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RULE 424(b)(3)
REGISTRATION NO. 33-53031
[LOGO OF 375,000 SHARES
CRIIMI MAE INC.
APPEARS HERE] CRIIMI MAE INC.
COMMON STOCK
This offering consists of 375,000 shares of Common Stock of CRIIMI MAE Inc.
("CRIIMI MAE"), par value $0.01 per share (the "Common Stock"), which are
issuable upon the exercise of certain warrants to purchase shares of Common
Stock (the "Warrants") to be issued by CRIIMI MAE. All of the shares of Common
Stock offered hereby are being issued and sold by CRIIMI MAE. Each Warrant
entitles the holder thereof to purchase one share of Common Stock at an
exercise price of $13.17 per share, subject to adjustment in certain
circumstances. Expenses of the offering, estimated to be approximately
$100,000, will be paid in full by CRIIMI MAE. The proceeds, if any, from the
exercise of any Warrants will be used by CRIIMI MAE for general corporate
purposes, including, without limitation, working capital. See "Use of
Proceeds."
The Common Stock is listed on the New York Stock Exchange under the symbol
"CMM." On April 25, 1994, the reported last sale price of the Common Stock on
the New York Stock Exchange Composite Tape was $10.50 per share. See "Price
Range of Common Stock and Dividends."
If necessary, the terms of each sale of Common Stock offered hereby,
including the public offering price, will be set forth in an accompanying
Prospectus Supplement (the "Prospectus Supplement").
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE DATE OF THIS PROSPECTUS IS APRIL 28, 1994
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AVAILABLE INFORMATION
CRIIMI MAE and its subsidiary, CRI Liquidating REIT, Inc. ("CRI
Liquidating"), are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith file reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Reports, proxy statements and
other information filed by CRIIMI MAE and CRI Liquidating can be inspected and
copied at the SEC's Public Reference Room, 450 Fifth Street, N.W., Washington,
D.C. 20549 and the SEC's Regional Offices at 7 World Trade Center, New York,
New York 10007 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and copies of such material can be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, reports, proxy material and other information
concerning CRIIMI MAE and CRI Liquidating may be inspected at The New York
Stock Exchange ("NYSE"), 20 Broad Street, New York, New York 10005.
This Prospectus constitutes part of a Registration Statement on Form S-3
(together with all amendments and exhibits, the "Registration Statement") filed
by CRIIMI MAE with the SEC under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information
included in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. Reference is made to the
Registration Statement for further information with respect to CRIIMI MAE and
the shares of CRIIMI MAE Common Stock offered hereby ("Shares").
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by CRIIMI MAE with the SEC (File No.
1-10360) are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1993, as
filed with the SEC on February 16, 1994, and as amended by Amendment on
Form 10-K/A, filed with the SEC on March 11, 1994.
2. Definitive Proxy Statement dated April 6, 1993.
3. Form 8-A, as filed with the SEC on October 16, 1989.
4. Form 8-B, as filed with the SEC on October 27, 1993.
All documents filed by CRIIMI MAE pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Shares offered hereby shall be deemed to be
incorporated by reference in this Prospectus from the date of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
CRIIMI MAE will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus has been delivered, on the
written or oral request of any such person, a copy of any or all of the
documents referred to above which have been or may be incorporated in this
Prospectus by reference, other than exhibits to such documents, unless such
exhibits are specifically incorporated by reference. Requests for such copies
should be directed to: CRIIMI MAE Inc., Investor Services, The CRI Building,
11200 Rockville Pike, Rockville, Maryland 20852, or telephone (301) 468-9200 or
toll-free (800) 678-1116.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information appearing elsewhere in this
Prospectus. References to CRIIMI MAE appearing in this Prospectus shall not
include CRI Liquidating, unless the context otherwise requires.
CRIIMI MAE
CRIIMI MAE, 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 stockholders 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's portfolio and day-to-day operations are managed by an affiliate
of C.R.I., Inc. ("CRI"), an international real estate investment firm which is
currently ranked as the sixth largest real estate asset manager in the United
States. In its nearly 20 years as an investor in, and manager of, debt and
equity investments in multifamily properties, CRI has used its expertise to
assemble one of the largest multifamily portfolios in the United States.
CRIIMI MAE's use of leverage carries with it the risk that the cost of its
borrowings could increase relative to the return on its Government Insured
Multifamily Mortgages, which could result in reduced net income or a net loss
and thereby reduce the return to stockholders. CRIIMI MAE has entered into
interest rate hedging agreements which partially limit the adverse effects of
rising interest rates and actively reviews its asset/liability management
techniques in an effort to make optimal use of its borrowing ability based on
market conditions and opportunities. In certain adverse interest rate
environments, including a sustained period of rising interest rates, CRIIMI MAE
could be required to liquidate a portion of its assets at a loss in order to
comply with certain covenants under its financing facilities. CRIIMI MAE's
dividends are affected by numerous other factors, including the dividends which
CRIIMI MAE receives on its shares of CRI Liquidating.
CRIIMI MAE invests primarily in two types of Government Insured Multifamily
Mortgages: loans insured by the Federal Housing Administration (the "FHA")
pursuant to provisions of the National Housing Act, which are first or second
liens on residential apartment, nursing home or townhouse complexes ("FHA-
Insured Loans"); and mortgage-backed securities which are guaranteed by the
Government National Mortgage Association ("GNMA") as to the monthly payment of
the outstanding principal of, and interest on, the underlying multifamily
mortgages ("GNMA Securities"). As of December 31, 1993, CRIIMI MAE owned
directly 126 Government Insured Multifamily Mortgages with an amortized cost of
approximately $499 million, of which 46 were FHA-Insured Loans with an
amortized cost of approximately $152 million and 80 were GNMA Securities with
an amortized cost of approximately $347 million. As of December 31, 1993, the
weighted average coupon rate of CRIIMI MAE's Government Insured Multifamily
Mortgages was approximately 8.4% and the weighted average maturity thereof was
approximately 34 years. See "CRIIMI MAE--Description of Assets"; and "Recent
Developments."
In addition to its portfolio of Government Insured Multifamily Mortgages and
other assets, CRIIMI MAE also owns approximately 57% of the issued and
outstanding common stock of CRI Liquidating, a finite-life, self-liquidating
REIT which owns Government Insured Multifamily Mortgages. CRI Liquidating's
common stock is listed on the NYSE under the symbol "CFR". As of December 31,
1993, CRI Liquidating owned 63 Government Insured Multifamily Mortgages with an
amortized cost of approximately $192 million (which were accounted for at a
fair value of $243 million), 61 of which were FHA-Insured Loans with an
amortized cost of approximately $187 million (which were accounted for at a
fair value of $238 million) and two of which were GNMA Securities with an
amortized cost of approximately $5 million (which were accounted for at a fair
value of $5 million). As of December 31, 1993, the weighted average coupon rate
of CRI Liquidating's Government Insured Multifamily Mortgages was approximately
7.7% and the weighted average maturity thereof was approximately 27 years. See
"CRIIMI MAE--Description of Assets." On February 10, 1994, CRI Liquidating sold
12 Government Insured
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Multifamily Mortgages with an aggregate amortized cost of approximately $37
million, constituting approximately 20% of CRI Liquidating's portfolio as of
December 31, 1993, for a financial statement gain of $11.7 million and a tax
basis gain of approximately $14.7 million.
RECENT DEVELOPMENTS
In March 1994, CRIIMI MAE sold 5,000,000 shares of Common Stock in an
underwritten public offering for net proceeds of approximately $52 million (the
"Offering"). As of April 25, 1994, CRIIMI MAE acquired 20 additional Government
Insured Multifamily Mortgages with an aggregate amortized cost of approximately
$83.2 million, 4 of which are FHA-Insured Loans with an aggregate amortized
cost of approximately $23.4 million and 16 of which are GNMA Securities with an
aggregate amortized cost of approximately $59.8 million. As of April 25, 1994,
the weighted average coupon rate of such newly acquired Government Insured
Multifamily Mortgages was approximately 7.4% and the weighted average maturity
thereof was approximately 31.2 years. CRIIMI MAE funded such acquisitions with
the net proceeds from the Offering and with borrowings under existing credit
facilities.
As of April 25, 1994, CRIIMI MAE also has commitments to acquire 28
additional Government Insured Multifamily Mortgages with an aggregate amortized
cost of approximately $118.3 million, 11 of which are FHA-Insured Loans with an
aggregate amortized cost of approximately $50 million and 17 of which are GNMA
Securities with an aggregate amortized cost of approximately $68.3 million.
CRIIMI MAE intends to fund such commitments with additional borrowings under
existing credit facilities. The anticipated new borrowings will be hedged by
interest rate cap agreements with notional amounts of $35 million, $50 million
and $50 million, respectively, caps of 6.125%, 6.375% and 6.5%, respectively,
and expiration dates of February 2, 1999, March 15, 1997 and March 25, 1998,
respectively.
As of December 31, 1993, CRIIMI MAE had outstanding borrowings of
approximately $479 million, approximately $384 million of which was based on
the three-month London Interbank Offered Rate ("LIBOR") and approximately $95
million of which was based on the 30-day Commercial Paper ("CP") rate. As of
February 28, 1994, the $95 million of CP rate-based borrowings was converted
into three-month LIBOR-based borrowings. Of the approximately $479 million in
outstanding borrowings, approximately $314 million was hedged with cap
agreements based on three-month LIBOR, approximately $50 million was hedged
with cap agreements based on the 30-day CP rate and approximately $115 million
was hedged with collar agreements based on the 30-day CP rate. Between December
31, 1993 and April 25, 1994, three-month LIBOR increased from 3.313% to 4.25%.
This rise in three-month LIBOR has increased CRIIMI MAE's interest expense and
has decreased Net Positive Spread (as defined below) with respect to borrowings
hedged by the cap agreements because the maximum interest rates provided by the
cap agreements are above current interest rates. However, this increase in
three-month LIBOR will not increase interest expense with respect to borrowings
which are hedged by collars because current interest rates are still below the
minimum interest rates provided by such collar agreements. As of December 31,
1992 and 1993 and April 25, 1994, CRIIMI MAE had a Net Positive Spread of
approximately 60, 177 and 94 basis points, respectively, on its borrowings. A
decrease in Net Positive Spread could reduce the return to CRIIMI MAE's
stockholders. See "CRIIMI MAE--Investment Policies."
In connection with the settlement of certain class action litigation
involving CRIIMI MAE and certain of its affiliates, CRIIMI MAE entered into a
settlement agreement on September 24, 1993 providing, among other things, for
the issuance of up to 2.5 million Warrants, exercisable for 18 months from
issuance, to purchase Common Stock at an exercise price of $13.17 per share
(the "Settlement Agreement"). The actual number of Warrants to be issued is
dependent on the number of class members who have submitted proofs of claim by
the submission date required by the Settlement Agreement (the "Submission
Date"). Based on proofs of claim received as of April 25, 1994, CRIIMI MAE
estimates that the maximum number of Warrants to be issued pursuant to the
Settlement Agreement will not exceed 375,000. See "Recent Developments";
"Description of Securities--Warrants"; and "The Offering."
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THE OFFERING
375,000 Shares*
Common Stock offered by CRIIMI MAE to holders
of Warrants....................................
Common Stock to be outstanding after the
offering assuming exercise of all Warrants.....
25,558,533 Shares*
Use of proceeds................................. General corporate purposes,
including working capital.
See "Use of Proceeds."
NYSE symbol..................................... CMM
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(*) Assumes issuance and exercise of 375,000 Warrants which are exercisable for
shares of Common Stock on a one-for-one basis.
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CONSOLIDATED SUMMARY FINANCIAL DATA
This selected data is qualified in its entirety by the detailed information and
financial statements included in the documents incorporated herein by
reference. See "Incorporation of Certain Documents by Reference." In addition,
see "Recent Developments" for a discussion of developments affecting financial
data since December 31, 1993. Additional consolidated selected financial data
may be set forth in a Prospectus Supplement.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1989(A) 1990 1991 1992 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total income............ $42,655 $55,030 $54,318 $50,702 $56,450
Interest expense........ 1,136 22,346 25,791 24,392 28,008
Income before mortgage
dispositions, gain on
sale of shares of
subsidiary and loss on
investment in limited
partnership............ 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
Net income.............. 19,540 18,373 9,001(b) 16,041 15,757(c)
Net income per share.... 0.95 0.91 0.45(b) 0.79 0.78(c)
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
Dividends per share..... 1.49(d) 1.08 1.08 1.08 1.12
Weighted average shares
outstanding............ 20,567 20,184 20,184 20,184 20,184
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------
1989(A) 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(e)
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(e)
</TABLE>
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(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) Includes recognition of an extraordinary loss of approximately $6.6 million
($0.33 per share) resulting from the refinancing of certain notes payable.
(c) Includes recognition of a $3.3 million ($0.16 per share) gain on the sale
of shares of CRI Liquidating and a $4.9 million ($0.24 per share) expense
for the termination of an interest rate swap.
(d) This amount does not include the special dividend of $2.31 per share paid
to CRIIMI MAE stockholders of record on November 27, 1989.
(e) Includes net unrealized gain on mortgage investments of CRI Liquidating of
approximately $29.0 million, due to the implementation of SFAS No. 115 (as
described below).
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CRIIMI MAE
GENERAL
CRIIMI MAE, an infinite-life, actively managed REIT, is the largest REIT
specializing in Government Insured Multifamily Mortgages. CRIIMI MAE's
principal objectives are to provide stable or growing quarterly cash
distributions to its stockholders 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 CRI Liquidating are Maryland corporations. The
principal executive offices of CRIIMI MAE and CRI Liquidating are located at
the CRI Building, 11200 Rockville Pike, Rockville, Maryland 20852, and their
telephone number is (301) 468-9200.
BACKGROUND
CRIIMI MAE and its subsidiary, CRI Liquidating, were formed in 1989 to effect
the merger into CRI Liquidating (the "Merger") of three federally insured
mortgage funds sponsored by CRI: 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 ("CRI
Liquidating Shares") or shares of CRIIMI MAE Common Stock.
Investors in the CRIIMI Funds that received shares of CRIIMI MAE Common Stock
became stockholders in an infinite-life, actively managed REIT having the
potential to increase the size of its portfolio and enhance the returns to its
stockholders. CRIIMI MAE stockholders 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 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. As of
the date of this Prospectus, CRIIMI MAE holds a total of 17,199,307 CRI
Liquidating Shares, or approximately 57% of the issued and outstanding CRI
Liquidating Shares.
Investors in the CRIIMI Funds that received CRI Liquidating Shares, as well
as CRIIMI MAE, became stockholders 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.
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.
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ASSET MANAGEMENT
CRIIMI MAE is governed by a board of directors (the "CRIIMI MAE Board"), a
majority of whom are independent directors with extensive industry related
experience. The adviser to CRIIMI MAE and CRI Liquidating is CRI Insured
Mortgage Associates Adviser Limited Partnership (the "Adviser"), the general
partner of which is CRI and the operations of which are conducted by CRI's
employees. CRIIMI MAE'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.
CRI is an international real estate investment firm which is currently ranked
as the sixth largest real estate asset manager in the United States.
Established in 1974, CRI offers capital, management and investment expertise to
developers, builders and both institutional and individual investors. CRI's 114
employees have been active in property acquisitions and dispositions, domestic
and foreign debt and equity placements, asset and property management and
leasing, structuring and sponsorship of real estate investment funds, and
management of real estate investment portfolios and REITs.
In its 20 years as an investor in, and manager of, debt and equity
investments in multifamily properties, CRI has used its expertise to assemble
one of the largest multifamily portfolios in the United States. As of December
31, 1993, CRI's multifamily portfolio, with an original cost of approximately
$3.9 billion, consisted of investments in approximately 100,000 apartment units
in approximately 720 multifamily properties located in 45 states. CRI also
invests in and manages commercial property. As of December 31, 1993, CRI's
commercial portfolio had an original cost of approximately $1.0 billion and
included 18 hotels, with a total of over 5,000 rooms, and five commercial
office buildings. Since its inception, CRI has raised over $2.4 billion of
capital to support its real estate investment activities.
INVESTMENT POLICIES
CRIIMI MAE's investment policies, which are overseen by the CRIIMI MAE Board,
are intended to foster CRIIMI MAE's objectives of providing stable or growing
quarterly cash distributions to its stockholders 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 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. Beginning in early 1990, CRIIMI MAE commenced a
special acquisition program to buy FHA-insured and GNMA-guaranteed construction
loans. Although all periodic disbursements on such loans are FHA-insured or
GNMA-guaranteed, such loans generally carry higher interest rates than
permanent project loans largely because of the special expertise required to
handle many aspects of these loans, such as the dispersal of funds to
borrowers.
CRIIMI MAE seeks to enhance the return to its stockholders through the use of
leverage. Because CRIIMI MAE's mortgage investments are federally insured or
guaranteed, CRIIMI MAE has been able to arrange secured borrowings at interest
rates which the Adviser believes are attractive. These borrowings have been
invested in Government Insured Multifamily Mortgages with effective rates which
are higher than the interest rates payable on such borrowings. The Net Positive
Spread (as defined below) created by such leverage increases the return to
CRIIMI MAE stockholders. 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 net new financings and the Adviser continues to
evaluate opportunities to further reduce CRIIMI MAE's borrowing costs.
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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 Insured Mortgages and Other Multifamily
Mortgages (as defined below); (ii) the risk of adverse changes in interest
rates is reduced by 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. However, CRIIMI MAE's use of leverage carries with it the risk that
the cost of its borrowings could increase relative to the return on CRIIMI
MAE's mortgage investments (due to (i) higher borrowing costs resulting from
increased interest rates and/or the expiration or termination of hedging
agreements, and/or (ii) a decrease in the yield on its mortgage investments
because of turnover in the portfolio), which could result in reduced net income
or a net loss and thereby reduce the return to CRIIMI MAE's stockholders.
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 to investors, in
basis points. As of December 31, 1992 and 1993 and April 25, 1994, CRIIMI MAE
had a Net Positive Spread of approximately 60, 177 and 94 basis points,
respectively, on its borrowings. See "Recent Developments--Offering of Common
Stock; Acquisition of Mortgages."
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. See "Recent Developments."
CRIIMI MAE's use of leverage carries with it the risk that the cost of its
borrowings could increase relative to the return on its Government Insured
Multifamily Mortgages, which could result in reduced net income or a net loss
and thereby reduce the return to stockholders. 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 overall borrowing costs would increase with little or no
overall increase in mortgage investment income, resulting in returns to
stockholders 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. Current interest rates are substantially lower than when CRIIMI MAE
entered into $165 million of its existing interest rate hedging agreements. As
a result of minimum interest rate levels associated with certain of these
hedging agreements, CRIIMI MAE incurred additional interest expense of $8.1
million and $8.6 million for the years ended December 31, 1992 and 1993,
respectively, of which approximately $1.3 million and $1.4 million,
respectively, was attributable to the swap agreement which was terminated in
December, 1993. Such existing hedging agreements expire in 1995. While there is
no assurance that any new arrangements 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.
Although CRIIMI MAE expects the overall duration 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 hedging agreements, upon the expiration of these hedging
agreements, CRIIMI MAE would be fully exposed to the
9
<PAGE>
adverse effects of rising interest rates. The Adviser continues to actively
review asset/liability hedging techniques as CRIIMI MAE's existing hedging
agreements approach their expiration dates and to monitor the duration of its
hedging agreements 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 effective rates of the prepaid mortgages.
CRIIMI MAE believes 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. Substantially all of CRIIMI MAE's and CRI
Liquidating's mortgage investments are subject to prepayment penalties or
prohibitions. However, because of 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.
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 existing mortgage
investments, increases in long-term rates could decrease the value of such
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.
In addition to investing in FHA-Insured Loans and GNMA 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 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.
CRIIMI MAE is currently exploring opportunities in connection with the
sponsorship of securities offerings which involve the pooling of Other
Multifamily Mortgages to further enhance potential returns to CRIIMI MAE's
stockholders. 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.
DESCRIPTION OF ASSETS
CRIIMI MAE has invested primarily in Government Insured Multifamily Mortgages
consisting of (i) FHA-Insured Loans and (ii) GNMA Securities. As of December
31, 1993, CRIIMI MAE owned directly 126 Government Insured Multifamily
Mortgages with an amortized cost of approximately $499 million, of which 46
were FHA-Insured Loans with an amortized cost of $152 million and 80 were GNMA
Securities with an amortized cost of approximately $347 million. As of December
31, 1993, the weighted average coupon rate of CRIIMI MAE's Government Insured
Multifamily Mortgages was approximately 8.4% and the weighted average maturity
thereof was approximately 34 years. See "Recent Developments."
10
<PAGE>
The National Housing Act authorizes the U.S. Department of Housing and Urban
Development ("HUD") to establish mortgage loan programs pursuant to which
mortgage loans on properties are insured in whole or in part by HUD. FHA is a
part of HUD and GNMA is a wholly owned corporate instrumentality of the United
States within HUD. These programs insure that the outstanding principal of, and
interest on, a loan, less certain specified deductions, will be paid by HUD if
the borrower defaults on the loan. The National Housing Act authorizes
different mortgage insurance programs based primarily upon types of real estate
for which mortgage loans may be obtained, maximum loan amounts permissible,
maturities of the mortgage loans, amortization schedules, rights of prepayment,
coinsurance and nature of the borrower.
All of the FHA-Insured Loans in which CRIIMI MAE invests are insured by HUD
for effectively 99% of their current face value. Upon default and subsequent
assignment to HUD, 90% of the face value of the mortgage is received by CRIIMI
MAE within approximately 90 days of assignment and 9% of the face value of the
mortgage is received upon final processing by HUD. In certain circumstances,
CRIIMI MAE may receive HUD debentures rather than cash in an amount equal to
99% of the face value of such mortgage upon final processing by HUD. The GNMA
Securities in which CRIIMI MAE invests are backed by FHA-Insured Loans. In the
event of a default of an FHA-Insured Loan underlying a GNMA Security, the
issuer or GNMA will make timely payments of principal and interest and pay 100%
of the GNMA Security's principal balance to CRIIMI MAE when such mortgage is
assigned to HUD and the issuer receives the insurance proceeds.
As part of its investment strategy, CRIIMI MAE also invests in FHA-Insured
Loans relating to the construction or rehabilitation of multifamily housing
projects, including nursing homes and intermediate care facilities ("Government
Insured Construction Mortgages"). Government Insured Construction Mortgages
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 draws 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.
Generally, Government Insured Multifamily Mortgages which are purchased near,
at or above par value ("Near Par or Premium Mortgage Investments") 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's mortgage investments consist solely of Government Insured
Multifamily Mortgages acquired from the CRIIMI Funds in the Merger. The CRIIMI
Funds invested primarily in Government Insured Multifamily Mortgages comprising
FHA-Insured Loans and GNMA Securities. As of December 31, 1993, CRI Liquidating
owned 63 Government Insured Multifamily Mortgages with an amortized cost of
approximately $192 million (which were accounted for at a fair value of $243
million), of which 61 were FHA-Insured Loans with an amortized cost of
approximately $187 million (which were accounted for at a fair value of $238
million) and two were GNMA Securities with an amortized cost of approximately
$5 million (which were accounted for at a fair value of $5 million). As of
December 31, 1993, the weighted average coupon rate of CRI Liquidating's
Government Insured Multifamily Mortgages was approximately 7.7% and the
weighted average maturity thereof was approximately 27 years.
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,
11
<PAGE>
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.
CRI Liquidating's business plan calls for an orderly liquidation of
approximately 25% of its December 31, 1993 portfolio balance per year through
1997. On February 10, 1994, CRI Liquidating sold 12 Government Insured
Multifamily Mortgages with an amortized cost of approximately $37 million,
representing approximately 20% of its December 31, 1993 portfolio balance, for
a financial statement gain of approximately $11.7 million and a tax basis gain
of approximately $14.7 million.
RECENT DEVELOPMENTS
OFFERING OF COMMON STOCK; ACQUISITION OF MORTGAGES
In March 1994, CRIIMI MAE sold 5,000,000 shares of Common Stock in the
Offering pursuant to a Registration Statement on Form S-3 (Commission File No.
33-50679), for net proceeds to CRIIMI MAE of approximately $52 million.
As of April 25, 1994, CRIIMI MAE acquired 20 additional Government Insured
Multifamily Mortgages with an aggregate amortized cost of approximately $83.2
million, 4 of which are FHA-Insured Loans with an aggregate amortized cost of
approximately $23.4 million and 16 of which are GNMA Securities with an
aggregate amortized cost of approximately $59.8 million. As of April 25, 1994,
the weighted average coupon rate of such newly acquired Government Insured
Multifamily Mortgages was approximately 7.4% and the weighted average maturity
thereof was approximately 31.2 years. CRIIMI MAE funded such acquisitions with
the net proceeds from the Offering and with borrowings under existing master
repurchase agreements with Nomura Securities International, Inc. and Nomura
Asset Capital Corporation (collectively, the "Nomura Agreements").
As of April 25, 1994 CRIIMI MAE also has commitments to acquire 28 additional
Government Insured Multifamily Mortgages with an aggregate amortized cost of
approximately $118.3 million, 11 of which are FHA-Insured Loans with an
aggregate amortized cost of approximately $50 million and 17 of which are GNMA
Securities with an aggregate amortized cost of approximately $68.3 million.
CRIIMI MAE intends to fund such commitments with additional borrowings under
the Nomura Agreements. The anticipated new borrowings will be hedged by
interest rate cap agreements with notional amounts of $35 million, $50 million
and $50 million, respectively, caps of 6.125%, 6.375% and 6.5%, respectively,
and expiration dates of February 2, 1999, March 15, 1997 and March 25, 1998,
respectively.
As of December 31, 1993, CRIIMI MAE had outstanding borrowings of
approximately $479 million, approximately $384 million of which was based on
three-month LIBOR and approximately $95 million of which was based on the 30-
day CP-rate. As of February 28, 1994, the $95 million of CP rate-based
borrowings was converted into three-month LIBOR-based borrowings. Of the
approximately $479 million in outstanding borrowings, approximately $314
million was hedged with cap agreements based on three-month LIBOR,
approximately $50 million was hedged with cap agreements based on the 30-day CP
rate and approximately $115 million was hedged with collar agreements based on
the 30-day CP rate. Between December 31, 1993 and April 25, 1994, three-month
LIBOR increased from 3.313% to 4.25%. This rise in three-month LIBOR has
increased CRIIMI MAE's interest expense and has decreased Net Positive Spread
with respect to borrowings hedged by the cap agreements because the maximum
interest rates provided by the cap agreements are above current interest rates.
However, this increase in three-month LIBOR will not increase interest expense
with respect to borrowings which are hedged by collars because current interest
rates are still below the minimum interest rates provided by such collar
agreements. As of December 31, 1992 and 1993 and April 25, 1994, CRIIMI MAE had
a Net Positive Spread of approximately 60, 177 and 94 basis
12
<PAGE>
points, respectively, on its borrowings. A decrease in Net Positive Spread
could reduce the return to CRIIMI MAE's stockholders. See "CRIIMI MAE--
Investment Policies."
ISSUANCE OF WARRANTS TO PURCHASE COMMON STOCK
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 the Settlement Agreement
between the Plaintiffs and the Defendants which required CRIIMI MAE to 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. See
"Description of Securities--Warrants." 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 its consolidated statement of income for the
year ended December 31, 1993 for the uninsured portion of the cash settlement
required to be paid by CRIIMI MAE and for the estimated value of the Warrants
that were 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 have submitted proofs of claim by the Submission Date. Based on the
proofs of claim received as of April 25, 1994, CRIIMI MAE estimates that the
maximum number of Warrants to be issued pursuant to the Settlement Agreement
will not exceed 375,000.
The issuance of the Warrants pursuant to the Settlement Agreement will have
no impact on CRIIMI MAE's tax basis income. Based on the Adviser's initial
estimate of the number of Warrants to be issued, CRIIMI MAE accrued a total
provision of $1.5 million (which included the uninsured portion of the cash
settlement) in its consolidated statement of income for the year ended December
31, 1993. Based on the proofs of claim received as of April 25, 1994 and CRIIMI
MAE's estimate of the maximum number of Warrants to be issued pursuant to the
Settlement Agreement, CRIIMI MAE has reduced the provision to $1.0 million,
which provision may be further adjusted once the actual number of Warrants to
be issued is finally determined. 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 any proceeds
from the exercise of the Warrants will increase CRIIMI MAE's shareholders'
equity.
DESCRIPTION OF SECURITIES
COMMON AND PREFERRED STOCK
The Shares offered hereby are shares of CRIIMI MAE's Common Stock. The
following description of the Common Stock is summarized from relevant portions
of CRIIMI MAE's Articles of Incorporation and Bylaws, as amended. A more
complete description of the Common Stock may be obtained by reference to such
documents and to the documents incorporated by reference in this Prospectus.
The following statements are qualified in their entirety by such reference.
13
<PAGE>
Stockholders are entitled to one vote for each share of Common Stock held on
all matters presented for a vote to stockholders. The CRIIMI MAE Board serves
in staggered three-year terms. Directors may be removed only for cause, upon
the affirmative vote of holders of a majority of the Common Stock voting
together as a single class. Except as otherwise provided in the Articles of
Incorporation, in meetings where a quorum is present, a majority of the votes
cast by stockholders is required to adopt a provision. Stockholders are
entitled to receive all assets available for distribution to the stockholders,
subject to any preferential rights of the holders of any preferred shares.
Shares of Common Stock, when issued, will be fully paid and nonassessable and
will not be subject to redemption, except as provided in the Articles of
Incorporation, nor will they have any preference, conversion, exchange,
preemptive or cumulative voting rights.
The authorized capital stock of CRIIMI MAE comprises 60 million shares of
Common Stock, par value $.01 per share, and 25 million shares of preferred
stock, $.01 per share ("Preferred Stock"). As of April 25, 1994, there were
issued and outstanding approximately 25 million shares of Common Stock and no
shares of Preferred Stock. The Common Stock is currently listed and is trading
on the NYSE, and CRIIMI MAE will seek to list with the NYSE the Shares offered
hereby.
The transfer agent and registrar for the Common Stock is the Registrar and
Transfer Company.
WARRANTS
The Shares offered hereby are issuable upon the exercise of Warrants to be
issued pursuant to the Settlement Agreement. See "Recent Developments--Issuance
of Warrants to Purchase Common Stock." Upon issuance, the Warrants will be
subject to a Warrant Agreement between the Registrar and Transfer Company, as
warrant agent (the "Warrant Agent"), and CRIIMI MAE (the "Warrant Agreement").
The Warrants will be evidenced by warrant certificates, a form of which is
attached as an exhibit to the Warrant Agreement (the "Warrant Certificate"). A
copy of the Warrant Agreement (including the Warrant Certificate) is filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
The following summary of certain provisions of the Warrant Agreement and the
Warrant Certificate do not purport to be complete and are subject to, and
qualified in their entirety by reference to, the provisions of the Warrant
Agreement and the Warrant Certificate, including the definitions therein of
certain terms.
RIGHTS TO PURCHASE COMMON STOCK
Upon issuance, each Warrant will entitle the registered owner thereof
("Warrantholder") to purchase one share of Common Stock at $13.17 per share at
any time before 5:00 p.m., New York City time, on the day which is 547 days
from the date of issuance of the Warrants. The price per share at which a
Warrantholder may purchase one Share upon exercise of a Warrant, as well as the
number of Shares purchasable upon exercise of a Warrant, are subject to
adjustment in certain events ("Adjustments"). The price per Share at which a
Warrantholder may purchase one Share upon exercise of a Warrant, as so adjusted
from time to time, is referred to as the "Exercise Price."
Warrant Certificates will be issued in registered form. Each Warrantholder
may exercise Warrants by surrendering to the Warrant Agent the Warrant
Certificate evidencing such Warrants, with the form of election to exercise all
or a portion of the Warrants evidenced thereby duly filled in and signed,
together with payment of the Exercise Price and any applicable transfer tax.
Payment of the Exercise Price may be made in the form of United States currency
or check payable in United States currency to the order of the Warrant Agent.
As soon as practicable after the exercise of any Warrants and payment of the
aggregate Exercise Price therefor and any applicable transfer tax, the Warrant
Agent will deliver, to or upon the order of the exercising Warrantholder,
certificates representing the number of Shares of Common Stock so purchased,
registered in such name or names as may be directed by the Warrantholder. If
less than all of the Warrants evidenced by a Warrant Certificate are exercised,
a new Warrant Certificate will be issued for the remaining number of Warrants.
14
<PAGE>
ADJUSTMENTS
The Exercise Price and the number of Shares of Common Stock to be issued upon
the exercise of each Warrant are subject to adjustment in certain events,
including (a) the declaration of a distribution on Common Stock payable in
Common Stock, (b) the subdivision or combination of outstanding shares of
Common Stock, (c) the issuance of stock in the reclassification of Common
Stock, or (d) the distribution to all stockholders of evidence of indebtedness
or assets (excluding cash distributions payable in the ordinary course of
business or distributions payable in Common Stock) or subscription rights or
warrants. No adjustment will be required until cumulative adjustments require
an adjustment in the Exercise Price of at least $.25; however, any such
adjustment not required to be made and not made will be carried forward and
taken into account in any subsequent adjustment. Furthermore, no adjustments
will be made to the Exercise Price or to the number of shares of Common Stock
purchasable upon the exercise of Warrants in connection with the grant of
options to CRIIMI MAE's employees.
Notwithstanding the foregoing, in case of a reorganization, consolidation
(excluding a consolidation in which CRIIMI MAE is the surviving entity) or sale
to another entity of all or substantially all of CRIIMI MAE's assets,
Warrantholders upon exercise of Warrants shall have the right to receive, in
lieu of each share of Common Stock deliverable upon exercise prior thereto,
only the kind and amount of corresponding shares or other securities or
property or cash receivable upon such reorganization, consolidation or sale.
MODIFICATION OF THE WARRANT AGREEMENT
The Warrant Agreement contains provisions permitting CRIIMI MAE and the
Warrant Agent, without consent or concurrence of any Warrantholder, to
supplement or amend the Warrant Agreement to cure any ambiguity, manifest error
or other mistake contained therein, or to make provision in regard to any
matter or questions arising thereunder which CRIIMI MAE and the Warrant Agent
deem necessary or desirable, provided such changes do not adversely affect,
alter or change the interests of the Warrantholders.
NOTICES
CRIIMI MAE will provide notice to each Warrantholder of any adjustment in the
Exercise Price. In addition, CRIIMI MAE is required to notify Warrantholders of
certain proposed actions, including (i) the issuance to all stockholders of
evidence of indebtedness or assets (excluding cash distributions payable in the
ordinary course of business or distributions payable in Common Stock) or
subscription rights or warrants, (ii) any consolidation or merger requiring the
approval of any stockholder or a reorganization or the conveyance of
substantially all of CRIIMI MAE's assets, or (iii) a dissolution, liquidation
or winding up of CRIIMI MAE.
MARKET FOR WARRANTS
Shares of Common Stock issuable upon exercise of the Warrants are being
registered with the SEC under the Registration Statement of which this
Prospectus is a part. However, the Warrants have not been, and will not be
registered with the SEC and are not being offered pursuant to this Prospectus.
There can be no assurance that an active trading market for the Warrants will
develop. It is not expected that the Warrants will be listed on the NYSE or on
any other exchange or that the Warrants will be quoted on NASDAQ.
OTHER MATTERS
Warrantholders will not be entitled, by virtue of their status as such, to
any of the rights of a stockholder of CRIIMI MAE, including, without
limitation, the right to vote, to receive distributions or to attend or receive
any notice of stockholders' meetings or any other CRIIMI MAE proceedings.
Warrant Certificates may be transferred or exchanged for certificates
representing in the aggregate a like number of Warrants.
15
<PAGE>
THE OFFERING
CRIIMI MAE is offering 375,000 Shares of Common Stock, subject to adjustment
in certain circumstances, issuable upon the exercise of Warrants. The Exercise
Price of the Warrants, also subject to adjustment in certain circumstances, is
$13.17 per share of Common Stock. See "Description of Securities--Warrants."
All of the Shares of Common Stock offered hereby are being issued and sold by
CRIIMI MAE. CRIIMI MAE is registering the Shares underlying the Warrants
pursuant to the Settlement Agreement. Expenses of the offering, estimated to be
approximately $100,000, will be paid in full by CRIIMI MAE.
USE OF PROCEEDS
Assuming Warrants representing the right to purchase 375,000 Shares of Common
Stock are exercised at an Exercise Price of $13.17 per share of Common Stock,
the net proceeds from the sale of the Shares offered hereby are estimated to be
approximately $4.8 million after deducting estimated offering expenses. CRIIMI
MAE intends to use any such proceeds for general corporate purposes, including,
without limitation, working capital.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is traded on the NYSE under the symbol CMM. The table below
sets forth the high and the low closing sales price per share of the Common
Stock as reported on the NYSE Composite Tape and the amount of cash dividends
paid per share of Common Stock during the periods indicated. The reported last
sale price of the Common Stock on the NYSE Composite Tape on April 25, 1994 was
$10.50 per share. As of March 14, 1994, there were approximately 23,000 holders
of record of Common Stock.
<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON STOCK DIVIDENDS
--------------- PAID PER
HIGH LOW SHARE
<S> <C> <C> <C>
Year Ended December 31, 1992:
1st Quarter......................................... $ 9 1/2 $ 8 7/8 $0.27
2nd Quarter......................................... 9 1/2 8 3/4 0.27
3rd Quarter......................................... 9 7/8 9 3/8 0.27
4th Quarter......................................... 10 9 1/4 0.27
Year Ended December 31, 1993:
1st Quarter......................................... $11 1/4 $ 9 7/8 $0.28
2nd Quarter......................................... 11 5/8 10 3/4 0.28
3rd Quarter......................................... 12 3/8 11 1/4 0.28
4th Quarter......................................... 12 5/8 11 0.28
Year Ending December 31, 1994:
1st Quarter......................................... 12 9 3/8 $0.29
2nd Quarter (through April 25, 1994)................ 10 5/8 9 3/4 --
</TABLE>
See the cover page of this Prospectus or of the Prospectus Supplement, if
any, accompanying this Prospectus for the last sales price of the Common Stock
reported on the NYSE Composite Tape as of a recent date.
16
<PAGE>
CONSOLIDATED SELECTED FINANCIAL DATA
The following consolidated selected financial data of CRIIMI MAE has been
derived from the audited consolidated financial statements of CRIIMI MAE. This
data is qualified in its entirety by the detailed information and financial
statements included in the documents incorporated herein by reference. See
"Incorporation of Certain Documents by Reference." In addition, see "Recent
Developments" for a discussion of developments affecting financial data since
December 31, 1993. Additional consolidated selected financial data may be set
forth in a Prospectus Supplement.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1989(A) 1990 1991 1992 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
INCOME:
<S> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
EXPENSES:
<S> <C> <C> <C> <C> <C> <C> <C>
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
-------- -------- -------- -------- --------
Income before mortgage
dispositions, gain on
sale of shares of
subsidiary, loss on
investment in limited
partnership,
nonrecurring 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(b) $ 16,041 $ 15,757
======== ======== ======== ======== ========
Net income per share... $ 0.95 $ 0.91 $ 0.45(b) $ 0.79 $ 0.78
======== ======== ======== ======== ========
Weighted average shares
outstanding........... 20,567 20,184 20,184 20,184 20,184
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
Dividends per share.... 1.49(c) 1.08 1.08 1.08 1.12
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1989 1990 1991 1992 1993
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
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>
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(a) All financial information of CRIIMI MAE for the periods prior to the
Merger 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. 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) Includes recognition of an extraordinary loss of approximately $6.6
million ($0.33 per share) resulting from the refinancing of certain notes
payable.
(c) This amount does not include the special dividend of $2.31 per share paid
to CRIIMI MAE stockholders of record on November 27, 1989.
(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 Standards No. 115 "Accounting for Certain Investments
in Debt and Equity Securities" as of December 31, 1993.
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CERTAIN UNITED STATES TAX CONSIDERATIONS
The following general discussion is a summary of certain U.S. federal income
and estate tax consequences of the ownership and disposition of the Shares
applicable to holders of such Shares who acquire and own such Shares as capital
assets within the meaning of Section 1221 of the Internal Revenue Code of 1986,
as amended (the "Code"). For purposes of this discussion, a "Non-U.S. Holder"
is a person other than (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any state, or (iii) an estate or trust
whose income is includable in gross income for United States federal income tax
purposes regardless of its source. For purposes of the withholding tax on
dividends discussed below, a non-resident fiduciary of an estate or trust will
be considered a Non-U.S. Holder.
This discussion does not consider specific facts and circumstances that may
be relevant to a particular holder's tax position (including the fact that, in
the case of a Non-U.S. Holder that is a partnership, the U.S. tax consequences
of holding and disposing of Shares may be affected by certain determinations
made at the partner level), and does not consider U.S. state and local or non-
U.S. tax consequences. Furthermore, the following discussion is based on
provisions of the Code and administrative and judicial interpretations, all of
which are subject to change, possibly on a retroactive basis. Each prospective
holder of Shares is urged to consult a tax advisor with respect to the U.S.
federal tax consequences of holding and disposing of the Shares, as well as any
tax consequences that may arise under the laws of any U.S. state, local or
other U.S. or non-U.S. taxing jurisdiction.
GENERAL CONSIDERATIONS
CRIIMI MAE and CRI Liquidating have qualified, and intend to continue to
qualify, as REITs under the Code. Qualification for treatment as a REIT
requires CRIIMI MAE and CRI Liquidating each to meet certain criteria including
certain requirements regarding the nature of its ownership, assets, income and
distributions of taxable income. A REIT generally is not subject to federal
income tax on that portion of its ordinary income or capital gains that is
distributed currently to stockholders. CRIIMI MAE and CRI Liquidating have
distributed and intend to continue to distribute substantially all of their
taxable income to stockholders and to meet distribution requirements to
continue to qualify as REITs. CRIIMI MAE and CRI Liquidating will each
generally be subject to federal income tax at normal corporate rates on its
undistributed income and to a 4% excise tax under the Code on the amount, if
any, by which 85% of its REIT taxable income (including accrued but unpaid
interest income) and 95% of any net capital gain exceed the amount actually
distributed to its stockholders during the year (or declared as a dividend
during October, November or December of a calendar year, if distributed during
the following January as ordinary income dividends). Accrued income for each
quarter is generally received within 30 days after the end of the quarter.
CRIIMI MAE and CRI Liquidating are not aware of any present circumstances that
would cause them to fail to qualify as REITs, nor do they anticipate any such
circumstances in the reasonably foreseeable future. If the U.S. Internal
Revenue Service ("IRS") successfully challenged the tax status of CRIIMI MAE or
CRI Liquidating as a REIT, CRIIMI MAE and CRI Liquidating's earnings would
become subject to federal income tax (including any applicable minimum tax) at
corporate rates.
To protect CRIIMI MAE's qualification as a REIT under the Code, CRIIMI MAE's
articles of incorporation provide that no person or persons acting as a group
(defined to include partnerships, corporations, trusts and other entities),
with the exceptions of CRI or its affiliates, shall at any time directly or
indirectly acquire ownership of more than 9.8% of the outstanding shares of
CRIIMI MAE's Common Stock.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
As long as CRIIMI MAE qualifies as a REIT, distributions made to CRIIMI MAE's
taxable domestic stockholders out of current or accumulated earnings and
profits, as determined for federal income tax
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purposes, and not designated as capital gain dividends, will be taken into
account by such stockholders as ordinary income and will not be eligible for
the dividends received deduction for stockholders that are corporations.
Distributions that are designated by CRIIMI MAE as capital gain dividends will
be taxed as long-term capital gains (to the extent that they do not exceed
CRIIMI MAE's actual net capital gain for the taxable year) without regard to
the period for which the stockholder has held its Shares. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. To the extent that CRIIMI MAE makes distributions
in excess of current and accumulated earnings and profits as determined for
federal income tax purposes, these distributions are treated first as a tax-
free return of capital to the stockholder, reducing the tax basis of a
stockholder's Shares by the amount of such distribution (but not below zero),
with distributions in excess of the stockholder's tax basis taxable as gain
from the sale or exchange of Shares. In addition, any dividend declared by
CRIIMI MAE in October, November or December of any year and payable to a
stockholder of record on a specific date in any such month shall be treated as
both paid by CRIIMI MAE and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by CRIIMI MAE during January
of the following calendar year. Stockholders may not include in their
individual income tax returns any net operating losses or capital losses of
CRIIMI MAE.
In general, any loss upon a sale or exchange of Shares by a stockholder who
has held such Shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss, to the extent of
distributions from CRIIMI MAE required to be treated by such shareholder as
long-term capital gains.
TAXATION OF NON-U.S. HOLDERS
In general, distributions to a Non-U.S. Holder of Shares which are not
attributable to gain from the sale or exchange of United States real property
interests and are not designated by CRIIMI MAE as capital gain dividends will
be treated as dividends of ordinary income (to the extent of earnings and
profits for U.S. federal income tax purposes). Such distributions ordinarily
will be subject to withholding of U.S. federal income tax at a 30% rate, unless
such rate is reduced by an applicable income tax treaty. Dividends that are
effectively connected with such holder's conduct of a trade or business in the
United States or, if a tax treaty applies, attributable to a permanent
establishment in the United States ("U.S. trade or business income") generally
are subject to U.S. federal income tax at regular rates (and, in the case of a
Non-U.S. Holder that is a corporation, under certain circumstances may be
subject to an additional "branch profits tax" at a 30% rate or such lower rate
as may be applicable under an income tax treaty), but are not generally subject
to the 30% withholding tax if the Non-U.S. Holder files the appropriate form
with the payer.
Distributions by CRIIMI MAE which are not dividends out of earnings and
profits (as determined for U.S. federal income tax purposes) should not be
subject to U.S. withholding tax. Such distributions are treated first as a tax-
free return of capital to the Non-U.S. Holder, reducing the tax basis of the
Non-U.S. Holder's Shares by the amount of such distribution (but not below
zero), with distributions in excess of the Non-U.S. Holder's tax basis taxable
(to the same extent described below) as a sale or exchange of Shares. If it
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the entire amount of the distribution will be subject to withholding at the
rate applicable to dividends. However, the Non-U.S. Holder may seek a refund of
such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of current and accumulated earnings and
profits of CRIIMI MAE. CRIIMI MAE does not expect to pay dividends in excess of
current and accumulated earnings and profits.
Under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), for
as long as CRIIMI MAE qualifies as a REIT, a distribution made by CRIIMI MAE to
a Non-U.S. Holder that is attributable to gains from the sale or exchange of
U.S. real property interests generally will be taxable as U.S. trade or
business income. Therefore, Non-U.S. Holders generally will be taxed at the
capital gain rates applicable to U.S. Holders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). Distributions subject to FIRPTA also may be
subject to a 30% branch
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<PAGE>
profits tax in the hands of a corporate Non-U.S. Holder (unless reduced or
eliminated by treaty). In addition, CRIIMI MAE will be required to withhold
U.S. tax equal to 35% of the amount of dividends that could have been
designated as capital gain dividends, but such requirement apparently is
limited to the amount of such gain that is attributable to the sale or exchange
of U.S. real property interests. The amount so withheld is creditable against
the U.S. federal income tax liability of such Non-U.S. Holder and a refund may
be available if the amount withheld exceeds the U.S. federal income tax
liability of the Non-U.S. Holder. CRIIMI MAE does not expect to realize any
capital gains from CRI Liquidating's investments in the Participations. CRIIMI
MAE believes that any gains on its mortgage investments would not be subject to
FIRPTA because such mortgages merely secure a debt and CRIIMI MAE will not be
entitled to a direct or indirect right to share in the appreciation in the
value of, or in the gross or net proceeds or profits generated by, the
underlying real property.
If CRIIMI MAE is a "domestically controlled REIT," a sale of Shares by a Non-
U.S. Holder generally will not be subject to U.S. taxation under FIRPTA. A REIT
is a domestically controlled REIT if, at all times during a specified testing
period, less than 50% in value of its shares is held directly or indirectly by
Non-U.S. Holders. CRIIMI MAE is currently, and anticipates continuing to be, a
domestically controlled REIT. Therefore, it anticipates that a Non-U.S.
Holder's sale of Shares will not be subject to taxation under FIRPTA. Because
the Shares will be publicly traded, however, no assurance can be given that
CRIIMI MAE will continue to be a domestically controlled REIT.
If CRIIMI MAE does not constitute a domestically controlled REIT, a Non-U.S.
Holder's sale of Shares nevertheless generally will not be subject to tax under
FIRPTA provided that either (i) CRIIMI MAE is not a "United States real
property holding corporation" (which is defined in the Code generally as any
corporation if the net fair market value of its U.S. real property interests
accounts for 50% or more of the net fair market value of its assets at any time
during the 5-year period prior to such sale), or (ii) the shares are "regularly
traded" (as defined by applicable Treasury regulations) on an established
securities market (e.g., the New York Stock Exchange, on which the Shares are
listed), and the selling Non-U.S. Holder held 5% or less of CRIIMI MAE's
outstanding shares at all times during a specified testing period.
If gain on the sale of the Shares by a non-U.S. Holder is subject to taxation
under FIRPTA, the income would be taxable as U.S. trade or business income
(subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals). Even if FIRPTA does
not apply to the sale of the Shares, a Non-U.S. Holder that owns the Shares as
a capital asset nonetheless will be subject to U.S. federal income tax on any
gain realized on the sale of Shares if (i) such gain is U.S. trade or business
income, (ii) in the case of gain realized by an individual Non-U.S. Holder,
such Non-U.S. Holder is present in the United States for 183 days or more
during the year of such sale and certain other conditions are met, or (iii) the
Non-U.S. Holder is taxed under rules applicable to certain U.S. expatriates.
In general, an individual who is a Non-U.S. Holder for U.S. estate tax
purposes will incur liability for U.S. federal estate tax if the fair market
value of the property included in such individual's taxable estate for U.S.
federal estate tax purposes exceeds the statutory threshold amount. For these
purposes, Shares owned or treated as owned by an individual who is a Non-U.S.
Holder (for U.S. estate tax purposes) at the time of death will be included in
the individual's taxable estate for U.S. federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The IRS has issued a revenue ruling in which it held that amounts distributed
by a REIT to a tax-exempt employee pension trust do not constitute unrelated
business taxable income ("UBTI"). Revenue rulings, however, are interpretive in
nature and are subject to revocation or modification by the IRS. Based upon the
ruling and the analysis therein, distributions by CRIIMI MAE to a stockholder
that is a tax-exempt entity also should not constitute UBTI, provided that the
tax-exempt entity has not financed the acquisition of its Shares with
"acquisition indebtedness" within the meaning of the Code, and that the Shares
are not otherwise used in an unrelated trade or business of the tax-exempt
entity.
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New legislation, effective for taxable years beginning on or after January 1,
1994, would require certain pension trust stockholders owning more than 10
percent (by value) of the outstanding shares of a REIT to treat a percentage of
dividends received from the REIT as UBTI under certain circumstances. Pension
trust stockholders should consult their own tax advisors concerning the effect
of such new legislation on their investment in the Shares.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Payments in respect of dividends or proceeds from the sale or other
disposition of Shares may be subject to information reporting to the U.S.
Internal Revenue Service and to a 31% U.S. backup withholding tax. Backup
withholding generally will not apply, however, to a holder who furnishes a
correct taxpayer identification number and makes any other required
certification or who is otherwise exempt from backup withholding. In addition,
backup withholding generally will not apply to dividends paid on Shares to a
Non-U.S. Holder outside of the United States. Backup withholding is not an
additional tax. Rather, the amount of any backup withholding with respect to a
payment to a stockholder will be allowed as a credit against such stockholder's
federal income tax liability and may entitle such stockholder to a refund,
provided that the required information is furnished to the IRS. Accordingly,
stockholders should consult their own tax advisors with respect to any such
information reporting and backup withholding requirements, including their
potential for qualification for exemption therefrom.
LEGAL MATTERS
Certain matters relating to the validity of the Shares will be passed upon
for CRIIMI MAE by Arent Fox Kintner Plotkin & Kahn, Washington, D.C.
EXPERTS
The financial statements and schedules included in CRIIMI MAE's Annual Report
on Form 10-K, as amended, incorporated herein by reference, have been audited
by Arthur Andersen & Co., independent public accountants, as indicated in its
reports with respect thereto, and have been incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving such reports.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY CRIIMI MAE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHO-
RIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED
TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICI-
TATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information...................................................... 2
Incorporation Of Certain Documents By Reference............................ 2
Prospectus Summary......................................................... 3
CRIIMI MAE................................................................. 7
Recent Developments........................................................ 12
Description of Securities.................................................. 13
The Offering............................................................... 16
Use of Proceeds............................................................ 16
Price Range of Common Stock and Dividends.................................. 16
Consolidated Selected Financial Data....................................... 17
Certain United States Tax Considerations................................... 18
Legal Matters.............................................................. 21
Experts.................................................................... 21
</TABLE>
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375,000 SHARES
CRIIMI MAE INC.
[LOGO OF CRIIMI MAE INC. APPEARS HERE]
COMMON STOCK
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PROSPECTUS
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APRIL 28, 1994
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