-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JjyHQxGvdWSfr41/rc+hc8rl/dCSUxeEEFwpnptjAlD+LrjMgPBOy5toh2reku+i jV9ddkFIv9tcelJbixMUMw== 0000902595-99-000199.txt : 19990924 0000902595-99-000199.hdr.sgml : 19990924 ACCESSION NUMBER: 0000902595-99-000199 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19990923 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: IMPAC COMMERCIAL HOLDINGS INC CENTRAL INDEX KEY: 0001036615 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 330745075 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-51447 FILM NUMBER: 99715950 BUSINESS ADDRESS: STREET 1: 1301 AVENUE OF AMERICAS STREET 2: 42ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127986100 MAIL ADDRESS: STREET 1: 1301 AVENUE OF AMERICAS STREET 2: 42ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: IMH COMMERCIAL HOLDINGS INC DATE OF NAME CHANGE: 19970728 FORMER COMPANY: FORMER CONFORMED NAME: IMPERIAL CREDIT COMMERCIAL HOLDINGS INC DATE OF NAME CHANGE: 19970728 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: TCW GROUP INC CENTRAL INDEX KEY: 0000850401 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 865 SOUTH FIGUEROA ST CITY: LOS ANGELES STATE: CA ZIP: 90017 MAIL ADDRESS: STREET 2: 865 SOUTH FIGUEROA STREET CITY: LOS ANGELES STATE: CA ZIP: 90017 SC 13D/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________ SCHEDULE 13D (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (Amendment No. 2) Impac Commercial Holdings, Inc. (Name of Issuer) Common Stock $0.01 par value (Title of Class of Securities) 44968J 10 6 (CUSIP Number) Daniel K. Osborne Executive Vice President, Chief Operating Officer and Chief Financial Officer Apex Mortgage Capital, Inc. 865 South Figueroa Street, Suite, 1800 Los Angeles, California 90017 (213) 244-0000 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) September 17, 1999 (Date of Event Which Requires Filing of This Statement) If the filing person has previously filed a statement onSchedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ]. Note. Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent. (Continued on following pages) (Page 1 of 7 Pages) CUSIP No. 44968J 10 6 13D Page 2 of 7 Pages 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) Apex Mortgage Capital, Inc. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ x ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS* WC 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Maryland NUMBER OF 7 SOLE VOTING POWER 0 SHARES 8 SHARED VOTING POWER BENEFICIALLY 627,300 OWNED BY 9 SOLE DISPOSITIVE POWER 0 EACH REPORTING PERSON 10 SHARED DISPOSITIVE POWER WITH 627,300 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 627,300 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 7.5% 14 TYPE OF REPORTING PERSON* CO CUSIP No. 44968J 10 6 13D Page 3 of 7 Pages 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) The TCW Group, Inc. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ x ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS* Not applicable 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Nevada NUMBER OF 7 SOLE VOTING POWER 0 SHARES 8 SHARED VOTING POWER BENEFICIALLY 627,300 OWNED BY 9 SOLE DISPOSITIVE POWER 0 EACH REPORTING PERSON 10 SHARED DISPOSITIVE POWER WITH 627,300 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 627,300 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 7.5% 14 TYPE OF REPORTING PERSON* HC, CO CUSIP No. 44968J 10 6 13D Page 4 of 7 Pages 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) Robert A. Day 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ] (b)[ x ] 3 SEC USE ONLY 4 SOURCE OF FUNDS* Not applicable 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION USA NUMBER OF 7 SOLE VOTING POWER 627,300 SHARES 8 SHARED VOTING POWER BENEFICIALLY 0 OWNED BY 9 SOLE DISPOSITIVE POWER 627,300 EACH REPORTING PERSON 10 SHARED DISPOSITIVE POWER WITH 0 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 627,300 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 7.5% 14 TYPE OF REPORTING PERSON* IN, HC Page 5 of 7 AMENDMENT NO. 2 TO SCHEDULE 13D Reference is made to the Schedule 13D originally filed on September 7, 1999, as amended by Amendment No. 1 thereto filed on September 8, 1999, by Apex Mortgage Capital, Inc., a Maryland corporation ("AXM"), The TCW Group, Inc., a Nevada corporation ("TCWG"), and Robert A. Day, an individual (collectively, the "Reporting Persons"), with respect to the Common Stock, $.01 par value per share ("Common Stock"), of Impac Commercial Holdings, Inc. (the "Issuer"). ITEM 4. PURPOSE OF TRANSACTIONS On August 5, 1999, the Issuer announced an agreement to merge with and into AMRESCO Capital Trust ("AMCT"), an externally managed Texas real estate investment trust. In such merger, shareholders of the Issuer would receive 0.661 of a share of AMCT for each share of Common Stock (the "Merger Consideration"). AXM continues to believe that the Merger Consideration considerably undervalues the Common Stock to the disadvantage of the Issuer's shareholders. On September 7, 1999, by letter to the Board of Directors of the Issuer, AXM made a non-binding proposal for a tax-free merger of AXM and the Issuer in which 0.60328 shares of AXM's common stock would be exchanged for each share of Common Stock. On September 8, 1999, by Amendment No. 1 to the Schedule 13D originally filed on September 7, 1999, a copy of such letter was filed as Exhibit 2 to the Schedule 13D originally filed on September 7, 1999, and a copy of a press release disclosing the merger proposal and the letter was filed as Exhibit 3 to the Schedule 13D originally filed on September 7, 1999. AXM believes that the terms of its proposal are financially superior to those reflected in the proposed transaction with AMCT. Item 4 is amended to add the following: The Issuer and AXM have exchanged correspondence since the making of AXM's non-binding proposal. In such correspondence, the Issuer has requested certain additional information regarding AXM and its proposal, and AXM has supplied such additional information to the Issuer. Copies of such correspondence, consisting of a letter dated September 10, 1999 from the Issuer to AXM, a letter dated September 17, 1999 from AXM to the Issuer and a letter dated September 20, 1999 from AXM to the Issuer are filed herewith as Exhibits 4, 5 and 6, respectively. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS Item 7 is amended to add the following additional Exhibits: Exhibit 4 Letter dated September 10, 1999 from the Issuer to AXM Page 5 of 7 Exhibit 5 Letter dated September 17, 1999 from AXM to the Issuer Exhibit 6 Letter dated September 20, 1999 from AXM to the Issuer Page 6 of 7 SIGNATURES After reasonable inquiry and to the best of its knowledge and belief, each of the undersigned certifies that the information set forth in this Statement is true, complete and correct. September 23, 1999 APEX MORTGAGE CAPITAL, INC. By: /s/ Daniel K. Osborne --------------------------------- Name: Daniel K. Osborne Title: Executive Vice President, Chief Operating Officer and Chief Financial Officer THE TCW GROUP, INC. By: /s/ Michael E. Cahill --------------------------------- Name: Michael E. Cahill Title: Managing Director, General Counsel & Secretary ROBERT A. DAY By: /s/ Michael E. Cahill --------------------------------- Name: Michael E. Cahill Title: Authorized Signatory EX-4 2 LETTER FROM ISSUER TO AXM September 10, 1999 Philip A. Barach President and Chief Executive officer Apex Mortgage Capital, Inc. 865 South Figueroa Street, Suite 1800 Los Angeles, CA 90017 Daniel K. Osborne Executive Vice President and Chief Operating Officer Apex Mortgage Capital, Inc. 865 South Figueroa Street, Suite 1800 Los Angeles, CA 90017 Gentlemen: We have received your letter of September 7, 1999 regarding your proposal to acquire Impac Commercial Holdings, Inc. To enable us to analyze your proposal, please provide us with the following information: 1. A description of the current business plan of Apex, 2. A description of the proposed business plan for Impac if Apex were to acquire control of Impac, including the use of and investment in derivatives; 3. Monthly balance sheets for Apex from inception through August 1999, showing total assets and shareholder equity, in a manner that will enable us to assess periodic effective leverage levels of the company; 4. A description of Apex's borrowings, including the average terms, whether such borrowings are secured or unsecured and whether such borrowings are committed or uncommitted; 5. A total return calculation for an Apex shareholder, assuming the shareholder: (a) purchased 100 shares of Apex stock in the initial offering (that is, on December 4, 1997) at the initial offering price ($15 per share), (b) received all dividends paid through September 7, 1999, (c) reinvested those dividends at a 5% annual rate and (d) sold the stock on September 7, 1999 at the closing price for Apex shares on September 7, 1999 (that is, $11.75 per share); 6. Your proposed composition of the board of directors of the combined company is Apex were to acquire control of Impac, and 7. Your proposal regarding the management of the combined company if Apex were to acquire control of Impac. Finally, we note that (a) the merger agreement between AMRESCO Capital Trust and Impac provides for breakup fees and expenses of approximately $5.25 million and (b) if your proposal contemplates termination of the existing management agreement between Impac and Fortress, a termination payment to Fortress would be triggered. The management agreement was acquired by Fortress from previous management in May 1999 for $6 million and runs through 2002. Your response should address these issues. These questions are preliminary; we may have additional inquiries as we learn more about your proposal. Upon receipt and review of all requested information, including any additional information that we may request, we will respond to your proposal in due course. Sincerely, /s/ Wesley R. Edens Wesley R. Edens Chairman of the Board and Chief Executive Officer EX-5 3 LETTER FROM AXM TO ISSUER September 17, 1999 Special Committee of the Board of Directors Impac Commercial Holdings, Inc. 1401 Dove Street Newport Beach, California 92660 Attn: Mr. Joseph R. Tomkinson Gentlemen: We understand that a Special Committee of the Board of Directors of Impac Commercial Holdings, Inc. ("ICH") has been established to bring an independent perspective to ICH's consideration of our proposed merger transaction. We welcome this positive step for ICH's shareholders and we hope that the Committee will retain its own independent legal and financial advisors to better serve those shareholders. We also have received Mr. Edens' letter dated September 10, 1999 (a copy of which is attached) requesting additional information about Apex Mortgage Capital, Inc. ("AXM") and about our proposal. We are pleased to provide you with the enclosed materials that will inform you in some detail about AXM and about the superior value we have to offer to ICH's shareholders. These materials are responsive to the specific questions posed in Mr. Edens' letter as follows: Question #1 Exhibit One describes our overall business plan for AXM. Question #2 Exhibit Two describes our operating strategy and policies. We anticipate operating AXM in a similar manner upon an acquisition of ICH. The policies also describe our use of derivatives for the benefit of shareholders. Question #3 Exhibit Three summarizes the balance sheets of AXM since its initial public offering. This information will enable you to assess our periodic leverage levels. This information should be read in conjunction with the notes to such balances sheets in the applicable Form 10-K or 10-Q. Copies of all of our 10-Ks and 10- Qs are enclosed for your convenience. Question #4 Exhibit Three also summarizes the amount of borrowings since AXM's initial public offering. Further information regarding terms can be found in the notes to financial statements and the management's discussion and analysis sections of the applicable Form 10-K and 10-Q. Question #5 Exhibit Four shows the total return to AXM shareholders since the AXM initial public offering, since the Amresco Capital Trust ("AMCT") initial public offering and over the last twelve months in comparison to the comparable total return as applicable of AMCT, the Stifel Nicolaus Mortgage REIT universe and the companies in the NAREIT Mortgage REIT sector. This information clearly demonstrates our strong performance relative to our peers. Question #6 We plan to maintain our current board of directors after the acquisition of ICH. However, we are interested in learning more about the current ICH directors and may be willing to appoint additional directors to the AXM board if we find it beneficial to the shareholders. Question #7 We anticipate that after ICH is acquired, AXM would continue to be managed by TCW Investment Management Company pursuant to the existing management agreement. We have reviewed the AMCT acquisition agreement and the existing management agreement between ICH and Fortress and accordingly, are aware of the breakup fee, expense reimbursement and termination fee provisions of those agreements. We have already taken those provisions into account when formulating our initial offer for ICH. We are confident that they will not interfere with our ability to enter into and consummate a combination transaction with ICH. We believe that the information contained in these materials indicates the relative financial strength of our offer today. Our reported record since our initial public offering of stable or rising dividends in every quarter, continuous profitability and strong equity valuations in relation to our peers points to a promising future for AXM shareholders. We remind you that Sections 6.7 and 6.8 of the AMCT acquisition agreement permit you to negotiate with and make information available to us in connection with our "Superior Proposal." We want to sit down with you as soon as possible to begin negotiating definitive agreements and sharing information. We remain willing to enter into a customary confidentiality agreement in a mutually acceptable form. In that connection, we have taken the liberty of enclosing an executed confidentiality agreement in customary form, and we therefore look forward to the opportunity to commence our negotiations and diligence as soon as possible. We wish to re-emphasize our conviction that the transaction that we have proposed offers demonstrably superior immediate value, as well as greater long-term value, to ICH's shareholders as compared to the AMCT offer. Furthermore, it is possible that the results of our due diligence review may afford us the opportunity to increase our offer (if an increase is justified by the information made available to us). We urge you to help us realize for your shareholders the superior value we are offering. We continue to be excited by the prospect of moving forward with you on our proposed transaction. Please contact one of us as soon as possible so that we may begin the process in earnest. Very truly yours, Apex Mortgage Capital, Inc. By: /s/ Philip A. Barach ----------------------------- Name: Philip A. Barach Title: President and Chief Executive Officer By: /s/ Daniel K. Osborne --------------------------- Name: Daniel K. Osborne Title: Executive Vice President and Chief Operating Officer Enclosures Exhibit 1 Business Overview Apex Mortgage Capital, Inc. (the "Company" or "AXM") is a financial company that invests primarily in high credit quality mortgage related assets. The Company is structured as a real estate investment trust ("REIT") and as such is generally not subject to corporate income tax. Its principal business objective is to generate net income by earning a spread between the interest income on its mortgage related assets and the interest expense on its borrowings. Our mission is to create shareholder value through focused capital management. By focusing solely on capital management, we can recreate much of the functionality of more traditional financial institutions, such as savings and loans, without the high fixed cost structure, regulatory burden or double taxation. Management AXM is a relatively young company by many standards as 1998 was our first full year of operations. However, management has been together for many years prior to the Company's formation. AXM is managed by a subsidiary of The TCW Group, Inc. ("TCW"). TCW is one of the largest employee owned investment management firms in the United States, with over $50 billion under management including over $19 billion of mortgage assets. The Company's direct investment management team is comprised of seasoned professionals each with over twelve years experience raising and managing mortgage capital. AXM has elected to be externally managed in this way to take advantage of the existing operational systems, expertise and economies of scale associated with TCW's current business operations. Specialized Strategy The business of providing mortgage loans to homeowners can be broken down into three main functions, which are origination, servicing and capital management. Historically, all three functions were performed by traditional financial institutions such as savings and loans and banks. The management teams operating these institutions were required to have generalist skill sets to address the entire mortgage business as well as gathering customer deposits to fund their loans. In contrast, AXM is a specialist devoting all of its time and concentrated expertise to one mortgage function, capital management. This function, which generally consists of holding and funding mortgage related assets, is well suited for the Company. Structured as a REIT, AXM enjoys many advantages as a specialized holder of mortgage related assets. Investments are acquired in the secondary mortgage market without the high fixed cost associated with origination and servicing. The portfolio is funded through the capital markets as opposed to inefficient customer deposits. Income taxes and regulatory burdens are virtually eliminated. As specialists, AXM believes it has a clear advantage over generalist managers whose experience is based in traditional financial institutions and mortgage banking. Structural and management specialization are the key elements in our mission to create shareholder value. Exhibit 2 Operating Strategy To achieve its business objective and generate dividend yields that provide a competitive rate of return for its stockholders, the Company's strategy is to: * purchase primarily single-family adjustable and fixed rate Mortgage Related Assets; * manage the credit risk of its Mortgage Related Assets through, among other activities (i) carefully selecting Mortgage Related Assets to be acquired, (ii) complying with the Company's investment policy, (iii) actively monitoring the ongoing credit quality and servicing of its Mortgage Related Assets, and (iv) maintaining appropriate capital levels and allowances for possible credit losses; * finance purchases of Mortgage Related Assets with the net proceeds of equity offerings and, to the extent permitted by the Company's leverage policy, to utilize leverage to increase potential returns to stockholders through borrowings (primarily reverse repurchase agreements) with interest rates that will also reflect changes in short- term market interest rates; * seek to structure its borrowings in accordance with its interest rate risk management policy; * utilize interest rate caps, swaps and similar financial instruments to mitigate interest rate risks; and * seek to minimize prepayment risk primarily by structuring a diversified portfolio with a variety of prepayment characteristics. Operating Policies The Company has established the following four primary operating policies to implement its business strategy of acquiring assets consisting primarily of United States agency and other high rated single-family real estate mortgage securities and mortgage loans in order to generate dividend yields that provide a competitive rate of return for its stockholders. Certain capitalized and other terms used herein shall have the meanings assigned to them in the glossary found in the Company's December 31, 1998 Form 10-K. * Investment Policy * Leverage Policy * Interest Rate Risk Management Policy * REIT Compliance Policy Compliance with the policy guidelines is determined at the time of purchase of the Mortgage Related Assets (based on the most recent valuation used by the Company) and is not affected by events subsequent to such purchase. Such events include, without limitation, changes in characterization, value or rating of any specific Mortgage Related Assets or economic conditions or other events generally affecting any Mortgage Related Assets of the type held by the Company. Investment Policy The Company intends to acquire investments that it believes will maximize returns on capital invested, after considering (i) the amount and nature of the anticipated returns from the investment, (ii) the Company's ability to pledge the investment to secure collateralized borrowings, and (iii) the costs associated with financing, hedging, managing, securitizing and reserving for such investments. The Company generally expects to primarily invest in Mortgage Related Assets that may include Short-Term Investments, Mortgage-Backed Securities, High Credit Quality Mortgage Loans, Mortgage Derivative Securities and Other Investments. The Company's investment policy is intended to provide guidelines for the acquisition of its investments. Specifically, the investment policy states that the Company intends to acquire a portfolio of investments that can be segregated into specific categories. Each category and its respective investment limitations are as follows: 50% Category At least 50% of the Company's total assets are expected to consist of (i) Short-Term Investments, (ii) Mortgage- Backed Securities that are either issued or guaranteed by an agency of the U.S. government, (iii) Mortgage-Backed Securities that are rated AAA by at least one nationally recognized rating agency or (iv) High Credit Quality Mortgage Loans that are funded with Committed Secured Borrowings. 75% Category At least 75% of the Company's total assets are expected to consist of investments that qualify for the 50% Category or other Mortgage-Backed Securities that have received an investment grade rating by at least one nationally recognized rating agency. 90% Category At least 90% of the Company's total assets are expected to consist of investments that qualify for the 75% Category or High Credit Quality Mortgage Loans that are not funded by Committed Secured Borrowings. 10% Category Not more than 10% of the Company's total assets are expected to consist of (i) Mortgage-Backed Securities rated below investment grade, (ii) Mortgage Derivative Securities or (iii) Other Investments. Leverage Policy The Company generally anticipates utilizing leverage to increase returns to its shareholders. The Company's goal is to strike a balance between the under-utilization of leverage, which reduces potential returns to stockholders, and the over-utilization of leverage, which could reduce the Company's ability to meet its obligations during periods of adverse market conditions. The Company has established a leverage policy to control the type and amount of leverage used to fund the acquisition of its Mortgage Related Assets. The Company's leverage policy is intended to provide guidelines for utilizing secured borrowings in the form of Uncommitted Secured Borrowings and Committed Secured Borrowings. Uncommitted Secured Borrowings The Company expects a substantial portion of its borrowings may consist of Uncommitted Secured Borrowings including reverse repurchase agreements, lines of credit, Dollar-Roll Agreements, and other financing transactions. Such funding sources generally do not commit the lender to continue to provide financing to the Company. The Company intends to limit the amount of Uncommitted Secured Borrowings to 92% of its total assets, less any assets that are funded with Committed Secured Borrowings, plus the market value of any related hedging transactions. If the amount of such borrowings exceeds 92%, the Manager will be required to submit to the Company's Board of Directors a plan designed to bring the total amount of Uncommitted Secured Borrowings below the 92% limitation. It is anticipated that in many circumstances this goal will be achieved over time without active management through the natural process of mortgage principal repayments and increases in the market value of the Company's total assets. The Company anticipates that it will only enter into repurchase agreements and other financing transactions with counter-parties rated investment grade by a Rating Agency. Committed Secured Borrowings The Company's borrowings may consist of Committed Secured Borrowings, including the issuance of CMOs, structured commercial paper programs, secured term notes and other financing transactions. Such funding sources generally commit the lender to provide financing to the Company for a specified period of time or to provide financing to the Company to fund specific assets until they mature. The Company intends to limit the amount of Committed Secured Borrowings to 97% of the assets funded with such borrowings at the time any corresponding transaction is entered into. Interest Rate Risk Management Policy The Company has established an interest rate risk management policy that is intended to mitigate the negative impact of changing interest rates. The Company generally intends to mitigate interest rate risk by targeting the difference between the market weighted average duration on its Mortgage Related Assets funded with secured borrowings to the market weighted average duration of such borrowings to one year or less, taking into account all hedging transactions. The Company generally does not intend to have any specific duration target for the portion of its Mortgage Related Assets that are not funded by secured borrowings. There can be no assurance that the Company will be able to limit such duration differences and there may be periods of time when the duration difference will be greater than one year. The Company may implement its interest rate risk management policy by utilizing various hedging transactions, including interest rate swaps, interest rate swaptions, interest rate caps, interest rate floors, financial futures contracts, options on financial futures contracts, and other structured transactions. The Company does not intend to enter into such transactions for speculative purposes. REIT Compliance Policy The Company intends to operate its business in compliance with the REIT Provisions of the Code. Accordingly, all of the provisions outlined in the Company's investment, leverage and interest rate risk management policies are subordinate to the REIT Provisions of the Code if any conflicts arise. To qualify for tax treatment as a REIT, the Company must meet certain tests as fully described in sections 856 and 857 of the Code. A summary of the requirements for qualification as a REIT is described immediately below. Stock Ownership Tests. The capital stock of the Company must be held by at least 100 persons and no more than 50% of the value of such capital stock may be owned, directly or indirectly, by five or fewer individuals at all times during the last half of the taxable year. Tax-Exempt Entities, other than private foundations and certain unemployment compensation trusts, are generally not treated as individuals for these purposes. The stock ownership requirements must be satisfied in the Company's second taxable year and in each subsequent taxable year. Asset Tests. The Company must generally meet the following asset tests at the close of each quarter of each taxable year. At least 75% of the value of the Company's total assets must consist of Qualified REIT Real Estate Assets, U.S. Government securities, cash and cash items (the "75% Asset Test"). The value of securities held by the Company but not taken into account for purposes of the 75% Asset Test must not exceed (i) 5% of the value of the Company's total assets in the case of securities of any one non-government issuer, or (ii) 10% of the outstanding voting securities of any such issuer. Income Tests. The Company must generally meet certain gross income tests for each taxable year. At least 75% of the Company's gross income must be derived from certain specified real estate sources, including interest income and gain from the disposition of Qualified REIT Real Estate Assets or Qualified Temporary Investment Income (the "75% Gross Income Test"). At least 95% of the Company's gross income for each taxable year must be derived from sources of income qualifying for the 75% Gross Income Test, dividends, interest unrelated to real estate, and gains from the sale of stock or other securities (including certain interest rate swap and cap agreements entered into to hedge variable rate debt incurred to acquire Qualified REIT Real Estate Assets) not held for sale in the ordinary course of business (the "95% Gross Income Test"). Dividend Distribution Requirements. The Company must generally distribute to its stockholders an amount equal to at least 95% of the Company's taxable income before deductions of dividends paid and excluding net capital gains. The Company has until January 31 following the end of the fiscal year to pay the dividends out to shareholders and is permitted to offer a special dividend in order to meet the 95% requirement. Other Policies The Company intends to operate in a manner that will not subject it to regulation under the Investment Company Act. The Company does not currently intend to (i) originate Mortgage Loans or (ii) offer securities in exchange for real property. The Company will not purchase any Mortgage Related Assets from its Affiliates other than mortgage securities that may be purchased from a taxable subsidiary of the Company that may be formed in connection with the securitization of Mortgage Loans. Exhibit 3 Apex Mortgage Capital, Inc. Balance Sheets
Apex IPO December 30 December 31 March 31 June 30 1997 1997 1998 1998 Assets (Unaudited) (Audited) (Unaudited) (Unaudited) Cash and cash equivalents $ 92,918,000 $ 3,085,000 $ 5,157,000 $ 38,867,000 Fixed income securities available-for-sale, at fair value - 265,880,000 762,953,000 864,432,000 Equity securities available for-sale, at fair value - - - - Accrued interest receivable - 1,316,000 4,129,000 5,349,000 Hedging Assets - 174,000 242,000 113,000 Principal payments receivable - - 5,609,000 957,000 Receivable for unsettled securities - - - 56,593,000 Other assets - 852,000 804,000 752,000 ------------- ------------- ------------- ------------- $ 92,918,000 $ 271,307,000 $ 778,894,000 $ 967,063,000 ============= ============= ============= ============= Liabilities and Stockholders' Equity Liabilities Reverse repurchase agreements - $ 87,818,000 $ 597,282,000 $ 753,752,000 Payable for unsettled securities - 88,638,000 87,094,000 120,860,000 Accrued interest payable - 110,000 1,378,000 3,898,000 Dividend payable - 268,000 1,626,000 1,560,000 Accrued expenses and other liabilities - 1,476,000 539,000 1,133,000 ------------- ------------- ------------- ------------- - 178,310,000 687,919,000 881,203,000 ============= ============= ============= ============= Commitments and contingencies Stockholders' Equity Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized; no shares outstanding - - - - Common Stock, par value $0.01 per share; 100,000,000 shares authorized; 6,700,100 shares outstanding 67,000 67,000 67,000 67,000 Additional paid-in-capital 92,851,000 92,860,000 92,888,000 92,916,000 Accumulated other comprehensive income - 188,000 1,735,000 1,444,000 Accumulated dividend distributions in excess of net income - (118,000) (1,180,000) (2,131,000) Treasury stock, at cost - - (2,535,000) (6,436,000) ------------- ------------- ------------- ------------- 92,918,000 92,997,000 90,975,000 85,860,000 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 92,918,000 $ 271,307,000 $ 778,894,000 $ 967,063,000 ============= ============= ============= =============
Note: The notes to the balance sheet are an integral part of the information shown. The notes should be read in connection with any financial review. Please see the applicable Form 10-K or 10-Q for the notes to the financial statements. Exhibit #3 Continued On Next Page Exhibit#3 Apex Mortgage Capital, Inc. Balance Sheets
September 30 December 31 March 31 June 30 1998 1998 1999 1999 Assets (Unaudited) (Audited) (Unaudited) (Unaudited) Cash and cash equivalents $ 5,570,000 $ 12,679,000 $ 3,426,000 $ 11,029,000 Fixed income securities available-for-sale, at fair value 889,908,000 825,995,000 821,117,000 773,005,000 Equity securities available for-sale, at fair value 9,706,000 20,139,000 24,112,000 21,491,000 Accrued interest receivable 5,226,000 5,151,000 5,890,000 5,735,000 Hedging Assets - - - - Principal payments receivable 158,000 937,000 1,463,000 3,364,000 Receivable for unsettled securities - - 8,000 547,000 Other assets 652,000 577,000 459,000 798,000 ------------- ------------- ------------- ------------- $ 911,220,000 $ 865,478,000 $ 856,475,000 $ 815,969,000 ============= ============= ============= ============= Liabilities and Stockholders' Equity Liabilities Reverse repurchase agreements $ 811,680,000 $ 767,908,000 $ 765,018,000 $ 736,668,000 Payable for unsettled securities 140,000 838,000 187,000 - Accrued interest payable 3,124,000 6,173,000 2,160,000 2,683,000 Dividend payable 1,601,000 1,777,000 2,284,000 2,487,000 Accrued expenses and other liabilities 465,000 752,000 871,000 774,000 ------------- ------------- ------------- ------------- 817,010,000 777,448,000 770,520,000 742,612,000 ============= ============= ============= ============= Commitments and contingencies Stockholders' Equity Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized; no shares outstanding - - - - Common Stock, par value $0.01 per share; 100,000,000 shares authorized; 6,700,100 shares outstanding 67,000 67,000 67,000 67,000 Additional paid-in-capital 92,944,000 92,978,000 93,052,000 93,123,000 Accumulated other comprehensive income 12,047,000 6,689,000 3,828,000 (9,208,000) Accumulated dividend distributions in excess of net income (1,740,000) (1,135,000) (423,000) (56,000) Treasury stock, at cost (9,108,000) (10,569,000) (10,569,000) (10,569,000) ------------- ------------- ------------- ------------- 94,210,000 88,030,000 85,955,000 73,357,000 ------------- ------------- ------------- ------------- $ 911,220,000 $ 865,478,000 $ 856,475,000 $ 815,969,000 ============= ============= ============= =============
Note: The notes to the balance sheet are an integral part of the information shown. The notes should be read in connection with any financial review. Please see the applicable Form 10-K or 10-Q for the notes to the financial statements. Exhibit 4 Total Return: Apex IPO Date (12/4/97) to Present [Graph] Apex: 1.15% Stifel REIT Universe: (51.24%) 28 Companies in NAREIT Mortgage REIT Sector (35.27%) Total Return: Amresco IPO Date (5/7/98) to Present [Graph] Apex: 23.67% Amresco: (27.72%) Stifel REIT Universe: (52.16%) 28 Companies in NAREIT Mortgage REIT Sector (36.46%) Total Return: Latest Twelve Months [Graph] Apex: 58.51% Amresco: 9.90% Stifel REIT Universe: (24.21%) 28 Companies in NAREIT Mortgage REIT Sector (17.51%) Total Return Stifel 28 Companies in Apex Amresco REIT NAREIT Mortgage Universe REIT Sector Apex IPO Date - Present 1.15% N/A (51.24%) (35.27%) (12/4/97 - 9/15/99) Amresco IPO Date - Present 23.67% (27.72%) (52.16%) (36.46%) (5/7/98 - 9/15/99) Latest Twelve Month 58.51% 9.90% (24.21%) (17.51%) (9/15/98 - 9/15/99) __________ Total return amounts reflect return over the entire period, and have not been adjusted to reflect annual return. Footnotes to Total Return Data * The total return data includes dividends reinvested by the ex-date, and all indices used are market-weighted. * The component companies of the Stifel, Nicolaus Mortgage REIT Universe are as follows: American Residential Investment Trust Inc. INV Amresco Capital Trust AMCT Annaly Mortgage Management, Inc. NLY Anthracite Mortgage Capital Inc. AHR Anworth Mortgage Asset Corp. ANH Apex Mortgage Capital Inc. AXM Capstead Mortgage Corp. CMO Chastain Capital Corp. CHAS Clarion Commercial Holdings Inc. CLR CRIIMI MAE Inc. CMM Dynex Capital Inc. DX Hanover Capital Mortgage Holdings Inc. HCM Impac Commercial Holdings Inc. ICH Impac Mortgage Holdings Inc. IMH Imperial Credit Commercial Mortgage Inv. Corp. ICMI IndyMac Mortgage Holdings, Inc. NDE LASER Mortgage Management Inc. LMM Novastar Financial Inc. NFI Ocwen Asset Investment Corp. OAC Redwood Trust, Inc. RWT Resource Asset Investment Trust RAS Thornburg Mortgage Asset Corp. TMA Wilshire REIT, Inc. WREI * The component companies of the NAREIT Mortgage REIT Index are as follows: America First Mortgage Investments, Inc. MFA American Mortgage Acceptance Co. AMC American Residential Investment Trust Inc. INV Amresco Capital Trust AMCT Annaly Mortgage Management, Inc. NLY Anthracite Mortgage Capital Inc. AHR Anworth Mortgage Asset Corp. ANH Apex Mortgage Capital Inc. AXM Bando McGlockin Capital Corporation BMCC Capital Alliance Income Trust CAA Capstead Mortgage Corp. CMO Chastain Capital Corp. CHAS Clarion Commercial Holdings Inc. CLR CRIIMI MAE Inc. CMM Dynex Capital Inc. DX Hanover Capital Mortgage Holdings Inc. HCM Impac Commercial Holdings Inc. ICH Impac Mortgage Holdings Inc. IMH Imperial Credit Commercial Mortgage Inv. Corp. ICMI IndyMac Mortgage Holdings, Inc. NDE LASER Mortgage Management Inc. LMM Novastar Financial Inc. NFI Ocwen Asset Investment Corp. OAC Redwood Trust, Inc. RWT Resource Asset Investment Trust RAS Starwood Financial Trust APT Thornburg Mortgage Asset Corp. TMA Wilshire REIT, Inc. WREI Enclosure September 10, 1999 Philip A. Barach President and Chief Executive officer Apex Mortgage Capital, Inc. 865 South Figueroa Street, Suite 1800 Los Angeles, CA 90017 Daniel K. Osborne Executive Vice President and Chief Operating Officer Apex Mortgage Capital, Inc. 865 South Figueroa Street, Suite 1800 Los Angeles, CA 90017 Gentlemen: We have received your letter of September 7, 1999 regarding your proposal to acquire Impac Commercial Holdings, Inc. To enable us to analyze your proposal, please provide us with the following information: 1. A description of the current business plan of Apex, 2. A description of the proposed business plan for Impac if Apex were to acquire control of Impac, including the use of and investment in derivatives; 3. Monthly balance sheets for Apex from inception through August 1999, showing total assets and shareholder equity, in a manner that will enable us to assess periodic effective leverage levels of the company; 4. A description of Apex's borrowings, including the average terms, whether such borrowings are secured or unsecured and whether such borrowings are committed or uncommitted; 5. A total return calculation for an Apex shareholder, assuming the shareholder: (a) purchased 100 shares of Apex stock in the initial offering (that is, on December 4, 1997) at the initial offering price ($15 per share), (b) received all dividends paid through September 7, 1999, (c) reinvested those dividends at a 5% annual rate and (d) sold the stock on September 7, 1999 at the closing price for Apex shares on September 7, 1999 (that is, $11.75 per share); 6. Your proposed composition of the board of directors of the combined company is Apex were to acquire control of Impac, and 7. Your proposal regarding the management of the combined company if Apex were to acquire control of Impac. Finally, we note that (a) the merger agreement between AMRESCO Capital Trust and Impac provides for breakup fees and expenses of approximately $5.25 million and (b) if your proposal contemplates termination of the existing management agreement between Impac and Fortress, a termination payment to Fortress would be triggered. The management agreement was acquired by Fortress from previous management in May 1999 for $6 million and runs through 2002. Your response should address these issues. These questions are preliminary; we may have additional inquiries as we learn more about your proposal. Upon receipt and review of all requested information, including any additional information that we may request, we will respond to your proposal in due course. Sincerely, /s/ Wesley R. Edens Wesley R. Edens Chairman of the Board and Chief Executive Officer EX-6 4 LETTER FROM AXM TO ISSUER September 20, 1999 Mr. Wesley R. Edens, Chairman of the Board and Chief Executive Officer Impac Commercial Holdings, Inc. In Care of FIC Management, Inc. 1301 Avenue of the Americas New York, New York 10019 Dear Mr. Edens: We received your letter dated September 10, 1999 requesting additional information about Apex Mortgage Capital, Inc. ("AXM") and about our proposal. Enclosed for your information please find a copy of our responsive letter dated September 17, 1999 addressed to a Special Committee of your Board of Directors that we understood had been formed to consider our proposed merger transaction. Our letter and its enclosures will inform you in some detail about AXM and about the superior value we have to offer to Impac Commercial Holdings, Inc. ("ICH") shareholders. If a Special Committee in fact has not been formed, we urge you to do so immediately. Frankly, in light of the obvious conflicts of interest implicated by the proposed merger with Amresco Capital Trust (including the advisory fees that would be payable to Fortress Investment Group), we would have thought that you too would have favored the establishment of such an independent committee. We believe that ICH should be pursuing the best transaction for all of its shareholders, and we are confident that our proposed transaction offers demonstrably superior near- term and long-term value. We continue to be excited by the prospect of moving forward with you on our proposed transaction. Very truly yours, Apex Mortgage Capital, Inc. By: /s/ Daniel K. Osborne ---------------------------- Name: Daniel K. Osborne Title: Executive Vice President and Chief Operating Officer Enclosures Enclosure September 17, 1999 Special Committee of the Board of Directors Impac Commercial Holdings, Inc. 1401 Dove Street Newport Beach, California 92660 Attn: Mr. Joseph R. Tomkinson Gentlemen: We understand that a Special Committee of the Board of Directors of Impac Commercial Holdings, Inc. ("ICH") has been established to bring an independent perspective to ICH's consideration of our proposed merger transaction. We welcome this positive step for ICH's shareholders and we hope that the Committee will retain its own independent legal and financial advisors to better serve those shareholders. We also have received Mr. Edens' letter dated September 10, 1999 (a copy of which is attached) requesting additional information about Apex Mortgage Capital, Inc. ("AXM") and about our proposal. We are pleased to provide you with the enclosed materials that will inform you in some detail about AXM and about the superior value we have to offer to ICH's shareholders. These materials are responsive to the specific questions posed in Mr. Edens' letter as follows: Question #1 Exhibit One describes our overall business plan for AXM. Question #2 Exhibit Two describes our operating strategy and policies. We anticipate operating AXM in a similar manner upon an acquisition of ICH. The policies also describe our use of derivatives for the benefit of shareholders. Question #3 Exhibit Three summarizes the balance sheets of AXM since its initial public offering. This information will enable you to assess our periodic leverage levels. This information should be read in conjunction with the notes to such balances sheets in the applicable Form 10-K or 10-Q. Copies of all of our 10-Ks and 10- Qs are enclosed for your convenience. Question #4 Exhibit Three also summarizes the amount of borrowings since AXM's initial public offering. Further information regarding terms can be found in the notes to financial statements and the management's discussion and analysis sections of the applicable Form 10-K and 10-Q. Question #5 Exhibit Four shows the total return to AXM shareholders since the AXM initial public offering, since the Amresco Capital Trust ("AMCT") initial public offering and over the last twelve months in comparison to the comparable total return as applicable of AMCT, the Stifel Nicolaus Mortgage REIT universe and the companies in the NAREIT Mortgage REIT sector. This information clearly demonstrates our strong performance relative to our peers. Question #6 We plan to maintain our current board of directors after the acquisition of ICH. However, we are interested in learning more about the current ICH directors and may be willing to appoint additional directors to the AXM board if we find it beneficial to the shareholders. Question #7 We anticipate that after ICH is acquired, AXM would continue to be managed by TCW Investment Management Company pursuant to the existing management agreement. We have reviewed the AMCT acquisition agreement and the existing management agreement between ICH and Fortress and accordingly, are aware of the breakup fee, expense reimbursement and termination fee provisions of those agreements. We have already taken those provisions into account when formulating our initial offer for ICH. We are confident that they will not interfere with our ability to enter into and consummate a combination transaction with ICH. We believe that the information contained in these materials indicates the relative financial strength of our offer today. Our reported record since our initial public offering of stable or rising dividends in every quarter, continuous profitability and strong equity valuations in relation to our peers points to a promising future for AXM shareholders. We remind you that Sections 6.7 and 6.8 of the AMCT acquisition agreement permit you to negotiate with and make information available to us in connection with our "Superior Proposal." We want to sit down with you as soon as possible to begin negotiating definitive agreements and sharing information. We remain willing to enter into a customary confidentiality agreement in a mutually acceptable form. In that connection, we have taken the liberty of enclosing an executed confidentiality agreement in customary form, and we therefore look forward to the opportunity to commence our negotiations and diligence as soon as possible. We wish to re-emphasize our conviction that the transaction that we have proposed offers demonstrably superior immediate value, as well as greater long-term value, to ICH's shareholders as compared to the AMCT offer. Furthermore, it is possible that the results of our due diligence review may afford us the opportunity to increase our offer (if an increase is justified by the information made available to us). We urge you to help us realize for your shareholders the superior value we are offering. We continue to be excited by the prospect of moving forward with you on our proposed transaction. Please contact one of us as soon as possible so that we may begin the process in earnest. Very truly yours, Apex Mortgage Capital, Inc. By: /s/ Philip A. Barach ----------------------------- Name: Philip A. Barach Title: President and Chief Executive Officer By: /s/ Daniel K. Osborne ----------------------------- Name: Daniel K. Osborne Title: Executive Vice President and Chief Operating Officer Enclosures Exhibit 1 Business Overview Apex Mortgage Capital, Inc. (the "Company" or "AXM") is a financial company that invests primarily in high credit quality mortgage related assets. The Company is structured as a real estate investment trust ("REIT") and as such is generally not subject to corporate income tax. Its principal business objective is to generate net income by earning a spread between the interest income on its mortgage related assets and the interest expense on its borrowings. Our mission is to create shareholder value through focused capital management. By focusing solely on capital management, we can recreate much of the functionality of more traditional financial institutions, such as savings and loans, without the high fixed cost structure, regulatory burden or double taxation. Management AXM is a relatively young company by many standards as 1998 was our first full year of operations. However, management has been together for many years prior to the Company's formation. AXM is managed by a subsidiary of The TCW Group, Inc. ("TCW"). TCW is one of the largest employee owned investment management firms in the United States, with over $50 billion under management including over $19 billion of mortgage assets. The Company's direct investment management team is comprised of seasoned professionals each with over twelve years experience raising and managing mortgage capital. AXM has elected to be externally managed in this way to take advantage of the existing operational systems, expertise and economies of scale associated with TCW's current business operations. Specialized Strategy The business of providing mortgage loans to homeowners can be broken down into three main functions, which are origination, servicing and capital management. Historically, all three functions were performed by traditional financial institutions such as savings and loans and banks. The management teams operating these institutions were required to have generalist skill sets to address the entire mortgage business as well as gathering customer deposits to fund their loans. In contrast, AXM is a specialist devoting all of its time and concentrated expertise to one mortgage function, capital management. This function, which generally consists of holding and funding mortgage related assets, is well suited for the Company. Structured as a REIT, AXM enjoys many advantages as a specialized holder of mortgage related assets. Investments are acquired in the secondary mortgage market without the high fixed cost associated with origination and servicing. The portfolio is funded through the capital markets as opposed to inefficient customer deposits. Income taxes and regulatory burdens are virtually eliminated. As specialists, AXM believes it has a clear advantage over generalist managers whose experience is based in traditional financial institutions and mortgage banking. Structural and management specialization are the key elements in our mission to create shareholder value. Exhibit 2 Operating Strategy To achieve its business objective and generate dividend yields that provide a competitive rate of return for its stockholders, the Company's strategy is to: * purchase primarily single-family adjustable and fixed rate Mortgage Related Assets; * manage the credit risk of its Mortgage Related Assets through, among other activities (i) carefully selecting Mortgage Related Assets to be acquired, (ii) complying with the Company's investment policy, (iii) actively monitoring the ongoing credit quality and servicing of its Mortgage Related Assets, and (iv) maintaining appropriate capital levels and allowances for possible credit losses; * finance purchases of Mortgage Related Assets with the net proceeds of equity offerings and, to the extent permitted by the Company's leverage policy, to utilize leverage to increase potential returns to stockholders through borrowings (primarily reverse repurchase agreements) with interest rates that will also reflect changes in short- term market interest rates; * seek to structure its borrowings in accordance with its interest rate risk management policy; * utilize interest rate caps, swaps and similar financial instruments to mitigate interest rate risks; and * seek to minimize prepayment risk primarily by structuring a diversified portfolio with a variety of prepayment characteristics. Operating Policies The Company has established the following four primary operating policies to implement its business strategy of acquiring assets consisting primarily of United States agency and other high rated single-family real estate mortgage securities and mortgage loans in order to generate dividend yields that provide a competitive rate of return for its stockholders. Certain capitalized and other terms used herein shall have the meanings assigned to them in the glossary found in the Company's December 31, 1998 Form 10-K. * Investment Policy * Leverage Policy * Interest Rate Risk Management Policy * REIT Compliance Policy Compliance with the policy guidelines is determined at the time of purchase of the Mortgage Related Assets (based on the most recent valuation used by the Company) and is not affected by events subsequent to such purchase. Such events include, without limitation, changes in characterization, value or rating of any specific Mortgage Related Assets or economic conditions or other events generally affecting any Mortgage Related Assets of the type held by the Company. Investment Policy The Company intends to acquire investments that it believes will maximize returns on capital invested, after considering (i) the amount and nature of the anticipated returns from the investment, (ii) the Company's ability to pledge the investment to secure collateralized borrowings, and (iii) the costs associated with financing, hedging, managing, securitizing and reserving for such investments. The Company generally expects to primarily invest in Mortgage Related Assets that may include Short-Term Investments, Mortgage-Backed Securities, High Credit Quality Mortgage Loans, Mortgage Derivative Securities and Other Investments. The Company's investment policy is intended to provide guidelines for the acquisition of its investments. Specifically, the investment policy states that the Company intends to acquire a portfolio of investments that can be segregated into specific categories. Each category and its respective investment limitations are as follows: 50% Category At least 50% of the Company's total assets are expected to consist of (i) Short-Term Investments, (ii) Mortgage- Backed Securities that are either issued or guaranteed by an agency of the U.S. government, (iii) Mortgage-Backed Securities that are rated AAA by at least one nationally recognized rating agency or (iv) High Credit Quality Mortgage Loans that are funded with Committed Secured Borrowings. 75% Category At least 75% of the Company's total assets are expected to consist of investments that qualify for the 50% Category or other Mortgage-Backed Securities that have received an investment grade rating by at least one nationally recognized rating agency. 90% Category At least 90% of the Company's total assets are expected to consist of investments that qualify for the 75% Category or High Credit Quality Mortgage Loans that are not funded by Committed Secured Borrowings. 10% Category Not more than 10% of the Company's total assets are expected to consist of (i) Mortgage-Backed Securities rated below investment grade, (ii) Mortgage Derivative Securities or (iii) Other Investments. Leverage Policy The Company generally anticipates utilizing leverage to increase returns to its shareholders. The Company's goal is to strike a balance between the under-utilization of leverage, which reduces potential returns to stockholders, and the over-utilization of leverage, which could reduce the Company's ability to meet its obligations during periods of adverse market conditions. The Company has established a leverage policy to control the type and amount of leverage used to fund the acquisition of its Mortgage Related Assets. The Company's leverage policy is intended to provide guidelines for utilizing secured borrowings in the form of Uncommitted Secured Borrowings and Committed Secured Borrowings. Uncommitted Secured Borrowings The Company expects a substantial portion of its borrowings may consist of Uncommitted Secured Borrowings including reverse repurchase agreements, lines of credit, Dollar-Roll Agreements, and other financing transactions. Such funding sources generally do not commit the lender to continue to provide financing to the Company. The Company intends to limit the amount of Uncommitted Secured Borrowings to 92% of its total assets, less any assets that are funded with Committed Secured Borrowings, plus the market value of any related hedging transactions. If the amount of such borrowings exceeds 92%, the Manager will be required to submit to the Company's Board of Directors a plan designed to bring the total amount of Uncommitted Secured Borrowings below the 92% limitation. It is anticipated that in many circumstances this goal will be achieved over time without active management through the natural process of mortgage principal repayments and increases in the market value of the Company's total assets. The Company anticipates that it will only enter into repurchase agreements and other financing transactions with counter-parties rated investment grade by a Rating Agency. Committed Secured Borrowings The Company's borrowings may consist of Committed Secured Borrowings, including the issuance of CMOs, structured commercial paper programs, secured term notes and other financing transactions. Such funding sources generally commit the lender to provide financing to the Company for a specified period of time or to provide financing to the Company to fund specific assets until they mature. The Company intends to limit the amount of Committed Secured Borrowings to 97% of the assets funded with such borrowings at the time any corresponding transaction is entered into. Interest Rate Risk Management Policy The Company has established an interest rate risk management policy that is intended to mitigate the negative impact of changing interest rates. The Company generally intends to mitigate interest rate risk by targeting the difference between the market weighted average duration on its Mortgage Related Assets funded with secured borrowings to the market weighted average duration of such borrowings to one year or less, taking into account all hedging transactions. The Company generally does not intend to have any specific duration target for the portion of its Mortgage Related Assets that are not funded by secured borrowings. There can be no assurance that the Company will be able to limit such duration differences and there may be periods of time when the duration difference will be greater than one year. The Company may implement its interest rate risk management policy by utilizing various hedging transactions, including interest rate swaps, interest rate swaptions, interest rate caps, interest rate floors, financial futures contracts, options on financial futures contracts, and other structured transactions. The Company does not intend to enter into such transactions for speculative purposes. REIT Compliance Policy The Company intends to operate its business in compliance with the REIT Provisions of the Code. Accordingly, all of the provisions outlined in the Company's investment, leverage and interest rate risk management policies are subordinate to the REIT Provisions of the Code if any conflicts arise. To qualify for tax treatment as a REIT, the Company must meet certain tests as fully described in sections 856 and 857 of the Code. A summary of the requirements for qualification as a REIT is described immediately below. Stock Ownership Tests. The capital stock of the Company must be held by at least 100 persons and no more than 50% of the value of such capital stock may be owned, directly or indirectly, by five or fewer individuals at all times during the last half of the taxable year. Tax-Exempt Entities, other than private foundations and certain unemployment compensation trusts, are generally not treated as individuals for these purposes. The stock ownership requirements must be satisfied in the Company's second taxable year and in each subsequent taxable year. Asset Tests. The Company must generally meet the following asset tests at the close of each quarter of each taxable year. At least 75% of the value of the Company's total assets must consist of Qualified REIT Real Estate Assets, U.S. Government securities, cash and cash items (the "75% Asset Test"). The value of securities held by the Company but not taken into account for purposes of the 75% Asset Test must not exceed (i) 5% of the value of the Company's total assets in the case of securities of any one non-government issuer, or (ii) 10% of the outstanding voting securities of any such issuer. Income Tests. The Company must generally meet certain gross income tests for each taxable year. At least 75% of the Company's gross income must be derived from certain specified real estate sources, including interest income and gain from the disposition of Qualified REIT Real Estate Assets or Qualified Temporary Investment Income (the "75% Gross Income Test"). At least 95% of the Company's gross income for each taxable year must be derived from sources of income qualifying for the 75% Gross Income Test, dividends, interest unrelated to real estate, and gains from the sale of stock or other securities (including certain interest rate swap and cap agreements entered into to hedge variable rate debt incurred to acquire Qualified REIT Real Estate Assets) not held for sale in the ordinary course of business (the "95% Gross Income Test"). Dividend Distribution Requirements. The Company must generally distribute to its stockholders an amount equal to at least 95% of the Company's taxable income before deductions of dividends paid and excluding net capital gains. The Company has until January 31 following the end of the fiscal year to pay the dividends out to shareholders and is permitted to offer a special dividend in order to meet the 95% requirement. Other Policies The Company intends to operate in a manner that will not subject it to regulation under the Investment Company Act. The Company does not currently intend to (i) originate Mortgage Loans or (ii) offer securities in exchange for real property. The Company will not purchase any Mortgage Related Assets from its Affiliates other than mortgage securities that may be purchased from a taxable subsidiary of the Company that may be formed in connection with the securitization of Mortgage Loans. Exhibit 3 Apex Mortgage Capital, Inc. Balance Sheets
Apex IPO December 3 December 31 March 31 June 30 1997 1997 1998 1998 Assets (Unaudited) (Audited) (Unaudited) (Unaudited) Cash and cash equivalents $ 92,918,000 $ 3,085,000 $ 5,157,000 $ 38,867,000 Fixed income securities available-for-sale, at fair value - 265,880,000 762,953,000 864,432,000 Equity securities available for-sale, at fair value - - - - Accrued interest receivable - 1,316,000 4,129,000 5,349,000 Hedging Assets - 174,000 242,000 113,000 Principal payments receivable - - 5,609,000 957,000 Receivable for unsettled securities - - - 56,593,000 Other assets - 852,000 804,000 752,000 ------------- ------------- - ----------- ------------- $ 92,918,000 $ 271,307,000 $ 778,894,000 $ 967,063,000 ============= ============= ============= ============= Liabilities and Stockholders' Equity Liabilities Reverse repurchase agreements - $ 87,818,000 $ 597,282,000 $ 753,752,000 Payable for unsettled securities - 88,638,000 87,094,000 120,860,000 Accrued interest payable - 110,000 1,378,000 3,898,000 Dividend payable - 268,000 1,626,000 1,560,000 Accrued expenses and other liabilities - 1,476,000 539,000 1,133,000 ------------- ------------- ------------- ------------- - 178,310,000 687,919,000 881,203,000 ============= ============= ============= ============= Commitments and contingencies Stockholders' Equity Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized; no shares outstanding - - - - Common Stock, par value $0.01 per share; 100,000,000 shares authorized; 6,700,100 shares outstanding 67,000 67,000 67,000 67,000 Additional paid-in-capital 92,851,000 92,860,000 92,888,000 92,916,000 Accumulated other comprehensive income - 188,000 1,735,000 1,444,000 Accumulated dividend distributions in excess of net income - (118,000) (1,180,000) (2,131,000) Treasury stock, at cost - (2,535,000) (6,436,000) ------------- ------------- ------------- ------------- 92,918,000 92,997,000 90,975,000 85,860,000 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 92,918,000 $ 271,307,000 $778,894,000 $ 967,063,000 ============= ============= ============= =============
Note: The notes to the balance sheet are an integral part of the information shown. The notes should be read in connection with any financial review. Please see the applicable Form 10-K or 10-Q for the notes to the financial statements. Exhibit #3 Continued On Next Page Exhibit #3 Apex Mortgage Capital, Inc. Balance Sheets
September 30 December 31 March 31 June 30 1998 1998 1999 1999 Assets (Unaudited) (Audited) (Unaudited) (Unaudited) Cash and cash equivalents $ 5,570,000 $ 12,679,000 $ 3,426,000 $ 11,029,000 Fixed income securities available-for-sale, at fair value 889,908,000 825,995,000 821,117,000 773,005,000 Equity securities available for-sale, at fair value 9,706,000 20,139,000 24,112,000 21,491,000 Accrued interest receivable 5,226,000 5,151,000 5,890,000 5,735,000 Hedging Assets - - - - Principal payments receivable 158,000 937,000 1,463,000 3,364,000 Receivable for unsettled securities - - 8,000 547,000 Other assets 652,000 577,000 459,000 798,000 ------------- ------------- ------------- ------------- $ 911,220,000 $ 865,478,000 $ 856,475,000 $ 815,969,000 ============= ============= ============= ============= Liabilities and Stockholders' Equity Liabilities Reverse repurchase agreements $ 811,680,000 $ 767,908,000 $ 765,018,000 $ 736,668,000 Payable for unsettled securities 140,000 838,000 187,000 - Accrued interest payable 3,124,000 6,173,000 2,160,000 2,683,000 Dividend payable 1,601,000 1,777,000 2,284,000 2,487,000 Accrued expenses and other liabilities 465,000 752,000 871,000 774,000 ------------- ------------- ------------- ------------- 817,010,000 777,448,000 770,520,000 742,612,000 ============= ============= ============= ============= Commitments and contingencies Stockholders' Equity Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized; no shares outstanding - - - - Common Stock, par value $0.01 per share; 100,000,000 shares authorized; 6,700,100 shares outstanding 67,000 67,000 67,000 67,000 Additional paid-in-capital 92,944,000 92,978,000 93,052,000 93,123,000 Accumulated other comprehensive income 12,047,000 6,689,000 3,828,000 (9,208,000) Accumulated dividend distributions in excess of net income (1,740,000) (1,135,000) (423,000) (56,000) Treasury stock, at cost (9,108,000) (10,569,000) (10,569,000) (10,569,000) ------------- ------------- ------------- ------------- 94,210,000 88,030,000 85,955,000 73,357,000 ------------- ------------- ------------- ------------- $ 911,220,000 $ 865,478,000 $ 856,475,000 $ 815,969,000 ============= ============= ============= =============
Note: The notes to the balance sheet are an integral part of the information shown. The notes should be read in connection with any financial review. Please see the applicable Form 10-K or 10-Q for the notes to the financial statements. Exhibit 4 Total Return: Apex IPO Date (12/4/97) to Present [Graph] Apex: 1.15% Stifel REIT Universe: (51.24%) 28 Companies in NAREIT Mortgage REIT Sector (35.27%) Total Return: Amresco IPO Date (5/7/98) to Present [Graph] Apex: 23.67% Amresco: (27.72%) Stifel REIT Universe: (52.16%) 28 Companies in NAREIT Mortgage REIT Sector (36.46%) Total Return: Latest Twelve Months [Graph] Apex: 58.51% Amresco: 9.90% Stifel REIT Universe: (24.21%) 28 Companies in NAREIT Mortgage REIT Sector (17.51%) Total Return Stifel 28 Companies in Apex Amresco REIT NAREIT Mortgage Universe REIT Sector Apex IPO Date - Present 1.15% N/A (51.24%) (35.27%) (12/4/97 - 9/15/99) Amresco IPO Date - Present 23.67% (27.72%) (52.16%) (36.46%) (5/7/98 - 9/15/99) Latest Twelve Month 58.51% 9.90% (24.21%) (17.51%) (9/15/98 - 9/15/99) __________ Total return amounts reflect return over the entire period, and have not been adjusted to reflect annual return. Footnotes to Total Return Data * The total return data includes dividends reinvested by the ex-date, and all indices used are market-weighted. * The component companies of the Stifel, Nicolaus Mortgage REIT Universe are as follows: American Residential Investment Trust Inc. INV Amresco Capital Trust AMCT Annaly Mortgage Management, Inc. NLY Anthracite Mortgage Capital Inc. AHR Anworth Mortgage Asset Corp. ANH Apex Mortgage Capital Inc. AXM Capstead Mortgage Corp. CMO Chastain Capital Corp. CHAS Clarion Commercial Holdings Inc. CLR CRIIMI MAE Inc. CMM Dynex Capital Inc. DX Hanover Capital Mortgage Holdings Inc. HCM Impac Commercial Holdings Inc. ICH Impac Mortgage Holdings Inc. IMH Imperial Credit Commercial Mortgage Inv. Corp. ICMI IndyMac Mortgage Holdings, Inc. NDE LASER Mortgage Management Inc. LMM Novastar Financial Inc. NFI Ocwen Asset Investment Corp. OAC Redwood Trust, Inc. RWT Resource Asset Investment Trust RAS Thornburg Mortgage Asset Corp. TMA Wilshire REIT, Inc. WREI * The component companies of the NAREIT Mortgage REIT Index are as follows: America First Mortgage Investments, Inc. MFA American Mortgage Acceptance Co. AMC American Residential Investment Trust Inc. INV Amresco Capital Trust AMCT Annaly Mortgage Management, Inc. NLY Anthracite Mortgage Capital Inc. AHR Anworth Mortgage Asset Corp. ANH Apex Mortgage Capital Inc. AXM Bando McGlockin Capital Corporation BMCC Capital Alliance Income Trust CAA Capstead Mortgage Corp. CMO Chastain Capital Corp. CHAS Clarion Commercial Holdings Inc. CLR CRIIMI MAE Inc. CMM Dynex Capital Inc. DX Hanover Capital Mortgage Holdings Inc. HCM Impac Commercial Holdings Inc. ICH Impac Mortgage Holdings Inc. IMH Imperial Credit Commercial Mortgage Inv. Corp. ICMI IndyMac Mortgage Holdings, Inc. NDE LASER Mortgage Management Inc. LMM Novastar Financial Inc. NFI Ocwen Asset Investment Corp. OAC Redwood Trust, Inc. RWT Resource Asset Investment Trust RAS Starwood Financial Trust APT Thornburg Mortgage Asset Corp. TMA Wilshire REIT, Inc. WREI Enclosure September 10, 1999 Philip A. Barach President and Chief Executive officer Apex Mortgage Capital, Inc. 865 South Figueroa Street, Suite 1800 Los Angeles, CA 90017 Daniel K. Osborne Executive Vice President and Chief Operating Officer Apex Mortgage Capital, Inc. 865 South Figueroa Street, Suite 1800 Los Angeles, CA 90017 Gentlemen: We have received your letter of September 7, 1999 regarding your proposal to acquire Impac Commercial Holdings, Inc. To enable us to analyze your proposal, please provide us with the following information: 1. A description of the current business plan of Apex, 2. A description of the proposed business plan for Impac if Apex were to acquire control of Impac, including the use of and investment in derivatives; 3. Monthly balance sheets for Apex from inception through August 1999, showing total assets and shareholder equity, in a manner that will enable us to assess periodic effective leverage levels of the company; 4. A description of Apex's borrowings, including the average terms, whether such borrowings are secured or unsecured and whether such borrowings are committed or uncommitted; 5. A total return calculation for an Apex shareholder, assuming the shareholder: (a) purchased 100 shares of Apex stock in the initial offering (that is, on December 4, 1997) at the initial offering price ($15 per share), (b) received all dividends paid through September 7, 1999, (c) reinvested those dividends at a 5% annual rate and (d) sold the stock on September 7, 1999 at the closing price for Apex shares on September 7, 1999 (that is, $11.75 per share); 6. Your proposed composition of the board of directors of the combined company is Apex were to acquire control of Impac, and 7. Your proposal regarding the management of the combined company if Apex were to acquire control of Impac. Finally, we note that (a) the merger agreement between AMRESCO Capital Trust and Impac provides for breakup fees and expenses of approximately $5.25 million and (b) if your proposal contemplates termination of the existing management agreement between Impac and Fortress, a termination payment to Fortress would be triggered. The management agreement was acquired by Fortress from previous management in May 1999 for $6 million and runs through 2002. Your response should address these issues. These questions are preliminary; we may have additional inquiries as we learn more about your proposal. Upon receipt and review of all requested information, including any additional information that we may request, we will respond to your proposal in due course. Sincerely, /s/ Wesley R. Edens Wesley R. Edens Chairman of the Board and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----