<PAGE>
Page 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998
------------------
Commission file number 1-10360
-------
CRIIMI MAE INC.
-------------------------------------------------
(Exact name of registrant as specified in charter)
Maryland 52-1622022
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(301) 816-2300
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of April 30, 1998
- --------------------------- --------------------------------
Common Stock, $.01 par value 47,173,744
<PAGE>
Page 2
CRIIMI MAE INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
Page
----
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - as of March 31, 1998
(unaudited) and December 31, 1997 . . . . . . . 3
Consolidated Statements of Income - for the
three months ended March 31, 1998
and 1997 (unaudited). . . . . . . . . . . . . . 4
Consolidated Statement of Changes in
Shareholders' Equity - for the three months
ended March 31, 1998 (unaudited). . . . . . . . 5
Consolidated Statements of Cash Flows -
for the three months ended March 31, 1998
and 1997 (unaudited). . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . .
(unaudited) . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . 29
PART II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . 43
Item 2. Changes in Securities . . . . . . . . . . . . . . 44
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . 45
Signature. . . . . . . . . . . . . . . . . . . . . . . . . 46
<PAGE>
Page 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- --------------
(unaudited)
<S> <C> <C>
Assets:
Mortgage Assets:
Mortgage security collateral, at
amortized cost $559,622,707 $ 586,224,858
Subordinated CMBS, ($1,447,188,820 and
$1,079,055,459 at amortized cost) 1,448,013,184 1,114,479,846
Mortgages, at fair value 18,954,607 18,888,883
Equity Investments 46,159,855 46,234,269
Receivables and other assets 147,427,239 105,368,838
Cash and cash equivalents 8,300,784 2,108,794
-------------- --------------
Total assets $2,228,478,376 $1,873,305,488
-------------- --------------
-------------- --------------
Liabilities:
Securitized mortgage obligations:
Mortgage security collateral $548,198,004 $ 559,363,321
Subordinated CMBS 132,526,508 137,061,676
Senior unsecured notes 99,883,914 99,877,695
Repurchase Agreements-Subordinated CMBS 849,687,838 585,379,360
Other financing facilities 34,350,000 33,250,000
Payables and accrued expenses 13,408,392 12,460,018
-------------- --------------
Total liabilities 1,678,054,656 1,427,392,070
-------------- --------------
Minority interests in
consolidated subsidiaries 936,764 932,431
-------------- --------------
Shareholders' equity:
Convertible preferred stock 18,796 18,294
Common stock 470,298 406,703
Net unrealized gains on
mortgages and Interest Only CMBS 1,356,051 1,082,811
Additional paid-in capital 547,641,811 448,524,552
-------------- --------------
549,486,956 450,032,360
Less treasury shares, at cost-
538,635 shares -- (5,051,373)
-------------- --------------
Total shareholders' equity 549,486,956 444,980,987
-------------- --------------
Total liabilities and shareholders'
equity $2,228,478,376 $1,873,305,488
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
Page 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
------------ -------------
<S> <C> <C>
Income:
Mortgage income $11,588,237 $ 12,660,802
Income from Subordinated CMBS 30,891,021 16,764,036
Equity in earnings from investments 1,302,977 814,522
Other investment income 1,188,057 920,347
------------ ------------
44,970,292 31,159,707
------------ ------------
Expenses:
Interest expense 27,391,853 18,321,923
General and administrative 2,983,757 2,393,768
Amortization of assets acquired in the Merger 719,394 719,391
Fees to related party -- 11,468
------------ ------------
31,095,004 21,446,550
------------ ------------
Income before mortgage dispositions and
minority interests 13,875,288 9,713,157
Mortgage dispositions:
Gains 447,982 17,314,552
Losses (401,533) (175,603)
------------ ------------
Income before minority interests 13,921,737 26,852,106
Minority interests in net income of
consolidated subsidiary (26,309) (7,752,565)
------------ ------------
Net income $13,895,428 $ 19,099,541
Preferred Dividends (1,639,497) (1,825,387)
------------ ------------
Net income available to common shareholders $12,255,931 $ 17,274,154
-------------- --------------
-------------- --------------
Earnings per share:
Basic $ 0.29 $ 0.54
-------------- --------------
-------------- --------------
Diluted $ 0.28 $ 0.50
-------------- --------------
-------------- --------------
Shares used in computing basic
earnings per share, exclusive of
shares held in treasury 42,904,470 31,881,956
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
Page 5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRIIMI MAE INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the three months ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Common Net
Preferred Stock Unrealized Additional Total
Stock Par Par Gains on Paid-in Undistributed Treasury Shareholders'
Value Value Mortgages Capital Net Income Shares Equity
--------- -------- ---------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 18,294 $406,703 $1,082,811 $448,524,552 $ -- $(5,051,373) $444,980,987
Net income -- -- -- -- 13,895,428 -- 13,895,428
Dividends paid on preferred shares -- -- -- -- (1,639,497) -- (1,639,497)
Dividends paid on common shares -- -- -- (4,176,942) (12,255,931) -- (16,432,873)
Conversion of preferred shares
into common shares (998) 4,585 -- (3,587) -- -- --
Stock options exercised -- 267 -- 169,937 -- -- 170,204
Adjustment to net unrealized gains
(includes Interest Only CMBS) -- -- 273,240 -- -- -- 273,240
Shares issued 1,500 64,129 -- 108,173,838 -- -- 108,239,467
Treasury shares retired -- (5,386) -- (5,045,987) -- 5,051,373 --
---------- -------- ---------- ------------ ------------- ------------ ------------
Balance, March 31, 1998 $ 18,796 $470,298 $1,356,051 $547,641,811 $ -- $ -- $549,486,956
---------- -------- ---------- ------------ ------------- ------------ ------------
---------- -------- ---------- ------------ ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
Page 6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,895,428 $ 19,099,541
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of discount and deferred financing
costs on debt 1,318,908 909,448
Amortization of assets acquired in the Merger 719,394 719,391
Depreciation and other amortization 359,521 203,209
Discount/Premium amortization on mortgages and Subordinated CMBS (891,002) 7,761
Net gains on mortgage dispositions (46,449) (17,138,949)
Equity in earnings from investments (134,758) (181,736)
Minority interests in earnings of consolidated subsidiary 26,309 7,752,565
Changes in assets and liabilities:
Increase in receivables and other assets (18,303,838) (6,566,374)
Decrease in payables and accrued expenses (557,174) (693,390)
Increase in interest payable 1,630,603 563,377
------------ ------------
Net cash (used for) provided by operating activities (1,983,058) 4,674,843
------------ ------------
Cash flows from investing activities:
Purchase of Subordinated CMBS (336,975,523) --
Funding of loan origination reserve (24,273,012) (896,550)
Payment of deferred costs (35,907) (1,593)
Proceeds from mortgage dispositions 25,421,328 69,325,577
Receipt of principal payments 5,893,080 1,756,888
Other investing activities 50,000 --
------------ ------------
Net cash (used in) provided by investing activities (329,920,034) 70,184,322
------------ ------------
Cash flows from financing activities:
Proceeds from debt issuances 301,907,350 51,073,976
Principal payments on debt obligations (52,584,946) (160,334,369)
Increase in deferred financing costs (1,542,647) (128,881)
Dividends (including return of capital) paid to shareholders,
including minority interests (18,094,346) (37,897,252)
Proceeds from the issuance of convertible preferred shares 15,000,000 --
Proceeds from the issuance of common shares 93,409,671 74,862,841
------------ ------------
Net cash provided by (used in) financing activities 338,095,082 (72,423,685)
------------ ------------
Net increase in cash and cash equivalents 6,191,990 2,435,480
Cash and cash equivalents, beginning of period 2,108,794 10,966,354
------------ ------------
Cash and cash equivalents, end of period $ 8,300,784 $ 13,401,834
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
Page 7
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
CRIIMI MAE Inc. (CRIIMI MAE) is a fully integrated commercial
mortgage company structured as a self-administered real estate
investment trust (REIT). CRIIMI MAE's portfolio of mortgage assets
currently includes uninsured commercial mortgage loans and ownership
interests in subordinated commercial mortgage-backed securities
("Subordinated CMBS") and government insured and guaranteed mortgages
secured by multifamily housing complexes located throughout the United
States ("Government Insured Mortgage Assets"). The Subordinated CMBS
are purchased using a combination of debt and equity, are generally
backed by first mortgages on multifamily and other commercial property
and offer potential higher yields with increased risk. Before
purchasing Subordinated CMBS, CRIIMI MAE and its affiliates utilize
their multifamily and commercial real estate expertise to perform due
diligence on the underlying collateral and require that certain
control mechanisms, such as the ability to monitor the performance of
the underlying mortgage loans, and control of workout/foreclosure
proceedings, are in place. CRIIMI MAE's principal objectives are to
provide increasing dividends to its shareholders and to enhance the
value of CRIIMI MAE's capital stock.
CRIIMI MAE owns 100% of multiple financing and operating
subsidiaries (discussed in Note 6), and various interests in other
entities which either own or service mortgage assets.
The Company intends to conduct its business so as not to become regulated
as an investment company under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). Under the Investment Company Act, a
non-exempt entity that is an investment company is required to register with
the Securities and Exchange Commission ("SEC") and is subject to extensive,
restrictive and potentially adverse regulation relating to, among other
things, operating methods, management, capital structure, dividends and
transactions with affiliates. The Investment Company Act exempts entities
that are "primarily engaged in the business of purchasing or otherwise
acquiring mortgages and other liens on and interests in real estate"
("Qualifying Interests"). Under current interpretation by the staff of the
SEC, to qualify for this exemption, CRIIMI MAE, among other things, must
maintain at least 55% of its assets in Qualifying Interests. Pursuant to such
SEC staff interpretations, CRIIMI MAE's Government Insured Mortgage Assets
are Qualifying Interests. The Company will acquire Subordinated CMBS only
when such mortgage assets are collateralized by pools of first mortgage
loans, when the Company can monitor the performance of the underlying
mortgage loans through loan management and servicing rights, and when the
Company has appropriate workout/foreclosure rights with respect to the
underlying mortgage loans. When such arrangements exist, CRIIMI MAE believes
that the related Subordinated CMBS constitute Qualifying Interests for
purposes of the Investment Company Act. Therefore, CRIIMI MAE believes that
it should not be required to register as an "investment company" under the
Investment Company Act as long as it continues to invest primarily in such
Subordinated CMBS and/or in other Qualifying Interests. However, if the SEC
or its staff were to take a different position with respect to whether CRIIMI
MAE's Subordinated CMBS constitute Qualifying Interests, the Company could be
required to modify its business plan so that either (i) it would not be
required to register as an investment company or (ii) it would comply with
the Investment Company Act and be able to register as an investment company.
In such event, (i) modification of the Company's business plan so that it
would not be required to register as an investment company would likely
entail a disposition of a significant portion of the Company's Subordinated
CMBS or the acquisition of significant additional assets, such as Government
Insured Mortgage Assets, which are Qualifying Interests or (ii) modification
of the Company's business plan to register as an investment company, which
would result in significantly increased operating expenses and would likely
entail significantly reducing the Company's indebtedness (including the
possible prepayment of the Company's repurchase agreement financing and/or
the Notes), which could also require it to sell a significant portion of its
assets. No assurances can be given that any such dispositions or acquisitions
of assets, or deleveraging, could be accomplished on favorable terms.
Consequently, any such modification of the Company's business plan could have
a material adverse effect on the Company. Further, if it were established
that the Company were an unregistered investment company, there would be a
risk that the Company would be subject to monetary penalties and injunctive
relief in an action brought by the SEC, that the Company would be unable to
enforce contracts with third parties and that third parties could seek to
obtain recission of transactions undertaken during the period it was
established that the Company was an unregistered investment company. Any such
results would be likely to have a material adverse effect on the Company.
2. Basis of Presentation
In management's opinion, the accompanying unaudited consolidated
financial statements of CRIIMI MAE, CRIIMI MAE Management Inc.
("CRIIMI Management"), CRIIMI MAE Financial Corporation, CRIIMI MAE
Financial Corporation II, CRIIMI MAE Financial Corporation III, CRIIMI
MAE QRS 1, Inc., CRIIMI MAE Holding Inc., CRIIMI MAE Holding L.P. and
CRIIMI, Inc., contain all adjustments (consisting of only normal
recurring adjustments and consolidating adjustments) necessary to
present fairly the consolidated financial position of CRIIMI MAE as of
March 31, 1998 and December 31, 1997, the consolidated results of its
operations for the three months ended March 31, 1998 and 1997 and its
cash flows for the three months ended March 31, 1998 and 1997.
These unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the SEC. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. While management believes
that the disclosures presented are adequate to make the information
not misleading, it is recommended that these consolidated financial
statements be read in conjunction with the consolidated financial
statements and the notes included in CRIIMI MAE's Annual Report filed
on Form 10-K for the year ended December 31, 1997.
<PAGE>
Page 8
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Summary of Significant Accounting Policies
Method of Accounting
--------------------
The consolidated financial statements of CRIIMI MAE are
prepared on the accrual basis of accounting in accordance with
generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
-----------------
Certain amounts in the consolidated financial statements as
of and for the three months ended March 31, 1997 have been
reclassified to conform to the 1998 presentation.
Subordinated CMBS
-----------------
As of March 31, 1998, CRIIMI MAE had the intent and ability
to hold its Subordinated CMBS until maturity. Consequently,
these mortgage assets are classified as Held to Maturity and are
carried at amortized cost (except for Interest Only (IO) CMBS,
discussed below). However, as discussed in Note 15, subsequent
to March 31, 1998, CRIIMI MAE has consummated a transaction which
resulted in the sale of a portion of its Subordinated CMBS
portfolio. Accordingly, all securities currently classified as
Held to Maturity will be reclassified to be Available for Sale.
As a result, CRIIMI MAE will now carry its Subordinated CMBS and
Mortgage Security collateral at fair market value where changes
in fair value are recorded as a component of stockholders equity.
As of March 31, 1998, the fair value is $133 million in excess of
their amortized cost basis.
For Generally Accepted Accounting Principles ("GAAP")
purposes, CRIIMI MAE recognizes income from Subordinated CMBS
using the effective interest method, using the anticipated yield
over the projected life of the investment. Changes in
anticipated yields are due to revisions in estimates of future
credit losses, losses incurred and actual prepayment speeds.
Changes in anticipated yield resulting from prepayments are
recognized over the remaining life of the investment with
recognition of a cumulative catch-up at the date of change from
the original investment date. CRIIMI MAE recognizes impairment
on its Subordinated CMBS whenever it determines that the current
estimate of expected future credit losses, exceeds future credit
losses as originally projected. Impairment losses are determined
by comparing the fair value of a Subordinated CMBS to its current
carrying amount, the difference being recognized as a loss in the
current period in the consolidated statement of income if the
fair value is less than amortized cost. If future credit loss
estimates are increased and the fair value of the related
<PAGE>
Page 9
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Summary of Significant Accounting Policies - Continued
Subordinated CMBS is in excess of its carrying amount then the
yield is adjusted to reflect the revised losses on a prospective
basis. Reduced estimates of credit losses are recognized as an
adjustment to the estimated yield over the remaining life of the
Subordinated CMBS.
CRIIMI MAE also holds commercial mortgage backed securities
which pay interest only (IO) and are treated for financial
statement purposes as Subordinated CMBS. The IOs are classified
as Available for Sale and are therefore carried at fair value.
For GAAP purposes, CRIIMI MAE recognizes income using the
effective interest method. At each reporting date, the effective
yield is recalculated based on the amortized cost of the IO and
the estimated future cash flows. This recalculated yield is then
used to recognize income until the next reporting date. The
amortized cost basis is then marked to market with any gain or
loss reflected in the equity section of the balance sheet.
CRIIMI MAE recognizes impairment whenever it determines that the
present value of the expected cash flow stream discounted at the
risk free rate for an instrument with comparable duration is less
than the amortized cost basis. Impairment losses are recognized
as a loss in the current period in the consolidated statement of
income thereby establishing a new cost basis in the IO CMBS.
Interest Rate Protection Agreements
-----------------------------------
CRIIMI MAE acquires interest rate protection agreements to
reduce its exposure to interest rate risk. The costs of such
agreements which qualify for hedge accounting are amortized over
the interest rate agreement term. To qualify for hedge
accounting, the interest rate protection agreement must meet two
criteria: (1) the debt to be hedged exposes CRIIMI MAE to
interest rate risk and (2) the interest rate protection agreement
reduces CRIIMI MAE's exposure to interest rate risk. In the
event that interest rate protection agreements are terminated,
the associated gain or loss is deferred over the remaining term
of the agreement, provided that the underlying hedged asset or
liability still exists. Amounts to be paid or received under
interest rate protection agreements are accrued currently and are
netted with interest expense for financial statement presentation
purposes. Additionally, in the event that interest rate
protection agreements do not qualify as hedges, such agreements
are reclassified to be investments accounted for at fair value,
with any gain or loss included as a component of income.
Consolidated Statements of Cash Flows
-------------------------------------
Cash payments made for interest during the three months
ended March 31, 1998 and 1997 were $24,442,342 and $16,849,098,
respectively.
Per Share Amounts
-----------------
Basic earnings per share amounts for the three months ended
<PAGE>
Page 10
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Summary of Significant Accounting Policies - Continued
March 31, 1998 and 1997 represent net income available to common
shareholders' divided by the weighted average common shares
outstanding during each period. Diluted earnings per share
amounts for the three months ended March 31, 1998 and 1997 are
adjusted for dilutive common stock equivalents for which CRIIMI
MAE includes stock options and certain classes of preferred
stock. See Note 12 for a reconciliation of basic earnings per
share to diluted earnings per share.
New Accounting Statements
-------------------------
During 1996, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard ("SFAS") No.
127 "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125" ("FAS 125"). This statement defers the
applicability of FAS 125 to repurchase agreements, dollar rolls,
securities lending and certain other transactions that occur
after December 31, 1997. CRIIMI MAE believes the deferral of
this aspect of FAS 125 will have no material impact on its
financial statements.
During 1997, FASB Issued SFAS No. 130 "Reporting
Comprehensive Income" ("FAS 130"). FAS 130 states that all items
that are required to be recognized under accounting standards as
components of comprehensive income are to be reported in the
statement of income. This would include net income as currently
reported by CRIIMI MAE adjusted for unrealized gains and losses
related to CRIIMI MAE mortgages and IO CMBS accounted for as
"available for sale". Net unrealized gains and losses on
mortgages and IO CMBS are currently reported in the shareholders'
equity section of the balance sheet. FAS 130 is effective
beginning January 1, 1998. For the quarters ended March 31, 1998
and 1997, comprehensive income under FAS 130 would be $14,168,668
and $10,154,000, respectively.
During 1997, FASB issued SFAS 131 "Disclosures about
Segments of an Enterprise and Related Information" ("FAS 131").
FAS 131 establishes standards for the way that public business
enterprises report information about operating segments and
related disclosures about products and services, geographical
areas and major customers. FAS 131 is effective for the year
ending 1998.
<PAGE>
Page 11
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Mortgage Assets - Subordinated CMBS
CRIIMI MAE has purchased mortgage assets which are not federally
insured or guaranteed (Refer to Note 6 for mortgage assets which are
federally insured or guaranteed).
The following table summarizes information related to these other
mortgage assets on an aggregate basis by pool:
<TABLE>
<CAPTION>
Original 3/31/98
Anticipated Anticipated
Unleveraged Unleveraged
Yield to Yield to
Pool(4) Maturity (1)(3) Maturity (2)(3)
- ------------ ------------ ------------
<S> <C> <C>
Mortgage Capital Funding, Inc.
Series 1993-C1 13.0% 14.2%
Series 1994-MC1 13.9% 13.9%
Series 1995-MC1 12.2% 12.1%
Series 1997-MC1 10.2% 10.2%
Series 1997-MC2 9.8% 9.8%
Nomura Asset Securities Corp.
Series 1994-C3 12.1% 12.1%
Series 1998-D6 8.9% 8.9%
Lehman Pass-Through Securities Inc.
Series 1994-A 11.5% 11.4%
Structured Mortgage Securities Corp.
Series 1995-M1 12.4% 12.4%
Fannie Mae Multifamily REMIC
Series 1996-M1 11.7% 11.6%
LB Commercial Conduit
Series 1995-C2 11.2% 11.2%
Series 1996-C2 11.9% 11.9%
DLJ Mortgage Acceptance Corp.
Series 1995-CF2 11.0% 11.0%
Series 1996-CF2 11.8% 11.7%
Series 1997-CF2 9.5% 9.5%
Asset Securitization Corp.
Series 1995-D1 11.5% 11.5%
Series 1995-MDIV 9.6% 9.6%
Series 1996-D2 12.4% 12.3%
Series 1996-D3 11.9% 11.8%
Series 1998 D6 9.0% 9.0%
Merrill Lynch Mortgage Investors, Inc.
Series 1995-C3 11.1% 11.0%
Series 1996-C1 8.8% 8.8%
Series 1996-C2 11.9% 11.9%
Series 1997-C1 9.5% 9.5%
Series 1997-C2 9.9% 9.9%
</TABLE>
<PAGE>
Page 12
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Mortgage Assets - Subordinated CMBS - Continued
<TABLE>
<CAPTION>
Original 3/31/98
Anticipated Anticipated
Unleveraged Unleveraged
Yield to Yield to
Pool(4) Maturity (1)(3) Maturity (2)(3)
- ------------ ------------ ------------
<S> <C> <C>
First Union-Lehman Brothers Commercial
Series 1997-C1 11.3% 11.3%
Series 1997-C2 10.0% 10.0%
Morgan Stanley Capital, Inc.
Series 1997 - WFI 10.2% 10.2%
Series 1998 - WFI 8.9% 8.9%
Commercial Mortgage Acceptance Corp.
Series 1997-MC1 8.9% 8.9%
JP Morgan Commercial
Series 1998-C6 8.9% 8.9%
Weighted Average 10.3%(3) 10.3%(3)
</TABLE>
(1) Represents the original anticipated yield to maturity of the
Subordinated CMBS, based on management's estimate of the timing and amount of
future credit losses and prepayments.
(2) Unless otherwise noted, changes in the March 31, 1998 anticipated yield
to maturity from that originally anticipated are primarily the result of
changes in prepayment assumptions relating to mortgage collateral.
(3) Represents the anticipated weighted average unleveraged yield over the
expected average life of the Company's Subordinated CMBS portfolio as of the
date of acquisition and March 31, 1998, respectively.
(4) As of March 31, 1998, CRIIMI MAE serviced a total CMBS pool of $22
billion. Approximately .5% of the total CMBS pool is specially serviced by
CRIIMI MAE, of which, .3% of the loans are specially serviced due to payment
default and the remainder is specially serviced due to non-payment default.
The aggregate investment by the underlying rating of the Subordinated
CMBS (except for IO CMBS shown below) is as follows:
<TABLE>
<CAPTION>
Face Amount Fair Value
as of as of Amortized Cost as of
March 31, 1998 March 31, 1998 (in millions)
Security Rating (in millions) % (in millions) March 31, 1998 December 31, 1997
- --------------- ------------------- -------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
AA- $ 1.1 .1 $ 1.1 $ 1.1 $ 5.6
BBB 4.0 .2 4.2 4.0 4.0
BB+ 79.1 4.0 67.1 66.6 8.6
BB 648.2 31.4 595.3 543.6 445.0
BB- 150.0 7.2 125.3 126.2 89.8
B+ 65.1 3.2 49.1 49.1 --
B 583.4 28.2 442.0 401.1 357.4
B- 127.4 6.2 71.3 67.1 44.6
CCC 27.6 1.3 10.9 10.8 10.9
Unrated 378.8 18.2 160.4 143.0 113.2
-------- ------ --------- -------- ---------
Total $2,064.7 100.0 $ 1,526.7 $1,412.6 (2) $ 1,079.1
-------- ------ --------- -------- ---------
-------- ------ --------- -------- ---------
</TABLE>
(1) The estimated fair values of Subordinated CMBS are based on the dealers'
quoted market prices or an average of market quotes for the Company's other
Subordinated CMBS.
(2) During the three months ended March 31, 1998, CRIIMI MAE purchased
tranches of subordinated CMBS from three separate transactions that have a
combined face value of approximately $474 million, and purchase price
aggregating approximately $337 million. Additionally the Company has entered
into agreements to purchase $400 million of Subordinated CMBS, subject to due
diligence. The transactions are anticipated to close in the second quarter.
<PAGE>
Page 13
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Mortgage Assets - Subordinated CMBS - Continued
The aggregate investment by the underlying rating of the Interest
Only CMBS held by CRIIMI MAE is as follows:
<TABLE>
<CAPTION>
3/31/98
Notional Amount Fair Value Anticipated
as of as of Amortized Cost as of Amortized Cost as of Unleveraged
March 31, 1998(1) March 31, 1998(2) (in millions) (in millions) Yield to
Security Rating (in millions) (in millions) March 31, 1998 December 31, 1997 Maturity
- --------------- ------------------ ---------------- -------------------- -------------------- -----------
<S> <C> <C> <C> <C> <C>
AAA $ 41.3 $ 7.3 $ 7.2 $ 7.2 7.7 %
B 38.7 28.2 28.2 27.5 10.4 %
------ ------ ------ ------
$ 80.0 $ 35.5 $ 35.4 $ 34.7
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
(1) The notional amounts of IO CMBS are calculated based on the principal
amount from which the pass-through rates are allocated.
(2) The estimated fair values of IO CMBS are based on the dealers' quoted
market prices.
The Subordinated CMBS tranches owned by CRIIMI MAE provide credit
support to the more senior tranches of the related commercial
securitization. Cash flow from the underlying mortgages generally is
allocated first to the senior tranches, with the most senior tranche
having a priority right to cash flow. Then, any remaining cash flow
is allocated generally among the other tranches in order of their
relative seniority. To the extent there are defaults and
unrecoverable losses on the underlying mortgages, resulting in reduced
cash flows, the subordinate tranche will bear this loss first. To the
extent there are losses in excess of the most subordinate tranches
stated right to principal and interest, then the remaining tranches
will bear such losses in order of their relative subordination.
The accounting treatment under GAAP requires that the income on
Subordinated CMBS be recorded based on the effective interest method
using the anticipated yield over the expected life of these mortgage
assets. This currently results in income which is lower for financial
statement purposes than for tax purposes. Additionally, this method
can result in GAAP income recognition which is greater than cash
received. For the quarter ended March 31, 1998, the amount of income
recognized in excess of cash due to the effective interest rate method
was $1,471,445.
CRIIMI MAE's anticipated returns on its Subordinated CMBS are
based upon a number of assumptions that are subject to certain
business and economic uncertainties and contingencies. Examples of
<PAGE>
Page 14
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Mortgage Assets - Subordinated CMBS - Continued
these include the prevailing interest rates on that portion of the
Subordinated CMBS which has been financed with floating rate debt,
interest payment shortfalls due to delinquencies on the underlying
mortgage loans, the ability to renew repurchase agreements and the
terms of any such renewed agreements and the availability of
alternative financing. Further examples include the timing and
magnitude of credit losses on the mortgage loans underlying the
Subordinated CMBS that are a result of the general condition of the
real estate market (including competition for tenants and their
related credit quality) and changes in market rental rates. As these
uncertainties and contingencies are difficult to predict and are
subject to future events which may alter these assumptions, no
assurance can be given that the anticipated yields to maturity,
discussed above and elsewhere, will be achieved.
As of March 31, 1998, the mortgage loans underlying CRIIMI MAE's
Subordinated CMBS portfolio were secured by properties of the types
and at the locations identified below:
<TABLE>
<CAPTION>
Property Type Percentage(3) Geographic(1) Percentage(3)
- ------------- ------------ ------------ -------------
<S> <C> <C> <C>
Multifamily 32 % California 17 %
Retail 28 % Texas 14 %
Hotel 14 % Florida 8 %
Office 12 % Other (2) 61 %
Other 14 %
</TABLE>
(1) No significant concentration by region.
(2) No other individual state makes up more than 5% of the total.
(3) Based on a percentage of the total unpaid principal balance of the
underlying loans.
Upon closing on the purchase of the Subordinated CMBS, CRIIMI
MAE, generally, enters into repurchase agreements which provide
financing to purchase the rated tranches of the Subordinated CMBS (the
unrated tranches are purchased with cash), until such time as CRIIMI
MAE is able to refinance the short-term, floating-rate debt with
longer-term, fixed-rate debt (see Note 10 for discussion of
financing). Generally, when purchasing Subordinated CMBS,
approximately 75% and 70% of the respective fair values of the BB and
B rated tranches are financed through repurchase agreements. As of
March 31, 1998, repurchase agreements in the amount of approximately
$850 million were outstanding related to Subordinated CMBS.
Additionally, as of March 31, 1998, securitized mortgage obligations
related to Subordinated CMBS were outstanding in the amount of $133
million, which were issued as a result of refinancing a portion of
repurchase agreements on Subordinated CMBS.
<PAGE>
Page 15
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Loan Origination Program
In 1996, CRIIMI MAE entered into a mortgage loan conduit program
agreement with a major financial institution (the Program). The
Program is designed to create pools of multifamily and commercial
mortgage loans, either through origination or acquisition, for the
purpose of issuing commercial mortgage-backed securities. During the
warehouse period, the financial institution will fund and originate in
its name all mortgage loans under the Program, and as collateral,
CRIIMI MAE is currently required to deposit ,on average, 15% of each
loan amount in a reserve account. In conjunction with the loan
origination program, the Company intends to continue to develop its
mezzanine loan program. As of March 31, 1998, CRIIMI MAE has funded
mezzanine loans in the amount of $3.7 million. Additionally,
subsidiaries of CRIIMI MAE will service the mortgage loans, and CRIIMI
MAE will facilitate any securitization of the loans. Prior to any
such securitization, the Company will take title and finance a portion
of the loans by creating and placing investment grade securities with
investors. The Company will take title to and retain the balance of
the cash flow as junior securities, as well as any prepayment
penalties. As of March 31, 1998 and December 31, 1997, CRIIMI MAE has
originated approximately $376 million and $210 million, respectively.
Also, as of March 31, 1998 and December 31, 1997 CRIIMI MAE has
deposits of $55 million and $31 million, respectively, in the reserve
account. The loans have a weighted average interest rate of 7.44% and
a weighted average maturity of 10 years as of March 31, 1998.
Additionally, in April 1998, CRIIMI MAE has announced it had joined
forces with a commercial mortgage capital company to originate "large loans"
under the "No-Lock" program introduced in 1997. The mortgage loans and loan
portfolios originated under this program will range from $30 million to $100
million.
6. Mortgage Assets - Mortgage Security Collateral and Mortgages
CRIIMI MAE's consolidated portfolio of mortgage security
collateral and mortgages is comprised of FHA-Insured Loans and GNMA
Mortgage-Backed Securities. Additionally, mortgage security
collateral includes Federal Home Loan Mortgage Corporation (Freddie
Mac) participation certificates which are collateralized by GNMA
Mortgage-Backed Securities, as discussed below. As of March 31, 1998,
approximately 21% of CRIIMI MAE's investment in mortgage security
collateral and mortgages were FHA-Insured Loans and approximately 79%
were GNMA Mortgage-Backed Securities (including loans which
collateralize Freddie Mac participation certificates). FHA-Insured
Loans and GNMA Mortgage-Backed Securities are collectively referred to
<PAGE>
Page 16
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Mortgage Assets - Mortgage Security Collateral and Mortgages -
Continued
as mortgages herein.
Through its wholly owned subsidiaries, CRIIMI MAE owns the
following mortgages directly and indirectly:
<TABLE>
<CAPTION>
As of March 31, 1998
---------------------
Weighted
Average
Number of Carrying Fair Effective Weighted Average
Mortgages Value Value(a) Interest Rate Remaining Term
--------- ------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
CRIIMI MAE (b) 5 $18,954,607 $ 18,954,607 8.09% 34 years
CRIIMI MAE Financial Corporation(b) 45 181,109,440 188,176,880 8.34% 31 years
CRIIMI MAE Financial Corporation II(b) 58 243,931,082 249,612,377 7.19% 29 years
CRIIMI MAE Financial Corporation III(b) 34 134,582,185 140,429,767 8.04% 31 years
--------- ------------ ------------
142 $578,577,314 $597,173,631
--------- ------------ ------------
--------- ------------ ------------
As of December 31, 1997
-------------------------
Weighted
Average
Number of Carrying Fair Effective Weighted Average
Mortgages Value Value(a) Interest Rate Remaining Term
--------- ------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
CRIIMI MAE 5 $ 18,888,883 $ 18,888,883 8.09% 34 years
CRIIMI MAE Financial Corporation 48 189,759,543 196,619,210 8.39% 31 years
CRIIMI MAE Financial Corporation II 59 247,614,722 252,208,500 7.19% 29 years
CRIIMI MAE Financial Corporation III 37 148,850,593 154,535,482 8.05% 31 years
--------- ------------ ------------
149 $605,113,741 $622,252,075
--------- ------------ ------------
--------- ------------ ------------
</TABLE>
(a) The estimated fair values of CRIIMI MAE's mortgages are presented in
accordance with generally accepted accounting principles which define fair
value as the amount at which a financial instrument could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidation sale. These estimated fair values, however, do not represent the
liquidation value or the market value of CRIIMI MAE. The fair value of the
Government Insured Multifamily Mortgages is based on quoted market prices.
(b) During the three months ended March 31, 1998, there were seven
prepayments of mortgages held by CRIIMI MAE and its financing subsidiaries.
These prepayments generated net proceeds of approximately $25.4 million and
resulted in net financial statement gains of approximately $46,449, which are
included in gains on mortgage dispositions on the accompanying consolidated
statement of income for the three months ended March 31, 1998.
<PAGE>
Page 17
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Reconciliation of Financial Statement Net Income to Tax
Basis Income
Reconciliations of the financial statement net income to the tax
basis income for the three months ended March 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
------------ ------------
<S> <C> <C>
Consolidated financial statement net income $ 13,895,428 $ 19,099,541
Adjustment due to accounting for subsidiary
as a pooling for financial statement
purposes and a purchase for tax purposes -- (2,132,614)
Mortgage dispositions 163,012 91,850
Reamortization of Subordinated CMBS 2,263,025 1,032,735
Amortization and other interest expense adjustments (476,412) (288,159)
Equity in earnings from investments 87,818 150,600
Amortization of assets acquired in the Merger 719,394 719,391
Other (9,448) (8,926)
------------ ------------
Tax basis income $ 16,642,817 $ 18,644,418
------------ ------------
------------ ------------
Dividends paid on preferred shares (1,639,497) (1,825,387)
------------ ------------
Tax basis income available to
common shareholders $ 15,003,320 $ 16,839,031
------------ ------------
------------ ------------
Tax basis income per share:
Recurring income before gains from CFR $ .34 $ 0.28
Capital gain from CFR -- 0.24
------------ ------------
Total tax basis income per share $ .34 $ 0.52
------------ ------------
------------ ------------
Tax Basis Shares Outstanding 44,413,164 32,372,471
------------ ------------
------------ ------------
</TABLE>
Differences in the financial statement net income and the tax
basis income available to common shares principally relate to
differences in the methods of accounting for the merger of the CRI
Mortgage Businesses, Subordinated CMBS, amortization of certain
deferred costs and, prior to 1998, the merger of the CRIIMI Funds.
8. Common Shares
In January 1998, CRIIMI MAE completed an offering of 2.389
million common shares at a price of $15 1/8 per share, resulting in
net proceeds of approximately $34 million. These proceeds were used
to paydown a working capital line, purchase Subordinated CMBS and to
fund a portion of the loan origination program.
In March 1998, CRIIMI MAE completed an offering of 2.6 million
<PAGE>
Page 18
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
common shares at an offering price of $15 5/16 per share, which
resulted in net offering proceeds of approximately $38 million. Net
proceeds of the offering were used to fund a portion of the loan
origination program and to purchase Subordinated CMBS.
In December 1997, CRIIMI MAE registered with the Securities and
Exchange Commission up to 3,000,000 shares of CRIIMI MAE common stock
("common shock") in connection with a new Dividend Reinvestment and
Stock Purchase Plan (the "Plan"). The Plan allows investors the
opportunity to purchase additional CRIIMI MAE Common Shares through
the reinvestments of CRIIMI MAE's dividends, optional cash payments
and initial cash investments. During the first quarter of 1998,
1.425 million common shares were issued in conjunction with the Plan,
resulting in net proceeds of approximately $21 million.
For the three months ended March 31, 1998, dividends of $.37 per
share were paid to common shareholders of record on March 20, 1998.
These dividends were paid on March 31, 1998.
9. Preferred Shares
CRIIMI MAE's charter authorizes the issuance of up to 25,000,000
shares of preferred stock, of which 150,000 shares have been
classified as Series A Preferred Shares, 3,000,000 shares have been
classified as Series B Preferred Shares and 300,000 shares have been
classified as Series C as of March 31, 1998. As of March 31, 1998 and
1997, there were no Series A Preferred Shares outstanding.
During the three months ended March 31, 1998, 49,794 Series B
Preferred Shares were converted into 113,748 common shares resulting
in 1,629,582 Series B Preferred Shares outstanding as of March 31,
1998. Dividends paid and accrued on Series B Preferred Shares totaled
$1,376,997 for the three months ended March 31, 1998.
In March 1997, CRIIMI MAE entered into an agreement with an
institutional investor pursuant to which the Company had the right to
sell, and such investor was obligated to purchase, Series C Cumulative
Convertible Preferred Stock at a price of $100 per share. The
preferred stock is convertible into common shares at the option of the
holders and is subject to redemption by CRIIMI MAE. During the three
months ended March 31, 1998, 50,000 Series C Preferred Shares were
converted into 344,827 common shares. Additionally, in February 1998,
the company issued the remaining 150,000 shares, generating proceeds
of $15 million. As of March 31, 1998, 250,000 Series C Preferred
Shares were outstanding. Dividends paid and accrued on Series C
Preferred Shares totaled $262,500 for the three months ended March 31,
1998.
<PAGE>
Page 19
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Obligations under Financing Facilities
The following table summarizes CRIIMI MAE's debt outstanding as
of March 31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
Three months ended March 31, 1998
Balance at Eff. rate Average Average Maturity
Type of Debt quarter end at qtr. end Balance Eff. Rate Date
- ------------ ------------ ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
Securitized Mortgage Obligations:
FHLMC Funding Note (1) 235,265,291 7.4% 235,519,365 7.4% September 2031
FNMA Funding Note (2) 141,685,298 7.3% 143,606,368 7.3% March 2035
CMOs (3) 171,247,415 7.4% 174,654,930 7.4% January 2033
Subordinated CMBS(4) 132,526,508 7.7% 134,794,092 7.8% July 1999-
March 2016
Repurchase Agreements-Subordinated CMBS 849,687,838 7.0% 603,776,592 7.0% May 1998 -
December 2000
Bank Term Loan(5) 4,350,000 3.9% 3,936,666 3.6% December 1998
July 1999
Working line of credit 30,000,000 7.4% 17,166,667 7.6% December 1998
Senior unsecured notes 99,883,914 9.1% 99,880,804 9.1% December 2002
--------------
Total $1,664,646,264
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1997
--------------------------------------------------------
Balance Eff. Rate Average Average
Type of Debt at year end at year end Balance Eff. Rate
- ------------ -------------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Securitized Mortgage Obligations:
FHLMC Funding Note (1) $ 235,773,439 7.4% $236,752,371 7.4%
FNMA Funding Note (2) 145,527,438 7.3% 150,431,262 7.3%
CMOs (3) 178,062,444 7.4% 187,986,472 7.4%
Subordinated CMBS (4) 137,061,676 7.7% 141,382,710 7.7%
Repurchase Agreements-
Subordinated CMBS 585,379,360 7.2% 280,516,984 7.0%
Bank Term Loans(5) 3,250,000 1.8% 5,006,078 2.2%
Working line of credit 30,000,000 7.2% 1,032,609 7.2%
Senior unsecured notes 99,877,695 9.1% 10,869,565 9.1%
--------------
Total $1,414,932,052
--------------
--------------
</TABLE>
<PAGE>
Page 20
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Obligations under Financing Facilities - Continued
(1) As of March 31, 1998 and December 31, 1997, the face amount of the note
was $243,832,509 and $244,429,739, respectively, with unamortized discount of
$8,567,218 and $8,656,300, respectively. During the three months ended March
31, 1998 and 1997, discount amortization of $89,082 and $82,432,
respectively, were recorded as interest expense.
(2) As of March 31, 1998 and December 31, 1997, the face amount of the note
was $144,077,327 and $147,927,688, respectively, with unamortized discount of
$2,392,029 and $2,400,250, respectively. During the three months ended March
31, 1998 and 1997, discount amortization of $8,221 and $65,073, respectively,
were recorded as interest expense.
(3) As of March 31, 1998 and December 31, 1997, the face amount of the note
was $175,870,648 and $182,848,907, respectively, with unamortized discount of
$4,623,233 and $4,786,463, respectively. During the three months ended March
31, 1998 and 1997, discount amortization of $163,230 and $105,252,
respectively, were recorded as interest expense.
(4) Balance represents face amount of notes, as the issuance did not include
any bond discount.
(5) The effective interest rate as of March 31, 1998 and December 31, 1997
includes the impact of a rate reduction agreement which was in place from
July 1995 through March 31, 1998, providing for a reduction in the rate on a
portion of the loan based on balances maintained at the bank.
Repurchase Agreements-Subordinated CMBS
- -----------------------------------------
As previously discussed, when purchasing Subordinated CMBS,
CRIIMI MAE initially finances (through repurchase agreements)
approximately 75% and 70%, generally, of the respective fair values of
the BB and B rated tranches of Subordinated CMBS. These repurchase
agreements are either provided by the issuer of the CMBS pool or
through master repurchase agreements, as discussed below. As of March
31, 1998, the repurchase agreements on Subordinated CMBS have maturity
dates ranging from May 1998 to December 2000 and have interest rates
that are generally based on the one-month London Interbank Offered
Rate (LIBOR), plus a spread ranging from 1.0% to 1.5%.
In September 1997, CRIIMI MAE entered into a three-year master
assignment agreement with a lender to finance up to $200 million of
additional and/or existing investments in lower rated Subordinated
CMBS. In early 1998, this agreement was amended to provide up to $350
million in secured borrowings. As of March 31, 1998 and December 31,
1997, approximately $213 million, and $152 million, respectively, in
borrowings were outstanding under this facility. Outstanding
borrowings under this master repurchase agreement are secured by the
financed Subordinated CMBS.
In addition, in early 1996, CRIIMI MAE entered into a three-year
master repurchase agreement with a lender to finance up to $200
million of additional and/or existing investments in lower rated
Subordinated CMBS. In early 1998, this agreement was amended to
provide for up to $500 million in secured borrowings. As of March 31,
1998 and December 31, 1997, approximately $416 million and $180
<PAGE>
Page 21
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Obligations under Financing Facilities - Continued
million, respectively, in borrowings were outstanding under this
facility. Outstanding borrowings under this master repurchase
agreement are secured by the financed Subordinated CMBS.
The repurchase agreements are secured by the rated tranches with
an aggregate fair value of approximately $1.2 billion as of March 31,
1998 and $891 million as of December 31, 1997. At March 31, 1998,
CRIIMI MAE had repurchase agreements with German American Capital
Corporation, Lehman Brothers Commercial Paper, First Union National
Bank of North Carolina, Merrill Lynch Mortgage Capital Inc., Citicorp
Securities, Inc., Morgan Stanley and Company International Limited,
Nomura Bermuda, Ltd., and DLJ Mortgage Capital Inc. These repurchase
agreements qualify as financings under FAS 125.
Senior Unsecured Notes
- ----------------------
In November 1997, CRIIMI MAE issued senior unsecured notes due on
December 1, 2002 in an aggregate principal amount of $100 million.
The Notes are unsecured and will be effectively subordinated to the
claims of any secured lender to the extent of the value of the
collateral securing such indebtedness. Interest on the Notes is
payable semi-annually in arrears on June 1 and December 1, commencing
June 1, 1998 at a fixed annual rate of 9.125%. The Notes are
redeemable at any time, in whole or in part, at the option of CRIIMI
MAE.
The Indenture contains certain covenants which, among other
things, could restrict the ability of the Company and its subsidiaries
to incur additional indebtedness, pay dividends, or make distributions
in respect of the Company's or such subsidiaries capital stock, make
other restricted payments, enter into transactions with affiliates or
related persons, or consolidate, merge or sell all or substantially
all of their assets. These covenants are subject to exceptions and
qualifications.
The Company cannot incur additional indebtedness (except for
Permitted Debt, which includes repurchase agreements, working capital
lines of credit, borrowings under facilities in place as of November
21, 1997), unless at the time of such incurrence either (a) the ratio
of Adjusted Earnings Available for Fixed Charges to Adjusted fixed
charges giving proforma effect for the new borrowings is greater than
1.75 to 1.0 or (b) the Adjusted Debt to Capital Ratio on a proforma
basis after giving effect to the incurrence of the new debt is less
than 2.0 to 1.0.
<PAGE>
Page 22
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Obligations under Financing Facilities - Continued
Bank Term Loans
- ---------------
In connection with the Merger, CRIIMI Management assumed certain
debt of the CRI Mortgage Businesses in the principal amount of
$9,100,000 (Bank Term Loan). Bank Term Loan is secured by certain
cash flows generated by CRIIMI MAE's direct and indirect interests in
the AIM Funds and is guaranteed by CRIIMI MAE. The loan requires
quarterly principal payments of $650,000 and matures on December 31,
1998. The amount outstanding as of March 31, 1998 and December 31,
1997 is $2.6 million and $3.2 million, respectively. Interest on the
loan is based on CRIIMI MAE's choice of one, two or three-month LIBOR,
plus a spread of 1.25%.
Working Capital Line of Credit
- ------------------------------
In late 1996, CRIIMI MAE entered into an unsecured working
capital line of credit provided by two lenders with a termination date
of December 31, 1998, which currently provides for up to $40 million
in borrowings. Outstanding borrowings under this line of credit bear
interest at one-month LIBOR, plus a spread of 1.75%. As of March 31,
1998 and December 31, 1997, $30 million in borrowings were outstanding
under this facility.
Other Debt Related Information
- ------------------------------
As previously stated, changes in interest rates will have no
impact on the cost of funds or the collateral requirements on CRIIMI
MAE's fixed-rate debt, which approximates 47% of CRIIMI MAE's
consolidated debt as of March 31, 1998. Fluctuations in interest
rates will continue to impact the value on that portion of CRIIMI
MAE's mortgage assets which are not match-funded and could impact
potential returns to shareholders through increased cost of funds on
the floating-rate debt in place. CRIIMI MAE has a series of interest
rate cap agreements in place in order to partially limit the adverse
effects of rising interest rates on the remaining floating-rate debt.
When CRIIMI MAE's cap agreements expire, CRIIMI MAE will have interest
rate risk to the extent interest rates increase on any floating-rate
borrowings unless the caps are replaced or other steps are taken to
mitigate this risk. However, as previously discussed, CRIIMI MAE's
investment policy requires that at least 75% of floating-rate debt be
hedged. As of March 31, 1998, 77% of CRIIMI MAE's floated-rate debt
is hedged. The flexibility in CRIIMI MAE's leverage is dependent
upon, among other things, the levels of unencumbered assets, which are
inherently linked to prevailing interest rates and changes in the
credit of the underlying asset. In certain circumstances, including,
<PAGE>
Page 23
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Obligations under Financing Facilities - Continued
among other things, increases in interest rates, changes in market
spreads, or decreases in credit quality of underlying assets, CRIIMI
MAE would be required to provide additional collateral in connection
with its short-term, floating-rate borrowing facilities. From time to
time, the Company has been required to fund such additional collateral
needs. In each instance, the Company has had adequate unencumbered
assets to meet its operating, investing and financing requirements,
and management continually monitors the levels of unencumbered
collateral.
CRIIMI MAE's ability to extend or refinance debt facilities upon
maturity will depend on a number of variables including, among other
things, CRIIMI MAE's financial condition and its current and projected
results from operations which are impacted by a number of variables.
Management continuously monitors CRIIMI MAE's overall financing and
hedging strategy in an effort to ensure that CRIIMI MAE is making
optimal use of its borrowing ability based on market conditions and
opportunities.
For the three months ended March 31, 1998, CRIIMI MAE's weighted
average cost of borrowing, including amortization of discounts and
deferred financing fees of approximately $1.1 million, was
approximately 7.7%. As of March 31, 1998, CRIIMI MAE's debt-to-equity
ratio was approximately 3.0 to 1.0. Under certain of CRIIMI MAE's
existing debt facilities, CRIIMI MAE's debt-to-equity ratio, as
defined, may not exceed 5.0 to 1.0.
11. Interest Rate Hedge Agreements
CRIIMI MAE has entered into interest rate protection ("caps")
agreements to partially limit the adverse effects of rising interest
rates on its floating-rate borrowings. Interest rate caps provide
protection to CRIIMI MAE to the extent interest rates, based on a
readily determinable interest rate index, increase above the stated
interest rate cap, in which case, CRIIMI MAE will receive payments
based on the difference between the index and the cap. None of CRIIMI
MAE's caps are held for trading purposes. As of March 31, 1998,
CRIIMI MAE held caps with a notional amount of approximately $685
million. The caps are used to hedge current variable rate debt and
variable rate debt expected to be incurred throughout the year to fund
the Company's planned acquisition of Subordinated CMBS.
<PAGE>
Page 24
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Interest Rate Hedge Agreements - Continued
<TABLE>
<CAPTION>
Notional
Amount Effective Date Maturity Date(b) Cap Index
- ------------ -------------------- ----------------- ------ -------
<S> <C> <C> <C> <C>
$ 50,000,000 June 25, 1993 June 25, 1998 6.5000% 3M LIBOR
50,000,000 July 20, 1993 July 20, 1998 6.2500% 3M LIBOR
35,000,000 February 2, 1994 February 2, 1999 6.1250% 1M LIBOR
100,000,000 April 8, 1997 April 10, 2000 6.6875% 1M LIBOR
100,000,000 September 22, 1997 September 22, 2000 6.6563% 1M LIBOR
100,000,000 November 7, 1997 November 7, 2000 6.6563% 1M LIBOR
50,000,000 December 23, 1997 December 23, 2000 6.9688% 1M LIBOR
100,000,000 March 11, 1998 March 10, 2001 6.6875% 1M LIBOR
100,000,000 March 31, 1998 March 31, 2001 6.6875% 1M LIBOR
- ------------
$685,000,000(a)
- ------------
- ------------
</TABLE>
(a) CRIIMI MAE's designated interest rate protection agreements hedge CRIIMI
MAE's floating-rate borrowing costs.
(b) The weighted average strike price of approximately 6.6% and a weighted
average remaining term for these interest rate cap agreements is
approximately 2.2 years.
CRIIMI MAE is exposed to credit loss in the event of
nonperformance by the counterparties to the interest rate protection
agreements should interest rates exceed the caps. However, management
does not anticipate nonperformance by any of the counterparties. All
of the counterparties have long-term debt ratings of A+ or above by
Standard and Poor's and A1 or above by Moody's. Management believes
that these caps are highly liquid. The cap could be sold or
transferred with the consent of the counterparties. Management does
not believe that this consent would be withheld. Although none of
CRIIMI MAE's caps are exchange-traded, there are a number of financial
institutions which enter into these types of transactions as part of
their day-to-day activities.
<PAGE>
Page 25
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Earnings Per Share
The following table reconciles basic and diluted earnings per
share under FAS 128 for the three months ended March 31, 1998 and
1997:
<TABLE>
<CAPTION>
For the three months ended For the three months ended
March 31, 1998 March 31, 1997
------------------------------------ ------------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
---------- ------------ ---------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
- ---------
Net Income Available
to Common
Shareholders $12,255,931 42,904,470 $0.29 $17,274,154 31,881,956 $0.54
Effect of Dilutive
Securities
- ------------------
Net effect of assumed
exercise of stock
options -- 943,732 -- 993,638
Convertible Preferred
Stock(1) 262,500 1,110,825 1,825,387 5,537,070
----------- ----------- ----------- -----------
Diluted EPS
- -----------
Income available to
Common Shareholders
and assumed
conversions(2) $12,518,431 44,959,027 $0.28 $19,099,541 38,412,664 $0.50
----------- ---------- ----- ----------- ---------- -----
----------- ---------- ----- ----------- ---------- -----
</TABLE>
(1) 1,629,582 shares of Series B Preferred Shares were outstanding at the
March 31, 1998. The common stock equivalents for these shares were not
included in the calculation of diluted EPS because the effect would be
anti-dilutive. For the quarter ended March 31, 1997, series A and B
Preferred Shares were dilutive and the common stock equivalents are
included in the calculation.
(2) Subsequent to March 31, 1998, CRIIMI MAE issued 159,045 shares in
connection with the dividend reinvestment plan.
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Transactions with Related Parties
Below is a summary of the related party transactions which occurred
during the three months ended March 31, 1998 and 1997. These items are
described further in the text which follows:
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
----------- -----------
<S> <C> <C>
AMOUNTS RECEIVED OR ACCRUED FROM RELATED PARTIES
- ------------------------------------------------
CRIIMI,Inc.
- -----------
Income (c) $ 353,448 $ 399,638
Return of capital (d) 814,771 450,096
------------ ------------
Total $ 1,168,219 $ 849,734
------------ ------------
------------ ------------
CRI/AIM Investment Limited
Partnership (d) $ 159,172 $ 167,988
------------ ------------
------------ ------------
Expense Reimbursements to CRIIMI Management(b)
- -------------------------------------------
CRI Liquidating and the AIM Funds $ 67,827 $ 94,032
------------ -----------
------------ -----------
PAYMENTS TO CRI:
- --------------------
Expense reimbursement - CRIIMI MAE
Management Inc. (g) $ 64,710 $ 109,786
------------ -----------
------------ -----------
PAYMENTS TO THE ADVISER
- -----------------------
Annual fee - CRI Liquidating (a)(f) $ -- $ 11,468
Incentive fee - CRI Liquidating (e) -- 958,081
------------ -----------
Total $ -- $ 969,549
------------ -----------
------------ -----------
Capitol Hotel Group (h) $ 9,841 $ --
------------ -----------
------------ -----------
</TABLE>
(a) Included in the accompanying consolidated statements of income as fees to
related party.
(b) Included as general and administrative expenses on the accompanying
consolidated statements of income.
(c) Included as equity in earnings from investments on the accompanying
consolidated statements of income.
(d) Included as a reduction of equity investments on the accompanying
consolidated balance sheets.
(e) Netted with gains on mortgage dispositions on the accompanying
consolidated statements of income. Due to the final liquidation of CRI
liquidating in 1997, no incentive fees are due for 1998.
(f) As a result of reaching the carryover CRIIMI I target yield during the
first quarter of 1997, CRI Liquidating paid deferred annual fees of
$12,726 during the three months ended March 31, 1997. Due to the final
liquidation of CRI Liquidating in 1997, no annual fees are due for 1998.
(g) Pursuant to an agreement between CRIIMI MAE and CRI (the CRI Administrative
Services Agreement), CRI provides CRIIMI MAE with certain administrative
and office facility services and other services, at cost, with respect to
certain aspects of CRIIMI MAE's business. CRIIMI MAE uses the services
provided under the CRI Administrative Services Agreement to the extent
such services are not performed by CRIIMI Management or provided by
another service provider. The CRI Administrative Services Agreement is
terminable on 30 days notice at any time by CRIIMI MAE.
(h) Included as a reduction of net income earned from Real Estate Owned
property which is included in other investment income on the
accompanying consolidated statements of income.
26
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Litigation
In June 1995, Edge Partners, L.P. (the Plaintiff), derivatively on
behalf of CRIIMI MAE, filed a Derivative Complaint in the District Court of
Maryland, Southern Division. This complaint was dismissed in December 1995.
The Plaintiff filed a First Amended Class and Derivative Complaint (the
Complaint) in February 1996. The Complaint names as defendants each of the
Directors who served on the board at the time of the Merger and CRIIMI MAE as
a nominal defendant. Each of the Directors has an indemnity from CRIIMI MAE.
Count I of the complaint alleges violations of Section 14(a) of the
Exchange Act for issuing a materially false and misleading proxy in
connection with the Merger and brings such count individually on its own
behalf and asks the court to certify such count as a class action. Count II
alleges a breach of fiduciary duty owed to CRIIMI MAE and its shareholders
and purports to bring such count derivatively in the right of and for the
benefit of CRIIMI MAE. Through the Complaint, the Plaintiff seeks, among
other relief, that unspecified damages be accounted to CRIIMI MAE, that the
stockholder vote in connection with the Merger be null and void and that
certain salaries and other remuneration paid to the Directors be returned to
CRIIMI MAE.
On February 3, 1998, the Company, the individual defendants and the
Plaintiff executed a settlement agreement. Under the terms of the settlement
agreement, the Company will neither make or receive any payments as a result
of the settlement, but will make, upon court approval, certain disclosures
and adopt a non-binding policy sought by the Plaintiff. The settlement
agreement was preliminarily approved by the court on February 12, 1998.
Stockholders of record as of February 3, 1998 will receive notice of the
proposed settlement and will have until April 28, 1998 to file any
objections. Final approval of the settlement is scheduled for May 14, 1998.
15. Subsequent Events
In May 1998, CRIIMI MAE completed the sale of $468 million investment
grade securities created through the resecuritization of $1.8 billion of
Subordinated CMBS. The transaction generated net proceeds of approximately
$160 million and match funded a portion of the company's assets and
liabilities. During 1997, FAS 125 "Accounting for Transfers and Servicing of
Financial Assets" became effective. This statement significantly changes the
accounting treatment for transfers of financial assets. FAS 125 changed
accounting standards to require transfers of assets to be accounted for on a
component basis instead of as an entire unit. Accordingly components
(securities) are treated as sales or retained interests based upon CRIIMI
MAE's ability to control the component. Components where control is not
retained are treated as sales and those where control is retained are treated
as retained interests. Because certain securities in the resecuritization
contain call provisions, CRIIMI MAE retains control of those securities.
27
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Subsequent Events - Continued
CRIIMI MAE recognized a gain of approximately $30 million on the sale of
$345 million investment grade securities sold without call provisions,
recognizing CRIIMI MAE's transfer of control on those securities. The sale of
$123 million investment grade securities with significant call provisions was
treated as a financing and resulted in an unrealized gain of $25 million.
CRIIMI MAE has placed call provisions on these securities to enable them to 1)
repurchase bonds if market conditions warrant, and 2) call bonds when it is no
longer cost effective to service them. The investment grade securities
treated as financing, as well as approximately $1.3 billion face amount of
investment grade and non-investment grade securities retained by CRIIMI MAE
are now required to be reflected on CRIIMI MAE's balance sheet at their fair
market value, because CRIIMI MAE no longer has the intent and ability to hold
these securities to maturity. Additionally, due to the sale treatment under
FAS 125, all remaining and future Subordinated CMBS and government insured
mortgages are required to be carried at fair market value. This
reclassification results in an unrealized gain of $85 million.
28
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction and Business Strategy
- ----------------------------------
Introduction
- ------------
CRIIMI MAE Inc.'s ("CRIIMI MAE" or the "Company") Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains statements that may be considered forward looking. These statements
contain a number of risks and uncertainties as discussed herein and in CRIIMI
MAE's other reports filed with the Securities and Exchange Commission that
could cause actual results to differ materially (See further discussion under
"Forward Looking Statements" on page 41).
General
- -------
CRIIMI MAE is a fully integrated commercial mortgage company structured
as a self-administered real estate investment trust (REIT). CRIIMI MAE's
primary activities include (i) acquiring non-investment grade subordinated
securities backed by first mortgage loans on multifamily, retail and other
commercial real estate ("Subordinated CMBS") and (ii) servicing, originating
and securitizing commercial mortgage loans and CMBS. CRIIMI MAE's portfolio
of assets consists of Subordinated CMBS and interests in government insured
or guaranteed mortgages secured by multifamily housing complexes located
throughout the United States ("Government Insured Mortgage Assets"). CRIIMI
MAE's focus on acquiring Subordinated CMBS and originating commercial
mortgage loans together with its expertise in underwriting and servicing
commercial mortgage loans, has enabled the Company to take advantage of the
rapid growth in the securitization of debt backed by commercial mortgage
loans.
CRIIMI MAE conducts its mortgage loan servicing and advisory operations
through its affiliate, CRIIMI MAE Services Limited Partnership (the "Services
Partnership"). As of March 31, 1998, the Services Partnership was
responsible for certain servicing functions on a mortgage loan portfolio of
approximately $23 billion, as compared to approximately $6.3 billion as of
March 31, 1997. CRIIMI MAE has increased its mortgage advisory and servicing
activities through its purchases of Subordinated CMBS by acquiring certain
servicing rights for the mortgage loans collateralizing the Subordinated
CMBS, as well as providing servicing on the loans closed through the CRIIMI
MAE loan origination program. CRIIMI MAE has been awarded Master Servicing
assignments on three CMBS portfolios totaling $2.2 billion. The addition of
Master Servicing to the Company's portfolio administration program provides
an additional revenue stream and gives the Company greater supervision over
the mortgage loans that back a securitization. CRIIMI MAE will
29
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
generally purchase Subordinated CMBS only when satisfactory arrangements
exist which enable it to closely monitor the underlying mortgage loans and
provide CRIIMI MAE with appropriate workout/foreclosure rights with respect
to the underlying mortgage loans due to its status as Special Servicer or
Master Servicer. CRIIMI MAE believes that all transactions entered into to
date have had such satisfactory arrangements.
Business Strategy
- -------------------
CRIIMI MAE believes that its position as a leading purchaser of
Subordinated CMBS, combined with its commercial loan servicing and
origination capabilities and its access to the capital markets, provides the
Company with a competitive advantage to capitalize on current opportunities
existing in the securitized debt market. Significant elements of CRIIMI MAE's
current business strategy are summarized below:
- - Increase its portfolio of Subordinated CMBS:
---------------------------------------------
During the quarter ended March 31, 1998, the Company
acquired Subordinated CMBS aggregating approximately $337
million in purchase price. Additionally, CRIIMI MAE has
entered into agreements to purchase Subordinated with an
aggregate purchase price of approximately $400 million. The
transactions are conditional upon the normal course of
review and due diligence and are scheduled to close in the
second quarter of 1998. This will allow CRIIMI MAE to
surpass its 1998 CMBS acquisition target of $600 million
seven months ahead of schedule. The Company currently expects
its CMBS acquisitions to exceed $1 billion for the year 1998.
The Company believes that its loan origination, servicing and
underwriting capabilities are competitive advantages as the
Company competes against other investors for the acquisition of
Subordinated CMBS.
- - Originate commercial mortgage loans:
------------------------------------
CRIIMI MAE intends to continue to originate and/or acquire
commercial mortgage loans. In 1997, the Company launched
its "No-Lock" conduit loan program, and through March 31,
1998, had originated $376 million through this program. The
program allows borrowers the flexibility to prepay loans at
any time by paying a predetermined schedule of prepayment
penalties. The Company expects to complete the first
securitization of these commercial loans, anticipated to
approximate $500 million, during the second quarter of 1998.
Additionally, in late 1998, the Company intends to complete
another larger securitization. As previously discussed, in
connection with any such securitization, CRIIMI MAE will
acquire and retain the mortgage loans on its books with the
intent to hold the loans until maturity or prepayment. The
Company will finance a portion of the loans by creating and
placing investment grade securities backed by these loans
with investors and will retain the balance of the cash flow,
as well as any prepayment penalties. CRIIMI MAE will also
serve as master and special servicer for the loan pool.
30
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
In April 1998, CRIIMI MAE announced it had joined forces
with a commercial mortgage capital company to originate
"large loans" under the "No-Lock" program. The mortgage
loans and loan portfolios originated under this program will
range from $30 million to $100 million.
In order to facilitate the growth of the program,
CRIIMI MAE also intends to open origination offices in Texas
and Chicago in 1998.
- - Expand the Company's servicing portfolio:
-----------------------------------------
In conjunction with the Company's anticipated growth in the
loan origination program and Subordinated CMBS acquisitions,
the servicing portfolio will increase accordingly. The
additional servicing will provide the Company with the
rights to actively oversee and manage its assets, as well as
generate additional income.
- - Resecuritize Subordinated CMBS:
-------------------------------
CRIIMI MAE intends to periodically resecuritize Subordinated
CMBS. By resecuritizing a substantial portion of the
Subordinated CMBS in its portfolio, CRIIMI MAE believes it
will better match a portion of its liabilities with a
portion of the assets, as such resecuritization transactions
allow the Company to refinance floating-rate, recourse debt
with longer-term, non recourse fixed-rate debt, and generate
additional proceeds to fund growth. During May 1998,
CRIIMI MAE completed its second resecuritization of
Subordinated CMBS with a face amount of $1.8
billion, as discussed further below.
- - Access Capital Markets:
----------------------
The Company expects to raise equity capital during 1998
through the issuance of both common and preferred equity,
the net proceeds of which are intended to be used primarily
to purchase Subordinated CMBS and fund a portion of loans
originated through CRIIMI MAE's "no-lock" programs. During
the first quarter of 1998, the Company has raised $108
million through equity offerings, comprised of $72 million
from two common shares offerings, $21 million from common
shares issued in connection with the Dividend Reinvestment
and Stock Purchase Plan and $15 million from the issuance of
preferred shares.
Results of Operations
- ---------------------
1998 versus 1997
- ----------------
Tax Basis Income
----------------
For the three months ended March 31, 1998, CRIIMI MAE earned
31
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
income available to common shareholders of approximately $15.0 million or
$0.34 per share, all recurring income, compared to recurring income available
to common shareholders of $9.2 million or $0.28 per share for the three
months ended March 31, 1997. This represented an increase in recurring income
of approximately 21 %. Total tax basis income for the period ended March 31,
1997 of $0.52 per share included $0.24 per share of non-recurring income from
the mortgage dispositions of a subsidiary that liquidated all of its assets
and dissolved as of December 31, 1997.
The primary factor resulting in the net increase in recurring income was
the increase associated with CRIIMI MAE's growing portfolio of Subordinated
CMBS. Also contributing to the increase was an increase in equity in
earnings from investments, specifically increased revenues from CRIIMI MAE
Services Limited Partnership and increases in other income (as further
described below). Partially offsetting these increases to recurring tax
basis income were increases in interest expense and general and
administrative expenses as further discussed under Financial Statement Net
Income and a decrease in mortgage interest earned due to the prepayment of
certain CRIIMI MAE mortgages during 1998 and 1997.
The primary factor resulting in the net decrease in total income during
this period was the net gain of $13.7 million from the disposition of CRI
Liquidating mortgages during the first quarter of 1997. These mortgage
dispositions were in conjunction with the final planned liquidation of CRI
Liquidating which was completed in 1997. Management believes that growth in
earnings from the execution of CRIIMI MAE's business plan will more than
offset the non-recurring gain earned from the liquidated subsidiary.
Financial Statement Net Income
------------------------------
Net recurring income available to common shareholders for financial
statement purposes was approximately $12.3 million for the three months ended
March 31, 1998, a 29% increase from approximately $7.5 million for the
corresponding period in 1997. On a basic earnings per share basis, financial
statement net recurring income for the three months ended March 31, 1998
increased approximately 26% to $0.29 per weighted average common share from
$0.23 per weighted average common share for the corresponding period in 1997.
Total basic earnings per share for the three months ended March 31, 1998 and
1997, was $0.29 and $0.54 per share, respectively. Descriptions of the
significant changes in financial statement net income are discussed below.
Mortgage Income
---------------
Mortgage income decreased by approximately $1.1 million or 8.5% to $11.6
million for the three months ended March 31, 1998 from $12.7 million for the
corresponding period in 1997. The decrease in mortgage income results from
the prepayment of mortgages held by CRIIMI MAE and its wholly owned
subsidiaries.
32
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
The prepayments aggregated approximately $25 million and $27 million of
amortized cost for the three months ended March 31, 1998 and the twelve
months ended December 31, 1997, respectively.
Income from Subordinated CMBS
- -----------------------------
Income from Subordinated CMBS increased by approximately $14.1 million
or 84.3% to $30.9 million for the three months ended March 31, 1998 from
$16.8 million for the corresponding period in 1997. This increase was the
result of the acquisition of Subordinated CMBS at purchase prices aggregating
approximately $337 million for the three months ended March 31, 1998 and $554
million during the twelve months ended December 31, 1997.
Generally accepted accounting principles requires that the income on
Subordinated CMBS be recorded based on the effective interest method using
the anticipated yield over the expected life of these mortgage assets. This
currently results in income which is lower for financial statement purposes
than for tax purposes. Based on the timing and amount of future credit
losses and certain other assumptions estimated by management, as discussed
below, the anticipated weighted average unleveraged yield over the expected
average life of CRIIMI MAE's Subordinated CMBS for financial statement
purposes as of March 31, 1998 was approximately 10.3%. Although there can be
no assurance, the anticipated weighted average leveraged yield over the
expected life of CRIIMI MAE's existing Subordinated CMBS for financial
statement purposes as of March 31, 1998 is approximately 16.6%. This return
was determined based on the anticipated yield over the expected weighted
average life of the Subordinated CMBS, which considers, among other things,
anticipated losses, net of interest expense attributable to the financing of
the rated tranches at current interest rates and borrowing amounts.
CRIIMI MAE's estimated returns on its Subordinated CMBS are based upon
a number of assumptions that are subject to certain business and economic
uncertainties and contingencies. Examples of these uncertainties and
contingencies include the prevailing interest rates on that portion of the
Subordinated CMBS which has been financed with floating rate debt, interest
payment shortfalls due to delinquencies on the underlying mortgage loans, the
ability to renew repurchase agreements and the terms of any such renewed
agreements and the availability of alternative financing. Further examples
of these uncertainties and contingencies include the timing and magnitude of
credit losses on the mortgage loans underlying the Subordinated CMBS that are
a result of the general condition of the real estate market (including
competition for tenants and their related credit quality) and changes in
market rental rates. As these uncertainties and contingencies are difficult
to predict and are subject to future events which may alter these
assumptions, no assurance can be given that the anticipated yields, discussed
above and elsewhere herein, will be achieved.
In making acquisitions of Subordinated CMBS, CRIIMI MAE applies its
experience in underwriting multifamily and other
33
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
commercial real estate to perform extensive due diligence on the properties
collateralizing the loans underlying the Subordinated CMBS. The Company's
employees have broad experience underwriting and servicing various types of
performing and nonperforming income-producing real estate, including
multifamily, retail and hotel properties. CRIIMI MAE "re-underwrites" or
reviews, a significant portion of the mortgage loans in a prospective pool by
reviewing historical and current operating records of the underlying real
estate assets, appraisals, environmental studies, market studies and
architectural and engineering studies, all to independently assess the
stabilized performance level of the underlying properties. In addition, the
Company conducts site visits at a substantial number of the properties. The
Company stresses the adjusted net operating incomes of the properties to
simulate certain recessionary scenarios and applies market or greater
capitalization rates to assess loan quality.
Equity In Earnings From Investments
- -----------------------------------
Equity in earnings from investments increased by approximately $488,000
or 60% to approximately $1.3 million for the three months ended March 31,
1998 as compared to $815,000 for the corresponding period in 1997. This
increase is due primarily to higher net income from Services Partnership,
which resulted from increases in servicing fee streams and float income
earned on escrow balances derived from the steadily expanding servicing
portfolio, which has grown to approximately $23 billion as of March 31, 1998,
as compared to approximately $6.3 billion as of March 31, 1997. The
increased float income and servicing fees were partially offset by increased
general and administrative expenses associated with the growth in the
servicing portfolio, as well as amortization of certain purchased servicing
rights.
Other Investment Income
- -----------------------
Other investment income increased by approximately $268,000 or 29% to
approximately $1.2 million for the three months ended March 31, 1998 as
compared to approximately $920,000 for the corresponding period in 1997.
This increase was primarily attributable to an increase in short-term
interest and other income earned during the first quarter of 1998 on the
amounts deposited in the loan origination reserve account, which had an
average balance of $42 million during the first quarter of 1998.
Approximately $705,000 of short-term interest income and net-carry income
were earned on these deposits for the period. Amounts earned on the
origination reserve account for the period ending March 31, 1997 were
immaterial. Partially offsetting this income was the decrease in short-term
interest income earned in 1997 by a subsidiary on the investment of mortgage
disposition proceeds pending distribution to shareholders.
34
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Interest Expense
- ----------------
Interest expense increased by approximately $9.1 million or 49.5% to
approximately $27.4 million for the three months ended March 31, 1998 from
approximately $18.3 million for the corresponding period in 1997. These
increases were principally a result of additional amounts borrowed in
connection with the acquisition of Subordinated CMBS during 1997 and the
first quarter of 1998.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased by approximately $590,000
or 24.6% to approximately $3.0 million for the three months ended March 31,
1998 as compared to approximately $2.4 million for the corresponding period
in 1997. The increase in general and administrative during these periods is
primarily the result of the continual growth of CRIIMI MAE's commercial
mortgage operations.
Gains/Losses on Mortgage Dispositions
- -------------------------------------
During the three months ended March 31, 1998, CRIIMI MAE and its
subsidiaries disposed of seven mortgages resulting in net gains of $46,000
for financial statement purposes. For the same period in 1997, CRI
Liquidating disposed of 11 mortgages, its interest in one limited partnership
participation agreement and a portion of its interest in another limited
partnership participation agreement, resulting in net gains of approximately
$17.3 million for financial statement purposes. These net gains were
partially offset by three prepayments of mortgage assets held by CRIIMI MAE
and its subsidiaries during the three months ended March 31, 1997 which
resulted in financial statement net losses of approximately $161,000.
Cash Flow
- ---------
1998 versus 1997
- ----------------
Net cash provided by operating activities decreased for the three
months ended March 31, 1998 as compared to the corresponding period in 1997
primarily due to the increase in receivables and other assets resulting
primarily from the increase in interest income receivable on Subordinated
CMBS as a result of acquisitions during 1997 and the first quarter of 1998
(as previously discussed) and prepayments from CRIIMI MAE's wholly owned
subsidiaries.
Net cash used in investing activities increased for the three months
ended March 31, 1998 as compared to the corresponding period in 1997
primarily as a result of increased purchases of Subordinated CMBS (as
previously discussed) and decreased proceeds from mortgage dispositions.
Net cash provided by financing activities increased for the
35
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
three months ended March 31, 1998 as compared to the corresponding period in
1997 primarily due to increased proceeds from debt used to fund portions of
Subordinated CMBS purchases and increased proceeds from equity offerings
completed during 1998 (as previously discussed) as compared to 1997.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Financial Flexibility
- --------------------
To meet its capital requirements, CRIIMI MAE uses proceeds from
long-term, fixed-rate debt refinancings, repurchase agreements, other
borrowings, issuances of common and preferred shares and an unsecured working
capital line of credit. In early 1998, CRIIMI MAE has raised approximately
$93 million from public offerings of common shares and common shares issued
in connection with the Dividend Reinvestment and Stock Purchase Plan and
approximately $15 million from a "Series C" Preferred Share private
placement.
In general, CRIIMI MAE initially funds a significant portion of its
Subordinated CMBS acquisitions with short-term, variable-rate debt. CRIIMI
MAE's financing strategy is to refinance a significant portion of this
short-term variable-rate acquisition debt with fixed-rate debt having
maturities that match those of the underlying collateral through
resecuritizations of its Subordinated CMBS. In May 1998, CRIIMI MAE
completed the second resecuritization of its Subordinated CMBS portfolio,
which under FAS 125 "Accounting for Transfers and servicing of Financial
Assets" ("FAS 125"), qualified for both sale and financing accounting.
Through the May 1998 transaction, CRIIMI MAE refinanced approximately $468
million of its variable rate debt with fixed-rate match-funded debt. The
transaction also generated net proceeds of approximately $160 million to be
used for future growth. CRIIMI MAE also recognized a gain of $30 million on
the sale of $345 million non-callable securities and an unrealized gain of
approximately $25 million on investment grade securities treated as financings
for accounting purposes and an additional unrealized gain of $85 million on
the Company's remaining securities reclassified at fair market value.
The Company's ability to execute its business strategy, including the
acquisition of additional Subordinated CMBS, and its loan origination and
securitization program, depends to a significant degree on its ability to
obtain additional capital. Factors which could affect the Company's access to
the capital markets, or the costs of such capital, include changes in
interest rates, general economic conditions and perception in the capital
markets of the Company's business, covenants under the Company's current and
future debt securities and credit facilities, results of operations,
leverage, financial conditions and business prospects.
The Company's financial flexibility is also affected by its ability to
borrow money in sufficient amounts and on favorable terms and by its ability
to renew or replace on a continuous
36
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
basis its maturing short-term borrowings. As previously discussed, in late
1997, CRIIMI MAE entered into a three-year master assignment agreement with a
lender to finance up to $200 million of additional and/or existing
investments in lower-rated Subordinated CMBS. In early 1998, this agreement
was amended to finance up to $350 million in secured borrowings. Outstanding
borrowings under this master assignment agreement are secured by the financed
Subordinated CMBS. In addition, in early 1996 CRIIMI MAE entered into a
three-year master repurchase agreement with a lender to finance up to $200
million of additional and/or existing investments in lower-rated Subordinated
CMBS. During late 1997, CRIIMI MAE amended this agreement to provide up to
$300 million in secured borrowings and extend the term to December 2000. In
March 1998, CRIIMI MAE further amended this agreement to provide financing up
to $500 million.
For the three months ended March 31, 1998, CRIIMI MAE's weighted
average cost of borrowing (including amortization of discounts and deferred
financing fees of approximately $1.1 million) was approximately 7.7%. As of
March 31, 1998, CRIIMI MAE's debt-to-equity ratio was approximately 3.0 to
1.0. Under certain of CRIIMI MAE's existing debt facilities, CRIIMI MAE's
debt-to-equity ratio, as defined, may not exceed 5.0 to 1.0.
CRIIMI MAE has a series of interest rate cap agreements in place in
order to partially limit the adverse effects of rising interest rates on the
floating-rate debt. When CRIIMI MAE's cap agreements expire, CRIIMI MAE will
have interest rate risk to the extent interest rates increase on any
floating-rate borrowings unless the caps are replaced or other steps are
taken to mitigate this risk. CRIIMI MAE's investment policy requires that at
least 75% of floating-rate debt be hedged; however, there can be no assurance
that the Company will be able to do so. As of March 31, 1998, 77% of CRIIMI
MAE's outstanding floating-rate debt is hedged with interest rate cap
agreements that have weighted average strike price of approximately 6.6% and
a weighted average remaining term of 2.2 years. The flexibility in CRIIMI
MAE's leverage is dependent upon, among other things, the levels of
unencumbered assets, which are inherently linked to prevailing interest rates
and in certain circumstances increases in interest rates, changes in market
spreads, or decreases in credit quality of underlying assets. Due to the
aforementioned factors, CRIIMI MAE would be required to provide additional
collateral in connection with its short-term, floating-rate borrowing
facilities. From time to time, the Company has been required to fund such
additional collateral needs. In each instance, the Company has had adequate
unencumbered assets to meet its operating, investing and financing
requirements, and management continually monitors the levels of unencumbered
collateral.
CRIIMI MAE's repurchase agreements are executed through a sale of
securities with a simultaneous agreement to repurchase them in the future at
the same price plus a contracted rate of interest. The Company's repurchase
agreements qualify as financings under Financial Accounting Standard 125,
"Accounting for Transfers and Servicing of Financial Assets and
37
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Extinguishment of Liabilities" and are accounted for as such. At March 31,
1998, CRIIMI MAE had repurchase agreements with German American Capital
Corporation, Lehman Brothers Commercial Paper, First Union National Bank of
North Carolina, Nomura Bermuda, Ltd., Morgan Stanley International Co., Ltd.,
Merrill Lynch Mortgage Capital Inc., Citicorp Securities Inc. and DLJ
Mortgage Capital Inc.
Dividends
- ---------
CRIIMI MAE's principal objectives are to enhance the value of CRIIMI
MAE's capital stock and to provide increasing dividends to its shareholders.
Tax basis recurring income, as well as financial statement recurring net
income increased for the three months ended March 31, 1998 as compared to the
corresponding periods in 1997 and, as a result, total dividends increased.
Dividends paid on Series B Preferred Shares were $0.845 per share for the
first quarter of 1998. Dividends paid on Series B Preferred Shares were
$0.797 per share for the quarter ended March 31, 1997. Dividends paid on
Series C Preferred Shares were $262,500 for the quarter ended March 31, 1998.
There were no Series C Preferred Shares outstanding prior to March 31, 1997.
Dividends totaling $50,848 were paid on the Series A Preferred Shares for the
quarter ending March 31, 1997.
The cash dividends paid by CRIIMI MAE and by its subsidiaries may vary
during each period due to several factors. Some of the factors which impact
CRIIMI MAE's dividend include (i) the level of income earned on uninsured
mortgage assets, such as Subordinated CMBS and originated loans, which varies
depending on prepayments, defaults, etc. (ii) the level of income earned on
CRIIMI MAE's or its subsidiaries' mortgage security collateral depending on
prepayments, defaults, etc., (iii) the fluctuating yields on short-term debt
and the rate at which CRIIMI MAE's LIBOR-based debt is priced, as well as the
rate CRIIMI MAE pays on its other borrowings, (iv) the yield at which
principal from scheduled monthly mortgage asset payments, mortgage
dispositions loan origination reserves, escrow deposits and distributions
from its subsidiaries can be reinvested, (v) changes in operating expenses,
and (vi) dividends paid on preferred shares. CRIIMI MAE's dividends will
also be impacted by the timing and amounts of cash flows attributable to its
other lines of business -mortgage servicing, advisory and origination
services.
REIT STATUS
- -----------
CRIIMI MAE has qualified and intends to continue to qualify as a REIT
under Sections 856-860 of the Internal Revenue Code. As a REIT, CRIIMI MAE
does not pay taxes at the corporate level. Qualification for treatment as a
REIT requires CRIIMI MAE to meet certain criteria, including certain
requirements regarding the nature of their ownership, assets, income and
distributions of taxable income. CRIIMI MAE however, may be subject to tax
at normal corporate rates on net income or capital gains not distributed.
38
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Investment Company Act
- ----------------------
CRIIMI MAE intends to conduct its business so as not to become
regulated as an investment company under the Investment Company Act. Under
the Investment Company Act, a non-exempt entity that is an investment company
is required to register with the Securities and Exchange Commission ("SEC")
and is subject to extensive, restrictive and potentially adverse regulation
relating to, among other things, operating methods, management, capital
structure, dividends and transactions with affiliates. The Investment Company
Act exempts entities that are "primarily engaged in the business of
purchasing or otherwise acquiring mortgages and other liens on and interests
in real estate" ("Qualifying Interests"). Under current interpretation by
the staff of the SEC, to qualify for this exemption, CRIIMI MAE, among other
things, must maintain at least 55% of its assets in Qualifying Interests.
Pursuant to SEC staff interpretations, CRIIMI MAE's Government Insured
Mortgage Assets are Qualifying Interests, but such investments currently
comprise only approximately 26% of the Company's assets. Subordinated CMBS
currently comprise approximately 65% of CRIIMI MAE's assets.
The Company will acquire Subordinated CMBS only when such mortgage
assets are collateralized by pools of first mortgage loans, when the Company
can monitor the performance of the underlying mortgage loans through loan
management and servicing rights, and when the Company has appropriate
workout/foreclosure rights with respect to the underlying mortgage loans.
When such arrangements exist, CRIIMI MAE believes that the related
Subordinated CMBS constitute Qualifying Interests for purposes of the
Investment Company Act. Therefore, CRIIMI MAE believes that it should not be
required to register as an "investment company" under the Investment Company
Act as long as it continues to invest primarily in such Subordinated CMBS
and/or in other Qualifying Interest. However, if the SEC or its staff were
to take a different position with respect to whether CRIIMI MAE's
Subordinated CMBS constitute Qualifying Interests, the Company could be
required to modify its business plan so that either (i) it would not be
required to register as an investment company or (ii) it would comply with
the Investment Company Act and be able to register as an investment company.
In such event (i) modification of the Company's business plan so that it
would not be required to register as an investment company would likely
entail a disposition of a significant portion of the Company's Subordinated
CMBS or the acquisition of significant additional assets, such as Government
Insured Mortgage Assets, which are Qualifying Interests or (ii) modification
of the Company's business plan to register as an investment company, which
would result in significantly increased operating expenses and would likely
entail significantly reducing the Company's indebtedness (including the
possible prepayment of the Company's repurchase agreement financing and/or
the Notes), which could also require it to sell a significant portion of its
assets. No assurances can be given that any such dispositions or
acquisitions of assets, or deleveraging, could be accomplished on favorable
terms. Any such modification of the Company's business plan
39
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
could have a material adverse effect on the Company. Further, if it were
established that the Company were an unregistered investment company, there
would be a risk that the Company would be subject to monetary penalties and
injunctive relief in an action brought by the SEC, that the Company would be
unable to enforce contracts with third parties and that third parties could
seek to obtain rescission of transactions undertaken during the period it was
established that the Company was an unregistered investment company. Any
such results would be likely to have a material adverse effect on the Company
and its ability to service its debt obligations.
OTHER EVENTS
- ------------
In June 1995, Edge Partners, L.P. (the Plaintiff), derivatively on
behalf of CRIIMI MAE, filed a Derivative Complaint in the District Court of
Maryland, Southern Division. This complaint was dismissed in December 1995.
The Plaintiff filed a First Amended Class and Derivative Complaint (the
Complaint) in February 1996. The Complaint names as defendants each of the
Directors who served on the board at the time of the Merger and CRIIMI MAE as
a nominal defendant. Each of the Directors has an indemnity from CRIIMI MAE.
Count I of the complaint alleges violations of Section 14(a) of the
Securities Exchange Act of 1934 for issuing a materially false and misleading
proxy in connection with the Merger and brings such count individually on its
own behalf and asks the court to certify such count as a class action. Count
II alleges a breach of fiduciary duty owed to CRIIMI MAE and its shareholders
and purports to bring such count derivatively in the right of and for the
benefit of CRIIMI MAE. Through the Complaint, the Plaintiff seeks, among
other relief, that unspecified damages be accounted to CRIIMI MAE, that the
stockholder vote in connection with the Merger be null and void, and that
certain salaries and other remuneration paid to the Directors be returned to
CRIIMI MAE.
On February 3, 1998, the Company, the individual defendants and the
Plaintiff executed a settlement agreement. Under the terms of the settlement
agreement, the Company will neither make or receive any payments as a result
of the settlement, but will make, upon court approval, certain disclosures
and adopt a non-binding policy sought by the Plaintiff. The settlement
agreement was preliminarily approved by the court on February 12, 1998.
Stockholders of record as of February 3, 1998 will receive notice of the
proposed settlement and will have until April 28, 1998 to file any
objections. Final approval of the settlement is scheduled for May 14, 1998.
40
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Forward-Looking Statements
- --------------------------
In accordance with the Private Securities Litigation Reform Act of
1995, the Company can obtain a "Safe Harbor" for forward-looking statements
by identifying those statements and by accompanying those statements with
cautionary statements which identify factors that could cause actual results
to differ from those in the forward-looking statements. Accordingly, the
following information contains or may contain forward-looking statements:
(1) information included or incorporated by reference in this Quarterly
Report on Form 10-Q, including, without limitation, statements made under
Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations, (2) information included or incorporated by reference
in future filings by the Company with the Securities and Exchange Commission
including, without limitation, statements with respect to growth, projected
revenues, earnings, returns and yields on its portfolio of mortgage assets,
the impact of interest rates, costs, and business strategies and plans
(including, without limitation, plans to purchase additional Subordinated
CMBS and other mortgage assets and plans to expand the servicing and
origination of mortgage assets), and (3) information contained in written
material, releases and oral statements issued by or on behalf of, the
Company, including, without limitation, statements with respect to growth,
projected revenues, earnings, returns and yields on its portfolio of mortgage
assets, the impact of interest rates, costs and business strategies and plans
(including, without limitation, plans to purchase additional subordinated
commercial mortgage-backed securities and other mortgage assets and plans to
expand the servicing and origination of mortgage assets). The Company's
actual results may differ materially from those contained in the
forward-looking statements identified above. Factors which may cause such a
difference to occur include, but are not limited to, (i) heightened
competition, including specifically increased competition for acceptable
mortgage asset purchase opportunities with financial institutions, including
banks, insurance companies, savings and loan associations, pension funds, and
other real estate investment trusts and investors in real estate and mortgage
assets which have investment objectives similar to those of the Company and
some of which may have greater financial resources than the Company, (ii) the
availability of suitable opportunities for the acquisition, ownership and
disposition of mortgage assets, and yields available from time to time on
such mortgage assets, (which, in turn, depend to a large extent on the type
of mortgage asset involved, prevailing interest rates, the nature and
geographical location of the property, competition and other factors, none of
which can be predicted with certainty), (iii) regulatory and litigation
matters, (iv) interest rates, (v) imbalances in cash available for
distribution caused by an unanticipated level of defaults and/or prepayments
on the Company's portfolio of mortgage assets, (vi) the Company's ability to
refinance debt on terms that are comparable to current terms when such debt
becomes due, and (vii) trends in the economy which affect confidence and
demand for the Company's
41
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
portfolio of mortgage assets, particularly trends affecting the Company's
assets.
Other
- -----
CRIIMI MAE is currently in the process of evaluating its information
technology infrastructure for Year 2000 compliance. The Company does not
expect that the cost to modify its information technology infrastructure to
be Year 2000 compliant will be material to its financial condition or results
of operations. The Company does not anticipate any material disruption in
its operations as a result of any failure by the Company to be in compliance.
The Company is currently evaluating Year 2000 compliance status of its
suppliers and borrowers. In the event that any of the Company's significant
suppliers or borrowers do not successfully and timely achieve Year 2000
compliance, the Company's business or operations could be adversely affected.
42
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Note 14 of the notes to the consolidated financial
statements of CRIIMI MAE Inc., which is incorporated herein by reference.
43
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Reference is made to Note 9 of the notes to the consolidated financial
statements of CRIIMI MAE Inc., which is incorporated herein by reference.
44
<PAGE>
PART II. OTHER INFORMATION
ITEM 6(a). EXHIBITS
The exhibits filed as part of this report are listed below:
Exhibit No. Description
---------- -----------
10(a) Master Loan and Security Agreement
dated as if March 31, 1998 between
CRIIMI MAE Inc and German American
Capital Corporation (filed herewith).
10(b) Master Assignment Agreement dated as of
November 25, 1997 between CRIIMI MAE Inc
and Lehman Commercial Paper, Inc (filed
herewith).
27 Financial Data Schedule (filed herewith)
ITEM 6(b). REPORTS ON FORM 8-K
Reports on form 8-K were filed on January 23, 1998, February 20, 1998,
March 12, 1998 and March 20, 1998.
45
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CRIIMI MAE INC.
May 15, 1998 /s/ Cynthia O. Azzara
- ---------------- -----------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Principal Accounting Officer
and Chief Financial Officer
46
<PAGE>
-----------------------------------------------------------------
MASTER LOAN AND SECURITY AGREEMENT
-----------------------------
Dated as of March 31, 1998
-----------------------------
CRIIMI MAE INC.
as Borrower
and
GERMAN AMERICAN CAPITAL CORPORATION
as Lender
-----------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
RECITALS 3
SECTION 1 Definitions and Accounting Matters 3
1.01 Certain Defined Terms 3
1.02 Accounting Terms and Determinations 11
SECTION 2 Advances, Note and Prepayments 11
2.01 Advances 11
2.02 Notes 11
2.03 Procedure for Borrowing 11
2.05 Establishment of Prepayment Account 12
2.04 Repayment of Advances; Interest 13
2.06 Limitation on Types of Advances; Illegality 13
2.07 Mandatory Prepayments or Pledge 14
2.08 Substitution 14
2.09 Optional Prepayments; Termination by Demand 15
2.10 Requirements of Law 15
2.11 Taxes 16
2.12 Curtailment or Extension of Termination Date 17
SECTION 3 Payments; Computations; Etc. 17
3.01 Payments 17
3.02 Computations 18
3.03 Fees 18
SECTION 4 Collateral Security 18
4.01 Collateral; Security Interest 18
4.02 Further Documentation 19
4.03 Changes in Locations, Name, etc. 19
4.04 Lender's Appointment as Attorney-in-Fact 19
4.05 Performance by Lender of Borrower's Obligations 20
4.06 Proceeds 21
4.07 Remedies 21
4.08 Limitation on Duties Regarding Presentation of
Collateral 23
4.09 Powers Coupled with an Interest 23
4.10 Release of Security Interest 23
SECTION 5 Conditions Precedent 23
5.01 Initial Advance 23
5.02 Initial and Subsequent Advances 25
SECTION 6 Representations and Warranties 26
SECTION 7 Covenants of the Borrower 27
SECTION 8 Events of Default 28
SECTION 9 Remedies Upon Default 31
SECTION 10 No Duty of Lender 32
SECTION 11 Miscellaneous 32
11.01 Waiver 32
11.02 Notices 32
11.03 Indemnification and Expenses 33
11.04 Amendments 33
11.05 Successors and Assigns 33
11.06 Survival 34
11.07 Captions 34
11.08 Counterparts 34
11.09 Governing Law; etc. 34
11.10 Consent to Jurisdiction and Arbitration 34
11.11 Waiver of Jury Trial 35
11.12 Hypothecation and Pledge of Collateral 35
11.13 Recording of Communications 35
11.14 Single Agreement 35
11.15 Entire Agreement; Severability 35
11.16 Assignability 36
11.17 Intent 36
11.18 Disclosures Relating to Certain Federal
Protections 36
11.19 Netting 36
11.20 No Reliance 37
11.21 Miscellaneous 37
EXHIBITS
EXHIBIT A Form of Promissory Note
EXHIBIT B Form of Opinion of Counsel to Borrower
EXHIBIT C Form of Notice of Borrowing and Pledge
EXHIBIT D Form of Confirmation Letter
EXHIBIT E Authorized Representatives of Borrower
</TABLE>
<PAGE>
MASTER LOAN AND SECURITY AGREEMENT
MASTER LOAN AND SECURITY AGREEMENT, dated as of March 31, 1998, between CRIIMI
MAE INC., a Maryland corporation (the "Borrower"), and GERMAN AMERICAN CAPITAL
CORPORATION, a Delaware corporation (the "Lender").
RECITALS
Heretofore, the Borrower and the Lender have entered into that certain
Committed Master Repurchase Agreement, dated as of March 28, 1996 (the "Existing
Agreement"), pursuant to which the Borrower pledged to the Lender certain
Securities. The Borrower and the Lender are entering into this Loan Agreement,
which supersedes the Existing Agreement and is a continuation of the agreement
set forth therein, as amended and modified herein.
The Borrower has requested that the Lender from time to time make
revolving credit loans to it to finance certain Securities (as defined
below), and the Lender is prepared to make such loans upon the terms and
conditions hereof. Accordingly, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1 Definitions and Accounting Matters
1.01 Certain Defined Terms. As used herein, the following terms shall have
the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Loan Agreement in the singular to have the same meanings when
used in the plural and vice versa):
"Act of Insolvency" means, with respect to any party, (i) and its
Affiliates, the filing of a petition, commencing, or authorizing the
commencement of any case or proceeding under any bankruptcy, insolvency,
reorganization, liquidation, dissolution or similar law relating to the
protection of creditors, or suffering any such petition or proceeding to be
commenced by another which is consented to, not timely contested or results in
entry of an order for relief; (ii) seeking the appointment of a receiver,
trustee, custodian or similar official for such party or an Affiliate or any
substantial part of the property of either, (iii) the appointment of a receiver,
conservator, or manager for such party or an Affiliate by any governmental
agency or authority having the jurisdiction to do so; (iv) the making or
offering by such party or an Affiliate of a composition with its creditors or a
general assignment for the benefit of creditors, (v) the admission by such party
or an Affiliate of such party's or such Affiliate's inability to pay its debts
or discharge its obligations as they become due or mature; or (vi) any
governmental authority or agency or any person, agency or entity acting or
purporting to act under governmental authority shall have taken any action to
condemn, seize or appropriate, or to assume custody or control of, all or any
substantial part of the property of such party or of any of its Affiliates, or
shall have taken any action to displace the management of such party or of any
of its Affiliates or to curtail its authority in the conduct of the business of
such party or of any of its Affiliates.
"Additional Collateral" shall have the meaning provided in Section
2.07(a) hereof.
"Advance" shall have the meaning provided in Section 2.01 hereof.
"Affiliate" means an affiliate of a party as such term is defined in
the United States Bankruptcy Code in effect from time to time.
"Applicable Margin" shall mean 1.50%.
"Approved Underwriter" means any of the following underwriters: Lehman
Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith
Barney Inc., Citicorp Securities Markets, Inc, Donaldson Lufkin & Jenrette
Securities Corporation, J.P. Morgan Inc., Morgan Stanley & Co. Incorporated.,
Deutsche Morgan Grenfell Inc., First Union, NationsBank, The Chase Manhattan
Bank, Goldman, Sachs & Company, and Nomura Securities International, Inc.
"Bankruptcy Code" shall mean the United States Bankruptcy Code of
1978, as amended from time to time.
"Borrower" shall have the meaning provided in the heading hereof.
<PAGE>
"Business Day" means a day other than (i) a Saturday or Sunday, or
(ii) a day in which the New York Stock Exchange or banks in the State of New
York or Commonwealth of Virginia are authorized or obligated by law or executive
order to be closed.
"Cash Equivalents" shall mean (a) securities with maturities of 90
days or less from the date of acquisition issued or fully guaranteed or insured
by the United States Government or any agency thereof, (b) certificates of
deposit and eurodollar time deposits with maturities of 90 days or less from the
date of acquisition and overnight bank deposits of any commercial bank having
capital and surplus in excess of $500,000,000, (c) repurchase obligations of any
commercial bank satisfying the requirements of clause (b) of this definition,
having a term of not more than seven days with respect to securities issued or
fully guaranteed or insured by the United States Government, (d) commercial
paper of a domestic issuer rated at least A-1 or the equivalent thereof by
Standard and Poor's Ratings Group ("S&P") or P-1 or the equivalent thereof by
Moody's Investors Service, Inc. ("Moody's") and in either case maturing within
90 days after the day of acquisition, (e) securities with maturities of 90 days
or less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be) are
rated at least A by S&P or A by Moody's, (f) securities with maturities of 90
days or less from the date of acquisition backed by standby letters of credit
issued by any commercial bank satisfying the requirements of clause (b) of this
definition or (g) shares of money market mutual or similar funds which invest
exclusively in assets satisfying the requirements of clauses (a) through (f) of
this definition.
"CMO Match Funded Non-Recourse Debt" means debt of a special purpose,
bankruptcy remote subsidiary as to which no recourse exists to the Company on
which (i) the principal amortization and maturity of such debt are based upon
the aggregate principal amortization and maturity of a like or greater amount of
the funded assets, and (ii) the interest rate of such debt is at a fixed rate;
provided, however, that the interest rate of such debt may be a floating rate if
(x) the funded assets include adjustable rate assets or (y) the funded assets
have been effectively swapped under an interest rate agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" shall have the meaning provided in Section 4.01(b)
hereof.
"Collateral Amount" means, with respect to any Advance, the amount
obtained by application of the Collateral Percentage to the Market Value of the
Collateral for such Advance.
"Collateral Deficit" shall have the meaning provided in Section
2.07(a) hereof.
"Collateral Excess" shall have the meaning provided in Section
2.07(b) hereof.
"Collateral Percentage" means the applicable percentage as determined
by Lender in its sole discretion and as set forth in the Confirmation.
"Commercial Conduit Type Loan" shall mean commercial Mortgage Loans
which (i) conform to traditional conduit quality securities standards, (ii) are
intended for either sale into a third party conduit program or for
securitization into a similar program, (iii) have a remaining term of at least
seven years and (iv) generally have a principal balance between $1,500,000 and
$30,000,000 at origination,(v) are ratable under rating agency standards, and
(vi) are either fixed rate or adjustable rate mortgage loans.
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with the Borrower within the meaning
of Section 4001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 414 of the Code.
<PAGE>
"CRIIMI MAE Holdings Master Loan and Security Agreement" shall mean
that certain Master Loan and Security Agreement, dated as of March 31, 1998,
between the Lender and CRIIMI MAE Holdings, L.P., a limited partnership of which
the Borrower is the general partner, as amended, supplemented or otherwise
modified from time to time.
"Default" shall mean an Event of Default or an event that with notice
or lapse of time or both would become an Event of Default.
"Defaulting Party" shall have the meaning provided in Section
11.20(b).
"Dollars" and "$" shall mean lawful money of the United States of
America.
"Effective Date" shall mean the date upon which the conditions
precedent set forth in Section 5.01 shall have been satisfied.
"Eligible Security" shall mean a rated or non-rated "B" piece
subordinate commercial mortgage-backed security, including commercial
mortgage-backed securities created from resecuritizations and interest only
commercial mortgage-backed securities.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business that
is a member of any group of organizations (i) described in Section 414(b) or (c)
of the Code of which the Borrower is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the
Borrower is a member.
"Event of Default" shall have the meaning provided in Section 8
hereof.
"Facility Fee" shall have the meaning provided in Section 3.03(a)
hereof.
"Federal Funds Rate" shall mean, for any day, the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Lender from three
federal funds brokers of recognized standing selected by it.
"Filings" shall have the meaning given in Section 4.01.
"Funding Date" shall mean the date on which an Advance is made
hereunder.
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time in the United States of America.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any court or arbitrator having jurisdiction over the Borrower,
any of its Subsidiaries or any of its properties.
"HUD" shall mean the U.S. Department of Housing and Urban Development, or any
federal agency or official thereof which may from time to time succeed to the
functions thereof.
<PAGE>
"Indebtedness" shall mean, of any Person at any date, without
duplication, (a) all indebtedness of such Person for borrowed money (whether by
loan or the issuance and sale of debt securities) or for the deferred purchase
price of property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced by a
note, bond, debenture or similar instrument, (c) all obligations of such Person
under financing leases, (d) all obligations of such Person in respect of letters
of credit, acceptances or similar instruments issued or created for the account
of such Person and (e) all liabilities secured by any Lien on any property owned
by such Person even though such Person has not assumed or otherwise become
liable for the payment thereof.
"Indemnified Party" shall have the meaning provided in Section 11.03
hereof.
"Interest Period" shall mean, with respect to any Advance, (i)
initially, the period commencing on the Funding Date with respect to such
Advance and ending on the date one month or three months thereafter when the
original LIBO Rate period expires (the "Reset Date"), and (ii) thereafter, each
period from the preceding Reset Date until the current LIBO Rate period expires.
Notwithstanding the foregoing, each Interest Period that commences on the last
Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate calendar month when the
Interest Period expires) shall end on the last Business Day of the appropriate
calendar month. Notwithstanding the foregoing: (i) no Interest Period may
begin before and end after the Termination Date or the Maturity Date; and
(ii) each Interest Period that would otherwise end on a day that is not a
Business Day shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on the next
preceding Business Day).
"Lender" shall have the meaning provided in the heading hereof.
"LIBO Base Rate" shall mean for any Advance, with respect to each day
during each Interest Period pertaining to such Advance, either (a) the rate per
annum equal to the rate appearing at page 5 of the Telerate Screen as one-month
LIBOR on the first day of such Interest Period, and if such rate shall not be so
quoted, the rate per annum at which the Lender is offered Dollar deposits at or
about 11:00 a.m., New York City time, on such date by prime banks in the
interbank eurodollar market where the eurodollar and foreign currency exchange
operations in respect of its Advances are then being conducted for delivery on
such day for a period of one month and in an amount comparable to the amount of
the Advances to be outstanding on such day or (b) the rate per annum equal to
the rate appearing at page 5 on the Telerate Screen as three-month LIBOR on the
first day of such Interest Period, and if such rate shall not be so quoted, the
rate per annum at which the Lender is offered Dollar deposits at or about 11:00
a.m., New York City time, on such date by prime banks in the interbank
eurodollar market where the eurodollar and foreign currency exchange operations
in respect of its Advances are then being conducted for delivery on such day for
a period of three months, and in an amount comparable to the amount of the
Advances to be outstanding on such day, as selected at the outset of each
Advance by the Borrower, as set forth by the Lender in either case in the
Confirmation.
"LIBO Rate" shall mean with respect to each day during each Interest
Period pertaining to an Advance, a rate per annum determined by the Lender in
accordance with the following formula (rounded upwards to the nearest 1/100th of
one percent), which rate as determined by the Lender shall be conclusive absent
manifest error by the Lender:
the applicable LIBO Base Rate
1.00 - LIBO Reserve Requirements
"LIBO Reserve Requirements" shall mean for any Interest Period for any
Advance, the aggregate (without duplication) of the rates (expressed as a
decimal fraction) of reserve requirements in effect on such day or during such
Interest Period, as applicable (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the Board
of Governors of the Federal Reserve System or other Governmental Authority
having jurisdiction with respect thereto), dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of such Board) maintained by a member bank of such
Governmental Authority.
<PAGE>
"Lien" shall mean any mortgage, lien, pledge, charge, security
interest or similar encumbrance.
"Loan Agreement" shall mean this Master Loan and Security Agreement,
as the same may be amended, supplemented or otherwise modified from time to
time.
"Loan Documents" shall mean this Loan Agreement and the Note.
"Market Value" shall mean as of any date with respect to the
Securities, the price at which such Securities could readily be sold as
determined by the Lender in its good faith discretion. In the event that, for
any date (each a "Determination Date") the Borrower disputes the Lender's
determination of the Market Value of any Securities, and the Borrower delivers
to the Lender, at or before 1:00 p.m. (eastern time) a Written Offer (as defined
below) to purchase such Security, then the Lender shall accept the purchase
price set forth in such Written Offer as the Market Value of such Security on
such Determination Date; provided, however, that such Written Offer shall only
be determinative of the Market Value of the Security on such Determination Date
and not on any other date. On the day next succeeding such Determination Date,
the Lender shall once again be entitled to determine Market Value in accordance
with the first sentence of this definition, unless and until the Borrower
delivers a new Written Offer at or before 1:00 p.m. (eastern time) on such
succeeding day. "Written Offer" means, with respect to any Securities, a
legally binding and enforceable, unconditional offer to purchase all of such
Securities, at a stated price that is expressed as a spread over a point of the
U.S. Treasury Securities curve and that is (a) made by an Approved Underwriter;
(b) set forth in writing on such Approved Underwriter's letterhead; and (c) is
open and binding for at least three (3) Business Days. In all events, in
determining Market Value, Lender shall not take into account any Securities with
respect to which (1) there is a breach of a representation, warranty or covenant
made by Borrower in this Loan Agreement that materially adversely affects
Lender's interest in such Security and which breach has not been cured or (ii)
for which a default exists in payment of interest or principal otherwise
required to be paid under the applicable Pooling and Servicing Agreement for
more than 30 days. Absent manifest error, Lender's determination in accordance
with this definition shall be conclusive for purposes of this Loan Agreement.
"Material Adverse Effect" shall mean a material adverse effect on
(a) the business, assets, property, business, condition (financial or otherwise)
or prospects of the Borrower, (b) the ability of the Borrower to perform its
obligations under any of the Loan Documents to which it is a party, (c) the
validity or enforceability of any of the Loan Documents, (d) the rights and
remedies of the Lender under any of the Loan Documents, (e) the timely payment
of the principal of or interest on the Advances or other amounts payable in
connection therewith or (f) the Collateral.
"Maturity Date" shall mean the date set forth in the related
Confirmation as the date on which such Advance is due and payable.
"Maximum Credit" shall mean $ 500,000,000 minus the outstanding principal
balance of all Advances under the CRIIMI MAE Holdings Master Loan and Security
Agreement.
"Mortgage Warehouse Debt" shall mean debt of any person under any
warehouse line of credit, mortgage loan repurchase agreement or similar facility
or under any commercial paper program (i) that is incurred for the purpose of
funding the origination of mortgage loans or mortgage notes that are intended to
be sold to investors or securitized; and (ii) that in the case of any warehouse
line of credit or similar facility is, or, in the case of any commercial paper
program, the letters of credit or revolving credit facility providing credit
enhancement or liquidity backup for such commercial paper program are, secured
by collateral consisting of Commercial Conduit Type Loans owned by such person,
and (c) under which no Commercial Conduit Type Loan shall be pledged to secure
indebtedness for a period in excess of 90 days and (d) the outstanding amount of
which shall not exceed 90% of the market value of the Commercial Conduit Type
Loans securing such debt. No warehouse line of credit, mortgage loan repurchase
agreement or similar facility or commercial paper program shall commingle
Commercial Conduit Type Loans and mortgage backed securities as collateral.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
<PAGE>
"Nondefaulting Party" shall have the meaning provided in Section
11.20(b).
"Non-Excluded Taxes" shall have the meaning provided in Section
2.11(a) hereof.
"Non-Use Fee" shall have the meaning provided in Section 3.03.
"Note" shall mean the promissory note provided for by Section 2.02(a)
hereof for Advances and any promissory note delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Notice of Borrowing and Pledge" shall have the meaning provided in
Section 2.03(a) hereof.
"Payment Account" shall have the meaning set forth in Section 2.04.
"Payment Account Bank" shall have the meaning set forth in Section
2.04.
"Payment Date" shall mean the 26th day of each calendar month, or if
such day is not a Business Day, the next succeeding Business Day.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, limited liability company, trust,
unincorporated association, government (or any agency, instrumentality or
political subdivision thereof) or any other entity of whatever nature.
"Plan" shall mean at a particular time, any employee benefit plan
which is covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"Pooling and Servicing Agreement" means any pooling and servicing
agreement governing the underlying mortgage loans which comprise any of the
Securities.
"Post-Default Rate" shall mean, in respect of any principal of any
Advance or any other amount under this Loan Agreement, the Note or any other
Loan Document that is not paid when due to the Lender (whether at stated
maturity, by acceleration, by optional or mandatory prepayment or otherwise), a
rate per annum during the period from and including the due date to but
excluding the date on which such amount is paid in full equal to the applicable
LIBO Rate plus the Applicable Margin plus $100 per day.
"Property" shall mean any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day notice
period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
Section 2615.
"Reset Date" shall have the meaning set forth in the definition of
Interest Period.
"Requirement of Law" shall mean as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
<PAGE>
"Secured Obligations" shall mean the unpaid principal amount of, and
interest on the Advances, and all other obligations and liabilities of the
Borrower to the Lender, whether direct or indirect, absolute or contingent, due
or to become due, or now existing or hereafter incurred, which may arise under,
out of or in connection with this Loan Agreement, the Note, any other Loan
Document and any other document made, delivered or given in connection herewith
or therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without limitation,
all fees and disbursements of counsel to the Lender that are required to be paid
by the Borrower pursuant to the terms hereof or thereof) or otherwise. For
purposes hereof, "interest" shall include, without limitation, interest accruing
after the maturity of the Advances and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, relating to the Borrower, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding.
"Security" shall mean an Eligible Security which has been pledged to
the Lender or additional securities pledged as Additional Collateral to the
Lender.
"Security Schedule" shall mean a schedule of Securities containing
information with respect to each Security, to be delivered by the Borrower to
the Lender pursuant to Section 2.03(a) as shall be mutually agreed upon by the
Lender and the Borrower.
"Single Employer Plan" shall mean any Plan which is covered by Title
IV of ERISA, but which is not a Multiemployer Plan.
"Subsidiary" shall mean, with respect to any Person, any other Person
of which at least a majority of the securities or other ownership interests
having by the terms thereof ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions of such
corporation, partnership or other entity (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.
"Termination Date" shall mean December 20, 1999 or such earlier date
on which this Loan Agreement shall terminate in accordance with the provisions
hereof or by operation of law, as same may be extended in accordance with
Section 2.12 hereof.
"Underlying Mortgage Loans" means mortgage loans represented by and
underlying each Security.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect on the date hereof in the State of New York; provided that if by reason
of mandatory provisions of law, the perfection or the effect of perfection or
non-perfection of the security interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than New York,
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.
1.02 Accounting Terms and Determinations Except as otherwise
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Lender hereunder shall be
prepared, in accordance with GAAP.
SECTION 2 Advances, Note and Prepayments
2.01 Advances Subject to the terms and conditions of this Loan
Agreement, the Lender agrees to make loans (individually, an "Advance";
collectively, the "Advances") to the Borrower, from time to time on any Business
Day from and including the Effective Date to but excluding the Termination Date,
in an aggregate principal amount at any one time outstanding up to but not
exceeding the Maximum Credit. Subject to the terms and conditions of this Loan
Agreement, the Borrower may borrow, repay and reborrow hereunder.
<PAGE>
2.02 Notes
(a) The Advances made by the Lender shall be evidenced by a
single promissory note of the Borrower substantially in the form of Exhibit A
hereto (the "Note"), dated the date hereof, payable to the Lender in a principal
amount equal to the amount of the Maximum Credit and otherwise duly completed.
The Lender shall have the right to have its Note subdivided, by exchange for
promissory notes of lesser denominations or otherwise.
(b) The date, amount and interest rate of each Advance made by
the Lender to the Borrower, and each payment made on account of the principal
and interest thereof, shall be recorded by the Lender on its books and, prior to
any transfer of the Note, endorsed by the Lender on the schedule attached to the
Note or any continuation thereof; provided that the failure of the Lender to
make any such recordation or endorsement shall not affect the obligations of the
Borrower to make a payment when due of any amount owing hereunder or under the
Note in respect of the Advances.
2.03 Procedure for Borrowing
(a) The Borrower may request a borrowing hereunder, on any Business
Day during the period from and including the Effective Date to and including the
Termination Date, by delivering to the Lender an irrevocable written Notice of
Borrowing and Pledge substantially in the form of Exhibit C hereto (a "Notice of
Borrowing and Pledge"), appropriately completed which Notice of Borrowing and
Pledge must be received by the Lender: (1) with respect to Securities which
Lender has already underwritten, 2 Business Days prior to the requested Funding
Date or (2) with respect to Securities which Lender has not previously
underwritten, 20 Business Days prior to the requested Funding Date. Such Notice
of Borrowing and Pledge shall (i) include a Security Schedule in respect of the
Securities that the Borrower proposes to pledge to the Lender in connection with
such Advance, (ii) contain the amount of the requested Advances, which shall in
all events be at least equal to $1,000,000, to be made on such Funding Date
(setting forth the amount of the Advance allocable to each Security set forth on
the attached Security Schedule), (iii) specify the requested Funding Date, and
(iv) contain (by attachment) such other information reasonably requested by the
Lender from time to time. Upon receiving such Notice of Borrowing and Pledge,
the Lender shall promptly deliver to Borrower a written confirmation in the form
of Exhibit D attached hereto (a "Confirmation"). Such Confirmation shall
describe the Securities (including CUSIP number, if any), identify Lender and
Borrower and set forth (i) the Funding Date, (ii) the amount of the Advance
(iii) the applicable Maturity Date (unless such advance matures on demand), (iv)
the LIBO Base Rate applicable to the Advance; (v) the Collateral Amount, (vi)
the Applicable Margin and any additional terms or conditions not inconsistent
with this Loan Agreement. Each Confirmation, together with this Loan Agreement,
shall be conclusive evidence of the terms of the Advance covered thereby unless
objected to in writing by the Borrower no more than two (2) Business Days after
the date the Confirmation was received by the Borrower or unless a corrected
Confirmation is sent by Lender. An objection sent by the Borrower must state
specifically that the writing is an objection, must specify the provision(s)
being objected to by the Borrower, must set forth such provision(s) in the
manner that the Borrower believes they should be stated, and must be received by
Lender no more than two (2) Business Days after the Confirmation was received by
the Borrower. Subject to Section 5 hereof, such Advance will then be made
available to the Borrower by the Lender transferring, via wire transfer
(pursuant to wire transfer instructions provided by the Borrower on or prior to
such Funding Date) the aggregate amount of such Advance in immediately available
funds.
(b) On the Maturity Date, termination of the Advance will be effected
by transfer to Borrower or its designee of the Securities in transferable form
(and any Income in respect thereof received by Lender not previously credited or
transferred to, or applied to the obligations of, Borrower pursuant to Section
2.04(b)) against the simultaneous transfer of the outstanding principal amount,
plus any accrued interest and all other amounts due with respect to the Advance
to an account of Lender. Notwithstanding the foregoing, unless the Borrower is
notified in writing by the Lender at least five (5) Business Days prior to any
Maturity Date, and provided that no Event of Default exists and is continuing,
such Securities shall automatically become subject to a new Advance with the
same terms and conditions as the original Advance, and the Maturity Date with
respect thereto shall be the date determined by the same number of days from the
initial Funding Date to the initial Maturity Date for the original Advance.
Subject to the preceding sentence, each Advance shall continue to be
automatically renewed for the same period of time as the original Advance,
provided that, if the Maturity Date determined in accordance with the preceding
sentence is later than the Termination Date, the Maturity Date for any such
Advance shall be automatically reset to the Termination Date.
<PAGE>
2.04 Establishment of Payment Account". On each Payment Date, all
Income in respect of the Collateral shall be paid to and distributed by Lender
as follows: first, to accrued but unpaid interest on the Advances, second, to
the amount of any Collateral Deficit described in Section 2.07(a) (provided
that, at Borrower's option, Borrower may deliver additional Securities to Lender
within the time periods required in Section 2.07(a) in lieu of having Lender
apply Income to such Collateral Deficit), third, to the amount of any Commitment
or Non-Use Fee due and owing, and fourth, to the Borrower on such Payment Date.
2.05 Repayment of Advances; Interest
(a) The Borrower hereby promises to repay in full on the
applicable Maturity Date the outstanding principal amount of the Advance due on
such Maturity Date; provided, that, if the Advance is automatically extended as
provided in Section 2.03(b), payment of the outstanding principal amount of the
Advance shall be due on the Maturity Date of said renewed Advance.
(b) The Borrower hereby promises to pay to the Lender interest on the unpaid
principal amount of each Advance for the period from and including the Funding
Date of such Advance to but excluding the date such Advance shall be paid in
full, at a rate per annum equal to the applicable LIBO Rate plus the Applicable
Margin. Notwithstanding the foregoing, the Borrower hereby promises to pay to
the Lender interest at the applicable Post-Default Rate on any principal of any
Advance and on any other amount payable by the Borrower hereunder or under the
Note that shall not be paid in full when due (whether at stated maturity, by
acceleration or by mandatory prepayment or otherwise) for the period from and
including the due date thereof to but excluding the date the same is paid in
full. Accrued interest on each Advance shall be payable monthly on each Payment
Date and on the Termination Date. Notwithstanding the foregoing, interest
accruing at the Post-Default Rate shall be payable to the Lender on demand.
Promptly after the determination of any interest rate provided for herein or any
change therein, the Lender shall give notice thereof to the Borrower.
2.06 Limitation on Types of Advances; Illegality. Anything herein to
the contrary notwithstanding, if, on or prior to the determination of any LIBO
Base Rate:
(a) the Lender determines, which determination shall be
conclusive, that quotations of interest rates for the relevant deposits referred
to in the definition of "LIBO Base Rate" in Section 1.01 hereof are not being
provided in the relevant amounts or for the relevant maturities for purposes of
determining rates of interest for Advances as provided herein; or
(b) the Lender determines, which determination shall be
conclusive, that the relevant rate of interest referred to in the definition of
"LIBO Base Rate" in Section 1.01 hereof upon the basis of which the rate of
interest for Advances is to be determined is not likely adequately to cover the
cost to the Lender of making or maintaining Advances; or
(c) it becomes unlawful for the Lender to honor its obligation
to make or maintain Advances hereunder using a LIBO Rate;
then the Lender shall give the Borrower prompt notice thereof and, so long as
such condition remains in effect, the Lender shall be under no obligation to
make additional Advances, and the Borrower shall, at its option, either prepay
all such Advances as may be outstanding or pay interest on such Advances at a
rate per annum equal to the Federal Funds Rate plus the Applicable Margin plus
0.25%.
2.07 Mandatory Prepayments or Pledge
a) If at any time the aggregate Market Value of all Securities
subject to all Advances is less than the aggregate Collateral Amount for all
such Advances (a "Collateral Deficit"), then Lender may, by written notice to
Borrower, require Borrower to transfer to Lender or its designee within 48 hours
following receipt of such written notice additional Securities reasonably
acceptable to Lender and/or cash ("Additional Collateral"), so that the cash and
aggregate Market Value of the Securities, including any such Additional
Collateral, will thereupon equal or exceed the aggregate Collateral Amount. For
purposes of this paragraph, United States guaranteed treasury securities, and
GNMA, FHLMC or FNMA guaranteed securities shall be deemed Securities reasonably
acceptable to Lender.
<PAGE>
(b) If at any time the aggregate Market Value of all Securities
subject to all Advances exceeds the aggregate Collateral Amount for all such
Advances (a "Collateral Excess"), then Borrower may, by written notice to
Lender, require Lender to transfer to Borrower or its designee within 48 hours
following receipt of such written notice Securities and/or cash so that the cash
and aggregate Market Value of the Securities, after deduction of any such
Securities and/or cash so transferred, will thereupon not exceed the aggregate
Collateral Amount.
(c) Notice required pursuant to subsections (a) or (b) above may
be given by any means of telecopier or telegraphic transmission. A notice for
the payment or delivery in respect of a Collateral Deficit or Collateral Excess,
as the case may be, received before 1:00 p.m. on a Business Day, local time of
the party receiving the notice, must be met not later than 5:00 p.m. (New York
time) on the Business Day following the date on which notice was given. Any
notice given on a Business Date after 1:00 p.m., New York time of the party
receiving the notice, shall be met not later than 5:00 p.m., (New York time) on
the second Business Day following the date on which notice was given. The
failure of Lender or Borrower, on any one or more occasions, to exercise its
rights under subsections (a) or (b) of this Section, respectively, shall not
change or alter the terms and conditions to which this Loan Agreement is subject
or limit the right of the Lender or Borrower to do so at a later date. Lender
and Borrower agree that a failure or delay to exercise its rights under
subsections (a) or (b) of this Section shall not limit either party's rights
under this Loan Agreement or otherwise existing by law or in any way create
additional rights for the other party.
2.08 Substitution
(a) Subject to Section 2.08(b), Borrower may, upon fifteen (15)
Business Days written notice to Lender, substitute other Securities for any
pledged Securities, provided, however, that the fifteen (15) Business Days
written notice requirement shall not apply to any substitution made for the
purpose of satisfying a Collateral Deficit pursuant to Section 2.07(a). Such
substitution shall be made by (i) the transfer to the Lender of such substituted
Securities, and (ii) the transfer to Borrower or its designee of the Securities
requested for release. Upon substitution, the substituted Securities shall be
pledged to the Lender hereunder.
(b) Notwithstanding anything to the contrary in this Loan
Agreement, Borrower may not substitute other Securities for any Securities if
(i) Lender does not consent to such substitution, which
consent shall not be unreasonably withheld,
(ii) after taking into account such substitution, a
Collateral Deficit were to occur, and
(iii) such substitution would impact or adversely affect
Borrower's status as a "real estate investment
trust." Upon Lender's reasonable request,
Borrower shall deliver to Lender an opinion of
Swidler & Berlin or other nationally recognized
tax counsel that such substitution will not impact
or adversely affect Borrower's status as a "real
estate investment trust."
2.09 Optional Prepayments; Termination by Demand
(a) Borrower has the right in its sole discretion to prepay
Advances on a Reset Date or such other date that the Borrower and Lender may
agree upon prior to the Maturity Date set forth on the applicable Confirmation,
provided, Borrower (i) must prepay the full amount of an Advance and (ii) must
notify Lender in writing of such intent no later than five Business Days prior
to the related Reset Date. Such notice shall set forth the Reset Date and the
related Advance to be prepaid on such Reset Date. If such notice is given, the
amount specified in such notice will be due and payable on the date specified
therein, together with accrued interest to such date on the amount prepaid.
<PAGE>
(b) In the case of Advances terminable upon demand, such demand
shall be made by Borrower or Lender by telephone or otherwise, no later than
10:00 a.m. on the Business Day prior to the day on which such termination will
be effective.
2.10 Requirements of Law
(a) If any Requirement of Law (other than with respect to any
amendment made to the Lender's certificate of incorporation and by-laws or other
organizational or governing documents) or any change in the interpretation or
application thereof or compliance by the Lender with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority made subsequent to the date hereof:
(i) shall subject the Lender to any tax of any kind
whatsoever with respect to this Loan Agreement, the
Note or any Advance made by it (excluding net income
taxes) or change the basis of taxation of payments to
the Lender in respect thereof;
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory Advance or similar
requirement against assets held by, deposits or other
liabilities in or for the account of, advances,
Advances or other extensions of credit by, or any other
acquisition of funds by, any office of the Lender which
is not otherwise included in the determination of the
LIBO Base Rate hereunder;
(iii) shall impose on the Lender any other condition;
and the result of any of the foregoing is to increase the cost to the Lender, by
an amount which the Lender deems to be material, of making, continuing or
maintaining any Advance or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay the Lender such
additional amount or amounts as will compensate the Lender for such increased
cost or reduced amount receivable.
(b) If the Lender shall have determined that the adoption of or
any change in any Requirement of Law (other than with respect to any amendment
made to the Lender's certificate of incorporation and by-laws or other
organizational or governing documents) regarding capital adequacy or in the
interpretation or application thereof or compliance by the Lender or any
corporation controlling the Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on the Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which the Lender
or such corporation (taking into consideration the Lender's or such
corporation's policies with respect to capital adequacy) by an amount deemed by
the Lender to be material, then from time to time, the Borrower shall promptly
pay to the Lender such additional amount or amounts as will compensate the
Lender for such reduction.
(c) If the Lender becomes entitled to claim any additional
amounts pursuant to this subsection, it shall promptly notify the Borrower of
the event by reason of which it has become so entitled. A certificate as to any
additional amounts payable pursuant to this subsection submitted by the Lender
to the Borrower shall be conclusive in the absence of manifest error.
2.11 Taxes
(a) All payments made by the Borrower under this Loan Agreement
and the Note shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Lender as a result of a present or
former connection between the Lender and the jurisdiction of the Governmental
Authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from the
Lender having executed, delivered or performed its obligations or received a
<PAGE>
payment under, or enforced, this Loan Agreement or any Note). If any such
non-excluded taxes, levies, imposts, duties, charges, fees deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
payable to the Lender hereunder or under the Note, the amounts so payable to the
Lender shall be increased to the extent necessary to yield to the Lender (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Loan Agreement;
provided, however, that the Borrower shall not be required to increase any such
amounts payable to the Lender that is not organized under the laws of the United
States of America or a state thereof if the Lender fails to comply with the
requirements of clause (b) of this Section. Whenever any Non-Excluded Taxes are
payable by the Borrower, as promptly as possible thereafter the Borrower shall
send to the Lender, as the case may be, a certified copy of an original official
receipt received by the Borrower showing payment thereof. If the Borrower fails
to pay any Non-Excluded Taxes when due to the appropriate taxing authority or
fails to remit to the Lender the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lender for any incremental taxes,
interest or penalties that may become payable by the Lender as a result of any
such failure. The agreements in this Section shall survive the termination of
this Loan Agreement and the payment of the Advances and all other amounts
payable hereunder.
(b) If the Lender hereunder (or an assignee or participant that
acquires an interest hereunder) that is not incorporated under the laws of the
United States of America or a state thereof shall:
(i) deliver to the Borrower (A) two duly completed copies
of United States Internal Revenue Service Form 1001 or
4224, or successor applicable form, as the case may be,
and (B) an Internal Revenue Service Form W-8 or W-9, or
successor applicable form, as the case may be;
(ii) deliver to the Borrower two further copies of any such
form or certification on or before the date that any
such form or certification expires or becomes obsolete
and after the occurrence of any event requiring a
change in the most recent form previously delivered by
it to the Borrower; and
(iii) obtain such extensions of time for filing and
complete such forms or certifications as may
reasonably be requested by the Borrower;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower. Such Lender
shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to
receive payments under this Loan Agreement without deduction or withholding of
any United States federal income taxes and (ii) in the case of a Form W-8 or
W-9, that it is entitled to an exemption from United States backup withholding
tax. Each Person that shall become a Lender or a participant hereof shall, upon
the effectiveness of the related transfer, be required to provide all of the
forms and statements required pursuant to this Section, provided that in the
case of a participant, such participant shall furnish all such required forms
and statements to the Lender from which the related participation shall have
been purchased.
2.12 Curtailment or Extension of Termination Date At the request of
the Borrower at least three months prior to the then current Termination Date,
the Lender shall renew the Facility until December 20, 2002, provided however,
that (a) the Lender, in its sole discretion, may terminate the facility on
December 20, 1998, and shall be required to enter into renewed agreements with
the same terms and conditions set forth herein, each for a period of 364 days
(or a portion thereof) thereafter, until finally terminated on the Termination
Date (as same may be extended hereunder); or (b) the Lender, in its sole
discretion, may terminate the facility on December 20, 2000, and shall be
required to enter into renewed agreements with the same terms and conditions set
forth herein, each for a period of 364 days (or a portion thereof) thereafter,
until finally terminated on the Termination Date (as same may be extended
hereunder).
<PAGE>
SECTION 3 Payments; Computations; Etc.
3.01 Payments
(a) Except to the extent otherwise provided herein, all payments
of principal, interest and other amounts to be made by the Borrower under this
Loan Agreement and the Note, shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender at the
following account maintained by the Lender: German American Capital Corporation,
For the A/C of CRIIMI MAE INC, Attn: Philip Hancock, at The Bank of New York.,
Account #IOC 569, GSCS, DBC, ABA # 021000018 not later than 5:00 p.m., New York
City time, on the date on which such payment shall become due (and each such
payment made after such time on such due date shall be deemed to have been made
on the next succeeding Business Day). The Borrower acknowledges that it has no
rights of withdrawal from the foregoing account.
(b) Except to the extent otherwise expressly provided herein, if
the due date of any payment under this Loan Agreement or the Note would
otherwise fall on a day that is not a Business Day, such date shall be extended
to the next succeeding Business Day, and interest shall be payable for any
principal so extended for the period of such extension.
3.02 Computations. Interest on the Advances shall be computed on the
basis of a 360-day year for the actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
3.03 Fees. In addition to other fees and expenses to be paid herein,
the Borrower shall pay the Lender:
a) a Facility Fee equal to 0.125% per year of the Maximum
Credit, payable each year on March 20. In the event that there occurs an Event
of Default under this Agreement, the Lender shall be entitled to retain and
and/or collect (in addition to Lender's other remedies) any Facility Fee
previously collected under the Agreement plus any Facility Fee owing for the
term remaining under the facility, as applicable.
b) a Non-use Fee equal to 0.125% per year of the Maximum
Credit, payable each year on March 20. Each month the Lender shall calculate
the average amount of the Facility utilized in the preceding month and shall
refund to the Borrower a portion of the Non-use Fee equal to one-twelfth of the
utilized portion of the Facility multiplied by 0.125%. In the event there is an
Event of Default, the Lender shall be entitled to retain and/or collect (in
addition to the Lender's other remedies) any Non-use Fee previously collected
under the facility, plus any Non-use Fee owing for the term remaining under the
Facility.
SECTION 4 Collateral Security
4.01 Collateral; Security Interest. The Securities shall be delivered
to, and held by the Lender.
Each of the following items of property is hereinafter referred to as the
"Collateral":
(i) Securities, Underlying Mortgage Loans, all related
servicing agreements, Pooling and Servicing Agreements,
servicing records, insurance, income, custodial
accounts, escrow accounts, and any other contract
rights, general intangibles and other assets relating
to such Underlying Mortgage Loans;
(ii) all "accounts", "chattel paper" and "general
intangibles" as defined in the Uniform Commercial Code
relating to or constituting any and all of the
foregoing; and
(iii) any and all replacements, substitutions,
distributions on or proceeds of any and all of the
foregoing.
(c) The Borrower hereby pledges to the Lender, and grants a
security interest in favor of the Lender in, all of the Borrower's right, title
and interest in, to and under the Collateral, whether now owned or hereafter
acquired, now existing or hereafter created and wherever located, to secure the
Secured Obligations. The Borrower agrees to mark its computer records and tapes
to evidence the interests granted to the Lender hereunder.
<PAGE>
(d) Borrower, at its sole cost and expense, shall cause to be
filed in such locations as may be necessary to perfect and maintain perfection
and priority of the security interest in the Collateral granted hereby, UCC-1
financing statements and continuation statements (collectively, the "Filings"),
and shall forward copies of such Filings to Lender upon completion thereof.
(e) The Lender shall be permitted to receive all cash dividends
and distributions paid in respect of the Securities and shall apply same in
accordance with Section 2.04 hereof. Unless an Event of Default shall have
occurred and be continuing, Borrower shall be entitled to exercise all voting
and corporate rights with respect to the Securities, and Lender shall exercise
such rights on Borrower's behalf during the time in which Lender is the
registered holder of such Securities, provided, however, that no vote shall be
cast or corporate right exercised or other action taken which, in Lender's
reasonable judgment, would impair the Securities or which would be inconsistent
with or result in any violation of any provision of this Agreement.
(f) Borrower shall from time to time take such further actions as may be
reasonably requested by Lender to maintain and continue the perfection and
priority of the security interest granted hereby.
4.02 Further Documentation. At any time and from time to time, upon
the written request of the Lender, and at the sole expense of the Borrower, the
Borrower will promptly and duly execute and deliver, or will promptly cause to
be executed and delivered, such further instruments and documents and take such
further action as the Lender may reasonably request for the purpose of obtaining
or preserving the full benefits of this Loan Agreement and of the rights and
powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the Liens created hereby. The Borrower also
hereby authorizes the Lender to file any such financing or continuation
statement without the signature of the Borrower to the extent permitted by
applicable law. A carbon, photographic or other reproduction of this Loan
Agreement shall be sufficient as a financing statement for filing in any
jurisdiction.
4.03 Changes in Locations, Name, etc. The Borrower shall not (i)
change the location of its chief executive office/chief place of business from
that specified on the signature page hereof or (ii) change its name, identity or
corporate structure (or the equivalent) or change the location where it
maintains its records with respect to the Collateral unless it shall have given
the Lender at least 30 days prior written notice thereof and shall have
delivered to the Lender all Uniform Commercial Code financing statements and
amendments thereto as the Lender shall request and taken all other actions
deemed necessary by the Lender to continue its perfected status in the
Collateral with the same or better priority.
4.04 Lender's Appointment as Attorney-in-Fact.
(a) The Borrower hereby irrevocably constitutes and appoints the
Lender and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of the Borrower and in the name of the Borrower or in its
own name, from time to time in the Lender's discretion, for the purpose of
carrying out the terms of this Loan Agreement, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Loan Agreement, and,
without limiting the generality of the foregoing, the Borrower hereby gives the
Lender the power and right, on behalf of the Borrower, without assent by, but
with notice to, the Borrower, if an Event of Default shall have occurred and be
continuing, to do the following:
<PAGE>
(i) in the name of the Borrower or its own name, or
otherwise, to take possession of and endorse and collect any checks, drafts,
notes, acceptances or other instruments for the payment of moneys due under any
mortgage insurance or with respect to any other Collateral and to file any claim
or to take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Lender for the purpose of collecting any and
all such moneys due under any such mortgage insurance or with respect to any
other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed on
or threatened against the Collateral; and
(iii) (A) to direct any party liable for any payment
under any Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Lender or as the Lender shall direct; (B) to ask or
demand for, collect, receive payment of and receipt for, any and all moneys,
claims and other amounts due or to become due at any time in respect of or
arising out of any Collateral; (C) to sign and endorse any invoices,
assignments, verifications, notices and other documents in connection with any
of the Collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any thereof and to enforce any other right in respect
of any Collateral; (E) to defend any suit, action or proceeding brought against
the Borrower with respect to any Collateral; (F) to settle, compromise or adjust
any suit, action or proceeding described in clause (E) above and, in connection
therewith, to give such discharges or releases as the Lender may deem
appropriate; and (G) generally, to sell, transfer, pledge and make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though the Lender were the absolute owner thereof for all
purposes, and to do, at the Lender's option and the Borrower's expense, at any
time, and from time to time, all acts and things which the Lender deems
necessary to protect, preserve or realize upon the Collateral and the Lender's
Liens thereon and to effect the intent of this Loan Agreement, all as fully and
effectively as the Borrower might do.
The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) The powers conferred on the Lender are solely to protect the
Lender's interests in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. The Lender shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither the Lender nor any of its officers, directors, or employees shall be
responsible to the Borrower for any act or failure to act hereunder, except for
its own gross negligence or willful misconduct.
4.05 Performance by Lender of Borrower's Obligations. If the Borrower
fails to perform or comply with any of its agreements contained in the Loan
Documents and the Lender may itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the expenses of the Lender
incurred in connection with such performance or compliance, together with
interest thereon at a rate per annum equal to the Post-Default Rate, shall be
payable by the Borrower to the Lender on demand and shall constitute Secured
Obligations.
<PAGE>
4.06 Proceeds. If an Event of Default shall occur and be continuing,
(a) all proceeds of Collateral received by the Borrower consisting of cash,
checks and other near-cash items shall be held by the Borrower in trust for the
Lender, segregated from other funds of the Borrower, and shall forthwith upon
receipt by the Borrower be turned over to the Lender in the exact form received
by the Borrower (duly endorsed by the Borrower to the Lender, if required) and
(b) any and all such proceeds received by the Lender (whether from the Borrower
or otherwise) may, in the sole discretion of the Lender, be held by the Lender
as collateral security for, and/or then or at any time thereafter may be applied
by the Lender against, the Secured Obligations (whether matured or unmatured),
such application to be in such order as the Lender shall elect. Any balance of
such proceeds remaining after the Secured Obligations shall have been paid in
full and this Loan Agreement shall have been terminated shall be paid over to
the Borrower or to whomsoever may be lawfully entitled to receive the same. For
purposes hereof, proceeds shall include, but not be limited to, all principal
and interest payments, all prepayments and payoffs, insurance claims,
condemnation awards, sale proceeds, real estate owned rents and any other income
and all other amounts received with respect to the Collateral.
4.07 Remedies.
(a) If an Event of Default shall occur and be continuing, the
Lender may exercise, in addition to all other rights and remedies granted to it
in this Loan Agreement and in any other instrument or agreement securing,
evidencing or relating to the Secured Obligations, all rights and remedies of a
secured party under the Uniform Commercial Code. Without limiting the
generality of the foregoing, the Lender without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon the Borrower or any other
Person (each and all of which demands, presentments, protests, advertisements
and notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell (on a servicing released basis, at the Lender's
option), lease, assign, give option or options to purchase, or otherwise dispose
of and deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels or as an entirety at public or private sale
or sales, at any exchange, broker's board or office of the Lender or elsewhere
upon such terms and conditions as it may deem advisable and at such prices as it
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk. The Lender shall have the right upon any such public sale
or sales, and, to the extent permitted by law, upon any such private sale or
sales, to purchase the whole or any part of the Collateral so sold, free of any
right or equity of redemption in the Borrower, which right or equity is hereby
waived or released. Additionally, the Lender may, in its sole discretion elect,
in lieu of selling all or a portion of such Securities, give the Borrower credit
for such Securities in an amount equal to the Market Value of the Securities
against the aggregate unpaid principal balance and any other amounts owing by
the Borrower hereunder. The Borrower further agrees, at the Lender's request,
to assemble the Collateral and make it available to the Lender at places which
the Lender shall reasonably select, whether at the Borrower's premises or
elsewhere. The Lender shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Lender hereunder, including without limitation
reasonable attorneys' fees and disbursements, to the payment in whole or in part
of the Secured Obligations. To the extent permitted by applicable law, the
Borrower waives all claims, damages and demands it may acquire against the
Lender arising out of the exercise by the Lender of any of its rights hereunder,
other than those claims, damages and demands arising from gross negligence or
willful misconduct of the Lender. The proceeds of any disposition of Securities
shall be applied first to the costs and expenses incurred by the Lender in
connection with the Borrower's default; second to consequential damages,
including but not limited to costs of cover and/or related hedging transactions,
provided, however, that Lender shall act in good faith and in a timely manner to
mitigate damages to the extent practicable; third to the outstanding principal
<PAGE>
balance and accrued interest; and fourth to any other outstanding obligation of
the Borrower to the Lender or its Affiliates. If any notice of a proposed sale
or other disposition of Collateral shall be required by law, such notice shall
be deemed reasonable and proper if given at least 10 days before such sale or
other disposition. The Borrower shall remain liable for any deficiency (plus
accrued interest thereon as contemplated pursuant to Section 2.04(b) hereof) if
the proceeds of any sale or other disposition of the Collateral are insufficient
to pay the Secured Obligations and the fees and disbursements of any attorneys
employed by the Lender to collect such deficiency.
(b) The parties recognize that it may not be possible to
purchase or sell all of the Securities on a particular Business Day, or in a
transaction with the same purchaser, or in the same manner because the market
for such Securities may not be liquid. In view of the nature of the Securities,
the parties agree that liquidation of an Advance or the Securities does not
require a public purchase or sale and that a good faith private purchase or sale
shall be deemed to have been made in a commercially reasonable manner.
Accordingly, Lender may elect, in its sole discretion, the time and manner of
liquidating any Securities and nothing contained herein shall (A) obligate
Lender to liquidate any Securities on the occurrence of an Event of Default or
to liquidate all Securities in the same manner or on the same Business Day or
(B) constitute a waiver of any right or remedy of Lender. However, in
recognition of the parties' agreement that the Advances hereunder have been
entered into in consideration of and in reliance upon the fact that all Advances
hereunder constitute a single business and contractual relationship and that
each Advance has been entered into in consideration of the other Advances, the
parties further agree that Lender shall use its best efforts to liquidate all
Advances hereunder upon the occurrence of an Event of Default as quickly as is
prudently possible in the reasonable judgment of Lender.
(c) Borrower shall be liable to Lender for (A) the amount of all
expenses, including reasonable legal or other expenses incurred by Lender in
connection with or as a consequence of an Event of Default, and (B)
consequential damages including, without limitation, all costs incurred in
connection with hedging or covering transactions, provided, however, that Lender
shall act in good faith and in a timely manner to mitigate damages to the extent
practicable.
(d) Lender shall have all the rights and remedies provided
herein, provided by applicable federal, state, foreign, and local laws
(including, without limitation, the rights and remedies of a secured party under
the Uniform Commercial Code of the State of New York, to the extent that the
Uniform Commercial Code is applicable, and the right to offset any mutual debt
and claim), in equity, and under any other agreement between Lender and
Borrower.
(e) In addition to its rights hereunder, Lender shall have the
right to proceed against any assets of Borrower which may be in the possession
of Lender or its designee, including the right to liquidate such assets and to
set off the proceeds against monies owed by Borrower to Lender pursuant to this
Agreement. Lender may set off cash, the proceeds of the liquidation of the
Securities, any Collateral or its proceeds, and all other sums or obligations
owed by Borrower to Lender against all of Borrower's obligations to Lender,
whether under this Agreement, under an Advance, or under any other agreement
between the parties, or otherwise, whether or not such obligations are then due,
without prejudice to Lender's right to recover any deficiency. Any cash,
proceeds, or property in excess of any amounts due, or which Lender reasonably
believes may become due, to it from Borrower shall be returned to Borrower after
satisfaction of all obligations of Borrower to Lender.
<PAGE>
4.08 Limitation on Duties Regarding Presentation of Collateral. The
Lender's duty with respect to the custody, safekeeping and physical preservation
of the Collateral in its possession, under Section 9-207 of the Uniform
Commercial Code or otherwise, shall be to deal with it in the same manner as the
Lender deals with similar property for its own account. Neither the Lender nor
any of its directors, officers or employees shall be liable for failure to
demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Borrower or otherwise.
4.09 Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
4.10 Release of Security Interest. Upon termination of this Loan
Agreement and repayment to the Lender of all Secured Obligations and the
performance of all obligations under the Loan Documents the Lender shall release
its security interest in any remaining Collateral; provided that if any payment,
or any part thereof, of any of the Secured Obligations is rescinded or must
otherwise be restored or returned by the Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower, or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or a
trustee or similar officer for, the Borrower or any substantial part of its
Property, or otherwise, this Loan Agreement, all rights hereunder and the Liens
created hereby shall continue to be effective, or be reinstated, as though such
payments had not been made.
SECTION 5 Conditions Precedent.
5.01 Initial Advance. The agreement of the Lender to make the initial
Advance requested to be made by it hereunder is subject to the satisfaction,
immediately prior to or concurrently with the making of such Advance, of the
following conditions precedent:
(a) Loan Agreement. The Lender shall have received this Loan
Agreement, executed and delivered by a duly authorized officer of the Borrower.
(b) Note. The Lender shall have received the Note, conforming
to the requirements hereof and executed by a duly authorized officer of the
Borrower.
(c) Filings, Registrations, Recordings. Any documents
(including, without limitation, financing statements) required to be filed,
registered or recorded in order to create, in favor of the Lender, a perfected,
first-priority security interest in the Collateral, subject to no Liens other
than those created hereunder, shall have been properly prepared and executed for
filing (including the applicable county(ies) if the Lender determines such
filings are necessary in its sole discretion), registration or recording in each
office in each jurisdiction in which such filings, registrations and
recordations are required to perfect such first-priority security interest.
<PAGE>
(d) Corporate Proceedings. The Lender shall have received a
certificate of the Secretary or Assistant Secretary of the Borrower, dated as of
the date hereof, and certifying (A) that attached thereto is a true, complete
and correct copy of (i) the articles of incorporation of the Borrower, (ii) the
by-laws of the Borrower, and (iii) resolutions duly adopted by the Board of
Directors of the Borrower authorizing the execution, delivery and performance of
this Loan Agreement, the Notes and the other Loan Documents to which it is a
party, and the borrowings contemplated hereunder, and that such resolutions have
not been amended, modified, revoked or rescinded, and (B) as to the incumbency
and specimen signature of each officer executing any Loan Documents on behalf of
the Borrower and authorized to execute any Notice of Borrowing, and such
certificate and the resolutions attached thereto shall be in form and substance
satisfactory to the Lender.
(e) Good Standing Certificates. The Lender shall have received
copies of certificates evidencing the good standing of the Borrower, dated as of
a recent date, from the Secretary of State (or other appropriate authority) of
the State of Maryland and of each other jurisdiction where the ownership, lease
or operation of property, or the conduct of business, requires the Borrower to
qualify as a foreign corporation, except where the failure to qualify would not
have a Material Adverse Effect.
(f) Legal Opinions. The Lender shall have received the executed
legal opinions of the Borrower addressing the matters set forth in the form
attached hereto as Exhibit B, dated the initial Funding Date and otherwise in
form and substance acceptable to the Lender and covering such other matters
incident to the transactions contemplated by this Loan Agreement as the Lender
shall reasonably request.
(g) Fees and Expenses. The Lender shall have received all fees
and expenses required to be paid by the Borrower on or prior to the initial
Funding Date pursuant to Section 3.03.
(h) Financial Statements. The Lender shall have received the
financial statements referenced in Section 8(a)(xiii).
(i) Consents, Licenses, Approvals, etc. The Lender shall have
received copies certified by the Borrower of all consents, licenses and
approvals, if any, required in connection with the execution, delivery and
performance by the Borrower of, and the validity and enforceability of, the Loan
Documents, which consents, licenses and approvals shall be in full force and
effect.
(j) Other Documents. The Lender shall have received such other
documents as the Lender or its counsel may reasonably request.
5.02 Initial and Subsequent Advances. The making of each Advance to
the Borrower (including the initial Advance) on any Business Day is subject to
the satisfaction of the following further conditions precedent, both immediately
prior to the making of such Advance and also after giving effect thereto and to
the intended use thereof:
(a) No Default. No Default or Event of Default shall have
occurred and be continuing.
(b) Representations and Warranties. Each representation and
warranty made by the Borrower in Section 6 hereof and elsewhere in each of the
Loan Documents, shall be true and correct on and as of the date of the making of
such Advance with the same force and effect as if made on and as of such date
(or, if any such representation or warranty is expressly stated to have been
made as of a specific date, as of such specific date). The Borrower shall also
be in compliance with all governmental licenses and authorizations and qualified
to do business and in good standing in all required jurisdictions where the
failure to be so qualified should reasonably be expected to have a Material
Adverse Effect.
<PAGE>
(c) Notice of Borrowing and Pledge. The Lender shall have
received a Notice of Borrowing and Pledge in accordance with Section 2.03(a)
hereof, appropriately completed.
(d) Additional Matters. All corporate and other proceedings,
and all documents, instruments and other legal matters in connection with the
transactions contemplated by this Loan Agreement and the other Loan Documents
shall be reasonably satisfactory in form and substance to the Lender, and the
Lender shall have received such other documents and legal opinions in respect of
any aspect or consequence of the transactions contemplated hereby or thereby as
it shall reasonably request.
(e) No Material Adverse Effect. There shall not have occurred
one or more events that, in the reasonable judgment of the Lender, constitutes
or should reasonably be expected to constitute a Material Adverse Effect.
(f) Reregistration of Securities. All Securities transferred
from Borrower to Lender
(i) shall be in suitable form for transfer or shall be
accompanied by duly executed instruments of transfer or
assignment in blank and such other documentation as the
party receiving possession may reasonable request,
(ii) shall be transferred on the book-entry system of a
Federal Reserve bank or the Depository Trust Company,
as applicable, or
(iii) shall be transferred by any other method mutually
acceptable to Borrower and Lender. As used herein
with respect to Securities, "transfer" is intended
to have the same meaning as when used in Section
8-313 of the New York Uniform Commercial Code or,
where applicable, in any federal regulation
governing transfers of Securities.
Notwithstanding and in addition to the foregoing, all transfers of
certificated securities from Borrower to Lender shall be effected by
physical delivery to Lender or its designee of the Securities, registered
in the name of Lender or with appropriate assignment documentation. No
Securities, whether certificated or uncertificated, shall remain in the
name, or possession, of Borrower or any of its agents or in any account in
the name of the Borrower or any of its agents (other than an account
maintained for Borrower on the books of Lender). In addition to the
foregoing, and as a condition to Lender's performance on each Funding Date,
Borrower shall deliver to Lender on or prior to each Funding Date, (A) a
copy of the executed Pooling and Servicing Agreement governing the
Securities and/or any supplements thereto, and the offering documents
related to the Securities, each certified by Borrower or the Trustee or
master servicer under such Pooling and Servicing Agreement as a true,
correct and complete copy of the original, and all ancillary documents
required to be delivered to the certificateholders under the Pooling and
Servicing Agreement, (B) an officer's certificate as may be requested by
Lender, (C) opinions of counsel as may be requested by Lender, (D) the
Securities in accordance with this Paragraph, (E) an irrevocable letter to
the Trustee, instructing the Trustee to remit all remittances required to
be distributed to the holder of the Securities under the Pooling and
Servicing Agreement to an account designated by Lender and (F) copies of
distribution statements delivered to the Trustee for two months prior to
the month in which the related Funding Date occurs, if any, certified by
the applicable servicer or master servicer as true and correct.
Notwithstanding the foregoing, in the event that the Borrower fails to
deliver the items set forth in (A) or (F) above on or prior to the Funding
Date, but the Borrower has otherwise complied with all other conditions
precedent to the Lender's performance and no Event of Default has occurred
and is continuing hereunder, the Lender shall nevertheless purchase the
Securities on the related Funding Date and the Borrower shall have thirty
(30) days following such Funding Date to cure such failure. Nothing set
forth herein shall be deemed a waiver of any of the Borrower's obligations
hereunder.
<PAGE>
SECTION 6 Representations and Warranties.
(a) Each of Lender and Borrower represents and warrants to the other
that (i) it is duly authorized to execute and deliver this Agreement, to enter
into the transactions contemplated hereunder and to perform its obligations
hereunder and has taken all necessary action to authorize such execution,
delivery and performance; (ii) it will engage in such transactions as principal
(or, if agreed in writing in advance of any transaction by the other party
hereto, as agent for a disclosed principal); (iii) the person signing this
Agreement on its behalf is duly authorized to do so on its behalf (or on behalf
of any such disclosed principal); (iv) no approval, consent or authorization of
the transactions contemplated by this Agreement from any federal, state, or
local regulatory authority having jurisdiction over it is required or, if
required, such approval, consent or authorization has been or will, prior to the
initial Funding Date, be obtained; (v) the execution, delivery, and performance
of this Agreement and the transactions hereunder will not violate any law,
regulation, order, judgment, decree, ordinance, charter, by-law, or rule
applicable to it or its property or constitute a default (or an event which,
with notice or lapse of time, or both would constitute a default) under or
result in a breach of any agreement or other instrument by which it is bound or
by which any of its assets are affected; (vi) it has received approval and
authorization to enter into this Agreement and each and every transaction
actually entered into hereunder pursuant to its internal policies and
procedures; and (vii) neither this Agreement nor any transaction pursuant hereto
are entered into in contemplation of insolvency or with intent to hinder, delay
or defraud any creditor.
(b) The Borrower represents and warrants to the Lender that as of the
Funding Date for each Advance and as of the date of this Agreement and any
transaction hereunder and at all times while this Agreement and any Advance
thereunder is outstanding:
(i) Organization. The Borrower is duly organized, validly
existing and in good standing under the laws and regulations of the state of
Borrower's organization and is duly licensed, qualified, and in good standing in
every state where such licensing or qualification is necessary for the
transaction of Borrower's business.
(ii) No Litigation. There is no action, suit, proceeding,
investigation, or arbitration pending or threatened against the Borrower, which
may result in any material adverse change in the business, operations, financial
condition, properties, or assets of the Borrower, or which may have an adverse
effect on the validity of this Agreement or the Security or any action taken or
to be taken in connection with the obligations of the Borrower contemplated
herein.
(iii) No Broker. The Borrower has not dealt with any broker,
investment banker, agent, or other person, except for the Lender, who may be
entitled to any commission or compensation in connection with the sale of
Security pursuant to this Agreement.
(iv) Good Title to Collateral. Security shall be free and clear
of any lien, encumbrance or impediment to transfer, and Borrower has good, valid
and marketable title or right to sell and transfer such Security to Lender and
upon transfer of such Security to Lender, Lender shall (A) be the owner of such
Securities free of any adverse claim and (B) obtain a valid, perfected first
priority security interest in such Securities.
(v) Unencumbered Assets. Borrower shall maintain cash, cash
equivalents and other assets acceptable to Lender in its sole discretion
(the value of which shall be determined by Lender in its sole discretion)
equal to $5,000,000 or more. For purposes of the foregoing sentence, the
term "cash equivalents" shall include amounts available under lines of
credit (which lines of credit shall in no event exceed $30,000,000 in the
aggregate), and the term "other assets acceptable to the Lender in its sole
discretion" shall include the unencumbered common stock of CRI Liquidating
REIT, Inc. owned and held by Borrower, but shall exclude any hedge
contracts owned by Borrower.
<PAGE>
(vi) Selection Process. The Securities were selected from among
the outstanding Securities in the Borrower's portfolio as to which the
representations and warranties set forth in this Agreement could be made and
such selection was not made in a manner so as to affect adversely the interests
of the Lender.
(c) On the Funding Date for any Advance, Lender and Borrower shall
each be deemed to have made all the foregoing representations, as applicable,
with respect to itself as of such Funding Date.
SECTION 7 Covenants of the Borrower. The Borrower covenants and
agrees with the Lender that, so long as any Advance is outstanding and until the
later to occur of the payment in full of all Secured Obligations and the
termination of this Loan Agreement:
(a) Borrower covenants that it will promptly notify Lender
of any material adverse change in its business operations and/or financial
condition, provided, however, that nothing in this Section 7 shall relieve
Borrower of its obligations pursuant to Section 6(b)(v) or pursuant to any other
Section of this Agreement.
(b) Borrower shall provide Lender with copies of such
documentation as Lender may reasonably request evidencing the truthfulness of
the representations set forth in Section 6(b), including but not limited to
resolutions evidencing the approval of this Agreement by Borrower's board of
directors or loan committee, and copies of the minutes of the meetings of
Borrower's board of directors or loan committee at which this Agreement and the
transactions contemplated by this Agreement were approved.
(c) Borrower shall, at Lender's request, take all action
necessary to ensure that Lender will have a first priority security interest in
the Securities.
(d) Borrower covenants that it will not create, incur or
permit to exist any lien, encumbrance or security interest in or on any of the
Collateral without the prior express written consent of Lender.
(e) Borrower shall notify Lender as soon as possible, but
in no event later than three (3) Business Days after obtaining actual knowledge
thereof, if any event has occurred that constitutes an Event of Default with
respect to Borrower or any event that with the giving of notice or lapse of
time, or both, would become an Event of Default with respect to Borrower.
(f) Any Pooling and Servicing Agreement shall not have been
amended or supplemented with respect to any of the Securities without the prior
written approval of Lender, except to the extent that Borrower's consent or
assent is not required to amend or supplement same.
(g) The Borrower shall, at all times that this Agreement is
in effect or any amounts are owing by the Borrower hereunder, comply in all
respects with all provisions of each instrument, agreement or other document
evidencing or governing any indebtedness of the Borrower or any of its
Affiliates, including without limitation, any affirmative or negative covenants
set forth therein, and all of such affirmative and negative covenants are hereby
(to the extent not otherwise in all material respects set forth in this
Agreement) incorporated herein as if set forth herein in full.
(g) The Borrower covenants that it will not take any action which would
directly or indirectly impair or adversely affect the Lender's title to or the
value of the Security; or
<PAGE>
(h) The Borrower covenants that it will not pledge, assign,
convey, grant, bargain, sell, set over, deliver or otherwise transfer any
interest in the Security to any person not a party to this Agreement nor will
the Borrower create, incur or permit to exist any lien, encumbrance or security
interest in or on the Security except as described in Section 4 of this Loan
Agreement.
(i) The Borrower covenants that it will at all times
maintain its status as a qualified "REIT" and will take all actions necessary
under the Code to maintain such status.
SECTION 8 Events of Default.
(a) Each of the following events shall constitute an event of default
(an "Event of Default") hereunder:
(i) Borrower or Lender fails to satisfy or perform any material
obligation or covenant under this Loan Agreement, other than the covenant set
forth in Section 7(b);
(ii) Borrower fails to satisfy or perform the covenant set forth
in Section 7(b) within thirty (30) days after Lender gives Borrower written
notice of such failure;
(iii) any representation made by Borrower or Lender, other
than the representation set forth in Section 6(b)(v), shall have been incorrect
or untrue in any material respect when made or repeated or deemed to have been
made or repeated;
(iv) Borrower fails to cure any breach of the representation set
forth in Section 6(b)(v) within five (5) days after Lender gives Borrower
written notice of such breach.
(v) an Act of Insolvency occurs with respect to Lender or
Borrower;
(vi) Lender or Borrower shall admit its inability to, or its
intention not to, perform any of its obligations hereunder;
(vii) any governmental, regulatory, or self-regulatory
authority takes any action to remove, limit, restrict, suspend or terminate the
rights, privileges, or operations of the Borrower or any of its Affiliates,
including suspension as an issuer or lender of mortgage loans, which suspension
has a Material Adverse Effect on the ordinary business operations of Borrower or
Borrower's Affiliate, and which continues for more than 24 hours;
<PAGE>
(viii) Borrower or any of its Affiliates dissolves, merges or
consolidates with another entity unless it is the surviving party, or sells,
transfers, or otherwise disposes of a material portion of its business or
assets, provided, however, that a merger shall not constitute an Event of
Default if Borrower obtains the prior written consent of the Lender; Lender
dissolves, merges or consolidates with another entity unless it is the surviving
party, or sells, transfers, or otherwise disposes of a material portion of its
business or assets, provided, however, that such action shall not constitute an
Event of Default if any surviving entity legally bound hereunder has the ability
to perform the obligations set forth in this Loan Agreement;
(ix) Lender, in its good faith judgment, has reasonable cause to
believe that
(A) there has been a material adverse change in the
business, operations, corporate structure or financial
condition, creditworthiness or prospects of the
Borrower or any Affiliate;
(B) Borrower will not meet any of its obligations under
this Loan Agreement, or any other agreement between the
parties; or
(C) a material adverse change in the financial or legal
condition of Borrower may occur due to the pendency or
threatened pendency of a material legal action against
Borrower or any of its Affiliates, and Borrower fails
to provide Lender with adequate assurances (including
without limitation performance guarantees), within 24
hours of a written request therefor, of its ability to
perform its obligations hereunder or under any other
agreement between the parties;
(D) any act, event, or circumstance has occurred which,
would have a material adverse impact on (1) the
characterization, convertibility, marketability,
liquidity or value of any Security, or (2) the
economic, political or financial stability of the
United States;
(x) Except with respect to Borrower's obligation under Section
3.01, Borrower or any of its Affiliates shall fail to pay when due (including
any grace period provided under the applicable documents) any amount in excess
of $100,000 in respect of indebtedness for money borrowed or for the deferred
purchase price of property created, issued, guaranteed, incurred or assumed by
any of them, or any other event shall occur or any condition shall exist in
respect of any such indebtedness the effect of which is to cause (or permit any
holder thereof or a trustee to cause) such indebtedness to become due prior to
its stated maturity;
(xi) Borrower shall fail to pay within five (5) Business Days of
each Payment Date any and all amounts payable pursuant to Section 3.01;
(xii) Borrower or any of its Affiliates shall default or fail
to perform under any note, indenture, loan agreement, guaranty, swap agreement
or any other contract, agreement or transaction to which it is a party, which
default (A) involves the failure to pay a matured obligation in excess of
$100,000, or (B) permits the acceleration of the maturity of obligations by any
other party to or beneficiary of such note, indenture, loan agreement, guaranty,
swap agreement or other contract agreement or transaction, or Borrower or any of
its Affiliates shall breach any covenant or condition, shall fail to perform,
admit its inability to perform or state its intention not to perform its
obligations hereunder or in respect of any repurchase agreement, reverse
repurchase agreement, securities contract or derivative transaction with any
party provided, however, that any such default, failure to perform or breach
shall not constitute an Event of Default if Borrower or any of its Affiliates
cures such default, failure to perform or breach, as the case may be, within the
grace period, if any, provided under the applicable agreement;
<PAGE>
(xiii) Borrower fails to provide quarterly unaudited and
annual audited financial statements within 50 and 95 days, respectively, after
the date on which such period ends, or fails to deliver in a timely manner such
financial or other information as Lender may from time to time reasonably
request, in either case, within five (5) days after Lender gives Borrower
written notice of such failure;
(xiv) Subject to Section 8(a)(xv) Borrower's ratio of
consolidated total liabilities (excluding payables in the normal course of
business) to consolidated shareholders' equity (both computed in accordance with
GAAP) exceeds five to one (5 to 1);
(xv) Borrower pledges, directly or indirectly, hypothecates or
encumbers any of its assets or engages in repurchase transactions or similar
transactions with any of its assets (excluding (i) assets already pledged under
existing facilities, (ii) any assets required to be pledged for purposes of
collateral maintenance under such facilities, (iii) subordinated debt securities
subject to master repurchase agreements or other substantially similar financing
facilities secured by like collateral with financial institutions provided that
the aggregate indebtedness pursuant to such repurchase agreements or other
similar financing facilities shall not exceed $700,000,000 and provided that the
pledge of any other assets of Borrower pursuant to such repurchase agreements or
similar financing facilities shall not cause an Event of Default hereunder (iv)
Mortgage Warehouse Debt; (v) CMO Match Funded Non-Recourse Debt (vi) assets
pledged by Borrower or its affiliates to secure debt not in excess of $9,200,000
to Signet/Maryland, its successors or assigns, and (vii) pledge of a promissory
note from C.R.I., Inc. in the approximate amount of $5,200,000 to secure certain
deferred compensation arrangements) before notification to and written approval
by Lender, which approval shall not be unreasonably withheld;
(xvi) Borrower fails to maintain consolidated shareholders
equity (computed in accordance with GAAP) of at least $125,000,000 (one hundred
and twenty five million dollars);
(xvii) Borrower incurs three (3) consecutive quarters of
consolidated net losses on either a GAAP or tax basis;
(xviii) Borrower fails to maintain interest rate hedges, reasonably acceptable
to Lender, on at least 75% of its floating rate liabilities;
(xix) Borrower fails to promptly certify at Lender's request
that no Event of Default has occurred or is continuing at the time of the
certification, provided, however, that such certification shall be made in any
event by Borrower no later than fifty days following the end of each calendar
quarter for the first three calendar quarters of the year and no later than
ninety-five days following the end of the last calendar quarter of the year;
(xx) A judgment by any competent court in the United States of America for the
payment of money in an amount of at least $100,000 is rendered against the
Borrower, and the same remains undischarged or unpaid for a period of thirty
(30) days during which execution of such judgment is not effectively stayed;
(xxi) This Loan Agreement shall for any reason cease to
create a valid first priority security interest in favor of Lender in any of the
Collateral purported to be covered hereby;
(xxii) Any change or development involving a prospective
change in taxation or other applicable law or regulation or interpretation
thereof in the United States directly affecting the Collateral or the
consequences of the Lender owning, or holding a security interest in, the
Collateral; the imposition of exchange controls by the United States, that
directly affects the Collateral or the consequences of the Lender owning, or
holding a security interest in, the Collateral; or the imposition of exchange
controls by the United States, that directly affects the financial markets of
the United States, and makes it, in the sole judgment of the Lender, inadvisable
or impracticable to enter into transactions hereunder with the Securities as
Collateral.
<PAGE>
(b) In making a determination as to whether an Event of Default has
occurred, the Lender shall be entitled to rely on reports published or broadcast
by media sources believed by the Lender to be generally reliable and on
information provided to it by any other sources believed by it to be generally
reliable, provided that the Lender reasonably and in good faith believes such
information to be accurate and has taken such steps as may be reasonable in the
circumstances to attempt to verify such information.
SECTION 9 Remedies Upon Default.
(a) Upon the occurrence of one or more Events of Default other than
those referred to in Sections 8(a)(v), and in addition to the remedies provided
in Section 4.07 hereof and otherwise provided in this Loan Agreement, the Lender
may immediately declare the principal amount of the Advances then outstanding
under the Note to be immediately due and payable, together with all interest
thereon and fees and expenses accruing under this Loan Agreement. Upon the
occurrence of an Event of Default referred to in Sections 8(a)(v), and in
addition to the remedies provided in Section 4.07 hereof and otherwise provided
in this Loan Agreement, such amounts shall immediately and automatically become
due and payable without any further action by any Person. Upon such declaration
or such automatic acceleration, the balance then outstanding on the Note shall
become immediately due and payable, without presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower.
(b) Upon the occurrence of one or more Events of Default, and in
addition to the remedies provided in Section 4.07 hereof and otherwise provided
in this Loan Agreement, the Lender shall have the right to obtain all files of
the Borrower relating to the Collateral and all documents relating to the
Collateral which are then or may thereafter come in to the possession of the
Borrower or any third party acting for the Borrower and the Borrower shall
deliver to the Lender such assignments as the Lender shall request. The Lender
shall be entitled to specific performance of all agreements of the Borrower
contained in this Loan Agreement.
SECTION 10 No Duty of Lender. The powers conferred on the Lender
hereunder are solely to protect the Lender's interests in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Lender shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or failure
to act hereunder, except for its or their own gross negligence or willful
misconduct.
SECTION 11 Miscellaneous.
11.01 Waiver. No failure on the part of the Lender to exercise
and no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under any Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
any Loan Document preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
11.02 Notices. Except as otherwise expressly permitted by this
Loan Agreement, all notices, requests and other communications provided for
<PAGE>
herein (including without limitation any modifications of, or waivers, requests
or consents under, this Loan Agreement) shall be given or made in writing
(including without limitation by telex or telecopy) delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof or thereof); or, as to any party, at such other address as shall be
designated by such party in a written notice to each other party. Except as
otherwise provided in this Loan Agreement and except for notices given under
Section 2 (which shall be effective only on receipt), all such communications
shall be deemed to have been duly given when transmitted by telex or telecopy or
personally delivered or, in the case of a mailed notice, upon receipt, in each
case given or addressed as aforesaid. Lender shall be authorized to accept
orders and take any other action affecting any accounts of the Borrower in
response to instructions given in writing or orally by telephone or otherwise by
any person set forth in Exhibit E hereto, and the Borrower shall indemnify
Lender, defend, and hold Lender harmless from and against any and all
liabilities, losses, damages, costs, and expenses of any nature arising out of
or in connection with any action taken by Lender in response to such
instructions received or reasonably believed to have been received from the
Borrower. From time to time, Borrower may, by delivering to Lender a revised
exhibit, change the information previously given pursuant to this Section, but
the Lender shall be entitled to rely conclusively on the current exhibit until
receipt of the superseding exhibit.
11.03 Indemnification and Expenses.
(a) The Borrower agrees to hold the Lender and each of its officers,
directors, agents and employees (each, an "Indemnified Party") harmless from and
indemnify each Indemnified Party against all liabilities, losses, damages,
judgments, costs and expenses of any kind which may be imposed on, incurred by
or asserted against such Indemnified Party in any suit, action, claim or
proceeding relating to or arising out of this Loan Agreement, the Note, any
other Loan Document or any transaction contemplated hereby or thereby, or any
amendment, supplement or modification of, or any waiver or consent under or in
respect of, this Loan Agreement, the Note, any other Loan Document or any
transaction contemplated hereby or thereby, except, in each case, to the extent
arising from such Indemnified Party's gross negligence or willful misconduct.
In any suit, proceeding or action brought by the Lender in connection with any
Securities for any sum owing thereunder, or to enforce any provisions of any
such Security, the Borrower will save, indemnify and hold the Lender harmless
from and against all expense, loss or damage suffered by reason of any defense,
set-off, counterclaim, recoupment or reduction or liability whatsoever of the
account debtor or obligor thereunder, arising out of a breach by the Borrower of
any obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or
its successors from the Borrower. The Borrower also agrees to reimburse the
Lender as and when billed by the Lender for all the Lender's costs and expenses
incurred in connection with the enforcement or the preservation of the Lender's
rights under this Loan Agreement, the Note, any other Loan Document or any
transaction contemplated hereby or thereby, including without limitation the
fees and disbursements of its counsel (including all fees and disbursements
incurred in any action or proceeding between the Borrower and an Indemnified
Party or between an Indemnified Party and any third party relating hereto). The
Borrower hereby acknowledges that, notwithstanding the fact that the Note is
secured by the Collateral, the obligation of the Borrower under the Note is a
recourse obligation of the Borrower.
<PAGE>
(b) The Borrower agrees to pay as and when billed by the Lender all
of the out-of-pocket costs and expenses incurred by the Lender in connection
with any amendment, supplement or modification to this Loan Agreement, the Note,
any other Loan Document or any other documents prepared in connection herewith
or therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including without limitation (i) all the
reasonable fees, disbursements and expenses of counsel to the Lender and (ii)
all the due diligence, inspection, testing and review costs and expenses
incurred by the Lender with respect to Collateral under this Loan Agreement.
11.04 Amendments. Except as otherwise expressly provided in this
Loan Agreement, any provision of this Loan Agreement may be modified or
supplemented only by an instrument in writing signed by the Borrower and the
Lender and any provision of this Loan Agreement may be waived by the Lender.
11.05 Successors and Assigns. This Loan Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06 Survival. The obligations of the Borrower under Section
11.03 hereof shall survive the repayment of the Advances and the termination of
this Loan Agreement. In addition, each representation and warranty made or
deemed to be made by a request for a borrowing herein or pursuant hereto shall
survive the making of such representation and warranty, and the Lender shall not
be deemed to have waived, by reason of making any Advance, any Default that may
arise because any such representation or warranty shall have proved to be false
or misleading, notwithstanding that the Lender may have had notice or knowledge
or reason to believe that such representation or warranty was false or
misleading at the time such Advance was made.
11.07 Captions. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this Loan
Agreement.
11.08 Counterparts. This Loan Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any of the parties hereto may execute this Loan Agreement
by signing any such counterpart.
11.09 GOVERNING LAW; ETC. THIS LOAN AGREEMENT SHALL BE GOVERNED
BY THE LAW OF THE STATE OF NEW YORK WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE
(BUT WITH REFERENCE TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW,
WHICH BY ITS TERMS APPLIES TO THIS LOAN AGREEMENT), AND SHALL CONSTITUTE A
SECURITY AGREEMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE.
11.10 CONSENT TO JURISDICTION AND ARBITRATION. THE PARTIES
IRREVOCABLY AGREE TO SUBMIT TO THE PERSONAL JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, THE PARTIES IRREVOCABLY
WAIVING ANY OBJECTION THERETO. IF, FOR ANY REASON, FEDERAL JURISDICTION IS NOT
AVAILABLE, AND ONLY IF FEDERAL JURISDICTION IS NOT AVAILABLE, THE PARTIES
IRREVOCABLY AGREE TO SUBMIT TO THE PERSONAL JURISDICTION OF THE SUPREME COURT OF
THE STATE OF NEW YORK, THE PARTIES IRREVOCABLY WAIVING ANY OBJECTION THERETO.
NOTWITHSTANDING THE FOREGOING TWO SENTENCES, AT EITHER PARTY'S SOLE OPTION
EXERCISABLE AT ANY TIME NOT LATER THAN THIRTY (30) DAYS AFTER AN ACTION OR
PROCEEDING HAS BEEN COMMENCED, THE PARTIES AGREE THAT THE MATTER MAY BE
SUBMITTED TO BINDING ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL RULES OF THE
AMERICAN ARBITRATION ASSOCIATION THEN IN EFFECT IN THE STATE OF NEW YORK AND
JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION THEREOF WITHIN THE CITY, COUNTY AND STATE OF NEW YORK,
PROVIDED, HOWEVER, THAT THE ARBITRATOR SHALL NOT AMEND, SUPPLEMENT, OR REFORM IN
ANY REGARD THIS LOAN AGREEMENT OR THE TERMS OF ANY CONFIRMATION, THE RIGHTS OR
OBLIGATIONS OF ANY PARTY HEREUNDER OR THEREUNDER, OR THE ENFORCEABILITY OF ANY
OF THE TERMS HEREOF OR THEREOF. ANY ARBITRATION SHALL BE CONDUCTED BEFORE A
SINGLE ARBITRATOR WHO SHALL BE REASONABLY FAMILIAR WITH LOAN TRANSACTIONS AND
THE SECONDARY MORTGAGE MARKET IN THE CITY, COUNTY, AND STATE OF NEW YORK.
<PAGE>
11.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE LENDER
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
11.12 Hypothecation and Pledge of Collateral. The Lender shall
have free and unrestricted use of all Collateral and nothing in this Loan
Agreement shall preclude the Lender from engaging in repurchase transactions
with the Collateral or otherwise pledging, repledging, transferring,
hypothecating, or rehypothecating the Collateral. Nothing contained in this
Loan Agreement shall obligate the Lender to segregate any Collateral delivered
to the Lender by the Borrower.
11.13 Recording of Communications Lender and Borrower shall have
the right (but not the obligation) from time to time to make or cause to be made
tape recordings of communications between its employees and those of the other
party with respect to transactions, provided, however, such right to record
communications shall be limited to communications of employees taking place on
the trading floor of Lender and/or Borrower. Lender and Borrower consent to the
admissibility of such tape recordings in any court, arbitration, or other
proceedings. The parties agree that a duly authenticated transcript of such a
tape recording shall be deemed to be a writing conclusively evidencing the
parties' agreement.
11.14 Single Agreement Lender and Borrower acknowledge that, and
have entered hereinto and will enter into each transaction hereunder in
consideration of and in reliance upon the fact that, all transactions hereunder
constitute a single business and contractual relationship and that each has been
entered into in consideration of the other transactions. Accordingly, each of
Lender and Borrower agrees (i) to perform all of its obligations in respect of
each transaction hereunder, and that a default in the performance of any such
obligations shall constitute a default by it in respect of all transactions
hereunder, (ii) that each of them shall be entitled to set off claims and apply
property held by them in respect of any transaction against obligations owing to
them in respect of any other transactions hereunder and (iii) that payments,
deliveries, and other transfers made by either of them in respect of any
transaction shall be deemed to have been made in consideration of payments,
deliveries, and other transfers in respect of any other transactions hereunder,
and the obligations to make any such payments, deliveries, and other transfers
may be applied against each other and netted.
11.15 Entire Agreement; Severability This constitutes the entire
understanding between Lender and Borrower with respect to the subject matter it
covers and shall supersede any existing agreements between the parties
containing general terms and conditions for repurchase transactions involving
Securities. By acceptance of this Loan Agreement, Lender and Borrower
acknowledge that they have not made, and are not relying upon, any statements,
representations, promises or undertakings not contained in this Loan Agreement.
Each provision and agreement herein shall be treated as separate and independent
from any other provision or agreement herein and shall be enforceable
notwithstanding the unenforceability of any such other provision or agreement.
11.16 Assignability The rights and obligations of the parties
under this Loan Agreement and under any transaction shall not be assigned by
either party without the prior written consent of the other party, provided,
however, that Lender may assign its rights and obligations under this Loan
Agreement and/or under any transaction to an Affiliate that is subject to
Deutsche Bank AG's "declaration of backing", without the prior written consent
of the other party. Subject to the foregoing, this Loan Agreement and any
transactions shall be binding upon and shall inure to the benefit of the parties
and their respective successors and assigns. Nothing in this Loan Agreement
express or implied, shall give to any person, other than the parties to this
Loan Agreement and their successors hereunder, any benefit or any legal or
equitable right, power, remedy or claim under this Loan Agreement.
<PAGE>
11.17 Intent The parties understand and intend that this Loan
Agreement and each transaction hereunder constitute a "securities contract" as
that term is defined in Section 741 of Title 11 of the United States Code, as
amended.
11.18 Disclosure Relating to Certain Federal Protections The
parties acknowledge that they have been advised that in the case of transactions
in which one of the parties is an "insured depository institution" as that term
is defined in Section 1831(a) of Title 12 of the United States Code, as amended,
funds held by the financial institution pursuant to a transaction hereunder are
not a deposit and therefore are not insured by the Federal Deposit Insurance
Corporation, the Savings Association Insurance Fund or the Bank Insurance Fund,
as applicable.
11.19 Netting If Lender and Borrower are "financial institutions"
as now or hereinafter defined in Section 4402 of Title 12 of the United States
Code ("Section 4402") and any rules or regulations promulgated thereunder:
(a) All amounts to be paid or advanced by one party to or
on behalf of the other under this Loan Agreement or any transaction hereunder
shall be deemed to be "payment obligations" and all amounts to be received by or
on behalf of one party from the other under this Loan Agreement or any
transaction hereunder shall be deemed to be "payment entitlements" within the
meaning of Section 4402, and this Loan Agreement shall be deemed to be a
"netting contract" as defined in Section 4402.
(b) The payment obligations and the payment entitlements of
the parties hereto pursuant to this Loan Agreement and any transaction hereunder
shall be netted as follows. In the event that either party (the "Defaulting
Party") shall fail to honor any payment obligation under this Loan Agreement or
any transaction hereunder, the other party (the "Nondefaulting Party") shall be
entitled to reduce the amount of any payment to be made by the Nondefaulting
Party to the Defaulting Party by the amount of the payment obligation that the
Defaulting Party failed to honor.
11.20 No Reliance Lender and Borrower each hereby represents and
warrants to the other that in connection with the negotiation of, the entering
into, and the performance under, the Loan Agreement and each transaction:
(a) It is not relying (for purposes of making any
investment decision or otherwise) upon any advice, counsel or representations
(whether written or oral) of the other party to the Loan Agreement, other than
the representations expressly set forth in the Loan Agreement;
(b) It has consulted with its own legal, regulatory, tax,
business, investment, financial and accounting advisors to the extent that it
has deemed necessary, and it has made its own investment, hedging and trading
<PAGE>
decisions (including decisions regarding the suitability of any transaction)
based upon its own judgment and upon any advice from such advisors as it has
deemed necessary and not upon any view expressed by the other party to the Loan
Agreement;
(c) It is a sophisticated and informed institution that has
a full understanding of all the terms, conditions and risks (economic and
otherwise) of the Loan Agreement and each transaction and is capable of assuming
and willing to assume (financially and otherwise) those risks;
(d) It is entering into the Loan Agreement and each
transaction for the purposes of managing its borrowings or investments or
hedging its underlying assets or liabilities and not for purposes of
speculation;
(e) It is not acting as a fiduciary or financial,
investment or commodity trading advisor for the other party to the Loan
Agreement, and has not given the other party to the Loan Agreement (directly or
indirectly through any other person) any assurance, guaranty or representation
whatsoever as to the merits (either legal, regulatory, tax, business,
investment, financial accounting or otherwise) of the Loan Agreement or any
transaction hereunder.
11.21 Miscellaneous
(a) Time is of the essence under this Loan Agreement and
all transactions and all references to a time shall mean New York time in effect
on the date of the action unless otherwise expressly stated in this Loan
Agreement.
(b) If there is any conflict between the terms of a
Confirmation or a corrected Confirmation issued by the Lender and this Loan
Agreement, the Confirmation shall prevail.
(c) This Loan Agreement may be executed in counterparts,
each of which so executed shall be deemed to be an original, but all of such
counterparts shall together constitute but one and the same instrument.
(d) The headings in this Loan Agreement are for convenience of reference only
and shall not affect the interpretation or construction of this Loan Agreement.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be
duly executed and delivered as of the day and year first above written.
BORROWER
CRIIMI MAE INC.
By:_______________________
Title:
Address for Notices:
CRIIMI MAE Inc.
11120 Rockville Pike
Rockville, MD 20852
Attention: Ms. Cynthia O. Azzara
Telecopier No.: 301 231-0334
Telephone No.: 301 816-2300
With a Copy to:
Attention: General Counsel
Telecopier No.:________________
Telephone No.:________________
<PAGE>
LENDER
GERMAN AMERICAN CAPITAL CORPORATION
By:_______________________
Title:
By:_______________________
Title:
Address for Notices:
German American Capital Corporation
31 West 52nd Street
New York, New York 10019
Attention: Mr. Mitchell Harris
Telecopier No.: 469-7973
Telephone No.: 469-8923
<PAGE>
EXHIBIT A
[FORM OF PROMISSORY NOTE]
$500,000,000 March 31, 1998
New York, New York
FOR VALUE RECEIVED, CRIIMI MAE INC., a Maryland corporation (the "Borrower"),
hereby promises to pay to the order of GERMAN AMERICAN CAPITAL CORPORATION a
Delaware corporation (the "Lender"), at the principal office of the Lender at 31
West 52nd Street, New York, New York 10019, in lawful money of the United
States, and in immediately available funds, the principal sum of FIVE HUNDRED
MILLION DOLLARS ($500,000,000) (or such lesser amount as shall equal the
aggregate unpaid principal amount of the Advances made by the Lender to the
Borrower under the Loan Agreement as defined below), on the dates and in the
principal amounts provided in the Loan Agreement, and to pay interest on the
unpaid principal amount of each such Advance, at such office, in like money and
funds, for the period commencing on the date of such Advance until such Advance
shall be paid in full, at the rates per annum and on the dates provided in the
Loan Agreement.
The date, amount and interest rate of each Advance made by the Lender to the
Borrower, and each payment made on account of the principal and interest
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of this Note, endorsed by the Lender on the schedule attached hereto or any
continuation thereof; provided, that the failure of the Lender to make any such
recordation or endorsement shall not affect the obligations of the Borrower to
make a payment when due of any amount owing under the Loan Agreement or
hereunder in respect of the Advances made by the Lender.
This Note is the Note referred to in the Master Loan and Security Agreement
dated as of March 31, 1998 (as amended, supplemented or otherwise modified and
in effect from time to time, the "Loan Agreement") between the Borrower and the
Lender, and evidences Advances made by the Lender thereunder. Terms used but
not defined in this Note have the respective meanings assigned to them in the
Loan Agreement.
The Borrower agrees to pay all the Lender's costs of collection and enforcement
(including attorneys' fees and disbursements of Lender's counsel) in respect of
this Note when incurred, including, without limitation, attorneys' fees through
appellate proceedings.
Notwithstanding the pledge of the Collateral, the Borrower hereby acknowledges,
admits and agrees that the Borrower's obligations under this Note are recourse
obligations of the Borrower to which the Borrower pledges its full faith and
credit.
The Borrower, and any indorsers hereof, (a) severally waive diligence,
presentment, protest and demand and also notice of protest, demand, dishonor and
nonpayments of this Note, (b) expressly agree that this Note, or any payment
hereunder, may be extended from time to time, and consent to the acceptance of
further Collateral, the release of any Collateral for this Note, the release of
any party primarily or secondarily liable hereon, and (c) expressly agree that
it will not be necessary for the Lender, in order to enforce payment of this
Note, to first institute or exhaust the Lender's remedies against the Borrower
or any other party liable hereon or against any Collateral for this Note. No
extension of time for the payment of this Note, or any installment hereof, made
by agreement by the Lender with any person now or hereafter liable for the
payment of this Note, shall affect the liability under this Note of the
Borrower, even if the Borrower is not a party to such agreement; provided,
however, that the Lender and the Borrower, by written agreement between them,
may affect the liability of the Borrower.
Any reference herein to the Lender shall be deemed to include and apply to every
subsequent holder of this Note. Reference is made to the Loan Agreement for
provisions concerning optional and mandatory prepayments, Collateral,
acceleration and other material terms affecting this Note.
Any enforcement action relating to this Note may be brought by motion for
summary judgment in lieu of a complaint pursuant to Section 3213 of the New York
Civil Practice Law and Rules. The Borrower hereby submits to New York
jurisdiction with respect to any action brought with respect to this Note and
waives any right with respect to the doctrine of forum non conveniens with
respect to such transactions.
This Note shall be governed by and construed under the laws of the State of New
York (without reference to choice of law doctrine but with reference to Section
5-1401 of the New York General Obligations Law, which by its terms applies to
this Note) whose laws the Borrower expressly elects to apply to this Note. The
Borrower agrees that any action or proceeding brought to enforce or arising out
of this Note may be commenced in the Supreme Court of the State of New York,
Borough of Manhattan, or in the District Court of the United States for the
Southern District of New York.
CRIIMI MAE INC.
By:_______________________
Name:
Title:
<PAGE>
SCHEDULE OF ADVANCES
This Note evidences Advances made under the within-described Loan Agreement to
the Borrower, on the dates, in the principal amounts and bearing interest at the
rates set forth below, and subject to the payments and prepayments of principal
set forth below:
<TABLE>
<S> <C> <C>
Date Made ____________________ Principal Amount of Advance __________________ Interest Rate ________________
Amount Paid or Prepaid _______ Unpaid Principal ______________ Amount ______________ Notation ____________
Made by _____________________________
</TABLE>
<PAGE>
EXHIBIT B
[FORM OF OPINION OF COUNSEL TO BORROWER]
(date)
German American Capital Corporation
31 West 52nd Street
New York, New York 10019
Dear Sirs and Mesdames:
You have requested [our] [my] opinion, as counsel to CRIIMI MAE INC., a Maryland
corporation (the "Borrower"), with respect to certain matters in connection with
that certain Master Loan and Security Agreement, dated as of March 31, 1998 (the
"Loan and Security Agreement"), by and between the Borrower and German American
Capital Corporation (the "Lender"), being executed contemporaneously with a
Promissory Note dated March 31, 1998 from the Borrower to the Lender (the
"Note"). Capitalized terms not otherwise defined herein have the meanings set
forth in the Loan and Security Agreement.
[We] [I] have examined the following documents:
1. the Loan and Security Agreement;
2. the Note;
3. unfiled copies of the financing statements listed on
Schedule 1 (collectively, the "Financing Statements")
naming the Borrower as Debtor and the Lender as Secured
Party and describing the Collateral (as defined in the
Loan and Security Agreement) as to which security
interests may be perfected by filing under the Uniform
Commercial Code of the States listed on Schedule 1 (the
"Filing Collateral"), which I understand will be filed
in the filing offices listed on Schedule 1 (the "Filing
Offices");
4. the reports listed on Schedule 2 as to UCC financing
statements (collectively, the "UCC Search Report"); and
5. such other documents, records and papers as we have
deemed necessary and relevant as a basis for this
opinion.
To the extent [we] [I] have deemed necessary and proper, [we] [I] have relied
upon the representations and warranties of the Borrower contained in the Loan
and Security Agreement. [We] [I] have assumed the authenticity of all documents
submitted to me as originals, the genuineness of all signatures, the legal
capacity of natural persons and the conformity to the originals of all
documents.
Based upon the foregoing, it is [our] [my] opinion that:
1. The Borrower is a Maryland corporation duly organized, validly existing and
in good standing under the laws of Maryland and is qualified to transact
business in, and is in good standing under, the laws of the state of Maryland.
<PAGE>
2. The Borrower has the corporate power to engage in the transactions
contemplated by the Loan and Security Agreement and the Note, and all requisite
corporate power, authority and legal right to execute and deliver the Loan and
Security Agreement, and the Note and observe the terms and conditions of such
instruments. The Borrower has all requisite corporate power to borrow under the
Loan and Security Agreement and to grant a security interest in the Collateral
pursuant to the Loan and Security Agreement.
3. The execution, delivery and performance by the Borrower of the Loan and
Security Agreement and the Note, and the borrowings by the Borrower and the
pledge of the Collateral under the Loan and Security Agreement have been duly
authorized by all necessary corporate action on the part of the Borrower. Each
of the Loan and Security Agreement and the Note have been executed and delivered
by the Borrower and are legal, valid and binding agreements enforceable in
accordance with their respective terms against the Borrower, subject to
bankruptcy laws and other similar laws of general application affecting rights
of creditors and subject to the application of the rules of equity, including
those respecting the availability of specific performance, none of which will
materially interfere with the realization of the benefits provided thereunder or
with the Lender's security interest in the Collateral.
4. No consent, approval, authorization or order of, and no filing or
registration with, any court or governmental agency or regulatory body is
required on the part of the Borrower for the execution, delivery or performance
by the Borrower of the Loan and Security Agreement and the Note or for the
borrowings by the Borrower under the Loan and Security Agreement or the granting
of a security interest to the Lender in the Collateral, pursuant to the Loan and
Security Agreement.
5. The execution, delivery and performance by the Borrower of, and the
consummation of the transactions contemplated by, the Loan and Security
Agreement and the Note do not and will not (a) violate any provision of the
Borrower's charter or by-laws, (b) violate any applicable law, rule or
regulation, (c) violate any order, writ, injunction or decree of any court or
governmental authority or agency or any arbitral award applicable to the
Borrower of which I have knowledge (after due inquiry) or (d) result in a breach
of, constitute a default under, require any consent under, or result in the
acceleration or required prepayment of any indebtedness pursuant to the terms
of, any agreement or instrument of which I have knowledge (after due inquiry) to
which the Borrower is a party or by which it is bound or to which it is subject,
or (except for the Liens created pursuant to the Loan and Security Agreement)
result in the creation or imposition of any Lien upon any Property of the
Borrower pursuant to the terms of any such agreement or instrument.
6. There is no action, suit, proceeding or investigation pending or, to the
best of [our] [my] knowledge, threatened against the Borrower which, in [our]
[my] judgment, either in any one instance or in the aggregate, would be
reasonably likely to result in any material adverse change in the properties,
business or financial condition, or prospects of the Borrower or in any material
impairment of the right or ability of the Borrower to carry on its business
substantially as now conducted or in any material liability on the part of the
Borrower or which would draw into question the validity of the Loan and Security
Agreement and the Note or the Mortgage Loans or of any action taken or to be
taken in connection with the transactions contemplated thereby, or which would
be reasonably likely to impair materially the ability of the Borrower to perform
under the terms of the Loan and Security Agreement, the Note, or the Collateral.
7. The Loan and Security Agreement is effective to create, in favor of the
Lender, a valid security interest under the Uniform Commercial Code in all of
the right, title and interest of the Borrower in, to and under the Collateral as
collateral security for the payment of the Secured Obligations (as defined in
the Loan and Security Agreement), except that (a) such security interests will
continue in Collateral after its sale, exchange or other disposition only to the
extent provided in Section 9-306 of the Uniform Commercial Code, (b) the
security interests in Collateral in which the Borrower acquires rights after the
commencement of a case under the Bankruptcy Code in respect of the Borrower may
be limited by Section 552 of the Bankruptcy Code.
<PAGE>
8. (a) The filing of financing statements on Form UCC-1 naming the Lender as
"Secured Party" and the Borrower as "Debtor", and describing the Collateral, in
the jurisdictions and recording offices listed on Schedule 1 attached hereto
will create fully perfected security interests under the Uniform Commercial Code
in all right, title and interest of the Borrower in, to and under such
Collateral, which can be perfected by filing under the Uniform Commercial Code.
(b) The UCC Search Report sets forth the proper filing offices and the
proper debtors necessary to identify those Persons who have on file in the
jurisdictions listed on Schedule 1 financing statements covering the Filing
Collateral as of the dates and times specified on Schedule 2. Except for the
matters listed on Schedule 2, the UCC Search Report identifies no Person who has
filed in any Filing Office a financing statement describing the Filing
Collateral prior to the effective dates of the UCC Search Report.
Very truly yours,
<PAGE>
EXHIBIT C
FORM OF NOTICE OF BORROWING AND PLEDGE
[insert date]
German American Capital Corporation
31 West 52nd Street
New York, New York 10019
Attention: Mitchell Harris
Notice of Borrowing and Pledge No.:_____________________
Ladies/Gentlemen:
Reference is made to the Master Loan and Security Agreement, dated as of March
31, 1998 (the "Loan Agreement"; capitalized terms used but not otherwise defined
herein shall have the meaning given them in the Loan Agreement), between CRIIMI
MAE Inc. (the "Borrower") and German American Capital Corporation (the
"Lender").
In accordance with Section 2.03(a) of the Loan Agreement, the undersigned
Borrower hereby requests that you, the Lender, make Advances to us in an
aggregate principal amount of $_________________ [insert requested Advance
amount] on ____________________ [insert requested Funding Date, which must be at
least [one (1)] Business Day following the date of the request], in connection
with which we shall pledge to you as Collateral the Securities set forth on the
Securities Schedule attached hereto.
The Borrower hereby certifies, as of such Funding Date, that:
(a) no Default or Event of Default has occurred and is continuing on the date
hereof nor will occur after giving effect to such Advance as a result of such
Advance;
(b) each of the representations and warranties made by the Borrower in or
pursuant to the Loan Documents is true and correct in all material respects on
and as of such date (in the case of the representations and warranties in
respect of Securities, solely with respect to Securities being included the
Borrowing Base on the Funding Date) as if made on and as of the date hereof (or,
if any such representation or warranty is expressly stated to have been made as
of a specific date, as of such specific date); and
(c) the Borrower is in compliance with all governmental licenses and
authorizations and is qualified to do business and is in good standing in all
required jurisdictions.
Very truly yours,
CRIIMI MAE INC.
By:______________________________________
Name:
Title:
<PAGE>
Schedule I
to Notice of Borrowing and Pledge
[SECURITIES PROPOSED TO BE PLEDGED TO LENDER ON FUNDING DATE]
[attach Securities Loan Schedule]
<PAGE>
EXHIBIT D
[Form of Confirmation Letter]
(date)
CRIIMI MAE Inc.
Attention: Cynthia O. Azzara, Chief Financial Officer/Senior Vice President
11200 Rockville Pike
Rockville, MD 20852
Confirmation No.:_____________________
Ladies/Gentlemen:
This letter confirms our oral agreement to make an Advance to you in exchange
for a pledge of the Securities listed in Appendix I hereto, pursuant to the
Master Loan and Security Agreement between German American Capital Corporation
and CRIIMI MAE Inc., dated as of March 31, 1998, (the "Agreement"), as follows:
Funding Date:
Securities to be Pledged: See Appendix I hereto.
Aggregate Principal Amount of Securities:
Advance Amount:
Applicable Margin:
Market Value of Securities:
Applicable Collateral Percentage:
LIBO Base Rate:
<PAGE>
Names and addresses for communications:
Lender: Mr. Mitchell Harris
German American Capital Corporation
31 West 52nd Street
New York, New York 10019
with legal matters to:
Robert O. Link, Jr., Esquire
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Borrower: Cynthia O. Azzara
Chief Financial Officer/Senior Vice President
CRIIMI MAE Inc.
11200 Rockville Pike
Rockville, MD 20852
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Agreement.
GERMAN AMERICAN
CAPITAL CORPORATION
By: _______________________________
Name:
Title:
By: _______________________________
Name:
Title:
Agreed and Acknowledged:_________________________
CRIIMI MAE INC.
By: ____________________________
Name:
Title:
<PAGE>
APPENDIX 1 to EXHIBIT D
PLEDGED SECURITIES
<PAGE>
EXHIBIT E
AUTHORIZED REPRESENTATIVES OF BORROWER
Name Specimen Signature
William B. Dockser
H. William Willoughby
Nancy E. Currier
Jamie I. Sapp
Cynthia O. Azzara
David B. Iannarone
Frederick Burchill
<PAGE>
- --------------------------------------------------------------------------------
MASTER ASSIGNMENT AGREEMENT
BETWEEN
CRIIMI MAE INC.
AND
LEHMAN COMMERCIAL PAPER INC.
- --------------------------------------------------------------------------------
Dated as of November 25, 1997
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Document Item No.
-------- --------
<S> <C>
Master Assignment Agreement....................................... 1
Specimen Note..................................................... 2
</TABLE>
<PAGE>
MASTER ASSIGNMENT AGREEMENT
THIS AGREEMENT is made as of the 25th day of November, 1997 by and between
CRIIMI MAE INC. ("Assignor") and LEHMAN COMMERCIAL PAPER INC. ("Lehman"). By
executing this Agreement, Assignor and Lehman agree to be bound by the terms of
this Agreement.
W I T N E S S E T H
WHEREAS the parties elect to enter into this Agreement and, at the request
of Assignor, Lehman may from time to time at its option agree to make one or
more loans (in each instance, a "Loan") to Assignor, which Loans shall be
limited in aggregate outstanding principal amount to $75,000,000, said Loans to
be evidenced by Assignor's promissory note of even date herewith, a form of
which is attached hereto as Exhibit A (the "Note"), maturing on the earlier of
(x) November 25, 1998 unless extended as provided herein or (y) or such earlier
date resulting from Section 10 hereof (the "Maturity Date"); and
WHEREAS, in order to induce Lehman to make Loans from time to time to it,
Assignor has agreed to assign and pledge to Lehman and grant to Lehman a lien
upon and a security interest in the Collateral (as hereinafter defined) for the
purpose of securing its obligations under the Note.
NOW, THEREFORE, in consideration of the foregoing and of the covenants and
agreements hereinafter set forth, Assignor and Lehman agree as follows:
SECTION 1. GRANT OF SECURITY INTEREST: DELIVERY OF COLLATERAL
(a) Assignor hereby grants, pledges, assigns, transfers and delivers to
Lehman with respect to each Loan on the date of settlement thereof (in each
case, the "Closing Date"), and grants to Lehman a lien upon and security
interest in (i) the collateral of the type described in Section 6 (the
"Collateral") and more specifically described in the Confirmation Statement (as
hereinafter defined) relating to each Loan, (ii) any additional collateral with
respect to such Loan ("Supplemental Collateral") that may be granted to Lehman
pursuant to Section 4(c) hereof (provided, however, that any representations,
warranties or covenants contained herein, and the grant of a lien and security
interest with respect to any Supplemental Collateral, shall be effective as to
any Supplemental Collateral (or any proceeds, distributions or other amounts
realized in respect of such Supplemental Collateral) only upon the delivery of
such Supplemental Collateral to Lehman pursuant to such Section 4(c) hereof) and
(iii) all proceeds, distributions and other amounts realized in respect of any
of the foregoing, as security for the due and punctual payment by Assignor of
the Note and any amounts that may become payable thereunder or hereunder (the
foregoing being herein called the "Obligations").
(b) Assignor shall, with respect to each Loan, deliver to Lehman the
related Collateral registered in the name of Lehman or its nominee or with
properly endorsed instruments of transfer (including, without limitation, any
necessary assignments, corporate resolutions and opinions of legal counsel)
that will enable Lehman to cause such Collateral to be so registered without
further action on the part of Lehman other than delivering such Collateral and
such instruments of transfer to the appropriate transfer agent.
(c) Upon two business days request in writing by Assignor, Lehman may ,at
its option, agree to make Loans hereunder pursuant to the terms hereof having an
aggregate outstanding principal amount not in excess of $75,000,000, so long as
the Collateral relating to such Loans conforms to the requirements of this
Agreement and all other conditions of this Agreement are satisfied including,
without limitation, that the aggregate Current Margin of all Loans outstanding
would be equal to or exceed the related Margin Requirement. The parties hereto
acknowledge that this Agreement does not constitute a commitment by Lehman to
make Loans. Any decision by Lehman to make a Loan hereunder shall be made by
Lehman in its sole discretion.
(d) Each Loan hereunder shall be cross collateralized and cross defaulted
with every other Loan hereunder.
<PAGE>
SECTION 2. EARNINGS ON COLLATERAL
All payments and distributions, whether in cash or in kind, made on or with
respect to the Collateral shall, so long as an Event of Default as defined in
Section 9 hereof shall not have occurred and be continuing, be paid to Assignor
directly by the applicable paying agent by wire transfer in immediately
available funds pursuant to wiring instructions delivered in writing by Assignor
to Lehman. Lehman may, in its sole discretion after the occurrence and during
the continuation of an Event of Default, cause all such payments and
distributions to be paid, delivered or transferred directly to Lehman.
SECTION 3. CONFIRMATION STATEMENT
Lehman shall, with respect to each Loan, deliver a confirmation statement
substantially in the form attached hereto as Exhibit B (in each case, the
"Confirmation Statement") to Assignor confirming the agreement between Assignor
and Lehman as to the specific terms of such Loan. Each such Confirmation
Statement shall constitute a binding agreement between Assignor and Lehman, and
this Agreement is hereby incorporated in each such Confirmation Statement and
made a part thereof as if it were set out in full in each such Confirmation
Statement. Each such Confirmation Statement will be binding upon the parties
hereto unless written notice of objection is given by the objecting party to the
other party within two (2) business days after the objecting party's receipt of
such Confirmation Statement.
SECTION 4. MARGIN DETERMINATIONS; FINANCING REQUIREMENTS
(a) A margin requirement (the "Margin Requirement") expressed as a
percentage shall be as follows for the indicated type of Collateral:
Rating on Mortgage
Pass-Through Securities Margin
Constituting Collateral Requirement
BB or equivalent 25%
BB- or equivalent 25%
B or equivalent 30%
B- or equivalent 50%
The rating on the Collateral used to determine the Margin Requirement shall be
the lowest rating assigned by any of (i) Moody's Investors Service, Inc., (ii)
Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies,
Inc., (iii) Fitch Investors Service L.P. or (iv) Duff & Phelps Credit Rating Co.
(each a "Rating Agency" and collectively the "Rating Agencies").
(b) Lehman may, in its sole reasonable discretion, from time to time calculate
the current margin (the "Current Margin") with respect to any Loan, which
Current Margin shall equal the amount by which (i) 100% exceeds (ii) a fraction
(expressed as a percentage) (A) the numerator of which is the then outstanding
principal amount of such Loan together with accrued and unpaid interest thereon
to the date of determination and (B) the denominator of which shall be the fair
market value (as determined by Lehman in its reasonable good faith business
judgment) of the related Collateral (including any Supplemental Collateral
delivered pursuant to this Agreement) then held by Lehman.
(c) If Lehman shall at any time determine with respect to a Loan that the
Current Margin is less than the related Margin Requirement, Lehman shall notify
Assignor of such fact, and Assignor shall, not later than 11:00 a.m. New York
City time on the second business day next succeeding the date of such notice,
deliver to Lehman cash or Supplemental Collateral acceptable to Lehman in its
sole reasonable judgment as Collateral hereunder, which cash shall be applied to
reduce the principal balance of the related Loan and which Supplemental
Collateral shall, in the aggregate, equal an amount such that, after giving
effect to the application of such cash and the delivery of such Supplemental
Collateral, the Current Margin for such Loan will be at least equal to the
related Margin Requirement.
<PAGE>
Delivery of Supplemental Collateral pursuant to this Section 4(c) shall be in
such manner as is acceptable to, and under such additional conditions as may be
required by, Lehman in its sole reasonable judgment.
(d) If at any time the Current Margin for a Loan exceeds the Margin
Requirement for such Loan and provided that Assignor shall not have failed to
satisfy the requirements of Section 4(c) with respect to any notice thereunder
given by Lehman relating to any Loan, Assignor may, upon notice to Lehman,
demand that Lehman redeliver all or any portion of the Supplemental Collateral,
provided, however, that after giving effect to such redelivery, the Current
Margin would not be less than the Margin Requirement, and Lehman shall make good
delivery of such Supplemental Collateral, in a manner equivalent to the manner
in which such Supplemental Collateral was delivered to Lehman, no later than the
business day following receipt by Lehman of such notice. In such connection,
Lehman shall execute such other documents and take such other actions as the
Assignor may reasonably request in order to evidence and give effect to the
release of such Supplemental Collateral from the security interest granted by
this Agreement.
(e) No Collateral rated lower than "BB-" by any Rating Agency shall be
eligible for financing hereunder unless Assignor also owns the most subordinated
class of the related series.
SECTION 5. SUBSTITUTION OF COLLATERAL
Lehman shall allow Assignor, in Assignor's sole discretion, to provide
collateral acceptable to Lehman, in Lehman's sole reasonable discretion, to be
substituted for existing Collateral of equal market value. All certificates or
instruments representing such substituted collateral shall be accompanied by
duly executed instruments of transfer or assignments in blank, all in form and
substance reasonably satisfactory to Lehman.
SECTION 6. ELIGIBLE COLLATERAL; INTEREST RATE
(a) Assets that are eligible to serve as Collateral or Substitute
Collateral with respect to any Loan must be mortgage pass-through securities
evidencing a fractional, undivided ownership interest in a pool of mortgage
loans which are not rated lower than "B-" or the equivalent by any Rating
Agency.
(b) Any mortgage pass-through security constituting Collateral or
Substitute Collateral for a Loan must at all times that it is subject to this
Agreement be senior in right of payment to at least one other class of
securities evidencing an interest in the same pool of mortgage loans.
(c) The per annum interest rate on Loans hereunder shall be: (i) ___ basis
points in excess of LIBOR for all Loans secured by Collateral where the mortgage
pass-through securities constituting such Collateral are rated "BB" or "BB-" (or
the equivalent) by at least one Rating Agency and not lower than "BB-" by any
Rating Agency; and (ii) ___ basis points in excess of LIBOR for all Loans
secured by Collateral where the mortgage pass-through securities constituting
such Collateral are rated "B" or "B-" (or the equivalent) by at least one Rating
Agency and not lower than "B-" by any Rating Agency. As used herein, "LIBOR"
shall mean the London Interbank Offered Rate for one-month United States dollar
deposits as set forth on page 3750 of Telerate as of 8:00 a.m., New York City
time, on the date of determination. All calculations of interest on Loans shall
be made on the basis of a 360-day year and the actual number of days elapsed.
SECTION 7. REPRESENTATIONS AND WARRANTIES
Assignor hereby represents and warrants to Lehman, and shall on and as of
the Closing Date of each Loan be deemed to represent and warrant to Lehman,
that:
(i) Due Incorporation. Assignor has been duly organized and is validly
existing as a corporation in good standing under the laws of the state of
Maryland.
(ii) Authorization. Assignor has full power and authority to execute and
deliver this Agreement and the Note and to perform its obligations hereunder and
thereunder; this Agreement and the Note have each been duly
<PAGE>
authorized by all necessary action and neither requires any additional approval
of any directors or officers other than that which has already been obtained,
each has been duly executed and delivered by Assignor and constitutes its legal,
valid and binding obligation, enforceable against it in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization or
similar laws of general applicability relating to or affecting creditors'
rights, to the assumption that enforcement will be undertaken in a commercially
reasonable manner and to general principles of equity and equitable remedies,
regardless of whether enforcement is considered in a proceeding in equity or at
law.
(iii) No Conflict. Neither the execution and delivery nor the
performance by Assignor of this Agreement or the Note will conflict with the
governing instruments of Assignor or conflict with, result in a breach of or
constitute a default (which default could reasonably be expected to result in
any material adverse change in the financial condition, earnings or business
affairs of Assignor or could reasonably be expected to materially and
adversely affect the properties or assets thereof, including but not limited
to the Collateral) or require any consent under any instrument or agreement
to which Assignor is a party or by which Assignor may be bound, or any law,
order or regulation applicable to Assignor of any court, governmental agency,
authority or body having jurisdiction over Assignor and do not and will not
result in or require the creation of any lien, security interest or other
charge or encumbrance (other than pursuant hereto) upon or with respect to
any of Assignor's properties.
(iv) Approvals, etc. Neither the execution and delivery nor the
performance by Assignor of this Agreement requires any authorization, approval,
consent, license, exemption (other than any self-executing exemption), filing,
registration or the taking of any other action in respect of any federal or
state authority except where the failure to comply with such requirement would
not adversely affect the delivery, execution or performance by Assignor of this
Agreement or cause a material adverse change in the business, operations,
properties, prospects or condition (financial or otherwise) of Assignor.
(v) Good Title. Assignor is the owner of the Collateral and such
Collateral is free and clear of all security interests, liens, charges,
encumbrances and rights of others, except for the lien and security interest
created hereby, and on the related Closing Date, Lehman has a first priority
lien on and security interest in the Collateral (including all proceeds,
distributions and other amounts realized in respect thereof) in favor of Lehman,
subject to no prior security interest, lien, charge, encumbrance or rights of
others, and, Lehman having taken possession of the Collateral registered in the
name of Lehman or its nominee or delivered with such instruments of transfer as
provided in Section l(b) hereof, no further action, including any filing or
recordation of any document, is currently required in order to establish and
perfect the liens on and security interests in the Collateral in favor of Lehman
against any third parties in any jurisdiction.
(vi) Tax Liens. There are no delinquent federal, state, city, county or
other taxes relating to Assignor, the Collateral or any arrangement pursuant to
which the Collateral is issued that, in the reasonable judgment of Lehman, are
likely to materially adversely affect any of the Collateral or the business,
operations, properties, prospects or condition (financial or otherwise) of
Assignor, and all such delinquent tax liabilities have been satisfied except
those that are being contested by Assignor in good faith and with respect to
which payment has been stayed by a court of competent jurisdiction.
(vii) Financial Statements. Since the date of the financial statement
reflecting information as of September 30, 1997 delivered by Assignor to Lehman
(which Assignor represents and warrants to be the most recent financial
statement), there has been no material adverse change in Assignor's financial
condition or results of operations. Assignor shall provide Lehman with audited
fiscal year-end financial statements within ninety-five (95) days after the end
of Assignor's fiscal year, quarterly financial statements within sixty (60) days
after the end of each of Assignor's fiscal quarters and additional publicly
available interim financial statements promptly upon each becoming available.
SECTION 8. COVENANTS
(a) Taxes. Assignor shall pay and discharge all taxes, levies, liens and
other charges on its assets and on the Collateral that, in each case, in any
manner would create any lien or charge upon the Collateral.
<PAGE>
(b) Laws. Assignor shall at all times comply in all material respects
with all laws, ordinances, rules and regulations of any federal, state,
municipal or other public authority having jurisdiction over Assignor or any
of its assets.
(c) Name and Locations. Assignor shall immediately advise Lehman in
writing of the opening of any new chief executive office or the closing of any
such office and of any change in Assignor's name or the places where the books
and records pertaining to the Collateral are kept.
(d) Records. Assignor will maintain records with respect to the
Collateral and the conduct and operation of its business in conformity with
general industry standards and with no less a degree of prudence than if the
Collateral were held by Assignor for its own account and will furnish Lehman,
upon reasonable request by Lehman or its designated representative, with
reasonable information reasonably obtainable by Assignor with respect to the
Collateral and the conduct and operation of its business. Assignor will permit
Lehman or its designated representative to inspect Assignor's records with
respect to the Collateral and the conduct and operation of its business upon
reasonable notice from Lehman or its designated representative, at such
reasonable times and with reasonable frequency, and to make copies or extracts
of any and all thereof. Lehman shall act in a commercially reasonable manner in
requesting and conducting any inspection relating to the conduct and operation
of Assignor's business.
(e) Lehman's Duty of Care. Except as herein provided in this Section
8(e), Lehman's sole duty with respect to the Collateral shall be to use
reasonable care in the custody, use, operation and preservation of the
Collateral in its possession or control. Lehman shall incur no liability to
Assignor for any act of government, act of God, or other destruction in whole or
in part or negligence or wrongful act of custodians or agents selected by and
supervised by Lehman with reasonable care, or Lehman's failure to provide
adequate protection or insurance for the Collateral. Lehman shall have no
obligation to take any action to preserve any rights in any of the Collateral
against prior parties, and Assignor hereby agrees to take such action. Assignor
shall defend the Collateral against all such claims and demands of all persons,
at all times, as are adverse to Lehman. Lehman shall have no obligation to
realize upon any Collateral, except through proper application of any
distributions with respect to the Collateral made directly to Lehman or its
agent(s). So long as Lehman shall act in a commercially reasonable manner,
Assignor hereby waives the defense of impairment of the Collateral.
(f) Use of Proceeds. None of the proceeds of any Loan will be used either
directly or indirectly to acquire any margin security, as that term is defined
in Regulation G of the Board of Governors of the Federal Reserve System, and
Assignor will not take any action that might cause this Agreement or the Note
(and the Loan evidenced hereby and thereby) to violate any regulation of the
Federal Reserve Board.
(g) Further Covenants. Without prior written consent of Lehman,
Assignor will not: (i) assign, sell, transfer, pledge or grant any security
interest in or lien on any of the Collateral to anyone except Lehman, permit
any financing statement (except any financing statements in favor of Lehman)
or assignment (except for any assignments in favor of Lehman) to be on file in
any public office with respect thereto, (ii) permit or suffer to exist any
security interest, lien, charge, encumbrance or right of others to attach to
any of the Collateral, except as contemplated by this Agreement, or (iii)
consent to any amendment or supplement to the documents pursuant to which the
Collateral was issued.
SECTION 9. EVENTS OF DEFAULT
Each of the following, so long as it shall not have been remedied, shall
constitute an "Event of Default" hereunder:
(a) Nonperformance. Any failure to pay, whether on the acceleration
thereof or otherwise, any amounts due under the Note or any failure to pay any
amount due under this Agreement or to perform any material
<PAGE>
provision of this Agreement in accordance herewith, or any material breach of
any representation, warranty or covenant set forth herein or in the Note.
(b) Termination of Interest. The lapse or termination of Assignor's
interest in any of the Collateral.
(c) Events Set Forth in the Note. The occurrence of any event described
in the Note which causes the Note to become due and payable.
(d) Act of Insolvency. The filing by Assignor or a controlling entity, of
a petition in bankruptcy, the adjudication of Assignor or a controlling entity
as insolvent or bankrupt, the petition or application by Assignor or a
controlling entity for any receiver or trustee for itself or any substantial
part of its property, the commencement by Assignor or a controlling entity of
any proceeding relating to it under any reorganization, arrangement, dissolution
or liquidation law, or the initiation of any such proceeding against Assignor or
a controlling entity, if Assignor or a controlling entity indicates by any act
its consent thereto or if such proceeding is not dismissed within thirty (30)
days (an "Act of Insolvency").
(e) Material Adverse Change. In the reasonable good faith judgment of
Lehman, a material adverse change shall have occurred in the business,
operations, properties, prospects or condition (financial or otherwise) of
Assignor.
(f) Default Under Other Contracts. Assignor shall be in material default
with respect to any normal and customary material covenants under any material
contract or material agreement to which it is a party (which covenants include,
but are not limited to, an Act of Insolvency of Assignor or the failure of
Assignor to make required payments under such contract or agreement as they
become due) which default permits acceleration of the obligations of Assignor
under such contract or agreement by any other party thereto and which default,
in the reasonable good faith judgment of Lehman, is likely to result in a
material adverse change in the business, operations, properties, prospects or
condition (financial or otherwise) of Assignor.
(g) Merger or Consolidation. Assignor shall merge or consolidate into any
entity unless Lehman shall have expressly consented to such merger or
consolidation in writing.
(h) Anticipated Insolvency. Lehman shall reasonably determine that
Assignor is or will be unable to meet its commitments hereunder, notifies
Assignor of such determination and Assignor shall not have responded with
appropriate information to the contrary to the satisfaction of Lehman within 36
hours.
(i) Final Judgment. A final judgment by any competent court in the United
States for the payment of money in an amount of at least $100,000 is rendered
against Assignor, and the same remains undischarged and unpaid for a period of
60 days during which execution of such judgment is not effectively stayed.
(j) Breach of Representation. Any representation or warranty made by
Assignor herein shall have been incorrect or untrue in any material respect when
made or repeated or when deemed to have been made or repeated and which breach
is reasonably likely to result in a material adverse change (i) in the business,
operations, properties, prospects or condition (financial or otherwise) of
Assignor, (ii) in the market value or marketability of any of the Collateral or
(iii) in the ability of Assignor to perform, or the rights and remedies of
Lehman, hereunder.
(k) Breach of Covenant. Assignor shall breach in any material respect any
covenant made by it herein and which breach is reasonably likely to result in a
material adverse change (i) in the business, operations, properties, prospects
or condition (financial or otherwise) of Assignor, (ii) in the market value or
marketability of any of the Collateral or (iii) in the ability of Assignor to
perform, or the rights and remedies of Lehman, hereunder.
(1) Indebtedness. The ratio of Assignor's outstanding consolidated
indebtedness (determined in accordance with generally accepted accounting
principles consistently applied (herein referred to as "GAAP")) to all lenders
(including, without limitation, all indebtedness incurred under any loan
agreement, warehouse finance agreement and repurchase agreement) to its equity
(determined in accordance with GAAP and herein referred to as "Shareholders'
Equity") is at any time be more than 5 to 1.
<PAGE>
(m) Chances in Financial Condition. Assignor shall experience losses or
changes in its financial condition that cause its Shareholders' Equity for any
two consecutive calendar quarters to be less than or equal to 80% of its
Shareholders' Equity as of the commencement of such period.
(n) Shareholders' Equity. Assignor's Shareholders' Equity shall at
any time be less than $350,000,000.
<PAGE>
SECTION 10. REMEDIES
(a) Action Regarding Collateral. If an Event of Default shall occur and
be continuing, Lehman, without demand of performance or other demand or notice
of any kind to Assignor or any other person, all of which are hereby expressly
waived, may forthwith declare the Obligations due and apply the cash, if any,
then held by it as part of the Collateral relating to any Loan to the payment of
any of the Obligations, and, if there shall be no such cash or the cash so
applied shall not be sufficient to pay in full all such Obligations, may
thereafter collect, receive, appropriate, retain and realize upon the
Collateral, or any part thereof, and may forthwith sell, assign, give an option
or options to purchase, contract to sell, or otherwise dispose of and deliver
the Collateral, or any part thereof, in one or more parcels at such public or
private sale or sales, at such place or places, at such price or prices and upon
such other terms and conditions as Lehman may deem best (provided, however, that
Lehman shall act in a commercially reasonable manner), for cash or on credit or
for future delivery without assumption of any credit risk, with the right of
Lehman upon any such sale or sales to purchase all or any part of the Collateral
so sold. Upon any sale, transfer or other disposition of the Collateral pursuant
hereto Lehman shall have the right to deliver, assign and transfer to the
transferee thereof the Collateral so sold. Each transferee upon any such
transfer or other disposition shall hold the property thereby acquired by it
absolutely free from any claim or right of any kind, including any equity or
rights of redemption, of Assignor, who hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any rule of law or
statute whether now existing or hereafter adopted (in the latter case, to the
extent permitted thereby). Assignor agrees that Lehman need give only such
notice of the time and place of any public or private sale (including any
adjourned private sale) or other intended disposition as may be required by
market conditions and standards of commercial reasonableness and that Lehman
need not in any event give more than two (2) days' notice that such sale or
disposition is to take place. Assignor agrees that the notice provided for in
the preceding sentence is reasonable notification of such matters.
Lehman shall not be obligated to make any sale pursuant to any such notice.
Lehman may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or place to
which the same may be so adjourned. In case of any sale of all or any part of
the Collateral on credit or for future delivery, the Collateral so sold may be
retained by Lehman until the selling price is paid by the purchaser thereof, but
Lehman shall not incur any liability in case of the failure of such purchaser to
take up and pay for the Collateral so sold and, in case of any such failure,
such Collateral may again be sold upon like notice. Lehman, however, instead of
exercising the power of sale herein conferred upon it, may proceed by a suit or
suits at law or in equity to foreclose the lien and security interest created
hereby and sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction.
(b) Deficiency. If the proceeds of sale, collection, foreclosure or other
realization of or upon the Collateral are insufficient to cover the costs and
expenses of such realization and the payment in full of the Obligations,
Assignor shall remain liable for any deficiency.
(c) Private Sale. Lehman shall incur no liability as a result of the sale
of the Collateral (provided, however, that Lehman shall act in a commercially
reasonable manner) or any part thereof, at any private sale. Assignor hereby
waives any claims against Lehman or any holder or holders of the Note arising by
reason of the fact that the price at which the Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale or was less than the aggregate amount of the Obligations, even if
Lehman accepts the first offer received and does not offer the Collateral to
more than one offeree (provided, however, that Lehman shall act in a
commercially reasonable manner).
(d) Application of Proceeds. The proceeds of any sale or other
realization of all or any part of the Collateral, and any other cash at the time
held by Lehman under this Agreement, shall be applied by Lehman in the following
order of priority:
First, to the payment of the costs and expenses of such sale and all expenses
(including the reasonable fees and expenses of counsel), liabilities and
advances made or incurred by Lehman in connection therewith.
<PAGE>
Second, to the payment of all accrued interest under the Note due or past due.
Third, to the payment of principal upon the Note due or past due.
Fourth, to the payment of all other amounts owing under this Agreement.
Fifth, to the payment to Assignor, or to such other person as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds and other cash.
As used in this Agreement, "proceeds" of the Collateral shall mean cash and
other property received or otherwise realized in respect of the Collateral.
(e) Default Rate of Interest. After written demand is made with respect
to the Note or upon acceleration thereof, until the balance thereof shall be
paid, the Loan amounts due thereunder, shall bear interest at a per annum rate
(based on a year of 360 days and actual days elapsed) equal to the greater of
(i) two hundred (200) basis points in excess of the interest rate for such Loan
and (ii) two hundred (200) basis points in excess of the prime rate for short
term bank commercial loans as published in The Wall Street Journal, changing as
such published rate changes, but in no event higher than the maximum rate
permitted by law.
(f) Attorney-in-Fact. Effective upon the occurrence and continuation of
an Event of Default hereunder, Lehman is hereby appointed the attorney-in-fact
of Assignor for the purpose of carrying out the provisions of this Agreement and
taking any action and executing any instruments which Lehman may reasonably deem
necessary or advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, after an Event of Default has occurred, Lehman
shall have the right and power to receive, endorse and collect all checks made
payable to the order of Assignor representing any distribution in respect of the
Collateral or any part thereof and to give full discharge for the same.
(g) Payments on Collateral to Assignor.
(i) All rights of Assignor to receive any payments from the
related Collateral which it would otherwise be authorized to receive shall
cease, and all such rights shall thereupon become vested in Lehman, which
shall thereupon have the sole right to receive and hold as Collateral such
payments.
(ii) All payments which are received by Assignor contrary to the
provisions of the preceding subsection (i) shall be received in trust for
the benefit of Lehman, shall be segregated from other funds of Assignor and
shall be promptly paid to Lehman.
SECTION 11. MATURITY DATE: INTEREST PAYMENT DATES: REPAYMENT OF PRINCIPAL
(a) Assignor and Lehman hereby agree that the Obligations of Assignor
hereunder and under the Note are payable on the Maturity Date unless earlier
payment thereof is required pursuant to the terms of this Agreement.
(b) Assignor may, not later than 30 business days' prior to the
Maturity Date, request in writing that Lehman extend such Maturity Date for
an additional one year period. Lehman will use its best efforts to respond
within ten business days of receiving such written request; provided that any
failure or refusal to respond on the part of Lehman shall not be deemed to be
a positive response. Any response will include whether or not Lehman would be
willing to so extend the Maturity Date and the terms of any such extension.
Nothing contained herein shall be deemed to limit the right of Lehman, in its
sole discretion, to provide no response or to decline to enter into such
extension or to agree to such extension on terms different from those set
forth herein. Any such extension shall be evidenced only by a written
agreement among the parties amending this Agreement and the Note.
(c) Interest on each Loan shall be payable on the dates described in the
related Confirmation Statement.
<PAGE>
(d) The principal portion of each Loan may be repaid in whole or in part
at the discretion of Assignor on any date on which a payment of interest is to
be made thereon by Assignor pursuant to the terms of this Agreement and the
related Confirmation Statement provided that (i) Assignor shall have provided
Lehman with not less than two (2) business days' written notice of Assignor's
intention to effect such repayment and the amount thereof, (ii) all payments of
interest then due and owing on the Loan are paid in full, (iii) Assignor shall
have paid any termination fee or other penalty payable by Lehman to a third
party under a financing arrangement for the Loan between Lehman and such third
party and (iv) Assignor shall have paid to Lehman all other amounts payable to
Lehman hereunder with respect to such Loan.
(e) Nothing in this Section 11 shall be deemed to limit the right of
Lehman to require, so long as an Event of Default shall have occurred and is
continuing, the payment by Assignor of all Obligations arising hereunder and
under the Note.
SECTION 12. GENERAL PROVISIONS
(a) No Waiver. No waiver or amendment of or forbearance in enforcing any
provision of this Agreement nor consent to any departure by either party
herefrom shall be effective unless expressly granted in writing and shall be
limited to the extent expressed therein.
(b) Governing Law: Severability. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and entirely performed therein. Unless otherwise defined herein,
terms defined in the Uniform Commercial Code in the State of New York are used
herein as defined therein. Each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or be invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
(c) Construction. The captions in this Agreement are for convenience of
reference only and shall not affect the construction or interpretation of any of
the provisions hereof.
(d) Assignment. This Agreement shall be binding upon and shall inure to
the benefit of each of the parties hereto and their respective successors and
assigns; provided, however, that neither this Agreement nor any rights or other
obligations hereunder may be assigned by Assignor without prior written consent
of Lehman and any attempted or purported assignment hereof or thereof shall be
void. Lehman may assign any or all of its rights hereunder without consent.
Lehman shall notify Assignor in writing of any assignment of this Agreement by
Lehman other than as contemplated by Section 12(i); provided, however, that such
notice need not be prior notice and neither Assignor nor any other person or
entity shall be entitled to object to such assignment.
(e) Notices, Payments. Deliveries. Unless otherwise provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic facsimile or telex communication), and such notices and
other communications shall, when mailed, telegraphed, communicated by facsimile
transmission or telexed, be effective when received at the address for notices
for the party to whom such notice or communications is to be given as follows:
<PAGE>
If to Lehman:
Lehman Commercial Paper Inc.
Three World Financial Center
New York, New York 10285
Attention: Francis X. Gilhool
Telephone: (212) 526-6970
Telecopy: (212) 526-3721
If to Assignor:
CRIIMI MAE Inc.
11200 Rockville Pike
Rockville, Maryland 20852
Attention: Cindy Azzara
Telephone: (301) 231-0332
Telecopy: (301) 231-0334
provided, however, that a facsimile transmission shall be deemed to be received
when transmitted so long as the transmitting machine has provided an electronic
confirmation of such transmission, and provided further, however, that all
financial statements delivered shall be hand-delivered or sent by first-class
mail to Lehman at such address. All payments on and deliveries of Collateral
hereunder shall be made to the address or account for payments and deliveries of
such Collateral for the party to whom such payment or delivery is to be made as
set forth above. Either party may revise any information relating to it by
notice in writing to the other party, which notice shall be effective on the
third business day following receipt thereof.
(f) Termination. When all Obligations shall have been paid in full and
upon the written request of Assignor, this Agreement shall terminate and Lehman
shall release its lien and security interest hereunder and assign, transfer and
deliver, against receipt, any remaining Collateral and money received in respect
thereof to or on the order of Assignor. Upon the request of Assignor, Lehman
will then execute termination statements and such other documents as Assignor
may reasonably request as are necessary to make clear upon the public record the
termination of the lien and security interests created hereby with respect to
such assignment. The obligations of Assignor under Section 12(h) below shall,
with respect to each transaction entered into hereunder, survive any termination
hereof.
(g) Aggregate Amount of Loans: Disbursement of Funds.
(i) The aggregate outstanding principal amount of the Loans made by
Lehman hereunder shall be limited to the excess of $75,000,000 over all
outstanding indebtedness (without regard to the form or nature of such
indebtedness and including any amounts that are to be paid by Assignor to
Lehman under any repurchase arrangement).
(ii) Assignor may request disbursement of amounts borrowed hereunder
upon not less than two (2) business days' written notice to Lehman.
(h) Expenses. Assignor agrees to pay to Lehman on demand all reasonable
fees and expenses for legal services of outside counsel incurred by Lehman, if
any, in connection with the preparation, execution and delivery of this
Agreement and the Note. Assignor agrees to pay to Lehman on demand all
reasonable costs and expenses (including reasonable expenses for legal services
of every kind) of any subsequent enforcement of any of the provisions hereof, or
of the performance by Lehman of any Obligations of Assignor in respect of the
Collateral which Assignor has failed or refused to perform, or any actual or
attempted sale, or any exchange, enforcement, collection, compromise or
settlement in respect of any of the Collateral and for the custody, care or
preservation of the Collateral (including insurance costs) and defending or
asserting rights and claims of Lehman in respect thereof, by litigation or
otherwise, including expenses of insurance. In addition, Assignor agrees to pay
to Lehman on
<PAGE>
demand all reasonable costs and expenses (including expenses for legal services)
incurred in connection with the preparation and delivery of this Agreement and
the Note and the costs of registering the Collateral in the name of Lehman or
its nominee. All such expenses shall be Obligations to Lehman secured under this
Agreement.
(i) Lehman 's Right to Pledge. Nothing in this Agreement shall preclude
Lehman from engaging in transactions with third parties involving the selling
pursuant to a repurchase arrangement, pledging or hypothecating of the
Collateral, but no such transaction shall relieve Lehman of its obligations
hereunder.
(j) Indemnification. Assignor agrees to indemnify and hold harmless
Lehman against all liabilities and expenses to which Lehman may become subject
relating to any fees, taxes or liability to any third party resulting from any
action taken or omitted by or upon instructions of Assignor with respect to the
Collateral.
(k) Further Assurances. Assignor agrees that, from time to time upon the
prior written request of Lehman, it will (i) execute and deliver such further
documents and do such other acts and things as Lehman may reasonably request in
order to fully effectuate the purposes of this Agreement and (ii) provide such
opinions of counsel concerning matters relating to this Agreement as Lehman may
reasonably request.
(1) Remedies Cumulative. All rights, remedies and powers of Lehman
hereunder and in connection herewith are irrevocable and cumulative, and not
alternative or exclusive, and shall be in addition to all other rights, remedies
and powers of Lehman whether under law, equity or agreement. In addition to the
rights and remedies granted to it in this Agreement or under the Note, Lehman
shall have all the rights and remedies of a secured party under the Uniform
Commercial Code.
(m) Litigation. Notwithstanding any termination hereof, Assignor hereby
agrees that any legal action or proceeding against it in connection herewith may
be brought in the courts of the State of New York or of the United States of
America located in the City and State of New York, Borough of Manhattan, as
Lehman may elect, and Assignor hereby irrevocably submits to the jurisdiction of
each of said courts, and waives any objection on the grounds of venue, forum non
conveniens or similar ground.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
CRIIMI MAE INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
LEHMAN COMMERCIAL PAPER INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE>
EXHIBIT A
THIS NOTE IS NOT A NEGOTIABLE INSTRUMENT. NO TRANSFER OR SALE OF THIS NOTE
SHALL BE MADE UNLESS SUCH TRANSFER IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE
STATE SECURITIES LAWS OR IS MADE IN ACCORDANCE WITH SAID ACT AND LAWS.
NOTE
$75,000,000
New York, New York November 25, 1997
FOR VALUE RECEIVED, CRIIMI MAE INC. (the "Assignor") promises to pay to
LEHMAN COMMERCIAL PAPER INC. (the "Payee") the principal sum of Seventy Five
Million Dollars ($75,000,000) (or so much thereof as shall have been advanced
here against and shall be outstanding), in lawful money of the United States of
America, in immediately available funds, with interest on each principal sum
advanced here against or the unpaid balance thereof with such frequency and to
such location as is specified in the related confirmation statement (in each
case, the "Confirmation Statement") for such advance (or on such other day and
with such other frequency and to such other location as may be mutually agreed
upon by the Assignor and the Payee) at said office and in said money and funds
from the date of the related advance until the Maturity Date at the rate per
annum (based on a year of 360 days and actual days elapsed) indicated on the
related Confirmation Statement attached hereto, but in no event higher than the
maximum rate permitted by law, and after such Maturity Date, or upon
acceleration as hereinafter provided, until said balanced shall be paid, at the
rate per annum (based on a year of 360 days and actual days elapsed) equal to
the greater of (i) two hundred (200) basis points in excess of the interest rate
for such advance and (ii) two hundred (200) basis points in excess of the prime
rate for short term bank commercial loans as published in The Wall Street
Journal, changing as such published rate changes, but in no event higher than
the maximum rate permitted by law. The Maturity Date of this Note shall be the
earlier of (x) November 25, 1998 unless extended as provided herein or (y) or
such earlier date resulting from Section 10 of the Master Assignment Agreement.
Advances here against shall be in minimum amounts of $1,000,000. The
Assignor may request disbursement of amounts borrowed hereunder upon not less
than two (2) business days' written notice to the Payee. The Payee shall make
advances hereunder with respect to Collateral conforming to the requirements up
to the Commitment. The Payee may, but is not obligated to, make any advances
hereunder in excess of the Commitment. The Payee is hereby authorized by the
Assignor to endorse on the Loan Schedule amounts advanced here against, the rate
of interest relating thereto and any principal prepayments hereunder (as
permitted by the Assignment defined below), it being understood, however, that
failure to make any such endorsement shall not affect the obligations of the
Assignor hereunder in respect of the amounts advanced hereagainst.
This Note is the Note referred to in the Master Assignment Agreement (the
"Master Assignment Agreement"), dated as of November 25, 1997, between the
Assignor and the Payee, granting to the Payee a first priority perfected
security interest in the Collateral, as described therein. The holder is
entitled to the benefits of the Master Assignment Agreement and may enforce the
agreements of the Assignor contained therein and exercise the remedies provided
for thereby or otherwise available in respect thereof. All capitalized terms
used in this Note and not otherwise defined shall have the respective meanings
set forth in the Master Assignment Agreement except where the context clearly
indicates otherwise.
This Note and all other present and future obligations of any and all kinds
of the Assignor in favor of the holder hereof, whether created directly or
acquired by assignment, whether absolute or contingent, shall, unless the holder
shall otherwise elect, forthwith be due and payable without notice or demand of
any kind (except as expressly provided in the Master Assignment Agreement), all
of which are expressly waived upon the occurrence of any Event of Default.
The Assignor hereby agrees that any legal action or proceeding against it
for enforcement of this Note or of any judgment with respect to this Note may be
brought in the courts of the State of New York of the United States of America
located in the City and State of New York, Borough of Manhattan, as the holder
may elect, and the
<PAGE>
Assignor hereby irrevocably submits to the jurisdiction of each said courts, and
waives any objection on the grounds of venue, forum non conveniens or similar
ground. The Assignor irrevocably consents that service of process in any such
action or proceeding may be made upon the Assignor by the mailing thereof by the
holder by United States registered or certified mail, postage prepaid, to the
Assignor at the address set forth herein below the signature of the Assignor,
and the Assignor hereby further agrees that service of process in such manner
shall be full and sufficient notice of any such action or proceeding.
The Assignor waives diligence, presentment of any instrument, protest and
notice of non-payment or protest and any and all other notices and demands
whatsoever in connection with the delivery, acceptance, performance default or
enforcement of this Note. The Assignor will pay on demand all costs of
collection (including reasonable attorneys' fees) paid or incurred by the holder
in enforcing this Note on default. As used herein, the world "holder" shall
mean the Payee or any endorsee of this Note who is in possession thereof, if
this Note is at the time payable to the bearer.
<PAGE>
This Note shall be governed by and construed in accordance with the laws of
the State of New York applicable to agreements made and entirely performed
therein.
CRIIMI MAE INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Address: 11200 Rockville Pike
Rockville, Maryland 20852
<PAGE>
LOAN SCHEDULE
This Note evidence Loans made by the Payee to the Assignor and the repayment of
principal by the Assignor to the Payee, in the principal amounts and on the
dates and with the related interest rates set forth below as well as the total
amount advanced here against as of each such date:
PRINCIPAL LOAN INTEREST PRINCIPAL TOTAL
DATE AMOUNT RATE AMOUNT REPAID OUTSTANDING
- ------------ -------------- ---------- ------------- -----------
<PAGE>
EXHIBIT B
CONFIRMATION STATEMENT
LEHMAN COMMERCIAL PAPER INC.
Date: ________________________________________
Borrower: CRIIMI MAE Inc.
Address: 11200 Rockville Pike
Rockville, Maryland 20852
Attention: Cindy Azzara
Telephone: (301) 231-0332
Telecopy: (301) 231-0334
Re: LOAN PURSUANT TO MASTER ASSIGNMENT AGREEMENT
Gentlemen:
Lehman Commercial Paper Inc. ("Lehman") is pleased to confirm our Loan to
you (the "Assignor") pursuant to the Master Assignment Agreement (the "Master
Assignment Agreement"), dated as of November 25, 1997, between you and Lehman
under the following terms and conditions:
1. Collateral Description: ________________________________
A.____________________________________Security Issue Date:
B.____________________________________Percentage Ownership: %
C._________________________________________Face Amount: $
D.________________________________Current Market Value: $
E.____________________________________Margin Requirement: %
2. Loan: ______ New Funds ______ Roll
A. Amount: $____________
B. Closing Date: _______________________
C. Interest Payment Date: The last business day of each month.
D: Interest Rate: __________ (______) basis points over
the prevailing London Interbank Offered
Rate for one-month United States dollar
deposits as set forth on page 3750 of
Telerate as of 8:00 a.m. New York City
time on the date of determination.
<PAGE>
Lehman's Wiring Instructions Assignor's Wiring Instructions
- ---------------------------- -------------------------------
[Bank] Signet Bank/VA
For the Account of _________. For the Account of
Account Number: CRIIMI MAE Inc.
ABA Number: Account Number: [6520172757]
ABA Number: [051006778]
The Note, dated November 25, 1997, which evidences advances under the
Master Assignment Agreement will be annotated on the schedule attached thereto
to reflect the date, amount and interest rate relating to this advance.
The Master Assignment Agreement is incorporated by reference into this
Confirmation Statement and made a part hereof as if it were fully set forth
herein. All capitalized terms used herein but not otherwise defined shall have
the meanings specified in the Master Assignment Agreement.
Very truly yours,
LEHMAN COMMERCIAL PAPER INC.
By:_______________________________________________
Name:_____________________________________________
Title:____________________________________________
AGREED AND ACKNOWLEDGED:
CRIMI MAE INC.
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FIANANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,301
<SECURITIES> 2,026,590
<RECEIVABLES> 147,427
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,228,478
<CURRENT-LIABILITIES> 13,408
<BONDS> 1,664,646
0
19
<COMMON> 470
<OTHER-SE> 548,998
<TOTAL-LIABILITY-AND-EQUITY> 2,228,478
<SALES> 0
<TOTAL-REVENUES> 45,418
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,729
<LOSS-PROVISION> 402
<INTEREST-EXPENSE> 27,392
<INCOME-PRETAX> 13,895
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,895
<EPS-PRIMARY> .29
<EPS-DILUTED> .28
</TABLE>
