CRIIMI MAE Inc.
11200 Rockville Pike
Rockville, Maryland 20852
March 26, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
CRIIMI MAE Inc. to be held on Tuesday, May 6, 1997. The formal Notice of the
meeting and a Proxy Statement describing the purposes of the meeting are
enclosed. Please give them your prompt and careful attention.
Please read the Proxy Statement and complete, sign and return your proxy in
the enclosed envelope promptly. No postage is necessary if mailed in the United
States.
Thank you for your cooperation and prompt reply.
Sincerely,
WILLIAM B. DOCKSER
Chairman of the Board
CRIIMI MAE Inc.
_____________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
_____________
The Annual Meeting of Shareholders of CRIIMI MAE Inc. (the Corporation)
will be held on Tuesday, May 6, 1997, at 10:00 a.m. at the Hyatt Regency
Bethesda, One Bethesda Metro Center, Bethesda, Maryland for the following
purposes:
1. To elect two Class II directors as set forth in the accompanying Proxy
Statement to hold office until their successors are duly elected and
qualified;
2. To approve an amendment to increase the number of shares of the
Corporation's Common Stock authorized for issuance under the
Corporation's Stock Option Plan for Key Employees; and
3. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on March 20, 1997 as
the record date for shares entitled to vote at the meeting.
A Proxy Statement, proxy and the Corporation's Annual Report to
Shareholders (including audited financial statements) for the fiscal year ended
December 31, 1996 are enclosed with this Notice.
You are requested, if you cannot be present at the meeting, to complete,
sign and return the proxy in the enclosed business reply envelope promptly.
BY ORDER OF THE BOARD OF DIRECTORS
H. WILLIAM WILLOUGHBY
Secretary
March 26, 1997
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY IN
THE POSTAGE-PAID ENVELOPE PROVIDED TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT
THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO
SO EVEN THOUGH YOU HAVE PREVIOUSLY SENT IN YOUR PROXY.
CRIIMI MAE Inc.
11200 Rockville Pike
Rockville, Maryland 20852
_________________
PROXY STATEMENT
_________________
This Proxy Statement is furnished by the Board of Directors (the Board)
in connection with its solicitation of proxies for use at the Annual Meeting of
Shareholders on May 6, 1997, and at any and all adjournments thereof (the
Meeting). Mailing of this Proxy Statement and the accompanying Form of Proxy
will commence on or about March 26, 1997. The Corporation's Annual Report to
Shareholders (including audited financial statements) for the fiscal year ended
December 31, 1996 and a form of proxy for use at the Meeting are enclosed.
If the proxy is properly executed and returned, the shares it represents
will be voted at the Meeting in accordance with the instructions noted thereon.
If no direction is indicated, such shares will be voted: (1) FOR each of the
nominated directors; (2) FOR the approval of the amendment to the CRIIMI MAE
Inc. Amended and Restated Stock Option Plan for Key Employees (the "Employee
Stock Option Plan"); and (3) for or against such other matters as may properly
come before the Meeting in the discretion of the proxy holders. The
Corporation's management knows of no matter to be brought before the Meeting
which is not referred to in the Notice of Meeting and this Proxy Statement. If,
however, any other matter comes before the Meeting, the proxy will be voted in
accordance with the judgment of the person or persons voting such proxy, unless
the proxy contains instructions to the contrary. Any shareholder executing a
proxy has the power to revoke it at any time before it is voted by submitting a
duly executed proxy bearing a later date, or by attending the Meeting and orally
withdrawing the proxy.
The voting securities of the Corporation consist of shares of common stock,
$.01 par value per share ( Common Shares ), of which 32,046,945 Common Shares
were issued and outstanding at the close of business on the record date for the
Meeting, March 20, 1997 (the "Record Date"). Shareholders of record of Common
Shares at the close of business on the Record Date will be entitled to vote at
the Meeting. Each Common Share is entitled to one vote. Shareholders do not
have cumulative voting rights. The election of directors and the approval of
the amendment to the Employee Stock Option Plan discussed herein, as well as any
other matters or proposals that come before the Meeting, will be determined by
the affirmative vote of at least a majority of the Common Shares represented at
the Meeting in person or by proxy, and entitled to vote. The holder of each
outstanding Common Share is entitled to vote for as many nominees as there are
directors to be elected. An abstention or broker non-vote on any such matter
will not change the number of votes cast for or against the matter. A majority
of the outstanding Common Shares must be represented at the Meeting in person or
by proxy in order to constitute a quorum.
ELECTION OF DIRECTORS
Members of the Board serve staggered three-year terms. Two Class II
directors are to be elected at the Meeting, each to serve until the Annual
Meeting of Shareholders in the year 2000 or until their successors have been
duly elected and qualified. Unless authority to vote for one or both of the
nominees is withheld, it is intended that Common Shares represented by proxies
in the form accompanying this Proxy Statement will be voted for the election of
the nominees listed below. In case any such nominee becomes unable or unwilling
to stand for election as a director for any reason not currently known or
contemplated, the Common Shares represented by such proxies will be voted by the
proxy holders for such other person as may be designated by the Board.
1
Persons Nominated for Election as Directors
Class II Directors
Name Principal Occupation Age
---- -------------------- ---
Robert J. Merrick* Executive Vice President since 1985 52
and Chief Credit Officer since 1984
of Signet Banking Corporation, also
serving as Chairman of the Credit
Policy Committee and member of the
Asset and Liability Committee and
Management Committee; Credit
Officer-Virginia Banking Corporation,
an affiliate of Signet Bank/Virginia,
from 1980 to 1984; Senior Vice President
of Bank of Virginia from 1976 to 1980.
Larry H. Dale* Director of the Corporation and of 51
CRI Liquidating REIT, Inc. ("Liquidating
REIT") since January 1996; Managing
Director and member of Board of
Directors, Newman and Associates; Senior
Adviser, Fannie Mae Housing Investment
Fund in 1996; Executive Director of
Fannie Mae's National Housing Impact
Division from 1991 to 1996; Senior Vice
President-marketing and mortgage-backed
securities and Senior Vice President-
multifamily finance and housing initiatives
for Fannie Mae from 1987 to 1991; Vice
President with Newman and Associates from
1984 to 1987; President of Mid-City Financial
Corporation from 1981 to 1983; employed by
the U.S. Department of Housing and Urban
Development from 1971 to 1981, serving as a
deputy to the Assistant Secretary for Housing/
FHA Commissioner from 1979 to 1981. Advisor to
Fannie Mae American Communities Fund and Mid-
City Financial Corporation; President, Center
for Housing Policy; Director of Kimball-Hill
Homes, National Equity Fund, National Center for
Lead-Safe Housing, Community Preservation and
Development Corporation, National Housing
Conference and Denver Enterprise Foundation.
2
The remainder of the Board constitutes the Class III and Class I directors, none
of whom will stand for election at the Meeting, as their terms will expire in
1998 and 1999, respectively.
Directors Continuing in Office
Class III Directors
Name Principal Occupation Age
---- -------------------- ---
William B. Dockser Chairman of the Board of the 60
Corporation and of Liquidating REIT
since 1989 and of CRIIMI MAE Financial
Corporation since 1995; Chairman of
the Board and shareholder of C.R.I.,
Inc. ("CRI") since 1974.
Year Term
Expires
1998________________________________
*Unaffiliated Director (as defined below)
Name Principal Occupation Age
---- -------------------- ---
G. Richard Dunnells* Director of the Corporation and 59
of Liquidating REIT since 1991;
Firm-wide Hiring Partner, Partner
in the Washington, DC. office and
former Director of the law firm of
Holland & Knight since January 1994;
Chairman of the Washington, D.C.
law firm of Dunnells & Duvall from
1989 to 1993; Senior Partner of such
law firm from 1973 to 1993; Special
Assistant to the Under-Secretary and
Deputy Assistant Secretary for Housing
and Urban Renewal and Deputy Assistant
Secretary for Housing Management with
the U.S. Department of Housing and Urban
Development from 1969 to 1973; President's
Commission on Housing from 1981 to 1982.
Year Term
Expires
1998
Class I Directors
Name Principal Occupation Age
---- -------------------- ---
H. William Willoughby Director and Secretary of the 50
Corporation and of Liquidating
REIT since 1989; and Director of
CRIIMI MAE Financial Corporation
since 1995; President of the
Corporation and of Liquidating REIT
since 1990; Director and shareholder
of CRI since 1974; Secretary of CRI
from 1974 to 1990 and President of
CRI since 1990.
3
Year Term
Expires
1999
Name Principal Occupation Age
---- -------------------- ---
Garrett G. Carlson, Sr.* Director of the Corporation and 60
of Liquidating REIT since 1989;
President of Can-American Realty
Corp. and Canadian Financial Corp.
since 1979 and 1974, respectively;
President of Garrett Real Estate
Development since 1982; Chairman of
the Board of SCA Realty Holdings Inc.
from 1985 to 1995; Vice Chairman of
Shelter Development Corporation Ltd.
from 1983 to 1995 and member of the
board of Bank Windsor from 1992 to 1994.
Year Term
Expires
1999
____________________________
*Unaffiliated Director (as defined below)
During 1996, the Board met four times in person, twice by conference
telephone and acted by unanimous written consent on seven occasions. All then
serving members of the Board attended 100% of the total number of meetings of
the Board and Board committees on which they served. Pursuant to the
Corporation's Bylaws, a majority of the Board shall at all times consist of
directors who are not officers or employees of CRIIMI MAE and do not perform any
services for the Corporation other than as a director ( Unaffiliated
Directors ).
The Board has an Audit Committee currently comprised of Messrs. Carlson,
Dunnells and Robert F. Tardio. Mr. Tardio's term will expire at the Meeting and
he is not standing for re-election. If elected, Mr. Merrick will be named as a
member of the Audit Committee. A majority of the Audit Committee is required to
consist of Unaffiliated Directors. The functions performed by the Audit
Committee are to: recommend independent auditors to the Corporation; review the
scope of the audit, audit fees, the audit report and the management letter with
the Corporation's independent auditors; review the financial statements of the
Corporation; review and approve non-audit services provided by the independent
auditors; and consult with the independent auditors and management with regard
to the adequacy of internal controls. The Audit Committee met twice in 1996.
The Board has a Stock Option Committee currently comprised of Messrs.
Carlson, Dunnells and Tardio. If elected, Mr. Merrick will be named as a member
of the Stock Option Committee. The Stock Option Committee was formed to
administer the Employee Stock Option Plan. The Stock Option Committee must
consist of at least three members of the Board, appointed from time to time (and
removable) by the Board. The Stock Option Committee met twice in 1996.
The Board has a Compensation Committee currently comprised of Messrs.
Carlson, Dale and Dunnells. The Compensation Committee was established to set,
review and modify the compensation (including salary and bonuses) of the
Corporation's executive officers and perform such other duties as may be
delegated to it by the Board. The Compensation Committee met once in 1996.
Executive Officers. In addition to Messrs. Dockser and Willoughby, whose
business experience is set forth in the above table, Jay R. Cohen, 56, has
served as Executive Vice President of the Corporation and of Liquidating REIT
since 1989, and as Treasurer of the Corporation and of Liquidating REIT since
4
1990. Mr. Cohen was Senior Vice President Mortgages of CRI from 1983 to June
1995 and President of CRICO Mortgage Company, Inc., an affiliate of CRI, from
1985 to June 1995, at which time it merged into CRIIMI MAE Management, Inc., a
wholly owned subsidiary of the Corporation, in connection with the transaction
described below under "Certain Transactions." Frederick J. Burchill, 48, has
served as Executive Vice President of the Corporation since 1991 and of
Liquidating REIT since 1995. Mr. Burchill served as Senior Vice President of
CRI from 1990 to June 1995. Cynthia O. Azzara, 37, has served as Chief
Financial Officer of the Corporation and of Liquidating REIT since 1994 and as
Senior Vice President of the Corporation and of Liquidating REIT since 1995.
Ms. Azzara served in the Accounting and Finance Departments of CRI from 1985 to
June 1995. Executive officers of the Corporation are elected annually by the
Board and serve at the Board's discretion.
BENEFICIAL OWNERSHIP OF COMMON SHARES
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information regarding the beneficial
ownership of more than 5% of the Corporation's Common Shares as of March 1,
1997. Such information is based upon filings received by the Corporation under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and other
information available to the Corporation.
5
<TABLE>
<CAPTION>
Common Shares Percentage of Outstanding
Name Address Beneficially Owned Shares Beneficially Owned
- ------------------ -------------- ------------------ -------------------------
<S> <C> <C> <C>
William B. Dockser CRIIMI MAE Inc. 1,761,099 (a)(b) 5.5%
11200 Rockville Pike
Rockville, MD 20852
- --------------
(a) Includes 2,767 Common Shares owned by CRI, of which Messrs. Dockser
and Willoughby are the sole shareholders.
(b) Includes 104,343 Common Shares held by Mr. Dockser's wife, 125,000
Common Shares held by the William B. Dockser '59 Charitable Lead
Annuity Trust and 140,000 Common Shares held by the Dockser Family
Foundation.
</TABLE>
Security Ownership of Management
The following table sets forth certain information regarding the beneficial
ownership of Common Shares as of March 1, 1997 by each director, director-
nominee and executive officer, and by all directors, director-nominees and
executive officers of the Corporation as a group. Unless otherwise indicated,
the voting and investment powers for the Common Shares listed are held solely by
the named holder.
<TABLE>
<CAPTION>
Percent of Outstanding Common
Name, Title Common Shares Shares Beneficially Owned
- ----------- ------------- -----------------------------
<S> <C> <C>
William B. Dockser 1,761,099(a)(b) 5.5%
H. William Willoughby 1,435,100(a)(c) 4.5%
Garrett G. Carlson, Sr. 13,100(d) *
Larry H. Dale 3,000 *
G. Richard Dunnells 9,781 *
Robert J. Merrick 2,000 *
Robert F. Tardio 4,349 *
Jay R. Cohen 83,345 *
Frederick J. Burchill 40,932 *
Cynthia O. Azzara 15,062 *
All Directors, Director-
Nominees and Executive
Officers as a
Group (10 persons) 3,365,001(a)(b)(c)(d) 10.5%
______________
* Less than 1%.
(a) Includes 2,767 Common Shares owned by CRI, of which Messrs. Dockser and
Willoughby are the sole shareholders.
(b) Includes 104,343 Common Shares held by Mr. Dockser's wife, 125,000 Common
Shares held by the William B. Dockser '59 Charitable Lead Annuity Trust
and 140,000 Common Shares held by the Dockser Family Foundation.
(c) Includes 41,700 Common Shares held by Mr. Willoughby's wife and 20,000
Common Shares held by Mr. Willoughby's parents.
(d) Includes 1,000 Common Shares held by Mr. Carlson's wife and 12,100 Common
6
Shares held by two partnerships in which Mr. Carlson is the sole general
partner.
</TABLE>
Except as otherwise noted, based solely on its review of Forms 3 and 4 and
amendments thereto furnished to the Corporation, and written representations
from certain reporting persons that no Forms 5 were required for those persons,
the Corporation believes that all directors, officers and beneficial owners of
more than 10% of the Common Shares have filed on a timely basis Forms 3, 4 and 5
as required in the fiscal year ended December 31, 1996. Mr. Willoughby, the
President of the Corporation, filed a delinquent Form 4 to report a disposition
of Common Shares by gift to his parents. Mr. Carlson and Ms. Deborah Linn,
former Senior Vice President and General Counsel, each reported transactions
delinquently on Form 5 rather than on Form 4.
DIRECTORS' REMUNERATION
Directors of the Corporation who are also employees receive no additional
compensation for their services as directors. Each Unaffiliated Director
receives (i) an aggregate fee of $12,000, (ii) 500 Common Shares, and (iii)
options to purchase 500 Common Shares per year for services as a director plus a
fee of $750 (for telephonic meetings) or $1,500 (for in-person meetings) for
each meeting in which such director participates, including committee meetings
held on days when the Board is not meeting. In addition, the Corporation
reimburses directors (including those employed by the Corporation as executive
officers) and officers for travel and other expenses incurred in connection with
their duties as directors or officers of the Corporation. Each of Messrs.
Carlson, Dale, Dunnells and Tardio received from the Corporation (i) $12,000,
(ii) 500 Common Shares, and (iii) options to purchase 500 Common Shares for
their services as Unaffiliated Directors during the year ended December 31,
1996, plus traveling expenses, $1,500 per day for meetings attended and $750 per
telephonic meeting in which they participated. See "Election of Directors"
above.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the cash and non-cash compensation awarded
to the Chairman of the Board and each of the other four most highly compensated
executive officers of the Corporation whose income exceeded $100,000 during the
fiscal year ended December 31, 1996 (collectively, the "Named Executive
Officers").
7
Summary Compensation Table
<TABLE><CAPTION>
Long Term Compensation Awards
Restricted Securities
Annual Compensation Stock Underlying
Name and Principal Position Year Salary Bonus Awards Options (#) All Other Compensation
- --------------------------- ---- ------ ----- ------ ----------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
William B. Dockser 1995 $62,500(1) -0- -0- 1,500,000 $130,297(2)
Chairman of the Board 1996 $167,500 -0- -0- -0- $494,672(2)
H. William Willoughby 1995 $62,500(1) -0- -0- 1,500,000 $130,297(2)
President and Secretary 1996 $167,500 -0- -0- -0- $494,672(2)
Jay R. Cohen 1995 $87,500(1) $70,000(1) $316,292(3) 65,000 -0-
Executive Vice President 1996 $179,375 $50,000 -0- 20,000 -0-
and Treasurer
Frederick J. Burchill 1995 $87,500(1) $75,000(1) $316,292(3) 65,000 -0-
Executive Vice President 1996 $179,375 $125,000 -0- 20,000 -0-
Cynthia O. Azzara 1995 $63,333(1) $25,000(1) $118,613(4) 25,000 -0-
Senior Vice President
and Chief Financial Officer 1996 $135,000 $50,000 -0- 10,000 -0-
_______________________
(1) These amounts relate to the period from June 30, 1995 through December 31, 1995. Prior to the Merger (as defined below), none
of the executive officers received cash or any other form of compensation from the Corporation.
(2) These amounts represent deferred compensation which the Corporation has agreed to pay for services performed in connection with
the Merger. As discussed in "Compensation Committee Report" below, these amounts were paid solely from principal and interest
received by the Corporation from CRI in connection with a receivable acquired by the Corporation in the Merger.
(3) The 40,164 restricted Common Shares had a value of $507,071 at December 31, 1996. A total of 110,452 restricted Common Shares
were awarded to employees in 1995. Such officer's Common Shares vest in three equal installments on the first three
anniversaries of the Closing Date of the Merger (June 30, 1995). Dividends are paid on the restricted stock.
(4) The 15,062 restricted Common Shares had a value of $190,158 at December 31, 1996. A total of 110,452 restricted Common Shares
were awarded to employees in 1995. Such officer's Common Shares vest in three equal installments on the first three
anniversaries of the Closing Date of the Merger (June 30, 1995). Dividends are paid on the restricted stock.
</TABLE>
Option Grants in Fiscal Year 1996
The following table sets forth the options granted to each of the Named
Executive Officers with respect to the fiscal year ended December 31, 1996:
8
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE><CAPTION>
% of Total
Common Shares Options Granted
Underlying to Employees Exercise Price Expiration Grant Date
Name Options Granted(1) in Fiscal Year ($/share) Date Present Value (2)
- ---- ----------------- -------------- -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Jay R. Cohen 20,000 15.3% $10.875 July 1, 2004 $16,200
Frederick J. Burchill 20,000 15.3% $10.875 July 1, 2004 $16,200
Cynthia O. Azzara 10,000 7.6% $10.875 July 1, 2004 $ 8,100
- ------------
(1) These options were granted on July 1, 1996 and will vest in equal installments on the first three anniversaries of the date of
grant.
(2) These values are estimated on the date of grant using the Black-Scholes option pricing model, which produces a per option share
value as of July 1, 1996, the grant date, of $0.81 using the following principal assumptions: expected stock price volatility
22.5%, risk free rate of return 6.16%, dividend yield 11% and expected life of 2.05 years. No adjustments have been made for
forfeitures or nontransferability. The actual value, if any, that the executive officer will realize from these options will
depend solely on the increase in the stock price over the option price when the options are exercised.
</TABLE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996
AND FY-END 1996 OPTION VALUES
<TABLE><CAPTION>
Number of Common Shares Value of unexercised
underlying unexercised in-the-money options
Shares acquired Value Realized options at FY-end (#) at FY-end ($)
Name on exercise (#) ($) (1) exercisable/unexercisable exercisable/unexercisable(2)
- ---------- ------------- ------------- ------------------------ ---------------------------
<S> <C> <C> <C> <C>
William B. Dockser 200,000 $ 496,000 100,000/1,200,000 $ 35,500/$2,426,000
H. William Willoughby 19,000 $ 34,370 281,000/1,200,000 $552,255/$2,426,000
Jay R. Cohen -0- -0- 21,667/63,333 $ 61,859/$158,716
Frederick J. Burchill -0- -0- 21,667/63,333 $ 61,859/$158,716
Cynthia O. Azzara -0- -0- 8,334/26,666 $ 23,794/$65,081
- -----------------
(1) The value realized on the exercise of stock options was determined by taking the difference between the option price and the
fair market value of the Common Shares on the date of the exercise.
2) The value of the in-the-money options was determined by taking the difference between $12.625, the closing price of the Common
Shares on December 31, 1996, and the exercise price of each option.
</TABLE>
Employment and Noncompetition Agreements
On June 30, 1995, in connection with the acquisition by the Corporation of
the mortgage investment, servicing, origination and advisory businesses of CRI
and its affiliates (the "Merger"), the Corporation, through its wholly owned
operating subsidiary CRIIMI MAE Management, Inc. (the "Management Corporation"),
entered into employment and noncompetition agreements with each of Messrs.
Dockser and Willoughby. Messrs. Dockser's and Willoughby's employment
agreements each provide for minimum annual compensation of $125,000 and a term
expiring on June 30, 2000. The agreements require each of Messrs. Dockser and
Willoughby to devote a substantial portion of such officer's time to the affairs
of the Corporation and its affiliated entities, except that each of them may
devote time to other existing business activities; provided that the time
devoted to such other existing business activities does not interfere with the
performance of his duties to the Corporation and its affiliated entities. The
9
agreements define the phrase "substantial portion" to mean all of the time
required to perform the services necessary and appropriate for the conduct of
the businesses of the Corporation and its affiliated entities. The agreements
also include provisions which prohibit Messrs. Dockser and Willoughby from
competing with the Corporation or the Corporation's affiliates for at least six
years from June 30, 1995, subject to certain limited exceptions.
The Management Corporation also entered into employment agreements with
each of the other executive officers of the Corporation on June 30, 1995, namely
Jay R. Cohen, Frederick J. Burchill and Cynthia O. Azzara (the "Other Executive
Officers"). The Other Executive Officers' agreements have three-year terms and
provide for minimum annual salaries of $175,000, $175,000 and $130,000,
respectively. Each of the agreements with the Other Executive Officers includes
provisions prohibiting the Other Executive Officers from competing with the
Corporation or the Corporation's affiliated entities while employed by the
Management Corporation.
Employee Stock Option Plan
The purposes of the Employee Stock Option Plan are to enhance the long-term
profitability and shareholder value of the Corporation by offering incentives
and rewards to those officers and employees of the Corporation and its
subsidiaries who are key to the Corporation's growth and success, and to
encourage them to remain in the service of the Corporation and its subsidiaries
and to acquire and maintain stock ownership in the Corporation.
The Employee Stock Option Plan currently provides for grants of stock
options to purchase up to 500,000 Common Shares at any time prior to June 30,
2000. As of March 1, 1997, options to purchase a total of 416,000 Common Shares
have been granted under the Employee Stock Option Plan. Options granted under
the Employee Stock Option Plan are "nonqualified stock options" or "incentive
stock options." The exercise price for options granted under the Employee Stock
Option Plan may not be less than the fair market value of the Common Shares on
the date of grant. The Board has proposed to increase the number of Common
Shares authorized for issuance under the Employee Stock Option Plan to
1,000,000. See "Amendment to Stock Option Plan" below.
Any executive officer or other key employee of the Corporation or any
subsidiary of the Corporation will be eligible to be granted options. The Stock
Option Committee is authorized to select from among eligible employees the
individuals to whom options are to be granted and to determine the number of
Common Shares to be subject to the options, whether such options are to be
incentive stock options or nonqualified stock options, and the terms and
conditions of the options, consistent with the Employee Stock Option Plan.
The Employee Stock Option Plan is administered by the Stock Option
Committee consisting of at least three members of the Board, appointed from time
to time (and removable) by the Board. Currently, the Stock Option Committee
comprises Messrs. Carlson, Dunnells and Tardio, each of whom is an Unaffiliated
Director. If elected, Mr. Merrick will be named as a member of the Stock Option
Committee. Except as permitted by Rule 16b-3(c)(2) under the Exchange Act,
options may not be granted under the Employee Stock Option Plan to any member of
the Stock Option Committee during the term of his or her membership on the Stock
Option Committee.
Comparison of Cumulative Shareholder Returns
Below is a chart comparing the cumulative total shareholder return on
Common Shares with the cumulative total shareholder return of (1) a broad equity
market index and (ii) a published industry index or peer group. Such chart
compares the cumulative total shareholder return on the Common Shares with the
cumulative total shareholder return of the companies comprising (i) the S&P 500
index provided by Standard & Poor's Corporation and (ii) the NAREIT Mortgage
Index provided by the National Association of Real Estate Investment Trusts.
10
The chart assumes an initial investment of $100 on December 31, 1991, and the
reinvestment of all dividends paid thereafter with respect to such $100
investment, in each of (i) the Common Shares, (ii) the stocks comprising the S&P
500 Index and (iii) the stocks comprising the NAREIT Mortgage Index.
11
Performance Graph
<TABLE>
<CAPTION>
12/31/1991 12/31/1992 12/31/1993 12/31/1994 12/31/1995 12/31/1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CRIIMI MAE
Annual Equivalent 27.77% 22.64% -30.17% 39.56% 68.60%
Indexed $100 127.77 156.70 109.42 152.71 257.47
S&P 500
Annual Equivalent 7.67% 9.99% 1.31% 37.43% 22.96%
Indexed $100 107.67 118.43 119.97 164.88 202.74
NAREIT Mortgage Index*
Annual Equivalent 1.92% 14.55% -24.30% 63.41% 50.87%
Indexed $100 101.92 116.75 88.38 144.42 217.89
* The NAREIT Mortgage Index includes all real estate investment trusts ("REITs") listed on the New York Stock Exchange, the
American Stock Exchange or the NASDAQ National Market System. During 1996, 20 REITs were included in the NAREIT Mortgage Index.
The Corporation will provide to any shareholder upon request the names of the companies whose stocks comprise the NAREIT Mortgage
Index.
</TABLE>
Compensation Committee Report
This report is not deemed to be soliciting material or deemed to be
filed with the Securities and Exchange Commission (the SEC ) or subject to
the SEC s proxy rules or to the liabilities of Section 18 of the Exchange Act,
and the report shall not be deemed to be incorporated by reference into any
prior or subsequent filing by the Corporation under the Securities Act of 1933
or the Exchange Act.
The Corporation's executive compensation program is intended to attract,
retain and reward experienced, highly motivated executive officers who are
capable of effectively leading and continuing the growth of the Corporation.
The Board administers the executive compensation program with an objective of
utilizing a combination of cash and equity-based compensation to provide
motivational incentives for executives that align the executives' goals and
interests with those of the Corporation's shareholders.
In support of these goals, the Corporation s executive compensation program
is designed to reward performance that contributes to the Corporation s short-
term and long-term success. Accordingly, the Corporation attempts to provide
both short-term and long-term incentive compensation that varies based on the
Corporation s performance and the individual s performance. To accomplish these
goals, the Corporation s executive compensation program is structured with
three primary components: base salary, annual bonus and long-term incentives
(i.e., stock options and/or stock awards).
Employment agreements govern the salary, bonuses, stock grants and option
grants to the Corporation's executive officers. The Special Committee, which
represented the interests of the Corporation in the Merger, took the above-
referenced compensation policies and goals into consideration when negotiating
the employment agreements with the executive officers on behalf of the
Corporation. See "-Employment and Noncompetition Agreements".
Except as described in the following paragraph with respect to Messrs.
Dockser and Willoughby, the employment agreements provide for base salary levels
12
which are determined according to each individual executive s position in the
Corporation. The employment agreements also provide for financial awards in the
form of bonuses. While the Board generally has the authority to determine
bonuses, certain minimum bonus awards are required by the employment agreements.
The Corporation also granted options to purchase Common Shares to each of the
executive officers, pursuant to the employment agreements, which vest over a
three-to-five-year period. The executive officers may be eligible for
additional grants of options pursuant to the Employee Stock Option Plan, which
currently provides for grants of options to purchase up to 500,000 Common Shares
(of which options to purchase a total of 416,000 Common Shares have already been
granted through March 1, 1997). See -Employee Stock Option Plan" above.
Options to purchase a total of 50,000 Common Shares were granted to executive
officers during 1996.
The Corporation s senior executive officers, Messrs. Dockser and
Willoughby, each received a base salary of $167,500 during 1996. While the
salary and compensation awards of Messrs. Dockser and Willoughby are determined
substantially in conformity with the policies described above for all other
executive officers of the Corporation, they receive a base salary that is less
than senior executives of many comparable companies. This reduced level of base
salary paid to Messrs. Dockser and Willoughby is due in part to the concern
raised by the members of the Special Committee that the Corporation s senior
officers should be closely linked to the performance of the Corporation.
Accordingly, a majority of the compensation paid to Messrs. Dockser and
Willoughby is in the form of options to purchase Common Shares which vest over a
five year period from June 30, 1995 and which have exercise prices above the
market price on the date of grant.
Additionally, in connection with the Merger, the Corporation entered into a
deferred compensation arrangement with Messrs. Dockser and Willoughby in the
aggregate amount of $5,002,183 pursuant to which the Corporation agreed to pay
each of Dockser and Willoughby for services performed in connection with
structuring of the Merger. The Corporation's obligation to pay the deferred
compensation is limited, with certain exceptions, to the creation of an
irrevocable grantor trust for the benefit of Messrs. Dockser and Willoughby and
the transfer to such trust of the right to receive such deferred compensation
(the "Note Receivable") in the amount of $5,002,183. The deferred compensation
is fully vested and payable, except in the event of bankruptcy, only to the
extent that payments continue to be made on the Note Receivable. Payments of
principal and interest on the Note Receivable and the deferred compensation are
payable quarterly and terminate in 10 years. The Note Receivable and the
deferred compensation obligation bear interest at the prime rate (8.25% as of
December 31, 1996) plus 2% per annum.
The SEC requires that this report comment upon the Corporation's policy
with respect to Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), which limits the deductibility on the Corporation's tax return of
compensation over $1 million to any of the named executive officers of the
Corporation unless, in general, the compensation is paid pursuant to a plan
which is performance related, non-discretionary and has been approved by the
Corporation's shareholders. The deductibility limitation outlined by Section
162(m) of the Code is not currently a consideration for the Corporation because
none of its executives earned sufficient compensation income in 1996 nor are any
Corporation executives anticipated to have sufficient compensation in the near
future to be subject to Section 162(m).
Submitted by the Compensation Committee
Garrett G. Carlson, Sr.
Larry H. Dale
G. Richard Dunnells
Certain Relationships and Related Transactions
13
The Board includes two persons, Messrs. Dockser and Willoughby, who serve
as Chairman of the Board and President, respectively, of the Corporation. In
connection with the Merger, Messrs. Dockser and Willoughby each executed
employment agreements with the Corporation. See "-Employment and Noncompetition
Agreements".
In addition, through the Merger, the Corporation acquired companies
affiliated with CRI, a company owned by Messrs. Dockser and Willoughby. Messrs.
Dockser and Willoughby each received 1,325,419 Common Shares and options to
purchase 1,000,000 Common Shares at an exercise price of $9.77 per share and
options to purchase an additional 500,000 Common Shares at an exercise price of
$12.27 per share. The options vest in equal installments on the first five
anniversaries of the Closing Date of the Merger. As part of the total
consideration, the Corporation assumed approximately $9.1 million in debt owed
by CRI and affiliates and guaranteed by Messrs. Dockser and Willoughby. See
"Certain Transactions".
Another CRI-affiliated entity serves as the adviser for Liquidating REIT,
of which the Corporation owns approximately 56.5% of the common stock. The
adviser receives an annual fee and certain incentive fees for managing
Liquidating REIT's portfolio of mortgages. In 1996, those fees were $950,688.
The Corporation has an Administrative Services Agreement with CRI pursuant
to which CRI provides the Corporation with certain administrative and office
facility services and other services at cost. The Corporation uses the services
provided under the Administrative Services Agreement to the extent such services
are not performed by CRIIMI MAE Management Inc. or another service provider.
The amount paid in 1996 was $674,674.
AMENDMENT TO STOCK OPTION PLAN
The Employee Stock Option Plan was implemented by the Corporation in 1995
and approved by the shareholders of the Corporation at the 1996 Annual Meeting
of Shareholders. The stated purpose of the Employee Stock Option Plan is to
enhance the long-term profitability and shareholder value of the Corporation by
offering incentives and awards to those officers and employees of the
Corporation and its subsidiaries who are key to the Corporation s growth and
success, and to encourage them to remain in the service of the Corporation and
its subsidiaries and to acquire and maintain stock ownership in the Corporation.
The Employee Stock Option Plan is discussed in further detail under the heading
Executive Compensation--Employee Stock Option Plan, above.
The Corporation wishes to amend the Employee Stock Option Plan to increase
the total number of Common Shares that may be issued upon the exercise of
options that are granted thereunder. Presently, the Employee Stock Option Plan
provides that the Corporation must reserve 500,000 shares of Common Stock for
issuance to participating officers and employees. As of March 1, 1997, options
to purchase a total of 416,000 Common Shares have been granted under the
Employee Stock Option Plan. By unanimous written consent dated March 14, 1997,
the Board of Directors approved an amendment to the plan to increase the total
number of Common Shares issuable upon the exercise of options granted thereunder
to 1,000,000 Common Shares, subject to shareholder approval.
The Employee Stock Option Plan may be amended from time to time by the
Board, subject to the approval of the shareholders of the Corporation to the
extent required by the laws of the State of Maryland, the Code or Exchange Act
Rule 16b-3.
The Employee Stock Option Plan may benefit certain officers of the
Corporation by permitting such individuals, along with all eligible employees,
to purchase Common Shares at a discount to its market price.
14
The affirmative vote of the holders of a majority of the Common Shares
present or represented (and entitled to vote) at the Meeting is required for the
approval of the proposed amendment to the Employee Stock Option Plan.
The closing price of CRIIMI MAE s Common Shares, as reported on the New
York Stock Exchange Composite Transactions Tape on March 14, 1997, was $18.125.
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE
EMPLOYEE STOCK OPTION PLAN.
CERTAIN TRANSACTIONS
Certain Other Relationships and Transactions
The Corporation owns 56.5% of the outstanding common stock of Liquidating
REIT which, as of December 31, 1996, owned approximately $54 million of
interests in government insured or guaranteed mortgage assets. In January 1997,
Liquidating REIT sold all of the mortgage loans in its portfolio. In February
1997, Liquidating REIT received a cash distribution from one limited partnership
interest. In March 1997, one limited partnership interest was sold. The cash
distribution and proceeds of sales will be distributed to Liquidating REIT s
stockholders in its first quarter dividend. Once the dividend distribution is
made, Liquidating REIT will have remaining assets that consist primarily of
interests in two limited partnerships and cash.
Liquidating REIT s Board of Directors has approved a plan of complete
liquidation and dissolution (the Liquidation Plan ), which it intends to submit
to a vote of Liquidating REIT's stockholders at a special meeting scheduled to
be held on April 23, 1997. The Liquidation Plan must be approved by both a
majority of all shares and a majority of all shares other than those held by the
Corporation. The Corporation intends to vote for the Liquidation Plan. If the
plan is approved by stockholders, Liquidating REIT will file articles of
dissolution with the State of Maryland, dispose of its remaining assets and
distribute the net proceeds of such liquidation to its stockholders, including
the Corporation.
Liquidating REIT is party to an agreement with the Adviser whereby the
Adviser is entitled to receive mortgage selection fees and annual fees
(including master servicing fees) based on amounts received by Liquidating REIT
in the disposition of mortgage investments and incentive fees based on the
achievement of certain performance goals (the Liquidating REIT Advisory
Agreement ). Pursuant to the Liquidating REIT Advisory Agreement, in 1996,
Liquidating REIT paid the Adviser (i) annual fees of $382,050, and (ii)
incentive fees of $568,638. The Adviser will continue to perform advisory
services under the Liquidating REIT Advisory Agreement following the dissolution
of Liquidating REIT.
Pursuant to a reimbursement agreement (the "Liquidating REIT Reimbursement
Agreement") entered into between the Adviser and the Management Corporation in
connection with the Merger, the employees of the Management Corporation perform
certain functions on behalf of the Adviser under the Liquidating REIT Advisory
Agreement. Neither the Management Corporation nor the Corporation receives
advisory fees under the Liquidating REIT Advisory Agreement. However, the
Management Corporation is reimbursed, at cost, for its employees' time and
expenses pursuant to the Liquidating REIT Reimbursement Agreement. For the year
ended December 31, 1996, Liquidating REIT reimbursed the Management Corporation
$115,920 for services provided on its behalf in connection with the Liquidating
REIT Reimbursement Agreement.
The Corporation maintains its headquarters office at the CRI Building in
Rockville, Maryland. Pursuant to an administrative services agreement with
CRI which was entered into in connection with the Merger (the "CRI
Administrative Services Agreement"), CRI is obligated to provide the Corporation
15
and its subsidiaries with certain administrative and office facility services
and other services, at cost, with respect to certain aspects of the
Corporation's business. The Corporation intends to use the services provided
under the CRI Administrative Services Agreement to the extent such services are
not performed by the Corporation or provided by another service provider. The
CRI Administrative Services Agreement is terminable on 30 days' notice at any
time by the Corporation. The Corporation and its subsidiaries paid charges
under the CRI Administrative Services Agreement of $674,674 for the year ended
December 31, 1996.
INDEPENDENT PUBLIC ACCOUNTANTS
The Corporation's financial statements for the fiscal year ended December
31, 1996 were audited by Arthur Andersen LLP. The directors have selected
Arthur Andersen LLP as the Corporation's auditors to examine the financial
statements of the Corporation for 1997. A representative of Arthur Andersen LLP
will be present at the Meeting. This representative will have an opportunity to
make a statement, and will be available to respond to questions by shareholders.
OTHER MATTERS
The Board knows of no other business which will be presented at the
Meeting. If other matters properly come before the Meeting, the persons named as
proxy holders will vote on them in accordance with their best judgment.
The cost of this solicitation of proxies will be borne by the Corporation.
In addition to the use of the mails, some of the officers or agents of the
Corporation and/or regular employees of the Management Corporation may solicit
proxies by telephone and telegraph. The Corporation will request brokerage
houses and other custodians, nominees and fiduciaries to forward soliciting
material to the beneficial owners of Common Shares held of record by such
persons and may verify the accuracy of marked proxies by contacting record and
beneficial owners of the Common Shares. The Corporation will reimburse such
persons for their reasonable expenses incurred in forwarding such soliciting
materials.
1998 ANNUAL MEETING
Shareholders may present proposals to be considered for inclusion in the
Proxy Statement for the 1998 Annual Meeting of Shareholders provided such
proposals are received by the Corporation no later than December 1, 1997.
H. WILLIAM WILLOUGHBY
Secretary
March 26, 1997
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