<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
------------------
Commission file number 1-10360
-----------------
CRIIMI MAE INC.
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(Exact name of registrant as specified in charter)
Maryland 52-1622022
------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
----------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(301) 468-9200
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
-------------------------------- ----------------------------
Common Stock New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of class)
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of January 7, 1994, 19,943,789 shares of common stock, with an aggregate
market value of $219,381,679, were outstanding and held by nonaffiliates of the
Registrant on such date.
<TABLE>
<CAPTION>
DOCUMENTS INCORPORATED BY REFERENCE
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Form 10-K Parts Document
---------------- ---------
<S> <C>
I, II, III and IV 1993 Annual Report to Shareholders
III 1994 Notice of Annual Meeting of
Shareholders and Proxy Statement
</TABLE>
2
<PAGE>
CRIIMI MAE INC.
1993 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
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Page
----
<S> <C> <C>
Item 1. Business..................................... 5
Item 2. Properties................................... 5
Item 3. Legal Proceedings............................ 6
Item 4. Submission of Matters to a Vote of
Security Holders............................. 6
PART II
--------
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters.............. 6
Item 6. Selected Financial Data...................... 6
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................ 6
Item 8. Financial Statements and Supplementary Data.. 7
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....... 7
PART III
--------
Item 10. Directors and Executive Officers
of the Registrant........................... 7
Item 11. Executive Compensation...................... 8
Item 12. Security Ownership of Certain Beneficial
Owners and Management....................... 8
Item 13. Certain Relationships and Related
Transactions................................ 8
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PART IV
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Page
----
<S> <C> <C>
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K......................... 10
Signature................................................ 17
Cross Reference Sheet.................................... 19
Exhibit Index............................................ 21
</TABLE>
4
<PAGE>
PART I
ITEM 1. BUSINESS
Development and Description of Business
- ---------------------------------------
Information concerning the business of CRIIMI MAE Inc. (CRIIMI MAE) is
contained in Part II, Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, and in Notes 1, 5 and 14 of the notes to
the consolidated financial statements of CRIIMI MAE contained in Part IV (filed
in response to Item 8 hereof), which is incorporated herein by reference.
Employees
- ---------
CRIIMI MAE has no employees. Services are performed for CRIIMI MAE by
CRI Insured Mortgage Associates Adviser Limited Partnership (the Adviser) and
agents retained by it.
ITEM 2. PROPERTIES
CRIIMI MAE does not hold title to any real estate. CRIIMI MAE
indirectly holds interests in real estate through CRI Liquidating REIT, Inc.'s
(CRI Liquidating) equity investment in three Participating Mortgage
Investments. These investments were comprised of two components: 85% of the
original investment amount was a GNMA Mortgage-Backed Security; and 15% of the
original investment amount was an uninsured equity contribution to the limited
partnership (a Participation) which owns the underlying property. During 1993,
CRI Liquidating sold the GNMA Mortgage-Backed Securities, but retained its
Participations. The aggregate carrying value of these Participations
represents less than 1% of CRIIMI MAE's total consolidated assets as of
December 31, 1992 and 1993.
Although CRIIMI MAE does not own the related real estate, the
government insured and guaranteed mortgage investments (Government Insured
Multifamily Mortgages) in which CRIIMI MAE has invested are first or second
liens, or are collateralized by first or second liens, on the respective
residential apartment, nursing home or townhouse complexes.
5
<PAGE>
PART I
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 15 of the notes to the consolidated financial
statements on pages 134 through 135 of the 1993 Annual Report to Shareholders,
which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the security holders to be voted on
during the fourth quarter of 1993.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
(a), (b) and (c) The information required in these sections is
included in Selected Consolidated Financial Data on pages 22 through 26 of the
1993 Annual Report to Shareholders, which section is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to Selected Consolidated Financial Data on pages 22
through 26 of the 1993 Annual Report to Shareholders, which section is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 27 through 63 of the 1993 Annual
Report to Shareholders, which section is incorporated herein by reference.
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to pages 64 through 74 of the 1993 Annual Report to
Shareholders for the consolidated financial statements of CRIIMI MAE, which are
incorporated herein by reference. See also Item 14 of this report for
information concerning financial statements and financial statement schedules.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a), (b), (c) and (e)
The information required by Item 10 (a), (b), (c) and (e) with regard
to directors and executive officers of the registrant is incorporated
herein by reference to CRIIMI MAE's 1994 Notice of Annual Meeting of
Shareholders and Proxy Statement to be filed with the
6
<PAGE>
Securities and Exchange Commission no later than April 30, 1994.
(d) There is no family relationship between any of the directors and
executive officers.
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
Not applicable.
7
<PAGE>
PART III
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by
reference to CRIIMI MAE's 1994 Notice of Annual Meeting of Shareholders and
Proxy Statement to be filed with the Commission no later than April 30, 1994,
and Note 3 of the notes to the consolidated financial statements included in
the 1993 Annual Report to Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 is incorporated herein by
reference to CRIIMI MAE's 1994 Notice of Annual Meeting of Shareholders and
Proxy Statement to be filed with the Commission no later than April 30, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with management and others.
Of CRIIMI MAE's five officers, two are executive officers who serve
on CRIIMI MAE's Board of Directors. CRIIMI MAE's 1994 Notice of
Annual Meeting of Shareholders and Proxy Statement to be filed with
the Commission no later than April 30, 1994, and Note 3 of the notes
to the consolidated financial statements, included in the 1993 Annual
Report to Shareholders, which contain a discussion of the amounts,
fees and other compensation paid or accrued by CRIIMI MAE to the
directors and executive officers and their affiliates, are
incorporated herein by reference.
(b) Certain business relationships.
CRIIMI MAE has no business relationship with entities of which the
general and limited partners of the Adviser to CRIIMI MAE are
officers, directors or equity owners other than as set forth in
CRIIMI MAE's 1994 Notice of
8
<PAGE>
PART III
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Continued
Annual Meeting of Shareholders and Proxy Statement to be filed with
the Commission no later than April 30, 1994, which is incorporated
herein by reference.
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
9
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
1 and 2. Financial Statements and Financial Statement Schedules
The following financial statements are incorporated herein by
reference in Item 8 from the indicated pages of the 1993 Annual
Report to Shareholders:
<TABLE>
<CAPTION>
Page
Description Number(s)
- ----------- -------------
<S> <C>
Consolidated Balance Sheets as of December 31,
1992 and 1993 65 through 67
Consolidated Statements of Income for the years
ended December 31, 1991, 1992 and 1993 68 through 69
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1991, 1992 and 1993 70 through 71
Consolidated Statements of Cash Flows for the
years ended December 31, 1991, 1992 and 1993 72 through 74
Notes to Consolidated Financial Statements
which include the information required to be
included in Schedule XII - Mortgage Loans on
Real Estate and Schedule XII - Short Term
Borrowings 75 through 135
</TABLE>
The report of CRIIMI MAE's independent accountants with respect to the above
listed consolidated financial statements appears on page 64 of the 1993 Annual
Report to Shareholders.
10
<PAGE>
All other financial statements and financial statement schedules have been
omitted since the required information is included in the financial
statements or the notes thereto, or is not applicable or required.
(a) 3. Exhibits (listed according to the number assigned in the table in
Item 601 of Regulation S-K)
Exhibit No. 3 - Articles of incorporation and bylaws.
d. Articles of Incorporation of CRIIMI MAE Inc. (Incorporated by
reference from Exhibit 3(d) to the Quarterly Report on Form
10-Q for the quarter ended June 30, 1993).
e. Bylaws of CRIIMI MAE Inc. (Incorporated by reference from Exhibit
3(e) to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993).
f. Agreement and Articles of Merger between CRIIMI MAE Inc. and CRI
Insured Mortgage Association, Inc. as filed with the Office of
the Secretary of the State of Delaware (Incorporated by reference
from Exhibit 3(f) to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
g. Agreement and Articles of Merger between CRIIMI MAE Inc. and CRI
Insured Mortgage Association, Inc. as filed with the State
Department of Assessment and Taxation for the State of Maryland
(Incorporated by reference from Exhibit 3(g) to the Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993).
11
<PAGE>
Exhibit No. 4 - Instruments defining the rights of security holders,
including indentures.
a. $85,000,000 Credit Agreement, and the exhibits thereto, dated as
of October 23, 1991, between CRI Insured Mortgage Association,
Inc., Signet Bank/Virginia and Westpac Banking Corporation
(Incorporated by reference from Exhibit 4(g) to the Annual Report
on Form 10-K for 1991).
b. Collateral Pledge Agreement, and the exhibits thereto, dated as
of December 31, 1991, between CRI Insured Mortgage Association,
Inc., Signet Bank/Virginia, Westpac Banking Corporation and
Chemical Bank (Incorporated by reference from Exhibit 4(h) to the
Annual Report on Form 10-K for 1991).
c. Temporary Global Note, dated as of December 31, 1991, in the
aggregate amount of $19,190,625 issued by the registrant
(Incorporated by reference from Exhibit 4(i) to the Annual Report
on Form 10-K for 1991).
d. $100,000,000 Amended and Restated Credit Agreement, and the
exhibits thereto, dated as of October 23, 1991 and Amended
December 22, 1992, between CRI Insured Mortgage Association,
Inc., Signet Bank/Virginia and Westpac Banking Corporation
(Incorporated by reference from Exhibit 4(d) to the Annual Report
on Form 10-K for 1992).
12
<PAGE>
e. Amended and Restated Collateral Pledge Agreement, and the
exhibits thereto, dated as of December 31, 1991 and amended and
restated as of December 29, 1992, between CRI Insured Mortgage
Association, Inc. and Chemical Bank (Incorporated by reference
from Exhibit 4(e) to the Annual Report on Form 10-K for 1992).
f. Amended and Restated Letter of Credit and Reimbursement Agreement
and the exhibits thereto, dated as of February 9, 1993 between
CRI Funding Corporation, Canadian Imperial Bank of Commerce New
York Agency and National Australia Bank Limited, New York Branch
(Incorporated by reference from Exhibit 4(f) to the Annual Report
on Form 10-K for 1992).
g. Amended and Restated Guaranty, dated as of February 9, 1993
between CRI Insured Mortgage Association, Inc., Canadian Imperial
Bank of Commerce New York Agency and National Australia Bank
Limited, New York Branch (Incorporated by reference from Exhibit
4(g) to the Annual Report on Form 10-K for 1992).
h. Amended and Restated Loan Agreement and the exhibits thereto,
dated as of February 9, 1993 between CRI Insured Mortgage
Association, Inc. and CRI Funding Corporation (Incorporated by
reference from Exhibit 4(h) to the Annual Report on Form 10-K for
1992).
i. Second Amended and Restated Security Agreement and the exhibits
thereto, dated as of February 9, 1993 between CRI Insured
Mortgage Association, Inc., Canadian Imperial Bank of Commerce
New York Agency and Chemical Bank (Incorporated by reference from
Exhibit 4(i) to the Annual Report on Form 10-K for 1992).
j. Committed Master Repurchase Agreement between Nomura Securities
International, Inc. and CRI Insured Mortgage Association, Inc.
dated April 30, 1993 (Incorporated by reference from Exhibit 4(j)
to the Quarterly Report on Form 10-Q for the quarter ended June
30, 1993).
k. Committed Master Repurchase Agreement Governing Purchases and
Sales of Participation Certificates between Nomura Asset Capital
Corporation and CRI Insured Mortgage Association, Inc. dated
April 30, 1993 (Incorporated by reference from Exhibit 4(k) to
the Quarterly Report on Form 10-Q for the quarter ended June 30,
1993).
13
<PAGE>
l. Committed Master Repurchase Agreement between Nomura Securities
International, Inc. and CRIIMI MAE Inc. dated November 30, 1993
(filed herewith).
m. Committed Master Repurchase Agreement Governing Purchases and
Sales of Participation Certificates between Nomura Asset Capital
Corporation and CRIIMI MAE Inc. dated November 30, 1993 (filed
herewith).
n. Extension and Amendment Agreement between CRI Funding Corporation,
CRIIMI MAE Inc., Canadian Imperial Bank of Commerce New York
Agency, National Australia Bank Limited, New York Branch, and The
Fuji Bank, Ltd., New York Branch dated January 25, 1994 (filed
herewith).
o. Settlement Agreement between Alex J. Meloy, Trustee of the Harry
Meloy Family Trust and Alan J. Hunken, Trustee of the Alan J.
Hunken
14
<PAGE>
Retirement Plan, individually and in their capacities as
representatives of certain plaintiff classes in Alex J. Meloy, et
-----------------
al., v. CRI Liquidating REIT, Inc., et al., and (ii) CRI
-------------------------------------------
Liquidating REIT, Inc.; CRIIMI MAE Inc.; C.R.I., Inc.; William B.
Dockser; Martin C. Schwartzberg, and H. William Willoughby dated
September 24, 1993 (filed herewith).
Exhibit No. 10 - Material contracts.
a. Revised Form of Advisory Agreement. (Incorporated by reference
from Exhibit No. 10.2 to the Registration Statement).
Exhibit No. 13 - Annual Report to security holders, Form 10-Q or
Quarterly Report to security holders.
a. 1993 Annual Report to Shareholders.
Exhibit No. 21 - Subsidiaries of the registrant.
a. CRI Liquidating REIT, Inc., incorporated in the state of Maryland.
b. CRIIMI, Inc., incorporated in the state of Maryland.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1993.
(c) Exhibits
The list of Exhibits required by Item 601 of Regulation S-K is
included in Item (a)(3) above.
15
<PAGE>
(d) Financial Statement Schedules
See Item (a) 1 and 2 above.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CRIIMI MAE INC.
February 15, 1994 /s/ William B. Dockser
- --------------------- ------------------------------
DATE William B. Dockser
Chairman of the Board and
Principal Executive Officer
17
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
February 15, 1994 /s/ Elizabeth O. Flanagan
- --------------------- ---------------------------------
DATE Elizabeth O. Flanagan
Chief Financial Officer and
Principal Financial and
Accounting Officer
February 15, 1994 /s/ H. William Willoughby
- --------------------- ---------------------------------
DATE H. William Willoughby
Director, President and
Secretary
February 15, 1994 /s/ Jay R. Cohen
- --------------------- ---------------------------------
DATE Jay R. Cohen
Executive Vice President
and Treasurer
February 2, 1994 /s/ Frederick J. Burchill
- --------------------- ---------------------------------
DATE Frederick J. Burchill
Executive Vice President
February 2, 1994 /s/ Garrett G. Carlson, Sr.
- --------------------- ---------------------------------
DATE Garrett G. Carlson, Sr.
Director
February 10, 1994 /s/ G. Richard Dunnells
- --------------------- ---------------------------------
DATE G. Richard Dunnells
Director
February 15, 1994 /s/ Robert F. Tardio
- --------------------- ---------------------------------
DATE Robert F. Tardio
Director
18
<PAGE>
CROSS REFERENCE SHEET
The item numbers and captions in Parts I, II, III and IV hereof and the
page and/or pages in the referenced materials where the corresponding
information appears are as follows:
<TABLE>
<CAPTION>
Item Reference Materials Page
- -----------------------------------------------------------------------------
<S> <C> <C>
3. Legal Proceedings 1993 Annual Report 134 through 135
5. Market for the 1993 Annual Report 22 through 26
Registrant's
Common Stock and Related
Stockholder Matters
6. Selected Financial Data 1993 Annual Report 22 through 26
7. Management's Discussion 1993 Annual Report 27 through 63
and Analysis of Financial
Condition and Results of
Operations
8. Financial Statements, 1993 Annual Report 64 through 74
including Auditors'
Report, and Supplementary
Data
10. Directors and Executive 1994 Notice of Annual
Officers of the Meeting
Registrant of Shareholders and
Proxy
Statement
11. Executive Compensation 1993 Annual Report and 86 through 95
1994 Notice of Annual
Meeting
of Shareholders and
Proxy
Statement
12. Security Ownership of 1994 Notice of Annual
Certain Beneficial Owners Meeting of Shareholders
and Management and Proxy Statement
13. Certain Relationships and 1993 Annual Report and 86 through 95
Related Transactions 1994 Notice of Annual
Meeting of Shareholders
and Proxy Statement
</TABLE>
19
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Reference Materials Page
- -----------------------------------------------------------------------------
<S> <C> <C>
14. Exhibits, Financial 1993 Annual Report 64 through 135
Statement Schedules, and
Reports on Form 8-K
</TABLE>
20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
- ------- ------------
<S> <C> <C>
(4)(l) Committed Master Repurchase Agreement 1 through 29
(4)(m) Committed Master Repurchase Agreement Governing 1 through 37
Purchases and Sales of Participation Certificates
(4)(n) Extension and Amendment Agreement 1 through 7
(4)(o) Settlement Agreement 1 through 21
(13) 1993 Annual Report to Shareholders 22 through 151
(21) 1994 Notice of Annual Meeting of Shareholders
and Proxy Statement to be filed with the Securities
and Exchange Commission no later than April 30, 1994
</TABLE>
21
<PAGE>
CRIIMI MAE INC.
ANNUAL REPORT TO SHAREHOLDERS
22
<PAGE>
Selected Consolidated Financial Data
<TABLE>
<CAPTION>
For the years ended
December 31, 1989(a) 1990 1991 1992 1993
------- ------- ------- ------- ------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
TAX BASIS ACCOUNTING
Composition of dividends
per share
for income tax purposes:
Ordinary income $ 0.93 $ 0.82 $ 0.67 $ 0.75 $ 0.91
Capital gains 0.02 0.26 0.41 0.33 0.21
Non-taxable dividend 0.54 -- -- -- --
------- ------- ------- ------- -------
Total dividends per
share $ 1.49(b) $ 1.08 $ 1.08 $ 1.08 $ 1.12
======= ======= ======= ======= =======
Tax basis income $26,987 $22,276 $22,037 $21,626 $23,015
======= ======= ======= ======= =======
Tax basis income per share $ 1.31 $ 1.10 $ 1.09 $ 1.07 $ 1.14
======= ======= ======= ======= =======
ACCOUNTING UNDER GENERALLY
ACCEPTED ACCOUNTING
PRINCIPLES
Statement of Income Data:
Income:
Mortgage investment
income $40,008 $50,039 $49,323 $45,931 $50,270
Other income 2,647 4,991 4,995 4,771 6,180
------- ------- ------- ------- -------
Total income 42,655 55,030 54,318 50,702 56,450
------- ------- ------- ------- -------
Expenses:
Interest expense 1,136 22,346 25,791 24,392 28,008
Termination of
interest rate swap -- -- -- -- 4,890
Other operating
expenses 2,560 3,182 3,752 3,505 4,639
Fees to related party 1,839 2,544 2,325 2,238 2,715
Provision for
settlement of
litigation -- -- -- -- 1,500
------- ------- ------- ------- -------
Total expenses 5,535 28,072 31,868 30,135 41,752
------- ------- ------- ------- -------
</TABLE>
23
<PAGE>
CRIMIMI MAE INC.
Selected Consolidated Financial Data - Continued
<TABLE>
<CAPTION>
Years ended December 31, 1989(a) 1990 1991 1992 1993
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Income before mortgage dispositions,
gain on sale of shares of subsidiary,
loss on investment in limited
partnership, non- recurring merger
costs and minority interests 37,120 26,958 22,450 20,567 14,698
Net gains from mortgage dispositions 2,958 3,794 4,048 5,733 7,358
Gain on sale of shares of subsidiary -- -- -- -- 3,281
Loss on investment in limited
partnership -- -- -- (732) --
Non-recurring merger costs (9,561) -- -- -- --
Minority interests (10,977) (12,379) (10,855) (9,527) (9,580)
-------- -------- -------- ------- -------
Income before extraordinary loss 19,540 18,373 15,643 16,041 15,757
Extraordinary loss from extinguishment
of debt -- -- (6,642) -- --
-------- -------- -------- ------- -------
Net income $ 19,540 $ 18,373 $ 9,001(c) $16,041 $15,757
======== ======== ======== ======= =======
Net income per share $0.95 $0.91 $ 0.45(c) $0.79 $0.78
======== ======== ======== ======= =======
Weighted average shares outstanding 20,567 20,184 20,184 20,184 20,184
</TABLE>
24
<PAGE>
CRIIMI MAE INC.
Selected Consolidated Financial Data - Continued
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------
1989 1990 1991 1992 1993
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Investment in mortgages (excludes
mortgages held for disposition) $456,692 $546,448 $446,703 $448,319 $730,265(d)
Total assets 502,530 602,786 546,054 526,667 808,701
Total debt 139,426 264,605 245,555 247,968 479,045
Shareholders' equity 223,472 211,195 198,397 193,109 215,289(d)
</TABLE>
The selected consolidated statements of income data presented above for the
years ended December 31, 1991, 1992 and 1993, and the consolidated balance sheet
data as of December 31, 1992 and 1993, were derived from and are qualified by
reference to CRIIMI MAE's consolidated financial statements which have been
included elsewhere in this Annual Report to Shareholders. The consolidated
statements of income data for the years ended December 31, 1989 and 1990 and the
consolidated balance sheet data as of December 31, 1989, 1990 and 1991 were
derived from audited financial statements not included in this Annual Report to
Shareholders. This data should be read in conjunction with the consolidated
financial statements and the notes thereto.
(a) All financial information of CRIIMI MAE for the periods prior to
the Merger (defined below) on November 27, 1989 has been presented in a
manner similar to a pooling of interests, which effectively combines the
historical results of the CRIIMI Funds (defined below). The dividends and
net income per share amounts for the year ended December 31, 1989 have been
restated based upon the weighted average shares outstanding as if the
Merger had been consummated on January 1, 1989.
(b) This amount does not include the special dividend of $2.31 per
share paid to CRIIMI MAE shareholders of record on November 27, 1989.
(c) Includes recognition of an extraordinary loss of approximately
$6.6 million ($0.33 per share) resulting from the refinancing of certain
notes payable.
25
<PAGE>
CRIIMI MAE INC.
Selected Consolidated Financial Data - Continued
(d) Includes net unrealized gain on mortgage investments of CRI
Liquidating of approximately $29.0 million due to the implementation of
Statement of Financial Accounting Standard No. 115.
Market Data
- -----------
On November 28, 1989, CRIIMI MAE was listed on the New York Stock Exchange
(Symbol CMM). Prior to that date, there was no public market for CRIIMI MAE's
shares. As of December 31, 1992 and 1993, there were 20,183,533 shares held by
approximately 23,000 investors. The following table sets forth the high and low
closing sales prices and the dividends per share for CRIIMI MAE shares during
the periods indicated:
<TABLE>
<CAPTION>
1992
-------------------------------
Sales Price Dividends
Quarter Ended High Low per Share
------------- ----------- ------- ---------
<S> <C> <C> <C>
March 31, $ 9 1/2 $ 8 7/8 $ .27
June 30, 9 1/2 8 3/4 .27
September 30, 9 7/8 9 3/8 .27
December 31, 10 9 1/4 .27
------- ------- -----
$1.08
=====
<CAPTION>
1993
-------------------------------
Sales Price Dividends
Quarter Ended High Low per Share
------------- ----------- ------- ---------
March 31, $11 1/4 $ 9 7/8 $ .28
June 30, 11 5/8 10 3/4 .28
September 30, 12 3/8 11 1/4 .28
December 31, 12 5/8 11 .28
------- ------- -----
$1.12
=====
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Background
- ----------
CRIIMI MAE Inc. (CRIIMI MAE) (formerly CRI Insured Mortgage Association,
Inc.), an infinite-life, actively managed real estate investment trust (REIT),
is the largest REIT specializing in government insured and guaranteed mortgage
investments secured by multifamily housing complexes (Government Insured
Multifamily Mortgages) located throughout the United States. CRIIMI MAE's
principal objectives are to provide stable or growing quarterly cash
distributions to its shareholders while preserving and protecting its capital.
CRIIMI MAE seeks to achieve these objectives by investing primarily in
Government Insured Multifamily Mortgages using a combination of debt and equity
financing. CRIIMI MAE and its subsidiary, CRI Liquidating REIT, Inc. (CRI
Liquidating), are Maryland corporations.
CRIIMI MAE and CRI Liquidating were formed in 1989 to effect the merger
into CRI Liquidating (the Merger) of three federally insured mortgage funds
sponsored by C.R.I., Inc. (CRI), a Delaware corporation formed in 1974: CRI
Insured Mortgage Investments Limited Partnership (CRIIMI I); CRI Insured
Mortgage Investments II, Inc. (CRIIMI II); and CRI Insured Mortgage Investments
III Limited Partnership (CRIIMI III; and, together with CRIIMI I and CRIIMI II,
the CRIIMI Funds). The Merger was effected to provide certain potential
benefits to investors in the CRIIMI Funds, including the elimination of
unrelated business taxable income for certain tax-exempt investors, the
diversification of investments, the reduction of general overhead and
administrative costs as a percentage of assets and total income and the
simplification of tax reporting information. In the Merger, which was approved
by investors in each of the CRIIMI Funds and subsequently consummated on
November 27, 1989, investors in the CRIIMI Funds received, at their option,
shares of CRI Liquidating common stock or shares of CRIIMI MAE common stock.
Investors in the CRIIMI Funds that received shares of CRIIMI MAE common
stock became shareholders in an infinite-life, actively managed REIT having the
potential to increase the size of its portfolio and enhance the returns to its
shareholders. CRIIMI MAE shareholders retained their economic interests in the
assets of the CRIIMI Funds which were transferred to CRI Liquidating through the
issuance of one CRI Liquidating share to CRIIMI MAE for each
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
share of CRIIMI MAE common stock issued to investors in the Merger. Upon the
completion of the Merger, CRIIMI MAE held a total of 20,361,807 CRI Liquidating
shares, or approximately 67% of the issued and outstanding CRI Liquidating
shares.
Investors in the CRIIMI Funds that received shares of CRI Liquidating
common stock, as well as CRIIMI MAE, became shareholders in a finite-life,
self-liquidating REIT the assets of which consist primarily of Government
Insured Multifamily Mortgages and other assets formerly held by the CRIIMI
Funds. CRI Liquidating intends to hold, manage and dispose of its mortgage
investments in accordance with the objectives and policies of the CRIIMI Funds,
including disposing of any remaining mortgage investments by 1997 through an
orderly liquidation.
Pursuant to a Registration Rights Agreement dated November 28, 1989
between CRIIMI MAE and CRI Liquidating, CRIIMI MAE sold 3,162,500 of its CRI
Liquidating shares in an underwritten public offering which was consummated in
November 1993. As a result of such sale, CRIIMI MAE holds a total of 17,199,307
CRI Liquidating shares, or approximately 57% of CRI Liquidating's issued and
outstanding common stock. CRIIMI MAE used approximately $4.9 million of the
approximately $26.5 million in net proceeds to terminate a 9.23% interest rate
swap agreement on $25 million of CRIIMI MAE's existing indebtedness and used the
remaining net proceeds to purchase Government Insured Multifamily Mortgages.
CRIIMI MAE and CRI Liquidating are governed by a board of directors, a
majority of whom are independent directors with extensive industry related
experience. The Board of Directors of CRIIMI MAE and CRI Liquidating has
engaged CRI Insured Mortgage Associates Adviser Limited Partnership (the
Adviser) to act in the capacity of adviser to CRIIMI MAE and CRI Liquidating.
The Adviser's general partner is CRI and its operations are conducted by CRI's
employees. CRIIMI MAE's and CRI Liquidating's executive officers are senior
executive officers of CRI. The Adviser manages CRIIMI MAE's portfolio of
Government Insured Multifamily Mortgages and other assets with the goal of
maximizing CRIIMI MAE's value, and conducts CRIIMI MAE's day-to-day operations.
Under an advisory agreement between CRIIMI MAE and the Adviser, the Adviser and
its affiliates receive certain fees and expense reimbursements.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
CRIIMI MAE Investments
- ----------------------
CRIIMI MAE's investment policies, which are overseen by the CRIIMI MAE
Board of Directors, are intended to foster its objectives of providing stable or
growing quarterly cash distributions to its shareholders while preserving and
protecting its capital. CRIIMI MAE seeks to achieve these objectives by
investing primarily in Government Insured Multifamily Mortgages issued or sold
pursuant to programs sponsored by the Federal Housing Administration (FHA) and
the Government National Mortgage Association (GNMA). CRIIMI MAE's sources of
capital include borrowings, principal distributions received on its CRI
Liquidating shares, principal proceeds of CRIIMI MAE mortgage dispositions and
proceeds from equity offerings.
As of December 31, 1992 and 1993, CRIIMI MAE directly owned 60 and 126
Government Insured Multifamily Mortgages, respectively, which had a weighted
average effective interest rate of approximately 10.1% and 8.52%, a weighted
average remaining term of approximately 31 years and 34 years, and a tax basis
of approximately $226 million and $499 million, respectively.
As of December 31, 1992 and 1993, CRIIMI MAE indirectly owned through its
subsidiary, CRI Liquidating, 73 and 63 Government Insured Multifamily Mortgages,
respectively, which had a weighted average effective interest rate of
approximately 9.91% and 10.03%, a weighted average remaining term of
approximately 28 years and 27 years, and a tax basis of approximately $221
million and $173 million, respectively.
Thus, on a consolidated basis, as of December 31, 1992 and 1993, CRIIMI
MAE owned, directly or indirectly, 133 and 189 Government Insured Multifamily
Mortgages, respectively. These consolidated mortgage investments (including
Mortgages Held for Disposition) had a weighted average effective interest rate
of approximately 9.98%, a weighted average remaining term of approximately 29
years and a tax basis of approximately $447 million, as of December 31, 1992.
These amounts compare to a weighted average effective interest rate of
approximately 8.95%, a weighted average remaining term of approximately 32 years
and a tax basis of approximately $672 million, as of December 31, 1993. In
addition, as of December 31, 1993, CRIIMI MAE had committed
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
approximately $41 million for investment in Government Insured Multifamily
Mortgages or advances on FHA-Insured Loans (defined below) relating to the
construction or rehabilitation of multifamily housing projects, including
nursing homes and intermediate care facilities (Government Insured Construction
Mortgages), to be funded by borrowings under the Commercial Paper Facility and
the remaining funds available under the Master Repurchase Agreements, as defined
below in "Liquidity-Corporate Borrowings".
In connection with CRI Liquidating's business plan which calls for an
orderly liquidation of approximately 25% of its December 31, 1993 portfolio
balance each year through 1997, on February 10, 1994, CRI Liquidating sold
twelve Government Insured Multifamily Mortgages resulting in net sales proceeds
of approximately $48.7 million. As of the date of the sale, these twelve
Government Insured Multifamily Mortgages had a weighted average effective
interest rate of approximately 10.3%, a weighted average remaining term of
approximately 28 years and a tax basis of approximately $34 million. This sale
is expected to result in financial statement and tax basis gains of
approximately $11.7 million and $14.7 million, respectively.
As discussed below, CRIIMI MAE is permitted to make direct investments in
primarily two categories of Government Insured Multifamily Mortgages at, near,
or above par value (Near Par or Premium Mortgage Investments).
FHA-Insured Loans--The first category of Near Par or Premium Mortgage
Investments in which CRIIMI MAE is permitted to invest consists of Government
Insured Multifamily Mortgages insured by FHA pursuant to provisions of the
National Housing Act (FHA-Insured Loans). All of the FHA-Insured Loans in which
CRIIMI MAE invests are insured by HUD for effectively 99% of their current face
value. As part of its investment strategy, CRIIMI MAE also invests in
Government Insured Construction Mortgages which involve a two-tier financing
process in which a short-term loan covering construction costs is converted into
a permanent loan. CRIIMI MAE also becomes the holder of the permanent loan upon
conversion. The construction loan is funded in HUD-approved draws based upon the
progress of construction. The construction loans are GNMA-guaranteed or insured
by HUD. The construction loan generally
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
does not amortize during the construction period. Amortization begins upon
conversion of the construction loan into a permanent loan, which generally
occurs within a 24-month period from the initial endorsement by HUD.
Mortgage-Backed Securities--The second category of Near Par or Premium
Mortgage Investments in which CRIIMI MAE is permitted to invest consists of
federally guaranteed mortgage-backed securities or other securities backed by
Government Insured Multifamily Mortgages issued by entities other than GNMA
(Mortgage-Backed Securities) and Mortgage-Backed Securities 100% guaranteed as
to principal and interest by GNMA (GNMA Mortgage-Backed Securities). As of
December 31, 1993, all of CRIIMI MAE's mortgage investments in this category
were GNMA Mortgage-Backed Securities. The GNMA Mortgage-Backed Securities in
which CRIIMI MAE invests are backed by Government Insured Multifamily Mortgages
insured in whole by HUD, or insured by HUD and a coinsured lender under HUD
mortgage insurance programs and the coinsurance provisions of the National
Housing Act. The Mortgage-Backed Securities in which CRIIMI MAE is permitted to
invest, although none have been acquired as of December 31, 1993, are backed by
Government Insured Multifamily Mortgages which are insured in whole by HUD under
HUD mortgage insurance programs.
Generally, Government Insured Multifamily Mortgages which are purchased
near, at or above par value will result in a loss if the mortgage investment is
prepaid or assigned prior to maturity because the amortized cost of the mortgage
investment, including acquisition costs, is approximately the same as or
slightly higher than the insured amount of the mortgage investment. As of
December 31, 1993, substantially all of the mortgage investments owned directly
by CRIIMI MAE consisted of Government Insured Multifamily Mortgages that are
Near Par or Premium Mortgage Investments. Based on current interest rates, the
Adviser does not believe that the prepayment, assignment, or sale of any of
CRIIMI MAE's Government Insured Multifamily Mortgages would result in a material
financial statement or tax basis gain or loss.
CRI Liquidating Mortgage Investments--CRI Liquidating's mortgage
investments consist solely of the Government Insured Multifamily Mortgages it
acquired from the CRIIMI Funds in the Merger. The CRIIMI Funds invested
primarily in Government Insured
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Multifamily Mortgages issued or sold pursuant to programs of GNMA and FHA.
The majority of CRI Liquidating's mortgage investments were acquired by
the CRIIMI Funds at a discount to face value (Discount Mortgage Investments) on
the belief that based on economic, market, legal and other factors, such
Discount Mortgage Investments might be sold for cash, prepaid as a result of a
conversion to condominium housing or otherwise disposed of or refinanced in a
manner requiring prepayment or permitting other profitable disposition three to
twelve years after acquisition by the CRIIMI Funds. Based on current interest
rates, the Adviser expects that (i) the disposition of most of CRI Liquidating's
Government Insured Multifamily Mortgages will result in a gain on a financial
statement basis, and (ii) the disposition of any of CRI Liquidating's Government
Insured Multifamily Mortgages will not result in a material loss on a financial
statement basis and will result in a gain on a tax basis.
Other CRIIMI MAE Mortgage Investments--In addition to investing in
FHA-Insured Loans and GNMA-Mortgage Backed Securities, CRIIMI MAE's investment
policies also permit CRIIMI MAE to invest in Government Insured Multifamily
Mortgages which are not FHA-insured or GNMA-guaranteed (Other Insured Mortgages)
and in certain other mortgage investments which are not federally insured or
guaranteed (Other Multifamily Mortgages). Pursuant to CRIIMI MAE's policy, at
the time of their acquisition, Other Multifamily Mortgages must have an expected
yield of at least 150 basis points (1.5%) greater than the yield on Government
Insured Multifamily Mortgages which could be acquired in the then current market
and must meet certain other strict underwriting guidelines. The CRIIMI MAE Board
of Directors has adopted a policy limiting Other Multifamily Mortgages to 20% of
CRIIMI MAE's total consolidated assets. As of December 31, 1993, CRIIMI MAE had
not invested or committed to invest in any Other Insured Mortgages or Other
Multifamily Mortgages and CRIIMI MAE does not currently intend to invest in any
Other Multifamily Mortgages for at least twelve months after the filing date of
this report.
CRIIMI MAE is currently exploring opportunities in connection with the
sponsorship of securities offerings which involve the pooling of certain Other
Multifamily Mortgages to further enhance
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
potential returns to CRIIMI MAE shareholders. Such sponsorship may also include
the investment by CRIIMI MAE in the non-investment grade or unrated tranches of
mortgage pools having a high current yield. As of December 31, 1993, CRIIMI MAE
had not participated in the sponsorship of any such securities offerings. The
Adviser does not expect that investments of this nature will exceed 5% of CRIIMI
MAE's total consolidated assets for at least twelve months after the filing date
of this report.
Investment in Insured Mortgage Funds and Advisory Partnership--On
September 6, 1991, CRIIMI MAE, through its wholly owned subsidiary CRIIMI, Inc.,
acquired from Integrated Resources, Inc. all of the general partnership
interests in four publicly held limited partnerships known as the American
Insured Mortgage Investors Funds (the AIM Funds). The AIM Funds own mortgage
investments which are substantially similar to those owned by CRIIMI MAE and CRI
Liquidating. CRIIMI, Inc. receives the general partner's share of income, loss
and distributions (which ranges among the AIM Funds from 2.9% to 4.9%) from each
of the AIM Funds. In addition, CRIIMI MAE owns indirectly a limited partnership
interest in the adviser to the AIM Funds in respect of which CRIIMI MAE receives
a guaranteed return each year.
Acquisitions
- ------------
During 1993, CRIIMI MAE directly acquired 61 Government Insured
Multifamily Mortgages with an aggregate purchase price of approximately $284
million at purchase prices ranging from $0.5 million to $30.8 million, with a
weighted average effective interest rate of approximately 7.56% and a weighted
average remaining term of approximately 33.4 years. In addition, during 1993,
CRIIMI MAE funded advances of approximately $29 million on Government Insured
Construction Mortgages with a weighted average effective interest rate of
approximately 8.73%. As of December 31, 1993, CRIIMI MAE had committed to
acquire additional Government Insured Multifamily Mortgages and to make
additional advances on and/or acquire Government Insured Construction Mortgages,
totalling approximately $41 million.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
During 1993, CRIIMI MAE, and, during each of 1992 and 1993, CRI
Liquidating entered into transactions in which mortgage-backed and other
government agency securities were purchased. These transactions provided CRIIMI
MAE with above average returns compared to its other short-term investments
while maintaining the high quality of its assets and assisted in maintaining CRI
Liquidating's REIT status. Some of these purchases were financed with
borrowings which were nonrecourse and fully secured with the purchased
mortgage-backed and other government agency securities. As of December 31, 1993,
CRIIMI MAE and as of December 31, 1992 and 1993, CRI Liquidating had disposed of
the mortgage-backed and other government agency securities acquired in such year
and repaid the related debt.
Dispositions
- ------------
Dispositions result from prepayments of, defaults on and sales of
Government Insured Multifamily Mortgages. Decreases in market interest rates
could result in the prepayment of certain mortgage investments. CRIIMI MAE
believes, however, that declining interest rates result in increased prepayments
of single-family mortgages to a greater extent than mortgages on multifamily
properties. This is partially due to lockouts (i.e. prepayment prohibitions),
prepayment penalties or difficulties in obtaining refinancing for multifamily
dwellings. However, because of the current low interest rates and HUD's current
strategy of encouraging mortgagors to refinance high interest rate loans, CRIIMI
MAE may experience increased prepayment levels as compared to prior years.
Decreases in occupancy levels, rental rates or value of any property
underlying a mortgage investment may result in the mortgagor being unable or
unwilling to make required payments on the mortgage and thereby defaulting. The
proceeds from the assignment (following a default) or prepayment of a Discount
Mortgage Investment are expected to exceed the amortized cost of the investment.
The proceeds from the assignment or prepayment of a Near Par or Premium Mortgage
Investment may be slightly less than, the same as, or slightly more than, the
amortized cost of the investment. The proceeds from the sale of any mortgage
investment, whether a Discount Mortgage Investment or a Near Par or Premium
Mortgage Investment may be slightly less than, the same
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
as, or more than the amortized cost of the investment depending on interest
rates at the time of sale.
On an amortized cost and tax basis, substantially all of CRIIMI MAE's
mortgages are Near Par or Premium Mortgage Investments. Therefore, the proceeds
from a default or prepayment of any of CRIIMI MAE's mortgage investments are
expected to be slightly less than, the same as, or slightly more than the
amortized cost and tax basis of such mortgages.
On an amortized cost basis, as of December 31, 1993, approximately 91% of
CRI Liquidating's mortgages were Discount Mortgage Investments and approximately
9% were Near Par or Premium Mortgage Investments. On a tax basis, all of CRI
Liquidating's mortgages were Discount Mortgage Investments. Therefore, whether
by default or prepayment, the proceeds from the disposition of CRI Liquidating's
mortgage investments would, for a majority of such mortgages, be expected to
exceed the tax basis of such mortgages. However, on an amortized cost basis, the
proceeds from a default on, or prepayment of CRI Liquidating's Near Par or
Premium Mortgage Investments would be expected to be slightly less than, the
same as, or slightly more than the amortized cost.
While it is not expected that CRIIMI MAE will sell any of its mortgage
investments, CRI Liquidating's business plan calls for an orderly liquidation of
approximately 25% of its December 31, 1993 portfolio balance per year through
1997. Therefore, to the extent mortgage investments are not otherwise disposed
of, CRI Liquidating intends to sell a substantial portion of its portfolio as is
necessary to effect its liquidation plan.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Historical Dispositions
- -----------------------
The following table sets forth certain information concerning dispositions
of Government Insured Multifamily Mortgages by CRIIMI MAE and CRI Liquidating
for the past five years:
<TABLE>
<CAPTION>
Net Gain/(Loss)
Recognized for Net Gain/(Loss)
Financial Recognized
Type of Dispositions Statement For Tax
Year Assignment(1) Sale Prepayment Total Purposes Purposes(3)
- ---- ------------- ---- ---------- ----- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1989-CRI Liq. 5 1 1 7 $ 2,957,598 $ 2,977,188
CRIIMI MAE -- -- -- -- -- --
1990-CRI Liq. 6 -- -- 6 3,853,503 8,005,092
CRIIMI MAE 2 -- -- 2 (59,338) (59,338)
1991-CRI Liq. 8 19 -- 27 4,481,534 12,706,737
CRIIMI MAE 5 1 -- 6 (433,648) (310,089)
1992-CRI Liq. 3 -- -- 3 6,097,102 11,202,237
CRIIMI MAE 4 -- -- 4 (363,957) (118,498)
1993-CRI Liq. 2 5 3 10 8,089,840 14,938,128
CRIIMI MAE 2 -- 5 7 (732,095) (650,339)
---- ---- ---- ---- ---------- ----------
37(2) 26 9 72 $23,890,539 $48,691,118
==== ==== ==== ==== ========== ==========
</TABLE>
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
(1) CRIIMI MAE or CRI Liquidating may elect to receive insurance benefits in
the form of cash when a Government Insured Multifamily Mortgage defaults.
In that event, 90% of the face value of the mortgage generally is received
within approximately 90 days of assignment of the mortgage to HUD and 9%
of the face value of the mortgage is received upon final processing by HUD
which may not occur in the same year as assignment. If CRIIMI MAE or CRI
Liquidating elects to receive insurance benefits in the form of HUD
debentures, 99% of the face value of the mortgage is received upon final
processing by HUD. Gains from dispositions are recognized upon receipt of
funds or HUD debentures and losses generally are recognized at the time of
assignment.
(2) Eight of the 37 assignments were sales of Government Insured Multifamily
Mortgages then in default and resulted in the CRIIMI Funds, CRI
Liquidating or CRIIMI MAE receiving near or above face value.
(3) In connection with the Merger, CRI Liquidating recorded its investment in
mortgages at the lower of cost or fair value, which resulted in an overall
net write down for tax purposes. For financial statement purposes,
carryover basis of accounting was used. Therefore, since the Merger, the
net gain for tax purposes was greater than the net gain recognized for
financial statement purposes. As a REIT, dividends to shareholders are
based on tax basis income.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity
- ---------
CRIIMI MAE and CRI Liquidating closely monitor their cash flow and
liquidity positions in an effort to ensure that sufficient cash is available for
operations and debt service requirements and to continue to qualify as REITs.
CRIIMI MAE and CRI Liquidating's cash receipts, which have been derived from
scheduled payments of outstanding principal of and interest on, and proceeds
from dispositions of, mortgage investments held by CRIIMI MAE and CRI
Liquidating, plus cash receipts from interest on temporary investments,
borrowings, cash received from CRIIMI MAE's interests in the AIM Funds and
advisory partnership, and cash received from CRI Liquidating's investment in
limited partnerships (Participations), were sufficient for the years 1991, 1992
and 1993 to meet operating, investing and financing cash requirements. It is
anticipated that cash receipts will be sufficient in future years to meet
similar cash requirements. Cash flow was also sufficient to provide for the
payment of dividends to shareholders. As of December 31, 1993, there were no
significant commitments for capital expenditures; however, as of such date,
CRIIMI MAE had committed to fund additional Government Insured Construction
Mortgages and acquire additional Government Insured Multifamily Mortgages
totaling approximately $41.0 million.
Dividends -- During 1993, CRIIMI MAE increased its quarterly dividend to
$0.28 per share. Dividends totaled $1.12 per share for 1993. During the twelve
consecutive quarters before 1993, CRIIMI MAE paid dividends of $0.27 per share.
CRIIMI MAE's objective is to pay a stable quarterly dividend and to increase the
tax basis income over time, and thereby increase the quarterly dividend.
Although CRIIMI MAE's mortgage investments yield a fixed monthly mortgage
payment once purchased, the cash dividends paid by CRIIMI MAE and by CRI
Liquidating will vary during each year due to several factors. The factors
which impact CRIIMI MAE's dividend include (i) the distributions which CRIIMI
MAE receives on its CRI Liquidating shares, (ii) the Net Positive Spreads (as
defined below) on borrowings under CRIIMI MAE's financing facilities, (iii) the
fluctuating yields on short-term debt and the rate at which CRIIMI MAE's
commercial paper rate based and London Interbank Offered Rate (LIBOR) based debt
is priced, (iv) the fluctuating yields in the short-term money market
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
where the monthly mortgage payments received are temporarily invested prior to
the payment of quarterly dividends, (v) the yield at which principal from
scheduled monthly mortgage payments, mortgage dispositions and distributions
from the AIM Funds and from CRI Liquidating can be reinvested, (vi) variations
in the cash flow received from the AIM Funds, and (vii) changes in operating
expenses. Additionally, mortgage dispositions may increase the return to the
shareholders for a period, although neither the timing nor the amount can be
predicted.
The factors which impact CRI Liquidating's dividend include (i) yields on
CRI Liquidating's mortgage investments, (ii) the reduction in the asset base and
monthly mortgage payments due to monthly mortgage payments received or mortgage
dispositions, (iii) the fluctuating yields in the short-term money market where
the monthly mortgage payments received are temporarily invested prior to the
payment of quarterly dividends, (iv) changes in operating expenses and (v)
variations in the cash flow received from the Participations.
Asset/Liability Management -- CRIIMI MAE seeks to enhance the return to
its shareholders through the use of leverage. Nevertheless, CRIIMI MAE's use of
leverage carries with it the risk that the cost of borrowings could increase
relative to the return on its mortgage investments, which could result in
reduced net income or a net loss and thereby reduce the return to shareholders.
A key objective of asset/liability management is to reduce interest rate risk.
The Adviser continuously monitors CRIIMI MAE's outstanding borrowings in an
effort to ensure that CRIIMI MAE is making optimal use of its borrowing ability
based on market conditions and opportunities. Over the past four years, the
Adviser has reduced CRIIMI MAE's effective borrowing rate through refinancings
and new financings and the Adviser continues to evaluate opportunities to
further reduce CRIIMI MAE's borrowing costs.
CRIIMI MAE expects to continue to use leverage only to the extent that (i)
the proceeds therefrom will be used for investments such as CRIIMI MAE's current
portfolio of Government Insured Multifamily Mortgages or other high quality
assets including Other Multifamily Mortgages and Other Insured Mortgages; (ii)
the risk of adverse changes in interest rates is reduced by
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
the use of hedging techniques such as those currently employed by CRIIMI MAE;
and (iii) the Adviser believes that after investing all funds from any specific
borrowing, a Net Positive Spread (the difference between the yield on a mortgage
investment acquired with borrowings and all incremental borrowing and operating
expenses on a tax basis associated with the acquisition of such mortgage
investment) of at least 40 basis points will be achievable.
It is CRIIMI MAE's policy to borrow only when the Net Positive Spread on
the borrowing is at least 40 basis points at inception of the borrowing. Such
policy provides that if Net Positive Spreads of at least 40 basis points are not
maintained, the annual and master servicing fees payable to the Adviser, which
are calculated as a percentage of invested assets, will be reduced so that such
fees, in basis points, equal the Net Positive Spread, in basis points. As of
December 31, 1992 and 1993, CRIIMI MAE had a Net Positive Spread of
approximately 60 and 177 basis points, respectively, on its borrowings. With
respect to approximately $300.0 million of new borrowings invested or committed
for investment during 1993, as of December 31, 1993, CRIIMI MAE had an average
Net Positive Spread of approximately 250 basis points.
CRIIMI MAE's secured financings require that its debt-to-equity ratio not
exceed 2.5:1. As of December 31, 1993, CRIIMI MAE's debt-to-equity ratio,
excluding approximately $41 million of borrowings committed for investment in
mortgages, was 2.2:1, and its debt-to-equity ratio, including such borrowings,
was 2.4:1.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Corporate Borrowings--The following table summarizes CRIIMI MAE's
corporate borrowings as of December 31, 1993:
<TABLE>
<CAPTION>
As of
December 31, 1993
-----------------
<S> <C>
Short-term debt:
Commercial Paper Facility $ 95,306,000
============
Long-term debt:
Master Repurchase Agreements $331,712,648
Bank Term Loan 52,026,400
------------
$383,739,048
Total Corporate Borrowings $479,045,048
============
<CAPTION>
CRIIMI MAE's long-term debt matures over the next three years as follows:
1994 $ 15,800,000
1995 15,800,000
1996 352,139,048
------------
Total $383,739,048
============
</TABLE>
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
(1) Commercial Paper Facility--The following table shows commercial paper
borrowing activity as of December 31, 1992 and 1993 and for the years then
ended:
<TABLE>
<CAPTION>
As of December 31,
---------------------------
1992 1993
------------ ------------
<S> <C> <C>
Amount borrowed $186,300,000 $ 95,306,000
Weighted average interest rate
(including all borrowing and
hedging costs) 8.96% 7.84%
<CAPTION>
Year ended December 31,
---------------------------
1992 1993
------------ ------------
Maximum amount outstanding $186,300,000 $186,300,000
Average amount outstanding $179,174,236 $133,563,678
Weighted average interest rate
(including all borrowing and
hedging costs) 8.79% 8.25%
</TABLE>
The base issuance rate for commercial paper issued under CRIIMI MAE's
commercial paper facility (the Commercial Paper Facility) ranged from 3.20% to
4.45% during the year ended December 31, 1992 and 3.15% to 3.68% during the year
ended December 31, 1993, and was 4.02% and 3.41% as of December 31, 1992 and
1993, respectively.
CRIIMI MAE's Commercial Paper Facility provides for the issuance of
commercial paper by CRI Funding Corporation, an unaffiliated special purpose
corporation, which lends the proceeds from the issuance to CRIIMI MAE. If
commercial paper is not issued, the special purpose corporation may meet its
obligation to
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
provide financing to CRIIMI MAE by borrowing at a rate of LIBOR plus 0.50% under
a $140.0 million revolving credit facility which was established in connection
with the Commercial Paper Facility.
Borrowings pursuant to the Commercial Paper Facility are collateralized by
a pledge of certain of CRIIMI MAE's Government Insured Multifamily Mortgages.
The loan agreements contain numerous covenants which CRIIMI MAE must satisfy,
including requirements that the fair value of collateral pledged must equal at
least 110% of the amounts borrowed and that interest on the collateral pledged
equal at least 120% of the debt service on the amounts borrowed. In addition,
60% of the Government Insured Multifamily Mortgages pledged as collateral must
be GNMA-Mortgage Backed Securities. As of December 31, 1993, Government Insured
Multifamily Mortgages held directly by CRIIMI MAE with a market value and face
value of approximately $145.4 million and $139.7 million, respectively, were
used as collateral pursuant to the Commercial Paper Facility.
In February 1993, CRIIMI MAE entered into an agreement to replace a $190.0
million letter of credit which provided the credit enhancement for the
Commercial Paper Facility and related revolving credit facility, with two
letters of credit in the amount of $35.0 million and $155.0 million provided by
National Australia Bank, Limited and Canadian Imperial Bank of Commerce (CIBC),
respectively. In April 1993, the letter of credit provided by CIBC was reduced
to $105.0 million. Subsequent to December 31, 1993, the special purpose
corporation replaced borrowings under the Commercial Paper Facility with
revolving credit loans. These revolving credit loans were scheduled to mature
on January 28, 1994; however, the maturity date has been extended until February
28, 1994. CRIIMI MAE executed a Commitment Letter and Term Sheet for a
revolving credit facility, dated November 24, 1993, to replace these agreements
with a 30-month non-amortizing bank loan to be issued prior to the expiration
date of the letter of credit agreements by lenders including the aforementioned
bank group on terms substantially similar to the April 1993 Master Repurchase
Agreements (defined below). While there is no assurance, CRIIMI MAE expects to
close on such new revolving credit facility on or before February 28, 1994. If
CRIIMI MAE is unable to consummate the loan by such
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
date, the Adviser believes that it will be able to obtain a further extension of
its existing revolving credit loans.
(2) Master Repurchase Agreements--On April 30, 1993, CRIIMI MAE entered
into master repurchase agreements (the Master Repurchase Agreements) with Nomura
Securities International, Inc. and Nomura Asset Capital Corporation
(collectively, Nomura) which provide CRIIMI MAE with $350.0 million of available
financing for a three-year term. CRIIMI MAE intends to seek renewal of the
Master Repurchase Agreements upon expiration. Interest on such borrowings is
based on the three-month LIBOR plus 0.75% or 0.50% depending on whether
FHA-Insured Loans or GNMA Mortgage-Backed Securities, respectively, are pledged
as collateral. For April through December 1993, the three-month LIBOR for these
borrowings ranged from 3.18% to 3.50%. The value of the collateral pledged must
equal at least 105% and 110% of the amounts borrowed for GNMA Mortgage-Backed
Securities and FHA-Insured Loans, respectively. No more than 60% of the
collateral pledged may be FHA-Insured Loans and no less than 40% may be GNMA
Mortgage-Backed Securities. As of December 31, 1993, mortgage investments
directly owned by CRIIMI MAE which approximate $349.4 million at market value
and $342.2 million at face value, were used as collateral pursuant to certain
terms of the Master Repurchase Agreements.
As of December 31, 1993, CRIIMI MAE used approximately $281.7 million of
the funds available under the Master Repurchase Agreements to acquire Government
Insured Multifamily Mortgages and $50.0 million to repay a portion of borrowings
under the Commercial Paper Facility. In addition, approximately $18.3 million
of the balance of the funds available have been committed for investment in
Government Insured Multifamily Mortgages or advances on Government Insured
Construction Mortgages.
On November 30, 1993, CRIIMI MAE entered into additional repurchase
agreements with Nomura pursuant to which Nomura will provide CRIIMI MAE with an
additional $150.0 million of available financing for a three-year term. The
agreements provide that the funding will be utilized to purchase FHA-Insured
Loans and GNMA Mortgage-Backed Securities in the event of the successful
completion of the Equity Offering (described below in "Other Events"). In that
event, it is contemplated that CRIIMI MAE will borrow the full $150.0 million no
earlier than the consummation of
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
the Equity Offering, but no later than July 1, 1994. The terms of the $150.0
million financing arrangements are similar to the terms of the Master Repurchase
Agreements entered into in April 1993.
(3) Bank Term Loan--On October 23, 1991, CRIIMI MAE entered into a credit
agreement with two banks for a reducing term loan facility (the Bank Term Loan)
in an aggregate amount not to exceed $85.0 million, subject to certain terms and
conditions. In December 1992, the credit agreement was amended to increase the
reducing term loan by $15.0 million. The Bank Term Loan had an outstanding
principal balance of approximately $61.7 million and $52.0 million as of
December 31, 1992 and 1993, respectively. As of December 31, 1992 and 1993, the
Bank Term Loan was secured by the value of 17,784,000 and 13,874,000 CRI
Liquidating shares owned by CRIIMI MAE, respectively. As a result of principal
payments on the Bank Term Loan in 1993, 750,000 of the 13,874,000 CRI
Liquidating shares pledged as collateral were released in January 1994. The
Bank Term Loan requires a quarterly principal payment based on the greater of
the return of capital portion of the dividend received by CRIIMI MAE on its CRI
Liquidating shares securing the Bank Term Loan or an amount to bring the Bank
Term Loan to its scheduled outstanding balance at the end of such quarter. The
minimum amount of annual principal payments is approximately $15.8 million, with
any remaining amounts of the original $85.0 million of principal due in April
1996 and any remaining amounts of the $15.0 million of increased principal due
in December 1996.
The amended Bank Term Loan provides for an interest rate of 1.10% over
three-month LIBOR plus an agent fee of 0.05% per year. During 1992 and 1993,
three-month LIBOR for borrowings under the Bank Term Loan ranged from 3.44% to
4.50% and 3.19% to 3.59%, respectively.
Hedging -- CRIIMI MAE is subject to the risk that changes in interest rates
could reduce Net Positive Spreads by increasing CRIIMI MAE's borrowing costs
and/or decreasing the yield on its Government Insured Multifamily Mortgages. An
increase in CRIIMI MAE borrowing costs could result from an increase in
short-term interest rates. To partially limit the adverse effects of rising
interest rates, CRIIMI MAE has entered into a series of interest rate hedging
agreements in an aggregate notional amount
45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
approximately equal to all of its outstanding borrowings and commitments. To
the extent CRIIMI MAE has not fully hedged its portfolio, in periods of rising
interest rates CRIIMI MAE's overall borrowing costs would increase with little
or no overall increase in mortgage investment income, resulting in returns to
shareholders that would be lower than those available if interest rates had
remained unchanged.
Borrowings by CRIIMI MAE generally are hedged by swap, cap or collar
agreements. As of December 31, 1993, CRIIMI MAE had in place interest rate
collars on the indices underlying borrowing rates for the Commercial Paper
Facility (the CP Index) with an aggregate notional amount of $115 million, a
weighted average floor of 8.55% and a weighted average cap of 10.37%. An
interest rate collar limits the CP Index to a maximum interest rate and also
enables CRIIMI MAE to receive the benefit of a decline in the CP Index to the
floor of the collar for the period of the collar. To the extent that the CP
Index increases, CRIIMI MAE's overall borrowing costs would not increase until
the CP Index reaches the level of the floor of the collar. At that point,
CRIIMI MAE's borrowing costs would increase as the CP Index increases but only
until the CP Index reaches the maximum rate provided for by the collar.
As of December 31, 1993, CRIIMI MAE had in place interest rate caps on the
CP Index and LIBOR underlying borrowing rates for the Commercial Paper Facility
and Master Repurchase Agreements. The caps based on the CP Index have an
aggregate notional amount of $50 million and a weighted average cap of 8.73%.
The caps based on LIBOR have an aggregate notional amount of $300 million with a
weighted average cap of 6.23%. CRIIMI MAE also had an interest rate cap with a
notional amount of approximately $63 million and a cap of 6.5% on the LIBOR
underlying the Bank Term Loan. An interest rate cap effectively limits CRIIMI
MAE's interest rate risk on floating rate borrowings by limiting the CP Index or
LIBOR, as the case may be, to a maximum interest rate for the period of the cap.
To the extent the CP Index or LIBOR decrease, CRIIMI MAE's borrowing costs would
decrease under such caps. To the extent the CP Index or LIBOR increase, CRIIMI
MAE's borrowing costs would increase but only until the CP Index or LIBOR
reaches the maximum rate provided for by the cap. As of December 31, 1993,
certain cap agreements based on the three-month
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
LIBOR with a notional amount of $300 million were between approximately 2.62%
and 3.13% above the current three-month LIBOR.
On December 1, 1993, CRIIMI MAE paid approximately $4.9 million to
terminate an interest rate swap entered into on February 8, 1990 with a notional
amount of $25 million and a fixed rate of 9.23%. The termination of this swap
was effective December 1, 1993. The cost to terminate the interest rate swap
was expensed in the accompanying consolidated statement of income for the year
ended December 31, 1993 as the underlying debt under the Commercial Paper
Facility being hedged was repaid. As of December 31, 1993, CRIIMI MAE had in
place no swap agreements.
Current interest rates are substantially lower than when CRIIMI MAE entered
into $165 million of its existing interest rate hedging agreements. As of
December 31, 1993, certain collar agreements based on the CP Index with a
notional amount of $115 million carried minimum interest rates which were
between approximately 5.0% and 5.4% above the current CP Index. Such hedging
agreements expire in 1995. While there is no assurance that any new agreements
will be made, the Adviser is actively exploring alternatives to replace these
hedging agreements when they expire in order to capitalize on the current low
interest rate environment.
As a result of minimum interest rate levels associated with the swap
agreement terminated in December, 1993 and the collar agreements which expire in
1995, CRIIMI MAE incurred additional interest expense of $4.3 million, $8.1
million and $8.6 million for the years ended December 31, 1991, 1992 and 1993,
respectively, of which approximately $0.8 million, $1.3 million and $1.4
million, respectively, was attributable to the terminated swap agreement. The
additional interest expense amounts also include amortization of approximately
$0.1 million, $0.2 million and $0.6 million, respectively, related to up-front
hedging costs.
47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
The following table sets forth information relating to CRIIMI MAE's hedging
agreements with respect to borrowings under the Commercial Paper Facility and
Master Repurchase Agreements:
<TABLE>
<CAPTION>
Hedging Notional
Instrument Amount Effective Date Maturity Date Floor Cap Index(c)
- ---------------------- -------------- -------------------- ------------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Collar $ 30.0 million March 7, 1990 March 7, 1995 8.375% 10.125% CP
Collar 20.0 million March 30, 1990 March 30, 1995 8.375% 10.125% CP
Collar 30.0 million July 8, 1990 February 8, 1995 8.625% 10.625% CP
July 9, 1990 through
Accreting Collar 35.0 million December 9, 1990 July 9, 1995 8.750% 10.500% CP
Cap (a) 25.0 million May 24, 1991 May 24, 1996 N/A(a) 9.000% CP
Cap 25.0 million June 17, 1991 June 17, 1996 N/A 8.450% CP
Cap (b) 50.0 million June 25, 1993 June 25, 1998 N/A 6.50% LIBOR
Cap (b) 50.0 million July 1, 1993 June 3, 1996 N/A 6.50% LIBOR
Cap (b) 50.0 million July 20, 1993 July 20, 1998 N/A 6.25% LIBOR
Cap (b) 50.0 million August 10, 1993 August 10, 1997 N/A 6.00% LIBOR
Cap (b) 50.0 million August 27, 1993 August 27, 1997 N/A 6.125% LIBOR
Cap (b) 50.0 million November 10, 1993 November 10, 1997 N/A 6.00% LIBOR
-------------
$465.0 million
=============
</TABLE>
(a) On May 24, 1993, CRIIMI MAE and CIBC terminated the floor on this former
collar. In consideration of such termination, CRIIMI MAE paid CIBC
approximately $2.3 million. This amount was deferred on the accompanying
consolidated balance sheet as the underlying debt being hedged is still
outstanding. This amount will be amortized for the period from May 24,
1993 through May 24, 1996. CRIIMI MAE amortized approximately $0.5 million
of this deferred amount in the accompanying consolidated statements of
income for the year ended December 31, 1993.
(b) Approximately $4.5 million of costs were incurred in 1993 in connection
with the establishment of interest rate hedges. These costs are being
amortized using the effective interest method over the term of the
interest rate hedge agreement for financial statement purposes and in
accordance with the regulations under Internal Revenue Code Section 446
with respect to notional principal contracts for tax purposes.
(c) The hedges are based either on the 30-day Commercial Paper Composite Index
(CP) or three-month LIBOR.
48
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
In addition, CRIIMI MAE entered into an interest rate hedge agreement on
the Bank Term Loan to cap LIBOR at 6.5% based on the expected paydown schedule
and an incremental hedge of 10.5% on the difference between the required and
expected paydown schedules. As of December 31, 1993, three-month LIBOR was
approximately 3.13% below the 6.5% cap.
Although CRIIMI MAE expects the overall average life of its mortgage
investments to exceed ten years, CRIIMI MAE's hedging agreements range in
maturity from 3 to 10 years principally because of the limited availability and
high cost of instruments with maturities greater than 10 years. Thus, to the
extent CRIIMI MAE has not completely matched the duration of its existing
mortgages to that of its existing hedges, upon the expiration of these hedges
CRIIMI MAE would be fully exposed to the adverse effects of rising interest
rates. The Adviser continues to actively review asset/liability hedging
techniques as CRIIMI MAE's existing hedges approach their expiration dates and
to monitor the duration of its hedges relative to its assets.
A reduction in long-term interest rates could increase the level of
prepayments of CRIIMI MAE's Government Insured Multifamily Mortgages. CRIIMI
MAE's yield on mortgage investments will be reduced to the extent CRIIMI MAE
reinvests the proceeds from such prepayments in new mortgage investments with
effective rates which are below the rates of the prepaid mortgages.
In addition, the fluctuation of long-term interest rates may affect the
value of CRIIMI MAE's Government Insured Multifamily Mortgages. Although
decreases in long-term rates could increase the value of CRIIMI MAE's mortgage
investments, increases in such long-term rates could decrease the value of
CRIIMI MAE's mortgage investments and, in certain circumstances, require CRIIMI
MAE to pledge additional collateral in connection with its borrowing facilities.
This would reduce CRIIMI MAE's borrowing capacity and, in an extreme case, may
force CRIIMI MAE to liquidate a portion of its assets at a loss in order to
comply with certain covenants under its financing facilities.
CRIIMI MAE is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate hedge agreements should interest rates exceed
the caps. However, the
49
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Adviser does not anticipate nonperformance by any of the counterparties, each of
which has long-term debt ratings of A or above by Standard and Poor's and A2 or
above by Moody's.
Cash Flow--1993 versus 1992
- ---------------------------
Net cash provided by operating activities increased for 1993 as compared to
1992 principally due to an increase in mortgage investment income partially
offset by an increase in interest expense due primarily to mortgage acquisition
activity in 1993 funded by proceeds from financings. Also contributing to the
increase in cash provided by operating activities was an increase in accounts
payable and accrued expenses attributable to the accrued costs incurred by
CRIIMI MAE with respect to its Equity Offering of common stock, as described
below in "Other Events". Partially offsetting the increase in net cash provided
by operating activities for 1993 was the payment of approximately $4.9 million
to terminate an interest rate swap agreement and an increase in interest expense
due primarily to mortgage acquisition activity in 1993 funded by proceeds from
financings.
Net cash used by investing activities increased for 1993 as compared to
1992. This increase was principally due to the acquisition of Government Insured
Multifamily Mortgages and advances on Government Insured Construction Mortgages
of approximately $312.7 million in 1993 as compared to $31.8 million in 1992.
Also contributing to the increase in cash used by investing activities was the
acquisition of other short-term investments of approximately $175.3 million in
1993 as compared to approximately $66.8 million in 1992. In addition, proceeds
of approximately $6.1 million were received during 1993 related to the sale of
HUD debentures, as compared to the receipt of proceeds of approximately $2.3
million during the same period in 1992 related to the redemption of HUD
debentures. Partially offsetting the increase in net cash used by investing
activities was the receipt of approximately $167.1 million from the disposition
of other short-term investments and proceeds from mortgage dispositions of
approximately $93.4 million in 1993 as compared to approximately $65.5 million
and $50.4 million, respectively, in 1992.
50
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Net cash provided by financing activities increased for 1993 compared to
1992. This increase was primarily due to the receipt of net proceeds of
approximately $331.7 million from the Master Repurchase Agreements,
approximately $115.6 million from the financing of other short-term investments
and approximately $15.0 million from an expansion of CRIIMI MAE's Bank Term
Loan, partially offset by payments on short-term and long-term debt, a paydown
of borrowings of commercial paper and the payment of deferred financing costs.
Cash Flow--1992 versus 1991
- ---------------------------
Net cash provided by operating activities increased for 1992 as compared to
1991 principally due to an increase in interest payable and a decrease in
receivables and other assets compared to 1991 partially offset by a decrease in
accounts payable and accrued expenses. The increase in interest payable for
1992 compared to 1991 is due to the payment in 1991 of approximately $3.0
million in interest accrued as of December 31, 1990. The decrease in
receivables and other assets was attributable to the collection of the accrued
interest on a mortgage which defaulted in the second half of 1991. The decrease
in accounts payable and accrued expenses was due to the payment of acquisition
costs incurred and accrued with respect to the acquisition of the AIM Funds in
1991.
Net cash provided by investing activities decreased for 1992 as compared to
1991. This decrease resulted principally from the disposition in 1992 by CRIIMI
MAE and CRI Liquidating of five Government Insured Multifamily Mortgages and the
remaining 9% of two previously disposed Government Insured Multifamily Mortgages
resulting in disposition proceeds aggregating approximately $50.4 million. This
compares to 33 mortgage dispositions during 1991 resulting in disposition
proceeds of approximately $119.0 million. Also during 1992, cash of
approximately $65.5 million and approximately $2.3 million was received from the
sale of other short-term investments and the redemption of HUD debentures,
respectively. However, this was offset by the purchase of other short-term
investments in 1992. During 1991, CRIIMI MAE and CRIIMI, Inc. paid a total of
approximately $24.4 million to acquire interests in the AIM Funds and the
limited partnership that serves as their adviser. In addition, CRIIMI MAE paid
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
approximately $3.7 million during 1991 for costs associated with this
acquisition. This acquisition was principally funded with the proceeds from the
sale of Government Insured Multifamily Mortgages.
Net cash used in financing activities decreased for 1992 as compared to
1991. This decrease was primarily due to approximately $97.6 million paid in
1991 for the early extinguishment of long-term debt and the purchase of
approximately $21.6 million in U.S. Treasury Securities in connection with the
defeasance of long-term debt which occurred in 1991, partially offset by $85.0
million in proceeds received in 1991 from the refinancing. This decrease was
also offset by an increase in principal payments on long-term debt from
approximately $13.3 million during 1991 to $23.3 million in 1992.
Results of Operations
- ---------------------
1993 versus 1992
- ----------------
CRIIMI MAE earned approximately $23.0 million in tax basis income for 1993,
a 6.4% increase from approximately $21.6 million for 1992. On a per share basis,
tax basis income for 1993 increased to approximately $1.14 per share from
approximately $1.07 per share for 1992.
Net income for financial statement purposes was approximately $15.8 million
for 1993, a 1.8% decrease from approximately $16.0 million for 1992. On a per
share basis, financial statement net income for 1993 decreased to approximately
$0.78 per share from $0.79 per share for 1992.
Mortgage investment income increased $4.4 million or 9.4% to $50.3 million
for 1993 from $45.9 million for 1992. This increase was due principally to an
increase in mortgage investments, net of dispositions, resulting from
acquisitions and advances on Government Insured Construction Mortgages during
1993 which were funded principally by proceeds from the Master Repurchase
Agreements.
52
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Other income increased $1.4 million or 30.0% to $6.2 million for 1993 from
$4.8 million for 1992. This increase was attributable primarily to approximately
$175 million in other short-term investments acquired by CRIIMI MAE and CRI
Liquidating during 1993, all of which were disposed of by December 31, 1993 as
compared to approximately $67 million in other short-term investments acquired
by CRI Liquidating during 1992, all of which were disposed of by December 31,
1992.
Total income increased $5.8 million or 11.3% to $56.5 million for 1993 from
$50.7 million for 1992. This increase was primarily due to the growth in
mortgage investment income and other income during 1993.
Interest expense increased $3.6 million or 14.8% to $28.0 million for 1993
from $24.4 million for 1992. This increase was principally a result of greater
amounts borrowed during 1993 under the Master Repurchase Agreements entered into
in April 1993 which provided financing of $350 million, of which approximately
$331.7 million was outstanding as of December 31, 1993. This increase was
partially offset by a reduction in interest rates on CRIIMI MAE's borrowings for
1993 as compared to 1992.
In December 1993, CRIIMI MAE paid approximately $4.9 million to CIBC to
terminate an interest rate swap entered into on February 8, 1990 with a notional
amount of $25 million and a fixed rate of 9.23%. The termination of this swap
was effective December 1, 1993.
Other operating expenses increased $1.1 million or 32.4% to $4.6 million in
1993 from $3.5 million in 1992. This increase was attributable primarily to
legal fees incurred in connection with certain litigation as described below in
"Other Events." Also contributing to the increase in other operating expenses
was an increase in general and administrative expenses due primarily to
increased mortgage acquisition and disposition activities, the increase in costs
to produce CRIIMI MAE's 1992 Annual Report to Shareholders due to its increased
size and mailing costs, and the recognition of costs incurred in connection with
CRIIMI MAE's reincorporation as a Maryland corporation which was effective in
July 1993.
53
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Fees to related party are comprised of annual fees and incentive fees paid
to the Adviser. The Adviser receives annual fees for managing the portfolios of
CRIIMI MAE and CRI Liquidating. These fees include a base component equal to a
percentage of average invested assets. In addition, fees paid to the Adviser by
CRI Liquidating may include a performance based component that is referred to as
the deferred component. The deferred component, which is also calculated as a
percentage of average invested assets, is computed each quarter but paid (and
expensed) only upon meeting certain cumulative performance goals. If these goals
are not met, the deferred component accumulates, and may be paid in the future
if cumulative goals are met. In addition, certain incentive fees are paid by
CRIIMI MAE and CRI Liquidating on a current basis if certain performance goals
are met.
Fees to related party increased $0.5 million or 21.3% to $2.7 million for
1993 from $2.2 million for 1992. This increase was due primarily to an increase
in annual fees and incentive fees during 1993, as discussed below. Annual fees
increased $0.4 million or 20.6% to $2.5 million for 1993 from $2.1 million for
1992. This increase was primarily due to increased CRIIMI MAE mortgage assets,
including advances on Government Insured Construction Mortgages. Also
contributing to the increase for 1993 was the payment by CRI Liquidating in
1993, of the deferred component of the annual fee due to specific performance
goals being met, which included the payment of the deferred component for the
second half of 1992. Partially offsetting the increase in annual fees for 1993
was a reduction in the mortgage base, which is a component used in determining
the annual fees payable by CRI Liquidating. The mortgage base has been
decreasing as CRI Liquidating effects its business plan to liquidate by 1997.
The CRIIMI MAE incentive fee is equal to 25% of the amount by which net
income from additional mortgage investments exceeds the annual target return on
equity and is payable quarterly, subject to year-end adjustment. The incentive
fee increased approximately $50,000 or 30.6% to $0.2 million for 1993 from $0.2
million for 1992. This increase was primarily attributable to the fact that
CRIIMI MAE's net income from additional mortgage investments exceeded the annual
target return on equity during both the second and third quarters of 1993;
accordingly, an incentive fee was paid
54
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
during those quarters. This compares to 1992 when CRIIMI MAE's net income from
additional mortgage investments exceeded the annual target return on equity only
in the third quarter.
During 1993, CRIIMI MAE recorded a provision of $1.5 million, including
$0.25 million paid in cash, in connection with the settlement of the litigation
described below in "Other Events."
Total expenses increased $11.7 million or 38.6% to $41.8 million for 1993
from $30.1 million for 1992. This increase was principally due to costs incurred
to terminate an interest rate swap, an increase in interest expense and the
recognition of a provision for settlement of litigation described below in
"Other Events".
Net gains on mortgage dispositions increased $1.7 million or 28.3% to $7.4
million in 1993 from $5.7 million in 1992. Gains or losses on mortgage
dispositions are based on the number, carrying amounts, and proceeds of mortgage
investments disposed of during the period. Gains on mortgage dispositions
increased $2.0 million or 32.7% to $8.1 million in 1993 from $6.1 million in
1992. This increase was primarily due to the disposition of 17 mortgages during
1993, 11 of which resulted in gains. This compares to the disposition of seven
mortgages during 1992, three of which resulted in gains. Losses on mortgage
dispositions increased $0.4 million or 98.4% to $0.8 million in 1993 from $0.4
million in 1992 due to the financial statement loss of $0.5 million recognized
in March 1993 as a result of the prepayment of the mortgage on Owings Manor
Apartments.
In November 1993, CRIIMI MAE recognized a financial statement gain of
approximately $3.3 million and a tax basis gain of approximately $4.9 million in
connection with the sale of 3,162,500 CRI Liquidating shares held by CRIIMI MAE.
1992 versus 1991
- ----------------
CRIIMI MAE earned approximately $21.6 million in tax basis income for 1992,
a 1.9% decrease from approximately $22.0 million for 1991. On a per share basis,
tax basis income for 1992 decreased to approximately $1.07 per share from
approximately $1.09 per share for 1991.
55
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Net income for financial statement purposes was approximately $16.0 million
for 1992, a 78.2% increase from approximately $9.0 million for 1991. On a per
share basis, financial statement net income for 1992 increased to approximately
$0.79 per share from $0.45 per share for 1991.
Mortgage investment income decreased $3.4 million or 6.9% to $45.9 million
for 1992 from $49.3 million for 1991. This decrease was due principally to the
mortgage dispositions during 1992 and 1991.
Other income decreased $.2 million or 4.5% to $4.8 million for 1992 from
$5.0 million for 1991. This decrease was primarily attributable to lower
interest rates available for short-term investments during 1992 and the
elimination on December 31, 1991, of the debt service reserve for certain notes
payable, which reserve was previously invested in short-term investments.
Partially offsetting this decrease was the interest earned on other short-term
investments purchased by CRI Liquidating in April, July and August 1992, net of
monthly option fees. In addition, this decrease in income was partially offset
by an increase in income from investments in the AIM Funds and the related
advisory partnership which were acquired in September 1991.
Total income decreased $3.6 million or 6.7% to $50.7 million for 1992 from
$54.3 million for 1991. This decrease was primarily due to a reduction in
mortgage investment income and partially offset by an increase in other income
during 1992.
Interest expense decreased $1.4 million or 5.4% to $24.4 million for 1992
from $25.8 million for 1991. This decrease was principally a result of a
reduction in both the amount of long-term debt outstanding and the interest rate
thereon resulting from the refinancing on December 31, 1991 of notes payable.
This decrease in interest expense on long-term debt was partially offset by an
increase in interest paid or accrued on borrowings under CRIIMI MAE's Commercial
Paper Facility as greater amounts were borrowed during 1992 and an increase in
interest expense attributable to the seller financing of 99% of the purchase
price of certain other short-term investments purchased by CRI Liquidating in
July and August 1992.
56
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Other operating expenses decreased $.3 million or 6.6% to $3.5 million in
1992 from $3.8 million in 1991. This decrease was attributable primarily to a
decrease in the amortization of deferred costs resulting from the mortgage
dispositions and the related reduction in the amount of capitalized deferred
costs which occurred during 1992 and 1991.
Fees to related party decreased $87,000 or 3.7% to $2.2 million in 1992
from $2.3 million in 1991. This decrease was due primarily to the reduction of
CRI Liquidating's portfolio as a result of mortgage dispositions. Also
contributing to this decrease was a reduction in the deferred component of the
Adviser's annual fee paid in 1992 as a result of certain performance goals that
were met for only two quarters in 1992 compared to all quarters in 1991.
Partially offsetting this decrease was an increase in the annual base component
resulting from CRIIMI MAE mortgage acquisitions.
Net gains on mortgage dispositions increased $1.7 million or 41.6% to $5.7
million in 1992 from $4.0 million in 1991. This increase was principally due to
the disposition, in 1992, of CRI Liquidating's investment in a mortgage which
resulted in the recognition of a gain in 1992 totalling approximately $5.9
million. This compares to the disposition of 13 Government Insured Multifamily
Mortgages during 1991 which resulted in gains totalling approximately $5.2
million.
CRI Liquidating's Government Insured Multifamily Mortgages have a different
tax basis than book basis because the Merger, while a taxable event, was treated
in a manner similar to a pooling of interests for financial accounting purposes.
Although some of the mortgage dispositions during 1992 resulted in a loss for
financial statement purposes, the combined dispositions resulted in a net tax
basis gain totalling approximately $11.1 million.
During 1992, two properties in which CRI Liquidating holds Participations
experienced operating results insufficient to pay debt service and the annual
return on such Participations. CRI Liquidating recognized a loss of
approximately $0.7 million with respect to the write-off of one of these
Participations.
57
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
In addition to the items discussed above, net income for 1992 increased
from 1991 due, in part, to the recognition of an extraordinary loss of
approximately $6.6 million in 1991 resulting from the refinancing of certain
notes payable. All other costs associated with the refinancing have been
included in deferred financing fees on the balance sheet and are being amortized
on the effective interest method over the term of the refinancing. However, for
tax purposes these deferred financing fees as well as the extraordinary loss
have been capitalized and are being amortized over the term of the refinancing.
REIT Status
- -----------
CRIIMI MAE and CRI Liquidating have qualified and intend to continue to
qualify as REITs as defined in the Internal Revenue Code and, as such, will not
be taxed on that portion of their taxable income which is distributed to
shareholders provided that at least 95% of such taxable income is distributed.
CRIIMI MAE and CRI Liquidating intend to distribute substantially all of their
taxable income and, accordingly, no provision for income taxes has been made in
the accompanying consolidated financial statements. CRIIMI MAE and CRI
Liquidating, however, may be subject to tax at normal corporate rates on net
income or capital gains not distributed.
Other Events
- ------------
On March 22, 1990, a complaint was filed, on behalf of a class comprised of
certain limited partners of CRIIMI III and shareholders of CRIIMI II (the
Plaintiffs), in the Circuit Court for Montgomery County, Maryland against CRIIMI
MAE, CRI Liquidating, CRIIMI I and its general partner, CRIIMI II, CRIIMI III
and its general partner, CRI and William B. Dockser, H. William Willoughby and
Martin C. Schwartzberg (the Defendants). On November 18, 1993, the Court entered
an order granting final approval of a settlement agreement between the
Plaintiffs and the Defendants pursuant to which CRIIMI MAE will issue to class
members, including certain former limited partners of CRIIMI I, up to 2.5
million warrants, exercisable for 18 months after issuance, to purchase shares
of CRIIMI MAE common stock at an exercise price of $13.17 per share. In
addition, the settlement included a payment of $1.4 million for settlement
administration costs and
58
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
the Plaintiff's attorneys' fees and expenses. Insurance provided $1.15 million
of the $1.4 million cash payment, with the balance paid by CRIIMI MAE. CRIIMI
MAE accrued a total provision of $1.5 million in the accompanying consolidated
statements of income for the uninsured portion of the cash settlement paid by
CRIIMI MAE and for the estimated value of the warrants that are expected to be
issued as part of the settlement. The number of warrants to be issued is
dependent on the number of class members who submit a proof of claim within 60
days of January 14, 1994 (the date the proof of claim was mailed by CRIIMI MAE).
The issuance of the warrants pursuant to the settlement agreement will have
no impact on CRIIMI MAE's tax basis income. Depending upon the number of
warrants issued, CRIIMI MAE will record in its financial statements a non-cash
expense ranging from $0 (if no warrants are issued) to $5 million (if all 2.5
million warrants are issued). Based on the Adviser's estimate of the number of
warrants to be issued, CRIIMI MAE has accrued a total provision of $1.5 million
(which includes the uninsured portion of the cash settlement) in the
accompanying consolidated statement of income for 1993, which provision may be
increased or decreased once the actual number of warrants issued is known. The
Adviser estimates that the final charge (after adjustments to the provision) to
net income and the increase in the number of shares of common stock outstanding
as a result of the exercise of the warrants will not have a material adverse
effect on CRIIMI MAE's net income and net income per share. The exercise of the
warrants will not result in a charge to CRIIMI MAE's tax basis income. Further,
the Adviser believes that the exercise of the warrants will not have a material
adverse effect on CRIIMI MAE's tax basis income per share or annualized cash
dividends per share because CRIIMI MAE intends to invest the proceeds from any
exercise of the warrants in accordance with its investment policy to purchase
Government Insured Multifamily Mortgages and other authorized investments.
However, in the case of a significant decline in the yield on mortgage
investments and a significant decrease in the Net Positive Spread which CRIIMI
MAE could achieve on its borrowings, the exercise of the warrants may have a
dilutive effect on tax basis income per share and cash dividends per share.
Receipt of the proceeds from the exercise of the warrants will increase CRIIMI
MAE's shareholders' equity.
59
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
On October 19, 1993, CRIIMI MAE filed a Registration Statement on Form S-3
(Commission File No. 33-50679), expected to be amended on February 16, 1994, to
register for sale to the public approximately 6.0 million shares of CRIIMI MAE's
common stock (or 6.9 million shares if the underwriters exercise their
overallotment option) (the Equity Offering). While there is no assurance that
the Equity Offering will be consummated, it is currently expected that the sale
will be completed in March 1994, subject to, among other things, such
Registration Statement becoming effective and market conditions at such time.
The net proceeds from the sale of the shares are estimated to be approximately
$64.3 million (based on an offering price of $11.50 per share, the reported last
sale price on February 11, 1994, and not including the over-allotment).
Although no specific investments have as yet been selected, CRIIMI MAE intends
to use such proceeds primarily for the acquisition of Government Insured
Multifamily Mortgages, the purchase of interest rate hedging agreements and for
other general corporate purposes, including, without limitation, working
capital. It is not expected that any of the proceeds will be used to repay
indebtedness of CRIIMI MAE. The costs of the Equity Offering, including
professional fees, filing fees, printing costs and other items, are expected to
approximate $.6 million (which was incurred or accrued as of December 31, 1993).
Additionally, underwriting fees in an amount which approximates 6.0% of the
gross offering proceeds are expected to be incurred.
Fair Value of Financial Instruments
- -----------------------------------
The following estimated fair values of CRIIMI MAE's consolidated financial
instruments are presented in accordance with generally accepted accounting
principles which define fair value as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. These estimated fair values, however, do not
represent the liquidation value or the market value of CRIIMI MAE.
In connection with CRIIMI MAE's and CRI Liquidating's implementation of
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115) as of December 31, 1993,
CRIIMI MAE's
60
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Investment in Mortgages continues to be recorded at amortized cost; however, CRI
Liquidating's Investment in Mortgages, and CRIIMI MAE's and CRI Liquidating's
Mortgages Held for Disposition, are recorded at fair value as of December 31,
1993. The difference between the amortized cost and the fair value of CRI
Liquidating's Government Insured Multifamily Mortgages represents the net
unrealized gains on CRI Liquidating's Government Insured Multifamily Mortgages.
CRIIMI MAE's share of the net unrealized gains on CRI Liquidating's Government
Insured Multifamily Mortgages is reported as a separate component of
shareholders' equity as of December 31, 1993.
61
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
<TABLE>
<CAPTION>
As of December 31, 1993
Amortized Fair
Cost Value
------------- ------------
<S> <C> <C>
ASSETS
- ------
Investment in mortgages,
accounted for at
amortized cost:
Near par or premium $495,846,514 $505,578,030
Discount 903,982 1,004,399
------------ ------------
Total 496,750,496 506,582,429
------------ ------------
Investment in mortgages,
accounted for at fair
value: (A)
Near par or premium 166,913,207 215,866,436
Discount 16,983,594 17,647,797
Mortgages held for
disposition 9,594,024 11,326,356
------------ ------------
Total 193,490,825 244,840,589
------------ ------------
LIABILITIES
- -----------
Commercial paper $ 95,306,000 $ 95,306,000
Long-term debt 383,739,048 383,739,048
Interest rate hedge
agreements (4,113,713) 3,115,531
</TABLE>
(A) CRI Liquidating's mortgage investments and all Mortgages Held for
Disposition were accounted for at fair value on the accompanying
consolidated balance sheet as of December 31, 1993.
62
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Investment in mortgages
- -----------------------
The fair value of the Government Insured Multifamily Mortgages is based on
the average of the quoted market prices from three investment banking
institutions which trade insured mortgage loans as part of their day-to-day
activities.
Commercial paper
- ----------------
The carrying amount approximates fair value because of the short maturity
of the debt.
Long-term debt
- --------------
The carrying amount approximates fair value because the current rate on the
debt is reset quarterly based on market rates.
Interest rate hedge agreements
- ------------------------------
The fair value of interest rate hedge agreements (used to hedge CRIIMI
MAE's commercial paper and long-term debt) is the estimated amount that CRIIMI
MAE would pay to terminate the agreements as of December 31, 1993, taking into
account current interest rates and the current creditworthiness of the
counterparties. The amount was determined based on the average of two quotes
received from financial institutions which enter into these types of
transactions as part of their day-to-day activities.
63
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders of
CRIIMI MAE Inc.
We have audited the accompanying consolidated balance sheets of CRIIMI MAE
Inc. (CRIIMI MAE) and its Subsidiaries as of December 31, 1992 and 1993, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the years ended December 31, 1991, 1992 and 1993. These
financial statements are the responsibility of CRIIMI MAE's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CRIIMI MAE and
its Subsidiaries as of December 31, 1992 and 1993, and the consolidated results
of their operations and their cash flows for the years ended December 31, 1991,
1992 and 1993, in conformity with generally accepted accounting principles.
As explained in Note 2 of the notes to the consolidated financial
statements, effective December 31, 1993, CRIIMI MAE and its Subsidiaries changed
their method of accounting for their investment in mortgages.
Washington, D.C. Arthur Andersen & Co.
February 11, 1994
64
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1992 1993
------------ ------------
<S> <C> <C>
Investment in mortgages, at amortized cost, net
of unamortized discount of $49,183,644 and
unamortized premium of $3,182,138, respectively
Near par or premium $233,590,108 $495,846,514
Discount 192,703,833 903,982
Participating 22,024,884 --
Mortgages held for disposition 24,644,408 --
------------ ------------
Total 472,963,233 496,750,496
------------ ------------
Investment in mortgages, at fair value
Discount -- 215,866,436
Near par or premium -- 17,647,797
Mortgages held for disposition -- 11,326,356
------------ ------------
Total -- 244,840,589
------------ ------------
Investment in insured mortgage funds and advisory
partnership 31,144,793 30,907,157
Investment in limited partnerships 953,868 436,090
Cash and cash equivalents 6,600,134 13,599,860
Receivables and other assets 5,800,119 7,600,729
</TABLE>
65
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
ASSETS (Continued)
<TABLE>
<CAPTION>
December 31,
1992 1993
------------ ------------
<S> <C> <C>
Deferred financing costs, net of accumulated
amortization of $3,633,291 and $7,355,095,
respectively 6,695,299 9,745,974
Deferred costs, principally paid to related
parties,
net of accumulated amortization of $1,974,492 and
$1,870,587, respectively 2,509,612 4,820,135
------------ ------------
Total assets $526,667,058 $808,701,030
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
66
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
1992 1993
------------ ------------
<S> <C> <C>
Liabilities:
Commercial paper $186,300,000 $ 95,306,000
Long-term debt 61,668,480 383,739,048
Accounts payable and accrued expenses 601,851 3,391,411
Interest payable 591,311 2,575,979
------------ ------------
Total liabilities 249,161,642 485,012,438
------------ ------------
Minority interests in consolidated subsidiary 84,396,604 108,399,813
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock -- --
Common stock 211,848 211,848
Net unrealized gains on mortgage investments of
subsidiary -- 29,028,019
Additional paid-in capital 202,409,067 195,561,015
------------ ------------
202,620,915 224,800,882
Less treasury stock, at cost - 1,001,274 shares (9,512,103) (9,512,103)
------------ ------------
Total shareholders' equity 193,108,812 215,288,779
------------ ------------
Total liabilities and shareholders' equity $526,667,058 $808,701,030
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
67
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
1991 1992 1993
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Mortgage investment income:
Stated interest $47,984,287 $44,685,263 $49,003,805
Discount amortization 1,369,050 1,271,288 1,307,072
Premium amortization (30,693) (25,603) (41,305)
----------- ----------- -----------
49,322,644 45,930,948 50,269,572
Other investment income 3,547,196 2,209,979 3,646,224
Income from investment in
insured mortgage funds and
advisory partnership 824,283 1,959,979 2,490,854
Income from investment in
limited partnerships 623,876 600,852 43,605
----------- ----------- -----------
54,317,999 50,701,758 56,450,255
----------- ----------- -----------
Expenses:
Interest expense 25,790,597 24,391,901 28,008,282
Termination of interest rate
swap -- -- 4,890,234
Annual Fee to related party 2,324,847 2,073,818 2,500,785
Incentive Fee to related party -- 163,798 213,972
General and administrative 2,320,797 2,287,013 2,509,567
Provision for settlement of
litigation -- -- 1,500,000
Professional fees 634,535 539,196 1,296,459
Amortization of deferred costs 494,113 374,591 343,407
Mortgage servicing fees 303,461 304,105 489,773
----------- ----------- -----------
31,868,350 30,134,422 41,752,479
----------- ----------- -----------
Income before mortgage
dispositions, gain on sale of
shares of subsidiary and loss on
investment in limited partnership
22,449,649 20,567,336 14,697,776
</TABLE>
68
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME (Continued)
<TABLE>
<CAPTION>
For the years ended December 31,
1991 1992 1993
------------ ----------- -----------
<S> <C> <C> <C>
Mortgage dispositions:
Gains 5,230,542 6,115,747 8,116,948
Losses (1,182,656) (382,602) (759,203)
Gain on sale of shares of
subsidiary -- -- 3,281,750
Loss on investment in limited
partnership -- (731,951) --
------------ ----------- -----------
Income before minority interests
and extraordinary item 26,497,535 25,568,530 25,337,271
Minority interests in net income
of consolidated subsidiary (10,854,526) (9,527,299) (9,579,766)
------------ ----------- -----------
Income before extraordinary item 15,643,009 16,041,231 15,757,505
Extraordinary item - loss on
extinguishment of debt (6,642,450) -- --
------------ ----------- -----------
Net income $ 9,000,559 $16,041,231 $15,757,505
============ =========== ===========
Per share data:
Operating income $ .78 $ .79 $ .78
Extraordinary loss (.33) -- --
------------ ----------- -----------
Net income per share $ .45 $ .79 $ .78
============ =========== ===========
Weighted average shares
outstanding, exclusive of shares
held in treasury 20,183,552 20,183,533 20,183,533
============ =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
69
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1991, 1992 and 1993
<TABLE>
<CAPTION>
Net
Unrealized
Gains on
Additional
Common Stock Mortgage Paid-in Total
Par Investments of Undistributed Treasury Shareholders'
Shares Value Subsidiary Capital Net Income Stock Equity
------ ----------- ---------- ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1990 21,185,671 $211,857 $ -- $220,495,165 $ -- $(9,512,103) $211,194,919
Adjustment to amounts
issued (845) (9) -- 9 -- -- --
Net income -- -- -- -- 9,000,559 -- 9,000,559
Dividends of $0.45 per
share -- -- -- -- (9,000,559) -- (9,000,559)
Return of capital of
$0.63 per share -- -- -- (12,797,677) -- -- (12,797,677)
----------- ---------- ------------- ------------ ------------- ----------- ------------
Balance, December 31,
1991 21,184,826 211,848 -- 207,697,497 -- (9,512,103) 198,397,242
Adjustment to amounts
issued (19) -- -- -- -- -- --
Adjustment to minority
interests in
consolidated
subsidiary for actual
shares issued -- -- -- 766,891 -- -- 766,891
Payment of dividends
for prior years -- -- -- (298,331) -- -- (298,331)
Net income -- -- -- -- 16,041,231 -- 16,041,231
Dividends of $0.79 per
share -- -- -- -- (16,041,231) -- (16,041,231)
Return of capital of
$0.29 per share -- -- -- (5,756,990) -- -- (5,756,990)
----------- ---------- ------------- ------------ ------------- ----------- ------------
Balance, December 31,
1992 21,184,807 211,848 -- 202,409,067 -- (9,512,103) 193,108,812
</TABLE>
70
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1991, 1992 and 1993
<TABLE>
<CAPTION>
Net
Unrealized
Gains on
Additional
Common Stock Mortgage Paid-in Total
Par Investments of Undistributed Treasury Shareholders'
Shares Value Subsidiary Capital Net Income Stock Equity
------ ----------- ---------- ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 21,184,807 211,848 -- 202,409,067 -- (9,512,103) 193,108,812
Net income -- -- -- -- 15,757,505 -- 15,757,505
Dividends of $0.78 per
share -- -- -- -- (15,757,505) -- (15,757,505)
Return of capital of $0.34
per share -- -- -- (6,848,052) -- -- (6,848,052)
Net unrealized gains on
mortgage investments of
subsidiary -- -- 29,028,019 -- -- -- 29,028,019
----------- ---------- ------------- ------------ ------------- ----------- ------------
Balance, December 31, 1993 21,184,807 $211,848 $29,028,019 $195,561,015 $ -- $(9,512,103) $215,288,779
=========== ========== ============= ============ ============= =========== ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
71
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
1991 1992 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 9,000,559 $16,041,231 $15,757,505
Adjustments to reconcile net
income to net
cash provided by operating
activities:
Amortization of deferred
costs 494,113 374,591 343,407
Amortization of deferred
financing costs and discount
on long-term debt 907,972 3,249,891 4,209,980
Amortization of deferred AIM
acquisition costs -- 322,017 224,528
Mortgage discount
amortization (1,369,050) (1,271,288) (1,307,072)
Mortgage premium amortization 30,693 25,603 41,305
Other short-term investment
premium amortization -- 1,226,457 7,727,101
Gains on mortgage
dispositions (5,230,542) (6,115,747) (8,116,948)
Losses on mortgage
dispositions 1,182,656 382,602 759,203
Gain on sale of shares of
subsidiary -- -- (3,281,750)
Loss on investment in limited
partnership -- 731,951 --
Equity earnings from
investment in limited
partnerships (623,876) (600,852) (43,605)
Interest received under the
equity method of accounting
but treated as reduction of
investment in limited
partnerships 919,755 972,704 308,093
Other operating activities 75,120 (69,086) --
Minority interest in earnings
of subsidiary 10,854,526 9,527,299 9,579,766
Changes in assets and
liabilities:
(Increase) decrease in
receivables and other
assets (140,692) 1,011,754 (1,800,610)
Increase (decrease) in
accounts payable and
accrued expenses 499,450 (1,632,057) 2,789,560
(Decrease) increase in
interest payable (2,983,369) 318,023 1,576,692
----------- ----------- -----------
Net cash provided by
operating activities 13,617,315 24,495,093 28,767,155
----------- ----------- -----------
</TABLE>
72
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the years ended December 31,
1991 1992 1993
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from investing
activities:
Purchase of mortgages and advances
on construction loans (61,502,471) (31,823,117) (312,654,818)
Proceeds from mortgage
dispositions 119,049,031 50,425,606 93,437,842
Purchase of other short-term
investments -- (66,751,139) (175,300,539)
Proceeds from sale of other
short-term investments -- 65,491,782 167,111,884
Net proceeds from sale of shares
of subsidiary -- -- 26,431,250
Purchase of interests in insured
mortgage funds and advisory
partnership (24,429,305) -- --
Receipt of mortgage and other
short-term investment principal
from scheduled payments 3,791,664 3,939,855 4,961,447
Receipt of principal from
investment in insured mortgage
funds -- 585,567 13,108
Payment of deferred costs
(including deferred acquisition
costs) (3,715,958) (42,147) (2,653,930)
Annual return from investment in
limited partnerships 373,310 253,292 253,292
Proceeds from redemption/sale of
HUD debentures -- 2,334,150 6,062,502
----------- ----------- ------------
Net cash provided by (used in)
investing activities 33,566,271 24,413,849 (192,337,962)
----------- ----------- ------------
</TABLE>
73
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the years ended December 31,
1991 1992 1993
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from financing
activities:
Proceeds from long-term debt 85,000,000 -- 346,712,648
Principal payments on long-term
debt (13,250,000) (23,331,520) (24,642,080)
Net proceeds from/(paydown of)
commercial paper 26,514,266 25,832,435 (90,586,024)
Decrease in debt service reserve 17,627,640 -- --
Proceeds from short-term debt -- 56,150,273 115,631,517
Payment on short-term debt -- (56,150,273) (115,631,517)
Increase in deferred financing
costs (3,718,405) (328,029) (7,260,655)
Dividends (including return of
capital) paid to shareholders,
including minority interests (53,376,523) (46,142,788) (53,653,356)
Early extinguishment of
long-term debt (97,621,875) -- --
Purchase of U.S. Treasury
Securities for defeasance of
long-term debt (21,604,000) -- --
------------ ------------ -------------
Net cash (used in) provided by
financing activities (60,428,897) (43,969,902) 170,570,533
------------ ------------ -------------
Net (decrease) increase in cash
and cash equivalents (13,245,311) 4,939,040 6,999,726
Cash and cash equivalents,
beginning of year 14,906,405 1,661,094 6,600,134
------------ ------------ -------------
Cash and cash equivalents, end of
year $ 1,661,094 $ 6,600,134 $ 13,599,860
============ ============ =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
74
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and the Merger
CRIIMI MAE Inc. (CRIIMI MAE) (formerly CRI Insured Mortgage Association,
Inc.), is an infinite-life, actively managed real estate investment trust
(REIT), which specializes in government insured and guaranteed mortgage
investments secured by multifamily housing complexes (Government Insured
Multifamily Mortgages) located throughout the United States. CRIIMI MAE's
principal objectives are to provide stable or growing quarterly cash
distributions to its shareholders while preserving and protecting its capital.
CRIIMI MAE seeks to achieve these objectives by investing primarily in
Government Insured Multifamily Mortgages using a combination of debt and equity
financing. CRIIMI MAE and its subsidiary, CRI Liquidating REIT, Inc. (CRI
Liquidating), are Maryland corporations.
CRIIMI MAE and CRI Liquidating were formed in 1989 to effect the merger
into CRI Liquidating (the Merger) of three federally insured mortgage funds
sponsored by C.R.I., Inc. (CRI), a Delaware corporation formed in 1974: CRI
Insured Mortgage Investments Limited Partnership (CRIIMI I); CRI Insured
Mortgage Investments II, Inc. (CRIIMI II); and CRI Insured Mortgage Investments
III Limited Partnership (CRIIMI III; and, together with CRIIMI I and CRIIMI II,
the CRIIMI Funds). The Merger was effected to provide certain potential
benefits to investors in the CRIIMI Funds, including the elimination of
unrelated business taxable income for certain tax-exempt investors, the
diversification of investments, the reduction of general overhead and
administrative costs as a percentage of assets and total income and the
simplification of tax reporting information. In the Merger, which was approved
by investors in each of the CRIIMI Funds and subsequently consummated on
November 27, 1989, investors in the CRIIMI Funds received, at their option,
shares of CRI Liquidating common stock or shares of CRIIMI MAE common stock.
Investors in the CRIIMI Funds that received shares of CRIIMI MAE common
stock became shareholders in an infinite-life, actively managed REIT having the
potential to increase the size of its portfolio and enhance the returns to its
shareholders. CRIIMI MAE shareholders retained their economic interests in the
assets of the CRIIMI Funds which were transferred to CRI Liquidating through
75
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and the Merger - Continued
the issuance of one CRI Liquidating share to CRIIMI MAE for each share of CRIIMI
MAE common stock issued to investors in the Merger. Upon the completion of the
Merger, CRIIMI MAE held a total of 20,361,807 CRI Liquidating shares, or
approximately 67% of the issued and outstanding CRI Liquidating shares.
Investors in the CRIIMI Funds that received shares of CRI Liquidating
common stock, as well as CRIIMI MAE, became shareholders in a finite-life,
self-liquidating REIT the assets of which consist primarily of Government
Insured Multifamily Mortgages and other assets formerly held by the CRIIMI
Funds. CRI Liquidating intends to hold, manage and dispose of its mortgage
investments in accordance with the objectives and policies of the CRIIMI Funds,
including disposing of any remaining mortgage investments by 1997 through an
orderly liquidation.
Pursuant to a Registration Rights Agreement dated November 28, 1989
between CRIIMI MAE and CRI Liquidating, CRIIMI MAE sold 3,162,500 of its CRI
Liquidating shares in an underwritten public offering which was consummated in
November 1993. As a result of such sale, CRIIMI MAE holds a total of 17,199,307
CRI Liquidating shares, or approximately 57% of CRI Liquidating's issued and
outstanding common stock. CRIIMI MAE used approximately $4.9 million of the
approximately $26.5 million in net proceeds to terminate a 9.23% interest rate
swap agreement on $25 million of CRIIMI MAE's existing indebtedness and used the
remaining net proceeds to purchase Government Insured Multifamily Mortgages.
CRIIMI MAE and CRI Liquidating are governed by a board of directors, a
majority of whom are independent directors with extensive industry related
experience. The Board of Directors of CRIIMI MAE and CRI Liquidating has
engaged CRI Insured Mortgage Associates Adviser Limited Partnership (the
Adviser) to act in the capacity of adviser to CRIIMI MAE and CRI Liquidating.
The Adviser's general partner is CRI and its operations are conducted by CRI's
employees. CRIIMI MAE's and CRI Liquidating's executive officers are senior
executive officers of CRI. The Adviser manages CRIIMI MAE's portfolio of
Government Insured Multifamily Mortgages and other assets with the goal of
maximizing CRIIMI
76
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAE's value, and conducts CRIIMI MAE's day-to-day operations. Under an advisory
agreement between CRIIMI MAE and the Adviser, the Adviser and its affiliates
receive certain fees and expense reimbursements (see Note 3).
On September 6, 1991, CRIIMI MAE, through its wholly owned subsidiary
CRIIMI, Inc., acquired from Integrated Resources, Inc. (Integrated) all of the
general partnership interests in four publicly held limited partnerships known
as the American Insured Mortgage Investors Funds (the AIM Funds). The AIM Funds
own mortgage investments which are substantially similar to those owned by
CRIIMI MAE and CRI Liquidating. CRIIMI, Inc. receives the general partner's
share of income, loss and distributions (which ranges among the AIM Funds from
2.9% to 4.9%) from each of the AIM Funds. In addition, CRIIMI MAE owns
indirectly a limited partnership interest in the adviser to the AIM Funds in
respect of which CRIIMI MAE receives a guaranteed return each year (see Note
14).
CRIIMI MAE and CRI Liquidating have qualified and intend to continue to
qualify as REITs under Sections 856-860 of the Internal Revenue Code. As REITs,
CRIIMI MAE and CRI Liquidating do not pay taxes at the corporate level.
Qualification for treatment as REITs require CRIIMI MAE and CRI Liquidating to
meet certain criteria, including certain requirements regarding the nature of
their ownership, assets, income and distributions of taxable income.
On October 19, 1993, CRIIMI MAE filed a Registration Statement on Form
S-3 (Commission File No. 33-50679), expected to be amended on February 16, 1994,
to register for sale to the public approximately 6.0 million shares of CRIIMI
MAE's common stock (or 6.9 million shares if the underwriters exercise their
overallotment option) (the Equity Offering). While there is no assurance that
the Equity Offering will be consummated, it is currently expected that the sale
will be completed in March 1994, subject to, among other things, such
Registration Statement becoming effective and market conditions at such time.
The net proceeds from the sale of the shares are estimated to be
77
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
approximately $64.3 million (based on an offering price of $11.50 per share, the
reported last sale price on February 11, 1994, and not including the
over-allotment). Although no specific investments have as yet been selected,
CRIIMI MAE intends to use such proceeds primarily for the acquisition of
Government Insured Multifamily Mortgages, the purchase of interest rate hedging
agreements and for other general corporate purposes, including, without
limitation, working capital. It is not expected that any of the proceeds will
be used to repay indebtedness of CRIIMI MAE. The costs of the Equity Offering,
including professional fees, filing fees, printing costs and other items, are
expected to approximate $.6 million (which was incurred or accrued as of
December 31, 1993). Additionally, underwriting fees in an amount which
approximates 6.0% of the gross offering proceeds are expected to be incurred.
2. Summary of Significant Accounting Policies
Method of accounting
- --------------------
The consolidated financial statements of CRIIMI MAE are prepared on the
accrual basis of accounting in accordance with generally accepted accounting
principles.
Reclassifications
- -----------------
Certain amounts in the consolidated financial statements as of December
31, 1992 and for the years ended December 31, 1991 and 1992 have been
reclassified to conform with the 1993 presentation.
Cash and cash equivalents
- -------------------------
Cash and cash equivalents consist of money market funds, time and demand
deposits and repurchase agreements with original maturities of three months or
less.
78
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidation and minority interests
- ------------------------------------
The consolidated financial statements reflect the financial position,
results of operations, and cash flows of CRIIMI MAE, CRI Liquidating, and
CRIIMI, Inc., for all periods presented. All intercompany accounts and
transactions have been eliminated in consolidation.
Since CRIIMI MAE owned approximately 67%, 67% and 57% of CRI Liquidating
as of December 31, 1991, 1992 and 1993, respectively, the ownership interests of
the other shareholders in the equity and net income of CRI Liquidating are
reflected as minority interests in the accompanying consolidated financial
statements.
Consolidated statements of cash flows
- -------------------------------------
Since the consolidated statements of cash flows are intended to reflect
only cash receipt and cash payment activity, the consolidated statements of cash
flows do not reflect investing and financing activities that affect recognized
assets and liabilities and do not result in cash receipts or cash payments.
Such activity consisted of the following:
o In July 1991, CRI Liquidating received $2,334,150 in 12 3/4% United
States Department of Housing and Urban Development (HUD) debentures as proceeds
from the disposition of the mortgage investment in Oak Hill Road Apartments. The
proceeds from the redemption of the HUD debentures, including interest, were
received in January 1992.
Cash payments made for interest for the years ended December 31, 1991,
1992 and 1993 were $27,883,482, $20,826,987 and $22,448,356, respectively.
79
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investment in mortgages
- -----------------------
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115). This statement requires that most
investments in debt and equity securities be classified into one of the
following investment categories based upon the circumstances under which such
securities might be sold: Held to Maturity, Available for Sale, and Trading.
Generally, certain debt securities for which an enterprise has both the ability
and intent to hold to maturity should be accounted for using the amortized cost
method and all other securities must be recorded at their fair values. This
statement, though not required to be adopted until 1994 for CRIIMI MAE and CRI
Liquidating, has been adopted for the year ended December 31, 1993.
CRIIMI MAE, an infinite-life entity, has the intent and ability to hold
its mortgage investments until maturity. Consequently, all mortgage investments,
excluding Mortgages Held for Disposition (see Note 6), have been classified as
Held to Maturity and continue to be recorded at amortized cost as of December
31, 1993. CRI Liquidating intends to dispose of its existing Government Insured
Multifamily Mortgages by March 31, 1997 through an orderly liquidation. In order
to achieve this objective, CRI Liquidating will sell certain of its mortgage
investments in addition to mortgages assigned to HUD. Consequently, the Adviser
believes that the mortgage investments held by CRI Liquidating fall into the
Available for Sale category (as defined by SFAS 115). As such, as of December
31, 1993, all of CRI Liquidating's mortgage investments are recorded at fair
value with CRIIMI MAE's share of the net unrealized gains on CRI Liquidating's
mortgage investments reported as a separate component of shareholders' equity.
Subsequent increases or decreases in the fair value of Available for Sale
mortgage investments shall be included as a separate component of shareholders'
equity. Realized gains and losses for mortgage investments
80
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
classified as Available for Sale will continue to be reported in earnings, as
discussed below. Prior to December 31, 1993, CRI Liquidating accounted for its
mortgage investments at amortized cost.
The difference between the cost and the unpaid principal balance at the
time of purchase is carried as a discount or premium and amortized over the
remaining contractual life of the mortgage using the effective interest method.
The effective interest method provides a constant yield of income over the term
of the mortgage.
Mortgage investment income is comprised of amortization of the discount
plus the stated mortgage interest payments received or accrued less amortization
of the premium.
CRIIMI MAE's consolidated investment in mortgages is comprised of
Government Insured Multifamily Mortgages issued or sold pursuant to programs of
the Federal Housing Administration (FHA) (FHA-Insured Loans) and mortgage-backed
securities guaranteed by the Government National Mortgage Association (GNMA)
(GNMA-Mortgage-Backed Securities). Payment of principal and interest on
FHA-Insured Loans is insured by HUD pursuant to Title 2 of the National Housing
Act. Payment of principal and interest on GNMA-Mortgage-Backed Securities is
guaranteed by GNMA pursuant to Title 3 of the National Housing Act.
Mortgages held for disposition
- ------------------------------
At any point in time, CRI Liquidating and CRIIMI MAE may be aware of
certain mortgages which have been assigned to HUD or for which the servicer has
received proceeds from a prepayment. In addition, at certain times CRI
Liquidating may enter into a contract to sell certain mortgages. In these
cases, CRIIMI MAE and CRI Liquidating will classify these mortgages as Mortgages
Held for Disposition. Mortgages Held for Disposition have been accounted for at
the lower of cost or market prior to December 31, 1993, and at fair value
81
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as of December 31, 1993 under the Available for Sale criteria of SFAS 115. Gains
from dispositions of mortgages are recognized upon the receipt of funds or HUD
debentures.
Losses on dispositions of mortgages are recognized when it becomes
probable that a mortgage will be disposed of and that the disposition will
result in a loss.
Investment in insured mortgage funds and advisory partnership
- -------------------------------------------------------------
The acquisition of certain interests in the AIM Funds in September 1991
(see Note 14), including certain acquisition costs aggregating approximately
$7.7 million, have been recorded under the purchase method of accounting, which
provides that the investment be recorded at cost, including the acquisition
costs. CRIIMI MAE is utilizing the equity method of accounting for its
investment in the AIM Funds and advisory partnership, which provides for
recording CRIIMI MAE's share of net earnings or losses in the AIM Funds and
advisory partnership reduced by distributions from the limited partnerships and
adjusted for purchase accounting amortization. The purchase price, including
the deferred acquisition costs of approximately $7.7 million, was allocated
among the general partner interests and the advisory partnership interest based
on the partnerships' and advisory contracts' estimated fair values. The general
partnership and advisory interests were assigned a total value of approximately
$27 million and $5 million, respectively.
Deferred costs
- --------------
Included in deferred costs are mortgage selection fees, which are being
paid to the Adviser of CRIIMI MAE (see Note 3) or were paid to the former
general partners or adviser to the CRIIMI Funds. These deferred costs are being
amortized using the effective interest method on a specific mortgage
82
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
basis from the date of the acquisition of the related mortgage to the expected
dissolution date of CRI Liquidating or over the term of the mortgage for CRIIMI
MAE (see Note 1). Upon disposition of a mortgage, the related unamortized fee is
treated as part of the mortgage investment carrying value in order to measure
the gain or loss on the disposition.
Borrowing policy of CRI Liquidating
- -----------------------------------
CRI Liquidating's Articles of Incorporation do not limit the amount or
percentage of indebtedness which CRI Liquidating may incur. CRI Liquidating
does not intend to incur any indebtedness, except in connection with the
maintenance of its REIT status. During 1992 and 1993, CRI Liquidating entered
into transactions in which it incurred debt in connection with the purchase of
government guaranteed mortgage-backed securities and government insured
certificates backed by project loans. This debt was nonrecourse and fully
secured with the purchased government guaranteed mortgage-backed securities and
government insured certificates backed by project loans. As of December 31,
1992 and 1993, CRI Liquidating disposed of these government guaranteed
mortgage-backed securities and government insured certificates backed by project
loans, and repaid the related debt.
Interest expense is based on the seller financing of a portion of the
purchase price of the other short-term investments in government guaranteed
mortgage-backed securities and government insured certificates backed by project
loans (see Note 7).
Deferred financing costs
- ------------------------
Costs incurred in connection with the establishment of CRIIMI MAE's
commercial paper facility (the Commercial Paper Facility) and the issuance of
long-term debt and commercial paper (see Notes 10 and 11) are amortized using
the effective interest method over the terms of the borrowings.
83
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest rate hedge agreements
- ------------------------------
Amounts to be paid or received under interest rate hedge agreements are
accrued currently and are netted for financial statement presentation purposes.
Shareholders' equity
- --------------------
CRIIMI MAE has authorized 60,000,000 shares of $.01 par value common
stock and issued 21,184,807 shares as of December 31, 1992 and 1993. All shares
issued, exclusive of the shares held in treasury, are outstanding. As of
December 31, 1992 and 1993, 10,266 and 7,732 shares, respectively, were held for
issuance pending presentation of predecessor units and are considered
outstanding. Additionally, 25,000,000 shares of $.01 par value preferred stock
are authorized; however, no shares are issued or outstanding.
Income taxes
- ------------
CRIIMI MAE and CRI Liquidating have qualified and intend to continue to
qualify as REITs as defined in the Internal Revenue Code and, as such, will not
be taxed on that portion of their taxable income which is distributed to
shareholders provided that at least 95% of such taxable income is distributed.
CRIIMI MAE and CRI Liquidating intend to distribute substantially all of their
taxable income and, accordingly, no provision for income taxes has been made in
the accompanying consolidated financial statements. CRIIMI MAE and CRI
Liquidating, however, may be subject to tax at normal corporate rates on net
income or capital gains not distributed.
84
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Per share amounts
- -----------------
Net income, dividends and return of capital per share amounts for 1991,
1992 and 1993 represent net income, dividends and return of capital,
respectively, divided by the weighted average shares outstanding during each
year. The per share amounts are based on the weighted average shares
outstanding, including shares held for issuance, pending presentation of
predecessor units in the CRIIMI Funds.
85
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Transactions with Related Parties
Below is a summary of the related party transactions which occurred
during the years 1991, 1992 and 1993. These items are described further in the
text which follows:
<TABLE>
<CAPTION>
For the years ended December 31,
1991 1992 1993
---------- ---------- ----------
<S> <C> <C> <C>
Payments to the Adviser:
- -----------------------
Annual fee - CRIIMI MAE (a)(h) $ 792,751 $ 859,409 $1,266,494
Annual fee - CRI Liquidating (a) 1,532,096 1,214,409 1,234,291(g)
Incentive fee - CRIIMI MAE (a) -- 163,798 213,972
Incentive fee - CRI Liquidating
(f) 517,399 -- 256,290
Mortgage selection fees - CRIIMI
MAE (b) 372,972 110,120 2,416,253
---------- ---------- ----------
Total $3,215,218 $2,347,736 $5,387,300
========== ========== ==========
Payments to CRI:
- ---------------
Expense reimbursement - CRIIMI MAE
(c) $ 808,194 $ 650,988 $ 707,110
Expense reimbursement - CRI
Liquidating (c) 279,951 244,457 254,039
---------- ---------- ----------
Total $1,088,145 $ 895,445 $ 961,149
========== ========== ==========
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
For the years ended December 31,
1991 1992 1993
---------------- ---------- ------------
<S> <C> <C> <C>
Amounts Received or Accrued from
Related Parties
- ---------------------------------
CRIIMI,Inc.
- -----------
Income (d) $587,658 $1,581,996 $2,015,861
Return of capital (e) -- 585,567 13,108
---------------- ---------- ------------
Total $587,658 $2,167,563 $2,028,969
================ ========== ============
CRI/AIM Investment, L.P. (d)(h) $222,466 $ 700,000 $ 700,000
================ ========== ============
</TABLE>
(a) Included in the accompanying consolidated statements of income. A
detailed schedule of CRI Liquidating's annual fee is reflected in the
tables below.
(b) These amounts are deferred on the accompanying consolidated balance
sheets and amortized over the mortgage investment term.
(c) Included as general and administrative expenses on the accompanying
consolidated statements of income.
(d) Included as income from investment in insured mortgage funds and advisory
partnership, before amortization, on the accompanying consolidated
statements of income.
(e) Included as a reduction of investment in insured mortgage funds and
advisory partnership on the accompanying consolidated balance sheets.
(f) Included as a component of gains from mortgage dispositions on the
accompanying consolidated statements of income.
(g) As a result of reaching the carryover CRIIMI I target yield during the
first and fourth quarters of 1993, CRI Liquidating paid deferred annual
fees during these quarters (including $86,395 of deferred annual fees from
the third and fourth quarters of 1992 which were paid during the first
quarter of 1993).
(h) As of June 1, 1993, pursuant to the First Amendment to the CRI Insured
Mortgage Association, Inc. Advisory Agreement, CRIIMI MAE was granted the
right to reduce the amounts paid to the Adviser by the difference between
its guaranteed $700,000 distribution and the amount actually paid to CRIIMI
MAE by CRI/AIM Investment Limited Partnership. As such, the amounts paid to
the Adviser during 1993 were reduced by $101,859 which represents the
difference between the guaranteed distribution for the period and the
amount actually paid to CRIIMI MAE.
87
<PAGE>
CRIIMI MAE has entered into an agreement with the Adviser (the Advisory
Agreement) under which the Adviser is obligated to present an investment program
to CRIIMI MAE, to evaluate and negotiate voluntary and involuntary mortgage
dispositions, provide administrative services for CRIIMI MAE and conduct CRIIMI
MAE's day-to-day operations.
The Advisory Agreement is for a term through November 27, 1995. The
Advisory Agreement, absent a notice of termination or non-renewal, will be
automatically renewed for successive three-year terms. The Advisory Agreement
may be terminated solely for cause, as defined in the Advisory Agreement, by
CRIIMI MAE or the Adviser. Notice of non-renewal must be given at least 180
days prior to the expiration date of the Advisory Agreement. If CRIIMI MAE
terminates the Advisory Agreement other than for cause, or the Adviser
terminates the Advisory Agreement for cause, in addition to compensation
otherwise due, CRIIMI MAE will be required to pay the Adviser a fee equal to the
Annual Fee (as described below) payable for the previous fiscal year. If the
Advisory Agreement is not renewed, no termination fee will be payable.
Under the Advisory Agreement, the Adviser receives compensation from CRIIMI
MAE as follows:
o An annual fee (the Annual Fee) for managing CRIIMI MAE's portfolio of
mortgages. The Annual Fee is equal to 0.375% of average invested assets invested
in Additional Mortgage Investments (defined as mortgages acquired by CRIIMI MAE
after the Merger), payable quarterly.
o Included in the Annual Fee shown in the preceding table is the Master
Servicing Fee for overseeing the servicing of the Additional Mortgage
Investments. The master servicing fee is equal to 0.025% annually of the
outstanding face balance of the Additional Mortgage Investments, payable
quarterly.
88
<PAGE>
o A mortgage selection fee for analyzing, evaluating and structuring
Additional Mortgage Investments. The mortgage selection fee equals 0.75% of
amounts invested in Additional Mortgage Investments. The Adviser is also
entitled to receive one-half of the fees paid to CRIIMI MAE by the owner or
developer of a property underlying a participating mortgage investment, provided
that the interest rate on the base mortgage investment is at least equal to the
prevailing market interest rate for similar base mortgage investments coupled
with investments in limited partnerships.
In 1991, the Adviser adopted a policy with respect to borrowings above
and beyond the original $140 million Notes (see Note 11) and $140 million
Commercial Paper Facility (see Note 10) which would result in a reduction in the
amount of fees payable by CRIIMI MAE if Net Positive Spreads (the difference
between the yield on a mortgage investment acquired with borrowings and all
incremental borrowing and operating expenses on a tax basis associated with the
acquisition of such mortgage investment) are not maintained: the total Annual
Fee and master servicing fee of 0.40% of invested assets payable to the Adviser
with respect to mortgage investments purchased with the proceeds of any
particular tranche of borrowings will be reduced incrementally if CRIIMI MAE's
Net Positive Spread on such tranche of borrowings falls below 0.40%, and the
mortgage selection fee will be eliminated upon reinvestment of proceeds of
mortgage dispositions where the mortgage investment was purchased with borrowed
funds and disposed of in less than five years without providing a cumulative
yield on the original mortgage investment at disposition of at least 100 basis
points higher than the original yield at the date of purchase. Since the
adoption of this policy, CRIIMI MAE expanded its Commercial Paper Facility
(defined below) by $50 million (which expansion was paid down in 1993),
increased its Bank Term Loan (defined
89
<PAGE>
below) by $15 million and entered into Master Repurchase Agreements (defined
below) of approximately $350 million. As of December 31, 1992 and 1993, CRIIMI
MAE had a Net Positive Spread of approximately 60 and 177 basis points,
respectively, on its borrowings.
o An incentive fee equal to 25% of the amount by which net income from
Additional Mortgage Investments exceeds the annual target return on equity is
payable quarterly, subject to year-end adjustment. Net income from Additional
Mortgage Investments is the difference between mortgage investment income,
including gains or losses on dispositions, from the mortgage investments
directly invested in by CRIIMI MAE less financing costs and operating expenses,
including a portion of CRIIMI MAE's general and administrative and professional
expenses that the Adviser has determined to be specifically assigned to those
mortgage investments. Equity for purposes of this computation is CRIIMI MAE's
shareholders' equity on a tax basis. The target return on equity will be
determined on a quarterly basis and will equal 1% over the average yield on
Treasury Bonds maturing nearest to ten years from such quarter, as reported on a
daily basis throughout such quarter, based on quotations supplied by the Federal
Reserve Bank of New York, as reported by The Wall Street Journal.
CRI Liquidating has also entered into an agreement with the Adviser (CRI
Liquidating Advisory Agreement) under which the Adviser is obligated to evaluate
and negotiate voluntary mortgage dispositions, provide administrative services
for CRI Liquidating and conduct CRI Liquidating's day-to-day affairs. The terms
of the CRI Liquidating Advisory Agreement are similar to CRIIMI MAE's terms.
90
<PAGE>
Under the CRI Liquidating Advisory Agreement, the Adviser receives
compensation from CRI Liquidating as follows:
o An annual fee (the CRI Liquidating Annual Fee) for managing CRI
Liquidating's portfolio of mortgages. The CRI Liquidating Annual Fee is
calculated separately for each of the remaining mortgage pools from the former
CRIIMI Funds. With respect to CRIIMI I, the CRI Liquidating Annual Fee will
equal 0.75% of average invested assets invested in mortgage investments
transferred by CRIIMI I in the Merger, one-third of which will be deferred and
paid on a cumulative basis only during such quarters as the carryover CRIIMI I
target yield, as discussed below, is achieved on a cumulative basis. Any such
deferred amounts will be paid only out of proceeds of mortgage dispositions
attributable to CRIIMI I mortgage investments representing market discount.
With respect to CRIIMI II, the CRI Liquidating Annual Fee will equal
0.75% of average invested assets invested in existing mortgage investments
transferred by CRIIMI II in the Merger, one-fourth of which will be deferred and
paid on a cumulative basis only during such quarters as the carryover CRIIMI II
target yield, as discussed below, is achieved on a cumulative basis. Any such
deferred amounts will be paid only out of operating income attributable to
CRIIMI II mortgage investments.
With respect to CRIIMI III, the CRI Liquidating Annual Fee will equal
0.25% of average invested assets invested in mortgage investments transferred by
CRIIMI III in the Merger. After December 31, 1993, this fee will be reduced to
0.125% for any quarter that the carryover CRIIMI III cumulative annual fee
yield, as discussed below, is not achieved.
91
<PAGE>
The carryover CRIIMI I target yield will be achieved during any quarter
that the former CRIIMI I mortgage investments transferred in the Merger generate
a cumulative yield (including gains or losses on mortgage dispositions) on
amounts invested in such assets of 13.33% per annum based on financial statement
income. The carryover CRIIMI II target yield will be achieved during any quarter
that the former CRIIMI II mortgage investments transferred in the Merger
generate a cumulative yield (including gains or losses on mortgage dispositions)
on amounts invested in such assets of 11.66% per annum based on financial
statement income. The carryover CRIIMI III cumulative annual fee yield will be
achieved during any quarter, commencing after December 31, 1993, that the former
CRIIMI III mortgage investments transferred in the Merger generate a cumulative
yield (including gains or losses on mortgage dispositions) on amounts invested
in such assets of 10.89% per annum based on financial statement income.
Detail of the CRI Liquidating Annual Fees for the years 1991, 1992 and
1993 is as follows:
For the year ended
December 31, 1991
<TABLE>
<CAPTION>
Cumulative Actual Annual Fees
Paid
Target/Annual Cumulative Annual Deferred Cumulative
Yield Yield Component Component Total Deferred Deferred
-------------- ------------ -------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI I 13.33% 13.53% $ 362,235 $181,118 $ 543,353 $ -- $ --
CRIIMI II 11.66% 9.49% 690,925 -- 690,925 230,308 1,531,062
CRIIMI III 10.89% 8.13% 297,818 -- 297,818 -- --
---------- -------- ---------- ----------- ---------- ---------- ----------
Totals $1,350,978 $181,118 $1,532,096 $230,308 $1,531,062
========== ======== ========== ========== ==========
</TABLE>
92
<PAGE>
For the year ended December 31, 1992
<TABLE>
<CAPTION>
Cumulative Actual Annual Fees
Paid
Target/Annual Cumulative Annual Deferred Cumulative
Yield Yield Component Component Total Deferred Deferred
-------------- ------------ -------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI I 13.33% 13.24% $ 344,090 $ 85,650 $ 429,740 $ 86,395 $ 86,395
CRIIMI II 11.66% 9.92% 540,204 -- 540,204 180,068 1,711,130
CRIIMI III 10.89% 8.07% 244,465 -- 244,465 -- --
---------- ------- ---------- ----------- ---------- ---------- ----------
Totals $1,128,759 $85,650 $1,214,409 $266,463 $1,797,525
========== =========== ========== ========== ==========
</TABLE>
For the year ended December 31, 1993
<TABLE>
<CAPTION>
Cumulative Actual Annual Fees
Paid
Target/Annual Cumulative Annual Deferred Cumulative
Yield Yield Component Component Total Deferred Deferred
-------------- ------------ -------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI I 13.33% 13.33% $ 314,595 $243,692 $ 558,287 $ -- $ --
CRIIMI II 11.66% 10.05% 484,147 -- 484,147 162,390 1,873,520
CRIIMI III 10.89% 8.05% 191,857 -- 191,857 -- --
-------- -------- ---------- ----------- ---------- ---------- -----------
Totals $990,599 $243,692 $1,234,291 $162,390 $1,873,520
========== =========== ========== ========== ==========
</TABLE>
93
<PAGE>
o The Adviser is also entitled to certain incentive fees (the Incentive
Fees) in connection with the disposition of certain mortgage investments. Like
the CRI Liquidating Annual Fee, the Incentive Fees are calculated separately
with respect to mortgage investments transferred in the Merger by CRIIMI I and
CRIIMI II. No Incentive Fees are payable with respect to mortgage investments
transferred by CRIIMI III.
During any quarter in which either the carryover CRIIMI I or CRIIMI II
target yields have been achieved on a cumulative basis and the Adviser has been
paid any deferred amounts of the CRI Liquidating Annual Fee, the Incentive Fee
will equal approximately 9.08% of net disposition proceeds representing the
financial statement gain on the related CRIIMI I or CRIIMI II mortgage
investments disposed of. After the carryover CRIIMI I adjusted contribution or
the carryover CRIIMI II adjusted share capital has been reduced to zero, the
Incentive Fee will increase to approximately 9.08% of the net disposition
proceeds from the disposition of CRIIMI I or CRIIMI II mortgage investments,
each determined separately.
The carryover CRIIMI I adjusted contribution and the carryover CRIIMI II
adjusted share capital equal the aggregate adjusted contribution of CRIIMI I
investors (initial investment of investors reduced by all amounts distributed to
them representing distributions of principal on their original mortgage
investments other than distributions of proceeds of mortgage dispositions
representing market discount that have been applied to the target yield) and the
aggregate share capital of CRIIMI II investors (initial investment of investors
reduced by all amounts distributed to them representing distributions of
principal on their original mortgage investments other than distributions of
proceeds of mortgage dispositions representing market discount that
94
<PAGE>
have been applied to the target yield), respectively, as of November 27, 1989,
the consummation date of the Merger. Subsequent to November 27, 1989, the
carryover CRIIMI I adjusted contribution and the carryover CRIIMI II adjusted
share capital are reduced by all amounts of principal received from their
respective former mortgage investments, whether as part of regular mortgage
payments or as proceeds of mortgage dispositions, except for proceeds of
mortgage dispositions representing market discount that have been applied to the
respective target yield.
4. Fair Value of Financial Instruments
The following estimated fair values of CRIIMI MAE's consolidated
financial instruments are presented in accordance with generally accepted
accounting principles which define fair value as the amount at which a financial
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. These estimated fair values,
however, do not represent the liquidation value or the market value of CRIIMI
MAE.
As of December 31, 1992, CRIIMI MAE and CRI Liquidating recorded their
mortgage investments at amortized cost (excluding Mortgages Held for Disposition
which were recorded at the lower of cost or market as discussed in Note 6). In
connection with CRIIMI MAE's and CRI Liquidating's implementation of SFAS 115 as
of December 31, 1993 (see Note 2), CRIIMI MAE's Investment in Mortgages
continues to be recorded at amortized cost; however, CRI Liquidating's
Investment in Mortgages and CRIIMI MAE's and CRI Liquidating's Mortgages Held
for Disposition (see Note 6), are recorded at fair value as of December 31,
1993. The difference between the amortized cost and the fair value of CRI
Liquidating's Government Insured Multifamily Mortgages represents the unrealized
net gains on CRI Liquidating's Government Insured Multifamily Mortgages. CRIIMI
MAE's share of the unrealized net gains on CRI Liquidating's Government Insured
Multifamily Mortgages is reported
95
<PAGE>
as a separate component of shareholders' equity as of December 31, 1993.
<TABLE>
<CAPTION>
As of December 31, As of December 31,
1992 1993
Amortized Cost Fair Value Amortized Cost Fair Value
--------------------- -------------------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in mortgages,
accounted for at amortized cost:
Near par or premium $233,590,108 $242,313,168 $495,846,514 $505,578,030
Discount 192,703,833 236,925,191 903,982 1,004,399
Participating 22,024,884 22,817,941 -- --
Mortgages held for disposition 24,644,408 27,238,771 -- --
------------ ------------ ------------ ------------
472,963,233 529,295,071 496,750,496 506,582,429
------------ ------------ ------------ ------------
Investment in mortgages, accounted for
at fair value: (a)
Near par or premium -- -- 166,913,207 215,866,436
Discount -- -- 16,983,594 17,647,797
Mortgages held for disposition -- -- 9,594,024 11,326,356
------------ ------------ ------------ ------------
-- -- 193,490,825 244,840,589
------------ ------------ ------------
Cash and cash equivalents 6,600,134 6,600,134 13,599,860 13,599,860
Accrued interest receivable 4,493,957 4,493,957 5,702,667 5,702,667
LIABILITIES
Commercial paper $186,300,000 $186,300,000 $ 95,306,000 $ 95,306,000
Long-term debt 61,668,480 61,668,480 383,739,048 383,739,048
Interest rate hedge agreements (56,158) 13,729,372 (4,113,713) 3,115,531
</TABLE>
(a) CRI Liquidating's Mortgage Investments and all Mortgages Held for
Disposition were accounted for at fair value on the accompanying consolidated
balance sheet as of December 31, 1993 (see Note 2).
96
<PAGE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Investment in mortgages and mortgages held for disposition
- ----------------------------------------------------------
The fair value of the Government Insured Multifamily Mortgages and
mortgages held for disposition are based on the average of the quoted market
prices from three investment banking institutions which trade insured mortgage
loans as part of their day-to-day activities.
Cash and cash equivalents and accrued interest receivable
- ---------------------------------------------------------
The carrying amount approximates fair value because of the short maturity
of these instruments.
Commercial paper
- ----------------
The carrying amount approximates fair value because of the short maturity
of the debt.
Long-term debt
- --------------
The carrying amount approximates fair value because the current rate on the
debt is reset quarterly based on market rates.
Interest rate hedge agreements
- ------------------------------
The fair value of interest rate hedge agreements (used to hedge CRIIMI
MAE's commercial paper and long-term debt) is the estimated amount that CRIIMI
MAE would pay to terminate the agreements as of December 31, 1992 and 1993,
taking into account current interest rates and the current creditworthiness of
the counterparties. The amount was determined based on the average of two
quotes received from financial institutions which enter into these types of
transactions as part of their day-to-day activities.
97
<PAGE>
5. Investment in Mortgages
CRIIMI MAE's investment policies, which are overseen by the CRIIMI MAE
Board of Directors, are intended to foster its objectives of providing stable or
growing quarterly cash distributions to its shareholders while preserving and
protecting its capital. CRIIMI MAE seeks to achieve these objectives by
investing primarily in Government Insured Multifamily Mortgages issued or sold
pursuant to programs sponsored by FHA and GNMA. CRIIMI MAE's sources of capital
include borrowings, principal distributions received on its CRI Liquidating
shares, principal proceeds of CRIIMI MAE mortgage dispositions and proceeds from
equity offerings.
As of December 31, 1992 and 1993, CRIIMI MAE directly owned 60 and 126
Government Insured Multifamily Mortgages, respectively, which had a weighted
average effective interest rate of approximately 10.1% and 8.52%, a weighted
average remaining term of approximately 31 years and 34 years, and a tax basis
of approximately $226 million and $499 million, respectively.
As of December 31, 1992 and 1993, CRIIMI MAE indirectly owned through its
subsidiary, CRI Liquidating, 73 and 63 Government Insured Multifamily Mortgages,
respectively, which had a weighted average effective interest rate of
approximately 9.91% and 10.03%, a weighted average remaining term of
approximately 28 years and 27 years, and a tax basis of approximately $221
million and $173 million, respectively.
Thus, on a consolidated basis, as of December 31, 1992 and 1993, CRIIMI MAE
owned, directly or indirectly, 133 and 189 Government Insured Multifamily
Mortgages, respectively. These consolidated mortgage investments (including
Mortgages Held for Disposition) had a weighted average effective interest rate
of approximately 9.98%, a weighted average remaining term of approximately 29
years and a tax basis of approximately $447 million, as of December 31, 1992.
These amounts compare to a weighted average effective interest rate of
approximately 8.95%, a weighted average remaining term of approximately 32 years
and a tax basis of approximately $672 million, as of December 31, 1993.
98
<PAGE>
In addition, as of December 31, 1993, CRIIMI MAE had committed approximately $41
million for investment in Government Insured Multifamily Mortgages or advances
on FHA-Insured Loans relating to the construction or rehabilitation of
multifamily housing projects, including nursing homes and intermediate care
facilities (Government Insured Construction Mortgages), to be funded by
borrowings under the Commercial Paper Facility and the remaining funds available
under the Master Repurchase Agreements (see Notes 10 and 11).
During 1993, CRIIMI MAE directly acquired 61 Government Insured Multifamily
Mortgages with an aggregate purchase price of approximately $284 million at
purchase prices ranging from $0.5 million to $30.8 million, with a weighted
average effective interest rate of approximately 7.56% and a weighted average
remaining term of approximately 33.4 years. In addition, during 1993, CRIIMI
MAE funded advances of approximately $29 million on Government Insured
Construction Mortgages with a weighted average effective interest rate of
approximately 8.73%. As of December 31, 1993, CRIIMI MAE had committed to
acquire additional Government Insured Multifamily Mortgages and to make
additional advances on and/or acquire Government Insured Construction Mortgages,
totalling approximately $41 million.
In connection with CRI Liquidating's business plan which calls for an
orderly liquidation of approximately 25% of its December 31, 1993 portfolio
balance each year through 1997, on February 10, 1994, CRI Liquidating sold
twelve Government Insured Multifamily Mortgages resulting in net sales proceeds
of approximately $48.7 million. As of the date of the sale, these twelve
Government Insured Multifamily Mortgages had a weighted average effective
interest rate of approximately 10.3%, a weighted average remaining term of
approximately 28 years and a tax basis of approximately $34 million. This sale
is expected to result in financial statement and tax basis gains of
approximately $11.7 million and $14.7 million, respectively.
99
<PAGE>
As discussed below, CRIIMI MAE is permitted to make direct investments in
primarily two categories of Government Insured Multifamily Mortgages at, near,
or above par value (Near Par or Premium Mortgage Investments).
FHA-Insured Loans--The first category of Near Par or Premium Mortgage
Investments in which CRIIMI MAE is permitted to invest consists of FHA-Insured
Loans. All of the FHA-Insured Loans in which CRIIMI MAE invests are insured by
HUD for effectively 99% of their current face value. As part of its investment
strategy, CRIIMI MAE also invests in Government Insured Construction Mortgages
which involve a two-tier financing process in which a short-term loan covering
construction costs is converted into a permanent loan. CRIIMI MAE also becomes
the holder of the permanent loan upon conversion. The construction loan is
funded in HUD-approved draws based upon the progress of construction. The
construction loans are GNMA-guaranteed or insured by HUD. The construction loan
generally does not amortize during the construction period. Amortization begins
upon conversion of the construction loan into a permanent loan, which generally
occurs within a 24-month period from the initial endorsement by HUD.
Mortgage-Backed Securities--The second category of Near Par or Premium
Mortgage Investments in which CRIIMI MAE is permitted to invest consists of
federally guaranteed mortgage-backed securities or other securities backed by
Government Insured Multifamily Mortgages issued by entities other than GNMA
(Mortgage-Backed Securities) and GNMA Mortgage-Backed Securities. As of December
31, 1993, all of CRIIMI MAE's mortgage investments in this category were GNMA
Mortgage-Backed Securities. The GNMA Mortgage-Backed Securities in which CRIIMI
MAE invests are backed by Government Insured Multifamily Mortgages insured in
whole by HUD, or insured by HUD and a coinsured lender under HUD mortgage
insurance programs and the coinsurance provisions of the National Housing Act.
The Mortgage-Backed Securities in which CRIIMI MAE is permitted to invest,
although none have been acquired as of December 31, 1993, are backed by
Government Insured Multifamily
100
<PAGE>
Mortgages which are insured in whole by HUD under HUD mortgage insurance
programs.
Generally, Government Insured Multifamily Mortgages which are purchased
near, at or above par value will result in a loss if the mortgage investment is
prepaid or assigned prior to maturity because the amortized cost of the mortgage
investment, including acquisition costs, is approximately the same as or
slightly higher than the insured amount of the mortgage investment. As of
December 31, 1993, substantially all of the mortgage investments owned directly
by CRIIMI MAE consisted of Government Insured Multifamily Mortgages that are
Near Par or Premium Mortgage Investments. Based on current interest rates, the
Adviser does not believe that the prepayment, assignment, or sale of any of
CRIIMI MAE's Government Insured Multifamily Mortgages would result in a material
financial statement or tax basis gain or loss.
CRI Liquidating Mortgage Investments--CRI Liquidating's mortgage
investments consist solely of the Government Insured Multifamily Mortgages it
acquired from the CRIIMI Funds in the Merger. The CRIIMI Funds invested
primarily in Government Insured Multifamily Mortgages issued or sold pursuant to
programs of GNMA and FHA.
The majority of CRI Liquidating's mortgage investments were acquired by the
CRIIMI Funds at a discount to face value (Discount Mortgage Investments) on the
belief that based on economic, market, legal and other factors, such Discount
Mortgage Investments might be sold for cash, prepaid as a result of a conversion
to condominium housing or otherwise disposed of or refinanced in a manner
requiring prepayment or permitting other profitable disposition three to twelve
years after acquisition by the CRIIMI Funds. Based on current interest rates,
the Adviser expects that (i) the disposition of most of CRI Liquidating's
Government Insured Multifamily Mortgages will result in a gain on a financial
statement basis, and (ii) the disposition of any of CRI Liquidating's Government
Insured Multifamily Mortgages will
101
<PAGE>
not result in a material loss on a financial statement basis and will result in
a gain on a tax basis.
The safekeeping and servicing of the mortgage investments (excluding CRI
Liquidating's investment in limited partnerships) is performed by various
trustees and servicers under the terms of the Servicing Agreements.
Other Investments
- -----------------
In addition to investing in FHA-Insured Loans and GNMA-Mortgage Backed
Securities, CRIIMI MAE's investment policies also permit CRIIMI MAE to invest in
Government Insured Multifamily Mortgages which are not FHA-insured or
GNMA-guaranteed (Other Insured Mortgages) and in certain other mortgage
investments which are not federally insured or guaranteed (Other Multifamily
Mortgages). Pursuant to CRIIMI MAE's policy, at the time of their acquisition,
Other Multifamily Mortgages must have an expected yield of at least 150 basis
points (1.5%) greater than the yield on Government Insured Multifamily Mortgages
which could be acquired in the then current market and must meet certain other
strict underwriting guidelines. The CRIIMI MAE Board of Directors has adopted a
policy limiting Other Multifamily Mortgages to 20% of CRIIMI MAE's total
consolidated assets. As of December 31, 1993, CRIIMI MAE had not invested or
committed to invest in any Other Insured Mortgages or Other Multifamily
Mortgages and CRIIMI MAE does not currently intend to invest in any Other
Multifamily Mortgages for at least twelve months after the filing date of this
report.
CRIIMI MAE is currently exploring opportunities in connection with the
sponsorship of securities offerings which involve the pooling of certain Other
Multifamily Mortgages to further enhance potential returns to CRIIMI MAE
shareholders. Such sponsorship may also include the investment by CRIIMI MAE in
the non-investment grade or unrated tranches of mortgage pools having a high
current yield. As of December 31, 1993, CRIIMI MAE had not participated in the
sponsorship of any such securities offerings.
102
<PAGE>
The Adviser does not expect that investments of this nature will exceed 5% of
CRIIMI MAE's total consolidated assets for at least twelve months after the
filing date of this report.
Descriptions of the mortgage investments owned, directly or indirectly by
CRIIMI MAE which exceed 3% of the total carrying amount of the consolidated
mortgage investments as of December 31, 1993, summarized information regarding
other mortgage investments and mortgage investment income earned in 1991, 1992
and 1993, including interest earned on the disposed mortgage investments, are as
follows:
103
<PAGE>
<TABLE>
<CAPTION>
Mortgage Mortgage Mortgage
Carrying Investment Investment Investment
Face Value of Effective Income Income Income Final
Amount of Mortgages Interest Earned Earned Earned Maturity
Mortgages(B) (A),(C),(D) Rate in 1991 in 1992 in 1993 Date
---------------- ---------------- ---------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI MAE
- ----------
FHA-Insured Loans
- -----------------
Discount
- --------
Other
(2 mortgages) $ 944,273 $ 903,982 10.25%- $ 91,607 $ 93,629 $ 93,335 March
10.49% 2020-
April
2031
Near Par or Premium
- -------------------
Other
(30 mortgages) 109,082,188 108,938,710 7.35%- 2,329,772 3,420,128 6,101,481 February
11.00% 2019-
April
2033
Construction
Loans (15)* 43,524,241 43,879,707 7.75%- 1,912,882 5,422,891 5,099,429 ***
- ------------- 10.00%
</TABLE>
104
<PAGE>
<TABLE>
<CAPTION>
Mortgage Mortgage Mortgage
Carrying Investment Investment Investment
Face Value of Effective Income Income Income Final
Amount of Mortgages Interest Earned Earned Earned Maturity
Complex Name Mortgages(B) (A),(C),(D) Rate in 1991 in 1992 in 1993 Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA Mortgage-
Backed Securities
- -----------------
Near Par or Premium
- -------------------
San Jose South 29,978,522 30,249,793 7.66% -- -- 11,479 October
2023
Somerset Park 30,181,585 30,767,678 7.41% -- -- 734,515 July 2028
Other
(76 mortgages) 279,857,549 282,010,626 7.11%- 8,128,480 8,305,277 14,782,468 August
2015-
------------ ---------- 10.94% --------- --------- --------- September
2032
Sub-Total
CRIIMI MAE 493,568,358 496,750,496 12,462,741 17,241,925 26,822,707
----------- ----------- ---------- ---------- ----------
CRI Liquidating
- ---------------
FHA-Insured Loans
- -----------------
Discount
- --------
Other
(53 mortgages) 209,718,293 215,866,436 8.35%- 17,200,704 17,086,715 16,975,303 August
2012 -
12.48% March 2025
Near Par or Premium
- -------------------
Other (6 mortgages) 12,044,486 12,806,520 9.22%- 1,195,239 1,187,778 1,179,560 December
2022 -
10.79% June 2025
</TABLE>
105
<PAGE>
<TABLE>
<CAPTION>
Mortgage Mortgage Mortgage
Carrying Investment Investment Investment
Face Value of Effective Income Income Income Final
Amount of Mortgages Interest Earned Earned Earned Maturity
Mortgages(B) (A),(C),(D) Rate in 1991 in 1992 in 1993 Date
-------------- -------------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA Mortgage-
Backed Securities
- -----------------
Near Par or Premium
- -------------------
Other (2 mortgages) 4,690,126 4,841,277 10.14%- 464,621 462,392 459,925 May 2022 -
10.16% September 2022
Sub-total CRI
Liquidating 226,452,905 233,514,233 18,860,564 18,736,885 18,614,788
----------- ----------- ---------- ---------- ----------
Currently invested in
mortgages 720,021,263 730,264,729 31,323,305 35,978,810 45,437,495
Less CRI Liquidating's share
of mortgage interest
relating to investment in
limited partnerships
accounted for under the
equity method (919,755) (972,704) (308,093)
</TABLE>
106
<PAGE>
<TABLE>
<CAPTION>
Mortgage Mortgage Mortgage
Carrying Investment Investment Investment
Face Value of Effective Income Income Income
Amount of Mortgages Interest Earned Earned Earned
Mortgages(B) (A),(C),(D) Rate in 1991 in 1992 in 1993
----------------- --------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Dispositions:
1991 -- -- 9.42%- 4,946,994 -- --
12.84%
1992 -- -- 9.48%- 3,930,147 979,109 --
12.04%
1993 -- -- 8.00%- 9,102,925 9,041,910 4,241,328
11.79%
Mortgages Held for Disposition:
1993** -- -- 8.44%- 939,028 903,823 898,842
12.00%
Investment in
Mortgages $720,021,263 $730,264,729 $49,322,644 $45,930,948 $50,269,572
================= ============ =========== =========== ===========
Investment in
Limited Partner- ships $ 436,090 $ 623,876 $ 600,852 $ 43,605
============ ============ =========== ===========
</TABLE>
* As construction loans convert to permanent loans, information reported in
prior periods is reclassified to the applicable permanent loan classification.
** For additional information regarding Mortgages Held for Disposition, see
Note 6 of the notes to consolidated financial statements.
*** Construction draws are part of a short-term financing process and are
funded to cover construction costs. The construction draws are converted into
a long-term permanent loan generally within a 24-month period from the initial
endorsement by HUD.
107
<PAGE>
(A) All mortgages are collateralized by first or second liens on residential
apartment, retirement home, nursing home, development land or townhouse
complexes which have diverse geographic locations and are FHA-Insured Loans or
GNMA Mortgage-Backed Securities. Payment of the principal and interest on
FHA-Insured Loans is insured by HUD pursuant to Title 2 of the National Housing
Act. Payment of the principal and interest on GNMA Mortgage-Backed Securities is
guaranteed by GNMA pursuant to Title 3 of the National Housing Act. The
investment in limited partnerships is not federally insured or guaranteed.
(B) Principal and interest on permanent mortgages is payable at level amounts
over the life of the mortgage investment. Total annual debt service payable to
CRIIMI MAE and CRI Liquidating(excluding principal and interest on the mortgages
classified as held for disposition) for the mortgage investments held as of
December 31, 1993 is approximately $61.1 million.
(C) Reconciliations of the carrying amount of CRIIMI MAE's consolidated
mortgage investments for the years ended December 31, 1992 and 1993 follow:
108
<PAGE>
<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, 1992 December 31, 1993
<S> <C> <C> <C> <C>
Balance at beginning of
year $446,702,752 $448,318,825
Additions during year:
Purchases 31,823,117 312,654,818
Amortization of discount 1,271,288 1,307,072
Other 281,485 --
Net unrealized gains on
mortgage investments of
subsidiary -- 51,349,764
Deductions during year:
Principal payments $ 3,844,296 $ 4,527,816
Mortgage dispositions:
Mortgages 44,421,242 92,114,681
Mortgages previously
classified as held for
disposition (41,317,473) (24,579,884)
Mortgages reclassified
to held for
disposition 24,786,149 11,261,832
Amortization of premium 25,603 31,759,817 41,305 83,365,750
------------ ------------ ------------ ----------
Balance at end of year $448,318,825 $730,264,729
============ ============
</TABLE>
109
<PAGE>
(D) Principal Amount of Loans Subject to Delinquent Principal or Interest is
not presented since all required payments with respect to these FHA-Insured
Loans or GNMA Mortgage-Backed Securities are current and none of these mortgages
are delinquent as of December 31, 1993, except the mortgages classified as
Mortgages Held for Disposition as discussed in Note 6 and the mortgages on Guinn
Nursing Home and Oak Hills Nursing Home which had an aggregate face value of
approximately $6.2 million as of December 31, 1993.
110
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Investment in Mortgages - Continued
Historical Dispositions
- -----------------------
The following table sets forth certain information concerning
dispositions of Government Insured Multifamily Mortgages by CRIIMI MAE and CRI
Liquidating for the past five years:
<TABLE>
<CAPTION>
Net Gain/(Loss)
Recognized for Net Gain/(Loss)
Financial Recognized
Type of Dispositions Statement For Tax
Year Assignment(1) Sale Prepayment Total Purposes Purposes(3)
- ---- ------------- ---- ---------- ----- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1989-CRI Liq. 5 1 1 7 $ 2,957,598 $ 2,977,188
CRIIMI MAE -- -- -- -- -- --
1990-CRI Liq. 6 -- -- 6 3,853,503 8,005,092
CRIIMI MAE 2 -- -- 2 (59,338) (59,338)
1991-CRI Liq. 8 19 -- 27 4,481,534 12,706,737
CRIIMI MAE 5 1 -- 6 (433,648) (310,089)
1992-CRI Liq. 3 -- -- 3 6,097,102 11,202,237
CRIIMI MAE 4 -- -- 4 (363,957) (118,498)
1993-CRI Liq. 2 5 3 10 8,089,840 14,938,128
CRIIMI MAE 2 -- 5 7 (732,095) (650,339)
--- --- --- --- ----------- -----------
37(2) 26 9 72 $23,890,539 $48,691,118
=== === === === =========== ===========
</TABLE>
111
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investment in Mortgages - Continued
5. Investment in Mortgages - Continued
(1) CRIIMI MAE or CRI Liquidating may elect to receive insurance benefits in
the form of cash when a Government Insured Multifamily Mortgage defaults.
In that event, 90% of the face value of the mortgage generally is received
within approximately 90 days of assignment of the mortgage to HUD and 9%
of the face value of the mortgage is received upon final processing by HUD
which may not occur in the same year as assignment. If CRIIMI MAE or CRI
Liquidating elects to receive insurance benefits in the form of HUD
debentures, 99% of the face value of the mortgage is received upon final
processing by HUD. Gains from dispositions are recognized upon receipt of
funds or HUD debentures and losses generally are recognized at the time of
assignment.
(2) Eight of the 37 assignments were sales of Government Insured Multifamily
Mortgages then in default and resulted in the CRIIMI Funds, CRI
Liquidating or CRIIMI MAE receiving near or above face value.
(3) In connection with the Merger, CRI Liquidating recorded its investment in
mortgages at the lower of cost or fair value, which resulted in an overall
net write down for tax purposes. For financial statement purposes,
carryover basis of accounting was used. Therefore, since the Merger, the
net gain for tax purposes was greater than the net gain recognized for
financial statement purposes. As a REIT, dividends to shareholders are
based on tax basis income.
112
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Mortgages Held for Disposition
As of December 31, 1992 and 1993, the following mortgages were classified
as held for disposition:
<TABLE>
<CAPTION>
Anticipated Anticipated
Anticipated Financial Tax
Date of Type of Net Carrying Statement Basis
Mortgages Held for Disposition Disposition Disposition Value(1) (Loss)/Gain Gain/(Loss)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Booker Gardens Apts.-9%(1) 1993 Assignment $ 31,508 $ (3,815) $ 2,733
The Manhattan Building(1) 1993 Assignment 4,929,861 1,839,707 1,695,797
Woodbridge Apts.(1) 1993 Assignment 5,552,934 431,399 1,107,332
White Oak Apts.(1) 1993 Sale 4,949,225 37,780 1,052,137
Wingate Apts.(2) 1993 Assignment 6,519,863 -- (86,491)
Lexington Green Apts.(2) 1993 Assignment 2,628,001 -- (54,283)
Providence Apts.-9%(2) 1993 Assignment 33,016 4,562 4,562
----------- ---------- ----------
MORTGAGES HELD FOR DISPOSITION
AS OF DECEMBER 31, 1992 $24,644,408 $2,309,633 $3,721,787
=========== ========== ==========
Booker Gardens Apts.-9%(1) 1994 Assignment $ 31,508 $ (3,815) $ 2,733
Lincoln Countrywood Apts.(1) 1994 Assignment 4,991,963 586,179 1,100,971
Timberlake Apts.(1) 1994 Assignment 4,557,938 1,044,698 1,457,193
Broadview Apts.(2) 1994 Prepayment 1,711,931 -- --
Providence Apts.-9%(2) 1994 Assignment 33,016 4,562 4,562
---------- ---------- ----------
MORTGAGES HELD FOR DISPOSITION
AS OF DECEMBER 31, 1993 $11,326,356 $1,631,624 $2,565,459
=========== ========== ==========
</TABLE>
113
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Mortgages Held for Disposition - Continued
(1) Represents a CRI Liquidating mortgage investment. In connection with CRI
Liquidating's implementation of SFAS 115 (see Note 2) as of December 31,
1993, all of CRI Liquidating's mortgage investments, including Mortgages
Held for Disposition, were recorded at fair value. As of December 31,
1992, all of CRI Liquidating's mortgage investments classified as
Mortgages Held for Disposition were recorded at the lower of cost or
market.
(2) Represents a CRIIMI MAE mortgage investment. As of December 31, 1992, all
of CRIIMI MAE's mortgage investments classified as Mortgages Held for
Disposition were recorded at the lower of cost or market. In connection
with CRIIMI MAE's implementation of SFAS 115 (see Note 2) as of December
31, 1993, all of CRIIMI MAE's mortgage investments classified as Mortgages
Held for Disposition were recorded at fair value.
114
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Other Short-Term Investments
During 1993, CRIIMI MAE, and, during each of 1992 and 1993, CRI
Liquidating entered into transactions in which mortgage-backed and other
government agency securities were purchased. These transactions provided CRIIMI
MAE with above average returns compared to its other short-term investments
while maintaining the high quality of its assets and assisted in maintaining CRI
Liquidating's REIT status. Some of these purchases were financed with
borrowings which were nonrecourse and fully secured with the purchased
mortgage-backed and other government agency securities. As of December 31, 1993,
CRIIMI MAE and as of December 31, 1992 and 1993, CRI Liquidating had disposed of
the mortgage-backed and other government agency securities acquired in such year
and repaid the related debt.
115
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Reconciliation of Financial Statement Net Income to Tax Basis Income
Reconciliations of the financial statement net income to the tax basis
income for the years ended December 31, 1991, 1992 and 1993 are as follows:
<TABLE>
<CAPTION>
1991 1992 1993
----------- ------------ ------------
<S> <C> <C> <C>
Financial statement net income
applicable to CRIIMI MAE $ 9,000,559 $16,041,231 $15,757,505
Adjustment due to accounting for
subsidiary as a pooling for financial
statement purposes and a purchase for
tax purposes 6,270,888 4,931,900 4,412,645
Income from investment in insured
mortgage funds and advisory
partnership -- 504,157 87,341
Mortgage dispositions 123,560 245,459 81,756
Interest income - U.S. Treasuries -- 1,074,517 973,619
Interest expense - defeased notes -- (1,583,318) (1,390,672)
Interest expense - amortization of
hedge upfront costs -- -- 366,093
Interest expense - deferred financing
costs -- 445,127 (280,683)
Extraordinary item-loss on early
extinguishment of debt 6,642,450 -- --
Gain on sale of shares of subsidiary -- -- 1,581,247
Nondeductible expenses:
Other -- (33,343) 176,387
Provision for settlement of
litigation -- -- 1,250,000
----------- ----------- -----------
Tax basis income $22,037,457 $21,625,730 $23,015,238
=========== =========== ===========
</TABLE>
116
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Reconciliation of Financial Statement Net Income to Tax Basis
Income - Continued
Differences in the financial statement net income and the tax basis income
principally relate to differences in the tax bases of assets and liabilities and
their related financial reporting amounts resulting from the Merger, investment
in mortgages, long-term debt and deferred financing costs, investment in U.S.
Treasury Securities and partnership investments. The tax basis of investment in
mortgages is approximately $70.3 million less than the financial statement basis
as of December 31, 1993. The tax basis of long-term debt and deferred financing
costs as of December 31, 1993 was approximately $15 million and $5 million,
respectively, greater than the financial statement basis. The tax basis of
investments in U.S. Treasury Securities, purchased in connection with the
defeasance of long-term debt (see Note 11) and netted with the defeased
long-term debt for financial statement purposes, is approximately $15 million
greater than the financial statement basis as of December 31, 1993.
As a result of the foregoing, the nature of the dividends for income tax
purposes on a per share basis is as follows:
<TABLE>
<CAPTION>
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
Ordinary income $0.67 $0.75 $0.91
Long-term capital gains 0.41 0.33 0.21
Non-taxable dividend -- -- --
----- ----- -----
$1.08 $1.08 $1.12
===== ===== =====
</TABLE>
117
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Summary of Quarterly Results of Operations (Unaudited)
The following is a summary of unaudited quarterly results of operations
for the years ended December 31, 1991, 1992 and 1993:
<TABLE>
<CAPTION>
1991
Quarter ended
March 31 June 30 September 30 December 31
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Income (principally mortgage
investment income) $14,041,084 $13,923,874 $12,920,425 $13,432,616
Net gain (loss) on mortgage
dispositions 3,952,314 (271,228) (316,181) 682,981
Income before extra- ordinary
item 6,409,510 3,404,002 2,438,973 3,390,524
Extraordinary item -- -- -- (6,642,450)
Net income (loss) 6,409,510 3,404,002 2,438,973 (3,251,926)
Net income (loss) per share .32 .17 .12 (.16)
<CAPTION>
1992
Quarter ended
March 31 June 30 September 30 December 31
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Income (principally mortgage
investment income) $12,601,668 $12,149,241 $13,123,895 $12,826,954
Net gain (loss) on mortgage
dispositions 5,311,633 9,708 487,507 (75,703)
Loss on investment in limited
partnership -- -- -- (731,951)
Net income 6,797,138 2,886,910 3,526,115 2,831,068
Net income per share .34 .14 .17 .14
</TABLE>
118
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Summary of Quarterly Results of Operations (Unaudited) -
Continued
<TABLE>
<CAPTION>
1992
Quarter ended
March 31 June 30 September 30 December 31
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Income (principally
mortgage investment income) $12,892,685 $12,912,261 $15,199,422 $15,445,887
Net gain on mortgage
dispositions 1,522,785 284,274 489,171 5,061,515
Net income 4,431,388 3,490,212 3,800,643 4,035,262
Net income per share .22 .17 .19 .20
</TABLE>
10. Commercial Paper
The following table shows commercial paper borrowing activity as of
December 31, 1992 and 1993 and for the years then ended:
<TABLE>
<CAPTION>
As of December 31,
1992 1993
------------ ------------
<S> <C> <C>
Amount borrowed $186,300,000 $95,306,000
Weighted average interest rate
(including all borrowing and
hedging costs) 8.96% 7.84%
</TABLE>
119
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Commercial Paper - Continued
<TABLE>
<CAPTION>
Year ended December 31,
1992 1993
------------ ------------
<S> <C> <C>
Maximum amount outstanding $186,300,000 $186,300,000
Average amount outstanding $179,174,236 $133,563,678
Weighted average interest rate
(including all borrowing and
hedging costs) 8.79% 8.25%
</TABLE>
In May 1991, CRIIMI MAE entered into an agreement to amend the Commercial
Paper Facility (defined below) which increased the funds available for
borrowings from $140.0 million to $190.0 million. As of December 31, 1992 and
1993, CRIIMI MAE had borrowed a total of approximately $186.3 million and $95.3
million, respectively.
The base issuance rate for commercial paper issued under CRIIMI MAE's
commercial paper facility (the Commercial Paper Facility) ranged from 3.20% to
4.45% during the year ended December 31, 1992 and 3.15% to 3.68% during the year
ended December 31, 1993, and was 4.02% and 3.41% as of December 31, 1992 and
1993, respectively.
CRIIMI MAE's Commercial Paper Facility provides for the issuance of
commercial paper by CRI Funding Corporation, an unaffiliated special purpose
corporation, which lends the proceeds from the issuance to CRIIMI MAE. If
commercial paper is not issued, the special purpose corporation may meet its
obligation to provide financing to CRIIMI MAE by borrowing at a rate of LIBOR
plus 0.50% under a $140.0 million revolving credit facility which was
established in connection with the Commercial Paper Facility.
Borrowings pursuant to the Commercial Paper Facility are collateralized by
a pledge of certain of CRIIMI MAE's Government Insured Multifamily Mortgages.
The loan agreements contain numerous covenants which CRIIMI MAE must satisfy,
including
120
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Commercial Paper - Continued
requirements that the fair value of collateral pledged must equal at least 110%
of the amounts borrowed and that interest on the collateral pledged equal at
least 120% of the debt service on the amounts borrowed. In addition, 60% of the
Government Insured Multifamily Mortgages pledged as collateral must be GNMA-
Mortgage Backed Securities. As of December 31, 1993, Government Insured
Multifamily Mortgages held directly by CRIIMI MAE with a market value and face
value of approximately $145.4 million and $139.7 million, respectively, were
used as collateral pursuant to the Commercial Paper Facility.
In February 1993, CRIIMI MAE entered into an agreement to replace a $190.0
million letter of credit which provided the credit enhancement for the
Commercial Paper Facility and related revolving credit facility, with two
letters of credit in the amount of $35.0 million and $155.0 million provided by
National Australia Bank, Limited and Canadian Imperial Bank of Commerce (CIBC),
respectively. In April 1993, the letter of credit provided by CIBC was reduced
to $105.0 million. Subsequent to December 31, 1993, the special purpose
corporation replaced borrowings under the Commercial Paper Facility with
revolving credit loans. These revolving credit loans were scheduled to mature
on January 28, 1994; however, the maturity date has been extended until February
28, 1994. CRIIMI MAE executed a Commitment Letter and Term Sheet for a
revolving credit facility, dated November 24, 1993, to replace these agreements
with a 30-month non-amortizing bank loan to be issued prior to the expiration
date of the letter of credit agreements by lenders including the aforementioned
bank group on terms substantially similar to the April 1993 Master Repurchase
Agreements (defined below). While there is no assurance, CRIIMI MAE expects to
close on such new revolving credit facility on or before February 28, 1994. If
CRIIMI MAE is unable to consummate the loan by such date, the Adviser believes
that it will be able to obtain a further extension of its existing revolving
credit loans.
121
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Long-term debt
The following table summarizes CRIIMI MAE's long-term debt as of December
31, 1992 and 1993:
<TABLE>
<CAPTION>
As of December 31,
1992 1993
------------ ------------
<S> <C> <C>
Master Repurchase Agreements $ -- $331,712,648
Bank Term Loan 61,668,480 52,026,400
------------ ------------
Total Long-Term Debt $ 61,668,480 $383,739,048
============ ============
</TABLE>
CRIIMI MAE's long-term debt matures over the next three years as follows:
<TABLE>
<S> <C>
1994 $ 15,800,000
1995 15,800,000
1996 352,139,048
------------
Total $383,739,048
============
</TABLE>
122
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Long-term debt - Continued
Master Repurchase Agreements
- ----------------------------
On April 30, 1993, CRIIMI MAE entered into master repurchase agreements
(the Master Repurchase Agreements) with Nomura Securities International, Inc.
and Nomura Asset Capital Corporation (collectively, Nomura) which provide CRIIMI
MAE with $350.0 million of available financing for a three-year term. CRIIMI MAE
intends to seek renewal of the Master Repurchase Agreements upon expiration.
Interest on such borrowings is based on the three-month LIBOR plus 0.75% or
0.50% depending on whether FHA-Insured Loans or GNMA Mortgage-Backed Securities,
respectively, are pledged as collateral. For April through December 1993, the
three-month LIBOR for these borrowings ranged from 3.18% to 3.50%. The value of
the collateral pledged must equal at least 105% and 110% of the amounts borrowed
for GNMA Mortgage-Backed Securities and FHA-Insured Loans, respectively. No more
than 60% of the collateral pledged may be FHA-Insured Loans and no less than 40%
may be GNMA Mortgage-Backed Securities. As of December 31, 1993, mortgage
investments directly owned by CRIIMI MAE which approximate $349.4 million at
market value and $342.2 million at face value, were used as collateral pursuant
to certain terms of the Master Repurchase Agreements. As of December 31, 1993,
CRIIMI MAE's debt-to-equity ratio, excluding approximately $41.0 million of
borrowings committed for investment in mortgages, was 2.2:1 and its
debt-to-equity ratio, including such borrowings, was 2.4:1.
As of December 31, 1993, CRIIMI MAE used approximately $281.7 million of
the funds available under the Master Repurchase Agreements to acquire Government
Insured Multifamily Mortgages and $50.0 million to repay a portion of borrowings
under the Commercial Paper Facility. In addition, approximately $18.3 million
of the balance of the funds available have been committed for investment in
Government Insured Multifamily Mortgages or advances on Government Insured
Construction Mortgages.
On November 30, 1993, CRIIMI MAE entered into additional repurchase
agreements with Nomura pursuant to which Nomura will
123
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Long-term debt - Continued
provide CRIIMI MAE with an additional $150.0 million of available financing for
a three-year term. The agreements provide that the funding will be utilized to
purchase FHA-Insured Loans and GNMA Mortgage-Backed Securities in the event of
the successful completion of the Equity Offering (see Note 1). In that event,
it is contemplated that CRIIMI MAE will borrow the full $150.0 million no
earlier than the consummation of the Equity Offering, but no later than July 1,
1994. The terms of the $150.0 million financing arrangements are similar to the
terms of the Master Repurchase Agreements entered into in April 1993.
Bank Term Loan
- --------------
On October 23, 1991, CRIIMI MAE entered into a credit agreement with two
banks for a reducing term loan facility (the Bank Term Loan) in an aggregate
amount not to exceed $85.0 million, subject to certain terms and conditions. In
December 1992, the credit agreement was amended to increase the reducing term
loan by $15.0 million. The Bank Term Loan had an outstanding principal balance
of approximately $61.7 million and $52.0 million as of December 31, 1992 and
1993, respectively. As of December 31, 1992 and 1993, the Bank Term Loan was
secured by the value of 17,784,000 and 13,874,000 CRI Liquidating shares owned
by CRIIMI MAE, respectively. As a result of principal payments on the Bank Term
Loan in 1993, 750,000 of the 13,874,000 CRI Liquidating shares pledged as
collateral were released in January 1994. The Bank Term Loan requires a
quarterly principal payment based on the greater of the return of capital
portion of the dividend received by CRIIMI MAE on its CRI Liquidating shares
securing the Bank Term Loan or an amount to bring the Bank Term Loan to its
scheduled outstanding balance at the end of such quarter. The minimum amount of
annual principal payments is approximately $15.8 million, with any remaining
amounts of the original $85.0 million of principal due in April 1996 and any
remaining amounts of the $15.0 million of increased principal due in December
1996.
124
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Long-term debt - Continued
The amended Bank Term Loan provides for an interest rate of 1.10% over
three-month LIBOR plus an agent fee of 0.05% per year. During 1992 and 1993,
three-month LIBOR for borrowings under the Bank Term Loan ranged from 3.44% to
4.50% and 3.19% to 3.59%, respectively.
On December 31, 1991, with the $85.0 million from the Bank Term Loan and
the debt service reserve account, CRIIMI MAE repurchased approximately $97.6
million and defeased the remaining $19.2 million of the outstanding notes issued
pursuant to an Indenture dated November 28, 1989 (the Notes). CRIIMI MAE
purchased approximately $21.6 million of U.S. Treasury Securities to fund the
principal and interest due in accordance with the original payment schedule to
defease the Notes which were not repurchased. As a result of this early
extinguishment of debt, CRIIMI MAE recognized an extraordinary loss of
approximately $6.6 million in the accompanying consolidated statements of income
for the year ended December 31, 1991. All remaining costs associated with the
Bank Term Loan have been included in deferred financing fees on the accompanying
balance sheet and will be amortized using the effective interest method over the
life of the Bank Term Loan. However, for tax purposes these deferred financing
fees as well as the extraordinary loss have been capitalized and will be
amortized over the term of the Bank Term Loan.
12. Interest Rate Hedge Agreements
CRIIMI MAE is subject to the risk that changes in interest rates could
reduce Net Positive Spreads by increasing CRIIMI MAE's borrowing costs and/or
decreasing the yield on its Government Insured Multifamily Mortgages. An
increase in CRIIMI MAE borrowing costs could result from an increase in
short-term interest rates. To partially limit the adverse effects of rising
interest rates, CRIIMI MAE has entered into a series of interest rate hedging
agreements in an aggregate notional amount approximately equal to all of its
outstanding borrowings and commitments. To the extent CRIIMI MAE has not fully
hedged its portfolio, in periods of rising interest rates CRIIMI MAE's
125
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Interest Rate Hedge Agreements - Continued
overall borrowing costs would increase with little or no overall increase in
mortgage investment income, resulting in returns to shareholders that would be
lower than those available if interest rates had remained unchanged.
Borrowings by CRIIMI MAE generally are hedged by swap, cap or collar
agreements. As of December 31, 1993, CRIIMI MAE had in place interest rate
collars on the indices underlying borrowing rates for the Commercial Paper
Facility (the CP Index) with an aggregate notional amount of $115 million, a
weighted average floor of 8.55% and a weighted average cap of 10.37%. An
interest rate collar limits the CP Index to a maximum interest rate and also
enables CRIIMI MAE to receive the benefit of a decline in the CP Index to the
floor of the collar for the period of the collar. To the extent that the CP
Index increases, CRIIMI MAE's overall borrowing costs would not increase until
the CP Index reaches the level of the floor of the collar. At that point,
CRIIMI MAE's borrowing costs would increase as the CP Index increases but only
until the CP Index reaches the maximum rate provided for by the collar.
As of December 31, 1993, CRIIMI MAE had in place interest rate caps on the
CP Index and LIBOR underlying borrowing rates for the Commercial Paper Facility
and Master Repurchase Agreements. The caps based on the CP Index have an
aggregate notional amount of $50 million with a weighted average cap of 8.73%.
The caps based on LIBOR have an aggregate notional amount of $300 million with a
weighted average cap of 6.23%. CRIIMI MAE also had an interest rate cap with a
notional amount of approximately $63 million and a cap of 6.5% on the LIBOR
underlying the Bank Term Loan. An interest rate cap effectively limits CRIIMI
MAE's interest rate risk on floating rate borrowings by limiting the CP Index or
LIBOR, as the case may be, to a maximum interest rate for the period of the cap.
To the extent the CP Index or LIBOR decrease, CRIIMI MAE's borrowing costs would
decrease under such caps. To the extent the CP Index or LIBOR increase, CRIIMI
MAE's borrowing costs would increase but only until the CP Index or LIBOR
reaches the maximum rate provided for by the cap. As of
126
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Interest Rate Hedge Agreements - Continued
December 31, 1993, certain cap agreements based on the three-month LIBOR with a
notional amount of $300 million were between approximately 2.62% and 3.13% above
the current three-month LIBOR.
On December 1, 1993, CRIIMI MAE paid approximately $4.9 million to
terminate an interest rate swap entered into on February 8, 1990 with a notional
amount of $25 million and a fixed rate of 9.23%. The termination of this swap
was effective December 1, 1993. The cost to terminate the interest rate swap
was expensed in the accompanying consolidated statement of income for the year
ended December 31, 1993 as the underlying debt under the Commercial Paper
Facility being hedged was repaid. As of December 31, 1993, CRIIMI MAE had in
place no swap agreements.
Current interest rates are substantially lower than when CRIIMI MAE entered
into $165 million of its existing interest rate hedging agreements. As of
December 31, 1993, certain collar agreements based on the CP Index with a
notional amount of $115 million carried minimum interest rates which were
between approximately 5.0% and 5.4% above the current CP Index. Such hedging
agreements expire in 1995. While there is no assurance that any new agreements
will be made, the Adviser is actively exploring alternatives to replace these
hedging agreements when they expire in order to capitalize on the current low
interest rate environment.
As a result of minimum interest rate levels associated with the swap
agreement terminated in December, 1993 and the collar agreements which expire in
1995, CRIIMI MAE incurred additional interest expense of $4.3 million, $8.1
million and $8.6 million for the years ended December 31, 1991, 1992 and 1993,
respectively, of which approximately $0.8 million, $1.3 million and $1.4
million, respectively, was attributable to the terminated swap agreement. The
additional interest expense amounts also include amortization of approximately
$0.1 million, $0.2 million and $0.6 million, respectively, related to up-front
hedging costs.
127
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Interest Rate Hedge Agreements - Continued
The following table sets forth information relating to CRIIMI MAE's hedging
agreements with respect to borrowings under the Commercial Paper Facility and
the Master Repurchase Agreements:
128
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Interest Rate Hedge Agreements - Continued
<TABLE>
<CAPTION>
Hedging Notional
Instrument Amount Effective Date Maturity Date Floor Cap Index(c)
- ------------------- -------------- -------------- ---------------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Collar $ 30.0 million March 7, 1990 March 7, 1995 8.375% 10.125% CP
Collar 20.0 million March 30, 1990 March 30, 1995 8.375% 10.125% CP
Collar 30.0 million July 8, 1990 February 8, 1995 8.625% 10.625% CP
July 9, 1990
through
Accreting Collar 35.0 million December 9, 1990 July 9, 1995 8.750% 10.500% CP
Cap (a) 25.0 million May 24, 1991 May 24, 1996 N/A(a) 9.000% CP
Cap 25.0 million June 17, 1991 June 17, 1996 N/A 8.450% CP
Cap (b) 50.0 million June 25, 1993 June 25, 1998 N/A 6.50% LIBOR
Cap (b) 50.0 million July 1, 1993 June 3, 1996 N/A 6.50% LIBOR
Cap (b) 50.0 million July 20, 1993 July 20, 1998 N/A 6.25% LIBOR
Cap (b) 50.0 million August 10, 1993 August 10, 1997 N/A 6.00% LIBOR
Cap (b) 50.0 million August 27, 1993 August 27, 1997 N/A 6.125% LIBOR
Cap (b) 50.0 million November 10, 1993 November 10, 1997 N/A 6.00% LIBOR
--------------
$465.0 million
==============
</TABLE>
(a) On May 24, 1993, CRIIMI MAE and CIBC terminated the floor on this
former collar. In consideration of such termination, CRIIMI MAE
paid CIBC approximately $2.3 million. This amount was deferred
on the accompanying consolidated balance sheet as the underlying
debt being hedged is still outstanding. This amount will be
amortized for the period from May 24, 1993 through May 24, 1996.
CRIIMI MAE amortized approximately $0.5 million of this deferred
amount in the accompanying consolidated statements of income for
the year ended December 31, 1993.
(b) Approximately $4.5 million of costs were incurred in 1993 in
connection with the establishment of interest rate hedges. These
costs are being amortized using the effective interest method
over the term of the interest rate hedge agreement for financial
statement purposes and in accordance with the regulations under
Internal Revenue Code Section 446 with respect to notional
principal contracts for tax purposes.
(c) The hedges are based either on the 30-day Commercial Paper Composite
Index (CP) or three-month LIBOR.
129
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Interest Rate Hedge Agreements - Continued
In addition, CRIIMI MAE entered into an interest rate hedge agreement on
the Bank Term Loan to cap LIBOR at 6.5% based on the expected paydown schedule
and an incremental hedge of 10.5% on the difference between the required and
expected paydown schedules. As of December 31, 1993, three-month LIBOR was
approximately 3.13% below the 6.5% cap.
CRIIMI MAE is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate hedge agreements should interest rates exceed
the caps. However, the Adviser does not anticipate nonperformance by any of the
counterparties, each of which has long-term debt ratings of A or above by
Standard and Poor's and A2 or above by Moody's.
13. Treasury Stock
On January 12, 1990, CRIIMI MAE commenced a cash tender offer (the Tender
Offer) to repurchase and to hold in treasury up to 1,000,000 outstanding CRIIMI
MAE shares at $9.50 per share. The offer expired at midnight on February 12,
1990. Pursuant to the Tender Offer, CRIIMI MAE purchased and holds in treasury
1,001,274 CRIIMI MAE shares at $9.50 per share which are shown at cost on the
accompanying consolidated balance sheets. Such shares could be reissued for
such purposes as, among others, the acquisition of other businesses and the
distribution of stock dividends.
14. Acquisition - AIM Funds Interest
Effective March 1, 1991, CRIIMI MAE entered into a Purchase Agreement dated
as of December 13, 1990 with Integrated and certain of its affiliates, and AIM
Acquisition Corporation to acquire certain of the interests of Integrated and
its affiliates in the AIM Funds sponsored by Integrated. On September 6, 1991,
CRIIMI, Inc. acquired all of the general partnership interests in the AIM Funds
for $23,342,591. In addition, CRIIMI MAE and CRI each invested $1,086,714 for an
aggregate 20% limited partnership interest in a limited partnership which serves
as the adviser to the AIM Funds. The remaining 80% of the adviser partnership is
130
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Interest Rate Hedge Agreements - Continued
owned by parties unrelated to CRIIMI MAE or CRI. The adviser partnership entered
into subadvisory agreements with an affiliate of CRI under which such affiliate
will perform certain services with respect to the mortgage portfolios of the AIM
Funds. For its investment, CRIIMI, Inc. will receive the General Partner's share
of income, loss and distributions (which ranges among the AIM Funds from 2.9%-
4.9%) from each fund and an affiliate of CRIIMI, Inc. will receive certain
expense reimbursements. CRIIMI MAE is guaranteed an annual return on its
investment in the adviser partnership, through the distributions it receives
indirectly from the adviser partnership and a right of offset against amounts
payable to its Adviser (see Note 3).
Combined summarized financial information as of December 31, 1992 and 1993
and for the years ended December 31, 1991, 1992 and 1993 of the AIM Funds in
which CRIIMI MAE's equity in the net income exceeds 10 percent of CRIIMI MAE's
net income, is as follows:
131
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Combined Summarized Financial Information
(Unaudited)
<TABLE>
<CAPTION>
Balance Sheets As of December 31, 1992 1993
------------ ------------
<S> <C> <C>
Investment in mortgages (including
mortgages held for disposition) $551,945,077 $574,143,207
Cash and cash equivalents 35,517,072 33,083,298
Receivables and other assets 35,038,462 16,309,358
------------ ------------
Total assets $622,500,611 $623,535,863
============ ============
Accounts payable $ 5,558,778 $ 4,320,381
Distributions payable 10,932,331 16,140,188
Partners' equity 606,009,502 603,075,294
------------ ------------
Total liabilities and partners' equity $622,500,611 $623,535,863
============ ============
</TABLE>
132
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statements of Income
<TABLE>
<CAPTION>
For the years ended December 31, 1991 1992 1993
------------ ----------- -----------
<S> <C> <C> <C>
Income:
Mortgage investment income $ 47,564,646 $43,539,260 $50,675,275
Other income 4,110,858 4,399,554 2,381,912
------------ ----------- -----------
Total income 51,675,504 47,938,814 53,057,187
------------ ----------- -----------
Expenses:
Management fees 7,287,893 5,410,464 5,648,028
Other expenses 2,596,283 3,067,730 2,181,309
------------ ----------- -----------
Total expenses 9,884,176 8,478,194 7,829,337
------------ ----------- -----------
Income before mortgage dispositions 41,791,328 39,460,620 45,227,850
Gains from mortgage dispositions 801,083 148,955 3,422,500
Losses from mortgage dispositions (13,005,766) (2,510,571) (2,034,941)
------------ ----------- -----------
Net income $ 29,586,645 $37,099,004 $46,615,409
============ =========== ===========
</TABLE>
133
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Settlement of Litigation
On March 22, 1990, a complaint was filed, on behalf of a class comprised
of certain limited partners of CRIIMI III and shareholders of CRIIMI II (the
Plaintiffs), in the Circuit Court for Montgomery County, Maryland against CRIIMI
MAE, CRI Liquidating, CRIIMI I and its general partner, CRIIMI II, CRIIMI III
and its general partner, CRI and William B. Dockser, H. William Willoughby and
Martin C. Schwartzberg (the Defendants). On November 18, 1993, the Court entered
an order granting final approval of a settlement agreement between the
Plaintiffs and the Defendants pursuant to which CRIIMI MAE will issue to class
members, including certain former limited partners of CRIIMI I, up to 2.5
million warrants, exercisable for 18 months after issuance, to purchase shares
of CRIIMI MAE common stock at an exercise price of $13.17 per share. In
addition, the settlement included a payment of $1.4 million for settlement
administration costs and the Plaintiff's attorneys' fees and expenses.
Insurance provided $1.15 million of the $1.4 million cash payment, with the
balance paid by CRIIMI MAE. CRIIMI MAE accrued a total provision of $1.5
million in the accompanying consolidated statements of income for the uninsured
portion of the cash settlement paid by CRIIMI MAE and for the estimated value of
the warrants that are expected to be issued as part of the settlement. The
number of warrants to be issued is dependent on the number of class members who
submit a proof of claim within 60 days of January 14, 1994 (the date the proof
of claim was mailed by CRIIMI MAE).
The issuance of the warrants pursuant to the settlement agreement will
have no impact on CRIIMI MAE's tax basis income. Depending upon the number of
warrants issued, CRIIMI MAE will record in its financial statements a non-cash
expense ranging from $0 (if no warrants are issued) to $5 million (if all 2.5
million warrants are issued). Based on the Adviser's estimate of the number of
warrants to be issued, CRIIMI MAE has accrued a total provision of $1.5 million
(which includes the uninsured portion of the cash settlement) in the
accompanying consolidated statement of income for 1993, which provision may be
increased or decreased once the actual number of warrants issued is known. The
Adviser
134
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Settlement of Litigation - Continued
estimates that the final charge (after adjustments to the provision) to net
income and the increase in the number of shares of common stock outstanding as a
result of the exercise of the warrants will not have a material adverse effect
on CRIIMI MAE's net income and net income per share. The exercise of the
warrants will not result in a charge to CRIIMI MAE's tax basis income. Further,
the Adviser believes that the exercise of the warrants will not have a material
adverse effect on CRIIMI MAE's tax basis income per share or annualized cash
dividends per share because CRIIMI MAE intends to invest the proceeds from any
exercise of the warrants in accordance with its investment policy to purchase
Government Insured Multifamily Mortgages and other authorized investments.
However, in the case of a significant decline in the yield on mortgage
investments and a significant decrease in the Net Positive Spread which CRIIMI
MAE could achieve on its borrowings, the exercise of the warrants may have a
dilutive effect on tax basis income per share and cash dividends per share.
Receipt of the proceeds from the exercise of the warrants will increase CRIIMI
MAE's shareholders' equity.
135
<PAGE>
Appendix
CRIIMI MAE
Schedule of Government Insured Multifamily Mortgages
(Excluding Mortgages Held for Disposition)
As of December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Section
No. of of the Loan Carrying Face Net Maturity Put
Property Name/Location Units Act Type Value (Tax) Value Coupon Date Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alpine Ridge Apts.
Flagstaff, AZ 194 221(d)4 FHA $ 6,300,865.41 $ 6,396,338.49 9.680% 4/01/33 N/A
Americana Apts.
Pasco, WA 128 223(f) GNMA 1,759,243.45 1,717,147.61 7.250% 6/15/28 N/A
Apple Valley Apts.
Sherwood, AR 50 223(f) GNMA 1,936,503.65 1,895,861.63 7.250% 8/15/28 N/A
Arlington Townhouse
Royal Oak, MI 148 223(f) FHA 4,160,640.19 4,186,606.78 7.625% 6/01/28 N/A
Ashwood Apts.
Midwest City, OK 157 232 GNMA 1,172,697.33 1,169,935.31 10.000% 3/15/20 N/A
Aspen Linwood Apts.
Fort Lee, NJ 86 223(f) FHA 2,898,952.26 2,873,991.01 8.125% 10/01/27 N/A
Austin Hewitt
Pulaski, TN 45 232 FHA 1,079,197.25 1,079,197.25 10.500% 1/01/31 N/A
Bell Avenue
Elk City, OK 70 232 FHA 1,868,475.73 1,868,475.03 10.580% 9/01/31 N/A
Bellhaven Nursing
Bellport, NY 240 232 GNMA 14,412,394.76 14,412,394.66 10.175% 12/15/31 N/A
Bentley Courts
Columbia, SC 272 221(d)4 GNMA 6,878,785.21 6,929,950.14 9.750% 4/15/31 N/A
Bradford Place
Suitland, MD 214 221(d)4 GNMA 5,576,987.23 5,544,371.28 8.000% 4/15/21 N/A
Briarwood Apts.
Dallas, TX 75 223(f) GNMA 1,300,487.40 1,274,569.64 10.500% 12/15/22 N/A
Briarwood Gardens
Salina, KS 52 223(f) GNMA 703,182.72 690,057.75 7.500% 11/15/23 N/A
Camelot Apts.
Hamburg, NY 174 223(f) GNMA 3,620,394.44 3,521,913.16 7.375% 7/15/28 N/A
Cedar Ridge-Phase 2
Charlotte, NC 96 223(f) GNMA 2,632,447.81 2,640,700.00 7.000% 1/15/29 N/A
</TABLE>
136
<PAGE>
Appendix
CRIIMI MAE
Schedule of Government Insured Multifamily Mortgages
(Excluding Mortgages Held for Disposition)(Continued)
As of December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Section
No. of of the Loan Carrying Face Net Maturity Put
Property Name/Location Units Act Type Value (Tax) Value Coupon Date Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charlesgate
Providence, RI 200 223(d) GNMA $ 498,797.42 $ 496,465.85 10.550% 11/15/17 N/A
Chateau Cupertino
Cupertino, CA 169 223(a)7 FHA 10,053,887.68 9,906,554.77 7.875% 8/01/28 N/A
Chesapeake Apts.
Houston, TX 320 223(f) GNMA 5,320,858.40 5,170,784.68 7.625% 7/15/28 N/A
Coachlite Apts.
Hamburg, NY 110 223(f) GNMA 2,439,425.32 2,373,068.69 7.375% 7/15/28 N/A
Community Residence
Orchard Park, NY 7 232 GNMA 541,480.79 537,417.62 10.050% 8/15/15 N/A
Country Gable Apts.
Glendale, AZ 139 223(f) GNMA 2,804,020.09 2,797,073.55 7.500% 7/15/28 N/A
Country Place Apts.
Houston, TX 122 223(f) GNMA 2,903,000.00 2,904,788.80 7.250% 6/15/18 N/A
Courtyard Plaza
Portland, OR 151 221(d)4 GNMA 6,811,175.25 6,811,175.25 9.470% 9/15/32 N/A
Crosscreek Apts.
Columbus, OH 72 223(f) FHA 1,447,095.95 1,447,095.95 8.950% 7/01/27 N/A
Dogwood Manor
Charlotte, NC 120 223(d) FHA 522,582.20 522,582.01 9.000% 8/01/30 N/A
Duck Creek Village
Garland, TX 84 223(f) FHA 1,819,355.02 1,819,355.02 8.430% 2/01/28 N/A
El Dorado Apts.
Tucson, AZ 96 223(f) GNMA 1,442,119.06 1,439,432.41 7.250% 9/15/28 N/A
Executive House
Austin, TX 98 223(f) GNMA 2,014,338.90 1,971,153.94 7.375% 6/15/28 N/A
Fountain Plaza Apts.
Tucson, AZ 196 223(f) GNMA 3,168,082.06 3,168,081.94 7.250% 8/15/28 N/A
Four Seasons - KS
Emporia, KS 198 223(f) GNMA 3,444,160.83 3,388,424.87 7.250% 6/15/28 N/A
Foxhunt Apts.
Kettering, OH 250 223(f) FHA 4,579,234.27 4,601,790.30 8.900% 4/01/27 N/A
</TABLE>
137
<PAGE>
Appendix
CRIIMI MAE
Schedule of Government Insured Multifamily Mortgages
(Excluding Mortgages Held for Disposition)(Continued)
As of December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Section
No. of of the Loan Carrying Face Net Maturity Put
Property Name/Location Units Act Type Value (Tax) Value Coupon Date Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gardenbrook Apts.
Beaverton, OR 120 223(f) GNMA $ 2,162,853.34 $ 2,128,792.02 7.250% 7/15/28 N/A
Gateway Square
Temple Hills, MD 297 223(f) GNMA 5,147,136.67 5,118,556.23 9.500% 4/15/21 N/A
Good Acre
Silver Spring, MD 156 223(f) GNMA 1,619,184.50 1,610,194.38 9.500% 4/15/21 N/A
Guinn Nursing Home
Jay, OK 98 232 FHA 2,284,749.62 2,284,749.70 10.590% 12/1/31 N/A
Harborside
East Chicago, IN 254 241 FHA 2,314,089.53 2,314,089.82 10.150% 2/01/19 N/A
Harrisburg Square
Omaha, NE 288 223(f) GNMA 3,931,267.63 3,911,860.66 7.400% 6/15/28 N/A
Heritage Square
Edinburgh, TX 100 223(f) GNMA 2,015,627.40 1,990,885.30 7.650% 8/15/27 N/A
Heritage Village
Freemont, CA 192 221(d)4 FHA 12,326,431.59 12,450,317.77 7.125% 7/01/27 N/A
Hidden Valley Apts.
Northfield, MN 204 223(f) FHA 4,495,218.66 4,494,101.43 7.400% 8/01/28 N/A
Highland Apts.
St. Paul, MN 46 223(f) FHA 862,524.11 867,773.81 9.900% 10/01/21 N/A
Highland Park
Okmulgee, OK 100 232 FHA 2,532,871.12 2,532,871.12 10.375% 1/01/31 N/A
Hillcrest Manor
Winchester, KY 104 223(f) GNMA 1,575,113.22 1,565,405.18 7.400% 6/15/28 N/A
Hunting Terrace
Alexandria, VA 183 223(f) GNMA 6,379,309.74 6,343,887.47 9.500% 4/15/21 N/A
Iverson Towers
Baltimore, MD 260 223(f) GNMA 2,613,853.65 2,619,286.80 9.500% 8/15/22 N/A
Kenilworth Towers
Riverdale, MD 217 223(f) GNMA 5,799,372.65 5,767,170.91 9.500% 4/15/21 N/A
Key Towers
Alexandria, VA 140 223(f) GNMA 6,287,202.93 6,218,398.90 8.250% 2/15/22 N/A
</TABLE>
138
<PAGE>
Appendix
CRIIMI MAE
Schedule of Government Insured Multifamily Mortgages
(Excluding Mortgages Held for Disposition)(Continued)
As of December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Section
No. of of the Loan Carrying Face Net Maturity Put
Property Name/Location Units Act Type Value (Tax) Value Coupon Date Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kirkwood Apts.
W. Hyattsville, MD 662 223(f) GNMA $7,567,408.08 $7,525,389.19 9.500% 4/15/21 N/A
Knightridge Manor
Bloomington, IN 104 223(f) GNMA 2,451,768.05 2,433,536.86 7.250% 12/15/28 N/A
Koh Apts.
Seattle, WA 30 223(f) GNMA 1,051,768.16 1,051,768.18 8.000% 2/15/28 N/A
Kreekview Apts.
Birmingham, AL 162 223(f) GNMA 4,756,488.17 4,697,972.48 7.000% 10/15/28 N/A
Lake Country Manor
Marietta, OK 62 223(f) FHA 1,133,356.50 1,150,138.32 9.920% 7/01/25 N/A
Lakeside Apts.
East Chicago, IL 312 241 FHA 2,633,340.83 2,633,341.12 10.150% 2/01/26 N/A
Lancaster House
Lancaster, CA 119 223(f) GNMA 3,876,425.62 3,843,278.73 10.250% 1/15/09 N/A
Landsdowne
Landover, MD 349 223(f) GNMA 5,145,976.51 5,117,402.47 9.500% 4/15/21 N/A
Le Chateau Apts.
Lake Charles, LA 200 221(d)4 GNMA 3,155,761.52 3,120,877.49 7.500% 7/15/28 N/A
LouAnn Terrace
Crystal, MN 70 223(f) GNMA 1,441,719.07 1,420,510.40 7.250% 10/15/23 N/A
Majestic Oaks
Gainsville, FL 172 223(d) FHA 215,172.60 223,633.54 9.750% 3/01/20 N/A
Marion House Care
Ocala, FL 120 232 GNMA 4,945,493.30 4,885,440.74 10.500% 4/15/31 N/A
Northwood Nursing
Bedford, NH 147 232 FHA 7,457,645.48 7,457,645.58 9.930% 3/01/33 N/A
Oak Hills Nursing(a)
Jones, OK 160 232 FHA 3,934,424.29 3,934,424.28 9.375% 3/01/31 N/A
Oakwood Village
Gretna, LA 219 223(f) GNMA 2,744,959.82 2,713,917.99 7.700% 8/15/28 N/A
</TABLE>
139
<PAGE>
Appendix
CRIIMI MAE
Schedule of Government Insured Multifamily Mortgages
(Excluding Mortgages Held for Disposition)(Continued)
As of December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Section
No. of of the Loan Carrying Face Net Maturity Put
Property Name/Location Units Act Type Value (Tax) Value Coupon Date Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Orchard Lane Apts.
North Salt Lake, UT 54 223(f) GNMA $ 1,618,415.88 $ 1,590,757.89 7.750% 7/15/28 N/A
Park at City West
Eden Prairie, MN 288 221(d)4 FHA 9,279,760.48 9,279,760.48 7.750% 2/01/27 N/A
Pecan Creek Apts.
Tulsa, OK 47 221(d)4 GNMA 1,023,420.48 1,023,420.48 10.020% 9/15/32 N/A
Pine Arbor Apts.
Houston, TX 111 223(f) GNMA 1,234,031.24 1,220,403.20 7.625% 6/15/28 N/A
Plaza Apts.
Salinas, CA 62 241(f) GNMA 1,302,599.42 1,309,063.17 7.750% 11/15/30 N/A
Plymouth Colony
Plymouth, MN 126 223(f) GNMA 2,382,968.42 2,353,765.05 7.625% 8/15/23 N/A
Prospect Gardens
Bor. of Whitehall, PA 137 223(f) FHA 1,916,130.27 1,891,288.90 10.000% 8/01/24 N/A
Quality Link
Windsor, NC 60 232 FHA 1,792,092.19 1,792,092.19 10.100% 6/01/31 N/A
Queens Park Plaza
Hyattsville, MD 94 223(f) GNMA 1,989,668.30 1,978,620.33 9.500% 4/15/21 N/A
Regent Apts.
Brooklyn Park, MN 186 223(f) GNMA 4,352,715.53 4,352,715.61 8.000% 1/15/27 N/A
San Jose Plaza Apts.
Fresno, CA 176 221(d)4 GNMA 6,329,514.06 6,268,039.99 7.125% 8/15/26 N/A
San Jose South
San Jose, CA 583 223(f) GNMA 30,249,792.63 29,978,521.52 7.250% 10/15/23 N/A
Scoth Pines Apts.
Coralville, IA 112 223(f) GNMA 1,524,143.19 1,518,241.18 10.000% 10/15/23 N/A
Security House Apts.
Seattle, WA 107 223(f) GNMA 6,020,280.52 6,020,280.47 7.250% 6/15/28 N/A
Sheridan Village
Olathe, KS 82 223(f) GNMA 1,271,015.63 1,275,000.00 7.000% 1/15/24 N/A
Sidney Square
Pittsburgh, PA 12 232 FHA 491,496.00 489,414.08 10.500% 5/01/28 N/A
</TABLE>
140
<PAGE>
Appendix
CRIIMI MAE
Schedule of Government Insured Multifamily Mortgages
(Excluding Mortgages Held for Disposition)(Continued)
As of December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Section
No. of of the Loan Carrying Face Net Maturity Put
Property Name/Location Units Act Type Value (Tax) Value Coupon Date Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Silver Court
Cherry Hill, NJ 228 223(f) FHA $10,189,604.68 $10,189,604.73 9.750% 10/01/32 N/A
Silver Oaks Apts.
New Brighton, MN 96 223(f) GNMA 2,145,008.87 2,090,871.72 7.375% 7/15/23 N/A
Somerset Park Apts.
Troy, MI 790 223(f) GNMA 30,767,678.16 30,181,584.85 7.340% 7/15/28 N/A
Southbend Apts.
Fitchburg, MA 36 223(f) GNMA 1,271,109.69 1,265,500.00 7.250% 1/15/29 N/A
Southern Oaks
Oklahoma City, OK 105 232 FHA 2,444,880.20 2,444,880.20 10.375% 1/01/31 N/A
Spring Glenn Apts.
Vacaville, CA 176 221(d)4 GNMA 8,079,806.11 7,961,013.31 7.125% 11/15/26 N/A
Springtree Meadows
Middleton, WI 128 223(f) GNMA 3,682,893.37 3,646,626.22 7.375% 8/15/28 N/A
Stonewood Apts.
Mooresville, NC 68 223(f) GNMA 1,331,061.75 1,329,400.00 7.000% 1/15/29 N/A
Sun Valley Apts.
Atlanta, GA 322 223(f) GNMA 5,119,767.69 5,099,924.92 10.000% 1/15/24 N/A
Sunset Apts.
Pasco, WA 120 223(f) GNMA 2,233,251.97 2,179,816.83 7.250% 6/15/28 N/A
Sunset Village Apts.
Flint, MI 169 223(f) FHA 3,005,611.37 3,005,611.35 7.370% 10/01/23 N/A
Sweetwater Cove
Mapleton, GA 348 221(d)4 GNMA 7,676,487.55 7,572,842.66 7.000% 4/15/24 N/A
Tall Oaks Apts.
Wichita, KS 288 223(f) GNMA 4,171,332.33 4,088,131.21 7.250% 7/15/28 N/A
The Meadows
Lexington, KY 174 223(f) GNMA 3,795,800.24 3,753,180.79 10.250% 1/15/23 N/A
The Poplars
Saginaw, MI 104 223(f) GNMA 1,772,347.20 1,747,269.45 7.125% 12/15/23 N/A
Turtle Creek Apts.
Houston, TX 91 223(f) GNMA 1,057,839.85 1,040,999.96 7.150% 9/15/28 N/A
</TABLE>
141
<PAGE>
Appendix
CRIIMI MAE
Schedule of Government Insured Multifamily Mortgages
(Excluding Mortgages Held for Disposition)(Continued)
As of December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Section
No. of of the Loan Carrying Face Net Maturity Put
Property Name/Location Units Act Type Value (Tax) Value Coupon Date Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Twin Oaks Personal
N. Charleston, SC 60 232 GNMA $ 2,064,959.05 $ 2,034,985.69 10.750% 3/15/26 N/A
University Manor
Silver Spring, MD 136 223(f) GNMA 3,014,963.58 2,983,602.41 7.375% 1/15/21 N/A
University Village
San Bernadino, CA 197 221(d)4 GNMA 7,253,582.35 7,177,834.80 7.375% 7/15/28 N/A
Valencia Retirement
Albuqueque, NY 139 223(d) FHA 492,042.08 496,931.92 9.000% 7/01/27 N/A
Villa Sorrento Apts.
Upland, CA 289 223(f) GNMA 7,274,774.69 7,221,037.00 7.500% 7/15/28 N/A
Wagnon Place
Warren, AR 133 232 GNMA 3,309,182.43 3,323,176.15 9.720% 5/15/32 N/A
Walden Pond
Lynchburg, VA 36 223(f) GNMA 983,933.47 974,243.15 7.500% 8/01/28 N/A
Water Dance Apts.
Shelbyville, IN 169 223(f) GNMA 4,852,756.47 4,785,120.81 7.125% 6/15/28 N/A
Whispering Hills
Lexington, KY 135 223(f) GNMA 2,716,891.05 2,716,891.05 8.600% 7/15/27 N/A
Williamstowne
Cheekatowaga, NY 528 223(f) GNMA 10,076,134.92 10,076,134.92 8.500% 4/15/21 N/A
Windsor South Apts.
New Brighton, MN 135 223(f) GNMA 1,811,300.02 1,793,500.73 7.375% 8/15/23 N/A
Woodcreek Apts.
Fremont, CA 96 221(d)4 FHA 4,358,070.10 4,401,860.88 7.125% 10/01/26 N/A
Woodsdale Apts.
Abbington, MD 264 223(f) GNMA 5,947,145.11 5,950,834.53 7.250% 5/15/28 N/A
Yorkshire Apts.
Montgomery City, MD 228 223(f) GNMA 15,270,752.63 15,195,002.61 7.000% 7/15/31 N/A
3146 Minnehaha
Minneapolis, MN 17 223(f) FHA 264,084.76 269,303.86 9.000% 12/01/21 N/A
</TABLE>
142
<PAGE>
Appendix
CRIIMI MAE
Schedule of Government Insured Multifamily Mortgages
(Excluding Mortgages Held for Disposition)(Continued)
As of December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Section
No. of of the Loan Carrying Face Net Maturity Put
Property Name/Location Units Act Type Value (Tax) Value Coupon Date Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
46th Vincennes
Chicago, IL 28 221(d)4 FHA 688,809.45 720,639.16 9.500% 4/01/31 N/A
PERMANENT LOANS 110(b) $452,871,289.87 $450,044,116.67
Bostonian Nursing
Dorchester, MA 119 232 FHA $3,273,817.64 $3,273,817.64 9.250% 3/01/34 N/A
Centralia Fireside
Centralia, IL 98 232 FHA 2,886,339.40 2,886,339.40 9.750% 10/01/32 N/A
Centralia Friendship
Centralia, IL 94 232 FHA 2,774,189.00 2,774,189.00 9.750% 11/01/32 N/A
Devlin Manor
Cumberland, MD 82 232 FHA 5,373,008.83 5,400,008.88 10.000% 10/01/32 N/A
Eastgate Nursing
East Providence, RI 76 232 FHA 1,763,746.30 1,763,746.30 9.250% 7/01/33 N/A
Elderberry Nursing
Hayesville, NC 80 232 FHA 1,800,294.29 1,809,341.00 9.250% 5/01/33 N/A
Mentor Way Care
Mentor, OH 150 232 FHA 1,568,235.02 1,568,235.02 8.400% 3/01/35 N/A
New Rochelle Manor
New Rochelle, NY 250 232 FHA 5,430,963.10 5,451,405.88 9.720% 7/01/32 N/A
North Central Care
Spokane, WA 99 232 GNMA 1,795,424.90 1,758,066.00 7.750% 2/15/35 N/A
Pleasant Bay
Brewster, MA 135 232 FHA 1,375,304.02 1,361,687.15 9.250% 4/01/35 N/A
Regal Ridge Apts.
Spokane, WA 97 221(d)4 FHA 1,090,086.08 1,090,086.08 8.125% 4/01/35 N/A
River Chase II Apts.
Jackson, MS 120 221(d)4 FHA 1,233,052.44 1,220,844.00 8.000% 4/01/35 N/A
Riverview Health
East Haven, CT 120 232 FHA 8,817,419.31 8,524,393.30 8.500% 6/01/34 N/A
</TABLE>
143
<PAGE>
Appendix
CRIIMI MAE
Schedule of Government Insured Multifamily Mortgages
(Excluding Mortgages Held for Disposition)(Continued)
As of December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Section
No. of of the Loan Carrying Face Net Maturity Put
Property Name/Location Units Act Type Value (Tax) Value Coupon Date Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wingate @ Brighton
Brighton, MA 123 232 FHA 3,737,921.01 3,700,911.90 8.550% 12/01/34 N/A
3801 Grand Board
Des Moines, IA 73 232 FHA 959,404.79 941,169.63 8.000% 10/01/34 N/A
CONSTRUCTION LOANS 15 $ 43,879,206.13 $ 43,524,241.18
TOTAL LOANS 125(b) $496,750,496.00 $493,568,357.85
</TABLE>
(a) Includes a supplemental note in the principal balance of $268,568 with a
net coupon of 9.25% and a maturity date of July 1, 1996.
(b) Excludes one Mortgage Held for Disposition.
144
<PAGE>
Appendix
CRI Liquidating
Schedule of Government Insured Multifamily Mortgages
(Excluding Mortgages Held for Disposition)
As of December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Section
No. of of the Loan Carrying Face Net Maturity Put
Property Name/Location Units Act Type Value (Tax) Value Coupon Date Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Central Park Apts.
Detroit, MI 92 223(f) GNMA $1,316,892.13 $ 1,673,621.67 9.750% 5/15/22 N/A
Charles River E.
Boston, MA 152 236 FHA 2,146,214.52 2,993,956.27 6.875% 1/01/16 N/A
Cinnamon Run I
Silver Spring, MD 288 221(d)4 FHA 7,917,301.27 10,536,916.79 7.430% 11/01/22 12/02
Cloverset Valley
Kansas City, MO 258 221(d)4 FHA 7,397,051.35 9,944,417.90 7.430% 4/01/23 4/02
Colony Manor Apts.
Goodlettsville, TN 112 221(d)4 FHA 2,164,017.70 3,077,034.16 7.430% 12/01/24 N/A
Crestwood Villas
Birmingham, AL 270 221(d)4 FHA 4,661,914.19 6,702,549.50 7.430% 7/01/22 6/01
Crooked Creek Apts.
Indianapolis, IN 216 221(d)4 FHA 4,678,602.59 6,292,047.66 7.430% 6/01/23 5/02
Dillerwood Apts.
Bronx, NY 75 207 FHA 632,173.87 726,005.42 11.110% 4/01/23 N/A
Festival Field
Newport, RI 204 236 FHA 2,114,447.73 2,941,441.27 6.875% 6/01/14 N/A
Firethorn I
Indianapolis, IN 240 221(d)4 FHA 4,721,674.35 6,861,214.85 7.430% 9/01/23 9/02
Firethorn II Apts.
Indianapolis, IN 160 221(d)4 FHA 3,218,860.87 3,963,622.18 9.680% 9/01/23 N/A
Fox Hill Apts.
Hampton, VA 96 236 FHA 1,251,617.79 1,784,219.35 6.850% 4/01/15 N/A
Gordon Terrace
Chicago, IL 96 207 FHA 3,201,613.52 4,172,453.48 7.500% 2/01/21 N/A
Grandview Plaza
Great Falls, MT 97 236 FHA 764,977.76 1,058,127.00 6.930% 3/01/15 N/A
</TABLE>
145
<PAGE>
Appendix
CRI Liquidating
Schedule of Government Insured Multifamily Mortgages
(Excluding Mortgages Held for Disposition) (Continued)
As of December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Section
No. of of the Loan Carrying Face Net Maturity Put
Property Name/Location Units Act Type Value (Tax) Value Coupon Date Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hampton Gardens
North Hampton, MA 207 236 FHA 2,803,281.75 3,901,558.07 6.875% 3/01/15 N/A
Havenside Terrace
Sacramento, CA 38 221(d)4 FHA 1,086,308.98 1,523,410.67 7.430% 8/01/20 8/00
Holiday Park
Garland, TX 184 223(f) GNMA 2,376,995.95 3,016,504.51 9.750% 9/15/22 N/A
Kingston Townhouses
Essex, MD 115 236 FHA 1,297,842.03 1,809,669.76 6.875% 11/01/15 N/A
Kulana Nani
Kaneohe, HI 160 236 FHA 2,181,481.24 3,001,580.40 6.930% 6/01/13 N/A
Lawyers Hill
Ellicott City, MD 84 236 FHA 873,712.36 1,219,096.17 6.875% 2/01/16 N/A
Lincoln Disc. Pk.
Sacramento, CA 128 221(d)4 FHA 2,782,721.95 3,930,814.29 7.430% 9/01/24 N/A
Los Robles Apts.
Union City, CA 140 236 FHA 2,020,744.65 2,819,554.55 6.875% 2/01/16 N/A
Manassas Park
Manassas Park, VA 166 236 FHA 2,543,856.76 3,542,169.31 6.875% 5/01/15 N/A
Meadows East
Sparks, NV 200 236 FHA 1,844,423.95 2,543,788.50 6.930% 3/01/14 N/A
Mountain View Apts.
Camarillo, CA 106 221(d)4 FHA 2,359,582.32 3,301,219.85 7.430% 11/01/19 1/00
Northshore Woods
Knoxville, TN 140 221(d)4 FHA 2,765,054.92 3,711,121.08 7.430% 7/01/22 3/03
Old Oak Apartments
Little Rock, AR 112 221(d)4 FHA 2,620,402.08 3,247,150.24 7.430% 2/01/25 N/A
Parker House Apts.
Detroit, MI 36 221(d)4 FHA 303,649.53 373,683.92 9.680% 11/01/22 N/A
</TABLE>
146
<PAGE>
Appendix
CRI Liquidating
Schedule of Government Insured Multifamily Mortgages
(Excluding Mortgages Held for Disposition) (Continued)
As of December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Section
No. of of the Loan Carrying Face Net Maturity Put
Property Name/Location Units Act Type Value (Tax) Value Coupon Date Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Parkview Apts.
Great Falls, MT 84 236 FHA 656,950.00 901,418.38 6.930% 9/01/12 N/A
Pin Oak Village
Oil City, PA 100 236 FHA 1,016,091.42 1,445,936.86 6.850% 5/01/15 N/A
Pleasant Greens
Pleasanton, CA 131 236 FHA 1,985,538.24 2,756,168.16 6.930% 5/01/16 N/A
Pleasant Village
Fresno, CA 100 236 FHA 863,140.73 1,195,281.88 6.930% 8/01/15 N/A
Pleasantdale Apts.
Doralville, GA 210 221(d)4 FHA 4,272,599.47 6,417,131.23 7.430% 9/01/24 N/A
Regency Manor
Rutland, VT 120 236 FHA 1,202,494.58 1,672,806.72 6.875% 9/01/13 N/A
Riverwood Apts.
Milwaukee, WI 90 221(d)4 FHA 1,940,738.70 2,525,227.45 7.430% 1/01/22 8/00
Russell Square Apts.
Phoenix City, AL 100 221(d)4 FHA 1,801,696.68 2,191,261.98 9.680% 2/01/25 N/A
Shelter Hill Apts.
Mill Valley, CA 75 236 FHA 1,736,329.56 2,430,408.73 6.875% 5/01/17 N/A
Sleepy Hollow Apts.
Madison, WI 124 221(d)4 FHA 2,229,150.91 3,163,296.81 7.430% 5/01/21 5/01
Stonewood Village
Madison, WI 144 221(d)4 FHA 2,880,745.86 3,690,816.42 9.680% 2/01/25 N/A
Tanglewood Apts.
Knoxville, TN 105 221(d)4 FHA 1,545,638.81 2,108,048.36 7.430% 9/01/20 11/01
The Willows
Port Arthur, TX 168 221(d)4 FHA 3,078,491.17 3,744,811.82 9.680% 6/01/25 N/A
Timbercroft IV & V
Reistertown, MD 279 236 FHA 3,577,946.18 4,859,022.32 7.600% 11/01/17 N/A
Turtle Creek Apts.
Pontiac, MI 125 221(d)4 FHA 3,069,519.47 3,778,504.79 7.430% 8/01/21 N/A
</TABLE>
147
<PAGE>
Appendix
CRI Liquidating
Schedule of Government Insured Multifamily Mortgages
(Excluding Mortgages Held for Disposition) (Continued)
As of December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Section
No. of of the Loan Carrying Face Net Maturity Put
Property Name/Location Units Act Type Value (Tax) Value Coupon Date Date
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Villa de Mission
Las Vegas, NV 226 221(d)4 FHA 5,794,308.42 7,611,407.87 7.430% 3/01/21 2/01
Wakefield Terrace
St. Charles, MD 204 236 FHA 3,760,314.88 5,231,385.34 7.350% 4/01/20 N/A
Willow Creek
Portage, IN 130 236 FHA 1,576,526.97 2,192,065.10 6.875% 11/01/14 N/A
Willow Dayton II
Chicago, IL 87 220 FHA 3,286,727.94 4,187,903.93 9.680% 3/01/25 N/A
Willowcrest Prcl G
Frederick, MD 204 221(d)4 FHA 3,064,373.67 4,397,817.38 7.430% 8/01/19 5/00
Windrush Apartments
Decatur, GA 202 221(d)4 FHA 4,649,155.96 6,751,322.29 7.430% 7/01/24 5/03
1120 North LaSalle
Chicago, IL 263 220 FHA 9,830,123.53 13,643,931.31 7.500% 9/01/22 N/A
441 Ocean Avenue
Brooklyn, NY 207 223(f) FHA 877,159.91 1,045,100.24 9.340% 1/01/25 N/A
SUBTOTAL 51(a) 138,743,181.17 188,610,024.19
</TABLE>
148
<PAGE>
Appendix
CRI Liquidating
Schedule of Government Insured Multifamily Mortgages
(Excluding Mortgages Held for Disposition) (Continued)
As of December 31, 1993
(Unaudited)
The following Government Insured Multifamily Mortgages were sold by CRI
Liquidating on February 10, 1994:
<TABLE>
<CAPTION>
Section
No. of of the Loan Carrying Maturity Put
Property Name/Location Units Act Type Value (Tax) Face Value Coupon Date Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brookridge Twnhs 2
Salisbury, MD 140 221(d)4 FHA $3,189,003.96 $4,584,909.98 7.430% 7/01/22 2/02
Hidden Oaks II
Albany, GA 112 221(d)4 FHA 1,854,739.48 2,604,962.66 7.430% 12/01/21 3/01
Hidden Valley Apts.
Spring Township, PA 154 221(d)4 FHA 2,557,580.25 3,611,460.87 7.430% 5/01/19 2/00
Holly St. Tnhs 2
Waldorf, MD 60 221(d)4 FHA 1,106,182.36 1,575,458.87 7.400% 2/01/21 10/00
Holly Stn Tnhs I
Waldorf, MD 150 221(d)4 FHA 2,807,779.49 4,002,075.53 7.400% 6/01/21 12/00
The Glen
Falls Church, VA 152 221(d)4 FHA 1,870,274.00 2,611,626.18 7.430% 4/01/19 11/99
The Tree House
Schaumburg, IL 272 221(d)4 FHA 4,293,765.20 6,115,313.65 7.400% 2/01/21 4/01
Treehaven Apts.
Summerville, SC 88 221(d)4 FHA 800,227.89 1,133,839.17 7.400% 2/01/20 2/00
Westwind Apts.
Roseville, CA 126 221(d)4 FHA 2,520,472.09 3,596,688.11 7.400% 12/01/21 5/01
Windermere House
Chicago, IL 220 221(d)4 FHA 6,085,988.39 8,006,545.94 7.430% 6/01/23 1/03
SUBTOTAL 10(a) 27,086,013.11 37,842,880.96
---------- ---------------- ---------------
TOTAL LOANS 61(a) $165,829,194.28 $226,452,905.15
========== ================ ===============
</TABLE>
(a) Excludes two Mortgages Held for Disposition.
149
<PAGE>
Directors and Executive Officers
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
CRIIMI MAE
Name Position Principal
Occupation
- --------------------------------------------------------------------
<S> <C> <C>
William B. Dockser Chairman Chairman of the
of the Board and
Board Shareholder-C.R.I., Inc.
H. William Willoughby Director, President,
President Secretary,
Director and
and Secretary
Shareholder
- C.R.I.,
Inc.
Garrett G. Carlson, Sr. Director Chairman of the
Board-SCA
Realty, Inc.;
President - Can American Realty
Corporation and Canadian Financial
Corporation
G. Richard Dunnells Director Partner -
Holland & Knight
Robert F. Tardio Director Chairman - The
Tardio
Corporation
Frederick J. Burchill Executive Senior Vice
Vice President -
President C.R.I., Inc.
Jay R. Cohen Executive C.R.I., Inc.
Vice President and
Senior Vice
President,
Mortgages -
Treasurer
Elizabeth O. Flanagan Chief Vice President
Financial and Director of
Officer CRIIMI MAE
Special Projects
</TABLE>
150
<PAGE>
The Annual Report to the Securities and Exchange Commission on Form 10-K is
available to Shareholders and may be obtained by writing:
Investor Services/CRIIMI MAE Inc.
C.R.I., Inc.
The CRI Building
11200 Rockville Pike
Rockville, Maryland 20852
CRIIMI MAE Inc. shares are traded on the New York Stock Exchange under the
symbol CMM.
151
<PAGE>
COMMITTED MASTER REPURCHASE AGREEMENT
Dated as of November 30, 1993
Between:
NOMURA SECURITIES INTERNATIONAL, INC., as Buyer
and
CRIIMI MAE INC., as Seller
1. APPLICABILITY
From time to time the parties hereto may enter into transactions in which
CRIIMI MAE Inc. ("Seller"), agrees to transfer to Nomura Securities
International, Inc. ("Buyer") securities or financial instruments ("Securities")
against the transfer of funds by Buyer, with a simultaneous agreement by Buyer
to transfer to Seller such Securities at a date certain three years after
October 27, 1993 or on demand, as specified in the Confirmation, against the
transfer of funds by Seller, provided, however, that Buyer may, in its sole
discretion, elect to terminate this Agreement and all outstanding Transactions
hereunder on the day following the second anniversary of the commencement of the
Agreement, provided further, however, that if Buyer so elects, it shall,
following such termination, enter into a Committed Master Repurchase Agreement
for a period of 364 days following the date of such termination. Each such
transaction shall be referred to herein as a "Transaction" and shall be governed
by this Agreement and the related Confirmation, unless otherwise agreed in
writing.
2. DEFINITIONS
"Act of Insolvency" means, with respect to any party, (i) and its
Affiliates, the filing of a petition, commencing, or authorizing the
commencement of any case or proceeding under any bankruptcy, insolvency,
reorganization, liquidation, dissolution or similar law relating to the
protection of creditors, or suffering any such petition or proceeding to be
commenced by another which is consented to, not timely contested or results in
entry of an order for relief; (ii) seeking the appointment of a receiver,
trustee, custodian or similar official for such party or an Affiliate or any
substantial part of the property of either, (iii) the appointment of a receiver,
conservator, or manager for such party or an Affiliate by any governmental
agency or authority having the jurisdiction to do so; (iv) the making or
offering by such party or an Affiliate of a composition with its creditors or a
general assignment for the benefit of creditors, (v) the admission by such party
or an Affiliate of such party's or such Affiliate's inability to pay its debts
or discharge its obligations as they become due or mature; or (vi) any
governmental authority or agency or any person, agency or entity acting or
purporting to act under governmental authority shall have taken any action to
condemn, seize or appropriate, or to assume custody or control of, all or any
substantial part of the property of such party or of any of its Affiliates, or
shall have taken any action to displace the management of such party or of any
of its Affiliates or to curtail its authority in the conduct of the business of
such party or of any of its Affiliates.
"Additional Collateral" means Securities or cash provided by Seller to Buyer
or its designee pursuant to Section 4(a).
"Affiliate" means an affiliate of a party as such term is defined in the
United States Bankruptcy Code in effect from time to time.
"Agreement" means this Committed Master Repurchase, as amended from time to
time.
"Average Market Value" means the sum of the aggregate Market Value for all
Purchased Securities (excluding any cash transferred by Seller to Buyer pursuant
to Section 4(a)) divided by the number of Purchased Securities.
"Business Day" means a day other than (i) a Saturday or Sunday, or (ii) a
day in which the New York Stock Exchange or banks in the State of Maryland are
authorized or obligated by law or executive order to be closed.
<PAGE>
"Buyer" has the meaning specified in Section 1.
"Collateral" has the meaning specified in Section 6.
"Collateral Amount" means, with respect to any Transaction, the amount
obtained by application of the Collateral Amount Percentage to the Repurchase
Price for such Transaction.
"Collateral Amount Percentage" means the amount set forth in the
Confirmation.
"Collateral Deficit" has the meaning specified in Section 4(a).
"Collateral Excess" has the meaning specified in Section 4(b).
"Confirmation" has the meaning specified in Section 3(c).
"Custodial Agreement" means that certain custodial agreement, dated as of
April 22, 1993, by and between, Buyer and The Bank of New York.
"Custodian" means The Bank of New York, as custodian under the Custodial
Agreement, or its successor in interest or assigns.
"Event of Default" has the meaning specified in Section 13.
"Facility Amount" means $150,000,000 (one hundred fifty million dollars) or
such amount as agreed by Buyer and Seller.
"FHA Repurchase Agreement" means that certain Committed Master Repurchase
Agreement Governing Purchases and Sales of Participation Certificates, dated as
of November 30, 1993, by and among NACC and Seller.
"GAAP" means Generally Accepted Accounting Principals.
"GNMA" means the Government National Mortgage Association.
"Income" means, with respect to any Securities at any time, any principal
thereof then payable and all interest, dividends or other distributions payable
thereon.
"Late Payment Fee" has the meaning specified in Section 5(b).
"Market Value" means as of any date with respect to any Purchased
Securities, the price at which such Purchased Securities could readily be sold
as determined in good faith by Buyer provided, however, that in making such
determination, Buyer shall not take into account any Purchased Securities with
respect to which there is a breach of a representation, warranty or covenant
made by Seller in this Agreement that materially adversely affects Buyer's
interest in such Purchased Security and which breach has not been cured provided
further, however, that if Seller timely notifies Buyer in writing that it
reasonably believes that the price determined in good faith by Buyer does not
adequately reflect the price at which a Purchased Security could readily be
sold, the "Market Value" of such Purchased Security shall be the average of the
price determined by Buyer and two (2) written bids obtained by Seller, and
timely delivered to Buyer, from two (2) of the secondary market participants set
forth in Exhibit III attached hereto or any New York based affiliate of such
participants, provided that Seller shall first contact Bear, Sterns & Co. and
Daiwa Securities.
"Minimum Amount" means the then aggregate outstanding purchase price under
this Agreement, provided, however, that the "Minimum Amount" shall not be less
than sixty percent (60%) of the then aggregate outstanding purchase price under
this Agreement and the FHA Repurchase Agreement, provided further, however, that
the "Minimum Amount" may be reduced upon the request of Seller and with the
consent of Buyer, in its sole discretion.
"NACC" means Nomura Asset Capital Corporation.
<PAGE>
"Participation Certificate" means a certificate evidencing that Seller is
the registered owner of a (i) 100% undivided participating beneficial interest
or (ii) certificate which is one of only two certificates which in the aggregate
represent a 100% beneficial interest and the other certificate is owned by the
originator of such interest, in each case in FHA-insured project mortgage loans
pooled by the originator of such certificate.
"Payment Date" has the meaning specified in Section 5(b).
"Periodic Payment" has the meaning specified in Section 5(b).
"Price Differential" means, with respect to any Transaction hereunder as of
any date, the aggregate amount obtained by daily application of the Pricing Rate
for such Transaction to the Purchase Price for such Transaction on a 360 day per
year basis for the actual number of days during the period commencing on (and
including) the Purchase Date for such Transaction and ending on (but excluding)
the Repurchase Date (reduced by any amount of such Price Differential previously
paid by Seller to Buyer pursuant to Section 5(b) with respect to such
Transaction).
"Pricing Rate" means the per annum percentage rate specified in the
Confirmation for determination of the Price Differential.
"Prime Rate" means the rate of interest published by The Wall Street
Journal, northeast edition, as the "prime rate".
"Purchase Date" means the date on which Purchased Securities are transferred
by Seller to the Buyer as specified in the Confirmation.
"Purchase Price" means (i) on the Purchase Date, the price at which
Purchased Securities are transferred by Seller to the Buyer, and (ii)
thereafter, such price decreased by the amount of any cash transferred by Seller
to Buyer pursuant to Sections 4(a) or 5, excluding any Late Payment Fees.
"Purchased Securities" means the Securities sold by Seller to Buyer in a
Transaction, any Additional Collateral and any Substituted Securities.
"Replacement Securities" has the meaning specified in Section 14(b)(ii).
"Repurchase Date" means the date on which Seller is to repurchase the
Purchased Securities from Buyer, as specified in the Confirmation, unless the
Transaction is terminable on demand, in which case "Repurchase Date" shall be
the date on which such Transaction is terminated.
"Repurchase Price" means the price at which Purchased Securities are to be
transferred from Buyer to Seller upon termination of a Transaction, which will
be determined in each case (including Transactions terminable upon demand) as
the sum of the Purchase Price and the Price Differential as of the date of such
determination.
"Seller" has the meaning specified in Section 1.
"Servicer" means an independent third party servicer of the Underlying
Mortgage Loans.
"Substituted Securities" means any Securities substituted for Purchased
Securities in accordance with Section 9(a) hereof.
"Transaction" has the meaning specified in Section 1.
"Underlying Mortgage Loans" means GNMA-insured mortgage loans represented by
and underlying each Purchased Security.
3. INITIATION; CONFIRMATION; TERMINATION
(a) Simultaneous with the execution and delivery of this Agreement by
Seller, Seller shall deliver to Buyer an opinion of counsel that this Agreement
is a legal, valid and binding
<PAGE>
agreement, enforceable in accordance with its terms, subject to bankruptcy and
insolvency, and that the Agreement does not and will not impact or adversely
affect Seller's status as a "real estate investment trust."
(b) It is the intent of Buyer and Seller that this Agreement be a committed
facility, and that, subject to the terms and conditions of this Agreement, Buyer
shall be obligated to purchase Securities upon Seller's advice of such
Transaction as described in Section 3(c), provided, however, that unless and
until notified by Buyer in writing the aggregate Purchase Price of all Purchased
Securities for all Transactions not then terminated shall not be less than the
Minimum Amount but shall not exceed the Facility Amount.
(c) Seller shall advise Buyer of each Transaction at least two (2) Business
Days before the Purchase Date for such Transaction. Upon receiving such notice,
Buyer shall promptly deliver to Seller a written confirmation in the form of
Exhibit I attached hereto (a "Confirmation"). Such Confirmation shall describe
the Purchased Securities (including CUSIP number, if any), identify Buyer and
Seller and set forth (i) the Purchase Date, (ii) the Purchase Price, (iii) the
Repurchase Date, unless the Transaction is to be terminable on demand, (iv) the
Pricing Rate applicable to the Transaction, and (v) any additional terms or
conditions not inconsistent with this Agreement.
(d) Each Confirmation, together with this Agreement, shall be conclusive
evidence of the terms of the Transaction(s) covered thereby unless objected to
in writing by the Seller no more than two (2) Business Days after the date the
Confirmation was received by the Seller or unless a corrected Confirmation is
sent by Buyer. An objection sent by the Seller must state specifically that the
writing is an objection, must specify the provision(s) being objected to by the
Seller, must set forth such provision(s) in the manner that the Seller believes
they should be stated, and must be received by Buyer no more than two (2)
Business Days after the Confirmation was received by the Seller.
<PAGE>
(e) In the case of Transactions terminable upon demand, such demand shall
be made by Buyer or Seller by telephone or otherwise, no later than 10:00 a.m.
on the Business Day prior to the day on which such termination will be
effective.
(f) On the Repurchase Date, termination of the Transaction will be effected
by transfer to Seller or its designee of the Purchased Securities (and any
Income in respect thereof received by Buyer not previously credited or
transferred to, or applied to the obligations of, Seller pursuant to Section
5(a)) against the simultaneous transfer of the Repurchase Price to an account of
Buyer.
4. COLLATERAL AMOUNT MAINTENANCE
(a) If at any time the aggregate Market Value of all Purchased Securities
subject to all Transactions is less than the aggregate Collateral Amount for all
such Transactions (a "Collateral Deficit"), then Buyer may, by notice to Seller,
require Seller to transfer to Buyer or its designee additional Securities
reasonably acceptable to Buyer and/or cash ("Additional Collateral"), so that
the cash and aggregate Market Value of the Purchased Securities, including any
such Additional Collateral, will thereupon equal or exceed the aggregate
Collateral Amount.
(b) If at any time the aggregate Market Value of all Purchased Securities
subject to all Transactions exceeds the aggregate Collateral Amount for all such
Transactions (a "Collateral Excess"), then Seller may, by notice to Buyer,
require Buyer in such Transactions to transfer to Seller or its designee
Purchased Securities and/or cash so that the cash and aggregate Market Value of
the Purchased Securities, after deduction of any such Securities and/or cash so
transferred, will thereupon not exceed the aggregate Collateral Amount.
(c) Notice required pursuant to subsections (a) or (b) above may be given
by any means of telephonic, telecopier or telegraphic transmission. A notice
for the payment or delivery in respect of a Collateral Deficit or Collateral
Excess, as the case may be, received before 1:00 p.m. on a Business Day, local
time of the party receiving the notice, must be met not later than 5:00 p.m.
(New York time) on the Business Day following the date on which notice was
given. Any notice given on a Business Date after 1:00 p.m., local time of the
party receiving the notice, shall be met not later than 5:00 p.m., (New York
time) on the second Business Day following the date on which notice was given.
The failure of Buyer or Seller, on any one or more occasions, to exercise its
rights under subsections (a) or (b) of this Section, respectively, shall not
change or alter the terms and conditions to which this Agreement is subject or
limit the right of the Buyer or Seller to do so at a later date. Buyer and
Seller agree that a failure or delay to exercise its rights under subsections
(a) or (b) of this Section shall not limit either party's rights under this
Agreement or otherwise existing by law or in any way create additional rights
for the other party.
5. INCOME PAYMENTS
(a) Where a particular Transaction's term extends over an Income payment
date on the Purchased Securities subject to that Transaction such Income shall
be the property of Buyer. Notwithstanding the foregoing, Buyer agrees that the
Seller shall continue to receive Income unless and until an Event of Default by
the Seller occurs, in which case Buyer may at its election direct the recipient
of Income to hold such Income in a segregated account for and on behalf of Buyer
and/or remit such Income directly to Buyer.
(b) Notwithstanding that Buyer and Seller intend that the Transactions
hereunder be sales to Buyer of the Purchased Securities, Seller shall pay to
Buyer the accreted value of the Price Differential (less any amount of such
Price Differential previously paid by Seller to Buyer)("Periodic Payment") on
the first Business Day of each calendar quarter (each, a "Payment Date"). If
Seller fails to make the Periodic Payment by 5:00 p.m. (New York time) on the
Business Day following the Payment Date, Seller shall be obligated to pay to
Buyer (in addition to,
<PAGE>
and together with, the Periodic Payment) a late payment fee of $100 per day (the
"Late Payment Fee") until the Periodic Payment is received by Buyer.
(c) Buyer shall offset against the Repurchase Price of each such
Transaction all Income and payments actually received by Buyer pursuant to
Sections 5(a) and (b), respectively, excluding any Late Payment Fees paid
pursuant to Section 5(b).
6. SECURITY INTEREST
Buyer and Seller intend that the Transactions hereunder be sales to the
Buyer of the Purchased Securities and not loans from the Buyer to the Seller
secured by the Purchased Securities. However, in order to preserve the Buyer's
rights under this Agreement in the event that a court or other forum
recharacterizes the Transactions hereunder as loans and as security for the
performance by Seller of all of Seller's obligations to Buyer under this
Agreement and the Transactions entered into pursuant to this Agreement, Seller
grants to Buyer a first priority security interest in all of the Purchased
Securities with respect to all Transactions hereunder and all proceeds thereof,
all securities, notes, mortgages, monies or other property of Seller, and all
distributions thereon and proceeds thereof, whenever the same is held or carried
by or for Buyer or its Affiliates, or any of its agents, including property held
or carried in accounts maintained by Nomura or its Affiliates at financial
intermediaries (collectively, the "Collateral"). In addition, in the event any
court, forum or regulatory authority having jurisdiction over Seller were to
determine that the Underlying Mortgage Loans (or any beneficial interest therein
or payment or payments thereunder) are the property of Seller, Seller shall be
deemed to have pledged to Buyer as security for the performance of Seller of its
obligations under each such Transaction, and shall be deemed to have granted
Buyer a first priority security interest in, such mortgage loans and all related
servicing agreements, servicing records, insurance, income, custodial accounts,
escrow accounts, and any other contract rights, general intangibles and other
assets relating to such mortgage loans.
7. PAYMENT, TRANSFER AND CUSTODY
(a) Unless otherwise mutually agreed in writing, all transfers of funds
hereunder shall be in immediately available funds.
(b) Subject to Section 7(c), on the Purchase Date for each Transaction,
ownership of the Purchased Securities shall be transferred to the Buyer against
the simultaneous transfer of the Purchase Price to an account of Seller
specified in the Confirmation. Seller, simultaneously with the delivery to the
Buyer of the Purchased Securities relating to each Transaction hereby sells,
transfers, conveys and assigns to Buyer without recourse, but subject to the
terms of this Agreement, all the right, title and interest of Seller in and to
the Purchased Securities together with all right, title and interest in and to
the proceeds of any related insurance policies.
(c) Notwithstanding anything to the contrary in this Agreement, Buyer shall
have no obligation to purchase any Securities on any Purchase Date if, after
such purchase:
(i) an Event of Default by the Seller will have occurred and be
continuing, or an Event of Default by the Seller would occur with notice or
the passing of time;
(ii) the Repurchase Date for such Transaction would be later than the
1094th day after the date of this Agreement; or
(iii) the aggregate Purchase Price of all Purchased Securities for all
Transactions not then terminated would exceed the Facility Amount.
(d) All Securities transferred from Seller to Buyer (i) shall be in
suitable form for transfer or shall be accompanied by duly executed instruments
of transfer or assignment in blank and
<PAGE>
such other documentation as the party receiving possession may reasonable
request, (ii) shall be transferred on the book-entry system of a Federal Reserve
bank, or (iii) shall be transferred by any other method mutually acceptable to
Seller and Buyer. As used herein with respect to Securities, "transfer" is
intended to have the same meaning as when used in Section 8-313 of the New York
Uniform Commercial Code or, where applicable, in any federal regulation
governing transfers of Securities. With respect to any transfer pursuant to
Section 7(d)(i), physical documents shall be delivered and released to the
Custodian.
(e) Any cash held by Buyer or its designee as Additional Collateral shall
be deposited in an interest bearing account. The interest on such cash shall
accrue for the benefit of Seller and shall be held by Buyer or its designee as
Additional Collateral.
(f) Buyer and Seller agree that at no time shall the Average Market Value
be less than $4,000,000. If for any reason the Average Market Value is less
than $4,000,000, the Pricing Rate for each outstanding Transaction shall be
increased by five (5) basis points for the period during which the Average
Market Value is less than $4,000,000.
8. HYPOTHECATION OR PLEDGE OF PURCHASED SECURITIES
Title to all Purchased Securities shall pass to Buyer and Buyer shall have
free and unrestricted use of all Purchased Securities. Nothing in this
Agreement shall preclude Buyer from engaging in repurchase transactions with the
Purchased Securities or otherwise pledging, repledging, hypothecating, or
rehypothecating the Purchased Securities, but no such transaction shall relieve
Buyer of its obligations to transfer the Purchased Securities to Seller pursuant
to Section 3. Nothing contained in this Agreement shall obligate Buyer to
segregate any Purchased Securities delivered to Buyer by Seller.
9. SUBSTITUTION
(a) Subject to Section 9(b), Seller may, upon fifteen (15) Business Days
written notice to Buyer, substitute other Securities for any Purchased
Securities, provided, however, that the fifteen (15) Business Days written
notice requirement shall not apply to any substitution made (i) with respect to
any Purchased Security for which Seller receives written notice from Servicer
that the Underlying Mortgage Loan is in default or will be prepaid, or (ii) for
the purpose of satisfying a Collateral Deficit pursuant to Section 4(a). Such
substitution shall be made by (i) the transfer to the Custodian of such
substituted Securities, and (ii) the transfer to Seller or its designee of the
Purchased Securities requested for release. After substitution, the substituted
Securities shall be deemed to be Purchased Securities.
(b) Notwithstanding anything to the contrary in this Agreement, Seller may
not substitute other Securities for any Purchased Securities if (i) Buyer does
not consent to such substitution, which consent shall not be unreasonably
withheld, (ii) after taking into account such substitution, a Collateral Deficit
were to occur, and (iii) such substitution would impact or adversely affect
Seller's status as a "real estate investment trust." Upon Buyer's reasonable
request, Seller shall deliver to Buyer an opinion of Arent, Fox, Kintner,
Plotkin & Kahn or other nationally recognized tax counsel that such substitution
will not impact or adversely affect Seller's status as a "real estate investment
trust."
10. REPRESENTATIONS
(a) Each of Buyer and Seller represents and warrants to the other that (i)
it is duly authorized to execute and deliver this Agreement, to enter into the
Transactions contemplated hereunder and to perform its obligations hereunder and
has taken all necessary action to authorize such execution, delivery and
performance; (ii) it will engage in such Transactions as principal (or, if
agreed in writing in advance of any Transaction by the other party hereto, as
agent for a disclosed principal); (iii) the person signing this Agreement on its
behalf is duly
<PAGE>
authorized to do so on its behalf (or on behalf of any such disclosed
principal); (iv) no approval, consent or authorization of the Transactions
contemplated by this Agreement from any federal, state, or local regulatory
authority having jurisdiction over it is required or, if required, such
approval, consent or authorization has been or will, prior to the Purchase Date,
be obtained; (v) the execution, delivery, and performance of this Agreement and
the Transactions hereunder will not violate any law, regulation, order,
judgment, decree, ordinance, charter, by-law, or rule applicable to it or its
property or constitute a default (or an event which, with notice or lapse of
time, or both would constitute a default) under or result in a breach of any
agreement or other instrument by which it is bound or by which any of its assets
are affected; (vi) it has received approval and authorization to enter into this
Agreement and each and every Transaction actually entered into hereunder
pursuant to its internal policies and procedures; and (vii) neither this
Agreement nor any Transaction pursuant hereto are entered into in contemplation
of insolvency or with intent to hinder, delay or defraud any creditor.
(b) The Seller represents and warrants to the Buyer that as of the Purchase
Date for the purchase of any Purchased Securities by the Buyer from the Seller
and as of the date of this Agreement and any Transaction hereunder and at all
times while this Agreement and any Transaction thereunder is in full force and
effect:
(i) Organization. The Seller is duly organized, validly existing and
in good standing under the laws and regulations of the state of Seller's
organization and is duly licensed, qualified, and in good standing in every
state where Seller transacts business.
(ii) No Litigation. There is no action, suit, proceeding,
investigation, or arbitration pending or threatened against the Seller,
which may result in any material adverse change in the business,
operations, financial condition, properties, or assets of the Seller, or
which may have an adverse effect on the validity of this Agreement or the
Purchased Securities or any action taken or to be taken in connection with
the obligations of the Seller contemplated herein.
(iii) No Broker. The Seller has not dealt with any broker, investment
banker, agent, or other person, except for the Buyer, who may be entitled
to any commission or compensation in connection with the sale of Purchased
Securities pursuant to this Agreement.
(iv) Good Title to Collateral. Purchased Securities shall be free and
clear of any lien, encumbrance or impediment to transfer, and the Seller
represents and warrants the foregoing to the Buyer and represents and
warrants that it has good, valid and marketable title or right to sell and
transfer such Purchased Securities to the Buyer.
(v) Maintenance of Cash. Seller shall maintain cash or cash
equivalents (including lines of credit deemed satisfactory in the sole
judgment of Buyer) equal to at least $5,000,000 (five million dollars).
(vi) Selection Process. The Purchased Securities were selected from
among the outstanding Securities in the Seller's portfolio as to which the
representations and warranties set forth in this Agreement could be made
and such selection was not made in a manner so as to affect adversely the
interests of the Buyer.
(c) On the Purchase Date for any Transaction, Buyer and Seller shall each
be deemed to have made all the foregoing representations with respect to itself
as of such Purchase Date.
<PAGE>
11. NEGATIVE COVENANTS OF THE SELLER
On and as of the date of this Agreement and each Purchase Date and until
this Agreement is no longer in force with respect to any Transaction, the Seller
covenants that it will not:
(a) take any action which would directly or indirectly impair or adversely
affect the Buyer's title to or the value of the Purchased Securities; or
(b) pledge, assign, convey, grant, bargain, sell, set over, deliver or
otherwise transfer any interest in the Purchased Securities to any person not a
party to this Agreement nor will the Seller create, incur or permit to exist any
lien, encumbrance or security interest in or on the Purchased Securities except
as described in Section 6 of this Agreement.
12. AFFIRMATIVE COVENANTS OF THE SELLER
(a) Seller covenants that it will promptly notify Buyer of any material
adverse change in its business operations and/or financial condition, provided,
however, that nothing in this Section 12 shall relieve Seller of its obligations
pursuant to Section 10(b)(v) or pursuant to any other Section of this Agreement.
(b) Seller shall provide Buyer with copies of such documentation as Buyer
may reasonably request evidencing the truthfulness of the representations set
forth in Section 10, including but not limited to resolutions evidencing the
approval of this Agreement by Seller's board of directors or loan committee, and
copies of the minutes of the meetings of Seller's board of directors or loan
committee at which this Agreement and the Transactions contemplated by this
Agreement were approved.
(c) Seller shall, at Buyer's request, take all action necessary to ensure
that Buyer will have a first priority security interest in the Purchased
Securities.
(d) Seller covenants that it will not create, incur or permit to exist any
lien, encumbrance or security interest in or on any of the Collateral without
the prior express written consent of Buyer.
(e) Seller shall notify Buyer as soon as possible, but in no event later
than three (3) Business Days after obtaining actual knowledge thereof, if any
event has occurred that constitutes an Event of Default with respect to Seller
or any event that with the giving of notice or lapse of time, or both, would
become an Event of Default with respect to Seller.
13. EVENTS OF DEFAULT
(a) If any of the following events (each, an "Event of Default") occur, the
Seller and Buyer shall have the rights set forth in Section 14, as applicable.
(i) Seller or Buyer fails to satisfy or perform any material
obligation or covenant under this Agreement, other than the covenant set
forth in Section 12(b);
(ii) Seller fails to satisfy or perform the covenant set forth in
Section 12(b) within thirty (30) days after Buyer gives Seller written
notice of such failure;
(iii) any representation made by Seller or Buyer, other than the
representation set forth in Section 10(b)(v), shall have been incorrect or
untrue in any material respect when made or repeated or deemed to have been
made or repeated;
(iv) Seller fails to cure any breach of the representation set forth
in Section 10(b)(v) within five (5) days after Buyer gives Seller written
notice of such breach.
(v) an Act of Insolvency occurs with respect to Buyer or Seller;
<PAGE>
(vi) Buyer or Seller shall admit its inability to, or its intention not
to, perform any of its obligations hereunder;
(vii) any governmental, regulatory, or self-regulatory authority takes
any action to remove, limit, restrict, suspend or terminate the rights,
privileges, or operations of the Seller or any of its Affiliates, including
suspension as an issuer or lender of mortgage loans, which suspension has a
material adverse effect on the ordinary business operations of Seller or
Seller's Affiliate, and which continues for more than 24 hours;
(viii) Buyer or Seller dissolves, merges or consolidates with another
entity unless it is the surviving party, or sells, transfers, or otherwise
disposes of a material portion of its business or assets, provided,
however, that a merger shall not constitute an Event of Default if Buyer or
Seller, as the case may be, obtains the prior written consent of the Seller
or Buyer, respectively;
(ix) Buyer, in its respective good faith judgment, has reasonable
cause to believe that (A) there has been a material adverse change in the
business, operations, corporate structure or financial condition or
prospects of the Seller; (B) Seller will not meet any of its obligations
under any Transaction pursuant to this Agreement, or any other agreement
between the parties; or (C) a material adverse change in the financial or
legal condition of Seller may occur due to the pendency or threatened
pendency of a material legal action against Seller or any of its
Affiliates, and Seller fails to provide Buyer with adequate assurances
(including without limitation performance guarantees), within 24 hours of a
written request therefor, of its ability to perform its obligations
hereunder or under any other agreement between the parties;
(x) Except with respect to Seller's obligation under Section 5(b),
Seller or any of its Affiliates shall fail to pay when due (including any
grace period provided under the applicable documents) any amount in respect
of indebtedness for money borrowed or for the deferred purchase price of
property created, issued, guaranteed, incurred or assumed by any of them,
or any other event shall occur or any condition shall exist in respect of
any such indebtedness the effect of which is to cause (or permit any holder
thereof or a trustee to cause) such indebtedness to become due prior to its
stated maturity;
(xi) Seller shall fail to pay within five (5) Business Days of each
Payment Date any and all amounts payable pursuant to Section 5(b);
(xii) Seller or any of its Affiliates shall default or fail to perform
under any agreement or transaction between Buyer or any of its Affiliates,
or Seller or any of its Affiliates, or Seller or any of its Affiliates
shall breach any covenant or condition in any agreement or transaction
between Buyer or any of its Affiliates and Seller or any of its Affiliates,
provided, however, that any such default, failure to perform or breach
shall not constitute an Event of Default if Seller or any of its Affiliates
cures such default, failure to perform or breach, as the case may be,
within the grace period, if any, provided under the applicable agreement;
(xiii) Seller fails to provide quarterly unaudited and annual audited
financial statements within 50 and 95 days, respectively, after the date on
which such period ends, or fails to deliver in a timely manner such
financial or other information as Buyer may from time to time reasonably
request;
(xiv) Seller's ratio of consolidated total liabilities (excluding
payables in the normal course of business) to consolidated shareholders'
equity (both computed in accordance with GAAP) exceeds two and one-half to
one (2.5 to 1);
<PAGE>
(xv) Seller pledges any of its assets (excluding any assets already
pledged under existing facilities and any assets required to be pledged
for purposes of collateral maintenance under such facilities) before
notification to and written approval by Buyer, which approval shall not
be unreasonably withheld;
(xvi) Seller fails to maintain consolidated shareholders equity
(computed in accordance with GAAP) of at least $125,000,000 (one hundred
and twenty five million dollars);
(xvii) Seller incurs three (3) consecutive quarters of consolidated
net losses on either a GAAP or tax basis;
(xviii) Seller fails to maintain interest rate hedges, reasonably
acceptable to Buyer, on at least 75% of its floating rate liabilities;
(xix) Seller fails to promptly certify at Buyer's request that no
Event of Default has occurred or is continuing at the time of the
certification, provided, however, that such certification shall be made by
Seller at least on the first Business Day of each month;
(xx) A final judgment by any competent court in the United States of
America for the payment of money in an amount of at least $100,000 is
rendered against the Seller, and the same remains undischarged or unpaid
for a period of sixty (60) days during which execution of such judgment is
not effectively stayed;
(xxi) This Agreement shall for any reason cease to create a valid
first priority security interest in any of the Purchased Securities
purported to be covered hereby; or
(xxii) Seller fails to maintain the aggregate Purchase Price of all
Purchased Securities for all Transactions not then terminated in an amount
equal to or greater than the Minimum Amount.
(b) In making a determination as to whether an Event of Default has
occurred, the Buyer shall be entitled to rely on reports published or broadcast
by media sources believed by the Buyer to be generally reliable and on
information provided to it by any other sources believed by it to be generally
reliable, provided that the Buyer reasonably and in good faith believes such
information to be accurate and has taken such steps as may be reasonable in the
circumstances to attempt to verify such information.
14. REMEDIES
(a) If an Event of Default occurs with respect to the Seller, the following
rights and remedies are available to the Buyer:
(i) At the option of the Buyer, exercised by written notice to the
Seller (which option shall be deemed to have been exercised, even if no
notice is given, immediately upon the occurrence of an Act of Insolvency),
the Repurchase Date for each Transaction hereunder shall be deemed
immediately to occur. Notwithstanding that the Repurchase Date shall be
deemed immediately to have occurred upon the exercise or deemed exercise of
such option by the Buyer, for purposes of determining the Repurchase Price,
the Repurchase Date shall be the date specified in the Confirmation for
such Transaction.
(ii) If the Buyer exercises or is deemed to have exercised the option
referred to in subsection (a)(i) of this Section,
(A) the Seller's obligations hereunder to repurchase all
Purchased Securities in such Transactions shall thereupon become
immediately due and payable,
<PAGE>
(B) to the extent permitted by applicable law, the Repurchase
Price with respect to each such Transaction shall be increased by the
aggregate amount obtained by daily application of, on a 360 day per
year basis for the actual number of days during the period from and
including the date of the exercise or deemed exercise of such option
to but excluding the date of payment of the Repurchase Price as so
increased, (x) the greater of the Prime Rate or the Pricing Rate for
each such Transaction multiplied by (y) the Repurchase Price for such
Transaction (decreased as of any day by (I) any amounts actually in
the possession of Buyer pursuant to clause (C) of this subsection,
(II) any proceeds from the sale of Purchased Securities applied to the
Repurchase Price pursuant to subsection (a)(ix) of this Section, and
(III) any amounts applied to the Repurchase Price pursuant to
subsection (a)(iii) of this Section), and
(C) all Income and payments actually received by the Buyer
pursuant to Sections 5(a) and (b), excluding any Late Payment Fees
paid pursuant to Section 5(b), shall be applied to the aggregate
unpaid Repurchase Price owed by the Seller.
(iii) After one Business Day's notice to the Seller (which notice need
not be given if an Act of Insolvency shall have occurred, and which may be
the notice given under subsection (a)(i) of this Section), the Buyer may
(A) immediately sell, at a public or private sale in a commercially
reasonable manner and at such price or prices as the Buyer may reasonably
deem satisfactory any or all Purchased Securities subject to a Transaction
hereunder or (B) in its sole discretion elect, in lieu of selling all or a
portion of such Purchased Securities, to give the Seller credit for such
Purchased Securities in an amount equal to the Market Value of the
Purchased Securities against the aggregate unpaid Repurchase Price and any
other amounts owing by the Seller hereunder. The proceeds of any
disposition of Purchased Securities shall be applied first to the costs and
expenses incurred by the Buyer in connection with the Seller's default;
second to consequential damages, including but not limited to costs of
cover and/or related hedging transactions, provided, however, that Buyer
shall act in good faith and in a timely manner to mitigate damages to the
extent practicable; third to the Repurchase Price; and fourth to any other
outstanding obligation of the Seller to the Buyer or its Affiliates.
(iv) The parties recognize that it may not be possible to purchase or
sell all of the Purchased Securities on a particular Business Day, or in a
transaction with the same purchaser, or in the same manner because the
market for such Purchased Securities may not be liquid. In view of the
nature of the Purchased Securities, the parties agree that liquidation of a
Transaction or the underlying Purchased Securities does not require a
public purchase or sale and that a good faith private purchase or sale
shall be deemed to have been made in a commercially reasonable manner.
Accordingly, Buyer may elect, in its sole discretion, the time and manner
of liquidating any Purchased PC and nothing contained herein shall (A)
obligate Buyer to liquidate any Purchased PC on the occurrence of an Event
of Default or to liquidate all Purchased Securities in the same manner or
on the same Business Day or (B) constitute a waiver of any right or remedy
of Buyer. However, in recognition of the parties' agreement that the
Transactions hereunder have been entered into in consideration of and in
reliance upon the fact that all Transactions hereunder constitute a single
business and contractual relationship and that each Transaction has been
entered into in consideration of the other Transactions, the parties
further agree that Buyer shall use its best efforts to liquidate all
Transactions hereunder upon the occurrence of an Event of Default as
quickly as is prudently possible in the reasonable judgment of Buyer.
<PAGE>
(v) Seller shall be liable to Buyer for (A) the amount of all expenses,
including reasonable legal or other expenses incurred by Buyer in
connection with or as a consequence of an Event of Default, and (B)
consequential damages including, without limitation, all costs incurred in
connection with hedging or covering transactions, provided, however, that
Buyer shall act in good faith and in a timely manner to mitigate damages to
the extent practicable.
(vi) Buyer shall have all the rights and remedies provided herein,
provided by applicable federal, state, foreign, and local laws (including,
without limitation, the rights and remedies of a secured party under the
Uniform Commercial Code of the State of New York, to the extent that the
Uniform Commercial Code is applicable, and the right to offset any mutual
debt and claim), in equity, and under any other agreement between Buyer and
Seller.
(vii) Buyer may exercise one or more of the remedies available to
Buyer immediately upon the occurrence of an Event of Default and, except to
the extent provided in subsections (a)(i) and (iii) of this Section, at any
time thereafter without notice to Seller. All rights and remedies arising
under this Agreement as amended from time-to-time hereunder are cumulative
and not exclusive of any other rights or remedies which Buyer may have.
(viii) In addition to its rights hereunder, Buyer shall have the right
to proceed against any assets of Seller which may be in the possession of
Buyer or its designee, including the right to liquidate such assets and to
set off the proceeds against monies owed by Seller to Buyer pursuant to
this Agreement. Buyer may set off cash, the proceeds of the liquidation of
the Purchased Securities, any Collateral or its proceeds, and all other
sums or obligations owed by Seller to Buyer against all of Seller's
obligations to Buyer, whether under this Agreement, under a Transaction, or
under any other agreement between the parties, or otherwise, whether or not
such obligations are then due, without prejudice to Buyer's right to
recover any deficiency. Any cash, proceeds, or property in excess of any
amounts due, or which Buyer reasonably believes may become due, to it from
Seller shall be returned to Seller after satisfaction of all obligations of
Seller to Buyer.
(ix) Buyer may enforce its rights and remedies hereunder without prior
judicial process or hearing, and Seller hereby expressly waives any
defenses Seller might otherwise have to require Buyer to enforce its rights
by judicial process. Seller also waives any defense Seller might otherwise
have arising from the use of nonjudicial process, enforcement and sale of
all or any portion of the Collateral, or from any other election of
remedies, except that Seller does not waive any defense it might have that
the Collateral was not sold in a commercially reasonable manner. Seller
recognizes that nonjudicial remedies are consistent with the usages of the
trade, are responsive to commercial necessity and are the result of a
bargain at arm's length.
(b) If an Event of Default occurs with respect to Buyer, the following
rights and remedies are available to the Seller:
(i) Upon tender by the Seller of payment of the aggregate Repurchase
Price for all such Transactions, the Buyer's right, title and interest in
all Purchased Securities subject to such Transactions shall be deemed
transferred to the Seller, and the Buyer shall deliver all such Purchased
Securities to the Seller or its designee at Buyer's expense.
(ii) If the Seller exercises the option referred to in subsection
(b)(i) of this Section and the Buyer fails to deliver the Purchased
Securities to the Seller or its designee, after one Business Day's notice
to the Buyer, the Seller may (A) purchase securities ("Replacement
Securities") of the same class and amount as any Purchased Securities that
are not delivered by the Buyer to the Seller
<PAGE>
or its designee as required hereunder or (B) in its sole discretion elect,
in lieu of purchasing Replacement Securities, to be deemed to have
purchased Replacement Securities at a price therefor on such date, equal to
the Market Value of the Purchased Securities.
(iii) The Buyer shall be liable to the Seller (A) with respect to
Purchased Securities (other than Additional Collateral), for any excess of
the price paid (or deemed paid) by the Seller for Replacement Securities
therefor over the Repurchase Price for such Purchased Securities and (B)
with respect to Additional Collateral, for the price paid (or deemed paid)
by the Seller for the Replacement Securities therefor. In addition, the
Buyer shall be liable to the Seller for interest on such remaining
liability with respect to each such purchase (or deemed purchase) of
Replacement Securities from the date of such purchase (or deemed purchase)
until paid in full by Buyer. Such interest shall be at the greater of the
Pricing Rate or the Prime Rate.
15. RECORDING OF COMMUNICATIONS
Buyer and Seller shall have the right (but not the obligation) from time to
time to make or cause to be made tape recordings of communications between its
employees and those of the other party with respect to Transactions. Buyer and
Seller consent to the admissibility of such tape recordings in any court,
arbitration, or other proceedings. The parties agree that a duly authenticated
transcript of such a tape recording shall be deemed to be a writing conclusively
evidencing the parties' agreement.
16. SINGLE AGREEMENT
Buyer and Seller acknowledge that, and have entered hereinto and will enter
into each Transaction hereunder in consideration of and in reliance upon the
fact that, all Transactions hereunder constitute a single business and
contractual relationship and that each has been entered into in consideration of
the other Transactions. Accordingly, each of Buyer and Seller agrees (i) to
perform all of its obligations in respect of each Transaction hereunder, and
that a default in the performance of any such obligations shall constitute a
default by it in respect of all Transactions hereunder, (ii) that each of them
shall be entitled to set off claims and apply property held by them in respect
of any Transaction against obligations owing to them in respect of any other
Transactions hereunder and (iii) that payments, deliveries, and other transfers
made by either of them in respect of any Transaction shall be deemed to have
been made in consideration of payments, deliveries, and other transfers in
respect of any other Transactions hereunder, and the obligations to make any
such payments, deliveries, and other transfers may be applied against each other
and netted.
17. NOTICES AND OTHER COMMUNICATIONS
(a) Unless another address is specified in writing by the respective party
to whom any written notice or other communication is to be given hereunder, all
such notices or communications shall be in writing or confirmed in writing and
delivered at the respective addresses set forth in the Confirmation, except as
provided in Section 4(c).
(b) Buyer shall be authorized to accept orders and take any other action
affecting any accounts of the Seller in response to instructions given in
writing or orally by telephone or otherwise by any person set forth in Exhibit
II hereto, and the Seller shall indemnify Buyer, defend, and hold Buyer harmless
from and against any and all liabilities, losses, damages, costs, and expenses
of any nature arising out of or in connection with any action taken by Buyer in
response to such instructions received or reasonably believed to have been
received from the Seller. From time to time, Seller may, by delivering to Buyer
a revised exhibit, change the information previously given pursuant to this
Section, but the Buyer shall be entitled to rely conclusively on the current
exhibit until receipt of the superseding exhibit.
<PAGE>
18. ENTIRE AGREEMENT; SEVERABILITY
This Agreement together with the applicable Confirmation constitutes the
entire understanding between Buyer and Seller with respect to the subject matter
it covers and shall supersede any existing agreements between the parties
containing general terms and conditions for repurchase transactions involving
Purchased Securities. By acceptance of this Agreement, Buyer and Seller
acknowledge that they have not made, and are not relying upon, any statements,
representations, promises or undertakings not contained in this Agreement. Each
provision and agreement herein shall be treated as separate and independent from
any other provision or agreement herein and shall be enforceable notwithstanding
the unenforceability of any such other provision or agreement.
19. NON-ASSIGNABILITY
The rights and obligations of the parties under this Agreement and under any
Transaction shall not be assigned by either party without the prior written
consent of the other party, provided, however, that Buyer may assign its rights
and obligations under this Agreement and/or under any Transaction to an
Affiliate that is guaranteed by Nomura Securities International, Inc., without
the prior written consent of the other party. Subject to the foregoing, this
Agreement and any Transactions shall be binding upon and shall inure to the
benefit of the parties and their respective successors and assigns. Nothing in
this Agreement express or implied, shall give to any person, other than the
parties to this Agreement and their successors hereunder, any benefit or any
legal or equitable right, power, remedy or claim under this Agreement.
20. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
21. CONSENT TO JURISDICTION AND ARBITRATION
The parties irrevocably agree to submit to the personal jurisdiction of the
United States District Court for the Southern District of New York, the parties
irrevocably waiving any objection thereto. If, for any reason, federal
jurisdiction is not available, and only if federal jurisdiction is not
available, the parties irrevocably agree to submit to the personal jurisdiction
of the Supreme Court of the State of New York, the parties irrevocably waiving
any objection thereto. Notwithstanding the foregoing two sentences, at either
party's sole option exercisable at any time not later than thirty (30) days
after an action or proceeding has been commenced, the parties agree that the
matter may be submitted to binding arbitration in accordance with the commercial
rules of the American Arbitration Association then in effect in the State of New
York and judgment upon any award rendered by the arbitrator may be entered in
any court having jurisdiction thereof within the City, County and State of New
York, provided, however, that the arbitrator shall not amend, supplement, or
reform in any regard this Agreement or the terms of any Confirmation, the rights
or obligations of any party hereunder or thereunder, or the enforceability of
any of the terms hereof or thereof. Any arbitration shall be conducted before a
single arbitrator who shall be reasonably familiar with repurchase transactions
and the secondary mortgage market in the City, County, and State of New York.
22. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party shall
constitute a waiver of any other Event of Default and no exercise of any remedy
hereunder by any party shall constitute a waiver of its right to exercise any
other remedy hereunder. No modification or waiver of any provision of this
Agreement and no consent by any party to a departure herefrom shall be effective
unless and until such shall be in writing and duly executed by both of the
parties hereto. Any such waiver or modification shall be effective only in the
<PAGE>
specific instance and for the specific purpose for which it was given.
23. INTENT
The parties understand and intend that this Agreement and each Transaction
hereunder constitute a "repurchase agreement" as that term is defined in Section
101 of Title 11 of the United States Code, as amended.
24. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
The parties acknowledge that they have been advised that in the case of
Transactions in which one of the parties is an "insured depository institution"
as that term is defined in Section 1831(a) of Title 12 of the United States
Code, as amended, funds held by the financial institution pursuant to a
Transaction hereunder are not a deposit and therefore are not insured by the
Federal Deposit Insurance Corporation, the Savings Association Insurance Fund or
the Bank Insurance Fund, as applicable.
25. NETTING
If Buyer and Seller are "financial institutions" as now or hereinafter
defined in Section 4402 of Title 12 of the United States Code ("Section 4402")
and any rules or regulations promulgated thereunder:
(a) All amounts to be paid or advanced by one party to or on behalf of
the other under this Agreement or any Transaction hereunder shall be deemed
to be "payment obligations" and all amounts to be received by or on behalf
of one party from the other under this Agreement or any Transaction
hereunder shall be deemed to be "payment entitlements" within the meaning
of Section 4402, and this Agreement shall be deemed to be a "netting
contract" as defined in Section 4402.
(b) The payment obligations and the payment entitlements of the
parties hereto pursuant to this Agreement and any Transaction hereunder
shall be netted as follows. In the event that either party (the
"Defaulting Party") shall fail to honor any payment obligation under this
Agreement or any Transaction hereunder, the other party (the "Nondefaulting
Party") shall be entitled to reduce the amount of any payment to be made by
the Nondefaulting Party to the Defaulting Party by the amount of the
payment obligation that the Defaulting Party failed to honor.
26. MISCELLANEOUS
(a) Time is of the essence under this agreement and all Transactions and
all references to a time shall mean New York time in effect on the date of the
action unless otherwise expressly stated in this Agreement.
(b) If there is any conflict between the terms of a Confirmation or a
corrected Confirmation issued by the Buyer and this Agreement, the Confirmation
shall prevail.
(c) This Agreement may be executed in counterparts, each of which so
executed shall be deemed to be an original, but all of such counterparts shall
together constitute but one and the same instrument.
(d) The headings in this Agreement are for convenience of reference only
and shall not affect the interpretation or construction of this Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date set forth above.
BUYER
NOMURA SECURITIES INTERNATIONAL, INC.
By:
Name:
Title:
SELLER
CRIIMI MAE INC.
By:
Name:
Title:
<PAGE>
EXHIBITS
EXHIBIT I Confirmation
EXHIBIT II Approved Secondary Market Participants
EXHIBIT III Authorized Representatives of Seller
<PAGE>
EXHIBIT I
[Form of Confirmation Letter]
(date)
CRIIMI MAE Inc.
Attention: Jay Cohen, Executive Vice President
11200 Rockville Pike
Rockville, MD 20852
Confirmation No.:_____________________
Ladies/Gentlemen:
This letter confirms our oral agreement to purchase from you the Securities
listed in Appendix I hereto, pursuant to the Committed Master Repurchase
Agreement between us, dated as of November 30, 1993, (the "Agreement"), as
follows:
Purchase Date:
Securities to be Purchased: See Appendix I hereto.
[Appendix I to Confirmation Letter
will list the Securities]
Aggregate Principal Amount of Securities:
Purchase Price:
Pricing Rate:
Repurchase Date:
Repurchase Price:
Collateral Amount Percentage:
Names and addresses for communications:
Buyer: Murray Pozmanter
Nomura Securities International, Inc.
2 World Financial Center
Building B
21st Floor
New York, New York 10281-1198
with legal matters to:
Anna Glick, Esquire
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Seller: Jay Cohen
Executive Vice President
CRIIMI MAE Inc.
11200 Rockville Pike
Rockville, MD 20852
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Agreement.
NOMURA SECURITIES
INTERNATIONAL, INC.
By:
Name:
Agreed and Acknowledged:
CRIIMI MAE INC.
By:
Name:
Title:
<PAGE>
APPROVED SECONDARY MARKET PARTICIPANTS
Bear, Sterns & Co.
Daiwa Securities
The First Boston Corporation
Goldman, Sachs & Co.
Lehman Brothers
Salomon Brothers Inc.
Smith Barney Shearson
Werthiem, Schroeder
<PAGE>
EXHIBIT III
Authorized Representatives of Seller
Name Specimen Signature
- ------------------------ ----------------------------
William B. Dockser
----------------------------
H. William Willoughby
----------------------------
Jay R. Cohen
----------------------------
Richard J. Palmer
----------------------------
Elizabeth O. Flanagan
----------------------------
Nancy E. Currier
----------------------------
Peter M. Smith
----------------------------
Jamie I. Sapp
----------------------------
<PAGE>
COMMITTED MASTER REPURCHASE AGREEMENT GOVERNING
PURCHASES AND SALES OF PARTICIPATION CERTIFICATES
Dated as of November 30, 1993
Between:
NOMURA ASSET CAPITAL CORPORATION, as Buyer
and
CRIIMI MAE INC., as Seller
1. APPLICABILITY
From time to time the parties hereto may enter into transactions in which
CRIIMI MAE Inc. ("Seller"), agrees to transfer to Nomura Asset Capital
Corporation ("Buyer") Participation Certificates against the transfer of funds
by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such
Participation Certificates at a date certain three years after October 27, 1993
or on demand, as specified in the Confirmation, against the transfer of funds by
Seller, provided, however, that Buyer may, in its sole discretion, elect to
terminate this Agreement and all outstanding Transactions hereunder on the day
following the second anniversary of the commencement of the Agreement, provided
further, however, that if Buyer so elects, it shall, following such termination,
enter into a Committed Master Repurchase Agreement Governing Purchases and Sales
of Participation Certificates for a period of 364 days following the date of
such termination. Each such transaction shall be referred to herein as a
"Transaction" and shall be governed by this Agreement and the related
Confirmation, unless otherwise agreed in writing.
2. DEFINITIONS
"Act of Insolvency" means, with respect to any party, (i) and its
Affiliates, the filing of a petition, commencing, or authorizing the
commencement of any case or proceeding under any bankruptcy, insolvency,
reorganization, liquidation, dissolution or similar law relating to the
protection of creditors, or suffering any such petition or proceeding to be
commenced by another which is consented to, not timely contested or results in
entry of an order for relief; (ii) seeking the appointment of a receiver,
trustee, custodian or similar official for such party or an Affiliate or any
substantial part of the property of either, (iii) the appointment of a receiver,
conservator, or manager for such party or an Affiliate by any governmental
agency or authority having the jurisdiction to do so; (iv) the making or
offering by such party or an Affiliate of a composition with its creditors or a
general assignment for the benefit of creditors, (v) the admission by such party
or an Affiliate of such party's or such Affiliate's inability to pay its debts
or discharge its obligations as they become due or mature; or (vi) any
governmental authority or agency or any person, agency or entity acting or
purporting to act under governmental authority shall have taken any action to
condemn, seize or appropriate, or to assume custody or control of, all or any
substantial part of the property of such party or of any of its Affiliates, or
shall have taken any action to displace the management of such party or of any
of its Affiliates or to curtail its authority in the conduct of the business of
such party or of any of its Affiliates.
"Additional Collateral" means Participation Certificates or cash provided by
Seller to Buyer or its designee pursuant to Section 4(a).
"Affiliate" means an affiliate of a party as such term is defined in the
United States Bankruptcy Code in effect from time to time.
"Agreement" means this Committed Master Repurchase Agreement Governing
Purchases and Sales of Participation Certificates, as amended from time to time.
"Business Day" means a day other than (i) a Saturday or Sunday, or (ii) a
day in which the New York Stock Exchange, the Custodian or the banks in the
State of Maryland are authorized or obligated by law or executive order to be
closed.
"Buyer" has the meaning specified in Section 1.
<PAGE>
"Collateral" has the meaning specified in Section 6.
"Collateral Amount" means, with respect to any Transaction, the amount
obtained by application of the Collateral Amount Percentage to the Repurchase
Price for such Transaction.
"Collateral Amount Percentage" means the amount set forth in the
Confirmation.
"Collateral Deficit" has the meaning specified in Section 4(a).
"Collateral Excess" has the meaning specified in Section 4(b).
"Confirmation" has the meaning specified in Section 3(c).
"Converted PC" means the pooling of one or more Underlying Mortgage Loans
for the purpose of the issuance of a mortgage backed security guaranteed by
GNMA.
"Custodial Agreement" means that certain custodial agreement, dated as of
April 22, 1993, by and between, Buyer and The Bank of New York.
"Custodial Delivery" means the form executed by the Seller in order to
deliver the Original PCs to the Custodian pursuant to Section 7(d), a form of
which is attached hereto as Exhibit II.
"Custodian" means The Bank of New York, as custodian under the Custodial
Agreement, or its successor in interest or assigns.
"Event of Default" has the meaning specified in Section 13.
"Exchanged PCs" means any Participation Certificates that are exchanged for
one or more Purchased PCs that represent beneficial interests in Underlying
Mortgage Loans that are construction loans in accordance with Section 9(c)
hereof.
"Facility Amount" means $60,000,000 (sixty million dollars) or such amount
as agreed by Buyer and Seller.
"FHA" means the Federal Housing Administration, an agency within HUD.
"GAAP" means Generally Accepted Accounting Principals.
"GNMA" means the Government National Mortgage Association.
"GNMA Repurchase Agreement" means that certain Committed Master Repurchase
Agreement, dated as of November 30, 1993, by and among Nomura Securities
International, Inc., and Seller.
"HUD" means the United States Department of Housing and Urban Development.
"Income" means, with respect to any Underlying Mortgage Loan at any time,
any principal thereof then payable and all interest, dividends or other
distributions payable thereon.
"Late Payment Fee" has the meaning specified in Section 5(b).
"Market Value" means as of any date with respect to any Purchased PC, the
price at which such Purchased PC could readily be sold as determined in good
faith by Buyer provided, however, that in making such determination, Buyer shall
not take into account (i) any Underlying Mortgage Loan that has been delinquent
for at least ninety (90) days and for which all delinquent payments shall not
have been advanced by the related Servicer or (ii) any Purchased PC with respect
to which there is a breach of a representation, warranty or covenant made by
Seller in this Agreement or the Custodial Agreement that materially adversely
affects Buyer's interest in such Purchased PC and which breach has not been
cured provided further, however, that if Seller timely notifies Buyer in writing
that it reasonably believes that the price determined in good faith by Buyer
does not adequately reflect the price at which a Purchased PC could readily be
sold,
<PAGE>
the "Market Value" of such Purchased PC shall be the average of the price
determined by Buyer and two (2) written bids obtained by Seller, and timely
delivered to Buyer, from two (2) of the secondary market participants set forth
in Exhibit III attached hereto or any New York based affiliate of such
participants, provided that Seller shall first contact Bear, Sterns & Co. and
Daiwa Securities.
"Minimum Amount" means the then aggregate outstanding purchase price under
this Agreement, provided, however, that the "Minimum Amount" shall not exceed
forty percent (40%) of the then aggregate outstanding purchase price under this
Agreement and the GNMA Repurchase Agreement, provided further, however, that the
"Minimum Amount" may be reduced upon Seller's request and with consent of Buyer,
in its sole discretion.
"Mortgage" means a mortgage, deed of trust, deed to secure debt or other
instrument, creating a valid and enforceable first or second lien on or first or
second priority ownership interest in a fee or leasehold estate in real property
and the improvements thereon, securing a mortgage note or similar evidence of
indebtedness.
"Mortgage File Custodian" means The Bank of New York, as custodian under the
Tri-party Custodial Agreement, or its successor in interest or assigns.
"Mortgage Note" means a note or other evidence of indebtedness of a
Mortgagor secured by a Mortgage.
"Mortgaged Property" means the real property securing repayment of the debt
evidenced by a Mortgage Note.
"Mortgagee" means the record holder of a Mortgage Note secured by a
Mortgage.
"Mortgagor" means the obliger on a Mortgage Note and the grantor of the
related Mortgage.
"NHA" means Nomura Holdings America, Inc.
"NSI" means Nomura Securities International, Inc.
"Original PC" means with respect to each Participation Certificate, an
original participation certificate issued in the name of Seller, together with a
document of assignment thereof, executed in blank.
"Participation Certificate" means a certificate evidencing that Seller is
the registered owner of a (i) 100% undivided participating beneficial interest
or (ii) certificate which is one of only two certificates which in the aggregate
represent a 100% beneficial interest and the other certificate is owned by the
originator of such interest, in each case in FHA-insured project mortgage loans
pooled by the originator of such certificate.
"Participation Certificate Schedule" means a schedule of Purchased PCs
attached to each Confirmation and Custodial Delivery, setting forth the
following information with respect to each Underlying Mortgage Loan: (i) the
project name; (ii) the street address of the Mortgaged Property; (iii) FHA
project number; (iv) the Mortgagor; (v) the Mortgagee; (vi) the original
principal amount of the Mortgage; (vii) note interest rate; (viii) servicing fee
rate; and (ix) the principal balance of the Underlying Mortgage Loan as of the
close of business of the Purchase Date, after deduction of payments of principal
due on or before the Purchase Date, whether or not collected. With respect to
the Underlying Mortgage Loans in the aggregate, the Participation Certificate
Schedule shall set forth the following information, as of the Purchase Date:
(i) the number of Underlying Mortgage Loans; (ii) the current aggregate
outstanding principal balance of the Underlying Mortgage Loans; (iii) the
weighted average interest rate of the Underlying Mortgage Loans; and (iv) the
weighted average remaining term to maturity of the Underlying Mortgage Loan.
"Payment Date" has the meaning specified in Section 5(b).
<PAGE>
"PC Mortgage File" has the meaning specified in Annex A.
"Periodic Payment" has the meaning specified in Section 5(b).
"Price Differential" means, with respect to any Transaction hereunder as of
any date, the aggregate amount obtained by daily application of the Pricing Rate
for such Transaction to the Purchase Price for such Transaction on a 360 day per
year basis for the actual number of days during the period commencing on (and
including) the Purchase Date for such Transaction and ending on (but excluding)
the Repurchase Date (reduced by any amount of such Price Differential previously
paid by Seller to Buyer pursuant to Section 5(b) with respect to such
Transaction).
"Pricing Rate" means the per annum percentage rate specified in the
Confirmation for determination of the Price Differential.
"Prime Rate" means the rate of interest published by The Wall Street
Journal, northeast edition, as the "prime rate".
"Purchase Date" means the date on which Purchased PCs are transferred by
Seller to Buyer as specified in the Confirmation.
"Purchase Price" means (i) on the Purchase Date, the price at which
Purchased PCs are transferred by Seller to Buyer, and (ii) thereafter, such
price decreased by the amount of any cash transferred by Seller to Buyer
pursuant to Sections 4(a) or 5, excluding any Late Payment Fees.
"Purchased PCs" means the Participation Certificates sold by Seller to Buyer
in a Transaction, any Additional Collateral, any Substituted PCs and any
Exchanged PCs.
"Replacement Assets" has the meaning specified in Section 14(b)(ii).
"Repurchase Date" means the date on which Seller is to repurchase the
Purchased PCs from Buyer, as specified in the Confirmation, unless the
Transaction is terminable on demand, in which case "Repurchase Date" shall be
the date on which such Transaction is terminated.
"Repurchase Price" means the price at which Purchased PCs are to be
transferred from Buyer to Seller upon termination of a Transaction, which will
be determined in each case (including Transactions terminable upon demand) as
the sum of the Purchase Price and the Price Differential as of the date of such
determination.
"Seller" has the meaning specified in Section 1.
"Servicer" means an independent third party servicer of the Underlying
Mortgage Loans.
"Servicing Agreement" means the agreement pursuant to which (i) the
Participation Certificate was issued, and (ii) the Servicer services the
Underlying Mortgage Loan.
"Servicing Records" means all servicing agreements, files, documents,
records, databases, computer tapes, copies of computer tapes, proof of insurance
coverage, insurance policies, appraisals, other closing documentation, payment
history records and any other records relating to or evidencing the servicing of
the Underlying Mortgage Loans.
"Substituted PCs" means any Participation Certificates substituted for
Purchased PCs in accordance with Section 9(a) hereof.
"Transaction" has the meaning specified in Section 1.
"Tri-party Custodial Agreement" means that certain tri-party custodial
agreement, dated as of April 30, 1993, by and among, Buyer, CRICO Mortgage
Company, Inc., and The Bank of New York.
"Underlying Mortgage Loans" means FHA-insured project mortgage loans
represented by and underlying each Purchased PC.
<PAGE>
3. INITIATION; CONFIRMATION; TERMINATION
(a) Simultaneous with the execution and delivery of this Agreement by
Seller, Seller shall deliver to Buyer an opinion of counsel that this Agreement
is a legal, valid and binding agreement, enforceable in accordance with its
terms, subject to bankruptcy and insolvency, and that the Agreement does not and
will not impact or adversely affect Seller's status as a "real estate investment
trust."
(b) It is the intent of Buyer and Seller that this Agreement be a committed
facility, and that, subject to the terms and conditions of this Agreement, Buyer
shall be obligated to purchase Participation Certificates upon Seller's advice
of such Transaction as described in Section 3(c), provided, however, that unless
and until notified by Buyer in writing the aggregate Purchase Price of all
Purchased PCs for all Transactions not then terminated shall not be less than
the Minimum Amount but shall not exceed the Facility Amount.
(c) Seller shall advise Buyer of each Transaction at least two (2) Business
Days before the Purchase Date for such Transaction. Upon receiving such notice,
Buyer shall promptly deliver to Seller and Custodian a written confirmation in
the form of Exhibit I attached hereto (a "Confirmation"). Such Confirmation
shall describe the Purchased PCs, identify Buyer and Seller and set forth (i)
the Purchase Date, (ii) the Purchase Price, (iii) the Repurchase Date, unless
the Transaction is to be terminable on demand, (iv) the Pricing Rate applicable
to the Transaction, and (v) may contain additional terms or conditions not
inconsistent with this Agreement.
(d) Each Confirmation, together with this Agreement, shall be conclusive
evidence of the terms of the Transaction(s) covered thereby unless objected to
in writing by the Seller no more than two (2) Business Days after the date the
Confirmation was received by the Seller or unless a corrected Confirmation is
sent by Buyer. An objection sent by the Seller must state specifically that the
writing is an objection, must specify the provision(s) being objected to by the
Seller, must set forth such provision(s) in the manner that the Seller believes
they should be stated, and must be received by Buyer no more than two (2)
Business Days after the Confirmation was received by the Seller.
(e) In the case of Transactions terminable upon demand, such demand shall
be made by Buyer or Seller by telephone or otherwise, no later than 10:00 a.m.
on the Business Day prior to the day on which such termination will be
effective.
(f) On the Repurchase Date, termination of the Transaction will be effected
by transfer to Seller or its designee of the Purchased PCs (and any Income in
respect thereof received by Buyer not previously credited or transferred to, or
applied to the obligations of, Seller pursuant to Section 5(a)) against the
simultaneous transfer of the Repurchase Price to an account of Buyer. Seller is
obligated to obtain the Original PCs from the Custodian at Seller's expense on
the Repurchase Date.
4. COLLATERAL AMOUNT MAINTENANCE
(a) If at any time the aggregate Market Value of all Purchased PCs subject
to all Transactions is less than the aggregate Collateral Amount for all such
Transactions (a "Collateral Deficit"), then Buyer may, by notice to Seller,
require Seller to transfer to the Custodian Participation Certificates
reasonably acceptable to Buyer and/or cash ("Additional Collateral"), so that
the cash and aggregate Market Value of the Purchased PCs, including any such
Additional Collateral, will thereupon equal or exceed the aggregate Collateral
Amount.
(b) If at any time the aggregate Market Value of all Purchased PCs subject
to all Transactions exceeds the aggregate Collateral Amount for all such
Transactions (a "Collateral Excess"), then Seller may, by notice to Buyer,
require Buyer in such Transactions to transfer to Seller or its designee
Purchased PCs and/or cash so that the cash and aggregate Market Value of the
Purchased PCs, after deduction of any such Participation
<PAGE>
Certificates and/or cash so transferred, will thereupon not exceed the aggregate
Collateral Amount.
(c) Notice required pursuant to subsections (a) or (b) above may be given
by any means of telephonic, telecopier or telegraphic transmission. A notice
for the payment or delivery in respect of a Collateral Deficit or Collateral
Excess, as the case may be, received before 1:00 p.m. on a Business Day, local
time of the party receiving the notice, must be met not later than 5:00 p.m.
(New York time) on the Business Day following the date on which notice was
given. Any notice given on a Business Date after 1:00 p.m., local time of the
party receiving the notice, shall be met not later than 5:00 p.m., (New York
time) on the second Business Day following the date on which notice was given.
The failure of Buyer or Seller, on any one or more occasions, to exercise its
rights under subsections (a) or (b) of this Section, respectively, shall not
change or alter the terms and conditions to which this Agreement is subject or
limit the right of the Buyer or Seller to do so at a later date. Buyer and
Seller agree that a failure or delay to exercise its rights under subsections
(a) or (b) of this Section shall not limit either party's rights under this
Agreement or otherwise existing by law or in any way create additional rights
for the other party.
5. INCOME PAYMENTS
(a) Where a particular Transaction's term extends over an Income payment
date on the Purchased PCs subject to that Transaction such Income shall be the
property of Buyer. Notwithstanding the foregoing, Buyer agrees that Servicer
shall continue to remit Income to Seller unless and until an Event of Default by
the Seller occurs, in which case Buyer may at its election direct Servicer to
hold such Income in a segregated account for and on behalf of Buyer and/or to
remit such Income directly to Buyer.
(b) Notwithstanding that Buyer and Seller intend that the Transactions
hereunder be sales to Buyer of the Purchased PCs, Seller shall pay to Buyer the
accreted value of the Price Differential (less any amount of such Price
Differential previously paid by Seller to Buyer)("Periodic Payment") on the
first Business Day of each calendar quarter (each, a "Payment Date"). If Seller
fails to make the Periodic Payment by 5:00 p.m. (New York time) on the Business
Day following the Payment Date, Seller shall be obligated to pay to Buyer (in
addition to, and together with, the Periodic Payment) a late payment fee of $100
per day (the "Late Payment Fee") until the Periodic Payment is received by
Buyer.
(c) Buyer shall offset against the Repurchase Price of each such
Transaction all Income and payments actually received by Buyer pursuant to
Sections 5(a) and (b), respectively, excluding any Late Payment Fees paid
pursuant to Section 5(b).
6. SECURITY INTEREST
Buyer and Seller intend that the Transactions hereunder be sales to the
Buyer of the Purchased PCs and not loans from the Buyer to the Seller secured by
the Purchased PCs. However, in order to preserve the Buyer's rights under this
Agreement in the event that a court or other forum recharacterizes the
Transactions hereunder as loans and as security for the performance by Seller of
all of Seller's obligations to Buyer under this Agreement and the Transactions
entered into pursuant to this Agreement, Seller grants Buyer a first priority
security interest in the Purchased PCs, Servicing Agreements, Servicing Records,
insurance relating to the Purchased PCs, Income, custodial accounts and escrow
accounts relating to the Purchased PCs and any other contract rights, general
intangibles and other assets relating to the Purchased PCs or any interest in
the Purchased PCs, the servicing of the Purchased PCs, and securities backed by
or representing an interest in such Purchased PCs (collectively, the
"Collateral").
7. PAYMENT, TRANSFER AND CUSTODY
(a) Unless otherwise mutually agreed in writing, all transfers of funds
hereunder shall be in immediately available funds.
<PAGE>
(b) Subject to Section 7(c), on the Purchase Date for each Transaction,
ownership of the Purchased PCs shall be transferred to the Buyer against the
simultaneous transfer of the Purchase Price to an account of Seller specified in
the Confirmation. Seller, simultaneously with the delivery to the Buyer of the
Purchased PCs relating to each Transaction hereby sells, transfers, conveys and
assigns to Buyer without recourse, but subject to the terms of this Agreement,
all the right, title and interest of Seller in and to the Purchased PCs together
with all right, title and interest in and to the proceeds of any related
insurance policies.
(c) Notwithstanding anything to the contrary in this Agreement, Buyer shall
have no obligation to purchase any Participation Certificates on any Purchase
Date if, after such purchase:
(i) an Event of Default by the Seller will have occurred and be
continuing, or an Event of Default by the Seller would occur with notice or
the passing of time;
(ii) the Repurchase Date for such Transaction would be later than the
1094th day after the date of this Agreement; or
(iii) the aggregate Purchase Price of all Purchased PCs for all
Transactions not then terminated would exceed the Facility Amount.
(d) In connection with such sale, transfer, conveyance and assignment, on
or prior to each Purchase Date, the Seller shall deliver or cause to be
delivered and released to the Custodian an Original PC for each of the Purchased
PCs. In addition, with respect to each Purchased PC under which CRICO Mortgage
Company, Inc., is the Mortgagee of the Underlying Mortgage Loan, the Seller
shall cause to be delivered and released to the Mortgage File Custodian, on or
before each Purchase Date, the PC Mortgage File.
(e) With respect to each Original PC delivered or caused to be delivered by
Seller to the Custodian pursuant to this Agreement, Seller shall execute
irrevocable letters of instructions to each Servicer or Master Servicer of the
Underlying Mortgage Loan, substantially in the form of Exhibit IV attached
hereto, directing such Servicer or Master Servicer to make all payments of
Income directly to Buyer provided, however, that Buyer shall not deliver the
letter of instructions to each Servicer or Master Servicer unless and until an
Event of Default by Seller occurs.
(f) The Original PCs delivered to Custodian shall be maintained in
accordance with the Custodial Agreement. The Seller understands and agrees that
the Custodian shall have no responsibility to the Seller, including without
limitation any responsibility to keep the Seller informed of any changes in the
status of such Original PCs or in the Buyer's instructions with respect thereto,
except as explicitly set forth in the Custodial Agreement.
(g) The PC Mortgage Files delivered to the Mortgage File Custodian shall be
maintained in accordance with the Tri-party Custodial Agreement.
(h) Any cash held by Buyer or its designee as Additional Collateral shall
be deposited in an interest bearing account. The interest on such cash shall
accrue for the benefit of Seller and shall be held by Buyer or its designee as
Additional Collateral.
8. HYPOTHECATION OR PLEDGE OF PURCHASED PCS
Title to all Purchased PCs shall pass to Buyer and Buyer shall have free and
unrestricted use of all Purchased PCs. Nothing in this Agreement shall preclude
Buyer from engaging in repurchase transactions with the Purchased PCs or
otherwise pledging, repledging, hypothecating, or rehypothecating the Purchased
PCs, but no such transaction shall relieve Buyer of its obligations to transfer
the Purchased PCs to Seller pursuant to
<PAGE>
Section 3. Nothing contained in this Agreement shall obligate Buyer to
segregate any Purchased PCs delivered to Buyer by Seller.
9. SUBSTITUTION; RELEASE
(a) Subject to Section 9(b), Seller may, upon fifteen (15) Business Days
written notice to Buyer, substitute other Participation Certificates for any
Purchased PCs, provided, however, that the fifteen (15) Business Days written
notice requirement shall not apply to any substitution made (i) with respect to
any Purchased PC for which Seller receives written notice from Servicer that the
Underlying Mortgage Loan is in default or will be prepaid, or (ii) for the
purpose of satisfying a Collateral Deficit pursuant to Section 4(a). Such
substitution shall be made by (i) the transfer to the Custodian of an Original
PC, together with the Custodial Delivery, and (ii) the transfer to Seller or its
designee of the Purchased PCs requested for release. With respect to
substituted Participation Certificates under which CRICO Mortgage Company, Inc.,
is the Mortgagee of the Underlying Mortgage Loan, the PC Mortgage File shall be
delivered to the Mortgage File Custodian. After substitution, the substituted
Participation Certificates shall be deemed to be Purchased PCs.
(b) Notwithstanding anything to the contrary in this Agreement, Seller may
not substitute other Participation Certificates for any Purchased PCs if (i)
Buyer does not consent to such substitution, which consent shall not be
unreasonably withheld, (ii) after taking into account such substitution, a
Collateral Deficit were to occur, and (iii) such substitution would impact or
adversely affect Seller's status as a "real estate investment trust." Upon
Buyer's reasonable request, Seller shall deliver to Buyer an opinion of Arent,
Fox, Kintner, Plotkin & Kahn or other nationally recognized tax counsel that
such substitution will not impact or adversely affect Seller's status as a "real
estate investment trust."
(c) Notwithstanding the foregoing, Seller may, upon three (3) Business Days
written notice to Buyer, exchange one or more Purchased PCs that represent a
beneficial interest in Underlying Mortgage Loans which are construction loans
for one Participation Certificate that represents a beneficial interest in one
permanent Underlying Mortgage Loan, provided that the permanent Underlying
Mortgage Loan shall have an outstanding principal balance at least equal to the
sum of the outstanding principal balances of the construction Underlying
Mortgage Loans. Such exchange shall be made by (i) the transfer to the
Custodian of an Original PC for the permanent Underlying Mortgage Loan, together
with the Custodial Delivery, and (ii) the transfer to Seller or its designee of
the Purchased PCs requested for exchange. Such exchange shall not constitute a
substitution for purposes of Section 9(a).
(d) Buyer shall, upon five (5) Business Days written notice from Seller,
release a Converted PC from the related Transaction and this Agreement,
provided, however, that Buyer shall not be obligated to release a Converted PC
from the related Transaction and this Agreement, (i) if after taking into
account such release, a Collateral Deficit were to occur, and (ii) unless Seller
is obligated to place the Converted PC into a transaction under the GNMA
Repurchase Agreement. Upon such release, Custodian shall hold the Converted PC
in escrow to facilitate the conversion.
10. REPRESENTATIONS
(a) Each of Buyer and Seller represents and warrants to the other that (i)
it is duly authorized to execute and deliver this Agreement, to enter into the
Transactions contemplated hereunder and to perform its obligations hereunder and
has taken all necessary action to authorize such execution, delivery and
performance; (ii) it will engage in such Transactions as principal (or, if
agreed in writing in advance of any Transaction by the other party hereto, as
agent for a disclosed principal); (iii) the person signing this Agreement on its
behalf is duly authorized to do so on its behalf (or on behalf of any such
disclosed principal); (iv) no approval, consent or authorization
<PAGE>
of the Transactions contemplated by this Agreement from any federal, state, or
local regulatory authority having jurisdiction over it is required or, if
required, such approval, consent or authorization has been or will, prior to the
Purchase Date, be obtained; (v) the execution, delivery, and performance of this
Agreement and the Transactions hereunder will not violate any law, regulation,
order, judgment, decree, ordinance, charter, by-law, or rule applicable to it or
its property or constitute a default (or an event which, with notice or lapse of
time, or both would constitute a default) under or result in a breach of any
agreement or other instrument by which it is bound or by which any of its assets
are affected; (vi) it has received approval and authorization to enter into this
Agreement and each and every Transaction actually entered into hereunder
pursuant to its internal policies and procedures; and (vii) neither this
Agreement nor any Transaction pursuant hereto are entered into in contemplation
of insolvency or with intent to hinder, delay or defraud any creditor.
(b) The Seller represents and warrants to the Buyer that as of the Purchase
Date for the purchase of any Purchased PCs by the Buyer from the Seller and as
of the date of this Agreement and any Transaction hereunder and at all times
while this Agreement and any Transaction thereunder is in full force and effect:
(i) Organization. The Seller is duly organized, validly existing and
in good standing under the laws and regulations of the state of Seller's
organization and is duly licensed, qualified, and in good standing in every
state where Seller transacts business and in any state where any Mortgaged
Property is located if the laws of such state require licensing or
qualification in order to conduct business of the type conducted by the
Seller.
(ii) No Litigation. There is no action, suit, proceeding,
investigation, or arbitration pending or threatened against the Seller,
which may result in any material adverse change in the business,
operations, financial condition, properties, or assets of the Seller, or
which may have an adverse effect on the validity of this Agreement or the
Purchased PCs or any action taken or to be taken in connection with the
obligations of the Seller contemplated herein.
(iii) No Broker. The Seller has not dealt with any broker, investment
banker, agent, or other person, except for the Buyer, who may be entitled
to any commission or compensation in connection with the sale of Purchased
PCs pursuant to this Agreement.
(iv) Good Title to Collateral. Purchased PCs shall be free and clear
of any lien, encumbrance or impediment to transfer, and the Seller
represents and warrants the foregoing to the Buyer and represents and
warrants that it has good, valid and marketable title or right to sell and
transfer such Purchased PCs to the Buyer.
(v) Maintenance of Cash. Seller shall maintain cash or cash
equivalents (including lines of credit deemed satisfactory in the sole
judgment of Buyer) equal to at least $5,000,000 (five million dollars).
(vi) Delivery of Documents. An Original PC and all other documents
required to be delivered under this Agreement and the Custodial Agreement
for each of the Purchased PCs have been delivered to the Custodian, and
with respect to each Purchased PC under which CRICO Mortgage Company, Inc.,
is the Mortgagee of the Underlying Mortgage Loan, the PC Mortgage File has
been delivered to the Mortgage File Custodian.
(vii) Selection Process. The Purchased PCs were selected from among
the outstanding participation certificates in the Seller's portfolio as to
which the representations and warranties set forth in this Agreement could
be made and such selection was not made in a manner so as to affect
adversely the interests of the Buyer.
<PAGE>
(c) The Seller further represents and warrants to the Buyer with respect to
each Participation Certificate sold hereunder, as of the related Purchase Date,
and with respect to each Participation Certificate delivered hereunder as
Additional Collateral, Substituted PCs or Exchanged PCs, as of the date of such
delivery, that:
(i) The information set forth in the Participation Certificate
Schedule is true and correct;
(ii) Seller owns the entire beneficial interest in the Underlying
Mortgage Loan;
(iii) The Participation Certificate is not assigned or pledged except
as provided in this Agreement, and Seller has good and marketable title
thereto and has full right to sell and assign the Participation Certificate
to Buyer free and clear of any encumbrance, equity, participation interest,
lien, pledge, charge, claim or security interest and has full right and
authority subject to no interest or participation of, or agreement with,
any other party, to sell and assign the Participation Certificate;
(iv) The terms of each Servicing Agreement have not been impaired,
waived, altered, amended or modified in any respect;
(v) To the best of our knowledge, the Underlying Mortgage Loan is not
in default in the payment of an installment of interest, principal or
escrow deposit required by the Mortgage;
(vi) To the best of our knowledge, the Underlying Mortgage Loan is not
subject to any defect which would prevent recovery in full or in part
against HUD;
(vii) A valid and enforceable policy of title insurance has been
issued in connection with the Underlying Mortgage Loan in an amount not
less than the original principal amount of the Mortgage and, to the best of
our knowledge, such policy is presently in full force and effect, with no
material changes or modifications made therein subsequent to the final
endorsement of the Note by the FHA, except as may be approved in writing by
HUD;
(viii) To the best of our knowledge, each building or other
improvement located on the Mortgaged Property is insured under customary
property insurance policies against insurance risks and hazards as required
by HUD and such insurance is in amounts which are not less than the amount
necessary to meet FHA requirements and comply with any co-insurance
provision of the policies, with all premiums for such policies having been
continuously paid as required by the policies or, in the event of a lapse
in payment, such lapse and any lapse in insurance coverage relating thereto
shall not prevent recovery in full or in part against HUD;
(ix) To the best of our knowledge, none of the buildings or other
improvements on the Mortgaged Property have been materially damaged as a
result of any fire, explosion, accident, riot, was, or act of God or the
public enemy;
(x) To the best of our knowledge, the escrows for taxes, insurance,
mortgage insurance premiums and replacement reserves required with respect
to the Underlying Mortgage Loan have been and throughout the term of the
related Transaction shall be maintained in accordance with FHA
requirements;
(xi) To the best of our knowledge, the terms of the Underlying
Mortgage Loan have not been impaired, waived, altered or modified in any
respect and no portion of the Mortgaged Property has been released, except
by written instructions approved by FHA; and
(xii) Neither Seller nor anyone acting on its behalf has offered,
transferred, pledged, sold or otherwise
<PAGE>
disposed of the Participation Certificate, any interest in the
Participation Certificate or any other similar security to, or solicited
any offer to buy or accept a transfer, pledge or other disposition of the
Participation Certificate, any interest in the Participation Certificate or
any other similar security from or otherwise approached or negotiated with
respect to the Participation, any interest in the Participation Certificate
or any other similar security with, any person in any manner, or made any
general advertising or in any other manner, or taken any other action,
which would constitute a distribution of the Participation Certificate
under the Securities Act of 1933 or which would render the disposition of
the Participation Certificate a violation of Section 5 of the Securities
Act of 1933 or require registration pursuant thereto, nor will it act, nor
has it authorized or will it authorize any person to act, in such manner
with respect to the Participation Certificate.
It is understood and agreed that the foregoing representations and
warranties shall survive transfer of the Purchased PCs to the Buyer. In
addition to the foregoing representations and warranties, Buyer assigns, conveys
and transfers to Seller all of the representations and warranties that it
received with respect to Purchased PCs under the related Servicing Agreement.
(d) On the Purchase Date for any Transaction, Buyer and Seller shall each
be deemed to have made all the foregoing representations with respect to itself
as of such Purchase Date.
11. NEGATIVE COVENANTS OF THE SELLER
On and as of the date of this Agreement and each Purchase Date and until
this Agreement is no longer in force with respect to any Transaction, the Seller
covenants that it will not:
(a) take any action which would directly or indirectly impair or adversely
affect the Buyer's title to or the value of the Purchased PCs; or
(b) pledge, assign, convey, grant, bargain, sell, set over, deliver or
otherwise transfer any interest in the Purchased PCs to any person not a party
to this Agreement nor will the Seller create, incur or permit to exist any lien,
encumbrance or security interest in or on the Purchased PCs except as described
in Section 6 of this Agreement.
12. AFFIRMATIVE COVENANTS OF THE SELLER
(a) Seller covenants that it will promptly notify Buyer of any material
adverse change in its business operations and/or financial condition, provided,
however, that nothing in this Section 12 shall relieve Seller of its obligations
pursuant to Section 10(b)(v) or pursuant to any other Section of this Agreement.
(b) Seller shall provide Buyer with copies of such documentation as Buyer
may reasonably request evidencing the truthfulness of the representations set
forth in Section 10, including but not limited to resolutions evidencing the
approval of this Agreement by Seller's board of directors or loan committee, and
copies of the minutes of the meetings of Seller's board of directors or loan
committee at which this Agreement and the Transactions contemplated by this
Agreement were approved.
(c) Seller shall, at Buyer's request, take all action necessary to ensure
that Buyer will have a first priority security interest in the Purchased PCs,
including, among other things, using its best efforts to obtain the Servicer's
signature (if the Servicer's signature is necessary) and file such UCC financing
statements as Buyer may reasonably request.
(d) Seller covenants that it will not create, incur or permit to exist any
lien, encumbrance or security interest in or on any of the Collateral without
the prior express written consent of Buyer.
<PAGE>
(e) Seller shall notify Buyer as soon as possible, but in no event later
than three (3) Business Days after obtaining actual knowledge thereof, if any
event has occurred that constitutes an Event of Default with respect to Seller
or any event that with the giving of notice or lapse of time, or both, would
become an Event of Default with respect to Seller.
(f) Seller shall provide Buyer with a certified copy of each Servicing
Agreement and Seller covenants that it will not amend or modify, nor consent to
any amendment or modification to, any Servicing Agreement without the prior
written consent of Buyer.
13. EVENTS OF DEFAULT
(a) If any of the following events (each, an "Event of Default") occur, the
Seller and Buyer shall have the rights set forth in Section 14, as applicable.
(i) Seller or Buyer fails to satisfy or perform any material
obligation or covenant under this Agreement, other than the covenant set
forth in Section 12(b);
(ii) Seller fails to satisfy or perform the covenant set forth in
Section 12(b) within thirty (30) days after Buyer gives Seller written
notice of such failure;
(iii) any representation made by Seller or Buyer, other than the
representations set forth in Sections 10(b)(v) and 10(c), shall have been
incorrect or untrue in any material respect when made or repeated or deemed
to have been made or repeated;
(iv) Seller fails to cure any breach of the representations set forth
in Sections 10(b)(v) and 10(c) within five (5) days after Buyer gives
Seller written notice of such breach.
(v) an Act of Insolvency occurs with respect to Buyer or Seller;
(vi) Buyer or Seller shall admit its inability to, or its intention
not to, perform any of its obligations hereunder;
(vii) any governmental, regulatory, or self-regulatory authority takes
any action to remove, limit, restrict, suspend or terminate the rights,
privileges, or operations of the Seller or any of its Affiliates, including
suspension as an issuer or lender of mortgage loans, which suspension has a
material adverse effect on the ordinary business operations of Seller or
Seller's Affiliate, and which continues for more than 24 hours;
(viii) Buyer or Seller dissolves, merges or consolidates with another
entity unless it is the surviving party, or sells, transfers, or otherwise
disposes of a material portion of its business or assets, provided,
however, that a merger shall not constitute an Event of Default if Buyer or
Seller, as the case may be, obtains the prior written consent of the Seller
or Buyer, respectively;
(ix) Buyer, in its respective good faith judgment, has reasonable
cause to believe that (A) there has been a material adverse change in the
business, operations, corporate structure or financial condition or
prospects of the Seller; (B) Seller will not meet any of its obligations
under any Transaction pursuant to this Agreement, or any other agreement
between the parties; or (C) a material adverse change in the financial or
legal condition of Seller may occur due to the pendency or threatened
pendency of a material legal action against Seller or any of its
Affiliates, and Seller fails to provide Buyer with adequate assurances
(including without limitation performance guarantees), within 24 hours of a
written request therefor, of its ability to perform its obligations
hereunder or under any other agreement between the parties;
<PAGE>
(x) Except with respect to Seller's obligation under Section 5(b),
Seller or any of its Affiliates shall fail to pay when due (including any
grace period provided under the applicable documents) any amount in respect
of indebtedness for money borrowed or for the deferred purchase price of
property created, issued, guaranteed, incurred or assumed by any of them,
or any other event shall occur or any condition shall exist in respect of
any such indebtedness the effect of which is to cause (or permit any holder
thereof or a trustee to cause) such indebtedness to become due prior to its
stated maturity;
(xi) Seller shall fail to pay within five (5) Business Days of each
Payment Date any and all amounts payable pursuant to Section 5(b);
(xii) Seller or any of its Affiliates shall default or fail to perform
under any agreement or transaction between Buyer or any of its Affiliates,
or Seller or any of its Affiliates, or Seller or any of its Affiliates
shall breach any covenant or condition in any agreement or transaction
between Buyer or any of its Affiliates and Seller or any of its Affiliates,
provided, however, that any such default, failure to perform or breach
shall not constitute an Event of Default if Seller or any of its Affiliates
cures such default, failure to perform or breach, as the case may be,
within the grace period, if any, provided under the applicable agreement;
(xiii) Seller fails to provide quarterly unaudited and annual audited
financial statements within 50 and 95 days, respectively, after the date on
which such period ends, or fails to deliver in a timely manner such
financial or other information as Buyer may from time to time reasonably
request;
(xiv) Seller's ratio of consolidated total liabilities (excluding
payables in the normal course of business) to consolidated shareholders'
equity (both computed in accordance with GAAP) exceeds two and one-half to
one (2.5 to 1);
(xv) Seller pledges any of its assets (excluding any assets already
pledged under existing facilities and any assets required to be pledged for
purposes of collateral maintenance under such facilities) before
notification to and written approval by Buyer, which approval shall not be
unreasonably withheld;
(xvi) Seller fails to maintain consolidated shareholders equity
(computed in accordance with GAAP) of at least $125,000,000 (one hundred
and twenty five million dollars);
(xvii) Seller incurs three (3) consecutive quarters of consolidated
net losses on either a GAAP or tax basis;
(xviii) Seller fails to maintain interest rate hedges, reasonably
acceptable to Buyer, on at least 75% of its floating rate liabilities;
(xix) Seller fails to promptly certify at Buyer's request that no
Event of Default has occurred or is continuing at the time of the
certification, provided, however, that such certification shall be made by
Seller at least on the first Business Day of each month;
(xx) A final judgment by any competent court in the United States of
America for the payment of money in an amount of at least $100,000 is
rendered against the Seller, and the same remains undischarged or unpaid
for a period of sixty (60) days during which execution of such judgment is
not effectively stayed;
(xxi) This Agreement shall for any reason cease to create a valid
first priority security interest in any of the Purchased PCs purported to
be covered hereby; or
<PAGE>
(xxii) Seller fails to maintain the aggregate Purchase Price of all
Purchased PCs for all Transactions not then terminated in an amount equal
to or greater than the Minimum Amount.
(b) In making a determination as to whether an Event of Default has
occurred, the Buyer shall be entitled to rely on reports published or broadcast
by media sources believed by the Buyer to be generally reliable and on
information provided to it by any other sources believed by it to be generally
reliable, provided that the Buyer reasonably and in good faith believes such
information to be accurate and has taken such steps as may be reasonable in the
circumstances to attempt to verify such information.
14. REMEDIES
(a) If an Event of Default occurs with respect to the Seller, the following
rights and remedies are available to the Buyer:
(i) At the option of the Buyer, exercised by written notice to the
Seller (which option shall be deemed to have been exercised, even if no
notice is given, immediately upon the occurrence of an Act of Insolvency),
the Repurchase Date for each Transaction hereunder shall be deemed
immediately to occur. Notwithstanding that the Repurchase Date shall be
deemed immediately to have occurred upon the exercise or deemed exercise of
such option by the Buyer, for purposes of determining the Repurchase Price,
the Repurchase Date shall be the date specified in the Confirmation for
such Transaction.
(ii) If the Buyer exercises or is deemed to have exercised the option
referred to in subsection (a)(i) of this Section,
(A) the Seller's obligations hereunder to repurchase all
Purchased PCs in such Transactions shall thereupon become immediately
due and payable,
(B) to the extent permitted by applicable law, the Repurchase
Price with respect to each such Transaction shall be increased by the
aggregate amount obtained by daily application of, on a 360 day per
year basis for the actual number of days during the period from and
including the date of the exercise or deemed exercise of such option
to but excluding the date of payment of the Repurchase Price as so
increased, (x) the greater of the Prime Rate or the Pricing Rate for
each such Transaction multiplied by (y) the Repurchase Price for such
Transaction (decreased as of any day by (I) any amounts actually in
the possession of Buyer pursuant to clause (C) of this subsection,
(II) any proceeds from the sale of Purchased PCs applied to the
Repurchase Price pursuant to subsection (a)(ix) of this Section, and
(III) any amounts applied to the Repurchase Price pursuant to
subsection (a)(iii) of this Section), and
(C) all Income and payments actually received by the Buyer
pursuant to Sections 5(a) and (b), excluding any Late Payment Fees
paid pursuant to Section 5(b), shall be applied to the aggregate
unpaid Repurchase Price owed by the Seller.
(iii) After one Business Day's notice to the Seller (which notice need
not be given if an Act of Insolvency shall have occurred, and which may be
the notice given under subsection (a)(i) of this Section), the Buyer may
(A) immediately sell, at a public or private sale in a commercially
reasonable manner and at such price or prices as the Buyer may reasonably
deem satisfactory any or all Purchased PCs subject to a Transaction
hereunder or (B) in its sole discretion elect, in lieu of selling all or a
portion of such Purchased PCs, to give the Seller credit for such Purchased
PCs in an amount equal to the Market Value of the Purchased PCs against the
aggregate unpaid Repurchase
<PAGE>
Price and any other amounts owing by the Seller hereunder. The proceeds of
any disposition of Purchased PCs shall be applied first to the costs and
expenses incurred by the Buyer in connection with the Seller's default;
second to consequential damages, including but not limited to costs of
cover and/or related hedging transactions, provided, however, that Buyer
shall act in good faith and in a timely manner to mitigate damages to the
extent practicable; third to the Repurchase Price; and fourth to any other
outstanding obligation of the Seller to the Buyer or its Affiliates.
(iv) The parties recognize that it may not be possible to purchase or
sell all of the Purchased PCs on a particular Business Day, or in a
transaction with the same purchaser, or in the same manner because the
market for such Purchased PCs may not be liquid. In view of the nature of
the Purchased PCs, the parties agree that liquidation of a Transaction or
the underlying Purchased PCs does not require a public purchase or sale and
that a good faith private purchase or sale shall be deemed to have been
made in a commercially reasonable manner. Accordingly, Buyer may elect, in
its sole discretion, the time and manner of liquidating any Purchased PC
and nothing contained herein shall (A) obligate Buyer to liquidate any
Purchased PC on the occurrence of an Event of Default or to liquidate all
Purchased PCs in the same manner or on the same Business Day or (B)
constitute a waiver of any right or remedy of Buyer. However, in
recognition of the parties' agreement that the Transactions hereunder have
been entered into in consideration of and in reliance upon the fact that
all Transactions hereunder constitute a single business and contractual
relationship and that each Transaction has been entered into in
consideration of the other Transactions, the parties further agree that
Buyer shall use its best efforts to liquidate all Transactions hereunder
upon the occurrence of an Event of Default as quickly as is prudently
possible in the reasonable judgment of Buyer.
(v) Seller agrees that Buyer may obtain an injunction or an order of
specific performance to compel Seller to fulfill its obligations as set
forth in Section 24, if Seller fails or refuses to perform its obligations
as set forth therein.
(vi) Seller shall be liable to Buyer for (A) the amount of all
expenses, including reasonable legal or other expenses incurred by Buyer in
connection with or as a consequence of an Event of Default, and (B)
consequential damages including, without limitation, all costs incurred in
connection with hedging or covering transactions, provided, however, that
Buyer shall act in good faith and in a timely manner to mitigate damages to
the extent practicable.
(vii) Buyer shall have all the rights and remedies provided herein,
provided by applicable federal, state, foreign, and local laws (including,
without limitation, the rights and remedies of a secured party under the
Uniform Commercial Code of the State of New York, to the extent that the
Uniform Commercial Code is applicable, and the right to offset any mutual
debt and claim), in equity, and under any other agreement between Buyer and
Seller.
(viii) Buyer may exercise one or more of the remedies available to
Buyer immediately upon the occurrence of an Event of Default and, except to
the extent provided in subsections (a)(i) and (iii) of this Section, at any
time thereafter without notice to Seller. All rights and remedies arising
under this Agreement as amended from time-to-time hereunder are cumulative
and not exclusive of any other rights or remedies which Buyer may have.
(ix) In addition to its rights hereunder, Buyer shall have the right
to proceed against any assets of Seller which may be in the possession of
Buyer or its designee (including the Custodian), including the right to
liquidate such assets and to set off the proceeds against monies owed by
Seller to Buyer pursuant to this Agreement. Buyer may set off cash, the
proceeds of the liquidation of the Purchased PCs, any
<PAGE>
Collateral or its proceeds, and all other sums or obligations owed by
Seller to Buyer against all of Seller's obligations to Buyer, whether under
this Agreement, under a Transaction, or under any other agreement between
the parties, or otherwise, whether or not such obligations are then due,
without prejudice to Buyer's right to recover any deficiency. Any cash,
proceeds, or property in excess of any amounts due, or which Buyer
reasonably believes may become due, to it from Seller shall be returned to
Seller after satisfaction of all obligations of Seller to Buyer.
(x) Buyer may enforce its rights and remedies hereunder without prior
judicial process or hearing, and Seller hereby expressly waives any
defenses Seller might otherwise have to require Buyer to enforce its rights
by judicial process. Seller also waives any defense Seller might otherwise
have arising from the use of nonjudicial process, enforcement and sale of
all or any portion of the Collateral, or from any other election of
remedies, except that Seller does not waive any defense it might have that
the Collateral was not sold in a commercially reasonable manner. Seller
recognizes that nonjudicial remedies are consistent with the usages of the
trade, are responsive to commercial necessity and are the result of a
bargain at arm's length.
(b) If an Event of Default occurs with respect to Buyer, the following
rights and remedies are available to the Seller:
(i) Upon tender by the Seller of payment of the aggregate Repurchase
Price for all such Transactions, the Buyer's right, title and interest in
all Purchased PCs subject to such Transactions shall be deemed transferred
to the Seller, and the Buyer shall deliver all such Purchased PCs to the
Seller or its designee at Buyer's expense.
(ii) If the Seller exercises the option referred to in subsection
(b)(i) of this Section and the Buyer fails to deliver the Purchased PCs to
the Seller or its designee, after one Business Day's notice to the Buyer,
the Seller may (A) purchase mortgage loans, Participation Certificates or
securities ("Replacement Assets") that are as similar as is reasonably
practicable in characteristics, outstanding principal amounts (as a pool)
and interest rate to any Purchased PCs that are not delivered by the Buyer
to the Seller or its designee as required hereunder or (B) in its sole
discretion elect, in lieu of purchasing Replacement Assets, to be deemed to
have purchased Replacement Assets at a price therefor on such date, equal
to the Market Value of the Purchased PCs.
(iii) The Buyer shall be liable to the Seller (A) with respect to
Purchased PCs (other than Additional Collateral), for any excess of the
price paid (or deemed paid) by the Seller for Replacement Assets therefor
over the Repurchase Price for such Purchased PCs and (B) with respect to
Additional Collateral, for the price paid (or deemed paid) by the Seller
for the Replacement Assets therefor. In addition, the Buyer shall be
liable to the Seller for interest on such remaining liability with respect
to each such purchase (or deemed purchase) of Replacement Assets from the
date of such purchase (or deemed purchase) until paid in full by Buyer.
Such interest shall be at the greater of the Pricing Rate or the Prime
Rate.
15. RECORDING OF COMMUNICATIONS
Buyer and Seller shall have the right (but not the obligation) from time to
time to make or cause to be made tape recordings of communications between its
employees and those of the other party with respect to Transactions. Buyer and
Seller consent to the admissibility of such tape recordings in any court,
arbitration, or other proceedings. The parties agree that a duly authenticated
transcript of such a tape recording shall be deemed to be a writing conclusively
evidencing the parties' agreement.
<PAGE>
16. SINGLE AGREEMENT
Buyer and Seller acknowledge that, and have entered hereinto and will enter
into each Transaction hereunder in consideration of and in reliance upon the
fact that, all Transactions hereunder constitute a single business and
contractual relationship and that each has been entered into in consideration of
the other Transactions. Accordingly, each of Buyer and Seller agrees (i) to
perform all of its obligations in respect of each Transaction hereunder, and
that a default in the performance of any such obligations shall constitute a
default by it in respect of all Transactions hereunder, (ii) that each of them
shall be entitled to set off claims and apply property held by them in respect
of any Transaction against obligations owing to them in respect of any other
Transactions hereunder and (iii) that payments, deliveries, and other transfers
made by either of them in respect of any Transaction shall be deemed to have
been made in consideration of payments, deliveries, and other transfers in
respect of any other Transactions hereunder, and the obligations to make any
such payments, deliveries, and other transfers may be applied against each other
and netted.
17. NOTICES AND OTHER COMMUNICATIONS
(a) Unless another address is specified in writing by the respective party
to whom any written notice or other communication is to be given hereunder, all
such notices or communications shall be in writing or confirmed in writing and
delivered at the respective addresses set forth in the Confirmation, except as
provided in Section 4(c).
(b) Buyer shall be authorized to accept orders and take any other action
affecting any accounts of the Seller in response to instructions given in
writing or orally by telephone or otherwise by any person set forth in Exhibit V
hereto, and the Seller shall indemnify Buyer, defend, and hold Buyer harmless
from and against any and all liabilities, losses, damages, costs, and expenses
of any nature arising out of or in connection with any action taken by Buyer in
response to such instructions received or reasonably believed to have been
received from the Seller. From time to time, Seller may, by delivering to Buyer
a revised exhibit, change the information previously given pursuant to this
Section, but the Buyer shall be entitled to rely conclusively on the current
exhibit until receipt of the superseding exhibit.
18. ENTIRE AGREEMENT; SEVERABILITY
This Agreement together with the applicable Confirmation constitutes the
entire understanding between Buyer and Seller with respect to the subject matter
it covers and shall supersede any existing agreements between the parties
containing general terms and conditions for repurchase transactions involving
Purchased PCs. By acceptance of this Agreement, Buyer and Seller acknowledge
that they have not made, and are not relying upon, any statements,
representations, promises or undertakings not contained in this Agreement. Each
provision and agreement herein shall be treated as separate and independent from
any other provision or agreement herein and shall be enforceable notwithstanding
the unenforceability of any such other provision or agreement.
19. NON-ASSIGNABILITY
(a) The rights and obligations of the parties under this Agreement and
under any Transaction shall not be assigned by either party without the prior
written consent of the other party, provided, however, that Buyer may assign its
rights and obligations under this Agreement and/or under any Transaction to an
Affiliate that is guaranteed by Nomura Securities International, Inc., without
the prior written consent of the other party. Subject to the foregoing, this
Agreement and any Transactions shall be binding upon and shall inure to the
benefit of the parties and their respective successors and assigns. Nothing in
this Agreement express or implied, shall give to any person, other than the
parties to this Agreement and their successors hereunder, any benefit or any
legal or equitable right, power, remedy or claim under this Agreement.
<PAGE>
(b) Notwithstanding Section 19(a), if at any time during the term of this
Agreement Buyer's capital as of the end of any calendar quarter is less than
$4,000,000, Buyer shall, upon the written request of Seller, assign its rights
and obligations under this Agreement and each outstanding Transaction to NHA,
NSI or an Affiliate of NHA or NSI if the obligations of such Affiliate are
guaranteed by NHA or NSI, respectively, provided, however, that upon the
adequate recapitalization of Buyer, this Agreement and each outstanding
Transaction shall be reassigned to Buyer. For purposes of this subsection,
"adequate recapitalization of Buyer" shall mean when Buyer's capital exceeds
$4,000,000.
20. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
21. CONSENT TO JURISDICTION AND ARBITRATION
The parties irrevocably agree to submit to the personal jurisdiction of the
United States District Court for the Southern District of New York, the parties
irrevocably waiving any objection thereto. If, for any reason, federal
jurisdiction is not available, and only if federal jurisdiction is not
available, the parties irrevocably agree to submit to the personal jurisdiction
of the Supreme Court of the State of New York, the parties irrevocably waiving
any objection thereto. Notwithstanding the foregoing two sentences, at either
party's sole option exercisable at any time not later than thirty (30) days
after an action or proceeding has been commenced, the parties agree that the
matter may be submitted to binding arbitration in accordance with the commercial
rules of the American Arbitration Association then in effect in the State of New
York and judgment upon any award rendered by the arbitrator may be entered in
any court having jurisdiction thereof within the City, County and State of New
York, provided, however, that the arbitrator shall not amend, supplement, or
reform in any regard this Agreement or the terms of any Confirmation, the rights
or obligations of any party hereunder or thereunder, or the enforceability of
any of the terms hereof or thereof. Any arbitration shall be conducted before a
single arbitrator who shall be reasonably familiar with repurchase transactions
and the secondary mortgage market in the City, County, and State of New York.
22. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party shall
constitute a waiver of any other Event of Default and no exercise of any remedy
hereunder by any party shall constitute a waiver of its right to exercise any
other remedy hereunder. No modification or waiver of any provision of this
Agreement and no consent by any party to a departure herefrom shall be effective
unless and until such shall be in writing and duly executed by both of the
parties hereto. Any such waiver or modification shall be effective only in the
specific instance and for the specific purpose for which it was given.
23. INTENT
The parties understand and intend that this Agreement and each Transaction
hereunder constitute a "securities contract" as that term is defined in Section
741(7) of Title 11 of the United States Code, as amended.
24. SERVICING
(a) Seller covenants to maintain or cause the servicing of the Underlying
Mortgage Loans to be maintained in conformity with accepted servicing practices
in the industry and in a manner at least equal in quality to the servicing
Seller requires for mortgage loans which it owns. All servicing fees and
compensation with respect to the servicing of the Underlying Mortgage Loans
shall be customary, reasonable and consistent with industry practice.
<PAGE>
(b) Seller hereby irrevocably assigns to the Buyer and Buyer's successors
and assigns all right, title, interest and the benefits of the Servicing
Agreements with respect to the Purchased PCs.
25. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
The parties acknowledge that they have been advised that in the case of
Transactions in which one of the parties is an "insured depository institution"
as that term is defined in Section 1831(a) of Title 12 of the United States
Code, as amended, funds held by the financial institution pursuant to a
Transaction hereunder are not a deposit and therefore are not insured by the
Federal Deposit Insurance Corporation, the Savings Association Insurance Fund or
the Bank Insurance Fund, as applicable.
26. NETTING
If Buyer and Seller are "financial institutions" as now or hereinafter
defined in Section 4402 of Title 12 of the United States Code ("Section 4402")
and any rules or regulations promulgated thereunder:
(a) All amounts to be paid or advanced by one party to or on behalf of the
other under this Agreement or any Transaction hereunder shall be deemed to be
"payment obligations" and all amounts to be received by or on behalf of one
party from the other under this Agreement or any Transaction hereunder shall be
deemed to be "payment entitlements" within the meaning of Section 4402, and this
Agreement shall be deemed to be a "netting contract" as defined in Section 4402.
(b) The payment obligations and the payment entitlements of the parties
hereto pursuant to this Agreement and any Transaction hereunder shall be netted
as follows. In the event that either party (the "Defaulting Party") shall fail
to honor any payment obligation under this Agreement or any Transaction
hereunder, the other party (the "Nondefaulting Party") shall be entitled to
reduce the amount of any payment to be made by the Nondefaulting Party to the
Defaulting Party by the amount of the payment obligation that the Defaulting
Party failed to honor.
27. MISCELLANEOUS
(a) Time is of the essence under this agreement and all Transactions and
all references to a time shall mean New York time in effect on the date of the
action unless otherwise expressly stated in this Agreement.
(b) If there is any conflict between the terms of this Agreement or any
Transaction entered into hereunder and the Custodial Agreement, this Agreement
shall prevail.
(c) If there is any conflict between the terms of a Confirmation or a
corrected Confirmation issued by the Buyer and this Agreement, the Confirmation
shall prevail.
(d) This Agreement may be executed in counterparts, each of which so
executed shall be deemed to be an original, but all of such counterparts shall
together constitute but one and the same instrument.
(e) The headings in this Agreement are for convenience of reference only
and shall not affect the interpretation or construction of this Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date
set forth above.
BUYER
NOMURA ASSET CAPITAL CORPORATION
By:
Name:
Title:
SELLER
CRIIMI MAE INC.
By:
Name:
Title:
<PAGE>
EXHIBITS
EXHIBIT I Confirmation
EXHIBIT II Form of Custodial Delivery
EXHIBIT III Approved Secondary Market Participants
EXHIBIT IV Letter of Instruction to Master Servicer and Servicers
EXHIBIT V Authorized Representatives of Seller
ANNEX
ANNEX A Additional Definitions
<PAGE>
EXHIBIT I
[Form of Confirmation Letter]
(date)
CRIIMI MAE Inc.
Attention: Jay Cohen, Executive Vice President
11200 Rockville Pike
Rockville, MD 20852
Confirmation No.:_____________________
Ladies/Gentlemen:
This letter confirms our oral agreement to purchase from you the
Participation Certificates listed in Appendix I hereto, pursuant to the
Committed Master Repurchase Agreement Governing the Purchases and Sales of
Participation Certificates between us, dated as of November 30, 1993, (the
"Agreement"), as follows:
Purchase Date:
Participation Certificates
to be Purchased: See Appendix I hereto.
[Appendix I to Confirmation Letter
will list the Participation Certificates]
Aggregate Principal Amount of Participation Certificates:
Purchase Price:
Pricing Rate:
Repurchase Date:
Repurchase Price:
Collateral Amount Percentage:
Names and addresses for communications:
Buyer: Murray Pozmanter
Nomura Asset Capital Corporation
2 World Financial Center
Building B
21st Floor
New York, New York 10281-1198
with legal matters to:
Anna Glick, Esquire
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Seller: Jay Cohen
Executive Vice President
CRIIMI MAE Inc.
11200 Rockville Pike
Rockville, MD 20852
An Original PC for each Participation Certificate listed on Appendix I
hereto must be delivered to the Custodian on or before the Purchase Date. In
addition, with respect to each Participation Certificate listed on Appendix I
hereto under which CRICO Mortgage Company, Inc., is the Mortgagee of the
Underlying Mortgage Loan, the related PC Mortgage File must be delivered to the
Mortgage File Custodian on or before the Purchase Date. Capitalized terms used
herein and not otherwise defined shall have the meanings set forth in the
Agreement.
NOMURA ASSET CAPITAL
CORPORATION
By:
Name:
Title:
Agreed and Acknowledged:
CRIIMI MAE INC.
By:
Name:
Title:
<PAGE>
EXHIBIT II
Form of Custodial Delivery
On this __________ day of ______________, 19___, CRIIMI MAE Inc. (the
"Seller"), as the Seller under that certain Committed Master Repurchase
Agreement Governing Purchases and Sales of Participation Certificates, dated as
of November 30, 1993 (the "Repurchase Agreement") between the Seller and Nomura
Asset Capital Corporation (the "Buyer"), does hereby deliver to The Bank of New
York (the "Custodian"), as custodian under that certain Custodial Agreement,
dated as of ________ __, 1993, between Buyer and Custodian, an Original PC with
respect to each Participation Certificate listed on the Participation
Certificate Schedule attached hereto. With respect to each Participation
Certificate listed on the Participation Certificate Schedule attached hereto
under which CRICO Mortgage Company, Inc., is the Mortgagee for the Underlying
Mortgage Loan, Seller has caused the PC Mortgage File to be delivered to the
Mortgage File Custodian. [The Participation Certificates listed on the
Participation Certificate Schedule attached hereto will be purchased by the
Buyer pursuant to the Repurchase Agreement][The Participation Certificates
listed on the Participation Certificate Schedule attached hereto constitute
Additional Collateral delivered pursuant to Section 4(a) of the Repurchase
Agreement][The Participation Certificates listed on the Participation
Certificate Schedule attached hereto constitute Substituted PCs delivered
pursuant to Section 9(a) of the Repurchase Agreement and are intended to be
substituted for the Purchased PCs listed on Exhibit B attached hereto.][The
Participation Certificates listed on the Participation Certificate Schedule
attached hereto constitute Exchanged PCs delivered pursuant to Section 9(c) of
the Repurchase Agreement and are intended to be substituted for the Purchased
PCs listed on Exhibit B attached hereto.] The Original PCs delivered herewith
shall be subject to the terms of the Custodial Agreement on the date hereof.
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Custodial Agreement.
IN WITNESS WHEREOF, the Seller has caused its name to be signed hereto by
its officer thereunto duly authorized as of the day and year first above
written.
CRIIMI MAE INC.
By:
Title:
Name:
<PAGE>
EXHIBIT III
APPROVED SECONDARY MARKET PARTICIPANTS
Bear, Sterns & Co.
Daiwa Securities
The First Boston Corporation
Goldman, Sachs & Co.
Lehman Brothers
Salomon Brothers Inc.
Smith Barney Shearson
Werthiem, Schroeder
<PAGE>
EXHIBIT IV
Letter of Instructions to Master Servicer and Servicers
[Servicer]
Ladies/Gentlemen:
On _______ __, 199_, CRIIMI MAE Inc. ("Seller"), sold to Nomura Asset
Capital Corporation ("Buyer") all of Seller's right, title and interest in and
to the mortgage loans identified on Appendix A attached to this letter and made
a part hereof (the "Mortgage Loans"). Accordingly, Seller hereby
unconditionally and irrevocably instructs you to pay to Buyer, pursuant to the
terms of our existing servicing arrangements, any and all monies received by you
on or after _______ __, 199_ which would have been payable from time to time by
you to Seller on account of or otherwise in connection with the Mortgage Loans,
including without limitation any and all principal, interest, partial
prepayments, prepayments in full, penalties, advance payments, or expenses;
provided, however, that any such monies representing scheduled payments of
principal of or interest on such Mortgage Loans due prior to _______ __, 199_
shall be paid to Seller.
All such monies should be paid by you to the order of Buyer in the manner and on
the date such monies would have been payable to Seller, as follows:
Mellon Bank, Pittsburgh
ABA #043000261 for the account of Nomura Asset Capital Corporation
Acct. #1092525
Attn: Murray Pozmanter/re: CRIIMI MAE Inc.
Seller further advises you that all rights and powers of Seller under the
existing servicing arrangements with respect to the Mortgage Loans have been
transferred to Buyer and that Buyer has the sole right as the owner of the
Mortgage Loans to direct your actions under such servicing arrangements with
respect to the Mortgage Loans and to exercise such rights and powers.
Very truly yours,
CRIIMI MAE INC.
By:
Name:
Title:
<PAGE>
EXHIBIT V
Authorized Representatives of Seller
Name Specimen Signature
- ----------------------- ----------------------------
William B. Dockser
----------------------------
H. William Willoughby
----------------------------
Jay R. Cohen
----------------------------
Richard J. Palmer
----------------------------
Elizabeth O. Flanagan
----------------------------
Nancy E. Currier
----------------------------
Peter M. Smith
----------------------------
Jamie I. Sapp
----------------------------
<PAGE>
ANNEX A
Additional Definitions
"PC Mortgage File" means with respect to each Underlying Mortgage Loan the
following original documents:
(a) the original Mortgage Note or Deed of Trust Note, as the case may be,
bearing an FHA signed endorsement and all intervening endorsement, endorsed "Pay
to the order of ______, without recourse" and signed in the name of the last
endorsee by an authorized officer;
(b) the original Mortgage or Deed of Trust, as the case may be, with
evidence of recording thereon or copies certified by the related recording
office or if neither of the foregoing is available by closing, a copy of the
Mortgage with evidence of recording certified by the title or abstract company;
(c) a copy of the UCC-1 Financing Statement, certified as true and UCC-3
Assignment with purchasers name shown thereon, which financing statement shall
be in form and substance acceptable for filing;
(d) the original mortgage title insurance policy or attorney's opinion of
title and abstract of title; and
(e) the original of any security agreement, chattel mortgage or equivalent
document executed in connection with the Mortgage.
<PAGE>
SETTLEMENT AGREEMENT
This Settlement Agreement (the "Agreement") is made and entered into as of
the 24th day of September, 1993, by and among (i) Alex J. Meloy, Trustee of the
Harry Meloy Family Trust ("Meloy") and Alan J. Hunken, Trustee of the Alan J.
Hunken Retirement Plan ("Hunken") (collectively referred to as the "Named
Plaintiffs"), individually and in their capacities as representatives of certain
plaintiff classes in Alex J. Meloy, et al., v. CRI Liquidating REIT, Inc., et
al., Civil Action No. 56831 in the Circuit Court for Montgomery County, Maryland
(the "Litigation") and (ii) CRI Liquidating REIT, Inc. ("Liquidating"); CRIIMI
MAE Inc., formerly CRI Insured Mortgage Association, Inc. ("CRIIMI MAE");
C.R.I., Inc. ("CRI"); William B. Dockser ("Dockser"); Martin C. Schwartzberg
("Schwartzberg"); and H. William Willoughby ("Willoughby") (collectively
referred to as the "CRI Parties"). For the purposes of this Agreement the CRI
Parties and the Named Plaintiffs shall be collectively referred to as the
"Parties."
RECITALS
A. On November 27, 1989, a certain merger (the "Merger") was consummated
in which CRI Insured Mortgage Investments Limited Partnership ("CRIIMI I"), CRI
Insured Mortgage Investments II, Inc. ("CRIIMI II"), and CRI Insured Mortgage
Investments III Limited Partnership ("CRIIMI III"), were merged with and into
Liquidating, a corporation which, along with CRIIMI MAE, was formed in
connection with the Merger.
B. Pursuant to the Merger, each investor in CRIIMI I, CRIIMI II, and
CRIIMI III (the "Investors") as of August 24, 1989, the record date (the "Record
Date"), was given the right to elect to receive, at the investor's option,
shares of Liquidating stock or shares of CRIIMI MAE stock in exchange for their
investments in CRIIMI I, CRIIMI II, or CRIIMI III.
C. To receive Liquidating shares, Investors were required to make an
affirmative election by completing and mailing in a proxy card and checking the
box for Liquidating stock. Under a passive election procedure, investors who
did not sign and return a proxy card or who signed and returned a proxy card but
did not elect thereon to receive Liquidating shares were issued shares of CRIIMI
MAE stock (the "Passive Election Procedure").
D. The Merger was voted upon and approved by the requisite majority of
Investors at special meetings of Investors held on October 10, 1989, and was
consummated on November 27, 1989.
E. On or about March 23, 1990, the Named Plaintiffs instituted the
Litigation against the CRI Parties, CRIIMI I, CRIIMI II, CRIIMI III, C.R.I.
Associates Limited Partnership; and C.R.I. Associates III Limited Partnership
(the "Defendants"). Meloy sued individually and in his capacity as a
representative of a class of certain former investors of CRIIMI III. Hunken
sued individually and in his capacity as a representative of a class of certain
former investors of CRIIMI II.
F. The Named Plaintiffs alleged that the issuance of CRIIMI MAE shares in
the Merger to Investors who failed to return a proxy card or who returned a
proxy card but did not make an affirmative share election on the card violated
the Merger agreements and constituted a breach of fiduciary duties to Investors.
G. The Court entered an order on June 26, 1991, granting class
certification on behalf of certain former CRIIMI II and CRIIMI III investors.
The CRIIMI II and CRIIMI III investors were notified of the class certification
and were given an opportunity to opt out of the class. Some of those investors
submitted and returned opt out forms exercising their option to opt out of the
class.
<PAGE>
H. The Defendants answered the complaint, denying its material
allegations, all charges of wrongdoing, and any liability.
I. Both the Plaintiffs and the Defendants in the Litigation filed motions
for summary judgment. By Court order dated August 27, 1992, both motions were
denied.
J. Trial of the Litigation was scheduled to begin on October 25, 1993, and
was expected to last for one to two weeks or more.
K. Recognizing the costs, burdens, and risks associated with the
Litigation, the Parties now desire to settle the Litigation upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be bound by this
Agreement and without any of the Parties admitting or acknowledging any
wrongdoing or liability, the Parties agree as follows:
1. Plaintiffs and Class Members
----------------------------
a. Meloy and the CRIIMI III Class. Meloy is the Trustee of the Harry
Meloy Family Trust and, in connection with the Litigation and this
Agreement, is acting on behalf of himself individually and the Harry Meloy
Family Trust and as representative of the class of persons who (a)
beneficially owned limited partnership units in CRIIMI III on August 24,
1989, and (b) did not sign and return a proxy card for the Special Meeting
of Investors of CRIIMI III held on October 10, 1989 in connection with the
proposed Merger or signed and returned a proxy card but did not make an
election on the proxy card to receive CRIIMI MAE shares, and (c) owned such
CRIIMI III units continually through November 27, 1989, and (d) received
shares of CRIIMI MAE in the Merger in exchange for such units of CRIIMI
III, and (e) did not exercise the right to opt out of this class (the
---
"CRIIMI III Class").
b. Hunken and the CRIIMI II Class. Hunken is the Trustee of the Alan
J. Hunken Retirement Plan and, in connection with the Litigation and this
Agreement, is acting on behalf of himself individually and the Alan J.
Hunken Retirement Plan and as representative of the class of persons who
(a) beneficially owned shares of CRIIMI II on August 24, 1989, and (b) did
not sign and return a proxy card for the Special Meeting of Investors of
CRIIMI II held on October 10, 1989 in connection with the proposed Merger
or signed and returned a proxy card but did not make an election on the
proxy card to receive CRIIMI MAE shares, and (c) owned such CRIIMI II
shares continually through November 27, 1989, and (d) received shares of
CRIIMI MAE in the Merger in exchange for such shares of CRIIMI II, and (e)
did not exercise the right to opt out of this class (the "CRIIMI II
Class").
c. Hunken and the CRIIMI I Class. The Parties agree that they shall
jointly request the Court to certify an additional class (the "CRIIMI I
Class") solely for the purpose of settlement pursuant to this Agreement.
The CRIIMI I Class shall consist of all persons who (a) beneficially owned
limited partnership units in CRIIMI I on August 24, 1989, and (b) did not
sign and return a proxy card for the Special Meeting of Investors of CRIIMI
I held on October 10, 1989 in connection with the proposed Merger or signed
and returned a proxy card but did not make an election on the proxy card to
receive CRIIMI MAE shares, and (c) owned such CRIIMI I units continually
through November 27, 1989, and (d) received shares of CRIIMI MAE in the
<PAGE>
Merger in exchange for such units of CRIIMI I, and (e) do not exercise the
right to opt out of this class. For the purpose of this Agreement, Hunken
shall represent the members of the CRIIMI I Class. The Parties acknowledge
that the claims asserted by the Named Plaintiffs with respect to CRIIMI II
and CRIIMI III are substantially similar to those which could have been
raised by any similarly situated former CRIIMI I investor with respect to
CRIIMI I. The Parties agree that, if the Court does not enter an order
granting final approval of this Agreement or if said order does not become
final and nonappealable, the certification of the CRIIMI I Class shall be
deemed null and void and shall have no further force and effect. In such
event, the Defendants retain all rights to object to any request to certify
any class of former CRIIMI I investors, including, but not limited to, the
adequacy of any proposed class representative.
2. Warrants. Subject to entry by the Court of an order granting final
approval of the settlement pursuant to this Agreement and said order becoming
final and nonappealable, and subject to the determination of allowed claims in
accordance with Paragraph 3 of this Agreement, CRIIMI MAE will issue and
distribute to Allowed Claimants (defined in Subparagraph b below) warrants to
purchase CRIIMI MAE common stock ("Warrants") subject to the following terms and
conditions:
a. Total Number to Be Issued. The total number of Warrants to be
issued shall be computed according to the following formula: two million
five hundred thousand (2,500,000) multiplied by a fraction, the numerator
of which is the number of shares received by Allowed Claimants in the
Merger pursuant to the Passive Election Procedure and the denominator of
which is the total number of CRIIMI MAE shares received in the Merger by
members of the CRIIMI I Class, the CRIIMI II Class, and the CRIIMI III
Class (collectively, "Class Members") pursuant to the Passive Election
Procedure.
b. Exercise Price. The Warrants shall have an exercise price of
$13.17, which is $1.00 above the average closing price of CRIIMI MAE common
stock over the fourteen day period immediately prior to September 27, 1993,
the date of the public announcement of the proposed settlement.
c. Exercise Period. The Warrants shall be exercisable for a period
of five hundred forty-seven (547) days after the date of their issuance.
d. Issuance and Distribution to Allowed Claimants. The Warrants shall
be issued and distributed to Class Members who timely submit and establish
valid proofs of claim in accordance with the Claim Allowance provisions set
forth in Paragraph 3 (the "Allowed Claimants").
e. Allocation among Allowed Claimants. The Warrants will be
allocated ratably among Allowed Claimants, according to the number of
shares each received in the Merger pursuant to the Passive Election
Procedure.
f. Valuation. CRIIMI MAE has retained, and counsel for the Named
Plaintiffs have approved, Richard B. Edelman, Ph.D., as the independent
expert for valuation of the Warrants. In the opinion of Dr. Edelman, the
Warrants have a value of not less than $2.00 per Warrant. The Parties
understand that (i) such valuation is based on the expert's assessment of
historic data and various qualitative factors involving, among other
things, projections of future earnings and dividends and market forecasts,
(ii) such valuation of the Warrants is not a prediction of the prices at
which the Warrants may trade, and (iii) there can be no assurance that an
active trading market for the Warrants
<PAGE>
will develop or be sustained. The fees of Dr. Edelman with respect to his
opinion as to the value of the Warrants shall be paid by CRIIMI MAE.
g. Listing in Public Market and Registration. CRIIMI MAE will
promptly apply to list the Warrants for trading in a public market. If, in
the determination of CRIIMI MAE, the Warrants or the CRIIMI MAE shares to
be issued upon exercise of the Warrants are required to be registered under
the Securities Act of 1933 or any applicable state securities law, CRIIMI
MAE will promptly apply for such registration at its cost. It is
understood that registration and listing are subject to the decision of
governmental or regulatory authorities.
3. Claim Allowance. Subject to entry by the Court of an order granting
final approval of the settlement pursuant to this Agreement and said order
becoming final and nonappealable, Allowed Claimants shall be determined as
follows:
a. Settlement Administration Committee. A settlement administration
committee (the "Committee") will be established and will have two members.
One member will be designated by the Named Plaintiffs and one member will
be designated by the CRI Parties. The Committee shall oversee the process
by which proof of claim forms (the "Proof of Claim Forms") are distributed
to Class Members, shall determine the validity and timeliness of the proofs
of claim submitted, and shall determine the number and distribution of the
Warrants to be issued in accordance with the formula and procedures set
forth in Paragraph 2 above. The Committee will make its decisions by
unanimous agreement. In the event that the members of the Committee
disagree, the matter in dispute may be submitted to the Court for
resolution.
b. Proof of Claim Forms. Upon entry by the Court of an order
granting final approval of the settlement in accordance with this Agreement
and said order becoming final and nonappealable, the Parties or the
Committee shall cause Proof of Claim Forms to be distributed to Class
Members. To qualify as an Allowed Claimant, Class Members must complete
and submit the Proof of Claim Forms within sixty (60) days after the date
of mailing of said forms to Class Members. The Proof of Claim Forms must be
certified under oath and notarized and must state the following: (i) that
the claimant beneficially owned units of CRIIMI I or CRIIMI III or shares
of CRIIMI II on August 24, 1989; (ii) that the claimant either did not sign
and return a proxy card with respect to the special meeting of investors on
October 10, 1989, in connection with the Merger, or signed and returned a
proxy card but did not affirmatively elect on the proxy card to receive
CRIIMI MAE shares or Liquidating shares; (iii) that the claimant owned such
units of CRIIMI I or CRIIMI III or shares of CRIIMI II continuously through
November 27, 1989; (iv) that the Claimant received shares of CRIIMI MAE in
exchange for such units of CRIIMI I or CRIIMI III or shares of CRIIMI II;
(v) the number of units of CRIIMI I and CRIIMI III and shares of CRIIMI II
owned by the Claimant on August 24, 1989, and held continuously through
November 27, 1989; (vi) the number of CRIIMI MAE shares received by the
Claimant in the Merger pursuant to the Passive Election Procedure; and
(vii) with respect to those Class Members whose units or shares were held
in "street name," the name and address of the applicable broker and "street
name" holder. The Proof of Claim Forms must be supported by account
statements or other proof. In the case of claimants whose interests were
held in "street name" (other than through Merrill Lynch or Smith Barney)
and who signed and returned proxy cards but did not affirmatively elect on
the proxy cards to receive CRIIMI MAE shares, the
<PAGE>
Proof of Claim Forms must be accompanied by copies of such proxy cards.
c. Disapproval of Claims Filed by Opt-Outs. In determining the
validity and timeliness of claims by Class Members, the Committee shall
disapprove claims submitted by persons who have submitted requests to opt
out of any of the classes.
d. Verification with "Street Name" Holders. With respect to
claimants whose investments were held in "street name," the Committee
shall, to the extent practicable, verify with the applicable brokers or
other "street name" holders the information provided by claimants on the
Proof of Claim Forms. In determining the validity of claims, the Committee
may rely on the information provided by the brokers or other "street name"
holders. The Committee will notify any claimant of the disallowance of his
claim.
4. Notice of Proposed Settlement. On or before October 6, 1993, the
Parties shall file with the Court for its approval a proposed notice to Class
Members in the form of Exhibit A hereto (the "Notice of Proposed Settlement").
The Parties shall also file with the Court for its approval and entry a proposed
order in the form of Exhibit B hereto (the "Order"). Promptly upon approval by
the Court of the Notice of Proposed Settlement and the entry of the Order, the
Parties shall cause said notice to be sent by mail as follows:
a. Notice to Record Holders Who Are Class Members. The Notice of
Proposed Settlement shall be sent to all record holders of CRIIMI I, CRIIMI
II, and CRIIMI III as of the Record Date who are Class Members, excluding
"street name" holders and opt-outs.
b. Notice for Transmission by "Street Name" Record Holders. The
Notice of Proposed Settlement shall be sent to all "street name" record
holders of CRIIMI MAE as of November 28, 1989 (with the exception of
Merrill Lynch, and Smith Barney/Shearson with respect to former Smith
Barney customers), with requests that such record holders promptly transmit
the Notice to all beneficial owners of CRIIMI MAE stock as of November 28,
1989.
c. Notice for Transmission by Merrill Lynch. The Notice of Proposed
Settlement shall be sent to Merrill Lynch, with a request that it promptly
transmit the Notice to Class Members who were its customers.
d. Notice to Smith Barney Customers. The Notice of Proposed
Settlement shall be sent to Class Members who were Smith Barney customers.
5. Named Plaintiffs' Attorneys Fees and Expenses. On the day following
the date upon which the Court's order granting final approval of the settlement
in accordance with this Agreement becomes final and nonappealable, the CRI
Parties shall cause counsel for Plaintiffs to be paid attorneys' fees and
expenses in an amount approved by the Court not to exceed One Million Four
Hundred Thousand Dollars ($1,400,000.00). Such expenses will include, among
other things, the costs of printing and mailing of the Notice of Proposed
Settlement any subsequent notices and Proof of Claim Forms, and the costs of
verifying proofs of claims. Such expenses will also include settlement
administration expenses; provided, however, that any such expenses in excess of
$15,000 incurred by the Committee (excluding attorneys' fees) to verify proofs
of claims returned by Claimants will be borne by CRIIMI MAE. Because all such
expenses may not be known or paid by the date the Court enters an order granting
final approval of the settlement pursuant to this Agreement or by the date said
order becomes final and nonappealable, the full sum allowed by the Court for
fees and
<PAGE>
expenses shall be disbursed to Plaintiffs' counsel on the date indicated in the
first sentence of this paragraph and Plaintiffs' counsel shall thereafter
promptly pay such expenses when and as they are subsequently incurred, and shall
promptly reimburse CRIIMI MAE for settlement administration expenses paid by it,
which shall not include its attorneys fees.
6. Dismissal and Release of Claims.
--------------------------------
a. Dismissal of Claims. The Litigation and all claims and causes of
action that were asserted, or could have been asserted, therein shall be
dismissed with prejudice by the Court pursuant to an order to be agreed
upon by the Parties.
b. Release of Claims. On the date that the Court's order granting
final approval of the settlement in accordance with this Agreement becomes
final and nonappealable, the Named Plaintiffs, on behalf of themselves and
on behalf of all Class Members (collectively, the "Releasors"), hereby
release and forever discharge Liquidating, CRIIMI MAE, CRI, Dockser,
Willoughby, Schwartzberg, and each of the other defendants in the
Litigation, and all of their current and former directors, partners,
officers, employees, agents, attorneys, insurers, parents, subsidiaries,
affiliates, predecessors, successors-in-interest, and heirs and assigns
with respect to any and all claims, debts, suits, liabilities, judgments,
demands, damages, obligations, costs, expenses, causes of action, and
actions of any nature, character, or description that any of them ever had,
now have, or may have, whether known or unknown, accrued or not accrued,
suspected or unsuspected, arising under common law, statute or regulation,
state or federal, out of, or in any way relating to, the Merger or any
claims, causes of action, or allegations that were asserted, or might have
been asserted, in the Litigation.
On the date that the Court's order granting final approval of the
settlement in accordance with this Agreement becomes final and
nonappealable, the CRI Parties hereby release and forever discharge the
Named Plaintiffs and Class Members and all of their current and former
agents, attorneys, successors-in-interest, and heirs and assigns with
respect to any and all claims, debts, suits, liabilities, judgments,
demands, damages, obligations, costs, expenses, causes of action, and
actions of any nature, character, or description that any of them ever had,
now have, or may have, whether known or unknown, accrued or not accrued,
suspected or unsuspected, arising under common law, statute or regulation,
state or federal, out of, or in any way relating to, the Merger or any
claims, causes of action, or allegations that were asserted, or might have
been asserted, in the Litigation. Nothing in this subparagraph shall
constitute a release or discharge of the Parties with respect to
obligations under this Agreement.
c. Warranties of the Named Plaintiffs. The Parties represent and
warrant that they have read and understood this Agreement. The Parties
also represent and warrant that, in executing this Agreement, they have not
relied on any agreements, representations, promises, understandings, or
inducements that are not specifically set forth in this Agreement.
7. Agreement Not Admission of Wrongdoing. The Parties acknowledge and
agree that nothing in this Agreement constitutes an admission or evidence of any
wrongdoing or liability by any party or an admission or evidence with respect to
any claim or defense of any party.
<PAGE>
8. Court Procedures.
-----------------
a. Prompt Motion for Court Approval. The Parties shall promptly move
the Court for preliminary approval of the settlement, for approval of the
Notice of Proposed Settlement, and for the scheduling of a hearing on final
approval of the settlement on the twenty-first day after the date of
mailing of the Notice of Proposed Settlement or as soon thereafter as the
Court permits. The Parties shall ask the Court to enter an order with
respect to the preliminary approval of the settlement, approval of the
Notice of Proposed Settlement, and the scheduling of a hearing on the final
approval of the settlement in the form of Exhibit B hereto.
b. Petition for Award of Fees and Costs. Plaintiffs' counsel will
petition the Court for an award of fees and expenses including settlement
administration expenses in an aggregate amount not to exceed One Million
Four Hundred Thousand Dollars ($1,400,000.00), and Defendants will not
object to same.
c. Request for Final Order. At the hearing on final approval, the
Parties shall request the Court to enter an order in a form to be agreed
upon approving the settlement in accordance with this Agreement, fixing and
allowing Plaintiffs' attorneys' fees and costs, and dismissing and
releasing all claims in accordance with this Agreement.
d. Interim Cost Sharing. The Named Plaintiffs and CRIIMI MAE shall
share the cost of printing and mailing the Notice of Proposed Settlement,
with reimbursement to said parties to come from the funds to be paid for
plaintiffs' attorneys fees and expenses including settlement administration
expenses in the event that the Court enters an order granting final
approval of the settlement and said order becomes final and nonappealable.
9. Agreement Void Absent Court Approval and Right to Withdraw. This
Agreement shall be subject to the approval of the Court. In the event that the
Court does not enter an order granting final approval of the settlement in
accordance with this Agreement by December 1, 1993, the CRI Parties and the
Named Plaintiffs shall have the right, upon delivery of written notice to the
other, to withdraw from and terminate this Agreement. The CRI Parties shall
have the right to withdraw from and terminate this Agreement in the event that
members of the CRIIMI I Class representing more than 250,000 shares of CRIIMI
MAE stock timely exercise their right to opt out of the class. In the event
that prior to the hearing by the Court on final approval of the settlement
significant adverse changes occur with respect to the stock market which result
in the inability of the independent expert to give, in connection with such
hearing, an opinion valuing the warrants at $2.00 or more per warrant and CRIIMI
MAE decides not to agree to alter the terms of the Warrants, the Named
Plaintiffs shall have the right, upon delivery of written notice to the CRI
Parties, to withdraw from and terminate this Agreement.
10. Retention of Jurisdiction. The Parties shall request that the Court,
after approval of this Agreement and dismissal of all claims in the Litigation,
retain jurisdiction with respect to any disputes that may arise out of the
implementation or administration of the settlement pursuant to this Agreement.
11. Miscellaneous.
--------------
a. Integration Clause. This Agreement, together with the Exhibits
hereto, which are incorporated into the Agreement by reference, embody the
entire agreement of the Parties concerning the settlement of the
Litigation. This Agreement and the Exhibits hereto shall supersede all
<PAGE>
previous communications, representations, agreements, or understandings,
oral or written, between the Parties concerning the settlement.
b. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Maryland. Any action to
enforce this Agreement, or alleging breach of this Agreement, shall be
filed in the Circuit Court for Montgomery County, Maryland.
c. No Adverse Construction. All Parties in this Litigation have
participated, through their counsel, in the drafting and preparation of
this Agreement and the Exhibits hereto. Accordingly, the Parties agree
that neither this Agreement nor any of its provisions should be construed
against any of the Parties by reason of their participation in the drafting
or preparation of this Agreement or the Exhibits hereto.
d. Counterparts. This Agreement may be executed in several
counterparts which together shall constitute one instrument.
e. Captions. The captions in this Agreement are for the convenience
of the reader only and shall not be used to construe the text of the
Agreement.
<PAGE>
- ----------------------------------------
ALEX J. MELOY, individually and in
his capacity as representative of the
CRIIMI III Class
- ----------------------------------------
ALAN J. HUNKEN, individually and in
his capacity as representative of
the CRIIMI I Class and the CRIIMI II Class
CRIIMI MAE Inc.
By:--------------------------------------
William B. Dockser, Chairman
CRI LIQUIDATING REIT, INC.
By:--------------------------------------
William B. Dockser, Chairman
C.R.I., INC.
By:--------------------------------------
William B. Dockser, Chairman
- ----------------------------------------
WILLIAM B. DOCKSER
- ----------------------------------------
H. WILLIAM WILLOUGHBY
- ----------------------------------------
MARTIN C. SCHWARTZBERG
<PAGE>
EXTENSION AND AMENDMENT AGREEMENT dated as of January 25, 1994 among CRI
FUNDING CORPORATION (the "Company"), CRIIMI MAE Inc. (formerly known as CRI
Insured Mortgage Association Inc.) ("CRIIMI MAE"), CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY ("CIBC"), NATIONAL AUSTRALIA BANK LIMITED, NEW YORK
BRANCH ("NAB"), THE FUJI BANK, LTD., NEW YORK BRANCH ("Fuji") (CIBC, NAB and
Fuji are referred to collectively as the "Lenders") and CANADIAN IMPERIAL BANK
OF COMMERCE, NEW YORK AGENCY, as agent for the Lenders (the "Agent").
RECITALS
--------
The Company, the Lenders and the Agent are parties to an Amended and
Restated Letter of Credit and Reimbursement Agreement dated as of February 9,
1993 (the "Credit Agreement") under which the Lenders have made Revolving Credit
Loans (as defined therein) to the Company in an aggregate principal amount
outstanding on the date hereof of $90,871,000 (the "Outstanding Revolving Credit
Loans");
Under the terms of the Credit Agreement the Commitments (as defined
therein) expire on, and the Outstanding Revolving Credit Loans must be repaid by
the Company on, January 28, 1994, the Credit Expiration Date thereunder;
The Revolving Credit Loans are guaranteed under the Amended and Restated
Guaranty dated as of February 9, 1993 (the "Guaranty") made by CRIIMI MAE and
the obligations of CRIIMI MAE are secured under a Second Amended and Restated
Security Agreement dated as of February 9, 1993 among CRIIMI MAE, the Agent,
Canadian Imperial Bank of Commerce as Swap Party and Chemical Bank as Collateral
Agent (the "Security Agreement");
The proceeds of Revolving Credit Loans are lent (the "Onlending Loans") by
the Company to CRIIMI MAE under the terms of the Amended and Restated Loan
Agreement dated as of February 7, 1993 between the Company and CRIIMI MAE (the
"Loan Agreement"), which Onlending Loans are repayable on demand by the Company
at any time the Company requires funds to pay Revolving Credit Loans;
The Company has requested the Lenders to extend the repayment of the
Outstanding Revolving Credit Loans to enable CRIIMI MAE to try to put in place a
new revolving credit facility prior to the repayment of the Outstanding
Revolving Credit Loans;
CIBC and NAB (the "Extending Lenders") are willing to extend repayment of
the Outstanding Revolving Credit Loans made by them in the aggregate principal
amount of $78,100,523.81 on the terms and conditions set forth herein;
NAB is willing to make an additional Revolving Credit Loan in a principal
amount equal to $3,500,000 to the Company on the terms and conditions as set
forth herein;
Accordingly, the parties hereby agree as follows:
Section 1. Definitions. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the respective meanings assigned to them in
the Credit Agreement.
Section 2. Extensions.
(a) The Extending Lenders agree to extend the repayment of the principal of
the Outstanding Revolving Credit Loans made by the Extending Lenders in a
principal amount outstanding on the date hereof of $54,274,523.81 (in the case
of CIBC) and $23,826,000 (in the case of NAB) and the related Master Notes to,
and the Company agrees to repay the principal of such Outstanding Revolving
Credit Loans and the related Master Notes in full (together with accrued
interest and any other amounts then due under the Credit Agreement) on, February
28, 1994 (the "Payment Date"). The principal of such Outstanding Revolving
Credit Loans will accrue interest from the Credit Expiration Date to the Payment
Date as a Eurodollar Loan, the Eurodollar Rate to be
<PAGE>
determined by the Agent in accordance with the terms of the Credit Agreement two
Business Days prior to the Credit Expiration Date for the period commencing on
the Credit Expiration Date and ending on the Payment Date. In addition to the
above, NAB hereby agrees, notwithstanding Section 5.1 of the Credit Agreement,
to make an additional Revolving Credit Loan to the Company in a principal amount
equal to $3,500,000 (the "Additional Revolving Credit Loan"), and the Company
agrees to repay the principal of such Additional Revolving Credit Loan and the
related Master Note in full (together with accrued interest and any other
amounts then due under the Credit Agreement) on the Payment Date. The principal
of such Additional Revolving Credit Loan will accrue interest from the date made
to the Payment Date as a Eurodollar Loan or as an Alternate Base Rate Loan, as
determined by the Company and NAB. The Outstanding Revolving Credit Loans
extended hereunder and the Additional Revolving Credit Loan will constitute
"Revolving Credit Loans" for all purposes under the Credit Agreement, the
related Master Notes, the Guaranty, the Security Agreement and any other related
documents, subject to the terms and conditions thereof and entitled to the
benefits thereof. In particular, (i) any optional prepayment of the Outstanding
Revolving Credit Loans extended hereunder or the Additional Revolving Credit
Loan prior to the Payment Date shall be subject to Section 4.2 of the Credit
Agreement and (ii) failure by the Company to repay principal thereof or interest
thereon on the Payment Date shall, subject to the applicable grace period in the
case of interest, constitute an Event of Default under the Credit Agreement.
(b) The Company agrees not to demand repayment of the principal of any
Onlending Loans or the B Notes funded with the Outstanding Revolving Credit
Loans extended hereunder or the Additional Revolving Credit Loan prior to the
Payment Date. The principal of Onlending Loans funded with Outstanding
Revolving Credit Loans extended hereunder will accrue interest as a Eurodollar
Loan, the Eurodollar Rate to be determined as set forth in the Credit Agreement
and paragraph (a) above for the Outstanding Revolving Credit Loans as extended
hereunder. All such Onlending Loans will otherwise continue to be "B Loans" for
all purposes under the Loan Agreement, the B Note and related documents, subject
to the terms and conditions thereof and entitled to the benefits thereof.
(c) CRIIMI MAE hereby waives, notwithstanding Section 4.8 of the Security
Agreement, any right to the release of any of the Assigned Collateral (as
defined in the Security Agreement) in the possession of the Collateral Agent on
the date hereof prior to repayment in full of the Outstanding Revolving Credit
Loans extended hereunder and the Additional Revolving Credit Loan, unless the
aggregate Loan Value is at least $139,300,000 and the Extending Lenders shall
have consented to such release, which consent may be oral (followed by
writing). CRIIMI MAE hereby agrees to ensure that the aggregate Loan Value
shall be at least $139,300,000.
Section 3. Conditions Precedent. The effectiveness, on the Credit
Expiration Date, of the extension by the Extending Lenders and the agreement by
NAB to make the Additional Revolving Credit Loan under Section 2 of this
Agreement is subject to the following conditions precedent:
(a) the representations of the Company and CRIIMI MAE set forth in Section
4 hereof, of the Company set forth in Section 7 of the Credit Agreement and any
related document and of CRIIMI MAE set forth in the Guaranty, the Security
Agreement, the Loan Agreement and any related document shall be true and correct
on the Credit Expiration Date as though made on and as of such date;
(b) no Default or Event of Default under the Credit Agreement or the Loan
Agreement shall have occurred and be continuing on the Credit Expiration Date
(other than any Default or Event of Default that would result solely from the
failure by the Extending Lenders or the Company to extend hereunder);
<PAGE>
(c) the Loan Value of the Assigned Collateral in the possession of the
Collateral Agent shall be not less than $139,300,000;
(d) the Company shall have paid to the Agent and the Lenders all amounts
due and payable under the Credit Agreement, the Master Notes and any related
document on or prior to the Credit Expiration Date (including accrued interest
on all the Outstanding Revolving Credit Loans and the principal amount of the
Outstanding Revolving Credit Loan made by Fuji but excluding the aggregate
principal amount of the Outstanding Revolving Credit Loans extended hereunder);
(e) CRIIMI MAE shall have paid to the Collateral Agent, the Agent, the
Lenders and the Company any amounts (other than the principal amount of the
Onlending Loans extended hereunder) due and payable under the Security
Agreement, the Guaranty, the Loan Agreement and any related document on or prior
to the Commitment Expiration Date; and
(f) the Company and CRIIMI MAE shall have complied with any other
reasonable request of the Agent or any Extending Lender.
Section 4. Representations. The Company and CRIIMI MAE each represent and
warrant to the Agent and the Lenders, and CRIIMI MAE represents to the Company,
that: (i) the execution, delivery and performance of this Agreement have been
duly authorized by all necessary corporate action on its part and do not and
will not (1) violate any provision of law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award as currently in effect to
which it is subject or of its certificate of incorporation or by-laws,
(2) result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which it is a
party or by which it or any of its properties is bound, (3) result in, or
require, the creation or imposition of any mortgage, deed of trust, assignment,
pledge, Lien, security interest or other charge or encumbrance of any nature
upon or with respect to any of its properties, (4) require any authorization,
consent, approval, license, exemption of or filing with any commission, board,
bureau, agency or instrumentality or (5) require the consent of any other
Person; (ii) this Agreement constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the rights of
creditors generally and to equitable principals, and (iii) no Default or Event
of Default under the Credit Agreement or the Loan Agreement exists or will
result from the transactions contemplated hereunder.
Section 5. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
(b) Except at expressly set forth herein, the Credit Agreement, the Master
Notes, the Guaranty, the Security Agreement, the Loan Agreement, the B Note and
all other related documents shall remain unmodified and in full force and
effect. The execution, delivery and effectiveness of this Agreement shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of any Lender or the Agent under any of the Credit Agreement, the Master
Notes, the Guaranty, the Security Agreement or any related document or of the
Company under the Loan Agreement on the B Note, nor, except as expressly
provided herein, constitute a waiver of any provision of any such document. In
particular, the extensions hereunder shall not be deemed (i) except as expressly
provided herein with respect to the Additional Revolving Credit Loan to be made
by NAB, an extension of any Commitment under the Credit Agreement, which shall
automatically reduce to zero on the Commitment Expiration Date or (ii) an
extension of the Outstanding Revolving Credit Loan made by Fuji.
<PAGE>
(c) This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same instrument.
(d) The Company will pay on demand all out-of-pocket costs and expenses of
the Agent, including reasonable fees and out-of-pocket expenses of counsel for
the Agent, in connection with this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement as of the date first above
written.
CRI FUNDING CORPORATION
--------------------------
By:
Title:
CRIIMI MAE INC. (formerly known as CRI
Insured Mortgage Association Inc.)
--------------------------
By:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE, NEW
YORK AGENCY
as Agent and as Lender
--------------------------
By:
Title:
NATIONAL AUSTRALIA BANK LIMITED, NEW YORK
BRANCH
as Lender
--------------------------
By:
Title:
THE FUJI BANK, LTD., NEW YORK BRANCH as
Lender
--------------------------
By:
Title:
<PAGE>
Acknowledged and Agreed:
- -----------------------
CHEMICAL BANK
as Collateral Agent
- --------------------------
By:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE
as Swap Party
- --------------------------
By:
Title:
