SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
(Amendment No. 2)
Impac Commercial Holdings, Inc.
(Name of Issuer)
Common Stock $0.01 par value
(Title of Class of Securities)
44968J 10 6
(CUSIP Number)
Daniel K. Osborne
Executive Vice President, Chief Operating Officer
and Chief Financial Officer
Apex Mortgage Capital, Inc.
865 South Figueroa Street, Suite, 1800
Los Angeles, California 90017
(213) 244-0000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
September 17, 1999
(Date of Event Which Requires Filing
of This Statement)
If the filing person has previously filed a statement onSchedule 13G
to report the acquisition that is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check
the following box [ ].
Note. Schedules filed in paper format shall include a
signed original and five copies of the
schedule, including all exhibits. See Rule
13d-7(b) for other parties to whom copies are
to be sent.
(Continued on following pages)
(Page 1 of 7 Pages)
<PAGE>
CUSIP No. 44968J 10 6 13D Page 2 of 7
Pages
1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF
ABOVE PERSON (ENTITIES ONLY)
Apex Mortgage Capital, Inc.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ x ]
(b)[ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Maryland
NUMBER OF 7 SOLE VOTING POWER
0
SHARES
8 SHARED VOTING POWER
BENEFICIALLY 627,300
OWNED BY 9 SOLE DISPOSITIVE POWER
0
EACH REPORTING
PERSON 10 SHARED DISPOSITIVE POWER
WITH 627,300
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON
627,300
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.5%
14 TYPE OF REPORTING PERSON*
CO
<PAGE>
CUSIP No. 44968J 10 6 13D Page 3 of 7
Pages
1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF
ABOVE PERSON (ENTITIES ONLY)
The TCW Group, Inc.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ x ]
(b)[ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
Not applicable
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Nevada
NUMBER OF 7 SOLE VOTING POWER
0
SHARES
8 SHARED VOTING POWER
BENEFICIALLY 627,300
OWNED BY 9 SOLE DISPOSITIVE POWER
0
EACH REPORTING
PERSON 10 SHARED DISPOSITIVE POWER
WITH 627,300
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON
627,300
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.5%
14 TYPE OF REPORTING PERSON*
HC, CO
<PAGE>
CUSIP No. 44968J 10 6 13D Page 4 of 7
Pages
1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF
ABOVE PERSON (ENTITIES ONLY)
Robert A. Day
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ]
(b)[ x ]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
Not applicable
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
NUMBER OF 7 SOLE VOTING POWER
627,300
SHARES
8 SHARED VOTING POWER
BENEFICIALLY 0
OWNED BY 9 SOLE DISPOSITIVE POWER
627,300
EACH REPORTING
PERSON 10 SHARED DISPOSITIVE POWER
WITH 0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
627,300
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.5%
14 TYPE OF REPORTING PERSON*
IN, HC
<PAGE>
Page 5 of 7
AMENDMENT NO. 2 TO SCHEDULE 13D
Reference is made to the Schedule 13D originally filed on
September 7, 1999, as amended by Amendment No. 1 thereto filed on
September 8, 1999, by Apex Mortgage Capital, Inc., a Maryland
corporation ("AXM"), The TCW Group, Inc., a Nevada corporation
("TCWG"), and Robert A. Day, an individual (collectively, the
"Reporting Persons"), with respect to the Common Stock, $.01 par
value per share ("Common Stock"), of Impac Commercial Holdings,
Inc. (the "Issuer").
ITEM 4. PURPOSE OF TRANSACTIONS
On August 5, 1999, the Issuer announced an agreement to merge
with and into AMRESCO Capital Trust ("AMCT"), an externally
managed Texas real estate investment trust. In such merger,
shareholders of the Issuer would receive 0.661 of a share of AMCT
for each share of Common Stock (the "Merger Consideration").
AXM continues to believe that the Merger Consideration
considerably undervalues the Common Stock to the disadvantage of
the Issuer's shareholders. On September 7, 1999, by letter to
the Board of Directors of the Issuer, AXM made a non-binding
proposal for a tax-free merger of AXM and the Issuer in which
0.60328 shares of AXM's common stock would be exchanged for each
share of Common Stock. On September 8, 1999, by Amendment No. 1 to
the Schedule 13D originally filed on September 7, 1999, a copy of
such letter was filed as Exhibit 2 to the Schedule 13D originally
filed on September 7, 1999, and a copy of a press release disclosing
the merger proposal and the letter was filed as Exhibit 3 to the Schedule
13D originally filed on September 7, 1999. AXM believes that the
terms of its proposal are financially superior to those reflected
in the proposed transaction with AMCT.
Item 4 is amended to add the following:
The Issuer and AXM have exchanged correspondence since the making
of AXM's non-binding proposal. In such correspondence, the
Issuer has requested certain additional information regarding AXM
and its proposal, and AXM has supplied such additional
information to the Issuer. Copies of such correspondence,
consisting of a letter dated September 10, 1999 from the Issuer
to AXM, a letter dated September 17, 1999 from AXM to the Issuer
and a letter dated September 20, 1999 from AXM to the Issuer are
filed herewith as Exhibits 4, 5 and 6, respectively.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Item 7 is amended to add the following additional Exhibits:
Exhibit 4 Letter dated September 10, 1999 from the Issuer to AXM
<PAGE>
Page 5 of 7
Exhibit 5 Letter dated September 17, 1999 from AXM to the Issuer
Exhibit 6 Letter dated September 20, 1999 from AXM to the Issuer
<PAGE>
Page 6 of 7
SIGNATURES
After reasonable inquiry and to the best of its knowledge and
belief, each of the undersigned certifies that the information
set forth in this Statement is true, complete and correct.
September 23, 1999
APEX MORTGAGE CAPITAL, INC.
By: /s/ Daniel K. Osborne
---------------------------------
Name: Daniel K. Osborne
Title: Executive Vice President,
Chief Operating Officer
and Chief Financial Officer
THE TCW GROUP, INC.
By: /s/ Michael E. Cahill
---------------------------------
Name: Michael E. Cahill
Title: Managing Director, General
Counsel & Secretary
ROBERT A. DAY
By: /s/ Michael E. Cahill
---------------------------------
Name: Michael E. Cahill
Title: Authorized Signatory
<PAGE>
September 10, 1999
Philip A. Barach
President and Chief Executive officer
Apex Mortgage Capital, Inc.
865 South Figueroa Street, Suite 1800
Los Angeles, CA 90017
Daniel K. Osborne
Executive Vice President and Chief Operating Officer
Apex Mortgage Capital, Inc.
865 South Figueroa Street, Suite 1800
Los Angeles, CA 90017
Gentlemen:
We have received your letter of September 7, 1999 regarding your proposal
to acquire Impac Commercial Holdings, Inc. To enable us to analyze
your proposal, please provide us with the following information:
1. A description of the current business plan of Apex,
2. A description of the proposed business plan for Impac if Apex were to
acquire control of Impac, including the use of and investment in
derivatives;
3. Monthly balance sheets for Apex from inception through August 1999,
showing total assets and shareholder equity, in a manner that will
enable us to assess periodic effective leverage levels of the
company;
4. A description of Apex's borrowings, including the average terms,
whether such borrowings are secured or unsecured and whether such
borrowings are committed or uncommitted;
5. A total return calculation for an Apex shareholder, assuming the
shareholder: (a) purchased 100 shares of Apex stock in the initial
offering (that is, on December 4, 1997) at the initial offering price
($15 per share), (b) received all dividends paid through September 7,
1999, (c) reinvested those dividends at a 5% annual rate and (d) sold
the stock on September 7, 1999 at the closing price for Apex shares on
September 7, 1999 (that is, $11.75 per share);
6. Your proposed composition of the board of directors of the combined
company is Apex were to acquire control of Impac, and
7. Your proposal regarding the management of the combined company if Apex
were to acquire control of Impac.
Finally, we note that (a) the merger agreement between AMRESCO Capital Trust
and Impac provides for breakup fees and expenses of approximately $5.25
million and (b) if your proposal contemplates termination of the existing
management agreement between Impac and Fortress, a termination payment to
Fortress would be triggered. The management agreement was acquired by
Fortress from previous management in May 1999 for $6 million and runs
through 2002. Your response should address these issues.
These questions are preliminary; we may have additional inquiries as we
learn more about your proposal. Upon receipt and review of all requested
information, including any additional information that we may request, we
will respond to your proposal in due course.
Sincerely,
/s/ Wesley R. Edens
Wesley R. Edens
Chairman of the Board and
Chief Executive Officer
<PAGE>
September 17, 1999
Special Committee of the Board of Directors
Impac Commercial Holdings, Inc.
1401 Dove Street
Newport Beach, California 92660
Attn: Mr. Joseph R. Tomkinson
Gentlemen:
We understand that a Special Committee of the Board of Directors
of Impac Commercial Holdings, Inc. ("ICH") has been established
to bring an independent perspective to ICH's consideration of our
proposed merger transaction. We welcome this positive step for
ICH's shareholders and we hope that the Committee will retain its
own independent legal and financial advisors to better serve
those shareholders.
We also have received Mr. Edens' letter dated September 10, 1999
(a copy of which is attached) requesting additional information
about Apex Mortgage Capital, Inc. ("AXM") and about our proposal.
We are pleased to provide you with the enclosed materials that
will inform you in some detail about AXM and about the superior
value we have to offer to ICH's shareholders.
These materials are responsive to the specific questions posed in
Mr. Edens' letter as follows:
Question #1
Exhibit One describes our overall business plan for AXM.
Question #2
Exhibit Two describes our operating strategy and policies. We
anticipate operating AXM in a similar manner upon an acquisition
of ICH. The policies also describe our use of derivatives for
the benefit of shareholders.
Question #3
Exhibit Three summarizes the balance sheets of AXM since its
initial public offering. This information will enable you to
assess our periodic leverage levels. This information should be
read in conjunction with the notes to such balances sheets in the
applicable Form 10-K or 10-Q. Copies of all of our 10-Ks and 10-
Qs are enclosed for your convenience.
Question #4
Exhibit Three also summarizes the amount of borrowings since
AXM's initial public offering. Further information regarding
terms can be found in the notes to financial statements and the
management's discussion and analysis sections of the applicable
Form 10-K and 10-Q.
Question #5
Exhibit Four shows the total return to AXM shareholders since the
AXM initial public offering, since the Amresco Capital Trust
("AMCT") initial public offering and over the last twelve months
in comparison to the comparable total return as applicable of
AMCT, the Stifel Nicolaus Mortgage REIT universe and the
companies in the NAREIT Mortgage REIT sector. This information
clearly demonstrates our strong performance relative to our
peers.
Question #6
We plan to maintain our current board of directors after the
acquisition of ICH. However, we are interested in learning more
about the current ICH directors and may be willing to appoint
additional directors to the AXM board if we find it beneficial to
the shareholders.
Question #7
We anticipate that after ICH is acquired, AXM would continue to
be managed by TCW Investment Management Company pursuant to the
existing management agreement.
We have reviewed the AMCT acquisition agreement and the existing
management agreement between ICH and Fortress and accordingly,
are aware of the breakup fee, expense reimbursement and
termination fee provisions of those agreements. We have already
taken those provisions into account when formulating our initial
offer for ICH. We are confident that they will not interfere
with our ability to enter into and consummate a combination
transaction with ICH.
We believe that the information contained in these materials
indicates the relative financial strength of our offer today.
Our reported record since our initial public offering of stable
or rising dividends in every quarter, continuous profitability
and strong equity valuations in relation to our peers points to a
promising future for AXM shareholders.
We remind you that Sections 6.7 and 6.8 of the AMCT acquisition
agreement permit you to negotiate with and make information
available to us in connection with our "Superior Proposal." We
want to sit down with you as soon as possible to begin
negotiating definitive agreements and sharing information. We
remain willing to enter into a customary confidentiality
agreement in a mutually acceptable form. In that connection, we
have taken the liberty of enclosing an executed confidentiality
agreement in customary form, and we therefore look forward to the
opportunity to commence our negotiations and diligence as soon as
possible.
We wish to re-emphasize our conviction that the transaction that
we have proposed offers demonstrably superior immediate value, as
well as greater long-term value, to ICH's shareholders as
compared to the AMCT offer. Furthermore, it is possible that the
results of our due diligence review may afford us the opportunity
to increase our offer (if an increase is justified by the
information made available to us). We urge you to help us
realize for your shareholders the superior value we are offering.
We continue to be excited by the prospect of moving forward with
you on our proposed transaction. Please contact one of us as
soon as possible so that we may begin the process in earnest.
Very truly yours,
Apex Mortgage Capital, Inc.
By: /s/ Philip A. Barach
-----------------------------
Name: Philip A. Barach
Title: President and Chief
Executive Officer
By: /s/ Daniel K. Osborne
---------------------------
Name: Daniel K. Osborne
Title: Executive Vice President
and Chief Operating Officer
Enclosures
<PAGE>
Exhibit 1
Business Overview
Apex Mortgage Capital, Inc. (the "Company" or "AXM") is a
financial company that invests primarily in high credit
quality mortgage related assets. The Company is structured
as a real estate investment trust ("REIT") and as such is
generally not subject to corporate income tax. Its
principal business objective is to generate net income by
earning a spread between the interest income on its mortgage
related assets and the interest expense on its borrowings.
Our mission is to create shareholder value through focused
capital management. By focusing solely on capital
management, we can recreate much of the functionality of
more traditional financial institutions, such as savings and
loans, without the high fixed cost structure, regulatory
burden or double taxation.
Management
AXM is a relatively young company by many standards as 1998
was our first full year of operations. However, management
has been together for many years prior to the Company's
formation. AXM is managed by a subsidiary of The TCW Group,
Inc. ("TCW"). TCW is one of the largest employee owned
investment management firms in the United States, with over
$50 billion under management including over $19 billion of
mortgage assets. The Company's direct investment management
team is comprised of seasoned professionals each with over
twelve years experience raising and managing mortgage
capital. AXM has elected to be externally managed in this
way to take advantage of the existing operational systems,
expertise and economies of scale associated with TCW's
current business operations.
Specialized Strategy
The business of providing mortgage loans to homeowners can
be broken down into three main functions, which are
origination, servicing and capital management.
Historically, all three functions were performed by
traditional financial institutions such as savings and loans
and banks. The management teams operating these
institutions were required to have generalist skill sets to
address the entire mortgage business as well as gathering
customer deposits to fund their loans.
In contrast, AXM is a specialist devoting all of its time
and concentrated expertise to one mortgage function, capital
management. This function, which generally consists of
holding and funding mortgage related assets, is well suited
for the Company. Structured as a REIT, AXM enjoys many
advantages as a specialized holder of mortgage related
assets. Investments are acquired in the secondary mortgage
market without the high fixed cost associated with
origination and servicing. The portfolio is funded through
the capital markets as opposed to inefficient customer
deposits. Income taxes and regulatory burdens are virtually
eliminated.
As specialists, AXM believes it has a clear advantage over
generalist managers whose experience is based in traditional
financial institutions and mortgage banking. Structural and
management specialization are the key elements in our
mission to create shareholder value.
<PAGE>
Exhibit 2
Operating Strategy
To achieve its business objective and generate dividend
yields that provide a competitive rate of return for its
stockholders, the Company's strategy is to:
* purchase primarily single-family adjustable and fixed
rate Mortgage Related Assets;
* manage the credit risk of its Mortgage Related Assets
through, among other activities (i) carefully selecting
Mortgage Related Assets to be acquired, (ii) complying with
the Company's investment policy, (iii) actively monitoring
the ongoing credit quality and servicing of its Mortgage
Related Assets, and (iv) maintaining appropriate capital
levels and allowances for possible credit losses;
* finance purchases of Mortgage Related Assets with the
net proceeds of equity offerings and, to the extent
permitted by the Company's leverage policy, to utilize
leverage to increase potential returns to stockholders
through borrowings (primarily reverse repurchase agreements)
with interest rates that will also reflect changes in short-
term market interest rates;
* seek to structure its borrowings in accordance with its
interest rate risk management policy;
* utilize interest rate caps, swaps and similar financial
instruments to mitigate interest rate risks; and
* seek to minimize prepayment risk primarily by
structuring a diversified portfolio with a variety of
prepayment characteristics.
Operating Policies
The Company has established the following four primary
operating policies to implement its business strategy of
acquiring assets consisting primarily of United States
agency and other high rated single-family real estate
mortgage securities and mortgage loans in order to generate
dividend yields that provide a competitive rate of return
for its stockholders. Certain capitalized and other terms
used herein shall have the meanings assigned to them in the
glossary found in the Company's December 31, 1998 Form 10-K.
* Investment Policy
* Leverage Policy
* Interest Rate Risk Management Policy
* REIT Compliance Policy
Compliance with the policy guidelines is determined at
the time of purchase of the Mortgage Related Assets (based
on the most recent valuation used by the Company) and is not
affected by events subsequent to such purchase. Such events
include, without limitation, changes in characterization,
value or rating of any specific Mortgage Related Assets or
economic conditions or other events generally affecting any
Mortgage Related Assets of the type held by the Company.
Investment Policy
The Company intends to acquire investments that it
believes will maximize returns on capital invested, after
considering (i) the amount and nature of the anticipated
returns from the investment, (ii) the Company's ability to
pledge the investment to secure collateralized borrowings,
and (iii) the costs associated with financing, hedging,
managing, securitizing and reserving for such investments.
The Company generally expects to primarily invest in
Mortgage Related Assets that may include Short-Term
Investments, Mortgage-Backed Securities, High Credit Quality
Mortgage Loans, Mortgage Derivative Securities and Other
Investments.
The Company's investment policy is intended to provide
guidelines for the acquisition of its investments.
Specifically, the investment policy states that the Company
intends to acquire a portfolio of investments that can be
segregated into specific categories. Each category and its
respective investment limitations are as follows:
50% Category
At least 50% of the Company's total assets are expected
to consist of (i) Short-Term Investments, (ii) Mortgage-
Backed Securities that are either issued or guaranteed by an
agency of the U.S. government, (iii) Mortgage-Backed
Securities that are rated AAA by at least one nationally
recognized rating agency or (iv) High Credit Quality
Mortgage Loans that are funded with Committed Secured
Borrowings.
75% Category
At least 75% of the Company's total assets are expected
to consist of investments that qualify for the 50% Category
or other Mortgage-Backed Securities that have received an
investment grade rating by at least one nationally
recognized rating agency.
90% Category
At least 90% of the Company's total assets are expected
to consist of investments that qualify for the 75% Category
or High Credit Quality Mortgage Loans that are not funded by
Committed Secured Borrowings.
10% Category
Not more than 10% of the Company's total assets are
expected to consist of (i) Mortgage-Backed Securities rated
below investment grade, (ii) Mortgage Derivative Securities
or (iii) Other Investments.
Leverage Policy
The Company generally anticipates utilizing leverage to
increase returns to its shareholders. The Company's goal is
to strike a balance between the under-utilization of
leverage, which reduces potential returns to stockholders,
and the over-utilization of leverage, which could reduce the
Company's ability to meet its obligations during periods of
adverse market conditions. The Company has established a
leverage policy to control the type and amount of leverage
used to fund the acquisition of its Mortgage Related Assets.
The Company's leverage policy is intended to provide
guidelines for utilizing secured borrowings in the form of
Uncommitted Secured Borrowings and Committed Secured
Borrowings.
Uncommitted Secured Borrowings
The Company expects a substantial portion of its
borrowings may consist of Uncommitted Secured Borrowings
including reverse repurchase agreements, lines of credit,
Dollar-Roll Agreements, and other financing transactions.
Such funding sources generally do not commit the lender to
continue to provide financing to the Company. The Company
intends to limit the amount of Uncommitted Secured
Borrowings to 92% of its total assets, less any assets that
are funded with Committed Secured Borrowings, plus the
market value of any related hedging transactions. If the
amount of such borrowings exceeds 92%, the Manager will be
required to submit to the Company's Board of Directors a
plan designed to bring the total amount of Uncommitted
Secured Borrowings below the 92% limitation. It is
anticipated that in many circumstances this goal will be
achieved over time without active management through the
natural process of mortgage principal repayments and
increases in the market value of the Company's total assets.
The Company anticipates that it will only enter into
repurchase agreements and other financing transactions with
counter-parties rated investment grade by a Rating Agency.
Committed Secured Borrowings
The Company's borrowings may consist of Committed Secured
Borrowings, including the issuance of CMOs, structured
commercial paper programs, secured term notes and other
financing transactions. Such funding sources generally
commit the lender to provide financing to the Company for a
specified period of time or to provide financing to the
Company to fund specific assets until they mature. The
Company intends to limit the amount of Committed Secured
Borrowings to 97% of the assets funded with such borrowings
at the time any corresponding transaction is entered into.
Interest Rate Risk Management Policy
The Company has established an interest rate risk
management policy that is intended to mitigate the negative
impact of changing interest rates. The Company generally
intends to mitigate interest rate risk by targeting the
difference between the market weighted average duration on
its Mortgage Related Assets funded with secured borrowings
to the market weighted average duration of such borrowings
to one year or less, taking into account all hedging
transactions. The Company generally does not intend to have
any specific duration target for the portion of its Mortgage
Related Assets that are not funded by secured borrowings.
There can be no assurance that the Company will be able
to limit such duration differences and there may be periods
of time when the duration difference will be greater than
one year.
The Company may implement its interest rate risk
management policy by utilizing various hedging transactions,
including interest rate swaps, interest rate swaptions,
interest rate caps, interest rate floors, financial futures
contracts, options on financial futures contracts, and other
structured transactions. The Company does not intend to
enter into such transactions for speculative purposes.
REIT Compliance Policy
The Company intends to operate its business in compliance
with the REIT Provisions of the Code. Accordingly, all of
the provisions outlined in the Company's investment,
leverage and interest rate risk management policies are
subordinate to the REIT Provisions of the Code if any
conflicts arise.
To qualify for tax treatment as a REIT, the Company must
meet certain tests as fully described in sections 856 and
857 of the Code. A summary of the requirements for
qualification as a REIT is described immediately below.
Stock Ownership Tests. The capital stock of the Company
must be held by at least 100 persons and no more than 50% of
the value of such capital stock may be owned, directly or
indirectly, by five or fewer individuals at all times during
the last half of the taxable year. Tax-Exempt Entities,
other than private foundations and certain unemployment
compensation trusts, are generally not treated as
individuals for these purposes. The stock ownership
requirements must be satisfied in the Company's second
taxable year and in each subsequent taxable year.
Asset Tests. The Company must generally meet the
following asset tests at the close of each quarter of each
taxable year. At least 75% of the value of the Company's
total assets must consist of Qualified REIT Real Estate
Assets, U.S. Government securities, cash and cash items (the
"75% Asset Test"). The value of securities held by the
Company but not taken into account for purposes of the 75%
Asset Test must not exceed (i) 5% of the value of the
Company's total assets in the case of securities of any one
non-government issuer, or (ii) 10% of the outstanding voting
securities of any such issuer.
Income Tests. The Company must generally meet certain
gross income tests for each taxable year. At least 75% of
the Company's gross income must be derived from certain
specified real estate sources, including interest income and
gain from the disposition of Qualified REIT Real Estate
Assets or Qualified Temporary Investment Income (the "75%
Gross Income Test"). At least 95% of the Company's gross
income for each taxable year must be derived from sources of
income qualifying for the 75% Gross Income Test, dividends,
interest unrelated to real estate, and gains from the sale
of stock or other securities (including certain interest
rate swap and cap agreements entered into to hedge variable
rate debt incurred to acquire Qualified REIT Real Estate
Assets) not held for sale in the ordinary course of business
(the "95% Gross Income Test").
Dividend Distribution Requirements. The Company must
generally distribute to its stockholders an amount equal to
at least 95% of the Company's taxable income before
deductions of dividends paid and excluding net capital
gains. The Company has until January 31 following the end
of the fiscal year to pay the dividends out to shareholders
and is permitted to offer a special dividend in order to
meet the 95% requirement.
Other Policies
The Company intends to operate in a manner that will not
subject it to regulation under the Investment Company Act.
The Company does not currently intend to (i) originate
Mortgage Loans or (ii) offer securities in exchange for real
property. The Company will not purchase any Mortgage
Related Assets from its Affiliates other than mortgage
securities that may be purchased from a taxable subsidiary
of the Company that may be formed in connection with the
securitization of Mortgage Loans.
<PAGE>
<TABLE>
Exhibit 3
Apex Mortgage Capital, Inc.
Balance Sheets
<CAPTION>
Apex IPO
December 30 December 31 March 31 June 30
1997 1997 1998 1998
Assets (Unaudited) (Audited) (Unaudited) (Unaudited)
<C> <S> <S> <S> <S>
Cash and cash equivalents $ 92,918,000 $ 3,085,000 $ 5,157,000 $ 38,867,000
Fixed income securities
available-for-sale, at fair
value - 265,880,000 762,953,000 864,432,000
Equity securities available
for-sale, at fair value - - - -
Accrued interest receivable - 1,316,000 4,129,000 5,349,000
Hedging Assets - 174,000 242,000 113,000
Principal payments receivable - - 5,609,000 957,000
Receivable for unsettled securities - - - 56,593,000
Other assets - 852,000 804,000 752,000
------------- ------------- ------------- -------------
$ 92,918,000 $ 271,307,000 $ 778,894,000 $ 967,063,000
============= ============= ============= =============
Liabilities and Stockholders' Equity
Liabilities
Reverse repurchase agreements - $ 87,818,000 $ 597,282,000 $ 753,752,000
Payable for unsettled securities - 88,638,000 87,094,000 120,860,000
Accrued interest payable - 110,000 1,378,000 3,898,000
Dividend payable - 268,000 1,626,000 1,560,000
Accrued expenses and other liabilities - 1,476,000 539,000 1,133,000
------------- ------------- ------------- -------------
- 178,310,000 687,919,000 881,203,000
============= ============= ============= =============
Commitments and contingencies
Stockholders' Equity
Preferred Stock, par value $0.01 per share;
50,000,000 shares authorized; no shares
outstanding - - - -
Common Stock, par value $0.01 per share;
100,000,000 shares authorized;
6,700,100 shares outstanding 67,000 67,000 67,000 67,000
Additional paid-in-capital 92,851,000 92,860,000 92,888,000 92,916,000
Accumulated other comprehensive income - 188,000 1,735,000 1,444,000
Accumulated dividend distributions in excess
of net income - (118,000) (1,180,000) (2,131,000)
Treasury stock, at cost - - (2,535,000) (6,436,000)
------------- ------------- ------------- -------------
92,918,000 92,997,000 90,975,000 85,860,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
$ 92,918,000 $ 271,307,000 $ 778,894,000 $ 967,063,000
============= ============= ============= =============
</TABLE>
Note: The notes to the balance sheet are an integral part of the information
shown. The notes should be read in connection with any financial
review. Please see the applicable Form 10-K or 10-Q for the notes to
the financial statements.
Exhibit #3 Continued On Next Page
<PAGE>
<TABLE>
Exhibit#3
Apex Mortgage Capital, Inc.
Balance Sheets
<CAPTION>
September 30 December 31 March 31 June 30
1998 1998 1999 1999
Assets (Unaudited) (Audited) (Unaudited) (Unaudited)
<C> <S> <S> <S> <S>
Cash and cash equivalents $ 5,570,000 $ 12,679,000 $ 3,426,000 $ 11,029,000
Fixed income securities
available-for-sale, at fair
value 889,908,000 825,995,000 821,117,000 773,005,000
Equity securities available
for-sale, at fair value 9,706,000 20,139,000 24,112,000 21,491,000
Accrued interest receivable 5,226,000 5,151,000 5,890,000 5,735,000
Hedging Assets - - - -
Principal payments receivable 158,000 937,000 1,463,000 3,364,000
Receivable for unsettled securities - - 8,000 547,000
Other assets 652,000 577,000 459,000 798,000
------------- ------------- ------------- -------------
$ 911,220,000 $ 865,478,000 $ 856,475,000 $ 815,969,000
============= ============= ============= =============
Liabilities and Stockholders' Equity
Liabilities
Reverse repurchase agreements $ 811,680,000 $ 767,908,000 $ 765,018,000 $ 736,668,000
Payable for unsettled securities 140,000 838,000 187,000 -
Accrued interest payable 3,124,000 6,173,000 2,160,000 2,683,000
Dividend payable 1,601,000 1,777,000 2,284,000 2,487,000
Accrued expenses and other liabilities 465,000 752,000 871,000 774,000
------------- ------------- ------------- -------------
817,010,000 777,448,000 770,520,000 742,612,000
============= ============= ============= =============
Commitments and contingencies
Stockholders' Equity
Preferred Stock, par value $0.01 per share;
50,000,000 shares authorized; no shares
outstanding - - - -
Common Stock, par value $0.01 per share;
100,000,000 shares authorized;
6,700,100 shares outstanding 67,000 67,000 67,000 67,000
Additional paid-in-capital 92,944,000 92,978,000 93,052,000 93,123,000
Accumulated other comprehensive income 12,047,000 6,689,000 3,828,000 (9,208,000)
Accumulated dividend distributions in excess
of net income (1,740,000) (1,135,000) (423,000) (56,000)
Treasury stock, at cost (9,108,000) (10,569,000) (10,569,000) (10,569,000)
------------- ------------- ------------- -------------
94,210,000 88,030,000 85,955,000 73,357,000
------------- ------------- ------------- -------------
$ 911,220,000 $ 865,478,000 $ 856,475,000 $ 815,969,000
============= ============= ============= =============
</TABLE>
Note: The notes to the balance sheet are an integral part of the information
shown. The notes should be read in connection with any financial
review. Please see the applicable Form 10-K or 10-Q for the notes to
the financial statements.
<PAGE>
Exhibit 4
Total Return: Apex IPO Date (12/4/97) to Present
[Graph]
Apex: 1.15%
Stifel REIT Universe: (51.24%)
28 Companies in
NAREIT Mortgage
REIT Sector (35.27%)
Total Return: Amresco IPO Date (5/7/98) to Present
[Graph]
Apex: 23.67%
Amresco: (27.72%)
Stifel REIT Universe: (52.16%)
28 Companies in
NAREIT Mortgage
REIT Sector (36.46%)
Total Return: Latest Twelve Months
[Graph]
Apex: 58.51%
Amresco: 9.90%
Stifel REIT Universe: (24.21%)
28 Companies in
NAREIT Mortgage
REIT Sector (17.51%)
Total Return
Stifel 28 Companies in
Apex Amresco REIT NAREIT Mortgage
Universe REIT Sector
Apex
IPO Date - Present 1.15% N/A (51.24%) (35.27%)
(12/4/97 - 9/15/99)
Amresco
IPO Date - Present 23.67% (27.72%) (52.16%) (36.46%)
(5/7/98 - 9/15/99)
Latest Twelve Month 58.51% 9.90% (24.21%) (17.51%)
(9/15/98 - 9/15/99)
__________
Total return amounts reflect return over the entire period, and have
not been adjusted to reflect annual return.
<PAGE>
Footnotes to Total Return Data
* The total return data includes dividends reinvested by the
ex-date, and all indices used are market-weighted.
* The component companies of the Stifel, Nicolaus Mortgage
REIT Universe are as follows:
American Residential Investment Trust Inc. INV
Amresco Capital Trust AMCT
Annaly Mortgage Management, Inc. NLY
Anthracite Mortgage Capital Inc. AHR
Anworth Mortgage Asset Corp. ANH
Apex Mortgage Capital Inc. AXM
Capstead Mortgage Corp. CMO
Chastain Capital Corp. CHAS
Clarion Commercial Holdings Inc. CLR
CRIIMI MAE Inc. CMM
Dynex Capital Inc. DX
Hanover Capital Mortgage Holdings Inc. HCM
Impac Commercial Holdings Inc. ICH
Impac Mortgage Holdings Inc. IMH
Imperial Credit Commercial Mortgage Inv. Corp. ICMI
IndyMac Mortgage Holdings, Inc. NDE
LASER Mortgage Management Inc. LMM
Novastar Financial Inc. NFI
Ocwen Asset Investment Corp. OAC
Redwood Trust, Inc. RWT
Resource Asset Investment Trust RAS
Thornburg Mortgage Asset Corp. TMA
Wilshire REIT, Inc. WREI
* The component companies of the NAREIT Mortgage REIT Index
are as follows:
America First Mortgage Investments, Inc. MFA
American Mortgage Acceptance Co. AMC
American Residential Investment Trust Inc. INV
Amresco Capital Trust AMCT
Annaly Mortgage Management, Inc. NLY
Anthracite Mortgage Capital Inc. AHR
Anworth Mortgage Asset Corp. ANH
Apex Mortgage Capital Inc. AXM
Bando McGlockin Capital Corporation BMCC
Capital Alliance Income Trust CAA
Capstead Mortgage Corp. CMO
Chastain Capital Corp. CHAS
Clarion Commercial Holdings Inc. CLR
CRIIMI MAE Inc. CMM
Dynex Capital Inc. DX
Hanover Capital Mortgage Holdings Inc. HCM
Impac Commercial Holdings Inc. ICH
Impac Mortgage Holdings Inc. IMH
Imperial Credit Commercial Mortgage Inv. Corp. ICMI
IndyMac Mortgage Holdings, Inc. NDE
LASER Mortgage Management Inc. LMM
Novastar Financial Inc. NFI
Ocwen Asset Investment Corp. OAC
Redwood Trust, Inc. RWT
Resource Asset Investment Trust RAS
Starwood Financial Trust APT
Thornburg Mortgage Asset Corp. TMA
Wilshire REIT, Inc. WREI
<PAGE>
Enclosure
September 10, 1999
Philip A. Barach
President and Chief Executive officer
Apex Mortgage Capital, Inc.
865 South Figueroa Street, Suite 1800
Los Angeles, CA 90017
Daniel K. Osborne
Executive Vice President and Chief Operating Officer
Apex Mortgage Capital, Inc.
865 South Figueroa Street, Suite 1800
Los Angeles, CA 90017
Gentlemen:
We have received your letter of September 7, 1999 regarding your proposal
to acquire Impac Commercial Holdings, Inc. To enable us to analyze
your proposal, please provide us with the following information:
1. A description of the current business plan of Apex,
2. A description of the proposed business plan for Impac if Apex were to
acquire control of Impac, including the use of and investment in
derivatives;
3. Monthly balance sheets for Apex from inception through August 1999,
showing total assets and shareholder equity, in a manner that will
enable us to assess periodic effective leverage levels of the
company;
4. A description of Apex's borrowings, including the average terms,
whether such borrowings are secured or unsecured and whether such
borrowings are committed or uncommitted;
5. A total return calculation for an Apex shareholder, assuming the
shareholder: (a) purchased 100 shares of Apex stock in the initial
offering (that is, on December 4, 1997) at the initial offering price
($15 per share), (b) received all dividends paid through September 7,
1999, (c) reinvested those dividends at a 5% annual rate and (d) sold
the stock on September 7, 1999 at the closing price for Apex shares on
September 7, 1999 (that is, $11.75 per share);
6. Your proposed composition of the board of directors of the combined
company is Apex were to acquire control of Impac, and
7. Your proposal regarding the management of the combined company if Apex
were to acquire control of Impac.
Finally, we note that (a) the merger agreement between AMRESCO Capital Trust
and Impac provides for breakup fees and expenses of approximately $5.25
million and (b) if your proposal contemplates termination of the existing
management agreement between Impac and Fortress, a termination payment to
Fortress would be triggered. The management agreement was acquired by
Fortress from previous management in May 1999 for $6 million and runs
through 2002. Your response should address these issues.
These questions are preliminary; we may have additional inquiries as we
learn more about your proposal. Upon receipt and review of all requested
information, including any additional information that we may request, we
will respond to your proposal in due course.
Sincerely,
/s/ Wesley R. Edens
Wesley R. Edens
Chairman of the Board and
Chief Executive Officer
September 20, 1999
Mr. Wesley R. Edens,
Chairman of the Board
and Chief Executive Officer
Impac Commercial Holdings, Inc.
In Care of FIC Management, Inc.
1301 Avenue of the Americas
New York, New York 10019
Dear Mr. Edens:
We received your letter dated September 10, 1999 requesting
additional information about Apex Mortgage Capital, Inc. ("AXM")
and about our proposal. Enclosed for your information please
find a copy of our responsive letter dated September 17, 1999
addressed to a Special Committee of your Board of Directors that
we understood had been formed to consider our proposed merger
transaction. Our letter and its enclosures will inform you in
some detail about AXM and about the superior value we have to
offer to Impac Commercial Holdings, Inc. ("ICH") shareholders.
If a Special Committee in fact has not been formed, we urge you
to do so immediately. Frankly, in light of the obvious conflicts
of interest implicated by the proposed merger with Amresco
Capital Trust (including the advisory fees that would be payable
to Fortress Investment Group), we would have thought that you too
would have favored the establishment of such an independent
committee. We believe that ICH should be pursuing the best
transaction for all of its shareholders, and we are confident
that our proposed transaction offers demonstrably superior near-
term and long-term value.
We continue to be excited by the prospect of moving forward with
you on our proposed transaction.
Very truly yours,
Apex Mortgage Capital, Inc.
By: /s/ Daniel K. Osborne
----------------------------
Name: Daniel K. Osborne
Title: Executive Vice President
and Chief Operating Officer
Enclosures
<PAGE>
Enclosure
September 17, 1999
Special Committee of the Board of Directors
Impac Commercial Holdings, Inc.
1401 Dove Street
Newport Beach, California 92660
Attn: Mr. Joseph R. Tomkinson
Gentlemen:
We understand that a Special Committee of the Board of Directors
of Impac Commercial Holdings, Inc. ("ICH") has been established
to bring an independent perspective to ICH's consideration of our
proposed merger transaction. We welcome this positive step for
ICH's shareholders and we hope that the Committee will retain its
own independent legal and financial advisors to better serve
those shareholders.
We also have received Mr. Edens' letter dated September 10, 1999
(a copy of which is attached) requesting additional information
about Apex Mortgage Capital, Inc. ("AXM") and about our proposal.
We are pleased to provide you with the enclosed materials that
will inform you in some detail about AXM and about the superior
value we have to offer to ICH's shareholders.
These materials are responsive to the specific questions posed in
Mr. Edens' letter as follows:
Question #1
Exhibit One describes our overall business plan for AXM.
Question #2
Exhibit Two describes our operating strategy and policies. We
anticipate operating AXM in a similar manner upon an acquisition
of ICH. The policies also describe our use of derivatives for
the benefit of shareholders.
Question #3
Exhibit Three summarizes the balance sheets of AXM since its
initial public offering. This information will enable you to
assess our periodic leverage levels. This information should be
read in conjunction with the notes to such balances sheets in the
applicable Form 10-K or 10-Q. Copies of all of our 10-Ks and 10-
Qs are enclosed for your convenience.
Question #4
Exhibit Three also summarizes the amount of borrowings since
AXM's initial public offering. Further information regarding
terms can be found in the notes to financial statements and the
management's discussion and analysis sections of the applicable
Form 10-K and 10-Q.
Question #5
Exhibit Four shows the total return to AXM shareholders since the
AXM initial public offering, since the Amresco Capital Trust
("AMCT") initial public offering and over the last twelve months
in comparison to the comparable total return as applicable of
AMCT, the Stifel Nicolaus Mortgage REIT universe and the
companies in the NAREIT Mortgage REIT sector. This information
clearly demonstrates our strong performance relative to our
peers.
Question #6
We plan to maintain our current board of directors after the
acquisition of ICH. However, we are interested in learning more
about the current ICH directors and may be willing to appoint
additional directors to the AXM board if we find it beneficial to
the shareholders.
Question #7
We anticipate that after ICH is acquired, AXM would continue to
be managed by TCW Investment Management Company pursuant to the
existing management agreement.
We have reviewed the AMCT acquisition agreement and the existing
management agreement between ICH and Fortress and accordingly,
are aware of the breakup fee, expense reimbursement and
termination fee provisions of those agreements. We have already
taken those provisions into account when formulating our initial
offer for ICH. We are confident that they will not interfere
with our ability to enter into and consummate a combination
transaction with ICH.
We believe that the information contained in these materials
indicates the relative financial strength of our offer today.
Our reported record since our initial public offering of stable
or rising dividends in every quarter, continuous profitability
and strong equity valuations in relation to our peers points to a
promising future for AXM shareholders.
We remind you that Sections 6.7 and 6.8 of the AMCT acquisition
agreement permit you to negotiate with and make information
available to us in connection with our "Superior Proposal." We
want to sit down with you as soon as possible to begin
negotiating definitive agreements and sharing information. We
remain willing to enter into a customary confidentiality
agreement in a mutually acceptable form. In that connection, we
have taken the liberty of enclosing an executed confidentiality
agreement in customary form, and we therefore look forward to the
opportunity to commence our negotiations and diligence as soon as
possible.
We wish to re-emphasize our conviction that the transaction that
we have proposed offers demonstrably superior immediate value, as
well as greater long-term value, to ICH's shareholders as
compared to the AMCT offer. Furthermore, it is possible that the
results of our due diligence review may afford us the opportunity
to increase our offer (if an increase is justified by the
information made available to us). We urge you to help us
realize for your shareholders the superior value we are offering.
We continue to be excited by the prospect of moving forward with
you on our proposed transaction. Please contact one of us as
soon as possible so that we may begin the process in earnest.
Very truly yours,
Apex Mortgage Capital, Inc.
By: /s/ Philip A. Barach
-----------------------------
Name: Philip A. Barach
Title: President and Chief
Executive Officer
By: /s/ Daniel K. Osborne
-----------------------------
Name: Daniel K. Osborne
Title: Executive Vice President
and Chief Operating Officer
Enclosures
<PAGE>
Exhibit 1
Business Overview
Apex Mortgage Capital, Inc. (the "Company" or "AXM") is a
financial company that invests primarily in high credit
quality mortgage related assets. The Company is structured
as a real estate investment trust ("REIT") and as such is
generally not subject to corporate income tax. Its
principal business objective is to generate net income by
earning a spread between the interest income on its mortgage
related assets and the interest expense on its borrowings.
Our mission is to create shareholder value through focused
capital management. By focusing solely on capital
management, we can recreate much of the functionality of
more traditional financial institutions, such as savings and
loans, without the high fixed cost structure, regulatory
burden or double taxation.
Management
AXM is a relatively young company by many standards as 1998
was our first full year of operations. However, management
has been together for many years prior to the Company's
formation. AXM is managed by a subsidiary of The TCW Group,
Inc. ("TCW"). TCW is one of the largest employee owned
investment management firms in the United States, with over
$50 billion under management including over $19 billion of
mortgage assets. The Company's direct investment management
team is comprised of seasoned professionals each with over
twelve years experience raising and managing mortgage
capital. AXM has elected to be externally managed in this
way to take advantage of the existing operational systems,
expertise and economies of scale associated with TCW's
current business operations.
Specialized Strategy
The business of providing mortgage loans to homeowners can
be broken down into three main functions, which are
origination, servicing and capital management.
Historically, all three functions were performed by
traditional financial institutions such as savings and loans
and banks. The management teams operating these
institutions were required to have generalist skill sets to
address the entire mortgage business as well as gathering
customer deposits to fund their loans.
In contrast, AXM is a specialist devoting all of its time
and concentrated expertise to one mortgage function, capital
management. This function, which generally consists of
holding and funding mortgage related assets, is well suited
for the Company. Structured as a REIT, AXM enjoys many
advantages as a specialized holder of mortgage related
assets. Investments are acquired in the secondary mortgage
market without the high fixed cost associated with
origination and servicing. The portfolio is funded through
the capital markets as opposed to inefficient customer
deposits. Income taxes and regulatory burdens are virtually
eliminated.
As specialists, AXM believes it has a clear advantage over
generalist managers whose experience is based in traditional
financial institutions and mortgage banking. Structural and
management specialization are the key elements in our
mission to create shareholder value.
<PAGE>
Exhibit 2
Operating Strategy
To achieve its business objective and generate dividend
yields that provide a competitive rate of return for its
stockholders, the Company's strategy is to:
* purchase primarily single-family adjustable and fixed
rate Mortgage Related Assets;
* manage the credit risk of its Mortgage Related Assets
through, among other activities (i) carefully selecting
Mortgage Related Assets to be acquired, (ii) complying with
the Company's investment policy, (iii) actively monitoring
the ongoing credit quality and servicing of its Mortgage
Related Assets, and (iv) maintaining appropriate capital
levels and allowances for possible credit losses;
* finance purchases of Mortgage Related Assets with the
net proceeds of equity offerings and, to the extent
permitted by the Company's leverage policy, to utilize
leverage to increase potential returns to stockholders
through borrowings (primarily reverse repurchase agreements)
with interest rates that will also reflect changes in short-
term market interest rates;
* seek to structure its borrowings in accordance with its
interest rate risk management policy;
* utilize interest rate caps, swaps and similar financial
instruments to mitigate interest rate risks; and
* seek to minimize prepayment risk primarily by
structuring a diversified portfolio with a variety of
prepayment characteristics.
Operating Policies
The Company has established the following four primary
operating policies to implement its business strategy of
acquiring assets consisting primarily of United States
agency and other high rated single-family real estate
mortgage securities and mortgage loans in order to generate
dividend yields that provide a competitive rate of return
for its stockholders. Certain capitalized and other terms
used herein shall have the meanings assigned to them in the
glossary found in the Company's December 31, 1998 Form 10-K.
* Investment Policy
* Leverage Policy
* Interest Rate Risk Management Policy
* REIT Compliance Policy
Compliance with the policy guidelines is determined at
the time of purchase of the Mortgage Related Assets (based
on the most recent valuation used by the Company) and is not
affected by events subsequent to such purchase. Such events
include, without limitation, changes in characterization,
value or rating of any specific Mortgage Related Assets or
economic conditions or other events generally affecting any
Mortgage Related Assets of the type held by the Company.
Investment Policy
The Company intends to acquire investments that it
believes will maximize returns on capital invested, after
considering (i) the amount and nature of the anticipated
returns from the investment, (ii) the Company's ability to
pledge the investment to secure collateralized borrowings,
and (iii) the costs associated with financing, hedging,
managing, securitizing and reserving for such investments.
The Company generally expects to primarily invest in
Mortgage Related Assets that may include Short-Term
Investments, Mortgage-Backed Securities, High Credit Quality
Mortgage Loans, Mortgage Derivative Securities and Other
Investments.
The Company's investment policy is intended to provide
guidelines for the acquisition of its investments.
Specifically, the investment policy states that the Company
intends to acquire a portfolio of investments that can be
segregated into specific categories. Each category and its
respective investment limitations are as follows:
50% Category
At least 50% of the Company's total assets are expected
to consist of (i) Short-Term Investments, (ii) Mortgage-
Backed Securities that are either issued or guaranteed by an
agency of the U.S. government, (iii) Mortgage-Backed
Securities that are rated AAA by at least one nationally
recognized rating agency or (iv) High Credit Quality
Mortgage Loans that are funded with Committed Secured
Borrowings.
75% Category
At least 75% of the Company's total assets are expected
to consist of investments that qualify for the 50% Category
or other Mortgage-Backed Securities that have received an
investment grade rating by at least one nationally
recognized rating agency.
90% Category
At least 90% of the Company's total assets are expected
to consist of investments that qualify for the 75% Category
or High Credit Quality Mortgage Loans that are not funded by
Committed Secured Borrowings.
10% Category
Not more than 10% of the Company's total assets are
expected to consist of (i) Mortgage-Backed Securities rated
below investment grade, (ii) Mortgage Derivative Securities
or (iii) Other Investments.
Leverage Policy
The Company generally anticipates utilizing leverage to
increase returns to its shareholders. The Company's goal is
to strike a balance between the under-utilization of
leverage, which reduces potential returns to stockholders,
and the over-utilization of leverage, which could reduce the
Company's ability to meet its obligations during periods of
adverse market conditions. The Company has established a
leverage policy to control the type and amount of leverage
used to fund the acquisition of its Mortgage Related Assets.
The Company's leverage policy is intended to provide
guidelines for utilizing secured borrowings in the form of
Uncommitted Secured Borrowings and Committed Secured
Borrowings.
Uncommitted Secured Borrowings
The Company expects a substantial portion of its
borrowings may consist of Uncommitted Secured Borrowings
including reverse repurchase agreements, lines of credit,
Dollar-Roll Agreements, and other financing transactions.
Such funding sources generally do not commit the lender to
continue to provide financing to the Company. The Company
intends to limit the amount of Uncommitted Secured
Borrowings to 92% of its total assets, less any assets that
are funded with Committed Secured Borrowings, plus the
market value of any related hedging transactions. If the
amount of such borrowings exceeds 92%, the Manager will be
required to submit to the Company's Board of Directors a
plan designed to bring the total amount of Uncommitted
Secured Borrowings below the 92% limitation. It is
anticipated that in many circumstances this goal will be
achieved over time without active management through the
natural process of mortgage principal repayments and
increases in the market value of the Company's total assets.
The Company anticipates that it will only enter into
repurchase agreements and other financing transactions with
counter-parties rated investment grade by a Rating Agency.
Committed Secured Borrowings
The Company's borrowings may consist of Committed Secured
Borrowings, including the issuance of CMOs, structured
commercial paper programs, secured term notes and other
financing transactions. Such funding sources generally
commit the lender to provide financing to the Company for a
specified period of time or to provide financing to the
Company to fund specific assets until they mature. The
Company intends to limit the amount of Committed Secured
Borrowings to 97% of the assets funded with such borrowings
at the time any corresponding transaction is entered into.
Interest Rate Risk Management Policy
The Company has established an interest rate risk
management policy that is intended to mitigate the negative
impact of changing interest rates. The Company generally
intends to mitigate interest rate risk by targeting the
difference between the market weighted average duration on
its Mortgage Related Assets funded with secured borrowings
to the market weighted average duration of such borrowings
to one year or less, taking into account all hedging
transactions. The Company generally does not intend to have
any specific duration target for the portion of its Mortgage
Related Assets that are not funded by secured borrowings.
There can be no assurance that the Company will be able
to limit such duration differences and there may be periods
of time when the duration difference will be greater than
one year.
The Company may implement its interest rate risk
management policy by utilizing various hedging transactions,
including interest rate swaps, interest rate swaptions,
interest rate caps, interest rate floors, financial futures
contracts, options on financial futures contracts, and other
structured transactions. The Company does not intend to
enter into such transactions for speculative purposes.
REIT Compliance Policy
The Company intends to operate its business in compliance
with the REIT Provisions of the Code. Accordingly, all of
the provisions outlined in the Company's investment,
leverage and interest rate risk management policies are
subordinate to the REIT Provisions of the Code if any
conflicts arise.
To qualify for tax treatment as a REIT, the Company must
meet certain tests as fully described in sections 856 and
857 of the Code. A summary of the requirements for
qualification as a REIT is described immediately below.
Stock Ownership Tests. The capital stock of the Company
must be held by at least 100 persons and no more than 50% of
the value of such capital stock may be owned, directly or
indirectly, by five or fewer individuals at all times during
the last half of the taxable year. Tax-Exempt Entities,
other than private foundations and certain unemployment
compensation trusts, are generally not treated as
individuals for these purposes. The stock ownership
requirements must be satisfied in the Company's second
taxable year and in each subsequent taxable year.
Asset Tests. The Company must generally meet the
following asset tests at the close of each quarter of each
taxable year. At least 75% of the value of the Company's
total assets must consist of Qualified REIT Real Estate
Assets, U.S. Government securities, cash and cash items (the
"75% Asset Test"). The value of securities held by the
Company but not taken into account for purposes of the 75%
Asset Test must not exceed (i) 5% of the value of the
Company's total assets in the case of securities of any one
non-government issuer, or (ii) 10% of the outstanding voting
securities of any such issuer.
Income Tests. The Company must generally meet certain
gross income tests for each taxable year. At least 75% of
the Company's gross income must be derived from certain
specified real estate sources, including interest income and
gain from the disposition of Qualified REIT Real Estate
Assets or Qualified Temporary Investment Income (the "75%
Gross Income Test"). At least 95% of the Company's gross
income for each taxable year must be derived from sources of
income qualifying for the 75% Gross Income Test, dividends,
interest unrelated to real estate, and gains from the sale
of stock or other securities (including certain interest
rate swap and cap agreements entered into to hedge variable
rate debt incurred to acquire Qualified REIT Real Estate
Assets) not held for sale in the ordinary course of business
(the "95% Gross Income Test").
Dividend Distribution Requirements. The Company must
generally distribute to its stockholders an amount equal to
at least 95% of the Company's taxable income before
deductions of dividends paid and excluding net capital
gains. The Company has until January 31 following the end
of the fiscal year to pay the dividends out to shareholders
and is permitted to offer a special dividend in order to
meet the 95% requirement.
Other Policies
The Company intends to operate in a manner that will not
subject it to regulation under the Investment Company Act.
The Company does not currently intend to (i) originate
Mortgage Loans or (ii) offer securities in exchange for real
property. The Company will not purchase any Mortgage
Related Assets from its Affiliates other than mortgage
securities that may be purchased from a taxable subsidiary
of the Company that may be formed in connection with the
securitization of Mortgage Loans.
<PAGE>
<TABLE>
Exhibit 3
Apex Mortgage Capital, Inc.
Balance Sheets
<CAPTION>
Apex IPO
December 3 December 31 March 31 June 30
1997 1997 1998 1998
Assets (Unaudited) (Audited) (Unaudited) (Unaudited)
<C> <S> <S> <S> <S>
Cash and cash equivalents $ 92,918,000 $ 3,085,000 $ 5,157,000 $ 38,867,000
Fixed income securities
available-for-sale, at fair
value - 265,880,000 762,953,000 864,432,000
Equity securities available
for-sale, at fair value - - - -
Accrued interest receivable - 1,316,000 4,129,000 5,349,000
Hedging Assets - 174,000 242,000 113,000
Principal payments receivable - - 5,609,000 957,000
Receivable for unsettled securities - - - 56,593,000
Other assets - 852,000 804,000 752,000
------------- ------------- - ----------- -------------
$ 92,918,000 $ 271,307,000 $ 778,894,000 $ 967,063,000
============= ============= ============= =============
Liabilities and Stockholders' Equity
Liabilities
Reverse repurchase agreements - $ 87,818,000 $ 597,282,000 $ 753,752,000
Payable for unsettled securities - 88,638,000 87,094,000 120,860,000
Accrued interest payable - 110,000 1,378,000 3,898,000
Dividend payable - 268,000 1,626,000 1,560,000
Accrued expenses and other liabilities - 1,476,000 539,000 1,133,000
------------- ------------- ------------- -------------
- 178,310,000 687,919,000 881,203,000
============= ============= ============= =============
Commitments and contingencies
Stockholders' Equity
Preferred Stock, par value $0.01 per share;
50,000,000 shares authorized; no shares
outstanding - - - -
Common Stock, par value $0.01 per share;
100,000,000 shares authorized;
6,700,100 shares outstanding 67,000 67,000 67,000 67,000
Additional paid-in-capital 92,851,000 92,860,000 92,888,000 92,916,000
Accumulated other comprehensive income - 188,000 1,735,000 1,444,000
Accumulated dividend distributions in excess
of net income - (118,000) (1,180,000) (2,131,000)
Treasury stock, at cost - (2,535,000) (6,436,000)
------------- ------------- ------------- -------------
92,918,000 92,997,000 90,975,000 85,860,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
$ 92,918,000 $ 271,307,000 $778,894,000 $ 967,063,000
============= ============= ============= =============
</TABLE>
Note: The notes to the balance sheet are an integral part of the information
shown. The notes should be read in connection with any financial review.
Please see the applicable Form 10-K or 10-Q for the notes to the
financial statements.
Exhibit #3 Continued On Next Page
<PAGE>
<TABLE>
Exhibit #3
Apex Mortgage Capital, Inc.
Balance Sheets
<CAPTION>
September 30 December 31 March 31 June 30
1998 1998 1999 1999
Assets (Unaudited) (Audited) (Unaudited) (Unaudited)
<C> <S> <S> <S> <S>
Cash and cash equivalents $ 5,570,000 $ 12,679,000 $ 3,426,000 $ 11,029,000
Fixed income securities
available-for-sale, at fair
value 889,908,000 825,995,000 821,117,000 773,005,000
Equity securities available
for-sale, at fair value 9,706,000 20,139,000 24,112,000 21,491,000
Accrued interest receivable 5,226,000 5,151,000 5,890,000 5,735,000
Hedging Assets - - - -
Principal payments receivable 158,000 937,000 1,463,000 3,364,000
Receivable for unsettled securities - - 8,000 547,000
Other assets 652,000 577,000 459,000 798,000
------------- ------------- ------------- -------------
$ 911,220,000 $ 865,478,000 $ 856,475,000 $ 815,969,000
============= ============= ============= =============
Liabilities and Stockholders' Equity
Liabilities
Reverse repurchase agreements $ 811,680,000 $ 767,908,000 $ 765,018,000 $ 736,668,000
Payable for unsettled securities 140,000 838,000 187,000 -
Accrued interest payable 3,124,000 6,173,000 2,160,000 2,683,000
Dividend payable 1,601,000 1,777,000 2,284,000 2,487,000
Accrued expenses and other liabilities 465,000 752,000 871,000 774,000
------------- ------------- ------------- -------------
817,010,000 777,448,000 770,520,000 742,612,000
============= ============= ============= =============
Commitments and contingencies
Stockholders' Equity
Preferred Stock, par value $0.01 per share;
50,000,000 shares authorized; no shares
outstanding - - - -
Common Stock, par value $0.01 per share;
100,000,000 shares authorized;
6,700,100 shares outstanding 67,000 67,000 67,000 67,000
Additional paid-in-capital 92,944,000 92,978,000 93,052,000 93,123,000
Accumulated other comprehensive income 12,047,000 6,689,000 3,828,000 (9,208,000)
Accumulated dividend distributions in excess
of net income (1,740,000) (1,135,000) (423,000) (56,000)
Treasury stock, at cost (9,108,000) (10,569,000) (10,569,000) (10,569,000)
------------- ------------- ------------- -------------
94,210,000 88,030,000 85,955,000 73,357,000
------------- ------------- ------------- -------------
$ 911,220,000 $ 865,478,000 $ 856,475,000 $ 815,969,000
============= ============= ============= =============
</TABLE>
Note: The notes to the balance sheet are an integral part of the information
shown. The notes should be read in connection with any financial
review. Please see the applicable Form 10-K or 10-Q for the notes to
the financial statements.
<PAGE>
Exhibit 4
Total Return: Apex IPO Date (12/4/97) to Present
[Graph]
Apex: 1.15%
Stifel REIT Universe: (51.24%)
28 Companies in
NAREIT Mortgage
REIT Sector (35.27%)
Total Return: Amresco IPO Date (5/7/98) to Present
[Graph]
Apex: 23.67%
Amresco: (27.72%)
Stifel REIT Universe: (52.16%)
28 Companies in
NAREIT Mortgage
REIT Sector (36.46%)
Total Return: Latest Twelve Months
[Graph]
Apex: 58.51%
Amresco: 9.90%
Stifel REIT Universe: (24.21%)
28 Companies in
NAREIT Mortgage
REIT Sector (17.51%)
Total Return
Stifel 28 Companies in
Apex Amresco REIT NAREIT Mortgage
Universe REIT Sector
Apex
IPO Date - Present 1.15% N/A (51.24%) (35.27%)
(12/4/97 - 9/15/99)
Amresco
IPO Date - Present 23.67% (27.72%) (52.16%) (36.46%)
(5/7/98 - 9/15/99)
Latest Twelve Month 58.51% 9.90% (24.21%) (17.51%)
(9/15/98 - 9/15/99)
__________
Total return amounts reflect return over the entire period, and have
not been adjusted to reflect annual return.
<PAGE>
Footnotes to Total Return Data
* The total return data includes dividends reinvested by the
ex-date, and all indices used are market-weighted.
* The component companies of the Stifel, Nicolaus Mortgage
REIT Universe are as follows:
American Residential Investment Trust Inc. INV
Amresco Capital Trust AMCT
Annaly Mortgage Management, Inc. NLY
Anthracite Mortgage Capital Inc. AHR
Anworth Mortgage Asset Corp. ANH
Apex Mortgage Capital Inc. AXM
Capstead Mortgage Corp. CMO
Chastain Capital Corp. CHAS
Clarion Commercial Holdings Inc. CLR
CRIIMI MAE Inc. CMM
Dynex Capital Inc. DX
Hanover Capital Mortgage Holdings Inc. HCM
Impac Commercial Holdings Inc. ICH
Impac Mortgage Holdings Inc. IMH
Imperial Credit Commercial Mortgage Inv. Corp. ICMI
IndyMac Mortgage Holdings, Inc. NDE
LASER Mortgage Management Inc. LMM
Novastar Financial Inc. NFI
Ocwen Asset Investment Corp. OAC
Redwood Trust, Inc. RWT
Resource Asset Investment Trust RAS
Thornburg Mortgage Asset Corp. TMA
Wilshire REIT, Inc. WREI
* The component companies of the NAREIT Mortgage REIT Index
are as follows:
America First Mortgage Investments, Inc. MFA
American Mortgage Acceptance Co. AMC
American Residential Investment Trust Inc. INV
Amresco Capital Trust AMCT
Annaly Mortgage Management, Inc. NLY
Anthracite Mortgage Capital Inc. AHR
Anworth Mortgage Asset Corp. ANH
Apex Mortgage Capital Inc. AXM
Bando McGlockin Capital Corporation BMCC
Capital Alliance Income Trust CAA
Capstead Mortgage Corp. CMO
Chastain Capital Corp. CHAS
Clarion Commercial Holdings Inc. CLR
CRIIMI MAE Inc. CMM
Dynex Capital Inc. DX
Hanover Capital Mortgage Holdings Inc. HCM
Impac Commercial Holdings Inc. ICH
Impac Mortgage Holdings Inc. IMH
Imperial Credit Commercial Mortgage Inv. Corp. ICMI
IndyMac Mortgage Holdings, Inc. NDE
LASER Mortgage Management Inc. LMM
Novastar Financial Inc. NFI
Ocwen Asset Investment Corp. OAC
Redwood Trust, Inc. RWT
Resource Asset Investment Trust RAS
Starwood Financial Trust APT
Thornburg Mortgage Asset Corp. TMA
Wilshire REIT, Inc. WREI
<PAGE>
Enclosure
September 10, 1999
Philip A. Barach
President and Chief Executive officer
Apex Mortgage Capital, Inc.
865 South Figueroa Street, Suite 1800
Los Angeles, CA 90017
Daniel K. Osborne
Executive Vice President and Chief Operating Officer
Apex Mortgage Capital, Inc.
865 South Figueroa Street, Suite 1800
Los Angeles, CA 90017
Gentlemen:
We have received your letter of September 7, 1999 regarding your proposal
to acquire Impac Commercial Holdings, Inc. To enable us to analyze
your proposal, please provide us with the following information:
1. A description of the current business plan of Apex,
2. A description of the proposed business plan for Impac if Apex were to
acquire control of Impac, including the use of and investment in
derivatives;
3. Monthly balance sheets for Apex from inception through August 1999,
showing total assets and shareholder equity, in a manner that will
enable us to assess periodic effective leverage levels of the
company;
4. A description of Apex's borrowings, including the average terms,
whether such borrowings are secured or unsecured and whether such
borrowings are committed or uncommitted;
5. A total return calculation for an Apex shareholder, assuming the
shareholder: (a) purchased 100 shares of Apex stock in the initial
offering (that is, on December 4, 1997) at the initial offering price
($15 per share), (b) received all dividends paid through September 7,
1999, (c) reinvested those dividends at a 5% annual rate and (d) sold
the stock on September 7, 1999 at the closing price for Apex shares on
September 7, 1999 (that is, $11.75 per share);
6. Your proposed composition of the board of directors of the combined
company is Apex were to acquire control of Impac, and
7. Your proposal regarding the management of the combined company if Apex
were to acquire control of Impac.
Finally, we note that (a) the merger agreement between AMRESCO Capital Trust
and Impac provides for breakup fees and expenses of approximately $5.25
million and (b) if your proposal contemplates termination of the existing
management agreement between Impac and Fortress, a termination payment to
Fortress would be triggered. The management agreement was acquired by
Fortress from previous management in May 1999 for $6 million and runs
through 2002. Your response should address these issues.
These questions are preliminary; we may have additional inquiries as we
learn more about your proposal. Upon receipt and review of all requested
information, including any additional information that we may request, we
will respond to your proposal in due course.
Sincerely,
/s/ Wesley R. Edens
Wesley R. Edens
Chairman of the Board and
Chief Executive Officer
