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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
Amendment No. 1
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Imperial Credit Commercial Mortgage Investment Corp.
(Name of Issuer)
Imperial Credit Industries Inc.
Imperial Credit Commercial Mortgage Investment Corp.
ICCMIC Acquisition Corp.
(Name of Person(s) Filing Statement)
Common Stock, par value $0.0001 per share
(Title of Class of Securities)
45272T 10 2
(CUSIP Number of Class of Securities)
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Irwin L. Gubman, Esq. Norbert M. Seifert, Esq.
General Counsel General Counsel
Imperial Credit Industries, Inc. Imperial Credit Commercial Mortgage
23550 Hawthorne Blvd. Investment Corp.
Bldg. #1, Suite 240 11601 Wilshire Blvd, Suite 2080
Los Angeles, CA 90025
Torrance, CA 90505
(310) 791-8040 (310) 231-1280
(Name and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of the Person(s) Filing Statement)
Copies to:
James R. Walther, Esq. Andrew L. Weil, Esq.
Mayer, Brown & Platt Sonnenschein Nath & Rosenthal
350 S. Grand Ave., 25th Floor 8000 Sears Tower
Los Angeles, CA 90071 Chicago, IL 60606
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This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [_] The filing of a registration statement under the Securities Act of
1933.
c. [_] A tender offer.
d. [_] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. [X]
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CALCULATION OF FILING FEE
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Transaction Valuation* Amount of Filing Fee
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$302,646,425 $60,530
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* Pursuant to, and as provided by, Rule 0-11(b)(1), the amount required to be
paid with the filing of this Schedule 13E-3 is $60,530. This amount is based
upon $11.5753246 (price per share being paid for outstanding shares pursuant
to the merger), $1.10 (price per share being paid for 815,500 outstanding
stock options with an exercise price of $15.00 per share) and $2.5753246
(price per share being paid for 621,750 outstanding stock options with an
exercise price of $9.00 per share).
[X]Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount previously paid: $60,129 Filing party: Imperial Credit Commercial
Mortgage Investment Corp.
Form or registration no.: Preliminary Schedule 14A Date Filed: October 21,
1999
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This Amendment No. 1 amends and restates the Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the "Statement"), dated October 21, 1999, filed in
connection with the proposed merger (the "Merger") of ICCMIC Acquisition Corp.
("Merger Sub"), a Maryland corporation, with and into Imperial Credit
Commercial Mortgage Investment Corp., a Maryland corporation ("ICCMIC" or the
"Company"), pursuant to a Merger Agreement (the "Merger Agreement") dated July
22, 1999, as amended October 29, 1999 by and among Merger Sub, the Company and
Imperial Credit Industries, Inc., a California corporation and sole corporate
parent of Merger Sub ("Imperial Credit").
Upon the effectiveness of the merger (the "Effective Time"), each share of
the Company's common stock issued and outstanding immediately prior to the
Effective Time (other than shares held by Imperial Credit or any subsidiary of
Imperial Credit or the Company) will be converted into $11.5753246 in cash. The
Company's shareholders also have the right to receive a final dividend of any
previously undistributed taxable income of the Company after the Merger.
The information contained (or incorporated by reference) in this Statement
concerning the Company, including, without limitation, the deliberations of the
special committee of the Company's Board of Directors in connection with the
Merger, the opinion of the financial advisor to the special committee of the
Company's Board of Directors and the Company's capital structure and historical
financial statements and projections, was supplied by the Company (although the
financial projections supplied were prepared by the financial advisor to the
special committee of the Company's Board of Directors, based substantially on
information and assumptions provided by the Company's management). Neither
Imperial Credit nor Merger Sub takes responsibility for the accuracy of such
information.
The information contained (or incorporated by reference) in this Statement
concerning Imperial Credit and Merger Sub was supplied by Imperial Credit. The
Company takes no responsibility for the accuracy of such information.
This Statement is being filed with the Securities and Exchange Commission
(the "Commission") concurrently with a revised preliminary proxy statement
filed by the Company pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Proxy Statement"). A copy of the Proxy Statement
is attached hereto as Exhibit (d)(3). By filing this Schedule 13E-3, none of
the joint signatories concedes that Rule 13e-3 under the Securities Exchange
Act of 1934, as amended, is applicable to the Merger or the Merger Agreement,
including other transactions contemplated therein.
The following Cross Reference Sheet is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Proxy Statement
of the information required to be included in response to the items of this
Statement. The information in the Proxy Statement, including all appendices
thereto, is expressly incorporated herein by reference and the responses to
each item herein are qualified in their entirety by the provisions of the Proxy
Statement and the appendices thereto. Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to such terms in the
Proxy Statement.
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CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item in Schedule 13E-3 Caption or Location in the Proxy Statement
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Item 1(a)...................... "The Companies -- Imperial Credit Commercial
Mortgage Investment Corp."
Item 1(b)...................... "Summary -- Record Date; Stock Entitled to
Vote;" "Information Concerning the Special
Meeting -- Record Date; Outstanding Common
Stock Entitled To Vote; Quorum" and "Common
Stock Market Price and Dividend Information"
Item 1(c)...................... "Common Stock Market Price and Dividend
Information -- Market Prices"
Item 1(d)...................... "Questions and Answers About the Proposed
Merger;" "Summary -- What Stockholders Will
Receive in the Proposed Merger," "-- ICCMIC
Shares: Book Value, Dividends and Earnings;"
"Special Factors: Background, Purpose and
Effects of the Proposed Merger --
Recommendation of the Special Committee and the
Board of Directors; Reasons for the Proposed
Merger;" "The Merger Agreement -- Covenants;
Conduct of Business Pending the Proposed
Merger" and "Common Stock Market Price and
Dividend Information -- Dividend Policy"
Item 1(e)...................... "The Companies -- Imperial Credit Commercial
Mortgage Investment Corp."
Item 1(f)...................... "Relationships and Transactions Between ICII,
ICCMIC and Affiliates -- Purchases and Sales of
Common Stock by ICII and its Affiliates"
Item 2(a)-(d), (g)............. "The Companies -- Imperial Credit Industries,
Inc.," "-- ICCMIC Acquisition Corp.;"
"Management of ICCMIC" and "Management of ICII
and ICCMIC Acquisition Corp."
Item 2(e)...................... *
Item 2(f)...................... *
Item 3(a) ..................... "Questions and Answers About the Proposed
Merger;" "Summary;" "Special Factors:
Background, Purpose and Effects of the Proposed
Merger -- Background of the Proposed Merger,"
"-- Recommendation of the Special Committee and
the Board of Directors; Reasons for the
Proposed Merger," "-- ICII's Purpose for
Pursuing the Proposed Merger; Structure of the
Proposed Merger," "-- Potential Asset Sales
Prior to the Proposed Merger;" "The Merger
Agreement" and "Relationships and Transactions
Between ICII, ICCMIC and Affiliates"
Item 3(b)...................... "Summary;" "Special Factors: Background, Purpose
and Effects of the Proposed Merger --
Background of the Proposed Merger" and
"Management's Conflicts of Interest in the
Proposed Merger"
</TABLE>
2
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Item 4(a)...................... "Questions and Answers About the Proposed
Merger;" "Summary -- Our View of the Proposed
Merger and Our Recommendation," "-- The
Proposed Merger," "-- What Stockholders Will
Receive in the Proposed Merger," "-- Conditions
to Completion of the Proposed Merger," "--
Termination of the Merger Agreement;"
"Management's Conflicts of Interest in the
Proposed Merger;" "-- The Merger Agreement;"
"Fees and Expenses" and "Appendix A -- Merger
Agreement, as amended"
Item 4(b) ..................... "Summary -- The Proposed Merger," "-- Votes
Required," "-- Treatment of Outstanding ICCMIC
Stock Options," "-- Management's Conflicts of
Interest in the Proposed Merger;" "Information
Concerning the Special Meeting -- Votes
Required;" "Special Factors: Background,
Purpose and Effects of the Proposed Merger --
Benefits and Detriments to Nonaffiliated
Stockholders;" "Management's Conflicts of
Interest in the Proposed Merger -- Treatment of
Stock Options," "-- Agreements between Mark S.
Karlan, ICII and the Manager," "--
Indemnification of Directors and Officers;"
"The Merger Agreement -- Merger Consideration,"
"-- Cancellation of ICCMIC Common Stock," "--
Stock Option and Other Plans," "-- Directors
and Officers," "-- ICII Standstill Agreement,"
"-- Certain SPB Loans," "-- Termination Fees
and Expenses" and "Appendix A -- Merger
Agreement, as amended"
Item 5(a)-(g).................. "Summary -- The Proposed Merger;" "Special
Factors: Background, Purpose and Effects of the
Proposed Merger -- Management Agreement;
Appraisal," "-- ICII's Purpose for Pursuing the
Proposed Merger; Structure of the Proposed
Merger," "-- Consequences of the Proposed
Merger," "-- Plans for ICCMIC after the
Proposed Merger," "-- Financing; Source of
Funds;" "The Merger Agreement" and "Appendix A
-- Merger Agreement, as amended"
Item 6(a)-(c).................. "Summary -- Financing; Source of Funds;"
"Special Factors: Background, Purpose and
Effects of the Proposed Merger -- Financing;
Source of Funds" and "Fees and Expenses"
Item 6(d)...................... *
Item 7(a)...................... "Summary -- Our View of the Proposed Merger and
Our Recommendation," "-- ICII's Reasons for the
Proposed Merger;" "Special Factors: Background,
Purpose and Effects of the Proposed Merger --
Recommendation of the Special Committee and
the Board of Directors; Reasons for the
Proposed Merger," "-- Opinion of the Financial
Advisor to the Special Committee," "-- ICII's
Purpose for Pursuing the Proposed Merger;
Structure of the Proposed Merger" and "--
ICII's Analysis of the Proposed Merger"
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Item 7(b)...................... "Summary -- Solicitation of Alternative
Transactions," "-- Standstill; Qualifying
Alternative Transaction;" "Special Factors:
Background, Purpose and Effects of the Proposed
Merger -- Background of the Proposed Merger,"
"-- 60-Day Market Check Process," "--
Recommendation of the Special Committee and
the Board of Directors; Reasons for the
Proposed Merger," "-- ICII's Purpose for
Pursuing the Proposed Merger; Structure of the
Proposed Merger;" "The Merger Agreement --
Solicitation Period and Superior Proposals"
and "-- ICII Standstill Agreement"
Item 7(c)...................... "Summary -- Our View of the Proposed Merger and
Our Recommendation," "-- ICII's Reasons for the
Proposed Merger," "-- Opinion of Financial
Advisor;" "Special Factors: Background, Purpose
and Effects of the Proposed Merger --
Recommendation of the Special Committee and
the Board of Directors; Reasons for the
Proposed Merger," "-- Opinion of the Financial
Advisor to the Special Committee," "-- ICII's
Purpose for Pursuing the Proposed Merger;
Structure of the Proposed Merger" and "--
ICII's Analysis of the Proposed Merger"
Item 7(d)...................... "Questions and Answers About the Proposed
Merger;" "Summary -- The Proposed Merger," "--
What Stockholders Will Receive in the Proposed
Merger," "-- Management Agreement; Appraisal,"
"-- Treatment of Outstanding ICCMIC Stock
Options," "-- Accounting Treatment,"
"-- Management's Conflicts of Interest in the
Proposed Merger;" "Special Factors: Background,
Purpose and Effects of the Proposed Merger --
Management Agreement; Appraisal," "-- Benefits
and Detriments to Nonaffiliated Stockholders,"
"-- ICII's Purpose for Pursuing the Proposed
Merger; Structure of the Proposed Merger," "--
Consequences of the Proposed Merger," "--
Plans for ICCMIC after the Proposed Merger,"
"-- No Appraisal Rights," "-- Material Tax
Consequences," "-- Accounting Treatment;"
"Management's Conflicts of Interest in the
Proposed Merger;" "The Merger Agreement" and
"Appendix A -- Merger Agreement, as amended"
Item 8(a)-(b).................. "Summary -- Our View of the Proposed Merger and
Our Recommendation," "-- ICII's Reasons for the
Proposed Merger," "-- Solicitation of
Alternative Transactions," "-- Standstill;
Qualifying Alternative Transaction," "--
Opinion of Financial Advisor,"
"-- ICCMIC Shares: Book Value, Dividends and
Earnings;" "Special Factors: Background,
Purpose and Effects of the Proposed Merger --
Recommendation of the Special Committee and
the Board of Directors; Reasons for the
Proposed Merger," "-- 60-Day Market Check
Process," "-- Opinion of the Financial Advisor
to the Special Committee," "Management
Agreement;
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<TABLE>
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Appraisal," "-- Benefits and Detriments to
Nonaffiliated Stockholders," "-- ICII's Purpose
for Pursuing the Proposed Merger; Structure of
the Proposed Merger," "-- ICII's Analysis of
the Proposed Merger" and "Appendix B -- Opinion
of Prudential Securities Incorporated"
Item 8(c)...................... "Summary -- Record Date; Stock Entitled to
Vote," "-- Votes Required;" "Information
Concerning the Special Meeting -- Record Date;
Outstanding Common Stock Entitled to Vote;
Quorum" and "-- Votes Required"
Item 8(d)...................... "Summary -- Our View of the Proposed Merger and
Our Recommendation," "-- Opinion of Financial
Advisor;" "Special Factors: Background, Purpose
and Effects of the Proposed Merger --
Background of the Proposed Merger" and "--
Opinion of the Financial Advisor to the
Special Committee"
Item 8(e)...................... "Special Factors: Background, Purpose and
Effects of the Proposed Merger -- Background of
the Proposed Merger" and "-- Recommendation of
the Special Committee and the Board of
Directors; Reasons for the Proposed Merger"
Item 8(f)...................... "Summary -- Solicitation of Alternative
Transactions;" "Special Factors: Background,
Purpose and Effects of the Proposed Merger --
Background of the Proposed Merger," "-- 60-Day
Market Check Process" and "The Merger Agreement
-- Solicitation Period and Superior Proposals"
Item 9......................... "Summary -- Our Reasons for Proposed Merger and
Our Recommendation," "-- Opinion of Financial
Advisor;" "Cautionary Statement Concerning
Forward-Looking Statements;" "Special Factors:
Background, Purpose and Effects of the Proposed
Merger -- Background of the Proposed Merger,"
"-- 60-Day Market Check Process," "-- Opinion
of the Financial Advisor to the Special
Committee;" "Appendix B -- Opinion of
Prudential Securities Incorporated" and
"Appendix C -- Summary of Appraisals of Robert
A. Stanger & Co., Inc., Houlihan Lokey Howard &
Zukin Financial Advisors, Inc. and Eastdil
Realty Company, L.L.C."
Item 10(a)..................... "Summary -- Share Ownership by Management" and
"Securities Ownership"
Item 10(b)..................... "Relationships and Transactions Between ICII,
ICCMIC and Affiliates -- Purchases and Sales of
Common Stock by ICII and its Affiliates"
Item 11........................ "Questions and Answers About the Proposed
Merger;" "Summary -- Record Date; Stock
Entitled to Vote," "-- Votes Required," "--
Share Ownership by Management;" "Information
Concerning the Special
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<S> <C>
"Meeting -- Voting of Proxies;" "Management's
Conflicts of Interest in the Proposed Merger --
Treatment of Stock Options;" "The Merger
Agreement -- The Proposed Merger," "-- Merger
Consideration," "-- Cancellation of ICCMIC
Common Stock," "-- Payment Procedures," "--
Transfer of Common Stock," "-- Stock Option
and Other Plans," "-- ICII Standstill
Agreement," "-- Covenants; Conduct of Business
Pending the Proposed Merger" and "Common Stock
Market Price and Dividend Information --
Dividend Policy"
Item 12(a)..................... "Summary -- Share Ownership of Management" and
"Information Concerning the Special Meeting --
Votes Required"
Item 12(b)..................... "Special Factors: Background, Purpose and
Effects of the Proposed Merger --
Recommendation of the Special Committee and
the Board of Directors; Reasons for the
Proposed Merger" and "-- ICII's Purpose for
Pursuing the Proposed Merger; Structure of the
Proposed Merger"
Item 13(a)..................... "Special Factors: Background, Purpose and
Effects of the Proposed Merger -- No Appraisal
Rights"
Item 13(b)..................... *
Item 13(c)..................... *
Item 14(a)..................... "Summary -- ICCMIC Shares: Book Value, Dividends
and Earnings;" "Selected Historical Financial
Data of ICCMIC" and "Where You Can Find More
Information"
Item 14(b)..................... *
Item 15(a)..................... "Summary -- Financing Source of Funds," "--
Management Agreement; Appraisal;" "Information
Concerning the Special Meeting -- Proxy
Solicitation;" "Special Factors: Background,
Purpose and Effects of the Proposed Merger --
Management Agreement; Appraisal," "-- ICII's
Purpose for Pursuing the Proposed Merger;
Structure of the Proposed Merger," "-- Plans
for ICCMIC after the Proposed Merger," "--
Financing; Source of Funds" and "Fees and
Expenses"
Item 15(b)..................... "Summary -- Opinion of Financial Advisor;"
"Information Concerning the Special Meeting --
Proxy Solicitation;" "Special Factors:
Background, Purpose and Effects of the Proposed
Merger -- Opinion of the Financial Advisor to
the Special Committee," "-- Management
Agreement; Appraisal;" "Fees and Expenses" and
"Appendix C --Summary of Appraisals of Robert
A. Stanger & Co., Inc., Houlihan Lokey Howard &
Zukin Financial Advisors, Inc. and Eastdil
Realty Company, L.L.C."
Item 16........................ Entirety of Proxy Statement
Item 17(a)-(f)................. Separately filed with this Statement
</TABLE>
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* The Item is inapplicable or the answer thereto is in the negative.
6
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Item 1. Issuer and Class of Security Subject to Transaction
(a) The information set forth on the cover page to the Proxy Statement and
in the section entitled "The Companies -- Imperial Credit Commercial Mortgage
Investment Corp." is incorporated herein by reference.
(b) The exact title of the stock which is the subject of the Rule 13e-3
transaction is Common Stock, par value $0.0001 per share (the "Common Stock").
The information set forth in the sections of the Proxy Statement entitled
"Summary -- Record Date; Stock Entitled to Vote;" "Information Concerning the
Special Meeting -- Record Date; Outstanding Common Stock Entitled To Vote;
Quorum" and "Common Stock Market Price and Dividend Information" is
incorporated herein by reference.
(c) The information set forth in the section of the Proxy Statement entitled
"Common Stock Market Price and Dividend Information -- Market Prices" is
incorporated herein by reference.
(d) The information set forth in the sections of the Proxy Statement
entitled "Questions and Answers About the Proposed Merger;" "Summary -- What
Stockholders Will Receive in the Proposed Merger," "-- ICCMIC Shares: Book
Value, Dividends and Earnings;" "Special Factors: Background, Purpose and
Effects of the Proposed Merger -- Recommendation of the Special Committee and
the Board of Directors; Reasons for the Proposed Merger;" "The Merger
Agreement -- Covenants; Conduct of Business Pending the Proposed Merger" and
"Common Stock Market Price and Dividend Information -- Dividend Policy" is
incorporated herein by reference.
(e) The information set forth in the section of the Proxy Statement entitled
"The Companies -- Imperial Credit Commercial Mortgage Investment Corp." is
incorporated herein by reference.
(f) The information set forth in the section of the Proxy Statement entitled
"Relationships and Transactions Between ICII, ICCMIC and Affiliates --
Purchases and Sales of Common Stock by ICII and its Affiliates" is
incorporated herein by reference.
Item 2. Identity and Background
This statement is being filed jointly by the Company (which is the issuer of
the class of equity securities that is the subject of the Rule 13e-3
transaction), Merger Sub and Imperial Credit. The information set forth in the
sections of the Proxy Statement entitled "The Companies -- Imperial Credit
Industries, Inc." and "-- ICCMIC Acquisition Corp." is incorporated herein by
reference.
(a)-(d) The information set forth in the sections of the Proxy Statement
entitled "Management of ICCMIC" and "Management of ICII and ICCMIC Acquisition
Corp." is incorporated herein by reference.
(e)-(f) During the last five years, none of the Company, Merger Sub or
Imperial Credit nor (to the knowledge of each of the Company, Merger Sub and
Imperial Credit, respectively) any executive officer or director of the
Company, Merger Sub or Imperial Credit, respectively, (i) has been convicted in
a criminal proceeding (excluding traffic violations or similar misdemeanors) or
(ii) has been a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction and as a result of such proceeding was or is
subject to a judgment, decree or final order enjoining further violations of,
or prohibiting activities subject to, federal or state securities laws or
finding any violation of such laws.
(g) The information set forth in the sections of the Proxy Statement
entitled "Management of ICCMIC" and "Management of ICII and ICCMIC Acquisition
Corp." is incorporated herein by reference.
Item 3. Past Contacts, Transactions or Negotiations
(a) The information set forth in the sections of the Proxy Statement
entitled "Questions and Answers About the Proposed Merger;" "Summary;" "Special
Factors: Background, Purpose and Effects of the Proposed Merger -- Background
of the Proposed Merger," "-- Recommendation of the Special Committee and
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the Board of Directors; Reasons for the Proposed Merger," "-- ICII's Purpose
for Pursuing the Proposed Merger; Structure of the Proposed Merger," "--
Potential Asset Sales Prior to the Proposed Merger;" "The Merger Agreement"
and "Relationships and Transactions Between ICII, ICCMIC and Affiliates" is
incorporated herein by reference.
(b) The information set forth in the sections of the Proxy Statement
entitled "Summary;" "Special Factors: Background, Purpose and Effects of the
Proposed Merger -- Background of the Proposed Merger" and "Management's
Conflicts of Interest in the Proposed Merger" is incorporated herein by
reference.
Item 4. Terms of Transaction
(a) The information set forth in the sections of the Proxy Statement
entitled "Questions and Answers About the Proposed Merger;" "Summary -- Our
View of the Proposed Merger and Our Recommendation," " -- The Proposed
Merger," "-- What Stockholders Will Receive in the Proposed Merger," "--
Conditions to Completion of the Proposed Merger," "-- Termination of the
Merger Agreement;" "Management's Conflicts of Interest in the Proposed Merger;"
"The Merger Agreement;" "Fees and Expenses" and in Appendix A is incorporated
herein by reference.
(b) The information set forth in the sections of the Proxy Statement
entitled "Summary -- The Proposed Merger," "-- Votes Required," "-- Treatment
of Outstanding ICCMIC Stock Options," "-- Management's Conflicts of Interest in
the Proposed Merger;" "Information Concerning the Special Meeting -- Votes
Required;" "Special Factors: Background, Purpose and Effects of the Proposed
Merger--Benefits and Detriments to Nonaffiliated Stockholders;" "Management's
Conflicts of Interest in the Proposed Merger -- Treatment of Stock Options,"
"-- Agreements between Mark S. Karlan, ICII and the Manager;" "--
Indemnification of Directors and Officers;" "The Merger Agreement -- Merger
Consideration," "-- Cancellation of ICCMIC Common Stock," "-- Stock Option and
Other Plans," "-- Directors and Officers," "-- ICII Standstill Agreement," "--
Certain SPB Loans," "-- Termination Fees and Expenses" and in Appendix A is
incorporated herein by reference.
Item 5. Plans or Proposals of the Issuer or Affiliate
(a)-(g) The information set forth in the sections of the Proxy Statement
entitled "Summary -- The Proposed Merger;" "Special Factors: Background,
Purpose and Effects of the Proposed Merger -- Management Agreement; Appraisal,"
"-- ICII's Purpose for Pursuing the Proposed Merger; Structure of the Proposed
Merger," "-- Consequences of the Proposed Merger," "-- Plans for ICCMIC after
the Proposed Merger," "-- Financing; Source of Funds," "The Merger Agreement"
and in Appendix A is incorporated herein by reference.
Item 6. Source and Amount of Funds or Other Consideration
(a) The information set forth in the sections of the Proxy Statement
entitled "Summary -- Financing; Source of Funds" and "Special Factors:
Background, Purpose and Effects of the Proposed Merger -- Financing; Source of
Funds" is incorporated herein by reference.
(b) The information set forth in the sections of the Proxy Statement
entitled "Summary -- Financing; Source of Funds," "Special Factors: Background,
Purpose and Effects of the Proposed Merger -- Financing; Source of Funds" and
"Fees and Expenses" is incorporated herein by reference.
(c) The information set forth in the sections of the Proxy Statement
entitled "Summary -- Financing; Source of Funds" and "Special Factors:
Background, Purpose and Effects of the Proposed Merger -- Financing; Source of
Funds" is incorporated herein by reference.
(d) Not applicable.
8
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Item 7. Purpose(s), Alternatives, Reasons and Effects.
(a) The information set forth in the sections of the Proxy Statement
entitled "Summary -- Our View of the Proposed Merger and Our Recommendation,"
" -- ICII's Reasons for the Proposed Merger;" "Special Factors: Background,
Purpose and Effects of the Proposed Merger -- Recommendation of the Special
Committee and the Board of Directors; Reasons for the Proposed Merger," " --
Opinion of the Financial Advisor to the Special Committee," " -- ICII's
Purpose for Pursuing the Proposed Merger; Structure of the Proposed Merger" and
" -- ICII's Analysis of the Proposed Merger" is incorporated herein by
reference.
(b) The information set forth in the sections of the Proxy Statement
entitled "Summary -- Solicitation of Alternative Transactions," " --
Standstill; Qualifying Alternative Transaction;" "Special Factors: Background,
Purpose and Effects of the Proposed Merger -- Background of the Proposed
Merger," " -- 60-Day Market Check Process," " -- Recommendation of the Special
Committee and the Board of Directors; Reasons for the Proposed Merger," "ICII's
Purpose for Pursuing the Proposed Merger; Structure of the Proposed Merger;"
"The Merger Agreement -- Solicitation Period and Superior Proposals" and " --
ICII Standstill Agreement" is incorporated herein by reference.
(c) The information set forth in the sections of the Proxy Statement
entitled "Summary -- Our View of the Proposed Merger and Our Recommendation," "
- -- ICII's Reasons for the Proposed Merger," " -- Opinion of Financial Advisor;"
"Special Factors: Background, Purpose and Effects of the Proposed Merger --
Recommendation of the Special Committee and the Board of Directors; Reasons for
the Proposed Merger," " -- Opinion of the Financial Advisor to the Special
Committee," " -- ICII's Purpose for Pursuing the Proposed Merger; Structure of
the Proposed Merger" and " -- ICII's Analysis of the Proposed Merger" is
incorporated herein by reference.
(d) The information set forth in the sections of the Proxy Statement
entitled "Questions and Answers About the Proposed Merger;" "Summary -- The
Proposed Merger," " -- What Stockholders Will Receive in the Proposed Merger,"
" -- Management Agreement; Appraisal," " -- Treatment of Outstanding ICCMIC
Stock Options," " -- Accounting Treatment," " -- Management's Conflicts of
Interest in the Proposed Merger;" "Special Factors: Background, Purpose and
Effects of the Proposed Merger -- Management Agreement; Appraisal," " --
Benefits and Detriments to Nonaffiliated Stockholders," " -- ICII's Purpose
for Pursuing the Proposed Merger; Structure of the Proposed Merger," " --
Consequences of the Proposed Merger," " -- Plans for ICCMIC after the Proposed
Merger," " -- No Appraisal Rights," " -- Material Tax Consequences," " --
Accounting Treatment;" "Management's Conflicts of Interest in the Proposed
Merger;" "The Merger Agreement" and in Appendix A is incorporated herein by
reference.
Item 8. Fairness of the Transaction
(a)-(b) The information set forth in the sections of the Proxy Statement
entitled "Summary -- Our View of the Proposed Merger and Our Recommendation,"
" -- ICII's Reasons for the Proposed Merger," " -- Solicitation of Alternative
Transactions," " -- Standstill; Qualifying Alternative Transaction," " --
Opinion of Financial Advisor," " -- ICCMIC Shares: Book Value, Dividends and
Earnings;" "Special Factors: Background, Purpose and Effects of the Proposed
Merger --Recommendation of the Special Committee and the Board of Directors;
Reasons for the Proposed Merger," " -- 60-Day Market Check Process," " --
Opinion of the Financial Advisor to the Special Committee," "Management
Agreement; Appraisal," " -- Benefits and Detriments to Nonaffiliated
Stockholders," " -- ICII's Purpose for Pursuing the Proposed Merger; Structure
of the Proposed Merger," " -- ICII's Analysis of the Proposed Merger" and in
Appendix B is incorporated herein by reference.
(c) The information set forth in the sections of the Proxy Statement
entitled "Summary -- Record Date; Stock Entitled to Vote," " -- Votes
Required;" "Information Concerning the Special Meeting -- Record Date;
Outstanding Common Stock Entitled to Vote; Quorum" and " -- Votes Required" is
incorporated herein by reference.
9
<PAGE>
(d) The information set forth in the sections of the Proxy Statement
entitled "Summary -- Our View of the Proposed Merger and Our Recommendation,"
" -- Opinion of Financial Advisor;" "Special Factors: Background, Purpose and
Effects of the Proposed Merger -- Background of the Proposed Merger" and " --
Opinion of the Financial Advisor to the Special Committee" is incorporated
herein by reference.
(e) The information set forth in the sections of the Proxy Statement
entitled "Special Factors: Background, Purpose and Effects of the Proposed
Merger -- Background of the Proposed Merger" and " -- Recommendation of the
Special Committee and the Board of Directors; Reasons for the Proposed Merger"
is incorporated herein by reference.
(f) The information set forth in the sections entitled "Summary --
Solicitation of Alternative Transactions;" "Special Factors: Background,
Purpose and Effects of the Proposed Merger -- Background of the Proposed
Merger," " -- 60-Day Market Check Process" and "The Merger Agreement --
Solicitation Period and Superior Proposals" is incorporated herein by
reference.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations
(a)-(c) The information set forth in the sections of the Proxy Statement
entitled "Summary -- Our Reasons for Proposed Merger and Our Recommendations,"
" -- Opinion of Financial Advisor;" "Cautionary Statement Concerning Forward-
Looking Statements;" "Special Factors: Background, Purpose and Effects of the
Proposed Merger -- Background of the Proposed Merger," " -- 60-Day Market Check
Process," " -- Opinion of the Financial Advisor to the Special Committee;" and
in Appendices B and C is incorporated herein by reference. Exhibits (b)(2)
through (b)(9) attached hereto are also incorporated by reference.
Item 10. Interest in Securities of the Issuer
(a) The information set forth in the sections of the Proxy Statement
entitled "Summary -- Share Ownership by Management" and "Securities Ownership"
is incorporated herein by reference.
(b) The information set forth in the section of the Proxy Statement entitled
"Relationships and Transactions Between ICII, ICCMIC and Affiliates --
Purchases and Sales of Common Stock by ICII and its Affiliates" is
incorporated herein by reference.
Item 11. Contracts, Arrangements or Understandings With Respect to the Issuer's
Securities
The information set forth in the sections of the Proxy Statement entitled
"Questions and Answers About the Proposed Merger;" "Summary -- Record Date;
Stock Entitled to Vote," " -- Votes Required," " -- Share Ownership by
Management;" "Information Concerning the Special Meeting -- Voting of Proxies;"
"Management's Conflicts of Interest in the Proposed Merger -- Treatment of
Stock Options;" "The Merger Agreement -- The Proposed Merger," " -- Merger
Consideration," " -- Cancellation of ICCMIC Common Stock," " -- Payment
Procedures," " -- Transfer of Common Stock," " -- Stock Option and Other
Plans," " -- ICII Standstill Agreement," " -- Covenants; Conduct of Business
Pending the Proposed Merger" and "Common Stock Market Price and Dividend
Information -- Dividend Policy" is incorporated herein by reference.
Item 12. Present Intention and Recommendation of Certain Persons With Regard to
the Transaction
(a) The information set forth in the sections of the Proxy Statement
entitled "Summary -- Share Ownership of Management" and "Information Concerning
the Special Meeting -- Votes Required" is incorporated herein by reference.
(b) The information set forth in the sections of the Proxy Statement
entitled "Special Factors: Background, Purpose and Effects of the Proposed
Merger -- Recommendation of the Special Committee and the Board of Directors;
Reasons for the Proposed Merger" and " -- ICII's Purpose for Pursuing the
Proposed Merger; Structure of the Proposed Merger" is incorporated herein by
reference.
10
<PAGE>
Item 13. Other Provisions of the Transaction
(a) The information set forth in the section of the Proxy Statement entitled
"Special Factors: Background, Purpose and Effects of the Proposed Merger -- No
Appraisal Rights" is incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
Item 14. Financial Information
(a) The information set forth in the sections of the Proxy Statement
entitled "Summary -- ICCMIC Shares: Book Value, Dividends and Earnings;"
"Selected Historical Financial Data of ICCMIC" and "Where You Can Find More
Information" is incorporated herein by reference.
(b) Not applicable.
Item 15. Persons and Assets Employed, Retained or Utilized
(a) The information set forth in the sections of the Proxy Statement
entitled "Summary -- Financing Source of Funds," "-- Management Agreement;
Appraisal;" "Information Concerning the Special Meeting -- Proxy Solicitation;"
"Special Factors: Background, Purpose and Effects of the Proposed Merger --
Management Agreement; Appraisal," " -- ICII's Purpose for Pursuing the Proposed
Merger; Structure of the Proposed Merger," " -- Plans for ICCMIC after the
Proposed Merger," " -- Financing; Source of Funds" and "Fees and Expenses" is
incorporated herein by reference.
(b) The information set forth in the sections of the Proxy Statement
entitled "Summary -- Opinion of Financial Advisor;" "Information Concerning the
Special Meeting -- Proxy Solicitation;" "Special Factors: Background, Purpose
and Effects of the Proposed Merger -- Opinion of the Financial Advisor to the
Special Committee," " -- Management Agreement; Appraisal;" "Fees and Expenses"
and in Appendix C is incorporated herein by reference.
Item 16. Additional Information
The information set forth in the Proxy Statement and the appendices thereto
and the Exhibits hereto is incorporated herein by reference.
Item 17. Material to be Filed as Exhibits
(a) Not Applicable.
(b)(1) Fairness Opinion of Prudential Securities Incorporated dated July 22,
1999 (Incorporated by reference to Appendix B to the Revised Preliminary Proxy
Statement filed as Exhibit (d)(1) hereto).
(b)(2) Valuation Opinion of Robert A. Stanger & Co., Inc.**
(b)(3) Valuation Opinion of Houlihan Lokey Howard & Zukin Financial
Advisors, Inc.**
(b)(4) Valuation Opinion of Eastdil Realty Company, L.L.C.
(b)(5) Presentation of Prudential Securities Incorporated to the Special
Committee of the Board of Directors of ICCMIC regarding Project Gemstone, dated
June 25, 1999.
11
<PAGE>
(b)(6) Management Termination Agreement Fee Valuation of Houlihan Lokey
Howard & Zukin Financial Advisors, Inc. dated September 10, 1999.
(b)(7) Report of Robert A. Stanger & Co., Inc. to the Special Committee of
the Board of Directors of ICCMIC dated September 13, 1999.
(b)(8) Presentation of Prudential Securities Incorporated to the Special
Committee of the Board of Directors of ICCMIC dated September 28, 1999.
(b)(9) Presentation of Prudential Securities Incorporated to the Special
Committee of the Board of Directors of ICCMIC dated October 12, 1999.
(c) Merger Agreement, originally dated July 22, 1999, as amended October
29, 1999 among the Company, ICCMIC Acquisition Corp. and Imperial Credit.
(Incorporated herein by reference to Appendix A to the Revised Preliminary
Proxy Statement filed as Exhibit (d)(1) hereto).
(d)(1) Letter to Stockholders (included in the Revised Preliminary Proxy
Statement filed as Exhibit (d)(3) hereto).
(d)(2) Notice of Special Meeting of Stockholders (included in the Revised
Preliminary Proxy Statement filed as Exhibit (d)(3) hereto).
(d)(3) Revised Preliminary Proxy Statement.
(d)(4) Form of Proxy (included in the Revised Preliminary Proxy Statement
filed as Exhibit (d)(3) hereto).
(d)(5) Press Release issued by the Company and Imperial Credit regarding
the Merger Agreement, dated July 22, 1999 (incorporated by reference to the
Current Report on Form 8-K filed by Imperial Credit on July 26, 1999).
(e) Not Applicable.
(f) Not Applicable.
- --------
** Previously filed as the similarly numbered exhibit to the Rule 13e-3
Transaction Statement on Schedule 13E-3 filed by Imperial Credit, Merger
Sub and the Company with the Securities and Exchange Commission on October
21, 1999.
12
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Dated: December 21, 1999.
IMPERIAL CREDIT INDUSTRIES, INC.,
a California corporation
/s/ H. Wayne Snavely
By: _________________________________
H. Wayne Snavely
President
ICCMIC ACQUISITION CORP.,
a Maryland corporation
/s/ H. Wayne Snavely
By: _________________________________
H. Wayne Snavely
President
13
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Dated: December 21, 1999.
IMPERIAL CREDIT COMMERCIAL
MORTGAGE INVESTMENT CORP.,
a Maryland corporation
/s/ Norbert Seifert
By: _________________________________
Norbert Seifert
General Counsel, Senior Vice-
President and Secretary
14
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
(a) Not Applicable.
(b)(1) Fairness Opinion of Prudential Securities Incorporated
dated July 22, 1999 (incorporated by reference to
Appendix B to the Revised Preliminary Proxy Statement
filed as Exhibit (d)(3) hereto).
(b)(2) Valuation Opinion of Robert A. Stanger & Co., Inc.**
(b)(3) Valuation Opinion of Houlihan Lokey Howard & Zukin
Financial Advisors, Inc.**
(b)(4) Valuation Opinion of Eastdil Realty Company, L.L.C.
(b)(5) Presentation of Prudential Securities Incorporated to
the Special Committee of the Board of Directors of
ICCMIC regarding Project Gemstone, dated June 25,
1999.
(b)(6) Management Termination Agreement Fee Valuation of
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
dated September 10, 1999.
(b)(7) Report of Robert A. Stanger & Co., Inc. to the Special
Committee of the Board of Directors of ICCMIC dated
September 13, 1999.
(b)(8) Presentation of Prudential Securities Incorporated to
the Special Committee of the Board of Directors of
ICCMIC dated September 28, 1999.
(b)(9) Presentation of Prudential Securities Incorporated to
the Special Committee of the Board of Directors of
ICCMIC dated October 12, 1999.
(c) Merger Agreement, originally dated July 22, 1999, as
amended October 29, 1999 among the Company, Merger Sub
and Imperial Credit (incorporated herein by reference
to Appendix A to the Revised Preliminary Proxy
Statement filed as Exhibit (d)(3) hereto).
(d)(1) Letter to Stockholders (included in the Revised
Preliminary Proxy Statement filed as Exhibit (d)(3)
hereto).
(d)(2) Notice of Special Meeting of Stockholders (included in
the Revised Preliminary Proxy Statement filed as
Exhibit (d)(3) hereto).
(d)(3) Revised Preliminary Proxy Statement.
(d)(4) Form of Proxy (included in the Revised Preliminary
Proxy Statement filed as Exhibit (d)(3) hereto).
(d)(5) Press Release issued by the Company and Imperial Credit
regarding the Merger Agreement, dated July 22, 1999
(incorporated by reference to the Current Report on
Form 8-K filed by Imperial Credit on July 26, 1999).
(e) Not Applicable.
(f) Not Applicable.
</TABLE>
- --------
** Previously filed as the similarly numbered exhibit to the Rule 13e-3
Transaction Statement on Schedule 13E-3 filed by Imperial Credit, Merger Sub
and the Company with the Securities and Exchange Commission on October 21,
1999.
15
<PAGE>
EXHIBIT (b)(4)
EASTDIL
10100 Santa Monica Boulevard
Suite 2430
Los Angeles, California 90067
----------
(310) 277-3232 Fax: (310) 277-0692
October 22, 1999
<TABLE>
<CAPTION>
<S> <C>
Mr. H. Wayne Snavely Mr. Joseph A. Jaconi, Jr.
Chairman of the Board Chairman
Imperial Credit Commercial Asset Special Committee of the Board of Directors
Management Corp Imperial Credit Commercial Mortgage
23550 Hawthorne Boulevard Investment Corp.
Building 1, Suite 110 11601 Wilshire Boulevard, Suite 2080
Torrance, CA 90505 Los Angeles, CA 90025
Mr. Mark Karlan Mr. Kenneth Munkacy
President and Chief Executive Officer Vice Chairman
Imperial Credit Commercial Asset Special Committee of the Board of Directors
Management Corp. Imperial Credit Commercial Mortgage
11601 Wilshire Boulevard Investment Corp.
Los Angeles, CA 90025 11601 Wilshire Boulevard, Suite 2080
Los Angeles, CA 90025
</TABLE>
Gentlemen:
We understand the following with respect to Imperial Credit Industries, Inc.,
("ICII"), Imperial Credit Commercial Mortgage Investment Corp. ("ICCMIC"), and
Imperial Credit Commercial Asset Management Corp., ("Manager"), a wholly-owned
subsidiary of ICII. ICII currently owns approximately nine percent of ICCMIC,
and the remainder of ICCMIC is owned by various public stockholders (including
certain officers and directors of ICCMIC, Manager, and ICII). Further, we
understand that ICII owns Manager and that Manager entered into a management
agreement (the "Management Agreement") with ICCMIC dated as of October 22, 1997,
pursuant to which Manager formulates operating strategies and provides certain
managerial and administrative functions for ICCMIC. We further understand that
ICCMIC has no employees and currently relies upon Manager to operate its
business on a day-to-day basis pursuant to the Management Agreement. The
Management Agreement has certain provisions that allow ICCMIC to terminate or
not renew the services of Manager on or after October 22, 1999. The Management
Agreement contemplates that such a termination or non-renewal requires the
payment of a "Termination Fee" to Manager pursuant to Section 15 of the
Management Agreement (the "Termination Fee").
Eastdil Realty Co., LLC
<PAGE>
Imperial Credit Commercial Mortgage Corp.
Imperial Credit Commercial Asset Management Corp.
Page 2
We understand that on July 22, 1999 ICII entered into a merger agreement (the
"Merger Agreement") with ICCMIC whereby ICII would tender for all of the ICCMIC
shares which it does not already own for consideration of approximately $11.50
cash per share or aggregate consideration of approximately $337 million. It is
our understanding that ICII and ICCMIC have agreed in the Merger Agreement to:
(i) terminate the Management Agreement, (ii) obtain an appraisal of the
Termination Fee payable in connection with the termination of the Management
Agreement, and (iii) increase the price to be paid to the ICCMIC stockholders
dollar for dollar in the event that the Termination Fee is appraised at an
amount less than $35 million. In the event that the appraised amount of the
Termination Fee exceeds $35 million, there is no price adjustment because
Manager has agreed to cap the Termination Fee at $35 million. We understand that
ICCMIC has hired Prudential Securities Incorporated to assist it in its
negotiations with ICII and other third parties and in the evaluation of
potentially superior proposals, and Prudential Securities Incorporated will
render a fairness opinion on the ultimate merger transaction, if any, including
the terms of any Termination Fee payment.
Background
We understand that Manager retained Houlihan Lokey Howard & Zukin ("Houlihan
Lokey") to appraise the Termination Fee, and Houlihan Lokey's appraised value is
$45 million. We understand that the Special Committee of the Board of Directors
of ICCMIC retained Robert A. Stanger Co., Inc., ("Stanger") to appraise the
Termination Fee, and Stanger's appraised value is $18 million. Because the
Houlihan Lokey and Stanger appraised values differ by more than 20% of the
higher amount, the Management Agreement requires a third appraisal to be
conducted which shall determine the final appraised value of the Termination Fee
in an amount not less than Stanger's $18 million value or more than Houlihan
Lokey's $45 million value (subject to the $35 million cap). Houlihan Lokey and
Stanger have recommended that Eastdil Realty Company L.L.C. ("Eastdil") conduct
the third appraisal which will determine the final value of the Termination Fee
(the "Valuation").
Assignment Limitations
The Valuation is being completed pursuant to the terms of Eastdil's October 6,
1999 retention agreement with you. This letter comprises the complete written
Valuation report which is made as of the date of this letter. While we have
used methodologies and financial analysis techniques believed to be established
and generally accepted, this letter may not conform to various professional
guidelines, compliance standards, or industry presentation formats. The value
expressed in this Valuation is the most likely cash (or equivalent) price that
Manager subject to the Management Agreement would bring in a competitive and
open marketing process with buyer and seller both willing and knowledgeable of
all material factors affecting price.
In formulating the Valuation, we have relied upon information listed in Exhibit
I ("Information"). We have also interviewed key ICCMIC and Manager personnel and
<PAGE>
Imperial Credit Commercial Mortgage Corp.
Imperial Credit Commercial Asset Management Corp.
Page 3
representatives of Houlihan Lokey, Stanger, and Prudential Securities
Incorporated. The accuracy or completeness of the Information has not been
verified, and we assume no liability regarding any Information errors,
misstatements, or material changes that may have occurred after the Information
was received. We have not physically inspected any assets owned by ICCMIC or
managed by Manager. This Valuation does not incorporate any "Y2K" factors that
could potentially affect value. With the Information and interview results, we
have completed various studies and analyses that were determined to be
appropriate based on our experience and knowledge of current market
fundamentals. We have not completed any legal analysis or engaged counsel to
interpret the terms or conditions of any Information items.
Assumptions
The Valuation is derived on a going-concern basis according to the terms and
conditions contained in the Management Agreement. We assume that no undisclosed
or unreported changes have occurred in: 1) policy, 2) authority, 3) agreements
between ICCMIC and Manager, or 4) the Merger Agreement that would affect the
Valuation. Consistent with past practice and the terms of the Management
Agreement, we have assumed that Manager is reimbursed for all ICCMIC expenses
including all general and administrative expenses.
Valuation Methodology
We have predominantly examined three methods to derive the Valuation: 1)
analysis of revenue multiples based on recent comparable transactions; 2)
analysis of recent bona fide offers to purchase Manager from credible investors;
3) analysis of EBITDA (earnings before interest, taxes, depreciation, and
amortization) multiples based on comparable transactions (EBITDA capitalization
method). To determine if a relevant revenue or EBITDA multiple should be above
or below the average of its set, we have analyzed the following factors among
others: 1) ICCMIC's share value and sector performance (relative to other
mortgage REITs) to assess Manager's professional staff quality, investment
policies, and corresponding value to comparable entities; 2) the ability to
increase Manager income by increasing ICCMIC's asset base through investment of
existing liquidity or the ability to obtain new and incremental debt and equity
commitments in the current capital market.
Revenue and EBITDA Estimates
Actual and projected revenue and expense figures of Manager were analyzed to
estimate 1999 EBITDA. Annual revenue has been estimated by multiplying the most
recent actual quarter by four (after considering adjustment for any
extraordinary or seasonal items). This annual estimating method accounts for
current asset levels and corresponding revenue. To estimate 1999 revenue, we
have subtracted the $41,000 incentive fee component from second quarter 1999
actual revenue of $1,837,000 for an adjusted second quarter actual revenue
amount of $1,796,000. There was no incentive fee paid in first quarter 1999.
Adjusted second quarter revenue is multiplied by four to arrive at total
estimated 1999
<PAGE>
Imperial Credit Commercial Mortgage Corp.
Imperial Credit Commercial Asset Management Corp.
Page 4
revenue of $7,184,000. Based on analysis of actual and projected operating
expenses of Manager, we have estimated 1999 operating expenses (not including
extraordinary expenses due to the merger and related activity) at $3,100,000;
this operating expense estimate includes a $75,000 contingency factor but does
not include the $91,000 corporate offices litigation settlement. Therefore,
1999 EBITDA is estimated to be $4,084,000.
Revenue Multiple Value
We have analyzed eight external management company transactions and determined
that two transactions which were completed in 1999 are most comparable for
purposes of this Valuation. These two comparable transactions have verified
price and revenue data but have no EBITDA data available. The revenue multiples
for these comparable transactions are 5.44 and 6.66 based on actual second
quarter 1999 revenue multiplied by four to estimate the annual amount. The
simple average of these two multiples is 6.05. Based on a revenue multiple of 6
applied to estimated 1999 revenue of $7,184,000, Manager would have a value of
approximately $43 million.
Value Indication from Offers to Purchase
We have analyzed seven offers to purchase Manager. Based on offeror financial
capability and due diligence completed during the offer process, we have
determined that four of the seven offers are credible and contain terms and
conditions that are generally acceptable. These credible offers range in value
from $45,000,000 to $50,000,000 and are dated between November 1998 and April
1999. While it is significant that these offers were received subsequent to the
capital market turmoil of third quarter 1998, each of these offers was tendered
in the context of a bid for ICCMIC. In our opinion, this larger transaction
context placed an upward bias on value allocated to Manager by these offers.
EBITDA Capitalization Value
We have analyzed 13 private real estate related management company transactions
and determined that six of these transactions are relevant for consideration in
this Valuation. These six transactions have EBITDA multiples ranging from 6.5
to 8.75 with an average of 7.65.
We have also reviewed current EBITDA multiples of seven public real estate
service companies. Given ICCMIC's superior sector performance, we have
determined that three of the four public real estate companies which lead their
sector (in terms of current EBITDA multiples and recent performance) are
relevant to this Valuation. We have not adjusted the multiples of these public
companies to account for their significant brokerage revenue component, which
has been cited as one of the major reasons for this sector's lagging
performance. The three public companies determined to be comparable have
current estimated EBITDA multiples ranging from 7.3 to 8.7 with an average of
7.8.
<PAGE>
Imperial Credit Commercial Mortgage Corp.
Imperial Credit Commercial Asset Management Corp.
Page 5
We believe that EBITDA capitalization should be based on an EBITDA multiple that
exceeds the average of the particular sample set being considered for the
following reasons: 1) ICCMIC relative share value and performance have
consistently lead the mortgage REIT sector; 2) the ability to grow the asset
base with ICCMIC's cash balance (estimated to be approximately $115 million as
of the date of this letter) allows a new owner to increase Manager profitability
on a disproportionate basis to EBITDA growth due the high fixed cost structure
of Manager (and comparable firms). However, the ability to increase Manager
revenue with new and incremental capital commitments is severely limited given
current capital market conditions.
Based on our analysis of factors affecting comparable EBITDA multiples, we have
concluded that an EBITDA multiple of 8.0 is appropriate for determining manager
value. Based on estimated 1999 EBITDA of $4,084,000, Manager value would be
$32,672,000.
Valuation Reconciliation
Most buyers and sellers value service companies such as manager on an EBITDA
capitalization basis. Therefore, we rely on EBITDA capitalization for the
Valuation. Based on the value levels indicated by the revenue multiple method,
and based on prior credible offers to purchase Manager, we round the EBITDA
capitalized value to $33,000,000.
EASTDIL'S VALUATION IS $33,000,000.
- ----------------------------------
Limitations
This letter is intended for use by ICCMIC and Manager. The Valuation and
conclusions contained in this letter should not be relied upon by any parties
other than those to whom this letter is addressed. This letter is a summary
document and is not intended to be a complete description of the analyses
performed and information considered in arriving at the Valuation conclusion.
Very truly yours,
/s/ Kevin Dretzka /s/ Steven McKenzie
Kevin Dretzka Steven McKenzie
Managing Director Managing Director
<PAGE>
EXHIBIT I
INFORMATION
1) Copies of Prudential Securities Inc. confidential presentations to the
Imperial Credit Commercial Mortgage Corp. ("ICCMIC") Board of Directors
dated June 25, 1999, May 3, 1999, and March 16, 1999 summarizing and
analyzing various merger proposals and offers to acquire ICCMIC and to
terminate the Management Agreement.
2) ICCMIC offering memorandum prepared by Prudential Securities, Inc.
3) Minutes of the meetings of the Board of ICCMIC and committees thereof from
July 31, 1997 through May 18, 1999.
4) A copy of the Board Book provided in connection with the fourth quarter
1998 regular meeting of the Board of Directors of ICCMIC held on December
14, 1998 and a copy of the Board Book provided in connection with the
second quarter 1999 regular meeting of the Board of Directors held on June
18, 1999.
5) The initial public offering ("IPO") prospectus for ICCMIC.
6) The Imperial Credit Commercial Asset Management Corp. ("Manager")
management agreement.
7) The organization documents for ICCMIC.
8) Communications relating to the management agreement.
9) Calculations of management fees paid since inception.
10) Offers to acquire or merge with ICCMIC.
11) Merger agreement with Imperial Credit Industries, Inc.
12) Information relating to negotiations of merger agreement.
13) ICCMIC business plans.
14) Communications relating to ICCMIC business plans.
15) Estimates of the liquidation value of the ICCMIC.
16) Organization chart for ICCMIC.
17) General correspondence to investors for 1997, 1998, and 1999.
18) 1999 and 2000 ICCMIC budgets and reconciliation to actual performance.
19) Various management reports and board reports.
20) Analyses which have been utilized as support for approval of the management
agreement by the Board of Directors.
<PAGE>
INFORMATION
Page 2
21) Manager budgets and operating statements.
22) Manager business plans prepared from inception to 8/6/99.
23) Organization chart for Manager.
24) Organization documents for Manager.
25) Schedule of management fees received by Manager.
26) Resumes for key employees.
27) Schedule of compensation for Manager employees.
28) Schedule indicating ownership by person of Manager debt or equity.
29) Offers to purchase Manager.
30) Information relating to Manager value.
31) A summary of General & Administrative Expenses & Management Fees by quarter
which has been updated to include the quarter ended June 30, 1999.
32) A copy of the Everen Securities, Inc. Appraisal Report dated July 13, 1999
appraising the value of the RAI Advisors, LLC external management agreement
with the IMPAC Commercial Mortgage REIT (NYSE:ICH) which was acquired by
Fortress for $6 million cash.
33) A copy of the Stifel, Nicolaus & Company Fairness Opinion Presentation to
the Special Committee of the Board of Directors of the IMPAC Mortgage
Holding REIT (NYSE: IMH) dated December 19, 1997 on the $44 million
termination fee paid in connection with the termination of the Imperial
Credit Advisors, Inc. external management agreement.
34) A copy of certain pages from the Confidential Presentation to the ICCMIC
Board of Directors from Merrill Lynch dated December 4, 1998 in connection
with the potential merger ("Project Stanley Cup") between ICCMIC and
NorthStar Capital Investment Corp. regarding Merrill Lynch's valuation
analysis of Manager.
35) A copy of a spreadsheet prepared from public EDGAR filings on 11 commercial
mortgage REITs and one residential mortgage REIT and their external
management companies which include, for each mortgage REIT, a column of
information describing: (1) the base and incentive management fee
compensation structure, (2) the termination fee language in the management
agreement, if any, (3) the actual termination fee paid to terminate the
external management agreement for five of the REITs, (4) the amount of IPO
stock options in the REIT granted to the management company or its
officers, and (5) the quarterly base and incentive management fees earned
from 1999Q2 back to 1998Q1.
<PAGE>
INFORMATION
Page 3
36) Offer letters from Anthracite Capital, Inc. dated February 1, 1999 and
February 8, 1999.
37) A copy of the ICCMIC Investment Policies and Guidelines (as amended on
----------------------------------
December 14, 1998).
38) Various ICCMIC and Manager projections.
39) Report to the Special Committee of the Board of Directors of ICCMIC dated
September 13, 1999 prepared by Robert A. Stanger & Co., Inc.
40) Management Agreement Termination Fee Valuation report dated September 10,
1999 and letter dated September 14, 1999 prepared by Houlihan Lokey Howard
and Zukin Financial Advisors, Inc.
41) Preliminary Proxy Statement.
<PAGE>
EXHIBIT b(5)
PROJECT GEMSTONE
================================================================================
Highly Confidential
-------------------------------------------------------
Presentation to the Board of Directors
June 25, 1999
-------------------------------------------------------
-------------------------------------------------------
These materials are not intended to constitute an
opinion or appraisal. These materials, which are based
in part on information provided by the Company, are
intended solely to accompany discussion with the Board
of Directors.
-------------------------------------------------------
<PAGE>
PROJECT GEMSTONE
================================================================================
TABLE OF CONTENTS
I. Summary of Terms
II. Overview of ICMI
III. Valuation Summary
A. Publicly Traded Companies Implied Valuation
B. Historical Stock Performance
C. Precedent Transactions Premium Analysis
IV. Stand Alone Projections
Appendices
A. Public Companies Analysis
B. Precedent All Cash Transactions Premium Analysis
2
<PAGE>
PROJECT GEMSTONE
================================================================================
---------------------------------------------
I. Summary of Terms
---------------------------------------------
<PAGE>
PROJECT GEMSTONE
================================================================================
SUMMARY OF TERMS
Transaction Overview
-------------------------------------------------------------------------
Transaction Structure: Pursuant to a final definitive
agreement (the "Agreement"),
Imperial Credit Commercial
Mortgage Investment Corp ("ICMI")
will merge with a direct or
indirect subsidiary of Imperial
Credit Industries Inc. ("ICII")
for consideration of $11.50 cash
per share of ICMI common stock
(the "Transaction").
Implied ICMI Equity Value: $327.75 million ($11.50 per
share) based on ICMI shares
outstanding of 28.5 million.
Shop Provision: For a period of sixty days
following the date of the
definitive agreement, ICMI will
be permitted to solicit competing
transactions and to terminate the
Agreement in favor of a bona fide
alternative transaction
determined by ICMI, after
consulting with its financial and
legal advisors, as more favorable
("Superior Proposal").
-------------------------------------------------------------------------
4
<PAGE>
PROJECT GEMSTONE
===============================================================================
SUMMARY OF TERMS
Transaction Overview
------------------------------------------------------------------------
ICMI Stock Options: All ICMI stock options will be
converted to ICII stock options
at strike prices to be
determined in accordance with
Black-Scholes option pricing
techniques. Alternatively,
within 90 days following the
effective date of the Merger,
ICMI option holders will be
accorded the right to receive
cash equal to (a) the "in-the-
money" cash value for options
with strike prices less than
$11.50 per share and (b) the
option value as determined by
Black-Scholes pricing techniques
for "out-of-money" options.
Option holders who do not
continue as employees of ICII
will have one year to exercise
their options.
SPB Loans: ICII will agree to purchase from
ICMI any remaining SPB loans
submitted to SPB for repurchase
that remain outstanding as of
June 30, 1999.
------------------------------------------------------------------------
5
<PAGE>
PROJECT GEMSTONE
================================================================================
SUMMARY OF TERMS
Transaction Overview
-------------------------------------------------------------------------
External Management Contract: Imperial Credit Commercial Asset
Management Corp.("ICCAMC"), a
wholly owned subsidiary of
Imperial Credit Industries, Inc.
("ICII") currently has an
external management contract with
ICMI that, pursuant to the
Transaction will be independently
appraised according to the
procedure set forth for
nonrenewal. Should the
appraisal result in a contract
value less than $35 million, then
ICMI shareholders shall receive an
adjusted purchase price per share
equal to $11.50 per share plus $35
million less the appraised amount
divided by the number of ICMI
shares outstanding. Should ICMI
terminate the definitive agreement
in favor of a Superior Proposal,
ICMI will be obligated to pay
ICCAMC a contract termination
amount determined by the above
appraisal process, not to exceed
$35 million.
-------------------------------------------------------------------------
6
<PAGE>
PROJECT GEMSTONE
================================================================================
SUMMARY OF TERMS
Transaction Overview
-------------------------------------------------------------------------
Conditions to Closing: Conditions to closing include, among
other things: (i) approval of the
Transaction by ICMI shareholders,
(ii) no regulatory impediment,
(iii) no material breach of
representations or warranties
(including receipt of fairness opinion
from ICMI's financial advisor), and
(iv) each obligation of the parties
to the Transaction have been
performed.
Fiduciary Obligations: ICMI's Board may respond to
unsolicited bids and allow due
diligence with respect to such
competing bids if required by
fiduciary duties.
Termination: The Agreement may be terminated:
(a) by mutual consent;
(b) by either party if a regulatory
body impedes the Transaction;
(c) by ICMI if the ICMI Board accepts
a Superior Proposal;
(d) by ICII if the ICMI Board accepts
a Superior Proposal; and
(e) by either party if the other
party materially breaches a
representation of warranty.
Expense Reimbursement: Upon termination of the definitive
agreement in favor of a Superior
Proposal, ICMI will reimburse ICII's
out-of-pocket expenses (including
investment banking fees) not to
exceed $2.0 million.
-------------------------------------------------------------------------
7
<PAGE>
PROJECT GEMSTONE
================================================================================
SUMMARY OF TERMS
Summary of Implied Multiples
($ in thousands, except per share data)
----------------------------------------------------
Offer Price per Share $ 11.50
Shares Outstanding 28,500
Equity Purchase Price $327,750
----------------------------------------------------
---------------------------------------------------------------------------
Results of Implied
ICMI Operations Multiple
---------------------------------------- ---------- --------
Latest Quarter Annualized FFO $ 34,744 9.4x
Latest Quarter Annualized Net Income $ 31,580 10.4x
Equity Book Value $ 403,476 0.8x
Projected 1999 EPS/(1)/ $ 1.17 9.8x
Projected 2000 EPS/(1)/ $ 1.35 8.5x
---------------------------------------------------------------------------
(1) Estimates provided by First Call.
8
<PAGE>
PROJECT GEMSTONE
- --------------------------------------------------------------------------------
----------------------------------------
II. Overview of ICMI
----------------------------------------
<PAGE>
PROJECT GEMSTONE
- --------------------------------------------------------------------------------
OVERVIEW OF ICMI
Assets as of 3/31/99
($ in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ICMI
-----------------------
<S> <C> <C>
Cash and cash equivalents $ 28,015 3.9%
Mortgage loans, net 513,944 72.2%
Real property 105,691 14.8%
Other securities 55,910 7.9%
Other assets 8,548 1.2%
--------- ------
$ 712,108 100.0%
</TABLE>
ICMI Asset Allocation
- ---------------------
[PIE CHART APPEARS HERE]
Real property 14.8%
Other securities 7.9%
Other assets 1.2%
Cash and cash equivalents 3.9%
Mortgage loans, net 72.2%
- --------------------------------------------------------------------------------
10
<PAGE>
PROJECT GEMSTONE
================================================================================
OVERVIEW OF ICMI
Summary Capital Stock and Performance Data
<TABLE>
<CAPTION>
(In thousands except %, ratios and per share amounts)
- ----------------------------------------------------------- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ticket/Exchange ICMI-Nasdaq Shares Percentage
------ ----------
Fully Diluted Shares Outstanding 28,500 Shares Held By Insiders 3,363 11.8%
Stock Price as of 6/21/99 $ 10,906 Shares Held By Institutions 16,372 57.4%
Equity Market Value $ 310,828 Shares Held By Public 8,765 30.8%
-------- ------
Total Shares 28,500 100.0%
Debt $ 292,754
Total Market Capitalization $ 603,582 Average Daily Trading Volume 206
Debt/Total Market Capitalization 48.50% % Total Shares Traded Daily 0.7%
Actual
Indicated Dividend (Annualized) $ 1.20 Q1 99 Q1 Annualized 1998
------- ------------- ------
Dividend Yield 11.00% Revenue $17,574 $70,296 $ 57,421
FFO, as adjusted 8,686/(1)/ 34,744/(1)/ 36,512/(2)/
Equity Book Value $ 403,476 Net Income, as adjusted 7,895/(1)/ 31,580/(1)/ 34,757/(2)/
Equity Market/Book Value 0.07x
Total Assets $712,108
Shareholders' Equity (Book) $403,476
- ----------------------------------------------------------- ---------------------------------------------------------------------
</TABLE>
(1) Includes first quarter adjustments of (i) addition of $3 million for loan
loss provisions and (ii) $791,000 for depreciation of real property
(excluded from net income)
(2) Includes adjustments of (i) additions of $4.554 million from writedown of
securities available for sale; (ii) addition of $6.3 million for loan loss
provisions; (iii) $1.755 million for depreciation of real property
(excluded from net income); and (iv) addition of $1.659 million from
extraordinary due diligence expenses.
11
<PAGE>
PROJECT GEMSTONE
================================================================================
OVERVIEW OF ICMI
Balance Sheet Summary (as of 3/31/99)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C>
Cash & cash equivalents $ 28,015 Dividends payable $ 8,550
Mortgage loans, net 513,944 Accrued expenses and other 7,328
Real property, net 105,691 CMO Debt 245,381
Securities available for sale 55,910 Mortgage loans 47,373
---------
Accrued interest receivables 4,447 Total liabilities 308,632
Other assets 4,101 Shareholders' equity 403,476
--------- ---------
Total assets $ 712,108 Total liab. & shareholders' equity $ 712,108
========= =========
- -------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
PROJECT GEMSTONE
================================================================================
OVERVIEW OF ICMI
Institutional Holdings
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ICMI Shares % of
Institution Held Total
- ----------- ---- -----
<S> <C> <C>
Fund Asset Management Inc. (Merrill Lynch) 3,266 11.5%
Friedman, Billings, Ramsey Investment Management, Inc. 1,143 4.0%
Capital Guardian Trust Company 1,100 4.0%
Oppenheimer Management Corporation 1,030 3.6%
Eubel Brady & Suffman Asset Management, Inc. 1,017 3.6%
Granite Capital International Group 994 3.5%
Boston Partners Asset Management, L.P. 938 3.3%
Capital Research and Management Company 900 3.2%
Weitz (Wallace) R. & Company 766 2.7%
Corbyn Investment Management Inc. 762 2.7%
Morgan (J.P.) & Company Incorporated 416 1.5%
Pilgrim America Investment, Inc. 314 1.1%
Scudder Kemper Investments, Inc. 312 1.1%
All Other Institutions as a Group (38) 3,414 12.0%
------- ---------
Total Institutional 16,372 57.4%
Imperial Credit Industries Inc. 3,070 10.8%
Insiders 293 1.0%
Public 8,765 30.8%
------- ---------
Total 28,500 100.0%
</TABLE>
- --------------------------------------------------------------------------------
Latest reported holdings (Vickers and CDA/Spectrum) as of June 21, 1999.
13
<PAGE>
PROJECT GEMSTONE
================================================================================
OVERVIEW OF ICMI
ICMI Relative Stock Price Performance
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
_______ Imperial Cr Coml Mtg Invt Co (100=$9.375)
_______ S&P 500 (100=1229.230)
_______ Mortgage REIT Index (100=$5.722)
_______ Amex Morgan Stanley Reit Index (100=302.360)
Mortgage REIT Index is composed of: AMCT, AHR, CHAS, CLR, CMM, ICH,
OAC, PCC, RAS and WREI
Source: IDD Information Services/Tradeline
14
<PAGE>
PROJECT GEMSTONE
================================================================================
OVERVIEW OF ICMI
LTM Price % Change
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Current Stock 52 Week % Change from
-------------------------
Company Price /(1)/ High Low 52 Week High
- ----------------- --------------- ------------------------- ----------------
<S> <C> <C> <C> <C>
PMC Commercial Trust $14.94 $18.88 $13.06 (20.9%)
- --------------------------------------------------------------------------------------------------------------------------
Imp. Credit Comm. Mortg. Invest. Corp. 10.91 13.94 6.50 (21.7%)
- --------------------------------------------------------------------------------------------------------------------------
Amresco Capital Trust 9.44 13.50 5.88 (30.1%)
Resource Asset Investment Trust 12.56 19.00 8.63 (33.9%)
Anthracite Capital Inc. 7.00 14.13 3.63 (50.4%)
Chastain Capital Corp. 6.63 13.88 2.50 (52.3%)
Clarion Commercial Holding Inc. 7.00 17.13 1.88 (59.1%)
IMPAC Commercial Holdings 6.31 15.63 1.88 (59.6%)
Starwood Financial Trust 31.63 80.25 29.00 (60.6%)
Ocwen Asset Investment Corp. 5.13 17.00 2.50 (69.9%)
Wilshire Real Estate Investment Trust Inc. 4.00 17.38 2.06 (77.0%)
CRIIMI MAE 2.25 15.00 0.81 (85.0%)
---------------------------------------
Mean (51.7%)
---------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As of 6/21/99.
15
<PAGE>
PROJECT GEMSTONE
================================================================================
OVERVIEW OF ICMI
LTM ICMI Traded Volume
Percent of Total Volume Traded at Specified Prices
ICMI's current stock price as of 6/21/99 is $10,906.
[GRAPH APPEARS HERE]
$6-$7 $7-$8 $8-$9 $9-$10 $10-$11 $11-$12 $12-$13 $13-$14
1.28 3.21 19.45 29.10 36.08 0.00 4.35 6.53
DAILY CLOSING PRICE
June 22, 1998 to June 21, 1999
-----------------------------------------------------
Graph shows 73,848,400 cumulative shares, 259% of the
28,500,000 outstanding shares.
-----------------------------------------------------
Source: IDD Information Services/Tradeline
16
<PAGE>
PROJECT GEMSTONE
================================================================================
_______________________________
III. Valuation Summary
_______________________________
<PAGE>
PROJECT GEMSTONE
================================================================================
__________________________________
A. Publicly Traded Companies
Implied Valuation
__________________________________
<PAGE>
PROJECT GEMSTONE
================================================================================
PUBLICLY TRADED COMPANIES IMPLIED VALUATION
Multiples Based on Publicly Traded Companies*
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
LQA P/FFO(1) LQA P/E(2) P/1999E EPS(3) P/2000E EPS (3) Price/Book(4)
<S> <C> <C> <C> <C>
3.3x 3.4x 4.8x 4.9x 0.5x
5.7x 6.1x 6.8x 6.2x 0.7x
7.6x 9.3x 9.8x 7.9x .8x
9.4x 10.4x 10.9x 8.5x 1.0x
</TABLE>
* Line represents offer price of $11.50 per ICMI share applied to ICMI
historical results.
Box plot represents high, low and mean statistics for publicly traded
companies, excluding ICMI.
See Appendix, for Publicly Traded Companies.
(1) Most recent stock price/list quarter 1999 adjusted net income annualized
plus adjusted LTM depreciation.
(2) Most recent stock price/list quarter 1999 adjusted earnings annualized
("Latest Quarter Annualized")
(3) Price to earnings estimated provided by First Call.
(4) Most recent stock price/book equity as of 3/31/99.
19
<PAGE>
PROJECT GEMSTONE
================================================================================
PUBLICLY TRADED COMPANIES IMPLIED VALUATION
Relative Performance Rankings
- --------------------------------------------------------------------------------
Capitalization
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=========================================================== ==========================================================
Total Market Cap. ($ in thousands) Equity Market Capitalization ($ in thousands)
=========================================================== ==========================================================
<S> <C> <C> <C>
Starwood Financial Trust $3,038,187 Starwood Financial Trust $1,866,056
----------------------------------------------------------
CRIIMI MAE 1,221,957 Imp. Credit Comm. Mortg. Invest. Corp.- Offer 327,750
----------------------------------------------------------
Ocwen Asset Investment Corp. 715,286 Imp. Credit Comm. Mortg. Invest. Corp. 310,828
--------------------------------------------------------
Imp. Credit Comm. Mortg. Invest. Corp.- Offer 620,504 Anthracite Capital Inc. 146,988
--------------------------------------------------------
Imp. Credit Comm. Mortg. Invest. Corp. 603,582 CRIIMI MAE 143,045
Anthracite Capital Inc. 479,872 Ocwen Asset Investment Corp. 106,465
IMPAC Commercial Holdings 389,971 PMC Commercial Trust 97,495
Wilshire Real Estate Investment Trust Inc. 301,640 Amresco Capital Trust 94,433
Resource Asset Investment Trust 210,625 Resource Asset Investment Trust 77,452
PMC Commercial Trust 203,697 IMPAC Commercial Holdings 53,140
Amresco Capital Trust 141,771 Chastain Capital Corp. 48,672
Clarion Commercial Holding Inc. 138,766 Wilshire Real Estate Investment Trust Inc. 46,000
Chastain Capital Corp. 57,172 Clarion Commercial Holding Inc. 30,296
-------------------------------------------------- -------------------------------------------------
Mean /(1)/ $ 627,177 Mean /(1)/ $ 246,368
-------------------------------------------------- -------------------------------------------------
=========================================================== ==========================================================
</TABLE>
(1) Mean calculation excludes ICMI and ICMI-Offer.
20
<PAGE>
PROJECT GEMSTONE
================================================================================
PUBLICLY TRADED COMPANIES IMPLIED VALUATION
Relative Performance Rankings
- --------------------------------------------------------------------------------
Leverage and Price/Book
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
============================================================== =================================================================
Leverage (Total Debt to Total Market Cap.) Price/Book/(1)/
============================================================== =================================================================
<S> <C> <C>
CRIIMI MAE 88.3% Starwood Financial Trust 1.87x*
IMPAC Commercial Holdings 86.4% PMC Commercial Trust 1.05
Ocwen Asset Investment Corp. 85.1% Resource Asset Investment Trust 0.91
Wilshire Real Estate Investment Trust Inc. 84.8% Chastain Capital Corp. 0.84
----------------------------------------------------------------
Clarion Commercial Holding Inc. 78.2% Imp. Credit Comm. Mortg. Invest. Corp.- Offer Price 0.81
----------------------------------------------------------------
Anthracite Capital Inc. 69.4% Anthracite Capital Inc. 0.81
Resource Asset Investment Trust 63.2% Clarion Commercial Holding Inc. 0.75
PMC Commercial Trust 52.1% Imp. Credit Comm. Mortg. Invest. Corp. 0.77
Imp. Credit Comm. Mortg. Invest. Corp. 48.5% Amresco Capital Trust 0.72
- -------------------------------------------------------------
Imp. Credit Comm. Mortg. Invest. Corp.- Offer Price 47.2% Wilshire Real Estate Investment Trust Inc. 0.59
- -------------------------------------------------------------
Starwood Financial Trust 38.6% IMPAC Commercial Holdings 0.52
Amresco Capital Trust 33.4% Ocwen Asset Investment Corp. 0.48
Chastain Capital Corp. 14.9% CRIIMI MAE 0.29x*
-------------------------------------------------- -----------------------------------------------------
Mean/(2)/ 63.1% Mean/(2)/ 0.74x
-------------------------------------------------- -----------------------------------------------------
============================================================== =================================================================
</TABLE>
/(1)/ Reflects most recent stock price multiplied by 3/31/99 outstanding
shares/(3/31/99 Book Equity).
/(2)/ Mean calculation excludes ICMI, ICMI-Offer and indicated outliers(*).
21
<PAGE>
PROJECT GEMSTONE
================================================================================
PUBLICLY TRADED COMPANIES IMPLIED VALUATION
Relative Performance Rankings
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Valuation Multiples
- ------------------------------------------------------------------------------------------------------------------------------------
=============================================== ======================================== =========================================
Stock Price / LTM FFO Stock Price / 1999E EPS Stock Price / 2000E EPS
=============================================== ======================================== =========================================
<S> <C> <C> <C> <C> <C>
-----------------------------------------
Wilshire Real Estate Investment Trust Imp. Credit Comm. Mortg. Invest.
Inc. 17.5x* IMPAC Commercial Holdings 10.9x Corp.- Offer Price 8.5x
- ----------------------------------------------- ---------------------------------------- -----------------------------------------
Imp. Credit Comm. Mortg. Invest. Imp. Credit Comm. Mortg. Invest. Imp. Credit Comm. Mortg. Invest.
Corp.- Offer Price 15.0 Corp.- Offer Price 9.8 Corp. 8.1
- ----------------------------------------------- ----------------------------------------
Imp. Credit Comm. Mortg. Invest. Corp. 14.2 Imp. Credit Comm. Mortg. Invest. IMPAC Commercial Holdings 7.9
Corp. 9.3
Ocwen Asset Investment Corp. 7.6 PMC Commercial Trust 8.5 PMC Commercial Trust 7.6
Resource Asset Investment Trust 6.9 Wilshire Real Estate Investment Amresco Capital Trust 5.5
Trust Inc. 7.4
Anthracite Capital Inc. 6.6 Anthracite Capital Inc. 6.5 Resource Asset Investment Trust 5.3
Amresco Capital Trust 6.4 Amresco Capital Trust 6.2 Clarion Commercial Holding Inc. 4.9
PMC Commercial Trust 5.5 Resource Asset Investment Trust 5.5 Anthracite Capital Inc. N/A
CRIIMI MAE 5.3 Clarion Commercial Holding Inc. 5.0 Chastain Capital Corp. N/A
Starwood Financial Trust 4.3 Ocwen Asset Investment Corp. 4.8 CRIIMI MAE N/A
IMPAC Commercial Holdings 3.3 Chastain Capital Corp. N/A Ocwen Asset Investment Corp. N/A
Chastain Capital Corp. 2.7* CRIIMI MAE N/A Starwood Financial Trust N/A
Clarion Commercial Holding Inc. NM Starwood Financial Trust N/A Wilshire Real Estate Investment
Trust Inc. N/A
------------------------------------------ ---------------------------------- --------------------------------
Mean/(1)/ 5.7x Mean/(1)/ 6.8x Mean/(1)/ 6.2x
------------------------------------------ ---------------------------------- --------------------------------
=============================================== ======================================== =========================================
</TABLE>
(1) Mean calculation excludes ICMI, ICMI-Offer and indicated outliners(*).
22
<PAGE>
PROJECT GEMSTONE
================================================================================
PUBLICLY TRADED COMPANIES IMPLIED VALUATION
Relative Performance Rankings
- --------------------------------------------------------------------------------
Performance Ratios
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
============================================================ ============================================================
Latest Quarter Return on Equity/(1)/ Dividend Yield/(2)/
============================================================ ============================================================
<S> <C> <C> <C>
Clarion Commercial Holding Inc. 17.6% Resource Asset Investment Trust 16.2%
Anthracite Capital Inc. 14.9% Anthracite Capital Inc. 16.6%
Resource Asset Investment Trust 13.8% Amresco Capital Trust 15.3%
Ocwen Asset Investment Corp. 13.1% Clarion Commercial Holding Inc. 13.1%
CRIIMI MAE 11.7% PMC Commercial Trust 12.2%
PMC Commercial Trust 11.1% Imp. Credit Comm. Mortg. Invest. Corp. 11.0%
------------------------------------------------------------
Chastain Capital Corp. 11.1% Imp. Credit Comm. Mortg. Invest. Corp.- Offer Price 10.4%
------------------------------------------------------------
Amresco Capital Trust 10.9% IMPAC Commercial Holdings 6.3%
Starwood Financial Trust 9.1% Starwood Financial Trust 5.3%
Wilshire Real Estate Investment Trust Inc. 9.0% CRIIMI MAE N/A
- ------------------------------------------------------------
Imp. Credit Comm. Mortg. Invest. Corp.- Offer Price 7.8% Wilshire Real Estate Investment Trust Inc. N/A
- ------------------------------------------------------------
Imp. Credit Comm. Mortg. Invest. Corp. 7.8% Ocwen Asset Investment Corp. N/A
IMPAC Commercial Holdings -0.9% Chastain Capital Corp. N/A
------------------------------------------------------- --------------------------------------------------------
Mean/(3)/ 11.0% Mean/(3)/ 12.1%
------------------------------------------------------- --------------------------------------------------------
============================================================ ============================================================
</TABLE>
(1) Represents Q1 1999 annualized adjusted net income (3/31/99 Book Equity).
(2) Reflects Q1 1999 annualized dividend/(most recent stock price).
(3) Mean calculation excludes ICMI, and ICMI-Offer.
23
<PAGE>
PROJECT GEMSTONE
================================================================================
_____________________________________
B. Historical Stock Performance
_____________________________________
<PAGE>
PROJECT GEMSTONE
================================================================================
HISTORICAL STOCK PERFORMANCE
ICMI Stock Price vs. $11.50: IPO to 6/21/99
[GRAPH APPEARS HERE]
25
<PAGE>
PROJECT GEMSTONE
================================================================================
_________________________________
C. Precedent Transactions Premium
Analysis
_________________________________
<PAGE>
PROJECT GEMSTONE
================================================================================
PRECEDENT TRANSACTIONS PREMIUM ANALYSIS*
- --------------------------------------------------------------------------------
-------------------------------------------
Purchase Price per Share: $11.50
Assumed Offering Date /(1)/ May 13, 1999
LTM Earnings per Share $ 0.62
-------------------------------------------
<TABLE>
<CAPTION>
Implied Multiple
Stock Price ----------------
-------------------------------------------------------- Price/LTM
One Day Prior One Week Prior Four Weeks Prior Actual EPS
------------- -------------- -------------------
<S> <C> <C> <C> <C>
ICMI $9.94 $9.25 $9.13
Premium (Discount) to Purchase Price per Share:
-------------------------------------------------------------------------------------------------------------
Cash Offer 15.7% 24.3% 26.0% 18x
-------------------------------------------------------------------------------------------------------------
Precedent Transactions Premium (Discounts) to
Purchase Price per Share:
-------------------------------------------------------------------------------------------------------------
Mean: Precedent Transactions 9.0% /(2)/ 7.8% /(2)/ 7.8% /(2)/ 19.5x /(3)/
-------------------------------------------------------------------------------------------------------------
</TABLE>
* See Appendix for Precedent Transactions.
Precedent Transactions include transactions meeting the following criteria:
(i) acquired company operating as a REIT or Financial Services Company, (ii)
transactions announced in 1996 or later, (iii) acquired company with book
equity value between $200 million and $1.5 billion.
(1) Assumed Offering Date of May 13, 1999 reflects date of initial ICII public
offer of $11.00 per share.
(2) Historical stock price information from Bloomberg.
(3) Historical precedent transactions' equity value and net income provided by
Securities Data Company, Inc.
27
<PAGE>
PROJECT GEMSTONE
================================================================================
_______________________________
IV. Stand Alone Projections
_______________________________
<PAGE>
PROJECT GEMSTONE
================================================================================
STAND-ALONE PROJECTIONS
Methodology and Assumptions
Pro Forma
. Assumes the remarking of ICMI assets to fair market value
. Assumes the put-back of SPB and FMAC securities and the Hayes Park principal
repayment.
Projections
. Principal business activities during projection period include
. Small loan first mortgage pool acquisitions
. Real property acquisitions
. Mezzanine lending
. Small loan first mortgage pool securitizations
. Business activities primarily financed through
. Secured warehouse facility for small loan acquisitions
. First mortgage debt for real property acquisitions
. Equity financing from available cash resources for mezzanine lending and
retained CMBS investments
. Projections assume no incremental equity capital raised during the
presentation period
. Stock price equals equity book value per share by end of projection period
. Dividends grow at 5% per year
29
<PAGE>
PROJECT GEMSTONE
================================================================================
STAND-ALONE PROJECTIONS
Comparison of Offer vs. Stand-Alone Cash Flows
- --------------------------------------------------------------------------------
- --------------------------------------------
Assumptions
- --------------------------------------------
Stand-Alone Discount Rate 15.0%
Terminal Value (% of Bk Val-ICMI) 100.0%
- ---------------------------------------------
<TABLE>
<CAPTION>
Year 1 Year 2
----------------------------------- -----------------------------------
<S> <C> <C>
Stand-Alone Cashflows
Dividends 8,550 8,550 8,550 8,550 8,978 8,978 8,978 8,978
Terminal Value - - - - - - - -
------- ------- ------- ------- ------- ------- ------- -------
Total Stand-Alone Cashflows 8,550 8,550 8,550 8,550 8,978 8,978 8,978 8,978
ICMI NPV 309,138
NPV per share $ 10.85
<CAPTION>
Year 3 Year 4
----------------------------------- -----------------------------------
Stand-Alone Cashflows
Dividends 9,426 9,426 9,426 9,426 9,898 9,898 9,898 9,898
Terminal Value - - - - - - - 361,803
------- ------- ------- ------- ------- ------- ------- -------
Total Stand-Alone Cashflows 9,426 9,426 9,426 9,426 9,898 9,898 9,898 371,701
ICMI NPV
NPV per share
</TABLE>
- --------------------------------------------------------------------------------
30
<PAGE>
PROJECT GEMSTONE
================================================================================
STAND-ALONE PROJECTIONS
Projected Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
ICMI-Std-Alone
-------------- -----------------------------------------------------
Q1
1999 Adj. Year 1 Year 2 Year 3 Year 4
-------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and Interest Bearing Deposits $ 116,539 $ 37,279 $ 36,537 $ 15,273 $ 1,569
Mortgage Loans, net 397,606 687,189 547,803 427,898 301,553
Total Real Property, net 101,645 129,351 156,426 182,722 208,239
Total Securities Available for Sale 48,710 48,710 87,320 125,930 164,540
Other Assets 8,548 9,807 10,994 11,712 13,038
----------- ----------- ------------ ---------- -----------
Total Assets $ 673,048 $ 912,335 $ 839,081 $ 763,535 $ 688,939
=========== =========== ============ ========== ===========
Liabilities & Stockholders' Equity
CMO Debt $ 245,381 $ 195,197 $ 153,775 $ 119,585 $ 91,365
Other Long-Term Debt - 278,989 247,231 207,185 163,122
Mortgage Loans Secured by Real Property (Existing) 47,373 56,940 56,472 55,968 55,424
Accrued Expenses, Payables and Other Liabilities 15,878 15,878 16,306 16,754 17,226
----------- ----------- ------------ ---------- -----------
Total Liabilities 308,632 547,004 473,783 399,492 327,136
Total Stockholders' Equity 364,416 365,331 365,298 364,043 361,803
----------- ----------- ------------ ---------- -----------
Total Liabilities & Stockholders' Equity $ 673,048 $ 912,335 $ 839,081 $ 763,535 $ 688,939
=========== =========== ============ ========== ===========
Common Shares Outstanding 28,500 28,500 28,500 28,500 28,500
Book Value per Share $ 12.79 (1) $ 12.82 $ 12.82 $ 12.77 $ 12.69
</TABLE>
____________________
(1) Marked-to-market values.
31
<PAGE>
PROJECT GEMSTONE
================================================================================
STAND-ALONE PROJECTIONS
Projected Income Statement
(in thousands) ICMI Std-Alone
<TABLE>
<CAPTION>
------------ ------------------------------------------------------------
Annual Adj-
1999 Year 1 Year 2 Year 3 Year 4
------------ ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mortgage Loans $ 40,497 $ 53,577 $ 56,658 $ 50,536 $ 47,005
Securities 6,228 6,448 9,332 12,794 16,225
Real Estate 14,172 16,955 21,905 27,009 32,270
Other 5,721 4,030 (2,419) (1,941) (2,614)
---------- ---------- ---------- ---------- ----------
Total Revenue 66,618 81,009 85,477 88,398 92,916
Management Fees 7,468 8,004 8,959 8,946 8,653
Interest Expense 18,896 24,291 26,493 26,963 27,741
Other 10,848 13,599 14,149 16,039 19,171
---------- ---------- ---------- ---------- ----------
Total Expenses 37,212 45,894 49,600 51,948 55,565
---------- ---------- ---------- ---------- ----------
Net Earnings $ 29,406 $ 35,115 $ 35,877 $ 36,450 $ 37,351
========== ========== ========== ========== ==========
FFO $ 32,570 $ 38,570 $ 39,982 $ 41,355 $ 43,056
========== ========== ========== ========== ==========
Diluted Earnings per Share $ 1.03 $ 1.23 $ 1.26 $ 1.28 $ 1.31
Diluted FFO per Share $ 1.14 $ 1.35 $ 1.40 $ 1.45 $ 1.51
FFO Annual Growth Rate 18.4% 3.7% 3.4% 4.1%
4 Year FFO Compounded Annual Growth Rate 7.23%
Dividends $ 34,200 $ 34,200 $ 35,910 $ 37,706 $ 39,591
Dividends per Share $ 1.20 $ 1.20 $ 1.26 $ 1.32 $ 1.39
FFO Payout Ratio 105.0% 88.7% 89.8% 91.2% 92.0%
Diluted Common Shares O/S 28,500 28,500 28,500 28,500 28,500
</TABLE>
32
<PAGE>
PROJECT GEMSTONE
================================================================================
STAND-ALONE PROJECTIONS
Cash Flow Statement
(in thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------
Year 1 Year 2 Year 3 Year 4
-------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flow from Operating Activities
Net Earnings $ 35,115 $ 35,877 $ 36,450 $ 37,351
Depreciation and Amortization 3,455 4,105 4,905 5,705
Other 203 (451) 15 (520)
---------- ---------- ---------- ----------
Total Cash Provided (Used) by Operating Activities $ 38,773 $ 39,531 $ 41,370 $ 42,536
Cash Flow from Investing Activities
Proceeds from Securitization of SPB Loans $ - $ 297,000 $ 297,000 $ 297,000
Investment in Assets, net (332,841) (239,262) (258,078) (250,231)
Other Capital Expenditures (1,161) (1,180) (1,201) (1,222)
---------- ---------- ---------- ----------
Total Cash Provided (Used) for Investing Activities $ (322,204) $ 69,286 $ 49,811 $ 56,178
Cash Flow from Financing Activities
Dividends Paid (34,200) (35,910) (37,706) (39,591)
Cash Borrowings (Payments) 238,371 (73,648) (74,740) (72,827)
---------- ---------- ---------- ----------
Total Cash Provided (Used) by Financing Activities $ 204,171 $ (109,558) $ (112,445) $ (112,418)
Net Increase (Decrease) in Cash and Cash Equivalents $ (79,260) $ (741) $ (21,264) $ (13,704)
========== ========== ========== ==========
Cash and Cash Equivalents at Beginning of Period $ 116,539 $ 37,279 $ 36,537 $ 15,273
========== ========== ========== ==========
Cash and Cash Equivalents at End of Period $ 37,279 $ 36,537 $ 15,273 $ 1,569
========== ========== ========== ==========
</TABLE>
33
<PAGE>
EXHIBIT b(6)
Imperial Credit Commercial Asset
Management Corp.
Management Agreement Termination Fee Valuation
September 10, 1999
Houlihan Lokey Howard & Zukin
Investment Banking Services
1930 Century Park West
Los Angeles, California 90067
(310) 553-8871 http://www.hlhz.com
Los Angeles New York Chicago San Francisco
Washington, D.C. Minneapolis Dallas Atlanta Toronto Seoul Hong Kong
<PAGE>
Table of Contents
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Section
-------
<S> <C>
Executive Summary A
Methodology B
Valuation of Manager C
Valuation Summary 1
Best Case Scenario 2
Base Case Scenario 3
Worst Case Scenario 4
Supporting Schedules 5
Exhibits D
ICCMIC/ICCAMC Projections 1
Real Estate Management Companies 2
Asset Management Companies 3
Mortgage REIT Companies 4
</TABLE>
=============================================================================
<PAGE>
Executive Summary
--------------------------------------------------------------------------
Executive Summary
<PAGE>
Executive Summary
- --------------------------------------------------------------------------------
Engagement Overview
On July 22, 1999 Imperial Credit Industries, Inc. ("ICII") and Imperial
Credit Commercial Mortgage Investment Corp. ("ICCMIC" or the "Company")
entered into a definitive merger agreement under which ICII will acquire
all of the outstanding shares of ICCMIC for a cash purchase price of $11.50
per share (the "Transaction").
ICII currently owns approximately 9.0 percent of ICCMIC and 100 percent of
ICCMIC's external advisor, Imperial Credit Commercial Asset Management
Corp. (the "Manager").
In accordance with the terms of the management agreement, dated October 22,
1997 (the "Management Agreement") between the Manager and ICCMIC, if the
Management Agreement is terminated or not renewed by ICCMIC then ICCMIC
shall be required to pay the Manager a termination fee (the "Termination
Fee"). The proposed Transaction provides for a maximum $35 million
Termination Fee payment to the Manager.
In connection with the proposed Transaction, the Manager has retained
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan Lokey")
to conduct an appraisal of the Termination Fee pursuant to Section 15 of
the Management Agreement.
Background Information
ICCMIC was formed in October 1997 and raised approximately $517 million in
its initial public offering.
ICCMIC is a commercial mortgage real estate investment trust ("REIT") that
engages in opportunistic investment activities in the real estate industry.
ICCMIC focuses on the acquisition of multi-family and commercial mortgage
loans, origination of commercial mortgages, direct real property
investments and the purchase of commercial mortgage backed securities.
From its IPO date through the second quarter of 1998, ICCMIC was able to
grow its assets in accordance with analyst projections and, on a percentage
basis, generally at or above the level of its peers.
<PAGE>
Executive Summary
---------------------------------------------------------------------
Primarily through management of liquidity risk and by not over-
leveraging the Company, ICCMIC outperformed its peer group of
Mortgage REITs in terms of stock price performance and book value
per share and was able to weather the turmoil in the real estate
capital markets that existed in the second half of 1998.
Beginning in September 1998, ICCMIC was the target of hostile and
friendly takeover attempts by numerous public and private entities.
Prudential Securities was engaged as a financial advisor to assist
the Company in the evaluation of the merger offers as well as other
strategic alternatives.
As part of these merger discussions, offers were made for the
Manager that ranged from $45 million to $60 million.
The various merger discussions culminated in the proposed
Transaction.
Since the third quarter of 1998, resulting from the disruption in
the capital markets and the intensive merger discussions, ICCMIC
has been in a steady state - no acquisition mode.
Current Situation
As of June 30, 1998, ICCMIC had approximately $704 million of
assets, including over $116 million of cash indicating significant
leverage capacity.
The Manager currently advises the Company on various aspects of its
business and manages its day-to-day activities and the affairs of
ICCMIC pursuant to the Management Agreement. The Management
Agreement has certain provisions that allow ICCMIC to terminate or
not renew the services of the Manager under the Management
Agreement on or after October 22, 1999.
<PAGE>
Executive Summary
------------------------------------------------------------------------
Management Fee Structure
As compensation for the services delineated in the Management
Agreement, the Manager receives the following compensation:
--- A Base Management Fee (as defined in the Management Agreement) in
the amount of 1 percent of the average invested assets up to $1
billion, 0.75 percent of the next $250 million of average invested
assets and 0.50 percent of average assets over $1.25 billion; and
--- An Incentive Fee (as defined in the Management Agreement) based on
the results of Funds From Operations for the Company.
Transaction Summary
ICII has stipulated in the offer for ICCMIC that the Manager shall be
assigned a value not to exceed $35 million, subject to the results of
the independent appraisal. Should the appraisal determine a value for
the Termination Fee greater than $35 million, the $11.50 price per
share for ICCMIC shall not change. Should the appraised value of the
Termination Fee be less than $35 million, the amount less than $35
million shall be applied in cash to the aggregate offer for ICCMIC,
which will accrue to the shareholders tendering their shares for cash
in the transaction.
<PAGE>
Methodology
--------------------------------------------------------------------------
Methodology
7
<PAGE>
Going Concern Assumption
The Termination Fee valuation was prepared assuming a going concern methodology
as supported by the following considerations:
- ICCMIC's investment bankers have demonstrated that liquidation of
ICCMIC's assets is not a value maximizing strategy;
- ICCMIC's Board of Directors has considered, but never authorized, a
liquidation of the Company, instead the Board has unanimously approved
the merger agreement with ICII;
- Comparable transactions and implied multiples suggest valuations of
companies such as the Manager on a going concern basis;
- ICCMIC's Board of Directors has rejected offers for ICCMIC for the
purpose of liquidation in order to pursue merger offers (including
consideration to the Manager in the range of $45 to $60 million) that
would maximize value for ICCMIC's shareholders; and
- ICCMIC is an underleveraged, cash-rich mortgage REIT with growth
potential that could generate fee increases for its external Manager.
Valuation of Termination Fee
Houlihan Lokey utilized several market based valuation methodologies in our
appraisal of the Termination Fee. These approaches value the management fees
generated by the Manager as a going concern and are summarized below:
1. A "Market Capitalization" approach whereby market based multiples of
comparable public companies were applied to representative levels for the
Manager;
2. A "Comparable Transaction" approach whereby selected comparable transactions
were analyzed and an implied market multiple was applied to representative
levels for the Manager; and
3. A "Discounted Cash Flow" approach whereby the projected earnings of the
Manager were discounted at an appropriate rate to consider the risk of the
cash flows and the time value of money.
Other Methodologies
Comparable transactions of real estate advisor acquisitions were researched.
The findings were then further analyzed to identify the amount of consideration
paid for the advisor as a percentage of the total stock consideration in the
Transaction. The resulting percentage was then compared to the implied value
stipulated in the ICII offer relative to the total consideration offered in the
Transaction.
<PAGE>
Methodology
--------------------------------------------------------------------------
The projected Manager Revenue and EBITDA as a percentage of ICCMIC's
Revenue and EDITDA were also analyzed and compared to the percentage of
consideration implied to the Manager relative to the total Transaction
value.
As indicated valuation range based on the series of offers for the Manager
received over the past 12 months.
<PAGE>
Valuation of Manager
--------------------------------------------------------------------------
Valuation of Manager
<PAGE>
Valuation of Manager
--------------------------------------------------------------------------
Valuation Summary
- ----------------------------------------------------------------
<PAGE>
Valuation of Manager
Valuation Summary
($ in millions)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Valuation Ranges
--------------------------------------------------------------------------
<S> <C> <C> <C>
Best Case Scenario $ 43.0 - $ 53.0
Base Case Scenario $ 40.0 - $ 49.0
Worst Case Scenario $ 37.0 - $ 45.0
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Conclusion $ 45.0
--------------------------------------------------------------------------
</TABLE>
<PAGE>
Valuation of Manager
Matrix of Alternative Scenarios
($ in millions)
<TABLE>
<CAPTION>
Valuation Ranges Best Case Base Case Worst Case
<S> <C> <C> <C> <C> <C> <C>
Indications of Value from Prior Offers $ 45.0 - $ 60.0 $ 45.0 - $ 60.0 $ 45.0 - $ 60.0
Market Capitalization Approach 36.2 - 41.3 31.4 - 37.6 29.2 - 33.7
Transaction Approach 41.3 - 46.2 41.3 - 46.2 41.3 - 46.2
Discounted Cash Flow Approach 57.5 - 76.2 39.4 - 52.0 33.3 - 43.8
Concluded Value Range $ 43.0 - $ 53.0 $ 40.0 - $ 49.0 $ 37.0 - $ 45.0
Significant Assumptions
EBITDA
LQA (6/30/99) $ 5.2 $ 5.2 $ 5.2
LTM (6/30/99) 4.6 4.6 4.6
NFY EBITDA (12/31/99) 5.0 4.7 4.5
NTM EBITDA (6/30/00) 8.1 6.3 5.5
NFY + 1 EBITDA (12/31/00) 11.1 7.5 6.3
Assets Under Management
6/30/99 $ 700.0 $ 700.0 $ 700.0
12/31/99 1,030.0 890.0 810.0
6/30/00 1,550.0 1,160.0 1,090.0
12/31/00 1,560.0 1,170.0 990.0
Acquisition Asset Mix Percentage
Mortgage Loans 50% 50% 50%
Real Estate 30% 30% 30%
CMBS/Securities 20% 20% 20%
Acquisition Leverage Ratio
Financing on Mortgage Loans 84% 67% 50%
Financing on Real Estate 75% 63% 50%
Financing on Securities 60% 55% 50%
Discount Rate Range 18.0% - 22.0% 16.0% - 20.0% 14.0% - 18.0%
</TABLE>
<PAGE>
Valuation of Manager
--------------------------------------------------------------------------
<PAGE>
Valuation of Manager
--------------------------------------------------------------------------
Best Case Scenario
- ------------------------------------------------------------
<PAGE>
VALUATION OF MANAGER
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Valuation Summary - Best Case
($ in millions)
Indications of Value from Prior Offers Range of Value Indications
- -------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Concluded Indications of Value Range $ 45.0 - $ 60.0
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Representative Less: Range of
Transaction Approach EBITDA Multiple Range Enterprise Value Range Debt Market Value of Equity
- -------------------- ------------ --------------- ----------------------- ------- ---------------------------
<S> <C> <C> <C> <C> <C>
LQA EV / EBITDA $ 5.2 (1) 8.0 - 9.0 $ 41.3 - $ 46.5 $ - $ 41.3 - $ 46.5
LTM EV / EBITDA 4.6 9.0 - 10.0 41.6 - 46.2 - 41.6 - 46.2
Transaction
Value
------------
Advisor as % of Transaction 362.8 (2) 9.0% - 10.0% 32.6 - 36.3 - 32.6 - 36.3
Median 41.3 46.2
Mean 38.5 43.0
- ---------------------------------------------------------------------------------------------------------------------------------
Concluded Transaction Approach $ 41.3 - $ 46.2
- ---------------------------------------------------------------------------------------------------------------------------------
Market Capitalization Representative
Approach EBITDA
- --------------------- --------------
<S> <C> <C> <C> <C> <C>
LQA EV / EBITDA 5.2 (1) 7.0 - 8.0 36.2 - 41.3 - 36.2 - 41.3
LTM EV / EBITDA 4.6 7.0 - 8.0 32.3 - 37.0 - 32.3 - 37.0
NFY EV / EBITDA 5.0 (3) 6.5 - 7.5 32.5 - 37.5 - 32.5 - 37.5
NTM EV / EBITDA 8.1 (4) 5.0 - 6.0 40.4 - 48.5 - 40.4 - 48.5
NFY + 1 EV / EBITDA 11.1 (5) 4.0 - 5.0 44.4 - 55.6 - 44.4 - 55.6
Median 36.2 41.3
Mean 37.2 44.0
- ---------------------------------------------------------------------------------------------------------------------------------
Concluded Market Approach $ 36.2 - $ 41.3
- ---------------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow Approach
- -----------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow Conclusions 57.5 - 76.2 - $ 57.5 - $ 76.2
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Management Company Valuation Conclusion $ 43.0 - $ 53.0
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Last quarter annualized operating results.
(2) Based on 28.5 million ICMI shares outstanding, an $11.50 offer price per
share, and $35.0 million for the management company.
(3) NFY EBITDA is calculated by adding the YTD 6/30/99 and projected operating
results through the six months ending 12/31/99.
(4) Represents the projected 12-month period ending 6/30/2000.
(5) Represents the projected 12-month period ending 6/30/2001.
<PAGE>
Valuation of Manager
Representative Levels - Best Case
<TABLE>
<CAPTION>
NFY+1 NTM NFY LQA (1) LTM
12/31/00 6/30/00 12/31/99 6/30/99 6/30/99 FYE 1998
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fees
Base Management Fees $14,642,610 $11,266,655 $8,099,197 $7,182,980 $7,546,328 $6,340,364
Incentive Management Fees - - 41,000 164,000 41,000 -
------------------------------------------------------------------------------------
Total Fees 14,642,610 11,266,655 8,140,197 7,346,980 7,587,328 6,340,364
Expenses
Salaries 3,530,929 3,191,486 3,145,078 1,430,664 1,740,181 1,659,329
Bonuses & Incentives NA NA NA 748,900 744,014 469,505
Other NA NA NA 371,524 773,026 720,933
------------------------------------------------------------------------------------
Total Expenses 3,530,929 3,191,486 3,145,078 2,551,088 3,257,221 2,849,767
Professional Services (2) - - - - 90,522 129,694
General & Administrative Expenses NA NA NA 27,704 18,886 9,486
------------------------------------------------------------------------------------
Total Expenses 3,530,929 3,191,486 3,145,078 2,578,792 3,366,629 2,988,947
EBITDA $11,111,680 $ 8,075,168 $ 4,995,119 $ 4,768,188 $ 4,220,699 $ 3,351,417
====================================================================================
Adjustment (3) 400,000 400,000
Adjusted EBITDA 5,168,188 4,620,699
=========================
Assets Under Management 1,559.071 1,545.490 1,025.500 703.870
====================================================================
</TABLE>
(1) Latest Quarter Annualized. Calculated by annualizing the latest quarter
operating results.
(2) The LTM and LQA ended June 30, 1999, exclude $91,000 of settlement
expenses.
(3) Addback of Salaries associated with excess personnel.
<PAGE>
Valuation of Manager
Quantitative Rankings - Best Case
($ in millions)
<TABLE>
<CAPTION>
Projected Projected LTM
Real Estate Management NTM EBITDA NFY EBITDA EBITDA
Comparable Companies Revenues Growth Growth Margin
- ------------------------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
CB Richard Ellis $ 1,114.5 17.3% 11.1% 11.4%
Grubb & Ellis 315.0 50.8% 50.8% 6.4%
Insignia 553.4 35.0% 22.4% 7.7%
Intergroup 13.0 NA NA 7.1%
Jones Lang Salle 989.5 44.3% 44.3% 10.1%
Trammell Crow 582.2 46.9% 34.2% 15.0%
DeWolfe Companies 155.1 NA NA 8.6%
Median 553 44.3% 34.2% 8.6%
- ---------------------------------------------------------------------------------------------------------------------------
Management Company $ 7.6 74.8% 49.0% 55.6%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Projected Projected LTM
Asset Management NTM EBITDA NFY EBITDA EBITDA
Comparable Companies Revenues Growth Growth Margin
- ------------------------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Affiliated Mangers $ 282.9 -15.9% -23.0% 47.1%
Alliance Capital 1,514.6 55.0% 43.6% 37.9%
Atalanta Sosnoff 36.2 NA NA 60.1%
Conning Corp 89.0 8.1% 4.3% 32.0%
Eaton Vance 294.5 206.1% 106.6% 24.6%
Lexington Global 19.0 142.3% 142.3% 10.0%
Phoenix Investment 251.7 17.3% 9.4% 36.0%
PIMCO Advisors 88.4 110.5% 86.3% 83.7%
United Asset Management 902.7 0.1% -2.3% 33.8%
Median 251.7 36.2% 26.5% 36.0%
- ----------------------------------------------------------------------------------------------------------------------------
Management Company $ 7.6 74.8% 49.0% 55.6%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Valuation of Manager
Discounted Cash Flow Analysis - Best Case
($ in millions)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Projected NTM Total Projected NTM+1 Total Terminal
----------------------------------------- ----------------------------------------------- EBITDA
9/30/99 12/31/99 3/31/00 6/30/00 9/30/00 12/31/00 3/31/01 6/30/01
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues 1.978 2.398 3.154 3.737 11.267 3.823 3.929 3.928 3.965 15.645
Growth 21.2% 31.5% 18.5% 2.3% 2.8% 0.0% 0.9% 38.9%
EBITDA 1.277 1.636 2.325 2.836 8.075 2.922 3.028 3.026 3.062 12.039 12.039
Margin 64.6% 68.2% 73.7% 75.9% 71.7% 76.4% 77.1% 77.0% 77.2% 76.9%
</TABLE>
Enterprise Value:
<TABLE>
<CAPTION>
EBITDA Exit Multiples
--------------------------------------------
4.0 5.0 6.0 7.0 8.0
--------------------------------------------
<S> <C> <C> <C> <C> <C>
18.0% 51.452 60.097 68.743 77.389 86.035
Discount Rate (WACC) 19.0% 50.714 59.216 67.717 76.218 84.719
20.0% 49.993 58.354 66.714 75.074 83.434
21.0% 49.289 57.511 65.734 73.956 82.179
22.0% 48.599 56.688 64.776 72.864 80.953
Mean 66.721
Median 66.714
</TABLE>
Note: Projections derived from Imperial Credit Commercial Asset Management Corp.
Projections Assume the Following:
<TABLE>
<CAPTION>
------------------------------------ -----------------------------------------
Asset Mix: Leverage Ratio on Acquisitions
------------------------------------ -----------------------------------------
<S> <C>
50% Mortgage Loans 84.0% Financing on Mortgage Loans
30% Real Estate 75.0% Financing on Real Estate
20% CMBS/Securities 60.0% Financing on Securities
</TABLE>
<PAGE>
Valuation of Manager
--------------------------------------------------------------------------
<PAGE>
Valuation of Manager
--------------------------------------------------------------------------
Base Case Scenario
- -----------------------------------------------------------------
<PAGE>
Valuation of Manager
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Valuation Summary - Base Case
($ in millions)
Indications of Value from Prior Offers
-------------------------------------- Range of Value Indications
---------------------------------------------------------------------------------------------------------
Concluded Indications of Value Range $ 45.0 - $ 60.0
---------------------------------------------------------------------------------------------------------
Representative
Transaction Approach EBITDA Multiple Range Enterprise Value Range
---------------------- -------------- ------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LQA EV / EBITDA $ 5.2 (1) 8.0 - 9.0 $ 41.3 - 46.5
LTM EV / EBITDA $ 4.6 9.0 - 10.0 41.6 - 46.2
Transaction
Value
--------------
Advisor as % of Transaction 362.8 (2) 9.0% - 10.0% 32.6 - 36.3
---------------------------------------------------------------------------------------------------------
Concluded Transaction Approach
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Less Range of
Transaction Approach Debt Market Value of Equity
---------------------- -------------- ----------------------------
LQA EV / EBITDA $ - $ 41.3 - 46.5
LTM EV / EBITDA $ - $ 41.6 - 46.2
Advisor as % of Transaction - 32.6 - 36.3
Median 41.3 46.2
Mean 38.5 43.0
---------------------------------------------------------------------------------------------------------
Concluded Transaction Approach $ 41.3 - $ 46.2
---------------------------------------------------------------------------------------------------------
Representative
Market Capitalization Approach EBITDA
------------------------------ --------------
LQA EV / EBITDA 5.2 (1) 7.0 - 8.0 36.2 - 41.3
LTM EV / EBITDA 4.6 7.0 - 8.0 32.3 - 37.0
NFY EV / EBITDA 4.7 (3) 6.5 - 7.5 30.6 - 35.3
NTM EV / EBITDA 6.3 (4) 5.0 - 6.0 31.4 - 37.7
NFY + 1 EV / EBITDA 7.5 (5) 4.0 - 5.0 30.1 - 37.6
---------------------------------------------------------------------------------------------------------
Concluded Market Approach
---------------------------------------------------------------------------------------------------------
Market Capitalization Approach
------------------------------
LQA EV / EBITDA - 36.2 - 41.3
LTM EV / EBITDA - 32.3 - 37.0
NFY EV / EBITDA - 30.6 - 35.3
NTM EV / EBITDA - 31.4 - 37.7
NFY + 1 EV / EBITDA - 30.1 - 37.6
Median 31.4 37.6
Mean 32.1 37.8
---------------------------------------------------------------------------------------------------------
Concluded Market Approach $ 31.4 - $ 37.6
---------------------------------------------------------------------------------------------------------
Discounted Cash Flow Approach
-----------------------------
---------------------------------------------------------------------------------------------------------
Discounted Cash Flow Conclusions 39.4 - 52.0 $ 39.4 - $ 52.0
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Management Company Valuation Conclusion $ 40.0 - $ 49.0
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Latest quarter annualized operating results.
(2) Based on 28.5 million ICMI shares outstanding, an $11.50 offer price per
share, and $35.0 million for the management company.
(3) NFY EBITDA is calculated by adding the YTD 6/30/99 and projected operating
results through the six months ending 12/31/99.
(4) Represents the projected 12-month period ending 6/30/2000.
(5) Represents the projected 12-month period ending 6/30/2001.
<PAGE>
Valuation of Manager
Representative Levels - Base Case
<TABLE>
<CAPTION>
NFY+1 NTM NFY LQA (1) LTM
12/31/00 6/30/00 12/31/99 6/30/99 6/30/999 FYE 1998
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fees
Base Management Fees $11,053,898 $9,466,826 $7,807,396 $7,182,980 $7,546,328 $6,340,364
Incentive Management Fees - - 41,000 164,000 41,000 -
---------------------------------------------------------------------------------
Total Fees 11,053,898 9,466,826 7,848,396 7,346,980 7,587,328 6,340,364
Expenses
Salaries 3,530,929 3,191,486 3,145,078 1,430,664 1,740,181 1,659,329
Bonuses & Incentives NA NA NA 748,900 744,014 469,505
Other NA NA NA 371,524 773,026 720,933
---------------------------------------------------------------------------------
Total Expenses 3,530,929 3,191,486 3,145,078 2,551,088 3,257,221 2,849,767
Professional Services (2) - - - - 90,522 129,694
General & Administrative Expenses NA NA NA 27,704 18,886 9,486
---------------------------------------------------------------------------------
Total Expenses 3,530,929 3,191,486 3,145,078 2,578,792 3,366,629 2,988,947
EBITDA $ 7,522,969 $ 6,275,340 $ 4,703,317 $ 4,768,188 $ 4,220,699 $ 3,351,417
=================================================================================
Adjustment (3) 400,000 400,000
Adjusted EBITDA 5,168,188 4,620,699
========================
Assets Under Management 1,169.294 1,164.345 891.266 703.870
===============================================================
</TABLE>
(1) Latest Quarter Annualized. Calculated by annualizing the latest quarter
operating results.
(2) The LTM and LQA ended June 30, 1999, exclude $91,000 of settlement expenses.
(3) Addback of Salaries associated with excess personnel.
<PAGE>
Valuation of Manager
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Quantitative Rankings - Base Case
($ in millions)
Projected Projected LTM
Real Estate Management NTM EBITDA NFY EBITDA EBITDA
Comparable Companies Revenues Growth Growth Margin
-------------------- -------- ------ ------ ------
CB Richard Ellis $ 1,114.5 17.3% 11.1% 11.4%
Grubb & Ellis 315.0 50.8% 50.8% 6.4%
Insignia 553.4 35.0% 22.4% 7.7%
Intergroup 13.0 NA NA 7.1%
Jones Lang Salle 989.5 44.3% 44.3% 10.1%
Trammell Crow 582.2 46.9% 34.2% 15.0%
DeWolfe Companies 155.1 NA NA 8.6%
Median 553 44.3% 34.2% 8.6%
--------------------------------------------------------------------------------------------------------------
Management Company $ 7.6 35.8% 40.3% 55.6%
--------------------------------------------------------------------------------------------------------------
Projected Projected LTM
Asset Management NTM EBITDA NFY EBITDA EBITDA
Comparable Companies Revenues Growth Growth Margin
-------------------- -------- ------ ------ ------
Affiliated Managers $ 282.9 -15.9% -23.0% 47.1%
Alliance Capital 1,514.6 55.0% 43.6% 37.9%
Atalanta Sosnoff 36.2 NA NA 60.1%
Conning Corp 89.0 8.1% 4.3% 32.0%
Eaton Vance 294.5 206.1% 106.6% 24.6%
Lexington Global 19.0 142.3% 142.3% 10.0%
Phoenix Investment 251.7 17.3% 9.4% 36.0%
PIMCO Advisors 88.4 110.5% 86.3% 83.7%
United Asset Management 902.7 0.1% -2.3% 33.8%
Median 251.7 36.2% 26.5% 36.0%
--------------------------------------------------------------------------------------------------------------
Management Company $ 7.6 35.8% 40.3% 55.6%
--------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Valuation of Manager
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow Analysis - Base Case
($ in millions)
Projected NTM Total Projected NTM + 1 Total Terminal
------------------------------------- ------------------------------------
9/30/99 12/31/99 3/31/00 6/30/00 9/30/00 12/31/00 3/31/01 6/30/01 EBITDA
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues 1.923 2.162 2.568 2.814 9.467 2.803 2.869 2.861 2.887 11.420
Growth 12.4% 18.8% 9.6% -0.4% 2.3% -0.3% 0.9% 20.6%
EBITDA 1.222 1.400 1.739 1.914 6.275 1.902 1.967 1.959 1.985 7.814 7.814
Margin 63.6% 64.8% 67.7% 68.0% 66.3% 67.9% 68.6% 68.5% 68.8% 68.4%
----------- -------------------
Enterprise Value:
<CAPTION>
EBITDA Exit Multiples
------------------------------------------------
4.0 5.0 6.0 7.0 8.0
------------------------------------------------
<S> <C> <C> <C> <C> <C>
16.0% 35.379 41.186 46.993 52.800 58.607
------------------------------
17.0% 34.876 40.584 46.292 52.000 57.708
Discount Rate (WACC) 18.0% 34.384 39.996 45.607 51.219 56.831
19.0% 33.903 39.421 44.939 50.456 55.974
------------------------------
20.0% 33.433 38.859 44.285 49.711 55.137
Mean 44.613
Median 45.607
<CAPTION>
Projections Assume the Following:
------------------------------------ ----------------------------------------
Asset Mix: Leverage Ratio on Acquisitions
------------------------------------ ----------------------------------------
<S> <C> <C> <C>
50% Mortgage Loans 67.0% Financing on Mortgage Loans
30% Real Estate 62.5% Financing on Real Estate
20% CMBS/Securities 55.0% Financing on Securities
</TABLE>
<PAGE>
Valuation of Manager
---------------------------------------------------------------------------
<PAGE>
Valuation of Manager
--------------------------------------------------------------------------
Worst Case Scenario
- ------------------------------------------------------------------
<PAGE>
Valuation of Manager
------------------------------------------------------------------------
Valuation Summary - Worst Case
($ in millions)
<TABLE>
<CAPTION>
Indications of Value from Prior Offers Range of Value Indications
-------------------------------------- --------------------------
----------------------------------------------------------------------------------------------------------------------------
Concluded Indications of Value Range $ 45.0 - $ 60.0
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Representative Less Range of
Transaction Approach EBITDA Multiple Range Enterprise Value Range Debt Market Value of Equity
-------------------- -------------- -------------- ---------------------- ----- ----------------------
LQA EV/EBITDA $ 5.2 (1) 8.0 - 9.0 $ 41.3 - $ 46.5 $ - $ 41.3 - $ 46.5
LTM EV/EBITDA 4.6 9.0 - 10.0 41.6 - 46.2 - 41.6 - 46.2
Transaction
Value
------------
Advisor as % of Transaction 362.8 (2) 9.0% - 10.0% 32.6 - 36.3 - 32.6 - 36.3
Median 41.3 46.2
Mean 38.5 43.0
----------------------------------------------------------------------------------------------------------------------------
Concluded Transaction Approach $ 41.3 - $ 46.2
----------------------------------------------------------------------------------------------------------------------------
Representative
Market Capitalization Approach EBITDA
------------------------------ --------------
LQA EV/EBITDA 5.2 (1) 7.0 - 8.0 36.2 - 41.3 - 36.2 - 41.3
LTM EV/EBITDA 4.6 7.0 - 8.0 32.3 - 37.0 - 32.3 - 37.0
NFY EV/EBITDA 4.5 (3) 6.5 - 7.5 29.2 - 33.7 - 29.2 - 33.7
NTM EV/EBITDA 5.5 (4) 5.0 - 6.0 27.7 - 33.2 - 27.7 - 33.2
NFY+1EV/EBITDA 6.3 (5) 4.0 - 5.0 25.4 - 31.7 - 25.4 - 31.7
Median 29.2 33.7
Mean 30.1 35.4
----------------------------------------------------------------------------------------------------------------------------
Concluded Market Approach $ 29.2 - $ 33.7
---------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow Approach
-----------------------------
----------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow Conclusions 33.3 - 43.8 $ 33.3 - $ 43.8
---------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Management Company Valuation Conclusion $ 37.0 - $ 45.0
----------------------------------------------------------------------------------------------------------------------------
(1) Latest quarter annualized operating results.
(2) Based on 28.5 million ICMI shares outstanding, an $11.50 offer price per share, and $35.0 million for management
company.
(3) NFY EBITDA is calculated by adding the YTD 6/30/99 and projected operating results through the six months ending
12/31/99.
(4) Represents the projected 12-month period ending 6/30/2000.
(5) Represents the projected 12-month period ending 6/30/2001.
</TABLE>
<PAGE>
Valuation of Manager
------------------------------------------------------------------------
Representative Levels - Worst Case
<TABLE>
<CAPTION>
NFY + 1 NTM NFY LQA(1) LTM
12/31/00 6/30/00 12/31/99 6/30/99 6/30/99 FYE 1998
Fees -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Base Management Fees $ 9,874,488 $ 8,728,287 $7,591,052 $7,182,980 $7,546,328 $6,340,364
Incentive Management Fees - - 41,000 164,000 41,000 -
-----------------------------------------------------------------------------------
Total Fees 9,874,488 8,728,287 7,632,052 7,346,980 7,587,328 6,340,364
Expenses
Salaries 3,530,929 3,191,486 3,145,078 1,430,664 1,740,181 1,659,329
Bonuses & Incentives NA NA NA 748,900 744,014 469,505
Other NA NA NA 371,524 773,026 720,933
-----------------------------------------------------------------------------------
Total Expenses 3,530,929 3,191,486 3,145,078 2,551,088 3,257,221 2,849,767
Professional Services(2) - - - - 90,522 129,694
General & Administrative Expenses NA NA NA 27,704 18,886 9,486
-----------------------------------------------------------------------------------
Total Expenses 3,530,929 3,191,486 3,145,078 2,578,792 3,366,629 2,988,947
EBITDA $ 6,343,558 $ 5,536,801 $4,486,974 $4,768,188 $4,220,699 $3,351,417
===================================================================================
Adjustment(3) 400,000 400,000
Adjusted EBITDA 5,168,188 4,620,699
===========================
Assets Under Management 988.397 1,088.651 807.358 703.870
========================================================================
(1) Latest Quarter Annualized. Calculated by annualizing the latest quarter operating results.
(2) The LTM and LQA ended June 30, 1999, exclude $91,000 of settlement expenses.
(3) Addback of Salaries associated with excess personnel.
</TABLE>
<PAGE>
Valuation of Manager
------------------------------------------------------------------------
Quantitative Rankings - Worst Case
($ in millions)
<TABLE>
<CAPTION>
Projected Projected LTM
Real Estate Management NTM EBITDA NFY EBITDA EBITDA
Comparable Companies Revenues Growth Growth Margin
-------------------- -------- ------ ------ ------
<S> <C> <C> <C> <C>
CB Richard Ellis $ 1,114.5 17.3% 11.1% 11.4%
Grubb & Ellis 315.0 50.8% 50.8% 6.4%
Insignia 553.4 35.0% 22.4% 7.7%
Intergroup 13.0 NA NA 7.1%
Jones Lang Salle 989.5 44.3% 44.3% 10.1%
Trammell Crow 582.2 46.9% 34.2% 15.0%
DeWolfe Companies 155.1 NA NA 8.6%
Median 553 44.3% 34.2% 8.6%
-----------------------------------------------------------------------------------------------------------------
Management Company $ 7.6 19.8% 33.9% 55.6%
-----------------------------------------------------------------------------------------------------------------
Projected Projected LTM
Asset Management NTM EBITDA NFY EBITDA EBITDA
Comparable Companies Revenues Growth Growth Margin
-------------------- -------- ------ ------ ------
Affiliated Managers $ 282.9 -15.9% -23.0% 47.1%
Alliance Capital 1,514.6 55.0% 43.6% 37.9%
Atalanta Sosnoff 36.2 NA NA 60.1%
Conning Corp. 89.0 8.1% 4.3% 32.0%
Eaton Vance 294.5 206.1% 106.6% 24.6%
Lexington Global 19.0 142.3% 142.3% 10.0%
Phoenix Investment 251.7 17.3% 9.4% 36.0%
PIMCO Advisors 88.4 110.5% 86.3% 83.7%
United Asset Management 902.7 0.1% -2.3% 33.8%
Median 251.7 36.2% 26.5% 36.0%
-----------------------------------------------------------------------------------------------------------------
Management Company $ 7.6 19.8% 33.9% 55.6%
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Valuation of Manager
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Discounted Cash Flow Analysis - Worst Case
($ in millions)
--------------------------------------------------------------------------------------------------------
Projected NTM Total Projected NTM+1 Total Terminal
----------------------------------- ----------------------------------- EBITDA
9/30/99 12/31/99 3/31/00 6/30/00 9/30/00 12/31/00 3/31/01 6/30/01
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues 1.873 1.995 2.231 2.629 8.728 2.551 2.464 2.457 2.451 9.923
Growth 6.5% 11.8% 17.9% -3.0% -3.4% -0.3% -0.2% 13.7%
EBITDA 1.172 1.233 1.402 1.729 5.537 1.650 1.562 1.555 1.549 6.316 6.316
Margin 62.6% 61.8% 62.9% 65.8% 63.4% 64.7% 63.4% 63.3% 63.2% 63.7%
-------- ------------------
Enterprise Value:
EBITDA Exit Multiples
-----------------------------------------------------------------
4.0 5.0 6.0 7.0 8.0
-----------------------------------------------------------------
14.0% 29.892 34.752 39.612 44.472 49.333
-----------------------------------
15.0% 29.464 34.240 39.016 43.792 48.568
Discount Rate (WACC) 16.0% 29.047 33.741 38.435 43.129 47.823
17.0% 28.639 33.253 37.867 42.481 47.095
-----------------------------------
18.0% 28.240 32.776 37.312 41.849 46.385
Mean 38.439
Median 38.435
Projections Assume the Following:
------------------------------------------------- --------------------------------------------------
Asset Mix Leverage Ratio on Acquisitions
------------------------------------------------- --------------------------------------------------
50% Mortgage Loans 50.0% Financing on Mortgage Loans
30% Real Estate 50.0% Financing on Real Estate
20% CMBS/Securities 50.0% Financing on Securities
</TABLE>
<PAGE>
Valuation of Manager
---------------------------------------------------------------------------
<PAGE>
Valuation of Manager
------------------------------------------------------------------------
Supporting Schedules
<PAGE>
Valuation of Manager
----------------------------------------------------------------------
Multiple Selection Rationale
Overall, in each "case" scenario, the Manager has higher long term
growth potential, stronger margins, more stable income, but
generally less product diversification than the public comparable
groups.
Manager is smaller than the public comparables.
LTM multiples reflect the growth prospects, superior profitability
and stability of cash flows.
NFY multiples reflect the timing difference of FYE in the case of
Grubb & Ellis ("GBE"). GBE's NFY multiple is a forward 12-month
multiple given that GBE's year end is in June. Therefore, GBE's NFY
multiple reflects more growth than the other comparables resulting
in a lower median NFY multiple, and therefore a higher percentage of
the median for the selected multiple.
NTM and NFY + 1 multiples, like LTM multiples, reflect higher growth
prospects, superior profitability, and stability of cash flows.
<PAGE>
Valuation of Manager
- --------------------------------------------------------------------------------
Multiple Selection
($ in millions)
<TABLE>
<CAPTION>
LTM NFY NTM NFY/+1/
Real Estate Management EV/ EV/ EV/ EV/
Comparable Companies EBITDA EBITDA EBITDA EBITDA
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CB Richard Ellis 5.6x 5.0x 4.8x 4.6x
Grubb & Ellis 5.4x 3.6x 3.6x NA
Insignia 8.7x 7.1x 6.4x 6.1x
Intergroup *31.9x NA NA NA
Jones Lang Salle 7.3x 5.1x 5.1x NA
Trammell Crow 7.3x 5.4x 5.0x 4.7x
DeWolfe Companies 5.2x NA NA NA
Mean 6.6x 5.2x 5.0x 5.1x
Median 6.4x 5.1x 5.0x 4.7x
-----------------------------------------------------------------------------------------
Selected Multiple (low end of range) 7.0x 6.5x 5.0x 4.0x
Selected Multiple (high end of range) 8.0x 7.5x 6.0x 5.0x
% of Real Estate Mgmt. Median (low end of range) 108.7% 128.3% 100.9% 84.9%
% of Real Estate Mgmt. Median (high end of range) 124.3% 148.0% 121.1% 106.1%
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LTM NFY NTM NFY +1
Asset Management EV/ EV/ EV/ EV/
Comparable Companies EBITDA EBITDA EBITDA EBITDA
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Affiliated Managers 6.1x NA NA NA
Alliance Capital 8.8x 6.2x 5.7x 5.5x
Atalanta Sosnoff *4.0x NA NA NA
Conning Corp 4.0x 3.9x 3.7x 3.6x
Eaton Vance *17.8x 8.6x 5.8x 5.4x
Lexington Global *4.4x *1.8x *1.8x NA
Phoenix Investment 8.8x 8.1x 7.5x 7.2x
PIMCO Advisors 22.5x 12.1x 10.7x 10.0x
United Asset Management 6.6x 6.7x 6.6x 6.5x
Mean 9.5x 7.6x 6.7x 6.4x
Median 7.7x 7.4x 6.2x 6.0x
-----------------------------------------------------------------------------------------
% of Asset Mgmt. Median (low end of range) 90.9% 87.8% 80.7% 67.0%
% of Asset Mgmt. Median (high end of range) 103.9% 101.3% 96.9% 83.7%
-----------------------------------------------------------------------------------------
</TABLE>
* Excluded from mean and median calculations.
<PAGE>
Valuation of Manager
--------------------------------------------------------------------------
Analysis of Third Party Management Contract Offers
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Valuation of Manager
- ------------------------------------------------------------------------------------------------------------------------------------
Implied % of
Termination Fee Termination Fee/ ------------
--------------- --------------- Total Consideration
Offering Party Date Cash Offers Manager EBITDA/1/ Offer for ICCMIC /2/ Comments:
- -------------- ---- ----------- ----------------- ---------------- ------------------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wilshire Real Estate 11-Sep-98 $60.0 14.2x $11.33 per share in common 15.7% ICCMICs Board rejected
Investment Trust stock based on Wilshire's the merger offer for
closing price on 9/11/98. several reasons,
including the soft
market for WRIE's
stock
- ------------------------------------------------------------------------------------------------------------------------------------
AIMCO 20-Nov-98 $52.0 12.3x $12.82 per share in convertible N/A
preferred stock based on
an assumed liquidation value
of ICCMIC's assets.
15-Mar-99 $50.0 11.8x $11.28 per share in convertible
preferred stock based on
Prudential Securities' analysis.
- ------------------------------------------------------------------------------------------------------------------------------------
Anthracite 24-Nov-98 N/A N/A N/A N/A Initial offer for
termination of the
Management Agreement was
formula based, capped
and unacceptable to the
Manager.
19-Mar-99 $50.0 11.8x 1.4 to 1 ratio of Anthracite 14.3% Anthracite's management
common stock for ICCMIC common company, Blackrock,
stock. Based on a $7.625 price would survive the
for Anthracite common stock, proposed merger, with
bid valued at $10.68 per ICCMIC key Manager employees
share. folded into Blackrock.
3-Apr-99 $45.0 10.7x 1.4 to 1 ratio of Anthracite 12.9%
common stock for ICCMIC common
stock. Based on a $7.625 price
for Anthracite common stock,
bid valued at $10.68 per ICCMIC
share.
- ------------------------------------------------------------------------------------------------------------------------------------
Northstar 24-Nov-98 $50.0 11.8x Bid valued at $14.50 per share 10.8% Northstar's management
in stock for stock transactions. company would survive
Limited downside risk protection the proposed merger.
in event Northstar stock falls
after proposed merger.
- ------------------------------------------------------------------------------------------------------------------------------------
Starwood 24-Nov-98 $50.0 11.8x Bid valued at $13.20 per share 11.7% The Manager would
in Starwood common stock, which execute a 5-year non-
was trading at a very high P/E compete agreement and
multiple. give a first right
of refusal to Starwood
for high yielding
mortgage or mezzanine
loan investment
opportunities sourced
by the Manager.
- ------------------------------------------------------------------------------------------------------------------------------------
ITLA 12-Mar-99 $45.0 10.7x $11.00 per share in ITLA 12.6% $25 million for
common stock with up to 67% of terminating the
the consideration in cash if Management Agreement +
elected by ICCMIC stockholders. $20 million to the
Manager for certain
options, intellectual
property, non-compete
agreement, first right
of refusal to purchase
loans from Southern
Pacific Bank,
etc.
- ------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Low $45.0 10.7x 10.8%
High $60.0 14.2x 15.7%
Mean $50.3 11.9x 13.0%
Median $50.0 11.8x 12.7%
------------------------------------------------------------------------------------------------
/1/Based on the current Manager LTM EBITDA of $4.2 million.
/2/Based on analysis prepared by Prudential Securities dated May 3, 1999 and calculations based on the value of the total
consideration offered for ICCCMIC at the time of each offer.
</TABLE>
<PAGE>
Valuation of Manager
--------------------------------------------------------------------------
Relative Contribution
($ in millions)
ICCMIC LTM Total Revenues $ 73.0
Management Company LTM Total Revenues 7.6
--------------------------------------------------------
Management Company as % of ICCMIC Revenues 10.4%
--------------------------------------------------------
ICCMIC LTM EBITDA $ 44.2
Management Company LTM EBITDA 4.2
--------------------------------------------------------
Management Company as % of ICCMIC EBITDA 9.6%
--------------------------------------------------------
<PAGE>
Valuation of Manager
- --------------------------------------------------------------------------------
Management Companies - Consideration Paid Analysis
Consideration Paid to Advisors
as a Percent of Acquiror's Total Stock
<TABLE>
<CAPTION>
Total Shares Offer as %
Date Target Acquiror Shares Outstanding of Total
- --------- --------------------------------- ------------------------------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
01/01/95 R.M. Bradley & Co., Inc. Bradley Real Estate, Inc. 325,000 8,522,054 3.81%
08/17/95 R.I.C. Advisors Realty Income 990,709 20,436,237 4.85%
08/01/96 Lexford Properties Cardinal Realty Services 700,000 (1) 4,784,668 14.63%
02/28/97 Berkshire Realty Advisors Berkshire Realty Company, Inc. 3,000,000 (2) 30,231,329 9.92%
05/14/97 Managing General Partner U.S. Restaurant Properties 1,321,250 (3) 9,196,254 14.37%
05/15/97 CNL Realty Advisors Commercial Net Lease Realty 2,200,000 (4) 25,593,672 8.60%
07/01/97 Countrywide Asset Management Corp. IndyMac Mortgage Holdings, Inc. 3,440,860 57,548,312 5.98%
09/09/97 Security Capital Group Prologis 3,692,023 (5) 108,778,419 3.39%
09/09/97 Security Capital Group Archstone Communities Trust 3,295,533 (5) 92,481,177 3.56%
09/09/97 Financial Asset Management LLC Asset Investors Corporation 4,583,479 (6) 29,915,910 15.32%
11/14/97 Captec Net Lease Realty Advisors, Inc. Captec Net Lease Realty 661,723 9,455,000 7.00%
06/16/99 Starwood Financial Advisors Starwood Financial Trust 4,000,000 (7) 89,942,491 4.60%
Median: 6.49%
Mean: 8.00%
Excluding 1995 Deals
Median: 7.80%
Mean: 8.74%
</TABLE>
(1) Represents total consideration given to Lexford shareholders. Initially
issued 250,000 shares, with 450,000 shares in escrow. Shares in escrow will be
distributed based upon Lexford achieving certain profit hurdles by 1999.
(2) Berkshire Realty Company (BRI) acquired its advisory company, Berkshire
Realty Advisors, on 3/31/96 for 1.3 million operating units. On 2/28/97, BRI
acquired its external property management business for 1.7 million OP units.
(3) Represents total consideration given to the Managing General Partner for
management services. Initially issued 850,000 shares of which 78,780 were for
the GP's 1% ownership interest in the partnership. Additional 550,000 shares to
be issued in year 2000, based upon fees and distributions which otherwise would
have been payable to GP.
(4) Represents total consideration of 2.2 million shares. CNL Advisor is given
10% of shares up front, remaining 90% is payable quarterly based upon the
acquiror achieving certain levels of acquisitions and developments.
(5) Archstone (formerly Security Capital Pacific Trust) and Prologis (formerly
Security Capital Industrial Trust) acquired certain wholly-owned subsidiaries
of Security Capital Group.
(6) 3.383 million OP units issued originally; with up to 1.2 million additional
units issuable upon certain performance targets. All OP units are convertible
into common shares on a 1 for 1 basis.
(7) Starwood Financial Trust (APT) will acquire TriNet Corporate Realty Trust in
a stock for stock merger. Starwood will be the surviving entity and agreed to
purchase the ownership interest in its external advisor for 4 million shares of
the combined entity.
<PAGE>
Valuation of Manager
- --------------------------------------------------------------------------------
Transaction and IPO Summary
<TABLE>
<CAPTION>
Date Implied Purchase Implied Purchase
Announced Target Acquiror EBITDA Multiple EBIT Multiple
<S> <C> <C> <C> <C>
8/5/99 AMREIT Managers, L.P. Fortress Investment Group LLC NA NA
6/16/99 Starwood Financial Advisors Starwood Financial Trust NA NA
2nd Qtr 99 Target A Acquiror A NA NA
12/19/97 Imperial Credit Advisors, Inc. Impac Mortgage Holdings, Inc. NA NA
11/01/97 Financial Asset Management LLC Asset Investors Corporation 7.8 (1) NA
11/14/97 Captec Net Lease Realty Advisors, Inc. Captec Net Lease Realty NA NA
07/01/97 Countrywide Assets Mgmt. Cos. IndyMac Mortgage Holdings, Inc. NA NA
05/15/97 CNL Realty Advisors Commercial Net Lease Realty NA NA
05/14/97 Managing General Partner U.S. Restaurant Properties NA NA
04/22/97 The Galbreath Company & Affiliates LaSalle Partners 6.4 7.6
02/28/97 Berkshire Companies LP Berkshire Realty Company, Inc. NA NA
02/21/97 NHP Inc. Insignia Financial Group 12.4 17.7
04/21/97 NHP Inc. Apartment Investment & Management Co. 11.4 16.4
11/07/96 Homeowners Group Inc. Cross Country Group Inc. 13.6 24.5
08/01/96 Lexford Properties, Inc. Cardinal Realty Services 6.2 NA
06/17/96 Edward S. Gordon Company Insignia Financial Group (not detailed) 4.9 NA
11/16/95 Prime Management Group FirstService Corp. 18.8 65.4
08/17/95 R.I.C. Advisor Realty Income NA NA
12/20/94 Shurgard Inc. Shurgard Storage Centers 11.4 12.3
06/02/94 Koll Management Services Freeman Spogli & Co. 9.6 11.0
08/18/93 Equity Properties Mgmt. Co. Equity Residential Properties Trust NA NA
Median 10.5 16.4
Mean 10.3 22.1
</TABLE>
(1) Per Jefferies analysis, as part of a fairness opinion on this transaction.
<PAGE>
Valuation of Manager
- --------------------------------------------------------------------------------
Revenue Multiples based on Recent Transactions
<TABLE>
<CAPTION>
Date Implied Purchase
Announced Target Acquiror Revenue Multiple
<S> <C> <C> <C>
8/5/99 AMREIT Managers, L.P. Fortress Investment Group LLC 6.65 (1)
6/16/99 Starwood Financial Advisors Starwood Financial Advisors 9.78 (2,3)
2nd Qtr 99 Target A Acquiror A 10.29 (3)
2/28/99 Laser Advisors Inc. Laser Mortgage Management Inc. NA (4)
12/19/97 Imperial Credit Advisors, Inc. Impac Mortgage Holdings, Inc. 9.40 (5,6)
7/1/97 Countrywide Assets Mgmt. Cos. IndyMac Mortgage Holdings, Inc. 8.69 (7)
Mean 8.96
Median 9.40
</TABLE>
(1) LTM revenue through 6/30/99.
(2) The implied multiple is based upon an assumed $30 price per share multiplied
by 4 million shares issued to the advisor as consideration in the
transaction.
(3) LTM revenue through 3/31/99.
(4) Laser Mortgage Management Inc. terminated the management agreement with
Laser Advisors Inc. due to poor performance (see page 34), and subsequently
Laser Mortgage Management Inc. became internally advised. Michael Smirlock
resigned as CEO of Laser Advisors, Inc. on July 29, 1998 and was fired as
Chairman and CEO of Laser Mortgage Management, Inc. on July 30, 1998. We
consider these facts extremely relevant to the internalization transaction
and the consideration paid, therefore, we remove the transaction from our
revenue multiple calculations.
(5) Purchase price for the advisor was for a 75% interest in the management
agreement.
(6) LTM revenue through 12/31/97.
(7) LTM Revenue through 12/31/97 based on the announcement date of 1/29/97.
Note: Because of the non-public nature of these management companies, we do not
have profitability figures for the acquired companies and cannot calculate
multiples of EBITDA. However, we have calculated the revenue multiples that are
implied by these transactions and list them for presentation purposes. The data
suggests "going concern" valuations in the marketplace for external advisors in
transactions similar to the Transaction.
<PAGE>
Valuation Manager
<TABLE>
<CAPTION>
Mortgage REIT Analysis
($ in millions)
-----------------------------------------------------------------------------
Total Assets Growth In Assets
----------------------------------------------------------------------------- Dividend
12/31/97 6/30/98 12/31/98 6/30/99 12/31/97-12/31/98 6/30/98-6/30/99 Yield/2/ ROA/2/ Debt/EV/2/
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amresco NA $ 142.4 $ 190.9 $ 234.7 NA 64.8% 8.3% 4.5% 49.1%
Anthracite Capital NA 1,069.4 956.4 551.9 NA -48.4% 13.2% 0.9% 81.9%
Capstead Mortgage $ 12,358 11,089.8 7,100.3 9,338.4 -42.5% -15.8% 21.4% -1.1% 94.7%
Chastain Capital NA 127.5 154.5 74.0 NA -41.9% 6.4% -23.0% 16.5%
Clarion Commercial NA 248.4 148.0 176.5 NA -28.9% 0.0% -38.5% 81.9%
Criimi Mae 1,873.3 2,842.1 2,437.9 2,385.7 30.1% -16.1% 27.8% 1.2% 91.5%
Dynex Capital 5,378.2 6,070.6 5,178.8 4,709.5 -3.7% -22.4% 8.1% -0.1% 87.4%
Impac Commercial 218.8 522.1 451.2 418.0 106.2% -19.9% 23.9% -0.8% 86.2%
Laser Mortgage 3,793.2 3,963.1 874.1 300.4 -77.0% -92.4% 65.9% -3.2% 77.7%
Ocwen Asset Investment 288.0 822.1 888.3 778.6 208.4% -5.3% 22.5% -3.4% 84.1%
Starwood Financial /1/ 1,135.9 1,312.0 2,059.6 2,171.6 81.3% 65.5% 3.0% 5.2% 36.9%
Wilshire Real Estate NA 441.9 381.1 297.2 NA -32.7% 21.4% -18.9% 85.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Imperial Credit Commercial 495.1 695.7 757.2 703.9 52.9% 1.2% 11.8% 3.0% 47.6%
- -----------------------------------------------------------------------------------------------------------------------------------
High 208.4% 65.5% 65.9% 5.2% 94.7%
Low -77.0% -92.4% 0.0% -38.5% 16.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Median 1,873.3 945.7 881.2 484.9 -53.0% -48.7% 17.3% -0.9% 83.0%
Mean 3,577.9 2,387.6 1,735.1 1,786.4 -51.5% -25.2% 18.5% -6.4% 72.8%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Conclusion: ICCMIC is approximately the median size of its peer group. Its asset growth rate has been better than its peer group
from 12/31/97 to 12/31/98 and from 6/30/98 to 6/30/99 resulting in generally better stock price performance (refer to the Stock
Price Performance chart), higher ROA, lower leverage and a lower yield.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Starwood Financial had no material assets outstanding as of 12/31/97. The
amount outstanding represents total assets as of 3/31/98.
(2) Calculated as of August 17, 1999.
<PAGE>
Valuation of Manager
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Mortgage REIT Analysis (continued)
---------------------------------------------------------------------------------------------------------
Book Value per Share Growth in Book Value per Share
---------------------------------------------------------------------------------------------------------
12/31/97 6/30/98 12/31/98 6/30/99 12/31/97-12/31/98 6/30/98-6/30/99
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amresco NA $ 14.05 $ 13.02 $ 12.92 NA -8.1%
Anthracite Capital NA 14.79 8.66 8.49 NA -42.6%
Capstead Mortgage $ 11.65 8.21 8.05 7.71 -31.0% -6.1%
Chastain Capital NA 13.91 8.14 7.85 NA -43.5%
Clarion Commercial NA 20.33 9.03 9.50 NA -53.3%
Criimi Mae 10.27 14.61 5.75 5.25 -44.0% -64.1%
Dynex Capital 9.45 9.04 7.07 6.75 -25.2% -25.4%
Impac Commercial 12.87 12.92 11.98 13.66 -6.9% 5.7%
Laser Mortgage 14.09 12.68 7.16 4.64 -49.2% -63.4%
Ocwen Asset Investment 14.30 14.43 11.66 10.97 -18.5% -24.0%
Starwood Financial (1) NA 14.32 18.50 19.10 NA 33.4%
Wilshire Real Estate NA 13.93 6.30 6.39 NA -54.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Imperial Credit Commercial 13.90 13.89 14.34 14.14 3.2% 1.8%
- -----------------------------------------------------------------------------------------------------------------------------------
High -6.9% 33.4%
Low -49.2% -64.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Median 12.26 13.99 8.40 8.17 -28.1% -34.0%
Mean 12.11 13.60 9.61 9.43 -29.1% -28.8%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Starwood Financial had no material assets outstanding as of 12/31/97.
</TABLE>
<PAGE>
Valuation of Manager
------------------------------------------------------------------------
Stock Price Performance Analysis
[CHART APPEARS HERE]
(Description of Chart: The Stock Price Performance Analysis chart compares the
performance of ICMI's stock price to the performance of the Mortgage REIT Index
from January 2, 1998 through August 2, 1999 on an index ranging from 0.0 to
120.0).
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period MORTGAGE
(Fiscal Year Covered) REIT INDEX I:ICCMIC
- ------------------- ---------- ---------
<S> <C> <C>
9/1/99 42.8949 73.2218
8/27/99 42.9737 71.9665
8/20/99 43.7214 71.9665
8/13/99 49.1796 71.9665
8/6/99 48.0961 72.8033
7/30/99 54.6625 73.6402
7/23/99 64.5679 74.4770
7/16/99 68.6281 71.9665
7/9/99 81.8016 71.5481
7/2/99 68.0938 72.3849
6/25/99 50.6048 75.3138
6/18/99 46.3209 73.2218
6/11/99 71.3848 71.9665
6/4/99 72.4996 71.5481
5/28/99 68.4037 68.6193
5/21/99 64.0105 69.4561
5/14/99 67.7378 68.6193
5/7/99 63.2728 64.4352
4/30/99 64.2913 65.6904
4/23/99 68.2632 60.2511
4/16/99 59.1331 62.3431
4/9/99 54.8245 57.9498
4/2/99 58.4288 61.0879
3/26/99 57.8234 59.8326
3/19/99 54.9337 57.3222
3/12/99 57.0393 62.7615
3/5/99 59.5154 59.8326
2/26/99 61.2525 60.6695
2/19/99 58.0040 59.8326
2/12/99 60.2193 60.2511
2/5/99 62.4695 61.9247
1/29/99 64.7492 64.0167
1/22/99 64.6101 65.6904
1/15/99 70.8938 69.8745
1/8/99 74.3761 69,8745
1/1/99 69.9632 62.7615
12/25/98 66.7748 61.9247
12/18/98 64.5219 63.5983
12/11/98 73.2999 61.0879
12/4/98 79.2548 66.5272
11/27/98 81.2619 67.3640
11/20/98 81.4895 66.9456
11/13/98 76.6146 62.1339
11/6/98 77.8539 59.4142
10/30/98 75.2855 56.0670
10/23/98 60.7281 58.9958
10/16/98 55.7314 57.7406
10/9/98 52.7256 50.2092
10/2/98 75.9986 66.4561
9/25/98 84.0770 66.4561
9/18/98 78.4092 63.1799
9/11/98 67.0504 61.0879
9/4/98 69.2597 59.4142
8/28/98 73.1627 60.6695
8/21/98 77.5822 68.6193
10/14/98 92.3470 66.9456
8/7/98 92.6658 69.0377
7/31/98 94.1852 72.8033
7/24/98 95.0459 83.6820
7/17/98 93.8640 84.1004
7/10/98 96.3103 86.1925
7/3/98 92.6976 87.4477
6/26/98 87.9000 87.0293
6/19/98 83.2180 92.4686
6/12/98 82.7717 91.6318
6/5/98 86.0149 93.7239
5/29/98 86.8464 92.6778
5/22/98 88.3228 93.7239
5/15/98 89.4410 94.5607
5/8/98 89.5662 96.2343
5/1/98 89.1928 97.9080
4/24/98 90.1140 103.7657
4/17/98 88.7049 107.1130
4/10/98 88.8260 106.2762
4/3/98 88.9697 100.8368
3/27/98 87.8125 102.0921
3/20/98 89.8977 102.9289
3/13/98 92.8296 107.9498
3/6/98 90.3184 109.6234
2/27/98 90.6219 102.9289
2/20/98 93.4684 97.4895
2/13/98 95.9957 97.0711
2/6/98 93.3435 102.0921
1/30/98 95.5329 100.4184
1/23/98 96.1201 105.4393
1/16/98 95.2351 103.7657
1/9/98 96.5942 100.4184
1/2/98 100.0000 100.0000
</TABLE>
Note: Mortgage REIT Index is comprised of the Companies: Amresco
Capital Trust, Anthracite Capital, Capstead Mortgage, Chastain Capital, Clarion
Commercial, Criimi Mae, Dynex Capital, Impac Commercial, Laser Mortgage, Ocwen
Asset Investment, Starwood Financial, and Wilshire Real Estate.
<PAGE>
Valuation of Manager
------------------------------------------------------------------------
Weighted Average Cost of Capital ("WACC") Analysis-Real Estate
Management Comparable Companies
<PAGE>
Valuation of Manager
($ in millions)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Adjusted Adjusted Market Debit to
Levered Levered Unlevered Unlevered Preferred Value of Enterprise Debt to Enterprise
Company Name Beta Beta Beta Beta Debt Stock Equity Value Equity Value
- ----------------------- ------- --------- ---------- ---------- ------ ---------- -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CB RICHARD ELLIS SVCS 0.88 1.00 0.45 0.52 441.15 $0.0 $280.7 721.9 157.1% 61.1%
GRUBB & ELLIS CO 0.44 0.44 0.41 0.41 11.42 $0.0 $ 99.7 111.1 11.4% 10.3%
INSIGNIA FINANCIAL GROUP INC. 0.36 0.39 0.25 0.27 173.93 $0.0 $237.7 411.6 73.2% 42.3%
INTERGROUP CORP 0.63 0.63 0.25 0.25 60.12 $0.0 $24.2 84.4 248.0% 71.3%
JONES LANG LASALLE INC. *0.65 *0.74 *0.44 *0.50 341.96 $0.0 $427.0 768.9 80.1% 44.5%
TRAMMELL CROW COMPANY 0.54 0.64 0.46 0.54 157.79 $0.0 $526.3 684.1 30.0% 23.1%
DEWOLFE COMPANIES INC. *0.02 *0.02 *0.01 *0.01 45.20 $0.0 $27.7 72.9 163.0% 62.0%
-----------------------------------------------------------------------------------------------------
Mean 0.57 0.62 0.37 0.40 175.9 - 231.9 407.8 109.0% 44.9%
Median 0.54 0.63 0.41 0.41 157.8 - 237.7 411.6 80.1% 44.5%
-----------------------------------------------------------------------------------------------------
Preferred To Equity to
Enterprise Enterprise
Value Value
------------ -----------
CB RICHARD ELLIS SVCS 0.0% 38.9%
GRUBB & ELLIS CO 0.0% 89.7%
INSIGNIA FINANCIAL GROUP INC. 0.0% 57.7%
INTERGROUP CORP 0.0% 28.7%
JONES LANG LASALLE INC. 0.0% 55.5%
TRAMMELL CROW COMPANY 0.0% 76.9%
DEWOLFE COMPANIES INC. 0.0% 38.0%
---------------------------
Mean 0.0% 55.1%
Mediam 0.0% 55.5%
---------------------------
Market Decile Adjusted Equity Size
Value of Based Levered Levered Risk Risk Cost of Cost of Cost of
Debt Equity Beta Beta Beta Premia Premia Equity Debt Preferred WACC
----- -------- ------- ------- --------- ------- ------ ------- ------- --------- ----
CB RICHARD ELLIS SVCS 441.2 280.7 1.28 0.88 1.00 7.8% 1.72% 15.8% 7.9% 0.0% 9.0%
GRUBB & ELLIS CO 11.4 99.7 1.46 0.44 0.44 7.8% 4.35% 14.0% 7.9% 0.0% 13.0%
INSIGNIA FINANCIAL GRUOP INC. 173.9 237.7 1.35 0.36 0.39 7.8% 1.96% 11.2% 7.0% 0.0% 8.3%
INTERGROUP CORP 60.1 24.2 1.46 0.63 0.63 7.8% 4.35% 15.5% 7.6% 0.0% 7.7%
JONES LANG LASALLE INC. 342.0 427.0 1.28 0.65 0.74 7.8% 1.72% *13.7% 6.1% 0.0% *9.2%
TRAMMELL CROW COMPANY 157.8 526.3 1.24 0.54 0.64 7.8% 0.98% 12.2% 8.3% 0.0% 10.5%
DEWOLFE COMPANIES INC. 45.2 27.7 1.46 0.02 0.02 7.8% 4.35% *10.7% 7.5% 0.0% *6.9%
</TABLE>
<TABLE>
----------------------------------
<S> <C> <C> <C> <C>
Mean 13.7% 7.5% 0.0% 9.7%
Median 14.0% 7.6% 0.0% 9.0%
----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Assumptions
- -----------
<S> <C>
20-Year Treasury Bond Yield 6.20%
Equity Risk Premia (a) 7.80%
Size Risk Premia(a) 4.35%
Company Specific Risk Premium 0.00%
Company Specific Decile Beta 1.46
Levered Beta 0.61
Selected Unlevered Beta 0.41
Tax Rate 40.0%
Preferred to Enterprise Value 0.0%
Debt to Enterprise Value 44.5%
Equity to Enterprise Value 55.5%
Cost of Debt 7.6%
Cost of Preferred 0.0%
Cost of Equity 15.3%
WACC 10.5%
- ---------------------------
* Excluded from the Range
(a) Ibbotson Associates Stocks, Bonds Bills and Inflation 1998 Yearbook, pp. 165.
</TABLE>
<PAGE>
Valuation of Manager
------------------------------------------------------------------------
Implied Growth Analysis - Real Estate Management Comparable Companies
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
NTM LTM Growth
Company Name WACC EV/EBITDA EV/EBITDA One Year Terminal
------------------------------------------ ---------------------------------------------------------------------------
CB RICHARD ELLIS SVCS 9.0% 4.77 5.60 17.3% -7.5%
GRUBB & ELLIS CO 13.0% 3.55 5.36 50.8% -4.8%
INSIGNIA FINANCIAL GROUP INC 8.3% 6.44 8.69 35.0% -2.9%
INTERGROUP CORP 7.7% NA 31.90 NA 4.4%
JONES LANG LASALLE INC 9.2% 5.07 7.32 44.3% -3.9%
TRAMMELL CROW COMPANY 10.5% 4.95 7.28 46.9% -2.8%
DEWOLFE COMPANIES INC 6.9% NA 5.20 NA -10.4%
----------------------------------------------------------------------------------------------------------------------------
Low 6.9% 17.3% -10.4%
High 13.0% 50.8% 4.4%
Median 9.0% 44.3% -3.9%
Mean 9.2% 38.9% -4.0%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Valuation of Manager
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Weighted Average Cost of Capital ("WACC") Analysis--Asset Management Comparable
($ in millions)
Market Debt to Preferred to Equity to
Preferred Value of Enterprise Debt to Enterprise Enterprise Enterprise
Company Name Debt Stock Equity Value Equity Value Value Value
------------ ---- --------- -------- ---------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AFFILIATED MANAGERS $ 174.8 $ -- $ 645.8 $ 820.6 27.1% 21.3% 0.0% 78.7%
ALLIANCE CAPITAL MGM 356.3 -- 4,808.6 5,164.9 7.4% 6.9% 0.0% 93.1%
ATALANTA SOSNOFF CAP -- -- 95.0 95.0 0.0% 0.0% 0.0% 100.0%
CONNING CORP -- -- 169.1 169.1 0.0% 0.0% 0.0% 100.0%
EATON VANCE CORP 43.7 -- 1,295.0 1,338.7 3.4% 3.3% 0.0% 96.7%
LEXINGTON GLOBAL ASS -- -- 17.3 17.3 0.0% 0.0% 0.0% 100.0%
PHOENIX INVESTMENT P 353.6 -- 495.5 849.1 71.4% 41.6% 0.0% 58.4%
PIMCO ADVISORS HLDG - -- -- 1,668.4 1,668.4 0.0% 0.0% 0.0% 100.0%
UNITED ASSET MGMT CO. 906.8 -- 1,218.8 2,125.7 74.4% 42.7% 0.0% 57.3%
-----------------------------------------------------------------------------------------------------
Mean 203.9 -- 1,157.0 1,361.0 20.4% 12.9% 0.0% 87.1%
Median 43.7 -- 645.8 849.1 3.4% 3.3% 0.0% 96.7%
------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Decile Adjusted Equity Size
Levered Unlevered Based Unlevered Risk Risk Cost of Cost of Cost of
Company Name Beta Beta Beta Beta Premia Premia Equity Debt Preferred WACC
------------ ------ --------- ------ -------- ------- ------ ------- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AFFILIATED MANAGERS 2.60 2.24 1.24 2.63 7.8% 1.0% 27.6% 5.7% 0.0% 22.5%
ALLIANCE CAPITAL MGM 1.18 1.13 1.04 1.58 7.8% 0.2% 18.7% 5.5% 0.0% 17.6%
ATALANTA SOSNOFF CAP 0.27 0.27 1.46 0.27 7.8% 4.4% 12.6% 0.0% 0.0% 12.6%
CONNING CORP. 1.25 1.25 1.35 1.35 7.8% 2.0% 18.6% 0.0% 0.0% 18.6%
EATON VANCE CORP 0.70 0.69 1.16 0.87 7.8% 1.1% 14.0% 6.7% 0.0% 13.7%
LEXINGTON GLOBAL ASS 1.28 1.28 1.46 1.28 7.8% 4.4% 20.5% 0.0% 0.0% 20.5%
PHOENIX INVESTMENT P 1.22 0.85 1.24 1.00 7.8% 1.0% 14.9% 6.0% 0.0% 10.2%
PIMCO ADVISORS HLDG - 0.63 0.63 1.13 0.81 7.8% 0.6% 13.1% 0.0% 0.0% 13.1%
UNITED ASSET MGMT. CO. 1.00 0.69 1.16 0.87 7.8% 1.1% 14.O% 7.9% 0.0% 10.0%
--------------------------------------------------------------------------------------------
Mean 1.12 1.00 1.25 1.19 - - 17.1% 3.5% 0.0% 15.4%
Median 1.18 0.85 1.24 1.00 - - 14.9% 5.5% 0.0% 13.7%
--------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Assumptions
- -----------
<S> <C>
20-Year Treasury Bond Yield 6.1%
Equity Risk Premia (a) 7.80%
Size Risk Premia (a) 4.35%
Company Specific Risk Premi 0.00%
Company Specific Decile Beta 1.46
Levered Beta 1.02
Selected Unlevered Beta 1.00
Tax Rate 40.0%
Preferred to Enterprise Value 0.0%
Debt to Enterprise Value 3.3%
Equity to Enterprise Value 96.7%
Cost of Debt 5.5%
Cost of Preferred 0.0%
Cost of Equity 18.5%
</TABLE>
WACC 18.0%
- ----------------
* Excluded from the Range
(a) Ibbotson Associates, Stocks Bonds Bills and Inflation 1993 Yearbook,
pp. 165.
<PAGE>
Valuation of Manager
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Implied Growth Analysis - Asset Management Comparable Companies
Growth
NTM LTM -----------------------------
Company Name WACC EV/EBITDA EV/EBITDA One Year Terminal
--------------- ---------- --------- --------- -----------------------------
<S> <C> <C> <C> <C> <C>
AFFILIATED MANAGERS GRP INC. 22.5% NA 6.10 NA 5.2%
ALLIANCE CAPITAL MGMT -LP 17.6% 5.70 8.84 55.0% 5.7%
ATALANTA SOSNOFF CAPITAL CP 12.6% NA 4.00 NA -9.9%
CONNING CORP 18.6% 3.72 4.02 8.1% -5.0%
EATON VANCE CORP 13.7% 5.81 17.79 206.1% 7.6%
LEXINGTON GLOBAL ASSET MGRS 20.5% 1.83 4.45 142.3% -1.7%
PHOENIX INVESTMENT PARTNERS 10.2% 7.52 8.82 17.3% -1.0%
PIMCO ADVISORS HLDG -LP 13.1% 10.71 22.54 110.5% 8.3%
UNITED ASSET MGMT CORP 10.0% 6.57 6.58 0.1% -4.5%
-----------------------------------------------------------------------------------------------------------------------
Low 10.0% 0.1% -9.9%
High 22.5% 206.1% 8.3%
Median 13.7% 55.0% -1.0%
Mean 15.4% 77.1% -0.2%
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Valuation of Manager
------------------------------------------------------------------------
<PAGE>
Public Comparables to ICCMIC:
Mortgage REIT Companies
-----------------------------------------------------------------------
<PAGE>
EXHIBIT b(7)
Report To
The Special Committee of the Board of Directors
of
Imperial Credit Commercial Mortgage Investment Corp.
September 13, 1999
This analysis has been prepared solely for the purpose of providing a
report at the direction of the Special Committee (the "Special Committee") of
the Board of Directors of Imperial Credit Commercial Mortgage Investment Corp.
(the "Company"). Such analysis shall not be construed as and does not represent
an opinion by Robert A. Stanger & Co., Inc. ("Stanger") regarding the fairness
of any transaction. This memorandum contains confidential and proprietary
information which has not been made public and is being delivered at the
direction of the Special Committee with the express understanding that such
information will not be divulged to anyone except persons in the recipients
organization who have a need to know for purposes of this assignment. This
analysis and the contemporaneous meeting associated therewith is pursuant to the
agreement between Stanger and the Company. The recipient hereof acknowledges
that Robert A. Stanger & Co., Inc. and its representatives are not attorneys and
no analysis herein shall be construed as legal advice in any way.
<PAGE>
Report to
The Special Committee of the Board of Directors
of
Imperial Credit Commercial Mortgage Investment Corp.
Table of Contents
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
Background on Robert A. Stanger & Co........................................... 1
Chronology of Events........................................................... 2
Scope of Assignment............................................................ 3
Overview of Review Conducted by Stanger........................................ 4
Persons Interviewed............................................................ 5
Review of Terms of Management Agreement........................................ 6
Review of Selected IPO Prospectus Disclosure Regarding Management Agreement.... 7
Review of Company Guidelines................................................... 8
Review of Comparative Balance Sheets of the Company............................ 9
Review of Fees Charged by Management Company 1998-1999......................... 10
Review of Terms of Comparable Management Agreements............................ 11
Review of Fees Charged by Comparable Management Companies...................... 12
Observations Regarding Fees Charged............................................ 13
Review of Mortgage REIT Industry Performance................................... 14
Review of Management Company Financial Performance............................. 15
Review of Value Ascribed to Management Agreement in Offers for the Company..... 16
Review of Merger Agreement..................................................... 17
Review of Memorandum of Wachtel, Lipton, Rosen & Katz.......................... 18
Review of Pending Starwood Transaction......................................... 19
Review of Comparable Transaction Multiples..................................... 20
Summary of Valuation Issue Observations........................................ 21
Valuation Ranges............................................................... 22
Review of Other Selected Transactions.......................................... 23
Other Observations............................................................. 24
Management Agreement........................................................... 25
Guidelines..................................................................... 26
Wachtel, Lipton, Rosen & Katz Memorandum dated August 26, 1999................. 27
Engagement Agreement........................................................... 28
Firm Brochure.................................................................. 29
</TABLE>
<PAGE>
EXHIBIT 1
Background on Robert A. Stanger & Co., Inc.
Founded 1978
Financial Advisory Services More than $20 Billion in merger, acquisition and
consolidation transactions during the last seven
years.
Real Estate Appraisals More than $2 Billion annually for all asset
types, including apartments, retail, office,
industrial and self storage.
Securities Valuations More than $50 Billion annually for major New York
Stock Exchange Member Firms, banks and trust
companies.
Publications The Stanger Report
Litigation Support Experts in partnership and real estate securities
litigation.
Active Participants in Partnership Valuation Sub-Committee
Industry Undertakings Roll-UP Sub-Committee
Regulatory Initiatives Sub-Committee
<PAGE>
EXHIBIT 2
Chronology of Events
Initial Contact by Representatives of the Company July 28, 1999
Stanger Meets with Representative of the Special
Committee and Prudential Securities in Los Angeles August 9, 1999
Stanger and Prudential Securities Meet with Mark Karlan August 9, 1999
Stanger Meets with Wayne Snavely, Kevin Villani
and Irwin Gubman August 10, 1999
Stanger and Prudential Securities Meet with
Representatives of the Management Company August 10, 1999
Stanger Engagement Agreement Signed by Representative
of the Special Committee August 13, 1999
Stanger Commences Review of Information Provided
by the Company and Commences Assignment August 16, 1999
Stanger Participates in Telephonic Meeting with August 30, 1999
Representatives of the Special Committee,
Prudential Securities and Wachtel Lipton
Stanger Delivers Preliminary Report to Special Committee, August 31, 1999
Prudential Securities and Wachtel Lipton
Stanger Participates in Telephonic Meeting with Special September 2, 1999
Committee Prudential Securities and Wachtel Lipton
Stanger Conducts Telephonic Interviews with Week ended September
Representatives of Friedman, Billings, 11, 1999
Ramsey & Co., Inc. and Sonnenschein Nath & Rosenthal
and Representatives of the Special Committee and
Prudential Securities. Stanger finalizes report.
Stanger Delivers Final Report to Special Committee September 13, 1999
<PAGE>
EXHIBIT 3
Scope of Assignment
. Pursuant to agreement dated August 13, 1999.
. "Stanger shall render an appraisal report, which is contemplated by the
Merger Agreement (the "Report"), estimating the value of the Management
Agreement Amount pursuant to the Management Agreement." ((S)1, paragraph 1)
The Management Agreement Amount is defined as: "the value of the
termination fee, if any, that would be payable to the Management Company
pursuant to Section 15 of the Management Agreement if the Management
Agreement was not renewed by the Company and terminated on October 22,
1999." (whereas clause 7)
. "The Company and the Special Committee understand that, in undertaking this
Agreement and preparing the Report, Stanger may be called upon to make
certain assumptions regarding the interpretation of certain terms of the
Management Agreement and other agreements. The Company and the Special
Committee acknowledge that the assumptions made by Stanger in its review
and interpretation of such agreements may affect the Management Agreement
Amount value conclusion reached in its report, and that Stanger is
authorized to provide its estimate of value based upon such assumptions."
((S)1, paragraph 2)
. "Stanger agrees to render one or more presentations to the Special
Committee with respect to the status of Stanger's Analysis and the
preparation of the report." ((S)1, paragraph 4)
. "Stanger agrees that, upon request of the Special Committee, Stanger's
representatives shall meet with certain experts representing Imperial
Credit with respect to: (i) such experts' analysis and valuation of the
Management Agreement Amount; and (ii) Stanger's Analysis and the Report, at
such times and places as shall be mutually agreeable to the Special
Committee and Stanger. ((S)1, paragraph 4)
<PAGE>
EXHIBIT 4
Overview of Review Completed By Stanger
Interview of Representatives of Prudential Securities, Inc.
(financial advisor to the Special Committee) and Representatives of the
Special Committee
Interview of Key Personnel of Management Company and Imperial Credit
Interview of Former Employee of Imperial Credit
Review of Prospectus for Initial Public Offering
Review of Management Agreement
Review of Company Guidelines
Review of Comparative Balance Sheet of the Company
Review of Fees Charged
Review of Comparable Management Agreements
Review of Mortgage REIT Industry Performance
Review of Management Company Financial Performance
Review of Prior Offers Including Management Contract
Review of Merger Agreement
Review of Comparable Transactions
Review of Value Ranges
Review of Wachtel Lipton Memorandum
Review of Other Transactions
<PAGE>
EXHIBIT 5
Persons Interviewed
Prudential Securities, Inc. (Financial Advisor to the Special Committee)
Jeff Crossland, Managing Director
Dennis Lee, Vice President
Members of the Special Committee
Joseph Jaconi, Jr., Chairman
Kenneth Munkacy, Vice Chairman
Dr. Patric Hendershott, Member
Wachtel, Lipton, Rosen & Katz (Legal Advisor to the Special Committee)
Douglas C. Freeman
Imperial Credit Commercial Asset Management Corporation (the "Manager")
Mark S. Karlan, President and Chief Executive Officer /(1)/
Norbert Seifert, Senior Vice President and General Counsel /(2)/
Michael Meltzer, Chief Financial Officer /(3)/
Gregory J. McIntosh, Senior Vice President /(4)/
Imperial Credit Industries, Inc.
Wayne Snavley, Chairman of the Board and Chief Executive Officer /(5)/
Kevin Villani, Executive Vice President - Finance /(6)/
Irwin Gubman, General Counsel
Other Persons Interviewed
Joseph Parise
(Former Managing Director and Senior Vice President
of the Manager and Managing Director of Capital Markets and
Structured Finance of Imperial Credit Industries, Inc.) /(7)/
Andrew L. Weil
(Sonnenschein Nath & Rosenthal - Counsel to the Company)
Jim Neuhauser
(Friedman, Billings, Ramsey & Co., Inc. - Dealer Manager for the Company's
IPO)
________________
/(1)/ Mr. Karlan is also President of the Company.
/(2)/ Mr. Seifert is also Senior Vice President of the Company.
/(3)/ Mr. Meltzer is also Chief Financial Officer of the Company.
/(4)/ Mr. McIntosh is also Senior Vice President of the Company.
/(5)/ Mr. Snavley is also Chairman of the Board of the Manager and the
Company.
/(6)/ Mr. Villani is also Vice Chairman of the Board of Directors of the
Manager and the Company.
/(7)/ Mr. Parise was interviewed at the request of Mr. Kenneth Munkacy.
<PAGE>
EXHIBIT 6
Page 1 of 3
Review of Terms of Management Agreement
Initial Term: Until October 22, 1999 ((S)13)
Renewals: 1 year ((S)13)
Cancellation: Upon 60-days notice, after
October 22, 1999 ((S)13)
Base Fee:
Basis: Average Invested Assets ((S)8(a))
(average daily book value of total
assets plus non-cash reserves)
Fee on Basis: 1% up to $1 Billion ((S)8(a))
.75% on Next $250 million ((S)8(a))
.50% thereafter ((S)8(a))
Incentive Fee:
Basis: Adjusted FFO (FFO adjusted
for gains and losses ((S)8(b))
Percentage: 25% ((S)8(b))
Target Hurdle: Ten-Year Treasury plus 4%
on weighted average IPO price
and secondary offering price ((S)8(b))
Expense Reimbursement:
Due Diligence: Yes ((S)8(d))
Personnel: No /(1)/
General & Administrative: Yes /(1)/
Termination Provisions:
Appraisal Required: Yes ((S)15)
Remaining Term Specified: No ((S)15)
Due Upon: Termination without cause
or declining to renew ((S)15)
Fee Adjustments: None included in Management Agreement /(2)/
Other IPO Consideration:
Stock Options
Shares 10% of shares issued in IPO ((S)8e)
Term 10 years ((S)8e)
Vesting 3 years ((S)8e)
<PAGE>
EXHIBIT 6
Page 3 of 3
Review of Terms of Management Agreement (continued)
Other Observations Regarding the Management Agreement and Related Disclosures:
1. Manager is under the supervision of the Company's Board of Directors.
((S)2(a))
2. Manager, upon request of the Board of Directors of the Company, will invest
or reinvest money in accordance with the Guidelines. ((S)2(a)(xi))
3. The Manager shall take such other action as may be directed by the Board of
Directors. ((S)7(a))
4. Absent written direction from the Board of Directors, the Manager shall use
reasonable efforts to comply with the Guidelines, as they may be revised
from time to time. ((S)7(c))
5. Capitalized terms not defined in the Management Agreement shall have the
meaning ascribed to them on the IPO Prospectus. ((S)1)
6. Guidelines are defined in the IPO Prospectus as "guidelines that set forth
general parameters for the Company's investments and borrowing. (IPO
Prospectus, page 154)
7. The Guidelines may be changed by the Board of Directors without a vote of
the Stockholders. (IPO Prospectus, page 28)
<PAGE>
EXHIBIT 6
Page 2 of 3
Review of Terms of Management Agreement (continued)
(1) Section 9 of the Management Agreement states that, "The Company or any
Subsidiary shall pay all of its expenses and shall reimburse the Manager
for documented expenses of the Manager incurred on its behalf." No specific
reference to payroll or general and administrative expenses is contained in
Section 9. As a matter of policy, the Manager has not billed the Company
for payroll but has billed the Company for other general and administrative
expenses.
(2) Although the IPO Prospectus states that, "The Board of Directors may adjust
the management fee in the future, if necessary, to align the fee more
closely with the cost of such services," (IPO Prospectus, page 45), there
is no provision relating to such matter in the Management Agreement and no
reference to a requirement by the Management Company to consent to such an
adjustment. Furthermore, the IPO Prospectus states in part that, "the base
management fee is intended to compensate the Manager, among other things,
for its costs in providing management services to the company," (IPO
Prospectus, page 45). No such reference was identified in the Management
Agreement.
<PAGE>
EXHIBIT 7
Page 1 of 2
Selected IPO Prospectus Disclosure Regarding
The Management Agreement
1. "The Management Agreement has been approved by all of the Independent
Directors." (Page 6, (P)1)
2. "The Board of Directors may adjust the base management fee in the future,
if necessary, to align the fee more closely with the actual costs of such
services." (Prospectus page 6,(P)3 and page 45, (P)4)
3. "The renewal of the Management Agreement after the initial two-year term
will require the affirmative vote of a majority of the Independent
Directors, and a majority of the Independent Directors may terminate the
Management Agreement at any time after two years upon 60 days' notice.
However, the Company will be required to pay a termination fee to the
Manager upon any termination (or non-renewal) of the Management Agreement
without cause. The termination fee will be determined by independent
appraisal." "This requirement may affect adversely the Company's ability
to terminate the Manager without cause." (Prospectus page 10, (P)3)
4. "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." (Prospectus page 43, (P)5)
5. "In addition, the Company has the right at any time during the term of the
Management Agreement to terminate the Management Agreement without the
payment of any termination fee upon, among other things, material breach by
the Manager of any provision contained in the Management Agreement that
remains uncured at the end of the applicable cure period (including the
failure of the Manager to use reasonable efforts to comply with the
Guidelines)." (Prospectus page 44, (P)2)
6. "The base management fee is intended to compensate the Manager, among other
things, for its costs in providing management services to the Company."
(Prospectus page 45, (P)4)
7. "The Manager is expected to use the proceeds from its base management fee
and incentive compensation in part to pay to its officers and employees
who, notwithstanding that certain of them also are officers of the Company,
will receive no cash compensation directly from the Company." (Prospectus
page 46, (P)3)
<PAGE>
EXHIBIT 7
Page 2 of 2
Selected IPO Prospectus Disclosure Regarding
The Management Agreement (continued)
8. "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." (Prospectus page 46, (P)4)
9. "Subject to the distribution requirements referred to in the immediately
preceding paragraph, ICCMIC intends, to the extent practical, to invest
substantially all principal from repayments, sales and refinancing of the
Company's assets in Mortgage Loan, MBS Interests and other types of assets
discussed above. ICCMIC may, however, under certain circumstances, make a
distribution of principal. Such distributions, if any, will be made at the
discretion of the Board of Directors." (Prospectus page 54, (P)2)
<PAGE>
EXHIBIT 8
Page 1 of 5
Review of Company Guidelines
I. Preface
The Company's affairs are managed by Imperial Credit Commercial Asset
Management Corporation (the "Manager') pursuant to a Management Agreement
between the Company and the Manager, subject at all times to the
supervision of the Board of Directors of the Company (the "Board") and the
investment policies and guidelines herein set forth (these "Policies and
Guidelines").
II. Fundamental Policies are enumerated in the following categories:
A. Compliance with Laws
B. Review and Revision of These Policies
"The Company expects that the Independent Directors will review these
Policies and Guidelines annually. The Company anticipates that, in
conducting their review, the Independent Directors will rely primarily
on information to be requested by the Company from, and provided to
them by, the Manager."
C. Delegation of Authority to the Manager
"The Company will delegate to the Manager the responsibility for
making the day-to-day decisions, including investment decisions, of
the Company."
"In addition, the Manager may consider, among other factors, whether
the acquisition of that asset will enhance the Company's ability to
achieve or exceed the Company's risk adjusted target rate of return,
if any, established for the relevant time period by the Board, whether
the asset is well suited for the Company and whether the Company is
financially able to take advantage of the investment opportunity
presented thereby."
D. Approval of Initial Investments; Acquisitions of Assets from Imperial
Credit or its Affiliates
"A majority of the Independent Directors approved the purchase of the
Initial Investments at a Board meeting duly called and held on
September 27, 1997 and certain officers of the Company were authorized
to negotiate the final terms of the purchase."
"The Company's policy is not to acquire any assets from the Manager
directly without the prior written approval of the Independent
Directors."
<PAGE>
EXHIBIT 8
Page 2 of 5
Review of Company Guidelines (continued)
E. Servicing of Loans; Monitoring Policies
"The Company, on consultation with the Manager, may establish criteria
for the evaluation and engagement of servicers to service pools of
Mortgage Loans acquired by the Company."
III. Investment Policy Generally
"The Company's policy is to invest primarily in Real Estate Related Assets
with a view to maximizing income for distribution to stockholders,
consistent with levels of risk that are perceived by the Company to be
acceptable."
"The Company will not invest an amount that is more than 10% of its equity
capital in any single assets, or in one or more loans to any single
borrower, without the prior approval of the Board."
IV. Investments in Real Estate Related Assets
A. Performing Loans
"The Company will be permitted to acquire performing commercial and
multi-family Term Loans that are consistent with the Company's
underwriting criteria, if any, established and modified from time to
time. The Company expects that it will invest a substantial portion
of its assets in performing commercial and multi-family Term Loans
originated by financial institutions in the business of originating
such Term Loans, and that it generally will hold those Term Loans in
---------------------------------------------------
its portfolio of assets on a long-term basis (although they may be
--------------------------------------------
pledged as collateral for the Company's indebtedness)."
B. Construction Loans and Mezzanine Loans
"The Company will be permitted to provide construction or
rehabilitation financing for commercial properties (each such
financing is referred to as a construction loan)."
"In addition, the Company will be permitted to provide Mezzanine Loans
to owners of multi-family and commercial properties if those
properties are encumbered by first liens, mortgages, deeds of trust or
deeds to secure debt, but only if the Company's Mezzanine Loans are to
be secured by junior liens on the subject properties or otherwise
secured (e.g., by partnership interests or other ownership interests
in the borrowing entity), but only if the Company's investments in
such Mezzanine Loans would not cause the Company to fail to qualify
for REIT status."
<PAGE>
EXHIBIT 8
Page 3 of 5
Review of Company Guidelines (continued)
C. Distressed Mortgage Loans
"The Company will be permitted to acquire Distressed Mortgage Loans,
including Sub-Performing Mortgage Loans and Non-Performing Mortgage
Loans."
D. MBS Interests
"The Company will be permitted to acquire rated and unrated classes of
mortgage backed securities, whether investment grade or non-investment
grade ("MBS Interests').
"The Company's policy is to maintain a relationship with Imperial
Credit and SPB in which the Company will be a ready, willing and able
purchaser of MBS Interests that may be sold from time to time by
Imperial Credit or SPB."
E. Real Properties
"The Company will be permitted to acquire multi-family and commercial
Real Properties at prices that are fair to the Company and that meet
the Company's investment criteria."
"The Company's policy generally is to hold each Real Property in its
-------------------------------------------------------------------
portfolio for more than four years and fewer than ten years, although
-----------------------------------------------------------
the period during which the Company will hold each Real Property can
be expected to vary considerably from asset to asset."
"If the Company acquires a Real Property with the intent to own it for
more than four years, but an opportunity arises to sell on terms
favorable to the Company earlier than four years after its
acquisition, the Company's policy is to consider strategies that may
enable it to reduce adverse tax consequences to the Company and its
stockholders that might arise from such a sale."
F. Distressed Real Property
"The Company will be permitted to acquire Distressed Real Property,
including REO Property."
<PAGE>
EXHIBIT 8
Page 4 of 5
Review of Company Guidelines (continued)
G. Sale Leaseback Properties
"The Company will be permitted to acquire Real Property in sale-
leaseback transactions in which the Company would acquire Real
Property (either a fee or leasehold estate, and either improved or
unimproved) and simultaneously lease that Real Property back to the
seller under a long-term lease, generally a triple net lease..."
H. Foreign Mortgage Loans & Real Properties
"The Company will be permitted to acquire Real Property located
outside the United States and Mortgage Loans secured by foreign Real
Properties...."
"The Company's policy is to limit its acquisitions of foreign Real
Properties and Mortgage Loans secured by foreign Real Properties to no
more than 20% of the Company's portfolio of assets..."
I. Real Properties with Known Environmental Problems
"The Company will be permitted to acquire Real Properties with known
material environmental problems and Mortgage Loans secured by such
Real Properties, including, for example gas stations...."
V. Investments in Other Assets
"The Company will be permitted to acquire assets other than Real Estate
Related Assets if it determines that to do so would enable the Company to
diversify its asset base and to exploit opportunities in the marketplace
that otherwise would be available, but only if (i) not more than 20% of the
Company's portfolio assets... including any cash or cash equivalent assets
retained for liquidity purposes, are invested in such assets, and (ii) the
Company determines that its status as a REIT and its exemption from
regulation under the Investment Company Act would not be jeopardized by its
acquisition of such assets."
VI. Leverage Policy
"The Company will be permitted to leverage its portfolio of assets through
the issuance of CMO's, the use of reverse purchase agreements, borrowings
under warehouse lines of credit and secured or unsecured bank credit
facilities and other borrowings, including, without limitation, mortgage
loans on Real Property owned by the Company."
"The Company will be permitted to leverage its portfolio of Mortgage Loans
-------------------------------------------------------------------------
and certain other assets by secrutizing them, primarily though the
------------------------------------------------------------------
issuance by the Company of CMOs or in private placement transactions."
--------------------------------------------------------------------
<PAGE>
EXHIBIT 8
Page 5 of 5
Review of Company Guidelines (continued)
"The primary purpose for which the Company may leverage its assets is to
increase its net income. The Company intends to achieve an increase in
---------------------------------------------
net income by borrowing funds at interest rates (inclusive of all direct
------------------------------------------------------------------------
and indirect borrowing costs) that are lower than the net yields (after
-----------------------------------------------------------------------
subtracting all related direct and indirect expenses) at which the Company
--------------------------------------------------------------------------
may invest the net proceeds of these borrowings".
-----------------------------------------------
"At the present time, it is the Company's intention that, after a
----------------------------------------------------------------
significant portion of the net proceeds of the Company's initial public
-----------------------------------------------------------------------
offering of its Common Stock has been invested or committed for investment,
---------------------------------------------------------------------------
it will commence the process of leveraging its assets through borrowings in
---------------------------------------------------------------------------
accordance with these Policies and Guidelines until the ratio of the
--------------------------------------------------------------------
Company's overall indebtedness to its assets is at a level determined by
------------------------------------------------------------------------
the Company to be appropriate under the circumstances."
-----------------------------------------------------
VII. Hedging Policy
"The Company's policy is to attempt to mitigate risks through the use of
hedging techniques."
<PAGE>
EXHIBIT 9
<TABLE>
<CAPTION>
Review of Comparative Balance Sheet of the Company
(amounts in thousands)
3/98 6/98 9/98 12/98 3/99 6/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash $ 24,339 $ 5,169 $ 16,680 $ 23,398 $ 9,944 $ 48,426
Repurchase Agreement 18,071 68,190
Mortgage Loans 293,101 286,407
Collateralizing Debt
Mortgage Loans 414,967 533,881 579,920 556,648 220,843 134,389
Real Property 84,453 108,271 107,663 105,691 104,282
Securities Available 64,925 64,916 60,074 57,671 55,910 54,553
for Sale
Accrued Interest 4,305 5,749 5,974 6,410 4,447 3,245
Other Assets 1,116 1,517 5,652 5,384 4,101 4,378
-------- -------- -------- -------- -------- --------
TOTAL ASSETS $509,652 $695,685 $776,571 $757,174 $712,108 $703,870
======== ======== ======== ======== ======== ========
Dividends Payable 8,280 9,660 9,603 9,405 8,550 8,550
Borrowing 245,381 238,559
Under CMO
Borrowing Under 167,000 275,000 279,000
Secured Warehouse Facility
Borrowing Under 12,400
Repurchase Facility
Borrowing Under 3,573 3,557
Secured Bank Loan
Mortgage Loans Secured 34,580 48,729 48,575 47,373 46,773
by Real Estate
Accrued Expense 21,797 5,178 7,352 7,828 7,328 6,886
-------- -------- -------- -------- -------- --------
Total Liabilities 30,077 216,418 356,657 348,365 308,632 300,768
Total Stockholders Equity 479,575 479,267 419,914 408,809 403,476 403,102
-------- -------- -------- -------- -------- --------
Total Liabilities and $509,652 $695,685 $776,571 $757,174 $712,108 $703,870
Stockholders Equity ======== ======== ======== ======== ======== ========
Invested Assets Calculation:
Total Assets 509,652 695,685 776,571 757,174 712,108 703,870
Allowance For 1,727 1,827 5,027 8,027 11,127 9,950
Loan Losses
Accumulated Depreciation 0 242 962 1,755 2,512 3,337
-------- -------- -------- -------- -------- --------
Invested Assets $511,379 $697,754 $782,560 $766,956 $725,747 $717,157
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 10
Review of Fees Charged
1998 - 1999
(amounts in thousands)
<TABLE>
<CAPTION>
For The Quarters Ended:
-------------------------------------------------------------------------------
3/31/98 6/30/98 9/30/98 12/31/98 3/31/99 6/30/99
-------- -------- -------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Invested Assets at End of Period /(1)/ $511,379 $697,754 $782,560 $ 766,956 $ 725,747 $ 717,157
======== ======== ======== ========= ============= =============
Base Management Fee 1,200.0 1,365.0 1,818.0 1,936.0 1,867.0 1,796.0
Expense Reimbursement /(2)/
Professional Fees 150.0 375.0 343.0 694.0 752.0 1,205.0
Stock Options 97.0
Insurance 84.4 82.9 82.0 81.7 83.1 81.6
Travel, Lodging 32.4 58.3 78.5 123.0 54.8 105.5
Occupancy Costs 25.6 50.6 65.3 52.2 50.1 62.2
Investor Relations 58.5 30.0 77.3 30.3 26.4 42.6
Depreciation 17.6 20.3 26.5 29.9 30.1 30.3
Telephone 15.5 20.7 23.3 31.2 16.4 22.5
Directors' Fees 21.0 22.3 33.6 30.5 29.8 150.2
Other (Rounded) 93.0 35.9 41.5 77.2 62.0 /(3)/ 58.2 /(4)/
-------- -------- -------- --------- ------------- -------------
Total Expense Reimbursement 498.0 696.0 771.0 1,247.0 1,104.7 1,758.1
-------- -------- -------- --------- ------------- -------------
Incentive Fee 41.0
-------- -------- -------- --------- ------------- -------------
Total Fees and Expense Reimbursement /(5)/ 1,698.0 2,061.0 2,589.0 3,183.0 2,971.7 3,595.1
======== ======== ======== ========= ============= =============
Annualized Fee as % of
Invested Assets at End of Period 1.33% 1.18% 1.32% 1.66% 1.64% 2.01%
======== ======== ======== ========= ============= =============
Annualized Fee as % of Invested Assets at
End of Period with Professional Fees
Limited to $375,000 Maximum 1.33% 1.18% 1.32% 1.49% 1.43% 1.54%
======== ======== ======== ========= ============= =============
</TABLE>
_______________
/(1)/ Per Exhibit 9.
/(2)/ Per discussions with Mark Karlan, all expenses, except payroll, are
charged to the Company pursuant to Section 9 of the Management
Agreement.
/(3)/ Excludes foreign exchange loss of $49.3.
/(4)/ Excludes foreign exchange gain of $282.2.
/(5)/ Reconciled to Quarterly financial statement.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Analysis of Comparable Management Agreements Exhibit 11
---------------------------------------------
Company: Ocwen Impac Amer. Residential Laser APEX Anworth
<S> <C> <C> <C> <C> <C> <C>
IPO Date: May 14, 1997 August 5, October 28, 1997 November 26, 1997 December 3, 1997 March 2, 1998
1997
Lead Underwriter: FBR PaineWebber PaineWebber Bear Stearns Merrill Lynch Advest
IPO Share Price $16.00 $15.00 $15.00 $15.00 $15.00 $9.00
Gross IPO Raise $240.0 mm $82.5 mm $97.5 mm $225.0 mm $100.5 mm $20.25 mm
Leverage Estimate Up to 80% (1) 85% - 88% 88% - 92% 90% - 94% Up to 92% 89% - 92%
Sponsor/Affiliate Ocwen FSB IMH N/A N/A TCW Group Pacific Income
Advisors
Agreement Terms:
Term:
Initial 2 Year 5 Year 2 Year 5 Year 2 Year 5 Year
Renewal Periods 1 Year 1 Year 1 Year 3 Year 1 Year 1 year
Cancellation 60-Day notice 60-Day notice 60-Day notice(2) 60-Day notice 60-Day notice 60-Day notice
(2)
Base Fee:
Basis:
Total Assets YES NO YES NO NO NO
Adjustments Non-cash N/A Non-cash N/A N/A N/A
reserves reserves; all
non-mgt. assets
Total Equity N/A NO NO YES YES YES
Adjustments N/A N/A N/A M-T-M adjustment Non-cash reserve None
plus unsecured
debt
Fee On Basis: 1.00% N/A 0.125% on 1.00% to $500 mm 0.75% 1.00% to $300
Agency 0.80% to $1 B 0.80% over $30 mm
0.375% Other 0.60% over $1 B
Incentive Fee:
Adjusted FFO (4) YES NO NO NO NO NO
Percentage 25% N/A N/A N/A N/A N/A
Target 10 Year T + 5% N/A N/A N/A N/A N/A
on Offering
Price
Net Income NO YES YES YES (5) YES YES
Percentage N/A 25% 25% 20% 30% 20%
Target N/A 10 Year T +2% 10 Year T +2% 10 Year T + 10 Year T + 10 Year T +
on Equity (7) on Equity (8) 1% on Equity (9) 1% on Equity (7) 1% on Equity (7)
Expense Reimbursement:
Due Diligence YES (10) YES YES YES YES YES
Other Personnel Costs NO YES NO NO NO NO
G&A NO YES NO NO NO NO
Markups NO 15% (11) NO NO NO NO
Termination Fee:
Appraisal Required NO YES YES YES YES YES
Specified Term LTM None Floor=3x LTM(12) Continuous Unlimited Unlimited
renewal (13)
Fee Adjustments:
Disclosed in IPO YES NO NO YES NO NO
Cost Alignment YES N/A N/A NO N/A N/A
Manager's Consent Undisclosed N/A N/A Required N/A N/A
Other IPO Compensation
Stock Options:
Shares (15) 1,687,500 (16) 150,000 (17) 337,800 1,148,000 (18) 300,000 136,000 (17)
Vesting 4 Years 3 Years 4 Years 3-4 Years(18) 14 Months 3 Years
% of Shares O/S 10.0% 2.3% (22) 4.2% 5.7% 4.5% 6.2%
Founder's Shares:
Shares None 1,694,000 1,614,000 (25) 6,000 None None
(24)
Purchase Price N/A $8.86 $12.50 $2.50 N/A N/A
Sponsor Interest Purchased @ IPO
Dollar Amount $32.4 mm None None $25.21 mm (28) $7.5 mm (28) None
(16)(26)(27)
% Shares o/s 12.9% N/A N/A 8.4% 7.5% N/A
Lock-up 120 Days - 2 N/A N/A 1-2 Years (29) 180 Days N/A
Years
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Company: Anthracite Wilshire Chastain AMRESCO Clarion
<S> <C> <C> <C> <C> <C>
IPO Date: March 24, 1998 April 1, 1998 April 23, 1998 May 6, 1998 May 28, 1998
Lead Underwriter: FBR FBR FBR Prudential Bear Stearns
IPO Share Price $15.00 $16.00 $15.00 $15.00 $20.00
Gross IPO Raise $300.0 mm $160.0 mm $110.7 mm $135.0 mm $80.0 mm
Leverage Estimate 77% - 80% Not disclosed Up to 92% 75% Not Disclosed
Sponsor/Affiliate Blackrock Wilshire Lend Lease AMRESCO Clarion Partners
(PNC Bank) Financial (f.k.a. Jones Lang
Wooton)
Agreement Terms:
Term:
Initial 2 Year 2 Year 2 Year 2 Year 3 Year
Renewal Periods 2 Year 1 Year 2 Year 1 Year 1 Year
Cancellation 60-Day notice 60-Day notice (2) 60-Day notice 90-Day notice 60-Day notice
(2) (2)
Base Fee:
Basis:
Total Assets YES YES YES YES NO
Adjustments Non-cash Non-cash reserves Non-cash Non-cash N/A
reserves reserves, cash reserves
and cash and CMO
Total Equity NO NO NO NO YES
Adjustments N/A N/A N/A N/A M-T-M
Adjustment
Fee On Basis: 1.00% @ BB - 1.00% to $1 B 0.85% to $1 B 1.00% @ BBB 1.00%
0.75% BB- to BB+ 0.75% to $1.5 B (3) 0.50% # BB+
0.35% # BB+ 0.50% over $1.5 B 0.75% to $1.25
B
0.50% over
$1.25 B
Incentive Fee:
Adjusted FFO (4) YES YES YES YES NO
Percentage 25% 25% 25% 25% N/A
Target 10 Year T + 10 Year T + 5% 10 Year T + 4% 10 Year T + N/A
3.5% on Offering Price on Offering 3.5%
on Offering Price on Offering
Price Price
Net Income NO NO NO NO YES (6)
Percentage N/A N/A N/A N/A 25%
Target N/A N/A N/A N/A 10 Year T + 2.5%
on Offering Price
Expense Reimbursement:
Due Diligence YES YES (10) YES YES YES
Other Personnel Costs NO NO NO NO NO
G&A NO NO NO NO NO
Markups NO NO NO NO NO
Termination Fee:
Appraisal Required YES NO NO NO YES
Specified Term 4 Years LTM LTM LTM Continuous renewal (13)
Fee Adjustments:
Disclosed in IPO YES NO (14) YES NO YES
Cost Alignment YES N/A YES N/A NO
Manager's Consent Required N/A Required N/A Required
Other IPO Compensation
Stock Options:
Shares (15) 1,927,266 (19) 985,000 1,167,000 1,320,011 339,773
(16) (16)(20)
Vesting 6 Months (21) 4 Years 4 Years 4 Years 3 Years
% of Shares O/S 9.0% 9.9% 13.0% 13.2% 6.8% (23)
Founder's Shares:
Shares None None $100 $100 None
Purchase Price N/A N/A $10 $10 N/A
Sponsor Interest Purchased
Dollar Amount $9.04 mm (26) $19.78 mm (26) $17.5 mm $29.25 mm $40.0 mm (28)
(16)(26) (16)(28)
% Shares o/s 3.0% 13.3% 14.0% 19.5% 40% (23)
Lock-up 180 Days 180 Days - 2 2 Years (31) 180 Days -2 180 Days - 2 Years (33)
Years (30) Years(32)
</TABLE>
# = greater than
@ = less than
<PAGE>
EXHIBIT 11
Page 2 of 3
ANALYSIS OF COMPARABLE MANAGEMENT CONTRACTS
(continued)
FOOTNOTES:
(1) Leverage percentage on recourse debt only. Leverage on non-recourse,
secured debt (including debt underlying securitization) is not disclosed.
(2) Termination after initial term only.
(3) During first year, fee is 1% on Basis, thereafter as described.
(4) Adjusted FFO is FFO plus gain and minus losses on sale or restructure.
(5) Net income less any capital gains/appreciation.
(6) Basis for calculation is taxable income less unrealized appreciation on
assets with market quotes.
(7) Equity is defined as the sum of gross equity proceeds plus retained
earnings less dividends declared. Does not include prior period losses.
(8) Equity defined as all gross offering proceeds plus retained earnings
without taking into account prior period losses or valuation allowances.
(9) Book Equity excluding any Mark-to-Market adjustments.
(10) Due Diligence costs include allocated salary.
(11) No mark-up on third party expenses. Minimum first three years'
reimbursement to IMH affiliate is $500,000 per year.
(12) To be appraised without regard to termination. Floor is on gross management
fees.
(13) Agreement states FMV of contract is to be determined without giving effect
to any termination and assuming the contract is renewed in accordance with
its terms.
(14) Prospectus states that there is no cap on the amount of fees payable to
Manager.
(15) Does not include options to independent directors, unless noted.
(16) Increased if over-allotment is exercised by underwriters.
(17) All or portion of options come with Dividend Equivalent Rights.
(18) Includes 400,000 of Deferred Common Stock vesting over a four-year period.
748,000 of options vest over a three-year period.
<PAGE>
EXHIBIT 11
Page 3 of 3
ANALYSIS OF COMPARABLE MANAGEMENT CONTRACTS
(continued)
FOOTNOTES:
(19) Includes options granted to unaffiliated directors (amount not disclosed).
(20) 1,020,008 at IPO Price; Remainder at 125% of IPO Price.
(21) 246,544 options were exercisable from Sept. 1998 through March 1999. The
remainder vested over 4-years.
(22) Percent of voting common.
(23) Percentage of Class A shares only. Company also issued 175,000 shares of
Class B stock to owners of Manager in exchange for a 10% interest in the
Manager and the option to purchase the remaining 90% between 1/2/00 and
3/31/01, for its FMV. Distributions to Class B holders subordinated to
regular common stock receiving an 8% annualized yield on IPO price.
Subordination ceases at the earlier of four-quarters that the 8% annualized
yield is met, or Jan. 2, 2000. After subordination period, Class B are
convertible to regular common. Class B stock has no voting rights.
(24) Includes 763,845 shares of non-voting Class A, which are convertible at
subsequent offerings subject to 9.8% voting ownership limit. Class A stock
carries all economic benefit of regular common. 930,155 shares are Rule 144
restricted.
(25) Shares are Rule 144 restricted. Founders also received 315,200 options with
a $12.50/share exercise price and 280,000 Stock Appreciation Rights which
equal 35% of the difference between stock price and $12.50 (subject to
$20/share max). Options and SARs vested 20% on 2/97 and remainder over next
four year.
(26) Purchased at Net IPO Price (IPO Price less underwriter's
discount/commissions).
(27) 300,000 shares purchased by Officers/Directors/Employees of sponsor have a
120-day lock-up; 1,875,000 shares purchased by Ocwen have a 2-year lock up
as long as affiliate remains manager.
(28) Purchased at IPO Price.
(29) Rule 144 Restrictions - shares are tradeable after one year, but with
restrictions on amount tradeable based on O/S shares/avg. trading volume.
Fully tradeable after two years.
(30) 339,400 shares owned by Officers/Directors/Employees of sponsor have a 180-
day lock-up; 990,000 shares purchased by sponsor have a 2-year lock-up.
(31) Lend Lease has agreed to a two-year lock-up as long as its affiliate
remains Manager (897,678 shares purchased are Rule 144 Restricted).
(32) 950,000 shares purchased by Officers/Directors/Employees of
Sponsor/Affiliates have a 180-day lock-up; 1,000,011 shares purchased by
sponsor have a 2-year lock up as long as affiliate manages REIT (shares are
still 144 Restricted).
(33) One million shares are subject to a 180-day lock-up period; the remaining
one million shares are Rule 144 restricted securities (See Note (14)).
<PAGE>
EXHIBIT 12
Review of Fees Charged by Comparable Management Companies
(in thousands)
<TABLE>
<CAPTION>
Annualized Six Months 1999
---------------------------------
Total
Gross Assets Management Other Mgmt. Total
Company as of June 30, 1999 /(1)/ Fees G&A G&A as % of Gross Assets
- ------- ------------------------- -------------- ------ ------- --------------------
<S> <C> <C> <C> <C> <C>
Ocwen $ 786,314 $ 6,110 $7,453 $13,563 1.72%
Impac 420,414 -- /(2)/ 7,336 7,336 1.74%
American Residential 1,040,759 2,626 1,816 4,442 0.43%
Laser 300,434 1,000 /(3)/ 3,492 4,492 1.50%
APEX 815,969 2,662 1,044 3,706 0.45%
Anworth 177,045 178 190 368 0.21%
Anthracite 551,924 4,246 2,068 6,314 1.14%
Wilshire 307,183 3,502 1,976 5,478 1.78%
Chastain /(4)/ 74,031 874 690 1,564 2.11%
AMRESCO 237,842 2,006 1,164 3,170 1.33%
Clarion 176,511 590 788 1,378 0.78%
----
AVERAGE 1.20%
====
AVERAGE EXCLUDING CHASTAIN 1.11%
====
COMPANY (See Exhibit 10) 2.01%
====
COMPANY WITH PROFESSIONAL FEES 1.54%
LIMITED TO $375,000 PER QUARTER (SEE EXHIBIT 10) ====
</TABLE>
____________________
/(1)/ Gross assets equals book assets plus accumulated depreciation and
other non-cash reserves (excluding MTM adjustment).
/(2)/ Management fees are incentive fees only (mark-up on reimbursements
included in "Other G&A"); no incentive fees paid in 1999.
/(3)/ REIT became internally advised in February 1999. Hired BlackRock as
consultant.
/(4)/ Currently liquidating its assets. Shareholders will vote on Plan of
Liquidation in the 4/th/ Quarter 1999. (Board of Directors approved
Plan in August 1999.)
<PAGE>
EXHIBIT 13
Observations Regarding Fees Charged
1. The Base Management Fee calculation appears reasonably calculated.
2. Expense reimbursements include all cost of the Management Company except
for payroll. Appears permissible pursuant to Management Agreement, however
such reimbursements are not clearly explained in the IPO prospectus.
3. Most other comparable transactions specifically exclude Manager's payroll
and general and administrative expenses from the reimbursement provisions
of the Management Agreement.
4. Fees and general and administrative expenses are presently running at 2.01%
of invested assets. Excluding excess professional fees, such fees and
expenses approximate 1.54% of invested assets annually.
5. Comparables range from 0.21% of invested assets to 2.11% of invested assets
and average 1.20%. Excluding Chastain, which is effectively liquidating,
the comparables range from 0.21% to 1.78% and average 1.11% of invested
assets.
<PAGE>
EXHIBIT 14
----------
Review of Mortgage REIT Industry Performance
<TABLE>
<CAPTION>
Gross IPO Cumulative
IPO Share Dividends Share Price
Company IPO Date Raise Price through Aug 20, 1999 at Aug 20, 1999 IRR(1)
- ------- -------- ----- ----- -------------------- --------------- -------
<S> <C> <C> <C> <C> <C> <C>
Ocwen May '97 $240.00 mm $16.00 $1.91 $ 5.13 (34.2)%
Impac Aug '97 $ 82.50 mm $15.00 $1.96 $ 5.56 (32.5)%
American Residential Oct '97 $ 97.50 mm $15.00 $1.44 $ 7.25 (27.2)%
Laser Nov '97 $225.00 mm $15.00 $4.32 $ 3.50 (36.7)%
APEX Dec '97 $100.50 mm $15.00 $1.91 $12.00 (4.7)%
Anworth Mar '98 $ 20.25 mm $ 9.00 $0.62 $ 4.88 (30.5)%
Anthracite Mar '98 $300.00 mm $15.00 $1.50 $ 6.75 (36.3)%
Wilshire Apr '98 $160.00 mm $16.00 $0.67 $ 2.94 (70.6)%
Chastain Apr '98 $110.70 mm $15.00 $0.41 $ 6.63 (44.3)%
Amresco May '98 $135.00 mm $15.00 $1.49 $ 9.06 (25.7)%
Clarion May '98 $ 80.00 mm $20.00 $1.14 $ 6.75 (54.6)%
------
AVERAGE (36.1)%
======
COMPANY Oct '97 $517.50 mm $15.00 $1.91 $10.75 (9.4)%
======
Company with $11.50 purchase offer (6.3)%
======
</TABLE>
(1) Calculated on a monthly basis.
<PAGE>
EXHIBIT 15
Review of Management Company Financial Performance
As Provided By The Management Company
(in thousands)
<TABLE>
<CAPTION>
1999
------------------------------------
2000
Actual 1998 6 Months Annualized /(a)/ Budget /(b)/
----------- -------- ---------------- ------------
<S> <C> <C> <C> <C>
Revenue:
Base Fee $6,340 /(c)/ $3,722 /(d)/ $7,446 $12,850
Incentive Fee 0 41 41 1,793
Expense Reimbursements /(e)/ 0 0 0 0
Other 0 0 0 0
------- ------ ------ -------
Total Revenue 6,340 3,763 7,487 14,643
Operating Expenses:
Personnel Expenses 2,850 /(f)/ 1,664 /(g)/ 2,962 3,496
Professional Services 130 0 0 0
Other G&A 10 104 /(h)/ 118 34
Depreciation 0 0 0 0
------- ------- ------ -------
Total Operating Expenses 2,990 1,768 3,080 3,530
Earnings Before Interest 3,350 1,995 4,407 11,113
and Taxes ("EBIT")
Depreciation 0 0 0 0
------- ------- ------ -------
Earnings Before Interest,
Taxes and Depreciation ("EBITDA") $ 3,350 $1,995 $4,407 $11,113
======= ====== ====== =======
Expense Ratio 47.2% 47.0% 41.1% 24.1%
======= ====== ====== =======
</TABLE>
/(a)/ Selected items annualized as provided by Management Company.
/(b)/ Per Management Company, amounts are predicated on increasing Company
assets to $1.6 billion by the end of 2000.
/(c)/ Actual base fee per financials of the Company is $6,319,000.
/(d)/ Actual base fee per financials of the Company is $3,803,000.
/(e)/ Financials did not include an expense reimbursement to the
Management Company.
/(f)/ Includes allocation of $306,761 from Imperial Credit.
/(g)/ Includes allocation of $116,558 from Imperial Credit.
/(h)/ Includes lawsuit settlement of $91,000.
<PAGE>
EXHIBIT 16
Review of Value Ascribed to Management Agreement
in Offers for the Company
<TABLE>
<CAPTION>
Offer By: Date Amount
- --------- ---- ------
<S> <C> <C>
NorthStar November 1998 $50,000,000
AIMCO November 1998 50,000,000 /(a)/
Muruelo Properties, Inc. November 1998 39,000,000 /(b)/
Starwood February 1999 50,000,000
Anthracite Capital, Inc. April 1999 45,000,000
ITLA Capital Corporation March 1999 45,000,000 /(c)/
Wellsford Real Properties, Inc. March 1999 N/A /(c)/
</TABLE>
/(a)/ Original offer of $52 million was revised to $50 million.
/(b)/ Plus 250,000 shares of NorthStar Capital Corp. with an estimated value
of $4.0 million.
/(c)/ No value ascribed.
<PAGE>
EXHIBIT 17
Page 1 of 5
Review of Merger Agreement
The analysis herein is not intended to be legal advice. We are not
attorneys. We have used our reasonable judgment to evaluate the matters
herein. Others might reach a different conclusion.
1. Section 1.8 (a) states as follows: "ICII and the Company shall cause one
of the appraisal firms listed on Schedule II (or, in the event they cannot
agree on a mutually acceptable firm from such list, they shall appoint one
or more independent, nationally recognized appraisal firms in accordance
with the procedures set forth in Section 15 of the Management Agreement (as
defined below)) (the "Appraiser"), to determine, by an independent
appraisal, the amount (the "Management Contract Amount") that would be
payable to Imperial Credit Commercial Asset Management Corp. (the
"Manager") pursuant to Section 15 of the Management Agreement, dated as of
October 22, 1997 by and among the Company and the Manager (the "Management
Agreement") if the Management Agreement were not renewed by the Company and
expired on October 22, 1999. The Appraiser shall complete the
determination of the Management Contract Amount within 30 days of the date
of this Agreement. The amount of the Management Contract Amount as
determined by the Appraiser shall be referred to as the "Appraised Value".
The Appraiser shall be instructed to fix the Appraised Value at a single
dollar amount; provided, however, that in the event the Appraiser cannot
for any reason provide a single dollar amount for the Appraised Value,
despite the specific request of ICII and the Company, the Appraiser shall
provide a range of values for the Appraised Value not greater than $5
million, in which case the Appraised Value shall be deemed to equal the
average of the maximum and minimum dollar amounts of such range. ICII and
the Company agree to share equally the fees and expenses of the Appraiser.
2. "The Merger Consideration in respect of each Share shall be increased by an
amount, if greater than zero, equal to the quotient of (i) the amount by
--------------------
which $35 million exceeds the Appraised Value, divided by (ii) the sum of
(x) the number of issued and outstanding Shares as of the date hereof
entitled to receive the Merger Consideration and (y) the aggregate number
of Shares issuable pursuant to Company Stock Options having an exercise
price less than $11.50 per share. The Merger Consideration shall not be
reduced in the event the Appraised Value is greater than $35 million. ICII
and Merger Sub shall, not later than the next business day after the
determination of the Appraised Value, make a public announcement as to the
determination thereof, and, if applicable, amend the Schedule 13E-3 (as
defined in Section 1.11) to reflect the adjustment, if any, of the Merger
Consideration contemplated and required hereby."
3. Section 1.8(c) states as follows: "The Company and ICII agree, and ICII
shall cause the Manager to agree, that, in the event this Agreement is
terminated, other than as a result of a breach by the Company, the
Management Agreement shall be terminated on the earlier of the
consummation of any Superior Proposal (as defined in Section 4.3), October
22, 1999, or such earlier date as the Company may request, and, thereafter,
the Management Agreement shall be of no further force and effect, other
than with respect to the payment of accrued but unpaid amounts then due
thereunder. Anything to the contrary herein or in the Management Agreement
notwithstanding, as a result of the termination of the Management Agreement
as contemplated by the foregoing sentence, the Manager shall be entitled to
receive, following the termination of this Agreement and the Management
Agreement, a payment from the Company of the lesser of (i) $35 million and
(ii) the Appraised Value, which payment shall constitute payment in full of
any obligations that exist or may hereafter arise pursuant to the
Management Agreement, other than with respect to the payment of accrued but
unpaid amounts then due thereunder. In no event shall the Company be held
responsible to ICII, the Manager or any of their respective affiliates for
damages (whether actual, punitive, consequential
<PAGE>
EXHIBIT 17
Page 2 of 5
Review of Merger Agreement (continued)
or otherwise) resulting from the termination of the Management Agreement as
contemplated by this Section. ICII shall cause the Manager to take any such
further action as the Company may reasonably require to evidence the
agreements contemplated by this Section and ICII shall hold the Company and
any successor- in-interest to the Company and their respective affiliates
harmless from and against any and all claims arising from any assertion by
the Manager as to any different or greater entitlement pursuant to the
Management Agreement." (Section 1.8(c))
4. Section 4.1 states in part, as follows: "Except as expressly contemplated
by this Agreement or as set forth in Section 4.1 of the Company Disclosure
Schedule, during the period from the date hereof to the Effective Time, the
Company will, and will cause each of its subsidiaries to, conduct its
operations only in the ordinary course of business consistent with past
practice, seek to preserve in tact its current business organization, seek
to keep available the service of its current officers and seek to preserve
its relationships with customers, suppliers and others having business
dealings with them."
5. Section 4.1 states in part as follows: "The Company will not and will
cause its subsidiary not to, without the prior written consent of ICII,
such consent not to be unreasonably withheld, conditioned on delayed:"
"..... pay any dividend or other distributions... (other than (i) regular
quarterly dividends not in excess of 105% of its taxable income for each
quarter or (ii) distributions not in excess of 105% of its taxable income
as may be necessary to maintain the Company's status as a ......
REIT....." (Section 4.1(c))
"acquire, sell, lease or dispose of any assets or enter into any material
contract outside the ordinary course of business consistent with past
practice;" (Section 4.1(d))
"pay, discharge or satisfy any claim, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business
consistent with past practice or in accordance with their terms. (Section
4.1(g))
"create or assume with respect to any asset of the Company (including any
security), any mortgage, lien, pledge, security interest assignment of
leases, revenue, rents and/or profits, fixture, filing or other encumbrance
of any kind in respect of such asset (the "Liens") other than Liens which
would not have, or reasonably be expected to not have, a Company material
adverse effect;" (Section 4.1(h))
6. Section 4.3(a) states as follow: "For a period of 60 days following the
later of (x) the date of this Agreement or (y) the date on which the
Appraiser is engaged (the "Solicitation Period"):
(i) Nothing contained in this Agreement shall prohibit the Company or any
third party or any of the affiliates, officers, directors, employees,
representatives or agents of the Company, directly or indirectly, from
encouraging, soliciting, participating in, initiating discussions or
negotiations with, providing any information or offering access to the
properties, books or records of the Company, or entering into any
agreement respecting fees and expenses or similar matters with any
Person or group concerning any Competing Transaction (as defined
below), and it is contemplated and expected that the Company and such
---------------------------------------------------------
persons will do so for the purpose of determining if any Competing
------------------------------------------------------------------
Transaction constituting a Superior Proposal is available to the
----------------------------------------------------------------
Company.
-------
<PAGE>
EXHIBIT 17
Page 3 of 5
Review of Merger Agreement (continued)
(ii) Notwithstanding anything to the contrary herein, after consultation
with and based upon the advice of both an outside legal counsel and
an independent financial adviser, the Company Board may enter into
an agreement with respect to, or approve or recommend, a Superior
Proposal; provided, however, that the Company shall concurrently
with entering into such an agreement terminate this Agreement and
pay, or cause to be paid, to ICII the expenses required by Section
6.3."
7. Section 4.3(b) states in part as follows: "Following the expiration of the
Solicitation Period:
(i) The Company shall not (whether directly or indirectly through
advisors, agents or other intermediaries) and shall use its
reasonable efforts to cause its officers, directors, employees,
affiliates, agents and representatives, not to directly or
indirectly encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information or
offer access to the properties, books or records of the Company, to
any person or group (other than ICII or any designees of ICII)
concerning any Competing Transaction."
8. Section 4.3(c) states: "For purposes of this Agreement:"
(i) "Competing Transaction" shall mean any of the following with respect
---------------------
to the Company or any subsidiary thereof (other than the
transactions contemplated by this Agreement (including all schedules
and exhibits attached hereto or referred to herein)): any merger,
consolidation, share exchange, business combination or similar
transaction, or any sale, exchange, mortgage, pledge, transfer or
----------------------------------------------------
other disposition of all or substantially all of the assets or
--------------------------------------------------------------
equity securities of the Company and its subsidiaries taken as a
----------------------------------------------------------------
whole, in a single transaction or series of related transactions;
-----
any tender offer or exchange offer for 50% or more of the
outstanding shares of beneficial interest of the Company or any
transaction resulting in the issuance of shares representing 50% or
more of the outstanding shares of beneficial interest of the
Company, or the filing of a registration statement under the
Securities Act in connection therewith.
(ii) "Superior Proposal" shall mean any bona fide proposal relating to a
Competing Transaction which is on terms which the Company's Board
determines in its good faith judgement (after consulting with an
independent financial advisor of nationally recognized reputation)
(i) to be more favorable to the Company Stockholders than the Merger
and (ii) is reasonably capable of being consummated."
9. Section 4.14 states in part with respect to standstill provisions:
"Except with respect to the Merger or any Qualifying Alternative
Transaction... ICII... shall not directly or indirectly....:
(i) make or cause to be made or reasserted any proposal for the
acquisition of the Company or any assets or securities thereof or
for any extraordinary transaction involving the Company, including
any merger, or other business contributions, restructuring,
recapitalization, liquidation or similar transaction.
<PAGE>
EXHIBIT 17
Page 4 of 5
Review of Merger Agreement (continued)
(ii) initiate, propose or otherwise solicit stockholders for the approval
of one or more stockholder proposals with respect to the Company or
induce or attempt to induce any other person to initiate any
stockholder proposal, or seek election to or seek to place a
representative or the Board of Directors of the Company... or seek
removal of any member of the Company Board...."
10. Section 4.14(b) states in part:
"A Qualifying Alternative Transaction" shall refer to any transaction (i)
by which ICII, alone or with others, acquires or seeks to acquire all of
the Shares for cash consideration to the holders of Shares (payable in U.S.
dollars) at a price that is not less than the Merger Consideration (except
that such price may be adjusted to take account of any extraordinary
distribution made by the Company following the termination of the Merger
Agreement, or any issuance or repurchase by the Company of interests or
instruments convertible or exchangeable into or for capital stock of the
Company following the termination of the Merger Agreement) (provided,
however, that the amount of any break-up fee agreed to be paid by the
Company to a third party pursuant to an agreement relating to a Superior
Proposal with such third party shall not exceed $6 million); (ii) proposed
after the Merger Agreement is terminated by ICII solely in response to a
definitive Superior Proposal for which the consideration to be paid
thereunder does not consist entirely of cash or cash equivalent securities
or instruments; and (iii) (x) not subject to any conditions to consummation
not contained in this Agreement with respect to the Merger and (y) in
connection with which ICII shall undertake and remain subject to (A) all
the terms and condition of this Agreement that are for benefit of any third
party (whether or not such party is a third party beneficiary hereof) as
contemplated herein and (B) all of the terms and conditions this Agreement
set forth on Schedule IV, and the consummation of any Qualifying
Alternative Transaction by ICII shall constitute an agreement by ICII to
abide by the terms hereof referred to in this clause (y), mutatis
mutandis."
11. Section 6.1 states in part that:
"This Agreement may be terminated and the Merger and the transactions
contemplated hereby may be abandoned at any time prior to the Effective
Time..... (c) by the Company if, prior to the Effective Time, the Company
Board approves or recommends another offer or an agreement to effect a
proposal made by a third party to effect a Superior Proposal in accordance
with Section 4.3;"
12. Section 6.1(f) states in part that:
"In the event this agreement is terminated pursuant to Section 6.1(c) or
6.1(d)(ii) or the result of a Superior Proposal entered into or
contemplated by Section 4.3(a), ICII agrees to vote, tender or exchange,
and to use its reasonable best efforts to cause any other ICII shares to be
voted, tendered or exchanged, in favor of such Superior Proposal, provided
that such Superior Proposal is an all-cash transaction."
13. Section 6.3 states in part:
"Upon the termination of this Agreement pursuant to Section 6.1(c) or
6.1(d)(ii), the Company shall promptly pay ICII an amount equal to the
lesser of (x) two million dollars ($2,000,000) and (y) ICII's actual
-------------
expenses related to this Agreement and the transactions contemplated hereby
--------
(not including any investment banking fees other than the reimbursement of
out-of-pocket expenses and not including any fees relating to arrangements
related to the financing of the transactions contemplated hereby)."
<PAGE>
EXHIBIT 17
Page 5 of 5
Review of Merger Agreement (continued)
14. Section 6.2 states in part:
"In the event of the termination and abandonment of this Agreement pursuant
to Section 6.1, this Agreement shall forthwith become void and have no
effect, without any liability on the part of any party hereto or its
affiliates, directors officers or stockholders, other than the provisions
-------------------------
of this Section and Sections 1.8, 2.6, 3.5, 4.11, 4.14, 6.3 and
---------------------------------------------------------------
Article VII. Nothing contained in this Section shall relieve any party
-----------
from liability for any willful breach of this Agreement."
<PAGE>
EXHIBIT 19
Review of Pending Starwood Transaction
Starwood Financial Trust Proposed Transaction
With Starwood Financial Advisors
<TABLE>
<S> <C> <C>
Expected Revenues 20,000,000 /(1)/ 100%
Expected Expenses (5,000,000) (25%)
------------ ----
Expected Cash Flow 15,000,000 75%
============ ====
Transaction Value Estimate:
Shares Issued 4,000,000 /(2)/ /(3)/
Estimated Share Price $ 30
------------
Total Value $120,000,000
============
Cash Flow Multiple 8.0 x
Revenue Multiple 6.0 x
Fairness Opinion Provided By: Houlihan, Lokey, Howard & Zukin /(2)/
Transaction Status: Pending
</TABLE>
/(1)/ We note that Starwood's book equity base is approximately $1.0 billion
and its base fee is 1.25%, or $12.5 million. The balance of the fee is an
incentive fee (5% over CMBS BB Rate) representing 37.5% of total fees.
/(2)/ Shares are subject to lock-up agreement.
/(3)/ Prior to the transaction, Houlihan had rendered a preliminary opinion on
5,000,000 shares ($150,000,000, representing a 10 multiple on cash flow
and a 7.5 multiple on revenues).
<PAGE>
EXHIBIT 20
Review of comparable Transaction Multiples
<TABLE>
<CAPTION>
Cash-Flow
Date Price Multiple
------- ------------ ----------
<S> <C> <C> <C>
Franchise Finance Corp. 1/94 $ 53,900,000 11.40
Shurgard Storage Centers 2/95 29,300,000 10.00
CRIIMI MAE 4/95 31,000,000 5.35
Glenborough 1/96 19,600,000 6.73
SCA 6/96 16,600,000 6.78
Equity Office 3/97 160,000,000 5.39
Security Capital - Industrial 8/97 81,870,000 6.50
Security Capital - Pacific 8/97 75,838,000 7.50
Security Capital - Atlantic 8/97 54,608,000 7.00
D.C. Management Company 9/97 70,000,000 8.60
AMB 9/97 92,000,000 8.76
New England Management Co. 1/98 37,000,000 7.52
McNeil Real Estate Management, Inc. Pending 35,000,000 5.00
------------
TOTALS $756,716,000
============
1994 to 1999
Range 5.0 - 11.4
Average 7.43
1997 to 1999
Range 5.0 - 8.76
Average 7.0
</TABLE>
<PAGE>
EXHIBIT 21
Page 1 of 3
Summary of Valuation Issue Observations
<TABLE>
<CAPTION>
Negative Positive
Influence on Influence on
Termination Termination
Fee Fee
----------------------------------
<S> <C> <C>
Terms of Management Agreement
- -----------------------------
. Existence of Termination Fee Provision No Yes
. Vagueness of Termination Fee Reference Neutral Neutral
. Existence of Appraisal Process No Yes
Prospectus Disclosure
- ---------------------
. Payment Upon Any Termination or Non-Renewal No Yes
. Adverse Affect of Fee on Ability to Terminate No Yes
. Base Fee is Compensation For Cost, Among Other Things Neutral Neutral
Guidelines In Place
- -------------------
. Subject to Review By Independent Directors Yes No
. Long Term Hold on Mortgage Loan Investments No Yes
. Long Term Hold on Real Estate Investments No Yes
. Leverage Policy No Yes
Merger Agreement
- ----------------
. Form of Transaction As Merger No Yes
. Continued Operations, No Asset Sales No Yes
. Continued Operations, No Debt Repayment No Yes
. Continued Operations, No Special Distributions No Yes
. Possible Superior Acquisition Proposal
. Including Sale of Assets Yes No
. Existence of Appraisal Process No Yes
</TABLE>
<PAGE>
EXHIBIT 21
Page 2 of 3
Summary of Valuation Issue Observations (continued)
<TABLE>
<CAPTION>
Negative Positive
Influence on Influence on
Termination Termination
Fee Fee
----------------------------------
<S> <C> <C>
Financial Matters:
- ------------------
. Existence of Asset Base No Yes
. Decline in Asset Base:
Debt Repayment Yes No
Stock Repurchase Yes No
Fee Calculations:
- -----------------
. Level of Fees Charged Neutral Neutral
. Ambiguities Regarding Expense
Charge-backs Yes No
Termination Fee Provisions of Comparable Transactions
- -----------------------------------------------------
. Based upon last twelve months 4 Yes No
. Based upon Appraisal:
- with 3x last twelve months floor 1 No Yes
- Based upon 4 year term 1 No Yes
- Based upon Continuous Renewal 4 No Yes
- No Specific Parameters 1 Neutral Neutral
---
7
---
11
===
Company Performance
- -------------------
. Company Versus Mortgage REIT Industry No Yes
. Company Versus DJIA Yes No
Profitability Of Management Company
- -----------------------------------
. Prospective Earnings From Continuous Opportunities No Yes
Multiples In Comparable Transactions No Yes
- ------------------------------------
</TABLE>
<PAGE>
EXHIBIT 21
Page 3 of 3
Summary of Valuation Issue Observations (continued)
<TABLE>
<CAPTION>
Negative Positive
Influence on Influence on
Termination Termination
Fee Fee
----------------------------------
<S> <C> <C>
Prior Offers for the Company and Management Agreement
- -----------------------------------------------------
. Existence of Offers No Yes
. Amount of Offer No Yes
Intentions Expressed by Parties
- -------------------------------
. Imperial Snavley/Villani No Yes
. The Management Company - Karlan No Yes
. The Company - Karlan No Yes
- Special Committee Yes No
- Seifert Yes No
</TABLE>
<PAGE>
EXHIBIT 22
Page 1 of 2
<TABLE>
<CAPTION>
Valuation Ranges
(Amounts in Thousands)
Current Levels Management Company Budgets
------------------------------- ----------------------------------------------------
Cash Adjusted 1999 2000
---------- ---------------------------
With Expense With Expense Budgeted With Expense
Limitation /(1)/ Limitation/(2)/ Expenses/(3)/ As Budgeted/(4)/ Limitation/(5)/ As Budgeted/(6)/
---------------- --------------- ------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Invested Assets at $ 717,157 $ 717,157 $ 717,157 $ 717,157 $ 717,157 $ 717,157
June 30, 1999
Net Increase/
(Decrease) In
Average Invested
Assets (116,616) 0 0 27,443 727,843 727,843
------------ ------------ ------------ ------------ ------------ ------------
Adjusted
Invested Assets 600,541 717,157 717,157 744,600 1,445,000 1,445,000
Management Fee % 1% 1% 1% 1% 1%/.75%/.50% 1%/.75%/.50%
------------ ------------ ------------ ------------ ------------ ------------
Management Fee 6,005 7,172 7,172 7,446 12,850 12,850
Incentive Fee 41 1,793 1,793
Operating Expenses (3,003) (3,586) (3,080) (3,080) (7,321) (3,530)
------------ ------------ ------------ ------------ ------------ ------------
Cash Flow $ 3,002 $ 3,586 $ 4,092 $ 4,407 $ 7,322 $ 11,113
============ ============ ============ ============ ============ ============
Value At Cash Flow
Multiple of:
4.0 12,008 14,344 16,368 17,628 29,288 44,452
5.0 15,010 17,930 20,460 22,035 36,610 55,565
6.0 18,012 21,516 24,552 26,442 43,932 66,678
7.0 21,014 25,102 28,644 30,849 51,254 77,791
Implied Revenue Multiple
at Cash Flow Multiple of:
4.0 2.0 2.0 2.3 2.4 2.0 3.0
5.0 2.5 2.5 2.9 2.9 2.5 3.8
6.0 3.0 3.0 3.4 3.5 3.0 4.5
7.0 3.5 3.5 4.0 4.1 3.5 5.3
</TABLE>
<PAGE>
EXHIBIT 22
Page 2 of 2
Valuation Ranges (continued)
Footnotes:
(1) Valuation based upon management fee calculated on Invested Assets at June
30, 1999 less cash or cash equivalents which could be utilized to repay
indebtedness, acquire additional shares or pay a special distribution to
shareholders. Expense at 50% of Revenues.
(2) Valuation based upon management fee calculated on Invested Assets at June
30, 1999 and Management Company expenses equal to 50% of management fees.
(3) Valuation based upon management fee calculated on Invested Assets at June
30, 1999 and budgeted Management Company operating expenses for 1999.
(4) Valuation based upon 1999 budgeted Management Fees and expenses as provided
by Management Company.
(5) Valuation based upon year 2000 budgeted management fees as estimated by the
Management Company and expense equal to 50% of revenues.
(6) Valuation based upon year 2000 budget as provided by the Management
Company.
<PAGE>
EXHIBIT 23
Page 1 of 3
REVIEW OF OTHER SELECTED TRANSACTIONS
Review of Imperial Credit Advisors/Impac Management Agreement Valuation
Prepared by Stefel, Nicolous & Company, Incorporated
December 19, 1997
<TABLE>
<S> <C>
Estimated 1998 Net Fee (Forward) $ 6,135,590
Incremental Expenses (267,475)
Other Adjustments (389,061)
-----------
Adjusted Net Cash Flow $ 5,479,054
===========
Consideration:
IMPAC Stock $35,037,335
Other Assets 8,962,665
-----------
Total $44,000,000
===========
Cash Flow Multiple 8.03
Percentage of Profits Based Upon Performance of the Assets 100%
Fee Agreement
Base Fee 115% of Costs
Incentive Fee:
Basis 10 Year Treasury + 2%
% Over Basis 25%
Termination Without Cause Termination Fee at
Appraised Value
</TABLE>
<PAGE>
EXHIBIT 23
Page 2 of 3
REVIEW OF OTHER SELECTED TRANSACTIONS
(Continued)
Review of RAI Advisors Inc./Impac Management Agreement Valuation
Prepared by Everen Securities Inc.
July 13, 1999
<TABLE>
<S> <C>
1999 Management Fee $ 127,301
2000 Management Fee $ 682,099
Value Conclusion - Everen Securities $7,000,000
Revenue Multiple on 2000 Fee 10.26
(Fee equals Net Profit /(1)/)
Consideration in Transaction/(2)/ $6,000,000
Revenue Multiple on 2000 Fee 8.80
Percentage of Profits Based Upon Performance of Assets 100%
Fee Agreement:
Base Fee 100% of expenses plus 15%
Incentive Fee
Basis 10 year Treasury + 2%
% Over Basis 25%
Termination Without Cause Termination Fee at Appraised Value
</TABLE>
/(1)/ Manager may also mark-up expenses 15%.
/(2)/ Transaction with Fortress reportedly closed at $6,000,000 (all
cash) in July 1999.
<PAGE>
EXHIBIT 23
Page 3 of 3
REVIEW OF OTHER SELECTED TRANSACTIONS
(Continued)
Review of CWM Mortgage Holdings/Countrywide Asset Management Corporation Merger
January 20, 1997/(1)/
<TABLE>
<S> <C>
Fiscal Year 1997 Management Fee $10,200,000
Value Conclusion/(2)/ $67,500,000
Revenue Multiple on 1997 Fee 6.62
(Fee equals Net Profit /(3)/)
Percentage of Profits Based Upon Performance of Assets 84%
Fee Agreement:
Base Fee 0.125% of real estate loans
excluding loans which serve as
collateral for debt, plus 0.20% of
average daily warehouse loans
outstanding.
Incentive Fee
Basis 10 year Treasury + 2%
% Over Basis 25%
Termination Without Cause No Fee Payable/(4)/
</TABLE>
/(1)/ Date merger agreed to by Board of Directors. Merger closed in July
1997.
/(2)/ Consideration paid in restricted shared of REIT's common stock. Value
is based upon mid-point of pricing collar, discounted by 10% to
reflect lock-up period.
/(3)/ Management contract is a net contract with reimbursement of 100% of
Manager's costs.
/(4)/ Non-compete restrictions and restrictions on hiring staff of Manager
if termination without cause.
<PAGE>
EXHIBIT 24
Other Observations
FBR Research Report (November 11, 1997)
. Base Fee in lieu of G&A (note: there is no G&A in projection) (page 5)
. The "REIT bears no other G&A expense" (page 8)
Jefferies Research Report (November 11, 1997)
. Full leverage of 80% expected by early 2000. (page 6)
. No G&A included in income statement projection. (page 7)
Jefferies Research Report (February 5, 1999)
. Estimated value of termination fee at $50 million. (page 2).
<PAGE>
MANAGEMENT AGREEMENT
THIS AGREEMENT, dated as of October 22, 1997 by and among IMPERIAL CREDIT
COMMERCIAL MORTGAGE INVESTMENT CORP., a Maryland corporation ("ICCMIC" and
together with its subsidiaries, the "Company"), and IMPERIAL CREDIT COMMERCIAL
ASSET MANAGEMENT CORPORATION, a California corporation (the "Manager");
WITNESSETH:
WHEREAS, the Company intends to invest in Mortgage Loans, MBS Interests,
Real Property and Non-Real Estate Assets ("REIT Investments") and expects to
qualify for the tax benefits of a real estate investment trust (a "REIT")
accorded by Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the "Code"); and
WHEREAS, the Company desires to retain the Manager to advise and counsel
the Company as to the acquisition and sale of, and to otherwise manage the
investments of, the Company and to perform administrative services for the
Company in the manner and on the terms set forth herein;
NOW THEREFORE, in consideration of the mutual agreements herein set forth,
the parties hereto agree as follows:
SECTION 1. Definitions. Capitalized terms used but not defined herein
-----------
shall have the respective meanings assigned them in the Prospectus of ICCMIC
dated October 16, 1997. In addition, the following terms shall have the
following:
(a) "Agreement" means this Management Agreement, as amended from time to
time.
(b) "Closing Date" means the date of closing of the Company's initial
public offering of Common Stock.
(c) "Governing Instruments" means the charter and bylaws in the case of a
corporation, or the partnership agreement in the case of a partnership.
(d) "Subsidiary" means any subsidiary of the Company and any partnership,
a general partner of which is the Company or any subsidiary of the Company.
SECTION 2. Duties of the Manager.
---------------------
(a) The Manager at all times will be subject to the supervision of
ICCMIC's Board of Directors (the "Board of Directors") and will have only such
functions and authority as the Company delegates to it. The Manager will advise
the Board of Directors as to the activities and operations of the Company. The
Manager shall be responsible for the
-1-
<PAGE>
day-to-day business affairs of the Company pursuant to the authority granted to
it by the Board of Directors under this Agreement, and the Manager will perform
(or cause to be performed) such services and activities relating to the assets
and operations of the Company as may be directed by the Board of Directors or as
the Manager otherwise considers appropriate, including:
(i) serving as the Company's consultant with respect to formulation
of investment criteria and preparation of policy Guidelines by the Board
of Directors;
(ii) advising and representing the Company in connection with the
acquisition and commitment to acquire assets, the sale and commitment to
sell assets, and the maintenance and administration of its portfolio of
assets;
(iii) advising the Company regarding, and arranging for, (a) the
issuance of CMOs collateralized by the Company's Mortgage Loans, (b)
reverse repurchase agreements on the Company's MBS Interests, and (c) other
borrowings, as appropriate;
(iv) furnishing reports and statistical and economic research to the
Company regarding the Company's activities and the services performed for
the Company by the Manager;
(v) monitoring and providing to the Board of Directors on an
ongoing basis price information and other data obtained from dealers that
maintain markets in assets identified by the Board of Directors from time
to time, and providing data and advice to the Board of Directors in
connection with the identification of such dealers;
(vi) providing executive and administrative personnel,
administering office space and office services required in rendering
services to the Company; administering the day-to-day operations of the
Company; and performing and supervising the performance of such other
administrative functions necessary in the management of the Company,
including the collection of revenues and the payment of the Company's debts
and obligations and maintenance of appropriate computer services to perform
such administrative functions;
(vii) communicating on behalf of the Company with the holders of any
equity or debt securities of the Company as required to satisfy the
reporting and other requirements of any governmental bodies or agencies or
trading markets and to maintain effective relations with such holders;
(viii) to the extent not otherwise subject to an agreement executed by
the Company, designating a servicer for mortgage loans sold to the Company
and arranging for the monitoring and administering of such servicers;
(ix) counseling the Company in connection with policy decisions to
be made by the Board of Directors;
-2-
<PAGE>
(x) engaging in hedging activities on behalf of the Company which
are consistent with the Company's status as a REIT and with the Guidelines;
(xi) upon request by the Board of Directors and in accordance with
the Guidelines, investing or reinvesting any money of the Company;
(xii) counseling the Company regarding the maintenance of its
exemption from the Investment Company Act and monitoring compliance with
the requirements for maintaining exemption from that Act;
(xiii) counseling the Company regarding the maintenance of its status
as a REIT and monitoring compliance with the various REIT qualification
tests and other rules set out in the Code and the income tax regulations
promulgated thereunder (the "Treasury Regulations"); and
(xiv) counseling the Company as to compliance with all applicable
laws, including those that would require the Company to qualify to do
business in particular jurisdictions.
(b) Portfolio Management. The Manager will perform portfolio management
--------------------
services on behalf of the Company with respect to the Company's investments.
Such services will include, but not be limited to, consulting the Company on
purchase, sale and other opportunities, collection of information and submission
of reports pertaining to the Company's assets, interest rates, and general
economic conditions, periodic review and evaluation of the performance of the
Company's portfolio of assets, acting as liaison between the Company and
banking, mortgage banking, investment banking and other parties with respect to
the purchase, financing and disposition of assets, and other customary functions
related to portfolio management. The Manager may enter into subcontracts with
other parties, including Imperial Credit and its affiliates, to provide any such
services to the Company.
(c) Monitoring of Primary Servicing. The Manager will monitor and
-------------------------------
administer the loan servicing activities provided by servicers of the Company's
Mortgage Loans, other than loans pooled to collateralize MBS Interests or
pledged to secure MBS Interests. Such monitoring and administrative services
will include, but not be limited to, the following activities: serving as the
Company's consultant with respect to the servicing of loans; collection of
information and submission of reports pertaining to the mortgage loans and to
moneys remitted to the Manager or the Company by servicers; periodic review and
evaluation of the performance of each servicer to determine its compliance with
the terms and conditions of the servicing agreement and, if deemed appropriate,
recommending to the Company the termination of such servicing agreement; acting
as a liaison between servicers and the Company and working with servicers to the
extent necessary to improve their servicing performance; review of and
recommendations as to fire losses, easement problems and condemnation,
delinquency and foreclosure procedures with regard to the Mortgage Loans; review
of servicers' delinquency, foreclosing and other reports on Mortgage Loans;
advising as to and supervising claims filed under any mortgage insurance
policies; and enforcing the obligation of any servicer to repurchase Mortgage
Loans from the Company.
-3-
<PAGE>
(d) Monitoring of Special Servicing. The Manager will perform monitoring
-------------------------------
services on behalf of the Company with respect to loan servicing activities
provided by third parties and with respect to the Company's rights to service
the Company's portfolio of Special Servicing rights. Such monitoring services
will include, but not be limited to; negotiating Special Servicing agreements;
acting as liaison between the servicers of the Mortgage Loans and the Company;
review of servicer's delinquency, foreclosures and other reports on Mortgage
Loans; supervising claims filed under any mortgage insurance policies; and
enforcing the obligation of any servicer to repurchase Mortgage Loans.
(e) Efforts. The Manager agrees to use commercially reasonable efforts at
-------
all times in performing services for the Company hereunder.
SECTION 3. Additional Activities of Manager. Nothing herein shall limit
--------------------------------
or restrict the right of the Manager or any of its officers, directors,
employees or Affiliates to engage in any business or to render services of any
kind to any other person including the purchase of, or rendering advice to
others purchasing, assets that meet the Company's policies and criteria, except
that the Manager may not manage or advise another REIT or other entity that
invests or intends to invest primarily in commercial and multifamily Mortgage
Loans or subordinated CMBS Interests.
Directors, officers, employees and agents of the Manager or Affiliates of
the Manager may serve as directors, officers, employees, agents, nominees or
signatories for the Company or any of its Subsidiaries, to the extent permitted
by their Governing Instruments, as from time to time amended, or by any
resolutions duly adopted by the Board of Directors pursuant to the Company's or
any of its Subsidiaries' Governing Instruments. When executing documents or
otherwise acting in such capacities for the Company, such persons shall use
their respective titles in the Company.
SECTION 4. Commitments. In order to meet the investment requirements of
-----------
the Company, as determined by the Board of Directors from time to time, the
Manager agrees at the direction of the Board of Directors to issue on behalf of
the Company commitments on such terms as are established by the Board of
Directors, for the acquisition by the Company of assets.
SECTION 5. Bank Accounts. At the direction of the Board of Directors, the
-------------
Manager may establish and maintain one or more bank accounts in the name of
ICCMIC or any of its subsidiaries, and may collect and deposit funds into any
such account or accounts, and disburse funds from any such account or accounts,
under such terms and Conditions as the Board of Directors may approve; and the
Manager shall from time to time render appropriate accountings of such
collections and payments to the Board of Directors and, upon request, to the
auditors of ICCMIC or any of its subsidiaries.
SECTION 6. Records; Confidentiality. The Manager shall maintain
------------------------
appropriate books of accounts and records relating to services performed
hereunder, and such books of account and records shall be accessible for
inspection by representatives of the Company or any of its Subsidiaries at any
time during normal business hours. The Manager shall keep confidential any and
all information obtained in connection with the services rendered
-4-
<PAGE>
hereunder and shall not disclose any such information to nonaffiliated third
parties except with the prior written consent of the Board of Directors or as
may be required by law or order of a court or other tribunal having requisite
jurisdiction.
SECTION 7. Obligations of Manager.
----------------------
(a) The Manager shall require each seller or transferor of assets to be
acquired by the Company to make such representations and warranties regarding
such assets as may be directed by the Board of Directors, or, if no such
directions are given, as may, in the judgment of the Manager, be necessary and
appropriate. In addition, the Manager shall take such other action as may be
directed by the Board of Directors, or, if no such directions are given, as it
deems necessary or appropriate with regard to the protection of the Company's
assets.
(b) The Manager shall refrain from any action that, in its sole judgment
made in good faith, would adversely affect the status of ICCMIC as a REIT, or as
exempt from regulation under the Investment Company Act or that, in its sole
judgment made in good faith, would violate any law, rule or regulation of any
governmental body or agency having jurisdiction over the Company or any of its
Subsidiaries or that would otherwise not be permitted by their respective
Governing Instruments. If the Manager is ordered to take any such action by the
Board of Directors, the Manager shall promptly notify the Board of Directors of
the Manager's judgment that such action would adversely affect such status or
violate any such law, rule or regulation or the Governing Instruments.
Notwithstanding the foregoing, the Manager, its directors, officers,
stockholders and employees shall not be liable to the Company or any of its
Subsidiaries, the Independent Directors, or ICCMIC's or any of its subsidiaries'
stockholders or partners for any act or omission by the Manager, its directors,
officers, stockholders or employees except as provided in Section 11 of this
Agreement.
(c) Absent written direction from the Board of Directors, the Manager
shall use reasonable efforts to comply with the Guidelines, as they may be
revised from time to time.
SECTION 8. Compensation.
------------
(a) Commencing with the first fiscal quarter after the Closing Date, the
Company shall pay to the Manager, for services rendered under this Agreement, a
base management fee, calculated as a percentage of the Average Invested Assets
of the Company for such quarter (pro rated based on the number of days elapsed
during any partial fiscal 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% Average Invested Assets above $1.25
billion.
(b) The Company shall pay to the Manager incentive compensation for each
fiscal quarter in an amount equal 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
-5-
<PAGE>
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. "Funds from Operations" as defined by the National Association of
Real Estate Investment Trusts ("NAREIT") means net income (computed in
accordance with GAAP) excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization on real estate assets, and
after adjustments for unconsolidated partnerships and joint ventures. Funds from
Operations does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to net
income as an indication of the Company's performance or to cash flows as a
measure of liquidity or ability to make distributions. As used in calculating
the Manager's compensation, the term "Ten Year U.S. Treasury Rate" means the
arithmetic average of the weekly average yield to maturity for actively traded
current coupon U.S. Treasury fixed interest rate securities (adjusted to
constant maturities of ten years) published by the Federal Reserve Board during
a quarter, or, if such rate is not published by the Federal Reserve Board, any
Federal Reserve Bank or agency or department of the federal government selected
by the Company. If the Company determines in good faith that the Ten Year U.S.
Treasury Rate cannot be calculated as provided above, then the rate shall be the
arithmetic average of the per annum average yields to maturities, based upon
closing asked prices on each business day during a quarter, for each actively
traded marketable U.S. Treasury fixed interest rate security with a final
maturity date not less than eight nor more than twelve years from the date of
the closing asked prices as chosen and quoted for each business day in each such
quarter in New York City by at least three recognized dealers in U.S. government
securities selected by the Company.
(c) The Manager shall compute the compensation payable under Sections 8(a)
and 8(b) of this Agreement within 45 days after the end of each fiscal quarter.
A copy of the computations made by the Manager to calculate its compensation
shall thereafter promptly be delivered to the Board of Directors and, upon such
delivery, payment of the compensation earned under Sections 8(a) and 8(b) of
this Agreement shown therein shall be due and payable within 60 days after the
end of such fiscal quarter.
(d) The Manager may charge the Company for any out of pocket expenses that
the Manager incurs in connection with employing third parties to conduct due
diligence on assets considered for purchase by the Company.
(e) The Company is granting to the Manager and directors and executive
officers of the Manager and certain other persons options (the "Options") to
purchase shares of common stock of the Company at a price per share equal to the
initial offering price therefor pursuant to the terms of the Company's 1997
Stock Option Plan. The number of shares of common stock to be subject to the
Options will be 10% of the number of shares to be issued pursuant to the initial
offering, assuming that the underwriters fully exercise their over-allotment
option. One-third of the Options so granted to the Manager and its directors and
executive officers will be exercisable by them on each of the first three
anniversaries of the Closing Date of the initial public offering of the
Company's Common Stock, and unexercised Options shall expire on the tenth
anniversary of that Closing Date.
-6-
<PAGE>
SECTION 9. Expenses of the Company. The Company or any Subsidiary shall
-----------------------
pay all of its expenses and shall reimburse the Manager for documented expenses
of the Manager incurred on its behalf.
SECTION 10. Calculations of Expenses. Expenses incurred by the Manager on
------------------------
behalf of the Company shall be reimbursed quarterly to the Manager within 60
days after the end of each quarter. The Manager shall prepare a statement
documenting the expenses of the Company and those incurred by the Manager on
behalf of the Company during each quarter, and shall deliver such statement to
the Company within 45 days after the end of each quarter.
SECTION 11. Limits of Manager Responsibility. The Manager assumes no
--------------------------------
responsibility under this Agreement other than to render the services called for
hereunder in good faith and shall not be responsible for any action of the Board
of Directors in following or declining to follow any advice or recommendations
of the Manager, including as set forth in Section 7(b) of this Agreement. The
Manager, its directors, officers, stockholders and employees will not be liable
to the Company, any Subsidiary, the Independent Directors, the Company's
stockholders or any of the Company's Subsidiaries' stockholders or partners for
any acts or omissions by the Manager, its directors, officers, stockholders or
employees under or in connection with this Agreement, except by reason of acts
constituting bad faith, willful misconduct, gross negligence or reckless
disregard of their duties. The Company and its Subsidiaries shall reimburse,
indemnify, defend and hold harmless the Manager, its stockholders, directors,
officers and employees of and from any and all expenses, losses, damages,
liabilities, demands, charges and claims of any nature whatsoever, (including
attorneys' fees) in respect of or arising from any acts or omissions of the
Manager, its stockholders, directors, officers and employees made in good faith
in the performance of the Manager's duties under this Agreement and not
constituting bad faith, willful misconduct, gross negligence or reckless
disregard of its duties.
SECTION 12. No Joint Venture. The Company and the Manager are not partners
----------------
or joint venturers with each other and nothing herein shall be construed to make
them such partners or joint venturers or impose any liability as such on either
of them.
SECTION 13. Term. This Agreement shall continue in force and effect until
----
October 22, 1999, subject to being terminated for cause as provided in Section
14 herein. After October 22, 1999, the term of this Agreement may be extended
with the consent of the Manager and with the affirmative vote of a majority of
the Independent Directors. Each extension shall be executed in writing by all
parties hereto before the expiration of this Agreement or, if applicable, the
most recent extension thereof. Each such extension shall be effective for a
period of one year. At any time after October 22, 1999, this Agreement may be
terminated without cause by a majority vote of the Independent Directors, which
termination shall first become effective as of the 60th day after the receipt by
the Manager of a written notice of such termination from the Company. A failure
to extend the term of this Agreement at the expiration of its term (or, if the
term of this Agreement shall have been extended pursuant to this Section 13, at
the expiration of the most recent extension) shall be deemed for all purposes of
this Agreement to be a termination of this Agreement pursuant to this Section
13. If this Agreement is terminated pursuant to this Section 13, the unvested
Options granted to the Manager and directors and executive officers of the
Manager pursuant
-7-
<PAGE>
to Section 8(e) shall continue to vest in the manner described in Section 8(e)
and in the Company's 1997 Stock Option Plan.
SECTION 14. Termination for Cause. This Agreement, or any extension hereof,
---------------------
may be terminated by either party for cause immediately upon written notice, (i)
by a majority vote of the Independent Directors in the case of termination by
the Company, or (ii) by a majority vote of the directors of the Manager, in the
case of termination by the Manager. Grounds for termination for cause will occur
with respect to a party if:
(i) Such party shall have violated any provision of this Agreement
and, after notice of such violation, shall not have cured such default
within 30 days; or
(ii) There is entered an order for relief or similar decree or order
with respect to the other party by a court having jurisdiction in an
involuntary case under the federal bankruptcy laws as now or hereafter
constituted or under any applicable federal or state bankruptcy,
insolvency or other similar laws; or the other party (A) admits in writing
its inability to pay its debts as they become due and payable, or makes a
general assignment for the benefit of, or enters into any composition or
arrangement with, creditors; (B) applies for, or consents (by admission of
material allegations of a petition or otherwise) to the appointment of a
receiver, trustee, assignee, custodian, liquidator or sequestrator (or
other similar official) of the other party or of any substantial part of
its properties or assets, or authorizes such an application or consent, or
proceedings seeking such appointment are commenced without such
authorization, consent or application against the other party and continue
undismissed for 30 days; (C) authorizes or files a voluntary petition in
bankruptcy, or applies for or consents (by admission of material
allegations of a petition or otherwise) to the application of any
bankruptcy, reorganization, arrangement, readjustment of debt, insolvency,
dissolution, liquidation or other similar law of any jurisdiction, or
authorizes such application or consent, or proceedings to such end are
instituted against the other party without such authorization, application
or consent and are approved as properly instituted and remain undismissed
for 30 days or results in adjudication of bankruptcy or insolvency; or (D)
permits or suffers all or any substantial part of its properties or assets
to be sequestered or attached by court order and the order remains
undismissed for 30 days.
Each party agrees that if any of the events specified in this Section 14
shall occur, it will give prompt written notice thereof to the other party's
Board of Directors after the happening of such event.
If this Agreement is terminated pursuant to this Section 14, such
termination shall be without any further ability or obligation of either party
to the other, except as provided in Section 16 of this Agreement. Upon the
proper termination of this Agreement pursuant to this Section 14, the Options
granted to the Manager and directors and executive officers of the Manager
pursuant to Section 8(e) that are unvested as of the date of termination shall
expire.
-8-
<PAGE>
SECTION 15. Buyout of Agreement. If, at any time after October 22, 1999,
-------------------
this Agreement is not renewed by the Company, or if this Agreement is terminated
by the Company at any time pursuant to Section 13 of this Agreement, then the
Company, in addition to its obligations under Section 16, shall pay the Manager
a termination fee determined by an independent appraisal. Such appraisal shall
be conducted by a nationally-recognized appraisal firm mutually agreed upon by
the parties and the costs of such appraisal shall be borne equally by the
parties. If the parties are unable to agree upon such appraisal firm within 30
days following notice of termination or, in the event of non-renewal, the
termination date, then each party shall as soon as reasonably practicable, but
in no event more than 45 days following notice of termination or, in the event
of nonrenewal, the termination date, choose an independent appraisal firm to
conduct an appraisal. In such event, (i) if the appraisals prepared by the two
appraisers so selected are the same or differ by an amount that does not exceed
20% of the higher of the two appraisals, the termination fee shall be deemed to
be the average of the appraisals as prepared by each party's chosen appraiser,
and (ii) if these two appraisals differ by more than 20% of such higher amount,
the two appraisers together shall, as soon thereafter as is reasonably
practicable but in no event more than 45 days after the date of the later of
such two appraisals, select a third appraisal firm to conduct an appraisal. If
they are unable to agree as to the identity of such third appraiser within such
45 day period, either party can request that the American Arbitration
Association ("AAA") select the third appraiser, and in that event the appraiser
selected by the AAA shall be the third appraiser. The termination fee shall be
the amount determined by such third appraiser, but in no event less than the
lower of the two initial appraisals or more than the higher of such two initial
appraisals. Each party shall pay the costs of the appraiser chosen by it, and
each party shall pay one half of the costs of the third appraiser. Any appraisal
conducted hereunder shall be performed no later than 45 days following selection
of the appraiser or appraisers. The Company's obligation to pay the termination
fee pursuant to this Section 15 shall survive the expiration or earlier
termination of this Agreement.
SECTION 16. Assignment, Subcontract.
-----------------------
(a) This Agreement shall terminate automatically in the event of its
assignment, in whole or in part, by the Manager, unless such assignment is
to a corporation, association, trust or other organization which shall
acquire the property and carry on the business of the Manager, if at the
time of such assignment a majority of the voting stock of such assignee
organization shall be owned, directly or indirectly, by Imperial Credit or
unless such assignment is consented to in writing by the Company with the
consent of a majority of the Independent Directors. Such an assignment
shall bind the assignee hereunder in the same manner as the Manager is
bound hereunder and, to further evidence its obligations hereunder, the
assignee shall execute and deliver to the Company a counterpart of this
Agreement. This Agreement shall not be assignable by the Company without
the consent of the Manager, except in the case of assignment by the
Company to a REIT or other organization which is a successor (by merger,
consolidation or purchase of assets) to the Company, in which case such
successor organization shall be bound hereunder and by the terms of said
assignment in the same manner as the Company is bound hereunder.
-9-
<PAGE>
(b) Notwithstanding the foregoing, the Company and the Manager agree
that the Manager may enter into a subcontract with any third party, which
third party shall be approved by the Company's Board of Directors, pursuant
to which such third party will provide such of the management services
required hereunder as the Manager deems necessary, and the Company hereby
consents to the entering into and performance of such subcontract;
provided, however, that no such arrangement between the Manager and any
third party shall relieve the Manager of any of its duties or obligations
hereunder.
SECTION 17. Action Upon Termination. From and after the effective date
-----------------------
of termination of this Agreement pursuant to Sections 13 or 14 hereof, the
Manager shall not be entitled to compensation for further services hereunder,
but shall be paid all compensation accruing to the date of termination and, if
such termination is not pursuant to Section 14, the termination fee determined
pursuant to Section 15 and, if applicable, the unvested Options granted to the
Manager and directors and executive officers of the Manager pursuant to Section
8(e) shall vest in the manner described in Section 8(e) and in the Company's
1997 Stock Option Plan. The Manager shall forthwith upon such termination
deliver to the Board of Directors all funds and property, documents, corporate
records, reports and software of the Company or any Subsidiary of the Company
then in the custody of Manager.
SECTION 18. Release of Money or Other Property Upon Written Request. The
-------------------------------------------------------
Manager agrees that any money or other property of the Company and its
Subsidiaries held by the Manager under this Agreement shall be held by the
Manager as custodian for the Company and its Subsidiaries, and the Manager's
records shall be appropriately marked clearly to reflect the ownership of such
money or other property by the Company and its Subsidiaries. Upon the receipt by
the Manager of a written request signed by a duly authorized officer of the
Company requesting the Manager to release to the Company or any such Subsidiary,
respectively, any money or other property then held by the Manager for the
account of the Company or any such Subsidiary under this Agreement, the Manager
shall release such money or other property to the Company or any of its
Subsidiaries within a reasonable period of time, but in no event later than 60
days following such request. The Manager shall not be liable to the Company, the
Independent Directors, or the Company's or any of its Subsidiaries' stockholders
or partners for any acts performed or omissions to act by the Company or any of
its Subsidiaries in connection with the money or other property released to the
Company or any of its Subsidiaries in accordance with this Section. The Company
and its Subsidiaries jointly and severally shall indemnify, defend and hold
harmless the Manager, its directors, officers, stockholders and employees
against any and all expenses, losses, damages, liabilities, demands, charges and
claims of any nature whatsoever, which arise in connection with the Manager's
release of such money or other property to the Company or any of its
Subsidiaries in accordance with the terms of this Section 17 of this Agreement.
Indemnification pursuant to this provision shall be in addition to any right of
the Manager to indemnification under Section 11 of this Agreement.
SECTION 19. Representations and Warranties.
------------------------------
(a) The Company hereby represents and warrants to the Manager as follows:
-10-
<PAGE>
(i) Each of ICCMIC and ICMSC is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its respective
incorporation, each of them has the corporate power to own its assets and to
transact the business in which it is now engaged and is duly qualified as a
foreign corporation and in good standing under the laws of each jurisdiction
where its ownership or lease of property or the conduct of its business requires
such qualification, except for failures to be so qualified, authorized or
licensed that could not in the aggregate have a material adverse effect on the
business operations, assets or financial condition of the Company and its
Subsidiaries, taken as a whole. The Company does not do business under any
fictitious business name.
(ii) Each of ICCMIC and ICMSC has the corporate power and authority
to execute, deliver and perform this Agreement and all obligations required
hereunder and has taken all necessary corporate action to authorize this
Agreement on the terms and conditions hereof and the execution, delivery and
performance of this Agreement and all obligations required hereunder. No consent
of any other person including, without limitation, stockholders and creditors of
the Company, and no license, permit, approval or authorization of, exemption
by, notice or report to, or registration, filing or declaration with, any
governmental authority is required by the Company in connection with this
Agreement or the execution, delivery, performance, validity or enforceability of
this Agreement and all obligations required hereunder. This Agreement has been,
and each instrument or document required hereunder will be, executed and
delivered by a duly authorized officer of each of ICMIC and ICMSC, and this
Agreement constitutes, and each instrument or document required hereunder when
executed and delivered hereunder will constitute, the legally valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.
(iii) The execution, delivery and performance of this Agreement and
the documents or instruments required hereunder will not violate any provision
of any existing law or regulation binding on ICMIC or any of its subsidiaries,
or any order, judgment, award or decree of any court, arbitrator or governmental
authority binding on ICCMIC or any of its subsidiaries, or the Governing
Instruments of, or any securities issued by ICCMIC or any of its subsidiaries,
or of any mortgage, indenture, lease, contract or other agreement, instrument or
undertaking to which ICMIC or any of its subsidiaries is a party or by which
ICMIC or any of its subsidiaries, or any of their respective assets, may be
bound, the violation of which would have a material adverse effect on the
business operations, assets or financial condition of ICMIC and its
subsidiaries, taken as a whole, and will not result in, or require, the creation
or imposition of any lien on any of its property, assets or revenues pursuant to
the provisions of any such mortgage, indenture, lease, contract or other
agreement, instrument or undertaking.
(b) The Manager hereby represents and warrants to the Company as follows:
(i) the Manager is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has the
corporate power to own its assets and to transact the business in which it is
now engaged and is duly qualified to do business and is in good standing under
the laws of each jurisdiction where its ownership or lease of property or the
conduct of its business requires such qualification, except for failures to be
so
-11-
<PAGE>
qualified, authorized or licensed that could not in the aggregate have a
material adverse effect on the business operations, assets or financial
condition of the Manager and its subsidiaries, taken as a whole. The Manager
does not do business under any fictitious business name.
(ii) The Manager has the corporate power and authority to execute,
deliver and perform this Agreement and all obligations required hereunder and
has taken all necessary corporate action to authorize, execute and deliver this
Agreement and perform all obligations required hereunder. No consent of any
other person including, without limitation, stockholders and creditors of the
Manager, and no license, permit, approval or authorization of, exemption by,
notice or report to, or registration, filing or declaration with, any
governmental authority is required by the Manager in connection with this
Agreement or the execution and delivery of this Agreement and the performance of
all of the obligations required hereunder. This Agreement has been, and each
instrument or document required hereunder will be, executed and delivered by a
duly authorized agent of the Manager, and this Agreement constitutes, and each
instrument or document required hereunder when executed and delivered hereunder
will constitute, the legally valid and binding obligation of the Manager
enforceable against the Manager in accordance with its terms.
(iii) The execution, delivery and performance of this Agreement and
the documents or instruments required hereunder will not violate any provision
of any existing law or regulation binding on the Manager, or any order,
judgment, award or decree of any court, arbitrator or governmental authority
binding on the Manager, or the Governing Instruments of, or any securities
issued by, the Manager or of any mortgage, indenture, lease, contract or other
agreement, instrument or undertaking to which the Manager is a party or by which
the Manager or any of its assets may be bound, the violation of which would have
a material adverse effect on the business operations, assets or financial
condition of the Manager and its subsidiaries, taken as a whole, and will not
result in, or require, the creation or imposition of any lien on any of its
property, assets or revenues pursuant to the provisions of any such mortgage,
indenture, lease, contract or other agreement, instrument or undertaking.
SECTION 20. Notices. Unless expressly provided otherwise herein, all
-------
notices, requests, demands and other communications required or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given,
made and received when delivered against receipt or upon actual receipt of
registered or certified mail, postage prepaid, return receipt requested,
addressed as set forth below:
(a) If to the Company:
Imperial Credit Commercial Mortgage Investment Corp.
11601 Wilshire Boulevard, Suite 2080
Los Angeles, California 90025
Attention: Mark S. Karlan, President
with a copy given in the manner prescribed above to:
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<PAGE>
Jay A. Shafran, Esq.
Sonnenschein Nath & Rosenthal
601 South Figueroa Street
Suite 1500
Los Angeles, California 90017
(b) If to the Manager:
Imperial Credit Commercial Asset Management Corp.
11601 Wilshire Boulevard, Suite 2080
Los Angeles, California 90025
Attention: Mark S. Karlan, President
with a copy given in the manner prescribed above to:
J. A. Shafran, Esq.
Sonnenschein Nath & Rosenthal
601 South Figueroa Street
Suite 1500
Los Angeles, California 90017
Either party may alter the address to which communications or copies are to
be sent by giving notice of such change of address in conformity with the
provisions of this Section 20 for the giving of notice.
SECTION 21. Entire Agreement. This Agreement contains the entire agreement
----------------
and understanding among the parties hereto with respect to the subject manner
hereof, and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof. The express terms hereof
control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.
SECTION 22. Binding Nature of Agreement, Successors and Assigns. This
---------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, personal representatives, successors and assigns as
provided herein.
SECTION 23. Third Party Beneficiaries. This Agreement shall be binding
-------------------------
upon and inure solely to the benefit of the parties hereto, and nothing this
Agreement, express or implied, is intended to confer upon any other rights or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 24. Schedules and Exhibits. All Schedules and Exhibits referred to
----------------------
herein or attached hereto are hereby incorporated by reference into, and made a
part of, this Agreement.
-13-
<PAGE>
SECTION 25. Indulgences, Not Waivers. Neither the failure nor any delay
------------------------
on the part of a party to exercise any right, remedy, power or privilege under
this Agreement shall operate as waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
SECTION 26. Costs and Expenses. Each party hereto shall bear its own
------------------
costs and expenses (including the fees and disbursements of counsel and
accountants) incurred in connections with the negotiations and preparation of
and the closing under this Agreement, and all matters incidental thereto.
SECTION 27. Not to Affect Interpretation. The titles of paragraphs and
----------------------------
subparagraphs contained in this Agreement are for convenience only, and they
neither form a part of this Agreement nor are they to be used in the
construction or interpretation hereof.
SECTION 28. Execution in Counterparts. This Agreement may be executed in
-------------------------
any number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
SECTION 29. Provisions Separable. The provisions of this Agreement are
--------------------
independent of and separable from each other, and no provisions shall be
affected or rendered invalid or unenforceable by virtue of the fact that for any
reason any other or others of them may be invalid or unenforceable in whole or
in part.
SECTION 30. Gender. Words used herein regardless of the number and gender
------
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.
SECTION 31. Computation of Interest. Interest will be computed on the
-----------------------
basis of a 360-day year consisting of twelve months of thirty days each.
SECTION 32. Professional Fees. If any party becomes involved in
-----------------
litigation (including bankruptcy proceedings) or arbitration against any other
party arising out of or relating to this Agreement, the court in the litigation
(including bankruptcy proceedings) or arbitrator in the arbitration shall
award legal expenses (including, but not limited to attorney's fees, court
costs and other legal expenses) to the prevailing party. The award for legal
expenses shall not be computed in accordance with any court schedule, but shall
be as necessary to fully reimburse all attorney's fees and other legal expenses
actually incurred in good faith, regardless of the size of the judgment, it
being the intention of the parties to fully compensate for all the attorney's
fees and other legal expenses paid in good faith. For the purpose of this
Agreement, the terms "attorneys' fees" or "attorneys' fees and costs" shall
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<PAGE>
mean the reasonable fees and expenses of counsel to the parties hereto
(including, without limitation, the cost of in-house counsel employed by such
party, such cost to be determined by imputing a cost for those services
commensurate with such counsel's skills and experience), which may include
printing, duplicating and other expenses, air freight charges, and fees billed
for law clerks, paralegals, librarians and others not admitted to the bar but
performing services under the supervision of an attorney. The terms "attorneys'
fees" or "attorneys' fees and costs" shall also include, without limitation, all
reasonable fees and expenses incurred with respect to appeals, arbitrations and
bankruptcy proceedings, and whether or not any action or proceeding is brought
with respect to the matter for which said fees and expenses were incurred.
SECTION 33. Controlling Law. This Agreement and all questions relating to
---------------
its validity, interpretation, performance and enforcement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the State
of California, notwithstanding any California or other conflict-of-law
provisions to the contrary.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
IMPERIAL CREDIT COMMERCIAL MORTGAGE
INVESTMENT CORP.
By: /s/ Mark S. Karlan
-----------------------------------
Mark S. Karlan
President
IMPERIAL CREDIT MORTGAGE SECURITIZATION
CORP
By: /s/ Mark S. Karlan
-----------------------------------
Mark S. Karlan
President
IMPERIAL CREDIT COMMERCIAL ASSET
MANAGEMENT CORPORATION
By: /s/ Mark S. Karlan
-----------------------------------
Mark S. Karlan
President
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<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
INVESTMENT POLICIES AND GUIDELINES
----------------------------------
I. PREFACE
- ----------
Imperial Credit Commercial Mortgage Investment Corp. (the "Company") is a
Maryland corporation that has elected to be taxed as a real estate investment
trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
The Company's affairs are managed by Imperial Credit Commercial Asset Management
Corporation (the "Manager") pursuant to a Management Agreement by and between
the Company and the Manager, subject at all times to the supervision of the
Board of Directors of the Company (the "Board") and the investment policies and
guidelines herein set forth (these "Policies and Guidelines").
Investment Policies and Guidelines of the Company in substantially the same
form as these Policies and Guidelines were duly adopted by the Board at a
meeting of the Board duly called and held on September 22, 1997. These Policies
and Guidelines amend and restate in their entirety the Investment Policies and
Guidelines previously adopted by the Board. These Policies and Guidelines were
duly adopted as of December 14, 1998 at a meeting of the Board, and may be
amended from time to time in the discretion of the Board, without a vote of the
stockholders. Capitalized terms used in these Policies and Guidelines but not
defined herein shall have the meanings assigned them in the Company's final
prospectus for its initial public offering of its Common Stock dated as of
October 16, 1997 (the "Prospectus").
II. FUNDAMENTAL POLICIES
- ------------------------
A. COMPLIANCE WITH LAWS
-----------------------
The Company's policy is to comply at all times with all federal, state and
local statutes, rules, laws, regulations and ordinances applicable to the
Company. The Company will establish and thereafter maintain a system of internal
accounting and other controls sufficient to provide reasonable assurances that
transactions are executed in accordance with applicable statutes, rules, laws,
regulations and ordinances, and these Policies and Guidelines. The Company's
policy is to act and make investments in a manner that at all times maintains
the status of the Company as a REIT under the Code and that protects the Company
against being deemed to be an "investment company" under the Investment Company
Act of 1940 (the "Investment Company Act"). The exemption from the Investment
Company Act upon which the Company relies requires, among other things, that the
Company invest at least 55% of its assets in mortgages and other liens on or
interests in real estate and an additional 25% in real estate related
investments (as those terms are used in Section 3(c)(5)(c) of the Investment
Company Act) within one year of Closing.
<PAGE>
B. REVIEW AND REVISION OF THESE POLICIES AND GUIDELINES
-------------------------------------------------------
The Company expects that the Independent Directors will review these
Policies and Guidelines annually. The Company anticipates that, in conducting
their review, the Independent Directors will rely primarily on information to be
requested by the Company from, and provided to them by, the Manager.
C. DELEGATION OF AUTHORITY TO THE MANAGER
-----------------------------------------
The Company will delegate to the Manager the responsibility for making the
day-to-day decisions, including investment decisions, of the Company. Such
decisions are to be based on these Policies and Guidelines. Such investment
decisions are to include decisions to issue commitments on behalf of the Company
to purchase Mortgage Loans, Real Property, MBS Interests and other assets
meeting the investment criteria established by the Company from time to time.
The Manager may engage others to act with it or on its behalf with respect to
its responsibilities hereunder or portions thereof, so long as the Manager in
good faith believes that the persons or entities so engaged are qualified to
provide the advice, analysis or other service for which they are being engaged,
and references to the Manager in these Policies and Guidelines shall mean the
Manager and such other persons and entities engaged by the Manager. In deciding
whether to approve an acquisition of any assets, including acquisitions of
Mortgage Loans, Real Property, MBS Interests and other assets from Imperial
Credit or its affiliates, the Manager may consider such information as it deems
appropriate to determine whether the acquisition is consistent with these
Policies and Guidelines, such as whether the price is fair and the investment
otherwise is suitable and in the best interests of the Company. In addition, the
Manager may consider, among other factors, whether the acquisition of that asset
will enhance the Company's ability to achieve or exceed the Company's risk
adjusted target rate of return, if any, established for the relevant time period
by the Board, whether the asset otherwise is well-suited for the Company and
whether the Company is financially able to take advantage of the investment
opportunity presented thereby. There is no geographic limitation or requirement
of geographic diversification (either as to size, jurisdictional boundary, zip
code, or other geographic measure) as to the Real Properties to be acquired, or
that secure repayment of the Mortgage Loans or that underlie the MBS Interests
to be acquired, by the Company; the only limitations as to the type of assets
that the Company may acquire and the characteristics thereof being limitations
either (i) imposed by law, (ii) set forth in these Policies and Guidelines, or
(iii) with which the Company must comply as a condition of maintaining both its
status as a REIT and its exemption from regulation under the Investment Company
Act.
D. APPROVAL OF INITIAL INVESTMENTS; ACQUISITIONS OF ASSETS FROM IMPERIAL
------------------------------------------------------------------------
CREDIT OR ITS AFFILIATES
------------------------
A majority of the Independent Directors approved the purchase of the
Initial Investments at a Board meeting duly called and held on September 22,
1997, and certain officers of the Company were authorized to negotiate the final
terms of the purchase. In the future, the Company's policy is to request that
the Manager determine fair transfer prices for the Company's acquisitions of
assets from Imperial Credit and its affiliates based on these Policies and
Guidelines, as amended from
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<PAGE>
time to time. The Company's policy is not to acquire any assets from the
Manager directly without the prior written approval of the Independent
Directors. The Company's policy is that, when possible, the price that the
Company pays for Mortgage Loans, Real Property, MBS Interests and other assets
contemplated to be acquired from Imperial Credit or its affiliates is to be
determined by reference to the prices most recently paid by unrelated third
parties to Imperial Credit or its affiliates for similar assets in arms' length
transactions, adjusted for differences in the terms of such transactions and for
changes in market conditions between the dates of the relevant transactions. If
no previous sales of similar assets have occurred, the Company is to attempt to
determine market prices for the assets by an alternative method, such as
obtaining a broker's price opinion ("BPO") or an appraisal, if it can do so at a
reasonable cost. If an asset that otherwise meets all of the Company's criteria
for acquisition is being offered to the Company by Imperial Credit or one of its
affiliates at a price that is greater, or on terms that are less favorable, than
would be available from unrelated third parties for similar assets in arms'
length transactions, the Company would expect the Manager to recommend that the
Company decline to acquire that asset at the quoted price and terms,
notwithstanding the relationship among the Company, the Manager and Imperial
Credit and its affiliates.
The Independent Directors are to review all transactions of the Company on
a quarterly basis to insure compliance with these Policies and Guidelines. If
the Independent Directors determine in their periodic review of transactions
that a particular transaction not approved in advance by the Independent
Directors does not comply with these Policies and Guidelines, then the
Independent Directors are to consider what corrective action, if any, can be
taken. If the transaction is with Imperial Credit or one of its affiliates and
is subsequent to the Company's acquisition of the Initial Investments, and if
the Independent Directors so direct, the Company is to instruct the Manager to
use its best reasonable efforts to cause Imperial Credit or the relevant
affiliate to repurchase the asset at the purchase price paid by the Company,
increased to reflect any additional unreimbursed expenditures made by the
Company and any accrued but unpaid interest, and decreased to reflect any
amounts received by the Company with respect thereto other than on account of
interest and reimbursement of expenses.
E. SERVICING OF LOANS; MONITORING POLICIES
------------------------------------------
The Company, in consultation with the Manager, may establish criteria for
the evaluation and engagement of servicers to service pools of Mortgage Loans
acquired by the Company. In addition, the Company, in consultation with the
Manager, may establish criteria for the evaluation of the past performance and
expected future performance of its loan servicers and of its Mortgage Loans. In
the case of the Company's loan servicers, such criteria may include an
evaluation of the timeliness with which required notices (including, without
limitation, notices of changes in the rates at which interest accrues on
variable rate Mortgage Loans) are sent to borrowers and the conformity of the
amounts collected by the servicers to the amounts permitted to be collected
pursuant to the Mortgage Loan documents. If any criteria of the type described
in this paragraph are established by the Company, the Company may modify such
criteria at any time and from time to time.
-3-
<PAGE>
III. INVESTMENT POLICY GENERALLY
- --------------------------------
The Company's policy is to invest primarily in Real Estate Related Assets
with a view to maximizing income for distribution to stockholders, consistent
with levels of risk that are perceived by the Company to be acceptable. Pending
investment of its funds in longer term investments as provided for in these
Policies and Guidelines, the Company's policy is to invest its funds in readily
marketable securities, in interest-bearing deposit accounts or in short term
repurchase agreement contracts, consistent in each case with maintaining the
Company's status as a REIT. The Company is permitted to take an opportunistic
approach to its investments, and may acquire any of the types of assets
described in these Policies and Guidelines if the Company and the Manager
determine that to do so would be in the Company's best interests.
The Company, in consultation with the Manager, may establish underwriting
criteria for evaluating potential investments and, if such underwriting criteria
are established, the Company, in consultation with the Manager, may modify such
underwriting criteria at any time and from time to time. The Company's policy is
generally to offer a price for each asset that it contemplates acquiring not
greater than the price that the Manager estimates to be sufficient to generate
an acceptable risk-adjusted return to the Company from the acquisition of that
asset.
The Company will be permitted to join with a co-investor to bid on a
portfolio of assets if the Company believes that doing so would enhance the
Company's likelihood of being a successful bidder. If successful, the Company
and the co-investor may either (a) allocate some or all of the assets in an
agreed-upon manner or (b) maintain a joint interest in those assets not
separately allocated between them.
The Company will not invest an amount that is more than 10% of its equity
capital in any single asset, or in one or more loans to any single borrower,
without the prior approval of the Board. For purposes of the preceding sentence,
the Company's acquisition of a pool of assets from a seller in a single
transaction will be considered as the separate acquisition by the Company of
each of the assets within the pool.
IV. INVESTMENTS IN REAL ESTATE RELATED ASSETS
- ----------------------------------------------
A. PERFORMING TERM LOANS
-------------------------
The Company will be permitted to acquire performing commercial and
multifamily Term Loans that are consistent with the Company's underwriting
criteria, if any, established and modified from time to time. The Company
expects that it will invest a substantial portion of its assets in performing
commercial and multifamily Term Loans originated by financial institutions in
the business of originating such Terms Loans, and that it generally will hold
those Term Loans in its portfolio of assets on a long term basis (although they
may be pledged as collateral for the Company's indebtedness).
-4-
<PAGE>
In considering whether to acquire a pool of Mortgage Loans other than the
Initial Mortgage Loans, the Company's policy is to request that the Manager
perform certain due diligence tasks on behalf of the Company that reasonably may
be expected to provide to the Company such information regarding such Mortgage
Loans as the Company and Manager determine to be relevant and material to the
Company's determination as to the value of the Mortgage Loans within that pool
and whether the Company should acquire that pool.
The Company's policy is to determine, generally in consultation with the
Manager, which Mortgage Loans within a pool will undergo a "full scope review"
and which of those Mortgage Loans will undergo a more streamlined "desktop
analysis." Considerations that may influence the scope of review to be given to
a specific Mortgage Loan within a pool may include reported loan size (the
larger the Mortgage Loan relative to other loans in the pool, the more likely
the full scope review), reported loan to value ratio (the higher the ratio
relative to the ratios of other loans within the pool, the more likely the full
scope review), reported loan maturity date (the longer the term to maturity
relative to other loans, the more likely the full scope review), reported major
tenant lease rollover (if applicable, the shorter the time to major tenant lease
rollover dates relative to the time to rollover dates for major tenant leases at
commercial properties securing other loans within the pool, the more likely the
full scope review), reported property type (with a view toward having full scope
reviews that cover all of the major property types represented within the pool),
reported geographic location (with a view toward having full scope reviews of
properties within those geographic areas in which the properties within the pool
are concentrated) and reported debt service coverage ratio ("DSCR", the lower
the DSCR relative to the DSCR of other loans within the pool, the more likely
the full scope review).
A full scope review of a particular Mortgage Loan within a pool may
include, among other factors, a review of the governing loan documents; a review
of the mortgagee policy of title insurance (if available, or, if not available,
a review of a reasonably current preliminary title report and the portion of the
loan closing escrow instructions that condition closing on receipt of a
commitment to issue a mortgagee policy of title insurance and the conditions
related thereto, or equivalent); a review of other relevant insurance
(including the scope and terms of coverage with respect to casualty and
liability); a site inspection of the Mortgaged Property securing the borrower's
obligations with respect to that Mortgage Loan; an analysis of a current rent
roll for that Mortgaged Property; a review of reported historical income and
expenses for that Mortgaged Property; a review of major leases for that
Mortgaged Property (if applicable and available); a review of recent appraisals,
engineering reports and environmental reports for that Mortgaged Property (if
applicable and available); and a review of such other matters as the Manager may
deem relevant and appropriate. After review of the relevant documentation and
other items and matters has been completed, the Company's policy is to analyze
the information complied and to determine whether (a) the collateral value of
that Mortgaged Property is adequate to support that Mortgage Loan and (b) the
other attributes of that Mortgage Loan (such as the relevant documentation) are
satisfactory to the Company.
The Company's policy is to acquire Mortgage Loans only at prices that are
fair to the Company and that meet the Company's investment criteria. In
determining the price of a Mortgage Loan, the Company may request that the
Manager review and analyze a number of factors,
-5-
<PAGE>
including market conditions (market interest rates, the availability of mortgage
credit and economic, demographic, geographic, tax, legal and other factors), the
yield to maturity of the Mortgage Loan, the liquidity of the Mortgage Loan, the
limitations on the obligations of the seller with respect to the Mortgage Loan,
the rate and timing of payments to be made with respect to the Mortgage Loan,
the Mortgaged Property underlying the Mortgage Loan, the risk of adverse
fluctuations in the market values of that Mortgaged Property as a result of
economic events or governmental regulations, the historical performance and
other attributes of the property manager responsible for managing that Mortgaged
Property, relevant laws limiting actions that may be taken with respect to loans
secured by Real Property and limitations on recourse against the obligors
following realization on the collateral through various means, risks of timing
with respect to Mortgage Loan prepayments, risks associated with geographic
concentration of underlying assets constituting the Mortgaged Property for the
relevant Mortgage Loan, environmental risks, pending and threatened litigation,
junior liens and other issues relating to title, a prior history of defaults by
affiliated parties on similar and dissimilar obligations, and other factors. In
determining whether to recommend the approval of the acquisition of a Mortgage
Loan, the Manager may be instructed to consider data such as that presented in
the tables appearing on pages 61 through 75 of the Prospectus.
The Company's policy is to measure estimated losses on Mortgage Loans in
two ways, loss frequency and loss severity. Loss frequency (the percentage of
the loan balances projected to default during the life of the Mortgage pool)
generally is to be estimated by using industry standard predictive models or
other models suggested by the Manager and approved by the Company, supplemented
by the loan originator's historical data and experience. Loss severity (the
amount of loss expected to be realized on defaulted loans) generally is to be
estimated by projecting the net resolution proceeds expected to be derived from
the defaulted loans. The Company's policy is generally to include within the net
resolution analysis a review of all potential forms of resolution, including
full payoff, discounted payoff, reinstatement, foreclosure and sale (both
judicial or nonjudicial), and conveyance by deed-in-lieu of foreclosure and sale
(including the cost of anticipated concessions to the borrower, if any). The
Company's policy is that the analysis generally is to take into account, among
other things, the fair market value of the underlying Mortgaged Property, the
carrying costs of the Mortgaged Property (i.e., property taxes, insurance and
----
maintenance) and the estimated time to resolution in the particular jurisdiction
in which the Mortgaged Property is located.
The Company's policy is to request that the Manager negotiate, on behalf of
the Company and subject to such instructions as the Company may provide, the
terms and conditions of the agreements pursuant to which Mortgage Loans or pools
of Mortgage Loans are to be acquired by the Company. The Company's policy
generally is to include within such terms and conditions those customary and
usual representations and warranties from the seller of the Mortgage Loans
concerning the underwriting, origination and characteristics of the Mortgage
Loans that are required by rating agencies in securitizations. With respect to
Term Loans acquired from Southern Pacific Bank ("SPB") after the Company's
acquisition of the Initial Mortgage Loans, the Company's policy is that the
agreement pursuant to which the Term Loans are acquired generally should
contain representations and warranties that are similar to those obtained with
respect to the Company's acquisition of the Initial Mortgage Loans.
-6-
<PAGE>
The Agreement for Purchase and Sale of Real Estate Loans between the
Company and SPB (the "Loan Purchase Agreement") contains a covenant by SPB
granting to the Company, for as long as the Management Agreement with the
Manager remains in effect, a right of first offer to purchase, in addition to
the Initial Mortgage Loans, not less than $150 million annually of multifamily
and commercial Mortgage Loans typical of those originated by SPB, pursuant to
the terms and conditions set forth in the Loan Purchase Agreement. Although not
contractually committed to do so, the Company presently intends to purchase the
Mortgage Loans offered to it pursuant to the foregoing right of first offer,
provided such purchase would comply with these Policies and Guidelines and the
Company's underwriting criteria, if any, as established and modified from time
to time. The Company believes that commercial and multifamily Mortgage Loans
originated by SPB will be appropriate assets for the Company given the Company's
investment strategy.
B. CONSTRUCTION LOANS AND MEZZANINE LOANS
-----------------------------------------
The Company will be permitted to provide construction or rehabilitation
financing for commercial properties (each such financing is referred to as a
"Construction Loan"). The Company will be permitted to make a Construction Loan
of up to 90% of anticipated total project hard and soft costs (including
interest reserve) if the Construction Loan is secured by a first lien mortgage,
deed of trust, or deed to secure debt, as collateral security for the borrower's
obligations with respect to the Construction Loan. In addition, the Company will
be permitted to provide Mezzanine Loans to owners of multifamily and commercial
properties if those properties are encumbered by first lien mortgages, deeds of
trust or deeds to secure debt, but only if the Company's Mezzanine Loans are to
be secured by junior liens on the subject properties, or otherwise secured
(e.g., by partnership interests or other ownership interests in the borrowing
entity) but only if the Company's investment in such Mezzanine Loans would not
cause the Company to fail to qualify for REIT status. The policy of the Company
is that, at the time of origination of a Mezzanine Loan, the value of the
subject property generally should exceed by at least 5% the sum of (a) the
outstanding balances of the debt secured by the first lien and (b) the maximum
amount contemplated to be advanced by the Company under the Mezzanine Loan. With
respect to both Construction Loans and Mezzanine Loans, the Company may receive
not only a stated fixed or variable interest rate on the loan, but also a
percentage of gross revenues (but not net income or any other amount based on or
derived from profits) and/or a percentage of the increase in the fair market
value of the property securing repayment of that Construction Loan or Mezzanine
Loan, payable upon maturity or refinancing of the applicable Construction Loan
or Mezzanine Loan. Before acquiring any other "shared appreciation" rights, the
Company's policy is to consult with a tax attorney knowledgeable as to the tax
aspects of the origination or acquisition of construction and mezzanine loans by
REITs.
-7-
<PAGE>
C. DISTRESSED MORTGAGE LOANS
----------------------------
The Company will be permitted to acquire Distressed Mortgage Loans,
including Subperforming Mortgage Loans and Nonperfoming Mortgage Loans. If the
Company acquires pools of Distressed Mortgage Loans (or pools of Mortgage Loans
that are primarily Distressed Mortgage Loans), the Company's policy is that the
due diligence to be performed before acquiring such Distressed Mortgage Loans or
pools is to be substantially similar to both the due diligence process described
above in connection with the acquisition of performing Term Loans and the due
diligence process described below to be performed in connection with the
acquisition of Distressed Real Properties.
D. MBS INTERESTS
----------------
The Company will be permitted to acquire rated and unrated classes of
mortgage backed securities, whether investment grade or non-investment grade
("MBS Interests"). The Company's investment policy with respect to MBS Interests
will be to focus primarily on non-investment grade classes and investment-grade
interest-only classes. The Company also will be permitted to acquire other
classes of mortgage backed securities (or portions of classes), including rated
and unrated principal only, inverse interest only, and subordinated interest
only classes and REMIC Residual Interests.
In considering whether to acquire an MBS Interest, the Company's policy is
to determine, in consultation with the Manager, the scope of review to be
performed before the Company acquires that MBS Interest, which review will be
designed to provide to the Company such information regarding that MBS Interest
as the Company and Manager determine to be relevant and material to the
Company's decision regarding the acquisition of that MBS Interest. With respect
to MBS Interests acquired subsequent to the Company's acquisition of the Initial
Investments, the Company's policy generally is to request that the Manager
perform due diligence substantially similar to that described above in
connection with the acquisition of performing Term Loans. The due diligence may
include an analysis of (i) the underlying collateral pool, (ii) the prepayment
and default history of the originator's prior loans, (iii) cash flow analyses
under various prepayment and interest rate scenarios (including sensitivity
analyses) and (iv) various default scenarios. The Company also may request that
the Manager determine and advise the Company as to the price at which the
Manager would recommend acquisition of the MBS Interest by the Company, and the
Manager's reasons for such advice.
In determining the price of an MBS Interest, the Company may request that
the Manager review and analyze a number of factors including market conditions
(market interest rates, the availability of mortgage credit and economic,
demographic, geographic, tax, legal and other factors), the yield to maturity of
the MBS Interest, the liquidity of the MBS Interest, the limitations on the
obligations of the seller with respect to the MBS Interest, the rate and timing
of payments to be made with respect to the MBS Interest, the Mortgage Collateral
underlying the MBS Interest, the risk of adverse fluctuations in the market
values of that Mortgage Collateral as a result of economic events or
governmental regulations, the historical performance and other attributes of the
property manager responsible for managing that Mortgage Collateral, relevant
laws limiting actions that may
-8-
<PAGE>
be taken with respect to the Mortgage Collateral and limitations on recourse
against the obligors following realization on the collateral through various
means, risks of timing with respect to mortgage prepayments, risks associated
with geographic concentration of underlying assets constituting the Mortgage
Collateral for the MBS Interest, environmental risks, pending and threatened
litigation, junior liens and other issues relating to title, a prior history of
defaults by affiliated parties on similar and dissimilar obligations, the
availability and cost of obtaining Special Servicing Rights and impact of a
failure to obtain such Special Servicing Rights on the Company's exemption from
regulation under the Investment Company Act, and other factors. In determining
whether to recommend the approval of the acquisition of an MBS Interest, the
Manager may be instructed to consider data such as that presented in the tables
appearing on pages 79 through 104 of the Prospectus.
The Company's policy is to measure estimated losses on Mortgage Collateral
underlying MBS Interests in two ways, loss frequency and loss severity. Loss
frequency (the percentage of the loan balances projected to default during the
life of the Mortgage Collateral pool) generally is to be estimated by using
industry standard predictive models or other models suggested by the Manager and
approved by the Company, supplemented by the loan originator's historical data
and experience. Loss severity (the amount of loss expected to be realized on
defaulted loans) generally is to be estimated by projecting the net resolution
proceeds expected to be derived from the defaulted loans. The Company's policy
is generally to include within the net resolution analysis a review of all
potential forms of resolution, including full payoff, discounted payoff,
reinstatement, foreclosure and sale (both judicial or nonjudicial), and
conveyance by deed-in-lieu of foreclosure and sale (including the cost of
anticipated concessions to the borrower, if any). The Company's policy is that
the analysis generally is to take into account, among other things, the fair
market value of the underlying Mortgage Collateral, the carrying costs of the
Mortgage Collateral (i.e., property taxes, insurance and maintenance) and the
estimated time to resolution in the particular jurisdiction in which the
Mortgage Collateral is located.
The Company's policy is generally to consider all of the relevant and
material factors in deciding whether to acquire, and the price to pay for, an
MBS Interest. The relevant and material factors may include the possibility of
receipt of taxable income from an MBS Interest that is in excess of the economic
income to be derived therefrom, it being the Company's intention to minimize
such excess taxable income; the status of an investment in an MBS Interest and
the impact of such investment on the Company's exemption from regulation under
the Investment Company Act; whether the Company can obtain Special Servicing
Rights with respect to the underlying Mortgage Collateral; the percentage of the
Company's portfolio of assets then invested in MBS Interests relative to its
other types of assets; the expected current yield and yield to maturity of the
MBS Interest; whether the MBS Interest provides a natural hedge against
prepayment risk or interest rate risk related to other MBS Interests owned or
contemplated to be acquired by the Company; and the credit quality of the
Mortgage Collateral underlying the MBS Interest (including the loan-to-value
ratio, the outstanding principal amount, the loan terms, the terms of any
material leases relating to the Mortgage Property underlying the Mortgage
Collateral, the credit-worthiness of the tenants occupying the underlying
Mortgaged Property and the location of the underlying Mortgaged Property). The
Company' policy is to attempt, when available, to acquire control of Special
Servicing Rights with respect to all MBS Interests to be acquired by the
Company.
-9-
<PAGE>
The Company's policy is to maintain a relationship with Imperial Credit and
SPB in which the Company will be a ready, willing and able purchaser of MBS
Interests that may be sold from time to time by Imperial Credit or SPB. Although
no binding commitment will exist on the part of Imperial Credit, SPB or the
Company regarding the sale and purchase of MBS Interests, the Company expects to
be able to purchase MBS Interests from Imperial Credit and SPB at prices and on
terms that meet the Company's investment criteria.
E. REAL PROPERTIES
------------------
The Company will be permitted to acquire multifamily and commercial Real
Properties at prices that are fair to the Company and that meet the Company's
investment criteria. In determining the price of a Real Property, the Company's
policy is to request that the Manager obtain and advise the Company as to a
number of relevant factors. The Company's policy is to request that the Manager
conduct an investigation and evaluation of the properties in a portfolio of Real
Properties before acquiring such a portfolio. Prior to acquiring such a
portfolio, the Company's policy generally is to request that the Manager
identify and contact real estate brokers and/or appraisers in the market area of
the Real Properties within the portfolio to obtain information regarding rental
rates and sale prices of comparable real property. The Company may request that
the Manager obtain an appraisal of the Real Properties by an MAI appraiser who
is certified or licensed in the state and whose compensation is not dependent on
the outcome of its appraisal or the transaction. The Company's policy is to
determine, in consultation with the Manager, whether to obtain a Phase I
environmental assessment (or, if available to the Company or the Manager, to
request that the Manager review a previously obtained Phase I environmental
assessment) for each Real Property, certain Real Properties, or none of the Real
Properties within the portfolio prior to its acquisition by the Company. The
policy of the Company is to use the information contained in such comparables
and environmental assessments to supplement the due diligence that is to be
performed by the Manager with respect to that portfolio.
The Company's policy is generally to request that the Manager include
within its due diligence review and analysis of those Real Properties
contemplated to be acquired by the Company a review of market studies for each
geographic market in which the Real Properties within a portfolio are
concentrated. The Company may request that such studies include area economic
data, employment trends, absorption rates and market rental rates. The
Company's policy is that such due diligence analyses generally also include (i)
site inspections of the most significant properties in a portfolio of Real
Properties (and, if the Company determines that such a review will be cost-
effective, a random sampling of the less significant properties), and (ii) a
review of all property files and documentation that are made available to the
Company or the Manager. The Company generally will require that such reviews
include, to the extent possible, examinations of available legal documents,
litigation files, correspondence, title reports, operating statements,
appraisals and engineering and environmental reports.
The Company's policy is that the process of determining the fair market
value of a Real Property is to utilize those procedures that the Company and the
Manager deem relevant for the specific Real Property being evaluated, which
procedures need not be the same for each Real
-10-
<PAGE>
Property being evaluated. Sources of information that may be examined in
determining the fair market value of a Real Property may include one or more of
the following: (a) current and historical operating statements; (b) existing or
new appraisals; (c) sales comparables; (d) industry statistics and reports
regarding operating expenses, such as those compiled by the Institute of Real
Estate Management and the Building Owners and Managers Association; (e) existing
leases and market rates for comparable leases; (f) deferred maintenance observed
during site inspections or described in structural and engineering reports, and
(g) correspondence and other documents and memoranda found in the files of the
seller of that Real Property or in the files of other relevant parties.
The Company's policy is generally to request that the Manager develop
projections of net operating income and cash flows for a Real Property that the
Company proposes to acquire, taking into account lease rollovers, tenant
improvement costs, leasing commissions and such other relevant and material
factors that the Company may deem appropriate. The Company's policy is to
request that the Manager compare its estimates of revenue and expenses for a
Real Property to historical operating statements and estimates provided in
appraisals and general industry and regional statistics. The Company's policy is
to request that the Manager apply market capitalization rates and discount rates
to the cash flow projections from that Real Property to estimate its fair market
value. The Company's policy is to request that the Manager compare the estimated
fair market value of the Real Property to available appraisals and market sales
comparables to determine a recommended bid price and bid strategy for the Real
Property. The Company's policy is generally to request that the Manager, in
recommending a bid price and strategy, take into account projected holding
periods, anticipated capital costs and projected profit expectations for the
Real Property. The Company's policy is to review the Manager's recommended bid
price and to decide whether, and at what price, to bid for that Real Property.
The Company's policy generally is to hold each Real Property in its
portfolio for more than four years and fewer than ten years, although the period
during which the Company will hold each Real Property can be expected to vary
considerably from asset to asset. If the Company can acquire a Real Property
that it is likely to hold for fewer than four years, the Company may establish a
corporation in which it will hold a non-voting ownership interest of at least
95% to make the acquisition. The Company has been advised that, under current
tax laws, such a corporation will not be eligible for taxation as a qualified
REIT subsidiary, and any profits that such corporation earns on its activities
will be subject to federal corporate income tax. If the Company acquires a Real
Property with the intent to own it for more than four years, but an opportunity
arises to sell on terms favorable to the Company earlier that four years after
its acquisition, the Company's policy is to consider strategies that may enable
it to reduce adverse tax consequences to the Company and its stockholders that
might arise from such a sale.
The Company's policy is to maintain comprehensive insurance coverage,
including liability insurance and fire and extended coverage casualty insurance,
on each of the Real Properties in its portfolio. The Company's policy is
generally that such insurance policies are to provide coverage in amounts
sufficient to permit the replacement of each Real Property in the event of a
total loss, subject to applicable deductibles. The coverage is to be of the type
and in an amount similar to the coverage and amount customarily obtained by
owners of similar properties.
-11-
<PAGE>
F. DISTRESSED REAL PROPERTY
---------------------------
The Company will be permitted to acquire Distressed Real Property,
including REO Property. If the Company acquires Distressed Real Properties or
portfolios of Distressed Real Properties (including portfolios of Real
Properties that are primarily Distressed Real Properties), the Company's policy
is that the due diligence to be performed before acquiring such Distressed Real
Properties or portfolios is to be substantially similar to the due diligence
process described above in connection with the acquisition of Real Properties
generally and, in addition, the Company's policy is to request that the Manager
analyze and determine (i) the factors that have caused such Real Properties to
become Distressed Real Properties, (ii) the methods by which the cash flow
generated from such Distressed Real Properties may be increased, (iii) the
methods by which the fair market values of such Distressed Real Properties may
be increased and the amount by which the fair market values of such Distressed
Real Properties may be increased, (iv) the projected cost of implementation of
the strategies to increase the fair market values, (v) the likelihood of success
in achieving the projected increases in fair market values (including an
analysis of the likely results if the projected increases are not fully
achieved) and (vii) the estimated time period to achieve the projected increases
in fair market values.
G. SALE-LEASEBACK PROPERTIES
----------------------------
The Company will be permitted to acquire Real Property in sale-leaseback
transactions, in which the Company would acquire Real Property (either a fee or
leasehold estate, and either improved or unimproved) and simultaneously lease
that Real Property back to the seller under a long-term lease, generally a
"triple net" lease (i.e., a lease pursuant to which the tenant pays all costs of
----
insurance and maintenance and all real estate taxes and assessments allocated to
the premises being leased). The Company will be permitted to incur indebtedness
on such sale-leaseback Real Property secured by its rights under the related
lease or leases.
H. FOREIGN MORTGAGE LOANS AND REAL PROPERTIES
---------------------------------------------
The Company will be permitted to acquire Real Properties located outside
the United States and Mortgage Loans secured by foreign Real Properties, but the
Company's policy is to follow the procedures set forth below with respect to
such foreign Real Properties or Mortgage Loans:
First, the Company will perform, or request that the Manager perform, a due
diligence review and analysis of Mortgage Loans secured by foreign Real
Properties substantially similar to that described above in connection with the
acquisition of performing Term Loans and a due diligence review and analysis of
foreign Real Properties substantially similar to that described above in
connection with the acquisition of Real Properties.
Second, the Company will hire, or request that the Manager hire a local law
firm to advise the Company concerning the applicable laws, including real
property laws, of the local jurisdiction and to provide a legal opinion about
the Company's rights with respect to the Mortgage Loans or Real Properties.
Third, if the country in which the relevant real property is located is subject
to
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<PAGE>
political instability, the Company may request that the Manager investigate the
availability of, cost of, and benefits that reasonably can be expected to be
provided to the Company by, obtaining insurance against such political risks.
The Company's policy is to purchase such insurance only if the Manager advises
the Company that based on the Manager's analysis of the relevant factors, the
Manager has determined that the Company should purchase such insurance. Fourth,
the Company may request that the Manager consider ways to minimize currency
conversion risks that may be associated with the investment in foreign Mortgage
Loans or foreign Real Properties, such as the purchase of currency swaps, and
make a recommendation to the Company with respect thereto.
The Company's policy is to limit its acquisitions of foreign Real
Properties and Mortgage Loans secured by foreign Real Properties to no more than
20% of the Company's portfolio of assets (measured by fair market value at the
time such proposed acquisition would be made). If fluctuations in the value of
the Company's portfolio cause the percentage of the Company's portfolio that is
invested in foreign Real Properties and Mortgage Loans secured by foreign Real
Properties to rise above 20% of the Company's total portfolio of assets
(measured by fair market value), the Company's policy is (a) to not acquire
additional foreign Real Properties or Mortgage Loans secured by foreign Real
Properties until such time as that percentage has been reduced to below 20% and
(b) if the Manager reports to the Company that market conditions for the sale of
foreign Real Properties or Mortgage Loans secured by foreign Real Properties are
favorable, and if such sale would not jeopardize the Company's status as a REIT
or otherwise subject the Company to taxation, then the Company's policy is to
sell one or more of its foreign Real Properties or Mortgage Loans secured by
foreign Real Properties.
1. REAL PROPERTIES WITH KNOWN ENVIRONMENTAL PROBLEMS
----------------------------------------------------
The Company will be permitted to acquire Real Properties with known
material environmental problems and Mortgage Loans secured by such Real
Properties, including, for example, gas stations, but the Company's policy is to
follow the procedures set forth below with respect to each such Real Property or
Mortgage Loan.
First, the Company will perform, or request that the Manager perform, a due
diligence review and analysis of each Mortgage Loan secured by a Real Property
with known material environmental problems substantially similar to that
described above in connection with the acquisition of Distressed Mortgage Loans
and a due diligence review and analysis of each such Real Property substantially
similar to that described above in connection with the acquisition of Real
Properties.
Second, the Company may hire, or request that the Manager hire, an
environmental engineering consultant to determine whether environmental
remediation or monitoring of the relevant property will be required and, if so,
to provide an estimate of the costs of such remediation or monitoring and the
time required to effect such remediation or complete such monitoring.
The Company's policy is generally to avoid acquiring in its own name Real
Property with known material environmental problems (other than such Real
Property acquired by the Company through foreclosure, or deed-in-lieu of
foreclosure, when an "innocent lender" defense appears to be
-13-
<PAGE>
available to the Company). The Company's policy instead is to establish a
special purpose entity to hold such Real Property. The Company has determined
that, at the present time, the premiums for environmental insurance policies are
too high for the coverage that would be provided by those policies. However,
periodically (at least annually if the Company owns or is considering acquiring
Real Properties with known material environmental problems), the Company will
instruct the Manager to investigate and to advise the Company as to (i) the
availability of, and coverages provided by, such insurance policies and (ii) the
premiums required to be paid therefor and applicable deductibles thereunder.
V. INVESTMENTS IN OTHER ASSETS
- ------------------------------
The Company will be permitted to acquire assets other than Real Estate
Related Assets if it determines that to do so would enable the Company to
diversify its asset base and to exploit opportunities in the marketplace that
otherwise would not be available, but only if (i) not more than 20% of the
Company's portfolio of assets (measured by both fair market value and income at
the time such proposed acquisition would be made), including any cash or cash
equivalent assets retained for liquidity purposes, are invested in such assets,
and (ii) the Company determines that its status as a REIT and its exemption from
regulation under the Investment Company Act would not be jeopardized by its
acquisition of such assets. The Company will be permitted to make temporary
investments (i.e., those that are expected to mature in six months or less) of
its otherwise uninvested cash, but only if such investments will not jeopardize
the Company's status as a REIT or its exemption from regulation under the
Investment Company Act.
VI. LEVERAGE POLICY
- -------------------
The Company will be permitted to leverage its portfolio of assets through
the issuance of CMOs, the use of reverse repurchase agreements, borrowings under
warehouse lines of credit and secured or unsecured bank credit facilities and
other borrowings including, without limitation, mortgage loans on Real Property
owned by the Company. The terms of such borrowings may provide for the Company
to pay a fixed or adjustable rate of interest, and may provide for any term to
maturity that the Company deems appropriate.
The Company's policy generally is to make investments for which leverage is
either (a) in place at the time the investments are made or (b) in the opinion
of the Manager, readily obtainable. The Company's policy is to obtain
nonrecourse or limited recourse financing whenever reasonably possible.
The Company will be permitted to leverage its portfolio of Mortgage Loans
and certain other assets by securitizing them, primarily through the issuance by
the Company of CMOs or in private placement transactions. Until the time when
the Company's Mortgage Loans and certain of the Company's other assets have been
securitized, the Company may enter into warehouse lines of credit secured by
such assets. After the Company has acquired a quantity of performing Mortgage
Loans that the Manager determines to be sufficient to justify the costs of a
securitization, the
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<PAGE>
Company intends to securitize those performing Mortgage Loans. The Company's
present intention is to securitize its portfolio of Mortgage Loans when
securitization can be executed on favorable terms and when the Company foresees
the potential opportunity to invest the proceeds of such securitization in a
manner consistent with these Policies and Guidelines. The Company's policy is
to design its securitization transactions in a manner that will maintain the
Company's status as a REIT, generally as debt issued by a qualified REIT
subsidiary of the Company or in another transaction structure that is reviewed
by a tax attorney knowledgeable as to the tax aspects of securitizations. The
Company also will be permitted to resecuritize its MBS Interests.
The primary purpose for which the Company may leverage its assets is to
increase its net income. The Company intends to achieve an increase in its net
income by borrowing funds at interest rates (inclusive of all direct and
indirect borrowing costs) that are lower than the net yields (after subtracting
all related direct and indirect expenses) at which the Company may invest the
net proceeds of those borrowings. The Company's policy is to delegate to the
Manager the ability to arrange borrowings for the purposes set forth above,
subject to periodic review by the Board. Moreover, even if interest rates or
market conditions are adverse, the Company will be permitted to borrow funds for
the purposes of (i) obtaining sufficient cash to make distributions of dividends
required to be made under the provisions of the Code, (ii) increasing the
Company's liquidity if the Company determines that such increase would be
prudent under the circumstances and (iii) for any other purpose deemed by the
Company to be appropriate and in the interests of the stockholders.
At the present time, it is the Company's intention that, after a
significant portion of the net proceeds of the Company's initial public offering
of its Common Stock has been invested or committed for investment, it will
commence the process of leveraging its assets through borrowings in accordance
with these Policies and Guidelines until the ratio of the Company's overall
indebtedness to its assets is at a level determined by the Company to be
appropriate under the circumstances.
VII. HEDGING POLICY
- -------------------
The Company's policy is to attempt to mitigate certain risks through the
use of hedging techniques. The Company will employ hedging techniques only when
the Company believes, upon advise of the Manager, that the use of such
techniques will be in the Company's best interests. Such risks would include
interest rate fluctuations, which could adversely affect the value of certain of
the Company's assets or the cost of certain of the Company's borrowings.
The Company will request that the Manager determine hedging strategies,
subject to the terms and conditions of these Policies and Guidelines, and to
advise the Company as to the availability and cost of employing certain hedging
techniques. The Company may enter into hedging transactions to fix or limit the
interest rates on the Company's variable interest rate indebtedness in order to
protect against adverse interest rate fluctuations. The Company may enter into
hedging transactions to increase the Company's liquidity or decrease the
Company's risk of holding an asset by guaranteeing, in whole or in part, the
price at which that asset may be disposed
-15-
<PAGE>
of prior to its maturity. The Company's policy is to use hedging strategies to
mitigate potential risks, and not for speculative purposes. The Company
recognizes that hedging transactions are themselves subject to risks of loss,
which may reduce the Company's earnings.
The interest rate risk management techniques that the Company may employ
include: put options and call options on securities or indices of securities,
interest rate caps (the contractual limitation or shifting to another party of
the risk of increases in floating interest rates on indebtedness above a
specified rate), interest rate swaps (the contractual exchange of fixed interest
rate payments on indebtedness for floating interest rate payments on
indebtedness), interest rate futures contracts and options on such futures
contracts, and other techniques.
The Company may hedge against interest rate risks by purchasing "Qualified
Hedges" as defined in the Code. The provisions of the Code regarding the
qualification of an entity as a REIT may restrict the Company's ability to enter
into hedging transactions that are not Qualified Hedges and may require the
Company to conduct part or all of its hedging activities through a taxable
subsidiary corporation. The Company's policy is that, prior to employing a
particular hedging technique that is not a Qualified Hedge, the Company will
request that the Manager advise the Company as to whether to obtain an opinion
of a tax attorney regarding the impact on the Company's status as a REIT from
the Company's use of that particular hedging technique. If the Company's direct
conduct of hedging activities could jeopardize the Company's status as a REIT or
otherwise potentially subject the Company to taxation as a corporation, the
Company is permitted to form a non-qualified taxable REIT subsidiary through
which it can conduct its hedging activities on the Company's behalf.
-16-
<PAGE>
A G R E E M E N T
-----------------
This agreement (the "Agreement"), dated as of August 13, 1999, is made
by and between Robert A. Stanger & Co., Inc., a New Jersey corporation
("Stanger") with offices at 1129 Broad Street, Shrewsbury, New Jersey 07702, and
Imperial Credit Commercial Mortgage Investment Corp. (the "Company") with
offices at 11601 Wilshire Boulevard, Suite 2080, Los Angeles, California 90025.
W I T N E S S E T H:
-------------------
WHEREAS, the Company and ICCMIC Acquisition Corp. (the "Merger Sub"),
a wholly owned subsidiary of Imperial Credit Industries, Inc. ("Imperial
Credit"), have entered into a merger agreement (the "Merger Agreement") pursuant
to which the Merger Sub will merge with and into the Company with the Company
continuing as the surviving corporation (the "Merger");
WHEREAS, pursuant to the Merger Agreement, each issued and outstanding
share of the Company (the "Shares"), other than shares held by Imperial Credit
and its subsidiaries, will be converted into the right to receive $11.50 per
share in cash, subject to adjustment, upon the terms and conditions provided for
in the Merger Agreement;
WHEREAS, pursuant to the Merger Agreement, completion of the Merger is
subject to the approval of the shareholders of the Company, among other
conditions;
WHEREAS, pursuant to the Merger Agreement, the Company may seek
superior proposals from third parties during a sixty-day solicitation period
commencing with the execution of this Agreement;
WHEREAS, Imperial Credit Commercial Asset Management Corporation (the
"Management Company"), a subsidiary of Imperial Credit, manages the assets of
and provides administrative services to the Company pursuant to a management
agreement (the "Management Agreement");
WHEREAS, pursuant to the Merger Agreement, the Management Agreement
will be terminated;
1
<PAGE>
WHEREAS, the Merger Agreement contemplates that the Company and
Imperial Credit will obtain an independent appraisal (the "Appraisal") of the
value of the termination fee, if any, that would be payable to the Management
Company pursuant to Section 15 of the Management Agreement if the Management
Agreement was not renewed by the Company and terminated on October 22, 1999 (the
"Management Agreement Amount"),
WHEREAS, a special committee (the "Special Committee") of the Board of
Directors (the "Board of Directors") of the Company has been formed and such
Special Committee desires to retain Stanger to perform the Appraisal of the
estimated value of the Management Agreement Amount based upon Stanger's
independent review of the Management Agreement and Merger Agreement and such
other matters as deemed appropriate in accordance with the terms and conditions
hereof; and
WHEREAS, Stanger is willing to provide such services in accordance
with the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and intending to be legally bound hereby, the parties agree as follows:
1. Scope of Services. Stanger shall render an appraisal report, which is
-----------------
contemplated and required by the Merger Agreement (the "Report"), estimating the
value of the Management Agreement Amount pursuant to the Management Agreement.
Such Report shall include: (i) a description of the methodology utilized by
Stanger in its determination of the value of the Management Agreement Amount;
(ii) a description of the material assumptions and limitations relating to the
valuation of the Management Agreement Amount; and (iii) a conclusion, expressed
as a specific dollar amount, of the value of the Management Agreement Amount.
Stanger agrees that the Appraisal shall be conducted in good faith subject to
customary appraisal practices. Stanger represents and warrants that it has had
no prior business or other relationship with Imperial Credit, the Management
Company, or Friedman, Billings, Ramsey & Co., Inc., or to its knowledge, any
current director, officer, employee or agent of any of them, that could
reasonably result in a conflict of interest between Stanger and the Company; nor
is Stanger aware of any other matter that could reasonably result in a conflict
of interest between Stanger and the Company. In addition, Stanger represents and
warrants that prior to this engagement, it has had no personal knowledge of, or
relationship with, the following directors of the Company: Mark S. Karlan,
H. Wayne Snavely and Kevin E. Villani. Stanger will promptly notify the Company
of any change in the status of the foregoing.
The Company and the Special Committee understand that, in undertaking
this Agreement and preparing the Report, Stanger may be called upon to make
certain assumptions regarding the interpretation of certain terms of the
Management Agreement and other agreements. The Company and the Special Committee
acknowledge that the assumptions made by Stanger in its
2
<PAGE>
review and interpretation of such agreements may affect the Management Agreement
Amount value conclusion reached by Stanger in its Report, and that Stanger is
authorized to provide its estimate of value based on such assumptions.
The Report shall be addressed to the Special Committee and shall be
delivered on or before the thirtieth day following the date of this agreement,
provided that the information requested pursuant to Section 2 of this Agreement
is provided on a timely basis.
Stanger agrees that, upon request of the Special Committee, Stanger's
representatives shall render one or more presentations to the Special Committee
with respect to the status of Stanger's analysis and the preparation of the
Report, at such times and places as shall be mutually agreeable to the Special
Committee and Stanger.
Stanger agrees that, upon request of the Special Committee, Stanger's
representatives shall meet with representatives of certain experts representing
Imperial Credit with respect to: (i) such experts' analysis and valuation of the
Management Agreement Amount; and (ii) Stanger's analysis and the Report, at such
times and places as shall be mutually agreeable to the Special Committee and
Stanger.
2. Information and Stanger's Review: The Report will be based upon
---------------------------------
Stanger's review of the information included on Exhibit I to this Agreement.
In addition to reviewing the information on Exhibit I, to the extent
available, Stanger representatives will review the information set forth in the
proxy or other solicitation materials submitted or supplied to the shareholders
of the Company.
In connection with Stanger's activities on behalf of the Company, the
Company agrees to use its reasonable best efforts to furnish or cause to be
furnished to Stanger the items listed on Exhibit I and to use its reasonable
best efforts to furnish or cause to be furnished all information and data which
Stanger reasonably deems appropriate (collectively with items listed on
Exhibit I, the "Information"). The Company also agrees to give Stanger
reasonable access to the Company's officers, employees, advisors, consultants,
and directors and shall, to the extent it reasonably can, direct the Management
Company to give Stanger reasonable access to such persons. The Company hereby
represents that the Information made available to Stanger by the Company and the
Management Company, to the best of its knowledge: (i) will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein not misleading in light of the
circumstances under which such statements are made; and (ii) will be complete
and correct in all material respects.
The Company acknowledges that, in addition to its own investigations,
Stanger will rely on representations of the Company and the Management Company
concerning their knowledge of issues relating to the Company and the Management
Company in rendering the Report, which will be one of a number of bases for and
will support Stanger's Report. Stanger will not prepare or provide to the
Special Committee any other written report or compendium of its analysis.
3
<PAGE>
With respect to the Information furnished to Stanger pursuant to this
Agreement, to the extent the Information includes "forward looking statements"
(as such term is defined under Rule 175 under the Securities Act of 1933, as
amended) the Company represents that, to its knowledge at the time given, such
"forward looking statements" were disclosed in good faith and were prepared on a
reasonable basis, reflecting the Company's best currently available estimates.
The review referred to above is undertaken solely for the purpose of
performing the services contemplated hereby and providing the Report. Stanger
makes no representation as to the adequacy of such review for any other purpose.
The Report will be based in part on Information provided by the
Company, the Management Company and/or their agents which Stanger deems to be
reliable, but no representation as to the completeness and accuracy of such
Information (including without limitation the financial information and other
pertinent data) is made by Stanger. Stanger will be entitled to rely upon the
accuracy of representations of each of the Company and the Management Company or
their agents regarding the Information made available or to be made available to
Stanger by the Company, the Management Company and/or their agents. The Company
confirms that, in rendering the Report, Stanger will be so relying on
Information provided by the Company, the Management Company and/or their agents
without independent verification and that Stanger undertakes herein no
obligation to independently verify the accuracy or completeness of the
Information.
3. Payment For Services: With respect to the Report, the fee is
---------------------
$250,000, payable $125,000 by the Company to Stanger on the date hereof and
$125,000 on the earlier of: (i) the date the Report is rendered to the Special
Committee or (ii) September 12, 1999. No portion of the fee payable to Stanger
shall be dependent in any way on the results of Stanger's work or the content of
the Report. All fees are payable in accordance with the terms of this Section 3,
it being understood that such fees are not dependent upon the consummation of
the transactions contemplated by the Merger Agreement.
In addition, Stanger will be reimbursed by the Company for (i) any
reasonable out-of-pocket expenses incurred in connection with the services
outlined above, including expenses relating to travel, meals, lodging and
communications, among others, which amounts shall be due and payable upon
receipt by the Company of appropriate vouchers therefor, and (ii) for the
reasonable fees and disbursements of Stanger's counsel, which reimbursable fees
and disbursements of counsel shall not exceed $5,000 without the Company's prior
written consent.
4. Confidentiality: Any information submitted by the Company to Stanger
----------------
in connection with the services described above which is not publicly available
shall be kept strictly confidential by Stanger, shall be used only in connection
with Stanger's work for the Company as set forth in this Agreement and shall not
be released to any other person, unless required by law, without the prior
written consent of the Company.
4
<PAGE>
5. Use of Report: The Report to be provided by Stanger is intended
--------------
solely for the use of the Special Committee and may be made available by the
Special Committee to shareholders of the Company, Imperial Credit, and an
independent appraisal firm engaged by Imperial Credit ("Imperial Credit's
Appraiser") and any other appraisal firm appointed or engaged as contemplated by
section 15 of the Management Agreement, as contemplated and required by the
Merger Agreement. However, Stanger shall not discuss its appraisal with or
provide its Report to Imperial Credit or Imperial Credit's Appraiser until so
instructed by the Special Committee. Stanger hereby agrees that the Report may
be included, referenced, described, reproduced or otherwise utilized in the
proxy solicitation or other materials relating to the transactions contemplated
by the Merger Agreement distributed by the Company or Imperial Credit as
contemplated and required by the Merger Agreement. Any such utilizations,
however, must be submitted to Stanger for review prior to use. Such proxy
solicitation or other materials may also refer to Stanger and the material terms
of this Agreement. The Report may be used in the manner contemplated by the
Merger Agreement; however, it is expressly understood that such utilization by
the Company will not give rise to any liability or claim by the Company,
Imperial Credit or the Management Company against Stanger. The Report shall not
be used for any other purpose without the consent of Stanger, which consent
shall not be unreasonably withheld.
6. Responsibilities and Indemnification: Stanger assumes no
-------------------------------------
responsibility under this Agreement other than to render the services outlined
in this Agreement. No third party shall have any rights against Stanger or any
other "Indemnified Party" (as defined below) by reason of this Agreement or
Stanger's or any other Indemnified Party's services in connection herewith. The
Company agrees that, whether or not the transactions contemplated by the Merger
Agreement or any other agreement are consummated, it will indemnify, defend and
hold harmless Stanger, its officers, directors, employees, and each person, if
any, who controls Stanger within the meaning of Section 15 of the Securities Act
of 1933, as amended ("Indemnified Party"), from and against any and all losses,
claims, damages, liabilities and expenses, joint or several (including all
expenses, which include fees and disbursements of counsel, reasonably incurred
by Stanger or any other such Indemnified Party in connection with the
preparation for or defense of any pending or threatened claim, action or
proceeding whether or not resulting in any liability), to which such Indemnified
Party may become subject related to or arising out of Stanger's engagement by
the Company and the performance of the services for the Company contemplated
hereunder, or caused by any breach by the Company of any provision of this
Agreement, and the Company will promptly reimburse Stanger or such other
Indemnified Party (provided that such Indemnified Party agrees to be subject to
the terms of the next sentence) for its legal and other expenses as and when
they are incurred in connection therewith. In the event and to the extent that
the Company is found not liable for the indemnification and reimbursement
obligations under this Section 6 as a result of a final judgement of a court of
competent jurisdiction that Stanger or such other Indemnified Party acted with
gross negligence or willful misconduct, any such legal and expense
reimbursements paid to Stanger or such other Indemnified Party shall be promptly
repaid to the Company. Notwithstanding anything to the contrary contained in
this Agreement, the Company shall be liable for the indemnification and
reimbursement obligations under this Section 6.
Notwithstanding the foregoing, the Company shall not be liable under
this Section 6 to indemnify Stanger or any other Indemnified Party as set forth
above for any loss, liability, claim,
5
<PAGE>
damage or expense which arose in whole or in part, directly or indirectly, in
any manner whatsoever, to the extent that any such loss, liability, claim,
damage or expense is found in a final judgment of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
Stanger or such other Indemnified Party. The Company further agrees that neither
Stanger nor any other Indemnified Party shall have any liability (whether direct
or indirect, in contract or tort or otherwise) to it or to any entity formed in
connection with the transactions contemplated by the Merger Agreement or such
other agreement, or to any of their respective security holders or creditors,
related to or arising out of Stanger's engagement or Stanger's or such other
Indemnified Party's performance of the services contemplated hereunder, except
to the extent that any loss, liability, claim, damage or expense is found in a
final judgment of a court of competent jurisdiction to have resulted from
Stanger's or such other Indemnified Party's gross negligence or willful
misconduct.
Promptly after receipt by an Indemnified Party of notice of any claim
or the commencement of any action or proceeding in connection with any matter in
respect of which indemnification or reimbursement is sought hereunder, the
Indemnified Party will notify the Company in writing of such claim or of the
commencement of such action or proceeding and the Company will assume the
defense of such action including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of the reasonable fees and
disbursements of such counsel. Failure of the Indemnified Party to so notify the
Company will not relieve the Company of their obligations under this Section 6,
unless such failure materially adversely affects the Company's ability to defend
effectively such action or proceeding. In the event the Indemnified Party
reasonably determines in its judgment reasonably exercised, that there is a
conflict of interest by reason of having a common counsel, then the Indemnified
Party may employ one separate counsel to represent or defend it or any other
Indemnified Party in any such action or proceeding in which it or such
Indemnified Party may become involved or is named as defendant, and the Company
will pay as incurred the reasonable fees and disbursements of such counsel,
subject to the agreement to repay such fees and disbursements as contemplated by
the first paragraph of this section 6.
The Company agrees to notify Stanger promptly of the assertion against
it or Stanger or any Indemnified Party of any claim or the commencement of any
action or proceeding to which the Company has knowledge and relating to the
transaction contemplated by the Merger Agreement, the Management Agreement or
this Agreement, provided however that failure to notify Stanger of any claim or
commencement of any action to which Stanger or any other Indemnified Party is
not a party thereto, or for which Stanger or any other Indemnified Party would
not reasonably seek indemnification hereunder, shall not constitute a breach of
this Agreement.
The Company agrees that, without Stanger's prior written consent
(which consent will not be unreasonably withheld), the Company will not settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding in respect of which indemnification may be sought
hereunder unless such settlement, compromise or consent includes an
unconditional release of each of the Indemnified Parties from all liability
arising out of such claim, action or proceeding.
6
<PAGE>
Notwithstanding any other provision of this Agreement to the contrary,
enforcement of the indemnification given by the Company under this Section 6
shall be in addition to any other avenue of recourse an Indemnified Party may
otherwise have, shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of Stanger and any other
Indemnified Party, shall survive the termination of Stanger's engagement or any
modification of the Agreement, and shall be binding upon any successors or
assigns of the Company.
If the indemnification provided for in this Section 6 is unavailable
to Stanger or an Indemnified Party under the preceding paragraphs in respect to
any losses, claims, damages, liabilities or expenses referred to therein,
although otherwise applicable in accordance with the terms thereof, the Company,
in lieu of indemnifying Stanger or such Indemnified Party, agrees that it shall
contribute to the amount paid or payable by Stanger or such Indemnified Party as
a result of such losses, claims, damages, liabilities or expenses (a) in such
proportion as is appropriate to reflect the relative benefits received by the
Indemnified Party from the services rendered hereunder or (b) if the allocation
provided by clause (a) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (a) above but also the relative fault of the Company on the one
hand and of the Indemnified Party on the other, as well as any other relevant
equitable considerations. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities or expenses referred to above shall be
deemed to include, subject to the limitations set forth in the preceding
paragraphs of this Section 6, any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim. Notwithstanding the provisions of this Section 6, Stanger and the
Indemnified Parties, in the aggregate, shall not be required to contribute any
amount in excess of the amount of fees received by Stanger and the Indemnified
Parties under this Agreement.
If any Stanger personnel are requested or required by the Company or
any third party to testify in any proceeding related to the transactions
contemplated by the Merger Agreement or Management Agreement or services
provided by Stanger under this Agreement, provided Stanger is not ultimately
found to have acted in a manner which constitutes gross negligence or willful
misconduct, the Company agrees to compensate Stanger on a rate equal to its then
customary hourly rate for such individual as a consultant and expert, for
whatever time such individual devotes to any preparation, travel and testimony
in which such individual is requested or required to participate, whether such
individual appears as a witness or is named as a defendant. The Company also
agrees promptly to reimburse Stanger for any and all reasonable out-of-pocket
expenses incurred in connection therewith, including reasonable legal fees and
disbursements, as and when they are reasonably incurred, subject to the
agreement to repay such fees and disbursements as contemplated by the first
paragraph of this section 6.
7. Services of Others: Stanger may employ the services of others in
------------------
connection with providing the services described herein subject to the Company's
consent, such consent not to be unreasonably withheld, and the Company agrees
that such persons shall be entitled to the benefit of the indemnification and
reimbursement provisions of this Agreement to the same extent as though such
indemnification provisions had been entered into directly with such persons. In
such events, Stanger shall notify the Company of the identity of such persons
prior to their employment. Stanger
7
<PAGE>
shall be responsible for all payments made for such services unless previously
agreed to in writing by the Company.
8. Miscellaneous: This Agreement constitutes the entire agreement
-------------
between the parties with respect to the subject matter hereof and thereof and
the terms hereof and thereof shall not be waived, amended or modified in any
respect except by written agreement, signed by the parties hereto. This
Agreement shall inure to the benefit of and be binding upon Stanger and the
Company and each of their respective successors and assigns, and any successor
to the business of the Company (whether by merger, consolidation or acquisition
of assets) shall assume the obligations of the Company in writing; provided,
that no assignment of this Agreement or any rights hereunder shall be effective
without the prior written consent of the parties hereto; and provided, further,
that in each case, the assignee of the assets of the Company shall agree to be
bound by all of the representations, warranties, covenants and agreements
hereunder as if it were a party hereto and expressly assumes all of the
obligations of the Company hereunder, including without limitation the
obligations under Section 6 hereof. Nothing herein shall constitute any party as
the agent or representative of any other party. This Agreement shall in all
respects be governed by and construed in accordance with the laws of the State
of New York applicable to agreements made and to be performed in the State of
New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
IMPERIAL CREDIT COMMERCIAL ROBERT A. STANGER & CO., INC.
MORTGAGE INVESTMENT CORP.
BY: __________________________ BY: /s/ Kevin T. Gannon
(signature) ------------------------------
Kevin T. Gannon
Managing Director
__________________________
(print name)
ITS: __________________________
(title)
8
<PAGE>
shall be responsible for all payments made for such services unless previously
agreed to in writing by the Company.
8. Miscellaneous: This Agreement constitutes the entire agreement
-------------
between the parties with respect to the subject matter hereof and thereof and
the terms hereof and thereof shall not be waived, amended or modified in any
respect except by written agreement, signed by the parties hereto. This
Agreement shall inure to the benefit of and be binding upon Stanger and the
Company and each of their respective successors and assigns, and any successor
to the business of the Company (whether by merger, consolidation or acquisition
of assets) shall assume the obligations of the Company in writing; provided,
that no assignment of this Agreement or any rights hereunder shall be effective
without the prior written consent of the parties hereto; and provided, further,
that in each case, the assignee of the assets of the Company shall agree to be
bound by all of the representations, warranties, covenants and agreements
hereunder as if it were a party hereto and expressly assumes all of the
obligations of the Company hereunder, including without limitation the
obligations under Section 6 hereof. Nothing herein shall constitute any party
as the agent or representative of any other party. This Agreement shall in all
respects be governed by and construed in accordance with the laws of the State
of New York applicable to agreements made and to be performed in the State of
New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
IMPERIAL CREDIT COMMERCIAL ROBERT A. STANGER & CO., INC.
MORTGAGE INVESTMENT CORP.
BY: /s/ Joseph A. Jaconi BY: /s/ Kevin T. Gannon
----------------------------- ---------------------------
(signature) Kevin T. Gannon
Managing Director
Joseph A. Jaconi, Jr
----------------------------
(print name)
ITS: Chairman Special Committee
----------------------------
(title)
8
<PAGE>
Exhibit I
Page 1 of 3
Information Request
-------------------
Imperial Credit Commercial Mortgage Investment Corp. (the "Company")
--------------------------------------------------------------------
1. Copy of prospectus for initial public offering ("IPO") for the Company;
2. Copy of the management agreement;
3. Copy of organization documents for the Company
(articles of incorporation, trust agreement, by-laws etc.);
4. Copy, as available, of SEC comment letters, NASD comment letters, Blue Sky
comment letters and other regulatory comment letters, if any, and responses
thereto relating to the IPO;
5. Copy, as available, of any memorandum, correspondence, analyses, "road
show" materials, or other communication between the Company, underwriters
for the initial public offering, the Board of Directors for the Company,
management, legal counsel, financial advisors, tax counsel, independent
accountants, consultants, investors or other persons relating to the terms
of the management agreement or any part thereof from inception of the
effort to initiate the IPO to August 6, 1999;
6. Copy, as available, of calculations of management fees paid since inception
including: (i) basis of calculations; (ii) reconciliation of calculation to
quarterly and annual financial statements of the Company; (iii) fee
percentage; (iv) fee paid; and (v) date of payment;
7. Copy, as available, of any written document evidencing the above
calculations (including officer's confirmation of such calculation) and
communications thereof to Management or the Board of Directors;
8. Copy or description, as available, of any offers to acquire or merge with
the Company received during the past three years including offers to
purchase the Company's assets, offers to merge with the Company or similar
transaction;
9. Copy of proposed merger agreement with Imperial Credit Industries, Inc.
("ICI");
10. Copies, as available, of correspondence, analyses or other information
relating to negotiations of the merger agreement including, but not limited
to, matters relating to the management agreement;
11. Copy, as available, of estimates prepared by the Board of Directors,
Management, financial advisors, legal counsel, independent accountants or
others relating to the termination fee pursuant to the Management Agreement
and the Merger Agreement;
<PAGE>
Exhibit I
Page 2 of 3
Imperial Credit Commercial Mortgage Investment Corp. (the "Company")
--------------------------------------------------------------------
12. Copy, as available, of reports, appraisals, or valuations of the
termination fee provided for in the management agreement, including the
report prepared, if any, by experts representing Imperial Credit Commercial
Asset Management Corporation (the "Management Company");
13. Copy of any business plan, cash flow projection or other communications
relating to the business plans (including terms of and amounts of
management fees) of the Company prepared since inception of the effort to
initiate the IPO to August 6, 1999;
14. Copy, as available, of any communications relating to the business plans
(including estimates of management fees) for the Company, assuming that the
proposed merger transaction is not consummated;
15. Estimates, as available, as prepared by management, the Board of Directors
or their respective financial advisors, of the liquidation value of the
Company;
16. Copy, as available, of any confidential memorandum, brochure or other
materials prepared by management, the Board of Directors or their
respective advisors relating to an effort to market the assets of, interest
in or securities of the Company;
17. Copy, as available, of corporate and personnel organization chart for the
Company;
18. Copy of general correspondence to investors for 1997, 1998 and 1999;
19. Copy, as available, of 1999 and 2000 budget and reconciliation thereof, as
available, to actual performance on a year to date basis;
20. Copy of any agreement to hire or retain a financial advisor or consultant
by the Company or the Board of Directors in connection with the proposed
Merger or the termination fee payable pursuant to the Management Agreement;
21. Copies, as available, of management reports, board reports, and other data
which summarizes, as of the end of each quarter from inception to August 9,
1999: (i) the assets of the Company; (ii) financial performance of such
assets; (iii) loan loss reserves; (iv) financial ratios; and (v) other
financial data;
22. Copies, as available, of any compensation analysis, fee analysis, market
study, comparison, fairness opinion or other analysis prepared by
management, the Board of Directors, financial advisors legal advisors,
accountants or consultants, which have been utilized as support for
approval of the terms of the Management Agreement by the Board of Directors
at any time from inception of the Company to August 9, 1999;
23. Copies of such other information as Stanger shall reasonably request from
the Company;
<PAGE>
Exhibit I
Page 2 of 3
Imperial Credit Commercial Mortgage Investment Corp. (the "Company")
--------------------------------------------------------------------
12. Copy, as available, of reports, appraisals, or valuations of the
termination fee provided for in the management agreement, including the
report prepared, if any, by experts representing Imperial Credit Commercial
Asset Management Corporation (the "Management Company");
13. Copy of any business plan, cash flow projection or other communications
relating to the business plans (including terms of and amounts of
management fees) of the Company prepared since inception of the effort to
initiate the IPO to August 6, 1999;
14. Copy, as available, of any communications relating to the business plans
(including estimates of management fees) for the Company, assuming that the
proposed merger transaction is not consummated;
15. Estimates, as available, as prepared by management, the Board of Directors
or their respective financial advisors, of the liquidation value of the
Company;
16. Copy, as available, of any confidential memorandum, brochure or other
materials prepared by management, the Board of Directors or their
respective advisors relating to an effort to market the assets of, interest
in or securities of the Company;
17. Copy, as available, of corporate and personnel organization chart for the
Company;
18. Copy of general correspondence to investors for 1997, 1998 and 1999;
19. Copy, as available, of 1999 and 2000 budget and reconciliation thereof, as
available, to actual performance on a year to date basis;
20. Copy of any agreement to hire or retain a financial advisor or consultant
by the Company or the Board of Directors in connection with the proposed
Merger or the termination fee payable pursuant to the Management Agreement;
21. Copies, as available, of management reports, board reports, and other data
which summarizes, as of the end of each quarter from inception to August 9,
1999: (i) the assets of the Company; (ii) financial performance of such
assets; (iii) loan loss reserves; (iv) financial ratios; and (v) other
financial data;
22. Copies, as available, of any compensation analysis, fee analysis, market
study, comparison, fairness opinion or other analysis prepared by
management, the Board of Directors, financial advisors legal advisors,
accountants or consultants, which have been utilized as support for
approval of the terms of the Management Agreement by the Board of Directors
at any time from inception of the Company to August 9, 1999;
23. Copies of such other information as Stanger shall reasonably request from
the Company;
<PAGE>
Exhibit I
Page 3 of 3
Imperial Credit Commercial Asset Management Corp. (the "Management Company")
----------------------------------------------------------------------------
24. Copy of audited, as available, or unaudited financial statements for 1997,
1998 and year-to-date 1999;
25. Copy, as available, of budgeted operating statements for the Management
Company for 1999 and 2000;
26. Copy, as available, of any business plan for the Management Company
prepared from inception to August 9, 1999;
27. Copy, as available, of corporate and personnel organization chart for the
Management Company;
28. Copy of organization documents for the Management Company including
articles of incorporation and by-laws;
29. Schedule of management fees received by the Management Company from
inception to August 9, 1999 for the Company and a reconciliation of such
fees to the revenues reflected in the Management Company's financial
statements;
30. Copy, as available, of resumes on each key employee;
31. Schedule of compensation to each employee for 1997, 1998 and 1999 including
any bonus amounts or other compensation;
32. Copy, as available, of any employment agreement for any key employee of the
Management Company;
33. Schedule indicating ownership by person of debt or equity securities of the
Management Company, including any options, grants, awards or prospective
awards in contemplation of the proposed merger transaction;
34. Copy, as available, of any offers to purchase or otherwise acquire the
Management Company;
35. Copy, as available, of any correspondence, memorandum, analysis or other
information relating to the value of the Management Company, management
contracts or the termination fee, prepared by Management of the Management
Company or its advisors;
36. Copy, as available, of any communications between the Management Company,
the Company, the Board of Directors, underwriters, financial advisors,
accountants or others relating to the terms of the Management agreement
from inception to August 9, 1999.
<PAGE>
[PICTURE APPEARS HERE]
ROBERT A. STANGER & CO., INC.
Real Estate
Investment Banking
<PAGE>
- -------------------------------------------------------------------------------
[PHOTO OF ROBERT A. STANGER APPEARS HERE]
ROBERT A. STANGER
CHAIRMAN
"WE HAVE MAINTAINED OUR PREEMINENT POSITION THROUGH DEDICATION TO EXCELLENCE AND
OUR ABILITY TO REACT TO CHANGING MARKET FORCES."
Robert A. Stanger & Co., founded in 1978, is a nationally recognized real estate
investment banking firm with three basic foundations -- a keen understanding of
the fundamentals of real estate, sophisticated knowledge of the public real
estate securities markets, and an experienced, imaginative professional staff
dedicated to providing the highest level of client service. The result is that
Stanger is known as a leading advisor in the business of securitizing real
estate equity.
Experience comes easily when you specialize, develop a national client
base, and perform for your clients. Stanger has been involved in a greater
number and greater dollar value of real estate consolidation transactions than
any other firm. With experience comes a keen understanding of the nuances of
transactions and negotiations. A significant additional benefit is having a
database of REIT formation transactions which are often not illuminated in the
initial offering prospectus.
Teamwork is the key to the best execution of a client assignment. Each team
consists of a managing director, a senior financial analyst, and members of
their support staff. The managing directors meet regularly and constitute the
firm's investment committee which decides on accepting assignments, on executing
the proper approach for assignments, and on setting our fees for services. The
investment committee periodically reviews assignments in progress as well as at
conclusion prior to delivery of the final work product or the firm's opinion.
The client is assured the full attention of the most senior and experienced
professionals at Stanger.
Our business comes almost entirely from long-standing client relationships
and referrals. This fact is the best testament to our creativity and
effectiveness and speaks volumes about our commitment to achieving client goals.
[PHOTO APPEARS HERE]
<PAGE>
- -------------------------------------------------------------------------------
INVESTMENT BANKING SERVICES
[PHOTO APPEARS HERE]
We provide three main services in support of our client base:
. providing fairness opinions in consolidation and merger transactions,
. selling or merging property portfolios, often to publicly traded real
estate companies, and,
. arranging financings for real estate operating companies.
For a listing of our recent clients, property asset classes, and
transactions, please refer to the materials included with this brochure.
Fairness Opinions
Stanger is nationally recognized as the leading provider of fairness
opinions in real estate consolidations, mergers and reorganizations. Such
opinions are typically prepared in the formation transaction stage before an
initial public offering of a REIT. Prerequisites of providing the opinion are a
fundamental knowledge of the real estate, regulatory standards, industry
practices, management company valuation and allocation methodologies. Two
principal skills are the ability of the opinion provider (i) to deal effectively
and efficiently with other "experts" involved in the transaction, including the
attorneys, and (ii) to deliver the final work product according to frequently
demanding time schedules.
[PHOTO APPEARS HERE]
Portfolio Sales and Merger
Stanger has represented numerous clients in the sale of real estate
portfolios to, or in the merger of, real estate operating companies with pub-
[PHOTO APPEARS HERE]
<PAGE>
"At Stanger, we encourage debate and diverse opinions on client assignment. We
often find the problem we are first asked to solve is not the one that needs the
real solution."
[PHOTO APPEARS HERE]
???? traded real estate companies. In addition to fundamental real estate
analytical skills, the key skill required is a thorough understanding of real
estate capital markets and security analytical techniques. Presenting the
transaction in terms of the buyer's securities, not traditional real estate
values, is a requirement. The ability to deal with multiple potential buyers to
maximize value is an important skill. Stanger also has substantial experience
in structuring tax-deferred transactions, negotiating the terms of contribution
agreements, and evaluating the securities to be received in an exchange
transaction and diversification alternatives.
Arranging Financing
In recent years, a significant pool of capital (often referred to as
"venture capital") has become available for investment directly in real estate
operating companies. Stanger has represented clients seeking corporate
investors, joint venture partners, and reorganization partners. We are familiar
with capital sources and transaction terms. We assist the client in preparing
the offering memorandum, the forward business plan, the corporate pro formas and
the investor's due diligence package, as well as in leading negotiations for a
successful private placement.
[PHOTOS APPEARS HERE]
<PAGE>
The Stanger Approach to the Fundamentals
[PHOTO OF KEITH D. ALLAIRE APPEARS HERE]
KEITH D. ALLAIRE MANAGING DIRECTOR
"COMBINING REAL ESTATE ANALYSIS AND KNOWLEDGE OF THE RELEVANT REAL ESTATE
CAPITAL MARKETS ENABLES US TO PROVIDE CLIENTS WITH THE BEST EXECUTION OF THE
TRANSACTION."
Transaction Level Analysis
At Stanger, we have developed a second level approach to transactions. We call
this process our "Transaction Level Analysis." In client assignments where a
sale to, creation of, or merger with, a publicly traded real estate company is a
probability, the Transaction Level Analysis provides significant value.
First, we identify the comparables in the public market. We then create a
summary of comparable property portfolio acquisitions with an emphasis on
capitalization rates prevailing in similar transactions. After identifying
potential public and private buyers or capital partners and narrowing down the
likely prospects for the transaction, Stanger analyzes each prospect in terms of
growth rates, multiples of funds from operations and funds available for
distribution, general and administrative costs, property management costs, cost
of capital, etc. The objective is to see how the proposed transaction will
affect the prospect in terms of growth, incremental earnings (accretion), real
estate market and management synergy, among many other factors. The result is a
good feel as to the value of our client's assets to the acquiror. In today's
markets, the transaction price with a publicly traded real estate company can be
higher than the private market value of real estate, and capital markets savvy
is the key to maximizing value for our clients.
<PAGE>
[PHOTO OF KEVIN T. GANNON APPEARS HERE]
KEVIN T. GANNON
MANAGING DIRECTOR
"Our on the ground fundamental knowledge of real estate and real estate analysis
are the foundation of our investment banking services."
Property Level Analysis
All real estate securitization transactions begin at Stanger with our gaining a
comprehensive knowledge of our client's properties. We call this process our
"Property Level Analysis." Stanger personnel are "on the ground" at each asset
and, through typical real estate appraisal techniques, develop our own twelve-
month-forward operating budget and ten-year projection for a discounted cash
flow analysis. Demographics, market analysis, and lease analysis are
key factors.
Then, Stanger reviews client pro formas and projections with special
attention to non-recurring items, the treatment of capital expenditures, repairs
and maintenance assumptions, tenant improvements and leasing commissions, lease
turnovers and re-lease rates. We generate a "normalized" pro forma and
projections for purposes of creating the placement document which is provided to
the prospect who may be a buyer, merger candidate, lender or joint venture
partner. In real estate equity securitizations, our usual financial presentation
fits the format suitable for 8-K historic financials, especially when dealing
with publicly traded real estate acquirors.
Property value estimation is based on direct capitalization and discounted
cash flow methods calculated on both a free-and-clear and leveraged basis. Sales
comparable data and actual transaction prices from individual property and bulk
portfolio sales are also developed as available and appropriate.
In connection with mergers, sales of property, and financings over the past
five years, Stanger has valued more than $20 billion of real estate assets,
including office, industrial, apartment, mini-storage, retail, hotel, assisted
living, and subsidized housing.
<PAGE>
Other Services
In addition, Stanger provides a number of ancillary services including
appraisal, management company valuation, financial advisory and litigation
support.
[PICTURE APPEARS HERE]
<PAGE>
[PHOTO OF MICHELE P. DAMEN APPEARS HERE]
MICHELE P. DAMEN
VICE PRESIDENT
"Tens of billions of dollars of partnership securities are held in brokerage
firm customer accounts. Our database identifies them and our company values
them."
Partnership Database and Valuation Services
Robert A. Stanger & Co.'s top-flight team specializes in partnership securities
analysis. Over the years, we have developed the nation's most detailed
partnership investment databases and have pioneered sophisticated techniques of
partnership valuation. Services provided include:
. Centralized data collection and maintenance of partnership fair market
values and unrelated business taxable income on behalf of
trustees/custodians of IRA accounts to facilitate their compliance
with customer and IRS reporting requirements.
. Independent valuations of partnership securities based on analysis of
partnership financial statements and structures.
. Database directories, information and procedures to facilitate the
efficient administration, transfer, and clearing of publicly
registered partnerships securities.
. Tracking and analysis of partnership products traded in secondary
markets.
In addition, we publish The Stanger Report, a periodical which profiles and
rates all publicly registered partnerships securities. Included in The Report
are an extensive listing of partnership secondary market prices and a listing of
the primary market makers.
<PAGE>
Biographies
- --------------------------------------------------------------------------------
[PICTURE OF KEVIN T. GANNON, ROBERT A. STANGER, AND KEITH D. ALLAIRE APPEARS
HERE]
Left to right Kevin T. Gannon, Robert A. Stanger, and Keith D. Allaire
Robert A. Stanger, Chairman, is recognized as one of the nation's leading
experts on partnership investment and the formation of REITs.
Before founding Robert A. Stanger & Co. in 1978, Mr. Stanger spent 17 years
on Wall Street as an investment banker specializing in real estate securities.
He was Vice President at Merrill Lynch and prior thereto, First Vice President
at White, Weld & Co. He is a member of the New York Society of Security
Analysts, a founder of the Investment Program Association, and a director of
Citizens Utilities, a diversified utility company, Electric Lightwave, a
telecommunications company and Callon Petroleum, an oil and gas exploration
company. Mr. Stanger is a 1961 graduate of Princeton University, with a
bachelors degree in Economics.
Keith D. Allaire, Managing Director, heads Robert A. Stanger & Co.'s Financial
Advisory Services Group and directs investment banking, fairness opinion and
litigation support assignments. Mr. Allaire has been the lead banker on real
estate consolidation and M&A assignments involving over $8 billion of assets.
Among his public clients for such transactions are Cabot Industrial Trust, Carey
Diversified, Lexington Corporate Properties, Post Properties, Shurgard Storage
Centers, AMLI Realty, American Retirement Villas, The Related Companies,
Winthrop Financial Associates, and numerous entities affiliated with Public
Storage, Inc.
Mr. Allaire is a 1969 graduate of Trinity College, with a bachelors degree
in Mathematics. He then attended Cornell University's Graduate School of
Business and Public Administration. He was an RCA Science Scholar, a James
Lippincott Goodwin Fellow, and a Cornell University Graduate Fellow. Mr. Allaire
holds an M.B.A. in finance from Fairleigh Dickinson University and is a
Certified Financial Planner.
Kevin T. Gannon, Managing Director, directs Robert A. Stanger & Co.'s
Mergers and Acquisitions activities. Mr. Gannon has been the lead banker on real
estate consolidation and M & A transactions involving over $8 billion in real
estate and management company assets. Among his public clients for such
transactions are Apartment Investment & Management Group, Charles E. Smith
Realty Group, Corporate Office Properties Trust, Glenborough Realty Trust, and
Municipal Mortgage & Equity, LLC. Mr. Gannon has also been active in the
analysis and evaluation of corporate and partnership investments in real estate,
oil and gas, equipment leasing, agriculture, biotechnology, and food processing.
Prior to joining Stanger he was a manager with Deloitte Haskins & Sells, an
international accounting firm. Mr. Gannon is a 1978 graduate of Rutgers
University, with a bachelor's degree in Accounting and a member of Phi Beta
Kappa. He is also a Certified Public Accountant and a member of the American
Institute of Certified Public Accountants.
<PAGE>
------------------------------------------------
Robert A. Stanger & Co., Inc.
================================================
1129 Broad Street
Shrewsbury, New Jersey 07702
Kevin T. Gannon (732)389-3600
Managing Director FAX: (732)389-1751
<PAGE>
EXHIBIT b(8)
Imperial Credit Commercial Mortgage
Investment Corp.
[Prudential Securities Logo appears here]
Presentation to the Special Committee of the
Board of Directors
September 28, 1999
1
<PAGE>
Imperial Credit Commerical Mortgage Investment Corp.
- --------------------------------------------------------------------------------
Summary of Solicitation Process
. 47 Calls Made to Potential Investors
-- 4 Investment Advisors
-- 4 Specialty Finance
-- 16 Financial Institutions
-- 15 Opportunity Funds
-- 2 Large Cap Property REITs
-- 6 Strategic Investors
. 23 Offering Memoranda Were Sent Out
. 4 Bids Received
2
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
- --------------------------------------------------------------------------------
Summary of Bids Received
<TABLE>
<CAPTION>
------------------------------------------------------------------
Meruelo
Anthracite Properties, Goldman
Bidder Capital, Inc. Inc. Sachs & Co. Lend Lease
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Opportunity Investment
Type of Bidder Strategic Strategic Fund Advisor
Bid Date 9/27/99 9/24/99 9/27/99 9/27/99
Specific Asset Real Estate
Type of Bid Enterprise Bid Enterprise Bid Pools Assets Only
Method of Payment Stock with
Cash Option All Cash All Cash All Cash
------------------------------------------------------------------
</TABLE>
3
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
- --------------------------------------------------------------------------------
Summary of Bids Received
Anthracite Capital, Inc.
------------------------
<TABLE>
<CAPTION>
June 23, 1999 September 27, 1999
-----------------------------------------------------------------------------
<S> <C> <C>
Stated Intention Merger Merger
Method Stock-for-stock Stock-for-stock
Total Bid for ICMI, $ millions $296.6 $334.8
Implied Price Per ICMI Share $10.409 $11.746
Conversion Ratio 1.450 (2) 1.580 (2)
Current Bidder Price/Share $6.813 $6.938
Form of ICMI Share Consideration Stock & Cash at $12.00 per share Stock & Cash at $13.00 per share
(up to 25%) (up to 38.5%)
AHR Annualized FFO/Share $1.23 $1.37
AHR Price/FFO 5.6x 5.1x
AHR Book Value/Share $9.09 $8.49
Price/Book Ratio 0.75x 0.82x
Anticipated Dividend/Current ICMI Share (1) $1.68 $1.83
Dividend Yield Per ICMI Share @ $10.75 (1) 15.65% 17.05%
Management Agreement $45 million Appraisal Amount
Form of Management Agreement Consideration 100% cash and/or partial payment 100% cash and/or partial payment
in kind in kind
Contingencies None None
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
FFO Accretion to AHR Shareholders -11.5% 16.8%
ICMI % Ownership 59.6% 56.9%
Pro Forma Total Assets $1,117,796 $1,124,992
Combined Debt-to- Total Capital 58.2% 64.4%
-----------------------------------------------------------------------------
</TABLE>
(1) Current ICMI dividend rate of $1.20 equates to a 13.15% dividend on
current stock price.
(2) Represents amounts/ratio expressly stated in the bid.
4
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
- --------------------------------------------------------------------------------
Summary of Bids Received
<TABLE>
<CAPTION>
Meruelo Properties, Inc.
------------------------
<S> <C>
Stated Intention Acquisition
Method All Cash
Total Bid for ICMI Common, $ millions $334.9
Price Per ICMI Share $11.750
Management Agreement Economics $35 million
Form of Management Agreement Consideration All Cash
Contingencies None
</TABLE>
- Intention to Raise $94 million in Subordinated Debt Financing
- Expectation to Place $124 million in Senior Financing on ICMI Assets
5
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
- --------------------------------------------------------------------------------
Summary of Bids Received
Goldman Sachs & Co.
- -------------------
Stated Intention Acquisition of Specific Assets
including small loans, large loans/(1)/,
real property/(2)/, and securities/(3)/
Method All Cash
Carrying Value
6/30/99 Net Offer
------- ---------
Goldman Sachs Net Bid ($ millions) $250.8 $150.1
Contingencies None
__________________
(1) Does not include Queen Emma and Hayes Park receivable.
(2) Does not include Axe Sud and is net of liabilities.
(3) Does not include Northstar.
6
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
- --------------------------------------------------------------------------------
Summary of Bids Received
Lend Lease Real Estate Investments
----------------------------------
Stated Intention (1) Acquisition of Real Property Assets
Method All Cash
Carrying Value
6/30/99 Net Offer
------- ---------
Lend Lease Net Bid ($ in millions) $47.0 $36.6
Contingencies None
________________________________
(1) Does not include Axe Sud and the Terraces.
7
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
- --------------------------------------------------------------------------------
Updated Timeline under ICII Merger Transaction
------------------------------------------------------------------------------
Oct Nov Dec
(Weeks) (Weeks) (Weeks)
------------------------------------------------------------------------------
Key Tasks/Events 1 2 3 4 1 2 3 4 1 2 3 4
------------------------------------------------------------------------------
------------------------------------------------------------------------------
File Proxy Statement X
------------------------------------------------------------------------------
First Round Appraisal Completed X
------------------------------------------------------------------------------
Monitor Status of SEC Review X X X X X X X
------------------------------------------------------------------------------
Review and Clear SEC Comments X
------------------------------------------------------------------------------
Go Effective and Mail Proxy X
------------------------------------------------------------------------------
Shareholder's Meeting and Vote X
------------------------------------------------------------------------------
Transaction Closing X
------------------------------------------------------------------------------
8
<PAGE>
EXHIBIT b(9)
Imperial Credit Commercial Mortgage
Investment Corp.
[LOGO] Prudential
Securities
Presentation to the Special Committee of the
Board of Directors
October 12, 1999
<PAGE>
Projection Assumptions as Presented to ICMI Board of
Directors and ICMI Special Committee
- --------------------------------------------------------------------------------
Asset Category Year 0 to Year 2 Balances Underlying Assumptions
-------------- ------------------------- ----------------------
Asset Investment
- ----------------
Cash and Equivalents $116 million to $36 million Set so as to provide
enough liquidity to last
4 years
Mortgage Loans $397 million to $548 million Loan Port's @ $75mm/Qtr
Real Estate $102 million to $146 million Limited by available
equity to invest in new
acquisitions
CMBS/Securities $49 million to $87 million Limited to investment in
retained sub pieces from
whole-loan sales. No
debt to support
discretionary purchases.
Financing of Assets
- -------------------
Mortgage Loans Debt $245 million to $357 million 95% qualified first
mortgages. Max. credit
line limit-$300mm. Whole
loan sales at credit
limit.
Real Estate Mortgages $47 million to $100 million 75% LTV on new
acquisitions
CMBS/Securities Debt $0 million to $0 million No available debt
financing on subordinated
securities.
Stockholders' Equity $364 million to $365 million Initially marked down to
economic net asset value.
No access to external
equity during 4 years.
Approx. 90% of cash
earnings paid out to
shareholders.
- --------------------------------------------------------------------------------
<PAGE>
Comparison of Key Financial Statistics
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Year 1 Year 2
-------------------------------------------- ------------------------------------------
Board Management Board Management
Presentation Projections Presentation Projections
-------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $ 912,335 $ 1,545,490 $ 839,081 $ 1,574,178
Total Liabilities 547,004 1,143,502 473,783 1,161,547
Total Stockholders' Equity 365,331 401,989 365,298 412,631
Total Revenue $ 81,009 $ 113,269 $ 85,477 $ 163,612
Total Expenses 45,894 67,214 49,600 105,890
Net Earnings 35,115 34,787 35,877 42,077
FFO 38,750 41,133 39,982 52,356
Diluted Earnings per Share $ 1.23 $ 1.22 $ 1.26 $ 1.48
Diluted FFO per Share $ 1.36 $ 1.44 $ 1.40 $ 1.84
Dividends $ 34,200 $ 35,340 $ 35,910 $ 41,895
Dividends per Share $ 1.20 $ 1.24 $ 1.26 $ 1.47
FFO Payout Ratio 88.3% 85.9% 89.8% 80.0%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NPV Analysis Based on Management's Projections
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------
Assumption
--------------------------------------
Discount Rate 17.5%
Terminal Value (% of Book
Value) 90%
-------------------------------------- Year 1 Year 2
------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stand-Alone Cashflows
Dividends 7,125 7,980 9,975 10,260 10,260 10,545 10,545 10,545
Terminal Value - - - - - - - 371,368
------ ------ ------ ------- ------- ------ ------ -------
Total Stand-Alone Cashflows 7,125 7,980 9,975 10,260 10,260 10,545 10,545 381,913
NPV 326,960
NPV per Share $ 11.47
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PRELIMINARY COPY
Subject to Completion, dated December , 1999
[LOGO OF ICCMIC]
, 1999
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders of
Imperial Credit Commercial Mortgage Investment Corp. ("ICCMIC") to be held
at , Los Angeles, California , on ,
, 2000, at :00 .m., local time.
At the special meeting, you will be asked to approve the merger agreement
between ICCMIC and Imperial Credit Industries, Inc. and the proposed merger of
a wholly-owned subsidiary of Imperial Credit Industries into ICCMIC, pursuant
to which ICCMIC will become a wholly-owned subsidiary of Imperial Credit
Industries. Currently, Imperial Credit Industries and certain of its affiliates
own approximately 9.4% of ICCMIC's outstanding common stock. ICCMIC's former
manager, Imperial Credit Commercial Asset Management Corp., is a wholly-owned
subsidiary of Imperial Credit Industries.
If we complete the proposed merger, which would be a taxable transaction to
you, you will receive $11.5753246 in cash for each share of ICCMIC common stock
you own. In addition, you will continue to receive regular quarterly dividends,
if applicable, and a special final dividend from ICCMIC, if applicable, as
described in greater detail in the attached proxy statement.
A special committee of ICCMIC's board of directors, comprised of ICCMIC's
four independent directors, negotiated the terms of the merger agreement and
the proposed merger with Imperial Credit Industries. The special committee has
received an opinion from its financial advisor, Prudential Securities
Incorporated, to the effect that the consideration to be received in the
proposed merger by ICCMIC's stockholders, other than Imperial Credit Industries
and certain of its affiliates, is fair to such ICCMIC stockholders from a
financial point of view. The board of directors of ICCMIC, acting on the
unanimous recommendation of the special committee, has unanimously approved and
adopted the merger agreement and the proposed merger. The special committee and
the full board of directors believe that the merger agreement and the proposed
merger are fair to, and in the best interests of, ICCMIC's stockholders other
than Imperial Credit Industries and certain of its affiliates. Accordingly, the
ICCMIC board of directors recommends that you vote FOR the merger agreement and
the proposed merger.
The attached proxy statement provides detailed information concerning the
special meeting and the proposed merger. Please read these materials carefully.
Your vote is very important. Whether or not you plan to attend the special
meeting, I urge you to complete, date, sign and promptly return the enclosed
proxy card to ensure that your shares will be voted at the meeting. The
proposed merger will only be completed if it is approved by the affirmative
vote of ICCMIC stockholders holding a majority of the total number of
outstanding shares of ICCMIC common stock, and by a majority of shares entitled
to vote at the special meeting that are not held by Imperial Credit Industries
and certain of its affiliates. If you fail to return your proxy card and do not
vote in person at the special meeting, the effect will be the same as a vote
against the merger agreement and the proposed merger.
<PAGE>
On behalf of the board of directors, I thank you for your support and urge
you to vote FOR approval of the merger agreement and the proposed merger.
Sincerely,
[Signature]
Mark S. Karlan
President and Chief Executive
Officer
----------------
This proxy statement is dated , 1999 and is first being mailed to
stockholders of ICCMIC on or about , 1999.
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
Notice of Special Meeting of Stockholders
To Be Held , 2000
To the Stockholders of
Imperial Credit Commercial Mortgage Investment Corp.:
A special meeting of the stockholders of Imperial Credit Commercial Mortgage
Investment Corp. will be held at the , Los Angeles, California on
, 2000, at :00 a.m., local time, so that stockholders may consider and
vote on a proposal to approve the merger agreement, dated as of July 22, 1999,
by and among ICCMIC, Imperial Credit Industries and ICCMIC Acquisition Corp.,
under which, among other things, ICCMIC Acquisition Corp. will merge into
ICCMIC. We have attached a copy of the merger agreement, as amended, as
Appendix A to the proxy statement.
The board of directors has set the close of business on December , 1999 as
the record date to determine the stockholders entitled to notice of and to vote
at the special meeting or any meeting resulting from an adjournment or
postponement of the special meeting.
The board of directors of ICCMIC unanimously recommends that you vote FOR
approval of the merger agreement and the proposed merger.
You are cordially invited to attend the special meeting. You may vote in
person or by proxy. Whether or not you plan to attend, please act promptly to
vote your shares for approval of the merger agreement and the proposed merger.
We have included with this notice a proxy statement to explain the proposed
merger in detail, and a proxy card for your use. If you attend the special
meeting, you may vote your shares in person, even if you have previously
submitted a proxy in writing.
By Order of the Board of Directors,
[Signature]
Norbert M. Seifert
Secretary
Los Angeles, California
Your vote is important. Please date and sign the enclosed proxy card and
return it in the enclosed envelope as soon as possible.
Please do not send your common stock certificates at this time. If the
proposed merger is completed, you will be sent instructions regarding the
surrender of your certificates.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
[IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP. LOGO]
11601 Wilshire Boulevard, Suite 2080
Los Angeles, California 90025
----------------
Proxy Statement
----------------
Special Meeting of Stockholders
To Be Held , 2000
We are sending you this proxy statement because you are a holder of common
stock of Imperial Credit Commercial Mortgage Investment Corp., which trades on
the Nasdaq Stock Market under the symbol "ICMI." The proxy statement describes
a proposed merger that would result in the acquisition by a subsidiary of
Imperial Credit Industries, Inc. (Nasdaq symbol "ICII") of all of ICCMIC's
common stock not already owned by ICII.
If completed, the proposed merger would have the following results:
. You would receive $11.5753246 in cash for each share of ICCMIC common
stock you hold at the time of the proposed merger (which would represent
a 17.2% premium over the $9.875 per share closing price of ICCMIC common
stock on the Nasdaq Stock Market on May 12, 1999, the day before ICII
made its initial $11.00 per share offer, but which is less than ICCMIC's
liquidation value of $12.57 per share (as estimated by the financial
advisor to ICCMIC's special committee) or $13.10 per share (as estimated
by ICCMIC's management) as well as ICCMIC's book value of $14.12 per
share as of September 30, 1999). However, none of the foregoing
liquidation and book value amounts per share have been adjusted to
reflect ICCMIC's obligation to pay a management agreement termination fee
of $33 million, or approximately $1.16 per share, as explained below, if
the proposed merger is not completed. After subtracting the per share
impact of the management agreement termination fee, ICCMIC's liquidation
value per share of $12.57 (as estimated by the financial advisor to
ICCMIC's special committee) would be $11.41, ICCMIC's liquidation value
per share of $13.10 (as estimated by ICCMIC's management) would be $11.94
and ICCMIC's book value per share of $14.12 as of September 30, 1999
would be $12.96;
. Because all of your ICCMIC common stock would be converted into the right
to receive cash, you would no longer have any ownership interest in
ICCMIC, participate in the future earnings or growth of ICCMIC or receive
dividends from ICCMIC; and
. For tax purposes, you would recognize gain or loss from the proposed
merger to the extent that the amount of cash you receive for your ICCMIC
common stock exceeds, or is less than, your tax basis in that stock.
The closing price of ICCMIC common stock on the Nasdaq Stock Market on
, 1999, the last practicable trading day prior to the mailing of
this proxy statement, was $ per share.
A wholly-owned subsidiary of ICII managed ICCMIC's day-to-day operations
pursuant to a management agreement with ICCMIC until October 22, 1999 when the
management agreement expired. The management agreement provided that if ICCMIC
were to terminate or fail to renew the management agreement, then ICCMIC would
have to pay a termination fee to the manager determined by an independent
appraisal process.
<PAGE>
However, the parties have agreed that ICCMIC will not be required to pay the
termination fee unless the merger agreement between ICCMIC and ICII is
terminated, in which event the termination fee will be due and payable at that
time. ICCMIC believes that ICII considered the fact that its subsidiary, the
manager, would not be receiving the termination fee that it was otherwise
entitled to under the management agreement upon completion of the proposed
merger in determining the amount of merger consideration it was willing to pay
for ICCMIC's common stock.
As of November 30, 1999, ICII owned approximately 9.0% of ICCMIC's issued
and outstanding common stock. As a result, ICII will share in the dividend of
$0.33 per share for the fourth quarter of 1999 that ICCMIC will pay prior to
completion of the proposed merger, as well as in any final dividend. Mark S.
Karlan (President, Chief Executive Officer and a director of ICCMIC), Michael
Meltzer (Chief Financial Officer and Treasurer of ICCMIC) and Norbert M.
Seifert (General Counsel, Senior Vice President and Secretary of ICCMIC) hold
the same executive officer positions at ICCMIC's former manager, a wholly-owned
subsidiary of ICII, and own shares of ICII common stock that collectively
amount to less than 1% of ICII's issued and outstanding common stock through
ICII's non-qualified employee pension and profit-sharing plans.
A special committee of ICCMIC's board of directors, comprised of ICCMIC's
four independent directors, negotiated the terms of the merger agreement and
the proposed merger with ICII. The special committee has received an opinion
from its financial advisor, Prudential Securities Incorporated, to the effect
that the consideration to be received in the proposed merger by ICCMIC's
stockholders, other than ICII and certain of its affiliates, is fair to such
ICCMIC stockholders from a financial point of view. The board of directors of
ICCMIC, acting on the unanimous recommendation of the special committee, has
unanimously approved and adopted the merger agreement and the proposed merger.
The special committee and the full board of directors believe that the merger
agreement and the proposed merger are fair to, and in the best interests of,
ICCMIC's stockholders other than ICII and certain of its affiliates.
Accordingly, the ICCMIC board of directors recommends that you vote FOR the
merger agreement and the proposed merger.
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Questions and Answers About the Proposed Merger........................... 2
Who Can Help Answer Your Questions?....................................... 6
Summary................................................................... 7
Our View of the Proposed Merger and Our Recommendation................... 7
ICII's Reasons for the Proposed Merger................................... 8
Management's Conflicts of Interest in the Proposed Merger................ 10
The Proposed Merger...................................................... 12
The Special Meeting...................................................... 13
Record Date; Stock Entitled to Vote...................................... 13
Votes Required........................................................... 13
Share Ownership by Management............................................ 14
What Stockholders Will Receive in the Proposed Merger.................... 14
Management Agreement; Appraisal.......................................... 14
Treatment of Outstanding ICCMIC Stock Options............................ 16
Solicitation of Alternative Transactions................................. 17
Standstill; Qualifying Alternative Transaction........................... 17
Opinion of Financial Advisor............................................. 18
Conditions to Completion of the Proposed Merger.......................... 18
Termination of the Merger Agreement...................................... 18
Accounting Treatment..................................................... 19
Financing; Source of Funds............................................... 19
Market Price of ICCMIC Shares............................................ 20
ICCMIC Shares: Book Value, Dividends and Earnings........................ 20
Cautionary Statement Concerning Forward-Looking Statements................ 22
The Companies............................................................. 24
Imperial Credit Commercial Mortgage Investment Corp...................... 24
Imperial Credit Industries, Inc.......................................... 25
ICCMIC Acquisition Corp.................................................. 25
Information Concerning the Special Meeting................................ 26
Time, Date, Place and Purpose of the Special Meeting..................... 26
Record Date; Outstanding Common Stock Entitled to Vote; Quorum........... 26
Votes Required........................................................... 26
Voting of Proxies........................................................ 26
Proxy Solicitation....................................................... 28
Special Factors: Background, Purpose and Effects of the Proposed Merger... 29
Background of the Proposed Merger........................................ 29
60-Day Market Check Process.............................................. 42
Recommendation of the Special Committee and the Board of Directors;
Reasons for the Proposed Merger......................................... 44
Opinion of the Financial Advisor to the Special Committee................ 48
Financial Projections Relating to ICCMIC................................. 53
Management Agreement; Appraisal.......................................... 54
Benefits and Detriments to Nonaffiliated Stockholders.................... 55
ICII's Purpose for Pursuing the Proposed Merger; Structure of the
Proposed Merger......................................................... 55
ICII's Analysis of the Proposed Merger................................... 57
Consequences of the Proposed Merger...................................... 59
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Potential Asset Sales Prior to the Proposed Merger....................... 60
Plans for ICCMIC after the Proposed Merger............................... 60
Conduct of the Business of ICCMIC if the Proposed Merger is not
Completed............................................................... 60
Financing; Source of Funds............................................... 60
No Appraisal Rights...................................................... 61
Material Tax Consequences................................................ 61
Accounting Treatment..................................................... 63
Pending Litigation....................................................... 63
Management's Conflicts of Interest in the Proposed Merger................. 65
General.................................................................. 65
Overlapping Directors and Officers....................................... 65
Directors' Fees.......................................................... 65
Treatment of Stock Options............................................... 65
Agreements between Mark S. Karlan, ICII and the Manager.................. 68
Indemnification of Directors and Officers................................ 68
ICII/Manager Employment Retention Plan................................... 68
The Merger Agreement...................................................... 70
The Proposed Merger...................................................... 70
Effective Time........................................................... 70
Merger Consideration..................................................... 70
Cancellation of ICCMIC Common Stock...................................... 70
Payment Procedures....................................................... 70
Transfer of Common Stock................................................. 71
Stock Option and Other Plans............................................. 71
Directors and Officers................................................... 71
Solicitation Period and Superior Proposals............................... 71
ICII Standstill Agreement................................................ 72
Certain SPB Loans........................................................ 73
Representations and Warranties........................................... 73
Covenants; Conduct of Business Pending the Proposed Merger............... 74
Conditions............................................................... 76
Termination; Withdrawal of Recommendations............................... 77
Termination Fees and Expenses............................................ 78
Amendment and Waiver..................................................... 78
Fees and Expenses......................................................... 79
Regulatory Requirements................................................... 80
Selected Historical Financial Data of ICCMIC.............................. 81
Common Stock Market Price and Dividend Information........................ 82
Market Prices............................................................ 82
Dividend Policy.......................................................... 82
Relationships and Transactions Between ICII, ICCMIC and Affiliates........ 84
Relationships with the Manager........................................... 84
Other Contractual Relationships Between ICII and its Affiliates and
ICCMIC.................................................................. 85
Purchases and Sales of Common Stock by ICII and its Affiliates........... 86
Management of ICCMIC...................................................... 87
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management of ICII and ICCMIC Acquisition Corp............................. 87
Management of ICII........................................................ 87
Management of ICCMIC Acquisition Corp. ................................... 88
Securities Ownership....................................................... 89
Proposals by Stockholders of ICCMIC........................................ 91
Independent Auditors....................................................... 91
Where You Can Find More Information........................................ 92
</TABLE>
<TABLE>
<C> <S> <C>
APPENDIX A -- Merger Agreement, as amended
APPENDIX B -- Opinion of Prudential Securities Incorporated
APPENDIX C -- Summary of Appraisals of Robert A. Stanger & Co., Inc.,
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. and
Eastdil Realty Company, L.L.C.
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSED MERGER
Q: What will I receive in A: If the proposed merger is completed, you will
the proposed merger? receive $0.0753246 in cash in exchange for
each share of ICCMIC common stock that you
own at the time of the proposed merger. The
cash consideration includes a $0.0753246 per
share amount that was determined by the
results of the management agreement
termination fee appraisal process that is
described below.
You will also receive a final dividend of any
previously undistributed taxable income of
ICCMIC. Any such dividend will be paid
promptly after the proposed merger is
completed. See "What will happen to my
dividends?"
If you sell shares of ICCMIC common stock
after the December , 1999 record date for
the special meeting and prior to the proposed
merger, you will retain your right to vote at
the special meeting unless you give a proxy
to the purchaser of your stock. However, the
right to receive the cash price in the
proposed merger will transfer with the shares
of common stock unless you reach a specific
contrary agreement with the purchaser of your
shares.
Q: What was the appraisal A: Until October 22, 1999, ICCMIC was an
process, and how did it "externally managed" real estate investment
affect what I will receive trust--meaning that the day-to-day operations
in the proposed merger? of the company were conducted by a third
party "manager." ICCMIC's former manager,
Imperial Credit Commercial Asset Management
Corp., is a wholly-owned subsidiary of
Imperial Credit Industries, Inc. ("ICII").
ICCMIC's management agreement with the
manager provided that ICCMIC would be
required to pay a termination fee to the
manager if ICCMIC were to terminate or fail
to renew the management agreement. The merger
agreement between ICCMIC and ICII requires
that the value of the management agreement
termination fee be determined by the
appraisal process set forth in the management
agreement and provides that an appraised
value of the termination fee of less than $35
million is to result in an increase in the
$11.50 per share cash payment for each of
your shares in the proposed merger by an
amount equal to the quotient of:
. the difference between $35 million and
the appraised value of the termination
fee, divided by
. the sum of the number of shares held by
ICCMIC stockholders other than ICII and
its subsidiaries, and the number of
shares subject to ICCMIC stock options
that have an exercise price of less
than $11.50 per share.
The management agreement termination fee was
appraised at a value of $33 million. As a
result, the initially stated merger
consideration has been increased from $11.50
per share to
2
<PAGE>
$11.5753246 per share in accordance with the
formula just described.
Neither the merger agreement nor the
management agreement specifies a basis for
calculation of the termination fee. As
further described in Appendix C to this proxy
statement, the firms engaged to appraise the
value of the management agreement termination
fee relied on, among other factors, one or
more of the following methods:
. capitalization of earnings analysis;
. comparable transaction analysis; and
. discounted cash flow analysis.
The merger agreement does not entitle ICII or
the manager to any cash payment upon the
completion of the merger transaction. The
appraisal of the termination fee was
undertaken to determine the amount, if any,
by which to increase the minimum $11.50 per
share merger consideration and the amount
that a third party would be required to pay
in an alternative transaction. The appraisal
process also determined the amount that
ICCMIC would be required to pay as a
termination fee upon the expiration of the
management agreement, which occurred on
October 22, 1999. However, the parties have
agreed that ICCMIC will not be required to
pay the management agreement termination fee
unless the merger agreement is terminated, in
which event the termination fee will be due
and payable at that time. ICCMIC believes
that ICII considered the fact that its
subsidiary, the manager, would not be
receiving the termination fee that it was
otherwise entitled to under the management
agreement upon completion of the proposed
merger in determining the amount of merger
consideration it was willing to pay for
ICCMIC's common stock.
Q: How did you determine A: The price and other terms of the proposed
the price to be paid in merger were negotiated on an arm's-length
the proposed merger? basis with ICII by a special committee of
ICCMIC's board of directors, consisting of
the four independent ICCMIC directors who are
neither officers or employees of ICCMIC nor
directors, officers, employees or affiliates
of ICII. The special committee retained its
own legal counsel and was assisted in this
process by its financial advisor, Prudential
Securities Incorporated, which provided the
special committee with its written opinion
that the consideration to be received in the
proposed merger by ICCMIC's stockholders,
other than ICII and certain of its
affiliates, is fair to such ICCMIC
stockholders from a financial point of view.
Q: What will happen to A: The merger agreement permits ICCMIC to
my dividends? declare and pay regular quarterly dividends,
in an amount up to 105% of its quarterly
taxable income, if any, until the proposed
merger is completed and we expect to do so.
See "Common Stock
3
<PAGE>
Market Price and Dividend Information." In
addition, immediately prior to the completion
of the proposed merger, ICCMIC will declare a
final cash dividend (in effect, a final
quarterly dividend for the last partial
quarter ending upon completion of the
proposed merger) in an amount up to 100% of
its taxable income, if any, during its then
current tax year through the date of the
proposed merger, reduced (but not below zero)
by the amount of all prior dividends already
paid with respect to that tax year. The final
dividend, if any, is intended to give ICCMIC
stockholders the benefit of ICCMIC's taxable
income for the short taxable year ending with
the completion of the proposed merger and to
maintain ICCMIC's status as a REIT for that
short taxable year. The record date for this
final dividend will be the business day
immediately before the closing of the
proposed merger. The final dividend, if any,
will be paid promptly after the proposed
merger is completed.
For the fourth quarter of 1999, we have
declared and will pay a dividend of $0.33 per
share (which is approximately equal to
ICCMIC's current estimate of its taxable
income per share for the year, reduced by
1999 dividends paid to date). If, as we
expect, the proposed merger is completed in
the first quarter of 2000, and if ICCMIC has
taxable income for the period from January 1,
2000 through the date on which the merger is
completed, all ICCMIC stockholders, including
ICII (with respect to its ownership of 9% of
ICCMIC's outstanding common stock), will
receive a pro rata share of the final
dividend, if any.
Q: What do I need to do now? A: After carefully considering the information
contained in this proxy statement, please
complete, date and sign your proxy card. Then
mail your proxy card in the postage paid
envelope as soon as possible, so that your
shares may be voted in accordance with your
instructions at the special meeting. The
ICCMIC board of directors unanimously
recommends that you vote FOR approval of the
merger agreement and the proposed merger.
Q: What do I do if I want A: You may change your vote:
to change my vote?
. by sending a written notice stating
that you would like to revoke your
proxy which must be received by
ICCMIC's transfer agent prior to the
vote at the special meeting;
. by signing a later dated proxy card and
mailing it promptly so that is received
by the ICCMIC transfer agent prior to
the vote at the special meeting; or
. by attending the special meeting and
voting your shares in person.
4
<PAGE>
Q: Should I send in my A: No, you should not send in your stock
stock certificates now? certificates with your proxy card. If the
proposed merger is completed, you will be
sent written instructions for exchanging
your ICCMIC stock certificates for the
merger consideration.
Q: If my shares are held in A: Your broker will vote your shares only if
"street name" by my broker, you provide instructions on how to vote to
will my broker vote my your broker. Please tell your broker how you
shares for me? would like him or her to vote your shares.
If you do not tell your broker how to vote,
your shares will not be voted, which will
have the same effect as a vote against the
merger agreement and the proposed merger.
Q: When do you expect the A: We are working to complete the proposed
proposed merger to be merger as quickly as possible. If it is
completed? approved, we expect to complete the proposed
merger within several days of the special
meeting.
Q: What are the tax A: The exchange of ICCMIC common stock for cash
consequences of the in the proposed merger will be a taxable
proposed merger? transaction for federal income tax purposes
and will also be a taxable transaction under
most state and local tax laws. You will
recognize gain or loss to the extent that
the amount of cash you receive exceeds, or
is less than, your tax basis in your ICCMIC
common stock. In addition, if you are a
foreign stockholder, you may be subject to
tax and withholding under the Foreign
Investment in Real Property Tax Act of 1980.
We describe the material United States
federal income tax consequences of the
proposed merger in more detail on pages 61
and 62. See "Special Factors: Background,
Purpose and Effects of the Proposed Merger--
Material Tax Consequences."
Q: What other matters will A: Maryland law and ICCMIC's bylaws do not
be voted on at the permit any other matters to be presented at
special meeting? the special meeting except related
procedural matters, including adjournment of
the special meeting to a later date.
Q: Do I have the right to A: No. ICCMIC is organized under Maryland law.
have the value of my Under Maryland law, ICCMIC stockholders do
shares appraised if I not have the right to dissent and receive
dissent from the the appraised value of their shares in
proposed merger? connection with the proposed merger. If you
vote against the proposed merger and it
takes place anyway, you will be bound by the
terms of the merger agreement.
Q: Where can I find more A: Both companies file reports and other
information about ICCMIC information with the Securities and Exchange
and ICII? Commission. You may read and copy this
information at the SEC's public reference
facilities. You may call 1-800-SEC-0330 for
information about these facilities. This
information is also available at the
Internet site the SEC maintains at
http://www.sec.gov. You can also request
copies of these documents from ICCMIC and
ICII. Also, you can get information about
ICII at its Internet site at
http://www.icii.com. For more information,
see "Where You Can Find More Information."
5
<PAGE>
Who can help answer your questions?
If you have more questions about the proposed merger or would like
additional copies of this proxy statement, you should contact our proxy
solicitor:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
1-800-769-5414
6
<PAGE>
SUMMARY
This summary, together with the "Questions and Answers About the Proposed
Merger" on pages 2 through 6 highlights material information included in this
proxy statement. It may not contain all of the information that is important to
you. We have included page references directing you to a more complete
description of each item presented in this summary. To understand the proposed
merger fully and for a more detailed description of the legal terms of the
transaction, you should read carefully this entire proxy statement and the
other documents to which we have referred you. For more information about
ICCMIC and ICII, see "Where You Can Find More Information." The actual terms of
the proposed merger are contained in the merger agreement, a copy of which is
attached as Appendix A to this proxy statement.
All information contained in this proxy statement relating to ICII and
ICCMIC Acquisition Corp. and their affiliates (other than ICCMIC and its
subsidiaries) or to their respective actions, purposes, beliefs, intentions or
plans has been supplied by ICII for inclusion herein and has not been
independently verified by ICCMIC. This information includes, without
limitation, certain information set forth under the captions "Summary--ICII's
Reasons for the Proposed Merger," "--Treatment of Outstanding ICCMIC Stock
Options" (with respect to Messrs. H. Wayne Snavely and Kevin E. Villani), "--
Financing; Source of Funds," "The Companies--Imperial Credit Industries, Inc.,"
"--ICCMIC Acquisition Corp.," "Special Factors: Background, Purpose and Effects
of the Proposed Merger --ICII's Purpose for Pursuing the Proposed Merger,"
"Structure of the Proposed Merger," "--ICII's Analysis of the Proposed Merger,"
"--Consequences of the Proposed Merger," "--Management Agreement; Appraisal,"
"--Potential Asset Sales Prior to the Proposed Merger," "--Plans for ICCMIC
after the Proposed Merger," "--Financing; Source of Funds," "--Accounting
Treatment," "Management's Conflicts of Interest in the Proposed Merger--
Treatment of Stock Options" (with respect to Messrs. Snavely and Villani)
"Regulatory Requirements" (with respect to ICII), "Relationships and
Transactions Between ICII, ICCMIC and Affiliates," "Management of ICII and
ICCMIC Acquisition Corp." and "Securities Ownership."
Our primary reason for the proposed merger is
Our View of the Proposed to provide ICCMIC stockholders other than
Merger and Our ICII and its subsidiaries with the
Recommendation (pages 44 opportunity to liquidate their investment in
through 48) ICCMIC for cash at a price representing a
significant premium to the market price for
ICCMIC common stock prior to the announcement
of ICII's initial acquisition offer.
The ICCMIC board of directors, acting on the
unanimous recommendation of its special
committee, has unanimously approved and
adopted the merger agreement and the proposed
merger and recommends that you vote FOR
approval of the merger agreement and the
proposed merger. The board of directors and
the special committee believe that the merger
agreement and the proposed merger are
advisable, fair to and in the best interests
of ICCMIC stockholders other than ICII and
certain of its affiliates (i.e., Messrs. H.
Wayne Snavely and Kevin E. Villani).
In reaching their decision to recommend the
proposed merger, the board of directors and
the special committee considered a number of
factors, including the price (see "--What
Stockholders Will Receive in the Proposed
Merger") and the right given to ICCMIC for a
period of 60 days to solicit alternative
proposals that might be superior to the
proposed merger (see "--Solicitation of
Alternative Transactions"). The special
committee also considered the fairness
7
<PAGE>
opinion of Prudential Securities Incorporated
(see below) and the board of directors relied
on the recommendation of the special
committee. See "Special Factors: Background,
Purpose and Effects of the Proposed Merger--
Recommendation of the Special Committee and
the Board of Directors; Reasons for the
Proposed Merger."
In approving the proposed merger, the special
committee also considered certain potential
negative factors, including:
. The fact that, following the proposed
merger, ICCMIC stockholders other than ICII
will no longer participate in the future
results of operations of ICCMIC or benefit
from any increases in its value or the
value of its assets;
. Conflicts of interest of the directors and
officers of ICCMIC in connection with the
proposed merger. (The benefits to be
received by insiders as a result of the
proposed merger total approximately $5.23
million.) See "Management's Conflicts of
Interest in the Proposed Merger" and
"Relationships and Transactions between
ICII, ICCMIC and Affiliates";
. The fact that ICCMIC stockholders may,
depending on their tax basis in their
ICCMIC common stock, recognize a taxable
gain upon the completion of the proposed
merger; and
. The fact that the $11.5753246 per share
cash payment in the proposed merger is less
than both management's estimate of ICCMIC's
liquidation value of $12.57 per share and
Prudential Securities' estimate of ICCMIC's
liquidation value of $13.10 per share.
However, neither of the foregoing
liquidation amounts per share has been
adjusted to reflect ICCMIC's obligation to
pay a management agreement termination fee
of $33 million, or approximately $1.16
per share, if the proposed merger is
completed. After subtracting the per share
impact of the management agreement
termination fee, ICCMIC's liquidation value
per share of $12.57 (as estimated by
Prudential Securities) would be $11.41 and
ICCMIC's liquidation value per share of
$13.10 (as estimated by ICCMIC's
management) would be $11.94.
The special committee did not believe that
these potential negative factors outweighed
the advantages of the proposed merger.
ICII's Reasons for the ICII believes that the proposed merger will
Proposed Merger (pages 55 result in several benefits to it, including:
through 59)
. the acquisition of real estate loans owned
by ICCMIC, including loans ICCMIC
previously purchased from ICII's wholly-
owned subsidiary, Southern Pacific Bank
("SPB"). In the past two years, SPB has
been redirecting its business
8
<PAGE>
to focus on the company's core business
activities, including loan origination and
investment in income producing property,
with which ICII is already familiar and
which are consistent with its long-term
business purpose. Acquiring ICCMIC furthers
this aim by adding significant mortgage loan
assets to SPB's balance sheet and increasing
its net interest income;
. the ability, over time, to sell those
ICCMIC assets that are not consistent with
ICII's long-term business strategies
without incurring taxable gains due to the
fact that the aggregate tax basis of the
assets it will acquire will exceed the
expected aggregate cost of acquiring those
assets;
. the elimination of the general and
administrative costs of operating ICCMIC as
a separate public company (e.g., the costs
of SEC reporting); and
. the increased ability of the surviving
corporation to retain capital for future
investment rather than being required to
comply with the federal tax law
distribution requirements for REITs.
See "Special Factors: Background, Purpose and
Effects of the Proposed Merger--ICII's
Purpose for Pursuing the Proposed Merger;
Structure of the Proposed Merger."
In addition, ICII believes that the proposed
merger provides an opportunity for ICCMIC
stockholders to sell their investment in
ICCMIC at a price representing a substantial
premium to the trading price of ICCMIC's
common stock immediately prior to the initial
announcement of ICII's interest in acquiring
ICCMIC. ICII also believes that the merger
price is attractive to it and in the best
interests of its own stockholders because it
believes that it will be able to sell
ICCMIC's assets or to realize their value
through collection over the term of the
respective mortgage loans, at prices and in
amounts that exceed ICII's acquisition price
for those assets. ICII will, however, also
incur the market and credit risks involved in
holding those assets over time and thus may
not realize the contemplated value thereof.
ICII further believes that ICCMIC's assets,
many of which were originated by SPB, will be
more efficiently funded by SPB deposits than
through ICCMIC's use of the capital markets.
Lastly, the tax basis of ICCMIC's assets,
approximately $415 million, exceeds the
merger price totaling approximately $302
million. This will permit ICII to carry out
its plan to sell up to approximately $120
million of ICCMIC assets without incurring a
significant taxable gain.
9
<PAGE>
Management's Conflicts of Directors and officers of ICCMIC may have
Interest in the Proposed interests in the proposed merger that differ
Merger (pages 65 through from, or are in addition to, your interests
69) as a stockholder. If the proposed merger is
completed, ICCMIC's directors and officers
will receive benefits that are different from
and in addition to benefits to be received by
stockholders other than ICII in the proposed
merger), including the following:
. Mr. Snavely, a director and executive
officer of ICII, and Mr. Villani, a
director and former executive officer of
ICII (Mr. Villani resigned as an executive
officer of ICII as of September 30, 1999),
are directors of ICCMIC and, as a result,
have duties to the stockholders of both
companies. In addition, Mark S. Karlan
(President, Chief Executive Officer and a
director of ICCMIC), Michael Meltzer (Chief
Financial Officer and Treasurer of ICCMIC)
and Norbert M. Seifert (General Counsel,
Senior Vice President and Secretary of
ICCMIC) hold the same executive officer
positions at ICCMIC's former manager,
Imperial Credit Commercial Asset Management
Corp., which is a wholly-owned subsidiary
of ICII. Therefore, each of them may be
confronted by issues, including the
proposed merger, that present them with
conflicts of interest. Because of their
potentially conflicting duties, and because
their economic interests in the proposed
merger may differ from your interests as a
stockholder, the ICCMIC board of directors
empowered the special committee to
represent the interests of ICCMIC's
stockholders in the evaluation and
negotiation of the proposed merger. The
special committee consists of Patric H.
Hendershott, Joseph A. Jaconi, Jr., Louis
H. Masotti and Kenneth A. Munkacy, each of
whom is an independent member of the ICCMIC
board and who, together, are all of the
independent members of the ICCMIC board.
The members of the special committee
received compensation for their service.
. Each of the directors and executive
officers of ICCMIC, other than Messrs.
Snavely and Villani, owns outstanding
options to purchase ICCMIC common stock,
some of which have exercise prices that
exceed the per share merger price, and some
of which are not yet exercisable. Upon
approval of the merger agreement and the
proposed merger by ICCMIC stockholders, all
of these stock options will become
immediately exercisable. Option holders
will have the right to receive in exchange
for their ICCMIC options either options of
similar value to purchase ICII shares or a
cash payment equal to the fair value of
their ICCMIC options. If all directors and
executive officers elect to receive cash
for their ICCMIC options, they would
receive $1,896,992 for such options upon
completion of the proposed merger. See "--
Treatment of Outstanding ICCMIC Stock
Options."
10
<PAGE>
. Mr. Karlan entered into an employment
agreement with the manager at the time of
ICCMIC's initial public offering that,
among other things, gives him the right to
receive 15% of the total economic value of
the manager upon the occurrence of certain
events. By a supplemental letter agreement
dated July 6, 1999, Mr. Karlan and the
manager have agreed that if the ICII merger
proposal is completed or if the merger
agreement is terminated, in either case
ICII will pay Mr. Karlan an amount equal to
15% of the appraised value of the
management agreement termination fee (which
has been determined to be $33 million)
reduced by certain appraisal and other
costs.
. Some of the directors and officers of
ICCMIC, including Messrs. Karlan, Meltzer
and Seifert, are also officers of the
manager and, as such, participate in an
"employment retention plan" that covers
certain employees of ICII and the manager.
The retention plan provides significant
benefits from ICII and the manager to a
participant if his or her employment with
ICII, the manager or ICCMIC is terminated
without cause or if he or she resigns for
good reason following a change of control
of any of those companies, or if his or her
employment is terminated prior to a change
in control at the request or suggestion of
a person acquiring one of those companies.
The supplemental letter agreement between
Mr. Karlan and the manager states that
completion of the proposed merger will be
deemed a change of control of ICCMIC for
purposes of the retention plan. ICCMIC's
employment of each of its employees,
including Messrs. Karlan, Meltzer and
Seifert, is expected to terminate upon or
within a few months following the
completion of the proposed merger. In that
event, Messrs. Karlan, Meltzer and Seifert
will become entitled under the retention
plan to receive benefits in an aggregate
amount of approximately $2.68 million. Mr.
Karlan's benefits under the retention plan
will be offset by the amount of any payment
of similar severance benefits he receives
under his employment agreement. Messrs.
Karlan, Meltzer and Seifert will not be
receiving any severance benefits from
ICCMIC.
. In the merger agreement, ICII has agreed to
honor existing rights of indemnification
and exculpation currently provided to
ICCMIC's directors and officers, to
indemnify them against liability for acts
occurring prior to the proposed merger and
to maintain directors' and officers'
liability insurance covering such acts for
a period of six years following the
proposed merger.
See "Management's Conflicts of Interest in
the Proposed Merger" and "Relationships and
Transactions Between ICII, ICCMIC and
Affiliates."
11
<PAGE>
The Proposed Merger (page If the proposed merger is completed, ICCMIC
59) Acquisition Corp., a wholly-owned subsidiary of
ICII, will merge into ICCMIC. ICCMIC will
continue as the surviving company and will
become a wholly-owned subsidiary of ICII,
public trading of ICCMIC common stock will
cease and ICCMIC's common stock will be
delisted from the Nasdaq Stock Market.
Stockholders other than ICII and its
subsidiaries will no longer have any ownership
interest in ICCMIC and will no longer
participate in the future earnings and growth
of ICCMIC or benefit from any increase in the
value of ICCMIC common stock or of any of
ICCMIC's assets.
The following chart shows the current
relationships among the persons involved in the
proposed merger:
[CHART APPEARS HERE]
- --------
(1) Approximately 9.0% of ICCMIC's outstanding common stock is held by ICII.
The balance is held by various public stockholders (including certain
directors, officers and employees of ICCMIC, the manager and ICII, members
of their respective immediate families and certain other persons).
(2) The manager previously entered into a management agreement with ICCMIC
pursuant to which the manager formulated operating strategies and provided
certain managerial and administrative functions for ICCMIC, subject to the
supervision of ICCMIC's board of directors. That management agreement
expired on October 22, 1999.
(3) ICII, SPB and FMAC have sold loans and securities available-for-sale to
ICCMIC for cash. ICCMIC has resold certain of those assets back to SPB and
FMAC.
(4) ICII sold its ownership interest in FMAC in November 1999.
12
<PAGE>
The following chart show the ownership
structure of ICCMIC after the proposed
merger:
[CHART APPEARS HERE]
The Special Meeting (page We will hold a special meeting of ICCMIC
26 to 28) stockholders to vote on the merger on
, 2000 at :00 a.m. local time,
at the , Los Angeles, California ,
subject to adjournments or postponements. At
the special meeting, we will ask you to
approve the merger agreement and the proposed
merger.
Record Date; Stock Entitled You are entitled to vote at the special
to Vote (page 26) meeting if you owned shares of ICCMIC common
stock at the close of business on
December , 1999. You will have one vote on
the proposal to approve the merger agreement
and the proposed merger for each share of
ICCMIC common stock that you own on that
date.
On November 30, 1999, 28.5 million shares of
ICCMIC common stock were outstanding and held
by 44 record holders on behalf of
approximately 3,000 beneficial holders. Of
those shares, 2,690,053 shares, or
approximately 9.4%, are beneficially owned by
ICII and certain of its affiliates.
Votes Required (page 26) The approval of the merger agreement and the
proposed merger requires the following votes:
. the affirmative vote of ICCMIC stockholders
holding at least a majority of the
outstanding shares of ICCMIC common stock,
and
. the affirmative vote of ICCMIC stockholders
holding at least a majority of the shares
of ICCMIC common stock entitled to vote at
the special meeting, other than the shares
held by ICII and Messrs. Snavely and
Villani.
13
<PAGE>
Share Ownership by As of November 30, 1999, the directors and
Management (page 89) executive officers of ICCMIC were entitled to
vote 229,103 shares of ICCMIC common stock,
excluding ICCMIC stock options. These shares
represent less than 1% of the outstanding
shares of ICCMIC common stock. All of the
directors and executive officers of ICCMIC
have indicated to us that they intend to vote
their shares in favor of the merger agreement
and the proposed merger. In addition to their
shares of ICCMIC common stock, as of November
30, 1999, the directors and executive
officers of ICCMIC held stock options to
acquire 1,164,250 shares of ICCMIC common
stock, including stock options to acquire
623,583 shares that are currently exercisable
or are exercisable within the next 60 days.
What Stockholders Will If the proposed merger is completed, you will
Receive in the Proposed receive $11.5753246 in cash for each share of
Merger (page 70) ICCMIC common stock you own immediately
before the completion of the proposed merger.
For each calendar quarter prior to the one in
which the proposed merger occurs, you will
continue to receive regular quarterly
dividends, based on ICCMIC's estimated
taxable income. (For the fourth quarter of
1999, we have declared and will pay a
dividend of $0.33 per share.) In addition,
ICCMIC will declare a final cash dividend for
the calendar quarter in which the proposed
merger occurs, in an amount not in excess of
100% of its estimated taxable income, if any,
through the date of the proposed merger,
reduced by the amount of all prior dividends
already paid with respect to that tax year.
Management Agreement; Until October 22, 1999, ICCMIC was an
Appraisal (pages 54 and 55) "externally managed" real estate investment
trust. This means that the day-to-day
operations of the company were conducted by a
third party "manager." ICCMIC's manager was
Imperial Credit Commercial Asset Management
Corp., which is a wholly-owned subsidiary of
ICII.
The management agreement provided that if
ICCMIC were to terminate or fail to renew the
management agreement, then ICCMIC would have
to pay a termination fee to the manager
determined by an independent appraisal
process. ICCMIC's management agreement with
its manager expired on October 22, 1999.
However, the parties have agreed that ICCMIC
will not be required to pay the termination
fee unless the merger agreement is
terminated, in which event the termination
fee will be due and payable at that time.
In accordance with the procedures indicated
in the merger agreement and the management
agreement, the appraised value of the
management agreement termination fee was
determined to be $33 million. In determining
the appraised value of the termination fee,
appraisals were obtained from Robert A.
Stanger & Co., Inc., Houlihan Lokey Howard &
Zukin Financial Advisors, Inc. and
14
<PAGE>
Eastdil Realty Company, L.L.C., which were
paid for their services, respectively,
$250,000, $250,000, and $375,000 plus, in
each case, reasonable out-of-pocket expenses.
Because the appraised value of the management
agreement termination fee is less than $35
million, in addition to the minimum $11.50
per share cash payment provided for in the
merger agreement, you will receive an
additional cash payment per share of
$0.0753246, for a total cash payment per
share of $11.5753246.
This additional per share payment amount was
calculated by dividing
. $2 million (the difference between $35
million and the $33 million appraised value
of the management agreement termination
fee), by
. 26,551,750, which is the sum of the
outstanding shares (not including shares
held by ICII and its subsidiaries) and the
shares subject to ICCMIC options with
exercise prices below $11.50).
Neither the merger agreement nor the
management agreement specifies a basis for
calculation of the management agreement
termination fee. As further described in
Appendix C to this proxy statement, the firms
engaged to appraise the value of the
management agreement termination fee relied
on, among other factors, one or more or the
following methods:
. capitalization of earnings analysis;
. comparable transaction analysis; and
. discounted cash flow analysis.
The merger agreement does not entitle ICII or
the manager to any cash payment upon the
completion of the merger transaction. The
appraisal of the management agreement
termination fee was undertaken to determine
the amount, if any, by which to increase the
$11.50 per share merger consideration and the
amount that a third party would be required
to pay in an alternative transaction. The
appraisal process was also used to determine
the amount of the termination fee payable to
the manager upon the expiration of the
management agreement, which occurred on
October 22, 1999. However, the parties have
agreed that ICCMIC will not be required to
pay the management agreement termination fee
unless the merger agreement is terminated, in
which event the termination fee will be due
and payable at that time.
Upon expiration of the management agreement,
ICCMIC hired all 16 employees of the manager
on a full-time salaried basis to manage
ICCMIC's day-to-day operations.
15
<PAGE>
As part of the proposed merger, all
Treatment of Outstanding outstanding ICCMIC stock options will become
ICCMIC Stock Options (pages immediately exercisable, and will either be
65 through 67) converted into immediately exercisable
options to purchase ICII common stock or, at
the election of the option holder, exchanged
for cash.
. Conversion into New ICII Stock
Options. The exercise price of the new
ICII stock options and the number of
shares of ICII stock to be received on
exercise of the new ICII stock options
will be set so that the fair value of
ICCMIC stock options held before the
proposed merger will equal the fair value
of the ICII stock options into which the
ICCMIC stock options will be converted.
Alternatively, incentive stock options
will be converted into new ICII options
under the formula of the Internal Revenue
Code for incentive stock options if the
holder of such incentive stock options
fails to waive this method.
. Exchange for Cash. Alternatively, holders
of ICCMIC stock options may elect to
exchange their options for cash instead of
converting them into new ICII stock
options. For ICCMIC stock options having
an exercise price that is less than the
cash per share merger consideration to be
paid in the proposed merger, the cash
payment will be the greater of the fair
value of the ICCMIC stock options and the
amount by which the per share merger
consideration exceeds the exercise price
of the stock options. For ICCMIC stock
options having an exercise price that is
more than the cash per share merger
consideration, the cash-out price will be
$1.10 per share, which is the amount
ICCMIC and ICII have agreed is the fair
value of those stock options.
Prior to the approval of the merger agreement
and the proposed merger by ICCMIC's board of
directors, H. Wayne Snavely, Chairman of the
ICCMIC board, and Kevin E. Villani, Vice
Chairman of the ICCMIC board, each agreed to
the cancellation of the ICCMIC stock options
held by him in conjunction with the
determination by the manager to cancel its
option to acquire 1,691,250 shares of ICCMIC
common stock. ICII has informed ICCMIC that
the purpose of these stock option
cancellations was to reduce ICII's beneficial
ownership of ICCMIC common stock, and related
potential voting power with respect to
ICCMIC, prior to the consideration by the
ICCMIC board of whether to approve a proposed
business combination with ICII.
ICII has informed ICCMIC that Messrs. Snavely
and Villani will be compensated by ICII based
on the option pricing formula for the 388,125
option shares each that they have canceled,
including 129,375 option shares with an
exercise price of $9.00 for which each will
receive $2.5753246 per share, or $333,182.62,
and 258,750 shares with an exercise price of
$15.00 per share, for which each will receive
$1.10 per share, or $284,625.00.
16
<PAGE>
ICII has informed ICCMIC that Messrs. Snavely
and Villani have no agreement with ICII or
ICCMIC to receive compensation for their
options if the merger agreement is
terminated.
Solicitation of Alternative During the 60-day period that expired at
Transactions (pages 71 and 12:01 a.m. on October 13, 1999, ICCMIC was
72) permitted by the merger agreement to seek an
alternative transaction that is more
favorable to ICCMIC stockholders than the
proposed merger. ICCMIC had the right during
this period, and continues to have the right,
to terminate the merger agreement in favor of
an alternative transaction if, after
consulting with an independent financial
advisor, the ICCMIC board decides in good
faith that the alternative transaction is
more favorable than the ICII merger proposal
and is reasonably capable of being
consummated. In that case, ICCMIC would have
to reimburse ICII for certain of its actual
out-of-pocket transaction expenses up to a
maximum of $2 million, as described below
under "The Merger Agreement--Termination Fees
and Expenses."
With the assistance of its financial advisor,
Prudential Securities, the special committee
sought alternative transactions during the
60-day market check period that expired on
October 13, 1999. The special committee, with
advice from Prudential Securities, has
determined that none of the proposals
received during that 60-day market check
period constituted a superior proposal. See
"Special Factors, Background, Purpose and
Effects of the Proposed Merger--60-Day Market
Check Process."
The merger agreement provides that after
October 12, 1999, ICCMIC may not solicit
alternative transactions, and ICCMIC may not
engage in discussions with third parties
concerning an alternative transaction unless,
after consulting with independent financial
and legal advisors, the ICCMIC board decides
in good faith that the alternative
transaction is a superior proposal.
Standstill; Qualifying The merger agreement provides that ICII,
Alternative Transaction alone or with others, may not seek to acquire
(pages 72 and 73) ICCMIC or any of its securities or assets
other than through the ICII merger proposal
or a "qualifying alternative transaction."
ICII will be permitted, alone or with others,
to propose a qualifying alternative
transaction if the merger agreement is
terminated by ICII after ICCMIC accepts a
superior alternative transaction and the
consideration to be paid in the superior
alternative transaction does not consist
entirely of cash or cash equivalent
securities or instruments. A "qualifying
alternative transaction" would be an
increased all cash offer made by ICII and
having terms and conditions that, in general,
are no less favorable than the terms and
conditions of the merger agreement, to the
extent that the merger agreement's terms and
conditions are applicable to the qualifying
alternative transaction.
ICCMIC's stockholders rights plan and charter
substantially restrict ICII's ability to
consummate a qualifying alternative
transaction unless the ICCMIC board
ultimately consents to such a transaction.
17
<PAGE>
Opinion of Financial In deciding to recommend that the full ICCMIC
Advisor (pages 48 through board approve and adopt the merger agreement
52) and the proposed merger, the special
committee considered, among other factors,
the opinion of its financial advisor,
Prudential Securities, that the consideration
to be received in the proposed merger by
ICCMIC's stockholders, other than ICII and
certain of its affiliates, is fair to such
ICCMIC stockholders from a financial point of
view. We have attached the opinion of
Prudential Securities as Appendix B to this
proxy statement. Please read it carefully.
See "Special Factors: Background, Purpose and
Effects of the Proposed Merger --
Recommendation of the Special Committee and
the Board of Directors; Reasons for the
Proposed Merger," for a description of the
factors considered by the special committee.
Conditions to Completion of We will complete the proposed merger only if
the Proposed Merger (pages a number of conditions are satisfied or
76 and 77) waived, including:
. The holders of a majority of the total
number of outstanding shares of ICCMIC
common stock vote to approve the merger
agreement and the proposed merger;
. The holders of a majority of the shares of
ICCMIC common stock entitled to vote at the
special meeting (other than shares held by
ICII and Messrs. Snavely and Villani) vote
to approve the merger agreement and the
proposed merger;
. No law or court order prohibits the
proposed merger; and
. The representations and warranties made by
each party to the merger agreement continue
to be true and correct.
If any of the conditions to the proposed
merger are waived, we will resolicit proxies
only if the failure to satisfy the waived
conditions would have a material adverse
effect on ICCMIC's stockholders other than
ICII.
Termination of the Merger ICCMIC and ICII can jointly agree to
Agreement (pages 77 and 78) terminate the merger agreement, before or
after stockholder approval, without
completing the proposed merger. In addition,
either company may terminate the merger
agreement if:
. We do not complete the proposed merger by
February 29, 2000;
. The ICCMIC stockholders fail to approve the
merger agreement and the proposed merger by
the required votes; or
. a governmental authority permanently
prohibits the proposed merger.
ICII also may terminate the merger agreement
if:
. ICCMIC's board no longer recommends that
ICCMIC stockholders vote to approve the
merger agreement and the proposed merger;
18
<PAGE>
. ICCMIC's board approves a superior
alternative transaction; or
. ICCMIC's representations and warranties in
the merger agreement are untrue with
respect to a material matter, or ICCMIC
fails in a material respect to comply with
its obligations under the merger agreement.
ICCMIC also may terminate the merger
agreement if:
. ICCMIC's board approves a superior
alternative transaction; or
. ICII's representations and warranties in
the merger agreement are untrue with
respect to a material matter, or ICII fails
in a material respect to comply with its
obligations under the merger agreement.
As required by generally accepted accounting
Accounting Treatment (page principles, ICII will use the purchase method
63) of accounting to account for the proposed
merger, which means that ICII will reflect
ICCMIC's assets and liabilities on its books
based on their estimated fair value when the
proposed merger is completed.
Financing; Source of Funds ICII estimates that the total amount of funds
(pages 60 and 61) required to pay the merger consideration to
the ICCMIC stockholders other than ICII and
its subsidiaries will be approximately $302
million. In addition, ICII and ICCMIC
estimate that there will be approximately
$12.15 million in filing, legal, accounting
and other fees and expenses payable by ICII
and ICCMIC as described in more detail below
under "Fees and Expenses."
ICII has advised ICCMIC that:
. ICII will obtain those funds primarily from
a combination of (i) cash and liquid assets
held by ICII and its subsidiaries (ICII had
approximately $270 million in cash and cash
equivalents as of November 30, 1999), and
(ii) cash and cash equivalents held by
ICCMIC, excluding amounts that ICCMIC
expects to pay as dividends in accordance
with the merger agreement (ICCMIC had
approximately $130 million of cash and cash
equivalents as of September 30, 1999);
. To the extent, if any, that additional cash
may be required to complete the merger,
ICII will obtain those funds from
borrowings or other financing arrangements
with third parties;
. While ICII has had preliminary discussions
regarding those financing arrangements, it
currently believes that no third party
financing arrangements will be necessary
and it has not entered into any specific
agreements or arrangements for that
purpose.
19
<PAGE>
The proposed merger is not subject to a
financing contingency and ICII will be
required, subject to satisfaction of all of
the conditions to its obligations under the
merger agreement, to complete the merger
whether or not ICII enters into any third
party financing arrangements or is able to
arrange for sale of ICCMIC assets at or
following the closing of the merger.
ICCMIC's common stock is traded on the Nasdaq
Market Price of ICCMIC Stock Market under the symbol "ICMI." On May
Shares (page 82) 12, 1999, the day before ICII publicly
announced its initial $11.00 per share merger
proposal to the ICCMIC board, the closing
price of ICCMIC common stock on the Nasdaq
Stock Market was $9.875. On July 22, 1999,
the last trading day before we announced the
signing of the merger agreement, the closing
price of ICCMIC common stock on the Nasdaq
Stock Market was $10.875. On , 1999,
the most recent practicable trading day on
the Nasdaq Stock Market prior to the mailing
of this proxy statement, the closing price of
ICCMIC common stock on the Nasdaq Stock
Market was .
The market price of shares of ICCMIC common
stock fluctuates. These fluctuations may
affect your determination as to the
attractiveness of the proposed merger. You
are urged to obtain current market quotations
for ICCMIC common stock prior to making any
decision with respect to the proposed merger.
The following table shows, for the peirods
indicated, the high and low sale prices for
ICCMIC common stock as reported by the Nasdaq
Stock Market:
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
1997:
Fourth quarter (commencing October 17, 1997)............... $19.125 $14.230
1998:
First quarter.............................................. $16.750 $14.125
Second quarter............................................. $16.500 $12.875
Third quarter.............................................. $13.063 $ 8.563
Fourth quarter............................................. $10.375 $ 6.500
1999:
First quarter.............................................. $10.875 $ 8.313
Second quarter............................................. $11.500 $ 8.500
Third quarter.............................................. $11.250 $10.500
Fourth quarter (through December 20, 1999)................. $11.438 $10.375
</TABLE>
ICCMIC Shares: Book Value, Dividends and Earnings (pages 47 and 81 through 83)
The following tables present (a) the per share book value at September 30,
1999 and the merger consideration, and (b) per share earnings information and
cash dividends since ICCMIC's inception:
<TABLE>
<CAPTION>
Book value per share
at September 30, 1999 Merger Consideration
--------------------- --------------------
<S> <C>
$14.12 $11.5753246
</TABLE>
20
<PAGE>
The book value per share indicated above has not been adjusted to reflect
ICCMIC's obligation to pay a management agreement termination fee of $33
million, or approximately $1.16 per share, if the proposed merger is not
completed. Taking this obligation into account would result in a book value of
$12.96 per share.
The special committee did not consider ICCMIC's book value per share as a
relevant measure of the value of ICCMIC's common stock. See "Special Factors:
Background, Purpose and Effects of the Proposed Merger--Recommendation of the
Special Committee and the Board of Directors; Reasons for the Proposed Merger."
<TABLE>
<CAPTION>
For the Nine
Months Ended For the For the short
September 30, year ended period ended
------------- December 31, December 31,
1999 1998 1998 1997
------ ------ ------------ -------------
<S> <C> <C> <C> <C>
Earnings Per Share--basic and
diluted......................... $ 0.68 $ 0.57 $0.68 $0.06
Cash Dividends Declared Per
Share........................... $ 0.82 $ 0.85 $1.18 $0.13
</TABLE>
On December 16, 1999, ICCMIC declared a fourth quarter dividend in the
amount of $0.33 per share payable on January 14, 2000 to stockholders of record
on December 31, 1999. Earnings per share for the year ended December 31, 1999
have not yet been determined or released.
21
<PAGE>
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
We have made statements in this proxy statement and in the documents that
are incorporated by reference in this proxy statement that constitute "forward-
looking statements." These statements relate, among other things, to
information or assumptions about earnings per share, capital and other
expenditures, dividends, financing plans, capital structure, cash flows,
pending legal proceedings and claims, future economic performance, operating
income improvements, cost savings and management's plans, goals and objectives
for future operations. These forward-looking statements generally may be
identified by their reference to a future period or periods or by the use of
forward-looking terminology such as "may," "will," "intend," "should,"
"expect," "anticipate," "believe," "estimate," "continue," the negatives of
those terms or similar expressions. You should understand that forward-looking
statements are necessarily estimates reflecting the judgment of management of
ICCMIC, not guarantees of future performance. Forward-looking statements are
subject to a number of assumptions, risks and uncertainties that could cause
actual results to differ materially from those expressed or implied in such
statements and that are difficult to predict and beyond ICCMIC's control.
Important factors that could cause actual results to differ materially from
estimates or projections contained in forward-looking statements include, among
others, the following:
. changes in national, regional or local economic environments;
. the highly competitive nature of the real estate acquisition, mortgage,
leasing and securitization markets, including products and pricing;
. the uncertainty concerning the future attractiveness of the real estate
acquisition, mortgage, leasing and securitization markets generally;
. the appraised value of the termination fee payable under the management
agreement;
. whether and on what terms ICCMIC will receive a proposal for an
alternative transaction that is, or is believed by ICCMIC's board to be,
more attractive than the ICII merger proposal;
. government fiscal and monetary policies;
. changes in prevailing interest rates;
. the course of negotiations, if any, between ICCMIC and potential
alternative bidders;
. the fulfillment of contractual conditions by the parties to the merger
agreement;
. factors inherent in the valuation and pricing of interests in commercial
mortgage-backed securities; and
. other factors generally understood to affect the real estate acquisition,
mortgage and leasing markets and security investments.
These factors and other factors that could cause actual results to differ
materially from estimates and projections contained in forward-looking
statements are described in ICCMIC's periodic reports filed with the Securities
and Exchange Commission (the "SEC") on Forms 10-K, 10-Q and 8-K, and any
amendments we have filed with respect to these periodic reports and any other
filings we have made with the SEC, all of which we have incorporated by
reference in this proxy statement.
The information set forth in "Special Factors: Background, Purpose and
Effects of the Proposed Merger --Opinion of Financial Advisor to the Special
Committee", "--Financial Projections Relating to ICCMIC" and "Appendix C--
Summary of Appraisals of Robert A. Stanger & Co., Inc., Houlihan Lokey
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Howard & Zukin Financial Advisors, Inc. and Eastdil Realty Company, L.L.C."
also includes forward-looking statements concerning projected financial
information. ICCMIC does not, as a matter of course, publicly disclose internal
budgets, plans, estimates, forecasts or projections as to future revenues,
earnings or other financial information. In addition, ICCMIC has had only a
relatively short operating history and therefore does not have a substantial
history to measure the accuracy of its internal budgets, plans, estimates,
forecasts and projections. Such information has been included or described in
this proxy statement for the limited purpose of giving ICCMIC stockholders
information concerning financial projections that (i) in the case of those
financial projections described in "Special Factors: Background, Purpose and
Effects of the Proposed Merger--Financial Projections Relating to ICCMIC,"
reflect information contained in projections prepared by Prudential Securities,
based substantially on information and assumptions provided by ICCMIC's
management, which were presented to ICCMIC's special committee in its
consideration of the proposed merger, and (ii) in the case of those financial
projections described in Appendix C, were prepared by the manager and provided
to each of Robert A. Stanger & Co., Inc. ("Stanger"), Houlihan Lokey Howard &
Zukin Financial Advisors, Inc. ("Houlihan Lokey") and Eastdil Realty Company,
L.L.C. ("Eastdil") in connection with their appraisals of the amount payable in
connection with a termination or non-renewal of the management agreement.
All such financial projections were prepared for internal use and not with a
view to publication or compliance with the published guidelines of the SEC or
the guidelines established by the American Institute of Certified Public
Accountants regarding projections and forecasts. All such information was based
on estimates and assumptions concerning ICCMIC's future business prospects,
revenues and operations. While they are presented with numerical specificity,
the estimates and assumptions underlying the projections involved judgments
with respect to, among other things, future economic, competitive and financial
market conditions and future business decisions. These estimates and
assumptions may not be realized and are, by their nature, subject to
significant business, economic and competitive uncertainties including those
set forth above. As a result, the matters to which these estimates and
assumptions relate are difficult to predict and many of the relevant factors
are beyond ICCMIC's control.
We do not guarantee that the projections will be accurate. Actual results
may be significantly higher or lower than those shown. Also, ICCMIC's
independent auditors have not examined or performed any procedures on this
information. In light of these uncertainties, you should not regard these
projections as a representation by ICCMIC or any other person that the
projected or indicated results will be achieved. We caution you not to place
undue reliance on this information.
Except to the extent required under the federal securities laws, ICCMIC does
not intend to make publicly available any update or other revisions to the
projections to reflect the occurrence of unanticipated events or circumstances
existing after the date of preparation. In connection with your review of the
financial projections referred to above, you should read the information
contained in ICCMIC's Annual Report on Form 10-K, as amended, for the year
ended December 31, 1998 and the other information included or incorporated by
reference in this proxy statement.
All subsequent written and oral forward-looking statements attributable to
ICCMIC or any person acting on its behalf are expressly qualified in their
entirety by the cautionary statements contained or referred to in this section.
Except to the extent required under the federal securities laws, ICCMIC does
not intend to make publicly available any updates or revisions to forward-
looking statements to reflect circumstances arising after the date of the
preparation of such forward-looking statements.
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THE COMPANIES
Imperial Credit Commercial Mortgage Investment Corp.
ICCMIC was organized as a Maryland corporation on July 31, 1997. ICCMIC
commenced operations on October 22, 1997, the date of completion of its initial
public offering. ICCMIC is taxed as a real estate investment trust under the
Internal Revenue Code of 1986, as amended (the "Code"). Imperial Credit
Commercial Asset Management Corp. (the "manager"), which is a wholly-owned
subsidiary of ICII, managed the day-to-day operations of ICCMIC, subject to the
supervision of ICCMIC's board of directors, until October 22, 1999, when
ICCMIC's management agreement with the manager expired. ICCMIC's executive
offices are located at 11601 Wilshire Boulevard, Suite 2080, Los Angeles,
California 90025, and its telephone number is (310) 231-1280.
In October 1997, the SEC declared effective registration statements on Form
S-11 relating to ICCMIC's initial public offering of 34,500,000 shares of
common stock at a price of $15.00 per share. As part of ICCMIC's initial public
offering, 2,970,000 shares of common stock were sold to ICII and approximately
500,000 shares of common stock were sold to directors, officers and employees
of ICCMIC, the manager and ICII and members of their immediate families, in
each case net of the underwriting discount. On October 22, 1997, ICCMIC
completed the offering of the 34,500,000 shares, including 4,500,000 shares to
cover over-allotments, with gross proceeds of $513.9 million and net proceeds
to ICCMIC of $479.3 million. During 1998, ICCMIC repurchased six million shares
of its common stock at an average price of $9.39 per share, pursuant to
previous authorizations of its board of directors. The highest and lowest
prices at which these repurchases were made were $10.625 and $6.923,
respectively.
ICCMIC invests primarily in real estate related assets with a view to
maximizing both income for distribution to stockholders and stockholder value,
consistent with levels of risk that it perceives as acceptable. ICCMIC
determines whether risk levels are acceptable in making investment decisions
through asset and collateral analyses and by evaluating investment risks and
potential rewards. Pending investment of its funds in real estate related
assets, ICCMIC invests its funds in readily marketable securities or interest
bearing deposit accounts, consistent in each case with maintaining its status
as a REIT.
ICCMIC's real estate related assets primarily consist of multifamily and
commercial mortgage loans, commercial real property, and interests in
multifamily and commercial mortgage-backed securities ("CMBS"). 68.4% in
principal amount of ICCMIC's mortgage loans and all of its CMBS interests were
acquired from ICII and two of ICII's affiliates at that time, SPB and Franchise
Mortgage Acceptance Company ("FMAC"). As of November 1999, FMAC is no longer an
affiliate of ICII. ICCMIC operates in four principal business segments for
financial reporting purposes. These four business segments are:
. small balance mortgage loan pools acquired,
. individual large balance mortgage loans originated or acquired,
. real property, and
. securities available-for-sale.
Further business segment information is presented in note 13 to ICCMIC's
consolidated financial statements, included in ICCMIC's Annual Report on Form
10-K/A for the year ended December 31, 1998, which is incorporated by reference
in this proxy statement. See "Where You Can Find More Information."
In the past, ICCMIC has acquired investments from ICII, SPB, one of ICII's
wholly-owned subsidiaries, and FMAC, formerly a 38%-owned affiliate of ICII, as
well as from unrelated third parties.
Recent Developments. ICCMIC's management agreement with the manager expired
on October 22, 1999. Immediately thereafter, ICCMIC hired all 16 employees of
the manager on a full-time salaried basis to manage ICCMIC's day-to-day
operations. ICCMIC's board of directors believes that this internalization of
management operations will result in significant cost savings to ICCMIC.
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On October 29, 1999, ICCMIC, ICII and ICCMIC Acquisition Corp. amended the
merger agreement to provide that the merger agreement may be terminated, and
the proposed merger abandoned, by either ICCMIC or ICII if the proposed merger
has not been completed by February 29, 2000. As originally executed by the
parties, the merger agreement provided that either party could terminate the
merger agreement if the proposed merger were not completed by January 31, 2000.
Imperial Credit Industries, Inc.
ICII is a diversified commercial lending, financial services and investment
holding company with headquarters in Torrance, California.
ICII's principal business activities are primarily conducted through its
wholly and majority owned subsidiaries including SPB, Imperial Business Credit
Inc. ("IBC"), Imperial Credit Commercial Asset Management Corp., Imperial
Credit Lender Services, Inc. and Imperial Credit Asset Management, Inc. ICII
was incorporated in 1991, and had consolidated assets of $2.0 billion as of
June 30, 1999. Its principal executive offices are located at 23550 Hawthorne
Boulevard, Building 1, Suite 110, Torrance, California 90505, and its telephone
number is (310) 791-8020.
ICII's core businesses originate loans and leases funded primarily by FDIC
insured deposits and its business strategy currently emphasizes:
. holding the majority of the loans and leases that it originates for
investment, except for certain multifamily and commercial real estate
loans originated by SPB and leases originated by IBC for sale;
. investing in and managing businesses in high margin niche segments of the
financial services industry;
. maintaining conservative, disciplined underwriting and credit risk
management;
. originating loans and leases on a wholesale basis, where possible;
. managing and advising investment funds;
. providing investment banking and broker/dealer services to middle market
companies and private individuals; and
. maintaining business and financial flexibility to take advantage of
changing market conditions with respect to specific financial services
businesses.
ICII has diversified its business lines to include investment products and
asset management services in order to reduce its dependence on residential and
commercial mortgage lending. It now provides financial services products in the
following sectors: business lending, commercial mortgage lending, asset
management services and investment banking and brokerage services.
ICCMIC Acquisition Corp.
ICCMIC Acquisition Corp. is a Maryland corporation formed on June 24, 1999
by ICII solely for the purpose of accomplishing the proposed merger. ICCMIC
Acquisition Corp. has no significant assets or liabilities and its offices are
located at the principal executive offices of ICII.
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INFORMATION CONCERNING THE SPECIAL MEETING
Time, Date, Place and Purpose of the Special Meeting
We are sending you this proxy statement in connection with the solicitation
of proxies by the board of directors for use at the special meeting of
stockholders of ICCMIC that has been called to vote on the merger agreement and
the proposed merger described in this proxy statement, including any meeting
resulting from adjournments or postponements of the special meeting. The merger
agreement is attached as Appendix A to this proxy statement. We will hold the
special meeting on , 2000 at :00 a.m. local time, at the
, Los Angeles, California .
Record Date; Outstanding Common Stock Entitled to Vote; Quorum
The record date for the special meeting has been fixed as the close of
business on December , 1999. Only holders of ICCMIC common stock of record on
the record date are entitled to notice of and to vote at the special meeting.
You will have one vote on the proposal to approve the merger agreement and the
merger for each share of ICCMIC common stock that you own on that date.
On the record date, million shares of ICCMIC common stock were
outstanding and were held by record holders on behalf of approximately
beneficial holders. The presence in person or by proxy of the holders
of a majority of the shares of common stock outstanding will constitute a
quorum for the transaction of business at the special meeting. If a quorum is
not present at the special meeting, or a quorum is present but additional time
is desired to solicit proxies, we expect that the meeting will be adjourned or
postponed.
Votes Required
Under the Maryland General Corporation Law and ICCMIC's charter, approval of
the merger agreement and the proposed merger requires the affirmative vote of
the holders of a majority of the total number of outstanding shares of ICCMIC
common stock.
The merger agreement also requires the approval of the holders of a majority
of the total number of shares of ICCMIC common stock entitled to vote at the
special meeting, that are not held by ICII or by Messrs. Snavely and Villani,
who are affiliates of ICII. As of the record date, ICII and these other persons
beneficially owned an aggregate of 2,690,053 shares of ICCMIC common stock
(approximately 9.4% of the outstanding common stock), which they are required
under the merger agreement to vote for approval of the merger agreement and the
proposed merger.
Failure to return an executed proxy card or to vote in person at the special
meeting, broker non-votes, which we describe below under "--Voting of Proxies,"
or abstentions will constitute, in effect, a vote against approval of the
merger agreement and the proposed merger.
Voting of Proxies
Submitting Proxies. ICCMIC stockholders may vote their shares by attending
the special meeting and voting their shares in person, at the meeting, or by
completing, signing and mailing the enclosed proxy card in the enclosed,
postage prepaid envelope. All proxy cards in the enclosed form that are
properly executed and returned to the transfer agent, U.S. Stock Transfer
Corporation, prior to the special meeting, and not properly revoked, will be
voted, at the special meeting or any meeting resulting from an adjournment or
postponement of the special meeting, in accordance with the instructions
contained on the proxy card. If a proxy card is signed by a stockholder and
returned without instructions, the shares represented by the proxy will be
voted FOR approval of the merger agreement and the proposed merger and, as
appropriate, FOR adjournment for the purpose of soliciting additional proxies.
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The persons named as proxies by a stockholder may propose and vote for one
or more adjournments of the special meeting, including adjournments to permit
further solicitations of proxies. No proxy voted against approval and adoption
of the merger agreement and the proposed merger will be voted in favor of any
such adjournment.
ICCMIC stockholders whose shares are held in the name of a broker, bank or
other record holder must either direct the record holder of their shares as to
how to vote their shares or obtain a proxy from the record holder to vote at
the special meeting.
Under applicable rules of the National Association of Securities Dealers,
brokers who hold shares in street name for customers who are the beneficial
owners of those shares are prohibited from giving a proxy to vote those
customers' shares with respect to the proposal to be voted on at the special
meeting in the absence of specific instructions from the customer. A broker's
failure to vote because of the absence of customer instructions is commonly
referred to as a broker non-vote.
Shares of ICCMIC common stock represented at the special meeting for which
proxies have been received, but with respect to which holders of shares have
abstained from voting, will be treated as present at the special meeting for
purposes of determining the presence or absence of a quorum. For ICCMIC
stockholders, an abstention or a broker non-vote will have the same effect as a
vote against approval of the merger agreement and the proposed merger, and will
count toward the presence of a quorum.
Maryland law and ICCMIC's bylaws do not permit any matters to be presented
at the special meeting other than those described in this proxy statement and
procedural matters relating to the meeting.
Stockholders should not send in any stock certificates with their proxy
cards. A letter of transmittal with instructions for the surrender of
certificates representing ICCMIC common stock will be mailed to ICCMIC
stockholders shortly after the proposed merger is completed. See "The Merger
Agreement--Payment Procedures."
Revoking Proxies. ICCMIC stockholders may revoke their proxies at any time
prior to the time their proxies are voted at the special meeting by:
. giving written notice to ICCMIC's transfer agent, as provided below;
. mailing a signed, later dated proxy that is received by ICCMIC's transfer
agent before the taking of the vote at the special meeting; or
. voting in person at the special meeting.
Attendance at the special meeting will not in and of itself constitute a
revocation of a proxy previously given.
Any written notice of revocation of a proxy must be sent so as to be
delivered before the taking of the vote at the special meeting to the following
address:
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, California 91204-2991
Attention: Mr. Richard Brown
ICCMIC stockholders who require assistance in changing or revoking a proxy
should contact D.F. King & Co., Inc. ("D.F. King") at the address and phone
number provided in this proxy statement under the heading "Who Can Help Answer
Your Questions?"
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Proxy Solicitation
The expense of preparing, printing and mailing this proxy statement and the
proxies solicited hereby will be borne by ICCMIC. In addition to the use of the
mails, proxies may be solicited by directors, officers and regular employees of
ICCMIC, without additional compensation, by personal interviews, written
communications, telephone, telegraph or facsimile transmission or via the
Internet or other means of communication. ICCMIC also will request brokerage
firms, nominees, custodians and fiduciaries to forward proxy materials to
beneficial owners and will, upon request, reimburse those record holders for
their costs of forwarding the materials at customary rates.
ICCMIC has retained D.F. King to assist in the solicitation of proxies. D.F.
King will receive a fee of $5,000 as compensation for its services and
reimbursement of its related out-of-pocket expenses, including payment for
completed telephone calls with stockholders. ICCMIC has agreed to indemnify
D.F. King against certain liabilities arising out of the engagement.
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SPECIAL FACTORS:
BACKGROUND, PURPOSE AND EFFECTS OF THE PROPOSED MERGER
Background of the Proposed Merger
The Initial Public Offering and the Ensuing Market Changes. ICCMIC completed
its initial public offering on October 22, 1997 at an offering price of $15.00
per share. It was intended that the proceeds of the offering would be used to
invest primarily in performing multifamily and commercial mortgage loans, real
estate and interests in multifamily and commercial mortgage-backed securities.
The loans and mortgage-backed securities were to be acquired from ICII,
including its SPB subsidiary and unrelated parties. ICCMIC fully invested the
proceeds from its initial public offering by mid-1998. In order to permit
further investment, ICCMIC obtained a $500 million warehouse line of credit
from Morgan Guaranty Trust Company of New York in March 1998.
During the 12 month period following ICCMIC's initial public offering,
ICCMIC's stock price, along with those of most other mortgage REITs, declined
significantly. ICCMIC's stock price dropped from its high of $19.00 per share
shortly after the completion of its initial public offering to prices
substantially below its per share book value, reaching a low closing price of
$6.875 per share on October 8, 1998.
The Stock Repurchase Plans. In response to the low market price of ICCMIC
common stock, ICCMIC's board began discussing a potential stock repurchase plan
at its June 4, 1998 meeting. At a special meeting of the board held on July 29,
1998, ICCMIC's board approved the repurchase of up to 3,000,000 shares of
ICCMIC's common stock. The board recognized that the repurchase would decrease
the amount of capital available to ICCMIC for investments but determined that,
given market conditions and the decline in net yields on ICCMIC's investments,
the stock repurchase program, on balance, would be in the best interests of
ICCMIC's stockholders. In approving the repurchase program, ICCMIC intended to
provide liquidity to those of its stockholders who wanted to sell their stock,
while at the same time increasing ICCMIC's future per share net income, funds
from operations and dividends. These stock repurchases were completed on August
26, 1998, with 3,000,000 shares being repurchased at prices ranging from a high
of $10.625 per share to a low of $9.125 per share, with an average repurchase
price of $10.20 per share.
Following these stock repurchases, ICCMIC's stock price continued to
decline, dipping to a closing price of $9.00 per share in August of 1998. On
August 28, 1998, in response to this further decline, the board, after
consulting with its investment banker at the time, Friedman, Billings, Ramsey &
Co., Inc. ("Friedman Billings"), authorized an additional stock repurchase
program of 3,000,000 shares at prices not to exceed $11.00 per share. This
second stock repurchase program was completed on October 19, 1998, with an
additional 3,000,000 shares being repurchased at prices ranging from a high of
$8.875 per share to a low of $6.923 per share, with an average repurchase price
of $8.58 per share.
The Wilshire Proposal. By letter dated September 11, 1998, Wilshire Real
Estate Investment Trust Inc., ("Wilshire") a REIT whose securities are traded
on the Nasdaq Stock Market, made an unsolicited offer to acquire ICCMIC. The
offer stated that the exchange ratio for ICCMIC's stock would be based upon the
respective net asset values of each of ICCMIC and Wilshire, except that for
purposes of calculating the exchange ratio, ICCMIC's net asset value would be
discounted by 10.9%. ICCMIC's stockholders would have had the right to receive
up to 20% of their consideration in cash. According to Wilshire's September 17,
1998 press release, Wilshire's offer valued ICCMIC's stock at $11.33 per share.
On September 18, 1998, ICCMIC's board met to consider the Wilshire offer, as
well as certain other matters. At the meeting, Friedman Billings advised the
board that accepting the Wilshire offer would not be in the best interests of
ICCMIC's stockholders. Friedman Billings also advised the board that, given the
Wilshire offer and the prevailing stock market conditions that valued ICCMIC
below its net asset value, the board should consider appropriate protective
measures as well as an expansion of its stock repurchase plan.
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After extensive discussion, the board rejected the Wilshire offer based on
a number of factors, including:
. the board's belief that the Wilshire offer was inadequate and did not
reflect the inherent value of ICCMIC and its portfolio of assets;
. the advice of Friedman Billings that the Wilshire offer was inadequate
and not in the best interests of ICCMIC and its stockholders;
. the belief that continued pursuit of ICCMIC's business plan would
produce greater short-term and long-term value for ICCMIC's stockholders
than would the Wilshire proposal;
. the belief that the substantial discount to the book value of ICCMIC's
assets at which ICCMIC's common stock then traded would decrease
significantly as then-current dislocations in the equity and mortgage
backed securities markets were resolved;
. the belief that the highly leveraged nature and risk profile of the
assets held by Wilshire would expose stockholders of an entity holding
such assets to significant risks;
. Wilshire's apparent lack of liquidity reflected on its balance sheet;
. the fact that Wilshire's management was not exclusively dedicated to
Wilshire; and
. the fact that Wilshire's stock was very thinly traded.
Also at the September 18, 1998 meeting, the board adopted a stockholders
rights plan. The rights plan was designed to enable ICCMIC's stockholders to
realize the long-term value of their investment in ICCMIC by encouraging
potential acquirers to negotiate with the board prior to attempting a
takeover. The board also authorized certain of ICCMIC's officers, in their
discretion, to repurchase up to 6,000,000 additional shares of ICCMIC common
stock, bringing the total authorized repurchases to 12 million shares. On
September 21, 1998, ICCMIC publicly announced the rejection of the Wilshire
offer, the additional 6,000,000 share repurchase authorization and the
adoption of the stockholders rights plan. No portion of the additional
6,000,000 share repurchase authorized in September 1998 was ever effected.
Additional Proposals. In the next several days, ICCMIC was contacted
through Mr. Snavely by a number of parties who indicated an interest in
pursuing a merger transaction. ICCMIC also received a modified proposal from
Wilshire, by letter dated September 22, 1998, which provided for an exchange
ratio based upon the respective net asset values of ICCMIC and Wilshire except
that, for purposes of calculating the exchange ratio, ICCMIC's net asset value
would be calculated net of a $30 million management agreement termination fee.
At a September 24, 1998 special meeting of ICCMIC's board, the board discussed
the additional indications of interest that had been received and Wilshire's
revised proposal, as well as ICCMIC's strategy for responding to them.
The board determined that the revised Wilshire proposal was inadequate for
the same reasons expressed with respect to Wilshire's earlier proposal and
because ICCMIC's stockholders would bear a significant risk of a potential
decline in Wilshire's stock price, which at that time had begun to experience
such a decline. The board of directors did not appoint a special committee to
review the Wilshire proposals because, although three of the directors had a
conflict of interest with respect to the Wilshire proposal's treatment of the
management agreement due to their affiliations with ICII, a majority of the
board was independent of ICII and was able to represent the interests of
stockholders other than ICII. The board also determined to suspend ICCMIC's
stock repurchase plan temporarily because of the possibility of discussions
with potentially interested parties regarding strategic transactions and
because of changes that had occurred in the marketplace.
At the September 24, 1998 meeting, the board also discussed its procedure
for considering future proposals. First, the board appointed Mr. Snavely and
one of the four independent directors, Mr. Jaconi, to act as a strategic
planning committee to receive and report on any future proposals that ICCMIC
might receive. Second, in view of the fact that Friedman Billings had
significant investment banking relationships with ICII, the board charged the
strategic planning committee with developing suggestions regarding the
retention of an independent investment banker to advise ICCMIC on its
strategic options.
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During November 1998, ICCMIC received a number of written proposals from
third parties. At a special meeting of ICCMIC's board on November 24, 1998, Mr.
Karlan reported that he and Messrs. Jaconi, Snavely and Villani had met with
four such third parties, and intended to meet with others, subject to the
review of the board. The board extensively discussed and reviewed each of the
following proposals:
. a common stock for common stock merger with a private equity REIT (the
"Private Equity REIT"), as further discussed below, with the exchange
ratio based on the respective net asset values of ICCMIC and the Private
Equity REIT, and which provided that the surviving company would
internalize management by acquiring and terminating the management
agreement and the manager's stock options in ICCMIC for a $50 million
cash payment to the manager;
. a common stock for preferred stock merger with a public equity REIT (the
"Public Equity REIT"), in which ICCMIC stockholders would receive Public
Equity REIT preferred stock with terms that the Public Equity REIT
estimated would have a value of between $12.00 and $12.82 per share of
ICCMIC's common stock based on the market values of other series of the
Public Equity REIT's preferred stock, and which provided for either a
$52 million cash payment to the manager for termination of the
management agreement, subject to the review of the independent members
of the ICCMIC board, or a cash payment of the appraised value of the
manager's termination fee under the management agreement (which the
Public Equity REIT's proposal stated could justify a $52 million value);
. a common stock for common stock merger with a public commercial mortgage
REIT (the "Commercial Mortgage REIT"), with an exchange ratio of 1.3
shares of the Commercial Mortgage REIT's common stock for each share of
ICCMIC common stock, and which provided to the manager the option of
either payments of 30% of the fees earned by the Commercial Mortgage
REIT's external manager, up to a maximum of $5 million per year, or the
Commercial Mortgage REIT's lump-sum payment to the manager of an amount
equal to the 15% discounted present value of that income stream; and
. a common stock for common stock merger with a public financial services
REIT (the "Financial Services REIT"), with ICCMIC stockholders to
receive, for each share of ICCMIC common stock, $14 in shares of the
Financial Services REIT's Class A common stock, and with the exchange
ratio based on the average trading prices of the Financial Services
REIT's common stock before the merger (with a possible option for ICCMIC
stockholders to receive up to 25% of the consideration in the form of a
new class of non-convertible preferred stock). The Financial Services
REIT's proposal provided for both a $25 million cash payment to the
manager for the acquisition and termination by the Financial Services
REIT's advisor of the management agreement, and a $25 million cash
payment to the manager for the acquisition by the Financial Services
REIT of the manager's stock options in ICCMIC and other consideration,
and also included a noncompetition agreement and a right of first
refusal to acquire certain loans owned by the manager and its
affiliates.
In addition, the board discussed the following: a proposal by a private real
estate entrepreneur (the "Private Entrepeneur") to acquire all of ICCMIC's
common stock at a price of $12.50 per share in cash, conditioned upon a payment
to the manager of $40 million ($35 million in cash and $5 million in other
assets of ICCMIC) for termination of the management agreement, subject to due
diligence and financing contingencies; a proposal by a mortgage banking company
in which ICCMIC stockholders would have received $10 in cash and $3 in the
common stock of the mortgage banking company for each share of ICCMIC common
stock, provided that the management agreement was to be terminated for a then
unspecified payment that would have reduced dollar for dollar the total
consideration payable to ICCMIC stockholders, all subject to a due diligence
contingency; a proposal by a title insurance company to acquire the management
agreement and ICII's 3,070,000 shares of ICCMIC common stock for $68 million in
cash or, in the alternative, $50 million in cash and $23 million of the title
insurance company's stock, subject to a due diligence contingency; and a
proposal for a sale to ICCMIC of a loan origination company for $50 million,
coupled with a purchase of up to 10 million shares of ICCMIC's common stock at
a cash price of $12.00 per share, and a cash payment for termination of the
management agreement equal to the greater of $25 million and the appraised
value of the termination fee, all subject to a due diligence contingency.
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Following the board's discussion of all of these proposals, and discussion
of whether ICCMIC should pursue alternatives to a strategic transaction (either
a liquidation or a continuation of ICCMIC's business in accordance with its
plan) the board determined at that time that liquidation would provide a lower
long-term return to stockholders than would continuation of ICCMIC's business
because the Board believed stock prices would eventually recover in the
mortgage REIT sector, and that it was in the best interests of ICCMIC and its
stockholders to pursue the proposal made by the Private Equity REIT. In
addition, the board believed that, while it was not specifically addressed in
the management agreement, ICCMIC probably would have to pay a termination fee
to the manager in the event of a liquidation. The Private Equity REIT proposed
a merger in which ICCMIC stockholders would receive one share of the common
stock of the Private Equity REIT for each 1.55 shares of ICCMIC common stock,
and the Private Equity REIT would pay $50 million in cash to the manager to
terminate the management agreement and to acquire and terminate the manager's
stock options in ICCMIC. This ratio was based upon the Private Equity REIT's
$22.50 estimate of its net asset value per share and the Private Equity REIT's
$14.50 estimate of ICCMIC's net asset value per share, all subject to due
diligence verification by both parties. Stockholders of the Private Equity REIT
would also receive, for each six shares of the Private Equity REIT held by
them, a warrant to purchase one share of the surviving company's common stock
at a $14.50 exercise price. The proposal provided ICCMIC's stockholders with a
limited amount of downside protection, in the form of contingent value rights,
in the event that the surviving company's stock were to trade for less than
$14.50 per share on December 31, 2001. The Private Equity REIT proposal was
viewed as attractive by the board and as a potentially superior alternative to
ICCMIC continuing its business for a number of reasons, including the board's
high opinion of the quality of the Private Equity REIT's management, its
relationships in the investment banking and commercial real estate communities,
and the fact that it was an equity REIT (in light of the higher trading
multiples of the common stock of equity REITs compared to that of mortgage
REITs.). The board expressed varying concerns about the other proposals,
including the liquidity and proper valuation of the securities to be received,
the ability to consummate the transactions because of issues relating to the
availability of third party financing, satisfactory completion of due
diligence, lack of experience of certain of the bidders in managing a real
estate investment trust, failure to provide for the acquisition of all of
ICCMIC's stock, the adequacy of the offered consideration and the willingness
of the manager to consent to the terms for termination of the management
agreement.
Negotiations with the Private Equity REIT. Between November 24, 1998 and
December 14, 1998, a number of meetings were held between representatives of
ICCMIC and the Private Equity REIT, and the parties conducted due diligence
investigations of each other. On November 25, 1998, ICCMIC and the Private
Equity REIT executed an exclusivity agreement in which they agreed to negotiate
exclusively with each other for a period of time initially expiring on December
15, 1998, and later extended to January 6, 1999.
On December 14, 1998, representatives of the Private Equity REIT made a
presentation to ICCMIC's board. After excusing the Private Equity REIT's
representatives, the board discussed the Private Equity REIT proposal
extensively. Thereafter, all four independent members of the board, Messrs.
Jaconi, Hendershott, Munkacy and Masotti, convened a separate meeting attended
by an attorney from Sonnenschein Nath & Rosenthal, counsel to ICCMIC. After
discussing the proposal, the independent board members unanimously voted to
continue due diligence efforts and to commence negotiating definitive merger
documents with the Private Equity REIT. The independent directors also
unanimously voted to retain Prudential Securities as their financial advisor to
analyze and report on the proposed transaction. On December 22, 1998, the full
board approved the retention of Prudential Securities as financial advisor to
the independent directors by unanimous written consent.
After further due diligence and negotiations over a period of several weeks,
ICCMIC's management concluded that the Private Equity REIT's original proposal
was not attractive in light of concerns about the amount of its debt, and the
parties began discussing alternate deal structures. The Private Equity REIT's
final proposal was for the Private Equity REIT to purchase only ICCMIC's
management agreement for $50 million and for ICCMIC in turn to make a $100
million convertible preferred stock investment in the Private Equity REIT.
Prudential Securities advised the board that this final proposal of the Private
Equity REIT presented
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numerous conflicts of interest and that accepting it would not be in the best
interests of ICCMIC or its stockholders. At a January 22, 1999 special meeting,
the board, including the independent directors, accepted the recommendation of
Prudential Securities and ICCMIC's management to reject the Private Equity
REIT's final proposal and voted to terminate exclusive negotiations with that
party.
Following the January 22, 1999 meeting, Prudential Securities received new
proposals from the Commercial Mortgage REIT (see "Negotiations with the
Commercial Mortgage REIT" below), the Financial Services REIT and the Public
Equity REIT, and a proposal from a bank holding company (the "Bank Holding
Company"). The Financial Services REIT's new proposal was for a common stock
for common stock merger and provided for a payment to the manager, at the
manager's option, of either $50 million in cash or $25 million in cash and $25
million in the Financial Services REIT's stock for the acquisition and
termination of the management agreement, acquisition of the manager's stock
options in ICCMIC and other consideration. The new proposal from the Public
Equity REIT was for a common stock for preferred stock merger and provided for
a payment to the manager of $50 million in cash to terminate the management
agreement. The Bank Holding Company's proposal, which was subject to a
financing contingency, was for an acquisition of ICCMIC in which ICCMIC's
stockholders would have the option to receive $11.00 per ICCMIC share in cash
or Bank Holding Company stock, provided that the cash consideration could not
exceed 67% of the total consideration. The Bank Holding Company would pay $25
million in cash to ICII for the management contract and an additional $20
million to ICII for the acquisition of the manager's stock options, certain
noncompetition agreements and the right of first refusal to purchase loans from
SPB. With the assistance of Prudential Securities, these four proposals were
revised and improved in March. The terms of these four proposals were reviewed
in depth by the board at its March 16, 1999 regular board meeting.
In reviewing the four proposals, the board considered various factors
presented by Prudential Securities that weighed in favor of ICCMIC pursuing a
merger or sale transaction, including, among others, the following:
. the importance of greater size and scale in the capital markets and in
the mortgage REIT sector;
. the attractiveness to a third party of ICCMIC's strategic and financial
assets; and
. market conditions at that time limiting ICCMIC's ability to
substantially grow as a stand-alone organization.
Prudential Securities then recommended that the board focus its evaluation
on the proposals of the Commercial Mortgage REIT and the Financial Services
REIT. Prudential Securities noted that each of the four proposals included the
payment to the manager of a significant cash fee ($45 million in the case of
the Bank Holding Company and $50 million in the case of the Commercial Mortgage
REIT, the Financial Services REIT and the Public Equity REIT) for the
termination of ICCMIC's management agreement and, in two of those proposals,
additional consideration from the manager. In addition, Prudential noted that
the cost of these termination fee payments would be borne by ICCMIC
stockholders to the extent of their interest in the combined company in the
case of the Commercial Mortgage REIT and the Financial Services REIT but would
be borne entirely by ICCMIC stockholders in the case of the Bank Holding
Company and Public Equity REIT proposals (because those proposals had been
based on ICCMIC net asset values reflecting adjustment for the termination
fee). In addition, the Bank Holding Company's relatively small capital base and
the Public Equity REIT's apparent goal of liquidating ICCMIC limited the value
of the stock to be issued in those proposed transactions to ICCMIC's
stockholders. In contrast, Prudential Securities was of the view that the
proposals from the Commercial Mortgage REIT and the Financial Services REIT had
strategic benefits to ICCMIC. Under these two proposals, there was the
potential for the combined company to achieve a value for ICCMIC stockholders
over the medium- to long-term that was significantly greater than ICCMIC's
liquidation value.
Following the presentation by Prudential Securities, the independent
directors again convened in private session with legal and financial advisors
in attendance. In this session, the independent directors discussed the
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four proposals. The independent directors also discussed the conflicts of
interest of Messrs. Snavely, Villani and Karlan due to their direct or indirect
interest in ICCMIC's management agreement. The independent directors concluded
that ICCMIC should follow the recommendations of Prudential Securities and
pursue negotiations with the Commercial Mortgage REIT and the Financial
Services REIT. After the full board reconvened, upon the recommendation of the
independent directors, the board approved the independent directors'
recommendation to pursue negotiations with the Commercial Mortgage REIT and the
Financial Services REIT. The board also approved an amendment to its engagement
letter with Prudential Securities to increase Prudential Securities' fee from
$1.5 million to $3.75 million upon the consummation of a successful merger
transaction due to the expanded scope of Prudential Securities' assignment.
Following this meeting, ICCMIC, through Prudential Securities and the
independent directors, conducted negotiations with the Commercial Mortgage
REIT. ICCMIC also sought to discuss a transaction with the Financial Services
REIT, but focused principally on the Commercial Mortgage REIT after concluding
that the Financial Services REIT would not proceed expeditiously with its due
diligence if it were not given exclusive bidder status. In addition, during
this period, Messrs. Snavely and Villani held discussions with the Bank Holding
Company.
Negotiations with the Commercial Mortgage REIT. The Commercial Mortgage REIT
proposal was, as of March 19, 1999, a stock for stock exchange with each ICCMIC
stockholder to receive 1.4 shares of the Commercial Mortgage REIT's common
stock for each share of ICCMIC common stock. In addition, ICCMIC would have the
right to designate two of the eight members of the surviving company's board of
directors. The Commercial Mortgage REIT conditioned its offer on ICCMIC's
exercising its rights to resell for cash to two ICII affiliates (SPB and FMAC)
various loans ICCMIC had previously acquired from those parties. Those loans
included loans, in the aggregate principal amount of approximately $50 million,
which had been removed from ICCMIC's March 1999 collateralized mortgage
obligation securitization transaction. The Commercial Mortgage REIT proposal
also contained an agreement for the surviving company to pay to the manager $50
million in cash to terminate the management agreement. ICCMIC stockholders
would have owned 65% of the surviving company if the Commercial Mortgage REIT
proposal had been consummated. On April 3, 1999, the Commercial Mortgage REIT
revised its proposal to include a reduced payment to the manager of $45 million
in cash to terminate the management agreement.
Immediately prior to the board meeting of May 3, 1999, the Commercial
Mortgage REIT again revised its proposal to provide that each ICCMIC
stockholder would receive 1.43 shares of the Commercial Mortgage REIT's common
stock rather than 1.4 shares for each share of ICCMIC common stock. In
addition, the Bank Holding Company revised its offer on April 30, 1999,
increasing its bid from $11.00 to $11.125 per ICCMIC share in cash or Bank
Holding Company stock, but reduced the ceiling on the cash consideration to 50%
of the total consideration.
At the meeting of May 3, 1999, ICCMIC's directors heard an evaluation of the
revised Commercial Mortgage REIT proposal and a summary of the Bank Holding
Company proposal. After hearing summaries of these proposals, the independent
directors, in private session, discussed the terms of each proposal and the
ramifications of the management agreement termination fee payment. At that
meeting, the independent directors retained Wachtell, Lipton, Rosen & Katz as
their counsel. After consulting with its financial and legal advisors, the
independent directors reached the following conclusions:
. subject to favorable resolution of the management agreement termination
fee payment (described in the third bullet below), ICCMIC should pursue
a transaction with the Commercial Mortgage REIT;
. the Bank Holding Company offer should be rejected, and if the Commercial
Mortgage REIT transaction were not consummated, the alternatives would
be for ICCMIC to pursue its strategic or other alternatives;
. the independent directors would not approve a transaction which included
a cash payment of more than $35 million to terminate the management
agreement; and
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. if, within 48 hours, ICII did not agree to accept a $35 million cash
payment to terminate the management agreement, rather than the $45
million cash payment that had been offered by the Commercial Mortgage
REIT in its most recent proposal, the independent directors would not
authorize the final negotiation of the proposed Commercial Mortgage REIT
transaction.
ICII did not respond to the independent directors' demands within 48 hours, and
negotiations with the Commercial Mortgage REIT did not proceed.
ICII's Initial Proposal and Formation of the Special Committee. On May 13,
1999, ICII announced in a press release its proposal to acquire all of the
outstanding shares of ICCMIC common stock not already owned by ICII for a price
of $11.00 per share in cash. In response to this proposal, a special meeting of
the ICCMIC board of directors was convened on May 18, 1999, and upon the
recommendation of counsel to the independent directors, a special committee of
the board was formed, consisting of the four independent directors. The purpose
of the special committee was to review, evaluate and negotiate the terms of any
proposed extraordinary transaction between ICCMIC and ICII to ensure fairness
to ICCMIC's stockholders and to recommend to the board any extraordinary
transaction involving ICCMIC. The ICCMIC board voted unanimously to give the
special committee full authority to retain separate legal counsel, financial
advisors, accountants, appraisers and other experts it needed to perform its
duties, and to pay each member of the special committee additional compensation
of $25,000. The special committee then retained the financial and legal
advisors that had previously been retained by the independent directors.
Joint Proposal of ICII and Commercial Mortgage REIT. Immediately prior to
and during the May 18, 1999 board meeting, ICII, in addition to its all cash
proposal, communicated to the independent directors a joint proposal by ICII
and the Commercial Mortgage REIT to acquire ICCMIC. At a meeting of the special
committee immediately following the May 18, 1999 board meeting, the special
committee directed its financial advisors to meet with representatives of ICII
and the Commercial Mortgage REIT, as well as their respective financial
advisors, to determine the precise terms of the proposal.
During the period from May 18 through May 21, 1999, Prudential Securities
met with ICII and the Commercial Mortgage REIT and their respective financial
advisors. At a telephonic meeting of the special committee on May 21, 1999,
Prudential Securities reported to the special committee the revised terms of
the joint proposal from ICII and the Commercial Mortgage REIT. The terms of the
revised joint proposal included the following points:
. the structure of the joint proposal would take the form of a merger of
ICCMIC into a subsidiary of ICII, with ICII simultaneously selling
selected assets of ICCMIC to the Commercial Mortgage REIT in exchange
for shares of the Commercial Mortgage REIT's stock;
. ICCMIC stockholders would be given the individual right to choose
between receiving $11.25 in cash or 1.43 shares of the Commercial
Mortgage REIT's common stock for each ICCMIC share (or a combination of
cash and stock);
. the cash portion of the transaction consideration would be subject to an
aggregate cap of 60% of the consideration; and
. due to the proposed structure of the transaction, ICCMIC's management
agreement with the manager would not be terminated and no amounts would
be due under the termination provisions of that agreement.
These terms reflected an increase from the original terms communicated by
ICII on May 18, 1999 of $11.00 per share for the cash consideration and 1.40
shares of the Commercial Mortgage REIT's common stock for the stock
consideration. At its May 21, 1999 meeting, the special committee determined
that because of the lack of more favorable strategic alternatives available to
ICCMIC at that time, it was desirable to proceed with the negotiation of the
joint proposal, subject to the following conditions:
. a written term sheet from ICII and the Commercial Mortgage REIT;
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. the greatest possible freedom among ICCMIC stockholders regarding the
election between cash or stock;
. an increase in the cash consideration above $11.25 per share and the
stock consideration above 1.43 per share; and
. an understanding of the proposed treatment of ICCMIC's employees.
The special committee, after discussion with its legal and financial
advisors, then established preferred procedures regarding communications and
conduct among the parties, in consideration of the potential conflicts involved
in the proposed transaction. These procedures included requirements that ICII
communicate with ICCMIC only through ICCMIC's advisors with respect to ICII's
offer, that communications related to the day-to-day management of ICCMIC be
limited to those management matters and exclude negotiations with respect to
ICII's offer, that ICII inform ICCMIC's advisors of any material non-public
information about ICCMIC that ICII learns of during the offer process, that
ICII and its affiliates continue to act in a manner that preserves the assets
and businesses of ICCMIC, and that ICII refrain from any further negotiations
with third parties as to any extraordinary transaction regarding ICCMIC. These
procedures were subsequently communicated to ICII and the Commercial Mortgage
REIT.
During the weekend of May 22 and 23, 1999, discussions continued among
Prudential Securities, ICII and the Commercial Mortgage REIT regarding the
terms of the joint proposal and the conditions outlined at the May 21 special
committee meeting. On May 24, 1999, a term sheet was provided by ICII and the
Commercial Mortgage REIT outlining in writing the terms previously communicated
to the special committee.
At a telephonic meeting of the special committee held on May 25, 1999,
Prudential Securities communicated to the special committee the results of its
discussions with ICII and the Commercial Mortgage REIT since the May 21
meeting. Among other things, Prudential Securities reported that ICII and the
Commercial Mortgage REIT could not increase the 60% cap on aggregate cash
consideration under their proposed structure. Prudential Securities also
reported that ICII was not willing to increase the per share cash consideration
above $11.25 per share, having already increased its offer from $11.00. At the
conclusion of that meeting, the special committee directed its legal and
financial advisors to continue discussions with ICII and the Commercial
Mortgage REIT in order to develop the terms of the transaction for a more
formal review by the special committee.
During the week of May 25, negotiations continued between the special
committee and its legal and financial advisors, on the one hand, and ICII and
the Commercial Mortgage REIT, and their respective legal and financial
advisors, on the other hand. During this period, the precise terms of the
transaction were elaborated and clarified for the parties in the form of a
draft transaction agreement. Although substantial progress was made in
negotiating the overall terms of the transaction, little progress was made in
improving the economic terms of the joint proposal from ICCMIC's perspective.
On May 31, ICII delivered to the special committee a message that if the
special committee did not approve the joint proposal by the end of the day on
June 1, 1999, then ICII would commence an unsolicited tender offer for ICCMIC
at $11.00 per share in cash. On that same day, one of ICCMIC's large
institutional stockholders communicated to ICCMIC that it would oppose a merger
transaction in which the consideration to be received by ICCMIC's stockholders
was all stock.
On June 1, 1999, the special committee again met by telephone conference
call. At this meeting, Prudential Securities summarized for the special
committee the negotiations during the course of the past week. Prudential
Securities also noted the lack of progress made in negotiating a more favorable
transaction from an economic perspective. The special committee then reviewed
the events over the previous nine months, including the lack of viable
alternative transactions with third parties at that time other than ICII and
the Commercial Mortgage REIT. Prudential Securities then reviewed with the
special committee the strategic alternatives available to ICCMIC at the time of
the June 1 meeting, including:
. the joint transaction with ICII and the Commercial Mortgage REIT;
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. a transaction with the Commercial Mortgage REIT alone, if the Commercial
Mortgage REIT was still amenable to such a transaction;
. a sale of ICCMIC for cash to ICII or to a third party pursuant to a
formal auction;
. remaining independent and continuing to pursue ICCMIC's long term
strategy; and
. liquidation.
After discussing these options with its legal and financial advisors, the
special committee determined that, at the present time and in light of ICCMIC's
long term prospects, it made sense to attempt to complete an extraordinary
transaction and not continue independently. The special committee also
determined that it was not yet willing to commence a liquidation of ICCMIC's
assets. The special committee based this conclusion in part on an estimate of
the net liquidation value of ICCMIC's assets of $12.12 per share prepared by
Prudential Securities (without any independent valuation or appraisal and
before taking into account an estimate of the termination fee payable by ICCMIC
upon termination of its management agreement). In reaching this conclusion, the
special committee also considered the uncertainties of a liquidation process.
The special committee then determined that, at the time of the June 1 meeting,
it was not yet willing to commit to sell ICCMIC for cash to the highest bidder,
considering the potential gains from a strategic combination, including such a
combination with the Commercial Mortgage REIT.
At the June 1 meeting, the special committee also discussed concerns raised
by a stock for stock transaction, including the possibility that such a
transaction would not be accepted by ICCMIC's stockholders. However, the
special committee determined that it was unwilling at that time to continue to
negotiate a transaction with ICII, whether or not ICII commenced an unsolicited
tender offer, given the special committee's view as to the then current offer
price level. The special committee concluded the meeting by directing its legal
and financial advisors to determine if the Commercial Mortgage REIT was still
interested in pursuing a strategic business combination rather than the joint
proposal and, if so, to commence negotiations on that basis.
Special Committee Negotiations with the Commercial Mortgage REIT. During the
week of June 1, 1999, the financial and legal advisors to the special committee
commenced negotiations with the Commercial Mortgage REIT and its legal and
financial advisors. The parties discussed a proposed stock for stock merger of
ICCMIC with the Commercial Mortgage REIT on the following terms:
. an exchange ratio of 1.43 shares of the Commercial Mortgage REIT's
common stock for each share of ICCMIC common stock;
. in addition, stockholders would receive, for each share of ICCMIC common
stock, a contingent value right that would pay up to $1 if the
Commercial Mortgage REIT's common stock failed to trade above $8 per
share for 20 consecutive days during the three year period following the
merger. On a comparative per share basis, the contingent value right
provided for a minimum aggregate merger consideration of approximately
$11.44 of the Commercial Mortgage REIT's common stock per share of
ICCMIC common stock; and
. an assumed payment to ICII by the Commercial Mortgage REIT of $40
million in cash as a termination fee under the management agreement.
At a telephonic meeting of the special committee held on June 7, 1999, the
special committee reviewed the proposed terms of the stock for stock merger
with the Commercial Mortgage REIT. At that meeting, Prudential Securities noted
that the liquidation value of ICCMIC's assets, after taking into account a
termination fee, if one were to be paid under ICCMIC's management agreement in
the event of a liquidation of ICCMIC's assets, approximated the value of the
stock to be received in the merger with the Commercial Mortgage REIT.
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Negotiations Resulting in the Proposed Merger. Also at the June 7 meeting,
Prudential Securities advised the special committee of a revised proposal it
had received from ICII. ICII that day had informed Prudential Securities that
it was now willing to enter into a transaction with ICCMIC providing for the
following terms:
. an $11.50 per share, all cash offer for all of the outstanding shares of
ICCMIC common stock not already owned by ICII;
. a market check opportunity for ICCMIC to solicit alternative offers from
third parties for a limited period of time after signing an agreement
with ICII; and
. a $40 million cash payment by ICCMIC for termination of the management
agreement.
ICII also indicated that it would either enter into this all cash
transaction or the joint proposal with the Commercial Mortgage REIT. However,
if neither transaction were acceptable to the special committee, ICII advised
that it would promptly commence an unsolicited tender offer for ICCMIC.
The special committee viewed the economics of ICII's new proposal as
promising. However, the special committee viewed certain terms of ICII's new
proposal as unacceptably limiting the ability of ICCMIC to conduct a fair and
open market check process, such as a right of first refusal for ICII with
respect to any proposal received during the market check process. The special
committee believed that giving ICII a right of first refusal would have a
substantial chilling effect on the willingness of third parties to participate
in a market check process. The special committee determined that ICII's offer
would be much stronger if it could be structured to provide for a fair process
with a level playing field for the solicitation of alternative bids.
Accordingly, the special committee determined that any acceptable offer by ICII
would have to eliminate terms that the special committee believed did not
provide for a fair and level playing field for the solicitation of alternative
bids. At the conclusion of the June 7 meeting, the special committee directed
its legal and financial advisors to negotiate with ICII in order to further
develop the precise terms of ICII's new proposal. At the same time, the special
committee directed its legal and financial advisors to continue negotiations
with the Commercial Mortgage REIT and to try to obtain more favorable terms.
During the period from June 7 through June 9, 1999, members of the special
committee and its financial and legal advisors held discussions with ICII and
the Commercial Mortgage REIT as directed at the June 7 meeting. The special
committee's counsel prepared a term sheet and a definitive transaction
agreement containing the special committee's position with respect to ICII's
new all cash proposal.
A telephonic meeting of the special committee was held on June 9, 1999 to
discuss the progress made with each of ICII and the Commercial Mortgage REIT
since the June 7 meeting. At that meeting, the special committee was informed
that, based on ICII's negotiation positions, ICII was not willing to commit to
a market check process on the terms considered appropriate by the special
committee.
At that same meeting, Mr. Jaconi, the chairman of the special committee,
informed the rest of the committee that prior to this meeting he had received
from the Commercial Mortgage REIT a further revised proposal with the following
terms:
. a cash election merger, providing ICCMIC stockholders with a choice of
$12.00 cash or 1.45 shares of the Commercial Mortgage REIT's common
stock (which, given the market price of the Commercial Mortgage REIT's
common stock at the time, was worth approximately $10.50 per share);
. a cap on the cash consideration of 25% of the aggregate consideration;
and
. a contingent value right that would provide ICCMIC stockholders with 75%
of the amount, if any, by which $30 million exceeded the appraised value
of ICCMIC's management agreement termination fee.
Because of the enhanced proposal by the Commercial Mortgage REIT and ICII's
unwillingness to agree to the proposed "market check" process, the special
committee determined at that meeting to proceed with the
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negotiation of a definitive agreement with the Commercial Mortgage REIT.
Prudential Securities was further directed to report to ICII that the special
committee would not consider ICII's proposal on the terms communicated by ICII
prior to that meeting.
During the period from June 9 through June 13, 1999, the chairman of the
special committee, together with the special committee's legal and financial
advisors and ICCMIC's management, proceeded to negotiate and finalize terms of
a definitive agreement with the Commercial Mortgage REIT. During that period,
representatives of ICCMIC and the Commercial Mortgage REIT met in person and by
telephone conference call to discuss issues remaining between the parties. On
June 11, 1999, ICII announced in a press release its revised all cash proposal
to acquire ICCMIC at $11.50 per share.
On June 13, 1999, the board of directors of the Commercial Mortgage REIT
approved the form of definitive merger agreement between the Commercial
Mortgage REIT and the Company and delivered a letter to the special committee
to that effect. The letter further stipulated that the approval would remain
outstanding on the condition that the ICCMIC board of directors approve the
merger with the Commercial Mortgage REIT that same date.
On that same date, ICII delivered to the chairman of the special committee a
revised proposal, including the following points:
. ICII would agree to the termination of the management agreement without
the payment of cash consideration to ICII if a merger with ICII were to
be consummated;
. ICII would agree to a $40 million cap on the appraised value of the
management agreement termination fee;
. ICII would agree to return to ICCMIC's stockholders up to $10 million if
the appraised value of the management agreement termination fee were
less than $30 million;
. ICII would agree to accept the appraised value of the management
agreement termination fee from third parties submitting superior
proposals; and
. ICII would agree to cause the repurchase from ICCMIC of all remaining
disputed mortgage loans with SPB and FMAC.
A meeting of the special committee was held on June 13, 1999 in San
Francisco, California at which the special committee considered the letter
received from the Commercial Mortgage REIT and the revised proposal received
from ICII. Prudential Securities advised the special committee that it had
revised its estimate of ICCMIC's net liquidation value to $12.57 per share
(without any independent valuation or appraisal) and had contrasted this value
with management's estimated liquidation value of $13.10 per share. In each
case, the estimated amount was expressed before taking into account the
termination fee payable under ICCMIC's management agreement (which, estimated
at $35 million in the aggregate, amounted to approximately $1.23 per share).
After taking into account an assumed value of $35 million for the management
agreement termination fee, the result was a net expected realization in
liquidation of approximately $11.34 per share, which was less than the value of
the latest ICII proposal. In addition, the special committee considered the
perceived timing and valuation risks associated with a liquidation process.
In assessing the merits of the latest ICII proposal, the special committee
concluded that the market check process envisioned by ICII's latest proposal
was not acceptable to the special committee. The special committee then
prepared a list of terms it viewed as important to provide for a fair process
with a level playing field including, among other provisions, a confidentiality
and standstill agreement, a 60-day market check period and no right of first
refusal for ICII, which provisions the special committee determined, based on
the advice of its financial advisors, would provide ICCMIC with an effective
market test. These terms were communicated by the special committee to Messrs.
Snavely and Villani during the meeting. The chairman of the special committee
then polled the members of the special committee and determined that, in light
of ICII's
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revised proposal, there were insufficient votes to carry a resolution to
recommend the merger with the Commercial Mortgage REIT. At the conclusion of
the meeting, the special committee directed its legal and financial advisors to
negotiate and prepare a term sheet with ICII reflecting the additional and
revised terms acceptable to the special committee.
Immediately after the meeting, Prudential Securities informed the Commercial
Mortgage REIT of the special committee's determination that it would then
proceed with negotiations with ICII.
During the week of June 14, the chairman of the special committee, together
with the special committee's legal and financial advisors, negotiated a term
sheet reflecting mutually acceptable terms for ICII's all cash offer, including
a 60-day market check process.
At a telephonic meeting of the special committee on June 17, 1999, the
special committee received an update on the status of negotiations between ICII
and the special committee's legal and financial advisors. The chairman of the
special committee reported to the special committee that, among other things,
ICII was insisting on the ability to launch an unsolicited offer if the merger
agreement were terminated for an alternative proposal that was not an all cash
transaction. In addition, he reported that ICII was insisting on a break-up fee
if the merger agreement was terminated for an alternative transaction.
On June 18, 1999, ICCMIC held its annual meeting of stockholders in
Torrance, California. After the meeting, the special committee again met to
discuss the further progress made negotiating with ICII. At that meeting, the
chairman of the special committee noted for the other independent directors
that the previous night substantial progress had been made in the negotiations
with ICII and a term sheet had been agreed upon with ICII. The special
committee concluded this meeting by directing its legal and financial advisors
to promptly negotiate a definitive merger agreement which the special committee
could formally consider and reflecting the terms agreed upon by ICII and the
special committee.
During the week of June 21, 1999, representatives of the special committee,
together with its legal and financial advisors and ICCMIC's management,
continued to negotiate with representatives of ICII and its legal and financial
advisors.
On June 25, 1999, the special committee met in Los Angeles, California to
consider the approval of the draft merger agreement with ICII. The special
committee's financial and legal advisors made presentations and reviewed, among
other things, the matters set forth in "--Recommendation of the Special
Committee and the Board of Directors; Reasons for the Proposed Merger."
Prudential Securities also presented analyses of the terms of the proposed
merger with ICII, including a review of the analyses presented in "--Opinion of
the Financial Advisor to the Special Committee." The special committee was
informed that there were still certain unresolved issues with ICII, including,
among other things, ICII's desire for a break-up fee, the refinement of the
"qualifying alternative transaction" concept under the merger agreement (see
"The Merger Agreement-- ICII Standstill Agreement") and the receipt of legal
opinions in appropriate form. At the conclusion of this meeting, the special
committee again directed its advisors to finalize negotiations with ICII,
including the resolution of all remaining outstanding issues and to report on
the progress at the next meeting of the special committee.
The special committee next met telephonically on July 1, 1999. At this
meeting, a representative of ICCMIC's Maryland counsel, Piper & Marbury L.L.P.,
reviewed with the special committee aspects of Maryland law related to the
transaction. The special committee also addressed the remaining issues not yet
resolved under the merger agreement. In particular, the special committee was
opposed to waiving ICCMIC's shareholder rights plan for the limited purpose of
permitting ICII to bring a "qualifying alternative transaction" in response to
a non-cash superior proposal.
The special committee's financial and legal advisors reviewed the material
terms of the latest draft of the merger agreement. Representatives of
Prudential Securities discussed the 60-day market check process permitted by
the draft agreement, as well as the economics of the proposed merger agreement
provisions
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relating to the management agreement termination fee. The special committee was
informed that, as drafted, the merger agreement fixed the maximum value of the
termination fee payable under the management agreement at $35 million. If the
appraised value of that termination fee were less than $35 million, the amount
of the shortfall would be paid to ICCMIC's stockholders as an increase in the
merger consideration. In addition, the special committee was advised that the
appraised value of the termination fee would be equally binding on a third
party superior proposal. Prudential Securities noted that the fixed economics
of the termination fee enabled the market check process to proceed without a
formal valuation having been obtained. Third party bidders would have to
account for $35 million of value in any case, whether the amount was
distributed to ICCMIC stockholders or paid to the manager as a termination fee.
At the meeting, the chairman of the special committee polled the members of
the special committee regarding their support for the transaction. The chairman
of the special committee determined that there were insufficient votes to carry
a resolution to recommend the ICII transaction on the terms as then negotiated.
Immediately after the July 1 meeting, the chairman of the special committee
communicated to the full board of directors of ICCMIC on behalf of the special
committee the special committee's determination with respect to ICII's
proposal.
During the course of the first two weeks of July discussions continued among
the members of the special committee, their legal and financial advisors and
ICII and its legal and financial advisors in an effort to finalize a negotiated
agreement on terms acceptable to all members of the special committee.
The special committee again met telephonically on July 19, 1999 to discuss
the progress made with ICII since the last meeting. At that meeting,
representatives of Prudential Securities reviewed with the special committee
the timing of the proposed transaction with ICII generally, as well as the
timing of the 60-day market check process and the management agreement
appraisal process. At that meeting, the special committee made a list of the
final issues to be addressed by the parties prior to signing a definitive
merger agreement between ICCMIC and ICII.
At a telephonic meeting of the full board of directors of ICCMIC, the
chairman of the special committee communicated to ICII the special committee's
final position on the issues discussed at the meeting just ended.
During the period from July 19 through July 21, 1999, negotiations continued
between the parties. On July 21, 1999 a final draft of the merger agreement was
distributed reflecting the parties' resolution of the various issues
communicated to ICII after the July 19 meeting. In addition, on July 21, the
special committee and the full ICCMIC board received the opinion of Piper &
Marbury that the transaction was not prohibited by the Maryland Business
Combination Statute.
Approval of Transaction with ICII. At a meeting of the special committee on
July 22, 1999 held in Torrance, California, the special committee met to
consider the revised merger agreement with ICII. Prudential Securities, as the
special committee's financial advisor, updated its presentation previously
delivered at the June 25 meeting, and covering the analyses set forth in "--
Opinion of the Financial Advisor to the Special Committee." Prudential
Securities then rendered an oral opinion, which was subsequently confirmed in
writing, that, as of the date of that meeting and based on and subject to the
matters stated in the written fairness opinion, the consideration to be
received in the proposed merger by ICCMIC stockholders, other than ICII and its
subsidiaries, was fair to the ICCMIC stockholders from a financial point of
view. The special committee's legal counsel reviewed for the special committee
the terms of the proposed merger agreement and ICCMIC's Maryland counsel
reviewed for the special committee the relevant provisions of Maryland law
applicable to the proposed transaction.
The special committee then considered, in addition to the presentations of
its legal and financial advisors, among other things, the various strategic and
other alternatives then available to ICCMIC, as well as the other factors set
forth in "--Recommendation of the Special Committee and the Board of Directors;
Reasons for the
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Proposed Merger." The special committee concluded that the terms of the ICII
transaction, described more fully in "The Merger Agreement," were preferable to
any other alternative available to ICCMIC and that the transaction was in the
best interests of ICCMIC's stockholders. After further discussion and
consideration, the special committee unanimously adopted resolutions
recommending that the full ICCMIC board of directors approve and adopt the
merger agreement with ICII.
After the special committee's meeting, a meeting of the full ICCMIC board
was convened to consider the special committee's recommendation. At the board
meeting, the chairman of the special committee summarized for the full board
the special committee's analysis and recommendations, including, among other
things, the various strategic and other alternatives then available to ICCMIC,
as well as the other factors set forth in "--Recommendation of the Special
Committee and the Board of Directors; Reasons for the Proposed Merger."
Prudential Securities then reviewed with the board the materials that it had
delivered to the special committee on June 25 and July 22. Prudential
Securities then reviewed in detail the various techniques it had used in
evaluating ICCMIC and the proposed merger, including the analyses set forth
under "--Opinion of the Financial Advisor to the Special Committee." Prudential
Securities then reviewed its oral opinion, later confirmed in writing, that the
consideration to be received in the proposed merger by ICCMIC stockholders,
other than ICII and its subsidiaries, was fair to the ICCMIC stockholders from
a financial point of view. The special committee's legal counsel next reviewed
for the full board the terms of the merger agreement and the proposed merger.
ICCMIC's legal counsel then reviewed in detail the obligations of the directors
to ICCMIC and its stockholders.
The board next discussed the potential conflicts of interest of Messrs.
Snavely, Villani and Karlan, as well as relevant provisions of the merger
agreement. The board then unanimously determined that the merger agreement and
the proposed merger were fair to, and in the best interests of, ICCMIC and its
stockholders, and approved and adopted the merger agreement and the proposed
merger. The board next proceeded to discuss in detail, and approve, the
provisions for the conversion of ICCMIC stock options described under
"Management's Conflicts of Interest in the Proposed Merger--Treatment of Stock
Options." At the conclusion of the July 22 meeting, Mr. Snavely, on behalf of
ICII, and Mr. Karlan, on behalf of ICCMIC, executed the merger agreement.
60-Day Market Check Process
The merger agreement permitted ICCMIC to conduct an unrestricted
solicitation of potentially superior proposals for a period of 60 days. This
60-day "market check" period commenced on August 13, 1999, the date on which
ICCMIC retained Stanger, and ended at 12:01 a.m. on October 13, 1999. In
connection with the market check process, Prudential Securities, on behalf of
the special committee, contacted 47 parties that it viewed as potential
acquirors of ICCMIC, including investment advisors, specialty finance
investors, financial institutions, opportunity funds, large capitalization
property REITs and strategic investors.
Indications of interest were received from 23 of the 47 parties that were
contacted, and Prudential Securities distributed offering memoranda to those 23
interested parties. No indications of interest were received from parties other
than the potential acquirors that had been contacted by Prudential Securities.
The deadline for initial proposals from these parties was stated to be
September 24. On September 24 and 27, Prudential Securities received proposals
from four of the 23 parties.
At a telephonic meeting of the special committee held on September 28, 1999,
Prudential Securities presented to the special committee the four proposals
received. Of those proposals, two were for cash acquisitions of only certain
specified assets of ICCMIC. After hearing Prudential Securities' presentation
regarding the terms of those two proposals, the special committee determined
that it did not wish to pursue transactions involving less than substantially
all of ICCMIC's assets.
Of the other two proposals, the first proposal, received from the Private
Entrepreneur, was for an all cash acquisition of ICCMIC's outstanding stock at
a value of $11.75 per share. In addition, that proposal
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contemplated a payment of $35 million to be allocated between the manager and
ICCMIC stockholders based on the results of the final appraisal of the value of
the management agreement termination fee. While that proposal stated that it
was not subject to any financing contingencies, Prudential Securities advised
the special committee that there was substantial uncertainty regarding the
Private Entrepreneur's ability to finance its proposed transaction on the terms
indicated in its proposal. The special committee requested that Prudential
Securities require financing commitments, a significant escrow of money or some
other substantial evidence of the ability of the Private Entrepreneur to
finance its proposal as a condition to committing to any transaction with the
Private Entrepreneur. Prudential Securities made this request and no such
commitment, escrow or other evidence was provided by the Private Entrepreneur.
The fourth proposal was submitted by the Commercial Mortgage REIT. The
proposal was for a cash election merger transaction in which ICCMIC
stockholders would receive $13.00 in cash for up to 38.5% of the outstanding
ICCMIC common stock and 1.58 shares of the Commercial Mortgage REIT's common
stock for the remaining shares of ICCMIC's common stock. Given the market price
of the Commercial Mortgage REIT's common stock at September 28, 1999 and
assuming each ICCMIC stockholder elected to receive the maximum amount of cash,
this proposal was worth approximately $11.56 per share. The Commercial Mortgage
REIT's proposal also provided for a payment to the manager of the appraised
value of the management agreement termination fee.
Prudential Securities advised the special committee that the four proposals
received during the market check period represented the likely parties
interested in ICCMIC at that time and that Prudential Securities did not expect
that there would be any other potential acquirors. After considering the advice
of Prudential Securities, the special committee concluded that the two
proposals to acquire certain of ICCMIC's assets were not superior to the
proposed merger. The special committee then requested that Prudential
Securities work with each of the four potential acquirors to elicit their best
and final offers as promptly as possible.
Prudential Securities divided the four proposals into the two proposals that
offered to purchase selected assets of ICCMIC and the two proposals to purchase
all of the outstanding stock of ICCMIC. Prudential Securities reviewed the two
proposals for selected assets of ICCMIC and performed the following analyses:
(a) contrasted the ascribed asset purchase prices to their book carrying
values, (b) assessed the relative percentage of the total asset base being
offered for purchase by each proposal and (c) assessed the relative percentage
of the total asset base covered in the aggregate by both of those proposals.
Prudential Securities reviewed the two proposals for all of the outstanding
stock of ICCMIC and performed the following analyses: (a) compared the implied
per share stock value of each proposal to ICII's offer, (b) calculated the
incremental amount ICCMIC stockholders might receive under each proposal as a
result of the completion of the appraisal process and compared the results to
the incremental amount contemplated by ICII's offer, (c) determined the
percentage of cash being offered under each proposal and compared that amount
to the all cash offer from ICII, and (d) assessed the source of funds
identified by the proponent of each of such proposals.
At a telephonic meeting of the special committee held on October 12, 1999,
Prudential Securities again reviewed with the special committee the four
proposals received during the market check period. Prudential Securities
updated for the special committee Prudential Securities' contacts with the four
potential acquirors. Prudential Securities reported, among other things, that
the Commercial Mortgage REIT had just informed Prudential Securities that it
had withdrawn its proposal. Prudential Securities then reviewed for the special
committee the economic terms of the Private Entrepreneur's proposal and the
proposed financing method for that proposal. Prudential Securities advised
that, based on the proposed capital structure of the Private Entrepreneur's
proposal and lack of evidence supporting its ability to finance its proposal,
the Private Entrepreneur's proposal was inferior to the ICII merger proposal.
The special committee, based on, among other things, consultation with and
advice received from Prudential Securities, then determined that none of the
proposals received during the market check period constituted a superior
proposal. No further proposals have been received as of the date of this proxy
statement.
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Recommendation of the Special Committee and the Board of Directors; Reasons for
the Proposed Merger
At a meeting held on July 22, 1999, the special committee unanimously
determined:
. that the proposed merger and the other transactions contemplated by the
merger agreement are fair to, and in the best interests of, the ICCMIC
stockholders other than ICII and certain of its affiliates;
. to recommend that the board of directors approve and adopt the merger
agreement and the proposed merger; and
. to recommend that the board of directors recommend to the ICCMIC
stockholders that they vote to approve the merger agreement and the
proposed merger.
At a meeting of the ICCMIC board of directors held promptly after the
conclusion of the July 22 special committee meeting, at which all of the
members of the board of directors were present, the board of directors, based
on the unanimous recommendation of the special committee, unanimously:
. determined that the merger agreement and the proposed merger are
advisable, fair to, and in the best interests of, ICCMIC and the ICCMIC
stockholders;
. approved and adopted the merger agreement and the proposed merger; and
. determined to recommend to the ICCMIC stockholders that they vote to
approve the merger agreement and the proposed merger.
See "--Background of the Proposed Merger" and "--ICII's Purpose for Pursuing
the Proposed Merger; Structure of the Proposed Merger."
The Special Committee. In determining that the merger agreement and the
proposed merger are fair to, and in the best interests of, the ICCMIC
stockholders other than ICII and certain of its affiliates, the special
committee considered, among other things, the following factors, each of which
supported the special committee's fairness determination:
. the minimum cash payment of $11.50 per share to be received by ICCMIC
stockholders other than ICII and its subsidiaries, which amount, as
described above under "--Background of the Proposed Merger," was
determined on the basis of arm's-length negotiations between the special
committee and ICII;
. the fact that ICII agreed to increase the per share merger consideration
to the extent that the appraised value of the termination fee payable
under the management agreement was less than $35 million, without any
corresponding decrease in the merger consideration if the appraised
value had exceeded $35 million (although ICCMIC believes that ICII
considered the fact that its subsidiary, the manager, would not be
receiving the termination fee that it was otherwise entitled to under
the management agreement upon completion of the proposed merger in
determining the amount of merger consideration it was willing to pay for
ICCMIC's common stock);
. the special committee's view of the business, assets, values and
prospects of ICCMIC, including discussions with ICCMIC's senior
management (consisting solely of employees of the manager, a subsidiary
of ICII) and the special committee's financial advisors regarding
ICCMIC's business, assets, values and prospects;
. the opinion of Prudential Securities, described below, that, as of the
date of the opinion and based on and subject to the matters contained in
the written fairness opinion, the consideration to be received by
ICCMIC's stockholders, other than ICII and certain of its affiliates, is
fair to such ICCMIC stockholders from a financial point of view (see "--
Opinion of the Financial Advisor to the Special Committee"). The special
committee also considered Prudential Securities' presentation to the
special committee. The special committee, based on its familiarity with
ICCMIC's business, operations, assets, financial condition and
prospects, relied on and accepted Prudential Securities' analyses.
However, in its review
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of the analyses performed by Prudential Securities, the special committee
did not weigh separately each of the individual analyses prepared by
Prudential Securities, but rather considered them as a whole;
. the stockholder approval condition, under which completion of the
proposed merger requires the affirmative vote of a majority of the
outstanding shares of common stock entitled to vote at the special
meeting other than the shares held by ICII and Messrs. Snavely and
Villani;
. ICCMIC's opportunity under the merger agreement, during the 60-day
period following the engagement of the initial appraisers, to explore
and solicit alternative proposals that might be superior to the proposed
merger, and during that period and thereafter, to terminate the merger
agreement upon receiving and approving an alternative transaction
superior to the proposed merger;
. ICII's agreement that, if the merger agreement is terminated (other than
as a result of a breach of the merger agreement by ICCMIC), the manager
would accept the lesser of the appraised value of the termination fee
and $35 million in full satisfaction of the amount payable because of
the termination or non-renewal of the management agreement;
. the fact that ICII agreed to purchase mortgage loans from ICCMIC (if not
first repurchased by SPB) for $3.9 million, the same price that ICCMIC
previously had paid to SPB for those loans. ICCMIC had been unable to
include those loans in its March 1999 securitization transaction and did
not believe that it could dispose of them to unaffiliated third parties
on terms as beneficial to ICCMIC as the sale to ICII. ICCMIC also
believed that those loans would not be attractive to potential competing
bidders for ICCMIC and would not be advantageous for ICCMIC to retain in
the event that the proposed merger were not completed and ICCMIC were
not otherwise sold;
. its review of the other potential mergers and strategic alternatives
that may have been available to ICCMIC at that time, including the
contacts, discussions and analyses described in "--Background of the
Proposed Merger" and "--Opinion of the Financial Advisor to the Special
Committee" regarding possible mergers, acquisitions and business
combinations. In particular, after considering all of the factors
described in "--Background of the Proposed Merger" and "--Opinion of the
Financial Advisor to the Special Committee," including, without
limitation, the likelihood of the merger closing and the fact that the
merger consideration is all cash, the special committee concluded that
the $11.50 minimum per share cash price (which has subsequently been
increased to $11.5753246 per share) was more favorable than any other
merger, combination, sale of assets or sale of securities or other
strategic alternative available to ICCMIC;
. the relationship of the minimum $11.50 per share cash price (which has
subsequently been increased to $11.5753246 per share) to the current
market price and the historical market prices for ICCMIC common stock
since its inception. The special committee considered the fact that the
minimum $11.50 per share cash price represented a premium of
approximately 16.5% to the closing price of ICCMIC's common stock on the
Nasdaq Stock Market of $9.875 on May 12, 1999, the day before ICII made
its initial $11.00 offer, and exceeds the highest closing price for
ICCMIC's common stock since August 1998. (The $11.5753246 per share
price represents a premium of approximately 17.2% to the closing price
of ICCMIC's common stock on May 12, 1999.) The special committee placed
greater weight on its comparison of stock prices since August 1998
rather than prices prior to that period because of the changed
circumstances in the mortgage REIT industry during 1998 reflected in the
significant and sustained decline in market prices generally for the
common stock of mortgage REITs during that period and thereafter;
. the fact that the 16.5% premium above the pre-announcement ICCMIC stock
price is more than the average percentage premium paid in acquisitions
since 1996 involving REITs and financial services companies that, like
ICCMIC, had book values between $200 million and $1.5 billion;
. current industry, economic and market conditions and trends in the real
estate acquisition, mortgage and leasing markets generally, including
the highly competitive nature of these markets and the uncertainty
concerning the future success of participants in these markets;
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. the relationship of the minimum $11.50 per share cash price (which has
subsequently been increased to $11.5753246 per share) to ICCMIC's going
concern value. The special committee considered the fact that the
valuation multiples achieved by ICCMIC based upon the minimum $11.50 per
share cash price payable in the proposed merger exceeded current price
to earnings and price to funds from operations multiples for almost all
comparable public mortgage REITs. In addition, the special committee
considered the fact that the minimum $11.50 per share cash price
exceeded the per share estimated net present value of the projected
future cash flows of ICCMIC;
. the relationship of the minimum $11.50 per share cash price (which has
subsequently been increased to $11.5753246 per share) to ICCMIC's
liquidation value. The special committee considered that the
$11.50 minimum per share cash price (assuming a $35 million termination
fee payable under the management agreement) exceeded the net present
value of the liquidation of ICCMIC's assets, as previously estimated by
Prudential Securities (without any independent valuation or appraisal of
such assets). Prudential Securities determined ICCMIC's net liquidation
value of $12.57 per share before deducting the termination fee payable
upon termination or non-renewal of the management agreement; after such
deduction, such amount would have been $11.34 per share;
. the ability of ICII to complete the proposed merger including, in
particular, its ability to fund the aggregate purchase price; and
. the terms and conditions of the merger agreement, in addition to those
noted above, including:
. ICCMIC's right to continue to declare and pay regular quarterly
dividends and a final dividend constituting the remainder of its
taxable income, if any, for the year through the date of the proposed
merger not previously paid to ICCMIC stockholders, affording
additional income to ICCMIC stockholders and preserving ICCMIC's REIT
tax status,
. the limited scope of the parties' representations, warranties and
covenants, which increased the likelihood of completion of the
proposed merger, and
. the limited number of conditions to the obligations of ICII to perform
under the merger agreement, which also increased the likelihood of
completion of the proposed merger.
In determining that the proposed merger is fair to, and in the best
interests of, ICCMIC stockholders other than ICII and certain of its
affiliates, the special committee also considered a number of potential
negative factors in its deliberations concerning the proposed merger,
including:
. the fact that, following the proposed merger, ICCMIC stockholders other
than ICII will no longer participate in the future earnings or growth of
ICCMIC or benefit from any increases in the value of ICCMIC's common
stock or its assets. The special committee believes that the combination
of the merger consideration and the likelihood of closing, together with
the other favorable factors described above, support the special
committee's fairness determination;
. potential or actual conflicts of interest of the directors and officers
of ICCMIC in connection with the proposed merger, which are more fully
described in "Management's Conflicts of Interest in the Proposed Merger"
and "Relationships and Transactions Between ICII, ICCMIC and
Affiliates." The special committee believes that the procedural fairness
of the merger process, as described below, together with the other
favorable factors described above, are sufficient to support the special
committee's fairness determination; and
. the fact that ICCMIC stockholders may, depending on their tax basis in
their ICCMIC common stock, recognize a taxable gain upon the completion
of the proposed merger. The special committee believes that the
opportunity to receive the cash merger consideration promptly after the
closing of the proposed merger on the terms described herein, together
with the other favorable factors described above, are sufficient to
support the special committee's fairness determination.
. The special committee considered that management's estimate of ICCMIC's
liquidation value per share of $13.10 exceeded Prudential Securities'
estimate of $12.57. Neither of these estimates, however, were
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net of the estimated cost of the management agreement termination fee
(capped at $35 million, or $1.23 per share). Subtracting this cost from
each of these liquidation estimates results in per share values of $11.87
and $11.34, respectively. The special committee determined that the cash
offer of $11.50 per share from ICII, with the possible increase from the
appraisal process, was more favorable than undertaking, and assuming the
risks of, an uncertain liquidation process that would be expected to
require at least several quarters to complete. Additionally, there was no
guarantee that the assets would realize the values estimated by either
Prudential Securities or ICCMIC's management. The special committee
believes that the relative certainty of a sale to ICII for the merger
consideration and on the terms described herein compared with the
uncertainty of a liquidation process support the special committee's
fairness determination.
In the view of the special committee, these potential negative factors did
not, individually or together, outweigh the advantages of the proposed merger
described above.
The special committee did not consider the book value per share of ICCMIC as
a relevant measure of the value of ICCMIC's common stock. The special committee
believed the net realizable value of ICCMIC's assets to be well below the
carrying value of those assets due to costs incurred in monetizing such assets
and due to differences between generally accepted accounting principles and the
actual value realized on disposition of assets, as well as the cost of the
management agreement termination fee, which is not reflected in ICCMIC's book
value per share. Instead, as noted above, the special committee was more
focused on the net realizable value of ICCMIC's assets upon a liquidation. The
special committee also took note of the fact that most participants in the
mortgage REIT industry trade at market values significantly below the carrying
value of their assets.
With respect to prices previously paid by ICCMIC for repurchases of its own
shares, the special committee considered that these repurchases were at then
current market prices for ICCMIC's outstanding shares at the time of each
repurchase, and concluded that, because market prices for shares of REITs
generally and ICCMIC shares in particular have subsequently declined
significantly, the various prices of these repurchases would not provide a
useful comparison for the merger consideration.
The special committee believes that the proposed merger is procedurally fair
because:
. the special committee consisted exclusively of independent directors
appointed and empowered to review, evaluate and negotiate on an arm's-
length basis the terms of any proposed extraordinary transaction and to
ensure fairness to ICCMIC's stockholders;
. the special committee retained and was advised by independent legal
counsel;
. the special committee retained and was advised by Prudential Securities
as its independent financial advisor to assist it in evaluating the
proposed merger;
. under the terms of the merger agreement, completion of the proposed
merger requires stockholder approval of the merger agreement and the
proposed merger by a majority of the outstanding shares of common stock
entitled to vote at the special meeting other than the shares held by
ICII and certain of its affiliates (namely, Messrs. Snavely and
Villani); and
. the terms of the merger agreement providing for a 60-day market check
process.
The Board of Directors. The board of directors, at its July 22, 1999
meeting, heard and considered the analysis and report of Prudential Securities,
the unanimous recommendation of the special committee and the factors
enumerated above that were considered by the special committee. Based on these
considerations, the board unanimously determined that the merger agreement and
the proposed merger are fair to, and in the best interests, of ICCMIC
stockholders other than ICII and certain of its affiliates. Because the
independent members of the ICCMIC board had already participated in extensive
discussions in the special committee meeting of July 22, 1999 which immediately
preceded the full board meeting, there were no specific inquiries by board
members after the full board convened. The board then unanimously approved and
adopted the merger agreement and the proposed merger and unanimously
recommended that ICCMIC's stockholders vote to approve the merger agreement and
the proposed merger.
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You should be aware, in considering the recommendation of the special
committee that was adopted by the board of directors, that three members of the
board of directors, Messrs. Snavely, Villani and Karlan, are also directors and
officers of ICII or the manager. Those relationships could present these
directors with conflicts of interest. The board of directors and the special
committee considered the potential and actual conflicts of interest in making
their recommendation and in approving and adopting the merger agreement and the
proposed merger. See "Management's Conflicts of Interest in the Proposed
Merger" and "Relationships and Transactions Between ICII, ICCMIC and
Affiliates."
General. The above discussion regarding the information and factors
considered by the special committee and the board of directors is not intended
to be exhaustive. We believe, however, that it includes all material factors
considered by them in making their respective decisions. The members of the
ICCMIC board of directors, including the members of the special committee,
evaluated ICII's proposal and the proposed merger in light of their knowledge
of the business, financial condition and prospects of ICCMIC and the industry
in which it operates, and based upon the advice of legal and financial advisors
as described herein. In view of the variety of factors considered in connection
with their respective evaluations of the merger agreement and the proposed
merger, the special committee and the board of directors could not quantify or
otherwise attempt to assign relative weights to the specific factors they
considered in reaching their respective determinations. In addition, individual
members of the special committee or the board of directors may have given
different weight to different factors. In the course of their deliberations,
neither the special committee nor the board of directors established a range of
values for ICCMIC.
Opinion of the Financial Advisor to the Special Committee
On July 22, 1999, Prudential Securities delivered its written opinion to the
special committee to the effect that, as of that date, the minimum $11.50 per
share price payable in cash was fair to ICCMIC's stockholders, other than ICII
and certain of its affiliates, from a financial point of view. In its opinion,
Prudential Securities noted that the $11.50 per share cash price was subject to
potential increase under the terms of the merger agreement. The $11.50 per
share cash price, subject to potential increase, was determined on the basis of
arm's-length negotiations between the special committee and ICII. Prudential
Securities made a presentation of the financial analysis underlying its oral
opinion at meetings of the special committee on June 25 and July 22, 1999 and
at a meeting of the board of directors on July 22, 1999. This analysis is
summarized below. All of the members of the special committee and the board of
directors participated in their respective meetings on July 22, 1999 and had an
opportunity to ask questions regarding Prudential Securities' presentation.
Prudential Securities has informed the special committee that it will not be
updating its written opinion, which is dated July 22, 1999. If, however, an
amendment is made to the merger agreement that the special committee believes
may be materially adverse to stockholders from a financial point of view, the
special committee will consider requesting that Prudential Securities deliver a
revised fairness opinion.
In requesting the Prudential Securities opinion, the special committee did
not give any special instructions to Prudential Securities or impose any
limitations upon the scope of the investigation that Prudential Securities
deemed necessary to enable it to deliver its opinion, although Prudential
Securities was not engaged to solicit alternative transactions, except in
connection with the 60-day market check process contemplated by the merger
agreement. A copy of the Prudential Securities opinion, which sets forth the
assumptions made, matters considered and scope of the review undertaken, is
attached to this proxy statement as Appendix B and is incorporated by reference
in this proxy statement. The summary of the Prudential Securities opinion set
forth below is qualified in its entirety by reference to the full text of the
Prudential Securities opinion. We urge you to read the Prudential Securities
opinion in its entirety. A copy of the full Prudential Securities report given
to the special committee is available for inspection and copying at the
principal executive offices of ICCMIC during regular business hours. You, or
your representative, may inspect or copy the Prudential Securities report
during those hours.
The Prudential Securities opinion is directed only to the fairness of the
merger consideration offered to holders of ICCMIC common stock (other than ICII
and certain of its affiliates) from a financial point of view and does not
constitute a recommendation to any stockholder as to how he or she should vote
at the special meeting or as to any other action he or she should take
regarding the proposed merger.
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In conducting its analysis and arriving at its opinion, Prudential
Securities reviewed such information and considered such financial data and
other factors as it deemed relevant under the circumstances, including, among
other things, the following:
. ICCMIC's historical financial statements, including those included in
ICCMIC's Annual Reports on Form 10-K for the fiscal years ended December
31, 1997 and 1998 and ICCMIC's Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1999, September 30, 1998, June 30, 1998
and March 31, 1998, including any amendments thereto;
. information furnished to Prudential Securities by ICCMIC relating to the
business, earnings, cash flow, assets and prospects of ICCMIC;
. the historical market prices and trading volumes of ICCMIC's common
stock and the common stock of selected publicly traded companies
Prudential Securities deemed reasonably similar to ICCMIC, and the
historical and projected results of operations of ICCMIC and the
historical and selected future earnings estimates of those companies
Prudential Securities deemed to be reasonably similar to ICCMIC;
. publicly available financial and operating data concerning selected
companies engaged in businesses Prudential Securities deemed comparable
to ICCMIC or otherwise relevant to its inquiry;
. the financial terms of other transactions Prudential Securities deemed
relevant, primarily including the total purchase price as a percentage
of the stock price prior to announcement and the form of consideration
offered with respect to comparable purchase transactions involving
public companies;
. the merger agreement; and
. such other financial studies, analyses and investigations and matters as
Prudential Securities deemed necessary, such as third party industry
studies, third party research reports, third party asset appraisals and
relevant press releases by other companies.
In connection with its review and analysis and in arriving at its opinion,
Prudential Securities relied upon the accuracy and completeness of the
financial and other information provided by ICCMIC's management (which has
consisted solely of employees of the manager, which is a subsidiary of ICII).
Prudential Securities has not undertaken or been provided with any independent
verification of such information or any independent valuation or appraisal of
the assets or liabilities of ICCMIC. Prudential Securities assumed that
information furnished by ICCMIC with respect to future financial performance
was reasonable and reflected the best currently available estimates and
judgment of ICCMIC's management. Further, the Prudential Securities opinion is
necessarily based on economic, financial and market conditions as they existed
on, and can only be evaluated as of, July 22, 1999.
The Prudential Securities opinion does not address, nor should it be
construed to address, the relative merits of the proposed merger and
alternative business strategies that may be available to ICCMIC.
The Prudential Securities opinion and the presentation to the special
committee was one of the many factors taken into consideration by the special
committee in making its determination to recommend approval and adoption of the
merger agreement and the proposed merger. The Prudential Securities
presentation to the ICCMIC board of directors was one of the many factors taken
into consideration by the board in making its decision to enter into the merger
agreement. Consequently, the analyses of Prudential Securities described below
should not be viewed as determinative of the opinions of the special committee
and the board of directors with respect to the merger consideration to be paid
in the proposed merger to ICCMIC stockholders other than ICII and certain of
its affiliates. The merger consideration was determined through arm's-length
negotiations between the special committee and ICII and was approved by the
special committee. The decision to enter into the merger agreement and to
accept the merger consideration was solely that of the ICCMIC board of
directors, acting upon the recommendation of the special committee.
In arriving at its opinion, Prudential Securities performed a variety of
financial analyses, including those summarized herein. The preparation of a
fairness opinion is a complex process that involves various
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<PAGE>
determinations as to the most appropriate and relevant methods of financial
analysis and, therefore, such an opinion is not necessarily susceptible to
partial analysis or summary description. Prudential Securities believes its
analysis must be considered as a whole and that selecting portions thereof or
portions of the factors considered by it, without considering all such analyses
and factors, could create an incomplete view of the evaluation process
underlying its opinion.
Prudential Securities made numerous assumptions with respect to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond ICCMIC's control, such as governmental
fiscal and monetary policies, changes in prevailing interest rates, changes in
national, regional or local economic environments, and factors inherent in the
valuation and pricing of interests in commercial mortgage-backed securities.
Any estimates contained in Prudential Securities' analyses are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses. Additionally, estimates of
the values of businesses and securities do not purport to be appraisals and do
not necessarily reflect the prices at which businesses or securities may be
sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. Subject to the foregoing, the following is a summary
of the material financial analyses presented to the special committee and the
board of directors on July 22, 1999.
Comparable Companies Analysis. Prudential Securities used a comparable
companies analysis to establish implied ranges for the merger consideration to
be offered to ICCMIC stockholders. Prudential Securities analyzed publicly
available historical and projected financial results of selected companies
Prudential Securities considered reasonably comparable to ICCMIC, including
multiples of current stock price to:
. funds from operations per share for the three months ended March 31,
1999 on an annualized basis ("LQA FFO");
. earnings per share for the three months ended March 31, 1999 on an
annualized basis ("LQA EPS");
. estimated 1999 earnings per share ("1999 Projected EPS");
. estimated 2000 earnings per share ("2000 Projected EPS"); and
. book value per share as of March 31, 1999.
The companies analyzed included: Amresco Capital Trust, Anthracite Capital
Inc., Chastain Capital Corp., Clarion Commercial Holdings, Inc., CRIIMI MAE,
Inc., IMPAC Commercial Holdings, Ocwen Asset Investment Corp., PMC Commercial
Trust, Resource Asset Investment Trust, Starwood Financial Trust and Wilshire
Real Estate Investment Trust Inc. (the "Comparable Companies"). Prudential
Securities believed the companies selected as comparable companies were
comparable to ICCMIC due to their similar business activities, the perception
among the equity research community as to their similar business nature, their
market capitalizations and the similarity of their relative valuation
multiples. All of the trading multiples of the Comparable Companies were based
on closing stock prices on June 21, 1999 (the "June 21 Closing Price"). The
earnings per share estimates were obtained from publicly available information.
Estimates were not available for all of the Comparable Companies for all
periods.
The Comparable Companies were found to have a June 21 Closing Price
estimated to be within a range of 3.3x to 7.6x LQA FFO, 3.4x to 9.3x LQA EPS,
4.8x to 10.9x 1999 Projected EPS, 4.9x to 7.9x 2000 Projected EPS and 0.5x to
1.0x book value per share. Applying the $11.50 offer price to such valuation
measures results in implied multiples of 9.4x LQA FFO, 10.4x LQA EPS, 9.8x 1999
Projected EPS, 8.5x 2000 Projected EPS and 0.8x book value per share,
respectively. Prudential Securities orally informed the special committee that
the closing price on July 20, 1999 did not result in a meaningful change in the
results cited above.
Precedent Transaction Premium Analysis. Prudential Securities reviewed
certain information regarding all cash acquisition transactions meeting the
following criteria:
. the acquired company operated either as a REIT or a financial services
company;
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. the transactions were announced in 1996 or later; and
. the acquired company had a book value between $200 million and $1.5
billion.
Prudential Securities reviewed the prices paid in these transactions as a
percentage premium over the closing price of the acquired company in each
transaction. Prudential Securities then determined the mean of the premiums
paid in these transactions, and found that the mean premium was 9.0% over the
price one day prior to the announcement, 7.8% over the price one week prior to
the announcement and 7.8% over the price four weeks prior to the announcement.
By comparison, the minimum $11.50 per share price reflected a 16.5% premium
over ICCMIC's closing stock price one day prior to the announcement of ICII's
initial $11.00 per share proposal on May 13, 1999, a 24.3% premium over the
closing price one week before that announcement and a 26.0% premium over the
closing price four weeks prior to that announcement.
Prudential Securities also calculated the implied multiple of the price paid
in these acquisitions to the preceding twelve months earnings per share. The
mean multiple for these transactions was 19.5 times actual earnings per share.
Applying this calculation to the $11.50 per share cash price in the proposed
merger and ICCMIC's earnings per share for the last twelve months of $0.62
yields a multiple of 18.5 times earnings per share.
None of the Comparable Companies or the acquired entities in any of the
precedent transactions is identical to ICCMIC. Accordingly, a complete analysis
of the results of the foregoing calculations cannot be limited to a
quantitative review of such results and involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the Comparable Companies and the applicable transactions and acquired companies
and other factors that could affect the public trading value and consideration
paid for each of the Comparable Companies and acquired entities, as well as
ICCMIC. Two of the transactions considered, the acquisition of Citizens
Corporation by Allmerica Corporation and the acquisition of Zurich Reinsurance
Centre by Zurich Versicherungs GmbH, were going-private transactions subject to
Rule 13e-3 under the Securities Exchange Act of 1934.
Stock Trading Analysis. Prudential Securities reviewed the latest twelve
months ended June 21, 1999 historical trading prices for ICCMIC's common stock
and noted that the low stock price was $6.50 per share (reached in October
1998), that the high stock price was $13.94 per share (reached in June 1998)
and that ICCMIC common stock last traded at $11.50 per share in July of 1998.
Stand-Alone Projections. Prudential Securities also considered ICCMIC's
prospects as a continuing stand-alone entity. Four-year financial projections
were prepared by Prudential Securities, based substantially on information and
assumptions provided by ICCMIC's management, including the following
assumptions:
. the revaluation of ICCMIC's assets to their estimated fair market value
based on factors appropriate to the asset class including third party
purchase proposals, discounted cash flow analyses and estimates of
future financial performance;
. the resale to SPB of the loans to be repurchased by ICII or SPB under
the merger agreement; and
. the resale to FMAC of loans previously acquired from it.
The projections also assumed that ICCMIC's principal business activities
would include:
. small balance first mortgage loan pool acquisitions;
. real property acquisitions;
. mezzanine lending; and
. small balance first mortgage loan pool securitizations.
The projections further assumed that these business activities would be
primarily financed through:
. secured warehouse loan facilities for small balance loan pool
acquisitions;
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. first mortgage debt for real property acquisitions; and
. equity financing from available cash resources for mezzanine lending and
equity financing for the subordinated classes of mortgage-backed
securities investments.
Generally, the projections take into account historical performance patterns
extrapolated to future periods, access to capital, dividend policies and
planned asset dispositions. The projections also assumed certain asset sales
with concurrent paydown of associated debt, and that no incremental equity
capital would be raised during the projection period, that the stock price
would equal the equity book value per share by the end of the projection period
and that dividends would grow at a rate of 5% per year. Applying these
assumptions, Prudential Securities performed a discounted cash flow analysis of
ICCMIC using a 15% discount rate. Applying this analysis, Prudential Securities
arrived at a net present value per share for ICCMIC of $10.85.
Projected financial and other information concerning ICCMIC and the impact
of the proposed merger on ICCMIC stockholders are not necessarily indicative of
future results. All projected financial information is subject to numerous
contingencies, many of which are beyond the control of ICCMIC management. The
preceding discussion of financial projections should be read together with the
discussion under the caption "Cautionary Statement Concerning Forward-Looking
Statements."
The independent members of ICCMIC's board interviewed several major Wall
Street investment banking firms before selecting Prudential Securities to
advise them. They selected Prudential Securities to provide a fairness opinion
because it is an internationally recognized investment banking firm engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions and for other purposes and has substantial experience in
transactions similar to the proposed merger. Pursuant to an engagement letter
agreement between Prudential Securities and the independent directors of
ICCMIC, Prudential Securities agreed to act as financial advisor to the
independent directors who constitute the special committee in connection with
the evaluation of proposed strategic and sale transactions regarding ICCMIC.
Pursuant to this engagement letter, ICCMIC paid Prudential Securities a fee of
$100,000 upon execution of the letter and $400,000 plus expenses when
Prudential Securities rendered its fairness opinion to the special committee.
Upon the closing of the proposed merger or a superior alternative transaction,
ICCMIC will be required to pay Prudential Securities an additional fee of
$3.25 million plus expenses. In the event a superior alternative transaction is
consummated, ICCMIC will be required to pay Prudential Securities an additional
fee equal to 4% of the amount by which the value to be received by ICCMIC
stockholders other than ICII and its subsidiaries in the superior alternative
transaction exceeds the value to be received by ICCMIC stockholders other than
ICII and its subsidiaries in the proposed merger. ICCMIC will also indemnify
Prudential Securities and certain related persons against certain liabilities,
including liabilities under securities laws, arising out of the proposed merger
or Prudential Securities' engagement.
In April 1999, an affiliate of Prudential Securities entered into a lending
agreement with ICCMIC pursuant to which that affiliate made available to ICCMIC
a secured warehouse lending facility of up to $300 million. That facility was
terminated by ICCMIC in June 1999 because ICCMIC had a substantial cash
position at the time and wished to avoid incurring loan facility fees that
would otherwise have been payable under that facility. ICCMIC paid no fees to
Prudential Securities in connection with that facility, but ICCMIC did
reimburse Prudential Securities for its out-of-pocket fees and costs, including
attorneys' fees, incurred in connection with negotiating and documenting that
facility, which totaled approximately $123,000. In addition, Prudential
Securities may actively trade ICCMIC common stock for its own account or for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in ICCMIC common stock.
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Financial Projections Relating to ICCMIC
The following financial projections relating to ICCMIC should be read
together with the discussion under the caption "Cautionary Statement Concerning
Forward-Looking Statements."
Projected Balance Sheet
<TABLE>
<CAPTION>
As of As of As of As of
March March March March
31, 2000 31, 2001 31, 2002 31, 2003
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Total Assets............................... $912,335 $839,081 $763,535 $688,939
======== ======== ======== ========
Total Liabilities.......................... 547,004 473,783 399,492 327,136
Total Stockholders' Equity................. 365,331 365,298 364,043 361,803
-------- -------- -------- --------
Total Liabilities & Stockholder Equity..... $912,335 $839,081 $763,535 $688,939
======== ======== ======== ========
Common Shares Outstanding.................. 28,500 28,500 28,500 28,500
Book Value per Share/1/.................... $ 12.82 $ 12.82 $ 12.77 $ 12.69
</TABLE>
- --------
/1/ Assets and liabilities marked to estimated market values.
Projected Income Statement
<TABLE>
<CAPTION>
April 1, April 1, April 1, April 1,
1999- 2000- 2001- 2002-
March 31, March 31, March 31, March 31,
2000 2001 2002 2003
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Total Revenue..................... $81,009 $85,477 $88,398 $92,916
Total Expenses.................... 45,894 49,600 51,948 55,565
------- ------- ------- -------
Net Earnings...................... $35,115 $35,877 $36,450 $37,351
======= ======= ======= =======
Funds from Operations/1/.......... $38,570 $39,982 $41,355 $43,056
======= ======= ======= =======
Diluted Earnings per Share........ $ 1.23 $ 1.26 $ 1.28 $ 1.31
Diluted Funds from Operations/1/
per Share........................ $ 1.35 $ 1.40 $ 1.45 $ 1.51
Funds from Operations/1/ Annual
Growth Rate...................... 18.4% 3.7% 3.4% 4.1%
Dividends......................... $34,200 $35,910 $37,706 $39,591
Dividends per Share............... $ 1.20 $ 1.26 $ 1.32 $ 1.39
Funds from Operations/1/ Payout
Ratio............................ 88.7% 89.8% 91.2% 92.0%
Diluted Common Shares
Outstanding...................... $28,500 $28,500 $28,500 $28,500
</TABLE>
- --------
/1/ Funds from Operations means net earnings adjusted by adding back non-cash
charges, such as depreciation, certain amortization expenses and most non-
recurring gains and losses.
Projected Cash Flow Statement
<TABLE>
<CAPTION>
April 1, April 1, April 1, April 1,
1999- 2000- 2001- 2002-
March 31, March 31, March 31, March 31,
2000 2001 2002 2003
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Total Cash Provided (Used) by
Operating Activities............. $ 38,773 $ 39,531 $ 41,370 $ 42,536
Total Cash Provided (Used) for
Investing Activities............. (322,204) 69,286 49,811 56,178
Total Cash Provided (Used) by
Financing Activities............. 204,171 (109,558) (112,445) (112,418)
--------- --------- --------- ---------
Net Increase (Decrease) in Cash
and Cash Equivalents............. (79,260) (741) (21,264) (13,704)
Cash and Cash Equivalents at
Beginning of Period.............. 116,539 37,279 36,537 15,273
--------- --------- --------- ---------
Cash and Cash Equivalents at End
of Period........................ $ 37,279 $ 36,537 $ 15,273 $ 1,569
========= ========= ========= =========
</TABLE>
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Management Agreement; Appraisal
General. ICCMIC's management agreement with the manager provided that if
ICCMIC were to terminate or fail to renew the management agreement after
October 22, 1999, then ICCMIC would have to pay the manager a termination fee.
The merger agreement between ICCMIC and ICII provides for an appraisal of the
value of the termination fee pursuant to a process set forth in the management
agreement, except that the merger agreement imposes a $35 million cap on the
termination fee, and for the merger consideration payable to ICCMIC
stockholders other than ICII and its subsidiaries to be adjusted depending on
the results of the appraisal process. The merger agreement provides that an
appraised value of the termination fee of less than $35 million results in an
increase in the $11.50 per share minimum cash payment for each share of ICCMIC
common stock (other than shares held by ICII and its subsidiaries) by an amount
equal to the quotient of:
. the difference between $35 million and the appraised value of the
termination fee, divided by
. the sum of the number of shares held by ICCMIC stockholders (other than
ICII and its subsidiaries) and the number of shares subject to ICCMIC
stock options that have an exercise price of less than $11.50 per share.
As discussed below, the appraised value of the termination fee has been
determined to be $33 million, resulting in an increase of $2 million in the
merger consideration and resulting in an increase in the per share merger
consideration from $11.50 per share to $11.5753246 per share. The merger
consideration would not have been reduced if the appraised value of the
termination fee had been greater than $35 million. See "The Merger Agreement--
Merger Consideration."
ICCMIC's management agreement with the manager expired on October 22, 1999.
However, the parties have agreed that ICCMIC will not be required to pay the
termination fee unless the merger agreement is terminated, in which event the
termination fee will be due and payable at that time.
In accordance with the procedures indicated in the merger agreement and the
management agreement, the special committee (on behalf of ICCMIC) and the
manager each selected an independent appraisal firm to conduct an appraisal of
the value of the manager's termination fee. The special committee selected
Stanger, while the manager selected Houlihan Lokey. Under the procedures
indicated in the merger agreement and the management agreement, the appraised
value of the termination fee was determined as follows:
. If Stanger and Houlihan Lokey were to arrive at appraised values that
are identical or that differ by an amount that does not exceed 20% of
the higher of the two appraised values, the appraised value of the
termination fee would equal the average of the two appraised values.
. If, on the other hand, Stanger and Houlihan Lokey were to arrive at
appraised values that differ by more than 20% of the higher of the two
appraised values, then the two firms would jointly select a third,
independent appraisal firm to conduct another appraisal (or, if they
were unable to agree on a third appraisal firm within 45 days, either
would be able to request that the American Arbitration Association
select the third appraiser). In that case, the appraised value that
would control for purposes of the merger agreement would be the value
arrived at by the third appraiser, but that final appraised value could
not be less than the lower of the two initial appraised values nor more
than the higher of the two initial appraised values.
Each of Stanger and Houlihan Lokey completed an appraisal of the value of
the management agreement termination fee. Stanger arrived at an appraised value
of the termination fee of $18 million. Houlihan Lokey arrived at an appraised
value of the termination fee of $45 million. As required by the management
agreement, because the two appraised values differed by more than 20% of the
higher of the two values, a third appraiser, Eastdil was jointly selected by
Stanger and Houlihan Lokey. Eastdil arrived at an appraised value of the
termination fee of $33 million. Because Eastdil's appraised value of $33
million falls within the range of appraised values arrived at by Stanger and
Houlihan Lokey, Eastdil's appraised value of $33 million is the appraised value
for purposes of the merger agreement and the management agreement.
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Neither the merger agreement nor the management agreement specifies a basis
for calculation of the management agreement termination fee. As further
described in Appendix C to this proxy statement, the firms engaged to appraise
the value of the termination fee relied on, among other factors, one or more of
the following methods:
. capitalization of earnings analysis;
. comparable transaction analysis; and
. discounted cash flow analysis.
For a summary of the Stanger, Houlihan and Eastdil appraisals, please read
Appendix C in its entirety. Each of Stanger's, Houlihan Lokey's and Eastdil's
appraisals is qualified by certain assumptions, limitations and conditions
described in Appendix C.
Benefits and Detriments to Nonaffiliated Stockholders
ICII and ICCMIC believe that the proposed merger will allow stockholders
other than ICII to realize the value of their investment in ICCMIC common stock
in cash at a price higher than the highest trading price of ICCMIC's common
stock in the year prior to the mailing of this proxy statement. This price
represents a significant premium to the market price for ICCMIC's common stock
immediately prior to the announcement of ICII's initial offer. The proposed
merger would eliminate the risk to ICCMIC stockholders of a decline in the
value of ICCMIC's common stock.
The primary detriment of the proposed merger to ICCMIC stockholders other
than ICII is that they will cease to have any ownership interest in ICCMIC and
will cease to participate in the future earnings, cash flow or growth of ICCMIC
or benefit from any increases in the value of ICCMIC's assets and common stock.
In addition, stockholders other than ICII may recognize a taxable gain upon the
completion of the proposed merger, depending upon the tax basis of their ICCMIC
common stock.
ICII's Purpose for Pursuing the Proposed Merger; Structure of the Proposed
Merger
Purpose. As described elsewhere in this proxy statement, since late 1998 the
board of directors of ICCMIC, including the special committee, has been engaged
in the process of considering a variety of business combination and sale
proposals for the purpose of determining whether any of such proposals would be
in the best interests of ICCMIC's stockholders. ICII made its initial proposal
to acquire ICCMIC in May of this year because it believed that the Commercial
Mortgage REIT proposal which the board was then pursuing did not constitute a
desirable alternative either for ICII or for the other stockholders of ICCMIC.
ICII believed that the common stock of the Commercial Mortgage REIT that would
have been the principal consideration received in that proposal would have been
an illiquid investment with little or no prospects for substantial growth in
value. That Commercial Mortgage REIT proposal also did not, in ICII's opinion,
adequately compensate ICII for the value of its subsidiary's management
agreement with ICCMIC. ICII further believed that a substantial majority of the
ICCMIC stockholders would share ICII's views regarding the undesirability of
the Commercial Mortgage REIT's common stock and that an all cash transaction at
the price proposed by ICII would be more favorably received by the other
stockholders of ICCMIC.
ICII is proposing to acquire all of the outstanding common stock of ICCMIC
that it does not already own so that it can combine the investment assets of
ICCMIC that are consistent with ICII's long term business strategies with those
of ICII's existing subsidiaries and at the same time eliminate unnecessary
general and administrative and other expense. ICII intends over time to sell
those assets of ICCMIC that are not consistent with its long term business
strategies. It is proposing to acquire the ICCMIC common stock for cash because
it believes that this form of consideration, as opposed to stock or other
securities, will be most attractive to the substantial majority of ICCMIC's
stockholders.
Alternatives. Prior to reaching its decision to pursue the proposed merger,
ICII considered various alternatives to entering into the merger agreement,
including:
. a two-step acquisition of ICCMIC, consisting of a first step tender
offer and a second step merger;
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<PAGE>
. pursuing the joint proposal with the Commercial Mortgage REIT described
under the caption "Special Factors: Background, Purpose and Effects of
the Proposed Merger--Background of the Proposed Merger" and "--
Negotiations with the Commercial Mortgage REIT"; and
. continuing ICII's existing ownership interest in ICCMIC and approving
the Commercial Mortgage REIT proposal.
The primary benefit to ICII of the two-step acquisition alternative would
have been the possibility of completing an acquisition of ICCMIC in a short
time period and, possibly, avoiding the time and expense of seeking stockholder
approval at a meeting of ICCMIC's stockholders. ICII ultimately decided against
this alternative, however, primarily because it preferred to negotiate a
transaction that the ICCMIC board would support as being fair to, and in the
best interests of, ICCMIC's stockholders. ICII also believed that the two-step
structure would have increased the total transaction costs of its acquisition
of ICCMIC.
The principal benefit that the joint proposal with the Commercial Mortgage
REIT appeared to offer to ICII was the possibility of reducing ICII's overall
transaction costs and of enabling ICII to acquire those assets in which it has
the greatest investment interest and to obtain potential related tax benefits.
It also would have enabled ICCMIC stockholders to exchange their ICCMIC shares
for shares in the surviving entity, thereby preserving the possibility of their
participating in its future results of operations. ICII and the Commercial
Mortgage REIT were not ultimately able to reach agreement with the special
committee on the terms of such a transaction, however, and it was abandoned.
See "Special Factors: Background, Purpose and Effects of the Proposed Merger--
Negotiations with the Commercial Mortgage REIT."
ICII also considered maintaining ICII's current investment in ICCMIC and
accepting the Commercial Mortgage REIT proposal. ICII decided against this
alternative due to the potential benefits of the merger discussed below.
Benefits and Detriments of the Proposed Merger to ICII. The primary benefits
of the merger to ICII are as follows:
. the acquisition at an attractive price of real estate loans owned by
ICCMIC, including loans ICCMIC has previously purchased from SPB, with
which ICII is already familiar and which are consistent with its long-
term business strategies. Acquiring ICCMIC furthers this aim by adding
significant mortgage loan assets to SPB's balance sheet and increasing
its net interest income;
. the ability, over time, to sell those ICCMIC assets that are not
consistent with ICII's long-term business strategies without incurring
taxable gains due to the fact that the aggregate tax basis of the assets
it will acquire, approximately $415 million, will exceed ICII's expected
aggregate cost of acquiring those assets in the merger of approximately
$302 million. ICII currently intends to sell a portion of ICCMIC's
assets, including up to approximately $40 million in net book value of
ICCMIC's real estate investments, up to approximately $50 million in net
book value of ICCMIC's mortgage loans and up to approximately $30
million in net book value of ICCMIC's mortgage backed securities, each
as of September 30, 1999;
. elimination of the general and administrative expenses associated with
the operation of ICCMIC as a separate public company and the related
personnel and other costs associated with ICCMIC's management company
subsidiary. ICII estimates that these expense savings will be
approximately $5 million annually; and
. the increase in the resulting corporation's ability to retain capital by
eliminating the need in the year 2000 to comply with the distribution
requirements imposed on REITs by the federal tax law.
The primary detriments of the completion of the proposed merger to ICII are
as follows:
. the substantial amount of cash that will be required to complete the
proposed merger, including both the merger consideration payable to
ICCMIC stockholders and the associated transaction costs, including the
costs of both ICII and ICCMIC;
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. the opportunity costs associated with committing a substantial amount of
cash to the proposed merger, including the inability to pursue other
transactions, the necessity of amassing the funds required to pay the
merger consideration and the inability to invest or utilize those funds
during the interim; and
. the significant investment and other market risks that ICII will incur
in acquiring from ICCMIC and ultimately disposing of those assets that
are not consistent with ICII's long term business objectives.
ICII's Analysis of the Proposed Merger
ICII believes that the merger agreement and the proposed merger are fair to
ICCMIC's stockholders, including those that are unaffiliated with ICII or its
affiliates. In determining that the merger agreement and the proposed merger
are fair to the ICCMIC stockholders, ICII has considered the following material
factors:
. the comparison of the $11.5753246 per share cash price to be received by
ICCMIC stockholders, other than ICII and its subsidiaries, in the
proposed merger to the current and historical market prices for ICCMIC's
common stock since its inception. In this connection, ICII notes that
the minimum $11.50 per share cash price set forth in the merger
agreement represented a premium of approximately 16.5% to the $9.875
closing price of ICCMIC's common stock on the Nasdaq Stock Market on May
12, 1999, the day before ICII made its initial $11.00 offer, and that
the increased price of $11.5753246 per share which ICCMIC stockholders
will now receive in the proposed merger represents approximately a 17.2%
premium to the May 12, 1999 closing price;
. the fact that the minimum $11.50 per share cash price and the now
increased $11.5753246 per share cash price to be received in the
proposed merger exceed the highest closing price for ICCMIC's common
stock since August, 1998. ICII believes that greater weight should be
placed on ICCMIC's stock prices during the period since August 1998
because of the changed circumstances in the mortgage REIT industry since
then that have resulted in a significant and sustained decline in market
prices generally for mortgage REITs relative to their per share book
values;
. the fact that the $11.5753246 per share cash price to be received in the
proposed merger exceeds the going concern value of ICCMIC as measured by
the per share estimated net present value of the projected future cash
flows of ICCMIC after taking into account the per share cost of the
management agreement termination fee payable to the manager;
. the net present value of the liquidation of ICCMIC's assets of $12.57
per share as estimated by Prudential Securities (without any independent
evaluation or appraisal), which would equal approximately $11.41 per
share after subtracting the per share impact of the termination fee
payable upon termination or non-renewal of the management agreement,
along with the fact that most mortgage REITs have market prices
significantly below their per share net liquidation value. ICII notes in
this regard that ICCMIC management had estimated the net present
liquidation value of ICCMIC's assets at $13.10 per share, which would
equal approximately $11.94 per share after subtracting the per share
impact of the management agreement termination fee, but further notes
that this was solely an estimate that is subject to the market and other
uncertainties that would be involved in attempting to sell ICCMIC's
assets in liquidation and does not represent a substantial difference
from the merger price in view of such uncertainties;
. the fact that the market price for ICCMIC common stock has suffered a
significant and sustained decline, along with the mortgage REIT industry
generally, since ICII's prior purchases of ICCMIC common stock, at
prices of $13.95 per share in October, 1997 and $15.00 per share in
December, 1997;
. ICCMIC's opportunity under the merger agreement, during the 60-day
period following the engagement of the initial appraisers, to solicit
alternative proposals that might be superior to the proposed merger, and
during that period and thereafter, to terminate the merger agreement
upon receiving and approving an alternative transaction superior to the
proposed merger; and the fact that as of the date of this proxy
statement ICII has been informed that neither ICCMIC nor the special
committee has received an alternative transaction proposal deemed by
them to be superior to the proposed merger;
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. ICII's review of the other potential mergers and strategic alternatives
available to ICCMIC, including the contacts, discussions and analyses
described in "--Background of the Proposed Merger" regarding possible
mergers, acquisitions and business combinations involving ICCMIC, in each
case as such contacts have been described to ICII by the special
committee and its advisors;
. the fact that ICII agreed to increase the per share merger consideration
to the extent that the appraised value of the termination fee payable
under the management agreement was determined to be less than $35
million, without any corresponding decrease in the merger consideration
if the appraised value had been determined to exceed $35 million, and the
fact that the per share merger consideration has in fact been increased
to $11.5753246 per share on the basis of the independent appraisal
process described herein;
. ICII's agreement that, if the merger agreement is terminated (other than
as a result of a breach of the merger agreement by ICCMIC), the manager
would accept the lesser of the appraised value of the termination fee and
$35 million in full satisfaction of the amount payable because of the
termination or non-renewal of the management agreement;
. the fact that ICII resolved a potentially costly business dispute by
agreeing to purchase approximately $3.9 million of mortgage loans
previously acquired by ICCMIC from SPB (if not first repurchased by SPB)
that ICCMIC believed would not be attractive to potential competing
bidders for ICCMIC;
. the terms and conditions of the merger agreement, in addition to those
noted above, including:
. ICCMIC's right to continue to declare and pay regular quarterly
dividends and a final dividend constituting the remainder of its
taxable income, if any, for the year through the date of the proposed
merger not previously paid to ICCMIC stockholders;
. the limited scope of the parties' representations, warranties and
covenants; and
. the limited number of conditions to the obligations of ICII to perform
under the merger agreement.
ICII has also considered the relationship of the merger consideration to the
book value of ICCMIC's assets. Although the merger consideration is less than
ICCMIC's net book value per share of $14.12 at September 30, 1999, ICII
believes that book value is a less important indicator of fairness and that the
other factors discussed in this section are more accurate indicators of whether
the merger agreement and the proposed merger are fair to ICCMIC stockholders.
ICII notes in this regard that net book value is an accounting concept that is
based on historical cost, as adjusted pursuant to generally accepted accounting
principles, and does not necessarily represent fair market value, and that the
net book value of ICCMIC's assets does not reflect the transactional expenses
or the market risks that would be involved in attempting to sell ICCMIC's
assets on either a short term liquidation basis or over an extended holding
period, nor does the net book value reflect the cost of the management
agreement termination fee. ICII further notes in this regard that most mortgage
REITs have market prices that are significantly below their net book values per
share.
ICII also believes that the proposed merger is procedurally fair because:
. the proposed merger requires stockholder approval of the merger agreement
and the proposed merger by holders of a majority of the outstanding
shares of ICCMIC common stock entitled to vote at the special meeting
that are not held by ICII and Messrs. Snavely and Villani;
. the special committee that approved the proposed merger consisted
exclusively of independent directors appointed and empowered to review,
evaluate and negotiate the terms of any proposed extraordinary
transaction between ICCMIC and ICII and to ensure fairness to ICCMIC's
stockholders;
. the special committee retained and was advised by independent legal
counsel with substantial experience in similar transactions;
. the special committee retained Prudential Securities as its independent
financial advisor to assist it in evaluating the proposed merger, and
received an opinion from Prudential Securities concluding that the merger
consideration to be received by ICCMIC stockholders is fair from a
financial point of view, as described in "--Opinion of the Financial
Advisor to the Special Committee" above;
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. the initial minimum cash price of $11.50 per share was subject to
increase, and the other terms and conditions of the merger agreement
resulted from active arm's-length negotiations between the special
committee and ICII; and
. ICCMIC's opportunity under the merger agreement, during the 60-day
period following the engagement of the initial appraisers, to solicit
alternative proposals that might be superior to the proposed merger, and
during that period, and thereafter, to terminate the merger agreement
upon receiving and approving an alternative transaction superior to the
proposed merger.
In light of the number and variety of factors ICII considered in connection
with its evaluation of the proposed merger and the fact that various directors
of ICII may have attributed greater importance to some of these factors than
others, ICII is unable to assign relative weights to the foregoing factors.
Consequences of the Proposed Merger
Surviving Corporation. If the proposed merger is completed, ICCMIC
Acquisition Corp. will be merged with and into ICCMIC. ICCMIC will continue as
the surviving corporation after the proposed merger as a wholly-owned
subsidiary of ICII. Following the completion of the proposed merger,
stockholders other than ICII will cease to participate in the future earnings,
cash flow or growth of ICCMIC or benefit from any increases in the value of
ICCMIC common stock or assets. Conversely, they will no longer bear the risk of
any decreases in the value of ICCMIC's common stock or assets.
Delisting. Because all of ICCMIC's common stock that is outstanding
immediately prior to the date of completion of the proposed merger will be
canceled in exchange for payment of the cash merger consideration as a result
of the proposed merger, the common stock will be delisted from the Nasdaq Stock
Market.
Dividends and Distributions. Dividends and other distributions by ICCMIC
having a record date prior to the date of completion of the proposed merger
will remain payable to ICCMIC's stockholders who held their shares on the
record date. This applies even if the payment date is after the completion of
the proposed merger, as in the case of the final dividend, if any, which ICCMIC
will declare prior to completion of the proposed merger and pay as promptly as
possible after the proposed merger is completed. All other distributions by the
surviving corporation after completion of the proposed merger will be paid to
ICII and not to ICCMIC's current stockholders.
Deregistration. ICCMIC's common stock is currently registered under the
Exchange Act. ICII has stated its intention to terminate the registration of
ICCMIC's common stock under the Exchange Act following the proposed merger.
After deregistration, ICCMIC will be relieved of its obligation to comply with
the requirements of the Exchange Act, including its obligations to comply with
the following:
. the filing of periodic reports pursuant to Section 13 of the Exchange
Act;
. the proxy rules of Exchange Act Regulation 14A;
. the short-swing trading profits provision of Exchange Act Section 16;
and
. with respect to future transactions involving ICCMIC, the "going
private" provisions of Exchange Act Rule 13e-3.
Directors and Officers. The directors and officers of ICCMIC Acquisition
Corp. immediately prior to the proposed merger will be the directors and
officers of the surviving company immediately after the proposed merger.
Charter and Bylaws. The charter and bylaws of ICCMIC Acquisition Corp. in
effect immediately prior to the proposed merger will be the charter and bylaws
of the surviving company immediately after the proposed merger.
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Potential Asset Sales Prior to the Proposed Merger
ICII intends to discuss with the board of directors of ICCMIC the sale or
other disposition prior to completion of the merger of those ICCMIC assets that
ICII believes to be desirable to sell as promptly as practicable. Sales or
other dispositions proposed by ICII will only take place prior to completion of
the merger if the ICCMIC board determines that the relevant assets will be sold
or otherwise disposed of on terms that would be advantageous to ICCMIC as a
separate ongoing entity in the event that the merger is not completed.
Plans for ICCMIC after the Proposed Merger
ICII intends to sell those assets of ICCMIC that do not conform with ICII's
long term business objectives. ICII also expects to terminate ICCMIC's status
as a REIT under the federal tax laws following completion of the merger. ICII
does not currently have any other plans or proposals for extraordinary
corporate transactions involving ICCMIC. ICII's plans with respect to ICCMIC
may change in light of changes in market conditions and other considerations
and ICII reserves the right to alter its plans at any time following the
merger.
Conduct of the Business of ICCMIC if the Proposed Merger is not Completed
Since September of 1998, ICCMIC's investment activities generally have been
suspended while ICCMIC has been exploring opportunities for mergers,
acquisitions and other strategic transactions. If the proposed merger with
ICCMIC Acquisition Corp. is not completed and no superior proposal is accepted,
ICCMIC's board will at that time evaluate the strategic and other alternatives
available to ICCMIC.
ICCMIC's management agreement with the manager expired on October 22, 1999.
Immediately thereafter, ICCMIC hired all 16 employees of the manager on a full-
time salaried basis to manage ICCMIC's day-to-day operations. ICCMIC's board of
directors believes that, in light of the fact that the merger agreement already
provided that, in the event of its termination, the management agreement would
also terminate and the management agreement termination fee would be paid, the
October 22 internalization of management operations will result in significant
cost savings to ICCMIC compared to the payments that ICCMIC would have made to
the manager if the term of the management agreement had been extended and if
none of the other terms of the management agreement had been changed.
Financing; Source of Funds
ICII estimates that the total amount of funds required to pay the merger
consideration to the ICCMIC stockholders other than ICII and its subsidiaries
will be approximately $302 million. In addition, ICII and ICCMIC estimate that
there will be approximately $12.15 million in filing, legal, accounting and
other fees and expenses that will be payable by ICII and ICCMIC in connection
with the completion of the proposed merger as described in more detail below
under the caption "Fees and Expenses."
ICII expects that the sources of the funds it will need to complete the
proposed merger will be cash and liquid assets currently held by ICII and its
subsidiaries, and cash and cash equivalents of ICCMIC. As of November 30, 1999,
ICII and its subsidiaries had cash and liquid assets totaling approximately
$270 million. As of September 30, 1999, ICCMIC's cash and cash equivalents,
excluding amounts that ICCMIC expected at that time to pay as dividends in
accordance with the merger agreement, totaled approximately $123 million. This
amount includes the proceeds of sales and other dispositions of assets by
ICCMIC in the course of its business over the past year. ICCMIC may sell
additional assets in the ordinary course of business to third parties prior to
the expected closing of the proposed merger in the first quarter of 2000. Such
sales, if any, would increase the amount of cash held by ICCMIC at closing of
the proposed merger.
To the extent, if any, that additional cash may be required to complete the
proposed merger, ICII will obtain those funds from borrowings or other
financing arrangements with third parties. While ICII has had preliminary
discussions regarding such financing arrangements, ICII currently believes that
no borrowings or third party financing arrangements will be necessary to pay
the merger consideration and it has not entered into any specific agreements or
arrangements for that purpose. The proposed merger is not subject to a
financing
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contingency and ICII will be required, subject to satisfaction of all of the
conditions to its obligations under the merger agreement, to complete the
proposed merger whether or not ICII enters into any third party financing
arrangements or is able to arrange for sale of additional ICCMIC assets at or
following the closing of the proposed merger.
No Appraisal Rights
ICCMIC stockholders who vote against the merger agreement and the proposed
merger, i.e., dissent, are not entitled to seek appraisal rights or other
similar rights. If the merger agreement and the proposed merger are approved by
the required votes, stockholders that vote against the merger agreement and the
proposed merger, like stockholders who vote to approve the merger agreement and
the proposed merger, will be bound by the terms of the merger agreement to the
same extent as those who vote in favor of it. The Maryland General Corporation
Law does not provide appraisal rights or any other similar remedy to
stockholders of a corporation in connection with a merger if the corporation's
shares are listed on a national securities exchange, such as the Nasdaq Stock
Market, on the record date for determining stockholders entitled to vote on the
proposed merger. All of the shares of ICCMIC common stock outstanding on the
record date for determining stockholders entitled to vote on the merger
agreement and the proposed merger were listed on the Nasdaq Stock Market.
Material Tax Consequences
The exchange of ICCMIC common stock for cash by a stockholder in the
proposed merger will be a taxable transaction under the Code and will also be a
taxable transaction under state and local and other tax laws.
The following discussion addresses only those stockholders who hold their
ICCMIC common stock as a capital asset, and does not address all of the United
States federal income tax consequences that may be relevant to particular
stockholders in light of their individual circumstances or to stockholders who
are subject to special rules (including, without limitation, financial
institutions, tax exempt organizations, insurance companies, dealers in
securities or foreign currencies, foreign holders, persons who hold such shares
as a hedge against currency risk or a constructive sale or conversion
transaction, or stockholders who acquired their shares pursuant to the exercise
of employee stock options or otherwise as compensation).
In general, a stockholder will recognize gain or loss equal to the
difference between the tax basis of the stockholder's ICCMIC common stock and
the amount of cash received in exchange therefor. Such gain or loss will be
capital gain or loss if the ICCMIC common stock is a capital asset in the hands
of the stockholder and will be long-term gain or loss if the stockholder has
held the ICCMIC common stock for more than 12 months as of the effective time
of the proposed merger.
Any loss recognized by a stockholder who has held his or her ICCMIC common
stock for six months or less (after applying certain holding period rules),
however, will be treated as a long-term capital loss to the extent of
distributions from ICCMIC required to be treated by such stockholder as long-
term capital gain.
If the ICCMIC common stock is treated as a "United States real property
interest," then, subject to the following discussion, under the Foreign
Investment in Real Property Tax Act of 1980, as amended ("FIRPTA"), a foreign
stockholder would be subject to:
. United States federal income tax at regular graduated rates on gain
recognized on the disposition of ICCMIC common stock pursuant to the
proposed merger, and
. withholding in respect of this tax at a rate of 10% of the amount
realized by the foreign stockholder in the proposed merger.
A "foreign stockholder" generally is a person or entity that, for United States
federal income tax purposes, is a nonresident alien individual, a foreign
corporation, a foreign partnership or a foreign estate or trust.
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In general, however, the gain recognized on the disposition of ICCMIC
common stock by a foreign stockholder would not be subject to this tax under
FIRPTA if:
. ICCMIC is a "domestically controlled REIT," which is defined generally
under the Code as a REIT in which, at all times during the five-year
period preceding the proposed merger (or the period of the REIT's
existence, if shorter), less than 50% of the fair market value of the
REIT's outstanding stock was held directly or indirectly by foreign
stockholders; or
. ICCMIC's common stock is regularly traded on an established securities
market within the meaning of the Code, and the foreign stockholder does
not own, actually or constructively under attribution rules provided in
the Code, in excess of 5% of the fair market value of all common stock
outstanding at any time during the shorter of the five-year period
preceding the proposed merger or the foreign stockholder's holding
period.
Although it has made no investigation, ICCMIC has no reason to believe that it
is not a "domestically controlled REIT." ICCMIC's common stock is regularly
traded on an established securities market within the meaning of the Code.
Foreign stockholders are urged to consult their tax advisors concerning the
potential applicability of these provisions and the consequences of a sale or
other disposition of their ICCMIC common stock in advance of the proposed
merger or as part of the proposed merger.
Gain recognized that is not subject to FIRPTA will nevertheless be taxable
to a foreign stockholder if:
. the foreign stockholder's investment in ICCMIC common stock is
effectively connected with a U.S. trade or business engaged in by such
stockholder, in which case the foreign stockholder will be subject to
the same treatment as U.S. stockholders with respect to such gain; or
. the foreign stockholder is a nonresident alien individual who was
present in the U.S. for 183 days or more during the taxable year and
certain other conditions apply, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital
gains.
If the gain on the sale of ICCMIC common stock were subject to taxation
under FIRPTA, the foreign stockholder would be subject to similar treatment as
U.S. stockholders with respect to such gain (subject to applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident
alien individuals, and the possible application of the 30% branch profits tax
in the case of non-U.S. corporations).
To avoid withholding, non-foreign stockholders should certify their non-
foreign status by completing the certification form that will be included with
the letter of transmittal sent after the proposed merger.
The exchange of ICCMIC common stock for cash by a stockholder will be
reported to the Internal Revenue Service. "Backup" withholding at a rate of
31% will apply to payments made to a non-foreign stockholder (other than a
corporation or any other exempt non-foreign stockholder) unless the non-
foreign stockholder furnishes its taxpayer identification number in the manner
prescribed in applicable Treasury regulations, certifies that such number is
correct, certifies as to no loss of exemption from backup withholding and
meets certain other conditions. A foreign stockholder will be exempt from
backup withholding if the certification requirements described above are
satisfied. Payment of the proceeds from the disposition of the ICCMIC common
stock to or through the United States office of a broker is subject to
information reporting and backup withholding unless the stockholder
establishes an exemption from information reporting and backup withholding.
Any amounts withheld from a stockholder under the withholding rules
described above will be allowed as a refund or a credit against the
stockholder's United States federal income tax liability, if the required
information is furnished to the Internal Revenue Service on a timely basis.
The federal income tax discussion set forth above is included for general
information purposes only and is based upon present law. Due to the individual
nature of tax consequences, stockholders are urged to consult their tax
advisors as to the specific tax consequences to them of the proposed merger,
including the effects of applicable state, local or other tax laws.
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Accounting Treatment
The proposed merger will be accounted for by ICII as a purchase of an
approximately 91.0% interest in ICCMIC under the "purchase" method of
accounting in accordance with generally accepted accounting principles.
Under this accounting method, ICCMIC's historical results for the periods
before the proposed merger will remain unchanged. On the date of the proposed
merger, ICII will record ICCMIC's assets and liabilities on its books based on
their estimated fair value when the proposed merger is completed.
Pending Litigation
ICCMIC, its directors and ICII have been named as defendants in a putative
class action lawsuit filed on July 22, 1999 by Riviera-Enid, a Florida limited
partnership, in the Superior Court of the State of California for Los Angeles
County, California, docket number BC213902. The complaint alleges that the
proposed merger constitutes a breach of fiduciary duty by the defendants
because the merger price is alleged to be less than the liquidation value of
ICCMIC's assets. The complaint also alleges that the defendants have acted to
the detriment of ICCMIC's stockholders other than ICII in that: (i) the
defendants allegedly failed to solicit arm's-length bids to sell ICCMIC; (ii)
the proposed price allegedly represents a low premium over the market price and
is below the book value of ICCMIC's common stock; (iii) ICII allegedly had an
advantage over other potential bidders as a result of the management agreement
termination fee and (iv) the proposed merger allegedly does not "give fair
valuation" to ICCMIC-owned property. The complaint also alleges that ICII will
receive $4 million more than it otherwise would have received, but for the
proposed merger, in connection with a termination fee that ICCMIC received on
an unidentified mortgage loan secured by property in the United Kingdom.
Finally, the complaint alleges that some of the directors have conflicts of
interest because of their affiliation with ICII and that the proposed merger
will benefit ICII at the expense of ICCMIC's other stockholders.
The complaint seeks certification of a class of all stockholders of ICCMIC
whose stock will be acquired in connection with the proposed merger and seeks
injunctive relief that would, if granted, prevent the completion of the
proposed merger. The complaint also seeks damages in an unspecified amount and
other relief.
On November 1, 1999, ICCMIC was served with an amended class action
complaint in the action. The amended complaint purports to allege a claim for
breach of fiduciary duty against each of the defendants named in the original
complaint. The amended complaint alleges that defendants have (i) engaged in a
scheme to freeze out ICCMIC's public stockholders; (ii) created a poison pill,
other defensive measures and a tainted negotiation process that have made it
impossible to maximize stockholder value; (iii) improperly agreed to reimburse
ICII for up to $2 million of expenses under certain circumstances if the
proposed merger is not completed, which reimbursement obligation made competing
bids impossible; (iv) improperly ended the 60-day market check period prior to
determination of the management agreement termination fee, thus requiring
prospective bidders to bid in ignorance; (v) failed to give consideration to
competing bids, or a fair opportunity for competing bidders to make proposals;
(vi) improperly limited the pool of potential acquisition candidates and
rejected liquidation or disposition of individual assets; (vii) improperly
allowed Messrs. Snavely, Villani and Karlan to participate in negotiations with
acquisition candidates; (viii) improperly limited the board's ability to
consider new offers after the close of the 60-day market check period; (ix)
improperly permitted ICII to threaten a hostile takeover of ICCMIC and (x)
negotiated an inappropriate fee arrangement with Prudential Securities.
The amended complaint further alleges that, by certain actions and
inactions, ICII prevented ICCMIC from maximizing stockholder value, and alleges
conflicts of interest on the part of each of the defendants. The amended
complaint also alleges that the price agreed to in the merger agreement is
grossly unfair. The amended complaint purports to be brought as a class action
on behalf of a class of persons affected by the proposed merger. The amended
complaint seeks certification of a class, injunctive relief which, if granted,
would prevent the completion of the proposed merger, damages in an unspecified
amount and other relief.
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On November 3, 1999, ICCMIC's counsel received a letter from counsel for the
plaintiffs asserting plaintiffs' intent to seek a temporary restraining order,
expedited discovery, and a date for a preliminary injunction hearing. No motion
for preliminary injunction has been filed. By letter on November 10, 1999,
counsel for the plaintiffs stated that the plaintiffs had decided not to move
forward with a motion for temporary restraining order or preliminary injunction
at that time. On December 1, 1999, each of the defendants filed demurrers to
plaintiffs' amended complaint, seeking to have the amended complaint dismissed
with prejudice. A hearing on the demurrers is calendered for January 10, 2000.
The defendants believe that the material allegations of the complaint are
without merit.
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MANAGEMENT'S CONFLICTS OF INTEREST IN THE PROPOSED MERGER
General
You should be aware that directors and officers of ICCMIC may have interests
in the proposed merger or relationships, including those described below, that
are different from, or in addition to, your interests as a stockholder. The
special committee and the board of directors were aware of these potential or
actual conflicts of interest and considered them along with the other matters
described under "--Recommendation of the Special Committee and the Board of
Directors; Reasons for the Proposed Merger." See also "Relationships and
Transactions Between ICII, ICCMIC and Affiliates."
The beneficial ownership of each of the directors and officers of ICCMIC is
set forth under "Securities Ownership" on page 89. None of the directors or
executive officers will own any ICCMIC securities upon completion of the
proposed merger.
Overlapping Directors and Officers
Mr. Snavely is a director of ICCMIC and a director and executive officer of
ICII. Mr. Villani is a director of ICCMIC and a director and former executive
officer of ICII. Mr. Snavely is the chairman of both companies. In addition,
the executive officers of ICCMIC, Messrs. Karlan, Meltzer and Seifert, are
executive officers of ICCMIC's former manager, which is a subsidiary of ICII.
Messrs. Snavely, Villani and Karlan are also directors of the manager and Mr.
Karlan is also a director of ICCMIC.
Messrs. Snavely and Villani, as a result of their respective positions with
ICII and the manager, and Mr. Karlan, as a result of his position with the
manager, owe duties to the stockholders of either ICII or the manager, as the
case may be, in addition to the duties they owe to the stockholders of ICCMIC.
At times, they may be confronted by issues, including the proposed merger, that
present them with potentially conflicting interests and obligations. Because of
the conflicting duties of these individuals, ICCMIC's board of directors
empowered the special committee to represent the interests of ICCMIC
stockholders in the review, evaluation and negotiation of the proposed merger.
Due to their potential or actual conflicts, Messrs. Snavely, Villani and Karlan
were not appointed as members of the special committee.
Directors' Fees
At a May 18, 1999 meeting of the ICCMIC board of directors, the ICCMIC board
voted to pay $25,000 to each member of the special committee for their service
on the special committee. At a December 16, 1999 meeting of the ICCMIC board of
directors, the board voted to pay $70,000 to each independent director for
extraordinary service as independent members of the board of directors of
ICCMIC, including their review, evaluation and negotiation of the proposed
merger and the other proposals for the acquisition of ICCMIC. In addition, each
independent board member receives an annual fee of $20,000 and a fee of $500
per meeting that he attends (after the first four meetings each year that they
attend). An annual fee of $2,000 is also paid to any independent director who
serves as chair of any committee of the board of directors. All directors are
also reimbursed for the costs and expenses in attending all meeting of the
board of directors. No portion of any of such fees or other payments is
contingent on the closing of the proposed merger or any other transaction.
Treatment of Stock Options
Each of the directors and executive officers of ICCMIC, other than Messrs.
Snavely and Villani, whose stock options were cancelled, owns outstanding
options to purchase ICCMIC common stock that were issued pursuant to ICCMIC's
1997 Stock Option Plan, as amended (the "1997 Stock Option Plan"). Upon
approval of the merger agreement and the proposed merger by ICCMIC's
stockholders, all outstanding ICCMIC stock options will become immediately
exercisable. Each holder of ICCMIC stock options may elect to have his stock
options either:
. converted into immediately exercisable options to purchase a number of
shares of ICII common stock at an exercise price determined based on the
fair value of the respective stock options, or determined under the
formula required by the Internal Revenue Code for converting incentive
stock options if the holder of incentive stock options so elects; or
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. exchanged for cash based on:
. for stock options whose exercise price is less than the merger price
per share, the greater of (x) the difference between the exercise price
and the merger consideration and (y) the fair value of the stock
option; or
. for stock options whose exercise price is greater than the merger price
per share, $1.10 per share (which the parties have agreed is the fair
value of such stock options).
ICII has informed ICCMIC that Messrs. Snavely and Villani will be compensated
by ICII based on the option pricing formula for the 388,125 option shares each
that they have canceled, including 129,375 option shares with an exercise price
of $9.00 for which each will receive $2.5753246 per share, or $333,182.62, and
258,750 shares with an exercise price of $15.00 per share for which each will
receive $1.10 per share, or $284,625.00. ICII has also informed ICCMIC that
Messrs. Snavely and Villani have not yet been compensated in connection with
the cancellation of their options.
Conversion for New ICII Stock Options. The conversion ratio and exercise
price of ICII stock options to be received in exchange for ICCMIC stock options
will be determined so that the fair value of the ICCMIC stock options held
before the proposed merger equals the fair value of the ICII stock options held
after the proposed merger. ICCMIC and ICII will determine the fair value of in-
the-money ICCMIC stock options using the Black-Scholes option pricing model.
The Black-Scholes option pricing model is a commonly used formula that option
traders and other option pricing experts use when attempting to price stock
options. This model determines the value of an option based on six variables:
. the current price of the common stock,
. the exercise price for the stock option,
. the risk-free interest rate,
. the expected duration of the stock option,
. the volatility of the common stock, and
. the dividend policies of the issuer.
ICCMIC and ICII have agreed that the Black-Scholes value of an ICCMIC stock
option whose exercise price exceeds the merger price is $1.10 per share.
Incentive stock options will be converted into new ICII options under the
formula prescribed by the Internal Revenue Code for converting incentive stock
options if the holder of such incentive stock options fails to waive this
method. That formula preserves the aggregate spread (the difference between the
option exercise price and the fair market value of the shares subject to the
option, determined immediately before and immediately after the conversion) of
the options, which is not necessarily the Black-Scholes value of the options.
The ICII stock options received in exchange for ICCMIC stock options will
remain exercisable for one year following the completion of the proposed merger
if the option holder does not become or remain an employee of ICII or the
manager immediately after completion of the proposed merger. The ICII stock
options will remain exercisable for one year following termination of
employment with ICCMIC or the manager (or, after the effective time, ICII or a
subsidiary) if the option holder is terminated without cause or pursuant to a
constructive termination or voluntarily terminates his or her employment for
good reason under an employment or severance agreement.
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Exchange for Cash. Alternatively, under the merger agreement, a holder of an
in-the-money ICCMIC stock option can elect to exchange all or part of the
ICCMIC stock option for cash equal to the greater of:
. the difference between the per share merger consideration, ($11.5753246)
and the exercise price of the stock option, and
. the fair value of the stock option, using the Black-Scholes option
pricing model.
Although the fair values of in-the-money ICCMIC stock options using the Black-
Scholes option pricing model have not yet been determined, all or any part of
an in-the-money ICCMIC stock option can be cashed out for $2.5753246 per share.
All or any part of an out-of-the-money ICCMIC stock option can be cashed out
for $1.10 per share, which ICII and ICCMIC agree represents the fair value of
those out-of-the-money stock options.
The table below shows the number of ICCMIC stock options held by each of the
ICCMIC directors and executive officers as of the date of this proxy statement,
their respective exercise prices and an estimate of the cash that each would
receive if he elects to exchange his options for cash upon completion of the
proposed merger:
<TABLE>
<CAPTION>
Estimated
Cash
Name Option Shares Exercise Price Payment
---- ------------- -------------- ----------
<S> <C> <C> <C>
Patric H. Hendershott............. 30,000 $15.00 $ 71,630
15,000 $ 9.00
Joseph A. Jaconi, Jr.............. 30,000 $15.00 $ 148,890
45,000 $ 9.00
Louis H. Masotti.................. 30,000 $15.00 $ 71,630
15,000 $ 9.00
Kenneth A. Munkacy................ 30,000 $15.00 $ 71,630
15,000 $ 9.00
Mark S. Karlan.................... 517,500 $15.00 $1,235,615
258,750 $ 9.00
Michael Meltzer................... 40,000 $15.00 $ 132,849
34,500 $ 9.00
Norbert M. Seifert................ 69,000 $15.00 $ 164,749
34,500 $ 9.00
H. Wayne Snavely.................. 0 N/A $ 0
Kevin E. Villani.................. 0 N/A $ 0
</TABLE>
Prior to, and in connection with, the signing of the merger agreement,
ICCMIC's former manager, Imperial Credit Commercial Asset Management Corp.,
along with Messrs. Snavely and Villani, cancelled all of their ICCMIC stock
options. These stock options were cancelled for a $10 payment to each of
Messrs. Snavely and Villani from ICCMIC. ICII has informed ICCMIC that,
following the completion of the proposed merger, ICII will reimburse Messrs.
Snavely and Villani for their cancelled stock options according to the option
pricing formula, described above, provided in the merger agreement for exchange
of ICCMIC stock options. The following table shows the number of these
cancelled stock options, their respective exercise prices and the amounts of
the contemplated ICII payments to Messrs. Snavely and Villani:
<TABLE>
<CAPTION>
Contemplated
Name Option Shares Exercise Price Payments
---- ------------- -------------- ------------
<S> <C> <C> <C>
H. Wayne Snavely............... 258,750 $15.00 $617,808
129,375 $ 9.00
Kevin E. Villani............... 258,750 $15.00 $617,808
129,375 $ 9.00
Imperial Credit Commercial
Asset Management Corp......... 1,691,250 $15.00 $ 0
</TABLE>
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Agreements between Mark S. Karlan, ICII and the Manager
Mr. Karlan, who is President, Chief Executive Officer and a member of the
ICCMIC board, is also President, Chief Executive Officer and a member of the
board of directors of Imperial Credit Commercial Asset Management Corp.,
ICCMIC's former manager. Mr. Karlan entered into an employment agreement with
the manager at the time of ICCMIC's initial public offering in October, 1997
which provided for Mr. Karlan's employment as president and chief executive
officer of the manager for a term of five years. Among other things, the
employment agreement gives Mr. Karlan the right to receive 15% of the total
economic value of the manager upon certain events, including a buyout of the
management agreement by ICCMIC or sale of the management agreement to a third
party.
The manager and Mr. Karlan entered into a supplemental letter agreement
dated July 6, 1999 to clarify certain provisions of Mr. Karlan's employment
agreement in light of the prospect of the ICII merger proposal. One purpose of
the supplemental letter agreement was to clarify that the proposed merger will
qualify as a payment of a termination fee to the manager or a buyout of the
management agreement for purposes of triggering the 15% payment provided for in
Mr. Karlan's employment agreement. In the supplemental letter agreement, Mr.
Karlan and the manager have agreed that if the ICII merger proposal is
completed or if the merger agreement is terminated, in either case the manager
will satisfy its contractual obligation arising from Mr. Karlan's employment
agreement to pay 15% of the total economic value of the manager to Mr. Karlan
by a single cash lump sum payment equal to 15% of the appraised value of the
management agreement termination fee (subject to a maximum valuation of
$35 million), reduced by certain appraisal and other costs. The supplemental
letter agreement also provides that, in the event that Mr. Karlan's employment
with the manager is terminated before the expiration of his five year
employment term in 2002, other than by the manager for cause, the manager will
pay Mr. Karlan liquidated damages in a single cash lump sum equal to the
greater of (x) the sum of his base salary at the rate in effect on July 6, 1999
and bonus as earned in respect of the calendar year 1998 multiplied by the
remainder of his five year employment agreement term and (y) the severance
benefits to which Mr. Karlan would be entitled under the employment retention
plan with ICII and the manager. See "--ICII/Manager Employment Retention Plan."
Indemnification of Directors and Officers
In the merger agreement, ICII and the surviving corporation agreed that for
six years after the completion of the proposed merger they will honor all
existing rights of indemnification or exculpation, whether under ICCMIC's
bylaws or charter, an agreement or otherwise, currently provided to directors,
officers, employees and agents of ICCMIC and its subsidiaries and the manager.
ICII and the surviving corporation have also jointly agreed to indemnify all
current directors and officers of ICCMIC, any of its subsidiaries and the
manager against all liabilities relating to acts or omissions taken in their
corporate capacities before completion of the proposed merger.
Additionally, ICII shall, or shall cause the surviving corporation to,
maintain directors' and officers' liability insurance for all persons covered
by ICCMIC's current insurance for six years after the completion of the
proposed merger. Directors' and officers' liability insurance is a standard
form of corporate insurance and covers the acts or omissions of these persons
in their capacities as directors and officers occurring prior to the proposed
merger. The coverage of this insurance will be equivalent to existing coverage.
However, if the annual cost of that insurance would exceed 300% of the annual
cost of the current insurance coverage, ICII and the surviving corporation will
only be required to obtain the maximum coverage that can be obtained for that
300% amount.
ICII/Manager Employment Retention Plan
Messrs. Karlan, Meltzer and Seifert, who are officers (and, in the case of
Mr. Karlan, a director) of ICCMIC, are also officers (and, in the case of Mr.
Karlan, a director) of the manager and participants in the "Imperial Credit
Industries, Inc. and Imperial Credit Commercial Asset Management Corp.
Employment
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Retention Plan," which was executed as of January 27, 1999. The retention plan
provides benefits to a participant if his or her employment with ICII, the
manager or ICCMIC is terminated following a change in control of ICII, the
manager or ICCMIC by his or her employer without cause, or by the participant
with good reason. "Good reason" for resignation means any reduction in salary
below the higher of the rate in effect on the date of the change in control or
the rate in effect on the termination date; reduction of a participant's bonus
below his or her average bonus over the last two full fiscal years before the
change in control; a material diminution of the participant's duties, titles or
responsibilities; a diminution in the participant's coverage by incentive
compensation programs, welfare and pension plans; relocation of the
participant's principal place of business by more than 25 miles, after the
change in control, without his or her consent; or failure of ICII or the
manager to cause a successor to assume and perform the retention plan. In
addition, if a participant's employment with ICCMIC or the manager is
terminated prior to a "change in control" at the request or suggestion of an
entity acquiring ownership and control of ICCMIC or the manager, the
participant will be deemed to have incurred a termination immediately following
the change in control so as to be entitled to benefits under the plan.
Mr. Karlan's supplemental letter agreement (see "--Agreements Between Mark
S. Karlan, ICII and the Manager") states that the proposed merger will be
deemed a "change in control" for purposes of the retention plan. In addition,
it is expected that ICII, which will acquire ownership of ICCMIC upon
completion of the proposed merger, will terminate the employment of each of the
manager's employees upon or within a few months following the completion of the
proposed merger. In that event, each of the manager's employees will become
entitled to benefits under the retention plan, payable upon the completion of
the proposed merger.
Benefits under the retention plan consist, generally, of a lump sum cash
payment of a percentage of annual base salary and bonuses for the calendar year
1998. The percentages for the participants who are directors or executive
officers of ICCMIC are: 300% for Mr. Karlan, 250% for Mr. Meltzer and 200% for
Mr. Seifert. The participant is also entitled to continuation of medical and
other welfare benefits for two years following his or her termination date, and
the immediate acceleration and payment of deferred compensation under ICII's
deferred compensation plan, any accrued but unused vacation pay and any accrued
but unpaid bonus. No mitigation of damages is required. Mr. Karlan's payments
under the retention plan will be offset reduced by the amount of any payment of
similar severance benefits under his employment agreement as clarified by his
supplemental letter agreement. As a result, if the proposed merger is completed
by February 29, 2000, it is expected that Mr. Karlan would receive $1.455
million, more than 75% of which would be paid under his employment agreement
with the balance paid under the retention plan. Payments under the retention
plan are limited to the amount (generally, three times average compensation)
that can be made without subjecting the participant to an excise tax under the
"golden parachute" provisions of Section 4999 of the Code.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement. The following summary does not purport to be complete and is
qualified in its entirety by reference to the merger agreement, which is
attached as Appendix A to this proxy statement and is incorporated by reference
into this proxy statement. You are urged to read the merger agreement in its
entirety and to consider it carefully.
The Proposed Merger
The merger agreement provides for the merger of ICCMIC Acquisition Corp.
with and into ICCMIC. ICCMIC will continue as the surviving corporation
following completion of the proposed merger as a wholly-owned subsidiary of
ICII. ICCMIC's stockholders other than ICII and its subsidiaries will receive
solely cash in exchange for their ICCMIC shares and none will continue as
stockholders of the surviving corporation.
Effective Time
The proposed merger will be effective when articles of merger have been
filed with and accepted for record by the State Department of Assessments and
Taxation of Maryland or at such other time as is agreed to by ICCMIC and ICII.
The articles of merger will be filed as soon as practicable after the ICCMIC
stockholders approve the merger agreement and the proposed merger by the
required votes and the other conditions to the completion of the proposed
merger have been satisfied or waived. See "--Conditions."
Merger Consideration
In the proposed merger, each outstanding share of ICCMIC common stock, other
than shares of common stock held by ICII and its subsidiaries, will be
converted into the right to receive $11.5753246 in cash from ICII.
The merger consideration was determined as the result of arm's-length
negotiations between the special committee and ICII. See "Special Factors:
Background, Purpose and Effects of the Proposed Merger--Background of the
Proposed Merger, " "--ICII's Purpose for Pursuing the Proposed Merger;
Structure of the Proposed Merger," "--Recommendation of the Special Committee
and the Board of Directors; Reasons for the Proposed Merger" and "--Opinion of
the Financial Advisor to the Special Committee."
Cancellation of ICCMIC Common Stock
Any shares of ICCMIC common stock held by persons other than ICII and its
subsidiaries will automatically be canceled and converted into the right to
receive the merger consideration.
Any shares of ICCMIC common stock held by ICII or its subsidiaries will also
automatically be canceled and retired in the proposed merger and will cease to
exist. No cash payment will be made in respect of these shares in the proposed
merger. ICCMIC and its subsidiaries own no shares of ICCMIC common stock.
Payment Procedures
ICII or ICCMIC will appoint a paying agent that will pay the merger
consideration in exchange for certificates representing ICCMIC shares. ICII or
ICCMIC Acquisition Corp. will deposit sufficient cash with the paying agent in
order to permit the payment of the merger consideration. Promptly after the
completion of the proposed merger, the paying agent will send ICCMIC
stockholders (other than ICII and its subsidiaries) a letter of transmittal and
instructions explaining how to send their stock certificates to the paying
agent. The paying agent will mail checks for the appropriate merger
consideration to ICCMIC stockholders promptly following the paying agent's
receipt and processing of their ICCMIC stock certificates and properly
completed transmittal documents.
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After the closing of the merger, each certificate that previously
represented shares of ICCMIC common stock will represent only the right to
receive the merger consideration and any dividends permitted by the merger
agreement. No interest will be paid on the merger consideration or the dividend
amounts.
Stockholders should not send their common stock certificates now. They
should send them only pursuant to instructions set forth in the letters of
transmittal to be mailed to stockholders as soon as practicable after the
effective time of the proposed merger. In all cases, the merger consideration
will be provided only in accordance with the procedures set forth in this proxy
statement, the merger agreement and the letters of transmittal.
ICCMIC and ICII strongly recommend that certificates representing common
stock and letters of transmittal be transmitted only by registered United
States mail, return receipt requested, appropriately insured. Any stockholder
whose certificates are lost will be required, at the holder's expense, to
furnish a lost certificate affidavit and bond acceptable in form and substance
to the paying agent.
Any merger consideration held by the paying agent that remains unclaimed by
stockholders for 180 days after the effective time of the proposed merger will
be delivered to the surviving corporation, and, subject to escheat laws, any
stockholders who have not theretofore made an exchange must thereafter look
only to the surviving corporation for payment of their claim for the merger
consideration.
ICII will pay all charges and expenses of the paying agent in connection
with the proposed merger and the payment and issuance of the merger
consideration.
Any questions concerning exchange and payment procedures and requests for
letters of transmittal may be addressed to the paying agent.
Transfer of Common Stock
No transfer of common stock will be recorded on the stock transfer books of
ICCMIC, or otherwise recognized, after the effective time of the proposed
merger. If, at or after the proposed merger, certificates of ICCMIC common
stock are presented, they will be canceled and exchanged for the right to
receive the merger consideration, as provided in "--Payment Procedures."
Stock Option and Other Plans
The effect of the merger on ICCMIC's outstanding employee stock options is
described under "Management's Conflicts of Interest in the Proposed Merger--
Treatment of Stock Options."
Directors and Officers
The merger agreement provides that the directors and officers of ICCMIC
Acquisition Corp. immediately before the completion of the proposed merger will
be the directors and officers of the surviving corporation. ICII has informed
ICCMIC that Messrs. Snavely and Villani are the sole directors and,
respectively, President and Treasurer, and Irwin L. Gubman is the Secretary, of
ICCMIC Acquisition Corp.
Solicitation Period and Superior Proposals
The merger agreement provided ICCMIC with a 60-day solicitation period,
during which it was allowed to:
. encourage, solicit, initiate, participate in or provide non-public
information to facilitate discussions or negotiations with third parties
concerning an alternative transaction involving the sale or other
disposition of all or substantially all of the assets or equity
securities of ICCMIC and its subsidiaries, or any tender offer or
exchange offer for, or resulting in issuance of, 50% or more of the
outstanding equity securities of ICCMIC; and
. enter into an agreement respecting fees and expenses in connection with
an alternative or competing transaction.
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The solicitation period began on August 13, 1999 and expired at 12:01 a.m.
on October 13, 1999 with no superior proposal having been received. See
"Special Factors: Background, Purpose and Effects of the Proposed Merger--60-
Day Market Check Process" for information concerning the parties that made
proposals, the terms of those proposals and the special committee's reasons for
rejecting those proposals. Since the solicitation period has expired, ICCMIC
now may not, directly or indirectly, solicit or initiate discussions or
negotiations concerning an alternative or competing transaction and may not
otherwise engage in the foregoing activities, except in connection with an
unsolicited superior proposal (which for this purpose, means any proposal that,
in the good faith judgment of the ICCMIC board of directors, is more favorable
to ICCMIC stockholders than the ICII merger proposal and is reasonably capable
of being consummated). However, nothing in the merger agreement prevents either
the ICCMIC board of directors or the special committee from:
. taking, and disclosing to ICCMIC stockholders, a position complying with
Rule 14e-2(a) or Rule 14d-9 of the Exchange Act regarding a competing
transaction;
. making any disclosure to ICCMIC stockholders, if, in the good faith
judgment of the ICCMIC board of directors or the special committee,
after receiving advice of outside legal counsel, failure to disclose
would be reasonably likely to constitute a breach of its duties to
ICCMIC or ICCMIC stockholders under applicable law;
. issuing a press release or publicly disclosing the terms of the merger
agreement in accordance with the provisions of the merger agreement; or
. taking any action which, in the good faith judgment of the ICCMIC board
of directors or the special committee, after receiving advice of outside
legal counsel, is required by a court order.
ICII Standstill Agreement
Except with respect to the proposed merger or any "qualifying alternative
transaction," which we describe more fully below, ICII, together with its
affiliates, has agreed to be subject to restrictions on its ability to engage
in transactions with, and take actions in respect of, ICCMIC and its
securities. In particular, among other things, ICII may not do any of the
following:
. acquire any ICCMIC equity securities other than the shares of ICCMIC
common stock it owned prior to July 22, 1999;
. acquire ownership of any of the assets or businesses of ICCMIC or any
securities issued by ICCMIC, or any rights or options to do so; (other
than the purchase of 16 SPB mortgage loans acquired by SPB as required
by the merger agreement; see "--Certain SPB Loans")
. solicit proxies to vote or communicate with, or seek to advise or
influence any person or entity with respect to the voting of, any voting
securities of ICCMIC, or become a participant in any election contest
with respect to ICCMIC;
. make any proposal for the acquisition of ICCMIC or any of ICCMIC's
assets or securities or for any extraordinary transaction involving
ICCMIC;
. initiate, propose or otherwise solicit ICCMIC stockholders for the
approval of one or more stockholder proposals with respect to ICCMIC or
the ICCMIC board of directors, or seek the removal of any member of the
ICCMIC board of directors;
. participate in a group with respect to any ICCMIC voting securities;
. otherwise seek to control or influence ICCMIC's management, ICCMIC's
board of directors or ICCMIC's policies, except as permitted or required
by the management agreement or by such person's status as an ICCMIC
director or officer;
. disclose any intention or plan inconsistent with any of the above or
assist or encourage or finance any other person in connection with any
of the above; or
. request a waiver of any of the above.
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If ICCMIC terminates the merger agreement in favor of a superior proposal
which provides for payment of non-cash consideration to ICCMIC stockholders in
exchange for their shares, then the above standstill restrictions will not
prevent ICII from proposing a qualifying alternative transaction. A "qualifying
alternative transaction" means any transaction:
. by which ICII acquires or seeks to acquire all of the shares of ICCMIC
common stock for a cash payment of not less than $11.5753246 per share,
adjusted to take into account any extraordinary cash distribution made
by ICCMIC following termination of the merger agreement or any issuance
or repurchase by ICCMIC of ICCMIC capital stock, and
. which includes other terms and conditions substantially similar to the
terms and conditions of the merger agreement.
The price requirement described in the first bullet of the above definition
of "qualifying alternative transaction" does not apply if the amount of any
break-up fee payable by ICCMIC to a third party regarding a superior proposal
with the third party exceeds $6 million. The merger agreement contains
additional restrictions on ICII if the proposed qualifying alternative
transaction is a tender or exchange offer.
ICCMIC's stockholders rights plan and charter substantially restrict ICII's
ability to consummate a qualifying alternative transaction unless the ICCMIC
board ultimately consents to such a transaction.
Certain SPB Loans
The merger agreement required ICII to purchase from ICCMIC 16 SPB mortgage
loans having an aggregate outstanding principal balance of approximately $3.9
million if those loans were not repurchased by SPB. The repurchase was required
to be at the prices provided for in the agreements under which ICCMIC
originally acquired the loans from SPB and was to be completed by the later of
60 days from the signing of the merger agreement or 5 days after the
termination of the merger agreement. See "Relationships and Transactions
Between ICII, ICCMIC and Affiliates--Other Contractual Relationships Between
ICII and its Affiliates and ICCMIC." All of those loans have been repurchased.
ICCMIC did not incur a gain or loss on the sale of the loans to ICII. ICCMIC
had been unable to include those loans in its March 1999 securitization
transaction, and did not believe that it could otherwise dispose of them to
unaffiliated third parties on terms as beneficial as the sale to ICII. ICCMIC
believed that the loans would not be attractive to potential competing bidders
for ICCMIC and would not be advantageous for ICCMIC to retain in the event that
the proposed merger were not completed and ICCMIC were not otherwise sold.
Representations and Warranties
The merger agreement contains representations and warranties made by ICCMIC
to ICII, including representations and warranties relating to:
. the due organization, corporate power and valid existence of ICCMIC and
its subsidiaries and similar corporate matters;
. the capitalization of ICCMIC and its subsidiaries;
. the authorization, execution and delivery of the merger agreement by
ICCMIC;
. the accuracy of ICCMIC's SEC reports and financial statements;
. required consents, approvals, permits and authorizations of regulatory
entities relating to the merger agreement;
. the receipt by the special committee of a fairness opinion from
Prudential Securities;
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<PAGE>
. brokers and finders fees with respect to the proposed merger;
. the accuracy of the information provided by ICCMIC for inclusion in this
proxy statement and in the Schedule 13E-3 prepared by ICII with regard
to the proposed merger;
. the inapplicability of the ICCMIC stockholders rights plan to the
proposed merger; and
. compliance with applicable laws.
The merger agreement also contains representations and warranties made by
ICII and ICCMIC Acquisition Corp. to ICCMIC, including representations and
warranties relating to:
. the due organization, corporate power and valid existence of ICII and
its subsidiaries and similar corporate matters;
. the authorization, execution and delivery of the merger agreement by
ICII;
. the accuracy of ICII's SEC reports and financial statements;
. required consents, approvals, permits and authorizations of regulatory
entities relating to the merger agreement;
. brokers and finders fees with respect to the proposed merger;
. ICII's ownership of ICCMIC common stock;
. the accuracy of the information provided by ICII and ICCMIC Acquisition
Corp. for inclusion in this proxy statement and in the Schedule 13E-3
prepared by ICII with regard to the proposed merger;
. ICII's access to funds sufficient to complete the proposed merger; and
. the purposes for which ICCMIC Acquisition Corp. was formed.
The representations and warranties made by each of the parties to the merger
agreement will expire upon completion of the proposed merger.
Covenants; Conduct of Business Pending the Proposed Merger
Conduct of Business. ICCMIC and its subsidiaries have agreed to conduct
their operations from July 22, 1999 through the completion of the proposed
merger in the ordinary course of business, consistent with past practice,
except as otherwise contemplated in the merger agreement.
In addition, ICCMIC has agreed that, except as provided in the merger
agreement or with the prior written consent of ICII, ICCMIC will not, and will
not permit any of its subsidiaries to:
. amend its charter or bylaws;
. issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any securities of ICCMIC or any of its subsidiaries except
as required by any existing employee benefit plans;
. split, combine or reclassify any stock, or declare, set aside, or pay
any dividend or any other distribution, except for:
. regular quarterly dividends not exceeding 105% of its taxable income;
. any distributions not exceeding 105% of its taxable income that may be
necessary to maintain REIT status; and
. a final dividend for the taxable year ending as of the completion of
the proposed merger not exceeding 100% of its taxable income for such
taxable year, less the amount of all prior dividends paid in respect
of that taxable year;
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. subject to specified exceptions, acquire, sell, lease, license or
otherwise dispose of material assets or enter into any material contract
outside of the ordinary course of business;
. except as required by a change in law or in generally accepted
accounting principles, change any of its accounting principles or
practices;
. merge, consolidate or make any corporate acquisitions;
. subject to specified exceptions, pay, discharge or satisfy any claims,
liabilities or obligations, other than in the ordinary course of
business in accordance with past practice;
. settle or compromise any claim, suit or other litigation or matter in an
arbitration proceeding for an amount in excess of $100,000 (less
insurance proceeds to which ICCMIC or any of its subsidiaries is
entitled), or otherwise on terms that would be material to ICCMIC and
its subsidiaries;
. create or assume with respect to any of its assets any mortgage, lien,
or similar encumbrance of any kind that would reasonably be expected to
be material to ICCMIC and its subsidiaries;
. subject to specified exceptions, make any loan, advance or capital
contribution exceeding $500,000; or
. take or omit to take any action that would terminate ICCMIC's status as
a REIT.
Reasonable Best Efforts. Each of the parties to the merger agreement has
agreed to use its reasonable best efforts to complete the proposed merger as
soon as practicable after the stockholder vote with respect to the merger
agreement and the proposed merger.
Notices. In the merger agreement, each party has agreed to give prompt
notice to the other of:
. any event that would be likely to cause any representation or warranty
made by it in the merger agreement to become untrue in any material
respect;
. the material failure by it to comply with or satisfy any covenant,
condition or agreement required to be complied with or satisfied by it
under the merger agreement;
. any notice of a default or potential default under any material
contract;
. any notice from a third party alleging that its consent is necessary in
connection with the proposed merger; and
. any change, event or circumstance that has had or would have a material
adverse effect on ICCMIC or ICII.
The merger agreement further provides that ICCMIC and ICII will provide to
each other copies of all reports filed with the SEC after the date of the
merger agreement.
Special Meeting; Disclosure. ICCMIC and ICII have agreed in the merger
agreement to prepare and file with the SEC this proxy statement and a Rule 13e-
3 Transaction Statement on Schedule 13E-3, and to use all reasonable best
efforts to cause this proxy statement (including the information contained in
the Schedule 13E-3) to be disseminated to stockholders. The merger agreement
further provides that ICCMIC will afford ICII and its representatives
reasonable access to its and its subsidiaries' business, properties and
personnel.
The merger agreement provides that ICCMIC's board of directors will:
. call and convene the special meeting for the purpose of obtaining the
required stockholder approval as soon as reasonably practicable
following expiration of the 60-day solicitation period described in this
proxy statement, and
. subject to the ICCMIC directors' fiduciary duties and their rights to
solicit and deal with "superior proposals," recommend to the
stockholders that they approve the merger agreement. See "--Solicitation
Period and Superior Proposals."
75
<PAGE>
Exemption from "Excess Share" Provision of ICCMIC's Charter. ICCMIC's
charter provides that, subject to specified exceptions, no person may own, or
be deemed to own, more than 9.9% of the outstanding shares of ICCMIC common
stock. In the merger agreement, ICCMIC's board of directors agreed to exempt
the transactions contemplated by the merger agreement from this excess share
provision if the conditions specified in ICCMIC's charter are satisfied. In
addition, the parties agreed that any application of the excess share provision
to the proposed merger would not constitute a breach of the merger agreement.
Indemnification and Insurance. ICII and ICCMIC Acquisition Corp. have agreed
that all rights to indemnification that the directors, officers, employees and
agents of ICCMIC currently possess with respect to actions or omissions
occurring prior to the completion of the proposed merger will continue for six
years after the completion of the proposed merger. In addition, all rights to
indemnification in respect of any claim asserted or made within that six-year
period will continue until the disposition of the claim. After the completion
of the proposed merger, ICII and the surviving corporation jointly and
severally will indemnify, hold harmless and defend all current and former
directors and officers of the manager and/or ICCMIC and any of their
subsidiaries against all losses, claims, damages, liabilities, judgments, costs
or expenses arising out of or pertaining to acts or omissions (or alleged acts
or omissions) by them in their capacities as directors or officers. That
indemnification is mandatory rather than permissive to the extent permitted by
Maryland law. Immediately upon completion of the proposed merger, ICII and the
surviving corporation will jointly and severally assume ICCMIC's obligations
under any indemnification agreements entered into by ICCMIC for the benefit of
its directors and officers.
ICII has agreed to maintain policies of directors' and officers' liability
and fiduciary insurance in effect for not less than six years after the
completion of the proposed merger, on terms no less favorable than ICCMIC's
current policies. This obligation is subject to the exception that ICII is not
required to pay premiums for this insurance exceeding 300% of the current
aggregate annual premium paid by ICCMIC as of the date of the merger agreement.
If the premiums for this insurance coverage are greater than 300% of the
aggregate premium paid by ICCMIC, ICII must purchase an insurance policy with
the greatest coverage available for 300% of the aggregate annual premium.
Conditions
The obligations of ICCMIC, ICII and ICCMIC Acquisition Corp. to complete the
proposed merger are subject to the satisfaction or waiver at or prior to the
effective time of the proposed merger of the following conditions:
. the approval of the merger agreement and the proposed merger by the
holders of a majority of the total number of outstanding shares;
. the approval of the merger agreement and the proposed merger by a
majority of the ICCMIC shares entitled to vote at the special meeting
(other than shares held by ICII and Messrs. Snavely and Villani); and
. the absence of any statute, rule, regulation, executive order, decree,
rule or injunction making the proposed merger illegal or prohibiting its
completion.
The obligations of ICII and ICCMIC Acquisition Corp. to complete the
proposed merger are further subject to the satisfaction or waiver by them of
the following additional conditions:
. the representations and warranties of ICCMIC in the merger agreement or
in any other document delivered pursuant to the merger agreement must be
true and correct in all material respects as of the effective time of
the proposed merger;
. ICCMIC must have performed its obligations under the merger agreement in
all material respects; and
. the "excess share" provision of ICCMIC's charter will have been waived.
76
<PAGE>
The obligation of ICCMIC to complete the proposed merger is subject to the
satisfaction or waiver by ICCMIC of the following additional conditions:
. the representations and warranties of ICII and ICCMIC Acquisition Corp.
in the merger agreement or in any other document delivered pursuant to
the merger agreement must be true and correct in all material respects
as of the effective time of the proposed merger;
. ICII and ICCMIC Acquisition Corp. will have performed their obligations
under the merger agreement in all material respects; and
. the opinions and agreements necessary for waiver of the "excess share"
provision of ICCMIC's charter will have been received.
If any of the conditions to the proposed merger are waived, we intend to
resolicit proxies only if the failure to satisfy the waived conditions could
have a material adverse effect on ICCMIC's stockholders other than ICII.
Termination; Withdrawal of Recommendations
The merger agreement may be terminated, and the proposed merger abandoned,
at any time prior to the effective time, whether before or after approval by
the stockholders:
. by mutual written consent of ICII and ICCMIC;
. by either ICII or ICCMIC if:
. any regulatory body has issued an order or taken any other action
permanently restraining, enjoining or otherwise prohibiting the
proposed merger and the order or other action has become final and
nonappealable;
. the representations and warranties made by the other party in the
merger agreement were materially untrue when made or later become
materially untrue;
. the other party breaches in any material respect any of its
obligations under the merger agreement, and fails to cure the breach
within 20 days;
. the proposed merger has not been completed by January 31, 2000; or
. the requisite approval of ICCMIC stockholders is not obtained at the
special meeting or any adjournment or postponement thereof;
. by ICII if:
. prior to the effective time of the proposed merger, ICCMIC's board of
directors approves or recommends, or resolves to approve or recommend,
a superior proposal (in which case ICII must vote, tender or exchange
its shares of ICCMIC common stock in favor of the superior proposal if
the superior proposal is an all cash proposal); or
. prior to the effective time of the proposed merger, ICCMIC's full
board of directors withdraws or modifies its approval or
recommendation of the ICII merger proposal in a manner adverse to
ICII; and
. by ICCMIC if, prior to the effective time of the proposed merger,
ICCMIC's board of directors approves or recommends a superior proposal
(in which case, as stated above, ICII must vote, tender or exchange its
shares in favor of the superior proposal, provided it is an all cash
proposal).
As a general matter, however, neither party may terminate the merger
agreement if it has failed to use its reasonable best efforts to carry out the
proposed merger.
77
<PAGE>
On October 29, 1999, ICCMIC, ICII and ICCMIC Acquisition Corp. amended the
merger agreement to provide that the merger agreement may be terminated, and
the proposed merger abandoned, by either ICCMIC or ICII if the proposed merger
has not been completed by February 29, 2000. As originally executed by the
parties, the merger agreement had provided that either party could terminate
the merger agreement if the proposed merger were not completed by January 31,
2000.
Termination Fees and Expenses
ICII and ICCMIC have agreed that all expenses incurred in connection with
the merger agreement and the proposed merger are to be paid by the party that
incurs them. Nonetheless, if ICCMIC's board of directors recommends a superior
proposal and the merger agreement terminated as a result of that
recommendation, ICCMIC must pay all of ICII's actual expenses (not including
investment banking expenses other than the investment bankers' out-of-pocket
expenses, and not including expenses relating to ICII's financing
arrangements), up to a maximum of $2 million. In addition, if the merger
agreement is deemed void or voidable under Maryland law pursuant to Maryland's
"business combinations" statute, ICII must pay ICCMIC's actual expenses in
connection with the merger agreement and the proposed merger.
The merger agreement provides that if the merger agreement terminates (other
than as a result of a breach by ICCMIC of the merger agreement), the management
agreement between ICCMIC and the manager will also terminate and, in that
event, ICCMIC must pay to the manager a termination fee which has been
determined to be $33 million. (ICCMIC's management agreement with the manager
expired on October 22, 1999. However, the parties have agreed that ICCMIC will
not be required to pay the termination fee unless the merger agreement is
terminated, in which event the termination fee will be due and payable at that
time.)
Amendment and Waiver
The merger agreement may be amended at any time before or after approval of
the merger agreement and the proposed merger by the stockholders of ICCMIC.
After stockholder approval, however, no amendment may be made that requires
further approval by the stockholders of ICCMIC under applicable law without
obtaining that further approval. In general, after stockholder approval, a
merger agreement may not be amended in a manner that materially adversely
affects stockholders without their prior approval. No such amendment is
currently contemplated by ICCMIC or ICII. If such an amendment is made, ICCMIC
will resolicit proxies and obtain the approval of stockholders prior to
completing the proposed merger.
The merger agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties thereto. At any time prior to the
effective time of the proposed merger, each of the parties to the merger
agreement may:
. extend the time for the performance of any of the obligations or other
acts of the other parties;
. waive any inaccuracies in the representations and warranties of the
other parties contained in the merger agreement or in any document
delivered pursuant to the merger agreement; and
. waive compliance by the other parties of any of the agreements or
conditions contained in the merger agreement.
Any agreement on the part of a party to the merger agreement to any
extension or waiver will be valid only if set forth in a written instrument
signed on behalf of such party and expressly referring to the merger agreement.
If any of the conditions to the proposed merger are waived, we intend to
resolicit proxies only if the failure to satisfy the waived conditions could
have a material adverse effect on ICCMIC's stockholders other than ICII.
78
<PAGE>
FEES AND EXPENSES
The estimated aggregate costs and fees of ICCMIC and ICII in connection with
the merger agreement and the proposed merger are as follows:
<TABLE>
<CAPTION>
To Be To Be
Paid By Paid By
ICCMIC ICII
---------- ----------
<S> <C> <C>
Investment Banking Fees and Expenses..................... $3,750,000 $3,100,000
Filing Fees.............................................. 61,000 --
Legal Fees and Expenses.................................. 2,500,000 750,000
Accounting Fees and Services............................. 85,000 150,000
Appraisal Fees........................................... 450,000 450,000
Printing, Mailing and Vote Solicitation Fees............. 800,000 --
Miscellaneous Fees....................................... 54,000 --
---------- ----------
Total................................................ $7,700,000 $4,450,000
</TABLE>
The merger agreement provides that each party is to pay the fees and
expenses incurred by it, except if ICCMIC's board of directors recommends a
superior proposal and the merger agreement terminates as a result of that
recommendation, ICCMIC must pay all of ICII's actual expenses (not including
investment banking expenses, other than reimbursement of the investment
bankers' out-of-pocket expenses, and not including expenses relating to ICII's
financing arrangements), up to a maximum of $2 million. See "The Merger
Agreement--Termination Fees and Expenses."
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<PAGE>
REGULATORY REQUIREMENTS
Except for the filing of articles of merger with the State Department of
Assessments and Taxation of Maryland after the approval of the merger agreement
and the proposed merger by ICCMIC's stockholders, and compliance with federal
and state securities laws, neither ICCMIC nor ICII is aware of any material
United States federal or state or foreign governmental regulatory requirement
that must be complied with, or approval that must be obtained, in connection
with the proposed merger.
ICCMIC and ICII believe that the proposed closing of the merger will not
violate any antitrust laws and also that the merger may be completed without
notification being given or information being furnished to the Federal Trade
Commission or the Antitrust Division of the Department of Justice pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976. At any time before or
after the completion of the proposed merger, however, either the FTC or the
Antitrust Division could take any action under the antitrust laws as it deems
necessary or desirable in the public interest. Other persons could also take
action under the antitrust laws, including an attempt to enjoin the proposed
merger. Accordingly, there can be no assurance, however, that a challenge to
the proposed merger on antitrust grounds will not be made or, if a challenge is
made, what the result will be.
80
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF ICCMIC
The following table presents selected historical financial data and other
operating information for ICCMIC as of and for each of the periods indicated.
We derived the financial data in the table from ICCMIC's consolidated financial
statements. In the case of the column headed "1997", the data relate to
ICCMIC's initial short period of operations from the date of completion of its
initial public offering on October 22, 1997 until December 31, 1997. The data
should be read in conjunction with the consolidated financial statements,
related notes and other financial information included or incorporated by
reference in this proxy statement. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
For the nine months
ended September 30, For the short period
--------------------- For the year ended ended December 31,
1999 1998 December 31, 1998 1997
---------- ---------- ------------------ --------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Earnings
Data:
Interest Income......... $ 42,666 $ 35,269 $ 49,737 $6,467
Real Property Rental
Income................. 10,479 4,266 7,684 --
---------- ---------- ---------- ------
Total Income........ 53,145 39,535 57,421 6,467
---------- ---------- ---------- ------
Operating Expenses:
Management fees....... 5,485 4,383 6,319 940
Interest expense...... 14,338 5,475 11,165 --
Provision for loan
losses............... 4,633 3,300 6,300 --
Write-down of
securities available-
for-sale............. -- 3,233 4,554 --
Depreciation of real
property............. 2,372 962 1,755 --
Real property
operating expenses... 2,384 1,014 1,872 --
Due diligence
expenses............. 3,520 866 1,659 487
Stock options issued
to manager and its
employees............ -- -- 97 2,550
Other................. 918 1,098 1,456 331
---------- ---------- ---------- ------
Total Expenses...... 33,650 20,331 35,177 4,308
---------- ---------- ---------- ------
Net Earnings........ $ 19,495 $ 19,204 $ 22,244 $2,159
========== ========== ========== ======
Earnings per share--
Basic and diluted...... $ 0.57 $ 0.68 $ 0.68 $ 0.06
Ratio of earnings to
fixed charges(1)....... 2.35 to 1 4.49 to 1 2.98 to 1 --
Cash dividends declared
per share.............. $ 0.82 $ 0.85 $ 1.18 $ 0.13
</TABLE>
<TABLE>
<CAPTION>
As of As of As of
September 30, December 31, December 31,
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Balance Sheet Data:
Total invested assets... $551,338 $721,982 $331,330
Total assets............ 687,740 757,174 495,137
Total outstanding
borrowings............. 272,493 331,132 --
Total liabilities....... 285,270 348,365 15,435
Total stockholders'
equity................. 402,470 408,809 479,702
Ratio of debt to total
capitalization......... 40% 45% --
Book value per share.... $ 14.12 $ 14.34 $ 13.90
</TABLE>
- --------
(1) For the purpose of calculating the ratios of earnings to fixed charges,
earnings consist of net earnings before income taxes, extraordinary items
and certain fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing costs and that portion of rental expense
representative of the interest factor in leases.
81
<PAGE>
COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION
ICCMIC's common stock is listed on the Nasdaq Stock Market under the symbol
"ICMI." As of September 30, 1999, there were approximately 44 record holders
and 3,000 beneficial holders of ICCMIC's common stock.
Market Prices
The following table shows, for the periods indicated, the high and low sale
prices for ICCMIC common stock as reported by the Nasdaq Stock Market.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
1997:
Fourth quarter (commencing October 17, 1997)............... $19.125 $14.230
1998:
First quarter.............................................. $16.750 $14.125
Second quarter............................................. $16.500 $12.875
Third quarter.............................................. $13.063 $ 8.563
Fourth quarter............................................. $10.375 $ 6.500
1999:
First quarter.............................................. $10.875 $ 8.313
Second quarter............................................. $11.500 $ 8.500
Third quarter.............................................. $11.250 $10.500
Fourth quarter (through December 20, 1999)................. $11.438 $10.375
</TABLE>
On May 12, 1999, the last full trading day prior to ICII's public
announcement of its initial proposal, and on July 21, 1999, the last full
trading day prior to the public announcement of the merger agreement, the
closing sale prices of ICCMIC common stock reported on the Nasdaq Stock Market
were $9.875 and $10.75 per share, respectively. On , 1999, the most recent
practicable date prior to the printing of this proxy statement, the closing
price of ICCMIC common stock reported on the Nasdaq Stock Market was $ .
Stockholders should obtain current market quotations for ICCMIC common stock
prior to making any decision with respect to the proposed merger.
Dividend Policy
To maintain its qualification as a REIT, ICCMIC is required to pay dividends
to stockholders equal to at least 95% of its taxable income, which may not
necessarily equal its net earnings calculated in accordance with generally
accepted accounting principles. Calculation of taxable income is determined
without regard to the deduction for dividends paid and excludes any net capital
gains. To satisfy this requirement, ICCMIC declares regular quarterly
dividends.
The merger agreement permits ICCMIC to declare and pay regular quarterly
dividends in an amount not to exceed 105% of its quarterly taxable income, if
any, until the completion of the proposed merger. We expect to continue to
declare and pay quarterly dividends that are approximately equal to ICCMIC's
taxable income for each calendar quarter prior to the one in which the proposed
merger occurs. The merger agreement also permits ICCMIC to declare a final
dividend, the record date of which will be the business day immediately prior
to the completion of the proposed merger. This final dividend may not exceed
100% of ICCMIC's taxable income, if any, for its taxable year up to the date of
the proposed merger, reduced by the amount of any dividends already paid during
the year. We expect to declare the final dividend, if any, shortly before
completion of the proposed merger. The final dividend, if declared, will be
paid as soon as practicable after the completion of the proposed merger.
Distributions to stockholders are generally taxable as ordinary income, but
a portion of such distributions may be capital gains or may constitute a tax-
free return of capital. ICCMIC furnishes an annual statement to each of its
stockholders of record listing the distributions ICCMIC has paid during the
preceding year and their characterization as ordinary income, capital gain or
return of capital.
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<PAGE>
The following table lists the cash dividends declared by ICCMIC for 1997,
1998 and 1999 to date.
<TABLE>
<CAPTION>
Amount
Per Share Record Date Payment Date
--------- ----------- ------------
<S> <C> <C> <C>
1997--Initial period of operations........... $0.13 12/31/97 1/16/98
=====
1998:
First quarter............................... $0.24 3/31/98 4/14/98
Second quarter.............................. $0.28 7/9/98 7/23/98
Third quarter............................... $0.33 9/30/98 10/14/98
Fourth quarter.............................. $0.33 12/31/98 1/21/99
-----
Year....................................... $1.18
=====
1999:
First quarter............................... $0.30 3/31/99 4/15/99
Second quarter.............................. $0.30 6/30/99 7/15/99
Third quarter............................... $0.22 10/8/99 10/15/99
Fourth quarter.............................. $0.33 12/31/99 1/14/00
</TABLE>
The dividends for 1997 and 1998 presented in the above table were all
characterized for tax purposes as ordinary income.
The declaration of future dividends, if any, will depend upon business
conditions, the earnings and financial position of ICCMIC, ICCMIC's plans with
respect to operating and capital expenditures, tax requirements and such other
matters as ICCMIC's board of directors determines to be relevant.
83
<PAGE>
RELATIONSHIPS AND TRANSACTIONS
BETWEEN ICII, ICCMIC AND AFFILIATES
Relationships with the Manager
General. Until October 22, 1999, ICCMIC's day-to-day operations were
conducted by its former manager, Imperial Credit Commercial Asset Management
Corp., subject to the supervision of ICCMIC's board of directors. The manager
is a wholly-owned subsidiary of ICII.
ICCMIC's management agreement with the manager expired on October 22, 1999.
Immediately thereafter, ICCMIC hired all 16 employees of the manager on a full-
time salaried basis to manage ICCMIC's day-to-day operations.
Directors and Executive Officers of the Manager. The directors and executive
officers of the manager are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
H. Wayne Snavely...... 58 Chairman of the Board of Directors
Kevin E. Villani...... 51 Vice Chairman of the Board of Directors
Mark S. Karlan........ 41 President, Chief Executive Officer and Director
Michael Meltzer....... 53 Chief Financial Officer and Treasurer
Norbert M. Seifert.... 43 General Counsel, Senior Vice President and Secretary
</TABLE>
Each of these persons also serves as a director and/or executive officer of
ICCMIC.
Biographical information on ICCMIC's directors and officers can be found in
ICCMIC's Annual Report on Form 10-K for the year ended December 31, 1998, as
amended, which is incorporated by reference in this proxy statement.
Management Agreement Fees. Under the management agreement, the manager
received a base management fee calculated as a percentage of ICCMIC's average
invested assets for each calendar quarter. The base management fee percentage
was to decrease as the amount of assets being managed increased, in accordance
with the following schedule:
. 1% per year for the first $1 billion of average invested assets,
. 0.75% per year for the next $250 million of average invested assets, and
. 0.50% per year for all average invested assets above $1.25 billion.
For these purposes, "average invested assets" meant the daily average of the
aggregate book value of ICCMIC's assets, including the assets of all of its
subsidiaries, before reserves for depreciation, bad debts or similar non-cash
items.
In addition to its base management fee, the manager was entitled to receive
a quarterly incentive fee if its performance target is met. The performance
target required that ICCMIC's funds from operations, on a per share basis,
exceed a target rate of return equal to 4% above the 10-year U.S. treasury
rate.
The following table shows the management agreement fees paid and/or accrued
by ICCMIC through the October 22, 1999 expiration of the management agreement.
An incentive fee was paid by ICCMIC for the second quarter of 1999.
<TABLE>
<CAPTION>
Base Incentive Total
Management Fee Management Fee Management Fee
--------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C>
Period ended December 31,
1997......................... $ 940 -- $ 940
Year ended December 31, 1998.. $6,319 -- $6,319
January 1, 1999 through
October 22, 1999............. $5,864 $41 $5,905
</TABLE>
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<PAGE>
Termination Fee. The merger agreement provides that if the merger agreement
terminates (other than as a result of a breach by ICCMIC of the merger
agreement), the management agreement between ICCMIC and the manager will also
terminate, in which case ICCMIC must pay to the manager the management
agreement termination fee, which has been determined to be $33 million. See
"Special Factors: Background, Purpose and Effects of the Proposed Merger--
Management Agreement; Appraisal." (ICCMIC's management agreement with the
manager expired on October 22, 1999. The parties have agreed that ICCMIC will
not be required to pay the termination fee unless the merger agreement is
terminated, in which event the management agreement termination fee will be due
and payable at that time.)
Other Contractual Relationships Between ICII and its Affiliates and ICCMIC
ICII and its affiliates, including SPB, are in the business of originating
mortgage loans and interests in commercial mortgage-backed securities.
In 1997 and 1998, ICCMIC purchased 1,049 multifamily and commercial mortgage
loans from SPB for a price of approximately $400 million. The mortgage loans
purchased had an aggregate principal balance of approximately $388 million and
had original terms to maturity of not more than 360 months. SPB represented
that each mortgage loan was secured by a mortgage or deed of trust on real
property, including:
. multifamily homes,
. retail properties,
. office properties,
. industrial properties,
. mobile homes,
. mixed use properties, including mixed commercial uses and mixed
commercial and residential uses, and
. other commercial real property.
SPB has performed the primary servicing of these and other SPB originated
mortgage loans on behalf of ICCMIC. SPB stopped being the primary servicer of
almost all of these loans in July 1999, when ICCMIC transferred the primary
servicing to Banc One Mortgage Capital Markets, LLC (now ORIX Real Estate
Capital Markets).
In 1997, ICCMIC purchased certain CMBS interests for $55 million from ICII
and SPB.
In 1997 and 1998, ICCMIC also purchased from FMAC, an ICII affiliate at that
time, 97 mortgage loans originated by FMAC for a price of $101 million, which
approximately equaled the aggregate principal amount of those loans. At the
time of those purchases, FMAC granted ICCMIC the right to resell those loans to
FMAC on demand. FMAC has repurchased all of those mortgage loans. The
repurchase by FMAC resulted in a gain to ICCMIC of $818,000. In 1997 and 1998,
ICCMIC also acquired from FMAC approximately $6 million of asset-backed
securities. Those securities are backed by mortgage loans originated or
acquired by FMAC. ICCMIC does not have a contractual right to cause FMAC to
repurchase the asset-backed securities.
In November 1999, ICCMIC purchased from SPB approximately $25 million
principal balance of mortgage loans at a price of par plus accrued interest and
with the right to resell those loans to SPB at par plus accrued interest on or
after February 28, 2000 or earlier upon the termination of the merger
agreement. During 1999, SPB repurchased from ICCMIC certain multifamily and
commercial real estate loans with an aggregate principal balance of $45.5
million. ICCMIC is presently negotiating with ICII to resolve certain claims
that ICCMIC may have against SPB, ICII or both in connection with the
repurchased loans and other loans that ICCMIC previously purchased from SPB.
ICII has informed ICCMIC that it believes ICCMIC's claims, which aggregate to
approximately $1.8 million, are largely without merit.
85
<PAGE>
Additional information concerning ICCMIC's transactions with ICII and its
affiliates is contained in ICCMIC's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, as amended, which is incorporated by reference in
this document.
Purchases and Sales of Common Stock by ICII and its Affiliates
On the date of completion of ICCMIC's initial public offering on October 22,
1997, ICII purchased 2,970,000 shares of ICCMIC common stock at a price equal
to the initial public offering price, net of underwriting discounts and
commissions, or $13.95 per share. In connection with this purchase, Friedman
Billings, the lead underwriter for ICCMIC's initial public offering, required
ICII to enter into a lock-up agreement. The lock-up agreement required ICII to
retain its shares of ICCMIC common stock for two years after the initial public
offering. If ICCMIC terminates the management agreement, ICII may dispose of
its shares at any time thereafter.
On December 11, 1997, ICII purchased an additional 100,000 shares of ICCMIC
common stock in an open market transaction at a price of $15.00 per share.
ICII's stock purchases and ICCMIC's subsequent repurchase of 6,000,000 shares
of its common stock resulted in ICII's direct ownership of 10.8% of the total
shares of common stock of ICCMIC. ICII subsequently reduced its direct
ownership to 9.0% through a sale of 500,000 shares at a per share price of
$10.875 on June 24, 1999.
On October 16, 1997, ICCMIC granted a non-qualified option for 1,691,250
shares of ICCMIC common stock to the manager pursuant to the 1997 Stock Option
Plan. The stock option had an exercise price of $15.00 per share and would have
expired on October 16, 2007. The manager's stock option was canceled on July
22, 1999, prior to the signing of the merger agreement, for nominal payment
from ICCMIC.
Prior to execution of the merger agreement, Messrs. Snavely and Villani
agreed to the cancellation of their respective ICCMIC stock options for nominal
payment from ICCMIC. ICII has informed ICCMIC that, following the completion of
the proposed merger, ICII will reimburse Messrs. Snavely and Villani for their
cancelled stock options according to the option pricing formula, described
above, provided in the merger agreement for exchange of ICCMIC stock options.
On August 18, 1999, Mr. Snavely sold 100,000 shares of ICCMIC common stock
at a price of $10.6875 per share.
ICII has not made any purchases or sales of ICCMIC common stock during the
past 60 days.
Additional information (including information about transactions between
ICCMIC and ICII) is set forth in ICCMIC's Annual Report on Form 10-K for the
year ended December 31, 1998, as amended, which is incorporated by reference in
this proxy statement.
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<PAGE>
MANAGEMENT OF ICCMIC
Information about the management of ICCMIC is set forth in Part III of
ICCMIC's Annual Report on Form 10-K for the year ended December 31, 1998, as
amended, which is incorporated by reference in this proxy statement. All
directors and officers of ICCMIC are citizens of the United States.
MANAGEMENT OF ICII AND ICCMIC ACQUISITION CORP.
Management of ICII
The name, principal business address, title and present and five-year
historical principal occupation or employment of each of the directors and
executive officers of ICII are set forth below. If no business address is
given, the director's or officer's business address is 23550 Hawthorne Blvd.,
Suite 110, Torrance, CA 90503. If no dates are indicated with respect to a
position, the individual has served in that capacity for at least the past five
years. All of the persons listed below are citizens of the United States of
America.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment
Material Positions Held During the Past
Name and Current Business Address Five Years and Business Addresses Thereof
--------------------------------- ------------------------------------------
<C> <S>
H. Wayne Snavely............ Chairman of the Board and Chief Executive
Officer of ICII since December 1991 and
President since February 1996.
Chairman of the Board of ICCMIC since its
inception in July 1997.
Chairman of the Board of FMAC, 2029 Century
Park East, Suite 1190, Los Angeles, CA
90067, from November 1997 until November
1999.
Brad S. Plantiko............ Executive Vice President and Chief Financial
Officer of ICII since July 1998.
From July 1994 until July 1998, Mr. Plantiko
was a partner at KPMG LLP, 355 South Hope
Street, Los Angeles, CA.
A Director of FMAC from November 1998 until
November 1999.
Kevin E. Villani............ Executive Vice President, Finance of ICII
from July 1998 until October 1999, a
Director of ICII since 1997 and Chief
Financial Officer of ICII from September
1995 to July 1998.
Vice Chairman of the Board of ICCMIC since
its inception in July 1997.
Mr. Villani joined the University of
Southern California, Los Angeles, CA as the
Wells Fargo Visiting Professor of Finance
and from 1993 to 1996 was Associate
Professor of Clinical Finance and Real
Estate.
Irwin L. Gubman............. General Counsel and Secretary of ICII since
October 1996.
Mr. Gubman was a Partner at Coudert
Brothers, 4 Embarcadero Center, Suite 3300,
San Francisco, CA 94111, from January 1992
to September 1996.
Paul B. Lasiter............. Senior Vice President and Controller of ICII
since December 1992.
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment
Material Positions Held During the Past
Name and Current Business Address Five Years and Business Addresses Thereof
--------------------------------- ------------------------------------------
<C> <S>
John G. Getzelman........... President of SPB, 12300 Wilshire Boulevard,
Los Angeles, California 90025, since
December 1998.
President, Community Bank of Pasadena, 505
East Colorado Blvd., Pasadena, CA, from July
1992 to December 1998.
Steven J. Shugerman......... Director of ICII since December 1991.
President of SPB from June 1987 to November
1998.
Robert S. Muehlenbeck....... Director of ICII since December 1991.
Executive Vice President of Imperial Bank,
9920 South La Cienega Blvd., Inglewood, CA
90301, from July 1994 to October 1998.
Perry A. Lerner............. Director of ICII since May 1992.
Director of FMAC since November 1997.
Principal in Crown Capital Group, Inc., 660
Madison Avenue, 15th Floor, New York, NY
10021 since 1996.
Mr. Lerner was a Partner at O'Melveny &
Myers, 153 East 53rd Street, 54th Floor, New
York, NY 10022 from 1984 to 1996.
</TABLE>
Management of ICCMIC Acquisition Corp.
The name, business address, title and present and five-year historical
principal occupation or employment of each of the executive officers of ICCMIC
Acquisition Corp. are discussed in this paragraph. Messrs. Snavely and Villani
(for whom such information is presented above under "ICII") are the sole
directors and respectively President and Treasurer, and Irwin L. Gubman (for
whom such information is also presented above under "ICII") is the Secretary,
of ICCMIC Acquisition Corp. The business address of each executive officer is
23550 Hawthorne Blvd., Suite 110, Torrance, CA 90505. Each of Messrs. Snavely,
Villani and Gubman is a citizen of the United States of America.
88
<PAGE>
SECURITIES OWNERSHIP
The following table sets forth certain information known to ICCMIC with
respect to beneficial ownership of ICCMIC common stock as of November 30, 1999
by (1) each person known to ICCMIC to beneficially own more than five percent
of its common stock, (2) each director of ICCMIC, (3) each executive officer of
ICCMIC, (4) all the directors and executive officers of ICCMIC as a group and
(5) each director and executive director of ICII. Unless otherwise indicated in
the footnotes to the table, the beneficial owners named have, to the knowledge
of ICCMIC, sole voting and investment power with respect to the shares
beneficially owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Percentage
Number of Shares Of Shares
Name of Beneficial Owner Beneficially Owned Beneficially Owned(1)
------------------------ ------------------ --------------------
<S> <C> <C>
Merrill Lynch Asset Management(2).... 3,265,897 11.5%
Imperial Credit Industries, Inc. .... 2,570,000 9.0%
ITLA Capital Corp(3)................. 1,426,000 5.0%
Mark S. Karlan(4).................... 461,250 1.6%
Norbert M. Seifert(5)................ 114,500 *
Kevin E. Villani..................... 76,684 *
Joseph A. Jaconi, Jr.(6)............. 50,000 *
H. Wayne Snavely..................... 43,369 *
Kenneth A. Munkacy(7)................ 28,600 *
Michael Meltzer(8)................... 27,283 *
Louis H. Masotti(7).................. 26,000 *
Patric H. Hendershott(7)............. 25,000 *
All ICCMIC directors and executive
officers as a group (9 persons)..... 852,686 2.9%
Brad S. Plantiko..................... 6,400 *
Irwin L. Gubman...................... 3,500 *
Stephen J. Shugerman................. 5,000 *
Perry A. Lerner...................... 1,000 *
</TABLE>
- --------
* less than 1%
(1) Based on 28,500,000 shares of common stock issued and outstanding as of
June 30, 1999.
(2) According to a Schedule 13G dated February 4, 1999, Merrill Lynch & Co.,
Inc. ("ML"), on behalf of Merrill Lynch Asset Management Group ("MLAM"),
has shared voting and dispositive power over such shares but disclaims
beneficial ownership pursuant to Section 13d-4 of the Exchange Act. Merrill
Lynch Global Allocation Fund, Inc. ("MLG") has shared voting and
dispositive power and beneficial ownership with respect to 3,042,500 of
such shares. The address of ML on behalf of MLAM is World Financial Center,
North Tower, 250 Vesey Street, New York, NY, 10381. The address of MLG is
800 Scudders Mill Road, Plainsboro, NJ 08536.
(3) According to a Schedule 13D dated June 3, 1999, ITLA Capital Corp. has sole
voting and dispositive power with respect to such shares.
(4) Includes 431,250 shares that may be acquired upon exercise of stock options
exercisable currently and within 60 days hereof.
(5) Includes 43,000 shares held jointly by Mr. Seifert and his spouse, 5,800
shares held in the name of their children for which the parents have voting
and investment power, and 8,200 shares held by Mr. Seifert individually.
Includes 57,500 shares that may be acquired upon exercise of stock options
exercisable currently and within 60 days hereof.
(6) Includes 35,000 shares that may be acquired upon exercise of stock options
exercisable currently and within 60 days hereof.
(7) Includes 25,000 shares that may be acquired upon exercise of stock options
exercisable currently and within 60 days hereof.
(8) Includes 850 shares held by Mr. Meltzer's spouse for which he disclaims
beneficial ownership, and includes 24,833 shares that may be acquired upon
exercise of stock options exercisable currently and within 60 days hereof.
89
<PAGE>
See "Relationships and Transactions Between ICCMIC, ICII and Affiliates--
Purchases and Sales of Common Stock by ICII and its Affiliates".
Except as set forth in this proxy statement, none of ICII, ICCMIC
Acquisition Corp. or any other person controlling ICII or ICCMIC Acquisition
Corp. nor, to the best of any of their knowledge, any director or executive
officer of ICII or ICCMIC Acquisition Corp., beneficially owns any ICCMIC
common stock.
Additional information with respect to the securities ownership of ICCMIC is
set forth in Part III of ICCMIC's Annual Report on Form 10-K for the year ended
December 31, 1998, as amended, which is incorporated by reference in this proxy
statement.
90
<PAGE>
PROPOSALS BY STOCKHOLDERS OF ICCMIC
If the proposed merger is completed, there will be no public stockholders of
ICCMIC and no public participation in any future meetings of ICCMIC
stockholders. If the proposed merger is not completed, ICCMIC intends to hold
its next annual meeting of stockholders in June, 2000. In that case, ICCMIC's
stockholders would continue to be entitled to attend and participate in
ICCMIC's stockholder meetings.
ICCMIC's advance notice bylaw provides that any proposals by stockholders
intended to be presented at the 2000 annual meeting and submitted outside the
processes of Rule 14a-8 must be delivered to ICCMIC no earlier than March 20,
2000 and no later than April 19, 2000. If the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from the
anniversary date of the previous annual meeting, proposals must be delivered to
ICCMIC no earlier than the 90th day prior to the annual meeting and no later
than the later of the 60th day prior to the annual meeting and the 10th day
following the public announcement of the date of the annual meeting by ICCMIC.
In order for a stockholder to bring other business before a stockholder
meeting, timely notice must be received by ICCMIC within the time limits
described above. Such notice must include a description of the proposed
business, the reasons therefor, and other specific matters. In each case, the
notice must be given to the Secretary of ICCMIC at ICCMIC's principal address.
If you would like a copy of ICCMIC's bylaws, we will furnish one without charge
upon written request to the Secretary at the address under "Where You Can Find
More Information."
SEC rules establish standards as to which stockholder proposals are required
to be included in a proxy statement for an annual meeting. ICCMIC will only
consider proposals meeting the requirements of applicable SEC rules.
INDEPENDENT AUDITORS
The consolidated balance sheets of ICCMIC as of December 31, 1998 and 1997
and the related consolidated statements of earnings, changes in stockholders'
equity and comprehensive income and cash flows for the year ended December 31,
1998 and the period from July 31, 1997 (the date of ICCMIC's inception) through
December 31, 1997 have been incorporated by reference into this proxy statement
in reliance upon the report of KPMG LLP, independent certified public
accountants. We expect that representatives of KPMG LLP will be present at the
special meeting, both to respond to appropriate questions of stockholders and
to make a statement, if they so desire.
91
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
As required by law, ICCMIC files reports, proxy statements and other
information with the SEC. Because the proposed merger is a "going private"
transaction, ICII and ICCMIC Acquisition Corp. have filed a Rule 13e-3
Transaction Statement on Schedule 13E-3 with respect to the proposed merger.
The Schedule 13E-3 and such reports, proxy statements and other information
contain additional information about ICCMIC. You can inspect and copy these
materials at the public reference facilities maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the SEC: 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
For further information concerning the SEC's public reference rooms, you may
call the SEC at 1-800-SEC-0330. Some of this information may also be accessed
via the World Wide Web through the SEC's Internet address at
http://www.sec.gov. ICCMIC common stock is listed on the Nasdaq Stock Market,
and materials may be inspected at their offices at 1735 K Street NW, Washington
D.C. 20006.
The SEC allows ICCMIC to "incorporate by reference" information into this
proxy statement. This means that ICCMIC can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be part of this proxy
statement, and later information filed with the SEC will update and supercede
the information in this proxy statement.
ICCMIC incorporates by reference each document it files pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy
statement and prior to the special meeting. ICCMIC also incorporates by
reference into this proxy statement the following documents filed by it with
the SEC (File No. 000-23089) pursuant to the Exchange Act:
. ICCMIC's Annual Report on Form 10-K for the year ended December 31, 1998,
as amended;
. ICCMIC's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999; and
. ICCMIC's Current Reports on Form 8-K, filed on February 11, 1999, March
11, 1999, March 23, 1999, April 30, 1999, May 13, 1999, June 22, 1999,
July 7, 1999, July 23, 1999, August 17, 1999, September 29, 1999,
October 20, 1999, October 26, 1999, November 17, 1999 and December 17,
1999.
All subsequent documents filed by us with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date
of this proxy statement and prior to the date of the special meeting shall be
deemed to be incorporated by reference into this proxy statement and to be a
part of it from the date of filing of those documents.
You should rely only on the information contained in (or incorporated by
reference into) this proxy statement. ICCMIC has not authorized anyone to give
any information different from the information contained in (or incorporated by
reference into) this proxy statement. This proxy statement is dated ,
1999. You should not assume that the information contained in this proxy
statement is accurate as of any later date, and the mailing of this proxy
statement to stockholders shall not create any implication to the contrary.
Documents incorporated by reference are available from ICCMIC without
charge, excluding all exhibits (unless ICCMIC has specifically incorporated by
reference an exhibit into this proxy statement). You may obtain documents
incorporated by reference by requesting them in writing or by telephone as
follows:
Imperial Credit Commercial Mortgage Investment Corp.
11601 Wilshire Blvd.
Suite 2080
Los Angeles, California 90025
Attention: Michael Meltzer, Chief Financial Officer and Treasurer
Telephone: (310) 231-1280
92
<PAGE>
If you would like to request documents from us, please do so by ,
2000 in order to ensure timely receipt before the special meeting.
By Order of the Board of Directors,
Secretary
, 1999
93
<PAGE>
APPENDIX A
MERGER AGREEMENT
DATED AS OF JULY 22, 1999
(And As Amended on October 29, 1999)
BY AND AMONG
IMPERIAL CREDIT INDUSTRIES, INC.
ICCMIC ACQUISITION CORP.
AND
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I
THE MERGER............................................................... 1
Section 1.1 The Merger............................................... 1
Section 1.2 Effective Time........................................... 1
Section 1.3 Closing of the Merger.................................... 2
Section 1.4 Effects of the Merger.................................... 2
Section 1.5 Charter and Bylaws; Amendments of Governing
Documents of Surviving Corporation Subsidiaries.......... 2
Section 1.6 Board and Officers of the Surviving Corporation.......... 2
Section 1.7 Conversion of Shares, Cancellation of Shares............. 2
Section 1.8 Appraisal of the Management Contract Termination Fee..... 3
Section 1.9 Payment for Shares....................................... 4
Section 1.10 Stock Option and Other Plans............................. 5
Section 1.11 Stockholders' Meeting; SEC Materials..................... 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................ 8
Section 2.1 Organization and Qualification of the Company............ 8
Section 2.2 Corporate Authorization.................................. 8
Section 2.3 SEC Reports; Financial Statements........................ 9
Section 2.4 Consents and Approvals; No Violations.................... 9
Section 2.5 Opinion of Financial Advisor............................. 9
Section 2.6 Brokers.................................................. 9
Section 2.7 Information.............................................. 10
Section 2.8 Rights Agreement; Charter................................ 10
Section 2.9 Capitalization of the Company and Its Subsidiaries....... 10
Section 2.10 No Defaults.............................................. 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER................... 11
Section 3.1 Organization and Qualification of ICII and Merger Sub.... 11
Section 3.2 Corporate Authorization.................................. 11
Section 3.3 SEC Reports; Financial Statements........................ 11
Section 3.4 Consents and Approvals; No Violations.................... 12
Section 3.5 Brokers.................................................. 12
Section 3.6 Ownership of Company Capital Stock....................... 12
Section 3.7 Information.............................................. 12
Section 3.8 Financing................................................ 12
Section 3.9 Conduct of Business of Merger Sub........................ 12
ARTICLE IV
COVENANTS................................................................ 13
Section 4.1 Conduct of Business of the Company....................... 13
Section 4.2 Other Actions............................................ 14
Section 4.3 Solicitation............................................. 14
Section 4.4 Additional Agreements; Reasonable Best Efforts........... 15
Section 4.5 Consents................................................. 16
Section 4.6 Public Announcements..................................... 16
</TABLE>
A-i
<PAGE>
<TABLE>
<C> <S> <C>
Section 4.7 Indemnification; Directors' and Officers' Insurance........ 16
Section 4.8 Notification of Certain Matters............................ 18
Section 4.9 SEC and Other Filings...................................... 18
Section 4.10 Stockholder Litigation..................................... 18
Section 4.11 SPB Loans.................................................. 18
Section 4.12 Final Company Dividend..................................... 19
Section 4.13 Employee Matters........................................... 19
Section 4.14 Standstill................................................. 19
Section 4.15 Transfer and Gains Taxes................................... 20
Section 4.16 Access to Information...................................... 20
Section 4.17 Excess Share Provision..................................... 21
Section 4.18 State Takeover Statutes.................................... 21
ARTICLE V
CONDITIONS TO CONSUMMATION OF THE MERGER................................ 22
Conditions to Each Party's Obligations to Effect the
Section 5.1 Merger.................................................... 22
Section 5.2 Conditions to the Obligations of the Company............... 22
Section 5.3 Conditions to the Obligations of ICII and Merger Sub....... 22
Section 5.4 Frustration of Closing Conditions.......................... 23
ARTICLE VI
TERMINATION; AMENDMENT; WAIVER.......................................... 23
Section 6.1 Termination................................................ 23
Section 6.2 Effect of Termination...................................... 24
Section 6.3 Expenses................................................... 24
Section 6.4 Amendment.................................................. 24
Section 6.5 Extension; Waiver.......................................... 24
ARTICLE VII
MISCELLANEOUS........................................................... 25
Section 7.1 Non-survival of Representations and Warranties............. 25
Section 7.2 Entire Agreement; Assignment............................... 25
Section 7.3 Notices.................................................... 25
Section 7.4 Governing Law.............................................. 26
Section 7.5 Descriptive Headings; Schedules, Interpretation............ 26
Section 7.6 Parties in Interest........................................ 27
Section 7.7 Severability............................................... 27
Section 7.8 Consent to Jurisdiction.................................... 27
Section 7.9 Enforcement................................................ 27
Section 7.10 Counterparts............................................... 27
</TABLE>
A-ii
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
Cross Reference
Term in Agreement Page
---- --------------- ----
<C> <S> <C>
Actions.................................... Section 4.7(a)............... 16
Adjusted Company Option.................... Section 1.10(a).............. 5
Affiliate.................................. Section 1.10(f).............. 6
Agreement.................................. Preamble..................... 1
Appraiser.................................. Section 1.8.................. 3
Appraised Value............................ Section 1.8(a)............... 3
Articles of Merger......................... Section 1.2.................. 1
Certificates............................... Sections 1.7(b).............. 2
Closing.................................... Section 1.3.................. 2
Closing Date............................... Section 1.3.................. 2
Code....................................... Section 1.10(a).............. 5
Company.................................... Preamble..................... 1
Company Board.............................. Recitals..................... 1
Company Charter............................ Section 2.8.................. 10
Company Disclosure Schedule................ Section 2.4.................. 9
Company Material Adverse Effect............ Section 2.1(b)............... 8
Company SEC Reports........................ Section 2.3.................. 9
Company Securities......................... Section 2.9.................. 10
Company Stockholders....................... Recitals..................... 1
Company Stock Option....................... Section 1.10(a).............. 5
Company Stock Option Plan.................. Section 1.10(a).............. 5
Competing Transaction...................... Section 4.3(c)............... 15
Confidentiality Agreement.................. Section 4.16(b).............. 21
Control.................................... Section 7.5(b)............... 26
Controlled by.............................. Section 7.5(b)............... 26
Effective Time............................. Section 1.2.................. 2
Exemption.................................. Section 4.17................. 21
Exchange Act............................... Section 1.10(e).............. 6
Final Company Dividend..................... Section 4.12................. 19
Financial Advisor.......................... Recitals..................... 1
FBR........................................ Section 3.5.................. 12
GAAP....................................... Section 2.3.................. 9
ICII....................................... Preamble..................... 1
ICII Common Stock.......................... Section 1.10(a).............. 5
ICII Material Adverse Effect............... Section 3.1(b)............... 11
ICII SEC Reports........................... Section 3.3.................. 11
ICII Shares................................ Recitals..................... 1
Indemnified Party.......................... Section 4.7(a)............... 16
Individual Ownership Limit................. Section 4.17................. 21
Knowledge.................................. Section 7.5(b)............... 27
Liens...................................... Section 4.1(i)............... 14
Management Agreement....................... Section 1.8(a)............... 3
Management Contract Amount................. Section 1.8(a)............... 3
Manager.................................... Section 1.8(a)............... 3
Maryland Department........................ Section 1.2.................. 1
Merger..................................... Recitals..................... 1
Merger Consideration....................... Recitals..................... 1
Merger Sub................................. Preamble..................... 1
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
Cross Reference
Term in Agreement Page
---- --------------- ----
<C> <S> <C>
Merger Sub Common Stock.................... Section 1.7(c)............... 2
MGCL....................................... Recitals..................... 1
Opinion.................................... Section 4.17................. 21
Other Filings.............................. Section 2.7.................. 10
Paying Agent............................... Section 1.9(a)............... 4
Payment Fund............................... Section 1.9(a)............... 4
Person..................................... Section 7.5(b)............... 26
Proxy Statement............................ Section 1.11(a).............. 7
Qualifying Alternative Transaction......... Section 4.14(b).............. 20
Regulatory Entity.......................... Section 2.4.................. 9
REIT....................................... Section 4.1(c)............... 13
Rights Agreement........................... Section 2.8.................. 10
S-8........................................ Section 1.10(f).............. 6
Schedule 13D............................... Section 4.14(a).............. 19
Schedule 13E-3............................. Section 1.11(d).............. 8
SEC........................................ Section 1.10(e).............. 6
Securities Act............................. Section 1.10(f).............. 6
Shares..................................... Recitals..................... 1
Solicitation Period........................ Section 4.3(a)............... 14
SPB........................................ Section 4.11................. 18
SPB Loans.................................. Section 4.11................. 18
Special Committee.......................... Recitals..................... 1
Special Meeting............................ Section 1.11(a).............. 7
Superior Proposal.......................... Section 4.3(c)............... 15
Surviving Corporation...................... Recitals..................... 1
Surviving Corporation Common Stock......... Section 1.7(c)............... 3
Transfer and Gains Taxes................... Section 4.15................. 20
Under Common Control With.................. Section 7.5(b)............... 26
</TABLE>
A-iv
<PAGE>
MERGER AGREEMENT
THIS MERGER AGREEMENT, dated as of July 22, 1999 (this "Agreement"), by and
among Imperial Credit Commercial Mortgage Investment Corp., a Maryland
corporation (the "Company"), Imperial Credit Industries, Inc., a California
corporation ("ICII"), and ICCMIC Acquisition Corp., a Maryland corporation and
wholly owned subsidiary of ICII ("Merger Sub").
WHEREAS, ICII and certain of its subsidiaries and affiliates as set forth on
Schedule I beneficially own 2,790,053 shares (the "ICII Shares") of the common
stock, par value $0.0001 per share, of the Company (the "Shares");
WHEREAS, it is proposed that Merger Sub will merge with and into the Company
(the "Merger"), with the Company continuing as the surviving corporation (the
"Surviving Corporation"), in accordance with the Maryland General Corporation
Law ("MGCL"), pursuant to which Merger each issued and outstanding Share other
than Shares held by ICII and its subsidiaries will be converted into the right
to receive $11.50 per Share in cash, subject to adjustment as provided herein
(as so adjusted, the "Merger Consideration"), upon the terms and subject to the
conditions provided herein;
WHEREAS, a special committee (the "Special Committee") comprised of the four
independent directors of the Board of Directors of the Company (the "Company
Board") has received the written opinion of Prudential Securities Incorporated
(the "Financial Advisor") that, based on, and subject to, the various
assumptions and qualifications set forth in such opinion, as of the date of
such opinion, the Merger Consideration to be received by the holders of Shares
(other than ICII and its subsidiaries and affiliates listed on Schedule I)
pursuant to the Merger is fair to such holders from a financial point of view;
WHEREAS, the Special Committee has determined that it is in the best
interests of the stockholders of the Company (the "Company Stockholders") to
approve this Agreement and, subject to the provisions hereof, the Merger, and
has voted to recommend to the Company Board that the Company Board recommend
that the Company Stockholders approve this Agreement and, subject to the
provisions hereof, the Merger; and
WHEREAS, the Company Board has determined that it is in the best interests
of the Company Stockholders to approve this Agreement and, subject to the
provisions hereof, the Merger, has declared the Merger advisable, and has voted
to approve the Merger upon the terms and subject to the conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, intending to be legally bound hereby, the Company, ICII and
Merger Sub hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. At the Effective Time (as defined in Section 1.2)
and upon the terms and subject to the conditions of this Agreement and in
accordance with the MGCL, Merger Sub shall be merged with and into the Company
in the Merger. Following the Merger, the Company shall continue as the
Surviving Corporation and the separate corporate existence of Merger Sub shall
cease.
Section 1.2 Effective Time. Subject to the terms and conditions set forth in
this Agreement, as soon as practicable on the Closing Date (as defined in
Section 1.3), the Company and Merger Sub will cause articles of merger (the
"Articles of Merger") with respect to the Merger to be executed and filed with
the State Department of Assessments and Taxation of Maryland (the "Maryland
Department") pursuant to the MGCL.
A-1
<PAGE>
The Merger shall become effective at such time on or after October 1, 1999 as
the Articles of Merger have been duly filed with and accepted for record by the
Maryland Department or at such subsequent time as is agreed between the parties
and specified in the Articles of Merger, and such time is hereinafter referred
to as the "Effective Time."
Section 1.3 Closing of the Merger. Subject to the satisfaction or waiver of
all of the conditions contained in Article V, but in no event prior to the
expiration of the Solicitation Period (as defined in Section 4.3(a)), the
closing of the Merger (the "Closing") will take place at a time and on a date
to be specified by the parties, which shall be no later than the second
business day after satisfaction or waiver of all of the conditions set forth in
Article V (the "Closing Date"), at the offices of Wachtell, Lipton, Rosen &
Katz, 51 West 52nd Street, New York, New York 10019, unless another time, date
or place is agreed to in writing by the parties hereto.
Section 1.4 Effects of the Merger. From and after the Effective Time, the
Merger shall have the effects set forth in Section 3-114 of the MGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the properties, rights, privileges, powers and franchises, of a
public or private nature, of the Company and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of the Company and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.5 Charter and Bylaws; Amendments of Governing Documents of
Surviving Corporation Subsidiaries.
(a) The charter of the Surviving Corporation shall be amended and restated
as of the Effective Time so as to conform in all material respects with the
terms of the charter of Merger Sub.
(b) The bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
Section 1.6 Board and Officers of the Surviving Corporation.
(a) The directors of Merger Sub immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation following the
Merger, each to hold office until the earlier of such person's resignation or
removal or until a successor is duly elected and qualified, as the case may be.
The officers of Merger Sub immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation following the Merger, each to
hold office until the earlier of such person's resignation or removal or until
a successor is duly elected and qualified, as the case may be.
Section 1.7 Conversion of Shares, Cancellation of Shares.
(a) At the Effective Time, each Share issued and outstanding immediately
prior to the Effective Time (other than Shares held by ICII or the Company or
any subsidiary of ICII or the Company, which Shares, by virtue of the Merger
and without any action on the part of the holder thereof, shall be cancelled
and retired and shall cease to exist with no payment being made with respect
thereto) shall be converted into the right to receive the Merger Consideration.
(b) At the Effective Time, the holders of such certificates previously
evidencing the Shares outstanding immediately prior to the Effective Time (the
"Certificates") shall cease to have any rights with respect to such Shares
other than the right to receive the Merger Consideration for each such Share or
as otherwise provided herein or by law (including the right to receive
dividends permitted hereby). Such Shares shall, by virtue of the Merger and
without any action on the part of Merger Sub, the Company or the holder
thereof, be cancelled, retired and cease to exist, and no payment shall be made
with respect thereto except as provided for herein.
(c) At the Effective Time, each share of common stock, par value $0.0001 per
share, of Merger Sub ("Merger Sub Common Stock") issued and outstanding
immediately prior to the Effective Time shall be
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converted into an equal number of fully paid and nonassessable shares of common
stock of the Surviving Corporation, par value $0.0001 per share ("Surviving
Corporation Common Stock").
Section 1.8 Appraisal of the Management Contract Termination Fee.
(a) ICII and the Company shall cause one of the appraisal firms listed on
Schedule II (or, in the event they cannot agree on a mutually acceptable firm
from such list, they shall appoint one or more independent, nationally
recognized appraisal firms in accordance with the procedures set forth in
Section 15 of the Management Agreement (as defined below)) (the "Appraiser"),
to determine, by an independent appraisal, the amount (the "Management Contract
Amount") that would be payable to Imperial Credit Commercial Asset Management
Corp. (the "Manager") pursuant to Section 15 of the Management Agreement, dated
as of October 22, 1997 by and among the Company and the Manager (the
"Management Agreement") if the Management Agreement were not renewed by the
Company and expired on October 22, 1999. The Appraiser shall complete the
determination of the Management Contract Amount within 30 days of the date of
this Agreement. The amount of the Management Contract Amount as determined by
the Appraiser shall be referred to as the "Appraised Value". The Appraiser
shall be instructed to fix the Appraised Value at a single dollar amount;
provided, however, that in the event the Appraiser cannot for any reason
provide a single dollar amount for the Appraised Value, despite the specific
request of ICII and the Company, the Appraiser shall provide a range of values
for the Appraised Value not greater than $5 million, in which case the
Appraised Value shall be deemed to equal the average of the maximum and minimum
dollar amounts of such range. ICII and the Company agree to share equally the
fees and expenses of the Appraiser.
(b) The Merger Consideration in respect of each Share shall be increased by
an amount, if greater than zero, equal to the quotient of (i) the amount by
which $35 million exceeds the Appraised Value, divided by (ii) the sum of (x)
the number of issued and outstanding Shares as of the date hereof entitled to
receive the Merger Consideration and (y) the aggregate number of Shares
issuable pursuant to Company Stock Options having an exercise price less than
$11.50 per share. The Merger Consideration shall not be reduced in the event
the Appraised Value is greater than $35 million. ICII and Merger Sub shall, not
later than the next business day after the determination of the Appraised
Value, make a public announcement as to the determination thereof, and, if
applicable, amend the Schedule 13E-3 (as defined in Section 1.11) to reflect
the adjustment, if any, of the Merger Consideration contemplated and required
hereby.
(c) The Company and ICII agree, and ICII shall cause the Manager to agree,
that, in the event this Agreement is terminated, other than as a result of a
breach by the Company, the Management Agreement shall be terminated on the
earlier of the consummation of any Superior Proposal (as defined in Section
4.3), October 22, 1999, or such earlier date as the Company may request, and,
thereafter, the Management Agreement shall be of no further force and effect,
other than with respect to the payment of accrued but unpaid amounts then due
thereunder. Anything to the contrary herein or in the Management Agreement
notwithstanding, as a result of the termination of the Management Agreement as
contemplated by the foregoing sentence, the Manager shall be entitled to
receive, following the termination of this Agreement and the Management
Agreement, a payment from the Company of the lesser of (i) $35 million and (ii)
the Appraised Value, which payment shall constitute payment in full of any
obligations that exist or may hereafter arise pursuant to the Management
Agreement, other than with respect to the payment of accrued but unpaid amounts
then due thereunder. In no event shall the Company be held responsible to ICII,
the Manager or any of their respective affiliates for damages (whether actual,
punitive, consequential or otherwise) resulting from the termination of the
Management Agreement as contemplated by this Section. ICII shall cause the
Manager to take any such further action as the Company may reasonably require
to evidence the agreements contemplated by this Section and ICII shall hold the
Company and any successor-in-interest to the Company and their respective
affiliates harmless from and against any and all claims arising from any
assertion by the Manager as to any different or greater entitlement pursuant to
the Management Agreement.
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Section 1.9 Payment for Shares.
(a) From and after the Effective Time, such bank or trust company as shall
be mutually acceptable to ICII and the Company, shall act as paying agent (the
"Paying Agent") in effecting the payment of the aggregate Merger Consideration
in respect of Certificates that, prior to the Effective Time, represented
Shares entitled to payment of the Merger Consideration pursuant to Section
1.7(a). As of the Effective Time, ICII and Merger Sub shall, jointly and
severally, for the benefit of the Company Stockholders, deposit with the Paying
Agent for payment in accordance with this Article I, by the Paying Agent, the
aggregate Merger Consideration for all of the Shares entitled to payment of the
Merger Consideration pursuant to Section 1.7(a) (the "Payment Fund").
(b) Promptly after the Effective Time, the Paying Agent shall mail to each
holder of Certificates entitled to payment of the Merger Consideration pursuant
to Section 1.7(a), a form of letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Paying Agent
and instructions for use in surrendering such Certificates and receiving the
aggregate Merger Consideration in respect thereof. Upon the surrender of each
such Certificate, the Paying Agent shall pay the holder of such Certificate, by
check or by wire transfer of immediately available funds, in consideration
therefor, the Merger Consideration multiplied by the number of Shares formerly
represented by such Certificate, and such Certificate shall be cancelled. Until
so surrendered, each such Certificate entitled to payment of the Merger
Consideration pursuant to Section 1.7(a) shall represent solely the right to
receive the aggregate Merger Consideration relating thereto (and the right to
receive dividends permitted hereby). No interest shall be paid or accrued on
the Merger Consideration. If the Merger Consideration (or any portion thereof)
is to be delivered to any person other than the person in whose name the
Certificate formerly representing Shares surrendered therefor is registered, it
shall be a condition to such right to receive such Merger Consideration that
the Certificate so surrendered shall be properly endorsed or otherwise be in
proper form for transfer and that the person surrendering such Shares shall pay
to the Paying Agent any transfer or other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered
holder of the Certificate surrendered, or shall establish to the satisfaction
of the Paying Agent that such tax has been paid or is not applicable.
(c) Promptly following the date which is 180 days after the Effective Time
(or such later date as the Surviving Corporation shall request), the Paying
Agent shall deliver to the Surviving Corporation any undistributed portion of
the Payment Fund and any other documents in its possession relating to the
Merger, and the Paying Agent's duties shall thereupon terminate. Thereafter,
each holder of a Certificate formerly representing Shares may surrender such
Certificate to the Surviving Corporation and (subject to applicable abandoned
property, escheat and similar laws) receive in consideration therefor the
aggregate Merger Consideration relating thereto, without any interest or
dividends thereon.
(d) In the event that any Certificate shall have been lost, stolen or
destroyed, the Paying Agent shall pay or issue (as applicable) in exchange
therefor, upon the making of an affidavit of that fact and, if the Surviving
Corporation so requires, the delivery of a reasonably suitable bond or
indemnity by the holder thereof, such Merger Consideration as may be required
pursuant to this Agreement.
(e) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates formerly representing Shares are presented to the Surviving
Corporation or the Paying Agent, they shall be surrendered and cancelled in
return for the payment of the Merger Consideration relating thereto, as
provided in this Section, subject to applicable law.
(f) None of the Company, ICII, Merger Sub, the Paying Agent or the Surviving
Corporation shall be liable to any holder of Shares for cash from the Payment
Fund delivered to a public official as required pursuant to any applicable
abandoned property, escheat or similar law.
(g) The provisions in this Section are intended to be for the benefit of,
and shall be enforceable by, each holder of Certificates previously evidencing
the Shares outstanding immediately prior to the Merger entitled to
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payment of the Merger Consideration pursuant to Section 1.7(a) (it being
expressly agreed that such persons shall be the third party beneficiaries of
this Section).
Section 1.10 Stock Option and Other Plans.
(a) As of the Effective Time, (i) each outstanding option to purchase Shares
(each, a "Company Stock Option") issued pursuant to the Company's 1997 Stock
Option Plan, as amended (the "Company Stock Option Plan"), shall be converted
into an immediately exercisable option (each, an "Adjusted Company Option") to
purchase a number of shares of common stock, no par value, of ICII ("ICII
Common Stock"), at an exercise price as shall be determined in accordance with
the provisions hereof so that the Fair Value (as defined below) of each such
Company Stock Option equals the Fair Value of the Adjusted Company Options to
purchase ICII Common Stock into which such Company Stock Option is converted,
and all references in each such Company Stock Option (including the plans and
agreements under which they were issued) to the Company shall be deemed to
refer to ICII, where appropriate; provided, however, that the adjustments
provided in this paragraph with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Internal Revenue Code of 1986,
as amended, (the "Code"), shall be effected in a manner consistent with the
requirements of Section 424(a) of the Code, unless the option holder, in his or
her sole discretion, waives such requirement, and (ii) ICII shall assume the
obligations of the Company under the Company Stock Option Plan. Approval of the
Merger Agreement by the Company Stockholders shall constitute a "Change of
Control" (as defined in the Company Stock Option Plan) and as a result each
Company Stock Option shall vest and become exercisable in full on the date of
such Change of Control. The other terms of each Adjusted Company Option, and
the plans or agreements under which they were issued, in each case as amended
in accordance herewith, shall continue to apply in accordance with their terms.
The date of grant of each Adjusted Company Option shall be the date on which
the corresponding Company Stock Option was granted. For the purposes hereof,
the "Fair Value" of the Company Stock Options and of the Adjusted Company
Options to purchase ICII Common Stock into which the Company Stock Options are
converted shall be determined in the manner set forth on Schedule III and
utilizing the Black-Scholes option pricing model incorporating historical data
available on the Bloomberg system and reflecting, among other things, the
relative current price, strike price, the risk-free rate, expected duration,
volatility and dividend policies of each of ICII and the Company and of the
Company Stock Options and the Adjusted Company Options into which they will be
converted, based on the principle of preserving for the holders of the Company
Stock Options the current value and upside potential of the Company Stock
Options, as well as the level of the Merger Consideration (including any
adjustment pursuant to Section 1.8(b) in respect of the Appraised Value of the
Management Agreement). The Company and ICII shall work together during the 30-
day period following the date hereof to determine the precise methodology to be
used in determining Fair Value and with respect to the conversion of the
Company Stock Options into the Adjusted Company Options. In the event they are
unable to agree within such 30-day period, their respective positions on the
subject shall be submitted to the Appraiser, and the Appraiser shall be
directed to select one of the positions or any other intermediate position.
(b) Each holder of Company Stock Options may, prior to or within 90 days
following the later of the Effective Time or the date of the notices set forth
in paragraph (d) below, elect to receive, in lieu of all or a portion of such
holder's Adjusted Company Options as provided in Section 1.10(a), the
following: (i) with respect to all or a portion of each Company Stock Option
which has an option exercise price less than the Merger Consideration, a cash
payment from ICII equal to the product of (A) the amount by which the Merger
Consideration amount exceeds the exercise price of such Company Stock Option
and (B) the number of shares issuable upon exercise of such Company Stock
Option or portion thereof, as applicable, and/or (ii) with respect to all or a
portion of each Company Stock Option (including those referred to in clause (i)
above in lieu of the payment contemplated by clause (i)), a cash payment from
ICII equal to the Fair Value of such option or portion thereof, as applicable,
determined in accordance with Section 1.10(a). All cash payments shall be
subject to any applicable withholding taxes and shall be made as promptly as
practicable upon ICII's receipt of such holder's election pursuant to this
paragraph.
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(c) ICII and the Company agree that the Company Stock Option Plan shall be
amended (or the Company Board or the Compensation Committee of the Company
Board shall take other appropriate actions), such amendment to be effective as
of the Effective Time, (i) to provide that, with respect to any particular
holder of Company Stock Options, unless such option holder shall remain or
become an employee of ICII or the Manager immediately after the Effective Time,
the employee shall be considered to have had a Voluntary Termination of
Affiliation (as defined in the Company Stock Option Plan) and, as a result,
such holder's Company Stock Options shall remain exercisable by such holder for
a period of one year from the Effective Time, and (ii) to reflect the
transactions contemplated hereby, including the conversion of Shares held or to
be awarded or paid pursuant to such benefit plans, programs or the Company
Stock Option Plan into shares of ICII Common Stock (or fractions thereof) on a
basis consistent with the transactions contemplated by this Agreement. The
parties agree that any "voluntary" termination of employment by an employee of
the Company or the Manager pursuant to a constructive termination or a
termination for good reason in an employment or severance agreement shall be
treated as a Voluntary Termination of Affiliation for which the employee's
Adjusted Company Options shall remain exercisable for a period of at least one
year following such termination.
(d) Prior to or as soon as practicable after the Effective Time, ICII shall
deliver to the holders of Company Stock Options appropriate notices setting
forth such holders' rights pursuant to the Company Stock Option Plan and the
agreements evidencing the grants of such Company Stock Options and informing
such holders that such Company Stock Options and the related agreements shall
be assumed by ICII at the Effective Time and that such Company Stock Options
shall continue in effect on the same terms and conditions as in effect
immediately prior to the Effective Time (subject to the adjustments required by
this Section after giving effect to the Merger).
(e) ICII and the Company shall take all such steps as may be required or
reasonably requested to cause the transactions contemplated by this Section and
any other dispositions of Company equity securities (including derivative
securities) or acquisitions of ICII equity securities (including derivative
securities) in connection with this Agreement by each individual who (a) is a
director or officer of the Company or (b) at the Effective Time, will become a
director or officer of ICII, to be exempt under Rule 16b-3 promulgated under
the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations promulgated thereunder, such steps to be taken in accordance with
the No-Action Letter dated January 12, 1999, issued by the Securities and
Exchange Commission (the "SEC") to Skadden, Arps, Slate, Meagher & Flom LLP, or
as may otherwise be reasonably requested by the Company.
(f) ICII shall (i) prior to the Effective Time, reserve for issuance the
maximum number of shares of ICII Common Stock that may become subject to the
Adjusted Company Options referred to in this Section and (ii) issue or cause to
be issued the appropriate number of shares of ICII Common Stock (or fractions
thereof) pursuant to the terms of the Adjusted Company Options upon the
exercise thereof. No later than the Effective Time, ICII shall prepare and file
with the SEC one or more registration statements on Form S-8 (or on any other
appropriate form) (the "S-8") registering the number of shares of ICII Common
Stock necessary to fulfill ICII's obligations under this Section. ICII shall
also file a supplemental listing application with the Nasdaq Stock Market in
respect of such shares and use its reasonable best efforts to cause such shares
to be approved for listing on the Nasdaq Stock Market, subject to official
notice of issuance prior to the Effective Time. Such registration statement
shall be kept effective (and the current status of the prospectus required
thereby shall be maintained) for at least as long as until the later of (i) the
last date on which any Adjusted Company Options remain outstanding, or (ii) the
last date on which shares of ICII Common Stock issued on exercise of Adjusted
Company Options are held by an affiliate, as defined by Rule 144 of the General
Rules and Regulations (an "Affiliate") under the Securities Act of 1933, as
amended (the "Securities Act") of ICII and any of such shares of ICII Common
Stock cannot be otherwise sold immediately pursuant to Rule 144.
(g) The provisions of this Section are intended to be for the benefit of,
and shall be enforceable by, each holder of Company Stock Options or Adjusted
Company Options and such Affiliate of ICII holding shares of
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ICII Common Stock issued on exercise of Adjusted Company Options (it being
expressly agreed that such persons shall be the third party beneficiaries of
this Section).
Section 1.11 Stockholders' Meeting; SEC Materials.
(a) The Company, acting through the Company Board, shall, in accordance with
applicable law and the Company's Charter and By-laws, and provided that this
Agreement shall not have been terminated as contemplated by Section 4.3:
(i) duly call, give notice of, convene and hold a special meeting of its
stockholders (the "Special Meeting"), which meeting shall be held as soon
as reasonably practicable following the expiration of the Solicitation
Period for the purpose of considering and taking action upon this
Agreement, but in no event prior to October 1, 1999;
(ii) together with ICII, prepare and file with the SEC a preliminary
proxy statement relating to this Agreement in form and substance reasonably
satisfactory to ICII and the Company, and, together with ICII, use their
reasonable efforts (x) to obtain and furnish the information required to be
included by the SEC in the Proxy Statement (as defined below) and, after
consultation with each other, to respond promptly to any comments made by
the SEC or its staff with respect to the preliminary proxy statement and
cause a definitive proxy statement (the "Proxy Statement"), which the
parties agree shall comply as to form in all material respects with all
applicable requirements of law, to be mailed to the Company Stockholders
and (y) subject to the fiduciary duties of the Company Board under
applicable law and subject to the provisions of Section 4.3, to obtain the
necessary approval of this Agreement by the Company Stockholders
representing a majority of the outstanding Shares entitled to vote at the
Special Meeting (other than the ICII Shares); and
(iii) subject to the fiduciary obligations of the Company Board and the
Special Committee under applicable law and subject to the provisions of
Section 4.3, include in the Proxy Statement the recommendation of the
Company Board and the Special Committee that the Company Stockholders vote
in favor of the approval of this Agreement.
(b) ICII shall, and shall cause the other holders of ICII Shares to, vote
(whether in person or by proxy) for the approval of this Agreement at the
Special Meeting or any adjournment or postponement thereof.
(c) Whenever any event occurs which is required to be set forth in an
amendment or supplement to the Proxy Statement, ICII or the Company, as the
case may be, shall promptly inform the other of such occurrences and cooperate
in filing with the SEC and/or mailing to the Company Stockholders such
amendment or supplement. Each of the parties agree that the information
provided by it for inclusion in the Proxy Statement and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
Special Meeting, will not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. If, at any time prior to the Effective Time, any
information pertaining to one of the parties or, to such party's knowledge, any
of its affiliates or its officers or directors, contained in or omitted from
the Proxy Statement makes statements contained therein materially false or
misleading, such party shall promptly so advise the other parties and provide
such other parties with the information necessary to make the statements
contained therein not false or misleading. In the event of such advice being
given pursuant to the preceding sentence, the Company and ICII shall cooperate
to promptly file with the SEC (after reasonable opportunity to ICII and the
Company to review and comment thereon) any required amendments or supplements
to the Proxy Statement and, to the extent required by law, disseminate such
amendments or supplements to the Company Stockholders. No filings of the Proxy
Statement (or any amendments or supplements thereto) shall be made without the
prior approval of both ICII and the Company (which consent shall not be
unreasonably withheld, conditioned or delayed).
(d) Simultaneously with the filing of the preliminary proxy statement
contemplated by Section 1.11(a)(ii), ICII shall file with the SEC a Rule 13e-3
Transaction Statement on Schedule 13E-3, including the exhibits
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thereto (together with all amendments and supplements thereto, the "Schedule
13E-3") with respect to the Merger and the other transactions contemplated
hereby. The Schedule 13E-3 shall include the information required to be
included by the SEC in a Rule 13e-3 Transaction Statement. ICII shall cause the
information contained in the Schedule 13E-3 to be disseminated to Company
Stockholders as and to the extent required by applicable law. ICII, Merger Sub
and the Company agree to correct promptly any information provided by any of
them for use in the Schedule 13E-3 which shall have become materially incorrect
or misleading, and ICII and Merger Sub further agree to take all steps
necessary to cause the Schedule 13E-3 as so corrected to be filed with the SEC
and to be disseminated to Company Stockholders as and to the extent required by
applicable law. The Company, the Special Committee and their respective counsel
shall be given a reasonable opportunity to review and comment on the Schedule
13E-3 and any amendments thereto prior to the filing thereof with the SEC or
dissemination thereof to the Company Stockholders. ICII and Merger Sub shall
promptly inform the Company, the Special Committee and their respective counsel
of any comments, whether oral or written that ICII or Merger Sub may receive
from the SEC or its staff with respect to the Schedule 13E-3 promptly after the
receipt thereof and shall promptly provide the Company, the Special Committee
and their respective counsel with copies of any such written comments. ICII and
Merger Sub shall provide the Company and the Special Committee, and their
respective counsel, with a reasonable opportunity to participate in all
communications with the SEC and its staff, including any meetings and telephone
conferences, relating to the Schedule 13E-3 or the Merger.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to ICII and Merger Sub as
follows:
Section 2.1 Organization and Qualification of the Company.
(a) The Company and each of its subsidiaries is a corporation or other legal
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction in which it is organized and has all requisite corporate or
other power, as the case may be, and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted.
(b) Each of the Company and its subsidiaries is duly qualified or licensed
and in good standing (with respect to jurisdictions which recognize such
concept) to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions where
the failure to be so duly qualified or licensed and in good standing would not
have a Company Material Adverse Effect. The term "Company Material Adverse
Effect" means any change or effect that individually or in the aggregate is or
would reasonably be expected to be materially adverse to (i) the business,
properties, assets, results of operations or financial condition of the Company
and its subsidiaries, taken as a whole, other than any change or effect arising
out of (x) a decline or deterioration in the economy in general or the real
estate or capital markets in which the Company and its subsidiaries operate, or
(y) this Agreement or the transactions contemplated hereby or the announcement
thereof or (ii) the ability of the Company to consummate the transactions
contemplated hereby without material delay.
Section 2.2 Corporate Authorization. The Company has all necessary corporate
power and authority to execute and deliver this Agreement and, subject, in the
case of the Merger, to approval by the Company Stockholders, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Company Board and no other corporate proceedings on
the part of the Company are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby (other than, with respect to
the Merger, the approval and adoption of this Agreement by Company Stockholders
representing a majority of the outstanding Shares entitled to vote at the
Special Meeting (other than the ICII Shares)). This
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Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery hereof by each of ICII
and Merger Sub, constitutes the valid, legal and binding agreement of the
Company, enforceable against the Company in accordance with its respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and
subject, as to enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity).
Section 2.3 SEC Reports; Financial Statements. The Company has filed all
required forms, reports and documents with the SEC since January 1, 1998 (the
"Company SEC Reports"). As of their respective dates and giving effect to any
amendments thereto, each of the Company SEC Reports complied as to form in all
material respects with all applicable requirements of the Securities Act or the
Exchange Act, as the case may be, each as in effect on the dates such forms,
reports and documents were filed. None of the Company SEC Reports contained,
when filed, any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of the Company included
in the Company SEC Reports complied as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and fairly present, in conformity with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
relevant periods (except as may be indicated in the notes thereto and, except
in the case of unaudited quarterly statements, as permitted by Form 10-Q of the
SEC), the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and changes in financial position and cash flows for the periods
then ended (subject, in the case of unaudited interim financial statements, to
normal year-end adjustments).
Section 2.4 Consents and Approvals; No Violations. Except as set forth in
Section 2.4 of the Company's Disclosure Schedule (the "Company Disclosure
Schedule") and except for such filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of, the
Securities Act, the Exchange Act, the rules and regulations of the Nasdaq Stock
Market, state takeover laws, state securities or "blue sky" laws and the filing
and recordation of the Articles of Merger as required by the MGCL and such
other filings, permits, authorizations, consents and approvals the failure of
which to be obtained or made would not, in the aggregate, reasonably be
expected to have a Company Material Adverse Effect, no filing or registration
with or notice to, and no permit, authorization, consent or approval of, any
court or tribunal of competent jurisdiction in any jurisdiction or any foreign,
federal, state or municipal governmental, regulatory or other administrative
agency, department, commission, board, bureau, political subdivision or other
authority or instrumentality including the National Association of Securities
Dealers, Inc. and the SEC (each a "Regulatory Entity") is necessary in
connection with the execution and delivery by the Company of this Agreement or
the consummation by the Company of the transactions contemplated hereby.
Section 2.5 Opinion of Financial Advisor. The Financial Advisor has
delivered to the Special Committee its written opinion, dated the date of this
Agreement, to the effect that, based on, and subject to the various assumptions
and qualifications set forth in such opinion, as of the date of such opinion,
the Merger Consideration to be received by the Company Stockholders (other than
ICII and Merger Sub and any other holders of ICII Shares listed on Schedule I)
is fair to such Company Stockholders from a financial point of view, a signed
copy of which opinion has been delivered to the Special Committee, and such
opinion has not been withdrawn or modified.
Section 2.6 Brokers. Other than the Financial Advisor, no broker, finder,
investment banker or other intermediary is entitled to any brokerage, finder's
or other similar fee or commission or expense reimbursement in connection with
the transactions contemplated by this Agreement based upon arrangements made by
and on behalf of the Company or any of its affiliates.
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Section 2.7 Information. None of the information supplied or to be supplied
by the Company in writing specifically for inclusion or incorporation by
reference in (i) the Proxy Statement, (ii) the Schedule 13E-3, or (iii) any
other document to be filed with the SEC or any other Regulatory Entity prior to
the Effective Time (the "Other Filings") will, at the respective times filed
with the SEC or other Regulatory Entity and, in addition, in the case of the
Proxy Statement and the Schedule 13E-3, at the date it or any amendment or
supplement is mailed to the stockholders, at the time of the Special Meeting
and at the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
Section 2.8 Rights Agreement; Charter. The Company has taken or will take
all action necessary to exempt the Merger from the provisions of the Rights
Agreement, dated as of September 21, 1998, between the Company and U.S. Stock
Transfer Corporation (the "Rights Agreement") and to provide for expiration of
the Rights thereunder at the time immediately prior to the Effective Time. The
Company will not exercise any rights or ability it may have under the Rights
Agreement or its charter (the "Company Charter") to nullify or delay the
consummation of the Merger.
Section 2.9 Capitalization of the Company and Its Subsidiaries. As of the
date hereof, the authorized capital stock of the Company consists of
500,000,000 shares of capital stock, of which: (i) 496,500,000 are classified
as Common Stock, par value $0.0001 per share, 28,500,000 shares are issued and
outstanding, and (ii) 3,500,000 are classified as Series A Junior Participating
Preferred Stock, par value $0.0001 per share, none of which shares are issued
or outstanding. The Series A Junior Participating Preferred Stock has been
reserved for issuance upon the exercise of the preferred share purchase rights
in accordance with the Rights Agreement. As of the date hereof, there are
outstanding Company Stock Options in respect of 1,437,250 Shares at the
exercise prices set forth in Section 2.9(a) of the Company Disclosure Schedule.
Except as set forth above or as set forth in Section 2.9(a) of the Company
Disclosure Schedule, there are outstanding (i) no shares of capital stock or
other voting securities of the Company, (ii) no securities of the Company or
its subsidiaries convertible into or exchangeable or exercisable for shares of
capital stock or voting securities of the Company, (iii) no options, calls or
other rights (including warrants or other contractual rights, including
contingent rights) to acquire from the Company or its subsidiaries, and no
obligations of the Company or its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, any capital stock, voting securities or
securities convertible into or exchangeable or exercisable for capital stock or
voting securities of the Company and (iv) no equity equivalents, interests in
the ownership or earnings of the Company or its subsidiaries or other similar
rights (including stock appreciation rights) (collectively, "Company
Securities"). Except for the Company Stock Option Plan or as set forth in
Section 2.9(a) of the Company Disclosure Schedule, there are no outstanding
obligations of the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any Company Securities or any capital stock, voting
securities or other ownership interests in any subsidiary of the Company.
Section 2.10 No Defaults. As of the date hereof, none of the Company or any
of its subsidiaries is in default or violation (and no event has occurred which
with notice or the lapse of time or both would constitute a default or
violation) of any term, condition or provision of (i) its charter or bylaws (or
similar governing documents), (ii) any note, bond, mortgage, collateralized
mortgage obligation, reverse repurchase agreement, indenture, letter of credit,
warehouse line of credit, other evidence of indebtedness, franchise, permit,
guarantee, lease, license, contract, agreement or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which any of them or any of their respective properties or assets is bound, or
(iii) any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Company, its subsidiaries or any of their respective
properties or assets, except in the cases referred to in the preceding clauses
(ii) and (iii) for violations, breaches or defaults that would not have a
Company Material Adverse Effect.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ICII AND MERGER SUB
ICII and Merger Sub, jointly and severally, hereby represent and warrant to
the Company as follows:
Section 3.1 Organization and Qualification of ICII and Merger Sub.
(a) ICII and each of its subsidiaries is a corporation or other legal entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has all requisite corporate or other
power, as the case may be, and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted.
(b) Each of ICII and its subsidiaries is duly qualified or licensed and in
good standing (with respect to jurisdictions which recognize such concept) to
do business in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed and in good standing would not have
an ICII Material Adverse Effect. The term "ICII Material Adverse Effect" means
any change or effect that individually or in the aggregate is or would
reasonably be expected to be materially adverse to (i) the business,
properties, assets, results of operations or financial condition of ICII and
its subsidiaries, taken as a whole, other than any change or effect arising out
of (x) a decline or deterioration in the economy in general or the real estate
or capital markets in which ICII and its subsidiaries operate, or (y) this
Agreement or the transactions contemplated hereby or the announcement thereof
or (ii) the ability of ICII or Merger Sub to consummate the transactions
contemplated hereby without material delay.
Section 3.2 Corporate Authorization. Each of ICII and Merger Sub has all
necessary corporate power and authority to execute and deliver this Agreement,
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the board of
directors of each of ICII and Merger Sub and by ICII as sole stockholder of
Merger Sub and no other corporate proceedings on the part of either of them is
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by ICII and Merger Sub and, assuming the due authorization, execution
and delivery hereof by the Company, constitutes the valid, legal and binding
agreement of each of ICII and Merger Sub, enforceable against each of them in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or
in equity).
Section 3.3 SEC Reports; Financial Statements. ICII has filed all required
forms, reports and documents with the SEC since January 1, 1998 (the "ICII SEC
Reports"). As of their respective dates and giving effect to any amendments
thereto, each of the ICII SEC Reports complied as to form in all material
respects with all applicable requirements of the Securities Act or the Exchange
Act, as the case may be, each as in effect on the dates such forms, reports and
documents were filed. None of the ICII SEC Reports, including any financial
statements, contained, when filed, any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The consolidated financial statements of ICII
included in the ICII SEC Reports complied as to form, as of their respective
dates of filing with the SEC, in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto and fairly present, in conformity with GAAP applied on a
consistent basis throughout the relevant periods (except as may be indicated in
the notes thereto and, except in the case of unaudited quarterly statements, as
permitted by Form 10-Q of the SEC), the consolidated financial position of ICII
and its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and changes in financial position and cash flows
for the periods then ended (subject, in the case of unaudited interim financial
statements, to normal year-end adjustments).
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Section 3.4 Consents and Approvals; No Violations.
(a) Except as set forth in Section 3.4 of the ICII Disclosure Schedule and
except for such filings, permits, authorizations, consents and approvals as may
be required under, and other applicable requirements of, the Securities Act,
the Exchange Act, the rules and regulations of the Nasdaq Stock Market, state
takeover laws, state securities or "blue sky" laws and the filing and
recordation of the Articles of Merger as required by the MGCL, filings to
maintain the good standing of the Surviving Corporation and such other filings,
permits, authorizations, consents and approvals the failure of which to be
obtained or made would not, in the aggregate, reasonably be expected to have an
ICII Material Adverse Effect, no filing or registration with or notice to, and
no permit, authorization, consent or approval of, any Regulatory Entity is
necessary in connection with the execution and delivery by ICII or Merger Sub
of this Agreement or the consummation by ICII or Merger Sub of the transactions
contemplated hereby.
(b) Upon consummation of the transactions contemplated hereby, each of ICII
and the Surviving Corporation (i) will not become insolvent, (ii) will not be
left with unreasonably small capital, (iii) will not have incurred debts beyond
its ability to pay all of its debts as they mature, and (iv) will not have its
capital impaired.
Section 3.5 Brokers. Other than Friedman, Billings, Ramsey & Co., Inc.
("FBR"), no broker, finder, investment banker or other intermediary is entitled
to any brokerage, finder's or other similar fee or commission or expense
reimbursement in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of ICII, Merger Sub or
any of their affiliates (other than the Company). In the event this Agreement
is terminated in accordance with Section 6.1, no broker, finder, investment
banker or other intermediary is or will be entitled to any brokerage, finder's
or other similar fee or commission or expense reimbursement in connection with
the transactions contemplated by this Agreement based upon arrangements made by
and on behalf of ICII, Merger Sub or any of their affiliates (other than the
Company), except that FBR shall be entitled to reimbursement from ICII for its
reasonable out-of-pocket expenses incurred in connection with the negotiation
and preparation of this Agreement.
Section 3.6 Ownership of Company Capital Stock. Except for the ICII Shares
and except as listed on Section 3.6 of the ICII Disclosure Schedule, neither
ICII nor, to its knowledge, any of its subsidiaries or affiliates (other than
the Company), (i) beneficially owns (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, or (ii) is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock of the
Company.
Section 3.7 Information. None of the information supplied or to be supplied
by ICII and Merger Sub in writing specifically for inclusion in (i) the
Schedule 13E-3, (ii) the Proxy Statement, or (iii) the Other Filings will, at
the respective times filed with the SEC or such other Regulatory Entity and, in
addition, in the case of the Schedule 13E-3 and the Proxy Statement, at the
date it or any amendment or supplement is mailed to the stockholders, at the
time of the Special Meeting and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
Section 3.8 Financing. ICII has available, and shall provide Merger Sub
with, all of the funds necessary to consummate the Merger and the transactions
contemplated hereby in accordance with the terms hereof. In no event shall the
receipt or availability of any funds or financing by ICII or any affiliate or
any other financing or other transaction be a condition to any of ICII's
obligations hereunder or to the consummation of the Merger.
Section 3.9 Conduct of Business of Merger Sub. Merger Sub was formed solely
for the purpose of engaging in the transactions contemplated hereby, has
engaged in no other business activities and has conducted its operations only
as contemplated hereby.
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ARTICLE IV
COVENANTS
Section 4.1 Conduct of Business of the Company. Except as expressly
contemplated by this Agreement or as set forth in Section 4.1 of the Company
Disclosure Schedule, during the period from the date hereof to the Effective
Time, the Company will, and will cause each of its subsidiaries to, conduct its
operations only in the ordinary course of business consistent with past
practice, seek to preserve intact its current business organizations, seek to
keep available the service of its current officers and seek to preserve its
relationships with customers, suppliers and others having business dealings
with them. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in this Agreement or as set forth in Section 4.1
of the Company Disclosure Schedule, after the date hereof and prior to the
earlier of the (i) Effective Time or (ii) termination of this Agreement, the
Company will not and will cause its subsidiaries not to, without the prior
written consent of ICII, such consent not to be unreasonably withheld,
conditioned or delayed:
(a) amend its charter or bylaws or the articles or other similar
governing instrument of any of its subsidiaries;
(b) except pursuant to the Rights Agreement, authorize for issuance,
issue, sell, deliver or agree or commit to issue, sell or deliver (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class or
any other securities or equity equivalents (including any stock options or
stock appreciation rights), except for the issuance of Shares (and the
associated rights) upon the exercise of Company Stock Options outstanding
at the date of this Agreement under the Company Stock Option Plan, in
accordance with the terms of such Company Stock Option Plan and Company
Stock Options as in effect on the date hereof;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock (other than (i) regular quarterly dividends not in excess of
105% of its taxable income for each quarter or (ii) distributions not in
excess of 105% of its taxable income for the applicable period as may be
necessary to maintain the Company's status as a real estate investment
trust for federal income tax purposes ("REIT")), make any other actual,
constructive or deemed distribution in respect of any shares of its capital
stock or otherwise make any payments to Company Stockholders in their
capacity as such or redeem or otherwise acquire any of its securities or
any securities of any of its subsidiaries; provided, however, that
notwithstanding the foregoing, the Company shall be permitted to declare
and pay the Final Company Dividend (as defined in Section 4.12) in
accordance with Section 4.12;
(d) acquire, sell, lease, license or dispose of any assets, or enter
into any material contract outside the ordinary course of business
consistent with past practice;
(e) except as may be required as a result of a change in law or in GAAP,
change any of the accounting principles or practices used by it and
maintain its books and records other than in accordance with GAAP
consistently applied;
(f) acquire, whether by merger, consolidation or acquisition of stock or
assets or otherwise, any corporation, partnership or other business
organization or division thereof;
(g) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business consistent with past practice or in accordance with their terms,
of claims, liabilities or obligations reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of the Company and its subsidiaries included in the Company
SEC Reports or arising in the ordinary course of business since the date
thereof or reflecting debt between the Company and its wholly owned
subsidiaries or between its wholly owned subsidiaries or which are not
otherwise material to the business of the Company or its subsidiaries;
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(h) settle or compromise, or agree to settle or compromise, any claim,
suit or other litigation or matter in an arbitration proceeding for an
amount in excess of $100,000 (after taking into account any insurance
proceeds to which the Company or any of its subsidiaries receives), or
otherwise on terms which would constitute a Company Material Adverse
Effect;
(i) create or assume with respect to any asset of the Company (including
any security), any mortgage, lien, pledge, charge, security interest,
assignment of leases, revenues, rents and/or profits, fixture, filing or
other encumbrance of any kind in respect of such asset (the "Liens") other
than Liens which would not have, or reasonably be expected to have, a
Company Material Adverse Effect;
(j) make any loans, advances or capital contributions in excess of
$500,000 to, or investments in, any other Person, other than (i) pursuant
to previous commitments listed in Section 4.1 of the Company Disclosure
Schedule or in Company SEC Reports filed prior to the date hereof, and (ii)
loans, advances and capital contributions to wholly owned subsidiaries of
the Company;
(k) take any action, or omit to take any action, which action or
omission would terminate the Company's continuing status as a REIT; and
(l) take, or agree in writing or otherwise to take, (i) any of the
actions described in Sections 4.1(a) through 4.1(k) to the extent that such
actions would be prohibited thereby, except to the extent such actions
would not have, or reasonably be expected to have, a Company Material
Adverse Effect, or (ii) any action which would result in any of the
material conditions to the Merger set forth herein not being satisfied.
Notwithstanding anything to the contrary herein, Section 4.1 shall not be
deemed violated by any action taken by the Company as a result of any action by
an officer of the Company that is not specifically approved by the Special
Committee.
Section 4.2 Other Actions. Each of the Company, on the one hand, and ICII
and Merger Sub, on the other hand, shall not, and shall use commercially
reasonable efforts to cause their respective subsidiaries and affiliates not
to, take any action that would result in (i) any representations and warranties
of such party (without giving effect to any "knowledge" qualification) set
forth in this Agreement that are qualified as to materiality becoming untrue,
(ii) any of such representations and warranties (without giving effect to any
"knowledge" qualification) that are not so qualified becoming untrue in any
material respect, or (iii) any of the conditions to the Merger set forth in
Article V not being satisfied.
Section 4.3 Solicitation.
(a) For a period of 60 days following the later of (x) the date of this
Agreement or (y) the date on which the Appraiser is engaged (the "Solicitation
Period"):
(i) Nothing contained in this Agreement shall prohibit the Company or
any third party or any of the affiliates, officers, directors, employees,
representatives or agents of the Company, directly or indirectly, from
encouraging, soliciting, participating in, initiating discussions or
negotiations with, providing any information or offering access to the
properties, books or records of the Company, or entering into any agreement
respecting fees and expenses or similar matters with any Person or group
concerning any Competing Transaction (as defined below), and it is
contemplated and expected that the Company and such persons will do so for
the purpose of determining if any Competing Transaction constituting a
Superior Proposal is available to the Company.
(ii) Notwithstanding anything to the contrary herein, after consultation
with and based upon the advice of both an outside legal counsel and an
independent financial adviser, the Company Board may enter into an
agreement with respect to, or approve or recommend, a Superior Proposal;
provided, however, that the Company shall concurrently with entering into
such an agreement terminate this Agreement and pay, or cause to be paid, to
ICII the expenses required by Section 6.3.
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(b) Following the expiration of the Solicitation Period:
(i) The Company shall not (whether directly or indirectly through
advisors, agents or other intermediaries) and shall use its reasonable
efforts to cause its officers, directors, employees, affiliates, agents and
representatives, not to directly or indirectly encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information or offer access to the properties, books or records of the
Company, to any Person or group (other than ICII or any designees of ICII)
concerning any Competing Transaction. Notwithstanding the foregoing, the
Company may furnish information and access, in each case only in response
to an unsolicited written proposal that constitutes a Superior Proposal
(provided that the Company shall use its reasonable efforts to enter into a
confidentiality agreement with such third party) and participate in
discussions and negotiate with the Person or group making such Superior
Proposal. The Company shall provide a copy of such written proposal (which
shall identify the party making such proposal) and any amendments thereto
to ICII promptly upon receipt thereof and, thereafter, shall keep ICII
promptly advised of material developments with respect thereto; provided,
however, that, nothing contained in this Section 4.3(b) shall prevent the
Company, the Company Board or the Special Committee from (i) taking, and
disclosing to the Company's stockholders, a position complying with Rule
14e-2(a) or Rule 14d-9 promulgated under the Exchange Act with respect to a
Competing Transaction, (ii) making any disclosure to its stockholders, if,
in the good faith judgment of the Company Board or the Special Committee,
after receiving advice of outside legal counsel, failure to disclose would
be reasonably likely to constitute a breach of its fiduciary duties to the
Company or its stockholders under applicable law (including a duty of
candor) or otherwise be a violation of any applicable law, (iii) issuing a
press release or publicly disclosing the terms of this Agreement in
accordance with Section 4.6, or (iv) taking any action which, in the good
faith judgment of the Company Board or the Special Committee, after
receiving advice of outside legal counsel, is required pursuant to an order
entered by a court of competent jurisdiction.
(ii) Except as set forth in this Section, neither the Company Board nor
any committee thereof shall approve or recommend, or cause the Company to
enter into any agreement or letter of intent with respect to, any Competing
Transaction. Notwithstanding the foregoing, prior to the Effective Time,
after consultation with and based upon the advice of both an outside legal
counsel and an independent financial adviser, the Special Committee may
recommend and the Company Board may authorize and cause the Company to
enter into an agreement with respect to, or approve or recommend, a
Superior Proposal; provided, however, that the Company shall concurrently
with entering into such an agreement terminate this Agreement and pay, or
cause to be paid, to ICII the expenses required by Section 6.3.
(c) For purposes of this Agreement:
(i) "Competing Transaction" shall mean any of the following with respect
to the Company or any subsidiary thereof (other than the transactions
contemplated by this Agreement (including all schedules and exhibits
attached hereto or referred to herein)): any merger, consolidation, share
exchange, business combination or similar transaction, or any sale,
exchange, mortgage, pledge, transfer or other disposition of all or
substantially all of the assets or equity securities of the Company and its
subsidiaries taken as a whole, in a single transaction or series of related
transactions; any tender offer or exchange offer for 50% or more of the
outstanding shares of beneficial interest of the Company or any transaction
resulting in the issuance of shares representing 50% or more of the
outstanding shares of beneficial interest of the Company, or the filing of
a registration statement under the Securities Act in connection therewith.
(ii) "Superior Proposal" shall mean any bona fide proposal relating to a
Competing Transaction which is on terms which the Company Board determines
in its good faith judgment (after consulting with an independent financial
advisor of nationally recognized reputation) (i) to be more favorable to
the Company Stockholders than the Merger and (ii) is reasonably capable of
being consummated.
Section 4.4 Additional Agreements; Reasonable Best Efforts. Subject to the
terms and conditions herein provided, each of the parties hereto agrees to use
its reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable
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laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including (i) contesting any legal proceeding
challenging the Merger and (ii) the execution of any additional instruments,
including the Articles of Merger, necessary to consummate the transactions
contemplated hereby. Subject to the terms and conditions of this Agreement,
each party hereto agrees to use reasonable best efforts to cause the Effective
Time to occur as soon as practicable after the stockholder vote with respect to
the Merger. In case at any time after the Effective Time any further action is
necessary to carry out the purposes of this Agreement, the proper officers and
directors of each party hereto shall take all such necessary action.
Section 4.5 Consents. Without in any way limiting Section 4.4, ICII, Merger
Sub and the Company each will use its reasonable best efforts to obtain
consents, approvals or waivers of all third parties and Regulatory Entities
necessary, proper or advisable for the consummation of the transactions
contemplated by this Agreement; provided that, nothing contained herein shall
require either party to dispose of any business, properties or assets or cease
engaging in any business which, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on the business,
assets, results of operations or financial condition of the Surviving
Corporation and its subsidiaries, taken as a whole, after giving effect to the
Merger.
Section 4.6 Public Announcements. ICII, Merger Sub and the Company will
consult with each other and give each other reasonable advance notice before
issuing any press release or otherwise making any public statements with
respect to the transactions contemplated hereby, including the Merger (but
excluding any press release or announcement by the Company relating to any
Competing Transaction or Superior Proposal). Each party hereto shall
incorporate in the press release or other public statement such information as
shall reasonably be requested to be included therein by the other party hereto.
Notwithstanding the foregoing, either party hereto may, without the prior
consent of the other party, issue any press release or make any public
announcement that may be required by law or the rules or requirements of the
Nasdaq Stock Market, if it has used its reasonable best efforts to consult with
the other party but has been unable to do so in a timely manner, and the
Company may issue any press release or make any public announcement as it may
desire with respect to any Competing Transaction or Superior Proposal. The
parties agree that the initial press release to be issued with respect to the
Merger shall be in the form heretofore agreed to by the parties.
Section 4.7 Indemnification; Directors' and Officers' Insurance.
(a) ICII and Merger Sub agree that all rights to indemnification or
exculpation (whether contained in the charter, by-laws or other similar
governing instruments, or in any indemnification agreements, each as in effect
as of the date hereof, or otherwise available) now existing in favor of the
directors, officers, employees and agents (and their respective heirs,
representatives, successors and assigns) of the Manager and/or the Company and
its subsidiaries (each an "Indemnified Party") with respect to actions or
omissions occurring prior to the Effective Time shall survive the Merger and
shall continue in full force and effect for a period of six years from the
Effective Time; provided, however, that, all rights to indemnification in
respect of any claim asserted or made within such period shall continue until
the disposition of such claim. In addition to the foregoing, from and after the
Effective Time, ICII and the Surviving Corporation, jointly and severally,
shall indemnify, hold harmless and defend each person who is a current or
former officer or director of the Manager and/or the Company or any of its
subsidiaries against all losses, claims, damages, liabilities, judgments, costs
or expenses (including attorneys' fees) arising out of or pertaining to acts or
omissions (or alleged acts or omissions) by them in their capacities as such
(collectively, "Actions"), which Actions occurred at or prior to the Effective
Time. To the maximum extent permitted by the MGCL, the indemnification and
related rights hereunder shall be mandatory rather than permissive and ICII
and/or the Surviving Corporation shall promptly advance expenses in connection
with such indemnification to the fullest extent permitted under applicable law,
provided that, to the extent required by law, the person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification. Notwithstanding
anything to the contrary herein, immediately upon consummation of the Merger,
ICII and the Surviving Corporation shall (and ICII agrees to cause the
Surviving Corporation to), jointly and severally, expressly assume the
obligations of the Company under any indemnification agreements entered into by
the Company for the benefit of its directors and officers.
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(b) ICII shall cause the Surviving Corporation to maintain in effect for not
less than six years from the Effective Time policies of directors' and
officers' liability and fiduciary insurance, which may be in the form of tail
coverage under the Company's current policies of such insurance (if and to the
extent that such tail coverage is available and provides insurance coverage
that meets all of the requirements of this Section), on terms with respect to
coverage and amount no less favorable than those of such policy or policies in
effect on the date hereof pursuant to which the Company's directors and
officers currently are insured with respect to claims arising from facts or
events occurring prior to the Effective Time to the extent required to cover
the types of actions and omissions with respect to which the Company's
directors and officers are currently insured; provided, that in no event shall
ICII or the Surviving Corporation be required to pay aggregate annual premiums
for insurance under this paragraph (b) in excess of 300% of the aggregate
annual premium paid by the Company as of the date of this Agreement for such
purpose; provided, further, that if the premium for such coverage exceeds such
amount, ICII shall, or shall cause the Surviving Corporation to, purchase a
policy with the greatest coverage available for such 300% of the aggregate
annual premium. In the event that any person is or would have been entitled to
coverage under a directors' and officers' liability and fiduciary insurance
policy pursuant to this Section and such policy has lapsed, not been purchased,
terminated, been repudiated or is otherwise in breach or default or affords
lesser coverage than is required under this Section as a result of the
Surviving Corporation's failure to maintain and fulfill its obligations
pursuant to this Section or for any other reason, ICII shall pay to such
persons such amounts and provide any other coverage or benefits as such person
would have received pursuant to such policy.
(c) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section, upon actually learning of any such Action, shall promptly
notify ICII thereof; provided, however, that any failure of an Indemnified
Party to promptly so notify ICII shall not excuse ICII or the Surviving
Corporation from any of its obligations hereunder except to the extent of any
actual harm suffered by ICII or the Surviving Corporation as a result of such
delay. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) ICII
and the Surviving Corporation shall have the right, from and after the
Effective Time, to assume the defense thereof if the relief sought therein is
solely monetary (and provided that ICII or the Surviving Corporation, jointly
and severally, admit and covenant in writing their liability to indemnify and
hold the Indemnified Party harmless from and against any losses, damages,
expenses and liabilities arising out of such matter), (ii) the Indemnified
Party (or Parties, if more than one) shall have the right to engage separate
counsel to represent its or their interests, and ICII and the Surviving
Corporation shall, jointly and severally, bear the reasonable expenses of such
counsel (such counsel or counsels, as the case may be, to coordinate with
counsel for ICII in order to avoid unreasonable duplication of legal expenses
among ICII and the Indemnified Parties); provided, however, that ICII and the
Surviving Corporation shall, jointly and severally, be obligated to bear the
expenses of only one such separate counsel unless there exists or may exist one
or more legal defenses available to an Indemnified Party that are not available
to, or the assertion of which would be adverse to the interest of, one or more
of the other Indemnified Parties (it being further understood and agreed that
if and to the extent one or more of the Independent Directors of the Company
(as such term is defined in the Company's charter) are Indemnified Parties with
respect to any particular Action, ICII and the Surviving Corporation shall,
jointly and severally, be obligated to bear the expenses of one counsel for the
Independent Directors with no other representation in the matter, and shall be
so obligated with respect to individual counsel for any Independent Director in
the event there exists or may exist one or more legal defenses available to
such Independent Director that are not available to, or the assertion of which
would be adverse to the interest of, one or more of the other Independent
Directors), (iii) the Indemnified Parties will reasonably cooperate in the
defense of any such matter, (iv) ICII and the Surviving Corporation shall not
be liable for any settlement effected without ICII's prior written consent
(which consent shall not be unreasonably withheld, conditioned or delayed), and
(v) neither ICII, nor the Surviving Corporation, nor any of their affiliates
shall consent to a settlement of, or the entry of any judgment arising from,
any such matter, without the prior written consent of each Indemnified Party
that is a party to such matter, unless the Indemnified Party is the beneficiary
of a full and complete release from any losses, damages, expenses and
liabilities arising out of such claim or Action by the person or persons
bringing such claim or Action, in form and substance reasonably satisfactory to
the Indemnified Party.
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(d) Notwithstanding any other provisions hereof, the obligations of ICII and
the Surviving Corporation shall be binding upon the successors and assigns of
each of them. In the event ICII or the Surviving Corporation or any of their
successors or assigns (i) consolidates with or merges into any other Person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or any substantial
portion of its properties and assets to any Person, then, and in each such
case, proper provision shall be made so that the successors and assigns of such
party assume the obligations set forth in this Section.
(e) The obligations of the Surviving Corporation hereunder shall be the
joint and several obligations of ICII and the Surviving Corporation and their
respective successors and assigns, whether or not expressly provided in this
Section.
(f) The provisions in this Section (i) are intended to be for the benefit
of, and shall be enforceable by, each person entitled to indemnification
hereunder, and each such person's heirs, representatives and successors or
assigns (it being expressly agreed that such persons shall be the third party
beneficiaries of this Section) and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
Section 4.8 Notification of Certain Matters. The Company shall give prompt
notice to ICII, and ICII shall give prompt notice to the Company, of (i) the
occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any of its representations or warranties
contained in this Agreement to be untrue or inaccurate in any material respect
at or prior to the Effective Time, (ii) any material failure by it to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder, (iii) any notice of, or other communication relating
to, a default or event which, with notice or lapse of time or both, would
become a default, if received by it or any of its subsidiaries subsequent to
the date of this Agreement and prior to the Effective Time, under any contract
material to the financial condition, properties, assets, businesses or results
of operations of it and its subsidiaries taken as a whole to which it or any of
its subsidiaries is a party or is subject, (iv) any notice or other
communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated by
this Agreement (but notice to ICII or the Company, as the case may be, shall be
required only if the absence of such consent would have an ICII Material
Adverse Effect or Company Material Adverse Effect, as the case may be), or (v)
any Company Material Adverse Effect or ICII Material Adverse Effect, as the
case may be; provided, however, that the delivery of any notice pursuant to
this Section shall not cure such breach or non-compliance or limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
Section 4.9 SEC and Other Filings. The Company and ICII each shall provide
the other and its counsel with copies of all filings made by it or any of its
subsidiaries with the SEC after the date hereof and the Company and ICII each
shall provide the other and its counsel with copies of all filings made by it
with any other Regulatory Entity in connection with this Agreement and the
transactions contemplated hereby.
Section 4.10 Stockholder Litigation. Each of ICII and the Company shall give
the other the reasonable opportunity to participate in the defense of any
stockholder litigation against ICII, Merger Sub or the Company, as applicable,
and/or their respective officers and directors relating to the transactions
contemplated hereby.
Section 4.11 SPB Loans. ICII shall repurchase (unless Southern Pacific Bank
("SPB") has previously repurchased) the 16 real estate mortgage loans
previously sold by SPB to the Company that (i) had an aggregate principal
balance of $3,911,864.85 as of June 30, 1999, (ii) were described in that
certain notice from the Company to SPB, dated May 21, 1999, and (iii) have not
been repurchased by SPB from the Company as of the date hereof (collectively,
the "SPB Loans"; provided that, in those instances in which a foreclosure sale
of the real property underlying one or more SPB Loans has already occurred, all
references in this Agreement to SPB Loans shall be deemed to be references to
such real property, and in those instances, ICII shall purchase such real
property from the Company in lieu of purchasing such mortgage loans), by the
later of (x) 60 days
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from the date of this Agreement or (y) 5 days after the termination of this
Agreement, at a price per SPB Loan as provided for in the relevant Agreement
for Purchase and Sale of Real Estate Loans between the Company and SPB pursuant
to which such SPB Loan was acquired by the Company.
Section 4.12 Final Company Dividend. The Company shall declare a cash
dividend (the "Final Company Dividend") to the Company Stockholders, the record
date for which shall be the close of business on the last business day prior to
the Effective Time, in an amount not in excess of (x) 100% of the Company's
taxable income for the taxable year through the Effective Time reduced by (y)
the amount of all prior dividends paid in respect of the Company's taxable year
ending as of the Effective Time, to be paid to Company Stockholders as promptly
as practicable after the Effective Time.
Section 4.13 Employee Matters. ICII shall cause the Manager to fully honor
and pay all existing employment and severance arrangements with respect to its
employees. The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, each employee of the Manager (it being
expressly agreed that each such person shall be a third party beneficiary of
this Section).
Section 4.14 Standstill.
(a) Except with respect to the Merger or any Qualifying Alternative
Transaction (including, in either case, any of the matters permitted by this
Agreement in connection with the negotiation, approval or consummation of the
Merger), ICII (including its affiliates, each of its and their directors,
officers, employees, agents and representatives, and any "group", within the
meaning of Section 13(d)(3) of the Exchange Act, in which it, any of its
affiliates, or any of its or their directors, officers, employees, agents or
representatives, is a member) shall not directly or indirectly: (i) acquire
beneficial ownership or control of any equity securities of the Company, other
than the ICII Shares owned prior to the date of this Agreement; (ii) other than
certain mortgage loans (or underlying real property) that may be resold to SPB
and/or Franchise Mortgage Acceptance Corp., in any manner acquire or agree,
attempt, seek or propose to acquire (or make any request for permission with
respect thereto), by purchase, merger, through the acquisition of control of
another person, by joining a partnership, limited partnership, syndicate or
other group, or otherwise, ownership (including, but not limited to, beneficial
ownership as defined in Rule 13d-3 under the Exchange Act) of any of the assets
or businesses of the Company or any securities issued by the Company, or any
rights or options to acquire such ownership (including from a third party);
(iii) make, or in any way cause or participate in, any "solicitation" of
"proxies" to vote (as such terms are defined in Regulation 14A under the
Exchange Act), or communicate with, seek to advise, encourage or influence any
person or entity, in any manner, with respect to the voting of, any voting
securities of the Company, or become a "participant" in any "election contest"
(as such terms are defined or used in Rule 14a-11 promulgated under the
Exchange Act) with respect to the Company, or execute any written consent with
respect to the Company; (iv) make or cause to be made or reasserted any
proposal for the acquisition of the Company or any assets or securities thereof
or for any extraordinary transaction involving the Company, including any
merger, or other business combination, restructuring, recapitalization,
liquidation or similar transaction; (v) initiate, propose or otherwise solicit
stockholders for the approval of one or more stockholder proposals with respect
to the Company or induce or attempt to induce any other person to initiate any
stockholder proposal, or seek election to or seek to place a representative on
the Board of Directors of the Company (other than existing members of the
Company Board on the date hereof) or seek the removal of any member of the
Company Board; (vi) form, join or in any way participate in a "group" (within
the meaning of Section 13(d)(3) of the Exchange Act) with respect to any voting
securities of the Company; (vii) otherwise act, alone or in concert with
others, to seek to control or influence the management, the Company Board or
the policies of the Company (except as permitted or required by the Management
Agreement or by such person's status as a director or officer of the Company);
(viii) disclose any intention, plan or arrangement, or make any public
announcement inconsistent with the foregoing; (ix) advise, assist or encourage
or finance (or assist or arrange financing to or for) any other person in
connection with any of the foregoing; (x) enter into any discussions,
negotiations, arrangements or understandings with any other person in
connection with any of the foregoing; or (xi) request a waiver of any of the
foregoing. In the event ICII shall determine to do any of the foregoing with
respect to a Qualifying Alternative Transaction, it shall promptly amend its
Schedule 13D filed with respect to the Shares (the "Schedule 13D") to reflect
such change.
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(b) A "Qualifying Alternative Transaction" shall refer to any transaction
(i) by which ICII, alone or with others, acquires or seeks to acquire all of
the Shares for cash consideration to the holders of Shares (payable in U.S.
dollars) at a price that is not less than the Merger Consideration (except that
such price may be adjusted to take account of any extraordinary distribution
made by the Company following the termination of the Merger Agreement, or any
issuance or repurchase by the Company of interests or instruments convertible
or exchangeable into or for capital stock of the Company following the
termination of the Merger Agreement) (provided, however, that the amount of any
break-up fee agreed to be paid by the Company to a third party pursuant to an
agreement relating to a Superior Proposal with such third party shall not
exceed $6 million); (ii) proposed after the Merger Agreement is terminated by
ICII solely in response to a definitive Superior Proposal for which the
consideration to be paid thereunder does not consist entirely of cash or cash
equivalent securities or instruments; and (iii) (x) not subject to any
conditions to consummation not contained in this Agreement with respect to the
Merger and (y) in connection with which ICII shall undertake and remain subject
to (A) all the terms and conditions of this Agreement that are for benefit of
any third party (whether or not such party is a third party beneficiary hereof)
as contemplated herein and (B) all of the terms and conditions of this
Agreement set forth on Schedule IV, and the consummation of any Qualifying
Alternative Transaction by ICII shall constitute an agreement by ICII to abide
by the terms hereof referred to in this clause (y), mutatis mutandis.
(c) If such Qualifying Alternative Transaction is effected by tender offer
(i) such offer shall have a non-waivable minimum condition that ICII shall not
accept for payment any tendered Shares, unless there are validly tendered and
not properly withdrawn prior to the expiration date for such offer, that number
of Shares representing a majority of the total number of issued and outstanding
Shares, other than the ICII Shares, and (ii) if such offer is consummated, ICII
shall effect a second-step merger in which Company Stockholders not tendering
in such offer shall receive the same per share consideration as they would have
received had they tendered in the tender offer. ICII shall, in accordance with
Section 1.11, promptly amend its Schedule 13E-3 and its Schedule 13D to reflect
the terms of any Qualifying Alternative Transaction it may propose.
(d) ICII covenants and agrees that it shall not (i) with respect to any
Qualifying Alternative Transaction to be effected by tender offer or by the
purchase of any Shares, permit the tender of any Shares to become irrevocable
or purchase any Shares tendered or offered to be sold in connection with such
Qualifying Alternative Transaction, or (ii) with respect to any Qualifying
Alternative Transaction to be effected in any other manner, obtain the required
approval of the Company Stockholders for such Qualifying Alternative
Transaction, consummate such Qualifying Alternative Transaction or make the
consummation of such Qualifying Alternative Transaction otherwise not subject
to further approval by Company Stockholders, in either case before two business
days following the date of the meeting of the Company Stockholders called for
the purpose of approving a Superior Proposal, with the purpose and effect that
the Company Stockholders shall in fact have the opportunity to accept and
benefit from such Superior Proposal should they so desire, without any timing
advantage being afforded to such Qualifying Alternative Transaction.
Section 4.15 Transfer and Gains Taxes. The Company and ICII shall cooperate
in the preparation, execution and filing of any returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer or stamp taxes, any transfer,
recording, registration or other fees or any similar taxes which may become
payable in connection with the Merger (together with any related interests,
penalties or additions to tax, "Transfer and Gains Taxes"). The Surviving
Corporation shall pay, and not deduct or withhold, any Transfer and Gains Taxes
from any amounts payable to the former holders of the Company's Shares.
Section 4.16 Access to Information.
(a) Between the date hereof and the Effective Time, the Company, upon
reasonable notice and during the Company's ordinary business hours, (i) will
not prevent ICII and its authorized representatives from having reasonable
access to the employees of the Manager, and to the offices and other facilities
and the books and records of the Company and its subsidiaries, (ii) will permit
ICII and its authorized representatives to make
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such inspections as ICII and its authorized representatives may, from time to
time, reasonably request and will cause the Company's officers and those of its
subsidiaries, and their respective accountants and outside legal counsel, to
furnish ICII and its authorized representatives with such financial and
operating data and other information with respect to the business, properties
and personnel of the Company and its subsidiaries as ICII and its authorized
representatives may from time to time reasonably request, provided that no
investigation pursuant to this Section 4.16(a) shall affect or be deemed to
modify any of the representations or warranties made by the Company.
(b) ICII agrees that all information received from the Company or the
Manager as contemplated by this Section shall be deemed received pursuant to
the Confidentiality Agreement, dated as of June 22, 1999, between the parties
(the "Confidentiality Agreement"), and that ICII shall, and shall cause its
subsidiaries, affiliates and their respective directors, officers, employees,
agents and representatives to, comply with the provisions of the
Confidentiality Agreement with respect to such information, and the provisions
of the Confidentiality Agreement are hereby incorporated by reference with the
same effect as if fully set forth herein.
Section 4.17 Excess Share Provision. The parties agree that the provisions
of Article VII of the Company Charter may apply to the transactions
contemplated by this Agreement. Therefore, prior to the Effective Time, the
Board of Directors of the Company shall, pursuant to the second sentence of
Section 7.1.7 of the Company Charter and subject to and conditioned upon
receipt of the items contemplated by clauses (i), (ii) and (iii) below, exempt
the transactions contemplated hereby, including the Merger (the "Exemption"),
from the restrictions set forth in Section 7.1.2(a) of the Company Charter. In
furtherance of the foregoing, prior to the Effective Time, ICII shall cooperate
with the Company in obtaining, or shall cause to be delivered to the Company's
Board of Directors, as applicable, the following:
(i) an opinion of Piper & Marbury L.L.P. (the "Opinion") to the effect
that the restrictions contained in Section 7.1.2(b), Section 7.1.2(c)
and/or Section 7.1.2(d) of the Company Charter will not be violated by the
consummation of the transactions contemplated by this Agreement,
(ii) such representations and undertakings contemplated by Section 7.1.7
of the Company Charter and such representations and warranties appropriate
for the tax opinion certificate to be delivered to support the legal
opinion described in clause (i), in each case including the representations
and undertakings set forth in Exhibit A to this Agreement, as are
reasonably necessary to ascertain that no individual's "Beneficial
Ownership" or "Constructive Ownership" of shares of "Equity Stock" will
violate the "Ownership Limit" (as each of those terms is defined in Section
7.1.1 of the Company Charter; such Ownership Limit being referred to herein
as the "Individual Ownership Limit"), and
(iii) the written agreement of ICII that any violation or attempted
violation of the Individual Ownership Limit will result in the Shares
acquired pursuant to this Agreement being transferred to a trust
contemplated by Section 7.1.3 of the Company Charter to the extent
necessary to avoid such violation.
The parties agree that application of Article VII of the Company Charter to the
Merger shall not be deemed to constitute a breach of any representation,
warranty, covenant or agreement contained in this Agreement, nor the failure to
satisfy any condition to the consummation of the transactions contemplated
hereby (except as provided in Section 5.2(c), with respect to the Company, and
Section 5.3(c), with respect to ICII).
Section 4.18 State Takeover Statutes. The Company will use its reasonable
efforts to take all permissible actions it believes necessary to exempt the
Merger from the operation of any applicable "fair price," "moratorium,"
"business combination," "control share acquisition" or any other applicable
anti-takeover statute enacted under the state or federal laws of the United
States or any similar statute or regulation. The Company will not exercise any
rights it may have under applicable anti-takeover statutes to nullify or delay
this Agreement or the consummation of the transactions contemplated hereby.
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ARTICLE V
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 5.1 Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of ICII, Merger Sub and the Company to
effect the transactions contemplated hereby are subject to the satisfaction or
waiver at or prior to the Effective Time of the following conditions:
(a) this Agreement and the transactions contemplated hereby shall have
been approved at the Special Meeting held after October 1, 1999 (i) by
Company Stockholders in accordance with the Company Charter and (ii) by
Company Stockholders representing a majority of the outstanding Shares
entitled to vote at the Special Meeting (other than the ICII Shares); and
(b) no existing or future statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or enforced by any Regulatory Entity which has the effect of making the
consummation of the Merger illegal or prevents or prohibits consummation of
the Merger. Each party agrees that, in the event that any such statute,
rule, regulation, executive order, decree, ruling or injunction shall have
been enacted, entered, promulgated or enforced, such party shall use its
reasonable best efforts to cause such statute, rule, regulation, executive
order, decree, ruling or injunction to be complied with, lifted or vacated.
Section 5.2 Conditions to the Obligations of the Company. The obligation of
the Company to effect the Merger and the transactions contemplated hereby is
subject to the satisfaction or waiver at or prior to the Effective Time of the
following conditions:
(a) The representations and warranties of ICII and Merger Sub contained
in this Agreement or in any other document delivered pursuant hereto shall
be true and correct at and as of the Effective Time with the same effect as
if made at and as of the Effective Time (except to the extent expressly
made as of an earlier date, in which case, as of such date), except where
the failure of such representations and warranties to be true and correct
(without giving effect to any supplement to the ICII Disclosure Schedule
after the date hereof or any materiality or material adverse effect
qualifier) does not constitute an ICII Material Adverse Effect and at the
Closing ICII and Merger Sub shall have delivered to the Company a
certificate signed by their respective Chief Executive Officers to that
effect;
(b) Each of the obligations of ICII and Merger Sub to be performed at or
before the Effective Time pursuant to the terms of this Agreement shall
have been duly performed at or before the Effective Time, except for such
non-performances as would not, in the aggregate, either have an ICII
Material Adverse Effect or prevent or prohibit consummation of the Merger,
and at the Closing ICII and Merger Sub shall have delivered to the Company
a certificate signed by their respective Chief Executive Officers to that
effect; and
(c) The deliveries contemplated by clauses (i), (ii) and (iii) of
Section 4.17 shall have been made.
Section 5.3 Conditions to the Obligations of ICII and Merger Sub. The
obligation of ICII and Merger Sub to effect the Merger and the transactions
contemplated hereby is subject to the satisfaction or waiver at or prior to
the Effective Time of the following conditions:
(a) the representations and warranties of the Company contained in this
Agreement or in any other document delivered pursuant hereto shall be true
and correct at and as of the Effective Time with the same effect as if made
at and as of the Effective Time (except to the extent expressly made as of
an earlier date, in which case, as of such date), except where the failure
of such representations and warranties to be true and correct (without
giving effect to any supplement to the Company Disclosure Schedule after
the date hereof or any materiality or material adverse effect qualifier)
does not have and would not have a Company Material Adverse Effect and at
the Closing the Company shall have delivered to ICII a certificate signed
by its Chief Executive Officer to that effect;
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(b) each of the obligations of the Company to be performed at or before
the Effective Time pursuant to the terms of this Agreement shall have been
duly performed at or before the Effective Time, except for such non-
performances as would not, in the aggregate, have a Company Material
Adverse Effect or prevent or prohibit consummation of the Merger, and at
the Closing the Company shall have delivered to ICII a certificate signed
by its Chief Executive Officer to that effect; and
(c) The Exemption shall have been granted; provided, however, that
neither ICII nor Merger Sub may rely on the failure of this condition if
any of the deliveries contemplated by clauses (ii) and (iii) of Section
4.17 required to be delivered by ICII have not been made (or if the
delivery contemplated by clause (i) of Section 4.17 has not been made as a
result of the failure of such deliveries).
Section 5.4 Frustration of Closing Conditions. Neither ICII, Merger Sub nor
the Company may rely on the failure of any condition set forth in Sections 5.1
through 5.3 to be satisfied if such failure was caused by such party's failure
to use reasonable best efforts to consummate the Merger and the transactions
contemplated hereby, as required by and subject to Section 4.4.
ARTICLE VI
TERMINATION; AMENDMENT; WAIVER
Section 6.1 Termination. This Agreement may be terminated and the Merger and
the transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, whether before or after the Company Stockholders approve the
Merger:
(a) by mutual written consent of ICII and the Company;
(b) by ICII or the Company if (i) any Regulatory Entity shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the acceptance for payment
of, or payment for Shares and such order, decree, ruling or other action is
or shall have become final and nonappealable; provided that no party may
terminate this Agreement pursuant to this paragraph if such party has
failed to fulfill its obligations under Section 5.1(b) of this Agreement;
(ii) the Merger has not been consummated prior to February 29, 2000; or
(iii) the approval of this Agreement by the Company Stockholders as
provided in Section 5.1(a) shall not have been obtained at the Special
Meeting or any adjournment or postponement thereof;
(c) by the Company if, prior to the Effective Time, the Company Board
approves or recommends another offer or an agreement to effect a proposal
made by a third party to effect a Superior Proposal in accordance with
Section 4.3;
(d) by ICII if, prior to the Effective Time, the full Company Board (i)
shall have withdrawn or modified in a manner adverse to ICII or Merger Sub
its approval or recommendation of this Agreement or the Merger, (ii) shall
have approved or recommended another offer or an agreement to effect a
proposal made by a third party (other than an affiliate of ICII) to effect
a Superior Proposal, or (iii) shall have resolved to effect any of the
foregoing;
(e) by the Company if prior to the consummation of the Merger (i)(A) any
of the representations and warranties of ICII or Merger Sub contained in
this Agreement and qualified as to materiality or ICII Material Adverse
Effect were untrue or incorrect when made or have since become untrue or
incorrect or (B) any other representations or warranties of ICII or Merger
Sub contained in this Agreement were when made or have since become untrue
or incorrect and, except as to the representations and warranties in
Section 3.9 as to which the following qualification shall not apply, such
breach could reasonably be expected, individually or in the aggregate, to
have an ICII Material Adverse Effect, or (ii) ICII or Merger Sub shall have
breached or failed to comply in any material respect with any of their
respective agreements or obligations under this Agreement, which breach
shall not have been cured prior to 20 business days following notice of
such breach (provided that such notice and grace period shall not be
applicable to ICII's covenants in Section 4.11 as to the SPB Loans);
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(f) by ICII if prior to the consummation of the Merger (i) (A) any of
the representations or warranties of the Company contained in this
Agreement and qualified as to materiality or Company Material Adverse
Effect were untrue or incorrect when made or have since become untrue or
incorrect or (B) any other representations or warranties of the Company
contained in this Agreement were when made or have become untrue or
incorrect and such breach could reasonably be expected, individually or in
the aggregate, to have a Company Material Adverse Effect, or (ii) the
Company shall have breached or failed to comply in any material respect
with any of its agreements or obligations under this Agreement, which
breach shall not have been cured 20 business days following notice of such
breach.
The party desiring to terminate this Agreement pursuant to this Section 6.1
shall give written notice of such termination to the other party. Neither party
may terminate this Agreement pursuant to this Section if such party has failed
to use reasonable best efforts to consummate the Merger and the transactions
contemplated hereby, as required by and subject to Section 4.4.
In the event this Agreement is terminated pursuant to Section 6.1(c) or
6.1(d)(ii) as the result of a Superior Proposal entered into as contemplated by
Section 4.3(a), ICII hereby agrees to vote, tender or exchange, and to use its
reasonable best efforts to cause any other ICII Shares to be voted, tendered or
exchanged, in favor of such Superior Proposal; provided, that such Superior
Proposal is an all-cash transaction.
Section 6.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party hereto or its affiliates, directors, officers or stockholders, other
than the provisions of this Section and Sections 1.8, 2.6, 3.5, 4.11, 4.14, 6.3
and Article VII. Nothing contained in this Section shall relieve any party from
liability for any willful breach of this Agreement.
Section 6.3 Expenses.
(a) Upon the termination of this Agreement pursuant to Section 6.1(c) or
6.1(d)(ii), the Company shall promptly pay ICII an amount equal to the lesser
of (x) two million dollars ($2,000,000) and (y) ICII's actual expenses related
to this Agreement and the transactions contemplated hereby (not including any
investment banking fees other than the reimbursement of out-of-pocket expenses
and not including any fees relating to arrangements related to the financing of
the transactions contemplated hereby).
(b) In the event that this Agreement shall be deemed void or voidable
pursuant to Section 3-602 of the MGCL by a final, non-appealable order, ICII
shall promptly after such determination pay to the Company an amount equal to
the Company's actual expenses related to this Agreement and the transactions
contemplated hereby.
(c) Except as specifically provided in this Section, each party shall bear
its own expenses in connection with this Agreement and the transactions
contemplated hereby.
Section 6.4 Amendment. This Agreement may be amended by action taken by the
Company, ICII and Merger Sub at any time before or after approval of the Merger
by the Company Stockholders but, after any such approval, no amendment shall be
made which requires the approval of such stockholders under applicable law
without such approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of the parties hereto.
Section 6.5 Extension; Waiver. At any time prior to the Effective Time, each
party hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties, (ii) waive any inaccuracies in
the representations and warranties of the other parties contained herein or in
any document, certificate or writing delivered pursuant hereto, or (iii) waive
compliance by the other parties with any of the agreements or conditions
contained herein. Any agreement on the part of any party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party and expressly referring to this
Agreement. The failure of any party hereto to assert any of its rights
hereunder shall not constitute a waiver of such rights.
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ARTICLE VII
MISCELLANEOUS
Section 7.1 Non-survival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement. This Section shall not limit
any covenant or agreement which by its terms contemplates performance after the
Effective Time.
Section 7.2 Entire Agreement; Assignment. This Agreement (including the
documents and instruments referred to herein) (i) constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and (ii)
shall not be assigned by operation of law or otherwise.
Section 7.3 Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand (including recognized courier service) or
mailed, certified or registered mail with postage prepaid, or communicated by
facsimile transmission (receipt confirmed), as follows:
if to ICII or Merger Sub:
Imperial Credit Industries Inc.
23550 Hawthorne Boulevard, Building-1
Torrance, California 90505
Attention: H. Wayne Snavely
Fax: (310) 791-9955
with copies to:
Imperial Credit Industries Inc.
23550 Hawthorne Boulevard, Building-1
Torrance, California 90505
Attention: Irwin Gubman
Fax: (310) 791-8230
and:
Mayer, Brown & Platt
350 South Grand Avenue, 25th Floor
Los Angeles, California 90071-1503
Attention: James R. Walther, Esq.
Fax: (213) 625-0248
if to the Company:
Imperial Credit Commercial
Mortgage Investment Corp.
11601 Wilshire Boulevard, Suite 2080
Los Angeles, California 90023
Attention: Mark S. Karlan
Fax: (310) 231-1281
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<PAGE>
with copies to:
Joseph A. Jaconi, Jr.
Chairman of the Special Committee
of the ICCMIC Board of Directors
Joseph Jaconi Company, Inc.
P.O. Box 3907
Palo Verdes Peninsula, California 90274
Fax: (310) 373-8140
and:
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606-6404
Attention: Andrew L. Weil, Esq.
Fax: (312) 876-7934
and:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Adam O. Emmerich, Esq.
Fax: (212) 403-2000
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
Each such notice, request, demand, application, service of process and other
communication shall be deemed to have been given (i) as of the date faxed or
delivered (which, with respect to a recognized courier service, shall be deemed
to mean the business day following the date sent), (ii) as of the fifth
business day after the date mailed, or (iii) if given by any other means, only
when actually received by the addressee.
Section 7.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Maryland without regard to the
principles of conflicts of law thereof.
Section 7.5 Descriptive Headings; Schedules, Interpretation.
(a) The descriptive headings herein are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. Any matter disclosed pursuant to any Section
of the Company Disclosure Schedule or the ICII Disclosure Schedule shall be
deemed to qualify each representation and warranty of the Company, ICII and
Merger Sub, respectively. Any matter set forth in the Company SEC Reports or
the ICII SEC Reports, as the case may be, shall be deemed to be set forth in
the applicable Section of the Company Disclosure Schedule or the ICII
Disclosure Schedule, as the case may be, and no matter disclosed in the Company
SEC Reports or the ICII SEC Reports shall be deemed to constitute a breach of
any representation or warranty of the Company, ICII or Merger Sub, as the case
may be, set forth herein.
(b) As used in this Agreement, (i) the term "includes" and the word
"including" and words of similar import shall be deemed to be followed by the
words "without limitation"; (ii) "control" (including its correlative meanings,
"controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of
management or policies of a person, whether through the ownership of securities
or partnership or other interests, by contract or otherwise; (iii) "Person"
means, as applicable, a natural person, firm, partnership, limited liability
company, joint venture, corporation, association, business enterprise, joint
stock company, unincorporated association, trust, Regulatory Entity (as
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<PAGE>
defined in Section 2.4 hereof) or any other entity, whether acting in an
individual, fiduciary or other capacity; (iv) references to "knowledge" in this
Agreement, or words of similar import, shall mean the actual knowledge of the
Persons named in Section 7.5 of the Company Disclosure Schedule (where used
herein with respect to the Company) and shall mean the actual knowledge of the
Persons named in Section 7.5 of the ICII Disclosure Schedule (where used with
respect to ICII); (v) definitions contained in this Agreement apply to singular
as well as the plural forms of such terms and to the masculine as well as to
the feminine and neuter genders of such terms; (vi) words in the singular shall
be held to include the plural and vice versa and words of one gender shall be
held to include the other gender as the context requires; (vii) the terms
"hereof," "herein," and "herewith" and words of similar import shall, unless
otherwise stated, be construed to refer to this Agreement as a whole and not to
any particular provision of this Agreement, and Article, Section, paragraph,
Schedule and Exhibit references are to the Articles, Sections, paragraphs,
Schedules and Exhibit to this Agreement unless otherwise specified; (viii) the
word "or" shall not be exclusive; (ix) provisions shall apply, when
appropriate, to successive events and transactions; and (x) the terms
"subsidiary" and "affiliate", as used herein with reference to ICII, shall be
deemed not to include the Company and its subsidiaries, and the term
"affiliate", as used herein with reference to the Company, shall be deemed not
to include ICII and its subsidiaries and affiliates, other than the Company and
its subsidiaries.
Section 7.6 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns, and except as provided in Sections 1.9, 1.10, 4.7 and 4.13
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 7.7 Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
Section 7.8 Consent to Jurisdiction. Each of the parties hereto (i) consents
to submit itself to the personal jurisdiction of any federal court located in
the State of Maryland or any Maryland state court in the event any dispute
arises out of this Agreement or any of the transactions contemplated hereby,
(ii) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and
(iii) agrees that it will not bring any action relating to this Agreement in
any court other than a federal court sitting in the State of Maryland or a
Maryland state court.
Section 7.9 Enforcement. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any federal court sitting in the
State of Maryland or in any Maryland state court, in addition to any other
remedy to which any party is entitled at law or in equity.
Section 7.10 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but both of which shall
constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
IMPERIAL CREDIT COMMERCIAL
MORTGAGE INVESTMENT CORP.
/s/ Mark S. Karlan
By: _________________________________
Name: Mark S. Karlan
Title: President and Chief Executive
Officer
IMPERIAL CREDIT INDUSTRIES, INC.
/s/ H. Wayne Snavely
By: _________________________________
Name: H. Wayne Snavely
Title: Chairman
ICCMIC ACQUISITION CORP.
/s/ H. Wayne Snavely
By: _________________________________
Name: H. Wayne Snavely
Title: Chairman
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<PAGE>
APPENDIX B
[PRUDENTIAL SECURITIES INCORPORATED LETTERHEAD]
July 22, 1999
The Independent Members of the Board of Directors
Imperial Credit Commercial Mortgage Investment Corp.
11601 Wilshire Blvd., Suite 2080
Los Angeles, CA 90025
Gentlemen:
We understand that Imperial Credit Commercial Mortgage Investment Corp.
("ICMI"), a Maryland corporation, Imperial Credit Industries, Inc. ("ICII"), a
California corporation and ICCMIC Acquisition Corp., a Maryland corporation and
wholly-owned subsidiary of ICII (the "Merger Sub"), propose to enter into a
Merger Agreement (the "Merger Agreement"), pursuant to which ICII will purchase
each outstanding share of ICMI common stock, par value $.0001, (a "Share") for
$11.50 in cash (the "Consideration"). We note each Share could receive an
additional cash payment equal to the quotient of (a) the amount by which $35
million exceeds the independently appraised value of the amount that would be
payable to Imperial Credit Commercial Asset Management Corp., a California
corporation and wholly-owned subsidiary of ICII (the "Manager") pursuant to
Section 15 of the Management Agreement, dated October 22, 1997 (the "Management
Agreement"), between ICMI and the Manager if the Management Agreement were not
renewed by ICMI and expired October 22, 1999, divided by (b) the sum of (x) the
number of ICMI shares issued and outstanding as of the Merger Agreement date
entitled to receive the Consideration and (y) the aggregate number of Shares
issuable pursuant to ICMI stock options having an exercise price less than
$11.50 per share.
You have asked us whether, in our opinion, the Consideration to be received
by the ICMI shareholders (other than ICII, the Merger Sub and certain other
ICII affiliates) is fair to such ICMI shareholders from a financial point of
view.
In conducting our analysis and arriving at the opinion set forth below, we
have reviewed such materials and considered such financial and other factors as
we considered relevant, including:
1. ICMI's historical financial statements including (a) ICMI's reports on
Form 10-K for the fiscal years ended December 31, 1998 and December 31,
1997 and (b) ICMI's reports on Form 10-Q for the quarters ended March
31, 1999, September 30, 1998, June 30, 1998 and March 31, 1998;
2. certain information furnished to us by ICMI, including financial
projections, relating to the business, earnings, cash flow, assets and
prospects of ICMI;
3. the historical market prices and trading volumes of the Shares and the
common stock of certain publicly traded companies we deemed to be
reasonably similar to ICMI and the historical and projected results of
operations of ICMI and the historical and certain future earnings
estimates of such companies we deemed to be reasonably similar to ICMI;
4. publicly available financial and operating data concerning certain
companies engaged in businesses we deemed comparable to ICMI or
otherwise relevant to our inquiry;
5. the financial terms of certain transactions we deemed relevant;
6. the Merger Agreement, dated July 22, 1999 (the "Agreement"); and
7. such other financial studies, analyses and investigations and matters as
we deemed necessary.
We have met with senior management of ICMI to discuss: (i) the prospects for
their business, (ii) senior management's estimates of ICMI's future financial
performance and (iii) such other matters as we deemed relevant.
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<PAGE>
In preparing our opinion, we have relied on the accuracy and completeness of
publicly available information and all of the information supplied or otherwise
made available to us by ICMI and we have not independently verified such
information. With respect to the projections furnished by ICMI, we have assumed
that they have been reasonably prepared and reflect the best currently
available estimates and judgment of ICMI's management as to the expected future
financial performance of ICMI.
We have not made or been provided with an independent evaluation or
appraisal of the assets of ICMI. Our opinion is necessarily based upon
information available to us, and financial and other conditions and
circumstances existing and disclosed to us, as of the date hereof.
In connection with the preparation of this opinion we have not, prior to the
date hereof, been authorized by the Independent Members of the Board of
Directors to solicit, nor have we solicited, third party indications of
interest for the acquisition of all or part of ICMI. We have, however, pursuant
to Section 4.3 of the Merger Agreement, been asked by the Special Committee of
the Board of Directors (the "Special Committee"), consisting of the Independent
Members of the Board of Directors, to solicit third party indications of
interest for the acquisition of all or part of ICMI (as contemplated by the
Merger Agreement) for a period of 60 days following the execution of the Merger
Agreement.
As you know, we have been retained by the Independent Members of the Board
of Directors to render this opinion and other financial advisory services in
connection with the Merger and will receive a fee for such services. We may
actively trade the ICMI common stock for our own account or for the accounts of
customers and accordingly, may at any time hold a long or short position in
such securities. Additionally, in April 1999, an affiliate of Prudential
Securities entered into a lending agreement with ICMI pursuant to which
Prudential Securities made available to ICMI a secured warehouse lending
facility up to $300 million. The lending agreement was terminated on June 30,
1999.
This letter and the opinion expressed herein may not be reproduced,
summarized, excerpted from or otherwise publicly referred to or disclosed in
any manner, without our prior written consent, which consent shall not be
unreasonably withheld or delayed; provided that, ICMI may set forth in full
this letter in any proxy statement relating to the Merger sent to ICMI's
shareholders.
Our advisory services and the opinion expressed herein are for the benefit
of the Special Committee in the evaluation of the Merger, and our opinion is
not intended to be, and does not constitute, a recommendation to any
shareholder of ICMI.
On the basis of, and subject to, the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be received by the ICMI
shareholders (other than ICII, the Merger Sub and certain other ICII
affiliates) is fair to such ICMI shareholders from a financial point of view.
Very truly yours,
/s/ Prudential Securities
Incorporated
PRUDENTIAL SECURITIES INCORPORATED
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APPENDIX C
Summary of Appraisals of Robert A. Stanger & Co., Inc., Houlihan Lokey Howard &
Zukin Financial Advisors, Inc. and Eastdil Realty Company, L.L.C.
Stanger. Stanger, an independent financial advisory and investment banking
firm, was engaged by the special committee on behalf of ICCMIC to perform an
appraisal and deliver a report (which included its valuation opinion) of the
estimated value of the management agreement termination fee pursuant to an
agreement dated August 13, 1999. Stanger delivered its report to the special
committee on September 13, 1999. The full text of the Stanger valuation
opinion, which contains a description of the assumptions and qualifications
applicable to the review and analysis by Stanger, has been filed with the SEC
as an exhibit to the Schedule 13E-3 relating to this transaction, and such
valuation opinion is incorporated by reference in this proxy statement. The
summary of the Stanger valuation opinion set forth below is qualified in its
entirety by reference to the full text of the Stanger valuation opinion. A copy
of the full Stanger report is available for inspection and copying at the
principal executive offices of ICCMIC during regular business hours. You, or
your representative, may inspect or copy the Stanger report during those hours.
Stanger, founded in 1978, has provided investment banking and consulting
services to clients located throughout the United States, including major New
York Stock Exchange member firms and insurance companies and over seventy
companies engaged in the management and operation of real estate and real
estate related assets. The investment banking activities of Stanger include
financial advisory services, asset and securities valuations, industry and
company research and analysis, litigation support and expert witness services,
and due diligence investigations in connection with both publicly registered
and privately placed securities transactions. Stanger's valuation practice
involves the valuation of real estate, mortgages secured by real estate, real
estate management companies and related management contracts and other real
estate related assets. The special committee selected Stanger through a process
in which it initially considered a number of nationally recognized valuation
firms, then eliminated any of those firms which had any material relationships
with either ICCMIC, ICII or the affiliates of ICCMIC or ICII, and, with the
assistance of its financial advisor, interviewed certain reputable firms
regarding Stanger and finally selected Stanger because of its nationally
recognized reputation in the REIT industry and its experience in the valuation
of real estate management companies and related management contracts and the
recommendation of prior clients of Stanger.
Summary of Materials Considered and Investigation Undertaken
Neither the merger agreement nor ICCMIC's management agreement with the
manager prescribed the factors that Stanger, or any other person, must take
into account in appraising the termination fee. Similarly, Stanger's retention
agreement did not specify what factors or information Stanger would take into
account in its valuation of the termination fee.
Stanger's analysis of the value of the management agreement termination fee
involved a review of the following information:
. the management agreement;
. the prospectus for the initial public offering of common shares of
ICCMIC;
. policies and guidelines of ICCMIC as set by the Board of Directors;
. quarterly and annual financial statements for ICCMIC for 1998 and 1999,
as available;
. a summary of fees paid to the manager during 1998 and the first six
months of 1999;
. management agreements for comparable mortgage REITs;
. fees charged by comparable mortgage REITs;
. the financial performance of comparable mortgage REITs;
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. actual operating performance of the manager for the year ended December
31, 1998 and the six months ended June 30, 1999, as reported by the
manager;
. annualized 1999 and budgeted 2000 operating performance of the manager,
as estimated by the manager;
. offers for the manager received during the past two years;
. the merger agreement;
. a memorandum prepared by the special committee's legal counsel, on
behalf of and at the request of the special committee;
. the financial terms of comparable transactions involving similar
companies; and
. certain other data provided by ICCMIC and the special committee.
Stanger also interviewed representatives of the special committee, its legal
and financial advisors; representatives of the manager and ICII; a
representative of legal counsel to ICCMIC; and a representative of Friedman
Billings, the dealer manager for the initial public offering for ICCMIC
(Friedman Billings is currently acting as financial advisor to ICII).
Stanger considered the utilization of a capitalization of earnings analysis
as the most appropriate analysis to value the management agreement termination
fee. Capitalization of earnings analysis requires the development of an
estimate of earnings before interest, taxes, depreciation and amortization
("EBITDA") and the capitalization of such earnings based upon an earnings
multiple (the "EBITDA Multiple") derived from comparable transactions. Stanger
advised the special committee that the capitalization of earnings analysis is
an appropriate method of analysis for the management agreement termination fee
for the following reasons, among others:
. EBITDA, as adjusted for normalized operations, is readily determinable
from the information available with respect to the valuation of the
management agreement termination fee;
. sufficient data from comparable transactions is available to derive an
appropriate EBITDA multiple; and
. capitalization of earnings analysis is a commonly used valuation
technique in determining the value of a manager and related contract
rights by buyers and sellers of such companies and rights.
For these reasons, Stanger prepared a capitalization of earnings analysis in
connection with the valuation of the management agreement termination fee.
Capitalization of Earnings Analysis
In its capitalization of earnings analysis, Stanger first established a
normalized level of EBITDA based upon a review of the historical results of the
manager. Stanger noted that, for the year ended December 31, 1998, the manager
reported EBITDA of $3,350,000 during a period of substantial investment
activity by ICCMIC. Stanger further noted that the manager reported EBITDA of
$1,995,000 for the six months ended June 30, 1999 and the manager estimated
full year 1999 EBITDA of $4,407,000. In addition, Stanger observed that the
manager estimated EBITDA for the year ending 2000 at $11,113,000 based upon
substantial growth from fees associated with a substantial increase in assets
of ICCMIC from approximately $700 million to more than $1.4 billion of average
invested assets.
Stanger advised the special committee that, in Stanger's view, it is
appropriate to establish a base level of EBITDA for the manager based upon the
current level of assets under management. Stanger observed that the management
agreement provides for termination, which in Stanger's view, precludes
consideration of growth in company assets under the management of the manager.
Stanger further observed that the merger agreement appears to limit
transactions other than in the ordinary course of business, thereby minimizing,
at this time, opportunities to reduce assets under management. As a result,
Stanger estimated the stabilized management fee
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based upon invested assets as of June 30, 1999. As of June 30, 1999, Stanger
estimated average invested assets of ICCMIC at $717.2 million and the related
management fee of 1% at $7,172,000.
Stanger observed that actual manager operating expenses were reported at
$2,990,000 for 1998 and $1,768,000 for the six months ended June 30, 1999.
Stanger observed that the manager's estimate of operating expenses for the full
year 1999 was $3,080,000 and for the year 2000 was $3,530,000, predicated on
increases in assets under management. Stanger observed that expenses of the
manager are broadly chargeable to ICCMIC in accordance with Section 9 of the
management agreement and that the prospectus for the initial public offering
(the "IPO Prospectus") indicates that compensation to officers and employees of
ICCMIC shall not be paid by ICCMIC. Stanger observed that while the management
agreement appears to clearly indicate that expenses of the manager incurred on
behalf of ICCMIC are chargeable to ICCMIC, it was not clear to Stanger from its
review of the IPO Prospectus and other information, that general and
administrative expenses such as rent are chargeable to ICCMIC. Based upon
Stanger's review of the matters set forth above with respect to expenses of the
manager, Stanger estimated a stabilized level of operating expenses equal to
50% of revenues or $3,586,000.
Based upon Stanger's estimate of the management fee at $7,172,000 and
Stanger's estimate of operating expenses of $3,586,000, Stanger estimated the
stabilized level of EBITDA for the manager derived from the management
agreement at $3,586,000.
Stanger considered two primary sources of comparable data to estimate an
EBITDA multiple for the valuation of the management agreement termination fee.
First, Stanger considered EBITDA multiples for public companies in the real
estate services business such as Jones Lang LaSalle, Trammel Crow, CB Richard
Ellis and Grubb & Ellis. Stanger concluded that such companies (i) generally
were much larger than the manager (based on the value ascribable to the
management agreement termination fee); (ii) generally had more diverse sources
of revenue; and (iii) possessed few attributes which could be deemed comparable
to the manager's cash flow from the management agreement. Stanger then
considered selected transactions involving the acquisition of private
management companies in connection with consolidation transactions involving
assets managed by such management companies. Stanger observed that such
transactions:
. involved the valuation of management agreements which are terminable;
. involved, generally, management agreements which cover the management of
assets owned by a limited number of ownership interests; and
. involved transactions in which investor approval was sought or would be
sought and obtained and in which subsequent trading of the security
resulting from the transaction confirmed the reasonableness of the
overall value utilized in connection with such valuation.
Stanger concluded that the EBITDA multiple data derived from private
management company transactions provides a reasonable and supportable range of
data from which to derive an appropriate EBITDA multiple for the valuation of
the management agreement termination fee.
Stanger's review of private management company transactions indicated that
EBITDA multiples have ranged from 5.0 to 11.4 during the past five years and
such range has narrowed during the last three years to 5.0 to 8.76 with an
average of 7.0. Stanger attributed the narrowing of this range primarily to a
general lowering of expectations with respect to management companies and the
real estate related assets managed by them. Stanger advised the special
committee that in Stanger's view the appropriate EBITDA multiple for the
management agreement termination fee should be at the low end of the range
because of several factors, including the following:
. the management agreement, like others in this industry, is terminable;
. growth expectations for the manager, ICCMIC and the mortgage REIT
industry are low as the financial performance of such industry has been
negative during the past two years;
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. the manager does not directly or indirectly control ICCMIC as a
controlling stockholder or as a general partner of a partnership;
. the language contained in Section 15 of the management agreement
regarding the determination of the termination fee is vague;
. the level of expense reimbursements to be received by the manager
pursuant to the management agreement is unclear; and
. the board of directors of ICCMIC has the authority to revise the
investment policies and guidelines of ICCMIC and reduce the level of
assets under management, in the absence of the merger agreement.
Based upon Stanger's review of the above factors, Stanger estimated an EBITDA
multiple for the determination of the management agreement termination fee in
the range of 4.5 to 5.5 and concluded that an EBITDA multiple of 5.0 would be
appropriate.
Stanger's value conclusion was based upon its estimate of EBITDA associated
with the management agreement of $3,586,000 and an EBITDA multiple of 5.0
resulting in a value of $17,930,000 which Stanger rounded to $18,000,000.
Assumptions and Limitations
In preparing and rendering the Stanger valuation opinion, Stanger relied,
without independent verification, on the completeness and accuracy, in all
material respects, of all financial and other information furnished or
otherwise communicated to Stanger by ICCMIC, the manager and/or their
respective agents, advisors or representatives. With respect to information
provided to Stanger by ICCMIC, the manager and/or their respective agents,
advisors, and representatives, Stanger assumed that:
. data provided to Stanger was accurate and complete in all material
respects;
. all budgets and projections provided to Stanger were reasonably
prepared on bases consistent with actual historical experience and
reflect the best currently available estimates and good faith
judgments;
. no material changes have occurred in the information reviewed between
the date the information was provided to Stanger and the date of the
Stanger valuation opinion, and
. ICCMIC, the manager and/or their respective agents, advisors and
representatives are not aware of any facts that would cause the
information supplied to Stanger to be incomplete or misleading in a
material respect.
In preparing and rendering the Stanger valuation opinion, Stanger advised
ICCMIC and the special committee that they are not attorneys. Stanger advised
ICCMIC and the special committee that in determining the value of the
management agreement termination fee and preparing its report, Stanger made
assumptions regarding the interpretation of certain terms of the management
agreement and other agreements. ICCMIC and the special committee authorized
Stanger to make such assumptions and ICCMIC and the special committee were
advised that such assumptions made by Stanger may have affected the conclusion
reached by Stanger in its valuation opinion on the value of the management
agreement termination fee. Stanger's estimate of value is based on certain
assumptions, which include the following:
. no action or inaction on the part of ICCMIC or the manager has occurred
or will occur in the near future which would enable ICCMIC to terminate
the management agreement for cause and without the payment of a
termination fee;
. the management agreement does not require that the termination fee
payable pursuant to Section 15 of the management agreement be determined
on the basis of an assumed liquidation of the assets of ICCMIC and an
immediate payment of liquidation proceeds to the shareholders of ICCMIC
(although such a basis for valuation is not prohibited);
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. neither ICCMIC nor the board of directors has the authority to
unilaterally change the terms of the management agreement to reduce the
charges thereunder without the consent of the manager and the manager
has not agreed and does not intend to agree to a reduction in fees
payable pursuant to the management agreement;
. all fees paid by ICCMIC to the manager are proper and consistent with
the terms of the management agreement;
. neither ICCMIC nor its board of directors has altered the investment
policies and guidelines of ICCMIC, nor adopted a plan of liquidation;
. upon termination of the management agreement, a termination fee, if such
were payable, would be based upon the assets then under management,
using reasonable valuation parameters and techniques determined by
independent parties and without regard to the actual financial
performance of ICCMIC prior to the time of such termination; and
. neither the management agreement, merger agreement nor any other
agreement, whether written, oral or otherwise, serves to define, limit
or otherwise determine the amount of the management agreement
termination fee, other than Section 15 of the management agreement and
Section 1.8 of the merger agreement.
Stanger advised ICCMIC and the special committee that they have not been
requested to and therefore did not:
. render any opinion as to the fairness, from a financial point of view,
or reasonableness of the terms, of the management agreement (including,
without limitation, Section 15 thereof) and the merger agreement
(including, without limitation, Section 1.8 thereof); and
. make any recommendation to the special committee, the board of directors
of ICCMIC, ICCMIC or its stockholders with respect to (a) whether to
approve or reject the proposed merger; (b) alternatives to the proposed
merger; (c) the tax consequences of the proposed merger; or (d) any
other aspect of the management agreement or the merger agreement other
than Stanger's estimate of the value of the management agreement
termination fee.
Compensation
Stanger was paid a fee of $250,000 plus its reasonable out-of-pocket
expenses for its services as described herein, without regard to the results of
its appraisal or the successful completion of the merger or any other
transaction. In addition, Stanger and its affiliates were reimbursed for all
reasonable out-of-pocket expenses, including legal fees, and will be
indemnified by ICCMIC against certain liabilities, including certain
liabilities under the securities laws. The fee was negotiated between the
special committee, on behalf of ICCMIC, and Stanger.
Houlihan Lokey. Pursuant to an agreement dated August 6, 1999, the manager
retained Houlihan Lokey on its own behalf to prepare a written report
expressing its conclusions as to valuation of the termination fee payable to
the manager upon termination or non-renewal of its management agreement with
ICCMIC. Houlihan Lokey is a nationally recognized investment banking firm that
provides financial advisory services in connection with mergers and
acquisitions, leveraged buyouts, business valuations for a variety of
regulatory and planning purposes, recapitalizations, financial restructurings,
and private placements of debt and equity securities. The manager selected
Houlihan Lokey through a process in which it initially considered a number of
nationally recognized valuation firms, then eliminated any of those firms which
had any material relationships with either ICCMIC, ICII or the affiliates of
ICCMIC or ICII, and finally selected Houlihan Lokey due to its extensive
experience and local knowledge in the valuation of REITs and related management
companies and agreements.
The full text of the Houlihan Lokey valuation opinion, which sets forth the
assumptions made, matters considered and scope of the review taken, has been
filed with the SEC as an exhibit to the Schedule 13E-3
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relating to this transaction, and such valuation opinion is incorporated by
reference in this proxy statement. The summary of the Houlihan Lokey valuation
opinion set forth below is qualified in its entirety by reference to the full
text of the Houlihan Lokey valuation opinion. A copy of the full Houlihan Lokey
report is available for inspection and copying at the principal executive
offices of ICCMIC during regular business hours. You, or your representative,
may inspect or copy the Houlihan Lokey report during those hours.
The Houlihan Lokey valuation opinion is directed only to Houlihan Lokey's
valuation of the manager's termination fee and does not constitute a
recommendation to any stockholder as to how he or she should vote at the
special meeting or as to any other action he or she should take regarding the
proposed merger. Further, Houlihan was engaged by the manager on its own behalf
and not on behalf of the stockholders or any other party.
The Houlihan Lokey valuation opinion did not address, nor should it be
construed to address, the relative merits of the merger and alternative
business strategies that may be available to ICCMIC.
Houlihan Lokey has stated that it understands that the manager and any other
party will consult with and rely solely upon their own legal counsel with
respect to the management agreement and that Houlihan Lokey's valuation is not
a representation as to any legal matter.
Neither the merger agreement nor ICCMIC's management agreement with the
manager prescribed the factors that Houlihan Lokey, or any other person, must
take into account in appraising the termination fee. Similarly, Houlihan
Lokey's retention agreement did not specify what factors or information
Houlihan Lokey would take into account in its valuation of the termination fee.
In conducting its valuation and arriving at its determination of the fair
market value of the manager's termination fee, Houlihan Lokey made such
reviews, analyses and inquiries as it deemed necessary and appropriate under
the circumstances. Among other things, Houlihan Lokey:
. held discussions with the manager's senior management to discuss the
proposed merger and the operations, financial condition, future
prospects, projected operations and performance of the manager and
ICCMIC;
. held discussions with certain independent members of ICCMIC's board of
directors;
. reviewed Prudential Securities' presentations to ICCMIC's board of
directors dated March 16, 1999, May 3, 1999 and June 25, 1999;
. reviewed ICCMIC's annual audited financial statements for the years
ended December 31, 1998 and December 31, 1997;
. reviewed the unaudited financial statements of ICCMIC for the six months
ended June 30, 1999 and June 30, 1998;
. reviewed the management agreement between ICCMIC and the manager;
. reviewed two-year projections for ICCMIC and the manager as prepared by
the manager as of August 1999;
. reviewed the 1999 budget for the manager as prepared by the manager as
of August 1999;
. reviewed minutes from meetings of ICCMIC's board of directors;
. reviewed proposals to purchase ICCMIC or merge with ICCMIC, including
proposals to purchase the manager, from various public and private
entities;
. reviewed publicly available information on companies Houlihan Lokey
deemed comparable to the manager and ICCMIC; and
. conducted such other analyses, studies and investigations as Houlihan
Lokey deemed appropriate under the circumstances for rendering the
opinion expressed in its report.
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In connection with its valuation, Houlihan Lokey relied upon and assumed,
without independent verification, that the financial forecasts and projections
provided to it by the manager were reasonably prepared and reflected the best
currently available estimates of the future financial results and conditions of
ICCMIC and the manager, and that there had been no material change in the
assets, financial condition, business or prospects of ICCMIC or the manager
since the date of the most recent financial statements made available to it. In
addition, Houlihan Lokey's conclusions were based upon the assumption that
present management of ICCMIC and the manager would continue to maintain the
character and integrity of their enterprises through any sale, reorganization
or diminution of the owners' participation. Further, the Houlihan Lokey
valuation was necessarily based on business, economic, market and other
conditions as they existed on, September 10, 1999.
Houlihan Lokey has not independently verified the accuracy and completeness
of the information supplied to it with respect to ICCMIC or the manager and
does not assume any responsibility with respect to such information. Houlihan
Lokey has not made any physical inspection or independent appraisal of any of
the properties or assets of ICCMIC or the manager.
In determining the fair market value of the manager's termination fee,
Houlihan Lokey took into consideration the income- and cash-generating
capability of the manager through the management agreement and associated
rights. Typically, in Houlihan Lokey's view, an investor contemplating an
investment with income- and cash-generating capability similar to ICCMIC's
management agreement with the manager will evaluate the risks and returns of
its investment on a going-concern basis. Accordingly, after due consideration
of other appropriate and generally accepted valuation methodologies, Houlihan,
Lokey developed the fair market value of the termination fee primarily on the
basis of the capitalization of earnings and discounted cash flow approaches.
Furthermore, Houlihan Lokey valued the termination fee viewing the manager
as a going concern, meaning that the underlying tangible assets of ICCMIC were
presumed to attain their highest values as integral components of a business
entity in continued operation and that liquidation of such assets would likely
diminish the value of the whole to the stockholders and creditors of ICCMIC.
All valuation methodologies that estimate the worth of an enterprise as a
going concern are predicated on numerous assumptions pertaining to prospective
economic and operating conditions. Unanticipated events and circumstances may
occur which cause the actual results to vary from those assumed, and the
variations may be material.
The term "fair market value," as used by Houlihan Lokey, is defined as the
price at which an asset (or in this case the management agreement) would change
hands between a willing buyer and a willing seller when the former is not under
any compulsion to buy and the latter is not under any compulsion to sell, and
both parties are able, as well as willing, to trade and are well-informed about
the asset and the market for that asset.
ICCMIC's manager delivered projections to Houlihan Lokey for the purpose of
assisting Houlihan Lokey in performing its valuation of the termination fee
payable under the management agreement. Houlihan Lokey treated these
projections as a "Best Case Scenario" with respect to ICCMIC's future
performance and therefore as presenting a scenario likely to result in a larger
appraised value for the manager's termination fee. See "Cautionary Statement
Concerning Forward-Looking Statements."
Houlihan Lokey discounted the "Best Case" projections to arrive at "Base
Case" and "Worst Case" projections. Then, for each of these three scenarios,
Houlihan Lokey developed a valuation range for the termination fee based on the
market capitalization and discounted cash flow analyses described below. In
addition, Houlihan Lokey developed valuation ranges for the termination fee
based on the comparable transaction analysis and the value from prior offers
analysis described below.
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Market Capitalization Approach
Houlihan Lokey reviewed certain financial information for two types of
comparable public companies: real estate management companies and asset
management companies. The comparable real estate management companies included
the following seven publicly traded companies selected solely by Houlihan
Lokey: CB Richard Ellis Services, Inc., Grubb & Ellis Co., Insignia Financial
Group, Inc., Intergroup Corporation, Jones Lang LaSalle Inc., Trammell Crow
Company and DeWolfe Companies, Inc. (the "Real Estate Management Comparables").
The comparable asset management companies included the following nine publicly
traded companies selected solely by Houlihan Lokey: Affiliated Managers Group,
Inc., Alliance Capital Management L.P., Atalanta/Sosnoff Capital Corp., Conning
Corp, Eaton Vance Corp, Lexington Global Asset Managers, Inc., Phoenix
Investment Partners, Ltd, PIMCO Advisors Holdings, L.P. and United Asset
Management Corp. (the "Asset Management Comparables and together with the Real
Estate Management Comparables, the "Advisor Comparables"). Houlihan Lokey
calculated certain financial ratios of the Advisor Comparables based on the
most recent publicly available information with respect to such companies.
The financial ratios for the Advisor Comparables reviewed by Houlihan Lokey
ranged from (i) enterprise value ("EV") to the latest twelve months ended June
30, 1999 ("LTM") EBITDA multiples: a low of 4.0x and a high of 22.5x, (ii) EV
to the next fiscal year ended December 31, 1999 ("NFY") EBITDA multiples: a low
of 3.6x to a high of 12.1x, (iii) EV to the next twelve months ended June 30,
2000 ("NTM") EBITDA multiples: a low of 3.6x to a high of 10.7x, and (iv) EV to
the next fiscal year +1 ending December 31, 2000 ("NFY + 1") EBITDA multiples:
a low of 3.6x to a high of 10.0x.
Based on the Advisor Comparables, Houlihan Lokey selected a ratio of EV/LTM
EBITDA multiples for the manager ranging from a low of 7.0x to a high of 8.0x,
a ratio of EV/NFY EBITDA multiples for the manager ranging from a low of 6.5x
to a high of 7.5x, a ratio of EV/NTM EBITDA ranging from a low of 5.0x to a
high of 6.0x, and a ratio of EV/NFY + 1 EBITDA multiples ranging from a low of
4.0x to a high of 5.0x (collectively the "Manager EBITDA Multiples").
Houlihan Lokey determined an indication of the value of the termination fee
under the management agreement by applying the Manager EBITDA Multiples to the
manager's historical EBITDA (after considering certain cost adjustments) for
the LTM, the forecast for the NFY based on the Best Case, Base Case and Worst
Case projections, the forecast for the NTM based on such projections, and the
forecast for the NFY + 1 based on the such projections. Such analyses resulted
in an indication of a range of value for the termination fee under the
management agreement of $29.2 million to $41.3 million.
Comparable Transaction Analysis
Houlihan Lokey reviewed the consideration paid in certain acquisitions to
real estate advisory and management companies by publicly traded real estate
investment trusts, as well as certain acquisitions of publicly traded real
estate management companies. Such analysis yielded mean multiples of 10.3x
EBITDA and 22.1x EBIT (i.e. earnings before interest and taxes). In performing
its analysis, Houlihan Lokey considered that the merger and acquisition
transaction environment varies over time because of, among other things,
interest rate and equity market fluctuations and industry results and growth
expectations.
No company or transaction used in the comparable transaction analysis was
directly comparable to the manager, the termination of the management agreement
or the proposed transaction. Accordingly, Houlihan Lokey reviewed the foregoing
transactions to understand the range of multiples of EBITDA and EBIT paid for
companies in the real estate advisory and management industry and the real
estate management industry. Based upon the manager's LTM EBITDA and the
manager's latest quarter ended June 30, 1999 annualized ("LQA") EBITDA,
Houlihan Lokey selected a range of multiples of EV/LTM EBITDA and EV/LQA EBITDA
with a low of 8.0x and a high of 10.0x determined under the comparable
transaction analysis.
Houlihan Lokey also reviewed the consideration in certain acquisitions of
affiliated real estate advisory and management companies by publicly traded
real estate investment trusts selected solely by Houlihan Lokey in terms of
percentage of stock outstanding of the acquiror provided to the acquired
company as consideration
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for such acquisition. Such analysis yielded average consideration of 8.7% of
total stock outstanding paid to the
target managers in certain transactions since 1995. The transactions produced a
range of between 3.4% and 15.3% of stock consideration. Houlihan Lokey also
calculated the relative contribution of the manager's revenue and EBITDA as a
percentage of ICCMIC's revenue and EBITDA at 10.4% and 9.6% respectively.
Houlihan Lokey applied the selected range of consideration with a low of 9.0%
to a high of 10.0% to the transaction value to arrive at indications of the
value of the termination fee under the management agreement.
Under the two comparable transaction approaches presented above, Houlihan
Lokey calculated an indication of the value of the termination fee under the
management agreement to be between $41.3 million and $46.2 million.
Discounted Cash Flow Approach
Houlihan Lokey utilized cash flow projections received from the manager
covering fiscal years 1999, 2000 and 2001. After calculating the net present
value of cash flows for the applicable periods under the Best Case, Base Case
and Worst Case projections using discount rates of 14.0% to 22.0%, a terminal
value was calculated based upon exit EBITDA multiples of 5.0x to 7.0x. Based on
the manager's projections and this analysis, Houlihan Lokey calculated
indications of the range of value for the termination fee under the management
agreement to be between $33.3 million and $76.2 million.
Indications of Value from Prior Offers
Houlihan Lokey reviewed the consideration offered for ICCMIC and the manager
in offers received from third parties during the period from September 1998 to
March 1999. The consideration offered for the manager ranged from a low of $45
million to a high of $60 million with a mean of $50 million. Based on these
indications of value for the manager, Houlihan Lokey calculated the range of
value for the termination fee under the management agreement to be between
$45.0 million and $60.0 million.
Conclusion
Based upon the investigation, premises, provisos, and analyses outlined
above, and subject to the limiting factors and other assumptions set forth in
its valuation opinion, Houlihan Lokey determined that as of September 10, 1999,
the fair market value of the termination fee is reasonably stated in the amount
of $45 million.
The summary set forth above describes the material points of more detailed
analyses performed by Houlihan Lokey in arriving at its valuation of the
termination fee. The preparation of a valuation is a complex analytical process
involving various determinations as to the most appropriate and relevant
methods of financial analysis and application of those methods to the
particular circumstances and is therefore not readily susceptible to summary
description. In arriving at its valuation, Houlihan Lokey made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Houlihan Lokey believes that its analyses and summary set forth
above must be considered as a whole and that selecting portions of its
analyses, without considering all analyses and factors, or portions of this
summary, could create an incomplete view of the processes underlying the
analyses set forth in Houlihan Lokey's valuation. In its analysis, Houlihan
Lokey made numerous assumptions with respect to the manager, ICCMIC, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of the respective entities.
The estimates contained in such analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be more or
less favorable than suggested by such analyses.
Compensation
The manager agreed to pay Houlihan Lokey a fee of $250,000 plus its
reasonable out-of-pocket expenses for its preparation and delivery of the
valuation of the termination fee. No portion of Houlihan Lokey's fee is
contingent upon the results of the valuation or the successful completion of
the merger or any other transaction. The retention agreement provides that ICII
and the manager will defend and indemnify Houlihan Lokey and its affiliates for
damages and expenses arising in connection with its engagement.
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Eastdil. Because the appraised values arrived at by Houlihan Lokey and
Stanger differed by more than 20% of the higher of the two values, a third
valuation was necessary under the terms of the management agreement.
Accordingly, Houlihan Lokey and Stanger together recommended Eastdil to conduct
a third appraisal of the termination fee payable in connection with the
termination of the management agreement. Based on their recommendation,
pursuant to a retention agreement dated October 6, 1999, ICCMIC and the manager
jointly engaged Eastdil to prepare a written report expressing the fair market
value of the manager's termination fee.
Founded in 1967, Eastdil Realty Company, L.L.C. is a real estate investment
banking firm that specializes in real estate valuation and in the structuring
and placement of debt and equity capital for institutional grade real estate
assets.
The full text of the Eastdil valuation opinion, which sets forth the
assumptions made, matters considered and scope of the review taken, has been
filed with the SEC as an exhibit to the Schedule 13E-3 relating to this
transaction, and such valuation opinion is incorporated by reference in this
proxy statement. The summary of the Eastdil valuation opinion set forth below
is qualified in its entirety by reference to the full text of the Eastdil
valuation opinion. A copy of the full Eastdil valuation opinion is available
for inspection and copying at the principal executive offices of ICCMIC during
regular business hours. You, or your representative, may inspect or copy the
Eastdil valuation opinion during those hours.
The Eastdil valuation opinion is directed only to Eastdil's valuation of the
manager's termination fee and does not constitute a recommendation to any
stockholder as to how he or she should vote at the special meeting or as to any
other action he or she should take regarding the proposed merger. Further,
Eastdil was engaged by ICCMIC and the manager on their collective behalf and
not on behalf of the stockholders or any other party.
The Eastdil valuation opinion did not address, nor should it be construed to
address, the relative merits of the proposed merger and alternative business
strategies that may be available to ICCMIC.
Eastdil stated in its retention agreement that no opinion, counsel or
interpretation is intended in matters that require legal, accounting, tax or
other appropriate professional advice. Eastdil assumed that such opinions,
counsel or interpretations had been or would be obtained from the appropriate
professional sources.
Neither the merger agreement nor ICCMIC's management agreement with the
manager prescribed the factors that Eastdil, or any other person, must take
into account in appraising the termination fee. Similarly, Eastdil's retention
agreement did not specify what factors or information Eastdil would take into
account in its valuation of the termination fee.
While Eastdil used methodologies and financial analysis techniques it
believed to be established and generally accepted, the Eastdil valuation
opinion may not conform to various professional guidelines, compliance
standards or industry presentation formats. The value expressed in Eastdil's
valuation opinion is, in Eastdil's opinion, the most likely cash (or
equivalent) price that the manager subject to the management agreement would
bring in a competitive and open marketing process with buyer and seller both
willing and knowledgeable of all material factors affecting price.
In formulating its valuation, Eastdil relied upon the following information:
. copies of Prudential Securities' confidential presentations to the ICCMIC
board of directors dated June 25, 1999, May 3, 1999 and March 16, 1999
summarizing and analyzing various merger proposals and offers to acquire
ICCMIC and to terminate the management agreement;
. the ICCMIC offering memorandum prepared by Prudential Securities;
. minutes of the meetings of the board of ICCMIC and committees thereof
from July 31, 1997 through May 18, 1999;
. a copy of the board book provided in connection with the fourth quarter
1998 regular meeting of the board of directors of ICCMIC held on December
14, 1998, and a copy of the board book provided in connection with the
second quarter 1999 regular meeting of the board of directors held on
June 18, 1999;
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. the initial public offering prospectus for ICCMIC;
. the management agreement;
. the organization documents for ICCMIC;
. communications relating to the management agreement;
. calculations of management fees paid since inception;
. offers to acquire or merge with ICCMIC;
. the merger agreement;
. information relating to negotiations of the merger agreement;
. ICCMIC business plans;
. communications relating to ICCMIC business plans;
. estimates of the liquidation value of ICCMIC;
. organization chart for ICCMIC;
. general correspondence to investors for 1997, 1998 and 1999;
. 1999 and 2000 ICCMIC budgets and reconciliation to actual performance;
. various management reports and board reports;
. analyses which had been utilized as support for approval of the
management agreement by the board of directors;
. manager budgets and operating statements;
. manager business plans prepared from inception to August 6, 1999;
. organization chart for the manager;
. organization documents for the manager;
. schedule of management fees received by the manager;
. resumes for key employees;
. schedule of compensation for manager employees;
. schedule indicating ownership by person of manager debt or equity;
. offers to purchase the manager;
. information relating to manager value;
. a summary of general and administrative expenses and management fees by
quarter which has been updated to include the quarter ended June 30,
1999;
. a copy of an appraisal report dated July 1999 prepared by an investment
banking firm appraising the value of an external management agreement
with a mortgage REIT which was acquired for cash;
. a copy of a fairness opinion presentation prepared by an investment
banking firm to the special committee of the board of directors of a
mortgage REIT dated December 1997 on the termination fee paid in
connection with the termination of an external management agreement;
. a copy of certain pages from the confidential presentation to the ICCMIC
board of directors from Merrill Lynch dated December 4, 1998 in
connection with the potential merger between ICCMIC and the Private
Equity REIT regarding Merrill Lynch's valuation analysis of the manager;
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. a copy of a spreadsheet prepared from public EDGAR filings on 11
commercial mortgage REITs and one residential mortgage REIT and their
external management companies which includes, for each mortgage REIT, a
column of information describing: (i) the base and incentive management
fee compensation structure, (ii) the termination fee language in the
management agreement, if any, (iii) the actual termination fee paid to
terminate the external management agreement for five of the REITs,
(iv) the amount of IPO stock options in the REIT granted to the
management company or its officers, and (v) the quarterly base and
incentive management fees earned from 1999Q2 back to 1998Q1;
. offer letters from the Commercial Mortgage REIT dated February 1, 1999
and February 8, 1999;
. a copy of the ICCMIC Investment Policies and Guidelines (as amended on
December 14, 1998);
. various ICCMIC and manager projections;
. report to the special committee of the board of directors of ICCMIC dated
September 13, 1999 prepared by Robert A. Stanger & Co., Inc.;
. management agreement termination fee valuation report dated September 10,
1999 and letter dated September 14, 1999 prepared by Houlihan Lokey
Howard & Zukin Financial Advisors, Inc.; and
. the preliminary proxy statement.
Eastdil also interviewed key ICCMIC and manager personnel and
representatives of Houlihan Lokey, Stanger and Prudential Securities. The
accuracy or completeness of the above information was not verified by Eastdil
and Eastdil disclaims liability regarding information errors, misstatements or
material changes that may have occurred after Eastdil received the information.
Eastdil has not physically inspected any assets owned by ICCMIC or managed by
the manager. Eastdil's valuation did not incorporate any "Y2K" factors that
could potentially affect value. With the above information and the interview
results, Eastdil completed various studies and analyses that were determined to
be appropriate based on its experience and knowledge of current market
fundamentals. Eastdil did not complete any legal analysis or engage counsel to
interpret the terms or conditions of any information items.
Assumptions
Eastdil's valuation was derived on a going-concern basis according to the
terms and conditions contained in the management agreement. Eastdil assumed
that no undisclosed or unreported changes that would affect the valuation had
occurred in: (i) policy, (ii) authority, (iii) agreements between ICCMIC and
the manager, or (iv) the merger agreement. Consistent with past practice and
the terms of the management agreement, Eastdil assumed that the manager is
reimbursed for all ICCMIC expenses including all general and administrative
expenses.
Valuation Methodology
Eastdil predominantly examined three methods to derive the valuation: (i)
analysis of revenue multiples based on recent comparable transactions; (ii)
analysis of recent bona fide offers to purchase the manager from credible
investors; and (iii) analysis of EBITDA multiples based on comparable
transactions (EBITDA capitalization method). To determine if a relevant revenue
or EBITDA multiple should be above or below the average of its set, Eastdil
analyzed the following factors, among others: (i) ICCMIC's share value and
sector performance (relative to other mortgage REITs) to assess the manager's
professional staff quality, investment policies, and corresponding value to
comparable entities; and (ii) the ability to increase the manager's income by
increasing ICCMIC's asset base through investment of existing liquidity or the
ability to obtain new and incremental debt and equity commitments in the
current capital market.
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Revenue and EBITDA Estimates
Actual and projected revenue and expense figures of the manager were
analyzed to estimate 1999 EBITDA. Annual revenue was estimated by multiplying
the second quarter of 1999 by four (after considering adjustment for any
extraordinary or seasonal items). This annual estimating method accounted for
current asset levels and corresponding revenue. To estimate 1999 revenue,
Eastdil subtracted the $41,000 incentive fee component from second quarter 1999
actual revenue of $1,837,000 for an adjusted second quarter actual revenue
amount of $1,796,000. There was no incentive fee paid in first quarter 1999.
Adjusted second quarter revenue was multiplied by four to arrive at total
estimated 1999 revenue of $7,184,000. Based on analysis of actual and projected
operating expenses of the manager, Eastdil estimated 1999 operating expenses
(not including extraordinary expenses due to the proposed merger and related
activity) at $3,100,000; this operating expenses estimate included a $75,000
contingency factor but did not include the $91,000 termination payment made to
a corporate officer. Therefore, 1999 EBITDA was estimated to be $4,084,000.
Revenue Multiple Value
Eastdil analyzed eight external management company transactions and
determined that two transactions which were completed in 1999 were most
comparable for purposes of the valuation of the manager's termination fee.
These two comparable transactions had verified price and revenue data but had
no EBITDA data available. The revenue multiples for these comparable
transactions were 5.44 and 6.66 based on actual second quarter 1999 revenue
multiplied by four to estimate the annual amount. The simple average of these
two multiples was 6.05. Based on a revenue multiple of six applied to estimated
1999 revenue of $7,184,000, the manager would have a value of approximately $43
million.
Value Indication from Offers to Purchase
Eastdil analyzed seven offers to purchase the manager. Based on offeror
financial capability and due diligence completed during the offer process,
Eastdil determined that four of the seven offers were credible and contained
terms and conditions that are generally acceptable. These credible offers
ranged in value from $45,000,000 to $50,000,000 and were dated between November
1998 and April 1999. While it was significant, in Eastdil's opinion, that these
offers were received subsequent to the capital market turmoil of third quarter
1998, each of these offers was tendered in the context of a bid for ICCMIC. In
Eastdil's opinion, this larger transaction context placed an upward bias on
value allocated to the manager by these offers.
EBITDA Capitalization Value
Eastdil analyzed 13 private real estate related management company
transactions and determined that six of these transactions were relevant for
consideration in this valuation. These six transactions had EBITDA multiples
ranging from 6.5 to 8.75 with an average of 7.65.
Eastdil also reviewed current EBITDA multiples of seven public real estate
service companies. Given ICCMIC's superior sector performance, Eastdil
determined that three of the four public real estate companies which lead their
sector (in terms of current EBITDA multiples and recent performance) were
relevant to this valuation. Eastdil did not adjust the multiples of these
public companies to account for their significant brokerage revenue component,
which has been cited as one of the major reasons for this sector's lagging
performance. The three public companies determined to be comparable had current
estimated EBITDA multiples ranging from 7.3 to 8.7 with an average of 7.8.
Eastdil believed that EBITDA capitalization should be based on an EBITDA
multiple that exceeded the average of the particular sample set being
considered for the following reasons: (i) ICCMIC relative share value and
performance have consistently led the mortgage REIT sector; (ii) the ability to
grow the asset base with ICCMIC's cash balance (estimated to be approximately
$115 million as of the date of Eastdil's valuation opinion) would allow a new
owner to increase manager profitability on a disproportionate basis to EBITDA
growth due to the high fixed cost structure of the manager (and comparable
firms). However, the ability to
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increase manager revenue with new and incremental capital commitments was
severely limited given current capital market conditions.
Based on Eastdil's analysis of factors affecting comparable EBITDA
multiples, Eastdil concluded that an EBITDA multiple of 8.0 was appropriate for
determining manager value. Based on estimated 1999 EBITDA of $4,084,000,
manager value would be $32,672,000.
Valuation Reconciliation
In Eastdil's opinion, most buyers and sellers value service companies such
as the manager on an EBITDA capitalization basis. Therefore, Eastdil relied on
EBITDA capitalization for the valuation. Based on the value levels indicated by
the revenue multiple method, and based on prior credible offers to purchase the
manager, Eastdil rounded the EBITDA capitalized value to $33,000,000.
Compensation
ICCMIC and the manager jointly and severally agreed to pay Eastdil a fee of
$375,000 plus reasonable out-of-pocket expenses for the preparation of its
valuation opinion. No part of Eastdil's fee was contingent upon the conclusions
reached in its valuation opinion. The retention agreement provides that ICCMIC,
ICII and the manager will jointly indemnify, defend and hold Eastdil harmless
from all damages and expenses in connection with its engagement.
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Imperial Credit Commercial Mortgage Investment Corp.:
We have audited the accompanying consolidated balance sheets of Imperial Credit
Commercial Mortgage Investment Corp. and subsidiaries as of December 31, 1998
and 1997 and the related consolidated statements of earnings, changes in
stockholders' equity comprehensive income and cash flows for the year ended
December 31, 1998 and the period from July 31, 1997 (Inception) through
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Imperial Credit Commercial Mortgage Investment Corp. and subsidiaries as of
December 31, 1998 and 1997, and the results of their operations and their cash
flows for the year ended December 31, 1998 and the period from July 31, 1997
(Inception) through December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
KPMG LLP
February 4, 1999
<PAGE>
PRELIMINARY COPY DATED DECEMBER 21, 1999
[FRONT OF PROXY CARD]
P R O X Y
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
11601 Wilshire Boulevard, Suite 2080, Los Angeles, CA 90025
Proxy for Special Meeting of Stockholders on , 2000
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Mark S. Karlan and Norbert M. Seifert or
either of them, each with full power of substitution, as proxies for the
undersigned to attend the special meeting of the Stockholders of Imperial
Credit Commercial Mortgage Investment Corp. at (location) on (date) at (time),
and at any adjournment or postponement thereof, and to vote the number of
shares the undersigned would be entitled to vote if personally present on the
following matters set forth herein. The undersigned hereby acknowledges receipt
of the Notice of the Special Meeting of Stockholders and the accompanying proxy
statement and revokes any proxy previously given with respect to such meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. YOU NEED NOT MARK ANY BOX IF YOU WISH TO
VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATION AND YOUR SHARES
WILL BE VOTED "FOR" THE PROPOSAL DESCRIBED IN THE PROXY STATEMENT. THE PROXIES
CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
[Continued and to be signed on reverse side]
<PAGE>
[BACK OF PROXY CARD]
[X] Please mark your vote as in this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1
1. Approve the Agreement and Plan of Merger dated as of July 22, 1999 and the
merger of ICCMIC ACQUISITION CORP., a wholly owned subsidiary of IMPERIAL
CREDIT INDUSTRIES, INC, with and into IMPERIAL CREDIT COMMERCIAL MORTGAGE
INVESTMENT CORP. provided for thereunder.
[_] FOR [_] AGAINST [_] ABSTAIN
- --------------------------------------------------------------------------------
MARK HERE [_] IF YOU PLAN TO MARK HERE [_] FOR ADDRESS
ATTEND MEETING CHANGE AND NOTE AT LEFT
Note: Please sign exactly as name
appears hereon. When shares are held
by joint tenants, both should sign.
When signing as an attorney,
executor, administrator, trustee or
guardian, give full title as such.
If a corporation, sign in full
corporate name by President or other
authorized officer. If a
partnership, sign in partnership
name by authorized person.
DATE: _______________________________
_____________________________________
Signature
The above named proxies of the undersigned are authorized to initiate and vote
for proposals to recess or adjourn the Special Meeting for any reason,
including to allow inspectors to certify the outcome of the Proposal described
above or to allow the solicitation of additional votes, if necessary, for such
Proposal, or to vote against such proposals to recess or adjourn the Special
Meeting, except that if this proxy is voted against the Proposal described
above it may not be used to vote for proposals to recess or adjourn the Special
Meeting.
