<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: (Date of Earliest Event Reported): July 20, 2000 (July 12, 2000)
CRIIMI MAE INC.
(Exact name of registrant as specified in its charter)
Maryland 1-10360 52-1622022
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
11200 Rockville Pike
Rockville, Maryland 20852
(Address of principal executive offices, including zip code, of Registrant)
(301) 816-2300
(Registrant's telephone number, including area code)
<PAGE>2
Item 5. Other Events
Attached as exhibits to this Current Report on Form 8-K are (1) the Order
and Ruling Upon Objection to Debtors' Second Amended Disclosure Statement (the
"Order") entered by the United States Bankruptcy Court for the District of
Maryland, Greenbelt (the "Bankruptcy Court") on July 12, 2000; (2) the
Memorandum Opinion entered by the Bankruptcy Court on July 12, 2000; and (3) a
press release issued by CRIIMI MAE Inc. (the "Company") on July 14, 2000
announcing that the Bankruptcy Court's Order and Memorandum Opinion overruled
all remaining objections to the proposed Second Amended Disclosure Statement
(the "Disclosure Statement"), and upon submission and approval of specified
Disclosure Statement modifications the Bankruptcy Court shall set a date for the
confirmation hearing on the Third Amended Joint Plan of Reorganization filed by
the Company and its affiliates CRIIMI MAE Holding II, L.P. and CRIIMI MAE
Management, Inc. Each of the above referenced documents is hereby incorporated
by reference herein.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
The following exhibits are filed as a part of this Current Report on
Form 8-K:
(c) Exhibit
99.1 Order and Ruling Upon Objection to Debtors' Second Amended Disclosure
Statement entered by the United States Bankruptcy Court for the
District of Maryland, Greenbelt on July 12, 2000.
99.2 Memorandum Opinion entered by the United States Bankruptcy Court for
the District of Maryland, Greenbelt on July 12, 2000.
99.3 Press Release issued by CRIIMI MAE Inc. on July 14, 2000.
<PAGE>3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CRIIMI MAE Inc.
/s/ July 20, 2000 /s/ William B. Dockser
------------------ by: ------------------------
its: Chairman of the Board
<PAGE>4
EXHIBIT INDEX
Exhibit
No. Description
--------------------------------------------------------------------------------
*99.1 Order and Ruling Upon Objection to Debtors' Second Amended
Disclosure Statement entered by the United States Bankruptcy Court
for the District of Maryland, Greenbelt on July 12, 2000.
*99.2 Memorandum Opinion entered by the United States Bankruptcy Court
for the District of Maryland, Greenbelt on July 12, 2000.
*99.3 Press Release issued by CRIIMI MAE Inc. on July 14, 2000.
*Filed herewith.
<PAGE>5
EXHIBIT 99.1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Greenbelt
IN RE: *
*
CRIIMI MAE, INC., et al. * CASE NO. 98-2-3115-DK
* CHAPTER 11
Debtor(s). *
*
ORDER AND RULING UPON OBJECTION TO DEBTORS'
SECOND AMENDED DISCLOSURE STATEMENT
For the reasons set forth in the accompanying memorandum opinion entered on
even date herewith, the court finds that debtors' disclosure statement does not
fail as a matter of law for either of the two reasons argued by creditor Solomon
Smith Barney, (that the plan (i) proposed an illegal use of SSB's property; or
(ii) that the plan could not be confirmed over SSB's objection without
compliance with 11 U.S.C. Sec. 1129(b) (2) (A) (ii)).
There remains a dispute of material fact, however, regarding the ownership
of the Disputed Securities. The parties additionally dispute whether debtors'
treatment of SSB's claim meets the indubitable equivalence test of 1129(b) (2)
(A) (iii). Finally, the debtors have not yet submitted all the technical
amendments to the disclosure statement, proposed form of ballots, and proposed
voting procedures agreed to by the parties at the disclosure statement hearing
on April 25, 2000.
It is therefore, by the United States Bankruptcy Court for the District of
Maryland,
<PAGE>6
ORDERED that debtors shall submit modifications addressing the above issues
to the Second Amended Disclosure Statement within 7 days from date of entry of
this Order, providing chambers and all interested parties with a red-line copy
of all changes submitted.
Upon consideration of the modifications, if the court determines that the
modifications adequately address all issues, the modified Second Amended
Disclosure Statement shall be approved, and the court shall at that time issue
an order setting the time for the hearing on confirmation.
/s/ July 12, 2000 /s/ Duncan W. Keir
------------------ by: --------------------
its: Judge
United States Bankruptcy
Court for the District of
Maryland
cc: Richard L. Wasserman, Esq.
Venable, Baetjer and Howard, LLP
1800 Mercantile Bank & Trust Bldg.
2 Hopkins Plaza
Baltimore, MD 21201
Judy G.Z. Liu, Esq.
Weil, Gotshal, Manges, LLP
767 Fifth Avenue
New York, NY 10153
Troy C. Swanson, Esq.
Kincaid, Cohen & Swanson, PC
800 North Charles Street, Suite 400
Baltimore, ND 21201
Stanley J. Samorajczyk, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1333 New Hampshire Avenue, N.W., Suite 400
Washington, D.C. 20036
<PAGE>7
Daniel M. Lewis, Esq.
Arnold & Porter
555 Twelfth Street, N.W.
Washington, DC. 20004-1206
Michael St. Patrick Baxter, Esq.
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044-7566
Paul M. Nussbaum, Esq.
Whiteford, Taylor & Preston, LLP
Seven Saint Paul Street, Suite 1400
Baltimore, MD 21202-1626
Morton A. Faller, Esq.
Shulman, Rogers, Gandal, Pordy & Ecker, P.A.
11921 Rockville Pike, 3rd Floor
Rockville, MD 20852-2743
Charles F. Lettow. Esq.
Cleary, Gottlieb, Steen & Hamilton
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006-1801
Thomas J. Maloney, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006-1404
David R. Kuney, Esq.
Brown & Wood LLP
1666 K. St. N.W.
Washington, D.C. 20006
A. Robert Pietrzak, Esq.
Brown & Wood LLP
One World Trade Center
New York, NY 10048-0557
Ira S. Sacks, Esq.
Fried Frank Harris Shriver & Jacobson
One New York Plaza
New York, NY 10004-1980
<PAGE>8
Jeffrey L. Schwartz, Esq.
Hahn & Hesson LLP
Empire State Building
350 Fifth Avenue
New York, NY 10118
Bradford F. Englander, Esq.
Linowes & Blocher LLP
1010 Wayne Avenue, 10th Floor
Silver Spring, MD 20910-5600
John H. Culver, III
NationsBank Corporate Center, Suite 4200
100 North Tryon Street
Charlotte. NC 28202-4006
David N. Roberts
Angelo, Gordon & Co.
245 Park Avenue, 26th Floor
New York, NY 10167
Peter Chapman
24 Pericaris Place
Trenton, NJ 08618
Christopher Beard, Esq.
Beard & Beard
4601 North Park Avenue
Chevy Chase, MD 20815
Michael B. Benner, Esq.
Watchell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Daniel M. Litt, Esq.
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C. 20037-1526
John F. Horstmann, Esq.
Duane, Norris & Heckscher LLP
4200 One Liberty Pl.
Philadelphia, PA 19103-7396
Daniel W. Sklar, Esq.
Peabody & Brown
889 Elm Street
Manchester, NH 03101
<PAGE>9
Deborah L. Thaxter, Esq.
Peabody & Brown
101 Federal Street
Boston, MA 02110
Richard M. Kremen, Esq.
Piper, Marbury, Rudnick & Wolfe LLP
6225 Smith Avenue
Baltimore, ND 21209-3600
Robert L. Bodansky, Esq.
Nixon, Hargrave, Devans & Doyle, LLP
Suite 700, One Thomas Circle
Washington, D.C. 20005
Mark N. Polebaum, Esq.
Hale & Dorr, LLP
60 State Street
Boston, MA 02109
Michelle Chrein, Esq.
Kasowitz & Benson
1301 Avenue of the Americas
New York, NY 10019
Prudential Securities Credit Corp.
c/o Vincent T. Pica II, President
One New York Plaza, 18th Floor
New York, NY 10292
Standich, Ayer & Wood, Inc.
c/o Pierre Y. Chung, Asst. Vice President
One Financial Center
Boston, MA 02111
Riggs Bank, NA
c/o Al Serafino
808 17th Street, N.W.
Washington, D.C. 20006
Conseco Capital Management, Inc.
c/o Eric Johnson
11825 North Pennsylvania Street
Carmel, IN 46032
RER Resources, LP
c/o Bruce M. Levy, Vice Chairman
950 Herndon Parkway, Suite 200
Herndon, VA 20170
<PAGE>10
Charles Koehler
P.O. Box 394
Bowling Green, OH 43402-0394
Vickie Corbitt, Esq.
Legal Office
Tennessee Department of Revenue
312 8th Avenue North
27th Floor
Nashville, TM 37243
Bruce Lane, Esq.
Peabody & Brown
1225 23rd Street, N.W.
Washington, D.C. 20037
Andrews Office Products
8400 Ardwick Ardmore Road
Landover, MD 20785-2301
The Ad Solution
11810 Parklawn Drive
Rockville, MD 20852
Dun & Bradstreet
c/o John Haiser
600 East Jefferson Street, Suite 300
Rockville, MD 20852
Lawrence D. Coppel, Esq.
Gordon, Feinblatt, Rothman
Hoffberger & Hollander, LLC
233 East Redwood Street
Baltimore, MD 21202
Bill Wang
Amroc Investments, Inc.
335 Madison Ave., 26th Floor
New York, NY 10017
Susan R. Sherrill
U.S. Securities & Exchange Commission
Atlanta District Office
3475 Lenox Road, N.E., Suite 1000
Atlanta, GA 30326-1232
<PAGE>11
Linda V. Donhauser, Esq.
Miles & Stockbridge, PC
10 Light Street
Baltimore, MD 21202
George Keilman, Esq.
8200 Jones Branch Dr. - MS 202
McLean, VA 22102
Robert R. Smith, Esq.
111 Cathedral Street
P.O. Box 827
Annapolis, MD 21404-0827
Robert A. Gutkin, Esq.
Pillsbury, Madison & Sutro, LLP
1100 New York Avenue, N.W.
Ninth Floor, East Tower
Washington, D.C. 20005-3918
A. David Minnick, Esq.
Pillsbury, Madison & Sutro, LLP
235 Montgomery Street
San Francisco, CA 94101
Christine Rotter
Wells Fargo Bank
555 Montgomery Street, 10th Floor
San Francisco, CA 94111
Daniel J. Hartnett, Esq.
McDermott, Will & Emery
227 West Monroe Street
Chicago, IL 60606-5096
Melvin White, Esq.
McDermott, Will & Emery
600 13th Street, N.W.
Washington, D.C. 20005-3096
Fred D. Ross
11901 Greenleaf Avenue
Potomac, MD 20854-3319
Amanda D. Darwin, Esq.
Peabody & Arnold, LLP
50 Rowes Wharf
Boston, Massachusetts 02110
<PAGE>12
G. Christian Ulrich
First Union National Bank
NC 0737
301 South College St., DC-5
Charlotte, N.C. 28288-0737
Sprint Business
Attn: Bankruptcy
8330 Ward Parkway
Kansas City, Missouri 64114
Lauri E. Cleary, Esq.
Lerch, Early & Brewer, Chartered
3 Bethesda Metro Center, Suite 380
Bethesda, MD 20814-5367
Thomas P. Ogden, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Kenneth C. Davies, Esq.
Wright, Constable & Skeen, L.L.P.
100 N. Charles Street, 16th Floor
Baltimore, MD 21201
Robert T. Pace, Esq.
800 Silverado Street, Second Floor
La Jolla, CA 92037
Barry J. Dichter, Esq.
Cadwalader, Wickersham & Taft
1333 New Hampshire Avenue, N.W.
Suite 700
Washington. D.C. 20036
Clifford J. White, III, Esq.
Office of the United States Trustee
6305 Ivy Lane, Suite 600
Greenbelt, MD 20770
<PAGE>13
EXHIBIT 99.2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Greenbelt
IN RE: *
*
CRIIMI MAE, INC., et al. * CASE NO. 98-2-3115-DK
* CHAPTER 11
Debtor(s). *
*
MEMORANDUM OPINION
On March 31, 2000, the debtors, CRIIMI MAE, Inc., CRIIMI MAE, Management,
Inc., and CRIIMI MAE Holdings II, L.P., filed the Second Joint Amended Plan and
its Amended Disclosure Statement. By Order entered February 7, 2000, this court
set a hearing to consider approval of the previous filed Disclosure Statement
and directed debtors to give notice of the filing of Disclosure Statement and
hearing. On April 25, 2000, debtors filed with the court a Third Amended Joint
Plan and Second Amended Disclosure Statement and requested that the court
consider approval of the Second Amended Disclosure Statement (hereinafter
"Disclosure Statement"). After a review of the Disclosure Statement in
comparison with the Joint Amended Disclosure Statement, the court determined
that the modifications were not material and therefore there was no required
re-noticing of the Disclosure Statement before the court would conduct the
hearing to consider approval.
Although initially a number of objections were filed to the Amended Joint
Disclosure Statement, at the hearing on April 25, 2000
<PAGE>14
(the "Hearing"), only Citicorp Securities, Inc./Solomon Smith Barney
("SSB") (1) appeared and argued in opposition to approval of the Disclosure
Statement. All other objections had been withdrawn in light of the changes set
forth in the Disclosure Statement, with the exception of a hand-written
objection filed by shareholder, Thomas Gill. For the reasons set forth orally by
the court on the record at the Hearing, the objection to approval of Disclosure
Statement by Thomas Gill was denied.
SSB argued three issues at the Hearing. Subject to the opportunity to more
closely study the last minute revisions set forth in the Disclosure Statement,
SSB indicated that the revisions appeared to remedy additional issues that had
been raised in its written objection.
The issues argued by SSB are as follows:
1. SSB asserts that it is the owner of certain securities which it holds
under a Master Repurchase Agreement dated August 1, 1997 and Annexes thereto
(collectively, the "Repo Agreement"). SSB further asserts that debtor CRIIMI
MAE, Inc. ("CMI") has no right of ownership in those securities. The plan
provides for the sale by CMI of some of the securities (the "Disputed
Securities"), on or before the confirmation date, to create funds necessary to
make disbursements under the plan. If CMI is not the owner of the
(1) Pursuant to a Stipulation and Order entered by this court on December
18, 1998, Salomon Smith Barney, Inc. is the successor-in-interest to
CitiCorp Securities, Inc.
<PAGE>15
Disputed Securities, SSB concludes that CMI cannot legally sell the securities
and therefore as a matter of law the plan cannot be confirmed.
2. SSB asserts that should the court determine that it holds a security
interest in the Disputed Securities, as opposed to an ownership interest, and
that the obligations and arrangements under the Repo Agreement constitute a
secured lending, the sale by CMI of the Disputed Securities, without affording
to SSB a right to credit bid pursuant to 11 U.S.C. Sec 363(k), cannot constitute
fair and equitable treatment of its secured claim as required by 11 U.S.C. Sec
1129 (b) (2). SSB asserts that any sale of the collateral of a dissenting class
of secured claim must be governed by section 1129 (b) (2) (A) (ii). In response
debtors argue that the proposed sale of the Disputed Securities and other terms
of the plan, provide SSB the indubitable equivalent of its claim under section
1129 (b) (2) (a) (iii). Therefore, debtors conclude that the plan can be
confirmed without compliance with the credit bid requirement incorporated into
section 1129 (b) (2) (A) (ii).
3. SSB asserts that the treatment of its claim, consisting of the payment
to it of a portion of the proceeds from the sale of the Disputed Securities, and
a portion of proceeds derived from the Disputed Securities currently held in an
interpleader fund, (with the use by the debtors of the remaining proceeds from
these sources to pay other claims), the amortized payment of the remaining
approximate $35 Million Dollars of its claim over 4 years, (with a provision for
<PAGE>16
replacement or additional collateral), does not constitute the indubitable
equivalent of its claim. SSB concludes that the plan cannot be confirmed under
1129 (b) (2) (A) (iii).
At a scheduling conference prior to the Hearing, the court informed the
parties that objections to confirmation of the plan, as opposed to the adequacy
of disclosure of information in the Disclosure Statement, would not be heard and
determined at the Hearing, with limited exceptions. The exception announced was
that the court (time permitting) would hear and determine objections to
confirmation arising solely as a dispute of law and for which determination
there was no material dispute of fact. "It is now well accepted that a court may
disapprove of a disclosure statement, even if it provides adequate information
about a proposed plan, if the plan could not possibly be confirmed." In re Main
Street AC, Inc., 234 B.R. 771, 775 (Bankr. N.D. Cal. 1999) (citing, In re Allied
Gaming Management, Inc., 209 B.R. 201, 202 (Bankr. W.D. La. 1977); In re Curtis
Center Ltd. Partnership, 195 B.R. 631, 638 (Bankr. E.D. Pa. 1996); In re 266
Washington Assocs., 141 B.R.. 275, 288 (Bankr. E.D.N.Y. 1992); In re Bjolmes
Realty Trust, 134 B.R. 1000, 1002 (Bankr. D. Mass. 1991)).
In its argument before the court at the Hearing, SSB asserted that
confirmation of the plan must be denied as a matter of law upon either and each
of the first two enumerated issues set forth above. SSB conceded that the third
issue, indubitable equivalence, is a question of fact, not determinable without
an evidentiary hearing.
<PAGE>17
See In re James Wison Assocs., 965 F.2d 160, 172 (7th Cir. 1992) ("question
of whether the interest received by a secured creditor under a plan of
reorganization is the indubitable equivalent of his lien is one of fact"); see
also, In re Snowshoe Co., 789 F.2d 1085, 1088 (4th Cir. 1986) (finding
indubitable equivalence in context of 11 U.S.C. Sec361(3) to be "a question of
fact rooted in measurements of value and the credibility of witnesses").
Debtors in argument, supported by the committees appointed in this case,
asserted that the first enumerated issue (ownership v. lien upon the Disputed
Securities) involved disputed material facts. Debtors concede that the second
enumerated issue (must a cramdown involving sale of collateral meet the
requirements of 1129 (b) (2) (A) (ii) even if Debtors offer the indubitable
equivalent of the creditor's claims) was solely a dispute of law.
After denying the objection to the Disclosure Statement by creditor Thomas
Gill and making partial findings as to the adequacy of the Disclosure Statement,
the court held open the record of the hearing for the submission of briefs on
enumerated issues 1 and 2. In doing so the court explained that it would
consider the matter under the same standard applicable to a motion for summary
judgment. If as a matter of law, there being no material dispute of fact, the
plan could not be confirmed, approval of the Disclosure Statement would be
denied. If as a matter of law, there being no material dispute of fact, the
treatment proposed by the plan does not violate the law, the Disclosure
Statement would be approved and remaining
<PAGE>18
issues as to confirmation would be heard at the hearing upon confirmation.
If the court determines the second enumerated issue in favor of debtor but
concludes that there is a material dispute of fact necessary for the resolution
of enumerated issue No. 1, the Disclosure Statement must be modified to disclose
the existence of that dispute and upon such modification would be approved.
The disputed factual issue would be heard as a part of the confirmation hearing.
The parties have submitted briefs in accordance with the court's directive.
The court finds that an additional hearing as to whether issues No. 1 and 2 may
be resolved as a matter of summary judgment would not aid the court in its
decision on these issues.
I.
Did the Master Repurchase Agreement convey absolute ownership of
the disputed securities to SSB?
The first issue identified above requires the court to determine the exact
nature of the interests conveyed by CMI to SSB, by the Repo Agreement. (2) If
the Repo Agreement in effect pledged a lien upon the securities described in
the Annexes, CMI retained ownership interests which may permit its proposed use
of these securities under the plan. If the Repo Agreement transferred all
ownership interests in the securities and CMI retained solely a contractual
right as a buyer to
(2) Exhibit 2. (References to exhibit numbers in this opinion are to
exhibits 1-10 of the debtor's "Exhibits in Support of Supplemental Response
to Objection of Salomon Smith Barney, Inc. and Citicorp Real Estate, Inc.
to the Debtors' Amended Proposed Joint Disclosure Statement," attached to
paper 1030 of the court file).
<PAGE>19
enforce a repurchase obligation of SSB, the plan illegally proposes to permit
CMI to dispose of property (securities) that are the sole property of SSB.
The distinction between a repurchase transaction and a secured lending,
while critical to an issue in this bankruptcy case, is virtually without meaning
as to the practical effects of the transaction and the purposes for which it is
made. It is clearly an effort by the industry of creditors dealing in this type
of transaction to avoid potential unfavorable treatment that a security interest
might receive in bankruptcy. (3)
Both security interests and repos purport to be present conveyances of
property from one party in exchange for value given by another party plus
an anticipated future conveyance of property from that party to the
original party upon its performance of the contractual obligation. The
question is, therefore, whether a meaningful difference resides within the
property rights acquired by the repo buyer in a security interest and a
repo. In both a repo and in a typical secured transaction, the value given
by the transferee is usually an advance of money, and the contractual
obligation of the transferor is usually a payment of an amount of money
equal to the original advance, plus a premium for the use of the money
(i.e., interest). In a secured transaction, the secured party only obtains
a limited property interest in the conveyed property, known as a security
interest, which is subject to the limited property interest retained by the
debtor, sometimes known as debtor's equity. In a sale, the conveyance
conveys its entire property interest to the conveyancee.
Schroeder, supra note 3, at 1017.
That is not to say that the law does not recognize the
(3) Jeanne L. Schroeder, Repo Madness: The Characterization of Repurchase
Agreements Under the Bankruptcy Code and the U.C.C., 46 Syracuse L. Rev.
999. 1010 (1996).
<PAGE>20
difference between the pledge of a lien versus the absolute conveyance with a
promise to repurchase. In re Bevel, Bresler & Schulman Asset Management Corp.,
67 B.R. 557 (D.N.J. 1986). Indeed, in the bankruptcy context, Congress has
legislated a definition of "repurchase agreement"(4) and enacted special
treatment for the contractual rights of a participant in a repurchase
arrangement that meets the definition under the statute.(5)
Although a repurchase agreement may serve the same economic ends as a
secured loan, there is a critical difference in the quality of property interest
conveyed to and held by the party which initially advances the funding. The
critical distinction is whether the transferor of the securities retained
meaningful property interests inconsistent with an outright sale of the
securities. One essential difference in the rights of a transferee under a true
sale, as opposed to the transferee of a lien, is the right of the transferee to
dispose of the securities and otherwise to deal with the securities as the
absolute property of the transferee during the pendency of the
repurchase/repayment obligation under the contract.
In a true repo, the repo buyer has no obligation to return the conveyed
security to the repo seller parallel to the obligation of a secured party
to release collateral to the debtor upon performance of the secured
transaction. Even more significantly, the repo buyer does not even have any
obligation to maintain the [sic.] either the original security or any
substitute collateral for the account of the repo seller pending the
"repurchase." The repo buyer's
(4) 11 U.S.C. Sec 101(47).
(5) 11 U.S.C. Sec 559.
<PAGE>21
only obligation is to sell an "equivalent" security to the repo seller. In
many, if not most, repos, the repo buyer has complete power and right of
possession, enjoyment and alienation over the underlying security. The
security is delivered to the repo buyer upon the conveyance, and the repo
buyer has the right to collect payments under the repo. Further, the repo
buyer is permitted to sell the original security immediately upon its
purchase, and is only required to acquire a new security to perform its
back end obligation at the last moment in time.
Schroeder, supra note 3, at 1020. "Unlike a lender taking collateral for a
secured loan, a repo buyer 'take[s] title to the securities received and can
trade, sell or pledge them.'" Granite Partners, L.P. v. Bear Stearns & Co.,
Inc., 17 F. Supp. 2d. 275, 298 (S.D.N.Y. 1998) (quoting in part, SEC v. Drydale,
Sec. Corp., 75 F.2d 38, 41 (2d Cir. 1986)).
Although bankruptcy law often affects the exercise by parties of rights to
property and under contract, it is the applicable non-bankruptcy law which
defines the property interests of the debtor and other parties as of the date of
the petition. Raleigh v. Illinois Dept. of Revenue, 120 Sec Ct. 1951, 1955
(2000) (citing, Butner v. U.S., 440 U.S. 48, 55 (1979)). Here, due to a choice
of law provision in the Repo Agreement, the applicable law is the law of the
State of New York.
The common law of New York follows the accepted rule that it is the
objective intent of the parties to a contract that governs the contract's
meaning and effect. Brown Bro. Electrical Contractors, Inc. v. Beam Construction
Corp., 41 N.Y.2c1 397, 399, 361 N.E.2d 999, 1001 (1977) (existence of binding
contract "is not dependant on . . .
<PAGE>22
subjective intent... ;" rather court must look to "the objective
manifestations of the intent of the parties as gathered by their expressed words
and deeds."). Courts have applied this rule when analyzing repurchase
agreements. "The key to the inquiry as to whether the repos ... should be
characterized as purchase and sale agreements or secured loans lies in the
intention of the parties." Granite Partners, 17 F. Supp. 2d. at 300. "The
objective intent of the parties 'expressed or apparent in the writing controls'
the agreement's interpretation, while the 'undisclosed, subjective intent of the
parties has no bearing' on the construction of the contract." Id. (quoting in
part from In re Bevill, 67 B.R. at 586). Where the document is unambiguous, its
meaning is an issue of law which the court should determine upon a motion for
summary judgment. Chimart Associates v. Paul, 66 N.Y.2d 570, 572-73, 489 N.E.2d
231, 233 (1986); Mallard Construction Corp. v. County Federal Savings & Loan
Association, 32 N.Y.2d 285, 291, 298 N.E.2d 96 (1973) . "It is the primary rule
of construction of contracts that when the terms of a written contract are clear
and unambiguous, the intent of the parties must be found within the four corners
of the contract, giving a practical interpretation of the language employed and
the parties' reasonable expectations." Slamow v. Del Col, 174 A.D.2d 725, 726,
571 N.Y.S.2d. 335 (1991), affirmed 79 N.Y.2d 1016, 594 N.E.2d 918 (1992).
However, "[w]here. . . there are internal inconsistencies in a contract
pointing to ambiguity, extrinsic evidence is admissible to
<PAGE>23
determine the parties' intent." Federal Ins. Co. v. Americas Ins. Co., 258 A.D.
2d 39, 43, 691 N.Y.S.2d 508, 512 (1999). As an initial matter then, the court
must determine whether the Repo Agreement "on its face is reasonably susceptible
to more than one interpretation." Chimart Associates, 66 N.Y.2d at 573.
The title of the Repo Agreement, "Master Repurchase Agreement," is an
indication of the intent of the parties, however, it not dispositive. European
Am. Bank v. Sackman Mortgage Corp. (In re Sackman Mortgage Corp.), 158 B.R. 926,
932 (Bankr. S.D.N.Y. 1993) ("Labels cannot change the true nature of the
underlying transactions."); Williams Press, Inc., v. State, 37 N.Y.2d 434, 440,
335 N.E.2d 299, 302 (1975) (meaning of contract may be distorted where undue
force is given to single words or phrases); Tougher Heating & Plumbing Co. v.
State, 73 A.D.2d 732, 733, 423 N.Y.S.2d 289, 290-91 (1979) ("It is a fundamental
principle that the intention of the parties must be gleaned from all corners of
the document, rather than from sentences or clauses viewed in isolation")
(internal citations omitted). The court must examine the substantive provisions
of the contract. Thus, it is not the characterization contained within the
contract but the effect of its terms which are relevant.
In examining the four corners of the Repo Agreement, the court first notes
that it states:
Although the parties intend that all transactions hereunder be sales
and purchases and not loans, in the event any such Transactions are deemed
to be loans, seller shall be deemed to have pledged to buyer as security
for the performance by seller of its obligations under each
<PAGE>24
such transaction, and shall be deemed to have granted to buyer a security
interest in, all of the purchased securities which respect to all
transactions hereunder and all income thereon and other proceeds thereof.
Exhibit 2, Master Repurchase Agreement, Para. 6.
The first part of this paragraph seemingly is an unequivocal statement of
the intent of the parties that the transaction be a purchase and sale and not a
loan. The statement of intent is not vitiated or made equivocal by the
protective provision set forth in the second part of the paragraph should the
transaction be deemed to be a loan. The law has recognized the right of a party
to act in a protective manner should a transaction intended to be otherwise, be
deemed by a court to be some other type of transaction.(6) However, simply
because the contract labels the transaction to be a sale and purchase does not
mandate a finding that it actually conveyed an absolute transfer of the
securities. The court must consider the whole of the contract in determining
whether it expresses such an unambiguous intent within its four corners. Kass v.
Kass, 91 N.Y.2d 554, 566-567, 696 N.E.2d 174 (1998) (entire document reveals
parties' object and purpose); Williams Press, supra., 37 N.Y.2d 434, 440, 335
N.E.2d 299 (entire agreement must be considered); Rentways, Inc., v. O'Neill
Milk & Cream Co., 308 N.Y. 342, 347, 126 N.E.2d 271
(6) UCC Sec 9-408, for example, for allows a consignor or lessor of goods
to file a financing statement as a protective measure should a court deem
the transaction to be secured transaction. While such a filing by itself
will not determine the nature of the transaction. "if it is determined for
other reasons that the consignment or lease is ... intended [to be a
secured transaction], a security interest of the consignor or lessor which
attaches to the consigned or leased goods is perfected by such filing." UCC
Sec 9-408.
<PAGE>25
(1955) (same).
The Repo Agreement provides that from time to time the parties may enter
into transactions under which the Seller agrees to "transfer" to the Buyer,
securities or other assets against the transfer of funds by the Buyer, with a
simultaneous agreement by Buyer to transfer to Seller such securities at a date
certain or on demand, against a transfer of the funds by Seller.(7) The word
transfer would be consistent with an absolute purchase and sale of the
securities and also would be consistent with a loan transaction in which only a
security interest is transferred. Although the words "Purchased Securities" are
used to identify the res of the contract, this term is defined in the contract
as the securities transferred and thus does not itself lend any greater
illumination upon which of the two types of transactions is being effectuated by
the transfer. Purchased Securities are to be identified in writings including,
where applicable, by CUSIP numbers.
Under paragraph 4 of the Repo Agreement, the Seller must maintain a margin
value over the amount of the repurchase obligation in order to protect the Buyer
from the possibility of the Seller's failure to perform Seller's repurchase
obligation. While loan to value requirements are most common in lending
transactions, the maintenance of such a margin value is also by itself not
definite as to the two possible interpretations of this contract. Similarly,
(7) For ease of identification, this opinion refers to the parties by the
defined terms (Buyer/Seller) used in the Agreement.
<PAGE>26
under paragraph 5 the Seller is entitled to the equivalent of the income
earned by the Purchased Securities after they have been transferred to the Buyer
but before default by the Seller on the repurchase obligation. Normally,
reservation of the right to receive income from the property would be consistent
with a reservation of an ownership right in the property. However, the drafters
of the Repo Agreement have been careful to make Seller's entitlement to an
amount equal to such income, as opposed to a direct right against the income
itself.
In paragraph 8 of the Agreement, the second sentence initially provides
that "[a]ll of the Seller's interest in the Purchased Securities shall pass to
the Buyer on the Purchase Date . . ." Standing alone, this provision would
indicate an unambiguous intent to transfer all ownership rights in the
securities. However, the remainder of the sentence provides:
and, unless otherwise agreed by Buyer and Seller, nothing in this agreement
shall preclude Buyer from engaging in repurchase transactions with the
Purchased Securities or otherwise selling, transferring, pledging or
hypothecating the Purchased Securities, but no such transaction shall
relieve Buyer of its obligations to transfer Purchased Securities to Seller
pursuant to paragraph 3, 4, or 11 hereof or Buyer's obligation to credit or
pay income to, or apply income to the obligations of, Seller pursuant to
paragraph 5 hereof.
This second part of the sentence creates an ambiguity as to the otherwise
unconditional statement concerning the Seller's interests passing to the Buyer
on the purchase date.
If the transaction is an absolute sale, there would be no reason
<PAGE>27
for the paragraph 8 to specifically empower the Buyer to engage in
repurchase transactions with the Repurchased Securities or to otherwise sell,
transfer, pledge or hypothecate the securities, subject to the duties of the
Buyer to deliver the Purchased Securities to the purchaser at time of
repurchase. Thus, reading the first part of the sentence as a statement of
absolute transfer could render the second part of the sentence superfluous to
the contract. One rule of legal interpretation is that the court should strive
to read all of the terms of the contract in a manner that gives effect to all
such terms and renders no parts superfluous. Bretton v. Mutual of Omaha Ins.
Co., 110 A.D.2d 46, 50, 492 N.Y.S.2d 760, 763 (1985) ("policy's terms should not
be assumed to be superfluous or to have been idly inserted."); see, also,
Tougher Heating & Plumbing, supra, 73 A.D.2d at 733, 423 N.Y.S.2d at 291 ("every
part of a contract should be interpreted to give effect to its general
purpose").
More importantly, the obligation of the Buyer to transfer the Purchased
Securities back to the Seller at the time of repurchase requires Buyer to
transfer the same, not merely equivalent, securities. As stated in paragraph
3(c) of the Repo Agreement, termination of a transaction "will be effected by
transfer to Seller or its agent of the Purchased Securities . . . ." As
previously noted, the term "Purchased Securities" is defined as "the Securities
transferred . . . and any Securities substituted therefore in
<PAGE>28
accordance with paragraph 9" of the Repo Agreement.(8) Paragraph 9 provides
that Seller may substitute securities for Purchased Securities with the
acceptance of Buyer. It does not provide Buyer with the right to substitute
securities in effectuating the repurchase upon termination of the contract.
Thus, the seeming absolute transfer under paragraph 8 is limited by the
absolute duty of the Buyer to produce back to the Seller the exact same
securities upon termination of the transaction.
Further ambiguity creeps into the Repo Agreement upon the event of a
default. Under paragraph 11(b), if the Seller defaults, "all Income paid after
the [default] shall be retained by" the Buyer. This may imply that a right to
income remains in the Seller until default, when it shifts to the Buyer. Such a
retention of right to income until default is more consistent with a loan
transaction than an absolute purchase. Further, the negative pregnant of this
subparagraph would appear to be that until default, all income may not be
retained by the Buyer. Also, if Buyer unequivocally received the right to all
income at the time of the initial transfer, a provision permitting the Buyer to
retain such income upon default of the Seller would be superfluous.
References within the contract to provisions of Title 11, United States
Code, shed no greater illumination upon the parties' intent. Paragraph 19 of the
Repo Agreement (titled "Intent") states that the
8 Exhibit 2, Master Repurchase Agreement, Para. 2(p).
<PAGE>29
parties recognize each transaction is a "repurchase agreement" as that term
is defined in Section 101 of Title 11 of the United States Code, except as in so
far as the type of securities subject to such transaction would render the
definition inapplicable. 11 U.S.C. Sec 101(47) defines "repurchase agreement" as
"an agreement ... which provides for the transfer of certificates of deposit,
eligible bankers' acceptances, or securities that are direct obligations of, or
that are fully guaranteed as to the principal and interest by, the United States
or any agency of the United States...." The Purchased Securities set forth in
the annexes to the Repo Agreement, are not certificates of deposit, bankers'
acceptances, or obligations of the United States and there is no evidence that
the Purchased Securities are guaranteed by the United States or any agency
thereof. The parties by contract cannot place their agreement within the purview
of a statute that on its face does not apply.
Nor does the provision in that paragraph 19 that each transaction is a
"'securities contract' as that term is defined in Section 741 of Title 11"
address any distinction that is material to the outcome of this dispute. The
definition of securities contract found under 11 U.S.C. Sec 741 (which provision
is inapplicable to this bankruptcy case pending under Chapter 11 of the United
States Bankruptcy Code), includes a contract for purchase, sale or loan of a
security. Thus, the statutory definition to which the contract refers
encompasses either of the two possible interpretations of the contract (purchase
or loan).
<PAGE>30
The additional language made part of the Repo Agreement and contained in
the annexes does not clear up the ambiguities. The annexes provide in part:
"title to all Purchased Securities shall pass to Buyer on the purchase date."
However, the annexes further provide that "nothing contained herein, or in the
Master Agreement shall be deemed to preclude Buyer from engaging in repurchase
transactions with the Purchase Securities or otherwise pledging or hypothecating
the Purchased Securities prior to the repurchase date."(9) As with the language
in the Repo Agreement, the second sentence would be superfluous if the first
sentence created an absolute transfer of all interests of the Seller at the time
of the initiation of the transaction. Further, there is clearly not found in the
second sentence a right to sell the Purchased Securities. Back to back
repurchase agreements or hypothecation agreements which are tailored to make
available to the Buyer the Purchased Securities at time of the repurchase
obligation of Seller are clearly permitted. The annexes do not remove the duty
of the Buyer to retransfer back to Seller the exact same Purchased Securities at
the termination of the transaction.
After review of all of the terms of the Repo Agreement, this court finds
that there is ambiguity within the Repo Agreement as to the nature of the
interests in Purchased Securities transferred to, and the extent of interests
retained, by CMI. Therefore, the court must
(9) Exhibit 2, Annexes, page 2.
<PAGE>31
consider extrinsic evidence to find the objective intent of the parties.
Although debtors have submitted some extrinsic evidence in support of their
argument that the parties intended the Repo Agreement to be a secured lending,
that evidence is not conclusive.(10) The court concludes that the intent of the
parties involves issues of material fact which must be resolved upon a full
evidentiary hearing.
Having found a dispute of material fact as to the ownership of the Disputed
Securities, the court cannot conclude as a matter of law that the Plan
contemplates an illegal use of property owned by SSB Accordingly, debtors'
disclosure statement will not be disapproved on the basis.
II.
Must a Cramdown Involving the Sale of Collateral Meet the
Requirements of 11 U.S.C. Sec 1129(b) (2) (A)(ii) even if it Offers the
Indubitable Equivalent of the Creditor's Claim?
SSB next argues that even if the court determines that it holds a
security interest in the Disputed Securities, as opposed to an ownership
interest, the sale by CMI of the Disputed Securities, without affording to SSB
a right to credit bid pursuant to 11 U.S.C. S 363(k),
(10) For example, at least one corporate designee of SSB, Richard L.
Jarocki, Jr., indicated his belief that absent a default, that SSB had no
right under the Repo Agreement to sell the Disputed Securities. Exhibit 5,
Jarocki deposition, p41. As previously noted, such a restriction on
alienability is inconsistent with a SSB's claim that the Repo Agreement
accomplished a complete transfer in ownership of the Disputed Securities.
However, the court notes that the highly edited Jarocki deposition is but a
small portion of the substantial discovery that has taken place in
preparation for a trial between debtor and SSB (in part, on the issue of
ownership of the Disputed Securities) in Adversary Proceeding No.
98-1637-DK. The court will not determine the issue of ownership without
allowing the parties the opportunity for a full evidentiary hearing.
<PAGE>32
cannot constitute fair and equitable treatment of its secured claim as
required by 11 U.S.C. 5 1129(b) (2).
In its initial objection, SSB argued that the disclosure statement should
be disapproved because it contemplated a plan that "does not satisfy any of the
three tests [demonstrating fair and equitable treatment of its claim] contained
in section 1129(b) (2) (A)." Objection and Memorandum of Law of Solomon Smith
Barney et. al. at 58 (emphasis supplied). At the hearing on the disclosure
statement, and in its supplemental memorandum in support of its objection, SSB
refined its argument. It now asserts no plan that contemplates the sale of
collateral of a dissenting class of secured claim can be found "fair and
equitable" unless it complies with section 1129(b) (2) (A) (ii). SSB maintains
that debtors' Plan fails that test because it does not provide SSB the right to
credit bid its claim pursuant to 11 U.S.C. 363 (k).
Debtors respond that section 1129(b) (2) (A) is crafted in the disjunctive,
and that a plan can be confirmed over a secured creditor's objection if it meets
any of the three alternative tests set forth in subsections (i), (ii), or (iii).
Debtors further argue that the proposed sale of the Disputed Securities and
other terms of the plan meet the "fair and equitable test" set forth in section
1129(b) (2) (A) (iii) because they provide SSB with the "indubitab1e equivalent"
of its claim. As previously noted, the parties agreed at the disclosure
statement hearing, that the issue of whether the plan does provide the
"indubitable equivalent" of SSB's claim cannot be
<PAGE>33
determined without an evidentiary hearing.
The court agrees with debtors that a plan can meet the fair and equitable
test imposed by section 1129(b) (2) (A) by complying with any of the three
enumerated subsections. Section 1129(b) (2) provides as follows:
(2) For the purpose of this subsection, the condition that a plan
be fair and equitable with respect to a class includes the following
requirements:
(A) With respect to a class of secured claims, the plan provides -
(i) (I) that the holders of such claims retain the
liens securing such claims, whether the property subject to such
liens is retained by the debtor or transferred to another entity, to
the extent of the allowed amount of such claims; and (II) that each
holder of a claim of such class receive on account of such claim
deferred cash payments totaling at least the allowed amount of
such claim, of a value, as of the effective date of the plan, of at
least the value of such holder's interest in the estate's
interest in such property;
(ii) for the sale, subject to section 363(k) of this
title, of any property that is subject to the liens securing such
claims, free and clear of such liens, with such liens to attach to
the proceeds of such sale, and the treatment of such liens on
proceeds under clause (I) or (iii) of this subparagraph; or
(iii) for the realization by such holder of the
indubitable equivalent of such claims.
(Emphasis supplied).
By using the word "or", Congress plainly drafted section 1129(b) (2) (A) so
that compliance with any of the enumerated subsections, (i), (ii) or (iii),
would result in a finding that a plan of reorganization was fair and equitable
as to the treatment of an objecting class of secured claims. Further, 11 U.S.C.
Sec. 102(5) provides that "'or is not exclusive...". The legislative history
to section 102(5) provides that "if a party 'may do (a) or (b)', then the
<PAGE>34
party may do either or both." Thus, any doubt as to whether subsections
(i), (ii), and (iii) were meant to be alternative paths to meeting the fair and
equitable test of section 1129(b) (2) (A) is put to rest by the Bankruptcy Code
itself. Accord Wade v. Bradford, 39 F.3d 1126, 1130 (10th Cir. 1994) (section
1129(b) (2) (A) requirements "are written in the disjunctive requiring the plan
to satisfy only one before it could be confirmed" over secured creditor's
objection); In re Arnold & Baker Farms, 85 F.3d 1415, 1420 (9th Cir. 1996).
SSB nevertheless argues that where a plan proposes to sell a objecting
secured creditor's collateral free and clear of liens, that the fair and
equitable test can be satisfied only under section 1129(b) (2) (A) (ii).(11)
SSB admits that both subsection (ii) and (iii) are applicable to the
contemplated sale of the Disputed Securities, but asserts that while subsection
(ii) deals specifically with the "sale... of property ... free and clear
of liens," subsection (iii) merely provides for the 'realization ... of the
indubitable equivalent" of the claim. SSB relies on Beard Plumbing & Heating,
Inc. v. Thompson P1astics, Inc., 152 F.3d 313 (4th Cir. 1998) for the
proposition that where "one section [of conflicting statutes] addresses a
subject in a general way and the other section speaks to part of the same
subject in a more specific manner, the latter prevails." Beard Plumbing at
(11) Debtors argue that even under section 1129(b) (2) (A) (ii) there is no
absolute right to credit bid, because section 363(k) allows the court to
curtail a credit bid opportunity "for cause." Because the debtors have
indicated that they intend to rely on subsection (iii) to meet the "fair
and equitable" test of 1129 (b) (2) (A), the court need not here decide
whether there is "cause" to deny a credit bid opportunity under subsection
(ii).
<PAGE>35
320. SSB argues that subsection (ii) of 1129(b) (2) (A) is more specific than
subsection (iii), and that it should govern. SSB also relies on In re Kent
Terminal Corp., 166 BR. 555 (Bankr. S.D.N.Y. 1994) which found that a plan
that proposed to sell a secured creditor's collateral free and clear of
liens could not be confirmed without affording a credit-bid opportunity. The
court finds neither case persuasive on the issue now before it.
In Beard P1umbing, the Fourth Circuit sought to construe two apparently
conflicting provisions of Virginia's version of the Uniform Commercial Code.
Finding no case law jointly construing UCC provisions Sec 2-318 and Sec 2-715
with regard to economic loss, the court certified a question to the Supreme
Court of Virginia. In its response, the state court relied on the rule of
construction that where statutes conflict and "one section addresses a subject
in a general way and the other section speaks to part of the same subject in a
more specific manner, the latter prevails," Beard Plumbing, 152 F.3d at 320.
SSB's attempt to apply the same rule in the instant case is misplaced,
because, unlike the statutory provisions analyzed in Beard Plumbing, 11 U.S.C. 5
1129(b) (2) (A) plainly indicates that subsections (i), (ii) and (iii) are to be
treated as distinct alternatives. As a result, the provisions are not in
conflict and the argued for rule of construction is inapplicable.
Kent Terminal is also inapposite. That case came before the United States
Bankruptcy Court for the District of New York on a secured creditor's motion for
relief from stay, or for dismissal of
<PAGE>36
debtor's chapter 11 petition. Debtor's plan contemplated a contingent sale
of the creditor's co1lateral, free and clear of liens, without giving the
creditor an opportunity to credit bid. The debtor argued that the plan was
confirmable either under 11 U.S.C. S 1129(b) (2) (A) (i) or (ii). The court
concluded that the plan did not meet the fair and equitable test as to either
subsection. As to subsection (ii), the court stated that the plan was not "fair
and equitable" because it did not afford the creditor with the right to bid its
lien in the event that the property was sold free and clear of liens under the
plan. 166 B.R. at 567. Unlike the instant case, however, the Kent Terminal court
had no occasion to test subsection (iii), because the debtor made no attempt to
provide substitute collateral. As previously stated, because of the disjunctive
construction of section 1129(b) (2) (A), if debtors can meet the test of
indubitable equivalence, the plan can be confirmed without compliance with
subsection (ii).
Conclusion
In summary, the court finds that debtors' failure to provide to SSB a right
to credit bid does not render the plan unconfirmable as a matter of law. Debtors
must prove by evidence at confirmation that the plan provides the indubitable
equivalent of SSB's claim.(12) Further, the court finds that the plan's use of
the Disputed Securities cannot be
(12) The court notes that if CMI is to succeed in meeting the "fair and
equitable" test under this third alternative of section 1129(b) (2) (A), it
faces a formidable task. Something is "dubitable" if it is "open to doubt
or question." Webster's Third New International Dictionary, Unabridged
(1993). Conversely, something is "indubitable" if it is without question,
or doubt. In re Freymiller Trucking, Inc., 190 BR. 913, 915-16 (Bank. W.D.
Okla. 1996).
<PAGE>37
determined to violate 11 U.S.C. Sec 1129(a) (3) as a matter of law. The
debtor will be required to prove at the confirmation hearing that such use of
the Disputed Securities is legally permissible.
/s/ July 12, 2000 /s/ Duncan W. Keir
------------------ by: --------------------
its: Judge
United States Bankruptcy
Court for the District of
Maryland
cc: Richard L. Wasserman, Esq.
Venable, Baetjer and Howard, LLP
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<PAGE>38
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<PAGE>39
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<PAGE>40
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<PAGE>41
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<PAGE>42
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<PAGE>43
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La Jolla, CA 92037
Barry J. Dichter, Esq.
Cadwalader, Wickersham & Taft
1333 New Hampshire Avenue, N.W.
Suite 700
Washington. D.C. 20036
Clifford J. White, III, Esq.
Office of the United States Trustee
6305 Ivy Lane, Suite 600
Greenbelt, MD 20770
<PAGE>44
EXHIBIT 99.3
Susan B. Railey
For shareholders and securities brokers
(301) 468-3120
James T. Pastore
For news media FOR IMMEDIATE RELEASE
(202) 546-6451
COURT OVERRULES OBJECTIONS TO CRIIMI MAE'S DISCLOSURE
STATEMENT AND WILL SET DATE FOR CONFIRMATION HEARING
ROCKVILLE, MD, July 14, 2000 - (NYSE:CMM) - The United States Bankruptcy
Court for the District of Maryland, Greenbelt Division (the "Bankruptcy Court")
overruled the objections raised by Citicorp Securities Inc./Solomon Smith Barney
("SSB") to the proposed Second Amended Disclosure Statement (the "Disclosure
Statement") filed by CRIIMI MAE Inc. ("CRIIMI MAE" or the "Company") and two
affiliates (collectively, the "Debtors"). The Bankruptcy Court also ordered the
Debtors to submit specified modifications to the Disclosure Statement and other
proposed solicitation materials by July 19, 2000. The Bankruptcy Court's order
states that, upon its determination that the modifications adequately address
all issues, the Disclosure Statement will be approved and an order will be
entered setting a date and time for the hearing on confirmation of the Debtors'
Third Amended Joint Plan of Reorganization (the "Plan").
Although the Bankruptcy Court overruled SSB's objections, the Court did
find that a dispute of material fact remains between the Company and SSB which
can only be resolved upon a full evidentiary hearing. The Debtors must prove at
confirmation that: (1) the Plan provides the indubitable equivalent of SSB's
claim and (2) the Plan's use of the disputed securities does not violate
applicable bankruptcy law. The SSB objections were the only remaining objections
to the Disclosure Statement pending before the Bankruptcy Court.
The Bankruptcy Court's Memorandum Opinion and Order and Ruling Upon Objection to
Debtors' Second Amended Disclosure Statement will be filed as an exhibit to a
Current Report on Form 8-K with the Securities and Exchange Commission (the
"SEC").
Since filing for protection under Chapter 11 of the U.S. Bankruptcy Code on
October 5, 1998, CRIIMI MAE has suspended its loan origination, loan
securitization and CMBS acquisition businesses. The Company continues to own a
substantial portfolio of subordinated CMBS and, through its servicing affiliate,
acts as a servicer for its own as well as third party securitizations.
<PAGE>45
More information on CRIIMI MAE is available on its web site -
www.criimimaeinc.com - or for investors, call Susan Railey, 301-468-3120 or for
news media, call Jim Pastore, 202-546-6451.
Note: Except for historical information, forward-looking statements
contained in this release involve a variety of risks and uncertainties. These
risks and uncertainties include the continued uncertainty of the capital
markets; the ability of the Company to obtain recapitalization financing,
including but not limited to a restructuring of certain of its debt and the sale
of selected CMBS to a party or parties for sufficient proceeds; the ability to
obtain new equity should it be determined by the Company to proceed with new
equity as part of the Company's plan of reorganization; the ability of relevant
parties to finalize and execute constituent and operative documents called for
by the Company's plan of reorganization; the ability to obtain bankruptcy court
approval of a disclosure statement; the possible confirmation of an alternative
plan; the trends in the CMBS market; competitive pressures; the effect of future
losses on the Company's need for liquidity; the ability of the Company to prove
at confirmation the points referenced in the Bankruptcy Court's Memorandum
Opinion and Order; confirmation, effectiveness and consummation of the Company's
plan of reorganization; the effects of the bankruptcy proceeding on the
Company's ongoing business; the actions of CRIIMI MAE's creditors and equity
security holders; the possibility that the Company's trader election may be
challenged on the grounds that the Company is not in fact a trader in securities
or that it is only a trader with respect to certain securities and that the
Company will, therefore, not be able to mark-to-market its securities, or that
it will be limited in its ability to recognize certain losses, resulting in an
increase in shareholder distribution requirements with the possibility that the
Company may not be able to make such distributions or maintain REIT status; the
likelihood that mark-to-market losses will increase and decrease due to changes
in the fair market value of the Company's trading assets; and the outcome of
litigation to which the Company is a party, as well as the risks and
uncertainties that are set forth in the Company's disclosure statement, and from
time to time in the Company's SEC reports, including its Annual Report on Form
10-K for the year ended December 31, 1999 and its Current Report on Form 10-Q
for the quarter ended March 31, 2000.
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