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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 1998 Commission file number 1-10360
CRIIMI MAE INC.
(Exact name of registrant as specified in its charter)
MARYLAND 52-1622022
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
11200 Rockville Pike
Rockville, Maryland 20852
(301) 816-2300
(Address, including zip code, and telephone number,
Including area code, of registrant's principal executive offices)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
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Common Stock New York Stock Exchange, Inc.
Series B Cumulative Convertible New York Stock Exchange, Inc.
Preferred Stock
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10K or any amendment to this
Form 10K. /X/
As of March 29, 1999, 53,551,161 shares of CRIIMI MAE Inc. common stock
(voting) with a par value of $.01 were outstanding. The aggregate market value
(based upon the last reported sale price on the New York Stock Exchange on March
29, 1999) of the shares of CRIIMI MAE Inc. common stock (voting) held by
non-affiliates was approximately $141,189,974. (For purposes of calculating the
previous amount only, all directors and executive officers of the registrant are
assumed to be affiliates.)
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DOCUMENTS INCORPORATED BY REFERENCE
None.
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CRIIMI MAE INC.
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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PAGE
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Item 1. Business ............................................................ 1
Item 2. Properties............................................................ 19
Item 3. Legal Proceedings..................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders................... 24
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters............................................................. 25
Item 6. Selected Financial Data............................................... 26
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 29
Item 7A. Quantitative and Qualitative Disclosures About Market Risks........... 41
Item 8. Financial Statements and Supplementary Data........................... 42
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................. 42
PART III
Item 10. Directors and Executive Officers of the Registrant.................... 43
Item 11. Executive Compensation................................................ 46
Item 12. Security Ownership of Certain Beneficial Owners and Management........ 49
Item 13. Certain Relationships and Related Transactions........................ 50
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8K....... 52
Signatures
Exhibit Index
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PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE
WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE
INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR"
PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THE RISK
FACTORS CONTAINED UNDER THE HEADINGS "RISK FACTORS", AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" SET
FORTH BELOW. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR TO REFLECT
THE OCCURRENCE OF UNANTICIPATED EVENTS.
GENERAL
CRIIMI MAE Inc. (together with its consolidated subsidiaries, unless the
context otherwise indicates, "CRIIMI MAE" or the "Company") is a fully
integrated commercial mortgage company structured as a self-administered real
estate investment trust ("REIT"). Prior to the filing by CRIIMI MAE Inc.
(unconsolidated) and two of its operating subsidiaries for relief under Chapter
11 of the U.S. Bankruptcy Code on October 5, 1998 (the "Petition Date") as
described below, CRIIMI MAE's primary activities included (i) acquiring
non-investment grade securities (rated below BBB- or unrated) backed by pools of
mortgage loans on multifamily, retail and other commercial real estate
("Subordinated CMBS"), (ii) originating and underwriting commercial mortgage
loans, (iii) securitizing pools of commercial mortgage loans and resecuritizing
pools of Subordinated CMBS, and (iv) through the Company's servicing affiliate,
CRIIMI MAE Services Limited Partnership ("CMSLP"), performing servicing
functions with respect to the mortgage loans underlying the Company's
Subordinated CMBS.
Since filing for Chapter 11 protection, CRIIMI MAE has suspended its
Subordinated CMBS acquisition, origination and securitization programs. The
Company continues to hold a substantial portfolio of Subordinated CMBS,
originated loans and mortgage securities and, through CMSLP, acts as a servicer
for its own as well as third party securitized mortgage loan pools. Despite the
turmoil in the capital markets commencing in late summer of 1998, the mortgage
loans underlying CRIIMI MAE's portfolio of Subordinated CMBS have experienced no
losses of principal from defaults.
In addition to the two operating subsidiaries which filed for Chapter 11
protection with the Company, the Company owns 100% of multiple financing and
operating subsidiaries as well as various interests in other entities (including
CMSLP) which either own or service mortgage and mortgage-related assets (the
"Non-Debtor Affiliates"). See Note 3 to Notes to Consolidated Financial
Statements. None of the Non-Debtor Affiliates has filed for bankruptcy
protection.
The Company was incorporated in Delaware in 1989 under the name CRI Insured
Mortgage Association, Inc. ("CRI Insured"). In July 1993, CRI Insured changed
its name to CRIIMI MAE Inc. and reincorporated in Maryland. In June 1995,
certain mortgage businesses affiliated with C.R.I., Inc. were merged into CRIIMI
MAE (the "Merger"). The Company is not a government sponsored entity or in any
way affiliated with the United States government or any United States government
agency.
CHAPTER 11 FILING
Prior to the Petition Date, CRIIMI MAE financed a substantial portion of
its Subordinated CMBS acquisitions with short-term, variable-rate financing
facilities secured by the Company's CMBS. The agreements governing these
financing arrangements typically required the Company to maintain collateral
with a market value not less than a specified percentage of the outstanding
indebtedness ("loan-to-value ratio"). The agreements further provided that the
creditors could require the Company to provide cash or additional collateral if
the market value of the existing collateral fell below this minimum amount.
As a result of the turmoil in the capital markets commencing in late summer
of 1998, the spreads between CMBS yields and yields on Treasury securities with
comparable maturities began to widen
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substantially and rapidly. Due to this widening of CMBS spreads, the market
value of the CMBS securing the Company's short-term, variable-rate financing
facilities declined. CRIIMI MAE's short-term secured creditors perceived that
the value of the CMBS securing their facilities with the Company had fallen
below the minimum loan-to-value ratio described above and, consequently, made
demand upon the Company to provide cash or additional collateral with sufficient
value to cure the perceived value deficiency. In August and September of 1998,
the Company received and met collateral calls from its secured creditors. At the
same time, CRIIMI MAE was in negotiations with various third parties in an
effort to obtain additional debt and equity financing that would provide the
Company with additional liquidity.
On Friday afternoon, October 2, 1998, the Company was in the closing
negotiations of a refinancing with one of its unsecured creditors that would
have provided the Company with additional borrowings when it received a
significant collateral call from Merrill Lynch Mortgage Capital, Inc. ("Merrill
Lynch"). The basis for this collateral call, in the Company's view, was
unreasonable. After giving consideration to, among other things, this collateral
call and the Company's concern that its failure to satisfy this collateral call
would cause the Company to be in default under a substantial portion of its
financing arrangements, the Company reluctantly concluded on Sunday, October 4,
1998 that it was in the best interests of creditors, equity holders and other
parties in interest to seek Chapter 11 protection.
On October 5, 1998, CRIIMI MAE (unconsolidated) and two of its consolidated
operating subsidiaries, CRIIMI MAE Management, Inc. ("CM Management"), and
CRIIMI MAE Holdings II, L.P. ("Holdings II" and, together with CRIIMI MAE and CM
Management, the "Debtors") filed for relief under Chapter 11 of the U.S.
Bankruptcy Code in the United States Bankruptcy Court for the District of
Maryland, Southern Division, in Greenbelt, Maryland (the "Bankruptcy Court").
These related cases are being jointly administered under the caption "In re
CRIIMI MAE Inc., et al.," Ch. 11 Case No. 98-2-3115-DK.
The Company is working diligently toward the preparation of a plan of
reorganization. The Bankruptcy Court has entered an order extending the
Company's exclusive right to file a plan of reorganization through May 11, 1999
and has set a hearing on such date with respect to the extension of the
exclusivity periods through August 2, 1999 for filing a plan of reorganization
and through October 3, 1999 for soliciting acceptances thereof. See "LEGAL
PROCEEDINGS." A number of parties have indicated potential opposition to any
such extension. Management expects to file a plan of reorganization during the
summer of 1999, which would contemplate the Company's emergence from bankruptcy
later in 1999. There can be no assurance at this time, however, that the Company
will propose a plan of reorganization during such time or that such plan will be
confirmed and consummated. See "LEGAL PROCEEDINGS" for a general discussion of
the bankruptcy process.
While in bankruptcy, CRIIMI MAE has been streamlining its operations in an
effort to reduce operating expenses. The Company significantly reduced the
number of employees in its origination and underwriting operations in October
1998, but has retained key employees in each of these operational areas. In
connection with these reductions, the Company closed its five regional loan
origination offices, retaining only a core presence in Rockville, Boston,
Houston, Chicago and San Francisco. See "BUSINESS - Employees."
Although the Company has significantly reduced its work force, the Company
recognizes that retention of its executives and other remaining employees is
essential to the efficient operation of its business and to its reorganization
efforts. Accordingly, the Company has, with Bankruptcy Court approval, adopted
an employee retention plan. See "BUSINESS - Employee Retention Plan."
EFFECT OF CHAPTER 11 FILING ON REIT STATUS AND OTHER TAX MATTERS
REIT STATUS. CRIIMI MAE is required to meet income, asset, ownership and
distribution tests to maintain its REIT status. The Company has satisfied the
REIT requirements for all years through, and including, 1998. However, due to
the uncertainty resulting from its Chapter 11 filing, there can be no
assurance that CRIIMI MAE will retain its REIT status for 1999 or subsequent
years. If the Company fails to retain its REIT status for any taxable year,
it will be taxed as a regular
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domestic corporation subject to federal and state income tax in the year of
disqualification and for at least the four subsequent years.
THE COMPANY'S 1998 TAXABLE INCOME. In determining its federal income tax
liability, CRIIMI MAE, as a result of its REIT status, is entitled to deduct
from its taxable income dividends paid to its shareholders. Accordingly, to
the extent the Company distributes its net income to shareholders, it
effectively reduces taxable income, on a dollar-for-dollar basis, and
eliminates the "double taxation" that normally occurs when a corporation
earns income and distributes that income to shareholders in the form of
dividends. The Company, however, still must pay corporate level tax on any
1998 taxable income not distributed to shareholders by December 31, 1999. For
1998, the Company could have up to approximately $18 million in undistributed
taxable income, resulting in a potential tax liability of up to $7 million
for state and federal taxes. Notwithstanding this significant amount of
undistributed taxable income, CRIIMI MAE has fully complied with the
requirement for 1998 that it distribute at least 95% of its "REIT taxable
income" for the year in order to maintain REIT status (the "required
distribution"), because the calculation of the required distribution may
exclude certain excess noncash income such as original issue discount ("OID").
As noted in the preceding paragraph, the Company's taxable income for a
given year is generally reduced by the amount of distributions made in that year
to its shareholders. The Tax Code, however, permits the Company to deduct
against its 1998 taxable income dividends declared by the Company through
September 15, 1999 if such dividends are paid no later than December 31, 1999.
The Company, however, is currently exploring a variety of methods for
distributing some or all of its remaining 1998 taxable income by December 31,
1999, including the potential distribution of securities or other noncash
dividend payments. As a result of the Chapter 11 filing, there can be no
assurance that the Company will be able to make additional distributions with
respect to its 1998 taxable income. The failure to make further distributions
will result in a tax obligation of up to $7 million, but will have no effect on
CRIIMI MAE's 1998 REIT status.
1998 EXCISE TAX LIABILITY. Apart from the requirement that the Company
distribute at least 95% of its REIT taxable income to maintain REIT status,
CRIIMI MAE is also required each calendar year to distribute an amount ("the
excise tax avoidance amount") at least equal to the sum of 85% of its "REIT
ordinary income" and 95% of its "REIT capital gain income" to avoid incurring
a nondeductible excise tax. Unlike the 95% distribution requirement, the 85%
distribution requirement is not reduced by excess noncash income items such
as OID. Because the Company did not pay a dividend in the fourth quarter, its
actual distributions fell short of the excise tax avoidance amount by
approximately $7 million, resulting in an excise tax of approximately
$300,000. This $300,000 excise tax has been accrued and paid by the Company.
TAXABLE MORTGAGE POOL RISKS. An entity that constitutes a "taxable
mortgage pool" as defined in the Tax Code ("TMP") is treated as a separate
corporate level taxpayer for federal income tax purposes. In general, for an
entity to be treated as a TMP (i) substantially all of the assets must
consist of debt obligations and a majority of those debt obligations must
consist of mortgages; (ii) the entity must have more than one class of debt
securities outstanding with separate maturities and (iii) the payments on the
debt securities must bear a relationship to the payments received from the
mortgages. The Company currently owns all of the equity interests in three
trusts that constitute TMPs (CBO-1, CB0-2 and CMO-IV, collectively the
"Trusts"). See "Resecuritizations" and "Loan Originations and
Securitizations" for descriptions of CBO-1, CBO-2 and CMO-IV. The Company
also owns certain securities structured as bonds (the "Bonds") issued by each
of the Trusts. The statutory provisions and regulations governing the tax
treatment of TMPs (the "TMP Rules") provide an exemption for TMPs that
constitute "qualified REIT subsidiaries" (that is, entities whose equity
interests are wholly owned by a REIT). As a result of this exemption and the
fact that the Company owns all of the equity interests in each Trust, the
Trusts currently are not required to pay a separate corporate level tax on
income they derive from their underlying mortgage assets.
Certain of the Bonds owned by the Company serve as collateral (the "Pledged
Bonds") for short-term, variable-rate borrowings used by the Company to finance
their initial purchase. If the creditors holding the Pledged Bonds were to seize
or sell this collateral and the Pledged Bonds were deemed to
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constitute equity interests (rather than debt) in the Trusts, then the Trusts
would no longer qualify for the exemption under the TMP Rules provided for
qualified REIT subsidiaries. The Trusts would then be required to pay a
corporate level federal income tax. As a result, available funds from the
underlying mortgage assets that would ordinarily be used by the Trusts to
make payments on certain securities issued by the Trust (including
the equity interests and the Pledged Bonds) would instead be applied to tax
payments. Since the equity interests and Bonds owned by the Company are the
most subordinated securities and, therefore, would absorb payment shortfalls
first, the loss of the exemption under the TMP rules could have a material
adverse effect on their value and the payments received thereon.
In addition to causing the loss of the exemption under the TMP Rules, a
seizure or sale of the Pledged Bonds and a characterization of them as equity
for tax purposes could also jeopardize the Company's REIT status if the value
of the remaining ownership interests in any Trust held by the Company (i)
exceeded 5% of the total value of the Company's assets or (ii) constituted
more than 10% of the Trust's voting interests.
THE CMBS MARKET
Historically, traditional lenders, including commercial banks, insurance
companies and savings and loans, have been the primary holders of commercial
mortgages. The real estate market of the late 1980s and early 1990s created
business and regulatory pressure to reduce the real estate assets held on the
books of these institutions. As a result, there has been significant movement of
commercial real estate debt from private institutional holders to the public
markets. Consequently, the supply of private sector multifamily and other CMBS
has increased dramatically over recent years. According to COMMERCIAL MORTGAGE
ALERT, CMBS issuance's in the U.S. equaled approximately $78.3 billion in 1998
compared to approximately $44.3 billion in 1997, $30.0 billion in 1996 and $19.0
billion in 1995.
CMBS are generally created by pooling commercial mortgage loans and
directing the cash flow from such mortgage loans to various tranches of
securities. The tranches consist of investment grade (AAA to BBB-),
non-investment grade (BB+ to C) and unrated. The first step in the process of
creating CMBS is loan origination. Loan origination occurs when a financial
institution lends money to a borrower to refinance or to purchase a commercial
real estate property, and secures the loan with a mortgage on the property that
the borrower owns or purchases. Commercial mortgage loans are typically
non-recourse to the borrower. A pool of these commercial real estate-backed
mortgage loans is then accumulated, often by a large commercial bank or other
financial institution. One or more rating agencies then analyze the loans and
the underlying real estate to determine their credit quality. The mortgage loans
are then deposited into an entity that is not subject to taxation, often a real
estate mortgage investment conduit ("REMIC") or, in the case of the Company, a
TMP. The investment vehicle then issues securities backed by the commercial
mortgage loans, or CMBS.
The CMBS are divided into tranches, which are afforded certain priority
rights to the cash flow from the underlying mortgage loans. Principal payments
typically flow first to the most senior tranche until it is retired. Tranches
are then retired in order of seniority, based on available principal. Losses, if
any, are generally first applied against the principal balance of the lowest
rated or unrated tranche. Losses are then applied in reverse order of seniority.
The Company has primarily focused on acquiring or retaining non-investment grade
and unrated tranches, issued by mortgage conduits, where the Company believes
its market knowledge and real estate expertise allow it to earn attractive
risk-adjusted returns. Each tranche is assigned a credit rating by one or more
rating agencies based on the agencies' assessment of the likelihood of the
tranche receiving its stated right to payment of principal. The CMBS are then
sold to investors through either a public offering or a private placement.
At the time of a securitization, one or more entities are appointed as
"servicers" for the pool of mortgage loans, and are responsible for performing
servicing duties which include collecting payments (master or direct servicing),
monitoring performance (loan management) and working out or foreclosing on
defaulted loans (special servicing). Each servicer receives a fee and other
financial incentives based on the type and extent of servicing duties.
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The CMBS market was adversely affected by the turmoil which occurred in
the capital markets commencing in late summer of 1998 that caused spreads
between CMBS yields and the yields on U.S. Treasury securities with
comparable maturities to widen, resulting in a decrease in the value of CMBS.
As a result, the creation of new CMBS and the trading of existing CMBS came
to a near standstill. In late November 1998, buying and trading activity in
the CMBS market began to recover, increasing liquidity in the CMBS market;
however, these improvements mostly related to investment grade CMBS. New
issuances of CMBS also returned in late November 1998. The market for
Subordinated CMBS has, however, been slower to recover and trading in this
market is less liquid. It is difficult, if not impossible, to predict when or
if the CMBS market and, in particular, the Subordinated CMBS market, will
fully recover. Therefore, management's estimate of the value of the
securities could vary significantly from the value that could be realized in
a current transaction between a willing buyer and a willing seller in other
than a forced sale or liquidation.
SUBORDINATED CMBS ACQUISITIONS
As of December 31, 1998, the Company's $2.4 billion portfolio of assets
included $1.3 billion of Subordinated CMBS (representing approximately 52% of
the Company's total consolidated assets).
In 1998, CRIIMI MAE acquired Subordinated CMBS from offerings with a
total face amount of $13.5 billion. These offerings comprised 17.2% of the
total ($78.3 billion face amount, according to Commercial Mortgage Alert)
CMBS market for 1998. For the year ended December 31, 1998, the Company
acquired Subordinated CMBS with an aggregate face amount of approximately
$1.2 billion, making the Company a leading purchaser of Subordinated CMBS in
1998. As of December 31, 1998, approximately 44% of the Company's CMBS (based
on fair value) were rated BB+, BB or BB-, 27% were B+, B, B- or CCC and 9%
were unrated. The remaining approximately 20% represents investment grade
securities that the Company reflects on its balance sheet as a result of the
May 1998 resecuritization of certain Subordinated CMBS. See "THE PORTFOLIO -
CMBS."
The Company generally acquired Subordinated CMBS in privately negotiated
transactions, which allowed it to perform due diligence on a substantial portion
of the mortgage loans underlying the Subordinated CMBS as well as the underlying
real estate prior to consummating the purchase. In connection with its
Subordinated CMBS acquisitions, the Company targeted diversified mortgage loan
pools with a mix of property types, geographic locations and borrowers. CRIIMI
MAE financed a substantial portion of its Subordinated CMBS acquisitions with
short-term, variable-rate financing facilities secured by the Company's CMBS.
The Company's business strategy was to periodically refinance a substantial
portion of the Subordinated CMBS in its portfolio through a resecuritization of
such Subordinated CMBS primarily to attain a better matching of the maturities
of its liabilities and assets through the refinancing of short-term,
variable-rate, recourse financing with long-term, fixed-rate, non-recourse
financing. See "BUSINESS - Resecuritizations," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and Notes 5 and 9 to
Notes to Consolidated Financial Statements.
The Company generally enters into interest rate protection agreements to
mitigate the adverse effects of rising short-term interest rates on its
variable-rate financing facilities. It is the Company's policy to hedge at least
75% of its variable-rate debt with interest rate protection agreements. As of
December 31, 1998, approximately 79% of the Company's variable-rate debt was
hedged by caps, a form of interest rate protection agreement. 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 would receive payments based on the
difference between the index and the cap. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and Notes 9 and 10 to
Notes to Consolidated Financial Statements for a further discussion of the
Company's short-term, variable-rate, secured financing facilities and interest
rate protection agreements.
RESECURITIZATIONS
The Company initially funded a substantial portion of its Subordinated CMBS
acquisitions with short-term, variable-rate secured financing facilities. To
mitigate the Company's exposure to interest rate risk, the Company's business
strategy was to periodically refinance a significant portion of this debt with
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fixed-rate, non-recourse debt having maturities that matched those of the
Company's mortgage assets securing such debt ("match-funded"). The Company
effected such refinancing by pooling Subordinated CMBS, once a sufficient
pool of Subordinated CMBS had been accumulated, and issuing newly created
CMBS backed by the pooled Subordinated CMBS. The CMBS issued in such
resecuritizations were fixed-rate obligations with maturities that matched
the maturities of the Subordinated CMBS backing the new CMBS. These
resecuritizations also increased the amount of borrowings available to the
Company due to the increased collateral value of the new CMBS relative to the
pooled Subordinated CMBS. The increase in collateral value was principally
attributable to the seasoning of the underlying mortgage loans, and the
diversification that occurred when such Subordinated CMBS were pooled. The
Company generally used the cash proceeds from the investment-grade CMBS that
were sold in the resecuritization to reduce the amount of its short-term,
variable-rate secured borrowings. The Company then used the net excess
borrowing capacity created by the resecuritization to obtain new
variable-rate secured borrowings which were used with additional new
variable-rate secured borrowings and, to a lesser extent, cash, to purchase
additional Subordinated CMBS. Although the Company's resecuritizations have
mitigated the Company's exposure to interest rate risk through match-funding,
the Company's variable-rate secured borrowings have increased from December
31, 1996 to December 31, 1998, as a result of the Company's continued
acquisitions of Subordinated CMBS.
In December 1996, the Company completed its first resecuritization of
Subordinated CMBS ("CBO-1") with a combined face value of approximately $449
million involving 35 individual securities collateralized by 12 mortgage
securitization pools. The Company sold in a private placement securities with a
face amount of $142 million and retained securities with a face amount of
approximately $307 million. Through CBO-1, the Company refinanced approximately
$142 million of short-term, variable-rate, secured borrowings with fixed-rate,
non-recourse, match-funded debt. CBO-1 generated excess borrowing capacity of
approximately $22 million primarily as a result of a higher overall weighted
average credit rating for the new CMBS, as compared to the weighted average
credit rating on the related CMBS collateral.
In May 1998, the Company completed its second resecuritization of
Subordinated CMBS ("CBO-2") with a combined face value of approximately $1.8
billion involving 75 individual securities collateralized by 19 mortgage
securitization pools and three of the retained securities from CBO-1. In CBO-2,
the Company sold in a private placement securities with a face amount of $468
million and retained securities with a face amount of approximately $1.3
billion. Through CBO-2, the Company refinanced approximately $468 million of
short-term, variable-rate secured borrowings with fixed-rate, non-recourse,
match-funded debt. CBO-2 generated net excess borrowing capacity of
approximately $160 million primarily as a result of a higher overall weighted
average credit rating for the new CMBS, as compared to the weighted average
credit rating on the related CMBS collateral.
As of December 31, 1998, the Company's total debt was approximately $2.1
billion, of which approximately 46% was fixed-rate, match-funded debt and
approximately 54% was short-term, variable-rate or fixed-rate debt that was not
match-funded. For the year ended December 31, 1998, the Company's weighted
average cost of borrowing (including amortization of discounts and deferred
financing fees of approximately $6.5 million) was approximately 7.37%. See
"BUSINESS - Subordinated CMBS Acquisitions," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and Notes 5, 9 and 10
to Notes to Consolidated Financial Statements for further information regarding
the Company's resecuritizations, short-term variable-rate secured financings,
and caps.
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LOAN ORIGINATIONS AND SECURITIZATIONS
Prior to the Petition Date, the Company originated mortgage loans
principally through mortgage loan conduit programs with major financial
institutions for the primary purpose of pooling such loans for securitization.
The Company viewed a securitization as a means of extracting the maximum value
from the mortgage loans originated. A portion of the mortgage loans originated
was financed through the creation and sale of investment-grade CMBS to third
parties in connection with the securitization. The Company received net cash
flow on the CMBS not sold to third parties after payment of amounts due to
secured creditors who had provided acquisition financing. Additionally, the
Company received origination and servicing fees related to the mortgage loan
conduit programs.
A majority of the mortgage loans originated under the Company's loan
conduit programs were "No Lock" mortgage loans. Unlike most commercial mortgage
loans originated for the CMBS market which contain "lock-out" clauses (that is,
provisions which prohibit the prepayment of a loan for a specified period after
the loan is originated or impose costly yield maintenance provisions), the
Company's No Lock loans allowed borrowers the ability to prepay loans at any
time by paying a prepayment penalty. Since the inception of these origination
programs, the Company has originated over $900 million in aggregate principal
amount of loans and securitized approximately $496 million in aggregate
principal amount of mortgage loans.
In June 1998, the Company securitized approximately $496 million of the
commercial mortgage loans originated or acquired through a mortgage loan conduit
program with Citicorp Real Estate, Inc. ("Citibank"), and through CRIIMI MAE
CMBS Corp., issued Commercial Mortgage Loan Trust Certificates, Series 1998-1
("CMO-IV"). A majority of these mortgage loans were "No Lock" loans. In CMO-IV,
CRIIMI MAE sold $397 million face amount of fixed-rate, investment-grade CMBS.
The Company originally intended to sell all of the investment grade tranches of
CMO-IV; however, two investment grade tranches of CMO-IV have not yet been sold.
It is the Company's intent to sell these tranches in the future pursuant to an
agreement with Citicorp Securities, Inc. ("Citicorp") approved by the Bankruptcy
Court. CRIIMI MAE has call rights on each of the issued securities and therefore
has not surrendered control of the collateral, thus requiring the transaction to
be accounted for as a financing of the mortgage loans collateralizing the
investment-grade CMBS sold in the securitization. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Liquidity and
Capital Resources" and Note 6 to Notes to Consolidated Financial Statements for
additional information regarding this securitization.
At the time it filed for bankruptcy, the Company had a mortgage loan
conduit program with Citibank (the "Citibank Program") as well as a loan conduit
program with Prudential Securities Incorporated and Prudential Securities Credit
Company (the "Prudential Program") (together the "Programs").
The Citibank Program provided for CRIIMI MAE to pay to Citibank the face
value of the loans originated through the Program, which were funded by Citibank
and not otherwise securitized, plus or minus any hedging loss or gain, on
December 31, 1998. To secure this obligation, CRIIMI MAE was required to deposit
a portion of the principal amount of each originated loan in a reserve account.
At December 31, 1998, this reserve account was approximately $31.8 million.
Under the Prudential Program, the Company has an option to pay to
Prudential the face value of the loan, plus or minus any hedging loss or gain,
at the earlier of June 30, 1999 or the date by which a stated quantity of loans
for securitization has been made. Under the Prudential Program, the Company was
required to fund a reserve account, which was approximately $2 million at
December 31, 1998. If the Company is unable to exercise its option under the
Prudential Program, the Company will forfeit the amount of the reserve account.
On October 5, 1998, Citibank sent the Company a letter alleging that the
Company was in default under the Citibank Program and that it was terminating
the Citibank Program. The Company and Citibank
7
<PAGE>
negotiated a Stipulation and Consent Order (the "Order"), entered by the
Bankruptcy Court on April 5, 1999, regarding the Citibank Program. The Order
provides that Citibank will, with CRIIMI MAE's cooperation, sell the loans
originated under the Citibank Program, provided that the sale results in CRIIMI
MAE receiving minimum net proceeds of not less than $3.5 million, after
satisfying certain amounts due to Citibank, from the amount held in the
reserve account. The minimum net proceeds provision may be waived by agreement
of the Company, the Official Committee of Unsecured Creditors in the Company's
Chapter 11 case (the "Unsecured Committee") and the Official Committee of Equity
Security Holders in the Company's Chapter 11 case (the "Equity Committee").
CRIIMI MAE is also discussing with Prudential the sale of the loan originated
under the Prudential Program. There can be no assurance that an agreement will
be reached with Prudential or, if reached, that such agreement would be approved
by the Bankruptcy Court.
As of December 31, 1998, the Company's obligation under the Citibank
Program was $28.4 million (based primarily on information provided by
Citibank) in excess of the fair value of the loans and the Company's loss
exposure under the Prudential Program was $2 million if the Company does not
exercise its option. As a result, CRIIMI MAE recorded an aggregate $30.4
million unrealized loss on its obligations as of December 31, 1998. The
unrealized loss of $28.4 million relating to the Citibank Program as of
December 31, 1998 is based on the estimated market value of the loans offset
by the unpaid principal balance of the loans at December 31, 1998, hedge
losses and certain estimated fees and other costs. Depending on market
conditions, including interest rate movements, these losses could materially
increase or decrease in subsequent reporting periods. The Company has
calculated the Prudential loss based upon the assumption that the Company
will not exercise its option with Prudential.
SERVICING
CRIIMI MAE conducts its mortgage loan servicing and advisory operations
through its affiliate, CMSLP. At the time of the Chapter 11 filing, CMSLP was
responsible for certain servicing functions on a mortgage loan portfolio of
approximately $32 billion, as compared to approximately $16.5 billion as of
December 31, 1997. Prior to the Petition Date, CRIIMI MAE increased its mortgage
loan servicing and advisory operations primarily 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 originated through the CRIIMI MAE loan origination programs. At the time
of the Chapter 11 filing, CRIIMI MAE, through CMSLP, master serviced five CMBS
portfolios totaling $3.6 billion, as well as loans originated, but not yet
securitized, under its loan origination programs.
CMSLP did not file for Chapter 11 protection. However, because of its
relationship with CRIIMI MAE, CMSLP has been under a high degree of scrutiny
from servicing rating agencies. As a result of CRIIMI MAE's Chapter 11 filing,
CMSLP was also declared in default under its credit agreements with First Union
National Bank. In order to repay these credit agreement obligations and to
increase its liquidity, CMSLP arranged for Banc One Mortgage Capital Markets,
LLC ("BOMCM") to succeed it, on October 30, 1998, as master servicer on two
commercial mortgage pools for a payment of $6.9 million, resulting in a loss to
CMSLP of approximately $1.4 million from the recorded value of the rights.
Substantially all of the loss flowed through to CRIIMI MAE through equity in
earnings in the fourth quarter of 1998. In addition, in order to allay rating
agency concerns stemming from CRIIMI MAE's Chapter 11 filing, in November 1998,
CRIIMI MAE designated BOMCM as special servicer on 33 separate CMBS
securitizations totaling approximately $29 billion, subject to certain
requirements contained in the respective servicing agreements. CMSLP continues
to perform special servicing as sub-servicer for BOMCM on all but five of these
securitizations. CRIIMI MAE remains the owner of the lowest rated tranche of the
related Subordinated CMBS and, as such, retains all rights pertaining to
ownership, including the right to replace the special servicer. CMSLP also lost
the right to specially service the DLJ MAC 95 CF-2 securitization when the
majority holder of the lowest rated tranche replaced CMSLP as special servicer.
At December 31, 1998 CMSLP's remaining servicing portfolio was $31 billion.
CMSLP's principal servicing activities are described below.
8
<PAGE>
SPECIAL SERVICING. A special servicer typically provides asset
management and resolution services with respect to nonperforming or
underperforming loans within a pool of mortgage loans. When acquiring
Subordinated CMBS, CRIIMI MAE typically required that it retain the right to
appoint the special servicer for the related mortgage pools. When serving as
special servicer of a CMBS pool, CMSLP has the authority to deal directly
with any borrower that fails to perform under certain terms of its mortgage
loan, including the failure to make payments, and to manage any loan workouts
and foreclosures. As special servicer, CMSLP earns fee income on services
provided in connection with any loan servicing function transferred to it
from the master servicer. CRIIMI MAE believes that because it owns the lowest
rated or unrated tranche (first loss position) of the Subordinated CMBS,
CMSLP has an incentive to quickly resolve any loan workouts. During the year
ended December 31, 1998, CMSLP successfully resolved $138.7 million of CMBS
loan workouts without a loss to principal. As of December 31, 1998, CMSLP was
designated as the special servicer (or sub-servicer) for approximately 5,000
commercial mortgage loans representing an aggregate principal amount of
approximately $27.4 billion. Such 5,000 commercial mortgage loans represent
substantially all of the mortgage loans underlying CRIIMI MAE'S Subordinated
CMBS portfolio.
As of December 31, 1998, CMSLP had a special servicer rating of "above
average" from Fitch IBCA and had been approved on a transactional basis by
Moody's Investors Service, Inc. ("Moody's") and Duff & Phelps Credit Rating
Co. However, CMSLP lost an "acceptable" special servicer rating by Standard &
Poor's ("S&P") in October 1998 as a result of the Chapter 11 filing of CRIIMI
MAE. Also, as a result of the Chapter 11 filing, Fitch IBCA placed CMSLP's
special servicing rating on "rating watch".
MASTER SERVICING. A master servicer typically provides administrative and
reporting services to the trustee with respect to a particular issuance of CMBS.
Mortgage loans underlying CMBS generally are serviced by a number of primary
servicers. Under most master servicing arrangements, the primary servicers
retain primary responsibility for administering the mortgage loans and the
master servicer acts as an intermediary in overseeing the work of the primary
servicers, monitoring their compliance with the standards of the issuer of the
related CMBS and consolidating the servicers' respective periodic accounting
reports for transmission to the trustee. When serving as master servicer of a
CMBS pool, CMSLP has greater control over the mortgage assets underlying its
Subordinated CMBS, including the authority to (i) collect monthly principal and
interest payments (either from a direct servicer or directly from borrowers) on
loans comprising a CMBS pool and remit such amounts to the pool trustee, (ii)
oversee the performance of sub-servicers and (iii) report to trustees. As master
servicer, CMSLP is usually paid a fee and can earn float income on the deposits
it holds. In addition to this float and fee income, the master servicer
typically has more direct and regular contact with borrowers than the special
servicer. As of December 31, 1998, CMSLP remained master servicer on three CMBS
portfolios representing commercial mortgage loans with an aggregate principal
amount of approximately $2.3 billion.
As of December 31, 1998, CMSLP had a master servicer rating of "acceptable"
from Fitch IBCA and had been approved on a transactional basis by Moody's.
However, CMSLP lost an acceptable master servicer rating from S&P in October
1998 as a result of the Chapter 11 filing of CRIIMI MAE. Also, as a result of
the Chapter 11 filing, Fitch IBCA placed CMSLP's Master Servicer rating on
"rating watch".
DIRECT (OR PRIMARY) SERVICING. Direct (or primary) servicers typically
perform certain functions for the master servicer. Direct serviced loans are
those loans for which CMSLP collects loan payments directly from the borrower
(including tax and insurance escrows and replacement reserves). The loan
payments are remitted to the master servicer for the loan (which may be the same
entity as the direct servicer), usually on a fixed date each month. The direct
servicer is usually paid a fee to perform these services, and is eligible to
earn float income on the deposits held. In addition to this fee and float
income, the direct servicer, like the master servicer, typically has more direct
and regular contact with borrowers than the special servicer. As of December 31,
1998, CMSLP was designated direct servicer for approximately 374 commercial
mortgage loans representing an aggregate principal amount of approximately $2.1
billion. This number excludes loans that are both direct and master serviced,
which are included in the master servicing figures above.
LOAN MANAGEMENT. In certain cases, CMSLP acts as loan manager and monitors
the ongoing performance of properties securing the mortgage loans underlying its
Subordinated CMBS portfolio by
9
<PAGE>
continuously reviewing the property level operating data and regular site
inspections. For many of these loans, CMSLP performs these duties directly; for
the remaining loans, as part of its routine asset monitoring process, it reviews
the analysis performed by other servicers. This allows CMSLP to identify and
resolve potential issues that could result in losses. As of December 31, 1998,
CMSLP served as loan manager for approximately 4,800 commercial mortgage loans
representing an aggregate principal amount of approximately $26.6 billion. This
number excludes loans that are both direct and master serviced which are
included in the master servicing figures above.
UNDERWRITING PROCEDURES
CRIIMI MAE believes that its experience in underwriting has enabled it to
maintain the overall quality of assets underlying its CMBS portfolio and to
properly manage certain of the risks associated with mortgage loans underlying
acquired Subordinated CMBS and loan originations. Since the Company generally
acquired CMBS through privately negotiated transactions and originated
commercial mortgage loans through its regional offices, it was able to perform
extensive due diligence on each mortgage loan as well as the underlying real
estate prior to consummating any purchase or origination. The Company underwrote
every loan it originated and re-underwrote a substantial portion of the loans
underlying the Subordinated CMBS it acquired. Furthermore, the Company's credit
committee, composed of members of senior management, reviewed originated loans
and Subordinated CMBS acquisitions. The Company also placed underwriting
personnel in its regional origination offices, not only to provide a timely
response to the originators but also to achieve a thorough understanding of
local markets and demographic trends.
CRIIMI MAE's underwriting guidelines were designed to assess the adequacy
of the real property as collateral for the loan and the borrower's
creditworthiness. The underwriting process entailed a full independent review of
the operating records, appraisals, environmental studies, market studies and
architectural and engineering reports, as well as site visits to properties
representing a majority of the CMBS portfolio. The Company then tested the
historical and projected financial performance of the properties to determine
their resiliency to a market downturn and applied varying capitalization rates
to assess collateral value. To assess the borrower's creditworthiness, the
Company reviewed the borrower's financial statements, credit history, bank
references and managerial experience. The Company purchased Subordinated CMBS
when the loans it believed to be problematic (i.e., that did not meet its
underwriting criteria) were excluded from the CMBS pool and when satisfactory
arrangements existed that enabled the Company to closely monitor the underlying
mortgage loans and provided the Company with appropriate workout and foreclosure
rights.
EMPLOYEES
As of December 31, 1998, the Company had 65 full-time employees, and
CSMLP had 118 full-time employees. Prior to the Petition Date on September
30, 1998, the Company had 170 full-time employees, and CMSLP had 113
full-time employees. Most of these staff reductions were in the Company's
origination and underwriting areas, which were reduced by 57 full-time and 43
full-time employees, respectively.
EMPLOYEE RETENTION PLAN
Upon commencement of the Chapter 11 cases, the Company believed it was
essential to both the efficient operation of the Company's business and the
reorganization effort that the Company maintain the support, cooperation and
morale of its employees. The Company obtained Bankruptcy Court approval to pay
certain pre-petition employee obligations in the nature of wages, salaries and
other compensation and to continue to honor and pay all employee benefit plans
and policies.
In addition, to ensure the Company's continued retention of its executives
and other employees and to provide meaningful incentives for these employees to
work toward the Company's financial recovery and reorganization, the Company's
management and Board of Directors developed a comprehensive and integrated
program to retain its executives and other employees throughout the
reorganization. On December 18, 1998, the Company obtained Bankruptcy Court
approval to adopt and
10
<PAGE>
implement an employee retention program (the "Employee Retention Plan") with
respect to all employees of the Company other than certain key executives. On
February 28, 1999, the Company received Bankruptcy Court approval authorizing
it to extend the Employee Retention Plan to the key executives initially
excluded, including modifying existing employment agreements and entering
into new employment agreements with such key executives. The Employee
Retention Plan permitted the Company to approve ordinary course employee
salary increases in March 1999, subject to certain limitations, and to grant
options to its employees after the Petition Date, up to certain limits. The
Employee Retention Plan also provides for retention payments aggregating
approximately $4.6 million, including payments to certain executives.
Retention payments are payable semiannually over a two-year period. The first
retention payment vested on April 5, 1999, and will be paid on April 15,
1999. The entire unpaid portion of the retention payments will become due and
payable (i) upon the effective date of a plan of reorganization of the
Company and, with respect to certain key executives, court approval or (ii)
upon termination without cause. William B. Dockser, Chairman of the Board of
the Company, and H. William Willoughby, President, are not currently entitled
to receive any retention payments. Subject to the terms of their respective
employment agreements, certain key executives will be entitled to severance
benefits if they resign or their employment is terminated following a change
of control. The other employees will be entitled to severance benefits if
they are terminated subsequent to a change of control of the Company, but,
with the exception of certain key executives, only if such change of control
results in the successful emergence of the Company and CM Management from
Chapter 11. In addition, all options granted by the Company after October 5,
1998 shall immediately become exercisable upon a change of control. For a
discussion of the Employee Retention Plan as it relates to named key
executives of the Company, see "EXECUTIVE COMPENSATION--Employment
Agreements".
THE PORTFOLIO
CMBS
FAIR VALUE
As of December 31, 1998, the Company owned CMBS rated from A to CCC and
Unrated with a total fair value amount of approximately $1.3 billion
(representing approximately 52% of the Company's total consolidated assets) and
an aggregate amortized cost of approximately $1.5 billion.
<TABLE>
<CAPTION>
Amortized Amortized
Face Amount Weighted Range of Discount Cost Cost
as of Average Weighted Fair Value Rates Used to as of as of
Security 12/31/98 Pass- Average as of 12/31/98 Calculate Fair 12/31/98 12/31/97
Rating (in millions) Through Rate Life (2) (in millions)(1) Value (1) (in millions) (in millions)
- --------- ------------- ------------ -------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
AA- $ -- -- -- -- -- $ -- $ 5.6
A (5) 62.6 7.0% 7 years $ 57.2 8.7% 57.0 --
BBB (5)(6) 150.6 7.0% 13 years 121.9 9.7% 126.9 4.0
BBB-(6) 115.2 7.0% 13 years 85.6 10.7% 92.8 --
BB+ 394.6 6.9% 14 years 286.8 9.3%-11.5% 317.9 8.6
BB 275.8 6.9% 15 years 212.7 10.3%-12.3% 259.1 445.0
BB- 89.1 6.8% 15 years 58.0 11.1%-13.3% 72.6 89.8
B+ 128.7 6.7% 17 years 72.9 12.1%-14.0% 93.0 --
B 300.2 6.6% 17 years 159.7 12.1%-15.3% 208.9 357.4
B- 198.7 6.7% 18 years 87.4 15.1%-18.8% 106.7 44.6
CCC 92.0 6.8% 20 years 22.8 25.0% 36.0 10.9
Unrated 478.1 6.7% 21 years 109.2 27.0%-33.0% 159.0 113.2
--------- ---- -------- --------- ----------- --------- ---------
Total (3)(4) $ 2,285.6 6.8% 16 years $ 1,274.2 $ 1,529.9 $ 1,079.1
--------- ---- -------- --------- --------- ---------
--------- ---- -------- --------- --------- ---------
</TABLE>
- -------------------------------
(1) The estimated fair values of Subordinated CMBS represent the carrying value
of these assets. Due to the Chapter 11 filing, the Company's lenders were not
willing to provide fair value quotes for the 1998 portfolio. As a result, the
11
<PAGE>
Company calculated the estimated fair market value of its Subordinated CMBS
portfolio as of December 31, 1998. The Company used a discounted cash flow
methodology to estimate the fair value of its Subordinated CMBS portfolio.
The projected cash flows used by the Company were the same collateral cash
flows used to calculate the anticipated weighted average unleveraged yield to
maturity. (See Note 5 to Notes to Consolidated Financial Statements.) The
cash flows were then discounted using a discount rate that, in the Company's
view, was commensurate with the market's perception of risk and value. The
Company used a variety of sources to determine its discount rate including:
(i) institutionally-available research reports, (ii) a relative comparison of
dealer provided discount rates from the previous quarter to those disclosed
in recent research reports and incorporating adjustments to reflect changes
in the market as they relate to each of the Company's CMBS from September 30,
1998 to December 31, 1998, and (iii) communications with dealers and active
Subordinated CMBS investors regarding the year-end valuation of comparable
securities. Since the Company calculated the estimated fair market value of
its Subordinated CMBS portfolio as of December 31, 1998, it has disclosed in
the table the range of discount rates by rating category used in determining
these fair market values.
(2) Weighted average life represents the weighted average expected life of the
Subordinated CMBS prior to consideration of losses, extensions or prepayments
other than those factored in the assumed prepayment rate used at the time of
acquisition, which ranged from 0% to 4%, depending upon the portfolio.
(3) Refer to Note 8 to Notes to Consolidated Financial Statements for additional
information regarding the total face amount and purchase price of Subordinated
CMBS for tax purposes.
(4) Similar to the Company's other sponsored CMO's, CMO-IV, as further
described below in Investment in Originated Loans, resulted in the creation
of CMBS, of which the Company sold certain tranches. Since the Company
retained call options on the sold bonds, the Company did not surrender
control of the assets for purposes of FAS 125 and thus the entire transaction
is accounted for as a financing and not a sale. Since the entire transaction
is recorded as a financing, the CMBS are not reflected in the Company's CMBS
portfolio and the mortgage assets are reflected in Investment in Originated
Loans on the balance sheet.
(5) In connection with CBO-2, $62.6 million (A rated) and $60.0 million (BBB
rated) face amount of investment grade securities were issued with call
options and $345 million (A rated) face amount were issued without call
options. Since the Company retained call options on certain sold bonds, the
Company did not surrender control of those assets pursuant to the
requirements of FAS 125 and thus these securities are accounted for as a
financing and not a sale. Since the transaction is recorded as a partial
financing and a partial sale, CRIIMI MAE has retained the securities with
call options in its CMBS portfolio reflected on its balance sheet.
(6) In connection with CBO-2, the Company retained $90.6 million (BBB rated)
and $115.2 million (BBB- rated) face amount of securities, with the intention
to sell the securities at a later date. These securities were sold on March
5, 1999 in a transaction accounted for as a financing by the Company rather
than a sale and the related debt will be reflected as Secured Mortgage
Obligations. See "LEGAL PROCEEDINGS".
TYPE AND GEOGRAPHIC LOCATION OF LOANS. As of December 31, 1998 and 1997,
the mortgage loans underlying the Company's CMBS portfolio were secured by
properties of the types and at the locations identified below:
<TABLE>
<CAPTION>
Property Type 1998(1) 1997(1) Geographic Location(2) 1998(1) 1997(1)
- ------------- ------- ------- ---------------------- ------- -------
<S> <C> <C> <C> <C> <C>
Multifamily............... 31% 37% California.............. 16% 14%
Retail.................... 28% 28% Texas................... 12% 15%
Office.................... 15% 10% Florida................. 7% 9%
Hotel..................... 13% 14% New York................ 6% 4%
Other..................... 13% 11% Other(3)................ 59% 58%
--- --- --- ---
Total................... 100% 100% Total................. 100% 100%
--- --- --- ---
--- --- --- ---
</TABLE>
(1) Based on a percentage of the total unpaid principal balance of the
underlying loans.
(2) No significant concentration by region.
(3) No other individual state makes up more than 5% of the total.
12
<PAGE>
CMBS POOLS. The following table summarizes information relating to the
Company's CMBS on an aggregate basis by pool as of December 31, 1998. See
also Note 5 to Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Original December 31, 1998
Anticipated Anticipated
Unleveraged Unleveraged
Amortized Yield to Yield to
Pool Face Amount Fair Value (6) Cost Maturity(1) Maturity(1)(2)
- ---- ----------- -------------- --------- ------------ --------------
(in millions) (in millions) in millions)
<S> <C> <C> <C> <C> <C>
Retained Securities from
CRIIMI 1996 C1 (CBO-1) $ 112.1 $ 43.9 $ 46.6 19.5% 20.9%(5)
DLJ Mortgage Acceptance Corp.
Series 1997 CF2 Tranche B-30C 3.8 18.2 23.3 8.2% 8.1%
Nomura Asset Securities Corp.
Series 1998-D6 Tranche B7 46.5 9.9 17.6 12.0% 12.0%
Retained Securities from
CRIIMI MAE Commercial Mortgage
Trust Series 1998 C1 (CBO-2)
(4) 1,427.2 793.0 926.6 10.3% 10.2%
Mortgage Capital Funding, Inc.
Series 1998-MC1 151.8 97.1 116.1 8.9% 8.9%
Chase Commercial Mortgage
Securities Corp.
Series 1998-1 81.8 48.2 61.1 8.8% 8.8%
First Union/Lehman Brothers
Series 1998 C2 289.7 159.0 207.4 8.9% 8.9%
Morgan Stanley Capital I Inc.
Series 1998-WF2 (4) 86.9 53.2 65.5 8.5% 8.5%
Mortgage Capital Funding, Inc.
Series 1998-MC2 85.8 51.7 65.7 8.7% 8.7%
-------- -------- -------- --- -- ---- --
$2,285.6 $1,274.2 $1,529.9 9.7% (3) 10.1% (3)
-------- -------- -------- --- -- ---- --
-------- -------- -------- --- -- ---- --
</TABLE>
- --------------------
(1) 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 December 31, 1998, respectively, based on management's
estimate of the timing and amount of future credit losses and prepayments. As
discussed in (4) below these yields may decrease as a result of certain
adversarial actions taken by the Company's lenders.
(2) Unless otherwise noted, changes in the December 31, 1998 anticipated yield
to maturity from that originally anticipated are primarily the result of changes
in prepayment assumptions relating to mortgage collateral.
(3) CRIIMI MAE, through CMSLP, performs servicing functions on a total CMBS
pool of approximately $30.0 billion. Of the $30.0 billion of mortgage loans,
approximately $195.4 million are currently being specially serviced, of which
approximately $45.0 million are being specially serviced due to payment
default and the remainder are being specially serviced due to nonfinancial
covenant default. Despite the volatility in the capital markets, the mortgage
assets underlying the Company's portfolio of CMBS experienced no losses of
principal from default. See "BUSINESS-Servicing" and Note 5 to Notes to
Consolidated Financial Statements for a discussion of the transfer of special
servicing.
(4) On October 6, 1998, Morgan Stanley and Co. International Limited ("Morgan
Stanley") advised CRIIMI MAE that it was exercising alleged ownership rights
over certain classes of CMBS it held as collateral. Subsequent to year end, the
Company agreed to cooperate on selling two classes of investment grade CMBS
issued by CBO-2 ("CBO-2 BBB Bonds") and to suspend litigation with Morgan
Stanley with respect to these CMBS. CRIIMI MAE and Morgan Stanley also agreed to
a standstill period,
13
<PAGE>
now extended through April 15, 1999, regarding seven classes of Subordinated
CMBS issued by Morgan Stanley Capital I Inc. Series 1998-WF2. On March 5,
1999, the CBO-2 BBB Bonds with $205.8 million face amount and a coupon rate
of 7% were sold in a transaction accounted for as a financing by the Company
rather than a sale. Of the $159.0 million of net sale proceeds, $141.2
million was used to repay borrowings under the agreement with Morgan Stanley
and $17.8 million was paid to CRIIMI MAE.
(5) The increase in the anticipated yield resulted from the reallocation of a
portion of the CBO-1 asset basis in conjunction with the CBO-2
resecuritization.
(6) Fair value has been calculated as described above in footnote (1) to the
table on CMBS Fair Value.
INSURED MORTGAGE SECURITIES
As of December 31, 1998, the Company had $488.1 million (at fair value )
invested in mortgage securities and insured loans, consisting of GNMA
Mortgage-Backed Securities and FHA-Insured Loans, as well as Federal Home Loan
Mortgage Company (Freddie Mac) participation certificates that are
collateralized by GNMA Mortgage-Backed Securities. As of December 31, 1998,
approximately 18% of CRIIMI MAE's investment in mortgage securities were
FHA-Insured Certificates and 82% were GNMA Mortgage-Backed Securities (including
certificates that collateralize Freddie Mac participation certificates). See
Notes 1 and 7 to Notes to Consolidated Financial Statements.
INVESTMENT IN ORIGINATED LOANS
As of December 31, 1998, the Company had $499.1 million (at amortized
cost) invested in commercial mortgage loans primarily originated through the
Company's mortgage loan conduit programs and subsequently securitized in
CMO-IV. Because the bonds sold in CMO-IV are subject to certain call options,
under FAS 125, the entire transaction is accounted for as a financing instead
of a sale and the mortgage loans are reflected on the Company's balance
sheet. See "BUSINESS-Loan Originations and Securitizations" and Notes 1 and 6
to Notes to Consolidated Financial Statements.
As of December 31, 1998, the originated mortgage loans were secured by
properties of the types and at the locations identified below:
<TABLE>
<CAPTION>
Property Type Percentage(1) Geographic Location(2) Percentage(1)
- ------------- ------------- ---------------------- -------------
<S> <C> <C> <C>
Multifamily........... 38% Michigan..................... 20%
Hotel................. 26% Texas........................ 8%
Retail................ 20% Illinois..................... 7%
Office................ 11% Connecticut.................. 6%
Other................. 5% California................... 6%
--- Maryland..................... 6%
Other(3)..................... 47%
---
Total.................. 100% Total..................... 100%
--- ---
--- ---
</TABLE>
- ---------------
(1) Based on a percentage of the total unpaid principal balance of the loans.
(2) No significant concentration by region.
(3) No other state makes up more than 5% of the total.
EQUITY INVESTMENTS
As of December 31, 1998, the Company had approximately $42.9 million in
investments accounted for under the equity method of accounting. Included in
equity investments are (a) CRIIMI, Inc., a wholly owned subsidiary of CRIIMI
MAE, which owns all of the general partnership interests in American Insured
Mortgage Investors L.P., American Insured Mortgage Investors L.P.-Series 85,
American Insured Mortgage Investors L.P.-Series 86 and American Insured
Mortgage Investors L.P.-Series 88 (collectively the "AIM Funds"), (b) CRIIMI
MAE and CM Management each own 50% of the limited partnership interest that
owns a 20% limited partnership interest in the adviser to the AIM Funds, (c)
CRIIMI MAE's interest in CRIIMI MAE Services Inc., and (d) CRIIMI MAE's
interest in CMSLP. See Note 1 to Notes to Consolidated Financial Statements.
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RISK FACTORS. THE FOLLOWING RISK FACTORS ADDRESS RISKS RELATING PRIMARILY TO THE
COMPANY AND ITS OPERATIONS DURING THE PENDENCY OF THE BANKRUPTCY. BECAUSE IT IS
NOT POSSIBLE TO PREDICT THE OUTCOME OF THE CHAPTER 11 FILING AND THERE CAN BE NO
ASSURANCE AS TO WHEN OR IF THE COMPANY WILL RESUME BUSINESS ACTIVITIES THAT IT
HAS SUSPENDED DURING THE BANKRUPTCY, THE FOLLOWING DISCUSSION DOES NOT ADDRESS
RISKS RELATING TO THE RESUMPTION OF THE COMPANY'S SUBORDINATED CMBS ACQUISITION,
LOAN ORIGINATION OR SECURITIZATION PROGRAMS.
EFFECT OF BANKRUPTCY FILING; ABILITY TO CONTINUE AS A GOING CONCERN
Since filing for bankruptcy, CRIIMI MAE has suspended its Subordinated CMBS
acquisition, origination and securitization operations, but continues to service
mortgage loans through CMSLP. Accordingly, the Company's results of operations
during the pendency of the bankruptcy are expected to differ materially from the
Company's performance prior to bankruptcy. Moreover, depending upon when and if
any of these activities is resumed by the Company, the Company's future
performance will differ materially from its present operations.
The Company's ability to resume the acquisition of Subordinated CMBS, as
well as its loan origination and securitization programs, depends to a
significant degree on its ability to obtain additional capital and emerge from
bankruptcy as a successfully reorganized company. The Company's ability to
access the necessary additional capital will be affected by a number of factors,
many of which are not in the Company's control. These include the cost of such
capital, changes in interest rates and interest rate spreads, changes in the
commercial mortgage industry and the commercial real estate market, general
economic conditions, perceptions 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 condition and
business prospects. Currently, CRIIMI MAE is exploring a variety of possible
capital sources, including bank debt, high yield bond financing and equity
capital. However, the Company can give no assurances as to whether or when it
will obtain the necessary capital or the terms upon which such capital can be
obtained.
The Bankruptcy Court has entered an order extending the Company's exclusive
right to file a plan of reorganization through May 11, 1999 and has set a
hearing for such date with respect to the extension of the exclusivity periods
through August 2, 1999 for filing a plan of reorganization and through October
3, 1999 for soliciting acceptances thereof. A number of parties have indicated
potential opposition to any such extension. Management expects to file a plan of
reorganization during the summer of 1999, which would contemplate the Company's
emergence from bankruptcy later in 1999. There can be no assurance at this time,
however, that a plan of reorganization will be proposed by the Company during
such time or that such plan will be confirmed and consummated. After the
expiration of the exclusivity period, any party-in-interest has the right to
propose alternative plans of reorganization. The consummation of a plan of
reorganization will require the requisite vote of impaired creditors and
shareholders under the Bankruptcy Code (unless the proponent of the plan invokes
the so-called "cramdown" provisions of the Bankruptcy Code) and confirmation of
the plan by the Bankruptcy Court. See "LEGAL PROCEEDINGS-Bankruptcy
Proceedings."
At this time, it is not possible to predict the outcome of the Chapter 11
filing, in general, or its effects on the business of the Company or on the
claims and interests of creditors and shareholders. In addition, the Company's
independent public accountants have issued a report expressing substantial doubt
about the Company's ability to continue as a going concern. See "REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS."
RISK OF LOSS OF REIT STATUS
See "BUSINESS-Effect of Chapter 11 Filing on REIT Status and Other Tax
Matters" for a discussion.
TAXABLE MORTGAGE POOL RISK
See "BUSINESS-Effect of Chapter 11 Filing on REIT Status and Other Tax
Matters" for a discussion.
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SUBSTANTIAL INDEBTEDNESS; LEVERAGE
The Company has substantial indebtedness. As of December 31, 1998, the
Company's total consolidated indebtedness was $2.1 billion, of which $1.1
million was recourse debt to the Company (i.e. not match-funded debt). This high
level of debt limits the Company's ability to obtain additional financing,
reduces income available for distributions to the extent income from assets
purchased with borrowed funds fails to cover the cost of the borrowings,
restricts the Company's ability to react quickly to changes in its business and
makes the Company more vulnerable to economic downturns.
RISKS OF OWNING SUBORDINATED CMBS
As an owner of the most subordinate tranches of CMBS, the Company will be
the first to bear any loss and the last to have a priority right to the cash
flow of the related mortgage pool. For example, if the Company owns a $10
million subordinated interest in an issuance of CMBS consisting of $100 million
of mortgage loan collateral, a 7% loss on the underlying mortgage loans will
result in a 70% loss on the subordinated interest.
The Company's Subordinated CMBS can change in value due to a number of
economic factors. These factors include changes in the underlying real
estate, fluctuations in Treasury rates, and changes in CMBS pricing spreads.
Changes in the credit quality of the properties securing the underlying
mortgage loans can result in interest payment shortfalls, to the extent there
are mortgage payment delinquencies, and principal losses, to the extent that
there are payment defaults and the principal is not fully recovered. These
changes can result in permanent changes in the value of the CMBS and the
Company's anticipated yield if the losses are in excess of those previously
estimated. CMBS securities are priced as a spread above the Treasury rate
with a comparable maturity. The value of CMBS securities can be affected by
changes in interest rates, as well as changes in the spread between such CMBS
and the comparable Treasury security. For example, the spread to a comparable
Treasury of a CMBS security may have increased from 400 basis points to 500
basis points. If the Treasury security with a comparable maturity had a yield
of 5% then, in this example, the yield on a CMBS security would have changed
from 9% to 10% and accordingly, the value of such CMBS security would have
declined. Generally, increases in interest rates or spreads will result in
temporary changes in the value of the Subordinated CMBS assuming that the
Company has the ability to hold its CMBS investments until their maturity.
However, the Company has historically been unable to obtain financing at the
time of acquisition that matches the maturity of the related investments,
resulting in a periodic need to obtain short-term financing secured by the
Company's CMBS. The inability to refinance this short-term financing with
match-funded financing or a decline in the value of the collateral securing
such short-term indebtedness could result in a situation where the Company is
required to sell CMBS securities or provide additional collateral, which
could have an adverse effect on the Company and its financial position and
results of operations.
LIMITED PROTECTION FROM HEDGING TRANSACTIONS
To minimize the risk of interest rate changes on its variable-rate debt,
the Company follows a policy to hedge at least 75% of its variable-rate debt
with interest rate protection agreements in order to provide a ceiling on the
amount of interest expense payable by the Company. As of December 31, 1998, 79%
of the Company's outstanding variable-rate debt was hedged with interest rate
protection agreements that partially limit the impact of rising interest rates
above a certain defined threshold, or strike price. When these interest rate
protection agreements expire, the Company will have increased interest rate risk
unless it is able to enter into replacement interest rate protection agreements.
As of December 31, 1998, the weighted average remaining term for the interest
rate protection agreements was approximately two years with a weighted average
strike price of 6.6%. There can be no assurance that the Company will be able to
maintain interest rate protection agreements to meet its 75% hedge policy on
satisfactory terms or to adequately protect against rising interest rates. In
addition, the Company does not currently hedge against all interest rate risks,
including increases in interest rate spreads, which adversely affect the value
of its CMBS assets.
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RISK OF FORECLOSURE ON PLEDGED CMBS
Additionally, changes in interest rates, as well as changes in market
spreads, may cause the value of the Company's CMBS portfolio to decrease. A
decrease in the market value of these assets may cause lenders to seek relief
from the automatic stay provision of the Bankruptcy Code to foreclose on the
collateral or to take other action.
LIMITED LIQUIDITY OF SUBORDINATED CMBS MARKET
There is currently no active secondary trading market for Subordinated
CMBS. This limited liquidity results in uncertainty in the valuation of the
Company's portfolio of Subordinated CMBS. In addition, even if the market for
Subordinated CMBS fully recovers, during adverse market conditions, the
liquidity of such market may again be severely limited, which would impair
the amount the Company could realize if it were required to sell a portion of
its Subordinated CMBS. Furthermore, management's estimate of the value of its
securities could vary significantly from the value that could be realized in
a current transaction between a willing buyer and a willing seller in other
than a forced sale or liquidation.
PENDING LITIGATION
Since the Petition Date, material litigation has commenced before the
Bankruptcy Court between the Company and certain of its secured creditors,
including Merrill Lynch, Morgan Stanley and Citicorp. In addition, the Company
is aware that certain plaintiffs filed 20 separate class action civil lawsuits.
On March 9, 1999, the District Court ordered the consolidation of the complaints
in the United States District Court for the District of Maryland filed against
certain officers and directors of the Company between October 7, 1998 and
November 30, 1998. Although CRIIMI MAE was not named as a defendant in such
suits, the Company has an obligation to indemnify the officer and director
defendants. The Company intends to defend vigorously the claims asserted in all
of the foregoing lawsuits; however, there can be no assurance of, nor can CRIIMI
MAE predict with any degree of certainty, the ultimate outcome of such
litigation. See "LEGAL PROCEEDINGS."
INVESTMENT COMPANY ACT RISK
Under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), an investment company is required to register with the 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. However, as described below, companies that
are primarily engaged in the business of acquiring mortgages and other liens on
and interests in real estate ("Qualifying Interests") are exempted by the
Investment Company Act.
To qualify for the Investment Company Act exemption, CRIIMI MAE, among
other things, must maintain at least 55% of its assets in Qualifying Interests
(the "55% Requirement") and is also required to maintain an additional 25% in
Qualifying Interests (the "25% Requirement") or other real estate-related assets
("Other Real Estate Interests"). According to current SEC staff interpretations,
CRIIMI MAE believes that its government insured mortgage securities and
originated loans constitute Qualifying Interests. In accordance with current SEC
staff interpretations, the Company believes that all of its Subordinated CMBS
constitute Other Real Estate Interests and that certain of its Subordinated CMBS
also constitute Qualifying Interests. On certain of the Company's Subordinated
CMBS, the Company, along with other rights, has the unilateral right to direct
foreclosure with respect to the underlying mortgage loans. As a result of
obtaining such right, the Company believes that the related Subordinated CMBS
constitute Qualifying Interests. As of December 31, 1998, the Company believes
that it was in compliance with both the 55% Requirement and the 25% Requirement.
If the SEC or its staff were to take a different position with respect to
whether such Subordinated CMBS constitute Qualifying Interests, the Company
could, among other things, be required either (i) to change the manner in which
it conducts its operations to avoid being required to register as an investment
company or (ii) to register as an investment company, either of which could have
a material adverse effect on the Company. If the Company were required to change
the manner in which it conducts its business, it would likely have to dispose of
a significant portion of its Subordinated CMBS or acquire significant additional
assets that are Qualifying Interests. Alternatively, if the Company were
required to register as an investment company, it expects that its operating
expenses would significantly increase and that the Company would have to reduce
significantly its indebtedness,
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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.
Further, if the Company were deemed an unregistered investment company, the
Company could be subject to monetary penalties and injunctive relief. The
Company would be unable to enforce contracts with third parties and third
parties could seek to obtain rescission of transactions undertaken during the
period the Company was deemed an unregistered investment company. In addition,
as a result of the Company's Chapter 11 filing, the Company is limited in
possible actions it may take in response to any need to modify its business plan
in order to register as an investment company, or avoid the need to register.
Certain dispositions or acquisitions of assets would require Bankruptcy Court
approval. Also, any forced sale of assets that occurs after the bankruptcy stay
is lifted would change the Company's asset mix, potentially resulting in the
need to register as an investment company under the Investment Company Act or
take further steps to change the asset mix. Any such results would be likely to
have a material adverse effect on the Company.
EFFECT OF ECONOMIC RECESSION ON LOSSES AND DEFAULTS
Economic recession may increase the risk of default on commercial mortgage
loans and correspondingly increase the risk of losses on the Subordinated CMBS
backed by such loans. Economic recession may also cause reduced demand for
commercial mortgage loans. This in turn may cause declining values of commercial
real estate securing the outstanding mortgage loans, weakening collateral
coverage and increasing the possibility of losses in the event of a default.
YEAR 2000
The Year 2000 issue is a computer programming issue that may affect many
electronic processing systems. Until relatively recently, in order to minimize
the length of data fields, most date-sensitive programs eliminated the first two
digits of the year. This issue could affect information technology ("IT")
systems and date sensitive embedded technology that controls certain systems
(such as telecommunications systems, security systems, etc.) leaving them unable
to properly recognize or distinguish dates in the twentieth and twenty-first
centuries. This treatment could result in significant miscalculations when
processing critical date-sensitive information relating to dates after December
31, 1999.
CRIIMI MAE is currently in the process of assessing and testing Year 2000
compliance of its IT systems, which include software systems to service mortgage
loans, administer securitizations and manage mortgage assets, as well as
software systems used for internal accounting purposes. A majority of the IT
systems used by the Company are licensed from third parties. These third parties
have either provided upgrades to existing systems or have indicated that their
systems are Year 2000 compliant. CRIIMI MAE has applied upgrades and has
completed a substantial amount of compliance testing as of March 31, 1999. The
Company anticipates that all year 2000 testing will be completed in the second
quarter of 1999. There can be no assurance, however, that the Company's IT
systems will be Year 2000 compliant by December 31, 1999.
The Year 2000 issue may also affect CRIIMI MAE's date-sensitive embedded
technology, which controls systems such as the telecommunications systems,
security systems, etc. The failure of any such systems to be Year 2000 compliant
could be material to the Company. The Company does not currently anticipate that
any material expenditure will be necessary to remediate the Company's embedded
technology systems.
The potential impact of the Year 2000 issue depends not only on the
corrective measures CRIIMI MAE has undertaken and will undertake, but also on
the ways in which the Year 2000 issue is addressed by third parties with whom
CRIIMI MAE directly interfaces or whose financial condition or operations are
important to CRIIMI MAE, including government agencies, financial institutions,
creditors, borrowers and others involved in the CMBS industry. CRIIMI MAE has
initiated communications with third parties with which it directly interfaces to
evaluate the risk of their failure to be Year 2000 compliant and the extent to
which CRIIMI MAE may be vulnerable to such failure. Although the Company has
received positive responses from those third parties that have been contacted,
there can be no assurance that the systems of these third parties or those who
have not yet been contacted will be Year 2000 compliant by December 31, 1999.
The failure of these third parties to be Year 2000 compliant could have a
material adverse effect on the operations of CRIIMI MAE.
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The Company believes that its greatest risk with respect to the Year 2000
issue relates to failures by third parties to be Year 2000 compliant. In
addition to risks posed by third parties with which the Company interfaces
directly, risks are created by third parties providing services to large
segments of society. The failure of third parties to be Year 2000 compliant
could, among other things, cause disruptions in the capital and real estate
markets and borrower defaults on real estate loans underlying mortgage-backed
securities. With respect to the systems used directly by the Company, the
Company believes that its greatest exposure to the Year 2000 issue involves the
Company's loan servicing operations, which rely on computers to process and
manage loans. The Company has applied a vendor upgrade and has substantially
completed compliance testing on the upgrade. However, any failure of these
systems to be Year 2000 compliant could have a material adverse effect on the
Company's loan servicing operations.
The cost of IT and embedded technology systems testing and upgrades is not
expected to be material to CRIIMI MAE's consolidated operating results. The
Company estimates incurring total costs of approximately $300,000 for the Year
2000 assessment and compliance testing, which will be recorded as noninterest
expense. Currently, the Company also estimates the cost of system upgrades
purely in relation to the Year 2000 issue will be immaterial.
Although CRIIMI MAE has substantially completed its compliance testing
and remediation, it is also in the process of developing contingency plans
for the risks of the failure of the Company or third parties to be Year 2000
compliant. Management intends to complete contingency plans for the Year 2000
issue during the second quarter of 1999. Due to the inability to predict all
of the potential problems that may arise from the Year 2000 issue, there can
be no assurance that all contingencies will be adequately addressed by such
plans.
ITEM 2. PROPERTIES
CRIIMI MAE leases its corporate offices at 11200 Rockville Pike, Rockville,
Maryland. As of March 29, 1999, these offices occupy approximately 68,500 square
feet.
ITEM 3. LEGAL PROCEEDINGS
BANKRUPTCY PROCEEDINGS
On the Petition Date, the Debtors each filed voluntary petitions for relief
under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. These cases are
being jointly administered for procedural purposes. None of the cases has been
substantively consolidated. Under the Bankruptcy Code, the Debtors are
authorized to manage their respective affairs and operate their businesses as
debtors-in-possession while they attempt to develop a reorganization plan that
will restructure their financial affairs and allow them to emerge from
bankruptcy. As a debtor-in-possession under the Bankruptcy Code, no Debtor may
engage in any transaction outside the ordinary course of business without the
approval of the Bankruptcy Court. The following discussion describes certain
aspects of the Chapter 11 cases of the Debtors (the "Chapter 11 Cases"), but it
is not intended to be a complete summary.
Pursuant to the Bankruptcy Code, the commencement of the Chapter 11 Cases
created an automatic stay, applicable generally to creditors and other parties
in interest, but subject to certain limited exceptions, of: (i) the commencement
or continuation of judicial, administrative or other actions or proceedings
against the Debtors that were or could have been commenced prior to the
commencement of the Chapter 11 Cases; (ii) the enforcement against the Debtors
or their property of any judgments obtained prior to the commencement of the
Chapter 11 Cases; (iii) the taking of any action to obtain possession of
property of the Debtors or to exercise control over such property; (iv) the
creation, perfection or enforcement of any lien against the property of the
bankruptcy estates of the Debtors; (v) any act to create, perfect or enforce
against the property of the Debtors any lien that secures a claim that arose
prior to the commencement of the Chapter 11 Cases; (vi) the taking of any action
to collect, assess or recover claims against the Debtors that arose before the
commencement of the Chapter 11 Cases; (vii) the set-off of any debt owing to the
Debtors that arose prior to the commencement of the Chapter 11 Cases against any
claim against the Debtors; or (viii) the commencement or continuation of a
proceeding before the United States Tax Court concerning
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the Debtors. Any entity may apply to the Bankruptcy Court, upon appropriate
showing of cause, for relief from the automatic stay.
As noted above, the Debtors are authorized to manage their respective
properties and operate their respective businesses pursuant to the Bankruptcy
Code. During the course of the Chapter 11 Cases, the Debtors will be subject to
the jurisdiction and supervision of the Bankruptcy Court. The United States
Trustee has appointed (i) an official committee of Unsecured Creditors in the
CRIIMI MAE Chapter 11 case, (ii) an official committee of Unsecured Creditors in
the Management Chapter 11 case and (iii) an official committee of Equity
Security Holders in the CRIIMI MAE Chapter 11 case (collectively, the
"Committees"). The Committees are expected to participate in the formulation of
the plans of reorganization for the respective Debtors. The Debtors are required
to pay certain expenses of the Committees, including professional fees, to the
extent allowed by the Bankruptcy Court.
Under the Bankruptcy Code, for 120 days following the Petition Date, only
the debtor-in-possession has the right to propose and file a plan of
reorganization with the Bankruptcy Court. If a debtor-in-possession files a plan
of reorganization during this exclusivity period, no other party may file a plan
of reorganization until 180 days following the Petition Date, during which
period the debtor-in-possession has the exclusive right to solicit acceptances
of the plan. If a debtor-in-possession fails to file a plan during the
exclusivity period or such additional exclusivity period as may be ordered by
the Bankruptcy Court or, after such plan has been filed, fails to obtain
acceptance of such plan from impaired classes of creditors and equity security
holders during the exclusive solicitation period, any party in interest,
including a creditors' committee, an equity security holders' committee, a
creditor or an equity security holder may file a plan of reorganization for such
debtor. Additionally, if the Bankruptcy Court were to appoint a trustee, the
exclusivity period, if not previously terminated, would terminate.
The Debtors did not file a plan of reorganization during the initial
exclusivity period; however, the Bankruptcy Court has entered an order extending
the Company's exclusive right to file a plan of reorganization through May 11,
1999. The Bankruptcy Court has set a hearing for May 11, 1999 with respect to a
further extension of the exclusivity periods through August 2, 1999 for filing a
plan of reorganization and through October 3, 1999 for soliciting acceptances
thereof. A number of parties have indicated potential opposition to any such
extension.
After a plan of reorganization has been filed with the Bankruptcy Court, it
will be sent, together with a disclosure statement approved by the Bankruptcy
Court after notice and a hearing, to members of all classes of impaired
creditors and equity security holders for acceptance or rejection. Following
acceptance or rejection of any plan by impaired classes of creditors and equity
security holders, the Bankruptcy Court, after notice and a hearing, will
consider whether to confirm the plan. To confirm a plan, the Bankruptcy Court is
required to find among other things: (i) with respect to each class of impaired
creditors and equity security holders, that each holder of a claim or interest
of such class either (A) will, pursuant to the plan, receive or retain property
of a value as of the effective date of the plan, that is at least as much as
such holder would have received in a liquidation on such date of the Debtors or
(B) has accepted the plan, (ii) with respect to each class of claims or equity
security holders, that such class has accepted the plan or is not impaired under
the plan, and (iii) confirmation of the plan is not likely to be followed by the
liquidation or need for further financial reorganization of the Debtors or any
successor unless such liquidation or reorganization is proposed in the plan.
If any impaired class of creditors or equity security holders does not
accept a plan, the proponent of the plan may invoke the so-called "cramdown"
provisions of the Bankruptcy Code. Under these provisions, the Bankruptcy Court
may confirm a plan, notwithstanding the non-acceptance of the plan by an
impaired class of creditors or equity security holders, if certain requirements
of the Bankruptcy Code are met. These requirements include: (i) the plan does
not discriminate unfairly and (ii) the plan is fair and equitable, with respect
to each class of claims or interests that is impaired under, and has not
accepted, the plan. As used in the Bankruptcy Code, the phrases "discriminate"
and "fair and equitable" have narrow and specific meanings and their use herein
is qualified in its entirety by reference to the Bankruptcy Code.
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BANKRUPTCY RELATED LITIGATION
The following is a summary of material litigation matters between the
Company and certain of its secured creditors that was commenced since the
Petition Date. The Company has reached agreement with certain of these
creditors, as set forth in greater specificity below.
MERRILL LYNCH
As of the Petition Date, the Company owed Merrill Lynch approximately
$274.8 million with respect to advances to the Company under an assignment
agreement pursuant to which the Company pledged Subordinated CMBS. Borrowings
under this assignment agreement are secured by a first priority security
interest in certain CMBS issued by CMO-IV, together with all proceeds,
distributions and amounts realized therefrom (the "Distributions") (the CMBS
pledged to Merrill Lynch and the Distributions are hereafter referred to
collectively as the "Merrill Collateral").
On October 16, 1998, Merrill Lynch filed a motion with the Bankruptcy Court
for relief from the automatic stay or, in the alternative, for entry of an order
directing the Company to provide adequate protection for its interest in the
Merrill Collateral. On October 21, 1998, the Company filed a complaint against
Merrill Lynch for turnover of Distributions remitted to Merrill Lynch on October
2, 1998 by LaSalle National Bank, as well as other relief.
On December 4, 1998, the Bankruptcy Court approved a consent order entered
into between the Company and Merrill Lynch. Among other things, pursuant to the
consent order, the pending litigation with Merrill Lynch was dismissed without
prejudice. The consent order also preserved the portfolio of CMBS pledged as
collateral to Merrill Lynch and provided for the Company to receive
distributions of 50 percent of the monthly cash flow from those CMBS, net of
interest payable to Merrill Lynch. The 50 percent of distributions received by
Merrill Lynch is to be applied to reduce principal. Such arrangement will remain
in effect until the earlier of a further order of the Bankruptcy Court affecting
the arrangement or the effective date of a plan of reorganization of the
Company.
MORGAN STANLEY
As of the Petition Date, the Company owed Morgan Stanley approximately
$182.4 million with respect to advances to the Company under an agreement
pursuant to which the Company pledged CMBS. The borrowings under this agreement
are secured by certain CMBS, including (i) CRIIMI MAE Commercial Mortgage Trust,
Series 1998-C1, Class B and C Certificates (collectively or any portion thereof,
the "CBO-2 BBB Bonds") and (ii) Morgan Stanley Capital I Inc., Series 1998-W2,
Class F, G, H, J, K, L and M Certificates (collectively or any portion thereof,
the "Wells Fargo Bonds" and, together with the CBO-2 BBB Bonds, the "Morgan
Collateral").
On October 6, 1998, Morgan Stanley advised the Company that it was
exercising alleged ownership rights over the Morgan Collateral. On October 20,
1998, the Company filed an adversary proceeding against Morgan Stanley alleging,
among other things, that Morgan Stanley violated the automatic stay and seeking
turnover of the Morgan Collateral.
On January 12, 1999, the Company and Morgan Stanley agreed upon and filed
with the Bankruptcy Court a stipulation and consent order, which was approved by
the Bankruptcy Court and entered on January 26, 1999. The consent order
provided, among other things, for the following: (i) an agreed sale procedure
for the CBO-2 BBB Bonds during a specified sale period; (ii) the payment of a
portion of the sale proceeds of the CBO-2 BBB Bonds to the Company; (iii) a
standstill period relating to the Wells Fargo Bonds through March 31, 1999
unless otherwise extended by the Company and Morgan Stanley, during which time
Morgan Stanley may not sell, pledge, encumber or otherwise transfer the Wells
Fargo Bonds and (iv) the postponement of the litigation with Morgan Stanley
while the parties seek a permanent resolution of their disputes. On March 5,
1999, the CBO-2 BBB Bonds were sold. Of the $159.0 million in net sale proceeds,
$141.2 million was used to repay the Company's borrowings under the agreement
with Morgan Stanley, and $17.8 million was paid to CRIIMI MAE. As a result of
the transaction, CRIIMI MAE's litigation against Morgan Stanley has been
resolved with respect to the CBO-2 BBB Bonds to the satisfaction of both
parties. The Company and Morgan Stanley have agreed to extend the standstill
period with
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respect to the Wells Fargo Bonds through April 15, 1999. At the end of this
standstill period, Morgan Stanley has until April 25, 1999 to respond to the
Company's complaint and resume litigation with respect to the Wells Fargo Bonds,
unless the standstill period is further extended by the parties or an
agreement between the parties is reached.
CITICORP AND CITIBANK
In addition to the Citibank Program pursuant to which the Company
originated loans, as previously discussed, the Company also has a financing
arrangement with Citicorp pursuant to which the Company pledged CMBS.
On October 13, 1998, Citicorp demanded from Norwest Bank Minnesota, N.A.
("Norwest") the immediate transfer of certain CMBS (the "Retained Bonds") issued
pursuant to CMO-IV. Norwest served as indenture trustee. The Retained Bonds are
collateral for amounts advanced to the Company by Citicorp under the financing
arrangement. As of the Petition Date, the Company owed Citicorp $79.1 million
under the facility.
On October 15, 1998, the Company filed an emergency motion to enforce the
automatic stay against Norwest and Citicorp. Pursuant to an Order dated October
23, 1998, the Bankruptcy Court prohibited Citicorp from selling the Retained
Bonds without further order of the Bankruptcy Court. On October 23, 1998,
Citicorp requested an emergency hearing regarding the October 23 Order, and on
November 2, 1998, the Company filed a complaint against Citicorp seeking, among
other things, a declaratory judgment as to whether the automatic stay applies to
actions taken by Citicorp with respect to the Retained Bonds.
On March 11, 1999, the Company finalized agreements with Citicorp and
Citibank pursuant to which the parties agreed to adjourn the pending
litigation for a four month period. One of the agreements also provides that
Salomon Smith Barney, in cooperation with CRIIMI MAE, will sell two classes
of investment grade CMBS from CMO-IV constituting a portion of the collateral
securing advances under the Citicorp financing arrangements. In addition,
Citibank, in cooperation with CRIIMI MAE, will sell commercial mortgages
originated last year under the Citibank Program, provided that the sale
results in CRIIMI MAE receiving minimum net proceeds of not less than $3.5
million, after satisfying certain amounts due to Citibank, from the amount
held in the reserve account. The minimum net proceeds provision may be waived
by agreement of the Company, the Unsecured Committee and the Equity
Committee. The agreements with Citicorp and Citibank were approved by the
Bankruptcy Court by stipulations and consent orders entered on April 5, 1999.
A related interpleader action between Norwest, the Company and Citicorp,
which was initiated on October 20, 1998 by Norwest to determine whether the
Company or Citicorp is the rightful owner of funds that were to have been paid
by Norwest, as indenture trustee, remains pending before the Bankruptcy Court.
During the pendency of this matter, certain payments on the related bonds are
held in an account controlled by the Bankruptcy Court. No trial date has been
set for this matter.
ARRANGEMENTS WITH OTHER CREDITORS
In addition to the foregoing, the Company has had discussions with other
secured creditors against whom the Company was not engaged in litigation. One
such creditor is German American Capital Corporation ("GACC"). On February 3,
1999, the Bankruptcy Court approved an Amended Consent Order between the
Company and GACC that provides for the following: (a) acknowledgement that
GACC has a valid perfected security interest in its collateral; (b) authority
for GACC to hedge its loan, subject to a hedge cost cap; and (c) as adequate
protection, sharing of cash collateral on a 50/50 basis, after payment of
interest expense, with the percentage received by GACC to be applied to
reduce principal and pay certain hedge costs, if any. In addition, the
Company is prohibited from using GACC's cash collateral for certain purposes,
including loan originations and Subordinated CMBS acquisitions.
The Company has also had discussions with First Union National Bank ("First
Union"). First Union, a creditor of both the Company and CM Management, is
asserting substantial secured and unsecured claims. On or about March 23, 1999,
First Union filed in each of the Company's and CM Management's Chapter 11 cases
a motion for relief from the automatic stay pursuant to section 362(d) of the
United States Bankruptcy Code. On or about March 26, 1999, First Union requested
that the Court dismiss without prejudice both motions. The Company
22
<PAGE>
and First Union continue to have discussions aimed at resolving the open issues
between the parties, including, but not limited to, the validity of First
Union's liens, adequate protection of First Union's interests and an appropriate
sharing of what First Union asserts is its cash collateral. There can, however,
be no assurance that the Company and First Union will reach an agreement.
SHAREHOLDER LITIGATION
The Company is aware that certain plaintiffs (collectively, the
"Plaintiffs") filed 20 separate class action civil lawsuits (the "Complaints")
in the United States District Court for the District of Maryland (the "District
Court") against certain officers and directors of the Company between October 7,
1998 and November 30, 1998. Two additional complaints filed in other Federal
Courts have been dismissed without prejudice. The Complaints name as defendants
William B. Dockser, as Chairman of the Board of Directors of CRIIMI MAE, and H.
William Willoughby as a member of the Board of Directors and/or an officer of
CRIIMI MAE. In addition, a majority of the Complaints name Cynthia O. Azzara as
a defendant as an officer of CRIIMI MAE. Several of the Complaints also name
Garrett G. Carlson, Sr., G. Richard Dunnells and Robert J. Merrick as defendants
as members of both the Board of Directors and the Audit Committee of CRIIMI MAE.
Although CRIIMI MAE and CM Management have not been named as defendants, both
companies are subject to indemnity obligations to the defendants under the
provisions of their respective constituent documents and applicable state law
and, with respect to Messrs. Dockser and Willoughby and Ms. Azzara, their
employment contracts. CRIIMI MAE has directors and officers liability insurance
policies that have a combined coverage limit of $20 million.
Each Complaint alleges generally that the named defendants violated Section
10(b) of the Securities and Exchange Act of 1934, as amended (the "Exchange
Act") by, among other things, making false statements of material facts and
failing to disclose certain material facts concerning, among other things,
CRIIMI MAE's ability to meet the earnings estimates of analysts and to meet
collateral calls from lenders. The Complaints also generally allege that the
named defendants violated Section 20(a) of the Exchange Act because each named
defendant was allegedly a "controlling person" as that term is defined under
Section 20(a).
The relief sought in each Complaint includes all or substantially all of
the following: (i) certification of a class under Rule 23 of the Federal Rules
of Civil Procedure; (ii) certification of the named plaintiff as a class
representative and/or as lead plaintiff and its counsel as lead counsel and/or
class counsel; (iii) entry of a finding that the defendants violated federal
law, including federal securities laws; (iv) award of monetary damages,
including compensatory and rescissionary damages against all defendants jointly
and severally, including punitive damages where appropriate, and pre-judgment
and post-judgment interest running from the date of the wrongs alleged to the
date of judgment; (v) award to the plaintiff of costs, expenses and
disbursements incurred in the action, including reasonable attorneys' fees and
experts' fees; (vi) award to the plaintiff of extraordinary, equitable and/or
injunctive relief as permitted by law, equity, and federal statutory provisions
and state law remedies to attach, impound or otherwise restrict the defendants'
assets; (vii) award to the plaintiff of such other relief as the District Court
deems just and proper or as the District Court otherwise requires; and (viii)
trial by jury.
A group of putative members of the class of individuals who allegedly
suffered damages, as described in the Complaints, filed a motion requesting the
District Court to appoint a group of 13 individual Plaintiffs as lead plaintiffs
under the Private Securities Litigation Reform Act of 1995 (the "Motion"). The
Motion also requests the District Court, to approve, among other things, certain
law firms as counsel to the lead plaintiffs and the consolidation of the twenty
(20) pending law suits into a single action. Defendants Dockser, Willoughby and
Azzara have opposed the Motion to the extent that it seeks appointment of lead
plaintiffs and approval of their selection of counsel. On March 9, 1999, the
District Court ordered the consolidation of the Complaints. The District Court
deferred a decision on the Motion, to the extent that it seeks the appointment
of lead plaintiffs and approval of their selection of counsel, until a later
date.
CRIIMI MAE and the defendants are continuing to investigate the allegations
in the Complaints. The defendants intend to defend vigorously the claims
asserted in the Complaints. CRIIMI MAE cannot predict with any degree of
certainty the ultimate outcome of such litigation.
23
<PAGE>
EDGE PARTNERS SETTLEMENT
In February 1996, Edge Partners, L.P. ("Edge Partners"), on behalf of
CRIIMI MAE, filed a First Amended Class and Derivative Complaint (the
"Derivative Complaint") in the United States District Court for the District of
Maryland, Southern Division (the "District Court"). The Derivative Complaint
named as defendants each of the individuals who served on the CRIIMI MAE board
of directors at the time of the Merger and CRIIMI MAE as a nominal defendant.
The Company was subject to indemnity obligations to the directors under
provisions of its constituent documents. In addition, the Company had directors
and officers liability insurance policies with a combined coverage limit of $5
million.
Count I of the Derivative Complaint alleged violations of Section 14(a) of
the Exchange Act for issuing a materially false and misleading proxy in
connection with the Merger and alleged derivatively on behalf of CRIIMI MAE a
breach of fiduciary duty owed to CRIIMI MAE and its shareholders. Edge Partners
sought, among other relief, that unspecified damages be accounted to CRIIMI MAE,
that the shareholder vote in connection with the Merger be null and void and
that certain salaries and other remuneration paid to the directors be returned
to the Company.
On June 16, 1998, the District Court approved a settlement agreement (the
"Settlement Agreement"). Under the terms of the Settlement Agreement, the
Company agreed to make certain disclosures relating to alleged conflicts between
two directors and the Company in connection with the Merger transaction and
adopted a non-binding policy relating generally to the approval of certain
interested transactions. Among other things, the non-binding policy adopted by
the Company's board of directors imposes certain conditions on the board's
approval of transactions between the Company and any director, officer or
employee who owns greater than 1% of the outstanding common shares of the
Company. Such conditions generally include: (1) approval by written resolution
of any transaction involving an amount in excess of $5 million in any year
adopted by a majority of the members of the board having no personal stake in
the transaction; and (2) in the case of any such transaction in excess of $15
million in any year, consideration by the board as to the formation of a special
committee of the board, to be comprised of at least two directors having no
personal stake in such transaction.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the security holders to be voted on during the
fourth quarter of 1998.
24
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET DATA
CRIIMI MAE's common stock is listed on the New York Stock Exchange (symbol
CMM). As of March 16, 1999, there were approximately 2,282 holders of record
of the Company's common stock. The following table sets forth the high and low
closing sales prices and the dividends per share for CRIIMI MAE's common stock
during the periods indicated:
<TABLE>
<CAPTION>
1998
- ---------------------------------------------------------------------------------------------
Sales Price Dividends
Quarter Ended High Low per Share
- ------------------ ------------ ------------ ----------------------
<S> <C> <C> <C>
March 31 $16 1/16 $ 14 7/8 $ 0.37
June 30 15 3/4 13 7/8 0.40
September 30 14 15/16 8 5/8 0.40
December 31 7 1/8 1 1/4 -(1)
---------
$ 1.17
---------
---------
</TABLE>
<TABLE>
<CAPTION>
1997
- ---------------------------------------------------------------------------------------------
Sales Price Dividends
Quarter Ended High Low per Share
- ------------------ ------------ ------------ ----------------------
<S> <C> <C> <C>
March 31 $ 18 1/8 $ 12 3/4 $ 0.35
June 30 16 5/8 13 7/8 0.35
September 30 17 9/16 15 11/16 0.35
December 31 16 1/2 13 7/8 0.37
---------
$ 1.42
---------
---------
</TABLE>
(1) During the pendency of the Chapter 11 proceedings, the Company is prohibited
from paying dividends without first obtaining Bankruptcy Court approval.
25
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
TAX BASIS ACCOUNTING
Interest Income:
Subordinated CMBS $ 184,947 $ 86,166 $ 43,632 $ 11,846 $ 1,163
Insured Mortgage Securities 43,063 49,342 54,827 62,020 60,622
Originated Loans 20,570 -- -- -- --
--------- --------- --------- --------- ---------
Total interest income 248,580 135,508 98,459 73,866 61,785
--------- --------- --------- --------- ---------
Interest and related expenses 161,890 79,574 64,503 52,231 39,077
--------- --------- --------- --------- ---------
Net interest margin 86,690 55,934 33,956 21,635 22,708
--------- --------- --------- --------- ---------
Capital gains 1,746 7,815 9,618 5,442 11,023
Other income 12,309 6,256 6,410 4,938 3,160
Other operating expenses (14,440) (9,464) (7,451) (6,727) (7,285)
Realized loss on reverse
repurchase obligation (4,503) -- -- -- --
Write-off of capitalized
origination costs (3,284) -- -- -- --
Reorganization Items (2,705) -- -- -- --
--------- --------- --------- --------- ---------
(10,877) 4,607 8,577 3,653 6,898
--------- --------- --------- --------- ---------
Tax basis income before preferred
dividends $ 75,813 $ 60,541 $ 42,533 $ 25,288 $ 29,606
Dividends paid or accrued on
preferred shares (6,998) (6,473) (3,526) -- --
--------- --------- --------- --------- ---------
Tax basis income available to common
Shareholders $ 68,815 $ 54,068 $ 39,007 $ 25,288 $ 29,606
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Tax basis income per share:
Income before gains
From CRI Liquidating $ 1.42 $ 1.24 $ 1.00 $ 0.70 $ 0.76
Capital gains from CRI
Liquidating -- 0.21 0.27 0.19 0.41
--------- --------- --------- --------- ---------
Total tax basis income per share $ 1.42 $ 1.45 $ 1.27 $ 0.89 $ 1.17
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Tax basis Shares 48,503 37,334 30,774 28,537 25,310
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Dividends paid on common $ 1.17 $ 1.42 $ 1.22 $ 0.92 $ 1.16
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
ACCOUNTING UNDER GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
Statement of Income Data:
Interest Income:
Subordinated CMBS $143,656 $ 79,670 $ 41,713 $ 11,105 $ 976
Insured Mortgage Securities 43,063 49,425 56,912 66,115 67,043
Originated Loans 20,588 -- -- -- --
-------- -------- -------- -------- --------
Total interest income 207,307 129,095 98,625 77,220 68,019
-------- -------- -------- -------- --------
Interest and related expense 136,268 77,919 63,079 49,853 39,245
-------- -------- -------- -------- --------
Net interest margin 71,039 51,176 35,546 27,367 28,774
Gain on sale of CMBS 28,800 -- -- -- --
Other income 6,897 6,222 7,330 5,504 3,980
Gain on mortgage securities dispositions 1,196 17,343 9,601 1,502 12,999
Other operating expenses (14,623) (9,610) (7,970) (9,583) (8,040)
Amortization of assets acquired in the Merger (2,878) (2,878) (2,882) (1,435) --
Realized loss on reverse repurchase obligation (4,503) -- -- -- --
Unrealized losses on warehouse obligations (30,378) -- -- -- --
Write-off of capitalized origination costs (3,284)
Reorganization Items (9,857) -- -- -- --
-------- -------- -------- -------- --------
(28,630) 11,077 6,079 (4,012) 8,939
-------- -------- -------- -------- --------
Net income before minority interest 42,409 62,253 41,625 23,355 37,713
Minority interest in net income of
consolidated Subsidiary (40) (8,065) (6,386) (4,821) (11,703)
Dividends paid or accrued on preferred
shares (6,998) (6,473) (3,526) -- --
-------- -------- -------- -------- --------
Net income available to common
shareholders $ 35,371 $ 47,715 $ 31,713 $ 18,534 $ 26,010
-------- -------- -------- -------- --------
GAAP basis income per share - Basic $ 0.75 $ 1.29 $ 1.03 $ 0.65 $ 1.07
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
GAAP basis income per share - Diluted $ 0.74 $ 1.25 $ 1.03 $ 0.65 $ 1.07
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average shares outstanding 47,280 36,993 30,665 28,414 24,249
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Mortgage Assets:
Subordinated CMBS $ 1,274,186 $1,114,480 $ 564,335 $ 278,401 $ 38,858
Insured Mortgage Securities 488,095 605,114 691,110 807,113 857,589
Investment in Originated Loans 499,076 -- -- -- --
Total assets 2,437,918 1,873,305 1,367,245 1,203,303 955,050
Total debt 2,085,722 1,414,932 982,258 854,436 627,248
Shareholders' equity 307,877 444,981 346,671 285,704 250,042
</TABLE>
The selected consolidated statement of income data presented above for the years
ended December 31, 1998, 1997 and 1996, and the selected consolidated balance
sheet data as of December 31, 1998 and 1997, were derived from and are qualified
by reference to CRIIMI MAE's consolidated financial statements, which have been
included elsewhere in this Annual Report on Form 10-K. The selected consolidated
statement of income data for the years ended December 31, 1995 and 1994, and the
selected consolidated balance sheet data as of December 31, 1996, 1995 and 1994,
were derived from audited financial statements not included as part of this
Annual Report on Form 10-K. This data should be read in conjunction with the
consolidated financial statements and the notes thereto.
28
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis contains statements that may be
considered forward looking. These statements contain a number of risks and
uncertainties as discussed herein and in Item 1 of this Form 10-K that could
cause actual results to differ materially.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996
------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C>
Interest Income:
Subordinated CMBS $143,656 $ 79,670 $ 41,713
Insured Mortgage Securities 43,063 49,425 56,912
Originated Loans 20,588 -- --
-------- --------- --------
Total interest income 207,307 129,095 98,625
-------- --------- --------
Interest and related expense 136,268 77,919 63,079
-------- --------- --------
Net interest margin 71,039 51,176 35,546
Gain on sale of CMBS 28,800 -- --
Equity in earnings from investments 2,618 3,612 4,432
Other income 4,279 2,610 2,898
Gain on mortgage securities dispositions 1,196 17,343 9,601
Other operating expenses (14,623) (9,610) (7,970)
Amortization of assets acquired
in the Merger (2,878) (2,878) (2,882)
Realized loss on reverse repurchase
obligation (4,503) -- --
Unrealized losses on warehouse purchase
obligations (30,378) -- --
Write-off of capitalized origination costs (3,284) -- --
Reorganization Items (9,857) -- --
-------- --------- --------
(28,630) 11,077 6,079
-------- --------- --------
Net income before minority interest 42,409 62,253 41,625
Minority interest in net income of
consolidated Subsidiary (40) (8,065) (6,386)
Dividends paid or accrued on
preferred shares (6,998) (6,473) (3,526)
-------- --------- --------
Net income available to common
shareholders $ 35,371 $ 47,715 $ 31,713
-------- --------- --------
Adjustments to tax basis income
(see also Note 8 to Notes to Consolidated
Financial Statements) 33,444 6,354 7,294
-------- -------- --------
Tax basis income available to common
shareholders $ 68,815 $ 54,069 $ 39,007
-------- -------- --------
-------- -------- --------
GAAP basis income per share - Basic $ 0.75 $ 1.29 $ 1.03
-------- -------- -------
-------- -------- --------
Tax basis income per share $ 1.42 $ 1.45 $ 1.27
-------- -------- --------
-------- -------- --------
</TABLE>
29
<PAGE>
1998 VERSUS 1997
INTEREST INCOME - SUBORDINATED CMBS
Income from Subordinated CMBS increased by approximately $64 million, or
80%, to $143.7 million during 1998 as compared to $79.7 million during 1997.
During 1998, the Company increased its CMBS portfolio by acquiring Subordinated
CMBS at purchase prices aggregating approximately $853 million during 1998 as
compared to the $554 million during 1997. This increase was partially offset by
a reduction in income from Subordinated CMBS due to the de-recognition of $132
million face amount of CMBS from CBO-1 in connection with CBO-2 and also the
de-recognition of $345 million face amount of CMBS in connection with CBO-2. See
Note 5 to Notes to Consolidated Financial Statements.
Generally accepted accounting principles ("GAAP") require that interest
income generated by Subordinated CMBS be recorded based on the effective
interest method using the anticipated yield over the expected life of the
Subordinated CMBS. This currently results in income which is lower for
financial statement purposes than for tax purposes. Based upon the timing and
amount of future credit losses and certain other assumptions estimated by
management, as discussed below, the estimated weighted average anticipated
unleveraged yield for CRIIMI MAE's Subordinated CMBS for financial statement
purposes as of December 31, 1998 and 1997, was approximately 10% and 11%,
respectively. The decrease in anticipated unleveraged yield is primarily due
to five Subordinated CMBS acquisitions in 1998 with anticipated unleveraged
yields between 8.5% and 8.9% which reduced the overall average of the CMBS
portfolio. These returns were determined based on the anticipated yield over
the expected weighted average life of the Subordinated CMBS, which considers,
among other things, anticipated losses and interest expense attributable to
the financing of the rated tranches at current interest rates and current
borrowing amounts.
INTEREST INCOME-INSURED MORTGAGE SECURITIES
Interest income from Insured Mortgage Securities decreased by approximately
$6.3 million or 13% to $43.1 million for 1998 from $49.4 million for 1997. This
decrease was principally due to the prepayment of 22 mortgage securities held by
CRIIMI MAE and its wholly owned subsidiaries for net proceeds aggregating
approximately $104.0 million and the sale of four mortgage securities and a
portion of a fifth mortgage security for net proceeds aggregating approximately
$13.4 million during 1998.
INTEREST INCOME-ORIGINATED LOANS
Interest income from originated loans of approximately $20.6 million for
1998 was derived from originated loans included in the CMO-IV securitization.
The CMO-IV securitization totaled $496 million face value of conduit loans, a
majority of which were "No Lock".
INTEREST EXPENSE
Interest expense increased by approximately $58.4 million or 75% to
approximately $136.3 million for 1998 from approximately $77.9 million for
1997. This increase was principally a result of increased borrowings in
connection with the acquisition of Subordinated CMBS during 1998.
Additionally, CRIIMI MAE incurred interest expense in connection with $100
million aggregate principal amount of senior unsecured notes issued during
the fourth quarter of 1997 and the issuance of collateralized mortgage
obligations in connection with CMO-IV. These increases were partially offset
by the impact of $477 million face amount of debt de-recognized from the
financial statements in conjunction with CBO-2 in May 1998 and the decrease
in the Company's weighted average cost of borrowing to 7.37% in 1998 from
7.68% in 1997, primarily due to a decrease in one-month LIBOR, based on the
average, for the year 1997 as compared to the year 1998. Due to the Chapter
11 filing, certain lenders declared defaults or otherwise taken action
against the Company with respect to a number of CRIIMI MAE's financing
facilities. See "LEGAL PROCEEDINGS" for a discussion of material litigation
between the Company and various creditors and agreements the Company has
reached with certain of these creditors.
30
<PAGE>
NET INTEREST MARGIN
Net interest margin increased by approximately $19.8 million or 39% for
1998 to approximately $71.0 million from approximately $51.2 million for 1997.
The net interest margin increase was due primarily to the increase in
Subordinated CMBS and, to a lesser extent, income from originated loans, as
previously discussed.
GAIN ON SALE OF CMBS
In May 1998, CRIIMI MAE completed CBO-2 pursuant to which it sold $468
million of investment grade securities created through the resecuritization of
approximately $1.8 billion of its Subordinated CMBS. CRIIMI MAE recognized a
gain of approximately $28.8 million on the sale of $345 million face amount
investment grade securities sold without call provisions, recognizing CRIIMI
MAE's transfer of control on those securities. The sale of $123 million face
amount investment grade securities with significant call provisions was treated
as a financing and resulted in an unrealized gain of approximately $26 million.
Certain of these securities included call provisions to enable CRIIMI MAE to 1)
repurchase bonds if market conditions warrant, and 2) call bonds when it is no
longer cost effective to service them. The sold investment grade securities
treated as a 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. Additionally, due to the sale treatment under FAS 125, all remaining
Subordinated CMBS and insured mortgage securities are required to be carried at
fair market value. This reclassification currently results in a cumulative net
decrease to shareholders' equity of approximately $251.3 million (a $174.0
million decrease from September 30, 1998).
Additionally, as part of CBO-2, CMSLP sold trustee servicing rights for
$4.2 million, resulting in a gain of $4.2 million for tax purposes, and
approximately $400,000 for financial reporting purposes.
EQUITY IN EARNINGS FROM INVESTMENTS
Equity in earnings from investments decreased by approximately $1.0
million or 28% to $2.6 million during 1998 as compared to $3.6 million during
1997. This decrease included impairment losses on purchased mortgage
servicing rights recorded by CMSLP since their fair value was less than their
amortized cost at December 31, 1998. The general market turmoil commencing in
late summer of 1998 resulted in the use of higher yields in determining the
servicing rights' fair value which caused the fair value to be less than the
amortized cost. At September 30, 1998, CMSLP was responsible for certain
servicing functions on a mortgage loan portfolio of approximately $32
billion. However, due to CRIIMI MAE's Chapter 11 filing and its relationship
with CRIIMI MAE, CMSLP arranged for BOMCM to succeed it as master servicer on
two commercial mortgage pools during the fourth quarter of 1998, which
resulted in a loss of approximately $1.4 million for the recorded value of
the rights, of which substantially all of the loss flowed through to CRIIMI
MAE. These decreases are partially offset by increases in servicing fee
streams and float income earned on escrow balances derived from the remaining
servicing portfolio, which has grown to approximately $31.0 billion as of
December 31, 1998 as compared to approximately $16.5 billion as of December
31, 1997.
OTHER INCOME
Other income increased by approximately $1.7 million or 65% to $4.3 million
during 1998 as compared to $2.6 million during 1997. This increase was primarily
attributable to an increase in short-term interest and other income earned
during 1998 on the amounts deposited in the loan origination reserve account,
which had an average balance of approximately $38 million for the year ended
December 31, 1998. Approximately $1.9 million of short-term interest income and
net-carry income were earned on these deposits for the year ended December 31,
1998. Amounts earned on the origination reserve account for the year ended
December 31, 1997 were immaterial.
31
<PAGE>
GAINS ON MORTGAGE DISPOSITIONS
During 1998, net gains on mortgage dispositions were approximately $1.2
million, of which approximately $666,000 was a result of 22 prepayments of
mortgage securities held by CRIIMI MAE's subsidiaries, or approximately 17% of
its portfolio. In addition, CRIIMI MAE sold four unencumbered mortgage
securities and a portion of a fifth mortgage security, which resulted in a
financial statement gain of $531,000. During 1997, CRI Liquidating's disposition
of its remaining 11 mortgage assets and its interest in three limited
partnership participation agreements resulted in net gains of approximately
$17.4 million (before minority interests) for financial statement purposes.
These 1997 net gains were partially offset by nine prepayments of mortgage
assets held by CRIIMI MAE's subsidiaries which resulted in financial statement
losses of $52,000. For any year, gains or losses on mortgage dispositions are
based on the number, carrying amounts and proceeds of mortgages disposed of
during the period. The proceeds realized from the disposition of mortgage assets
are based on the net coupon rates of the specific mortgages disposed of in
relation to prevailing long-term interest rates at the date of disposition.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by approximately $5.0
million, or 52%, to $14.6 million for 1998 as compared to $9.6 million for 1997.
The increase in general and administrative expenses during these periods was
primarily the result of the significant growth of CRIIMI MAE's commercial
mortgage operations during the first nine months of 1998. This increase was
partially offset in the fourth quarter due to the closing of regional offices,
the suspension of certain business activities and the dismissal of employees
involved in suspended activities following the Chapter 11 filing.
REALIZED LOSS ON REVERSE REPURCHASE OBLIGATION AND UNREALIZED LOSSES ON
WAREHOUSE OBLIGATIONS
During 1998, the Company recorded realized and unrealized losses
aggregating $4.5 million and $30.4 million, respectively, primarily due to the
impact of financial market volatility on losses on hedge positions and
commitments related to commercial mortgage loans in the Company's securitization
pipeline.
As part of CMO IV, the Company intended to sell certain of the security
tranches that were not initially sold to the public (the "CMO-IV BBB bonds").
In anticipation of this sale, the Company entered into a transaction to hedge
the value of those securities. As a result, CRIIMI MAE borrowed and then sold
a 10-year Treasury Note in the amount of $44 million. The Company was
informed by Citibank that the position was closed on October 8, 1998. This
transaction did not qualify for hedge accounting purposes because it involved
the purchase and sale of a cash instrument and therefore is required to be
recorded at market ("marked to market"). Because Treasury rates declined from
the date of the transaction to the liquidation of the position, the Company
recorded a realized loss of approximately $4.5 million, of which
approximately $4.1 million was recognized as of September 30, 1998 with the
remaining $400,000 loss recognized in the fourth quarter.
The parties who fund the Company's loan originations are required under
the relevant agreements to hedge the related loans and to provide timely
written hedge position reporting. As of December 31, 1998, the Company's
obligation under the Citibank Program was $28.4 million (based primarily on
information provided by Citibank) in excess of the fair value of the loans
and the Company's loss exposure under the Prudential Program was $2 million
if the Company does not exercise its option. As a result, CRIIMI MAE recorded
an aggregate $30.4 million unrealized loss on its obligations as of December
31, 1998. The unrealized loss of $28.4 million relating to the Citibank
Program as of December 31, 1998, is based on the estimated fair value of the
loans offset by the unpaid principal balance of the loans at December 31,
1998, hedge losses and certain estimated fees and other costs. Depending on
market conditions, including interest rate movements, these losses could
materially increase or decrease in subsequent reporting periods. The Company
has calculated the Prudential loss based upon the assumption that the Company
will not exercise its option with Prudential.
32
<PAGE>
WRITE-OFF OF CAPITALIZED ORIGINATION COSTS
Since the Company no longer has the intention to securitize the remaining
loans in warehouse that were originated through the Citibank and Prudential
Programs, the net deferred costs of $3.3 million associated with the warehoused
loans were written off in 1998.
REORGANIZATION ITEMS
During the fourth quarter of 1998, the Company recorded $9.9 million in
reorganization items due to the Chapter 11 filings of CRIIMI MAE, CM Management
and Holdings II.
<TABLE>
<CAPTION>
REORGANIZATION ITEM AMOUNT
<S> <C>
Professional fees $ 5,219,000
Write-off of debt discounts and deferred
costs 2,835,210
Employee Retention Program accrued costs 612,885
Lease Cancellation Fees 621,902
Excise Tax 300,000
Other 267,950
------------
Total $ 9,856,947
------------
------------
</TABLE>
FINANCIAL STATEMENT NET INCOME
As a result of the foregoing, net income available to common shareholders
for financial statement purposes was approximately $35.4 million for 1998, a 26%
decrease from approximately $47.7 million for 1997. On a per basic share basis,
financial statement net income decreased to $0.75 per basic share for 1998 from
$1.29 per basic share in 1997.
TAX BASIS INCOME
CRIIMI MAE earned approximately $68.8 million in tax basis income
available to common shareholders in 1998 or $1.42 per share, compared to
approximately $54.1 million or $1.45 per share in 1997.
The primary factors resulting in the $14.7 million increase in tax basis
income from 1997 to 1998 was due to the growth of CRIIMI MAE's portfolio of
Subordinated CMBS and, to a lesser extent, earnings from CMO-IV. Also
contributing to the increase in tax basis income was a $4.2 million gain on
the sale of the trustee servicing rights associated with CBO-2. (See Note 5
to Notes to Consolidated Financial Statements). Partially offsetting the
increases in the foregoing were increases in interest expense, general and
administrative expenses, reorganization items and the write-off of certain
net deferred costs related to the Citibank and Prudential Programs. Although,
in absolute dollars, tax basis income increased from 1997 to 1998, tax basis
income per share decreased due to the increase in the average number of shares
outstanding from 37,334,034 in 1997 to 48,502,522 in 1998. Total tax basis
income per share for 1997 included $0.21 of non-recurring income from the
mortgage dispositions of a subsidiary, CRI Liquidating, that completed its
scheduled liquidation in late 1997. (See also Note 8 to Notes to Consolidated
Financial Statements.)
RESULTS OF OPERATIONS
1997 VERSUS 1996
INTEREST INCOME - SUBORDINATED CMBS
Income from Subordinated CMBS increased by approximately $38 million, or
91%, to approximately $79.7 million during 1997 as compared to approximately
$41.7 million during 1996. This
33
<PAGE>
increase was a result of the acquisition of Subordinated CMBS at purchase prices
aggregating approximately $554 million during 1997 as compared to approximately
$285 million during 1996.
Generally accepted accounting principles require 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
estimated weighted average anticipated unleveraged yield for CRIIMI MAE's
Subordinated CMBS for financial statement purposes as of December 31, 1997 and
1996, was approximately 11% and 12%, respectively. 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 and
interest expense attributable to the financing of the rated tranches at current
interest rates and current borrowing amounts.
INTEREST INCOME-INSURED MORTGAGE SECURITIES
Mortgage income decreased by approximately $7.5 million or 13% to
approximately $49.4 million for 1997 from approximately $56.9 million for
1996. This decrease was principally due to the scheduled disposition of the
remaining 11 mortgages of CRI Liquidating's mortgage assets in 1997 in
accordance with its business plan. Also contributing to the decrease in
mortgage income was the prepayment of nine mortgages held by CRIIMI MAE and
its wholly owned subsidiaries for net proceeds aggregating approximately $27
million of proceeds during 1997.
INTEREST EXPENSE
Interest expense increased by approximately $14.8 million or 23% to
approximately $77.9 million for 1997 from approximately $63.1 million for 1996.
This increase was principally a result of additional amounts borrowed in
connection with the acquisition of Subordinated CMBS during 1997 and to a lesser
extent, the marginally higher cost of debt on CBO-1. These increases were
mitigated by temporary paydowns of short-term secured financing facilities
during 1997, pending the purchase of additional CMBS.
NET INTEREST MARGIN
Net interest margin increased by approximately $15.7 million or 44% for the
twelve months ended December 31, 1997 to approximately $51.2 million from
approximately $35.5 for the corresponding period in 1996. The net interest
margin increase was due primarily to the increase in Subordinated CMBS.
34
<PAGE>
EQUITY IN EARNINGS FROM INVESTMENTS
Equity in earnings from investments decreased by approximately $800,000 or
18% to $3.6 million during 1997 as compared to $4.4 million during 1996. The
decrease was primarily due to a one-time receipt in the fourth quarter of 1996
of previously unpaid and unaccrued net servicing fees (approximately $1.4
million) received by CMSLP on a group of multi-family loans. This decrease was
partially offset by higher income from CMSLP , which resulted from additional
servicing fee streams derived from an expanded servicing portfolio, which grew
to approximately $16.5 billion as of December 31, 1997 as compared to
approximately $6.4 billion as of December 31, 1996. The increased servicing fee
revenue was 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.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by approximately $1.6 million
or 20% to $9.6 million for 1997 as compared to $8.0 million for 1996. The
increase in general and administrative expenses was primarily the result of the
continued growth of CRIIMI MAE's commercial mortgage operations.
GAINS/LOSSES ON MORTGAGE DISPOSITIONS
During 1997, CRI Liquidating disposed of its remaining 11 mortgage assets
and its interest in three limited partnership participation agreements resulting
in net gains of approximately $17.4 million for financial statement purposes.
These net gains were partially offset by nine prepayments of mortgage assets
held by CRIIMI MAE and its subsidiaries which resulted in financial statement
net losses of $52,000. This compares to the disposition of 11 CRI Liquidating
mortgage assets which resulted in financial statement net gains of approximately
$9.7 million and 10 CRIIMI MAE mortgage prepayments which resulted in net losses
of $91,000 during 1996. Gains or losses on mortgage dispositions are based on
the number, carrying amounts and proceeds of mortgages disposed of during the
period. The proceeds realized from the disposition of mortgage assets were based
on the net coupon rates of the specific mortgages disposed of in relation to
prevailing long-term interest rates at the date of disposition.
FINANCIAL STATEMENT NET INCOME
As a result of the foregoing, net income available to common shareholders
for financial statement purposes was approximately $47.7 million for 1997, a 50%
increase from approximately $31.7 million for 1996. On a per basic share basis,
financial statement net income increased to $1.29 per basic share for 1997 from
$1.03 for 1996.
TAX BASIS INCOME
CRIIMI MAE earned approximately $54.1 million in tax basis income available
to common shareholders during 1997, a 39% increase from approximately $39.0
million earned in 1996. Tax basis income per share increased to $1.45 in 1997
from $1.27 in 1996. Ordinary income increased to $1.24 in 1997 from $1.00 in
1996. The primary factor for the increase in tax basis income for 1997 as
compared to 1996 was continued growth in CRIIMI MAE's portfolio of Subordinated
CMBS. Partially offsetting these increases in income was a decrease in mortgage
interest income due to the mortgage security dispositions described above, an
increase in interest expense as a result of additional amounts borrowed to
acquire Subordinated CMBS and an increase in general and administrative expenses
as a result of CRIIMI MAE's continued growth. Net capital gains resulting from
the disposition of CRI Liquidating's mortgage assets, on a per share basis,
decreased from $.27 per weighted average share in 1996 to $.21 per weighted
average share in 1997. (See also Note 8 to Notes to Consolidated Financial
Statements.)
35
<PAGE>
CASH FLOW
1998 VERSUS 1997
Net cash provided by operating activities increased for 1998 as compared
to 1997 primarily due to the increase in the net interest margin resulting
from the Company's acquisitions of Subordinated CMBS and, to a lesser extent,
CMO-IV (as previously discussed in Results of Operations). This increase in
net interest margin was partially offset primarily by an increase in net
receivables associated with the Chapter 11 filing.
Net cash used in investing activities increased for 1998 as compared to
1997. The increase was primarily a result of increased purchases of Subordinated
CMBS. Also contributing to the increase in cash used in investing activities was
the purchase of $496 million of commercial loans in connection with CMO-IV.
These increases were partially offset by approximately $335 million of proceeds
received from the sale of collateral bond obligations in connection with CBO-2
and from mortgage securities disposition proceeds.
Net cash provided by financing activities increased for 1998 as compared to
1997 primarily due to proceeds from debt issuances related to the sale of the
collateralized mortgage obligations in connection with CMO-IV, collateralized
bond obligations in connection with CBO-2, and variable-rate secured borrowings,
net of principal payments, and increased proceeds from equity offerings. These
increases were partially offset by payments made in connection with collateral
calls made by lenders primarily in the latter part of the third quarter.
1997 VERSUS 1996
Net cash provided by operating activities increased for 1997 as compared to
1996 primarily due to an increase in net income. Partially offsetting this
increase is an increase in gains on mortgage dispositions and an increase in
interest receivable on Subordinated CMBS as a result of 1997 Subordinated CMBS
acquisitions.
Net cash used in investing activities increased for 1997 as compared to
1996. The increase was primarily due to an increase in purchases of Subordinated
CMBS, decreased proceeds from mortgage dispositions, increased purchases of
servicing rights and the funding of the loan origination reserve.
Net cash provided by financing activities increased from 1997 as compared
to 1996 primarily due to increased proceeds from debt issuances, net of
principal payments. Additionally, proceeds from equity offerings increased
primarily as a result of various stock offerings in 1997. The net proceeds from
debt issuances and equity offerings were used primarily to fund additional
Subordinated CMBS purchases, and, to a lesser extent, fund the estimated
subordinate class of loans originated through CRIIMI MAE's mortgage loan conduit
program. Partially offsetting the increase was an increase in dividends paid
resulting from increased net income.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Petition Date, CRIIMI MAE used proceeds from long-term,
fixed-rate match-funded debt refinancings, short-term, variable-rate, secured
borrowings, securitizations, other borrowings, issuances of common and preferred
shares and unsecured borrowings to meet the capital requirements of its business
plan. Since the Chapter 11 filing, the Company has suspended its Subordinated
CMBS acquisition, origination and securitization operations, but continues to
service mortgage loans through CMSLP.
Prior to the Petition Date, CRIIMI MAE financed a substantial portion of
its Subordinated CMBS acquisitions with short-term, variable rate borrowings
secured by the Company's Subordinated CMBS. The agreements governing these
financing arrangements typically required the Company to maintain loan-to-value
ratios. The agreements further provided that the lenders could require the
Company to post cash or additional collateral if the value of the existing
collateral fell below this minimum amount.
36
<PAGE>
In order to refinance a portion of its short-term, variable rate secured
borrowings with long-term, fixed rate debt, the Company entered into
resecuritization transactions. In May 1998, CRIIMI MAE completed CBO-2, its
second resecuritization of its Subordinated CMBS portfolio, which under FAS 125,
qualified for both sale and financing accounting. Through CBO-2, CRIIMI MAE
refinanced $468 million of its variable rate debt with fixed-rate, match-funded
debt. The debt is considered match-funded because the maturities and principal
requirements of the debt match those of the related collateral. The transaction
also generated additional borrowing capacity of approximately $160 million,
which was used primarily to fund additional Subordinated CMBS purchases. In June
1998, CRIIMI MAE securitized $496 million of originated or acquired commercial
mortgage loans by selling $397 million face amount of fixed-rate investment
grade securities. The tranches not sold to the public were partially financed
with variable-rate, secured financing agreements.
After the above structured finance transactions, the Company continued to
have a substantial amount of short-term, variable rate, secured financing
facilities which were subject to the previously discussed collateral
requirements based on CMBS security prices. As a result of the turmoil in the
capital markets commencing in late summer of 1998, the spreads between CMBS
yields and the yields on Treasury securities with comparable maturities began to
increase substantially and rapidly. CRIIMI MAE's short-term secured creditors
perceived that the value of the Subordinated CMBS securing their facilities with
the Company had fallen below the minimum loan-to-value ratio and, consequently,
made demand upon the Company to provide cash or additional collateral with
sufficient value to cure the perceived value deficiency. In August and September
of 1998, the Company received and met collateral calls from its secured
creditors. At the same time, CRIIMI MAE was in negotiations with various third
parties in an effort to obtain additional debt and equity financing that would
provide the Company with additional liquidity.
On Friday afternoon, October 2, 1998, the Company was in the closing
negotiations of a refinancing with one of its unsecured creditors that would
have provided the Company with additional borrowings, when it received a
significant collateral call from Merrill Lynch. The basis for this collateral
call, in the Company's view, was unreasonable. After giving consideration to,
among other things, this collateral call and the Company's concern that its
failure to satisfy this collateral call would cause the Company to be in default
under a substantial portion of its financing arrangements, the Company
reluctantly concluded on Sunday, October 4, 1998 that it was in the best
interests of creditors, equity holders and other parties in interest to seek
Chapter 11 protection. Accordingly, the Company filed for relief under Chapter
11 on Monday, October 5, 1998.
At December 31, 1998, CRIIMI MAE had secured financing agreements with
GACC, Lehman ALI, Inc., First Union, Morgan Stanley, Merrill Lynch, and
Citicorp. Certain of these lenders have registered the pledged securities in
their own names. As a result, the trustee makes payments on such securities
to the registered holder. During the fourth quarter, certain registered
holders withheld payments related to securities not registered to CRIIMI MAE.
The Company has negotiated and finalized agreements with four of its lenders.
CRIIMI MAE's cash position has increased from approximately $7 million on
October 5, 1998 to approximately $52 million as of March 31, 1999. Based on
present information, the Company believes that it will have sufficient cash
flow to fund its current operations while in bankruptcy during 1999. However,
due to the uncertainty of the effects of the Chapter 11 filing on the
business of the Company, pending litigation, material reorganization items to
be incurred during the pendency of the bankruptcy and numerous other factors
beyond the Company's control, no assurance can be given that the Company's
cash flow will be sufficient to fund operations while the Company is in
bankruptcy during 1999.
The Company's ability to resume the acquisition of Subordinated CMBS, as
well as its loan origination and securitization programs, depends on its ability
to obtain additional capital and emerge from bankruptcy as a successfully
reorganized company. 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
37
<PAGE>
conditions and business prospects. The Company can give no assurances as to
whether it will obtain capital or the terms upon which capital can be obtained.
DIVIDENDS
During the pendency of the Chapter 11 proceedings, the Company is
prohibited from paying dividends without first obtaining Bankruptcy Court
approval. Among the other factors which impact CRIIMI MAE's dividends are (i)
the level of income earned on uninsured mortgage assets, such as Subordinated
CMBS (including, but not limited to, the amount of OID income and losses, if
any, on Subordinated CMBS), and, to the extent applicable, originated loans,
which varies depending on prepayments, defaults, etc., (ii) the level of income
earned on CRIIMI MAE's or its subsidiaries' insured mortgage security collateral
depending on prepayments, defaults, etc., (iii) the fluctuating yields on
short-term, variable rate, 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 rate at which cash flows from mortgage assets, mortgage dispositions,
and, to the extent applicable, loan origination reserves, escrow deposits and
distributions from its subsidiaries can be reinvested, (v) changes in operating
expenses (including those related to the Chapter 11 filing), (vi) to the extent
applicable, dividends paid on preferred shares, (vii) to the extent applicable,
whether the Company's taxable mortgage pools continue to be exempt from
corporate level taxes, (viii) the timing and amounts of cash flows attributable
to its other lines of business - mortgage servicing, advisory, to the extent
applicable, origination services and, (ix) to the extent applicable, realized
losses on certain transactions.
Dividends paid or accrued per share are summarized below:
<TABLE>
<CAPTION>
For the three months ended For the twelve months ended
December 31, December 31,
1998(1)(3) 1997(2) 1998(1)(3) 1997(2)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Common shares $ 0.000 $ 0.370 $ 1.170 $ 1.420
Series B Preferred Shares 0.680 0.845 3.355 3.236
</TABLE>
- -----------------------------
(1) In addition to the per share amounts described above, amounts paid or
payable to Series C Cumulative Preferred Shares for the three and twelve months
ended December 31, 1998 were $259,139 and $1,305,082, respectively, and amounts
paid or payable to Series D Cumulative Preferred Shares for the three and twelve
months ended December 31, 1998 were $154,931 and $264,011, respectively.
(2) In addition to the per share amounts described above, Series A Preferred
shares were paid $50,848 for the twelve months ended December 31, 1997 and
Series C Cumulative Preferred Shares were paid $269,531 for the twelve months
ended December 31, 1997.
(3) Due to the Chapter 11 filing on October 5, 1998, dividends were not paid in
the fourth quarter on common or preferred shares. However, since dividends on
the Company's preferred shares are cumulative, the dividends payable at December
31, 1998 were accrued in the financial statements.
REIT STATUS
CRIIMI MAE has elected to qualify as a REIT for tax purposes under Sections
856-860 of the Internal Revenue Code for the 1998 tax year. To qualify for tax
treatment as a REIT under the Internal Revenue Code, CRIIMI MAE must satisfy
certain criteria, including certain requirements regarding the nature of its
ownership,
38
<PAGE>
assets, income and distributions of taxable income. For a discussion of the
effect of the Chapter 11 filing on REIT status and related risks see "BUSINESS -
Effect of Chapter 11 Filing on REIT Status and Certain Tax Matters".
INVESTMENT COMPANY ACT
For a discussion of the Investment Company Act and the risk to the Company
if it were required to register as an Investment Company, see "BUSINESS - Risk
Factors-Investment Company Act Risk".
39
<PAGE>
YEAR 2000 ISSUE
See "BUSINESS - Risk Factors - Year 2000" for the Company's assessment of
Year 2000 compliance, the impact of the Year 2000 issue, the Company's risk
associated with the Year 2000 issue and estimated costs to the Company.
40
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal market risk is exposure to changes in interest
rates related to the US Treasury market as well as the LIBOR market. The Company
will have an increase in the amount of interest expense paid on its variable
rate obligations primarily due to increases in One-Month LIBOR. The Company will
also experience fluctuations in the market value of its assets related to
changes in the interest rates of US Treasury bonds as well as increases in the
spread between US Treasury bonds and CMBS.
CRIIMI MAE has entered into interest rate protection agreements to mitigate
the adverse effects of rising interest rates on its variable-rate borrowings.
The caps provide protection to CRIIMI MAE to the extent interest rates, based on
a readily determinable interest rate index (typically One-Month LIBOR), 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. The term of the
cap as well as the stated interest rate of the cap, which in most cases is
currently above the current rate of the index, will limit to some degree the
amount of protection that the caps offer.
Prior to the Petition Date, CRIIMI MAE financed a substantial portion of
its Subordinated CMBS acquisitions with short-term, variable rate borrowings
secured by the Company's CMBS. The agreements governing these financing
arrangements typically required the Company to maintain collateral at all times
with a market value not less than a specified percentage of the outstanding
indebtedness. The agreements further provided that the lenders could require the
Company to post cash or additional collateral if the value of the existing
collateral fell below this threshold amount. These financing arrangements were
used by CRIIMI MAE to provide financing during the period of time from the
acquisition or creation of the Subordinated CMBS to the date when CRIIMI MAE
would resecuritize the portfolio in order to match-fund a significant portion of
the portfolio with fixed rate debt, thereby eliminating interest rate risk on
this portion of the CMBS. CRIIMI MAE, in limited cases, entered into
transactions to hedge the value of securities it intended to sell by selling
short Treasury or government insured securities the Company did not own. These
transactions are marked to market with unrealized gains or losses reflected in
the Company's income statement.
The table below provides information about the Company's Subordinated CMBS,
Insured Mortgage Securities, and Investment in Originated Loans. The Company
holds these assets in its portfolio for other than trading purposes. For
Subordinated CMBS, Insured Mortgage Securities, and Investment in Originated
Loans, the table presents anticipated principal and interest cash flows based
upon the assumptions used in determining the fair value of these securities and
the related weighted average interest rates by expected maturity. The
assumptions used to price these securities include an estimate for prepayments
which ranged from 0% for the Subordinated CMBS, and 0% to 14% for the Investment
in Originated Loans.
<TABLE>
<CAPTION>
(in millions)
There- Fair
Assets 1999 2000 2001 2002 2003 after Total Value
- ------ ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subordinated CMBS $122.6 $122.8 $122.9 $123.1 $123.4 $3,462.5 $4,077.3 $1,274.2
Average Interest Rate 6.8% 6.8% 6.8% 6.8% 6.8% 6.8%
Insured Mortgage
Securities $ 41.1 $ 41.1 $ 41.1 $ 41.1 $ 41.1 $1,002.6 $1,208.1 $ 488.1
Average Interest Rate 7.6% 7.6% 7.6% 7.6% 7.6% 7.6%
Investment in Originated
Loans $ 71.1 $ 73.7 $ 71.3 $ 64.8 $ 58.9 $ 386.1 $ 725.9 $ 499.1
Average Interest Rate 7.6% 7.6% 7.6% 7.6% 7.6% 7.6%
</TABLE>
41
<PAGE>
The next table provides information about the Company's debt obligations
and derivative instruments. For debt obligations, the table presents the
contractual principal and interest payments and the related weighted average
interest rates by contractual maturity date. For the caps, the table presents
the notional amount of the agreement by fiscal year of maturity and weighted
average strike price.
<TABLE>
<CAPTION>
(in millions)
There- Fair
Debt Obligations 1999 2000 2001 2002 2003 after Total Value
- ---------------- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securitized mortgage
Obligations - fixed rate $136.9 $139.4 $159.2 $142.8 $128.1 $633.5 $1,339.9 $973.4
Average Interest Rate 6.7% 6.7% 6.8% 6.8% 6.8% 6.7%
Senior unsecured notes $ 9.1 $ 9.1 $ 9.1 $108.4 $ -- $ -- $ 135.7 $ 62.0
Average Interest Rate 9.1% 9.1% 9.1% 9.1% -- --
Variable rate secured
Borrowings $663.8 $283.2 -- -- -- -- $ 947.0 N/A
Average Interest Rate 6.6% 6.6% -- -- -- --
Other variable rate $ 93.4 -- -- -- -- -- $ 93.4 N/A
Average Interest Rate 7.6% -- -- -- -- --
DERIVATIVE CONTRACTS
Cap contracts $ 35.0 $350.0 $425.0 -- -- -- $810.0 $1.0
Average Strike Rate 6.1% 6.7% 6.6% -- -- --
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are set forth in this
Annual Report on Form 10-K commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
42
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive
officers and directors of the Company as of March 16, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William B. Dockser (1)........................ 62 Chairman of the Board and Director
H. William Willoughby (1)..................... 52 President, Secretary and Director
Cynthia O. Azzara............................. 39 Senior Vice President,
Chief Financial Officer
and Treasurer
David B. Iannarone............................ 38 Senior Vice President and General Counsel
Douglas L. Cooper............................. 37 Senior Vice President/Underwriting
Donald R. Drew................................ 41 Senior Vice President/Originations
Brian L. Hanson............................... 37 Senior Vice President/Servicing
Garrett G. Carlson, Sr. (2)(3)................ 62 Director
G. Richard Dunnells (2)(3).................... 61 Director
Robert J. Merrick (2)(3)...................... 54 Director
Robert E. Woods (2)(3)........................ 51 Director
</TABLE>
- -----------------------------
(1) Member of the Transactional Committee
(2) Member of the Audit Committee
(3) Member of the Compensation and Stock Option Committee
Mr. William B. Dockser has been Chairman of the Board of CRIIMI MAE since
1989. Mr. Dockser also serves as Chairman of the Board of CRI, Inc., the former
advisor to CRIIMI MAE, which currently oversees a $3 billion real estate
portfolio. Prior to forming CRI in 1974, he served as President of Kaufman Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed a
number of publicly held limited partnerships created to invest in low and
moderate income multifamily apartment complexes. For a period of 2 1/2 years
prior to joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was responsible
for a federally insured housing production program. Before coming to Washington,
Mr. Dockser was a practicing attorney in Boston and also was a special Assistant
Attorney General for the Commonwealth of Massachusetts. He holds a Bachelor of
Laws degree from Yale University Law School and a Bachelor of Arts degree from
Harvard University.
Mr. H. William Willoughby has been President of CRIIMI MAE since 1990. Mr.
Willoughby was a co-founder of CRI and has served as its President since its
inception in 1974. Mr. Willoughby is principally responsible for the structuring
and oversight of investment vehicles and acquisition programs. Prior to joining
CRI in 1974, he was Vice President of Shelter Company of America and a number of
its subsidiaries, dealing principally with real estate development and equity
financing. Before joining Shelter Company, he was a senior tax accountant with
Arthur Andersen & Company. He holds a Juris Doctorate degree, a Master of
Business Administration degree and a Bachelor of Science degree in Business
Administration from the University of South Dakota.
Ms. Cynthia O. Azzara has been Chief Financial Officer since 1994, a Senior
Vice President since 1995 and Treasurer since 1997. Ms. Azzara is responsible
for accounting, financial and treasury matters of CRIIMI MAE as well as equity
and debt placements in the capital markets. From 1989 to 1994, she served as
Vice President/Controller of CRI public funds. From 1985 to 1989, she held
positions at CRI as manager of financial reporting and assistant controller.
Before joining CRI in 1985, Ms. Azzara was controller for a consulting
43
<PAGE>
company and was a staff accountant for a regional CPA firm in Virginia. Ms.
Azzara is a certified public accountant and holds a B.B.A. in accounting from
James Madison University, magna cum laude.
Mr. David B. Iannarone is Senior Vice President and General Counsel of
CRIIMI MAE. Mr. Iannarone joined CRIIMI MAE Inc. during 1996, and is responsible
for all corporate legal affairs. From 1991 to 1996, he served with the Federal
Deposit Insurance Company/Resolution Trust Company as Counsel-Securities and
Finance. From 1989 to 1991, Mr. Iannarone served with Citibank, N.A. as
assistant vice president and counsel, serving the World Corporate Group and
the Corporate Banking Department. He was with Kaye, Scholer, Fierman, Hays &
Handler as an associate in the Corporate and Banking Department from 1986 to
1989. Mr. Iannarone received an LLM from the Georgetown University Law
Center, a JD from the University of Villanova School of Law, and a BA from
Trinity College.
Mr. Douglas L. Cooper has been a Senior Vice President of the Company since
March 1998. From January 1996 to March 1998, he served as a Vice President and
Chief Underwriter of the Company. From June 1995 to January 1996, Mr. Cooper was
Senior Credit Policy Officer for the Real Estate Banking Group for
NationsBank. From 1993 to June 1995, Mr. Cooper was Vice President and Team
Leader within NationsBank's Special Assets Division.
Mr. Donald R. Drew has been a Senior Vice President of the Company since
April 1997. He served as Vice President of First Union National Bank of Virginia
from June 1994 to April 1997. In addition, Mr. Drew served as Senior Vice
President and Vice President of First American Metro Company from December 1992
to June 1993 and July 1992 to December 1992, respectively.
Mr. Brian L. Hanson has been a Senior Vice President of the Company
since March 1998. From March 1996 to March 1998, he served as Group Vice
President of the Company. Prior to joining the Company, from May 1991 to
February 1996, Mr. Hanson was with the Lanham, Maryland based company of JCF
partners where he served as Chief Operating Officer and Director of Asset
Operations and Portfolio Director.
Mr. Garrett G. Carlson, Sr. has served as a Director of the Company
since 1989. Mr. Carlson has served as President of Can-American Realty Corp.
and the Canadian Financial Corp. since 1979 and 1974, respectively, and
President of Garrett Real Estate Development since 1982. Since 1996, Mr.
Carlson has served as a director of Satellite Broadcasting Company. From 1985
to 1995, he served as Chairman of the Board of SCA Realty Holdings Inc; from
1983 to 1995, he served as Vice Chairman of the Shelter Development Company
Ltd. and from 1992 to 1994, he served as a director of Bank Windsor.
Mr. G. Richard Dunnells has served as a Director of the Company since 1991.
Since 1994, Mr. Dunnells has served as the hiring partner in the Washington D.C.
office of the law firm Holland & Knight. He was Chairman of the Washington, D.C.
law firm of Dunnells & Duvall from 1989 to 1993 and was the firm's Senior
Partner from 1973 to 1993. Mr. Dunnells served on the President's Commission on
Housing from 1981 to 1982 and thereafter served in various roles at the U.S.
Department of Housing and Urban Development from 1969 to 1973, including Special
Assistant to the Under-Secretary, Deputy Assistant Secretary for Housing and
Urban Renewal and Deputy Assistant Secretary for Housing Management.
Mr. Robert J. Merrick has served as a Director of the Company since 1997.
Since February 1998, Mr. Merrick has served as the Director of MCG Credit
Company. From 1985 to 1997, he served as Executive Vice President and Chief
Credit Officer of Signet Banking Company. In addition, while at Signet, Mr.
Merrick also served as Chairman of the Credit Policy Committee and was a member
of the Asset and Liability Committee, as well as the Management Committee. Prior
to joining Signet, Mr. Merrick was a Credit Officer of the Virginia Banking
Company from 1980 to 1984. He also served as Senior Vice President of the Bank
of Virginia from 1976 to 1980.
Mr. Robert Woods has served as a Director of the Company since 1998. He is
currently the Managing Director and head of loan syndications for the Americas
at Societe Generale in New York where he has served in that position since 1997.
Prior to that, Mr. Woods had been Managing Director and Head of the Real Estate
Capital Markets and Mortgage-Backed Securities division at Citicorp since 1991.
Mr. Woods also served as Head of Citicorp's syndications, private placements,
money markets and asset-backed businesses from 1985 to 1990.
44
<PAGE>
MEETINGS OF DIRECTORS
During 1998, the Board of Directors met two times in person, seven times by
conference telephone and acted by unanimous written consent on seven occasions.
Each member of the Board of Directors attended at least 75% of the meetings of
the Board of Directors and the committees on which he served during 1998 or such
shorter period during which he was a member. Pursuant to the Company's Bylaws, a
majority of the Board of Directors shall at all times consist of directors who
are not officers or employees of the Company and do not perform any services for
the Company other than as a director ("Unaffiliated Directors").
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company receive no additional
compensation for their services as directors. Each Unaffiliated Director
receives (i) an aggregate annual fee of $12,000, (ii) 500 common shares
annually, (iii) options to purchase 500 common shares annually and (iv) a fee of
$750 (for telephonic meetings) or $1,500 (for in-person meetings) per day for
each meeting in which such director participates, including committee meetings
held on days when the Board of Directors is not meeting. In addition, the
Company reimburses directors (including those employed by the Company as
executive officers) for travel and other expenses incurred in connection with
their duties as directors of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee, a Compensation and Stock
Option Committee, and a Transactional Committee. The Company has no nominating
or similar committee.
AUDIT COMMITTEE. The Board of Directors has an Audit Committee currently
comprised of Messrs. Carlson, Dunnells, Merrick and Woods, each of whom is an
Unaffiliated Director. The functions performed by the Audit Committee are to:
(1) recommend independent auditors to the Company; (2) review the scope of the
audit, audit fees, the audit report and the management letter with the Company's
independent auditors; (3) review the financial statements of the Company; (4)
review and approve non-audit services provided by the independent auditors; and
(5) consult with the independent auditors and management with regard to the
adequacy of internal controls. The Audit Committee met twice in 1998.
COMPENSATION AND STOCK OPTION COMMITTEE. The Board of Directors has a
Compensation and Stock Option Committee currently comprised of Messrs. Carlson,
Dunnells, Merrick and Woods, each of whom is an Unaffiliated Director. The
Compensation and Stock Option Committee was formed to establish, review and
modify the compensation (including salaries and bonuses) of the Company's
executive officers, to administer the Employee Stock Option Plan and to perform
such other duties as may be delegated to it by the Board of Directors. The
Compensation and Stock Option Committee met twice in 1998.
TRANSACTIONAL COMMITTEE. The Board of Directors has a Transactional
Committee currently comprised of Messrs. Dockser and Willoughby. The
Transactional Committee was formed to review and approve certain debt and equity
financings, and securitizations and resecuritizations of assets, with certain of
the foregoing subject to specific limitations. The Transactional Committee acted
14 times in 1998 by unanimous written consent.
45
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as amended, requires
each director and executive officer of the Company and each person who owns more
than 10% of the Company's common stock to report to the Securities and Exchange
Commission, by a specified date, his, her or its beneficial ownership of, and
certain transactions in, the Company's common stock. Except as otherwise noted,
based solely on its review of Forms 3 and 4 and amendments thereto furnished to
the Company, and written representations from certain reporting persons that no
Forms 5 were required for those persons, the Company believes that all
directors, officers and beneficial owners of more than 10% of the common stock
have filed on a timely basis Forms 3, 4 and 5 as required in the year ended
December 31, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
earned during the last three years by the Chairman of the Board of Directors and
each of the other four most highly compensated executive officers of the Company
whose income exceeded $100,000 during the year ended December 31, 1998
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
AnnuaL Compensation(1) Long Term Compensation
------------------------------------------------------- ----------------------------------
Securities
Name and Principal Restricted Underlying All Other
Position Year Salary($) Bonus ($) Stock Awards Options (#) Compensation ($)
- ------------------ ---- -------- --------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
William B. Dockser 1998 $285,600 $ 59,000 -0- 225,000 $334,916 (2)
Chairman of the 1997 $230,000 $215,000 -0- 150,000 $467,424 (2)
Board of 1996 $167,500 -0- -0- -0- $494,672 (2)
Directors
H. William 1998 $285,600 $ 59,000 -0- 225,000 $334,916 (2)
Willoughby 1997 $230,000 $215,000 -0- 150,000 $467,424 (2)
President and 1996 $167,500 -0- -0- -0- $494,672 (2)
Secretary
Frederick J. 1998 $233,150 $ 48,000 -0- 25,000 -0-
Burchill 1997 $191,875 $200,000 -0- 45,000 -0-
Executive Vice 1996 $179,375 $125,000 -0- 20,000 -0-
President (3)
Cynthia O. Azzara 1998 $185,150 $ 45,000 -0- 20,000 -0-
Senior Vice 1997 $147,500 $ 77,500 -0- 25,000 -0-
President, 1996 $135,000 $ 50,000 -0- 10,000 -0-
Chief Financial
Officer and
Treasurer
Donald R. Drew 1998 $525,500(4) $ 30,000 -0- 10,000 -0-
Senior Vice 1997 $166,596(5) -0- -0- -0- -0-
President
</TABLE>
- --------------------
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary; however, the aggregate amounts of such personal benefits
do not exceed the lesser of $50,000 or 10% of annual salary and bonus
reported for any Named Executive Officer.
(2) These amounts represent deferred compensation which the Company has agreed
to pay for services performed in connection with the Merger. These amounts were
paid solely from principal and interest received by the Company from CRI in
connection with a note receivable acquired by the Company in the Merger.
46
<PAGE>
(3) Mr. Burchill resigned as Executive Vice President of the Company effective
February 8, 1999.
(4) This amount includes commissions paid of $416,125 but does not include
$144,579 owed to Mr. Drew for commissions accrued, but not paid, prior to the
Petition Date, with respect to which Mr. Drew has an unsecured claim.
(5) This amount relates to the period from April 7, 1997 (commencement of
employment) through December 31, 1997 and includes commissions paid of $55,216.
EMPLOYMENT AGREEMENTS
On June 30, 1995, in connection with the Merger, the Company, through its
wholly-owned operating subsidiary CM Management, entered into employment
agreements with each of Messrs. Dockser and Willoughby. In connection with the
adoption of the Employee Retention Plan, such employment agreements were assumed
by CM Management and were amended as of October 5, 1998 (together and as
amended, the "Employment Agreements.") The Employment Agreements each expire
June 30, 2000 and provide that Messrs. Dockser and Willoughby salaries will be
adjusted at least annually by the Compensation and Stock Option Committee of
the Board of Directors. Each of Mr. Dockser and Mr. Willoughby currently
receive a base salary of $324,500. The Employment Agreements require each of
Messrs. Dockser and Willoughby to devote a substantial portion of his time to
the affairs of the Company and its affiliated entities, except that each of
them may devote time to other existing business activities; provided that the
time devoted to such other existing business activities does not interfere
with the performance of his duties to the Company and its affiliated
entities. The agreements define the phrase "substantial portion" to mean all
of the time required to perform the services necessary and appropriate for
the conduct of the businesses of the Company and its affiliated entities.
In the event of a change of control, as defined in the Employment
Agreements, Messrs. Dockser and Willoughby reserve the right to voluntarily
terminate their employment with the Company. Messrs. Dockser and Willoughby are
entitled to severance payments in an amount equal to 18 months' base salary upon
termination without cause and upon an involuntary resignation for any of the
reasons set forth in the Employment Agreements, including a change of
control. Messrs. Dockser and Willoughby are not currently entitled to receive
any retention payments under the Employee Retention Plan.
The Employment Agreements provide for indemnification of Messrs. Dockser
and Willoughby to the extent provided for in the bylaws of the Company and/or CM
Management up to and including amounts totaling a maximum of $250,000 for all
covered persons, constituting the aggregate deductible under applicable Director
and Officer insurance policies, the application of any available portion of
proceeds of applicable Director and Officer insurance policies, up to $20
million in the aggregate for all covered persons, and the payment of all
uninsured indemnification arising under the post-petition actions of the
executives for which they are otherwise entitled to indemnification under the
Bylaws of the Company and/or CM Management.
In July 1998, the Company entered into a new employment agreement with
Cynthia O. Azzara that, in connection with the adoption of the Employee
Retention Plan, was assumed by CM Management and was amended as of October 5,
1998 (as amended, the "Azzara Employment Agreement"). The Azzara Employment
Agreement has a three year term and provides for minimum base annual
compensation of $225,000. The Azzara Employment Agreement contains provisions
that prohibit Ms. Azzara from competing with the Company and certain of its
affiliates for a period not to extend beyond October 5, 2000, subject to
certain limited exceptions. In addition, Ms. Azzara is entitled to receive
retention payments, under the Employee Retention Plan, equal to two times her
base salary semiannually over a two year period, subject to certain
conditions. The first retention plan payment to Ms. Azzara vested on April 5,
1999 and is payable on April 15, 1999. The fourth retention plan payment to
Ms. Azzara is subject to Bankruptcy Court approval. The entire unpaid portion
of the retention payments owed to Ms. Azzara will become immediately due and
payable upon the effective date of a plan of reorganization of the Company,
only upon receipt of Bankruptcy Court approval, or upon the termination of
Ms. Azzara other than for cause.
Ms. Azzara is entitled to severance payments in an amount equal to 24
months' base salary upon termination without cause. In addition, upon
termination following a change of control, all options to acquire shares of
the Company's common stock held by Ms. Azzara, to the extent not then
exercisable, will become immediately exercisable. The Azzara Employment
Agreement provides for indemnification of Ms. Azzara to the extent provided
for in the bylaws of the Company and/or CM Management up to and including
amounts totaling a maximum of $250,000 for all covered persons, constituting
the aggregate deductible under applicable Officer and Director insurance
policies, the application of any available portion of proceeds of applicable
Officer and Director insurance policies, up to $20 million in the aggregate
for all covered persons, and the payment of all uninsured indemnification
arising under the post-petition actions of the executive for which she is
otherwise entitled to indemnification under the bylaws of the Company and/or
CM Management.
47
<PAGE>
Mr. Drew is entitled to receive retention payments, under the Employee
Retention Plan, equal to one times his base salary semiannually over a two
year period, subject to certain conditions. The first retention plan payment
to Mr. Drew vested on April 5, 1999 and is payable on April 15, 1999. The
entire unpaid portion of the retention payments owed to Mr. Drew will become
immediately due and payable upon the effective date of a plan of
reorganization of the Company or upon the termination of Mr. Drew other than
for cause. Mr. Drew is entitled to severance payments in an amount equal to
26 weeks' base salary upon termination without cause, including a change of
control, but only if such change of control results in the successful
emergence of the Company and CM management from Chapter 11.
Pursuant to the Employee Retention Plan, options granted to each of the
Named Executive Officers after October 5, 1998 shall immediately become
exercisable upon a change of control.
EMPLOYEE STOCK OPTION PLAN
The purpose of the Employee Stock Option Plan is to enhance the long-term
profitability of the Company and shareholder value by offering incentives and
rewards to those officers and other employees of the Company and its
subsidiaries who are important to the Company's growth and success, and to
encourage such officers and employees to remain in the service of the Company
and its subsidiaries and to acquire and maintain stock ownership in the Company.
The Employee Stock Option Plan currently provides for grants of stock
options to purchase up to 2,000,000 shares of Company common stock. As of March
16, 1999, options to purchase a total of 1,824,188 common shares are outstanding
under the Employee Stock Option Plan. Options granted under the Employee Stock
Option Plan are either "nonqualified stock options" or "incentive stock
options." The exercise price for options granted under the Employee Stock Option
Plan may not be less than the fair market value of a share of common stock on
the date of grant.
Any executive officer or other employee of the Company or any subsidiary of
the Company is eligible to be granted options, subject to certain limitations.
The Compensation and Stock Option Committee is authorized to select from among
employees the individuals to whom options are to be granted and to determine the
number of common shares that will be subject to the options, whether such
options are to be incentive stock options or nonqualified stock options, and the
terms and conditions of the options consistent with the Employee Stock Option
Plan.
The Employee Stock Option Plan is administered by the Compensation and
Stock Option Committee. Currently, the Compensation and Stock Option Committee
consists of Messrs. Carlson, Dunnells, Merrick and Woods, each of whom is an
Unaffiliated Director. Except as permitted by Rule 16b-3(c)(2) under the
Exchange Act, options may not be granted under the Employee Stock Option Plan to
any member of the Compensation and Stock Option Committee during the term of his
or her membership on the Compensation and Stock Option Committee.
Pursuant to the Employee Retention Plan, options granted after October
5, 1998 shall immediately become exercisable upon a change of control.
The following table sets forth certain information concerning options
granted to the Named Executive Officers during the year ended December 31, 1998:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
% of Total Options
Common Shares Granted to
Underlying Employees Exercise Price Expiration Grant Date
Name Options Granted in Fiscal Year ($/sh) Date Present Value
----- --------------- -------------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
William B. Dockser 225,000(1) 28.99% $15.7500 16-Mar-2006 $299,363 (2)
H. William Willoughby 225,000(1) 28.99% $15.7500 16-Mar-2006 $299,363 (2)
Frederick J. Burchill (3) 25,000(1) 3.22% $15.7500 08-Feb-1999(4) $33,263 (2)
Cynthia O. Azzara 20,000(1) 2.58% $15.7500 16-Mar-2006 $26,610 (2)
Donald R. Drew 10,000(1) 1.29% $15.7500 16-Mar-2006 $13,305 (2)
</TABLE>
- ------------------
(1) These options were granted on March 16, 1998 and will vest in equal annual
installments commencing on the first anniversary of the date of grant.
(2) These values are estimated on the date of grant using the Black-Scholes
option pricing model, which produces a per option share value as of March 16,
1998, the grant date, of $1.3305 using the following principal assumptions:
expected stock price volatility of 26.6%, risk free rate of return of 4.95%,
dividend yield of 9.4% and expected life of 8 years. No adjustments have been
made for forfeitures or nontransferability. The actual value, if any, that the
executive officer will realize from these options will depend solely on the
increase in the stock price over the option price when the options are
exercised.
(3) Mr. Burchill resigned as Executive Vice President of the Company effective
February 8, 1999.
(4) Mr. Burchill has 180 days from the date of his resignation to exercise any
outstanding options held by him that were exercisable at the time of his
resignation. As of February 8, 1999, Mr. Burchill had options to acquire 79,999
shares of the Company's common stock that were fully exercisable.
48
<PAGE>
The following table provides information concerning the exercise of options
during the year ended December 31, 1998 for each of the Named Executive
Officers.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END 1998 OPTION VALUES
Number of Common Shares Value of Unexercised
Underlying Unexercised in-the-money Options
Common Shares Acquired Value Realized Options at FY-end (#) at FY-end ($)
Name On Exercise During 1998 (#) ($)(1) Exercisable / Unexercisable Exercisable / Unexercisable(2)
- ---- --------------------------- -------------- --------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
William B. Dockser 12,698 $52,125 677,302 975,000 $0 $0
H. William Willoughby 2,000 $10,710 841,905 975,000 $0 $0
Frederick J. Burchill(3) 20,000 $77,100 73,332 61,668(4) $0 $0
Cynthia O. Azzara 6,600 $27,505 33,399 40,001 $0 $0
Donald R. Drew -0- -0- 0 10,000 $0 $0
</TABLE>
- ---------
(1) The value realized on the exercise of stock options was determined by taking
the difference between the option price and the fair market value of the common
shares on the date of exercise.
(2) Options have been granted at exercise prices from $9.77 to $15.9375. The
closing price of a share of common stock was $3.50 on December 31, 1998. The
exercise price of the option shares exceeded the market value of such options at
fiscal year end and, accordingly, such options were not "in the money" as of
December 31, 1998.
(3) Mr. Burchill resigned as Executive Vice President of the Company effective
February 8, 1999.
(4) Mr. Burchill has 180 days from the date of his resignation to exercise any
outstanding options held by him that were exercisable at the time of his
resignation. As of February 8, 1998, Mr. Burchill had options to acquire 79,999
shares of the Company's common stock that were fully exercisable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of March 16, 1999 by (i) each person
known by the Company to be the beneficial owner of more than 5% of its common
stock, (ii) each director of the Company, (iii) each Named Executive Officer,
and (iv) all directors and executive officers of the Company as a group. Unless
otherwise indicated, each stockholder has sole voting and investment power with
respect to the shares beneficially owned.
49
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
of Common Shares Percentage of Common
Name Beneficially Owned Shares Outstanding
- ---- ------------------ ---------------------
<S> <C> <C>
William B. Dockser 2,561,099 (1)(2) 4.6%
H. William Willoughby 2,409,500 (1)(3) 4.3%
Garrett G. Carlson, Sr. 17,500 (4) *
G. Richard Dunnells 15,720 (8) *
Robert J. Merrick 4,000 (9) *
Robert E. Woods 1,000(10) *
Frederick J. Burchill (5) 79,999 *
Cynthia 0. Azzara 60,435(11) *
Donald R. Drew 4,934 (6) *
Gotham Partners L.P.
Gotham Partners III
Gotham International Advisors LLC(7) 4,917,900 (7) 9.2%
110 East 42nd Street 18th Floor
New York, NY 10017
All Directors and Executive
Officers as a Group (13 persons) 5,192,971 (1)(2)(3)(4)(6)(12) 8.8%
</TABLE>
- ---------------
*Less than 1%.
(1) Includes 2,767 common shares owned by C.R.I, Inc. of which Messrs. Dockser
and Willoughby are the sole shareholders.
(2) Includes 752,302 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days. Includes 104,343 common shares
held by Mr. Dockser's wife, 125,000 common shares held by the William B.
Dockser '59 Charitable Lead Annuity Trust (for which Mr. Dockser has sole
voting power) and 200,000 common shares held by the Dockser Family
Foundation (for which Mr. Dockser has sole voting power).
(3) Includes 916,905 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days. Includes 43,100 common shares
held by Mr. Willoughby's wife, 27,000 common shares held by Mr.
Willoughby's parents, 10,000 common shares held by Mr. Willoughby's son and
4,095 common shares held by Mr. Willoughby's daughter.
(4) Includes 2,000 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days. Includes 1,000 common shares
held by Mr. Carlson's wife and 14,500 common shares held by a partnership
for which Mr. Carlson is the sole general partner.
(5) Includes 79,999 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days. Mr. Burchill resigned as
Executive Vice President of the Company effective February 8, 1999.
(6) Includes 3,334 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days. Includes 1,000 common shares
held by Mr. Drew's wife.
(7) Based on a Schedule 13G filed by Gotham Partners, L.P., Gotham Partners
III, L.P. and Gotham International Advisors L.L.C., such entities
collectively hold 4,917,900 common shares, for which they hold sole voting
and investment power.
(8) Includes 2,000 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days.
(9) Includes 1,000 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days.
(10) Includes 500 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days.
(11) Includes 3,334 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days.
(12) Includes 1,842,690 shares exercisable upon exercise of presently
exercisable options or those exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company maintains its headquarters office in Rockville, Maryland.
Pursuant to an administrative services agreement with CRI which was entered
into in connection with the Merger (the "CRI Administrative Services
Agreement"), CRI is obligated to provide the Company and its subsidiaries
with certain
50
<PAGE>
administrative office, facility and other services, at cost, with respect to
certain aspects of the Company's business. The Company intends to use the
services provided under the CRI Administrative Services Agreement to the extent
such services are not performed by the Company or provided by another service
provider. The CRI Administrative Services Agreement is terminable on 30 days'
notice at any time by the Company. The Company and its subsidiaries paid charges
under the CRI Administrative Services Agreement of $352,471 for the year ended
December 31, 1998.
In June 1997, a subsidiary of the Company acquired a Holiday Inn Express
hotel in Nashville, Tennessee in a foreclosure sale from a commercial
mortgage-backed security trust. In connection with such purchase, the
subsidiary-owner of the hotel entered into a hotel management agreement
(the"Hotel Management Agreement") with Capitol Hotel Group International, Inc.
("CHGI"), a Maryland company partially owned by Messrs. Dockser and Willoughby.
The Hotel Management Agreement provides that in exchange for the hotel
management and operating duties set forth in the agreement, CHGI will receive an
annual management fee in an amount equal to four percent of the total annual
revenues of the hotel plus twenty percent of the annual net profit of the hotel.
For the year ended December 31, 1998, the Company paid a total of $ 4,691 to
CHGI pursuant to the Hotel Management Agreement. Prior to entering into the
Hotel Management Agreement, the Company received a written opinion from an
independent hotel consulting and appraisal company that the terms of the Hotel
Management Agreement were reasonable and within industry standards.
51
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
1 and 2. Financial Statements and Financial Statement Schedules
<TABLE>
<CAPTION>
Page
Description Number(s)
- ----------- --------
<S> <C>
Report of Independent Public Accountants.................................................... F-1
Consolidated Balance Sheets as of December 31,
1998 and 1997............................................................................. F-2
Consolidated Statements of Income for the
years ended December 31, 1998, 1997 and 1996.............................................. F-3
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996.......................................................... F-4
Consolidated Statements of Cash Flows for the
years ended December 31, 1998, 1997 and 1996.............................................. F-5
Notes to Consolidated Financial Statements.................................................. F-6
</TABLE>
All other financial statements and financial statement schedules have been
omitted since the required information is included in the financial statements
or the notes thereto, or is not applicable or required.
(a)3. Exhibits (listed according to the number assigned in the table in
Item 601 of Regulation S-K)
Exhibit No. 3 - Articles of Incorporation and bylaws.
a. Articles of Incorporation of CRIIMI MAE Inc. (incorporated by
reference from Exhibit 3(d) to the Quarterly Report on Form
10-Q for the quarter ended June 30, 1993).
b. Amended and Restated Bylaws of CRIIMI MAE Inc. (incorporated
by reference from Exhibit 4.2 to the S-3 filed with the
Securities and Exchange Commission June 9, 1997).
c. Amendment to the Articles of Incorporation of CRIIMI MAE Inc.
(filed herewith).
d. Agreement and Articles of Merger between CRIIMI MAE Inc. and
CRI Insured Mortgage Association, Inc. as filed with the
Office of the Secretary of the State of Delaware (incorporated
by reference from Exhibit 3(f) to the Quarterly Report on Form
10-Q for the quarter ended June 30, 1993).
e. Agreement and Articles of Merger between CRIIMI MAE Inc. and
CRI Insured Mortgage Association, Inc. as filed with the State
Department of Assessment and Taxation for the State of
Maryland (incorporated by
52
<PAGE>
reference from Exhibit 3(g) to the Quarterly Report on Form
10-Q for the quarter ended June 30, 1993).
f. Limited Partnership Agreement of CRIIMI MAE Services Limited
Partnership effective as of June 1, 1995 between CRIIMI MAE
Management, Inc. and CRIIMI MAE Services, Inc. (incorporated
by reference from Exhibit 3(n) to the Annual Report on Form
10-k for 1995).
g. First Amendment to the Limited Partnership Agreement of CRIIMI
MAE Services Limited Partnership effective as of December 31,
1995 between CRIIMI MAE Management Inc. and CRIIMI MAE
Services, Inc. (filed herewith).
h. Second Amendment to the Limited Partnership Agreement of
CRIIMI MAE Services Limited Partnership effective as of
January 2, 1997 between CRIIMI MAE Management Inc. and CRIIMI
MAE Services, Inc. (filed herewith).
i. Third Amendment to the Limited Partnership Agreement of CRIIMI
MAE Services Limited Partnership effective as of December 31,
1997 between CRIIMI MAE Management Inc. and CRIIMI MAE
Services, Inc. (filed herewith).
j. Articles Supplementary to the Articles of Incorporation of
CRIIMI MAE Inc. designating 150,000 shares of the Company's
Preferred Stock as "Series A Cumulative Convertible Preferred
Stock" (incorporated by reference from Exhibit 4.1 to the S-3
registration statement filed with the Securities and Exchange
Commission on June 26, 1996).
k. Articles Supplementary to the Articles of Incorporation of
CRIIMI MAE Inc. designating 3,000,000 shares of the Company's
Preferred Stock as "Series B Cumulative Convertible Preferred
Stock" (incorporated by reference from Exhibit 4.1 to the S-3
registration statement filed with the Securities and Exchange
Commission on August 7, 1996).
l. Articles Supplementary to the Articles of Incorporation of
CRIIMI MAE Inc., designating 300,000 shares of the Company's
Preferred Stock as "Series C Cumulative Convertible Preferred
Stock" (incorporated by reference from Exhibit 4.1 to the 8-K
filed with the Securities and Exchange Commission on September
23, 1997).
m. Articles Supplementary to the Articles of Incorporation of
CRIIMI MAE Inc. designating 300,000 shares of the Company's
Preferred Stock as "Series D Cumulative Convertible Preferred
Stock" (incorporated by reference from Exhibit 4.1 to the 8-K
filed with the Securities and Exchange Commission on August 3,
1998).
n. Articles of Merger merging CRI Acquisition, Inc., CRICO
Mortgage Company, Inc. and CRI/AIM Management, Inc. into
CRIIMI MAE Management, Inc. (incorporated by reference from
Exhibit 10(i) to the Annual Report on Form 10-K for 1995).
Exhibit No. 4 - Instruments defining the rights of security holders,
including indentures.
53
<PAGE>
a. Dividend Reinvestment and Stock Purchase Plan between CRIIMI
MAE Inc. and shareholders (incorporated by reference from the
registration statement on Form S-3A filed December 9, 1997).
b. Form of Indenture between CRIIMI MAE Financial Company and the
trustee (incorporated by reference from Exhibit 4.1 to the S-3
Registration Statement filed with the Securities and Exchange
Commission on September 12, 1995).
c. Form of Bond (incorporated by reference to Exhibit 4.2 to the
S-3 Registration Statement filed with the Securities and
Exchange Commission on September 12, 1995).
d. Seven Percent Funding Note due September 17, 2031 dated
September 22, 1995 between CRIIMI MAE Financial Company II and
the Federal Home Loan Mortgage Company (incorporated by
reference from Exhibit 4(bbb) to the Annual Report on Form
10-K for 1995).
e. Funding Note Purchase and Security Agreement dated as of
September 22, 1995 among the Federal Home Loan Mortgage
Company, CRIIMI MAE Inc. and CRIIMI MAE Financial Company II
(incorporated by reference from Exhibit 4(ccc) to the Annual
Report on Form 10-K for 1995).
f. Assignment and Agreement dated as of September 22, 1995
between CRIIMI MAE Inc. and CRIIMI MAE Financial Company II
(incorporated by reference from Exhibit 4(ddd) to the Annual
Report on Form 10-K for 1995).
g. Funding Note dated December 15, 1995 between CRIIMI MAE
Financial Company III and the Federal National Mortgage
Association (incorporated by reference from Exhibit 4(lll) to
the Annual Report on Form 10-K for 1995).
h. Assignment and agreement dated as of the 15th day of December,
1995, by and between CRIIMI MAE Inc. and CRIIMI MAE Financial
Company III (incorporated by reference from Exhibit 4(mmm) to
the Annual Report on Form 10-K for 1995).
i. Funding Note Issuance and Security Agreement dated as of
December 15, 1995 among Federal National Mortgage Association,
CRIIMI MAE Inc. and CRIIMI MAE Financial Company III
(incorporated by reference from Exhibit 4(nnn) to the Annual
Report on Form 10-K for 1995).
j. Indenture Agreement dated December 20, 1996 between CRIIMI MAE
QRS 1, Inc. and the trustee (incorporated by reference from
Exhibit 4(sss) to the Annual Report on Form 10-K for 1996).
k. Form of Bond to CRIIMI MAE Trust 1 Commercial Mortgage Bonds,
Class A-1 (incorporated by reference from Exhibit 4(ttt) to
the Annual Report on Form 10-K for 1996).
l. Form of Bond to CRIIMI MAE Trust 1 Commercial Mortgage Bonds,
Class A-2 (incorporated by reference from Exhibit 4(uuu) to
the Annual Report on Form 10-K for 1996).
54
<PAGE>
m. Form of Bond to CRIIMI MAE Trust 1 Commercial Mortgage Bonds,
Class B (incorporated by reference from Exhibit 4(vvv) to the
Annual Report on Form 10-K for 1996).
n. Form of Bond to CRIIMI MAE Trust 1 Commercial Mortgage Bonds,
Class C (incorporated by reference from Exhibit 4(www) to the
Annual Report on Form 10-K for 1996).
o. Form of Bond to CRIIMI MAE Trust 1 Commercial Mortgage Bonds,
Class D (incorporated by reference from Exhibit 4(xxx) to the
Annual Report on Form 10-K for 1996).
p. Form of Bond to CRIIMI MAE Trust 1 Commercial Mortgage Bonds,
Class E (incorporated by reference from Exhibit 4(yyy) to the
Annual Report on Form 10-K for 1996).
q. Form of Bond to CRIIMI MAE Trust 1 Commercial Mortgage Bonds,
Class F (incorporated by reference from Exhibit 4(zzz) to the
Annual Report on Form 10-K for 1996).
r. Indenture Agreement, dated as of November 19, 1997, between
the Company and State Street Bank and Trust Company
(incorporated by reference from Exhibit 4 (aaaa) to the Annual
Report on Form 10-K for 1997).
s. First Supplemental Indenture, dated as of November 21, 1997,
between the Company and State Street Bank and Trust Company
(incorporated by reference from Exhibit 4 (bbbb) to the Annual
Report on Form 10-K for 1997).
t. Prospectus dated May 29, 1998 whereby CRIIMI MAE Inc. from
time to time may offer one or more series of debt securities,
preferred shares, common shares or warrants to purchase
Preferred Shares or Common shares up to an aggregate public
offering price of up to $350,000,000 (incorporated by
reference from Form S-3 on Form 8-K filed May 29, 1998).
u. Prospectus dated July 8, 1998 whereby CRIIMI MAE Inc. offers
participation in its Dividend Reinvestment and Stock Purchase
Plan (incorporated by reference from Form S-3 filed on July 9,
1998).
Exhibit No. 10 - Material contracts.
a. Revised Form of Advisory Agreement (incorporated by reference
from Exhibit No. 10.2 to the Registration Statement).
b. Employment and Non-Competition Agreement dated April 20, 1995
between CRIIMI MAE Management, Inc. and William B. Dockser
(incorporated by reference from Exhibit 10(b) to the Annual
Report on Form 10-K for 1995).
c. Allonge to Amended and Restated Promissory Note dated as of
June 23, 1995 between C.R.I., Inc. and CRI/AIM Management,
Inc. (incorporated by reference from Exhibit 10(c) to the
Annual Report on Form 10-K for 1995).
55
<PAGE>
d. Administrative Services Agreement dated June 30, 1995 between
CRIIMI MAE Inc. and C.R.I., Inc. (incorporated by reference
from Exhibit 10(d) to the Annual Report on Form 10-K for
1995).
e. Asset Purchase Agreement dated as of June 30, 1995 among CRICO
Mortgage Company, Inc., CRIIMI MAE Services, Inc., William B.
Dockser and H. William Willoughby (incorporated by reference
from Exhibit 10(e) to the Annual Report on Form 10-K for
1995).
f. Asset Purchase Agreement dated as of June 30, 1995 among
CRI/AIM Management, Inc., CRIIMI MAE Services, Inc., William
B. Dockser and H. William Willoughby (incorporated by
reference from Exhibit 10(f) to the Annual Report on Form 10-K
for 1995).
g. The CRIIMI MAE Management, Inc. Executive Deferred
Compensation Trust Agreement dated June 30, 1995 between
CRIIMI MAE Management, Inc. and Richard J. Palmer
(incorporated by reference from Exhibit 10(g) to the Annual
Report on Form 10-K for 1995).
h. Sublease dated June 30, 1995 between C.R.I., Inc. and CRIIMI
MAE Inc. (incorporated by reference from Exhibit 10(h) to the
Annual Report on Form 10-K for 1995).
i. Reimbursement Agreement dated as of June 30, 1995 between
CRIIMI MAE Management, Inc. and C.R.I., Inc. (incorporated by
reference from Exhibit 10(j) to the Annual Report on Form 10-K
for 1995).
j. Certificate of Merger dated June 30, 1995 merging CRICO
Mortgage Company, Inc., CRI/AIM Management, Inc. and CRI
Acquisition, Inc. into CRIIMI MAE Management, Inc.
(incorporated by reference from Exhibit 10(k) to the Annual
Report on Form 10-K for 1995).
k. Asset Purchase Agreement dated as of June 30, 1995 among
C.R.I., Inc., CRI Acquisition, Inc. and William B. Dockser and
H. William Willoughby (incorporated by reference from Exhibit
10(l) to the Annual Report on Form 10-K for 1995).
l. Employment and Non-Competition Agreement dated June 30, 1995
between CRIIMI MAE Management, Inc. and Frederick J. Burchill
(incorporated by reference from Exhibit 10(n) to the Annual
Report on Form 10-K for 1995).
m. Employment and Non-Competition Agreement dated June 30, 1995
between CRIIMI MAE Management, Inc. and H. William Willoughby
(incorporated by reference from Exhibit 10(q) to the Annual
Report on Form 10-K for 1995).
n. Employee Stock Option Agreements and Stock Option Plan for Key
Employees (incorporated by reference from Exhibit 4(c) to the
S-8 Registration Statement filed with the Securities and
Exchange Commission on June 20, 1997).
o. 1996 Non-Employee Director Stock Option Plan (incorporated by
reference from Exhibit 4 to the S-8 Registration Statement
filed with the Securities and Exchange Commission on June 13,
1996).
56
<PAGE>
p. Employment and Non-Competition Agreement dated as of July 1,
1998 between CRIIMI MAE Management, Inc. and Cynthia O.
Azzara (filed herewith).
q. First Amendment to the Employment and Non-Competition
Agreement dated as of October 5, 1998 by and among CRIIMI MAE
Management, Inc. and Cynthia O. Azzara and CRIIMI MAE Inc.
(filed herewith).
r. Employment and Non-Competition Agreement dated as of October
7, 1998 between CRIIMI MAE Management, Inc. and David B.
Iannarone (filed herewith).
s. First Amendment to the Employment and Non-Competition
Agreement, dated as of October 7, 1998, by and among CRIIMI
MAE Management, Inc., David B. Iannarone and CRIIMI MAE Inc.
(filed herewith).
t. First Amendment to Employment and Non-Competition Agreement,
dated as of October 5, 1998, by and among CRIIMI MAE
Management, Inc., William B. Dockser and CRIIMI MAE Inc.
(filed herewith).
u. First Amendment to Employment and Non-Competition Agreement,
dated as of October 5, 1998, by and among CRIIMI MAE
Management, Inc., H. William Willoughby and CRIIMI MAE Inc.
(filed herewith).
v. Master Loan and Security Agreement dated as of March 31, 1998
between CRIIMI MAE Inc. and German American Capital Company
(incorporated by reference from Exhibit 10(a) to the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998).
w. Master Assignment Agreement dated as of November 25, 1997
between CRIIMI MAE Inc. and Lehman Commercial paper, Inc.
(incorporated by reference from Exhibit 10(b) to the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998).
x. Whole Loan Origination Facility Agreement between Prudential
Securities Credit Corp., and CRIIMI MAE Inc., dated as of June
1, 1998 (incorporated by reference from Exhibit 10 to the
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
y. Underwriting Agreement dated January 22, 1998 between CRIIMI
MAE Inc. and Prudential Securities Incorporated (incorporated
by reference from Exhibit 1.0 to the 8-K filed with the
Securities and Exchange Commission on January 23, 1998).
z. Underwriting Agreement dated March 19, 1998 between CRIIMI MAE
Inc. and Prudential Securities Incorporated and Friedman,
Billings, Ramsey & Co., Inc. (incorporated by reference from
Exhibit 1.0 to the 8-K filed with the Securities and Exchange
Commission on March 20, 1998).
aa. Amended and Restated Mortgage Loan Origination and Disposition
Program Agreement made as of May 1, 1998 between Citicorp Real
Estate, Inc. and CRIIMI MAE Inc. (filed herewith).
bb. Articles of Incorporation of CRIIMI MAE Management, Inc.
(incorporated by reference from Exhibit 3(h) to the Annual
Report on Form 10-K for 1995).
57
<PAGE>
cc. Bylaws of CRIIMI MAE Management, Inc. (incorporated by
reference from Exhibit 3(i) to the Annual Report on Form 10-K
for 1995).
dd. Articles of Incorporation of CRIIMI MAE Services, Inc. as a
Maryland Close Company (incorporated by reference from Exhibit
3(j) to the Annual Report on Form 10-K for 1995).
ee. Bylaws of CRIIMI MAE Services, Inc. (incorporated by reference
from Exhibit 3(k) to the Annual Report on Form 10-K for 1995).
ff. Articles of Incorporation of CRIIMI MAE Financial Company
(incorporated by reference from Exhibit 3.1 to the Form S-3
Registration Statement filed with the Securities and Exchange
Commission on September 12, 1995).
gg. By-laws of CRIIMI MAE Financial Company (incorporated by
reference from Exhibit 3.2 to the Form S-3 Registration
Statement filed with the Securities and Exchange Commission on
September 12, 1995).
hh. Articles of Incorporation of CRIIMI MAE Financial Company II
(incorporated by reference from Exhibit 3(q) to the Annual
Report on Form 10-K for 1995).
ii. Bylaws of CRIIMI MAE Financial Company II (incorporated by
reference from Exhibit 3(r) to the Annual Report on Form 10-K
for 1995).
jj. Articles of Incorporation of CRIIMI MAE Financial Company III
(incorporated by reference from Exhibit 3(s) to the Annual
Report on Form 10-K for 1995).
kk. Bylaws of CRIIMI MAE Financial Company III (incorporated by
reference from Exhibit 3(t) to the Annual Report on Form 10-K
for 1995).
ll. Certificate of Incorporation of CRIIMI MAE QRS 1, Inc.
(incorporated by reference from Exhibit 3(p) to the Annual
Report on Form 10-K for 1996.)
mm. Bylaws of CRIIMI MAE QRS 1, Inc. (incorporated by reference
from Exhibit 3(q) to the Annual Report on Form 10-K for 1996).
nn. Certificate of Incorporation of CRIIMI MAE Holdings, Inc.
(incorporated by reference from Exhibit 3(r) to the Annual
Report on Form 10-K for 1996).
oo. Bylaws of CRIIMI MAE Holdings, Inc. (incorporated by reference
from Exhibit 3(s) to the Annual Report on Form 10-K for 1996).
pp. Certificate of Limited Partnership of CRIIMI MAE Holdings,
L.P. (incorporated by reference from Exhibit 3(t) to the
Annual Report on Form 10-K for 1996).
qq. Limited Partnership Agreement of CRIIMI MAE Holdings, L.P.
effective as of December 17, 1996 between CRIIMI MAE Inc.,
CRIIMI MAE Services Limited Partnership and CRIIMI MAE
Holdings, Inc. (incorporated by reference from Exhibit 3(u) to
the Annual Report on Form 10-K for 1996).
rr. First Amendment to Preferred Stock Purchase Agreement for
Series C Preferred Stock dated May 9, 1997 (incorporated by
reference from Exhibit
58
<PAGE>
10.2 to the Form 8-K filed with the Securities and Exchange
Commission on September 23, 1997).
ss. Second Amendment to Preferred Stock Purchase Agreement for
Series C Preferred Stock dated February 18, 1998 (incorporated
by reference from Exhibit 4.1 to the Form 8-K filed with the
Securities and Exchange Commission on February 20, 1998).
tt. Preferred Stock Purchase Agreement for Series D Preferred
Stock dated July 22, 1998 (incorporated by reference from
Exhibit 10.1 to the Form 8-K filed with the Securities and
Exchange Commission on August 3, 1998).
uu. Certificate of Limited Partnership of CRIIMI MAE Holdings II,
L.P. (filed herewith).
vv. Limited Partnership Agreement of CRIIMI MAE Holdings II, L.P.
effective as of June 4, 1998 between CRIIMI MAE Inc. and
CRIIMI MAE Services Limited Partnership (filed herewith).
ww. Installment Note dated June 30, 1995 between CRIIMI MAE
Services, Inc. and CRI/AIM Management, Inc. (incorporated by
reference from Exhibit 4(oo) to the Annual Report on Form 10-K
for 1995).
xx. Installment Note dated June 30, 1995 between CRIIMI MAE
Services, Inc. and CRICO Mortgage Company, Inc. (incorporated
by reference from Exhibit 4(pp) to the Annual Report on Form
10-K for 1995).
yy. $9,100,000 Credit Agreement dated as of June 30, 1995 between
CRIIMI MAE Management, Inc. and Signet Bank/Virginia
(incorporated by reference from Exhibit 4(qq) to the Annual
Report on Form 10-K for 1995).
zz. Loan Note dated June 30, 1995 between CRIIMI MAE Management,
Inc. and Signet Bank/Virginia (incorporated by reference from
Exhibit 4(rr) to the Annual Report on Form 10-K for 1995).
aaa. Modification of Interest Rate dated August 22, 1995 for the
Credit Agreement Dated as of June 30, 1995 between CRIIMI MAE
Management, Inc. and Signet Bank/Virginia (incorporated by
reference from Exhibit 4(ss) to the Annual Report on Form 10-K
for 1995).
bbb. Guaranty dated June 30, 1995 entered into by CRIIMI MAE Inc.
in favor of and for the benefit of Signet Bank/Virginia
(incorporated by reference from Exhibit 4(tt) to the Annual
Report on Form 10-K for 1995).
ccc. First Amendment to Guaranty dated September 21, 1995 entered
into by CRIIMI MAE Inc., in favor of and for the benefit of
Signet Bank/ Virginia (incorporated by reference from Exhibit
4(yy) to the Annual Report on Form 10-K for 1995).
ddd. Second Amendment to Guaranty dated September 21, 1995 entered
into by CRIIMI MAE Inc., in favor of and for the benefit of
Signet Bank/ Virginia (incorporated by reference from Exhibit
4(zz) to the Annual Report on Form 10-K for 1995).
59
<PAGE>
eee. Option agreement between CRIIMI MAE Inc. and William B.
Dockser (incorporated by reference from Exhibit No. 4(a) to
the registration statement on Form S-8 filed January 16,
1996).
fff. Option agreement between CRIIMI MAE Inc. and H. William
Willoughby (incorporated by reference from Exhibit No. 4(b) to
the registration statement on Form S-8 filed January 16,
1996).
ggg. Form of Option Agreement for Cynthia O. Azzara, Frederick J.
Burchill, Jay R. Cohen and Deborah A. Linn (incorporated by
reference from Exhibit No. 4(d) to the registration statement
on Form S-8 filed January 16, 1996).
hhh. Form of Option Agreement for other key employees (incorporated
by reference from Exhibit No. 4(e) to the registration
statement on Form S-8 filed January 16, 1996).
iii. Master Assignment Agreement dated September 25, 1997 between
CRIIMI MAE Inc. and Merrill Lynch Mortgage Capital Inc.
(incorporated by reference from Exhibit 4 (eeee) to the Annual
Report on Form 10-K for 1997).
Exhibit No. 21 - Subsidiaries of the registrant.
a. CRIIMI, Inc., incorporated in the State of Maryland.
b. CRIIMI MAE Financial Company, incorporated in the State of
Maryland.
c. CRIIMI MAE Financial Company II, incorporated in the State of
Maryland.
d. CRIIMI MAE Financial Company III, incorporated in the State of
Maryland.
e. CRIIMI MAE Management, Inc., incorporated in the State of
Maryland.
f. CRIIMI MAE QRS 1, Inc., incorporated in the State of Delaware.
g. CRIIMI MAE Holdings, Inc., incorporated in the State of
Delaware.
h. CRIIMI MAE Holdings L.P. formed in the State of Delaware.
i. CRIIMI MAE Services Limited Partnership formed in the State of
Maryland.
j. CRIIMI MAE Services Inc. incorporated in the State of
Maryland.
k. CRIIMI MAE Holdings L.P. II formed in the State of Delaware.
l. CRIIMI MAE CMBS Company incorporated in the State of Delaware.
Exhibit No. 27 - Financial Data Schedule
a. Financial Data Schedule (filed herewith).
Exhibit No. 99 - Additional Exhibits
a. United States Bankruptcy Court Voluntary Petition #9823115
filed on October 5, 1998 for CRIIMI MAE Inc. (incorporated by
reference from
60
<PAGE>
Exhibit 99(a) to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
b. United States Bankruptcy Court Voluntary Petition #9823116
filed on October 5, 1998 for CRIIMI MAE Management, Inc.
(incorporated by reference from Exhibit 99(b) to the Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998).
c. United States Bankruptcy Court Voluntary Petition #9823117
filed on October 5, 1998 for Holdings II, L.P. (incorporated
by reference from Exhibit 99(c) to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998).
d. Motion for an Order Extending the Debtor's Exclusive Periods
to File a Plan of Reorganization and Solicit Acceptances
Thereof Pursuant to 11 U.S.C. Sec. 1121(d) filed on
January 28, 1999 (filed herewith).
e. Stipulation and Consent Order regarding Motion and Adversary
Proceeding (Merrill Lynch) entered December 4, 1998 (filed
herewith).
f. Supplement to Stipulation and Consent Order Regarding Motion
and Adversary Proceeding (Merrill Lynch) entered January 6,
1999 (filed herewith).
g. Stipulation and Agreed Order Authorizing Use of Cash
Collateral (German American Capital Corporation) entered
February 2, 1999 (filed herewith).
h. Stipulation and Consent Order Regarding Adversary Proceeding
(Morgan Stanley and Co. International Limited) entered on
January 26, 1999 (filed herewith).
i. Stipulation and Order Regarding Proceeds Received by the
Debtor from the Sale of the BBB Bonds (Morgan Stanley and Co.
International Limited) entered on January 26, 1999 (filed
herewith).
j. Order Upon Motions for Reconsideration of Order Extending
Debtors' Exclusive Periods entered on February 24, 1999 (filed
herewith).
k. Stipulation and Consent Order Regarding Sale of Certain Triple
B Bonds (Citicorp) entered on April 5, 1999 (filed herewith).
l. Supplemental Stipulation and Consent Order Regarding Sale of
Certain Triple B Bonds (Citicorp) entered on April 5, 1999
(filed herewith).
m. Stipulation and Order Regarding Proceeds Received by the
Debtor from the Sale of Certain Triple B Bonds (Citicorp)
entered on April 5, 1999 (filed herewith).
n. Stipulation and Consent Order Regarding Mortgage Loan
Origination Agreement with Citicorp Real Estate Inc. entered
on April 5, 1999 (filed herewith).
o. Supplemental Stipulation and Consent Order Regarding Mortgage
Loan Origination Agreement with Citicorp Real Estate, Inc.
entered on April 5, 1999 (filed herewith).
61
<PAGE>
p. Stipulation and Order Regarding Proceeds Received by the
Debtor from Mortgage Loan Sale entered on April 5, 1999 (filed
herewith).
(b) Reports on Form 8-K
Date Purpose
----- -------
October 5, 1998 On October 5, 1998, a voluntary petition of
reorganization was filed by CRIIMI MAE Inc.,
under chapter 11 of the federal Bankruptcy
Code, as amended. The petition was filed in
the United States Bankruptcy Court for the
District of Maryland (Case No. 9823115).
November 19, 1998 The registrant issued press releases on
October 21, 1998, October 22, 1998, November
5, 1998 and November 18, 1998.
December 7, 1998 The registrant issued a press release on
December 7, 1998.
(c) Exhibits
The list of Exhibits required by Item 601 of Regulation S-K is
included in Item (a)(3) above.
(d) Financial Statement Schedules
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CRIIMI MAE INC.
APRIL 12, 1999 /S/ WILLIAM B. DOCKSER
- ---------------- --------------------------------------
DATE William B. Dockser
Chairman of the Board and
Principal Executive Officer
63
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
APRIL 12, 1999 /S/ WILLIAM B. DOCKSER
- ---------------- --------------------------------------
DATE William B. Dockser
Chairman of the Board and
Principal Executive Officer
APRIL 12, 1999 /S/ H. WILLIAM WILLOUGHBY
- ---------------- --------------------------------------
DATE H. William Willoughby
Director, President and
Secretary
APRIL 12, 1999 /S/ CYNTHIA O. AZZARA
- ---------------- --------------------------------------
DATE Cynthia O. Azzara
Senior Vice President, Chief
Financial Officer and Principal
Accounting Officer
APRIL 12, 1999 /S/ GARRETT G. CARLSON, SR.
- ---------------- --------------------------------------
DATE Garrett G. Carlson, Sr.
Director
APRIL 12, 1999 /S/ G. RICHARD DUNNELLS
- ---------------- --------------------------------------
DATE G. Richard Dunnells
Director
APRIL 12, 1999 /S/ ROBERT MERRICK
- ---------------- --------------------------------------
DATE Robert Merrick
Director
APRIL 12, 1999 /S/ ROBERT E. WOODS
- ---------------- --------------------------------------
DATE Robert E. Woods
Director
64
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of CRIIMI MAE Inc.
We have audited the accompanying consolidated balance sheets of CRIIMI
MAE Inc. (CRIIMI MAE) and its subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income and comprehensive income, changes
in shareholders' equity and cash flows for the years ended December 31, 1998,
1997 and 1996. These financial statements are the responsibility of CRIIMI MAE's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CRIIMI
MAE and its subsidiaries as of December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1998, 1997 and 1996, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
CRIIMI MAE will continue as a going concern. As discussed in Note 1 to the
financial statements, on October 5, 1998, CRIIMI MAE filed for relief under
Chapter 11 of the U.S. Bankruptcy Code which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to this
matter are also described in Note 1. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
CRIIMI MAE be unable to continue as a going concern.
Arthur Andersen LLP
Washington, D.C.
April 12, 1999
F-1
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Assets:
Mortgage Assets:
Subordinated CMBS, at fair value $ 1,274,185,678 $ 35,424,387
Subordinated CMBS, at amortized cost -- 1,079,055,459
Insured Mortgage Securities, at fair value 488,095,221 18,888,883
Insured Mortgage Securities, at amortized cost -- 586,224,858
Investment in originated loans, at
amortized cost 499,076,030 --
Equity Investments 42,868,469 46,234,269
Receivables 46,992,337 17,789,273
Other assets 62,520,146 87,579,565
Cash and cash equivalents 24,180,072 2,108,794
--------------- ---------------
Total assets $ 2,437,917,953 $ 1,873,305,488
--------------- ---------------
--------------- ---------------
Liabilities:
LIABILITIES NOT SUBJECT TO CHAPTER 11 PROCEEDINGS:
SECURITIZED MORTGAGE OBLIGATIONS:
Collateralized bond obligations-CMBS $ 117,831,435 $ 137,061,676
Collateralized mortgage obligations -
insured mortgage securities 456,101,720 559,363,321
Collateralized mortgage obligations -
originated loans 386,752,951 --
Payables and accrued expenses 17,124,124 12,460,018
LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS:
SECURED:
Variable rate secured borrowings-CMBS 932,236,674 585,379,360
Other financing facilities 3,050,000 3,250,000
UNSECURED:
Senior unsecured notes 100,000,000 99,877,695
Other financing facilities 89,749,522 30,000,000
Payables and accrued expenses 27,194,622 --
--------------- ---------------
Total liabilities 2,130,041,048 1,427,392,070
--------------- ---------------
Minority interests in
consolidated subsidiaries -- 932,431
--------------- ---------------
Shareholders' equity:
Convertible preferred stock, $ .01 par; 25,000,000 shares authorized;
1,816,982 and 1,829,376 shares issued and outstanding, respectively 18,170 18,294
Common stock, $ .01 par; 120,000,000 and 60,000,000 shares
authorized; 52,898,100 and 40,131,551 shares issued and
outstanding, respectively 528,981 406,703
Accumulated Other Comprehensive Income (251,255,309) 1,082,811
Additional paid-in capital 558,585,063 448,524,552
--------------- ---------------
307,876,905 450,032,360
Less treasury shares, at cost-
538,635 shares as of December 31, 1997 -- (5,051,373)
--------------- ---------------
Total shareholders' equity 307,876,905 444,980,987
--------------- ---------------
Total liabilities and shareholders'
equity $ 2,437,917,953 $ 1,873,305,488
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Interest Income:
Subordinated CMBS $ 143,656,307 $ 79,669,816 $ 41,713,126
Insured Mortgage Securities 43,062,743 49,425,401 56,911,670
Originated Loans 20,588,112 -- --
------------- ------------- -------------
Total interest income 207,307,162 129,095,217 98,624,796
------------- ------------- -------------
Interest and related expenses:
Fixed-rate collateralized bond obligations-CMBS 8,945,570 11,351,890 331,826
Fixed-rate collateralized mortgage obligations-insured 39,503,033 42,795,773 46,708,352
Fixed-rate collateralized mortgage obligations-originated loans 14,772,782 -- --
Fixed-rate senior unsecured notes 9,689,621 1,065,843 --
Variable-rate secured borrowings-CMBS 59,628,760 21,958,309 15,002,157
Other financing facilities 3,728,665 747,599 1,036,432
------------- ------------- -------------
Total interest expense 136,268,431 77,919,414 63,078,767
------------- ------------- -------------
Net interest margin 71,038,731 51,175,803 35,546,029
------------- ------------- -------------
Gain on sale of CMBS 28,800,408 -- --
Equity in earnings from investments 2,617,728 3,612,230 4,431,977
Other income 4,278,878 2,609,354 2,898,646
Gain on mortgage security dispositions 1,196,499 17,343,481 9,601,360
General and administrative expenses (14,623,407) (9,610,579) (7,969,943)
Amortization of assets acquired in the Merger (2,877,576) (2,877,564) (2,881,824)
Realized loss on reverse repurchase obligation (4,503,177) -- --
Unrealized losses on warehouse obligations (30,378,173) -- --
Write-off of capitalized loan origination costs (3,284,037) -- --
Reorganization Items (9,856,947) -- --
------------- ------------- -------------
(28,629,804) 11,076,922 6,080,216
Minority interest in net income of consolidated subsidiary (40,334) (8,065,109) (6,386,388)
Net Income before dividends paid or accrued on preferred shares 42,368,593 54,187,616 35,239,857
Dividends paid or accrued on preferred shares (6,997,859) (6,472,540) (3,526,451)
------------- ------------- -------------
Net income available to common shareholders $ 35,370,734 $ 47,715,076 $ 31,713,406
------------- ------------- -------------
------------- ------------- -------------
Net income available to common shareholders per common share:
Basic $ 0.75 $ 1.29 $ 1.03
------------- ------------- -------------
------------- ------------- -------------
Diluted $ 0.74 $ 1.25 $ 1.03
------------- ------------- -------------
------------- ------------- -------------
Shares used in computing basic earnings
per share, exclusive of shares held in treasury 47,280,371 36,993,130 30,665,052
------------- ------------- -------------
------------- ------------- -------------
Comprehensive Income
Net Income before Dividends paid or accrued on preferred shares 42,368,593 54,187,616 35,239,856
Other Comprehensive Income (252,338,120) (7,833,417) (7,222,421)
------------- ------------- -------------
Comprehensive Income $(209,969,527) $ 46,354,199 $ 28,017,435
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
Accumulated
Preferred Common Stock Other Additional
Stock Par Par Comprehensive Paid-in
Value Value Income Capital
--------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ -- $ 309,356 $ 16,138,649 $ 274,226,356
Net income -- -- -- --
Dividends paid or accrued on
preferred shares -- -- -- --
Dividends of $1.03 per weighted
average share -- -- -- --
Return of capital of $0.19 per
weighted average share -- -- -- (5,842,422)
Conversion of preferred shares
into common shares (750) 7,446 -- (6,696)
Stock options exercised -- 2,306 -- 2,251,559
Adjustment to unrealized losses
on investments -- -- (7,222,421) --
Shares issued 25,650 20 -- 71,833,583
Shares forfeited -- -- -- --
--------- ---------- ------------- -------------
Balance, December 31, 1996 24,900 319,128 8,916,228 342,462,380
Net Income -- -- -- --
Dividends paid or accrued on
preferred shares -- -- -- --
Dividends of $1.29 per weighted
average common share -- -- -- --
Return of capital of $0.13 per
weighted average share -- -- -- (5,320,553)
Conversion of preferred shares into
common shares (8,106) 22,402 -- (14,296)
Stock options exercised -- 738 -- 623,393
Adjustment to unrealized gains on
investments -- -- 994,083 --
Adjustment to unrealized losses on
Investments (8,827,500)
Shares issued 1,500 64,435 -- 110,773,628
--------- ---------- ------------- -------------
Balance, December 31, 1997 18,294 406,703 1,082,811 448,524,552
Net income -- -- -- --
Dividends paid or accrued on
preferred shares -- -- -- --
Dividends of $0.75 per weighted
average common share -- -- -- --
Return of capital of $0.42 per
weighted average share -- -- -- (19,582,467)
Conversion of preferred shares
into common shares (2,624) 49,464 -- (46,840)
Stock options exercised -- 897 -- 827,176
Adjustment to unrealized gains
on investments -- -- 4,016,052 --
Adjustment to unrealized losses
on investments -- -- (256,354,172) --
Shares issued 2,500 77,345 -- 133,908,587
Treasury shares retired -- (5,428) -- (5,045,945)
--------- ---------- ------------- -------------
Balance, December 31, 1998 $ 18,170 $ 528,981 $(251,255,309) $ 558,585,063
--------- ---------- ------------- -------------
--------- ---------- ------------- -------------
<CAPTION>
Total
Undistributed Treasury Shareholders'
Net Income Stock Equity
------------- ------------- -------------
<S> <C> <C> <C>
Balance, December 31, 1995 $ (4,970,418) $ 285,703,943
Net income 35,239,857 -- 35,239,857
Dividends paid on preferred shares (3,526,451) -- (3,526,451)
Dividends of $1.03 per weighted
average share (31,713,406) -- (31,713,406)
Return of capital of $0.19 per
weighted average share -- -- (5,842,422)
Conversion of preferred shares
into common shares -- -- --
Stock options exercised -- -- 2,253,865
Adjustment to unrealized losses
on investments -- -- (7,222,421)
Shares issued -- -- 71,859,253
Shares forfeited -- (80,955) (80,955)
------------- ------------- -------------
Balance, December 31, 1996 -- (5,051,373) 346,671,263
Net Income 54,187,616 -- 54,187,616
Dividends paid on preferred shares (6,472,540) -- (6,472,540)
Dividends of $1.29 per weighted
average common share (47,715,076) -- (47,715,076)
Return of capital of $0.13 per
weighted average share -- -- (5,320,553)
Conversion of preferred shares into
common shares -- -- --
Stock options exercised -- -- 624,131
Adjustment to unrealized gains on
investments -- -- 994,083
Adjustment to unrealized losses on
Investments (8,827,500)
Shares issued -- 110,839,563
------------- ------------- -------------
Balance, December 31, 1997 -- (5,051,373) 444,980,987
Net income 42,368,593 -- 42,368,593
Dividends paid or accrued on
preferred shares (6,997,859) -- (6,997,859)
Dividends of $0.75 per weighted
average common share (35,370,734) -- (35,370,734)
Return of capital of $0.42 per
weighted average share -- -- (19,582,467)
Conversion of preferred shares
into common shares -- -- --
Stock options exercised -- -- 828,073
Adjustment to unrealized gains
on investments -- -- 4,016,052
Adjustment to unrealized losses
on investments -- -- (256,354,172)
Shares issued -- 133,988,432
Treasury shares retired -- 5,051,373 --
------------- ------------- -------------
Balance, December 31, 1998 $ -- $ -- $ 307,876,905
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 42,368,593 $ 54,187,616 $ 35,239,857
Adjustments to reconcile net income to net cash
provided by operating activities:
Cash gain on sale of CMBS (28,800,408) -- --
Amortization of discount and deferred financing
costs on debt 6,503,100 3,893,343 2,811,444
Amortization of assets acquired in the Merger 2,877,576 2,877,564 2,881,824
Depreciation and other amortization 2,030,183 920,058 914,671
Premium/(Discount) amortization on mortgage assets 424,293 (451,758) (880,349)
Net gains on mortgage dispositions (1,196,499) (17,343,481) (9,601,360)
Equity in earnings from investments 2,282,382 (3,426,545) (4,471,575)
Valuation adjustment to hedges -- 28,250 178,750
Reorganization items accrual 9,856,947 -- --
Minority interests in earnings of consolidated subsidiary 40,334 8,065,109 6,386,388
Realized loss on reverse repurchase obligation 4,503,177 -- --
Unrealized losses on warehouse obligations 30,378,173 -- --
Write-off of capitalized origination costs 3,284,037 -- --
Changes in assets and liabilities:
Increase in receivables and other assets (35,015,988) (5,772,930) (1,426,598)
Increase in payables and accrued expenses 16,793,946 1,162,165 1,368,927
--------------- --------------- ---------------
Net cash provided by operating activities 56,329,846 44,139,391 33,401,979
--------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from sale of collateralized bond obligation 334,919,531 -- --
Proceeds from mortgage securities dispositions 117,414,346 83,492,408 109,055,010
Purchase of originated loans (495,825,576) -- --
Purchase of Subordinated CMBS (852,560,342) (553,913,225) (285,419,093)
Return of loan origination reserve from securitization 71,877,560 -- --
Funding of loan origination reserve (75,433,979) (29,514,700) (609,560)
Payment of deferred costs (8,959,628) (840,747) (102,696)
Distributions received from equity investments 3,114,000 4,463,485 7,303,081
Receipt of principal payments 14,338,531 10,368,624 5,955,067
Servicing rights acquired and contributed to CMSLP (3,880,235) (12,692,597) (1,549,017)
Collateral calls on reverse repurchase obligation (4,766,916) -- --
Purchase of Real Estate Owned Property -- (4,146,652) --
Purchase of mortgages and advances on construction loans -- (285,430) (968,689)
Other investing activities -- -- 253,292
--------------- --------------- ---------------
Net cash used in investing activities (899,762,708) (503,068,834) (166,082,605)
--------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from sale of CMO bonds 390,068,687 -- --
Proceeds from debt issuances 1,998,430,321 666,636,095 534,166,951
Principal payments on debt obligations (1,591,337,145) (235,394,131) (407,793,958)
Increase in deferred financing costs (5,975,059) (6,133,915) (5,226,281)
Dividends (including return of capital) paid to
shareholders, including minority interests (60,499,169) (86,499,860) (68,190,257)
Proceeds from issuance of convertible preferred stock 25,000,000 15,000,000 71,859,253
Proceeds from the issuance of common stock 109,816,505 96,463,694 2,253,865
--------------- --------------- ---------------
Net cash provided by financing activities 865,504,140 450,071,883 127,069,573
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 22,071,278 (8,857,560) (5,611,053)
Cash and cash equivalents, beginning of year 2,108,794 10,966,354 16,577,407
--------------- --------------- ---------------
Cash and cash equivalents, end of year $ 24,180,072 $ 2,108,794 $ 10,966,354
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
GENERAL
CRIIMI MAE Inc. (together with its consolidated subsidiaries, unless
the context otherwise indicates, "CRIIMI MAE" or the "Company") is a fully
integrated commercial mortgage company structured as a self-administered real
estate investment trust ("REIT"). On October 5, 1998 (the "Petition Date"),
CRIIMI MAE (unconsolidated) and two of its consolidated operating
subsidiaries, CRIIMI MAE Management, Inc. ("CM Management"), and CRIIMI MAE
Holdings II, L.P. ("Holdings II" and, together with CRIIMI MAE and CM
Management, the "Debtors") filed for relief under Chapter 11 of the U.S.
Bankruptcy Code in the United States Bankruptcy Court for the District of
Maryland, Southern Division in Greenbelt, Maryland (the "Bankruptcy Court").
These related cases are being jointly administered under the caption "In re
CRIIMI MAE Inc., et al.," Ch. 11 Case No. 98-2-3115-DK.
Prior to the Petition Date, CRIIMI MAE's primary activities included
(i) acquiring non-investment grade securities (rated below BBB- or unrated)
backed by pools of mortgage loans on multifamily, retail and other commercial
real estate ("Subordinated CMBS"), (ii) originating and underwriting
commercial mortgage loans, (iii) securitizing pools of commercial mortgage
loans and resecuritizing pools of Subordinated CMBS, and (iv) through the
Company's servicing affiliate, CRIIMI MAE Services Limited Partnership
("CMSLP"), performing servicing functions with respect to the mortgage loans
underlying the Company's Subordinated CMBS. Since filing for Chapter 11
protection, CRIIMI MAE has suspended its Subordinated CMBS acquisition,
origination and securitization programs. The Company continues to hold a
substantial portfolio of Subordinated CMBS, originated loans and mortgage
securities and, through CMSLP, acts as a servicer for its own as well as
third party securitized mortgage loan pools.
The Company's business is subject to a number of risks and
uncertainties including, but not limited to: (1) the effect of the Chapter 11
filing and substantial doubt as to the Company's ability to continue as a going
concern; (2) risk of loss of REIT status; (3) Taxable Mortgage Pool risk; (4)
substantial leverage; (5) inherent risks in owning Subordinated CMBS; (6) the
limited protection provided by hedging transactions; (7) risk of foreclosure
on CMBS assets; (8) limited liquidity of the CMBS market; (9) pending
litigation; (10) risk of being considered an investment company; (11)
possible effects of an economic recession on losses and defaults; (12)
information technology risks associated with the Year 2000.
In addition to the two operating subsidiaries which filed for Chapter
11 protection with the Company, the Company owns 100% of multiple financing and
operating subsidiaries as well as various interests in other entities (including
CMSLP) which either own or service mortgage and mortgage-related assets (the
"Non-Debtor Affiliates"). See Note 3. None of the Non-Debtor Affiliates has
filed for bankruptcy protection.
The Company is working diligently toward the preparation of a plan of
reorganization. The Bankruptcy Court has entered an order extending the
Company's exclusive right to file a plan of reorganization through May 11,
1999 and has set a hearing on such date with respect to the extension of the
exclusivity periods through August 2, 1999 for filing a plan of
reorganization and through October 3, 1999 for soliciting acceptances
thereof. A number of parties have indicated potential opposition to any such
extension. Management expects to file a plan of reorganization during the
summer of 1999, which would contemplate the Company's emergence from
bankruptcy later in 1999. There can be no assurance at this time, however,
that a plan of reorganization will be proposed by the Company during such
time or that such plan will be confirmed and consummated.
While in bankruptcy, the Company has been streamlining its operations in
an effort to reduce operating expenses. The Company significantly reduced the
number of employees in its originations and underwriting operations in
October 1998, but has retained key employees in each of these operational
areas. In connection with these reductions, the Company closed its five
regional loan origination and underwriting offices, retaining only a core
presence in Rockville, Boston, Houston, Chicago and San Francisco.
Although the Company has significantly reduced its work force, the
Company recognizes that retention of its executive management and other
remaining employees is essential to the efficient operation of its business
and to its reorganization efforts. Accordingly, the Company has, with
Bankruptcy Court approval, adopted an employee retention plan. See Note 15.
The Company was incorporated in Delaware in 1989 under the name CRI
Insured Mortgage Association, Inc. ("CRI Insured"). In July 1993, CRI Insured
changed its name to CRIIMI MAE Inc. and reincorporated in Maryland. In June
1995, certain mortgage businesses affiliated with C.R.I., Inc. were merged into
CRIIMI MAE (the "Merger"). The Company is not a government sponsored entity or
in any way affiliated with the United States government or any United States
government agency.
EFFECT OF CHAPTER 11 FILING ON REIT STATUS AND OTHER TAX MATTERS
REIT STATUS. CRIIMI MAE is required to meet income, asset, ownership
and distribution tests to maintain its REIT status. The Company has satisfied
the REIT requirements for all years through, and including, 1998. However, due
to the uncertainty resulting from its Chapter 11 filing, there can be no
assurance that CRIIMI MAE will retain its REIT status for 1999 or subsequent
years. If the Company fails to retain its REIT status for any taxable year, it
will be taxed as a regular domestic corporation subject to federal and state
income tax in the year of disqualification and for at least the four subsequent
years.
THE COMPANY'S 1998 TAXABLE INCOME. In determining its federal income
tax liability, CRIIMI MAE, as a result of its REIT status, is entitled to deduct
from its taxable income dividends paid to its shareholders. Accordingly, to the
extent the Company distributes its net income to shareholders, it effectively
reduces taxable
F-6
<PAGE>
income, on a dollar-for-dollar basis, and eliminates the "double taxation"
that normally occurs when a corporation earns income and distributes that
income to shareholders in the form of dividends. The Company, however, still
must pay corporate level tax on any 1998 taxable income not distributed to
shareholders by December 31, 1999. For 1998, the Company could have up to
approximately $18 million in undistributed taxable income, resulting in a
potential tax liability of up to $7 million for state and federal taxes.
Notwithstanding this significant amount of undistributed taxable income,
CRIIMI MAE has fully complied with the requirement for 1998 that it
distribute at least 95% of its "REIT taxable income" for the year in order to
maintain REIT status (the "required distribution") because the calculation of
the required distribution may exclude certain excess noncash income such as
original issue discount ("OID").
As noted in the preceding paragraph, the Company's taxable income for a
given year is generally reduced by the amount of distributions made in that year
to its shareholders. The Tax Code, however, permits the Company to deduct
against its 1998 taxable income dividends declared by the Company through
September 15, 1999 if such dividends are paid no later than December 31, 1999.
The Company, however, is currently exploring a variety of methods for
distributing some or all of its remaining 1998 taxable income by December 31,
1999, including the potential distribution of securities or other noncash
dividend payments. As a result of the Chapter 11 filing, there can be no
assurance that the Company will be able to make additional distributions with
respect to its 1998 taxable income. The failure to make further distributions
will result in a tax obligation of up to $7 million, but will have no effect on
CRIIMI MAE's 1998 REIT status.
1998 EXCISE TAX LIABILITY. Apart from the requirement that the
Company distribute at least 95% of its REIT taxable income to maintain REIT
status, CRIIMI MAE is also required each calendar year to distribute an
amount ("the excise tax avoidance amount") at least equal to the sum of 85%
of its "REIT ordinary income" and 95% of its "REIT capital gain income" to
avoid incurring a nondeductible excise tax. Unlike the 95% distribution
requirement, the 85% distribution requirement is not reduced by excess
noncash income items such as OID. Because the Company did not pay a dividend
in the fourth quarter, its actual distributions fell short of the excise tax
avoidance amount by approximately $7 million, resulting in an excise tax of
approximately $300,000. This $300,000 excise tax has been accrued and paid by
the Company.
TAXABLE MORTGAGE POOL RISKS. An entity that constitutes a "taxable
mortgage pool" as defined in the Tax Code ("TMP") is treated as a separate
corporate level taxpayer for federal income tax purposes. In general, for an
entity to be treated as a TMP (i) substantially all of the assets must consist
of debt obligations and a majority of those debt obligations must consist of
mortgages; (ii) the entity must have more than one class of debt securities
outstanding with separate maturities and (iii) the payments on the debt
securities must bear a relationship to the payments received from the mortgages.
The Company currently owns all of the equity interests in three trusts that
constitute TMPs (CBO-1, CB0-2 and CMO-IV, collectively the "Trusts"). See Notes
5 and 6 for descriptions of CBO-1, CBO-2 and CMO-IV. The Company also owns
certain securities structured as bonds (the "Bonds") issued by each of the
Trusts. The statutory provisions and regulations governing the tax treatment
of TMPs (the "TMP Rules") provide an exemption for TMPs that constitute
"qualified REIT subsidiaries" (that is, entities whose equity interests are
wholly owned by a REIT). As a result of this exemption and the fact that the
Company owns all of the equity interests in each Trust, the Trusts currently
are not required to pay a separate corporate level tax on income they derive
from their underlying mortgage assets.
Certain of the Bonds owned by the Company serve as collateral (the
"Pledged Bonds") for short-term, variable-rate borrowings used by the Company
to finance their initial purchase. If the creditors holding the Pledged Bonds
were to seize or sell this collateral and the Pledged Bonds were deemed to
constitute equity interests (rather than debt) in the Trusts, then the Trusts
would no longer qualify for the exemption under the TMP Rules provided for
qualified REIT subsidiaries. The Trusts would then be required to pay a
corporate level federal income tax. As a result, available funds from the
underlying mortgage assets that would ordinarily be used by the Trusts to
make payments on certain securities issued by the Trust (including the equity
interests and the Pledged Bonds) would instead be applied to tax payments.
Since the equity interests and Bonds owned by the Company are the most
subordinated securities and, therefore, would absorb payment shortfalls
first, the loss of the exemption under the TMP rules could have a material
adverse effect on their value and the payments received thereon.
In addition to causing the loss of the exemption under the TMP
Rules, a seizure or sale of the Pledged Bonds and a characterization of them
as equity for tax purposes could also jeopardize the Company's REIT status if
the value of the remaining ownership interests in any Trust held
F-7
<PAGE>
by the Company (i) exceeded 5% of the total value of the Company's assets or
(ii) constituted more than 10% of the Trust's voting interests.
2. INVESTMENT COMPANY ACT OF 1940
Under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), an investment company is required to register with the 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. However, as described below, companies that
are primarily engaged in the business of acquiring mortgages and other liens on
and interests in real estate ("Qualifying Interests") are exempted by the
Investment Company Act.
To qualify for the Investment Company Act exemption, CRIIMI MAE,
among other things, must maintain at least 55% of its assets in Qualifying
Interests (the "55% Requirement") and is also required to maintain an
additional 25% in Qualifying Interests (the "25% Requirement") or other real
estate-related assets ("Other Real Estate Interests"). According to current
SEC staff interpretations, CRIIMI MAE believes that its government insured
mortgage securities and originated loans constitute Qualifying Interests. In
accordance with current SEC staff interpretations, the Company believes that
all of its Subordinated CMBS constitute Other Real Estate Interests and that
certain of its Subordinated CMBS also constitute Qualifying Interests.
On certain of the Company's Subordinated CMBS, the Company, along with other
rights, has the unilateral right to direct foreclosure with respect to the
underlying mortgage loans. As a result of obtaining such right, the Company
believes that the related Subordinated CMBS constitute Qualifying Interests.
As of December 31, 1998, the Company believes that it was in compliance with
both the 55% Requirement and the 25% Requirement.
If the SEC or its staff were to take a different position with respect
to whether such Subordinated CMBS constitute Qualifying Interests, the Company
could, among other things, be required either (i) to change the manner in which
it conducts its operations to avoid being required to register as an investment
company or (ii) to register as an investment company, either of which could have
a material adverse effect on the Company. If the Company were required to change
the manner in which it conducts its business, it would likely have to dispose of
a significant portion of its Subordinated CMBS or acquire significant additional
assets that are Qualifying Interests. Alternatively, if the Company were
required to register as an investment company, it expects that its operating
expenses would significantly increase and that the Company would have to reduce
significantly its indebtedness, 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.
Further, if the Company were deemed an unregistered investment company,
the Company could be subject to monetary penalties and injunctive relief. The
Company would be unable to enforce contracts with third parties and third
parties could seek to obtain rescission of transactions undertaken during the
period the Company was deemed an unregistered investment company. In addition,
as a result of the Company's Chapter 11 filing, the Company is limited in
possible actions it may take in response to any need to modify its business plan
in order to register as an investment company, or avoid the need to register.
Certain dispositions or acquisitions of assets would require Bankruptcy Court
approval. Also, any forced sale of assets that occurs after the bankruptcy stay
is lifted would change the Company's asset mix, potentially resulting in the
need to register as an investment company under the Investment Company Act or
take further steps to change the asset mix. Any such results would be likely to
have a material adverse effect on the Company.
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
F-8
<PAGE>
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 for the years
ended December 31, 1997 and December 31, 1996 have been reclassified to conform
to the 1998 presentation.
CONSOLIDATION AND MINORITY INTERESTS
The consolidated financial statements reflect the financial position,
results of operations and cash flows of CRIIMI MAE; CM Management; Holdings II;
CRIIMI, Inc.; CRIIMI MAE Financial Corporation; CRIIMI MAE Financial Corporation
II; CRIIMI MAE Financial Corporation III; CRIIMI MAE QRS 1, Inc.; CRIIMI MAE
Holding, Inc. (currently inactive) CRIIMI MAE Holdings L.P. (currently inactive)
and CRIIMI MAE CMBS Corporation for all periods presented. All intercompany
accounts and transactions have been eliminated in consolidation.
CRI Liquidating was dissolved as of December 31, 1997 and therefore
CRIIMI MAE had no interest in that subsidiary as of December 31, 1998. However,
CRIIMI MAE owned approximately 57% of CRI Liquidating throughout 1997 and as of
December 31, 1996. The ownership interests of the other shareholders in the
equity and net income of CRI Liquidating are reflected as minority interests in
the accompanying consolidated financial statements.
Additionally, the 1% of equity and net income of CRIIMI MAE Holdings
L.P. and Holdings II not owned by CRIIMI MAE is reflected as minority interests
in the accompanying consolidated financial statements.
BANKRUPTCY ACCOUNTING
Entering a reorganization, although a significant event, does not
ordinarily affect or change the application of GAAP followed by a company. The
accompanying financial statements have been prepared assuming that CRIIMI MAE
will continue as a going concern in accordance with SOP 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7").
As such, asset and liability carrying amounts do not purport to represent
realizable or settlement values as contemplated by the Bankruptcy Code.
LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS
Liabilities subject to Chapter 11 proceedings, including claims that
become known after the petition date, are reported at their expected allowed
claim amount in accordance with SFAS No. 5, "Accounting for Contingencies". To
the extent that the amounts of claims change as a result of actions in the
bankruptcy case or other factors, the recorded amount of liabilities subject to
Chapter 11 proceeding will be adjusted. The gain or loss resulting from the
entries to record the adjustment will be recorded as a reorganization item. The
Company wrote-off all debt discount and deferred debt costs related to
liabilities subject to Chapter 11 bankruptcy which resulted in these liabilities
being carried at their face amount; the resulting decrease in income was
approximately $ 2.8 million.
REORGANIZATION ITEMS
Reorganization items are items of expense that are realized or incurred
by CRIIMI MAE because it is in reorganization. These include, but are not
limited to the following:
- - Professional fees and similar types of expenditures directly relating
to the chapter 11 proceeding.
- - Employee Retention Program costs and severance payments.
- - Loss accruals or realized gains or losses resulting from activities of
the reorganization process such as the rejection of certain executory contracts
and the write-off of debt issuance costs and debt discounts.
F-9
<PAGE>
For the year ended December 31, 1998, accrued reorganization items
were $9.9 million. The components of this total are as follows:
<TABLE>
<CAPTION>
REORGANIZATION ITEM AMOUNT
------------------- ------
<S> <C>
Professional fees $5,219,000
Write-off of debt discounts and deferred 2,835,210
costs
Employee Retention Program accrued costs 612,885
Lease Cancellation Fees 621,902
Excise Tax 300,000
Other 267,950
----------
Total $9,856,947
----------
----------
</TABLE>
CONDENSED FINANCIAL STATEMENTS
In accordance with SOP 90-7, the three debtor entities, CRIIMI MAE, CM
Management and Holdings II, are required to present condensed financial
statements for the period beginning October 5, 1998 through December 31, 1998.
(See Note 21).
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of U.S. Government and agency
securities, certificates of deposit, time deposits and commercial paper with
original maturities of three months or less.
TRANSFER OF FINANCIAL ASSETS
The Company transfers assets (mortgages and mortgage securities) in
securitization transactions where the transferred assets become the sole source
of repayment for newly issued debt. When both legal and control rights to a
financial asset are transferred, the transfer is treated as a sale. Transfers
are assessed on an individual component basis. In a securitization, the cost
basis of the original assets transferred is allocated to each of the new
financial components based upon the relative fair value of the new financial
components. For components where sale treatment is achieved, a gain or loss is
recognized for the difference between that component's allocated cost basis and
fair value. For components where sale treatment is not achieved, an asset is
recorded representing the allocated cost basis of the new financial components
retained and the related incurrence of debt is also recorded. In transactions
where none of the components are sold, the Company recognizes the incurrence of
debt and the character of the collateralizing assets remains unchanged.
INCOME RECOGNITION AND CARRYING BASIS
SUBORDINATED CMBS
On May 8, 1998, CRIIMI MAE consummated a transaction which resulted in
the sale of a portion of its Subordinated CMBS portfolio (see Note 5). As a
result of the May 8 transaction and in accordance with GAAP, effective in the
second quarter of 1998, the Company no longer classifies CMBS securities as Held
to Maturity, but instead classifies CMBS as Available for Sale. CRIIMI MAE
carries its Subordinated CMBS at fair market value where changes in fair value
are recorded as a component of shareholders' equity (see Note 5). Prior to this
time, such securities were carried at their amortized cost basis as the Company
had the ability and intent to hold these securities to maturity.
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 generally due to revisions in
estimates of future credit losses, actual losses incurred, revisions in
estimates of future prepayments and actual prepayments received. Changes in
anticipated yield resulting from prepayments are recognized through a cumulative
catch-up adjustment at the date of the change which reflects the change in
income of the security from the date of purchase through the date of change in
anticipated yield. The new yield is then used for income
F-10
<PAGE>
recognition for the remaining life of the investment. Changes in anticipated
yield resulting from reduced estimates of losses are recognized on a prospective
basis.
INVESTMENT IN ORIGINATED LOANS
This portfolio consists of commercial loans originated and
securitized by CRIIMI MAE in CMO-IV. The origination fee income, application
fee income and costs associated with originating the loans were deferred
("deferred loan costs") and the net amount was added to the basis of the
loans on the balance sheet upon acquisition. Income is recognized using the
effective interest method and consists of mortgage income from the loans and
amortization of deferred loan costs. Expenses of this portfolio consist of
interest expense, discount amortization on the bonds sold and amortization of
costs incurred in connection with the securitization. CRIIMI MAE has the
intent to hold these loans for the foreseeable future and therefore the
originated loans are classified as Held for Investment and recorded at
amortized cost on the balance sheet.
INSURED MORTGAGE SECURITIES
CRIIMI MAE's consolidated investment in mortgage securities consists of
participation certificates evidencing a 100% undivided beneficial interest in
Government Insured Multifamily Mortgages issued or sold pursuant to programs of
the Federal Housing Administration ("FHA") ("FHA-Insured Loans") and
mortgage-backed securities guaranteed by the Government National Mortgage
Association ("GNMA") ("GNMA Mortgage-Backed Securities"). Payment of principal
and interest on FHA-Insured Loans is insured by the U.S. Department of Housing
and Urban Development (HUD) pursuant to Title 2 of the National Housing Act.
Payment of principal and interest on GNMA Mortgage-Backed Securities is
guaranteed by GNMA pursuant to Title 3 of the National Housing Act.
As a result of the CBO-2 transaction involving the sale of a portion of
its Subordinated CMBS portfolio (see Note 5), the Company, in accordance with
GAAP, no longer classifies its insured mortgage securities as Held to Maturity.
The Company's mortgage securities are now classified as Available for Sale. As a
result, the Company now carries its mortgage securities at fair value where
changes in fair value are recorded as a component of shareholders' equity. Prior
to this time, the securities were carried at their amortized cost basis as the
Company had the ability and intent to hold these securities to maturity.
The difference between the cost and the unpaid principal balance at the
time of purchase is carried as a discount or premium and amortized over the
remaining contractual life of the mortgage using the effective interest method.
The effective interest method provides a constant yield of income over the term
of the mortgage.
Mortgage income consists of amortization of the discount plus the
stated mortgage interest payments received or accrued less amortization of the
premium.
EQUITY INVESTMENTS
CRIIMI, Inc., a wholly owned subsidiary of CRIIMI MAE, owns all of the
general partnership interests in American Insured Mortgage Investors L.P.,
American Insured Mortgage Investors L.P. - Series 85, American Insured Mortgage
Investors L.P. - Series 86 and American Insured Mortgage Investors L.P. - Series
88 (the "AIM Funds"). The AIM Funds own mortgage assets which are substantially
similar to Insured Mortgage Securities owned by CRIIMI MAE. CRIIMI, Inc.
receives the general partner's share of income, loss and distributions (which
ranges among the AIM Funds from 2.9% to 4.9%) from each of the AIM Funds. In
addition, CRIIMI MAE and CM management each own 50% of the limited partnership
that owns a 20% limited partnership interest in the adviser to the AIM Funds.
CRIIMI MAE is utilizing the equity method of accounting for its investment in
the AIM Funds and advisory partnership, which provides for recording CRIIMI
MAE's share of net earnings or losses in the AIM Funds and advisory partnership
reduced by distributions from the limited partnerships and adjusted for purchase
accounting amortization.
CRIIMI MAE accounts for its investment in CRIIMI MAE Services, Inc.
("Services Inc.") under the equity method because it does not own the voting
common stock of Services Inc. As of December 31, 1998, Services Inc. holds a 27%
general partner interest in CMSLP.
F-11
<PAGE>
As of December 31, 1998, CRIIMI MAE, through CM Management, held a 73%
limited partnership interest in CMSLP. CRIIMI MAE's limited partner investment
in CMSLP is accounted for under the equity method as CRIIMI MAE does not control
CMSLP. However, because it owns 73% of the partnership and because it has
certain rights described below, it follows the equity method of accounting. As a
limited partner, CRIIMI MAE is entitled to all of the rights and benefits of
being a limited partner including the right to receive income and cash
distributions in accordance with its limited partner interest. In addition,
CRIIMI MAE has the right to approve the sale of the principal assets of CMSLP.
Services Inc. is the general partner of CMSLP and manages the day to day affairs
of CMSLP.
IMPAIRMENT
SUBORDINATED CMBS
CRIIMI MAE assesses each Subordinated CMBS for other than temporary
impairment when the fair market value of the asset declines below amortized cost
and when one of the following conditions also exists: 1) fair value has been
below amortized cost for a significant period of time and CRIIMI MAE concludes
that it no longer has the ability to hold the security for the period that fair
value is expected to be below amortized cost through the period of time CRIIMI
MAE expects the value to recover to amortized cost or 2) the credit quality of
its Subordinated CMBS is declining and the Company determines that the current
estimate of expected future credit losses exceeds credit losses as originally
projected. The amount of impairment loss is measured by comparing the fair
value, based on available market information, of a Subordinated CMBS to its
current amortized cost basis, the difference is recognized as a loss in the
income statement.
The Company assesses current economic events and conditions that impact
the value of its Subordinated CMBS and the underlying real estate in making
judgements as to whether or not other than temporary impairment has occurred. No
other than temporary impairment was recognized in 1996, 1997 or 1998.
INVESTMENT IN ORIGINATED LOANS
CRIIMI MAE recognizes impairment on the originated loans when it is
probable that CRIIMI MAE will not be able to collect all amounts due according
to the contractual terms of the loan agreement. CRIIMI MAE measures impairment
based on the present value of expected future cash flows discounted at the
loan's effective interest rate or the fair value of the collateral if the loan
is collateral dependent.
INSURED MORTGAGE SECURITIES
CRIIMI MAE assesses each Insured Mortgage Security for other than
temporary impairment when the fair market value of the asset declines below
amortized cost for a significant period of time and CRIIMI MAE concludes that it
no longer has the ability to hold the security through the market downturn. The
amount of impairment loss is measured by comparing the fair value of an Insured
Mortgage Security to its current carrying amount, the difference is recognized
as a loss in the income statement.
EQUITY INVESTMENTS
Impairment is recognized on CRIIMI MAE's investments accounted for
under the equity method if a decline in the market value of the investment below
its carrying basis is judged to be "other than temporary". In this case an
unrealized loss is recognized as the difference between the fair value and
carrying amount.
RECEIVABLES
Receivables primarily consist of interest and principal receivables on
the Company's Subordinated CMBS, Insured Mortgage Securities and Originated Loan
portfolios. In addition, prepayments in the Insured Mortgage Securities
portfolio that have not yet been received by CRIIMI MAE are included.
F-12
<PAGE>
OTHER ASSETS
Other Assets primarily include Merger assets and related costs,
deferred financing costs, deferred costs, investment in mezzanine loans and a
deposit account, as further discussed below. Additionally included in Other
Assets is Real Estate Owned (REO) property acquired through foreclosure that
will be held for the long-term. In June 1997, CRIIMI MAE acquired a real estate
property in a foreclosure sale from a CMBS trust. CRIIMI MAE also serves as the
special servicer and owns a portion of the subordinated tranches in the same
trust. As of December 31, 1998, CRIIMI MAE's investment in REO property totaled
approximately $3.9 million. REO property acquired through foreclosure is
recorded at fair value on the date of foreclosure. Such assets will be evaluated
for impairment by the Company when events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. At such time, if
the expected future undiscounted cash flows from the property are less than the
cost basis, the assets will be marked down to fair value. Costs relating to
development and improvement of property are capitalized, provided that the
resulting carrying value does not exceed fair value. Costs relating to holding
the assets are expensed.
The Merger assets acquired and costs incurred in connection with the
Merger were recorded using the purchase method of accounting. The amounts
allocated to the assets acquired were based on management's estimate of their
fair values, with the excess of purchase price over fair value allocated to
goodwill. The AIM Funds subadvisory contracts and the mortgage servicing
contracts transferred to CMSLP are amortized using the effective interest method
over 10 years. This amortization is reflected through CRIIMI MAE's equity in
earnings from investments. The remaining assets acquired by CRIIMI MAE,
including goodwill, are amortized using the straight-line method over 10 years.
Deferred costs are costs incurred in connection with the establishment
of CRIIMI MAE's financing facilities and are amortized using the effective
interest method over the terms of the borrowings. Also included in deferred
costs are mortgage selection fees, which were paid to the Adviser or were paid
to the former general partners or adviser to the predecessor entities of CRI
Liquidating (collectively, the "CRIIMI Funds"). These deferred costs are being
amortized using the effective interest method on a specific mortgage basis from
the date of the acquisition of the related mortgage over the term of the
mortgage from CRIIMI MAE. Upon disposition of a mortgage, the related
unamortized fee is treated as part of the mortgage asset carrying value in order
to measure the gain or loss on the disposition. As a result of the Chapter 11
filing, CRIIMI MAE wrote off all deferred costs in connection with its financing
facilities that are subject to the Chapter 11 filing.
Costs incurred in connection with the loan origination programs are
netted against any origination fees received and the net amount is deferred and
will be recognized using the effective interest method over the life of the
intended securitization of the loans. These costs include a one-time fee to the
financial institution and direct costs of originating the loans for the program.
All net deferred costs are written off if the Company and the financial
institution decide to sell the loans in the warehouse program. In addition, the
Company is required to fund the estimated subordinated levels for the
securitization of the loans originated through its loan origination programs.
This subordinated level is held as a deposit at the financing institution and is
reflected in Other Assets. Due to the financial institution taking title to the
loans during the warehousing period and bearing substantive risk for the
investment portion of each loan, the originated loans are not recorded on the
Company's balance sheet during the warehouse period.
DISCOUNT ON SECURITIZED MORTGAGE OBLIGATION ISSUANCES
Discounts incurred in connection with the issuance of debt are
amortized using the effective interest method over the projected term of the
related debt, which is based on management's estimate of prepayments on the
underlying collateral and are included as a component of interest expense.
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 included in other assets and are amortized over the
interest rate agreement term. To qualify for hedge accounting, the interest rate
protection agreement must meet two criteria: (i) the debt to be hedged exposes
CRIIMI MAE to interest rate risk and (ii) the interest rate protection
F-13
<PAGE>
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.
SHAREHOLDERS' EQUITY
CRIIMI MAE has authorized 120,000,000 shares of $.01 par value common
stock and has issued 52,898,100 and 40,131,551 shares as of December 31, 1998
and 1997, respectively. All shares issued, exclusive of the shares held in
treasury, are outstanding. As of December 31, 1998 and 1997, 7,245 and 7,346
shares, respectively were held for issuance pending presentation of predecessor
units and were considered outstanding.
CRIIMI MAE has authorized 25,000,000 shares of $.01 par value preferred
stock, of which 150,000 shares have been designated as Series A Cumulative
Convertible Preferred Shares, 3,000,000 shares have been designated as Series B
Cumulative Convertible Preferred Shares, 300,000 shares have been designated as
Series C Cumulative Convertible Preferred Shares and 300,000 shares have been
designated as Series D Preferred Shares. At December 31, 1998, CRIIMI MAE had no
Series A Preferred Shares outstanding, 1,593,982 Series B Preferred Shares
outstanding, 123,000 Series C Preferred Shares outstanding and 100,000 Series D
Preferred Shares outstanding.
INCOME TAXES
CRIIMI MAE has elected to qualify as a REIT for tax purposes under
Sections 856-860 of the Internal Revenue Code for the 1998 tax year. To qualify
for tax treatment as a REIT under the Internal Revenue Code, CRIIMI MAE must
satisfy certain criteria including certain requirements regarding the nature of
their ownership, assets, income and distributions of taxable income. The income
from certain CRIIMI MAE activities, including origination and servicing, will
not be considered as Qualifying Income under Section 856. CRIIMI MAE will
monitor and minimize the levels of Non-Qualifying Income in order to meet REIT
qualification criteria. (See also Note 1).
Also, in 1998, CRIIMI MAE generated $.1456 per common share of excess
inclusion income from CBO-1 and CBO-2 and in 1997 generated $.0977 per common
share of excess inclusion income from CBO-1. The excess inclusion income is
taxable at the shareholder level, as CRIIMI MAE intends to distribute
substantially all of its taxable income. Excess inclusion income cannot be
offset by a net operating loss and is considered unrelated taxable business
income under Section 511.
PER SHARE AMOUNTS
Basic earnings per share amounts for 1998, 1997 and 1996 represent net
income available to common shareholders divided by the weighted average common
shares outstanding during each year. Diluted earnings per share amounts for
1998, 1997 and 1996 represent basic earnings per share adjusted for dilutive
common stock equivalents which for CRIIMI MAE include stock options and certain
series of preferred stock. See Note 13 for a reconciliation of basic earnings
per share to diluted earnings per share.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Since the consolidated statements of cash flows are intended to reflect
only cash receipt and cash payment activity, the consolidated statements of cash
flows do not reflect investing and financing activities that affect recognized
assets and liabilities while not resulting in cash receipts or cash payments.
Cash payments made for interest for the years ended December 31, 1998,
1997 and 1996, were $109,502,466, $72,824,682, and $59,621,711, respectively.
F-14
<PAGE>
COMPREHENSIVE INCOME
Comprehensive income is the change in shareholders' equity during a
period from transactions from nonowner sources. For CRIIMI MAE, this includes
net income before dividends paid or accrued on preferred shares adjusted for
unrealized gains and losses related to CRIIMI MAE's "Available for Sale"
Subordinated CMBS and mortgage securities carried at fair value. Net unrealized
gains and losses are reported in the shareholders' equity section of the balance
sheet. The table below breaks out the adjustment to net unrealized gains and
losses that relate to investments that were disposed of during the period with
the resulting gain or loss reflected in the income statement (reclassification
adjustments) and the portion of the adjustment that relates to those investments
that were not disposed of during the period.
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Reclassification adjustment for gains included in net income $ (963,748) $ (8,648,062) $ (5,903,127)
Unrealized holding (losses)/gains arising during the period (251,374,372) 814,645 (1,319,294)
------------- ------------- -------------
Net adjustment to unrealized losses/gains on Investments $(252,338,120) $ (7,833,417) $ (7,222,421)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
NEW ACCOUNTING STATEMENTS
During 1997, FASB issued SFAS No. 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 was adopted January 1, 1998 (See Note 20).
During 1998, FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and for Hedging Activities" ("FAS 133"). FAS 133 establishes
accounting and reporting standards for derivative investments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge. The accounting for the changes in the fair
value of a derivative depends on the intended use of the derivative and the
resulting designation. FAS 133 is effective for the Company beginning January 1,
2000. The Company is evaluating the eventual impact of FAS 133 on its financial
statements.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of CRIIMI MAE's consolidated
financial instruments are presented in accordance with generally accepted
accounting principles ("GAAP"), which define fair value as the amount at
which a financial instrument could be exchanged in a current transaction
between willing parties, in other than a forced sale or liquidation. These
values do not represent the liquidation value of the Company or the value of
the securities under a portfolio liquidation.
<TABLE>
<CAPTION>
As of December 31, 1998 As of December 31, 1997
Amortized Cost Fair Value Amortized Cost Fair Value
-------------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Subordinated CMBS $ 1,529,898,540 $1,274,185,678 $ 1,114,479,846 $1,225,602,722
Insured Mortgage Securities 483,637,668 488,095,221 605,113,741 622,252,075
Originated loans 499,076,030 480,485,570 -- --
Cash and cash equivalents 24,180,072 24,180,072 2,108,794 2,108,794
Accrued interest and principal receivable 46,992,337 46,992,337 17,789,273 17,789,273
</TABLE>
F-15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
LIABILITIES:
Liabilities not Subject to Chapter 11 proceedings:
Securitized mortgage obligations:
Collateralized bond obligations-CMBS 117,831,435 105,799,081 137,061,676 139,632,181
Collateralized insured mortgage obligations 456,101,720 486,179,236 559,363,321 572,131,147
Collateralized mortgage obligations-originated loans 386,752,951 381,481,150 -- --
Liabilities Subject to Chapter 11 proceedings:
Variable rate secured borrowings-CMBS 932,236,674 N/A 585,379,360 585,379,360
Senior unsecured notes 100,000,000 62,000,000 99,877,695 100,250,000
Other financing facilities 92,799,522 N/A 33,250,000 33,250,000
------------ ------------ ------------ -------------
Off Balance Sheet:
Interest rate protection agreements -- asset $ 2,531,371 $ 992,516 $ 2,809,109 $ 1,311,536
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
SUBORDINATED CMBS
The fair market value of the Company's 1997 portfolio of
Subordinated CMBS was based upon quotes obtained from, in most cases, the
lender to which the security was pledged. The lender also quoted the related
unrated bonds even though the bonds did not serve as collateral for CRIIMI
MAE's obligations. The Company obtained "ask" quotes as compared to "bid"
quotes because it is the owner of the securities. Due to the Chapter 11
filing, the Company's lenders were not willing to provide fair value quotes
for the 1998 CMBS portfolio. As a result, the Company calculated the
estimated fair market value of its Subordinated CMBS portfolio as of December
31, 1998. The Company used a discounted cash flow methodology to estimate the
fair value of its Subordinated CMBS portfolio. The projected cash flows used
by the Company were the same collateral cash flows used to calculate the
anticipated weighted average unleveraged yield to maturity. See Note 5. The
cash flows were then discounted using a discount rate that, in the Company's
view, was commensurate with the market's perception of risk and value. The
Company used a variety of sources to determine its discount rate including:
(i) institutionally-available research reports, (ii) a relative comparison of
dealer provided discount rates from the previous quarter to those disclosed
in recent research reports and incorporating adjustments to reflect changes
in the market as they relate to each of the Company's CMBS from September 30,
1998 to December 31, 1998, and (iii) communications with dealers and active
Subordinated CMBS investors regarding the year-end valuation of comparable
securities. Since the Company calculated the estimated fair market value of
its Subordinated CMBS portfolio as of December 31, 1998, it has disclosed in
Note 5 the range of discount rates by rating category used in determining
these fair market values.
The CMBS market was adversely affected by the turmoil which occurred
in the capital markets commencing in late summer of 1998 that caused spreads
between CMBS yields and the yields on U.S. Treasury securities with
comparable maturities to widen, resulting in a decrease in the value of CMBS.
As a result, the creation of new CMBS and the trading of existing CMBS came
to a near standstill. In late November 1998, buying and trading activity in
the CMBS market began to recover, increasing liquidity in the CMBS market;
however, these improvements mostly related to investment grade CMBS. New
issuances of CMBS also returned in late November 1998. The market for
Subordinaetd CMBS has, however, been slower to recover and trading in this
market is less liquid. It is difficult, if not impossible, to predict when or
if the CMBS market and, in particular, the Subordinated CMBS market, will
fully recover. Therefore management's estimate of the value of its securities
could vary significantly from the value that could be realized in a current
transaction between a willing buyer and a willing seller in other than a
forced sale or liquidation.
INSURED MORTGAGE SECURITIES
The fair value of the insured mortgage securities is based on the
quoted market price from an investment banking institution which trades these
instruments as part of its day-to-day activities.
ORIGINATED LOANS
Due to the Chapter 11 filing, the Company's lenders were not willing to
provide fair value quotes for the portfolio. As a result, the Company calculated
the estimated fair market value of its Originated Loan portfolio. The Company
used the same discounted cash flow methodology used in determining the fair
value of its Subordinated CMBS portfolio and further used cash flows projected
at a prepayment speed of 0% to 14% depending upon the call protection of the
loan. These cash flows were then discounted using a weighted average discount
rate of approximately 8%, which the Company believes was commensurate with the
market's perception of risk and value.
CASH AND CASH EQUIVALENTS, ACCRUED INTEREST AND PRINCIPAL RECEIVABLE
The carrying amount approximates fair value because of the short
maturity of these instruments.
F-16
<PAGE>
OBLIGATIONS UNDER FINANCING FACILITIES
The fair value of the securitized mortgage obligations and unsecured
senior notes as of December 31,1997 are based on the quoted market price from an
investment banking institution. The carrying amount of the variable -rate
secured borrowings -CMBS and other financing facilities as of December 31, 1997
approximates fair value because the current rate on the debt is generally reset
monthly based on market rates.
The fair value of the securitized mortgage obligations as of December
31,1998 are calculated using a discounted cash flow methodology. The fair value
of the unsecured notes was calculated using a quoted market price from
Bloomberg. Management has determined that fair value of the variable-rate
secured borrowings-CMBS and other financing facilities is not practicable to
measure because there is no quoted market price available and the facilities are
in default and have been the subject of dispute as discussed in Note 9. See Note
9 for a detailed discussion of these facilities and the terms of the facilities.
INTEREST RATE PROTECTION AGREEMENTS
The fair value of interest rate protection agreements (used to hedge
CRIIMI MAE's variable-rate debt) is the estimated amount that CRIIMI MAE would
receive to terminate the agreements as of December 31, 1998 and 1997, taking
into account current interest rates and the current creditworthiness of the
counterparties. The amount was determined based on a quote received from the
counterparty to each agreement.
5. SUBORDINATED CMBS
During 1997, FAS 125 "Accounting for Transfers and Servicing of
Financial Assets" became effective. This statement significantly changed 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, in a securitization
or resecuritization, 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.
In May 1998, CRIIMI MAE completed its second resecuritization of CMBS
assets, with a combined face value of approximately $1.8 billion involving 75
individual securities collateralized by 19 mortgage pools and three of the
retained securities from CBO-1 ("CBO-2"). CBO-2 involved CRIIMI MAE's private
placement of securities with a face amount of $468 million. In CBO-2, CRIIMI MAE
retained securities with a face amount of approximately $1.3 billion. Certain
securities included call provisions to enable CRIIMI MAE to 1) call bonds if
market conditions warrant, and 2) call bonds when it is no longer cost effective
to service them. As a result, CBO-2 resulted in a sale of certain securities and
the retention of new securities. In accordance with FAS 125, the assets
collateralizing the resecuritization are "derecognized" and the combined
amortized cost basis of the collateralizing assets was allocated to the new
securities issued. CRIIMI MAE received $335 million for the $345 million face
amount of investment grade securities sold without call provisions which had an
allocated cost basis of $306 million, resulting in a gain of approximately $28.8
million. CRIIMI MAE recorded retained assets totaling $926 million representing
the allocated amortized cost basis for the $123 million face amount of
investment grade securities issued with call provisions and the $1.3 billion
face amount of non-investment grade retained securities in CBO-2. CBO-2
generated $160 million of net borrowing capacity primarily as a result of a
higher overall weighted average credit rating for its new securities as
compared to the weighted average credit rating on the related CMBS
collateral. The net excess borrowing capacity was used to obtain short-term,
variable rate secured borrowings which were used to acquire additional
Subordinated CMBS during the second quarter of 1998.
The CBO-2 transaction requires reclassification of CRIIMI MAE's entire
portfolio of mortgage securities (consisting of mortgage security collateral and
CMBS) from Held to Maturity to Available for Sale. Therefore, CRIIMI MAE's
securities, effective second quarter of 1998, are reflected on the balance sheet
at fair market value. At December 31, 1998, the amortized cost of the mortgage
securities exceeded the fair market value by approximately $251.3 million (a
$174.0 million decrease from September 30, 1998) and is reflected as a decrease
in shareholders' equity.
F-17
<PAGE>
Additionally, as part of CBO-2, CMSLP sold trustee servicing rights on
CBO-2 for $4.2 million, resulting in a gain of approximately $400,000 for
financial reporting purposes, which is included in equity in earnings from
investments on the consolidated statements of income, and gain of $4.2 million
for tax purposes.
At December 31, 1998, CRIIMI MAE held the following securities with respect to
its CMBS portfolio:
<TABLE>
<CAPTION>
Original 12/31/98
Anticipated Anticipated
Unleveraged Unleveraged
Yield to Yield to
Pool(3) Maturity (1) Maturity (1)(2)
------- ------------ ---------------
<S> <C> <C>
Retained Securities from
CRIIMI 1996 C1 (CBO-1) 19.5% 20.9%(5)
DLJ Mortgage Acceptance Corp.
Series 1997 CF2 Tranche B-30C 8.2% 8.1%
Nomura Asset Securities Corp.
Series 1998-D6 Tranche B7 12.0% 12.0%
Retained Securities from
CRIIMI 1998 C1 (CBO-2) 10.3% 10.2%(4)
Mortgage Capital Funding, Inc.
Series 1998-MC1 8.9% 8.9%
Chase Commercial Mortgage Securities
Corp.
Series 1998-1 8.8% 8.8%
First Union/Lehman Brothers
Series 1998 C2 8.9% 8.9%
Morgan Stanley Commercial Inc.
Series 1998-WF2 8.5% 8.5%(4)
Mortgage Capital Funding, Inc.
Series 1998-MC2 8.7% 8.7%
Weighted Average 9.7%(3) 10.1%(3)
</TABLE>
- ----------
(1) 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 December 31, 1998, respectively, based on management's
estimate of the timing and amount of future credit losses and prepayments. As
discussed in (4) below, these yields may decrease as a result of certain
adversarial actions taken by the Company's lenders.
(2) Unless otherwise noted, changes in the December 31, 1998 anticipated
yield to maturity from that originally anticipated are primarily the result
of changes in prepayment assumptions relating to mortgage collateral.
(3) CRIIMI MAE, through CMSLP, performs servicing functions on a total CMBS
pool of approximately $ 30.0 billion. Of the $30.0 billion of mortgage loans,
approximately $195.4 million are currently being specially serviced, of which
approximately $45.0 million are being specially serviced due to payment
default and the remainder are being specially serviced due to nonfinancial
covenant default. Despite the volatility in the capital markets, the mortgage
assets underlying the Company's portfolio of CMBS experienced no losses of
principal from default. See Note 5 for a discussion of the transfer of
special servicing.
(4) On October 6, 1998, Morgan Stanley and Co. International Limited ("Morgan
Stanley") advised CRIIMI MAE that it was exercising alleged ownership rights
over certain classes of CMBS it held as collateral. Subsequent to year end,
the Company
F-18
<PAGE>
agreed to cooperate on selling two classes of investment grade CMBS issued by
CRIIMI MAE Commercial Mortgage Trust Series 1998-C1 (CBO-2 BBB Bonds) and to
suspend litigation with Morgan Stanley with respect to these CMBS. CRIIMI MAE
and Morgan Stanley also agreed to a standstill period, now extended through
April 15, 1999, regarding seven classes of subordinated CMBS issued by Morgan
Stanley Capital I Inc. Series 1998-WF2 (the "Wells Fargo Bonds"). On March 5,
1999, the CBO-2 BBB Bonds with $205.8 million face amount and with a coupon
rate of 7% were sold in a transaction that will be accounted for as a
financing by the Company rather than a sale. Of the $159.0 million in net
sale proceeds, $141.2 million was used to repay borrowings under the
agreement with Morgan Stanley, and $17.8 million was paid to CRIIMI MAE.
(5) The increase in the anticipated yield resulted from the reallocation of
CBO-1 asset basis in conjunction with the CBO-2 resecuritization.
The aggregate investment by the underlying rating of the Subordinated CMBS is as
follows:
<TABLE>
<CAPTION>
Range of Amortized Amortized
Weighted Discount Cost Cost
Face Amount Average Weighted Fair Value Rates Used to as of as of
as of Pass- Average as of 12/31/98 Calculate Fair 12/31/98 12/31/97
Security Rating 12/31/98 Through Rate Life(2) (In Millions)(1) Value (1) (In Millions) (In Millions)
- --------------- -------- ------------ -------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
AA- $ -- -- -- $ -- -- $ -- $ 5.6
A (5) 62.6 7.0% 7 years 57.2 8.7% 57.0 --
BBB (5)(6) 150.6 7.0% 13 years 121.9 9.7% 126.9 4.0
BBB-(6) 115.2 7.0% 13 years 85.6 10.7% 92.8 --
BB+ 394.6 6.9% 14 years 286.8 9.3%-11.5% 317.9 8.6
BB 275.8 6.9% 15 years 212.7 10.3%-12.3% 259.1 445.0
BB- 89.1 6.8% 15 years 58.0 11.1%-13.3% 72.6 89.8
B+ 128.7 6.7% 17 years 72.9 12.1%-14.0% 93.0 --
B 300.2 6.6% 17 years 159.7 12.1%-15.3% 208.9 357.4
B- 198.7 6.7% 18 years 87.4 15.1%-18.8% 106.7 44.6
CCC 92.0 6.8% 20 years 22.8 25.0% 36.0 10.9
Unrated 478.1 6.7% 21 years 109.2 27.0%-33.0% 159.0 113.2
-------- --- -------- ---------- ---------- ----------
Total (3)(4) $2,285.6 6.8% 16 years $ 1,274.2 $ 1,529.9 $ 1,079.1
-------- --- -------- ---------- ---------- ----------
-------- --- -------- ---------- ---------- ----------
</TABLE>
(1) The estimated fair values of Subordinated CMBS represent the carrying
value of these assets. Due to the Chapter 11 filing, the Company's lenders
were not willing to provide fair value quotes for the 1998 portfolio. As a
result, the Company calculated the estimated fair market value of its
Subordinated CMBS portfolio as of December 31, 1998. The Company used a
discounted cash flow methodology to estimate the fair value of its
Subordinated CMBS portfolio. The projected cash flows used by the Company
were the same collateral cash flows used to calculate the anticipated
weighted average unleveraged yield to maturity. (See Note 5.) The cash flows
were then discounted using a discount rate that, in the Company's view, was
commensurate with the market's perception of risk and value. The Company used
a variety of sources to determine its discount rate including: (i)
institutionally-available research reports, (ii) a relative comparison of
dealer provided discount rates from the previous quarter to those disclosed
in recent research reports and incorporating adjustments to reflect changes
in the market as they relate to each of the Company's CMBS from September 30,
1998 to December 31, 1998, and (iii) communications with dealers and active
Subordinated CMBS investors regarding the year-end valuation of comparable
securities. Since the Company calculated the estimated fair market value of
its Subordinated CMBS portfolio as of December 31, 1998, it has disclosed in
the table the range of discount rates by rating category used in determining
these fair market values.
The CMBS market was adversely affected by the turmoil which occurred
in the capital markets commencing in late summer of 1998 that caused spreads
between CMBS yields and the yields on U.S. Treasury securities with
comparable maturities to widen, resulting in a decrease in the value of CMBS.
As a result, the creation of new CMBS and the trading of existing CMBS came
to a near standstill. In late November 1998, buying and trading activity in
the CMBS market began to recover, increasing liquidity in the CMBS market;
however, these improvements mostly related to investment grade CMBS. New
issuances of CMBS also returned in late November 1998. The market for
Subordinated CMBS has, however, been slower to recover and trading in this
market is less liquid. It is difficult, if not impossible, to predict when or
if the CMBS market and, in particular, the Subordinated CMBS market, will
fully recover. Therefore management's estimate of the value of its securities
could vary significantly from the value that could be realized in a current
transaction between a willing buyer and a willing seller in other than a
forced sale or liquidation.
(2) Weighted average life represents the weighted average expected life of the
Subordinated CMBS prior to consideration of losses, extensions or prepayments
other than those factored in the assumed prepayment rate used at the time of
acquisition.
(3) Refer to Note 8 for additional information regarding the total face amount
and purchase price of Subordinated CMBS for tax purposes.
F-19
<PAGE>
(4) Similar to the Company's other sponsored CMO's, CMO-IV, as described in
Note 6, resulted in the creation of CMBS, of which the Company sold certain
tranches. Since the Company retained call options on the sold bonds, the
Company did not surrender control of the assets for purposes of FAS 125 and
thus the entire transaction is accounted for as a financing and not a sale.
Since the transaction is recorded as a financing, the Subordinated CMBS are
not reflected in the Company's Subordinated CMBS portfolio and the mortgage
assets are reflected in Investment in Originated Loans on the balance sheet.
(5) In connection with CBO-2, $62.6 million (A rated) and $60.0 million (BBB
rated) face amount of investment grade securities were issued with call
options and $345 million (A rated) face amount were issued without call
options. Since the Company retained call options on certain sold bonds, the
Company did not surrender control of those assets pursuant to the
requirements of FAS 125 and thus these securities are accounted for as a
financing and not a sale. Since the transaction is recorded as a partial
financing and a partial sale, CRIIMI MAE has retained the securities with
call options in its Subordinated CMBS portfolio reflected on its balance
sheet.
(6) In connection with CBO-2, the Company retained $90.6 million (BBB rated) and
$115.2 million (BBB- rated) face amount of securities, with the intention to
sell the securities at a later date. Such sale occurred March 5, 1999. See below
for further discussion.
As of December 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>
1998 1997 1998 1997
---- ---- ---- ----
Property Type Percentage(1) Percentage(1) Geographic Location(2) Percentage(1) Percentage(1)
- ------------- ------------- ------------- ---------------------- ------------- -------------
<S> <C> <C> <S> <C> <C>
Multifamily..... 31% 37% California............... 16% 14%
Retail.......... 28% 28% Texas.................... 12% 15%
Office.......... 15% 10% Florida.................. 7% 9%
Hotel........... 13% 14% New York................. 6% 4%
Other........... 13% 11% Other(3)................. 59% 58%
---- ---- ---- ----
Total...... 100% 100% Total................. 100% 100%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
(1) Based on a percentage of the total unpaid principal balance of the
underlying loans.
(2) No significant concentration by region.
(3) No other individual state makes up more than 5% of the total.
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 generally allocated 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 tranche's 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 method
can result in GAAP income recognition which is greater than or less than cash
received. For the years ended December 31, 1998, 1997 and 1996, the amount of
income recognized (less than) or in excess of cash received due to the effective
interest rate method was approximately $(200,000), $1,014,000 and $909,000,
respectively.
Since the Petition Date, CRIIMI MAE and certain secured creditors have
disagreed about the effect of the stay provisions of the Bankruptcy Code on such
secured lenders and the subject assets. A summary of material litigation, and
agreements that have been reached with certain creditors, is disclosed in Note
18 Litigation - Bankruptcy Related Litigation. In addition, the Company has been
in discussions with certain other creditors not in litigation with the Company.
See Note 18 Litigation - Discussions with Other Creditors.
Subsequent to year end, the Company agreed to cooperate on selling the
CBO-2 BBB Bonds and suspend litigation with Morgan Stanley with respect to these
CMBS. On March 5, 1999, Morgan Stanley sold the $205.8 million face amount of
CMBS with a coupon of 7%. The proceeds of $159.0 million were used to pay off
$141.2 million of the related short-term, variable-rate debt due Morgan Stanley
and the remaining net proceeds of $17.8 million were remitted to CRIIMI MAE.
CRIIMI MAE retained the right to call each CMBS when the outstanding
F-20
<PAGE>
principal balance amortizes to 15% of its original face balance. The 15% call
option prevents CRIIMI MAE from surrendering control of the assets pursuant to
the requirements of FAS 125 and thus the transaction will be accounted for as a
secured borrowing and not a sale. This means that CRIIMI MAE will recognize a
liability for these bonds during the first quarter of 1999 in the amount of the
gross proceeds received.
CRIIMI MAE and Morgan Stanley also agreed to a standstill period
through March 31, 1999 regarding seven classes of Subordinated CMBS known as
Morgan Stanley Capital I, Inc. Series 1998-WF2. The Company and Morgan Stanley
subsequently agreed to extend the standstill period with respect to these bonds
through April 15, 1999.
The Company's CMBS portfolio currently generates monthly cash flow.
As of March 31, 1999, certain lenders have withheld payment to CRIIMI MAE of
approximately $14.3 million, including approximately $8.3 million owed to
CRIIMI MAE as of December 31, 1998 with respect to its CMBS portfolio
(excluding those securities that are match-funded). (Refer to Note 6 for
payments due the Company in connection with CMO-IV). The realizeability of
these receivables is uncertain and is dependent upon reaching successful
agreements with the Company's lenders that does not result in the loss of any
collateral. A loss could occur if the lender fails to remit interest payments
to the Company. Furthermore, it is possible that CRIIMI MAE may have to
record impairment losses as a result of future adverse actions taken against
CRIIMI MAE by its lenders.
CMSLP did not file for protection under Chapter 11. However, because of
the related party nature of its relationship with CRIIMI MAE, CMSLP has been
under a high degree of scrutiny from servicing rating agencies. As a result of
CRIIMI MAE's Chapter 11 filing, CMSLP was declared in default under certain
credit agreements with First Union National Bank ("First Union"). In order to
repay all such credit agreement obligations and to increase its liquidity, CMSLP
arranged for Banc One Mortgage Capital Markets, LLC ("BOMCM") to succeed it as
master servicer on two commercial mortgage pools on October 30, 1998. BOMCM paid
the Company $6.9 million for these master servicing rights resulting in a loss
of approximately $1.4 million from the recorded value of the rights, of which
substantially all of the loss flowed through to CRIIMI MAE through equity in
earnings in the fourth quarter of 1998. In addition, in order to allay rating
agency concerns stemming from CRIIMI MAE's Chapter 11 filing, in November 1998,
CRIIMI MAE designated BOMCM as special servicer on 33 separate CMBS
securitizations totaling approximately $29 billion, subject to certain
requirements contained in the respective servicing agreements. CMSLP will
continue to perform special servicing as sub-servicer for BOMCM on all but five
of these securitizations. CRIIMI MAE remains the owner of the lowest rated
tranche of the related Subordinated CMBS and, as such, retains all rights
pertaining to ownership, including the right to replace the special servicer.
CMSLP lost the right to specially service the DLJ MAC 95 CF-2 securitization
when the majority holder of the lowest rated tranches replaced CMSLP as special
servicer.
6. LOAN ORIGINATION PROGRAM
Prior to the petition date, the Company originated mortgage loans
principally through mortgage loan conduit programs with major financial
institutions for the primary purpose of pooling such loans for
securitization. At the time it filed for bankruptcy, the Company had a
mortgage loan conduit program with Citibank (the "Citibank Program") and a
loan conduit program with Prudential Securities Incorporated and Prudential
Securities Credit Corporation (the "Prudential Program") (together the
"Programs").
In June 1998, the Company securitized $496 million face amount of
commercial mortgage loans (a majority of which were no-lock) originated or
acquired through the Citibank Program, and through CRIIMI MAE CMBS Corp.,
issued Commercial Mortgage Loan Trust Certificates, Series 1998-1 ("CMO-IV").
The original basis of the loans on the balance sheet includes approximately
$8 million of deferred loan and securitization costs that are amortized over
the life of the securitization and recognized against income using the
effective interest rate method.
Through this securitization, CRIIMI MAE sold $397 million face amount
of fixed-rate investment grade securities (see also Note 9). CRIIMI MAE retained
the remaining principal and interest cash flows from the mortgage loans that
collateralize the securitization. CRIIMI MAE has call rights on each of the
issued and sold securities and therefore has not surrendered control of the
collateral, thus requiring the transaction to be accounted for as a financing
of the mortgage loans collateralizing the investment grade CMBS sold in the
securitization.
F-21
<PAGE>
Although CMO-IV is accounted for as a financing, economically, the
Company currently generates monthly cash flow from the subordinated CMBS
tranches created in the transaction. As of March 31, 1999, payments of
approximately $5.3 million were withheld by certain lenders, including
approximately $2.7 million which was owed as of December 31, 1998 with
respect to certain tranches of CMO-IV (excluding those securities that are
match-funded).
As of December 31, 1998, the originated loans were secured by
properties of the types and at the locations identified below:
<TABLE>
<CAPTION>
Property Type Percentage(1) Geographic Location(2) Percentage(1)
- ------------- ------------- ---------------------- -------------
<S> <C> <S> <C>
Multifamily............. 38% Michigan............... 20%
Hotel................... 26% Texas.................. 8%
Retail.................. 20% Illinois............... 7%
Office.................. 11% Connecticut............ 6%
Other................... 5% California............. 6%
---- Maryland............... 6%
Total............... 100% Other(3)............... 47%
---- ----
---- Total................ 100%
----
----
</TABLE>
- ----------
(1) Based on a percentage of the total unpaid principal balance of the
underlying loans.
(2) No significant concentration by region.
(3) No other individual state makes up more than 5% of the total.
Descriptions of the originated loans categorized by unpaid principal
balances as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------
Weighted
Average
Number of Face Effective Weighted Average
Unpaid Principal Balance (2) Loans Value(1)(4)(5) Interest Rate Remaining Term
- ---------------------------- ----- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$ 0 - $ 4.99 million 130 $278,252,990 7.45% 9.9 years
$ 5 - $ 9.99 million 18 131,974,592 7.35% 9.6 years
$10 - $ 14.99 million 5 63,821,315 7.21% 9.6 years
$15 - $ 20 million 1 17,242,738 7.15% 10.9 years
--- ------------ ----- ----------
154 $491,291,635 7.38% 9.8 years
--- ------------ ----- ----------
--- ------------ ----- ----------
</TABLE>
(1) All originated loans are collateralized by first or second liens on
multifamily, hotel, retail, office or other commercial properties.
Approximately 79% of the loans in the securitization are No-Lock loans.
(2) Principal and interest on originated loans is payable at level amounts
over the term of the loan. Approximately 91.8% of the loans in the
portfolio have balloon payment structures. Total annual debt service
payable to CRIIMI MAE's financing subsidiaries for the originated loans
held as of December 31, 1998 is approximately $44.9 million.
(3) A reconciliation of the carrying amount of CRIIMI MAE's originated
loans for the year ended December 31, 1998, follows:
F-22
<PAGE>
<TABLE>
<CAPTION>
For the year ended
December 31, 1998
-------------
<S> <C> <C>
Balance at beginning of year $ --
Additions during the year:
Securitized Originated Loans 504,357,929
Deductions during the year:
Principal payments $ (4,526,939)
Amortization of deferred loan costs (754,960)
-------------
Balance at end of year (6) $ 499,076,030
-------------
-------------
</TABLE>
(4) Principal amount of mortgage securities subject to delinquent principal
or interest is not presented since all required payments with respect
to CRIIMI MAE's consolidated originated loans are current, and none of
these mortgage securities are delinquent as of December 31, 1998.
(5) The fair value of the originated loans at December 31, 1998 is
$480,485,570.
(6) The carrying amount of the originated loans of $499,076,030 is
comprised of $491,291,635 face amount of loans plus $7,784,395 of
deferred loan costs.
The agreements for both Programs provided that during the warehouse
period, the respective financial institution will fund and originate in its name
all mortgage loans under the Program, and CRIIMI MAE is required to deposit a
portion of each loan amount in a reserve account. In both facilities, the
respective financial institution is responsible for executing an interest rate
hedging strategy.
The Citibank Program provided for CRIIMI MAE to pay to Citibank the
face value of the loans originated through the Program, which were funded by
Citibank and not otherwise securitized, plus or minus any hedging loss or gain
on December 31, 1998. To secure this obligation CRIIMI MAE was required to
deposit a portion of the principal amount of each originated loan in a reserve
account. At December 31, 1998, this reserve account was approximately $31.8
million.
Under the Prudential Program, the Company has an option to pay to
Prudential the face value plus or minus any hedging loss or gain, at the earlier
of June 30, 1999, or the date by which a stated quantity of loans for
securitization has been made. Under the Prudential program, the Company was
required to fund a reserve account, which was approximately $2 million at
December 31, 1998. If CRIIMI MAE is unable to exercise its option, the Company
will forfeit the amount of the reserve account.
On October 5, 1998, Citibank sent the Company a letter alleging that
the Company was in default under the Citibank Program and that it was
terminating the Citibank Program. The Company and Citibank negotiated a
Stipulation and Consent Order (the "Order"), entered by the Bankruptcy Court on
April 5, 1999, regarding the Citibank Program. The Order provides that Citibank
will, with CRIIMI MAE's cooperation, sell the loans originated under the
Citibank Program provided that the sale results in CRIIMI MAE receiving minimum
net proceeds of not less than $3.5 million, after satisfying certain amounts due
to Citibank under the Citibank Program from the amount held in the reserve
account. The minimum net proceeds provision may be waived by agreement of the
Company, the Official Committee of Unsecured Creditors in the Company's Chapter
11 case (the "Unsecured Committee") and the Official Committee of Equity
Security Holders in the Company's Chapter 11 case (the "Equity Committee").
CRIIMI MAE is also negotiating with Prudential to sell the loan originated under
the Prudential Programs. There can be no assurance that an agreement will be
reached with Prudential or, if reached, that such agreement would be approved by
the Bankruptcy Court.
As of September 30, 1998, the Company's obligation under the Citibank
Program was $14.8 million in excess of the fair value of the loans and the
Company's option under the Prudential Program was $2.8 million in excess of fair
value of the loan principally because of the turmoil in the capital markets. As
a result CRIIMI MAE recorded a $17.6 million unrealized loss related to the
programs as of September 30, 1998. The Company calculated
F-23
<PAGE>
the unrealized losses based upon an estimated value of the loans (based on
proceeds that could be raised in a securitization of the loans using market
spreads for bonds that would be issued if such a transaction occurred on
September 30, 1998) as well as hedging losses as of that date.
Subsequent to the Chapter 11 filing, CRIIMI MAE decided to sell the
loans originated in conjunction with the Programs. As a result of the
Company's decision to sell the loans and because a sale of the loans will
result in less proceeds than would ordinarily be realized in a securitization
(which was the Company's original intent), the Company recorded, during the
fourth quarter, additional unrealized losses of $ 12.7 million and wrote off
net deferred loan costs of approximately $3.3 million in 1998.
7. INSURED MORTGAGE SECURITIES
CRIIMI MAE's consolidated portfolio of mortgage securities is comprised
of FHA-Insured Certificates and GNMA Mortgage-Backed Securities. Additionally,
mortgage securities include Federal Home Loan Mortgage Corporation (Freddie Mac)
participation certificates which are collateralized by GNMA Mortgage-Backed
Securities, as discussed below. As of December 31, 1998, approximately 18% of
CRIIMI MAE's investment in mortgage securities were FHA-Insured Certificates and
82% were GNMA Mortgage-Backed Securities (including certificates which
collateralize Freddie Mac participation certificates). FHA-Insured Certificates
and GNMA Mortgage-Backed Securities are collectively referred to herein as
"mortgage securities."
CRIIMI MAE owns the following mortgages directly or indirectly through
its wholly-owned subsidiaries:
<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------
Weighted
Number of Average
Mortgage Fair Amortized Effective Weighted Average
Securities Value(1) Cost Interest Rate Remaining Term
---------- ---------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
CRIIMI MAE (3) 1 $ 5,511,707 $ 5,455,114 8.00% 36 years
CRIIMI MAE Financial Corporation(2) 40 161,382,142 158,832,182 8.26% 30 years
CRIIMI MAE Financial Corporation II(2) 55 232,560,966 231,973,794 7.18% 28 years
CRIIMI MAE Financial Corporation III(2) 27 88,640,406 87,376,578 8.00% 30 years
---- ------------ ------------ ------- --------
123 $488,095,221 $ 483,637,668 7.69%(4) 29 years(4)
---- ------------ ------------ ------- --------
---- ------------ ------------ ------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1997
-----------------------
Weighted
Number of Average
Mortgage Fair Amortized Effective Weighted Average
Securities Value(1) Cost Interest Rate Remaining Term
---------- ---------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
CRIIMI MAE 5 $ 18,888,883 $ 18,447,382 8.09% 34 years
CRIIMI MAE Financial Corporation 48 196,619,210 189,759,543 8.39% 31 years
CRIIMI MAE Financial Corporation II 59 252,208,500 247,614,722 7.19% 29 years
CRIIMI MAE Financial Corporation III 37 154,535,482 148,850,593 8.05% 31 years
--- ----------- ------------ -------- ---------
149 $622,252,075 $604,672,240 7.81%(4) 30 years(4)
--- ----------- ------------ -------- ---------
--- ----------- ------------ -------- ---------
</TABLE>
- ----------
(1) The fair value of the mortgage securities is based on quoted market prices.
At December 31, 1997, CRIIMI MAE mortgage securities were classified as
Available for Sale and carried at fair value on the balance sheet, the remaining
mortgage securities were carried at amortized cost. As of December 31, 1998, all
mortgage securities are classified as Available for Sale and carried at fair
value on the balance sheet.
F-24
<PAGE>
(2) During the year ended December 31, 1998, there were 22 prepayments of
mortgage securities held by CRIIMI MAE's financing subsidiaries. These
prepayments generated net proceeds of approximately $104.0 million and resulted
in net financial statement gains of approximately $666,000, which are included
in gains on mortgage securities dispositions on the accompanying consolidated
statement of income for the year ended December 31, 1998.
(3) During the year ended December 31, 1998, CRIIMI MAE sold four mortgage
securities and a portion of a fifth mortgage security. This sale generated net
proceeds of $13.4 million and resulted in net financial statement gains of
$531,000.
(4) Weighted Average was computed using total face value of the mortgage
securities.
As a result of the CBO-2 transaction (see Note 5), the Company, in
accordance with GAAP, no longer classifies its mortgage securities as Held to
Maturity. The Company's mortgage securities are now classified as Available for
Sale. As a result, the Company now carries its mortgage securities at fair
value. The difference between the amortized cost and the fair value of mortgage
assets recorded at fair value represents the net unrealized gains on those
mortgage securities, which is reported as a separate component of shareholders'
equity as of December 31, 1998 and 1997.
Descriptions of the mortgage securities owned, directly or indirectly
by CRIIMI MAE, which exceed 3% of the total carrying value of the consolidated
mortgage securities as of December 31, 1998, summarized information regarding
other mortgage securities and mortgage securities income earned in 1998, 1997
and 1996, including interest earned on the disposed mortgage securities, are as
follows:
F-25
<PAGE>
<TABLE>
<CAPTION>
Face Fair Effective
Value of Value of Amortized Interest
Mortgage Mortgage Cost Income Rate
Securities(2) Securities(5)(3) (1)(4) Range
------------ ---------------- -------- ---------
<S> <C> <C> <C> <C>
CRIIMI MAE
- ----------
GNMA MORTGAGE-
BACKED SECURITIES
- -----------------
Other/Total
(1 mortgage security) $ 5,455,114 $ 5,511,707 $ 5,455,114 8.00%
------------ ------------ ------------
CRIIMI MAE FINANCIAL
- --------------------
CORPORATION
-----------
FHA-INSURED CERTIFICATES
- ------------------------
Other
(24 mortgage securities) 89,347,192 90,422,553 89,147,563 7.35%-11.00%
GNMA MORTGAGE-
BACKED SECURITIES:
------------------
Other
(16 mortgage securities) 69,294,079 70,959,589 69,684,619 7.93%-8.78%
------------ ------------ ------------
Subtotal 158,641,271 161,382,142 158,832,182
------------ ------------ ------------
<CAPTION>
Mortgage Mortgage Mortgage Final
Income Income Maturity Maturity
Earned Earned Earned Date
in 1998 in 1997 in 1996 Range
------------ ------------ ---------- ---------
<S> <C> <C> <C> <C>
CRIIMI MAE
- ----------
GNMA MORTGAGE-
BACKED SECURITIES
- -----------------
Other/Total
(1 mortgage security) $ 577,393 $ 589,078 -- February 2035
------------ ------------ ----------
CRIIMI MAE FINANCIAL
- --------------------
CORPORATION
-----------
FHA-INSURED CERTIFICATES
- ------------------------
Other
(24 mortgage securities) 7,755,402 7,811,938 7,863,966 February 2019-April 2034
GNMA MORTGAGE-
BACKED SECURITIES:
------------------
Other
(16 mortgage securities) 5,603,987 5,647,180 5,687,630 November 2017-June 2034
------------ ------------ ----------
Subtotal 13,359,389 13,459,118 13,551,596
------------ ------------ ----------
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
Face Fair Effective
Value of Value of Amortized Interest
Mortgage Mortgage Cost Income Rate
Securities(2) Securities(5)(3) (1)(4) Range
------------ ---------------- -------- ---------
<S> <C> <C> <C> <C>
CRIIMI MAE FINANCIAL
CORPORATION II
--------------
GNMA MORTGAGE-
BACKED SECURITIES:
- ------------------
San Jose South 28,400,466 28,716,391 28,631,436 7.66%
Somerset Park 29,080,455 29,393,452 29,600,886 7.41%
Yorkshire Apartments 14,735,762 14,892,304 14,804,318 7.21%
Other
(52 mortgage securities) 157,837,963 159,558,819 158,937,154 7.14%-8.02%
------------ ------------ ------------
Subtotal 230,054,646 232,560,966 231,973,794
------------ ------------ ------------
CRIIMI MAE FINANCIAL
CORPORATION III
---------------
GNMA MORTGAGE-
BACKED SECURITIES
- -----------------
Other
(27 mortgage securities) 87,058,629 88,640,406 87,376,578 7.11%-10.94%
------------ ------------ ------------
Subtotal 87,058,629 88,640,406 87,376,578
------------ ------------ ------------
Total mortgage securities 481,209,660 488,095,221 483,637,668
------------ ------------ ------------
Mortgage security dispositions:
1998 -- -- -- 7.05%-10.49%
1997 -- -- -- 7.59%-10.17%
1996 -- -- -- 8.70%-11.31%
<CAPTION>
Mortgage Mortgage Mortgage Final
Income Income Maturity Maturity
Earned Earned Earned Date
in 1998 in 1997 in 1996 Range
------------ ------------ ---------- ---------
<S> <C> <C> <C> <C>
CRIIMI MAE FINANCIAL
CORPORATION II
- --------------------
GNMA MORTGAGE-
BACKED SECURITIES:
San Jose South 2,064,876 2,090,665 2,114,560 October 2023
Somerset Park 2,130,465 2,149,005 2,166,226 July 2028
Yorkshire Apartments 1,033,985 1,041,158 1,047,835 July 2031
Other
(52 mortgage securities) 11,534,078 11,649,436 11,756,870 May 2021-April 2035
------------ ------------ -----------
Subtotal 16,763,404 16,930,264 17,085,491
------------ ------------ -----------
CRIIMI MAE FINANCIAL
CORPORATION III
GNMA MORTGAGE-
BACKED SECURITIES
Other
(27 mortgage securities) 7,024,665 7,075,555 7,127,115 August 2015-February 2035
------------ ------------ -----------
Subtotal 7,024,665 7,075,555 7,127,115
------------ ------------ -----------
Total mortgage securities 37,724,851 38,054,015 37,764,202
------------ ------------ -----------
Mortgage security dispositions:
1998 5,337,892 9,587,672 10,148,775
1997 -- 1,783,714 6,890,233
1996 -- -- 2,108,460
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
Face Fair Effective
Value of Value of Amortized Interest
Mortgage Mortgage Cost Income Rate
Securities(2) Securities(5)(3) (1)(4) Range
------------ ---------------- -------- ---------
<S> <C> <C> <C> <C>
Mortgage securities $481,209,660 $488,095,221 $ 483,637,668
------------ ------------ -------------
------------ ------------ -------------
Investment in
Limited Partnerships $ --
-------------
-------------
<CAPTION>
Mortgage Mortgage Mortgage Final
Income Income Maturity Maturity
Earned Earned Earned Date
in 1998 in 1997 in 1996 Range
------------ ------------ ---------- ---------
<S> <C> <C> <C> <C>
Mortgage securities $ 43,062,743 $ 49,425,401 $56,911,670
------------ ------------ -----------
------------ ------------ -----------
Investment in
Limited Partnerships $ -- $ 42,976 $ 253,292
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
<PAGE>
(1) All mortgages are collateralized by first or second liens on residential
apartment, retirement home, nursing home or townhouse complexes which have
diverse geographic locations and are FHA-Insured Loans or GNMA Mortgage-Backed
Securities. Payment of the principal and interest on FHA-Insured Certificates is
insured by HUD pursuant to Title 2 of the National Housing Act. Payment of the
principal and interest on GNMA Mortgage-Backed Securities is guaranteed by GNMA
pursuant to Title 3 of the National Housing Act.
The investment in limited partnerships is not federally insured or guaranteed.
(2) Principal and interest on mortgage securities is payable at level amounts
over the life of the mortgage asset. Total annual debt service payable to CRIIMI
MAE and its financing subsidiaries for the mortgage securities held as of
December 31, 1998 is approximately $42 million.
(3) The fair value of the mortgage securities is based on quoted market prices.
(4) Principal amount of mortgage securities subject to delinquent principal or
interest is not presented since all required payments with respect to CRIIMI
MAE's consolidated mortgage securities are current, and none of these mortgage
securities are delinquent as of December 31, 1998.
(5) Reconciliations of the carrying amount of CRIIMI MAE's mortgage securities
for the years ended December 31, 1998 and 1997, follow:
F-28
<PAGE>
<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, 1998 December 31, 1997
------------------------------ -------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 605,113,741 $ 691,109,722
Additions during the year:
Purchases and advances on construction
loans -- 285,430
Amortization of discount 28,082 28,376
Adjustment to net unrealized gains on mortgage securities 4,016,052 --
Deductions during the year:
Principal payments $ (4,743,972) $ (4,930,080)
Mortgage dispositions (116,218,027) (66,148,925)
Adjustment to net unrealized gains
on mortgage securities (a) -- (15,125,929)
Accretion of premium (100,655) (121,062,654) (104,853) (86,309,787)
------------- ------------- ------------- -------------
Balance at end of year $ 488,095,221 $ 605,113,741
------------- -------------
------------- -------------
</TABLE>
(a) This adjustment is primarily due to a subsidiary's dispositions of
mortgage securities in 1997.
F-29
<PAGE>
8. RECONCILIATION OF FINANCIAL STATEMENT NET INCOME TO TAX BASIS INCOME
Reconciliations of the financial statement net income to the tax basis
income for the years ended December 31, 1998, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Consolidated financial statement
net income $ 42,368,593 $ 54,187,616 $ 35,239,857
Gain on sale of collateralized bond obligation (28,800,408) -- --
Reamortization of Subordinated CMBS 41,291,138 6,496,641 1,918,841
Unrealized losses on warehouse purchase obligations 30,378,173 -- --
Reorganization costs 7,149,828 -- --
Interest expense adjustments for collateralized bond obligation (22,748,840) -- --
Amortization of assets acquired in the Merger 2,877,576 2,877,564 2,881,824
Equity in earnings from investments 5,413,761 492,355 (138,772)
Amortization and other interest expense
adjustments (2,842,613) (1,537,367) (1,245,122)
Mortgage dispositions 549,180 165,284 307,704
Adjustment due to accounting for subsidiary
as a pooling for financial statement
purposes and a purchase for tax purposes -- (2,132,613) 2,520,569
Capital gain on installment sale -- -- 1,214,091
Other 177,100 (7,947) (165,835)
------------ ------------ ------------
Tax basis income $ 75,813,488 $ 60,541,533 $ 42,533,157
------------ ------------ ------------
Dividends paid or accrued on preferred shares (6,997,859) (6,472,540) (3,526,451)
------------ ------------ ------------
Tax basis income available to common
shareholders $ 68,815,629 $ 54,068,993 $ 39,006,706
------------ ------------ ------------
------------ ------------ ------------
Tax basis income per share:
Income before gains from CRI Liquidating $ 1.42 $ 1.24 $ 1.00
Capital gain from CRI Liquidating -- 0.21 0.27
------------ ------------ ------------
------------ ------------ ------------
Total tax basis income per share $ 1.42 $ 1.45 $ 1.27
------------ ------------ ------------
------------ ------------ ------------
Tax basis shares outstanding 48,502,522 37,334,034 30,773,621
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Differences between financial statement net income and the tax basis
income available to common shareholders principally relate to differences in the
methods of accounting for the sale of securities and trustee servicing rights in
conjunction with the CBO-2 transaction, Subordinated CMBS (see also Note 5),
unrealized losses on warehouse purchase obligations, a portion of reorganization
costs not deductible for tax purposes, amortization of certain deferred costs,
merger of the CRI Mortgage Businesses, and prior to 1998, the merger of CRIIMI
funds.
The entire CBO-2 transaction was accounted for as a financing for tax
purposes. As such, the Company will recognize income for tax purposes from the
entire group of mortgage securitization pools (35 total) with an aggregate face
amount of $2.8 billion and purchase price of $2.0 billion and receive a
deduction for the interest expense on the outstanding debt.
F-30
<PAGE>
As a result of the foregoing, the nature of the dividends for income
tax purposes on a per share basis is as follows:
<TABLE>
<CAPTION>
1998(1) 1997(1) 1996(1)
-------- -------- --------
<S> <C> <C> <C>
Ordinary income $ 1.09 $ 1.21 $ 0.91
Long-term capital gains 0.08 0.21 0.31
-------- -------- --------
$ 1.17 $ 1.42 $ 1.22
-------- -------- --------
-------- -------- --------
</TABLE>
- ----------
(1) In 1998, 1997 and 1996, CRIIMI MAE generated $0.1456 and $0.0977 and $0.003
per common share, respectively, of excess inclusion income from CBO-1 and for
1998 from CBO-2. The excess inclusion income is taxable at the shareholder level
as CRIIMI MAE intends to distribute substantially all of its taxable income.
Excess inclusion cannot be offset by a net operating loss and is considered
unrelated taxable business income under Section 511.
9. OBLIGATIONS UNDER FINANCING FACILITIES
DEFAULT DECLARATIONS
As a result of the bankruptcy petition filed on October 5, 1998,
certain lenders have declared defaults or otherwise taken action against the
Company with respect to a number of CRIIMI MAE's financing facilities. See
Note 18 for a discussion of material litigation between the Company and
various creditors and agreements the Company has reached with certain of
these creditors.
The following table summarizes CRIIMI MAE's debt outstanding as of
December 31, 1998 and 1997:
F-31
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------
Stated
Balance Eff. Rate Average Average Maturity
Type of Debt At Year End At Year End Balance Eff. Rate Date (9)
- ------------ ------------ ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Securitized Mortgage
obligations:
FHLMC Funding Note (1) $220,822,380 7.4% $229,137,117 7.4% Sept 2031
FNMA Funding Note (2) 84,750,764 7.3% 119,316,182 7.3% March 2035
CMO (3) 150,528,576 7.4% 166,408,357 7.4% Jan 2033
CMO-Loan Originations (6) 386,752,951 6.5% 222,114,163 6.5% Oct 2001 -
May 2008
Subordinated CMBS (7) 117,831,435 7.7% 122,861,289 7.6% Nov 2006 -
Nov 2011
Variable-Rate Secured borrowings - April 1998 -
Subordinated CMBS (8) 932,236,674 7.2% 802,562,377 6.8% Sept 2000
Bank term loans (5) 3,050,000 1.8% 3,000,238 3.9% Dec 1998
Working capital line of credit 40,000,000 7.2% 21,918,727 7.3% Dec 1998
Bridge Loan 49,749,522 7.8% 19,765,489 7.7% Feb 1999
Senior unsecured notes 100,000,000 9.1% 99,902,312 9.1% Dec 2002
--------------
Total $2,085,722,302
--------------
--------------
<CAPTION>
Year Ended December 31, 1997
----------------------------
Balance Average Average
Type of Debt At Year End Balance Eff. Rate
- ------------ ----------- --------- ---------
<S> <C> <C> <C>
Securitized Mortgage
obligations:
FHLMC Funding Note (1) $235,773,439 $236,752,371 7.4%
FNMA Funding Note (2) 145,527,438 150,431,262 7.3%
CMO (3) 178,062,444 187,986,472 7.4%
CMO-Loan Originations (6) -- -- --
Subordinated CMBS (7) 137,061,676(4) 141,382,710 7.7%
Variable-Rate Secured borrowings -
Subordinated CMBS (8) 585,379,360 280,516,984 7.0%
Bank term loans (5) 3,250,000 5,006,078 2.2%
Working capital line of credit 30,000,000 1,032,609 7.2%
Bridge Loan -- -- --
Senior unsecured notes 99,877,695 10,869,565 9.1%
-------------
Total $1,414,932,052
-------------
-------------
</TABLE>
F-32
<PAGE>
(1) As of December 31, 1998 and December 31, 1997, the face amount of the note
was $229,005,558 and $244,429,739, respectively, with unamortized discount of
$8,183,178 and $8,656,300, respectively. During the year ended December 31, 1998
and 1997, discount amortization of $473,122 and $343,529, respectively, was
recorded as interest expense.
(2) As of December 31, 1998 and December 31, 1997, the face amount of the note
was $86,620,792 and $147,927,688, respectively, with unamortized discount of
$1,870,028 and $2,400,250, respectively. During the year ended December 31, 1998
and 1997, discount amortization of $530,222 and $242,759, respectively, was
recorded as interest expense.
(3) As of December 31, 1998 and December 31, 1997, the face amount of the note
was $154,840,829 and $182,848,907, respectively, with unamortized discount of
$4,312,253 and $4,786,463, respectively. During the year ended December 31, 1998
and 1997, discount amortization of $474,210 and $343,048, respectively, was
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 December 31, 1998 and December 31, 1997
includes the impact of a rate reduction agreement which was in place from July
1995 through December 31, 1998, providing for a reduction in the rate on a
portion of the loans based on balances maintained at the bank.
(6) As of December 31, 1998, the face amount of the debt was $392,752,908 with
unamortized discount of $5,999,957. During the year ended December 31, 1998
discount amortization of $591,817 was recorded in interest expense.
(7) As of December 31, 1998, the face amount of the debt was $122,612,000 with
an unamortized discount of $4,780,565. During the year ended December 31, 1998
discount, amortization of $156,823 was recorded in interest expense.
(8) On October 6, 1998, Morgan Stanley and Co. International Limited ("Morgan
Stanley") advised CRIIMI MAE that it was exercising alleged ownership rights
over certain classes of CMBS it held as collateral. Subsequent to year end,
the Company agreed to cooperate on selling two classes of investment grade
CMBS issued by CRIIMI MAE Commercial Mortgage Trust Series 1998-C1 (CBO-2 BBB
Bonds) and to suspend litigation with Morgan Stanley with respect to these
CMBS. CRIIMI MAE and Morgan Stanley also agreed to a standstill period, now
extended through April 15, 1999, regarding seven classes of subordinated CMBS
issued by Morgan Stanley Capital I Inc. Series 1998-WF2. On March 5, 1999,
the CBO-2 BBB Bonds with $205.8 million face amount and a coupon rate of 7%
were sold in a transaction accounted for as a financing by the Company rather
than a sale. Of the $159.0 million of net sale proceeds, $141.2 million was
used to repay borrowings under the agreement with Morgan Stanley and
$17.8 million was paid to CRIIMI MAE.
(9) Stated maturities per respective loan agreements.
The maturities of CRIIMI MAE's debt are as follows:
<TABLE>
<S> <C>
1999 $1,198,355,141
2000 80,621,678
2001 106,419,680
2002 96,894,251
2003 88,325,311
Beyond 515,106,241
--------------
Total (1) $2,085,722,302
--------------
--------------
</TABLE>
(1) Payments of principal on the securitized mortgage obligations are required
to the extent mortgage principal is received on the related collateral. The
projected principal paydown on the securitized mortgage obligations is
based upon the stated terms of the underlying mortgages.
F-33
<PAGE>
COLLATERIZED BOND OBLIGATIONS - CMBS
In May 1998, CRIIMI MAE, through its wholly-owned subsidiary CRIIMI MAE
CMBS Corp., issued an aggregate of $468 million of longer-term, fixed-rate
investment grade debt securities to reduce an equivalent amount of short-term,
variable rate secured borrowings used to initially fund CMBS acquisitions.
The transaction was structured with a total of $468 million in investment grade
securities of which $345 million were non-callable securities and $123 million
were callable securities.
FAS 125 provides guidance as to whether a transfer of financial assets,
such as in a securitization, will qualify for sales treatment or secured
borrowing treatment. This distinction is made by concluding as to whether a
transferor relinquishes control over the transferred assets. If the transferor
is considered to no longer control the assets, the securities receive sales
treatment which calls for the de-recognition of all assets surrendered and
liabilities settled, the recognition of all assets received and liabilities
incurred and the recognition of a gain or loss through earnings. If the
transferor maintains control over the transferred assets, the assets remain on
the balance sheet and a corresponding amount of debt is recognized for all
securities not held by the transferor. The determination of control is made on a
security by security basis.
As a result of this transaction, control as of December 31, 1998 was
retained over $123 million of the securities because CRIIMI MAE has the right to
call the securities. The $345 million of non-callable investment grade
securities were treated as a sale, the corresponding assets and debt were
de-recognized from the balance sheet and a gain of $28.8 million was recognized
through earnings. The $123 million of callable investment grade securities and
the corresponding amount of debt are recorded on the balance sheet.
COLLATERALIZED MORTGAGE OBLIGATIONS - INSURED MORTGAGE SECURITIES
During late 1995, CRIIMI MAE, through three wholly owned financing
subsidiaries, issued approximately $664 million (face amount) of long-term,
fixed-rate debt in order to refinance short-term, variable-rate debt. Changes in
interest rates will have no impact on the cost of funds or the collateral
requirements on this debt. Proceeds from the issuance of this long-term debt,
net of original issue discount, were originally applied as follows:
approximately $557 million was used to pay down short-term, variable-rate debt
facilities, approximately $8 million was used to pay transaction costs and
approximately $80 million was used to purchase Subordinated CMBS.
The refinancings were completed through three separate transactions.
GNMA Mortgage-Backed Securities with a fair value of approximately $233 million
as of December 31, 1998, are pledged as security for a funding note payable to
Freddie Mac (the FHLMC Funding Note). The Collateralized Mortgage Obligations
(CMOs) are collateralized by FHA-Insured Loans and GNMA Mortgage-Backed
Securities with a fair value of approximately $161 million as of December 31,
1998. GNMA Mortgage-Backed Securities with a fair value of approximately $89
million as of December 31, 1998, are pledged as security for a funding note
payable to the Federal National Mortgage Association (the FNMA Funding Note).
Each of the above-mentioned transactions has been accounted for as a
financing in accordance with FASB Technical Bulletin 85-2. The discount on the
CMOs and the Funding Notes is being amortized on a level yield basis.
Transaction costs were capitalized and are included in deferred costs on the
accompanying balance sheet as of December 31, 1998 and 1997.
COLLATERALIZED MORTGAGE OBLIGATIONS - ORIGINATED LOANS
In the June 1998 CMO-IV transaction, through the securitization of $496
million of originated or acquired commercial mortgage loans, CRIIMI MAE sold
$397 million face amount of fixed-rate investment grade debt securities. CRIIMI
MAE retained call options on all of the securities such that control was not
relinquished. Therefore, the mortgage loans remain on CRIIMI MAE's balance sheet
as assets for accounting purposes along with these collateralized mortgage
obligations for all securities sold by CRIIMI MAE.
The securities were issued at a discount of approximately $6.6 million.
Such discount, as well as approximately $6.7 million of deferred costs and
securitization transaction costs are amortized on a level yield basis over the
expected life of the related security. The securities not sold to third parties
were partially financed with
F-34
<PAGE>
secured borrowings. The lending agreements are secured by certain of the CMO-IV
securities with an aggregate fair value of approximately $92.9 million as of
December 31, 1998.
The Company intended to sell certain of the CMO-IV securities that were
not initially sold to third parties ("CMO-IV BBB Bonds"). In anticipation of
this sale, the Company entered into a transaction to hedge the value of those
securities in June 1998. As a result, CRIIMI MAE borrowed and then sold a
10-year Treasury Note in the amount of $44 million. Economically, CRIIMI MAE
would gain on this transaction if the price of the 10-year Treasury Note
declines (i.e. the yield on the 10-year Treasury Note increases). CRIIMI MAE
would lose on this transaction if the price of the 10-year Treasury Note
increases (i.e. the yield on the 10-year Treasury Note decreases). The
transaction was expected to offset the change in value of the securities.
However, this transaction did not qualify for hedge accounting because (1) it
involved the purchase and sale of a cash instrument and (2) it had not been
effective in offsetting changes in the value of the hedged security. Therefore
it was required to be recorded at market ("marked to market") with unrealized
gains or losses reflected in the Company's income statement. The Company was
informed by Citibank that the position was closed on October 8, 1998. Because
Treasury prices increased from the initial transaction date, the Company's
liability was approximately $4.5 million in excess of the initial sales proceeds
received from the transaction as of October 8, 1998. Therefore, the Company
recognized a $4.5 million realized loss through earnings in 1998, of which,
approximately $4.1 million of the loss was recognized as of September 30, 1998
with the remaining $400,000 loss recognized in the fourth quarter.
VARIABLE RATE SECURED BORROWINGS-CMBS
As previously discussed, when CRIIMI MAE purchased Subordinated CMBS,
it initially financed (generally through secured borrowings) a portion of the
purchase price of the Subordinated CMBS. These secured borrowings were either
provided by the issuer of the CMBS pool or through master secured borrowing
agreements, as discussed below. As of December 31, 1998, the secured borrowings
on Subordinated CMBS have stated maturity dates ranging from March 1999 to
September 2000 and have interest rates that are generally based on the one-month
London Interbank Offered Rate (LIBOR), plus a spread ranging from 0.5% to 1.5%.
The secured borrowing agreements are secured by certain rated CMBS
security tranches with an aggregate fair value of approximately $1.1 billion as
of December 31, 1998 and $891 million as of December 31, 1997. CRIIMI MAE's
short-term variable rate financing facilities require that the value of the
collateral securing the facilities meet a minimum loan-to-value ratio. If the
value of the collateral is perceived such that the minimum loan-to-value ratio
is not met, then the lender may require the Company to post cash or additional
collateral with sufficient value to cure the perceived value deficiency. At
December 31, 1998, CRIIMI MAE had secured borrowing agreements with German
American Capital Corporation, Lehman ALI, Inc. First Union National Bank of
North Carolina, Morgan Stanley, Merrill Lynch and Citicorp Securities, Inc.
("Citicorp"). These secured borrowing agreements qualify as financings under FAS
125 because CRIIMI MAE is required to purchase the same securities
collateralizing the borrowing before their maturity. Citicorp and Morgan Stanley
have each taken the position that CMBS that were pledged to them by the Company
were instead sold to them by the Company because the transactions between the
parties were documented using Bond Market Association Master Repurchase
Agreement forms. The Company disputes the positions of both Citicorp and Morgan
Stanley and has filed two complaints contesting their claims of ownership. If,
however, Citicorp and Morgan Stanley prevail, the portfolio value of the
Company's owned securities would decrease by the amount of bonds that are deemed
to have been sold to Citicorp or Morgan Stanley and the corresponding
obligations would also decrease.
(See Note 18 ).
SENIOR UNSECURED NOTES
In November 1997, CRIIMI MAE issued senior unsecured notes ("Notes")
due on December 1, 2002 in an aggregate principal amount of $100 million. The
Notes are 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,
restricted the ability of the Company and its subsidiaries to incur additional
indebtedness, pay dividends, or make distributions in respect of the
F-35
<PAGE>
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 were
subject to exceptions and qualifications.
Under the terms of the Indenture, the Company could not incur
additional indebtedness (except for Permitted Debt, which included secured
borrowings, 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.
BANK TERM LOANS
In connection with the Merger, CM Management assumed certain debt of
certain mortgage businesses affiliated with C.R.I., Inc. in the principal amount
of $9.1 million (the "Bank Term Loan"). The 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 required quarterly principal
payments of $650,000 and matured on December 31, 1998. The amount outstanding as
of December 31, 1998 and December 31, 1997 was $1.3 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%.
In addition, in connection with a Real Estate Owned Property, CRIIMI
MAE has a loan secured by the Real Estate Owned Property and guaranteed by
CRIIMI MAE. The loan requires monthly interest payments and a balloon principal
payment at maturity. The loan was made January 22, 1998 and matures August 1,
1999. The amount outstanding as of December 31, 1998 was $1.75 million. Interest
on the loan is based on LIBOR, plus a spread of 1.5%.
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 provides for up to $40 million in borrowings. Outstanding borrowings under
this line of credit are based on interest at one-month LIBOR, plus a spread of
1.75%. As of December 31, 1998 and December 31, 1997, $40 million and $30
million, respectively, in borrowings were outstanding under this facility.
BRIDGE LOAN
In August 1998, CRIIMI MAE entered into a bridge loan for $50 million
provided by a lender. The total unpaid principal balance and accrued interest
was due in February 1999. Outstanding borrowings under this facility based on
interest at one-month LIBOR, plus a spread of 2.25%. As of December 31, 1998,
approximately $50 million in borrowings was outstanding under this loan.
F-36
<PAGE>
OTHER DEBT RELATED INFORMATION
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
51% of CRIIMI MAE's consolidated debt as of December 31, 1998. Fluctuations in
interest rates will continue to impact the value of 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 variable-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
variable-rate debt. When CRIIMI MAE's cap agreements expire, CRIIMI MAE will
have interest rate risk to the extent interest rates increase on any
variable-rate borrowings unless the caps are replaced or other steps are taken
to mitigate this risk. Furthermore, CRIIMI MAE has interest rate risk to the
extent that the LIBOR interest rate increases between the current rate, as of
December 31, 1998, of 5.06% and the cap rate. However, CRIIMI MAE's investment
policy requires that at least 75% of variable-rate debt be hedged. As of
December 31, 1998, 79% of CRIIMI MAE's variable-rate debt is hedged.
For the year ended December 31, 1998, CRIIMI MAE's weighted average
cost of borrowing, including amortization of discounts and deferred financing
fees of approximately $6.5 million, was approximately 7.37%. This does not
include the write-off of costs and discounts related to liabilities subject to
Chapter 11. As of December 31, 1998, CRIIMI MAE's debt-to-equity ratio was
approximately 6.8 to 1.0 and CRIIMI MAE's non-match-funded debt-to-equity ratio
was approximately 3.7 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, among other requirements.
10. INTEREST RATE PROTECTION AGREEMENTS
CRIIMI MAE has entered into interest rate protection agreements to
partially limit the adverse effects of rising interest rates on its
variable-rate borrowings. Interest rate caps ("caps"), as shown below, 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. All of the caps qualify for hedge accounting treatment.
Therefore the related cost, as well as gains or losses on terminated positions,
have been deferred as a component of the related debt. At December 31, 1998,
CRIIMI MAE held caps with a notional amount of $810 million and the caps are
used to hedge $810 million of the Company's variable rate debt.
<TABLE>
<CAPTION>
Notional
Amount Effective Date Maturity Date (2) Cap(2) Index
- ----------- --------------- ---------------- ------- --------
<S> <C> <C> <C> <C>
$ 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 December 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
100,000,000 June 4, 1998 June 4, 2001 6.6563% 1M LIBOR
100,000,000 June 26, 1998 June 26, 2001 6.6563% 1M LIBOR
25,000,000 September 6, 1998 August 6, 2001 6.6523% 1M LIBOR
- ------------
$810,000,000 (1)
- ------------
- ------------
</TABLE>
- ----------
(1) CRIIMI MAE's designated interest rate protection agreements hedge CRIIMI
MAE's variable-rate borrowing costs.
(2) The weighted average strike price is approximately 6.6% and the weighted
average remaining term for these interest rate cap agreements is approximately 2
years.
F-37
<PAGE>
CRIIMI MAE is exposed to credit loss in the event of non-performance by
the counterparties to the interest rate protection agreements should interest
rates exceed the caps. However, management does not anticipate non-performance
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.
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.
11. COMMON STOCK
SHELF REGISTRATION STATEMENT
The Company has on file with the Securities and Exchange Commission
a Shelf Registration Statement on Form S-3 registering for sale of Debt
Securities, Preferred Shares, Warrants, and Common Shares. CRIIMI MAE may,
from time to time, offer in one or more series the securities in amounts, at
prices and on terms set forth in supplements to the Registration Statement.
As of December 31, 1998, a total amount of approximately $340 million remains
available under the Shelf Registration Statement.
CRIIMI MAE had common shares issued and outstanding as of December 31,
1998 and 1997 of 52,898,100 and 40,131,551, respectively. The following material
transactions occurred during the year.
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, to 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 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 July 1998, the Company's Articles of Incorporation were amended at a
special shareholders' meeting to increase the number of common shares
authorized from 60 million shares to 120 million shares.
STOCK PURCHASE PLAN
In December 1997, CRIIMI MAE registered with the Securities and
Exchange Commission up to 3 million shares of CRIIMI MAE common stock ("Common
Shares") in connection with a new Dividend Reinvestment and Stock Purchase Plan
(the "Plan"). Subsequently, in May 1998, the shareholders approved the issuance
of up to 4.7 million common shares in connection with the Plan. The Plan allows
investors the opportunity to purchase additional CRIIMI MAE Common Shares
through the reinvestment of CRIIMI MAE's dividends, optional cash payments and
initial cash investments. Participants in the Plan and interested investors may:
- - Invest by making optional cash payments at any time up to a maximum of
$10,000 per month, regardless of whether the participants' dividends
are being reinvested.
- - Make an initial cash investment up to a maximum of $10,000.
- - Invest by making an initial cash investment in excess of $10,000 or
optional cash payment in excess of $10,000 per month, subject to
permission of the Company, regardless of whether the participants'
dividends are being reinvested.
- - Automatically reinvest cash dividends on all or a portion of their
Common Shares.
F-38
<PAGE>
To fulfill Plan requirements, Common Shares may be, at CRIIMI MAE's option,
purchased in the open market or in privately negotiated transactions or from the
Company. The price to participants of Common Shares purchased with reinvested
dividends or with optional cash payments that do not exceed $10,000 will reflect
a discount, initially, of 2% from the market price. Common shares purchased with
optional cash payment exceeding $10,000 (as approved by the Company) may reflect
a discount ranging from 0% to 5%. No discount will be offered on Common Shares
purchased under the Plan with initial cash investments. All costs of
administering the Plan are paid by CRIIMI MAE. There are no brokerage fees,
commissions or service charges associated with the purchase of Common Shares
through the Plan.
During the year ended December 31, 1998, 2,764,063 Common Shares were newly
issued under the Dividend Reinvestment and Stock Purchase Plan resulting in net
proceeds of $39 million. In October 1998, due to the filing under Chapter 11,
the Company suspended the initial cash investment and optional cash payment
portion of the Plan until further notice.
DIVIDENDS
The Company paid the following common share dividends:
<TABLE>
<CAPTION>
1998 1997 1996
Dividends Dividends Dividends
Quarter Ended Per Share Per Share Per Share
- ------------- --------- --------- ---------
<S> <C> <C> <C>
March 31 $ 0.37 $ 0.35 $ 0.30
June 30 0.40 0.35 0.30
September 30 0.40 0.35 0.30
December 31 --(1) 0.37 0.32
-------- --------- -------
$ 1.17 $ 1.42 $ 1.22
-------- --------- -------
-------- --------- -------
</TABLE>
(1) During the pendency of the bankruptcy proceedings, the Company is prohibited
from paying dividends without first obtaining Bankruptcy Court approval. (See
Note 1-Effect of Chapter 11 Filing on REIT Status and other Tax Matters).
TREASURY SHARES
In March 1998, approximately 540,000 treasury shares were retired.
12. PREFERRED STOCK
Additionally, CRIIMI MAE's charter authorizes the issuance of up to
25,000,000 shares of preferred stock, of which 150,000 shares have been
designated as Series A Cumulative Convertible Preferred Shares, 3,000,000
shares have been designated as Series B Cumulative Convertible Preferred
Shares, 300,000 shares have been designated as Series C Cumulative
Convertible Preferred Shares and 300,000 shares have been designated as
Series D Cumulative Convertible Preferred Shares as of December 31, 1998.
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
In July 1996, CRIIMI MAE completed a public offering of 75,000 shares of
Series A Cumulative Convertible Preferred stock, with a par value of $0.01 per
share (the "Series A Preferred Shares"), at an aggregate offering price of
$7,500,000. The Series A Preferred Shares paid a dividend based on a fixed
premium over three-month LIBOR and, subject to the terms of CRIIMI MAE's
Articles of Incorporation, as amended and supplemented, are (i) convertible at
the option of the holders, (ii) subject to mandatory conversion by CRIIMI MAE
and (iii) subject to redemption by CRIIMI MAE. The number of common shares
deliverable upon conversion of a Series A Preferred Share is equal to a fraction
(i) the numerator of which is 100 and (ii) the denominator of which is 94% of
the average of the closing trade prices reported on the New York Stock Exchange
of CRIIMI MAE's common shares
F-39
<PAGE>
for the 21 days prior to the date notice of conversion is received. The
liquidation preference and the redemption price on the Series A Preferred Shares
equals $100 per share, together with accrued but unpaid dividends. The Series A
Preferred Shares were purchased by a single European institutional investor.
CRIIMI MAE also acquired a put option to sell up to an additional 75,000 Series
A Preferred Shares, at a price of $100 per share, to such investor at any time
prior to July 1, 1997.
In late 1996, the holder of the Series A Preferred Shares elected to
exercise its right to convert the initial 75,000 Series A Preferred Shares into
744,512 shares of common stock. In December 1996, CRIIMI MAE exercised its put
option to sell an additional 75,000 Series A Preferred shares to such investor
at an aggregate offering price of $7,500,000. On January 15, 1997, the holder of
the Series A Preferred Shares elected to exercise its right to convert 25,000
Series A Preferred Shares into 208,011 shares of common stock. On February 3,
1997, the holder converted an additional 25,000 Series A Preferred Shares into
190,212 shares of common stock. On March 16, 1997, the holder of the Series A
Preferred Shares converted the remaining 25,000 Series A Preferred shares into
190,212 shares of common stock. Accordingly, as of December 31, 1998 and 1997
there were no Series A Preferred shares outstanding. Dividends paid and accrued
on Series A Preferred shares totaled $0 and $50,848 for the years ended December
31, 1998 and 1997, respectively.
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
In August 1996, CRIIMI MAE completed a public offering of 2,415,000 shares
of Series B Cumulative Convertible Preferred Shares , with a par value of $0.01
per share (the "Series B Preferred Shares"), at an aggregate offering price of
$60,375,000. The Series B Preferred Shares pay a dividend in an amount equal to
the sum of (i) $0.68 per share per quarter plus (ii) the product of the excess
over $0.30, if any, of the quarterly cash dividend declared and paid with
respect to each share of common stock times a conversion ratio of 2.2844 times
one plus a conversion premium of 3%, subject to adjustment upon the occurrence
of certain events. The Series B Preferred Shares are (i) convertible at the
option of the holders and (ii) subject to redemption at CRIIMI MAE's sole
discretion after the tenth anniversary of issuance. Each Series B Preferred
Share is convertible into 2.2844 shares of common stock, subject to adjustment
upon the occurrence of certain events. The liquidation preference and the
redemption price on the Series B Preferred Shares equals $25 per share, together
with accrued but unpaid dividends. As of December 31, 1997, 1,679,376 Series B
Preferred Shares were outstanding. During the year ended December 31, 1998,
85,394 Series B Preferred Shares were converted into 195,072 shares of common
shares, resulting in 1,593,982 Series B Preferred Shares outstanding as of
December 31, 1998. Dividends paid and accrued on Series B Preferred Shares
totaled $5,428,766 (of which, $1,083,908 was accrued, but not paid to date as a
result of the Chapter 11 filing) and $6,152,143 for the years ended December 31,
1998 and 1997, respectively.
SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
In March 1997, CRIIMI MAE entered into an agreement with an institutional
investor pursuant to which the Company has the right to sell, and such investor
is obligated to purchase, up to 300,000 shares of Series C Cumulative
Convertible Preferred Stock, par value $.01 per share, through June 1998 at a
price of $100 per share. The Series C Cumulative Convertible Preferred stock
pays a dividend at an annual rate equal to the sum of (i) 75 basis points plus
(ii) LIBOR as of the second LIBOR Market Day preceding the commencement of the
calendar quarter which includes such quarterly dividend payment. The preferred
stock will be convertible into shares of common stock at the option of the
holders and is subject to redemption by CRIIMI MAE. Each Series C Preferred
Share is convertible into common shares based on the following formula: the
numerator is $100 and the denominator is a closing trade price within the
conversion period on the average of the closing trade price or the applicable
twenty-one day period immediately preceding the date of delivery, whichever is
mutually acceptable. The liquidation preference and redemption price on the
Series C Preferred Shares equals $100 and $106, respectively, per share plus an
amount equal to all dividends accrued and unpaid thereon. On September 23, 1997,
150,000 shares were issued under this agreement, resulting in net proceeds of
approximately $15 million. On February 23, 1998, 150,000 Series C Preferred
Shares were issued under this agreement, resulting in net proceeds of
approximately $15 million. These proceeds were used to fund purchases of
Subordinated CMBS (as discussed in Note 5). As of December 31, 1997, 150,000
Series C Preferred Shares were outstanding. During the year ended December 31,
1998, 177,000 Series C Preferred Shares were converted into 4,751,341 common
shares of which 4,046,154 common shares were converted in the fourth quarter,
resulting in 123,000 Series C Preferred Shares outstanding at December 31, 1998.
Dividends paid and accrued on Series C Preferred Shares totaled $1,305,082 (of
F-40
<PAGE>
which $259,139 was accrued, but not paid to date as a result of the Chapter 11
filing) and $269,531 for the year ended December 31, 1998 and 1997,
respectively.
SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK
In July 1998, 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, up to 300,000 shares of Cumulative Convertible
Preferred Stock par value $.01 per share at price of $100 per share. The Series
D Cumulative Convertible Preferred Stock pays a dividend at an annual rate equal
to the sum of (i) 75 basis points plus (ii) LIBOR as of the second LIBOR Market
Day preceding the commencement of the calendar quarter which includes such
quarterly dividend payment. The preferred stock will be convertible into shares
of common stock at the option of the holders and is subject to redemption by
CRIIMI MAE. Each Series D Preferred Share is convertible into common shares
based on the following formula: the numerator is $100 and the denominator is a
closing trade price within the conversion period on the average of the closing
trade price or the applicable twenty-one day period immediately preceding the
date of delivery, whichever is mutually acceptable. The liquidation preference
and redemption price on the Series D Preferred Shares equals $100 and $106,
respectively, per share plus an amount equal to all dividends accrued and unpaid
thereon. On July 31, 1998, 100,000 Series D Preferred Shares were issued under
this agreement, resulting in net proceeds of approximately $10 million. There
were no shares converted to common shares during the year, resulting in 100,000
shares outstanding at December 31, 1998. Dividends paid and accrued on Series D
Preferred Shares totaled $264,011 (of which, $154,931 was accrued, but not paid
to date as a result of the Chapter 11 filing) for the year ended December 31,
1998.
F-41
<PAGE>
13. EARNINGS PER SHARE
The following table reconciles basic and diluted earnings per share under
FAS 128 for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
For the year ended 1998 For the year ended 1997 For the year ended 1996
----------------------- ----------------------- -----------------------
Income Income Income
Per Share Per Share Per Share
Income Shares Amount Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income
Available to
Common
Shareholders $35,370,734 47,280,371 $ 0.75 $47,715,076 36,993,130 $ 1.29 $31,713,406 30,665,052 $ 1.03
Effect of
Dilutive
Securities
Net effect of
assumed
exercise of
stock options -- 302,390 -- 1,024,400 -- 188,459
Convertible
Preferred
Stock (1)
Diluted EPS 264,011 622,748 320,379 334,110 128,546 155,132
------- ------- ------- ------- ------- -------
Income
available to
Common
Shareholders
and assumed
conversions $35,634,745 48,205,509 $ 0.74 $48,035,455 38,351,640 $ 1.25 $31,841,952 31,008,643 $ 1.03
----------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
----------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
</TABLE>
- ---------------------------
(1) 1,593,982, 1,679,376 and 2,415,000 shares of Series B Preferred Shares were
outstanding at the end of 1998, 1997 and 1996, respectively; 123,000 shares of
Series C and 100,000 shares of Series D were outstanding at December 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.
F-42
<PAGE>
14. STOCK BASED COMPENSATION PLANS
CRIIMI MAE has two stock option plans, the Stock Option Plan for Key
Employees ("Key Employee Plan") and the 1996 Non-Employee Director Stock Plan
("Director Plan"). In addition, as discussed in Note 16, CRIIMI MAE has granted
to each of Messrs. Dockser and Willoughby options to purchase common stock under
separate stock option agreements (the "Agreements") resulting from the Merger.
CRIIMI MAE accounts for these Agreements and Plans under APB Opinion No. 25,
under which no compensation cost has been recognized. The value of option shares
granted as part of the Merger was capitalized as a component to goodwill.
Accordingly, the pro forma information below excludes option shares granted at
the time of the Merger. During 1996, FASB Statement No. 123 became effective.
This Statement requires pro forma disclosure of the impact on net income and
earnings per share as if the options were recorded at their estimated fair value
at the issuance date and amortized over the options' vesting period. Had
compensation cost for these Plans been determined consistent with FASB Statement
No. 123, CRIIMI MAE's net income and earnings per share would have been recorded
at the following pro forma amounts:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income
available to As Reported $35,370,734 $47,715,076 $31,713,406
common shareholders Pro Forma 34,739,667 47,553,237 31,695,973
Basic EPS: As Reported $ 0.75 $ 1.29 $ 1.03
Pro Forma 0.73 1.29 1.03
Diluted EPS: As Reported 0.74 1.25 1.03
Pro Forma 0.73 1.25 1.03
</TABLE>
CRIIMI MAE may grant options for up to 2,000,000 common shares under the
Key Employee Plan. CRIIMI MAE has granted options on 1,657,500 shares through
December 31, 1998. Under the Key Employee Plan, options granted prior to July
28, 1995, have an option price of $9.77, and options granted after July 28,
1995, must have an option price of not less than fair market value of a share
of common stock on the date of grant. Options vest in equal installments on
either the first three or four anniversaries of the date of grant and expire
after eight years.
CRIIMI MAE may grant options for up to 500,000 common shares under the
Director Plan. CRIIMI MAE has granted options on 6,000 common shares through
December 31, 1998. Under the Director Plan, the option exercise price is
equal to the market price of a share of common stock on the date of grant,
the options vest immediately, and the options expire after ten years.
Under the Agreements, each of the Principals received from CRIIMI MAE
options to purchase 1,000,000 common shares at an exercise price equal to $1.50
per share more than the aggregate average of the high and low sales prices of
common shares on the New York Stock Exchange during the 10 trading days
preceding the Closing Date, which average sales price was calculated at $8.27
per share the (Trading Price) and 400,000 common shares at an exercise price
equal to $4.00 per share more than the Trading Price. These options vest in
equal installments on the first five anniversaries of the Closing Date. The
Principals also received options to purchase 100,000 common shares exercisable
at $5.00 more than the Trading Price that vest on the fifth anniversary of the
Closing Date. The options expire on the eighth anniversary of the Closing Date.
F-43
<PAGE>
A summary of the status of CRIIMI MAE's three stock option plans, and
shares granted at the time of the Merger, at December 31, 1998, 1997 and 1996,
and changes during the years then ended is presented in the table below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ---------------------------- --------------------
Wtd Avg Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price Shares Ex Price
-------- --------- ----------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 3,487,676 $ 11.40 3,091,500 $ 10.62 3,230,000 $ 10.54
Granted 776,000 15.75 514,500 15.58 133,000 10.88
Exercised (69,699) 9.94 (73,741) 9.79 (230,668) 9.77
Forfeited (104,331) 15.29 (44,583) 13.44 (40,832) 10.04
Expired -- -- -- -- -- --
--------- -------- --------- ------- --------- -------
Outstanding at end
of year 4,089,646 $ 12.15 3,487,676 $ 11.34 3,091,500 $ 10.62
--------- -------- --------- ------- --------- -------
--------- -------- --------- ------- --------- -------
Exercisable at end
of year 1,752,982 $ 10.85 1,073,059 $ 10.93 447,999 $ 10.89
--------- -------- --------- ------- --------- -------
--------- -------- --------- ------- --------- -------
Weighted average fair
value of options granted
during the year $ 1.33 $ 1.55 $ .81
-------- ------- -------
-------- ------- -------
</TABLE>
The 4,089,646 options outstanding at December 31, 1998 have exercise prices
between $9.77 and $15.9375, with a weighted average exercise price of $12.15 and
a weighted average remaining contractual life of 3.9 years.
The fair value of the 1998, 1997 and 1996 option grants was estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1998, 1997 and 1996,
respectively: risk-free interest rate of 4.95%, 6.10% and 6.16%; expected life
of 8.00, 2.60 and 2.05 years; expected volatility of 26.6%, 25.2% and 22.5%;
dividend yield of approximately 9.4%, 9% and 9%.
15. EMPLOYEE RETENTION PLAN
On December 18, 1998, the Company obtained Bankruptcy Court approval to
adopt and implement an employee retention program ("the Employee Retention
Plan") with respect to all employees of the Company other than certain key
executives. On February 28, 1999 the Company received Bankruptcy Court
approval authorizing it to extend the Employee Retention Plan to the key
executives initially excluded, including modifying existing employment
agreements and entering into new employment agreements with such key
executives. The Employee Retention Plan provides for retention payments
aggregating approximately $4.6 million, including payments to certain
executives. Retention payments are payable semiannually over a two-year
period. The first retention payment vested on April 5, 1999 and will be paid
on April 15, 1999. The entire unpaid portion of the retention payments will
become immediately due and payable (i) upon the effective date of a plan
reorganization and, with respect to certain key executives, court approval or
(ii) upon termination without cause. William B. Dockser, Chairman of the
Board of the Company, and H. William Willoughby, President, are not currently
entitled to receive any retention payments. Subject to the terms of their
respective employment agreements, certain key executives will be entitled to
severance benefits if they resign or their employment is terminated following
a change of control. The other employees will be entitled to severance
benefits if they are terminated subsequent to a change of control of the
Company, but only, with the exception of certain key executives, if such
change of control results in the successful emergence of the Company and CM
Management from Chapter 11. In addition, all options granted by the Company
after October 5, 1998 shall immediately become exercisable upon a change of
control.
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<PAGE>
16. MERGER OF CRI MORTGAGE BUSINESSES
On June 30, 1995, CRIIMI MAE consummated the Merger in order to become
self-administered and self-managed. Certain mortgage businesses affiliated with
C.R.I., Inc. ("the CRI Mortgage Businesses") were affiliated because they were
primarily owned by the Chairman and the President of CRIIMI MAE (the
"Principals"). The CRI Mortgage Businesses performed mortgage advisory,
origination, underwriting, investment and related activities to CRIIMI MAE and
other entities. The Merger was approved by a majority of CRIIMI MAE's
shareholders and all of the Company's independent directors. In reaching the
decision to merge, the independent advisor obtained a fairness opinion from Duff
& Phelps and financial advisory assistance from Merrill Lynch.
The consideration paid by CRIIMI MAE (measured on the Closing Date of June
30, 1995) for the CRI Mortgage Businesses was approximately $32.9 million.
Additionally, CRIIMI MAE incurred costs of approximately $3.3 million to execute
the Merger. As part of the consideration paid in the Merger, CRIIMI MAE issued,
on the Closing Date, 1,325,419 shares of common stock ("Common Shares"), which
vested immediately, to each of the Principals. On the Closing Date, CRIIMI MAE
issued, for services rendered in connection with the Merger, to certain
executive officers (collectively, the "Executive Officers") a total of 110,452
common shares. The common shares issued to the Executive Officers vested in
three equal installments on the first three anniversaries of the Closing Date.
As a result of these transactions, the Principals and Executive Officers held
approximately 10% of the 30,407,024 common shares issued and outstanding as of
December 31, 1995. Pursuant to the Merger Agreement, CM Management became liable
for certain debt of the CRI Mortgage Businesses in the principal amount of $9.1
million, as discussed in Note 9.
CRIIMI MAE allocated the purchase price to the fair value of the assets
acquired, and the excess of the purchase price over the fair value of the net
assets acquired is allocated to goodwill. CRIIMI MAE determined the fair values
based on the present value of the cash flow streams discounted at a rate
commensurate with the associated risk of investing in and owning those assets.
The allocation of the purchase price is as follows:
<TABLE>
<CAPTION>
Amortization
Period
Amount (Years)
---------- ----------
<S> <C> <C>
AIM subadvisory contracts and certain
mortgage servicing contracts (1) $ 7,409,000 10
Mortgage servicing assets (2) $ 881,000 10
Terminated contract and workforce (3) $ 23,900,000 10
Goodwill (4) $ 4,079,839 10
</TABLE>
(1) The fair value of the AIM subadvisory contracts and of certain mortgage
servicing contracts was determined based on the projected discounted cash flows
over the estimated life of the assets. These assets have been contributed to
Services Inc. and CMSLP as follows:
Services Inc.: CRIIMI MAE made an investment in Services Inc., which is
represented by 100% of the non-voting common stock. Services Inc. issued
installment notes to purchase certain intangible assets. Services Inc.
contributed those intangible assets to the CMSLP for an initial 92% limited
partnership interest. These intangible assets consisted of the AIM
subadvisory contracts and certain other mortgage servicing contracts valued
at $6,871,000.
CMSLP: CRIIMI MAE also made an investment in CMSLP by contributing certain
mortgage servicing contracts valued at $538,000 for an initial 8% general
partnership interest.
(2) Represents the fair value of the remaining intangible assets that CRIIMI MAE
acquired from the CRI Mortgage Businesses.
(3) Represents CRIIMI MAE's acquisition of the work force and intellectual
property of the CRI Mortgage Businesses. The benefits of these services were
previously provided to CRIIMI MAE through the Adviser. The expected future
benefit of such services was the basis for the determination of the fair value.
(4) Reflects the allocation of the purchase price to goodwill. Goodwill is
represented by the excess of purchase price over the fair value of the net
assets acquired.
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<PAGE>
17. TRANSACTIONS WITH RELATED PARTIES
Below is a summary of the related party transactions which occurred during
the years ended December 31, 1998, 1997 and 1996. These items are described
further in the text which follows:
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996
--------- ------- --------
<S> <C> <C> <C>
Amounts received or accrued from related parties:
CRIIMI Inc.
Income(3) $ 1,340,730 $ 1,624,666 $ 1,836,288
Return of Capital(9) 3,774,817 2,643,029 2,292,804
------------ ------------ ------------
Total $ 5,115,547 $ 4,267,695 $ 4,129,092
------------ ------------ ------------
------------ ------------ ------------
CRI/AIM Investment Limited Partnership(3) $ 552,121 $ 666,921 $ 765,050
------------ ------------ ------------
------------ ------------ ------------
CRIIMI MAE Services Limited Partnership (11) $ 3,114,000 $ -- $ --
------------ ------------ ------------
------------ ------------ ------------
Expense reimbursements to CRIIMI Management:
AIM Funds and CRI Liquidating (2)(7) $ 211,793 $ 350,239 $ 363,669
CMSLP (2)(9) 76,621 12,616 1,944,974
------------ ------------ ------------
Total $ 288,414 $ 362,855 $ 2,308,643
------------ ------------ ------------
------------ ------------ ------------
Payments to CRI:
Expense reimbursement - CRIIMI MAE(2)(6) $ 352,471 $ 399,162 $ 674,674
------------ ------------ ------------
------------ ------------ ------------
Payments to the Adviser:
Annual fee - CRI Liquidating(1)(5) $ -- $ 11,468 $ 382,050
Incentive fee - CRI Liquidating(5)(4) -- -- 568,638
------------ ------------ ------------
Total $ -- $ 11,468 $ 950,688
------------ ------------ ------------
------------ ------------ ------------
Capital Hotel Group(8) $ 4,691 $ 36,180 $ --
------------ ------------ ------------
------------ ------------ ------------
Other(10) $ -- $ -- $ --
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- -------------------
(1) Included in the accompanying consolidated statements of income as fees to
related party.
(2) Included in general and administrative expenses on the accompanying
consolidated statements of income.
(3) Included as equity in earnings from investments on the accompanying
consolidated statements of income.
(4) Netted with gains on mortgage dispositions on the accompanying consolidated
statements of income.
(5) The Adviser under the CRI Liquidating Advisory Agreement received an annual
fee for managing CRI Liquidating's portfolio of mortgages and the Adviser was
also entitled to certain incentive fees in connection with the disposition of
certain mortgage investments. Due to the final liquidation of CRI Liquidating in
1997, no annual fees were paid for 1998.
F-46
<PAGE>
(6) Prior to CRIIMI MAE becoming a self-administered REIT, amounts were paid to
C.R.I., Inc. as reimbursement for expenses incurred by the Adviser on behalf of
CRIIMI MAE. In connection with the Merger, on June 30, 1995, CRIIMI MAE was no
longer required to reimburse the Adviser, as these expenses are now directly
incurred by CRIIMI MAE. However, pursuant to an agreement between CRIIMI MAE and
C.R.I., Inc. (the "CRI Administrative Services Agreement"), C.R.I., Inc.
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 C.R.I., Inc.
Administrative Services Agreement to the extent such services are not performed
by CM Management or provided by another service provider. The CRI Administrative
Services Agreement is terminable on 30 days notice at any time by CRIIMI MAE.
(7) Prior to CRIIMI MAE becoming a self-administered REIT, amounts were paid to
C.R.I., Inc. as reimbursement for expenses incurred by the Adviser on behalf of
CRI Liquidating and the AIM Funds. The transaction in which CRIIMI MAE became a
self-administered REIT had no impact on CRI Liquidating's or the AIM Funds'
financial statements except that the expense reimbursements previously paid to
C.R.I., Inc. are, effective June 30, 1995, paid to CM Management. Additionally,
effective June 30, 1995, CM Management is reimbursed for its employees' time and
expenses incurred on behalf of CMSLP.
(8) 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.
(9) Included as a reduction of equity investments on the accompanying
consolidated balance sheets.
(10) The Principals have certain management interests and equity investments in
two borrowers whose mortgage loans have an aggregate balance of approximately
$22 million which were included in CMO-IV. These two mortgage loans were
originated and underwritten by Citicorp Real Estate, Inc. and were made to CRI
Hotel Income Partners, L.P. (the "CRI Hotel Loan") and Arboretum Village, L.P.
(the "Arboretum Village Loan"). The Principals are the Chairman and President,
respectively, of, and holders of a 100% equity interest in C.R.I., Inc., which
is the general partner of CRICO Hotel Associates I, L.P., the general partner of
CRI Hotel Income Partners, L.P. C.R.I., Inc. is also the managing general
partner of Capital Realty Investors III Limited Partnership which is a limited
partner in Arboretum Villages, L.P. The Principals are also the Chairman and
President, respectively and holders of a 100% equity interest in C.R.H.C.
Incorporated which is the general partner of Arboretum Villages, L.P.
(11) This is a distribution included on the balance sheet as a decrease in
equity investments.
18. LITIGATION
BANKRUPTCY PROCEEDINGS
On the Petition Date, the Debtors each filed voluntary petitions for relief
under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. These cases are
being jointly administered for procedural purposes. None of the cases has been
substantively consolidated. Under the Bankruptcy Code, the Debtors are
authorized to manage their respective affairs and operate their businesses as
debtors-in-possession while they attempt to develop a reorganization plan that
will restructure their financial affairs and allow them to emerge from
bankruptcy. As a debtor-in-possession under the Bankruptcy Code, no Debtor may
engage in any transaction outside the ordinary course of business without the
approval of the Bankruptcy Court. The following discussion describes certain
aspects of the Chapter 11 cases of the Debtors (the "Chapter 11 Cases"), but it
is not intended to be a complete summary.
Pursuant to the Bankruptcy Code, the commencement of the Chapter 11 Cases
created an automatic stay, applicable generally to creditors and other parties
in interest, but subject to certain limited exceptions, of: (i) the commencement
or continuation of judicial, administrative or other actions or proceedings
against the Debtors that were or could have been commenced prior to the
commencement of the Chapter 11 Cases; (ii) the enforcement against the Debtors
or their property of any judgments obtained prior to the commencement of the
Chapter 11 Cases; (iii) the taking of any action to obtain possession of
property of the Debtors or to exercise control over such property; (iv) the
creation, perfection or enforcement of any lien against the property of the
bankruptcy estates of the Debtors; (v) any act to create, perfect or enforce
against the property of the Debtors any lien that secures a claim that arose
prior to the commencement of the Chapter 11 Cases; (vi) the taking of any action
to collect, assess or recover claims against the Debtors that arose before the
commencement of the Chapter 11 Cases; (vii) the set-off of any debt owing to the
Debtors that arose prior to the commencement of the Chapter 11 Cases against any
claim against the Debtors; or (viii) the commencement or continuation of a
proceeding before the United States Tax Court concerning
F-47
<PAGE>
the Debtors. Any entity may apply to the Bankruptcy Court, upon appropriate
showing of cause, for relief from the automatic stay.
As noted above, the Debtors are authorized to manage their respective
properties and operate their respective businesses pursuant to the Bankruptcy
Code. During the course of the Chapter 11 Cases, the Debtors will be subject to
the jurisdiction and supervision of the Bankruptcy Court. The United States
Trustee has appointed (i) an official committee of Unsecured Creditors in the
CRIIMI MAE Chapter 11 case, (ii) an official committee of Unsecured Creditors in
the Management Chapter 11 case and (iii) an official committee of Equity
Security Holders in the CRIIMI MAE Chapter 11 case (collectively, the
"Committees"). The Committees are expected to participate in the formulation of
the plans of reorganization for the respective Debtors. The Debtors are required
to pay certain expenses of the Committees, including professional fees, to the
extent allowed by the Bankruptcy Court.
Under the Bankruptcy Code, for 120 days following the Petition Date, only
the debtor-in-possession has the right to propose and file a plan of
reorganization with the Bankruptcy Court. If a debtor-in-possession files a plan
of reorganization during this exclusivity period, no other party may file a plan
of reorganization until 180 days following the Petition Date, during which
period the debtor-in-possession has the exclusive right to solicit acceptances
of the plan. If a debtor-in-possession fails to file a plan during the
exclusivity period or such additional exclusivity period as may be ordered by
the Bankruptcy Court or, after such plan has been filed, fails to obtain
acceptance of such plan from impaired classes of creditors and equity security
holders during the exclusive solicitation period, any party in interest,
including a creditors' committee, an equity security holders' committee, a
creditor or an equity security holder may file a plan of reorganization for such
debtor. Additionally, if the Bankruptcy Court were to appoint a trustee, the
exclusivity period, if not previously terminated, would terminate.
The Debtors did not file a plan of reorganization during the initial
exclusivity period; however, the Bankruptcy Court has entered an order extending
the Company's exclusive right to file a plan of reorganization through May 11,
1999. The Bankruptcy Court has set a hearing for May 11, 1999 with respect to a
further extension of the exclusivity periods through August 2, 1999 for filing a
plan of reorganization and through October 3, 1999 for soliciting acceptances
thereof. A number of parties have indicated potential opposition to any such
extension.
After a plan of reorganization has been filed with the Bankruptcy Court, it
will be sent, together with a disclosure statement approved by the Bankruptcy
Court after notice and a hearing, to members of all classes of impaired
creditors and equity security holders for acceptance or rejection. Following
acceptance or rejection of any plan by impaired classes of creditors and equity
security holders, the Bankruptcy Court, after notice and a hearing, will
consider whether to confirm the plan. To confirm a plan, the Bankruptcy Court is
required to find among other things: (i) with respect to each class of impaired
creditors and equity security holders, that each holder of a claim or interest
of such class either (A) will, pursuant to the plan, receive or retain property
of a value as of the effective date of the plan, that is at least as much as
such holder would have received in a liquidation on such date of the Debtors or
(B) has accepted the plan, (ii) with respect to each class of claims or equity
security holders, that such class has accepted the plan or is not impaired under
the plan, and (iii) confirmation of the plan is not likely to be followed by the
liquidation or need for further financial reorganization of the Debtors or any
successor unless such liquidation or reorganization is proposed in the plan.
If any impaired class of creditors or equity security holders does not
accept a plan, the proponent of the plan may invoke the so-called "cramdown"
provisions of the Bankruptcy Code. Under these provisions, the Bankruptcy Court
may confirm a plan, notwithstanding the non-acceptance of the plan by an
impaired class of creditors or equity security holders, if certain requirements
of the Bankruptcy Code are met. These requirements include: (i) the plan does
not discriminate unfairly and (ii) the plan is fair and equitable, with respect
to each class of claims or interests that is impaired under, and has not
accepted, the plan. As used in the Bankruptcy Code, the phrases "discriminate"
and "fair and equitable" have narrow and specific meanings and their use herein
is qualified in its entirety by reference to the Bankruptcy Code.
F-48
<PAGE>
BANKRUPTCY RELATED LITIGATION
The following is a summary of material litigation matters between the
Company and certain of its secured creditors that was commenced since the
Petition Date. The Company has reached agreement with certain of these
creditors, as set forth in greater specificity below.
MERRILL LYNCH
As of the Petition Date, the Company owed Merrill Lynch approximately
$274.8 million with respect to advances to the Company under an assignment
agreement pursuant to which the Company pledged Subordinated CMBS. Borrowings
under this assignment agreement are secured by a first priority security
interest in certain CMBS issued by CMO-IV, together with all proceeds,
distributions and amounts realized therefrom (the "Distributions") (the CMBS
pledged to Merrill Lynch and the Distributions are hereafter referred to
collectively as the "Merrill Collateral").
On October 16, 1998, Merrill Lynch filed a motion with the Bankruptcy Court
for relief from the automatic stay or, in the alternative, for entry of an order
directing the Company to provide adequate protection for its interest in the
Merrill Collateral. On October 21, 1998, the Company filed a complaint against
Merrill Lynch for turnover of Distributions remitted to Merrill Lynch on October
2, 1998 by LaSalle National Bank, as well as other relief.
On December 4, 1998, the Bankruptcy Court approved a consent order
entered into between the Company and Merrill Lynch. Among other things,
pursuant to the consent order, the pending litigation with Merrill Lynch was
dismissed without prejudice. The consent order also preserved the portfolio
of CMBS pledged as collateral to Merrill Lynch and provided for the Company
to receive distributions of 50 percent of the monthly cash flow from those
CMBS net of interest payable to Merrill Lynch. The 50 percent of
distributions received by Merrill Lynch is to be applied to reduce principal.
Such arrangement will remain in effect until the earlier of a further order
of the Bankruptcy Court affecting the arrangement or the effective date of a
plan of reorganization of the Company.
MORGAN STANLEY
As of the Petition Date, the Company owed Morgan Stanley approximately
$182.4 million with respect to advances to the Company under an agreement
pursuant to which the Company pledged CMBS. The borrowings under this
agreement are secured by certain CMBS, including (i) CRIIMI MAE Commercial
Mortgage Trust, Series 1998-C1, Class B and C Certificates (collectively or
any portion thereof, the "CBO-2 BBB Bonds") and (ii) Morgan Stanley Capital I
Inc., Series 1998-W2, Class F, G, H, J, K, L and M Certificates (collectively
or any portion thereof, the "Wells Fargo Bonds" and, together with the CBO-2
BBB Bonds, the "Morgan Collateral").
On October 6, 1998, Morgan Stanley advised the Company that it was
exercising alleged ownership rights over the Morgan Collateral. On October 20,
1998, the Company filed an adversary proceeding against Morgan Stanley alleging,
among other things, that Morgan Stanley violated the automatic stay and seeking
turnover of the Morgan Collateral.
On January 12, 1999, the Company and Morgan Stanley agreed upon and filed
with the Bankruptcy Court a stipulation and consent order, which was approved by
the Bankruptcy Court and entered on January 26, 1999. The consent order
provided, among other things, for the following: (i) an agreed sale procedure
for the CBO-2 BBB Bonds during a specified sale period; (ii) the payment of a
portion of the sale proceeds of the CBO-2 BBB Bonds to the Company; (iii) a
standstill period relating to the Wells Fargo Bonds through March 31, 1999
unless otherwise extended by the Company and Morgan Stanley, during which time
Morgan Stanley may not sell, pledge, encumber or otherwise transfer the Wells
Fargo Bonds and (iv) the postponement of the litigation with Morgan Stanley
while the parties seek a permanent resolution of their disputes. On March 5,
1999, the CBO-2 BBB Bonds were sold. Of the $159.0 million in net sale proceeds,
$141.2 million was used to repay the Company's borrowings under the agreement
with Morgan Stanley, and $17.8 million was paid to CRIIMI MAE. As a result of
the transaction, CRIIMI MAE's litigation against Morgan Stanley has been
resolved with respect to the CBO-2 BBB Bonds to the satisfaction of both
parties. The Company and Morgan Stanley have agreed to extend the standstill
period with
F-49
<PAGE>
respect to the Wells Fargo Bonds through April 15, 1999. At the end of this
standstill period, Morgan Stanley has until April 25, 1999 to respond to the
Company's complaint and resume litigation with respect to the Wells Fargo Bonds,
unless the standstill period is further extended by the parties or an
agreement between the parties is reached.
CITICORP AND CITIBANK
In addition to the Citibank Program pursuant to which the Company
originated loans, as previously discussed, the Company also has a financing
arrangement with Citicorp pursuant to which the Company pledged CMBS.
On October 13, 1998, Citicorp demanded from Norwest Bank Minnesota, N.A.
("Norwest") the immediate transfer of certain CMBS (the "Retained Bonds")
issued pursuant to CMO-IV. Norwest served as indenture trustee. The Retained
Bonds are collateral for amounts advanced to the Company by Citicorp under
the financing arrangement. As of the Petition Date, the Company owed Citicorp
$79.1 million under the facility.
On October 15, 1998, the Company filed an emergency motion to enforce the
automatic stay against Norwest and Citicorp. Pursuant to an Order dated October
23, 1998, the Bankruptcy Court prohibited Citicorp from selling the Retained
Bonds without further order of the Bankruptcy Court. On October 23, 1998,
Citicorp requested an emergency hearing regarding the October 23 Order, and on
November 2, 1998, the Company filed a complaint against Citicorp seeking, among
other things, a declaratory judgment as to whether the automatic stay applies to
actions taken by Citicorp with respect to the Retained Bonds.
On March 11, 1999, the Company finalized agreements with Citicorp and
Citibank, pursuant to which the parties agreed to adjourn the pending
litigation for a four month period. One of the agreements also provides that
Salomon Smith Barney, in cooperation with CRIIMI MAE, will sell two classes
of investment grade CMBS from CMO-IV constituting a portion of the collateral
securing advances under the Citicorp financing arrangements. In addition,
Citibank, in cooperation with CRIIMI MAE, will sell commercial mortgages
originated last year under the Citibank Program, provided that the sale
results in CRIIMI MAE receiving minimum net proceeds of not less than $3.5
million, after satisfying certain amounts due to Citibank, from the amount
held in the reserve account. The minimum net proceeds provision may be waived
by agreement of the Company, the Unsecured Committee and the Equity
Committee. The agreements with Citicorp and Citibank were approved by the
Bankruptcy Court by stipulations and consent orders entered on April 5, 1999.
A related interpleader action between Norwest, the Company and Citicorp,
which was initiated on October 20, 1998 by Norwest to determine whether the
Company or Citicorp is the rightful owner of funds that were to have been paid
by Norwest, as indenture trustee, remains pending before the Bankruptcy Court.
During the pendency of this matter, certain payments on the related bonds are
held in an account controlled by the Bankruptcy Court. No trial date has been
set for this matter.
ARRANGEMENTS WITH OTHER CREDITORS
In addition to the foregoing, the Company has had discussions with other
secured creditors against whom the Company was not engaged in litigation. One
such creditor is German American Capital Corporation ("GACC"). On February 3,
1999, the Bankruptcy Court approved an Amended Consent Order between the
Company and GACC that provides for the following: (a) acknowledgement that
GACC has a valid perfected security interest in its collateral; (b) authority
for GACC to hedge its loan, subject to a hedge cost cap; and (c) as adequate
protection, sharing of cash collateral on a 50/50 basis, after payment of
interest expense, with the percentage received by GACC to be applied to
reduce principal and pay certain hedge costs, if any. In addition, the
Company is prohibited from using GACC's cash collateral for certain purposes,
including loan originations and Subordinated CMBS acquisitions.
The Company has also had discussions with First Union National Bank ("First
Union"). First Union, a creditor of both the Company and CM Management, is
asserting substantial secured and unsecured claims. On or about March 23, 1999,
First Union filed in each of the Company's and CM Management's Chapter 11 cases
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<PAGE>
a motion for relief from the automatic stay pursuant to section 362(d) of the
United States Bankruptcy Code. On or about March 26, 1999, First Union requested
that the Court dismiss without prejudice both motions. The Company and First
Union continue to have discussions aimed at resolving the open issues between
the parties, including, but not limited to, the validity of First Union's liens,
adequate protection of First Union's interests and an appropriate sharing of
what First Union asserts is its cash collateral. There can, however, be no
assurance that the Company and First Union will reach an agreement.
SHAREHOLDER LITIGATION
The Company is aware that certain plaintiffs (collectively, the
"Plaintiffs") filed 20 separate class action civil lawsuits (the "Complaints")
in the United States District Court for the District of Maryland (the "District
Court") against certain officers and directors of the Company between October 7,
1998 and November 30, 1998. Two additional complaints filed in other Federal
Courts have been dismissed without prejudice. The Complaints name as defendants
William B. Dockser, as Chairman of the Board of Directors of CRIIMI MAE, and H.
William Willoughby as a member of the Board of Directors and/or an officer of
CRIIMI MAE. In addition, a majority of the Complaints name Cynthia O. Azzara as
a defendant as an officer of CRIIMI MAE. Several of the Complaints also name
Garrett G. Carlson, Sr., G. Richard Dunnells and Robert J. Merrick as defendants
as members of both the Board of Directors and the Audit Committee of CRIIMI MAE.
Although CRIIMI MAE and CM Management have not been named as defendants, both
companies are subject to indemnity obligations to the defendants under the
provisions of their respective constituent documents and applicable state law
and, with respect to Messrs. Dockser and Willoughby and Ms. Azzara, their
employment contracts. CRIIMI MAE has directors and officers liability insurance
policies that have a combined coverage limit of $20 million.
Each Complaint alleges generally that the named defendants violated Section
10(b) of the Securities and Exchange Act of 1934, as amended (the "Exchange
Act") by, among other things, making false statements of material facts and
failing to disclose certain material facts concerning, among other things,
CRIIMI MAE's ability to meet the earnings estimates of analysts and to meet
collateral calls from lenders. The Complaints also generally allege that the
named defendants violated Section 20(a) of the Exchange Act because each named
defendant was allegedly a "controlling person" as that term is defined under
Section 20(a).
The relief sought in each Complaint includes all or substantially all of
the following: (i) certification of a class under Rule 23 of the Federal Rules
of Civil Procedure; (ii) certification of the named plaintiff as a class
representative and/or as lead plaintiff and its counsel as lead counsel and/or
class counsel; (iii) entry of a finding that the defendants violated federal
law, including federal securities laws; (iv) award of monetary damages,
including compensatory and rescissionary damages against all defendants jointly
and severally, including punitive damages where appropriate, and pre-judgment
and post-judgment interest running from the date of the wrongs alleged to the
date of judgment; (v) award to the plaintiff of costs, expenses and
disbursements incurred in the action, including reasonable attorneys' fees and
experts' fees; (vi) award to the plaintiff of extraordinary, equitable and/or
injunctive relief as permitted by law, equity, and federal statutory provisions
and state law remedies to attach, impound or otherwise restrict the defendants'
assets; (vii) award to the plaintiff of such other relief as the District Court
deems just and proper or as the District Court otherwise requires; and (viii)
trial by jury.
A group of putative members of the class of individuals who allegedly
suffered damages, as described in the Complaints, filed a motion requesting the
District Court to appoint a group of 13 individual Plaintiffs as lead plaintiffs
under the Private Securities Litigation Reform Act of 1995 (the "Motion"). The
Motion also requests the District Court, to approve, among other things, certain
law firms as counsel to the lead plaintiffs and the consolidation of the twenty
(20) pending law suits into a single action. Defendants Dockser, Willoughby and
Azzara have opposed the Motion to the extent that it seeks appointment of lead
plaintiffs and approval of their selection of counsel. On March 9, 1999, the
District Court ordered the consolidation of the Complaints. The District Court
deferred a decision on the Motion, to the extent that it seeks the appointment
of lead plaintiffs and approval of their selection of counsel, until a later
date.
CRIIMI MAE and the defendants are continuing to investigate the allegations
in the Complaints. The defendants intend to defend vigorously the claims
asserted in the Complaints. CRIIMI MAE cannot predict with any degree of
certainty the ultimate outcome of such litigation.
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<PAGE>
EDGE PARTNERS SETTLEMENT
In February 1996, Edge Partners, L.P. ("Edge Partners"), on behalf of
CRIIMI MAE, filed a First Amended Class and Derivative Complaint (the
"Derivative Complaint") in the United States District Court for the District of
Maryland, Southern Division (the "District Court"). The Derivative Complaint
named as defendants each of the individuals who served on the CRIIMI MAE board
of directors at the time of the Merger and CRIIMI MAE as a nominal defendant.
The Company was subject to indemnity obligations to the directors under
provisions of its constituent documents. In addition, the Company had directors
and officers liability insurance policies with a combined coverage limit of $5
million.
Count I of the Derivative Complaint alleged violations of Section 14(a) of
the Exchange Act for issuing a materially false and misleading proxy in
connection with the Merger and alleged derivatively on behalf of CRIIMI MAE a
breach of fiduciary duty owed to CRIIMI MAE and its shareholders. Edge Partners
sought, among other relief, that unspecified damages be accounted to CRIIMI MAE,
that the shareholder vote in connection with the Merger be null and void and
that certain salaries and other remuneration paid to the directors be returned
to the Company.
On June 16, 1998, the District Court approved a settlement agreement (the
"Settlement Agreement"). Under the terms of the Settlement Agreement, the
Company agreed to make certain disclosures relating to alleged conflicts between
two directors and the Company in connection with the Merger transaction and
adopted a non-binding policy relating generally to the approval of certain
interested transactions. Among other things, the non-binding policy adopted by
the Company's board of directors imposes certain conditions on the board's
approval of transactions between the Company and any director, officer or
employee who owns greater than 1% of the outstanding common shares of the
Company. Such conditions generally include: (1) approval by written resolution
of any transaction involving an amount in excess of $5 million in any year
adopted by a majority of the members of the board having no personal stake in
the transaction; and (2) in the case of any such transaction in excess of $15
million in any year, consideration by the board as to the formation of a special
committee of the board, to be comprised of at least two directors having no
personal stake in such transaction.
F-52
<PAGE>
19. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998
Quarter ended
March 31 June 30 September 30 December 31
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Income (principally
interest income) $ 44,970,292 $ 52,140,944 $ 59,415,552 $57,676,980
Net income (loss) 12,255,931 43,426,376 (8,651,379) (11,660,194)
Net income (loss) per share-Basic 0.29 0.92 (0.18) (0.23)
Net income (loss) per share-Diluted 0.28 0.85 (0.18) (0.23)
</TABLE>
<TABLE>
<CAPTION>
1997
Quarter ended
March 31 June 30 September 30 December 31
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Income (principally
interest income) $ 31,159,707 $ 30,846,749 $ 34,247,402 $ 39,062,943
Net gain (loss) on mortgage
dispositions 17,138,949 95,000 (90,608) 200,141
Net income 19,099,541 10,412,185 11,417,024 13,258,868
Net income per share-Basic 0.54 0.24 0.26 0.29
Net income per share-Diluted 0.50 0.23 0.26 0.28
</TABLE>
<TABLE>
<CAPTION>
1996
Quarter ended
March 31 June 30 September 30 December 31
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Income (principally
interest income) $ 24,935,937 $ 25,405,953 $ 25,348,183 $ 30,265,346
Net gain (loss) on mortgage
dispositions 9,420,191 (31,742) (120,439) 333,350
Net income 11,543,125 6,391,525 6,513,152 10,792,055
Net income per share-Basic 0.38 0.21 0.16 0.29
Net income per share-Diluted 0.38 0.21 0.16 0.28
</TABLE>
20. SEGMENT REPORTING
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.
Management assesses Company performance and allocates capital principally
on the basis of two lines of business: portfolio investment and mortgage
servicing. These two lines of business are managed separately as they provide
different sources and types of revenues for the Company.
F-53
<PAGE>
Portfolio investment primarily includes (i) acquiring non-investment grade
subordinated securities backed by pools of mortgage loans on multifamily, retail
and other commercial real estate and by pools of mortgage-backed securities,
backed, in turn, by loans on such properties ("Subordinated CMBS"), (ii)
originating and underwriting mortgage loans, (iii) securitizing pools of
mortgage loans and pools of commercial mortgage-backed securities ("CMBS") and
to a lesser degree, (iv) direct investments in government insured securities and
entities that own government insured securities. The Company's income is
primarily generated from these investments.
Mortgage servicing, which consists of all the operations of CMSLP, includes
performing servicing functions with respect to the Company's mortgage loans and
the mortgage loans underlying the Company's Subordinated CMBS. CMSLP performs a
variety of servicing including special, master, direct and loan management as
well as advisory services. For these services, CMSLP earns a servicing fee which
is calculated as a percentage of the principal amount of the servicing portfolio
typically paid when the related service is rendered. These services may include
either routine monthly services, non-monthly periodic services or
event-triggered services. In acting as a servicer, CMSLP also earns interest
income on the investment of escrows held on behalf of borrowers and other income
which includes, among other things, assumption fees and modification fees. CMSLP
is an unconsolidated affiliate of CRIIMI MAE. The results of its operations are
reported in the Company's income statement in equity in earnings from
investments.
Revenues, expenses and assets are accounted for in accordance with the
accounting policies set forth in Note 3, "Summary of Significant Accounting
Policies". Overhead expenses, such as administrative expenses, are allocated
either directly to each business line or through estimates based on factors such
as number of personnel or square footage of office space.
F-54
<PAGE>
The following table details the Company's financial performance by these
two lines of business for the years ended December 31, 1998, 1997 and 1996. The
basis of accounting used in the table is GAAP.
<TABLE>
<CAPTION>
1998
------
Portfolio Mortgage
Investment Servicing Elimination(1) Consolidated
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Interest Income - Subordinated CMBS $ 143,656,307 $ -- $ -- $ 143,656,307
Interest Income-Insured Mortgage Securities 43,062,743 -- -- 43,062,743
Interest Income-Originated Loans 20,588,112 -- -- 20,588,112
Interest Income-Other -- 4,058,108 (4,058,108) --
Servicing Income -- 7,293,565 (7,293,565) --
Gain on Sale of CMBS 28,800,408 -- -- 28,800,408
Gain on mortgage security dispositions 1,196,499 -- -- 1,196,499
Other income 5,695,194 5,712,017 (4,510,605) 6,896,606
-------------- ----------- ----------- --------------
Total Revenue 242,999,263 17,063,690 (15,862,278) 244,200,675
-------------- ----------- ----------- --------------
General and Administrative (14,623,407) (10,518,183) 10,518,183 (14,623,407)
Interest Expense (136,268,431) (451,938) 451,938 (136,268,431)
Realized loss on reverse repurchase obligation
and unrealized loss on warehouse obligations (34,881,350) -- -- (34,881,350)
Other expenses (16,058,894) (4,112,365) 4,112,365 (16,058,894)
-------------- ----------- ----------- --------------
Total Expenses (201,832,082) (15,082,486) 15,082,486 (201,832,082)
-------------- ----------- ----------- --------------
Net Income 41,167,181 1,981,204 (779,792) 42,368,593
Preferred Dividends (6,997,859) -- -- (6,997,859)
-------------- ----------- ----------- --------------
Net Income Available to common
Shareholders $ 34,169,322 $ 1,981,204 $ (779,792) $ 35,370,734
-------------- ----------- ----------- --------------
Total Assets $2,414,099,927 $25,954,448 $(2,136,422) $2,437,917,953
-------------- ----------- ----------- --------------
-------------- ----------- ----------- --------------
</TABLE>
(1) The Company performs the mortgage servicing function through CMSLP which is
accounted for under the equity method. The elimination column reclassifies CMSLP
under the equity method as it is accounted for in the Company's consolidated
financial statements.
F-55
<PAGE>
<TABLE>
<CAPTION>
1997
------
Portfolio Mortgage
Investment Servicing Elimination(1) Consolidated
---------- --------- -------------- ------------
<S> <C> <C> <C> <C>
Interest Income - Subordinated CMBS $ 79,669,816 $ -- $ -- $ 79,669,816
Interest Income - Insured Mortgage securities 49,425,401 -- 49,425,401
Interest Income - Other -- 744,039 (744,039) --
Servicing Income -- 3,981,960 (3,981,960) --
Gain on mortgage security dispositions 17,343,481 -- -- 17,343,481
Other Income 4,420,695 2,456,335 (655,446) 6,221,584
-------------- ----------- ----------- --------------
Total Revenue 150,859,393 7,182,334 (5,381,445) 152,660,282
-------------- ----------- ----------- --------------
General and Administrative (9,610,579) (4,099,787) 4,099,787 (9,610,579)
Interest Expenses (77,919,414) (88,391) 88,391 (77,919,414)
Other Expenses (10,942,673) (1,649,083) 1,649,083 (10,942,673)
-------------- ----------- ----------- --------------
Total Expenses (98,472,666) (5,837,261) 5,837,261 (98,472,666)
-------------- ----------- ----------- --------------
Net Income 52,386,727 1,345,073 455,816 54,187,616
Preferred Dividends (6,472,540) -- -- (6,472,540)
-------------- ----------- ----------- --------------
Net Income Available to common
shareholders $ 45,914,187 $ 1,345,073 $ 455,816 $ 47,715,076
-------------- ----------- ----------- --------------
Total Assets $1,850,360,445 $29,816,041 $(6,870,998) $1,873,305,488
-------------- ----------- ----------- --------------
-------------- ----------- ----------- --------------
</TABLE>
(1) The Company performs the mortgage servicing function through CMSLP which is
accounted for under the equity method. The elimination column reclassifies CMSLP
under the equity method as it is accounted for in the Company's consolidated
financial statements.
F-56
<PAGE>
<TABLE>
<CAPTION>
1996
------
Portfolio Mortgage
Investment Servicing Elimination(1) Consolidated
---------- --------- -------------- ------------
<S> <C> <C> <C> <C>
Interest Income - Subordinated CMBS $ 41,713,126 $ -- $ -- $ 41,713,126
Interest Income - Insured Mortgage securities 56,911,670 -- -- 56,911,670
Interest Income - Other -- 99,956 (99,956) --
Servicing Income -- 4,442,017 (4,442,017) --
Gain on mortgage security dispositions 9,601,360 -- -- 9,601,360
Other Income 4,957,628 1,733,176 639,819 7,330,623
-------------- ---------- ----------- --------------
Total Revenue 113,183,784 6,275,149 (3,902,154) 115,556,779
-------------- ---------- ----------- --------------
G&A (7,969,944) (2,468,855) 2,468,856 (7,969,943)
Interest Expense (63,078,767) -- -- (63,078,767)
Other Expenses (9,268,212) (1,422,579) 1,422,579 (9,268,212)
-------------- ---------- ----------- --------------
Total Expenses (80,316,923) (3,891,434) 3,891,435 (80,316,922)
-------------- ---------- ----------- --------------
Net Income 32,866,861 2,383,715 (10,719) 35,239,857
Preferred Dividends (3,526,451) -- -- (3,526,451)
-------------- ---------- ----------- --------------
Net Income Available to common
Shareholders $ 29,340,410 $2,383,715 $ (10,719) $ 31,713,406
-------------- ---------- ----------- --------------
Total Assets $1,358,597,941 $9,941,242 ($1,293,885) $1,367,245,298
-------------- ---------- ----------- --------------
-------------- ---------- ----------- --------------
</TABLE>
(1) The Company performs the mortgage servicing function through CMSLP which is
accounted for under the equity method. The elimination column reclassifies CMSLP
under the equity method as it is accounted for in the Company's consolidated
financial statements.
F-57
<PAGE>
21. FINANCIAL STATEMENTS FOR THE DEBTOR ENTITIES
The following are unconsolidated financial statements for CRIIMI MAE, CM
Management and Holdings II:
<TABLE>
<CAPTION>
CRIIMI MAE Inc.
BALANCE SHEET
As of December 31, 1998
(unconsolidated)
<S> <C>
Assets
Subordinated CMBS, at fair value $ 1,071,872,143
Insured Mortgage security ,at fair value 5,511,707
Receivables and Other Assets 74,226,682
Cash and Cash Equivalents 22,714,828
Investment in Subsidiaries 246,817,957
-----------------
Total Assets $ 1,421,143,317
-----------------
-----------------
Liabilities
Accounts Payable and other Accrued Expenses $ 7,374,281
Liabilities Subject to Chapter 11 Proceedings 1,105,892,131
-----------------
Total Liabilities 1,113,266,412
-----------------
-----------------
Shareholders' Equity
Convertible Preferred Stock 18,170
Common Stock 528,981
Additional paid-in capital 525,621,510
Accumulated Other Comprehensive Income (218,291,756)
-----------------
Shareholders' Equity 307,876,905
Total Liabilities and Shareholders' Equity $ 1,421,143,317
-----------------
-----------------
</TABLE>
F-58
<PAGE>
CRIIMI MAE Inc.
STATEMENT OF NET LOSS
AND COMPREHENSIVE INCOME
(unconsolidated)
<TABLE>
<CAPTION>
Year to Date*
---------------
<S> <C>
Interest Income $ 29,577,886
Interest Expense 17,548,270
----------------
Net Interest Margin 12,029,616
----------------
Equity in Earnings from Subsidiaries 2,769,642
Other Income 320,531
General and Administrative Expenses (100,966)
Amortization of Assets Acquired in Merger (680,717)
Realized loss on reverse repurchase obligation (411,831)
Unrealized losses on warehouse obligation (12,747,783)
Write-off of capitalized loan origination costs (3,284,037)
Reorganization Items (8,500,753)
----------------
Subtotal (22,635,914)
----------------
Net Loss $ (10,606,298)
----------------
----------------
Other Comprehensive Income (141,543,673)
----------------
Comprehensive Income (152,149,971)
----------------
----------------
</TABLE>
* The Debtor filed a petition for relief under Chapter 11 on October 5, 1998.
These year-to-date figures represent amounts from October 6, 1998 through
December 31, 1998.
F-59
<PAGE>
CRIIMI MAE Inc.
Notes to Financial Statements
December 31, 1998
(unconsolidated)
1. BASIS OF PRESENTATION
Generally Accepted Accounting Principles ("GAAP") requires that certain
entities that meet specific criteria be consolidated with CRIIMI MAE including:
CM Management and Holdings II (Debtors) and CRIIMI MAE Financial Corporation
III, CRIIMI MAE QRS 1, Inc., CRIIMI MAE Holding Inc. (currently inactive),
CRIIMI MAE Holding L.P. (currently inactive), CRIIMI, Inc., and CRIIMI MAE CMBS
Corporation (Non-Debtors). For purposes of this presentation CRIIMI MAE accounts
for all subsidiaries (those consolidated under GAAP and those accounted for
under the equity method under GAAP) using the equity method of accounting.
All entities that CRIIMI MAE would normally consolidate for GAAP purposes
are being accounted for under the equity method of accounting. The equity method
of accounting consists of recording an original investment in an investee as the
amount originally contributed. Subsequently this balance is
increased/(decreased) for CRIIMI MAE's share of the investee's income/(losses)
and increased for additional contributions and decreased for distributions
received from the investee. CRIIMI MAE's share of the investee's income is
recognized as "Equity in earnings from subsidiaries" on the income statement.
In management's opinion, with the exception of those matters discussed
above, the financial statements of CRIIMI MAE contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of CRIIMI MAE as of December 31, 1998, and the
unconsolidated results of its operations for the period October 6, 1998 -
December 31, 1998.
F-60
<PAGE>
CRIIMI MAE Management, Inc.
BALANCE SHEET
As of December 31, 1998
<TABLE>
<S> <C>
Assets
Note Receivable $ 3,376,468
Cash and Cash Equivalents 958,175
Other Assets 3,332,116
Equity Investments 19,209,778
---------------
Total Assets $ 26,876,537
---------------
---------------
Liabilities
Accounts Payable and other Accrued Expenses $ 2,367,277
Liabilities Subject to Chapter 11 Proceedings 6,150,787
---------------
Total Liabilities 8,518,064
---------------
Shareholders' Equity 18,358,473
---------------
Total Liabilities and Shareholders' Equity $ 26,876,537
---------------
---------------
</TABLE>
F-61
<PAGE>
CRIIMI MAE Management, Inc.
STATEMENT OF NET LOSS
<TABLE>
<CAPTION>
Year to Date*
--------------
<S> <C>
Interest Income - Note Receivable and short-term interest income $ 89,020
Equity in Earnings from investments (121,359)
------------
Total Revenue (32,339)
------------
Interest Expense 89,833
Depreciation and Amortization 127,316
General and Administrative Expenses 2,996,531
Reorganization Items 833,861
------------
Total Expenses 4,047,541
------------
Net Loss $ (4,079,880)
------------
------------
</TABLE>
* CRIIMI MAE Management, Inc. filed a petition for relief under Chapter 11 on
October 5, 1998. These year-to-date figures represent amounts from October
6, 1998 through December 31, 1998.
F-62
<PAGE>
CRIIMI MAE Management, Inc.
Notes to Financial Statements
December 31, 1998
1. BASIS OF PRESENTATION
In management's opinion, the accompanying unaudited financial statements of
CM Management contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position of CM Management
on a stand-alone basis as of December 31, 1998 and the results of its operations
for the period October 6, 1998 to December 31, 1998, in accordance with
Generally Accepted Accounting Principles ("GAAP").
F-63
<PAGE>
Holdings II, L.P.
BALANCE SHEET
As of December 31, 1998
<TABLE>
<S> <C>
Assets
Subordinated CMBS, at fair value $ 43,001,454
Interest Receivable 1,064,071
Cash 100
-------------
Total Assets $ 44,065,625
-------------
-------------
Liabilities
Other Accrued Expenses $ 209,213
Liabilities Subject to Chapter 11 Proceedings 40,132,693
-------------
Total Liabilities 40,341,906
Partners' Equity
Contributed Capital 5,927,429
Accumulated Other Comprehensive Income (2,203,710)
-------------
Partners' Equity 3,723,719
-------------
Total Liabilities and Partners' Equity $ 44,065,625
-------------
-------------
</TABLE>
F-64
<PAGE>
Holdings II, L.P.
STATEMENT OF NET LOSS
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year to Date*
-------------
<S> <C>
Interest Income:
Subordinated CMBS $ 753,860
Interest Expense:
Variable rate secured borrowings - CMBS (564,635)
-----------
Net Interest Margin 189,225
Reorganization Expense (209,213)
-----------
Net Loss $ (19,988)
-----------
-----------
Other Comprehensive Income (1,118,369)
-----------
Comprehensive Income $(1,138,357)
-----------
-----------
</TABLE>
* Holdings II L.P. filed a petition for relief under Chapter 11 on October 5,
1998. These year-to-date figures represent amounts from October 6, 1998
through December 31, 1998.
F-65
<PAGE>
Holdings II, L.P.
Notes to Financial Statements
December 31, 1998
1. BASIS OF PRESENTATION
Holdings II's CMBS (2 tranches from CMM 98-1) are carried as investments in
loans at cost basis in CRIIMI MAE's December 31, 1998 10-K's consolidated
financial statements. (See Notes 3 and 6 for discussion of this accounting.) On
a stand-alone basis, Generally Accepted Accounting Principles ("GAAP") requires
that Holdings II's investment in CMBS be carried as securities (as opposed to
loans) at fair value.
In management's opinion, the accompanying unaudited financial statements of
Holdings II contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position of Holdings II
on a stand-alone basis as of December 31, 1998 and the results of its operations
for the period October 6, 1998 to December 31, 1998.
F-66
<PAGE>
EXHIBIT INDEX
3(c) Amendment to the Articles of Incorporation of CRIIMI MAE Inc.
3(g) First Amendment to the Limited Partnership Agreement of CRIIMI MAE
Services Limited Partnership effective as of December 31, 1995 between
CRIIMI MAE Management Inc. and CRIIMI MAE Services Inc.
3(h) Second Amendment to the Limited Partnership Agreement of CRIIMI MAE
Services Limited Partnership effective as of January 2, 1997 between
CRIIMI MAE Management Inc. and CRIIMI MAE Services Inc.
3(i) Third Amendment to the Limited Partnership Agreement of CRIIMI MAE
Services Limited Partnership effective as of December 31, 1997 between
CRIIMI MAE Management Inc. and CRIIMI MAE Services Inc.
10(p) Employment and Non-Competition Agreement dated as of July 1, 1998
between CRIIMI MAE Management, Inc. and Cynthia O. Azzara.
10(q) First Amendment to Employment and Non-Competition Agreement dated as of
October 5, 1998, by and among CRIIMI MAE Management Inc., Cynthia O.
Azzara and CRIIMI MAE Inc.
10(r) Employment and Non-Competition Agreement dated October 7, 1998 between
CRIIMI MAE Management, Inc. and David B. Iannarone.
10(s) First Amendment to Employment and Non-Competition Agreement dated as of
October 7, 1998 by and among CRIIMI MAE Management, Inc., David B.
Iannarone and CRIIMI MAE Inc.
10(t) First Amendment to Employment and Non-Competition Agreement, dated as
of October 5, 1998, by and among CRIIMI MAE Management, Inc., William
B. Dockser and CRIIMI MAE Inc.
10(u) First Amendment to Employment and Non-Competition Agreement, dated as
of October 5, 1998, by and among CRIIMI MAE Management, Inc., H.
William Willoughby and CRIIMI MAE Inc.
10(aa) Amended and Restated Mortgage Loan Origination and Disposition Program
Agreement made as of May 1, 1998 between Citicorp Real Estate, Inc. and
CRIIMI MAE Inc.
10(uu) Certificate of Limited Partnership of CRIIMI MAE Holdings, II L.P.
10(vv) Limited Partnership Agreement of CRIIMI MAE Holdings II, L.P. effective
as of June 4, 1998 between CRIIMI MAE Inc. and CRIIMI MAE Services
Limited Partnership.
27. Financial Data Schedule
99(d) Motion for an Order Extending the Debtor's Exclusive Periods to File a
Plan of Reorganization and Solicit Acceptances Thereof Pursuant to 11
U.S.C. Sec. 1121(d) filed on January 28, 1999.
99(e) Stipulation and Consent Order regarding Motion and Adversary Proceeding
(Merrill Lynch) entered December 4, 1998.
99(f) Supplement To Stipulation and Consent Order Regarding Motion and
Adversary Proceeding (Merrill Lynch) entered January 6, 1999.
99(g) Stipulation and Agreed Order Authorizing Use of Cash Collateral (German
American Capital Corporation) entered February 2, 1999.
F-67
<PAGE>
99(h) Stipulation and Consent Order Regarding Adversary Proceeding (Morgan
Stanley and Co. International Limited) entered on January 26, 1999.
99(i) Stipulation and Order Regarding Proceeds Received by the Debtor from
the Sale of the BBB Bonds (Morgan Stanley and Co. International
Limited) entered on January 26, 1999.
99(j) Order Upon Motions for Reconsideration of Order Extending Debtors'
Exclusive Periods entered on February 24, 1999.
99(k) Stipulation and Consent Order Regarding Sale of Certain Triple B Bonds
(Citicorp) entered on April 5, 1999.
99(l) Supplemental Stipulation and Consent Order Regarding Sale of Certain
Triple B Bonds (Citicorp) entered on April 5, 1999.
99(m) Stipulation and Order Regarding Proceeds Received by the Debtor from
the Sale of Certain Triple B Bonds (Citicorp) entered on April 5, 1999.
99(n) Stipulation and Consent Order Regarding Mortgage Loan Origination
Agreement with Citicorp Real Estate, Inc. entered on April 5, 1999.
99(o) Supplemental Stipulation and Consent Order Regarding Mortgage Loan
Origination Agreement with Citicorp Real Estate, Inc. entered on April
5, 1999.
99(p) Stipulation and Order Regarding Proceeds Received by the Debtor from
Mortgage Loan Sale entered on April 5, 1999.
F-68
<PAGE>
Exhibit 3(c)
CRIIMI MAE INC.
ARTICLES OF AMENDMENT
CRIIMI MAE Inc., a Maryland Corporation having its principal office in
Rockville, Maryland (the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland (the "Department") that:
FIRST: The Charter of the Corporation is hereby amended by adding to
the Articles of Incorporation a new paragraph in Articles 18 which shall be as
follows:
"(I) Nothing in this Article EIGHTEENTH shall preclude the
settlement of any transactions entered into through the facilities of
the New York Stock Exchange or any other national securities exchange
or automated interdealer quotation system; provided, that the fact that
the settlement of any transaction takes place shall not negate the
effect of any other provision of this Article EIGHTEENTH and any
transferee in such a transaction shall be subject to all of the
provisions and limitations set forth in this Article EIGHTEENTH."
SECOND: The Charter of the Corporation is hereby amended by increasing
the authorized stock of the Corporation from 60,000,000 shares of the
Corporation's Common Stock, par value $.01 per share ("Common Stock"), to
120,000,000 shares of Common Stock. Accordingly, the first sentence of Article
ONE shall be as follows:
"(A) The aggregate number of shares of all classes of stock
that the Corporation shall have authority to issue is 145,000,000,
consisting of: 25,000,000 shares of preferred stock, par value One
Center ($.01) per share ("Preferred Shares") and 120,000,000 shares of
common stock., par value One Cent ($.01) per share ("Common Shares")."
THIRD: (a) Prior to the effectiveness of these Articles of Amendment,
the Corporation had the authority to issue 85 million shares of its capital
stock, comprised of 60 million shares of Common Stock and 25 million shares of
the Corporation's preferred stock, par value $.01 per share ("Preferred Stock").
As amended by these Articles of Amendment, the Corporation has the authority to
issue 145 million shares of its capital stock, comprised of 120 million shares
of Common Stock and 25 million shares of Preferred Stock.
(b) The par value per share of Common Stock is $.01. The par
value per share of Preferred Stock is $.01.
(c) The information required by subsection (b)(2)(i) of
Section 2-607 of the Maryland General Corporation Law was not changed by these
Articles of Amendment.
<PAGE>
FOURTH: The amendment of the charter of the Corporation as hereinabove
set forth has been duly advised by the board of directors and approved by the
stockholders of the Corporation.
FIFTH: These Articles of Amendment shall become effective when the
Department accepts the Articles of Amendment for record.
IN WITNESS WHEREOF, CRIIMI MAE Inc. has caused these Articles of
Amendment to be signed in its name and on it behalf by its Senior Vice-
President/General Counsel and attested by its Assistant Secretary on July 8,
1998.
CRIIMI MAE INC.
By: /s/ David B. Iannarone
---------------------------------------
David B. Iannarone
Senior Vice-President/General Counsel
ATTEST:
/s/ Susan B. Railey
- ---------------------------------
Assistant Secretary
Susan B. Railey
THE UNDERSIGNED, Senior Vice-President/General Counsel of CRIIMI MAE
Inc., who executed on behalf of said corporation the foregoing Articles of
Amendment, of which this certificate is made a part, hereby acknowledges, in the
name and on behalf of said corporation, the foregoing Articles of Amendment to
be the corporate act of said corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.
/s/ David B. Iannarone
-----------------------------
David B. Iannarone
Senior Vice President/General Counsel
<PAGE>
Exhibit 3(g)
FIRST AMENDMENT TO LIMITED PARTNERSHIP AGREEMENT
This FIRST AMENDMENT TO LIMITED PARTNERSHIP AGREEMENT (the "Amendment") is
made and entered into as of December 31, 1995 by and between CRIIMI MAE
Management, Inc., a Maryland Corporation (the "General Partner") and CRIIMI MAE
Services, Inc., a Maryland Corporation (the "Limited Partner").
WHEREAS, the General Partner and the Limited Partner entered into that
certain Limited Partnership Agreement (the "Limited Partnership Agreement") of
CRIIMI MAE Services Limited Partnership (the "Partnership") dated effective as
of June 1, 1995; and
WHEREAS, the Limited Partnership Agreement provides for additional capital
contributions to the Partnership; and
WHEREAS, the General Partner has made additional capital contributions;
NOW, THEREFORE, in consideration of the premises and the General Partner's
additional capital contributions, the parties hereto agree as follows:
1. Section 3.02 of the Partnership Agreement is hereby amended by the
addition of the following language:
"Upon the making of any Additional Capital Contributions, this Agreement
shall be amended by attaching Exhibit B, which Exhibit B will reflect the
value of any Additional Capital Contributions and the respective
Partnership Interests of the Limited Partner and General Partner
thereafter."
2. The Partnership Agreement is amended as set forth in Exhibit B attached
hereto effective as of the date hereof.
3. Except as amended hereby the Limited Partnership Agreement shall remain
in full force and effect as written.
IN WITNESS WHEREOF, this First Amendment to Limited Partnership Agreement
is executed as of the date first above written.
CRIIMI MAE MANAGEMENT, INC.
By: /s/ Cynthia O. Azzara
----------------------------
Cynthia O. Azzara
Its: Senior Vice President
Chief Financial Officer
CRIIMI MAE SERVICES, INC.
<PAGE>
By: /s/ Jay R. Cohen
----------------------------
Jay R. Cohen
Its: Executive Vice President
<PAGE>
EXHIBIT B
ADDITIONAL CAPITAL CONTRIBUTIONS
<TABLE>
<CAPTION>
SERVICING RIGHTS VALUE
- -------------------------------------------- --------------
<S> <C>
CMM/AIM Funds $279,000
CRIIMI MAE Financial Corporation
Collateralized Mortgage Obligations 400,000
Asset Securitization Corporation
Series 1995-D1 150,000
Mortgage Capital Funding
Series 1995-MC1 535,000
Lehman/FHLMC
Series 1994-A 560,000
LB Commercial Conduit Mortgage Trust
Series 1995-C2 750,000
Merrill Lynch Mortgage Investors Inc.
Series 1995-C3 0
DLJ Mortgage Acceptance Corporation
Series 1995-CF2 0
PARTNERSHIP INTERESTS
- --------------------------------------------
<S> <C>
CRIIMI MAE Management, Inc. 32%
CRIIMI MAE Services, Inc. 68%
</TABLE>
<PAGE>
Exhibit 3(h)
SECOND AMENDMENT
TO
LIMITED PARTNERSHIP AGREEMENT
OF
CRIIMI MAE SERVICES LIMITED PARTNERSHIP
The Second Amendment to the Limited Partnership Agreement of CRIIMI MAE
Services Limited Partnership is made and entered into as of January 2, 1997, by
and among CRIIMI MAE Management, Inc., a Maryland corporation (the "General
Partner"), and CRIIMI MAE Services, Inc., a Maryland corporation (the "Limited
Partner").
WHEREAS, on March 14, 1995, the General Partner executed a Certificate
of Limited Partnership (the "Certificate") for the formation of CRIIMI MAE
Services Limited Partnership (the "Partnership") pursuant to terms of the
Maryland Revised Uniform Limited Partnership Act, as amended (the "Act"), which
certificate was subsequently filed with the Maryland State Department of
Assessments and Taxation (the "State") on March 17, 1995; and
WHEREAS, as of June 1, 1995, the General Partner and the Limited
Partner executed an Agreement of Limited Partnership (the "Original Agreement")
of the Partnership; and
WHEREAS, the parties hereto now desire to enter into this First
Amendment to Limited Partnership Agreement of the Partnership to make certain
changes to the terms of the Original Agreement.
NOW, THEREFORE, in consideration of the foregoing, of mutual promises
of the parties hereto and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree to
amend the terms of the Original Agreement as follows:
1. Paragraph 6.1 is amended to add subparagraph (c) as follows:
(c) The Partnership shall have the right and is authorized to
employ persons as its employees and to retain third parties to
carry out the purposes and business of the Partnership in
accordance with this Agreement, including, but not limited to,
the purposes enumerated in Paragraph 2.3(a) and (b) above.
Such employees shall be deemed employees of the Partnership
and not employees of the General Partner.
2. Paragraph 6.4 is amended to add the following sentence after the
caption "Partnership Expenses."
Any and all expenses associated with the employment of the
employees of the Partnership, including but not limited to,
salary and benefits, shall constitute Operating Expenses.
<PAGE>
3. Except as amended hereby, all of the provisions of Original
Agreement shall remain in full force and effect.
4. Capitalized terms used here and not defined shall have the meanings
ascribed to such terms in the Original Agreement.
IN WITNESS WHEREOF, the parties have affixed their signatures and seals
to this Second Amendment to Limited Partnership Agreement of CRIIMI MAE Services
Limited Partnership as of the date first written above.
GENERAL PARTNER
CRIIMI MAE MANAGEMENT, INC.
By: /s/ H. William Willoughby
---------------------------
H. William Willoughby
President
LIMITED PARTNER
CRIIMI MAE SERVICES, INC.
By: /s/ William B. Dockser
---------------------------
William B. Dockser
Chairman of the Board
<PAGE>
Exhibit 3(i)
THIRD AMENDMENT
TO
LIMITED PARTNERSHIP AGREEMENT
OF
CRIIMI MAE SERVICES LIMITED PARTNERSHIP
This Third Amendment to Limited Partnership Agreement of CRIIMI MAE
Services Limited Partnership is made and entered into as of December 31, 1997,
by and among CRIIMI MAE Management, Inc., a Maryland corporation (the
"Withdrawing General Partner/Successor Limited Partner") and CRIIMI MAE
Services, Inc., a Maryland corporation (the "Withdrawing Limited
Partner/Successor General Partner").
WHEREAS, on March 14, 1995, the Withdrawing General Partner/Successor
Limited Partner executed a Certificate of Limited Partnership (the
"Certificate") for the formation of CRIIMI MAE Services Limited Partnership (the
"Partnership") pursuant to the terms of the Maryland Revised Uniform Limited
Partnership Act, as amended (the "Act"), which certificate was subsequently
filed with the Maryland State Department of Assessments and Taxation (the
"State') on March 17, 1995; and
WHEREAS, as of June 1, 1995 the Withdrawing General Partner/Successor
Limited Partner and the Withdrawing Limited Partner/Successor General Partner
executed an Agreement of Limited Partnership of the Partnership (the "Original
Agreement"); and
WHEREAS, as of December 31, 1995 the Withdrawing General
Partner/Successor Limited Partner and the Withdrawing Limited Partner/Successor
General Partner executed the First Amendment to the Limited Partnership
Agreement of the Partnership (The "First Amendment"); and
WHEREAS, as of January 2, 1997 the Withdrawing General
Partner/Successor Limited Partner and the Withdrawing Limited Partner/Successor
General Partner executed the Second Amendment to Limited Partnership Agreement
of the Partnership (the "Second Amendment"); and
WHEREAS, the parties hereto now desire to enter into this Third
Amendment to Limited Partnership Agreement of the Partnership to make certain
changes to the terms of the Original Agreement.
NOW, THEREFORE, BE IT RESOLVED, in consideration of the foregoing, and
mutual promises of the parties hereto and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree to amend the terms of the Original Agreement as follows:
<PAGE>
1. CRIIMI MAE Management, Inc. hereby withdraws as General
Partner of the Partnership and CRIIMI MAE Services, Inc. is hereby substituted
in lieu thereof as General Partner of the Partnership; and
2. CRIIMI MAE Services, Inc. hereby withdraws as Limited Partner of the
Partnership and CRIIMI MAE Management, Inc. is hereby substituted in lieu
thereof as Limited Partner of the Partnership.
3. Except as amended by the First Amendment, the Second Amendment, and
hereby, all of the provisions of the Original Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, this Third Amendment to Limited Partnership
Agreement of CRIIMI MAE Services Limited Partnership is executed as of the date
first written above.
WITHDRAWING GENERAL PARTNER/
SUCCESSOR LIMITED PARTNER
CRIIMI MAE MANAGEMENT, INC.
By: /s/ CYNTHIA O. AZZARA
------------------------------
Cynthia O. Azzara
Senior Vice President
Chief Financial Officer
WITHDRAWING LIMITED PARTNER/
SUCCESSOR GENERAL PARTNER
CRIIMI MAE SERVICES, INC.
By: /s/ DAVID B. IANNARONE
--------------------------------
David B. Iannarone
Vice President/General Counsel
<PAGE>
Exhibit 10(p)
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AND NON-COMPETITION AGREEMENT (this "Agreement") is
entered into as of the July 1, 1998, between CRIIMI MAE Management, Inc., a
Maryland corporation (the "Company"), and Cynthia O. Azzara (the "Executive").
R E C I T A L S
A. The Executive has been employed by the Company pursuant to an
Employment and Non-Competition Agreement dated June 30, 1995 (the "Original
Agreement").
B. The Company and the Executive wish to restate the Original Agreement
into the form set forth herein in order to reflect their current understanding
as to the terms and conditions under which the Executive shall continue to
perform services for the Company and the Company shall continue to employ the
Executive.
For good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and the Executive agree as follows:
1 EMPLOYMENT.
1.1 POSITION. On ________, 1998 (the "Effective Time"), the
Company shall employ the Executive as Senior Vice President, Chief Financial
Officer and Treasurer, and the Executive hereby accepts such employment for the
term of this Agreement (the "Term"), on the terms and subject to the conditions
set forth below.
1.2 DUTIES. The Executive shall report directly to the
Company's President and Chairman (the "Chairman") of the Board of Directors (the
"Board"), unless the Chairman, President or the Board instructs her otherwise,
and shall perform such duties consistent with the Company's bylaws and her
position as Senior Vice President, Chief Financial Officer and Treasurer as may
be reasonably requested of her by the Chairman, President or by the Board.
1.3 ATTENTION AND EFFORT. The Executive shall be required to
devote her full business time, attention and effort to the Company's business
and affairs and perform diligently her duties as are customarily performed by
Chief Financial Officers/Treasurers of companies similar in character or size to
the Company, together with such other duties as may be reasonably requested of
her by the Chairman, the President or the Board, which duties shall be
consistent with her positions as set forth above and as provided in Section 1.2.
The Executive agrees to use all of her skills and business judgment and render
services to the best of her ability to serve the interests of the Company.
Subject to the terms of Section 7, this shall not preclude the Executive from
serving on community and civic boards, participating in industry associations,
or otherwise engaging in other business activities which, in the Company's
reasonable judgment, do not unreasonably interfere with her duties to the
Company.
1.4 SUPPORT SERVICES. The Executive shall be entitled to all
of the administrative, operational and facility support customary for a Chief
Financial Officer/Treasurer
<PAGE>
similarly situated. This support shall include, without limitation, a
suitably appointed private office, a secretary or administrative assistant,
and payment of or reimbursement for reasonable cellular telephone expenses,
business entertainment expenses, expenses of the Executive for maintaining
her professional license and standing and any and all other business expenses
reasonably incurred on behalf of or in the course of performing duties for
the Company. The Executive agrees to provide such documentation of these
expenses as may be reasonably required.
2 TERM. Subject to the provisions for termination in Section 5, the
Term shall begin on the Effective Time and shall continue through the third
anniversary of the Effective Time.
3 COMPENSATION. Throughout the Term, the Company shall pay or provide,
as the case may be, to the Executive, the compensation and other benefits and
rights set forth in this Section 3.
3.1 BASE SALARY. The Company shall pay to the Executive an
initial "Base Salary," payable in accordance with the Company's usual pay
practices (and in any event no less frequently than monthly), of One Hundred
Eighty Thousand Dollars ($180,000) per annum, which amount shall be increased to
an amount equal to not less than Two Hundred Twenty-Five Thousand Dollars
($225,000) beginning the earlier of (i) March 16, 1999 or (ii) any month prior
to March 1999 in which any annual increases are made by the Company to its
salaried employees.
3.2 CPI ADJUSTMENTS. The Company shall increase the
Executive's Base Salary during the same month that annual increases are
generally made to the Company's salaried employees by a minimum amount equal to
the Executive's Base Salary in effect during the month (the "Adjustment Month")
immediately prior to the month during which any annual increases are made to the
Company's salaried employees, multiplied by the greater of (i) ten percent (10%)
or (ii) the percentage increase in the Consumer Price Index-United States City
Average Urban Wage Earners and Clerical Workers (1967=100) (the "CPI") for the
Adjustment Month over the CPI for the twelfth (12th) month preceding the
Adjustment Month.
3.3 DISCRETIONARY BONUS. The payment of bonuses, if any, to
the Executive shall be determined by the Board in its sole discretion, provided
that in any calendar year, the Executive shall be entitled to a bonus in the
minimum amount of twenty-five percent (25%) of the Executive's Base Salary then
in effect. A bonus shall be prorated for partial calendar years.
3.4 STOCK OPTIONS.
3.4.1 STOCK OPTIONS. At the Effective Time and on
the earlier of (i) March 16 of each year covered by this Agreement or (ii) the
date during each such year upon which options (the "Options") are otherwise
granted to the Company's other executives or salaried employees, the Executive
shall be granted Options to purchase at least Twenty Thousand (20,000) Common
Shares of CRIIMI MAE Inc. (the "Parent") ("Option Shares"), pursuant and subject
to the terms and conditions of a separate option agreement (the "Option
Agreement") and the Amended and Restated CRIIMI MAE Inc. Stock Option Plan for
Key Employees. To the extent possible, such Options shall qualify as incentive
stock options. The Options are in addition to any other rights and options which
may be granted to the Executive under any qualified, non-
2
<PAGE>
qualified, incentive, bonus and other stock or stock option plans which may be
adopted by the Company.
3.4.2 VESTING. Subject to the provisions of
Section 6, the Options shall vest in one-third increments on each of the first
three anniversaries of the Effective Time, as provided in the Option Agreement.
3.5 LOAN FOR PAYMENT OF WITHHOLDING TAXES ON OPTION SHARES. In
the event the Company is required to withhold taxes on the exercise of an Option
by the Executive, the Company hereby agrees to lend an amount equal to such
taxes to the Executive upon the following terms and conditions. The principal
amount shall be due within sixty (60) days of the first to occur of (i) sale of
the Option Shares, (ii) termination of employment hereunder or (iii) the tenth
(10th) anniversary date of the Effective Time, whichever is earlier. Interest on
the principal amount shall accrue at the appropriate applicable Federal rate, as
defined in Section 1274(d) of the Internal Revenue Code, and shall be payable
when the principal amount is due. Of the dividends paid on the Option Shares
during the term of the promissory note, an amount sufficient to pay any income
taxes due on such dividends by the Executive may be retained by the Executive
with the balance being paid to the Company, to be applied to curtail the loan,
first to accrued and unpaid interest, then to reduce the outstanding principal
balance. The Executive agrees to pledge the Executive's Option Shares to the
Company as security for any such loan, pursuant to a pledge agreement reasonably
satisfactory to counsel for the Company.
3.6 INSURANCE. The Company shall provide the Executive with
benefits not less than those provided to her immediately prior to the Effective
Time with respect to life insurance and disability insurance for the Executive,
and medical, hospitalization and dental insurance for the Executive, her spouse
and eligible family members in accordance with the policy (collectively,
"Insurance Benefits"). The Company shall provide Insurance Benefits to the
Executive in accordance with its policies.
3.7 AUTOMOBILE. The Company shall (x) purchase an automobile
selected by the Executive at a cost not to exceed Forty Thousand Dollars
($40,000), or (y) lease an automobile selected by the Executive for a three (3)
year term at a leasing cost not to exceed the cost to lease an automobile worth
Forty Thousand Dollars ($40,000) over the three (3) year term, the Company to
pay that fraction of the leasing cost equal to the lesser of (i) Forty Thousand
Dollars ($40,000) or (ii) the leasing cost over the three (3) year term, and the
Executive to pay the balance, if any, of such leasing cost. In lieu of having
the Company provide an automobile, the Executive may elect to be paid a monthly
automobile allowance in an amount equal to the monthly rental payment for a
lease of an automobile with a price of Forty Thousand Dollars ($40,000) for a
three (3) year lease. Such automobile allowance shall terminate in all events
upon termination of employment, whether for Cause or not.
3.7.1 The Company shall provide automobile theft,
casualty and liability insurance.
3.7.2 The Company shall pay for all costs of
maintenance and repair of such automobile. Upon termination of employment other
than termination for "Cause" (as such term is defined in Section 5.6 below) or
the Executive's voluntary resignation, the Executive shall
3
<PAGE>
have the right to be substituted as lessee under the automobile lease if the
automobile is leased, or to purchase the automobile from the Company, for a
purchase price which is the lesser of the low retail price for the automobile
established by the National Association of Automobile Dealers Guide for Used Car
Prices (Blue Book) or the "fair market value" of the automobile. For purposes of
this Section, "fair market value" shall mean the average of two written offers
from dealers in the Washington metropolitan area which are lower than the Blue
Book price. If the Executive paid for part of the cost of acquiring the
automobile, the purchase price shall be appropriately adjusted. Notwithstanding
the above, in the event of a termination of employment without Cause, if the
Company has provided an automobile to the Executive and if the Executive does
not elect to lease or purchase the automobile from the Company pursuant to this
Section 3.7.2, then the Executive shall be given the opportunity to continue to
use the automobile for a period of sixty (60) days from the date of her
termination of employment. The Company shall be responsible for the monthly
leasing cost, insurance and maintenance, if any, during such sixty (60) day
period.
3.8 PARKING SPACE. The Company shall provide a parking space
(a reserved one if one becomes available) in the garage of the building where
its headquarters is located (or nearby if no such garage). The Executive shall
pay the same proportion of the cost of such space as the Executive was paying
for a parking space immediately prior to the Effective Time.
3.9 PROFIT SHARING, RETIREMENT AND OTHER BENEFIT PLANS. The
Executive shall participate in all profit sharing, retirement and other benefit
plans of the Company generally available from time to time to employees of the
Company and for which the Executive qualifies under the terms thereof (and
nothing in this Agreement shall, or shall be deemed to, in any way affect the
Executive's right and benefits thereunder except as expressly provided herein).
3.10 VACATION AND SICK LEAVE. At the Effective Time, the
Company shall provide a vacation and sick leave policy identical to the vacation
and sick leave policy of the Company immediately prior to the Effective Time.
The Executive shall be entitled to such periods of vacation and sick leave
allowance each year as provided under the Company's vacation and sick leave
policy for executive officers. The Company shall also provide to the Executive
such additional periods of vacation and sick leave allowance which the Company
was required to provide to the Executive, but were unused and accrued, up to the
Effective Time.
3.11 MEMBERSHIP FEES. The Company shall, on the Executive's
behalf, bear the cost of initiation and regular membership fees and dues
incurred during the Term for professional associations, and shall reimburse the
Executive the amount of any charges actually and reasonably incurred at such
association or associations in the conduct of the Company's business.
3.12 EXPENSE ALLOWANCE. The Company shall reimburse the
Executive or provide her with an expense allowance of up to Five Thousand
Dollars ($5,000) for each year of the Term for financial planning, tax return
and financial statement preparation services.
3.13 USE OF OFFICE AFTER CESSATION OF EMPLOYMENT. Beginning on
the day after the cessation of the Executive's employment with the Company,
except in the case of termination of the Executive's employment for Cause or
death, and continuing until the earlier of (i) the end of the third month after
such cessation or (ii) the date, if ever, on which the Executive begins full
4
<PAGE>
time employment with another employer, the Company shall provide to the
Executive, at no cost to the Executive, for her personal use, office space at a
location in the Company's headquarters (other than in an executive suite of the
Company's offices) and reasonable secretarial assistance and office support.
4 PERMANENT DISABILITY.
4.1 DETERMINATION. The Executive's "Permanent Disability"
shall be deemed to have occurred one (1) day after (x) one hundred fifty (150)
days in the aggregate during any consecutive twelve (12) month period, or (y)
one hundred five (105) consecutive days that, in either case, the Executive, by
reason of her physical or mental disability or illness, shall have been unable
to discharge fully her duties under this Agreement.
4.2 RESOLUTION OF DISAGREEMENT. If either the Company or the
Executive, after receipt of notice of the Executive's Permanent Disability from
the other, disagrees that the Executive's Permanent Disability shall have
occurred, the Executive shall promptly submit to a physical examination by, or
at the direction of, the chief of medicine of any major accredited hospital in
the Washington, D.C. metropolitan area and, unless such physician shall issue a
written statement to the effect that, in such physician's opinion, based on such
physician's diagnosis, the Executive is capable of resuming her employment and
devoting her full time and energy to discharging fully her duties hereunder
within thirty (30) days after the date of such statement, such Permanent
Disability shall be deemed to have occurred on a date determined in accordance
with Section 4.1.
5 TERMINATION OF EMPLOYMENT. The Executive's employment under this
Agreement and the Term shall be terminated as provided in Sections 5.1 through
5.5.
5.1 Immediately upon the death of the Executive.
5.2 By the Company at any time after the Permanent Disability
of the Executive, subject to compliance by the Company with the Americans With
Disabilities Act, and by the Executive at any time after her Permanent
Disability.
5.3 By the Company at any time for Cause.
5.4 By the Company at any time without Cause.
5.5 By the Executive's resignation.
5
<PAGE>
5.6 For purposes hereof, Cause shall mean:
5.6.1 (i) Active participation by the Executive in
fraudulent conduct, (ii) conviction of, or a guilty plea to, a felony, (iii) a
deliberate act or series of deliberate acts which, in the reasonable judgment of
the Company, results or would likely result in material injury to the business,
operations or business reputation of the Company, (iv) an act or series of acts
of dishonesty, recklessness or gross negligence or (v) the Executive's willful
failure to perform any of her material duties under this Agreement; provided,
however, there shall not be Cause in the case of (x) clause (iii), if the
Executive promptly and diligently, after receipt of written notice from the
Company, takes such action which causes the Company, in its reasonable judgment,
to believe that such act would not likely result in material injury to the
business, operations or business reputation of the Company, or that any such
injury, if already incurred, has been rectified, or (y) clause (v), if the
Executive promptly and diligently, after receipt of written notice from the
Company, discontinues her failure to perform and rectifies any injury which
resulted from her failure to perform. Any repetition of any such deliberate, or
substantially similar, act or such willful, or substantially similar, failure to
perform, shall be Cause without any further opportunity to cure.
5.6.2 The Executive's material breach of any
provision of this Agreement, which material breach has not been cured to the
Company's reasonable satisfaction within ten (10) days after the Company gives
written notice thereof to the Executive or within such longer period of time, up
to sixty (60) days after such notice, which is reasonably required to cure the
default if the Executive is acting diligently to cure the default.
5.6.3 Excessive absenteeism by the Executive;
provided that absenteeism (x) related to illness or otherwise covered by Section
4, (y) required to be permitted under applicable federal or state laws, or (z)
permitted under a policy of the Company, shall not deemed to be excessive.
5.6.4 The voluntary resignation of the Executive
without the prior consent of the Board.
5.7 Upon any termination of the Executive's employment under
this Agreement, the Executive shall be deemed to have resigned from all offices
and directorships held by the Executive in the Company, the Parent, and all
entity affiliates of the Parent, and the Executive shall sign and deliver to the
Company, the Parent, and all entity affiliates of the Parent, as the case may
be, written resignations from all such offices and directorships.
6 SEVERANCE COMPENSATION.
6
<PAGE>
6.1 TERMINATION BY DEATH. If the Executive's employment is
terminated by death, the Executive's estate shall be entitled to receive (x)
severance compensation, within ninety (90) days after the date of death, in a
lump sum payment equal to the total of her Base Salary under Section 3.1 for
twelve (12) months after the date of death, and a pro rata portion of the bonus
applicable to the calendar year in which death occurs, (y) other benefits under
Sections 3.9 and 3.10, payable within ninety (90) days after the date of death,
accrued by her hereunder up to and including the date of the Executive's death
and (z) benefits, if any, provided by any insurance policies in accordance with
their terms. Any rights to purchase Option Shares that shall not have vested
under the Option Agreement shall vest immediately upon the death of the
Executive.
6.2 TERMINATION FOR CAUSE. If the Executive's employment is
terminated by the Company for Cause, the Company shall not have any other or
further obligations to the Executive under this Agreement (except (x) as may be
provided in accordance with the terms of profit sharing, retirement and other
benefit plans pursuant to Section 3.9 (y) as to that portion of any unpaid Base
Salary and other benefits accrued and earned under this Agreement through the
date of such termination, and (z) as to benefits, if any, provided by any
insurance policies in accordance with their terms). Any rights to purchase
Option Shares that shall not have vested under the Option Agreement within
thirty (30) days following such termination shall terminate. Furthermore, all
rights to purchase Option Shares that are vested must be exercised within one
hundred eighty (180) days following such termination of employment or such
rights shall terminate.
6.3 TERMINATION WITHOUT CAUSE OR FOR PERMANENT DISABILITY.
6.3.1 If the Executive's employment is terminated
by the Company without Cause, the Executive shall be entitled to receive (x)
severance compensation equal to what would have been her Base Salary under
Section 3.1 for twelve (12) months from the date of such termination, payable
at such times as her Base Salary would have been paid if her employment had
not been terminated and a pro rata portion of the bonus applicable to the
calendar year in which such termination occurs, (y) other benefits pursuant
to Sections 3.9, 3.10, 3.12 and 3.13, payable within ninety (90) days after
the date of such termination, accrued by her hereunder up to and including
the date of such termination and (z) benefits, if any, provided by any
insurance policies in accordance with their terms. The vesting schedules for
the rights to purchase Option Shares set forth in the Option Agreement shall
not be affected by any such termination of employment without Cause.
6.3.2 If the Executive's employment is terminated
because of her Permanent Disability, the Executive shall be entitled to receive
(x) severance compensation equal to what would have been her Base Salary under
Section 3.1 for twelve (12) months from the date of such termination, payable at
such times as her Base Salary would have been paid if her employment had not
been terminated, (y) other benefits pursuant to Section 3.9, 3.10, 3.12 and
3.13, payable within ninety (90) days after the date of such termination,
accrued by her hereunder up to and including the date of such termination and
(z) benefits, if any, provided by any insurance policies in accordance with
their terms. The vesting schedules for the rights to purchase Option Shares set
forth in the Option Agreement shall not be affected by any such termination of
employment for Permanent Disability.
7
<PAGE>
6.4 INVOLUNTARY RESIGNATION. If the Executive resigns from all
offices and directorships of the Company, the Parent, and all entity affiliates
of the Parent for any of the reasons set forth in Sections 6.4.1 through 6.4.7,
such resignation shall be deemed to be an "Involuntary Resignation," and the
Executive shall be entitled to receive the same severance compensation and other
benefits as are provided for in Section 6.3. The vesting schedules for the
rights to purchase Option Shares set forth in the Option Agreement shall not be
affected by any such termination of employment without Cause, except as set
forth in Section 6.4.7, below.
6.4.1 The Company materially changes the
Executive's duties and responsibilities as set forth in Section 1 without her
consent. The Executive shall be deemed to have consented to any written proposal
calling for a material change in her duties and responsibilities as set forth in
Section 1 unless she shall give written notice of her objection thereto to the
Company within thirty (30) days after receipt of such written proposal. If the
Executive shall have given such objection, the Company shall have the
opportunity to withdraw such proposed material change by written notice to the
Executive given within ten (10) days after the end of such fifteen (15) day
period.
6.4.2 The Executive's place of employment or the
principal executive offices of the Company are located more than twenty-five
(25) road miles from 11200 Rockville Pike, Rockville, Montgomery County,
Maryland.
6.4.3 The Company, without the Executive's prior
written consent, reduces the Executive's Base Salary.
6.4.4 The Company imposes requirements on the
Executive, or gives instructions or directions to the Executive, which are: (x)
contrary to or in violation of (i) rules, principles, or codes of professional
responsibility or (ii) law (as set forth in written statutes or regulations
thereunder), which the Executive is obligated to follow; (y) such that
compliance by the Executive with such requirements, instructions or directions
would likely (i) have a material adverse effect on the Executive or (ii) cause
the Executive to suffer substantial liability, and (z) not withdrawn by the
Company after written request by the Executive, which written request sets forth
the Executive's complete explanation as to why she believes the requirements,
instructions or directions should be withdrawn.
6.4.5 There occurs a material breach by the Company
of any of its obligations under this Agreement, which breach has not been cured
in all material respects within thirty (30) days after the Executive gives
written notice thereof to the Company, which notice sets forth in reasonable
detail the nature and circumstances of such breach.
6.4.6 The Company, the Parent, or a entity affiliate
of the Parent violates a federal or state criminal law involving moral
turpitude, and the Executive was unaware of such unlawful activity at the time
of its occurrence.
6.4.7 There occurs a "change in control." In the
event of termination within six (6) months following a "change in control," the
Executive shall be entitled to a supplemental payment, in addition to severance
compensation and other benefits set forth in Section 6.3. Such supplemental
payment shall be an amount equal to the Executive's Base Salary (determined at
the time of the Executive's termination of employment) for thirty-six (36)
months.
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Such supplemental payment shall be paid in a lump sum within ninety (90) days
after the Executive's termination of employment. In addition, all Options shall
become immediately exercisable notwithstanding any vesting schedule that would
otherwise apply and the Executive shall also be entitled to the benefit set
forth in Section 3.5. In no event, however, shall any amount be paid under
Section 6.4.7 which would otherwise constitute an "excess parachute payment" as
defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"). The Executive shall be provided with all data utilized
by the Company in the computation of benefits which potentially involve the
application of Sections 280G and 4999 of the Internal Revenue Code. To the
extent that payment of any of the benefits to the Executive is curtailed so as
to avoid triggering the application of Section 4999 of the Internal Revenue
Code, the Executive shall be given the opportunity to select which among the
affected benefits shall be subject to such curtailment.
The term "change in control" means the first to occur of the following
events:
A. Any person or group of commonly
controlled persons owns or controls, directly or indirectly, thirty-five percent
(35%) or more of the voting control of, or beneficial rights to, the voting
capital stock of the Parent.
B. The Parent's stockholders approve an
agreement to merge or consolidate with another corporation or other entity
resulting (whether separately or in connection with a series of related
transactions) in a change in ownership of twenty percent (20%) or more of the
voting control of, or beneficial rights to, the voting capital stock of the
Parent, or an agreement to sell or otherwise dispose of all or substantially all
of the Parent's assets (including, without limitation, a plan of liquidation or
dissolution), or otherwise approve of a fundamental alteration in the nature of
the Parent's business.
C. The Parent no longer owns a
majority of the voting stock of the Company.
D. Notwithstanding the provisions of
Sections 6.4.7.A. and B., the ownership of Common Shares by the Executive,
William B. Dockser, H. William Willoughby, and their respective affiliates shall
not be taken into account in determining whether there has been a "change in
control" of the Parent.
6.5 VOLUNTARY RESIGNATION OR FAILURE TO EXTEND THE TERM. If
the Executive voluntarily resigns her employment, or is an employee of the
Company at the third anniversary of the commencement of the Term and the
Executive and the Company have not reached mutual agreement with respect to the
Executive's continued employment by the Company, the Executive's employment
shall be terminated. In the event of a failure to extend the Term, the Executive
shall be entitled to receive (x) severance compensation equal to what would have
been her Base Salary under Section 3.1 for twelve (12) months after such date,
payable at such times as her Base Salary would have been paid if the Term had
not expired and (y) other benefits under Sections 3.9 and 3.13, payable within
ninety (90) days after the date the Term expired, accrued by her hereunder up to
and including the date of such expiration. In the event of voluntary
resignation, the Executive shall not be entitled to any severance compensation,
but shall be entitled to benefits under Sections 3.9 and 3.13, payable as set
forth above.
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6.5.1 In the event of a voluntary resignation, any
rights to purchase Option Shares that have not vested
pursuant to the Option Agreement shall terminate immediately upon such voluntary
resignation. Furthermore, all rights to purchase Option Shares that are vested
must be exercised within one hundred eighty (180) days following such voluntary
resignation or such rights shall terminate.
6.5.2 In the event employment is terminated
for a failure to extend the Term, the vesting schedules for the rights to
purchase Option Shares set forth in the Option Agreement shall not be
affected by any such termination.
7 COVENANTS AND CONFIDENTIAL INFORMATION.
7.1 AGREEMENT. The Executive acknowledges the Company's
reliance on and expectation of the Executive's continued commitment to
performance of her duties and responsibilities during the Term. In light of such
reliance and expectation on the part of the Company, during the periods
hereafter specified in Section 7.2, the Executive covenants that she shall not,
directly or indirectly, do or cause, or allow to be done, any of the following:
7.1.1 Own, manage, control or participate in the
ownership, management or control of, or be employed or
engaged by, or otherwise affiliated or associated as, a consultant, independent
contractor or otherwise with, any other corporation, partnership,
proprietorship, firm, association or other business entity directly or
indirectly engaged in the business of, or otherwise directly or indirectly
engaged in any activities that (x) compete with the Company, the Parent, or any
entity affiliate of the Parent or (y) are of a type which are the same or
materially similar to the business activities in which during the Term the
Company, the Parent, or any entity affiliates of the Parent engaged; provided,
however, that the beneficial and/or record ownership of not more than two and
one-half percent (2.5%) of any class of publicly traded securities of any such
entity shall not be deemed a violation of this covenant; or
7.1.2 Disclose, divulge, discuss, copy or otherwise
use or suffer to be used in any manner, other than in accordance with the
Executive's duties hereunder or to the Executive's counsel, any confidential or
proprietary information relating to the Company's business, prospects, finances,
operations, properties or otherwise to its particular business or other trade
secrets of the Company, the Parent, or any entity affiliate of the Parent, it
being acknowledged by the Executive that all such information regarding the
business of the Company, the Parent, or any entity affiliate of the Parent
compiled or obtained by, or furnished to, the Executive while the Executive
shall have been employed by or associated with the Company is confidential
and/or proprietary information and the exclusive property of the Company, the
Parent, or a entity affiliate of the Parent, as the case may be; provided,
however, that the foregoing restrictions shall not apply to the extent that such
information (x) is clearly obtainable in the public domain; (y) becomes
obtainable in the public domain, except by reason of the breach by the Executive
of the terms hereof; or (z) is required to be disclosed by rule of law or by
order of a court or governmental body or agency.
7.2 The applicable periods shall be: (x) for Sections 7.1.1
and 7.1.2 so long as the Executive is an employee of the Company; and (y) for
Section 7.1.2 only at any time after the
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<PAGE>
Executive ceases to be an employee of the Company but is receiving severance
compensation as provided in Section 6.
7.3 The Executive agrees and understands that the remedy at
law for any breach by her of this Section 7 will be inadequate and that the
damages flowing from such breach are not readily susceptible to being measured
in monetary terms. Accordingly, it is acknowledged that the Company, the Parent,
and any entity affiliates of the Parent, as the case may be, shall be entitled
to immediate injunctive relief and may obtain a temporary order restraining any
threatened or further breach. Nothing in this Section 7 shall be deemed to limit
the remedies at law or in equity for any breach by the Executive of any of the
provisions of this Section 7 which may be pursued or availed of by the Company,
the Parent, or any entity affiliate of the Parent.
7.4 The Executive has carefully considered the nature and
extent of the restrictions upon her and the rights and remedies conferred upon
the Company, the Parent, and any entity affiliates of the Parent under this
Section 7, and hereby acknowledges and agrees that the same are reasonable with
respect to time and territory; are designed to eliminate competition which
otherwise would be unfair to the Company, the Parent, and entity affiliates of
the Parent; do not stifle the inherent skill and experience of the Executive;
would not operate as a bar to the Executive's sole means of support; are fully
required to protect the legitimate interests of the Company, the Parent, and
entity affiliates of the Parent; and do not confer a benefit upon the Company,
the Parent or entity affiliates of the Parent disproportionate to the detriment
to the Executive.
8 MISCELLANEOUS.
8.1 NO RESTRICTIONS. The Executive represents and warrants
that she is not a party to any agreement, contract or understanding, whether
employment or otherwise, which would restrict or prohibit her from undertaking
or performing employment in accordance with the terms and conditions of this
Agreement.
8.2 SEVERABILITY. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions and any
partially unenforceable provision to the extent enforceable nevertheless shall
be binding and enforceable.
8.3 SUCCESSORS AND ASSIGNS. The rights and obligations of the
Company, the Parent, and entity affiliates of the Parent under this Agreement
shall inure to the benefit of, and shall be binding on, the Company, the Parent,
and entity affiliates of the Parent, and their respective successors and
assigns, and the rights and obligations (other than obligations to perform
services) of the Executive under this Agreement shall inure to the benefit of,
and shall be binding upon, the Executive and her heirs, personal representatives
and assigns. The benefits of the Executive's obligations to perform services to
the Company shall run equally to the Parent and its entity affiliates as though
they are parties to this Agreement.
8.4 DISPUTE RESOLUTION. Any controversy (excluding a
disagreement covered by Section 4.2 (Permanent Disability)) or claim arising out
of or relating to this Agreement, or the breach thereof, shall be settled by
arbitration in Montgomery County, Maryland, in accordance
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with the Commercial Rules of the American Arbitration Association then
pertaining in Montgomery County, Maryland, and judgment upon the award rendered
by the arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. The arbitrator or arbitrators shall be deemed to possess the powers to
issue mandatory orders and restraining orders in connection with such
arbitration; provided, however, that nothing in this Section 8.4 shall be
construed so as to deny the Company the right and power to seek and obtain
injunctive relief in a court of equity for any breach or threatened breach by
the Executive of any of her covenants contained in Section 7 of this Agreement.
8.5 NOTICES. All notices and other communications required or
permitted under this Agreement shall be in writing, and shall be deemed properly
given if delivered personally, mailed by registered or certified mail in the
United States mail, postage prepaid, return receipt requested, sent by
facsimile, or sent by Express Mail, Federal Express or other nationally
recognized express delivery service, as follows:
If to the Company or the Board:
CRIIMI MAE Management, Inc.
11200 Rockville Pike
Rockville, MD 20852
Attention: Chairman of the Board
Fax Number: 301-231-0399
If to the Parent:
CRIIMI MAE Inc.
11200 Rockville Pike
Rockville, MD 20852
Attention: Chairman of the Board
Fax Number: 301-231-0399
If to the Executive:
Cynthia O. Azzara
12920 Buckeye Drive
Darnestown, MD 20878
Notice given by hand, certified or registered mail, or by Express Mail, Federal
Express or other such express delivery service shall be effective upon actual
receipt. Notice given by facsimile transmission shall be effective upon actual
receipt if received during the recipient's normal business hours, or at the
beginning of the recipient's next business day after receipt if not received
during the recipient's normal business hours. All notices by facsimile
transmission shall be confirmed promptly after transmission in writing by
certified mail or personal delivery. Any party may change any address to which
notice is to be given to it by giving written notice as provided above of such
change of address.
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8.6 NO WAIVER. The failure of either party to enforce any
provision or provisions of this Agreement shall not in any way be construed as a
waiver of any such provision or provisions as to any future violations thereof,
nor prevent that party thereafter from enforcing each and every other provision
of this Agreement. The rights granted the parties herein are cumulative and the
waiver of any single remedy shall not constitute a waiver of such party's right
to assert all other legal remedies available to it under the circumstances.
8.7 PRIOR AGREEMENTS. This Agreement supersedes all prior
agreements and understandings between the parties and may not be modified or
terminated orally. No modification or attempted waiver shall be valid unless in
writing and signed by the party against whom the same is sought to be enforced.
8.8 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with the provisions of, the law of the State of
Maryland, without reference to provisions that refer a matter to the law of any
other jurisdiction. Each party hereto hereby irrevocably submits itself to the
non-exclusive personal jurisdiction of the federal and state courts sitting in
Maryland; accordingly, subject to the provisions for arbitration provided in
Section 8.4, any justiciable matters arising out of or relating to Section 7 of
this Agreement may be adjudicated only in a federal or state court sitting in
Maryland.
8.9 TAX WITHHOLDING. All payments required to be made by the
Company hereunder to the Executive shall be subject to the withholding of such
amounts relating to taxes and other government assessments as the Company may
reasonably determine it should withhold pursuant to any applicable law, rule or
regulation.
8.10 CAPTIONS. Captions and section headings used herein are
for convenience and are not a part of this Agreement and shall not be used in
construing it.
8.11 SINGULAR, PLURAL AND GENDER. Where necessary or
appropriate to the meaning hereof, the singular and plural shall be deemed to
include each other, and the masculine, feminine and neuter shall be deemed to
include each other.
8.12 INDEMNIFICATION. The Executive shall have the full
benefit of all indemnifications authorized by the Company's and the Parent's
articles of incorporation and bylaws applicable to officers and directors and
the Company shall provide Directors and Officers Insurance for the Executive in
such amounts and on such terms as is maintained for any other officer or
director of the Company.
(Signatures follow on following page)
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement, intending to be bound legally.
CRIIMI MAE Management, Inc.,
a Maryland corporation
By: /s/ H. WILLIAM WILLOUGHBY
------------------------------------
H. William Willoughby
President
/s/ CYNTHIA O. AZZARA
------------------------------------
Cynthia O. Azzara
In consideration of the services which the Executive is to perform on
behalf of the Company, CRIIMI MAE Inc. agrees that it will provide the Option
Shares required to fulfill the Company's obligations under Section 3.4 of the
Agreement.
IN WITNESS WHEREOF, CRIIMI MAE Inc. has executed this Agreement this
_____ day of __________, 1998.
CRIIMI MAE Inc.
By: /s/ WILLIAM B. DOCKSER
------------------------------------
William B. Dockser
Chairman of the Board
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Exhibit 10(q)
FIRST AMENDMENT TO
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This First Amendment to Employment and Non-Competition Agreement (the
"FIRST AMENDMENT"), made and entered into as of the 5th day of October 1998, is
by and among (i) CRIIMI MAE Management, Inc., a Maryland corporation (the
"COMPANY"), (ii) Cynthia O. Azzara (the "EXECUTIVE") and (iii) CRIIMI MAE Inc.,
a Maryland corporation and the parent of the Company (the "PARENT").
RECITALS
1. On July 1, 1998, the Company and the Executive entered into an
Employment and Non-Competition Agreement (the "EMPLOYMENT AGREEMENT").
2. On October 5, 1998, the Company and the Parent each filed a
voluntary petition seeking relief under the provisions of chapter 11, title 11
of the United States Code ("CHAPTER 11").
3. On February 23, 1999, the court, in the case captioned IN RE CRIIMI
MAE INC., ET AL., Ch. 11 Case No. 9823115 (Jointly Administered) (the
"BANKRUPTCY COURT"), entered an order, attached hereto as EXHIBIT A (the
"ORDER"), approving, among other things, (i) the Company's assumption of the
Employment Agreement and (ii) the implementation of an employee retention
program with respect to certain key employees of the Company, including the
Executive, all as amended by the Order, effective NUNC PRO TUNC to October 5,
1998, upon the execution of this First Amendment by the parties hereto (the
"RETENTION PROGRAM").
4. This First Amendment amends the Employment Agreement in accordance
with the modifications set forth in the Order.
5. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
1. AMENDATORY PROVISIONS. The Employment Agreement is hereby
amended as follows:
(a) Section 3.3 to the Employment Agreement is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
<PAGE>
3.3 DISCRETIONARY BONUS. Bonuses awarded in the sole
discretion of the Board in 1998 shall be capped at 20% of the
Executive's 1998 base annual salary. No other discretionary bonuses
shall be awarded so long as the Parent remains in Chapter 11 without
(a) written approval of the Official Committee of Unsecured Creditors
of the Parent and the Official Committee of Equity Security Holders of
the Parent or (b) by order of the Bankruptcy Court.
(b) Section 3.5 to the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
3.5 [INTENTIONALLY OMITTED]
(c) The second and third sentences of Section 3.7 to the Employment
Agreement are hereby deleted in their entirety.
(d) Section 3.12 to the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
3.12 EXPENSE ALLOWANCE. The Company shall reimburse the
Executive for all expenses for financial planning, tax return and
financial statement preparation services incurred by the Executive
subsequent to July 1, 1998 up to Two Thousand Five Hundred Dollars
($2500).
(e) Section 3 to the Employment Agreement is hereby amended to add the
following new subsection at the end thereof:
3.14 REORGANIZATION BONUS.
3.14.1 The Company shall pay the Executive a reorganization
bonus equal to two (2) times the Executive's then current Base Salary
(the "REORGANIZATION BONUS"), to be paid in four (4) equal semi-annual
installments beginning April 5, 1999, so long as the Executive remains
employed full-time with the Company; PROVIDED, HOWEVER, that if the
Executive is terminated without Cause, or upon the effective date of a
plan of reorganization of the Parent, the entire unpaid portion of the
Reorganization Bonus shall become immediately due and payable;
3.14.2 Notwithstanding anything to the contrary contained
herein, in the event that the Parent's Chapter 11 case is converted to
a case under chapter 7, title 11 of the United States Code ("CHAPTER
7"), the Executive shall not be entitled to any additional
Reorganization Bonus payments subsequent to such date; PROVIDED,
HOWEVER, that this paragraph shall not impact the Executive's rights to
receive severance payments as set forth in Section 6; and PROVIDED
FURTHER, that, subject to Section 3.14.3, the Executive shall not be
required to refund any Reorganization Bonus payments received by her
prior to the date that the Parent's Chapter 11 case is converted to a
case under Chapter 7; and
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3.14.3 Notwithstanding anything to the contrary contained
herein, the Company is specifically authorized to make semi-annual
Reorganization Bonus payments beginning on April 5, 1999, as set forth
in Section 3.14.1, without further order of the Bankruptcy Court;
PROVIDED, HOWEVER, that the Company shall not pay the fourth and final
installment of the Reorganization Bonus or any accelerated portion of
the Reorganization Bonus, as the case may be, without first (x)
applying to the Bankruptcy Court for final allowance of the
Reorganization Bonus and (y) obtaining Bankruptcy Court approval.
(f) Section 6.3.1 to the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
6.3.1 If the Executive's employment is terminated by the
Company without Cause, the Executive shall be entitled to receive (x)
severance compensation equal to what would have been her Base Salary
under Section 3.1 for twenty-four (24) months from the date of such
termination, payable at such times as her Base Salary would have been
paid if her employment had not been terminated and a pro rata portion
of the bonus applicable to the calendar year in which such termination
occurs; (y) other benefits pursuant to Sections 3.9, 3.10, 3.12, 3.13
and 3.14, payable within ninety (90) days after the date of such
termination accrued by her hereunder up to and including the date of
such termination; PROVIDED, HOWEVER, that the payment of benefits
pursuant to Section 3.14 shall require Bankruptcy Court approval and
(z) benefits, if any, provided by any insurance policies in accordance
with their terms. The vesting schedules for the rights to purchase
Option Shares set forth in the Option Agreement shall not be affected
by any such termination of employment without Cause.
(g) Section 6.3 to the Employment Agreement is hereby amended to add
the following new subsection at the end thereof:
6.3.3 In the event that the Executive is terminated by the
Company without Cause and a Reorganization Bonus payment is owed to the
Executive pursuant to Section 3.14 and/or this Section 6.3, the Company
shall immediately file a motion with the Bankruptcy Court to receive
approval of the payment of such Reorganization Bonus payment to the
Executive or, at the option of the Executive, such motion may be filed
with the Bankruptcy Court directly by the Executive. The Company shall
reimburse the Executive for any and all amounts incurred by the
Executive in filing a motion to receive Reorganization Bonus payments
with the Bankruptcy Court, including filing fees, reasonable attorneys'
fees and all other fees incidental thereto.
(h) The second sentence of Section 6.4.7 to the Employment Agreement is
hereby deleted in its entirety and the following shall be inserted in lieu
thereof:
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"In the event of a termination following a `change in
control,' the Executive shall be entitled to the payment set
forth in Section 6.3.1."
(i) The third and fourth sentences of Section 6.4.7 to the Employment
Agreement are hereby deleted in their entirety.
(j) The fifth sentence of Section 6.4.7 to the Employment Agreement is
hereby deleted in its entirety and the following shall be inserted in lieu
thereof:
"In addition, all Options shall become immediately exercisable
notwithstanding any vesting schedule that would otherwise apply."
(k) Section 7 to the Employment Agreement is hereby amended to add the
following new subsections at the end thereof:
7.5 NON-COMPETITION AGREEMENT. The Executive acknowledges the
Company's and the Parent's reliance on, and expectation of, her
continued commitment to the performance of her duties during the term
of the Retention Program. In light of such reliance and expectation on
the part of the Company and the Parent, during the applicable period
hereafter specified in Section 7.6, the Executive covenants and agrees
that:
7.5.1 The Executive shall not be employed or engaged by, or
otherwise affiliated or associated as an employee, consultant,
independent contractor or otherwise with, any other corporation,
partnership, proprietorship, firm, association, or other business
entity directly or indirectly engaged in a business that (x) competes
with the businesses in which the Company, the Parent and/or CRIIMI MAE
Services L.P. (collectively, the "AFFILIATE ENTITIES") are engaged
during the term of the Retention Program or were engaged during the
two-year period prior to October 5, 1998; or (y) are of a type which
are the same or similar business activities in which any of the
Affiliate Entities are engaged during the term of the Retention Program
or were engaged during the two-year period prior to October 5, 1998.
7.5.2 The following shall not be deemed a violation of the
covenant set forth in Section 7.5.1: (x) the beneficial and/or record
ownership of not more than two and one-half percent (2.5%) of any class
of publicly traded securities of any such entity, or (y) engaging in
business activities unrelated to the Affiliate Entities or their
respective businesses which are a part of, or are reasonably related
to, the other existing business activities of the Executive provided
that such existing business activities of the Executive do not or would
not result in a breach of this Agreement.
7.6 The covenant set forth in Section 7.5 shall be binding
until the first to occur of the following: (i) the consummation of a
plan of reorganization for the Parent; (ii) the termination with or
without cause of the Executive's employment
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<PAGE>
by the Company or a successor in interest; (iii) the termination,
expiration or acceleration of the Reorganization Bonus as provided in
Section 3.14; or (iv) October 5, 2000.
7.7 The Executive agrees and understands that the remedy at
law for any breach by her of the covenants set forth in Section 7.5
will be inadequate and that the damages that may arise from such breach
are not readily susceptible to being measured in monetary terms.
Accordingly, it is acknowledged that the Affiliate Entities shall be
entitled to immediate injunctive relief and may obtain a temporary
order restraining any threatened or further breach. Nothing in this
Section 7 shall be deemed to limit the remedies at law or in equity
which may be pursued or availed of by the Affiliate Entities for any
breach by the Executive of the covenant set forth in Section 7.5.
7.8 The Executive has considered the nature and extent of the
restrictions upon the Executive and the rights and remedies conferred
upon the Affiliate Entities in Section 7.5 and has determined that the
same (i) are reasonable with respect to time and scope; (ii) are
designed to eliminate competition which otherwise would be unfair to
the Affiliate Entities; (iii) do not stifle the inherent skill and
experience of the Executive; (iv) would not operate as a bar to the
sole means of support of the Executive; (v) are required to protect the
legitimate interests of the Company, the Parent and the other Affiliate
Entities; and (vi) do not confer a benefit upon the Affiliate Entities
disproportionate to the detriment to the Executive.
(l) Section 8.12 to the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
8.12 INDEMNIFICATION. The Parent shall (x) pay as an
administrative expense all indemnification to the extent provided for
in the Bylaws of the Parent and/or the Company up to and including
amounts totaling a maximum of $250,000 for the Executive and all other
covered persons, constituting the aggregate deductible under applicable
Officer and Director insurance policies, (y) apply any available
portion of proceeds of applicable Officer and Director insurance
policies, up to $20 million in the aggregate for all covered persons,
to indemnification of the Executive; and (z) pay as an administrative
expense all uninsured indemnification arising from the post-petition
actions of the Executive for which they are otherwise entitled to
indemnification under the Bylaws of the Parent and/or the Company.
2. EXISTING AGREEMENT. Except as expressly amended hereby, all of the
terms, covenants and conditions of the Employment Agreement (i) are ratified and
confirmed; (ii) shall remain unamended and not waived; and (iii) shall continue
in full force and effect.
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<PAGE>
3. GOVERNING LAW. This First Amendment shall be governed by the
internal laws of the State of Maryland without giving effect to the principles
of conflict of laws thereof.
4. COUNTERPARTS. This First Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which, taken
together, shall constitute one and the same instrument.
5. ENFORCEABILITY. If any provision of this First Amendment shall be
held to be illegal, invalid or unenforceable under any applicable law, then such
contravention or invalidity shall not invalidate the entire First Amendment or
the Employment Agreement. Such provision shall be deemed to be modified to the
extent necessary to render it legal, valid and enforceable, and if no such
modification shall render it legal, valid and enforceable, then this First
Amendment and the Employment Agreement shall be construed as if not containing
the provision held to be invalid, and the rights and obligations of the parties
shall be construed and enforced accordingly.
6. CONFLICTS. The Order shall govern in all matters of conflict between
any of the provisions of the Order and this First Amendment.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this First
Amendment to be executed by its duly authorized officer and the Executive has
executed this First Amendment as of the date and year first above written.
CRIIMI MAE MANAGEMENT, INC.,
a Maryland corporation
By: /s/ H. WILLIAM WILLOUGHBY
--------------------------
H. William Willoughby
President
/s/ CYNTHIA O. AZZARA
---------------------
Cynthia O. Azzara
In consideration of the services that the Executive is to perform on
behalf of the Company, the Parent agrees that it will fulfill its obligations
set forth expressly herein.
IN WITNESS WHEREOF, CRIIMI MAE Inc. has executed this First
Amendment as of the date and year first above written.
CRIIMI MAE INC.
By: /s/ WILLIAM B. DOCKSER
----------------------
William B. Dockser
Chairman of the Board
7
<PAGE>
Exhibit 10(r)
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AND NON-COMPETITION AGREEMENT (this "Agreement") is
entered into as of the 7th day of October, 1998, between CRIIMI MAE Management,
Inc., a Maryland corporation (the "Company"), and David B. Iannarone (the
"Executive").
R E C I T A L S
A. The Executive has been employed by the Company since July 26,
1996.
B. The Company and the Executive wish to enter into an Agreement in the
form set forth herein in order to reflect their current understanding as to the
terms and conditions under which the Executive shall continue to perform
services for the Company and the Company shall continue to employ the Executive.
For good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and the Executive agree as follows:
1 EMPLOYMENT.
1.1 POSITION. On October 7, 1998 (the "Effective Time"), the
Company shall employ the Executive as Senior Vice President and General Counsel,
and the Executive hereby accepts such employment for the term of this Agreement
(the "Term"), on the terms and subject to the conditions set forth below.
1.2 DUTIES. The Executive shall report directly to the
Company's President and Chairman (the "Chairman") of the Board of Directors (the
"Board"), unless the Chairman, President or the Board instructs his otherwise,
and shall perform such duties consistent with the Company's bylaws and his
position as Senior Vice President and General Counsel as may be reasonably
requested of him by the Chairman, President or by the Board.
1.3 ATTENTION AND EFFORT. The Executive shall be required to
devote his full business time, attention and effort to the Company's business
and affairs and perform diligently his duties as are customarily performed by
General Counsels of companies similar in character or size to the Company,
together with such other duties as may be reasonably requested of him by the
Chairman, the President or the Board, which duties shall be consistent with his
positions as set forth above and as provided in Section 1.2. The Executive
agrees to use all of his skills and business judgment and render services to the
best of his ability to serve the interests of the Company. Subject to the terms
of Section 7, this shall not preclude the Executive from serving on community
and civic boards, participating in industry associations, or otherwise engaging
in other business activities which, in the Company's reasonable judgment, do not
unreasonably interfere with his duties to the Company.
1.4 SUPPORT SERVICES. The Executive shall be entitled to all
of the administrative, operational and facility support customary for a General
Counsel similarly situated.
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This support shall include, without limitation, a suitably appointed private
office, a secretary or administrative assistant, and payment of or reimbursement
for reasonable cellular telephone expenses, business entertainment expenses,
expenses of the Executive for maintaining his professional license and standing
and any and all other business expenses reasonably incurred on behalf of or in
the course of performing duties for the Company. The Executive agrees to provide
such documentation of these expenses as may be reasonably required.
2 TERM. Subject to the provisions for termination in Section 5,
the Term shall begin on the Effective Time and shall continue through the
third anniversary of the Effective Time.
3 COMPENSATION. Throughout the Term, the Company shall pay or
provide, as the case may be, to the Executive, the compensation and other
benefits and rights set forth in this Section 3.
3.1 BASE SALARY. The Company shall pay to the Executive an
initial "Base Salary," payable in accordance with the Company's usual pay
practices (and in any event no less frequently than monthly), of Two Hundred
Twenty Five Thousand Dollars ($225,000) per annum beginning October 16, 1998.
3.2 CPI ADJUSTMENTS. The Company shall increase the
Executive's Base Salary during the same month that annual increases are
generally made to the Company's salaried employees by a minimum amount equal to
the Executive's Base Salary in effect during the month (the "Adjustment Month")
immediately prior to the month during which any annual increases are made to the
Company's salaried employees, multiplied by the greater of (i) ten percent (10%)
or (ii) the percentage increase in the Consumer Price Index-United States City
Average Urban Wage Earners and Clerical Workers (1967=100) (the "CPI") for the
Adjustment Month over the CPI for the twelfth (12th) month preceding the
Adjustment Month.
3.3 DISCRETIONARY BONUS. The payment of bonuses, if any, to
the Executive shall be determined by the Board in its sole discretion, provided
that in any calendar year, the Executive shall be entitled to a bonus in the
minimum amount of twenty-five percent (25%) of the Executive's Base Salary then
in effect. A bonus shall be prorated for partial calendar years.
3.4 STOCK OPTIONS.
3.4.1 STOCK OPTIONS. At the Effective Time and on
the earlier of (i) March 16 of each year covered by this Agreement or (ii) the
date during each such year upon which options (the "Options") are otherwise
granted to the Company's other executives or salaried employees, the Executive
shall be granted Options to purchase at least Twenty Five Thousand (25,000)
Common Shares of CRIIMI MAE Inc. (the "Parent") ("Option Shares"), pursuant and
subject to the terms and conditions of a separate option agreement (the "Option
Agreement") and the Amended and Restated CRIIMI MAE Inc. Stock Option Plan for
Key Employees. To the extent possible, such Options shall qualify as incentive
stock options. The Options are in addition to any other rights and options which
may be granted to the Executive under any qualified, non-qualified, incentive,
bonus and other stock or stock option plans which may be adopted by the Company.
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3.4.2 VESTING. Subject to the provisions of
Section 6, the Options shall vest in one-third increments on each of the first
three anniversaries of the Effective Time, as provided in the Option Agreement.
3.5 LOAN FOR PAYMENT OF WITHHOLDING TAXES ON OPTION
SHARES. In the event the Company is required to withhold taxes on the
exercise of an Option by the Executive, the Company hereby agrees to lend an
amount equal to such taxes to the Executive upon the following terms and
conditions. The principal amount shall be due within sixty (60) days of the
first to occur of (i) sale of the Option Shares, (ii) termination of
employment hereunder or (iii) the tenth (10th) anniversary date of the
Effective Time, whichever is earlier. Interest on the principal amount shall
accrue at the appropriate applicable Federal rate, as defined in Section
1274(d) of the Internal Revenue Code, and shall be payable when the principal
amount is due. Of the dividends paid on the Option Shares during the term of
the promissory note, an amount sufficient to pay any income taxes due on such
dividends by the Executive may be retained by the Executive with the balance
being paid to the Company, to be applied to curtail the loan, first to
accrued and unpaid interest, then to reduce the outstanding principal
balance. The Executive agrees to pledge the Executive's Option Shares to the
Company as security for any such loan, pursuant to a pledge agreement
reasonably satisfactory to counsel for the Company.
3.6 INSURANCE. The Company shall provide the Executive
with benefits not less than those provided to him immediately prior to the
Effective Time with respect to life insurance and disability insurance for
the Executive, and medical, hospitalization and dental insurance for the
Executive, his spouse and eligible family members in accordance with the
policy (collectively, "Insurance Benefits"). The Company shall provide
Insurance Benefits to the Executive in accordance with its policies.
3.7 AUTOMOBILE. INTENTIONALLY OMITTED.
3.8 PARKING SPACE. The Company shall provide a parking
space (a reserved one if one becomes available) in the garage of the building
where its headquarters is located (or nearby if no such garage). The
Executive shall pay the same proportion of the cost of such space as the
Executive was paying for a parking space immediately prior to the Effective
Time.
3.9 PROFIT SHARING, RETIREMENT AND OTHER BENEFIT
PLANS. The Executive shall participate in all profit sharing, retirement and
other benefit plans of the Company generally available from time to time to
employees of the Company and for which the Executive qualifies under the
terms thereof (and nothing in this Agreement shall, or shall be deemed to, in
any way affect the Executive's right and benefits thereunder except as
expressly provided herein).
3.10 VACATION AND SICK LEAVE. At the Effective Time,
the Company shall provide a vacation and sick leave policy identical to the
vacation and sick leave policy of the Company immediately prior to the
Effective Time. The Executive shall be entitled to such periods of vacation
and sick leave allowance each year as provided under the Company's vacation
and sick leave policy for executive officers. The Company shall also provide
to the Executive such additional periods of vacation and sick leave allowance
which the Company was required to provide to the Executive, but were unused
and accrued, up to the Effective Time.
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3.11 MEMBERSHIP FEES. The Company shall, on the
Executive's behalf, bear the cost of initiation and regular membership fees
and dues incurred during the Term for professional associations, and shall
reimburse the Executive the amount of any charges actually and reasonably
incurred at such association or associations in the conduct of the Company's
business.
3.12 EXPENSE ALLOWANCE. The Company shall reimburse
the Executive or provide him with an expense allowance of up to Five Thousand
Dollars ($5,000) for each year of the Term for financial planning, tax return
and financial statement preparation services.
3.13 USE OF OFFICE AFTER CESSATION OF EMPLOYMENT.
Beginning on the day after the cessation of the Executive's employment with
the Company, except in the case of termination of the Executive's employment
for Cause or death, and continuing until the earlier of (i) the end of the
third month after such cessation or (ii) the date, if ever, on which the
Executive begins full time employment with another employer, the Company
shall provide to the Executive, at no cost to the Executive, for his personal
use, office space at a location in the Company's headquarters (other than in
an executive suite of the Company's offices) and reasonable secretarial
assistance and office support.
4 PERMANENT DISABILITY.
4.1 DETERMINATION. The Executive's "Permanent Disability"
shall be deemed to have occurred one (1) day after (x) one hundred fifty (150)
days in the aggregate during any consecutive twelve (12) month period, or (y)
one hundred five (105) consecutive days that, in either case, the Executive, by
reason of his physical or mental disability or illness, shall have been unable
to discharge fully his duties under this Agreement.
4.2 RESOLUTION OF DISAGREEMENT. If either the Company or the
Executive, after receipt of notice of the Executive's Permanent Disability from
the other, disagrees that the Executive's Permanent Disability shall have
occurred, the Executive shall promptly submit to a physical examination by, or
at the direction of, the chief of medicine of any major accredited hospital in
the Washington, D.C. metropolitan area and, unless such physician shall issue a
written statement to the effect that, in such physician's opinion, based on such
physician's diagnosis, the Executive is capable of resuming his employment and
devoting his full time and energy to discharging fully his duties hereunder
within thirty (30) days after the date of such statement, such Permanent
Disability shall be deemed to have occurred on a date determined in accordance
with Section 4.1.
5 TERMINATION OF EMPLOYMENT. The Executive's employment under
this Agreement and the Term shall be terminated as provided in Sections 5.1
through 5.5.
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5.1 Immediately upon the death of the Executive.
5.2 By the Company at any time after the Permanent
Disability of the Executive, subject to compliance by the Company with the
Americans With Disabilities Act, and by the Executive at any time after his
Permanent Disability.
5.3 By the Company at any time for Cause.
5.4 By the Company at any time without Cause.
5.5 By the Executive's resignation.
5.6 For purposes hereof, Cause shall mean:
5.6.1 (i) Active participation by the Executive in
fraudulent conduct, (ii) conviction of, or a guilty plea to, a felony, (iii) a
deliberate act or series of deliberate acts which, in the reasonable judgment of
the Company, results or would likely result in material injury to the business,
operations or business reputation of the Company, (iv) an act or series of acts
of dishonesty, recklessness or gross negligence or (v) the Executive's willful
failure to perform any of his material duties under this Agreement; provided,
however, there shall not be Cause in the case of (x) clause (iii), if the
Executive promptly and diligently, after receipt of written notice from the
Company, takes such action which causes the Company, in its reasonable judgment,
to believe that such act would not likely result in material injury to the
business, operations or business reputation of the Company, or that any such
injury, if already incurred, has been rectified, or (y) clause (v), if the
Executive promptly and diligently, after receipt of written notice from the
Company, discontinues his failure to perform and rectifies any injury which
resulted from his failure to perform. Any repetition of any such deliberate, or
substantially similar, act or such willful, or substantially similar, failure to
perform, shall be Cause without any further opportunity to cure.
5.6.2 The Executive's material breach of any
provision of this Agreement, which material breach has not been cured to the
Company's reasonable satisfaction within ten (10) days after the Company gives
written notice thereof to the Executive or within such longer period of time, up
to sixty (60) days after such notice, which is reasonably required to cure the
default if the Executive is acting diligently to cure the default.
5.6.3 Excessive absenteeism by the Executive;
provided that absenteeism (x) related to illness or otherwise covered by Section
4, (y) required to be permitted under applicable federal or state laws, or (z)
permitted under a policy of the Company, shall not deemed to be excessive.
5.6.4 The voluntary resignation of the Executive
without the prior consent of the Board.
5.7 Upon any termination of the Executive's employment
under this Agreement, the Executive shall be deemed to have resigned from all
offices and directorships held
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by the Executive in the Company, the Parent, and all entity affiliates of the
Parent, and the Executive shall sign and deliver to the Company, the Parent, and
all entity affiliates of the Parent, as the case may be, written resignations
from all such offices and directorships.
6 SEVERANCE COMPENSATION.
6.1 TERMINATION BY DEATH. If the Executive's
employment is terminated by death, the Executive's estate shall be entitled
to receive (x) severance compensation, within ninety (90) days after the date
of death, in a lump sum payment equal to the total of his Base Salary under
Section 3.1 for twelve (12) months after the date of death, and a pro rata
portion of the bonus applicable to the calendar year in which death occurs,
(y) other benefits under Sections 3.9 and 3.10, payable within ninety (90)
days after the date of death, accrued by him hereunder up to and including
the date of the Executive's death and (z) benefits, if any, provided by any
insurance policies in accordance with their terms. Any rights to purchase
Option Shares that shall not have vested under the Option Agreement shall
vest immediately upon the death of the Executive.
6.2 TERMINATION FOR CAUSE. If the Executive's
employment is terminated by the Company for Cause, the Company shall not have
any other or further obligations to the Executive under this Agreement
(except (x) as may be provided in accordance with the terms of profit
sharing, retirement and other benefit plans pursuant to Section 3.9 (y) as to
that portion of any unpaid Base Salary and other benefits accrued and earned
under this Agreement through the date of such termination, and (z) as to
benefits, if any, provided by any insurance policies in accordance with their
terms). Any rights to purchase Option Shares that shall not have vested under
the Option Agreement within thirty (30) days following such termination shall
terminate. Furthermore, all rights to purchase Option Shares that are vested
must be exercised within one hundred eighty (180) days following such
termination of employment or such rights shall terminate.
6.3 TERMINATION WITHOUT CAUSE OR FOR PERMANENT
DISABILITY.
6.3.1 If the Executive's employment is
terminated by the Company without Cause, the Executive shall be entitled to
receive (x) severance compensation equal to what would have been his Base
Salary under Section 3.1 for twelve (12) months from the date of such
termination, payable at such times as his Base Salary would have been paid if
his employment had not been terminated and a pro rata portion of the bonus
applicable to the calendar year in which such termination occurs, (y) other
benefits pursuant to Sections 3.9, 3.10, 3.12 and 3.13, payable within ninety
(90) days after the date of such termination, accrued by him hereunder up to
and including the date of such termination and (z) benefits, if any, provided
by any insurance policies in accordance with their terms. The vesting
schedules for the rights to purchase Option Shares set forth in the Option
Agreement shall not be affected by any such termination of employment without
Cause.
6.3.2 If the Executive's employment is terminated
because of his Permanent Disability, the Executive shall be entitled to receive
(x) severance compensation equal to what would have been his Base Salary under
Section 3.1 for twelve (12) months from the date of such termination, payable at
such times as his Base Salary would have been paid if his employment had not
been terminated, (y) other benefits pursuant to Section 3.9, 3.10, 3.12 and
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3.13, payable within ninety (90) days after the date of such termination,
accrued by him hereunder up to and including the date of such termination and
(z) benefits, if any, provided by any insurance policies in accordance with
their terms. The vesting schedules for the rights to purchase Option Shares set
forth in the Option Agreement shall not be affected by any such termination of
employment for Permanent Disability.
6.4 INVOLUNTARY RESIGNATION. If the Executive resigns
from all offices and directorships of the Company, the Parent, and all entity
affiliates of the Parent for any of the reasons set forth in Sections 6.4.1
through 6.4.7, such resignation shall be deemed to be an "Involuntary
Resignation," and the Executive shall be entitled to receive the same
severance compensation and other benefits as are provided for in Section 6.3.
The vesting schedules for the rights to purchase Option Shares set forth in
the Option Agreement shall not be affected by any such termination of
employment without Cause, except as set forth in Section 6.4.7, below.
6.4.1 The Company materially changes the
Executive's duties and responsibilities as set forth in Section 1 without his
consent. The Executive shall be deemed to have consented to any written proposal
calling for a material change in his duties and responsibilities as set forth in
Section 1 unless she shall give written notice of his objection thereto to the
Company within thirty (30) days after receipt of such written proposal. If the
Executive shall have given such objection, the Company shall have the
opportunity to withdraw such proposed material change by written notice to the
Executive given within ten (10) days after the end of such fifteen (15) day
period.
6.4.2 The Executive's place of employment or the
principal executive offices of the Company are located more than twenty-five
(25) road miles from 11200 Rockville Pike, Rockville, Montgomery County,
Maryland.
6.4.3 The Company, without the Executive's prior
written consent, reduces the Executive's Base Salary.
6.4.4 The Company imposes requirements on the
Executive, or gives instructions or directions to the Executive, which are: (x)
contrary to or in violation of (i) rules, principles, or codes of professional
responsibility or (ii) law (as set forth in written statutes or regulations
thereunder), which the Executive is obligated to follow; (y) such that
compliance by the Executive with such requirements, instructions or directions
would likely (i) have a material adverse effect on the Executive or (ii) cause
the Executive to suffer substantial liability, and (z) not withdrawn by the
Company after written request by the Executive, which written request sets forth
the Executive's complete explanation as to why she believes the requirements,
instructions or directions should be withdrawn.
6.4.5 There occurs a material breach by the
Company of any of its obligations under this Agreement, which breach has not
been cured in all material respects within thirty (30) days after the Executive
gives written notice thereof to the Company, which notice sets forth in
reasonable detail the nature and circumstances of such breach.
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6.4.6 The Company, the Parent, or a entity
affiliate of the Parent violates a federal or state criminal law involving moral
turpitude, and the Executive was unaware of such unlawful activity at the time
of its occurrence.
6.4.7 There occurs a "change in control." In the
event of termination within six (6) months following a "change in control," the
Executive shall be entitled to a supplemental payment, in addition to severance
compensation and other benefits set forth in Section 6.3. Such supplemental
payment shall be an amount equal to the Executive's Base Salary (determined at
the time of the Executive's termination of employment) for thirty-six (36)
months. Such supplemental payment shall be paid in a lump sum within ninety (90)
days after the Executive's termination of employment. In addition, all Options
shall become immediately exercisable notwithstanding any vesting schedule that
would otherwise apply and the Executive shall also be entitled to the benefit
set forth in Section 3.5. In no event, however, shall any amount be paid under
Section 6.4.7 which would otherwise constitute an "excess parachute payment" as
defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"). The Executive shall be provided with all data utilized
by the Company in the computation of benefits which potentially involve the
application of Sections 280G and 4999 of the Internal Revenue Code. To the
extent that payment of any of the benefits to the Executive is curtailed so as
to avoid triggering the application of Section 4999 of the Internal Revenue
Code, the Executive shall be given the opportunity to select which among the
affected benefits shall be subject to such curtailment.
The term "change in control" means the first to occur of the following
events:
A. Any person or group of commonly
controlled persons owns or controls, directly or indirectly, thirty-five percent
(35%) or more of the voting control of, or beneficial rights to, the voting
capital stock of the Parent.
B. The Parent's stockholders approve an
agreement to merge or consolidate with another corporation or other entity
resulting (whether separately or in connection with a series of related
transactions) in a change in ownership of twenty percent (20%) or more of the
voting control of, or beneficial rights to, the voting capital stock of the
Parent, or an agreement to sell or otherwise dispose of all or substantially all
of the Parent's assets (including, without limitation, a plan of liquidation or
dissolution), or otherwise approve of a fundamental alteration in the nature of
the Parent's business.
C. The Parent no longer owns a majority
of the voting stock of the Company.
D. Notwithstanding the provisions of
Sections 6.4.7.A. and B., the ownership of Common Shares by the Executive,
William B. Dockser, H. William Willoughby, and their respective affiliates shall
not be taken into account in determining whether there has been a "change in
control" of the Parent.
6.5 VOLUNTARY RESIGNATION OR FAILURE TO EXTEND THE
TERM. If the Executive voluntarily resigns his employment, or is an employee
of the Company at the third anniversary of the commencement of the Term and
the Executive and the Company have not reached mutual
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agreement with respect to the Executive's continued employment by the Company,
the Executive's employment shall be terminated. In the event of a failure to
extend the Term, the Executive shall be entitled to receive (x) severance
compensation equal to what would have been his Base Salary under Section 3.1 for
twelve (12) months after such date, payable at such times as his Base Salary
would have been paid if the Term had not expired and (y) other benefits under
Sections 3.9 and 3.13, payable within ninety (90) days after the date the Term
expired, accrued by him hereunder up to and including the date of such
expiration. In the event of voluntary resignation, the Executive shall not be
entitled to any severance compensation, but shall be entitled to benefits under
Sections 3.9 and 3.13, payable as set forth above.
6.5.1 In the event of a voluntary resignation, any
rights to purchase Option Shares that have not vested pursuant to the Option
Agreement shall terminate immediately upon such voluntary resignation.
Furthermore, all rights to purchase Option Shares that are vested must be
exercised within one hundred eighty (180) days following such voluntary
resignation or such rights shall terminate.
6.5.2 In the event employment is terminated for a
failure to extend the Term, the vesting schedules for the rights to purchase
Option Shares set forth in the Option Agreement shall not be affected by any
such termination.
7 COVENANTS AND CONFIDENTIAL INFORMATION.
7.1 AGREEMENT. The Executive acknowledges the
Company's reliance on and expectation of the Executive's continued commitment
to performance of his duties and responsibilities during the Term. In light
of such reliance and expectation on the part of the Company, during the
periods hereafter specified in Section 7.2, the Executive covenants that she
shall not, directly or indirectly, do or cause, or allow to be done, any of
the following:
7.1.1 Own, manage, control or participate in
the ownership, management or control of, or be employed or engaged by, or
otherwise affiliated or associated as, a consultant, independent contractor
or otherwise with, any other corporation, partnership, proprietorship, firm,
association or other business entity directly or indirectly engaged in the
business of, or otherwise directly or indirectly engaged in any activities
that (x) compete with the Company, the Parent, or any entity affiliate of the
Parent or (y) are of a type which are the same or materially similar to the
business activities in which during the Term the Company, the Parent, or any
entity affiliates of the Parent engaged; provided, however, that the
beneficial and/or record ownership of not more than two and one-half percent
(2.5%) of any class of publicly traded securities of any such entity shall
not be deemed a violation of this covenant; or
7.1.2 Disclose, divulge, discuss, copy or
otherwise use or suffer to be used in any manner, other than in accordance with
the Executive's duties hereunder or to the Executive's counsel, any confidential
or proprietary information relating to the Company's business, prospects,
finances, operations, properties or otherwise to its particular business or
other trade secrets of the Company, the Parent, or any entity affiliate of the
Parent, it being acknowledged by the Executive that all such information
regarding the business of the Company, the Parent, or any entity affiliate of
the Parent compiled or obtained by, or furnished to, the Executive while the
Executive shall have been employed by or associated with the Company is
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confidential and/or proprietary information and the exclusive property of the
Company, the Parent, or a entity affiliate of the Parent, as the case may be;
provided, however, that the foregoing restrictions shall not apply to the extent
that such information (x) is clearly obtainable in the public domain; (y)
becomes obtainable in the public domain, except by reason of the breach by the
Executive of the terms hereof; or (z) is required to be disclosed by rule of law
or by order of a court or governmental body or agency.
7.2 The applicable periods shall be: (x) for Sections
7.1.1 and 7.1.2 so long as the Executive is an employee of the Company; and
(y) for Section 7.1.2 only at any time after the Executive ceases to be an
employee of the Company but is receiving severance compensation as provided
in Section 6.
7.3 The Executive agrees and understands that the
remedy at law for any breach by him of this Section 7 will be inadequate and
that the damages flowing from such breach are not readily susceptible to
being measured in monetary terms. Accordingly, it is acknowledged that the
Company, the Parent, and any entity affiliates of the Parent, as the case may
be, shall be entitled to immediate injunctive relief and may obtain a
temporary order restraining any threatened or further breach. Nothing in this
Section 7 shall be deemed to limit the remedies at law or in equity for any
breach by the Executive of any of the provisions of this Section 7 which may
be pursued or availed of by the Company, the Parent, or any entity affiliate
of the Parent.
7.4 The Executive has carefully considered the nature
and extent of the restrictions upon him and the rights and remedies conferred
upon the Company, the Parent, and any entity affiliates of the Parent under
this Section 7, and hereby acknowledges and agrees that the same are
reasonable with respect to time and territory; are designed to eliminate
competition which otherwise would be unfair to the Company, the Parent, and
entity affiliates of the Parent; do not stifle the inherent skill and
experience of the Executive; would not operate as a bar to the Executive's
sole means of support; are fully required to protect the legitimate interests
of the Company, the Parent, and entity affiliates of the Parent; and do not
confer a benefit upon the Company, the Parent or entity affiliates of the
Parent disproportionate to the detriment to the Executive.
8 MISCELLANEOUS.
8.1 NO RESTRICTIONS. The Executive represents and
warrants that she is not a party to any agreement, contract or understanding,
whether employment or otherwise, which would restrict or prohibit him from
undertaking or performing employment in accordance with the terms and
conditions of this Agreement.
8.2 SEVERABILITY. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be illegal
or otherwise unenforceable, in whole or in part, the remaining provisions and
any partially unenforceable provision to the extent enforceable nevertheless
shall be binding and enforceable.
8.3 SUCCESSORS AND ASSIGNS. The rights and obligations
of the Company, the Parent, and entity affiliates of the Parent under this
Agreement shall inure to the benefit of, and shall be binding on, the
Company, the Parent, and entity affiliates of the Parent, and their
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respective successors and assigns, and the rights and obligations (other than
obligations to perform services) of the Executive under this Agreement shall
inure to the benefit of, and shall be binding upon, the Executive and his heirs,
personal representatives and assigns. The benefits of the Executive's
obligations to perform services to the Company shall run equally to the Parent
and its entity affiliates as though they are parties to this Agreement.
8.4 DISPUTE RESOLUTION. Any controversy (excluding a
disagreement covered by Section 4.2 (Permanent Disability)) or claim arising
out of or relating to this Agreement, or the breach thereof, shall be settled
by arbitration in Montgomery County, Maryland, in accordance with the
Commercial Rules of the American Arbitration Association then pertaining in
Montgomery County, Maryland, and judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. The arbitrator or arbitrators shall be deemed to possess the powers
to issue mandatory orders and restraining orders in connection with such
arbitration; provided, however, that nothing in this Section 8.4 shall be
construed so as to deny the Company the right and power to seek and obtain
injunctive relief in a court of equity for any breach or threatened breach by
the Executive of any of his covenants contained in Section 7 of this
Agreement.
8.5 NOTICES. All notices and other communications
required or permitted under this Agreement shall be in writing, and shall be
deemed properly given if delivered personally, mailed by registered or
certified mail in the United States mail, postage prepaid, return receipt
requested, sent by facsimile, or sent by Express Mail, Federal Express or
other nationally recognized express delivery service, as follows:
If to the Company or the Board:
CRIIMI MAE Management, Inc.
11200 Rockville Pike
Rockville, MD 20852
Attention: Chairman of the Board
Fax Number: 301-231-0399
If to the Parent:
CRIIMI MAE Inc.
11200 Rockville Pike
Rockville, MD 20852
Attention: Chairman of the Board
Fax Number: 301-231-0399
If to the Executive:
David B. Iannarone
17 Kentbury Way
Bethesda, MD 20814
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Notice given by hand, certified or registered mail, or by Express Mail, Federal
Express or other such express delivery service shall be effective upon actual
receipt. Notice given by facsimile transmission shall be effective upon actual
receipt if received during the recipient's normal business hours, or at the
beginning of the recipient's next business day after receipt if not received
during the recipient's normal business hours. All notices by facsimile
transmission shall be confirmed promptly after transmission in writing by
certified mail or personal delivery. Any party may change any address to which
notice is to be given to it by giving written notice as provided above of such
change of address.
8.6 NO WAIVER. The failure of either party to enforce
any provision or provisions of this Agreement shall not in any way be
construed as a waiver of any such provision or provisions as to any future
violations thereof, nor prevent that party thereafter from enforcing each and
every other provision of this Agreement. The rights granted the parties
herein are cumulative and the waiver of any single remedy shall not
constitute a waiver of such party's right to assert all other legal remedies
available to it under the circumstances.
8.7 PRIOR AGREEMENTS. This Agreement supersedes all
prior agreements and understandings between the parties and may not be
modified or terminated orally. No modification or attempted waiver shall be
valid unless in writing and signed by the party against whom the same is
sought to be enforced.
8.8 GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with the provisions of, the law of the State
of Maryland, without reference to provisions that refer a matter to the law
of any other jurisdiction. Each party hereto hereby irrevocably submits
itself to the non-exclusive personal jurisdiction of the federal and state
courts sitting in Maryland; accordingly, subject to the provisions for
arbitration provided in Section 8.4, any justiciable matters arising out of
or relating to Section 7 of this Agreement may be adjudicated only in a
federal or state court sitting in Maryland.
8.9 TAX WITHHOLDING. All payments required to be made
by the Company hereunder to the Executive shall be subject to the withholding
of such amounts relating to taxes and other government assessments as the
Company may reasonably determine it should withhold pursuant to any
applicable law, rule or regulation.
8.10 CAPTIONS. Captions and section headings used
herein are for convenience and are not a part of this Agreement and shall not
be used in construing it.
8.11 SINGULAR, PLURAL AND GENDER. Where necessary or
appropriate to the meaning hereof, the singular and plural shall be deemed to
include each other, and the masculine, feminine and neuter shall be deemed to
include each other.
8.12 INDEMNIFICATION. The Executive shall have the
full benefit of all indemnifications authorized by the Company's and the
Parent's articles of incorporation and bylaws applicable to officers and
directors and the Company shall provide Directors and Officers Insurance for
the Executive in such amounts and on such terms as is maintained for any
other officer or director of the Company.
12
<PAGE>
(SIGNATURES FOLLOW ON FOLLOWING PAGE)
13
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement, intending to be bound legally.
CRIIMI MAE Management, Inc.,
a Maryland corporation
/s/ H. William Willoughby
By: ------------------------------------
H. William Willoughby
President
/s/ David B. Iannarone
------------------------------------
David B. Iannarone
In consideration of the services which the Executive is to perform on
behalf of the Company, CRIIMI MAE Inc. agrees that it will provide the Option
Shares required to fulfill the Company's obligations under Section 3.4 of the
Agreement.
IN WITNESS WHEREOF, CRIIMI MAE Inc. has executed this Agreement this
_____ day of __________, 1998.
CRIIMI MAE Inc.
/s/ William B. Dockser
By: ------------------------------------
William B. Dockser
Chairman of the Board
14
<PAGE>
Exhibit 10(s)
FIRST AMENDMENT TO
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This First Amendment to Employment and Non-Competition Agreement (the
"First AMENDMENT"), made and entered into as of the 7th day of October 1998, is
by and among (i) CRIIMI MAE Management, Inc., a Maryland corporation (the
"COMPANY"), (ii) David B. Iannarone (the "EXECUTIVE") and (iii) CRIIMI MAE Inc.,
a Maryland corporation and the parent of the Company (the "PARENT").
RECITALS
1. On October 5, 1998, the Company and the Parent each filed a
voluntary petition seeking relief under the provisions of chapter 11, title 11
of the United States Code ("CHAPTER 11").
2. On October 7, 1998, the Company and the Executive entered into an
Employment and Non-Competition Agreement (the "EMPLOYMENT AGREEMENT").
3. On February 23, 1999, the court, in the case captioned IN RE CRIIMI
MAE INC., ET AL., Ch. 11 Case No. 9823115 (Jointly Administered) (the
"BANKRUPTCY COURT"), entered an order, attached hereto as EXHIBIT A (the
"ORDER"), approving, among other things, (i) the Company's entry into the
Employment Agreement and (ii) the implementation of an employee retention
program with respect to certain key employees of the Company, including the
Executive, all as amended by the Order, effective NUNC PRO TUNC to October 5,
1998, upon the execution of this First Amendment by the parties hereto (the
"RETENTION PROGRAM").
4. This First Amendment amends the Employment Agreement in accordance
with the modifications set forth in the Order.
5. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
1. AMENDATORY PROVISIONS. The Employment Agreement is hereby amended as
follows:
(a) Section 3.3 to the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
<PAGE>
3.3 DISCRETIONARY BONUS. Bonuses awarded in the sole
discretion of the Board in 1998 shall be capped at 20% of the
Executive's 1998 base annual salary. No other discretionary bonuses
shall be awarded so long as the Parent remains in Chapter 11 without
(a) written approval of the Official Committee of Unsecured Creditors
of the Parent and the Official Committee of Equity Security Holders of
the Parent or (b) by order of the Bankruptcy Court.
(b) Section 3.5 to the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
3.5 [INTENTIONALLY OMITTED]
(c) Section 3.12 to the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
3.12 REORGANIZATION BONUS.
3.12.1 The Company shall pay the Executive a reorganization
bonus equal to two (2) times the Executive's then current Base Salary
(the "REORGANIZATION BONUS"), to be paid in four (4) equal semi-annual
installments beginning April 5, 1999, so long as the Executive remains
employed full-time with the Company; PROVIDED, HOWEVER, that if the
Executive is terminated without cause, or upon the effective date of a
plan of reorganization of the Parent, the entire unpaid portion of the
Reorganization Bonus shall become immediately due and payable;
3.12.2 Notwithstanding anything to the contrary contained
herein, in the event that the Parent's Chapter 11 case is converted to
a case under chapter 7, title 11 of the United States Code ("CHAPTER
7"), the Executive shall not be entitled to any additional
Reorganization Bonus payments subsequent to such date; PROVIDED,
HOWEVER, that this paragraph shall not impact the Executive's rights to
receive severance payments as set forth in Section 6; and PROVIDED
FURTHER, that, subject to Section 3.12.3, the Executive shall not be
required to refund any Reorganization Bonus payments received by him
prior to the date the Parent's Chapter 11 case is converted to a case
under Chapter 7; and
3.12.3 Notwithstanding anything to the contrary contained
herein, the Company is specifically authorized to make semi-annual
Reorganization Bonus payments beginning on April 5, 1999, as set forth
in Section 3.12.1, without further order of the Bankruptcy Court;
PROVIDED, HOWEVER, that the Company shall not pay the fourth and final
installment of the Reorganization Bonus or any accelerated portion of
the Reorganization Bonus, as the case may be, without first (x)
applying to the Bankruptcy Court for final allowance of the
Reorganization Bonus and (y) obtaining Bankruptcy Court approval.
2
<PAGE>
(d) Section 6.3.1 to the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
6.3.1 If the Executive's employment is terminated by the
Company without Cause, the Executive shall be entitled to receive (x)
severance compensation equal to what would have been his Base Salary
under Section 3.1 for twenty-four (24) months from the date of such
termination, payable at such times as his Base Salary would have been
paid if his employment had not been terminated and a pro rata portion
of the bonus applicable to the calendar year in which such termination
occurs; (y) other benefits pursuant to Sections 3.9, 3.10, 3.12, and
3.13, payable within ninety (90) days after the date of such
termination accrued by him hereunder up to and including the date of
such termination; PROVIDED, HOWEVER, that the payment of benefits
pursuant to Section 3.12 shall require Bankruptcy Court approval and
(z) benefits, if any, provided by any insurance policies in accordance
with their terms. The vesting schedules for the rights to purchase
Option Shares set forth in the Option Agreement shall not be affected
by any such termination of employment without Cause.
(e) Section 6.3 to the Employment Agreement is hereby amended to add
the following new subsection at the end thereof:
6.3.3 In the event that the Executive is terminated by the Company
without Cause and a Reorganization Bonus payment is owed to the
Executive pursuant to Section 3.12, the Company shall immediately file
a motion with the Bankruptcy Court to receive approval of the payment
of such Reorganization Bonus payment to the Executive or, at the option
of the Executive, such motion may be filed with the Bankruptcy Court
directly by the Executive. The Company shall reimburse the Executive
for any and all amounts incurred by the Executive in filing a motion to
receive Reorganization Bonus payments with the Bankruptcy Court,
including filing fees, reasonable attorneys' fees and all other fees
incidental thereto.
(f) The second sentence of Section 6.4.7 to the Employment Agreement is
hereby deleted in its entirety and the following shall be inserted in lieu
thereof:
"In the event of a termination following a `change in
control,' the Executive shall be entitled to the payment set
forth in Section 6.3.1."
(g) The third and fourth sentences of Section 6.4.7 to the Employment
Agreement are hereby deleted in their entirety.
(h) The fifth sentence of Section 6.4.7 to the Employment Agreement is
hereby deleted in its entirety and the following shall be inserted in lieu
thereof:
"In addition, all Options shall become immediately exercisable
notwithstanding any vesting schedule that would otherwise apply."
3
<PAGE>
(i) Section 7 of the Employment Agreement is hereby amended to add the
following new subsections at the end thereof:
7.5 COMPLIANCE WITH RULES OF PROFESSIONAL CONDUCT. Following
the termination of the Executive's employment, the Executive agrees
that he shall comply with Rules 1.6 and 1.9 of the Maryland Rules of
Professional Conduct.
7.6 The Executive agrees and understands that the remedy at
law for any breach by him of the covenant set forth in Section 7.5 will
be inadequate and that the damages that may arise from such breach are
not readily susceptible to being measured in monetary terms.
Accordingly, it is acknowledged that the Company, the Parent, and
CRIIMI MAE Services L.P. (collectively, the "AFFILIATE ENTITIES"),
shall be entitled to immediate injunctive relief and may obtain a
temporary order restraining any threatened or further breach. Nothing
in this Section 7 shall be deemed to limit the remedies at law or in
equity which may be pursued or availed of by the Affiliate Entities for
any breach of the Executive of the covenant set forth in Section 7.5.
(j) Section 8.12 to the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
8.12 INDEMNIFICATION. The Parent shall (x) pay as an
administrative expense all indemnification to the extent provided for
in the Bylaws of the Parent and/or the Company up to and including
amounts totaling a maximum of $250,000 for the Executive and all other
covered persons, constituting the aggregate deductible under applicable
Officer and Director insurance policies, (y) apply any available
portion of proceeds of applicable Officer and Director insurance
policies, up to $20 million in the aggregate for all covered persons,
to indemnification of the Executive; and (z) pay as an administrative
expense all uninsured indemnification arising from the post-petition
actions of the Executive for which they are otherwise entitled to
indemnification under the Bylaws of the Parent and/or the Company.
2. EXISTING AGREEMENT. Except as expressly amended hereby, all of the
terms, covenants and conditions of the Employment Agreement (i) are ratified and
confirmed; (ii) shall remain unamended and not waived; and (iii) shall continue
in full force and effect.
3. GOVERNING LAW. This First Amendment shall be governed by the
internal laws of the State of Maryland without giving effect to the principles
of conflict of laws thereof.
4. COUNTERPARTS. This First Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which, taken
together, shall constitute one and the same instrument.
5. ENFORCEABILITY. If any provision of this Amendment shall be held to
be illegal, invalid or unenforceable under any applicable law, then such
contravention or invalidity shall not
4
<PAGE>
invalidate the entire First Amendment or the Employment Agreement. Such
provision shall be deemed to be modified to the extent necessary to render it
legal, valid and enforceable, and if no such modification shall render it legal,
valid and enforceable, then this First Amendment and the Employment Agreement
shall be construed as if not containing the provision held to be invalid, and
the rights and obligations of the parties shall be construed and enforced
accordingly.
6. CONFLICTS. The Order shall govern in all matters of conflict between
any of the provisions of the Order and this First Amendment.
[THE REMAINDER OF THIS PAGES HAS INTENTIONALLY BEEN LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this First
Amendment to be executed by its duly authorized officer and the Executive has
executed this First Amendment as of the date and year first above written.
CRIIMI MAE MANAGEMENT, INC.,
a Maryland corporation
By: /s/ H. WILLIAM WILLOUGHBY
-------------------------
H. William Willoughby
President
/s/ DAVID B. IANNARONE
----------------------
David B. Iannarone
In consideration of the services that the Executive is to perform on
behalf of the Company, the Parent agrees that it will fulfill its obligations
set forth expressly herein.
IN WITNESS WHEREOF, CRIIMI MAE Inc. has executed this First Amendment
as of the date and year first above written.
CRIIMI MAE INC.
By: /s/ WILLIAM B. DOCKSER
--------------------------
William B. Dockser
Chairman of the Board
6
<PAGE>
Exhibit 10(t)
FIRST AMENDMENT TO
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This First Amendment to Employment and Non-Competition Agreement (the
"First Amendment"), made and entered into as of the 5th day of October 1998, is
by and among (i) CRIIMI MAE Management, Inc., a Maryland corporation (the
"COMPANY"), (ii) William B. Dockser (the "EXECUTIVE") and (iii) CRIIMI MAE Inc.,
a Maryland corporation and the parent of the Company (the "PARENT").
RECITALS
1. On April 20, 1995, the Company and the Executive entered into an
Employment and Non-Competition Agreement (the "EMPLOYMENT AGREEMENT").
2. On October 5, 1998, the Company and the Parent each filed a voluntary
petition seeking relief under the provisions of chapter 11, title 11 of the
United States Code ("CHAPTER 11").
3. On February 23, 1999, the court, in the case captioned IN RE CRIIMI
MAE INC., ET AL., Ch. 11 Case No. 9823115 (Jointly Administered) (the
"BANKRUPTCY COURT"), entered an order, attached hereto as EXHIBIT A (the
"ORDER"), approving, among other things, (i) the Company's assumption of the
Employment Agreement and (ii) the implementation of an employee retention
program with respect to certain key employees of the Company, including the
Executive, all as amended by the Order, effective nunc pro tunc to October 5,
1998, upon the execution of this First Amendment by the parties hereto (the
"RETENTION PROGRAM").
4. This First Amendment amends the Employment Agreement in accordance
with the modifications set forth in the Order.
5. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
1. AMENDATORY PROVISIONS. The Employment Agreement is hereby amended as
follows:
<PAGE>
(a) Section 3.2 to the Employment Agreement is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
3.2 DISCRETIONARY BONUS. Bonuses awarded in the sole discretion of
the Board in 1998 shall be capped at 20% of the Executive's 1998 base
annual salary. No other discretionary bonuses shall be awarded so long as
the Parent remains in Chapter 11 without (a) written approval of the
Official Committee of Unsecured Creditors of the Parent and the Official
Committee of Equity Security Holders of the Parent or (b) by order of the
Bankruptcy Court.
(b) The second sentence of Section 3.8 to the Employment Agreement is
hereby deleted in its entirety.
(c) Section 3.9 to the Employment Agreement is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
3.9 [INTENTIONALLY OMITTED]
(d) Section 6.4.5A to the Employment is hereby deleted in its entirety
and the following shall be substituted in lieu thereof:
A. Any person or group of commonly controlled persons (excluding
H. William Willoughby and the Executive) obtains ownership or control,
directly or indirectly, of forty percent (40%) or more of the voting
control of, or beneficial rights to, the voting capital stock of the
Parent.
(e) Section 6.4.5B to the Employment Agreement is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
B. The Parent's stockholders approve, and it is implemented, (i)
an agreement to merge or consolidate with another corporation or other
entity resulting (whether separately or in connection with a series of
related transactions) in a change in ownership of forty percent (40%) or
more of the voting control of, or beneficial rights to, the voting
capital stock of the Parent, or (ii) an agreement to sell or otherwise
dispose of all or substantially all of the Parent's assets (including,
without limitation, a plan of liquidation or dissolution).
(f) Section 6.4.5C to the Employment Agreement is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
C. The Parent no longer owns, directly or indirectly, a majority
of the voting stock of the Company, unless (i) the Parent
2
<PAGE>
or (ii) a subsidiary, the majority of the voting stock of which is owned,
directly or indirectly, by the Parent, assumes this Agreement.
(g) Section 7 to the Employment Agreement is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
7 [INTENTIONALLY OMITTED]
(h) Section 8.13 to the Employment Agreement is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
8.13 INDEMNIFICATION. The Parent shall (a) pay as an
administrative expense all indemnification to the extent provided
for in the Bylaws of the Parent and/or the Company up to and
including amounts totaling a maximum of $250,000 for the Executive
and all other covered persons, constituting the aggregate
deductible under applicable Officer and Director insurance
policies, (b) apply any available portion of proceeds of
applicable Officer and Director insurance policies, up to $20
million in the aggregate for all covered persons, to
indemnification of the Executive; and (c) pay as an administrative
expense all uninsured indemnification arising from the
post-petition actions of the Executive for which he is otherwise
entitled to indemnification under the Bylaws of the Parent and/or
the Company.
(i) Section 8.14 to the Employment Agreement is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
8.14 [INTENTIONALLY OMITTED]
2. RESERVATION OF RIGHTS. The Company, the Parent and the Executive
reserve all rights as expressly set forth in the Order.
3. EXISTING AGREEMENT. Except as expressly amended hereby, all of the
terms, covenants and conditions of the Employment Agreement (i) are ratified and
confirmed; (ii) shall remain unamended and not waived; and (iii) shall continue
in full force and effect.
4. GOVERNING LAW. This First Amendment shall be governed by the internal
laws of the State of Maryland without giving effect to the principles of
conflict of laws thereof.
5. COUNTERPARTS. This First Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which, taken
together, shall constitute one and the same instrument.
3
<PAGE>
6. ENFORCEABILITY. If any provision of this First Amendment shall be held
to be illegal, invalid or unenforceable under any applicable law, then such
contravention or invalidity shall not invalidate the entire First Amendment or
the Employment Agreement. Such provision shall be deemed to be modified to the
extent necessary to render it legal, valid and enforceable, and if no such
modification shall render it legal, valid and enforceable, then this First
Amendment and the Employment Agreement shall be construed as if not containing
the provision held to be invalid, and the rights and obligations of the parties
shall be construed and enforced accordingly.
7. CONFLICTS. The Order shall govern in all matters of conflict between
any of the provisions of the Order and this First Amendment.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this First Amendment to be
executed by its duly authorized officer and the Executive has executed this
First Amendment as of the date and year first above written.
CRIIMI MAE MANAGEMENT, INC.,
a Maryland corporation
By: /s/ H. William Willoughby
-------------------------
H. William Willoughby
President
/s/ William B. Dockser
----------------------
William B. Dockser
In consideration of the services that the Executive is to perform on
behalf of the Company, the Parent agrees that it will fulfill its obligations
set forth expressly herein.
IN WITNESS WHEREOF, CRIIMI MAE Inc. has executed this First Amendment as
of the date and year first above written.
CRIIMI MAE INC.
By: /s/ H. William Willoughby
-------------------------
H. William Willoughby
President
5
<PAGE>
Exhibit 10(u)
FIRST AMENDMENT TO
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This First Amendment to Employment and Non-Competition Agreement (the
"FIRST AMENDMENT"), made and entered into as of the 5th day of October 1998, is
by and among (i) CRIIMI MAE Management, Inc., a Maryland corporation (the
"COMPANY"), (ii) H. William Willoughby (the "EXECUTIVE") and (iii) CRIIMI MAE
Inc., a Maryland corporation and the parent of the Company (the "PARENT").
RECITALS
1. On April 20, 1995, the Company and the Executive entered into an
Employment and Non-Competition Agreement (the "EMPLOYMENT AGREEMENT").
2. On October 5, 1998, the Company and the Parent each filed a voluntary
petition seeking relief under the provisions of chapter 11, title 11 of the
United States Code ("CHAPTER 11").
3. On February 23, 1999, the court, in the case captioned IN RE CRIIMI
MAE INC., ET AL., Ch. 11 Case No. 9823115 (Jointly Administered) (the
"BANKRUPTCY COURT"), entered an order, attached hereto as EXHIBIT A (the
"ORDER"), approving, among other things, (i) the Company's assumption of the
Employment Agreement and (ii) the implementation of an employee retention
program with respect to certain key employees of the Company, including the
Executive, all as amended by the Order, effective NUNC PRO TUNC to October 5,
1998, upon the execution of this First Amendment by the parties hereto (the
"RETENTION PROGRAM").
4. This First Amendment amends the Employment Agreement in accordance
with the modifications set forth in the Order.
5. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
1. AMENDATORY PROVISIONS. The Employment Agreement is hereby amended as
follows:
(a) Section 3.2 to the Employment Agreement is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
<PAGE>
3.2 DISCRETIONARY BONUS. Bonuses awarded in the sole discretion of
the Board in 1998 shall be capped at 20% of the Executive's 1998 base
annual salary. No other discretionary bonuses shall be awarded so long as
the Parent remains in Chapter 11 without (a) written approval of the
Official Committee of Unsecured Creditors of the Parent and the Official
Committee of Equity Security Holders of the Parent or (b) by order of the
Bankruptcy Court.
(b) Section 3.4 is hereby deleted in its entirety and the following shall
be substituted in lieu thereof:
3.4 [INTENTIONALLY OMITTED]
(c) The second sentence of Section 3.8 to the Employment Agreement is
hereby deleted in its entirety.
(d) Section 3.9 to the Employment Agreement is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
3.9 [INTENTIONALLY OMITTED]
(e) Section 6.4.5A to the Employment is hereby deleted in its entirety
and the following shall be substituted in lieu thereof:
A. Any person or group of commonly controlled persons (excluding
the Executive and William B. Dockser) obtains ownership or control,
directly or indirectly, of forty percent (40%) or more of the voting
control of, or beneficial rights to, the voting capital stock of the
Parent.
(f) Section 6.4.5B to the Employment Agreement is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
B. The Parent's stockholders approve, and it is implemented, (i)
an agreement to merge or consolidate with another corporation or other
entity resulting (whether separately or in connection with a series of
related transactions) in a change in ownership of forty percent (40%) or
more of the voting control of, or beneficial rights \ to, the voting
capital stock of the Parent, or (ii) an agreement to sell or otherwise
dispose of all or substantially all of the Parent's assets (including,
without limitation, a plan of liquidation or dissolution).
(g) Section 6.4.5C to the Employment is hereby deleted in its entirety
and the following shall be substituted in lieu thereof:
C. The Parent no longer owns, directly or indirectly, a majority
of the voting stock of the Company, unless (i) the Parent or (ii) a
2
<PAGE>
subsidiary, the majority of the voting stock of which is owned, directly
or indirectly, by the Parent, assumes this Agreement.
(h) Section 7 to the Employment Agreement is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
7 [INTENTIONALLY OMITTED]
(i) Section 8.13 to the Employment Agreement is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
8.13 INDEMNIFICATION. The Parent shall (a) pay as an
administrative expense all indemnification to the extent provided for in
the Bylaws of the Parent and/or the Company up to and including amounts
totaling a maximum of $250,000 for the Executive and all other covered
persons, constituting the aggregate deductible under applicable Officer
and Director insurance policies, (b) apply any available portion of
proceeds of applicable Officer and Director insurance policies, up to $20
million in the aggregate for all covered persons, to indemnification of
the Executive; and (c) pay as an administrative expense all uninsured
indemnification arising from the post-petition actions of the Executive
for which he is otherwise entitled to indemnification under the Bylaws of
the Parent and/or the Company.
(j) Section 8.14 to the Employment Agreement is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
8.14 [INTENTIONALLY OMITTED]
2. RESERVATION OF RIGHTS. The Company, the Parent and the Executive
reserve all rights as expressly set forth in the Order.
3. EXISTING AGREEMENT. Except as expressly amended hereby, all of the
terms, covenants and conditions of the Employment Agreement (i) are ratified and
confirmed; (ii) shall remain unamended and not waived; and (iii) shall continue
in full force and effect.
4. GOVERNING LAW. This First Amendment shall be governed by the internal
laws of the State of Maryland without giving effect to the principles of
conflict of laws thereof.
5. COUNTERPARTS. This First Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which, taken
together, shall constitute one and the same instrument.
6. ENFORCEABILITY. If any provision of this First Amendment shall be held
to be illegal, invalid or unenforceable under any applicable law, then such
contravention or invalidity shall not invalidate the entire First Amendment or
the Employment Agreement. Such provision
3
<PAGE>
shall be deemed to be modified to the extent necessary to render it legal, valid
and enforceable, and if no such modification shall render it legal, valid and
enforceable, then this First Amendment and the Employment Agreement shall be
construed as if not containing the provision held to be invalid, and the rights
and obligations of the parties shall be construed and enforced accordingly.
7. CONFLICTS. The Order shall govern in all matters of conflict between
any of the provisions of the Order and this First Amendment.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this First Amendment to be
executed by its duly authorized officer and the Executive has executed this
First Amendment as of the date and year first above written.
CRIIMI MAE MANAGEMENT, INC.,
a Maryland Corporation
By: /s/ William B. Dockser
-------------------------
Name: William B. Dockser
Title: President
/s/ H. William Willoughby
--------------------------
H. William Willoughby
In consideration of the services that the Executive is to perform on
behalf of the Company, the Parent agrees that it will fulfill its obligations
set forth expressly herein.
IN WITNESS WHEREOF, CRIIMI MAE Inc. has executed this First Amendment as
of the date and year first above written.
CRIIMI MAE INC.
By: /s/ William B. Dockser
----------------------
William B. Dockser
Chairman of the Board
5
<PAGE>
Exhibit 10(aa)
AMENDED AND RESTATED MORTGAGE LOAN ORIGINATION AND DISPOSITION
PROGRAM AGREEMENT
Made as of May 1, 1998
between
CITICORP REAL ESTATE, INC.
and
CRIIMI MAE INC.
<PAGE>2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
Section 1.01 Definitions............................................ 1
ARTICLE II LOAN ORIGINATION
Section 2.01 Loan Sourcing and Underwriting by CRIIMI MAE........... 15
Section 2.02 CRE Underwriting; Mortgage Loan Pricing................ 15
Section 2.03 Loan Commitment, Rating Locking, Closing and Funding... 18
Section 2.04 Origination Fees....................................... 21
Section 2.05 Secondary Market Loan Acquisitions; CRE Originations... 21
Section 2.06 Delivery of Loan Documents and Preparation of Rating
Agency Materials....................................... 22
Section 2.07 Third Party Reports.................................... 23
Section 2.08 CRE's Ownership Interest............................... 23
ARTICLE III CRIIMI MAE's RECOURSE OBLIGATION
ARTICLE IV RESERVE ACCOUNTS
Section 4.01 Cash Collateral Reserve Account........................ 25
Section 4.02 Loan Pricing Reserve Account........................... 26
ARTICLE V AGGREGATION PERIOD
Section 5.01 Aggregation Period..................................... 29
Section 5.02 Hedging During Aggregation Period...................... 30
Section 5.03 Net Carry During Aggregation Period.................... 30
Section 5.04 Servicing of Mortgage Loans During Aggregation Period.. 31
ARTICLE VI CRIIMI MAE ACQUISITION OF MORTGAGE LOANS
Section 6.01 CRIIMI MAE'S Commitment to Purchase Mortgage Loans..... 31
Section 6.02 Sale of Mortgage Loans................................. 32
ARTICLE VII SECURITIZATION OF LOANS
Section 7.01 Securitization of Loans................................ 33
ARTICLE VIII DEFAULT
Section 8.01 Default by CRIIMI MAE; Rights and Remedies............. 35
ARTICLE IX REPRESENTATIONS AND WARRANTIES; DEFAULTS
Section 9.01 Representations and Warranties......................... 37
Section 9.02 Breach of Representation; Default...................... 37
Section 9.03 CRE's Representation and Warranties.................... 37
ARTICLE X MISCELLANEOUS
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 10.01 Term of Agreement; Survival; Exclusivity.............. 38
Section 10.02 Indemnification....................................... 39
Section 10.03 Costs of Agreement Preparation........................ 39
Section 10.04 Notices............................................... 39
Section 10.05 No Joint Venture...................................... 41
Section 10.06 Actions Through Affiliates............................ 41
Section 10.07 CRE's Discretion...................................... 41
Section 10.08 Counterparts.......................................... 42
Section 10.09 Trial by Jury Waived.................................. 42
Section 10.10 Governing Law......................................... 42
Section 10.11 Amendments; Waivers................................... 42
Section 10.12 Press Releases........................................ 42
Section 10.13 Entire Agreement...................................... 43
Section 10.14 Successors and Assigns................................ 43
Section 10.15 Survival.............................................. 43
Section 10.16 Headings.............................................. 43
Section 10.17 General Interpretive Principles....................... 44
Section 10.18 Reproduction of Documents............................. 44
Section 10.19 Deduction of Amounts Owed to CRE...................... 45
Section 10.20 Obligation to Approve or Fund......................... 45
Section 10.21 Further Agreements.................................... 45
Signature......................................... 42
</TABLE>
<PAGE>
<TABLE>
EXHIBITS
<S> <C>
Exhibit A Eligible Loan Criteria
Exhibit B Representations and Warranties of CRIIMI MAE
Exhibit C Form of CRIIMI MAE Closing Certificate
Exhibit D Contents of Mortgage File
Exhibit E-1 Form of Commitment Letter
Exhibit E-2 Form of Commitment Letter
Exhibit F Sample Calculations
</TABLE>
<PAGE>
THIS AMENDED AND RESTATED MORTGAGE LOAN ORIGINATION AND DISPOSITION
PROGRAM AGREEMENT (this "Agreement") is made as of May 1, 1998 (the "Effective
Date") by and between CITICORP REAL ESTATE, INC., a Delaware corporation, having
an address at 599 Lexington Avenue, New York, New York 10043, and CRIIMI MAE
INC., a Maryland corporation, having an office at 11200 Rockville Pike,
Rockville, Maryland 20852.
RECITALS
A. CRE and CRIIMI MAE desire to develop a program for the
origination, funding and securitization of Mortgage Loans secured by multifamily
residential projects and commercial properties located throughout the United
States and meeting the requirements set forth herein in an amount not to exceed
$600,000,000 (the "Program").
B. CRE and CRIIMI MAE desire fully to amend and restate the
Amended and Restated Mortgage Loan Origination Program Agreement made as of the
30th day of September, 1997, previously executed by the parties, as amended (the
"Original Agreement").
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree that the Original Agreement is amended and restated as follows:
ARTICLE I
Section 1.01 DEFINITIONS. For purposes of this Agreement the following
capitalized terms shall have the respective meanings set forth below.
AFFILIATE: With respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct
<PAGE>
the management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities (including, without limitation,
partnership interests), by contract or otherwise and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
AGREEMENT: This Amended and Restated Mortgage Loan
Origination and Disposition Program Agreement, including all amendments hereof
and exhibits, schedules and supplements hereto.
AGGREGATION PERIOD: As defined in Section 5.01.
ALTA: The American Land Title Association, or any successor
thereto.
APPRAISAL: An appraisal that conforms to FIRREA guidelines
and is performed by an "MAI" appraiser.
APPRAISED VALUE: With respect to any Mortgaged Property, the
value thereof as determined by the appraisal prepared at the time of origination
of the Mortgage Loan.
APPROVAL LETTER: A letter from CRE to CRIIMI MAE evidencing
CRE's approval of a Mortgage Loan to be funded under the Commitment.
APPROVED LOAN DOCUMENTATION: The forms of mortgage loan
documents, as such may be revised from time to time, that are acceptable to CRE,
CRIIMI MAE and the Rating Agencies and approved in advance by CRE.
ASSIGNMENT OF MORTGAGE: An assignment of the Mortgage, notice
of transfer or equivalent instrument in recordable form, sufficient under the
laws of the jurisdiction wherein the related Mortgaged Property is located to
give record notice of the assignment of the Mortgage to the assignee provided
for therein.
ASSIGNMENT OF LEASES AND RENTS: With respect to any Mortgaged
Property, any assignment of leases, rents and profits or similar instrument
executed by the Mortgagor,
<PAGE>
assigning to the Mortgagee all of the income, rents and profits derived from the
ownership, operation, leasing or disposition of all or a portion of such
Mortgaged Property, in the form that was duly executed, acknowledged and
delivered, as amended, modified, renewed or extended through the date hereof and
from time to time hereafter.
BALLOON MORTGAGE LOAN: A Mortgage Loan that provided on the
date of origination (or modification) for an amortization schedule extending
beyond its maturity date.
BALLOON PAYMENT: With respect to any Balloon Mortgage Loan as
of any date of determination, the Monthly Payment payable on the maturity of
such Mortgage Loan.
BUILDING CONDITION REPORT: With respect to a particular
Mortgaged Property, a building condition report delivered to CRIIMI MAE,
together with any amendments or supplements thereto.
BUSINESS DAY: Any day other than a Saturday or Sunday, or a
day on which banking institutions in the State of New York or the State of
Maryland are authorized or obligated by law or executive order to remain closed.
CASH COLLATERAL RESERVE ACCOUNT: An account maintained at CRE,
in CRE's name, into which CRIIMI MAE shall deposit the Cash Collateral Reserve
Amount, as further described in Section 4.01.
CASH COLLATERAL RESERVE AMOUNT: The aggregate amount required
to be deposited by CRIIMI MAE into the Cash Collateral Reserve Account, as
provided in Section 4.01.
CERCLA: The Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 46 U.S.C. Section 9601 et seq., as
amended.
CLEAN AIR ACT: The Clean Air Act, 42 U.S.C. Section 7401
et seq.
CLEAN WATER ACT: The Clean Water Act, 33 U.S.C. Section 1251
et seq.
<PAGE>
CLOSING DATE: With respect to each Mortgage Loan, the date on
which CRE funds such Mortgage Loan.
CLOSING STANDARDS: CRE's closing standards and guidelines for
the origination and closing of Mortgage Loans under the Program are contained in
the CitiMae Sellers'/Servicers' Guide (8/94), as amended from time to time upon
notice to CRIIMI MAE from CRE, except as expressly modified by this Agreement or
by the parties by separate agreement.
CMBS: Commercial mortgage backed securities.
CODE: The Internal Revenue Code of 1986, as amended, or any
successor statute.
COMMERCIAL PROPERTY: A single parcel of real property improved
by one or more retail, office, warehouse, industrial, self-storage, hotel or any
other income-producing improvements, as approved by CRE and specified in the
Mortgage Loan Schedule.
COMMITMENT LETTER: A commitment or approval letter to a
Mortgagor, issued by CRIIMI MAE, in the form attached hereto as Exhibit E-1 or
E-2 and as further described in Section 2.03(a).
COOPERATIVE MORTGAGE LOAN: A Mortgage Loan secured by an
underlying lien on a cooperative apartment building.
CRE: Citicorp Real Estate, Inc., its successors and assigns
(by any name known).
CRIIMI MAE: CRIIMI MAE Inc., its successors and permitted
assigns.
CRIIMI MAE CLOSING CERTIFICATE: With respect to any proposed
Mortgage Loan, a certificate substantially in the form of Exhibit C here, given
to CRIIMI MAE on or before the related Closing Date by the applicable loan
origination counsel.
CSI: Citicorp Securities, Inc., its successors and assigns
(by any name known).
<PAGE>
DEBT SERVICE RATIO: With respect to any Mortgage Loan, as of
any date of calculation, the ratio specified as such and calculated in
accordance with the Underwriting Guidelines.
DEFAULTED MORTGAGE LOAN: A Mortgage Loan that is in monetary
or non-monetary default, as defined in the related Mortgage Loan documents, at
any time prior to Securitization thereof.
DUE DATE: With respect to any Mortgage Loan, the day of the
calendar month set forth in the related Mortgage Note on which each Monthly
Payment was scheduled to be first due, which shall be the first day of each
month.
DUE DILIGENCE FILE: With respect to any Mortgage Loan, a file
containing all credit and underwriting information and documentation and all
Third Party Reports.
EFFECTIVE DATE: May 1, 1998.
ELIGIBLE MORTGAGE LOAN: A Mortgage Loan that (a) complies with
all requirements set forth in the Eligible Mortgage Loan Criteria, or (b) does
not comply with one or more of the requirements set forth in the Eligible
Mortgage Loan Criteria, but any such non-compliance is disclosed by CRIIMI MAE
to CRE in a written exception report, identified as such, and specifically
approved by CRE in writing prior to issuance by CRIIMI MAE of a Commitment
Letter, which approval by CRE shall be subject to such additional conditions,
documentation, information and reserve requirements as CRE may require.
ELIGIBLE MORTGAGE LOAN CRITERIA: The criteria for Mortgage
Loans eligible for inclusion in the Program, as set forth in Exhibit A hereto,
as amended from time to time by CRE in its reasonable discretion and as modified
by CRE to reflect changes in Rating Agency requirements.
<PAGE>
ENVIRONMENTAL ASSESSMENT OR ENVIRONMENTAL REPORT: A "Phase I
Assessment" (and a "Phase II Assessment", if necessary) conducted in accordance
with ASTM Standard E 1527-93 or any successor thereto published by ASTM
(formerly known as the American Society of Testing and Materials).
EVENT OF DEFAULT: Any one of the events enumerated in Section
8.01.
EXIT FEE: The fee to be paid by CRIIMI MAE to CRE with respect
to any Mortgage Loans sold by CRE hereunder (whether to CRIIMI MAE or to a third
party), other than (i) Mortgage Loans sold by CRE to CRIIMI MAE and included in
a Securitization, and (ii) Mortgage Loans sold solely because the Program
Termination Date has not been extended. Such fee shall be 37.5 basis points
multiplied by the aggregate outstanding principal balance of all of the Mortgage
Loans so sold.
FIXED RATE MORTGAGE LOAN: A Mortgage Loan as to which the
related Mortgage Note provides for a Mortgage Interest Rate that, as of the
Closing Date, remains fixed through the remaining term thereof.
GUARANTY: A guaranty in form and substance acceptable to CRE,
whereby CRIIMI MAE guaranties, for the benefit of CRE and CitiMae, Inc., payment
and performance of the Servicer's obligations under the Servicing Agreement.
HOLDBACK: A portion of the proceeds of any Mortgage Loan that
are funded at closing, but are to be held by CRIIMI MAE in an account acceptable
to, and for the benefit of, CRE, pursuant to an agreement providing that such
funds shall be released to the Mortgagor upon the satisfaction of conditions
specified in such agreement or used to pay down the Mortgage Note upon failure
to satisfy such conditions.
INDEPENDENT: When used with respect to any specified Person,
any such Person who (i) is in fact independent of CRIIMI MAE, the related
Mortgagor and any and all Affiliates
<PAGE>
thereof, (ii) does not have any direct financial interest in or any material
indirect financial interest in any of CRIIMI MAE, the related Mortgagor or any
Affiliate thereof, and (iii) is not connected with CRIIMI MAE, the related
Mortgagor or any Affiliate thereof as an officer, employee, promoter,
underwriter, trustee, partner, director or Person performing similar functions;
PROVIDED, HOWEVER, that a Person shall not fail to be Independent of CRIIMI MAE,
the related Mortgagor or any Affiliate thereof merely because such Person is the
beneficial owner of 1% or less of any class of securities issued by CRIIMI MAE,
the related Mortgagor or any Affiliate thereof, as the case may be.
INSURANCE POLICY: With respect to any Mortgage Loan, any
hazard insurance policy, flood insurance policy, earthquake insurance policy,
hurricane insurance policy, title policy or other insurance policy that is
maintained from time to time in respect of such Mortgage Loan or the related
Mortgaged Property, which insurance policy complies with the Underwriting
Guidelines.
LOAN PRICING RESERVE ACCOUNT: With respect to any Mortgage
Loan, an account maintained at CRE, in CRE's name, as described in Section 4.02.
LOAN-TO-VALUE RATIO OR LTV: With respect to any Mortgage Loan,
the ratio of the principal balance of the Mortgage Loan to the Appraised Value
of the related Mortgaged Property.
MANAGEMENT AGREEMENT: With respect to each Mortgaged Property,
the agreement between the Manager and the related Mortgagor pursuant to which
the Manager operates and manages such Mortgaged Property as provided therein.
MANAGER: With respect to any Mortgage Loan and the related
Mortgaged Property, a management company that has entered into a Management
Agreement with the
<PAGE>
related Mortgagor for the operation and management of such Mortgaged Property as
a Multifamily Property or a Commercial Property, as the case may be.
MARKET VALUE: With respect to any Mortgage Loan, as of any
date of determination, the value thereof taking into account (a) market
conditions (including rates, speeds and spreads) (b) the value of any hedge
transaction associated with such Mortgage Loan and (c) the value of the related
Loan Pricing Reserve Account, if any.
MARK-TO-MARKET: As defined in Section 4.03.
MARK-TO-MARKET RESERVE ACCOUNT: An account maintained at CRE,
in CRE's name, as described in Section 4.03.
MONTHLY PAYMENT: With respect to each Mortgage Loan, the
scheduled combined payment of principal and interest (including any Balloon
Payment) payable by a Mortgagor from time to time under the related Mortgage
Note, without regard to any acceleration of principal of such Mortgage Loan by
reason of default thereunder or any modification, waiver or amendment of such
Mortgage Loan granted or agreed to by CRIIMI MAE pursuant to this Agreement.
MORTGAGE: With respect to each Mortgage Loan, the mortgage(s),
deed(s) of trust or other instrument(s) securing the related Mortgage Note and
creating a lien on the related Mortgaged Property.
MORTGAGE FILE: The items pertaining to a particular Mortgage
Loan listed in Exhibit D hereto, and any additional documents required to be
added to the Mortgage File pursuant to this Agreement.
MORTGAGE INTEREST RATE: With respect to each Mortgage Loan,
the annual rate at which interest accrues thereon during the term thereof in
accordance with the provisions of the related Mortgage Note.
<PAGE>
MORTGAGE LOAN: Each Mortgage Loan with respect to which
Origination Services are provided by CRIIMI MAE that is originated in the name
of CRE on the related Closing Date pursuant to this Agreement and the related
Commitment Letter and Approval Letter, is identified on the related Mortgage
Loan Schedule and is included in the Program.
MORTGAGE LOAN SCHEDULE: With respect to any Mortgage Loan, the
Underwriting Memorandum as amended or modified by agreement between CRE and
CRIIMI MAE prior to the Closing Date with respect thereto.
MORTGAGE NOTE: The original executed note(s) or other
evidence of the Mortgage Loan indebtedness of a Mortgagor.
MORTGAGED PROPERTY: With respect to each Mortgage Loan, all
property described in the related Mortgage, including the real property, all
improvements, fixtures, equipment and articles of personal property located on
such real property and all rents, issues, profits and income derived from the
operation of the real property.
MORTGAGEE: With respect to a Mortgage Loan, the mortgagee or
beneficiary named in the Mortgage and the successors and assigns of such
mortgagee or beneficiary, and the successors and assigns of such mortgagee or
beneficiary.
MORTGAGOR: The obligor or obligors on a Mortgage Note.
MORTGAGOR RESERVE PAYMENTS: As to any Mortgage Loan, any
payments made by the related Mortgagor pursuant to an agreement between CRE and
the related Mortgagor for the purpose of providing reserves for the costs
associated with repairs to and replacement of capital items, environmental costs
and lease rollover on the related Mortgaged Property.
<PAGE>
MULTIFAMILY PROPERTY: A single parcel of real property
improved by one or more detached multifamily housing structures each comprising
five or more dwelling units, along with any related structures.
NET CARRY: As defined in Section 5.03.
NET CARRY RATE: With respect to any Mortgage Loan, as of any
date of determination, a rate per annum equal to the related Mortgage Interest
Rate then in effect minus (a) CRE's cost of funds, (b) CRE's hedging costs and
(c) the Servicing Fee Rate.
NET OPERATING INCOME: With respect to any Mortgaged Property,
for any twelve month period, the total operating revenues actually derived from
such Mortgaged Property during such period, minus the total fixed and variable
operating expenses incurred in respect of such Mortgaged Property during such
period other than (i) non-cash items such as depreciation and amortization, (ii)
capital expenditures and (iii) debt service on loans secured by the Mortgaged
Property.
OPINION OF COUNSEL: A written opinion of counsel for the
Person on behalf of whom the opinion is being given, acceptable to CRE in its
reasonable discretion.
ORIGINAL AGREEMENT: As defined in the Recitals.
ORIGINATION SERVICES: With respect to any Mortgage Loan, the
services provided by CRIIMI MAE in connection with the origination thereof,
which services shall include the following:
(i) sourcing and underwriting Mortgage Loans in a manner
consistent with the Underwriting Guidelines as they
relate thereto;
(ii) ordering any and all Third Party Reports that are
necessary or appropriate to underwrite the related
Mortgage Loan;
<PAGE>
(iii) inspecting the Mortgaged Property prior to issuance
of a Commitment Letter;
(iv) furnishing to CRE all documentation, standard forms
and Third Party Reports necessary or appropriate to
the underwriting, origination and funding of the
related Mortgage Loan;
(v) closing the Mortgage Loan in the name of CRE in
accordance with the Closing Standards; and
(vi) performing all other services in connection with the
origination of the Mortgage Loan as specifically
provided herein or as reasonably requested by CRE.
ORIGINATION SERVICES STANDARD: The standard in accordance with
which CRIIMI MAE shall be obligated to provide Origination Services, which shall
be the standard of due care and diligence employed by prudent mortgage loan
originators in connection with mortgage loans of a type similar to the Mortgage
Loans.
PAR PRICE: As defined in Section 4.02.
PASS-THROUGH TRANSFER: The sale or transfer of some or all of
the Mortgage Loans to a trust to be formed as part of a publicly issued or
privately placed, rated or unrated mortgage pass-through transaction.
PERSON: An individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
PORTFOLIO: As of any date of determination, all Mortgage Loans
in the Program on such date, taken in the aggregate.
<PAGE>
PORTFOLIO MARKET VALUE: As of any date of determination, the
aggregate Market Value of all Mortgage Loans in the Program and any unfunded
Mortgage Loan having an outstanding rate lock agreement plus any amounts in the
Mark-to-Market Reserve Account and the Pricing Reserve Account.
PREMIUM LOAN: A mortgage loan with respect to which the
mortgagee pays to the mortgagor consideration or "premium" at origination for
the mortgagor's acceptance of the mortgage loan.
PREPAYMENT PREMIUM: Any premium, consideration or fee paid or
payable, as the context requires, by a Mortgagor in connection with a Principal
Prepayment.
PRINCIPAL PREPAYMENT: Any payment of principal in full made
by the Mortgagor on a Mortgage Loan that is received in advance of its scheduled
Due Date.
PROGRAM: As defined in the Recitals.
PROGRAM PRICING MATRIX: The pricing matrix to be provided by
CRE to CRIIMI MAE from time to time with respect to the Mortgage Loans, which
pricing matrix shall be updated by CRE periodically, whenever changed, and
delivered to CRIIMI MAE whenever changed.
PROGRAM TERMINATION DATE: The date on which the Program
terminates, which shall be December 31, 1998.
PURCHASE PRICE: With respect to each Mortgage Loan purchased
by CRIIMI MAE hereunder, the purchase price with respect thereto, calculated as
provided in Section 6.01.
QUALIFIED INSURER: An insurance company or security or bonding
company qualified to write the related Insurance Policy in the relevant
jurisdiction and otherwise complying with the Insurance Requirements and
acceptable to the Rating Agencies.
<PAGE>
RATING AGENCY: Each of Moody's Investors Service, Inc.,
Standard & Poor's Rating Services, Fitch IBCA, Inc. or Duff & Phelps Credit
Rating Co., or any successor thereof, as selected by CRE in its sole discretion.
RECOURSE OBLIGATION: As defined in Article III.
REPRESENTATIONS AND WARRANTIES: The representations and
warranties, of CRIIMI MAE as set forth in Exhibit B hereto, as amended from time
to time by CRE as necessary or appropriate in the event of changes in Rating
Agency or investor requirements.
RESERVE ACCOUNT: Any of the Cash Collateral Reserve Account,
the Loan Pricing Reserve Account and the Mark-to-Market Reserve Account.
RESOURCE CONSERVATION AND RECOVERY ACT: The Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.
SECURITIZATION: A sale of some or all of the Mortgage Loans in
a rated Pass-Through Transfer as described in Section 7.01
SERVICER: CRIIMI MAE Services Limited Partnership or any
successor thereto.
SERVICING AGREEMENT: The CitiMae Commercial Servicer Contract,
effective as of July 22, 1996, between the Servicer and CitiMae, Inc. as agent
for CRE, as supplemented by the Supplemental Agreement, dated as of July 22,
1996, between CRE and the Servicer.
SERVICING FEE: With respect to each Mortgage Loan, the amount
of the fee to which the Servicer is entitled for servicing such Mortgage Loan
calculated at the Servicing Fee Rate in accordance with the Servicing Agreement.
SERVICING FEE RATE: With respect to each Mortgage Loan, the
rate per annum to be used in calculating the Servicing Fee for such Mortgage
Loan prior to Securitization thereof, which rate shall be 12.5 basis points.
<PAGE>
THIRD PARTY REPORT: Any Appraisal, Building Condition Report,
Environmental Assessment or any other third party study, report or review
prepared in connection with the origination of a Mortgage Loan.
TOXIC SUBSTANCES CONTROL ACT: The Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq.
UNDERWRITING GUIDELINES: The CitiMae Underwriting Guidelines,
as amended from time to time upon notice to CRIIMI MAE from CRE. A copy of the
Underwriting Guidelines as in effect on the date hereof has been provided by CRE
to CRIIMI MAE.
WHOLE LOAN TRANSFER: The sale or transfer of some or all of
the ownership interest in the Mortgage Loans by CRE to one or more third parties
in a whole loan or participation format.
<PAGE>
ARTICLE II
LOAN ORIGINATION
Section 2.01 LOAN SOURCING AND UNDERWRITING BY CRIIMI MAE. CRIIMI MAE shall
perform the Origination Services as set forth herein in accordance with the
Origination Standard. Commencing on or after the Effective Date, CRIIMI MAE
shall deliver to CRE for its consideration a comprehensive underwriting
memorandum for each Mortgage Loan that CRIIMI MAE proposes be included in the
Program. The form of underwriting memorandum must be pre-approved by CRE, shall
indicate in writing approval by CRIIMI MAE's Credit Committee and shall include
at a minimum: a description of the Mortgaged Property, a cap rate valuation, an
analysis of the historical and underwritten projected Mortgaged Property
operating performance, the Debt Service Ratio, rent roll and tenant information,
market information, maps, photographs, lease and sale comparables, and Mortgagor
credit history and an analysis of the Mortgagor's experience. The underwriting
memorandum must also disclose, in the form of an exception report (which report
is identified as such) any exception to the Underwriting Guidelines, the Closing
Standards, the Eligible Mortgage Loan Criteria and the Representations and
Warranties. In connection with the origination of each Mortgage Loan, CRIIMI
MAE, at its own or the Mortgagor's expense, shall engage or cause to be engaged,
third parties, acceptable to CRE, to appraise the related Mortgaged Property and
to conduct engineering and environmental reviews thereof, and to furnish Third
Party Reports with respect thereto in compliance with the requirements set forth
in Section 2.07.
Section 2.02 CRE UNDERWRITING; MORTGAGE LOAN PRICING.
(a) After receipt of the related underwriting memorandum
complying with Section 2.01, CRE may, in its sole discretion, either (x) notify
CRIIMI MAE that
<PAGE>
CRE accepts or rejects the proposed Mortgage Loan submitted by CRIIMI MAE, or
(y) notify CRIIMI MAE that CRE requires (I) additional information or revisions
or (II) receipt and review of satisfactory Third Party Reports before it will
further evaluate the proposed Mortgage Loan, and shall notify CRIIMI MAE in
writing of its determination with respect thereto (i) not later than five (5)
Business Days after CRE's receipt of the related underwriting memorandum
(provided that CRE shall use reasonable efforts to notify CRIIMI MAE of such
determination within three (3) Business Days), or (ii) if CRE has notified
CRIIMI MAE that CRE requires (I) additional information or (II) revisions or
receipt and review of satisfactory Third Party Reports, not later than seven (7)
Business Days after CRE's receipt of either the additional information or
revisions or the satisfactory Third Party Reports, as the case may be, with
respect thereto. After CRE completes its initial underwriting, CRE shall
determine the subordination levels with respect to the Mortgage Loan in its
reasonable judgment. If and when CRE approves a Mortgage Loan, CRE shall issue
to CRIIMI MAE CRE's Approval Letter as set forth in Section 2.03. At any time
prior to issuance of its Approval Letter, CRE may in its sole discretion, for
any reason relating to the quality and/or value of such Mortgage Loan, as
determined by CRE in its discretion, reject the subject Mortgage Loan. CRE may,
in its discretion, review any Mortgage Loan to determine such Mortgage Loan's
compliance with the Eligible Mortgage Loan Criteria, the Underwriting
Guidelines, the Closing Standards, the Representations and Warranties and any
and all other requirements set forth herein, and may, in its sole discretion,
reject for funding any Mortgage Loan that is not in compliance with the
foregoing. In no event shall CRE accept for funding any Mortgage Loan if the
original principal balance thereof, when combined with the aggregate original
principal balance of all other Mortgage Loans funded by CRE under the Program,
would exceed $600,000,000 or would result in a violation of Section 2 of the
Eligible Mortgage Loan Criteria. With respect to any proposed
<PAGE>
Mortgage Loan, CRE may, at its option, conduct its own inspection of the related
Mortgaged Property, and, if the original principal balance of such Mortgage Loan
is expected to exceed $10,000,000, CRIIMI MAE shall reimburse CRE for CRE's
reasonable out-of-pocket costs, not to exceed $3000 with respect to any
Mortgaged Property, with respect to such inspection.
(b) CRIIMI MAE shall quote prices to Mortgagors based upon the
most recent Program Pricing Matrix. The Program Pricing Matrix shall reflect
pricing (excluding any profit but including all CRE fees) for the Mortgage Loans
as determined by CRE in its sole discretion based upon the following:
<TABLE>
<CAPTION>
SECURITIES TRANCHE SPREAD
------------------ ------
<S> <C>
Investment grade CMBS market spreads and
premium for the Program, as
as determined by CRE in its
sole discretion.
Non-investment grade CMBS market spread, as
determined by CRE in its sole
discretion.
Interest only strip Margin over the interpolated
average life on U.S.
Treasury Securities of
underlying notional amount
of securities (assuming
spreads and speeds to be
determined by CRE in its
sole discretion).
</TABLE>
The Par Price with respect to any Mortgage Loan having a term of ten (10) years
and an amortization schedule of twenty-five (25) or thirty (30) years shall be
20 basis points less than
<PAGE>
the related Program Price Matrix percentage; the Par Price with respect to any
other types of Mortgage Loans shall be as set forth in the Program Pricing
Matrix or as otherwise prescribed by CRE in its discretion. It is understood and
agreed that CRE shall have no responsibility to CRIIMI MAE with respect to
CRIIMI MAE's making or failing to make a profit on any Mortgage Loan or Mortgage
Loans, and that CRE shall be entitled to all fees and other amounts payable to
CRE hereunder with respect to any Mortgage Loan, regardless of whether CRIIMI
MAE makes any profit with respect thereto. CRIIMI MAE shall notify CRE in
writing, at the address specified by CRE to CRIIMI MAE from time
to time, or electronically on a weekly basis, as to the Mortgage Loans to be
funded during the next week, provided that any such notice with respect to any
Mortgage Loan shall be given by CRIIMI MAE not less than two (2) Business Days
prior to such funding, and CRE shall inform CRIIMI MAE as to whether CRE
anticipates that the pricing on any such Mortgage Loan will be below the Par
Prices, which indication on the part of CRE shall be given in good faith but
shall be subject to change by CRE in its discretion as warranted by market
conditions as reflected in the Program Pricing Matrix. CRE shall, upon request
of CRIIMI MAE, discuss with CRIIMI MAE the manner in which the numbers set forth
in the Program Pricing Matrix were derived. CRIIMI MAE may vary the pricing of
any Mortgage Loan from the Program Pricing Matrix. In the event that the price
on any Mortgage Loan is below the Par Price with respect thereto, CRIIMI MAE
shall be required to deposit funds into the Loan Pricing Reserve Account with
respect thereto, in accordance with the provisions of Section 4.02.
Section 2.03 Loan Commitment, Rating Locking, Closing and Funding.
(a) CRE shall issue to CRIIMI MAE an Approval Letter, in CRE's
standard form, promptly after a Mortgage Loan has been approved by CRE for
inclusion in the Program. CRIIMI MAE shall promptly thereafter issue to the
related Mortgagor a Commitment
<PAGE>
Letter having terms and conditions consistent with the Approval Letter. CRIIMI
MAE may send out a Commitment Letter prior to receipt of CRE's Approval Letter,
provided that it shall do so at its own risk, and the fact of CRIIMI MAE's
having sent out such Commitment Letter prior to receipt of CRE's Approval Letter
shall not in and of itself create any obligation on the part of CRE to fund any
Mortgage Loan.
(b) At a time mutually agreed upon by CRIIMI MAE and CRE
before funding of the Mortgage Loan, CRIIMI MAE may request a rate lock and at
such time shall provide to CRE a summary of the terms of each Mortgage Loan to
be rate-locked and a CRE approved form of rate lock agreement executed by CRIIMI
MAE. In no event may CRIIMI MAE request a rate lock later than four (4) hours
prior to the time at which the rate lock is to take effect. CRE will execute and
hedge the rate lock for such Mortgage Loan. CRIIMI MAE shall immediately (i)
notify CRE if a Mortgage Loan that has been rate locked will not be funded under
the Program, and (ii) pay to CRE the cost of unwinding the hedge. Any funds
received by CRIIMI MAE from a Mortgagor as a deposit for the rate lock
protection shall be deposited by CRIIMI MAE in a segregated account, maintained
at a bank acceptable to CRE, in trust for the benefit of the related Mortgagor.
No rate lock shall exceed 30 days.
(c) Each Mortgage Loan shall be documented with the most
current Approved Loan Documents for the type of related Mortgaged Property and
for the jurisdiction in which the related Mortgaged Property is located. CRIIMI
MAE acknowledges that it has reviewed the Approved Loan Documents and that such
documents, to the extent no modifications are made that would materially and
adversely affect the Mortgagee's interest thereunder, are acceptable to
CRIIMI MAE for the purposes of the Program and CRIIMI MAE's obligations under
this Agreement; PROVIDED, HOWEVER, that CRIIMI MAE shall be entitled to request
changes
<PAGE>
to the Approved Loan Documents, and any changes shall be made subject to
CRE's reasonable approval and at CRIIMI MAE's sole cost and expense (which costs
and expenses shall include any and all reasonable fees and expenses of CRE's
legal counsel with respect to the review thereof).
(d) In closing a Mortgage Loan, CRIIMI MAE shall follow the
Closing Standards. Without limiting the generality of the foregoing, in
connection with the closing and funding of each Mortgage Loan, CRIIMI MAE shall
deliver to CRE not less than two (2) Business Days prior to the closing and
funding of any Mortgage Loan the following funding package with respect thereto:
a notice to the Mortgagor setting forth the amount of the advance and executed
by an authorized officer of CRIIMI MAE, a Mortgage Loan Schedule providing the
terms of the Mortgage Loan and approved by an authorized officer of CRIIMI MAE,
wiring instructions and a receipt and acknowledgment from a title insurance
company of documents required for funding. With respect to title insurance
companies, CRIIMI MAE shall require the Mortgagor to appoint an escrow agent, or
failing such approval to provide to CRE a closing protection letter from a title
insurance company approved by CRE, acknowledging such company to be an
authorized agent of the approved title insurance company. CRIIMI MAE shall
designate counsel, subject to CRE's approval, to assist CRIIMI MAE in connection
with the closing and funding of each Mortgage Loan, and no Mortgage Loan shall
be closed and funded without the prior approval of such counsel and CRE. Upon
satisfaction of CRIIMI MAE and the related Mortgagor of all of the conditions
set forth herein and in the Approval Letter, or in the related Commitment
Letter, as applicable, and subject to CRE's receipt of a satisfactory CRIIMI MAE
Closing Certificate from CRIIMI MAE, CRE shall fund the Mortgage Loan in
accordance with the terms of the Approval Letter.
<PAGE>
(e) All costs and expenses associated with the origination,
preparation of Mortgage Loan documents, title review and closing costs of any
Mortgage Loan, including, without limitation, legal and brokerage fees, shall be
paid by the Mortgagor as provided in the related Commitment Letter, or otherwise
paid by CRIIMI MAE, unless otherwise agreed in writing by CRE and CRIIMI MAE.
Section 2.04 ORIGINATION FEES.
(a) Simultaneously with the closing and funding of each
Mortgage Loan, a loan origination fee (together with the Cash Collateral Reserve
Amount to be deposited in the Cash Collateral Reserve Account pursuant to
Section 4.01) shall be paid by CRIIMI MAE to CRE in accordance with the
following schedule, regardless of whether CRIIMI MAE collects the related amount
from the Mortgagor:
(i) For Mortgage Loans that are secured by
either Multifamily Property or manufactured housing projects,
CRE shall receive an amount equal to the greater of (a)
$5,000.00 and (b) 0.25% of the original principal amount
of the Mortgage Loan.
(ii) For Mortgage Loans that are secured by
any other type of Mortgaged Property, CRE shall receive an
amount equal to the greater of (a) $7,500.00 and (b) 0.25% of
the original principal amount of the Mortgage Loan.
(a) In the event CRIIMI MAE receives payment of a loan
origination fee from a Mortgagor that is in excess of the origination fee due to
CRE pursuant to Section 2.04(a), CRIIMI MAE shall be entitled to retain such
excess amount; PROVIDED, HOWEVER, that in no event shall CRIIMI MAE be permitted
to charge an origination fee with respect to any Mortgage Loan that exceeds 2%
of the original principal amount of such Mortgage Loan.
<PAGE>
Section 2.05 SECONDARY MARKET LOAN ACQUISITIONS; CRE ORIGINATIONS.
(a) In the event that CRIIMI MAE proposes that CRE acquire any
existing mortgage loan or loans from an unrelated third party for inclusion in
the Program, CRE and CRIIMI MAE shall establish in advance a written procedure
for the acquisition of such loan or loans consistent with the terms of this
Agreement, including the requirement for the establishment of the Reserve
Accounts with respect thereto pursuant to Article IV hereof, the payment of an
origination fee pursuant to Section 2.04, any additions to or deletions from the
Representations and Warranties that CRIIMI MAE will be required to make with
respect thereto and the appropriate forms of loan documents with respect
thereto. The origination fee payable in connection with such acquisition shall
be calculated based upon the acquisition price for the loan or loans in lieu of
the then current principal amount thereof. The costs and expenses related to all
secondary market acquisitions shall be paid by CRIIMI MAE.
(b) CRE may originate Mortgage Loans for the Program, subject
to CRIIMI MAE's underwriting and approval, and subject to agreement between the
parties with respect thereto. With respect to each Mortgage Loan so originated
by CRE, CRE shall be entitled to receive compensation as agreed by the parties.
All such Mortgage Loans originated by CRE shall otherwise be subject to all of
the terms and conditions thereof, including the Recourse Obligation and the
obligations with respect to the Reserve Accounts.
Section 2.06 DELIVERY OF LOAN DOCUMENTS AND PREPARATION OF RATING AGENCY
MATERIALS. CRIIMI MAE shall deliver or cause to be delivered to CRE, not
later than three (3) Business Days after the Closing Date with respect to any
Mortgage Loan, the original Mortgage Note and a copy of the related Mortgage.
CRIIMI MAE shall prepare, or cause to be prepared, a comprehensive closing
file for each Mortgage Loan in accordance with the Closing Standards. The
closing file shall include all customary and usual documentation required in
connection with
<PAGE>
closing, recording, assigning and endorsing a multifamily or commercial mortgage
loan, as the case may be (which assignment and endorsement documents shall
include assignments and endorsements to CRE, if necessary, and assignments and
endorsements from CRE in blank), including without limitation all documents
required to be contained in the Mortgage File and all documentation required to
be contained in the Due Diligence File. The complete closing file with respect
to each Mortgage Loan, except for such documents as are required to be delivered
earlier as described above, shall be delivered to CRE not later than two weeks
after the Closing Date. With respect to each Mortgage Loan, CRIIMI MAE and CRE
shall work together for the assembly of all Rating Agency materials.
Section 2.07 THIRD PARTY REPORTS. Each Third Party Report shall be (a) based on
a scope of work mutually agreeable to CRE and CRIIMI MAE, (b) be in a form
acceptable to, or otherwise provided by, CRIIMI MAE and CRE, (c) be acceptable
in substance (including any conclusions contained therein) to CRE, (d) be
prepared by an Independent Person, (e) meet minimum Rating Agency requirements
and (f) be addressed to CRE and provide that CRE may rely thereon.
Section 2.08 CRE's OWNERSHIP INTEREST. Notwithstanding any other provision
set forth herein, the parties intend that CRE is the owner of all right,
title and interest in and to the Mortgage Loans; PROVIDED, HOWEVER, that in
the event that CRE is deemed not to be the owner of the Mortgage Loans,
CRIIMI MAE shall be deemed to have granted to CRE, and CRE shall be deemed to
have, as security for the performance by CRIIMI MAE of its obligations
hereunder, a valid and perfected security interest in, all of the Mortgage
Loans, whether now owned or existing, hereafter acquired or arising, or in
which CRIIMI MAE now or hereafter has any rights, and wherever located, and
to the extent not included in the foregoing, all proceeds, products,
<PAGE>
offspring, rents, revenues, issues, profits, royalties, income, benefits,
accessions, additions, substitutions and replacements of and to any and all of
the foregoing.
ARTICLE III
CRIIMI MAE's RECOURSE OBLIGATION
In addition to, and without regard to the amounts of, the
Reserve Accounts described in Article IV, CRIIMI MAE hereby agrees that it shall
be subject to an unconditional irrevocable recourse obligation equal to 5% of
the aggregate original principal balance of all Mortgage Loans funded by CRE
hereunder (the "Recourse Obligation"). The Recourse Obligation shall be
available to CRE to satisfy any and all amounts due to CRE hereunder and not
otherwise paid, shall be paid by CRIIMI MAE to CRE promptly upon CRE's notice to
CRIIMI MAE with respect thereto, and shall not be subject to offset,
counterclaim or defense of any kind by CRIIMI MAE. In the event of a downgrade
of CRIIMI MAE's rating (currently BB for Fitch and S&P and B1 for Moody's) by
one or more of the Rating Agencies, CRIIMI MAE shall deposit an amount equal to
the full outstanding amount of the Recourse Obligation, in the Mark-to-Market
Reserve Account, in accordance with all of the requirements with respect thereto
as set forth in Article IV, on the next Business Day after the Business Day upon
which CRIIMI MAE receives notice of any such downgrade and in any event no later
than the next Business Day after the Business Day on which it received notice
from CRE to make such deposit, provided that any such notice received by CRIIMI
MAE after 10:30 A.M. New York time on a Business Day shall be deemed received on
the next succeeding Business Day. After such deposit, CRIIMI MAE shall,
simultaneously with the funding of each new Mortgage Loan thereafter, deposit in
the Mark-to-Market Reserve Account, in addition to any other amounts required to
be deposited therein or in any other Reserve Account, an amount equal to 5.0% of
the original principal balance of such new Mortgage Loan.
<PAGE>
CRIIMI MAE shall provide to CRE: (a) financial statements
(including balance sheets and related statements of income and retained
earnings) quarterly within 50 days of the quarter end for CRIIMI MAE for both
the quarter ended and year to date and annual audited financial statements
within 120 days of the CRIIMI MAE fiscal year end, and monthly, within 10 days
of month's end, in-house summary liquidity position and summary sources and uses
of cash and such other interim financial information as may be reasonably
requested by CRE; and (b) affirmation that such documents which are furnished to
CRE shall fairly present the financial condition of the CRIIMI MAE and its
subsidiaries at such date and results of the operations of CRIIMI MAE and its
subsidiaries for the period ended on such date, all in accordance with generally
accepted accounting principles consistently applied, and that there has been no
material adverse changed in such condition or operations. The shareholders'
equity of CRIIMI MAE shall at all times exceed $550,000,000.
<PAGE>
ARTICLE IV
RESERVE ACCOUNTS
<PAGE>
Section 4.01 CASH COLLATERAL RESERVE ACCOUNT. Concurrently with the funding of
each Mortgage Loan, CRIIMI MAE shall deposit with CRE, in the Cash Collateral
Reserve Account, the related Cash Collateral Reserve Amount determined as
provided in this Section 4.01. The Cash Collateral Reserve Amount with respect
to any Mortgage Loan shall be subject to subordination levels generated via the
CRE model, and shall be not less than 5% of the greater of the outstanding
principal balance and the purchase price paid by CRE for Mortgage Loans with
less than a 16% subordination level to the BBB using the CRE model. For Mortgage
Loans with a subordination level above 16% to the BBB using the CRE model, the
Cash Collateral Reserve Amount will equal 5% plus half the difference between
the level generated via the CRE model and 16% (e.g., for a 20% subordination
level to the BBB it would be 20%-16% times 50% equals 2.0% additional
subordination reserve for a total of 7.0%). In the event that any Mortgage Loan,
while in the Program, performs in such a manner that this subordination model
reflects a subordination level below 16% to the BBB, and provided that no Event
of Default shall have occurred and be continuing, any excess Cash Collateral
Reserve Amounts shall be promptly refunded to CRIIMI MAE; PROVIDED, HOWEVER,
that in no event shall the Cash Collateral Reserve Amount at any time be less
than 5% of the outstanding principal balance of the Portfolio. Upon the sale by
CRE of any Mortgage Loan, CRE may apply amounts in the Cash Collateral Reserve
Account in satisfaction in whole or in part of CRIIMI MAE's obligation to pay
the Purchase Price and other amounts due CRE with respect thereto. Any amounts
remaining in the Cash Collateral Reserve Account with respect to any Mortgage
Loan after disposition thereof by CRE and the satisfaction by CRIIMI MAE of all
of its obligations hereunder, with respect thereto, including any amounts
representing interest on such funds, shall be promptly released by CRE to
<PAGE>
CRIIMI MAE. The Cash Collateral Reserve Account shall also be subject to the
general provisions regarding Reserve Accounts as set forth in Section 4.04.
Section 4.02 LOAN PRICING RESERVE ACCOUNT. In the event that a Mortgage Loan is
funded at a price below the par price with respect thereto as established by CRE
pursuant to the Program Pricing Matrix (the "Par Price"), concurrently with the
funding of the related Mortgage Loan, CRIIMI MAE shall deposit with CRE, in the
Loan Pricing Reserve Account, an amount equal to the excess of the Par Price
over the funding price. If at any time during the period in which a Mortgage
Loan as to which a deposit has been made into the Loan Pricing Reserve Account
remains subject to the Program, the Program Pricing Matrix is revised by CRE and
as a result of such revision the Par Price for the related Mortgage Loan would
be, at such date of determination, lower than the Par Price thereof on the
Closing Date, CRE shall, provided that no Event of Default shall have occurred
and be continuing, promptly release to CRIIMI MAE from the Loan Pricing Reserve
Account an amount equal to the excess of the Par Price on the Closing Date over
the Par Price at such date of determination. Upon the sale by CRE of any
Mortgage Loan as to which a deposit continues to be held in the Loan Pricing
Reserve Account as of the date of such sale, CRE may apply any amounts in the
Loan Pricing Reserve Account in satisfaction in whole or in part of CRIIMI MAE's
obligation to pay the Purchase Price and other amounts due to CRE with respect
thereto. Any amounts remaining in the Loan Pricing Reserve Account with respect
to a Mortgage Loan after disposition thereof by CRE and the satisfaction by
CRIIMI MAE of all of its obligations hereunder with respect thereto, including
any amounts representing interest on such funds, shall, provided that no Event
of Default shall have occurred and be continuing, be released promptly by CRE to
CRIIMI MAE. The Loan Pricing Reserve Account shall also be subject to the
general provisions regarding Reserve Accounts as set forth in Section 4.04.
<PAGE>
Section 4.03 MARK-TO-MARKET; MARK-TO-MARKET RESERVE ACCOUNT.
<PAGE>
CRE shall value the Portfolio periodically, as determined by CRE in its
sole discretion, but in no event less frequently than monthly, based upon
characteristics of the Mortgage Loans and market conditions generally (including
interest rates, spreads and speeds) (such valuation, "Mark-to- Market"). When,
as a result of a Mark-to-Market, the Portfolio Market Value is less than 97.5%
of the aggregate principal balance of the Portfolio, CRE shall so notify CRIIMI
MAE. CRIIMI MAE shall, on the Business Day on which CRIIMI MAE receives such
notice if received by 10:00 A.M. New York time or not later than
the next succeeding Business Day after receipt of such notice if received after
10:00 A.M. New York time, remit to CRE, for deposit in the Mark-to-Market
Reserve Account, an amount, up to the amount of the Recourse Obligation, that,
when added to the Portfolio Market Value, equals an amount not less than 97.5%
of the aggregate principal balance of the Portfolio; PROVIDED, HOWEVER, that (i)
upon depletion of the Recourse Obligation and (ii) the decline in the Portfolio
Market Value below 97.5%, CRE shall have such remedies as described in the last
sentence of Section 6.02, subject to the limitations set forth therein. In the
event that at the time of any Mark-to-Market, the Portfolio Market Value exceeds
97.5% of the aggregate principal balance thereof, CRE shall, assuming that (i)
no Event of Default has occurred and is continuing, and (ii) no downgrade has
occurred and is continuing, release to CRIIMI MAE within one (1) Business Day
after such determination, such excess amounts in the Mark-to-Market Reserve
Account and the Recourse Obligation of CRIIMI MAE shall increase by an amount
equal to the amount released by CRE, but in no event shall such increase exceed
the maximum amount of the Recourse Obligation. Upon the sale by CRE of any
Mortgage Loan, CRE may apply amounts in the Mark-to-Market Reserve Account in
satisfaction in whole or in part of CRIIMI MAE's obligation to pay the Purchase
Price and other amounts due to CRE with respect thereto. Any amounts remaining
in the Mark-to- Market Reserve Account after disposition by CRE of all of the
Mortgage Loans and the satisfaction by CRIIMI
<PAGE>
MAE of all of its obligations hereunder, including any amounts representing
interest on such funds, shall be released promptly by CRE to CRIIMI MAE. The
Mark-to-Market Reserve Account shall also be subject to the general provisions
regarding Reserve Accounts set forth in Section 4.04.
Section 4.04 GENERAL REQUIREMENTS REGARDING RESERVE ACCOUNTS.
(a) All deposits in the Reserve Accounts shall be in cash or
in U.S. Treasury Securities with original maturities not exceeding six (6)
months or such other investments as the parties may agree.
(b) The Reserve Accounts (if cash) shall be interest-bearing
cash reserve or money market accounts, as directed by CRIIMI MAE, held at
Citibank, N.A. in the name of CRE. CRE shall not be responsible for any losses
resulting from such investment or for obtaining any specific level or percentage
of earnings. The amounts deposited into the Reserve Accounts plus any earnings
thereon shall serve as security for the obligation of CRIIMI MAE to purchase the
Mortgage Loans in accordance with the provisions of Article VI and the other
obligations of CRIIMI MAE as set forth in this Agreement.
(c) CRE shall have sole dominion and control over the Reserve
Accounts subject to the terms of this Agreement. Except as otherwise expressly
provided in this Agreement, neither CRIIMI MAE nor CRE shall grant or permit any
liens or claims to arise with respect to the Reserve Accounts. CRIIMI MAE hereby
grants a first priority security interest in the Reserve Accounts to CRE as
security for CRIIMI MAE's obligation to purchase the Mortgage Loans in
accordance with the terms of this Agreement and the performance by CRIIMI MAE of
all of its other obligations pursuant to this Agreement and CRIIMI MAE agrees to
execute any agreement reasonably requested by CRE in furtherance of such
security interest.
<PAGE>
(d) Except as otherwise provided in this Agreement, all
investment earnings on amounts on deposit in the Reserve Accounts shall be added
to and become a part of the Reserve Accounts. CRIIMI MAE and CRE agree that the
investment earnings that accrue on amounts on deposit in the Reserve Account may
be applied towards the Purchase Price of the Mortgage Loans.
(e) For tax purposes, notwithstanding anything contained
herein, all investment earnings on Reserve Account funds shall be deemed to be
income of CRIIMI MAE and CRIIMI MAE shall indemnify and hold CRE harmless from
and against any tax liability resulting therefrom, which indemnification shall
survive the expiration or earlier termination of this Agreement.
<PAGE>
(f) Provided that no Event of Default has occurred and is
continuing, all interest, if any, on any Reserve Account remaining therein, and
not previously released or applied as provided herein, shall be released by CRE
to CRIIMI MAE on or before December 1, 1998.
ARTICLE V
AGGREGATION PERIOD
Section 5.01 AGGREGATION PERIOD. All Mortgage Loans shall be held by CRE in
accordance with the terms and conditions contained herein until the earliest to
occur of (i) the Program Termination Date, (ii) the date on which the aggregate
principal amount of Mortgage Loans as CRE and CRIIMI MAE mutually agree is
sufficient for a Securitization have been aggregated by CRE for the Program and
the Mortgage Loans are sold in a Securitization and (iii) the date of
disposition of the Mortgage Loans (other than through a Securitization) in
accordance with this Agreement (the "Aggregation Period"). Notwithstanding
anything to the contrary set forth herein, it is expressly understood that
effective as of 30 days prior to the end of the Aggregation Period, CRE may, in
its sole discretion, cease funding any additional Mortgage Loans under the
Program pursuant to any new Approval Letters or extension of the term of any
then existing Approval Letters.
Section 5.02 HEDGING DURING AGGREGATION PERIOD. CRE shall be responsible, in
accordance with the procedures set forth herein, for executing an interest rate
hedge with respect to each of the Mortgage Loans held by CRE during the
Aggregation Period, such hedging
<PAGE>
strategy to be mutually agreed upon by CRE and CRIIMI MAE. If the parties fail
to reach agreement with respect thereto, CRE shall hedge the Mortgage Loans in
accordance with its then-standard hedging strategy. CRIIMI MAE shall be
prohibited from advocating an alternative hedging strategy that permits the
lender self-insurance against interest rate risk. CRE agrees to discuss and
coordinate its hedging strategy with CRIIMI MAE. CRE agrees to provide to CRIIMI
MAE timely monthly position reporting (including cost of hedge) and,
periodically, any additional information on the position reasonably requested by
CRIIMI MAE, including the cost of unwinding any hedge.
Section 5.03 NET CARRY DURING AGGREGATION PERIOD. On the last business day of
each month, CRE shall distribute (together with an accounting therefor) one-half
of the Net Carry (if positive) received during the calendar month ended
immediately preceding the month in which the date of distribution occurs;
PROVIDED, HOWEVER, that if at any time cumulative Net Carry losses exist, CRIIMI
MAE shall remit 100% of such losses to CRE immediately, and that no Net Carry
remittances to CRIIMI MAE shall be made until negative Net Carry losses are
remitted by CRIIMI MAE to CRE. In the event that the Portfolio Market Value is
less than 97.5% of the aggregate principal balance thereof, Net Carry
remittances will be retained by CRE until settlement of the related
Securitization. "Net Carry" for a calendar month means interest at the Net Carry
Rate.
Section 5.04 SERVICING OF MORTGAGE LOANS DURING AGGREGATION PERIOD. During the
Aggregation Period, CRIIMI MAE shall cause the Servicer to service each Mortgage
Loan pursuant to the Servicing Agreement for the related Servicing Fee, which
Servicing Fee shall be payable monthly, only out of the interest portion of the
Monthly Payment received by CRIIMI MAE with respect to the related Mortgage
Loan. In the event of a conflict between the Servicing Fee Rate set forth herein
and the servicing fee rate as set forth in the Servicing Agreement, the
Servicing Fee Rate set forth herein shall be deemed to control. After the
Securitization with respect to any Mortgage Loan, CRIIMI MAE shall cause the
Servicer to continue to service such Mortgage Loan for a servicing fee
calculated at a rate per annum acceptable to the Rating
<PAGE>
Agencies plus broker strips. The payment and performance of the obligations of
the Servicer under the Servicing Agreement with respect to the Mortgage Loans
prior to the related Securitization shall be guaranteed to CRE and CitiMae, Inc.
by CRIIMI MAE pursuant to the Guaranty.
ARTICLE VI
CRIIMI MAE ACQUISITION OF MORTGAGE LOANS
Section 6.01 CRIIMI MAE'S COMMITMENT TO PURCHASE MORTGAGE LOANS. CRIIMI MAE
hereby agrees to purchase the Mortgage Loans from CRE in accordance with the
terms hereof upon the earliest to occur of: (i) the end of the Aggregation
Period, (ii) a date mutually agreeable to the parties to this Agreement and
(iii) otherwise as required hereunder. The Purchase Price of each Mortgage Loan
shall be equal to the sum of: (i) the outstanding principal balance of such
Mortgage Loan (or the purchase price thereof, for any Loans acquired pursuant to
Section 2.05(a), reduced by any amortization of the principal balance of such
Mortgage Loan after the date of acquisition), (ii) 50% of the accrued and unpaid
positive Net Carry on the Mortgage Loan (after taking into account any
unallocated negative Net Carry realized for any preceding monthly periods),
(iii) the amount, if any, advanced by the Servicer with respect to a monetary
default or a non-monetary default with respect to such Mortgage Loan pursuant to
the terms of the Servicing Agreement (which sums shall be reimbursed directly to
the Servicer), (iv) 50% of the aggregate amount of any excess negative Net Carry
with respect to such Mortgage Loan not taken into account pursuant to clause
(ii) above, (v) any loss associated with the hedge position on the Mortgage Loan
during the time it is included in the Program that is not otherwise recognized
as positive Net Carry pursuant to Section 6.01 (ii) or negative Net Carry
pursuant to Section 6.01 (iv), and (vi) the related Exit Fee, if applicable. If
the hedge position on a Mortgage Loan during
<PAGE>
the period that is included in the Program results in a gain that is not
otherwise recognized as positive Net Carry pursuant to Section 6. 01 (ii) or
negative Net Carry pursuant to Section 6.01(iv), such gain shall be deducted
from the Purchase Price for such Mortgage Loan. The amounts on deposit in the
Reserve Accounts, including amounts representing investment earnings, may be
credited towards the Purchase Price of the Mortgage Loans, and the balance shall
be payable in cash.
Section 6.02 SALE OF MORTGAGE LOANS. If, by the Program Termination Date or an
earlier mutually agreed upon date, the parties have determined not to proceed
with a Securitization and have not otherwise disposed of the Mortgage Loans in a
mutually satisfactory manner, and in such other instances as are provided
herein, CRIIMI MAE shall be obligated to purchase the Mortgage Loans (or some of
the Mortgage Loans if so provided herein). In the event that CRIIMI MAE fails to
purchase any Mortgage Loan or Mortgage Loans required to be purchased by CRIIMI
MAE hereunder, CRE may sell such Mortgage Loan or Mortgage Loans. In connection
with any sale of the Mortgage Loans hereunder other than to CRIIMI MAE, CRIIMI
MAE shall pay all costs and expenses of CRE in connection with such sale up to a
maximum amount of $500,000. In the event the net sales price realized from the
disposition of such Mortgage Loan is less than the Purchase Price allocable
thereto plus any costs and expenses of CRE (up to the limit set forth above) in
connection therewith, CRE shall have the right to apply amounts in the Reserve
Accounts to cover any shortfall. To the extent that funds in the Reserve
Accounts are inadequate with respect thereto, CRIIMI MAE shall, promptly upon
request by CRE, remit funds under the Recourse Obligation up to the amount
available thereunder, to cover any remaining shortfall. If at any time (i) the
Portfolio Market Value is less than 97.5% and (ii) there are no further amounts
remaining available under the Recourse Obligation, CRE may, at its sole
discretion, terminate the Program and exercise all other remedies as set forth
in Section 8.01
<PAGE>
(b), (c) and (d) as though an Event of Default had occurred, and all of the
provisions of such sections shall be applicable with respect thereto; PROVIDED,
HOWEVER, that CRE shall not exercise such right in the event that CRIIMI MAE
elects, at its option, to deposit funds in the Mark-to-Market Reserve Account in
accordance with Section 4.03, without regard to the limited nature of the
Recourse Obligation. An illustration of certain calculations is attached hereto
as Exhibit F.
<PAGE>
ARTICLE VII
SECURITIZATION OF LOANS
<PAGE>
Section 7.01 SECURITIZATION OF LOANS. The parties agree that, it is anticipated
that upon the accumulation of up to an aggregate principal amount of Mortgage
Loans as deemed sufficient, by mutual agreement of CRIIMI MAE and CRE, for a
Securitization, CRIIMI MAE shall purchase the Mortgage Loans from CRE in an
amount equal to the Purchase Price in conjunction with a Securitization. CRIIMI
MAE shall separately engage CSI for the structuring and underwriting of the
investment grade bonds in connection with any Securitization in accordance with
the terms of a separate engagement letter. CRIIMI agrees to pay to CSI for
services as underwriter/placement agent on Mortgage Loans originated by CRIIMI
MAE, funded by CRE under the Program and included in a Securitization, a 75
basis point underwriting/placement fee on the aggregate outstanding principal
balance of the Mortgage Loans included in such Securitization. CRIIMI MAE will
have the right to name a co-underwriter to sell up to 25% of the investment
grade bonds in any Securitization. The amount due to the co-underwriter shall
not exceed 50 basis points on the 25% investment grade bond allocation. The
foregoing amount shall be paid out of CSI's underwriting fee. CRIIMI MAE shall
be responsible for all, or in the case of a joint transaction with another
issuer its pro-rata share of, issuance expenses associated with a
Securitization, which shall include legal counsel for both issuer and
underwriter/placement agent, accounting firms, trustee legal expenses, printing
expenses, and the up-front rating and surveillance monetary fees as well as
legal expenses for at least two Rating Agencies or such greater or lesser number
of Rating Agencies as future market conditions require. In connection with any
Securitization, CRE shall obtain, for the benefit of CRE, an opinion reasonably
acceptable in form and substance to CRE, from legal counsel reasonably
acceptable to CRE, that the transfer of the related Mortgage Loans from CRE to
CRIIMI MAE as provided in this Section 7.01 constitutes a "true sale" for
bankruptcy purposes. CRIIMI MAE shall pay
<PAGE>
reasonable legal and counsel fees incurred by CSI and CRE in connection with a
Securitization (including the "true sale" opinion described above), not to
exceed the lesser of $100,000 and 1.75 basis points on the securitized pool
balance and all other costs incurred by CRIIMI MAE, CSI or CRE in connection
with any such Securitization (including the transfer or the Mortgage Loans from
CRE to CRIIMI MAE in connection therewith).
ARTICLE VIII
DEFAULT
Section 8.01 DEFAULT BY CRIIMI MAE; RIGHTS AND REMEDIES.
(a) Any of the following shall constitute an "Event of
Default" by CRIIMI MAE:
(i) any failure by CRIIMI MAE to remit to
CRE any payment required to be made under the terms of this
Agreement (including any amounts required to be paid or other
material obligation to be performed by CRIIMI MAE pursuant to
CRIIMI MAE's guaranty of the Servicer's obligations under the
Servicing Agreement);
(ii) any failure, other than as provided in
(i) above, on the part of CRIIMI MAE duly to observe or
perform in any material respect any other of the covenants or
agreements on the part of CRIIMI MAE, set forth in this
Agreement, that continues unremedied for a period of 30 days
after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to
CRIIMI MAE by CRE;
(iii) a decree or order of a court or agency
or supervisory authority having jurisdiction for the
appointment of a conservator or receiver or liquidator in any
insolvency, bankruptcy, readjustment of debt, marshalling of
<PAGE>
assets and liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, shall have been
entered against CRIIMI MAE and such decree or order shall have
remained in force undischarged or unstayed for a period of 30
days;
(iv) CRIIMI MAE shall consent to the
appointment of a conservator or receiver or liquidator in any
insolvency, bankruptcy, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating
to CRIIMI MAE or of or relating to all or substantially all of
its property; or
(v) CRIIMI MAE shall admit in writing its
inability to pay its debts generally as they become due, file
a petition to take advantage of any applicable bankruptcy,
insolvency or reorganization statute, make an assignment for
the benefit of its creditors, or voluntarily suspend payment
of its obligations.
(b) The parties hereto agree that during the continuance of
any Event of Default hereunder, CRE (x) shall have the right, at its sole
option, to terminate the Program and remove all Mortgage Loans from the terms of
this Agreement, thereby terminating any and all of CRIIMI MAE's rights and
obligations concerning such Mortgage Loans, except as otherwise specifically
provided in Section 8.01(c) and (y) may, without notice to CRIIMI MAE or any
other party, elect to exercise all or any of its remedies under this Agreement
and under applicable law, including the right to sell the Mortgage Loans, to
apply all or part of the Reserve Accounts towards the obligations of CRIIMI MAE
hereunder, and the right to require payment by CRIIMI MAE under the Recourse
Obligation.
(c) Any termination of the Program pursuant to Section 8.01(b)
shall not relieve CRIIMI MAE of its obligation to purchase Mortgage Loans as
provided hereunder if so requested by CRE (PROVIDED, HOWEVER, that CRE shall
have no obligation to sell the Mortgage
<PAGE>
Loans to CRIIMI MAE and that neither CRE nor CSI shall have any obligation to
undertake a Securitization) , and shall not affect the rights or obligations of
the parties arising out of any action, event on failure to act occurring prior
to the termination of the Program.
(d) In the event of any event of default, as defined therein,
by CRIIMI MAE under any other agreement between CRE and CRIIMI MAE, which
default is continuing, CRE shall have no further obligation to fund Mortgage
Loans under the Program.
(e) Except as otherwise expressly provided in this Agreement,
all rights and remedies under this Agreement are distinct and cumulative, not
only as to each other, but as to any rights and remedies afforded by law or
equity and may be exercised together, separately and successively, for the
benefit of CRE, its successors and assigns.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES; DEFAULTS
Section 9.01 REPRESENTATIONS AND WARRANTIES. CRIIMI MAE hereby makes and agrees
to make, for the benefit of CRE, its successors and assigns, all of the
Representations and Warranties. In connection with a Securitization, CRIIMI MAE
agrees to make, as of the date of the Securitization, all of the representations
and warranties required by the Rating Agencies and/or the underwriter of the
securities. Each representation made "to CRIIMI MAE's knowledge" shall refer to
such knowledge of CRIIMI MAE after due inquiry by such personnel of CRIIMI MAE
whose positions and responsibilities would require such inquiry in the course of
their duties.
Section 9.02 BREACH OF REPRESENTATION; DEFAULT. In the event that during the
Aggregation Period a breach of any Representation or Warranty is discovered or a
Mortgage Loan becomes a Defaulted Mortgage Loan, CRIIMI MAE shall be obligated,
upon request by CRE, to purchase at the related Purchase Price all Mortgage
Loans affected by such breach and all such Defaulted
<PAGE>
Mortgage Loans in accordance with Article VI, and all of the terms of Article VI
shall apply with respect thereto.
Section 9.03 CRE'S REPRESENTATION AND WARRANTIES. With respect to any Mortgage
Loan purchased by CRIIMI MAE from CRE hereunder, CRE shall be deemed to
represent and warrant to CRIIMI MAE, as of such purchase date, that CRE owns
such Mortgage Loan and has the right to sell such Mortgage Loan to CRIIMI MAE
free and clear of all liens thereon. In addition, with respect to any Mortgage
Loan purchased by CRIIMI MAE from CRE that was purchased by CRE from a third
party, CRE shall assign to CRIIMI MAE all representations and warranties (which
shall be standard securitization representations and warranties) received by CRE
from such third party with respect thereto.
ARTICLE X
MISCELLANEOUS
Section 10.01 TERM OF AGREEMENT; SURVIVAL; EXCLUSIVITY.
(a) The term of this Agreement shall commence on the Effective
Date and terminate on the Program Termination Date or such earlier
date that CRE may elect to terminate this Agreement upon the occurrence and
during the continuance of an Event of Default.
(b) The parties agree that for the period from the Effective
Date through the end of the Aggregation Period, all Mortgage Loans that are
sourced by CRIIMI MAE and meet the criteria set forth in herein shall,
notwithstanding any other agreements, contracts or arrangements CRIIMI MAE may
have with third parties, be offered first to CRE for review in accordance with
Section 2.01 herein. Notwithstanding anything set forth hereinabove, this
arrangement shall not apply with respect to loans sourced by CRIIMI MAE for the
AIM funds and any already existing CRIIMI MAE or CRI affiliate. If CRE declines
to include any mortgage
<PAGE>
loan offered by CRIIMI MAE in the Program, such mortgage loan may be dealt with
freely by CRIIMI MAE. Notwithstanding the foregoing, nothing herein shall be
deemed to restrict in any manner the ability of CRE or any Affiliate thereof to
make or purchase loans meeting some or all of the requirements thereof in
transactions unrelated to this Agreement.
(c) Notwithstanding anything contained herein, the
obligations, representations and warranties of CRIIMI MAE and CRE under this
Agreement shall commence on the Effective Date.
Section 10.02 INDEMNIFICATION. CRIIMI MAE shall indemnify CRE and hold CRE
harmless against all losses, damages, penalties, fines, legal expenses,
judgments and any other costs, fees and expenses that CRE may sustain in any way
related to CRIIMI MAE's failure to perform, keep or observe any of its
obligations, covenants, representations or warranties under this Agreement,
including any lender liability claims; it being understood, however, that CRE's
sole recourse resulting from CRIIMI MAE's failure to purchase the Mortgage Loans
in accordance with the provisions of Section 6.01 shall be to sell the Mortgage
Loans and retain the proceeds of such sale, to apply the sums held in the
Reserve Accounts and to enforce the Recourse Obligations, all as set forth
herein.
Section 10.03 COSTS OF AGREEMENT PREPARATION. CRIIMI MAE shall pay all
reasonable legal fees and disbursements of CRE's legal counsel in connection
with the drafting and negotiation of this Agreement.
Section 10.04 NOTICES. Whenever it is provided in this Agreement that notice,
demand, request or other communication shall be given to or served upon one of
the parties hereto by another, any such notice, demand, request or communication
shall be in writing (except with respect to method (v) described below) and
shall be delivered (i) personally to the recipient at the address listed below,
(ii) by certified or registered mail, return receipt requested, (iii) by
overnight
<PAGE>
commercial courier service, (iv) by electronic transfer device or (v)
with respect to notices concerning funds required to be deposited into a Reserve
Account only, by telephone.
If to CRIIMI MAE, at the following address:
CRIIMI MAE Inc.
The CRI Building
11200 Rockville Pike
Rockville, Maryland 20852
Attn: Cindy Azzara
Telephone: (301) 816-2300
Fax: (301) 231-0334
with a copy to:
CRIIMI MAE Inc.
The CRI Building
11200 Rockville Pike
Rockville, Maryland 20852
Attn: General Counsel
Telephone: (301) 816-2300
Fax: (301) 231-0334
If to CRE, at the following address:
Citicorp Real Estate, Inc.
599 Lexington Avenue
20th Floor
New York, New York 10043
Attn.: General Counsel
Telephone: (212) 559-0818
Fax: (212) 793-6766
with a copy to:
Citicorp Securities, Inc.
399 Park Avenue
3rd Floor
New York, New York 10043
Attn.: Managing Director
Telephone: (212) 559-0217
Fax: (212) 793-0474
<PAGE>
Such notice, demand, request or communication shall be deemed (except as
otherwise provided herein) delivered (a) in the case of method (v),
simultaneously with the giving of notice, (b) in the case of methods (i) and
(iv), on the same day if received by 4:00 P.M. New York time on a Business Day
or on the next Business Day if received after such time, (c) in the case of
method (iii), on the next Business Day and (d) in the case of method (ii), on
the third (3rd) day, or if such day is not a Business Day, the next Business Day
after such third (3rd) day. Either party may at any time give notice in writing
to the other party of a change of its address or Fax number for purposes of this
Section 10.04.
Section 10.05 NO JOINT VENTURE. CRIIMI MAE and CRE are not partners or joint
venturers with each other, and nothing herein shall be construed so as to make
them such or impose any liability as such on either of them. Each party shall
perform its obligations hereunder as an independent contractor and not as an
agent of the other.
Section 10.06 ACTIONS THROUGH AFFILIATES. CRIIMI MAE agrees that any action or
performance stated to be taken or performed by CRE hereunder may in CRE's
discretion be taken or performed by any Affiliate of CRE, and such action or
performance shall be in satisfaction of any obligation hereunder as fully as if
taken by CRE. CRE agrees that any action or performance stated to be taken or
performed by CRIIMI MAE hereunder may in CRIIMI MAE'S discretion be taken or
performed by any entity in which CRIIMI MAE owns a majority interest, and such
action or performance shall be in satisfaction of any obligation hereunder as
fully as if taken by CRIIMI MAE.
Section 10.07 CRE'S DISCRETION. Unless otherwise explicitly stated herein, any
action, consent or waiver to be taken, granted, or given hereunder in CRE's
discretion or otherwise optionally by CRE shall be taken by CRE in its sole and
absolute discretion, using its business judgment in good faith under the
circumstances known to it at the time; PROVIDED, HOWEVER, that in the event
<PAGE>
that CRIIMI MAE challenges such judgment, CRIIMI MAE shall have the burden of
proving that CRE had no business basis for such decision and acted solely in bad
faith.
Section 10.08 COUNTERPARTS. This Agreement may be executed in counterparts by
the parties hereto, and all such counterparts shall constitute one and the same
instrument.
Section 10.09 TRIAL BY JURY WAIVED. EACH PARTY HERETO HEREBY WAIVES TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT (INCLUDING ANY AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH) OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREUNDER. EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENDORSE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THIS WAIVER.
Section 10.10 GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York, without regard to its
conflicts of law principles.
Section 10.11 AMENDMENTS; WAIVERS. No amendment or waiver hereto shall be
effective unless evidenced by a writing executed by the parties hereto. Any
waiver shall be limited to the particular terms of such waiver. No act, course
of dealing or waiver shall be deemed to constitute an amendment hereto.
Section 10.12 PRESS RELEASES. Neither CRE nor CRIIMI MAE nor any of their
respective affiliates or subsidiaries shall issue any press release or make any
other formal public
<PAGE>
announcement related to this Agreement or the transactions contemplated hereby
unless such press release or announcement shall have been approved in writing in
advance by the other party to this Agreement. This provision shall not preclude
either party from publicly disclosing any facts with respect to the transactions
contemplated by this Agreement if such disclosure is required by law.
Section 10.13 ENTIRE AGREEMENT. This Agreement, taken together with the
Servicing Agreement and the Guaranty, set forth the entire agreement between the
parties with respect to the subject matter thereof, and such agreements
supersede and replace any agreement or understanding that may have existed
between the parties prior to the date hereof in respect of such subject matter,
including, but not limited to the Original Agreement which is fully amended and
restated hereby.
Section 10.14 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of and be enforceable by CRE and CRIIMI MAE and their respective
successors and assigns. CRE may assign this Agreement in whole or in part to any
Person to whom any Mortgage Loan is transferred whether pursuant to a sale or
financing. Upon any such assignment, the Person to whom such assignment is made
shall succeed to all rights and obligations of CRE under this Agreement with
respect to such Mortgage Loan. In the event of a merger involving CRE or its
Affiliates, CRE shall have the right to assign this Agreement to such other
business entity in Citigroup Inc. or any successor thereto by any name known.
CRIIMI MAE may not assign this Agreement without the prior written consent of
CRE.
Section 10.15 SURVIVAL. Except as otherwise provided herein, all warranties,
representations, covenants, obligations and agreements contained in this
Agreement shall survive the Closing Dates hereunder and transfer and conveyance
of the Mortgage Loans hereunder, and any and all performances hereunder.
<PAGE>
Section 10.16 HEADINGS. Section headings are for reference purposes only,
and shall have no substantive effect.
Section 10.17 GENERAL INTERPRETIVE PRINCIPLES. For purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Agreement have the meanings
assigned to them in this Agreement and include the plural as well as the
singular, and the use of any gender herein shall be deemed to include the other
gender;
(b) accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles;
(c) references herein to "Articles," "Sections,"
"Subsections," "Paragraphs," and other subdivisions without reference to a
document are to designated Articles, Sections, Sections, Paragraphs and other
subdivisions of this Agreement;
(d) reference to a Subsection without further reference to a
Section is a reference to such Subsection as contained in the same Section in
which the reference appears, and this rule shall also apply to Paragraphs and
other subdivisions;
(e) the words "herein," "hereof," "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
provision; and
(f) the term "include" or "including" shall mean without
limitation by reason of enumeration.
<PAGE>
Section 10.18 REPRODUCTION OF DOCUMENTS. This Agreement and all documents
relating thereto, including, without limitation, (a) consents, waivers and
modifications which may hereafter be executed, (b) documents received by any
party at the closing, and (c) financial statements, certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process. The parties agree that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
Section 10.19 DEDUCTION OF AMOUNTS OWED TO CRE. Prior to paying to CRIIMI MAE
any amounts due to CRIIMI MAE from CRE under the Program, CRE may deduct
therefrom any amounts due to CRE from CRIIMI MAE under the Program and that have
not yet been paid.
Section 10.20 OBLIGATION TO APPROVE. CRE shall have no obligation to approve any
Mortgage Loan in the event that it determines that due to secondary market
conditions, it may not be able to sell, transfer or assign the Mortgage Loan,
grant participations in the Mortgage Loan or issue mortgage pass-through
certificates or other securities evidencing a beneficial interest in the
Mortgage Loan in a rated or unrated public offering or private placement.
Section 10.21 FURTHER AGREEMENTS. CRE and CRIIMI MAE each agrees to execute and
deliver to the other such reasonable and appropriate additional documents,
instruments or agreements as may be necessary or appropriate to effectuate the
purposes of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the Effective Date.
CITICORP REAL ESTATE, INC.
By:
Name:
Title:
CRIIMI MAE INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A
ELIGIBLE MORTGAGE LOAN CRITERIA
1. Each Mortgage Loan shall:
(1) comply in all respects with the Underwriting Guidelines;
(2) be secured by a first lien on a fee simple or leasehold interest in the
Mortgage Property, which Mortgaged Property shall be a Multifamily
Property or a Commercial Property;
(3) be a Fixed Rate Mortgage Loan;
(4) have an original principal balance of not less than $1,000,000 or more
than $40,000,000; and no group of Mortgage Loans to the same mortgagor
or sponsor, (a) shall have an aggregate principal balance exceeding
$60,000,000, or (b) be comprised of two or more cross-collateralized
Mortgage Loans with combined principal balances or more than
$40,000,000;
(5) have an original term to maturity of not less than 5 years or more than
15 years;
(6) have an amortized maturity not exceeding 30 years;
(7) have a Due Date of the first day of each calendar month, with interest
payable in arrears;
(8) provide that the outstanding principal balance thereof, together with
all accrued and unpaid interest and other outstanding amounts
thereunder, be payable upon written notice under CRIIMI MAE's "3-2-1
no-lock program" (i.e., subject to Prepayment Premiums as follows: 3%
during the first 3 years of the Mortgage Loan term; 2% during the years
4, 5 and 6 of the Mortgage Loan Term; 1% for prepayment during years 7,
8 and 9 of the Loan term, and no penalty thereafter), or locked with a
yield maintenance or defeasance provision conforming to CRE's then
applicable requirement;
(9) not have a Fitch Stressed Rate below 1.00x (based on the CRE model);
and
(10) be a loan that is not a Premium Loan.
2. With respect to all Mortgage Loans funded by CRE under the Program, not more
than 20% by aggregate original principal balance may be secured by either hotel
properties or by self-storage facilities.
<PAGE>
EXHIBIT B
REPRESENTATIONS AND WARRANTIES OF CRIIMI MAE
Section I. REPRESENTATIONS AND WARRANTIES OF CRIIMI MAE.
CRIIMI MAE hereby represents and warrants to CRE, as of the date hereof and as
of each Closing Date:
(i) DUE ORGANIZATION; QUALIFICATION; REIT STATUS. CRIIMI MAE
is a corporation duly organized, validly existing and in good standing
under the law of the State of Maryland, is duly qualified to transact
business as a foreign corporation, and is in good standing and
licensed, in each state in which the nature of its business or property
owned by it requires such qualification and licensure. CRIIMI MAE has,
at all relevant times, maintained its qualification as a Real Estate
Investment Trust under the Internal Revenue Code of 1986, as amended.
(ii) AUTHORITY. CRIIMI MAE has the full power, authority and
legal right to execute and deliver this Agreement (and all agreements
executed and delivered by CRIIMI MAE in connection herewith) and to
perform all transactions contemplated by this Agreement (and all
agreements executed and delivered by CRIIMI MAE in connection
herewith). CRIIMI MAE has duly authorized the execution, delivery and
performance of this Agreement (and all agreements executed and
delivered by CRIIMI MAE in connection herewith), and has duly executed
and delivered this Agreement (and all agreements executed and delivered
by CRIIMI MAE in connection herewith). This Agreement (and each
agreement executed and delivered by CRIIMI MAE in connection herewith),
assuming due authorization, execution and delivery by the other party
or parties hereto or thereto, constitutes the legal, valid and binding
obligation of CRIIMI MAE enforceable in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other laws relating to or
affecting the rights of creditors generally and by general principles
of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(iii) NO CONFLICTS. Neither the execution and delivery of this
Agreement nor the fulfillment, of or compliance with the terms and
conditions of this Agreement by CRIIMI MAE will (a) conflict with or
result in a breach of any of the terms, conditions or provisions of
CRIIMI MAE's certificate of incorporation, as amended, or other
organizational documents or any agreement or instrument to which CRIIMI
MAE is now a party or by which it (or any of its properties) is bound,
or constitute a default or result in an acceleration of indebtedness
under any of the foregoing; (b) conflict with or result in a breach of
any legal restriction if compliance therewith is necessary (1) to
ensure the enforceability of this Agreement, or (2) for CRIIMI MAE to
perform its duties and obligations under this Agreement
<PAGE>
(or any agreement executed and delivered by CRIIMI MAE in connection
herewith); (c) result in the violation of any law, rule, regulation,
order, judgment or decree to which CRIIMI MAE or its property is
subject if compliance therewith is necessary (1) to ensure the
enforceability of this Agreement or any Mortgage Loan, or (2) for
CRIIMI MAE to perform its duties and obligations under this Agreement
(or any agreement executed and delivered by CRIIMI MAE in connection
herewith); or (d) result in the creation or imposition of any lien,
charge or encumbrance that would have a material adverse effect upon
any of its properties pursuant to the terms of any mortgage, contract,
deed of trust or other instrument or materially impair the ability of
CRE to acquire, hold, administer or dispose of or otherwise to realize
on the Mortgage Loans.
(iv) SOLVENCY. CRIIMI MAE is solvent and the execution,
delivery and performance of this Agreement (1) will not cause CRIIMI
MAE to become insolvent, and (2) is not intended by CRIIMI MAE to
hinder, delay or defraud any of its creditors.
(v) NO CONSENT REQUIRED. No consent, approval, authorization
or order of, or registration or filing with, or notice to, any court or
governmental agency or body having jurisdiction or regulatory
authority, over CRIIMI MAE is required for (a) CRIIMI MAE's execution
and delivery of this Agreement (and each agreement executed and
delivered by CRIIMI MAE in connection herewith), (b) the consummation
by CRIIMI MAE of the transactions contemplated by this Agreement (and
each agreement executed and delivered by CRIIMI MAE in connection
herewith) or, to the extent so required, such consent, approval,
authorization, order, registration, filing or notice has been obtained,
made or given (as applicable), except that (x) CRIIMI MAE may not be
duly qualified to transact business as a foreign corporation or
licensed in one or more states if such qualification or licensing is
not necessary (1) to ensure the enforceability of any Mortgage Loan, or
(2) for CRIIMI MAE to perform its duties and obligations under this
Agreement (or any agreement executed and delivered by CRIIMI MAE in
connection herewith), and (y) CRIIMI MAE makes no representation with
respect to any required registration under the federal Securities Act
of 1933, as amended (the "SECURITIES ACT"), or any state securities or
blue sky law in connection with a Securitization. Without limitation of
the foregoing, CRIIMI MAE represents and warrants that it is licensed
as a mortgage broker and as a lender in each jurisdiction in which such
license is necessary in connection with the execution, delivery and
performance of this Agreement.
(vi) ABILITY TO PERFORM. CRIIMI MAE does not believe, nor does
it have any reason or cause to believe, that it cannot perform each and
every covenant of CRIIMI MAE contained in this Agreement (or any
agreement executed and delivered by CRIIMI MAE in connection herewith).
(vii) NO LITIGATION PENDING. There are no actions. suits or
proceedings pending or to CRIIMI MAE's knowledge threatened against
CRIIMI MAE which draw into question the validity of this Agreement or
which (if decided adversely to CRIIMI MAE), either in any one instance
or in the aggregate, would result in any material adverse change in the
business, operations, or financial condition of CRIIMI MAE or would
impair materially the ability of CRIIMI MAE to perform its duties and
obligations under this Agreement (or any agreement executed and
delivered by CRIIMI MAE in connection herewith).
(viii) NO BROKERS. CRIIMI MAE has not dealt with any person
(other than, CRE and its Affiliates) that may be entitled, by reason of
any act or omission of CRIIMI MAE,
<PAGE>
to any commission or compensation from, CRE or any of its Affiliates
in common with this Agreement or the transactions contemplated
hereby.
(ix) NO UNTRUE INFORMATION. No statement, report or other
document relating to any Mortgage Loan furnished by or on behalf of
CRIIMI MAE or any Affiliate thereof in writing (including electronic
media) in connection with CRIIMI MAE's underwriting of and origination
of the Mortgage Loans will contain any material untrue statement by
CRIIMI MAE or any affiliate thereof of any material fact or any
omission by CRIIMI MAE or any affiliate thereof of a material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not materially misleading.
(x) NO DEFAULT. CRIIMI MAE is not in default or breach of any
agreement or instrument to which CRIIMI MAE is now a party or by which
it (or any of its properties) is bound which breach or default would
materially and adversely affect the ability of CRIIMI MAE to perform
its obligations under this Agreement.
Section II. CRIIMI MAE hereby represents and warrants to CRE,
with respect to each Mortgage Loan as of the Closing Date (except as otherwise
stated), that:
(i) ORIGINATION. Such Mortgage Loan was originated in
accordance with the Underwriting Standards, the Closing Standards and
all other requirements set forth in this Agreement, and the Origination
Services were performed in accordance with the Origination Services
Standard. All Insurance Policies were written by Qualified Insurers.
(ii) MORTGAGE LOAN SCHEDULE. The information with respect to
such Mortgage Loan set forth in the Mortgage Loan Schedule is true and
correct in all material respects.
(iii) UNDERWRITING MEMORANDUM. The information set forth in
the underwriting memorandum delivered to CRE is true and correct in all
material respects.
(iv) DELINQUENCIES AND DEFAULTS. Such Mortgage Loan is not 30
days or more delinquent in respect of any Monthly Payment of principal
and/or interest required thereunder, without giving effect to any
applicable grace period. There is no material default, breach or event
of acceleration existing under the related Mortgage or Mortgage Note,
and CRIIMI MAE has not received actual notice of any event (other than
payments due but not yet delinquent) that, with the passage of time or
with notice and the expiration of any grace or cure period, would
constitute such a material default, breach or event of acceleration;
provided, however, that this representation and warranty does not cover
any default, breach or event of acceleration that specifically pertains
to any matter otherwise covered by any other representation and
warranty made by CRIIMI MAE herein. CRIIMI MAE has not waived any
material default, breach, violation or event of acceleration existing
under the related Mortgage or Mortgage Note.
(v) EQUITY PARTICIPATION OR PARTICIPATION INTEREST. Excerpt as
disclosed in the related underwriting memorandum, such Mortgage Loan
does not contain any equity participation by CRIIMI MAE or any other
Person and is a whole loan and not a
<PAGE>
participation certificate; neither the related Mortgage Note nor the
related Mortgage provides for negative amortization or any contingent
or additional interest in the form of participation in the cash flow of
the related Mortgaged Property. Except as so disclosed, CRIIMI MAE has
no ownership interest in such Mortgaged Property or the related
Mortgagor.
(vi) COMPLIANCE WITH APPLICABLE LAWS. Such Mortgage Loan
either complies with or is exempt from applicable state or federal
laws, regulations and other requirements pertaining to usury. CRIIMI
MAE has complied in all material respects, with the requirements of any
and all other federal, state or local laws applicable to the
origination, servicing and collection of such Mortgage Loan, including
without limitation, if applicable, truth-in-lending, real estate
settlement procedures, equal credit opportunity and disclosure laws.
(vii) PROCEEDS FULLY DISBURSED. Except as disclosed in the
related underwriting memorandum, the proceeds of such Mortgage Loan
will be fully disbursed as of the closing Date, and there is no
requirement for future advances thereunder. All costs, fees and
expenses incurred in connection with the origination and closing of
such Mortgage Loan, including, without limitation, recording costs and
fees, have been paid to the appropriate person or arrangements have
been made for their payment to the appropriate person on a timely basis
by the related Mortgagor.
(viii) DOCUMENTS VALID. Each of the related Mortgage Note, the
related Mortgage and any other related Mortgage Loan document is the
legal, valid and binding obligation of the related borrower, the
related guarantor or other party executing such document, enforceable
in accordance with its terms, subject to any non-recourse provisions in
the Mortgage Loan documents and applicable state anti-deficiency laws,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other laws relating to or
affecting the rights of creditors generally and by general principles
of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law). There is no valid offset, defense,
counterclaim or right of rescission with respect to such Mortgage Note,
Mortgage or other Mortgage Loan document, nor will the operation of any
of the terms of such Mortgage Note or such Mortgage, or the exercise of
any right thereunder, render either such Mortgage or such Mortgage Note
unenforceable or subject to any valid right of rescission, offset,
counterclaim or defense, including without limitation the defense of
usury, and to CRIIMI MAE's knowledge, no such right of rescission,
offset, counterclaim or defense has been asserted or is available with
respect thereto.
(ix) ASSIGNMENT OF MORTGAGE; MORTGAGE NOTE ENDORSEMENT. The
related Assignment of Mortgage is in recordable form and shall, upon
completion in the name of CRE's transferee, evidence CRE's valid and
binding assignment to such transferee of the related Mortgage and any
related assignment of leases, rents and profits.
(x) FIRST LIEN. The related Mortgage is a legal, valid and
enforceable first lien on the related Mortgaged Property (including all
buildings and improvements on such Mortgaged Property and all
installations and mechanical, electrical, plumbing, heating
<PAGE>
and air conditioning systems located in or annexed to such buildings,
and all additions, alterations and replacements made at any time prior
to the Closing Date of such Mortgage Loan with respect to the
foregoing, but excluding any related personal property), which
Mortgaged Property is free and clear of all encumbrances and liens
having priority over the first lien of such Mortgage, except for (1)
the lien of current real estate taxes and special assessments not yet
delinquent or accruing interest or penalties, (2) covenants, conditions
and restrictions, rights of way, easements and other matters of public
record as of the date of recording of such mortgage that do not or will
not materially and adversely (A) affect the value of such Mortgaged
Property as security for such Mortgage Loan, or (B) interfere with the
related Mortgagor's ability to make required principal and interest
payments or to make use of such Mortgaged Property for the intended
purposes therefor, (3) leases and subleases pertaining to such
Mortgaged Property that are not required pursuant to the Underwriting
Guidelines to be subordinated to the lien of such Mortgage, and (4)
other matters to which like properties are commonly subject which do
not or will not, individually or in the aggregate, materially and
adversely (A) affect the value of such Mortgaged Property as security
for such Mortgage Loan, or (B) interfere with the related Mortgagor's
ability to make required principal and interest payments or to make use
of such Mortgaged Property for the intended purposes therefor.
(xi) APPROVED LOAN DOCUMENTS. The Mortgage Loan was originated
on approved Loan Documents.
(xii) MODIFICATIONS AND WAIVERS. The terms of the Mortgage and
the Mortgage Note for such Mortgage Loan have not been impaired,
waived, altered or modified in any manner which materially interferes
with the security intended to be provided by the Mortgage or the
benefits intended to be provided by the Mortgage Note.
(xiii) NO TAXES OR ASSESSMENTS DELINQUENT. Based upon the
applicable laws, rules and regulations of the taxing authorities having
jurisdiction over the related Mortgaged Property (excluding any related
personal property), no tax or governmental assessment, or if payable in
installments, no installment thereof, that became due and owing prior
to the closing date in respect of such Mortgaged Property and that, if
left unpaid, would be, or might become, a lien on such Mortgaged
Property having priority over the related mortgage, has become
delinquent such that (a) such tax, assessment or installment has
commenced to accrue interest or penalties, or (b) any such taxing
authority may commence proceedings to collect such tax, assessment or
installment, as applicable.
(xiv) ESCROW DEPOSITS. The related escrow account(s), if any,
contains all escrow deposits and other escrow payments required by the
terms of the related Mortgage Loan documents (inclusive of any
applicable grace or cure period) to be held by the Mortgagee as of the
Closing Date. To the extent not being transferred to CRE, all escrow
deposits and other escrow payments required under the related Mortgage
Note, the related Mortgage and any other related Mortgage Loan
documents have been applied in accordance with their intended purposes
by CRIIMI MAE or its agent.
<PAGE>
(xv) NO CONDEMNATION OR DAMAGES. No proceedings for the total
or partial condemnation of the related Mortgaged Property (1) have
occurred or (2) to CRIIMI MAE's knowledge, are pending or threatened
other than, each such case, proceedings as to partial condemnation
which do not materially and adversely affect the value of such
Mortgaged Property as security for such Mortgage Loan. Such Mortgaged
Property is being used for the purpose(s) set forth in the Commitment
Letter executed by the related Mortgagor (or an Affiliate thereof) in
connection with the origination of such Mortgage Loan and, to CRIIMI
MAE's knowledge, is in good repair and free of any damage, waste or
defective condition that would materially and adversely affect the
value of such Mortgaged Property as security for such Mortgage Loan or
the use for which such Mortgaged Property was intended at the time of
origination of such Mortgage Loan.
(xvi) NO MECHANICS' LIENS. The related Mortgaged Property
(excluding any related personal property) is free and clear of any
mechanics' and materialmen's liens or liens in the nature thereof, and
no rights are outstanding that, under law, could give rise to any such
liens, if any of such liens are or may be prior to, or equal with, the
lien of the related mortgage, except those which are insured against by
the related lender's title insurance policy referred to in Section II
(xviii) below.
(xvii) TITLE SURVEY; IMPROVEMENTS. The related Mortgage File
includes an as-built survey, a survey recertification, a site plan, a
recorded plat or the like, with respect to the related Mortgaged
Property, that satisfied the requirements of the related title
insurance company for deletion of the standard general exceptions for
encroachments, boundary and other survey matters and for easements not
shown by the public records from the related title insurance policy,
except with respect to any of the Mortgaged Properties located in the
State of Texas where the exception for "Shortages in area" and
easements not shown by the public records could not be deleted and is
customarily accepted by prudent commercial mortgage lenders in such
jurisdiction. Except for encroachments and similar matters which do not
materially and adversely affect the value of such Mortgaged Property as
security for such Mortgage Loan, (i) none of the improvements which
were included for the purpose of determining the Appraised Value of
such Mortgaged Property lies outside the boundaries and building
restriction lines of such Mortgaged Property (unless affirmatively
covered by the title insurance referenced in (xix) below), and (ii) no
improvements on adjoining properties materially encroach upon such
Mortgaged Property so as to materially and adversely affect the value
of such Mortgaged Property as security for such Mortgage Loan.
(xviii) COMPLIANCE WITH LAWS. To CRIIMI MAE's knowledge (based
upon a letter or letters from governmental authorities, a legal
opinion, an endorsement or endorsements to the related title insurance
policy, a representation of the related borrower at the time of
origination of such Mortgage Loan, a representation or opinion obtained
from the seller or borrower or other information acceptable to CRIIMI
MAE at the time of such purchase), (1) no improvements located on or
forming a part of the related Mortgaged Property are in violation of
any applicable zoning and building laws or ordinances, (2) the related
Mortgaged Property complies with all other laws and regulations
pertaining to the use and occupancy thereof, excluding Environmental
Laws (as defined and addressed in (xxxvii) and (xxxviii) below), and
all applicable insurance
<PAGE>
requirements, (3) the Mortgagor has obtained all inspections, licenses,
permits, authorizations, and certificates necessary for such
compliance, including, but not limited to, certificates of occupancy,
and (4) no governmental authority has issued any notification that such
Mortgaged Property violates or does not comply with such laws or
regulations or is being used, operated or occupied unlawfully or that
such Mortgagor has failed to obtain such inspections, licenses or
certificates, except (in the case of any of clauses (1), (2), (3) or
(4)) for such violation or non-compliance (A) which does not materially
and adversely affect the value of such Mortgaged Property as security
for such Mortgage Loan or the use for which such Mortgaged Property was
intended at the time of origination of such Mortgage Loan, (B) which is
specifically addressed by the appraiser in the determination of the
related Appraised Value, or (C) for which an escrow account held for
the Mortgagee has been established in an amount sufficient to pay for
the estimated costs to correct such violations or non-compliance.
(xix) TITLE INSURANCE. The lien of the related Mortgage is
insured by an ALTA lender's title insurance policy or, if an ALTA
lender's title insurance policy is unavailable, another state-approved
form of lender's title insurance policy issued in an amount not less
than the stated principal amount of such Mortgage Loan (after all
advances of principal) insuring CRE and its successors and assigns that
the related Mortgage as a valid first lien on the related Mortgaged
Property, subject only to exceptions described in Section II (x) above
(or, if such a title insurance policy has not yet been issued in
respect of any Mortgage Loan, such a policy will be issued and is
currently evidenced by a pro forma, or specimen policy or by a
"marked-up" commitment for title insurance which was furnished by the
related title insurance company for purposes of closing such Mortgage
Loan). Such title insurance policy is (or, when issued, will be) in
full force and effect, and upon payment of any required additional
premium, issuance of the related Mortgage Note to CRE and recording of
the related mortgage or assignment of mortgage in favor of CRE in the
applicable real estate records, such title insurance policy will inure
to the benefit of CRE. Such title insurance policy (1) does not contain
the standard general exceptions for encroachments, boundary or other
survey matters and for easements not shown by the public records, other
than such exceptions as are customarily accepted by prudent commercial
mortgage lenders in the related jurisdiction, and (2) contains only
such exceptions for boundary, encroachments and survey matters as are
customarily accepted by prudent commercial mortgage lenders. CRIIMI MAE
will not take, or omit to take, any action, and to CRIIMI MAE's
knowledge, no other person has taken, or omitted to take, any action,
that would materially impair the coverage benefits of any such title
insurance policy.
(xx) APPRAISAL. CRIIMI MAE has obtained an Appraisal of the
related Mortgage Property by an MAI-certified appraiser duly appointed
by CRIIMI MAE who had no interest, direct or indirect in such Mortgaged
Property or in any loan made on the security thereof, whose
compensation under the terms of the appraiser's engagement was not
(directly or indirectly) based upon the approval or disapproval of such
Mortgage Loan (other than a reduction of such compensation due to any
early termination of the engagement). Such Appraisal satisfies all
requirements of this Agreement. The market
<PAGE>
value used by CRIIMI MAE in calculating the Loan-to-Value Ratio of such
Mortgage Loan was not greater than the appraised value as set forth in
the Appraisal.
(xxi) INSURANCE RELATED TO MORTGAGED PROPERTY. The related
Mortgaged Property is insured by (a) a fire and extended perils
insurance policy providing coverage on a full replacement cost basis in
an amount not less than the lesser of (1) the full replacement cost of
all improvements to such Mortgaged Property and (2) the outstanding
principal balance of such Mortgage Loan, but in any event in an amount
sufficient to avoid the operation of any co-insurance provisions
contained in such insurance policy, which policy contains a standard
mortgagee clause naming the Mortgagee and its successors as additional
insureds; (b) an insurance policy providing business interruption or
rental continuation coverage in an amount not less than 12 months of
operations of such Mortgaged Property; (c) a comprehensive general
liability insurance policy in an amount not less than $1 million per
occurrence; and (d) if any material improvement on such Mortgaged
Property is located in an area identified by the Federal Emergency
Management Agency as having special flood hazards under the National
Flood Insurance Act of 1968, as amended, a flood insurance policy
providing coverage in an amount not less than the lesser of (A) the
stated principal amount of the related Mortgage Note, and (B) the
maximum amount of insurance available under the Flood Disaster
Protection Act of 1973, as amended. Each such insurance policy contains
a clause providing that it is not terminable and may not be reduced
without 30 days prior written notice to the mortgagee, and no such
notice has been received by any person. With respect to each such
insurance policy, either the seller or CRIIMI MAE has received a
certificate of insurance or similar document dated within the last 12
months to the effect that such policy is in full force and effect.
(xxii) UCC FINANCING STATEMENTS. One or more Uniform
Commercial Code financing statements covering all furniture, fixtures,
equipment and other personal property (1) which are collateral under
the related Mortgage or under a security or similar agreement executed
and delivered in connection with such Mortgage Loan, and (2) in which a
security interest can be perfected by the filing of Uniform Commercial
Code financing statement(s) under applicable law have been filed or
recorded (or have been sent for filing or recording) in all Uniform
Commercial Code filing offices necessary to the perfection under
applicable law, of a security interest in such furniture, fixtures,
equipment and other personal property.
(xxiii) LITIGATION. To CRIIMI MAE's knowledge, there are no
pending or threatened actions, suits or proceedings by or before any
court or governmental authority against or affecting the Mortgagor
under any Mortgage Loan or the related Mortgaged Property that, if
determined adversely to such Mortgagor or Mortgaged Property, would
materially and adversely affect the value of the Mortgaged Property or
the ability of the Mortgagor to pay principal, interest or any other
amounts due under such Mortgage Loan.
(xxiv) BANKRUPTCY AND INSOLVENCY. To CRIIMI MAE's knowledge,
no Mortgagor under the Mortgage Loan is a debtor in any state or
federal bankruptcy or insolvency proceeding.
<PAGE>
(xxv) CUSTOMARY PROVISIONS. The related Mortgage Note and the
related Mortgage contain customary and enforceable provisions such as
to render the rights and remedies of the holder thereof adequate for
the practical realization against the related Mortgaged Property of the
benefits of the security, including, but not limited to, judicial or,
if applicable, nonjudicial foreclosure.
(xxvi) ACCESS ROUTES. Surveys, title insurance reports, the
title insurance policy and other relevant documents contained in the
related Mortgage File indicate that (1) the Mortgagor has sufficient
rights with respect to amenities, ingress and egress and similar
matters identified in the appraisal of the related Mortgaged Property
as being critical to the Appraised Value thereof, and (2) such
Mortgaged Property is receiving adequate services from public or
private water, sewer and other utilities, none of which is subject to
revocation as a result of a foreclosure or change in ownership of an
adjacent property.
(xxvii) RELEASE OF LIEN. The related Mortgage Note or Mortgage
does not require the Mortgagee to release all of the related Mortgaged
Properties from the lien of the related Mortgage except upon payment in
full of all amounts due under such Mortgage Loan.
(xxviii) APPLICATION OF INSURANCE PROCEEDS. Any insurance
proceeds in respect of a casualty loss or taking, will be applied
either to the repair or restoration of all or part of the related
Mortgaged Property, with the mortgagee or a trustee appointed by it
having the right to hold and disburse such proceeds as the repair or
restoration progresses, or to the payment of the outstanding principal
balance of such mortgage loan together with any accrued interest
thereon.
(xxix) SERVICING. The servicing and collection practices used
with respect to the Mortgage Loan have complied with all applicable law
in all material respects and are consistent with the standards applied
by prudent servicers of Mortgage Loans of the same type as the Mortgage
Loan.
(xxx) DELINQUENCY ADVANCES. No holder of such Mortgage Loan
has, to CRIIMI MAE's knowledge, advanced funds or induced, solicited or
knowingly received any advance of funds from a party other than the
owner of the related Mortgaged Property, directly or indirectly, for
the payment of any amount required by such Mortgage Loan.
(xxxi) MORTGAGE LOANS SECURED BY GROUND LEASE AND NOT BY FEE
INTEREST. With respect to each Mortgage Loan that is secured in whole
or in part by the interest of the related Mortgagor as lessee under a
ground lease of all or a portion of the related Mortgaged Property (a
"Ground Lease"), but the related fee interest in the portion of such
Mortgaged Property covered by such Ground Lease (the "Fee Interest") is
not subject or subordinate to the lien of the related mortgage, CRIIMI
MAE hereby represents and warrants that:
(1) to CRIIMI MAE's knowledge: (A) such Ground Lease
is in full force and effect, (B) such Ground Lease or a
memorandum thereof has been
<PAGE>
recorded in the applicable real estate records, (C) such
Ground Lease does not prohibit the interest of the related
lessee thereunder from being encumbered by the related
Mortgage, or a separate written agreement permitting such
encumbrance has been obtained, and (D) there have been no
material changes in the terms of such Ground Lease except as
so forth in written instruments which are part of the related
Mortgage File;
(2) except as may be indicated in the related title
insurance policy or commitment, the related lessee's leasehold
interest in the portion of the related Mortgaged Property
covered by such Ground Lease is not subject to any liens or
encumbrances superior to, or of equal priority with, the
related Mortgage and the lessor has not entered into any
agreement to subordinate the Ground Lease to future mortgages
or liens on the Fee Interest;
(3) the related lessee's interest in such Ground
Lease may be transferred to CRE and its successors and assigns
through foreclosure of the related mortgage or conveyance in
lieu of foreclosure and, thereafter, may be transferred to
another person by the Mortgagee and its successors and
assigns, upon notice to, but without the consent of, the
related lessor (or, if any such consent is required, either
(A) it has been obtained prior to the Closing Date, or (B) it
is not to be unreasonably withheld) provided that such Ground
Lease has not been terminated and all amounts owed thereunder
have been paid;
(4) the related lessor is required to give notice of
any default under such Ground Lease by the related lessee to
the Mortgagee either under the terms of such Ground Lease (the
related lessor having received notice of the related Mortgage)
or under the terms of a separate written agreement;
(5) the Mortgagee is entitled, under the terms of
such Ground Lease or a separate written agreement, to receive
notice of any default by the related lessee under such Ground
Lease, and after any such notice is entitled to the time
provided to the related lessee under such Ground Lease to cure
such default;
(6) the currently effective term of such Ground Lease
(excluding any extension or renewal which is not binding on
the lessor thereunder) extends not less than 10 years beyond
the maturity date of the related Mortgage Loan;
(7) such Ground Lease does not impose any
restrictions on subletting that CRIIMI MAE considers to be
commercially unreasonable at the time of its origination;
(8) the lessee has not received any notice that (A)
the related lessor under such Ground Lease is asserting a
default by the related lessee or an event of default
thereunder, or (B) any event has occurred which, with the
passage of time, the giving of notice, or both (other than
rental or other payments being due, but not yet delinquent),
would result in a default or an event of default under the
terms of such Ground Lease;
<PAGE>
(9) the related lessor has agreed in a writing which
is included in the related mortgage file that such Ground
Lease may not be amended, modified, canceled or terminated
without the prior written consent of the Mortgagee and that
any such action without such consent is not binding upon the
Mortgagee; and
(10) under the terms of such Ground Lease and the
related Mortgage, any related insurance proceeds or
condemnation award (other than in respect of a total or
substantially total loss or taking) will be applied either to
the repair or restoration of all or part of the related
Mortgaged Property covered by such Ground Lease, with the
Mortgagee or a trustee appointed by it having the right to
hold and disburse such proceeds as such repair or restoration
progresses, or to the payment of the outstanding principal
balance of or accrued interest on such Mortgage Loan.
(xxxii) MORTGAGE LOANS SECURED BY BOTH GROUND LEASE AND FEE
INTEREST. With respect to each Mortgage Loan that is secured in whole
or in part by the interest of the related Mortgagor as lessee under a
Ground Lease of all or a portion of the related Mortgaged Property, and
as to which the related Fee Interest is subject or subordinate to the
lien of the related mortgage, (1) such fact is set forth in the
mortgage file or the underwriting memorandum, and (2):
(A) such Fee Interest is subject or subordinated of
record to such mortgage; and such Mortgage does not by its
terms provide that it will be subordinated to the lien of any
other mortgage or encumbrance upon such Fee Interest; and
(B) except as disclosed in writing in the related
Mortgage File and as approved in writing by CRE, upon
occurrence of a default under the terms of such Mortgage by
the related Mortgagor, any right of the related lessor to cure
such default (granted to such lessor under any agreement
binding upon the originator or its successors and assigns)
would entitle such lessor, prior to acceleration of the
maturity of such Mortgage Loan and the commencement of
foreclosure of such Mortgage, to be given notice of such
default and (I) no more than 30 days after such notice, to
cure any default in the payment of principal or interest or
other monetary default under such Mortgage, and (II) no more
than 60 days after such notice, to cure any other default or,
alternatively, to commence proceedings to recover possession
of such Mortgage Property plus a reasonable opportunity to
cure such default after such lessor's recovery of possession
if such lessor pursues such proceedings in good faith and with
due diligence.
(xxxiii) DEED OF TRUST. With respect to any related Mortgage
that is a deed of trust or trust deed, a trustee, duly qualified under
applicable law to serve as such, either has been properly designated
and currently so saves or may be substituted in accordance with
applicable law. Except in connection with a trustee's sale after
default by the related Mortgagor or in connection with the release of
the related Mortgaged Property following
<PAGE>
the payment of such Mortgage Loan in full, no fees or expenses are or
will be payable by the Mortgagee to such trustee.
(xxxiv) CROSS-SECURITY. Except as disclosed in the related
underwriting memorandum, the related Mortgaged Property is not
collateral or security for the payment or performance of any other
obligations owed to any Person other than the Mortgagee thereunder,
except for security interests in personal property and fixtures.
(xxxv) ASSIGNMENT OF LEASES, RENTS AND PROFITS. Unless the
related Mortgaged Property is occupied by the related Mortgagor, the
related Mortgage Loan documents contain the provisions of any
assignment of leases, rents and profits or include a separate
assignment of leases, rents and profits. Any related assignment of
leases, rents and profits incorporated within the related Mortgage or
set forth in a separate Mortgage Loan document creates a valid first
priority assignment of, or security interest in, the right to receive
all payments due under the related leases, if any.
(xxxvi) QUALIFIED MORTGAGE. (1) Such Mortgage Loan is
principally secured by an interest in real property and either (A) the
fair market value of such real property was at least equal to 80% of
the adjusted issue price of such Mortgage Loan on the date of
origination or, if such Mortgage Loan has been "significantly modified"
within the meaning of Section 1001 of the Code, on the date of such
modification (unless such modification may be disregarded under Treas.
Reg. Sec. 1.860G-2(b)(3)), or (B) substantially all of the proceeds of
such Mortgage Loan were used to acquire or improve or protect an
interest in real property that, at origination, was the only security
for such Mortgage Loan; (2) except as disclosed in the related
underwriting memorandum, such Mortgage Loan contains no equity
participation by the Mortgage, and neither the related Mortgage Note
nor the related Mortgage provides for any contingent or additional
interest in the form of participation in the cash flow or proceeds
realized on disposition of the related Mortgaged Property; and (3) such
Mortgage Loan is a "qualified mortgage" as defined in, and for purposes
of, Section 860G of the Code.
(xxxvii) ENVIRONMENTAL ASSESSMENT. (1) In connection with the
origination of such Mortgage Loan, a Phase I Environmental Report and,
if recommended by the Phase I Environmental Report, a Phase II
Environmental Report were obtained with respect to the related
Mortgaged Property from an independent environmental engineer or
consultant; and (2) such Environmental Report(s) did not indicate the
existence of conditions or circumstances respecting such Mortgaged
Property that would (A) constitute or result in a material violation of
any applicable Environmental Law, (B) impose any material constraint on
the operation of such Mortgaged Property or require material change in
the use thereof, or (C) require clean-up, remedial action or other
response with respect to Hazardous Materials on or affecting such
Mortgaged Property under any applicable Environmental Law, with the
exception of conditions or circumstances (I) which such Environmental
Report(s) indicated could be cleaned up, remediated or brought into
compliance with applicable Environmental Law by the taking of certain
actions, and (II) either (a) for which a hold-back or other escrow of
funds not less than the costs of taking such clean-up, remediation or
compliance actions have been taken, or (b) for which an environmental
insurance policy (which policy shall be issued by an insurance company
which is duly qualified as such under the laws of the states in which
the mortgaged
<PAGE>
properties (including the Mortgaged Property) insured by such company
are located, duly authorized and licensed in such states to transact
the applicable insurance business and write the insurance provided, and
whose claims-paying ability with respect to hazard and flood insurance
is rated A:V or better (or the equivalent in any successor rating
system) by Best's Key Rating Guide) in an amount satisfactory to CRIIMI
MAE has been obtained by the related borrower or an indemnity for such
costs has been obtained from a potentially culpable party, or (c) such
clean up, remediation or compliance actions in compliance with
applicable Environmental law have been completed prior to the closing
of such Mortgage Loan. To CRIIMI MAE's knowledge, neither the borrower
nor, in the case of a Section 1.06 Loan, the seller, has taken any
action which would cause either such Mortgaged Property to become
subject to liability under CERCLA. For purposes of this Agreement, the
term "ENVIRONMENTAL LAW" shall mean any environmental law, ordinance,
rule, regulation or order of a federal, state or local governmental
authority, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability act of 1980, as
amended (42 U.S.C. ss.ss. 9601 ET SEQ.) ("CERCLA"), the Hazardous
Material Transportation Act, as amended (49 U.S.C. ss.ss. 1801 ET
SEQ.), the Resource Conservation and Recovery Act, as amended (42
U.S.C. ss.ss. 6901 ET SEQ.), the Federal Water Pollution Control Act,
as amended (33 U.S.C. ss.ss. 1251 ET. SEQ.), the Clean Air Act, as
amended (42 U.S.C. ss.ss. 7401 ET. SEQ.) and the regulations
promulgated pursuant thereto. For purposes of this Agreement,
"HAZARDOUS MATERIALS" shall mean any dangerous, toxic or hazardous
pollutants, chemicals, wastes or substances, including, without
limitation, those so identified pursuant to CERCLA or any including,
without limitation, asbestos and asbestos-containing materials,
polychlorinated biphenyls ("PCBs"), radon gas, petroleum and petroleum
products, urea formaldehyde and any substances classified as being "in
inventory", "usable work in process" or similar classification which
would, if classified as unusable, be included in the foregoing
definition.
(xxxviii) NOTICE OF ENVIRONMENTAL PROBLEM. Other than with
respect to any conditions identified in the Phase I and/or Phase II
Environmental Reports referred to in Section (xxxi) above: (1) has
received actual notice form any federal, state or other governmental
authority of (A) any failure of the related Mortgaged Property to
comply with any applicable Environmental Laws, or (B) any known or
threatened release of Hazardous Materials on or from such Mortgaged
Property in violation of Environmental Laws; or (2) has received actual
notice from the related Mortgagor that (A) such borrower has received
any such notice from any such governmental authority, (B) such
Mortgaged Property fails to comply with Environmental Laws, or (C) has
received actual notice that there is any known or threatened release of
Hazardous Materials on or from such Mortgaged Property in violation of
Environmental Laws; or (3) has any actual knowledge that (A) the
related Mortgaged Property fails to materially or significantly comply
with any applicable Environmental Law or (B) there has been any known
or threatened material or significant release of Hazardous Materials on
or from such Mortgaged Property in violation of any applicable
Environmental Law.
(xxxix) RECOURSE. Except as set forth in the related
underwriting memorandum, the related Mortgage Loan documents contain
standard provisions providing for recourse
<PAGE>
against the related Mortgagor for damages sustained in connection with
the borrower's fraud, intentional misrepresentation, or
misappropriation of any tenant security deposits or rent. Except as set
forth in the related underwriting memorandum, the related Mortgage Loan
documents contain provisions pursuant to which the related Mortgagor
has agreed to indemnify the Mortgagee for damages resulting from
violations of Environmental Laws.
(xxxx) LEASES. With respect to each Mortgage Loan: (1) prior
to either the origination of such Mortgage Loan or the funding of such
Mortgage Loan by CRE, or CRIIMI MAE obtained tenant estoppel
certificates from all tenants whose leases covered more than 10% of the
net leaseable area of the related Mortgaged Property; and based upon
such tenant estoppel certificates, no defaults with respect to any such
lease existed as of the date of the related tenant estoppel
certificate; and (2) neither CRIIMI MAE nor the originator has received
any notice of the existence of any default under any such lease or of
the existence of any condition which but for the passage of time or the
giving or notice, or both, would result in such a default.
(xxxxi) ENVIRONMENTAL COMPLIANCE. One or more of the related
Mortgage Loan documents contains either a representation, warranty or
covenant that the related borrower will not use, cause or permit to
exist on the related Mortgaged Property any Hazardous Materials in
violation of Environmental Law or an indemnity with respect to any such
violation in favor of the mortgagee.
(xxxxii) INSPECTION. CRIIMI MAE has inspected the related
Mortgaged Property or caused such Mortgaged Property to be inspected in
connection with the origination of the Mortgage Loan.
(xxxxiii) SUBORDINATE DEBT. Except as has been specifically
disclosed in writing to CRE on or before the Closing Date, the related
Mortgage contains a provision for the acceleration of the payment of
the unpaid principal balance of such Mortgage Loan in the event that
the related Mortgagor encumbers the related Mortgaged Property without
the prior written consent of the Mortgagee thereunder.
(xxxxiv) COMMON OWNERSHIP. No two properties securing a
Mortgage Loan are directly or indirectly under common ownership except
to the extent that such common ownership and the ownership structure
has been specifically disclosed in writing to CRE.
(xxxxv) OPERATING OR FINANCIAL STATEMENT. The related Mortgage
Loan documents require the related Mortgagor to furnish to the
mortgagee at lease annually an operating statement with respect to the
related Mortgaged Property or, in the case of a borrower- occupied
Mortgaged Property, a financial statement with respect to the related
borrower.
<PAGE>
EXHIBIT C
FORM OF CRIIMI MAE CLOSING CERTIFICATE
<PAGE>
EXHIBIT D
CONTENTS OF MORTGAGE FILE
<TABLE>
<CAPTION>
NO. DOCUMENT NAME
-- -------------
<S> <C>
BORROWER ORGANIZATIONAL DOCUMENTS
Corporate Borrower
1 Certificate of Incorporation and all amendments thereto,
certified as filed by Secretary of State where incorporated
2 By-Laws certified by Borrower
3 Certificate of Good Standing issued by Secretary of State
where incorporated
4 Certificate of Good Standing issued by Secretary of State
where property is located
5 Certificate of Corporate Resolutions and Incumbency
6 Receipt of current year's Franchise Tax payment (if required)
7 Affidavit of Corporate Borrower re ownership of stock (if
required)
General Partnership Borrower
8 Partnership Agreement and all amendments thereto, certified
by Borrower
9 Partnership Certificate and all amendments thereto, certified as
filed by appropriate office in state where organized
10 Evidence of qualification in state where property is located
11 Partner consents to the loan and the execution of the loan
documents by the executing partner (if required)
Limited Partnership Borrower
12 Certificate of Limited Partnership and all amendments
thereto, certified as filed by appropriate office in state
where organized
13 Limited Partnership Agreement and all amendments thereto,
certified by Borrower
14 Evidence of Publication
15 Fictitious Name Affidavit or Certificate of Limited
Partnership certified as filed by appropriate office in state
where property is located
16 Limited Partner consents to the loan and the execution of the loan
documents by the executing partner (if required)
Corporate General Partner of Borrower
17 Certificate of Incorporation and all amendments thereto, certified
as filed by Secretary of State where incorporated
18 By-laws, certified by corporate general partner of Borrower
19 Certificate of Good Standing issued by Secretary of State
</TABLE>
<PAGE>
<TABLE>
<S> <C>
where incorporated
20 Certificate of Corporate Resolutions and Incumbency
21 Receipt of current year's Franchise Tax payment (if required)
22 Affidavit of Corporate General Partner of Borrower re:
ownership of stock (if required)
Partnership General Partner of Borrower
23 Partnership Agreement and all amendments thereto, certified by
General Partner of Borrower
24 Partnership Certificate and all amendments thereto, certified as
filed by appropriate office in state where organized
25 Partner consents to the loan and the execution of the loan
documents by the executing partner (if required)
Corporate Guarantor
26 Certificate of Incorporation and all amendments thereto, certified
as filed by Secretary of State where incorporated
27 By-Laws, certified by Guarantor
28 Certificate of Good Standing issued by Secretary of State
where incorporated
29 Certificate of Corporate Resolutions and Incumbency
30 Receipt of current year's Franchise Tax payment (if required)
31 Affidavit of Corporate Guarantor re ownership of stock (if
required)
Partnership Guarantor
32 Partnership Agreement and all amendments thereto, certified
by Guarantor
33 Partnership Certificate and all amendments thereto, certified as
filed by appropriate office in state where organized
34 Partner consents to the loan and the execution of the Guaranty of
Payment by the executing partner (if required)
Corporate General Partner of Guarantor
35 Certificate of Incorporation and all amendments thereto, certified
as filed by Secretary of State where incorporated
36 By-Laws, certified by corporate general partner of Guarantor
37 Certificate of Good Standing issued by Secretary of State
where incorporated
38 Certificate of Corporate Resolutions and Incumbency
39 Receipt of current year's Franchise Tax payment (if required)
40 Affidavit of Corporate General Partner of Guarantor re
ownership of stock (if required)
Partnership General Partner of Guarantor
41 Partnership Agreement and all amendments thereto, certified by
General Partner of Guarantor
42 Partnership Certificate and all amendments thereto, certified as
filed by appropriate office in state where organized
43 Partner consents to the loan and the execution of the Guaranty of
Payment by the executing partner (if required)
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
<S> <C>
44 Financial Statement of Borrower (audited by a nationally recognized
firm of certified public accountants, if required)
45 Financial Statement of General Partner of Borrower (audited
by a nationally recognized firm of certified public
accountants, if required)
46 Financial Statement of Guarantor (audited by a nationally
recognized firm of certified public accountants, if required)
47 Financial Statement of General Partner of Guarantor (audited
by a nationally recognized firm of certified public
accountants, if required)
48 Operating Statement of property, prepared and certified by
Borrower
APPRAISAL, INVENTORY AND INSPECTION
49 Appraisal of property
50 Inspection of property
51 Evidence of required Borrower equity in property
52 Inventory of personal property
GROUND LEASES
53 Ground Lease, including all amendments, modifications and mesne
assignments into Borrower
54 Recorded memorandum of Ground Lease
55 Estoppel Letter of Ground Lessor
56 Notice from Lender to Ground Lessor (if required)
57 Subordination of existing fee mortgages to current leasehold
mortgage
SPACE LEASES
58 Space leases, including all modifications and amendments
thereto
59 Form of residential space lease
60 Form of commercial space lease
61 Tenant estoppel letters
62 Subordination Agreements (if required)
63 Subordination, Non Disturbance and Attornment Agreements (if
required)
64 Certified Rent Roll or Occupancy Statement
65 291-F Notices to space tenants
ACQUISITION DOCUMENTS
66 Contract of Sale
67 Proposed Deed
68 Proposed purchase money mortgage/deed of trust and note (if
applicable)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
69 Closing Statement of Sale
70 Affidavit of Seller that it is not a foreign person
LAND TRUST DOCUMENTS
71 Deed in Trust from Borrower to Trustee, certified by Borrower
72 Beneficiary Agreement among principals of Borrower, certified
by Borrower
73 Form of General Authorization from Borrower to Trustee
74 Trust Agreement between Borrower and Trustee, certified by
Borrower
75 Security Agreement and Assignment of Beneficial Interest in Trust
from Borrower to Lender, as acknowledged by Trustee
76 UCC-1 to be filed in connection with the Security Agreement
HOTEL DOCUMENTS
77 Franchise Agreement
78 Management Agreement
79 Other service and operating agreements
80 License and concessionaire agreements
81 Permits, licenses and approvals required for the use of the
property as a hotel
82 Evidence that service and operating agreements, permits,
licenses, approvals, bank accounts and accounts receivable
are in the name of Borrower
83 Estoppel/Recognition Letter from Franchisor
84 Estoppel/Recognition Letter from Management Company
85 Estoppel/Recognition Letters from parties to other service and
operating agreements (if required)
86 Estoppel Letters from parties to license and concessionaire
agreements
87 Assignment of Franchise and Management Agreements, Contracts
and Permits
88 List of Personal Property
89 Leases and financing agreements with respect to furniture, fixtures
and equipment
90 Subordination of prior financing agreements covering furniture,
fixtures and equipment (if required)
91 Key employee agreements (if required)
UNDERLYING COOPERATIVE LOAN DOCUMENTS
92 Copy of offering plan and all documents relating to creation of
cooperative form of ownership
93 Form of proprietary lease and all amendments thereto,
certified by Borrower
94 Rent Roll showing maintenance for leased units, names of
</TABLE>
<PAGE>
<TABLE>
<S> <C>
tenants, commencement and expiration dates of leases, number
of shares attributable to each unit, and amounts of any
security deposits or prepaid rents, certified to by Borrower
COMMERCIAL CONDOMINIUM DOCUMENTS
95 Copy of offering plan and all documents relating to creation of
cooperative form of ownership
96 Copy of recorded declaration of condominium
97 Estoppel Letter from condominium board of managers
ZONING, ENVIRONMENTAL, USE AND OCCUPANCY
98 Evidence that the property complies with all zoning laws
99 Evidence that the property complies with all environmental
laws
100 Hazardous Waste inspection by environmental consultant (if
required)
101 Asbestos Inspection by environmental consultant (if required)
102 Letter from architect with respect to completion of
Improvements and compliance with building and zoning laws (if
required)
103 Board of Fire Underwriters Certificate
104 Permanent Certificate of Occupancy
105 Other licenses, permits and approvals required for the use
and operation of the property
106 Nonapplicability letter from New Jersey Bureau of Industrial
Site Evaluation confirming that the Premises is not subject
to the Environmental Cleanup Responsibility Act (New Jersey
loan only)
107 Negative Declaration of Borrower as submitted to the New
Jersey Department of Environmental Protection (New Jersey
loan only)
108 Approval of Negative Declaration by New Jersey Department of
Environmental Protection (New Jersey loan only)
109 Superlien search with the Clerk of the Superior Court (New
Jersey loan only)
MANAGEMENT AGREEMENTS
110 Management Agreement
111 Other service and operating agreements
112 Evidence that service and operating agreements are in the
name of Borrower
113 Estoppel/Recognition Letter from Management Company
114 Estoppel/Recognition Letters from parties to other service and
operating agreements (if required)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
115 Key employee agreements (if required)
116 Key employee insurance (if required)
CASUALTY INSURANCE POLICIES
117 All Risk
118 Boiler Damage and Liability Insurance
119 Business/Rental Interruption Insurance
120 Public Liability Insurance
121 Umbrella Insurance
122 Flood Insurance policy or evidence that premises are not
located in flood zone
123 Builder's Risk (construction loan only)
</TABLE>
<PAGE>
<TABLE>
TITLE INSURANCE/SURVEYS
<S> <C>
124 Title Insurance Commitment
125 Copies of all recorded easements, rights of way, restrictive
covenants, leases and other instruments of record
126 Approval of title company, co-insuring title insurance
companies and/or reinsuring title insurance companies (if
any), and amounts taken
127 Evidence that required co-insurance title policies will be issued
by companies and in amounts satisfactory to Lender
128 Evidence that required ALTA Direct Facultative Reinsurance
Agreements will be issued by companies and in amounts
satisfactory to Lender
129 UCC-1 Financing Statement search, tax lien search and
judgment search (Secretary of State and county where property
located and, if required by Lender, where Borrower is
organized)
130 Real Estate Tax Search
131 Municipal departmental violation searches, including environmental
lien searches
132 Survey (See Exhibit A attached hereto for survey
instructions)
133 Reciprocal easement agreements and restrictions, if any
134 Estoppel letter from parties to reciprocal easements and
restrictions, if any
135 Subordination Agreement from holders of all mortgages
encumbering adjacent tracts subject to reciprocal easements
and restrictions, if any
136 Subdivision Plat of property, as approved by all appropriate
governmental authorities
137 Planned Unit Development Documents, as approved by all appropriate
governmental authorities
138 Evidence of required affirmative insurance and special endorsements
required by Lender
139 Insured Closing Letter from title insurance company (if
required)
140 Title Insurance Policy
141 Co-insurance Policies
142 Reinsurance Agreements
SUBORDINATE MORTGAGES
143 Copies of all Existing Mortgages and Notes to be subordinated
to the Mortgage
144 Copies of all proposed subordinate mortgages and notes
145 Subordination Agreement subordinating Existing Mortgages and
Notes to the Mortgage
146 Estoppel letters from holders of subordinate mortgages
</TABLE>
<PAGE>
<TABLE>
EXISTING MORTGAGES TO BE ASSIGNED
<S> <C>
147 Recorded originals of all Existing Mortgages being assigned
to Lender and all amendments, modifications, consolidations
and mesne assignments relating thereto
148 Originals of all Notes secured by the Existing Mortgages being
assigned to Lender
149 Assignment(s) of the Existing Mortgages and the Notes secured
thereby to Lender
150 Borrower's Statement Under Oath for Assignment of Mortgage
151 UCC-3 Financing Statements assigning or terminating existing
UCC-1 Financing Statements
EXISTING MORTGAGES TO BE SATISFIED
152 Estoppel Certificate(s) or Pay-out letter(s) from the holder(s) of
the Existing Mortgages being assigned to Lender
153 Instructions from holder(s) of the Existing Mortgages as to
method of payment
154 Estoppel Certificate(s) or Pay-out letter(s) from the holder(s) of
the Existing Mortgages not assigned to Lender
155 Instructions from holder(s) of the Existing Mortgages not assigned
to Lender as to method of payment
156 Satisfactions of Existing Mortgages not assigned to Lender
157 UCC-3 Financing Statements terminating existing UCC-1 Financing
Statements
LOAN DOCUMENTS
158 Note
159 Mortgage and Security Agreement/Deed of Trust and Security
Agreement
160 Agreement of Consolidation and Modification of Mortgage/Deed
of Trust
161 Affidavit with respect to Section 255 of the New York Tax Law
with respect to the above document
162 Assignment of Leases and Rents
163 Affidavit with respect to Section 255 of the New York Tax Law
with respect to the above document
Other Loan Documents
164 Guaranty of Payment
165 Non-transfer of assets letter of spouse of Guarantor
166 Loan Agreement
167 Security Agreement with respect to furniture, fixtures and
equipment and other items of personal property
168 UCC-1 Financing Statements
169 Affidavit of Title
</TABLE>
<PAGE>
<TABLE>
<S> <C>
170 Assignment of Permits and Contracts with respect to the
property
171 Letter of Credit
172 Evidence of required confirming bank with respect to the
Letter of Credit
173 Subordination Agreement subordinating loans to Borrower by general
partner or stockholder of Borrower (if required)
174 Disbursement Letter from Borrower to Lender
175 Receipt of Title Company
176 Escrow Security Agreement
177 Tax Escrow Statements
178 IRS Form 1099B
179 ERISA Certification
OPINION LETTERS
180 Counsel for Borrower with respect to the due execution of the
loan documents and other matters
181 Counsel for General Partner of Borrower with respect to the due
execution of the loan documents and other matters
182 Counsel for Guarantor with respect to the due execution of
the Guaranty of Payment
183 Counsel for General Partner of Guarantor with respect to the due
execution of the Guaranty of Payment
184 Opinion Letter of Borrower's counsel with respect to
cooperative documents and the creation of cooperative form of
ownership
185 Opinion of Borrower's counsel with respect to condominium documents
and the creation of condominium regime
186 Counsel for Borrower with respect to zoning and environmental
matters (if required)
MISCELLANEOUS DOCUMENTS
187 Check Authorization Letter
188 Lender's Closing Statement
189 Lender's Closing Memorandum
190 Lender's Servicing Statement
191 Tax Authorization
192 Confirmation of billing address of Borrower
193 Borrower taxpayer identification number
</TABLE>
<PAGE>
EXHIBIT E-1
FORM OF COMMITMENT LETTER
<PAGE>
EXHIBIT E-2
FORM OF COMMITMENT LETTER
<PAGE>58
EXHIBIT F
SAMPLE CALCULATIONS
INITIAL PRICING (%):
<TABLE>
<CAPTION>
Loan Recourse Cash Collateral Mark -to-Market Loan Pricing
Value Obligation* Reserve Account * Reserve Account Reserve Account Citi Cushion**
<S> <C> <C> <C> <C> <C>
100 5 5 0 0 10
97 5 5 0 3 10
93 5 5 0 7 10
</TABLE>
MARK TO MARKET ON LOANS INITIALLY PRICED AT PAR (%):
<TABLE>
<CAPTION>
Loan Recourse Cash Collateral Mark -to-Market Loan Pricing
Value Obligation* Reserve Account * Reserve Account Reserve Account Citi Cushion**
<S> <C> <C> <C> <C> <C>
96 3 1/2 5 1 1/2 0 6
93 1/2 5 4 1/2 0 3
90 0 5 7 1/2 0 2 1/2
85 0 5 12 1/2 0 2 1/2
</TABLE>
MARK TO MARKET ON LOANS INITIALLY PRICED BELOW PAR (%):
<TABLE>
<CAPTION>
Initial Loan Recourse Cash Collateral Mark -to-Market Loan Pricing
Pricing Value Obligation* Reserve Account * Reserve Account Reserve Account Citi Cushion**
<S> <C> <C> <C> <C> <C> <C>
97 87 0 5 7 1/2 3 2 1/2
92 82 0 5 7 1/2 8 2 1/2
92 80 0 5 9 1/2 8 2 1/2
</TABLE>
*Assumes subordination to BBB less than 16% and eligible loan. **" Citi Cushion"
refers to sum of reserves and recourse obligation held by CRE net of any
difference in the loan value and the par value of the loans, but not to decrease
below 2 1/2% in any case.
<PAGE>
Exhibit 10(uu)
CERTIFICATE OF LIMITED PARTNERSHIP
OF
CRIIMI MAE HOLDINGS II, L.P.
This Certificate of Limited Partnership of CRIIMI MAE Holdings
II, L.P. (the "Partnership") is being executed and filed by the undersigned
General Partner (the "General Partner") to form a limited partnership under the
Delaware Revised Uniform Limited Partnership Act.
ARTICLE ONE
The name of the limited partnership is CRIIMI MAE Holdings II,
L.P.
ARTICLE TWO
The address of the registered office of the Partnership in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801. The name of the registered agent is The Corporation Trust
Company.
ARTICLE THREE
The name and mailing address of the General Partner of the
Partnership is:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
<S> <C>
CRIIMI MAE Inc. 11200 Rockville Pike
Rockville, MD 20852
</TABLE>
IN WITNESS WHEREOF, the undersigned General Partner has
executed this Certificate of Limited Partnership by and through a duly
authorized officer thereof on this 3rd day of June, 1998.
CRIIMI MAE Inc., General Partner
By: /s/ DAVID B. IANNARONE
----------------------------------
Name: David B. Iannarone
Title: Senior Vice President
General Counsel
<PAGE>
Exhibit 10(vv)
CRIIMI MAE HOLDINGS II, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP, made and entered into as of the
4th day of June 1998, between CRIIMI MAE Inc., a Maryland corporation as the
General Partner (the "General Partner") and CRIIMI MAE Services Limited
Partnership, a Maryland limited partnership as a Limited Partner (the "Limited
Partner").
W I T N E S S E T H:
WHEREAS, the Partnership is being formed pursuant to a certificate of
limited partnership for the purpose of acquiring, owning, operating, managing,
holding, selling, assigning, transferring, pledging, financing, refinancing and
otherwise dealing with certain mortgage-backed certificates further described on
Schedule B attached hereto (the "Assets"), and with any property that the
Partnership may acquire or have a right to acquire as a result of its ownership
of the Assets; and
WHEREAS, the parties hereto desire to enter into this agreement of
limited partnership to reflect the agreement among them;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein set forth, the parties hereby agree t the formation of the
Partnership as a limited partnership pursuant to the Delaware Revised Uniform
Limited Partnership Act upon the following terms and conditions:
ARTICLE I
NAME AND BUSINESS
1.1 NAME. The name of the Partnership is CRIIMI MAE Holdings II, L.P.
1.2 PLACE OF BUSINESS; REGISTERED AGENT. The principal place of
business of the Partnership is at c/o CRIIMI MAE Inc., 11200 Rockville Pike,
Rockville, Maryland 20852 or at such other place as the General Partner may
hereafter designate upon notice to the Limited Partners. The address of the
registered office in the State of Delaware shall be CT Corp., Corporation Trust
Center, 1209 Orange Street, Wilmington, Delaware 19801 and the registered agent
for service of process on the Partnership in the State of Delaware at such
registered office shall be CT Corp., or such other registered office or
registered agent as the General Partner may hereafter designate upon notice to
the Limited Partner.
1.3 ADDRESSES OF GENERAL PARTNER AND LIMITED PARTNER.
(a) The name and principal place of business of the General
Partner is CRIIMI MAE Inc., 11200 Rockville Pike, Rockville, Maryland 20852.
<PAGE>
(b) The name and principal place of business of the Limited Partner is
CRIIMI MAE Services Limited Partnership, 11200 Rockville Pike, Rockville,
Maryland 20852.
1.4 PURPOSE.
(a) The nature of the business or purposes to be conducted or
promoted by the Partnership is limited to the following activities and none
other:
(i) To acquire, own, hold, transfer, assign,
pledge and otherwise deal with the trust certificates, participation
certificates, pass-through certificates, bonds or other securities with respect
to or secured by Mortgage Loans (collectively, "Private MBS") and securities
representing interests in or secured by Private MBS (collectively, the
"Mortgage Assets"):
(ii) To do all such things as are reasonable or
necessary to enable the Partnership to carry out any of the above, including,
without limitation, entering into repurchase agreements and bond purchase
agreements.
(b) The Partnership shall have the authority to engage in any
other acts or activities and to exercise any power permitted to corporations
under the Delaware Revised Uniform Limited Partnership Act so long as the same
are incidental to, or connected with, the foregoing or are necessary, suitable
or convenient to accomplish the foregoing. In connection with the foregoing, the
Partners hereby ratify the entering into by the Partnership of the [Master
Repurchase Agreement] including any attachments thereto, dated as of June 4,
1998 (the "Repurchase Agreement"), between Citicorp Securities, Inc. as
purchaser and the Partnership as seller.
1.5 TERM. The term of the Partnership shall commence on the filing of
the Certificate and shall continue until December 31, 2050, unless the
Partnership is earlier dissolved and terminated in accordance with the
provisions of this Agreement.
1.6 CERTIFICATE. The General Partner shall file the Certificate in
accordance with applicable law.
ARTICLE II
DEFINITIONS
Unless the context clearly indicates otherwise, the following terms
shall have the following meanings for purposes of this Agreement:
2.1 AFFILIATE shall mean any Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Person specified. The term "control" (including the
terms "controlling," "controlled by" and "under common control with") means the
possession, direct or indirect, of the power
<PAGE>
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of at least 10% of the voting securities, by
contract, or otherwise.
2.2 Agreement shall mean this agreement of limited partnership, as
it may be amended from time to time.
2.3 ASSETS shall mean the CRIIMI MAE CMBS Corp. Commercial
Mortgage Loan Trust Certificates, Series 1998-1, described on Schedule B
attached hereto.
2.4 CAPITAL CONTRIBUTION shall mean the amount of money or other
assets contributed to the Partnership by each Partner.
2.5 CERTIFICATE shall mean the certificate of limited partnership
of the Partnership as filed with the Secretary of State of the State of
Delaware, as it may be amended from time to time.
2.6 DISTRIBUTIONS shall mean nay money or other property distributed to
the Partners with respect to their interests in the Partnership, but shall not
include any payments to the General Partner permitted by Section 5.8.
2.7 EVENT OF DISSOLUTION shall mean the withdrawal,
resignation, dissolution, adjudication of bankruptcy or insolvency of the
General Partner or an attempted transfer or withdrawal in contravention of
Section 8.1.
2.8 FISCAL YEAR shall mean the calendar year.
2.9 GENERAL PARTNER shall mean CRIIMI MAE Inc., a Maryland
corporation, and any successors in that capacity.
2.10 LIMITED PARTNER shall mean CRIIMI MAE Services Limited
Partnership, a Maryland limited partnership, and any successors in that
capacity.
2.11 NET CASH FLOW shall mean with respect to any fiscal period of
the Partnership, all revenues of the Partnership, including revenues from the
Assets and net cash proceeds from disposition of the Assets during that
period decreased by (a) cash expenditures for operating expenses (but not
including expense items which do not require a current cash outlay), (b)
capital expenditures to the extent not made from reserves, (c) reserves for
contingencies and working capital, established in such amounts as the General
Partner may determine, (d) repayments of principal on any financing of the
Assets and (e) taxes.
2.12 PARTNERS shall mean the General Partner and the Limited Partner.
2.13 PARTNERSHIP shall mean the limited partnership governed under
this Agreement.
<PAGE>
2.14 PERSON shall mean and include an individual, proprietorship,
trust, estate partnership, joint venture, association, company, corporation,
limited liability company or other entity.
2.15 SECTION shall mean any section of this Agreement.
2.16 SUBSTITUTE LIMITED PARTNER shall mean a person admitted to the
Partnership as a limited partner pursuant to Section 7.3.
2.17 TAX TERMS:
(a) ADJUSTED CAPITAL ACCOUNT DEFICIT shall mean, with respect
to any Partner, the deficit balance, if any, in such Partner's Capital Account
as of the end of the relevant Fiscal Year, after giving effect to the following
adjustments:
(i) Credit to such Capital Account the minimum
gain chargeback that such Partner is deemed to be obligated to restore
pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1)
and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items
described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and
1.704-1(b)(2)(ii)(d)(6) of the Regulations.
The foregoing definition of Adjusted Capital Account deficit is intended to
comply with the provisions of Section 1.704(b)(2)(ii)(d) of the Regulations and
shall be interpreted consistently therewith.
(b) NONRECOURSE DEDUCTIONS has the meaning set forth in
Section 1.704-2(b)(1) of the Regulations.
(c) NONRECOURSE LIABILITY has the meaning set forth in
Section 1.704-2(b)(3) of the Regulations.
(d) PARTNER NONRECOURSE DEBT has the meaning set forth in
Section 1.704-2(b)(4) of the Regulations.
(e) PARTNER NONRECOURSE DEBT MINIMUM GAIN means an
amount, with respect to each Partner Nonrecourse Debt, equal to the
Partnership Minimum Gain that would result if such Partner Nonrecourse
Debt were treated as a Nonrecourse Liability, determined in accordance
with Section 1.704-2(i)(3) of the Regulations.
(f) PARTNER NONRECOURSE DEDUCTIONS has the meaning set forth
in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
(g) PARTNERSHIP MINIMUM GAIN has the meaning set forth in
Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.
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(h) PROFITS AND LOSSES shall mean, for each Fiscal Year, an
amount equal to the Partnership's taxable income or loss for such Fiscal Year,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(i) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in computing Profits or
Losses pursuant to this paragraph 2.24(h) shall be added to such taxable income
or loss;
(ii) Any expenditures of the Partnership described in
Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses pursuant to this paragraph
2.24(h), shall be subtracted from such taxable income or loss;
(iii) Notwithstanding any other provisions of
this definition, any items which are specially allocated pursuant to Section
4.3 and Section 4.4 hereof shall not be taken into account in computing
Profits or Losses.
The amounts of the items of Partnership income, gain, loss, or
deduction available to be specially allocated pursuant to Sections 4.3 and 4.4
shall be determined by applying rules analogous to those set forth in clauses
(i) through (iii) above.
(i) CODE shall mean the Internal Revenue Code of 1986, as now
or hereafter amended.
(ii) REGULATIONS shall mean the federal income tax regulations
promulgated by the United States Treasury Department under the Code as such
Regulations may be amended from time to time. All references herein to a
specific section of the Regulations shall be deemed also to refer to any
corresponding provision of succeeding Regulations.
ARTICLE III
CAPITAL
3.1 CAPITAL CONTRIBUTION OF THE GENERAL PARTNER. The General Partner
shall make a Capital Contribution consisting of the Assets, which shall be due
and payable upon the execution of this Agreement.
3.2 CAPITAL CONTRIBUTION OF THE LIMITED PARTNER. The Limited Partner
shall make a Capital Contribution of $10, which shall be due and payable upon
the execution of this Agreement.
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3.3 CAPITAL ACCOUNT. A capital account shall be maintained for each
Partner throughout the term of the Partnership in accordance with the rules of
Regulation ss.1.704-1(b)(2)(iv) as in effect from time to time, and, to the
extent not inconsistent therewith, to which the following provisions apply:
(a) to each Partner's Capital Account there shall be credited
(i) the amount of money contributed by such Partner to the Partnership
(including liabilities of the Partnership assumed by such Partner as provided in
Regulation ss.1.704-1(b)(2)(iv)(c)); (ii) the fair market value of any property
contributed to the Partnership by such Partner (net of liabilities secured by
such contributed property that the Partnership is considered to assume or take
subject to under Code ss.752); and (iii) such Partner's share of the
Partnership's Profits and items of income and gain that are specially allocated.
(b) To each Partner's Capital Account there shall be debited
(i) the amount of money distributed to such Partner by the Partnership
(including liabilities of such Partner assumed by the Partnership as provided in
Regulation ss.1.704-1(b)(2)(iv)(c)) other than amounts which are in repayment of
debt obligations of the Partnership to such Partner; (ii) the fair market value
of property distributed to such Partner (net of liabilities secured by such
distributed property that such Partner is considered to assume or take subject
to); and (iii) such Partner's share of the Partnership's Losses or items of loss
or deduction that are specifically allocated.
(c) The Capital Account of a transferee Partner shall include
the appropriate portion of the Capital Account of the partner from whom the
transferee Partner's interest was obtained.
(d) In determining the amount of any liability there shall be
taken into account Code Section 752(c) and any other applicable provisions of
the Code and Regulations.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Regulations
Section 1.704-1(b), and shall be interpreted and applied in a manner consistent
with such Regulations. In the event the General Partner shall determine that it
is prudent to modify the manner in which the Capital Accounts, or any debits or
credits thereto (including, without limitation, debits or credits relating to
liabilities which are secured by contributed or distributed property or which
are assumed by the Partnership or any Partner), are computed in order to comply
with such Regulations, the General Partner may make such modification, provided
that it is not likely to have a material effect on the amounts distributable to
any Partner pursuant to Article XII hereof upon the dissolution of the
Partnership. The General Partner also shall (i) make any adjustments that are
necessary or appropriate to maintain equality between the Capital Accounts of
the Partners and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(g) and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b).
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3.4 INTEREST. No Partner shall be entitled to interest on his or her
Capital Contribution or on any Profits retained by the Partnership.
3.5 NO PERSONAL LIABILITY. The General Partner shall have no
personal liability for the repayment of any Capital Contributions of the
Limited Partner.
ARTICLE IV
ALLOCATION OF PROFIT AND LOSS; DISTRIBUTIONS
4.1 PROFITS. After giving effect to the special allocations set
forth in Sections 4.3 and 4.4, Profits for any Fiscal Year shall be
allocated in the following order and priority:
(a) First, to the General Partner to the extent of the excess,
if any, of (i) the cumulative Losses allocated to the General Partner pursuant
to the last sentence of Section 4.2(b) for all prior Fiscal Years, over (ii) the
cumulative Profits allocated to the General Partner pursuant to this Section
4.1(a) for all prior Fiscal Years;
(b) Second, to the Partners, in proportion to and to the
extent of the excess, if any of (i) the cumulative Losses allocated to each
Partner pursuant to Section 4.2(b) for all prior Fiscal Years (after reduction
of such Losses in the case of the general Partner by the cumulative Profits
allocated to the General Partner pursuant to Section 4.1(a) for the current and
all prior Fiscal Years), over (ii) the cumulative Profits allocated to each
Partner pursuant to this Section 4.1(b) for all prior Fiscal Years;
(c) Third, to the Partners, in proportion to and to the extent
of the excess, if any, of (i) the cumulative Losses allocated to each Partner
pursuant to Section 4.2(a)(ii) for all prior Fiscal Years over (ii) the
cumulative Profits allocated to such Partner pursuant to this Section 4.1(c) for
all prior Fiscal Years;
(d) The balance, if any, among the Partners in proportion to
their respective Capital Contributions.
4.2 LOSSES. After giving effect to the special allocations set
forth in Sections 4.3 and 4.4, Losses for any Fiscal Year shall be allocated
as set forth in Section 4.2(a), subject to the limitation in Section 4.2(b).
(a) Losses for any Fiscal Year shall be allocated in the
following order and priority:
(i) First, to the Partners, in proportion to and
to the extent of the excess, if any, of (1) the cumulative Profits allocated to
each such Partner pursuant to Section 4.1(d) for all prior Fiscal Years, over
(2) the cumulative Losses allocated to such Partner pursuant to this Section
4.2(a)(i) for all prior Fiscal Years;
<PAGE>
(ii) The balance, if any, among the Partners in
proportion to their respective Capital Contributions.
(b) The Losses allocated pursuant to Section 4.2(a) shall not
exceed the maximum amount of Losses that can be so allocated without causing any
Partner to have an Adjusted Capital Account Deficit at the end of any Fiscal
Year. In the event some but not all of the Partners would have Adjusted Capital
Account Deficits as a consequence of an allocation of Losses pursuant to Section
4.2(a), the limitation set forth in this Section 4.2(b) shall be applied on a
Partner by Partner basis so as to allocate the maximum permissible Losses to the
Limited Partner under Section 1.704-1(b)(2)(ii)(d) of the Regulations. All
Losses in excess of the limitations set forth in the foregoing sentences of this
Section 4.2(b) shall be allocated to the General Partner.
4.3 SPECIAL ALLOCATIONS. The following special allocations shall be
made in the following order:
(a) MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Section 1.704-2(f) of the Regulations, notwithstanding any other provision of
this Article IV, if there is a net decrease in Partnership Minimum Gain during
any Fiscal Year, each Partner shall be specially allocated items of Partnership
income and gain for such Fiscal Year (an, if necessary, subsequent Fiscal Years)
in an amount equal to such Partner's share of the net decrease in Partnership
Minimum Gain, determined in accordance with Regulations Section 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant thereto.
The items to be so allocated shall be determined in accordance with Sections
1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 4.3(a) is
intended to comply with the minimum gain chargeback requirement in Section
1.704-2(f) of the Regulations and shall be interpreted consistently therewith.
(b) PARTNER MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding any other
provision of this Article IV, if there is a net decrease in Partner Nonrecourse
Debt Minimum Gain attributable to a Partner Nonrecourse Debt during any Fiscal
Year, each Partner who has a share of the Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance with
Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of
Partnership income and gain for such Fiscal Year (and, if necessary, subsequent
Fiscal Years) in an amount equal to such Partner's share of the net decrease in
Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant thereto.
The items to be so allocated shall be determined in accordance with Section
1.704-2(i)(4) and 1704-2(j)(2) of the Regulations. This Section 4.3(b) is
intended to comply with the minimum gain chargeback requirement in Section
1.704-2(i)(4) of the Regulations and shall be interpreted consistently
therewith.
<PAGE>
(c) QUALIFIED INCOME OFFSET. In the event the Limited Partner
unexpectedly receives any adjustments, allocations, or distributions described
in Section 1704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(D)(5), or Section
1.704-1(b)(2)(ii)(D)(6) of the Regulations, items of Partnership income and gain
shall be specially allocated to the Limited Partner in an amount and manner
sufficient to eliminate, to the extent required by the Regulations, the Adjusted
Capital Account Deficit of the Limited Partner as quickly as possible, provided
that an allocation pursuant to this Section 4.3(c) shall be made only if and to
the extent that the Limited Partner would have an Adjusted Capital Account
Deficit after all other allocations provided for in this Article IV have been
tentatively made as if this Section 4.3(c) were not in the Agreement.
(d) GROSS INCOME ALLOCATION. In the event any Partner has a
deficit Capital Account at the end of any Fiscal Year which is in excess of the
sum of the amount such Partner is deemed to be obligated to restore pursuant to
the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the
Regulations, each such Partner shall be specially allocated items of Partnership
income and gain in the amount of such excess as quickly as possible, provided
that an allocation pursuant to this Section 4.3(d) shall be made only if and to
the extent that such Partner would have a deficit Capital Account in excess of
such sum after all other allocations provided for in this Article IV have been
made as if Section 4.3(c) and this Section 4.3(d) were not in the Agreement.
(e) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any
Fiscal Year shall be specially allocated among the Partners in proportion to
their Capital Contributions.
(f) PARTNER NONRECOURSE DEDUCTIONS. Any Partner Nonrecourse
Deductions for any Fiscal Year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i)(l).
(g) ALLOCATIONS WITH REPSECT TO CONTRIBUTED PROPERTY. If any
property contributed to the Partnership by any Partner has, at the time of such
contribution, a fair market value that differs from the contribution Partner's
adjusted tax basis for such property, income, gain, loss, and deductions with
respect to such property shall be allocated so as to take into account such
difference. This provision is intended to comply with Code Section 704(c) and
Regulations Section 1.704-3, and shall be interpreted and applied in a manner
consistent with such Regulations, using the "traditional method" described in
Regulations Section 1.704-3(b), provided, however, that any other method
allowable under applicable Regulations may be used for any contribution or
property as to which there is agreement between the contributing Partner and the
General Partner or, if the contributing Partner and the General Partner are the
same, as to which there is agreement between the General Partner and a majority
of the other Partners.
<PAGE>
4.4 CURATIVE ALLOCATIONS. the allocations set forth in Sections
4.2(b)., 4.3(a), 4.3(b), 4.3(c), 4.3(d), 4.3(e), 4.3(f) and 4.3(g) (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Regulations. It is the intent of the Partners that, to the extent
possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of
Partnership income, gain, loss, or deduction pursuant to this Section 4.4.
Therefore, notwithstanding any other provision of this Article IV (other
than the Regulatory Allocations), the General Partner shall make such
offsetting special allocations of Partnership income, gain, loss, or
deduction in whatever manner it determines appropriate so that, after such
offsetting allocations are made, each Partner's Capital Account balance is,
to the extent possible, equal to the Capital Account balance such Partner
would have had if the Regulatory Allocations were not part of the Agreement
and all Partnership items were allocated pursuant to Sections 4.1 and 4.2(a).
In exercising its discretion under this Section 4.4, the General Partner
shall take into account future Regulatory Allocations under Section 4.3(a)
and 4.3(b) that, although not yet made, are likely to offset other Regulatory
Allocations previously made under Sections 4.3(e) and 4.3(f).
4.5 OTHER ALLOCATION RULES.
(a) Notwithstanding any other provision of this Article IV
other than Section 4.2(b) and Section 4.3, a minimum of one percent (1%) of
Profits and one percent (1%) of Losses for each Fiscal Year shall be allocated
to the General Partner.
(b) For purposes of determining the Profits, Losses, or any
other items allocable to any period, Profits, Losses, and any such other items
shall be determined on a daily, monthly, or other basis, as determined by the
General Partner using any permissible method under Code Section 706 and the
Regulations thereunder.
(c) The Partners are aware of the income tax consequences of
the allocations made by this Article IV and hereby agree to be bound by the
provisions of this Article IV in reporting their shares of Partnership Profits
and Losses for income tax purposes.
(d) Solely for purposes of determining a Partner's
proportionate share of the "excess nonrecourse liabilities" of the Partnership
within the meaning of Section 1.752-3(a)(3) of the Regulations, the Partners'
interests in Partnership profits are in proportion to their Capital
Contributions.
(e) To the extent permitted by Section 1.704-2(h)(3) of the
Regulations, the General Partner shall endeavor to treat distributions of Net
Cash Flow as having been made from the proceeds of a Nonrecourse Liability or a
Partner Nonrecourse Debt only to the extent that such distributions would cause
or increase an Adjusted Capital Account Deficit for the Limited Partner.
4.6 DISTRIBUTION OF NET CASH FLOW. New Cash Flow shall be
distributed to the Partners in the same manner as Profits are allocated under
this Article IV. Such
<PAGE>
distributions, which shall be made at the sole discretion of the General
Partner, shall be made within 90 days of the end of each of the Partnership's
fiscal years to those persons recognized on the books of the Partnership as
Partners or as assignees of their interest in the Partnership on the last day of
the fiscal year just ended.
ARTICLE V
RIGHTS, POWERS AND DUTIES OF GENERAL PARTNER
5.1 MANAGEMENT. The General Partner shall be responsible for the
management of, and for making all decisions regarding, the Partnership business.
5.2 POWERS. Subject to Sections 1.4 and 5.3, the General Partner shall
have all authority, rights and powers generally conferred by law, including the
authority, rights and powers of a general partner in a partnership without
limited partners, and shall have all the authority, rights and powers which it
deems necessary or appropriate to effect the purposes of the Partnership.
5.3 RESTRICTIONS OF THE GENERAL PARTNER AND COVENANTS OF THE GENERAL
PARTNER.
(a) The General Partner shall be subject to all the restrictions and
limitations of a partner in a partnership without limited partners, and in
addition, each of the General Partner on behalf of the Partnership and the
Partnership shall not:
(i) do any act in contravention of the Agreement;
(ii) do any act which would make it impossible to carry on the
ordinary business of the Partnership;
(iii) possess Partnership property, or assign its rights in
specific Partnership property, for other than a Partnership purpose;
(iv) admit a Person as a general partner;
(v) merge or consolidate, the Partnership with or into
any Person; or
(vi) The Partnership shall not incur any financial obligations
or indebtedness, other than the Repurchase Agreement until after the termination
of the Repurchase Agreement
(b) The General Partner shall be subject to all the restrictions and
limitations of a partner in a partnership without limited partners, and in
addition, without the prior consent of the Limited Partner, the General Partner
shall not:
<PAGE>
(i) file on behalf of the Partnership, for voluntary
bankruptcy, insolvency or consent to the institution of a bankruptcy or
insolvency proceedings, seek or consent to the appointment of a receiver,
liquidator, trustee, custodian or similar official for the corporation or its
properties, or make an assignment for the benefit of the Partnership's
creditors.
(c) The General Partner covenants that:
(i) it shall not cause the Partnership to dissolve,
liquidate or sell all or substantially all of its assets;
(ii) it shall not cause the Partnership to commingle
its assets with those of any Partner or any other affiliate of the
Partnership;
(ii) it shall cause the Partnership to maintain
separate partnership records and books of account from those of any partner
or any other affiliate of the Partnership and any resolutions,
agreements and other instruments will be continuously maintained as
official records by the Partnership;
(iii) it shall ensure that the Partnership's
capitalization is adequate in light of its business and purposes and the
Partnership will pay from its own funds and assets all obligations and
indebtedness incurred by it;
(iv) it will not cause the Partnership to hold itself
out as being liable for the liabilities of another party or engage in any
other actions that bear on the separateness of the Partnership;
(v) the Partnership's accounting records will
disclose the effect of the transactions in accordance with statutory
accounting practices and relevant pronouncements and the Partnership shall
maintain separate financial statements;
(vi) it shall cause the Partnership to conduct its own
business in its own name and shall hold itself out as a separate entity;
(vii) it shall cause the Partnership to pay the
salaries of its own employees and maintain a sufficient number of employees
in light of its contemplated business operations;
(viii) it shall conduct all transactions with Affiliates
on commercially reasonable terms; and
(ix) it shall cause the Partnership to correct any
known misunderstanding regarding its separate identity.
5.4 OTHER ACTIVITIES. The General Partner shall not be required to
devote its full time to the management of the Partnership business, but only so
much of its time as
<PAGE>
the General Partner deems necessary or appropriate for the proper management of
such business. The General Partner, and any of its Affiliates, may engage or
possess an interest, independently or with others, in other businesses or
ventures of every nature and description.
5.5 DISTRIBUTIONS. Each Partner shall look solely to the assets of the
Partnership for all Distributions and share of Profits or Losses, and shall have
no recourse therefor (upon dissolution or otherwise) against the General Partner
or the Limited Partner. No Partner shall have any rights to demand or receive
property other than money upon dissolution and termination of the Partnership.
5.6 EXPENSES. The Partnership shall pay directly or reimburse the
General Partner for certain expenses of the Partnership incurred by the General
Partner in the management of the Partnership's business. Such expenses may
include but are not limited to: (a) costs of borrowed money and taxes applicable
to the Partnership; (b) fees and expenses paid to suppliers, tradespeople,
brokers, consultants and other agents; (c) costs of insurance as required in
connection with the conduct of the business of the Partnership; and (d) expenses
incurred by the Partnership for tax return preparation.
5.7 LIMITATION ON LIABILITY; INDEMNIFICATION. None of the General
Partner, its Affiliates, designees or nominees, or any employee, officer or
director of the General Partner (collectively, "Indemnified Parties") shall be
liable, responsible or accountable in damages or otherwise to the Partnership or
to the Limited Partner for any loss in connection with the Partnership business
if such Indemnified Party acts in good faith and is not guilty of fraud or gross
negligence. The Partnership shall indemnify and save harmless each Indemnified
Party against any loss, damage or expense (including attorneys' fees) incurred
by it as a result of any act performed or omitted on behalf of the Partnership
or in furtherance of the Partnership's interests without, however, relieving
such Indemnified Party of liability for bad faith, fraud or gross negligence.
The satisfaction of any indemnification and any saving harmless shall be from
and limited to Partnership assets and the Limited Partner shall not have any
personal liability on account thereof.
ARTICLE VI
RIGHTS AND LIMITATIONS OF LIMITED PARTNERS
6.1 NO ASSESSMENT. The Limited Partner shall not be subject to
assessment or be personally liable for, or bound by, any expenses, liabilities
or obligations of the Partnership beyond such Partner's Capital Contribution and
such Partner's share of undistributed profits of the Partnership.
6.2 NO RIGHT TO MANAGE. The Limited Partner shall not take part in, or
interfere in any manner with, the management, control, conduct or operation of
the Partnership, or have any rights, power or authority to act for or bind the
Partnership. The
<PAGE>
Limited Partner shall not have the right to bring an action for partition
against the Partnership.
6.3 SUBSTITUTION OF LIMITED PARTNER. The Partnership shall not
be dissolved by the admission of a Substitute Limited Partner pursuant to
Section 7.3.
6.4 REMOVAL OF GENERAL PARTNER. Except as permitted by applicable
law, the Limited Partner shall have no right to remove the General Partner.
6.5 DEATH, DISSOLUTION OR DISABILITY OF LIMITED PARTNER. The
Partnership shall not be dissolved by the death, insanity, adjudication of
incompetency, bankruptcy, insolvency, dissolution or withdrawal of any Limited
Partner; by the assignment by any Limited Partner of his or her interest i the
Partnership; or by the admission of a Substitute Limited Partner.
ARTICLE VII
TRANSFER BY LIMITED PARTNER
7.1 COMPLIANCE WITH SECURITIES LAWS. No Partnership interest has been
registered under the Securities Act of 1933, as amended, or under any applicable
state securities laws. The Limited Partner may not transfer (a transfer, for
purposes of this Agreement, shall be deemed to include, but not be limited to,
any sale, transfer, assignment, pledge, creation of a security interest or other
disposition) all or any part of such Partner's interest, except upon compliance
with the applicable federal and state securities laws. The General Partner shall
have no obligation to register the Limited Partner's interest under the
Securities Act of 1933, as amended, or under any applicable state securities
laws, or to make any exemption therefrom available to the Limited Partner.
7.2 TRANSFER. Except for the right to receive allocations of Profits
and Losses and to receive Distributions, the Partnership interest of the Limited
Partner may not be transferred in whole or in part.
7.3 ADMISSION OF SUBSTITUTE LIMITED PARTNER. Except as otherwise
provided by Section 7.5, a transferor of a Partnership interest may give his or
her transferee the right to become a Limited Partner only after the following
terms and conditions have been satisfied:
(a) The General Partner shall have consented in writing
to the substitution, which consent may be arbitrarily withheld;
(b) The transferor and the transferee shall have complied with
such other requirements as the General Partner may reasonably impose, including
the conditions that the transferee:
<PAGE>
(i) adopt and approve in writing all the terms
and provisions of the Agreement then in effect;
(ii) execute, acknowledge and deliver to the General
Partner a power of attorney, the form and content of which are substantially as
described herein; and
(iii) pay such fees as may be reasonable to pay the
costs of the Partnership in effecting such substitution; and
7.4 STATUS OF TRANSFEREE. A transferee of a Partnership interest of the
Limited Partner shall only be entitled to receive that share of Profits, Losses
and Distributions, and the return of Capital Contribution, to which the
transferor would otherwise be entitled with respect to the interest transferred,
and shall have no right to obtain any information on account of the
Partnership's transactions, to inspect the Partnership's books or to vote with
the Limited Partner on any matter. The Partnership shall, however, if a
transferee and transferor jointly advise the General Partner in writing of a
transfer of the Partnership interest, furnish the transferee with pertinent tax
information at the end of each fiscal year of the Partnership.
7.5 ELECTION TO TREAT TRANSFEREE AS A PARTNER. The General Partner may
elect to treat a transferee of a Partnership interest who has not become a
Substitute Limited Partner as a Substitute Limited Partner in the place of the
transferor should the General Partner deem, in its absolute discretion, that
such treatment is in the best interest of the Partnership for any of its
purposes or for any of the purposes of this Agreement.
7.6 DEATH, DISSOLUTION, BANKRUPTCY OR INCOMPETENCY OF A PARTNER. Upon
the death, dissolution, adjudication of bankruptcy, insanity or adjudication of
incompetency of the Limited Partner, such Partner's successors, executors,
administrators or legal representatives shall have all the rights of a Limited
Partner for the purpose of settling or managing such Partner's estate, including
such power as such Partner possessed to substitute a successor as a transferee
of such Partner's interest in the Partnership and to join with such transferee
in making the application to substitute such transferee as a Partner. However,
such successors, executors, administrators or legal representatives will not
have the right to become Substitute Limited Partner in the place of their
predecessor in interest unless the General Partner shall so consent as provided
in Section 7.3(a).
ARTICLE VIII
DISPOSITION OF A GENERAL PARTNER'S INTEREST
8.1 TRANSFER AND WITHDRAWAL. The General Partner may not withdraw,
retire or transfer all or any part of its interest in the Partnership without
the consent of the Limited Partner.
ARTICLE IX
<PAGE>
ACCOUNTING
9.1 BOOKS AND RECORDS. The Partnership's books and records, this
Agreement and all amendments thereto, and all certificates shall be maintained
at the principal office of the Partnership or such other place as the General
Partner may determine and shall be open to inspection and examination by the
Limited Partner or its duly authorized representatives at all reasonable times.
9.2 BOOKS OF ACCOUNT. The General Partner shall, for income tax
purposes, keep and maintain, or cause to be kept and maintained, adequate books
of account of the Partnership. Such books of account shall initially be kept on
the cash method of accounting, but the General Partner shall have the right, but
not the obligation, to adopt the accrual method of accounting.
9.3 FISCAL YEAR. The fiscal year of the Partnership shall be the
calendar year.
9.4 TAX RETURNS. The General Partner, at Partnership expense, shall
prepare or cause income tax returns for the Partnership to be prepared and filed
timely with such authorities as the General Partner shall determine are entitled
thereto.
9.5 REPORTS. The General Partner shall cause to be prepared and
delivered to each Partner, within ninety (90) days after the expiration of each
fiscal year of the Partnership, and at Partnership expense, Partnership
information necessary for the preparation of the Limited Partner's federal
income tax returns.
ARTICLE X
TAX MATTERS PARTNER
10.1 TAX MATTERS PARTNER. The General Partner shall be the tax matters
partner of the Partnership for all federal income tax purposes set forth in the
Code.
10.2 AUTHORITY TO EXTEND PERIOD FOR ASSESSING TAX. The tax matters
partner shall have the authority to extend the period for assessing any tax
imposed on any Partner under the Code by any agreement as provided for under
Section 6226(b)(1)(b) of the Code if the tax matters partner shall determine in
its discretion to do so.
10.3 CHOICE OF FORUM FOR FILING PETITION FOR READJUSTMENT. Any petition
for readjustment may, but is not required to, be filed by the tax matters
partner in accordance with Section 6226(a) of the Code.
10.4 AUTHORITY TO BIND PARTNERS BY SETTLEMENT AGREEMENT. The tax
matters partner may, but shall not be required to, enter into a settlement
agreement in accordance with Section 6224(c)(3) of the Code.
<PAGE>
10.5 NOTICES SENT TO THE INTERNAL REVENUE SERVICE. The tax matters
partner will use its best efforts to furnish to the Internal Revenue Service the
name, address, profits interest and taxpayer identification number of all of the
Partners as set forth on Schedule A hereto. The tax matters partner will use its
best efforts to furnish to the Internal Revenue Service any additional
information it receives from any Partner regarding any change in that Partner's
name, address, profits interest and taxpayer identification number. In no event
will the tax matters partner be liable, responsible or accountable in damages or
otherwise to any Partner for any loss in connection with furnishing the Internal
Revenue Service such name, address, profits interest and taxpayer identification
number if the tax matters partner acts in good faith and is not guilty of fraud
or gross negligence.
10.6 INDEMNIFICATION OF TAX MATTERS PARTNER. The Partnership shall
indemnify and save harmless the tax matters partner against any loss, damage,
cost or expense (including attorneys' fees) incurred by it as a result of any
act performed or omitted on behalf of the Partnership or either Partner or in
furtherance of the Partnership's interests or the interests of either Partner,
in its capacity as tax matters partner, without, however, relieving the tax
matters partner of liability for bad faith, fraud or gross negligence.
10.7 APPROVAL OF TAX MATTERS PARTNER'S DECISIONS. The tax
matters partner may call a meeting of the Partners in accordance with
Section 13.2 at any time in order to discuss any decisions the tax matters
partner may propose to make, notice of which shall be included in the notice
of such meeting. The tax matters partner may require that it will make no
decision and take no action with respect to the determination, assessment
or collection of any tax imposed by the Code on any of the Partners unless
and until such decision has been approved by the Limited Partner.
10.8 PARTICIPATION BY PARTNERS IN INTERNAL REVENUE
SERVICE ADMINISTRATIVE PROCEEDINGS. Nothing contained in this Article X
shall be construed to take away from any Partner any right granted to such
person by the Code to participate in any manner in administrative
proceedings of the Internal Revenue Service.
10.9 WITHHOLDING. The General Partner shall withhold federal income tax
with respect to all partnership income allocable to the Limited Partner, as
required under Section 1446 of the code, and to charge the Limited Partner's
capital account with the amount of all such withholdings.
ARTICLE XI
POWER OF ATTORNEY
11.1 POWER OF ATTORNEY. The Limited Partner hereby irrevocably
constitutes and appoints the General Partner, with full power of substitution,
such Partner's true and lawful attorney-in-fact, in such Partner's name, place
and stead, with full power to act jointly and severally, to make, execute, sign,
acknowledge, swear to, verify, deliver, file, record and publish the following
documents:
<PAGE>
(a) The Certificate;
(b) Any other certificate, instrument or document which the
General Partner may believe is necessary or appropriate to be filed by the
Partnership under the laws of the any state, or by any governmental agency; and
(c) Any certificate, instrument or document which may be
required to effect the continuation of the Partnership, the admission of a
limited partner, or the dissolution and termination of the Partnership, provided
such continuation, admission, dissolution and termination is in accordance with
the terms of this agreement.
11.2 DURATION OF POWER OF ATTORNEY. It is expressly intended by the
Limited Partner that the Power of Attorney granted under Section 11.1 is coupled
with an interest, and it is agreed that such Power of Attorney shall survive (a)
the dissolution, death or incompetency of the Limited Partner and (b) the
assignment by the Limited Partner of the whole or any portion of such Partner's
Partnership interest, except that, where the transferee of the interest of the
Limited Partner has been approved by the General Partner for admission to the
Partnership as a Substitute Limited Partner, the power of attorney shall survive
such transfer for the sole purpose of enabling the General Partner to execute,
acknowledge and file any instrument or document necessary to effect such
substitution.
ARTICLE XII
TERMINATION AND DISSOLUTION
12.1 DISSOLUTION. Subject to Section 5.3, the Partnership
shall be dissolved upon the earliest to occur of the following:
(a) The occurrence of any Event of Dissolution;
(b) The expiration of the term of the Partnership
pursuant to Section 1.5;
(c) The unanimous vote of the Partners;
(d) The sale of substantially all of the Assets.
12.2 TERMINATION. Upon dissolution, the Partnership shall be wound up
and terminated unless, in the case of dissolution under Section 12.1(a), within
90 days thereafter the Limited Partner shall elect to admit one or more new
General Partners and to continue the business of the Partnership. Expenses
incurred in the reformation or attempted reformation of the Partnership shall be
deemed expenses of the Partnership.
<PAGE>
12.3 DISTRIBUTION OF ASSETS. Upon a dissolution of the Partnership,
unless it is continued pursuant to Section 12.2, the General Partner (or, if
there is no General Partner then remaining, such other Person(s) designated by
the Limited Partner shall take full account of the Partnership assets and
liabilities, shall liquidate the assets as promptly as is consistent with
obtaining the fair value thereof, and shall apply and distribute the proceeds
therefrom in the following order:
(a) To the payment of the expenses of liquidation and the
debts and liabilities of the Partnership (other than any loans or advances that
may have been made by the Partners to the Partnership);
(b) To the setting up of any reserves which the General
Partner may deem necessary or appropriate for any anticipated obligations or
contingencies of the Partnership or of the General Partner arising out of or in
connection with the operation or business of the Partnership. Such reserves may
be paid over by the General Partner to an escrow agent or trustee selected by
the General Partner to be disbursed by such escrow agent or trustee in payment
of any of the aforementioned obligations or contingencies and, if any balance
remains at the expiration of such period as the General Partner shall deem
advisable, to be distributed by such escrow agent or trustee in the manner
hereinafter provided;
(c) To the repayment of any loans or advances which may have
been made by any of the Partners to the Partnership, but if the amount available
for such repayment shall be insufficient, then proportionately on account
thereof; and
(d) To the Partners in accordance with the balances in their
respective capital accounts.
If at the time of liquidation the General Partner shall determine that an
immediate sale of some or all of the Assets would cause undue loss to the
Partners, the General Partner may, in order to avoid such loss, defer
liquidation.
ARTICLE XIII
MISCELLANEOUS
13.1 NOTICES. Notices to the General Partner shall be sent to the
principal office of the Partnership. Notices to the Limited Partner shall be
sent to its address as set forth on Exhibit A attached hereto. Any Partner may
require notices to be sent to a different address by giving notice to the other
Partners in accordance with this Section 13.1. Any notice or other communication
required or permitted hereunder shall be in writing, and shall be deemed to have
been given with receipt confirmed if and when delivered personally, given by
prepaid telegram or mailed first class, postage prepaid, to such Partners at
such address.
<PAGE>
13.2 MEETINGS. a meeting of the Partners may be called by the
General Partner at any time, and shall be called by the General Partner at
the written request of the Limited Partner. Written notice stating the place
and time of the meeting, and the purpose thereof shall be given by the
General Partner to the Limited Partner at least ten (10) days before the
meeting.
13.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes any prior agreement or understanding between
them respecting the subject matter of this Agreement.
13.4 HEADINGS. All article and section headings in this Agreement are
for convenience of reference only and are not intended to qualify the meaning of
any article or section.
13.5 CERTAIN PROVISIONS. If the operation of any provision of this
Agreement would contravene the provisions of the Delaware Revised Uniform
Limited Partnership Act, or would result in the imposition of general liability
on the Limited Partner, such provision shall be void and ineffectual.
13.6 SAVING CLAUSE. If any provision of this Agreement, or the
application of such provision to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to Persons or circumstances other than those as to which it is held invalid,
shall not be affect thereby.
13.7 BINDING AGREEMENT. This Agreement shall be binding upon, and inure
to the benefit of, the parties hereto, their successors, heirs, legatees,
devisees, assigns, legal representatives, executors and administrators, except
as otherwise provided herein.
13.8 COUNTERPARTS. This Agreement may be executed in
several counterparts, and all so executed shall constitute one agreement,
binding on all the parties hereto, even though all parties are not signatory
to the original or the same counterpart. Any counterpart of either
this Agreement or the Certificate shall for all purposes be deemed a fully
executed instrument.
13.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
General Partner: CRIIMI MAE INC.
By: /s/ NANCY E. CURRIER
--------------------------
Name: Nancy E. Currier
<PAGE>
Title: Assistant Vice President
Limited Partner: CRIIMI MAE SERVICES LIMITED
PARTNERSHIP
By: CRIIMI MAE Services, Inc.
its general partner
By: /s/ NANCY E. CURRIER
------------------------------
Name: Nancy E. Currier
Title: Assistant Vice President
<PAGE>
SCHEDULE A
INFORMATION REGARDING PARTNERS
General partner: CRIIMI MAE Inc.
11200 Rockville Pike
Rockville, Maryland 20852
99% ownership interest
Taxpayer identification #:
Limited partner: CRIIMI MAE Services Limited Partnership
11200 Rockville Pike
Rockville, Maryland 20852
1% ownership interest
Taxpayer identification #:
<PAGE>
SCHEDULE B
SCHEDULE OF ASSETS
1. CRIIMI MAE CMBS Corp. Commercial Mortgage Loan Trust Certificates, Series
1998-1, Class D Certificates, having an initial principal balance of
$29,749,535.
2. CRIIMI MAE CMBS Corp. Commercial Mortgage Loan Trust Certificates, Series
1998-1, Class E Certificates, having an initial principal balance
of$16,114,331.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL
REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 24,180
<SECURITIES> 1,762,281
<RECEIVABLES> 109,512
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,437,918
<CURRENT-LIABILITIES> 44,319
<BONDS> 2,085,722
0
18
<COMMON> 529
<OTHER-SE> 307,330
<TOTAL-LIABILITY-AND-EQUITY> 2,437,918
<SALES> 0
<TOTAL-REVENUES> 244,201
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 35,145
<LOSS-PROVISION> 30,378
<INTEREST-EXPENSE> 136,268
<INCOME-PRETAX> 42,369
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,369
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.74
</TABLE>
<PAGE>
Exhibit 99(d)
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MARYLAND
Greenbelt Division
- ------------------------------------------)
)
In re ) Chapter 11
)
CRIIMI MAE Inc., et al., ) Case Nos. 98-23115 through
) 98-23117
Debtors. ) (Jointly Administered)
- ------------------------------------------)
MOTION FOR AN ORDER EXTENDING THE
DEBTORS' EXCLUSIVE PERIODS TO FILE A PLAN OF REORGANIZATION
AND SOLICIT ACCEPTANCES THEREOF PURSUANT TO 11 U.S.C. ss. 1121(d)
CRIIMI MAE Inc. ("CMI"), CRIIMI MAE Management, Inc. ("Management") and
CRIIMI MAE Holdings II, L.P. ("Holdings"), as debtors and debtors in possession
(collectively, the "Debtors," individually "Debtor"), in the above-captioned
bankruptcy cases (collectively, the "Cases," individually "Case"), hereby move
this Court for an order extending the periods within which the Debtors have the
exclusive right to file plans of reorganization and solicit acceptances thereof
(collectively the "Exclusive Periods," individually an "Exclusive Period")
pursuant to Section 1121(d) of Title 11 of the United States Code (the
"Bankruptcy Code") for a period of six months. Specifically, the Debtors seek to
extend the Exclusive Periods for filing plans of reorganization from the current
deadline of February 2, 1999, through and including August 2, 1999, and to
extend the Exclusive Periods for soliciting acceptance of plans from April 3,
1999, through and including October 3, 1999. In support of this Motion, the
Debtors respectfully represent as follows:
<PAGE>
INTRODUCTION
1. The Debtors seek an extension of the Exclusivity Periods for a period of
six months. Such extension is warranted under Bankruptcy Code Section 1121(d)
because the Cases are complex, large and highly significant to the multi-billion
dollar commercial mortgage-backed securities ("CMBS") market.
2. CMI is a fully integrated commercial mortgage company structured as a
self-managed real estate investment trust ("REIT"). CMI is one of the largest
owners of subordinated CMBS, which in turn are highly complex financial
instruments. As a publicly traded company, a mortgage company and a REIT, CMI
has a complex tax structure and is subject to numerous federal regulations and
filing requirements.
3. The Cases were filed on an emergency basis in response to a significant
collateral call from one of the Debtor's lenders and without the benefit of
prepetition planning. Moreover, within the first four months of bankruptcy, the
Debtors have been forced to litigate with several of their largest creditors who
tried to foreclose on hundreds of millions of dollars of assets. If permitted,
such foreclosure would have resulted in a tremendous windfall for these
creditors to the detriment of the estate, other creditors and equity holders. In
short, because of the complexity of these Cases and the immediate requirement to
protect their assets through litigation and negotiations, the Debtors have not
had an adequate opportunity to formulate and file a plan of reorganization
within the original 120-day exclusive period.
4. The Debtors are in compliance with all bankruptcy and federal law
requirements, have held extensive meetings with their Creditors and Equity
Committees and their secured creditors, and have taken significant steps forward
in the process of reorganization. The Debtors streamlined their operations and
increased cash flow by: (i) suspending their loan origination
2
<PAGE>
program, (ii) suspending the purchase of subordinated CMBS, (iii) terminating
approximately half of their employees, and (iv) rejecting leases for office
space in Houston, Boston, Memphis, San Francisco and ancillary space in
Rockville, Maryland. The Debtors have significant positive postpetition cash
flow and substantial equity in their assets. The Debtors have paid postpetition
creditors on a timely basis and have obtained Court authority to institute a
program to retain the majority of their key employees and expect to soon have a
retention plan in place with respect to senior management. In addition to both
commencing and defending various actions to protect valuable assets of these
estates, the Debtors have already spent substantial time attempting to resolve
disputes with their creditors. To date, three significant settlements have been
negotiated and presented to this Court for approval. While all of this activity
has proceeded, the Debtors, together with their professional advisors, have also
begun to formulate a bankruptcy exit strategy involving new financing,
restructuring and/or raising additional capital, all leading toward filing a
consensual Chapter 11 plan to complete the Debtors' reorganization.
5. Because of the complexities of these Cases and the emergency nature of
the bankruptcy filings, the reorganization process is still in its early stages
and the Debtors are not in a position to file a plan of reorganization within
the current Exclusive Periods. In fact, an extension of less than six months is
unlikely to provide the Debtors with the time necessary to formulate and fund a
plan of reorganization, and could actually undermine the reorganization process
at the expense of the estate. Denial of the Motion would undermine the Debtors'
ability to negotiate a consensual plan of reorganization and potentially create
an opportunity for the alleged secured creditors that control the CMBS market to
liquidate the Debtors' valuable assets for their own financial gain and at the
expense of unsecured creditors and equity holders. In contrast,
3
<PAGE>
granting the extension requested will not adversely affect creditors who are
adequately protected. Therefore, the Motion should be granted.
JURISDICTION AND VENUE
6. This Court has jurisdiction over this Motion pursuant to 28 U.S.C.
ss.ss. 157 and 1334. Venue is proper pursuant to 28 U.S.C. ss.ss. 1408 and 1409.
The statutory predicate for the relief requested herein is Section 1121 (d) of
the Bankruptcy Code.
BACKGROUND
A. The Debtors
7. CMI is a self-administered REIT organized under the laws of the State
of Maryland. Prior to the petition date, CMI's primary activities included:
(i) acquiring non-investment grade subordinated securities backed by pools of
mortgage loans on multifamily, retail and other commercial real estate and by
pools of mortgage-backed securities, backed, in turn, by loans on such
properties ("Subordinated CMBS"), (ii) originating and underwriting mortgage
loans, (iii) securitizing pools of mortgage loans and pools of CMBS, and (iv)
through an affiliate, performing servicing functions with respect to CMI's
mortgage loans and the mortgage loans underlying the Subordinated CMBS.(1)
CMI's focus on acquiring Subordinated CMBS, together with its expertise in
underwriting, servicing and originating commercial mortgage loans and CMBS,
has enabled it to take advantage of the rapid growth in the securitization of
debt backed by commercial mortgage loans. Notwithstanding the bankruptcy, CMI
is one of the largest owners of Subordinated CMBS.
- ----------------
(1) Since the Petition Date, the Debtors have suspended their loan origination
program and their purchase of CMBS.
4
<PAGE>
8. CMI owns 100 percent of several financing and operating subsidiaries,
and has various interests in other entities that either own or service
mortgage assets.(2) CMI is the sole shareholder of Management, whose
principal functions are to manage CMI's operations and employ personnel who
perform necessary administrative tasks for CMI. CMI is also the sole general
partner of Holdings, which owns a series of CMBS. Any net cash earned by
Holdings flows directly to CMI. The only limited partner of Holdings is
CRIIMI MAE Services Limited Partnership ("CMSLP"), a non-debtor entity.
9. CMI is a publicly traded corporation, the common shares of which are
currently traded on the New York Stock Exchange under the symbol CMM and the
cumulative preferred B shares of which are traded under the symbol CMM-PrB.
Neither Management nor Holdings are publicly traded companies. As a publicly
traded company, CMI must comply with strict federal SEC regulations, including
filing quarterly Form 10-Qs and annual Form 10-Ks, and announcing all
significant actions it seeks to take through press releases and other
disclosures.
10. CMI is a REIT, and therefore is also subject to several complex tax
requirements with respect to its asset composition and the source of its income
generation. For example, CMI must derive 95 percent of its gross income from
certain passive sources (including interest on mortgages) and must derive at
least 75 percent of its gross income from real estate assets (including interest
on mortgages). CMI must also maintain 75 percent of the value of its assets from
real estate (including mortgages on real property). In addition, CMI must
distribute at least 95 percent of its REIT taxable income to its shareholders
each year to maintain its status as a REIT.
- ---------------
(2) An organizational chart is attached hereto as Exhibit 1.
5
<PAGE>
B. THE EVENTS THAT PRECIPITATED THE BANKRUPTCY FILINGS
11. Prior to the Petition Date, CMI financed a substantial portion of its
Subordinated CMBS acquisitions with short-term variable rate borrowings secured
by the company's Subordinated CMBS. The agreements governing these financing
arrangements typically provided for CMI to maintain collateral at all times with
a market value not less than a specified percentage of the outstanding
indebtedness. The agreements further provided that the lenders could require CMI
to provide additional collateral, if the value of the existing collateral fell
below this threshold amount.
12. As a result of the turmoil during August and September 1998 in the
capital markets, the spreads between CMBS rates and the rates on United States
Treasury securities with comparable maturities began to widen substantially and
rapidly. Due primarily to widening CMBS spreads, the market value of the
Subordinated CMBS securing CMI's short-term financings declined. CMI's
short-term secured creditors perceived that the value of the Subordinated CMBS
securing their facilities with CMI had fallen below the minimum
collateral-to-loan-value ratio described above and, consequently, made demand
upon CMI to provide additional collateral with sufficient value to cure the
perceived deficiency. In August and September 1998, CMI received and met
collateral calls from certain of its alleged secured creditors. At the same
time, CMI was in negotiations with various third parties in an effort to obtain
additional debt and equity financing that would provide CMI with greater
liquidity.
13. On Friday afternoon, October 2, 1998, CMI was in the closing
negotiations of a refinancing with one of its unsecured creditors that would
have provided CMI with additional borrowings, when it received a significant
collateral call from another creditor. The basis for this collateral call was,
in CMI's view, unreasonable. After giving consideration to, among other
6
<PAGE>
things, this collateral call and CMI's concern that its failure to satisfy the
collateral call would cause it to be in default under a substantial portion of
its financing arrangements, CMI reluctantly concluded on Sunday, October 4,
1998, that it was in the best interests of creditors, equity holders and other
parties in interest to seek Chapter 11 protection.
C. THE BANKRUPTCY
14. On the morning of Monday, October 5, 1998 (the "Petition Date"), CMI
and the other Debtors filed petitions under Chapter 11. Since the Petition Date,
the Debtors have continued to operate their businesses and manage their
properties as debtors in possession pursuant to Bankruptcy Code Sections 1107
and 1108.
15. CMI and Holdings are represented in the Cases and related bankruptcy
proceedings by two law firms working as co-counsel, Akin, Gump, Strauss, Hauer &
Feld, L.L.P. ("Akin Gump") and Venable, Baetjer and Howard, LLP ("Venable"). A
third law firm, Shulman, Rogers, Gandal, Pordy & Ecker, P.A. ("Shulman Rogers")
has been retained to represent Management. The Debtors have also retained Arthur
Andersen, L.L.P. ("Arthur Andersen") as accounting, tax and business advisors,
and CMI has retained Wasserstein, Perella & Co. ("Wasserstein") to assist and
advise it in formulating and implementing a plan of reorganization.
16. On October 16, 1998, the Office of the United States Trustee appointed
an Official Committee of Unsecured Creditors in the CMI Case (the "CMI
Committee"). On October 26, 1998, the United States Trustee appointed an
Official Committee of Unsecured Creditors in the Management Case (the
"Management Committee"). On November 24, 1998, the Office of the United States
Trustee appointed an Official Committee of Equity Security Holders in the CMI
Case (the "Equity Committee"). The CMI Committee, the Equity Committee and the
7
<PAGE>
Management Committee are referred to collectively as the "Committees." No
committee has been formed in the Holdings Case.
17. Each Committee has retained counsel: Arnold and Porter for the CMI
Committee; Covington & Burling for the Equity Committee; and Whiteford, Taylor &
Preston for the Management Committee. The CMI Committee has also retained The
Blackstone Group, LP, as financial advisors and PricewaterhouseCoopers, LLP, as
accountants and reorganization consultants. The Equity Committee has sought to
retain Ernst & Young as financial advisors and the Management Committee has
sought to retain Reznick, Fedder & Silverman as accountants and financial
advisors, which applications are pending before the Court.
18. On November 30, 1998, the Debtors filed their schedules, lists and
statements of financial affairs analyzing their assets and liabilities as of the
Petition Date. CMI scheduled assets of $1,600,652,579.05 and liabilities of
$1,134,484,205.34; Management scheduled assets of $25,242,341.42 and liabilities
of $6,261,890.24; and Holdings scheduled assets of $44,988,315.01 and
liabilities of $39,554,251.00.
19. During these first few months in bankruptcy the Debtors have filed
numerous pleadings in order to preserve and protect the assets of the estates
and have taken decisive action to streamline their operations. For example, to
retain key personnel the Debtors filed a Motion for an Order Authorizing (A)
Assumption of Certain Executory Employment Agreements, (B) Entry into Employment
Agreement, and (C) Implementation of Employment Retention Program NUNC PRO TUNC
to October 5, 1998 (the "Employee Retention Motion"), on November 25, 1998.
Because of the confidential nature of the information contained in the Employee
Retention Motion, the Debtors filed a Motion to Limit Notice and for Authority
to File under Seal the Motion for Order Authorizing Assumption of Certain
Executory Employment Agreements and
8
<PAGE>
Implementation of Employee Retention Program (the "IN CAMERA Relief Motion"), on
October 28, 1998.
20. The Court granted the IN CAMERA Relief Motion on November 24, 1998, and
has approved the retention program as to all employees except the top level of
senior management. The Employee Retention Motion regarding the top level of
senior management was heard on January 7 and 8, 1999, and that hearing will
continue on January 29, 1999.
21. The Debtors have also taken steps to reduce costs and streamline
operations. Among their most significant actions is the suspension of their loan
origination program and the purchase of subordinated CMBS, the related
termination of approximately 90 employees and the rejection of leases for five
offices located in Boston, Massachusetts, Houston, Texas, Memphis, Tennessee,
San Francisco, California and ancillary space in Rockville, Maryland. These
steps are expected to result in a substantial savings over the next two years.
22. Closing of these offices has also permitted the Debtors to consolidate
operations in their Rockville, Maryland headquarters. To minimize the potential
financial exposure that would arise from premature assumption of the Rockville
lease, CMI filed a motion seeking extension of the period to assume or reject
the lease until confirmation of a plan of reorganization. On November 3, 1998,
the Court entered an order granting the requested extension, subject to
limitation upon further order of the Court.
23. The Debtors have also spent a significant portion of the initial period
in bankruptcy involved in prosecuting and defending litigation aimed at
preserving and protecting hundreds of millions of dollars in assets from the
claims of alleged secured creditors who have a significant role in the CMBS
market: Citicorp Securities, Inc. ("Citicorp"), Merrill Lynch Mortgage Capital
Inc. ("Merrill Lynch") and Morgan Stanley & Co. International Limited
9
<PAGE>
("Morgan Stanley"). Except with respect to Citicorp, the Debtors have made
progress to date in resolving disputes and avoiding time-consuming, expensive
litigation.
24. The Debtors' litigation with Merrill Lynch included a motion by Merrill
Lynch for relief from the automatic stay, filed on October 16, 1998, and a
separate adversary proceeding by CMI for turnover of certain earnings held by
Merrill Lynch, filed on October 21, 1998. On December 4, 1998, after extensive
negotiations, CMI and Merrill Lynch entered into a consent order providing for
the dismissal of the contested matter and adversary proceeding without prejudice
(the "Merrill Stipulation"). The Merrill Stipulation benefited the Debtors and
their estates by eliminating time-consuming, costly and burdensome litigation,
while also preserving CMI's very valuable portfolio of certain CMBS pledged as
collateral to Merrill Lynch and providing for a split of the net income
generated from these CMBS that has resulted in substantial income flowing to
CMI.
25. On October 20, 1998, CMI filed an adversary proceeding against Morgan
Stanley seeking turnover of certain assets and damages. After significant
negotiations, on or about January 12, 1999, CMI entered into an agreement,
subject to Bankruptcy Court approval, with Morgan Stanley that provided for an
agreed sale procedure for certain bonds, the payment of a portion of the sale
proceeds to CMI, and the postponement of the litigation with Morgan Stanley for
several months while the parties seek a permanent resolution of their disputes.
The Court approved this agreement with Morgan Stanley on January 26, 1999.
26. On October 15, 1998, the Debtors filed an emergency motion to enforce
the automatic stay against Citicorp and the indenture trustee Norwest Bank
Minnesota, N.A. ("Norwest"). Citicorp responded on October 23, 1998, by filing a
separate motion to recover its securities under Bankruptcy Code Section 555 and
for a hearing thereon on an expedited basis.
10
<PAGE>
Contemporaneously, Norwest brought an interpleader adversary proceeding against
Citicorp and CMI regarding funds held in Norwest's possession. On November 2,
1998, CMI filed a separate adversary proceeding against Citicorp for declaratory
relief on the issue of the applicability of Section 555 and for injunctive
relief (the "Citicorp Adversary Proceeding"). The Citicorp Adversary Proceeding
is currently in the discovery stage, with a week long trial scheduled to begin
on March 8, 1999.
27. During the months since the Cases were filed, the Debtors have devoted
substantial efforts to resolving matters with creditors without resorting to
litigation. Shortly after the Petition Date the Debtors commenced negotiations
with German American Capital Corporation ("GACC") regarding the use of what GACC
alleges to be its cash collateral. CMI is indebted to GACC in the amount of
approximately $178 million that is allegedly secured by a series of CMBS. The
CMBS generate income of approximately $1.8 million per month. On December 4,
1998, the Debtors and GACC entered into a Stipulation and Agreed Order
Authorizing Use of Cash Collateral that was approved by the Court on or about
December 17, 1998 (the "Original Stipulation"). The Original Stipulation
provided for adequate protection payments to GACC at the non-default contract
rate, allowed GACC to hedge its loan to protect against interest rate swings,
capped the hedge cost at $3 million a year, and gave CMI 75 percent of the net
income after interest and hedge costs. Following approval of the Merrill
Stipulation, in late December 1998, the Debtors and GACC entered into a revised
Stipulation and Agreed Order Authorizing Use of Cash Collateral, dated December
29, 1998, which is awaiting Court approval. The terms of the revised stipulation
are essentially the same except that the Debtors (but not the CMI Committee)
acknowledge that GACC has a valid perfected security interest in the CMBS, and
the sharing of the cash collateral after payment of interest and hedge costs, if
any, is on a
11
<PAGE>
50/50 basis. The CMI Committee and the Equity Committee agreed to the terms of
the revised stipulation.
28. The Merrill Lynch and GACC settlements are significant because Merrill
Lynch and GACC have approximately $450 million in floating-rate loans with CMI,
which represent approximately 48 percent of the company's entire floating-rate
debt.
29. Since the Petition Date, the Debtors remain in compliance with
bankruptcy and federal filing requirements. The Debtors have paid their
postpetition creditors in a timely manner and have continued to operate
profitably. In fact, the Debtors have increased their net cash surplus. The
Debtors have also devoted substantial time and effort to meeting with and
providing extensive information to the Committees and their professionals in an
attempt to reach a consensual resolution of issues.
30. The Debtors have also worked diligently on the complex issue of
formulating a bankruptcy exit strategy, which will include new financing,
restructuring and/or raising additional capital. The Debtors and their
professionals have spent considerable time developing a framework for
structuring and implementing a plan of reorganization. Numerous discussions and
meetings have been held with the Committees and their professionals to pave the
way toward developing a consensual plan of reorganization. The process has begun
but because of the multi-dimensional nature of the issues involved, additional
time is required to complete the plan process.
RELIEF REQUESTED
31. By this Motion, the Debtors seek entry of an order extending the
Exclusive Period for filing plans of reorganization from the current deadline of
February 2, 1999, through and
12
<PAGE>
including August 2, 1999, and the Exclusive Periods for soliciting acceptance of
plans from April 3, 1999, through and including October 3, 1999 respectively.
BASIS FOR RELIEF
32. Bankruptcy Code Section 1121(d) empowers the Court, upon the request of
a party in interest and after notice and hearing, to extend "for cause shown," a
debtor's exclusive right to file a plan of reorganization and solicit
acceptances thereof. 11 U.S.C. ss. 1121(d). The Bankruptcy Code does not define
"cause" for the purposes of Section 1121(d). Rather, courts have referred to
this cause provision as a general standard that allows "maximum flexibility to
suit various types of reorganization proceedings." IN RE AMKO PLASTICS, INC.,
197 B.R. 74, 77 (Bankr. S.D. Ohio 1996) (citing IN RE PUBLIC SERV. CO. OF NEW
HAMPSHIRE, 88 B.R. 521, 534 (Bankr. D. N.H. 1988)).
33. The legislative history of Bankruptcy Code Section 1121(d) indicates
that the determination of whether sufficient cause exists to grant an extension
is committed to the sound discretion of the bankruptcy court based upon an
evaluation of the facts and circumstances of the case. H.R. Rep. No. 595, 95th
Cong., 1st Sess. 232 (1977), CITED IN AMKO PLASTICS, 197 B.R. at 77. Since
enactment of the Bankruptcy Code, courts have relied on many factors to
determine whether cause exists to extend a debtor's exclusive period under
Section 1121(d). A distilled list of the factors that have been relied upon by
courts includes:
(i) the size and complexity of the case;
(ii) the necessity for sufficient time to permit the debtor to negotiate a
plan of reorganization and prepare adequate information;
(iii) the existence of good faith progress toward reorganization;
(iv) the fact that the debtor is paying its bills as they become due;
(v) whether the debtor has demonstrated reasonable prospects for filing a
viable plan;
(vi) whether the debtor has made progress in negotiations with its
creditors;
(vii) the amount of time which has elapsed in the case;
13
<PAGE>
(viii) whether the debtor is seeking an extension of exclusivity in order
to pressure creditors to submit to the debtor's reorganization
demands; and
(ix) whether an unresolved contingency exists.
IN RE DOW CORNING CORP., 208 B.R. 661, 664-65 (Bankr. E.D. Mich. 1997); IN RE
EXPRESS ONE INT'L, INC., 194 B.R. 98, 100 (Bankr. E.D. Tex. 1996); SEE ALSO IN
RE MCLEAN INDUS., INC., 87 B.R. 830, 833-34 (Bankr. S.D.N.Y. 1987); IN RE TEXACO
INC., 76 B.R. 322, 326-27 (Bankr. S.D.N.Y. 1987).
34. When considering whether to extend the exclusivity period courts should
not be constricted to counting factors. DOW CORNING, 208 B.R. at 669. Sometimes
certain factors are more relevant, important or persuasive than others and
sometimes one or more factors determine the particular result. ID. Nevertheless,
the factors stated above, and others, favor granting the Debtors' Motion.
A. THE COMPLEXITY AND SIZE OF THESE CASES ALONE CONSTITUTE SUFFICIENT CAUSE
FOR EXTENSION OF THE EXCLUSIVE PERIODS.
35. The most common basis for granting extension of the Section 1121(b)
exclusive period is the complexity and size of the Chapter 11 case. SEE, E.G.,
TEXACO, 76 B.R. at 326 ("The large size of the debtor and the consequent
difficulty in formulating a plan of reorganization for a huge debtor with a
complex financial structure are important factors which generally constitute
cause for extending the exclusivity periods.") (citations omitted); EXPRESS ONE,
194 B.R. at 100 ("The traditional ground for cause is the large size of the
debtor and the concomitant difficulty in formulating a plan of reorganization.")
(citing IN RE PINE TRUST, INC., 67 B.R. 432, 435 (Bankr. E.D. Pa. 1986)). In the
initial stages of reorganization, the Section 1121 exclusivity period may be
extended based solely on the fact that the case is complex and large. PUBLIC
SERVICE CO. OF NEW HAMPSHIRE, 88 B.R. at 537; SEE ALSO TEXACO, 76 B.R. at 327.
Such reasoning is supported by Congressional intent. The legislative history of
Section 1121 recognizes that the sheer size of a
14
<PAGE>
Chapter 11 case might, in appropriate circumstances, constitute cause to extend
the exclusive periods. It provides, in part:
Proposed chapter 11 recognizes the need for the debtor to remain
in control to some degree, or else debtors will avoid the
reorganization provisions in the bill until it would be too late
for them to be an effective remedy. . . . The bill gives the
debtor an exclusive right to propose a plan for 120 days. In most
cases, 120 days will give the debtor adequate time to negotiate a
settlement without unduly delaying creditors. The court is given
power, though, to increase or reduce the 120-day period depending
on the circumstances of the case. FOR EXAMPLE, IF AN UNUSUALLY
LARGE COMPANY WERE TO SEEK REORGANIZATION UNDER CHAPTER 11, THE
COURT WOULD PROBABLY NEED TO EXTEND THE TIME IN ORDER TO ALLOW
THE DEBTOR TO REACH AN AGREEMENT.
H. Rep. 95-595, 95th Cong., 2d Sess. 221-222 (1978) (emphasis added), CITED IN
PUBLIC SERVICE CO. OF NEW HAMPSHIRE, 88 B.R. at 537.
36. Extensions of the original 120-day exclusive period are routinely
granted in complex Chapter 11 cases in order to enable the debtor to have a
meaningful opportunity to negotiate, draft and propose a plan of reorganization.
SEE TEXACO, 76 B.R. at 326-27; IN RE UNITED PRESS INT'L, INC., 60 B.R. 265, 270
(Bankr. D.D.C. 1986). In MCLEAN, 87 B.R. at 833, the court recognized that even
if a case involves a relatively small number of creditors, exclusivity should be
extended if the case is complex and requires considerable study before a plan of
reorganization can be proposed and intelligently communicated to creditors for
acceptance.
37. These Cases are complex and large. Collectively, as of the Petition
Date, the Debtors have scheduled assets of more than $1.67 billion and
liabilities of $1.18 billion. The United States Trustee has appointed two
creditors committees and an equity committee, which Committees have retained
their own counsel and professionals. The Debtors' business involves the CMBS
market, a complex market that experienced significant turmoil last year. As
noted
15
<PAGE>
above, CMI has additional requirements and complexities because it is a publicly
traded company and a REIT.
38. In fact, the complex business structure of the Debtors and the CMBS
market further justifies extension of the Exclusive Periods. SEE EXPRESS ONE,
194 B.R. at 100 (in approving the debtors' third extension, the court noted that
debtors' status as an airline, regulated by special federal rules, "adds to the
complexity of this case."). Moreover, the fact that the Debtors have scheduled
less than 100 creditors does not diminish the size or complexity of the Cases,
or otherwise reduce the need for the requested extensions of the Exclusive
Periods. "The Court does not believe it is necessary to be a Texaco,
Johns-Manville Forest Products, or Ames Department Stores to be consider large
and complex." ID. In MCLEAN, 87 B.R. at 833, the court found that the case was
sufficiently complex to warrant extension of the exclusivity period even though
the debtors had less than 10 employees and less than 20 creditors. In IN RE
CRESCENT MFG. CO., 122 B.R. 979, 982 (Bankr. N.D. Ohio 1990), the court, in
granting an extension of the Bankruptcy Code Section 1121 exclusivity period,
found that claims of approximately $13 million made the case "large."
39. In addition to the complexity of the Cases, the Debtors' ability to
formulate a plan was hindered by the emergency nature of the filings. SEE
MCLEAN, 87 B.R. 834 ("[w]here the exclusivity period is insufficient because of
extraneous factors, exclusivity should be continued.") (citations omitted). In
response to a significant collateral call from one of their creditors, the
Debtors literally had hours to prepare for bankruptcy, rather than weeks or
months which is the norm in large Chapter 11 cases. As a result, the Debtors'
professionals have spent significant time during the past few months addressing
issues and completing tasks often dealt with during the prepetition period.
16
<PAGE>
40. The emergency nature in which the Cases were filed also affected the
Debtors' ability to file their schedules, statement of financial affairs, and
lists. This in turn delayed the Section 341 meeting of creditors until December
7, 1998. In order to file their schedules, statements of financial affairs and
lists, the Debtors had to close their books and records as of the Petition Date
on a stand-alone basis for each Debtor. The Debtors were required to close the
third quarter books and records, roll them forward five days to the Petition
Date, and prepare separate financial statements and schedules. The task was
complicated by the fact that the Debtors and certain of their non-Debtor
affiliates had previously kept such financial information in a consolidated
format.
41. In short, the complexity, size and emergency nature of these Cases
warrant extension of the Exclusive Periods.
B. THE DEBTORS ARE PROGRESSING TOWARD REORGANIZATION, ARE COMPLYING WITH ALL
BANKRUPTCY REQUIREMENTS, AND HAVE FORMULATED AN EXIT STRATEGY THAT REQUIRES
A SIX-MONTH EXTENSION OF THE EXCLUSIVE PERIODS.
42. Apart from the size and complexity of the Cases, the Debtors' good
faith progress toward reorganization and the formulation of a plan, or plans, of
reorganization also constitutes cause for extending exclusivity. SEE AMKO
PLASTICS, 197 B.R. at 76; MCLEAN, 87 B.R. at 833; PINE RUN TRUST, 67 B.R. at
435.
43. As noted above, the Debtors have taken several steps to streamline
operations and reduce costs, and are in compliance with all bankruptcy and
federal rules and filing requirements. The Debtors have also begun the process
of formulating an exit strategy involving new financing, restructuring and/or
obtaining additional capital, with their efforts focused on the goal of filing
and confirming a successful plan of reorganization.
17
<PAGE>
44. A six-month extension is not particularly long for a case of this
complexity and size. For example, in the Chapter 11 cases of Johns-Manville
Corporation, the debtors' exclusive periods were extended for more than four
years. See IN RE JOHNS-MANVILLE CORP., 60 B.R. 842, 844-45 (S.D.N.Y. 1986). The
LTV Corporation retained its exclusive right to file a plan from the
commencement of its bankruptcy case in July 1986 until November 1991, a period
in excess of five years. IN RE CHATEAUGAY CORP., 126 B.R. 165, 167 n 3 (Bankr.
S.D.N.Y. 1991), OPINION VACATED AND WITHDRAWN AFTER THE FACT FOR OTHER REASONS,
1993 WL 388809 (S.D.N.Y. 1993); SEE ALSO IN RE GIBSON & CUSHMAN DREDGING CORP.,
101 B.R. 405 (E.D.N.Y. 1989) (18-month exclusivity period approved). In granting
a third extension of the exclusivity period, the court in UNITED PRESS INT'L,
INC., 60 B.R. at 270 noted that, "[i]n many much smaller cases, involving far
less complications, two or three years go by before the debtor is in a position
to file a plan." In PUBLIC SERVICE CO. OF NEW HAMPSHIRE, 88 B.R. 521, the debtor
received a seven-month extension of the initial Bankruptcy Code Section 1121
exclusivity period. In AMKO PLASTICS, the court granted a five-month extension
of the initial Bankruptcy Code Section 1121 exclusivity period even though the
case involved only "one facility, one bank and less than $6 million of unsecured
trade debt." ID., 197 B.R. at 76.
45. In summary, despite the complexity and size of these Cases, the Debtors
have taken numerous positive steps toward reorganization. A six-month extension
of the Exclusive Periods is needed to provide the Debtors with a sufficient
opportunity to develop and negotiate the terms of a consensual plan of
reorganization that will pay creditors in full.
18
<PAGE>
C. EXTENSION OF THE EXCLUSIVE PERIODS WILL NOT PREJUDICE CREDITORS, HOWEVER,
DENIAL OF THE REQUESTED RELIEF WILL HARM THE DEBTORS AND THE ESTATE.
46. An additional factor to be considered in determining whether to extend
a debtor's exclusive period is the lack of prejudice to creditors. SEE MCLEAN,
87 B.R. at 834; TEXACO, 76 B.R. at 327. Here, creditors will not be prejudiced
by the requested extension of the Exclusive Periods because the Debtors are
operating profitably in bankruptcy and have the resources to satisfy their
postpetition debts as they become due. SEE MCLEAN, 87 B.R. at 834-35; SEE ALSO
IN RE INTERCO INC., 137 B.R. 999, 1001 (Bankr. E.D. Mo. 1992). As set forth in
the Debtors' monthly operating reports, on a collective basis the Debtors have
had positive net cash flow since the Petition Date.
47. Moreover, the return on the mortgages that underlie the Debtors'
collateral base is and has historically been very stable. In addition, creditors
are not prejudiced because they may, at any time, seek to shorten the Exclusive
Periods upon proper motion.
48. Additionally, the Debtors have not used their Exclusive Periods to
pressure creditors to submit to any demands in bankruptcy. In fact, the Debtors
have used the Exclusive Period to stabilize their businesses, maintain business
relationships and proceed toward a consensual resolution of these Cases.
49. In contrast to the lack of harm to creditors from the granting of an
extension of the Exclusive Periods, failure to extend the Exclusive Periods
could cause severe, if not irreparable, harm to the Debtors' estates. Denial or
limitation of this Motion could create a chaotic situation wherein certain
creditors who claim security interests in the Debtors' collateral and who
control a significant segment of the CMBS market may attempt to precipitously
liquidate the Debtors' assets. This would result in a tremendous windfall to
these alleged secured creditors at the
19
<PAGE>
expense of unsecured creditors and equity holders, and therefore warrants the
requested extension of the exclusivity period. SEE GIBSON & CUSHMAN DREDGING
CORP., 101 B.R. at 410-11 (creditors' intention to liquidate debtor's assets
rather than to negotiate a consensual plan of reorganization was a factor in
affirming the grant of a more than 18-month exclusivity period.).
20
<PAGE>
D. A SEPARATE MEMORANDUM OF LAW IS UNNECESSARY.
50. Because the relevant statutory and case law have been cited herein, the
Debtors request that the requirement for filing a separate memorandum of law,
set forth in Local Bankruptcy Rule 9013-2, be waived.
WHEREFORE, the Debtors respectfully request entry of the annexed order: (a)
extending the periods within which the Debtors have the exclusive right to file
a plan of reorganization and solicit acceptances thereof through and including
August 2, 1999, and October 3, 1999, respectively, and (b) granting such other
and further relief as this Court may deem just and proper.
Dated: Rockville, Maryland
January 28, 1999
Respectfully submitted,
/s/ Stanley J. Samorajcyzk
---------------------------
Stanley J. Samorajczyk, P.C. (Md.
Fed. Bar No. 03113)
Sam J. Alberts (Md. Fed. Bar No. 22745)
Akin Gump Strauss Hauer & Feld, L.L.P.
1333 New Hampshire Avenue
Washington, D.C. 20036
(202) 887-4000
Co-counsel to CRIIMI MAE Inc. and
CRIIMI MAE Holdings II, L.P.
/s/ Sam J. Alberts with the consent,
------------------------------------
approval and on behalf of Richard
L. Wasserman (Md. Fed. Bar No. 02784)
Venable, Baetjer and Howard, LLP
1800 Mercantile Bank and Trust Bldg.
Two Hopkins Plaza
Baltimore, MD 21201
(410) 244-7400
Co-counsel to CRIIMI MAE Inc. and
CRIIMI MAE Holdings II, L.P.
21
<PAGE>
- and -
/s/ Sam J. Alberts with the consent,
--------------------------------
approval and on behalf of
Morton A. Faller (Md. Fed. Bar No. 01488)
Jeffrey W. Rubin (Md. Fed. Bar 04025)
Shulman, Rogers, Gandal, Pordy &
Ecker, P.A. 11921 Rockville Pike, 3rd
Floor Rockville, MD 20852-2743
(301) 230-5200 Counsel to CRIIMI MAE
Management, Inc.
22
<PAGE>
CERTIFICATE OF SERVICE
I hereby certify that on this 28th day of January, 1999, I caused the
Motion for an Order Extending the Debtors' Exclusive Periods to File a Plan of
Reorganization and Solicit Acceptances thereof Pursuant to 11 U.S.C. ss. 1121(d)
to be served by United States Mail, postage prepaid, or as otherwise stated
below, on the persons listed on the attached Service List.
/s/ Sam J. Alberts
--------------------------
Sam J. Alberts
23
<PAGE>
SERVICE LIST: (4 pages)
<TABLE>
<S> <C>
Charles F. Lettow, Esq. Thomas J. Moloney, Esq.
L. Burton Davis, Esq. Lindsee P. Granfield, Esq.
Cleary, Gottlieb, Steen & Hamilton Cleary, Gottlieb, Steen & Hamilton
2000 Pennsylvania Avenue, N.W. One Liberty Plaza
Washington, D.C. 20006-1801 New York, NY 10006-1404
(Counsel, Prudential Securities) (Counsel, Prudential Securities)
David R. Kuney, Esq. A Robert Pietrzak, Esq.
Jeffery L. Tarkenton, Esq. William M. Goldman, Esq.
J. David Folds, Esq. Andrew W. Stern
Jonathan L. Gold, Esq. Maria D. Melendez, Esq.
Womble Carlyle Sandridge & Rice, PLLC Brown & Wood, LLP
1120 19th Street, NW, Suite 800 One World Trade Center
Washington, D.C. 20036 New York, NY 10048-0557
(Counsel, Merrill Lynch Mortgage (Counsel, Merrill Lynch Mortgage
Capital, Inc.) Capital, Inc.)
Ira S. Sacks, Esq. David N. Roberts
Fried Frank Harris Shriver & Jacobson Angelo, Gordon & Co.
One New York Plaza 245 Park Avenue, 26th Floor
New York, NY 10004-1980 New York, NY 10167
(Counsel, MeesPierson Investment, Inc.) (Counsel, Angelo, Gordon & Co.)
Mark Stern, Esq. John F. Horstmann, Esq.
Stern & Schrage,LLC Duane, Morris & Heckscher, LLP
25 Ford Road, 2nd Floor 4200 One Liberty Pl
Westport, CT 06880 Philadelphia, PA 19103-7396
(Counsel, Selma Eisenberg Revocable (Counsel, First Union National
Trust) Bank)
Jeffrey L. Schwartz, Esq. Paul M. Nussbaum, Esq.
Mark Power, Esq. Martin T. Fletcher, Esq.
Hahn & Hessen LLP Whiteford, Taylor & Preston, LLP
Empire State Building Seven Saint Paul Street, Suite 1400
350 Fifth Avenue Baltimore, MD 21202-1626
New York, NY 10118 (Counsel, Official Committee of
(Counsel, Lehman Brothers Inc. And Unsecured Creditors-CRIIM MAE
Lehman ALI Inc.) Management) (also via facsimile)
Richard M. Kremen, Esq. Robert L. Bodansky
Piper & Marbury, LLP Nixon, Hargrave, Devans & Doyle LLP
36 South Charles Street Suite 700, One Thomas Circle
Baltimore, MD 21201 Washington, DC 20005
(Counsel, First Union National Bank) (Counsel, OTR)
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
Bradford F. Englander, Esq. Daniel W. Sklar, Esq.
Linowes and Blocher LLP Peabody & Brown
1010 Wayne Avenue, 10th Floor 889 Elm Street
Silver Spring, MD 20910-5600 Manchester, NH 03101
(Counsel, Lehman Brothers Inc. And (Counsel, William B. Dockser &
Lehman ALI Inc.) H. William Willoughby)
John H. Culver III Deborah L. Thaxter, Esq.
NationsBank Corporate Center, Suite 4200 Peabody & Brown
100 North Tryon Street 101 Federal Street
Charlotte, NC 28202-4006 Boston, MA 02110
(Counsel, Norwest Bank Minnesota, National (Counsel, William B. Dockser &
Association) H. William Willoughby)
Fred D. Ross Christopher Beard, Esq.
11901 Greenleaf Avenue Beard & Beard
Potomac, MD 20854-3319 4601 North Park Avenue
(Chairperson for Equity Committee) Chevy Chase, MD 20815
Peter A. Chapman Charles A. Koehler
24 Perdicaris Place P.O. Box 394
Trenton, NJ 08618 Bowling Green, OH 43402-0394
Michael B. Benner, Esq Mark N. Polebaum
Watchell, Lipton, Rosen, & Katz Hale and Dorr, LLP
51 West 52nd Street 60 State Street
New York, NY 10019 Boston, MA 02109
(Counsel, German American Capital Corp.) (Counsel, Standish Ayer Wood,
Inc.)
Lawrence D. Coppel, Esq. Robert R. Smith
Gordon, Feinblatt, Rothman, Franch, Jarashow & Howard, PA
Hoffberger, & Hollander, LLC 111 Cathedral Street
233 East Redwood Street P.O. Box 827
Baltimore, MD 21202 Annapolis, MD 21404-0827
(Counsel, German American Capital Corp.) (Counsel, Copelco Capital, Inc.)
Daniel M. Litt, Esq. Robert A. Gutkin, Esq.
Jeffrey Rhodes, Esq. Pillsbury, Madison & Sutro, LLP
Dickstein Shapiro Morin & Oshinsky, LLP 1100 New York Avenue, NW
2101 L Street, NW Ninth Floor, East Tower
Washington, DC 20037-1526 Washington, DC 20005-3918
(Counsel, Riggs National Bank, NA) (Counsel, Wells Fargo Bank, NA)
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
Michelle Chrein M. David Minnick, Esq.
Kasowitz and Benson Pillsbury, Madison & Sutro, LLP
1301 Avenue of the Americas 235 Montgomery Street
New York, NY 10019 San Francisco, CA 94101
(Counsel, Gabrielle Capital) (Counsel, Wells Fargo Bank, NA)
Prudential Securities Credit Corp. Riggs Bank, NA
c/o Vincent T. Pica II, President c/o Al Serafino
One New York Plaza, 18th Floor 808 17th Street, NW
New York, NY 10292 Washington, DC 20006
Standich, Ayer & Wood, Inc. Bill Wong
c/o Pierre Y. Chung, Asst. Vice President Amroc Investments, Inc.
One Financial Center 335 Madison Avenue, 26th Floor
Boston, Massachusetts 02111 New York, NY 10017
Conseco Capital Management, Inc. RER Resources, LP
c/o Eric Johnson c/o Bruce M. Levy, Vice Chariman
11825 North Pennsylvania Street 950 Herndon Parkway, Suite 200
Carmel, Indiana 46032 Herndon, VA 20170
Vickie Corbitt Judy G. Z. Liu
Legal Services Weil, Gotshal & Manges, LLP
PO Box 198065 767 Fifth Avenue
Nashville, Tennessee 37219-8065 New York, NY 10153
(Counsel, Commissioner of Revenue) (Counsel, Citicorp Securities,
Inc.)
Troy C. Swanson George Kielman, Esq.
Kincaid, Cohen & Swanson, PC Luis F. Chaves, Esq.
800 North Charles Street, Suite 400 8200 Jones Branch Dr.-MS 202
Baltimore, MD 21201 McLean, VA 22102
(Counsel, Citicorp Securities, Inc.) (Counsel, Freddie Mac)
Michael L. Bernstein, Esq Linda V. Donhauser, Esq.
Daniel M. Lewis, Esq. Joseph J. Bellinger, Jr., Esq.
Michelle C. France, Esq. Miles & Stockbridge PC
Arnold & Porter 10 Light Street
555 Twelfth Street, NW Baltimore, MD 21202
Washington, DC 20004-1206 (Counsel, Norwest Bank Minnesota,
(Counsel, Official Committee of Unsecured National Association)
Creditors-CRIIMI MAE, Inc.)
(also via facsimile)
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
Clifford J. White Christine Rotter
Office of United States Trustee Wells Fargo Bank
6305 Ivy Lane, Suite 600 55 Montgomery Street, 10th Floor
Greenbelt, MD 20770 San Francisco, CA 94111
(also via facsimile)
Susan R. Sherrill Daniel J. Hartnett
U.S. Securities and Exchange Commission McDermott, Will & Emery
Atlantic District Office 227 West Monroe Street
3475 Lenox Rd., N.E., Suite 1000 Chicago, Illinois 60606-5096
Atlanta, Georgia 30326-1232 (Counsel, First Chicago Capital
Corp.)
Melvin White G. Christian Ullrich
McDermott, Will & Emery First Union National Bank
600 13th Street, NW NC 0737
Washington, DC 20005-3096 301 South College Street, DC-5
(Counsel, First Chicago Capital Corp.) Charlotte, NC 28288-0737
Richard Wasserman, Esq. Alan M. Jacobs
Gregory A. Cross, Esq. Ernst & Young, LLP
Venable, Baetjer & Howard, LLP 787 Seventh Avenue
1800 Mercantile Bank & Trust Building New York, NY 10019
2 Hopkin Plaza (Financial Advisor, Official
Baltimore, MD 21201 Committee of Equity Security
Holders-CMI)
Amanda D. Darwin, Esq. Michael St. Patrick Baxter, Esq.
Peabody & Arnold, LLP Covington and Burling
50 Rowes Wharf 1201 Pennsylvania Avenue, NW
Boston, MA 02110 Washington, DC 20044
Counsel, Official Equity
Committee-CMI
(also via facsimile)
Morton A. Faller Sprint Business
Schulman, Rogers, Gandl, Prody 8330 Ward Parkway
& Ecker, P.A. Kansas City, MO 64114
11921 Rockville Pike, 3rd Floor Attn: Bankruptcy
Rockville, MD 20852-2743
Stanley J. Reed, Esq. Thomas P. Ogden, Esq.
Lerch, Early & Brewer, Chartered Davis, Polk & Wardwell
3 Bethesda Metro Center, Suite 380 450 Lexington Avenue
Bethesda, MD 20814 New York, NY 10017
(Counsel, Morgan Stanley & Co. (Counsel, Morgan Stanley & Co.
International Limited) International Limited)
</TABLE>
27
<PAGE>
Exhibit 99(e)
ENTERED
DECEMBER 4 1998
CLERK'S OFFICE
U.S. BANKRUPTCY COURT
DISTRICT OF MARYLAND
GREENBELT
[STAMP OF THE COURT]
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
Greenbelt Division
)
In re: )
) Case Nos. 98-23115 through
CRIIMI MAE Inc., et al. ) 98-23117
) (Chapter 11)
Debtors. ) Jointly Administered -
) Under Case No. 98-23115-DK
)
)
MERRILL LYNCH MORTGAGE )
CAPITAL INC., )
)
Movant, )
)
v. )
)
CRIIMI MAE Inc. )
)
Respondent. )
)
STIPULATION AND CONSENT ORDER REGARDING MOTION
AND ADVERSARY PROCEEDING
Upon the filing by Merrill Lynch Mortgage Capital Inc. ("MLMCI") of a
Motion for Relief from the Automatic Stay or, in the Alternative, for Entry of
an Order Directing Debtor to Provide Adequate Protection (the "Motion") and upon
the consent by CRIIMI MAE Inc. (the "Debtor") and the Official Committee of
Unsecured Creditors of the Debtor (the "Committee")
<PAGE>
to the limited relief set forth in this Stipulation and Order and upon the
stipulation by MLMCI, the Debtor and the Committee, the Court finds that:
A. Proper notice hereof has been given to the United States Trustee and
to the necessary parties pursuant to Bankruptcy Rule 4001.
B. As of the date the Debtor filed its petition for relief herein,
October 5, 1998, the Debtor was indebted to MLMCI under the terms of a Master
Assignment Agreement dated September 25, 1997, as amended and supplemented by
the Debtor and MLMCI (the "Loan Agreement").
C. Subject to the provisions of paragraph 6(b) and paragraph 8 hereof,
the loans made by MLMCI to the Debtor pursuant to the Loan Agreement (the
"Loans") are secured by a first priority security interest in the following
collateralized bond obligations (the "CBOs") issued by CRIIMI MAE Commercial
Mortgage Trust, together with all proceeds, distributions and amounts realized
therefrom (the "Distributions") (the CBOs and the Distributions are hereafter
referred to collectively as the "Collateral Securities"):
Commercial Mortgage Bonds, Series l998-C1, Class D1
Commercial Mortgage Bonds, Series l998-C1, Class D2
Commercial Mortgage Bonds, Series 1998-C1, Class E
Commercial Mortgage Bonds, Series 1998-CI, Class F
Commercial Mortgage Bonds, Series l998-C1, Class G
Commercial Mortgage Bonds, Series l998-C1, Class HI
Commercial Mortgage Bonds, Series l998-C1, Class H2
Commercial Mortgage Bonds, Series 1998-C1, Class J
D. Subject to the provisions of paragraph 6(b) and paragraph 8 hereof,
MLMCI has a validly perfected security interest in the Collateral Securities.
E. Subject to the provisions of paragraph 6(b) and paragraph 8 hereof,
the Distributions constitute MLMCI's cash collateral as defined in Section
363(a) of Title 11 ("Cash Collateral").
-2-
<PAGE>
NOW, THEREFORE, it is ORDERED that:
1. RELIEF FROM THE AUTOMATIC STAY. The automatic stay created by Section
362(a) of Title 11 is hereby modified to the limited extent necessary to
implement the terms and provisions of this Stipulation and Order and shall
otherwise remain in full force and effect.
2. APPLICATION OF DISTRIBUTIONS RECEIVED DURING OCTOBER 1998. On or about
October 2, 1998, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"),
acting as the agent of MLMCI, received Distributions on the CBOs in the amount
of $3,256,466.51, (the "October Distributions"), which amount was subsequently
transferred to MLMCI. Within five (5) days following the entry of this
Stipulation and Order, MLMCI shall apply $1,745,600.03 of the October
Distributions to accrued interest under the Loan Agreement at the non-default
contract rate (which shall satisfy the October interest obligation and any late
charges related thereto, without prejudice to MLMCI's right to seek default
interest, attorney's fees, and costs as provided herein) and shall pay the
balance of $1,510,866.48 to the Debtor (the "Debtor's October Distribution
Share").
3. APPLICATION OF DISTRIBUTIONS RECEIVED AFTER OCTOBER 1998. Beginning
with the Distributions received in November 1998, MLMCI : (a) shall apply the
Distributions received each month first to accrued interest under the Loan
Agreement at the non-default contract rate, which is hereby confirmed to be 100
basis points in excess of one-month LIBOR, as set forth on page 3750 of Telerate
as of 8:00 a.m., New York City time, on the date of determination, with the
applicable interest rate to be recalculated on a monthly basis beginning October
9, 1998; (b) shall pay to the Debtor 50% of the balance of the Distributions
remaining after the application of Distributions to accrued interest under the
Loan Agreement at the non- default contract rate (the "Debtor's Distribution
Share"); and (c) shall retain and apply to the outstanding principal balance
-3-
<PAGE>
of the Loans the remaining 50% of the balance of the Distributions ("MLMCI's
Distribution Share"). Pursuant to the prior provisions of this paragraph, with
respect to the Distributions received on or about November 3, 1998 in the amount
of $3,256,466.51 (the "November Distribution"), within five (5) days following
the entry of this Stipulation and Order, MLMCI shall apply $1,502,345.25 of the
November Distribution to accrued interest under the Loan Agreement at the
non-default contract rate (which shall satisfy the November interest obligation
and any late charges related thereto, without prejudice to MLMCI's right to seek
default interest, attorney's fees and costs, as provided herein) and shall pay
$877,060.63 to the Debtor with the balance to be retained by MLMCI and applied
to the outstanding principal balance of the Loans. The application by MLMCI of
the Distributions each month as set forth herein shall be at the earlier of the
date of receipt of the Distributions by MLMCI or one (l) business day after its
receipt by MLPF&S on behalf of MLMCI, and the payments to the Debtor as set
forth herein shall be made within the earlier of three (3) business days of
MLMCI's receipt of the Distributions or four (4) business days of MLPF&S's
receipt of the Distributions on behalf of MLMCI. MLMCI will provide to the
Debtor by the tenth business day of each month a written report on all
Distributions received with respect to the CBOs in the prior calendar month.
Within five (5) business days following the entry of this Stipulation and Order,
MLMCI will provide to the Debtor a written report on all Distributions received
in the month of October 1998.
4. USE OF THE DEBTOR'S DISTRIBUTION SHARES. The Debtor may use the
Debtor's October Distribution Share and the other Debtor's Distribution Shares
in the ordinary course of business or for any other purpose permitted by Court
order free and clear of any liens.
-4-
<PAGE>
5. MLMCI'S RIGHT TO PLEDGE. MLMCI's rights pursuant to Section 12(i) of
the Loan Agreement shall continue in full force and effect, subject to the terms
and conditions of Section 12(i) of the Loan Agreement.
6. RESERVATION OF RIGHTS. Notwithstanding any other provision hereof,
once made, no party in interest may contest or assert claims relating to the
disbursement and application of the Distributions actually made pursuant to this
Stipulation and Order (other than as provided for in paragraph 8 herein with
respect to recharacterization) provided, however, that if the Committee
commences a timely proceeding to contest the finding in this Stipulation and
Order that MLMCI has a perfected, first priority security interest in the
Collateral Securities in accordance with the provisions of paragraph 8, the
Committee shall be entitled to contest or assert claims relating to the
disbursement and application of Distributions actually made pursuant to this
Stipulation and Order if, and only if, it is successful in such challenge. This
Stipulation and Order shall not constitute a finding that the interests of MLMCI
are or are not adequately protected. MLMCI shall be entitled to file a motion
for adequate protection for its interest in the Collateral Securities at any
time hereafter, in its sole discretion. Except as provided in the first sentence
of this paragraph, this Stipulation and Order shall not constitute a
modification, waiver of or agreement to delay in the exercise of any rights or
remedies of MLMCI under the Loan Agreement or otherwise at any time to take any
action, including, but not limited to, seeking adequate protection, filing a
motion for relief from or to condition the automatic stay, a motion to dismiss
or convert this case, a motion for the appointment of an examiner or a trustee
or to assert any other rights, claims, remedies or defenses available to it, or
to respond to any motion, application, proposal or other action. Except as
provided in the first sentence of this paragraph, and except for the Debtor's
and the Committee's consent to the findings set forth in paragraph
-5-
<PAGE>
"A" through "E" hereof (subject to the terms thereof), this Stipulation and
Order is without prejudice to all rights, claims, remedies and defenses of, and
the same are specifically reserved by, MLMCI, the Debtor, and the Committee,
including but not limited to, the right to seek an increase, decrease or
alteration in any future payments which would otherwise be made hereunder.
Without in any way limiting the generality of the foregoing: (a) MLMCI's
agreement to apply the Distributions to accrued interest at the non-default
contract rate does not prejudice MLMCI's rights under the Loan Agreement or
applicable law, including, but not limited to, the right to assert claims for
default interest, late fees, attorneys' fees, and costs or the Debtor's and the
Committee's defenses and claims with respect thereto, and (b) the Debtor and the
Committee expressly reserve the right to seek equitable subordination of MLMCI's
claims including but not limited to equitable subordination of MLMCI's first
lien position on the Collateral Securities, with MLMCI expressly reserving the
right to raise any defenses thereto.
7. TERM OF STIPULATION AND ORDER. MLMCI's ongoing obligation to pay the
Debtor's Distribution Shares, the Debtor's ongoing right to use the Debtor's
Distribution Shares and MLMCI's ongoing right to retain and to apply MLMCI's
Distribution Shares as provided herein shall terminate only upon further Order
of this Court or upon the effective date of a plan of reorganization.
8. BINDING EFFECT. The terms and provisions of this Stipulation and Order
shall be binding upon all parties in interest including the Committee and any
trustee appointed in this case or in any Chapter 7 case to which this Chapter II
case may be converted, provided, however, that the Committee shall have until
December 24, 1998 to commence a proceeding (or to file a motion seeking
authority to commence a proceeding) to contest the finding that MLMCI has a
perfected first priority security interest in the Collateral Securities,
including without limitation the
-6-
<PAGE>
commencement of an avoidance action. Unless the Committee commences such a
proceeding (or files a motion seeking authority to commence such a proceeding)
by December 24, 1998, such finding shall become final and binding on the
Committee and no party in interest may thereafter seek to avoid the lien of
MLMCI on the Collateral Securities, it being expressly understood that such
limitation does not restrict the right of the Committee or the Debtor to pursue
the right of equitable subordination as set forth in this Stipulation and Order.
It is expressly understood and agreed that, in addition to all other rights,
claims, remedies and defenses which are reserved herein, the Committee and the
Debtor shall be permitted at any time (a) to seek an order equitably
subordinating MLMCI's lien and/or claim and/or (b) to seek an order avoiding
and/or recovering pre-petition payments to or for the benefit of MLMCI under
applicable provisions of the Bankruptcy Code, other than such Distributions as
have been expressly authorized and/or made under this Stipulation and Order and
other than seeking to avoid the lien of MLMCI except for the Committee's rights
during the period prior to December 24, 1998, as expressed herein. In addition,
all parties hereto reserve all rights to seek to recharacterize the application
of any payments or retentions authorized hereunder, including whether such
payments or retentions should be applied to principal, interest, costs or other
charges under the Loan Agreement. However, no party may seek to recover or
disgorge any payments or retentions made under this Stipulation and Order.
9. CORE PROCEEDING. The subject of this Stipulation and Order is a "core"
proceeding within the meaning of 28 U.S.C. ss. 157. This Stipulation and Order
is a final order of the Bankruptcy Court, immediately applicable and valid and
fully effective upon its entry.
10. DISMISSAL WITHOUT PREJUDICE OF COMPLAINT AND MOTION. Within five (5)
business days after the entry of this Stipulation and Order: (a) the Debtor will
file a Stipulation of
-7-
<PAGE>
Dismissal without prejudice of the Complaint for Turnover and Other Relief it
filed against MLMCI, adversary proceeding number 98-1604 and (b) MLMCI will file
appropriate pleadings to dismiss without prejudice the Motion. The dismissal of
the Complaint and the Motion shall not affect this Stipulation and Order, the
terms of which shall continue in full force and effect.
11. CONSTRUCTION. The captions in this Stipulation and Order are for
convenience of reference only and shall not affect the construction or
interpretation of any of the provisions hereof. As used herein, "business day"
means any day other than a Saturday; a Sunday; a day when banks in New York or
Maryland are authorized or required to close; or a day when the New York Stock
Exchange is closed.
Notice of the entry of this Order shall be sent to all persons as
required by Bankruptcy Rule 2002(i) and Local Rule 2002-1(h) providing that any
objections to this Order must be filed within twenty (20) days of the date of
such Notice.
-8-
<PAGE>
Let the Clerk forward copies of this Stipulation and Order to counsel
whose names and addresses appear below.
SO ORDERED this 4th day of December 1998.
/s/ Duncan W. Keir
------------------
Duncan W. Keir
United States Bankruptcy Court
CONSENTED AND AGREED TO:
/s/ David R. Kuney / RLW with permission
----------------------------------------
David R. Kuney, MFB # 07980
WOMBLE CARLYLE SANDRIDGE & RICE, PLLC
PO Box 19841
1120 Nineteenth Street, NW
Washington, DC 20036-9841
202-467-6900
and
A. Robert Pietrzak, Esq.
William M. Goldman, Esq.
Andrew W. Stern, Esq.
Maria D. Melendez. Esq.
BROWN & WOOD LLP
One World Trade Center
New York, New York 10048-0557
212-839-5300
Co-Counsel for Merrill Lynch Mortgage
Capital, Inc.
-9-
<PAGE>
/s/ Richard L. Wasserman
------------------------
Richard L. Wasserman, Esq.
VENABLE, BAETJER AND HOWARD, LLP
1800 Mercantile Bank and Trust Building
2 Hopkins Plaza
Baltimore, MD 21201
410-244-7400
Counsel for the Debtor, CRIIMI MAE Inc.
/s/ Michael Bernstein / RW with permission
------------------------------------------
Daniel M. Lewis, Esq.
Michael Bernstein, Esq.
ARNOLD & PORTER
555 Twelfth Street, NW
Washington, DC 20004-1206
Counsel for the Official Committee of
Unsecured Creditors.
CC:
Office of the United States Trustee
6305 Ivy Lane, Suite 600
Greenbelt, MD 20770
David R. Kuney, MFB # 07980
WOMBLE CARLYLE SANDRIDGE & RICE, PLLC
PO Box 19841
1120 Nineteenth Street, NW
Washington, DC 20036-9841
202-467-6900
A. Robert Pietrzak, Esq.
William M. Goldman, Esq.
Andrew W. Stern, Esq.
Maria D. Melendez. Esq.
BROWN & WOOD LLP
One World Trade Center
New York, New York 10048-0557
-10-
<PAGE>
Richard L. Wasserman, Esq.
VENABLE, BAETJER AND HOWARD, LLP
1800 Mercantile Bank & Trust Building
2 Hopkins Plaza
Baltimore, MD 21201
Daniel M. Lewis, Esq.
Michael Bernstein, Esq.
ARNOLD&PORTER
555 Twelfth Street, NW
Washington, DC 20004-1206
-11-
<PAGE>
Exhibit 99(f)
ENTERED
JAN 06 1999
U.S. BANKRUPTCY COURT
DISTRICT OF MARYLAND
GREENBELT
[STAMP OF THE COURT]
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
Greenbelt Division
In re: )
) Case Nos. 98-23115 through
CRIIMI MAE Inc., et al., ) 98-23117
) (Chapter 11)
Debtors. ) Jointly Administered -
) Under Case No. 98-23115-DK
)
)
MERRILL LYNCH MORTGAGE )
CAPITAL INC., )
)
Movant, )
)
v. )
)
CRIIMI MAE Inc., )
)
Respondent. )
SUPPLEMENT TO CONSENT ORDER
REGARDING MOTION AND ADVERSARY PROCEEDING
On December 4, 1998 this Court entered a certain Stipulation and Consent
Order Regarding Motion and Adversary Proceeding (the "Consent Order"). A Notice
of Entry of Stipulation and Consent Order Regarding Motion and Adversary
Proceeding was served by counsel for CRIIMI MAE Inc. on December 7, 1998. On
December 28, 1998 the Official Committee of Equity Security Holders filed a
response (the "Response") to the Consent Order. No objections were filed to the
Consent Order. By agreement and consent of the parties to the Consent Order, and
by consent of the
<PAGE>
Official Committee of Equity Holders, the Consent Order is
hereby modified as follows:
1. All of the rights, duties and obligations contained in the Consent
Order which pertain to the Official Unsecured Creditors' Committee are hereby
extended to include, without limitation, the Official Committee of Equity
Security Holders, which shall hereafter have all of the rights, duties and
obligations of a party to such Consent Order.
2. All other provisions of the Consent Order remain in full force and
effect.
3. This Supplement to Consent Order Regarding Motion and Adversary
Proceeding resolves the matters raised in the Response.
SO ORDERED, THIS 5th day of January, 1999.
/s/ Duncan W. Keir
--------------------
Duncan W. Keir
United States Bankruptcy Judge
<PAGE>
CONSENTED AND AGREED TO:
/s/ J. L. Tarkenton
------------------------------
David R. Kuney, MFB # 07980
WOMBLE CARLYLE SANDRIDGE & RICE, PLLC
PO Box 19841
1120 Nineteenth Street, NW
Washington, DC 20036-9841
202-467-6900
and
A. Robert Pietrzak, Esq.
William M. Goldman, Esq.
Maria D. Me1endez, Esq.
BROWN & WOOD LLP
One World Trade Center
New York, NY 10048-0557
212-839-5300
Co-Counsel for Merrill Lynch Mortgage Capital, Inc.
/s/ Richard L. Wasserman
----------------------------
Richard L. Wasserman, Esq.
VENABLE BAETJER AND HOWARD, LLP
1800 Mercantile Bank & Trust Building
2 Hopkins Plaza
Baltimore,MD 21201
410-244-74OO
Counsel for the Debtor, CRIIMI MAE Inc.
<PAGE>
/s/ Michael Bernstein
-------------------------------
Daniel M. Lewis, Esq.
Michael Bernstein, Esq.
ARNOLD & PORTER
555 Twelfth Street, NW
Washington, DC 20004-1206
202-942-5000
Counsel for the Official Committee of Unsecured Creditors
/s/ Dennis Auerbach by JLT w/oral permission
---------------------------------------------
Michael St. Patrick Baxter, Esq.
COVINGTON & BURLING
1201 Pennsylvania Avenue, NW
Washington, DC 20044-7566
202-662-6000
Counsel for the Official Committee of Equity Security Holders
CC:
Office of the United States Trustee
6305 Ivy Lane, Suite 600
Greenbelt,MD 20770
David R. Kuney, Esq.
Womble Carlyle Sandridge & Rice, PLLC
PO Box 19841
1120 Nineteenth Street, NW
Washington, DC 20036-9841
A. Robert Pietrzak, Esq.
William M. Goldman, Esq.
Maria D. Melendez, Esq.
Brown & Wood LLP
One World Trade Center
New York, NY 10048-0557
Richard L. Wasserman, Esq.
Venable Baetjer and Howard, LLP
1800 Mercantile Bank & Trust Building
2 Hopkins Plaza
Baltimore, MD 21201
<PAGE>
Daniel M. Lewis, Esq.
Michael Bernstein, Esq.
Arnold & Porter
555 Twelfth Street, NW
Washington, DC 20004-1206
Michael St. Patrick Baxter
Covington & Burling
1201 Pennsylvania Avenue, NW
Washington, DC 20044-7566
<PAGE>
Exhibit 99(g)
ENTERED
FEB 02 1999
U.S. BANKRUPTCY COURT
DISTRICT OF MARYLAND
GREENBELT
[STAMP OF THE COURT]
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MARYLAND
Southern Division
- ---------------------------------------
In re )
)
CRIIMI MAE Inc., et al., )
) Case No. 9823115
Debtors. ) (Jointly Administered)
) Chapter 11
)
- ---------------------------------------
STIPULATION AND AGREED ORDER AUTHORIZING USE OF CASH COLLATERAL
This Stipulation and Agreed Order is entered into this __ day of December,
1998 by and between CRIIMI MAE Inc. ("CMI") and German American Capital
Corporation ("GACC"):
WHEREAS on October 5, 1998 (the "Petition Date"), CMI, CRIIMI MAE
Management, Inc. ("Management") and CRIIMI MAE Holdings II, L.P. ("Holdings"
and, collectively with CMI and Management, the "Debtors") commenced the
above-captioned cases by filing voluntary petitions for relief under chapter 11
of title 11 of the United States Code (the "Bankruptcy Code");
WHEREAS the Debtors continue in possession of their properties and assets
and the management of their businesses as debtors in possession pursuant to
sections 1107 and 1108 of the Bankruptcy Code;
1
<PAGE>
WHEREAS CMI is a self-administered real estate investment trust organized
and existing under the laws of the State of Maryland with its principal place of
business at 11200 Rockville Pike, Rockville, MD 20852. CMI, together with its
direct and indirect subsidiaries, is a fully integrated commercial mortgage
company whose primary activities include (i) acquiring non-investment grade
subordinated securities backed by first mortgage loans on multi-family
properties and other commercial real estate ("Subordinated CMBS"), and (ii)
originating, servicing, and securitizing commercial mortgage loans and
commercial mortgage backed securities ("CMBS");
WHEREAS by order of this Court, the Debtors' cases have been consolidated
for administrative purposes only;
WHEREAS GACC and CMI are parties to a certain Master Loan and Security
Agreement, dated as of March 31, 1998 (as the same has heretofore been
amended on June 30, 1998 and October 1, 1998, the "Agreement"), pursuant to
which GACC made loans to CMI (collectively, the "GACC Loan);
WHEREAS CMI believes that as of the Petition Date, the outstanding
principal balance of the GACC Loan is approximately $177,508,216.72 (the "GACC
Loan");
WHEREAS pursuant to the Agreement, CMI pledged its interest in certain
securities identified in Schedule A annexed hereto (the "Securities") to GACC;
WHEREAS the Securities generate proceeds, dividends, distributions and
income periodically, which is paid to GACC or the Debtors, as the case may be,
on a monthly basis (collectively, "Income");
2
<PAGE>
WHEREAS GACC has alleged, and the Debtors have agreed with GACC, that GACC
has a valid perfected first priority security interest in the Securities and
Income and that the Income constitutes its cash collateral;
WHEREAS the Debtors have alleged that the value of the Securities is
substantially in excess of the GACC Loan and to the extent that GACC holds a
validly perfected security interest in the Securities and Income, GACC is
adequately protected against any loss by the value of the Securities in excess
of the GACC Loan; and
WHEREAS, GACC disputes that it is adequately protected.
NOW, THEREFORE, in consideration of the mutual premises set forth
herein, the parties hereto stipulate, agree and the Court finds and orders as
follows:
1. USE OF CASH COLLATERAL: During the term of this Stipulation, the Debtors
are hereby authorized to use GACC's cash collateral to the extent and upon the
terms set forth below:
(a) GACC shall remit or cause to be remitted all Net Income (as
hereinafter defined) to the Debtors periodically but in no event later
than the fourth (4th) business day of each month commencing December
1998 (or, if later, the second (2nd) business day after the payment on
the "CMCMT Securities" identified in Schedule A for that month is
received). GACC shall not be obligated to remit Net Income to the
Debtors at any time while the Debtors (or any of them) shall be in
breach of any of their material obligations hereunder. As used herein,
"Net Income" shall mean, with respect to any period, all Income
received by GACC in respect of the Securities during such period,
MINUS all amounts retained by GACC
3
<PAGE>
during such period in accordance with the provisions of paragraph 2(a)
hereof. Net Income for the months of October 1998 and November 1998
shall be paid and applied in accordance with the parameters of this
Stipulation no later than five business days after entry of an order
approving this Stipulation.
(b) subject to paragraph 7 hereof, the Debtors shall be entitled to use
the Net Income remitted to them by GACC pursuant to clause (a) above
in the ordinary course of their business or as otherwise permitted by
Court order; PROVIDED HOWEVER, that without the written consent of
GACC or an order of the Court (including, without limitation, an order
confirming a plan of reorganization), such Net Income shall not be
used by the Debtors for the purpose of (i) originating commercial
mortgage loans, (ii) purchasing mortgage loans or mortgage-backed
securities or (iii) making payments to their creditors other than GACC
on account of pre-petition claims in amounts greater than $500,000
(per claim) in respect of indebtedness for borrowed money or
repurchase obligations under repurchase agreements; PROVIDED, however,
that the Debtors may make payments to secured creditors from such
creditors' own collateral or its proceeds. For purposes of the
foregoing proviso, all payments made by the Debtors during the term of
this Stipulation for any of the purposes identified in clauses (i),
(ii) and (iii) of such proviso (other than payments to a secured
creditor made from such creditor's own collateral security or its
proceeds) shall be conclusively presumed to have been paid out of Net
Income. The
4
<PAGE>
limitations contained herein shall expire upon termination of this
Stipulation.
2. ADEQUATE PROTECTION: Subject to paragraph 6 hereof, as adequate
protection against, and to the extent (if any) of, the diminution of the value
of GACC's interest in the Securities, GACC is hereby granted, pursuant to
sections 361 and 363 of the Bankruptcy Code, the following:
(a) GACC shall be entitled to retain from the Income received by it each
month in respect of the Securities and (subject to paragraph 6 hereof)
to apply on account of the Debtors' obligations in respect of the GACC
Loan, (including, without limitation, any payment obligations of CMI
under Section 4.07(c) of the Agreement) a periodic monthly payment in
an amount equal to the sum of (i) interest accruing on the GACC Loan
at the rate prescribed in the Agreement which is the non-default rate
(NOT the Post-Default Rate, as defined in the Agreement) (the
"Interest Amount"), plus (ii) twenty-five percent (25%) of the amount,
if any, by which the Income for such month exceeds the Interest Amount
for such month (it being agreed between the Debtors and GACC that the
payment required under this clause (ii) shall be applied by GACC in
reduction of the outstanding principal of the GACC Loan) plus (iii) at
GACC's option, the actual costs of hedging the GACC Loan incurred by
GACC (the "Actual Hedge Cost"); PROVIDED, HOWEVER, that (A) not more
than $100,000,000 (the "Hedged Amount") of the GACC Loan shall be
hedged, (B) the Debtors shall be entitled to receive the benefits, if
any, of the hedge with respect to any period for which the
5
<PAGE>
Actual Hedge Cost shall have been paid using Income, (C) GACC shall
consult and in good faith attempt to reach a consensus with the
Debtors and its advisors about the proper method and costs of a
hedging program with a goal of a program entailing an annual cost not
to exceed $1,500,000 (the "Target Hedge Cost") prior to entering into
such program, and (D) in no event shall the amount of the payment
required pursuant to this clause (iii) to be made on any periodic
monthly payment date exceed the amount by which the sum of all
payments previously made pursuant to this clause (iii) is less than a
cost of 300 basis points (3%) per annum on the Hedged Amount (the
"Capped Hedge Amount"), prorated for the period commencing on the
first day such hedging program is in effect and ending on such
periodic payment date; plus (iv) the amount, if any, by which the
payment required to be made with respect to such month pursuant to
clause (iii) above is less than the payment required to be made with
respect to such month pursuant to clause (ii) above (it being agreed
between the Debtors and GACC that the payment required under this
clause (iv) shall be applied by GACC in reduction of the outstanding
principal of the GACC Loan); plus (v) any amounts described in clauses
(i), (ii), (iii) and (iv) above remaining unpaid from prior months
(commencing with October 1998); and PROVIDED FURTHER, that the making
of such periodic payment under this paragraph 2(a), (x) shall be
deemed to have been made on account of, and not in full satisfaction
of, CMI's payment obligations under Section 4.07(c) of the Agreement
(and GACC's rights under such Section to recover from
6
<PAGE>
CMI (out of the Collateral or otherwise) the full amount of the
hedging costs actually incurred by GACC shall not be limited or
impaired by anything contained in this Stipulation and Order), (y)
shall be without prejudice to the rights of any official committee
appointed in these cases to seek the characterization of any or all
such retentions and/or payments as being on account of CMI's principal
obligation to GACC, and (z) shall not constitute an acknowledgment or
agreement by GACC that such periodic monthly payment is sufficient to
constitute adequate protection of GACC (the Debtors agreeing that this
Stipulation shall not be quoted, cited or otherwise introduced as
evidence of such an acknowledgment or agreement in any case,
litigation or other proceeding);
(b) the Debtors shall provide to GACC periodic monthly reports detailing
the uses of the Net Income (and each such report shall be accompanied
by the certification of the Debtors' chief executive officer or chief
financial officer to the effect that, as of the date of such
certification, no Net Income has been used by the Debtors for a
purpose prohibited under paragraph 1(b) hereof); and
(c) the Debtors shall provide GACC with access to the Debtors' books,
records and management personnel upon reasonable request during normal
business hours.
3. NONWAIVER OF LIENS: Subject to paragraph 6 hereof, nothing herein shall
in any way restrict the scope, validity, perfection or enforceability of GACC's
prepetition liens, security interests, or claims with respect to the GACC Loan,
the Securities or the Income.
7
<PAGE>
4. MODIFICATION OF ADEQUATE PROTECTION: (a) GACC may, at any time, upon
five (5) business days' notice to the Debtors, (i) request the Court to increase
the payments to, retentions by or other protections for its benefit as a
condition to the continued use by the Debtors of the Net Income, or (ii)
otherwise seek relief from the automatic stay imposed by section 362 of the
Bankruptcy Code with respect to Securities and/or the Income (in which event,
the Debtors and any official committee may, INTER ALIA, also request the Court
to decrease the adequate protection payments or other adequate protection
provisions granted pursuant to this Order); PROVIDED, HOWEVER, that for a period
commencing on the date hereof and terminating 120 days thereafter (the
"Standstill Period"), GACC shall not, except as provided in the immediately
following sentence, (x) seek relief from the automatic stay imposed by
Bankruptcy Code section 362 with respect to the Securities and/or Income or (y)
seek modification of the adequate protection arrangement set forth in this
Stipulation and Order. Notwithstanding the foregoing, during the Standstill
Period, GACC may upon five (5) days' notice to the Debtors seek the relief
specified in (a)(i) or (ii) above; PROVIDED, HOWEVER, that if GACC shall seek
such relief, the Debtors shall have a reciprocal right to seek relief to
decrease the adequate protection payments or other protections granted herein or
seek turnover of the Securities and/or Income upon two (2) business days' notice
to GACC. Notwithstanding the foregoing, nothing herein shall restrict or
prejudice the rights of any official committee appointed in these cases to seek
relief to decrease the adequate protection payments or other protections granted
herein or seek turnover of the Securities and/or Income upon five (5) days'
notice to GACC.
(b) In the event (i) the Court shall enter an order authorizing any Other
CMBS Creditor (as hereinafter defined) to retain, for purposes of adequate
protection, all or any substantial portion of the income on such Other CMBS
Creditor's collateral as adequate
8
<PAGE>
protection for such Other CMBS Creditor or (ii) the Debtors shall enter into an
agreement or stipulation with any Other CMBS Creditor having the same purpose
and effect as the order described in clause (i) of this paragraph 4(b), the
Debtors shall take such actions, if any (including, without limitation, entering
into a similar agreement or stipulation with GACC and/or making one or more
motions before the Court), as shall be necessary to afford GACC treatment with
respect to the Income no less favorable than the treatment afforded to such
Other CMBS Creditor with respect to the retaining of income on its collateral
for purposes of adequate protection (solely for the respective periods pursuant
to which the other CMBS Creditor is afforded more favorable treatment). As used
herein, "Other CMBS Creditor" shall mean any of Merrill Lynch Mortgage Capital
Inc., Lehman Brothers Capital and First Union National Bank, PROVIDED HOWEVER,
that "Other CMBS Creditors" shall also include each of Citicorp Securities, Inc.
and Morgan Stanley & Co. International, Ltd., only if (i) the Court enters a
final order holding that such entity is a secured creditor and does not have
rights under 11 U.S.C. ss.ss. 555 or 559, or the Debtors and such creditor so
stipulate and also agree that such creditor shall be treated as a secured
creditor for purposes of determining the parties respective rights with respect
to the income on such creditors collateral for any relevant period during these
cases, and (ii) after entry of such order or the filing of such stipulation, the
Court awards such creditor adequate protection payments and/or retention for the
purpose of adequate protection.
5. FINAL ORDER: This Order shall be applicable, valid and fully effective
as of the date of its entry, continue on a final basis, remain in full force and
effect and constitute final authority for the financial accommodations
contemplated by this Order, unless modified or vacated by other subsequent order
of this Court. Subject to paragraph 6, if any or all of the provisions of this
Order are hereafter modified, vacated or stayed by subsequent order of this or
any other
9
<PAGE>
Court, such stay, modification or vacatur shall not affect the validity and
enforceability of any payment or other benefit authorized hereby with respect to
the adequate protection rights or obligations incurred prior to such
modification.
6. RESERVATION OF RIGHTS: Nothing herein shall constitute an admission by
the parties or a finding or determination by the Court concerning (i) the
validity, perfection, priority, enforceability or non-avoidability of the
obligations incurred or the liens and security interests granted by one or more
of the Debtors to GACC prior to the Petition Date (except that the Debtors have
agreed with GACC that GACC has a valid perfected first priority security
interest in the Securities and the Income), or the presence or absence of
adequate protection with respect thereto, and (ii) any issues arising under
sections 506(b), 506(c) and 552 of the Bankruptcy Code including but not limited
to (a) GACC's entitlement to reasonable attorneys' fees and interest on unpaid
interest and (b) the Debtor's entitlement to surcharge the Securities or Income.
Nothing contained in this Order shall prejudice, impair, waive or affect any
official committee's or any other party in interest's rights, including the
right to object to, challenge or contest the validity, perfection, priority or
enforceability of such obligations, liens or security interests or to commence
one or more actions seeking to avoid and/or subordinate such obligations, liens
or security interests or to recover payments made on account of such
obligations, liens or security interests pursuant to applicable provisions of
the Bankruptcy Code or applicable law; PROVIDED HOWEVER, that (i) the Debtors
shall not seek to recover any payment or retention made pursuant to paragraph
2(a) hereof, nor shall the Debtors object to, challenge or contest the validity,
perfection, priority or enforceability of GACC's security interest in the
Securities and Income, and (ii) any official committee appointed herein shall
have, in addition to its other rights, the right specified in the last sentence
of paragraph 4(a) and 2(a)(y) hereof and shall also have the
10
<PAGE>
right to seek to recover payments or retentions made hereunder upon a court
finding that the GACC Loan is not valid, perfected, enforceable or is avoidable.
Nothing in this Stipulation and Agreed Order shall be construed to authorize the
use or transfer by any Debtor of any other Debtor's funds for any purpose which
would not otherwise be permitted absent this Stipulation and Agreed Order.
7. TERMINATION: This Stipulation and Order shall terminate upon expiration
of the Standstill Period unless otherwise extended in writing by the parties;
PROVIDED, HOWEVER, that (i) any obligations of the parties hereunder required to
have been performed prior to expiration of the Standstill Period shall survive
such termination, and (ii) in the event GACC seeks any of the relief specified
in paragraph 4 hereof, this Stipulation shall terminate upon entry of an order
by the Bankruptcy Court that purports to supersede the provisions hereof.
8. SIGNING IN COUNTERPARTS: This Stipulation and Order may be executed by
facsimile in as many counterparts as may be required, and it shall not be
necessary that the signatures of, or on behalf of, each party, appear on each
counterpart, but it shall be sufficient that the signature of, or on behalf of,
each party, appear on one or more counterparts, all counterparts of which shall
collectively constitute a single document. Any party executing by facsimile will
provide an original signature page within a reasonable period of time.
9. AUTHORIZATION: Each of the professionals, whose signatures are reflected
below, represents, warrants and covenants that he or she has the requisite
authority to enter into this Stipulation and Order on behalf of the party that
he or she represents.
10. NOTICES: Unless required by the Bankruptcy Code or Bankruptcy Rules,
all notices, requests, elections or demands in connection with the Stipulation
and Order, shall be in writing and shall be delivered personally or by telecopy,
telex or other telegraphic means (confirmed by
11
<PAGE>
first class mail or express mail). Such notice shall be deemed to have been
given when received and, if sent to CRIIMI MAE Inc., addressed to:
CRIIMI MAE Inc.
11200 Rockville Pike
Rockville, MD 20852
Attention: David B. Iannarone, Esq.
Fax: 301-255-0620
Phone: 301-816-2300
COPY TO :
Akin, Gump, Strauss, Hauer & Feld, LLP
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Stanley J. Samorajczyk, P.C.
Fax: 202-887-4288
Phone: 202-887-4000
Akin, Gump, Strauss, Hauer & Feld, LLP
590 Madison Avenue, 20th Floor
New York, New York 10022
Attention: Michael S. Stamer, Esq.
Fax: 212-872-1002
Phone: 212-872-1000
IF SENT TO:
German American Capital Corp.
c/o Deutsche Bank Securities Inc.
31 West 52nd Street
New York, New York 10019
Attention: Mr. Jon A. Vaccaro
Fax: 212-469-8518
Phone: 212-469-6985
COPIES TO:
Deutsche Bank Securities Inc.
Legal Division
31 West 52nd Street
New York, New York 10019
Attention: Jeffrey T. Welch, Esq.
Fax: 212-468-8172
12
<PAGE>
Phone: 212-469-7980
Wachtell, Lipton Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Michael B. Benner, Esq.
Richard G. Mason, Esq.
Fax: (212) 403-2000
Phone: (212) 403-1000
WITH COPIES OF ALL CORRESPONDENCE TO:
Official Committee of Unsecured Creditors of
CMI
c/o Arnold & Porter
555 12th Street Northwest
Washington, D.C. 20004
Attention: Dan Lewis, Esq.
Fax: (202) 942-5999
Phone: (202) 942-5000
COPIES TO:
Official Committee of Equity Security
Holders of CRIIMI MAE Inc.
c/o Covington & Burling
1201 Pennsylvania Avenue Northwest
Washington, D.C. 20004
Attention: Dennis Auerbuch, Esq.
Fax: (202) 662-6291
Phone: (202) 662-5226
CONSENTED TO:
CRIIMI MAE INC.
By: /S/ STANLEY J. SAMORAJCYZK WITH
PERMISSION BY MDT
Stanley J. Samorajczyk, P.C.
Michael S. Stamer
AKIN, GUMP, STRAUSS, HAUER & FELD, LLP
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
(202) 887-4000
13
<PAGE>
Counsel for CRIIMI MAE Inc.
14
<PAGE>
GERMAN AMERICAN CAPITAL CORP.
BY: /S/ MICHAEL B. BENNER
------------------------
Michael B. Benner
Richard G. Mason
WACHTELL, LIPTON ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NY 10019
(212) 403-1000
Counsel for German American Capital Corp.
NO OBJECTIONS:
OFFICIAL COMMITTEE OF UNSECURED
CREDITORS OF CMI
By: /S/ DANIEL M. LEWIS
--------------------------
Dan Lewis
ARNOLD & PORTER
555 12th Street Northwest
Washington, D.C. 20004
(202) 942-5999
Counsel for Official Committee of Unsecured
Creditors of CMI
So Ordered this __ day of
January, 1999
/S/ DUNCAN KEIR
- --------------------
Hon. Duncan Keir
United States Bankruptcy Judge
15
<PAGE>
Exhibit 99(h)
ENTERED
JANUARY 26 1999
CLERK'S OFFICE
U.S. BANKRUPTCY COURT
DISTRICT OF MARYLAND
GREENBELT
[STAMP OF THE COURT]
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
(Greenbelt Division)
CRIIMI MAE INC., et al., * 98-2-3115-DK
(Chapter 11)
Debtors. * (Jointly Administered)
* * * * * * * * * * * * *
CRIIMI MAE INC., *
Plaintiff, *
v. *
MORGAN STANLEY & CO. *
INTERNATIONAL LIMITED, Adversary Proceeding
* No. 98-1565-DK
Defendant.
*
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
STIPULATION AND CONSENT ORDER
REGARDING ADVERSARY PROCEEDING
Upon the consent of CRIIMI MAE Inc. (the "Debtor" or "CMI"),
Morgan Stanley & Co. International Limited ("MSIL"), and the Official Committee
of Unsecured Creditors of CMI (the "Unsecured Committee") to the limited relief
set forth in this Stipulation and Order and upon the stipulation by MSIL, the
Debtor and the Unsecured Committee, the Court finds that:
A. Proper notice hereof has been given to the United
States Trustee, to the Official Committee of Equity Security Holders of CMI
(the "Equity Committee") and to the other necessary parties pursuant to Fed.
R. Bankr. P. 2002.
<PAGE>
B. As of the date the Debtor filed its petition for relief
herein, October 5, 1998, the Debtor and MSIL were parties to a Master Repurchase
Agreement dated May 8, 1998 (the "Repurchase Agreement").
C. On October 20, 1998, CMI filed this Adversary Proceeding
against MSIL (the "Adversary Proceeding"). The complaint in this Adversary
Proceeding alleges, INTER ALIA, that MSIL violated the automatic stay and seeks,
INTER ALIA, turnover of the following mortgage-backed securities (collectively
the "Securities") which CMI contends are property of its bankruptcy estate:
(i) CRIIMI MAE Commercial Mortgage Trust, Series
1998-C1, Class B and C Certificates (collectively
or any portion thereof, the "BBB Bonds"); and
(ii) Morgan Stanley Capital I Inc., Series 1998-WF2,
Class F, G, H, J, K, L and M Certificates
(collectively or any portion thereof, the "Wells
Fargo Bonds").
D. MSIL denies the substantive allegations of the complaint,
and contends that it is the rightful owner of the Securities pursuant to the
Repurchase Agreement and that it is entitled to all distributions on the
Securities.
E. CMI and MSIL agree that the intent and purpose of this
Stipulation and Order is to resolve a portion of the Adversary Proceeding and to
sell the BBB Bonds pursuant to and in accordance with the terms and conditions
of this Stipulation and Order.
NOW, THEREFORE, it is hereby ORDERED that:
1. EFFECTIVE DATE. The terms of this Stipulation and
Order shall be effective as of December 22, 1998 (the "Effective Date").
2. STANDSTILL. MSIL shall not sell, pledge, encumber or
otherwise transfer, directly or indirectly, any of the BBB Bonds until February
6, 1999 (the
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<PAGE>
"BBB Standstill Period") and shall not sell, pledge, encumber or otherwise
transfer, directly or indirectly, any of the Wells Fargo Bonds until March 31,
1999 (the "Wells Fargo Standstill Period"). The BBB Standstill Period and Wells
Fargo Standstill Period may be extended by mutual written consent of CMI and
MSIL. Also upon mutual written consent, any or all of the BBB Bonds may be sold
by MSIL during the BBB Standstill Period, subject to the sales terms set forth
below.
3. SALE PROCESS. Unless MSIL and CMI mutually agree to an
earlier sale, MSIL will have the right from the end of the BBB Standstill Period
until March 31, 1999 (the "Sale Period") to sell any or all of the BBB Bonds
pursuant to and in accordance with the terms and conditions of this Stipulation
and Order (the "Sale Process"). The Sale Period may be extended by mutual
written consent of CMI and MSIL.
4. CMI COOPERATION IN THE SALE PROCESS. CMI shall cooperate
with MSIL throughout the Sale Process and use its best efforts to facilitate the
sale of the BBB Bonds.
5. CMI INVOLVEMENT IN SALE PROCESS. MSIL shall consult with
CMI and the financial advisors to the Unsecured Committee and the Equity
Committee throughout the Sale Process, consistent with the new issue marketing
practices of Morgan Stanley & Co. Incorporated, acting as agent for MSIL
("Morgan Stanley"). The financial advisors to the Unsecured Committee and the
Equity Committee will not interfere with the Sale Process and will use the
information received from MSIL only for the purpose of this Stipulation and
Order.
6. RESERVE PRICE. During the Sale Period, MSIL shall have the
right to sell any or all of the BBB Bonds at such prices as MSIL may reasonably
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<PAGE>
deem satisfactory as long as such prices meet or exceed the Reserve Price for
the BBB Bonds provided on the Reserve Price Schedule set forth in Exhibit A to
this Stipulation and Order. MSIL will conduct the Sale Process in a commercially
reasonable manner.
7. SECONDARY RESERVE PRICE. With CMI's written consent, during
the Sale Period, MSIL shall have the right to sell any or all of the BBB Bonds
at a price which is below the Reserve Price but which meets or exceeds the
Secondary Reserve Price for the BBB Bonds provided on the Reserve Price Schedule
set forth in Exhibit A to this Stipulation and Order.
8. EFFECT OF FAILURE TO MEET RESERVE PRICE. The effect of the
failure to meet the Reserve Price (without the consent of CMI) by the end of the
Sale Period for any or all of the BBB Bonds will be the automatic termination of
the BBB Standstill Period and the Sale Period as to any BBB Bonds for which the
applicable Reserve Price is not met. The rights of CMI and MSIL shall thereupon
be governed by the provisions of Paragraph 19 hereinbelow with respect to such
of the BBB Bonds for which the applicable Reserve Price has not been met.
9. MINIMUM PROCEEDS OF SALE. It is understood and agreed that,
unless a proposed sale is otherwise approved in writing by CMI, the Unsecured
Committee and the Equity Committee, no sale of any of the BBB Bonds shall be
permitted hereunder if the proceeds of sale allocated in accordance with the
provisions of Paragraph 10 hereinbelow do not pay at least $14 million (or the
pro rata portion thereof if less than all of the BBB Bonds are sold) to CMI.
10. ALLOCATION OF PROCEEDS OF SALE OF THE BBB BONDS. The
proceeds from the sale of any BBB Bonds will be allocated as follows:
-4-
<PAGE>
(i) FIRST, to MSIL in the amount of the BBB
Bonds Adjusted Basis (as defined below) for
each BBB Bond sold times the face amount of
bonds sold divided by $1000;
(ii) SECOND, to MSIL in the amount of its actual
sales costs and expenses (not to exceed in
the aggregate the sum of $500,000), and
accrued but unpaid distributions on the BBB
Bonds, all as apportioned pro rata for the
BBB Bonds sold;
(iii) THIRD, to CMI in the amount of the
difference between the Reserve Price as
calculated and the total of the amounts paid
to MSIL pursuant to the preceding sections
(i) - (ii), (such that the total of the
amounts paid pursuant to sections (i) -
(iii) equals the Reserve Price); and
(iv) FOURTH, the remainder, if any, of such
proceeds will be paid 75% to CMI and 25% to
MSIL.
An illustrative example of this allocation is provided in the
Allocation Schedule set forth in Exhibit B to this Stipulation and Order. It is
understood and agreed that the distributions received by MSIL after October 5,
1998 and prior to December 22, 1998 with respect to the BBB Bonds sold by MSIL
in accordance with the provisions of this Stipulation and Order shall be
retained by MSIL as an investment banking fee earned by MSIL for the sale of the
BBB Bonds.
11. BBB BONDS ADJUSTED BASIS. The BBB Bonds Adjusted
Basis shall be calculated as follows:
Class B: $707.204 per $1000 face amount of bonds, (i)
less the absolute amount of the pro rata Hedge
Profits or Losses (as defined below) allocable to
Class B, if a positive number, or plus such absolute
amount, if a negative number, and (ii) less the
absolute amount of the Class B Basis Adjustment
Amount (as defined below), if a positive number, or
plus such absolute amount, if a negative number.
Class C: $675.187 per $1000 face amount of bonds, (i)
less the absolute amount of the pro rata Hedge
Profits or Losses (as defined below) allocable to
Class C, if a positive number, or plus such absolute
amount, if a negative number, and (ii) less the
-5-
<PAGE>
absolute amount of the Class C Basis Adjustment
Amount (as defined below), if a positive number, or
plus such absolute amount, if a negative number.
12. CLASS B BASIS ADJUSTMENT AMOUNT. The Class B Basis
Adjusted Amount shall be the sum of the Daily Basis Adjustments (as defined
below) for the Class B BBB Bonds from December 22, 1998 through the sale date
for each bond sold, calculated assuming 30 days in each month, and 360 days in
each year.
13. CLASS C BASIS ADJUSTMENT AMOUNT. The Class C Basis
Adjusted Amount shall be the sum of the Daily Basis Adjustments (as defined
below) for the Class C BBB Bonds from December 22, 1998 through the sale date
for each bond sold, calculated assuming 30 days in each month, and 360 days in
each year.
14. DAILY BASIS ADJUSTMENT. The Daily Basis Adjustment for
each of the BBB Bonds sold shall be calculated daily as follows:
Class B: ($1000.00 * 7.00% / 360) minus ($707.204 *
(1 month LIBOR) + 1.5%) / 360)
Class C: ($1000.00 * 7.00% / 360) minus ($675.187 *
(1 month LIBOR) + 1.5%) / 360)
Daily Basis Adjustments may be positive or negative.
"LIBOR" shall mean, for any day in any calendar
month, the one month London Interbank Offered Rate
published in THE WALL STREET JOURNAL on the first
date of publication of the applicable calendar month,
expressed as a percentage. If THE WALL STREET JOURNAL
(i) publishes more than one such rate on any date of
publication, the higher or highest of such rates
shall apply, or (ii) publishes a retraction or
correction of any such rate, the corrected rate shall
apply.
15. HEDGE PROFITS OR LOSSES. Morgan Stanley may in its sole
discretion determine and enact interest rate hedging strategies for the BBB
Bonds.
-6-
<PAGE>
Morgan Stanley shall consult with CMI regarding such hedging strategies
and shall provide CMI with a record of hedging transactions upon request.
The term "Hedge Profits or Losses" shall mean profits
or losses from such hedging activities from October 7, 1998 through the sale
date for such of the BBB Bonds sold pursuant to the provisions of this
Stipulation and Order.
16. SUSPENSE OF LITIGATION. MSIL's time to respond to the
complaint filed in this Adversary Proceeding shall be extended until 10 days
after the later of (1) the end of the BBB Standstill Period and the Sale Period,
and (2) the end of the Wells Fargo Standstill Period. The pre-trial conference
scheduled in this Adversary Proceeding for January 5, 1999 shall be continued
until after such time as MSIL has responded to the complaint. While this
Stipulation and Order remains in effect, no party will take any action in this
Adversary Proceeding with respect to the BBB Bonds during the BBB Standstill
Period and the Sale Period and with respect to the Wells Fargo Bonds during the
Wells Fargo Standstill Period.
17. DISMISSAL AND RELEASES. If sales are consummated for all
of the BBB Bonds consistent with the terms of this Stipulation and Order, any
and all claims in this Adversary Proceeding relating to the BBB Bonds will be
dismissed with prejudice as to such claims, and MSIL (and its affiliates,
officers, directors and employees) will be released by CMI from any claims
asserted or which could have been asserted as to the BBB Bonds and CMI (and its
affiliates, officers, directors and employees) will be released by MSIL from any
claims asserted or which could have been asserted as to the BBB Bonds, no matter
under what legal theories such claims were or could have been stated. If less
than all of the BBB Bonds are sold in a manner consistent with the terms of this
Stipulation and Order, the claims in this
-7-
<PAGE>
Adversary Proceeding and otherwise will be dismissed with prejudice with respect
to those BBB Bonds sold consistent with the terms of this Stipulation and Order,
all other claims being hereby preserved in all respects.
18. OTHER TERMINATION EVENTS. In addition to the automatic
termination for failure to meet the Reserve Price referenced in Paragraph 8
above, the BBB Standstill Period, the Wells Fargo Standstill Period and the Sale
Period shall also terminate automatically at the earlier of:
( i) failure to obtain a final non-appealable
order of the Bankruptcy Court approving this
Stipulation and Order by the end of the BBB
Standstill Period; and
(ii) any material adverse change or disruption in
financial, banking or capital markets or in
the regulatory environment that in the good
faith judgment of MSIL makes it advisable to
sell the Securities.
The foregoing events in clauses (i) and (ii) above are hereinafter referred to
as "Other Termination Events." MSIL agrees to notify CMI, the Unsecured
Committee and the Equity Committee within one business day of the occurrence of
an event described in clause (ii) above.
19. EFFECT OF TERMINATION. In the event that any of the BBB
Standstill Period, the Wells Fargo Standstill Period or the Sale Period is
automatically terminated, the parties shall be deemed to have reverted NUNC PRO
TUNC to their respective status as of the date and time immediately prior to the
execution of this Agreement and they shall be entitled to proceed in all
respects as if this Stipulation and Order had not been executed and without
prejudice in any way as a result of the negotiation, facts or terms of this
Stipulation and Order, PROVIDED, HOWEVER, that any such termination shall not
affect any sales of BBB Bonds
-8-
<PAGE>
consistent with the terms of this Stipulation and Order occurring prior to such
termination or the rights and obligations of the parties as set forth herein
with respect to such sales of BBB Bonds including, but not limited to, MSIL's
obligation to pay any monies owing to CMI resulting from any such sale, which
amounts shall be paid in accordance with the terms of this Stipulation and
Order.
The effect of a termination based on failure to meet
the Reserve Price will be limited to those BBB Bonds for which the Reserve Price
is not met.
20. WAIVER OF OTHER TERMINATION EVENTS. MSIL, and only MSIL,
has the right to waive the Other Termination Events.
21. JURISDICTION OF BANKRUPTCY COURT. MSIL's preparation and
negotiation of this Stipulation and Order does not constitute consent to the
jurisdiction of the Bankruptcy Court over MSIL, and MSIL reserves its rights to
contest jurisdiction and any other matter arising in the Bankruptcy Court and
CMI reserves all of its rights with respect thereto.
22. SETTLEMENT AGREEMENT NOT ADMISSION. This Stipulation and
Order and its respective provisions, whether or not consummated, and any
negotiations, statements, proceedings or agreements relating to the Stipulation
and Order, are not and shall not in any event be construed as, offered in
evidence as or received in evidence as a presumption, concession or an admission
of the truth of any fact alleged or the validity of any claim that has been or
could have been asserted in this Adversary Proceeding, or of the deficiency of
any defense that has been, could have been, or in the future might be asserted
in this Adversary Proceeding, or of any liability, fault, wrongdoing or
otherwise.
-9-
<PAGE>
23. BINDING EFFECT. The terms and provisions of this
Stipulation and Order shall be binding upon all parties in interest including
the Unsecured Committee, the Equity Committee and any trustee appointed in this
case or in any Chapter 7 case to which this Chapter 11 case may be converted.
24. CORE PROCEEDING. This Stipulation and Order is a "core"
proceeding within the meaning of 28 U.S.C. ss. 157. This Stipulation and Order
is a final order of the Bankruptcy Court, immediately applicable and valid and
fully effective upon its entry.
25. CONSTRUCTION. The captions in this Stipulation and Order
are for convenience of reference only and shall not affect the construction or
interpretation of any of the provisions hereof.
26. The effectiveness of this Stipulation and Order is subject
to the entry of a final, non-appealable order approving a consensual stipulation
and order between CMI and the Unsecured Committee with respect to the
disposition of the proceeds of sale allocated to CMI hereunder.
-10-
<PAGE>
Let the Clerk forward copies of this Stipulation and Order to
counsel whose names and addresses appear below.
SO ORDERED this 25TH day of January, 1999.
/s/ DUNCAN W. KEIR
------------------
DUNCAN W. KEIR
United States Bankruptcy Judge
CONSENTED AND AGREED TO:
/s/ RICHARD L. WASSERMAN /s/ LAURI CLEARY/RLW WITH PERMISSION
- ----------------------------- ------------------------------------
Richard L. Wasserman, Esquire Stanley J. Reed, Esquire
(Federal Bar No. 02784) (Federal Bar No. 00315)
Gregory A. Cross, Esquire Lauri Cleary, Esquire
(Federal Bar No. 04571-G) (Federal Bar No. 06599)
Venable, Baetjer and Howard, LLP Tamara A. Stoner, Esquire
1800 Mercantile Bank & Trust Bldg. (Federal Bar No. 08014)
2 Hopkins Plaza 3 Bethesda Metro Center
Baltimore, Maryland 21201 Suite 380
(410) 244-7400 Bethesda, Maryland 20814
(301) 986-1300
Co-Counsel for CRIIMI MAE Inc.
Of Counsel:
Thomas P. Ogden, Esquire
Anne Berry Howe, Esquire
/s/ MICHAEL BERNSTEIN/RLW WITH PERMISSION Barbara D. Diggs, Esquired
- ----------------------------------------- Davis Polk & Wardwell
Daniel M. Lewis, Esquire 450 Lexington Avenue
Michael Bernstein, Esquire New York, New York 10017
Arnold & Porter (212) 450-4000
555 Twelfth Street, N.W.
Washington, D.C. 20044 Counsel for Defendant
(202) 942-5661 Morgan Stanley & Co.
International Limited
Counsel for the Official Unsecured
Creditors Committee
-11-
<PAGE>
cc: Richard L. Wasserman, Esquire
Venable, Baetjer and Howard, LLP
1800 Mercantile Bank & Trust Bldg.
2 Hopkins Plaza
Baltimore, Maryland 21201
Thomas P. Ogden, Esquire
Davis Polk & Wardell
450 Lexington Avenue
New York, New York 10017
Stanley J. Reed, Esquire
3 Bethesda Metro Center, Suite 380
Bethesda, Maryland 20814
Daniel M. Lewis, Esquire
Arnold and Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004
Michael St. Patrick Baxter, Esquire
Covington and Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044
Clifford J. White, III, Esquire
Assistant U.S. Trustee
Office of U.S. Trustee
6305 Ivy Lane, Suite 600
Greenbelt, Maryland 20770
Stanley J. Samorajczyk, Esquire
Akin, Gump, Strauss, Hauer & Feld, LLP
Suite 400
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
-12-
<PAGE>
Exhibit 99(i)
ENTERED
JAN 26 1999
CLERK'S OFFICE
U.S. BANKRUPTCY COURT
DISTRICT OF MARYLAND
GREENBELT
[STAMP OF THE COURT]
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
(Greenbelt Division)
CRIIMI MAE INC., et al., * 98-2-3115-DK
(Chapter 11)
Debtors. * (Jointly Administered)
* * * * * * * * * * * * * * * * *
CRIIMI MAE INC., *
Plaintiff, *
v. *
MORGAN STANLEY & CO. *
INTERNATIONAL LIMITED, Adversary Proceeding
* No. 98-1565-DK
Defendant.
*
* * * * * * * * * * * * * * * * * * * * * * * * * * *
STIPULATION AND ORDER
REGARDING PROCEEDS RECEIVED BY THE DEBTOR
FROM THE SALE OF THE BBB BONDS
It is hereby stipulated and agreed by and between CRIIMI MAE
Inc. (the "Debtor" or "CMI"), the Official Committee of Unsecured Creditors of
<PAGE>
CMI (the "Unsecured Committee") and the Official Committee of Equity Security
Holders of CMI (the "Equity Committee") as follows:
-2-
<PAGE>
1. The Debtor agrees that all proceeds received by it from
Morgan Stanley & Co. International Limited ("MSIL") from MSIL's sale of the BBB
Bonds (as that term is defined in the Stipulation and Consent Order Regarding
Adversary Proceeding entered in the above-captioned adversary proceeding
contemporaneously herewith, hereinafter referred to as the "MSIL Stipulation and
Consent Order") shall be deposited by the Debtor in a segregated,
interest-bearing account or other investment of funds acceptable to the Debtor,
the Unsecured Committee and the Equity Committee. Such proceeds, together with
all earnings thereon, are hereinafter referred to as the "MSIL Net Proceeds."
2. The MSIL Net Proceeds can be used by the Debtor for
purposes of funding its Chapter 11 plan of reorganization.
3. Subject to the provisions of paragraph 4 hereof, the Debtor
agrees to give the Unsecured Committee and the Equity Committee not less than 30
days prior written notice through their respective counsel before the Debtor
uses any of the MSIL Net Proceeds in any manner except for Chapter 11 plan
purposes as provided in paragraph 2 above.
4. Except for plan purposes as provided in paragraph 2 above,
the Debtor agrees not to use any of the MSIL Net Proceeds without the consent of
the Unsecured Committee and the Equity Committee for the following purposes: (i)
originating commercial mortgage loans, (ii)
-3-
<PAGE>3
purchasing mortgage loans or mortgage-backed securities, or (iii) payment of
dividends.
/s/ Richard L. Wasserman /s/ Daniel M. Lewis
- ---------------------------- ------------------------
Richard L. Wasserman, Esquire Daniel M. Lewis, Esquire
Federal Bar No. 02784 Michael L. Bernstein, Esquire
Venable, Baetjer and Howard, LLP Arnold & Porter
1800 Mercantile Bank & Trust Bldg. Thurman Arnold Building
2 Hopkins Plaza 555 Twelfth Street, N.W.
Baltimore, Maryland 21201 Washington, D.C. 20004-1202
410-244-7400 202-942-5000
Co-Counsel for CRIIMI MAE Inc. Counsel for the Official
Committee of Unsecured
Creditors
/s/ Michael St. Patrick Baxter
- ------------------------------
Michael St. Patrick Baxter, Esquire
Covington and Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044-7566
202-662-6000
Counsel for the Official
Committee of Equity Security
Holders
The foregoing Stipulation is hereby SO ORDERED this 25th day
of January, 1999.
/s/ Duncan W. Keir
------------------
DUNCAN W. KEIR
United States Bankruptcy Judge
-4-
<PAGE>
Exhibit 99(j)
ENTERED
FEB 24 1999
U.S. BANKRUPTCY COURT
DISTRICT OF MARYLAND
GREENBELT
[STAMP OF THE COURT]
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Greenbelt
:
IN RE: CRIIMI MAE, INC., et al.
: CASE NO 98-2-3115
Debtors. (Jointly Administered)
: CHAPTER 11
- --------------------------------------------------------------------------------
ORDER UPON MOTIONS FOR RECONSIDERATION OF ORDER
EXTENDING DEBTORS' EXCLUSIVE PERIODS
This court finds that the Order Granting Debtors' Motion for Order
Extending Debtors' Exclusive Periods to File a Plan of Reorganization and
Solicit Acceptances Thereof Pursuant to 11 U.S.C. ss. 1129 (d) (the "Order") was
granted before the expiration of the response period. By the same Order,
Debtor's Motion for Entry of a Bridge Order Extending the Debtors' Exclusive
Periods to File a Plan of Reorganization and Solicit Acceptances Thereof
Pursuant to 11 U.S.C. ss. 1129 (d) pending a Final Hearing on the Matter was
denied, as unnecessary.
Motions pursuant to Bankruptcy Rule 9023 incorporating Federal Rule of
Civil Procedure 59 have been filed by various parties. Those motions are
meritorious to the extent that they assert that the court's rapid entry of the
Order curtailed the opportunity of parties-in-interest to contest the extension
of exclusive periods. As a result, the court will amend the Order to vacate the
court's granting of the relief requested in the debtor's motion for extension of
exclusive periods and to vacate the denial of debtor's motion for bridge Order
extending debtor's
<PAGE>
exclusive periods pending a hearing upon the motion for extension. Accordingly,
it is by the United States Bankruptcy Court for the District of Maryland,
ORDERED, that the extension of debtor's exclusive period to file a plan
of reorganization and solicit acceptances pursuant to 11 U.S.C. ss. 1129 (d) is
limited to the extension set forth in the following paragraph of this Order and
the court's Order entered February 2, 1999, is amended accordingly; and it is
further
ORDERED, that the Debtors' exclusive periods to file a plan of
reorganization are extended for an interim period pending the hearing on the
Debtors' Motion for Order Extending Debtors' Exclusive Periods to File a Plan of
Reorganization and Solicit Acceptances Thereof Pursuant to 11 U.S.C. ss. 1129
(d), and it is further
ORDERED, that a hearing on such Motion and responses thereto shall be
held on May 11, 1999 at 3:00 p.m., and it is further
ORDERED, that Movant is restricted to one half hour to present such
Motion and Respondents restricted to one half hour, in the aggregate, to respond
to such Motion at the hearing.
DATED: February 24, 1999 /S/ DUNCAN W. KEIR
------------------
DUNCAN W. KEIR
United States Bankruptcy Court
For the District of Maryland
cc: Debtors
Debtors' Counsel
Creditors' Committees' Counsel
All Interested Parties
2
<PAGE>
Exhibit 99(k)
ENTERED
APR 05 1999
CLERK'S OFFICE
U.S. BANKRUPTCY COURT
DISTRICT OF MARYLAND
GREENBELT
[STAMP OF THE COURT]
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
(Greenbelt Division)
***********************************
*
IN RE: *
CRIIMI MAE INC. et al. * 98-2-3115-DK
(Chapter 11)
Debtors. * (Jointly Administered)
***********************************
STIPULATION AND CONSENT ORDER
REGARDING SALE OF CERTAIN TRIPLE B BONDS
Upon the consent of CRIIMI MAE Inc. (the "DEBTOR" or "CMI"), CRIIMI MAE
HOLDINGS II, L.P. ("CM HOLDINGS"), Salomon Smith Barney Inc. ("SSB"), Citicorp
Securities, Inc. ("CSI") and the Official Committee of Unsecured Creditors of
CMI (the "Unsecured Committee") to the limited relief set forth in this
Stipulation and Order and upon the stipulation by the Debtor, CM Holdings, SSB,
CSI and the Unsecured Committee, the Court finds that:
A. Proper notice hereof has been given to the United States
Trustee, to the Official Committee of Equity Security Holders of CMI (the
"EQUITY COMMITTEE") and to the other necessary parties pursuant to Fed. R.
Bankr. P. 2002.
B. As of the date CM Holdings filed its petition for relief
herein, October 5, 1998, CM Holdings and CSI were parties to a certain Master
Repurchase Agreement dated June
<PAGE>
4, 1998, together with certain annexes thereto of even date (the "MASTER
REPURCHASE AGREEMENT") Pursuant to that certain Assignment and Assumption
Agreement dated as of December 17, 1998 and effective as of December 18, 1998,
CSI assigned to SSB, the CRIIMI MAE CMBS Corp. Commercial Mortgage Loan Trust
Certificates, Series 1998-1, Class D and Class E (collectively, the "TRIPLE B
BONDS"), and all of its rights, liabilities and obligations arising under the
Master Repurchase Agreement. Pursuant to a certain stipulation, "so ordered" by
this Court on December 18, 1998, CMI and CM Holdings consented to the assignment
of the Master Repurchase Agreement and the Triple B Bonds under the terms and
conditions set forth therein.
C. CSI or an affiliate thereof entered into transactions with
CMI or an affiliate thereof with respect to certain United States treasury
securities which hedged to a certain extent the value of the Triple B Bonds (the
"Transaction"). SSB and CSI hereby represent and warrant that CSI or an
affiliate thereof closed out the Transaction on October 7, 1998 and that neither
CSI, SSB, nor any affiliate of either of them has entered into a hedge
transaction thereafter with respect to any or all of the Triple B Bonds. CSI and
SSB acknowledge and agree that CMI, CM Holdings and the Unsecured Committee are
entering into this Stipulation and Order and the companion Stipulation and
Consent Order Regarding Mortgage Loan Origination Agreement with Citicorp Real
Estate, Inc., and agreeing to the provisions hereof and thereof, expressly
relying upon the accuracy of the foregoing representations and warranties by SSB
and CSI.
D. CMI, CM Holdings and SSB agree that the intent and purpose
of this Stipulation and Order is to sell the Triple B Bonds in a commercially
reasonable manner pursuant to and in accordance with the terms and conditions of
this Stipulation and Order.
NOW, THEREFORE, it is hereby ORDERED that:
-2-
<PAGE>
1. EFFECTIVE DATE. The terms of this Stipulation and Order
shall be effective upon entry of this order by the Court (the "EFFECTIVE DATE").
2. SALE PROCESS. SSB will have the right upon entry of this
Stipulation and Order until July 31, 1999 (the "SALE PERIOD") to sell any or all
of the Triple B Bonds pursuant to and in accordance with the terms and
conditions of this Stipulation and Order (the "SALE PROCESS"). The Sale Period
may be extended by mutual written consent of CMI and SSB.
3. CMI AND CM HOLDINGS COOPERATION IN THE SALE PROCESS. CMI
and CM Holdings shall cooperate with SSB throughout the Sale Process and use
their best efforts to facilitate the sale of the Triple B Bonds.
4. CMI INVOLVEMENT IN SALE PROCESS. SSB shall consult with CMI
and the financial advisors to the Unsecured Committee and the Equity Committee
throughout the Sale Process, consistent with the new issue marketing practices
of SSB. The financial advisors to the Unsecured Committee and the Equity
Committee will not interfere with the Sale Process and will use the information
received from SSB only for the purpose of this Stipulation and Order.
5. RESERVE PRICE. During the Sale Period, SSB shall have the
right to sell any or all of the Triple B Bonds at such prices as SSB may
reasonably deem satisfactory as long as such prices meet or exceed the Reserve
Price for the Triple B Bonds provided on the Reserve Price Schedule set forth in
Exhibit A to this Stipulation and Order. SSB shall be responsible for ensuring
that the Sale Process is conducted in a commercially reasonable manner.
6. SECONDARY RESERVE PRICE. With CMI's and CM Holdings'
written consent, during the Sale Period, SSB shall have the right to sell any or
all of the Triple B Bonds at a price which is below the Reserve Price but which
meets or exceeds the Secondary Reserve Price for the Triple B Bonds provided on
the Reserve Price Schedule set forth in Exhibit A to this Stipulation and Order.
-3-
<PAGE>
7. EFFECT OF FAILURE TO MEET RESERVE PRICE. The effect of the
failure to meet the Reserve Price (without the consent of CMI) by the end of the
Sale Period for any or all of the Triple B Bonds will be the automatic
termination of the Sale Period as to any Triple B Bonds for which the applicable
Reserve Price is not met. The rights of CMI and SSB shall thereupon be governed
by the provisions of Paragraph 16 herein below with respect to such of the
Triple B Bonds for which the applicable Reserve Price has not been met.
8. ALLOCATION OF PROCEEDS OF SALE OF THE TRIPLE B BONDS. The
proceeds from the sale of any Triple B Bonds (the "Total Proceeds") will be
allocated as follows:
(i) FIRST, to SSB in the amount of the Triple B Bonds
Adjusted Basis (as defined below) for each Triple B
Bond sold times the face amount of bonds sold divided
by $1,000;
(ii) SECOND, to SSB in the amount of its actual sales
costs and expenses (not to exceed in the aggregate
the sum of $100,000), and accrued but unpaid
distributions on the Triple B Bonds, all as
apportioned PRO RATA for the Triple B Bonds sold;
(iii) THIRD, to SSB in the amount of its loss of
$305,000 from closing out the Transaction (the
"Liquidated Hedge Loss"); and
(iv) FOURTH, 100% of the remainder, if any, of such
Total Proceeds will be paid to CMI.
In the event all of the Triple B Bonds are sold pursuant to
this Stipulation and Order, SSB shall have an allowed unsecured claim against
each of CM Holdings and CMI (as the general partner of CM Holdings; it being
expressly understood that SSB's allowed deficiency claim against CMI shall not
be limited by reason of CMI's general partner relationship with CM Holdings) to
the extent that the amount of the Total Proceeds are insufficient to satisfy the
amounts payable to SSB (A) pursuant to subparagraphs (i) and (ii) above (the
"Triple B Deficiency") and (B) pursuant to subparagraph (iii) above; provided,
however, that any such deficiency claim asserted under subparagraph (iii) shall
not exceed $152,500.00 (the "Hedge Deficiency").
-4-
<PAGE>
To the extent that less than all of the Triple B Bonds are
sold hereunder:
(x) SSB shall have an allowed unsecured claim against
each of CM Holdings and CMI (as the general partner
of CM Holdings; it being expressly understood that
SSB's allowed deficiency claim against CMI shall not
be limited by reason of CMI's general partner
relationship with CM Holdings) to the extent that the
amount of the Total Proceeds are insufficient to
satisfy the Triple B Deficiency and the Hedge
Deficiency attributable to the sold Triple B Bonds;
and
(y) SSB, CMI and CM Holdings shall have whatever rights
each of them has in connection with any unsold Triple
B Bonds as if this Stipulation and Order had not been
executed, consistent with paragraph 16 hereof.
9. TRIPLE B BONDS ADJUSTED BASIS. The Triple B Bonds Adjusted
Basis shall be calculated as follows:
Class D: $865.53 per $1,000 face amount of bonds, (i)
less the absolute amount of the PRO RATA Hedge
Profits or Losses (as defined below) allocable to
Class D, if a positive number, or plus such absolute
amount, if a negative number, and (ii) less the
absolute amount of the Class D Basis Adjustment
Amount (as defined below), if a positive number, or
plus such absolute amount, if a negative number.
Class E: $856.71 per $1,000 face amount of bonds, (i)
less the absolute amount of the PRO RATA Hedge
Profits or Losses (as defined below) allocable to
Class E, if a positive number, or plus such absolute
amount, if a negative number, and (ii) less the
absolute amount of the Class E Basis Adjustment
Amount (as defined below), if a positive number, or
plus such absolute amount, if a negative number.
10. CLASS D BASIS ADJUSTMENT AMOUNT. The Class D Basis
Adjustment Amount shall be the sum of the Daily Basis Adjustments (as defined
below) for the Class D Triple B Bonds from October 5, 1998 through the sale date
for each bond sold, calculated assuming 30 days in each month, and 360 days in
each year.
11. CLASS E BASIS ADJUSTMENT AMOUNT. The Class E Basis
Adjustment Amount shall be the sum of the Daily Basis Adjustments (as defined
below) for the Class E Triple B Bonds from October 5, 1998 through the sale date
for each bond sold, calculated assuming 30 days in each month, and 360 days in
each year.
-5-
<PAGE>
12. DAILY BASIS ADJUSTMENT. The Daily Basis Adjustment for
each of the Triple B Bonds sold shall be calculated daily as follows:
Class D: ($1,000.00 * 6.859% / 360) minus ($865.53 *
(1 month LIBOR) + 0.5%) / 360)
Class E: ($1,000.00 * 7.147% / 360) minus ($856.71 *
(1 month LIBOR) + 0.5%) / 360)
Daily Basis Adjustments may be positive or negative.
"LIBOR" shall mean, for any day in any calendar
month, the one month London Interbank Offered Rate
published in THE WALL STREET JOURNAL on the first
date of publication of the applicable calendar month,
expressed as a percentage. If THE WALL STREET JOURNAL
(i) publishes more than one such rate on any date of
publication, the higher or highest of such rates
shall apply, or (ii) publishes a retraction or
correction of any such rate, the corrected rate shall
apply.
13. HEDGE PROFITS OR LOSSES. SSB shall consult with CMI and
the Unsecured Committee regarding general hedging strategies with respect to the
Triple B Bonds. SSB may, after consultation with CMI and the Unsecured
Committee, determine and implement interest rate hedging strategies mutually
agreeable to CMI and the Unsecured Committee for the Triple B Bonds and shall
provide CMI and the Unsecured Committee with a record of hedging transactions
promptly upon request. Once a mutually acceptable hedge transaction is
implemented, SSB may, after prior notification to CMI and the Unsecured
Committee, implement other interest rate hedging strategies for the Triple B
Bonds.
The term "HEDGE PROFITS OR LOSSES" shall mean profits or
losses from such hedging activities from the Effective Date through the sale
date for such of the Triple B Bonds sold pursuant to the provisions of this
Stipulation and Order.
14. DISMISSAL AND RELEASES. If sales are consummated for all
of the Triple B Bonds consistent with the terms of this Stipulation and Order,
SSB and CSI (and their respective partners, affiliates, officers, directors,
-6-
<PAGE>
employees, agents, successors and assigns) will be released by CMI and CM
Holdings (and their respective partners, affiliates, officers, directors,
employees, agents, successors and assigns) from any and all claims asserted or
which could have been asserted as to the Triple B Bonds and CMI and CM Holdings
(and their respective partners, affiliates, officers, directors, employees,
agents, successors and assigns) will be released by SSB and CSI (and their
respective partners, affiliates, officers, directors, employees, agents,
successors and assigns) from any and all claims asserted or which could have
been asserted as to the Triple B Bonds, irrespective of the legal theories
underlying such claims, including any theory that the Triple B Bonds sold in
accordance with the provisions hereof were sold in a commercially unreasonable
manner. SSB, CSI, CMI and CM Holdings specifically reserve all rights each may
have against the other with respect to any other matter not related to the
Triple B Bonds. If less than all of the Triple B Bonds are sold in a manner
consistent with the terms of this Stipulation and Order, any and all claims
asserted as to the Triple B Bonds sold consistent with the terms of this
Stipulation and Order or which could have been asserted, irrespective of the
legal theories underlying such claims, including any theory that the Triple B
Bonds sold in accordance with the provisions hereof were sold in a commercially
unreasonable manner, will be released, and any and all other claims asserted or
which could have been asserted, irrespective of the legal theories underlying
such claims will be preserved in all respects as to any and all unsold Triple B
Bonds. The releases in this Paragraph 14 shall not apply to the extent that CSI,
SSB or any affiliate of either of them realized a profit in connection with any
hedge transaction entered into on or after October 7, 1998 and prior to the
Effective Date with respect to any or all of the Triple B Bonds.
15. OTHER TERMINATION EVENTS. In addition to the automatic
termination for failure to meet the Reserve Price referenced in Paragraph 7
above, the Sale Period shall also terminate automatically at the earlier of:
(i) failure to obtain entry of this Stipulation and Order
on or before April 5, 1999;
-7-
<PAGE>
(ii) the conversion of CMI's or CM Holdings' chapter 11
case to a case under chapter 7 of the Bankruptcy
Code;
(iii) the appointment in CMI's or CM Holdings' chapter 11
case of a chapter 11 trustee or an examiner with
expanded powers;
(iv) any material adverse change or disruption in
financial, banking or capital markets or in the
regulatory environment that in the good faith
judgment of SSB makes it advisable to sell the
Triple B Bonds (a "MAC Declaration");
The foregoing events clauses (i) through (iv) above are hereinafter referred to
as "OTHER TERMINATION EVENTS." SSB agrees to notify each of CMI, CM Holdings,
the Unsecured Committee and the Equity Committee of a MAC Declaration and agrees
to take no steps to effectuate a sale of the Triple B Bonds for one business day
following the service of such notice by facsimile transmission to counsel for
the aforementioned parties. SSB, and only SSB, has the right to waive the
occurrence of any Other Termination Event.
16. EFFECT OF TERMINATION. In the event that the Sale Period
is automatically terminated, the parties shall be deemed to have reverted NUNC
PRO TUNC to their respective status as of the date and time immediately prior to
the execution of this Stipulation and Order and they shall be entitled to
proceed in all respects as if this Stipulation and Order had not been executed
and without prejudice in any way as a result of the negotiation, facts or terms
of this Stipulation and Order, PROVIDED, HOWEVER, that any such termination
shall not affect any sales of Triple B Bonds consistent with the terms of this
Stipulation and Order occurring prior to such termination or the rights and
obligations of the parties as set forth herein with respect to such sales of
Triple B Bonds including, but not limited to, (i) SSB's obligation to pay any
monies owing to CMI or CM Holdings resulting from any such sale or (ii) SSB's
right to assert a claim for the Triple B Deficiency or the Hedge Deficiency
(apportioned pro rata as to the Triple B Bonds sold) consistent with paragraph 8
hereof. The effect of a termination based on failure to meet the Reserve Price
will be limited to those Triple B Bonds for which the Reserve Price is not met.
-8-
<PAGE>
17. SETTLEMENT AGREEMENT NOT ADMISSION. This Stipulation and
Order and its respective provisions, whether or not consummated, and any
negotiations, statements, proceedings or agreements relating to the Stipulation
and Order, are not and shall not in any event be construed as, offered in
evidence as or received in evidence as a presumption, concession or an admission
of the truth of any fact alleged or the validity of any claim that has been or
could have been asserted in a judicial proceeding or of the deficiency of any
defense that has been, could have been, or in the future might be asserted in a
judicial proceeding, or of any liability, fault, wrongdoing or otherwise.
18. BINDING EFFECT. The terms and provisions of this
Stipulation and Order shall be binding upon all parties in interest including
the Unsecured Committee and the Equity Committee.
19. CORE PROCEEDING. The consideration by the Court of this
Stipulation and Order is a "core" proceeding within the meaning of 28 U.S.C. ss.
157. This Stipulation and Order is a final order of the Bankruptcy Court,
immediately applicable and valid and fully effective upon its entry.
20. CONSTRUCTION. The captions in this Stipulation and Order
are for convenience of reference only and shall not affect the construction or
interpretation of any of the provisions hereof.
21. CMI AND UNSECURED COMMITTEE STIPULATION. The effectiveness
of this Stipulation and Order is subject to the entry of an order of this Court
approving a consensual stipulation and order between CMI and the Unsecured
Committee with respect to the disposition of the proceeds of sale allocated to
CMI hereunder.
Let the Clerk forward copies of this Stipulation and Order to
counsel whose names and addresses appear below.
-9-
<PAGE>
SO ORDERED this 2nd day of April, 1999.
/s/ Duncan W. Keir
----------------------
DUNCAN W. KEIR
United States Bankruptcy Judge
CONSENTED AND AGREED TO:
/s/ Richard L. Wasserman /s/ Troy C. Swanson
- ------------------------------ --------------------------
Richard L. Wasserman, Esquire Troy C. Swanson, Esq.
(Federal Bar No. 02784) (Federal Bar No. 05806)
Gregory A. Cross, Esquire Kincaid, Cohen & Swanson, P.C.
(Federal Bar No. 04571-G) 800 North Charles Street
Venable, Baetjer and Howard, LLP Suite 400
1800 Mercantile Bank & Trust Bldg. Baltimore, Maryland 21201
2 Hopkins Plaza (410) 783-6092
Baltimore, Maryland 21201
(410) 244-7400 -and-
/s/ Judy G. Z. Liu
Co-Counsel for CRIIMI MAE Inc -----------------------
and CRIIMI MAE Holdings II, L.P. Harvey R. Miller, Esq.
Greg A. Danilow, sq.
Judy G. Z. Liu, Esq.
Stephen A. Radin, Esq.
/s/ Daniel M. Lewis Weil, Gotshal & Manges LLP
- ------------------------ 767 Fifth Avenue
Daniel M. Lewis, Esquire New York, New York 10153
Michael Bernstein, Esquire (212)310-8000
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20044 Counsel for Salomon Smith
(202) 942-5661 Barney Inc. and Citicorp
Securities, Inc.
Counsel for the Official Unsecured
Creditors Committee
cc: Richard L Wasserman, Esquire
Venable, Baetjer and Howard LLP
1800 Mercantile Bank & Trust Bldg.
2 Hopkins Plaza
Baltimore, Maryland 21201
-10-
<PAGE>
Judy G. Z. Liu, Esquire
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Troy C. Swanson, Esquire
Kincaid, Cohen & Swanson, P.C.
The Park Plaza
800 North Charles Street
Suite 400
Baltimore, Maryland 21201
Daniel M. Lewis, Esquire
Arnold and Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004
Michael St. Patrick Baxter, Esquire
Covington and Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044
Clifford J. White, III, Esquire
Assistant U.S. Trustee
Office of U.S. Trustee
6305 Ivy Lane, Suite
600 Greenbelt, Maryland 20770
-11-
<PAGE>
Exhibit A
[Filed with Court under seal.]
-12-
<PAGE>
Exhibit 99(l)
ENTERED
APR 05 1999
CLERK'S OFFICE
U.S. BANKRUPTCY COURT
DISTRICT OF MARYLAND
GREENBELT
[STAMP OF THE COURT]
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
(Greenbelt Division)
In re: *
CRIIMI MAE INC., et al., * Bankruptcy No. 98-2-3115-DK
(Chapter 11)
Debtors. * (Jointly Administered)
* * * * * * * * * * * * * * * * * * * * * * * * * * *
SUPPLEMENTAL STIPULATION AND CONSENT ORDER
REGARDING SALE OF CERTAIN TRIPLE B BONDS
Upon the consent of CRIIMI MAE Inc. ("CMI"), CRIIMI MAE Holdings II,
L.P., Salomon Smith Barney Inc., Citicorp Securities, Inc., the Official
Committee of Unsecured Creditors of CMI (the "Unsecured Committee") and the
Official Committee of Equity Security Holders of CMI (the "Equity Committee") to
the limited relief set forth herein, it is hereby stipulated and agreed as
follows:
1. Paragraph 13 of the Stipulation and Consent Order Regarding Sale of
Certain Triple B Bonds (the "Triple B Bonds Stipulation and Consent Order") is
hereby amended to insert the Equity Committee in addition to the Unsecured
Committee in each place that the Unsecured Committee appears in that paragraph.
The first paragraph of Paragraph 13
<PAGE>
of the Triple B Bonds Stipulation and Consent Order is accordingly amended to
read as follows:
"SSB shall consult with CMI, the Unsecured Committee and the
Equity Committee regarding general hedging strategies with respect
to the Triple B Bonds. SSB may, after consultation with CMI, the
Unsecured Committee and the Equity Committee, determine and
implement interest rate hedging strategies mutually agreeable to
CMI, the Unsecured Committee and the Equity Committee for the
Triple B Bonds and shall provide CMI, the Unsecured Committee and
the Equity Committee with a record of hedging transactions
promptly upon request. Once a mutually acceptable hedge
transaction is implemented, SSB may, after prior notification to
CMI, the Unsecured Committee and the Equity Committee, implement
other interest rate hedging strategies for the Triple B Bonds."
2. Except as modified hereinabove, all other terms and provisions of the
Triple B Bonds Stipulation and Consent Order shall remain in full force and
effect as entered by the United States Bankruptcy Court for the District of
Maryland.
CONSENTED AND AGREED TO:
<TABLE>
<S> <C>
/s/ Richard L. Wasserman /s/ Judy G. Z. Liu
- ------------------------------------ ------------------
Richard L. Wasserman, Esquire Harvey R. Miller, Esquire
Venable, Baetjer and Howard, LLP Judy G. Z. Liu, Esquire
1800 Mercantile Bank & Trust Bldg. Weil, Gotshal & Manges LLP
2 Hopkins Plaza 767 Fifth Avenue
Baltimore, Maryland 21201 New York, New York 10153
(410) 244-7400 (212) 310-8000
Co-Counsel for CRIIMI MAE Inc. -and-
and CRIIMI MAE Holdings II, L.P.
Troy C. Swanson, Esquire
Kincaid, Cohen & Swanson, P.C.
/s/ Michael Bernstein 800 North Charles Street
- ------------------------------ Suite 400
Daniel M. Lewis, Esquire Baltimore, Maryland 21201
Michael Bernstein, Esquire
-2-
<PAGE>
Arnold & Porter (410) 783-6092
555 Twelfth Street, N.W.
Washington, D. C. 20044 Counsel for Salomon Smith
(202) 942-5661 Barney Inc. and Citicorp
Securities, Inc.
Counsel for the Official Unsecured
Creditors Committee of CRIIMI
MAE Inc.
</TABLE>
/s/ Dennis Auerbach
- -------------------------
Michael St. Patrick Baxter, Esquire
Dennis B. Auerbach, Esquire
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044-7566
(202) 662-6000
Counsel for the Official Committee
of Equity Security Holders of
CRIIMI MAE Inc.
The foregoing Supplemental Stipulation and Consent Order is hereby SO
ORDERED this 2nd day of April, 1999.
/s/ Duncan W. Keir
----------------------
DUNCAN W. KEIR
United States Bankruptcy Judge
cc: Richard L. Wasserman, Esquire
Venable, Baetjer and Howard, LLP
1800 Mercantile Bank & Trust Bldg.
2 Hopkins Plaza
Baltimore, Maryland 21201
-3-
<PAGE>
Daniel M. Lewis, Esquire
Michael Bernstein, Esquire
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20044
Michael St. Patrick Baxter, Esqurie
Dennis B. Auerbach, Esquire
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044-7566
Harvey R. Miller, Esquire
Judy G. Z. Liu, Esquire
Weil, Gotshal & Manges, LLP
767 Fifth Avenue
New York, New York 10153
Troy C. Swanson, Esquire
Kincaid, Cohen & Swanson, P.C.
800 North Charles Street
Suite 400
Baltimore, Maryland 21201
Clifford J. White, III, Esquire
Office of the United States Trustee
6305 Ivy Lane
Suite 600
Greenbelt, Maryland 20770
-4-
<PAGE>
Exhibit 99(m)
ENTERED
APR 05 1999
CLERK'S OFFICE
U.S. BANKRUPTCY COURT
DISTRICT OF MARYLAND
GREENBELT
[STAMP OF THE COURT]
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
(Greenbelt Division)
In re: *
CRIIMI MAE INC., et al., * Bankruptcy Nos. 98-2-3115-DK
through 98-2-3117-DK
Debtors. * (Chapter 11)
(Jointly Administered)
*
* * * * * * * * *
STIPULATION AND ORDER
REGARDING PROCEEDS RECEIVED BY THE DEBTOR
FROM THE SALE OF CERTAIN TRIPLE B BONDS
It is hereby stipulated and agreed by and between CRIIMI MAE
Inc. (the "Debtor" or "CMI") and the Official Committee of Unsecured Creditors
of CMI (the "Unsecured Committee") as follows:
1. The Debtor agrees that all proceeds received by it from
Salomon Smith Barney Inc. ("SSB") from SSB's sale of certain Triple B Bonds (as
that term is defined in the Stipulation and Consent Order
<PAGE>
Regarding Sale of Certain Triple B Bonds entered herein contemporaneously
herewith, hereinafter referred to as the "SSB Stipulation and Consent Order")
shall be deposited by the Debtor in a segregated, interest-bearing account or
other investment of funds acceptable to the Debtor, the Unsecured Committee and
the Official Committee of Equity Security Holders of CMI (the "Equity
Committee"). Such proceeds, together with all earnings thereon, are hereinafter
referred to as the "SSB Net Proceeds."
2. The SSB Net Proceeds can be used by the Debtor for purposes
of funding its Chapter 11 plan of reorganization.
3. Subject to the provisions of paragraph 4 hereof, the Debtor
agrees to give the Unsecured Committee and the Equity Committee not less than 30
days prior written notice through their respective counsel before the Debtor
uses any of the SSB Net Proceeds in any manner except for Chapter 11 plan
purposes as provided in paragraph 2 above.
4. Except for plan purposes as provided in paragraph 2 above,
the Debtor agrees not to use any of the SSB Net Proceeds without the consent of
the Unsecured Committee and the Equity Committee for the following purposes: (i)
originating commercial mortgage loans, (ii)
-2-
<PAGE>3
purchasing mortgage loans or mortgage-backed securities, or (iii) payment of
dividends.
/s/ RICHARD L. WASSERMAN /s/ DANIEL M. LEWIS/RLW WITH PERMISSION
- --------------------------- ---------------------------------------
Richard L. Wasserman, Esquire Daniel M. Lewis, Esquire
Federal Bar No. 02784 Arnold & Porter
Venable, Baetjer and Howard, LLP Thurman Arnold Building
1800 Mercantile Bank & Trust Bldg. 555 Twelfth Street, N.W.
2 Hopkins Plaza Washington, D.C. 200004-1202
Baltimore, Maryland 21201 202-942-5000
410-244-7400
Counsel for the Official
Co-Counsel for CRIIMI MAE Inc. Committee of Unsecured
Creditors of CMI
The foregoing Stipulation is hereby SO ORDERED this 2nd day of
April, 1999.
/s/ DUNCAN W. KEIR
------------------
DUNCAN W. KEIR
United States Bankruptcy Judge
-3-
<PAGE>
Exhibit 99(n)
ENTERED
APR 05 1999
CLERK'S OFFICE
U.S. BANKRUPTCY COURT
DISTRICT OF MARYLAND
GREENBELT
[STAMP OF THE COURT]
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
(Greenbelt Division)
*
In re: *
CRIIMI MAE INC., et al., * 98-2-3ll5-DK
-- --- (Chapter 11)
Debtors. * (Jointly Administered)
*
* * * * * * * * * * * * * * * * * * * * * * * * * *
STIPULATION AND CONSENT ORDER
REGARDING MORTGAGE LOAN
ORIGINATION AGREEMENT WITH CITICORP REAL ESTATE. INC.
Upon the consent of CRIIMI MAE Inc. (the "DEBTOR" or "CMI"), Citicorp
Real Estate, Inc. ("CREI"), and the Official Committee of Unsecured Creditors of
CMI (the "UNSECURED COMMITTEE") to the limited relief set forth in this
Stipulation and Order and upon the stipulation by CREI, the Debtor and the
Unsecured Committee, the Court finds that:
A. Proper notice hereof has been given to the United States Trustee,
the Official Committee of Equity Security Holders of CMI (the "EQUITY
COMMITTEE") and the other necessary parties pursuant to Fed. R. Bankr. P. 2002.
<PAGE>
B. As of the date the Debtor filed its petition for relief herein,
October 5, 1998, the Debtor and CREI were parties to an Amended and Restated
Mortgage Loan Origination and Disposition Agreement dated as of May l, 1998 (the
"Origination Agreement"), pursuant to which CMI originated loans funded by CREI
with the goal of securitizing the loans. Certain loans that were originated
under the Origination Agreement but which are still held by CREI and which have
not been included in any securitization are listed on Exhibit A to this
Stipulation and Order (the "LOANS"). In accordance with the Origination
Agreement, concurrently with the funding of each Loan, CMI deposited with CREI
certain reserve amounts in certain reserve accounts (the "RESERVE AMOUNT"), with
any entitlements to interest thereon, for purposes of the settlement set forth
herein, to be consistent with Paragraph 9 hereof. As of September 30, 1998, the
aggregate Reserve Amount was $31,564,412.30.
C. A non-debtor affiliate of CMI, CRIIMI MAE Services Limited
Partnership ("CMSLP"), services the Loans pursuant to that certain CitiMae
Commercial Servicer Contract effective as of July 22, 1996, as supplemented by a
Supplemental Agreement, dated as of July 22, 1996 (collectively, the "Servicing
Agreement") and the CitiMae Commercial Sellers'/Servicers' Guide for Commercial
Real Estate Loans (the "Guide").
D. There exist a number of claims and disputed issues between CMI,
CREI and CMSLP. After extensive negotiations, CMI, CREI and CMSLP have agreed to
the terms of this Stipulation and Order.
E. CMI, CMSLP and CREI agree that the intent and purpose of this
Stipulation and Order is to sell the Loans in a commercially reasonable manner
pursuant to and in accordance with the terms and conditions of this Stipulation
and Order.
<PAGE>
NOW, THEREFORE, it is hereby ORDERED that:
l. EFFECTIVE DATE. The terms of this Stipulation and Order shall be
effective upon entry of this order by the Court (the "Effective Date").
2. SALE PROCESS. CREI will have the right upon the Effective Date to
sell the Loans pursuant to and in accordance with the terms and conditions of
this Stipulation and Order (the "SALE PROCESS"). CREI and CMI agree that (i)
CREI may engage Secured Capital Corp. or such other entity mutually acceptable
to CREI, CMI and the Unsecured Committee (the "Sales Agent") on commercially
reasonable terms satisfactory to CREI to market and arrange a sale of the Loans
on commercially reasonable terms and consistent with this Stipulation and Order,
and (ii) the Sales Agent may sell the Loans to multiple purchasers, provided
that all the Loans are sold. CMI, the Unsecured Committee, the Equity Committee
and CREI may, however, by written agreement permit the Sales Agent to sell less
than all of the Loans.
3. CREI. CMI AND CMSLP COOPERATION IN THE SALE PROCESS. CMI, CRE and
CMSLP shall cooperate with the Sales Agent throughout the Sale Process and use
their best efforts to facilitate the sale of the Loans. CREI, CMI and CMSLP will
consult with each other throughout the Sale Process and provide any and all
necessary documents, information and other assistance as reasonably requested by
the Sales Agent or any prospective purchaser. During the period that this
Stipulation and Order remains in effect, CMSLP shall continue to service the
Loans in accordance with the terms, standards and requirements set forth in the
Servicing Agreement and Guide, and shall receive the compensation as set forth
in the Origination Agreement. The Loans shall be sold servicing released.
Specifically, if the Loans are sold, the servicing rights shall be released to
the respective purchasers upon the closing of the sales of such Loans. Within
ten (10) business days following the Effective Date, CMSLP shall provide
<PAGE>
servicing termination letters to an escrow agent mutually agreed upon by CREI
and CMI, which escrow agent shall be directed to release such letters
immediately to the borrowers under the Loans after receipt of written notice
from CREI (copies of which notice shall be simultaneously provided to counsel
for CMI and the Unsecured Committee by facsimile transmission) of the occurrence
of the sale of the Loans. Additionally, during the Sale Process, CMSLP shall
provide reports as required by the Servicing Agreement and Guide and as
reasonably requested by the Sales Agent and any prospective purchaser.
4. CMI INVOLVEMENT IN SALE PROCESS. CREI shall consult with CMI and
the financial advisors to the Unsecured Committee and the Equity Committee
throughout the Sale Process. The financial advisors to the Unsecured Committee
and the Equity Committee will not interfere with the Sale Process and will use
the information received from CREI only for the purpose of this Stipulation and
Order.
5. RESERVE PRICE. Upon the Effective Date, CREI shall have the right
to sell the Loans at such prices as CREI may reasonably deem satisfactory as
long as such prices meet or exceed the Minimum Proceeds set forth in Paragraph 6
of this Stipulation and Order. The Sale Process shall be conducted in a
commercially reasonable manner.
6. MINIMUM PROCEEDS OF SALE. It is understood and agreed that, unless
a proposed sale is otherwise approved in writing by CMI, the Unsecured Committee
and the Equity Committee, no sale of the Loans shall be permitted hereunder if
the net proceeds of sale plus the Reserve Amount (including the Interest Credit
as defined in Paragraph 9 below) allocated in accordance with the provisions of
Paragraph 7 hereof do not result in a payment to CMI of at least $3,500,000.00
(Three Million, Five Hundred Thousand Dollars) (the "MINIMUM
<PAGE>
PROCEEDS"), unless such requirement is waived by CMI, the Unsecured Committee
and the Equity Committee.
7. ALLOCATION OF PROCEEDS OF SALE OF THE LOANS. The proceeds from (a)
the sale of the Loans, plus (b) the Reserve Amount (plus the Interest Credit, as
defined in Paragraph 9 below) and (c) Hedge Profits (as defined below),
(collectively, the "Total Proceeds") if any, will be allocated as follows:
(a) FIRST, to CREI (i) 100% of the accrued and unpaid interest
and principal balance of the Loans, as reconciled in
connection with such sale, plus (ii) an Exit Fee equal to
37.5 basis points of the aggregate unpaid principal balance
of the Loans, plus (iii) an agreed upon third party sales
fee (capped at $l,500,000) plus (iv) costs and expenses
(capped at $375,000), including the Thacher Proffitt & Wood
invoice dated December 23, 1998), plus (v) Hedge Losses (if
any) (as defined below);
(b) SECOND, to CMI in an amount not to exceed $6,000,000;
(c) THIRD, the next $3,000,000 of the Total Proceeds to be paid
15% to CREI and 85% to CMI (after payment of (a) and (b));
and
(d) FOURTH, the remainder, if any, of the Total Proceeds (after
payment of (a), (b)and (c)) to be paid 20% to CREI and 80%
to CMI.
8. HEDGE PROFITS OR LOSSES. CREI shall consult with CMI and the
Unsecured Committee regarding general hedging strategies with respect to the
Loans. CREI may, after prior notification to CMI and the Unsecured Committee,
determine and implement interest rate hedging strategies for the Loans, and
shall provide CMI and the Unsecured Committee with a record of hedging
transactions promptly upon request.
The terms "Hedge Losses" or "Hedge Profits" shall mean profits or
losses from such hedging activities, through the sale date for the Loans sold
pursuant to the provisions of this Stipulation and Order.
<PAGE>
9. INTEREST ON RESERVE AMOUNT. Solely for the purpose of this
Stipulation and Order, CREI agrees to credit the Reserve Amount with an amount
equal to interest as if it had been accruing on the Reserve Amount at the rate
from time to time earned on interest bearing deposit accounts (currently, 3.85%
per annum) from October l, 1998 through the closing of the sale of the Loans
pursuant to this Stipulation and Order (the "Interest Credit"); PROVIDED,
HOWEVER, that the Interest Credit shall be applied only in the event the Loans
are actually sold. In the event that the Loans are not sold, nothing in this
Stipulation and Order shall be deemed to be a waiver of or limitation on any
party's right to assert a claim for interest on the Reserve Amount
notwithstanding that the Loans were not actually sold; PROVIDED, HOWEVER, that
if less than all of the Loans are sold (by agreement of the parties as set forth
in Paragraph 2 hereof), nothing in this Stipulation and Order shall be deemed to
be a waiver of or limitation on any party's right to assert a claim for interest
on the Reserve Amount (on a pro rata basis) as to the Loans not actually sold.
10. DOCUMENTATION OF SALE OF LOANS. CREI and CMI shall execute all
documents reasonably necessary and proper in connection with the sale of the
Loans including, but not limited to, a purchase and sale agreement, and related
assignments of loan documents and CMSLP servicing rights. CREI, CMI and CMSLP
agree that in order to facilitate the sale of the Loans, each such party shall
provide the prospective purchaser, respectively, with such customary and
appropriate representations and warranties as may be reasonably requested from
each such party.
11. DISMISSAL AND RELEASES. If sales are consummated for the Loans
consistent with the terms of this Stipulation and Order, CREI (and its partners,
affiliates, officers, directors, employees, agents, and successors and assigns)
will be released by CMI and CMSLP
<PAGE>
(and their respective partners, affiliates, officers, directors, employees,
agents, successors and assigns) from any and all claims asserted or which could
have been asserted as to the Loans, the Origination Agreement, the Servicing
Agreement, the guaranty by CMI of CMSLP's obligations under the Servicing
Agreement (the "GUARANTY") and the Guide, and CMI and CMSLP (and their
respective partners, affiliates, officers, directors, employees, agents,
successors and assigns) will be released by CREI (and its partners, affiliates,
officers, directors, employees, agents, successors and assigns) from any and all
claims asserted or which could have been asserted as to the Loans, the
Origination Agreement, the Servicing Agreement, the Guaranty and the Guide,
irrespective of the legal theories underlying such claims, including any theory
that the Loans were sold in a commercially unreasonable manner. CREI, CMI and
CMSLP specifically reserve all rights each may have against the other with
respect to any other matter not related to the Loans, the Origination Agreement,
the Servicing Agreement, the Guaranty or the Guide. If less than all of the
Loans are sold (by agreement of the parties as set forth in Paragraph 2 hereof),
any and all claims asserted or which could have been asserted, irrespective of
the legal theories underlying such claims (including any theory that the Loans
were sold in a commercially unreasonable manner), as to the Loans, the
Origination Agreement, the Servicing Agreement, the Guaranty and the Guide will
be released as to those Loans sold consistent with the terms of this Stipulation
and Order, and preserved in all respects as to any and all unsold Loans.
12. TERMINATION EVENTS.
(a) This Stipulation and Order shall terminate (unless waived by
CREI) upon the earliest to occur of the following events (each a "Termination
Event"):
(i) The conversion of CMI's chapter II case to a case under
chapter 7 of the Bankruptcy Code; (ii) the appointment in CMI's
chapter 11 case of a
<PAGE>
chapter 11 trustee or an examiner with expanded powers; (iii) failure
to obtain entry of this Stipulation and Order on or before April 5,
1999; and (iv) a declaration by CREI that in its good faith judgment a
material adverse change or disruption in financial, banking or capital
markets or in the regulatory environment makes it advisable to sell
the Loans (a "MAC Declaration"). CREI agrees to notify in writing each
of CMI, the Unsecured Committee and the Equity Committee of a MAC
Declaration and agrees to take no steps to effectuate a sale of the
Loans for one business day following the service by facsimile
transmission to counsel for the aforementioned parties. CREI, and only
CREI, has the right to waive the occurrence of any Termination Event
and continue with the Sale Process.
(b) In the event that, after the receipt of all final bids
submitted by potential purchasers in connection with an auction sale of the
Loans conducted by the Sales Agent, such auction fails to yield sufficient Total
Proceeds to satisfy in full the amounts due CREI pursuant to Paragraph 7(a)
hereof, CREI shall be entitled to (i) terminate this Stipulation and Order (an
"Other Termination Event") or (ii) continue with the Sale Process. CREI agrees
to notify in writing by facsimile transmission counsel for each of CMI, the
Unsecured Committee and the Equity Committee of the occurrence of an Other
Termination Event, which notice shall be effective one business day following
the service of such notice.
13. EFFECT OF TERMINATION. Upon the occurrence of an unwaived
Termination Event or Other Termination Event, the parties shall be deemed to
have reverted NUNC PRO TUNC to their respective status as of the date and time
immediately prior to the execution of this Stipulation and Order and they shall
be entitled to proceed in all respects as if this Stipulation
<PAGE>
and Order had not been executed and without prejudice in any way as a result of
the negotiation, facts or terms of this Stipulation and Order. In addition, CREI
shall immediately instruct the escrow agent to return the servicing termination
letters to CMSLP.
14. BINDING EFFECT. The terms and provisions of this Stipulation and
Order shall be binding upon all parties in interest including the Unsecured
Committee and the Equity Committee.
15. SETTLEMENT AGREEMENT NOT ADMISSION. This Stipulation and Order and
its respective provisions, whether or not consummated, and any negotiations,
statements, proceedings or agreements relating to the Stipulation and Order, are
not and shall not in any event be construed as, offered in evidence as or
received in evidence as a presumption, concession or an admission of the truth
of any fact alleged or the validity of any claim that has been or could have
been asserted in a judicial proceeding or of the deficiency of any defense that
has been, could have been, or in the future might be asserted in a judicial
proceeding, or of any liability, fault, wrongdoing or otherwise.
16. CORE PROCEEDING. The consideration by the Court of this
Stipulation and Order is a "core" proceeding within the meaning of 28 U.S.C. ss.
157. This Stipulation and Order is a final order of the Bankruptcy Court,
immediately appealable and valid and fully effective upon its entry.
17. CONSTRUCTION. The captions in this Stipulation and Order are for
convenience of reference only and shall not affect the construction or
interpretation of any of the provisions hereof.
18. CMI AND UNSECURED COMMITTEE STIPULATION. The effectiveness of this
Stipulation and Order is subject to the entry of an order of this Court
approving a consensual
<PAGE>
stipulation and order between CMI and the Unsecured Committee with respect to
the disposition of the proceeds of sale allocated CMI hereunder.
<PAGE>
Let the Clerk forward copies of this Stipulation and Order to counsel
whose names and addresses appear below SO ORDERED this 2nd day of April, 1999
/s/ Duncan W. Keir
-----------------------------------
DUNCAN W. KEIR
United States Bankruptcy Judge
CONSENTED AND AGREED TO:
/s/ Richard L. Wasserman /s/ Troy C. Swanson
- ---------------------------------- -----------------------------------
Richard L. Wasserman, Esquire Troy C. Swanson, Esq.
(Federal Bar No. 02784) (Federal Bar No. 05806)
Gregory A. Cross, Esquire Kincaid, Cohen & Swanson, P.C.
(Federal Bar No. 04571-(3) 800 North Charles Street
Venable, Baetjer and Howard, LLP Suite 400
1800 Mercantile Bank & Trust Bldg. Baltimore, Maryland 21201
2 Hopkins Plaza (410) 783-6092
Baltimore, Maryland 21201
(410) 244-7400
-and-
Co-Counsel for CRIIMI MAE Inc. /s/ Judy G. Z. Liu
-----------------------------------
Harvey R. Miller, Esq.
Greg A. Danilow, Esq.
Judy G. Liu, Esq.
/s/ Daniel M. Lewis Stephen A. Radin, Esq.
- ------------------------ Weil, Gotshal & Manges LLP
Daniel M. Lewis, Esquire 767 Fifth Avenue
Michael Bernstein, Esquire New York, New York 10153
Arnold & Porter (212) 310-8000
555 Twelfth Street, N.W.
Washington, D.C. 20044
(202) 942-5661 Counsel for Citicorp Real
Estate, Inc.
Counsel for the Official Unsecured
Creditors Committee
- ----------------------------------
CRIIMI MAE Services
Limited Partnership, By Criimi Mae Services, Inc.,
Its General Partner
By: /s/ David B. Iannarone/KMB
--------------------------
Title: Senior Vice President/General Counsel
<PAGE>
cc: Richard L. Wasserman, Esquire
Venable, Baetjer and Howard, LLP
1800 Mercantile Bank & Trust Bldg.
2 Hopkins Plaza
Baltimore, Maryland 21201
Judy G.Z. Liu, Esquire
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Troy C. Swanson, Esquire
Kincaid, Cohen & Swanson, P.C.
The Park Plaza
800 North Charles Street
Suite 400
Baltimore, Maryland 21201
Daniel M. Lewis, Esquire
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004
Michael St. Patrick Baxter, Esquire
Covington and Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044
Clifford J. White, III. Esquire
Assistant U.S. Trustee
Office of U.S. Trustee
6305 Ivy Lane, Suite 600
Greenbelt, Maryland 20770
<PAGE>
EXHIBIT A
[FILED WITH COURT UNDER SEAL.]
<PAGE>
Exhibit 99(o)
ENTERED
APR 05 1999
CLERK'S OFFICE
U.S. BANKRUPTCY COURT
DISTRICT OF MARYLAND
GREENBELT
[STAMP OF COURT]
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
(Greenbelt Division)
In re: *
CRIIMI MAE INC., et al., * Bankruptcy No. 98-2-3115-DK
(Chapter 11)
Debtors. * (Jointly Administered)
* * * * * * * * * * * * * * * * * * * * * * * * * *
SUPPLEMENTAL STIPULATION AND CONSENT ORDER
REGARDING MORTGAGE LOAN ORIGINATION AGREEMENT
WITH CITICORP REAL ESTATE, INC.
Upon the consent of CRIIMI MAE Inc. ("CMI"), Citicorp Real
Estate, Inc., the Official Committee of Unsecured Creditors of CMI (the
"Unsecured Committee") and the Official Committee of Equity Security Holders of
CMI (the "Equity Committee") to the limited relief set forth herein, it is
hereby stipulated and agreed as follows:
1. The second sentence of Paragraph 2 of the Stipulation and
Consent Order Regarding Mortgage Loan Origination Agreement with Citicorp Real
Estate, Inc. (the "Mortgage Loan Stipulation and Consent Order") is hereby
amended to insert the Equity Committee in addition to the Unsecured Committee in
said sentence. The second sentence of Paragraph 2
<PAGE>
of the Mortgage Loan Stipulation and Consent Order is accordingly amended to
read as follows:
"CREI and CMI agree that (i) CREI may engage Secured Capital
Corp. or such other entity mutually acceptable to CREI, CMI,
the Unsecured Committee and the Equity Committee (the "Sales
Agent") on commercially reasonable terms satisfactory to CREI
to market and arrange a sale of the Loans on commercially
reasonable terms and consistent with this Stipulation and
Order, and (ii) the Sales Agent may sell the Loans to multiple
purchasers, provided that all the Loans are sold."
2. The sixth sentence in Paragraph 3 of the Mortgage Loan
Stipulation and Consent Order is hereby amended to insert the Equity Committee
in addition to the Unsecured Committee in said sentence. The sixth sentence of
Paragraph 3 of the Mortgage Loan Stipulation and Consent Order is accordingly
amended to read as follows:
"Within ten (10) business days following the Effective Date,
CMSLP shall provide servicing termination letters to an escrow
agent mutually agreed upon by CREI and CMI, which escrow agent
shall be directed to release such letters immediately to the
borrowers under the Loans after receipt of written notice from
CREI (copies of which notice shall be simultaneously provided
to counsel for CMI, the Unsecured Committee and the Equity
Committee by facsimile transmission) of the occurrence of the
sale of the Loans."
3. Paragraph 8 of the Mortgage Loan Stipulation and Consent
Order is hereby amended to insert the Equity Committee in addition to the
Unsecured Committee in each place that the Unsecured Committee appears in that
paragraph. The first paragraph of Paragraph 8 of the Mortgage Loan Stipulation
and Consent Order is accordingly amended to read as follows:
2
<PAGE>
"CREI shall consult with CMI, the Unsecured Committee
and the Equity Committee regarding general hedging strategies
with respect to the Loans. CREI may, after prior notification
to CMI, the Unsecured Committee and the Equity Committee,
determine and implement interest rate hedging strategies for
the Loans, and shall provide CMI, the Unsecured Committee and
the Equity Committee with a record of hedging transactions
promptly upon request."
4. Except as modified hereinabove, all other terms and
provisions of the Mortgage Loan Stipulation and Consent Order shall remain in
full force and effect as entered by the United States Bankruptcy Court for the
District of Maryland.
CONSENTED AND AGREED TO:
/s/ RICHARD L. WASSERMAN /s/s JUDY G. Z. LIU
- --------------------------- -----------------------------------
Richard L. Wasserman, Esquire Harvey R. Miller, Esquire
Venable, Baetjer and Howard, LLP Judy G. Z. Liu, Esquire
1800 Mercantile Bank & Trust Bldg. Weil, Gotshal & Manges LLP
2 Hopkins Plaza 767 Fifth Avenue
Baltimore, Maryland 21201 New York, New York 10153
(410) 244-7400 (212) 310-8000
Co-Counsel for CRIIMI MAE Inc. -and-
Troy C. Swanson, Esquire
Kincaid, Cohen & Swanson, P.C.
/s/ MICHAEL BERNSTEIN 800 North Charles Street
- ------------------------------ Suite 400
Daniel M. Lewis, Esquire Baltimore, Maryland 21201
Michael Bernstein, Esquire (410) 783-6092
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D. C. 20044 Counsel for Citicorp Real Estate,
(202) 942-5661 Inc.
Counsel for the Official Unsecured
Creditors Committee of CRIIMI
MAE Inc.
3
<PAGE>
/s/ DENNIS B. AUERBACH
- -------------------------------
Michael St. Patrick Baxter, Esquire
Dennis B. Auerbach, Esquire
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044-7566
(202) 662-6000
Counsel for the Official Committee
of Equity Security Holders of
CRIIMI MAE Inc.
The foregoing Supplemental Stipulation and Consent Order is
hereby SO ORDERED this 2nd day of April, 1999.
/s/ DUNCAN W. KEIR
--------------------------
DUNCAN W. KEIR
United States Bankruptcy Judge
cc: Richard L. Wasserman, Esquire
Venable, Baetjer and Howard, LLP
1800 Mercantile Bank & Trust Bldg.
2 Hopkins Plaza
Baltimore, Maryland 21201
Daniel M. Lewis, Esquire
Michael Bernstein, Esquire
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20044
Michael St. Patrick Baxter, Esquire
Dennis B. Auerbach, Esquire
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044-7566
4
<PAGE>
Harvey R. Miller, Esquire
Judy G. Z. Liu, Esquire
Weil, Gotshal & Manges, LLP
767 Fifth Avenue
New York, New York 10153
Troy C. Swanson, Esquire
Kincaid, Cohen & Swanson, P.C.
800 North Charles Street
Suite 400
Baltimore, Maryland 21201
Clifford J. White, III, Esquire
Office of the United States Trustee
6305 Ivy Lane
Suite 600
Greenbelt, Maryland 20770
<PAGE>
Exhibit 99(p)
ENTERED
APR 05 1999
CLERK'S OFFICE
U.S. BANKRUPTCY COURT
DISTRICT OF MARYLAND
GREENBELT
[STAMP OF THE COURT]
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
(Greenbelt Division)
In re: *
CRIIMI MAE INC., et al., * Bankruptcy Nos. 98-2-3115-DK
through 98-2-3117-DK
Debtors. * (Chapter 11)
(Jointly Administered)
*
* * * * * * * * * * * *
STIPULATION AND ORDER
REGARDING PROCEEDS RECEIVED BY THE DEBTOR
FROM MORTGAGE LOAN SALE
It is hereby stipulated and agreed by and between CRIIMI MAE
Inc. (the "Debtor" or "CMI") and the Official Committee of Unsecured
Creditors of CMI (the "Unsecured Committee") as follows:
1. The Debtor agrees that all proceeds received by it from
Citicorp Real Estate, Inc. ("CREI") from CREI's sale of the Loans (as that term
is defined in the Stipulation and Consent Order Regarding Mortgage Loan
Origination Agreement with Citicorp Real Estate, Inc. entered herein
contemporaneously herewith, hereinafter referred to as the "CREI Stipulation and
Consent Order") shall be deposited by the Debtor in a segregated,
interest-bearing account or other investment of funds acceptable to the Debtor,
the Unsecured Committee and the Official
<PAGE>
Committee of Equity Security Holders of CMI (the "Equity Committee"). Such
proceeds, together with all earnings thereon, are hereinafter referred to as the
"CREI Net Proceeds."
2. The CREI Net Proceeds can be used by the Debtor for
purposes of funding its Chapter 11 plan of reorganization.
3. Subject to the provisions of paragraph 4 hereof, the Debtor
agrees to give the Unsecured Committee and the Equity Committee not less than 30
days prior written notice through their respective counsel before the Debtor
uses any of the CREI Net Proceeds in any manner except for Chapter 11 plan
purposes as provided in paragraph 2 above.
4. Except for plan purposes as provided in paragraph 2 above,
the Debtor agrees not to use any of the CREI Net Proceeds without the consent of
the Unsecured Committee and the Equity Committee for the following purposes: (i)
originating commercial mortgage loans, (ii) purchasing mortgage loans or
mortgage-backed securities, or (iii) payment of dividends.
/s/ RICHARD L. WASSERMAN /s/ DANIEL M. LEWIS/RLW WITH PERMISSION
- ------------------------ ---------------------------------------
Richard L. Wasserman, Esquire Daniel M. Lewis, Esquire
Federal Bar No. 02784 Arnold & Porter
Venable, Baetjer and Howard, LLP Thurman Arnold Building
1800 Mercantile Bank & Trust Bldg. 555 Twelfth Street, N.W.
2 Hopkins Plaza Washington, D.C. 200004-1202
Baltimore, Maryland 21201 202-942-5000
410-244-7400
Counsel for the Official
Co-Counsel for CRIIMI MAE Inc. Committee of Unsecured
Creditors of CMI
The foregoing Stipulation is hereby SO ORDERED this 2nd day of
April, 1999.
/s/ DUNCAN W. KEIR
------------------
DUNCAN W. KEIR
United States Bankruptcy Judge
