manager.
79. Because each of these statements was materially misleading,
Defendants, and each of them, are liable to PLAINTIFF and members of the Class
as set forth herein.
FIRST CAUSE OF ACTION
Against All Defendants for Violation of Section 11 of the Securities Act
(15 U.S.C. (S) 77k)
80. PLAINTIFF incorporates by reference the allegations of paragraphs 1
through 79 of this Complaint as if fully set forth herein.
81. PLAINTIFF brings this Cause of Action pursuant to section 11 of the
Securities Act, 15 U.S.C. (S) 77k, on behalf of the Class against all
Defendants. It does not sound in fraud.
82. Plaintiff HUSTON acquired shares of ICCMIC as part of the IPO and
issued pursuant to the Registration Statement and Prospectus.
83. These shares of ICCMIC were registered with the Securities and
Exchange Commission under (S) 2(5) of the Securities Act, 15 U.S.C. (S) 77b(5),
by means of a registration statement pursuant to section 6(a) of the Securities
Act, 15 U.S.C. (S) 77f(a).
84. The Registration Statement of which the Prospectus was a part and
which became effective on or about October 16, 1997, was materially false and
misleading, contained untrue statements of material fact, omitted to state other
facts necessary to make the statements therein not misleading, and failed
adequately to disclose material facts as set forth herein.
85. PLAINTIFF and the other members of the Class who acquired ICCMIC
common stock issued pursuant or traceable to the Prospectus did not know of the
material omissions or misleading statements in the Prospectus when such stock
was acquired, nor could they have reasonably discovered the true facts.
86. Defendant ICCMIC is the registrant for the shares sold to PLAINTIFF
and other members of the Class. Defendant ICCMIC issued, caused to be issued,
and participated in the issuance of materially false and misleading written
statements to the investing public which were
<PAGE>
contained in the Registration Statement, of which the Prospectus was a part, and
which misrepresented or failed to disclose, inter alia, the facts set forth
herein. As the issuer of the shares sold in the Offering, Defendant ICCMIC is
strictly liable to PLAINTIFF and the other members of the Class for those
material misrepresentations and omissions.
87. Defendant KARLAN, Defendant SNAVELY and Defendant VILLANI each signed
the Registration Statement, either personally or through an attorney-in-fact. As
such, these INDIVIDUAL DEFENDANTS were responsible for the contents and
dissemination of the Registration Statement and Prospectus. The INDIVIDUAL
DEFENDANTS failed to make a reasonable investigation or possess reasonable
grounds for believing that each of the statements contained in the Registration
Statement and Prospectus was true, and did not omit any material facts and was
not materially misleading. On that basis, the INDIVIDUAL DEFENDANTS are
personally liable to PLAINTIFF and the other members of the Class pursuant to
the Securities Act, 15 U.S.C. (S) 77k(a)(1).
88. Defendant KARLAN, Defendant SNAVELY and Defendant VILLANI were each
Directors of Defendant ICCMIC at the time of filing of the Registration
Statement and Prospectus, and as such, these INDIVIDUAL DEFENDANTS were
responsible for the contents and dissemination of the Registration Statement and
Prospectus. The INDIVIDUAL DEFENDANTS failed to make a reasonable investigation
or possess reasonable grounds for believing that each of the statements
contained in the Registration Statement and Prospectus was true, and did not
omit any material facts and was not materially misleading. On that basis, the
INDIVIDUAL DEFENDANTS are personally liable to PLAINTIFF and the other members
of the Class pursuant to the Securities Act, 15 U.S.C. (S) 77k(a)(2).
89. By reason of the foregoing, pursuant to section 11 of the Securities
Act, each Defendant is liable to PLAINTIFF and the other members of the Class
for damages sustained including the difference between the price paid for the
ICCMIC common stock bought and either the current value of such stock, if
currently held by such Class member, or the price at which such stock was
disposed of in the market, if disposed of before the commencement of this
action.
90. This action is being brought within three years of the violations of
section 11 of the Securities Act, and within one year of the first time at which
Class members could reasonably have discovered such violations through the
exercise of reasonable diligence.
<PAGE>
WHEREFORE, PLAINTIFF, on behalf of himself and the Class, prays for judgment
as follows:
1. That this Court declare that this action is a proper plaintiff class
action maintainable pursuant to rule 23(b)(3) of the Federal Rules of Civil
Procedure and further declare PLAINTIFF to be proper representative of the
Class;
2. For relief, against all Defendants, awarding PLAINTIFF and other
members of the Class damages measured by the difference between the price
PLAINTIFF paid for the ICCMIC common stock that they acquired and either the
current value of such stock if currently held by such Class member, or the price
at which such stock was disposed of in the market if disposed of before the
commencement of this action;
3. For prejudgment interest according to law;
4. For costs and expenses of this litigation, including reasonable
attorneys' fees and experts fees and other costs and disbursements; and
5. For such other and further relief as may be just and proper under the
circumstances.
Dated this 17th day of March 2000. Respectfully submitted,
Stanbury Fishelman Wisner & Adsit
9200 Sunset Boulevard, Penthouse 30
West Hollywood, CA 90069-3601
By: /s/ Bruce C. Fishelman by Alec B. Wisner
---------------------------------------
Bruce C. Fishelman
Alec B. Wisner
Attorneys for Plaintiff
<PAGE>
DEMAND FOR TRIAL BY JURY
Pursuant to rule 38(b) of the Federal Rules of Civil Procedure, PLAINTIFF
hereby demands trial by jury on all issues.
Dated this 17th day of March 2000. Respectfully submitted,
Stanbury Fishelman Wisner & Adsit
9200 Sunset Boulevard, Penthouse 30
West Hollywood, CA 90069-3601
By: /s/ Bruce C. Fishelman by Alec B. Wisner
----------------------------------------
Bruce C. Fishelman
Alec B. Wisner
Attorneys for Plaintiff
<PAGE>
CERTIFICATE OF PLAINTIFF IN SUPPORT OF CLASS ACTION COMPLAINT
I, John Huston, declare, as to the claims asserted under the federal securities
laws, that:
1. I have reviewed the Complaint prepared by its counsel in the above-captioned
case and have authorized its filing.
2. I did not purchase the security that is the subject of the Complaint at the
direction of plaintiffs' counsel or in order to participate in any private
action arising under the federal securities laws.
3. I am willing to serve as a representative party on behalf of a class,
including providing testimony at deposition and trial, if necessary.
4. During the proposed Class Period, I executed the following transaction: On or
about October 21, 1997, I purchased 1500 shares of Imperial Credit Commercial
Mortgage Investment Corp. at a price of $13.95 per share.
5. In the past three years, I have not sought to serve nor have served as a
representative party on behalf of a class in an action filed under the
federal security laws.
6. I will not accept any payment for serving as a representative party on behalf
of a class beyond my pro rata share of any recovery, except such reasonable
costs and expenses (including lost wages) directly related to the
representation of the Class as ordered or approved by the Court.
I declare under penalty of perjury that the foregoing is true and correct.
Executed on the 16th day of March, 2000, at Detroit, Michigan.
---- -----------------
/s/ John Huston
---------------
John Huston, "declarant"
