EX-99 2 0002.txt EXHIBIT (A)(3) - PRESENTATION Presentation to the Special Committee of the Board of Directors of Impac Commercial Holdings, Inc. October 5, 2000 Table of Contents Section 1 Review of Proposed Transaction 2 Summary of Bear Stearns' Information Review to Date 3 Impac's Recent History and Current Situation 4 A Summary of Company Valuation Analyses 5 Summary of Management Agreement Valuation Analyses Appendices [A] Impac Consolidated Financials [B] Premium to Historical Market Stock Prices [C] Comparable Companies Analysis [D] Net Proceeds from Liquidation [E] Comparable Mortgage REIT M&A and Liquidation Transactions [F] NAV Sensitivity Analysis [G] Projected Manager Income Statement [H] Management Agreement Discounted Cash Flows in a Liquidation and as an Ongoing Entity [I] Comparable REIT Manager/Advisor M&A Transactions [J] Summary of Management Agreements for Selected REITs Section 1 Review of Proposed Transaction Summary of the Proposed Transaction Key Terms Impac Commercial Holdings, Inc. ("Impac" or the "Company"), Fortress Impac Acquisition Corp. ("Purchaser") and Fortress Investment Corp. ("Fortress"), intend to enter into an Agreement and Plan of Merger (the "Agreement") pursuant to which Purchaser will commence a tender offer (the "Offer") to purchase for $7.55 cash (the "Purchase Price") all of the issued and outstanding common stock of Impac not already owned by Fortress and its affiliates followed by a merger of Purchaser with and into Impac (the "Merger") pursuant to which holders of the remaining outstanding shares of common stock, other than Fortress and its affiliates, will receive the Purchase Price in exchange for their shares (the Offer and Merger, collectively the "Transaction") The Purchaser will tender for 69.0% of fully diluted common shares it does not already own Total Equity Valuation for the Company of $60.4 million for 100% of 8.0 million fully diluted common shares Form of Offer Cash tender offer Upon closing of the tender offer, parties will complete a merger in a timely manner Fortress and its affiliates will own 100% of the Company immediately following the transaction with the purchase price for all shares not already owned by Fortress and its affiliates totaling approximately $41.5 million Other Provisions Board may consider and accept a higher offer should one emerge once the proposed merger is announced No break-up fee or "no-shop" provisions Reimbursement of out-of-pocket expenses to the Purchaser No conditions for financing or due diligence Significant Conditions to Closing Minimum amount to be tendered: 90% The Purchaser's offer is not conditioned upon obtaining financing for the Transaction There is no public information on the Purchaser, but Fortress has assured the Special Committee that the Purchaser has the resources to complete the Transaction It should be noted in connection with our review of the Proposed Transaction that: In the ordinary course of business, Bear Stearns may actively trade in the equity and debt securities of companies in which Fortress affiliates have invested or proposed to invest, and may at any time hold a long or short position in such securities. Bear Stearns has also been engaged by Fortress affiliates during the last 18 months in connection with several investment banking and underwriting assignments for which we received customary fees Bear Stearns, through an affiliated investment partnership, has committed $10 million in equity to Fortress Investment Fund, L.L.C. (the "Fortress Fund"). Through its investment in the Fortress Fund, Bear Stearns may have an indirect economic interest in the Proposed Transaction We have relied upon and assumed, without independent verification, the accuracy and completeness of the financial and other information, including without limitation the projections and expense estimates for the Company and for FIC Management Inc. (the "Manager") provided to us by Company executives, including Randal Nardone, COO; Greg Hughes, CFO; and Pete Smith, VP We have been informed by management that there have been pre-payments made to the collateral underlying the CMO. These prepayments will have an impact on the Company's interest income and the financial performance of the Manager. At this time we have not received updated projections but have been informed by the Manager that the changes will not be material During the course of our engagement we were not asked to solicit bids or offers for the Company from other parties With respect to Impac's projected financial results, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the senior management of the Manager as to the expected future performance of Impac We have not assumed any responsibility for the independent verification of any such information or of the projections provided to us, and we have further relied upon the assurances of the senior management of the Manager that they are unaware of any facts that would make the information and projections provided to us incomplete or misleading We did not make or receive any independent evaluation or appraisal of the assets or liabilities of the Company nor was Bear Stearns furnished with any such evaluation or appraisal We have necessarily based our review on economic, market and other conditions, and the information made available to us, as of the date hereof It is understood that this review is intended for the benefit and use of the Special Committee of the Board of Directors of Impac and does not constitute a recommendation to the Board of Directors of Impac or any holders of Impac common stock as to how to vote in connection with the Proposed Transaction This review does not address Impac's underlying business decision to pursue the Proposed Transaction; and This review is not to be used for any other purpose, or reproduced, disseminated, quoted to or referred to at any time, in whole or in part, without our prior written consent Proposed Transaction Value (Data in millions, except Proposed Transaction Value per share amounts) -------------------------- ------------------------- Tender Price per Share(1) $7.55 Fully Diluted Shares Outstanding(2) 8.00 ------ Total Common Equity Value $60.4 Plus: Debt(3) 362.2 Plus: Other Liabilities(3) 1.1 Less: Cash(3) (9.7) ------ Total Transaction Enterprise Value $414.0 ------ (1) Represents price per share offered by the Purchaser. (2) 8,001,000 diluted shares outstanding per the Company. (3) Based on Company provided 9/30/2000 estimated balance sheet. Selected Stock Price Statistics(1) ICH Closing Stock Price Proposed Transaction Premium -------------------------------------- ---------------------------- Proposed Transaction Price $7.55 Self-Tender Price (05/22/00)(2) 5.75 31.3% Closing Price as of 10/04/00 6.38 18.4 52-Week High (08/17/00) 6.69 12.9 52-Week Low (03/21/00) 4.69 61.0 52-Week Average as of 09/29/00 5.49 37.5 90-day Average Beginning 05/24/00 5.96 26.7 (1) Source: FactSet. (2) Cash price paid by Company for approximately 2.1 million shares in a self-tender announced 4/24/00 and completed on 5/22/00. Source: Company, Bloomberg. Trading Volume Statistics(1) ICH Average Daily Trading Volume Statistics ------------------------------------------- Average Daily Volume for Week Ending 09/29/00 10,240 52-Week High (10/28/99) 683,900 52-Week Average as of 09/29/00 22,115 90-Day Average for period beginning 05/24/00 5,296 52-Week Low (05/18/00) 200 (1) Source: FactSet. Section 2 Summary of Bear Stearns' Information Review to Date Summary of Bear Stearns' Information Review to Date Reviewed a draft of the Merger Agreement (which you have advised us is substantially in final form) Reviewed Impac's Annual Reports on form 10-K for the years ended December 31, 1997-1999, its quarterly reports on form 10-Q for the periods ended March 31, 2000 and June 30, 2000, its reports on form 8-K during the three years ended October 5, 2000 and its self tender documents on forms SC TO-I dated April 4, 2000 and June 6, 2000 Reviewed certain operating and financial information, including projections through December 31, 2001 provided to us by management of the Manager relating to Impac's business, operations and prospects Reviewed the Management Agreement between the Company and the Manager dated May 6, 1999 (the "Management Agreement") Reviewed the Manager's projections of revenues, expenses and incentive fees related to the Management Agreement Reviewed the terms of the Series B Convertible Preferred Stock and the provisions of the Merger Agreement related thereto Attended meetings with Counsel to the Special Committee and discussed the Management Agreement, the Series B Convertible Preferred Stock, and the Merger Agreement Met with certain members of Impac's senior management, all of whom are employees of Fortress and the Manager, to discuss Impac's business, operations, historical and projected financial results and future prospects Obtained from the management of Impac third party marks of the estimated market value of the Company's CMBS investments as of June 30, 2000 Met with representatives of Fortress and the Manager to discuss the Offer and their views as to the Company's business Met with the Special Committee and discussed, among other things, the Special Committee's views of the financial projections of Impac furnished to us by the Manager's management and strategic alternatives pursued by the Company and prospects for the Company Reviewed historical trading prices and events, multiples and volume of the common shares of Impac Reviewed publicly available financial data, stock market performance data and trading multiples of companies which we deemed generally comparable to the Company Reviewed the terms of recent merger, acquisition and liquidation transactions involving companies we deemed comparable to Impac Reviewed the terms of recent merger and acquisition transactions involving the acquisition of REITs by advisors to the REITs, or by third parties in connection with their acquisition of a REIT Performed discounted cash flow analyses of the Company based on projections for a hypothetical liquidation of Impac and third party marks of the estimated of fair market value of Impac's CMBS Performed discounted cash flow analyses based on projections for the Manager under the Management Agreement Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate Section 3 Impac's Recent History and Current Situation Structural Overview Impac Stock Ownership Profile(1)
Number of Common Insiders Shares Held % Ownership -------- ---------------- ----------- Fortress Partners L.P.(2) 2,512,000(2) 31.0% ----------- ------ Total 2,512,000 31.4% 4% Holders James Grosfeld 825,000 10.3% Robert A. Day (TCW) 627,000 7.8 Farallon Capital Management 356,000 4.4 ----------- ------ Total 1,808,000 22.5% Other Stockholders 3,681,000 46.0% ----------- ------ TOTAL FULLY DILUTED COMMON SHARES: 8,001,000 100.0% ----------- ------ (1) Based on CDA/Spectrum reports as of 12/99, and updated Fortress ownership as reported in last 13D dated May 17, 2000. (2) Assuming conversion of Series B Convertible Preferred to 1.68 million common shares.
Chronology of Key Corporate Events(1)
Date Closing Stock Price ---- ------------------- 08/04/97 $15.00 IMH Commercial Holdings (name later changed to "Impac Commercial Holdings, Inc.") sells 5.5 million shares at $15 per share in an IPO, floating 86.3% of the Company. Ticker: ICH. 06/22/98 15.31 Prices a secondary equity offering of 2 million common shares at 15-5/16, netting approximately $29.1 million for the Company. 10/08/98 3.38 ICH announces that it will delay payment of the previously declared dividend of $.45 per share until January 6, 1999 and further dividend payments are suspended. The Company also announces that it will record a loss for the third quarter and the fourth quarter earning will be lower than originally forecast. The Board of Directors approved a stock repurchase program of up to $5.0 million shares. The Company announced a Stockholder Rights Plan in which one Preferred Stock Purchase Right was distributed to each common stockholder. The rights begin to exercise when a party acquires 10% of the Company. The Rights expire October 2008. 10/21/98 4.25 ICH announced the repurchase of 1,394,000 of the Company's outstanding shares in a private transaction with an affiliate. The price of the transaction was $4.375 per share. 04/30/99 5.06 ICH announced results for the first quarter 1999: total losses of ($202,000) or ($.03) per diluted share. (Total losses for 1998 amounted to ($11,013,000) or $1.26) per share.) Staffing in the conduit operations were reduced 35%, overall corporate staffing was reduced 67%. 05/06/99 4.94 ICH announced that Fortress purchased approximately $12 million of convertible preferred stock in ICH. The terms of the deal were announced as follows: 8.5% coupon and convertible at $7.13 per share. Separately, but related, the Manager purchased the ICH management contract for $6.0 million. Joining the Board of ICH as Fortress designees were Wes Edens, Robert Kauffman and Christopher Mahowald (unaffiliated). ICH also announced a pro rata $.50 per share dividend. A 08/05/99 6.06 AMRESCO Capital Trust (NASDAQ: AMCT) and ICH announced the signing of a definitive merger agreement. With the following terms: Shares in ICH will be exchanged for 0.661 shares of AMCT An affiliate of Fortress to manage the combined entity B 09/07-08/99 5.38 Apex Mortgage Capital, Inc. (NYSE: AXM) announced it had acquired a 7.5% stake in ICH and that it will make a merger proposal to ICH to exchange 0.60328 AXM shares for each share of ICH in a tax-free merger. C 10/25/99 5.44 The Board of ICH unanimously rejects AXM's merger proposal. D 11/16/99 5.25 ICH reported a net loss of the third quarter of approximately ($5.5) million, or ($.65) per share. Of the reported losses, $5.0 million were related to a write down of the Company's residual interests in securitizations held for trading. E 11/18-30/99 5.19-5.815 Fortress acquires 420,000 shares at $5.19-$5.88. F 12/01/99 5.88 Fortress acquires 282,400 shares at $5.75 to $6.00. G 01/04/00 5.25 ICH and AMCT jointly announce termination of the merger. H 04/24/00 5.0625 ICH announced that the Company expects to purchase for cash approximately 2.1 million shares at a tender price of $5.75 per share. 05/22/00 5.44 ICH tender completed. I 08/03/00 5.88 ICH announced earnings of approximately $1.9 million, or $.20 per diluted common share for the quarter ended June 30, 2000. These earnings are after a one-time charge for settling litigation of approximately $490,000, or $.06 per share. (1) Sources: Bloomberg, FreeEdgar and FactSet
Chronology of Key Corporate Events Wall Street Commentary on Impac Stock Currently, Impac has very little Wall Street research coverage.
Date Firm Recommendation EPS/Growth Estimate Price Target/Term Analyst's Comments ---- ---- -------------- ------------------- ----------------- ------------------- 08/07/00 PaineWebber Buy Rating 2000E EPS $0.60, 12 month price Price target reduced to $6 2001E EPS estimate objective $6.00 from $7 due to lower than decreased to $0.70 expected operating EPS as a from $0.75 result of write-offs of bad loans. Speculative, but remains a buy. 05/05/00 PaineWebber Buy Rating 2000E EPS decreased 12 month price Stock remains cheap as it trades from $0.90 to $0.60, objective $7.00 at 5.5x new 2000 operating EPS 2001E EPS decreased estimate. from $1.00 to $0.70 04/13/00 PaineWebber Buy Rating 2000E EPS $0.20 No change Lower operating EPS than decreased from expected because of write- $1.00, downs, but a higher dividend 2001E EPS $1.00 than expected. Core business doing well, and tax loss carry forward should run out around 2002 so that dividends match earning. Reiterate buy. 02/01/00 PaineWebber Buy Rating 2000E EPS $1.00 No change Good Q4 but stock seems cheap trading at only 4x 2000E forecast. 12/14/99 PaineWebber Buy Rating 2000E EPS $1.00 down 12 month price Stock is cheap, trading at from $1.25 objective $8.00 4x 2000E EPS. Stock is also trading at a discount to REIT peers. Confident company can reach 2000E EPS by growing loan volume. 08/09/99 PaineWebber Neutral 1999E EPS of $0.52 Lower rating in response to decreased from 2000E EPS of $0.80 announced merger as analyst Attractive is unfamiliar with AMCT and speculative of combined business strategies. 07/28/99 PaineWebber Buy Rating 1999E EPS reduced 12 month price EPS reports below expectations from $1.10 to $0.95 objective $9.00 because of material securities 2000E EPS $1.25 losses. Lending operations remain good, but more write- downs are possible.
Section 4 Summary of Company Valuation Analyses Summary of Company Valuation For purposes of reviewing the Proposed Transaction we have employed the following methodologies: Premium to Historical Market Stock Prices Comparable Companies Trading Analysis Net Proceeds from Liquidation Comparable Merger and Acquisition and Liquidation Transactions Analysis In addition we have compared the results of these methodologies with a) a calculated range of Net Asset Value (NAV) for the Company's common stock based on estimated market values of the Company's CMBS assets and b) the pricing of comparable companies and transactions vs. the estimated NAV's of those comparable companies. The following pages herein more fully describe these analyses. Premium to Historical Stock Prices The Proposed Transaction price of $7.55 per share represents a premium to several market indications of the stock. These include a fully subscribed self-tender initiated by Impac. Measure Price Premium ------- ----- ------- Self-Tender Price (05/22/00)(1) $5.75 31.3% Paine Webber Research Target(2) 6.00 25.8 Closing Price as of 10/04/00(3) 6.38 18.4 52-Week High (08/17/00)(3) 6.69 12.9 52-Week Low (03/21/00)(3) 4.69 61.0 52-Week Average as of 09/29/00(3) 5.49 37.5 90-Day Average Beginning 05/24/00(3) 5.96 26.7 (1) Source: Company, Bloomberg. (2) Source: Investext. (3) Source: FactSet. Comparable Company Trading Multiples Reviewed a group of selected publicly traded commercial mortgage REITs with similar characteristics: Examined various valuation multiples, including: Price/LTM EPS; Price to forward EPS; Price/Book Equity, Price/NAV and Dividend Yield (See Appendix C) Examined historical trends within the comparable trading group including market reaction to earnings announcements, relationships between stock price and book value and dividend yields Comparable companies' recent trading prices suggest a range of Price/2000 EPS multiples of 4.5x to 6.4x, or a valuation for Impac of $5.58 to $7.94 per share, based on projected basic 2001 earnings of $1.24 per share. We applied the multiple to projected 2001 basic earnings because (a) non-recurring expenses during the first two quarters of 2000 depressed Impac's earnings for 2000 and (b) there is no basis for assuming that Fortress and, or its affiliates would elect to convert their holdings of Series B Preferred, thereby giving up structural seniority and a higher yield, absent a liquidity event The Trading Multiples also point to a range of Price/Book or Price/NAV, as appropriate based on the comparable companies' methods of accounting for their assets, of .6x to 1.Ox. Note that some companies mark most of their assets to market, and others do not. Based on our estimated range of Net Asset Values per share for Impac (see Appendix F) these multiples suggest a per share value, net of a range of estimated values for the Management Agreement (see Section 5), of $4.19 to $8.13 per share Impac's book value substantially overstates the estimated market value or NAV of the Company's assets because one of the Company's largest CMBS assets (the "CMO") is carried at original cost which predates the CMBS market correction in 1998. The Company reports "estimated fair value" per share quarterly to shareholders in a footnote to its financial statements. Its estimated NAV per diluted common share was most recently reported as of June 30th, at $8.27 per diluted common share versus carrying value of $10.82 per share Survey of Selected Commercial Mortgage REIT's
Resource Impac Amresco Anthracite Clarion Asset Commercial Capital Capital, Commercial Investment Holdings Trust(1) Inc. Holdings Trust Mean(2) Median(2) ---------- -------- ---------- ---------- ----------- ------ -------- Ticker ICH AMCT AHR CLR RAS Stock Price as of l0/04/OO $6.38 $10.69 $8.00 $5.63 $12.08 $9.10 $9.34 Price/LTM EPS (l9.lx)(3)(4)(5) 9.lx(3)(6) 8.0x(3) 5.4x(3) 4.9x(3) 6.9x 6.7x Price/Last Quarter Annualized EPS 5.4 5.2 6.3 29.5(7) 5.1 5.5(8) 5.2(8) Price/Est. EPS '00 7.1(9) 6.6(9) 6.4(10) 4.5(9) 5.0(10) 5.6 5.7 Price/Est. EPS '01 NA NA 6.2(10) NA 5.0(10) 5.6 5.6 Equity Market Capitalization $51,006 $107,041 $233,741 $22,855 $76,025 $109,915 $91,533 Total Net Debt(11) 356,578 38,708 953,634 55,035(12) 137,308 296,171 96,172 Total Capitalization 407,584 145,749 1,187,375 77,890 213,333 406,087 179,541 Total Book Equity 86,757 119,951 240,513 38,609 86,260 121,333 103,106 Price/Book 0.6x 0.9x l.0x 0.6x 0.9x 0.8x 0.9x Price/NAV 0.8 0.8(13) 1.0 0.6 NA 0.8 0.8 Debt/Book 4.1 0.3 4.0 1.4 1.6 1.8 1.5 Debt/Total Cap. 0.9 0.3 0.8 0.7 0.6 0.6 0.7 Dividend Yield 7.5%(14)(15) 12.7%(16) 14.5%(14) 14.2%(14) 16.9%(14) 14.6% 14.4% 2001E Dividend Payout Ratio(15)(17) 40.3(18) NA 89.9 NA 85.0 87.5 87.5 (1) Has approved a plan of liquidation per shareholder vote on September 26, 2000. (2) All mean and median calculations exclude Impac. (3) Based on price divided by LTM FF0/share. (4) LTM FF0 excludes a $600 settlement of litigation charge in 1999. (5) LTM/LQA FF0 excludes a $490 settlement of litigation charge for the quarter ended 6/30/00. (6) LTM FF0 number excludes a $1,737 merger expense. (7) Figure includes a loss on securities of $759,666 for the quarter ended 6/30/00. (8) Excludes Clarion. (9) Estimated EPS based on Bloomberg estimates as of August 25, 2000. (10) Estimated EPS based on First Call consensus estimates as of August 25, 2000. (11) Based on each company's respective 10-Q dated 6/30/00. (12) Includes securities sold short. (13) NAV Based on nominal projected liquidation proceeds. (14) Based on annualized second quarter dividends. (15) As a result of NOLs, the Company incurred in 1998, the Company does not need to pay any dividend for several years to maintain its REIT status, but has elected for the present time to maintain an annual dividend of $.50 per share (approximately 50% of current run-rate EPS). (16) Based on annualized first quarter dividend. (17) Based on earnings estimated for 2001 and most recent dividend. (18) Based on most recent dividend and Company's estimated EPS for 2001.
Net Proceeds from Liquidation Performed a sum-of-the-parts valuation Valued each of the classes of securities separately - Utilized third party marks provided by the Manager and by Bear Stearns, adjusted as needed to reflect future sale dates, but otherwise assuming current market conditions - Estimated the timing of (a) shareholder approval of liquidation plan and (b) sales of various assets based on their liquidity - Used Bear Stearns' estimates of costs to engage an agent to market the assets - Used Impac's estimates of interest income, interest expense and operating costs - Applied discount rates ranking from 15% to 20% Assumed that all assets could be sold for cash beginning in the first quarter of 2001 and ending by the end of 2001 Valued tangible assets other than at book value Based on guidance from the Special Committee's counsel, assumed the Manager would not receive incentive fees or termination fees under the Management Agreement Discounted net cash flows to common shareholders--assumed no taxes or tax benefits for the Company's NOLs Assumed that Fortress converted its Series B preferred to common stock only in cases where the present value of net liquidation proceeds exceeded the Series B conversion price of $7.13 per share, otherwise the preferred treated as debt The resulting implied valuation ranges from $6.10 to $7.44 per Impac common share (See Appendix D) Comparable M&A and Liquidation Transactions Analysis We reviewed selected transactions involving mergers and acquisitions and liquidation plans pursued by mortgage REITs, taking into account Limited public disclosure on certain transactions Limited universe of pure-play mergers Earnings data skewed by extraordinary losses associated with late 1998 market dislocations While the data surrounding traditional earnings metrics are inconclusive, we believe the multiples of book value can provide some guidance with respect to relative value. The survey suggests a multiple of Book Value of 0.6x to 0.8x per share Impac's book value substantially overstates the current market value or NAV of the Company's assets because one of the Company's largest CMBS assets (the "CMO") is carried at its original cost which predates the CMBS market correction in 1998. The Company reports "estimated fair value" per share quarterly to shareholders in a footnote to its financial statements. Its estimated NAV per diluted common share was most recently reported as of June 30, at $8.27 per diluted common share versus reported carrying value of $10.82 per share Utilizing Impac's updated NAV per share and the M&A comparables' multiple range of 0.6x to 0.8x Book Value suggests a range of values for Impac's common stock from $4.71 to $7.05 per share As another reference point, the Proposed Transaction price represents .93x to 1.08x estimated NAV per fully diluted Impac common share, after deducting a range of estimated values for the Management Agreement (see Section 5) from NAV Selected Mortgage REIT M&A and Liquidation Transactions
M&A Transactions ($ in thousands except per share amounts) Last Net Quarter Date Date Transaction Equity LTM Annualized 2000E 2001E Announced Effective Acquiror/Target Description Value FFO FFO EPS EPS --------- --------- --------------- ----------- ------ ---- ---------- ----- ----- 02/09/00 05/15/00 Anthracite Cash and $71.1 $20.8(1) NA(1) NA NA Acquisition Corp. Preferred (AHR)/CoreCap, Stock Inc. (private) Acquisition 07/26/99 10/07/99 Ocwen Financial Cash 95.8(2) (76.6)(3) (74.8) 0.6(4) NA Corp. (OCN)/Ocwen Acquisition Asset Investment Corp. (OAC) 07/22/99 03/28/00 Imperial Credit Cash 329.9(5) 22.4(6) 40.3(7) 0.4(4) 0.9(4) Industries (ICII) Acquisition /Imperial Credit Commercial Mortgage (ICMI) Mean 165.6 21.6(14) 40.3(14) 0.5 0.9 (Continuation of Chart) Acquisition Price ------------------------------------------------------ Transaction Date Value/ 1999 Quarter 2000E 2001E Announced Book Value EPS LTM Annualized EPS EPS --------- ----------- ----- ----- ---------- ------ ------ 02/09/00 0.6x 2.4x 2.3x NA NA NA 07/26/99 0.5 NA (1.4)(3) (3.9)(3) 9.2(4) NA 07/22/99 0.8 l2.6(8) l4.7(6) 8.2(7) 30.5(4) 12.7(4) 0.6 7.5 8.5(14) 8.2(14) 19.85 12.7
Liquidations
Expected Last Liquidation Net Quarter Date Date Acquiror/ Transaction Trading Proceeds Equity LTM Annualized Announced Effective Target Description Price(15) Per Share(10) Value FFO FF0 --------- --------- --------- ----------- ------- --------- ------ ---- ---------- 08/23/00 09/26/00(9) None/ Liquidation $10.88 $12.85 $128.7(10) $10.1 $9.2 Amresco Plan Capital Trust (AMCT) 05/14/99 10/01/99(12) None/ Liquidation 7.16 7.45 54.7(13) (47.0) (5.8) Chastain Plan Capital Corp. (CHAS) (Continuation of Chart) Trading Price(15) Trading/Price ----------------------------------------------- Expected Last Date 2000E 2001E Liquidation 1999 Quarter 2000E 2001E Announced EPS EPS Proceeds(15) EPS LTM Annualized EPS EPS --------- ----- ----- ----------- ----- ----- ---------- ----- ------ 08/23/00 $1.6(11) NA 0.85x 7.7x(8) 10.8x 11.9x 6.8x(11) NA 05/14/99 NA NA 0.96 1l.4(8) (1.1) (9.1) NA NA (1) Because CoreCap is a private company, quarterly data is unavailable and numbers shown reflect values for the period ending December 31, 1999. (2) Figure is based on the share price on the day before the announcement, July 25, 1999, $7.75 multiplied by the exchange ratio of 7.1 Net equity value is based on 18,965,000 shares outstanding as of June 30, 1999 less the 8% already owned by a subsidiary of OCN. (3) Includes $23.9 in losses during the second quarter of 1999 attributable, in varying degrees, to increased prepayment speeds on underlying mortgage loans, widening spreads on mortgage-related securities and declining market liquidity for mortgage-related securities. (4) Based on Zacks estimates as of August 25, 2000. (5) Net Equity Value based on 28,500,000 shares outstanding per 10-Q dated March 31, 1999 and a purchase price of $11.58 per share based on the Proxy statement dated February 18, 2000. (6) LTM figures based on numbers from June 30, 1998--June 30, 1999. (7) LQA figures based on the quarter ending June 30, 1999. (8) Based on First Call consensus estimate as of September 6, 2000. (9) Date of shareholder vote. (10) Figure is a nominal value and is the average of the range of aggregate distributions management expects shareholders to receive upon liquidation. (11) Based on I/B/E/S estimates as of August 25, 2000. (12) The date of the shareholder meeting at which the plan was approved. (13) Figure is the average of the range of aggregate distributions (nominal amount) management expects shareholders to receive upon liquidation as indicated in 8-K dated November 19, 1999. (14) Excludes Ocwen. (15) Reflects trading price per share on the day following the announcement of approval of liquidation plan for AMCT and nine days following the approval of the liquidation plan for CHAS.
Summary of Estimated Valuation Ranges
($ per share) Comparable Comparable Companies' Companies' P/E Price/Book DCF of Asset-by Asset Precedent M&A Proposed Multiples (or NAV) Ratios Liquidation Comparables Transaction -------------- --------------- --------------------- ------------- ----------- Low $5.58 $4.19 $6.10 $4.71 $7.55 High 7.94 8.13 7.44 7.05 7.55
Summary of Estimated Valuation Ranges Relative Value Analysis To compare the value of the Proposed Transaction to values observed in other comparable transactions as well as to the theoretical NAV(1) of the Company's common stock, we have performed the following calculations. The Transaction Price represents 86%-96% of NAV(1) before any deduction for the estimated value of the Management Agreement, and 93%-l08% of NAV(1) after deducting a range of estimated values for the Management Agreement Our estimate of the present value of net proceeds from a liquidation range from 75%-107% of NAV(1) after deduction for the estimated value range of the Management Agreement Precedent merger transactions resulted in ratios of price to book value/NAV of 60%-80% We have estimated the nominal net proceeds from a liquidation of Impac. The ratio of the Transaction Price to estimated nominal liquidation proceeds is 83%-86% Two comparable companies, Amresco Capital Trust and Chastain Capital Corp., have announced plans to pursue liquidation. In gaining shareholder approval, these companies estimated the nominal distributions that shareholders would receive. The ratio of the stock prices at which AMCT and CHAS traded immediately following approval of liquidation plans relative to estimated nominal distributions per share range from 85%-96% It should be noted that the proceeds of the Transaction are expected to be paid in approximately one month while adopting and implementing a plan of liquidation would be expected to take approximately 12 to 18 months. Therefore, if one discounted the proceeds with appropriate cost of capital, the Transaction Price represents approximately 101%-124% of the PV of estimated net liquidation proceeds and 83%-86% of the nominal estimated proceeds Relative Valuation Comparison
Category Low High -------- ----- ------ Comparable Mortgage REIT trading prices as a percentage of Book Value/NAV(1) 60.0% 100.0% Comparable M&A Transactions as a Percentage of Book Value(2) 60.0 80.0 Transaction Price as a Percentage of NAV Before deduction for estimated value of the Management Agreement(3) 86.0 96.0 After deduction for estimated value of the Management Agreement(4) 93.0 108.0 NPV of Proceeds from Liquidation/NAV(5) High 92.0 107.0 Low 75.0 88.0 Comparable Liquidating Companies' Trading prices as a percent of projected nominal 85.0 96.0 liquidation proceeds(2) Proposed Transaction Price as a Percentage of: Nominal Net Asset-by-Asset Liquidation Proceeds(6) 83.0 86.0 NPV of Asset-by-Asset Liquidation Proceeds(6) 101.0 124.0 (1) See Appendix C: Comparable Company Analysis. (2) See Appendix E: Comparable M&A Transactions. (3) See Appendix F: NAV Sensitivity Analysis. (4) See Appendices F and I. (5) After deduction for estimated value of the Management Agreement. See Appendix D: Present Value of Net Proceeds from Liquidation and Appendix F: NAV Sensitivity Analysis. (6) See Appendix D: Present Value of Net Proceeds from Liquidation.
Section 5 Summary of Management Agreement Valuation Analyses Summary of Management Agreement Valuation Analyses As an externally advised REIT, Impac relies on the Manager to provide all administrative and strategic functions. This relationship is governed by a Management Agreement that the Manager purchased for $6.0 million in May 1999. The Management Agreement provides for compensation to the Manager and governs termination and renewal of the contract. We have abstracted the key terms of the Management Agreement, as well as selected other agreements in Appendix J. We have employed several methods to derive a range of values for the Management Agreement. Earnings multiples implied by comparable REIT manager Merger and Acquisition transactions Discounted Cash Flow in the context of a liquidation Discounted Cash Flow assuming an on-going agreement In order to derive projections for these valuations, we relied on the Manager's projections of manager base billed expenses ($100,000 per month), service charges (15% of expenses) and incentive fees. These are detailed in Appendices A, G, and H. We also relied on guidance from the Special Committee's Counsel, Willkie, Farr & Gallagher, regarding fees that might be owed to the Manager under various scenarios. The valuation of the Management Agreement is relevant in estimating the portion of the Company's value which accrues to the common stockholders net of the value conveyed to the Manager through the Management Agreement. Comparable Acquisitions of REIT Advisors We analyzed transactions involving the acquisition of external advisors by mortgage and equity REITs, as well as the recent cash purchase of mortgage REITs by the owner of the REIT's manager in which a valuation was imputed to the management contract and was reflected as a reduction in the cash proceeds received by common shareholders. (See Appendix I) This data provided relative valuation measures and precedent for treatment of managers in certain transactions, notwithstanding limited public disclosure on certain transactions The relevant range of multiples observed in the comparable REIT Advisor acquisitions after excluding outliers with higher multiples, is 6.2x to 8.lx last quarter annualized EBITDA As previously discussed, non-recurring charges taken by Impac during the first two quarters of 2000 depressed Impac's earnings during this period and therefore reduced the incentive fees payable to the Manager; the last six months of 2000 are more reflective of Impac and the Manager's stabilized earnings. Based on projected annualized EBITDA to the Manager of Impac of $870,000 for the six months ended December 31, 2000, this range of multiples supports a valuation for the Manager of $5.4 to $7.0 million, or $0.68 to $0.88 per fully diluted Impac share Discounted Cash Flow to the Manager in a Liquidation We calculated the discounted cash flow of potential revenues and expenses to the Manager if the Company were to adopt a plan of liquidation Followed Special Committee Counsel's guidance that a plan of liquidation would be considered a termination with cause such that the Manager would receive no incentive or termination fees Utilized the same assumptions regarding timing as the Company liquidation model Utilized the Manager's projections for Manager revenues Assumed the Manager is engaged to market assets for estimated market level sales fees Applied discount rates of 15%-20% Based on our analysis (See Appendix H), we estimate the NPV of cash flows from the management agreement in a liquidation scenario as follows: a) between $1.9 and $2.1 million, or approximately $0.25 to $0.26 per fully diluted Impac share, if the Manager's overhead allocation is treated as the Manager's actual cost or b) between $4.0 and $4.2 million, or $0.50 and $0.53 per Impac share, if the Manager's revenues under the Management Agreement are treated as profit Discounted Cash Flow Assuming an On-going Agreement We utilized the Manager's forecasts regarding base expenses/fees, incentive management fees and service charges for five years We treated the Manager's estimated cost allocations as actual costs to the Manager in order to estimate the Manager's EBITDA Assumed an exit at the end of year five at a multiple of 3.2x forward revenues Applied discount rates of 15.0% to 20.0% to the Cash Flows Based on this analysis (See Appendix H), the indicated present value of future cash flows from the Management Agreement is $7.5 to $8.9 million or $0.93 to $1.11 per fully diluted Impac share Appendices Appendix A Impac Consolidated Financials
Income Statement Projections--Post-incentive Fee Actual FYE(1) Proj. FYE(1) Dec. 31, 1999 Dec. 31,2000 ------------- ------------ Interest income Commercial mortgage securities: Fixed-rate $781 $791 Adjustable-rate 385 9,755 Interest-only 1,141 721 Residual 1,083 702 Loan receivables: CMO collateral 24,519 24,188 Premium amortization -- Loans held for investment $2,476 ($87) ------------- ------------ $30,385 $36,070 Cash equivalents and due from affiliates 826 894 ------------- ------------ Total interest income $31,211 $36,964 ------------- ------------ Interest expense: CMO borrowings 21,166 19,890 CMO bonds 18,318 18,014 Discount amortization 1,109 731 Amortization of issue costs 1,739 1,145 Reverse repurchase and warehouse line agreements 1,332 5,502 ------------- ------------ Total interest expense $22,498 $25,392 ------------- ------------ Net interest income $8,713 $11,572 Provision for loan losses -- (984) ------------- ------------ Net interest income after provision for loan losses $8,713 $10,588 Other revenue (expense): Gain (loss) on sale of loans and real estate 691 (70) Writedown of securities held for trading (5,114) -- Settlement of litigation (600) (490) Rental and other income 1,507 48 General and administrative (8,882) (701) Other expense: Manager allocation (1,566) (1,200) Manager Service Charge (180) (180) Submanager allocation (464) (239) Management incentive fees(2) -- (162) ------------- ------------ Total other revenue (expense) ($14,608) ($2,994) ------------- ------------ Net earnings ($5,895) $7,594 ------------- ------------ Net earnings available to common stockholders: Net earnings ($5,895) $7,936 Less cash dividends on preferred stock (669) (1,020) ------------- ------------ Net earnings available to common stockholders ($6,564) $6,916 ------------- ------------ Net earnings per common share: Basic EPS ($0.78) $0.97 Diluted EPS (0.78) 0.90 Weighted average common shares outstanding: Basic 8,462 7,149 Diluted 10,146 8,833 (Continuation of Chart) ($ in thousands except per share amounts) Annualized ---------------------------------------------------------------------------- Actual Qtr Actual Qtr Proj. Qtr Proj. Qtr Ending(1) Ending(1) Ending(1) Ending(1) Proj. FYE(1) Mar. 31, 2000 June 30, 2000 Sept. 30, 2000 Dec. 31, 2000 Dec. 31, 2001 ------------- ------------- -------------- ------------- ------------- Interest income Commercial mortgage securities: Fixed-rate $788 $764 $808 $804 $804 Adjustable-rate 4,028 11,036 11,996 11,960 13,760 Interest-only 952 692 648 592 592 Residual 508 784 764 752 752 Loan receivables: 0 0 0 0 0 CMO collateral 23,292 25,264 24,292 23,904 23,904 Premium amortization -- -- -- -- - Loans held for investment ($316) ($16) ($16) - - ------------- ------------- -------------- ------------- ----------- $29,252 $38,524 $38,492 $38,012 $39,812 Cash equivalents and due from affiliates 1,272 852 652 800 800 ------------- ------------- -------------- ------------- ----------- Total interest income $30,524 $39,376 $39,144 $38,812 $40,612 ------------- ------------- -------------- ------------- ----------- Interest expense: -- -- -- - CMO borrowings 20,808 19,864 19,528 19,360 19,360 CMO bonds 18,172 18,224 17,936 17,724 17,724 Discount amortization 1,048 960 452 464 464 Amortization of issue costs 1,588 680 1,140 1,172 1,172 Reverse repurchase and warehouse -- -- -- - line agreements 1,620 6,512 6,952 6,924 7,974 ------------- ------------- -------------- ------------- ----------- Total interest expense $22,428 $26,376 $26,480 $26,284 $27,334 ------------- ------------- -------------- ------------- ----------- Net interest income $8,096 $13,000 $12,664 $12,528 $13,278 Provision for loan losses -- (1,348) (1,276) (1,312) (1,312) ------------- ------------- -------------- ------------- ----------- Net interest income after provision for loan losses $8,096 $11,652 $11,388 $11,216 $11,966 Other revenue (expense): -- -- -- -- Gain (loss) on sale of loans and real estate -- -- -- -- -- Writedown of securities held for trading -- -- -- -- -- Settlement of litigation -- -- -- -- - Rental and other income 12 164 8 8 8 General and administrative (828) (912) (701) (701) (532) Other expense: -- -- -- -- Manager allocation (1,200) (1,200) (1,200) (1,200) (1,200) Manager Service Charge (180) (180) (180) (180) (180) Submanager allocation (232) (244) (240) (240) (240) Management incentive fees(2) -- (524) (76l) (619) (969) ------------- ------------- -------------- ------------- ----------- Total other revenue (expense) ($2,428) ($2,896) ($3,074) ($2,932) ($3,113) ------------- ------------- -------------- ------------- ----------- Net earnings $5,668 $8,756 $8,314 $8,284 $8,853 ------------- ------------- -------------- ------------- ----------- Net earnings available to common stockholders: Net earnings $5,668 $8,756 $8,314 $8,284 $8,853 Less cash dividends on preferred stock (1,020) (1,020) (1,020) (1,020) (1,020) ------------- ------------- -------------- ------------- ----------- Net earnings available to common stockholders $4,648 $7,736 $7,294 $7,264 $7,833 ------------- ------------- -------------- ------------- ----------- Net earnings per common share: Basic EPS $0.74 $1.22 $1.15 $1.15 $1.24 Diluted EPS 0.71 1.09 1.04 1.04 1.11 Weighted average common shares outstanding: Basic 6,317 6,317 6,317 6,317 6,317 Diluted 8,001 8,001 8,001 8,001 8,001 (1) Source: Manager actual and projected quarterly and year end data. Annualized figures calculated using this data. (2) See Appendix G which details the calculation of projected incentive fees to Manager.
Appendix B Premium to Historical Market Stock Prices Premium to Historical Stock Prices The Proposed Transaction price of $7.55 per share represents a premium to several market indications of the stock. These include an over-subscribed self-tender initiated by Impac. Measure Price Premium ------- ----- ------- Self-Tender Price (05/22/00)(1) $5.75 31.3% Paine Webber Research Target(2) 6.00 25.8 Closing Price as of 10/04/00(3) 6.38 18.4 52-Week High (08/17/00)(3) 6.69 12.9 52-Week Low (03/21/00)(3) 4.69 61.0 52-Week Average as of 09/29/00(3) 5.49 37.5 90-Day Average Beginning 05/24/00(3) 5.96 26.7 ------------- (1)Source: Company, Bloomberg. (2)Source: Investext. (3)Source: FactSet. Appendix C Comparable Companies Analysis
Survey of Selected Commercial Mortgage REIT's Resource Impac Amresco Clarion Asset Commercial Capital Anthracite Commercial Investment Holdings Trust(1) Capital, Inc. Holdings Trust Mean(2) Median(2) ----------- --------- ------------- ----------- --------- ------ -------- Ticker ICH AMCT AHR CLR RAS Stock Price as of 10/04/00 $6.38 $10.69 $8.00 $5.63 $12.08 $9.10 $9.34 Price/LTM EPS (l9.lx)(3)(4)(5) 9.1x(3)(6) 8.Ox(3) 5.4x(3) 4.9x(3) 6.9x 6.7x Price/Last Quarter Annualized EPS 5.4 5.2 6.3 29.5(7) 5.1 5.5(8) 5.2(8) Price/Est. EPS '00 7.1(9) 6.6(9) 6.4(10) 4.5(9) 5.O(10) 5.6 5.7 Price/Est. EPS 'Ol NA NA 6.2(10) NA 5.0(10) 5.6 5.6 Equity Market Capitalization $51,006 $107,041 $233,741 $22,855 $76,025 $109,915 $91,533 Total Net Debt(11) 356,578 38,708 953,634 55,035(12) 137,308 296,171 96,172 Total Capitalization 407,584 145,749 1,187,375 77,890 213,333 406,087 179,541 Total Book Equity 86,757 119,951 240,513 38,609 86,260 121,333 103,106 Price/Book 0.6x 0.9x 1.Ox 0.6x 0.9x 0.8x 0.9x Price/NAV 0.8 0.8(13) 1.0 0.6 NA 0.8 0.8 Debt/Book 4.1 0.3 4.0 1.4 1.6 1.8 1.5 Debt/Total Cap. 0.9 0.3 0.8 0.7 0.6 0.6 0.7 Dividend Yield 7.5%(14)(15) 12.7%(16) 14.5%(14) 14.2%(14) 16.9% 14.6% 14.4% 2001E Dividend Payout Ratio(15)(17) 40.3(18) NA 89.9 NA 85.0 87.5 87.5 (l) Has approved a plan of liquidation per shareholder vote on September 26, 2000. (2) All mean and median calculations exclude Impac. (3) Based on price divided by LTM FFO/share. (4) LTM FFO excludes a $600 settlement of litigation charge in 1999. (5) LTM/LQA FFO excludes a $490 settlement of litigation charge for the quarter ended 6/30/00. (6) LTM FFO number excludes a $1,737 merger expense. (7) Figure includes a loss on securities of $759,666 for the quarter ended 6/30/00. (8) Excludes Clarion. (9) Estimated EPS based on Bloomberg estimates as of August 25, 2000. (10) Estimated EPS based on First Call consensus estimates as of August 25, 2000. (l1) Based on each company's respective 10-Q dated 6/30/00. (12) Includes securities sold short. (13) NAV Based on nominal projected liquidation proceeds. (14) Based on annualized second quarter dividends. (15) As a result of NOLs, incurred in 1998, the Company does not need to pay any dividend for several years to maintain its REIT status, but has elected for the present time to maintain an annual dividend of $.50 per share (approximately 50% of current run-rate EPS). (16) Based on annualized first quarter dividend. (17) Based on earnings estimated for 2001 and most recent dividend. (18) Based on most recent dividend and Company's estimated EPS for 2001.
Trading Multiple Trends for Selected Commercial Mortgage REITs <> Trading Multiple Trends for Commercial Mortgage REITs <> Trading Multiple Trends for Selected Commercial Mortgage REITs <>
Trading Multiple Trends for Commercial Mortgage REITs Amresco Impac Clarion Capital Commercial Anthracite Commercial Resource Asset Trust Holdings Capital, Inc. Holdings Investment Trust --------- ---------- ------------- ---------- ---------------- Q1 '99: Date as of End of Quarter 03/31/99 03/31/99 03/31/99 03/31/99 03/31/99 Stock Price as of End of Quarter $9.75 $5.19 $7.50 $5.75 $11.75 Announcement Date 04/22/99 04/30/99 05/12/99 05/06/99 04/14/99 Stock Price as of Announcement Date $9.75 $5.06 $7.56 $6.81 $11.00 Stock Price as of Announcement Date +2 9.88 5.00 7.46 6.75 11.13 Book Value 131,897,000 101,773,000 180,814,000 39,219,905 85,312,540 Book Value per Share 13.18 12.09 8.61 9.06 13.68 Price/Book Value 0.7x 0.4x 0.9x 0.7x 0.8x NAV/Share $13.2 $12.1 $8.6 $9.1 $13.68 Price/NAV 0.7x 0.4x 0.9x 0.7x 0.8x LQA EPS $0.92 ($0.12) $1.32 $1.56 $1.92 Price/LQA EPS 10.7x (41.7x) 5.6x 4.3x 5.8x Dividend Declared $0.36 NA $0.29 $0.2 $0.51 Implied Yield at Announcement Date 14.8% NA 15.3% 11.7% 18.5% Shares Outstanding(1) 10,006,111 8,418,200 20,998,334 4,328,050 6,237,143 Q2 '99: Date as of End of Quarter 06/30/99 06/30/99 06/30/99 06/30/99 06/30/99 Stock Price as of End of Quarter $9.50 $6.31 $6.56 $6.75 $12.63 Announcement Date 07/22/99 07/02/99 09/16/99 08/02/99 07/19/99 Stork Price as of Announcement Date $10.13 $6.50 $6.88 $7.00 $12.44 Stock Price as of Announcement Date +2 10.75 6.69 6.94 6.81 12.63 Book Value 129,364,000 114,995,000 178,256,000 41,089,174 85,049,838 Book Value per Share 12.92 13.66 8.49 9.50 13.61 Price/Book Value 0.8x 0.5x 0.8x 0.7x 0.9x NAV/Share $12.9 $13.7 $8.5 $9.5 $13.6 Price/NAV 0.8x 0.5x 0.8x 0.7x 0.9x LQA EPS $1.08 $0.32 $1.36 $1.68 $1.88 Price/LQA EPS l0.0x 20.9x 5.1x 4.1x 6.7x Dividend Declared $0.39 $0.125 $0.29 $0.2 $0.51 Implied Yield at Announcement Date 15.4% 7.7% 16.9% 11.4% 16.4% Shares Outstanding(1) 10,015,111 8,418,200 20,998,334 4,327,329 6,248,594 Q3 '99: Date as of End of Quarter 09/30/99 09/30/99 09/30/99 09/30/99 09/30/99 Stock Price as of End of Quarter $8.75 $5.75 $6.88 $7.25 $11.13 Announcement Date 10/21/99 11/16/99 10/26/99 10/29/99 10/21/99 Stock Price as of Announcement Date $9.00 $5.31 $6.75 $7.31 $10.50 Stock Pries as of Announcement Date +2 9.25 5.25 6.75 7.06 10.38 Book Value 127,833,000 98,477,000 176,214,000 42,009,490 85,249,875 Book Value per Share 12.76 9.75 8.41 9.83 13.65 Price/Book Value 0.7x 0.5x 0.8x 0.7x 0.8x NAV/Share $12.8 $9.8 $8.4 $9.8 $13.8 Price/NAV 0.7x 0.5x 0.8x 0.7x 13.8x LQA EPS $0.96 ($2.60) $1.24 $1.80 $2.16 Price/LQA EPS 9.6x (2.0x) 5.4x 3.9x 4.8x Dividend Declared $0.4 $0.125 $0.29 $0.2 $0.51 Implied Yield at Announcement Date 17.8% 9.4% 17.2% 10.9% 19.4% Shares Outstanding(1) 10,015,111 10,101,835 20,964,034 4,272,363 6,247,306 Q4 '99: Date as of End of Quarter 12/31/99 12/31/99 12/31/99 12/31/99 12/31/99 Stock Price as of End of Quarter $8.50 $5.25 $6.38 $7.75 $10.81 Announcement Date 02/03/00 04/03/00 02/11/00 03/15/00 01/26/00 Stock Price as of Announcement Date $9.09 $5.13 $6.44 $5.06 $10.50 Stock Price as of Announcement Date +2 9.31 5.06 6.38 5.44 10.50 Book Value 117,951,000 96,794,000 168,261,000 40,594,799 86,238,298 Book Value per Share 11.78 9.58 6.48 8.98 13.48 Price/Book Value 0.8x 0.5x 1.0x 0.6x 0.8x NAV/Share $11.8 $7.7 $6.5 $9.0 $13.5 Price/NAV 0.8x 0.7x 1.0x 0.6x 0.8x LQA EPS ($0.4) ($0.64) $1.12 $0.28 $2.4 Price/LQA EPS (23.3x) (7.9x) 5.7x 19.4x 4.4x Dividend Declared $0.44 $0.125 $0.29 $0.2 $0.51 Implied Yield at Announcement Date 19.4% 9.8% 18.0% 15.8% 19.4% Shares Outstanding(1) 10,015,111 10,101,835 20,814,000 4,520,004 6,398,792 Ql '00: Date as of End of Quarter 03/31/00 03/31/00 03/31/00 03/31/00 03/31/00 Stock Price as of End of Quarter $10.19 $5.25 $7.13 $5.75 $10.75 Announcement Date 04/25/00 04/06/00 05/04/00 05/09/00 04/26/00 Stock Price as of Announcement Date $10.38 $5.06 $7.13 $5.63 $10.38 Stock Price as of Announcement Date +2 10.44 5.13 7.00 5.75 10.38 Book Value 119,984,000 98,432,000 137,465,000 39,219,905 86,120,231 Book Value per Share 11.98 9.74 6.56 9.66 13.35 Price/Book Value 0.9x 0.5x l.lx 0.6x 0.8x NAV/Share(2) $12.0 NA $6.6 $9.7 $13.4 Price/NAV(2) 0.9x NA 1.1x 0.6x 0.8x LQA EPS $0.48 $0.56 $1.16 $1.64 $2.00 Price/LQA EPS 21.7x 9.2x 6.0x 3.5x 5.2x Dividend Declared $0.34 $0.125 $0.29 $0.2 $0.51 Implied Yield at Announcement Date 13.1% 9.9% 16.3% 14.2% 19.7% Shares Outstanding(1) 10,021,111 10,101,835 20,955,434 4,061,019 6,448,552 Q2 '00: Date as of End of Quarter 06/30/00 06/30/00 06/30/00 06/30/00 06/30/00 Stock Price as of End of Quarter $10.13 $5.81 $7.13 $5.38 $11.00 Announcement Date 07/28/00 08/03/00 O8/11/00 08/04/00 07/28/00 Stock Price as of Announcement Date $10.31 $5.88 $7.56 $5.94 $11.13 Stock Price as of Announcement Date +2 10.38 5.75 7.56 5.81 11.13 Book Value 119,951,000 86,757,000 149,788,000 38,609,000 86,260,000 Book Value per share 11.98 10.84 5.96 9.50 13.29 Price/Book 0.9x 0.5x 1.3x 0.6x 0.8x NAV/Share $12.0 $18.27 $5.9 $9.5 $13.3 Price/NAV 0.9x 0.7x 1.3x 0.6x 0.8x LQA EPS $1.88 $0.8 $1.28 $0.2 $1.92 Price/LQA EPS 5.5x 7.2x 5.9x 29.1x 5.8x Dividend Declared NA $0.125 $0.29 $0.2 $0.51 Implied Yield at Announcement Date NA 8.5% 15.3% 13.5% 18.3% Shares Outstanding(1) 10,021,111 8,000,746 25,135,986 4,063,155 6,492,737 ----------------- (1) Share counts based on diluted shares outstanding and assumes the conversion of Impac's Series B Cumulative Convertible Preferred Stock. (2) Impac does not disclose NAVIN 10-Q dated as of 3/31/00.
Appendix D Net Proceeds from Liquidation Liquidation Analysis--Summary Sensitivities We have analyzed the potential of the Company liquidating its assets and returning capital to the shareholders. The following assumptions have been made to develop these scenarios: 1. The Company would complete the process of having a plan of liquidation approved by the middle of Q1 2001. 2. All assets could be liquidated during 2001. 3. Fees would need to be paid to the Manager to market the assets, in lieu of incentive management fees. Our estimates, based on what Bear Stearns would charge, expressed as a percentage or fraction asset of values are as follows: Adjustable Rate CMBS 0.50% I/O Securities 2/32 to 4/32 USGI bond 5.00% Southern Pacific residual 5.00 CMO Class G and residual 5.00 Loans Held for Investment 3.00 4. In scenarios that result in an equity value of less than $7.13 per share, it has been assumed that Fortress would not convert its preferred position.
Average Backstop Discount Rate High Indication Case Indication Case Indication Case --------------- -------------------- --------------- --------------- 15.0% 7.44 7.26 6.72 17.5 7.17 6.79 6.41 20.0 6.86 6.48 6.10
Liquidation Analysis--Average Marks (US$ nominal) Sales Proceeds for the Quarter Ending ------------------------------------------------------------------------- Assets 12/31/00 03/31/01 06/30/01 09/30/01 12/31/01 ----------- -------- --------- -------- --------- --------- Gross Sales Proceeds - $124,542,312 - $2,627,833 22,827,289 Interest Income $5,915,151 5,839,930 $1,525,000 1,525,000 1,324,000 Interest Expense (1,695,392) (1,695,392) (38,743) (38,743) - Preferred Dividends - - - - - Ordinary course overhead(1) (133,000) (133,000) (133,000) (133,000) (133,000) Manager Allocation and Service Charge(2) (345,000) (345,000) (345,000) (345,000) (345,000) Submanager Allocation(3) (61,000) (61,000) (61,000) (61,000) (61,000) Corporate Liquidation Plan Costs(4) (500,000) - - - - Asset Sales Expenses(5) - - - (50,000) (200,000) Asset Sales Fees(6) - (840,021) - (131,392) (1,054,335) ------------ -------------- ----------- ----------- ------------ Cash Flow 3,180,758 $127,307,829 $947,257 $3,393,699 $22,357,954 Total Net Present Value $143,713,267 Less: Net Debt(7) 85,616,103 Number of Shares (diluted) 8,001,000 NPV per Share 7.26 Total Net Nominal Proceeds 71,571,394 Net Nominal Proceeds Per Share 8.95 --------------- (1) Corporate expenses related to maintaining Impac as a public company. Based on Impac projected annual expenses for 2001. (2) Based on current monthly Manager allocated overhead of $100,000, and a 15% service charge (per Agreement). (3) Third party expenses incurred by the Manager and billed to Impac. Based on 6/30/00 quarter numbers. (4) Estimate corporate/legal costs to approve plan of liquidation. (5) Estimated costs of $250,000 associated with illiquid assets to cover due diligence, legal and documentation costs. (6) Per Bear Stearns' Mortgage Trading estimates to sell assets, see summary for exact assumptions. (7) Net of projected cash held on the balance sheet as of 9/30/2000.
Liquidation Analysis--Lesser of Backstop or Low Marks (US$ nominal) Sales for the Quarter Ending ---------------------------------------------------------------------------- Assets 12/31/00 03/31/01 06/30/01 09/30/01 12/31/01 ------- -------- -------- -------- -------- --------- Gross Sales Proceeds - $124,308,604 - $1,942,000 $20,498,460 Interest Income $5,915,151 5,839,930 $1,525,000 1,525,000 1,324,000 Interest Expense (1,695,392) (1,695,392) (38,743) (38,743) - Preferred Dividends (255,000) (255,000) (255,000) (255,000) (255,000) Ordinary course overhead(1) (133,000) (133,000) (133,000) (133,000) (133,000) Manager Allocation and Service Charge(2) (345,000) (345,000) (345,000) (345,000) (345,000) Submanager Allocation(3) (61,000) (61,000) (61,000) (61,000) (61,000) Corporate Liquidation Plan Costs(4) (500,000) - - - - Asset Sales Expenses(5) - - - (50,000) (200,000) Asset Sales Fees(6) - (727,417) - (97,100) (937,870) ------------ ------------- ---------- ----------- ------------ Cash Flow $2,925,758 $126,931,725 $692,257 $2,487,157 $19,890,590 Total Net Present Value $140,054,783 Less: Net Debt(7)(8) 97,616,103 Number of Shares (diluted)(8) 6,317,000 NPV per Share 6.72 Total Net Nominal Proceeds 55,311,384 Net Nominal Proceeds Per Share 8.76 ----------------- (1) Corporate expenses related to maintaining Impac as a public company. Based on Impac projected annual expenses for 2001. (2) Based on current monthly Manager allocated overhead of $100,000, and a 15% service charge (per Agreement). (3) Third party expenses incurred by the Manager and billed to Impac. Based on 6/30/00 quarter numbers. (4) Estimate corporate/legal costs to approve plan of liquidation. (5) Estimated costs of $250,000 associated with illiquid assets to cover due diligence, legal and documentation costs. (6) Per Bear Stearns' Mortgage Trading estimates to sell assets, see summary for exact assumptions. (7) Net of projected cash held on the balance sheet as of 9/30/2000. (8) Because NAV per share is below $7.13 we assume that Fortress does not convert their convertible preferred interest. The $12 million is included in the net Debt calculation and dividends are included in cash flows.
Liquidation Analysis - High Marks (US$ nominal) Sales Proceeds for the Quarter Ending ------------------------------------------------------------------------------- Assets 12/31/00 03/31/01 06/30/01 09/30/01 12/31/01 ------- -------- -------- -------- -------- -------- Gross Sales Proceeds - $125,218,248 - $2,720,123 $23,587,571 Interest Income $5,915,151 5,839,930 $1,525,000 1,525,000 1,324,000 Interest Expense (1,695,392) (1,695,392) (38,743) (38,743) - Preferred Dividends - - - - - Ordinary course overhead(1) (133,000) (133,000) (133,000) (133,000) (133,000) Manager Allocation and Service Charge(2) (345,000) (345,000) (345,000) (345,000) Submanager Allocation(3) (61,000) (61,000) (61,000) (61,000) (61,000) Corporate Liquidation Plan Costs(4) (500,000) Asset Sales Expenses(5) - - (50,000) (200,000) Asset Sales Fees(6) - (733,980) _ (136,006) (1,092,325) ------------ ------------ ---------- ----------- ------------ Cash Flow $3,180,758 $128,089,806 $947,257 $3,481,374 $23,080,245 Total Net Present Value $145,116,265 Less: Net Debt(7) 85,616,103 Number of Shares (diluted) 8,001,000 NPV per Share 7.44 Total Net Nominal Proceeds: 73,163,338 Net Nominal Proceeds Per Share 9.14 (1) Corporate expenses related to maintaining Impac as a public company. Based on Impac projected annual expenses for 2001. (2) Based on current monthly Manager allocated overhead of $100,000, and a 15% service charge (per Agreement). (3) Third party expenses incurred by the Manager and billed to Impac. Based on 6/30/00 quarter numbers. (4) Estimate corporate/legal costs to approve plan of liquidation. (5) Estimated costs of $250,000 associated with illiquid assets to cover due diligence, legal and documentation costs. (6) Per Bear Steams' Mortgage Trading estimates to sell assets, see summary for exact assumptions. (7) Net of projected cash held on the balance sheet as of 9/30/2000.
Appendix E Comparable Mortgage REIT M&A and Liquidation Transactions
Selected Mortgage REIT M&A and Liquidation Transactions M&A Transactions Last Date Date Acquiror/Target Transaction Net LTM Quarter Announced Effective Description Equity FFO Annualized Value FFO --------------------------------------------------------------------------------------------------------------------------------- O2/09/00 05/15/00 Anthracite Acquisition Cash and Preferred Stock $71.1 $20.8 (1) NA Corp.AHR/CoreCap, Acquisition Inc. (private) 07/26/99 10/07/99 Ocwen Financial Corp. Cash Acquisition 95.8(2) (76.6)(3) (74.8) (OCN)/Ocwen Asset Investment Corp. (OAC) 07/22/99 03/28/00 Imperial Credit Cash Acquisition 329.9(5) 22.4(6) 40.3(7) Industries (ICU)/Imperial Credit Commercial Mortgage (ICMI) Mean 165.6 21.6(14) 40.3(14) --------------------------------------------------------------------------------------------------------------------------------- (Continuation of Chart) ($ in thousands except per share amounts) Acquisition Price -------------------------------------------------- Date 2000E 2001E Transaction 1999 LTM Last 2000E 2001E Announced EPS EPS Value/ EPS Quarter EPS EPS Book Value Annualized ---------- ------------------------------------------------------------------------------------------------- O2/09/00 NA NA 0.6x 2.4x 2.3x NA NA NA 07/26/99 0.6(4) NA 0.5 NA (1.4)(3) (3.9)(3) 9.2(4) NA 07/22/99 0.4(4) 0.9(4) 0.8 12.6(8) 14.7(6) 8.2(7) 30.5(4) 12.7(4) 0.5 0.9 0.6 7.5 8.5(14) 8.2(14) 19.85 12.7 --------------------------------------------------------------------------------------------------
LIQUIDATIONS ----------------------------------------------------------------------------------------------------------------------------- Date Date Acquiror Transaction Trading Expected Net LTM Last Announced Effective /Target Description Price(15) Liquidation Equity FFO Quarter Proceeds Value Annualized per Share(10) FFO ------------------------------------------------------------------------------------------------------------------------------- 08/23/00 09/26/OO(9) None/Amresco Liquidation $10.88 $12.85 $128.7(10) $10.1 $9.2 Capital Trust Plan (AMCT) 05/14/99 10/01/99(12) None/Chastain Liquidation 7.16 7.45 54.7(13) (47.0) (5.8) Capital Corp. Plan (CHAS) -------------------------------------------------------------------------------------------------------------------------- (Continuation of Chart) ------------------------------------------------------------------------------------------------------------------- Trading Price(15) ---------------------------------------------------- Date 2000E 2001E Trading Price/ 1999 LTM Last 2000E 20001E Announced EPS EPS Expected EPS Quarter EPS EPS Liquidation Annualized Proceeds(15) ------------- -------------------------------------------------------------------------------------------- 08/23/00 $1.6(11) NA 0.85x 7.7x(8) 10.8x 11.9x 6.8x(11) NA 05/14/99 NA NA 0.96 11.4(8) (1.1) (9.1) NA NA -------------------------------------------------------------------------------------------------------------------- (1) Because CoreCap a private company, quarterly data is unavailable and numbers shown reflect values for the period ending December 31, 1999. (2) Figure is based on the share price on the day before the announcement, July 25, 1999, $7.75 multiplied by the exchange ratio of 7.1 Net equity value is based on 18,965,000 shares outstanding as of June 30, 1999 less the 8% already owned by a subsidiary of OCN. (3) Includes $23.9 in losses during the second quarter of 1999 attributable, in varying degrees, to increased prepayment speeds on underlying mortgage loans, widening spreads on mortgage-related securities and declining market liquidity for mortgage-related securities. (4) Based on Zacks estimates as of August 25, 2000. (5) Net Equity Value based on 28,500,000 shares outstanding per 10-Q dated March 31, 1999 and a purchase price of $11.58 per share based on the Proxy statement dated February 18, 2000. (6) LTM figures based on numbers from June 30, 1998-June 30, 1999. (7) LQA figures based on the quarter ending June 30, 1999. (8) Based on First Call consensus estimate as of September 6, 2000. (9) Date of shareholder vote. (10) Figure is a nominal value and is the average of the range of aggregate distributions management expects shareholders to receive upon liquidation. (11) Based on I/B/E/S estimates as of August 25, 2000. (12) The date of the shareholder meeting at which the plan was approved. (13) Figure is the average of the range of aggregate distributions (nominal amount) management expects shareholders to receive upon liquidation as indicated in 8-K dated November 19, 1999. (14) Excludes Ocwen. (15) Reflects trading price per share on the day following the announcement of approval of liquidation plan for AMCT and nine days following the approval of the liquidation plan for CHAS.
Appendix F NAV Sensitivity Analysis Net Asset Value (NAV) Sensitivity Analysis We constructed a range of NAV's for the Company's common shares as follows: o Five indicative bid-side marks were provided by street dealers for each of the Company's CMBS assets as of June 30, 2000 o The "estimated market value" or NAV reported in the Company's June 30, 2000 10-Q reflects the average of the aforementioned dealer marks as of June 30, 2000 o High and low marks for each CMBS asset allowed us to construct a range of NABS o Obtained two additional indicative values for each CMBS asset from Bear Stearns' head CMBS trader based on current market conditions - Indicative bid-side valuation - Estimated level that he might be willing to bid as a principal ("Backstop Indication") o Rolled forward value of interest only (IO) CMBS to August 30, 2000 because IO securities have no principal amount and their values can change rapidly as the remaining length of the IO cash flow shortens o Cash balance, debt, other assets and liabilities are per September 30, 2000 Balance Sheet provided by Impac o Treated balance of non-recourse repo financings as floor value when indicated asset values were lower than related debt amounts o Not included in the NAV analysis is a guaranty entered into the Company for the ultimate payment of principal on the CMO class F bonds. The face amount of this tranche is approximately $18.3 million; the Company does not currently reserve for this, nor is a liability recorded for this contingency o The Company has approximately $17.5 million in federal NOL carry-forwards as of December 31, 1999 that can be used to reduce required dividend payments but have as cash benefit as the Company is not a taxpayer. We have not attributed any value to the NOL's in our NAV analysis since, as REIT, Impac is not a taxable entity. Thus the NOLs effect the Company's required distributions to maintain REIT status but not its earnings o The resulting range of implied NAV's is $7.85 to $8.81 per fully diluted common share before deducting any value attributable to the Management Agreement and $6.97 to $8.13 per fully diluted share after deducting the estimated value of the Management Agreement
Estimated Net Asset Value Balance Sheet as of September 30, 2000(1)(2)(3) ($ in thousands, except per share data) Lower of Low Mark or Average Mark Backstop Backstop (Reported NAV) High Mark Low Mark BSC Mark Indication Indication -------------- --------- -------- -------- ---------- ----------- ASSETS Cash and cash equivalents $9,333 $9,729 $9,729 $9,729 $9,729 $9,729 Commercial mortgage-backed securities: Fixed-rate CMBS 2,628 2,720 2,536 2,720 1,942 1,942 Adjustable-rate CMBS 122,731 123,342 121,465 123,095 122,467 121,465 Interest-only securities 3,028 2,777 2,529 2,841 2,636 2,529 Residual interest in securitization 4,093 4,286 3,901 3,956 1,978 1,978 ------- ------- ------- ------- ------- ------- 132,480 133,124 130,430 132,612 129,023 127,914 ------- ------- ------- ------- ------- ------- Loan receivables: CMO collateral 266,165 268,500 266,863 268,555 266,055 266,055 Loans held for investment 4,355 4,355 4,355 4,355 4,355 4,355 ------- ------- ------- ------- ------- ------- 270,520 272,855 271,218 272,910 270,410 270,410 ------- ------- ------- ------- ------- ------- Accrued interest receivable 2,490 2,490 2,490 2,490 2,490 2,490 Other assets 759 759 759 759 759 759 ------- ------- ------- ------- ------- ------- $415,582 $418,958 $414,626 $418,500 $412,411 $411,302 ======== ======== ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Collateralized mortgage obligations $251,887 $251,887 $251,887 $251,887 $251,887 $251,887 Borrowings under repurchase arrangements 95,401 95,511 95,511 95,511 95,511 95,511 Other liabilities 2,113 1,065 1,065 1,065 1,065 1,065 ------- ------- ------- ------- ------- ------- 349,401 348,463 348,463 348,463 348,463 348,463 ------- ------- ------- ------- ------- ------- Stockholders' equity: Preferred stock 5 5 5 5 5 5 Common stork 63 63 63 63 63 63 Paid-in capital 125,330 129,643 125,312 129,185 123,097 121,987 Net present value adjustment (27,603) (27,603) (27,603) (27,603) (27,603) (27,603) Accumulated deficit (31,614) (31,614) (31,614) (31,614) (31,614) (31,614) ------- ------- ------- ------- ------- ------- Net Shareholders' Equity 66,181 70,494 66,163 70,036 63,948 62,838 ------- ------- ------- ------- ------- ------- $415,582 $418,958 $414.626 $418,500 $412,411 $411,302 ======== ======== ======== ======== ======== ======== Number of shares at month end: Common 6,317 6,317 6,317 6,317 6,317 6,317 Diluted 8,001 8,001 8,001 8,001 8.001 8,001 Liquidation/redemption value of preferred shares $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 BV and NAV per common share: Basic $8.82 $9.26 $8.57 $9.19 $8.22 $8.05 Diluted 8.27 8.81 8.27 8.75 7.99 7.85 (1) All bid indications are based on factors as of 6/30/00 except for interest only securities which are based on factors as of 8/30/00. (2) Reflects bid indications and NAV variations only for Commercial Mortgage Backed Securities and CMO collateral. All other assets and liabilities stated at reported book value. (3) Reflects 9/30/2000 estimated Balance Sheet items for cash, accrued interest receivable, other assets and other liabilities.
Appendix G Projected Manager Income Statement
Projected Manager Income Statement ($ in thousands) Annualized ---------------------------------------------------------------------- Projected Projected Actual Actual Estimated FYE FYE Quarter Ending Quarter Ending Quarter Ending Projected December 31, December 31, March 31, 2000(1) June 30, 2000(1) September 30, 2000 Quarter Ending 2000 2000 -------------- ------------- ------------------ -------------- ------------ ------------ Base Management Fee: Manager Overhead(2) $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 Service Charge (15%)(3) 180 180 180 180 180 180 Incentive Fee(1) - 524 761 619 163 970 -------- -------- -------- -------- -------- -------- TOTAL REVENUES $1,380 $1,904 $2,141 $1,999 $1,543 $2,350 ======== ======== ======== ======== ======== ======== Operating costs(4) ($1,200) ($1,200) ($1,200) ($1,200) ($1,200) ($1,200) -------- -------- -------- -------- -------- -------- EBITDA $180 $704 $941 $799 $343 $1,150 ======== ======== ======== ======== ======== ======== Average EBITDA Six Months ending December 31, 2000 $870 (1) See detailed schedules on the following pages for supporting calculation of incentive fees. This calculation excludes effects of non-recurring expense items incurred by Impac during the 1st and 2nd quarters of 2000 on incentive fees. (2) Incentive fee is calculated using the pre-incentive fee income statement and management fee calculation table on the following pages. (3) Has not been charged by Manager to date, but Manager is entitled to charge under the management agreement, according to Special Committee's Counsel. (4) Operating costs of $1.2 million are based on allocations of total Fortress overhead to the management of Impac provided by the Manager.
Pre-Incentive Fee Projected Impac Income Statement Annualized --------------------------------------------------------------------------------------- Actual Estimated Projected Projected Projected Actual Projected Quarter Quarter Quarter Quarter For Year FYE FYE Ending Ending Ending Ending Ended Dec. 31, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, Dec. 31, 1999(1) 2001(1) 2000(2) 2000(2) 2000 2000 2000(1) ------- ------- --------- -------- --------- --------- --------- Interest income: Commercial mortgage securities: Fixed-rate $781 $791 $788 $764 $808 $804 $804 Adjustable-rate 385 9,755 4,028 11,036 11,996 11,960 13,760 Interest-only 1,141 721 952 692 648 592 592 Residual 1,083 702 508 784 764 752 752 Loan receivables: 0 0 0 0 0 CMO collateral 24,519 24,188 23,292 25,264 24,292 23,904 23,904 Premium amortization - - - - - Loans held for investment 2,476 (87) (316) (16) (16) - - 30,385 36,070 29,252 38,524 38,492 38,012 39,812 Cash equivalents and due from affiliates 826 894 1,272 852 652 800 800 ------ ------ ------ ------ ------ ------ ------- Total interest income 31,211 36,964 30,524 39,376 39,144 38,812 40,612 Interest expense: - - - - CMO borrowings 21,166 19,890 20,808 19,864 19,528 19,360 19,360 CMO bonds 18,318 18,014 18,172 18,224 17,936 17,724 17,724 Discount amortization 1,109 731 1,048 960 452 464 464 Amortization of issue costs 1,739 1,145 1,588 680 1,140 1,172 1,172 Reverse repurchase and warehouse - - - - - line agreements 1,332 5,502 1,620 6,512 6,952 6,924 7,974 ------ ------ ------ ------ ------ ------ ------ Total interest expense 22,498 25,392 22,428 26,376 26,480 26,284 27,334 Net interest income 8,713 11,572 8,096 13,000 12,664 12,528 13,278 Provision for loan losses - (984) - (1,348) (1,276) (1,312) (1,312) ------ ------ ------ ------- ------- ------- ------- Net interest income after provision for loan losses 8,713 10,588 8,096 11,652 11,388 11,216 11,966 Other revenue (expense): - - - - - Gain (loss) on sale of loans and real estate 691 (70) - - - - - Writedown of securities held for trading (5,114) - - - - - - Settlement of litigation (600) (490) - - - - - Rental and other income 1,507 48 12 164 8 8 8 General and administrative (8,882) (701) (828) (912) (701) (701) (532) Other expense: - - - - - Manager Allocation (1,566) (1,200) (1,200) (1,200) (1,200) (1,200) (1,200) Manager Service Charge (180) (180) (180) (180) (181) (180) (180) Submanager allocation (464) (239) (232) (244) (240) (240) (240) Management incentive fees - - - - - - - ------- ------- ------- ------- ------- ------- -------- Total other revenue (expense) (14,608) (2,652) (2,428) (2,372) (2,313) (2,313) (2,144) -------- ------- ------- ------- ------- ------- ------- Net earnings (5,895) 7,936 5,668 9,280 9,075 8,903 9,822 Net earnings available to common stockholders: Net earnings (5,895) 7,936 5,668 9,280 9,075 8,903 9,822 Less cash dividends on preferred stock (669) (1,020) (1,020) (1,020) (1,020) (1,020) (1,020) Net earnings available to common stockholders: (6,564) 6,916 4,648 8,260 8,055 7,883 8,802 (1) Source: Manager actual and projected quarterly and year end data. Annualized figures calculated using this data. (2) Figures exclude non-recurring litigation fees.
BACKUP OF INCENTIVE MANAGEMENT FEE CALCULATIONS Description: # of Days FYE 1999 1st Q 2000 2nd Q 2000 3rd Q 2000 Annualized Annualized Annualized --------------------------------------------- ---------- ---------------------------------------------------------- Total days in the period 90 TOTAL EQUITY Initial Capitalization of Company by IMH 15.00 15.00 15.00 15.00 Number of Shares 90 l,000,000 l,000,000 1,000,000 1,000,000 Stock Price IPO 15.00 15.00 15.00 15.00 Number of Shares 90 6,325,000 6.325,000 6,325,000 6,325,000 Purchase of ICCC from IMH 15.00 15.00 15.00 15.00 Number of Shares 90 95,000 95,000 95,000 95,000 Issuance of Founders Shares 0.01 0.01 0.01 0.01 Number of Shares 90 599,000 599,000 599,000 599,000 Stock Price- 15.31 15.31 15.31 15.31 Number of Shares 90 2,000,000 2,000,000 2,000,000 2,000,000 Stock Price- (15.00) (15.00) (15.00) (15.00) Number of Shares 90 1,394,000 1,394,000 1,394,000 1,394,000 Stock Price- (15.00) (15.00) (15.00) (15.00) Number of Shares 90 8,400 8,400 8,400 8,400 Stock Price- (15.00) (15.00) (15.00) (15.00) Number of Shares 90 8,400 8,400 8,400 8,400 Stock Price- (15.00) (15.00) (15.00) (15.00) Number of Shares 90 190,000 190,000 190,000 190,000 FICMI Preferred Stock offering 25.00 25.00 25.00 25.00 Number of Shares 90 479,999 479,999 479,999 479,999 May 19, 2000 Tender (15.00) (15.00) Number of Shares 42 2,100,123 2,100,123 ------------ -------------- Equity Outstanding 129,918,965 129,918,965 115,218,104 98,417,120 ---------------- -------------- ------------ -------------- RETAINED EARNINGS 12/98 RE per 10K (23,777,000) 12/99 RE per 10K (33,320,000) (33,320,000) 3/00 Annualized (32,881,100) (32,881,100) 6/00 Annualized - (27,780,139) (27,780,139) 9/00 Estimate - _ (22,884,177) 12/00 Estimate - - - 2000 Estimate - - - 2001 Estimate - - - Quarterly Average Retained Earnings (28,548,500) (33,100,550) (30,330,619) (25,332,158) ---------------- -------------- ------------ -------------- PRIOR PERIOD LOSSES 2,811,000 2,811,000 1997 Income per 10-K 2,811,000 2,811,000 (11,013,000) (11,013,000) 1998 Loss per l0-K (11,013,000) (11,013,000) (5,015,000) (5,015,000) 1999 Loss per 10-K (2,947,500) (5,015,000) 5,668,000 5,668,000 1st quarter annualized income - 2,834,0011 4,640,000 9,280,000 2nd quarter annualized income - - - 4,537,500 3rd quarter annualized income - - _ _ fourth quarter annualized income - - 2000 estimated income - 2001 income estimate - - - - ---------------- -------------- Prior Period Cumulative Income (Losses) (11,149,500) (10,383,000) (2,909,000) 6,268,500 AVERAGE NET WORTH A 112,519,965 107,201,415 87,796,485 73,084,962 ---------------- -------------- ------------ -------------- Net Income (before dividends) (5,895,000) 5,668,000 9,280,000 9,075,000 Adj for Taxable income: - Book to tax adjustments - - - ---------------- -------------- ------------ -------------- Taxable Net Income B (5,895,000) 5,668,000 9,280,000 9,075,000 --------------------------------------------------------------------------------------------------- --------------- Common Dividends 4,209,100 3,159,039 3,159,039 Preferred Dividends 669,000 1,020,000 1,020,000 1,020,000 Return on Equity (B / A X 4) C (5.24%) 5.29% 10.57% 12.42% Estimated from 3Q'00-'04 5.63% 6.47% 6.18% 6.25% Hurdle Rate 2.00 2.00 2.00 2.00 ---------------- -------------- ------------ UST Plus 2% D 7.63% 8.47% 8.18% 8.25% ---------------- -------------- ------------ -------------- Over (Under) Performance (12.87%) (3.18%) 2.39% 4.17% Base Return Net Income b4 bonus ((A x D) /4) E 8,585,273 9,075,853 7,185,630 6,029,509 Excess Net Income (B - E) F (14,480,273) (3,407,853) 2,094,370 3,045,491 ---------------- -------------- ------------ -------------- 25% of Excess Net Income (F x 25%) (3,620,068) (851,963) 523,592 761,373 ---------------- -------------- ------------ -------------- Manager Incentive Fee: - - 523,592 761,373 ---------------- ------------- ------------ -------------- (Continuation of Chart) Description: 4th Q 2000 2000 2001 Annualized --------------------------------------------- --------------------------------------------------- Total days in the period TOTAL EQUITY Initial Capitalization of Company by IMH 15.00 15.00 15.00 Number of Shares 1,000,000 1,000,000 l,000,000 Stock Price IPO 15.00 15.00 15.00 Number of Shares 6,325,000 6,325,000 6,325,000 Purchase of ICCC from IMH 15.00 15.00 15.00 Number of Shares 95,000 95,000 95,000 Issuance of Founders Shares 0.01 0.0l 0.01 Number of Shares 599,000 599,000 599,000 Stock Price- 15.31 15.31 15.31 Number of Shares 2,000,000 2,000,000 2,000,000 Stock Price- (15.00) (15.00) (15.00) Number of Shares 1,394,000 1,394,000 1,394,000 Stock Price- (15.00) (15.00) (15.00) Number of Shares 8,400 8,400 8,400 Stock Price- (15.00) (15.00) (15.00) Number of Shares 8,400 8,400 8,400 Stock Price- (15.00) (15.00) (15.00) Number of Shares 190,000 190,000 190,000 FICMI Preferred Stock offering 25.00 25.00 25.00 Number of Shares 479,999 479,999 479,999 May 19, 2000 Tender (15.00) (15.00) (15.00) Number of Shares 2,100,123 2,100,123 2,100,123 --------------- --------------- ---------------- Equity Outstanding 98,417,120 110,492,827 98,417,120 --------------- --------------- ---------------- RETAINED EARNINGS 12/98 RE per 10K 12/99 RE per 10K (33,320,000) 3/00 Annualized - 6/00 Annualized - - 9/00 Estimate (22,884,177) - 12/00 Estimate (18,160,216) - - 2000 Estimate - (29,563,039) (29,563,039) 2001 Estimate - - (23,920,077) ---------------- Quarterly Average Retained Earnings (20,522,196) (31,441,519) (26,741,558) --------------- --------------- ---------------- PRIOR PERIOD LOSSES 2,811,000 2,811,000 2,811,000 1997 Income per 10-K (11,013,000) (11,013,000) (11,013,000) 1998 Loss per l0-K (5,015,000) (5,015,000) (5,015,000) 1999 Loss per 10-K 5,668,000 - 1st quarter annualized income 9,280,000 2nd quarter annualized income 9,075,000 3rd quarter annualized income 4,451,500 - fourth quarter annualized income 3,968,000 7,936,000 2000 estimated income 4,911,000 2001 income estimate - Prior Period Cumulative Income (Losses) l5,257,500 (9,249,000) (370,000) AVERAGE NET WORTH 77,894,924 88,300,308 72,045,562 --------------- --------------- ---------------- Net Income (before dividends) 8,903,000 7,936,000 9,822,000 Adj for Taxable income: Book to tax adjustments - - - --------------- --------------- ---------------- Taxable Net Income 8,903,000 7,936,000 9,822,000 ----------------------------------------------- ---------------- --------------------------------- Common Dividends 3,159,039 3,159,039 3,159,039 Preferred Dividends 1,020,000 1,020,000 1,020,000 Return on Equity (B / A X 4) 11.43% 8.99% 13.63% Estimated from 3Q'00-'04 6.25% 6.25% 6.25% Hurdle Rate 2.00 2.00 2.00 UST Plus 2% 8.25% 8.25% 8.25% --------------- --------------- ---------------- Over (Under) Performance 3.18% 0.74% 5.38% Base Return Net Income b4 bonus ((A x D) /4) 6,426,331 7,284,775 5,943,759 Excess Net Income (B - E) 2,476,669 651,225 3,878,241 --------------- --------------- ---------------- 25% of Excess Net Income (F x 25%) 619,167 162,806 969,560 --------------- --------------- ---------------- Manager Incentive Fee: 619,167 162,806 969,560 -------------- --------------- ---------------- (1) Treasury Rate assumption based on the weekly average for year-to-date 2000 through August 18, 2000
APPENDIX H MANAGEMENT AGREEMENT DISCOUNTED CASH FLOWS IN A LIQUIDATION AND AS AN ONGOING ENTITY
---------------------------------------------------------------------------------------------------------------------------- CASE 1: LIQUIDATION DCF THROUGH EXPIRATION OF MANAGEMENT CONTRACT ($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS) --------------------------------------------------------------------------------------------------------------------------- Q4 2000 2001 2002 ----------- ---------- ---------- Overhead Allocation $300 $1,200 $1,200 Service Charge 45 180 180 Incentive Management Fees(1) 160 - _ Asset Sales Fees(2)(3) - 1,899 - ----------- ---------- ---------- Total Revenues $505 $3,279 $1,380 Operating Expenses(4) (300) (1,200) (1,200) Terminal Value _ _ _ ----------- ---------- ---------- Total Cash Flow $205 $2,079 $180 NPV of Cash Flow (2001-2002) $2,074 NPV of Revenue (2001-2002) $4,247 NPV of Cash Flow Sensitivity NPV of Revenue Sensitivity ------------------------------------------------- ------------------------------------------ Per Share Per Share ------------------------ ----------------------- Rate Value Basic Diluted Rate Value Basic Diluted ------------------------------------------------- ------------------ ----------------------- 15.0% 2,074 0.33 0.26 15.0% 4,247 0.67 0.53 20.0 1,970 0.31 0.25 20.0 4,007 0.63 0.50 ------------------------------------------------------------------------------------------------------------------------------- (1) Manager projections based on existing business and investment strategy. (2) Assuming shareholder vote to approve liquidation occurs on December 31, 2000. (3) See assumptions in Exhibit 1--"Asset-by-Asset" liquidation analysis. (4) Based on Manager's cost allocation estimates. --------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------- MANAGER VALUATION RANGES-CASE 2: NO CHANGES TO BUSINESS PLAN, FIVE YEAR DCF ($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS) ----------------------------------------------------------------------------------------------------------------- 2000 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 ------------------------------------------------------------------------------ Overhead Allocation $300 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 Service Charge 45 180 180 180 180 180 180 Operating Expenses(1) (300) (1200) (1200) (1200) (1200) (1200) (1200) Incentive Management Fees(2) 160 906 1,090 1,311 1,390 1,390 1,390 Asset Sales Fees - - _ _ - _ - Terminal Value"(3) - - - - - 8864 - ------- -------- ------- -------- ------- ------- ------- Total Cash Flow $205 $1,086 $1,270 $1,491 $1,570 $10,434 $1,570 NPV (2000-2005) $8,860 DISCOUNT RATE SENSITIVITY ------------------------------------------------------------- PER SHARE ------------------------------- RATE VALUE BASIC DILUTED ------------ -------------- -------------- --------------- 15.0 % 8,860 1.40 1.11 20.0 7,457 1.18 0.93 --------------------------------------------------------------------------------------------------------------- ----------------- (1) Based on Manager's cost allocation estimates. (2) Manager's projections based on existing business and investment strategy. (3) 3.2x 2006 revenue.
APPENDIX I COMPARABLE REIT MANAGER/ADVISOR M&A TRANSACTIONS
MANAGER/ADVISOR ACQUISITION TRANSACTION SURVEY Announcement Effective Date Date Acquirer Target Transaction Type ---- ---- -------- ------ ---------------- 11/99 06/00 Carey Diversified LLC WP Carey & Co. Stock acquisition of the manager 07/99 03/00 Imperial Credit Imperial Credit Commercial Imputed Value of manager in a cash Industries, Inc. Mortgage Investment Corp. acquisition of ICMI 06/99 11/99 Starwood Financial Starwood Financial Advisors Stock acquisition of manager in Trust conjunction with a stock acquisition of TriNet Corp. Realty 09/97 11/97 Asset Investors Corp. Financial Asset Mgt. LLC Stock acquisition of manager 09/97 09/97 Security Capital Security Capital Industrial, Stock acquisition of the manager Industrial Inc. (9)(10) 09/97 09/97 Security Capital Security Capital Pacific, Inc. Stock acquisition of the manager Pacific Trust (9)(10)(11) 09/97 09/97 Security Capital Security Capital Atlantic Stock acquisition of the manager Atlantic, Inc. (9)(10)(12) 09/97 09/97 AMB Property AMB Realty Advisors (17) Stock acquisition of the manager in Corporation conjunction with the acquiror's IPO 06/97 10/97 U.S. Restaurant QSV Properties (General Stock acquisition of manager Properties Master L.P. Partner) 05/97 01/98 Commercial Net Lease CNL Realty Advisors (14) Stock acquisition of the manager Realty 11/96 07/97 CWM Mortgage Holdings Countrywide Asset Management Stock acquisition of manager Inc. Corp. (15) (Continuation of Chart) Transaction Transaction Value/Equity Value/Book Manager Agreement Mkt. Cap @ Value @ Announcement Expiration/Renewal Date Transaction Transaction Transaction Date as of Announcement Date Value Date Date Transaction Value/ Equity Value ---- ----------------------- ----- ---- ---- ------------------ ------------ Revenue(1) EBITDA(1) FFO(1) Net Income ------- ------ --- --------- 11/99 12/31/00 $166.3(2) 38.9% (2) 32.2%(2) 5.0x(3) 9.9x(3) 9.9x(3) 9.4x (3) 07/99 10/22/99 33.1(4) 11.3 13.7 4.6 8.1 8.1 NA 06/99 11/01/03 101.5(5) 7.6 10.2 5.1(6) 6.8(6) 6.8 6.8 09/97 12/31/97 11.7(7) 12.2 13.4 3.7(8) 6.2(8) 8.4(8) NA(8) 09/97 12/01/97 81.9 4.0 5.1 2.2 9.5 11.3 11.4 09/97 03/01/98 75.8 4.2 6.0 2.6 13.6 15.7 16.2 09/97 12/31/97 54.6 5.4 7.8 3.0 9.0 9.5 9.5 09/97 Long-term 99.7 5.1 8.9 3.2 8.3 8.3 8.3 06/97 12/31/35 39.9(13) 18.0 36.7 NA 16.9 16.9 NA (Partnership Termination Date) 05/97 01/01/97 34.9 9.1 12.0 3.2 32.7 33.2 69.0 11/96 05/31/97 78.7(16) 7.2 16.8 6.7 6.7 6.7 11.0 -------- --- ---- --- --- --- ---- MEAN: $56.7(18) 7.3%(19) 10.6%(21) 3.4x(21) 8.7x(22) 9.4x(22) 9.4x(23) HARMONIC MEAN: 38.1(18) 6.3(19) 9.1(20) 3.2(21) 8.2(22) 8.8(22) 9.1(23) HARMONIC MEAN INCLUDING OUTLIERS: 43.7 2.7 2.5 3.5 9.3 9.9 10.9 (1) Calculations are based on annualized figures for the quarter ending prior to the announcement of the acquisitions. (2) Includes the $133 million initial transaction value plus an additional $33.25 million (two million additional shares) which will be issued over time if W.P. Carey meets certain benchmarks. This value is computed based on the share price of $16.625 at the record date. The target, which has total assets of approximately $95,317,000 million, provides advisory services to other entities in addition to Carey Diversified. (3) Based on annualized numbers from the quarter ending March 31, 2000 as reported in the proxy statement dated May 17, 2000. (4) Imputed value of the management contract calculated by multiplying the per share value of the contract, approximately $1.16 assigned by Eastdil the third appraiser engaged to value the merger, by the number of shares outstanding at the time of the transaction, approximately 28,500,000. (5) Based on TriNet share price as of date of merger announcement (June 16, 1999) divided by negotiated exchange ratio of 1.15. TriNet share price was used to value transaction as Starwood Financial Trust shares have limited float. (6) Revenues and EBITDA per Starwood-TriNet joint proxy statement "Question and Answer" section dated September 22, 1999. Per proxy, annualized revenues for the three months ended June 30, 1999 were approximately $20.0 million. Annualized advisor expenses for the six months ended June 30, 1999 were approximately $5.0 million. (7) Calculated using share price as of September 8, 1997, the last full day of trading preceding the announcement, and share count as reported in 10-Q as of June 30, 1997. (8) Multiples are based on annualized numbers for the six months ended June 30, 1997 and exclude a one time gain of $2,072,000 during that period. (9) Multiples are based on annualized numbers for Security Capital Industrial, Inc. for the three months ended March 31, 1997. FFO adds back only real estate depreciation of $5,000 while EBITDA contains $348,000. (10) In each transaction involving Security Capital, Security Capital calculated the projected REIT Advisory feed and property management fees, net of the operating costs that would have been received under existing agreements for the respective REIT's existing properties, remaining acquisitions budgeted for 1997 as well as the development properties scheduled to begin constructions prior to December 31, 1997. Security Capital then multiplied the 1999 net fee stream by a multiple of 9.0x to create a residual value and discounted the fee stream back to the present using an annual discount rate of 17.5%. The residual value estimate was based on 1999's net fee stream because that is the first year in which all budgeted properties under development or to be acquired were expected to be stabilized. (11) Multiples are based on annualized numbers for Security Capital Pacific, Inc. for the three months ended March 31, 1997. FFO adds back only real estate depreciation of $41,000 while EBITDA adds back $221,000 of depreciation. (12) Multiples are based on annualized numbers for Security Capital Pacific, Inc. for the three months ended March 31, 1997. FFO adds back only real estate depreciation of $0 while EBITDA adds back $71,000 of depreciation. (13) Calculated using the 850,000 bases shares issued plus the 550,000 additional shares to be issued over time as specific benchmarks are met, and the USV share price as of the announcement date. (14) Multiples are based on annualized numbers of CNL Advisors for the six months ended September 30,1997. As consideration for the merger, the Advisor stockholders will receive up to 2.2 million shares of common stock with a value of approximately $34.9 million. Ten percent of the total will be paid to the Advisor stockholders over time to the extent the company expands its operations after the merger for a period of up to five years. (15) Multiples based on the year end calculations as of February 28, 1997 found in merger proxy dated May 21, 1997. (16) Based on the closing price as of November 4, 1996, the last full day of trading before the announcement of the merger. (17) There is no earnout provision in the deal. (18) Values excludes Carey Diversified and Starwood Financial. (19) Values exclude Carey Diversified and U.S. Restaurant Properties. (20) Values exclude Carey Diversified and U.S. Restaurant Properties. (21) Values exclude Starwood Financial and CWM Mortgage Holdings. (22) Values exclude U.S. Restaurant Properties and Commercial Net Lease Realty. (23) Values exclude Security Capital Pacific Trust and Commercial Net Lease Realty.
APPENDIX J SUMMARY OF MANAGEMENT AGREEMENTS FOR SELECTED REITS
Summary of FIC Management Inc. Management Agreement Base Fee Intended to cover Manager expenses with a year-end "true-up" of actual costs to amounts paid. Manager currently allocates expenses of $100,000 per month. Service Charge 15% of direct expenses billed to Company by the manager. The Manager has not historically charged this service charge, but the Special Committee's Counsel advises that the Manager is entitled to Service Charges. Incentive Fee 25% of Net Income before incentive compensation or dividends paid in excess of hurdle. Incentive Fee Hurdle Return Return on Average Equity greater than average 10-Year Treasury Yield + 2.00% for the quarter. Term Five years; expires December 31, 2002 unless renewed with the approval of the unaffiliated directors. Renewal/Extension By mutual agreement, executed in writing, subject to the approval of the unaffiliated directors. Termination Fee For Cause: No compensation owed. Without Cause: Based on a comparative appraisal process. Exclusivity/Non-compete Manager may engage in other businesses or render services, including investment in, or advisory services to others investing in, any type of real estate investment, including investments which meet the principal investment objective of the Company.
Summary of Management Agreements for Selected REITs Company Management Fee Incentive Fee Other Fees Term ------- --------------- ------------- ---------- ---- Carey Diversified LLC Monthly management fee at an Incentive fee of 15% of Carey Management is paid One Year annual rate of 0.5% of the amount of the net proceeds acquisition fees of 2.5% total capitalization of received from the sale of of the purchase price Carey diversified, less one a property previously held of properties purchased half of the amount Carey by a CPA(R) Partnership in on behalf of Carey management receives from the excess of the appraised Diversified, paid at the partnership controlled by value of the equity time of acquisition, plus Carey Diversified for interest in that property 2% of the purchase price if property management or used for purposes of the certain performance goals leasing fees and Consolidation, less an are met, payable over eight distributions of cash from adjustment for the share years. In addition, they operations. This fee is paid of the net proceeds in also receive 15% of the in the form of cash or excess of the appraised amount of the net proceeds restricted shares of Carey value of the equity received from the sale of Diversified which vest interest attributable to a property previously held ratably over five years. Carey Management's by a CPA(R) Partnership in interest in the Shares of excess of the appraised Carey Diversified. value of the equity interest in that property used for purposes of the consolidation, less an adjustment for the share of the net proceeds in excess of the appraised value of the equity interest attributable to Carey Management's interest in Carey Diversified. Imperial Credit Management fee of 1% of the Incentive fee of 25% of Two Years Industries, Inc. first $1 billion of average return on investment in invested assets, 0.75% of excess of the 10-year next $250 million average Treasury plus 4%. invested assets, and .5% of average invested assets in excess of $1.25 billion. Starwood Financial Trust Quarterly base management Quarterly incentive fee of fee of 0.3125% (1.25% an amount equal to 5.0% of annually) of the book equity Starwood Financial's value of Starwood Financial. adjusted net income, payable only during those quarters in which the adjusted net income meets certain thresholds. Asset Investors Corp. Management Fee of 3/8% of Incentive fee of 20% of In addition, REIT One Year average 0 invested assets in return on investment in manager receives a fee addition to $3,500 per annum excess of the 10-year of 0.2% per year on administration fee per non- treasury plus 1%. the average daily agency MBS. balance of cash equivalent instruments. Security Capital REIT manager is reimbursed Fee of 16% of cash flow as One Year Industrial for third party and out-of- defined as cash flow from pocket expenses relating to operations plus fees paid travel, transaction costs, to REIT manager, and other costs relating to extraordinary items the acquisition, incurred at the request of development, or disposition the Independent Trustees of assets or the obtaining of SCI, 33% of any of financing for Atlantic interest paid by SCI on and its operations. convertible subordinated debentures, and after deducting actual or assumed regularly scheduled principal and interest payments for long-term debt and distributions paid with respect to non-convertible preferred shares of beneficial interest. Security Capital Pacific Base annual fee of $855,000. 16% of cash flow (as One Year Trust In addition, REIT manager is defined above for Security reimbursed for third party Capital Industrial) in and out-of-pocket expenses excess of $4,837,000 relating to travel, payable monthly in transaction costs, and other addition to a fee of 0.25% costs relating to the per year on the average acquisition, development, or daily balance of cash disposition of assets or the equivalent instruments. obtaining financing for Atlantic and its operations. Security Capital REIT manager is reimbursed Fee of 16% of cash flow as In addition, REIT One Year Atlantic for third party and out-of- defined as cash flow from manager receives a fee pocket expenses relating to operations plus fees paid of 0.2% per year on travel, transaction costs, to REIT manager, the average daily and other costs relating to extraordinary items balance of cash the acquisition, incurred at the request of equivalent development, or disposition the Independent Trustees instruments. of assets or the obtaining of SCI, 33% of any of financing for Atlantic interest paid by SCI on and its operations. convertible subordinated debentures, and after deducting actual or assumed regularly scheduled principal and interest payments for long-term debt and distributions paid with respect to non-convertible preferred shares of beneficial interest. Commercial Net Lease Expense reimbursement equal An annual fee based on FFO Acquisition fees for One Year Realty to one-half percent of the which is payable monthly the acquisition of new total contract price of each equal to (a) 7% of annual properties subject to acquisition, for costs FFO up to $10,000,000, (b) a commercial net lease incurred on behalf of the 6% of annual FFO in excess for the company's company in site selection of $10,000,000 but less portfolio in an amount and acquisition activities than $20,000,000, and (c) equal to one and of the advisor. 5% of annual FFO in excess one-half percent of of $20,000,000. the total contract price for each acquisition. Reimbursement fees equal to one-half percent of the total contract price of each acquisition, for costs incurred on behalf of the Company in site selection and acquisition activities of the advisor. CWM Mortgage Holdings, Management fee of 1/8% per Incentive compensation in One Year Inc. annum of average invested the amount of 25% of assets of CWM's mortgage annualized return on conduit and a warehouse equity during any fiscal lending management fee equal quarter in excess of the to 1/5% of the average daily 10-year Treasury plus 2%. balance of the outstanding amounts under CWM's warehouse lending facilities. In addition, the Company will reimburse CAMC for its operating expenses on a monthly basis is conditions are met.