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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): May 18, 2000 (April 25,
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)
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Item 5. Other Events
Attached as exhibits to this Current Report on Form 8-K are (1) a Debtors'
Third Amended Joint Plan of Reorganization filed by the Company and its
affiliates CRIIMI MAE Holdings II, L.P. and CRIIMI MAE Management, Inc. with the
United States Bankruptcy Court, District of Maryland, Greenbelt Division (the
"Bankruptcy Court") on April 25, 2000; (2) a Debtors' Second Amended Joint
Disclosure Statement [Proposed] filed by the Company and its affiliates CRIIMI
MAE Holdings II, L.P. and CRIIMI MAE Management, Inc. with the Bankruptcy Court
on April 25, 2000; and (3) a press release issued by the Company on April 26,
2000 announcing (i) a request by the Bankruptcy Judge for the filing of
additional legal briefs by May 9, 2000 on issues raised during the April 25,
2000 hearing on the approval of a disclosure statement; and (ii) the filing of
the Debtors' Third Amended Joint Plan of Reorganization and the Debtor's Second
Amended Joint Disclosure Statement [Proposed]. 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
2 Debtors' Third Amended Joint Plan of Reorganization filed by
CRIIMI MAE Inc. and its affiliates CRIIMI MAE Holdings II,
L.P. and CRIIMI MAE Management, Inc. on April 25, 2000.
99.1 Debtor's Second Amended Joint Disclosure Statement [Proposed]
filed by CRIIMI MAE Inc. and its affiliates CRIIMI MAE
Holdings II, L.P. and CRIIMI MAE Management, Inc. on April 25,
2000.
99.2 Press Release issued by CRIIMI MAE Inc. on April 26, 2000.
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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.
Dated: May 18, 2000 ________________________
William B. Dockser
Chairman of the Board
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EXHIBIT INDEX
Exhibit
No. Description
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*2 Debtors' Third Amended Joint Plan of Reorganization filed by CRIIMI MAE
Inc. and its affiliates CRIIMI MAE Holdings II, L.P. and CRIIMI MAE
Management, Inc. on April 25, 2000.
*99.1 Debtors' Second Amended Joint Disclosure Statement [Proposed] filed by
CRIIMI MAE Inc. and its affiliates CRIIMI MAE Holdings II, L.P. and CRIIMI
MAE Management, Inc. on April 25, 2000.
*99.2 Press Release issued by CRIIMI MAE Inc. on April 26, 2000.
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*Filed herewith.
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Exhibit 2
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MARYLAND
Greenbelt Division
- ------------------------------------------)
)
In re )
)
CRIIMI MAE Inc., et al., ) Chapter 11
) Case Nos. 98-2-3115(DK)
Debtors. ) through 98-2-3117(DK)
) (Jointly Administered)
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DEBTORS' THIRD AMENDED JOINT PLAN OF REORGANIZATION
VENABLE, BAETJER AND HOWARD, LLP AKIN, GUMP, STRAUSS, HAUER
Richard L. Wasserman & FELD, L.L.P.
Gregory A. Cross Stanley J. Samorajczyk, P.C.
1800 Mercantile Bank and Trust Building Michael S. Stamer
Two Hopkins Plaza 1333 New Hampshire Avenue, N.W.
Baltimore, Maryland 21201 Washington, D.C. 20036
(410) 244-7400 (202) 887-4000
Co-Counsel to CRIIMI MAE Inc. Co-Counsel to CRIIMI MAE Inc.
and CRIIMI MAE Holdings II, L.P. and CRIIMI MAE Holdings II, L.P.
SHULMAN, ROGERS, GANDAL, COVINGTON & BURLING
PORDY & ECKER, P.A. Michael St. Patrick Baxter
Morton A. Faller Dennis B. Auerbach
11921 Rockville Pike 1201 Pennsylvania Avenue, N.W.
Third Floor Washington, D.C. 20044
Rockville, MD 20852-2753 (202) 662-6000
(301) 231-0928
Counsel to CRIIMI MAE Management, Inc. Counsel to the Official Committee of
Equity Security Holders of CRIIMI MAE
Inc., Co-Proponents of the Plan
Dated: Rockville, Maryland
April 24, 2000
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TABLE OF CONTENTS
Page
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I. INTRODUCTION ........................................................ 2
II. DEFINITIONS, INTERPRETATION AND RULES OF CONSTRUCTION ............... 2
A. Definitions ..................................................... 2
1. Administrative Claim ....................................... 2
2. Allowed Claim or Allowed Interest .......................... 2
3. Allowed Class...Claim ...................................... 3
4. Allowed Class...Interest ................................... 3
5. Allowed Class A1 CMO-IV Claim .............................. 3
6. Bankruptcy Code ............................................ 3
7. Bankruptcy Court ........................................... 3
8. Bankruptcy Rules ........................................... 3
9. Business Day ............................................... 3
10. Cash ....................................................... 4
11. Claim....................................................... 4
12. Class ...................................................... 4
13. Class A1 Cash Payment ...................................... 4
14. Class A9/A10 Cash Payment .................................. 4
15. Class A9/A10 Note A ........................................ 4
16. Class A9/A10 Note B ........................................ 4
17. Class A9/A10 Notes ......................................... 4
18. Clearing Systems ........................................... 4
19. Clerk ...................................................... 4
20. CMBS Sale Portfolio ........................................ 4
21. CMI ........................................................ 4
22. CMI Common Stock ........................................... 4
23. CMI Creditors' Committee ................................... 4
24. CMI Equity Committee ....................................... 5
25. CMI General Unsecured Claims ............................... 5
26. CMM ........................................................ 5
27. CMM General Unsecured Claims ............................... 5
28. CMO-IV Additional Collateral ............................... 5
29. CMO-IV Bonds ............................................... 5
30. CMSLP ...................................................... 5
31. Committees ................................................. 5
32. Company .................................................... 5
33. Confirmation ............................................... 5
34. Confirmation Date .......................................... 5
35. Confirmation Hearing ....................................... 5
36. Confirmation Order ......................................... 5
37. Co-Proponent ............................................... 5
38. Debtor Releasees ........................................... 5
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39. Debtors .................................................... 6
40. Debtors in Possession ...................................... 6
41. Disbursing Agent ........................................... 6
42. Disclosure Statement ....................................... 6
43. Disputed Claim ............................................. 6
44. Disputed Interest .......................................... 6
45. Distribution Record Date ................................... 6
46. Docket ..................................................... 6
47. DTC ........................................................ 6
48. Effective Date ............................................. 6
49. Eligible Institution ....................................... 6
50. Employee Claims ............................................ 6
51. Estates .................................................... 6
52. File, Filed or Filing ...................................... 7
53. Final Order ................................................ 7
54. Former Series C Preferred Stock............................. 7
55. Freddie Mac ................................................ 7
56. Freddie Mac Agreement ...................................... 7
57. GACC ....................................................... 7
58. Guarantee Claims ........................................... 7
59. Holder ..................................................... 7
60. Holdings ................................................... 7
61. Holdings General Unsecured Claims .......................... 7
62. Impaired ................................................... 7
63. Indemnitees ................................................ 7
64. Indenture Trustee .......................................... 8
65. Instrument ................................................. 8
66. Insurance Proceeds ......................................... 8
67. Intercompany Claims ........................................ 8
68. Interest ................................................... 8
69 Letter of Transmittal ...................................... 8
70. LIBOR ...................................................... 8
71. Local Bankruptcy Rules ..................................... 8
72. Merrill .................................................... 8
73. New Debt ................................................... 8
74. New Equity ................................................. 8
75. New Securities ............................................. 8
76. Old CMI Preferred Stock .................................... 8
77. Old Securities ............................................. 8
78. Old Senior Note Claims ..................................... 8
79. Old Senior Notes ........................................... 9
80. Old Series D Preferred Stock ............................... 9
81. Order ...................................................... 9
82. Other Secured Claim ........................................ 9
83. Person ..................................................... 9
84. Petition Date .............................................. 9
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85. Plan ....................................................... 9
86. Plan Interest .............................................. 9
87. Plan Rate .................................................. 9
88. Post-Petition Tax Claims ................................... 9
89. Priority Claim ............................................. 9
90. Priority Tax Claim ......................................... 9
91. Pro Rata ................................................... 9
92. Recapitalization Financing ................................. 10
93. Reorganization Cases ....................................... 10
94. Reorganized CMI ............................................ 10
95. Reorganized CMI Articles of Incorporation .................. 10
96. Reorganized CMI Bylaws ..................................... 10
97. Reorganized CMM ............................................ 10
98. Reorganized CMM Articles of Incorporation .................. 10
99. Reorganized CMM Bylaws ..................................... 10
100. Reorganized Debtors ........................................ 10
101. Reorganized Holdings ....................................... 10
102. Second Amended and Restated Stock Option Plan .............. 10
103. Secured Claim .............................................. 10
104. Securities Claim ........................................... 11
105. Series B Prefererred Stock ................................. 11
106. Series E Prefererred Stock ................................. 11
107. Series F Dividend Preferred Stock .......................... 11
108. Stock Options .............................................. 11
109. Tendered Certificates ...................................... 11
110. Tort Claim ................................................. 11
111. UCC ........................................................ 11
112. Unimpaired ................................................. 11
113. Unsecured Claim ............................................ 11
114. Voting Record Date ......................................... 11
B. Interpretation and Computation of Time .......................... 12
1. Defined Terms .............................................. 12
2. Rules of Interpretation .................................... 12
3. Time Periods ............................................... 12
III. DESIGNATION OF CLASSES OF CLAIMS AND INTERESTS ...................... 12
A. CMI Classes ..................................................... 13
B. CMM Classes ..................................................... 16
C. Holdings Classes ................................................ 17
IV. GENERAL PROVISIONS FOR TREATMENT OF CLAIMS AND INTERESTS ............ 17
A. Unclassified Claims ............................................. 17
1. Administrative Claims ........................................ 17
a. General .................................................. 17
b. Payment of Statutory Fees ................................ 18
2. Priority Tax Claims .......................................... 18
3. Bar Date for Administrative Claims ........................... 18
a. General Provisions ....................................... 18
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b. Professionals ............................................ 19
c. Ordinary Course Liabilities .............................. 19
d. Tax Claims ............................................... 19
B. Identification of Classes of Claims and Interests Impaired and Not
Impaired by the Plan ............................................ 20
1. Claims Against and Interests in CMI ........................ 20
2. Claims Against and Interests in CMM ........................ 20
3. Claims Against and Interests in Holdings ................... 20
C. Treatment of Claims Against and Interests in CMI ................ 20
1. Class A1 (Citicorp Secured Claims) ......................... 20
2. Class A2 (First Union Secured Claim) ....................... 21
3. Class A3 (GACC Secured Claim) .............................. 21
4. Class A4 (Lehman Secured Claim) ............................ 21
5. Class A5 (Merrill Secured Claim) ........................... 21
6. Class A6 (Morgan Stanley Secured Claim) .................... 21
7. Class A7 (Other Secured Claims) ............................ 21
8. Class A8 (Priority Claims) ................................. 22
9. Class A9 (Old Senior Note Claims) .......................... 22
10. Class A10 (CMI General Unsecured Claims) ................... 22
11. Class A11 (Guarantee Claims) ............................... 22
12. Class A12 (Freddie Mac Claims) ............................. 22
13. Class A13 (Intercompany Claims) ............................ 23
14. Class A14 (Series B Preferred Stock) ....................... 23
15. Class A15 (Series B Preferred Stock Securities Claims) ..... 23
16. Class A16 (Former Series C Preferred Stock) ................ 23
17. Class A17 (Former Series C Preferred Stock Securities Claims) 23
18. Class A18 (Old Series D Preferred Stock) ................... 24
19. Class A19 (Old Series D Preferred Stock Securities Claim) .. 24
20. Class A20 (Series F Dividend Preferred Stock) .............. 24
21. Class A21 (CMI Common Stock) ............................... 24
22. Class A22 (Stock Options) .................................. 24
23. Class A23 (CMI Common Stock Securities Claims) ............. 25
D. Treatment of Claims Against and Interests in CMM ................ 25
1. Class B1 (First Union Secured Claims) ...................... 25
2. Class B2 (Other Secured Claims) ............................ 25
3. Class B3 (Priority Claims) ................................. 25
4. Class B4 (Guarantee Claims) ................................ 25
5. Class B5 (CMM General Unsecured Claims) .................... 25
6. Class B6 (Intercompany Claims) ............................. 26
7. Class B7 (CMI's Interests in CMM) .......................... 26
E. Treatment of Claims Against and Interests in Holdings ........... 26
1. Class C1 (Citicorp Secured Claims) ......................... 26
2. Class C2 (Other Secured Claims) ............................ 26
3. Class C3 (Priority Claims) ................................. 26
4. Class C4 (Guarantee Claims) ................................ 26
5. Class C5 (Holdings General Unsecured Claims) ............... 26
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6. Class C6 (Intercompany Claims) ............................. 27
7. Class C7 (Interests in Holdings) ........................... 27
F. Modification of Treatment of Claims ............................. 27
V. DISTRIBUTIONS UNDER THE PLAN ........................................ 27
A. Disbursing Agent ................................................ 27
B. Timing of Distributions ......................................... 27
C. Methods of Distributions ........................................ 28
1. Cash Payments ................................................ 28
2. Compliance with Tax Requirements ............................. 28
D. Distribution Record Date ........................................ 28
E. Surrender of Cancelled Old Securities and Exchange of Old
Securities for New Securities ................................... 29
1. Tender of Old Securities ..................................... 29
a. Old Securities Held in Book-Entry Form .................... 29
b. Old Securities in Physical, Registered, Certificated Form 29
2. Delivery of New Securities in Exchange for Old Securities .... 30
3. Special Procedures for Lost, Stolen, Mutiliated or Destroyed
Instruments .................................................. 30
4. Failure to Surrender Cancelled Instrument .................... 31
F. Release of Security Interests in or Other Claims to or against Assets
or Property of the Reorganized Debtors by Creditors Paid Pursuant
to the Plan ..................................................... 31
G. Delivery of Distributions; Undeliverable or Unclaimed Distributions 31
H. Procedures for Treating Disputed Claims Under Plan of
Reorganization .................................................. 32
1. Disputed Claims .............................................. 32
a. Process ................................................... 32
b. Tort Claims ............................................... 32
2. Objections to Claims and Interests ........................... 33
3. Professional Claims .......................................... 33
4. No Distributions Pending Allowance ........................... 33
5. Distributions on Account of Disputed Claims and Interests
Once They are Allowed ........................................ 33
I. Setoffs ......................................................... 34
VI. INDIVIDUAL HOLDER PROOFS OF INTEREST ................................ 34
VII. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES ............... 34
A. Assumptions ..................................................... 34
B. Cure of Defaults in Connection with Assumption .................. 34
C. Rejections ...................................................... 35
D. Bar Date for Rejection Damages .................................. 35
VIII. ACCEPTANCE OR REJECTION OF THE PLAN ................................ 35
A. Voting Classes .................................................. 35
B. Presumed Acceptances of Plan .................................... 36
C. Confirmability of Plan and Cramdown ............................. 36
IX. MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN .................. 36
A. Corporate Structure ............................................. 36
B. Corporate Action ................................................ 36
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1. Cancellation of Old Securities and Related Agreements ........ 36
2. Articles of Incorporation and Bylaws for Reorganized CMI ..... 36
3. Articles of Incorporation and Bylaws for Reorganized CMM ..... 37
4. Directors and Management of Reorganized CMI .................. 37
5. Directors and Management of Reorganized CMM and
Reorganized Holdings ......................................... 38
6. No Further Corporate Action .................................. 38
C. Implementation .................................................. 38
D. Effectuating Documents and Actions .............................. 38
E. Term of Injunctions or Stays .................................... 39
F. No Interest; Disallowance of Penalties and Premiums ............. 39
G. Retiree Benefits ................................................ 39
H. Recapitalization Financing Including Issuance of New Securities . 39
I. Sale of the CMBS Sale Portfolio ................................. 40
J. Potential New Equity Investment and Rights Offering ............. 40
K. Second Amended and Restated Stock Option Plan ................... 41
L. Affiliate Reorganization......................................... 41
X. CONFIRMATION AND EFFECTIVE DATE CONDITIONS .......................... 42
A. Conditions to Confirmation ...................................... 42
B. Conditions to Effective Date .................................... 42
XI. EFFECTS OF PLAN CONFIRMATION ........................................ 42
A. Discharge of Debtors and Injunction ............................. 42
B. Limitation of Liability ......................................... 43
C. Releases ........................................................ 44
D. Indemnification ................................................. 44
E. Vesting of Assets ............................................... 45
F. Preservation of Causes of Action ................................ 46
G. Retention of Bankruptcy Court Jurisdiction ...................... 46
H. Failure of Bankruptcy Court to Exercise Jurisdiction ............ 48
I. Committees ...................................................... 48
XII. MISCELLANEOUS PROVISIONS ............................................ 48
A. Final Order ..................................................... 48
B. Modification of the Plan ........................................ 48
C. Revocation of the Plan .......................................... 49
D. Application of Section 1145 of the Bankruptcy Code and Federal
Securities Laws ................................................. 49
E. Application of Section 1146(c) of the Bankruptcy Code ........... 49
F. Successors and Assigns .......................................... 50
G. Saturday, Sunday or Legal Holiday ............................... 50
H. Committee Action ................................................ 50
I. Post-Effective Date Effect of Evidences of Claims or Interests .. 50
J. Governing Law ................................................... 50
K. No Liability for Solicitation or Participation .................. 50
L. Severability of CMM Provisions .................................. 51
M. No Admissions or Waiver of Objections............................ 51
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I. INTRODUCTION
CRIIMI MAE Inc. (defined herein as "CMI") and its affiliates CRIIMI MAE
Holdings II L.P. (defined herein as "Holdings") and CRIIMI MAE Management, Inc.
(defined herein as "CMM", and collectively with CMI and Holdings, the "Debtors")
hereby propose this Third Amended Joint Plan of Reorganization (defined herein
as this "Plan") for the resolution of the Debtors' outstanding creditor claims
and equity interests and request confirmation of the Plan pursuant to Section
1129 of the Bankruptcy Code. The Official Committee of Equity Security Holders
of CMI (defined herein as the "CMI Equity Committee" joins the Debtors as a
Co-Proponent of this Plan.
All Holders of Claims and Interests are encouraged to read the Plan and
the accompanying Disclosure Statement.
No materials, other than the accompanying Disclosure Statement and any
exhibits and schedules attached thereto or referenced therein, have been
approved by the Debtors for use in soliciting acceptances or rejections of the
Plan.
II. DEFINITIONS, INTERPRETATION AND RULES OF CONSTRUCTION
A. Definitions.
In addition to such other terms as are defined in other sections of the
Plan, the following terms (which appear in the Plan as capitalized terms) have
the following meanings as used in the Plan:
1. "ADMINISTRATIVE CLAIM" means a Claim for payment of an administrative
expense of a kind specified in Section 503(b) of the Bankruptcy Code and
referred to in Section 507 (a) (1) of the Bankruptcy Code, including, without
limitation, the actual and necessary costs and expenses incurred after the
commencement of the Reorganization Cases of preserving the estate or operating
the business of any of the Debtors (including wages, salaries and commissions
for services), loans and advances to any of the Debtors made after the Petition
Date, compensation for legal and other services and reimbursement of expenses
awarded or allowed under Section 330(a) or 331 of the Bankruptcy Code, and all
fees and charges against the estate under Section 1930 of title 28, United
States Code.
2. "ALLOWED CLAIM" or "ALLOWED INTEREST" means a Claim against or Interest
in the Debtors:
(1) to the extent that a proof of such Claim or Interest was timely
Filed and served upon the Debtors and no objection to the Claim or
Interest, or motion to estimate the Claim or Interest for purposes of
allowance (as used hereinafter, the word "objection" shall include a
motion to estimate for purposes of allowance), is Filed within the time
fixed by the Bankruptcy Court for such objections; or
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(2) to the extent that a proof of such Claim or Interest is deemed
Filed under applicable law or pursuant to a Final Order of the Bankruptcy
Court (including, but not limited to, any Claim or Interest listed on the
Debtors' schedules, not scheduled as contingent, unliquidated or disputed,
and not superseded by a timely-filed proof of Claim or Interest) and no
objection to the Claim or Interest is Filed within the time fixed by the
Bankruptcy Court for such objections; or
(3) that is allowed pursuant to this Plan; or
(4) to the extent that a proof of such Claim or Interest is allowed
pursuant to the following sentence of this definition.
If an objection to a proof of Claim or Interest is Filed within the time
fixed by the Bankruptcy Court, the Claim or Interest shall be Allowed to the
extent of:
(1) any amount of such Claim or Interest to which no objection was
Filed; and
(2) any amount otherwise authorized by Final Order or the Plan.
"ALLOWED ADMINISTRATIVE CLAIM," "ALLOWED PRIORITY TAX CLAIM," "ALLOWED SECURED
CLAIM" and "ALLOWED UNSECURED CLAIM" have correlative meanings.
3. "ALLOWED CLASS ... CLAIM" means an Allowed Claim in the particular
Class described.
4. "ALLOWED CLASS ... INTEREST" means an Allowed Interest in the
particular Class described.
5. "ALLOWED CLASS A1 CMO-IV CLAIM" means the Allowed Secured Claim of the
Holder of the Allowed Class A1 Claim with respect to the CMO-IV Bonds.
6. "BANKRUPTCY CODE" means title 11 of the United States Code, as now in
effect or hereafter amended if such amendments are made applicable to the
Reorganization Cases.
7. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the
District of Maryland, at Greenbelt, or such other court or adjunct thereof that
exercises jurisdiction over the Reorganization Cases.
8. "BANKRUPTCY RULES" means the Federal Rules of Bankruptcy Procedure, as
applicable from time to time in the Reorganization Cases.
9. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a
"legal holiday" (as defined in Bankruptcy Rule 9006(a)).
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10. "CASH" means lawful currency of the United States, a certified check,
a cashier's check or a wire transfer of immediately available funds from any
source, or a check drawn on a domestic bank from Reorganized CMI, Reorganized
CMM, Reorganized Holdings or other Person making any distribution under this
Plan.
11. "CLAIM" means a claim against any of the Debtors, whether or not
asserted or allowed, as defined in Section 101(5) of the Bankruptcy Code,
including, without limitation, Administrative Claims.
12. "CLASS" means a class of Claims or Interests designated pursuant to
the Plan.
13. "CLASS A1 CASH PAYMENT" means a payment in Cash on the Effective Date
to the Holder of the Allowed Class A1 Claim with respect to the CMO-IV Bonds in
the amount of $4.5 million.
14. "CLASS A9/A10 CASH PAYMENT" means the Cash payment to be made on the
Effective Date by CMI to Holders of Allowed Class A9 and A10 Claims as described
in Exhibit 2 hereto.
15. "CLASS A9/A10 NOTE A" means one of a series of notes, governed by an
indenture, to be issued by CMI to Holders of Allowed Class A9 and Allowed Class
A10 Claims as described in Exhibit 2 hereto.
16. "CLASS A9/A10 NOTE B" means one of a series of notes, governed by an
indenture, to be issued by CMI to Holders of Allowed Class A9 and Allowed Class
A10 Claims as described in Exhibit 2 hereto.
17. "CLASS A9/A10 NOTES" means collectively the Class A9/A10 Note A's and
Class A9/A10 Note B's.
18. "CLEARING SYSTEMS" means DTC or any similar clearing system.
19. "CLERK" means the Clerk of the Bankruptcy Court.
20. "CMBS SALE PORTFOLIO" means those commercial mortgage-backed
securities and any other assets identified on a schedule to be provided to the
Bankruptcy Court at or before the Confirmation Hearing setting forth those
commercial mortgage-backed securities and other assets to be sold as part of
funding this Plan.
21. "CMI" means CRIIMI MAE Inc., a Maryland corporation.
22. "CMI COMMON STOCK" means the common stock of CMI, par value $.01 per
share.
23. "CMI CREDITORS' COMMITTEE" means the Official Committee of Unsecured
Creditors of CMI appointed by the United States Trustee.
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24. "CMI EQUITY COMMITTEE" means the Official Committee of Equity Security
Holders of CMI appointed by the United States Trustee.
25. "CMI GENERAL UNSECURED CLAIMS" means all Allowed Unsecured Claims
against CMI other than Claims against CMI of Holders of Old Senior Notes,
Unsecured Claims (if any) in Classes A8, A9, A11, A12, A13, A15, A17, A19 and
A23 as provided hereinafter, Administrative Claims against CMI and Priority Tax
Claims against CMI.
26. "CMM" means CRIIMI MAE Management, Inc., a Maryland corporation and
wholly-owned subsidiary of CMI.
27. "CMM GENERAL UNSECURED CLAIMS" means all Allowed Unsecured Claims
against CMM other than Unsecured Claims (if any) in Classes B3, B4 and B6 as
provided hereinafter, Administrative Claims against CMM and Priority Tax Claims
against CMM.
28. "CMO-IV ADDITIONAL COLLATERAL" means the following bonds and owner
trust certificates owned by the Company: CMM 1998-1, Classes K, P, XS and R.
29. "CMO-IV BONDS" means the following bonds owned by the Company: CMM
1998-1, Classes X/IO, F, G, H and J.
30. "CMSLP" means CRIIMI MAE Services Limited Partnership, a Maryland
limited partnership.
31. "COMMITTEES" means any statutory committees of creditors or equity
interest holders of the Debtors appointed by the United States Trustee pursuant
to Section 1102 of the Bankruptcy Code.
32. "COMPANY" means CMI and its consolidated subsidiaries.
33. "CONFIRMATION" means the entry by the Bankruptcy Court of the
Confirmation Order.
34. "CONFIRMATION DATE" means the date on which the Clerk enters the
Confirmation Order on the Docket.
35. "CONFIRMATION HEARING" means the hearing on confirmation of this Plan.
36. "CONFIRMATION ORDER" means the Order of the Bankruptcy Court
confirming this Plan under Section 1129 of the Bankruptcy Code.
37. "CO-PROPONENT" means the CMI Equity Committee as a Co-Proponent of
this Plan with the Debtors.
38. "DEBTOR RELEASEES" shall have the meaning ascribed to such term in
Section XI.C of this Plan.
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39. "DEBTORS" means CMI, Holdings and CMM, collectively and individually
as appropriate from the context, as debtors and debtors in possession.
40. "DEBTORS IN POSSESSION" means the Debtors, when acting in the capacity
of representatives of the Estates in the Reorganization Cases.
41. "DISBURSING AGENT" means, collectively, one or more Persons
responsible for making distributions under this Plan. The Reorganized Debtors or
such Person(s) as the Debtors may employ in their sole discretion will serve as
Disbursing Agent.
42. "DISCLOSURE STATEMENT" means the disclosure statement pursuant to
Section 1125 or Section 1126(b) of the Bankruptcy Code with respect to this Plan
(and all exhibits and schedules annexed thereto or referred to therein), as it
may be amended or supplemented from time to time.
43. "DISPUTED CLAIM" means a Claim, to the extent such Claim is not an
Allowed Claim or disallowed by a Final Order.
44. "DISPUTED INTEREST" means an Interest to the extent such Interest is
not an Allowed Interest.
45. "DISTRIBUTION RECORD DATE" means the date fixed by the Bankruptcy
Court as the record date for determining the Holders of Allowed Claims or
Allowed Interests who are entitled to receive distributions under this Plan,
which date shall not be prior to five Business Days after the Confirmation Date
and, if no such date is fixed, means five Business Days after the Confirmation
Date.
46. "DOCKET" means the docket or dockets in the Reorganization Cases
maintained by the Clerk.
47. "DTC" means The Depository Trust Company.
48. "EFFECTIVE DATE" means the first Business Day that is not less than
eleven (11) days after the Confirmation Date on which, as determined by the
Debtors, (i) all conditions to the Effective Date set forth herein have been
satisfied or waived by the Debtors, and (ii) no stay of the Confirmation Order
is in effect.
49. "ELIGIBLE INSTITUTION" shall have the meaning ascribed to such term in
Section V.E.l.b of the Plan.
50. "EMPLOYEE CLAIMS" means Claims that are asserted by employees of the
Debtors in connection with their employment, including, without limitation,
Claims arising from or relating to salaries or wages, accrued paid vacation,
health-related benefits, severance benefits, field management and
executive/administrative management incentive plans and similar employee
benefits.
51. "ESTATES" means the estates created in the Debtors' Reorganization
Cases under Section 541 of the Bankruptcy Code.
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52. "FILE," "FILED" or "FILING" means file, filed or filing with the
Bankruptcy Court in the Reorganization Cases.
53. "FINAL ORDER" means an order or judgment of the Bankruptcy Court, as
entered on the Docket in the Reorganization Cases, which has not been reversed,
stayed, modified or amended, and as to which (a) the time to appeal, seek
certiorari or request reargument or further review or rehearing has expired and
no appeal, petition for certiorari or request for reargument or further review
or rehearing has been timely filed, or (b) any appeal that has been or may be
taken or any petition for certiorari or request for reargument or further review
or rehearing that has been or may be filed has been resolved by the highest
court to which the order or judgment was appealed, from which certiorari was
sought or to which the request was made and no further appeal or petition for
certiorari has been or can be taken or granted.
54. "FORMER SERIES C PREFERRED STOCK" means CMI's former Series C
Cumulative Convertible Preferred Stock, with a liquidation preference of $100
per share.
55. "FREDDIE MAC" means the Federal Home Loan Mortgage Corporation.
56. "FREDDIE MAC AGREEMENT" means that certain Funding Note Purchase and
Security Agreement dated as of September 22, 1995, among Freddie Mac, CMI and
CRIIMI MAE Financial Corporation II.
57. "GACC" means German American Capital Corporation.
58. "GUARANTEE CLAIMS" means any Claim against any of the Debtors arising
from or under any agreement of the Debtors guaranteeing the obligations of
another Debtor.
59. "HOLDER" means a Person who holds a Claim or Interest in such Person's
capacity as the holder of such Claim or Interest. Where the identity of the
Holder of a Claim or Interest is set forth on a register or other record
maintained by or at the direction of the Debtors, the Holder of such Claim or
Interest shall be deemed to be the Holder as identified on such register or
record unless the Debtors are otherwise notified in a writing authorized by such
Holder.
60. "HOLDINGS" means CRIIMI MAE Holdings II, L.P., a Delaware limited
partnership.
61. "HOLDINGS GENERAL UNSECURED CLAIMS" means all Allowed Unsecured Claims
against Holdings other than Unsecured Claims (if any) in Classes C3, C4 and C6
as provided hereinafter, Administrative Claims against Holdings and Priority Tax
Claims against Holdings.
62. "IMPAIRED" shall have the meaning ascribed to it in Section 1124 of
the Bankruptcy Code.
63. "INDEMNITEES" shall have the meaning ascribed to such term in Section
XI.D of the Plan.
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64. "INDENTURE TRUSTEE" means State Street Bank, as indenture trustee for
the Old Senior Notes or any successor thereto.
65. "INSTRUMENT" means any share of stock, security, promissory note or
other "INSTRUMENT," within the meaning of that term, as defined in Section 9-105
(1) (i) of the UCC.
66. "INSURANCE PROCEEDS" means the insurance proceeds payable to or on
behalf of CMI with respect to an Allowed Securities Claim.
67. "INTERCOMPANY CLAIMS" means any and all Claims and causes of action
which any of the Debtors holds against any other Debtor.
68. "INTEREST" means the interest of any equity security Holder of the
Debtors, whether or not asserted, as defined in Section 101 (17) of the
Bankruptcy Code.
69. "LETTER OF TRANSMITTAL" shall have the meaning ascribed to such term
in Section V.E.l.b of the Plan.
70. "LIBOR" means the London Interbank Offered Rate for one-month United
States dollars deposits as set forth on page 3750 of Telerate as of 8:00 a.m.,
New York City time, on the date of determination.
71. "LOCAL BANKRUPTCY RULES" means the local rules of the Bankruptcy
Court, as applicable from time to time in the Reorganization Cases.
72. "MERRILL" means Merrill Lynch Mortgage Capital Inc.
73. "NEW DEBT" means the new secured and unsecured debt to be borrowed by,
or issued pursuant to this Plan to creditors of, the Reorganized Debtors as part
of funding this Plan and the Reorganized Debtors.
74. "NEW EQUITY" means the new equity capital (if applicable) raised by
Reorganized CMI in accordance with Section IX.J of this Plan.
75. "NEW SECURITIES" means the Class A9/A10 Notes, the Series E Preferred
Stock (to be issued in exchange for the Old Series D Preferred Stock) and any
CMI Common Stock issued as a dividend to Holders of any series of CMI preferred
stock (including the Former Series C Preferred Stock).
76. "OLD CMI PREFERRED STOCK" means the Old Series D Preferred Stock.
77. "OLD SECURITIES" means the Old Senior Notes and the Old CMI Preferred
Stock.
78. "OLD SENIOR NOTE CLAIMS" means Claims arising from the Old Senior
Notes (including all Claims and causes of action arising therefrom or in
connection therewith).
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79. "OLD SENIOR NOTES" means CMI's 9 1/8% Senior Notes due 2002 in the
aggregate original principal amount of $100 million.
80. "OLD SERIES D PREFERRED STOCK" means CMI's Series D Cumulative
Convertible Preferred Stock, with a liquidation preference of $100 per share.
81. "ORDER" means an order or judgment of the Bankruptcy Court as entered
on the Docket.
82. "OTHER SECURED CLAIM" means any Allowed Secured Claim in Class A7,
Class B2 or Class C2.
83. "PERSON" means any individual, corporation, general partnership,
limited partnership, limited liability partnership, limited liability company,
association, joint stock company, joint venture, government or political
subdivision, official committee appointed by the United States Trustee,
unofficial committee of creditors or equity holders, or other "entity" (as
defined in the Bankruptcy Code).
84. "PETITION DATE" means October 5, 1998, the date on which the
Reorganization Cases were Filed.
85. "PLAN" means this plan of reorganization for the Debtors in the
Reorganization Cases and all exhibits and schedules hereto, as such may be
amended, modified or supplemented from time to time.
86. "PLAN INTEREST" means interest at the legal rate, which shall mean the
federal judgment rate pursuant to 28 U.S.C. ss.1961(a) in effect as of the
Confirmation Date unless the Holder of a Claim objects thereto on or before the
Confirmation Date, in which event the applicable rate for such objector will be
the federal rate as determined by the Bankruptcy Court for such objector if such
objector is determined to be the Holder of an Allowed Claim.
87. "PLAN RATE" means interest at the non-default contract interest rate
provided for in the documents applicable to the Claim of the creditor for whom
the term Plan Rate is applicable. If a creditor has more than one Allowed Claim
with different documents providing for different non-default contract interest
rates for each such Allowed Claim, then the Plan Rate shall be calculated at the
non-default contract interest rate applicable to each separate component of such
creditor's Allowed Claim.
88. "POST-PETITION TAX CLAIMS" means Administrative Claims and other
Claims by a governmental unit for taxes (and for interest and/or penalties
related to such taxes) for any tax year or period, to the extent such Claims
accrue within the period from and including the Petition Date through and
including the Effective Date.
89. "PRIORITY CLAIM" means an Allowed Claim entitled to priority under any
of Sections 507 (a) (3) through 507 (a) (7) or 507 (a) (9) of the Bankruptcy
Code, but excludes Priority Tax Claims.
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90. "PRIORITY TAX CLAIM" means an Allowed Claim entitled to priority under
Section 507 (a) (8) of the Bankruptcy Code.
91. "PRO RATA" means proportionately so that, with respect to any Class or
Classes, the ratio of (a) the amount of consideration distributed on account of
a particular Allowed Claim to (b) the amount of such particular Allowed Claim,
is the same as the ratio of (x) the amount of consideration distributed on
account of all Allowed Claims of the Class or Classes in which the particular
Allowed Claim is included to (y) the aggregate amount of all Allowed Claims of
that Class or Classes. Until a Disputed Claim is disallowed by a Final Order or
otherwise resolved, it will be treated in all Pro Rata calculations at the
lesser of the amount requested by the claimant and such amount as may be capped
by the Bankruptcy Court upon motion requesting such a cap.
92. "RECAPITALIZATION FINANCING" means the total New Debt and New Equity
(if applicable) to be used in connection with funding the Plan and the
Reorganized Debtors.
93. "REORGANIZATION CASES" means the Debtors' cases under chapter 11 of
the Bankruptcy Code.
94. "REORGANIZED CMI" means CMI, as it will be reorganized as of the
Effective Date in accordance with this Plan.
95. "REORGANIZED CMI ARTICLES OF INCORPORATION" means the amended and
restated articles of incorporation of Reorganized CMI that will be effective on
the Effective Date.
96. "REORGANIZED CMI BYLAWS" means the amended and restated bylaws of
Reorganized CMI that will be effective on the Effective Date.
97. "REORGANIZED CMM" means CMM as it will be reorganized as of the
Effective Date in accordance with this Plan.
98. "REORGANIZED CMM ARTICLES OF INCORPORATION" means the CMM articles of
incorporation in existence as of the Effective Date.
99. "REORGANIZED CMM BYLAWS" means the CMM bylaws in existence as of the
Effective Date.
100. "REORGANIZED DEBTORS" means Reorganized CMI, Reorganized CMM and
Reorganized Holdings, collectively and individually, as appropriate from the
context.
101. "REORGANIZED HOLDINGS" means Holdings as it will be reorganized as of
the Effective Date in accordance with this Plan.
102. "SECOND AMENDED AND RESTATED STOCK OPTION PLAN" means CMI's Second
Amended and Restated Stock Option Plan for Key Employees to be effective on the
Effective Date.
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103. "SECURED CLAIM" means any Claim that is secured by a lien on property
in which the Estates have an interest or that is subject to setoff under Section
553 of the Bankruptcy Code, to the extent of the value of the Claim Holder's
interest in the Estates' interest in such property or to the extent of the
amount subject to setoff, as applicable, as determined pursuant to Section 506
(a) or Section 1111 (b) of the Bankruptcy Code and any repurchase agreement
Claim based upon the repurchase price thereunder but only to the extent of the
value of the Claim Holder's interest in the property that is the subject of the
repurchase agreement.
104. "SECURITIES CLAIM" means (a) any Claim arising from a claim for
rescission of a purchase or sale of any Series B Preferred Stock, Former Series
C Preferred Stock, Old Series D Preferred Stock or CMI Common Stock, or for
damages arising from the purchase or sale of any such securities, or (b) any
Claim for indemnity, reimbursement or contribution on account of any such Claim.
105. "SERIES B PREFERRED STOCK" means CMI's Series B Cumulative
Convertible Preferred Stock.
106. "SERIES E PREFERRED STOCK" means CMI's Series E Cumulative
Convertible Preferred Stock into which shares of Former Series C Preferred Stock
and Old Series D Preferred Stock have been or will be exchanged and which has
the terms, rights and preferences summarized in Exhibit 3 hereto and as set
forth in the Articles Supplementary relating to the Series E Preferred Stock.
107. "SERIES F DIVIDEND PREFERRED STOCK" means CMI's Series F Redeemable
Cumulative Dividend Preferred Stock.
108. "STOCK OPTIONS" means the stock options to acquire CMI Common Stock
outstanding as of the Effective Date.
109. "TENDERED CERTIFICATES" shall have the meaning ascribed to such term
in Section V.E.l.b of the Plan.
110. "TORT CLAIM" means any Claim related to personal injury, property
damage or loss, products liability or other similar Claims against any Debtor,
and shall not include Securities Claims or Claims arising under, based upon or
related to Stock Options.
111. "UCC" means the Maryland Uniform Commercial Code, as in effect at any
relevant time.
112. "UNIMPAIRED" means with respect to any Claim or Interest that such
Claim or Interest is not Impaired.
113. "UNSECURED CLAIM" means any Claim that is not a Secured Claim.
114. "VOTING RECORD DATE" means the date set by the Bankruptcy Court for
determining the Holders of Old Senior Notes, Class A10 Claims, Series B
Preferred Stock, Former Series C Preferred Stock, Old CMI Preferred Stock,
Series F Dividend Preferred Stock and CMI Common Stock entitled to vote to
accept or reject this Plan.
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B. Interpretation and Computation of Time.
1. Defined Terms.
Any term used in this Plan that is not defined in this Plan, in Article II
(Definitions) or elsewhere, but that is defined in the Bankruptcy Code, the
Bankruptcy Rules or the Local Bankruptcy Rules, shall have the meaning ascribed
to that term in the Bankruptcy Code, the Bankruptcy Rules or the Local
Bankruptcy Rules, as the case may be.
2. Rules of Interpretation.
For purposes of this Plan: (a) whenever it appears appropriate from the
context, each term, whether stated in the singular or the plural, shall include
both the singular and the plural; (b) any reference in this Plan to a contract,
instrument, release or other agreement or document being in a particular form or
on particular terms and conditions means that such document shall be
substantially in such form or substantially on such terms and conditions;
provided, however, that any change to such form, terms, or conditions which is
material to a party to such document shall not be made without such party's
consent; (c) any reference in this Plan to an existing document or exhibit Filed
or to be Filed means such document or exhibit, as it may have been or may be
amended, modified or supplemented from time to time; (d) unless otherwise
specified in a particular reference, all references in this Plan to paragraphs,
sections, articles and exhibits are references to paragraphs, sections, articles
and exhibits of or to this Plan; (e) the words "herein," "hereof," "hereto,"
"hereunder" and others of similar import refer to this Plan in its entirety
rather than to a particular portion of this Plan only; (f) captions and headings
to articles and paragraphs are inserted for convenience of reference only and
are not intended to be a part of or to affect the interpretations of this Plan;
and (g) the rules of construction set forth in Section 102 of the Bankruptcy
Code shall apply.
3. Time Periods.
In computing any period of time prescribed or allowed by this Plan, the
provisions of Bankruptcy Rule 9006(a) shall apply.
III. DESIGNATION OF CLASSES OF CLAIMS AND INTERESTS
The following is a designation of the Classes of Claims and Interests
under this Plan. In accordance with Section 1123(a)(1) of the Bankruptcy Code,
Administrative Claims and Priority Tax Claims have not been classified and are
excluded from the following Classes. A Claim or Interest is classified in a
particular Class only to the extent that the Claim or Interest qualifies within
the description of that Class, and is classified in another Class or Classes to
the extent that any remainder of the Claim or Interest qualifies within the
description of such other Class or Classes. A Claim or Interest is classified in
a particular Class only to the extent that the Claim or Interest is an Allowed
Claim or Allowed Interest in that Class and has not been paid, released or
otherwise satisfied before the Effective Date; a Claim or Interest which is not
an Allowed Claim or Allowed Interest is not in any Class. A Disputed Claim or
Disputed Interest, to the extent that it subsequently becomes an Allowed Claim
or Allowed Interest, shall be included in the Class for
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which it would have qualified had it not been disputed. Notwithstanding anything
to the contrary contained in this Plan, no distribution shall be made on account
of any Claim or Interest to the extent such Claim or Interest is not an Allowed
Claim or an Allowed Interest. In addition, for purposes of the classification
and treatment of Secured Claims under this Plan, any transfers of Claims
occurring after the Petition Date shall not impact the classification or
treatment of Secured Claims as provided in this Plan or the status of an
Unsecured Claim as of the Petition Date to continue to be treated under this
Plan as an Unsecured Claim.
A. CMI Classes
<TABLE>
<S> <C>
Class A1 - Citicorp Secured Claims Class A1 consists of all Allowed Secured Claims
against CMI of Citicorp Securities, Inc.,
Salomon Smith Barney Inc., Citicorp Real Estate,
Inc. and/or CitiBank N.A. or any other Holder of
a Secured Claim against CMI under, arising from
or related to that certain Master Repurchase
Agreement between CMI and Citicorp Securities,
Inc. dated as of August 1, 1997 or any documents
executed in connection therewith or related
thereto.
Class A2 - First Union Secured Claim Class A2 consists of all Allowed Secured Claims
against CMI of First Union National Bank or any
other Holder of a Secured Claim against CMI
under, arising from or related to (i) that
certain Master Assignment Agreement between
First Union National Bank and CMI dated as of
June 30, 1998 or any documents executed in
connection therewith or related thereto or (ii)
that certain Guaranty by CMI in favor of and for
the benefit of Signet Bank/Virginia entered into
as of June 30, 1995 or that certain Collateral
Assignment of Partnership Interests from CMI in
favor of Signet Bank/Virginia dated as of June
30, 1995 or that certain Stock Pledge Agreement
by CMI in favor of Signet Bank/Virginia dated as
of June 30, 1995 or that certain Credit
Agreement between CMM and Signet Bank/Virginia
dated as of June 30, 1995 or any documents
executed in connection with or related to any of
the foregoing.
Class A3 - GACC Secured Claim Class A3 consists of all Allowed Secured Claims
against CMI of German American Capital Corp. or
any other Holder of a Secured Claim against CMI
under, arising from or related to that certain
Master Loan and Security Agreement between CMI
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and German American Capital Corp. dated as of
March 31, 1998 or any documents executed in
connection therewith or related thereto.
Class A4 - Lehman Secured Claim Class A4 consists of all Allowed Secured Claims
against CMI of Lehman Ali Inc. or any other
Holder of a Secured Claim against CMI under,
arising from or related to that certain Master
Assignment Agreement between CMI and Lehman Ali
Inc. dated as of May 29, 1998 or any documents
executed in connection therewith or related
thereto.
Class A5 - Merrill Secured Claim Class A5 consists of all Allowed Secured Claims
against CMI of Merrill Lynch Mortgage Capital
Inc. or any other Holder of a Secured Claim
against CMI under, arising from or related to
that certain Master Assignment Agreement between
CMI and Merrill Lynch Mortgage Capital Inc.
dated as of September 25, 1997 or any documents
executed in connection therewith or related
thereto.
Class A6 - Morgan Stanley Secured Claim Class A6 consists of any Allowed Secured Claims
against CMI of Morgan Stanley & Co.
International Ltd. or any other Holder of a
Secured Claim against CMI under, arising from or
related to that certain Master Repurchase
Agreement between Morgan Stanley & Co.
International Limited and CMI dated as of May 8,
1998 or any documents executed in connection
therewith or related thereto.
Class A7 - Other Secured Claims Class A7 consists of any Allowed Secured Claims
against CMI other than the Secured Claims
specified in Classes A1 through A6.
Class A8 - Priority Claims Class A8 consists of all Allowed Priority Claims
against CMI.
Class A9 - Old Senior Note Claims Class A9 consists of all Allowed Claims against
CMI of Holders of Old Senior Notes under,
arising from or related to the Old Senior Notes.
Class A10 - CMI General Unsecured Claims Class A10 consists of all Allowed Unsecured
Claims against CMI other than the Unsecured
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Claims (if any) in Classes A8, A9, A11, A12,
A13, A15, A17, A19 and A23 and other than
Administrative Claims and Priority Tax Claims.
Class A11 - Guarantee Claims Class A11 consists of all Allowed Claims against
CMI of Holders of Guarantee Claims based upon
CMI's guarantee of obligations of CMM or
Holdings, as the case may be.
Class A12 - Freddie Mac Claims Class A12 consists of Claims against CMI of
Freddie Mac numbered 335 and 497, on the July
20, 1999 claims register, in the amount of
$230,448,487.24 each.
Class A13 - Intercompany Claims Class A13 consists of all Allowed Claims against
CMI of CMM or Holdings.
Class A14 - Series B Preferred Stock Class A14 consists of all Allowed Series B
Preferred Stock Interests in CMI.
Class A15 - Series B Preferred Stock Securities Class A15 consists of all Allowed Securities
Claims Claims on account of Series B Preferred Stock
against CMI.
Class A16 - Former Series C Preferred Stock Class A16 consists of all Allowed Former Series C
Preferred Stock Interests in CMI.
Class A17 - Former Series C Preferred Stock Class A17 consists of all Allowed Securities
Securities Claims Claims on account of Former Series C Preferred
Stock against CMI.
Class A18 - Old Series D Preferred Stock Class A18 consists of all Allowed Old Series D
Preferred Stock Interests in CMI.
Class A19 - Old Series D Preferred Stock Class A19 consists of all Allowed Securities
Securities Claim Claims on account of Old Series D Preferred
Stock against CMI.
Class A20 - Series F Dividend Preferred Stock Class A20 consists of all Allowed Series F
Dividend Preferred Stock Interests in CMI.
Class A21 - CMI Common Stock Class A21 consists of all Allowed CMI Common
Stock Interests in CMI.
Class A22 - Stock Options Class A22 consists of all Allowed Stock Option
Interests in CMI.
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Class A23 - CMI Common Stock Securities Class A23 consists of all Allowed Securities
Claims Claims on account of CMI Common Stock against
CMI.
B. CMM Classes
Class B1 - First Union Secured Claims Class B1 consists of all Allowed Secured
Claims against CMM of First Union
National Bank or any other Holder of a
Secured Claim against CMM under, arising
from or related to that certain Credit
Agreement between CMM and Signet
Bank/Virginia dated as of June 30, 1995
or any documents executed in connection
therewith or related thereto.
Class B2 - Other Secured Claims Class B2 consists of any Allowed Secured
Claims against CMM other than the Secured
Claims specified in Class B1.
Class B3 - Priority Claims Class B3 consists of all Allowed Priority
Claims against CMM.
Class B4 - Guarantee Claims Class B4 consists of all Allowed Claims
against CMM of Holders of Guarantee
Claims based upon CMM's guarantee of
obligations of CMI or Holdings, as the
case may be.
Class B5 - CMM General Unsecured Claims Class B5 consists of all Allowed
Unsecured Claims against CMM other than
the Unsecured Claims (if any) in Classes
B3, B4 and B6 and other than
Administrative Claims and Priority Tax
Claims.
Class B6 - Intercompany Claims Class B6 consists of all Allowed Claims
against CMM of CMI or Holdings.
Class B7 - CMI's Interests in CMM Class B7 consists of all Allowed
Interests in CMM of CMI.
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C. Holdings Classes
Class C1 - Citicorp Secured Claims Class C1 consists of all remaining Allowed
Secured Claims (if any) against Holdings
of Citicorp Securities, Inc. and/or
Salomon Smith Barney Inc.
Class C2 - Other Secured Claims Class C2 consists of any Allowed Secured
Claims against Holdings other than the
Secured Claims specified in Class C1.
Class C3 - Priority Claims Class C3 consists of all Allowed Priority
Claims against Holdings.
Class C4 - Guarantee Claims Class C4 consists of all Allowed Claims
against Holdings of Holders of Guarantee
Claims based upon Holdings' guarantee of
obligations of CMI or CMM, as the case may
be.
Class C5 - Holdings General Unsecured Claims Class C5 consists of all Allowed Unsecured
Claims against Holdings other than the
Unsecured Claims (if any) in Classes C3,
C4 and C6 and other than Administrative
Claims and Priority Tax Claims.
Class C6 - Intercompany Claims Class C6 consists of all Allowed Claims
against Holdings of CMI or CMM.
Class C7 - Interests in Holdings Class C7 consists of all Allowed Interests
in Holdings of CMI and CMSLP.
</TABLE>
IV. GENERAL PROVISIONS FOR TREATMENT OF CLAIMS AND INTERESTS
A. Unclassified Claims.
1. Administrative Claims.
a. General.
Subject to certain additional requirements for professionals and certain
other entities set forth below, Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, shall pay to each Holder of an Allowed
Administrative Claim, on account of its Administrative Claim and in full
satisfaction thereof, Cash equal to the amount of such Allowed Administrative
Claim on the later of the Effective Date or the day on which such Claim becomes
an Allowed Claim, unless the Holder and Reorganized CMI, Reorganized CMM or
Reorganized
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Holdings, as the case may be, shall have agreed to other treatment of such
Claim, or an order of the Bankruptcy Court provides for other terms, in which
case such Allowed Administrative Claim shall be paid in accordance with such
agreement or Bankruptcy Court order, as applicable; provided, that if incurred
in the ordinary course of business or otherwise assumed by the Debtors pursuant
to this Plan (including Administrative Claims of governmental units for taxes),
an Allowed Administrative Claim will be assumed on the Effective Date and paid,
performed or settled by Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, when due in accordance with the terms and
conditions of the particular agreement(s) governing the obligation in the
absence of the Reorganization Cases.
b. Payment of Statutory Fees.
All fees payable pursuant to 28 U.S.C. ss. 1930(a)(6) (U.S. Trustee Fees)
shall be paid by the Debtors or the Reorganized Debtors, as applicable, when
such fees are due and owing.
2. Priority Tax Claims.
Unless otherwise agreed to by the Debtors or Reorganized CMI, Reorganized
CMM or Reorganized Holdings, as the case may be, and a Holder of a Priority Tax
Claim, each Holder of an Allowed Priority Tax Claim shall receive, at the sole
option of Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case
may be, (i) Cash equal to the unpaid portion of such Allowed Priority Tax Claim
on the later of the Effective Date and the date on which such Claim becomes an
Allowed Priority Tax Claim, or as soon thereafter as is practicable, or (ii)
equal quarterly Cash payments in an aggregate amount equal to such Allowed
Priority Tax Claim, together with interest at a fixed annual rate to be
determined by the Bankruptcy Court or otherwise agreed to by Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, and such Holder,
over a period through the sixth anniversary of the date of assessment of such
Allowed Priority Tax Claim, or upon such other terms determined by the
Bankruptcy Court to provide the Holder of such Allowed Priority Tax Claim
deferred Cash payments having a value, as of the Effective Date, equal to such
Allowed Priority Tax Claim. The Holders of Allowed Priority Tax Claims are not
entitled to vote on this Plan. Pursuant to Section 1123(a)(1) of the Bankruptcy
Code, Priority Tax Claims are not designated a Class of Claims for purposes of
voting on this Plan.
3. Bar Date for Administrative Claims.
a. General Provisions.
Except as provided below for (i) non-tax liabilities incurred in the
ordinary course of business by the Debtors in Possession and (ii) Post-Petition
Tax Claims, requests for payment of Administrative Claims must be Filed and
served on counsel for the Debtors and Reorganized CMI, Reorganized CMM or
Reorganized Holdings, as the case may be, no later than (x) sixty (60) days
after the Effective Date, or (y) such later date, if any, as the Bankruptcy
Court shall order upon application made prior to the end of such 60-day period.
Holders of Administrative Claims (including, without limitation, professionals
requesting compensation or reimbursement of expenses and the Holders of any
Claims for federal, state or local taxes) that are required to File a request
for payment of such Claims and that do not File such requests by the applicable
bar
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date shall be forever barred from asserting such Claims against the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings, or any of their
respective properties.
b. Professionals.
All professionals or other Persons requesting compensation or
reimbursement of expenses pursuant to Sections 327, 328, 330, 331, 503(b),
506(b) or 1103 of the Bankruptcy Code for services rendered on or before the
Effective Date (including, without limitation, any compensation requested by any
professional or any other Person for making a substantial contribution in the
Reorganization Cases) shall File and serve on Reorganized CMI, Reorganized CMM
or Reorganized Holdings, as the case may be, and counsel for Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, an application for
final allowance of compensation and reimbursement of expenses no later than
sixty (60) days after the Effective Date. Objections to applications of
professionals or other Persons for compensation or reimbursement of expenses
must be Filed and served on the Reorganized Debtors, counsel for the Reorganized
Debtors and the requesting professional or other Person not later than ninety
(90) days after the Effective Date.
On or as soon as reasonably practicable after the Effective Date,
Reorganized CMI shall pay the contractual claims of the Indenture Trustee for
its fees and expenses including its reasonable attorneys' fees and expenses. To
the extent, after being furnished with supporting documents for such fees and
expenses, Reorganized CMI disputes the reasonableness of any such fees and
expenses, Reorganized CMI shall negotiate in good faith to resolve such dispute.
To the extent that Reorganized CMI and the Indenture Trustee are unable to
resolve any dispute, the dispute shall be resolved by the Bankruptcy Court. The
Indenture Trustee shall not attach or set off any of its fees and expenses
against distributions to Holders of Old Senior Notes and shall not otherwise
withhold or delay any such distributions.
c. Ordinary Course Liabilities.
Except as provided herein, holders of Administrative Claims based on
liabilities incurred in the ordinary course of the Debtors' businesses (other
than Claims of governmental units for taxes or Claims and/or penalties related
to such taxes) shall not be required to File any request for payment of such
Claims. Such Administrative Claims shall be assumed and paid by Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, pursuant to the
terms and conditions of the particular transactions giving rise to such
Administrative Claims, without any further action by the Holders of such Claims.
Any dispute with respect to ordinary course liabilities shall be submitted to
the Bankruptcy Court for resolution unless resolved by agreement of the parties.
d. Tax Claims.
All requests for payment of Post-Petition Tax Claims, for which no bar
date has otherwise been previously established, must be Filed on or before the
later of (i) sixty (60) days following the Effective Date, and (ii) 120 days
following the filing of the tax return for such taxes for such tax year or
period with the applicable governmental unit. Any Holder of any
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Post-Petition Tax Claim that is required to File a request for payment of such
taxes and that does not File such a Claim by the applicable bar date shall be
forever barred from asserting any such Post-Petition Tax Claim against the
Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings, or any of
their respective properties, whether any such Post-Petition Tax Claim is deemed
to arise prior to, on or subsequent to the Effective Date.
B. Identification of Classes of Claims and Interests Impaired and Not Impaired
by the Plan.
1. Claims Against and Interests in CMI.
Classes A8, A12, A15, A17, A19, A22 and A23 are not Impaired by the Plan.
Classes A1, A2, A3, A4, A5, A6, A7, A9, A10, A11, A13, A14, A16, A18, A20 and
A21 are Impaired Classes under the Plan.
2. Claims Against and Interests in CMM.
Classes B3, B4 and B7 are not Impaired by the Plan. Classes B1, B2, B5 and
B6 are Impaired Classes under the Plan.
3. Claims Against and Interests in Holdings.
Classes C3, C4 and C7 are not Impaired by the Plan. Classes C1, C2, C5 and
C6 are Impaired Classes under the Plan.
C. Treatment of Claims Against and Interests in CMI.
1. Class A1 (Citicorp Secured Claims).
The Holder of the Allowed Class A1 Claim shall receive on the Effective
Date with respect to its Allowed Class A1 CMO-IV Claim the following: (i) the
Class A1 Cash Payment; (ii) with respect to the balance of its Allowed Class A1
CMO-IV Claim (with interest on the principal balance of such Allowed Claim
calculated at the Plan Rate), a 4-year promissory note of Reorganized CMI
bearing interest, payable monthly, at the per annum rate of LIBOR plus 3.25%,
secured by a first priority lien on the CMO-IV Bonds and the CMO-IV Additional
Collateral (such lien anticipated to be structured as an indirect lien
consistent with the affiliate reorganization referenced in Section IX.L of this
Plan), with monthly amortization of said note based on the following schedule,
in year one .833% of the original balance of said note would be amortized each
month, in year two .666% of the original balance of said note would be amortized
each month, and in the third and fourth years, the remaining principal balance
of said note as of the second anniversary of the Effective Date would be
amortized in monthly installments based upon a 13-year amortization schedule,
with a balloon payment of the then-outstanding principal balance of the note
coming due on the fourth anniversary of the Effective Date; and (iii) loan
extension fees payable in Cash on the 2-year, 2 1/2-year, 3-year and 3 1/2-year
anniversaries of the Effective Date, if said note has not been paid off in full
prior to such dates, each equal to 1.5% of the then outstanding principal
balance of said note. In addition, the Holder of the Allowed Class A1 Claim
shall receive on the Effective Date payment in full in Cash of
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any remaining balance of its Allowed Class A1 Claim, after the refinancing of
such Holder's Allowed Class A1 CMO-IV Claim referenced in the first sentence of
this paragraph, with interest on the principal balance of such Allowed Claim
calculated at the Plan Rate.
2. Class A2 (First Union Secured Claim).
The Holder of the Allowed Class A2 Claim shall receive on the Effective
Date payment in full in Cash of any remaining balance of its Allowed Class A2
Claim with interest on the principal balance of such Allowed Claim calculated at
the Plan Rate.
3. Class A3 (GACC Secured Claim).
The Holder of the Allowed Class A3 Claim shall receive on the Effective
Date the treatment of its Allowed Secured Claim set forth on Exhibit 1 hereto,
or such other treatment as may be agreed to by CMI and the Holder of the Allowed
Class A3 Claim.
4. Class A4 (Lehman Secured Claim).
The Holder of the Allowed Class A4 Claim shall receive on the Effective
Date payment in full in Cash of any remaining balance of its Allowed Class A4
Claim with interest on the principal balance of such Allowed Claim calculated at
the Plan Rate.
5. Class A5 (Merrill Secured Claim).
The Holder of the Allowed Class A5 Claim shall receive on the Effective
Date the treatment of its Allowed Secured Claim set forth on Exhibit 1 hereto,
or such other treatment as may be agreed to by CMI and the Holder of the Allowed
Class A5 Claim.
6. Class A6 (Morgan Stanley Secured Claim).
The Holder of the Allowed Class A6 Claim shall receive on the Effective
Date payment in full in Cash of any remaining balance of its Allowed Class A6
Claim with interest on the principal balance of such Allowed Claim calculated at
the Plan Rate.
7. Class A7 (Other Secured Claims).
The Holder of an Allowed Class A7 Claim (if any) shall receive on the
Effective Date either (i) payment in full in Cash of the Allowed Class A7 Claim
with interest on the principal balance of any such Allowed Claim calculated at
the Plan Rate, (ii) if CMI so elects, the collateral securing the Allowed Class
A7 Claim (if any) in full satisfaction of such Claim, or (iii) such other
treatment as may be agreed to by CMI and the Holder(s), if any, of Allowed Class
A7 Claim(s).
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8. Class A8 (Priority Claims).
The Holders of Allowed Class A8 Claims shall receive on the Effective Date
payment in full in Cash of Allowed Class A8 Claims including Plan Interest
thereon.
9. Class A9 (Old Senior Note Claims)
The Holders of Allowed Class A9 Claims shall receive on the Effective Date
the treatment of their Allowed Claims set forth on Exhibit 2 hereto.
10. Class A10 (CMI General Unsecured Claims).
The Holders of Allowed Class A10 Claims shall receive on the Effective
Date the treatment of their Allowed Claims as set forth on Exhibit 2 hereto.
With respect to the Class A10 convenience class referred to in Exhibit 2 hereto,
as part of the treatment of Allowed Class A10 Claims, there shall be a
convenience class option as follows: any Holder of an Allowed Class A10 Claim
whose Allowed Claim is for $150,000 or less and elects the convenience class
treatment on its ballot, or whose Allowed Claim is for an amount in excess of
$150,000 and elects in writing on its ballot to reduce its claim to $150,000 and
accept convenience class treatment thereof, shall be entitled to receive payment
in Cash on the Effective Date of the allowed amount of such Holder's Allowed
Class A10 Claim in full satisfaction of said Claim, with accrued and unpaid
pre-petition and post-petition interest thereon calculated at the non-default
contract rate of interest in such Holder's documents for those Holders of
Allowed Class A10 Claims electing convenience class treatment who have a
contract, the invoice rate (capped at 9-1/8%) for those Holders of Allowed Class
A10 Claims electing convenience class treatment who have an invoice rate, and 6%
for all others. For purposes of calculating the $150,000 amount in the preceding
sentence, the amount of allowed post-petition interest on any such Claim (which
interest shall be paid as part of such Claim) will be excluded from such
calculation. The total amount to be paid by CMI with respect to the foregoing
convenience class option shall be paid from the funds in the Class A9/A10 Cash
Payment.
11. Class A11 (Guarantee Claims).
If, and only to the extent that, an Allowed Class A11 Claim is not fully
treated with respect to such Holder's underlying Allowed Claim under the Plan
treatment for Claims against CMM or Holdings, as the case may be, any remaining
Allowed Class A11 Claim (if any) shall be included as part of the CMI General
Unsecured Claims and treated for all purposes as part of Class A10.
12. Class A12 (Freddie Mac Claims).
CMI's obligation under the Freddie Mac Agreement shall be deemed
reaffirmed on the Effective Date, and the Claims of Freddie Mac numbered 335 and
497 on the July 2, 1999 claims register, each in the amount of $230,448,487.24,
shall be deemed withdrawn and thereby disallowed as of the Effective Date.
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13. Class A13 (Intercompany Claims).
No payment shall be made under the Plan to Holders of Class A13 Claims on
account of such Claims.
14. Class A14 (Series B Preferred Stock).
Each Holder of Series B Preferred Stock as of the Effective Date shall
retain its Series B Preferred Stock; provided that if the Holders of Series B
Preferred Stock as of the Voting Record Date vote as a Class by the requisite
amount to accept the Plan, the Articles Supplementary relating to the Series B
Preferred Stock will be deemed amended to permit the payment of dividends on
Series B Preferred Stock, including accrued and unpaid dividends, in CMI Common
Stock or Cash, at the election of Reorganized CMI, with such payment of
dividends to be consistent with Exhibits 1 and 2 hereto.
15. Class A15 (Series B Preferred Stock Securities Claims).
Each Holder of an Allowed Class A15 Claim (if any) shall, if, as and when
any such Claim is Allowed by Final Order, receive in full satisfaction of any
such Allowed Class A15 Claim its share of any Insurance Proceeds applicable
thereto plus, if such Allowed Class A15 Claim (if any) is not paid in full from
such Insurance Proceeds, CMI Common Stock in an amount equal in value, as of the
date of issuance thereof, to the balance (if any) of such Allowed Class A15
Claim, provided that any such Claim not timely filed (and in any event not Filed
before the Confirmation Date) shall be released and discharged under this Plan
and the Confirmation Order.
16. Class A16 (Former Series C Preferred Stock).
Former Series C Preferred Stock has been exchanged for Series E Preferred
Stock. Each Holder of Series E Preferred Stock as of the Distribution Record
Date shall retain its Series E Preferred Stock and such Series E Preferred Stock
shall have the terms, rights and preferences summarized in Exhibit 3 hereto and
as set forth in the Articles Supplementary relating to the Series E Preferred
Stock. All accrued and past due dividends on Former Series C Preferred Stock
shall be paid on the Effective Date in CMI Common Stock or Cash, at the election
of Reorganized CMI, with such payment of dividends to be consistent with
Exhibits 1 and 2 hereto.
17. Class A17 (Former Series C Preferred Stock Securities Claims).
Each Holder of an Allowed Class A17 Claim (if any) shall, if, as and when
any such Claim is Allowed by Final Order, receive in full satisfaction of any
such Allowed Class A17 Claim its share of any Insurance Proceeds applicable
thereto plus, if such Allowed Class A17 Claim (if any) is not paid in full from
such Insurance Proceeds, CMI Common Stock in an amount equal in value, as of the
date of issuance thereof, to the balance (if any) of such Allowed Class A17
Claim, provided that any such Claim not timely filed (and in any event not filed
before the Confirmation Date) shall be released and discharged under this Plan
and the Confirmation Order.
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18. Class A18 (Old Series D Preferred Stock).
Each Holder of Old Series D Preferred Stock as of the Distribution Record
Date, if not previously exchanged, shall receive on the Effective Date in
exchange for its Old Series D Preferred Stock an identical number of shares of
Series E Preferred Stock issued effective as of the Effective Date, and such
Series E Preferred Stock shall have the terms, rights and preferences summarized
in Exhibit 3 hereto and as set forth in the Articles Supplementary relating to
the Series E Preferred Stock. All shares of Old Series D Preferred Stock, if not
previously exchanged and cancelled, shall be deemed cancelled as of the
Effective Date. All accrued and past due dividends on Old Series D Preferred
Stock shall be paid on the Effective Date in CMI Common Stock or Cash, at the
election of Reorganized CMI, with such payment of dividends to be consistent
with Exhibits 1 and 2 hereto.
19. Class A19 (Old Series D Preferred Stock Securities Claim).
Each Holder of an Allowed Class A19 Claim (if any) shall, if, as and when
any such Claim is Allowed by Final Order, receive in full satisfaction of any
such Allowed Class A19 Claim its share of any Insurance Proceeds applicable
thereto plus, if such Allowed Class A19 Claim (if any) is not paid in full from
such Insurance Proceeds, CMI Common Stock in an amount equal in value, as of the
date of issuance thereof, to the balance (if any) of such Allowed Class A19
Claim, provided that any such Claim not timely filed (and in any event not filed
before the Confirmation Date) shall be released and discharged under this Plan
and the Confirmation Order.
20. Class A20 (Series F Dividend Preferred Stock).
Each Holder of Series F Dividend Preferred Stock as of the Effective Date
shall retain its Series F Dividend Preferred Stock; provided that if the Holders
of Series F Dividend Preferred Stock as of the Voting Record Date vote as a
Class by the requisite amount to accept the Plan, the Articles Supplementary
relating to the Series F Dividend Preferred Stock will be deemed amended to
permit the payment of dividends on Series F Dividend Preferred Stock, including
any accrued and unpaid dividends, in CMI Common Stock or Cash, at the election
of Reorganized CMI, with such payment of dividends to be consistent with
Exhibits 1 and 2 hereto.
21. Class A21 (CMI Common Stock).
Each Holder of CMI Common Stock as of the Effective Date shall retain its
CMI Common Stock.
22. Class A22 (Stock Options).
Each Holder of a Stock Option as of the Effective Date shall retain its
Stock Option.
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23. Class A23 (CMI Common Stock Securities Claims).
All Holders of Allowed Class A23 Claims (if any) as of the Effective Date
shall receive in full satisfaction of any such Allowed Class A23 Claims their
share of any Insurance Proceeds applicable thereto plus, if such Allowed Class
A23 Claims (if any) are not paid in full from such Insurance Proceeds, CMI
Common Stock in an amount equal in value, as of the date of issuance thereof, to
the balance (if any) of such Allowed Class A23 Claims.
D. Treatment of Claims Against and Interests in CMM.
1. Class B1 (First Union Secured Claims).
The Holder of the Allowed Class B1 Claim shall receive on the Effective
Date payment in full in Cash of any remaining balance of its Allowed Class B1
Claim with interest on the principal balance of such Allowed Claim calculated at
the Plan Rate.
2. Class B2 (Other Secured Claims)
The Holder of an Allowed Class B2 Claim (if any) shall receive on the
Effective Date either (i) payment in full in Cash of the Allowed Class B2 Claim
with interest on the principal balance of any such Allowed Claim calculated at
the Plan Rate, (ii) if CMM so elects, the collateral securing the Allowed Class
B2 Claim (if any) in full satisfaction of such Claim, or (iii) such other
treatment as may be agreed to by CMM and the Holder(s), if any, of Allowed Class
B2 Claim(s).
3. Class B3 (Priority Claims).
The Holders of Allowed Class B3 Claims shall receive on the Effective Date
payment in full in Cash of Allowed Class B3 Claims including Plan Interest
thereon.
4. Class B4 (Guarantee Claims).
The Holders of Allowed Class B4 Claims (if any) shall be paid, if, as and
when any such Claim is allowed by Final Order, in Cash in full by CMM or
Reorganized CMM including Plan Interest thereon if, and only to the extent, not
fully treated with respect to such Holder's underlying Allowed Claim under the
Plan treatment for Claims against CMI or Holdings, as the case may be.
5. Class B5 (CMM General Unsecured Claims).
The Holders of Allowed Class B5 Claims shall receive on the Effective Date
payment in full in Cash of Allowed Class B5 Claims, with accrued and unpaid
pre-petition and post-petition interest thereon calculated at the non-default
contract rate of interest in such Holder's documents for those Holders of
Allowed Class B5 Claims who have a contract, the invoice rate (capped at
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9-1/8%) for those Holders of Allowed Class B5 Claims who have an invoice rate,
and 6% for all other Holders of Allowed Class B5 Claims.
6. Class B6 (Intercompany Claims).
No payment shall be made under the Plan to Holders of Class B6 Claims on
account of such Claims.
7. Class B7 (CMI's Interests in CMM).
The Holder of the Class B7 Interest shall retain its Interest under this
Plan.
E. Treatment of Claims Against and Interests in Holdings.
1. Class C1 (Citicorp Secured Claims).
The Holder of any remaining Allowed Class C1 Claim (if any) shall receive
on the Effective Date payment in full in Cash of the Allowed Class C1 Claim with
interest on the principal balance of any such Allowed Claim calculated at the
Plan Rate.
2. Class C2 (Other Secured Claims).
The Holder of an Allowed Class C2 Claim (if any) shall receive on the
Effective Date either (i) payment in full in Cash of the Allowed Class C2 Claim
with interest on the principal balance of any such Allowed Claim calculated at
the Plan Rate, (ii) if Holdings so elects, the collateral securing the Allowed
Class C2 Claim (if any) in full satisfaction of such Claim, or (iii) such other
treatment as may be agreed to by Holdings and the Holder(s), if any, of Allowed
Class C2 Claim(s).
3. Class C3 (Priority Claims).
The Holders of Allowed Class C3 Claims shall receive on the Effective Date
payment in full in Cash of Allowed Class C3 Claims including Plan Interest
thereon.
4. Class C4 (Guarantee Claims).
The Holders of Allowed Class C4 Claims (if any) shall receive if, as and
when any such Claim is allowed by Final Order payment in Cash in full including
Plan Interest thereon if, and only to the extent, not fully treated with respect
to such Holder's underlying Allowed Claim under the Plan treatment for Claims
against CMI or CMM, as the case may be.
5. Class C5 (Holdings General Unsecured Claims).
The Holders of Allowed Class C5 Claims (if any) shall, if, as and when any
such Claim is allowed by Final Order, receive payment in full in Cash of any
such Allowed Class C5 Claim with any accrued and unpaid pre-petition and
post-petition interest thereon calculated at the non-
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default contract rate of interest in such Holder's documents for any Holders of
Allowed Class C5 Claims who have a contract, the invoice rate (capped at 9-1/8%)
for any such Holders who have an invoice rate, and 6% for any other Holders of
Allowed C5 Claims.
6. Class C6 (Intercompany Claims).
No payment shall be made under this Plan to Holders of Class C6 Claims on
account of such Claims.
7. Class C7 (Interests in Holdings).
The Holders of the Class C7 Interests shall retain their Interests under
this Plan.
F. Modification of Treatment of Claims. The Debtors and the CMI Equity Committee
reserve for themselves and the Reorganized Debtors the right to modify the
treatment of any Allowed Claim or Interest in any manner adverse only to the
Holder of such Claim or Interest at any time after the Effective Date upon the
consent of the creditor or interest holder whose Allowed Claim or Interest, as
applicable, is being adversely affected.
V. DISTRIBUTIONS UNDER THE PLAN
A. Disbursing Agent.
The Reorganized Debtors, or such Person(s) as the Debtors may employ in
their sole discretion, will act as Disbursing Agent under this Plan. The
Disbursing Agent shall make all distributions of Cash required to be distributed
under the applicable provisions of this Plan and any documents executed in
connection therewith. The Disbursing Agent may employ or contract with other
entities to assist in or make the distributions required by this Plan and any
documents executed in connection therewith. Each Disbursing Agent will serve
without bond, and each Disbursing Agent, without further Bankruptcy Court
approval, will receive reasonable compensation for distribution services
rendered pursuant to this Plan and reimbursement of reasonable out-of-pocket
expenses incurred in connection with such services from the Reorganized Debtors
on terms acceptable to the Reorganized Debtors.
B. Timing of Distributions.
Except as otherwise provided in this Plan with respect to any particular
Claim or Interest, property to be distributed hereunder on account of Allowed
Claims and Allowed Interests (a) shall be distributed on the date provided for
distribution with respect to that Class or as soon as practicable thereafter to
each Holder of an Allowed Claim or an Allowed Interest in that Class that is an
Allowed Claim or an Allowed Interest as of said distribution date, and (b) shall
be distributed to each Holder of an Allowed Claim or an Allowed Interest of that
Class that becomes an Allowed Claim or Allowed Interest after the distribution
date as soon as practicable after the Order of the Bankruptcy Court allowing
such Claim or Interest becomes a Final Order.
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C. Methods of Distributions.
1. Cash Payments.
Cash payments made pursuant to this Plan will be in United States dollars.
Cash payments to foreign creditors may be made, at the option of the Debtors or
the Reorganized Debtors, in such funds and by such means as are necessary or
customary in a particular foreign jurisdiction. Cash payments made pursuant to
this Plan in the form of checks issued by Reorganized Debtors shall be null and
void if not cashed within 90 days of the date of the issuance thereof. Requests
for reissuance of any check shall be made directly to the Disbursing Agent as
set forth in Section V.G below. Cash payments may, at the option of the Debtors
or Reorganized Debtors, be made by wire transfer.
2. Compliance with Tax Requirements.
In connection with the distributions set forth herein, to the extent
applicable, the Disbursing Agent shall comply with all tax withholding and
reporting requirements imposed on it by any governmental unit, and all
distributions pursuant to this Plan shall be subject to such withholding and
reporting requirements. The Disbursing Agent shall be authorized to take any and
all actions that may be necessary or appropriate to comply with such withholding
and reporting requirements.
Notwithstanding any other provision contained herein: (i) each Holder of
an Allowed Claim or Allowed Interest that is to receive a distribution of Cash
pursuant to this Plan shall have sole and exclusive responsibility for the
satisfaction and payment of any tax obligations imposed by any governmental
unit, including income, withholding and other tax obligations, on account of
such distribution; and (ii) no distribution shall be made to or on behalf of
such Holder pursuant to this Plan unless and until such Holder has made
arrangements reasonably satisfactory to the Disbursing Agent for the payment and
satisfaction of such tax obligations. Any distributions pursuant to this Plan
will, pending the implementation of such arrangements, be treated as an
undeliverable distribution pursuant to Section V.G of this Plan.
D. Distribution Record Date.
As of the close of business on the Distribution Record Date, the transfer
registers for the Old Securities maintained by the Debtors, or their respective
agents, will be closed. The Disbursing Agent and its respective agents and the
Indenture Trustee will have no obligation to recognize the transfer of any Old
Securities occurring after the Distribution Record Date, and will be entitled
for all purposes relating to this Plan to recognize and deal only with those
Holders of record as of the close of business on the Distribution Record Date.
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E. Surrender of Cancelled Old Securities and Exchange of Old Securities for New
Securities.
1. Tender of Old Securities.
The mechanism by which Holders of Allowed Claims and Allowed Interests
surrender their Old Securities in order to receive Cash, if and as applicable
under this Plan, and to exchange such Old Securities for New Securities (as
applicable), shall be determined based upon the manner in which the Old
Securities were issued and the mode in which they are held, as set forth below.
a. Old Securities Held in Book-Entry Form
Old Securities held in book-entry form through bank and broker nominee
accounts shall be mandatorily cancelled and (i) Cash distributed, if and as
applicable under this Plan, and (ii) mandatorily exchanged for New Securities
(as applicable) through the facilities of such nominees and the systems of the
applicable securities depository or Clearing System holding such Old Securities
on behalf of the brokers or banks.
b. Old Securities in Physical, Registered, Certificated Form
Each Holder of Old Securities in physical, registered, certificated form
will be required, on or before the Effective Date, to deliver its physical notes
or certificates (the "Tendered Certificates") to the Disbursing Agent,
accompanied by a properly executed letter of transmittal, to be distributed by
the Disbursing Agent after the Confirmation Date and containing such
representations and warranties as are described in the Disclosure Statement (a
"Letter of Transmittal").
Any Cash or New Securities to be distributed pursuant to this Plan on
account of any Allowed Claim or Allowed Interest represented by an Old Security
held in physical, registered, certificated form shall, pending such surrender,
be treated as an undeliverable distribution pursuant to Section V.G below.
Signatures on a Letter of Transmittal must be guaranteed by an Eligible
Institution (as defined below), unless the Old Securities tendered pursuant
thereto are registered in the name of the Person signing the Letter of
Transmittal or are tendered for the account of an Eligible Institution. If
signatures on a Letter of Transmittal are required to be guaranteed, such
guarantees must be by a member firm of a registered national securities exchange
in the United States, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or a
correspondent in the United States (each of which is an "Eligible Institution").
If Old Securities are registered in the name of a Person other than the Person
signing the Letter of Transmittal, the Old Securities, in order to be tendered
validly, must be endorsed or accompanied by a properly completed power of
authority, with signature guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Letters of Transmittal and Tendered Certificates will
be resolved by the applicable Disbursing Agent, whose determination shall be
final and binding, subject only to review by the
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Bankruptcy Court upon application with due notice to any affected parties in
interest. CMI reserves the right, on behalf of itself and the Disbursing Agent,
to reject any and all Letters of Transmittal and Tendered Certificates not in
proper form, or Letters of Transmittal and Tendered Certificates, the Disbursing
Agent's acceptance of which would, in the opinion of the Disbursing Agent or its
counsel, be unlawful or would subject the Disbursing Agent to liability.
2. Delivery of New Securities in Exchange for Old Securities.
On the Effective Date, Reorganized CMI or the Disbursing Agent shall
issue, and cause to be authenticated, the New Securities and shall apply to DTC
to make the New Securities eligible for deposit at DTC. With respect to Holders
of Old Securities who hold such Old Securities through nominee accounts at bank
and broker participants in DTC or any similar clearing system, the Disbursing
Agent shall deliver the New Securities to DTC or to the registered address
specified by the Clearing System. The Clearing System (or its depositary) shall
return the applicable Old Securities to the Disbursing Agent for cancellation.
The Disbursing Agent will request that DTC effect a mandatory exchange of
the applicable Old Securities for the applicable New Securities by crediting the
accounts of its participants with the applicable New Securities in exchange for
the Old Securities. On the effective date of such exchange, each DTC participant
will effect a similar exchange for accounts of the beneficial owners holding Old
Securities through such firms. Neither the Debtors, Reorganized Debtors nor the
Disbursing Agent shall have any responsibility or liability in connection with
the Clearing Systems' or such participants' effecting, or failure to effect,
such exchanges.
Holders of Old Securities holding such Old Securities outside a Clearing
System will be required to surrender their Old Securities by delivering them to
the Disbursing Agent, along with properly executed Letters of Transmittal (as
described above in Section V.E.1.b). The Disbursing Agent shall forward the New
Securities on account of such Old Securities in accordance with the instructions
contained in the Letters of Transmittal.
3. Special Procedures for Lost, Stolen, Mutilated or Destroyed
Instruments.
Any Holder of a Claim or an Interest evidenced by an Instrument that has
been lost, stolen, mutilated or destroyed will, in lieu of surrendering such
Instrument, deliver to the Disbursing Agent: (a) an affidavit of loss or other
evidence reasonably satisfactory to the Disbursing Agent of the loss, theft,
mutilation or destruction; and (b) such security or indemnity as may reasonably
be required by the Disbursing Agent or the applicable Reorganized Debtor to hold
the Disbursing Agent and such Reorganized Debtor harmless from any damages,
liabilities or costs incurred in treating such individual as a Holder of an
Instrument. Upon compliance with this Section, the Holder of a Claim or Interest
evidenced by any such lost, stolen, mutilated or destroyed Instrument shall, for
all purposes under this Plan and notwithstanding anything to the contrary
contained herein, be deemed to have surrendered such Instrument.
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4. Failure to Surrender Cancelled Instrument.
Any Holder of Old Securities holding such Old Securities in physical,
registered or certificated form who has not properly completed and returned to
the Disbursing Agent a Letter of Transmittal, together with the applicable
Tendered Certificates, within two years after the Effective Date shall have its
claim for a distribution pursuant to this Plan on account of such Instrument
discharged and shall be forever barred from asserting any such claim against
Reorganized CMI, Reorganized CMM or Reorganized Holdings or their properties. In
such cases, any Cash or New Securities held for distribution on account of such
claim shall be disposed of pursuant to the provisions of Section V.G hereof.
F. Release of Security Interests in or Other Claims to or against Assets or
Property of the Reorganized Debtors by Creditors Paid Pursuant to the Plan.
Any Holder of a Secured Claim whose Secured Claim is being paid in full in
accordance with Section IV.C, IV.D or IV.E of the Plan shall cooperate in all
respects with the Reorganized Debtors and shall execute such documents and
release and return to the Reorganized Debtors such assets or property of the
Debtors or Reorganized Debtors, as applicable, that such creditor is holding,
directly or indirectly, as collateral or in custody, and release and return all
escrows created or existing in respect to any such Claim, and, if applicable,
unwind any alleged repurchase agreements or claims to assets or property subject
to such alleged repurchase agreements. Furthermore, any and all Holders of such
Secured Claims shall execute such documents and take such actions as may be
reasonably required by the Reorganized Debtors to effectuate the transfer or
retransfer back to the Reorganized Debtors of all collateral security, or assets
or property held subject to alleged repurchase agreements, free and clear of all
liens, security interests, claims or interests in or to such collateral, assets
or property by such Holder, and shall confirm the foregoing in writing if
requested by the Reorganized Debtors.
G. Delivery of Distributions; Undeliverable or Unclaimed Distributions.
Any Person that is entitled to receive a Cash distribution under this Plan
but that fails to cash a check within 90 days of its issuance shall be entitled
to receive a reissued check from Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, for the amount of the original check, without any
interest, if such Person requests the Disbursing Agent to reissue such check and
provides the Disbursing Agent with such documentation as the Disbursing Agent
reasonably requests to verify that such Person is entitled to such check, prior
to the second anniversary of the Effective Date. If a Person fails to cash a
check within 90 days of its issuance and fails to request reissuance of such
check prior to the second anniversary of the Effective Date, such Person shall
not be entitled to receive any distribution under this Plan.
Subject to Bankruptcy Rule 9010, all distributions to any Holder of an
Allowed Claim or an Allowed Interest shall be made to the address of such Holder
on the books and records of the Debtors or their agents, unless Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as applicable, has been notified in
writing of a change of address. If the distribution to any Holder of an Allowed
Claim or Allowed Interest is returned to a Disbursing Agent as undeliverable,
such Disbursing Agent shall use reasonable efforts to determine the current
address of such Holder, but no distribution shall be made to such Holder unless
and until the
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applicable Disbursing Agent has determined or is notified in writing of such
Holder's then-current address, at which time such distribution shall be made to
such Holder without any additional interest on such distribution after the
Effective Date. Undeliverable distributions shall remain in the possession of
the applicable Disbursing Agent pursuant to Section V.A of the Plan until such
time as a distribution becomes deliverable. Undeliverable Cash or New Securities
shall be held in trust by the applicable Disbursing Agent for the benefit of the
potential claimants of such funds or securities, and will be accounted for
separately. Any Disbursing Agent holding undeliverable Cash shall invest such
Cash in a manner consistent with the Debtors' investment and deposit guidelines.
Any interest paid, and any other amounts earned, with respect to such
undeliverable Cash pending its distribution in accordance with this Plan shall
be property of Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the
case may be. Any unclaimed or undeliverable distributions (including Cash and
New Securities) shall be deemed unclaimed property under Section 347 (b) of the
Bankruptcy Code at the expiration of two years after the Effective Date and,
after such date, all such unclaimed property shall revert to Reorganized CMI,
Reorganized CMM, or Reorganized Holdings, as the case may be, and the Claim or
Interest of any Holder with respect to such property shall be discharged and
forever barred.
H. Procedures for Treating Disputed Claims Under Plan of Reorganization.
1. Disputed Claims.
a. Process.
If any of the Debtors or Reorganized Debtors disputes any Claim, such
dispute shall be determined, resolved or adjudicated, as the case may be, under
applicable law. Among other things, any Debtor or Reorganized Debtors may elect,
at its sole option, to object or seek estimation under Section 502 of the
Bankruptcy Code with respect to any proof of Claim filed by or on behalf of a
Holder of a Claim or any proof of Interest filed by or on behalf of a Holder of
an Interest.
b. Tort Claims.
All Tort Claims are Disputed Claims. Any unliquidated Tort Claim that is
not otherwise settled or resolved pursuant to Section V.H.l.a above shall be
determined and liquidated under applicable law in the Bankruptcy Court or the
administrative or judicial tribunal in which it is pending on the Confirmation
Date or, if no such action was pending on the Confirmation Date, in the
Bankruptcy Court or any administrative or judicial tribunal of appropriate
jurisdiction. Pursuant to Section IX.E hereof, the automatic stay arising
pursuant to Section 362 of the Bankruptcy Code shall be vacated as of the
Effective Date as to all Tort Claims. Any Tort Claim determined and liquidated
pursuant to a judgment obtained in accordance with this Section V.H. l.b and
applicable non-bankruptcy law that is no longer subject to appeal or other
review and that is not paid by applicable insurance coverage shall be deemed to
be an Allowed Claim in Class A10, B5 or C5, as applicable, in such liquidated
amount and satisfied in accordance with this Plan. Nothing contained in this
Section V.H.l.b shall constitute or be deemed a waiver of any claim, right or
cause of action that the Debtors or the Reorganized Debtors may have against any
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Person in connection with or arising out of any Tort Claim, including, without
limitation, any rights under Section 157(b) of title 28, United States Code.
2. Objections to Claims and Interests.
Except insofar as a Claim or Interest is allowed hereunder, Reorganized
CMI, Reorganized CMM and Reorganized Holdings shall be entitled and reserve the
right to object to Claims and Interests. Except as otherwise provided in Section
V.H.3 below and except as otherwise ordered by the Bankruptcy Court, objections
to any Claim or Interest, including, without limitation, Administrative Claims,
shall be Filed and served upon the Holder of such Claim or Interest no later
than 90 days after the Effective Date, unless such period is extended by the
Bankruptcy Court, which extension may be granted on an ex parte basis without
notice or hearing. After the Confirmation Date, only the Debtors, Reorganized
CMI, Reorganized CMM or Reorganized Holdings shall have the authority to File,
settle, compromise, withdraw or litigate to judgment objections to Claims and
Interests. From and after the Confirmation Date, the Debtors, Reorganized CMI,
Reorganized CMM or Reorganized Holdings may settle or compromise any Disputed
Claim or Disputed Interest in an amount or of a value of $75,000 or less, other
than Claims or Interests of Insiders (as defined in the Bankruptcy Code),
without approval of the Bankruptcy Court. Except as (i) specified otherwise
herein, or (ii) ordered by the Bankruptcy Court, all Disputed Claims or Disputed
Interests shall be resolved by the Bankruptcy Court. The failure of the Debtors
to object to any Claim or Interest for voting purposes shall not be deemed to be
a waiver of the Debtors' or Reorganized Debtors right to object to any Claim or
Interest in whole or in part thereafter.
3. Professional Claims.
Except as otherwise ordered by the Bankruptcy Court, objections to Claims
of professionals shall be governed by the provisions of Section IV.A.3.b hereof.
4. No Distributions Pending Allowance.
Notwithstanding any other provisions of this Plan, no payments or
distributions will be made on account of a Disputed Claim or a Disputed Interest
until such Claim or Interest becomes an Allowed Claim or Allowed Interest. If an
interest-bearing reserve account is established for a Disputed Claim, interest
accruing on such Claim after the establishment of such reserve account (if it is
ultimately Allowed by Final Order or settlement between such Holder and the
applicable Reorganized Debtor) shall be limited to interest actually earned on
the reserve account for such Claim.
5. Distributions on Account of Disputed Claims and Interests Once They are
Allowed.
Within 30 days after the end of each calendar quarter following the
Effective Date, the applicable Disbursing Agent will make all distributions on
account of any Disputed Claim or Disputed Interest that has become an Allowed
Claim or Allowed Interest during the preceding calendar quarter. Such
distributions will be made pursuant to the provisions of the Plan governing the
applicable Class. Holders of Disputed Claims or Disputed Interests that are
ultimately allowed will also be entitled to receive, on the basis of the amount
ultimately allowed,
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any interest payments, dividends or other payments made to the Class to which
such Claim or Interest belongs, but held pending distribution.
I. Setoffs.
Except with respect to any contract, instrument, release, indenture or
other agreement or document created in connection with this Plan, the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may be,
may, pursuant to Section 553 or Section 502(d) of the Bankruptcy Code or
applicable nonbankruptcy law, set off against any Allowed Claim and the
distributions to be made pursuant to this Plan on account of such Claim (before
any distribution is made on account of such Claim), the claims, rights and
causes of action of any nature that the Debtors, Reorganized CMI, Reorganized
CMM or Reorganized Holdings may hold against the Holder of such Allowed Claim;
provided, however, that neither the failure to effect such a setoff nor the
allowance of any Claim hereunder shall constitute a waiver or release by the
Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings of any such
claims, rights and causes of action that the Debtors, Reorganized CMI,
Reorganized CMM or Reorganized Holdings may possess against such Holder.
VI. INDIVIDUAL HOLDER PROOFS OF INTEREST
Holders of Interests in Classes A14, A16, A18, A20, A21, A22, B7 and C7
are not required to File proofs of Interests unless they disagree with the
number of shares set forth on the applicable stock register.
VII. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. Assumptions.
Except as otherwise provided herein, on the Effective Date, pursuant to
Section 365 of the Bankruptcy Code, the Reorganized Debtors will assume each
executory contract and unexpired lease entered into by the Debtors prior to the
Petition Date that has not previously (a) expired or terminated pursuant to its
own terms or (b) been assumed or rejected pursuant to Section 365 of the
Bankruptcy Code. The Confirmation Order will constitute an Order of the
Bankruptcy Court approving the assumptions described in this Article VII,
pursuant to Section 365 of the Bankruptcy Code, as of the Effective Date.
B. Cure of Defaults in Connection with Assumption.
Any monetary amounts by which each executory contract or unexpired lease
to be assumed pursuant to the Plan is in default will be satisfied, pursuant to
Section 365 (b) (1) of the Bankruptcy Code, at the option of the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may be:
(a) by payment of the default amount in Cash on the Effective Date or as soon as
practicable thereafter; or (b) on such other terms as are agreed to by the
parties to such executory contract or unexpired lease.
If there is a dispute regarding: (i) the amount of any cure payments; (ii)
the ability of Reorganized CMI, Reorganized CMM or Reorganized Holdings to
provide "adequate assurance
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of future performance" (within the meaning of Section 365 of the Bankruptcy
Code) under the contract or lease to be assumed; or (iii) any other matter
pertaining to assumption, the cure payments required by Section 365 (b) (1) of
the Bankruptcy Code will be made following the entry of a Final Order resolving
the dispute and approving the assumption.
C. Rejections.
Except as otherwise provided herein, on the Effective Date, pursuant to
Section 365 of the Bankruptcy Code, the Debtors will reject each of the
executory contracts and unexpired leases listed on a schedule to be filed prior
to the Confirmation Hearing (the "Contract Rejection Schedule"); provided,
however, that the Debtors reserve the right, at any time prior to the Effective
Date, to amend such schedule to delete any executory contract or unexpired lease
listed therein, thus providing for its assumption pursuant to Sections VII.A and
B above. Each contract and lease listed on the Contract Rejection Schedule will
be rejected only to the extent that any such contract or lease constitutes an
executory contract or unexpired lease. Listing a contract or lease on the
Contract Rejection Schedule does not constitute an admission by the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings that such contract or
lease is an executory contract or unexpired lease or that the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings has any liability
thereunder. The Confirmation Order shall constitute an Order of the Bankruptcy
Court approving such rejections, pursuant to Section 365 of the Bankruptcy Code,
as of the Effective Date.
D. Bar Date for Rejection Damages.
If the rejection of an executory contract or unexpired lease pursuant to
the preceding Section VII.C gives rise to a Claim by the other party or parties
to such contract or lease, such Claim shall be forever barred and shall not be
enforceable against the Debtors, Reorganized CMI, Reorganized CMM or Reorganized
Holdings, their successors or properties unless (a) a stipulation with respect
to the amount and nature of such Claim has been entered into by either of the
Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings, as
applicable, and the Holder of such Claim in connection with the rejection of
such executory contract or unexpired lease, or (b) a Proof of Claim is Filed and
served on Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case
may be, and counsel for Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, within 30 days after the Effective Date or such
earlier date as established by the Bankruptcy Court. Unless otherwise ordered by
the Bankruptcy Court,. all Allowed Claims arising from the rejection of
executory contracts or unexpired leases shall be treated as Claims in Class A10,
B5 or C5, as applicable.
VIII. ACCEPTANCE OR REJECTION OF THE PLAN
A. Voting Classes.
The Holders of Allowed Claims and Interests in Classes A1, A2, A3, A4, A5,
A6, A7, A9, A10, A11, A13, A14, A16, A18, A20, A21, B1, B2, B5, B6, C1, C2, C5
and C6 are Impaired and shall be entitled to vote to accept or reject this Plan.
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B. Presumed Acceptances of Plan.
The Holders of Allowed Claims and Interests in Classes A8, A12, A15, A17,
A19, A22, A23, B3, B4, B7, C3, C4 and C7 are not Impaired under the Plan and,
therefore, are conclusively presumed to accept the Plan.
C. Confirmability of Plan and Cramdown
To the extent that any Impaired Class votes to reject the Plan or is
deemed to have rejected this Plan, the Debtors and the CMI Equity Committee will
request that the Bankruptcy Court confirm this Plan under the "cramdown"
provisions of Section 1129(b) of the Bankruptcy Code.
IX. MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN
A. Corporate Structure.
On the Effective Date, CMI will become Reorganized CMI, CMM will become
Reorganized CMM, and Holdings will became Reorganized Holdings. Reorganized CMM
will be a wholly-owned subsidiary of Reorganized CMI, and Reorganized CMI will
be the general partner of Reorganized Holdings.
B. Corporate Action.
1. Cancellation of Old Securities and Related Agreements.
On the Effective Date, except as otherwise provided by this Plan, the Old
Securities and all instruments, indentures and agreements evidencing or
governing such Old Securities shall be deemed terminated, canceled, extinguished
and of no further force or effect without any further action on the part of the
Bankruptcy Court, or any Person or any government entity or agency, and except
as otherwise provided herein, the Debtors and the Reorganized Debtors shall be
released from any and all obligations under such securities, instruments,
indentures and agreements. Holders of cancelled Old Securities will have no
rights arising from or relating to such Old Securities or the cancellation
thereof, except the rights provided pursuant to this Plan.
2. Articles of Incorporation and Bylaws for Reorganized CMI.
On the Effective Date, Reorganized CMI shall be deemed to have adopted the
Reorganized CMI Articles of Incorporation and the Reorganized CMI Bylaws
pursuant to applicable nonbankruptcy law and Section 1123(a)(5)(I) of the
Bankruptcy Code. The Reorganized CMI Articles of Incorporation contain
amendments providing for, among other matters, an increase in authorized shares
from 120 million to 375 million, (consisting of 300 million shares of common
stock and 75 million shares of preferred stock); authority for the Board of
Directors to increase authorized shares without action by stockholders; new
excess share provisions relating to the transfer, acquisition and redemption of
capital stock addressing ownership limitations for CMI and the treatment of
excess stock intended to ensure compliance with the Internal Revenue Code of
1986 (such excess share provisions are also intended to serve
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as an antitakeover device in connection with any hostile acquisition, even
though Reorganized CMI's REIT status would not be threatened by such
acquisition); deletion of certain antitakeover provisions (however CMI will
remain subject to the Maryland business combination statute); a change in the
vote required for removal of directors from a majority to 66 2/3; changes in how
vacancies on the Board of Directors and newly created directorships are filled;
and prohibition of the issuance of nonvoting equity securities to the extent
required by Section 1123(a)(6) of the Bankruptcy Code. The Reorganized CMI
Bylaws contain amendments providing for, among other matters, advance notice of
matters to be presented at annual meetings of stockholders and advance notice of
nominees for director. The Reorganized CMI Articles of Incorporation and the
Reorganized CMI Bylaws will become effective, without any requirement of further
action by stockholders of CMI or Reorganized CMI, on the Effective Date. The
Reorganized CMI Articles of Incorporation shall be filed with the Maryland
Department of Assessments and Taxation on the Effective Date.
3. Articles of Incorporation and Bylaws for Reorganized CMM.
On the Effective Date, Reorganized CMM shall be deemed to have adopted the
Reorganized CMM Articles of Incorporation and the Reorganized CMM Bylaws
pursuant to applicable non-bankruptcy law and Section 1123(a)(5)(I) of the
Bankruptcy Code. The Reorganized CMM Articles of Incorporation will be amended
to prohibit the issuance of nonvoting equity securities to the extent required
by Section 1123 (a) (6) of the Bankruptcy Code. The Reorganized CMM Articles of
Incorporation and the Reorganized CMM Bylaws will become effective, without any
requirement of further action by the stockholder of CMM or Reorganized CMM, on
the Effective Date. If the foregoing amendment is required, then the Reorganized
CMM Articles of Incorporation shall be filed with the Maryland Department of
Assessments and Taxation on the Effective Date.
4. Directors and Management of Reorganized CMI.
As of the Effective Date, the Persons identified at or before the
Confirmation Hearing in a schedule to be Filed by CMI with the Bankruptcy Court
will serve as the initial members of the Board of Directors of Reorganized CMI.
Such Persons shall be deemed elected to the Board of Directors of CMI, and such
elections shall be deemed effective as of the Effective Date, without any
requirement of further action by stockholders of CMI or Reorganized CMI. The
initial officers of Reorganized CMI shall be selected by the Board of Directors
of Reorganized CMI and their names will be disclosed in a schedule to be Filed
with the Bankruptcy Court at or before the Confirmation Hearing. Subject to any
requirement of Bankruptcy Court approval under Section 1129(a)(5) of the
Bankruptcy Code, those persons identified or designated as directors and
officers of Reorganized CMI in the schedule to be Filed with the Bankruptcy
Court at or before the Confirmation Hearing shall assume their offices as of the
Effective Date and shall continue to serve in such capacities thereafter,
pending further action of the Board of Directors or stockholders of Reorganized
CMI in accordance with the Reorganized CMI Bylaws, Reorganized CMI Articles of
Incorporation and applicable state law.
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5. Directors and Management of Reorganized CMM and Reorganized Holdings.
As of the Effective Date, the Persons identified at or before the
Confirmation Hearing in a schedule to be Filed by CMM with the Bankruptcy Court
will serve as the initial members of the Board of Directors of Reorganized CMM.
Such Persons shall be deemed elected to the Board of Directors of CMM, and such
elections shall be deemed effective as of the Effective Date, without any
requirement of further action by stockholders of CMM or Reorganized CMM. The
initial officers of Reorganized CMM shall be selected by the Board of Directors
of Reorganized CMM and their names will be disclosed in a schedule to be Filed
with the Bankruptcy Court at or before the Confirmation Hearing. Subject to any
requirement of Bankruptcy Court approval under Section 1129(a)(5) of the
Bankruptcy Code, those persons identified or designated as directors and
officers of Reorganized CMM in the schedule to be Filed with the Bankruptcy
Court at or before the Confirmation Hearing shall assume their offices as of the
Effective Date and shall continue to serve in such capacities thereafter,
pending further action of the Board of Directors or the stockholder of
Reorganized CMM in accordance with the Reorganized CMM Bylaws, Reorganized CMM
Articles of Incorporation and applicable state law.
As of the Effective Date, Reorganized CMI shall remain the sole general
partner of Reorganized Holdings and CMSLP shall remain the sole limited partner
in Reorganized Holdings. It is contemplated that at some time after the
Effective Date, Reorganized Holdings will be dissolved unless the partners in
Reorganized Holdings otherwise determine.
6. No Further Corporate Action.
Each of the matters provided for under this Plan involving the corporate
structure of any Debtor or Reorganized Debtor or corporate action to be taken by
or required of any Debtor or Reorganized Debtor (including, without limitation,
approval of the issuance of the New Securities) shall, as of the Effective Date,
be deemed to have occurred and be effective as provided herein, and shall be
authorized and approved in all respects without any requirement of further
action by stockholders or directors of any of the Debtors or Reorganized
Debtors.
C. Implementation.
The Debtors, Reorganized CMI, Reorganized CMM and Reorganized Holdings are
hereby authorized and directed to take all necessary steps, and perform all
necessary acts, to consummate the terms and conditions of this Plan on and after
the Effective Date. On or before the Effective Date, the Debtors may File with
the Bankruptcy Court such agreements and other documents as may be necessary or
appropriate to effectuate or further evidence the terms and conditions of this
Plan and the other agreements referred to herein or contemplated hereby.
D. Effectuating Documents and Actions.
The Debtors, Reorganized CMI, Reorganized CMM and Reorganized Holdings, as
the case may be, and each of their respective appropriate officers shall be
authorized to execute and deliver such contracts, instruments, releases, and
other agreements or documents and take such other actions as may be necessary or
appropriate to effectuate and further evidence the terms and
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conditions of this Plan, the transactions provided for in the Plan and all other
actions in connection herewith.
E. Term of Injunctions or Stays.
Unless provided in the Confirmation Order or otherwise, all injunctions or
stays imposed in the Reorganization Cases pursuant to Sections 105 and 362 of
the Bankruptcy Code or otherwise in effect on the Confirmation Date shall remain
in full force and effect until the Effective Date.
F. No Interest; Disallowance of Penalties and Premiums.
Except as expressly provided herein, no Holder of an Allowed Claim or
Allowed Interest shall receive interest on the distribution to which such Holder
is entitled hereunder, regardless of whether such distribution is made on the
Effective Date or thereafter. Any and all Claims for or in the nature of
penalties or premiums allegedly owing shall be disallowed including, but not
limited to, prepayment penalties, penalty interest, makewhole premiums or
prepayment premiums.
G. Retiree Benefits.
On and after the Effective Date, to the extent required by Section
1129(a)(13) of the Bankruptcy Code, Reorganized CMI, Reorganized CMM or
Reorganized Holdings, as the case may be, shall continue to pay all retiree
benefits (if any), as the term "retiree benefits" is defined in Section 1114(a)
of the Bankruptcy Code, maintained or established by the Debtors prior to the
Confirmation Date.
H. Recapitalization Financing Including Issuance of New Securities.
On the Effective Date, the Recapitalization Financing shall be funded and
become effective and the CMBS Sale Portfolio, if not already sold, shall be sold
as parts of effectuating consummation of this Plan. On the Effective Date,
Reorganized CMI will issue the New Securities in accordance with this Plan. The
issuance of the New Securities and all securities issuable upon conversion of
the New Securities is hereby authorized pursuant to Section 1145 of the
Bankruptcy Code, without further action under applicable law. In addition, on
the Effective Date, the Reorganized Debtors will implement and, to the extent
applicable, receive the proceeds of the New Debt in accordance with the terms of
the applicable documents with respect thereto. On the Effective Date, all
securities, instruments, corporate documents, and agreements entered into
pursuant to or contemplated by the Plan, including, without limitation, the New
Securities, any other security and any instrument, corporate document, or
agreement entered into in connection with any of the transactions referenced in
this Section or Section IX.I, shall become effective, binding and enforceable in
accordance with their respective terms and conditions upon the parties thereto
without further act or action under applicable law, regulation, order or rule,
and shall be deemed to become effective simultaneously.
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I. Sale of the CMBS Sale Portfolio.
On or before the Effective Date, the commercial mortgage-backed securities
and any other assets in the CMBS Sale Portfolio shall be sold in accordance with
the terms of this Plan and any Orders with respect thereto entered by the
Bankruptcy Court. The net proceeds thereof shall be used to pay Allowed Secured
Claims in accordance with any Orders entered by the Bankruptcy Court with
respect thereto and otherwise used as part of the funding of this Plan.
J. Potential New Equity Investment and Rights Offering.
Although not required to fund this Plan, the Debtors, in consultation with
the CMI Equity Committee, may seek new equity capital from one or more investors
to partially fund the Reorganized Debtors and this Plan as Recapitalization
Financing. In such event, this Plan will be amended to appropriately reflect
such new equity capital transaction, in a manner consistent with Exhibits 1 and
2 hereto. If new equity capital is sought, it is likely to take the form of a
private issuance of preferred stock with such relative rights and preferences as
may be agreed to consistent with the terms of this Plan.
In the event new equity capital is sought from an investor, it is also
anticipated that an offering of rights to purchase common stock or a new series
of preferred stock, with rights and preferences similar to the preferred stock
likely to be issued to the new equity capital investor but with limited voting
rights, would be made to Holders of CMI Common Stock. Such rights offering would
be developed in consultation with the CMI Equity Committee. Such rights offering
would commence on the Effective Date and would be for a percentage of the
aggregate face value of the securities issued to the new equity capital
investor. All or a portion of the proceeds of the rights offering may be used to
redeem at face value the securities issued to the new equity investor.
Even if CMI does not seek new equity from an investor, an offering of
rights to purchase CMI Common Stock may be made to Holders of CMI Common Stock
in connection with this Plan. Such rights offering would be developed in
consultation with the CMI Equity Committee.
In the event new equity capital is sought from an investor and a rights
offering is made to Holders of CMI Common Stock or a rights offering is made to
Holders of CMI Common Stock independent of any new equity investment by an
investor, the CMI Common Stock will be exchanged for new CMI Common Stock (on a
one share per one share basis) and rights (one right per share) structured to
ensure that the value of the CMI Common Stock exchanged exceeds the value of the
fresh capital raised in the rights offering, thereby making the exchange
principally in exchange for an interest and only partly for cash and rendering
applicable the limited transactional exemption from securities law registration
afforded by Section 1145 of the Bankruptcy Code. If a rights offering is made
and an exchange of CMI Common Stock, consistent with the foregoing, is effected,
then CMI's existing Series B Preferred Stock, Old Series D Preferred Stock,
Series E Preferred Stock and Stock Options would be exchanged for new Series B
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Stock
Options, as applicable.
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K. Second Amended and Restated Stock Option Plan.
On or prior to the Effective Date, the Second Amended and Restated Stock
Option Plan will be adopted by CMI to be effective on the Effective Date and, by
voting to accept this Plan, all Holders of Class A21 Interests shall be deemed
to have ratified and approved the Second Amended and Restated Stock Option Plan.
Additionally, upon entry of a Confirmation Order, the Bankruptcy Court shall,
consistent with Maryland and federal law, be deemed to have approved the Second
Amended and Restated Stock Option Plan (including the increase in the number of
shares of CMI Common Stock with respect to which options may be granted and the
extension of the time in which options may be granted) on behalf of CMI's
stockholders and in satisfaction of Section 422 of the Internal Revenue Code.
Following the Effective Date, the Board of Directors of Reorganized CMI may
further amend or modify the Second Amended and Restated Stock Option Plan in
accordance with the terms thereof and any such further amendment or modification
shall not require amendment of this Plan. The Second Amended and Restated Stock
Option Plan amends CMI's Amended and Restated Stock Option Plan for Key
Employees to, among other matters, provide for an increase in the number of
shares of CMI Common Stock with respect to which options may be granted from
2,092,903 (as adjusted from 2 million shares as a result of the junior preferred
stock dividend paid to common stockholders in November 1999 and consistent with
a Bankruptcy Court Order which limits the full adjustment to 2,198,831 shares,
contemplated by the terms and provisions of the Second Amended and Restated
Stock Option Plan, until CMI emerges from Chapter 11) to 4,500,000; to extend
the time in which options may be granted under the Plan from June 30, 2000 until
June 30, 2002, and to effect changes consistent with current securities and tax
laws. After the Effective Date it is expected that common stockholder approval
of the material terms of the Second Amended Employee Stock Option Plan will be
sought for purposes of becoming exempt from the deduction limits set forth in
Section 162(m) of the Internal Revenue Code.
CMI's Non-Employee Director Stock Option Plan in place prior to the
Effective Date shall remain in place after the Effective Date and Reorganized
CMI shall continue to honor such option plan.
L. Affiliate Reorganization.
In order to secure certain financing contemplated under this Plan with the
commercial mortgage backed securities representing the equity interests in
CBO-1, CBO-2 and CMO-IV (the "Equity Interests"), CMI anticipates that, as a
part of this Plan, either (i) a reorganization of certain CMI affiliated
entities will be effected resulting in REIT subsidiaries holding the Equity
Interests or owning the stock in the qualified REIT subsidiaries holding the
Equity Interests, or (ii) the qualified REIT subsidiaries holding the Equity
Interests or the trusts holding the underlying assets will elect REIT status
(and other actions will be taken as necessary to effect such election); with the
intent to secure such financing with a pledge of stock in the REITs, in lieu of
a direct pledge of the Equity Interests. In addition, certain other actions may
be taken as necessary to implement the foregoing. All of the actions taken in
accordance with this Section shall be consistent with the provisions of Exhibit
2 hereto governing the treatment of Class A9 and Class A10.
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X. CONFIRMATION AND EFFECTIVE DATE CONDITIONS
A. Conditions to Confirmation.
Confirmation of this Plan is conditioned upon satisfaction of the
applicable provisions of Section 1129 of the Bankruptcy Code and entry of a
Confirmation Order by the Bankruptcy Court in form and substance satisfactory to
the Debtors and the CMI Equity Committee. Among other things, the Confirmation
Order shall authorize and direct that the Debtors, Reorganized CMI, Reorganized
CMM and Reorganized Holdings take all actions necessary or appropriate to enter
into, implement and consummate the contracts, instruments, releases, leases,
indentures and other agreements or documents created in connection with or
contemplated by this Plan, including, but not limited to, those actions
contemplated by the provisions of this Plan set forth in Section XII hereof, and
shall provide that all New Securities to be issued to Holders of Claims and
Interests pursuant to this Plan and all securities issuable upon the conversion
of the New Securities are exempt from registration under federal and state
securities laws (other than the Trust Indenture Act) pursuant to Section 1145 of
the Bankruptcy Code and that the solicitation of Holders of CMI Common Stock,
Series B Preferred Stock and Old Senior Notes is exempt under Rule 14a-2(a)(4)
of the proxy regulations under the Securities Exchange Act of 1934.
B. Conditions to Effective Date.
The Effective Date will not occur and this Plan will not be consummated
unless and until each of the following conditions has been satisfied or waived
by the Debtors and the CMI Equity Committee:
1. The Confirmation Order in form and substance satisfactory to the
Debtors and the CMI Equity Committee and entered by the Bankruptcy Court shall
not have been modified in any respect.
2. The Recapitalization Financing shall be funded in accordance with the
terms of this Plan and the sale of the CMBS Sale Portfolio shall have been
completed.
3. All other actions and documents necessary to implement the transactions
contemplated by this Plan on or before the Effective Date shall have been
effected or executed.
XI. EFFECTS OF PLAN CONFIRMATION
A. Discharge of Debtors and Injunction.
Except as otherwise provided in the Plan or the Confirmation Order: (i) on
the Effective Date, the Debtors shall be deemed discharged and released to the
fullest extent permitted by Section 1141 of the Bankruptcy Code from all Claims
and Interests, including, but not limited to, demands, liabilities, Claims and
Interests that arose before the Effective Date and all debts of the kind
specified in Sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether
or not (a) a proof of Claim or proof of Interest based on such Claim, debt or
Interest is Filed or deemed Filed pursuant to Section 501 of the Bankruptcy
Code, (b) a Claim or Interest based on such Claim,
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debt or Interest is allowed pursuant to Section 502 of the Bankruptcy Code, or
(c) the Holder of a Claim or Interest based on such Claim, debt or Interest has
accepted the Plan; and (ii) all Persons shall be precluded from asserting
against Reorganized CMI, Reorganized CMM and Reorganized Holdings, their
respective successors, or their respective assets or properties any other or
further Claims or Interests based upon any act or omission, transaction, or
other activity of any kind or nature that occurred prior to the Effective Date.
Except as otherwise provided in the Plan, the Confirmation Order shall act as a
discharge of any and all Claims against and all debts and liabilities of the
Debtors, as provided in Sections 524 and 1141 of the Bankruptcy Code, and such
discharge shall void any judgment against the Debtors at any time obtained to
the extent that it relates to a Claim discharged.
Except as otherwise provided in the Plan or the Confirmation Order, on and
after the Effective Date, all Persons who have held, currently hold or may hold
a debt, Claim or Interest discharged pursuant to the terms of the Plan are
permanently enjoined from taking any of the following actions on account of any
such discharged debt, Claim or Interest: (i) commencing or continuing in any
manner any action or other proceeding against the Debtors, Reorganized CMI,
Reorganized CMM or Reorganized Holdings, or their respective successors or their
respective properties; (ii) enforcing, attaching, collecting or recovering in
any manner any judgment, award, decree or order against the Debtors, Reorganized
CMI, Reorganized CMM or Reorganized Holdings, or their respective successors or
their respective properties; (iii) creating, perfecting or enforcing any lien or
encumbrance against the Debtors, Reorganized CMI, Reorganized CMM or Reorganized
Holdings, or their respective successors or their respective properties; and
(iv) commencing or continuing any action, in any manner, in any place that does
not comply with or is inconsistent with the provisions of the Plan or the
Confirmation Order. Any Person, including but not limited to the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings, injured by any willful
violation of such injunction shall recover actual damages, including costs and
attorneys' fees, and, in appropriate circumstances, may recover punitive
damages, from the willful violator.
B. Limitation of Liability.
None of the Debtors, Reorganized CMI, Reorganized CMM or Reorganized
Holdings, the members of the Committees, the Indenture Trustee, or any of their
respective employees, officers, directors, agents, or representatives, or any
professional persons employed by any of them (including, without limitation,
their respective Designated Professionals), shall have any responsibility, or
have or incur any liability, to any Person whatsoever (i) for any matter
expressly approved or directed by the Confirmation Order or (ii) under any
theory of liability (except for any claim based upon willful misconduct or gross
negligence) for any act taken or omission made in good faith directly related to
formulating, implementing, confirming, or consummating the Plan, the Disclosure
Statement, or any contract, instrument, release or other agreement or document
created in connection with or contemplated by the Plan; provided, that nothing
in this Section XI.B shall limit the liability of any Person for breach of any
express obligation it has under the terms of this Plan, or any documents
executed in connection therewith or pursuant thereto, or under any other
agreement or document entered into by such Person in accordance with or pursuant
to the terms of this Plan (except to the extent expressly provided in the
Confirmation Order) or for any breach of a duty of care owed to any other Person
occurring after the Effective Date.
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C. Releases.
On the Effective Date, each of the Debtors shall release unconditionally,
and hereby is deemed to release unconditionally (i) each of the Debtors'
then-current and former officers, directors, shareholders, employees,
consultants, attorneys, accountants, financial advisors and other
representatives (solely in their capacities as such) (collectively, the "Debtor
Releasees") and (ii) the Committees and, solely in their capacity as members or
representatives of the Committees, each member, consultant, attorney,
accountant, financial advisor or other representative of the Committees
(collectively, the "Committee Releasees") from any and all claims, obligations,
suits, judgments, damages, rights, causes of action and liabilities whatsoever,
whether known or unknown, foreseen or unforeseen, existing or hereafter arising,
in law, equity or otherwise, based in whole or in part upon any act or omission,
transaction, event or other occurrence taking place on or after the Petition
Date and up to and including the Effective Date in any way relating to the
Reorganization Cases, the Plan or the Disclosure Statement.
On the Effective Date, each Holder of a Claim or Interest shall be deemed
to have unconditionally released the Debtor Releasees and the Committee
Releasees from any and all claims, obligations, suits, judgments, damages,
rights, causes of action and liabilities whatsoever which any such holder may be
entitled to assert, whether known or unknown, foreseen or unforeseen, existing
or hereafter arising, in law, equity or otherwise, based in whole or in part
upon any act or omission, transaction, event or other occurrence taking place on
or after the Petition Date and up to and including the Effective Date in any way
relating to the Reorganization Cases, the Plan or the Disclosure Statement,
excepting, however, from such release any obligation owing to a Holder of an
Allowed Claim or Allowed Interest provided for in this Plan or the Confirmation
Order.
D. Indemnification.
The obligations of the Debtors as of the Petition Date to indemnify their
present and former directors or officers, respectively, against any obligations
pursuant to the Debtors' articles of incorporation, by-laws, applicable state
law or specific agreement or resolution, or any combination of the foregoing,
shall survive confirmation of the Plan, remain unaffected thereby, be assumed by
Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may be,
and not be discharged. The Debtors shall fully indemnify, and Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, shall assume the
Debtors' obligations to indemnify, any Person by reason of the fact that he or
she is or was serving as a director, officer, employee, agent, professional,
member, or other authorized representative (in each case, as applicable) of any
of the Debtors (collectively, the "Indemnitees") against any claims,
liabilities, actions, suits, damages, fines, judgments or expenses (including
reasonable attorneys' fees and expenses), arising during the course of, or
otherwise in connection with or in any way related to, the negotiation,
preparation, formulation, solicitation, dissemination, implementation,
confirmation and consummation of the Plan and the transactions contemplated
thereby and the Disclosure Statement in support thereof, provided, however, that
the foregoing indemnification shall not apply to any liabilities arising from
the gross negligence or willful misconduct of any Indemnitee. In addition,
Reorganized CMI shall fully indemnify the CMI Equity Committee and its
professionals against any claims, liabilities, actions, suits, damages,
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fines, judgments or expenses (including reasonable attorneys' fees and expenses)
as a result of or arising from the CMI Equity Committee being a co-proponent of
the Plan and Disclosure Statement provided, however, that the foregoing
indemnification shall not apply to any liabilities arising from gross negligence
or willful misconduct of any such indemnitee. For purposes of the following
sentences in this Section, reference to the term "Indemnitee" shall include the
CMI Equity Committee and its professionals. If any claim, action or proceeding
is brought or asserted against an Indemnitee in respect of which indemnity may
be sought from Reorganized CMI, Reorganized CMM or Reorganized Holdings, the
Indemnitee shall promptly notify Reorganized CMI, in writing and, in any such
event, Reorganized CMI shall assume the defense thereof including the employment
of counsel reasonably satisfactory to the Indemnitee, and the payment of all
expenses of such Indemnitee. The Indemnitee shall have the right to employ
separate counsel in any such claim, action or proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the Indemnitee unless (a) Reorganized CMI has agreed to pay the fees
and expenses of such counsel, or (b) Reorganized CMI shall have failed to assume
promptly the defense of such claim, action or proceeding or to employ counsel
reasonably satisfactory to the Indemnitee in any such claim action or
proceeding, or (c) the named parties in any such claim, action or proceeding
(including any impleaded parties) include both the Indemnitee and Reorganized
CMI, Reorganized CMM or Reorganized Holdings, as the case may be, and the
Indemnitee believes, in the exercise of its business judgment and in the opinion
of its legal counsel, reasonably satisfactory to Reorganized CMI, that the joint
representation of Reorganized CMI, Reorganized CMM or Reorganized Holdings, as
the case may be, and the Indemnitee will likely result in a conflict of interest
(in which case, if the Indemnitee notifies Reorganized CMI in writing that it
elects to employ separate counsel at the expense of Reorganized CMI, Reorganized
CMI shall not have the right to assume the defense of such action or proceeding
on behalf of the Indemnitee). In addition, neither Reorganized CMI, nor
Reorganized CMM nor Reorganized Holdings shall effect any settlement or release
from liability in connection with any matter for which the Indemnitee would have
the right to indemnification from Reorganized CMI, Reorganized CMM or
Reorganized Holdings unless such settlement contains a full and unconditional
release of the Indemnitee, or a release of the Indemnitee reasonably
satisfactory in form and substance to the Indemnitee. Anything herein to the
contrary notwithstanding, no Securities Claims shall be treated as part of
Classes A9 or A10 under the Plan.
E. Vesting of Assets.
Except as otherwise provided in the Plan or the Confirmation Order, on the
Effective Date, all property of CMI's Estate shall vest in Reorganized CMI and
all property of CMM's Estate shall vest in Reorganized CMM and all property of
Holdings' estate shall vest in Reorganized Holdings, all free and clear of all
Claims, liens, encumbrances and Interests of Holders of Claims and Holders of
Old Securities. From and after the Effective Date, Reorganized CMI, Reorganized
CMM and Reorganized Holdings may operate their business and use, acquire and
dispose of property and settle and compromise claims or interests arising on or
after the Effective Date without supervision by the Bankruptcy Court and free of
any restrictions of the Bankruptcy Code, the Bankruptcy Rules or the Local
Bankruptcy Rules, other than those restrictions expressly imposed by the Plan or
the Confirmation Order.
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F. Preservation of Causes of Action.
Except as otherwise provided herein, or in any contract, instrument,
release or other agreement entered into in connection with or pursuant to the
Plan, Reorganized CMI, Reorganized CMM and Reorganized Holdings shall retain
(and may enforce) any claims, rights and causes of action that the Debtors or
the Estates may hold against any Person, including, but not limited to, any
claims, rights or causes of action under Sections 544 through 550 of the
Bankruptcy Code or any similar provisions of state law, or any other statute or
legal theory.
G. Retention of Bankruptcy Court Jurisdiction.
To the maximum extent permitted by the Bankruptcy Code and other
applicable law, the Bankruptcy Court shall have jurisdiction of all matters
arising out of, and related to, the Reorganization Cases and the Plan pursuant
to, and for the purpose of, Sections 105(a) and 1142 of the Bankruptcy Code,
including, without limitation, jurisdiction to:
1. Allow, disallow, determine, liquidate, classify, estimate or establish
the priority or secured or unsecured status of any Claim or Interest, including
the resolution of any request for payment of any Administrative Claim, the
resolution of any objections to the allowance or priority of Claims or Interests
and the resolution of any dispute as to the treatment necessary to reinstate a
Claim pursuant to this Plan;
2. Grant or deny any applications for allowance of compensation or
reimbursement of expenses authorized pursuant to the Bankruptcy Code or this
Plan, for periods ending before the Effective Date;
3. Resolve any matters related to the assumption or rejection of any
executory contract or unexpired lease to which any of the Debtors is a party or
with respect to which any of the Debtors may be liable, and to hear, determine
and, if necessary, liquidate any Claims arising therefrom;
4. Ensure that distributions to Holders of Allowed Claims or Allowed
Interests are accomplished pursuant to the provisions of this Plan;
5. Decide or resolve any motions, adversary proceedings, contested or
litigated matters and any other matters and grant or deny any applications
involving the Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings
that may be pending on the Effective Date;
6. Enter such Orders as may be necessary or appropriate to implement or
consummate the provisions of this Plan and all contracts, instruments, releases,
indentures and other agreements or documents created in connection with or
pursuant to this Plan, the Disclosure Statement or the Confirmation Order,
except as otherwise provided herein;
7. Resolve any cases, controversies, suits or disputes that may arise in
connection with the consummation, interpretation or enforcement of this Plan or
the Confirmation Order, including the release and injunction provisions set
forth in and contemplated by this Plan and the Confirmation Order, or any
entity's rights arising under or obligations incurred in connection with this
Plan or the Confirmation Order;
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8. Enter such Orders as may be necessary or appropriate to correct any
defect, cure any omission, or reconcile any inconsistency in this Plan or the
Confirmation Order as may be necessary to carry out the purposes and intent of
this Plan;
9. Enter such Orders as may be necessary or appropriate to enforce,
implement or interpret the terms and conditions of this Plan and resolve any
objections filed with respect to any actions proposed to be taken in connection
with or pursuant to the provisions of this Plan;
10. Enter such Orders as may be necessary or appropriate to approve
agreements, settlements or compromises in connection with matters pending on the
Effective Date or arising thereafter in connection with implementation of
provisions of this Plan;
11. Determine all adversary proceedings and contested matters to recover
or enforce rights with respect to property of any of the Debtors or their
Estates or to obtain other relief relating to causes of actions or claims under
the Bankruptcy Code or other applicable law including, but not limited to, any
actions brought under Sections 541 through 553 of the Bankruptcy Code;
12. Determine matters concerning state, local or federal taxes pursuant to
Sections 346, 505, 525, 1146 and any other tax-related provisions of the
Bankruptcy Code;
13. Enter such Orders as may be necessary or appropriate to enforce and
interpret the provisions of the Confirmation Order;
14. Subject to any restrictions on modifications provided herein or in any
contract, instrument, release, indenture or other agreement or document created
in connection with this Plan, modify this Plan before or after the Effective
Date pursuant to Section 1127 of the Bankruptcy Code or modify the Disclosure
Statement, the Confirmation Order or any contract, instrument, release,
indenture or other agreement or document created in connection with or pursuant
to this Plan, the Disclosure Statement or the Confirmation Order, or remedy any
defect or omission or reconcile any inconsistency in any Bankruptcy Court Order,
this Plan, the Disclosure Statement, the Confirmation Order or any contract,
instrument, release, indenture or other agreement or document created in
connection with or pursuant to this Plan, the Disclosure Statement or the
Confirmation Order, in such manner as may be necessary or appropriate to
consummate this Plan, to the extent authorized by the Bankruptcy Code;
15. Issue injunctions, enter and implement other Orders or take such other
actions as may be necessary or appropriate to restrain interference by any
entity with consummation, implementation or enforcement of this Plan or the
Confirmation Order;
16. Enter and implement such Orders as are necessary or appropriate if the
Confirmation Order is for any reason modified, stayed, reversed, revoked or
vacated;
17. Except as otherwise provided in this Plan, or with respect to specific
matters, in the Confirmation Order or any other Order entered in connection with
the Reorganization Cases, determine any other matters that may arise in
connection with or relating to this Plan, the Disclosure Statement, the
Confirmation Order or any contract, instrument, release, indenture or
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other agreement or document created in connection with or pursuant to this Plan,
the Disclosure Statement or the Confirmation Order; and
18. Enter an Order or Orders closing the Reorganization Cases.
H. Failure of Bankruptcy Court to Exercise Jurisdiction.
If the Bankruptcy Court abstains from exercising or declines to exercise
jurisdiction, or is otherwise without jurisdiction over any matter arising out
of the Reorganization Cases, including the matters set forth in Section XI.G
above, Section XI.G shall not prohibit or limit the exercise of jurisdiction by
any other court having competent jurisdiction with respect to such matter.
I. Committees.
On the Effective Date, all Committees shall be dissolved and the members
of such Committees and their professionals shall be released and discharged from
all further rights and duties arising from or related to the Reorganization
Cases. The professionals retained by such Committees and the members thereof
shall not be entitled to compensation or reimbursement of expenses incurred for
services rendered after the Effective Date other than for services rendered in
connection with any application for allowance of compensation and reimbursement
of expenses pending as of, or timely Filed after, the Effective Date.
XII. MISCELLANEOUS PROVISIONS
A. Final Order.
Any requirement in this Plan that an Order be a Final Order may be waived
by the Debtors (or Reorganized Debtors, if applicable); provided, that nothing
contained herein or elsewhere in this Plan shall prejudice the right of any
party in interest to seek a stay pending appeal with respect to such order.
B. Modification of the Plan.
The Debtors and the CMI Equity Committee reserve the right to modify this
Plan at any time prior to the Confirmation Date as provided for by Section 1127
of the Bankruptcy Code or as otherwise permitted by law without additional
disclosure pursuant to Section 1125 of the Bankruptcy Code, except as the
Bankruptcy Court may otherwise order.
If, after receiving sufficient acceptances but prior to Confirmation of
this Plan, the Debtors and the CMI Equity Committee seek to modify this Plan,
the Debtors and the CMI Equity Committee can use such previously solicited
acceptances only to the extent permitted by applicable law.
The Debtors and the CMI Equity Committee reserve the right after the
Confirmation Date and before the Effective Date to modify the terms of this Plan
or waive any conditions to the effectiveness thereof if and to the extent the
Debtors and the CMI Equity Committee determine that such modifications or
waivers are necessary or desirable to consummate this Plan. The
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Debtors will give such Holders of Claims and Interests notice of such
modifications or waivers as may be required by applicable law and the Bankruptcy
Court, and any such modifications shall be subject to the approval of the
Bankruptcy Court to the extent required by, and in accordance with, Section 1127
of the Bankruptcy Code.
The CMI Equity Committee will join in modifications proposed by the
Debtors in accordance with the foregoing in the exercise of such Committee's
reasonable discretion.
Anything in this Section XII.B. to the contrary notwithstanding, any
modifications of or amendments to, or waivers of any conditions to the
effectiveness of, this Plan prior to the Effective Date that materially affect
the treatment or recovery of the Holders of Class A9 or A10 Allowed Claims
require the consent of the CMI Creditors' Committee; provided, however, that it
is hereby agreed that any change in the amount of payments, timing of payments,
term of the New Debt as defined in Exhibit 2 hereto, Collateral as defined in
Exhibit 2 hereto, liens, rights or default remedies available to the Holders of
Class A9/A10 Notes or of any other specific provisions of Exhibit 2 hereto shall
be deemed material for purposes of this paragraph.
C. Revocation of the Plan.
The Debtors reserve the right to revoke or withdraw this Plan prior to the
Confirmation Date. If the Debtors revoke or withdraw this Plan, or if
Confirmation does not occur, then this Plan shall be null and void, and all of
the Debtors' respective obligations with respect to the Claims and Interests
shall remain unchanged and nothing contained herein or in the Disclosure
Statement shall be deemed an admission or statement against interest or to
constitute a waiver or release of any claims by or against either Debtor or any
other Person or to prejudice in any manner the rights of either Debtor or any
Person in any further proceedings involving either Debtor or any Person.
D. Application of Section 1145 of the Bankruptcy Code and Federal Securities
Laws.
All New Securities to be issued to Holders of Claims and Interests
pursuant to this Plan, and all securities issuable upon the conversion of any of
the New Securities shall be exempt from registration under federal and state
securities laws pursuant to Section 1145 of the Bankruptcy Code. The
solicitation of Holders of CMI Common Stock, Series B Preferred Stock and Old
Senior Notes shall be exempt under Rule 14a-2(a)(4) of the proxy regulations
under the Securities Exchange Act of 1934.
E. Application of Section 1146(c) of the Bankruptcy Code.
The implementation and enforcement of any provisions of this Plan
transferring assets or property, including but not limited to sales of the
commercial mortgage-backed securities and any other property in the CMBS Sale
Portfolio, and the making, delivery or recording of any "instrument of transfer"
in connection with or pursuant to this Plan, shall not be taxed under any law
imposing a stamp tax, transfer tax or a similar tax pursuant to Section 1146(c)
of the Bankruptcy Code.
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F. Successors and Assigns.
The rights, benefits and obligations of any Person named or referred to in
this Plan shall be binding on, and shall inure to the benefit of, any heir,
executor, trustee, administrator, successor or assign of such Person.
G. Saturday, Sunday or Legal Holiday.
If any payment or act under this Plan is required to be made or performed
on a date that is not a Business Day, then the making of such payment or the
performance of such act may be completed on the next succeeding Business Day,
but shall be deemed to have been completed as of the required date.
H. Committee Action.
With respect to the action of any of the Committees under this Plan, any
such action shall be duly authorized by majority vote of committee members at a
meeting, in person or by telephone, at which a quorum of such committee is
present or by majority consent of the members of such committee then serving.
I. Post-Effective Date Effect of Evidences of Claims or Interests.
Except as otherwise specified herein, notes, bonds, stock certificates and
other evidences of Claims against or Interests in the Debtors, and all
Instruments of the Debtors (in either case, other than those executed and
delivered as contemplated hereby in connection with the consummation of this
Plan), shall, effective upon the Effective Date, represent only the right to
participate in the distributions contemplated by this Plan.
J. Governing Law.
Unless a rule of law or procedure is supplied by (i) federal law
(including the Bankruptcy Code, the Bankruptcy Rules or the Local Bankruptcy
Rules), (ii) an express choice of law provision in any agreement, contract,
instrument, or document provided for, or executed in connection with, this Plan,
or (iii) applicable non-bankruptcy law, the rights and obligations arising under
this Plan and any agreements, contracts, documents, and instruments executed in
connection with or pursuant to this Plan shall be governed by, and construed and
enforced in accordance with, the laws of the State of Maryland without giving
effect to the principles of conflict of laws thereof.
K. No Liability for Solicitation or Participation.
As specified in Section 1125 (e) of the Bankruptcy Code, Persons that
solicit acceptances or rejections of this Plan and/or that participate in the
offer, issuance, sale, or purchase of securities offered or sold under or in
connection with this Plan, in good faith and in compliance with the applicable
provisions of the Bankruptcy Code, shall not be liable, on account of such
solicitation or participation, for violation of any applicable law, rule, or
regulation governing the
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solicitation of acceptances or rejections of this Plan or the offer, issuance,
sale, or purchase of securities.
L. Severability of CMM Provisions.
If so ordered by the Bankruptcy Court at the Confirmation Hearing, the
Plan provisions herein for CMM may be confirmed independently of confirmation of
the Plan provisions for CMI and Holdings.
M. No Admissions or Waiver of Objections.
Notwithstanding anything herein to the contrary, if the Effective Date
does not occur, nothing contained in this Plan shall be deemed as an admission
by the Debtors, the CMI Equity Committee or any other party with respect to any
matter set forth herein, including, without limitation, liability on any Claim
or the propriety of any Claims classification. Neither the Debtors nor the CMI
Equity Committee are bound by any statements herein or in the Disclosure
Statement as judicial admissions.
DATED: April 24, 2000
CRIIMI MAE Inc.
a Maryland corporation
By: /s/ Cynthia O. Azzara
--------------------------------
Name: Cynthia O. Azzara
Title: Senior Vice President
CRIIMI MAE Management, Inc.
a Maryland corporation
By: /s/ Cynthia O. Azzara
--------------------------------
Name: Cynthia O. Azzara
Title: Senior Vice President
CRIIMI MAE Holdings II, L.P.
a Delaware Limited Partnership
By: CRIIMI MAE Inc.
its General Partner
By: /s/ Cynthia O. Azzara
--------------------------------
Name: Cynthia O. Azzara
Title: Senior Vice President
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VENABLE, BAETJER AND HOWARD, LLP AKIN, GUMP, STRAUSS HAUER
& FELD L.L.P.
By:/s/ Richard L. Wasserman By: /s/ Stanley J. Samorajczyk
--------------------------- ----------------------------
Richard L. Wasserman Stanley J. Samorajczyk
Gregory A. Cross Michael S. Stamer
1800 Mercantile Bank and Trust Building 1333 New Hampshire Ave., NW
Two Hopkins Plaza Washington, D.C. 20036
Baltimore, Maryland 21201 (202) 887-4000
(410) 244-7400
SHULMAN, ROGERS, GANDAL,
PORDY & ECKER, P.A.
By:/s/ Morton A. Faller
---------------------
Morton A. Faller
11921 Rockville Pike
Third Floor
Rockville, MD 20852-2753
(301) 231-0928
CO-PROPONENT:
Official Committee of Equity Security Holders
of CRIIMI MAE Inc.
By:/s/ Michael F. Wurst
---------------------
Name: Michael F. Wurst
Title: Co-Chairman
COVINGTON & BURLING
By:/s/ Michael St. Patrick Baxter
------------------------------
Michael St. Patrick Baxter
Dennis B. Auerbach
1201 Pennsylvania Ave., NW
Washington, D.C. 20044
(202) 662-6000
Attorneys for the Official Committee
of Equity Security Holders of CRIIMI MAE Inc.
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Exhibit 1
<PAGE>
AMENDED AND RESTATED TERMS OF CHAPTER 11
PLAN TREATMENT OF MERRILL LYNCH
MORTGAGE CAPITAL INC. AND
GERMAN AMERICAN CAPITAL CORPORATION
CRIIMI MAE Inc. ("CMI") and Merrill Lynch Mortgage Capital Inc. and
German American Capital Corporation ("MLMCI/GACC"), agree to the following terms
and conditions to be included in a Second Amended Plan of Reorganization to be
filed by CMI. This Term Sheet is subject to the filing of a plan of
reorganization and disclosure statement consistent with the terms and conditions
set forth herein and to agreement upon the form and substance of the New Secured
Debt Documents, the MLMCI/GACC Trust Agreement and the CBO I/Nomura Trust
Agreement (as such terms are hereinafter respectively defined). This Term Sheet
is intended to amend and restate in its entirety the term sheet appended to the
Amended Plan of Reorganization filed by CMI, CRIIMI MAE Management, Inc., CRIIMI
MAE Holdings II, L.P. (together, the Debtors) on December 23, 1999 (the
"Existing Term Sheet"), subject to reinstatement of the Existing Term Sheet in
the event the Official Committee of Unsecured Creditors of CMI (the "Unsecured
Creditors Committee") opposes, or fails to support (or be a co-proponent of) the
Second Amended Plan (as hereinafter defined).
Overview: Subject to the conditions outlined in this
Term Sheet, MLMCI/GACC and CMI will jointly
support an a Second Amended Plan of
Reorganization filed by the Debtors, the
Official Committee of Equity Security
Holders of CMI (the "Equity Committee") or
by the Debtors and/or the Equity Committee
and/or the Unsecured Creditors Committee as
co-proponents (the "Second Amended Plan"),
providing for MLMCI/GACC to receive, in
respect of the Class A3 (GACC) and Class A5
(MLMCI) Claims (the "Claims"), (a) an
up-front cash payment in reduction of the
Claims on the effective date of the Second
Amended Plan (the "Effective Date"), as
described in the section of this Term Sheet
captioned "Initial Paydown"; (b) treatment
of the Claims as described in this Term
Sheet; and (c) the receipt by MLMCI/GACC, on
the Effective Date, of new secured debt of
CMI (the "New Secured Debt") on the terms
and conditions described in this Term Sheet.
The Secured Notes and other documents that
will evidence and secure the New Secured
Debt are sometimes referred to in this Term
Sheet, collectively, as the "New Secured
Debt Documents."
<PAGE>
Initial Paydown: $100 million in immediately available funds,
payable to MLMCI and GACC on the Effective
Date in reduction of the Claims, pari passu
in proportion to the respective allowed
amounts of such Claims, plus any accrued but
unpaid interest owing to MLMCI/GACC
(accruing at the contract non-default rate)
(the "Initial Paydown"), plus any legal fees
and expenses incurred by MLMCI and GACC in
connection with drafting, negotiating and
finalizing the New Secured Debt Documents
not to exceed $500,000. [Assumes that GACC
will have been paid in full on its non-CBO
Claim at the specified allocated debt amount
(accruing interest at the contract
non-default rate).]
Borrower: CMI or a subsidiary thereof reasonably
acceptable to MLMCI/GACC. The New Secured
Debt will be a full recourse obligation of
CMI.
Principal The original principal amount of the New
Amount: Secured Debt will be equal to (a) the
allowed secured Claims of MLMCI and GACC,
which will be equal to the aggregate
outstanding principal amount of the MLMCI
and GACC debt, plus any accrued and unpaid
interest thereon, as of the date immediately
preceding the Effective Date, without offset
or reduction for any reason (including,
without limitation, post-petition interest),
minus (b) $100 million, minus (c) any
additional principal paydown paid on the
Effective Date in accordance with the Second
Amended Plan.
Collateral: The New Secured Debt will be secured by
first-priority liens and security interests
in the assets listed on the attached
Schedule A, which shall include the
CCC-rated and unrated classes of "CBO II".
The assets identified on Schedule A are
sometimes referred to in this Term Sheet,
collectively, as the "Collateral". The
Collateral will be held in a "collateral
trust" for the benefit of MLMCI/GACC, its
successors and assigns, and the holders of
Note A and Note B (as those terms are
respectively defined in the Unsecured
Creditors' Term Sheet) (the "Noteholders"),
as their respective interests may appear
(the "MLMCI/GACC Collateral Trust").
MLMCI/GACC
2
<PAGE>
or their designee will be irrevocably
appointed as trustee and collateral agent of
the MLMCI/GACC Collateral Trust. MLMCI/GACC
will hold a senior beneficial interest in
the MLMCI/GACC Collateral Trust and the
Noteholders will hold a subordinate
beneficial interest in the MLMCI/GACC
Collateral Trust which shall be consistent
with the terms and conditions set forth
herein and which shall afford the
Noteholders the substantive benefits
intended to be provided to the Noteholders
by the "soft second lien" arrangement as set
forth in the Unsecured Creditors Term Sheet.
The respective rights and priorities of
MLMCI/GACC, on the one hand, and the
Noteholders, on the other hand, with respect
to the Collateral will be set forth in the
trust agreement establishing the MLMCI/GACC
Collateral Trust (the "MLMCI/GACC Trust
Agreement"). The Noteholders will not be
entitled, without the prior written approval
of MLMCI/GACC, (a) to foreclose or otherwise
realize upon their subordinate beneficial
interest in the Collateral, (b) to take any
action for the specific purpose of delaying
or interfering with the rights of MLMCI/GACC
with respect to the Collateral, (c) to take
any action adverse to MLMCI/GACC in a
non-bankruptcy court enforcement proceeding
with respect to the Collateral; provided,
however, that nothing herein shall relieve
MLMCI/GACC from acting in accordance with
their obligations under the Plan, the
MLMCI/GACC Trust Agreement and applicable
laws. The Collateral will not be encumbered
by or otherwise subject to liens or security
interests in favor of any creditor other
than MLMCI/GACC and the Noteholders (to the
extent of their respective beneficial
interests in the MLMCI/GACC Collateral
Trust).
In addition, the Second Amended Plan will
provide for the assets listed on Schedule B
(CBO I and Nomura Bonds) (collectively the
"CBO I/Nomura Assets") to be held in a
collateral trust for the benefit of the
Noteholders and MLMCI/GACC, as their
respective interests may appear (the "CBO
I/Nomura Collateral Trust"). MLMCI/GACC or
their designee will be irrevocably appointed
as trustee and collateral agent of the CBO
I/Nomura Collateral Trust, the Noteholders
will hold a senior beneficial interest in
the CBO I/Nomura Collateral Trust and
MLMCI/GACC will hold a subordinate
beneficial interest in the CBO I/Nomura
Collateral Trust. The respective rights and
3
<PAGE>
priorities of the Noteholders, on the one
hand, and MLMCI/GACC, on the other hand,
with respect to the CBO I/Nomura Assets will
be set forth in the trust agreement
establishing the CBO I/Nomura Collateral
Trust (the "CBO I/Nomura Trust Agreement")
which shall be consistent with the terms and
conditions set forth herein and which shall
afford the Noteholders the substantive
benefits intended to be provided to the
Noteholders by the first priority lien
arrangement set forth in the Unsecured
Creditors Term Sheet. The CBO I/Nomura Trust
Agreement will provide, in a manner
acceptable to MLMCI/GACC, the Unsecured
Creditors Committee, the Equity Committee,
the Debtors and their respective counsel,
that in the event MLMCI/GACC become entitled
under the terms of the New Secured Debt
Documents to foreclose upon, sell or
otherwise realize upon the Collateral or any
portion thereof upon the occurrence of the
scheduled Maturity Date or any accelerated
maturity following an Event of Default (as
such term is defined in the New Secured Debt
Documents), MLMCI and GACC will also be
entitled to sell or transfer the Assets;
provided, however, that any net sales price
realized from the sale of the CBO I/Nomura
Assets shall be remitted to the Noteholders
until the allowed amount of their respective
claims are paid in full and then will be
paid to MLMCI/GACC until the New Secured
Debt has been paid in full and then to CMI.
If the Collateral is sold along with the CBO
I/Nomura Assets (or any of them), there
shall be a commercially reasonable
allocation of the net proceeds of such sale.
Any further transfer or pledge of the CBO
I/Nomura Assets (or any interest therein)
prior to the New Secured Debt having been
paid in full will require the prior written
consent of MLMCI/GACC.
Maturity Date: Business Day immediately preceding the
fourth (4th) anniversary of the Effective
Date.
Facility Fee: One and one-half percent (1 1/2%) of
the original principal amount of the New
Secured Debt, such Facility Fee to be paid
on the Effective Date of the Second Amended
Plan.
Interest Rate: 30-day LIBOR, plus 325 basis points
(3.25%), payable monthly in arrears. The New
Secured Debt
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<PAGE>
Documents will also contain customary
"default rate", "late charge" and "LIBOR
breakage" provisions.
Scheduled In addition to interest on the New Secured
Principal Debt at the floating rate specified in the
Paydown: section of this Term Sheet captioned
"Interest Rate" (the "Interest"), MLMCI/GACC
will also be entitled to receive,
concurrently with each monthly payment of
interest required under the New Secured Debt
Documents, a principal amortization payment
in an amount sufficient, as of the date of
such payment, to amortize the principal
amount of the New Secured Debt then
outstanding over the period commencing on
the date of such payment and ending on the
fifteenth anniversary of the Effective Date
(the "Scheduled Principal Paydown"). The
combined payment of Scheduled Principal
Paydown and Interest required to be made on
each monthly payment date under the New
Secured Debt Documents is sometimes referred
to in this Term Sheet as the "Required
Payment."
Cash A cash management account, in the name of
Management CMI (the "Cash Management Account"), will be
Account: established on the Effective Date at a bank
mutually acceptable to MLMCI/GACC and CMI.
Other than as set forth in this Section, all
payments received by CMI after the Effective
Date relating to any assets owned by CMI on
the Effective Date ("Monthly Cash Flow")
will be deposited directly into the Cash
Management Account; provided, however, that
the cash flow received directly or
indirectly by CMI from the Miscellaneous
Collateral as defined in the Unsecured
Creditors Term Sheet (collectively referred
to hereinafter as the "Miscellaneous
Collateral") will be excluded from Monthly
Cash Flow and will not be deposited into the
Cash Management Account; and provided
further, that the income, expenses and
assets of CRIIMI MAE Services Limited
Partnership ("CMSLP") shall be retained by
CMSLP. All payments relating to the CMM
1998-1 Bonds (CMO IV) shall, if so required
by the secured creditor to whom such Bonds
are pledged as collateral, be excluded from
Monthly Cash Flow and will not be deposited
into the Cash Management Account. Except as
otherwise provided in the sections of this
Term Sheet entitled "Payment Cap" and
"Transition
5
<PAGE>
Events," CMI may pay from the Cash
Management Account (i) all general operating
and administrative expenses for CMI,
including affiliates, to the extent such
expenses do not exceed the total as set
forth in an operating budget approved
annually (or as otherwise modified with the
consent of MLMCI/GACC) by MLMCI/GACC with
respect to the fiscal year in question, such
approval not to be unreasonably withheld
(provided, however, that all income retained
by CMSLP shall be applied toward payment of
CMSLP expenses before any of such expenses
are charged to the Cash Management Account,
and provided further, that the New Secured
Debt Documents will contain provisions
acceptable to MLMCI/GACC prohibiting income
and assets of CMI from being redirected to
CMSLP); (ii) interest owing on Note A and
current-pay interest owing on Note B, (iii)
principal paydowns on Note A of $5 million
on the date that is twenty-four (24) months
after the Effective Date, $15 million on the
date that is thirty-six (36) months after
the Effective Date and $15 million on the
date that is forty-eight (48) months after
the Effective Date; (iv) cash dividends, not
to exceed $4.1 million in the aggregate in
any twelve-month period, on the Class F
Preferred Stock and Class G Preferred Stock;
(v) cash dividends on any Preferred Stock
issued to satisfy REIT distribution
requirements (the "PIK Dividend"), but only
to the extent payment of such cash dividends
is required in order to satisfy REIT
distribution requirements; (vi) cash
dividends owing to any new equity investor;
and (vii) payments such as excise taxes
necessary to maintain CMI's REIT status
(collectively, the "Monthly Cash Payments").
The parties agree that in the event of an
extension beyond the 4 year term of this
Term Sheet or refinance of the New Secured
Debt, the foregoing budget shall be modified
to permit payment of loan extension fees,
accrued unpaid interest and principal
repayment to the Noteholders when due.
Payment Cap: The total amount of the Monthly Cash
Payments during the first 24 months after
the Effective Date will be limited to the
extent necessary, as determined by
MLMCI/GACC, in accordance with criteria or
methodology to be agreed upon by CMI and
MLMCI and set forth in the New Secured Debt
Documents, to
6
<PAGE>
permit CMI to pay MLMCI/GACC from the Cash
Management Account (x) an Accelerated
Principal Paydown (as defined herein)
equivalent to at least $25 million in the
first 12 months after the Effective Date,
and (y) a total Accelerated Principal
Paydown of $50 million by the end of the
twenty-fourth (24th) month after the
Effective Date. The total amount of the
Monthly Cash Payments during the 25th
through 48th months after the Effective Date
will be limited to the extent necessary to
permit CMI to pay MLMCI/GACC from the CMI
Collection Account and the Cash Management
Account monthly principal amortization
payments in amounts sufficient to amortize
the remaining principal amount of the New
Secured Debt on the schedule contemplated by
the last paragraph of the section of this
Term Sheet captioned "Transition Events".
The limitations on Monthly Cash Payments set
forth in this section are referred to
hereinafter as the "Payment Cap".
CMI Collection A cash collateral account, in the name of
Account: CMI but under the dominion and control of
MLMCI/GACC (the "CMI Collection Account"),
will be established on the Effective Date at
a bank mutually acceptable to CMI and
MLMCI/GACC. All cash flow received in
respect of the Collateral (including,
without limitation, principal and interest
payments on the CMBS assets included in the
Collateral) will be deposited by the party
receiving such cash flow into the CMI
Collection Account. Pursuant to the Second
Amended Plan, MLMCI/GACC will be granted a
perfected first priority security interest
and the Noteholders will be granted a "soft
second" security interest in the CMI
Collection Account through an arrangement
consistent with the MLMCI/GACC collateral
trust. MLMCI/GAAC shall be paid the Required
Payment from the CMI Collection Account. In
the event the funds available in the Cash
Management Account
7
<PAGE>
are insufficient to enable CMI to make all
Monthly Cash Payments permitted or required
to be made by CMI in respect of any month,
subject to the Payment Cap, and to maintain
a minimum balance in the Cash Management
Account as provided in the section of this
Term Sheet labeled "Cash Sweep", MLMCI/GACC
will cause funds in the amount of the
shortfall to be transferred from the CMI
Collection Account to the Cash Management
Account. CMI will earn interest on all
monies deposited into the CMI Collection
Account.
Notwithstanding anything appearing to the
contrary in this Term Sheet, (i) only those
funds, if any, remaining in the CMI
Collection Account after payment of the
Required Payment due on the monthly payment
date occurring at the end of the related
collection period will be transferred from
the CMI Collection Account to the Cash
Management Account; (ii) no cash dividends
will be paid on any Preferred or Common
Stock at any time when the funds available
in the CMI Collection Account (taking
account of any funds transferred from the
Cash Management Account to the CMI
Collection Account in accordance with clause
(iii) below) are insufficient to pay
MLMCI/GACC the Required Payment next
becoming due; (iii) if the amount of funds
available in the CMI Collection Account on
the monthly payment date at the end of the
related collection period is less than the
amount of the Required Payment due on such
monthly payment date, funds in the amount of
the shortfall which would otherwise have
been available to pay cash dividends to
Preferred Stockholders or any new equity
investor will be transferred from the Cash
Management Account to the CMI Collection
Account and applied toward such Required
Payment; and (iv) nothing in this section or
elsewhere in this Term Sheet shall be
interpreted to limit CMI's obligation to pay
any Required Payment on the date when due,
to subordinate MLMCI/GACC's right to receive
any Required Payment to any other CMI
creditor's right to receive any payment
owing to such creditor, or to limit CMI's
right or ability to transfer additional
funds from the Cash Management Account, if
necessary, to pay the Required Payment.
Cash Sweep: After the Effective Date of the Second
Amended Plan, MLMCI/GACC may begin making
cash sweeps of the Cash Management Account
and the CMI Collection Account on the last
day of each calendar month (the "Cash
Sweep"); provided, however, that so long as
no Event of Default under the New Secured
Debt Documents shall have occurred and be
continuing, the Cash Sweep shall not reduce
the amount remaining in the Cash Management
Account below
8
<PAGE>
the sum of (a) $7.5 million plus (b) the
amount jointly determined by CMI and
MLMCI/GACC in the exercise of their good
faith business judgment to be the amount by
which (i) the Monthly Cash Payments to be
made by CMI over the next succeeding month,
subject to the Payment Cap, will exceed (ii)
the funds that will be deposited in the Cash
Management Account over the same month, plus
(c) amounts necessary (on an accrual basis)
to pay quarterly and semi-annual debt
service obligations of the Debtors to the
Noteholders. The net proceeds of the Cash
Sweep shall be paid to MLMCI/GACC and
applied to reduce the principal amount of
the New Secured Debt (the "Accelerated
Principal Paydown").
Subject to the provisions set forth in the
section of this Term Sheet captioned
"Transition Events", when MLMCI/GACC have
received a paydown of the original principal
amount of the New Secured Debt totaling $150
million (including the $100 million initial
principal paydown and any other principal
paydowns referred to in the section of this
Term Sheet captioned "Principal Amount")
(the "Required Principal Paydown"), the Cash
Sweep will terminate and all monies in the
CMI Collection Account will be paid to CMI
on a monthly basis, but only if and to the
extent that MLMCI/GACC have received the
full Revised Payment (and the full Required
Payment) for the month in question.
Transition Events: If MLMCI/GACC have not been paid the
Required Principal Paydown prior to the end
of the twenty-fourth (24th) month after the
Effective Date, then, notwithstanding
anything appearing to the contrary in the
section of this Term Sheet captioned "Cash
Management Account", CMI may not pay any
Preferred or Common Stock cash dividends
(other than to a new equity investor, to the
extent of the lesser of 12% per annum and $5
million, or the PIK Dividend, but only if
and to the extent payment of the PIK
Dividend is required in order to maintain
CMI's REIT status, in each case subject to
the Payment Cap), until MLMCI/GACC have
received the Required Principal Paydown.
9
<PAGE>
If at any time realized losses on the
Collateral (including losses by reason of
appraisal reduction, as such term is defined
in the underlying pooling and servicing
agreement or trust indenture with respect to
the affected CMBS asset or, if no such
definition is provided, as such term is
defined in the New Secured Debt Documents)
exceed a loss threshold (consistent with
loan loss information and projections
reviewed and approved by MLMCI/GACC) to be
specified in the New Secured Debt Documents
(the "Loss Threshold Amount"), then,
notwithstanding anything appearing to the
contrary in the section of this Term Sheet
captioned "Cash Management Account",
(x) CMI may not pay any
Preferred or Common Stock cash
dividends otherwise permitted
under "Cash Management Account"
to be paid by CMI (other than
the PIK Dividend, but only if
and to the extent payment of the
PIK Dividend is required in
order to maintain CMI's REIT
status, subject to the Payment
Cap), and
(y) Until such time as
MLMCI/GACC have received the
Required Principal Paydown, CMI
will be required to pay to
MLMCI/GACC, in addition to any
other payments required under
this Term Sheet, all net cash
flow received from assets
acquired by CMI after the
Effective Date,
until (i) realized losses (including losses
by reason of appraisal reduction) no longer
exceed the Loss Threshold Amount, or (ii)
MLMCI/GACC have been paid from extrinsic
sources (i.e., from outside equity
investment or from funds CMI would otherwise
be entitled under the New Secured Debt
Documents to dividend or distribute to its
equity securityholders, but not from the
income from the Collateral or other
operating cash flow of CMI, except to the
extent that CMI would otherwise be entitled
to dividend or distribute such income or
cash flow to its equity securityholders)
cash in the amount by which realized losses
(including losses by reason of appraisal
reduction, defined as aforesaid) exceed the
Loss Threshold Amount.
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<PAGE>
In the event the payment of cash dividends
on the Preferred and/or Common Stock is
suspended in accordance with the provisions
of either of the two preceding paragraphs,
the applicable Payment Cap will be deemed to
have been reduced by the amount of such cash
dividends CMI would otherwise have been
entitled to pay until MLMCI/GACC have
received the payment provided for in those
paragraphs.
If on any monthly payment date MLMCI/GACC do
not receive a payment at least equivalent to
the Required Payment due on such monthly
payment date, an Event of Default will occur
under the New Secured Debt Documents, in
which case MLMCI/GACC, in addition to any
other contractual, legal and equitable
remedies they are entitled to exercise, will
be entitled, at their option, to resume or
continue (as applicable) the Cash Sweep
(provided, however, that the exercise by
MLMCI/GACC of their right to resume or
continue the Cash Sweep shall not constitute
a waiver or cure of the Event of Default).
After MLMCI/GACC have been paid the Required
Principal Paydown, MLMCI/GACC shall be paid,
on each monthly payment date during the
remainder of the New Secured Debt term, (i)
Interest at the applicable rate required
under the New Secured Debt Documents, plus
(ii) a principal amortization payment in an
amount sufficient, as of the date of such
payment, to amortize the principal amount of
the New Secured Debt then outstanding over
the period commencing on the date of such
payment and ending on the thirteenth (13th)
anniversary of the Effective Date (the
interest payment specified in clause (i) and
the principal payment described in clause
(ii) being referred to hereinafter,
collectively, as the "Revised Payment"), and
if at any time MLMCI/GACC do not receive the
Revised Payment, the Cash Sweep will resume
until MLMCI/GACC have received payments
aggregating the same amounts that would have
been paid if all Revised Payments had been
made in accordance with this Term Sheet.
Resumption of the Cash Sweep by MLMCI/GACC
upon their failure to receive the Revised
Payment will be in addition to, and not in
lieu of, the exercise by MLMCI/GACC of
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<PAGE>
any other contractual, legal or equitable
remedies in the event any Required Payment
is not received when due.
Loan Extension: If CMI has not paid MLMCI/GACC the entire
amount of the New Secured Debt (i) within 24
months of the Effective Date, CMI shall pay
MLMCI/GACC an Extension Fee equivalent to
1.5% of the remaining principal balance of
the New Secured Debt at the end of the 24th
month after the Effective Date; (ii) within
30 months of the Effective Date, CMI shall
pay MLMCI/GACC an Extension Fee equivalent
to 1.5% of the remaining principal balance
of the New Secured Debt at the end of the
30th month after the Effective Date; (iii)
within 36 months of the Effective Date, CMI
shall pay MLMCI/GACC an Extension Fee
equivalent to 1.5% of the principal balance
of the New Secured Debt remaining at the end
of the 36th month after the Effective Date;
and (iv) within 42 months of the Effective
Date, CMI shall pay MLMCI/GACC an Extension
Fee equivalent to 1.5% of the remaining
principal balance of the New Secured Debt at
the end of the 42nd month after the
Effective Date. Failure to pay any Extension
Fee on the date when due will constitute an
Event of Default under the New Secured Debt
Documents.
Equity Investment: Notwithstanding the provisions of this
paragraph, CMI shall be entitled to pay to
the Noteholders the first $10 million of any
net equity investment that it receives,
irrespective of whether such equity
investment is received prior to or after the
Effective Date. Subject to the provisions of
this paragraph, CMI shall be entitled to
utilize the proceeds of any equity
investments (including proceeds of sale of
assets purchased with proceeds of equity
investments) without restriction. If,
however, there are realized losses on the
Collateral (including losses resulting from
appraisal reductions, as described in the
second paragraph of the section of this Term
Sheet captioned "Transition Events") in
excess of the Loss Threshold Amount and
MLMCI/GAAC are not otherwise compensated for
such losses in the manner specified in the
section of this Term Sheet captioned
"Transition Events", after paying the
aforementioned $10 million to the
Noteholders CMI shall pay (i) 50% of the
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<PAGE>
proceeds it subsequently receives from any
equity investment of less than $50 million
(including proceeds of sale of assets
purchased with the proceeds of such equity
investment) to reduce indebtedness and (ii)
75% of the portion of any aggregate equity
investment it subsequently receives that
exceeds $50 million (including proceeds of
sale of assets purchased with the proceeds
of such equity investment) to reduce
indebtedness. In addition, if after paying
the aforementioned $10 million to the
Noteholders CMI elects or is obligated to
use any portion of the proceeds of an equity
investment (or any portion of the proceeds
of sale of assets purchased with the
proceeds of such equity investment) to
reduce the principal amount of any
indebtedness, then the portion of the
proceeds of such equity investment that is
used to reduce indebtedness shall be
allocated in accordance with the
Indebtedness Ratio(1)(provided, however,
that in the case of a post Effective Date
equity investment MLMCI/GACC shall receive
the first $5 million after the $10 million
paid to the Noteholders); and further
provided, however, that CMI may use the
first $27 million of proceeds of any equity
investment received prior to the Effective
Date to reduce its indebtedness to any
creditor without the restrictions set forth
in this Equity Investment paragraph pay to
the Noteholders (but subject, nevertheless,
to the restriction set forth in the section
of this Term Sheet captioned "Noteholder
Paydown"). The amounts paid to MLMCI/GACC
and the Noteholders shall be applied to
reduce the amount of outstanding principal
of and accrued interest on their respective
indebtednesses.
Paydown: Notwithstanding any other provision of this
Term Sheet permitting or authorizing CMI to
utilize certain funds to reduce the amount
of principal indebtedness owing to the
Noteholders, and in addition to any other
provision of this Term Sheet restricting
payments to the Noteholders, the New Secured
Debt Documents will require that, at such
time as the outstanding principal
indebtedness owing to the Noteholders on
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1 As used in this section, and in the section of this Term Sheet captioned
"Noteholder Paydown", the term "Indebtedness Ratio" means the ratio of (a) the
outstanding principal balance of the New Secured Debt, determined as of the
Effective Date, to (b) the outstanding aggregate principal balance of Note A and
Note B, also determined as of the Effective Date.
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<PAGE>
Note A and Note B (excluding that portion of
the principal amount of Note B representing
capitalized interest) has been reduced (from
whatever source of funds, including, by way
of example only and not by way of
limitation, proceeds of equity investments,
proceeds of asset sales and cash flow from
operations) to or below $100 million, any
funds which CMI would otherwise have been
permitted or authorized to use to reduce the
amount of principal indebtedness owing to
the Noteholders, and which CMI in fact uses
to reduce indebtedness, will be allocated
according to the Indebtedness Ratio;
provided, however, that the foregoing
requirement shall not apply to payments to
the Noteholders expressly provided by the
Unsecured Creditors Term Sheet and with
respect to which the Debtor does not have
discretion.
Board: A majority of the Board of Directors of CMI,
as of the Effective Date, shall be
newly-appointed independent directors
approved by MLMCI/GACC and the Official
Committee of Equity Security Holders if
Class A21 votes, or is deemed to have voted,
in favor of the Second Amended Plan and the
Unsecured Creditors Committee if Classes A9
and A10 vote in favor of the Second Amended
Plan (MLMCI/GACC and the Committee(s) having
approval rights as aforesaid being referred
to hereinafter as the "Approval Parties");
provided, however, that the Approval
Parties' approval will not be required with
respect to those (and only those) directors,
if any, of the aforesaid majority who are
appointed by a new equity investor approved
by MLMCI/GACC.
Optional Prior to the Maturity Date, CMI may prepay
Redemption: the New Secured Debt in whole or in part,
without any penalty or premium, except for
payment of actual costs, if any of breaking
any LIBOR contracts.
Miscellaneous: The New Secured Debt Documents will not
contain any mark to market provisions other
than as set forth in this Term Sheet.
CMI will be required under the New Secured
Debt Documents to deliver to MLMCI/GACC all
publicly filed financial information when
and to the extent
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<PAGE>
same is available to the general public. In
addition to such public financial
information, CMI will also be required to
provide financial information including
monthly reconciliation of balances,
principal and interest with respect to each
CMBS asset included in the Collateral, any
servicing, remittance and delinquency
reports (in a format reasonably acceptable
to CMI), and such other information as
MLMCI/GACC may reasonably require.
MLMCI/GACC agrees to keep any non-public
information confidential.
CMI and MLMCI/GAAC will cooperate in good
faith to develop a fair and reasonable
hedging program.
The New Secured Debt Documents will require
CMI to submit annual operating budgets, in
form and level of detail reasonably
acceptable to MLMCI/GACC, to MLMCI/GACC for
review and approval.
The New Secured Debt Documents will provide
for events of default (including grace or
cure periods, where appropriate) customary
for transactions of this type. The New
Secured Debt Documents will entitle
MLMCI/GACC, upon the occurrence of such an
event of default, to exercise rights and
remedies (including, without limitation,
rights and remedies with respect to
realization upon the Collateral) consistent
with the provisions of this Term Sheet and
otherwise satisfactory to MLMCI/GACC. In the
event the Collateral is "sold" to MLMCI/GACC
or any affiliates of MLMCI/GACC (the "Deemed
Sale"), the Noteholders shall receive the
value of the Collateral as determined in a
commercially reasonable manner less the
amount owed to MLMCI/GACC secured by such
assets and the costs of sale (up to the
total amount owed to the Noteholder);
provided, however, that if MLMCI/GACC agrees
to sell the Collateral to a third party
within 30 days of a Deemed Sale then
MLMCI/GACC shall pay to the Noteholders any
net "profit" received on the resale (up to
the total amount owed to the Noteholders).
The Noteholders shall also be paid the value
of the CBO I/Nomura Assets, as determined in
a commercially reasonable manner, in the
event of any Deemed Sale of the CBO I/Nomura
Assets. Receipt of any monies paid in
accordance
-15-
<PAGE>
with this paragraph shall not be deemed a
waiver of the right of the Noteholders or
CMI to contest any sale; provided, however,
that no such action will occur until after
the Deemed Sale has occurred. The Collateral
Trust documents will confirm that MLMCI/GACC
will not be held to a fiduciary standard,
irrespective of the legal capacity in which
MLMCI/GACC or any of its agents are acting.
The New Secured Debt Documents will contain
provisions intended to ensure that
MLMCI/GACC will obtain the substantive
benefits of this Term Sheet by prohibiting
technical circumvention of the requirement
that certain cash flow and payments be
deposited in the Cash Management Account or
the CMI Collection Account (for example, by
selling an asset owned by CMI on the
Effective Date and using the proceeds to
purchase a new asset the cash flow from
which would not otherwise be required to be
deposited into the Cash Management Account),
and the requirement that proceeds of equity
investments be applied in the prescribed
manner (for example, by using the proceeds
of an equity investment to purchase a new
asset, reselling such asset and applying the
proceeds of such resale in a manner that the
proceeds of the equity investment itself
could not have been applied).
The scheduled maturity of Note A will not be
earlier than the fifth (5th) anniversary of
the Effective Date, and the scheduled
maturity of Note B will not be earlier than
the sixth (6th) anniversary of the Effective
Date. The New Secured Debt Documents will
require CMI to obtain the approval of
MLMCI/GACC of any modification of such notes
that would change the scheduled maturity
thereof to any earlier date. Not more than
$105 million of the aggregate principal
amount of Note A and Note B will be
allocated to Note A. The Noteholders'
exclusive remedies for any failure to pay
scheduled Note A amortization will be either
(i) to sell some or all of the Miscellaneous
Collateral or (ii) to increase the per annum
interest rate on the delinquent Note A
amortization installment(s) by 200 basis
points.
The New Secured Debt will be structured as a
"repurchase agreement" consistent with the
-16-
<PAGE>
provisions of this Term Sheet between CMI,
as seller, and MLMCI/GACC, as purchaser,
with respect to the CMBS that would
otherwise constitute Collateral, unless
counsel for CMI and counsel for MLMCI/GACC,
acting reasonably and in good faith,
collectively determine that such structure
would materially and adversely affect CMI's
REIT status or have material and adverse
consequences for CMI under the Investment
Company Act of 1940, as amended.
The MLMCI/GACC indebtedness shall be allowed
pursuant to the Second Amended Plan based
upon the contract (non-default) rate of
interest.
Nothing contained in this Term Sheet that
restricts CMI's ability to make a payment
shall be deemed to excuse the borrower from
any obligations to the Noteholders. The
provisions of this Term Sheet are
conditioned upon the third party valuation
provisions being deleted from the Unsecured
Creditors Term Sheet.
Pursuant to the Second Amended Plan, the
Debtors and MLMCI/GACC will exchange mutual
releases in customary form on the Effective
Date.
-17-
<PAGE>
This Term Sheet does not constitute a vote
or agreement to vote for the Second Amended
Plan, and no such vote or agreement to vote
has been solicited by CMI or anyone acting
on its behalf. MLMCI/GAAC's acceptance or
rejection of the Second Amended Plan is
conditioned upon their review and approval
of all aspects of the Unsecured Creditors'
Term Sheet and the Second Amended Plan and
Disclosure Statement. The Effective Date of
the Second Amended Plan must occur no later
than July 1, 2000.
CRIIMI MAE Inc.
By: /s/ David B. Iannarone
---------------------------------
German American Capital Corporation
By:
---------------------------------
By:
---------------------------------
Merrill Lynch Mortgage Capital Inc.
By:
---------------------------------
-18-
<PAGE>
This Term Sheet does not constitute a vote
or agreement to vote for the Second Amended
Plan, and no such vote or agreement to vote
has been solicited by CMI or anyone acting
on its behalf. MLMCI/GAAC's acceptance or
rejection of the Second Amended Plan is
conditioned upon their review and approval
of all aspects of the Unsecured Creditors'
Term Sheet and the Second Amended Plan and
Disclosure Statement. The Effective Date of
the Second Amended Plan must occur no later
than July 1, 2000.
CRIIMI MAE Inc.
By:
---------------------------------
German American Capital Corporation
By:
---------------------------------
By:
---------------------------------
Merrill Lynch Mortgage Capital Inc.
By: /s/ Bruce L. Ackerman
---------------------------------
<PAGE>
This Term Sheet does not constitute a vote
or agreement to vote for the Second Amended
Plan, and no such vote or agreement to vote
has been solicited by CMI or anyone acting
on its behalf. MLMCI/GAAC's acceptance or
rejection of the Second Amended Plan is
conditioned upon their review and approval
of all aspects of the Unsecured Creditors'
Term Sheet and the Second Amended Plan and
Disclosure Statement. The Effective Date of
the Second Amended Plan must occur no later
than July 1, 2000.
CRIIMI MAE Inc.
By:
---------------------------------
German American Capital Corporation
By:
---------------------------------
By: /s/ Eric Schwartz
---------------------------------
Merrill Lynch Mortgage Capital Inc.
By:
---------------------------------
<PAGE>
This Term Sheet does not constitute a vote
or agreement to vote for the Second Amended
Plan, and no such vote or agreement to vote
has been solicited by CMI or anyone acting
on its behalf. MLMCI/GAAC's acceptance or
rejection of the Second Amended Plan is
conditioned upon their review and approval
of all aspects of the Unsecured Creditors'
Term Sheet and the Second Amended Plan and
Disclosure Statement. The Effective Date of
the Second Amended Plan must occur no later
than July 1, 2000.
CRIIMI MAE Inc.
By:
---------------------------------
German American Capital Corporation
By: /s/ Jon A. Vaccarro
---------------------------------
Jon A. Vaccarro
By:
---------------------------------
Merrill Lynch Mortgage Capital Inc.
By:
---------------------------------
<PAGE>
EXHIBIT 2
<PAGE>
COLLATERAL SCHEDULE
The Series A Notes and Series B Notes will be secured by the following to the
extent provided in the Term Sheet:
I. MISCELLANEOUS COLLATERAL
The Miscellaneous Collateral, as defined in the Term Sheet, and the liens
on such collateral, shall be as follows:
A. Insured Mortgage Collateral. A valid and perfected first priority
collateral assignment of all right, title and interest of CMI, through its three
wholly-owned subsidiaries referenced below, in and to the Insured Mortgage
Proceeds which consist of the CMO-I Excess Payments, CMO-II Excess Payments and
CMO-III Excess Payments (in each case as defined below) and, as to CMO-I only,
together with a valid and perfected first priority pledge of the certificate(s)
representing the Interest Strip, as defined in the related Participation
Agreement.
"CMO-I EXCESS PAYMENTS" means (a) payments of excess interest and
prepayment penalties, including, without limitation, all Excess
Amounts, as defined in the related Participation Agreement and (b)
distributions of any of the assets constituting the Trust Estate,
including, without limitation, any Whole Loan PCs, Non-Interest
Strip PCs (in each case, pledged to the trust and remaining after
discharge of the trust or release of the pledge thereon) and any
proceeds therefrom (remaining after discharge of the trust or
release of the pledge thereon) that, with respect to each of the
foregoing payments and distributions, CMI receives directly or from
CRIIMI MAE Financial Corp., a wholly-owned subsidiary, by virtue of
and attributable to the FHA insured mortgage loans and GNMA
mortgage-backed securities that are pledged, as of the date of the
Plan, by CRIIMI MAE Financial Corp. to secure CRIIMI MAE Financial
Corporation's 7% Collateralized Mortgage Obligations.
"CMO-II EXCESS PAYMENTS" means (a) payments of excess interest and
prepayment penalties, including, without limitation, payments of any
Funding Surplus, as defined in the Funding Note Purchase and
Security Agreement, and payments of any excess funds from the
Collection Account on any Prepayment Date, and (b) distributions on
account of the Collateral, including, without limitation, the
Pledged Securities, pledged to Freddie Mac (in each case, remaining
after discharge of such pledge) and any proceeds therefrom
(remaining after discharge of such pledge) that, with respect to
each of the foregoing payments and distributions, CMI receives
directly or from CRIIMI MAE Financial Corporation II, a wholly-owned
subsidiary, by virtue of and attributable to the
Schedule I
<PAGE>
Freddie Mac Giant GNMA-backed securities that are pledged, as of
the date of the Plan, by CRIIMI MAE Financial Corporation II, to
secure Freddie Mac's Structured Pass-Through Securities
(Guaranteed), Series C007.
"CMO-III EXCESS PAYMENTS" means (a) payments of excess interest and
prepayment penalties, including, without limitation, payments of any
Funding Surplus and Excess Funds, as defined in the Funding Note
Issuance and Security Agreement, and payments of any excess funds
from the Collection Account on any Prepayment Date, and (b)
distributions on account of the Collateral, including, without
limitation, the Pledged Securities, pledged to Fannie Mae (in each
case, remaining after discharge of such pledge) and any proceeds
therefrom (remaining after discharge of such pledge) that, with
respect to each of the foregoing payments and distributions, CMI
receives directly or from CRIIMI MAE Financial Corporation III, a
wholly-owned subsidiary, by virtue of and attributable to certain
GNMA mortgage-backed securities that are pledged, as of the date of
the Plan, by CRIIMI MAE Financial Corporation III, to secure Fannie
Mae's Guaranteed Grantor Trust Pass-Through Certificates issued by
Fannie Mae Grantor Trust 1995-T5.
B. Aim Fund Collateral. A valid and perfected first priority collateral
assignment of all right, title and interest of CMI, through CRIIMI, Inc. and any
affiliates of CRIIMI, Inc. receiving any Aim Fund Proceeds, and of CMI and CMM,
through CRI-Aim Investment L.P., in and to the Aim Fund Proceeds (as defined
below), together with a valid and perfected first priority pledge of CMI's and
CMM's partnership interests in CRI-Aim Investment L.P. and, if permitted under
the Aim Acquisition L.P. Partnership Agreement, CRI-Aim Investment L.P.'s
partnership interest in Aim Acquisition L.P.
"AIM FUND PROCEEDS" means all proceeds (including, without
limitation, payments, distributions, fees, compensation,
reimbursements and the like) received by CMI from CRIIMI, Inc., a
wholly-owned subsidiary of CMI, or affiliates of CRIIMI, Inc.
receiving any Aim Fund Proceeds, by virtue of and attributable to
the partnership interests held by CRIIMI, Inc. in the four publicly
traded AIM Fund Partnerships, (i) American Insured Mortgage
Investors Partnership, (ii) American Insured Mortgage Investors -
Series 85, L.P., (iii) American Insured Mortgage Investors L.P. -
Series 86, and (iv) American Insurance Mortgage Investors L.P. -
Series 88, and all proceeds received by CMI and CMM from CRI-AIM
Investment L.P. by virtue of or attributable to their ownership
interests in CRI-AIM Investment L.P., which holds a partnership
interest in AIM Acquisition, L.P., the advisor to the Aim Fund
Partnerships.
2
<PAGE>
C. Mezzanine Notes. A valid and perfected first priority assignment of all
right, title and interest of CMI and CM Mallers Building, Inc., respectively, in
and to the Mezzanine Notes (as defined below) and a valid and perfected first
priority collateral assignment of the partnership interests and related
collateral (including any guarantees) securing such Mezzanine Notes.
"MEZZANINE NOTES" means those six notes identified below evidencing
six loans secured by certain partnership interests made to various
borrowers by CMI and CM Mallers Building, Inc.
1. Lender- CRIIMI MAE Inc.
Borrower- Jemal's CM Limited Partnrship
Original Principal
Amount- $2,260,000.00
Date- June 29, 1998
2. Lender- CRIIMI MAE Inc.
Borrower- MBSCO Limited Partnership
Original Principal
Amount- $500,000.00
Date- September 16, 1998
3. Lender- CRIIMI MAE Inc.
Borrower- MDR Shoppes Limited Partnership
Original Principal
Amount- $955,000.00
Date- April 6, 1998
4. Lender- CM Mallers Building, Inc.
Borrower- The Jewelry Center Limited
Original Principal Partnership
Amount- $2,070,000.00
Date- February 20, 1998
5. Lender- CRIIMI MAE Inc.
Borrower- Mission Falls Corporation
Original Principal
Amount- $600,000.00
Date- September 14, 1998
6. Lender- CRIIMI MAE Inc.
Borrower- MDR Plaza Limited Partnership
Original Principal
Amount- $700,000.00
Date- September 29, 1997
D. Brick Church Property. A valid and perfected first priority collateral
assignment of any (a) net cash flow (after debt service and operating expenses)
attributable to the Brick Church Property (defined below) and (b) net proceeds
from the sale or other disposition of the Brick Church Property received, in
each case, by CMI, through CRIIMI MAE Brick Church, Inc.
3
<PAGE>
"BRICK CHURCH PROPERTY" means the Holiday Inn Express hotel located
in Nashville, Tennessee owned by CMI's wholly-owned subsidiary
CRIIMI MAE Brick Church, Inc.
II. CBO-I BONDS AND NOMURA BOND
The lien on the CBO-1 Bonds and the Nomura Bond shall be as set forth
below, and pursuant to and consistent with an intercreditor agreement,
participation agreement, collateral trust or similar arrangement (for all
purposes of this Term Sheet, referred to as an "Intercreditor Arrangement")
which effectuates the specific terms and conditions set forth on the Term Sheet
and which is acceptable to CMI, Merrill/GACC and the Unsecured Committee and as
more specifically set forth in and subject to the terms of the Plan.
A. CBO-1 Bonds. Subject to the terms of an Intercreditor Arrangement as
referenced above, a valid and perfected first priority lien on the CBO-1 Bonds
(as defined below) securing the payment to holders of Series A Notes or Series B
Notes, as appropriate, of any net proceeds received by CMI, through CRIIMI MAE
QRS 1, Inc., upon any sale of the CBO-1 Bonds, subject to II.C. and II.D. below.
"CBO-1 BONDS" means the following bonds and owner trust certificates
owned by the Company; CMM 1996-C1, Classes F, P, R and XS.
Subject to change in connection with the affiliate reorganization
referenced in II.D. below, the Series A Notes or Series B Notes, as appropriate,
shall also be secured by (a) a valid and perfected first priority pledge by CMI
of the capital stock in CRIIMI MAE QRS-1, Inc.; provided, however, that such
stock pledge may not be realized on in any manner that would cause CRIIMI MAE
QRS-1, Inc. to cease to be a qualified REIT subsidiary, and (b) a valid and
perfected first priority security interest in proceeds received by CMI through
CRIIMI MAE QRS-1, Inc. attributable to the CBO-1 Bonds; provided however that
such stock pledge and security interest in proceeds shall be subject to (y) all
rights of Merrill and GACC, as set forth in the term sheet among CMI, Merrill
and GACC, and (z) the terms and conditions of an Intercreditor Arrangement among
CMI, Merrill, GACC and the Unsecured Committee, relating to, among other
matters, the CBO-1 Bonds and proceeds attributable thereto.
B. Nomura Bond. Subject to the terms of an Intercreditor Arrangement as
referenced above, a valid and perfected first priority lien on the Nomura Bond
securing the payment to holders of Series A Notes or Series B Notes, as
appropriate, of any net proceeds received by CMI upon the sale of the Nomura
Bond, subject to II.C. below.
C. Termination of Intercreditor Arrangement. If and when (a) Merrill/GACC
have been repaid their debt in full or such debt is otherwise satisfied
(provided, however, the Intercreditor Arrangements referenced above shall
continue if the Merrill/GACC debt is refinanced until the refinance lender's
debt is fully satisfied), or (b) Merrill/GACC sells, takes for its own account
or otherwise disposes of the CBO-2 Bonds and are not
4
<PAGE>
acting to sell the CBO-1 Bonds and Nomura Bond, then the Intercreditor
Arrangements referenced above shall terminate and the liens on the CBO-1 Bonds
and Nomura Bond shall become valid and perfected first priority liens on the
CBO-1 Bonds and the Nomura Bond securing the indebtedness evidenced by the
Series A Notes or Series B Notes, as appropriate, subject to and in accordance
with the terms of the Term Sheet and the Plan, and further, subject to II.D.
below.
D. Affiliate Reorganization. The first priority lien on the CBO-1 Bonds
referenced in both II.A and II.C. above shall be structured so as to be direct
or, if necessary in connection with an affiliate reorganization referenced in
the Plan, indirect (with such indirect structure to be reasonably acceptable to
the Unsecured Committee), which affiliate reorganization shall be reasonably
acceptable to CMI, Merrill/GACC and the Unsecured Committee.
III. CBO-2 BONDS
The lien on the CBO-2 Bonds shall be as set forth below and as more
specifically set forth in the Term Sheet and the Plan, and shall be subject to
terms and conditions acceptable to CMI, Merrill/GACC and the Unsecured
Committee, which terms and conditions shall include those to be set forth in an
Intercreditor Arrangement acceptable to such parties, such that (i) the liens
shall constitute "direct or indirect soft second liens" and (ii) in the event
that the Merrill and GACC claims are documented as repurchase agreements
pursuant to the Plan, the holders of Series A Notes or Series B Notes, as
appropriate, shall receive the full difference between the value of the CBO-2
Bonds (as determined by a third party valuation) and the outstanding amount of
the debt owed by CMI to Merrill/GACC under the Plan.
CBO-2 Bonds. A valid and perfected soft second priority lien on the
CBO-2 Bonds (as defined below), which lien shall be structured so as to be
direct or, if necessary in connection with an affiliate reorganization
referenced in the Plan, indirect (with such structure to be reasonably
acceptable to the Unsecured Committee), which affiliate reorganization
shall be reasonably acceptable to CMI, Merrill/GACC and the Unsecured
Committee.
"CBO-2 BONDS" means the bonds and owner trust certificates owned by
the Company referenced on Schedule A hereto.
Subject to change in connection with the affiliate reorganization
referenced above, the Series A Notes or Series B Notes, as appropriate, shall
also be secured by (a) to the extent permitted by Citicorp, a valid and
perfected first priority pledge by CMI of the capital stock in CRIIMI MAE CMBS
Corp.; provided, however, that such stock pledge may not be realized on in any
manner that would cause CRIIMI MAE CMBS Corp. to cease to be a qualified REIT
subsidiary, and (b) a valid and perfected security interest in proceeds received
by CMI through CRIIMI MAE CMBS Corp. attributable to the CBO-2 Bonds; provided
however that such stock pledge and security interest in proceeds shall be
subject to (x) all rights of Merrill and GACC, as set forth in the term sheet
among CMI, Merrill and GACC, (y) the terms and conditions of an Intercreditor
5
<PAGE>
Arrangement, among CMI, Merrill, GACC and the Unsecured Committee, relating to,
among other matters, the CBO-2 Bonds and proceeds attributable thereto, and (z)
the terms and conditions of any Intercreditor Arrangement among CMI, Citicorp
and the Unsecured Committee.
IV. CMO-IV BONDS AND CMO-IV ADDITIONAL COLLATERAL
CMO-IV Bonds. If permitted by Citicorp, a valid and perfected soft second
priority lien on the CMO-IV Bonds and the CMO-IV Additional Collateral (in each
case as defined below), which lien shall be structured so as to be direct or, if
necessary in connection with an affiliate reorganization referenced in the Plan,
indirect (with such structure to be reasonably acceptable to the Unsecured
Committee), which affiliate reorganization shall be reasonably acceptable to
CMI, Merrill/GACC and the Unsecured Committee.
1. "CMO-IV BONDS" means the following bonds owned by the Company:
CMM 1998-1, Classes X/IO, F, G, H and J.
2. "CMO-IV ADDITIONAL COLLATERAL" means the following bonds and
owner trust certificates owned by the Company: CMM 1998-1, Classes K, P,
XS and R.
Subject to change in connection with the affiliate reorganization
referenced above, the Series A Notes or Series B Notes, as appropriate, shall
also be secured by, to the extent permitted by Citicorp, (a) a valid and
perfected first priority pledge by CMI of the capital stock in CRIIMI MAE CMBS
Corp.; provided, however, that such stock pledge may not be realized on in any
manner that would cause CRIIMI MAE CMBS Corp. to cease to be a qualified REIT
subsidiary, and (b) a valid and perfected security interest in proceeds received
by CMI through CRIIMI MAE CMBS Corp. attributable to the CMO-IV Bonds and CMO-IV
Additional Collateral; provided however, that such stock pledge and security
interest in proceeds shall be subject to the terms and conditions of any
Intercreditor Arrangement among CMI, Citicorp and the Unsecured Committee,
relating to, among other matters, the CMO-IV Bonds, CMO-IV Additional Collateral
and proceeds attributable to both.
CMI and the Unsecured Committee acknowledge that, with respect to the
Miscellaneous Collateral described in I. above, all cash proceeds and
distributions attributable to such Miscellaneous Collateral are intended to be
made available to the Unsecured Committee (provided, however, that as
acknowledged and agreed to by the Unsecured Committee, the sub advisor fee paid
to CMSLP in connection with the Aim Fund Partnerships shall not be made
available to the Unsecured Committee) and agree to take all reasonable action,
including the execution of all reasonable documents, to effect such intent.
In order to effectuate the rights and entitlement of the Unsecured
Committee to cash proceeds, payments and/or distributions, as set forth herein,
CMI and CMM shall agree and covenant, subject, in each case, to any restrictions
or constraints imposed under
6
<PAGE>
applicable law, applicable constituent documents and/or applicable operative
documents, to take such actions as are necessary to insure that all such
proceeds, payments and/or distributions received by entities other than CMI and
CMM are promptly paid to CMI or CMM, as applicable.
The foregoing collateral descriptions will be modified if it is determined
that a better lien can be granted consistent with the Term Sheet, Plan and any
and all applicable constituent and operative documents, after review of such
constituent and operative documents by the Unsecured Committee.
References herein to the Unsecured Committee shall include any successor
thereto.
7
<PAGE>
SCHEDULE A
CBO-2
<TABLE>
<CAPTION>
Transaction Tranches Rating Face Amount
----------- --------------- -----------
<S> <C> <C> <C>
CMM 1998-C1 D1 BB+ 159,500,000
CMM 1998-C1 D2 BB+ 159,501,000
CMM 1998-C1 E BB 70,889,000
CMM 1998-C1 F BB- 35,444,000
CMM 1998-C1 G B+ 88,612,000
CMM 1998-C1 H1 B 88,611,000
CMM 1998-C1 H2 B 88,611,000
CMM 1998-C1 J B- 106,334,000
CMM 1998-C1 IE CCC 70,889,000
CMM 1998-C1 IE NR 230,389,951
-----------
1,098,780,951
</TABLE>
8
<PAGE>
SUMMARY OF COVENANTS FOR SERIES A AND SERIES B NOTES
Minimum Excess Cash Flow The Minimum Excess Flow covenant will be
calculated as follows: Gross Cash flows
(as defined), less cash flow from
Miscellaneous Collateral, if any, will equal
Adjusted Gross Cash Flows. Adjusted Gross Cash Flows
will be reduced by (i) all general operating and
administrative expenses for CMI and its affiliates
(excluding CMSLP), (ii) cash interest expense, and
(iii) allowed cash dividends to shareholders
(Adjusted Gross Cash Flows, less items (i) through
(iii), will be defined as the "Excess Cash Flow").
Excess Cash Flow must be greater than or equal to
the principal amortization payable to MLMCI/GACC
based on a 15-year mortgage amortization schedule.
<TABLE>
<CAPTION>
PERIOD MINIMUM EXCESS CASH FLOW (1)
------ ----------------------------
<S> <C>
3 months ended[] [insert 15-year amortization
6 months ended[] schedule per period]
9 months ended[]
12 months ended[]
12 months ended[]
12 months ended[]
12 months ended[]
12 months ended[]
</TABLE>
Gross Cash Flow shall include (i)cash payments
received and accruals on securities held as long
as payment on such accruals are not delinquent
by more than 45 days from scheduled receipt and
(ii) all other cash income. Gross Cash Flows will
not include cash distributions, if any, from
CMSLP. (Cash flows and cash expenses related to
Match Funded Debt will be excluded from this
calculation).
(1)-Amounts will be inserted based upon
one-month LIBOR as of the Effective Date (and
the related spread over LIBOR) and based upon
such LIBOR rate remaining constant throughout
the term of Note A and B, assuming a 15-year
mortgage amortization schedule per period. The
Minimum Excess Cash Flow will be calculated for
the first three, six, nine and twelve month
periods on a cumulative basis beginning with
the first full fiscal quarter after the Effective
Date. Subsequently, all Minimum Excess Cash Flow
covenant tests will be calculated each fiscal
quarter and will include the trailing twelve-month
period.
Dividends Dividends will be limited to:
- Preferred Stock cash dividends not to exceed
$4.1 million per year
- Preferred dividends in connection with an
equity investment before or after the Effective
Date as long as: (i) the cash dividend rate does
not exceed 13% per year, (ii) the Company has
sufficient liquidity on a projected basis to
make interest and mandatory amortization
payments during the upcoming 12-month period,
and (iii) the Company is in compliance with
other covenants.
Asset Sales Proceeds from the sale of assets, after repayment
of debt having a lien on such assets, will be used
only to: (i) reinvest in income-producing assets
(including securities trading assets) within a
180-day reinvestment period or (ii) repay, on a
pro rata basis: (1) Merrill/GAAC, (2) the Series A
and B Notes and (3) Citibank's debt, if any,
related to CMO IV.
Schedule II
<PAGE>
Transaction with Any transaction with an affiliate must be on an
Affiliates arms-length basis. To the extent that the proposed
transaction exceeds $2.0 million, a board
resolution (excluding the respective affiliate, if
applicable) is required. To the extent that the
proposed transaction exceeds $25 million, the
opinion of a nationally recognized investment bank,
professional services firm, or similar expert is
required.
Purchase of Assets upon The Company will not be permitted to purchase CMBS
a Default Assets rated "B" or lower if any event of default
occurs (including a cross-default to other debt).
Limitation on Debt The Company and its subsidiaries will not be
permitted to incur additional debt other than:
(i) Refinancing Debt, (ii) Non-Recourse Repo Debt,
(iii) senior bank debt not to exceed $25.0 million,
(iv) capital lease obligations not to exceed
$400,000 and (v) debt permitted under the Interest
Coverage Ratio provision below.
REFINANCING DEBT includes: (1) the extension of
existing debt or (2) debt incurred solely to
refinance existing debt as long as such new debt
incurred: (i) has an average weighted life no
shorter than the debt being refinanced, (ii) has
lower annual principal amortization requirements
(prior to the maturity of the Series A and Series B
Notes) than the debt being refinanced and (iii) has
cash interest expense that is not materially
greater than the debt being refinanced.
NON-RECOURSE REPO DEBT includes debt under
repurchase obligations or similar types of
financings, regardless of title, as long as: (i)
the Company is in compliance with all other terms
and covenants and (ii) the only recourse of the
lender in the repo debt to the event of a default
is the underlying collateral/securities purchased
with such debt.
The Company cannot incur debt that is senior to the
Series A and Series D Notes.
Interest Coverage Ratio In addition to the debt described in clauses (i-iv)
above, the Company and its subsidiaries may incur
additional debt if, pro forma for incurring such
debt, the Company's Interest Coverage Ratio for
the trailing twelve-month period (or for such
shorter time period if fewer than twelve months
have expired post Effective Date) is greater than
1.5X.
The Company cannot issue debt pursuant to the
Interest Coverage Ratio that: (i) matures prior to
the maturity of the Series B Notes or (ii) is
callable prior to the maturity of the Series A
and B Notes. The preceding sentence will not apply
to non-amortizing purchase money repo debt
(recourse) used to acquire CMBS Assets and having
a maturity of less than 2 years.
Interest Coverage Ratio shall be calculated as:
(1)(i) Gross Cash Flow, less (ii) cash flow from
the Miscellaneous Collateral, if any, less (iii) G&A
and other cash operating expenses divided by (2)
cash interest expense excluding cash lean extension
fees.
Default; Exercise of 60-day notice and cure for all covenants. A waiver
Remedies of default for any of the above covenants or
acceleration or exercise of any remedies will
require a vote of a majority in principal amount
of the holders of the A and B Notes voting as a
single class.
<PAGE>
EXHIBIT 3
<PAGE>
SERIES E CONVERTIBLE PREFERRED STOCK TERM SHEET
<TABLE>
<S> <C>
ISSUER: CRIIMI MAE Inc. ("CRIIMI MAE", "CMI" or "the Company")
HOLDER: MeesPierson Investments Inc. ("MeesPierson" or "MPII")
ISSUE AMOUNT: $10.3 million (103,000 Preferred Shares (defined below)). If the Subsequent Exchange
(defined below) occurs, then the Corporation shall issue another $10.0 million of
Preferred Shares to MeesPierson. "Subsequent Exchange" shall mean the exchange of
100,000 shares of the Company's Series D Cumulative Convertible Preferred Stock, par
value $0.01 (the "Series D Preferred Stock") by MeesPierson for 100,000 shares of the
Preferred Shares on or prior to July 31, 2000.
LIQUIDATION VALUE: $100 per share
SECURITIES: Series E Cumulative Convertible Preferred Shares ("Preferred Shares")
DIVIDEND: 1. From the date of issuance of the relevant share(s) of Preferred Shares
to MPII through the Effective Date of the Company's Reorganization
Plan ("the Effective Date"), cumulative, floating-rate dividends based
upon 3-month LIBOR plus 75 basis points, accruing quarterly, and
payable, on the Effective Date, in common stock, which will not
require registration to trade ("Dividend Securities").
2. After the Effective Date, cumulative, floating rate dividends based
upon 3-month LIBOR plus 250 basis points, payable quarterly in cash or
Dividend Securities at CMI's option.
3. Unpaid dividends shall compound quarterly.
DIVIDEND SHARE The amount of shares received as Dividend Securities will be equal to the
AMOUNT: dividend dollar amount divided by the average of the five (5) closing trade prices of
the common stock for the five (5) previous trading days prior to the dividend payment date.
CONVERSION The Preferred Shares will become convertible into CRIIMI MAE common
FEATURE: stock at the option of MPII beginning three months after the Effective Date in
accordance with the following schedule:
</TABLE>
B-1
Exhibit 3
<PAGE>
<TABLE>
<S> <C>
1. Up to 25,750 (to be increased to 50,750, if the Subsequent Exchange
Occurs) Preferred Shares may be converted beginning at the end of 3
months, 9 months, 12 months and 15 months after the Effective Date
without regard to the price of CRIIMI MAE's common stock.
2. Beginning 4 months after the Effective Date and ending 8 months after
the Effective Date, MPII may convert up to 7,500 (to be increased to
15,000, if the Subsequent Exchange occurs) additional Preferred Shares
in any 21 trading day period so long as the price of the common stock
remained above $3.00 per share for each of the previous 21 trading
days.
3. Beginning 10 months after the Effective Date, MPII may convert up to
5,000 (to be increased to 10,000, if the Subsequent Exchange occurs)
additional Preferred Shares in any 21 trading day period so long as
the price of the common stock remained above $3.00 per share for each
of the previous 21 trading days.
4. In no event may MPII convert (i) more than 25,750 (to be increased to
50,750, if the Subsequent Exchange occurs) Preferred Shares in any 21
trading day period, or (ii) Preferred Shares resulting in MPII owning
5% or more of CMI's then outstanding common stock.
CONVERSION PRIOR TO THE EFFECTIVE DATE. In the event that the Effective
Date does not occur on or before December 31, 2000, then 5,000 (to be
increased to 10,000, if the Subsequent Exchange occurs) Preferred Shares
shall become convertible at the option of MPII into fully paid and
non-assessable shares of CMI common stock in January 2001 and in each month
thereafter until the Effective Date. In no event may MPII convert (i) more
than 5,000 (to be increased to 10,000, if the Subsequent Exchange occurs)
Preferred Shares (or less than 1,000 Preferred Shares at any one time)
during any calendar month or (ii) any Preferred Shares into CMI common
stock if such conversion would result in MPII owning 5% or more of CMI's
then outstanding common stock.
CONVERSION
SETTLEMENT: Upon conversion, MPII shall receive the common shares and accrued and
unpaid dividends on the Series E Preferred Shares within five business days
following completion of the Conversion Pricing Period.
CONVERSION PRICE: MPII may convert its Preferred Shares into common stock, which will
not require registration to trade, at a price per share equal to the
Closing Trade Price for a Valid Trading Day within the Conversion
Pricing Period mutually acceptable to CMI and MPII or, if no Closing
Trade Price is mutually acceptable to CMI and MPII, the Average
Closing Trade Price of
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C>
CMI common stock over the applicable Conversion Pricing Period.
CLOSING TRADE The last trade price for CMI common shares (a) as reported on the
PRICE: NYSE or American Stock Exchange or any successor thereto, or (b) the
last reported bid quotation for the common stock or the survivor
common stock as the case may be, as reported by the NASDAQ National
Market System or any successor thereto, for that Trading Day.
AVERAGE CLOSING Calculated by dividing (i) the sum of the closing trade prices on the NYSE
TRADE PRICE: for CMI common stock on each Valid Trading Day during the applicable
Conversion Pricing Period, by (ii) the total number of Valid Trading Days in
such Conversion Pricing Period.
CONVERSION 21 trading days commencing on the first Valid Trading Day prior to
PRICING notice of conversion, subject to earlier termination as agreed upon
PERIOD: by CMI and MPII.
VALID An Exchange Business Day during a Conversion Pricing Period in which either
TRADING DAY: (i) the Minimum Daily Price has been exceeded, or (ii) the Minimum Daily Price
has not been exceeded and MPII and CMI agree to include such day as an
Exchange Business Day in such Conversion Pricing Period.
MINIMUM Either (i) 75% of the Closing Trade Price for the trading day immediately
DAILY PRICE: preceding either the date of delivery of the Holder Conversion Notice to the Company
or the Mandatory Conversion Date, as the case may be, or (ii) an
amount agreed upon by MPII and CMI at the beginning of any Conversion
Pricing Period, that shall be applicable for every Exchange Business
Day during a Conversion Pricing Period.
MANDATORY Any outstanding Preferred Shares will be converted on the second anniversary of
CONVERSION: the Effective Date.
OPTIONAL Upon thirty (30) days prior written notice to MPII, the Preferred Shares will be redeemable,
REDEMPTION: in whole or in part, at anytime at CRIIMI MAE's discretion at 106% plus accrued and unpaid
dividends.
</TABLE>
B-3
<PAGE>
Exhibit 99.1
THIS IS NOT A SOLICITATION OF ACCEPTANCE OR REJECTION OF THE THIRD AMENDED JOINT
PLAN OF REORGANIZATION OF CRIIMI MAE INC., CRIIMI MAE MANAGEMENT, INC. AND
CRIIMI MAE HOLDINGS II, L.P. (COLLECTIVELY, THE "DEBTORS"). ACCEPTANCES OR
REJECTIONS MAY NOT BE SOLICITED BY THE DEBTORS UNTIL A DISCLOSURE STATEMENT HAS
BEEN APPROVED BY THE BANKRUPTCY COURT. THIS SECOND AMENDED JOINT DISCLOSURE
STATEMENT IS BEING SUBMITTED FOR APPROVAL BUT HAS NOT YET BEEN APPROVED BY THE
BANKRUPTCY COURT. IT IS THEREFORE NOTED AS "PROPOSED," WHICH NOTATION WILL BE
REMOVED AFTER APPROVAL BY THE BANKRUPTCY COURT.
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MARYLAND
Greenbelt Division
______________________________
)
In re ) Chapter 11
)
CRIIMI MAE Inc., et al., )
) Case Nos. 98-2-3115 through 98-2-3117 (DK)
Debtors. ) (Jointly Administered)
)
______________________________
DEBTORS' SECOND AMENDED JOINT DISCLOSURE STATEMENT
[PROPOSED]
VENABLE, BAETJER AND HOWARD, LLP AKIN, GUMP, STRAUSS, HAUER & FELD,
Richard L. Wasserman LLP Stanley J. Samorajczyk, P.C.
Gregory A. Cross Michael S. Stamer
1800 Mercantile Bank &Trust Building 1333 New Hampshire Avenue, N.W.
Two Hopkins Plaza Washington, D.C. 20036
Baltimore, Maryland 21201 (202) 887-4000
(410) 244-7400
Co-Counsel to CRIIMI MAE Inc. and CRIIMI MAE
Holdings II, L.P.
SHULMAN, ROGERS, GANDAL, PORDY & ECKER, P.A. COVINGTON & BURLING
Morton A. Faller Michael St. Patrick Baxter
11921 Rockville Pike Dennis B. Auerbach
Third Floor 1201 Pennsylvania Avenue, N.W.
Rockville, MD 20852-2753 Washington, D.C. 20044
(301) 231-0928 (202) 662-6000
Counsel to CRIIMI MAE Management, Inc. Counsel to the Official Committee
of Equity Security Holders of
CRIIMI MAE Inc.
Dated: April 24, 2000
IMPORTANT: THIS SECOND AMENDED JOINT DISCLOSURE STATEMENT CONTAINS INFORMATION
THAT MAY BEAR UPON YOUR DECISION TO ACCEPT OR REJECT THE DEBTORS' THIRD AMENDED
JOINT PLAN OF REORGANIZATION. PLEASE READ THIS DOCUMENT WITH CARE.
<PAGE>
TABLE OF CONTENTS
Page
- ----
I. INTRODUCTION ............................................................2
II. PLAN SUMMARY AND KEY CONSIDERATIONS .....................................4
A. Plan Summary .........................................................4
B. Recommendation ......................................................17
C. Voting Instructions .................................................18
III. GENERAL INFORMATION.....................................................20
A. The Debtors and Chapter 11 Filing and Other Chapter 11 Events........20
B. Business.............................................................25
C. The Portfolio........................................................34
D. Legal Proceedings....................................................37
E. Selected Historical Consolidated Financial Data......................46
F. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................48
G. Quantitative and Qualitative Disclosures About Market Risk...........60
H. Market and Trading Information.......................................63
I. Management...........................................................64
IV. BUSINESS PLAN...........................................................72
V. THE PLAN OF REORGANIZATION .............................................74
A. Overview of the Plan ................................................74
B. Treatment of Claims and Interests Under the Plan ...................79
C. Confirmation and Effective Date Conditions ..........................89
D. The Reorganized Debtors .............................................90
E. Recapitalization Financing Including Issuance of New Securities......92
F. Sale of the CMBS Portfolio...........................................92
G. Affiliate Reorganization.............................................93
H. Potential New Equity Investment and Rights Offering .................93
I. Distributions Under the Plan ........................................95
J. General Information Concerning the Plan .............................99
VI. CONFIRMATION AND CONSUMMATION PROCEDURES ..............................107
A. Solicitation of Acceptances ........................................107
B. Confirmation Hearing ...............................................107
C. Confirmation .......................................................108
D. Consummation .......................................................112
E. Conditions to Effective Date .......................................112
VII. CERTAIN RISK FACTORS...................................................112
VIII. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS .............................121
IX. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN .............126
A. Alternative Chapter 11 Plans .......................................126
B. Liquidation Under Chapter 7 ........................................126
X. CONCLUSION AND RECOMMENDATION ............................................127
ii
<PAGE>
EXHIBITS
Page
- ----
Exhibit A Third Amended Joint Plan of Reorganization of CRIIMI MAE Inc.,
CRIIMI MAE Management, Inc. and CRIIMI MAE Holdings II, L.P.
Under Chapter 11 of the Bankruptcy Code..........................A-1
Exhibit B Unaudited Pro Forma Consolidated Financial Statements and
Projected Financial Information................................B-1
Exhibit C Liquidation Analysis.............................................C-1
Exhibit D CRIIMI MAE Financial Statements..................................D-1
Exhibit E Reorganized CMI Amended Restated Articles of Incorporation.......E-1
Exhibit F Reorganized CMI Amended and Restated Bylaws......................F-1
Exhibit G Reorganized CMI Second Amended and Restated Option Plan for
Key Employees....................................................G-1
iii
<PAGE>
CRIIMI MAE INC., CRIIMI MAE MANAGEMENT, INC. AND CRIIMI MAE HOLDINGS II,
L.P. (COLLECTIVELY, THE "DEBTORS") AND THE OFFICIAL COMMITTEE OF EQUITY SECURITY
HOLDERS OF CRIIMI MAE INC. (THE "CMI EQUITY COMMITTEE") URGE ALL HOLDERS OF
CLAIMS AND INTERESTS IN IMPAIRED CLASSES TO VOTE TO ACCEPT THE DEBTORS' THIRD
AMENDED JOINT PLAN OF REORGANIZATION (THE "PLAN"). THE CMI EQUITY COMMITTEE HAS
JOINED THE DEBTORS AS A CO-PROPONENT OF THE DEBTORS' PLAN. THE OFFICIAL
COMMITTEE OF UNSECURED CREDITORS OF CMI (THE "UNSECURED CREDITORS' COMMITTEE")
ALSO SUPPORTS THE PLAN AND ENCOURAGES ALL HOLDERS OF CLAIMS AND INTERESTS IN
IMPAIRED CLASSES TO VOTE IN SUPPORT OF THE PLAN. IT SHOULD BE UNDERSTOOD THAT
THE UNSECURED CREDITORS' COMMITTEE'S SUPPORT OF THIS PLAN AS EXPRESSED IN THIS
DISCLOSURE STATEMENT IS CONDITIONED UPON AND SUBJECT TO THE COMPLETION OF
MUTUALLY ACCEPTABLE DEBT AND RELATED DOCUMENTATION, WHICH THE DEBTORS, THE CMI
EQUITY COMMITTEE AND THE UNSECURED CREDITORS' COMMITTEE ALL BELIEVE WILL BE
COMPLETED BEFORE THE CONFIRMATION HEARING.
THIS SECOND AMENDED JOINT DISCLOSURE STATEMENT (THE "DISCLOSURE
STATEMENT") IS DESIGNED TO PROVIDE ADEQUATE INFORMATION TO ENABLE HOLDERS OF
CLAIMS AGAINST AND INTERESTS IN THE DEBTORS TO MAKE AN INFORMED JUDGMENT ON
WHETHER TO ACCEPT OR REJECT THE DEBTORS' PLAN. ALL HOLDERS OF CLAIMS AND
INTERESTS ARE HEREBY ADVISED AND ENCOURAGED TO READ THIS DISCLOSURE STATEMENT
AND THE PLAN IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE PLAN. THE
PLAN SUMMARY AND STATEMENTS MADE IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN
THEIR ENTIRETY BY REFERENCE TO THE PLAN, WHICH IS INCLUDED HEREWITH AS EXHIBIT
A, OTHER EXHIBITS TO THIS DISCLOSURE STATEMENT, EXHIBITS TO THE PLAN AND OTHER
DOCUMENTS REFERENCED AS FILED WITH THE BANKRUPTCY COURT. FURTHERMORE, THE PRO
FORMA FINANCIAL STATEMENTS AND PROJECTED FINANCIAL INFORMATION CONTAINED HEREIN
ARE UNAUDITED. THERE CAN BE NO ASSURANCE THAT THE INFORMATION AND STATEMENTS
CONTAINED HEREIN WILL CONTINUE TO BE ACCURATE SUBSEQUENT TO THE DATE HEREOF OR
THAT THIS DISCLOSURE STATEMENT CONTAINS ALL MATERIAL INFORMATION.
ALTHOUGH THE CMI EQUITY COMMITTEE IS A CO-PROPONENT OF THE DEBTORS' PLAN,
THIS DISCLOSURE STATEMENT WAS PREPARED BY THE DEBTORS. NEITHER THE CMI EQUITY
COMMITTEE NOR ANY OF ITS PROFESSIONALS WARRANT THE ACCURACY OR COMPLETENESS OF
ANY INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING, WITHOUT
LIMITATION, ANY INFORMATION ABOUT THE DEBTORS, THE DEBTORS' BUSINESSES, RISK
FACTORS, TAX CONSEQUENCES OR THE APPLICABILITY OF SECURITIES LAWS.
ALL HOLDERS OF IMPAIRED CLAIMS AND INTERESTS SHOULD READ AND CONSIDER THE
MATTERS DESCRIBED IN THIS DISCLOSURE STATEMENT AS A WHOLE, INCLUDING THE SECTION
ENTITLED "RISK FACTORS", PRIOR TO VOTING ON THE PLAN. IN MAKING A DECISION TO
ACCEPT OR REJECT THE PLAN, EACH CLAIM AND INTEREST HOLDER MUST RELY ON ITS OWN
EXAMINATION OF THE DEBTORS AS DESCRIBED IN THIS DISCLOSURE STATEMENT AND THE
PLAN.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH ss.1125 OF
THE BANKRUPTCY CODE AND RULE 3016(b) OF THE FEDERAL RULES OF BANKRUPCY PROCEDURE
AND NOT IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS. THIS DISCLOSURE
STATEMENT HAS NEITHER BEEN APPROVED NOR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC"). NOR HAS THE SEC PASSED UPON THE ACCURACY OR
ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. THIS DISCLOSURE STATEMENT WAS
PREPARED TO PROVIDE HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE DEBTORS WITH
"ADEQUATE INFORMATION" (AS DEFINED IN THE BANKRUPTCY CODE) SO THAT THEY CAN MAKE
AN INFORMED JUDGMENT ABOUT THE PLAN. PERSONS OR ENTITIES TRADING IN, OR
OTHERWISE PURCHASING, SELLING, OR TRANSFERRING, CLAIMS AGAINST OR SECURITIES OF
THE DEBTORS
-1-
<PAGE>
SHOULD NOT RELY UPON THIS DISCLOSURE STATEMENT FOR SUCH PURPOSES AND SHOULD
EVALUATE THIS DISCLOSURE STATEMENT AND THE PLAN IN LIGHT OF THE PURPOSE FOR
WHICH THEY WERE PREPARED.
AS TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER PENDING OR
THREATENED ACTIONS, THIS DISCLOSURE STATEMENT AND THE INFORMATION CONTAINED
HEREIN SHALL NOT BE CONSTRUED AS AN ADMISSION OF ANY FACT, CLAIM OR LIABILITY,
AS A STIPULATION OR AS A WAIVER, BUT RATHER AS STATEMENTS MADE IN SETTLEMENT
NEGOTIATIONS. NOR SHALL THE STATEMENTS SET FORTH HEREIN BE USED AS EVIDENCE OR
BIND ANY PARTY IN CONNECTION WITH ANY SECURITIES CLAIMS (AS THAT TERM IS DEFINED
IN THE PLAN).
THIS DISCLOSURE STATEMENT SHALL NOT BE ADMISSIBLE IN ANY NON-BANKRUPTCY
PROCEEDING INVOLVING THE DEBTORS OR ANY OTHER PARTY NOR SHALL IT BE CONSTRUED TO
BE CONCLUSIVE ADVICE ON THE TAX, SECURITIES OR OTHER LEGAL EFFECTS OF THE PLAN
AS TO HOLDERS OF CLAIMS AGAINST OR INTERESTS IN THE DEBTORS.
I. INTRODUCTION
On October 5, 1998, CRIIMI MAE Inc. ("CMI"), CRIIMI MAE Management, Inc.
("CMM") and CRIIMI MAE Holdings II, L.P. ("Holdings") filed voluntary petitions
for relief under Chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). The Debtors and the CMI Equity Committee hereby submit this
Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code in
connection with their solicitation of acceptances of their Plan, a copy of which
is annexed hereto as Exhibit A. The purpose of this Disclosure Statement, in
accordance with the requirements of Section 1125 of the Bankruptcy Code, is to
provide "adequate information" concerning the Plan, of a kind and in sufficient
detail to enable a hypothetical, reasonable investor, typical of holders of the
classes of claims or interests being solicited, to make an informed judgment
whether to accept or reject the Plan. This Disclosure Statement should be read
in conjunction with the Plan and the other exhibits to this Disclosure Statement
and to the Plan. All capitalized terms contained in this Disclosure Statement
shall, unless otherwise defined herein, have the meanings ascribed to such
capitalized terms in the Plan. References herein to the "Company" or "CRIIMI
MAE" refer to CRIIMI MAE Inc. and its consolidated subsidiaries, unless the
context otherwise indicates. References herein to Notes to Consolidated
Financial Statements refer to the Notes to Consolidated Financial Statements
constituting a part of CRIIMI MAE's financial statements for the year ended
December 31, 1999.
The Plan is being distributed, with Ballots, to holders of Claims and
Interests in Classes A1, A2, A3, A4, A5, A6, A7, A9, A10, A11, A13, A14, A16,
A18, A20, A21, B1, B2, B5, B6, C1, C2, C5 and C6, the Classes of Claims and
Interests that are Impaired and entitled to vote under the Plan, in order to
solicit their acceptance of the Plan. Holders of Claims and Interests in Classes
A8, A12, A15, A17, A19, A22, A23, B3, B4, B7, C3, C4 and C7 are deemed to have
accepted the Plan because their respective Claims are not Impaired, and such
Holders are therefore not entitled to vote on the Plan. Accordingly, the votes
of Holders of Claims and Interests in such Classes are not being solicited. For
a description of the Classes of Claims and Interests and their treatment under
the Plan, see "THE PLAN OF REORGANIZATION -- Treatment of Claims and Interests
Under the Plan."
The Debtors and the CMI Equity Committee are seeking the acceptance of the
Plan by Holders of Claims and Interests in Classes A1, A2, A3, A4, A5, A6, A7,
A9, A10, A11, A13, A14, A16, A18, A20, A21, B1, B2, B5, B6, C1, C2, C5 and C6.
The Debtors and the CMI Equity Committee have prepared this Disclosure Statement
in connection with their solicitation of acceptances of the Plan. The United
States Bankruptcy Court for the District of Maryland, Greenbelt Division,
Maryland ("the "Bankruptcy Court") has entered an order dated ____ ___, 2000
approving this Disclosure Statement as containing information of a kind and in
sufficient detail to enable a hypothetical, reasonable investor, typical of each
of the holders of the Classes of Claims and Interests being solicited, to make
an informed judgment whether to accept the Plan. Such approval by the Bankruptcy
Court does not constitute a recommendation of the Plan by the Bankruptcy Court.
-2-
<PAGE>
Section 1129(a) of the Bankruptcy Code allows the Bankruptcy Court to
confirm a plan if certain conditions have been met and if each class of claims
and interests that is impaired under the plan has voted to accept the plan.
Under Section 1126(c) of the Bankruptcy Code, a class of claims has accepted a
plan if such plan has been accepted by creditors in that class that hold at
least two-thirds in dollar amount and more than one-half in number of the
allowed claims of such class held by creditors that have voted to accept or
reject such plan, excluding holders whose acceptances or rejections were found
not to be in good faith. Under Section 1126(d) of the Bankruptcy Code, a class
of equity interests has accepted a plan if such plan has been accepted by
holders of such interests that hold at least two-thirds in amount of the allowed
interests of such class held by holders of such interests that have voted to
accept or reject such plan, excluding holders whose acceptances or rejections
were found not to be in good faith.
Under the Bankruptcy Code, only those Claims, the holders of which vote to
accept or reject the Plan, will be counted for purposes of determining
acceptance or rejection by any Impaired Class of Claims. Therefore, the Plan
could be approved by any Impaired Class of Claims with the affirmative vote of
significantly less than two-thirds in total dollar amount and one-half in total
number of such Claims. However, even if the Holders of all Claims in Impaired
Classes and entitled to vote under the Plan accept or are deemed to have
accepted the Plan, the Plan is subject to certain requirements under the
Bankruptcy Code and might not be confirmed by the Bankruptcy Court.
Section 1129(b) of the Bankruptcy Code permits the confirmation of a plan
notwithstanding the non-acceptance of such plan by one or more of the classes of
claims or interests impaired thereunder if (i) at least one impaired class of
claims accepts the plan (such acceptance to be determined without giving effect
to any acceptances of "insiders," as such term is defined in Section 101 of the
Bankruptcy Code) and (ii) the Bankruptcy Court finds that, with respect to the
non-accepting class or classes, the plan does not discriminate unfairly and is
fair and equitable. The Debtors and the CMI Equity Committee reserve the right
to seek confirmation of the Plan under Section 1129(b) of the Bankruptcy Code if
any class of Claims entitled to vote on the Plan votes to reject the Plan.
If more than one plan is submitted to creditors and equity security
holders for voting, the Bankruptcy Court may confirm only one such plan. If the
confirmation requirements set forth in the Bankruptcy Code are met with respect
to more than one plan, the Bankruptcy Court will consider the preferences of
creditors and equity security holders in determining which plan to confirm. The
Debtors and the CMI Equity Committee urge all creditors and equity security
holders to vote in favor of the Plan. The Unsecured Creditors' Committee also
recommends that all unsecured creditors vote in favor of the Plan. The Debtors
and the CMI Equity Committee believe that confirmation of the Debtors' Plan is
in the best interest of all creditors and equity security holders. As set forth
in more detail in the Plan and this Disclosure Statement, the Debtors' Plan
provides for the payment in full of all creditors, preservation of value for
equity security holders and a reorganization of the Debtors and continuation of
the business of CRIIMI MAE as a going concern.
The Debtors and the CMI Equity Committee are soliciting votes for the
acceptance of the Plan from the Holders of Claims and Interests in Classes A1,
A2, A3, A4, A5, A6, A7, A9, A10, A11, A13, A14, A16, A18, A20, A21, B1, B2, B5,
B6, C1, C2, C5 and C6. The Debtors and the CMI Equity Committee believe that the
Plan provides the best possible result for all Holders of Claims and Interests.
The Debtors and the CMI Equity Committee believe further that, under the Plan,
Holders of Claims and Interests will receive a greater recovery than such
Holders would receive if the Debtors' Chapter 11 cases were converted to cases
under Chapter 7 of the Bankruptcy Code or an alternative plan were confirmed by
the Bankruptcy Court.
-3-
<PAGE>
IMPORTANT INFORMATION
TO BE COUNTED, YOUR BALLOT MUST BE RECEIVED BY 5:00 P.M. EASTERN DAYLIGHT
SAVINGS TIME, ON [________,] 2000. BALLOTS SHOULD BE MAILED OR DELIVERED TO:
CRIIMI MAE INC., CRIIMI MAE MANAGEMENT, INC. AND CRIIMI MAE HOLDINGS II, L.P.,
C/O BANKRUPTCY SERVICES LLC, BALLOT PROCESSING, P.O. BOX 5204, FDR STATION, NEW
YORK, NEW YORK, 10150-5204.
PLEASE REFER TO YOUR BALLOT FOR SPECIFIC INSTRUCTIONS. SEE ALSO "PLAN
SUMMARY AND KEY CONSIDERATIONS - VOTING INSTRUCTIONS" FOR A DISCUSSION OF VOTING
PROCEDURES AND CONTACT INFORMATION.
THE DEBTORS BELIEVE THAT THE PLAN PROVIDES THE BEST POSSIBLE RESULT FOR
ALL HOLDERS OF CLAIMS AND INTERESTS.
THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN
ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED.
THIS DISCLOSURE STATEMENT IS PROVIDED FOR USE SOLELY BY HOLDERS OF CLAIMS
AND INTERESTS, AND THEIR ADVISORS, IN CONNECTION WITH THEIR DETERMINATION TO
ACCEPT OR REJECT THE PLAN.
HOLDERS OF CLAIMS AND INTERESTS SHOULD NOT CONSTRUE THE CONTENTS OF THIS
DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL, BUSINESS, FINANCIAL OR TAX ADVICE.
EACH SUCH HOLDER SHOULD, THEREFORE, CONSULT WITH HIS, HER OR ITS OWN LEGAL,
BUSINESS, FINANCIAL AND/OR TAX ADVISORS AS TO ANY SUCH MATTERS CONCERNING THE
PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY.
THE SUMMARY OF THE PLAN CONTAINED HEREIN DOES NOT PURPORT TO BE COMPLETE
AND IS SUBJECT, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE PROVISIONS OF
THE PLAN, WHICH IS ATTACHED HERETO AS EXHIBIT A.
II. PLAN SUMMARY AND KEY CONSIDERATIONS
The following summary is qualified in its entirety by reference to the
more detailed information appearing elsewhere in this Disclosure Statement, to
the Plan and to the exhibits to this Disclosure Statement and to the Plan. This
summary does not purport to be complete and should not be relied upon for voting
purposes. Terms not otherwise defined herein shall have the meanings ascribed to
them in the Plan. A more complete description of the Plan is provided in "THE
PLAN OF REORGANIZATION."
All Holders of Claims and Interests whose votes are being solicited are
hereby advised and encouraged to read this Disclosure Statement, the Plan and
the exhibits to this Disclosure Statement and to the Plan in their entirety
before voting to accept or reject the Plan.
A. Plan Summary
The Plan contemplates the payment in full of all of the Allowed Claims of
CMI, CMM and Holdings primarily through recapitalization financing aggregating
at least $856 million (the "Recapitalization Financing"). The majority of such
Recapitalization Financing is expected to consist of debt financing from
existing debtholders (the "New Debt") and the balance is expected to result from
the sale of selected CMBS (the "CMBS Sale"). In particular, CMI has agreed to
restructure its secured debt with two of its largest creditors, Merrill Lynch
Mortgage Capital Inc. ("Merrill") and German American Capital Corporation
("GACC"), in accordance with the term sheet attached as Exhibit 1 to the Plan
(the "Merrill/GACC Term Sheet"). In addition, CMI has agreed with the Unsecured
Creditors' Committee to restructure its unsecured debt including its Old Senior
Notes in accordance with
-4-
<PAGE>
the term sheet attached as Exhibit 2 to the Plan (the "Unsecured Creditors' Term
Sheet"). The Merrill/GACC and Unsecured Creditors restructurings set forth in
Exhibits 1 and 2 to the Plan are the cornerstones of CMI's New Debt financing as
it emerges from Chapter 11 under the Debtors' Plan. Although not required to
fund the Plan, the Debtors may seek new equity capital from one or more
investors to partially fund the Plan. Any such new equity will constitute
Recapitalization Financing. See "THE PLAN OF REORGANIZATION" for a further
discussion of potential new equity capital.
The Plan provides for distributions to creditors as summarized below:
CLAIMS AGAINST AND INTERESTS IN CMI
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
N/A Administrative Claims (Unclassified) Each Holder will be paid Cash equal to the 100%
amount of such Claim on the later of the
Effective Date or the day on which such
Claim becomes an Allowed Claim, unless (i)
the Holder and Reorganized CMI,
Reorganized CMM or Reorganized Holdings,
as the case may be, agree to other
treatment, or (ii) an order of the
Bankruptcy Court provides for other terms.
- ----------------------------------------------------------------------------------------------------------------------
N/A Priority Tax Claims (Unclassified) Each Holder will receive, at the sole 100%
option of Reorganized CMI, Reorganized CMM
or Reorganized Holdings, as the case may
be, (i) Cash equal to the unpaid portion
of such Claim on the later of the
Effective Date and the date on which such
Claim becomes an Allowed Priority Tax
Claim, or (ii) equal quarterly Cash
payments in an aggregate amount equal to
such Claim, together with interest at a
fixed annual rate to be determined by the
Bankruptcy Court or otherwise agreed to by
Reorganized CMI, Reorganized CMM or
Reorganized Holdings, as the case may be,
and such Holder over a period through the
sixth anniversary of the date of
assessment of such Claim, or upon such
other terms determined by the Bankruptcy
Court.
- ----------------------------------------------------------------------------------------------------------------------
A1 Citicorp Secured Claims Impaired. The Holder of the Allowed Class 100%
A1 Claim will receive on the Effective
Date with respect to its Allowed Class A1
CMO-IV Claim (i) the Class A1 Cash
Payment; (ii) with respect to the balance
of its Allowed Class A1 CMO-IV Claim (with
interest on the principal balance of such
Allowed Claim calculated at the Plan
Rate), a 4-year promissory note of
Reorganized CMI bearing interest, payable
monthly, at the per annum rate of
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIBOR plus 3.25%, secured by a first
priority lien on the CMO-IV Bonds and the
CMO-IV Additional Collateral (such lien
anticipated to be structured as an
indirect lien consistent with the
affiliate reorganization referenced in the
Plan and "THE PLAN OF REORGANIZATION"
discussion hereinbelow), with monthly
amortization of said note based on the
schedule set forth on page 76 herein; and
(iii) loan extension fees payable in Cash
on the 2-year, 2 1/2-year, 3-year and 3
1/2-year anniversaries of the Effective
Date, if said note has not been paid off
in full prior to such dates, equal to 1.5%
of the then outstanding principal balance
of said note. In addition, the Holder of
the Allowed Class A1 Claim will receive on
the Effective Date payment in full in Cash
of any remaining balance of its Allowed
Class A1 Claim, after the refinancing of
such Holder's Allowed Class A1 CMO-IV
Claim referenced above, with interest on
the principal balance of such Allowed
Claim calculated at the Plan Rate. Class
A1 is Impaired and, accordingly, the
Holder of such Claims will be entitled to
vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A2 First Union Secured Claim Impaired. The Holder of the Allowed 100%
Class A2 Claim will receive on the
Effective Date payment in full in Cash of
any remaining balance of such Claim with
interest on the principal balance of such
Allowed Claim calculated at the Plan
Rate. Class A2 is Impaired and,
accordingly, the Holder of such Claim will
be entitled to vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A3 GACC Secured Claim Impaired. The Holder of the Allowed 100%
Class A3 Claim will receive on the
Effective Date the treatment of its
Allowed Secured Claim set forth on Exhibit
1 to the Plan, or such other treatment as
may be agreed to by CMI and the Holder.
Class A3 is Impaired and, accordingly, the
Holder of such Claim will be entitled to
vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A4 Lehman Secured Claim Impaired. The Holder of the Allowed 100%
Class A4 Claim will receive on the
Effective Date payment in full in Cash of
any remaining balance of such Claim with
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
interest on the principal balance of such
Allowed Claim calculated at the Plan
Rate. Class A4 is Impaired and,
accordingly, the Holder of such Claim will
be entitled to vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A5 Merrill Secured Claim Impaired. The Holder of the Allowed 100%
Class A5 Claim will receive on the
Effective Date the treatment of its
Allowed Secured Claim set forth on Exhibit
1 of the Plan, or such other treatment as
may be agreed to by CMI and the Holder.
Class A5 is Impaired and, accordingly, the
Holder of such Claim will be entitled to
vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A6 Morgan Stanley Secured Claim Impaired. The Holder of the Allowed 100%
Class A6 Claim will receive on the
Effective Date payment in full in Cash of
any remaining balance of such Claim with
interest on the principal balance of such
Allowed Claim calculated at the Plan
Rate. Class A6 is Impaired and,
accordingly, the Holder of such Claim will
be entitled to vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A7 Other Secured Claims Impaired. Each Holder (if any) of an 100%
Allowed Class A7 Claim will receive on the
Effective Date either (i) payment in full
in Cash of any such Claim with interest on
the principal balance of any such Allowed
Claim calculated at the Plan Rate; (ii) if
CMI so elects, the collateral securing the
Allowed Class A7 Claim (if any) in full
satisfaction of such Claim; or (iii) such
other treatment as may be agreed to by CMI
and the Holder (if any). Class A7 is
Impaired and, accordingly, Holders of such
Claims (if any) will be entitled to vote
on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A8 Priority Claims Unimpaired. Each Holder of an Allowed 100%
Class A8 Claim will receive on the
Effective Date payment in full in Cash of
such Claim including Plan Interest
thereon. Class A8 is Unimpaired and,
accordingly, is not entitled to vote on
the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A9 Old Senior Note Claims Impaired. Each Holder of an Allowed Class 100%
A9 Claim will receive on the Effective
Date the treatment of its Allowed Claim as
set forth on Exhibit 2 to the Plan. Class
A9 is Impaired and, accordingly,
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Holders of such Claims will be entitled to
vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A10 CMI General Unsecured Claims Impaired. Each Holder of an Allowed Class 100%
A10 Claim, other than those electing the
convenience class option described
hereinafter, will be paid in full through
a combination of an initial cash payment
and two notes as further set forth in
Exhibit 2 to the Plan. In addition, as
referred to in Exhibit 2 to the Plan,
there will be a convenience class option
with respect to Class A10, as follows: any
Holder of an Allowed Class A10 Claim whose
Allowed Claim is for $150,000 or less and
elects the convenience class treatment on
its ballot, or whose Allowed Claim is for
an amount in excess of $150,000 and elects
in writing on its ballot to reduce its
claim to $150,000 and accept convenience
class treatment thereof, shall be entitled
to receive payment in Cash on the
Effective Date of the allowed amount of
such Holders' Allowed Class A10 Claim in
full satisfaction of said claim, with
accrued and unpaid pre-petition interest
thereon calculated at the non-default
contract rate of interest in such Holders'
documents for those Holders of A10 Claim
in full satisfaction of said Claim, with
accrued and unpaid pre-petition and
post-petition interest thereon calculated
at the non-default contract rate of
interest in such Holders' documents for
those Holders of Allowed Class A10 Claims
electing convenience class treatment who
have a contract, the invoice rate (capped
at 9-1/8%) for those Holders of Allowed
Class A10 Claims electing convenience
class treatment who have an invoice rate,
and 6% for all others. For purposes of
calculating the $150,000 amount in the
preceding sentence, the amount of allowed
post-petition interest on any such Claim
(which interest shall be paid as part of
such Claim) will be excluded from such
calculation. Class A10 is Impaired and,
accordingly, Holders of such Claims will
be entitled to vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A11 Guarantee Claims Impaired. If, and only to the extent 100%
that, an Allowed Class A11 Claim is not
fully
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
treated with respect to such Holder's
underlying Allowed Claim under the Plan
treatment for Claims against CMM or
Holdings, as the case may be, any
remaining Allowed Class A11 Claim (if any)
will be included as part of the CMI
General Unsecured Claims and treated for
all purposes as part of Class A10. Class
A11 is Impaired and, accordingly, is
entitled to vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A12 Freddie Mac Claims Unimpaired. CMI's obligation under the 100%
Freddie Mac Agreement shall be deemed
reaffirmed on the Effective Date, and the
Claims of Freddie Mac numbered 335 and 497
on the July 2, 1999 claims register, each
in the amount of $230,448,487.24, shall be
deemed withdrawn and thereby disallowed as
of the Effective Date. Class A12 is
Unimpaired and, accordingly, is not
entitled to vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A13 Intercompany Claims Impaired. Holders of Class A13 Claims No payment
will not receive any payment under the shall be
Plan on account of such Claims. Class A13 made under
is Impaired and, accordingly, Holders of the Plan
such Claims will be entitled to vote on but the
the Plan. claim
amounts
will
remain on
the
financial
books of
the
respective
Debtors.
- ----------------------------------------------------------------------------------------------------------------------
A14 Series B Preferred Stock Impaired. Each Holder of an Allowed 100%
Class A14 Interest as of the Effective
Date will retain its Series B Preferred
Stock; provided that if the Holders of
Series B Preferred Stock as of the Voting
Record Date vote as a Class by the
requisite amount to accept the Plan, the
Articles Supplementary relating to the
Series B Preferred Stock will be deemed
amended to permit the payment of dividends
on Series B Preferred Stock, including
accrued and unpaid dividends, in CMI
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock or Cash, at the election of
Reorganized CMI, with such payment of
dividends to be consistent with Exhibits 1
and 2 to the Plan. It is contemplated
that such dividends will be paid in CMI
Common Stock. See Exhibit 2 to the Plan
regarding limitations on cash dividends.
Holders of Series B Preferred Stock who
are not affiliates or "underwriters" may
publicly trade the CMI Common Stock
received as payment for dividends accrued
and payable. Class A14 is Impaired and,
accordingly, is entitled to vote on the
Plan.
- ----------------------------------------------------------------------------------------------------------------------
A15 Series B Preferred Stock Securities Claims Unimpaired. Each Holder (if any) of an 100%
Allowed Class A15 Claim will, if, as and
when any such Claim is Allowed by Final
Order, receive in full satisfaction of any
such Allowed Class A15 Claim its share of
any Insurance Proceeds applicable thereto
plus, if such Allowed Class A15 Claim (if
any) is not paid in full from such
Insurance Proceeds, CMI Common Stock in an
amount equal in value, as of the date of
issuance thereof, to the balance (if any)
of such Allowed Class A15 Claim, provided
that any such Claim not timely filed (and
in any event not filed before the
Confirmation Date) shall be released and
discharged under the Plan and Confirmation
Order. Class A15 is Unimpaired and,
accordingly, is not entitled to vote on
the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A16 Former Series C Preferred Stock Impaired. Former Series C Preferred 100%
Stock has been exchanged for Series E
Preferred Stock. Each Holder of Series E
Preferred Stock as of the Distribution
Record Date shall retain its Series E
Preferred Stock and such Series E
Preferred Stock shall have the terms,
rights and preferences summarized in
Exhibit 3 to the Plan and as set forth in
the Articles Supplementary relating to the
Series E Preferred Stock. All accrued and
past due dividends from February 23, 2000
through the Effective Date on Series E
Preferred Stock will be paid on the
Effective Date in CMI Common Stock. All
other accrued and past due dividends on
Former Series C Preferred Stock (prior to
February 23, 2000) shall be paid on the
Effective Date in CMI Common Stock or
Cash, at the
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
election of Reorganized CMI, with such
payment of dividends to be consistent with
Exhibits 1 and 2 to the Plan. It is
contemplated that such dividends will be
paid in CMI Common Stock. See Exhibit 2 to
the Plan regarding limitations on cash
dividends. Class A16 is Impaired and,
accordingly, Holders of such Interests
will be entitled to vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A17 Former Series C Preferred Stock Securities Unimpaired. Each Holder (if any) of an 100%
Claims Allowed Class A17 Claim will, if, as and
when any such Claim is allowed by Final
Order, receive in full satisfaction of any
such Allowed Class A17 Claim its share of
any Insurance Proceeds applicable thereto
plus, if such Allowed Class A17 Claim (if
any) is not paid in full from such
Insurance Proceeds, CMI Common Stock in an
amount equal in value, as of the date of
issuance thereof, to the balance (if any)
of such Allowed Class A17 Claim, provided
that any such Claim not timely filed (and
in any event not filed before the
Confirmation Date) shall be released and
discharged under the Plan and Confirmation
Order. Class A17 is Unimpaired and,
accordingly, is not entitled to vote on
the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A18 Old Series D Preferred Stock Impaired. Each Holder of an Allowed 100%
Class A18 Interest as of the Distribution
Record Date, if not previously exchanged,
will receive on the Effective Date in
exchange for its Old Series D Preferred
Stock an identical number of shares of
Series E Preferred Stock issued effective
as of the Effective Date, and such Series
E Preferred Stock shall have the terms,
rights and preferences summarized in
Exhibit 3 of the Plan and as set forth in
the Articles Supplementary relating to the
Series E Preferred Stock. All shares of
Old Series D Preferred Stock, if not
previously exchanged and cancelled, shall
be deemed cancelled as of the Effective
Date. All accrued and past due dividends
on Old Series D Preferred Stock shall be
paid on the Effective Date in CMI Common
Stock or Cash, at the election of
Reorganized CMI, with such payment of
dividends to be consistent with Exhibits 1
and 2 to the Plan. It is contemplated
that such
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
dividends will be paid in CMI Common
Stock. See Exhibit 2 to the Plan regarding
limitations on cash dividends. Class A18
is Impaired and, accordingly, Holders of
such Interests will be entitled to vote on
the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A19 Old Series D Preferred Stock Securities Claims Unimpaired. Each Holder (if any) of an 100%
Allowed Class A19 Claim will, if, as and
when any such Claim is Allowed by Final
Order, receive in full satisfaction of any
such Allowed Class A19 Claim its share of
any Insurance Proceeds applicable thereto
plus, if such Allowed Class A19 Claim (if
any) is not paid in full from such
Insurance Proceeds, CMI Common Stock in an
amount equal in value, as of the date of
issuance thereof, to the balance (if any)
of such Allowed Class A19 Claim, provided
that any such Claim not timely filed (and
in any event not filed before the
Confirmation Date) shall be released and
discharged under the Plan and Confirmation
Order. Class A19 is Unimpaired and,
accordingly, is not entitled to vote on
the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A20 Series F Dividend Preferred Stock Impaired. Each Holder of an Allowed 100%
Class A20 Interest as of the Effective
Date shall retain its Series F Dividend
Preferred Stock; provided that if the
Holders of Series F Dividend Preferred
Stock as of the Voting Record Date vote as
a Class by the requisite amount to accept
the Plan, the Articles Supplementary
relating to the Series F Dividend
Preferred Stock will be deemed amended to
permit the payment of dividends on Series
F Dividend Preferred Stock, including any
accrued and unpaid dividends, in CMI
Common Stock or Cash, at the election of
Reorganized CMI, with such payment of
dividends to be consistent with Exhibits 1
and 2 to the Plan. It is possible that
such dividends may be paid in CMI Common
Stock. See Exhibit 2 to the Plan
regarding limitations on cash dividends.
Holders of Series F Dividend Preferred
Stock who are not affiliates or
"underwriters" may publicly trade the CMI
Common Stock received as payment for
dividends accrued and payable. Class A20
is Impaired and, accordingly, is entitled
to vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A21 CMI Common Stock Impaired. Each Holder of an Allowed 100%
Class A21 Interest as of the Effective
Date will retain its CMI Common Stock.
Class A21 is Impaired and, accordingly,
Holders of such Interests will be entitled
to vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A22 Stock Options Unimpaired. Each Holder of a Stock 100%
Option as of the Effective Date will
retain its Stock Option. Class A22 is
Unimpaired and, accordingly, is not
entitled to vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
A23 CMI Common Stock Securities Claims Unimpaired. All Holders (if any) of 100%
Allowed Class A23 Claims will receive in
full satisfaction of any such Allowed
Class A23 Claims their share of any
Insurance Proceeds applicable thereto
plus, if such Allowed Class A23 Claims (if
any) are not paid in full from such
Insurance Proceeds, CMI Common Stock in an
amount equal in value, as of the date of
issuance thereof, to the balance (if any)
of such Allowed Class A23 Claims. Class
A23 is Unimpaired and, accordingly, is not
entitled to vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
CLAIMS AGAINST AND INTERESTS IN CMM
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
B1 First Union Secured Claims Impaired. The Holder of the Allowed 100%
Class B1 Claim will receive on the
Effective Date payment in full in Cash of
any remaining balance of such Claim with
interest on the principal balance of such
Allowed Claim calculated at the Plan
Rate. Class B1 is Impaired and,
accordingly, the Holder of such Claims
will be entitled to vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
B2 Other Secured Claims Impaired. Each Holder (if any) of an 100%
Allowed Class B2 Claim will receive on the
Effective Date either (i) payment in full
in Cash of such Claim with interest on the
principal balance of any such Allowed
Claim calculated at the Plan Rate; (ii) if
CMM so elects, the collateral securing the
Allowed Class B2 Claim (if any) in full
satisfaction of such Claim; or (iii) such
other treatment as may be agreed to by CMM
and the Holder(s) (if any) of Allowed
Class B2 Claim(s). Class B2 is Impaired
and, accordingly, Holders of such Claims
will be entitled to vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
B3 Priority Claims Unimpaired. Each Holder of an Allowed 100%
Class B3 Claim will receive on the
Effective Date payment in full in Cash of
such Claim including Plan Interest
thereon. Class B3 is Unimpaired and,
accordingly, is not entitled to vote on
the Plan.
- ----------------------------------------------------------------------------------------------------------------------
B4 Guarantee Claims Unimpaired. Each Holder (if any) of an 100%
Allowed Class B4 Claim shall be paid, if,
as and when any such Claim is allowed by
Final Order, in Cash in full by CMM or
Reorganized CMM including Plan Interest
thereon if, and only to the extent not
fully treated with respect to such
Holder's underlying Allowed Claim under
the Plan treatment for Claims against CMI
or Holdings, as the case may be. Class B4
is Unimpaired and, accordingly, is not
entitled to vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
B5 CMM General Unsecured Claims Impaired. Each Holder of an Allowed 100%
Class B5 Claim will receive on the
Effective Date payment in full in Cash of
such Claims, with accrued and unpaid
pre-petition interest thereon calculated
at the non-default contract rate of
interest in such Holder's documents for
those Holders of Allowed Class B5 Claims
who have a contract, the invoice rate
(capped at 9-1/8%) for those Holders of
Allowed Class B5 Claims who have an
invoice rate, and 6% for all other Holders
of Allowed Class B5 Claims. Class B5 is
Impaired and, accordingly, Holders of such
Claims will be entitled to vote on the
Plan.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
B6 Intercompany Claims Impaired. Each Holder of a Class B6 No payment
Claim will not receive any payment under shall be
the Plan on account of such Claim. Class made under
B6 is Impaired and, accordingly, Holders the Plan
of such Claims will be entitled to vote on but the
the Plan. claim
amounts
will
remain on
the
financial
books of
the
respective
Debtors.
- ----------------------------------------------------------------------------------------------------------------------
B7 CMI's Interests in CMM Unimpaired. The Holder will retain its 100%
Interest. Class B7 is Unimpaired and,
accordingly, is not entitled to vote on
the Plan.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
CLAIMS AGAINST AND INTERESTS IN HOLDINGS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
C1 Citicorp Secured Claims Impaired. Each Holder (if any) of an 100%
Allowed Class C1 Claim will receive on the
Effective Date payment in full in Cash of
such Claim with interest on the principal
balance of any such Allowed Claim
calculated at the Plan Rate. Class C1 is
Impaired and, accordingly, the Holder of
such Claim will be entitled to vote on the
Plan.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
C2 Other Secured Claims Impaired. Each Holder (if any) of an 100%
Allowed Class C2 Claim will receive on the
Effective Date either (i) payment in full
in Cash of such Claim with interest on the
principal balance of any such Allowed
Claim calculated at the Plan Rate; (ii) if
Holdings so elects, the collateral
securing the Allowed Class C2 Claim (if
any) in full satisfaction of such Claim;
or (iii) such other treatment as may be
agreed to by Holdings and the Holder(s)
(if any) of Allowed Class C2 Claim(s).
Class C2 is Impaired and, accordingly,
Holders of such Claims will be entitled to
vote on the Plan.
- ----------------------------------------------------------------------------------------------------------------------
C3 Priority Claims Unimpaired. Each Holder of an Allowed 100%
Class C3 Claim will receive on the
Effective Date payment in full in Cash of
such Claim including Plan Interest
thereon. Class C3 is Unimpaired and,
accordingly, is not entitled to vote on
the Plan.
- ----------------------------------------------------------------------------------------------------------------------
C4 Guarantee Claims Unimpaired. Each Holder (if any) of an 100%
Allowed Class C4 Claim will receive if, as
and when any such Claim is allowed by
Final Order payment in Cash in full
including Plan Interest thereon if, and
only to the extent not fully treated with
respect to such Holder's underlying
Allowed Claim under the Plan treatment for
Claims against CMI or CMM, as the case may
be. Class C4 is Unimpaired and,
accordingly, is not entitled to vote on
the Plan.
- ----------------------------------------------------------------------------------------------------------------------
C5 Holdings General Unsecured Claims Impaired. Each Holder (if any) of an 100%
Allowed Class C5 Claim will if, as and
when any such Claim is allowed by Final
Order, receive payment in full in Cash of
any such Allowed Class C5 Claim with any
accrued and unpaid pre-petition and
post-petition interest thereon calculated
at the non-default contract rate of
interest in such Holder's documents for
any Holders of Allowed Class C5 Claims who
have a contract, the invoice rate (capped
at 9-1/8%) for any such Holders who have
an invoice rate, and 6% for any other
Holders of Allowed C5 Claims. Class C5 is
Impaired and, accordingly, Holders of such
Claims will be entitled to vote on the
Plan.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
C6 Intercompany Claims Impaired. Each Holder of a Class C6 No payment
Claim will not receive any payment under shall be
the Plan on account of such Claim. Class made under
C6 is Impaired and, accordingly, Holders the Plan
of such Claims will be entitled to vote on but the
the Plan. claim
amounts
will
remain on
the
financial
books of
the
respective
Debtors.
- ----------------------------------------------------------------------------------------------------------------------
C7 Interests in Holdings Unimpaired. The Holder will retain its 100%
Interest. Class C7 is Unimpaired and,
accordingly, is not entitled to vote on
the Plan.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Debtors and the CMI Equity Committee presently intend to seek to
consummate the Plan and to cause the Effective Date to occur on or about
_________________. There can be no assurance, however, as to when the Effective
Date actually will occur.
In making investment decisions, Holders of Claims and Interests in
solicited Classes must rely on their own examination of the Debtors and the
terms of the reorganization, including the merits and risks involved. Each
Holder in a solicited Class should consult with its own legal, business,
financial and tax advisors with respect to any such matters concerning this
Disclosure Statement, the Plan and the transactions contemplated hereby and
thereby.
B. Recommendation
The Debtors, the CMI Equity Committee and the Unsecured Creditors'
Committee, all recommend that each Holder of Claims or Interests entitled to
vote on the Plan vote to accept the Plan.
The Debtors, the CMI Equity Committee and the Unsecured Creditors'
Committee believe that:
1. The Plan provides the best possible result for the Holders of Claims
and Interests;
2. With respect to each Impaired Class of Claims and Interests, the
distributions under the Plan are the same as or greater than the amounts that
would be received if the Debtors were liquidated under Chapter 7 of the
Bankruptcy Code; and
3. Acceptance of the Plan is in the best interests of the Holders of
Claims and Interests.
Prior to deciding whether to vote in favor of the Plan, Holders of Claims
and Interests in the solicited Classes should consider carefully all of the
information contained in this Disclosure Statement, including the risk factors
described in "CERTAIN RISK FACTORS."
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C. Voting Instructions
The Debtors and the CMI Equity Committee are seeking the acceptance of the
Plan by Holders of Claims and Interests in Classes A1, A2, A3, A4, A5, A6, A7,
A9, A10, A11, A13, A14, A16, A18, A20, A21, B1, B2, B5, B6, C1, C2, C5 and C6.
A Ballot to be used to accept or reject the Plan has been enclosed with
all copies of this Disclosure Statement mailed to Holders of Claims and
Interests whose Claims and Interests are Impaired by provisions of the Plan and
who are entitled to vote on the Plan. Accordingly, this Disclosure Statement
(and the exhibits hereto), together with the accompanying Ballot and the related
materials delivered together herewith, are being furnished to Holders of Claims
and Interests in Classes A1, A2, A3, A4, A5, A6, A7, A9, A10, A11, A13, A14,
A16, A18, A20, A21, B1, B2, B5, B6, C1, C2, C5 and C6 and may not be relied upon
or used for any purpose other than to determine whether or not to vote to accept
or reject the Plan.
Ballots with respect to the Plan will be accepted by the Debtors until
5:00 p.m., Eastern Daylight Savings Time, on ____ __, 2000 (the "Voting
Deadline"). Except to the extent the Debtors so determine or as permitted by the
Bankruptcy Court pursuant to Bankruptcy Rule 3018, Ballots that are received
after the Voting Deadline will not be accepted or used by the Debtors in
connection with the Debtors' request for confirmation of the Plan.
The Debtors have retained Bankruptcy Services LLC as their voting and
tabulation agent in connection with the Plan (the "Balloting Agent").
Consistent with the provisions of Rule 3018 of the Bankruptcy Rules, the
Court has fixed the Voting Record Date (the close of business, Daylight Savings
Time, on ____ _, 2000) as the time and date for the determination of Holders of
record of Interests in Classes A9, A14, A16, A18, A20 and A21 who are entitled
to vote on the Plan. If the Holder of record of any solicited Interest is not
also the beneficial owner of such Interest, the vote to accept or reject the
Plan must be cast by the beneficial owner of such Interest.
For purposes of voting by Classes A9, A14, A16, A18, A20 and A21 to accept
or reject the Plan, the term "Holder" means a beneficial owner of Common Stock,
Old Senior Notes, Series B Preferred Stock, Former Series C Preferred Stock, Old
Series D Preferred Stock, Series F Dividend Preferred Stock (the "Securities")
on the Voting Record Date. A "beneficial owner" is the person who enjoys the
benefits of ownership of the securities (i.e., has a pecuniary interest in the
securities) even though title of the securities may be in another name. The term
"Holder" with respect to other Claims and Interests means the person who holds
such Claim or Interest in such Person's capacity as the holder of such Claim or
Interest. Only beneficial owners (or their authorized signatories) of the
Securities and Holders of Classes A1, A2, A3, A4, A5, A6, A7, A9, A10, A11, A13,
A14, A16, A18, A20, A21, B1, B2, B5, B6, C1, C2, C5 and C6 Claims as of the
Petition Date (or transferees thereof) are eligible to vote on the Plan.
ALL VOTES TO ACCEPT OR REJECT THE PLAN MUST BE CAST BY USING A BALLOT.
VOTES WHICH ARE CAST IN ANY MANNER OTHER THAN BY USING A BALLOT WILL NOT BE
COUNTED. BALLOTS THAT ARE NOT PROPERLY SIGNED WILL NOT BE COUNTED. BALLOTS THAT
PARTIALLY ACCEPT AND PARTIALLY REJECT THE PLAN WILL NOT BE COUNTED. BALLOTS THAT
ARE PROPERLY SIGNED BUT DO NOT INDICATE EITHER ACCEPTANCE OR REJECTION OF THE
PLAN WILL BE COUNTED AS AN ACCEPTANCE.
Procedures for Classes A9, A14, A16, A18, A20 and A21:
For purposes of voting to accept or reject the Plan, if you hold
Securities in physical certificated form that are registered in your own name,
you can vote on the Plan by completing the information requested on the ballot,
signing, dating, and indicating your vote on the ballot, and returning the
completed original ballot in the enclosed, pre-addressed, postage-paid envelope
so that it is actually received by the Balloting Agent before the Voting
Deadline. Any beneficial owner holding Securities in "street name" can vote on
the Plan by completing the information requested on the ballot issued to you by
your nominee (your broker, banker, bank, other nominee or their agent), signing,
dating and indicating your vote on the ballot, and returning the completed
original ballot to your
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nominee in sufficient time for your nominee then to forward your vote to the
Balloting Agent so that it is actually received by the Balloting Agent before
the Voting Deadline.
If you are a brokerage firm, commercial bank, trust company or other
nominee which is the registered holder of Securities, please forward a copy of
this Disclosure Statement, the appropriate ballot or ballots, and any other
enclosed materials to each beneficial owner (all reasonable forwarding expenses
to be reimbursed by the Company), AND collect the ballot and complete the master
ballot, and deliver the completed original master ballot to the Balloting Agent
so that it is actually received by the Balloting Agent before the Voting
Deadline.
Clearing Systems should arrange for their respective participants to vote
by executing an omnibus proxy, assignment letter form, or similar document, in
such participants' favor.
If your Ballot is damaged or lost, or if you do not receive a Ballot, you
may request a replacement by contacting:
Bankruptcy Services LLC
70 East 55th Street, 6th Floor
New York, New York 10022
Attn: Alex Houghton
General Instructions for Classes A1, A2, A3, A4, A5, A6, A7, A9, A10, A11,
A13, A14, A16, A18, A20, A21, B1, B2, B5, B6, C1, C2, C5 and C6:
After carefully reviewing the Plan, including all exhibits thereto, and
this Disclosure Statement and its exhibits, please indicate your vote on the
enclosed Ballot and return it in the envelope provided. In voting to accept or
reject the Plan, please use only the Ballot sent to you with this Disclosure
Statement. Please complete and sign your Ballot in accordance with the
instructions set forth on the Ballot and return it in the enclosed envelope.
ANY BALLOT RECEIVED WHICH DOES NOT INDICATE EITHER AN ACCEPTANCE OR
REJECTION OF THE PLAN WILL BE DEEMED AN ACCEPTANCE OF THE PLAN. ANY BALLOT
RECEIVED WHICH INDICATES BOTH AN ACCEPTANCE AND A REJECTION OF THE PLAN WILL NOT
BE COUNTED.
This Disclosure Statement has been approved by order of the Bankruptcy
Court dated _______ ___, 2000, as containing information of a kind and in
sufficient detail to enable a hypothetical, reasonable investor, typical of a
holder of an Interest, to make an informed judgment whether to accept or reject
the Plan. Approval of this Disclosure Statement by the Bankruptcy Court does not
constitute a ruling as to the fairness or merits of the Plan.
NO STATEMENTS OR INFORMATION CONCERNING THE DEBTORS OR REORGANIZED DEBTORS
OR ANY OF THE ASSETS OR THE BUSINESS OF THE DEBTORS MAY BE MADE OR SHOULD BE
RELIED UPON, OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT OR AS MAY
HEREAFTER BE AUTHORIZED BY THE BANKRUPTCY COURT. THE STATEMENTS AND INFORMATION
ABOUT THE DEBTORS AND THEIR BUSINESSES IN THIS DISCLOSURE STATEMENT, INCLUDING,
WITHOUT LIMITATION, THE DISCUSSION OF SECURITIES LAWS, RISK FACTORS, FEDERAL
INCOME TAX CONSIDERATIONS AND OTHER TAX-RELATED MATTERS HAVE BEEN PREPARED BY
THE DEBTORS. THE CMI EQUITY COMMITTEE HAS NOT PARTICIPATED IN THE PREPARATION OF
SUCH STATEMENTS AND INFORMATION AND, AS A RESULT, DOES NOT MAKE OR JOIN IN SUCH
STATEMENTS AND INFORMATION.
The Bankruptcy Court will hold a confirmation hearing at which the
Bankruptcy Court will consider objections to confirmation, if any, commencing at
__ __.m., Daylight Savings Time, on ______ __, 2000, United States Bankruptcy
Court, District of Maryland, Greenbelt Division (the "Confirmation Hearing").
The Confirmation Hearing may be adjourned from time to time without notice other
than the announcement of an adjourned date at the Confirmation Hearing.
Objections to Confirmation of the Plan, if any, must be in writing and served
and filed as
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described in the Plan and "THE PLAN OF REORGANIZATION -- Confirmation And
Consummation Procedures -- Confirmation Hearing."
IN ORDER FOR YOUR BALLOT TO BE COUNTED, YOUR BALLOT MUST BE COMPLETED AS
SET FORTH ABOVE AND RECEIVED BY THE VOTING DEADLINE (5:00 P.M., DAYLIGHT SAVINGS
TIME, ON _____ __, 2000). BALLOTS SHOULD BE MAILED TO:
CRIIMI MAE Inc. et. al., c/o Bankruptcy Services LLC
Ballot Processing
P.O. Box 5204
FDR Station
New York, New York 10150-5204
OR IF DELIVERED BY COURIER OR BY HAND, TO:
Bankruptcy Services LLC
70 East 55th Street, 6th Floor
New York, New York 10022
Attn: Alex Houghton
THE FOREGOING IS A SUMMARY. THIS DISCLOSURE STATEMENT AND THE EXHIBITS
HERETO SHOULD BE READ IN THEIR ENTIRETY BY ALL HOLDERS OF CLAIMS AND INTERESTS
IN CLASSES A1, A2, A3, A4, A5, A6, A7, A9, A10, A13, A14, A16, A18, A20, A21,
B1, B2, B5, B6, C1, C2, C5 and C6 IN DETERMINING WHETHER TO ACCEPT OR REJECT THE
PLAN.
III. GENERAL INFORMATION
FORWARD-LOOKING STATEMENTS. When used in this Disclosure Statement, the words
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. 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
"Certain Risk Factors," "Business," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Business Plan" and in
Exhibits B (Unaudited Pro Forma Consolidated Financial Statements and Projected
Financial Information) and C (Liquidation Analysis) set forth in this Disclosure
Statement. 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.
The Debtors have prepared this Disclosure Statement in connection with the
solicitation by the Debtors and the CMI Equity Committee of acceptances of the
Plan. No statements or information concerning the Debtors or the Reorganized
Debtors or their operations, or with respect to the distributions to be made
under the Plan, may be made or should be relied upon other than as set forth in
this Disclosure Statement or as may hereafter be authorized by the Bankruptcy
Court.
A. The Debtors and Chapter 11 Filing and Other Chapter 11 Events
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
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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 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. 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, the Debtors filed for relief under Chapter 11 of the
U.S. Bankruptcy Code.
While in bankruptcy, CRIIMI MAE has streamlined its operations. The
Company significantly reduced the number of employees in its origination and
underwriting operations in October 1998 and has closed its five regional loan
origination offices. 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."
See "GENERAL INFORMATION - Legal Proceedings" for a discussion of
bankruptcy related litigation and other matters.
Retention of Professionals by the Debtors
The Debtors have retained the following professionals to represent and
advise them in connection with their Chapter 11 cases:
Reorganization Counsel:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
Venable, Baetjer and Howard, LLP
Shulman, Rogers, Gandal, Pordy & Ecker, P.A.
Corporate Counsel:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
Venable, Baetjer and Howard, LLP
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Restructuring Advisors:
Wasserstein, Perella & Co.
Independent Public Accountants:
Arthur Andersen LLP
Appointment of Official Committees
To date, three committees have been participating in these cases. The
members of the committees and their respective attorneys and advisors, as of the
date of the filing of this Disclosure Statement, are set forth below:
The Unsecured Creditors' Committee:
Prudential Securities Credit Corporation
Riggs Bank, NA
Conseco Capital Management, Inc.
RER Resources L.P.
Attorney:
Arnold & Porter
Financial Advisors:
The Blackstone Group
Accountants:
PricewaterhouseCoopers LLP
CMI Equity Committee:
Charles Koehler
Michael Wurst
Elliot Kapstein
Howard Landis
Saul Yarmak
Attorney:
Covington & Burling
Financial Advisor:
Ernst & Young LLP
Ernst & Young Restructuring LLC (subject to Court approval)
AMJ Advisors LLC (subject to Court approval)
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The Official Committee of Unsecured Creditors of CMM (the "CMM Creditors'
Committee"):
Dunn and Bradstreet
Andrews Office Products
Ad Solution
Attorney:
Whiteford, Taylor & Preston
Financial Advisor:
Penta Advisory Services, LLC
Other Relief Granted
In addition to obtaining Bankruptcy Court orders in connection with
proceedings involving creditors and an employee retention plan (also addressing
assumption of certain employment agreements) as discussed in "GENERAL
INFORMATION - Legal Proceedings," "GENERAL INFORMATION - Business - Employee
Retention Plan," and "GENERAL INFORMATION - Management - Executive
Compensation," the Debtors, in conjunction with filing their petitions, filed
various other motions seeking orders that were entered by the Bankruptcy Court.
The relief sought included:
Application for Authority to Pay Prepetition Trade Creditors in the
Ordinary Course. The Debtors obtained authority from the Bankruptcy Court to pay
trade claims in the ordinary course of their business with respect to those
vendors that continued to ship goods on customary trade terms.
Assumption and Rejection of Executory Contracts and Unexpired Leases.
Since the Petition Date, the Debtors have undertaken a comprehensive review and
evaluation of their various unexpired real property leases and various executory
contracts. Based on this review and because of the substantial downsizing of the
Debtors' business, the Debtors have rejected five leases of real property and 21
equipment leases and equipment maintenance and service contracts. In the event
the Debtors determine, in their business judgment, that they no longer need
other leases and contracts, the Debtors will file the appropriate motion(s) to
reject such leases or contracts with the Bankruptcy Court, or such leases or
contracts will be deemed rejected in the Plan.
Deadline to File Proofs of Claim
On October 7, 1998, the Clerk of the Bankruptcy Court (the "Clerk of the
Court") issued a notice (the "Bar Date Notice") setting February 14, 1999, (the
"Bar Date"), as the date and time by which proofs of claim of non-governmental
units against the Debtors' Chapter 11 estates had to be filed. Governmental
units were given until April 3, 1999 (the "Government Unit Bar Date") to file
such proofs. The Bar Date Notice required each person or entity (including,
without limitation, each individual, partnership, joint venture, corporation,
estate, trust and governmental unit) that asserted a "claim" (as such term is
defined in Section 101(5) of the Bankruptcy Code) against any or all of the
Debtors which claim arose on or prior to the Petition Date to file an original
written proof of claim so as to be received on or before the Bar Date or the
Government Unit Bar Date, as applicable, in each case at 5:00 p.m. by the Clerk
of the Court. The Bar Date Notice further provided that if a claim is listed on
the schedule of claims filed by the Debtors with the Bankruptcy Court and is not
listed as disputed, contingent or unliquidated, the claim will be allowed only
in the amount scheduled unless the claimant files a proof of claim by the Bar
Date or the Government Unit Bar Date, as applicable, and that if a claim is not
listed on the schedule of claims filed by the Debtors with the Bankruptcy Court
or if a claim is listed as disputed, contingent or unliquidated, the claimant
must file a proof of claim with the Bankruptcy Court by the Bar Date or the
Government Unit Bar Date, as applicable, or the claimant may not be able to
recover on its claim against the Debtors' Chapter 11 estates.
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Over 850 claims with a face amount of nearly $2.5 billion have been filed
in these cases, including approximately $355 million in unsecured claims and
approximately $2.2 billion in secured claims. Many of these claims are duplicate
claims filed by the same creditors in each of the three cases. The Debtors
scheduled liabilities of approximately $1.18 billion. The Debtors have devoted
substantial effort to reducing the total amount of allowed claims. In connection
with an extensive claims analysis they have: (a) established a detailed
database; (b) prepared objections to claims; and (c) undertaken extensive
negotiations with creditors regarding reduction or withdrawal of claims.
These efforts have resulted in the disallowance, withdrawal, agreement to
withdraw or other resolution of approximately $1.25 billion in claims to date.
This process has led to the resolution of almost all employee, real and personal
property lease rejection, broker and borrower claims. Except as set forth below,
CMI anticipates only a few remaining claims disputes in these areas.
Three large disputed claims remain unresolved: (a) the claim of Andrew N.
Friedman on behalf of a class of shareholders in the amount of $100 million
("Claim Number 330"); (2) the claim of the Capital Corporation of America, LLC
for approximately $18 million (the "CCA Claim"); and (3) the claim of GP
Properties Group, Inc., for approximately $882,000 (the "GP Properties Claim").
The Debtors believe they have substantial defenses to each of the disputed
claims and that the ultimate allowed amount of these claims, if any, will be
insignificant, although there can be no assurance of the outcome.
Claim Number 330 relates to shareholder litigation against CMI's officers
and directors. On March 20, 2000 CMI moved to withdraw reference of the
litigation relating to Claim Number 330 to the United States District Court for
the District of Maryland. See the discussion in "GENERAL INFORMATION - Legal
Proceedings - Shareholder Litigation."
The CCA Claim relates to an August 14, 1998 letter of intent between CMI
and CCA for the purchase of subordinated CMBS. The letter of intent included
financing and due diligence contingencies. CMI's position is that neither of
these contingencies was fulfilled. After preliminary due diligence, CMI
expressed concern regarding the quality of the mortgage loans underlying the
CMBS. CMI's further due diligence confirmed this preliminary view, and CMI
exercised its right not to go forward with the purchase because of its due
diligence concerns. CCA refused to withdraw its claim, and on August 31, 1999,
CMI filed an objection to the CCA Claim. The CCA Claim was filed for an amount
in excess of $17 million on February 11, 1999. On October 9, 1999, CCA responded
to the objection. By letter dated January 7, 2000, CCA indicated that the amount
of its claim was $18.8 million. The matter is now pending before the Bankruptcy
Court. On March 27, 2000, CCA filed a motion with the Bankruptcy Court revising
the amount of its claim to $18.2 million. Litigation is continuing with respect
to the CCA claims and CMI's objection thereto.
The GP Properties Claim relates to CMI's loan origination program. In
August and September 1998, CMI and GP Properties were involved in the
preliminary loan application process. These preliminary steps did not give rise
to a loan commitment. On October 7, 1998, GP Properties advised CMI that it
closed on alternative lending. GP Properties refused CMI's request that it
withdraw its claim, and on October 26, 1999, CMI objected to the GP Properties
Claim. GP Properties did not respond to the objection on or prior to the
objection deadline. The Court has not taken final action on allowance of the GP
Properties Claim.
The Debtors have been asked by the Unsecured Creditors' Committee to make
reference to the Objection filed by the Unsecured Creditors' Committee to the
$10 million proof of claim filed by the CMM Creditors' Committee against CMI.
The CMM Creditors' Committee is vigorously defending the objection. The Debtors
believe that if the Plan is confirmed including the treatment of the CMM
creditors in Class B5 as provided therein, the claim filed by the CMM Creditors'
Committee and the objection thereto filed by the Unsecured Creditors' Committee
will thereby be resolved.
The Debtors estimate the principal amount of allowed unsecured claims will
be approximately $195 million and allowed secured claims will be approximately
$760 million, subject to agreed sales of certain collateral.
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Appointment of Special Committee of the Board of Directors of CMI
In May 1999, a Special Reorganization Committee of the Board of Directors
of CMI (the "Committee") was established to evaluate proposals received from
major financial institutions for private equity investments that would be part
of a plan of reorganization. The Committee, composed of the Company's four
outside directors, was also assigned the responsibility of overseeing the
ongoing development of the entire plan of reorganization under which the Company
could emerge from Chapter 11. Robert E. Woods was appointed Lead Director of the
Committee. Mr. Woods is Managing Director and head of loan syndications for the
Americas at Societe Generale. Prior to that, he was Managing Director and head
of the Real Estate Capital Markets and Mortgage-Backed Securities Division of
Citicorp.
Payment of Non-Cash Dividend to Common Shareholders
On September 14, 1999, the Company declared a dividend to common
shareholders of approximately 1.61 million shares of a new series of junior
preferred stock (the "junior preferred stock" or "Series F Preferred Stock")
with a face value of $10 per share. The Company paid the junior preferred stock
dividend on November 5, 1999. Dividends are payable, at a rate of 12% per annum,
in cash except to the extent that continued qualification as a real estate
investment trust requires payment of dividends in shares. See "The Plan of
Reorganization" regarding amended dividend treatment contemplated by the Plan.
The payment of the first dividend will be paid no earlier than the end of the
calendar quarter (March 31, June 30, September 30, December 31) in which the
Company's Plan becomes effective and thereafter not more than quarterly, as
determined by the Board of Directors of CMI (the "Board of Directors" or
"Board"). See "Effect of Chapter 11 Filing on REIT Status and Other Tax Matters
- -- The Company's 1998 Taxable Income."
B. Business
General
CRIIMI MAE 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 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
commercial 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.
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. The Company's principal executive offices are located at
11200 Rockville Pike, Rockville, Maryland 20852 and its telephone number is
(301) 816-2300.
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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 1999 Taxable Income. As a REIT, CRIIMI MAE is generally
required to distribute at least 95% of its "REIT taxable income" to its
shareholders each tax year. For purposes of this requirement, REIT taxable
income excludes certain excess noncash income such as original issue discount
("OID"). 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 1999 taxable income not distributed to shareholders.
Unlike the 95% distribution requirement, the calculation of the Company's
federal income tax liability does not exclude excess noncash income such as OID.
Should CRIIMI MAE terminate or fail to maintain its REIT status during the year
ended December 31, 1999, the tax liability on the taxable income for the year
ended December 31, 1999 of approximately $37.5 million would generate a tax
liability of up to $15.0 million.
In determining the Company's taxable income for 1999, distributions
declared by the Company on or before September 15, 2000 and actually paid by the
Company on or before December 31, 2000 will be considered as dividends paid for
the year ended December 31, 1999. The Company anticipates distributing all or a
substantial portion of its 1999 taxable income in the form of non-cash taxable
dividends. There can be no assurance that the Company will be able to make
distributions with respect to its 1999 taxable income.
1999 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 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. In addition, in determining the
Company's excise tax liability, only dividends actually paid in 1999 will reduce
the amount of income subject to this excise tax. The Company has accrued
approximately $1.1 million for the excise tax payable for 1999. The accrual was
calculated based on the taxable income for the year ended December 31, 1999.
The Company's 1998 Taxable Income. On September 14, 1999, the Company
declared a dividend payable to common shareholders of approximately 1.61 million
shares of a new series of junior preferred stock with a face value of $10 per
share. The purpose of the dividend was to distribute approximately $15.7 million
in undistributed 1998 taxable income. To the extent that it is determined that
such amount was not distributed, the Company would bear a corporate level income
tax on the undistributed amount. There can be no assurance that all of the
Company's tax liability was eliminated by payment of such junior preferred stock
dividend. The Company paid the junior preferred stock dividend on November 5,
1999. The junior preferred stock dividend was taxable to common shareholder
recipients. Junior preferred shareholders were permitted to convert their shares
of junior preferred stock into common shares during two separate conversion
periods. During these conversion periods, an aggregate 1,020,241 shares of
junior preferred stock were converted into 8,798,009 shares of common stock.
Taxable Income Distributions. The recently issued Internal Revenue Service
Revenue Procedure 99-17 provides securities and commodities traders with the
ability to elect mark-to-market treatment for 2000 by including an election with
their timely filed 1999 federal tax extension. The election applies to all
future years as well, unless revoked with the consent of the Internal Revenue
Service. On March 15, 2000, the Company determined to elect mark-to-market
treatment as a securities trader for 2000 and, accordingly, will recognize gains
and losses prior to the actual disposition of its securities. Moreover, some if
not all of those gains and losses, as well as some if not all gains or losses
from actual dispositions of securities, will be treated as ordinary in nature
and not capital, as they
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would be in the absence of the election. Therefore, any net operating losses
generated by the Company's trading activity will offset the Company's ordinary
taxable income, and thereby reduce required distributions to shareholders by a
like amount. See "CERTAIN RISK FACTORS-Risks Associated with Trader Election"
for further discussion. If the Company does have a REIT distribution requirement
(and such distributions would be permitted under the Plan), a substantial
portion of the Company's distributions would be in the form of non-cash taxable
dividends.
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 issuances in the U.S. equaled approximately $58.3 billion in 1999,
$77.7 billion in 1998, $40.4 billion in 1997 and $28.8 billion in 1996.
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 CCC) 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. Interest payments
typically flow first to the most senior tranche until it receives all of its
accrued interest and then to the junior tranches in order of seniority until all
available interest is exhausted. 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. 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. 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.
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.
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
weighted average 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 and continued throughout
1999 with the issuance of newly created CMBS totaling approximately $58.3
billion for 1999. The market for Subordinated CMBS has, however, been slower to
recover. It is difficult, if not impossible, to predict when, or if, the CMBS
market and, in particular, the Subordinated CMBS
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market, will recover. Even if the market for subordinated CMBS recovers, the
liquidity of such market has historically been limited. Additionally, during
adverse market conditions, the liquidity of such market has been severely
limited. Therefore, management's estimate of the value of the Company's CMBS
could vary significantly from the value that could be realized in a transaction
between a willing buyer and a willing seller in other than a forced sale or
liquidation.
Subordinated CMBS Acquisitions
As of December 31, 1999, the Company's $2.3 billion portfolio of assets
included $1.2 billion of Subordinated CMBS (representing approximately 51% of
the Company's total consolidated assets). See CRIIMI MAE Financial Statements to
be attached hereto as Exhibit D.
The Company did not acquire any Subordinated CMBS in 1999. 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 ($58.3 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, 1999, approximately 42% of the
Company's CMBS (based on fair value) were rated BB+, BB or BB-, 27% were B+, B,
B- or CCC and 10% were unrated. The remaining approximately 21% represents
investment grade securities that the Company reflects on its balance sheet as a
result of CBO-2 (herein defined). 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 assets and liabilities 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 the interest
payments due on its variable-rate financing facilities. It is the Company's
policy to hedge at least 75% of the principal balance of its variable-rate debt
with interest rate protection agreements that limit the cash flow exposure to
increases in interest rates beyond a certain level on the amount of interest
expense the Company must pay. As of December 31, 1999, approximately 94% of the
Company's variable-rate debt was hedged with interest rate 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. The payments would serve to reduce the interest payments due under the
variable-rate secured financing agreements. 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. If the treasury rates increase and/or spreads widen
from the December 31, 1999 levels, the value of the Company's portfolio of
securities would decrease.
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Resecuritizations
The Company initially funded a substantial portion of its Subordinated
CMBS acquisitions with short-term, variable-rate secured financing facilities.
To further mitigate the Company's exposure to interest rate risk, the Company's
business strategy was to periodically refinance a significant portion of this
short-term debt with 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 short-term, variable-rate
secured borrowings which were used with additional new short-term, variable-rate
secured borrowings typically provided by the Subordinated CMBS seller 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 short-term, variable-rate secured
borrowings increased from December 31, 1996 to December 31, 1998, as a result of
the Company's continued acquisitions of Subordinated CMBS during that period.
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 initially 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. See "GENERAL INFORMATION - Legal
Proceedings" regarding the sale of additional CBO-2 CMBS.
As of December 31, 1999, the Company's total debt was approximately $2.0
billion, of which approximately 53% was fixed-rate, match-funded debt and
approximately 47% was short-term, variable-rate or fixed-rate debt that recourse
to the Company and not match-funded. For the year ended December 31, 1999, the
Company's weighted average cost of borrowing (including amortization of
discounts and deferred financing fees of approximately $8.7 million) was
approximately 7.64%. 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 interest rate 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. Prior to the Petition Date, the Company had
originated over $900 million in aggregate principal amount of loans.
Prior to the Petition Date, the Company had originated over $900 million
in aggregate principal amount of loans. In June 1998, the Company securitized
approximately $496 million of the commercial mortgage loans 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 initially 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, the two investment
grade tranches were not sold until 1999. CRIIMI MAE has call rights on each of
the issued securities and therefore has not surrendered control of the bonds,
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 Notes 6 and 9 to
Notes to Consolidated Financial Statements for additional information regarding
this securitization, including the 1999 sales of the two remaining investment
grade tranches and certain financial and accounting effects of such sales.
At the time it filed for bankruptcy, the Company had a second mortgage
loan conduit program with Citibank (the "Citibank Program") and a loan conduit
program with Prudential Securities Incorporated and Prudential Securities Credit
Company (collectively "Prudential") (the "Prudential Program").
Each Program provided that during the warehouse period, the financial
institution party would fund and originate in its name all mortgage loans under
the Program, and CRIIMI MAE would deposit a portion of each loan amount in a
reserve account. In each Program, the financial institution was 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.
On April 5, 1999, the Bankruptcy Court entered a Stipulation and Consent
Order (the "Order"), negotiated by the Company and Citibank. The negotiations
were in response to a letter Citibank sent to the Company on October 5, 1998
alleging that the Company was in default under the Citibank Program and that it
was terminating the Citibank program. The Order provided that Citibank would,
with the Company's cooperation, sell the loans originated under the Citibank
Program pursuant to certain specified terms and conditions. All of the
commercial loans originated under the Citibank Program were sold in 1999 at a
loss to the Company. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital Resources" and Notes
6 and 9 to the Notes to Consolidated Financial Statements for a further
discussion of these commercial loan sales and certain financial and accounting
effects of such sales.
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Under the Prudential Program, the Company had an option to pay 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 had been made. Under the Prudential Program, the Company was
required to fund a reserve account, which was approximately $2 million for the
sole loan originated under this Program. Since the Company was unable to
exercise its option under the Prudential Program, the Company forfeited the
amount of the reserve account. CRIIMI MAE intends to sell 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.
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.
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 also 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 ORIX Real Estate Capital Markets, LLC ("ORIX"), formerly known as
Banc One Mortgage Capital Markets, LLC ("BOMCM") to succeed it as master
servicer on two commercial mortgage pools on October 30, 1998. In addition, in
order to allay rating agency concerns stemming from CRIIMI MAE's Chapter 11
filing, in November 1998, CRIIMI MAE designated ORIX as special servicer on 33
separate CMBS securitizations totaling approximately $29 billion, subject to
certain requirements contained in the respective servicing agreements. As of
December 31, 1999, CMSLP continued to perform special servicing as sub-servicer
for ORIX on all but five of these securitizations. Also, as of December 31,
1999, CRIIMI MAE remained the owner of the lowest rated tranche of the related
Subordinated CMBS and, as such, retains 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. As of December 31,
1999 and 1998, CMSLP's remaining servicing portfolio was $28.0 billion and $31.0
billion, respectively. As part of CRIIMI MAE's Plan, certain of the Company's
non-securitized CMBS are intended to be sold. As such, CMSLP will lose its
special servicing rights related to these CMBS. In 1999, CMSLP generated gross
revenues of $1.1 million in fees on these CMBS.
CMSLP's principal servicing activities are described below.
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, 1999, CMSLP successfully
resolved $174.1 million of CMBS loan workouts. As of December 31, 1999, CMSLP
was designated as the special servicer (or sub-special servicer) for
approximately 4,978 commercial mortgage loans, representing an aggregate
principal amount of approximately $27.0 billion. Such commercial mortgage loans
represent substantially all of the mortgage loans underlying CRIIMI MAE's
Subordinated CMBS portfolio.
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As of December 31, 1999, 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 acting 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 and September 30, 1999, 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, 1999, 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,
1999, CMSLP was designated direct servicer for approximately 502 commercial
mortgage loans, representing an aggregate principal amount of approximately $2.4
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 continuously reviewing the property level
operating data and regular site inspections. For approximately half of these
loans, CMSLP performs these duties on a contractual basis; 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, 1999, CMSLP
served as loan manager for approximately 2,464 commercial mortgage loans,
representing an aggregate principal amount of approximately $12.0 billion. As of
December 31, 1999, CMSLP performed surveillance on analyses performed by other
servicers for approximately 2,456 commercial mortgage loans representing an
aggregate principal amount of $14.8 billion.
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 a majority of the mortgage loans as well as the
underlying real estate
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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 March 15, 2000, the Company had 44 full-time employees, and CMSLP
had 110 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.
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 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 beginning 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 up to approximately $3.5 million, including payments to
certain executives. Retention payments are payable semiannually over a two-year
period. The first retention payment of approximately $909,000 vested on April 5,
1999, and was paid on April 15, 1999. The second retention payment of
approximately $865,000 vested on October 5, 1999 and was paid on October 15,
1999. The third retention payment of approximately $653,000 vested on April 5,
2000, and was paid on April 14, 2000. 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 Directors, 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
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<PAGE>
terminated following a change of control. The other employees will be entitled
to severance benefits if they are terminated without cause subsequent to a
change of control of the Company and CMM. In addition, options granted by the
Company after October 5, 1998 will, subject to Bankruptcy Court approval, 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 "MANAGEMENT -
Employment Agreements."
C. The Portfolio
CMBS
Fair Value. As of December 31, 1999, the Company owned, for purposes of
generally accepted accounting principles ("GAAP"), CMBS rated from A to CCC and
unrated with a total fair value amount of approximately $1.2 billion
(representing approximately 51% of the Company's total consolidated assets) and
an aggregate amortized cost of approximately $1.4 billion.
<TABLE>
<CAPTION>
Weighted Range of Discount Amortized Amortized
Face Amount Average Weighted Fair Value Rates Used to Cost as of Cost as of
as of 12/31/99 Pass-Through Average as of 12/31/99 Calculate Fair 12/31/99 12/31/98
Security Rating (in millions) Rate Life (1) (in millions) (2) Value (2) (in millions) (in millions)
- ---------------- ------------ ----------- --------- ----------------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
A (3) $ 62.6 7.0% 6 years $ 54.5 9.8% $ 57.4 $ 57.0
BBB (3) 150.6 7.0% 12 years 116.1 10.5% 127.7 126.9
BBB-(3) 115.2 7.0% 12 years 82.6 11.4% 93.5 92.8
BB+ 394.6 7.0% 13 years 255.3 11.4%-13.2% 305.5 317.9
BB 279.0 6.9% 14 years 192.8 11.8%-13.9% 206.1 259.1
BB- 89.1 6.8% 14 years 51.2 13.2%-14.9% 58.6 72.6
B+ 128.7 6.7% 16 years 63.7 14.5%-15.9% 82.1 93.0
B 300.2 6.6% 16 years 141.3 15.5%-17.2% 178.2 208.9
B- 198.7 6.7% 17 years 84.9 16.0%-19.4% 98.1 106.7
CCC 92.0 6.8% 19 years 23.2 25.0%-30.0% 32.5 36.0
Unrated (4) 477.4 5.9% 20 years 113.7 26.0%-32.0% 134.4 159.0
------------ ----------- --------- ------------- ------------- -----------
Total (5)(6) $2,288.1 6.7% 15 years $1,179.3 $1,374.1 (7) $1,529.9
============ =========== ========= ============= ============= ===========
</TABLE>
- -------------------------------
(1) Weighted average life represents the weighted average expected life of the
Subordinated CMBS prior to consideration of losses, extensions or
prepayments.
(2) 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 portfolio as of
December 31, 1999. As a result, the Company calculated the estimated fair
market value of its Subordinated CMBS portfolio as of December 31, 1999.
The Company used a discounted cash flow methodology to estimate the fair
value of its Subordinated CMBS portfolio. The cash flows for each bond
were projected assuming no prepayments and no losses, as is the market
convention. 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 institutionally available research reports and
communications with dealers and active Subordinated CMBS investors
regarding the valuation of comparable securities. Since the Company
calculated the estimated fair market value of its Subordinated CMBS
portfolio as of December 31, 1999, it has disclosed in the table the range
of discount rates by rating category used in determining these fair market
values.
(3) In connection with CBO-2, $62.6 million (A rated) and $60.0 million (BBB
rated) face amount of investment grade securities were sold with call
options and $345 million (A rated) face amount were sold without call
options. In connection with CBO-2, in May 1998, the Company initially
retained $90.6 million (BBB rated) and $115.2 million (BBB- rated) face
amount of securities, both with call options, with the intention to sell
the securities at a later date. Such sale occurred March 5, 1999. 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. See "Legal
Proceedings" for further discussion.
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<PAGE>
(4) The unrated bond from CBO-1 experienced an approximately $1.6 million
principal write down in 1999 due to a loss on the foreclosure of two
underlying loans. Management believes that the current loss estimates used
to recognize income related to this bond remain adequate to cover losses.
(5) 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.
(6) Similar to the Company's other sponsored CMOs, CMO-IV, as further
described in "BUSINESS-Loan Originations and Securitizations" and Note 6
to Notes to the Consolidated Financial Statements, 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 Subordinated CMBS
are not reflected in the Company's Subordinated CMBS portfolio. Instead,
the underlying mortgage loans contributed to CMO-IV are reflected in
Investment in Originated Loans on the balance sheet
(7) Amortized cost reflects the $156.9 million impairment loss write-down
related to the CMBS subject to the CMBS Sale. See Note 5 of the Notes to
Consolidated Financial Statements.
Type and Geographic Location of Loans. As of December 31, 1999 and 1998,
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 1999(1) 1998(1) Geographic Location(2) 1999(1) 1998(1)
- -------------------------- ------- ------- ------------------------ ------- -------
<S> <C> <C> <C> <C> <C>
Multifamily............... 32% 31% California.............. 17% 16%
Retail.................... 29% 28% Texas................... 13% 12%
Office.................... 13% 15% Florida................. 8% 7%
Hotel..................... 14% 13% New York................ 5% 6%
Other..................... 12% 13% Other(3)................ 57% 59%
------- ------- ------- -------
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.
CMBS Pools. The following table summarizes information relating to the
Company's CMBS on an aggregate basis by pool as of December 31, 1999. See also
Note 5 to Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Original
Amortized Anticipated December 31, 1999
Face Amount Fair Value (2) Cost Yield to Anticipated Yield
Pool (1) (in millions) (in millions) (in millions) Maturity (3) to Maturity (3)(4)
- ------------------------------------ ------------- -------------- ------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Retained Securities from
CRIIMI 1996 C1 (CBO-1) $ 111.3 $ 42.4 $ 45.0 19.5% 20.6%(5)
DLJ Mortgage Acceptance Corp.
Series 1997 CF2 Tranche B-30C (7) 6.2 17.4 17.4 8.2% 8.2%
Nomura Asset Securities Corp.
Series 1998-D6 Tranche B7 46.5 10.8 16.9 12.0% 12.0%
Retained Securities from
CRIIMI 1998 C1 (CBO-2) 1,427.2 741.0 927.1 10.3% 10.2%(6)
Mortgage Capital Funding, Inc.
Series 1998-MC1 (7) 151.8 89.8 89.8 8.9% 9.0%
Chase Commercial Mortgage
Securities Corp.
Series 1998-1 (7) 81.8 44.3 44.3 8.8% 8.8%
First Union/Lehman Brothers
Series 1998 C2 (7) 289.7 141.3 141.3 8.9% 9.0%
Morgan Stanley Capital I., Inc.
Series 1998-WF2 (7) 87.0 47.2 47.2 8.5% 8.6%(6)
Mortgage Capital Funding, Inc.
Series 1998-MC2 (7) 85.8 45.1 45.1 8.7% 8.8%
-------- -------- -------- -------- --------
$2,287.3 $1,179.3 $1,374.1 9.7%(1) 10.1%(1)
======== ======== ======== ======== ========
</TABLE>
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<PAGE>
- -------------------------------
(1) CRIIMI MAE, through CMSLP, performs servicing functions on a total CMBS
pool of approximately $28 billion as of December 31, 1999. Of the $28
billion of mortgage loans, approximately $273.3 million are being
specially serviced, of which approximately $167.5 million are being
specially serviced due to payment default (including $26.8 million of Real
Estate Owned) and the remainder is being specially serviced due to
non-financial covenant default. Through December 31, 1999, CMSLP has
resolved and transferred out of special servicing approximately $439.9
million of the approximately $713.1 million that has been transferred into
special servicing. Through December 31, 1999, actual losses on mortgage
loans underlying the CMBS transactions are lower than the Company's
original loss estimates. See "BUSINESS-Servicing" for a discussion of the
transfer of special servicing to ORIX, and Note 5 of the Notes to
Consolidated Financial Statements for a discussion of the transfer of
special servicing to ORIX.
(2) Fair value has been calculated as described above in footnote (1) to the
table on CMBS Fair Value.
(3) Represents the anticipated weighted average unleveraged yield over the
expected average life of the Company's Subordinated CMBS portfolio as of
the date of acquisition and December 31, 1999, respectively, based on
management's estimate of the timing and amount of future credit losses and
prepayments.
(4) Unless otherwise noted, changes in the December 31, 1999 anticipated yield
to maturity from that originally anticipated are primarily the result of
changes in prepayment assumptions relating to mortgage collateral.
(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. In addition, while it had no impact on the anticipated
yield, the unrated bond from CBO-1 experienced an approximately $1.6
million principal write-down in 1999 due to a loss on the foreclosure of
two underlying loans.
(6) 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. In the first
quarter of 1999, the Company agreed to cooperate in selling two classes of
investment grade CMBS issued by CRIIMI MAE Commercial Mortgage Trust
Series 1998-C1 (the "CBO-2 BBB Bonds") and to suspend litigation with
Morgan Stanley with respect to these CMBS. On March 5, 1999, the CBO-2 BBB
Bonds with a $205.8 million face amount and a coupon rate of 7% were sold
in a transaction that was accounted for as a financing by the Company
rather than a sale. Of the $159.0 million in proceeds, $141.2 million was
used to repay amounts due under the agreement with Morgan Stanley, and
$17.8 million was paid to CRIIMI MAE. CRIIMI MAE and Morgan Stanley
reached an agreement that called for the sale of seven classes of
subordinated CMBS and a related unrated bond, issued by Morgan Stanley
Capital Inc. Series 1998-WF2 (the "Wells Fargo Bonds"). The agreement was
approved by the Bankruptcy Court on February 24, 2000. On February 29,
2000, the Wells Fargo Bonds were sold. Of the approximately $45.9 million
in net sale proceeds, $37.5 million was used to pay off all outstanding
borrowings owed to Morgan Stanley and the remaining proceeds of
approximately $8.4 million will be used primarily to help fund the Plan.
(7) As discussed further in Note 5 of the Notes to Consolidated Financial
Statements, under the Plan the Company intends to sell these CMBS pools
and as such, impairment was recognized as of December 31, 1999 related to
these CMBS. The impairment resulted in the cost basis being written down
to fair value as of December 31, 1999. As a result of this new basis,
these bonds have new yields effective the first quarter of 2000.
Insured Mortgage Securities
As of December 31, 1999 and 1998, the Company had $394.9 million and
$488.1 million (at fair value), respectively, invested in mortgage securities,
consisting of GNMA Mortgage-Backed Securities and FHA-Insured Certificates, as
well as Freddie Mac participation certificates that are collateralized by GNMA
Mortgage-Backed Securities. As of December 31, 1999, approximately 15% of CRIIMI
MAE's investment in mortgage securities were FHA-Insured Certificates and 85%
were GNMA Mortgage-Backed Securities (including certificates that collateralize
Freddie Mac participation certificates). See Notes 3 and 7 of the Notes to
Consolidated Financial Statements for a further discussion.
Investment in Originated Loans
As of December 31, 1999 and 1998, the Company had $470.2 million and
$499.1 million (at amortized cost), respectively, invested in commercial
mortgage loans primarily originated through the Company's mortgage
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<PAGE>
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 3 and 6 of the Notes to Consolidated
Financial Statements for further discussion.
As of December 31, 1999 and 1998, the originated mortgage loans were
secured by properties of the types and at the locations identified below:
<TABLE>
<CAPTION>
Property Type 1999(1) 1998(1) Geographic Location(2) 1999(1) 1998(1)
- -------------------------------- ------- ------- -------------------------------- ------- -------
<S> <C> <C> <C> <C> <C>
Multifamily..................... 37% 38% Michigan........................ 20% 20%
Hotel........................... 26% 26% Texas........................... 7% 8%
Retail.......................... 20% 20% Illinois........................ 7% 7%
Office.......................... 11% 11% California...................... 6% 6%
Other........................... 6% 5% Maryland........................ 6% 6%
------ ------ Connecticut..................... 6% 6%
Total....................... 100% 100% Florida......................... 5% 5%
====== ====== Other(3)........................ 43% 42%
------ ------
Total........................ 100% 100%
====== ======
</TABLE>
- ----------
(1) Based on a percentage of the total unpaid principal balance of the related
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, 1999 and 1998, the Company had approximately $34.9
million and $42.9 million, respectively, in investments accounted for under the
equity method of accounting. Included in equity investments are (a) the general
partnership interests in American Insured Mortgage Investors, American Insured
Mortgage Investors-Series 85, L.P., American Insured Mortgage Investors
L.P.-Series 86 and American Insured Mortgage Investors L.P.-Series 88
(collectively the "AIM Funds"), owned by CRIIMI, Inc., a wholly owned subsidiary
of CRIIMI MAE, (b) a 20% limited partnership interest in the adviser to the AIM
Funds, 50% of which is owned by CRIIMI MAE and 50% of which is owned by CM
Management, (c) CRIIMI MAE's interest in CRIIMI MAE Services Inc., and (d)
CRIIMI MAE's interest in CMSLP. See Note 3 to Notes to Consolidated Financial
Statements.
Properties
CRIIMI MAE leases its corporate offices at 11200 Rockville Pike,
Rockville, Maryland. As of March 24, 2000, these offices occupy approximately
68,500 square feet.
D. 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 confirm and consummate a plan of
reorganization 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.
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<PAGE>
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 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) the Unsecured Creditors Committee, (ii) the CMM
Creditors' Committee and (iii) the CMI Equity Committee (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' initial exclusivity period to file a plan of reorganization
ended on February 2, 1999. The Bankruptcy Court extended this period through
August 2, 1999 and again through September 10, 1999. The Debtors sought a third
extension of exclusivity through November 10, 1999 and on September 20, 1999,
the Bankruptcy Court entered an order (i) extending the Debtors' right to file a
plan of reorganization through October 16, 1999, (ii) providing the Unsecured
Creditors' Committee and the CMI Equity Committee the right to jointly file a
plan of reorganization through October 16, 1999 and (iii) providing that any
party in interest may file a plan of reorganization after October 16, 1999. The
Debtors filed (i) a Joint Plan of Reorganization on September 22, 1999, (ii) an
Amended Joint Plan of Reorganization and proposed Joint Disclosure Statement on
December 23, 1999, (iii) a Second Amended Joint Plan of Reorganization and
proposed Amended Joint Disclosure Statement on March 31, 2000, and (iv) a Third
Amended Joint Plan of Reorganization and proposed Amended Joint Disclosure
Statement with respect thereto on April 25, 2000. As noted above, the Debtors'
Third Amended Joint Plan of Reorganization is fully supported by the CMI Equity
Committee, which is a co-proponent of the Plan.
On December 20, 1999, the Unsecured Creditors' Committee filed its own
plan of reorganization and proposed disclosure statement with the Bankruptcy
Court. On January 11, 2000 and February 11, 2000, the Unsecured Creditors'
Committee filed its first and second amended plan of reorganization,
respectively, with the Bankruptcy Court and its amended proposed disclosure
statements with respect thereto. However, as a result of the successful
negotiations of the treatment of the unsecured creditors of CMI in Classes A9
and A10 as set forth in Exhibit 2 to the Plan, the Unsecured Creditors'
Committee is now supporting confirmation of the Debtors' Plan and has asked the
Bankruptcy Court to defer consideration of its plan pending approval of the
Debtors' Plan and the completion of mutually acceptable final documentation.
Accordingly, the Debtors, the CMI Equity Committee and the
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<PAGE>
Unsecured Creditors' Committee are together presenting the Debtors' Plan for
approval by all Holders of Claims and Interests in Impaired Classes.
At the conclusion of the hearing on approval of this Disclosure Statement
on April 25 [and 26], 2000, the Bankruptcy Court approved the Disclosure
Statement. Thereafter, the Debtors' Plan, accompanied by this Disclosure
Statement, has been sent to members of all classes of impaired creditors and
equity security holders for acceptance or rejection. Following voting on the
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 before it. 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. The
Bankruptcy Court has set _____________, 2000 as the date for a confirmation
hearing on the Debtors' 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.
Bankruptcy Related Litigation
The following is a summary of material litigation matters between the
Company and certain of its secured creditors since the Petition Date. The
Company has reached agreement with certain of these creditors, as set forth in
greater specificity below. See "GENERAL INFORMATION - The Debtors and Chapter 11
Filing and Other Chapter 11 Events - Deadline to File Proofs of Claims" for
information regarding claims filed in the Debtors' Chapter 11 proceeding.
Merrill
As of the Petition Date, the Company owed Merrill 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 CBO-2, together with all proceeds, distributions and
amounts realized therefrom (the "Distributions") (the CMBS pledged to Merrill
and the Distributions are hereafter referred to collectively as the "Merrill
Collateral").
On October 16, 1998, Merrill 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 for turnover of Distributions remitted to Merrill 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. Among other things, pursuant to the
consent order, the pending litigation with Merrill was dismissed without
prejudice. The consent order also preserved the portfolio of CMBS pledged as
collateral to Merrill 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 (the "Company's Distribution Share"). The 50 percent of distributions
received by Merrill 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.
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<PAGE>
On September 7, 1999, the Company filed a Motion to Approve Stipulation
and Consent Order Providing for Adequate Protection. On or about September 27,
1999 the Unsecured Creditors' Committee and the CMI Equity Committee filed a
joint objection to the Motion. On December 3, 1999, the Bankruptcy Court entered
the Stipulation and Consent Order Providing for Adequate Protection (the
"Adequate Protection Order"), certain provisions of which were effective
retroactively. Pursuant to the Adequate Protection Order, a segregated interest
bearing debtor-in-possession account was created (the "Cash Collateral Account")
into which the Company's Distribution Share was deposited during the months of
August through December 1999. An additional 50% of the Company's Distribution
Share was deposited in said account between January and March 2000. The Adequate
Protection Order provides Merrill with a first priority lien on the Cash
Collateral Account. Subject to certain material adverse changes defined in the
Adequate Protection Order, Merrill agreed not to seek further adequate
protection or relief from the automatic stay before March 31, 2000.
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
were 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 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 remitted 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 reached an agreement to sell the Wells
Fargo Bonds (the "Morgan Stanley Agreement"). CRIIMI MAE filed a motion with the
Bankruptcy Court to approve the Morgan Stanley Agreement on February 1, 2000.
The motion was approved by the Bankruptcy Court on February 24, 2000. On
February 29, 2000 the Wells Fargo Bonds were sold. Of the approximately $45.9
million in net sale proceeds, $37.5 million was used to pay off all outstanding
borrowings owed to Morgan Stanley, and the remaining proceeds of approximately
$8.4 million will be used primarily to help fund CRIIMI MAE's Plan. Pursuant to
the terms of the Morgan Stanley Agreement, the Company and Morgan Stanley
mutually released any claims that they may have against each other and filed a
stipulation of dismissal with prejudice of the October 20, 1998 adversary
proceeding.
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.
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<PAGE>
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. The Bankruptcy Court agreed to a request by CRIIMI MAE,
Citibank and the Unsecured Creditors' Committee to further postpone the pending
litigation on July 7, 1999, and again on September 10, 1999. The trial has not
yet been rescheduled.
The agreements reached by the Company with Citicorp and Citibank on March
11, 1999 were approved by the Bankruptcy Court through stipulations and consent
orders entered on April 5, 1999. One of the agreements also provided that
Salomon Smith Barney, in cooperation with CRIIMI MAE, agreed to sell two classes
of investment grade CMBS from CMO-IV constituting a portion of the collateral
securing advances under the Citicorp financing arrangement. In May 1999, Salomon
Smith Barney sold $20 million of the CMO-IV securities held by Holdings. This
sale reduced the amounts owed from Holdings to Citicorp by approximately $17
million. On October 8, 1999, the remaining CMO-IV securities held by Holdings
were sold. This sale reduced the amounts owed from Holdings to Citicorp by
approximately $22 million and Holdings received net proceeds of approximately
$315,000. In addition, Citibank, in cooperation with CRIIMI MAE, agreed to sell
commercial mortgages originated in 1998 under the Citibank Program, provided
that the sale resulted 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. On August 5, 1999, all but three of the
commercial loans originated under the Citibank Program in 1998, with an
aggregate unpaid principal balance of approximately $339 million, were sold for
gross proceeds of approximately $308 million. On September 16, 1999, Citibank
sold the remaining three loans, with an aggregate unpaid principal balance of
approximately $32.7 million, for gross proceeds of approximately $27.2 million.
In the case of each sale of the commercial loans, the minimum net proceeds
provision was waived by agreement of the Company, the Unsecured Creditors'
Committee and the CMI Equity Committee.
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 retained bonds are
held in an account controlled by the Bankruptcy Court. No trial date has been
set for this matter.
First Union
First Union National Bank ("First Union"), a creditor of both the Company
and CMM, is asserting substantial secured and unsecured claims. On or about
March 23, 1999, First Union filed in each of the Company's and CMM's Chapter 11
Case 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. On April 20,
1999, First Union refiled its motions for relief from the automatic stay. The
hearing was originally scheduled for May 14, 1999, but has been adjourned by
consent.
On or about July 1, 1999, the Company entered into an agreement with First
Union resolving its motion for relief from the automatic stay and authorizing
use of First Union's cash collateral. The agreement provides for the following:
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(i) First Union has a valid, perfected, first priority security interest
in certain assignment securities and the assignment securities
income constitutes First Union's cash collateral;
(ii) First Union shall receive adequate protection payments of
post-petition interest at the non-default contract rate plus
payments to be applied to principal equal to 50% of the difference
between the assignment income and the Company's non-default contract
interest obligation. First Union has the option of using a portion
of the assignment income earmarked for principal to purchase a
hedging program;
(iii) The Company shall be entitled to use the assignment income not paid
to First Union in the ordinary course of its business subject to
certain limitations; and
(iv) First Union shall not seek relief from the automatic stay in the
Company's Chapter 11 Case to foreclose upon the assignment
securities and/or the assignment income and none of the Company, the
Unsecured Creditors' Committee, the CMI Equity Committee or First
Union shall seek modification of the adequate protection
arrangements set forth in the agreement for a period commencing upon
the date which the Bankruptcy Court approves the agreement and
terminating on December 31, 1999, subject to certain exceptions.
The agreement was approved and entered by the Bankruptcy Court on August
5, 1999. The Company's Unsecured Creditors' Committee has consented to the
agreement with First Union.
In addition, on or about July 1, 1999, CMM and First Union entered into an
agreement resolving its motion for relief from the automatic stay. On July 1,
1999, CMM filed a motion for approval of the agreement resolving First Union's
motion for relief from the automatic stay. Based upon an objection filed by the
CMM Creditors' Committee, the parties are discussing a possible modification to
the agreement and continue to negotiate accordingly. On October 22, 1999, to
provide the parties with more time to negotiate a modification to the agreement,
CMM, with the consent of First Union and the CMM Creditors' Committee, advised
the Bankruptcy Court that it would be withdrawing the motion for approval of the
agreement, without prejudice to CMM's right to refile once an agreement has been
reached with First Union and the CMM Creditors' Committee. The motion was
subsequently withdrawn.
On or about February 18, 2000, the Company, the Unsecured Creditors'
Committee and First Union entered into a Second Stipulation and Agreed Order:
(i) Authorizing Use of Cash Collateral and (ii) Granting Other Relief (the
"Second Stipulation"). The Second Stipulation provides for, among other things,
the following:
(i) the reaffirmation of all of the terms contained in the July 1, 1999
agreement except as expressly provided in the Second Stipulation;
(ii) the extension from January 1, 2000 through March 31, 2000 of the
provisions in the July 1, 1999 agreement relating to use of the
assignment securities income;
(iii) the extension from December 31, 1999 to March 31, 2000 of the
provisions in the July 1, 1999 agreement relating to (i) First
Union's agreement not to seek relief from the automatic stay to
foreclose on the assignment securities or the assignment securities
income and (ii) the agreement by First Union, the Company and the
Unsecured Creditors' Committee not to seek modification of the
adequate protection arrangements contained in the July 1, 1999
agreement; and
(iv) the consummation of the Stipulation and Consent Order Selling the
Wells Fargo Bonds to Morgan Stanley, which occurred in February
2000. See "Legal Proceedings - Morgan Stanley" for further
discussion.
On February 22, 2000, the Company filed a motion with the Bankruptcy Court
for approval of the Second Stipulation. CRIIMI MAE, First Union and Lehman also
reached an agreement that called for the sale of seven classes of Subordinated
CMBS known as First Union Lehman Brothers Series 98 C-2 (the "First Union Lehman
Bonds"). The agreement was filed with the Bankruptcy Court on March 21, 2000 for
approval. On March 28,
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<PAGE>
2000, the Bankruptcy Court approved the Second Stipulation. On April 20, 2000,
the First Union Lehman Bonds were sold. Of approximately $140 million in net
sale proceeds, approximately $113 million was used to retire the debt associated
with these securities owed to Lehman and First Union and the remaining proceeds
of approximately $27 million was remitted to CRIIMI MAE.
First Union has asserted a first priority security interest in certain
bonds that are or were in its possession, and the distributions made on those
bonds since the Petition Date, pursuant to an agreement dated as of October 10,
1997 by and between the Company and First Union. The Company disputes First
Union's claim to a security interest in those bonds and the distributions made
thereon. The bonds in issue are (i) the Morgan Stanley Capital, Series 1998-WF2
Class N bond, (ii) the Chase Comm. Mtg, Series 1998-1 Class J bond, and (iii)
the Nomura Asset Sec. Corp, Series 1998-B7 Class N bond. The Morgan Stanley
Capital Bond has been sold, and certain proceeds from the sale thereof are being
held in a segregated account in the name of First Union pending further order of
the Bankruptcy Court and resolution of the claim of First Union thereto. If the
issues between the Company and First Union are not otherwise resolved, an
adversary proceeding will be commenced to resolve the dispute between the
Company and First Union with respect to the foregoing bonds and/or the
distributions made on those bonds. If First Union's claim with respect to those
bonds and/or the distributions made on those bonds is determined to be an
Allowed Secured Claim, such Claim will be treated as part of Class A2 under the
Plan. If First Union's Claim is determined to be an unsecured claim, it will be
included in the Claims subject to Class A10 under the Plan.
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 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 Amended Consent Order expired April 28, 1999. The Company and
GACC agreed to extend the Amended Consent Order until August 2, 1999, and a
stipulation to that effect was signed by the Company and GACC and approved by
the Bankruptcy Court on May 11,1999. The Company and GACC had negotiated a
further extension of the stipulation through September 10, 1999, which has now
expired. On September 9, 1999, GACC contacted the Company and requested similar
provisions afforded to Merrill in its most recent stipulation. See "Legal
Proceedings - Bankruptcy Related Litigation - Merrill" for further discussion.
Shareholder Litigation
The Company is aware that certain plaintiffs filed 20 separate class
action civil lawsuits (the "Complaints") in the United States District Court for
the District of Maryland, Southern Division (the "District Court") against
certain officers and directors of the Company between October 7, 1998 and
November 30, 1998. On March 9, 1999, the District Court ordered the
consolidation of the Complaints into a single action entitled "In Re CRIIMI MAE
Inc. Securities Litigation" (see below regarding dismissal of this litigation).
On April 23, 1999, a group of thirteen putative members of the class of
individuals who allegedly suffered damages during the class period between
February 20, 1998 and October 5, 1998 (collectively, the "Plaintiffs") filed an
Amended and Consolidated class action Complaint alleging violations of federal
securities laws (the "Consolidated Amended Complaint"). The Consolidated Amended
Complaint names as defendants William B. Dockser, as Chairman of the Board of
Directors, H. William Willoughby as a member of the Board of Directors and/or an
officer of CRIIMI MAE, and Cynthia O. Azzara as an officer of CRIIMI MAE
(collectively, the "Defendants"). Although CRIIMI MAE, CMM and Holdings have not
been named as defendants, each company is subject to indemnity obligations to
the Defendants under the provisions of their respective constituent documents,
the Defendants' employment contracts and applicable state law. CRIIMI MAE has
directors and officers liability insurance policies that have a combined
coverage limit of $20 million.
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<PAGE>
The Consolidated Amended Complaint alleges generally that the 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
fact and failing to disclose certain material facts concerning, among other
things, CRIIMI MAE's business strategy and its ability to meet collateral calls
from lenders. The Consolidated Amended Complaint also generally alleges that the
Defendants violated Section 20(a) of the Exchange Act because each Defendant was
allegedly a "controlling person" as that term is defined under Section 20(a).
The relief sought in the Consolidated Amended 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 Plaintiffs as
class representatives and as lead plaintiffs and their counsel as lead counsel;
(iii) award of monetary damages, including compensatory and rescissionary
damages and interest thereon; (iv) a judgment awarding the Plaintiffs and the
Class their counsel fees, experts' fee and other costs of suit; (v) award to the
Plaintiffs such other relief as the District Court deems just and proper or as
the District Court otherwise requires; and (vi) trial by jury.
On July 9, 1999, the Defendants filed a Motion to Dismiss, with prejudice,
the Consolidated Amended Complaint. The Defendants filed the motion under Rule
12(b)(6) of the Federal Rules of Civil Procedure on the grounds that the
Plaintiffs have failed to plead sufficient facts with the requisite
particularity to establish a claim for securities fraud under the Reform Act.
Plaintiffs filed their Opposition to Defendants' Motion to Dismiss on September
24, 1999.
On September 13, 1999, the Court denied Plaintiffs' motions for
appointment of lead plaintiffs and for approval of selected counsel. The Court
also ordered Plaintiffs' counsel to provide notice of the putative claims to
institutional investors identified by Defendants. Finally, the Court ordered
that Plaintiffs nominate no more than three persons to serve as lead plaintiffs,
and that any potential lead plaintiff nominate only one attorney or law firm to
serve as lead counsel.
On October 19, 1999, the Court approved the form of the renewed Notice to
potential class members that the Plaintiffs submitted to the Court. The Court
also ordered the Defendants to provide a list of certain institutional investors
who had invested in the Company to the Plaintiffs to whom the renewed Notice is
to be sent.
On December 10, 1999, the Defendants filed their Reply Brief to the
Plaintiffs' Opposition to the Motion to Dismiss.
On December 20, 1999, the Plaintiffs sent a notice of the Consolidated
Amended Complaint to certain institutional investors of their right to move the
Court to serve as lead plaintiffs of the class within sixty (60) days of the
notice. On March 9, 2000, the Plaintiffs filed a motion to approve the
nomination of three (3) plaintiffs and one (1) law firm to serve as lead
counsel.
On March 23, 2000, the Defendants filed a Response to the Plaintiffs'
Motion to Approve the Nomination of Lead Plaintiffs and Lead Counsel. Although
the Defendants did not oppose the Plaintiffs' Motion, the Defendants expressly
reserved their rights under Rule 23 of the Federal Rules of Civil Procedure to
challenge, among other things, whether the action could be maintained as a class
action.
On March 30, 2000, the Court granted the Defendants' Motion to Dismiss the
Consolidated and Amended Complaint and as a result entered an Order and
Memorandum Opinion dismissing the Consolidated and Amended Complaint. The Court
concluded that the Plaintiffs failed to state a claim for relief under Section
10(b) of the Exchange Act. The Court concluded that because the Plaintiffs
failed to state a claim for a "primary violation" of Section 10(b) of the
Exchange Act, they likewise failed to state a claim against the individual
Defendants as controlling persons under Section 20(a) of the Exchange Act. This
dismissal may or may not dispose of other pending shareholder lawsuits and/or
claims in bankruptcy which may affect the Company, as more fully described under
other subheadings of this section.
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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 District Court. The Derivative Complaint named as
defendants each of the individuals who served on the 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 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.
Other Litigation
The Company is aware that an alleged shareholder, on behalf of himself and
all others similarly situated, who purchased common stock in a registered common
stock offering made by the Company in January 1998, filed a class action lawsuit
against Prudential Securities Incorporated ("Prudential") and the Company's
independent public accountants (the "Recupito Complaint") in the United States
District Court for the District of Maryland. Neither the Company nor any officer
or director of the Company was named as a defendant in this lawsuit.
The Recupito Complaint alleges generally that the registration statement
dated October 21, 1997, including a prospectus dated January 20, 1998 and
supplemented on January 23, 1998, contained materially false and misleading
statements about the Company and its condition.
The Company may be subject to potential exposure to Prudential under
contractual provisions and to both defendants under applicable law. Prudential
may assert that it is entitled to indemnification from the Company based upon an
indemnification provision contained in the underwriting agreement entered into
with the Company in connection with the common stock offering. Certain courts
have held and it is the position of the SEC that indemnification for liabilities
arising under the Securities Act of 1933 (the "Securities Act") is against
public policy and unenforceable.
The Company cannot predict with any certainty the ultimate outcome of such
litigation or its potential exposure to one or both of the defendants.
Claims
Over 850 claims with a face amount of nearly $2.5 billion have been filed
in these Chapter 11 cases, including approximately $355 million in unsecured
claims and approximately $2.2 billion in secured claims. Many of these claims
are duplicate claims filed by the same creditor in each of the three cases. This
amount is far in excess
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<PAGE>
of the approximately $1.18 billion in liabilities identified by the Debtors in
their schedules, which were filed with the Bankruptcy Court on November 20,
1998. The Debtors have undertaken extensive efforts to cleanse the claims pool.
In addition to analyzing the claims, the Debtors have opened discussions with
various creditors regarding the withdrawal of certain claims and in some cases,
have objected to claims. The Debtors' efforts have resulted in the reduction of
approximately $1.25 billion from the claims pool, by means of objections,
negotiated settlements and withdrawal of claims. See "GENERAL INFORMATION - The
Debtors and Chapter 11 Filing and Other Chapter 11 Events - Deadline to File
Proofs of Claim" for further discussion of claims filed.
E. Selected Historical Consolidated Financial Data
<TABLE>
<CAPTION>
TAX BASIS For the years ended
ACCOUNTING December 31,
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Interest income:
Subordinated CMBS $ 210,332 $ 184,947 $ 86,166 $ 43,632 $ 11,846
Insured mortgage securities 33,405 43,063 49,342 54,827 62,020
Originated loans 34,713 20,588 -- -- --
--------- --------- --------- --------- ---------
Total interest income 278,450 248,598 135,508 98,459 73,866
Interest and related expense 186,766 161,860 79,574 64,503 52,231
--------- --------- --------- --------- ---------
Net interest margin 91,684 86,738 55,934 33,956 21,635
Equity in earnings from investments 1,577 8,031 4,104 4,293 3,100
Other income 3,024 4,238 2,152 2,117 1,838
Capital gains 3,276 1,746 7,815 9,618 5,442
Other operating expenses (12,117) (14,445) (9,464) (7,451) (6,727)
Unrealized loss on warehouse obligation (36,328) -- -- -- --
Other reorganization items (12,950) (4,819) -- -- --
Loss on property foreclosures (621) -- -- -- --
Realized loss on reverse repurchase obligation -- (4,503) -- -- --
Write-off of capitalized origination costs -- (3,284) -- -- --
--------- --------- --------- --------- ---------
(54,139) (13,036) 4,607 8,577 3,653
Tax basis income before preferred dividends 37,545 73,702 60,541 42,533 25,288
Dividends paid or accrued on preferred shares (5,840) (6,998) (6,473) (3,526) --
--------- --------- --------- --------- ---------
Tax basis income available to common
shareholders $ 31,705 $ 66,704 $ 54,068 $ 39,007 $ 25,288
========= ========= ========= ========= =========
Tax basis income per share:
Income before gains from CRI Liquidating $ 0.57 $ 1.38 $ 1.24 $ 1.00 $ 0.70
Capital gains from CRI Liquidating
-- -- 0.21 0.27 0.19
--------- --------- --------- --------- ---------
Total tax basis income per share $ 0.57 $ 1.38 $ 1.45 $ 1.27 $ 0.89
========= ========= ========= ========= =========
Tax basis shares 55,167 48,503 37,334 30,774 28,537
========= ========= ========= ========= =========
Dividends paid on common shares (1) $ -- $ 1.47 $ 1.42 $ 1.22 $ 0.92
========= ========= ========= ========= =========
</TABLE>
- -------------------------
(1) During 1999, the Company paid a dividend of $0.30 per common share for the
1998 taxable year in the form of junior preferred stock.
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<PAGE>
<TABLE>
<CAPTION>
ACCOUNTING UNDER GENERALLY For the years ended
ACCEPTED ACCOUNTING PRINCIPLES December 31,
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Interest income:
Subordinated CMBS $ 154,205 $ 143,656 $ 79,670 $ 41,713 $ 11,105
Insured mortgage securities 33,405 43,063 49,425 56,912 66,115
Originated loans 34,713 20,588 -- -- --
--------- --------- --------- --------- ---------
Total interest income 222,323 207,307 129,095 98,625 77,220
Interest and related expense 151,337 136,268 77,919 63,079 49,853
--------- --------- --------- --------- ---------
Net interest margin 70,986 71,039 51,176 35,546 27,367
--------- --------- --------- --------- ---------
Equity in (losses) earnings from investments (1,243) 2,618 3,612 4,432 2,585
Other income 3,024 4,279 2,610 2,898 2,919
Gain on mortgage securities dispositions 2,128 1,196 17,343 9,601 1,502
Gain on originated loan dispositions 403 -- -- -- --
Other operating expenses (12,049) (14,623) (9,610) (7,970) (9,583)
Amortization of assets acquired in the Merger (2,878) (2,878) (2,878) (2,882) (1,435)
Losses on warehouse obligations (8,000) (30,378) -- -- --
Reorganization items:
Impairment on CMBS (1) (156,897) -- -- -- --
Other (22,003) (9,857) -- -- --
Gain on sale of CMBS -- 28,800 -- -- --
Loss on reverse repurchase obligation -- (4,503) -- -- --
Write-off of capitalized origination costs -- (3,284) -- -- --
--------- --------- --------- --------- ---------
(197,515) (28,630) 11,077 6,079 (4,012)
--------- --------- --------- --------- ---------
Net (loss) income before minority interest (126,529) 42,409 62,253 41,625 23,355
Minority interest in net income of
consolidated subsidiary -- (40) (8,065) (6,386) (4,821)
Dividends paid or accrued on preferred
shares (5,840) (6,998) (6,473) (3,526) --
--------- --------- --------- --------- ---------
Net (loss) income available to common
shareholders $(132,369) $ 35,371 $ 47,715 $ 31,713 $ 18,534
========= ========= ========= ========= =========
GAAP basis (loss) income per share - basic $ (2.45) $ 0.75 $ 1.29 $ 1.03 $ 0.65
========= ========= ========= ========= =========
GAAP basis (loss) income per share - diluted $ (2.45) $ 0.74 $ 1.25 $ 1.03 $ 0.65
========= ========= ========= ========= =========
Weighted average shares outstanding 54,000 47,280 36,993 30,665 28,414
========= ========= ========= ========= =========
</TABLE>
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<PAGE>
- ------------------------------------
(1) Under the Plan, a portion of the Recapitalization Financing is expected to
result from the CMBS Sale. The CMBS subject to the CMBS Sale had a fair
value of $385.1 million as of December 31, 1999. The Company first filed a
plan with the Bankruptcy Court in the fourth quarter of 1999 and during
that same quarter CRIIMI MAE began marketing for sale the CMBS subject to
the CMBS Sale. The Company entered into agreements in February and April
2000 to sell a portion of these bonds and intends to enter into one or
more additional agreements during the first half of 2000 to sell the
remaining CMBS subject to the CMBS Sale, although there can be no
assurance such bonds will be sold. As the Company no longer had the intent
to hold these bonds to maturity, and it did and does not expect the value
of these bonds to significantly recover before their sale, the Company has
recognized approximately $157 million of other than temporary impairment
related to the CMBS subject to the CMBS Sale through earnings in the
fourth quarter of 1999. As result of this impairment, the amortized cost
basis of these CMBS was written down to their fair value of $385.1
million. See "Legal Proceedings" for further discussion.
<TABLE>
<CAPTION>
As of December 31,
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Mortgage Assets:
Subordinated CMBS $ 1,179,270 $ 1,274,186 $ 1,114,480 $ 564,335 $ 278,401
Insured mortgage securities 394,857 488,095 605,114 691,110 807,113
Investment in originated loans 470,205 499,076 - - -
Total assets 2,293,661 2,437,918 1,873,305 1,367,245 1,203,303
Total debt 1,982,350 2,085,722 1,414,932 982,258 854,436
Shareholders' equity 219,349 307,877 44,981 346,671 285,704
</TABLE>
The selected consolidated statement of income data presented above for the
years ended December 31, 1999, 1998 and 1997, and the selected consolidated
balance sheet data as of December 31, 1999 and 1998, were derived from, and are
qualified by, reference to CRIIMI MAE's consolidated financial statements, which
have been included elsewhere in this Disclosure Statement. The selected
consolidated statement of income data for the years ended December 31, 1996 and
1995, and the selected consolidated balance sheet data as of December 31, 1997,
1996 and 1995, were derived from audited financial statements not included as
part of this Disclosure Statement. This data should be read in conjunction with
the consolidated financial statements and the notes thereto.
F. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Year Ended December 31, 1999 versus 1998
For the year ended December 31, 1999, the Company reported a net loss for
financial statement purposes of approximately $132.4 million as compared to net
income available to common shareholders of approximately $35.4 million for the
year ended December 31, 1998. On a basic per share basis, the financial
statement net (loss) income decreased to $(2.45) per share for 1999 from $0.75
per share for 1998.
The primary factor resulting in the net loss for the year ended December
31, 1999 was the recognition of $157 million of other than temporary impairment
on certain Subordinated CMBS. The impairment is discussed further below. Other
factors contributing to the change in earnings from 1998 to 1999 were an
increase in other reorganization costs and other items as more fully discussed
below.
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<PAGE>
Interest Income - Subordinated CMBS
Income from Subordinated CMBS increased by approximately $10.5 million, or
7%, to $154.2 million during 1999 as compared to $143.7 million during 1998.
There were no CMBS acquisitions or sales in 1999. However, during 1998, the
Company increased its CMBS portfolio by acquiring Subordinated CMBS at purchase
prices aggregating approximately $853 million. The overall 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 of the Notes to Consolidated Financial
Statements for further discussion.
GAAP requires 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 has resulted in income that 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 yield for CRIIMI MAE's Subordinated CMBS for financial statement
purposes as of December 31, 1999 was approximately 10.1%. 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.
As discussed further below, impairment was recognized as of December 31,
1999 on the Subordinated CMBS that are intended to be sold in 2000 as part of
the CMBS Sale under the Plan. This resulted in the cost basis being written down
to fair value as of December 31, 1999. As a result of this new basis, these CMBS
will have new yields effective the first quarter of 2000. In addition, total
interest income will decrease after the effective date of the Plan as a result
of the CMBS Sale.
Interest Income - Insured Mortgage Securities
Interest income from insured mortgage securities decreased by
approximately $9.7 million or 22% to $33.4 million for 1999 from $43.1 million
for 1998. This decrease was principally due to the prepayment of 14 mortgage
securities held by CRIIMI MAE and its wholly owned subsidiaries for net proceeds
aggregating approximately $74.0 million during the year ended 1999.
Interest Income - Originated Loans
Interest income from originated loans increased by approximately $14.1
million or 69% to approximately $34.7 million for 1999 as compared to $20.6
million for 1998. Interest income from originated loans was derived from
originated loans included in the CMO-IV securitization, which resulted in the
securitization of $496 million face value of conduit loans in June 1998. The
increase between 1998 and 1999 was primarily due to only six months of interest
income recognized in 1998, partially reduced by the prepayment of five
originated loans in 1999.
Interest Expense
Total interest expense increased by approximately $15.0 million or 11% to
approximately $151.3 million for 1999 from approximately $136.3 million for
1998. This increase was principally a result of certain financing facilities
that were outstanding for the entire year ended December 31, 1999 as compared to
a partial year in 1998. Such financing facilities increased in connection with
the acquisition of Subordinated CMBS in 1998 and the issuance of collateralized
mortgage obligations in connection with CMO-IV during June 1998. Due to the
Chapter 11 filing, certain lenders declared defaults or otherwise took 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.
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Equity in (Losses) Earnings from Investments
Equity in earnings decreased by approximately $3.8 million during 1999 due
to a net loss of approximately $1.2 million as compared to equity in earnings of
$2.6 million in 1998. The decrease is primarily due to a reduction in revenue
and an increase in certain expenses at CMSLP. The decrease in revenue is
primarily due to CMSLP's loss of certain servicing rights and the assignment of
ORIX as the successor servicer on those pools during the fourth quarter of 1998.
The increase in expenses includes an $821,000 expense for a prepayment penalty
shortfall incurred by CMSLP and an increase in general and administrative
expenses, including a long-term incentive program for CMSLP, effective in the
fourth quarter of 1998, and other payroll costs. In addition, expenses increased
due to a $500,000 write-off of a remaining investment balance associated with a
now dissolved affiliated entity. The servicing portfolio was approximately $28
billion as of December 31, 1999 as compared to approximately $31 billion as of
December 31, 1998.
Other Income
Other income decreased by approximately $1.3 million or 29% to $3.0
million during 1999 as compared to $4.3 million during 1998. This decrease was
primarily attributable to a decrease in short-term interest and other income
earned during 1999 on the amounts deposited in the loan origination reserve
account, due to suspension of the origination loan program in 1998. No interest
income was earned on the origination reserve account for the year ended December
31, 1999 as compared to approximately $1.9 million of short-term interest income
and net-carry income for the corresponding period in 1998. The decrease was
partially offset by an increase in other short-term interest income of
approximately $600,000 in 1999 versus 1998.
Net Gain on Mortgage Security Dispositions
During 1999, net gains on mortgage dispositions were approximately $2.1
million as a result of 14 prepayments of mortgage securities held by CRIIMI
MAE's subsidiaries, or approximately 15% of its portfolio. 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. The
remaining $531,000 was the result of the sale of four unencumbered mortgage
securities and the partial sale of a fifth unencumbered mortgage security. 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.
Gain on Originated Loan Dispositions
During 1999, gains on originated loan dispositions were approximately
$403,000, which was a result of five prepayments in the originated loan
portfolio. No originated loans were disposed of during 1998.
General and Administrative Expenses
General and administrative expenses decreased by approximately $2.5
million, or 18%, to $12.1 million for 1999 as compared to $14.6 million for
1998. The decrease in general and administrative expenses was primarily due to
the closing of regional offices, suspension of certain business activities and
the dismissal of employees following the Chapter 11 filing in the fourth quarter
of 1998.
Losses on Warehouse Obligations
During the year ended December 31, 1999, the Company recorded losses of
$8.0 million on its warehouse obligation, primarily due to a decrease in the
selling price of the loans in the Company's warehouse line with Citibank, when
the loans were sold in the third quarter of 1999. As of December 31, 1998, the
unrealized loss recorded on the obligation under the Citibank Program was $28.4
million. The Company recorded, in total, a loss of $36.3 million for this
transaction for both GAAP and tax purposes. See "Tax Basis Income" discussion
that follows.
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During the year ended December 31, 1998, the Company recorded an
unrealized loss of $2.0 million for its loss exposure under the Prudential
Program. The Company calculated the Prudential loss based upon the assumption
that the Company would not exercise its option with Prudential. As of December
31, 1999, the sole loan originated under the Prudential Program had not yet been
sold.
Reorganization Items
Impairment on CMBS. As discussed in Note 1 of the Notes to Consolidated
Financial Statements, under the Plan, a portion of the Recapitalization
Financing is expected to result from the CMBS Sale. The CMBS subject to the CMBS
Sale had a fair value and amortized cost of $385.1 million and $542.0 million,
respectively, as of December 31, 1999. The Company first filed a plan with the
Bankruptcy Court in the fourth quarter of 1999 and during that same quarter
CRIIMI MAE began marketing for sale the CMBS subject to the CMBS Sale. CRIIMI
MAE sold a portion of these bonds in February and April 2000 and intends to
enter into one or more additional agreements during the first half of 2000 to
sell the remaining CMBS subject to the CMBS Sale, although there can be no
assurance such bonds will be sold.
GAAP states that when the fair market value of an investment declines
below its amortized cost for a significant period of time and the entity no
longer has the ability or intent to hold the investment for the period the
entity anticipates is required for the value to recover to amortized cost, other
than temporary impairment on the investment should be recognized. This other
than temporary impairment is recognized through the income statement as the
difference between amortized cost and fair value. Additional accounting guidance
states that other than temporary impairment should be recognized in the period
the decision to sell any investment is made if the entity does not expect the
fair value to recover before the sale date. As the Company decided in the fourth
quarter of 1999 to sell the CMBS subject to the CMBS Sale and it did not expect
the value of these bonds to significantly recover before the future sale dates,
the Company has recognized approximately $157 million of other than temporary
impairment related to these CMBS through earnings in the fourth quarter of 1999.
Unrealized losses related to the CMBS subject to the CMBS Sale were previously
recognized through other comprehensive income in the equity section of the
balance sheet. The other than temporary impairment loss on CMBS is a part of the
reorganization items on the income statement as the impairment was recognized as
part of the reorganization.
Other Reorganization Items. During 1999 and 1998, the Company recorded
$22.0 million and $9.9 million, respectively, in other reorganization items due
to the Chapter 11 filings of CMI, CMM and Holdings.
Other Reorganization Items 1999 1998
- ----------------------------------------------- ------------ ------------
Short-term interest income $ (1,518,667) $ --
Professional fees 17,822,154 5,219,000
Write-off of debt discounts and deferred costs -- 2,835,210
Employee Retention Program accrued costs 1,589,236 612,885
Excise tax accrued 1,105,000 300,000
Other 3,005,405 889,852
------------ ------------
Total $ 22,003,128 $ 9,856,947
============ ============
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. 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. Additionally, as part of CBO-2, in May 1998,
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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. The Company completed no additional resecuritizations during
1999.
Loss on Reverse Repurchase Obligation
During 1998, the Company realized a loss of $4.5 million due to the impact
of financial market volatility on hedge positions. As part of CMO-IV, the
Company intended to sell certain of the investment grade 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 in June 1998. This transaction did not qualify for hedge accounting
purposes because it involved the purchase and sale of a cash instrument and
therefore was required to be recorded at market value ("marked to market").
Because Treasury rates declined in the third quarter of 1998, the Company
recorded a $4.1 million unrealized loss as of September 30, 1998. CRIIMI MAE
borrowed and then sold a 10-year Treasury Note in the amount of $44 million to
close the position and the loss was realized in the fourth quarter of 1998.
Write-Off of Capitalized Loan Origination Costs
Since the Company no longer had the intention to securitize the remaining
loans originated through the Citibank and Prudential Programs in warehouse
facilities, the net deferred costs of $3.3 million associated with the
warehoused loans were written off in 1998.
Tax Basis Income
CRIIMI MAE earned approximately $31.7 million in tax basis income
available to common shareholders in 1999 or $0.57 per share, compared to
approximately $66.7 million or $1.38 per share in 1998.
The primary factor resulting in the decrease in taxable income from 1999
to 1998 was the approximately $36.3 million tax basis loss realized on the loans
sold in the third quarter of 1999 from the warehouse line with Citibank. Other
factors contributing to the decline in tax basis income were the deduction of
reorganization costs and net decreases in earnings from equity investments. In
the second quarter of 1998, as part of CBO-2, CMSLP sold servicing rights for
$4.2 million resulting in a gain of $4.2 million for tax purposes which was
included in equity in earnings in 1998. Partially offsetting the aforementioned
items was an increase in net interest margin due to recognition of a full year
of interest income and interest expense in 1999 as compared to a partial year in
1998 as previously discussed.
The recently issued Internal Revenue Service Revenue Procedure 99-17
provides securities and commodities traders with the ability to elect
mark-to-market treatment for 2000 by including an election with their timely
filed 1999 federal tax extension. The election applies to all future years as
well, unless revoked with the consent of the Internal Revenue Service. On March
15, 2000, the Company determined to elect mark-to-market treatment as a
securities trader for 2000 and, accordingly, will recognize gains and losses
prior to the actual disposition of its securities. Moreover, some if not all of
those gains and losses, as well as some if not all gains or losses from actual
dispositions of securities, will be treated as ordinary in nature and not
capital, as they would be in the absence of the election. Therefore, any net
operating losses generated by the Company's trading activity will offset the
Company's taxable income, and reduce any required distributions to shareholders
by a like amount. See "CERTAIN RISK FACTORS-Risks Associated with Trader
Election" for further discussion. If the Company does have a REIT distribution
requirement (and such distributions would be permitted under the Plan), a
substantial portion of the Company's distributions would be in the form of
non-cash taxable dividends.
Year Ended December 31, 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
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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.
GAAP requires 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 have 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.
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
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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 resulted 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 ORIX (formerly known as 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 were partially offset by increases in servicing fee streams and
float income earned on escrow balances derived from the remaining servicing
portfolio, which grew 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.
Net Gain on Mortgage Security 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.
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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, was 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 calculated the Prudential
loss based upon the assumption that the Company would not exercise its option
with Prudential.
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, CMM and
Holdings.
Reorganization Item Amount
Professional fees $ 5,219,000
Write-off of debt discounts
and deferred costs 2,835,210
Employee Retention Program
accrued costs 612,885
Excise Tax 300,000
Other 889,852
------------
Total $ 9,856,947
============
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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 $66.7 million in tax basis income
available to common shareholders in 1998 or $1.38 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, which completed its scheduled liquidation in late
1997.
Cash Flow
Year Ended 1999 versus 1998
Net cash provided by operating activities decreased in 1999 as compared to
1998. The decrease was primarily due to a significant increase in the amount of
cash that is restricted due to stipulations entered into in connection with the
Chapter 11 proceedings or due to agreements that require certain CMBS interest
income payments and/or CMBS sales proceeds to be held in segregated accounts.
Partially offsetting this decrease was an overall increase in net payables in
1999 as compared to 1998.
Net cash provided by investing activities increased for 1999 as compared
to 1998 primarily due to the suspension of the Company's Subordinated CMBS
acquisition and origination programs as a result of the Chapter 11 filing in
October 1998.
Net cash used in financing activities increased in 1999 as compared to
1998. The increase was primarily due to the suspension of the Company's
Subordinated CMBS acquisition activities, suspension of equity and debt
offerings and payment of principal paydowns per the stipulation agreements with
secured lenders.
Year Ended 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.
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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, unsecured and other borrowings, securitizations and issuances of
common and preferred shares 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 the minimum amount required.
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 closely 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 and
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 values. 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, creating a value deficiency as measured by the
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. 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.
As of December 31, 1999, CRIIMI MAE had secured financing agreements with
GACC, Lehman ALI, Inc., First Union, Merrill, Morgan Stanley, 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 of 1998 and throughout 1999,
certain registered holders withheld payments related to securities not
registered to CRIIMI MAE. The Company has negotiated and finalized agreements
with five of its lenders. CRIIMI MAE Inc.'s unrestricted cash position has
increased from approximately $7 million on October 5, 1998 to approximately
$53.6 million as of December 31, 1999. 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
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<PAGE>
Company's cash flow will be sufficient to fund operations for any specified
period while the Company is in bankruptcy.
Under the Plan, a portion of the Recapitalization Financing is expected to
result from the CMBS Sale. The CMBS subject to the CMBS Sale had a fair value
and amortized cost of $385.1 million and $542.0 million, respectively, as of
December 31, 1999. The Company first filed a plan with the Bankruptcy Court in
the fourth quarter of 1999 and during that same quarter, CRIIMI MAE began
marketing for sale the CMBS subject to the CMBS Sale. CRIIMI MAE sold a portion
of these bonds in February and April 2000 and intends to enter into one or more
additional agreements during the first half of 2000 to sell the remaining CMBS
subject to the CMBS Sale, although there can be no assurance that such bonds
will be sold. As the Company decided in the fourth quarter of 1999 to sell the
CMBS subject to the CMBS Sale and its does not expect the value of these bonds
to significantly recover before the future sale dates, the Company has
recognized approximately $157 million of other than temporary impairment related
to these CMBS through earnings in the fourth quarter of 1999.
The value of the Company's subordinated CMBS and government-insured
securities is based upon the combined yield of current treasury rates and the
current spread above treasury rates that an investor would require in a purchase
transaction. During the year ended December 31, 1999, the required spreads above
treasury rates were substantially unchanged on a total portfolio basis. However,
treasury rates increased significantly from December 31, 1998 which, when
combined with the required spreads, resulted in an aggregate $113.1 million
decrease in the value of the Company's portfolio of CMBS and FHA's and GNMA's
from December 31, 1998 to December 31, 1999.
On March 5, 1999, Morgan Stanley sold the CBO-2 BBB Bonds which have a
face amount of $205.8 million and a coupon of 7%. The proceeds of $159 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 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 is accounted
for as a financing and not a sale. This resulted in CRIIMI MAE recognizing a
fixed-rate liability for these bonds in the amount of the gross proceeds, which
was approximately $159 million.
On April 5, 1999, the Company finalized an agreement by which Salomon
Smith Barney, in cooperation with CRIIMI MAE, agreed to sell the remaining two
classes of investment grade CMBS from CMO-IV with a face amount of $45.9 million
and an average coupon rate of 6.96% constituting a portion of the collateral
security advances under financing agreements with Citicorp. CRIIMI MAE sold
these two classes of CMBS in May and October 1999. CRIIMI MAE retained the right
to call each CMBS when the 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
has been accounted for as a financing and not a sale. Gross proceeds from the
sale were used to pay off $39.6 million of secured debt and certain costs, and
the remainder of approximately $315,000 was remitted to CRIIMI MAE. This
resulted in CRIIMI MAE recognizing a fixed-rate liability for these bonds in the
amount of the gross proceeds received.
On August 5, 1999, all but three of the commercial loans originated under
the Citibank Program were sold for gross proceeds of approximately $308.0
million. The loans sold had an aggregate unpaid principal balance of $339.0
million. On September 16, 1999, the remaining three loans were sold for gross
proceeds of approximately $27.2 million. The loans sold had an aggregate
principal balance of $32.7 million. Prior to the actual sale of these loans the
Company had recorded its unrealized losses based on pricing data received from
Citibank. In the case of each sale of the commercial loans, the minimum net
proceeds provision was waived by agreement of the Company, the Unsecured
Creditors' Committee and the Equity Committee. For GAAP purposes, the Company
realized $36.3 million in losses from the third quarter of 1998 through the
third quarter of 1999.
The Company's ability to resume the acquisition of Subordinated CMBS, as
well as its loan origination and securitization programs, depends first on its
ability to obtain the requisite recapitalization proceeds, obtain confirmation
and approval of a plan reorganization and emerge from bankruptcy as a
successfully reorganized company and second, on its ability to access additional
capital once it has successfully emerged from bankruptcy.
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<PAGE>
Factors which could affect the Company's ability to access additional capital
include, among other things, the cost and availability 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 debt securities and credit facilities, results of operations,
leverage, financial condition, and business prospects. The Company can give no
assurance as to whether it will be able to obtain additional capital or the
terms of any such capital.
Dividends
During the pendency of the Chapter 11 proceedings, the Company is
prohibited from paying cash 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, cash 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. See "GENERAL INFORMATION - Business -
Effect of Chapter 11 Filing on REIT Status and Other Tax Matters" regarding the
payment of a junior preferred stock dividend with respect to 1998 taxable income
and the anticipated distribution of all or a substantial portion of its 1999
taxable income in the form of non-cash taxable dividends. Under the Plan, no
cash dividends other than a maximum of $4.1 million to preferred shareholders
can be paid to existing shareholders. See also "-- REIT STATUS," "PLAN SUMMARY
AND KEY CONSIDERATIONS - Plan Summary - Claims Against and Interests in CMI,"
"BUSINESS PLAN," and "PLAN OF REORGANIZATION - Treatment of Claims and Interests
Under the Plan."
Due to the Chapter 11 filing on October 5, 1998, cash dividends were not
paid during 1999 on common or preferred shares. However, since dividends on the
Company's Series B, C and D Preferred stock are cumulative, the dividends
payable at December 31, 1999 were accrued in the financial statements.
Dividends paid or accrued per share on the Company's common stock, Series
B Preferred Stock and Series F Preferred Stock are summarized below:
<TABLE>
<CAPTION>
For the three months ended For the twelve months ended
December 31, December 31,
1999 (1) 1998 (1) 1999 (1) 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Common shares $ 0.000 $ 0.300 $ 0.000 $ 1.470
Series B Preferred Stock 0.680 0.680 2.720 3.355
Series F Preferred Stock 0.190 -- 0.190 --
</TABLE>
- -----------------------------
(1) Due to the Chapter 11 filing on October 5, 1998, cash dividends were not
paid for the year ended 1999 on common or preferred shares. The Company
paid a dividend on November 5, 1999 in the form of junior preferred stock
to its common shareholders for the purpose of distributing approximately
$15.7 million in undistributed 1998 taxable income. See "BUSINESS-Effect
of Chapter 11 Filing on REIT Status and Other Tax Matters" regarding this
dividend and the anticipated distribution of all or a substantial portion
of its 1999 taxable income in the form of non-cash taxable dividends.
However, since dividends on the Company's preferred shares are cumulative,
the dividends payable at December 31, 1998 and for the year ended December
31, 1999 were accrued in the financial statements.
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<PAGE>
In addition to the per share amounts described above, dividends were paid
or accrued on the Company's Series C Preferred Stock and Series D Preferred
Stock. Amounts payable to Series C Preferred Stock for both the three and twelve
months ended December 31, 1999 were $193,068 and $697,172, respectively. This
compares to amounts paid or payable to Series C Preferred Stock for both the
three and twelve months ended December 31, 1998 of $259,139 and $1,305,082,
respectively. Amounts payable to Series D Preferred Stock for the three and
twelve months ended December 31, 1999 were $185,254 and $645,822, respectively.
This compares to amounts paid or payable to Series D Preferred Stock for the
three and twelve months ended December 31, 1998 of $154,931 and $264,011,
respectively. Amounts payable to the Series F Preferred Stock for the three and
twelve months ended December 31, 1999 were $161,527.
On February 22, 2000, CRIIMI MAE and the holder of its Series C Preferred
Stock entered into a Preferred Stock Exchange Agreement pursuant to which
103,000 shares of Series C Preferred Stock were exchanged for 103,000 shares of
a new series of preferred stock designated as Series E Preferred Stock. See
"MARKET AND TRADING INFORMATION - Exchange of Series C Preferred Stock for
Series E Preferred Stock" for a further discussion of the exchange of Series C
Preferred Stock for Series E Preferred Stock.
REIT Status and Other Tax Matters
CRIIMI MAE has elected to qualify as a REIT for tax purposes under
Sections 856-860 of the Internal Revenue Code and has maintained REIT status for
the 1999 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, 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 Other Tax Matters."
The recently issued Internal Revenue Service Revenue Procedure 99-17
provides securities and commodities traders with the ability to elect
mark-to-market treatment for 2000 by including an election with their timely
filed 1999 federal tax extension. The election applies to all future years as
well, unless revoked with the consent of the Internal Revenue Service. On March
15, 2000, the Company determined to elect mark-to-market treatment as a
securities trader for 2000 and, accordingly, will recognize gains and losses
prior to the actual disposition of its securities. Moreover, some if not all of
those gains and losses, as well as some if not all gains or losses from actual
dispositions of securities, will be treated as ordinary in nature and not
capital, as they would be in the absence of the election. Therefore, any net
operating losses generated by the Company's trading activity will offset the
Company's taxable income, and reduce any required distributions to shareholders
by a like amount. See "CERTAIN RISK FACTORS-Risks Associated with Trader
Election" for further discussion. If the Company does have a REIT distribution
requirement (and such distributions would be permitted under the Plan), a
substantial portion of the Company's distributions would be in the form of
non-cash taxable dividends.
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 "CERTAIN RISK
FACTORS-Investment Company Act Risk."
Year 2000
During the transition from 1999 to 2000, the Company did not experience
any significant problems or errors in its information technology ("IT") systems
or date-sensitive embedded technology that controls certain systems. Based on
operations since January 1, 2000, the Company does not expect any significant
impact to its business, operations, or financial condition as a result of the
Year 2000 issue. However, it is possible that the full impact of the date change
has not been fully recognized. The Company is not aware of any significant Year
2000 problems affecting third parties with which the Company interfaces directly
or indirectly.
G. 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
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<PAGE>
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 the amount of interest
expense payable under 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 all cases is currently above the
current rate of the index, will limit 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
that portion of the CMBS. These transactions also increased the borrowing
capacity of the Company which was used to acquire Subordinated CMBS.
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 was 0% for the Subordinated CMBS, and ranged from 0% to 14% for the
investment in originated loans.
ESTIMATED PRINCIPAL & INTEREST CASHFLOWS
<TABLE>
<CAPTION>
Assets (in millions) 2000 2001 2002 2003 2004 Thereafter Total Fair Value
- ------------------------------ --------- --------- ---------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subordinated CMBS (1) $155.0 $155.5 $155.7 $156.0 $159.3 $3,925.4 $4,706.9 $1,179.3
Average Stated Interest Rate 6.8% 6.8% 6.8% 6.8% 6.8% 6.8%
Insured Mortgage
Securities $ 36.3 $ 34.4 $ 34.5 $ 34.5 $ 34.5 $ 803.9 $ 978.1 $ 394.9
Average Stated Interest Rate 7.6% 7.6% 7.6% 7.6% 7.6% 7.7%
Investment in Originated
Loans $ 70.1 $ 73.7 $ 67.0 $ 60.9 $ 57.9 $ 337.2 $ 666.8 $ 422.6
Average Stated Interest Rate 7.5% 7.5% 7.5% 7.5% 7.5% 7.5%
</TABLE>
- ----------------------
(1) The estimated principal and interest cash flows are based on the
Subordinated CMBS portfolio as of December 31, 1999. However, these cash flows
will decrease as the CMBS anticipated to be sold as part of the Company's Plan
are actually sold.
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<PAGE>
The next table provides information about the Company's debt obligations
and derivative instruments. This table is based on the Company's current debt
obligations as of December 31, 1999 and does not account for the contemplated
New Debt from the Company's Plan. 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.
ESTIMATED PRINCIPAL & INTEREST ON DEBT OBLIGATIONS
<TABLE>
<CAPTION>
Debt Obligations
(in millions) 2000 2001 2002 2003 2004 Thereafter Total Fair Value
- ----------------------------- --------- --------- --------- --------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securitized Mortgage
Obligations - Fixed Rate $ 90.5 $ 88.8 $ 90.3 $ 89.2 $ 92.6 $1,632.3 $2,083.7 $1,007.8
Average Stated Interest Rate 6.7% 6.7% 6.7% 6.8% 6.8% 7.0%
Senior Unsecured Notes (2) $ 9.1 $ 9.1 $ 109.1 $ -- $ -- $ -- $ 127.3 $ 86.0
Average Stated Interest Rate 9.1% 9.1% 9.1%
Variable Rate Secured
Borrowings (1) $ -- $ -- $ -- $ -- $ -- $ -- $ -- N/A
Average Stated Interest Rate
Other Variable Rate (1) $ -- $ -- $ -- $ -- $ -- $ -- $ -- N/A
Average Stated Interest Rate
Derivative Contracts
(in millions)
- -----------------------------
Cap Contracts $ 350.0 $ 425.0 $ -- $ -- $ -- $ -- $ 775.0 $ 1.5
Average Strike Rate 6.7% 6.7%
</TABLE>
- ----------------------------
(1) These facilities are in default due to the Chapter 11 proceedings. As a
result, the maturity dates of these facilities have passed. See Note 9 of
the Notes to Consolidated Financial Statements for additional information.
(2) This facility is in default due to the Chapter 11 proceedings, however,
the maturity date has not passed as of December 31, 1999.
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<PAGE>
H. Market and Trading Information
Market Data
CRIIMI MAE's common stock is listed on the New York Stock Exchange (symbol
CMM). As of March 15, 2000, there were approximately 31,200 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:
1999
- --------------------------------------------------------------------------------
Sales Price
Dividends per
Quarter Ended High Low Common Share
----------------- ----------- ----------- -------------
March 31 $3 7/8 $2 9/16 $ -- (1)
June 30 2 3/4 1 15/16 -- (1)
September 30 3 3/16 1 15/16 -- (1)
December 31 2 1 1/16 -- (1)
-------------
$ --
=============
1998
- --------------------------------------------------------------------------------
Sales Price
Dividends per
Quarter Ended High Low Common Share
----------------- ----------- ----------- -------------
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 0.30 (2)
-------------
$ 1.47
=============
(1) During the pendency of the Chapter 11 proceedings, the Company is
prohibited from paying cash dividends without first obtaining Bankruptcy
Court approval.
(2) The Company paid a dividend in junior preferred stock on November 5, 1999
for the 1998 taxable year. See "BUSINESS-Effect of Chapter 11 Filing on
REIT Status and Other Tax Matters" and Notes 11 and 12 of the Notes to
Consolidated Financial Statements for a further discussion of this
dividend.
Adjustment to Conversion Price for Series B Preferred Stock
Due to the distribution of the junior preferred stock to the common
shareholders on November 5, 1999, Section 10(f)(iii) of the Company's Articles
Supplementary to the Articles of Incorporation for Series B Preferred Stock was
triggered, resulting in an adjustment to the conversion price such that each
share of Series B Preferred Stock is now convertible into 2.6379 shares of
common stock. Such junior preferred stock dividend also triggered adjustments
relating to the Company's two stock option plans and two unrelated option
agreements.
Series B and D Preferred Stock Directorships
On April 1, 2000, the Company's Board of Directors was automatically
increased from six to ten directors pursuant to the terms of the respective
Articles Supplementary to the Articles of Incorporation for CRIIMI MAE's Series
B Preferred Stock and Series D Preferred Stock. The Articles Supplementary for
each of Series B and D
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<PAGE>
Preferred Stock provide that during any period in which dividends are
cumulatively in arrears for six or more quarterly dividend payments, then the
number of directors constituting the Board shall automatically be increased by
two. As discussed above, during the pendency of the Chapter 11 proceedings, the
Company is prohibited from paying cash dividends without prior Bankruptcy Court
approval. The Company has not paid any cash dividends on either the Series B or
D Preferred Stock since September 30, 1998. Thus, the holders of each of the
Series B and D Preferred Stock have the right to elect two directors to the
Company's Board (the "Election Right") at the next annual meeting of
stockholders or at a special meeting of stockholders held for such purpose (and
called in accordance with the applicable Articles Supplementary).
On March 31, 2000, the Company filed its Plan. Pursuant to the terms of
the Plan, the holder of the Series D Preferred Stock, if not previously
exchanged, will receive on the Effective Date in exchange for its shares of
Series D Preferred Stock an identical number of shares of Series E Preferred
Stock, issued effective as of the Effective Date. On the date of the exchange,
the Election Right shall be extinguished since the former holder of the Series D
Preferred Stock will not own any shares of Series D Preferred Stock.
Furthermore, the Plan provides that all accrued and past due dividends on Series
D Preferred Stock will be paid on the Effective Date, at the election of the
Company, in common stock or cash, thereby curing the default and eliminating the
Election Right.
The Plan further provides that if the requisite number of holders of the
Series B Preferred Stock accept the Plan, the Articles Supplementary relating to
the Series B Preferred Stock will be amended to permit the payment of dividends
on Series B Preferred Stock, including accrued and unpaid dividends, in common
stock or cash, at the election of the Company. The payment of the accrued and
unpaid dividends by the Company on or after the Effective Date would cure the
default and eliminate the Election Right.
Exchange of Series C Preferred Stock for Series E Preferred Stock
On February 22, 2000, CRIIMI MAE and the holder of its Series C Preferred
Stock entered into a Preferred Stock Exchange Agreement pursuant to which
103,000 shares of Series C Preferred Stock were exchanged for 103,000 shares of
a new series of preferred stock designated as Series E Preferred Stock. The
principal purpose of such exchange was to effect an extension of the mandatory
conversion date, upon which the Series C Preferred Stock would have converted
into common stock. Pursuant to the Preferred Stock Exchange Agreement, the
Company has amended its Plan to provide for a new mandatory conversion date and
certain additional terms and conditions with respect to the Series E Preferred
Stock. The additional terms principally address dividend and additional
conversion matters.
I. Management
Directors And Executive Officers Of CRIIMI MAE
The following table sets forth information concerning the executive
officers and directors of the Company as of March 15, 2000.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William B. Dockser (1)...................... 63 Chairman of the Board and Director
H. William Willoughby (1)................... 53 President, Secretary and Director
Cynthia O. Azzara........................... 40 Senior Vice President, Chief Financial Officer
and Treasurer
David B. Iannarone.......................... 39 Senior Vice President and General Counsel
Brian L. Hanson............................. 38 Senior Vice President/Servicing
Garrett G. Carlson, Sr. (2)(3)(4)........... 62 Director
G. Richard Dunnells (2)(3)(4)............... 62 Director
Robert J. Merrick (2)(3)(4)................. 55 Director
Robert E. Woods (2)(3)(4)................... 52 Director
</TABLE>
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<PAGE>
(1) Member of the Transactional Committee
(2) Member of the Audit Committee
(3) Member of the Compensation and Stock Option Committee
(4) Member of the Special Reorganization 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 C.R.I., Inc. ("CRI"),
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. 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 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. 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 1995, Mr. Dunnells has served as the Hiring Partner of the law firm
Holland & Knight. He was Chairman of the Washington, D.C. law
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<PAGE>
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 Chief Credit Officer and
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.
Mr. Douglas L. Cooper, who had served as a Senior Vice President of the
Company since March 1998, resigned in October 1999.
Mr. Donald R. Drew, who had served as a Senior Vice President of the
Company since April 1997, resigned in January 2000.
Compensation of Directors
Directors who are also employees of the Company receive no additional
compensation for their services as directors. Each director who is not an
officer or employee of the Company and does not perform any services for the
Company other than as a director (an "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. The Unaffiliated Directors, in addition to the foregoing compensation
have received additional compensation for their service on the Special
Reorganization Committee. Messrs. Carlson, Dunnells and Merrick each received
$25,000 and Mr. Woods, as lead director, received $35,000. See "The Debtors and
Chapter 11 Filing and other Chapter 11 Events" for a further description of the
Special Reorganization Committee.
Committees of the Board of Directors
The Board of Directors has an Audit Committee, a Compensation and Stock
Option Committee, a Transactional Committee and a Special Reorganization
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.
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<PAGE>
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.
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.
Special Reorganization Committee. The Board of Directors has a Special
Reorganization Committee comprised of Messrs. Carlson, Dunnells, Merrick and
Woods established in connection with the Company's Chapter 11 proceeding. See
"The Debtors and Chapter 11 Filing and other Chapter 11 Events" for a further
description of the Special Reorganization Committee.
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 $100,000 during the year ended December 31, 1999
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------- -------------------------
Restricted Securities
Stock Underlying All Other
Year Salary ($) Bonus ($) Awards Options (#) Compensation ($)
---- ---------- --------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
William B. Dockser 1999 $318,354 $ -- $ -- 125,000 $ --
Chairman of the Board 1998 285,600 59,000 -- 225,000 334,916(1)
1997 230,000 215,000 -- 150,000 467,424(1)
H. William Willoughby 1999 $318,354 $ -- $ -- 125,000 $ --
President and Secretary 1998 285,600 59,000 -- 225,000 334,916(1)
1997 230,000 215,000 -- 150,000 467,424(1)
Cynthia O. Azzara 1999 $242,812 $ 49,500 $ -- 40,000 $247,500(2)
Senior Vice President, 1998 185,150 45,000 -- 20,000 --
Chief Financial Officer 1997 147,500 77,500 -- 25,000 --
and Treasurer
David B. Iannarone 1999 $242,812 $ 49,500 $ -- 50,000 $247,500(2)
Senior Vice President 1998 163,882 45,000 -- 15,000 --
and General Counsel 1997 114,167 50,000 -- 15,000 --
Brian L. Hanson (3) 1999 $188,854 $ 38,500 $ -- 25,000 $192,500
Senior Vice President 1998 147,235 40,000 -- 15,000 --
1997 106,433 50,000 -- 15,000 --
</TABLE>
(1) 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. As a result of the Company's Chapter 11 filing,
these payments have been temporarily suspended.
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<PAGE>
(2) These amounts represent retention payments made on April 15, 1999 and
October 15, 1999 pursuant to the Employee Retention Plan.
(3) These amounts represent compensation paid by CMSLP throughout 1999 and
long-term incentive payments made on April 15, 1999 and October 15, 1999
pursuant to the CMSLP Long-Term Incentive Plan.
Employment Agreements
On June 30, 1995, in connection with the Merger, the Company, through its
wholly-owned operating subsidiary CMM, 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 CMM 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 Employment Retention Plan. The Bankruptcy Court
may, at its discretion, upon request, authorize the payment of certain retention
payments to Messrs. Dockser and Willoughby in connection with services rendered
during the Chapter 11 cases.
The Employment Agreements provide for indemnification of Messrs. Dockser
and Willoughby to the extent provided for in the bylaws of the Company and/or
CMM 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 CMM.
In July 1998, the Company entered into a new employment agreement with Ms.
Cynthia O. Azzara that, in connection with the adoption of the Employee
Retention Plan, was assumed by CMM 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 a retention payment, under the
Employee Retention Plan, equal to two times her base salary paid semiannually in
four equal installments over a two-year period, subject to certain conditions.
The first retention plan payment to Ms. Azzara vested on April 5, 1999 and was
paid on April 15, 1999. The second retention payment vested on October 5, 1999
and was paid on October 15, 1999. The third retention payment vested on April 5,
2000 and was paid on April 14, 2000. The fourth retention plan payment to Ms.
Azzara is subject to Bankruptcy Court approval. Any 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
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<PAGE>
exercisable. The Azzara Employment Agreement provides for indemnification of Ms.
Azzara to the extent provided for in the bylaws of the Company and/or CMM 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 CMM.
On October 7, 1998, the Company entered into an employment agreement with
David B. Iannarone that, in connection with the Employee Retention Plan, was
assumed by CMM and was amended as of October 7, 1998 (as amended, the "Iannarone
Employment Agreement"). The Iannarone Employment Agreement has a three-year term
and provides for minimum base annual compensation of $225,000. In addition, Mr.
Iannarone is entitled to receive a retention payment, under the Employee
Retention Plan, equal to two times his base salary paid semiannually in four
equal installments over a two-year period, subject to certain conditions. The
first retention plan payment to Mr. Iannarone vested on April 5, 1999 and was
paid on April 15, 1999. The second retention payment vested on October 5, 1999
and was paid on October 15, 1999. The third retention payment vested on April 5,
2000 and will be paid on April 14, 2000. The fourth retention plan payment to
Mr. Iannarone is subject to Bankruptcy Court approval. Any unpaid portion of the
retention payments owed to Mr. Iannarone 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 Mr. Iannarone
other than for cause.
Mr. Iannarone 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 Mr. Iannarone, to the extent not then
exercisable, will become immediately exercisable. The Iannarone Employment
Agreement provides for indemnification of Mr. Iannarone to the extent provided
for in the bylaws of the Company and/or CMM 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 he is otherwise entitled to
indemnification under the bylaws of the Company and/or CMM.
Pursuant to the Employee Retention Plan, options granted to each of the
Named Executive Officers after October 5, 1998 will 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.
See "PLAN OF REORGANIZATION - The Reorganized Debtors" regarding amendments to
the Employee Stock Option Plan proposed in connection with the Plan.
The Employee Stock Option Plan currently provides for grants of
stock options to purchase up to 2,092,903 shares of Company common stock (as
adjusted from 2,000,000 shares as a result of the junior preferred stock
dividend paid to common shareholders in November 1999 and consistent with a
Bankruptcy Court order which limits the full adjustment to 2,198,831 shares of
Company common stock, contemplated by the terms and provisions of the Employee
Stock Option Plan, until such time as the Company emerges from Chapter 11). As
of March 17, 2000, options to purchase a total of 2,083,123 shares of Company
common stock were outstanding under the Employee Stock Option Plan. Options
granted under the Employee Stock Option Plan may be designated as 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.
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<PAGE>
Any executive officer or other key 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 eligible employees the individuals to whom options are to be granted
and to determine the number of common shares subject to each option, whether
such options are to be incentive stock options or nonqualified stock options,
and the terms and conditions of the options consistent with terms and provisions
of 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 will 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, 1999:
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% of Total Options
Common Shares Granted to
Underlying Options Employees in Exercise Expiration Grant Date
Ganted Fiscal Year Price Date Present Value
------------------ ------------------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
William B. Dockser 100,000 (1) 13.41% $3.125 3/16/2007 $250,580 (3)
25,000 (2) 3.35% $1.125 12/15/2007 $22,615 (4)
H. William Willoughby 100,000 (1) 13.41% $3.125 3/16/2007 $250,580 (3)
25,000 (2) 3.35% $1.125 12/15/2007 $22,615 (4)
Cynthia O. Azzara 20,000 (1) 2.68% $3.125 3/16/2007 $50,116 (3)
20,000 (2) 2.68% $1.125 12/15/2007 $18,092 (4)
David B. Iannarone 25,000 (1) 3.35% $3.125 3/16/2007 $62,645 (3)
25,000 (2) 3.35% $1.125 12/15/2007 $22,615 (4)
Brian L. Hanson 15,000 (1) 2.01% $3.125 3/16/2007 $37,587 (3)
10,000 (2) 1.34% $1.125 12/15/2007 $ 9,046 (4)
</TABLE>
(1) These options were granted on March 16, 1999 and will vest in three equal
annual installments over three years commencing on the first anniversary
of the date of grant.
(2) These options were granted on December 15, 1999 and will vest in three
equal annual installments over three years commencing on the first
anniversary of the date of grant.
(3) 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, 1999, the grant date, of $2.5058 using the following principal
assumptions: expected stock price volatility 95.5656%, risk free rate of
return of 5.0386%, dividend yield of 0% and expected life of 6.23 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.
(4) 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
December 15, 1999, the grant date, of $0.9046 using the following
principal assumptions: expected stock price volatility 94.332%, risk free
rate of return of 6.1513%, dividend yield of 0% and expected life of 6.23
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.
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<PAGE>
The following table provides information concerning the exercise of
options during the year ended December 31, 1999 for each of the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999 AND YEAR END 1999 OPTION VALUES
<TABLE>
<CAPTION>
Common Shares Number of Common Shares
Acquired on Underlying Unexercised Value of Unexercised In-the-
Exercise During Value Options at FY-end Money Options at FY-end
1999 Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)
--------------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
William B. Dockser -- $ -- 1,102,302 675,000 $ -- $7,813
H. William Willoughby -- $ -- 1,266,905 675,000 $ -- $7,813
Cynthia O. Azzara -- $ -- 51,734 61,666 $ -- $6,250
David B. Iannarone -- $ -- 15,000 65,000 $ -- $7,813
Brian L. Hanson -- $ -- 20,625 41,875 $ -- $3,125
</TABLE>
- -------------------
(1) The value of the in-the-money options was calculated using the difference
between $1.4375, the closing share price of the Company's common stock on
December 31, 1999, and the exercise price of the options.
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 17, 2000 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.
<TABLE>
<CAPTION>
Amount and Nature of Common Percentage of Common
Name Shares Beneficially Owned Shares Outstanding
- ---- --------------------------- --------------------
<S> <C> <C>
William B. Dockser 3,679,949 (1)(2) 5.6%
H. William Willoughby 3,459,827 (1)(3) 5.3%
Garrett G. Carlson, Sr. 18,910 (4) *
G. Richard Dunnells 17,130 (5) *
Robert J. Merrick 5,246 (6) *
Robert E. Woods 2,164 (7) *
Cynthia O. Azzara 101,079 (8) *
Brian L. Hanson 37,595 (9) *
David B. Iannarone 34,929 (10) *
Gotham Partners L.P.
Gotham Partners III
Gotham International Advisors LLC 6,009,000 (11) 9.2%
110 East 42nd Street 18th Floor
New York, NY 10017
All Directors and Executive
Officers as a Group (9 persons) 7,353,358 (12) 11.2%
</TABLE>
*Less than 1%.
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<PAGE>
(1) Includes 3,471 common shares owned by C.R.I, Inc. of which Messrs. Dockser
and Willoughby are the sole shareholders.
(2) Includes 1,409,525 shares exercisable upon exercise of presently
exercisable options or those exercisable within 60 days. Includes 131,592
common shares held by Mr. Dockser's wife, 156,817 common shares held by
the William B. Dockser '59 Charitable Lead Annuity Trust (for which Mr.
Dockser has sole voting power) and 250,907 common shares held by the
Dockser Family Foundation (for which Mr. Dockser has sole voting power).
(3) Includes 1,601,170 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, 34,384 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 2,910 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 2,910 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days.
(6) Includes 1,746 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days.
(7) Includes 1,164 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days.
(8) Includes 79,635 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days.
(9) Includes 37,595 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days.
(10) Includes 34,929 shares exercisable upon exercise of presently exercisable
options or those exercisable within 60 days.
(11) 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 6,009,000 common shares, for which they hold sole voting
and investment power.
(12) Includes 3,171,584 shares exercisable upon exercise of presently
exercisable options or those exercisable within 60 days.
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
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 $182,691 and $352,471 for the
year ended December 31, 1999 and 1998, respectively.
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 years ended December 31, 1999 and 1998, the Company paid a total of
$61,077 and $ 4,691, respectively, 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.
IV. BUSINESS PLAN
The Company's post-bankruptcy business strategy is designed to capitalize
on its core strengths in real estate and mortgage finance. The key components of
the Company's business strategy are initially, upon emergence from Chapter 11,
the continued ownership and management of the Company's remaining portfolio of
mortgage-related assets, the continuation and, as appropriate, expansion of its
servicing business, the reduction of outstanding indebtedness consistent with
the terms agreed to with Merrill and GACC and the Unsecured Creditors' Committee
as set forth in the Plan, and to invest and trade in CMBS and other
mortgage-related assets. See "CERTAIN RISK FACTORS -- Risks Associated With
Trader Election." At such time as market conditions permit and provided that the
Company is able to access external capital (if and as necessary) through the
capital markets on terms acceptable to the Company (with the use of such capital
to be subject to and consistent with the terms agreed to with Merrill and GACC
and the Unsecured Creditors' Committee, as set forth in the Plan), the Company
intends to resume the acquisition of Subordinated CMBS and the origination and
securitization of commercial mortgage loans. See "THE PLAN OF REORGANIZATION --
The Reorganized Debtors -- Business of Reorganized Debtors."
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Management of Existing Portfolio and Continuation of Servicing Business.
The Company will continue to own and manage, through its servicing affiliate
CMSLP, a large portfolio of mortgage-related assets. On a proforma basis, giving
effect to the reorganization, including the assumed sale of $702 million (face
amount) of CMBS, the Company's June 30, 2000 GAAP balance sheet would include
approximately $2.4 billion (face amount) of CMBS, insured mortgage securities,
and commercial mortgage loans that were originated and securitized by the
Company. The Company will continue to actively monitor and manage the credit
risks and performance of its portfolio in an effort to maximize returns.
Following the reorganization and rating agency approval, the Company
expects to exercise its right, as owner of the controlling bond class, to
re-name CMSLP as special servicer for transactions in its portfolio currently
being specially-serviced by ORIX with CMSLP serving as their special
sub-servicer. In addition, the Company intends for CMSLP to pursue direct,
master and special servicing assignments, as well as expand its fee based
services, for a variety of participants in the mortgage and asset finance
arenas.
Access to Capital. The Company intends to internally generate capital from
operating and investing activities and expected reductions in REIT distribution
requirements to shareholders due to expected net operating losses for tax
purposes. Such capital will be used (subject to and consistent with the terms
agreed to with Merrill and GACC and the Unsecured Creditors' Committee) in order
to fund the initial key components of its business plan referenced above.
In order to fund the resumption of CMBS acquisitions and loan originations
and securitizations, discussed in more detail below, the business plan
contemplates that the Company will be required to access the capital markets
(with the use of such capital to be subject to and consistent with the terms
agreed to with Merrill and GACC and the Unsecured Creditors' Committee, as set
forth in the Plan) through public or private issuances of equity and/or debt
securities and/or through secured or unsecured credit facilities. In addition,
it is contemplated that the Company would continue to use long-term, fixed rate
debt refinancings, short-term borrowing agreements (but to a lesser extent than
utilized prior to the Chapter 11 filing and in accordance with the terms agreed
to with Merrill and GACC and the Unsecured Creditors' Committee) and other
borrowings to fund a portion of any mortgage asset acquisitions.
Resumption of Subordinated CMBS Acquisitions. Prior to the filing of
Chapter 11, the Company had historically been a leading purchaser of
Subordinated CMBS. The Company believes that its servicing and underwriting
capabilities are competitive advantages that allow the Company to compete
against other investors who may have greater access to capital (or the ability
to obtain capital at a lower cost) for the acquisition of Subordinated CMBS. The
Company's ability to resume the acquisition of Subordinated CMBS will depend
upon, among other matters, market conditions and the Company's ability to access
capital to fund such acquisitions. The Company has not at this time arranged for
any post-reorganization financing for the acquisition of Subordinated CMBS and
there can be no assurance that the Company will be able to obtain any such
acquisition financing or that if acquisition financing is available it will be
on favorable terms.
Resumption of Loan Originations and Securitizations. The Company's ability
to resume mortgage loan originations, principally through mortgage loan conduit
programs with major financial institutions for the primary purpose of pooling
such loans for securitization, will depend upon, among other matters, market
conditions, the Company's ability to retain personnel with the requisite
expertise, and the Company's ability to enter into suitable agreements with
financial institutions and to obtain any financing required by such agreements.
To the extent the Company is able to resume its origination program, it intends
to securitize originated mortgage loans, retaining the subordinated bonds for
its portfolio, and providing loan management and servicing functions for the
underlying mortgage pool. The Company has not at this time arranged for any
post-reorganization mortgage loan origination financing and there can be no
assurance that the Company will be able to enter into suitable agreements with
major financial institutions or obtain any financing required by such
agreements.
New Opportunities. The Company intends to explore the possibility of
additional business activities including, but not limited to, expanding the
scope of servicing efforts to include asset-backed and franchise loan servicing;
the further development of fee-based servicing businesses; joint ventures for
the acquisition of
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Subordinated CMBS or other real estate assets; and expanding its originations
into other higher yielding financings such as mezzanine loans and equity
investments. The ability to pursue any new opportunity will depend upon, among
other matters, market conditions and the availability of capital and other
resources.
V. PLAN OF REORGANIZATION
A. Overview of the Plan
Brief Explanation of Chapter 11
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under Chapter 11 of the Bankruptcy Code, a debtor is authorized
to reorganize its business for the benefit of itself and its creditors and
stockholders. In addition to permitting rehabilitation of the debtor, another
goal of Chapter 11 is to promote equality of treatment of creditors and equity
security holders, respectively, who hold substantially similar claims or
interests with respect to the distribution of the value of a debtor's assets. In
furtherance of these two goals, upon the filing of a petition for relief under
Chapter 11, Section 362 of the Bankruptcy Code generally provides for an
automatic stay of substantially all acts and proceedings against the debtor and
its property, including all attempts to collect claims or enforce liens that
arose prior to the commencement of the debtor's Chapter 11 case.
The consummation of a plan of reorganization is the principal objective of
a Chapter 11 case. A plan of reorganization sets forth the means for satisfying
claims against and interests in a debtor. Confirmation of a plan of
reorganization by the Bankruptcy Court makes the plan binding upon the debtor,
any issuer of securities under the plan, any person or entity acquiring property
under the plan and any creditor of or equity security holder in the debtor,
whether or not such creditor or equity security holder (i) is impaired under or
has accepted the plan or (ii) receives or retains any property under the plan.
Subject to certain limited exceptions and other than as provided in the plan
itself or the confirmation order, the confirmation order discharges the debtor
from any debt that arose prior to the date of confirmation of the plan and
substitutes therefor the obligations specified under the confirmed plan.
The following is an overview of certain material provisions of the Plan of
the Debtors, which is attached hereto as Exhibit A. The following summaries of
the material provisions of the Plan do not purport to be complete and are
qualified in their entirety by reference to all the provisions of the Plan,
including all exhibits thereto, all documents described therein and the
definitions therein of certain terms used below. Wherever defined terms of the
Plan not otherwise defined in this Disclosure Statement are used, such defined
terms shall have the meanings ascribed to them in the Plan.
Solicitation of Acceptances of the Plan
Under the Plan, all Claims and Interests have been separated into classes
according to the applicable Debtor, and each Class has been determined to be
either Impaired or Unimpaired by the Plan's terms. Except as discussed below
under "CONFIRMATION AND CONSUMMATION PROCEDURES -- Confirmation," as a condition
to confirmation, Section 1129(a) of the Bankruptcy Code requires that (i) each
impaired class of claims and interests that receives or retains property under a
plan of reorganization vote to accept the plan and (ii) the plan meets the other
requirements of Section 1129(a). Classes of claims and interests that do not
receive or retain any property under a plan on account of such claims and
interests are deemed to have rejected the plan and are not entitled to vote, and
classes of claims and interests that are not impaired under a plan are deemed to
have accepted the plan and are not entitled to vote. Therefore, acceptances of
the Plan are being solicited only from those who hold Claims and Interests in an
Impaired Class. An Impaired Class of Claims will be deemed to have accepted the
Plan if it is accepted by Holders of at least two-thirds in dollar amount and a
majority in number of Claims of such Class held by Holders who cast timely votes
with respect to the Plan. An Impaired Class of Interests will be deemed to have
accepted the Plan if it is accepted by Holders of at least two-thirds in the
amount of the allowed Interests of such Class held by Holders of such Interests
that have voted to accept or reject the Plan. Holders of Claims or Interests who
fail to vote or who abstain from voting on the Plan are not counted for purposes
of determining either acceptance or rejection of the Plan by any Impaired Class
of Claims or Interests.
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If at least one Impaired Class of Claims votes to accept a plan of
reorganization (not counting the votes of insiders), the Plan may be confirmed
despite rejection by the other impaired Classes if the "cramdown" provisions of
Section 1129(b) of the Bankruptcy Code are satisfied. The "cramdown" provisions
of Section 1129(b) essentially provide that a plan may be confirmed over the
rejection of an impaired class of claims or interests if the plan "does not
discriminate unfairly" and is "fair and equitable" with respect to such
rejecting impaired class.
General Information Concerning Treatment of Claims and Interests
In general, the Plan provides that Holders of Allowed Claims or Interests
in Classes: A8, A12, A15, A17, A19, A22, A23, B3, B4, B7, C3, C4 and C7 are
Unimpaired.
Holders of Allowed Claims or Interests in Classes: A1, A2, A3, A4, A5, A6,
A7, A9, A10, A11, A13, A14, A16, A18, A20, A21, B1, B2, B5, B6, C1, C2, C5 and
C6 are Impaired.
Summary of Classes and Treatment of Claims and Interests
Section 1123 of the Bankruptcy Code provides that a plan of reorganization
shall classify the claims and interests of a debtor's creditors and equity
interest holders. In compliance therewith, the Plan divides Claims and Interests
into Classes and sets forth the treatment for each Class. In accordance with
Section 1123(a)(1), Administrative Claims and Priority Tax Claims have not been
classified. The Debtors also are required, under Section 1122 of the Bankruptcy
Code, to classify Claims against and Interests in CMI, CMM and Holdings into
Classes that contain Claims and Interests that are substantially similar to the
other Claims and Interests in such Classes.
The classification of Claims and Interests and the nature of distributions
to Holders of Impaired Claims or Impaired Interests in each Class are summarized
below.
CMI Classes
Class A1 - Citicorp Secured Claims Class A1 consists of all Allowed
Secured Claims against CMI of
Citicorp Securities, Inc., Salomon
Smith Barney Inc., Citicorp Real
Estate, Inc. and/or CitiBank N.A. or
any other Holder of a Secured Claim
against CMI under, arising from or
related to that certain Master
Repurchase Agreement between CMI and
Citicorp Securities, Inc. dated as
of August 1, 1997 or any documents
executed in connection therewith or
related thereto.
Class A2 - First Union Secured Claim Class A2 consists of all Allowed
Secured Claims against CMI of First
Union National Bank or any other
Holder of a Secured Claim against
CMI under, arising from or related
to (i) that certain Master
Assignment Agreement between First
Union National Bank and CMI dated as
of June 30, 1998 or any documents
executed in connection therewith or
related thereto or (ii) that certain
Guaranty by CMI in favor of and for
the benefit of Signet Bank/Virginia
entered into as of June 30, 1995 or
that certain Collateral Assignment
of Partnership Interests from CMI in
favor of Signet Bank/Virginia dated
as of June 30, 1995 or that certain
Stock Pledge Agreement by CMI in
favor of Signet Bank/Virginia dated
as of June 30, 1995 or that certain
Credit Agreement between CMM and
Signet Bank/Virginia dated as of
June 30, 1995 or any documents
executed in connection with or
related to any of the foregoing.
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Class A3 - GACC Secured Claim Class A3 consists of all Allowed
Secured Claims against CMI of German
American Capital Corp. or any other
Holder of a Secured Claim against
CMI under, arising from or related
to that certain Master Loan and
Security Agreement between CMI and
German American Capital Corp. dated
as of March 31, 1998 or any
documents executed in connection
therewith or related thereto.
Class A4 - Lehman Secured Claim Class A4 consists of all Allowed
Secured Claims against CMI of Lehman
Ali Inc. or any other Holder of a
Secured Claim against CMI under,
arising from or related to that
certain Master Assignment Agreement
between CMI and Lehman Ali Inc.
dated as of May 29, 1998 or any
documents executed in connection
therewith or related thereto.
Class A5 - Merrill Secured Claim Class A5 consists of all Allowed
Secured Claims against CMI of
Merrill Mortgage Capital Inc. or any
other Holder of a Secured Claim
against CMI under, arising from or
related to that certain Master
Assignment Agreement between CMI and
Merrill Mortgage Capital Inc. dated
as of September 25, 1997 or any
documents executed in connection
therewith or related thereto.
Class A6 - Morgan Stanley Secured Claim Class A6 consists of any Allowed
Secured Claims against CMI of Morgan
Stanley & Co. International Ltd. or
any other Holder of a Secured Claim
against CMI under, arising from or
related to that certain Master
Repurchase Agreement between Morgan
Stanley & Co. International Limited
and CMI dated as of May 8, 1998 or
any documents executed in connection
therewith or related thereto.
Class A7 - Other Secured Claims Class A7 consists of any Allowed
Secured Claims against CMI other
than the Secured Claims specified in
Classes A1 through A6.
Class A8 - Priority Claims Class A8 consists of all Allowed
Priority Claims against CMI.
Class A9 - Old Senior Note Claims Class A9 consists of all Allowed
Claims against CMI of Holders of Old
Senior Notes under, arising from or
related to the Old Senior Notes.
Class A10 - CMI General Unsecured Claims Class A10 consists of all Allowed
Unsecured Claims against CMI other
than the Unsecured Claims (if any)
in Classes A8, A9, A11, A12, A13,
A15, A17, A19, and A23 and other
than Administrative Claims and
Priority Tax Claims.
Class A11 - Guarantee Claims Class A11 consists of all Allowed
Claims against CMI of Holders of
Guarantee Claims based upon CMI's
guarantee of obligations of CMM or
Holdings, as the case may be.
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Class A12 - Freddie Mac Claims Class A12 consists of Claims against
CMI of Freddie Mac numbered 335 and
497, on the July 20, 1999 claims
register, in the amount of
$230,448,487.24 each.
Class A13 - Intercompany Claims Class A13 consists of all Allowed
Claims against CMI of CMM or
Holdings.
Class A14 - Series B Preferred Stock Class A14 consists of all Allowed
Series B Preferred Stock Interests
in CMI.
Class A15 - Series B Preferred Stock Class A15 consists of all Allowed
Securities Claims Securities Claims on account of
Series B Preferred Stock against
CMI.
Class A16 - Former Series C Preferred Class A16 consists of all Allowed
Stock Former Series C Preferred Stock
Interests in CMI.
Class A17 - Former Series C Preferred Class A17 consists of all Allowed
Stock Securities Claims Securities Claims on account of
Former Series C Preferred Stock
against CMI.
Class A18 - Old Series D Preferred Stock Class A18 consists of all Allowed
Old Series D Preferred Stock
Interests in CMI.
Class A19 - Old Series D Preferred Stock Class A19 consists of all Allowed
Securities Claim Securities Claims on account of Old
Series D Preferred Stock against
CMI.
Class A20 - Series F Dividend Preferred Class A20 consists of all Allowed
Stock Series F Dividend Preferred Stock
Interests in CMI.
Class A21 - CMI Common Stock Class A21 consists of all Allowed
CMI Common Stock Interests in CMI.
Class A22 - Stock Options Class A22 consists of all Allowed
Stock Option Interests in CMI.
Class A23 - CMI Common Stock Securities Class A23 consists of all Allowed
Securities Claims Claims on account of CMI Common
Stock against CMI including
indemnification claims with respect
thereto.
CMM Classes
Class B1 - First Union Secured Claims Class B1 consists of all Allowed
Secured Claims against CMM of First
Union National Bank or any other
Holder of a Secured Claim against
CMM under, arising from or related
to that certain Credit Agreement
between CMM and Signet Bank/Virginia
dated as of June 30, 1995 or any
documents executed in connection
therewith or related thereto.
Class B2 - Other Secured Claims Class B2 consists of any Allowed
Secured Claims against CMM other
than the Secured Claims specified in
Class B1.
Class B3 - Priority Claims Class B3 consists of all Allowed
Priority Claims against CMM.
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Class B4 - Guarantee Claims Class B4 consists of all Allowed
Claims against CMM of Holders of
Guarantee Claims based upon CMM's
guarantee of obligations of CMI or
Holdings, as the case may be.
Class B5 - CMM General Unsecured Claims Class B5 consists of all Allowed
Unsecured Claims against CMM other
than the Unsecured Claims (if any)
in Classes B3, B4 and B6 and other
than Administrative Claims and
Priority Tax Claims.
Class B6 - Intercompany Claims Class B6 consists of all Allowed
Claims against CMM of CMI or
Holdings.
Class B7 - CMI's Interests in CMM Class B7 consists of all Allowed
Interests in CMM of CMI.
Holdings Classes
Class C1 - Citicorp Secured Claims Class C1 consists of all remaining
Allowed Secured Claims (if any)
against Holdings of Citicorp
Securities, Inc. and/or Salomon
Smith Barney Inc..
Class C2 - Other Secured Claims Class C2 consists of any Allowed
Secured Claims against Holdings
other than the Secured Claims
specified in Class C1.
Class C3 - Priority Claims Class C3 consists of all Allowed
Priority Claims against Holdings.
Class C4 - Guarantee Claims Class C4 consists of all Allowed
Claims against Holdings of Holders
of Guarantee Claims based upon
Holdings' guarantee of obligations
of CMI or CMM, as the case may be.
Class C5 - Holdings General Unsecured Class C5 consists of all Allowed
Claims Unsecured Claims against Holdings
other than the Unsecured Claims (if
any) in Classes C3, C4 and C6 and
other than Administrative Claims and
Priority Tax Claims.
Class C6 - Intercompany Claims Class C6 consists of all Allowed
Claims against Holdings of CMI or
CMM.
Class C7 - Interests in Holdings Class C7 consists of all Allowed
Interests in Holdings of CMI and
CMSLP.
Except for Disputed Claims, distributions will be made on the Effective
Date or as soon as practicable thereafter. See "THE PLAN OF REORGANIZATION --
Distributions Under the Plan" for a discussion of Plan provisions that may
affect the timing of distributions under the Plan. Distributions on account of
Claims that become Allowed Claims after the Effective Date will be made pursuant
to Section VI.B of the Plan (relating to timing and calculation of amounts to be
distributed under the Plan) and Section VI.H of the Plan (relating to
distributions on account of Disputed Claims once they are allowed). See "THE
PLAN OF REORGANIZATION -- Distributions Under the Plan --Timing and Methods of
Distribution."
The treatment of Claims and Interests described below is subject to the
Plan provisions described in Section IV of the Plan.
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B. Treatment of Claims and Interests Under the Plan
Description of Claims and Interests
Administrative Claims. Subject to certain additional requirements for
professionals and certain other entities, each Holder of an Allowed
Administrative Claim will receive on account of its Administrative Claim and in
full satisfaction thereof, Cash equal to the amount of such Allowed
Administrative Claim on, as soon as practicable after, the later of the
Effective Date and the day on which such Claim becomes an Allowed Claim, unless
the Holder and the Debtors or the Reorganized Debtors agree or will have agreed
to other treatment of such Claim, or an order of the Bankruptcy Court provides
for other terms; provided, that if incurred in the ordinary course of business
or otherwise assumed by the Debtors pursuant to the Plan (including
Administrative Claims of governmental units for taxes), an Allowed
Administrative Claim will be assumed on the Effective Date and paid, performed
or settled by the Reorganized Company when due in accordance with the terms and
conditions of the particular agreement(s) governing the obligation in the
absence of the Reorganization Cases. In addition, on or before the Effective
Date, all fees payable pursuant to 28 U.S.C. ss.1930, as determined by the
Bankruptcy Court at the Confirmation Hearing, will be paid in Cash equal to the
amount of such Administrative Claim.
Priority Tax Claims. Unless otherwise agreed to by the Debtors or the
Reorganized Debtors and the Holder of a Priority Tax Claim, each Holder of an
Allowed Priority Tax Claim will receive, at the sole option of the Reorganized
Debtors (i) Cash equal to the unpaid portion of such Allowed Priority Tax Claim
on the later of the Effective Date and the date on which such Claim becomes an
Allowed Priority Tax Claim, or as soon thereafter as is practicable, or (ii)
equal quarterly Cash payments in an aggregate amount equal to such Allowed
Priority Tax Claim, together with interest at a fixed annual rate to be
determined by the Bankruptcy Court or otherwise agreed to by the Reorganized
Debtors and such Holder, over a period through the sixth anniversary of the date
of assessment of such Allowed Priority Tax Claim, or upon such other terms
determined by the Bankruptcy Court to provide the Holder of such Allowed
Priority Tax Claim deferred cash payments having a value, as of the Effective
Date, equal to such Allowed Priority Tax Claim.
The Debtors are not currently in a position to determine the amount of
Administrative Claims, Priority Tax Claims and other Priority Claims for which
they will be liable as of the Effective Date. However, solely for purposes of
preparing the projections set forth in Exhibit B hereto and estimating
recoveries for creditors under the Plan, they have estimated that the aggregate
amount of such Claims may approximate up to $15 million.
Treatment of Claims Against and Interests In CMI
1. Class A1 (Citicorp Secured Claims).
The Holder of the Allowed Class A1 Claim will receive on the Effective
Date with respect to its Allowed Class A1 CMO-IV Claim (i) the Class A1 Cash
Payment, which is expected to be $4.5 million; (ii) with respect to the balance
of its Allowed Class A1 CMO-IV Claim (with interest on the principal balance of
such Allowed Claim calculated at the Plan Rate), a 4-year promissory note of
Reorganized CMI bearing interest, payable monthly, at the per annum rate of
LIBOR plus 3.25%, secured by a first priority lien on the CMO-IV Bonds and the
CMO-IV Additional Collateral (such lien anticipated to be structured as an
indirect lien consistent with the affiliate reorganization referenced in the
Plan and in "THE PLAN OF REORGANIZATION -- Affiliate Reorganization" discussion
hereinbelow), with monthly amortization of said note based on the following
schedule: in year one .833% of the original balance of said note would be
amortized each month, in year two .666% of the original balance of said note
would be amortized each month, and in the third and fourth years, the remaining
principal balance of said note as of the second anniversary of the Effective
Date would be amortized in monthly installments based upon a 13-year
amortization schedule, with a balloon payment of the then-outstanding principal
balance of the note coming due on the fourth anniversary of the Effective Date;
and (iii) loan extension fees payable in Cash on the 2-year, 2 1/2-year, 3-year
and 3 1/2-year anniversaries of the Effective Date, if said note has not been
paid off in full prior to such dates, equal to 1.5% of the then outstanding
principal balance of said note. In addition, the Holder of the Allowed Class A1
Claim will receive on the Effective Date payment in full in Cash of any
remaining balance of its Allowed Class
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A1 Claim, after the refinancing of such Holder's Allowed Class A1 CMO-IV Claim
referenced above, with interest on the principal balance of such Allowed Claim
calculated at the Plan Rate
Citicorp has raised a question concerning the collateral assignment of
certain net proceeds from the sale or other disposition of the Brick Church
Property (as defined in Exhibit 2 to the Plan) for the benefit of the Holders of
the Class A9/A10 Notes as provided in the Collateral Schedule attached as part
of Exhibit 2 to the Plan. By way of clarification, the collateral assignment of
net proceeds from the sale or other disposition of the Brick Church Property as
provided in Exhibit 2 to the Plan will be granted only on such net proceeds as
remain after payment in full of any allowed secured claims on the Brick Church
Property including any such claims of Citicorp Real Estate, Inc.
The Debtors expect that there will be approximately $35 million of Allowed
Class A1 Claims against the Debtors as of the Effective Date after giving effect
to the reorganization provisions of the Plan including payments to be made on
the Effective Date.
2. Class A2 (First Union Secured Claim).
The Holder of the Allowed Class A2 Claim will receive on the Effective
Date payment in full in Cash of any remaining balance of the Allowed Class A2
Claim with interest on the principal balance of such Allowed Claim calculated at
the Plan Rate.
The Debtors expect that there will be less than $240,000 of Allowed Class
A2 Claims against the Debtors as of the Effective Date after giving effect to
the reorganization provisions of the Plan including payments to be made on the
Effective Date.
3. Class A3 (GACC Secured Claim).
The Holder of the Allowed Class A3 Claim will receive on the Effective
Date the treatment of its Allowed Secured Claim set forth on Exhibit 1 to the
Plan, or such other treatment as may be agreed to by CMI and the Holder.
The Debtors expect that there will be approximately $87 million of Allowed
Class A3 Claims against the Debtors as of the Effective Date after giving effect
to the reorganization provisions of the Plan including payments to be made on
the Effective Date.
4. Class A4 (Lehman Secured Claim).
The Holder of the Allowed Class A4 Claim will receive on the Effective
Date payment in full in Cash of any remaining balance of the Allowed Class A4
Claim with interest on the principal balance of such Allowed Claim calculated at
the Plan Rate.
The Debtors expect that there will be Allowed Class A4 Claims not to
exceed $200,000 against the Debtors as of the Effective Date after giving effect
to the reorganization provisions of the Plan including payments to be made on
the Effective Date.
5. Class A5 (Merrill Secured Claim).
The Holder of the Allowed Class A5 Claim will receive on the Effective
Date the treatment of its Allowed Secured Claim set forth on Exhibit 1 to the
Plan, or such other treatment as may be agreed to by CMI and the Holder.
The Debtors expect that there will be approximately $189 million of
Allowed Class A5 Claims against the Debtors as of the Effective Date after
giving effect to the reorganization provisions of the Plan including payments to
be made on the Effective Date.
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6. Class A6 (Morgan Stanley Secured Claim).
The Holder of the Allowed Class A6 Claim will receive on the Effective
Date payment in full in Cash of any remaining balance of the Allowed Class A6
Claim with interest on the principal balance of such Allowed Claim calculated at
the Plan Rate.
The Debtors expect that there will be $ 0 of Allowed Class A6 Claims
against the Debtors as of the Effective Date after giving effect to the
reorganization provisions of the Plan including payments to be made on the
Effective Date.
7. Class A7 (Other Secured Claims).
Each Holder (if any) of an Allowed Class A7 Claim will receive on the
Effective Date either (i) payment in full in Cash of the Allowed Class A7 Claim
with interest on the principal balance of any such Allowed Claim calculated at
the Plan Rate; (ii) if CMI so elects, the collateral securing the Allowed Class
A7 Claim (if any) in full satisfaction of such Claim; or (iii) such other
treatment as may be agreed to by CMI and the Holder (if any).
The Debtors expect that there will be $ 0 of Allowed Class A7 Claims
against the Debtors as of the Effective Date.
8. Class A8 (Priority Claims).
Each Holder of the Allowed Class A8 Claim will receive on the Effective
Date payment in full in Cash of the Allowed Class A8 Claim including Plan
Interest thereon.
The Debtors expect that there will be $ 0 of Allowed Class A8 Claims
against the Debtors as of the Effective Date after giving effect to the
reorganization provisions of the Plan including payments to be made on the
Effective Date.
9. Class A9 (Old Senior Note Claims).
Each Holder of an Allowed Class A9 Claim will receive on the Effective
Date the treatment of its Allowed Claim as set forth on Exhibit 2 to the Plan.
The Debtors expect that there will be approximately $81 million of Allowed
Class A9 Claims against the Debtors as of the Effective Date after giving effect
to the reorganization provisions of the Plan including payments to be made on
the Effective Date.
10. Class A10 (CMI General Unsecured Claims).
Each Holder of an Allowed Class A10 Claim, other than those electing the
convenience class option described hereinafter, will be paid in full through a
combination of an initial cash payment and two notes as further set forth in
Exhibit 2 to the Plan. In addition, as referred to in Exhibit 2 to the Plan,
there will be a convenience class option with respect to Class A10, as follows:
any Holder of an Allowed Class A10 Claim whose Allowed Claim is for $150,000 or
less and elects the convenience class treatment on its ballot, or whose Allowed
Claim is for an amount in excess of $150,000 and elects in writing on its ballot
to reduce its claim to $150,000 and accept convenience class treatment thereof,
shall be entitled to receive payment in Cash on the Effective Date of the
allowed amount of such Holders' Allowed Class A10 Claim in full satisfaction of
said claim, with accrued and unpaid pre-petition interest thereon calculated at
the non-default contract rate of interest in such Holders' documents for those
Holders of A10 Claim in full satisfaction of said Claim, with accrued and unpaid
pre-petition and post-petition interest thereon calculated at the non-default
contract rate of interest in such Holders' documents for those Holders of
Allowed Class A10 Claims electing convenience class treatment who have a
contract, the invoice rate (capped at 9-1/8%) for those Holders of Allowed Class
A10 Claims electing convenience class treatment who have an invoice rate, and 6%
for all others. For purposes of calculating the $150,000 amount in the preceding
sentence, the amount of allowed post-petition interest on any such Claim (which
interest shall be paid as part of such Claim) will be excluded from such
calculation.
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The Debtors expect that there will be approximately $73 million of Allowed
Class A10 Claims against the Debtors as of the Effective Date after giving
effect to the reorganization provisions of the Plan including payments to be
made on the Effective Date.
11. Class A11 (Guarantee Claims).
If, and only to the extent that, an Allowed Class A11 Claim is not fully
treated with respect to such Holder's underlying Allowed Claim under the Plan
treatment for Claims against CMM or Holdings, as the case may be, any remaining
Allowed Class A11 Claim (if any) will be included as part of the CMI General
Unsecured Claims and treated for all purposes as part of Class A10.
The Debtors expect that there will be $ 0 of Allowed Class A11 Claims
against the Debtors as of the Effective Date.
12. Class A12 (Freddie Mac Claims).
CMI's obligation under the Freddie Mac Agreement shall be deemed
reaffirmed on the Effective Date, and the Claims of Freddie Mac numbered 335 and
497 on the July 2, 1999 claims register, each in the amount of $230,448,487.24,
shall be deemed withdrawn and thereby disallowed as of the Effective Date.
The Debtors expect that there will be $ 0 of Allowed Class A12 Claims
against the Debtors as of the Effective Date.
13. Class A13 (Intercompany Claims).
Holders of Allowed Class A13 Claims will not receive any payment under the
Plan on account of such Claims.
14. Class A14 (Series B Preferred Stock).
Each Holder of Series B Preferred Stock as of the Effective Date will
retain its Series B Preferred Stock; provided that if the Holders of Series B
Preferred Stock as of the Voting Record Date vote as a Class by the requisite
amount to accept the Plan, the Articles Supplementary relating to the Series B
Preferred Stock will be deemed amended to permit the payment of dividends on
Series B Preferred Stock, including accrued and unpaid dividends, in CMI Common
Stock or Cash, at the election of Reorganized CMI, with such payment of
dividends to be consistent with Exhibits 1 and 2 to the Plan. It is contemplated
that such dividends will be paid in CMI Common Stock. See Exhibit 2 to the Plan
regarding limitations on cash dividends. Holders of Series B Preferred Stock who
are not affiliates or "underwriters" may publicly trade the CMI Common Stock
received as payment for dividends accrued and payable.
The Debtors expect that there will be approximately $39.9 million of
Allowed Class A14 Interests in the Debtors as of the Effective Date after giving
effect to the reorganization provisions of the Plan (assuming that the accrued
and unpaid dividends are paid in CMI Common Stock).
15. Class A15 (Series B Preferred Stock Securities Claims).
Each Holder (if any) of an Allowed Class A15 Claim will, if, as and when
any such Claim is Allowed by Final Order, receive in full satisfaction of any
such Allowed Class A15 Claim its share of any Insurance Proceeds applicable
thereto plus, if such Allowed Class A15 Claim (if any) is not paid in full from
such Insurance Proceeds, CMI Common Stock in an amount equal in value, as of the
date of issuance thereof, to the balance (if any) of such Allowed Class A15
Claim, provided that any such Claim not timely filed (and in any event not filed
before the Confirmation Date) shall be released and discharged under the Plan
and Confirmation Order.
The Debtors expect that there will be $ 0 of Allowed Class A15 Claims
against the Debtors as of the Effective Date.
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16. Class A16 (Former Series C Preferred Stock).
Former Series C Preferred Stock has been exchanged for Series E Preferred
Stock. Each Holder of Series E Preferred Stock as of the Distribution Record
Date shall retain its Series E Preferred Stock and such Series E Preferred Stock
shall have the terms, rights and preferences summarized in Exhibit 3 to the Plan
and as set forth in the Articles Supplementary relating to the Series E
Preferred Stock. All accrued and past due dividends from February 23, 2000
through the Effective Date on Series E Preferred Stock will be paid on the
Effective Date in CMI Common Stock. All other accrued and past due dividends on
Former Series C Preferred Stock (prior to February 23, 2000) shall be paid on
the Effective Date in CMI Common Stock or Cash, at the election of Reorganized
CMI, with such payment of dividends to be consistent with Exhibits 1 and 2 to
the Plan. It is contemplated that such dividends will be paid in CMI Common
Stock. See Exhibit 2 to the Plan regarding limitations on cash dividends.
The Debtors expect that there will be approximately $10.3 million of
Allowed Class A16 Interests in the Debtors (as part of the Series E Preferred
Stock) as of the Effective Date after giving effect to the reorganization
provisions of the Plan (assuming that the accrued and unpaid dividends are paid
in CMI Common Stock).
17. Class A17 (Former Series C Preferred Stock Securities Claims).
Each Holder (if any) of an Allowed Class A17 Claim will, if, as and when
any such Claim is allowed by Final Order, receive in full satisfaction of any
such Allowed Class A17 Claim its share of any Insurance Proceeds applicable
thereto plus, if such Allowed Class A17 Claim (if any) is not paid in full from
such Insurance Proceeds, CMI Common Stock in an amount equal in value, as of the
date of issuance thereof, to the balance (if any) of such Allowed Class A17
Claim, provided that any such Claim not timely filed (and in any event not filed
before the Confirmation Date) shall be released and discharged under the Plan
and Confirmation Order.
The Debtors expect that there will be $ 0 of Allowed Class A17 Claims
against the Debtors as of the Effective Date.
18. Class A18 (Old Series D Preferred Stock).
Each Holder of Old Series D Preferred Stock as of the Distribution Record
Date, if not previously exchanged, shall receive on the Effective Date in
exchange for its Old Series D Preferred Stock an identical number of shares of
Series E Preferred Stock issued effective as of the Effective Date, and such
Series E Preferred Stock shall have the terms, rights and preferences summarized
in Exhibit 3 of the Plan and as set forth in the Articles Supplementary relating
to the Series E Preferred Stock. All shares of Old Series D Preferred Stock, if
not previously exchanged and cancelled, shall be deemed cancelled as of the
Effective Date. All accrued and past due dividends on Old Series D Preferred
Stock shall be paid on the Effective Date, in CMI Common Stock or Cash, at the
election of Reorganized CMI, with such payment of dividends to be consistent
with Exhibits 1 and 2 to the Plan. It is contemplated that such dividends will
be paid in CMI Common Stock. See Exhibit 2 to the Plan regarding limitations on
cash dividends.
The Debtors expect that there will be approximately $10 million of Allowed
Class A18 Interests in the Debtors (as part of the Series E Preferred Stock) as
of the Effective Date after giving effect to the reorganization provisions of
the Plan (assuming that the accrued and unpaid dividends are paid in CMI Common
Stock).
19. Class A19 (Old Series D Preferred Stock Securities Claims).
Each Holder (if any) of an Allowed Class A19 Claim will, if, as and when
any such Claim is Allowed by Final Order, receive in full satisfaction of any
such Allowed Class A19 Claim its share of any Insurance Proceeds applicable
thereto plus, if such Allowed Class A19 Claim (if any) is not paid in full from
such Insurance Proceeds, CMI Common Stock in an amount equal in value, as of the
date of issuance thereof, to the balance (if any) of such Allowed Class A19
Claim, provided that any such Claim not timely filed (and in any event not filed
before the Confirmation Date) shall be released and discharged under the Plan
and Confirmation Order.
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The Debtors expect that there will be $ 0 of Allowed Class A19 Claims
against the Debtors as of the Effective Date.
20. Class A20 (Series F Dividend Preferred Stock).
Each Holder of Series F Dividend Preferred Stock as of the Effective Date
shall retain its Series F Dividend Preferred Stock; provided that if the Holders
of Series F Dividend Preferred Stock as of the Voting Record Date vote as a
Class by the requisite amount to accept the Plan, the Articles Supplementary
relating to the Series F Dividend Preferred Stock will be deemed amended to
permit the payment of dividends on Series F Dividend Preferred Stock, including
any accrued and unpaid dividends, in CMI Common Stock or Cash, at the election
of Reorganized CMI, with such payment of dividends to be consistent with
Exhibits 1 and 2 to the Plan. It is possible that such dividends may be paid in
CMI Common Stock. See Exhibit 2 to the Plan regarding limitations on cash
dividends. Holders of Series F Dividend Preferred Stock who are not affiliates
or "underwriters" may publicly trade the CMI Common Stock received as payment
for dividends accrued and payable.
The Debtors expect that there will be approximately $6.5 million of
Allowed Class A20 Interests in the Debtors as of the Effective Date after giving
effect to the reorganization provisions of the Plan (assuming that the accrued
and unpaid dividends are paid in CMI Common Stock).
21. Class A21 (CMI Common Stock).
Each Holder of an Allowed Class A21 Interest as of the Effective Date will
retain its CMI Common Stock.
22. Class A22 (Stock Options).
Each Holder of a Stock Option as of the Effective Date will retain its
Stock Option.
23. Class A23 (CMI Common Stock Securities Claims).
All Holders (if any) of Allowed Class A23 Claims will receive in full
satisfaction of any such Allowed Class A23 Claims their share of any Insurance
Proceeds applicable thereto plus, if such Allowed Class A23 Claims (if any) are
not paid in full from such Insurance Proceeds, CMI Common Stock in an amount
equal in value, as of the date of issuance thereof, to the balance (if any) of
such Allowed Class A23 Claims.
The Debtors expect that there will be $ 0 of Allowed Class A23 Claims
against the Debtors as of the Effective Date.
Treatment of Claims Against and Interests in CMM
1. Class B1 (First Union Secured Claims).
The Holder of the Allowed Class B1 Claim will receive on the Effective
Date payment in full in Cash of any remaining balance of the Allowed Class B1
Claims with interest on the principal balance of such Allowed Claim calculated
at the Plan Rate.
The Debtors expect that there will be $ 0 of Allowed Class B1 Claims
against the Debtors as of the Effective Date after giving effect to the
reorganization provisions of the Plan including payments to be made on the
Effective Date.
2. Class B2 (Other Secured Claims).
Each Holder (if any) of an Allowed Class B2 Claim will receive on the
Effective Date either (i) payment in full in Cash of the Allowed Class B2 Claims
with interest on the principal balance of any such Allowed Claim calculated at
the Plan Rate; (ii) if CMM so elects, the collateral securing the Allowed Class
B2 Claims (if any) in full satisfaction of such Claims; or (iii) such other
treatment as may be agreed to by CMM and the Holder(s) (if any) of Allowed Class
B2 Claims.
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The Debtors expect that there will be $ 0 of Allowed Class B2 Claims
against the Debtors as of the Effective Date.
3. Class B3 (Priority Claims).
Each Holder of an Allowed Class B3 Claim will receive on the Effective
Date payment in full in Cash of the Allowed Class B3 Claims including Plan
Interest thereon.
The Debtors expect that there will be $ 0 of Allowed Class B3 Claims
against the Debtors as of the Effective Date after giving effect to the
reorganization provisions of the Plan including payments to be made on the
Effective Date.
4. Class B4 (Guarantee Claims).
Each Holder (if any) of an Allowed Class B4 Claim shall be paid, if, as
and when any such Claim is allowed by Final Order, in Cash in full by CMM or
Reorganized CMM including Plan Interest thereon if, and only to the extent not
fully treated with respect to such Holder's underlying Allowed Claim under the
Plan treatment for Claims against CMI or Holdings, as the case may be.
The Debtors expect that there will be $ 0 of Allowed Class B4 Claims
against the Debtors as of the Effective Date.
5. Class B5 (CMM General Unsecured Claims).
Each Holder of an Allowed Class B5 Claim will receive on the Effective
Date payment in full in Cash of Allowed Class B5 Claims, with accrued and unpaid
pre-petition interest thereon calculated at the non-default contract rate of
interest in such Holder's documents for those Holders of Allowed Class B5 Claims
who have a contract, the invoice rate (capped at 9-1/8%) for those Holders of
Allowed Class B5 Claims who have an invoice rate, and 6% for all other Holders
of Allowed Class B5 Claims.
The Debtors expect that there will be $ 0 of Allowed Class B5 Claims
against the Debtors as of the Effective Date after giving effect to the
reorganization provisions of the Plan including payments to be made on the
Effective Date.
6. Class B6 (Intercompany Claims).
Holders of Class B6 Claims will not receive any payment under the Plan on
account of such Claims.
7. Class B7 (CMI's Interests in CMM).
The Holder will retain its Interest under the Plan.
Treatment of Claims Against and Interests in Holdings
1. Class C1 (Citicorp Secured Claims).
Each Holder (if any) of an Allowed Class C1 Claim will receive on the
Effective Date payment in full in Cash of the Allowed Class C1 Claim with
interest on the principal balance of any such Allowed Claim calculated at the
Plan Rate.
The Debtors expect that there will be $ 0 of Allowed Class C1 Claims
against the Debtors as of the Effective Date.
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2. Class C2 (Other Secured Claims).
Each Holder (if any) of an Allowed Class C2 Claim will receive on the
Effective Date either (i) payment in full in Cash of the Allowed Class C2 Claim
with interest on the principal balance of any such Allowed Claim calculated at
the Plan Rate; (ii) if Holdings so elects, the collateral securing the Allowed
Class C2 Claim (if any) in full satisfaction of such Claim; or (iii) such other
treatment as may be agreed to by Holdings and the Holder(s) (if any) of Allowed
Class C2 Claim(s).
The Debtors expect that there will be $ 0 of Allowed Class C2 Claims
against the Debtors as of the Effective Date.
3. Class C3 (Priority Claims).
Each Holder of an Allowed Class C3 Claim will receive on the Effective
Date payment in full in Cash of the Allowed Class C3 Claim including Plan
Interest thereon.
The Debtors expect that there will be $ 0 of Allowed Class C3 Claims
against the Debtors as of the Effective Date.
4. Class C4 (Guarantee Claims).
Each Holder (if any) of an Allowed Class C4 Claim will receive if, as and
when any such Claim is allowed by Final Order payment in Cash in full including
Plan Interest thereon if, and only to the extent not fully treated with respect
to such Holder's underlying Allowed Claim under the Plan treatment for Claims
against CMI or CMM, as the case may be.
The Debtors expect that there will be $ 0 of Allowed Class C4 Claims
against the Debtors as of the Effective Date.
5. Class C5 (Holdings General Unsecured Claims)
Each Holder (if any) of an Allowed Class C5 Claim will if, as and when any
such Claim is allowed by Final Order, receive payment in full in Cash of any
such Allowed Class C5 Claim with any accrued and unpaid pre-petition and
post-petition interest thereon calculated at the non-default contract rate of
interest in such Holder's documents for any Holders of Allowed Class C5 Claims
who have a contract, the invoice rate (capped at 9-1/8%) for any such Holders
who have an invoice rate, and 6% for any other Holders of Allowed C5 Claims.
The Debtors expect that there will be $ 0 of Allowed Class C5 Claims
against the Debtors as of the Effective Date.
6. Class C6 (Intercompany Claims).
Holders of Class C6 Claims will not receive any payment under the Plan on
account of such Claims.
7. Class C7 (Interests in Holdings).
The Holder will retain its Interest under the Plan.
Treatment of Unclassified Claims
The Bankruptcy Code does not require classification of certain
priority claims against a debtor. In this case, these unclassified claims
include Administrative Claims and Priority Tax Claims. All distributions
referred to below that are scheduled for the Effective Date will be made on the
Effective Date or as soon as practicable thereafter.
Administrative Claims. An "Administrative Claim" is a claim for
payment of an administrative expense of a kind specified in Section 503(b) of
the Bankruptcy Code and referred to in Section 507(a)(1) of the Bankruptcy
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Code, including, without limitation, the actual and necessary costs and expenses
incurred after the commencement of a Chapter 11 Case of preserving the estate or
operating the business of the company (including wages, salaries and commissions
for services), loans and advances to the company made after the petition date,
compensation for legal and other services and reimbursement of expenses awarded
or allowed under Section 330(a) or 331 of the Bankruptcy Code, certain retiree
benefits, certain reclamation claims, and all fees and charges against the
estate under Section 1930 of title 28, United States Code.
Subject to certain additional requirements for professionals and certain
other entities set forth below, Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, shall pay to each Holder of an Allowed
Administrative Claim, on account of its Administrative Claim and in full
satisfaction thereof, Cash equal to the amount of such Allowed Administrative
Claim on the later of the Effective Date or the day on which such Claim becomes
an Allowed Claim, unless the Holder and Reorganized CMI, Reorganized CMM or
Reorganized Holdings, as the case may be, shall have agreed to other treatment
of such Claim, or an order of the Bankruptcy Court provides for other terms, in
which case such Allowed Administrative Claim shall be paid in accordance with
such agreement or Bankruptcy Court order, as applicable; provided, that if
incurred in the ordinary course of business or otherwise assumed by the Debtors
pursuant to the Plan (including Administrative Claims of governmental units for
taxes), an Allowed Administrative Claim will be assumed on the Effective Date
and paid, performed or settled by Reorganized CMI, Reorganized CMM or
Reorganized Holdings, as the case may be, when due in accordance with the terms
and conditions of the particular agreement(s) governing the obligation in the
absence of the Reorganization Cases.
Payment of Statutory Fees
All fees payable pursuant to 28 U.S.C. ss. 1930(a)(6) (U.S. Trustee Fees)
shall be paid by the Debtors or the Reorganized Debtors, as applicable, when
such fees are due and owing.
Priority Tax Claims
Unless otherwise agreed to by the Debtors or Reorganized CMI, Reorganized
CMM or Reorganized Holdings, as the case may be, and a Holder of a Priority Tax
Claim, each Holder of an Allowed Priority Tax Claim shall receive, at the sole
option of Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case
may be, (i) Cash equal to the unpaid portion of such Allowed Priority Tax Claim
on the later of the Effective Date and the date on which such Claim becomes an
Allowed Priority Tax Claim, or as soon thereafter as is practicable, or (ii)
equal quarterly Cash payments in an aggregate amount equal to such Allowed
Priority Tax Claim, together with interest at a fixed annual rate to be
determined by the Bankruptcy Court or otherwise agreed to by Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, and such Holder,
over a period through the sixth anniversary of the date of assessment of such
Allowed Priority Tax Claim, or upon such other terms determined by the
Bankruptcy Court to provide the Holder of such Allowed Priority Tax Claim
deferred Cash payments having a value, as of the Effective Date, equal to such
Allowed Priority Tax Claim. The Holders of Allowed Priority Tax Claims are not
entitled to vote on the Plan. Pursuant to Section 1123(a)(1) of the Bankruptcy
Code, Priority Tax Claims are not designated a Class of Claims for purposes of
voting on the Plan.
Bar Date for Administrative Claims.
General Provisions. Except as provided below for (i) non-tax liabilities
incurred in the ordinary course of business by the Debtors in Possession and
(ii) Post-Petition Tax Claims, requests for payment of Administrative Claims
must be Filed and served on counsel for the Debtors and Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, no later than (x)
sixty (60) days after the Effective Date, or (y) such later date, if any, as the
Bankruptcy Court shall order upon application made prior to the end of such
60-day period. Holders of Administrative Claims (including, without limitation,
professionals requesting compensation or reimbursement of expenses and the
Holders of any Claims for federal, state or local taxes) that are required to
File a request for payment of such Claims and that do not File such requests by
the applicable bar date shall be forever barred from asserting such Claims
against the Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings,
or any of their respective properties.
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Professionals. All professionals or other Persons requesting compensation
or reimbursement of expenses pursuant to Sections 327, 328, 330, 331, 503(b),
506(b) or 1103 of the Bankruptcy Code for services rendered on or before the
Effective Date (including, without limitation, any compensation requested by any
professional or any other Person for making a substantial contribution in the
Reorganization Cases) shall File and serve on Reorganized CMI, Reorganized CMM
or Reorganized Holdings, as the case may be, and counsel for Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, an application for
final allowance of compensation and reimbursement of expenses no later than
sixty (60) days after the Effective Date. Objections to applications of
professionals or other Persons for compensation or reimbursement of expenses
must be Filed and served on the Reorganized Debtors, counsel for the Reorganized
Debtors and the requesting professional or other Person not later than ninety
(90) days after the Effective Date.
On or as soon as reasonably practicable after the Effective Date,
Reorganized CMI shall pay the contractual claims of the Indenture Trustee for
its fees and expenses including its reasonable attorneys' fees and expenses. To
the extent, after being furnished with normal supporting documents for such fees
and expenses, Reorganized CMI disputes the reasonableness of any such fees and
expenses, Reorganized CMI shall pay such fees and expenses as are not disputed,
and shall submit to the Indenture Trustee a written list of specific fees and
expenses viewed by Reorganized CMI as not being reasonable. To the extent that
Reorganized CMI and the Indenture Trustee are unable to resolve any dispute, the
dispute shall be resolved by the Bankruptcy Court. The Indenture Trustee shall
not attach or set off any of its fees and expenses against distributions to
Holders of Old Senior Notes and shall not otherwise withhold or delay any such
distributions.
Ordinary Course Liabilities. Except as provided herein, holders of
Administrative Claims based on liabilities incurred in the ordinary course of
the Debtors' businesses (other than Claims of governmental units for taxes or
Claims and/or penalties related to such taxes) shall not be required to File any
request for payment of such Claims. Such Administrative Claims shall be assumed
and paid by Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the
case may be, pursuant to the terms and conditions of the particular transactions
giving rise to such Administrative Claims, without any further action by the
Holders of such Claims. Any dispute with respect to ordinary course liabilities
shall be submitted to the Bankruptcy Court for resolution unless resolved by
agreement of the parties.
Tax Claims. All requests for payment of Post-Petition Tax Claims, for
which no bar date has otherwise been previously established, must be Filed on or
before the later of (i) sixty (60) days following the Effective Date, and (ii)
120 days following the filing of the tax return for such taxes for such tax year
or period with the applicable governmental unit. Any Holder of any Post-Petition
Tax Claim that is required to File a request for payment of such taxes and that
does not File such a Claim by the applicable bar date shall be forever barred
from asserting any such Post-Petition Tax Claim against the Debtors, Reorganized
CMI, Reorganized CMM or Reorganized Holdings, or any of their respective
properties, whether any such Post-Petition Tax Claim is deemed to arise prior
to, on or subsequent to the Effective Date.
Cramdown. The so-called "cramdown" provisions of Section 1129(b) of the
Bankruptcy Code permit confirmation of a Chapter 11 plan of reorganization in
certain circumstances even if the plan is not accepted by all impaired classes
of claims and interests. In the event that at least one impaired Class of Claims
votes to accept the Plan (and at least one impaired Class either votes to reject
the Plan or is deemed to have rejected the Plan), the Debtors and the CMI Equity
Committee reserve the right to request that the Bankruptcy Court confirm the
Plan under the cramdown provisions of the Bankruptcy Code. In that event, the
Debtors and the CMI Equity Committee have reserved the right to modify the Plan
to the extent, if any, that Confirmation pursuant to Section 1129(b) of the
Bankruptcy Code requires or permits modification of the Plan.
As set forth in the Plan, to the extent that any Impaired Class votes to
reject the Plan or is deemed to have rejected the Plan, the Debtors and the CMI
Equity Committee will request that the Bankruptcy Court confirm the Plan under
the "cramdown" provisions of Section 1129(b) of the Bankruptcy Code.
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Sources of Cash to Make Plan Distributions
Except as otherwise provided in the Plan or the Confirmation Order, all
cash necessary for the Reorganized Debtors to make the payments pursuant to the
Plan will be obtained from the Recapitalization Financing, Reorganized Debtors'
cash balances or the operations of the Debtors or the Reorganized Debtors.
C. Confirmation and Effective Date Conditions
Conditions to Confirmation
Confirmation of the Plan is conditioned upon satisfaction of the
applicable provisions of Section 1129 of the Bankruptcy Code and entry of a
Confirmation Order by the Bankruptcy Court in form and substance satisfactory to
the Debtors and the CMI Equity Committee. Among other things, the Confirmation
Order shall authorize and direct that the Debtors, Reorganized CMI, Reorganized
CMM and Reorganized Holdings take all actions necessary or appropriate to enter
into, implement and consummate the contracts, instruments, releases, leases,
indentures and other agreements or documents created in connection with or
contemplated by the Plan, including, but not limited to, those actions
contemplated by the provisions of the Plan, and shall provide that all New
Securities to be issued to Holders of Claims and Interests pursuant to the Plan,
and all securities issuable upon the conversion of the New Securities are exempt
from registration under federal and state securities laws pursuant to Section
1145 of the Bankruptcy Code and that the solicitation of Holders of CMI Common
Stock, Series B Preferred Stock and Old Senior Notes is exempt under Rule
14a-2(a)(4) of the proxy regulations under the Securities Exchange Act of 1934.
Conditions to Effective Date
The Effective Date will not occur and the Plan will not be consummated
unless and until each of the following conditions has been satisfied or waived
by the Debtors and the CMI Equity Committee:
The Confirmation Order in form and substance satisfactory to the Debtors
and the CMI Equity Committee and entered by the Bankruptcy Court shall not have
been modified in any respect.
The Recapitalization Financing shall be funded in accordance with the
terms of the Plan and the respective governing documents for each component of
the Recapitalization Financing.
All other actions and documents necessary to implement the transactions
contemplated to be effected under this Plan on or before the Effective Date
shall have been effected or executed or, if waivable, waived by the Person or
Persons entitled to the benefit thereof.
Waiver of Conditions to Effective Date
Each of the conditions to the Effective Date may be waived in whole or in
part by the Debtors and the CMI Equity Committee at any time, without notice or
an Order of the Bankruptcy Court.
Modification or Revocation of the Plan; Severability
The Debtors and the CMI Equity Committee reserve the right to modify the
Plan at any time prior to the Confirmation Date as provided for by Section 1127
of the Bankruptcy Code or as otherwise permitted by law without additional
disclosure pursuant to Section 1125 of the Bankruptcy Code, except as the
Bankruptcy Court may otherwise order. The potential impact of any such amendment
or modification on the Holders of Interests cannot presently be foreseen, but
may include a change in the economic impact of the Plan on some or all of the
Classes or a change in the relative rights of such Classes.
If after receiving sufficient acceptances but prior to Confirmation of the
Plan, the Debtors and the CMI Equity Committee seek to modify the Plan, the
Debtors and the CMI Equity Committee can use such previously solicited
acceptances only to the extent permitted by applicable law.
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The Debtors and the CMI Equity Committee reserve the right after the
Confirmation Date and before the Effective Date to modify the terms of the Plan
or waive any conditions to the effectiveness thereof if and to the extent the
Debtors and the CMI Equity Committee determine that such modifications or
waivers are necessary or desirable in order to consummate the Plan. The Debtors
will give such Holders of Claims and Interests notice of such modifications or
waivers as may be required by applicable law and the Bankruptcy Court, and any
such modifications will be subject to the approval of the Bankruptcy Court to
the extent required by, and in accordance with, Section 1127 of the Bankruptcy
Code.
The CMI Equity Committee will join in modifications proposed by the
Debtors in accordance with the foregoing in the exercise of such Committee's
reasonable discretion.
Notwithstanding the foregoing, any modifications of or amendments to, or
waivers of any conditions to the effectiveness of the Plan prior to the
Effective Date that materially affect the treatment or recovery of the Holders
of Class A9 or A10 Allowed Claims require the consent of the Unsecured
Creditors' Committee, provided, however, that it is hereby agreed that any
change in the amount of payments, timing of payments, term of the New Debt as
defined in Exhibit 2 to the Plan, Collateral as defined in Exhibit 2 to the
Plan, liens, rights or default remedies available to the Holders of Class A9/A10
Note A's or Class A9/A10 Note B's or of any other specific provisions of Exhibit
2 to the Plan shall be deemed material for purposes of this paragraph.
The Debtors reserve the right to revoke or withdraw the Plan prior to the
Confirmation Date. If the Debtors revoke or withdraw the Plan, or if
Confirmation does not occur, then the Plan will be null and void, and all of the
Debtors' respective obligations with respect to the Claims and Interests will
remain unchanged and nothing contained in the Plan or in this Disclosure
Statement will be deemed an admission or statement against interest or
constitute a waiver or release of any claims by or against any Debtor or any
other Person or to prejudice in any manner the rights of any Debtor or any
Person in any further proceedings involving any Debtor or any Person.
If, prior to Confirmation, any term or provision of the Plan is held by
the Bankruptcy Court to be invalid, void or unenforceable, the Bankruptcy Court
will have the power, upon the request of the Debtors, to alter and interpret
such term or provision to make it valid or enforceable to the maximum extent
practicable, consistent with the original purpose of the term or provision held
to be invalid, void or unenforceable, and such term or provision will then be
applicable as altered or interpreted. Notwithstanding any such holding,
alteration or interpretation, the remainder of the terms and provisions of the
Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The
Confirmation Order will constitute a judicial determination and will provide
that each term and provision of the Plan, as it may have been altered or
interpreted in accordance with the foregoing, is valid and enforceable pursuant
to its terms.
If so ordered by the Bankruptcy Court at the Confirmation Hearing, the
Plan provisions for CMM may be confirmed independently of confirmation of the
Plan provisions for CMI and Holdings.
D. The Reorganized Debtors
A description of various matters relating to the Reorganized Debtors
including (i) information relating to the business to be conducted by
Reorganized CMI, CMM and Holdings following the Effective Date, (ii) the
proposed management of Reorganized CMI, CMM and Holdings and proposed
compensation and other arrangements relating thereto, and (iii) certain
corporate governance matters, is set forth or referenced below.
Corporate Structure
On the Effective Date, CMI will become Reorganized CMI, CMM will become
Reorganized CMM, and Holdings will become Reorganized Holdings with no change in
their respective structural relationships.
Business of the Reorganized Debtors
In connection with the Plan, substantially all cash flows are expected to
be used to satisfy principal, interest and fee obligations under the New Debt.
The New Debt will be secured by substantially all assets of the Company.
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It is contemplated that there will be restrictive covenants, including financial
covenants, in connection with the New Debt. The foregoing will effect the
Company's post-bankruptcy business strategy. See "BUSINESS PLAN."
Directors and Management of Reorganized CMI and Reorganized CMM
Board of Directors. The names, affiliations and backgrounds of the persons
to serve as the initial members of the Board of Directors of Reorganized CMI and
Reorganized CMM will be identified at or before the Confirmation Hearing in a
schedule to be filed by CMI and CMM with the Bankruptcy Court. Such appointments
to the respective Boards of Directors will otherwise be consistent with the
Plan, including the terms of the Merrill/GACC Term Sheet.
Two of the individuals to be nominated to serve as directors of
Reorganized CMI will be jointly identified by CMI and the CMI Equity Committee
and presented for approval in accordance with the provisions of the Merrill/GACC
Term Sheet.
See "GENERAL INFORMATION - Business - Management" for information
concerning CMI's existing directors.
Executive Officers. The initial officers of Reorganized CMI will be
selected by the Board of Directors of Reorganized CMI. To the extent that
initial officers have been selected, their names, affiliations and backgrounds
will be disclosed in a schedule to be Filed with the Bankruptcy Court on or
prior to the Confirmation Date. Reorganized CMI will negotiate compensation
packages with its officers that are consistent with compensation packages in the
industry and, to the extent applicable, subject to the terms and conditions of
assumed employment agreements.
The initial officers of Reorganized CMM will be selected by the Board of
Directors of Reorganized CMM. To the extent that initial officers have been
selected, their names, affiliations and backgrounds will be disclosed in a
schedule to be to be Filed with the Bankruptcy Court on or prior to the
Confirmation Date. Reorganized CMM will negotiate compensation packages with its
officers that are consistent with compensation packages in the industry, and, to
the extent applicable, subject to the terms and conditions of assumed employment
agreements.
See "GENERAL INFORMATION - Business - Management for information
concerning CMI's existing executive officers and assumed employment agreements.
Certain Corporate Governance Matters
Reorganized CMI Amended and Restated Articles of Incorporation and
Reorganized CMI Amended and Restated Bylaws. The Reorganized CMI Amended and
Restated Articles of Incorporation and the Reorganized CMI Amended and Restated
Bylaws, substantially in the forms of Exhibits E and F hereto and incorporated
herein by reference, shall by virtue of the Confirmation Order be deemed
exhibits to and part of the Plan and shall become effective without further
action by stockholders, on the Effective Date. The CMI Amended and Restated
Articles of Incorporation contain amendments providing for, among other matters,
an increase in authorized shares from 120 million to 375 million, (consisting of
300 million shares of common stock and 75 million shares of preferred stock);
authority for the Board of Directors to increase authorized shares without
action by stockholders; new excess share provisions relating to the transfer,
acquisition and redemption of capital stock addressing ownership limitations for
CMI and the treatment of excess stock, intended to ensure compliance with the
Internal Revenue Code of 1986 (such excess share provisions are also intended to
serve as an antitakeover device in connection with any hostile acquisition even
though Reorganized CMI's REIT status would not be threatened by such
acquisition); deletion of certain antitakeover provisions (however CMI will
remain subject to the Maryland business combination statute); a change in the
vote required for removal of directors from a majority to 66 2/3; changes in how
vacancies on the Board of Directors and newly created directorships are filled;
and prohibition of the issuance of nonvoting equity securities to the extent
required by Section 1123(a)(6) of the Bankruptcy Code. The Reorganized CMI
Amended and Restated Bylaws contain amendments providing for, among other
matters, advance notice of matters to be presented at annual meetings of
stockholders and advance notice of nominees for director.
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Reorganized CMM Articles of Incorporation and Reorganized CMM Bylaws. The
forms of the Reorganized CMM Articles of Incorporation and the Reorganized CMM
Bylaws will be filed with the Bankruptcy Court at or before the Disclosure
Statement Hearing.
Second Amended and Restated Option Plan for Key Employees. On or prior to
the Effective Date, the Second Amended and Restated Stock Option Plan for Key
Employees (the "Second Amended Employee Stock Option Plan") substantially in the
form of Exhibit G hereto and incorporated herein by reference, will be adopted
by the Board of Directors to be effective on the Effective Date and, by voting
to accept the Plan, all Holders of Class A21 Interests shall be deemed to have
ratified and approved the Second Amended Employee Stock Option Plan.
Additionally, upon entry of the Confirmation Order, the Second Amended Employee
Stock Option Plan shall be deemed an exhibit to and part of the Plan and the
Bankruptcy Court shall, consistent with Maryland and federal law, be deemed to
have approved the Second Amended Employee Stock Option Plan (including the
increase in the number of shares of common stock with respect to which options
may be granted and an extension of time in which options may be granted, as
provided for therein) on behalf of CMI's stockholders and in satisfaction of
Section 422 of the Internal Revenue Code. Following the Effective Date, the
Board of Directors of Reorganized CMI may further amend or modify the Second
Amended Employee Stock Option Plan in accordance with the terms thereof and any
such further amendment or modification shall not require amendment of the Plan.
The Second Amended Employee Stock Option Plan amends CMI's Amended and Restated
Stock Option Plan for Key Employees to, among other matters, provide for an
increase in the number of shares of CMI Common Stock with respect to which
options may be granted from 2,068,031 (as adjusted from 2 million shares as a
result of the junior preferred stock dividend paid to common stockholders in
November 1999 and consistent with a Bankruptcy Court Order which limits the full
adjustment to 2,198,831 shares, contemplated by the terms and provisions of the
Second Amended Employee Stock Option Plan, until CMI emerges from Chapter 11) to
4,500,000; to extend the time in which options may be granted under the Plan
from June 30, 2000 until June 30, 2002, and to effect changes consistent with
current securities and tax laws. After the Effective Date it is expected that
common stockholder approval of the material terms of the Second Amended Employee
Stock Option Plan will be sought for purposes of becoming exempt from the
deduction limits set forth in Section 162(m) of the Internal Revenue Code. See
"GENERAL INFORMATION - Management" for a description of the Amended and Restated
Stock Option Plan for Key Employees to be amended by the Second Amended Employee
Stock Option Plan.
CMI's Non-Employee Director Stock Option Plan in place prior to the
Effective Date shall remain in place after the Effective Date and Reorganized
CMI shall continue to honor such option plan.
E. Recapitalization Financing Including Issuance of New Securities
On the Effective Date, the Recapitalization Financing shall be funded and
become effective and the CMBS Sale Portfolio, if not already sold, shall be sold
as parts of effectuating consummation of the Plan. On the Effective Date,
Reorganized CMI will issue the New Securities in accordance with the Plan. The
Plan provides that the issuance of the New Securities, and all securities
issuable upon conversion of the New Securities, is thereby authorized pursuant
to Section 1145 of the Bankruptcy Code, without further action under applicable
law. In addition, on the Effective Date, the Reorganized Debtors will implement
and, to the extent applicable, receive the proceeds of the New Debt in
accordance with the terms of the applicable documents with respect thereto. On
the Effective Date, all securities, instruments, corporate documents, and
agreements entered into pursuant to or contemplated by the Plan, including,
without limitation, the New Securities, any other security and any instrument,
corporate document, or agreement entered into in connection with any of the
transactions referenced in Section V or Section X.H of the Plan, shall become
effective, binding and enforceable in accordance with their respective terms and
conditions upon the parties thereon without further act or action under
applicable law, regulation, order or rule, and shall be deemed to become
effective simultaneously.
F. Sale of the CMBS Sale Portfolio
On or before the Effective Date, the commercial mortgage-backed securities
and any other assets in the CMBS Sale Portfolio shall be sold in accordance with
the terms of the Plan and any Orders with respect thereto entered by the
Bankruptcy Court. The proceeds thereof shall be used to pay Allowed Secured
Claims in accordance
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with any Orders entered by the Bankruptcy Court with respect thereto and
otherwise used as part of the funding of the Plan.
G. Affiliate Reorganization
In order to secure certain financing contemplated under the Plan with the
commercial mortgage backed securities representing the equity interests in
CBO-1, CBO-2 and CMO-IV (the "Equity Interests"), CMI anticipates that, as a
part of the Plan, either (i) a reorganization of certain CMI affiliated entities
will be effected resulting in REIT subsidiaries holding the Equity Interests or
owning the stock in the qualified REIT subsidiaries holding the Equity
Interests, or (ii) the qualified REIT subsidiaries holding the Equity Interests
or the trusts holding the underlying assets will elect REIT status (and other
actions will be taken as necessary to effect such election), with the intent to
secure such financing with a pledge of stock in the REITs, in lieu of a direct
pledge of the Equity Interests, which is restricted under certain operative and
constituent documents and could result in adverse tax consequences and a
negative impact on collateral values. This affiliate reorganization is designed
to address concerns of creditors who will provide financing under the Plan
contemplated to be secured by the Equity Interests. In addition, certain other
action may be taken as necessary to implement the foregoing. All of the actions
taken in effecting this affiliate reorganization shall be consistent with the
provisions of Exhibit 2 to the Plan governing the treatment of Class A9 and
Class A10.
H. Potential New Equity Investment and Rights Offering
Although not required to fund the Plan, the Debtors, in consultation with
the CMI Equity Committee, may seek new equity capital from one or more investors
to partially fund the Reorganized Debtors and the Plan as Recapitalization
Financing. In such event, the Plan will be amended to appropriately reflect such
new equity capital transaction, in a manner consistent with Exhibits 1 and 2 to
the Plan. If new equity capital is sought, it is likely to take the form of a
private issuance of preferred stock with such relative rights and preferences as
may be agreed to consistent with the terms of the Plan.
In the event new equity capital is sought from an investor, it is also
anticipated that an offering of rights to purchase common stock or a new series
of preferred stock, with rights and preferences similar to the preferred stock
likely to be issued to the new equity capital investor but with limited voting
rights, would be made to Holders of CMI Common Stock. Such rights offering would
be developed in consultation with the CMI Equity Committee. Such rights offering
would commence on the Effective Date and would be for a percentage of the
aggregate face value of the securities issued to the new equity capital
investor. All or a portion of the proceeds of the rights offering may be used to
redeem at face value the securities issued to the new equity investor.
Even if CMI does not seek new equity from an investor, an offering of
rights to purchase CMI Common Stock may be made to Holders of CMI Common Stock
in connection with the Plan. Such rights offering would be developed in
consultation with the CMI Equity Committee.
In the event new equity capital is sought from an investor and a rights
offering is made to Holders of CMI Common Stock or a rights offering is made to
Holders of CMI Common Stock independent of any new equity investment by an
investor, the CMI Common Stock will be exchanged for new CMI Common Stock (on a
one share per one share basis) and rights (one right per share) structured to
ensure that the value of the CMI Common Stock exchanged exceeds the value of the
fresh capital raised in the rights offering, thereby making the exchange
principally in exchange for an interest and only partly for cash and rendering
applicable the limited transactional exemption from securities law registration
afforded by Section 1145 of the Bankruptcy Code. If CMI determines to proceed
with a rights offering, it has committed to discuss the applicability of the
exemption afforded by Section 1145 of the Bankruptcy Code with the SEC. If a
rights offering is made and an exchange of CMI Common Stock, consistent with the
foregoing, is effected, then CMI's existing Series B Preferred Stock, Old Series
D Preferred Stock, Series E Preferred Stock and Stock Options would be exchanged
for new Series B Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Stock Options, as applicable.
Applicability of Federal and Other Securities Laws
In reliance upon the exemption provided by Section 1145(a)(1) of the
Bankruptcy Code, the Debtors have not filed a registration statement under the
Securities Act or any state securities laws with respect to the New
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Securities that will be offered pursuant to the Plan or any other securities
issuable upon conversion of the New Securities. Pursuant to the requirements of
the Trust Indenture Act of 1939 (the "TIA"), applications for qualification
under the TIA will be filed with the SEC with regard to the indentures that will
govern the New Securities that will be issued to Holders of Allowed Class A9 and
A10 Claims (the "New Debt Securities"). Such applications will be filed prior to
the commencement of solicitation for acceptances of the Plan.
Section 1145(a)(1). Section 1145(a)(1) exempts the offer or sale of securities
pursuant to a plan of reorganization from the registration requirements of
Section 5 of the Securities Act and from registration under state and local
securities laws if the following conditions are satisfied: (i) the securities
are issued by a debtor (or its affiliate or successor) under a plan of
reorganization; (ii) the recipients of the securities hold claims against,
interests in, or claims for administrative expenses against the debtor; and
(iii) the securities are issued in exchange for the recipients' claims against
or interests in the debtor, or principally in such exchange and partly for cash
or property.
The New Securities, and all other securities issuable upon conversion of
the New Securities issued pursuant to the Plan will not be "restricted
securities" within the meaning of Rule 144 under the Securities Act and may,
subject to the limitations discussed below, be freely transferred by Holders of
Allowed Class A9, A10, A14, A16, A18 and A20 Claims and Interests under the
Securities Act and their successors and assigns. Accordingly, all resales and
subsequent transactions in the New Securities, and any other securities issuable
upon conversion of the New Securities are exempt from registration under the
Securities Act pursuant to Section 4(1) of the Securities Act, unless the Holder
is deemed to be an "underwriter" with respect to such securities or an
"affiliate" of an issuer. Section 1145(b) of the Bankruptcy Code defines four
types of "underwriters":
(i) persons who purchase a claim against, an interest in, or a claim
for administrative expense against the debtor with a view to distributing
any security received in exchange for such a claim or interest;
(ii) persons who offer to sell securities offered under a plan for
the holders of such securities;
(iii) persons who offer to buy securities from the holders of such
securities, if the offer to buy is (a) with a view to distributing such
securities and (b) made under a distribution agreement; and
(iv) a person who is an "issuer" with respect to the securities, as
the term "issuer" is defined in Section 2(11) of the Securities Act.
Under Section 2(11) of the Securities Act, an "issuer" includes any
"affiliate" of the issuer, which means any person directly or indirectly through
one or more intermediaries, controlling, controlled by or under common control
with the issuer. Any Holder of an Allowed Claim or Interest (or group of Holders
of such Claims and/or Interests who act in concert) who receives a substantial
amount of any of the New Securities pursuant to the Plan, or who holds a
substantial amount of equity in CMI and receives any of the New Securities
pursuant to the Plan, may be deemed to be an "affiliate" of an issuer and
therefore an "issuer" and therefore an "underwriter" under the foregoing
definitions.
Whether or not any particular person would be deemed to be an
"underwriter" or an "affiliate" with respect to any security to be issued
pursuant to the Plan would depend upon various facts and circumstances
applicable to that person. Accordingly, the Debtors express no view as to
whether any person would be an "underwriter" or an "affiliate" with respect to
any security to be issued pursuant to the Plan.
GIVEN THE COMPLEX NATURE OF THE QUESTION OF WHETHER A PARTICULAR PERSON
MAY BE AN UNDERWRITER OR AN AFFILIATE, THE DEBTORS MAKE NO REPRESENTATIONS
CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE SECURITIES TO BE TRANSFERRED
PURSUANT TO THE PLAN. THE DEBTORS RECOMMEND THAT HOLDERS OF ALLOWED CLAIMS
CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH
SECURITIES.
Rule 144A, promulgated under the Securities Act, provides a non-exclusive
safe harbor exemption from the registration requirements of the Securities Act
for resales to certain "qualified institutional buyers" of securities
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which are "restricted securities" within the meaning of the Securities Act,
irrespective of whether the seller of such securities purchased its securities
with a view towards reselling such securities under the provisions of Rule 144A.
Under Rule 144A, a "qualified institutional buyer" is defined to include, among
other persons (e.g., "dealers" registered as such pursuant to Section 15 of the
Exchange Act and "banks" as defined in Section 3(a)(2) of the Securities Act),
any entity which purchases securities for its own account or for the account of
another qualified institutional buyer and which (in the aggregate) owns and
invests on a discretionary basis at least $100 million in the securities of
unaffiliated issuers. Subject to certain qualifications, Rule 144A does not
exempt the offer or sale of securities which, at the time of their issuance,
were securities of the same class of securities then listed on a national
securities exchange (registered as such under Section 6 of the Exchange Act) or
quoted in a U.S. automated interdealer quotation system (e.g., Nasdaq). Holders
of such securities who are deemed to be "underwriters" within the meaning of
Section 1145(b)(1) of the Bankruptcy Code or who may otherwise be deemed to be
"underwriters" of, or to exercise "control" over, the Company within the meaning
of Rule 405 of Regulation C under the Securities Act should, assuming that all
other conditions of Rule 144A are met, be entitled to avail themselves of the
safe harbor resale provisions thereof.
To the extent that Rule 144A is unavailable, holders may, under certain
circumstances, be able to sell their securities pursuant to the more limited
safe harbor resale provisions of Rule 144 under the Securities Act. Generally,
Rule 144 provides that if certain conditions are met (e.g., volume limitations,
manner of sale, availability of current information about the issuer, etc.), any
"affiliate" of the issuer of the securities sought to be resold will not be
deemed to be an "underwriter" as defined in Section 2(11) of the Securities Act.
Under paragraph (k) of Rule 144, the aforementioned conditions to resale will no
longer apply to restricted securities sold for the account of a holder who is
not an affiliate of the Company at the time of such resale and who has not been
such during the three-month period next preceding such resale, so long as a
period of at least two years has elapsed since the later of (i) the period next
preceding such resale, so long as a period of at least two years has elapsed
since the later of (i) the Effective Date and (ii) the date on which such holder
acquired his or its securities from an affiliate of the Company.
As noted above, Section 1145(a)(1) exempts the offer and sale of the New
Securities from the registration requirements of Section 5 of the Securities
Act. Section 1145(a)(1) does not, however, contain a corresponding exemption
from the indenture qualification requirements of the TIA. The exemptive
provision of the TIA, Section 304, exempts certain specified types of securities
from the provisions of the TIA, including many of the types of securities exempt
from the registration requirements of Section 5 of the Securities Act, but it
does not exempt securities issued under Section 1145(a)(1) of the Bankruptcy
Code. Section 305 and 307 of the TIA specifically provide for the filing of an
application for qualification of indentures governing any debt securities that
are exempt from the Securities Act registration requirements but are not exempt
from the TIA. Pursuant to such sections and TIA Rule 7a-1, CMI will file (prior
to commencement of solicitation for acceptances of the Plan) with the SEC
applications on Form T-3 for qualification of the indentures that will govern
the New Debt Securities.
THE NEW SECURITIES ISSUED ON THE EFFECTIVE DATE, AND THE SECURITIES
ISSUABLE UPON CONVERSION OF THE NEW SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SEC OR BY ANY STATE SECURITIES COMMISSION OR SIMILAR PUBLIC,
GOVERNMENTAL OR REGULATORY AUTHORITY AND NEITHER THE SEC NOR SUCH AUTHORITY HAS
PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DISCLOSURE STATEMENT OR UPON THE MERITS OF THE PLAN. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENCE.
I. Distributions Under the Plan
General
Reorganized Debtors, or such Person(s) as the Debtors may employ in their
sole discretion, will act as Disbursing Agent under the Plan. The Disbursing
Agent shall make all distributions of Cash required to be distributed under the
applicable provisions of the Plan and the documents evidencing the
Recapitalization Financing. Any Disbursing Agent may employ or contract with
other entities to assist in or make the distributions required by the Plan and
the documents evidencing the Recapitalization Financing. Each Disbursing Agent
will serve without bond, and each Disbursing Agent, without further Bankruptcy
Court approval, reasonable compensation for
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distribution services rendered pursuant to the Plan and reimbursement of
reasonable out-of-pocket expenses incurred in connection with such services from
the Reorganized Debtors on terms acceptable to the Reorganized Debtors.
Timing of Distributions
Except as otherwise provided in the Plan with respect to any particular
Class or Claim, property to be distributed hereunder on account of Allowed
Claims and Allowed Interests in an Impaired Class (a) shall be distributed on
the Effective Date or as soon as practicable thereafter to each Holder of an
Allowed Claim or an Allowed Interest in that Class that is an Allowed Claim or
an Allowed Interest as of the Effective Date, and (b) shall be distributed to
each Holder of an Allowed Claim or an Allowed Interest of that Class that
becomes an Allowed Claim or Allowed Interest after the Effective Date, as soon
as practicable after the Order of the Bankruptcy Court allowing such Claim or
Interest becomes a Final Order. Except as otherwise provided in the Plan,
property to be distributed under the Plan on account of an Administrative Claim
shall be distributed on the later of (i) the Effective Date or as soon as
practicable thereafter, or if any Claim is not an Allowed Claim as of the
Effective Date, on the date the Order allowing such Claim becomes a Final Order
or as soon as practicable thereafter, and (ii) the date on which the
distribution to the Holder of the Claim would have been due and payable in the
ordinary course of business or under the terms of the Claim.
Methods of Distributions
Cash Payments. Cash payments made pursuant to the Plan will be in United
States dollars. Cash payments to foreign creditors may be made, at the option of
the Debtors or the Reorganized Debtors, in such funds and by such means as are
necessary or customary in a particular foreign jurisdiction. Cash payments made
pursuant to the Plan in the form of checks issued by the Reorganized Debtors
shall be null and void if not cashed within 90 days of the date of the issuance
thereof. Requests for reissuance of any check shall be made directly to the
Disbursing Agent as set forth in Section V.G of the Plan. Cash payments to bank
creditors of the Debtors may be by wire transfer.
Compliance with Tax Requirements. In connection with the distributions set
forth herein, to the extent applicable, the Disbursing Agent shall comply with
all tax withholding and reporting requirements imposed on it by any governmental
unit, and all distributions pursuant to this Plan shall be subject to such
withholding and reporting requirements. The Disbursing Agent shall be authorized
to take any and all actions that may be necessary or appropriate to comply with
such withholding and reporting requirements.
Notwithstanding any other provision contained herein: (i) each Holder of
an Allowed Claim or Interest that is to receive a distribution of Cash pursuant
to the Plan shall have sole and exclusive responsibility for the satisfaction
and payment of any tax obligations imposed by any governmental unit, including
income, withholding and other tax obligations, on account of such distribution;
and (ii) no distribution shall be made to or on behalf of such Holder pursuant
to the Plan unless and until such Holder has made arrangements reasonably
satisfactory to the Disbursing Agent for the payment and satisfaction of such
tax obligations. Any distributions pursuant to the Plan will, pending the
implementation of such arrangements, be treated as an undeliverable distribution
pursuant to Section V.G of the Plan.
Distribution Record Date. As of the close of business on the Distribution
Record Date, the transfer registers for the Old Securities, maintained by the
Debtors, or their respective agents, will be closed. The Disbursing Agent and
its respective agents and the Indenture Trustee will have no obligation to
recognize the transfer of any Old Securities occurring after the Distribution
Record Date, and will be entitled for all purposes relating to this Plan to
recognize and deal only with those Holders of Record as of the close of business
on the Distribution Record Date.
Surrender of Cancelled Old Securities and Exchange of Old Securities for New
Securities
Tender of Old Securities. The mechanism by which Holders of Allowed Claims
and Allowed Interests surrender their Old Securities in order to receive Cash,
if and as applicable under the Plan, and to exchange such Old Securities for New
Securities (as applicable), shall be determined based upon the manner in which
the Old Securities were issued and the mode in which they are held, as set forth
below.
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Old Securities Held in Book-Entry Form. Old Securities held in book-entry
form through bank and broker nominee accounts shall be mandatorily cancelled and
(i) Cash distributed, if and as applicable under the Plan, and (ii) mandatorily
exchanged for New Securities (as applicable) through the facilities of such
nominees and the systems of the applicable securities depository or Clearing
System holding such Old Securities on behalf of the brokers or banks.
Old Securities in Physical, Registered, Certificated Form. Each Holder of
Old Securities in physical, registered, certificated form will be required, on
or before the Effective Date, to deliver its physical notes or certificates (the
"Tendered Certificates") to the Disbursing Agent, accompanied by a properly
executed letter of transmittal, to be distributed by the Disbursing Agent after
the Confirmation Date and containing such representations and warranties as are
described in this Disclosure Statement (a "Letter of Transmittal").
Any Cash or New Securities to be distributed pursuant to the Plan on
account of any Allowed Claim or Allowed Interest represented by an Old Security
held in physical, registered, certificated form shall, pending such surrender,
be treated as an undeliverable distribution pursuant to Section V.G of the Plan.
Signatures on a Letter of Transmittal must be guaranteed by an Eligible
Institution (as defined below), unless the Old Securities tendered pursuant
thereto are registered in the name of the Person signing the Letter of
Transmittal or are tendered for the account of an Eligible Institution. If
signatures on a Letter of Transmittal are required to be guaranteed, such
guarantees must be by a member firm of a registered national securities exchange
in the United States, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or a
correspondent in the United States (each of which is an "Eligible Institution").
If Old Securities are registered in the name of a Person other than the Person
signing the Letter of Transmittal, the Old Securities, in order to be tendered
validly, must be endorsed or accompanied by a properly completed power of
authority, with signature guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Letters of Transmittal and Tendered Certificates will
be resolved by the applicable Disbursing Agent, whose determination shall be
final and binding, subject only to review by the Bankruptcy Court upon
application with due notice to any affected parties in interest. CMI reserves
the right, on behalf of itself and the Disbursing Agent, to reject any and all
Letters of Transmittal and Tendered Certificates not in proper form, or Letters
of Transmittal and Tendered Certificates, the Disbursing Agent's acceptance of
which would, in the opinion of the Disbursing Agent or its counsel, be unlawful
or would subject the Disbursing Agent to liability.
Delivery of New Securities in Exchange for Old Securities. On the
Effective Date, Reorganized CMI or the Disbursing Agent shall issue and
authenticate the New Securities, and shall apply to DTC to make such New
Securities eligible for deposit at DTC. With respect to Holders of Old
Securities who hold such Old Securities through nominee accounts at bank and
broker participants in DTC or any similar clearing system, the Disbursing Agent
shall deliver such New Securities to DTC or to the registered address specified
by the Clearing System. The Clearing System (or its depositary) shall return the
applicable Old Securities to the Disbursing Agent for cancellation.
The Disbursing Agent will request that DTC effect a mandatory exchange of
the applicable Old Securities for the applicable New Securities by crediting the
accounts of its participants with the applicable New Securities in exchange for
the Old Securities. On the effective date of such exchange, each DTC participant
will effect a similar exchange for accounts of the beneficial owners holding Old
Securities through such firms. Neither the Debtors, Reorganized Debtors nor the
Disbursing Agent shall have any responsibility or liability in connection with
the Clearing Systems' or such participants' effecting, or failure to effect,
such exchanges.
Holders of Old Securities holding such Old Securities outside a Clearing
System will be required to surrender their Old Securities by delivering them to
the Disbursing Agent, along with properly executed Letters of Transmittal (as
described above). The Disbursing Agent shall forward the New Securities on
account of such Old Securities in accordance with the instructions contained in
the Letters of Transmittal.
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Other Matters with Respect to the Surrender of Old Securities. By
participating in any of the above procedures, each Holder of the Old Securities
will be representing and warranting (and the Letters of Transmittal will so
provide) that among other things, the Holder has full power and authority to
tender, exchange, sell, assign and transfer the Old Securities and that when
such Old Securities are accepted for exchange by the Debtors or the Reorganized
Debtors, the Debtors or the Reorganized Debtors will acquire valid title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
that the Old Securities are not subject to any adverse claims or proxies. The
Holder also agrees that it will, upon request, execute and deliver any
additional documents deemed by the Disbursing Agent, the Debtors or the
Reorganized Debtors to be necessary or desirable to complete the exchange, sale,
assignment and transfer of the Old Securities Old. All authority conferred by
participating in the above procedures will survive the death or incapacity of
the Holder, and all obligations of the Holder will be binding upon the heirs,
personal representatives, successors and assigns of the Holder.
The surrender of the Old Securities pursuant to any one of the procedures
described in this Disclosure Statement, upon the Debtors' or the Reorganized
Debtors' acceptance for exchange of such Old Securities, constitutes a binding
agreement between the Holder and the Debtors or the Reorganized Debtors upon the
terms, and subject to the conditions, of the Plan.
Special Procedures for Lost, Stolen, Mutilated or Destroyed Instruments.
Any Holder of a Claim or an Interest evidenced by an Instrument that has been
lost, stolen, mutilated or destroyed will, in lieu of surrendering such
Instrument, deliver to the Disbursing Agent: (a) an affidavit of loss or other
evidence reasonably satisfactory to the Disbursing Agent of the loss, theft,
mutilation or destruction; and (b) such security or indemnity as may reasonably
be required by the Disbursing Agent or the applicable Reorganized Debtor to hold
the Disbursing Agent and such Reorganized Debtor harmless from any damages,
liabilities or costs incurred in treating such individual as a Holder of an
Instrument. Upon compliance with the Plan, the Holder of a Claim or Interest
evidenced by any such lost, stolen, mutilated or destroyed Instrument shall, for
all purposes under the Plan and notwithstanding anything to the contrary
contained herein, be deemed to have surrendered such Instrument.
Failure to Surrender Cancelled Instrument. Any Holder of Old Securities
holding such Old Securities in physical, registered or certificated form who has
not properly completed and returned to the Disbursing Agent a Letter of
Transmittal, together with the applicable Tendered Certificates, within two
years after the Effective Date shall have its claim for a distribution pursuant
to the Plan on account of such Instrument discharged and shall be forever barred
from asserting any such claim against Reorganized CMI, Reorganized CMM or
Reorganized Holdings or their properties. In such cases, any Cash or New
Securities held for distribution on account of such claim shall be disposed of
pursuant to the provisions of Section V.G of the Plan.
Release of Security Interests in or Other Claims to or against Assets or
Property of the Reorganized Debtors by Creditors Paid Pursuant to the Plan
Any Holder of a Secured Claim whose Secured Claim is being paid in full in
accordance with Section IV.C, IV.D or IV.E of the Plan shall cooperate in all
respects with the Reorganized Debtors and shall execute such documents and
release and return to the Reorganized Debtors such assets or property of the
Debtors or Reorganized Debtors, as applicable, that such creditor is holding,
directly or indirectly, as collateral and, if applicable, unwind any alleged
repurchase agreements or claims to assets or property subject to such alleged
repurchase agreements. Furthermore, any and all Holders of such Secured Claims
shall execute such documents and take such actions as may be reasonably required
by the Reorganized Debtors to effectuate the transfer or retransfer back to the
Reorganized Debtors of all collateral security, or assets or property held
subject to alleged repurchase agreements, free and clear of all liens, security
interests, claims or interests in or to such collateral, assets or property by
such Holder, and shall confirm the foregoing in writing if requested by the
Reorganized Debtors.
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Delivery of Distributions; Undeliverable or Unclaimed Distributions
Any Person that is entitled to receive a Cash distribution under the Plan
but that fails to cash a check within 90 days of its issuance shall be entitled
to receive a reissued check from Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, for the amount of the original check, without any
interest, if such Person requests the Disbursing Agent to reissue such check and
provides the Disbursing Agent with such documentation as the Disbursing Agent
reasonably requests to verify that such Person is entitled to such check, prior
to the second anniversary of the Effective Date. If a Person fails to cash a
check within 90 days of its issuance and fails to request reissuance of such
check prior to the second anniversary of the Effective Date, such Person shall
not be entitled to receive any distribution under the Plan.
Subject to Bankruptcy Rule 9010, all distributions to any Holder of an
Allowed Claim or an Allowed Interest shall be made to the address of such Holder
on the books and records of the Debtors or their agents, unless Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as applicable, has been notified in
writing of a change of address. If the distribution to any Holder of an Allowed
Claim or Allowed Interest is returned to a Disbursing Agent as undeliverable,
such Disbursing Agent shall use reasonable efforts to determine the current
address of such Holder, but no distribution shall be made to such Holder unless
and until the applicable Disbursing Agent has determined or is notified in
writing of such Holder's then-current address, at which time such distribution
shall be made to such Holder without any additional interest on such
distribution after the Effective Date. Undeliverable distributions shall remain
in the possession of the applicable Disbursing Agent pursuant to Section VI.A of
the Plan until such time as a distribution becomes deliverable. Undeliverable
Cash or New Securities shall be held in trust by the applicable Disbursing Agent
for the benefit of the potential claimants of such funds or securities, and will
be accounted for separately. Any Disbursing Agent holding undeliverable Cash
shall invest such Cash in a manner consistent with the Debtors' investment and
deposit guidelines. Any interest paid, and any other amounts earned, with
respect to such undeliverable Cash pending its distribution in accordance with
this Plan shall be property of Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be. Undeliverable New Securities will be held in trust
for the benefit of the potential claimants of such securities by the Disbursing
Agent in principal amounts or numbers of shares sufficient to fund the unclaimed
amounts of such New Securities and will be accounted for separately. Any
unclaimed or undeliverable distributions (including Cash and New Securities)
shall be deemed unclaimed property under Section 347(b) of the Bankruptcy Code
at the expiration of two years after the Effective Date and, after such date,
all such unclaimed property shall revert to Reorganized CMI, Reorganized CMM, or
Reorganized Holdings, as the case may be, and the Claim or Interest of any
Holder with respect to such property shall be discharged and forever barred.
The Plan provides that the Disbursing Agent will make all distributions
required under the applicable provisions of the Plan, subject to the terms of
the Plan.
J. General Information Concerning the Plan
Procedures for Treating Disputed Claims Under Plan of Reorganization
Process. If any of the Debtors disputes any Claim, such dispute shall be
determined, resolved or adjudicated, as the case may be, under applicable law,
and such Claim shall survive the Effective Date to the extent that such Claim
has not been allowed and has not received the treatment afforded the Class of
Claims in which such Claim is classified under this Plan on or before the
Effective Date. Among other things, any Debtor may elect, at its sole option, to
object or seek estimation under Section 502 of the Bankruptcy Code with respect
to any proof of claim filed by or on behalf of a Holder of a Claim or any proof
of interest filed by or on behalf of a Holder of an Interest.
Tort Claims. All Tort Claims are Disputed Claims. Any unliquidated Tort
Claim that is not otherwise settled or resolved pursuant to Section V.H.l.a of
the Plan shall be determined and liquidated under applicable law in the
Bankruptcy Court or the administrative or judicial tribunal in which it is
pending on the Confirmation Date or, if no such action was pending on the
Confirmation Date, in the Bankruptcy Court or any administrative or judicial
tribunal of appropriate jurisdiction. Pursuant to Section IX.E of the Plan, the
automatic stay arising pursuant to Section 362 of the Bankruptcy Code shall be
vacated as of the Effective Date as to all Tort Claims. Any Tort Claim
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determined and liquidated pursuant to a judgment obtained in accordance with
Section V.H. l.b of the Plan and applicable non-bankruptcy law that is no longer
subject to appeal or other review shall be deemed to be an Allowed Claim in
Class A10, B5 or C5, as applicable, in such liquidated amount and satisfied in
accordance with the Plan. Nothing contained in Section V.H.l.b of the Plan shall
constitute or be deemed a waiver of any claim, right or cause of action that the
Debtors or the Reorganized Debtors may have against any Person in connection
with or arising out of any Tort Claim, including, without limitation, any rights
under Section 157(b) of title 28, United States Code.
Objections to Claims and Interests. Except insofar as a Claim or Interest
is allowed hereunder, Reorganized CMI, Reorganized CMM and Reorganized Holdings
shall be entitled and reserve the right to object to Claims and Interests.
Except as otherwise provided in Section V.H.3 of the Plan and except as
otherwise ordered by the Bankruptcy Court, objections to any Claim or Interest,
including, without limitation, Administrative Claims, shall be Filed and served
upon the Holder of such Claim or Interest no later than 90 days after the
Effective Date, unless such period is extended by the Bankruptcy Court, which
extension may be granted on an ex parte basis without notice or hearing. After
the Confirmation Date, only the Debtors, Reorganized CMI, Reorganized CMM or
Reorganized Holdings shall have the authority to File, settle, compromise,
withdraw, or litigate to judgment objections to Claims and Interests. From and
after the Confirmation Date, the Debtors, Reorganized CMI, Reorganized CMM or
Reorganized Holdings may settle or compromise any Disputed Claim or Disputed
Interest in an amount or of a value of $75,000 or less, other than Claims or
Interests of Insiders (as defined in the Bankruptcy Code), without approval of
the Bankruptcy Court. Except as (i) specified otherwise herein, or (ii) ordered
by the Bankruptcy Court, all Disputed Claims or Disputed Interests shall be
resolved by the Bankruptcy Court. The failure of the Debtors to object to any
Claim or Interest for voting purposes shall not be deemed to be a waiver of the
Debtors' or Reorganized Debtors' right to object to any Claim or Interest in
whole or in part thereafter.
Professionals, Claims. Except as otherwise ordered by the Bankruptcy
Court, objections to Claims of professionals shall be governed by the provisions
of Section IV.A.3.b of the Plan.
No Distributions Pending Allowance. Notwithstanding any other provisions
of the Plan, no payments or distributions will be made on account of a Disputed
Claim or a Disputed Interest until such Claim or Interest becomes an Allowed
Claim or Allowed Interest.
Distributions on Account of Disputed Claims and Interests Once They are
Allowed. Within 30 days after the end of each calendar quarter following the
Effective Date, the applicable Disbursing Agent will make all distributions on
account of any Disputed Claim or Disputed Interest that has become an Allowed
Claim or Allowed Interest during the preceding calendar quarter. Such
distributions will be made pursuant to the provisions of the Plan governing the
applicable Class. Holders of Disputed Claims or Disputed Interests that are
ultimately allowed will also be entitled to receive, on the basis of the amount
ultimately allowed: (i) matured and payable interest, if any, at the rate
provided for the Class to which such Claim belongs; and (ii) any interest
payments, dividends or other payments made to the Class to which such Claim or
Interest belongs, but held pending distribution.
Setoffs
Except with respect to any contract, instrument, release, indenture or
other agreement or document created in connection with the Plan, the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may be,
may, pursuant to Section 553 or section 502(d) of the Bankruptcy Code or
applicable nonbankruptcy law, set off against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim (before
any distribution is made on account of such Claim), the claims, rights and
causes of action of any nature that the Debtors, Reorganized CMI, Reorganized
CMM or Reorganized Holdings may hold against the Holder of such Allowed Claim;
provided, however, that neither the failure to effect such a setoff nor the
allowance of any Claim hereunder shall constitute a waiver or release by the
Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings of any such
claims, rights and causes of action that the Debtors, Reorganized CMI,
Reorganized CMM or Reorganized Holdings may possess against such Holder.
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Termination of Subordination
The classification and manner of satisfying all Claims and Interests under
the Plan and the distributions thereunder take into consideration all
contractual, legal and equitable subordination rights, whether arising under any
agreement, general principles of equitable subordination, Section 510 of the
Bankruptcy Code or otherwise, that a Holder of a Claim or Interest may have
against other Claim or Interest Holders with respect to any distribution made
pursuant to the Plan. On the Effective Date, all contractual, legal or equitable
subordination rights that such Holder may have with respect to any distribution
to be made pursuant to the Plan shall be deemed to be waived, discharged and
terminated, and all actions related to the enforcement of such subordination
rights will be permanently enjoined. Accordingly, distributions pursuant to the
Plan to Holders of Allowed Claims and Allowed Interests shall not be subject to
payment to a beneficiary of such terminated subordination rights, or to levy,
garnishment, attachment or other legal process by any beneficiary of such
terminated subordination rights.
Individual Holder Proofs Of Interest
Individual Holders of Interests in Classes A14, A16, A18, A20, A21, A22,
B7 and C7 are not required to File proofs of Interests unless they disagree with
the number of shares set forth on the applicable stock register.
Treatment Of Executory Contracts And Unexpired Leases
Assumptions. Except as otherwise provided herein, on the Effective Date,
pursuant to Section 365 of the Bankruptcy Code, the Debtors will assume each
executory contract and unexpired lease entered into by the Debtors prior to the
Petition Date that has not previously (a) expired or terminated pursuant to its
own terms or (b) been assumed or rejected pursuant to Section 365 of the
Bankruptcy Code. The Confirmation Order will constitute an Order of the
Bankruptcy Court approving the assumptions described in Section VII.A of the
Plan, pursuant to Section 365 of the Bankruptcy Code, as of the Effective Date.
Cure of Defaults in Connection with Assumption. Any monetary amounts by
which each executory contract and unexpired lease to be assumed pursuant to the
Plan is in default will be satisfied, pursuant to Section 365(b)(1) of the
Bankruptcy Code, at the option of the Debtors, Reorganized CMI, Reorganized CMM
or Reorganized Holdings, as the case may be: (a) by payment of the default
amount in Cash on the Effective Date or as soon as practicable thereafter; or
(b) on such other terms as are agreed to by the parties to such executory
contract or unexpired lease.
If there is a dispute regarding: (i) the amount of any cure payments; (ii)
the ability of Reorganized CMI, Reorganized CMM or Reorganized Holdings to
provide "adequate assurance of future performance" (within the meaning of
Section 365 of the Bankruptcy Code) under the contract or lease to be assumed;
or (iii) any other matter pertaining to assumption, the cure payments required
by Section 365(b)(1) of the Bankruptcy Code will be made following the entry of
a Final Order resolving the dispute and approving the assumption.
Rejections. Except as otherwise provided in the Plan on the Effective
Date, pursuant to Section 365 of the Bankruptcy Code, the Debtors will reject
each of the executory contracts and unexpired leases listed on a schedule to be
filed prior to the Confirmation Hearing (the "Contract Rejection Schedule")
provided, however, that the Debtors reserve the right, at any time prior to the
Effective Date, to amend such schedule to delete any executory contract or
unexpired lease listed therein, thus providing for its assumption pursuant to
Sections VII.A and B of the Plan. Each contract and lease listed on the Contract
Rejection Schedule will be rejected only to the extent that any such contract or
lease constitutes an executory contract or unexpired lease. Listing a contract
or lease on the Contract Rejection Schedule does not constitute an admission by
the Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings that such
contract or lease is an executory contract or unexpired lease or that the
Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings has any
liability thereunder. The Confirmation Order shall constitute an Order of the
Bankruptcy Court approving such rejections, pursuant to Section 365 of the
Bankruptcy Code, as of the Effective Date.
Bar Date for Rejection Damages. If the rejection of an executory contract
or unexpired lease pursuant to Section VII.C of the Plan gives rise to a Claim
by the other party or parties to such contract or lease, such Claim
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shall be forever barred and shall not be enforceable against the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings, their successors or
properties unless (a) a stipulation with respect to the amount and nature of
such Claim has been entered into by either of the Debtors, Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as applicable, and the Holder of such
Claim in connection with the rejection of such executory contract or unexpired
lease, or (b) a Proof of Claim is Filed and served on Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, and counsel for
Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may be,
within 30 days after the Effective Date or such earlier date as established by
the Bankruptcy Court. Unless otherwise ordered by the Bankruptcy Court, all
Allowed Claims arising from the rejection of executory contracts and unexpired
leases shall be treated as Claims in Class A10, B5 or C5 as applicable.
Continuation of Certain Retirement and Other Benefits. All employment,
retirement and other related agreements and incentive compensation plans and
programs to which CMI, CMM or Holdings is a party are treated as executory
contracts under the Plan and will be assumed or rejected pursuant to Section VII
of the Plan and Sections 365 and 1123 of the Bankruptcy Code.
Executory Contracts and Unexpired Leases Entered Into and Other
Obligations Incurred After the Petition Date. Executory contracts and unexpired
leases entered into and other obligations incurred after the Petition Date by
the Debtors will be performed by the Debtors or the Reorganized Debtors, in the
ordinary course of their businesses. Accordingly, such executory contracts,
unexpired leases and other obligations will, except as provided in such
contracts, leases or other obligations, survive and remain unaffected by entry
of the Confirmation Order.
Legal Effects of the Plan
Continued Corporate Existence; Vesting of Assets in Reorganized CMI, CMM
and Holdings. Reorganized CMI will exist after the Effective Date as a separate
corporate entity, with all the powers of a corporation under the general
corporate law of Maryland. Reorganized CMM will exist after the Effective Date
as a separate corporate entity, with all the powers of a corporation under the
general corporate law of Maryland. Reorganized Holdings will exist after the
Effective Date as a separate limited partnership entity with all the powers of a
limited partnership under the applicable partnership law of Delaware. Except as
otherwise provided in the Plan or the Confirmation Order, on the Effective Date,
all property of CMI's Estate will vest in Reorganized CMI, all property of CMM's
Estate will vest in Reorganized CMM, and all property of Holdings Estate will
vest in Reorganized Holdings, all free and clear of all Claims, liens,
encumbrances and Interests of Holders of Claims and Holders of Old Securities.
From and after the Effective Date, Reorganized CMI, CMM and Holdings may operate
their business and use, acquire, and dispose of property and settle and
compromise claims or interests arising on or after the Effective Date without
supervision by the Bankruptcy Court and free of any restrictions of the
Bankruptcy Code, the Bankruptcy Rules or the Local Bankruptcy Rules, other than
those restrictions expressly imposed by the Plan or the Confirmation Order.
Cancellation of Old Securities and Related Agreements. On the Effective
Date except as otherwise provided by the Plan the Old Securities and all
instruments, indentures and agreements evidencing or governing such Old
Securities will be deemed terminated, cancelled, extinguished and of no further
force or effect without any further action on the part of the Bankruptcy Court,
or any person or any government entity or agency, and except as otherwise
provided in the Plan, CMI, CMM and Holdings, will be released from any and all
obligations under such securities, instruments, indentures and agreements.
Holders of cancelled Old Securities will have no rights arising from or relating
to such Old Securities or the cancellation thereof, except the rights provided
pursuant to the Plan.
No Further Corporate Action. Each of the matters provided for under the
Plan involving the corporate structure of any Debtor or Reorganized Debtor or
corporate action to be taken by or required of any Debtor or Reorganized Debtor
(including, without limitation, approval of the issuance of the New Securities)
shall, as of the Effective Date, be deemed to have occurred and be effective as
provided in the Plan, and shall be authorized and approved in all respects
without any requirement of further action by stockholders or directors of any of
the Debtors or Reorganized Debtors.
Implementation. The Debtors, Reorganized CMI, Reorganized CMM and
Reorganized Holdings are authorized and directed by the Plan to take all
necessary steps, and perform all necessary acts, to consummate the
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terms and conditions of the Plan on and after the Effective Date. On or before
the Effective Date, the Debtors may file with the Bankruptcy Court such
agreements and other documents as may be necessary or appropriate to effectuate
or further evidence the terms and conditions of the Plan and the other
agreements referred to herein or contemplated by the Plan.
Effectuating Documents and Actions. The Debtors, Reorganized CMI,
Reorganized CMM and Reorganized Holdings, as the case may be, and each of their
respective appropriate officers shall be authorized to execute and deliver such
contracts, instruments, releases, and other agreements or documents and take
such other actions as may be necessary or appropriate to effectuate and further
evidence the terms and conditions of the Plan, the transactions provided for in
the Plan and all other actions in connection therewith.
Discharge of Debtors and Injunction. Except as otherwise provided in the
Plan or the Confirmation Order: (i) on the Effective Date, the Debtors shall be
deemed discharged and released to the fullest extent permitted by Section 1141
of the Bankruptcy Code from all Claims and Interests, including, but not limited
to, demands, liabilities, Claims and Interests that arose before the Effective
Date and all debts of the kind specified in Sections 502(g), 502(h) or 502(i) of
the Bankruptcy Code, whether or not (a) a proof of Claim or proof of Interest
based on such debt or Interest is Filed or deemed Filed pursuant to Section 501
of the Bankruptcy Code, (b) a Claim or Interest based on such debt or Interest
is allowed pursuant to Section 502 of the Bankruptcy Code, or (c) the Holder of
a Claim or Interest based on such debt or Interest has accepted the Plan; and
(ii) all Persons shall be precluded from asserting against Reorganized CMI,
Reorganized CMM and Reorganized Holdings, their respective successors, or their
respective assets or properties any other or further Claims or Interests based
upon any act or omission, transaction, or other activity of any kind or nature
that occurred prior to the Effective Date. Except as otherwise provided in the
Plan or the Confirmation Order shall act as a discharge of any and all Claims
against and all debts and liabilities of the Debtors, as provided in Sections
524 and 1141 of the Bankruptcy Code, and such discharge shall void any judgment
against the Debtors at any time obtained to the extent that it relates to a
Claim discharged.
Except as otherwise provided in the Plan or the Confirmation Order, on and
after the Effective Date, all Persons who have held, currently hold or may hold
a debt, Claim or Interest discharged pursuant to the terms of the Plan are
permanently enjoined from taking any of the following actions on account of any
such discharged debt, Claim or Interest: (i) commencing or continuing in any
manner any action or other proceeding against the Debtors, Reorganized CMI,
Reorganized CMM or Reorganized Holdings, or their respective successors or their
respective properties; (ii) enforcing, attaching, collecting or recovering in
any manner any judgment, award, decree or order against the Debtors, Reorganized
CMI, Reorganized CMM or Reorganized Holdings, or their respective successors or
their respective properties; (iii) creating, perfecting or enforcing any lien or
encumbrance against the Debtors, Reorganized CMI, Reorganized CMM or Reorganized
Holdings, or their respective successors or their respective properties; and
(iv) commencing or continuing any action, in any manner, in any place that does
not comply with or is inconsistent with the provisions of the Plan or the
Confirmation Order. Any Person, including but not limited to the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings, injured by any willful
violation of such injunction shall recover actual damages, including costs and
attorneys' fees, and, in appropriate circumstances, may recover punitive
damages, from the willful violator.
Limitation of Liability. None of the Debtors, Reorganized CMI, Reorganized
CMM or Reorganized Holdings, the members of the Committees, the Indenture
Trustee, or any of their respective employees, officers, directors, agents, or
representatives, or any professional persons employed by any of them (including,
without limitation, their respective Designated Professionals), shall have any
responsibility, or have or incur any liability, to any Person whatsoever (i) for
any matter expressly approved or directed by the Confirmation Order or (ii)
under any theory of liability (except for any claim based upon willful
misconduct or gross negligence) for any act taken or omission made in good faith
directly related to formulating, implementing, confirming, or consummating the
Plan, the Disclosure Statement, or any contract, instrument, release or other
agreement or document created in connection with or contemplated by the Plan;
provided, that nothing in Section XI.B of the Plan shall limit the liability of
any Person for breach of any express obligation it has under the terms of this
Plan or any documents executed in connection therewith or pursuant thereto or
under any other agreement other document entered into by such Person in
accordance with or pursuant to the terms of this Plan (except to the extent
expressly provided in the Confirmation Order) or for any breach of a duty of
care owed to any other Person occurring after the Effective Date.
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Releases. On the Effective Date, each of the Debtors shall release
unconditionally, and hereby is deemed to release unconditionally (i) each of the
Debtors' then-current and former officers, directors, shareholders, employees,
consultants, attorneys, accountants, financial advisors and other
representatives (solely in their capacities as such) (collectively, the "Debtor
Releasees") and (ii) the Committees and, solely in their capacity as members or
representatives of the Committees, each member, consultant, attorney,
accountant, financial advisor or other representative of the Committees
(collectively the "Committee Releasees") from any and all claims, obligations,
suits, judgments, damages, rights, causes of action and liabilities whatsoever,
whether known or unknown, foreseen or unforeseen, existing or hereafter arising,
in law, equity or otherwise, based in whole or in part upon any act or omission,
transaction, event or other occurrence taking place on or after the Petition
Date and up to and including the Effective Date in any way relating to the
Reorganization Cases, the Plan or this Disclosure Statement.
On the Effective Date, each Holder of a Claim or Interest shall be deemed
to have unconditionally released the Debtor Releasees, the Committee Releasees
and each of their then-current and former officers, directors, shareholders,
employees, consultants, attorneys, accountants, financial advisors and other
representatives (solely in their capacities as such) from any and all claims,
obligations, suits, judgments, damages, rights, causes of action and liabilities
whatsoever which any such holder may be entitled to assert, whether known or
unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity
or otherwise, based in whole or in part upon any act or omission, transaction,
event or other occurrence taking place on or after the Petition Date and up to
and including the Effective Date in any way relating to the Reorganization
Cases, the Plan or the Disclosure Statement, excepting, however, from such
release any obligation owing to a Holder of an Allowed Claim or Allowed Interest
provided for in this Plan or the Confirmation Order.
Indemnification. The obligations of the Debtors as of the Petition Date to
indemnify their present and former directors or officers, respectively, against
any obligations pursuant to the Debtors' articles of incorporation, by-laws,
applicable state law or specific agreement or resolution, or any combination of
the foregoing, shall survive confirmation of the Plan, remain unaffected
thereby, be assumed by Reorganized CMI, Reorganized CMM or Reorganized Holdings,
as the case may be, and not be discharged. The Debtors shall fully indemnify,
and Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may
be, shall assume the Debtors' obligations to indemnify, any person by reason of
the fact that he or she is or was serving as a director, officer, employee,
agent, professional, member, or other authorized representative (in each case,
as applicable) of any of the Debtors (collectively, the "Indemnitees") against
any claims, liabilities, actions, suits, damages, fines, judgments or expenses
(including reasonable attorneys' fees and expenses), arising during the course
of, or otherwise in connection with or in any way related to, the negotiation,
preparation, formulation, solicitation, dissemination, implementation,
confirmation and consummation of the Plan and the transactions contemplated
thereby and the Disclosure Statement in support thereof, provided, however, that
the foregoing indemnification shall not apply to any liabilities arising from
the gross negligence or willful misconduct of any Indemnitee. In addition,
Reorganized CMI shall fully indemnify the CMI Equity Committee and its
professionals against any claims, liabilities, actions, suits, damages, fines,
judgments, expenses (including reasonable attorneys' fees and expenses) as a
result of or arising from the CMI Equity Committee being a co-proponent of the
Plan and Disclosure Statement, provided, however, that the foregoing
indemnification shall not apply to any liabilities arising from gross negligence
or willful misconduct of any such indemnitee. For purposes of the following
sentences in this paragraph, reference to the term "Indemnitee" shall include
the CMI Equity Committee and its professionals. If any claim, action or
proceeding is brought or asserted against an Indemnitee in respect of which
indemnity may be sought from Reorganized CMI, Reorganized CMM or Reorganized
Holdings, the Indemnitee shall promptly notify Reorganized CMI, in writing and,
in any such event, Reorganized CMI shall assume the defense thereof including
the employment of counsel reasonably satisfactory to the Indemnitee, and the
payment of all expenses of such Indemnitee. The Indemnitee shall have the right
to employ separate counsel in any such claim, action or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnitee unless (a) Reorganized CMI has agreed
to pay the fees and expenses of such counsel, or (b) Reorganized CMI shall have
failed to assume promptly the defense of such claim, action or proceeding or to
employ counsel reasonably satisfactory to the Indemnitee in any such claim
action or proceeding, or (c) the named parties in any such claim, action or
proceeding (including any impleaded parties) include both the Indemnitee and
Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may be,
and the Indemnitee believes, in the exercise of its business judgment and in the
opinion of its legal counsel, reasonably satisfactory to Reorganized CMI, that
the joint representation of Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, and the Indemnitee will likely result in a
conflict
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of interest (in which case, if the Indemnitee notifies Reorganized CMI in
writing that it elects to employ separate counsel at the expense of Reorganized
CMI, Reorganized CMI shall not have the right to assume the defense of such
action or proceeding on behalf of the Indemnitee). In addition, neither
Reorganized CMI, nor Reorganized CMM nor Reorganized Holdings shall effect any
settlement or release from liability in connection with any matter for which the
Indemnitee would have the right to indemnification from Reorganized CMI,
Reorganized CMM or Reorganized Holdings unless such settlement contains a full
and unconditional release of the Indemnitee, or a release of the Indemnitee
reasonably satisfactory in form and substance to the Indemnitee. Anything in the
Plan notwithstanding, no Securities Claims shall be treated as part of Classes
A9 or A10 under the Plan.
It should be noted in connection with the foregoing paragraph that certain
courts have held, and it is the position of the SEC, that indemnification for
liabilities arising under the Securities Act is against public policy and
unenforceable.
Vesting of Assets. Except as otherwise provided in the Plan or the
Confirmation Order, on the Effective Date, all property of CMI's Estate shall
vest in Reorganized CMI and all property of CMM's Estate shall vest in
Reorganized CMM and all property of Holdings' estate shall vest in Reorganized
Holdings, all free and clear of all Claims, liens, encumbrances and Interests of
Holders of Claims and Holders of Old Securities. From and after the Effective
Date, Reorganized CMI, Reorganized CMM and Reorganized Holdings may operate
their business and use, acquire and dispose of property and settle and
compromise claims or interests arising on or after the Effective Date without
supervision by the Bankruptcy Court and free of any restrictions of the
Bankruptcy Code, the Bankruptcy Rules or the Local Bankruptcy Rules, other than
those restrictions expressly imposed by the Plan or the Confirmation Order.
Preservation of Causes of Action. Except as otherwise provided herein, or
in any contract, instrument, release or other agreement entered into in
connection with or pursuant to the Plan, Reorganized CMI, Reorganized CMM and
Reorganized Holdings shall retain (and may enforce) any claims, rights and
causes of action that the Debtors or the Estates may hold against any Person,
including, but not limited to, any claims, rights or causes of action under
Sections 544 through 550 of the Bankruptcy Code or any similar provisions of
state law, or any other statute or legal theory. With respect to avoidance power
causes of action under Sections 544, 547 and 548 of the Bankruptcy Code, except
as any such causes of action are generally referenced in the Plan, the
Disclosure Statement or exhibits thereto, and except any such actions as may be
brought prior to the Confirmation Hearing, the Debtors are presently unaware of
any other such causes of action that any of them intends to pursue prior to or
subsequent to the Effective Date. Notwithstanding the foregoing, creditors and
interest holders should make their decision on whether to vote to accept or
reject the Plan without relying on the preceding sentence.
Retention of Bankruptcy Court Jurisdiction. To the maximum extent
permitted by the Bankruptcy Code and other applicable law, the Bankruptcy Court
shall have jurisdiction of all matters arising out of, and related to, the
Reorganization Cases and the Plan pursuant to, and for the purpose of, Sections
105(a) and 1142 of the Bankruptcy Code, including, without limitation,
jurisdiction to:
1. Allow, disallow, determine, liquidate, classify, estimate or establish the
priority or secured or unsecured status of any Claim or Interest, including the
resolution of any request for payment of any Administrative Claim, the
resolution of any objections to the allowance or priority of Claims or Interests
and the resolution of any dispute as to the treatment necessary to Reinstate a
Claim pursuant to the Plan;
2. Grant or deny any applications for allowance of compensation or reimbursement
of expenses authorized pursuant to the Bankruptcy Code or the Plan, for periods
ending before the Effective Date;
3. Resolve any matters related to the assumption or rejection of any executory
contract or unexpired lease to which any of the Debtors is a party or with
respect to which any of the Debtors may be liable, and to hear, determine and,
if necessary, liquidate any Claims arising therefrom;
4. Ensure that distributions to Holders of Allowed Claims or Allowed Interests
are accomplished pursuant to the provisions of the Plan;
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5. Decide or resolve any motions, adversary proceedings, contested or litigated
matters and any other matters and grant or deny any applications involving the
Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings that may be
pending on the Effective Date;
6. Enter such Orders as may be necessary or appropriate to implement or
consummate the provisions of the Plan and all contracts, instruments, releases,
indentures and other agreements or documents created in connection with or
pursuant to the Plan, the Disclosure Statement or the Confirmation Order, except
as otherwise provided herein;
7. Resolve any cases, controversies, suits or disputes that may arise in
connection with the consummation, interpretation or enforcement of the Plan or
the Confirmation Order, including the release and injunction provisions set
forth in and contemplated by the Plan and the Confirmation Order, or any
entity's rights arising under or obligations incurred in connection with the
Plan or the Confirmation Order;
8. Enter such Orders as may be necessary or appropriate to correct any defect,
cure any omission, or reconcile any inconsistency in this Plan or the
Confirmation Order as may be necessary to carry out the purposes and intent of
the Plan;
9. Enter such Orders as may be necessary or appropriate to enforce, implement or
interpret the terms and conditions of this Plan and resolve any objections filed
with respect to any actions proposed to be taken in connection with or pursuant
to the provisions of the Plan;
10. Enter such Orders as may be necessary or appropriate to approve agreements,
settlements or compromises in connection with matters pending on the Effective
Date or arising thereafter in connection with implementation of provisions of
the Plan;
11. Determine all adversary proceedings and contested matters to recover or
enforce rights with respect to property of any of the Debtors or their Estates
or to obtain other relief relating to causes of actions or claims under the
Bankruptcy Code or other applicable law including, but not limited to, any
actions brought under Sections 541 through 553 of the Bankruptcy Code;
12. Determine matters concerning state, local or federal taxes pursuant to
Sections 346, 505, 525, 1146 and any other tax-related provisions of the
Bankruptcy Code;
13. Enter such Orders as may be necessary or appropriate to enforce and
interpret the provisions of the Confirmation Order;
14. Subject to any restrictions on modifications provided herein or in any
contract, instrument, release, indenture or other agreement or document created
in connection with the Plan, modify this Plan before or after the Effective Date
pursuant to Section 1127 of the Bankruptcy Code or modify the Disclosure
Statement, the Confirmation Order or any contract, instrument, release,
indenture or other agreement or document created in connection with or pursuant
to the Plan, the Disclosure Statement or the Confirmation Order, or remedy any
defect or omission or reconcile any inconsistency in any Bankruptcy Court Order,
the Plan, the Disclosure Statement, the Confirmation Order or any contract,
instrument, release, indenture or other agreement or document created in
connection with or pursuant to the Plan, the Disclosure Statement or the
Confirmation Order, in such manner as may be necessary or appropriate to
consummate the Plan, to the extent authorized by the Bankruptcy Code;
15. Issue injunctions, enter and implement other Orders or take such other
actions as may be necessary or appropriate to restrain interference by any
entity with consummation, implementation or enforcement of the Plan or the
Confirmation Order;
16. Enter and implement such Orders as are necessary or appropriate if the
Confirmation Order is for any reason modified, stayed, reversed, revoked or
vacated;
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17. Except as otherwise provided in the Plan, or with respect to specific
matters, in the Confirmation Order or any other Order entered in connection with
the Reorganization Cases, determine any other matters that may arise in
connection with or relating to the Plan, this Disclosure Statement, the
Confirmation Order or any contract, instrument, release, indenture or other
agreement or document created in connection with or pursuant to the Plan, this
Disclosure Statement or the Confirmation Order; and
18. Enter an Order or Orders closing the Reorganization Cases.
Failure of Bankruptcy Court to Exercise Jurisdiction. If the Bankruptcy
Court abstains from exercising or declines to exercise jurisdiction, or is
otherwise without jurisdiction over any matter arising out of the Reorganization
Cases, including the matters set forth in Section XI.G of the Plan, Section XI.G
of the Plan shall not prohibit or limit the exercise of jurisdiction by any
other court having competent jurisdiction with respect to such matter.
Committees. On the Effective Date, all Committees, shall be dissolved and
the members of such Committees and their professionals shall be released and
discharged from all further rights and duties arising from or related to the
Reorganization Cases. The professionals retained by such Committees and the
members thereof shall not be entitled to compensation or reimbursement of
expenses incurred for services rendered after the Effective Date other than for
services rendered in connection with any application for allowance of
compensation and reimbursement of expenses pending as of, or timely Filed after,
the Effective Date.
VI. CONFIRMATION AND CONSUMMATION PROCEDURES
A. Solicitation of Acceptances
As permitted by the Bankruptcy Code, the Debtors and the CMI Equity
Committee are soliciting, in good faith and in compliance with the applicable
provisions of the Bankruptcy Code, the acceptance of the Plan by all Classes of
Claims and Interests that are "Impaired" under the Plan and that are entitled to
vote on the Plan. The solicitation of acceptances from Holders of Claims or
Interests in unimpaired Classes is not required under the Bankruptcy Code. The
following Classes are Impaired and are entitled to vote on the Plan:
Classes A1, A2, A3, A4, A5, A6, A7, A9, A10, A11, A13, A14, A16, A18, A20, A21,
B1, B2, B5, B6, C1, C2, C5 and C6.
A plan is accepted by an impaired class of claims if holders of at least
two-thirds in dollar amount and more than one-half in number of claims of that
class vote to accept the plan. A plan is accepted by an impaired class of
interests if holders of at least two-thirds in amount vote to accept the plan.
Only those holders of claims or interests who actually vote count in these
tabulations.
In addition to this voting requirement, Section 1129 of the Bankruptcy
Code requires that a plan be accepted by each holder of a claim or interest in
an impaired class or that the plan otherwise be found by the bankruptcy court to
be in the best interests of each holder of a claim or interest in such class. In
addition, each impaired class must accept the plan for the plan to be confirmed
without application of the "fair and equitable" and "unfair discrimination"
tests in Section 1129(b) of the Bankruptcy Code discussed below.
Any Holder of an Impaired Claim or Interest is entitled to accept or
reject the Plan (unless such claim or Interest has been disallowed by the
Bankruptcy Court for purposes of accepting or rejecting the Plan). The Voting
Record Date for determining which Holders of Interests in Classes A9, A14, A16
and A18, A20 and A21 are entitled to accept or reject the Plan is __________
___, 2000, which is the date that the order approving this Disclosure Statement
was entered.
B. Confirmation Hearing
The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a
hearing on the Confirmation of the Plan. The Confirmation Hearing has been
scheduled for __:__ __, Eastern Daylight Savings Time, on _________
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__, 2000. The Confirmation Hearing may be adjourned from time to time by the
Bankruptcy Court without further notice other than an announcement of the
adjourned date made at the Confirmation Hearing. Any objection to Confirmation
of the Plan must be made in writing and filed with the Bankruptcy Court and
served upon the following on or before __:__ __,Eastern Daylight Savings Time,
on _______ ___, 2000:
VENABLE, BAETJER AND HOWARD, LLP AKIN, GUMP, STRAUSS, HAUER
Richard L. Wasserman & FELD, L.L.P.
1800 Mercantile Bank and Trust Building Stanley J. Samorajczyk, P.C.
Two Hopkins Plaza Michael S. Stamer
Baltimore, Maryland 21201 1333 New Hampshire Avenue, N.W.
(410) 244-7400 Washington, D.C. 20036
(202) 887-4000
Co-Counsel to CRIIMI MAE Inc.
and CRIIMI MAE Holdings II, L.P.
SHULMAN, ROGERS, GANDAL, PORDY COVINGTON & BURLING
& ECKER, P.A. Michael St. Patrick Baxter
Morton A. Faller Dennis B. Auerbach
11921 Rockville Pike 1201 Pennsylvania Avenue, NW
Third Floor Washington, D.C. 20044
Rockville, MD 20852-2753 (202) 662-6000
(301) 231-0928
Counsel to CRIIMI MAE Management, Inc. Counsel to the Official Committee of
Equity Security Holders of CRIIMI MAE
Inc.
ARNOLD & PORTER WHITEFORD, TAYLOR & PRESTON, LLP
Daniel M. Lewis Paul M. Nussbaum
555 Twelfth Street, N.W. Seven Saint Paul Street, Suite 1400
Washington, D.C. 20004 Baltimore, Maryland 21202-1626
(202) 942-5000 (410) 347-8700
Counsel to the Official Committee of Counsel to the Official Committee of
Unsecured Creditors of CRIIMI MAE Inc. Unsecured Creditors of CRIIMI MAE
Management, Inc.
C. Confirmation
At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan
only if the Plan satisfies all of the requirements of Section 1129 of the
Bankruptcy Code. The requirements, in relevant part, are the following:
a) The Plan and the Debtors must comply with the applicable provisions of
the Bankruptcy Code.
b) The Plan must have been proposed in good faith and not by any means
forbidden by law.
c) Any payment made or to be made by the Debtors, or by an entity issuing
securities, or acquiring property under the Plan, for services or for costs and
expenses in, or in connection with, the Chapter 11 Cases or in connection with
the Plan and incident to the Chapter 11 Cases must have been approved by or be
subject to, the approval of the Bankruptcy Court as reasonable.
d) The Debtors must have disclosed the identity and affiliations of any
individual proposed to serve, after the Confirmation of the Plan, as a director
or officer of the Debtors under the Plan, and the appointment to or continuance
in such office by such individual must be consistent with the interests of
creditors and equity security holders and with public policy. The Debtors must
have disclosed the identity of any "insider" (as defined in Section
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101 of the Bankruptcy Code) who will be employed or retained by Reorganized CMI,
CMM and Holdings and the nature of any compensation for such insider.
e) Any government regulatory commission with jurisdiction, after the
Confirmation Date, over the rates of the Debtors has approved any rate change
provided for in the Plan, or such rate change is expressly conditioned upon such
approval.
f) With respect to each Impaired Class of Claims or Interests, each Holder
of a Claim or Interest in such class must either accept the Plan or receive or
retain under the Plan on account of such Claim or Interest, property of a value,
as of the Effective Date that is not less than the amount that such Holder would
receive or retain if the Debtors were liquidated on the Effective Date under
Chapter 7 of the Bankruptcy Code.
g) Each Class of Claims or Interests must either accept the Plan or not be
Impaired under the Plan. If this requirement is not met, the Plan may still be
confirmed pursuant to Section 1129(b) of the Bankruptcy Code.
h) Except to the extent that the Holder of a particular Claim has agreed
to a different treatment of such Claim, the Plan must provide that (i)
Administrative Expenses will be paid in full in Cash on the Effective Date, (ii)
Priority Claims will be paid in full in Cash on the Effective Date, or if the
Class of Priority Claims accepts the Plan, the Plan may provide for deferred
Cash payments, of a value, as of the Effective Date, equal to the Allowed amount
of such Priority Claims, and (iii) the Holder of a Priority Tax Claim will
receive on account of such Claim deferred Cash payments over a period not
exceeding six (6) years after the date of assessment of such Claim, of a value
as of the Effective Date, equal to the Allowed amount of such Claim.
i) If a class of Claims is Impaired under the Plan, at least one Class of
Claims that is Impaired by the Plan must accept the Plan, such acceptance to be
determined without giving effect to any acceptance of the Plan by an "insider."
j) Confirmation of the Plan must not be likely to be followed by the
liquidation, or the need for further financial reorganization, of the Debtors or
any successor of the Debtors under the Plan.
k) All fees payable under Section 1930 of title 28, United States Code, as
determined by the Bankruptcy Court at the Confirmation Hearing, must have been
paid or the Plan must provide for the payment of all such fees on the Effective
Date.
l) The Plan provides for the continuation after the Effective Date of
payment of all retiree benefits, as that term is defined in Section 1114 of the
Bankruptcy Code, and at the level established pursuant to Section 1114, at any
time prior to the Confirmation Date, for the duration of the period the Debtors
have obligated themselves to provide such benefits.
The Debtors believe that the Plan satisfies all of the statutory
requirements of Chapter 11 of the Bankruptcy Code. Certain of these requirements
are discussed in greater detail below.
Best Interests Test
In order to the meet the "best interests" test of Section 1129(a)(7) of
the Bankruptcy Code, the Debtors must establish that each holder of a Claim or
Interest in an Impaired class either (i) has accepted the Plan or (ii) will
receive or retain under the Plan in respect of its Claim or Interest, property
of a value, as of the Effective Date, that is not less than the amount such
holder would receive or retain if the Debtors were liquidated under Chapter 7 of
the Bankruptcy Code.
To determine the recovery that Creditors and Holders of Interests would
receive if the Debtors were to be liquidated, the Bankruptcy Court must
determine the amount of cash that would be generated from the liquidation of the
assets and properties of the Debtors in a Chapter 7 liquidation case. The dollar
amount that would be available for satisfaction of Claims and Interests would
consist of the proceeds resulting from the disposition of the assets of the
Debtors in a liquidation case plus the cash held by the Debtors at the time of
the commencement of the
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liquidation case and any interest earned on the investment thereof minus the
costs and expenses of the liquidation and any additional administrative and
priority claims that may result from the termination of the Debtors' business
and the completion of its liquidation under Chapter 7.
The Debtors' costs of liquidation under Chapter 7 of the Bankruptcy Code
would include the fees payable to a trustee (or trustees) in bankruptcy and to
any additional attorneys and other professionals engaged by such trustee (or
trustees), operating costs to effectuate the liquidation of the Debtors' assets
plus any unpaid expenses incurred by the Debtors during the Chapter 11 Cases
including compensation to and reimbursement of expenses of, attorneys, financial
advisors and accountants and costs and expenses of members of the Committees
that are allowed. The foregoing types of Claims and such other Claims as may
arise in the liquidation case or result from the Chapter 11 Cases would be paid
in full from the liquidation proceeds before the balance of those proceeds would
be available to pay Unsecured Claims. In addition, additional Claims would arise
by reason of the rejection of unexpired leases and executory contracts.
Under the "best interest" test, all entities holding Unsecured Claims in a
particular class having the same rights upon liquidation would be treated as a
single class for purposes of determining the potential distribution of the
proceeds from the liquidation of the assets of the Debtors under Chapter 7. The
distributions payable to each of the creditors in a Class from the liquidation
proceeds would be calculated pro rata according to the amount of the Claim in
such Class held by each Creditor. The Debtors believe that the most likely
outcome of liquidation proceeding under Chapter 7 would be the application of
the rule of absolute priority of distributions. Under this rule, (i) no holders
of Unsecured Claims would receive any distribution until all holders of
Administrative Expenses, Priority Claims and Priority Tax Claims were paid in
full with interest and (ii) no holder of an Interest would receive any
distribution until all Holders of General Unsecured Claims were paid in full
with interest.
The Debtors have carefully considered the probable effects of liquidation
under Chapter 7 of the Bankruptcy Code on the ultimate proceeds available for
distribution to creditors and holders of Interests, including the following:
a) the probable costs and expenses of such liquidation;
b) the possible adverse effect of liquidation under Chapter 7 on the
realizable values of the Debtors' assets and properties;
c) the possible adverse effect of liquidation under Chapter 7 on the
salability of the Debtors' business on a going-concern basis as a result of the
possible loss of key employees, the goodwill of customers, vendors and suppliers
and the negative effect on the Debtors' reputation; and
d) the possible substantial increase in Claims which would rank prior to
or on a parity with those of unsecured creditors. After considering these
factors, among others, the Debtors have prepared a liquidation analysis (the
"Liquidation Analysis") (set forth in Exhibit C attached hereto), of the
projected proceeds of a hypothetical Chapter 7 liquidation and the resulting
distributions of such proceeds to the various Classes of Claims and Holders of
Interests. The Liquidation Analysis demonstrates that the value of the
distributions to each Class of Claims and Interests pursuant to the Plan is
equal to or greater than the value of the distributions to such Class in a
Chapter 7 liquidation.
Although the Liquidation Analysis assumes that full distributions to
creditors of the liquidation proceeds would occur within six months of the
commencement of the hypothetical Chapter 7 case, the Debtors also believe that
distributions of the proceeds of the liquidation could be delayed for a
significantly greater period, because of the time necessary to complete the
liquidation, the possibility of litigation among the Holders of various Classes
of Claims of Interests and the additional time required thereafter to litigate
and resolve Disputed Claims and prepare for distributions. If such further delay
were to occur, the present value of future distributions to creditors under
Chapter 7 would be further reduced.
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Feasibility
In order to meet the "feasibility" test under Section 1129(a)(11) of the
Bankruptcy Code, the Debtors must establish that Confirmation of the Plan is not
likely to be followed by the liquidation, or the need for further financial
reorganization, of the Debtors. To determine whether the Plan meets this
requirement, the Debtor has prepared projected financial statements for
Reorganized CMI, CMM and Holdings on a consolidated basis for eight annual
periods commencing on the Effective Date or on the assumed Effective Date. See
Exhibit B.
Although the Projections are based upon the Debtors' best estimates, no
representations are made with respect to the accuracy thereof or the ability of
Reorganized CMI, CMM and Holdings to achieve the Projections. The Projections
are based upon a number of assumptions, many of which are subject to substantial
uncertainty. Some assumptions inevitably will not materialize and unanticipated
events and circumstances occurring subsequent to the date of preparation of the
Projections may affect actual results. Therefore, actual operating results may
vary materially from the projected operating results set forth in the
Projections.
Based upon the Projections, the Debtors and the CMI Equity Committee
believe the Plan is feasible and will be prepared to so demonstrate at the
Confirmation Hearing.
Each party in interest is urged to carefully examine the Projections and
the related assumptions in evaluating the feasibility of the Plan.
Confirmation Over a Dissenting Class
The Bankruptcy Code contains provisions authorizing the confirmation of a
plan even if it is not accepted by all impaired classes, as long as at least one
impaired class of claims (without including any acceptance of the plan by an
insider) has accepted it. These so-called "cramdown" provisions are set forth in
Section 1129(b) of the Bankruptcy Code. As indicated above, a plan may be
confirmed under the cramdown provisions if, in addition to satisfying the other
requirements of Section 1129 of the Bankruptcy Code, it (i) is "fair and
equitable" and (ii) "does not discriminate unfairly" with respect to each class
of claims or interests that is impaired under, and has not accepted, the plan.
The "fair and equitable" standard, also known as the "absolute priority rule,"
requires, among other things, that unless a dissenting class of claims or a
class of interests receives full compensation for its allowed claims or allowed
interests, no holder of claims or interests in any junior class may receive or
retain any property on account of such claims. The Bankruptcy Code establishes
different "fair and equitable" tests for secured creditors, unsecured creditors
and equity holders, as follows:
Secured Creditors: either (i) each impaired secured creditor retains its
liens securing its secured claim and receives on account of its secured claim
deferred cash payments having a present value equal to the amount of its allowed
secured claim, (ii) each impaired secured creditor realizes the "indubitable
equivalent" of its allowed secured claim, or (iii) the property securing the
claim is sold free and clear of liens with such liens to attach to the proceeds,
and the liens against such proceeds are treated in accordance with clause (i) or
(ii) of this paragraph.
Unsecured Creditors: either (i) each impaired unsecured creditor receives
or retains under the plan of reorganization property of a value equal to the
amount of its allowed claim, or (ii) the holders of claims and equity interests
that are junior to the claims of the nonaccepting class do not receive any
property under the plan of reorganization on account of such claims and equity
interests.
Equity Holders: either (i) each equity holder will receive or retain under
the plan of reorganization property of a value equal to the greater of (a) the
fixed liquidation preference or redemption price, if any, of such stock or (b)
the value of the stock, or (ii) the holders of interests that are junior to the
nonaccepting class will not receive any property under the plan of
reorganization.
The "fair and equitable" standard has also been interpreted to prohibit
any class senior to a dissenting class from receiving under a plan more than
100% of its allowed claims. The requirement that a plan not "discriminate
unfairly" means, among other things, that a dissenting class must be treated
substantially equally with respect to other classes of equal rank.
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The Debtors and the CMI Equity Committee believe that, if necessary, the
Plan may be crammed down over the dissent of Classes of certain Claims and
Interests, in view of the treatment proposed for such Classes. See "THE PLAN OF
REORGANIZATION -- Treatment of Claims and Interests Under the Plan" for
information concerning the treatment of various Classes depending on which
Classes vote to accept or reject the Plan. If necessary and appropriate, the
Debtors and the CMI Equity Committee intend to amend the Plan to permit cramdown
of dissenting Classes of Claims or Interests. There can be no assurance,
however, that the requirements of Section 1129(b) of the Bankruptcy Code would
be satisfied even if the Plan treatment provisions were amended or withdrawn as
to one or more Classes.
In addition, the Debtors and the CMI Equity Committee do not believe that
the Plan unfairly discriminates against any Class that may not accept or
otherwise consent to the Plan. A plan of reorganization "does not discriminate
unfairly" if (i) the legal rights of a nonaccepting class are treated in a
manner that is consistent with the treatment of other classes whose legal rights
are similarly situated to those of the nonaccepting class, and (ii) no class
receives payments in excess of that which it is legally entitled to receive for
its claims or equity interests. The Debtors and the CMI Equity Committee believe
the Plan does not discriminate unfairly.
THE DEBTORS AND THE CMI EQUITY COMMITTEE RESERVE THE ABSOLUTE RIGHT TO
SEEK CONFIRMATION OF THE PLAN UNDER SECTION 1129(b) OF THE BANKRUPTCY CODE IN
THE EVENT THE PLAN IS NOT ACCEPTED BY ALL IMPAIRED CLASSES.
Subject to the conditions set forth in the Plan, a determination by the
Bankruptcy Court that the Plan is not confirmable, pursuant to Section 1129 of
the Bankruptcy Code, will not limit or affect the Debtors' ability to modify the
Plan to satisfy the Confirmation requirements of Section 1129 of the Bankruptcy
Code.
D. Consummation
If the Plan is confirmed, the Plan will be consummated and distributions
will be made on or shortly after the Effective Date, except as otherwise
provided in the Plan.
E. Conditions to Effective Date
The Effective Date will not occur and the Plan will not be consummated
unless and until each of the following conditions has been satisfied or waived
by the Debtors and the CMI Equity Committee:
1. The Confirmation Order in form and substance satisfactory to the
Debtors and the CMI Equity Committee and entered by the Bankruptcy Court shall
not have been modified in any respect.
2. The Recapitalization Financing shall be funded in accordance with the
Plan and the respective governing documents for each component of the
Recapitalization Financing, and the sale of the CMBS Sale Portfolio shall have
been completed.
3. All other actions and documents necessary to implement the transactions
contemplated to be effected under this Plan on or before the Effective Date
shall have been effected or executed or, if waivable, waived by the Person
entitled to the benefit thereof.
VII. CERTAIN RISK FACTORS
The risk factors enumerated below (other than those described in "-- Risks
Relating to the Necessary Recapitalization Financing" and "-- Certain Risks of
Non-Confirmation"), generally assume the confirmation and consummation of the
Plan and all transactions contemplated thereby, and, except as indicated, do not
generally include matters that could prevent or delay confirmation. See "THE
PLAN OF REORGANIZATION -- Treatment of Claims and Interests Under the Plan --
Conditions Precedent to Confirmation and Consummation of the Plan" and "--
Voting and Confirmation of the Plan" for a discussion of such matters. Prior to
deciding whether and how to vote on
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the Plan, each Holder of a Claim or Interest in a solicited Class should
carefully consider all of the information contained in this Disclosure
Statement, especially the factors mentioned in the following paragraphs.
Substantial Indebtedness; Leverage
The Company is now highly leveraged and will continue to be highly
leveraged after giving effect to the reorganization. At December 31, 1999, the
Company had total consolidated indebtedness of $2.0 billion (of which $926
million was recourse debt to the Company (i.e., not match-funded)) and
stockholders' equity of $219 million. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business -- General" and the
Consolidated Financial Statements of the Company and the accompanying notes
thereto appearing elsewhere in this Disclosure Statement. After giving effect to
the reorganization, the Company's estimated pro forma aggregate indebtedness at
June 30, 2000 would total approximately $1.6 billion (of which approximately
$465 million would be recourse debt to the Company (i.e., not match-funded) and
stockholders' equity would be approximately $227 million. See "BUSINESS PLAN"
and "Exhibit B-Unaudited Pro Forma Consolidated Financial Statements and
Projected Financial Information."
The Company's management believes that, based on its projections (which
are based upon a number of assumptions), the Company will have sufficient cash
resources to pay interest and scheduled principal on its outstanding
indebtedness, after giving effect to the reorganization. See "Exhibit
B-Unaudited Pro Forma Consolidated Financial Statements and Projected Financial
Information." However, even if the reorganization is completed, the Company's
ability to meet its debt service obligations will depend on a number of factors,
including management's ability to maintain cash flow and to generate capital
internally from operating and investing activities and expected reductions in
REIT distribution requirements to shareholders due to expected net operating
losses for tax purposes, in each case consistent with the terms agreed to with
Merrill and GACC and the Unsecured Creditors' Committee as set forth in the
Plan. There can be no assurance that targeted levels of cash flow will actually
be achieved, that reductions in REIT distribution requirements will be realized,
or that, if required, new capital will be available to the Company. The
Company's ability to maintain or increase cash flow and access new capital with,
respect to the resumption of Subordinated CMBS acquisitions and commercial
mortgage loan originations and securitizations, will depend upon, among other
things, interest rates, prevailing economic conditions and other factors, many
of which are beyond the control of the Company.
The Company's high level of debt limits its ability to obtain additional
capital, reduces income available for distributions, restricts the Company's
ability to react quickly to changes in its business and makes the Company more
vulnerable to economic downturns. In addition, the agreements governing the
Reorganized Debtors' debt may impose significant operating and financial
restrictions on the Company. See "THE PLAN OF REORGANIZATION."
Risks Relating to Necessary Recapitalization Financing
Consummation of the Plan is conditioned upon, among other matters, the
Company obtaining New Debt and completing the CMBS Sale. See "PLAN OF
REORGANIZATION." Although the Company has sold certain CMBS in connection with
the CMBS Sale, is engaged in negotiating additional commitments for the CMBS
Sale, and has agreed to terms with respect to substantially all of the New Debt,
there can be no assurance that the Company will complete the CMBS Sale or obtain
and satisfy all terms and conditions of the New Debt. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
Note 5 to the Notes to Consolidated Financial Statements for a discussion of
certain CMBS sold in February and April, 2000 constituting a portion of the CMBS
Sale.
Risks Relating to the Projections
The management of the Company has prepared the projected financial
information contained in this Disclosure Statement relating to the Company (the
"Projections") in connection with the development of the Plan and in order to
present the anticipated effects of the Plan and the transactions contemplated
thereby. The Projections assume, among other matters, that the Plan and the
transactions contemplated thereby will be implemented in
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accordance with their terms and represent management's best estimate of the
results of the Company's operations following the Effective Date. The
assumptions and estimates underlying such Projections are forward-looking and,
as such, are inherently uncertain and, although considered reasonable by
management as of the date hereof, are subject to significant business, economic
and competitive risks and uncertainties that could cause actual results to
differ materially from those projected, including, among others, (1) the
uncertain ability of the Company to generate sufficient funds internally to meet
its working capital and debt service requirements; (2) interest rate and
financial market volatility; (3) the ability of the Company to retain an
adequate number and mix of employees; and (4) adverse economic conditions and
competition. Accordingly, the Projections are not necessarily indicative of the
future financial condition or results of operations of the Company.
Consequently, the projected financial information contained herein should not be
regarded as a representation by the Company, the Company's advisors or any other
person that the Projections will necessarily be achieved. The Company does not
intend to update or revise the Projections. See "Exhibit B-Unaudited Pro Forma
Consolidated Balance Sheet and Projected Financial Information" and "THE PLAN OF
REORGANIZATION -- The Reorganized Debtors-- Projected Financial Information."
Risks of Loss of REIT Status
It is anticipated that the Company will continue to operate in such a
manner as to qualify as a REIT for federal income tax purposes. If the Company
were to fail to qualify as a REIT in any taxable year, it would be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates, and distributions to stockholders
would not be deductible by the Company in computing its taxable income. Any such
corporate tax liability could be substantial and would reduce the amount of cash
available for distribution to stockholders, which in turn could have an adverse
impact on the value of, and trading prices for, the Common Stock. Unless
entitled to relief under certain Code provisions, the Company also would be
disqualified from taxation as a REIT for the four taxable years following the
year during which the Company ceased to qualify as a REIT.
The Company must distribute at least 95% of its net taxable income each
year (excluding any net capital gain and certain non-cash income) in order to
maintain its status as a REIT for federal income tax purposes (the "95%
Distribution Requirement"). As a REIT, the Company is also subject to a 4%
non-deductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of (i) 85% of
its ordinary income for that year, (ii) 95% of its capital gain net income for
that year, and (iii) 100% of its undistributed taxable income from prior years.
The Company intends to make distributions to its stockholders to comply
with the 95% Distribution Requirement. It is anticipated that, for the
foreseeable future the Company will not have REIT distribution requirements,
however, if the Company does have a REIT distribution requirement, a substantial
portion of the Company's distributions to meet its tax distribution requirements
will be in the form of non-cash taxable dividends. To the extent such
distributions are paid in cash, differences in timing between the recognition of
taxable income and the actual receipt of cash could require the Company to
borrow funds or sell assets on a short-term basis to satisfy the 95%
Distribution Requirement or to avoid the non-deductible excise tax. There can be
no assurance that the Company would be able to borrow funds or sell assets on a
timely basis. The requirement to distribute a substantial portion of the
Company's net taxable income could cause the Company (i) to sell assets in
adverse market conditions, (ii) to distribute amounts that represent a return of
capital, (iii) to distribute amounts that would otherwise be spent on future
investments or repayment of debt, or (iv) to distribute non-cash dividends in
lieu of cash. There can be no assurance that non-cash taxable dividends will
satisfy the Company's taxable distribution requirements to maintain its status
as a REIT.
See "Business-Effect of Chapter 11 Filing on REIT Status and Other Tax
Matters" for a discussion of further risks of loss of REIT status, the
distribution of non-cash taxable dividends with respect to the Company's 1998
taxable income and distributions with respect to the Company's 1999 taxable
income.
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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, CBO-2 and CMO-IV,
collectively the "Trusts"). See "Business -- Loan Originations and
Securitizations and Resecuritizations" and Notes 5 and 6 to Notes to
Consolidated Financial Statements for descriptions of CBO-1, CBO-2 and CMO-IV.
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.
The Company also owns certain securities structured as bonds (the "Bonds")
issued by each of the Trusts. 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 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. Although it is possible that the election by
the TMPs to be treated as taxable REIT subsidiaries could prevent the loss of
CRIIMI MAE's REIT status, there can be no assurance that a valid election could
be made given the timing of a seizure or sale of the Pledged Bonds.
Phantom Income May Result In Additional Tax Liability
The Company's investment in Subordinated CMBS and certain other types of
mortgage related assets may cause it, under certain circumstances, to recognize
taxable income in excess of its economic income ("phantom income") and to
experience an offsetting excess of economic income over its taxable income in
later years. As a result, stockholders, from time to time, may be required to
treat distributions that economically represent a return of capital, as taxable
dividends. Such distributions would be offset in later years by distributions
representing economic income that would be treated as returns of capital for
federal income tax purposes. Accordingly, if the Company recognizes phantom
income, its stockholders may be required to pay federal income tax with respect
to such income on an accelerated basis (i.e., before such income is realized by
the stockholders in an economic sense). Taking into account the time value of
money, such an acceleration of federal income tax liabilities would cause
stockholders to receive an after-tax rate of return on an investment in the
Company that would be less than the after-tax rate of return on an investment
with an identical before-tax rate of return that did not generate phantom
income. As the ratio of the Company's phantom income to its total income
increases, the after-tax rate of return received by a taxable stockholder of the
Company will decrease.
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Effect of Rate Compression on Market Price of Stock
The Company's actual earnings performance as well as the market's
perception of the Company's ability to achieve earnings growth may affect the
market price of the Common Stock. In the Company's case, the level of earnings
(or losses) depends to a significant extent upon the width and direction of the
spread between the net yield received by the Company on its income earning
assets (principally, the long term, fixed-rate assets comprising its CMBS
portfolio) and its floating-rate cost of borrowing. In periods of narrowing or
compressing spreads, the resulting pressure on the Company's earnings may
adversely affect the market value of its Common Stock. Spread compression can
occur in high or low interest rate environments and typically results when net
yield on the long-term assets adjusts less frequently than the current rate on
debt used to finance their purchase. For example, if the Company relies on
short-term, floating-rate borrowings to finance the purchase of long-term
fixed-rate CMBS assets, the Company may experience rate compression, and a
resulting diminution of earnings, if the interest rate on the debt increases
while the coupon and yield measure for the financed CMBS remains constant. In
such an event, the market price of the Common Stock may decline to reflect the
decrease in value of the Company resulting from the spread compression. In an
effort to mitigate this risk, the Company as a matter of policy generally hedges
at least 75% of the principal amount of its variable-rate debt with
interest-rate protection agreements to protect interest cash flow against a
significant rise in interest rates.
Certain Risks Of Non-Confirmation
Even if the requisite acceptances are received, there can be no assurance
that the Bankruptcy Court will confirm the Plan. The Bankruptcy Court could
decline to confirm the Plan if it were to find that any of the statutory
conditions to confirmation had not been met. Section 1129 of the Bankruptcy Code
sets forth the requirements for confirmation and requires, among other things, a
finding by the Bankruptcy Court that the confirmation of the Plan is not likely
to be followed by a liquidation or a need for further financial reorganization
and that the value of distributions to non-accepting Holders of Claims and
Interests will not be less than the value of distributions such Holders of
Claims and Interests would receive if the Company were liquidated under Chapter
7 of the Bankruptcy Code. While there can be no assurance that the Bankruptcy
Court will conclude that these requirements have been met, the Company believes
that the Plan will not be followed by a need for further financial
reorganization and that non-accepting Holders of Claims and Interests will
receive distributions at least as great as would be received in a liquidation
pursuant to Chapter 7 of the Bankruptcy Code. See "THE PLAN OF REORGANIZATION --
Chapter 7 Liquidation Analysis" and "Exhibit C - Liquidation Analysis."
The confirmation and consummation of the Plan also are subject to certain
other conditions. See "THE PLAN OF REORGANIZATION -- Treatment of Claims and
Interests Under the Plan -- Conditions Precedent to Confirmation and
Consummation of the Plan."
If the Plan is not confirmed, it is unclear whether a reorganization could
be implemented and what Holders of Claims and Interests would ultimately receive
with respect to their Claims and Interests. If an alternative reorganization
could not be agreed to, it is possible that CRIIMI MAE would have to liquidate
its assets, in which case it is likely that Holders of Claims and Interests
would receive less than they would have received pursuant to the Plan. See "THE
PLAN OF REORGANIZATION -- Chapter 7 Liquidation Analysis" and "Exhibit C -
Liquidation Analysis."
Noncomparability of Historical Financial Information
As a result of the consummation of the Plan and the transactions
contemplated thereby, the financial condition and results of operations of the
Company from and after the Effective Date may not be comparable to the financial
condition or results of operations reflected in the historical financial
statements of the Company set forth elsewhere herein.
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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 supply/demand mismatches which are reflected
in CMBS pricing spreads. For instance, 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 amounts
are not fully recovered. These losses may result in a permanent decline in the
value of the CMBS, and the losses may change the Company's anticipated yield to
maturity if the losses are in excess of those previously estimated. CMBS are
priced at a spread above the current Treasury security with a maturity that most
closely matches the CMBS' weighted average life. The value of CMBS can be
affected by changes in Treasury rates, as well as changes in the spread between
such CMBS and the Treasury security with a comparable maturity. For example, the
spread to Treasury of a CMBS may have increased from 400 basis points to 500
basis points. If the Treasury security with a comparable maturity had a constant
yield of 5% then, in this example, the yield on the CMBS would have changed from
9% to 10% and accordingly, the value of such CMBS would have declined.
Generally, increases and decreases in both Treasury rates or spreads will result
in temporary changes in the value of the Subordinated CMBS assuming that the
Company has the ability and intent to hold its CMBS investments until maturity.
However, such temporary changes in the value of Subordinated CMBS become
permanent changes realized through the income statement when the Company no
longer intends or fails to have the ability to hold such Subordinated CMBS to
maturity. 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, floating-rate
financing with long-term, fixed-rate financing or a decline in the value of the
collateral securing such short-term, floating-rate indebtedness could result in
a situation where the Company is required to sell CMBS or provide additional
collateral, which could have and has had an adverse effect on the Company and
its financial position and results of operations. The Company's ability to
borrow amounts in the future may be impacted by, among other things, the credit
performance of the underlying pools of commercial mortgage loans, and other
factors affecting the Subordinated CMBS that it owns.
Limited Protection from Hedging Transactions
To minimize the risk of interest rate increases on interest expense as it
relates to its short-term, variable-rate debt, the Company follows a policy to
hedge at least 75% of the principal amounts 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, 1999, 94% 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, 1999, the weighted average remaining term for the interest
rate protection agreements was approximately one year with a weighted average
strike price of 6.7%. The highest rate for one-month LIBOR during 1999 was 6.5%.
There can be no assurance that the Company will be able to maintain
interest-rate protection agreements to meet its hedge policy on satisfactory
terms or to adequately protect against rising interest rates on the Company's
debt. In addition, the Company does not currently hedge against all interest
rate risks, including increases in interest rate spreads and increases in
Treasury rates, which adversely affect the value of its CMBS. Moreover, hedging
involves risk and typically involves costs, including transaction costs. Such
costs increase dramatically as the period covered by the hedging increases and
during periods of rising and volatile interest rates. The Company may increase
its hedging activity and, thus, increase its hedging costs, during such periods
when interest rates are volatile or rising and hedging costs have increased.
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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 recovers, the liquidity of such market has historically been
limited; and furthermore, during adverse market conditions, the liquidity of
such market has been severely limited, which would impair the amount the Company
could realize if it were required to sell a portion of its Subordinated CMBS.
Pending Litigation
The Company is involved in material litigation. See "GENERAL INFORMATION
- -- Legal Proceedings" for descriptions of the foregoing and other 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 excluded from the
requirements of the Investment Company Act.
To qualify for the Investment Company Act exclusion, 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 or other real estate-related assets ("Other Real Estate
Interests" and such requirement, the "25% Requirement"). 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. Based on such rights and its economic interest in the underlying mortgage
loans, the Company believes that the related Subordinated CMBS constitute
Qualifying Interests. As of December 31, 1999, 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
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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 declining values of
commercial mortgage loans, weakening collateral coverage and increasing the
possibility of losses in the event of a default. In addition, an economic
recession may cause reduced demand for commercial real estate securing the
mortgage loans.
Assumption Regarding Business of the Company and Resumption of Business
Activities
For the purpose of the Plan and this Disclosure Statement and the
information contained therein and herein including, but not limited to, the
projected financial information, the Company has defined its business
principally as owning and managing mortgage-related assets, and, prior to the
Chapter 11 filing, acquiring Subordinated CMBS and mortgage originations and
securitizations. Although it is anticipated that the Company will resume
Subordinated CMBS acquisitions and its mortgage origination and securitization
programs at some time in the future based on the Company's ability to access
capital, prevailing industry conditions and the general business climate, there
can be no assurance of such resumption. All decisions concerning resumption of
business activities will be made by the Board of Directors of the Company, as
determined to be in the best interests of the Company. Consequently, there can
be no certainty as to the business decisions that will be made by the Board of
Directors of the Company. Failure to resume Subordinated CMBS acquisitions,
mortgage originations and/or securitizations could adversely impact the
Company's results of operations.
The Company's ability to access additional capital will be affected by a
number of factors, many of which are not in the Company's control. These include
the cost and availability 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 debt
securities and credit facilities, results of operations, leverage, financial
condition and business prospects.
Results Of Operations Adversely Affected By Factors Beyond Company's Control
The Company's results of operations can be adversely affected by various
factors, many of which are beyond the control of the Company, and will depend
on, among other things, the level of net interest income generated by, and the
market value of, the Company's CMBS portfolio. The Company's net interest income
and results of operations will vary primarily as a result of fluctuations in
interest rates, CMBS pricing, and borrowing costs. The Company's results of
operations also will depend upon the Company's ability to protect against the
adverse effects of such fluctuations as well as credit risks. Interest rates,
credit risks, borrowing costs and credit losses depend upon the nature and terms
of the CMBS, conditions in financial markets, the fiscal and monetary policies
of the U.S. government, international economic and financial conditions and
competition, none of which can be predicted with any certainty. Because changes
in interest rates may significantly affect the Company's CMBS and other assets,
the operating results of the Company will depend, in large part, upon the
ability of the Company to manage its interest rate and credit risks effectively
while maintaining its status as a REIT. See " -- Limited Protection from Hedging
Transactions."
Borrowing Risks
A substantial portion of the Company's borrowings are and are expected to
continue to be in the form of collateralized borrowings. The terms of the New
Debt contemplated to be provided by Merrill and GACC and the Company's unsecured
creditors are set forth in the term sheets which are attached as Exhibits 1 and
2 to the Plan. Holders of Claims and Interests should refer to those Exhibits
for a description of the terms of the Merrill and GACC and unsecured creditor
New Debt. The New Debt contemplated to be provided by Merrill and GACC will be
collateralized by first-priority liens and security interests in certain assets,
and will be subject to a number of terms,
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conditions and restrictions which are set forth in the term sheet including,
without limitation, scheduled principal and interest payments, accelerated
principal payments, restrictions and requirements with respect to the
collection, management, use and application of funds, and certain approval
rights with respect to Reorganized CMI's Board of Directors. Certain events,
including, without limitation, the failure to satisfy certain payment
obligations will result in further restrictions on the ability of the Company to
take certain actions including, without limitation, to pay cash dividends to
preferred or common shareholders. The unsecured creditor New Debt will be
collateralized by first or second priority liens or security interests in
certain assets or proceeds, and will be subject to a number of terms, conditions
and restrictions which are set forth in the term sheet including, without
limitation, scheduled principal and interest payments, and restrictions and
requirements with respect to the use of funds.
A substantial portion of the Company's borrowings are and a limited
portion of the Company's borrowings in the future, if CMBS acquisitions are
resumed, may be in the form of collateralized, short-term, floating-rate secured
borrowings. The amount borrowed under such agreements is typically based on the
market value of the CMBS pledged to secure specific borrowings. Under adverse
market conditions, the value of pledged CMBS would decline, and lenders could
initiate margin calls (in which case the Company could be required to post
additional collateral or to reduce the amount borrowed to restore the ratio of
the amount of the borrowing to the value of the collateral). The Company may be
required to sell CMBS to reduce the amount borrowed. If these sales were made at
prices lower than the carrying value of the CMBS, the Company would experience
losses.
A default by the Company under its collateralized borrowings could result
in a liquidation of the collateral. If the Company is forced to liquidate CMBS
that qualify as qualified real estate assets (under the REIT Provisions of the
Code) to repay borrowings, there can be no assurance that it will be able to
maintain compliance with the REIT Provisions of the Code regarding asset and
source of income requirements.
There can be no assurance that the Company will be able to refinance all
or any portion of the New Debt on or before the respective maturity dates
thereof.
Shape of the Yield Curve Adversely Affects Income
The relationship between short-term and long-term interest rates is often
referred to as the "yield curve." Ordinarily, short-term interest rates are
lower than long-term interest rates. If short-term interest rates rise
disproportionately relative to long-term interest rates (a flattening of the
yield curve), the borrowing costs of the Company may increase more rapidly than
the interest income earned on its assets. Because borrowings will likely bear
interest at short-term rates (such as LIBOR) and CMBS will likely bear interest
at medium-term to long-term rates (such as those calculated based on the
Ten-Year U.S. Treasury Rate), a flattening of the yield curve will tend to
decrease the Company's net income, assuming the Company's short-term borrowing
rates bear a strong relationship to short-term Treasury rates. Additionally, to
the extent cash flows from long-term assets are reinvested in other long-term
assets, the spread between the coupon rates of long-term assets and short-term
borrowing rates may decline and also may tend to decrease the net income and
mark-to-market value of the Company's net assets. It is also possible that
short-term interest rates may adjust relative to long-term interest rates such
that the level of short-term rates exceeds the level of long-term rates (a yield
curve inversion). In this case, as well as in a positively sloped yield curve
environment, borrowing costs could exceed the interest income and operating
losses would be incurred.
Failure To Manage Mismatch Between Long-Term Assets And Short-Term Funding
The Company's operating results will depend in large part on differences
between the income from its CMBS and its borrowing costs. The Company
anticipates that all of its CMBS, on a pro forma basis, will have interest
payment rates (i.e., coupon rates) which remain fixed until their maturity. If
the Company resumes the acquisition of Subordinated CMBS, the Company intends to
fund a significant portion of its CMBS with borrowings having interest rates
(i.e., borrowing rates) that reset more frequently, usually monthly or
quarterly. If interest rates rise, borrowing rates (and borrowing costs) of the
Company are expected to rise more quickly than coupon rates (and investment
income) on the Company's CMBS. This would decrease both the Company's net
income, potentially resulting in a net loss, and the mark-to-market value of the
Company's net assets, and would be expected to decrease the market price of the
Company's Common Stock and to slow future acquisitions of assets. Although the
Company intends to invest primarily in fixed-rate CMBS, the Company also may own
adjustable rate CMBS. The coupon
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rates of adjustable rate CMBS normally fluctuate with reference to specific rate
indices. The Company may fund these adjustable rate CMBS with borrowings having
borrowing rates which reset monthly or quarterly. To the extent that there is a
difference between (i) the interest rate index used to determine the coupon rate
of the adjustable rate CMBS (asset index) and (ii) the interest rate index used
to determine the borrowing rate for the Company's related financing (borrowing
index), the Company will bear a "basis" interest rate risk. Typically, if the
borrowing index rises more than the asset index, the net income of the Company
would be decreased all other things being constant. Additionally, the Company's
adjustable rate CMBS may be subject to periodic rate adjustment limitations and
periodic and lifetime rate caps which limit the amount that the coupon rate can
change during any given period. No assurance can be given as to the amount or
timing of changes in interest rates or their effect on the Company's CMBS, their
valuation or income derived therefrom. During periods of changing interest
rates, coupon rate and borrowing rate mismatches could negatively impact the
Company's net income, distributions and the market price of the Common Stock.
Competition
If the Company resumes the acquisition of Subordinated CMBS following its
reorganization, the Company would compete with mortgage REITs, specialty finance
companies, banks, hedge funds, investment banking firms, other lenders, and
other entities purchasing Subordinated CMBS. Many of the Company's competitors
for Subordinated CMBS may have greater access to capital and other resources (or
the ability to obtain capital at a lower cost) and may have other advantages
over the Company.
There can be no assurance that the Company would be able to obtain
financing at borrowing rates below the asset yields of its Subordinated CMBS. In
such event, the Company may incur losses or may be forced to further reduce the
size of its Subordinated CMBS portfolio. The Company would face competition for
financing sources which may limit the availability of, and affect the cost of,
funds to the Company.
Risks Associated with Trader Election
On March 15, 2000, the Company determined to elect mark-to-market
treatment as a securities trader for 2000. See "BUSINESS-Effect of Chapter 11
Filing on REIT Status and Other Tax Matters-Taxable Income Distributions" for
further discussion. There is no assurance, however, that the Company's election
will not be challenged on the ground that it is not in fact a trader in
securities, or that it is only a trader with respect to some, but not all, of
its securities. As such, there is a risk that the Company will be limited in its
ability to recognize certain losses if it is not able to mark-to-market its
securities.
The election to be treated as a trader will result in net operating losses
("NOLs") that generally may be carried forward for 20 years. The Company
believes that it may experience an "ownership change" within the meaning of
Section 382 of the Code. Consequently, its use of NOLs generated before the
ownership change to reduce taxable income after the ownership change may be
subject to limitation under Section 382. Generally, the use of NOLs in any year
is limited to the value of the Company's stock on the date of the ownership
change multiplied by the long-term tax exempt rate (published by the IRS) with
respect to that date.
For the year ended December 31, 2000, taxable income (loss) may be
different from the net income (loss) as calculated according to GAAP as a result
of, among other things, differing treatment of the unrealized gains and losses
on securities transactions as well as other timing differences. For the
Company's tax purposes, unrealized gains (losses) will be recognized at the end
of the year and will be aggregated with operating gains (losses) to produce
total taxable income (loss) for the year.
VIII. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
consequences expected to result from the consummation of the Plan. This
discussion is based on current provisions of the Internal Revenue Code of 1986,
as amended (the "Tax Code"), applicable Treasury Regulations, judicial authority
and current administrative rulings and pronouncements of the Internal Revenue
Service (the "Service"). There can be no assurance that the Service will not
take a contrary view, and no ruling from the Service has been or will be sought.
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Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to Holders, the Company and the Reorganized
Debtors. It cannot be predicted at this time whether any tax legislation will be
enacted or, if enacted, whether any tax law changes contained therein would
affect the tax consequences to the Holders, the Company and the Reorganized
Debtors.
The following summary is for general information only. The tax treatment
of a Holder may vary depending upon such Holder's particular situation. This
discussion assumes that Holders of Old Securities have held such property as
"capital assets" within the meaning of Section 1221 of the Tax Code (generally,
property held for investment). This summary does not address all of the tax
consequences that may be relevant to a Holder, nor does it address the federal
income tax consequences to Holders subject to special treatment under the
federal income tax laws, such as brokers or dealers in securities or currencies,
certain securities traders, tax-exempt entities, financial institutions,
insurance companies, foreign corporations, Holders who are not citizens or
residents of the United States, Holders that hold the Old Securities as a
position in a "straddle" or as part of a "synthetic security," "hedging,"
"conversion" or other integrated instrument, Holders that have a "functional
currency" other than the United States dollar and Holders that have acquired Old
Securities in connection with the performance of services. EACH HOLDER SHOULD
CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO IT OF THE PLAN,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Tax Effects to the Debtors. The Debtors generally will each realize
cancellation of indebtedness ("COI") income to the extent that the fair market
value of any property received by Holders of their indebtedness is less than the
adjusted issue price (plus the amount of any accrued but unpaid interest) of
such indebtedness discharged thereby. Under Section 108 of the Tax Code,
however, COI income will not be recognized if the COI income occurs in a case
brought under the Bankruptcy Code, provided the taxpayer is under the
jurisdiction of a court in such case and the cancellation of indebtedness is
granted by the court or is pursuant to a plan approved by the court.
Accordingly, because the cancellation of the indebtedness of the Debtors will
occur in a case brought under the Bankruptcy Code, the Debtors will each be
under the jurisdiction of the court in such case and the cancellation of the
indebtedness will be pursuant to the Plan, the Debtors should not be required to
recognize any COI income realized as a result of the implementation of the Plan.
Under Section 108(b) of the Tax Code, the Debtors will be required to
reduce certain tax attributes including certain losses, credits and
carryforwards, if any including tax basis in assets (but not below the amount of
liabilities remaining immediately after the discharge of indebtedness), in an
amount equal to the amount of COI income excluded from income as described in
the preceding paragraph (subject to certain modifications).
Tax Effects to the Holders of Claims. Pursuant to the Plan, in exchange
for their Claims, the Holders thereof will receive a portion of their Allowed
Claim in cash and/or in other property (the "Exchange"). The tax effect to the
Holder of a Claim will depend upon (a) whether the Claim is treated as a
"security" solely for federal income tax purposes, and (b) whether any non-cash
property received in the Exchange is treated as a "security" solely for federal
income tax purposes. An exchange of each Holder's Claim for cash and/or other
property should be treated as a "recapitalization" and, therefore, a
reorganization within the meaning of Section 368(a) of the Tax Code if the
Holder of the Claim is treated as holding a "security" for federal income tax
purposes and receives property in the Exchange which is also treated as a
"security" for federal income tax purposes. Generally for federal income tax
purposes, only debt instruments will qualify as a "security." The test as to
whether a debt instrument is a "security" involves an overall evaluation of the
nature of the debt instrument, with the term of the debt instrument usually
regarded as one of the most significant factors. Generally, debt instruments
with a term of five years or less have not qualified as "securities" whereas
debt instruments with a term of ten years or more generally have qualified as
"securities." Accordingly, whether a Claim and the property, if any, received in
the Exchange constitute "securities" and, therefore, qualify the Exchange as a
recapitalization will depend on the terms of that particular debt instrument.
Each Holder of a Claim is urged to consult with its own personal tax advisor as
to the tax consequences of the Exchange to such Holder.
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To the extent a Holder's Claim and a portion of such Holder's property
received constitute "securities" for federal income tax purposes, the Exchange
should be treated as a "reorganization" for federal income tax purposes. As a
result, such exchanging Holders generally should not recognize any gain or loss
(except to the extent the cash and/or other property received are attributable
to accrued but unpaid interest on the Claim, in which event the Holder would
generally be required to treat such amounts as payment of interest includible in
income in accordance with the Holder's method of accounting for tax purposes
(see "Accrued Interest" below)). A Holder of a Claim will recognize any gain
realized on the Exchange to the extent of the cash received in the Exchange
(other than any cash received which is attributable to accrued but unpaid
interest on the Claim). Any such gain would generally be long-term capital gain
(subject to the market discount rules discussed below) if the Claim had been
held for more than one year. A Holder's adjusted tax basis in its property
received will be equal to the Holder's adjusted tax basis in its Claim plus any
gain recognized (including income attributable to accrued but unpaid interest on
the Claim), less the amount of cash received pursuant to the Exchange. The
Holder's tax basis will be allocated among the non-cash property received in
proportion to the relative fair market value of each item of non-cash property
received. A Holder's holding period for the property received will generally
include the Holder's holding period for its Claim.
To the extent a Holder's Claim does not constitute, and/or no portion of
such Holder's property received constitutes "securities" for federal income tax
purposes, then an exchanging Holder would recognize gain or loss equal to the
difference between the fair market value of the property received and the
Holder's adjusted tax basis in the Claim exchanged therefor. Any such gain or
loss would generally be long-term capital gain or loss (subject to the market
discount rules discussed below) if the Claim is a capital asset and had been
held for more than one year. In this event, a Holder's tax basis in the property
received would be equal to its fair market value on the Effective Date, and the
holding period for the property received would begin on the day immediately
after the Effective Date.
A Holder of a Claim not discussed above should generally recognize gain or
loss equal to the amount of any cash plus the fair market value of any other
property received, with respect to its Claim (other than for accrued but unpaid
interest) less its adjusted basis in its Claim (other than for accrued but
unpaid interest). The character of such gain or loss as long-term or short-term
capital gain or loss or as ordinary income or loss will be determined by a
number of factors, including the tax status of the Holder, whether the Claim
constitutes a capital asset in the hands of the Holder, whether the Claim has
been held for more than one year, whether the Claim was purchased at a discount,
and whether and to what extent the Holder had previously claimed a bad-debt
deduction or a worthless-security deduction.
Accrued Interest. Holders will be treated as receiving a payment of
interest (includible in income in accordance with the Holder's method of
accounting for tax purposes) to the extent that any cash or other property
received pursuant to the Plan is attributable to accrued but unpaid interest, if
any, on such Claims. The extent to which the receipt of cash or other property
should be attributable to accrued but unpaid interest is unclear. The Debtors
intend to take the position that such cash or property distributed pursuant to
the Plan will first be allocable to the principal amount of a Claim and then, to
the extent necessary, to any accrued but unpaid interest thereon. Each Holder
should consult its own tax advisor regarding the determination of the amount of
consideration received under the Plan that is attributable to interest (if any).
A Holder generally will be entitled to recognize a loss to the extent any
accrued interest was previously included in its gross income and is not paid in
full.
If any property received pursuant to the Plan is considered attributable
to accrued but unpaid interest, a Holder's basis in such property should be
equal to the amount of interest income treated as satisfied by the receipt of
such property. The holding period in such property should begin on the day
immediately after the Effective Date.
Stated Interest. A holder of a debt instrument issued in the Exchange will
generally be required to report as ordinary income for federal income tax
purposes interest received or accrued on the debt instrument in accordance with
the Holder's method of tax accounting.
Original Issue Discount. Because the Notes are being offered as a part of
a unit, which may include Warrants, the issue price of any debt instrument
issued may be less than such debt instrument's principal amount. As a result,
the debt instrument will be issued at a discount from its face amount. If the
discount exceeds a statutory de minimis amount (1/4 of 1% of an obligation's
stated redemption price at maturity multiplied by the number of complete years
to its maturity), the debt instrument will be considered to be issued with
original issue discount. A
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Holder will be required to include a portion of any such original issue discount
as ordinary income for federal income tax purposes each year over the term of
its debt instrument so as to provide a constant yield to maturity, in addition
ot the amount of stated interest received or accrued.
The total amount of original issue discount with respect to each debt
instrument would be the difference between its "issue price" and its "stated
redemption price at maturity." The "issue price" of a debt instrument will
generally be determined by allocating a portion of the fair market value of the
Holder's Claim to the debt instrument.
The "stated redemption price at maturity" of a debt instrument is the sum
of all payments provided by the debt instrument other than "qualified stated
interest" payments. Stated interest payable on the debt instrument should equal
the principal amount of the debt instrument.
Except as provided below, in "Premium and Market Discount," the amount of
original issue discount required to be included in a Holder's income in any tax
year is determined by allocating to each day during such tax year in which a
Holder holds a debt instrument a pro rata portion (the "daily portion") of the
total amount of original issue discount with respect ot such debt instrument
attributable to the "accrual period" in which such day is included. The amount
of original issue discount on the debt instrument attributable to an accrual
period is equal to the product of (i) the "adjusted issue price" at the
beginning of the accrual period (the issue price plus previous accruals of
original issue discount, reduced by all payments made on the debt instrument
other than a payment of qualified stated interest) and (ii) the yield to
maturity of the debt instrument, adjusted appropriately for the length of the
accrual period, less the amount of any qualified stated interest allocable to
the accrual period. The "yield to maturity" of a debt instrument is the interest
rate that will produce an amount equal to the issue price of the debt instrument
used in comparing the present value of all payments to be made pursuant to the
debt instrument.
CRIIMI MAE or its agent will report to Holders and to the Internal Revenue
Service ("IRS") the amount of original issue discount that accrues each year.
Holders should consult their own tax advisors regarding an election to
include all interest that accures on the debt instruments by using the constant
yield method.
Premium and Market Discount. If a Holder pays an amount (exclusive of
accrued and unpaid interest through the acquisition date) in excess of the debt
instrment's stated redemption price at maturity at the time of its acquisition
("Bond Premium"), the Holder will not be required to include original issue
discount in its income and may elect to amortize the Bond Premium. If the Bond
Premium is amortized, the amount of interest which must be included in the
Holder's income from each period ending on an interest-payment date or stated
maturity, as the case may be, will be reduced by the portion of the premium
allocable to such period based on the debt instrument's yield to maturity. This
election applies to all debt instruments acquired by the Holder during the year
of election and thereafter.
If a Holder pays an amount (exclusive of accrued and unpaid interest
through the acquisition date) in excess of the debt instruments adjusted issue
price at the time of its acquisition ("Acquisition Premium) but less that its
stated redemption price at maturity, the Holder may be entitled to a reduction
in the amount of any original issue discount includable in such Holder's income
for such Acquisition Premium. The reduction will be an amount equal to the daily
portion of original issue discount for that day multiplied by a fraction, the
numerator of which is equal to the Acquisition Premium, and the denominator of
which is the excess of the stated redemption price at maturity over the adjusted
issue price of the debt instrument on the date of purchase.
Market Discount. Generally, a Holder of a Claim represented by a debt
instrument who purchased its Claim at a "market discount" (i.e., at a price
below the Claim's adjusted issue price) must treat gain recognized on the
disposition of its property received as ordinary income to the extent market
discount accrued while the debt instrument was held by the Holder, unless the
Holder made an election to include such market discount in income as it accrued.
Holders of Claims should consult their own tax advisors regarding the
amount of any market discount that accrued with respect to their property
received in the Exchange.
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The Tax Code provides that "under regulations" (which have not yet been
issued), accrued market discount on a market discount bond is not recognized as
ordinary income at the time of the bond's disposition if the disposition occurs
in a "nonrecognition transaction," including a recapitalization. Instead,
accrued market discount on a market discount bond disposed of in a
nonrecognition transaction is converted into accrued market discount on property
received in the transaction if that property is a market discount bond. If the
property received (other than cash) is not a market discount bond, accrued
market discount on the old market discount bond is treated as ordinary income on
the disposition of the property received in exchange therefor, limited to the
extent of the gain thereon.
A Holder of a Claim that has accrued market discount should not be
required to recognize that accrued market discount as ordinary income when the
Holder exchanges that instrument for property received in the Exchange except to
the extent of any realized gain which is recognized from the receipt of cash
(other than cash received which is attributable to accrued but unpaid interest
with respect to the Claim); rather the unrecognized portion of any accrued
market discount should be allocated to the property received in the Exchange
(this conclusion may depend on the issuance of as-yet unissued implementing
regulations). Although no regulations or rules have been provided to determine
how such accrued market discount should be allocated, the accrued market
discount should be allocated in the same manner as tax basis is allocated. The
portion of the accrued market discount allocated to property received in the
Exchange will be treated as ordinary income at the disposition of such new
property, but not in excess of the total gain recognized.
Under the market discount rules, holders of Claims with accrued market
discount may have been required to defer the deduction of a portion of the
interest on any indebtedness incurred or maintained to purchase or carry their
Claims. Any interest expense which has been deferred by Holders of claims who
participate in the Exchange will continue to be deferred and will be deductible
only on disposition of any new debt instruments and Warrants received in the
Exchange. The market discount rules may also provide that any Holder of new debt
instruments acquired at a market discount may be required to defer the deduction
of a portion of the interest on any indebtedness incurred or maintained to
purchase or carry the new debt instruments until the new debt instruments are
disposed of in a taxable transaction. This rule will not apply if the Holder
elects to include accrued market discount in income currently.
Prospective participants in the Exchange should be aware that the market
discount rules could affect the price at which a subsequent purchaser would be
willing to purchase new debt instruments.
Holders should consult their own tax advisors regarding the amount of any
market discount, if any, accrued with respect to their Claims or that may be
treated as carried over from their Claims and the limitation on interest
deductions attributable to the new debt instruments.
Tax Effects to the Holders of Series B Preferred Stock. Pursuant to the
Plan, if the Holders of the Series B Preferred Stock elect to authorize the
receipt of common stock equal to the unpaid dividends which have accrued with
respect to the Series B Preferred Stock, then the amount of common stock
received in satisfaction of the accrued but unpaid dividends will be treated as
ordinary income to the Holders of Series B Preferred Stock to the extent of the
Company's earnings and profits.
Tax Effects to Holders of Series E Preferred Stock (which was the Former
Series C Preferred Stockholder) and Old Series D Preferred Stock. Pursuant to
the Plan, the Holder of the Old Series D Preferred Stock will receive Series E
Preferred Stock in exchange for its Old Series D Preferred Stock, plus an amount
of cash or other property equal to the unpaid dividends which have accrued with
respect to the Old Series D Preferred Stock. As a result of the exchange, the
Holder of the Old Series D Preferred Stock should not recognize any gain or loss
on the exchange except for the cash or other property received which is
attributable to the accrued but unpaid dividends. The amount of cash or other
property received in satisfaction of the accrued but unpaid dividends with
respect to the Former Series C Preferred Stock and Old Series D Preferred Stock
will be treated as ordinary income to the Holder of the Series E Preferred Stock
(which was the Former Series C Preferred Stock Holder) and the Old Series D
Preferred Stock to the extent of the Company's earnings and profits.
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THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS IS
FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH
HOLDER SHOULD CONSULT ITS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF
THE PLAN DESCRIBED HEREIN AND THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX
LAWS. NEITHER THE PROPONENTS NOR THEIR PROFESSIONALS SHALL HAVE ANY LIABILITY TO
ANY PERSON OR HOLDER ARISING FROM OR RELATED TO THE FEDERAL, STATE OR LOCAL TAX
CONSEQUENCES OF THE PLAN OR THE FOREGOING DISCUSSION.
IX. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
If the Plan is not confirmed and consummated, the alternatives include (a)
confirmation of some other alternative Chapter 11 plan or (b) conversion of the
Chapter 11 Case to a liquidation under Chapter 7 of the Bankruptcy Code.
A. Alternative Chapter 11 Plans
On December 20, 1999, the Unsecured Creditors' Committee filed its
proposed Plan of Reorganization and related proposed disclosure statement. On
January 11, 2000 and February 11, 2000, the Unsecured Creditors' Committee filed
first and second amended plans of reorganization and amended proposed disclosure
statements with respect thereto. However, as previously stated, the Unsecured
Creditors' Committee now supports the Debtors' Plan and encourages all creditors
to vote in favor of the Plan. The Unsecured Creditors' Committee has asked the
Court to defer consideration of its plan pending approval of the Debtors' Plan
and the completion of mutually acceptable final documentation. Upon confirmation
of the Debtors' Plan with documentation acceptable to the Unsecured Creditors'
Committee, the Committee will then formally withdraw its plan.
Although no other plan is before the Court at this time for consideration,
if such a plan and proposed disclosure statement with respect thereto were to be
filed, the Court could consider such plan and proposed disclosure statement or
could choose to defer consideration thereof. In formulating and developing the
Debtors' Plan, the Debtors and the CMI Equity Committee have explored numerous
other alternatives and engaged in negotiations with various parties holding
disparate interests. As noted above, the Debtors' Plan has the support of not
only the CMI Equity Committee but also the Unsecured Creditors' Committee. The
Debtors and the CMI Equity Committee believe that the Plan deals fairly with the
rights of Holders of the various classes of Claims and Interests and enables
creditors and stockholders to realize the greatest recovery possible under the
circumstances. They further believe that alternative methods of restructuring
the Claims and Interests of the various classes will not result in a better
recovery for any Class, will diminish value and will require, at the very least,
an extensive, time-consuming and expensive negotiation and/or litigation
process.
B. Liquidation Under Chapter 7
Another alternative to confirmation and consummation of the Plan is
liquidation of the Debtors under Chapter 7 of the Bankruptcy Code. Section
1129(a) of the Bankruptcy Code provides that the Bankruptcy Court may confirm a
plan only if the requirements contained in such section are met. One of these
requirements is that each non-accepting holder of an allowed claim or an allowed
interest in an impaired class must receive or retain under the plan on account
of such claim or interest property having a value as of the effective date of
the plan at least equal to the value that such holder would receive if the
debtor were liquidated under Chapter 7 of the Bankruptcy Code on the effective
date of the Plan. The Debtors have prepared the Liquidation Analysis attached
hereto as Exhibit C. Based upon such Liquidation Analysis and after taking into
account the settlements and compromises contained in the Plan, the Debtors and
the CMI Equity Committee do not believe that Holders of Claims and Interests
would receive greater recoveries if the Debtor were to be liquidated under
Chapter 7 of the Bankruptcy Code.
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X. CONCLUSION AND RECOMMENDATION
The Debtors and the Official Committee of Equity Security Holders believe
that confirmation and implementation of the Plan is in the best interests of all
creditors and equity security holders and is clearly preferable to liquidation
of CMI, CMM and Holdings because the Plan will provide the greatest recoveries
to Holders of Claims and Interests. The Debtors' Plan will provide the best
possible recoveries to Holders of Allowed Claims and Interests in the most
feasible and expeditious manner, without additional protracted litigation. In
addition, other alternatives would involve significant delay, uncertainty and
substantial additional administrative costs. As noted above, the Unsecured
Creditors' Committee has joined the Debtors and the CMI Equity Committee in
supporting the Plan. For all of these reasons, you are urged to return your
ballot voting to accept the Debtors' Plan.
Dated: April 24, 2000. Respectfully submitted,
CRIIMI MAE INC.,
a Maryland Corporation
By: /s/ Cynthia O. Azzara
------------------------------------
Name: Cynthia O. Azzara
Title: Senior Vice President
CRIIMI MAE MANAGEMENT, INC.,
a Maryland Corporation
By: /s/ Cynthia O. Azzara
------------------------------------
Name: Cynthia O. Azzara
Title: Senior Vice President
CRIIMI MAE HOLDINGS II, L.P. ,
a Delaware Limited Partnership
By: CRIIMI MAE INC.
Its General Partner
By: /s/ Cynthia O. Azzara
--------------------------------
Name: Cynthia O. Azzara
Title: Senior Vice President
VENABLE, BAETJER AND HOWARD, LLP
By: /s/ Richard L. Wasserman
------------------------------------
Richard L. Wasserman
1800 Mercantile Bank & Trust Building
Two Hopkins Plaza
Baltimore, Maryland 21201
(410) 244-7400
Co-Counsel for CRIIMI MAE Inc. and
CRIIMI MAE Holdings II, L.P.
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AKIN GUMP STRAUSS HAUER & FELD LLP
By: /s/ Stanley J. Samorajczyk
------------------------------------
Stanley J. Samorajczyk
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
(202) 887-4000
Co-Counsel for CRIIMI MAE Inc. and
CRIIMI MAE Holdings II, L.P.
SHULMAN, ROGERS, GANDAL, PORDY & ECKER, P.A.
By: /s/ Morton A. Faller
------------------------------------
Morton A. Faller
11921 Rockville Pike
Third Floor
Rockville, MD 20852-2753
(301) 231-0928
Counsel for CRIIMI MAE Management, Inc.
CO-PROPONENT:
OFFICIAL COMMITTEE OF EQUITY SECURITY
HOLDERS OF CRIIMI MAE INC.
By: /s/ Michael F. Wurst
------------------------------------
Name: Michael F. Wurst
Title: Co-Chairman
COVINGTON & BURLING
By: /s/ Michael St. Patrick Baxter
------------------------------------
Michael St. Patrick Baxter
Dennis B. Auerbach
1201 Pennsylvania Ave., NW
Washington, D.C. 20044
(202) 662-6000
Counsel for the Official Committee of
Equity Security Holders of CRIIMI MAE
Inc.
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<PAGE>
EXHIBIT A
<PAGE>
EXHIBIT B
<PAGE>
EXHIBIT B
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
CRIIMI MAE Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet (Net of Match Funded
Debt or "MFD")
Amounts in Millions
<TABLE>
<CAPTION>
-----------------------------------------------------------
Match Funding 12/31/1999 Proforma Adj.
12/31/1999 Reclassification Net of MFD 01/00 to 6/00(1)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and Cash Equivalents 91.6 -- 91.6 103.0
CMBS Assets 1,179.3 (278.2) 901.1 (381.3)
Insured Mtg Securities 394.9 (378.7) 16.1 (0.6)
Originated Loans 470.2 (399.8) 70.4 (1.0)
Equity Basis Subsidiaries 34.9 -- 34.9 (3.4)
Receivables and Other Assets 122.8 (7.6) 115.2 (53.7)
-----------------------------------------------------------
Total Assets 2,293.7 (1,064.2) 1,229.4 (337.0)
-----------------------------------------------------------
LIABILITIES:
Accounts and Other Payables 92.0 (7.6) 84.4 (39.7)
CBO Debt-CMBS 278.2 (278.2) -- --
CMO Debt-Insured Mtg Securities 378.7 (378.7) -- --
CMO Debt-Originated Loans 399.8 (399.8) -- --
-------- -------- -------- --------
1,056.6 (1,056.6) -- --
Secured Financing 732.9 -- 732.9 (317.9)
Unsecured Notes 100.0 -- 100.0 --
Other Unsecured Debt 91.0 -- 91.0 6.2
Other Secured Debt 1.8 -- 1.8 (1.8)
-------- -------- -------- --------
925.7 -- 925.7 (313.5)
Merrill/GACC Debt (new) -- -- -- --
Citicorp Debt (new) -- -- -- --
Note A (new) -- -- -- --
Note B (new) -- -- -- --
-------- -------- -------- --------
-- -- -- --
Total Liabilities 2,074.3 (1,064.2) 1,010.1 (353.2)
SHAREHOLDERS' EQUITY:
Preferred Equity Face Value 60.2 -- 60.2 --
Dividend Preferred Equity Face Value 8.5 -- 8.5 13.2
Common Equity 150.6 -- 150.6 2.9
-------- -------- -------- --------
159.1 -- 159.1 16.1
-----------------------------------------------------------
Liabilities and Shareholders' Equity 2,293.7 (1,064.2) 1,229.4 (337.0)
-----------------------------------------------------------
<CAPTION>
-----------------------------------------
6/30/2000 Emergence 6/30/2000
Net Proforma Adjustments(2) Reorganized
-----------------------------------------
<S> <C> <C> <C>
ASSETS:
Cash and Cash Equivalents 194.6 (189.1) 5.5
CMBS Assets 519.8 -- 519.8
Insured Mtg Securities 15.6 -- 15.6
Originated Loans 69.5 -- 69.5
Equity Basis Subsidiaries 31.5 -- 31.5
Receivables and Other Assets 61.4 -- 61.4
-----------------------------------------
Total Assets 892.4 (189.1) 703.3
-----------------------------------------
LIABILITIES:
Accounts and Other Payables 44.7 (33.3) 11.4
CBO Debt-CMBS -- -- --
CMO Debt-Insured Mtg Securities -- -- --
CMO Debt-Originated Loans -- -- --
-------- -------- --------
-- -- --
Secured Financing 415.0 (415.0) --
Unsecured Notes 100.0 (100.0) --
Other Unsecured Debt 97.2 (97.2) --
Other Secured Debt -- -- --
-------- -------- --------
612.2 (612.2) --
Merrill/GACC Debt (new) -- 275.3 275.3
Citicorp Debt (new) -- 35.1 35.1
Note A (new) -- 105.0 105.0
Note B (new) -- 49.1 49.1
-------- -------- --------
-- 464.5 464.5
Total Liabilities 656.9 (181.0) 475.9
SHAREHOLDERS' EQUITY:
Preferred Equity Face Value 60.2 -- 60.2
Dividend Preferred Equity Face Value 21.7 -- 21.7
Common Equity 153.6 (8.1) 145.4
-------- -------- --------
175.3 (8.1) 167.2
-----------------------------------------
Liabilities and Shareholders' Equity 892.4 (189.1) 703.3
-----------------------------------------
</TABLE>
(1) Represents activities from January 1, 2000 to June 30, 2000 exclusive of
cash payment and debt issuance to creditors pursuant to the Plan.
(2) Represents cash payments (including advisory fees) and debt issuance to
creditors pursuant to the Plan.
1
<PAGE>
The unaudited pro forma condensed consolidated balance sheet (the "Pro
Forma Balance Sheet") presented on the preceding page is based upon the
historical balance sheet of the Company as of December 31, 1999. The Pro Forma
Balance Sheet gives effect to (i) the reclassification of non-recourse debt and
related interest payable against the corresponding CMBS, Insured Mortgage, and
Originated Loan assets as reported on the Company's GAAP basis consolidated
balance sheet as of December 31, 1999 (the "Match Funding Reclassification"),
(ii) pro forma adjustments to reflect the anticipated results of operations from
December 31, 1999 through June 30, 2000 (the "Assumed Effective Date"), and
(iii) the reorganization, as detailed in the Plan, assuming the Plan becomes
effective on the Assumed Effective Date (collectively, the "Pro Forma
Adjustments"). Although the Company's financial results are not normally
presented reflecting the Match Funding Reclassification, the Company believes
that this presentation more clearly depicts the economic impact of the
transactions contemplated by the Plan.
The Company does not qualify for "fresh start reporting" under the
provisions of the American Institute of Certified Public Accountants' Statement
of Position ("SOP") 90-7 "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code" because (i) the Company's reorganization value of
assets immediately before the date of Confirmation is expected to exceed the
total of all post-petition liabilities and allowed Claims, and (ii) the Holders
of existing voting shares immediately before Confirmation will receive more than
50 percent of the voting shares of the emerging entity.
THE PRO FORMA BALANCE SHEET IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY
AND SHOULD NOT BE CONSTRUED TO BE AN ACTUAL STATMENT OF THE FINANCIAL CONDITION,
OR REFLECT OPERATING RESULTS, OF THE COMPANY ASSUMING THE TRANSACTIONS DESCRIBED
HEREIN ARE CONSUMMATED ON THE RESPECTIVE DATES INDICATED, AND IS NOT INTENDED TO
BE PREDICTIVE OF THE FINANCIAL CONDITION OR RESULTS OF OPERATIONS OF THE COMPANY
AT ANY FUTURE DATE OR FOR ANY FUTURE PERIOD.
The Pro Forma Adjustments are based on available information and upon
certain assumptions that the Company believes are reasonable under the
circumstances. The Pro Forma Balance Sheet and accompanying notes should be read
in conjunction with the historical consolidated financial statements of the
Company, including the notes thereto, and the other information pertaining to
the Company appearing elsewhere in this Disclosure Statement. In addition, the
independent public accountants of the Company, Arthur Andersen LLP, have neither
examined nor compiled or provided any other assurance report thereon in
accordance with Generally Accepted Auditing Standards on the Pro Forma Balance
Sheet, and accordingly, assume no responsibility for it.
2
<PAGE>
PROJECTED FINANCIAL INFORMATION
CRIIMI MAE Inc.
Projected Condensed Consolidated Basis Balance Sheet-Net of Match Funded Debt
("MFD")
Amounts in Millions
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Effective Date 1 2 3 4 5 6 7 8
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents 5.5 5.5 5.8 5.0 5.0 12.8 25.5 38.2 50.5
CMBS Assets Net of MFD 519.8 522.0 525.2 531.0 539.0 549.6 562.5 577.2 593.7
Insured Mortgage Securities, Net of MFD 15.6 15.0 14.5 14.2 13.9 13.8 13.7 13.7 13.8
Originated Loans - Net of MFD 69.5 67.4 65.5 63.6 61.8 60.2 58.6 57.0 55.5
Equity Basis Subsidiaries 31.5 30.4 30.4 30.5 30.4 30.3 30.0 29.6 29.0
Receivables and Other Assets 61.4 56.0 51.7 47.4 45.4 42.2 42.5 40.5 39.3
------------------------------------------------------------------------------
Total Assets 703.3 696.3 693.1 691.7 695.7 708.8 732.9 756.2 781.9
------------------------------------------------------------------------------
Accounts and Other Payables 11.4 16.2 17.2 14.6 14.3 11.9 11.4 11.4 11.4
Merrill/GACC Debt 275.3 246.9 225.3 211.3 -- -- -- -- --
Citicorp Debt 35.1 31.6 28.8 27.0 -- -- -- -- --
Note A 105.0 96.8 84.7 67.6 51.2 -- -- -- --
Note B 49.1 52.7 56.5 60.6 65.0 69.7 -- -- --
Merrill/GACC Replacement Debt -- -- -- -- 198.0 180.2 160.9 139.7 116.5
Citicorp Replacement Debt -- -- -- -- 25.3 23.0 20.6 17.9 14.9
Note A Replacement Debt -- -- -- -- -- 47.5 47.5 47.5 47.5
Note B Replacement Debt -- -- -- -- -- -- 76.9 76.9 76.9
----- ----- ----- ----- ----- ----- ----- ----- -----
464.5 427.9 395.2 366.5 339.4 320.4 305.8 281.9 255.8
Preferred Equity Face Value 60.2 44.9 39.9 39.9 39.9 39.9 39.9 39.9 39.9
Dividend Preferred Equity Face Value 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7
Common Equity 145.5 185.5 219.1 249.1 280.4 314.9 354.0 401.3 453.1
----- ----- ----- ----- ----- ----- ----- ----- -----
167.2 207.2 240.8 270.8 302.2 336.6 375.8 423.0 474.8
------------------------------------------------------------------------------
Liabilities and Shareholders' Equity 703.3 696.3 693.1 691.7 695.7 708.8 732.9 756.3 781.9
------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
CRIIMI MAE Inc.
Projected Cashflows - Net of Match Funded Debt ("MFD")
Amounts in Millions
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
1 2 3 4 5 6 7 8
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cashflows
CBO 1 Retained Bonds 10.6 10.5 10.4 10.5 10.5 10.4 11.0 10.8
CBO 2 Retained Bonds 72.0 72.0 72.1 72.1 71.9 71.8 71.5 71.5
Nomura 1998 D-6 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8
Effect of Credit Losses and Int. Shortfalls on
Cashflow (3.4) (4.8) (7.9) (10.3) (12.4) (13.9) (14.9) (15.1)
------ ------ ------ ------ ------ ------ ------ ------
$ 82.0 $ 80.5 $ 77.4 $ 75.0 $ 72.8 $ 71.0 $ 70.4 $ 69.9
Insured Mortgage Securities - Net of MFD 3.6 3.4 3.1 2.9 2.7 2.5 2.3 2.2
Originated Loans - Net of MFD 8.6 8.3 7.9 7.6 7.3 7.0 6.7 6.5
AIM Funds Gen. Ptnrship and
Investment LP Interests 3.5 2.8 2.2 1.7 1.4 1.1 0.9 0.7
Mezzanine Loans 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
Short-Term Interest Income 0.3 0.3 0.3 0.3 0.5 1.2 2.0 2.7
Servicing Affiliates distributions -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
99.1 96.3 92.0 88.6 85.7 83.9 83.3 83.1
Interest Expense
Merrill/GACC Debt (24.5) (22.1) (20.5) (19.2) -- -- -- --
Citicorp Debt (3.1) (2.8) (2.6) (2.5) -- -- -- --
Note A (11.9) (10.7) (8.9) (7.1) (5.8) -- -- --
Note B (6.6) (7.1) (7.6) (8.2) (8.8) (9.5) -- --
Merrill/GACC Extension Fees -- (3.4) (6.5) (3.0) -- -- -- --
Citicorp Extension Fees -- (0.4) (0.8) (0.4) -- -- -- --
Note A Extension Fees -- -- -- (0.8) (1.4) -- -- --
Note B Extension Fees -- -- -- (1.0) (2.1) (1.2) -- --
Merrill/GACC Replacement Debt -- -- -- -- (18.6) (16.9) (15.1) (13.1)
Citicorp Replacement Debt -- -- -- -- (2.4) (2.2) (1.9) (1.7)
Note A Replacement Debt -- -- -- -- -- (5.6) (5.6) (5.6)
Note B Replacement Debt -- -- -- -- -- -- (10.0) (10.0)
------ ------ ------ ------ ------ ------ ------ ------
(46.1) (46.5) (47.0) (42.0) (39.0) (35.3) (32.6) (30.3)
----------------------------------------------------------------------------
Net Interest Margin 53.0 49.7 45.0 46.6 46.8 48.5 50.7 52.7
----------------------------------------------------------------------------
General Operating and Administrative (10.0) (10.0) (10.0) (10.0) (10.9) (11.1) (11.3) (11.3)
----------------------------------------------------------------------------
Cashflow from Operations 43.0 39.7 35.0 36.6 35.8 37.5 39.5 41.4
----------------------------------------------------------------------------
Debt Amortization
Merrill/GACC Debt (28.4) (21.6) (14.0) (15.3) -- -- -- --
Citicorp Debt (3.5) (2.8) (1.8) (2.0) -- -- -- --
Note A Miscellaneous Collateral
Amortization (8.2) (7.2) (6.3) (5.7) (5.1) -- -- --
Note A Other Scheduled Amortization -- (5.0) (10.7) (10.8) -- -- -- --
Merrill/GACC Replacement Debt -- -- -- -- (17.7) (19.4) (21.2) (23.2)
Citicorp -Replacement Debt -- -- -- -- (2.3) (2.5) (2.7) (3.0)
------ ------ ------ ------ ------ ------ ------ ------
Total Debt Amortization (40.1) (36.5) (32.8) (33.7) (25.1) (21.8) (23.9) (26.1)
Debt Facility Maturities/Refinancing
Principal Amount of Replacement Financing -- -- -- 223.3 47.5 76.9 -- --
Replacement Financing Origination Fees -- -- -- (2.2) (1.4) (2.1) -- --
Emergence Debt Principal Repayments -- -- -- (221.0) (46.1) (74.8) -- --
------ ------ ------ ------ ------ ------ ------ ------
Net Proceeds -- -- -- -- -- -- -- --
----------------------------------------------------------------------------
Cashflow Available to Equity 2.9 3.2 2.2 2.9 10.8 15.6 15.6 15.2
----------------------------------------------------------------------------
Dividends
Dividend Preferred Cash Dividends (2.9) (2.9) (2.9) (2.9) (2.9) (2.9) (2.9) (2.9)
----------------------------------------------------------------------------
Net Incr/Decr in Cash -- 0.3 (0.8) -- 7.8 12.7 12.6 12.3
----------------------------------------------------------------------------
Cash Reconciliation
Opening Balance 5.5 5.5 5.8 5.0 5.0 12.8 25.5 38.2
Net Increase/Decrease -- 0.3 (0.8) -- 7.8 12.7 12.6 12.3
Asset Acquisitions -- -- -- -- -- -- -- --
----------------------------------------------------------------------------
Ending Cash Balance 5.5 5.8 5.0 5.0 12.8 25.5 38.2 50.5
----------------------------------------------------------------------------
</TABLE>
4
<PAGE>
CRIIMI MAE Inc.
Projected Tax Basis (Loss) Income - Net of Match Funded Debt ("MFD")
Amounts in Millions
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
1 2 3 4 5 6 7 8
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax Basis Income
CBO1, CBO2, and Nomura NR 110.4 113.0 117.3 121.5 125.4 130.0 131.3 129.4
Effect of Credit Losses and Int. Shortfalls
on Tax Income (0.9) (5.7) (9.4) (12.5) (15.1) (17.1) (18.4) (18.7)
------ ------ ------ ------ ------ ------ ------ ------
$109.5 $107.3 $107.9 $109.1 $110.3 $112.9 $112.9 $110.7
Insured Mortgage Securities - Net of MFD 2.9 2.7 2.5 2.3 2.2 2.1 2.0 1.9
Originated Loans - Net of MFD 6.7 6.4 6.2 5.9 5.7 5.5 5.3 5.1
AIM Funds Gen. Ptnrship and Investment
LP Interests 1.1 0.9 0.7 0.6 0.4 0.4 0.3 0.2
Mezzanine Loans 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
Short-Term Interest Income 0.3 0.3 0.3 0.3 0.5 1.2 2.0 2.7
Servicing Affiliates - Equity Income 1.2 1.9 1.5 1.1 0.8 0.4 0.1 (0.2)
------ ------ ------ ------ ------ ------ ------ ------
122.8 120.6 120.2 120.4 121.0 123.5 123.6 121.5
Interest Expense
Merrill/GACC Debt (24.5) (22.1) (20.5) (19.2) -- -- -- --
Citicorp Debt (3.1) (2.8) (2.6) (2.5) -- -- -- --
Note A (11.9) (10.7) (8.9) (7.1) (5.8) -- -- --
Note B (10.2) (10.9) (11.7) (12.6) (13.5) (14.7) -- --
Merrill/GACC Extension Fees -- (3.4) (6.5) (3.0) -- -- -- --
Citicorp Extension Fees -- (0.4) (0.8) (0.4) -- -- -- --
Notes A&B Extension Fees -- -- -- (1.7) (3.5) (1.2) -- --
Merrill/GACC Replacement Debt -- -- -- -- (18.6) (16.9) (15.1) (13.1)
Citicorp-Replacement Debt -- -- -- -- (2.4) (2.2) (1.9) (1.7)
Note A Replacement Debt -- -- -- -- -- (5.6) (5.6) (5.6)
Note B Replacement Debt -- -- -- -- -- -- (10.0) (10.0)
Amort of Deferred Costs (2.5) (1.5) (1.4) (1.3) (1.7) (1.8) (2.0) (1.2)
------ ------ ------ ------ ------ ------ ------ ------
(52.1) (51.8) (52.5) (47.7) (45.4) (42.2) (34.6) (31.6)
-----------------------------------------------------------------------------
Net Interest Margin 70.6 68.8 67.7 72.7 75.6 81.3 89.0 89.9
-----------------------------------------------------------------------------
General Operating & Administrative (10.0) (10.0) (10.0) (10.0) (10.0) (10.0) (10.0) (10.0)
Credit Loss Deduction - Estimated (2.0) (1.6) (19.3) (14.9) (12.2) (10.6) (8.0) (5.2)
Amortization of Mark to Market Adjustment (119.5) (119.5) (119.5) (119.5) -- -- -- --
Deductions for Dividends Paid -- -- -- -- (7.3) (7.3) (7.3) (7.3)
NOL Carryforward Utilization -- -- -- -- (41.5) (48.1) (57.4) (60.7)
-----------------------------------------------------------------------------
Taxable (Loss) Income (1) (60.9) (62.3) (81.1) (71.7) 4.6 5.3 6.4 6.7
-----------------------------------------------------------------------------
Dividends
Series B (4.3) (4.3) (4.3) (4.3) (4.3) (4.3) (4.3) (4.3)
Series E (1.4) (0.2) -- -- -- -- -- --
Series F and Series G Dividend Preferred (2.9) (2.9) (2.9) (2.9) (2.9) (2.9) (2.9) (2.9)
-----------------------------------------------------------------------------
Subtotal (8.7) (7.4) (7.3) (7.3) (7.3) (7.3) (7.3) (7.3)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Cash Dividends to Common -- -- -- -- -- -- -- --
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Net Operating Loss
NOL Created (60.9) (62.3) (81.1) (71.7) -- -- -- --
Taxable Income before NOL Usage -- -- -- -- 46.1 53.4 63.8 67.5
Alternative Minimum Tax Limitation -- -- -- -- (4.6) (5.3) (6.4) (6.7)
------ ------ ------ ------ ------ ------ ------ ------
NOL Utilized -- -- -- -- 41.5 48.1 57.4 60.7
------ ------ ------ ------ ------ ------ ------ ------
NOL Carryforward Amount (2) (60.9) (123.2) (204.3) (276.1) (230.0) (176.5) (112.8) (45.3)
-----------------------------------------------------------------------------
</TABLE>
(1) - The Company, due to Alternative Minimum Tax NOL usage limitations,
accrues and pays tax at 20% of the AMT Taxable Income beginning in Period
5 of this Projection.
(2) - Beginning in Period 5, this amount represents the AMT NOL carryforward.
5
<PAGE>
The preceding projected financial data (the "Projections") were prepared
by CRIIMI MAE based upon various assumptions including assumptions about the
economy and financial markets in general, and the related effect on the
Reorganized Company's future financial condition and results of operations.
The Projections are provided for informational purposes only. The Company
does not generally publish its business plans and strategies or make external
projections of its anticipated financial position or results of operations.
Accordingly, the Company does not intend to update or otherwise revise the
Projections to reflect circumstances existing since their preparation in April
2000, or to reflect the occurrence of unanticipated events, even in the event
that any or all of the underlying assumptions are shown to be in error.
Furthermore, the Company does not intend to update or revise the Projections to
reflect changes in general economic or industry conditions. However, the
Company's regular quarterly and annual financial statements, and the
accompanying discussion and analysis, contained in the Company's Quarterly SEC
Reports on Form 10-Q and Annual Reports on Form 10-K, will contain disclosure
concerning the Company's actual financial condition and operating results during
the period covered by such Reports.
The Projections were prepared for the limited purpose of providing
information in conjunction with the Plan. Accordingly, the Projections were not
prepared to comply with guidelines for prospective financial statements
published by the American Institute of Certified Public Accountants regarding
financial projections, and are not intended to comply with Rule 11-02 of
Regulation S-X of the SEC. The Company believes that while not consistent with
its traditional GAAP and SEC reporting, the Projections present the net assets
and recourse debt obligations in a more relevant and understandable format for
the purpose of this document. The Company's independent public accountants,
Arthur Andersen LLP, have neither compiled nor examined, or provided any other
assurance report in accordance with Generally Accepted Auditing Standards, on
the accompanying prospective financial information, to determine the
reasonableness thereof and, accordingly, have not expressed any opinion or any
other form of assurance with respect thereto.
Projected unaudited consolidated financial statements for the Company are
included for eight annual periods commencing on the Assumed Effective Date.
Additional information relating to the principal assumptions used in
preparing the Projections is set forth below. See "CERTAIN RISK FACTORS" for a
discussion of various other factors that could materially affect the Company's
financial condition, results of operations, businesses, prospects and
securities.
The following points represent the significant assumptions underlying the
Pro Forma Balance Sheet and Projections.
6
<PAGE>
Significant Assumptions Related to the Pro Forma Balance Sheet and Projections
Pre-Emergence Asset Sale Transactions:
The Projections assume that the CMBS Sale Portfolio is sold as follows:
o Lehman/First Union Bonds are sold on April 20, 2000,
o Balance of the CMBS Sale Portfolio is sold on June 30, 2000.
o The combined sales price of the CMBS Sale Portfolio, inclusive of the MSCI
1998 WF2 bonds sold in February 2000, is $387 million, $312 million of
which is used to pay related secured debt.
General:
o The Debtors' Plan is effective on June 30, 2000 (the "Assumed Effective
Date").
o The Pro Forma Balance Sheet and the Projections are presented net of the
non-recourse debt associated with the Company's assets. The non-recourse
debt was issued in relation to the Company's 1996 and 1998 CMBS
re-securitization transactions (CBO-1 and CBO-2), the Insured Mortgage
Securities (CMO-I, CMO-II, CMO-III) and the Originated Loans (CMO-IV),
collectively ("the Match Funded Debt").
o The Pro Forma Balance Sheet anticipates the recognition of new debt at
fair value, with the related origination and professional fees recognized
as current expense items as opposed to capitalized items in accordance
with SOP 90-7. The Company does not currently anticipate a difference
between the New Debt's fair value and its previous carrying amount,
although there can be no assurance that such a difference will not occur.
Any difference between the New Debt's fair value and its previous carrying
amount will be recognized as an extraordinary item.
o For all Projection periods, the Company assumes that one month LIBOR
remains constant at 6.125%. This LIBOR benchmark is utilized to calculate
the interest cost on the Merrill/GACC Debt facility, its successor
facility, the Citicorp facility, its successor facility, as a proxy for
the Series D and Series E Preferred Stock floating rate dividend accrual
benchmark, and to estimate the Company's reinvestment income.
The Company's Business Plan:
The Projections are a base line measure and assume that no additional purchases
of CMBS are made during the Projection period. It is not the Company's intention
to accumulate net excess cash generated from its existing assets; rather, the
base line Projections are intended to demonstrate the amount of excess cash that
the core group of assets would, based upon assumptions, generate under the
Company's reorganized debt structure. Any excess cash generated by the core
group of assets, exclusive of that used to service the Company's debt, pay
operating expenses, or make required cash dividend payments, is assumed to be
retained in cash or short-term investments and reinvested at one month LIBOR.
Although the Company contemplates that such cash would, in part, fund its
securities trading, acquisition, and other investment activities, it has not
projected the results of any such activities. The Company anticipates operating
its business in such a manner that it will not be required to register as an
investment company under the Investment Company Act of 1940 and the rules and
regulations thereunder.
7
<PAGE>
Financial Statement Presentation
General:
o The Projections have not been prepared or presented in a manner consistent
with the Company's traditional GAAP reporting, although the Company
believes that the method of presentation (reflecting the Match Funding
Reclassification) is more relevant and understandable in presenting the
economics of the transactions contemplated by the Plan.
o The periods presented are annual periods beginning with the Assumed
Effective Date. The years presented do not represent calendar years.
Balance Sheets:
o The Company's assets, as presented in the Pro Forma Balance Sheet at
December 31, 1999, equals the reported fair value, or amortized cost as
appropriate, less the amortized cost of the related Match Funded Debt,
arriving at a Net of Match Funded Debt presentation. The resulting asset
presentation is subsequently adjusted for discount and/or premium
amortization to reflect the passage of time in the Projection periods. The
projected balance sheet treatment of the CMBS, Insured Mortgage
Securities, and Originated Loan assets, while reflective of the normal
estimated discount and/or premium amortization related to the assets, is
not intended to represent the fair value of the Company's retained portion
of such assets for any given Projection period.
o Liabilities presented on the Pro Forma and projected balance sheets are
only those liabilities that are recourse to the Company.
Projected Cashflows:
o The Projected Cashflows are presented reflecting the Match Funding
Reclassification.
o For purposes of the Projections, it is assumed that the Company neither
receives, nor funds, any cash to or from its primary servicing affiliate,
CRIIMI MAE Services Limited Partnership ("CMSLP").
Projected Tax Basis (Loss)/Income:
o Tax Basis (Loss)/Income presentation is presented reflecting the Match
Funding Reclassification.
o For purposes of the Projections, the effect of "writing down" the CMBS
portfolio, resulting from the Company's trader status election as
discussed below, is in effect throughout the Projection period.
Impact of Trader Election:
o The Company has elected to be classified as a securities trader for tax
purposes.
o Such election impacts the Projections primarily through:
o Recognition of approximately $478 million of mark-to-market
adjustments to the tax basis of the CMBS securing the Company's CBO
assets on a straight line basis over years one through four of the
Projections;
o Corresponding downward adjustment of the tax basis of the Company's
retained CMBS assets;
o Subsequent to the $478 million mark-to-market adjustment, a relative
increase in the tax yield and taxable income of the Company's CMBS
due to such decrease in tax basis;
o Creation of tax basis net operating losses for the first four years
of the Projections, primarily resulting from the recognition of the
aforementioned mark-to-market adjustments. Any accumulated and
unused net operating loss carryforward is utilized to offset the
majority of taxable income in periods five through eight of the
Projections.
8
<PAGE>
ASSETS:
CMBS Assets (and related credit losses):
o The Projections assume that the Company's CMBS assets, after giving effect
to the sale of the CMBS Sale Portfolio, include the retained bonds from
its CBO-1 and CBO-2 resecuritizations, and the unrated bond from the NASC
1998 D-6 securitization. Economically, the Company holds approximately
$111 million, $1.1 billion, and $47 million face amount of bonds from
CBO-1, CBO-2 and NASC 1998 D-6, respectively. Collectively, the Company's
CMBS have a weighted average coupon of 6.8%.
o The Projections utilize the Company's most recent estimates of future
credit losses on the CMBS assets described above.
o The tax basis credit loss deductions are assumed to be realized through a
proportionate reduction in the then current tax basis of the bonds when
compared to the assumed face amount of the loss.
o The magnitude and timing of credit losses have a direct impact on the
Company's cashflow. The Company projects interest shortfalls during the
periods covered by the Projections that are equal to one year's coupon
interest income on the succeeding year's assumed CMBS principal loss. The
Company assumes that such interest shortfalls on delinquent loan payments
are not recovered.
Insured Mortgage Securities:
o Prepay at a constant prepayment rate ("CPR") of 10% during the period
covered by the Projections.
o The assets are presented reflecting the Match Funding Reclassification on
the balance sheet.
o The face amount of the mortgage securities is assumed to be $405 million
with corresponding aggregate CMO bond balances of $391 million.
o The weighted average coupon on the collateral is assumed at 7.7% and the
weighted average coupon on the related bonds is assumed at 7.0%.
Originated Loans (CMO-IV):
o Prepay at a CPR of 7% during the period covered by the Projections.
o The underlying mortgage loans are presented at amortized cost and reflect
the Match Funding Reclassification on the balance sheet. The amortized
costs of the underlying mortgage loans includes approximately $6 million
of deferred costs associated with the origination and securitization of
CMO-IV.
o The face amount of the mortgage securities is assumed to be $464 million
with corresponding CMO bond balances of $411 million.
o The weighted average coupon on the collateral is assumed at 7.4%, and the
weighted average coupon on the related bonds is assumed at 6.2%.
Equity Basis Subsidiaries:
o The Company, through CRIIMI Inc., owns general partnership interests in
AIM 84, AIM 85, AIM 86, and AIM 88. Such interests represent 2.9%, 3.9%,
4.9% and 4.9% of the AIM fund net cashflow respectively. In addition,
through CRI/AIM Investment LP, the Company owns a 20% interest in the
advisor to the AIM funds. The advisor earns a fee based on AIM fund
invested asset balances. The Projections include cashflows related to the
Company's ownership interests, assuming a 21% CPR on the mortgages and
invested assets underlying the AIM funds.
o The Company carries its investment in servicing affiliates CRIIMI MAE
Services L.P. and CRIIMI MAE Services Inc. utilizing the equity method of
accounting. For purposes of the Projections, it is assumed that the
Company neither receives, nor funds, any cash to or from these servicing
affiliates.
9
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Receivables and Other Assets:
o Pro forma Receivables and Other Assets include the following approximate
amounts:
o $14 million of intangible costs related to the merger of certain
business in 1995, and $15 million of debt issuance and other
deferred costs,
o $7 million of Mezzanine Notes that that generate cashflow of
approximately 15% per annum during the periods covered by the
Projections,
o $10 million of miscellaneous assets, including a $3 million Deferred
Compensation Note Receivable, and
o $15 million of normalized interest receivable on assets.
Intangible assets are amortized in the Projections, while Mezzanine Loans
and Interest Receivable are assumed to remain constant throughout the
Projection period.
LIABILITIES:
Accounts and Other Payables:
o Pro forma Accounts and Other Payables include the following approximate
amounts:
o $4 million of normalized accounts payable,
o $4 million of normalized interest payable on recourse debt,
o $3 million of CRIIMI MAE Management, Inc. note payable (offset
through other assets),
o Accounts and Other Payables are assumed to remain constant
throughout the Projection period with the exception of
increases/decreases reflecting the accrual and payment of extension
fees to Merrill/GACC, Citicorp, and Notes A and B as discussed
below.
Debt Facilities
Merrill Lynch/GACC Debt: (See Plan Section IV)
o Accrues and pays an interest rate of one month LIBOR plus 325bps per
annum.
o Interest accrues on the average balance outstanding as of the beginning
and end of each period presented.
o Principal repayments are made in the following manner:
o Year 1 - All net cash flow available to the Company, after
maintenance of working capital, and the payment of:
o all interest due on debt,
o general and administrative expenses,
o amortization on the CMO-IV debt, and
o Note A Miscellaneous Collateral amortization.
o Collectively these items are known as (the "Cash Sweep").
o Year 2 - Merrill/GACC Cash Sweep continues until the aggregate
principal paydown is equal to $50 million, assumed to occur within
24 months of the Assumed Effective Date.
o Years 3 and 4 - Merrill/GACC facility receives principal
amortization assuming the original principal amount is fully
amortized, utilizing mortgage-type amortization, by the 13th
anniversary of the Assumed Effective Date, with the interest rate
remaining constant at one month LIBOR plus 325bps.
o Extension fees are paid in cash to Merrill/GACC, at a rate of 1.5%
of the then outstanding principal balance, at the end of months 24,
30, 36 and 42.
10
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Citicorp Debt: (See Plan Section IV)
o Accrues and pays an interest rate of one month LIBOR plus 325bps per
annum.
o Interest accrues on the average balance outstanding as of the beginning
and end of each period presented.
o Principal payments are made in the following manner:
o Years 1 and 2 - Citicorp receives principal amortization in the same
proportion of original principal balance as does Merrill/GACC, which
approximates $3.5 million and $2.8 million in years 1 and 2,
respectively.
o Years 3 and 4 - Citicorp receives principal amortization assuming
the original principal amount is fully amortized by the 13th
anniversary of the Assumed Effective Date, with the interest rate
remaining constant at one month LIBOR plus 325bps.
o Extension fees are paid in cash to Citicorp, at a rate of 1.5% of
the then outstanding principal balance, at the end of months 24, 30,
36 and 42.
Note A: (See Plan Section IV)
o 5 year term and an interest rate of 11.75% per annum.
o Interest accrues on the average balance outstanding as of the beginning
and end of each period presented.
o Principal amortization (payable quarterly) beginning in year 1 and
throughout the five year term in an amount equal to the sum of the
following:
o Insured Mortgage Proceeds,
o AIM Fund Proceeds, and
o Mezzanine Note Proceeds.
o Collectively, these items are known as the "Miscellaneous Collateral
Amortization".
o Scheduled amortization payments of $0, $5 million, $15 million, and $15
million payable at the end of years 1, 2, 3 and 4, respectively. No
scheduled amortization is payable in year 5, as the remaining unpaid
principal amount of the note is due at the end of such year. If the
holders of Note A do not receive all or any portion of a Scheduled
Principal Paydown in any year and the Miscellaneous Collateral has not
been sold, the holders of Note A shall receive additional interest of 200
basis points on any unpaid amortization amount until such time as the
amount is paid. The Projections make such adjustments where appropriate.
o Extension fees are paid in cash, at a rate of 1.5% of the then outstanding
principal balance, at the end of months 48 and 54.
Note B (See Plan Section IV)
o 6 year term, a cash interest rate of 13.00%, plus an accretion or negative
amortization rate of 7.00% of the outstanding principal balance.
o Interest is paid semi-annually. Both the cash and non-cash components
accrue on the average balance outstanding as of the beginning and end of
each period presented.
o No cash principal amortization during its term.
o Total outstanding principal amount, including all accretion, is paid at
the end of year 6.
o Extension fees are paid in cash, at a rate of 1.5% of the then outstanding
principal balance, at the end of months 48, 54, 60 and 66.
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Refinancing of Debt Facilities
Merrill/GACC Replacement Debt:
o At the end of the 4 year period, it is assumed that the outstanding
principal balance of the Merrill/GACC facility is refinanced into a
hypothetical 8 year, fully amortizing facility. The terms of the
Merrill/GACC facility do not provide for any extension beyond the original
4 year period.
o Interest accrues and is payable at the same rate, one month LIBOR plus
325bps.
o An origination fee of 1.0% of the principal balance.
Citicorp Replacement Debt:
o At the end of the 4 year period, it is assumed that the outstanding
principal balance of the Citicorp facility is refinanced into a
hypothetical 8 year, fully amortizing facility.
o Interest accrues and is payable at the same rate, one month LIBOR 325bps.
o An origination fee of 1.0% of the principal balance.
Note A Replacement Debt:
o At stated maturity, 5 years after the Assumed Effective Date, it is
assumed that the outstanding principal balance is refinanced into a
hypothetical high-yield note. The terms of Note A do not provide for any
extension beyond the original 5 year term.
o Interest accrues and is payable at a rate of 11.75% per annum.
o No principal amortization.
o An origination fee of 3.0% of the principal balance.
Note B Replacement Debt:
o At stated maturity, 6 years after the Assumed Effective Date, it is
assumed that the outstanding principal balance is refinanced into a
hypothetical high-yield note. The terms of Note B do not provide for any
extension beyond the original 6 year term.
o Interest accrues and is payable at a rate of 13.00% per annum.
o No principal amortization.
o No accretion coupon or negative amortization provisions.
o An origination fee of 3.0% of the principal balance.
Preferred Stock
Series B Preferred Stock:
o The entire amount, approximately $39 million face value, of Series B
Preferred Stock remains outstanding throughout the Projection period.
o The Company is seeking approval, through the Plan, to pay dividends on the
Series B Preferred Stock, including those accrued as of the Effective Date
(approximately $7.6 million), in cash or common stock at the Company's
option. It is assumed in the Projections that such dividends are paid in
common stock.
o Dividends accrue at 10.875% per annum prospectively, and are assumed paid
in CRIIMI MAE common stock.
Series D Preferred Stock:
o All outstanding shares of Series D Preferred Stock, $10.0 million, are
exchanged for Series E Preferred Stock on a share-for-share basis on or
before the Assumed Effective Date.
o All accrued but unpaid dividends on the Series D Preferred Stock
(approximately $1.1 million) are paid in CRIIMI MAE common stock on the
Assumed Effective Date.
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<PAGE>
Series E Preferred Stock:
o All accrued but unpaid dividends on the portion of the Series E Preferred
Stock which includes the recently exchanged Series C Preferred Stock
(approximately $1.4 million) are paid in CRIIMI MAE common stock on the
Assumed Effective Date.
o All shares of Series E Preferred Stock, $20.3 million after giving effect
to the exchange of Series D Preferred Stock, are converted into CRIIMI MAE
common stock within 15 months of the Assumed Effective Date.
o The Series E Preferred Stock accrues dividends at a rate of three month
LIBOR plus 250bps per annum after the assumed Effective Date, and such
accrued dividends are paid in CRIIMI MAE common stock.
Series F Dividend Preferred Stock:
o The Company is seeking approval, through the Plan, to pay dividends on the
Series F Dividend Preferred Stock in cash or common stock at the Company's
option.
o The $5.9 million of currently outstanding Series F Dividend Preferred
Stock accrues dividends at a rate of 12% per annum, and the Projections
assume that such dividends are paid in cash.
Series G Dividend Preferred Stock:
o It is assumed that approximately $32 million of Series G Dividend
Preferred Stock is issued in 2000 to satisfy 1999 REIT distribution
requirements.
o Dividends on the Series G Dividend Preferred Stock will be payable in cash
or common stock at the Company's option.
o 50% of the Series G Dividend Preferred Stock is assumed converted into
CRIIMI MAE common stock, and the outstanding balance is assumed to pay
dividends at a rate of 14% per annum. The Projections assume that such
dividends are paid in cash.
Common Stock:
o The securities trader election and required recognition of mark-to market
adjustments create tax basis net operating losses and carryforwards
throughout the Projection period. Because the Company's common dividends
are based on taxable income and related REIT distribution requirements, no
dividends are assumed paid to holders of the Company's common stock during
the Projection period.
General Operating and Administrative Expenses:
o General operating and administrative expenses represent the normalized
personnel, facility and operating costs the Company anticipates
experiencing. Such amounts approximate $10 million per year.
o General operating and administrative expenses increase beginning in year 5
due to assumed taxes relating to Alternative Minimum Tax usage
limitations. The Projections assume a non deductible 20% tax on AMT
Taxable Income.
o The general operating and administrative costs of operating CMSLP are
included net of revenues in the "Servicing Affiliates" caption in the
Estimated Tax Basis (Loss) Income Projection.
13
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EXHIBIT C
<PAGE>
EXHIBIT C
LIQUIDATION ANALYSIS
Section 1129(a) of the U.S. Bankruptcy Code states that the court shall confirm
a plan of reorganization only if certain requirements are met. One of these
requirements (Section 1129(a) (7) (A) (ii)) is that with respect to each
impaired class of claims or interests, each holder of a claim or interest of
such class must accept the plan or receive or retain property of a value, as of
the Effective Date of the plan, that is not less than the amount that holders of
such claims or interests would receive or retain if the Debtors were liquidated
under Chapter 7 on such date.
As previously disclosed in Section VII of the Disclosure Statement, CERTAIN RISK
FACTORS, the value of the Company's Subordinated CMBS and other mortgage assets
can change due to a number of economic factors. These factors include changes in
the underlying real estate, fluctuations in U.S. Treasury rates, and changes in
risk premiums (commonly referred to in industry practice as "spreads") for
purchasing Subordinated CMBS and other mortgage assets. The Company's management
believes that only a limited number of investors currently exist with the real
estate expertise, infrastructure, and available capital required to evaluate and
execute an acquisition of the Company's Subordinated CMBS and other mortgage
assets. Furthermore, there is currently no active secondary market for the
Company's Subordinated CMBS and other mortgage assets. The size of the Company's
portfolio, the unprecedented nature of a liquidation of such portfolio, and the
limited liquidity of the secondary CMBS market results in uncertainty in the
valuation of the Company's portfolio of Subordinated CMBS and other mortgage
assets. The Company's management has prepared its liquidation analysis (the
"Liquidation Analysis") assuming the Company is unable to preserve its REIT
status and a court appointed trustee liquidates the assets of the Debtors'
estate not in a "firesale", but over a period of approximately six months (see
Significant Assumptions in the Notes to Liquidation Analysis).
Underlying the Liquidation Analysis are a number of estimates and assumptions
that, although formulated and considered reasonable by the Debtors, are
inherently subject to significant economic, competitive, and other uncertainties
and contingencies beyond the control of the Debtors. The Liquidation Analysis is
also based on assumptions with regard to liquidation decisions that are subject
to change. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE VALUES REFLECTED IN
THIS LIQUIDATION ANALYSIS WOULD BE REALIZED IN A CHAPTER 7 CASE. ACTUAL RESULTS
COULD VARY MATERIALLY FROM THOSE SHOWN HEREIN.
The Liquidation Analysis has been prepared solely for the purpose of estimating
the distributable liquidation proceeds available in a hypothetical Chapter 7
case and does not necessarily represent values that may be appropriate for any
other purpose. Nothing contained in these valuations is intended nor shall it be
construed to be an admission by the Company for any other purpose. The
independent public accountants of the Company have neither examined nor compiled
or provided any assurance report on the Liquidation Analysis thereon in
accordance with Generally Accepted Auditing Standards.
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CRIIMI MAE INC.
LIQUIDATION ANALYSIS
SEE ACCOMPANYING NOTES TO LIQUIDATION ANALYSIS
<TABLE>
<CAPTION>
Liquidation Estimated Recovery
Proceeds Allowed Claims Recovery Percentage
----------- -------------- -------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Cash (1) $ 259,042,470
Sale of Investments (2) 387,245,722
Other Assets (3) 72,817,321
-------------
Liquidation Value of Assets $ 719,105,512
-------------
CHAPTER 7 ADMINISTRATIVE EXPENSES:
Tax Liabilities (4) $ (87,200,000) $ (87,200,000) 100%
Professionals (5) (6,000,000) (6,000,000) 100%
Trustee Fees (6) (6,820,000) (6,820,000) 100%
Operating Expenses (7) (2,500,000 (2,500,000) 100%
CHAPTER 11 ADMINISTRATIVE AND PRIORITY CLAIMS:
Professionals (8) (18,911,077) (18,911,077 100%
Other (9) (11,381,896) (11,381,896) 100%
SECURED DEBT (10) (450,410,727) (450,410,727) 100%
UNSECURED CLAIMS (11) (201,788,589) (135,881,812) 67%
-------------
TOTAL ESTIMATED CASH AVAILABLE FOR EQUITY
DISTRIBUTION $ 0
-------------
EQUITY:
Preferred Stock: (12)
Series B $ 0 0%
Series D $ 0 0%
Series E $ 0 0%
Series F (Dividend Preferred) $ 0 0%
Available Cash for Distribution to Common
Shareholders $ 0
-------------
Common Shares Outstanding (13) 62,353,170
-------------
Cash Distribution per Common Share $ 0 0%
-------------
</TABLE>
- --------------------------------------------------------------------------------
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NOTES TO LIQUIDATION ANALYSIS
SIGNIFICANT ASSUMPTIONS
The following notes describe the significant assumptions that are reflected in
the Liquidation Analysis:
LOSS OF REIT STATUS THROUGH CHAPTER 7 LIQUIDATION SIGNIFICANTLY REDUCES
RECOVERABILITY TO CREDITORS AND SHAREHOLDERS
The Liquidation Analysis assumes that CRIIMI MAE is not able to distribute
sufficient taxable dividends for either its 1999 or 2000 tax years to satisfy
REIT distribution requirements and, therefore, is unable to preserve its REIT
status. In addition, due to the loss of REIT status, the Company's taxable
mortgage pools ("TMPs") are assumed to lose their qualified REIT subsidiary
("QRS") exemptions and are treated as separate tax-paying entities. As a result
of the loss of REIT status and the QRS exemptions, the aggregate liquidating
distribution, as reflected herein, has been significantly diminished by
corporate federal and state income tax liabilities (excluding penalties and
interest) and a reduction in liquidation proceeds resulting from the sale of
CBO-1, CBO-2 and CMO-IV (collectively referred to herein as the "Trusts") as
TMPs. The liquidating distribution may be further reduced by penalties and
interest associated with the potential late payment of 1999 and 2000 corporate
federal and state tax liabilities.
The amount of cash available for distribution for 1999 and 2000 could be
increased in total by approximately $254 million if the Company's REIT status
were preserved. The Company's ability to maintain its REIT status through the
adequate distribution of dividends (among other requirements) could increase the
ultimate recovery by preserving the QRS exemptions of the TMPs currently owned
by the Company. Based upon management's assumptions, it is currently estimated
that the loss of the Company's REIT status results in a reduction in the
liquidation proceeds by approximately $167 million from the sale of the Trusts
as TMPs and an additional $87 million due to corporate federal and state income
tax liabilities (excluding penalties and interest). These reductions result in a
decrease in the ultimate recovery of the unsecured creditors' allowed claims by
approximately $66 million as reflected in the Liquidation Analysis set forth
above. The following paragraphs describe the risks associated with the Company's
loss of its REIT status:
DEVALUATION OF THE CMBS ASSETS DUE TO TMP RISK. An entity that
constitutes a "taxable mortgage pool" as defined in the Tax Code 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 by the TMPs. Based on
this definition, CBO-1, CBO-2 and CMO-IV (collectively the "Trusts")
are TMPs. The statutory provisions and regulations governing the tax
treatment of TMPs (the "TMP Rules") provide an exemption for TMPs whose
equity interests are wholly owned by a REIT (or a qualified REIT
subsidiary or "QRS"). Since it is assumed that the Company's REIT
status is not maintained for 1999 or 2000, the Trusts would no longer
qualify for the exemption granted to a QRS and the Trusts would be
required to pay a separate corporate level tax on income derived from
their underlying mortgage assets. As a result of the tax on the TMPs,
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) would instead be
applied to satisfy corporate federal and state income tax liabilities.
Since the equity interests and bonds owned by the Company are the most
subordinated securities of the Trusts and are the first to absorb
payment shortfalls, the loss of the QRS exemption under the TMP rules
would have a material adverse effect on the payments received on these
securities and the liquidation value of the Trusts.
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The Company's aggregate estimated tax liability (i) has been calculated on a
consolidated basis, (ii) assumes the Company loses its REIT status, and (iii)
assumes that the TMPs lose their QRS exemptions and are taxed as separate
taxpaying entities. Under this scenario, CRIIMI MAE would likely recognize a
taxable loss, while each TMP would have positive taxable income as a separate
corporation. The taxable income associated with CBO-1, CBO-2, and CMO-IV is
estimated at $110 million for 1999 and $108 million for 2000. The $218 million
of taxable income, which cannot be offset by CRIIMI MAE's taxable losses, would
give rise to an aggregate tax liability of approximately $87 million (excluding
penalties and interest) through liquidation, thereby reducing cash available for
distribution to unsecured creditors and shareholders. The liquidating
distribution may be further reduced by penalties and interest associated with
the potential late payment of 1999 and 2000 corporate federal and state tax
liabilities.
THE LIQUIDATION PERIOD
This Liquidation Analysis assumes a conversion of the Company's Chapter 11
reorganization to a Chapter 7 liquidation effective July 1, 2000 and involves a
six-month liquidation of all remaining assets through December 31, 2000 (the
"Liquidation Period"). Cash proceeds from the sale of each asset are used to
retire, to the extent of available funds, any related secured debt at the time
the assets are sold, with excess cash accumulated in an interest bearing account
for the payment of the remaining liabilities in December 2000.
LIQUIDATION ANALYSIS PREPARED ON A CONSOLIDATED BASIS FOR THE DEBTOR ENTITIES
The Liquidation Analysis assumes the liquidation of CRIIMI MAE Inc. and its
consolidated subsidiaries (which includes the debtor entities CRIIMI MAE
Management, Inc. and CRIIMI MAE Holdings II, L.P. and certain non-debtor
entities). With respect to CRIIMI MAE Management, Inc. and CRIIMI MAE Holdings
II, L.P., the following summarizes the results of an assumed Chapter 7
liquidation of those entities:
CRIIMI MAE MANAGEMENT, INC. ("CRIIMI MAE MANAGEMENT")
The total pre- and post-petition liabilities of CRIIMI MAE Management as of
December 31, 1999 were approximately $9.1 million. The total estimated
liquidation value of the assets of CRIIMI MAE Management as of December 31, 1999
was in excess of $13 million. Accordingly, in a Chapter 7 liquidation of CRIIMI
MAE Management, it is estimated that all pre- and post-petition creditors and
all administrative expenses in the Chapter 7 case would be paid in full, with a
net residual value available to the estate of CRIIMI MAE Inc. as the sole
shareholder of CRIIMI MAE Management.
CRIIMI MAE HOLDINGS II, L.P. ("CRIIMI MAE HOLDINGS")
The assets of CRIIMI MAE Holdings (the retained investment grade securities
("BBB/BBB-") from CMO-IV) were sold in October 1999 under the terms of a
Stipulation and Order entered by the Bankruptcy Court, with the proceeds thereof
used to retire the outstanding indebtedness of CRIIMI MAE Holdings with respect
thereto. Accordingly, the Debtor believes that there are no remaining creditors
of CRIIMI MAE Holdings or assets to be liquidated in a Chapter 7 case.
NOTES
The following are the footnote explanations related to the Liquidation Analysis:
1. The cash balance represents the Company's consolidated cash balance of
approximately $91.6 million as of December 31, 1999, approximately $88.3
million of additional net investment income the Company expects to earn
from January 1, 2000 through the end of the Liquidation Period, and the net
proceeds of approximately $79 million from the sale of the CMBS Sale
Portfolio which was assumed to occur in the first and second quarter of
2000. The net investment income is comprised of the Company's net interest
margin on its mortgage assets and earnings from its equity investments.
This
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amount also includes short-term interest income related to cash on hand, at
an assumed rate of 5%. The net investment income does not include any
administrative expenses, which are accounted for below, or the payment of
any post-petition interest expense associated with the unsecured claims.
Furthermore, the corporate federal and state income tax liabilities
(excluding penalties and interest) of approximately $87 million and the
reduction of liquidation proceeds resulting from the sale of the Trusts as
TMPs of approximately $167 million have been reflected in the Liquidation
Analysis attached hereto under Chapter 7 Administrative Expenses - Tax
Liabilities and Assets - Sale of Investments. As of February 29, 2000, the
Company's estimated consolidated cash balance totaled approximately $107
million.
2. Sale of investments represents the Company's estimate of the proceeds it
would receive related to the sale of its investments under this Liquidation
Analysis. The following details the assumptions used to calculate proceeds
from the sale of these investments:
(a) SUBORDINATED CMBS: The Company's management used the same discounted
cash flow methodology as used in its Form 10-K filing as of December
31, 1999 in determining the sale proceeds for its Subordinated CMBS
during the Liquidation Period. The cash flows were discounted using a
discount rate that, in the Company's view, was commensurate with the
market's perception of risk of comparable assets under a comparable
liquidation scenario, and included an estimate for the market effect
associated with the Company's portfolio liquidation. The Company used
a variety of sources to determine its discount rate including
institutionally-available research reports, discussions with the
Company's secured lenders, and communications with dealers and active
Subordinated CMBS investors regarding the valuation of comparable
securities. The proceeds from the sale of such CMBS were derived using
the following assumptions:
(i) The proceeds were calculated for those CMBS investments in which
the Company had an economic interest as of December 31, 1999,
except for the CMBS Sale Portfolio which was assumed to be sold
in the first and second quarters of 2000. The net proceeds (gross
sale proceeds net of the corresponding secured debt) totaling
approximately $79 million were derived using the assumptions
described in 2.(a) above, 2.(a)(iii) below, and the required
rates of return as negotiated between the Company and one of its
secured lenders under the terms of a Stipulation and Order
approved by the Bankruptcy Court and settled by the Company and
its secured lender on February 29, 2000. The aggregate net
proceeds have been included herein under Assets - Cash. Any
match-funded CMBS assets and corresponding match-funded
liabilities were excluded from this Liquidation Analysis.
(ii) The CMBS and related servicing rights for each issuance were
assumed to be sold jointly and in their entirety, and are net of
a broker's fee equal to 62.5 basis points of the gross sale
proceeds.
(iii) All non-CRIIMI MAE issued CMBS assets were priced assuming a 0%
CPR (Constant Prepayment Rate) and 0% CDR (Constant Default Rate)
since the inherent risks associated with defaults and losses are
accounted for in the spreads and discount rates used to determine
the gross sale proceeds. These assumptions are consistent with
the valuation methodology used for quarterly SEC reporting and
market convention for the sale of such securities.
(iv) The retained securities from CBO-1, CBO-2 and CMO-IV were priced
assuming the Company loses its REIT status retroactive to January
1, 1999. Accordingly, these Trusts become subject to corporate
federal and state income tax liabilities as a result of the loss
of the QRS exemptions for the TMPs. The gross taxable earnings
for each Trust were computed using the original pricing speeds
and current tax yields on the underlying collateral. The
deductible payments from each Trust were computed based upon the
original pricing speeds and current tax yields of the securities
that were issued by each Trust. Any excess taxable income over
the deductible payment from each Trust represents the net taxable
income of that Trust. It was further assumed that each Trust
would pay corporate federal and state income taxes at an
aggregate effective tax rate of 40%. The gross cash flow for each
Trust was reduced by the
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associated tax liability and all remaining cash flow was
allocated to each security in accordance with the payment
priorities as detailed in the respective pooling and servicing
agreements. The resulting cash flows on securities held by the
Company were then discounted using yields derived as discussed in
2.(a)(v), (vi), and (vii) below.
(v) The Company's management projected the U.S. Treasury curve for
the assumed future sale dates using a forward rate curve
extracted from Bloomberg. An appropriate U.S. Treasury rate was
then interpolated based on the projected U.S. Treasury curve and
weighted-average life of each CMBS.
(vi) Credit spreads for comparably rated CMBS were derived from the
sources cited in 2.(a) above and adjusted based on qualitative
and quantitative factors, such as the market's perception of the
issuers and the credit fundamentals of the commercial real estate
underlying each pool of commercial mortgage loans.
(vii) Credit spread adjustments, ranging from 150 to 600 basis points,
were added to credit spreads determined in 2.(a)(vi) above in
determining the appropriate discount rate for the CRIIMI MAE
issued CMBS retained by the Company. These incremental
adjustments reflect yield premiums that would likely occur if a
portfolio of this size were sold in the secondary market during
the third and fourth quarters of 2000.
(b) INSURED MORTGAGE SECURITIES: For each of the residual economic
interests in CMO-I, CMO-II, and CMO-III, CRIIMI MAE used pricing
assumptions consistent with those used by typical buyers of Interest
Only securities. Accordingly, the sale proceeds were computed assuming
a pricing speed of 100% CPR after the expiration of any lockout and
yield maintenance period on the underlying mortgage securities. The
projected cash flows were discounted at a credit spread of 600 basis
points over the interpolated U.S. Treasury rate as of the assumed sale
date. The sale proceeds for the residual interests are net of a
broker's fee equal to 62.5 basis points of the gross sale proceeds.
The Company's only non-securitized GNMA MBS was priced to sell at 97%
of its face amount and is net of a broker's fee equal to 62.5 basis
points of the gross sale proceeds.
(c) EQUITY METHOD INVESTEES: The value of the AIM general partner ("GP")
investment was determined by dividing the value of the publicly traded
Limited Partnership ("LP") units, as extracted from Bloomberg, by the
LPs' interest and multiplying the result by each GP's interest
(ranging from 2.9% to 4.9%). The assumed value of each GP's interest
was compared to its indirect ownership interest in the mortgage loans
underlying each fund and further reduced based on an assumed 20% per
annum run-off rate of the underlying mortgage assets. An additional
discount of 25% was applied to reflect the liquidity premium that may
be associated with the liquidation of the Company and the risk of
owning a GP interest.
CRIIMI MAE Services, L.P. ("CMSLP")(CRIIMI MAE's servicing affiliate)
is assumed to continue to operate through December 2000. (It should be
noted, however, that this assumption may not be achievable due to the
potential loss of key personnel in a Chapter 7 scenario. The loss of
such key personnel coupled with the Chapter 7 liquidation of the
Company is likely to adversely impact the rating of CMSLP as servicer,
lead to the replacement of CMSLP as servicer on then-existing CMBS
transactions and may result in an adverse impact on bond ratings, a
negative impact on the value of the Company's remaining CMBS and the
incurring of additional costs and other potential defaults and claims
by the Company.) Notwithstanding the foregoing qualifications, for
purposes of this analysis, servicing assets, consisting primarily of
direct and master servicing contracts, were assumed to be sold in
connection with the sale of the related CMBS using pricing assumptions
consistent with those used by typical buyers of such securities.
Accordingly, the sale proceeds were computed assuming a pricing speed
of 1% CPR during any lockout period, 2% CPR during any yield
maintenance period, 5% CPR during any prepayment penalty period, and
15% CPR after the expiration of any yield maintenance or prepayment
penalty period on the underlying mortgage securities. The projected
cash flows were discounted at a credit spread of 800 basis points over
the interpolated U.S. Treasury rate as of the assumed sale date. The
sale proceeds for the residual interests are net of a broker's fee
equal to 62.5 basis points of the gross sale proceeds. Furthermore,
proceeds from the sale of the
C-7
<PAGE>
special servicing rights have been included in the sale proceeds of
the related CMBS, as the purchaser of the controlling class has the
right to appoint the special servicer.
3. Other Assets include the following:
(a) The Company's mezzanine loans were assumed to be sold at 70% of their
face amount to reflect the credit risk associated with owning these
assets. As of December 31, 1999, the Company owned approximately $7.5
million (face amount) of mezzanine loans. The proceeds are net of a
broker's fee equal to 62.5 basis points of the gross sale proceeds.
(b) Brick Church (REO) was assumed to be sold for a net amount equal to
the associated secured obligation of the property, and is net of a 3%
broker's fee based on the gross sale proceeds.
(c) All fixed assets were assumed to be sold at 10% of their carrying
value.
(d) The Company has assumed the collection of certain receivables.
4. The aggregate taxable income associated with CBO-1, CBO-2, and CMO IV,
estimated at $110 million for 1999 and $108 million for 2000, would give
rise to corporate federal and state tax liabilities (excluding penalties
and interest) of approximately $44 million for 1999 and $43 million for
2000. Furthermore, the Company may be subject to penalties and interest
associated with the potential late payment of 1999 and 2000 corporate
federal and state tax liabilities.
5. This amount, estimated at approximately $1 million per month, includes the
professional expenses required to liquidate the Company and perform other
functions for the Trustee during the Chapter 7 case.
6. This amount represents the fees of the Chapter 7 Trustee. Although the
Chapter 7 Trustee could receive up to 3% of the estate proceeds distributed
to creditors, Chapter 7 Trustee fees have been estimated at 1% of payments
made to creditors due to the large size of the Debtors' estate.
7. Unlike most Chapter 7 scenarios, the nature of the Debtor's assets will
require that the Chapter 7 Trustee retain critical employees and operate
the Company, on a reduced basis, during the Liquidation Period. Operating
expenses are assumed to be reduced by 50% during the period of liquidation
as compared to the level of operating expenses assumed while the Company is
in Chapter 11 as discussed in Note 9 below. This is primarily a result of
the reduction of the workforce in a Chapter 7 liquidation.
8. This amount includes the professional fees incurred during the Debtors'
Chapter 11 cases that have not been paid, as well as estimated professional
fees to be incurred by the Company through June 30, 2000.
9. This amount includes the following: (1) payment of post-petition trade
payables, (2) estimated payment of the retention bonus payable to remaining
employees in April 2000 and severance paid to employees terminated upon
liquidation, and (3) other ongoing operating costs through June 30, 2000.
The estimated operating costs are assumed to be $2.5 million per quarter.
10. Secured debt includes variable rate secured borrowings (excluding the
secured debt associated with the CMBS Sale Portfolio which was assumed to
be retired using the proceeds from the sales assumed to occur in the first
and second quarters of 2000), other secured financing facilities and
accrued and unpaid interest as of December 31, 1999, at contractual,
non-default rates. From January 1, 2000
through December 31, 2000, it is assumed that interest is paid on a current
basis at contractual, non-default rates.
11. Unsecured claims include senior unsecured notes, other unsecured financing
facilities, trade payables, and other unsecured claims (excluding any
post-petition accrual of interest thereon). The total
C-8
<PAGE>
presented does not include any amounts for the allowance of any disputed
claims or any rejection damage claims in a Chapter 7 liquidation of the
Debtors.
12. The Liquidation Analysis references the Series F Preferred Stock (Dividend
Preferred) distributed in the fourth quarter of 1999 for the distribution
of the remaining 1998 taxable income, of which 756,453 shares were
converted into common stock in November 1999 and 263,788 shares were
converted into common stock in February 2000. Furthermore, the Company also
entered into a Preferred Stock Exchange Agreement on February 22, 2000
pursuant to which it exchanged 103,000 shares of Series C Cumulative
Convertible Preferred Stock for 103,000 shares of Series E Cumulative
Convertible Preferred Stock. In addition, no dividends are assumed to be
paid on any outstanding preferred or common shares and no options are
assumed to be converted into common stock. The number of shares of Series
B, D, E, and F outstanding as of February 29, 2000 was 1,593,982, 100,000,
103,000 and 586,354, respectively.
13. The number of shares of common stock outstanding as of February 29, 2000
was 62,353,170.
While the Unsecured Creditors' Committee supports the Plan and believes that the
Plan satisfies the best interests test under Section 1129(a)(7) of the
Bankruptcy Code, the foregoing calculations and analysis represent the work
product of the Debtors.
C-9
<PAGE>
EXHIBIT D
<PAGE>
EXHIBIT D
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CRIIMI MAE Financial Statements:
Report of Independent Public Accountants .............................................................. D-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 .......................................... D-2
Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 ................ D-3
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998, 1997 ..... D-4
Consolidated Statements of Cash Flow for the years ended December 31, 1999, 1998 and 1997 ............. D-5
Notes to Consolidated Financial Statements ............................................................ D-6
</TABLE>
<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, 1999 and
1998, and the related consolidated statements of income and comprehensive
income, changes in shareholders' equity and cash flows for the years ended
December 31, 1999, 1998 and 1997. 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 auditing standards
generally accepted in the United States. 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, 1999 and 1998, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1999, 1998 and 1997, in conformity with accounting principles generally
accepted in the United States.
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
Vienna, VA
March 31, 2000
D-1
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Assets:
Mortgage assets:
Subordinated CMBS, at fair value $ 1,179,270,306 $ 1,274,185,678
Insured mortgage securities, at fair value 394,857,239 488,095,221
Investment in originated loans, at amortized cost 470,204,780 499,076,030
Equity investments 34,929,523 42,868,469
Receivables 69,483,337 46,992,337
Other assets 53,276,333 62,520,146
Restricted cash and cash equivalents 38,036,624 2,353,560
Other cash and cash equivalents 53,603,104 21,826,512
---------------- ---------------
Total assets $ 2,293,661,246 $ 2,437,917,953
================ ===============
Liabilities:
LIABILITES NOT SUBJECT TO CHAPTER 11 PROCEEDINGS:
Collateralized bond obligations-CMBS $ 278,165,968 $ 117,831,435
Collateralized mortgage obligations-insured mortgage securities 378,711,602 456,101,720
Collateralized mortgage obligations-originated loans 399,768,513 386,752,951
Payables and accrued expenses 29,886,888 17,124,124
LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS:
Variable-rate secured borrowings-CMBS 732,904,775 932,236,674
Other financing facilites 3,050,000 3,050,000
Payables and accrued expenses 26,455,952 13,690,004
Senior unsecured notes 100,000,000 100,000,000
Other financing facilities 89,749,522 89,749,522
Payables and accrued expenses 35,619,440 13,504,618
---------------- ---------------
Total liabilities 2,074,312,660 2,130,041,048
---------------- ---------------
Shareholders' equity:
Convertible preferred stock, $0.01 par; 25,000,000 shares authorized;
2,647,124 and 1,816,982 shares issued and outstanding, respectively 26,471 18,170
Common stock, $0.01 par; 120,000,000 shares authorized; 59,954,604
and 52,898,100 shares issued and outstanding, respectively 599,546 528,981
Accumulated other comprehensive income (207,421,788) (251,255,309)
Accumulated deficit (148,434,915) --
Additional paid-in capital 574,579,272 558,585,063
---------------- ---------------
Total shareholders' equity 219,348,586 307,876,905
---------------- ---------------
Total liabilities and shareholders' equity $ 2,293,661,246 $ 2,437,917,953
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated finanical
statements.
D-2
<PAGE>
CRIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Subordinated CMBS $ 154,205,383 $ 143,656,307 $ 79,669,816
Insured mortgage securities 33,405,171 43,062,743 49,425,401
Originated loans 34,712,674 20,588,112 --
------------- ------------ ------------
Total interest income 222,323,228 207,307,162 129,095,217
------------- ------------ ------------
Interest and related expenses:
Fixed-rate collateralized bond obligations-CMBS 22,054,939 8,945,570 11,351,890
Fixed-rate collateralized mortgage obligtions-insured 33,382,959 39,503,033 42,795,773
Fixed-rate collateralized mortgage obligations-originated loans 27,479,268 14,772,782 --
Fixed-rate senior unsecured notes 9,125,004 9,689,621 1,065,843
Variable-rate secured borrowings-CMBS 52,195,828 59,628,760 21,958,309
Other financing facilities 7,098,832 3,728,665 747,599
------------ ------------ ------------
Total interest expense 151,336,830 136,268,431 77,919,414
------------- ------------ ------------
Net interest margin 70,986,398 71,038,731 51,175,803
------------- ------------ ------------
Equity in (losses) earnings from investments (1,243,562) 2,617,728 3,612,230
Other income 3,024,068 4,278,878 2,609,354
Net gain on mortgage security dispositions 2,127,691 1,196,499 17,343,481
Gain on originated loan dispositions 403,383 -- --
General and administrative expenses (12,049,256) (14,623,407) (9,610,579)
Amortization of assets acquired in the Merger (2,877,576) (2,877,576) (2,877,564)
Losses on warehouse obligations (8,000,000) (30,378,173) --
Reorganization items:
Impairment on CMBS (156,896,831) -- --
Other (22,003,128) (9,856,947) --
Gain on sale of CMBS -- 28,800,408 --
Realized loss on reverse repurchase obligation -- (4,503,177) --
Write-off capitalized loan organization costs -- (3,284,037) --
------------- ------------ ------------
(197,515,211) (28,629,804) 11,076,922
------------- ------------ ------------
Minority interest in net income of consolidated subsidiary -- (40,334) (8,065,109)
Net (loss) income before dividends accrued or paid on preferred shares (126,528,813) 42,368,593 54,187,616
Dividends accrued or paid on preferred shares (5,840,152) (6,997,859) (6,472,540)
------------- ------------ ------------
Net (loss) income available to common shareholders $(132,368,965) $ 35,370,734 $47,715,076
============= ============ ============
Net (loss) income available to common shareholders per common share:
Basic $ (2 45) $ 0 75 $ 1 29
============= ============ ============
Diluted $ (2 45) $ 0 74 $ 1 25
============= ============ ============
Shares used in computing basic earnings
per share, exclusive of shares held in treasury 53,999,782 47,280,371 36,993,130
============= ============ ============
Comprehensive (loss) income:
Net (loss) income before dividends paid or accrued on preferred shares $(126,528,813) $ 42,368,593 $ 54,187,616
Other comprehensive income (loss) 43,833,521 (252,338,120) (7,833,417)
------------- ------------ ------------
Comprehensive (loss) income $ (82,695,292) $(209,969,527) $ 46,354,199
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
D-3
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Preferred Common Other Total
Stock Par Stock Par Comprehensive Additional Accumulated Treasury Shareholders'
Value Value Income Paid-in Capital Deficit Stock Equity
--------- --------- ------------- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $24,900 $319,128 $ 8,916,228 $342,462,380 $ - $(5,051,373) 346,671,263
Net income - - - - 54,187,616 - 54,187,616
Dividends paid or accrued 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) - - (5,320,553)
Conversion of preferred shares
income common shares (8,106) 22,402 - (14,296) - - -
Stock options exercised - 738 - 623,393 - - 624,131
Adjustment to unrealized gains
on investments - - 994,083 - - - 994,083
Adjustment to unrealized losses
on investments - - (8,827,500) - - - (8,827,500)
Shares issued 1,500 64,435 - 110,773,628 - - 110,839,563
------- -------- ------------- ------------ ------------- ------------- -------------
Balance at December 31, 1997 18,294 406,703 1,082,811 448,524,552 - (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) - - (19,582,467)
Conversion of preferred shares
into common shares (2,624) 49,464 - (46,840) - - -
Stock options exercised 897 - 827,176 - - 828,073
Adjustment to unrealized gains
on investments - - 4,016,052 - - - 4,016,052
Adjustment to unrealized losses
on investments - - (256,354,172) - - - (256,354,172)
Shares issued 2,500 77,345 - 133,908,587 - - 133,988,432
Treasury shares retired - (5,428) - (5,045,945) - 5,051,373 -
------- -------- ------------- ------------ ------------- ------------- -----------
Balance at December 31, 1998 18,170 528,981 (251,255,309) 558,585,063 - - 307,876,905
Net loss - - - - (126,525,063) - (126,528,813)
Dividends accrued on preferred
shares - - - - (5,840,152) - (5,840,152)
Conversion of preferred shares
into common shares (7,765) 70,545 - (62,780) - - -
Common shares issued - 20 - 7,105 - - 7,125
Adjustment to unrealized losses
on investments - - 43,833,521 - - - 43,833,521
Preferred shares issued 16,066 - - 16,049,884 (16,065,950) - -
------- -------- ------------- ------------ ------------- ------------- -------------
Balance at December 31, 1999 $26,471 $599,546 $(207,421,788) $574,579,272 $(148,434,915)$ - $219,348,586
------- -------- ------------- ------------ ------------- ------------- -------------
------- -------- ------------- ------------ ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
D-4
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31,
1999 1998 1997
-------------- --------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(126,528,813) $ 42,368,593 $ 54,187,616
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Amortization of discount and deferred financing costs on debt 8,701,571 6,503,100 3,893,343
Amortization of assets acquired in the Merger 2,877,576 2,877,576 2,877,564
Other amortization and depreciation 2,407,103 2,030,183 920,058
(Discount) Premium amortization on mortgage assets (1,004,995) 424,293 (451,758)
Net gain on mortgage security dispositions (2,127,691) (1,196,499) (17,343,481)
Gain on originated loan dispositions (403,383) -- --
Equity in losses (earnings) from investments 1,243,562 (2,617,728) (3,612,230)
Impairment on CMBS 156,896,831 -- --
Change in other reorganization items accrual 12,146,181 9,856,947 --
Losses on warehouse obligations 8,000,000 30,378,173 --
Cash gain on sale of CMBS -- (28,800,408) --
Realized loss on reverse repurchase obligation -- 4,503,177 --
Write-off of capitalized origination costs -- 3,284,037 --
Minority interests in earnings of consolidated subsidiary -- 40,334 8,065,109
Valuation adjustment to hedges -- -- 28,250
Changes in assets and liabilities:
Increase in restricted cash and cash equivalents (35,683,064) (2,353,560) --
Increase in receivables and other assets (30,194,006) (35,231,425) (5,587,245)
Increase in payables and accrued expenses 29,733,222 16,793,946 1,162,165
------------- ---------------- -------------
Net cash provided provided by operating activities 26,064,094 48,860,739 44,139,391
------------- ---------------- -------------
Cash flows from investing activities:
Proceeds from mortgage securities dispositions 74,003,394 117,414,346 83,492,408
Proceeds from originated loan dispositions 19,617,622 -- --
Proceeds from sale of CMBS 18,076,047 -- --
Proceeds from sale of collateralized bond obligations -- 334,919,531 --
Proceeds of originated loans -- (495,825,576) --
Purchase of Subordinated CMBS -- (852,560,342) (553,913,225)
Return of loan origination reserve from securitization -- 71,877,560 --
Funding of loan origination reserve -- (75,433,979) (29,514,700)
Payment of deferred costs -- (8,959,628) (840,747)
Distributions received from AIM Investments 6,250,991 5,115,547 4,463,485
Distributions received from CMSLP -- 3,114,000 --
Receipt of principal payments 12,837,554 14,338,531 10,368,624
Servicing rights acquired and contributed to CMSLP -- (3,880,235) (12,692,597)
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)
------------- ---------------- -------------
Net cash provided by (used in) investing activities 130,785,608 (894,647,161) (503,068,834)
------------- ---------------- -------------
Cash flows from financing activities:
Proceeds from debt issuances -- 1,998,430,321 666,636,095
Principal payments on securitized mortgage debt obligations (106,543,623) (443,566,240) (36,726,708)
Principal payments on secured borrowings and other debt facilities (18,529,487) (1,147,770,905) (198,667,423)
Proceeds from sale of CMO bonds -- 390,068,687 --
Increase in deferred financing costs -- (5,975,059) (6,133,915)
Dividends (including return of capital) accrued or paid to shareholders,
including minority interests -- (60,499,169) (86,499,860)
Proceeds from issuance of convertible preferred stock -- 25,000,000 15,000,000
Proceeds from issuance of common stock -- 109,816,505 96,463,694
------------- ---------------- -------------
Net cash (used in) provided by financing activities (125,073,110) 865,504,140 450,071,883
------------- ---------------- -------------
Net increase (decrease) in other cash and cash equivalents 31,776,592 19,717,718 (8,857,560)
Other cash and cash equivalents, beginning of year 21,826,512 2,108,794 10,966,354
------------- ---------------- -------------
Other cash and cash equivalents, end of year $ 53,603,104 $ 21,826,512 $ 2,108,794
------------- ---------------- -------------
------------- ---------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-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"). Prior to the filing by CRIIMI MAE Inc.
(unconsolidated) and two of its 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"), 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
commercial 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) risks related to the necessary Recapitalization Financing under the
Company's Second Amended Joint Plan of Reorganization; (3) risk of loss of REIT
status; (4) taxable mortgage pool risk; (5) risk of phantom income resulting in
additional tax liability; (6) the effect of rate compression on the market price
of the Company's stock; (7) substantial leverage; (8) inherent risks in owning
Subordinated CMBS; (9) the limited protection provided by hedging transactions;
(10) risk of foreclosure on CMBS assets; (11) the limited liquidity of the CMBS
market; (12) pending litigation; (13) risk of being considered an investment
company; (14) possible effects of an economic recession on losses and defaults;
(15) borrowing risks; (16) the shape of the yield curve could adversely affect
income; and (17) risks associated with the trader election.
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 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 nor
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
D-6
<PAGE>
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 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 value required in the
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, 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.
While in bankruptcy, CRIIMI MAE has streamlined its operations. The
Company has significantly reduced the number of employees in its origination and
underwriting operations. In connection with these reductions, the Company closed
its five regional loan origination offices.
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 Note 15 for further
discussion.
CRIIMI MAE is working diligently toward emerging from bankruptcy as a
successfully reorganized company. In furtherance of such effort, the Debtors
filed (i) a Joint Plan of Reorganization on September 22, 1999, (ii) an Amended
Joint Plan of Reorganization and proposed Joint Disclosure Statement on December
23, 1999, and (iii) a Second Amended Joint Plan of Reorganization (the "Plan")
and proposed Amended Joint Disclosure Statement (the "Proposed Disclosure
Statement") on March 31, 2000. The Plan was filed with the support of the
Official Committee of Equity Security Holders of CRIIMI MAE (the "Equity
Committee"), which is a co-proponent of the Plan. Subject to the completion of
mutually acceptable documentation evidencing the secured financing to be
provided by the unsecured creditors (the "Unsecured Creditor Debt
Documentation"), the Official Committee of Unsecured Creditors of CRIIMI MAE
(the "Unsecured Creditors' Committee") has agreed to support confirmation of the
Debtors' Plan. The Company, the Equity Committee and the Unsecured Creditors'
Committee are now all proceeding toward confirmation of the Plan. Under the
Plan, Merrill Lynch and German American Capital Corporation ("GACC"), two of the
Company's largest secured creditors, would provide a significant portion of the
recapitalization financing contemplated by the Plan. The Bankruptcy Court has
scheduled a hearing for April 25 and 26, 2000 on approval of the Proposed
Disclosure Statement.
On December 20, 1999, the Unsecured Creditors' Committee filed its own
plan of reorganization and proposed disclosure statement with the Bankruptcy
Court which, in general, provided for the liquidation of the assets of the
Debtors. On January 11, 2000 and February 11, 2000, the Unsecured Creditors'
Committee filed its first and second amended plans of reorganization,
respectively, with the Bankruptcy Court and amended proposed
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<PAGE>
disclosure statements with respect thereto. However, as a result of successful
negotiations between the Debtors and the Unsecured Creditors' Committee, the
Unsecured Creditors' Committee has agreed to the treatment of unsecured claims
under the Debtors' Plan, subject to completion of mutually acceptable Unsecured
Creditor Debt Documentation, and has asked the Bankruptcy Court to defer
consideration of its second amended plan of reorganization and second amended
proposed disclosure statement.
THE PLAN OF REORGANIZATION
The Plan contemplates the payment in full of all of the allowed
claims of the Debtors primarily through recapitalization financing (including
proceeds from CMBS sales) aggregating at least $856 million (the
"Recapitalization Financing"). Approximately $275 million of the
Recapitalization Financing would be provided by Merrill Lynch and GACC
through a secured financing facility, approximately $155 million would be
provided through new secured notes issued to some of the Company's major
unsecured creditors, and another $35 million would be obtained from another
existing creditor in the form of an additional secured financing facility
(collectively, the "New Debt"). The sale of select CMBS (the "CMBS Sale"),
the proceeds of which are expected to be used to pay down existing debt, is
contemplated to provide the balance of the Recapitalization Financing. The
Company may seek new equity capital from one or more investors to partially
fund the Plan, although new equity is not required to fund the Plan.
In connection with the Plan, substantially all cash flows are
expected to be used to satisfy principal, interest and fee obligations under
the New Debt. The $275 million secured financing would provide for (i)
interest at a rate of one month LIBOR plus 3.25%, (ii) principal
prepayment/amortization obligations, (iii) extension fees after two years and
(iv) maturity on the fourth anniversary of the effective date of the Plan.
The Plan contemplates that the $35 million secured financing would provide
for terms similar to those referenced in the preceding sentence; however, the
proposed lender has not agreed to any terms of the $35 million secured
financing and there can be no assurance that an agreement for this financing
will be obtained or that, if obtained, the terms will be as referenced above.
The approximate $155 million secured financing would be effected through the
issuance of two series of secured notes under two separate indentures. The
first series of secured notes, representing an aggregate principal amount of
approximately $105 million, would provide for (i) interest at a rate of
11.75% per annum, (ii) principal prepayment/amortization obligations, (iii)
extension fees after four years and (iv) maturity on the fifth anniversary of
the effective date of the Plan. The second series of secured notes,
representing an aggregate principal amount of approximately $50 million,
would provide for (i) interest at a rate of 13% per annum with additional
interest at the rate of 7% per annum accreting over the debt term, (ii)
extension fees after four years and (iii) maturity on the sixth anniversary
of the effective date of the Plan. Each component of the New Debt described
above will be secured by substantially all of the assets of the Company, such
that only limited existing assets will be held free and clear of liens and
encumbrances. It is contemplated that there will be restrictive covenants,
including financial covenants, in connection with the New Debt.
The Plan also contemplates that the holders of the Company's common
stock will retain their stock. Under the Plan, no cash dividends, other than
a maximum of $4.1 million to preferred shareholders, can be paid to existing
shareholders. See "Effect of Chapter 11 on REIT Status and Other Tax
Matters-Taxable Income Distributions" below for further discussion. Subject
to the respective approvals by the holders of the Company's Series B
Cumulative Convertible Preferred Stock (the "Series B Preferred Stock") and
the Series F Redeemable Cumulative Dividend Preferred Stock (the "Series F
Preferred Stock" or "junior preferred stock"), the Plan contemplates an
amendment to their respective relative rights and preferences to permit the
payment of accrued and unpaid dividends in cash or common stock, at the
Company's election. The Plan further contemplates amendments to the relative
rights and preferences of the Series D Cumulative Convertible Preferred Stock
(the "Series D Preferred Stock"), through an exchange of Series D Preferred
Stock for Series E Cumulative Convertible Preferred Stock (the "Series E
Preferred Stock"), similar to those amendments effected in connection with
the recent exchange of the former Series C Cumulative Convertible Preferred
Stock (the "Series C Preferred Stock") for Series E Preferred Stock. See
"MARKET FOR THE REGISTRANT'S COMMON STOCK AND OTHER RELATED STOCKHOLDER
MATTERS-Exchange of Series C Preferred Stock for Series E Preferred Stock"
for a discussion of the exchange of Series C Preferred Stock for Series E
Preferred Stock.
Reference is made to the Plan and Proposed Disclosure Statement,
previously filed with the Securities and Exchange Commission (the "SEC") as
exhibits to a Form 8-K, for a complete description of the financing
contemplated to be obtained under the Plan from the respective existing
creditors including, without limitation, payment terms, restrictive covenants
and collateral, and a complete description of the treatment of preferred
stockholders. Although the Company has commitments for substantially all of
the New Debt and has certain of the CMBS contemplated to be sold in
connection with the CMBS Sale, there can be no assurance that the Company
will obtain the Recapitalization Financing, that the Plan will be confirmed
by the Bankruptcy Court, or that the Plan, if
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confirmed, will be consummated. The Plan also contemplates certain amendments
to the Company's articles of incorporation, including an increase in
authorized shares from 120 million to 375 million (consisting of 300 million
of common shares and 75 million of preferred shares).
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 1999 TAXABLE INCOME
As a REIT, CRIIMI MAE is generally required to distribute at least 95%
of its "REIT taxable income" to its shareholders each tax year. For purposes of
this requirement, REIT taxable income excludes certain excess noncash income
such as original issue discount ("OID"). 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 1999 taxable income not distributed to
shareholders. Unlike the 95% distribution requirement, the calculation of the
Company's federal income tax liability does not exclude excess noncash income
such as OID. Should CRIIMI MAE terminate or fail to maintain its REIT status
during the year ended December 31, 1999, the taxable income for the year ended
December 31, 1999 of approximately $37.5 million would generate a tax liability
of up to $15.0 million.
In determining the Company's taxable income for 1999, distributions
declared by the Company on or before September 15, 2000 and actually paid by the
Company on or before December 31, 2000 will be considered as dividends paid for
the year ended December 31, 1999. The Company anticipates distributing all, or a
substantial portion of, its 1999 taxable income in the form of non-cash taxable
dividends. There can be no assurance that the Company will be able to make such
distributions with respect to its 1999 taxable income.
1999 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 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. In addition, in determining the Company's excise tax liability,
only dividends actually paid in 1999 will reduce the amount of income subject to
this excise tax. The Company has accrued $1,105,000 for the excise tax payable
for 1999. The accrual was calculated based on the taxable income for the year
ended December 31, 1999.
THE COMPANY'S 1998 TAXABLE INCOME
On September 14, 1999, the Company declared a dividend payable to
common shareholders of approximately 1.61 million shares of a new series of
junior preferred stock with a face value of $10 per share. See Note
12 for further discussion. The purpose of the dividend was to distribute
approximately $15.7 million in undistributed 1998 taxable income. To the extent
that it is determined that such amount was not distributed, the Company would
bear a corporate level income tax on the undistributed amount. There can be no
assurance that all of the Company's tax liability will be eliminated by payment
of such junior preferred stock
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dividend. The Company paid the junior preferred stock dividend on November 5,
1999. The junior preferred stock dividend was taxable to common shareholder
recipients.
TAXABLE INCOME DISTRIBUTIONS
The recently issued Internal Revenue Service Revenue Procedure 99-17
provides securities and commodities traders with the ability to elect
mark-to-market treatment for 2000 by including an election with their timely
filed 1999 federal tax extension. The election applies to all future years as
well, unless revoked with the consent of the Internal Revenue Service. On March
15, 2000, the Company determined to elect mark-to-market treatment as a
securities trader for 2000 and, accordingly, will recognize gains and losses
prior to the actual disposition of its securities. Moreover, some if not all of
those gains and losses, as well as some if not all gains or losses from actual
dispositions of securities, will be treated as ordinary in nature and not
capital, as they would be in the absence of the election. Therefore, any net
operating losses generated by the Company's trading activity will offset the
Company's ordinary taxable income, and thereby reduce required distributions to
shareholders by a like amount. See "BUSINESS-Risk Factors-Risks Associated with
Trader Election" for further discussion. If the Company does have a REIT
distribution requirement (and such distributions would be permitted under the
Plan), a substantial portion of the Company's distributions would be in the form
of non-cash taxable dividends.
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, CBO-2 and CMO-IV,
collectively the "Trusts"). See Notes 5 and 6 for descriptions of CBO-1, CBO-2
and CMO-IV. 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.
The Company also owns certain securities structured as bonds (the
"Bonds") issued by each of the Trusts. 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 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. Although it is possible that the election by
the TMPs to be treated as taxable REIT subsidiaries could prevent the loss of
CRIIMI MAE's REIT status, there can be no assurance that a valid election could
be made given the timing of a seizure or sale of the Pledged Bonds.
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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 or other real estate-related assets ("Other Real Estate
Interests" and such requirement, the "25% Requirement"). 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. Based on such rights and its economic interest in the underlying mortgage
loans, the Company believes that the related Subordinated CMBS constitute
Qualifying Interests. As of December 31, 1999, 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 GAAP. The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
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<PAGE>
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for the years
ended December 31, 1998 and December 31, 1997 have been reclassified to conform
to the 1999 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.
CRIIMI MAE owned approximately 57% of CRI Liquidating throughout 1997.
CRI Liquidating was dissolved as of December 31, 1997. 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.
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 proceedings will be adjusted. The gain or loss resulting from the
entries to record the adjustment will be recorded as a reorganization item. In
1998, the Company wrote-off all $2.8 million of debt discounts and deferred debt
costs related to liabilities subject to Chapter 11 proceedings which resulted in
these liabilities being carried at their face amount.
REORGANIZATION ITEMS
Reorganization items are items of income or expense that are realized
or incurred by CRIIMI MAE because it is in reorganization. These include, but
are not limited to the following:
- - Short-term interest income that would not have been earned but for the
Bankruptcy.
- - 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 sale of certain investments, rejection
of certain executory contracts and the write-off of debt issuance costs and
debt discounts. See Note 5 for a further discussion of other than temporary
impairment recognized on CMBS.
For the years ended December 31, 1999 and 1998, reorganization items
were approximately $178.9 and $9.9 million, respectively. The components of this
total are as follows:
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<TABLE>
<CAPTION>
REORGANIZATION ITEM 1999 1998
--------------------------------------------- -------------- ----------------
<S> <C> <C>
Short-term interest income $ (1,518,667) $ --
Professional fees 17,822,154 5,219,000
Write-off of debt discounts and deferred costs -- 2,835,210
Employee Retention Program accrued costs 1,589,236 612,885
Excise tax accrued 1,105,000 300,000
Other 3,005,405 889,852
-------------- ----------------
Subtotal 22,003,128 9,856,947
Impairment on CMBS 156,896,831 --
-------------- ----------------
Total $178,899,959 $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 year ending December 31, 1999. See Note 20.
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.
RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents consist of cash, certificates of
deposit and interest bearing securities maturing within three months from the
date of purchase that have been legally restricted pursuant to various
stipulation and consent orders providing for adequate protection with certain of
the Company's creditors or due to agreements that require certain CMBS interest
income and/or CMBS sales proceeds to be held in segregated accounts. In
addition, restricted cash and cash equivalents include balances held in separate
trusts controlled by a trustee for the benefit of employees. See Note 17
"Litigation-Bankruptcy Related Litigation" for further discussion of these
arrangements.
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. These transfers of financial assets are
accounted for in accordance with SFAS 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" ("FAS 125").
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
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 calculated 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
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of the security from the date of purchase through the date of change in
anticipated yield. The new yield is then used for income recognition for the
remaining life of the investment. Changes in anticipated yield resulting from
reduced estimates of losses are recognized on a prospective basis.
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 this 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.
INSURED MORTGAGE SECURITIES
Mortgage income consists of amortization of the discount or premiums
plus the stated mortgage interest payments received or accrued. 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.
As discussed in Note 7, as a result of the CBO-2 transaction involving
the sale of a portion of its Subordinated CMBS portfolio, 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.
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 Certificates") and
mortgage-backed securities guaranteed by the Government National Mortgage
Association ("GNMA") ("GNMA Mortgage-Backed Securities"). Payment of principal
and interest on FHA-Insured Certificates 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.
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. 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.
EQUITY INVESTMENTS
CRIIMI, Inc., a wholly owned subsidiary of CRIIMI MAE, owns all of the
general partnership interests in American Insured Mortgage Investors, American
Insured Mortgage Investors - Series 85, L.P., 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 the 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
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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, 1999 and 1998, Services Inc.
held a 27% general partner interest in CMSLP.
As of December 31, 1999 and 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 or intent 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.
See Note 5 for a discussion of impairment recognized in 1999. Impairment was not
recognized in 1998 or 1997.
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. The Company did not recognize any impairment
on its insured mortgage securities in 1999, 1998 or 1997.
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 original effective interest rate or the fair value of the collateral if
the loan is collateral dependent. The Company did not recognize impairment on
its originated loans in 1999, 1998 or 1997.
D-15
<PAGE>
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. The Company did not recognize impairment on its equity
investments in 1999, 1998 or 1997.
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.
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 is
currently held for sale. 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, 1999 and 1998, CRIIMI MAE's investment in REO property
totaled approximately $3.6 and $3.9 million, respectively. REO property acquired
through foreclosure is recorded at fair value on the date of foreclosure. REO
property held for sale is accounted for at the lower of its cost basis or fair
value less costs to sell. REO assets held for the long term 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, in December 1998, 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
D-16
<PAGE>
warehouse period. As a result of the Chapter 11 filing, CRIIMI MAE wrote off all
capitalized costs in connection with its warehouse programs in December 1998. As
of December 31, 1999, there are no reserve account balances with respect to
either the Citibank or Prudential Programs.
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 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 $0.01 par value common
stock and has issued 59,954,604 and 52,898,100 shares as of December 31, 1999
and 1998, respectively. All shares issued, exclusive of any shares held in
treasury, are outstanding. As of December 31, 1999 and 1998, 1,013 and 7,245,
respectively, shares were held for issuance pending presentation of predecessor
units and were considered outstanding.
As of December 31, 1999, CRIIMI MAE has authorized 25,000,000 shares of
$0.01 par value convertible preferred stock, of which 3,000,000 shares have been
designated as Series B Cumulative Convertible Preferred Stock, 300,000 shares
have been designated as Series C Cumulative Convertible Preferred Stock, 300,000
shares have been designated as Series D Preferred Stock and 1,610,000 shares
have been designated as Series F Redeemable Cumulative Dividend Preferred Stock.
At December 31, 1999, CRIIMI MAE had 1,593,982 Series B Preferred Stock
outstanding, 103,000 Series C Preferred Stock outstanding, 100,000 Series D
Preferred Stock outstanding and 850,142 Series F Preferred Stock outstanding. At
December 31, 1998, CRIIMI MAE had 1,593,982 Series B Preferred Stock
outstanding, 123,000 Series C Preferred Stock outstanding and 100,000 Series D
Preferred Stock 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 1999 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.
Dividends related to 1999 taxable income were not paid in 1999,
therefore no excess inclusion was reported in 1999. In 1998, CRIIMI MAE
generated $0.1456 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.
D-17
<PAGE>
PER SHARE AMOUNTS
Basic earnings per share amounts for 1999, 1998 and 1997 represent net
income (loss) available to common shareholders divided by the weighted average
common shares outstanding during each year. Diluted earnings per share amounts
for 1999, 1998 and 1997 represent basic earnings per share adjusted for dilutive
common stock equivalents which for CRIIMI MAE include stock options and certain
series of preferred stock. For the year ended December 31, 1999, no common stock
equivalents were considered in the calculation of diluted earnings per share due
to the net loss. 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. In
1999, the Company sold certain investments treated as financings under FAS 125
resulting in total proceeds of approximately $198.9 million, of which $180.8
million was used to pay off the related secured borrowing and the remaining
$18.1 million was remitted to the Company. As these sales never resulted in the
Company receiving the gross proceeds, but rather the net proceeds, only the net
proceeds of $18.1 million received by the Company are reflected in the statement
of cash flows.
Cash payments made for interest for the years ended December 31, 1999,
1998 and 1997, were $112,561,866, $109,502,466, and $72,824,682, respectively.
COMPREHENSIVE INCOME
Comprehensive income includes net earnings as currently reported by the
Company adjusted for other comprehensive income. Other comprehensive income for
the Company is changes in unrealized gains and losses related to the Company's
CMBS and mortgages accounted for as available for sale. The table below breaks
out other comprehensive income for the periods presented into the following two
categories: (1) the changes to unrealized gains and losses that relate to the
CMBS and mortgages which were disposed of or impaired during the period with the
resulting gain or loss reflected in net earnings (reclassification adjustments)
and (2) the change in the unrealized gain or loss related to those investments
that were not disposed of or impaired during the period.
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Reclassification adjustment for (gains) losses from dispositions $ (760,694) $ (963,748) $ (8,648,062)
included in net income
Reclassification adjustment for impairment loss recognized on 111,745,210 -- --
CMBS included in net income
Unrealized holding (losses) gains arising during the period (67,150,995) (251,374,372) 814,645
--------------- ------------- --------------
Net adjustment to unrealized (losses) gains on investments
$ 43,833,521 $(252,338,120) $ (7,833,417)
--------------- ------------- --------------
</TABLE>
NEW ACCOUNTING STATEMENTS
During 1998, the 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,
2001. The Company believes the impact of FAS 133 on its financial statements
will be immaterial.
D-18
<PAGE>
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of CRIIMI MAE's consolidated
financial instruments are presented in accordance with 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, 1999 As of December 31, 1998
------------------------------------------------------------------------------
Amortized Cost Fair Value Amortized Cost Fair Value
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
ASSETS:
Subordinated CMBS $ 1,374,080,226 $ 1,179,270,306 $ 1,529,898,540 $ 1,274,185,678
Insured mortgage securities 407,469,108 394,857,239 483,637,668 488,095,221
Investment in originated loans 470,204,780 422,643,902 499,076,030 480,485,570
Restricted cash and cash equivalents 38,036,624 38,036,624 2,353,560 2,353,560
Other cash and cash equivalents 53,603,104 53,603,104 21,826,512 21,826,512
Accrued interest and principal receivable 69,483,337 69,483,337 46,992,337 46,992,337
Interest rate protection agreements 1,119,280 1,465,496 2,531,371 992,516
LIABILITIES:
Liabilities not subject to Chapter 11 proceedings: Securitized mortgage
obligations:
Collateralized bond obligations-CMBS $ 278,165,968 $ 253,084,864 $ 117,831,435 $ 105,799,081
Collateralized insured mortgage securities
obligations 378,711,602 381,129,836 456,101,720 486,179,236
Collateralized mortgage obligations-originated
loans 399,768,513 373,634,008 386,752,951 381,481,150
Liabilities subject to Chapter 11 proceedings:
Variable-rate secured borrowings-CMBS 732,904,775 N/A 932,236,674 N/A
Senior unsecured notes 100,000,000 86,000,000 100,000,000 62,000,000
Other financing facilities 92,799,522 N/A 92,799,522 N/A
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
SUBORDINATED CMBS
Prior to 1998, the fair market value of the Company's 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 CMBS
portfolio as of December 31, 1999 and 1998. As a result, the Company calculated
the estimated fair market value of its Subordinated CMBS portfolio as of
December 31, 1999 and 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 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,
institutionally available research reports and communications with dealers and
active Subordinated CMBS investors regarding the valuation of comparable
securities. Since the Company calculated the estimated fair market value of its
Subordinated CMBS portfolio as of December 31, 1999 and 1998, it has disclosed
the range of discount rates by rating category used in determining these fair
market values in Note 5.
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
D-19
<PAGE>
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 and
continued throughout 1999 with the issuance of newly created CMBS totaling
approximately $58.3 billion for 1999. The market for Subordinated CMBS has,
however, been slower to recover. It is difficult, if not impossible, to predict
when or if the CMBS market and, in particular, the Subordinated CMBS market,
will recover. Even if the market for Subordinated CMBS recovers, the liquidity
of such market has historically been limited. Additionally, during adverse
market conditions, the liquidity of such market has been severely limited.
Therefore, management's estimate of the value of the Company's CMBS 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 as of December
31, 1999 and 1998. 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 9.1% and 8.0% for
December 31, 1999 and 1998, respectively, which the Company believes was
commensurate with the market's perception of risk and value.
RESTRICTED AND OTHER CASH AND CASH EQUIVALENTS, ACCRUED INTEREST AND PRINCIPAL
RECEIVABLE
The carrying amount approximates fair value because of the short
maturity of these instruments.
OBLIGATIONS UNDER FINANCING FACILITIES
The fair value of the securitized mortgage obligations as of December
31, 1999 and 1998 is calculated using a discounted cash flow methodology similar
to the discussion on Subordinated CMBS above. 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, 1999 and 1998, 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.
D-20
<PAGE>
5. SUBORDINATED CMBS
During 1997, FAS 125 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
Subordinated CMBS ("CBO-2") 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. 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. 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 excess 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 the second quarter of 1998, are reflected
on the balance sheet at fair market value. At December 31, 1999, the
amortized cost of the CMBS exceeded the fair market value by approximately
$194.8 million (after taking into account the $156.9 million impairment
write-down of certain CMBS subject to the CMBS Sale as of December 31, 1999,
which resulted in amortized cost being written down to fair value) as
compared to $255.7 million as of December 31, 1998 and is reflected as a
decrease in shareholders' equity.
D-21
<PAGE>
At December 31, 1999, CRIIMI MAE held the following securities with respect to
its CMBS portfolio:
<TABLE>
<CAPTION>
Original December 31, 1999
Anticipated Yield Anticipated Yield
Pool (1) to Maturity (2) to Maturity (2)(3)
--------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
Retained Securities from
CRIIMI 1996 C1 (CBO-1) 19.5% 20.6%(4)
DLJ Mortgage Acceptance Corp.
Series 1997 CF2 Tranche B-30C (6) 8.2% 8.2%
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%(5)
Mortgage Capital Funding, Inc.
Series 1998-MC1 (6) 8.9% 9.0%
Chase Commercial Mortgage Securities Corp.
Series 1998-1 (6) 8.8% 8.8%
First Union/Lehman Brothers
Series 1998 C2 (6) 8.9% 9.0%
Morgan Stanley Capital I, Inc.
Series 1998-WF2 (6) 8.5% 8.6%(5)
Mortgage Capital Funding, Inc.
Series 1998-MC2 (6) 8.7% 8.8%
Weighted Average 9.7%(1) 10.1%(1)
</TABLE>
(1) CRIIMI MAE, through CMSLP, performs servicing functions on a total CMBS
pool of approximately $28 billion as of December 31, 1999. Of the $28
billion of mortgage loans, approximately $273.3 million are being specially
serviced, of which approximately $167.5 million are being specially
serviced due to payment default (including $26.8 million of Real Estate
Owned) and the remainder is being specially serviced due to non-financial
covenant default. Through December 31, 1999, CMSLP has resolved and
transferred out of special servicing approximately $439.8 million of the
approximately $713.1 million that has been transferred into special
servicing. Through December 31, 1999, actual losses on mortgage loans
underlying the CMBS transactions are lower than the Company's original loss
estimates.
(2) Represents the anticipated weighted average yield over the expected average
life of the Company's Subordinated CMBS portfolio as of the date of
acquisition and December 31, 1999, respectively, based on management's
estimate of the timing and amount of future credit losses and prepayments.
(3) Unless otherwise noted, changes in the December 31, 1999 anticipated yield
to maturity from that originally anticipated are primarily the result of
changes in prepayment assumptions relating to mortgage collateral.
(4) The increase in the anticipated yield resulted from the reallocation of
CBO-1 asset basis in conjunction with the CBO-2 resecuritization. While it
had no impact on the anticipated yield, the unrated bond from CBO-1
experienced an approximately $1.6 million principal write-down in 1999 due
to a loss on the foreclosure of two underlying loans.
(5) 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. In the first
quarter of 1999, the Company agreed to cooperate in selling two classes of
investment grade CMBS issued by CRIIMI MAE Commercial Mortgage Trust Series
1998-C1 (the "CBO-2 BBB Bonds") and to suspend litigation with Morgan
Stanley with respect to these CMBS. On March 5, 1999, the CBO-2 BBB Bonds
with a $205.8 million face amount and a coupon rate of 7% were sold in a
transaction that was accounted for as a financing by the Company rather
than a sale. Of the $159.0 million in
D-22
<PAGE>
proceeds, $141.2 million was used to repay amounts due under the agreement
with Morgan Stanley, and $17.8 million was paid to CRIIMI MAE. CRIIMI MAE
and Morgan Stanley reached an agreement that called for the sale of seven
classes of subordinated CMBS and a related unrated bond, issued by Morgan
Stanley Capital I Inc. Series 1998-WF2 (the "Wells Fargo Bonds"). The
agreement was approved by the Bankruptcy Court on February 24, 2000. On
February 29, 2000, the Wells Fargo Bonds were sold. Of the approximately
$45.9 million in net sales proceeds, $37.5 million was used to pay off all
outstanding borrowings owed to Morgan Stanley and the remaining proceeds of
approximately $8.4 million will be used primarily to help fund CRIIMI MAE's
Plan.
(6) As discussed further below, under the Plan, the Company intends to sell
these CMBS pools and as such, impairment was recognized as of December 31,
1999 related to these CMBS. The impairment resulted in the cost basis being
written down to fair value as of December 31, 1999. As a result of this new
basis, these bonds have new yields effective the first quarter of 2000.
The aggregate investment by the underlying rating of the Subordinated CMBS is as
follows:
<TABLE>
<CAPTION>
Fair Value Range of Amortized Amortized
Face Weighted as of Discount Cost as Cost as
Amount as Average Weighted 12/31/99 Rates Used to of of
Security of 12/31/99 Pass-Through Average (in millions) Calculate Fair 12/31/99 12/31/98
Rating (in millions) Rate Life (1) (2) Value (2) (in millions) (in millions)
- --------------- ------------ ----------- --------- ------------ --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
A (3) $ 62.6 7.0% 6 years $ 54.5 9.8% $ 57.4 $ 57.0
BBB (3) 150.6 7.0% 12 years 116.1 10.5% 127.7 126.9
BBB-(3) 115.2 7.0% 12 years 82.6 11.4% 93.5 92.8
BB+ 394.6 7.0% 13 years 255.3 11.4%-13.2% 305.5 317.9
BB 279.0 6.9% 14 years 192.8 11.8%-13.9% 206.1 259.1
BB- 89.1 6.8% 14 years 51.2 13.2%-14.9% 58.6 72.6
B+ 128.7 6.7% 16 years 63.7 14.5%-15.9% 82.1 93.0
B 300.2 6.6% 16 years 141.3 15.5%-17.2% 178.2 208.9
B- 198.7 6.7% 17 years 84.9 16.0%-19.4% 98.1 106.7
CCC 92.0 6.8% 19 years 23.2 25.0%-30.0% 32.5 36.0
Unrated (4) 477.4 5.9% 20 years 113.7 26.0%-32.0% 134.4 159.0
------------ ----------- --------- ------------ ----------- -----------
Total (5)(6) $2,288.1 6.7% 15 years $1,179.3 $1,374.1(7) $1,529.9
============ =========== ========= ============ =========== ===========
</TABLE>
(1) Weighted average life represents the weighted average expected life of the
Subordinated CMBS prior to consideration of losses, extensions or
prepayments.
(2) 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 portfolio as of December
31, 1999. As a result, the Company calculated the estimated fair market
value of its Subordinated CMBS portfolio as of December 31, 1999. The
Company used a discounted cash flow methodology to estimate the fair value
of its Subordinated CMBS portfolio. The cash flows for each bond were
projected assuming no prepayments and no losses as is the market
convention. 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 institutionally available research reports and
communications with dealers and active Subordinated CMBS investors
regarding the valuation of comparable securities. Since the Company
calculated the estimated fair market value of its Subordinated CMBS
portfolio as of December 31, 1999, it has disclosed in the table the range
of discount rates by rating category used in determining these fair market
values. See Note 4 for a discussion on the CMBS market.
(3) In connection with CBO-2, $62.6 million (A rated) and $60.0 million (BBB
rated) face amount of investment grade securities were sold with call
options and $345 million (A rated) face amount were sold without call
options. In connection with CBO-2, in May 1998, the Company initially
retained $90.6 million (BBB rated) and $115.2 million (BBB- rated) face
amount of securities, both with call options, with the intention to sell
the securities at a later date. Such sale occurred March 5, 1999. See Note
17. 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.
(4) The unrated bond from CBO-1 experienced an approximately $1.6 million
principal write down in 1999 due to a loss on the foreclosure of two
underlying loans. Management believes that the current loss estimates used
to recognize income related to this bond remain adequate to cover losses.
D-23
<PAGE>
(5) Refer to Note 8 for additional information regarding the total face amount
and purchase price of Subordinated CMBS for tax purposes.
(6) Similar to the Company's other sponsored CMOs, 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. Instead, the
underlying loans contributed to CMO-IV are reflected in Investment in
Originated Loans on the balance sheet.
(7) Amortized cost reflects the $156.9 million impairment loss write-down
related to the CMBS subject to the CMBS Sale. See below for further
discussion.
As of December 31, 1999 and 1998, the mortgage loans underlying CRIIMI
MAE's Subordinated CMBS portfolio were secured by properties of the types and at
the locations identified below:
<TABLE>
<CAPTION>
Property Type 1999(1) 1998(1) Geographic Location(2) 1999(1) 1998(1)
<S> <C> <C> <C> <C> <C>
Multifamily............... 32% 31% California.............. 17% 16%
Retail.................... 29% 28% Texas................... 13% 12%
Office.................... 13% 15% Florida................. 8% 7%
Hotel..................... 14% 13% New York................ 5% 6%
Other..................... 12% 13% Other(3)................ 57% 59%
------ ----- ---- ----
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, 1999, 1998 and 1997, the amount of
income recognized (less than) or in excess of cash received due to the effective
interest rate method was approximately $1,123,600, $(200,000) and $1,014,000,
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
17 "Litigation-Bankruptcy Related Litigation". In addition, the Company has been
in discussions with certain other creditors not in litigation with the Company.
See Note 17 "Litigation-Arrangements with Other Creditors".
The Company agreed to cooperate on selling the CBO-2 BBB Bonds and
suspend litigation with Morgan Stanley with respect to these bonds. 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 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 was accounted for as a financing and not a sale. This
resulted in CRIIMI MAE recognizing a fixed-rate liability for these bonds in the
amount of the gross proceeds of approximately $159.0 million.
D-24
<PAGE>
CRIIMI MAE and Morgan Stanley also reached an agreement that called for
the sale of seven classes of Subordinated CMBS, known as Morgan Stanley I, Inc.
Series 1998-WF2 (the "Wells Fargo Bonds"). The agreement was approved by the
Bankruptcy Court on February 24, 2000. On February 29, 2000, the Wells Fargo
Bonds were sold. Of the approximately $45.9 million in net sales proceeds, $37.5
million was used to pay off all outstanding borrowings owed to Morgan Stanley
and the remaining proceeds of approximately $8.4 million will be used primarily
to help fund CRIIMI MAE's Plan.
The Company's CMBS portfolio currently generates monthly cash flow. As
of December 31, 1999 and 1998, certain lenders have withheld payment to CRIIMI
MAE of approximately $31.3 million and $8.3 million, respectively, with respect
to its CMBS portfolio (excluding those securities that are match-funded). These
payments are currently reflected in receivables and other assets on the balance
sheet. (Refer to Note 6 for payments due the Company in connection with CMO-IV).
The realizability 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.
As discussed in Note 1, under CRIIMI MAE's Plan a portion of the
Recapitalization Financing is expected to result from the CMBS Sale. The CMBS
subject to the CMBS Sale had a fair value and amortized cost of $385.1
million and $542.0 million, respectively, as of December 31, 1999. The
Company first filed a plan with the Bankruptcy Court in the fourth quarter of
1999 and during that same quarter CRIIMI MAE began marketing for sale the
CMBS subject to the CMBS Sale. CRIIMI MAE sold a portion of these bonds in
February 2000 and intends to enter into one or more additional agreements
during the first half of 2000 to sell the remaining CMBS subject to the CMBS
Sale, although there can be no assurance that such bonds will be sold.
GAAP states that when the fair market value of an investment declines
below its amortized cost for a significant period of time and the entity no
longer has the ability or intent to hold the investment for the period the
entity anticipates is required for the value to recover to amortized cost, other
than temporary impairment on the investment should be recognized. This other
than temporary impairment is recognized through the income statement as the
difference between amortized cost and fair value. Additional accounting guidance
states that other than temporary impairment should be recognized in the period
the decision to sell any investment is made if the entity does not expect the
fair value to recover before the sale date. As the Company decided in the fourth
quarter of 1999 to sell the CMBS subject to the CMBS Sale and it does not expect
the value of these bonds to significantly recover before the future sale dates,
the Company has recognized approximately $157 million of other than temporary
impairment related to these CMBS through earnings in the fourth quarter of 1999.
Unrealized losses related to these CMBS were previously recognized through other
comprehensive income in the equity section of the balance sheet. The other than
temporary impairment loss is a part of the reorganization items on the income
statement as the impairment was recognized as part of the reorganization.
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 ORIX Real Estate Capital Markets, LLC ("ORIX"),
formerly known as Banc One Mortgage Capital Markets, LLC, to succeed it as
master servicer on two commercial mortgage pools on October 30, 1998. In
addition, in order to allay rating agency concerns stemming from CRIIMI MAE's
Chapter 11 filing, in November 1998, CRIIMI MAE designated ORIX 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 ORIX 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 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. As part of CRIIMI
MAE's Plan, certain of the Company's non-resecuritized CMBS are intended to
be sold. As such, CMSLP will lose its special servicing rights related to
these CMBS. In 1999, CMSLP generated gross revenues of approximately $1.1
million in fees on these CMBS.
D-25
<PAGE>
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.
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.
Prior to the Petition Date, the Company had originated over $900
million in aggregate principal amount of 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. CRIIMI MAE
has call rights on each of the issued securities and therefore has not
surrendered control of the bonds, thus requiring the transaction to be accounted
for as a financing of the mortgage loans collateralizing the investment grade
CMBS sold in the securitization. The Company originally intended to sell all of
the investment grade tranches of CMO-IV; however, two investment grade tranches
were not sold until 1999.
On April 5, 1999, the Company finalized an agreement by which Salomon
Smith Barney, in cooperation with CRIIMI MAE, agreed to sell the remaining two
classes of investment grade CMBS from CMO-IV with a face amount of $45.9 million
and an average coupon rate of 6.96% constituting a portion of the collateral
security advances under financing agreements with Citicorp. CRIIMI MAE sold
these two classes of CMBS in May and October 1999. CRIIMI MAE retains the right
to call each CMBS when the 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
has been accounted for as a financing and not a sale. Gross proceeds from the
sale were used to pay off $39.6 million of secured debt and certain costs, and
the remainder of approximately $315,000 was remitted to CRIIMI MAE. This
resulted in CRIIMI MAE recognizing fixed-rate debt for these bonds in the amount
of the gross proceeds received. In addition, CRIIMI MAE received past due CMBS
payments on these two classes.
As of December 31, 1999 and December 31, 1998, the originated loans
were secured by properties of the types and at the locations identified below:
<TABLE>
<CAPTION>
Property Type 1999(1) 1998(1) Geographic Location(2) 1999(1) 1998(1)
<S> <C> <C> <C> <C> <C>
Multifamily..................... 37% 38% Michigan........................ 20% 20%
Hotel........................... 26% 26% Texas........................... 7% 8%
Retail.......................... 20% 20% Illinois........................ 7% 7%
Office.......................... 11% 11% California...................... 6% 6%
Other........................... 6% 5% Maryland........................ 6% 6%
--------- ---------- Connecticut..................... 6% 6%
Total....................... 100% 100% Florida......................... 5% 5%
======= ======== Other(3)........................ 43% 42%
------ ---
Total........................ 100% 100%
======= =====
</TABLE>
(1) Based on a percentage of the total unpaid principal balance of the related
loans.
(2) No significant concentration by region.
(3) No other individual state makes up more than 5% of the total.
D-25
<PAGE>
Descriptions of the originated loans categorized by unpaid principal
balances as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Number of Face Effective Remaining
Unpaid Principal Balance (1) Loans(2)(3) Value(4)(5)(6) Interest Rate Term
- --------------------------------------- ------------ --------------- ---------------- -------------
<S> <C> <C> <C> <C>
$ 0 - $4.99 million 92 $216,386,540 7.48% 8.6 years
$ 5 - $9.99 million 21 154,467,547 7.36% 8.9 years
$10- $14.99 million 6 75,822,080 7.15% 8.9 years
$15- $20 million 1 17,076,246 7.15% 9.9 years
------------ --------------- ---------------- -------------
120 $463,752,413 7.37% 9.1 years
============ =============== ================ =============
</TABLE>
(1) The carrying amount of the originated loans of $470,204,780 is comprised of
$463,752,413 face amount of loans, plus $6,452,367 of deferred loan costs.
(2) Several loans in CMO-IV are collateralized by multiple properties. The
table reflects the actual number of loans.
(3) During the year ended December 31, 1999, there were five prepayments and
one partial prepayment in CMO-IV. These prepayments generated net proceeds
of approximately $19.6 million and resulted in a net financial statement
gain of approximately $403,400, which is included in Gain on Originated
Loan Dispositions on the accompanying consolidated statements of income for
the year ended December 31, 1999. The partial prepayment represented one
property of a multiple property loan and therefore is not reflected as a
reduction in the loan count in the table above.
(4) All originated loans are collateralized by first or second liens on
multifamily, hotel, retail, office or other commercial properties.
Approximately 78% of the unpaid principal balance of the loans in the
securitization are "No-Lock" loans.
(5) The fair value of the originated loans at December 31, 1999 was
$422,643,902.
(6) Principal and interest on originated loans is payable at level amounts over
the term of the loan. Approximately 91% of the unpaid principal balance 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, 1999 is approximately $43.2
million.
Descriptions of the originated loans categorized by unpaid principal
balances as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Number of Face Effective Remaining
Unpaid Principal Balance (1) Loans(2) Value(3)(4)(5) Interest Rate Term
- --------------------------------------- ------------ --------------- ---------------- -------------
<S> <C> <C> <C> <C>
$ 0 - $4.99 million 96 $ 233,603,377 7.45% 9.6 years
$ 5 - $9.99 million 22 163,154,496 7.35% 9.9 years
$10- $14.99 million 6 77,291,024 7.15% 9.9 years
$15- $20 million 1 17,242,738 7.15% 10.9 years
------------ --------------- --------------- -------------
125 $491,291,635 7.38% 9.8 years
============ =============== ================ =============
</TABLE>
(1) 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.
(2) Several loans in CMO-IV are collateralized by multiple properties. The
table reflects the actual number of loans.
(3) All originated loans are collateralized by first or second liens on
multifamily, hotel, retail, office or other commercial properties.
Approximately 79% of the unpaid principal balance of the loans originally
included in the securitization were No-Lock loans.
(4) The fair value of the originated loans at December 31, 1998 was
$480,485,570.
D-27
<PAGE>
(5) Principal and interest on originated loans is payable at level amounts over
the term of the loan. Approximately 92% 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.
A reconciliation of the carrying amount of CRIIMI MAE's originated
loans for the years ended December 31, 1999 and 1998, follows:
<TABLE>
<CAPTION>
For the year ended December 31,
1999 1998
---------------- ---------------------
<S> <C> <C>
Balance at beginning of year $ 499,076,030 $ -
Addition during the year:
Originated loans securitized - 504,357,929
Deductions during the year:
Principal payments (8,618,218) (4,526,939)
Mortgage dispositions, net of gain (19,214,239) -
Amortization of deferred loan costs (1,038,793) (754,960)
---------------- ---------------------
Balance at end of year $ 470,204,780 $ 499,076,030
================ =====================
</TABLE>
Although CMO-IV was accounted for as a financing, as described above,
economically, the Company currently generates monthly cash flows of
approximately $763,000 from the subordinated CMBS tranches created in the
transaction. As of December 31, 1999 and 1998, payments of approximately $7.1
million and $2.7 million, respectively, were withheld by certain lenders, with
respect to certain tranches of CMO-IV.
At the time it filed for bankruptcy, the Company had a second mortgage
loan conduit program with Citicorp Real Estate, Inc. (the "Citibank Program")
and a loan conduit program with Prudential Securities Incorporated and
Prudential Securities Credit Corporation (collectively, "Prudential") (the
"Prudential Program").
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.
On April 5, 1999, the Bankruptcy Court entered a Stipulation and
Consent Order (the "Order"), negotiated by the Company and Citibank. The
negotiations were in response to a letter Citibank sent to the Company on
October 5, 1998 alleging that the Company was in default under the Citibank
Program and that it was terminating the Citibank Program. The Order provided
that Citibank would, 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 could be waived by
written agreement of the Company, the Unsecured Creditors' Committee and the
Equity Committee.
On August 5, 1999, all but three of the commercial loans originated
under the Citibank Program in 1998 were sold for gross proceeds of approximately
$308 million. The loans sold had an aggregate unpaid principal balance of $339
million. On September 16, 1999, the remaining three loans were sold for gross
proceeds of approximately $27.2 million. The loans sold had an aggregate
principal balance of $32.7 million. Prior to the actual sale of these loans, the
Company had recorded its unrealized losses based on pricing data received from
Citibank. In the case of each sale of the commercial loans, the minimum net
proceeds provision was waived by agreement of the Company, the Unsecured
Creditors' Committee and the Equity Committee. For GAAP purposes, the Company
realized $36.3 million of losses from the third quarter of 1998 through the
third quarter of 1999. For income tax purposes, the entire loss of $36.3 million
was recorded as a realized loss on the loan sale dates in the third quarter of
1999. See also Note 8 regarding the impact of this transaction on tax basis
income.
Under the Prudential Program, the Company had 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
D-28
<PAGE>
for securitization had been made. Under the Prudential Program, the Company was
required to fund a reserve account of approximately $2 million for the sole loan
originated under this Program. Since CRIIMI MAE was unable to exercise its
option under the Prudential Program, the Company forfeited the amount of the
reserve account. CRIIMI MAE intends to sell the loan originated under the
Prudential Program. There can be no assurance that an agreement will be reached
with Prudential or, if an agreement is reached, that such agreement would be
approved by the Bankruptcy Court.
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 Freddie Mac participation certificates which are
collateralized by GNMA Mortgage-Backed Securities, as discussed below. As of
December 31, 1999, approximately 15% of CRIIMI MAE's investment in mortgage
securities were FHA-Insured Certificates and 85% 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 mortgage securities directly or
indirectly through its wholly owned subsidiaries:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
Weighted
Number of Average
Mortgage Effective Weighted Average
Securities Fair Value (1) Amortized Cost Interest Rate Remaining Term
---------------------------- ---------------- -------------------------------
<S> <C> <C> <C> <C> <C>
CRIIMI MAE 1 $ 5,268,982 $ 5,429,746 8.00% 35 years
CRIIMI MAE Financial Corporation (2) 36 123,757,775 126,621,745 8.40% 29 years
CRIIMI MAE Financial Corporation II (2) 49 204,437,012 212,474,158 7.24% 27 years
CRIIMI MAE Financial Corporation III (2) 23 61,393,470 62,943,459 7.84% 29 years
----------- --------------- ---------------- -------------- ----------------
109 $394,857,239 $ 407,469,108 7.68% (3) 28 years (3)
=========== =============== ================ ============== ================
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
Weighted
Number of Average
Mortgage Effective Weighted Average
Securities Fair Value (1) Amortized Cost Interest Rate Remaining Term
----------- --------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
CRIIMI MAE 1 $ 5,511,707 $ 5,455,114 8.00% 36 years
CRIIMI MAE Financial Corporation 40 161,382,142 158,832,182 8.26% 30 years
CRIIMI MAE Financial Corporation II 55 232,560,966 231,973,794 7.18% 28 years
CRIIMI MAE Financial Corporation III 27 88,640,406 87,376,578 8.00% 30 years
----------- --------------- ---------------- -------------- ----------------
123 $488,095,221 $483,637,668 7.69% (3) 29 years (3)
=========== =============== ================ ============== ================
</TABLE>
- --------------------------------------
(1) The fair value of the mortgage securities is based on quoted market prices.
As of December 31, 1999 and 1998, all mortgage securities are classified as
Available for Sale and carried at fair value on the balance sheet.
(2) During the year ended December 31, 1999, there were 14 prepayments of
mortgage securities held by CRIIMI MAE's financing subsidiaries. These
prepayments generated net proceeds of approximately $74.0 million and
resulted in net financial statement gains of approximately $2.1 million,
which are included in gains on mortgage securities dispositions on the
accompanying consolidated statement of income for the year ended December
31, 1999.
(3) Weighted averages were computed using total face value of the mortgage
securities.
D-29
<PAGE>
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 or losses on
those mortgage securities, which is reported as a separate component of
shareholders' equity as of December 31, 1999 and 1998.
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, 1999, summarized information regarding
other mortgage securities and mortgage securities income earned in 1999, 1998
and 1997, including interest earned on the disposed mortgage securities, are as
follows:
<TABLE>
<CAPTION>
Mortgage Securities as of December 31, 1999 Mortgage Income Earned
-------------------------------------------------------------- ---------------------------------
Effective Final
Face Value Fair Value Amortized Interest Maturity
(1) (3)(5) Cost (1)(4) Rate Date Range 1999 1998 1997
------------- ------------- -------------------------------------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CRIIMI MAE
GNMA MORTGAGE-BACKED SECURITIES
Other (1 mortgage security) $ 5,429,746 $ 5,268,982 $ 5,429,746 8.00% 02/2035 $ 435,493 $ 577,393 $ 589,078
------------- ------------- -------------- ----------- ----------- -----------
CRIIMI MAE FINANCIAL CORPORATION
FHA-INSURED CERTIFICATES
7.35%- 02/2019-
Other (24 mortgage securities) 62,472,559 61,419,696 62,495,543 11.00% 04/2034 5,667,594 7,755,402 7,811,938
GNMA MORTGAGE-BACKED SECURITIES
Bellhaven Nursing Center 14,033,383 13,829,669 14,033,383 8.63% 12/2031 1,178,951 1,185,310 1,191,145
7.93%- 11/2017-
Other (14 mortgage securities) 49,745,795 48,508,410 50,092,819 8.78% 06/2034 3,984,758 4,418,677 4,456,035
------------- ------------- -------------- ----------- ----------- -----------
126,251,737 123,757,775 126,621,745 10,831,303 13,359,389 13,459,118
------------- ------------- -------------- ----------- ----------- -----------
CRIIMI MAE FINANCIAL CORPORATION II
GNMA MORTGAGE-BACKED SECURITIES
Oakwood Garden Apartments 12,882,258 12,511,025 13,143,103 7.51% 10/2023 930,496 943,526 955,617
San Jose South 28,004,906 27,197,877 28,226,846 7.66% 10/2023 2,037,043 2,064,876 2,090,665
Somerset Park 28,805,689 27,964,507 29,311,240 7.41% 07/2028 2,110,507 2,130,465 2,149,005
Yorkshire Apartments 14,622,267 14,193,080 14,689,190 7.21% 07/2031 1,026,277 1,033,985 1,041,158
7.14%- 05/2021-
Other (45 mortgage securities) 126,239,682 122,570,522 127,103,779 8.02% 04/2035 9,251,288 10,590,552 10,693,819
------------ ------------- -------------- ----------- ----------- -----------
210,554,802 204,437,011 212,474,158 15,355,611 16,763,404 16,930,264
------------ ------------- -------------- ----------- ----------- -----------
CRIIMI MAE FINANCIAL CORPORATION III
GNMA MORTGAGE-BACKED SECURITIES
7.11% 08/2015-
Other (23 mortgage securities) 62,806,388 61,393,471 62,943,459 10.94% 02/2035 4,962,823 7,024,665 7,075,555
------------- ------------- -------------- ----------- ----------- -----------
Total Mortgage Securities $405,042,673 $394,857,239 $ 407,469,108 $31,585,230 $37,724,851 $38,054,015
============= ============= ============== =========== =========== ===========
7.05%-
Mortgage Security Dispositions 10.49% 1,819,941 5,337,892 11,371,386
----------- ----------- -----------
Mortgage Securities $33,405,171 $43,062,743 $49,425,401
=========== =========== ===========
Investment in Limited Partnerships $ - $ - $ 42,976
=========== =========== ===========
</TABLE>
(1) 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, 1999 is approximately $36 million.
(2) The fair value of the mortgage securities is based on quoted market prices.
(3) Reconciliations of the carrying amount of CRIIMI MAE's mortgage securities
for the years ended December 31, 1999 and 1998 follow:
D-30
<PAGE>
<TABLE>
<CAPTION>
For the year ended December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Balance at beginning of year $ 488,095,221 $605,113,741
Addition during the year:
Amortization of discount 19,226 28,082
Adjustment to net unrealized gains on mortgage securities - 4,016,052
Deductions during the year:
Principal payments (4,219,336) (4,743,972)
Mortgage dispositions (71,875,703) (116,218,027)
Adjustment to net unrealized (losses) on mortgage securities (17,069,422) -
Accretion of premium (92,747) (100,655)
---------------- ----------------
Balance at end of year $ 394,857,239 $ 488,095,221
================ ================
</TABLE>
(4) 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 Certificates 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.
(5) None of these mortgage securities are delinquent as of December 31, 1999.
D-31
<PAGE>
8. RECONCILIATION OF FINANCIAL STATEMENT NET (LOSS) INCOME TO TAX BASIS
INCOME
Reconciliations of the financial statement net (loss) income to the tax
basis income for the years ended December 31, 1999, 1998 and 1997, are as
follows:
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Consolidated financial statement net (loss) income $ (126,528,813) $ 42,368,593 $ 54,187,616
Reamortization of Subordinated CMBS 56,126,645 41,291,138 6,496,641
Interest expense adjustments for collateralized bond obligations (35,429,224) (22,748,840) -
Equity in earnings from investments 2,820,657 5,413,761 492,355
Net gains on mortgage dispositions 458,345 549,180 165,284
Gain on originated loan dispositions 286,234 - -
Amortization and other interest expense adjustments (67,320) (2,842,613) (1,537,367)
Amortization of assets acquired in the Merger 2,877,576 2,877,576 2,877,564
Losses on warehouse purchase obligations (28,328,173) 30,378,173 -
Loss on impairment of Subordinated CMBS 156,896,831 - -
Reorganization costs 9,052,925 5,268,080 -
Loss on property foreclosure (620,926) - -
Gain on sale of collateralized bond obligation - (28,800,408) -
Adjustment due to accounting for subsidiary as a pooling for
financial statement purposes and a purchase for tax purposes - - (2,132,613)
Other - (52,902) (7,947)
----------------- ----------------- -----------------
Tax basis income 37,544,757 73,701,738 60,541,533
Dividends paid or accrued on preferred shares (5,840,152) (6,997,859) (6,472,540)
----------------- ----------------- -----------------
Tax basis income available to common shareholders $ 31,704,605 $ 66,703,879 $ 54,068,993
================= ================= =================
Tax basis income per share:
Income before gains from CRI Liquidating $ 0.57 $ 1.38 $ 1.24
Capital gain from CRI Liquidating - - 0.21
----------------- ----------------- -----------------
Total tax basis income per share $ 0.57 $ 1.38 $ 1.45
================= ================= =================
Tax basis shares outstanding 55,166,675 48,502,522 37,334,034
================= ================= =================
</TABLE>
Differences between financial statement net (loss) 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), the impairment on CMBS (see 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 the CRIIMI funds.
The entire CBO-2 transaction was accounted for as a financing for tax
purposes. As such, the Company recognized 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 received a
deduction for the interest expense on the outstanding debt.
D-32
<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>
1999 (1)(2) 1998 (1) 1997 (1)
-------------- ------------ -----------
<S> <C> <C> <C>
Ordinary income $ - $ 1.39 $ 1.21
Long-term capital gains - 0.08 0.21
------------ ------------ ------------
$ - $ 1.47 $ 1.42
============ ============ ============
</TABLE>
(1) Dividends related to 1999 taxable income were not paid in 1999, therefore
no excess inclusion was reported in 1999. In 1998 and 1997, CRIIMI MAE
generated $0.1456 and $0.0977, respectively, per common share 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 income
cannot be offset by a net operating loss and is considered unrelated
taxable business income under Section 511.
(2) Due to the Chapter 11 filing, dividends have not been declared or paid
related to 1999.
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
17 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,
1999 and 1998:
<TABLE>
<CAPTION>
Year ended December 31, 1999
-------------------------------------------------------------------------
Effective Average Stated
Rate at Effective Maturity
Ending Balance Year End Average Balance Rate Date (7)
----------------- ---------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Securitized mortgage obligations:
Subordinated CMBS (1) $ 278,165,968 8.9% $ 217,285,484 8.9% Nov 2006-
Nov 2011
Freddie Mac funding note (2) 201,784,575 7.4% 211,889,272 7.4% Sept 2031
Fannie Mae funding note (3) 60,853,118 7.4% 66,918,215 7.4% March 2035
CMO (4) 116,073,909 7.4% 129,616,228 7.4% Jan 2033
CMO-loan originations (5) 399,768,513 6.6% 388,431,011 6.5% Oct 2001-
May 2008
Variable-rate secured borrowings -
Subordinated CMBS 732,904,775 7.7% 794,212,980 6.2% Various
Bank term loans (6) 3,050,000 7.8% 3,050,000 7.1% Dec 1998
Working capital line of credit 40,000,000 8.2% 40,000,000 7.0% Dec 1998
Bridge loan 49,749,522 8.7% 49,749,522 7.5% Feb 1999
Senior unsecured notes 100,000,000 9.1% 100,000,000 9.1% Dec 2002
-----------------
Total $ 1,982,350,380
=================
</TABLE>
D-33
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1998
------------------------------------------------------------
Effective Average
Rate at Average Effective
Ending Balance Year End Balance Rate
----------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Securitized mortgage obligations:
Subordinated CMBS (1) $ 117,831,435 7.7% $ 122,861,289 7.6%
Freddie Mac funding note (2) 220,822,380 7.4% 229,137,117 7.4%
Fannie Mae funding note (3) 84,750,764 7.3% 119,316,182 7.3%
CMO (4) 150,528,576 7.4% 166,408,357 7.4%
CMO-loan originations (5) 386,752,951 6.5% 222,114,163 6.5%
Variable-rate secured borrowings-
Subordinated CMBS 932,236,674 7.2% 802,562,377 6.8%
Bank term loans (6) 3,050,000 1.8% 3,000,238 3.9%
Working capital line of credit 40,000,000 7.2% 21,918,727 7.3%
Bridge loan 49,749,522 7.8% 19,765,489 7.7%
Senior unsecured notes 100,000,000 9.1% 99,902,312 9.1%
-----------------
Total $ 2,085,722,302
=================
</TABLE>
(1) As of December 31, 1999 and 1998, the face amount of the debt was
$328,446,000 and $122,612,000 with an unamortized discount of $50,280,032
and $4,780,565, respectively. During the year ended December 31, 1999 and
1998, discount amortization of $2,986,001 and $156,823 respectively, was
recorded as interest expense.
(2) As of December 31, 1999 and 1998, the face amount of the note was
$209,506,965 and $229,005,558, respectively, with unamortized discount of
$7,722,390 and $8,183,178, respectively. During the year ended December 31,
1999 and 1998, discount amortization of $460,788 and $473,122,
respectively, was recorded as interest expense.
(3) As of December 31, 1999 and 1998, the face amount of the note was
$62,359,630 and $86,620,792, respectively, with unamortized discount of
$1,506,512 and $1,870,028, respectively. During the year ended December 31,
1999 and 1998, discount amortization of $363,516 and $530,222,
respectively, was recorded as interest expense.
(4) As of December 31, 1999 and 1998, the face amount of the note was
$119,563,094 and $154,840,829, respectively, with unamortized discount of
$3,489,185 and $4,312,253, respectively. During the year ended December 31,
1999 and 1998, discount amortization of $823,068 and $474,210,
respectively, was recorded as interest expense.
(5) As of December 31, 1999 and 1998, the face amount of the debt was
$411,110,641 and $392,752,908 with unamortized discount of $11,342,128 and
$5,999,957, respectively. During the year ended December 31, 1999 discount
amortization of $1,404,887 and $591,817, respectively, was recorded as
interest expense.
(6) The effective interest rate as of December 31, 1999 and 1998 includes the
impact of a rate reduction agreement which was in place from July 1995
through December 31, 1999, providing for a reduction in the rate on a
portion of the loans based on balances maintained at the bank.
(7) Stated maturities per respective loan agreements. The maturities of CRIIMI
MAE's debt are as follows:
<TABLE>
<S> <C>
2000 $ 940,636,013
2001 14,179,989
2002 15,290,919
2003 17,692,401
2004 20,920,298
2005 - 2035 1,047,971,008
-----------------------
$ 2,056,690,628 (a)
=======================
</TABLE>
(a) Assumes all non-securitized mortgage obligations mature in 2000 due to
Chapter 11 proceedings and contemplated Plan. 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. These amounts do not include the
associated unamortized discount.
D-34
<PAGE>
COLLATERALIZED 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. Of
the $468 million in investment grade securities, $345 million were non-callable
securities and $123 million were callable securities.
On March 5, 1999, $205.8 million face amount of callable CBO-2 BBB
Bonds with a coupon rate of 7% were sold. Of the $159 million of net sale
proceeds, $141.2 million was used to repay variable-rate secured borrowings
under the agreement with Morgan Stanley and $17.8 million was remitted to CRIIMI
MAE.
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 the May 1998 transaction, control 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. The March 5, 1999 transaction
was accounted for as a financing by the Company rather than a sale. This
resulted in CRIIMI MAE recognizing a fixed-rate liability for these bonds in the
amount of the gross proceeds.
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, were pledged as security for a funding note payable to
Freddie Mac (the "Freddie Mac Funding Note"). The Collateralized Mortgage
Obligations (CMOs) were collateralized by FHA-Insured Certificates 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, were pledged as security for
a funding note payable to Fannie Mae (the "Fannie Mae 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.
COLLATERALIZED MORTGAGE OBLIGATIONS - ORIGINATED LOANS
In the June 1998 CMO-IV transaction, $496 million of originated or
acquired commercial mortgage loans were securitized, and 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
D-35
<PAGE>
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 secured borrowings. The lending agreements are
secured by certain of the CMO-IV securities with an aggregate fair value of
approximately $42.8 million and $92.9 million as of December 31, 1999 and 1998,
respectively.
On April 5, 1999, the Company finalized an agreement by which Salomon
Smith Barney, in cooperation with CRIIMI MAE, agreed to sell the remaining two
classes of investment grade CMBS from CMO-IV with a face amount of $45.9 million
and an average coupon rate of 6.96% constituting a portion of the collateral
security advances under financing agreements with Citicorp. CRIIMI MAE sold
these two classes of CMBS in May and October 1999. CRIIMI MAE retains the right
to call each CMBS when the 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
has been accounted for as a financing and not a sale. Gross proceeds from the
sale were used to pay off $39.6 million of secured debt and certain costs, and
the remainder of approximately $315,000 was remitted to CRIIMI MAE. This
resulted in CRIIMI MAE recognizing fixed-rate debt for these bonds in the amount
of the gross proceeds received.
VARIABLE-RATE SECURED BORROWINGS-CMBS
As previously discussed, when CRIIMI MAE purchased Subordinated CMBS,
it initially financed (generally through short-term, variable-rate 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, 1999, the secured borrowings on Subordinated CMBS 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%. Due to the Chapter 11 filing and the
automatic stay provisions granted under the Bankruptcy Code, the actual maturity
date is undeterminable for facilities that expired in 1999.
As discussed above, on March 5, 1999, the CBO-2 BBB Bonds were sold in
a transaction that was accounted for as a financing rather than a sale. Of the
$159.0 million of net sale proceeds, $141.2 million was used to repay
variable-rate secured borrowings.
As previously discussed, in May and October 1999, a portion of the
CMO-IV CMBS was sold in a transaction that was accounted for as a financing
rather than a sale. Of the $39.9 million of net sale proceeds, $39.6 million was
used to repay variable-rate secured borrowings.
As discussed in Note 5, the Wells Fargo Bonds were sold in February
2000. Of the $45.9 million in net sale proceeds, $37.5 million was used to repay
variable-rate secured borrowings.
The secured borrowing agreements are secured by certain rated CMBS
security tranches with an aggregate fair value of approximately $784 million as
of December 31, 1999 and $1.1 billion as of December 31, 1998. CRIIMI MAE's
short-term, variable-rate financing facilities require that the value of the
collateral securing the facilities meet a maximum loan-to-value ratio. If the
value of the collateral is perceived such that the maximum loan-to-value ratio
is exceeded, 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, 1999, 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 has 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 position of Citicorp and has filed a complaint contesting their
claims of ownership. If, however, Citicorp prevails, 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 and the corresponding obligations would also
decrease. See Note 17.
D-36
<PAGE>
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,
restricts the ability of the Company and its subsidiaries to incur additional
indebtedness, pay dividends, or make distributions in respect of the Company's
or such subsidiaries' capital stock, make other restricted payments, enter into
transactions with affiliates or related persons, or consolidate, merge or sell
all or substantially all of their assets. These covenants are subject to
exceptions and qualifications.
Under the terms of the Indenture, the Company can 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 requires quarterly principal
payments of $650,000 and matured on December 31, 1998. The amount outstanding as
of December 31, 1999 and 1998 was $1.3 million. 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, a wholly owned subsidiary 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 matured on August 1, 1999. The Company received a default
notice on August 3, 1999 from Citicorp. The amount outstanding as of December
31, 1999 and 1998 was $1.75 million. Interest on the loan is based on LIBOR,
plus a spread of 1.5%. Currently, negotiations to sell the property to a third
party are taking place. Amounts received by any such sale would be used to pay
off the outstanding loan balance and the remaining proceeds are expected to be
retained by the Company.
WORKING CAPITAL LINE OF CREDIT
In 1996, CRIIMI MAE entered into an unsecured working capital line of
credit provided by two lenders which provided for up to $40 million in
borrowings. The credit facility matured on December 31, 1998. 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, 1999 and 1998, $40 million 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 are based
on interest at one-month LIBOR, plus a spread of 2.25%. As of December 31, 1999
and 1998, approximately $50 million in borrowings was outstanding under this
loan.
D-37
<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
58% of CRIIMI MAE's consolidated debt as of December 31, 1999. 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 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, 1999 and 1998, 94% and 79%,
respectively, of CRIIMI MAE's variable-rate debt is hedged.
For the year ended December 31, 1999, CRIIMI MAE's weighted average
cost of borrowing, including amortization of discounts and deferred financing
fees of approximately $8.7 million, was approximately 7.64%. As of December 31,
1999, CRIIMI MAE's debt-to-equity ratio was approximately 9 to 1 and CRIIMI
MAE's non-match-funded debt-to-equity ratio was approximately 4 to 1. 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.
See Note 1 "Organization-The Plan of Reorganization" for a discussion
of the New Debt contemplated by the Company's Plan.
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 currently qualify for hedge accounting
treatment. Therefore the related cost, as well as gains or losses on terminated
positions, have been deferred and recognized into income over the life of the
related debt. However, with the sale of certain CMBS under the Plan, the
Company's interest rate caps may no longer qualify for hedge accounting. The
portion of such caps will be marked-to-market with the adjustment flowing
through earnings. At December 31, 1999, the caps have a fair market value of
$1.5 million and a book basis of $1.1 million. At December 31, 1999, CRIIMI MAE
held caps with a notional amount of $775 million and the caps are used to hedge
$775 million of the Company's variable-rate debt.
<TABLE>
<CAPTION>
Notional Amount Effective Date Maturity Date (2) Cap (2) Index (3)
- -------------------- ------------------- -------------------- --------- ------------
<S> <C> <C> <C> <C>
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 12, 2001 6.6875% 1M LIBOR
100,000,000 April 30, 1998 March 30, 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
- --------------------
$775,000,000 (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 6.7% and the weighted
average remaining term for these interest rate cap agreements is
approximately one year.
(3) The one-month LIBOR rate was 5.8225% at December 31, 1999.
D-38
<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
CRIIMI MAE had 59,954,604 and 52,898,100, common shares issued and
outstanding as of December 31, 1999 and 1998, respectively. The following
material transactions occurred during the year.
- In September 1999, the Company declared a dividend to common
shareholders payable in shares of a new series of preferred stock
designated as Series F Redeemable Cumulative Dividend Preferred
Stock with a face value of $10 per share. The Series F Preferred
Stock was convertible into shares of common stock during two,
10-business day windows. During the first conversion period
(November 15 through November 30, 1999), 756,453 shares of Series
F Preferred Stock were converted, resulting in the issuance of
6,401,443 shares of common stock. During the second and final
conversion period for the Series F Preferred Stock (January 21
through February 3, 2000), 263,788 additional shares were
converted, resulting in the issuance of 2,396,566 shares of
common stock. See Note 12 for further discussion.
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 "Stock Plan"). Subsequently, in May 1998, the shareholders approved the
issuance of up to 4.7 million common shares in connection with the Stock Plan.
In October 1998, due to the Chapter 11 filing, the Company suspended the initial
cash investment and optional cash payment portion of the Stock Plan until
further notice. Subject to the suspension referenced above, the Stock 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. Subject to the suspension referenced above,
participants in the Stock Plan and interested investors can:
- - 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.
To fulfill Stock Plan requirements, Common Shares were, 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
reflected a discount, initially, of 2% from the market price. Common shares
purchased with optional cash payments exceeding $10,000 (as approved by the
Company) would have reflected a discount ranging from 0% to 5%. No discount was
offered on Common Shares purchased under the Stock Plan with initial cash
investments. All costs of administering the Stock Plan were paid by CRIIMI MAE.
There were no brokerage fees, commissions or service charges associated with the
purchase of Common Shares through the Stock Plan.
D-39
<PAGE>
DIVIDENDS
The Company paid the following common share dividends:
<TABLE>
<CAPTION>
1999 Dividends 1998 Dividends 1997 Dividends
Quarter Ended per Share (1) per Share per Share
- ----------------- -------------- -------------- --------------
<S> <C> <C> <C>
March 31 $ -- $0.37 $0.35
June 30 -- 0.40 0.35
September 30 -- 0.40 0.35
December 31 -- 0.30 (2) 0.37
----- ----- -----
$ -- $1.47 $1.42
===== ===== =====
</TABLE>
- ---------------
(1) During the pendency of the bankruptcy proceedings, the Company is
prohibited from paying cash dividends without first obtaining Bankruptcy
Court approval. (See Note 1-Effect of Chapter 11 Filing on REIT Status and
other Tax Matters). The Plan provides that no cash dividends, other than a
maximum of $4.1 million to preferred shareholders, shall be paid to
existing shareholders. See BUSINESS - The Plan of Reorganization for
further discussion.
(2) On September 14, 1999, the Board of Directors (the "Board") of CRIIMI MAE
declared a dividend on its common stock, par value $0.01 per share, for
the purpose of distributing approximately $15.7 million in undistributed
1998 taxable income. The dividend was payable to shareholders of record on
October 20, 1999, provided that shareholders maintained ownership of their
common stock through the payment date, November 5, 1999. The dividend was
paid in shares of a new series of preferred stock of the Company with a
face value of $10.00 per share, designated as Series F Redeemable
Cumulative Dividend Preferred Stock. See Note 12 for further discussion.
TREASURY SHARES
In March 1998, approximately 540,000 treasury shares were retired.
12. PREFERRED STOCK
CRIIMI MAE's charter authorizes the issuance of up to 25,000,000
shares of preferred stock, of which 3,000,000 shares have been designated as
Series B Cumulative Convertible Preferred Stock, 300,000 shares have been
designated as Series C Cumulative Convertible Preferred Stock, 300,000 shares
have been designated as Series D Cumulative Convertible Preferred Stock and
1,610,000 shares have been designated as Series F Redeemable Cumulative Dividend
Preferred Stock as of December 31, 1999.
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 Stock, with a par value of
$0.01 per share (the "Series B Preferred Stock"), at an aggregate offering price
of $60,375,000. The Series B Preferred Stock pays 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 Stock is (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 share of Series B Preferred Stock
was convertible into 2.2844 shares of common stock, subject to adjustment upon
the occurrence of certain events. Due to certain adjustment provisions in the
Series B Preferred Stock Articles Supplementary, the payment of the Series F
Redeemable Cumulative Dividend Preferred Stock dividend resulted in an
adjustment to the conversion price such that one share of Series B Preferred
Stock is now convertible into 2.6379 shares of common stock. The liquidation
preference and the redemption price on the Series B Preferred Stock equals $25
per share, together with accrued but unpaid dividends. There were 1,593,982
shares of Series B Preferred Stock outstanding as of December 31, 1999.
Dividends accrued on Series B
D-40
<PAGE>
Preferred Stock totaled $5,419,539 as of December 31, 1999 (of which, $4,335,631
was accrued during 1999 and $1,083,908 was accrued for the fourth quarter of
1998, but not paid to date as a result of the Chapter 11 filing).
SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
In March 1997, CRIIMI MAE entered into an agreement with an
institutional investor pursuant to which the Company had the right to sell, and
such investor was obligated to purchase, up to 300,000 shares of Series C
Cumulative Convertible Preferred Stock, par value $.01 per share (the "Series C
Preferred Stock"), through June 1998 at a price of $100 per share. The Series C
Preferred Stock paid 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 Series C Preferred Stock was convertible into shares of common
stock at the option of the holders and were subject to redemption by CRIIMI MAE.
The outstanding Series C Preferred Stock was subject to mandatory conversion
into common shares on February 23, 2000. Each share of Series C Preferred Stock
was convertible into common shares based on a formula, the numerator of which is
$100 and the denominator of which is a closing trade price of the common stock
within the conversion period or the average of the closing trade prices of the
common stock over the applicable twenty-one (or such fewer number as is mutually
acceptable) day period immediately preceding the date of delivery. The
liquidation preference and redemption prices on the Series C Preferred Stock was
$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, another 150,000 shares of Series C Preferred Stock were
issued under this agreement, resulting in net proceeds of approximately $15
million. These proceeds were used to fund purchases of Subordinated CMBS. During
1999, 20,000 shares of Series C Preferred Stock were converted into 653,061
common shares, resulting in 103,000 shares of Series C Preferred Stock
outstanding at December 31, 1999. Dividends accrued on Series C Preferred Stock
as of December 31, 1999 totaled $956,311 (of which $697,172 was accrued for 1999
and $259,139 for the fourth quarter of 1998, but not paid to date as a result of
the Chapter 11 filing). Subsequent to December 31, 1999, the Series C Preferred
Stock was exchanged for Series E Cumulative Convertible Preferred Stock. See
below for further discussion.
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 (the "Series D Preferred
Stock") at price of $100 per share. The Series D 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 Series D Preferred Stock is
convertible into shares of common stock at the option of the holders and is
subject to redemption by CRIIMI MAE. The outstanding Series D Preferred Stock is
subject to mandatory conversion into common shares on July 31, 2000. Each share
of Series D Preferred Stock is convertible into common shares based on a
formula, the numerator of which is $100 and the denominator of which is a
closing trade price of the common stock within the conversion period or the
average of the closing trade prices of the common stock over the applicable
twenty-one (or such fewer number as is mutually acceptable ) day period
immediately preceding the date of delivery. The liquidation preference and
redemption prices on the Series D Preferred Stock are $100 and $106,
respectively, per share plus an amount equal to all dividends accrued and unpaid
thereon. On July 31, 1998, 100,000 shares of Series D Preferred Stock were
issued under this agreement, resulting in net proceeds of approximately $10
million. There was no Series D Preferred Stock converted to common shares during
1999, resulting in 100,000 shares outstanding at December 31, 1999. Dividends
accrued on Series D Preferred Stock totaled $800,753 as of December 31, 1999 (of
which, $645,822 was accrued for 1999 and $154,931 was accrued for the fourth
quarter of 1998, but not paid to date as a result of the Chapter 11 filing).
SERIES E CUMULATIVE CONVERTIBLE PREFERRED STOCK
On February 22, 2000, CRIIMI MAE and the holder of its Series C
Preferred Stock entered into a Preferred Stock Exchange Agreement (the "Exchange
Agreement") pursuant to which 103,000 shares of Series C Preferred Stock were
exchanged (the "Exchange") for 103,000 shares of a new series of preferred stock
designated as "Series E Cumulative Convertible Preferred Stock", par value $0.01
per share (the "Series E Preferred Stock"). The
D-41
<PAGE>
principal purpose of the Exchange was to effect an extension of the mandatory
conversion date, upon which the Series C Preferred Stock would have converted
into common stock.
Until the Company's Plan is effective, the principal terms of the
Series E Preferred Stock are as set forth below. The Series E 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 commencement of
the calendar quarter which includes such quarterly dividend payment.
Quarterly dividends payable with respect to calendar quarters and any partial
quarter shall be payable in common stock. The Series E Preferred Stock is not
convertible into shares of common stock at the option of the holder unless
the effective date of the Plan does not occur on or before December 31, 2000.
In such event, 5,000 shares of Series E Preferred Stock shall become
convertible at the option of the holder into common stock in January 2001 and
in each month thereafter until the effective date of the Plan. If the Series
E Preferred Stock becomes convertible into common stock, then each share of
Series E Preferred Stock shall be convertible into common stock based on a
formula, the numerator of which shall be $100 and the denominator of which
shall be the closing trade price of the common stock within the conversion
period or the average of the closing trade prices of the common stock over
the applicable twenty-one (or such fewer number as is mutually acceptable)
day period immediately preceding the date of delivery. The Series E Preferred
Stock is subject to redemption by CRIIMI MAE. The liquidation preference and
the redemption prices on the Series E Preferred Stock are $100 and $106,
respectively, per share plus an amount equal to all dividends accrued and
unpaid thereon.
Once the Company's Plan is effective, amendments to the Series E
Preferred Stock relative rights and preferences, relating principally to
conversion and dividend rights and terms, would be effected, including an
increase in the dividend rate, a new mandatory conversion date and the
provision of additional conversion rights. Reference is made to the Plan,
previously filed with the SEC as an exhibit to a Current Report on Form 8-K,
for a complete description of such amendments to the relative rights and
preferences of the Series E Preferred Stock, as contemplated by the Plan.
SERIES F REDEEMABLE CUMULATIVE DIVIDEND PREFERRED STOCK
On September 14, 1999, the Company declared a dividend on its common
stock for the purpose of distributing approximately $15.7 million in
undistributed 1998 taxable income. The dividend was payable to common
shareholders of record on October 20, 1999, provided that the shareholders
maintained ownership of their common stock through the payment date. The
dividend was paid on November 5, 1999 in shares of Series F Redeemable
Cumulative Preferred Dividend Preferred Stock ("Series F Preferred Stock"). The
1,606,595 Shares of Series F Preferred Stock issued were approved for listing on
the New York Stock Exchange and trade with the symbol CMM-PrF, with a par value
of $0.01 and a face value of $10.
Holders of record of each share of CRIIMI MAE common stock who
maintained ownership of their common stock through November 5, 1999, received
3/100ths of a share of the new Series F Preferred Stock (i.e., three shares of
Series F Preferred Stock for every 100 shares of common stock held). The Series
F Preferred Stock was convertible into shares of common stock during two
10-business day conversion periods. The first conversion period was from
November 15, 1999 through November 30, 1999, and the second conversion period
was from January 21, 2000 through February 3, 2000. Conversions were based on
the volume-weighted average of the sale prices of the common stock for the
10-trading days prior to the date converted, subject to a floor of 50% of the
volume-weighted average of the sale prices of the common stock on November 5,
1999. Holders of Series F Preferred Stock have no right to convert their Series
F Preferred Stock into common stock after February 3, 2000.
The Series F Preferred Stock provides for cash dividends at an
annual fixed rate of 12%. The first dividend will be paid no earlier than the
end of the calendar quarter in which a plan of reorganization for the Company
becomes effective, and no more than quarterly thereafter. Series F Preferred
Stock is redeemable at the Company's option after November 5, 2000 at a price of
$10.00 per share plus accrued but unpaid dividends. In addition, the liquidation
value of Series F Preferred Stock is $10.00 per share plus accrued but unpaid
dividends.
During the first conversion period 756,453 shares of Series F
Preferred Stock were converted, resulting in the issuance of 6,401,443 shares of
common stock. After giving effect to the shares converted during the first
conversion period, there were 850,142 shares of Series F Preferred Stock
outstanding as of December 31, 1999. During the second and final conversion
period (January 21 through February 3, 2000) for the Series F Preferred
D-42
<PAGE>
Stock 263,788 additional shares were converted, resulting in the issuance of
2,396,566 shares of common stock. Dividends accrued on Series F Preferred Stock
totaled $161,527 as of December 31, 1999.
13. EARNINGS PER SHARE
The following table reconciles basic and diluted (loss) earnings per
share under FAS 128 for the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Per Share
(Loss) Income Shares Amount
------------- ---------- --------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Basis earnings per share:
(Loss) available to common shareholders $(132,368,965) 53,999,782 $(2.45)
Dilutive effect of securities:
Stock options --
Convertible preferred stock -- --
------------- ---------- -------
Diluted earnings per share (1):
(Loss) available to common shareholders and
assumed conversions $(132,368,965) 53,999,782 $(2.45)
============= ========== =======
YEAR ENDED DECEMBER 31, 1998
Basis earnings per share:
Income available to common shareholders $ 35,370,374 47,280,371 $0.75
Dilutive effect of securities:
Stock options -- 302,390
Convertible preferred stock 264,011 622,748
------------- ---------- -------
Diluted earnings per share (1):
Income available to common shareholders and
assumed conversions $ 35,634,385 48,205,509 $0.74
============= ========== =======
YEAR ENDED DECEMBER 31, 1997
Basis earnings per share:
Income available to common shareholders $ 47,715,076 36,993,130 $1.29
Dilutive effect of securities:
Stock options 1,024,400
Convertible preferred stock 320,379 334,110
------------- ---------- -------
Diluted earnings per share (1):
Income available to common shareholders and
assumed conversions $ 48,035,455 38,351,640 $1.25
============= ========== =======
</TABLE>
- ---------------------------
(1) 1,593,982, 1,593,982 and 1,679,376 shares of Series B Preferred Stock were
outstanding at the end of 1999, 1998 and 1997, respectively; 103,000
shares of Series C Preferred Stock, 100,000 shares of Series D Preferred
Stock and 850,142 shares of Series F Preferred Stock were outstanding at
December 31, 1999. The common stock equivalents for these shares were not
included in the calculation of diluted EPS because the effect would be
anti-dilutive.
D-43
<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, 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>
Years ended December 31,
1999 1998 1997
---------------- -------------- --------------
<S> <C> <C> <C>
Net (loss) income available to common shareholders $ (132,368,965) $ 35,370,734 $ 47,715,076
================ ============== ==============
Pro forma net (loss) income available to common stockholders $ (133,490,853) $ 34,739,667 $ 47,553,237
================ ============== ==============
Basic earnings per share $ (2.45) $ 0.75 $ 1.29
================ ============== ==============
Pro forma basic earnings per share $ (2.47) $ 0.73 $ 1.29
================ ============== ==============
Diluted earnings per share $ (2.45) $ 0.74 $ 1.25
================ ============== ==============
Pro forma diluted earnings per share $ (2.47) $ 0.73 $ 1.25
================ ============== ==============
</TABLE>
The Key Employee Plan currently provides for grants of stock options
to purchase up to 2,092,903 shares of Company Common Stock (as adjusted from
2,000,000 shares, as a result of the junior preferred stock dividend paid to
common shareholders in November 1999 and consistent with a Bankruptcy Court
order which limits the full adjustment to 2,198,831 shares of Company common
stock, contemplated by the terms and provisions of the Key Employee Plan,
until such time as the Company emerges from Chapter 11). CRIIMI MAE has
granted options net of forfeitures on 1,943,826 shares through December 31,
1999. 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 501,640 common shares under
the Director Plan (as adjusted from 500,000 shares as a result of the junior
preferred stock dividend paid to common shareholders in November 1999 and
consistent with a Bankruptcy Court order which limits the full adjustment to
501,312 shares of Company common stock, contemplated by the terms and
provisions of the Director Plan, until such time as the Company emerges from
Chapter 11). CRIIMI MAE has granted options on 8,000 common shares through
December 31, 1999. 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 of the Merger, 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 four 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 sixth
anniversary of the closing date of the Merger. The aggregate 3,000,000 common
shares issuable upon exercise of the options granted under the Agreement have
been adjusted to an aggregate 3,165,929 common shares as a result of the
junior preferred stock dividend paid to common shareholders in November 1999.
D-44
<PAGE>
A summary of CRIIMI MAE's two stock option plans, plus options granted
at the time of the Merger, at December 31, 1999, 1998 and 1997, and changes
during the years then ended is presented in the table below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- -------------------- ---------------------
Average Average Average
Shares Price Shares Price Shares Price
--------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 4,087,145 $ 12.15 3,487,676 $ 11.40 3,091,500 $ 10.62
Granted 745,590 2.53 776,000 15.75 514,500 15.58
Exercised -- -- (69,699) 9.94 (73,741) 9.79
Forfeited (255,017) 11.41 (106,832) 15.29 (44,583) 13.44
--------- ------ ---------- ------ ---------- ------
Outstanding at end of year 4,577,718 $ 10.62 4,087,145 $ 12.15 3,487,676 $ 11.34
========= ====== ========== ====== ========== ======
Exercisable at end of year 2,619,957 $ 11.41 1,752,982 $ 10.85 1,073,059 $ 10.93
========= ====== ========== ====== ========== ======
Weighted average fair value of options granted
during the year $ 2.03 $ 1.33 $ 1.55
====== ======= =======
</TABLE>
The 4,577,718 options outstanding at December 31, 1999 have exercise
prices between $1.125 and $15.9375, with a weighted average exercise price of
$10.6211 and a weighted average remaining contractual life of 3.4 years.
The fair value of the 1999, 1998 and 1997 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 1999, 1998 and 1997,
respectively: risk-free interest rate of 5.37%, 4.95% and 6.10%; expected life
of 6.23, 8.00 and 2.60 years; expected volatility of 95.2%, 26.6% and 25.2%;
dividend yield of approximately 0%, 9.4% and 9.0%.
15. EMPLOYEE RETENTION PLAN
To ensure the Company's continued retention of its executives and other
employees and to provide meaningful incentives for these employees to work
towards 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 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 also provides for retention payments aggregating up
to approximately $3.5 million, including payments to certain executives. The
Employee Retention Plan permitted the Company to approve ordinary course
employee salary increases beginning in March 1999, subject to certain
limitations, and to grant options to its employees after the Petition Date, up
to certain limits. Retention payments are payable semiannually over a two-year
period. The first retention payment of approximately $909,000 vested on April 5,
1999 and was paid on April 15, 1999. The second retention payment of
approximately $865,000 vested on October 5, 1999 and was paid on October 15,
1999. The third retention payment of approximately $653,000 vested on April 5,
2000 and will be paid on April 14, 2000. The entire unpaid portion of the
retention payments will become immediately 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 Directors, 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 without
cause subsequent to a change of control of the Company and CM Management. In
addition, options granted by the Company after October 5, 1998 will, subject to
Bankruptcy Court approval, become exercisable upon a change of control.
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<PAGE>
16. TRANSACTIONS WITH RELATED PARTIES
Below is a summary of the related party transactions that occurred
during the years ended December 31, 1999, 1998 and 1997. These items are
described further in the text which follows:
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
AMOUNTS RECEIVED OR ACCRUED FROM RELATED PARTIES:
CRIIMI Inc.
Income (1) $ 972,180 $1,340,730 $1,624,666
Return of Capital (2) 5,278,811 3,774,817 2,643,029
---------- ---------- ----------
Total $6,250,991 $5,115,547 $4,267,695
========== ========== ==========
CRI/AIM Investment Limited Partnership (1) $ 444,393 $ 552,121 $ 666,921
========== ========== ==========
CRIIMI MAE Services Limited Partnership (3) $ -- $3,114,000 $ --
========== ========== ==========
EXPENSE REIMBURSEMENTS TO CRIIMI MANAGEMENT:
AIM Funds and CRI Liquidating (4)(5) $ 183,579 $ 211,793 $ 350,239
CMSLP (2)(4) 946,461 76,621 12,616
---------- ---------- ----------
Total $1,130,040 $ 288,414 $ 362,855
========== ========== ==========
PAYMENTS TO CRI:
Expense reimbursement - CRIIMI MAE (4)(6) $ 182,691 $ 352,471 $ 399,162
========== ========== ==========
PAYMENTS TO THE ADVISER:
Annual fee - CRI Liquidating (7)(8) $ -- $ -- $ 11,468
========== ========== ==========
PAYMENTS TO CAPITAL HOTEL GROUP:
Management fee (9) $ 61,077 $ 4,691 $ 36,180
========== ========== ==========
</TABLE>
- -----------------
(1) Included as equity in earnings from investments on the accompanying
consolidated statements of income.
(2) Included as a reduction of equity investments on the accompanying
consolidated balance sheets.
(3) This is a distribution included on the balance sheet as a decrease in
equity investments.
(4) Included in general and administrative expenses on the accompanying
consolidated statements of income.
(5) 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.
(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) Included in the accompanying consolidated statements of income as fees to
related party.
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<PAGE>
(8) The adviser under the CRI Liquidating Advisory Agreement received an annual
fee for managing CRI Liquidating's portfolio of mortgages. Due to the final
liquidation of CRI Liquidating in 1997, no annual fees were paid for 1998
and 1999.
(9) 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.
17. 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 confirm and consummate their plan of
reorganization 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 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) the Unsecured Creditors' Committee, (ii) the Official
Committee of Unsecured Creditors in the CM Management Chapter 11 Case (the "CMM
Creditors' Committee") and (iii) the Equity Committee (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.
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<PAGE>
The Debtors' initial exclusivity period to file a plan of
reorganization ended on February 2, 1999. The Bankruptcy Court extended this
period through August 2, 1999 and again through September 10, 1999. The Debtors
sought a third extension of exclusivity through November 10, 1999 and on
September 20, 1999, the Bankruptcy Court entered an order (i) extending the
Debtors' right to file a plan of reorganization through October 16, 1999, (ii)
providing the Unsecured Creditors' Committee and the Equity Committee the right
to jointly file a plan of reorganization through October 16, 1999 and (iii)
providing that any party in interest may file a plan of reorganization after
October 16, 1999. The Debtors filed (i) a Joint Plan of Reorganization on
September 22, 1999, (ii) an Amended Joint Plan of Reorganization and proposed
Joint Disclosure Statement on December 23, 1999, and (iii) a Second Amended
Joint Plan of Reorganization and proposed Amended Joint Disclosure Statement on
March 31, 2000. The filing of the Debtors' Plan and Proposed Disclosure
Statement on March 31, 2000 was filed with the support of the Equity Committee,
which is a co-proponent of the Plan. Subject to the completion of mutually
acceptable Unsecured Creditor Debt Documentation, the Unsecured Creditors'
Committee has agreed to support confirmation of the Debtors' Plan.
On December 20, 1999, the Unsecured Creditors' Committee filed its own
plan of reorganization and proposed disclosure statement with the Bankruptcy
Court. On January 11, 2000 and on February 11, 2000, the Unsecured Creditors'
Committee filed its first and second amended plans of reorganization,
respectively, with the Bankruptcy Court and its amended proposed disclosure
statements with respect thereto. However, as a result of the successful
negotiations between the Debtors and the Unsecured Creditors' Committee, the
Unsecured Creditors' Committee has agreed to the treatment of unsecured claims
under the Debtors' Plan, subject to completion of mutually acceptable Unsecured
Creditor Debt Documentation, and has asked the Bankruptcy Court to defer
consideration of its second amended plan of reorganization and second amended
proposed disclosure statement. Accordingly, the Debtors, the Equity Committee
and the Unsecured Creditors' Committee are together presenting the Debtors' Plan
for approval by all classes of impaired creditors and equity security holders.
The Bankruptcy Court has scheduled a hearing for April 25 and April 26,
2000 on the Proposed Disclosure Statement. Once the Proposed Disclosure
Statement has been approved by the Bankruptcy Court, it will be sent, together
with the Plan with respect thereto, to members of all classes of impaired
creditors and equity security holders for acceptance or rejection. Following
voting on the 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. No date has
yet been set by the Bankruptcy Court for a confirmation hearing.
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.
BANKRUPTCY RELATED LITIGATION
The following is a summary of material litigation matters between the
Company and certain of its secured creditors since the Petition Date. The
Company has reached agreement with certain of these creditors, as set forth in
greater specificity below.
D-47
<PAGE>
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 CBO-2, 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 "Company's Distribution Share"). 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.
On September 7, 1999, the Company filed a Motion to Approve Stipulation
and Consent Order Providing for Adequate Protection. On or about September 27,
1999, the Unsecured Creditors' Committee and the Equity Committee filed a joint
objection to the motion. On December 3, 1999, the Bankruptcy Court entered the
Stipulation and Consent Order Providing Adequate Protection (the "Adequate
Protection Order"), certain provisions of which were effective retroactively.
Pursuant to the Adequate Protection Order, having a retroactive effect, a
segregated interest bearing debtor-in-possession account was created (the "Cash
Collateral Account") into which the Company's Distribution Share was deposited
during the months of August through December 1999. An additional 50% of the
Company's Distribution Share was deposited between January and March 2000. The
Adequate Protection Order provides Merrill Lynch with a first priority lien on
the Cash Collateral Account. Subject to certain material adverse changes defined
in the Adequate Protection Order, Merrill Lynch agreed not to seek further
adequate protection or relief from the automatic stay before March 31, 2000.
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
were 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
D-48
<PAGE>
the parties seek a permanent resolution of their disputes. On March 5, 1999, the
CBO-2 BBB Bonds were sold. Of the $159 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 remitted 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 reached an agreement to sell the Wells
Fargo Bonds (the "Morgan Stanley Agreement"). CRIIMI MAE filed a motion with the
Bankruptcy Court to approve the Morgan Stanley Agreement on February 1, 2000.
That motion was approved by the Bankruptcy Court on February 24, 2000. On
February 29, 2000, the Wells Fargo Bonds were sold. Of the approximately $45.9
million in net sales proceeds, $37.5 million was used to pay off all outstanding
borrowings owed to Morgan Stanley and the remaining proceeds of approximately
$8.4 million will be used primarily to help fund CRIIMI MAE's Plan. Pursuant to
the terms of the Morgan Stanley Agreement, the Company and Morgan Stanley
mutually released any claims that they may have against each other and filed a
stipulation of dismissal with prejudice of the October 20, 1998 adversary
proceeding.
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. The Bankruptcy Court agreed to a request by CRIIMI MAE,
Citibank, and the Unsecured Creditors' Committee to further postpone the pending
litigation on July 7, 1999 and again on September 10, 1999. The trial has not
been rescheduled.
The agreements reached by the Company with Citicorp and Citibank on
March 11, 1999 were approved by the Bankruptcy Court through stipulations and
consent orders entered on April 5, 1999. One of the agreements also provided
that Salomon Smith Barney, in cooperation with CRIIMI MAE, agreed to sell two
classes of investment-grade CMBS from CMO-IV constituting a portion of the
collateral securing advances under the Citicorp financing arrangement. In May
1999, Salomon Smith Barney sold $20 million of the CMO-IV securities held by
Holdings II. This sale reduced the amounts owed from Holdings II to Citicorp by
approximately $17 million. On October 8, 1999, the remaining CMO-IV securities
held by Holdings II were sold. This sale reduced the amounts owed from Holdings
II to Citicorp by approximately $22 million and Holdings II received net
proceeds of approximately $315,000. In addition, Citibank, in cooperation with
CRIIMI MAE, agreed to sell commercial mortgages originated in 1998 under the
Citibank Program, provided that the sale resulted in CRIIMI MAE receiving
minimum net proceeds of $3.5 million, after satisfying certain amounts due to
Citibank, from the amount held in the reserve account. On August 5, 1999, all
but three of the commercial loans originated under the Citibank Program, with an
aggregate unpaid principal balance of approximately $339 million, were sold for
gross proceeds of approximately $308 million. On September 16, 1999, Citibank
sold the remaining three loans, with an aggregate unpaid principal balance of
approximately $32.7 million, for gross proceeds of approximately $27.2 million.
In the case of each sale of the commercial loans, the minimum net proceeds
provision was waived by agreement of the Company, the Unsecured Creditors'
Committee and the Equity Committee.
D-49
<PAGE>
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
Retained Bonds are held in an account controlled by the Bankruptcy Court. No
trial date has been set for this matter.
FIRST UNION
First Union National Bank ("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. On April 20, 1999, First Union refiled its motions for relief from
the automatic stay. The hearing was originally scheduled for May 14, 1999, but
has been adjourned by consent.
On or about July 1, 1999, the Company entered into an agreement with
First Union resolving its motion for relief from the automatic stay and
authorizing use of First Union's cash collateral. The agreement provides for the
following:
(i) First Union has a valid, perfected, first priority security
interest in certain assignment securities and the assignment
securities income constitutes First Union's cash collateral;
(ii) First Union shall receive adequate protection payments of
post-petition interest at the non-default contract rate plus
payments to be applied to principal equal to 50% of the
difference between the assignment income and the Company's
non-default contract interest obligation. First Union has the
option of using a portion of the assignment income earmarked
for principal to purchase a hedging program;
(iii) The Company shall be entitled to use the assignment income not
paid to First Union in the ordinary course of its business
subject to certain limitations; and
(iv) First Union shall not seek relief from the automatic stay in
the Company's Chapter 11 case to foreclose upon the assignment
securities and/or the assignment income and none of the
Company, the Unsecured Creditors' Committee, the Equity
Committee or First Union shall seek modification of the
adequate protection arrangements set forth in the agreement
for a period commencing upon the date which the Bankruptcy
Court approves the agreement and terminating on December 31,
1999, subject to certain exceptions.
The agreement was approved and entered by the Bankruptcy Court on
August 5, 1999. The Company's Unsecured Creditors' Committee has consented to
the agreement with First Union.
In addition, on or about July 1, 1999, CM Management and First Union
entered into an agreement resolving its motion for relief from the automatic
stay. On July 1, 1999, CM Management filed a motion for approval of the
agreement resolving First Union's motion for relief from the automatic stay.
Based upon an objection filed by the CMM Creditors' Committee, the parties are
discussing a possible modification to the agreement and continue to negotiate
accordingly. On October 22, 1999, to provide the parties with more time to
negotiate a modification to the agreement, CM Management, with the consent of
First Union and the CMM Creditors' Committee, advised the Bankruptcy Court that
it would be withdrawing the motion for approval of the agreement, without
prejudice to CM Management's right to re-file once an agreement has been reached
with First Union and the CMM Creditors' Committee. The motion was subsequently
withdrawn.
On or about February 18, 2000, the Company, the Unsecured Creditors'
Committee and First Union entered into a Second Stipulation and Agreed Order:
(i) Authorizing Use of Cash Collateral and (ii) Granting Other Relief (the
"Second Stipulation"). The Second Stipulation provides for, among other things,
the following:
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<PAGE>
(i) the reaffirmation of all of the terms contained in the July 1,
1999 agreement except as expressly provided in the Second
Stipulation;
(ii) the extension from January 1, 2000 through March 31, 2000 of
the provisions in the July 1, 1999 agreement relating to use
of the assignment securities income;
(iii) the extension from December 31, 1999 to March 31, 2000 of the
provisions in the July 1, 1999 agreement relating to (i) First
Union's agreement not to seek relief from the automatic stay
to foreclose on the assignment securities or the assignment
securities income and (ii) the agreement by First Union, the
Company and the Unsecured Creditors' Committee not to seek
modification of the adequate protection arrangements contained
in the July 1, 1999 agreement; and
(iv) the consummation of the Stipulation and Consent Order Selling
the Wells Fargo Bonds to Morgan Stanley, which occurred in
February 2000. See "Bankruptcy Related Litigation-Morgan
Stanley" for further discussion.
On February 22, 2000, the Company filed a motion with the Bankruptcy
Court for approval of the Second Stipulation. CRIIMI MAE, First Union and
Lehman also reached an agreement that calls for the sale of seven classes of
Subordinated CMBS known as First Union Lehman Brothers Series 98 C-2. The
agreement was filed with the Bankruptcy Court on March 21, 2000 for approval.
On March 28, 2000, the Bankruptcy Court approved the Second Stipulation.
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 GACC. On February 3, 1999, the Bankruptcy Court approved an
Amended Consent Order between the Company and GACC that provides for the
following: (i) acknowledgement that GACC has a valid perfected security interest
in its collateral; (ii) authority for GACC to hedge its loan, subject to a hedge
cost cap; and (iii) as adequate protection, the 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 Amended Consent Order expired April 28, 1999. The Company and
GACC agreed to extend the Amended Consent Order until August 2, 1999 and a
stipulation to that effect was signed by the Company and GACC and approved by
the Bankruptcy Court on May 11, 1999. The Company and GAAC had negotiated a
further extension of the stipulation through September 10, 1999, which has now
expired. On September 9, 1999, GAAC contacted the Company and requested similar
provisions afforded to Merrill Lynch in its most recent stipulation. See
"Bankruptcy Related Litigation-Merrill Lynch" for further discussion.
SHAREHOLDER LITIGATION
The Company is aware that certain 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.
On March 9, 1999, the District Court ordered the consolidation of the
Complaints into a single action entitled this "In Re CRIIMI MAE Inc.
Securities Litigation" (see below regarding dismissal of this litigation). On
April 23, 1999, a group of thirteen putative members of the class of
individuals who allegedly suffered damages during the class period between
February 20, 1998 and October 5, 1998 (collectively, the "Plaintiffs") filed
an Amended and Consolidated class action Complaint alleging violations of
federal securities laws (the "Consolidated Amended Complaint"). The
Consolidated Amended Complaint names as defendants William B. Dockser, as
Chairman of the Board of Directors, H. William Willoughby as a member of the
Board of Directors and an officer of CRIIMI MAE, and Cynthia O. Azzara as an
officer of CRIIMI MAE (collectively, the "Defendants"). Although CRIIMI MAE,
CM Management and Holdings II have not been named as defendants, each company
is subject to indemnity obligations to the Defendants under the provisions of
their respective constituent documents, the Defendants' employment contracts
and applicable state law. CRIIMI MAE has directors and officers liability
insurance policies that have a combined coverage limit of $20 million.
D-51
<PAGE>
The Consolidated Amended Complaint alleges generally that the
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 fact and failing to disclose certain material facts concerning, among
other things, CRIIMI MAE's business strategy and its ability to meet collateral
calls from lenders. The Consolidated Amended Complaint also generally alleges
that the Defendants violated Section 20(a) of the Exchange Act because each
Defendant was allegedly a "controlling person" as that term is defined under
Section 20(a).
The relief sought in the Consolidated Amended 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 Plaintiffs as
class representatives and as lead plaintiffs and their counsel as lead counsel;
(iii) award of monetary damages, including compensatory and rescissionary
damages and interest thereon; (iv) a judgment awarding the Plaintiffs and the
Class their counsel fees, experts' fee and other costs of suit; (v) award to the
Plaintiffs such other relief as the District Court deems just and proper or as
the District Court otherwise requires; and (vi) trial by jury.
On July 9, 1999, the Defendants filed a Motion to Dismiss, with
prejudice, the Consolidated Amended Complaint. The Defendants filed the motion
under Rule 12(b)(6) of the Federal Rules of Civil Procedure on the grounds that
the Plaintiffs have failed to plead sufficient facts with the requisite
particularity to establish a claim for securities fraud under the Reform Act.
Plaintiffs filed their Opposition to Defendants' Motion to Dismiss on September
24, 1999.
On September 13, 1999, the Court denied Plaintiffs' motions for
appointment of lead plaintiffs and for approval of selection counsel. The Court
also ordered Plaintiffs' counsel to provide notice of the putative claims to
institutional investors identified by Defendants. Finally, the Court ordered
that Plaintiffs nominate no more than three persons to serve as lead plaintiffs,
and that any potential lead plaintiffs nominate only one attorney or law firm to
serve as lead counsel.
On October 19, 1999, the Court approved the form of the renewed notice
to potential class members that the Plaintiffs submitted to the Court. The Court
also ordered the Defendants to provide a list of certain institutional investors
who had invested in the Company to the Plaintiffs to whom the renewed notice is
to be sent.
On December 10, 1999, the Defendants filed their Reply Brief to the
Plaintiffs' Opposition to the Motion to Dismiss.
On December 20, 1999, the Plaintiffs sent a notice of the Consolidated
Amended Complaint to certain institutional investors of their right to move the
Court to serve as lead plaintiffs of the class within sixty (60) days of the
notice. On March 9, 2000, the Plaintiffs filed a motion to approve the
nomination of three plaintiffs and one law firm to serve as lead counsel.
On March 23, 2000, the Defendants filed a Response to the Plaintiffs'
Motion to Approve the Nomination of Lead Plaintiffs and Lead Counsel. Although
the Defendants did not oppose the Plaintiffs' Motion, the Defendants expressly
reserved their rights under Rule 23 of the Federal Rules of Civil Procedure to
challenge, among other things, whether the action could be maintained as a class
action.
On March 30, 2000, the Court granted the Defendants' Motion to Dismiss
the Consolidated and Amended Complaint and as a result entered an Order and
Memorandum Opinion dismissing the Consolidated and Amended Complaint. The Court
concluded that the Plaintiffs failed to state a claim for relief under Section
10(b) of the Exchange Act. The Court concluded that because the Plaintiffs
failed to state a claim for a "primary violation" of Section 10(b) of the
Exchange Act, they likewise failed to state a claim against the individual
Defendants as controlling persons under Section 20(a) of the Exchange Act. This
dismissal does not dispose of other pending shareholder lawsuits and/or claims
in bankruptcy which may affect the Company, as more fully described under other
subheadings of this section.
EDGE PARTNERS SETTLEMENT
D-52
<PAGE>
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.
OTHER LITIGATION
The Company is aware that an alleged shareholder, on behalf of himself
and all others similarly situated, who purchased common stock in a registered
common stock offering made by the Company in January 1998, filed a class action
lawsuit against Prudential Securities Incorporated ("Prudential") and the
Company's independent public accountants (the "Recupito Complaint") in the
United States District Court for the District of Maryland. Neither the Company
nor any officer or director of the Company was named as a defendant in this
lawsuit.
The Recupito Complaint alleges generally that the registration
statement dated October 21, 1997, including a prospectus dated January 20, 1998
and supplemented on January 23, 1998, contained materially false and misleading
statements about the Company and its condition.
The Company may be subject to potential exposure to Prudential under
contractual provisions and to both defendants under applicable law. Prudential
may assert that it is entitled to indemnification from the Company based upon an
indemnification provision contained in the underwriting agreement entered into
with the Company in connection with the common stock offering. Certain courts
have held and it is the position of the SEC that indemnification for liabilities
arising under the Securities Act of 1933 is against public policy and
unenforceable.
The Company cannot predict with any certainty the ultimate outcome of
such litigation or its potential exposure to one or both of the defendants.
CLAIMS
Over 850 claims with a face amount of nearly $2.5 billion have been
filed in these Chapter 11 cases, including approximately $355 million in
unsecured claims and approximately $2.2 billion in secured claims. Many of these
claims are duplicate claims filed by the same creditor in each of the three
cases. This amount is far in excess of the approximately $1.18 billion in
liabilities identified by the Debtors in their schedules, which were filed with
the Bankruptcy Court on November 20, 1998. The Debtors have undertaken extensive
efforts to cleanse the claims pool. In addition to analyzing the claims, the
Debtors have opened discussions with various creditors
D-53
<PAGE>
regarding the withdrawal of certain claims and in some cases, have objected to
claims. The Debtors' efforts have resulted in the reduction of approximately
$1.25 billion from the claims pool through objections, negotiated settlements
and withdrawal of claims.
Three large disputed claims remain unresolved: (i) the claim of Andrew
N. Friedman on behalf of a class of shareholders in the amount of $100 million
(the "Claim Number 330"); (ii) the claim of the Capital Company of America, LLC
("CCA") for approximately $18 million (the "CCA Claim") and (iii) the claim of
GP Properties Group, Inc., for approximately $882,000 (the "GP Properties
Claim").
Claim Number 330 relates to shareholders litigation against CRIIMI
MAE's officers and directors, which has already been discussed in "Legal
Proceedings-Shareholder Litigation." On March 20, 2000, CRIIMI MAE moved to
withdraw reference to the litigation relating to Claim Number 330 to the United
States District Court for the District of Maryland Southern Division.
The CCA Claim relates to an August 14, 1998 letter of intent between
CRIIMI MAE and CCA for the purchase of subordinated CMBS. The letter of intent
included financing and due diligence contingencies. The Company's position is
that neither of these contingencies was fulfilled. After preliminary due
diligence, the Company expressed concern regarding the quality of the mortgage
loans underlying the CMBS. The Company's further due diligence confirmed this
preliminary view, and the Company exercised its right not to proceed with the
purchase because of its due diligence concerns. CCA refused to withdraw its
claim, and on August 31, 1999, CRIIMI MAE filed an objection to the CCA Claim.
The CCA Claim was filed for an amount in excess of $17,000,000 on February 11,
1999. On October 9, 1999, CCA responded to the objection. By letter dated
January 7, 2000, CCA indicated that the amount of its claim was $18.8 million.
On March 27, 2000, CCA filed a motion with the Bankruptcy Court revising the
amount of its claim to $18.2 million. Litigation is continuing with respect to
the CCA Claim and the Company's objection thereto.
The GP Properties Claim relates to the Company's loan origination
program. In August and September 1998, the Company and GP Properties were
involved in a preliminary loan application process. These preliminary processes
did not give rise to a loan commitment. On October 7, 1998, GP Properties
advised the Company that it closed on alternative lending. GP Properties refused
the Company's request that it withdraw its claim, and on October 26, 1999 CRIIMI
MAE objected to the GP Properties Claim. GP Properties did not respond to the
objection on or prior to the objection deadline. The Court has not taken final
action as to the allowance of the GP Properties Claim.
Of the $1.25 billion of remaining claims approximately $1.0 billion
is carried on the balance sheet. The Debtors believe they have substantial
defenses to each of the disputed claims and that the ultimate allowed amount
of these claims, if any, will be insignificant although there can be no
assurance.
D-54
<PAGE>
18. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations
for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Income (principally interest income) $ 55,255,680 $ 56,463,980 $ 56,145,520 $ 56,238,554
Net income (loss) 13,416,949 (2,033,199) 8,100,173 (151,852,888)
Basic earnings (loss) per share 0.25 (0.04) 0.15 (2.72)
Diluted earnings (loss) per share 0.23 (0.04) 0.14 (2.72)
<CAPTION>
1998
----------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------- --------------- --------------- ---------------
<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)
Basic earnings (loss) per share 0.29 0.92 (0.18) (0.23)
Diluted earnings (loss) per share 0.28 0.85 (0.18) (0.23)
<CAPTION>
1997
----------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------- --------------- --------------- ---------------
<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
Basic earnings (loss) per share 0.54 0.24 0.26 0.29
Diluted earnings per share 0.50 0.23 0.26 0.28
</TABLE>
19. 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.
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
D-55
<PAGE>
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. 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.
The following table details the Company's financial performance by
these two lines of business for the years ended December 31, 1999, 1998 and
1997. The basis of accounting used in the table is GAAP.
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------------------
PORTFOLIO MORTGAGE
INVESTMENT SERVICING ELIMINATION (1) CONSOLIDATED
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Interest income:
Subordinated CMBS $ 154,205,383 $ 282,148 $ (282,148) $ 154,205,383
Insured mortgage securities 33,405,171 -- -- 33,405,171
Originated loans 34,712,674 -- -- 34,712,674
Other -- 3,384,533 (3,384,533) --
Servicing income -- 6,701,244 (6,701,244) --
Net gain on mortgage security dispositions 2,127,691 -- -- 2,127,691
Gain on originated loan dispositions 403,383 -- -- 403,383
Other income 4,038,061 4,359,320 (6,616,875) 1,780,506
--------------- --------------- --------------- ---------------
Total revenue 228,892,363 14,727,245 (16,984,800) 226,634,808
--------------- --------------- --------------- ---------------
General and administrative expenses (12,049,256) (13,016,747) 13,016,747 (12,049,256)
Interest expense (151,336,830) -- -- (151,336,830)
Losses on warehouse obligations (8,000,000) -- -- (8,000,000)
Reorganization items (178,899,959) -- -- (178,899,959)
Other expenses (2,877,576) (4,139,118) 4,139,118 (2,877,576)
--------------- --------------- --------------- ---------------
Total expenses (353,163,621) (17,155,865) 17,155,865 (353,163,621)
--------------- --------------- --------------- ---------------
Net (loss) income (124,271,258) (2,428,620) 171,065 (126,528,813)
Preferred dividends accrued (5,840,152) -- -- (5,840,152)
--------------- --------------- --------------- ---------------
Net (loss) income available to common
shareholders ($ 130,111,410) ($ 2,428,620) $ 171,065 ($ 132,368,965)
=============== =============== =============== ===============
Total assets $ 2,272,100,775 $ 23,697,635 $ (2,119,235) $ 2,293,661,246
=============== =============== =============== ===============
</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.
D-56
<PAGE>
<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
Insured mortgage securities 43,062,743 -- -- 43,062,743
Originated loans 20,588,112 -- -- 20,588,112
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 expenses (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.
D-57
<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
Insured mortgage securities 49,425,401 -- -- 49,425,401
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 expenses (9,610,579) (4,099,787) 4,099,787 (9,610,579)
Interest expense (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.
D-58
<PAGE>
20. FINANCIAL STATEMENTS FOR THE DEBTOR ENTITIES
The following are the unconsolidated financial statements for CRIIMI
MAE, CM Management and Holdings II:
CRIIMI MAE INC.
BALANCE SHEETS
(UNCONSOLIDATED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Assets:
Subordinated CMBS, at fair value $ 826,897,948 $ 1,071,872,143
Insured mortgage security, at fair value 5,268,982 5,511,707
Receivables and other assets 83,133,075 74,226,682
Restricted cash and cash equivalents 37,774,894 2,134,222
Cash and cash equivalents 52,114,880 20,580,606
Investment in subsidiaries 210,030,947 246,817,957
--------------- ---------------
Total assets $ 1,215,220,726 $ 1,421,143,317
=============== ===============
Liabilities:
Accounts payable and other accrued expenses $ 21,580,384 $ 7,374,281
Liabilities subject to Chapter 11 proceedings 974,291,756 1,105,892,131
--------------- ---------------
Total liabilities 995,872,140 1,113,266,412
--------------- ---------------
Shareholders' equity:
Convertible preferred stock 26,471 18,170
Common stock 599,546 528,981
Accumulated other comprehensive income (207,421,788) (251,255,309)
Accumulated deficit (148,434,915) --
Additional paid-in capital 574,579,272 558,585,063
--------------- ---------------
Total shareholders' equity 219,348,586 307,876,905
--------------- ---------------
Total liabilities and shareholders' equity $ 1,215,220,726 $ 1,421,143,317
=============== ===============
</TABLE>
The accompanying note is an integral part of these financial statements.
D-59
<PAGE>
CRIIMI MAE INC.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNCONSOLIDATED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1999 1998 (1)
------------- -------------
<S> <C> <C>
Interest income $ 110,690,836 $ 29,577,886
Interest expense 64,546,282 17,548,270
------------- -------------
Net interest margin 46,144,554 12,029,616
------------- -------------
Equity in earnings from investments 11,926,161 2,769,642
Other income 2,649,745 320,531
General and administrative expenses (794,237) (100,966)
Amortization of assets acquired in the Merger (2,877,576) (680,717)
Realized loss on reverse repurchase obligation -- (411,831)
Losses on warehouse obligations (8,000,000) (12,747,783)
Reorganization items:
Impairment on CMBS (156,896,831) --
Other (18,680,629) (8,500,753)
Write-off of capitalized loan origination costs -- (3,284,037)
------------- -------------
Subtotal (172,673,367) (22,635,914)
------------- -------------
Net (loss) income before dividends accrued or paid on preferred shares (126,528,813) (10,606,298)
Dividends accrued or paid on preferred shares (5,840,152) (1,497,978)
------------- -------------
Net (loss) income available to common shareholders ($132,368,965) ($ 12,104,276)
============= =============
Comprehensive (loss) income:
Net (loss) income before dividends paid or accrued on preferred shares $(126,528,813) (10,606,298)
Other comprehensive income (loss) 43,833,521 (141,543,673)
------------- -------------
Comprehensive (loss) income $ (82,695,292) $(152,149,971)
============= =============
</TABLE>
(1) The Debtor filed for relief under Chapter 11 on October 5, 1998. Amounts
for 1998 represent amounts from October 6, 1998 through December 31, 1998.
The accompanying note is an integral part of these financial statements.
D-60
<PAGE>
CRIIMI MAE INC.
NOTE TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
(UNCONSOLIDATED)
1. BASIS OF PRESENTATION
Generally accepted accounting principles ("GAAP") require 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 or decreased for CRIIMI MAE's share of the investee's income or
losses, respectively, 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
accompanying statements of income.
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, 1999 and 1998, and the
unconsolidated results of its operations for the year ended December 31, 1999
and for the period from October 6, 1998 to December 31, 1998.
D-61
<PAGE>
CRIIMI MAE MANAGEMENT INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Assets:
Note receivable $ 3,376,468 $ 3,376,468
Restricted cash and cash equivalents 261,729 219,338
Cash and cash equivalents 926,122 738,837
Other assets 2,969,939 3,332,116
Equity investments 12,794,963 19,209,778
----------- -----------
Total assets $20,329,221 $26,876,537
=========== ===========
Liabilities:
Accounts payable and other accrued expenses $ 2,585,812 $ 2,367,277
Liabilities subject to Chapter 11 proceedings 6,529,634 6,150,787
----------- -----------
Total liabilities 9,115,446 8,518,064
----------- -----------
Shareholders' equity 11,213,775 18,358,473
----------- -----------
Total liabilities and shareholders' equity $20,329,221 $26,876,537
=========== ===========
</TABLE>
The accompanying note is an integral part of these financial statements.
D-62
<PAGE>
CRIIMI MAE MANAGEMENT INC.
STATEMENTS OF NET LOSS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 (1)
------------- --------------
<S> <C> <C>
Interest income - note receivable and short-term interest income $ 335,536 $ 89,020
Equity in losses from investments (1,779,018) (121,359)
------------ ------------
Total revenue (1,443,482) (32,339)
------------ ------------
Interest expense 420,628 89,833
Depreciation and amortization 527,948 127,316
General and administrative expenses 9,775,772 2,996,531
Reorganization items 2,335,969 833,861
------------ ------------
Total expenses 13,060,317 4,047,541
------------ ------------
Net loss $(14,503,799) $ (4,079,880)
============ ============
</TABLE>
(1) The Debtor filed for relief under Chapter 11 on October 5, 1998. Amounts
for 1998 represent amounts from October 6, 1998 through December 31, 1998.
The accompanying note is an integral part of these financial statements.
D-63
<PAGE>
CRIIMI MAE MANAGEMENT, INC.
NOTE TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
1. BASIS OF PRESENTATION
In management's opinion, the accompanying 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, 1999 and 1998 and the results of its
operations for the year ended December 31, 1999 and for the period from October
6, 1998 to December 31, 1998, in accordance with generally accepted accounting
principles.
D-64
<PAGE>
CRIIMI MAE HOLDINGS II, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Assets:
Subordinated CMBS, at fair value $ 38,211,075 $ 43,001,454
Interest receivable 377,936 1,064,071
Cash 100 100
------------ ------------
Total assets $ 38,589,111 $ 44,065,625
============ ============
Liabilities:
LIABILITIES NOT SUBJECT TO CHAPTER 11 PROCEEDINGS:
Collateralized mortgage obligations $ 39,256,952 $ --
Payables and accrued expenses 541,360 209,213
LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS:
Variable-rate secured borrowings -- 40,132,693
------------ ------------
Total liabilities 39,798,312 40,341,906
------------ ------------
Partners' equity:
Contributed capital 4,856,143 5,927,429
Accumulated other comprehensive income (6,065,344) (2,203,710)
------------ ------------
Total partners' (deficit) equity (1,209,201) 3,723,719
------------ ------------
Total liabilities and partners' equity $ 38,589,111 $ 44,065,625
============ ============
</TABLE>
The accompanying note is an integral part of these financial statements.
D-65
<PAGE>
CRIIMI MAE HOLDINGS II, L.P.
STATEMENTS OF NET LOSS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1999 1998 (1)
----------- -----------
<S> <C> <C>
Interest income:
Subordinated CMBS $ 3,186,441 $ 753,860
Interest expense:
Collateralized bond obligations-CMBS 1,217,307 --
Variable-rate secured borrowings-CMBS 1,336,421 564,635
----------- -----------
Total interest expense 2,553,728 564,635
----------- -----------
Net interest margin 632,713 189,225
----------- -----------
Other investment income 165 --
General and administrative expenses (74,999) --
Reorganization costs (944,845) (209,213)
----------- -----------
Subtotal (1,019,679) (209,213)
----------- -----------
Net loss $ (386,966) $ (19,988)
=========== ===========
Other comprehensive loss (3,861,634) (1,118,369)
----------- -----------
Comprehensive loss $(4,248,600) $(1,138,357)
=========== ===========
</TABLE>
(1) The Debtor filed for relief under Chapter 11 on October 5, 1998. Amounts
for 1998 represent amounts from October 6, 1998 through December 31, 1998.
The accompanying note is an integral part of these financial statements.
D-67
<PAGE>
CRIIMI MAE HOLDINGS II, L.P.
NOTE TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 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 consolidated financial
statements. (See Notes 3 and 6 for discussion of this accounting.) On a
stand-alone basis, generally accepted accounting principles require 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, 1999 and 1998 and the
results of its operations for the year ended December 31, 1999 and for the
period from October 6, 1998 to December 31, 1998.
D-68
<PAGE>
EXHIBIT INDEX
3(e) Articles Supplementary to the Articles of Incorporation of CRIIMI MAE
Inc. reclassifying 150,000 shares of the Corporation's "Series A
Cumulative Convertible Preferred Stock" to authorized but unissued shof
the Corporation's preferred stock.
3(k) Articles Supplementary to the Articles of Incorporation of CRIIMI MAE
Inc. designating 1,610,000 shares of the Company's Preferred Stock as
"Series F Redeemable Cumulative Dividend Preferred Stock".
27 Financial Data Schedule
99(d) 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) entered on February 2, 1999.
99(cc) Stipulation Extending Wells Fargo Standstill (Morgan Stanley and Co.
International Limited) entered on November 10, 1999.
99(dd) Stipulation and Consent Order Providing for Adequate Protection
(Merrill Lynch Mortgage Capital Inc.) entered on December 3, 1999.
99(ee) Stipulation and Consent Order Regarding Adversary Proceeding (Morgan
Stanley and Co. International Limited) entered on February 24, 2000.
99(ff) Second Stipulation and Agreed Order (i) Authorizing Use of Cash
Collateral and (ii) Granting Other Relief entered on March 28, 2000.
99(gg) Stipulation of Dismissal with Prejudice of Adversary Proceeding (Morgan
Stanley and Co. International Limited) entered on March 3, 2000.
99(hh) Stipulation Extending Wells Fargo Standstill (Morgan Stanley and Co.
International Limited) entered January 27, 2000.
99(ii) Stipulation and Order Regarding Proceeds Received by the Debtor from
the Sale of the Wells Fargo Bonds entered on February 28, 2000.
D-69
<PAGE>
EXHIBIT E
<PAGE>
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
CRIIMI MAE INC.
CRIIMI MAE INC., a Maryland corporation (the "Corporation"), having its
principal office in Rockville, Maryland, hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended and as so amended
is restated by striking out in its entirety the existing Charter and inserting
in lieu thereof the following:
ARTICLE I
NAME
The corporation's name is CRIIMI MAE Inc. (the "Corporation").
ARTICLE II
PRINCIPAL OFFICE
The address of the Corporation's principal office in the State of Maryland
is 11200 Rockville Pike, Rockville, Maryland 20852.
ARTICLE III
RESIDENT AGENT
The name and address of the Corporation's resident agent is Corporation
Trust, Inc., a Maryland corporation, with its registered office at 11200
Rockville Pike, Rockville, Maryland 20852.
ARTICLE IV
PURPOSES
The purposes for which the Corporation is formed are to conduct any
business for which corporations may be organized under the laws of the State of
Maryland including, but not limited to, engaging in, promoting and carrying on
the business of acquiring, holding, managing and disposing of mortgage
investments and any lawful act and activity related thereto.
ARTICLE V
CAPITAL STOCK
(A) Aggregate Number and Classes. The aggregate number of shares of all
classes of stock that the Corporation shall have authority to issue is three
hundred seventy five million (375,000,000), consisting of: three hundred million
(300,000,000) shares of common stock, par value one cent ($0.01) per share
(together with any other class or
<PAGE>
series of common stock which may hereafter be authorized, the "Common Stock")
and fifty million (75,000,000) shares of preferred stock, par value one cent
($0.01) per share (together with any other class or series of preferred stock
that may hereafter be authorized, the "Preferred Stock"), of which three million
(3,000,000) shares are classified as Series B Cumulative Preferred Stock (the
"Series B Preferred Stock"), two hundred three thousand (203,000) shares are
classified as Series E Cumulative Convertible Preferred Stock (the "Series E
Preferred Stock"), and one million six hundred ten thousand (1,610,000) shares
are classified as Series F Redeemable Cumulative Dividend Preferred Stock
(convertible during the period of ten (10) Business Days after the fifth
Business Day after the Initial Issue Date and during the period of ten (10)
Business Days ending ninety (90) calendar days after the Initial Issue Date or
the first Business Day thereafter) (the "Series F Preferred Stock"). The Common
Stock and the Preferred Stock, together with any other class or classes of
Capital Stock that may hereafter be authorized, are referred to herein
collectively as the "Capital Stock." The Board of Directors of the Corporation
(the "Board of Directors" or the "Board") may classify and reclassify any
unissued Capital Stock, whether now or hereafter authorized, by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of such stock.
(B) Preferred Stock. Subject to the applicable provisions of Maryland law,
the Corporation's Charter and the express terms of any class or series of
Capital Stock, including the Articles Supplementary of any class or series of
Preferred Stock then outstanding, the Preferred Stock may be issued from time to
time, in one or more series as authorized by the Board of Directors. Prior to
the issuance of a series, the Board of Directors, by resolution, shall designate
that series to distinguish it from other series and classes of the Corporation's
Capital Stock, shall specify the number of shares to be included in the series,
and shall set preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of the shares of the series. In setting the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of a series of Preferred Stock, the Board of Directors may designate that any
amendment, waiver or repeal of any provision of the Articles Supplementary
classifying such series of Preferred Stock shall not require the approval of the
holders of the Common Stock. Subject to the applicable provisions of Maryland
law, the Corporation's Charter and the express terms of any class or series of
Capital Stock, including the Articles Supplementary of any class or series of
Preferred Stock then outstanding, the Board of Directors may increase or
decrease the number or alter the designation or classify or reclassify any
unissued shares of a particular series of Preferred Stock by setting or changing
in one or more respects, from time to time before issuing the shares, any
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or conditions of
redemption of the shares of that series of Preferred Stock.
1. The preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions
2
<PAGE>
of redemption of the shares of the Series B Preferred Stock are set forth
on Exhibit A attached hereto.
2. The preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of shares of the Series E Preferred Stock are set
forth on Exhibit B attached hereto.
3. The preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of the shares of the Series F Preferred Stock are
set forth on Exhibit C attached hereto.
(C) Common Stock. Each share of Common Stock shall entitle the holder of
record thereof to one (1) vote at all meetings of the Corporation's
stockholders, except meetings at which only holders of another specified class
or series of Capital Stock are entitled to vote. Subject to any preference
rights with respect to the payment of dividends of any series of Preferred Stock
then outstanding, the holders of Common Stock shall be entitled to receive, as
and when declared by the Board, dividends that may be paid in money or property
or by the issuance of fully paid Capital Stock, in the form of Preferred Stock,
Common Stock or any other class or series of Capital Stock now or hereafter
authorized by the Board. In the event of a liquidation, dissolution or winding
up of the Corporation or other distribution of the Corporation's assets among
stockholders for the purpose of winding up the Corporation's affairs, whether
voluntary or involuntary, and subject to the applicable provisions of Maryland
law, the Corporation's Charter and the rights, privileges, conditions and
restrictions of any series of Preferred Stock then outstanding, the Common Stock
shall entitle the holders thereof to receive the Corporation's remaining
property.
(D) Fractional Shares. The Corporation may issue shares of Capital Stock
in fractional denominations to the same extent as its whole shares, and shares
in fractional denominations shall be shares of Capital Stock having
proportionately to the respective fractions represented thereby all the rights
of whole shares, including, without limitation, the right to vote, the right to
receive dividends and distributions, and the right to participate upon
liquidation of the Corporation, but excluding any right to receive a stock
certificate representing fractional shares.
ARTICLE VI
PREEMPTIVE RIGHTS
Except as may be expressly provided by the terms of any class or series of
Capital Stock, including the Articles Supplementary of any class or series of
Preferred Stock, by contract with the Corporation or otherwise by the Board of
Directors, no holder of shares of any class or series of the Corporation's
Capital Stock, whether now or hereafter authorized, shall have any preferential
or preemptive right to subscribe for, purchase or
3
<PAGE>
receive shares of any class or series of the Capital Stock of the Corporation,
or any options to purchase or warrants exercisable for such Capital Stock or any
rights to subscribe to or purchase such Capital Stock or any securities
convertible into or exchangeable for such Capital Stock that may at any time or
from time to time be issued, sold or offered for sale by the Corporation.
ARTICLE VII
DIRECTORS
(A) Number. On the effective date of the Corporation's plan of
reorganization, as amended as of such effective date (the "Effective Date"), the
number of directors of the Corporation shall be fixed at ______, which number
may be increased or decreased only by the Board of Directors by resolution
adopted by the vote of a majority of the entire Board of Directors, even though
less than a quorum, subject to the applicable provisions of Maryland law, this
Charter and the express terms of any class or series of Capital Stock, including
the Articles Supplementary of any class or series of Preferred Stock then
outstanding, but the number of directors shall not at any time be less than the
lesser of (a) three (3) or (b) the number of stockholders nor more than
________. On the Effective Date, [_____________________] shall serve as
directors of the Corporation and shall have and exercise any and all rights,
powers, privileges and discretionary authority granted or permitted by the
Corporation's Charter, the Corporation's Bylaws or the Maryland General
Corporation Law for the terms set forth in Paragraph (B) below and until their
respective successors are duly elected and qualified.
(B) Unaffiliated Directors; Classified Board. A majority of the directors
shall be directors who do not perform any services for the Corporation, other
than as directors, and who are not directors, officers, or employees of C.R.I.,
Inc., a Delaware corporation ("Unaffiliated Directors"). Subject to the
applicable provisions of Maryland law, this Charter and the express terms of any
class or series of Capital Stock, including the Articles Supplementary of any
class or series of Preferred Stock then outstanding, the directors shall be
classified, with respect to the time for which they severally hold office, into
three (3) classes, as nearly equal in number as reasonably possible, with the
term of office of one class to expire initially at the 2001 annual meeting of
stockholders, the term of office of another class to expire initially at the
2002 annual meeting of stockholders and the term of office of the remaining
class to expire initially at the 2003 annual meeting of stockholders, with the
members of each class of directors to hold office until their respective
successors are duly elected and qualified, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. At each annual
meeting of stockholders following such initial classification, directors elected
to succeed those directors whose terms then expire shall be elected for a term
of office to expire at the third succeeding annual meeting of stockholders after
their election and when their respective successors are duly elected and
qualified.
(C) Vacancies and Newly Created Directorships. Except as otherwise
required by law or as may be expressly provided by the terms of any class or
series of
4
<PAGE>
Capital Stock, including the Articles Supplementary of any class of series of
Preferred Stock, any vacancy on the Board of Directors as a result of any reason
and any newly created directorship resulting by reason of any increase in the
number of directors shall be filled only by the Board of Directors, by
resolution adopted by the vote of a majority of the remaining directors then in
office, even though less than a quorum. Any director so appointed shall hold
office until the next meeting of stockholders at which directors of the class
for which such director has been chosen are to be elected and until his or her
successor is elected and qualified. Subject to the provisions of this Charter,
if the number of directors is changed, any increase or decrease in directorships
shall be apportioned among the classes of directors so as to maintain the number
of directors in each class as nearly equal as possible, but in no case shall a
decrease in the number of directors constituting the Board of Directors shorten
the term of any incumbent director.
(D) Removal of Directors. Except as may be expressly provided by the terms
of any class or series of Capital Stock, including the Articles Supplementary of
any class or series of Preferred Stock, any director may be removed, but only
for cause, and only upon the affirmative vote of least 66-2/3% of the voting
power of all of the then outstanding shares of Capital Stock entitled to vote
generally in the election of directors.
(E) Increase in Authorized Capital Stock. Subject to the applicable
provisions of Maryland law, the Corporation's Charter and the express terms of
any class or series of Capital Stock, including the Articles Supplementary of
any class or series of Preferred Stock then outstanding, the Board of Directors,
with the approval of a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such amendment is presented to the Board for approval) and
without action by the stockholders, may amend the Charter to increase or
decrease the aggregate number of shares of Capital Stock the Corporation has
authority to issue.
(F) Issuance of Capital Stock. Subject to the applicable provisions of
Maryland law, the Corporation's Charter and the express terms of any class or
series of Capital Stock, including the Articles Supplementary of any class or
series of Preferred Stock then outstanding, the Board of Directors of the
Corporation is hereby empowered to authorize the issuance from time to time of
shares of Capital Stock of any class or series, whether now or hereafter
authorized, and securities convertible into shares of Capital Stock of any
series, class or classes, whether now or hereafter authorized, for such
consideration as the Board of Directors may deem advisable.
(G) Interested Director Transactions. No contract or other transaction
between this Corporation and any other corporation, partnership, individual or
other entity and no act of this Corporation shall in any way be affected or
invalidated by the fact that any of the directors of this Corporation are
directors, principals, partners or officers of such other entity, or are
pecuniarily or otherwise interested in such contract, transaction or act;
provided that (i) the existence of such relationship or such interest shall be
disclosed or known to the Board of Directors or to a committee of the Board of
Directors if the matter involves a committee decision, and the contract,
transaction or act shall be authorized,
5
<PAGE>
approved or ratified by a majority of disinterested directors on the Board or on
such committee, as the case may be, even if the number of disinterested
directors constitutes less than a quorum or (ii) the contract, transaction or
act shall be authorized, ratified or approved in any other manner permitted by
the Maryland General Corporation Law.
ARTICLE VIII
AMENDMENTS TO THE BYLAWS
Subject to the applicable provisions of Maryland law, to the Corporation's
Charter and the express terms of any class or series of Capital Stock,
including, the Articles Supplementary of any series of Preferred Stock then
outstanding, the Bylaws of the Corporation may be added to, altered, amended,
repealed or suspended by a vote of a majority of the Board of Directors at any
regular or special meeting of the Board at which a quorum is present, but,
subject to the same proviso, the stockholders may make additional Bylaws and may
alter, repeal or suspend any Bylaws, whether adopted by them or otherwise, upon
the affirmative vote of the holders of at least 66-2/3% of the voting power of
all of the then outstanding shares of Capital Stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class; provided, however, that no Bylaw so made shall serve to invalidate any
prior action of the Board which would have been valid if such Bylaw had not been
made.
ARTICLE IX
FACTORS TO CONSIDER PRIOR TO APPROVAL OF AN ACQUISITION
OF CONTROL OF THE CORPORATION
The Board, when evaluating any offer of another party to acquire control
of the Corporation, may consider the effect of the acquisition on stockholders,
employees, suppliers, customers and creditors of the Corporation and communities
in which offices or other establishments of the Corporation are located.
ARTICLE X
AMENDMENTS TO THE CHARTER
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in the Charter in the manner prescribed by the laws of the
State of Maryland, subject to the applicable provisions of Maryland law, the
Corporation's Charter and the express terms of any class or series of Capital
Stock, including the Articles Supplementary of any class or series of Preferred
Stock then outstanding, except that no amendment which would change any rights
with respect to any outstanding class or series of Capital Stock of the
Corporation, by reducing the amounts payable thereon upon liquidation of the
Corporation, or by diminishing or eliminating any voting rights pertaining
thereto, may be made unless approved by the affirmative vote of the holders of
at least 66-2/3% of the then outstanding securities of such class or series of
Capital Stock of the Corporation, and all rights, powers, privileges and
discretionary authority granted or conferred upon stockholders or directors
herein are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of the Charter or any
6
<PAGE>
provision of law or otherwise which might otherwise permit a lesser vote or no
vote, but in addition to any vote of the holders of any class or series of the
Corporation's Capital Stock required by law, by the Charter or by the terms of
any such class or series of Capital Stock, the affirmative vote of the holders
of at least 66-2/3% of the voting power of all of the then outstanding shares of
Capital Stock entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend, repeal, or adopt any
provision inconsistent with this Article X or Article VII, Article VIII, Article
IX, Article XI , Article XII or Article XIII hereof.
ARTICLE XI
RESTRICTION ON TRANSFER,
ACQUISITION AND REDEMPTION OF CAPITAL STOCK
(A) Definitions. For the purposes of this Article XI, the following terms
shall have the following meanings:
1. "Affiliate" shall mean any corporation, partnership, limited
liability company, trust or other association, or any Person which
controls, is controlled by, or is under common control with, such
corporation, partnership, limited liability company, trust or other
association. As used in this definition "control" (including with its
correlative meanings, "controlled by" and "under common control with")
shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of such Person
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise).
2. "Beneficial Ownership" shall mean ownership of Capital Stock of
the Corporation by a Person who would be treated as an owner of such
Capital Stock under Section 542(a)(2) of the Code either directly or
constructively through the application of Section 544 of the Code, as
modified by Section 856(h)(1)(B) of the Code. The terms "Beneficial
Owner," "Beneficially Owns," and variants thereof shall have the
correlative meanings.
3. "Beneficiary" shall mean any organization that is exempt from
federal income taxation under Section 501(c)(3) of the Code and to which
contributions are deductible under Section 170(c) of the Code, which
organization shall be designated a beneficiary (as determined pursuant to
Paragraph (S) hereof) of an interest in the Special Trust (created
pursuant to Paragraph (O)) representing Excess Stock; provided, however,
that the Excess Stock would not be considered Excess Stock in the hands of
such beneficiary. The term "Beneficiaries" shall have the correlative
meaning.
4. "Code" shall mean the Internal Revenue Code of 1986, as amended,
or any successor statute, the regulations promulgated and rulings issued
thereunder and any successor regulations or rulings which may be
promulgated or issued thereunder.
7
<PAGE>
5. "Excess Stock" shall have the meaning ascribed to it in Paragraph
(C) hereof.
6. "Existing Holder" shall mean (a) any Person who, as of the
Restriction Commencement Date, is the Beneficial Owner of Capital Stock of
the Corporation in excess of the Ownership Limit, so long as, but only so
long as, such Person Beneficially Owns such Capital Stock in excess of the
Ownership Limit and (b) any Person to whom an Existing Holder Transfers,
subject to the limitations provided in this Article XI, Beneficial
Ownership of Capital Stock of the Corporation causing such transferee to
Beneficially Own Capital Stock in excess of the Ownership Limit.
7. "Existing Holder Limit" shall mean (a) for any Existing Holder
who is an Existing Holder by virtue of clause (a) of the definition
thereof, initially, the percentage of the outstanding Capital Stock of the
Corporation Beneficially Owned by such Existing Holder, as of the
Restriction Commencement Date, and, after any adjustment pursuant to
Paragraph (I) hereof, shall mean such percentage of such outstanding
Capital Stock as so adjusted; and (b) for any Existing Holder who becomes
an Existing Holder by virtue of clause (b) of the definition thereof,
initially, the percentage of the outstanding Capital Stock of the
Corporation Beneficially Owned by such Existing Holder at the time that
such Existing Holder becomes an Existing Holder, but in no event shall
such percentage be greater than the Existing Holder Limit for the Existing
Holder who Transfers Beneficial Ownership of Capital Stock of the
Corporation to such transferee Existing Holder or, in the case of more
than one transferor, in no event shall such percentage be greater than the
smallest Existing Holder Limit of any transferring Existing Holder, and,
after any adjustment pursuant to Paragraph (S) hereof, shall mean such
percentage of the outstanding Capital Stock of the Corporation as so
adjusted. Beginning with the Restriction Commencement Date and at all
times thereafter but prior to the Restriction Termination Date, the
Secretary of the Corporation shall maintain and, upon request shall make
available to each Existing Holder a schedule which sets forth the
then-current Existing Holder Limit for such Existing Holder.
8. "Market Price" shall mean, with respect to any class or series of
Capital Stock of the Corporation, the last reported sales price reported
on the New York Stock Exchange, Inc. (the "Exchange") of such class or
series of Capital Stock on the trading day immediately preceding the
relevant date, or if not then traded on the Exchange, the last reported
sales price on the trading day immediately preceding the relevant date as
reported on any exchange or quotation system over which such class or
series of Capital Stock may be traded, or if not then traded over any
exchange or quotation system, then the market price of such class or
series of Capital Stock on the relevant date as determined in good faith
by the Board of Directors.
9. "Ownership Limit" shall mean initially that number of shares of
Capital Stock of the Corporation which represents the lesser of (a) 9.8%
of the aggregate number of shares of Capital Stock of the Corporation
outstanding and (b)
8
<PAGE>
9.8% of the aggregate value of the outstanding Capital Stock, and after
any adjustment as set forth in Paragraph (J) hereof, shall mean such
greater percentage of the outstanding Capital Stock of the Corporation as
so adjusted. The number and value of outstanding shares of Capital Stock
of the Corporation shall be determined by the Board of Directors in good
faith, which determination shall be conclusive for all purposes hereof.
10. "Person" shall mean an individual, corporation, partnership,
estate, trust (including a corporation qualified under Section 401(a) or
501(c)(17) of the Code), a portion of a corporation permanently set aside
for or to be used exclusively for the purposes described in Section 642(c)
of the Code, association, private foundation within the meaning of Section
509(a) of the Code, joint stock company or other entity and also includes
a group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended; but does not include an
underwriter that participated in a public offering of any Capital Stock of
the Corporation for a period of twenty-five (25) calendar days following
the purchase by such underwriter of such Capital Stock.
11. "Purported Beneficial Holder" shall mean, with respect to any
event, other than a purported Transfer which results in Excess Stock, the
Person for whom the Purported Record Holder of the Capital Stock of the
Corporation that, pursuant to Paragraph (C) hereof, was automatically
converted into Excess Stock upon the occurrence of such event, held such
Capital Stock.
12. "Purported Beneficial Transferee" shall mean, with respect to
any purported Transfer which results in Excess Stock, the purported
beneficial transferee for whom the Purported Record Transferee would have
acquired Capital Stock of the Corporation, if such Transfer had been valid
under Paragraph (B) hereof.
13. "Purported Owner" shall mean any Purported Beneficial Holder,
Purported Beneficial Transferee, Purported Record Holder or Purported
Record Transferee, as the case may be.
14. "Purported Owner Limitation" shall mean, as to a Purported
Owner, on a share-by-share basis, an amount not exceeding the lesser of:
(a) (i) if the Purported Owner gave value for the Capital Stock of the
Corporation converted into Excess Stock, the price per share that such
Purported Owner paid in the purported Transfer for the Capital Stock that
was converted into such Excess Stock, or (ii) if the Purported Owner did
not give value for the Capital Stock of the Corporation converted into
Excess Stock (through a gift, devise or otherwise), a price per share
equal to the Market Price for such converted Capital Stock of the
Corporation on the date of the purported Transfer or such other event
which results in Excess Stock; and (b) the price per share received by the
Special Trust from the sale, exchange or other disposition of the Excess
Stock.
9
<PAGE>
15. "Purported Record Holder" shall mean with respect to any event,
other than a purported Transfer which results in Excess Stock, the record
holder of the Capital Stock of the Corporation that, pursuant to Paragraph
(C) hereof, was automatically converted into Excess Stock upon the
occurrence of such event.
16. "Purported Record Transferee" shall mean, with respect to any
purported Transfer, which results in Excess Stock, the Person who would
have been the record holder of the Capital Stock, if such Transfer had
been valid under paragraph (B) hereof.
17. "REIT" means real estate investment trust within the meaning and
in accordance with the REIT Provisions.
18. "REIT Provisions" means Part II and III of Subchapter M of the
Chapter I of Subtitle A of the Code, relating to REITs.
19. "Restriction Commencement Date" shall mean the date upon which
the filing of these Articles of Amendment and Restatement of the
Corporation with the Maryland State Department of Assessments and Taxation
becomes effective.
20. "Restriction Termination Date" shall mean the first day on which
the Board of Directors determines that it is no longer in the best
interests of the Corporation to attempt to, or to continue to, qualify
under the REIT Provisions of the Code.
21. "Special Trust" shall mean any special trust created pursuant to
Paragraph (E) hereof.
22. "Special Trustee" shall mean a trustee of any Special Trust,
designated by the Corporation and unaffiliated with the Corporation or any
prohibited transferee or Purported Owner of Excess Stock.
23. "Transfer" shall mean any sale, transfer, gift, assignment,
devise or other disposition of Capital Stock of the Corporation, including
without limitation (a) the granting of any option or entering into any
agreement for the sale, transfer or other disposition of such Capital
Stock or (b) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Capital Stock of
the Corporation, whether voluntary or involuntary, whether of record or
beneficially and whether by operation of law or otherwise.
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(B) Ownership Limitations.
1. Except as provided in this Paragraph (B), beginning on the
Restriction Commencement Date and at all times thereafter but prior to the
Restriction Termination Date, no Person other than an Existing Holder
shall Beneficially Own Capital Stock of the Corporation in excess of the
Ownership Limit, and no Existing Holder shall Beneficially Own Capital
Stock of the Corporation in excess of the Existing Holder Limit for such
Existing Holder.
2. Except as provided in this Paragraph (B), beginning on the
Restriction Commencement Date and at all times thereafter but prior to the
Restriction Termination Date, any Transfer that, if effective, would
result in any Person other than an Existing Holder Beneficially Owning
Capital Stock of the Corporation in excess of the Ownership Limit shall be
void ab initio as to the Transfer of such portion of the Capital Stock of
the Corporation as would be otherwise Beneficially Owned by such Person in
excess of the Ownership Limit, and the intended transferee shall acquire
no rights in or to such number of shares of such Capital Stock.
3. Except as provided in Paragraphs (I) and (L) hereof, beginning on
the Restriction Commencement Date and at all times thereafter but prior to
the Restriction Termination Date, any Transfer that, if effective, would
result in any Existing Holder Beneficially Owning Capital Stock of the
Corporation in excess of the applicable Existing Holder Limit shall be
void ab initio as to the Transfer of such portion of such Capital Stock as
would be otherwise Beneficially Owned by such Existing Holder in excess of
the applicable Existing Holder Limit, and such Existing Holder shall
acquire no rights in or to such number of shares of such Capital Stock.
4. Except as provided in Paragraph (L) hereof, beginning on the
Restriction Commencement Date and at all times thereafter but prior to the
Restriction Termination Date, any Transfer that, if effective, would
result in Capital Stock the Corporation being owned by fewer than one
hundred (100) stockholders (determined without reference to any rules of
attribution) shall be void ab initio and the intended transferee shall
acquire no rights in or to such Capital Stock.
5. Beginning on the Restriction Commencement Date and at all times
thereafter but prior to the Restriction Termination Date, any Transfer
that, if effective, would result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code shall be void ab initio
as to the Transfer of such portion of the Capital Stock of the Corporation
which would cause the Corporation to be "closely held" within the meaning
of Section 856(h) of the Code, and the intended transferee shall acquire
no rights in or to such number of shares of such Capital Stock.
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(C) Excess Stock.
1. If, notwithstanding the other provisions contained in this
Article XI, at any time beginning on the Restriction Commencement Date and
at all times thereafter but prior to the Restriction Termination Date,
there is a purported Transfer such that any Person would Beneficially Own
Capital Stock of the Corporation in excess of the applicable Ownership
Limit or Existing Holder Limit, then, except as otherwise provided in
Paragraphs (I) and (L) hereof, such portion of the Capital Stock of the
Corporation in excess of such Ownership Limit or Existing Holder Limit
(rounded up to the nearest whole share) shall automatically be converted
into "Excess Stock" and be treated as provided in this Article XI. Such
conversion and treatment shall be effective as of the close of business on
the business day immediately prior to the date of the purported Transfer
giving rise thereto.
2. If, notwithstanding the other provisions contained in this
Article XI, at any time beginning on the Restriction Commencement Date and
at all times thereafter but prior to the Restriction Termination Date,
there is a purported Transfer which, if effective, would cause the
Corporation to become "closely held" within the meaning of Section 856(h)
of the Code, then the Capital Stock of the Corporation being Transferred
which would cause the Corporation to be "closely held" within the meaning
of Section 856(h) of the Code (rounded up to the nearest whole share)
shall automatically be converted into Excess Stock and be treated as
provided in this Article XI. Such conversion and treatment shall be
effective as of the close of business on the business day immediately
prior to the date of the purported Transfer giving rise thereto.
3. If, at any time beginning on the Restriction Commencement Date
and at all times thereafter but prior to the Restriction Termination Date,
an event other than a purported Transfer (an "Event") occurs (including,
without limitation, a change in the Corporation's capital structure) which
would cause any Person to Beneficially Own Capital Stock of the
Corporation in excess of the applicable Ownership Limit or Existing Holder
Limit, then, except as otherwise provided in Paragraphs (I) and (L)
hereof, Capital Stock of the Corporation Beneficially Owned by such Person
shall automatically be converted into Excess Stock and be treated as
provided in this Article XI to the extent necessary to eliminate such
excess ownership. Such conversion and treatment shall be effective as of
the close of business on the business day immediately prior to the date of
the Event giving rise thereto. In determining which portion of the Capital
Stock of the Corporation is converted, Capital Stock directly held or
Beneficially Owned by any Person who caused the Event to occur shall be
converted before any Capital Stock not so held is converted. Where several
such Persons exist, the conversion shall be pro rata.
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(D) Prevention of Transfer. If the Board of Directors or its designee
shall at any time determine in good faith that a Transfer has taken place in
violation of Paragraph (B) hereof or that a Person intends to acquire or has
attempted to acquire Beneficial Ownership (determined without reference to any
rules of attribution) of any Capital Stock of the Corporation in violation of
Paragraph (B) hereof, the Board of Directors or its designee shall take such
action as it deems advisable to refuse to give effect to or to prevent such
Transfer including, but not limited to, refusing to give effect to such Transfer
on the books of the Corporation or instituting proceedings to enjoin such
Transfer; provided, however, that any Transfers or attempted Transfers in
violation of Paragraphs (B)(2), (3) and (5) shall automatically result in the
designation and treatment described in Paragraph (C) hereof, irrespective of any
action (or non-action) by the Board of Directors or any designee thereof.
(E) Notice to Corporation. Any Person who acquires or attempts to acquire
Capital Stock of the Corporation in violation of Paragraph (B) hereof, or any
Person who is a transferee such that Excess Stock results under Paragraph (C)
hereof, shall immediately give written notice or, in the event of a proposed or
attempted acquisition, give at least fifteen (15) calendar days prior written
notice, to the Corporation of such event, and shall provide to the Corporation
such other information as the Corporation may request in order to determine the
effect, if any, of such acquisition or attempted acquisition on the
Corporation's status as a REIT.
(F) Information for Corporation. Beginning with the Restriction
Commencement Date and at all times thereafter but prior to the Restriction
Termination Date:
1. Every Beneficial Owner of more than 5.0% (or such other
percentage, between 0.5% and 5.0%, as provided in the income tax
regulations promulgated under the Code) of the aggregate number or value
of outstanding shares of Capital Stock of the Corporation shall, within
thirty (30) days after January 1 of each year (or within such shorter
period as may reasonably be requested by the Corporation), give written
notice to the Corporation stating the name and address of such Beneficial
Owner, the number of shares of Capital Stock of the Corporation
Beneficially Owned and the class or series of which such shares are a
part, and a description of how such Capital Stock is held. Each such
Beneficial Owner shall provide to the Corporation such additional
information as the Corporation may reasonably request in order to
determine the effect, if any, of such Beneficial Ownership on the
Corporation's status as a REIT.
2. Each Person who is a Beneficial Owner of Capital Stock of the
Corporation and each Person (including the holder of record) who is
holding Capital Stock for a Beneficial Owner shall immediately provide to
the Corporation such information as the Corporation may reasonably request
in order to determine the Corporation's status as a REIT, to comply with
the requirements of any taxing authority or governmental agency or to
determine any such compliance.
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(G) Other Action by Board. Nothing contained in this Article XI shall
limit the authority of the Board of Directors to take such other action as it
deems necessary or advisable to protect the Corporation and the interests of the
stockholders by preservation of the Corporation's status as a REIT.
(H) Ambiguities. In the case of an ambiguity in the application of any of
the provisions of this Article XI, including any definition contained in
Paragraph (A) hereof and any ambiguity with respect to which Capital Stock is to
constitute Excess Stock in a given situation, the Board of Directors shall have
the power to determine the application of the provisions of this Article XI
based on the facts known to it, which determination shall be conclusive for all
purposes hereof.
(I) Modifications of Existing Holder Limits. The Existing Holder Limits
may be modified as follows:
1. Subject to the limitations provided in Paragraph (K) hereof, the
Board of Directors may grant stock options which result in Beneficial
Ownership of Capital Stock of the Corporation by an Existing Holder
pursuant to a stock option plan approved by the Board of Directors and/or
the stockholders. Any such grant shall be deemed to increase, without any
further action by the Board of Directors, the Existing Holder Limit for
the affected Existing Holder to the maximum extent possible under
Paragraph (K) hereof to permit the Beneficial Ownership of the Capital
Stock issuable or issued upon the exercise of such stock option.
2. Subject to the limitations provided in Paragraph (K) hereof, an
Existing Holder may elect to participate in a dividend reinvestment plan
or direct stock purchase plan approved by the Board of Directors which
results in Beneficial Ownership of Capital Stock of the Corporation by
such participating Existing Holder. Any such participation shall increase
the Existing Holder Limit for the affected Existing Holder to the maximum
extent possible under Paragraph (K) hereof to permit Beneficial Ownership
of the Capital Stock of the Corporation acquired or which can be acquired
as a result of such participation.
3. The Board of Directors will reduce the Existing Holder Limit for
any Existing Holder following a Transfer permitted by this Article XI by
the percentage of the total outstanding shares of Capital Stock of the
Corporation so Transferred by such Existing Holder, or after the lapse
(without exercise) of a stock option described in Paragraph (K)(1) hereof,
by the percentage of the total outstanding shares of Capital Stock that
would have been issuable upon exercise of the stock option.
(J) Increases in Ownership Limit and Existing Holder Limits. Subject to
the limitations provided in Paragraph (K) hereof, the Board of Directors may
from time to time increase the Ownership Limit or any Existing Holder Limit.
(K) Limitations on Changes in Existing Holder and Ownership Limits.
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1. Neither the Ownership Limit nor any Existing Holder Limit may be
increased if, after giving effect to such increase, five (5) or fewer
Beneficial Owners of Capital Stock of the Corporation (including all of
the then Existing Holders) could Beneficially Own, in the aggregate, more
than 50.0% in number or value (determined as provided in the definition of
"Ownership Limit" in Paragraph (A) hereof) of the outstanding Capital
Stock of the Corporation.
2. Prior to the modification of any Existing Holder Limit or
Ownership Limit pursuant to Paragraphs (I) and (J) hereof, the Board of
Directors may require such opinions of counsel, affidavits, undertakings
or agreements as it may deem necessary or advisable in order to determine
or ensure the Corporation's status as a REIT.
3. No Existing Holder Limit shall be reduced to a percentage which
is less than the Ownership Limit.
(L) Exemptions. The Board of Directors may exempt a Person from the
Ownership Limit or the Existing Holder Limit, as the case may be, in its sole
and absolute discretion, upon receipt of evidence satisfactory to the Board of
Directors to the effect that such exemption will not result in the Corporation
being "closely held" within Section 856(h) of the Code, and upon such other
conditions as the Board of Directors may direct (including, without limitation,
representations, warranties and undertakings by the intended Transferee).
(M) Legend.
Each certificate for Capital Stock of the Corporation shall bear
substantially the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER FOR, AMONG OTHER THINGS, THE PURPOSE OF THE CORPORATION'S
MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE
INTERNAL REVENUE CODE OF 1986, OR ANY SUCCESSOR STATUTE. EXCEPT AS
OTHERWISE PROVIDED PURSUANT TO THE CHARTER OF THE CORPORATION, NO PERSON
(UNLESS SUCH PERSON IS AN EXISTING HOLDER) MAY BENEFICIALLY OWN CAPITAL
STOCK OF THE CORPORATION (WHICH INCLUDES OWNERSHIP BY ATTRIBUTION AS WELL
AS DIRECT OWNERSHIP) IN EXCESS OF THAT NUMBER OF SHARES OF CAPITAL STOCK
OF THE CORPORATION WHICH EQUALS 9.8% (OR SUCH GREATER PERCENTAGE AS MAY BE
DETERMINED BY THE BOARD OF DIRECTORS OF THE CORPORATION) OF THE LESSER OF
(A) THE NUMBER OF OUTSTANDING SHARES OF CAPITAL STOCK OF THE CORPORATION
AND (B) THE VALUE OF OUTSTANDING SHARES OF CAPITAL STOCK OF THE
CORPORATION. ANY PERSON WHO ATTEMPTS OR PROPOSES TO BENEFICIALLY OWN
CAPITAL STOCK OF THE
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CORPORATION IN EXCESS OF THE ABOVE LIMITATIONS MUST NOTIFY THE CORPORATION
IN WRITING AT LEAST FIFTEEN (15) CALENDAR DAYS PRIOR TO SUCH PROPOSED OR
ATTEMPTED TRANSFER. ALL ITALICIZED TERMS IN THIS LEGEND HAVE THE MEANINGS
SET FORTH IN THE CHARTER OF THE CORPORATION, A COPY OF WHICH, INCLUDING
THE RESTRICTIONS ON TRANSFER, WILL BE SENT WITHOUT CHARGE TO EACH
STOCKHOLDER WHO SO REQUESTS. IF THE RESTRICTIONS ON TRANSFER ARE VIOLATED,
THE TRANSFER WILL BE VOID AB INITIO AND THE SECURITIES REPRESENTED HEREBY
WILL BE DESIGNATED AND TREATED AS EXCESS STOCK WHICH WILL BE HELD IN A
SPECIAL TRUST.
(N) Severability. If any provision of this Article XI or any application
of any such provision is determined to be void, invalid or unenforceable by any
court having jurisdiction over the issue, the validity and enforceability of the
remaining provisions shall not be affected and other applications of such
provision shall be affected only to the extent necessary to comply with the
determination of such court.
(O) Special Trust for Excess Stock. Upon any purported Transfer or Event
that results in Excess Stock pursuant to Paragraph (M) hereof, such Excess Stock
shall be deemed to have been transferred to the Special Trustee of a Special
Trust for the benefit of such Beneficiary or Beneficiaries to whom an interest
in such Special Trust may later be transferred pursuant to Paragraph (S) hereof.
Excess Stock so held in trust shall be issued and outstanding Capital Stock of
the Corporation. The Purported Record Transferee or Purported Record Holder of
such Capital Stock shall have no rights in or to such Excess Stock except as
specifically provided herein. The Purported Beneficial Transferee or Purported
Beneficial Holder of such Capital Stock shall have no rights in or to such
Excess Stock except as specifically provided herein.
(P) Dividends for Excess Stock. The Purported Owner of Excess Stock shall
not be entitled to any dividends or other distributions with respect to such
Excess Stock. Any dividend or other distribution paid to a Purported Owner prior
to the discovery by the Corporation that Capital Stock of the Corporation has
become Excess Stock pursuant to this Article XI shall be repaid to the
Corporation by the Purported Owner immediately upon notification by the
Corporation that such dividend or other distribution was paid with respect to
Excess Stock, and such dividend or other distribution shall then be remitted by
the Corporation to the Special Trust. All dividends and other distributions
(other than those distributions of Corporation assets described in Paragraph (Q)
hereof) with respect to Excess Stock shall inure to the benefit of the
Beneficiaries.
(Q) Sales, Exchanges and Liquidating Distributions With Respect to Excess
Stock. Upon (a) the sale or exchange of Excess Stock by the Special Trustee, (b)
the voluntary or involuntary liquidation, dissolution or winding up of, or any
other distribution of all or substantially all of the assets of, the
Corporation, or (c) the purchase of Excess Stock by the Corporation pursuant to
Paragraph (T) hereof, the Special Trustee, as holder of the Excess Stock in
trust, shall, subject to the Purported Owner Limitation, distribute ratably
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to the Purported Owner(s), (i) in the case of any liquidation, dissolution or
winding up of, or any distribution of the assets of, the Corporation, any such
assets received in respect of the Excess Stock, (ii) in the case of a sale or
exchange of Excess Stock by the Special Trustee, the amounts received from such
sale or exchange, or (iii) in the case of any purchase of Excess Stock by the
Corporation pursuant to Paragraph (T) hereof, the net amounts received from such
purchase. Any assets or amounts received upon the sale, exchange or purchase by
the Corporation of Excess Stock, in excess of the Purported Owner Limitation,
shall be distributed to the Beneficiaries.
If, notwithstanding the foregoing, a Purported Owner receives an amount
from (i) the liquidation, dissolution or winding up of, or any distribution of
the assets of, the Corporation, (ii) the sale or exchange of Excess Stock or
(iii) the purchase of Excess Stock by the Corporation pursuant to Paragraph (T)
hereof, that exceeds the Purported Owner Limitation, such Purported Owner shall
pay such excess immediately to the Corporation, which shall remit such amount to
the Special Trustee.
(R) Voting Rights for Excess Stock. A Purported Owner of Excess Stock
shall not be entitled to vote on any matter and shall be deemed to have given to
the Special Trustee an irrevocable proxy, coupled with an interest, to vote the
Excess Stock. If a Purported Owner shall vote such Excess Stock before it is
discovered that such Capital Stock is Excess Stock, then the vote by such
Purported Owner shall be void ab initio.
(S) Non-Transferability of Excess Stock. Excess Stock shall not be
transferable by a Purported Owner. Subject to Paragraph (T) hereof, the Special
Trustee of any Excess Stock placed in a Special Trust may freely designate a
Beneficiary of an interest in the Special Trust representing such Excess Stock.
(T) Call by Corporation on Excess Stock. Excess Stock shall be deemed to
have been offered for sale to the Corporation or its designee(s) at a price per
share equal to: (A) in the case of Excess Stock resulting from a purported
Transfer, the lesser of (i) the price per share in such purported Transfer of
the Capital Stock of the Corporation that was converted into such Excess Stock
(or, in the case of a devise or gift, the Market Price at the time of such
devise or gift) and (ii) the Market Price on the date the Corporation or its
designee accepts such offer and (B) in the case of Excess Stock created by any
other Event, the lesser of (i) the Market Price of the Capital Stock that was
converted into such Excess Stock on the date of such conversion and (ii) the
Market Price of such Capital Stock of the Corporation on the date the
Corporation or its designee accepts such offer. The Corporation shall have the
right to accept such offer for a period of ninety (90) calendar days after the
later of (i) the date of the purported Transfer or other Event which resulted in
an exchange of Capital Stock for such Excess Stock and (ii) the date the Board
of Directors determines in good faith that a purported Transfer or other Event
resulting in an exchange of Capital Stock of the Corporation for such Excess
Stock has occurred, if the Corporation does not receive a notice of any such
Transfer pursuant to Paragraph (E) hereof.
(U) NYSE Settlements. Nothing in this Article XI shall preclude the
settlement of any transactions entered into through the facilities of the New
York Stock Exchange or
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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 XI and
any transferee in such a transaction shall be subject to all of the provisions
and limitations set forth in this Article XI.
ARTICLE XII
INDEMNIFICATION AND LIMITATION OF LIABILITY
(A) Mandatory Indemnification. The Corporation shall indemnify each person
who is or was, or has agreed to become, a director or officer of the Corporation
and each person who, while a director of the Corporation and, at the request of
the Corporation, is or was serving, or has agreed to serve, as a director,
officer, partner, joint venturer, trustee, employee or agent of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan against any and all liabilities and expenses incurred in connection
with each such person's services in such capacities to the maximum extent
permitted by the Maryland General Corporation Law, as from time to time amended.
(B) Discretionary Indemnification. If approved by the Board of Directors,
the Corporation may indemnify any of its employees or agents against any or all
liabilities and expenses incurred in connection with each such person's services
in such capacities and any of its employees, agents or other persons who are or
were serving, or who have agreed to serve, at the request of the Corporation, as
a director, officer, partner, joint venturer, trustee, employee or agent of
another corporation, partnership, joint venture, other enterprise or employee
benefit plan, to the extent and on such terms and subject to such conditions and
limitations, as determined to be appropriate by the Board of Directors.
(C) Advancing Expenses Prior to a Decision. The Corporation shall advance
expenses to its directors and officers entitled to mandatory indemnification to
the maximum extent permitted by the Maryland General Corporation Law and may, in
the discretion of the Board of Directors, advance expenses to employees, agents
and others who may be granted indemnification.
(D) Other Provisions for Indemnification. The Board of Directors may, by
Bylaw, resolution or agreement, make further provision for indemnification of
directors, officers, employees and agents and the advancement of expenses
thereto.
(E) Limitation of Liability of Directors and Officers. To the maximum
extent that limitations on the liability of directors and officers are permitted
by the Maryland General Corporation Law, as from time to time amended, no
director or officer of the Corporation shall have liability to the Corporation
or its stockholders for money damages. This limitation on liability applies to
events occurring at the time a person serves as a director or officer of the
Corporation whether or not such person is a director or officer at the time of
any proceeding in which liability is asserted.
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(F) Effect of Amendment or Repeal. No amendment or repeal of any section
of this Article XII, or the adoption of any provision of the Corporation's
Charter inconsistent with this Article XII, shall apply to or affect in any
respect the rights to indemnification or limitation of liability of any director
or officer of the Corporation with respect to any alleged act or omission which
occurred prior to such amendment, repeal or adoption.
ARTICLE XIII
CONFLICT WITH ARTICLES SUPPLEMENTARY
In the event of a conflict between the terms of (1) the Corporation's
Charter as in effect from time to time, other than the terms of any Articles
Supplementary of any class or series of Preferred Stock then outstanding, and
(2) any such Articles Supplementary, unless otherwise required by the applicable
provisions of Maryland law, this Charter or the express terms of such Articles
Supplementary, the terms of such Articles Supplementary shall govern and
control.
SECOND: The Corporation desires to amend and restate its Charter as
currently in effect. The provisions set forth in the above Articles of Amendment
and Restatement are all of the provisions of the Corporation's Charter currently
in effect as hereby amended.
THIRD: The amendment and restatement of the Charter of the Corporation
herein made was carried out pursuant to Section 3-301 of the Maryland General
Corporation Law. The amendment and restatement of the Charter of the Corporation
was (i) approved by the Board of Directors on __________, 2000, and (ii) carried
out pursuant to that certain Debtors' Third Amended Joint Plan of Reorganization
dated ________, 2000, and confirmed by order of the United States Bankruptcy
Court of the District of Maryland, Greenbelt Division, and entered on _______,
2000 in the Chapter 11 reorganization proceedings of the Corporation pending as
In re CRIIMI MAE Inc., et. al (Case Nos. 98-23115 through 98-23117 (Jointly
Administered).
FOURTH: The current address of the principal office of the Corporation is
11200 Rockville Pike, Rockville, Maryland 20852, and the Corporation's current
resident agent is Corporation Trust, Inc., whose address is 11200 Rockville
Pike, Rockville, Maryland 20852.
FIFTH: The Corporation currently has six (6) directors. The directors
currently in office are H. William Willoughby, William B. Dockser, G. Richard
Dunnells, Robert Woods, Robert Merrick and Garret B. Carlson.
SIXTH: These Articles of Amendment and Restatement increase the authorized
stock of the Corporation and the aggregate par value of such authorized stock.
Immediately before the amendment and restatement, the total number of shares of
all classes of stock of the Corporation heretofore authorized, and the number
and par value of the shares of each class were one hundred forty five million
(145,000,000) shares, of the par value of one cent ($0.01) each, of which one
hundred twenty million
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(120,000,000) shares were classified as Common Stock and twenty-five million
(25,000,000) shares were classified as Preferred Stock, of which three million
(3,000,000) shares were classified as Series B Preferred Stock, two hundred
three thousand (203,000) shares were classified as Series E Preferred Stock, and
one million six hundred ten thousand (1,610,000) shares were classified as
Series F Preferred Stock. The aggregate par value of all authorized shares
having par value was one million four hundred fifty thousand dollars
($1,450,000). As amended and restated, the total number of shares of all classes
of stock of the Corporation and the par value of such shares, are three hundred
seventy five million (375,000,000) shares, of the par value of one cent ($0.01)
each, of which three hundred million (300,000,000) shares are classified as
Common Stock and seventy five million (75,000,000) shares are classified as
Preferred Stock of which three million (3,000,000) shares are classified as
Series B Preferred Stock, two hundred three thousand (203,000) shares are
classified as Series E Preferred Stock, and one million six hundred ten thousand
(1,610,000) shares are classified as Series F Preferred Stock. The aggregate par
value of all authorized shares having par value is five million dollars
($3,750,000).
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IN WITNESS WHEREOF, CRIIMI MAE Inc. has caused the Articles of Amendment
and Restatement to be signed in its name and on its behalf by its Senior
Vice-President/General Counsel and attested by its Secretary on ___________,
2000.
CRIIMI MAE INC.
By: _______________________________
David B. Iannarone
Senior Vice-President/General Counsel
ATTEST:
_________________________
Secretary
H. William Willoughby
THE UNDERSIGNED, Senior Vice-President/General Counsel of CRIIMI MAE Inc.,
who executed on behalf of said Corporation the foregoing Articles of Amendment
and Restatement, of which this certificate is made a part, hereby acknowledges,
in the name and on behalf of said Corporation, the foregoing Articles of
Amendment and Restatement 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.
_______________________________________
David B. Iannarone
Senior Vice-President/General Counsel
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Exhibit A
[Insert preferences, etc. for the Series B Preferred Stock,
as amended by the Third Amended Joint Plan of Reorganization]
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Exhibit B
[Insert preferences, etc. for the Series E Preferred Stock,
as amended by the Third Amended Joint Plan of Reorganization]
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Exhibit C
[Insert preferences, etc. for the Series F Preferred Stock,
as amended by the Third Amended Joint Plan of Reorganization]
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EXHIBIT F
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
CRIIMI MAE INC.
(the "Corporation")
ARTICLE I
OFFICES
The Corporation may have such office(s) at such place(s), both within and
outside the State of Maryland, as the Board of Directors (the "Board") from time
to time determines or as the business of the Corporation from time to time
requires.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section l. Annual Meetings. Annual meetings of the stockholders of the
Corporation (the "Stockholders") shall be held at such time and place (within or
outside the State of Maryland) as shall be designated from time to time by the
Board and stated in the notice of the meeting. Subject to the Charter, at each
annual meeting Stockholders shall elect directors to succeed those whose terms
then expire and shall transact such other business as may properly be brought
before the meeting.
Section 2. Special Meetings. Except as otherwise prescribed by law, the
Charter or these Bylaws, special meetings of Stockholders for any purpose or
purposes may be called only by the Chairman of the Board, if there be one, the
President or the Board of Directors, and must be called by the Secretary upon
the written request of a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time of any such written request) or of Stockholders entitled to cast at
least 25 percent of all the votes entitled to be cast at the meeting. Requests
for special meetings shall state the purpose or purposes of the proposed meeting
and shall state that no other business shall be conducted. Special meetings of
Stockholders shall be held at such time and place (within or outside the State
of Maryland) as shall be designated by the Board.
Section 3. Notices of Annual and Special Meetings. Except as otherwise
prescribed by law, the Charter or these Bylaws, written notice of any annual or
special meeting of Stockholders shall state the place, date and time thereof
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, and shall be given to each Stockholder of record entitled to
vote at such meeting and to each other Stockholder entitled to notice of such
meeting not less than ten (10) nor more than ninety (90) days prior to the
meeting. Business transacted at a special meeting shall be confined to the
purpose or purposes stated in the notice of such meeting.
Section 4. Presiding Officers; Order of Business. At all meetings of
Stockholders, any Stockholder present and entitled to vote in person or by proxy
shall be
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entitled to require, by written request to the chairman of the meeting, that the
order of business shall be as follows:
(1) Organization.
(2) Proof of service of notice of meeting or of waivers thereof.
(The certificate of the Secretary of the Corporation, or the
affidavit of any other person who mailed or published the
notice or caused the same to be mailed or published, shall be
proof of service of such notice.)
(3) Submission by the Secretary of the Corporation of a list of
the Stockholders of record entitled to vote, present in person
or by proxy.
(4) Reading of unapproved minutes of preceding meetings of the
Stockholders and action thereon; provided that such reading
and action may be waived with respect to any or all such
unapproved minutes in the discretion of the chairman of the
meeting.
(5) Reports, if any, of officers.
(6) Election of directors to succeed those whose terms expired or
to fill vacancies otherwise existing on the Board of
Directors, if the meeting is an annual meeting or a special
meeting called for such purpose.
(7) Old business, if any.
(8) New business, if any.
(9) Adjournment.
Section 5. Quorum. At any meeting of Stockholders, the presence in person
or by proxy of Stockholders entitled to cast a majority of the votes thereat
shall constitute a quorum, except with respect to any matter which, under
applicable law or the Charter, requires approval by a separate vote of one or
more classes or series of stock, in which case the presence, in person or by
proxy, of Stockholders entitled to cast a majority of the votes of each class or
series required to vote as a class on the matter shall constitute a quorum. In
the absence of a quorum, the chairman of the meeting or the Stockholders present
in person or by proxy, by majority vote and without notice other than by
announcement at the meeting, may adjourn the meeting from time to time, but not
for a period exceeding one hundred twenty (120) days after the original record
date, until a quorum shall be present.
Section 6. Adjourned Meetings. A meeting of Stockholders convened on the
date for which it was called (including one adjourned to achieve a quorum as
above provided in Section 5 of this Article) may be adjourned from time to time
without further
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notice other than by announcement at the meeting to a date not more than one
hundred twenty (120) days after the original record date, and any business may
be transacted at any adjourned meeting which could have been transacted at the
meeting as originally called.
Section 7. Voting. When a quorum is present at any meeting of the
Stockholders, the affirmative vote of a majority of the votes cast or, with
respect to any matter requiring a class vote, the affirmative vote of a majority
of the votes cast by each class or series entitled to vote as a class on the
matter, shall decide any question brought before such meeting (except that
directors may be elected by the affirmative vote of a plurality of the votes
cast or the affirmative vote of a majority of the votes cast of each class or
series entitled to vote as a class with respect to a director, as the case may
be), unless the matter is one upon which by express provision of the Charter, a
different vote is required, in which case such express provision shall govern
and control the decision on such matter.
The Board of Directors may fix the record date for the determination of
Stockholders entitled to vote in the manner provided in Article VIII, Section 4
of these Bylaws.
Section 8. Advance Notice of Matters to be Presented at an Annual Meeting
of Stockholders. Subject to the express terms of the Articles Supplementary of
any class or series of preferred stock then outstanding, at an annual meeting of
the Stockholders, only such business shall be conducted as shall have been
properly brought before the annual meeting as set forth below. To be properly
brought before an annual meeting, such business must be (1) specified in the
notice of the annual meeting (or any supplement thereto) given by the
Corporation pursuant to Section 3 of Article II of these Bylaws, (2) brought
before the annual meeting by, on behalf of or under the direction of the Board
of Directors, the Chairman of the Board, if there be one, or the President, or
(3) properly brought before the annual meeting by a Stockholder entitled to vote
at the annual meeting.
In addition to any other applicable requirements including, without
limitation, any requirements imposed by the Securities Exchange Act of 1934, as
amended, the rules and regulations thereunder or any successor statute, rules or
regulations, for business properly to be brought before an annual meeting by a
Stockholder, the Stockholder must have given timely notice thereof in writing to
the Secretary. To be timely, such Stockholder's notice must be delivered or
mailed to and received by the Secretary at the principal executive offices of
the Corporation not earlier than the close of business on the 100th day and not
later than the close of business on the 90th day prior to the first anniversary
of the date of the notice of the annual meeting given by the Corporation
pursuant to Section 3 of Article II of these Bylaws and released to Stockholders
in connection with the prior year's annual meeting; provided, however, that in
the event that, during the prior year, the Corporation did not hold an annual
meeting, or if the date of the current year's annual meeting is more than thirty
(30) days from the first anniversary of the date of the prior year's annual
meeting (other than as a
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result of adjournment), then such Stockholder's notice must be delivered or
mailed to and received by the Secretary at the principal executive offices of
the Corporation not later than the later of the close of business on the 90th
day prior to such current year's annual meeting date or the 10th day following
the day on which public announcement of the date of the current year's annual
meeting is first made.
For purposes of this Section 8 and Section 9 of Article II of these
Bylaws, "public announcement" shall mean disclosure in a press release reported
by the Dow Jones News Service, Associated Press or comparable national news
service or in a document publicly filed by the Corporation with the Securities
and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities
Exchange Act of 1934, as amended or any successor statute thereto.
A Stockholder's notice to the Secretary shall set forth as to each
matter the Stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the records of the Corporation, of the
Stockholder proposing such business, (iii) the class (and series, if there be
one) and number of shares of the Corporation that are beneficially owned by the
Stockholder, (iv) proof of ownership of such shares and (v) any material direct
or indirect interest, financial or otherwise, of the Stockholder, its affiliates
or associates, in such business.
Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section 8 (and in accordance with any applicable
provisions of the securities laws of the United States or any other applicable
jurisdiction or the rules and regulations of any stock exchange or automated
quotation system on or in which the securities of the Corporation are traded or
listed for trading). The chairman of the annual meeting shall have the
authority, if the facts warrant, to determine that business was not properly
brought before the annual meeting in accordance with the provisions of this
Section 8, and if he should so determine, he shall so declare to the annual
meeting and any such business not properly brought before the annual meeting
shall not be transacted. Any such determination by the chairman of the annual
meeting shall be final, conclusive and binding.
Section 9. Advance Notice of Nominees for Director. Subject to the express
terms of the Articles Supplementary of any class or series of preferred stock
then outstanding, only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors at any meeting
of Stockholders. Nominations of persons for election to the Board of Directors
of the Corporation at an annual meeting of Stockholders or at a special meeting
of Stockholders as to which the notice of meeting provides for election of
directors may be made, (i) by or under the direction of the Board of Directors,
(ii) by any nominating committee or person appointed by the Board of Directors,
or (iii) by any Stockholder of the Corporation entitled to vote for the election
of directors at the meeting who complies with the notice procedures set
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forth in this Section 9. In addition to any other applicable requirements
including, without limitation, any requirements imposed by the Securities
Exchange Act of 1934, as amended, the rules and regulations thereunder or any
successor statute, rules or regulations, such nominations, other than those made
by or under the direction of the Board of Directors or by any nominating
committee or person appointed by the Board of Directors or those relating to the
rights of the holders of any class or series of preferred stock to nominate and
separately elect directors, must be made pursuant to timely notice in writing to
the Secretary.
In the event that such Stockholder notice pertains to an annual
meeting of Stockholders, to be timely, such notice must be delivered or mailed
to and received by the Secretary at the principal executive offices of the
Corporation not earlier than the close of business on the 100th day and not
later than the close of business on the 90th day prior to the first anniversary
of the date of the notice of the annual meeting given by the Corporation
pursuant to Section 4 of Article II of these Bylaws and released to Stockholders
in connection with the prior year's annual meeting; provided, however, that in
the event that, during the prior year, the Corporation did not hold an annual
meeting, or if the date of the current year's annual meeting is more than thirty
(30) days from the first anniversary of the date of the prior year's annual
meeting (other than as a result of adjournment), then such Stockholder's notice
must be delivered or mailed to and received by the Secretary at the principal
executive offices of the Corporation not later than the later of the close of
business on the 90th day prior to such current year's annual meeting or the 10th
day following the day on which public announcement of the date of such annual
meeting is first made.
In the event that such Stockholder's notice pertains to a special
meeting of Stockholders as to which the notice of meeting provides for election
of directors, to be timely, such Stockholder's notice must be delivered or
mailed to and received by the Secretary at the principal executive offices of
the Corporation not later than the 10th day following the day on which public
announcement of the date of such special meeting is first made.
Such Stockholder's notice shall set forth: (a) as to each person
whom the Stockholder proposes to nominate for election as a director, (i) the
name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class (and series,
if there be one) and number of shares of stock of the Corporation that are
beneficially owned by the person, and (iv) any other information relating to the
person that is required to be disclosed in or other documents required in
connection with solicitations of proxies for election of directors pursuant to
the Securities Exchange Act of 1934, as amended, the rules and regulations
thereunder or any successor statute, rules or regulations; and (b) as to the
Stockholder giving the notice, (i) the name and address of the Stockholder, as
they appear on the records of the Corporation, (ii) the class (and series, if
there be one) and number of shares of the Corporation that are beneficially
owned by the Stockholder and (iii) proof of ownership of such shares. The
Corporation may require any proposed nominee to furnish such other information
or documentation as may reasonably be required by the Corporation to determine
the
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eligibility of such proposed nominee to serve as a director of the Corporation
or to permit the Corporation to comply with applicable law.
Subject to the express terms of the Articles Supplementary of any
class or series of preferred stock then outstanding, no person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the procedures set forth herein. The chairman of the meeting at which the
election is taking place shall have the authority, in his sole discretion, if
the facts warrant, to determine that a nomination was not made in accordance
with the foregoing procedure, and if he should so determine, he shall so declare
to the meeting and the defective nomination shall be disregarded. Any such
determination by the chairman of such meeting shall be final, conclusive and
binding.
Section 10. Informal Action by Stockholders. Any action required or
permitted to be taken at any meeting of the Stockholders may be taken without a
meeting if a consent in writing setting forth such action is signed by all the
Stockholders entitled to vote thereon, a written waiver of any right to dissent
is signed by each Stockholder entitled to notice of, but not the right to vote
on, such action, and each such consent and waiver is filed with the records of
the Stockholders' meetings.
Section 11. Proxies. A Stockholder may vote its shares owned of record
either in person or by proxy. The proxy shall be in writing and shall be signed
by the Stockholder or by the Stockholder's duly authorized attorney-in-fact or
be in such other form as may be permitted by the Maryland General Corporation
Law, including documents conveyed by electronic transmission. A copy, facsimile
transmission or other reproduction of the writing or transmission may be
substituted for the original writing or transmission for any purpose for which
the original transmission could be used. Every proxy shall be dated, but need
not be sealed, witnessed or acknowledged. No proxy shall be valid after eleven
(11) months from its date, unless otherwise provided in the proxy. In the case
of stock held of record by more than one person, any co-owner or co-fiduciary
may execute the proxy without the joinder of the co-owner(s) or co-fiduciary
(ies), unless the Secretary of the Corporation is notified in writing by any
co-owner or co-fiduciary that the joinder of more than one is to be required. At
all meetings of Stockholders, the proxies shall be filed with and verified by
the Secretary of the Corporation, or, if the chairman of the meeting shall so
direct, by the secretary of the meeting.
ARTICLE III
DIRECTORS
Section 1. General Powers; Number; Tenure. The business and affairs of the
Corporation shall be managed under the direction of the Board, which may
exercise all powers of the Corporation and perform or authorize the performance
of all lawful acts and things which are not by law, the Charter or these Bylaws
directed or required to be exercised or performed by the Stockholders. Subject
to the express terms of the Articles Supplementary of any class or series of
preferred stock then outstanding, the number of directors of the Corporation
shall be in fixed accordance with the terms and provisions set
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forth in the Charter. The directors shall be divided into three (3) classes, as
nearly equal in number as reasonably possible, with the term of office of one
class to expire at the 2001 annual meeting of Stockholders, the term of office
of another class to expire at the 2002 annual meeting of Stockholders and the
term of office of the remaining class to expire at the 2003 annual meeting of
Stockholders. At each annual meeting of Stockholders following such initial
classification, directors elected to succeed those directors whose terms then
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of Stockholders after their election and when their respective
successors are elected and qualified. Directors need not be Stockholders of the
Corporation or residents of the State of Maryland.
Section 2. Unaffiliated Directors. Except when one or more vacancies
exist, at least a majority of the entire Board and a majority of every committee
of the Board shall be Unaffiliated Directors. Unaffiliated Directors are those
directors who do not perform any services for the Corporation, other than as
directors, and who are not directors, officers or employees of C.R.I., Inc., a
Delaware corporation.
Section 3. Vacancies and Newly Created Directorships. Subject to the
express terms of the Articles Supplementary of any class or series of preferred
stock then outstanding, any vacancy in the Board of Directors as a result of any
reason and any newly created directorship resulting by any increase in the
number of directors shall be filled in accordance with the terms and provisions
set forth in the Charter.
Section 4. Removal; Resignation. (a) Any director or directors may be
removed in accordance with the terms and provisions set forth in the Charter.
(b) Any director may resign at any time by giving written notice to
the Board, the Chairman of the Board (if there be one), the President, or the
Secretary of the Corporation. Unless otherwise specified in such written notice,
a resignation shall take effect upon delivery thereof to the Board or the
designated officer. A resignation need not be accepted in order for it to be
effective.
Section 5. Place of Meetings. The Board of Directors may hold both regular
and special meetings either within or outside the State of Maryland, at such
time and place as the Board from time to time determines or, in the absence of
such determination, as the party calling the meeting may fix.
Section 6. Annual Meeting; Regular Meetings. The annual meeting of each
newly elected Board shall be held as soon as is practicable following the annual
meeting of the Stockholders, and no notice to the newly elected directors of
such meeting shall be necessary for such meeting to be lawful, provided a quorum
is present thereat. Additional regular meetings of the Board may be held, at
such time and place as from time to time may be determined by the Board and upon
such notice as may be required by these Bylaws.
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Section 7. Special Meetings. Special meetings of the Board may be called
by the Chairman of the Board (if there be one), by the President or by any three
(3) directors, subject to the express terms of the Articles Supplementary of any
class or series of preferred stock then outstanding.
Section 8. Quorum; Adjournments. A majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time of any such meeting) shall constitute a
quorum for the transaction of business at each and every meeting of the Board,
and subject to the express terms of the Articles Supplementary of any class or
series of preferred stock then outstanding, the act of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the Board of Directors, except as may otherwise specifically be provided by
law, the Charter or these Bylaws. If a quorum is not present at any meeting of
the Board, the directors present may adjourn the meeting, from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
Section 9. Notice of Meetings. To the extent practicable, at least
twenty-four (24) hours notice shall be given of all meetings of the Board,
except as provided in Section 6 of this Article III and except that any meeting
of the Board held pursuant to a prior resolution of the Board shall require no
additional notice. The purpose of any regular meeting of the Board of Directors
need not be stated in the notice thereof. All annual and regular meetings of the
Board of Directors shall be general meetings, and any and all business may be
transacted thereat whether or not stated in the notice thereof. Unless otherwise
indicated in the notice thereof, all special meetings of the Board of Directors
shall be general meetings, and any and all business may be transacted thereat
whether or not stated in the notice thereof.
Section 10. Compensation. Directors shall be entitled to such compensation
for their services as directors as from time to time may be fixed by the Board
including, without limitation, for their services as members of committees of
the Board, and in any event shall be entitled to reimbursement of all reasonable
expenses incurred by them in attending meetings of the Board of Directors or any
committee(s) of which they are members. Any director may waive any retainer for
service as a director or compensation for any meeting. No director who receives
compensation as a director shall be barred from serving the Corporation in any
other capacity or from receiving compensation and reimbursement of reasonable
expenses for service in such other capacities.
Section 11. Informal Action by Directors. Any action required or permitted
to be taken at any meeting of the Board may be taken without a meeting if a
written consent to such action is signed by all members of the Board, and each
such consent is filed with the minutes of the Board.
Section 12. Meetings by Telephone or Similar Communications. The directors
may participate in meetings by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other
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at the same time. Participation in any such meeting shall constitute presence in
person by such director at such meeting.
ARTICLE IV
COMMITTEES
Section 1. Formation of Committees; Quorum. Subject to the express terms
of the Articles Supplementary of any class or series of preferred stock then
outstanding, the Board of Directors may appoint from among its members an
executive committee and other committees of the Board of Directors, each
committee to be composed of one (1) or more of the directors of the Corporation.
Except when one or more vacancies exist, at least a majority of the directors of
each committee shall be Unaffiliated Directors; provided, however, that subject
to the express terms of the Articles Supplementary of any class or series of
preferred stock then outstanding, any pricing committee or any transactional
committee formed from time to time may be comprised of any directors designated
by the Board. The Board of Directors, subject to the express terms of the
Articles Supplementary of any class or series of preferred stock then
outstanding, may delegate to such committees any of the powers of the Board of
Directors except those which may not by law be delegated to a committee. Such
committee or committees shall have the name or names as may be determined from
time to time by resolution adopted by the Board of Directors. Unless the Board
of Directors designates one or more directors as alternate members of any
committee to replace an absent or disqualified member of a committee at any
meeting of that committee, subject to the express terms of the Articles
Supplementary of any class or series of preferred stock then outstanding, the
members of any such committee present at any meeting and not disqualified from
voting may, whether or not they constitute a quorum, appoint another member of
the Board of Directors to act at the meeting in the place of any absent or
disqualified member of such committee. At meetings of any such committee, a
majority of members, including any alternate members of such committee to the
extent provided by the Board or selected by the other members of the committee
as provided above, shall constitute a quorum for the transaction of business,
and the act of the majority of such members and alternate members present at any
meeting at which a quorum is present shall be the act of the committee.
Section 2. Minutes of Committee Meetings. Each committee shall keep
regular minutes of its proceedings, which shall be filed with the minutes of the
Board.
Section 3. Compensation; Informal Action by Committees; Meetings by
Telephone or Similar Communications. Unless otherwise prohibited by law, the
provisions of Article III Sections 11 (Compensation), 12 (Informal Action by
Directors) and 13 (Meetings by Telephone or Similar Communications) shall apply
to any committees from time to time created by the Board.
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ARTICLE V
OFFICERS
Section 1. Positions. The Board of Directors may elect a Chairman of the
Board from among the directors. The Board of Directors shall elect a President,
a Treasurer and Secretary, and may elect one or more Vice Presidents, Assistant
Secretaries, Assistant Treasurers and other officers, employees and /or agents
of the Corporation, and with such powers and duties, as the Board from time to
time deems necessary or appropriate. The Board may delegate to the Chairman of
the Board, if there be one, or the President of the Corporation, the authority
to appoint any officer or agent of the Corporation and to fill any vacancy in
the office of any officer, other than those of the Chairman of the Board,
President, Treasurer and Secretary; provided, however, that the Board shall at
all times retain the right to fill any vacancy or to remove any officer
appointed pursuant to such delegated authority, in each case by resolution of
the Board. Any two offices, except those of President and Vice President, may be
held by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity when such instrument is required to be
executed, acknowledged or verified by any two or more officers. In its
discretion, the Board of Directors may leave unfilled any offices except those
of President, Treasurer and Secretary. All officers shall hold office at the
pleasure of the Board and for such terms as the Board or the officer appointing
a subordinate officer, as the case may be, determines, which terms may exceed
the term of the Board or the officer making such appointment, or until their
respective successors are chosen and qualify.
Section 2. Chairman of the Board. The Chairman of the Board, if one is
elected, shall have the responsibility for the implementation of the policies
determined by the Board of Directors and for the administration of the business
affairs of the Corporation. The Chairman, if there be one, shall preside over
the meetings of the Board and of the Stockholders if present at the meeting. The
Chairman, if there be one, shall be the Chief Executive Officer of the
Corporation.
Section 3. President. The President shall be the Chief Executive Officer
of the Corporation unless there is a Chairman of the Board elected by the Board,
in which case the President shall be the Chief Operating Officer. The President
shall have the responsibility for the active management of the business and
general supervision and direction of all of the affairs of the Corporation. In
the absence of the Chairman of the Board (or if none shall be elected), the
President shall preside over the meetings of the Board and of the Stockholders
if present at the meeting, and shall perform such other duties as may be
assigned by the Board of Directors or any executive committee. The President
shall have the authority, on the Corporation's behalf, to endorse securities
owned by the Corporation and to execute any documents requiring the signature of
an executive officer. The President shall perform such other duties as the Board
of Directors may direct.
Section 4. Vice Presidents. The Vice Presidents, in the order of priority
designated by the Board of Directors (or if not designated, in order of their
seniority as
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vice presidents), shall be vested with all the power and may perform all the
duties of the President in the latter's absence. They may perform such other
duties as may be prescribed by the Board of Directors, any executive committee,
the President or the Chairman of the Board, if there be one.
Section 5. Treasurer. Unless the Board designates another officer, the
Treasurer shall be the Chief Financial Officer of the Corporation. The Treasurer
shall have general supervision over the Corporation's finances, and shall
perform such other duties as may be assigned by the Board of Directors, the
President or the Chairman of the Board, if there be one. If required by
resolution of the Board, the Treasurer shall furnish a bond (which may be a
blanket bond) with such surety and in such penalty for the faithful performance
of duty as the Board of Directors may from time to time require, the cost of
such bond to be paid by the Corporation.
Section 6. Secretary. The Secretary shall keep the minutes of the meetings
of the Stockholders and of the Board of Directors and shall attend to the giving
and serving of all notices of the Corporation required by law, the Charter or
these Bylaws. The Secretary shall maintain at all times in the principal office
of the Corporation at least one copy of the Bylaws with all amendments to date,
and shall make the same, together with the minutes of meetings of the
Stockholders, the annual statement of affairs of the Corporation and any voting
trust or other Stockholders agreement on file at the office of the Corporation,
available for inspection by any officer, director or Stockholder during
reasonable business hours. The Secretary shall perform such other duties as may
be assigned by the Board of Directors, the President or the Chairman of the
Board, if there be one.
Section 8. Assistant Treasurer(s) and Secretary/ies. The Board of
Directors may designate, or may delegate to the Chairman of the Board, if there
be one, or the President of the Corporation the authority to designate, from
time to time Assistant Treasurers and Assistant Secretaries, who shall perform
such duties as may from time to time be assigned to them by the Board of
Directors, the President or the Chairman of the Board, if there be one.
Section 9. Compensation; Removal; Vacancies. The Board of Directors shall
have power to fix the compensation of all officers of the Corporation. It may
authorize any committee or officer upon whom the power to appoint subordinate
officers may have been conferred to fix the compensation of such subordinate
officers. The Board of Directors shall have the power, at any regular or special
meeting, to remove any officer if, in the judgment of the Board, the best
interests of the Corporation will be served by such removal. The Board of
Directors may authorize any officer to remove subordinate officers. The removal
of any officer shall not prejudice any contract rights thereof. The Board of
Directors, at any regular or special meeting, shall have power to fill a vacancy
occurring in any office.
Section 10. Substitutes. The Board of Directors may, from time to time in
the absence of any one of its officers or at any other time, designate any other
person or
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persons on behalf of the Corporation to sign any contracts, deeds, notes or
other instruments in the place or stead of any of such officers, and may
designate any person to fill any of said offices, temporarily or for any
particular purpose; and any instrument so signed in accordance with a resolution
of the Board shall be the valid act of the Corporation as fully as if executed
by any regular officer.
ARTICLE VI
NOTICES
Section 1. Notice to Stockholders. Whenever by law, the Charter or these
Bylaws notice is required to be given to any Stockholder, such notice shall be
in writing and may be given to each Stockholder by personal delivery to the
Stockholder at the Stockholder's residence or usual place of business, by
leaving the notice at such residence or usual place of business, by electronic
mail to any electronic mail address of the Stockholder or any other electronic
means, or by mailing it, postage prepaid, and addressed to the Stockholder at
the address appearing on the books of the Corporation or its transfer agent.
Such delivery, leaving, electronic transmission or mailing of notice shall be
deemed the time of giving such notice.
Section 2. Notice to Directors. Whenever by law, the Charter or these
Bylaws notice is required to be given to any director, such notice may be given
in any one of the following ways: by personal delivery, by personal voice
telephone communication or by telephone facsimile transmission, by telegram,
cablegram, telex, first class mail, electronic mail or by delivery service
providing confirmation of delivery, addressed to such director at the address
therefor appearing on the books of the Corporation. The time when such notice
shall be consigned to a communication company for delivery or when it shall be
transmitted by telephone, telephone facsimile, telegram, cablegram, telex or
electronic mail shall be deemed to be the time of the giving of such notice; if
given by delivery service, such notice shall be deemed given the business day
following the date of consignment to such delivery service; and, if mailed, such
notice shall be deemed given forty-eight (48) hours after the time it is
deposited in the mail, postage prepaid.
Section 3. Waiver of Notice. Notice to any Stockholder or director of the
time, place and/or purpose of any meeting of Stockholders or directors or of any
committee of the Board required by law or by these Bylaws may be dispensed with
if such Stockholder shall attend in person or by proxy, or if such director
shall attend in person, as the case may be, or if such absent Stockholder or
director shall, in writing filed with the records of the meeting either before
or after the holding thereof, waive such notice.
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ARTICLE VII
INDEMNIFICATION AND LIMITATION OF LIABILITY
(A) Mandatory Indemnification. The Corporation shall indemnify each person
who is or was, or has agreed to become, a director or officer of the Corporation
and each person who, while a director of the Corporation and, at the request of
the Corporation, is or was serving, or has agreed to serve, as a director,
officer, partner, joint venturer, trustee, employee or agent of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan against any and all liabilities and expenses incurred in connection
with each such person's services in such capacities to the maximum extent
permitted by the Maryland General Corporation Law, as from time to time amended.
(B) Discretionary Indemnification. If approved by the Board of Directors,
the Corporation may indemnify any of its employees or agents against any or all
liabilities and expenses incurred in connection with each such person's services
in such capacities and any of its employees, agents or other persons who are or
were serving, or who have agreed to serve, at the request of the Corporation, as
a director, officer, partner, joint venturer, trustee, employee or agent of
another corporation, partnership, joint venture, other enterprise or employee
benefit plan, to the extent and on such terms and subject to such conditions and
limitations, as determined to be appropriate by the Board of Directors.
(C) Advancing Expenses Prior to a Decision. The Corporation shall advance
expenses to its directors and officers entitled to mandatory indemnification to
the maximum extent permitted by the Maryland General Corporation Law and may, in
the discretion of the Board of Directors, advance expenses to employees, agents
and others who may be granted indemnification.
(D) Other Provisions for Indemnification. The Board of Directors may, by
Bylaw, resolution or agreement, make further provision for indemnification of
directors, officers, employees and agents and the advancement of expenses
thereto.
(E) Limitation of Liability of Directors and Officers. To the maximum
extent that limitations on the liability of directors and officers are permitted
by the Maryland General Corporation Law, as from time to time amended, no
director or officer of the Corporation shall have liability to the Corporation
or its stockholders for money damages. This limitation on liability applies to
events occurring at the time a person serves as a director or officer of the
Corporation whether or not such person is a director or officer at the time of
any proceeding in which liability is asserted.
(F) Insurance. The Corporation shall maintain insurance to the extent
reasonably available, at its expense, to protect itself and any director,
officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Maryland
General Corporation Law.
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(F) Effect of Amendment or Repeal. No amendment or repeal of any section
of this Article VII, whether by action of the Board of Directors or the
Stockholders, shall apply to or affect in any respect the rights to
indemnification or limitation of liability of any director or officer of the
Corporation with respect to any alleged act or omission which occurred prior to
such amendment, repeal or adoption.
ARTICLE VIII
STOCK
Section 1. Issue. Each Stockholder shall be entitled to a certificate or
certificates which shall represent and certify the number and class of shares of
stock owned in the Corporation. Each certificate shall be signed by the Chairman
of the Board, the President or any Vice President and be countersigned by the
Secretary or any Assistant Secretary or the Treasurer or any Assistant
Treasurer. The signatures of the Corporation's officers and its corporate seal
appearing on stock certificates may be facsimiles if each such certificate is
authenticated by the manual signature of an officer of a duly authorized
transfer agent. Stock certificates shall be in such form, not inconsistent with
law and the Charter, as shall be approved by the Board of Directors. In case any
officer of the Corporation who has signed any certificate ceases to be an
officer of the Corporation, whether by reason of death, resignation or
otherwise, before such certificate is issued, then the certificate may
nevertheless be issued by the Corporation with the same effect as if the officer
had not ceased to be such officer as of the date of such issuance.
Section 2. Transfers. The Board of Directors shall have power and
authority to make all such rules and regulations as the Board may deem expedient
concerning the issue, transfer and registration of stock certificates. The Board
of Directors may appoint one or more transfer agents and/or registrars for its
outstanding stock, and their duties may be combined. No transfer of stock shall
be recognized or binding upon the Corporation until recorded on the books of the
Corporation, or, as the case may be, of its transfer agent and/or of its
registrar, upon surrender and cancellation of a certificate or certificates for
a like number of
Section 3. Record Dates for Dividends and Stockholders' Meeting. The Board
of Directors may fix a date not exceeding ninety (90) days preceding the date of
any meeting of Stockholders, any dividend payment date or any date for the
allotment of rights, as a record date for the determination of the Stockholders
entitled to notice of and to vote at such meeting, or entitled to receive such
dividends or rights, as the case may be, and only Stockholders of record on such
date shall be entitled to notice of and to vote at such meeting or to receive
such dividends or rights, as the case may be. In the case of
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a meeting of Stockholders, the record date shall be fixed not less than ten (10)
days prior to the date of the meeting.
Section 4. Lost, Stolen or Destroyed Certificate. The Board may direct a
new certificate to be issued in place of any certificate theretofore issued by
the Corporation which is claimed to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board, in its discretion, may require as a condition precedent
to issuance that the owner of such lost, stolen or destroyed certificate, or his
or her legal representative, advertise the same in such manner as the Board
shall require and/or to give the Corporation a bond in such sum, or other
security in such form, as the Board may direct, as indemnity against any claim
that may be made against the Corporation with respect to the certificate claimed
to have been lost, stolen or destroyed.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be as
determined from time to time by the Board.
Section 2. Seal. The corporate seal shall have inscribed thereon the name
of the Corporation, the year of its incorporation and the words "Corporate Seal"
and "Maryland."
Section 3. Action with Respect to Securities of Other Entities. Unless
otherwise directed by the Board, the President or the Chairman of the Board, if
there be one, or any officer of the Corporation authorized by the President or
the Chairman of the Board shall have power to vote and otherwise act on behalf
of the Corporation, in person or by proxy, at any meeting of stockholders or
other security holders of or with respect to any action of stockholders or other
security holders of any other corporation or other entity in which this
Corporation may hold securities and otherwise to exercise any and all rights and
powers which this Corporation may possess by reason of its ownership of
securities in such other corporation.
Section 4. Amendment of the Bylaws. Subject to the express terms of
the Articles Supplementary of any class or series of preferred stock then
outstanding, these Bylaws may be added to, altered, amended, repealed or
suspended by a vote of a majority of the Board of Directors at any regular or
special meeting of the Board at which a quorum is present, but the Stockholders
may make additional Bylaws and may alter, repeal or suspend any Bylaws, whether
adopted by them or otherwise, upon the affirmative vote of the holders of at
least 66-2/3% of the voting power of all the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
the directors, voting together as a single class; provided, however, that no
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Bylaws so made shall serve to invalidate any prior action of the Board which
would have been valid if such Bylaw had not been made.
Section 5. Control Share Law. Any acquisition of any shares of stock of
the Corporation, including any acquisition of voting rights or other interests
in any such stock, shall be exempt from the provisions of Title 3, Subtitle 7 of
the Maryland General Corporation Law (Voting Rights of Certain Control Shares).
Accordingly, the provisions of Title 3, Subtitle 7 of the Maryland General
Corporation Law shall not apply to this Corporation.
Section 6. Conflict with Articles Supplementary. In the event of a
conflict between the terms of these Bylaws and of the Articles Supplementary of
any class or series of preferred stock then outstanding, unless otherwise
required by law or provided by the express terms of such Articles Supplementary,
the terms of such Articles Supplementary shall govern and control.
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EXHIBIT G
<PAGE>
SECOND AMENDED AND RESTATED CRIIMI MAE INC.
STOCK OPTION PLAN FOR KEY EMPLOYEES
1. PURPOSE. This Amended and Restated Stock Option Plan for Key Employees
(this "Plan") for CRIIMI MAE Inc. (the "Company") and its subsidiaries, is
intended to provide opportunities to purchase shares (each, an "Option") of the
Company's common stock (the "Common Stock") to (a) persons holding the executive
position of vice president or more senior of the Company and its subsidiaries
and (b) other employees of the Company and its subsidiaries who are otherwise
designated by the Stock Option Committee (the "Committee") as key employees
(each of (a) and (b), an "Eligible Employee"). This Plan as originally adopted
became effective on June 30, 1995. This Plan was amended and restated effective
as of July 28, 1995, was further amended effective May 12, 1998 and is further
amended and restated to be effective as of the effective date of the Company's
Second Amended Joint Plan of Reorganization (the "Plan of Reorganization");
provided that the holders of Common Stock have voted to accept the Plan of
Reorganization.
2. GENERAL ADMINISTRATION.
A. Committee Members. This Plan shall be administered by a committee
(the "Committee") consisting of not fewer than two members of the Board of
Directors (the "Board") of the Company who are appointed by the Board to
administer the Plan and to perform the functions set forth herein and who are
"non-employee directors" within the meaning of Rule 16b-3 as promulgated under
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and who are also "outside directors" within the meaning of Section 162(m)
of the Code.
B. Authority of Committee. The Committee shall have the authority
(i) to exercise all of the powers granted to it under this Plan; (ii) to
construe, interpret and implement this Plan and any Option Agreements executed
pursuant to Section 7 below; (iii) to prescribe, amend and rescind rules and
regulations relating to this Plan, including rules governing the Committee's own
operations; (iv) to make all determinations necessary or advisable in
administering this Plan; (v) to correct any defect, supply any omission and
reconcile any inconsistency in this Plan; and (vi) to amend this Plan to reflect
changes in applicable law. Further, the Committee may delegate to officers or
employees of the Company or any subsidiary, and to service providers, the
authority, subject to such terms as the Committee shall determine, to perform
administrative functions with respect to the Plan and Option Agreements.
C. Majority Vote. Actions of the Committee shall be taken by the
affirmative vote of a majority of the Committee members. Any action may be taken
by an instrument signed by a majority of the Committee members, and action so
taken shall be fully as effective as if such action had been taken by a vote at
a Committee meeting.
D. Binding Determination. The determination of the Committee on all
matters relating to this Plan or any Option Agreement shall be final, binding
and conclusive.
<PAGE>
E. No Liability. No Committee member shall be liable for any action
or determination made in good faith with respect to this Plan, including any
Option, and each Committee member shall, to the extent permitted by law, be
fully indemnified by the Company with respect to any such action or
determination.
F. Definitions. As used in this Plan, the following words and
phrases shall have the meanings indicated:
(1) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(2) "Fair Market Value" per share as of a particular date
shall mean the closing sales price per share of Common Stock on the principal
national securities exchange on which the shares of Common Stock shall then be
listed for the last preceding date on which there was a sale of such Common
Stock on such exchange.
(3) "Incentive Stock Option" means one or more options to
purchase Common Stock which, at the time such options are granted under this
Plan or any other such plan of the Company, qualify as incentive stock options
under Section 422 of the Code.
3. ELIGIBILITY. Only Eligible Employees may receive Options. The Committee
has discretion to select from the Eligible Employees those who will be granted
Options.
4. OPTIONS. Options may be granted at any time prior to June 30, 2002 to
each Eligible Employee selected by the Committee (upon the grant of such Option,
each an "Optionee"), in such numbers of shares as may be determined by the
Committee. At the time of the grant of each Option under the Plan, the Committee
shall determine whether such Option is to be designated an Incentive Stock
Option.
5. COMMON STOCK.
A. Type of Stock. The stock subject to the Options shall be Common
Stock.
B. Number of Shares. The total number of shares of Common Stock with
respect to which Options may be granted shall not exceed 4,500,000. Subject to
adjustment in accordance with the provisions of this Section 5, no Eligible
Employee shall be granted, during any calendar year, Options to purchase more
than 1,000,000 shares of Common Stock. Common Stock issued pursuant to this Plan
may be authorized but unissued Common Stock or authorized and issued Common
Stock held in the Company's treasury or acquired by the Company for the purposes
of this Plan. The Committee may direct that any certificate evidencing Common
Stock issued pursuant to this Plan shall bear a legend setting forth such
restrictions on transferability as may apply to such shares.
C. Change in Number of Shares. If there is any change in the number
of outstanding shares of Common Stock through the declaration of stock
dividends, recapitalization resulting in stock splits, or combinations or
exchanges of such shares, then the number of shares
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of Common Stock available for each outstanding Option and the number of such
shares covered by each outstanding Option, and the "Option Price" (as such term
is defined below) per share under each outstanding Option, shall be
proportionately adjusted to reflect any increase or decrease in the number of
issued shares of Common Stock; provided however, that any fractional shares
resulting from any such adjustment shall be eliminated.
D. Dissolution or Liquidation. In the event of a proposed
dissolution or liquidation of the Company, each outstanding Option granted under
this Plan shall terminate as of a date to be fixed by the Committee; provided
however, that the Optionee shall have the right, immediately prior to such
termination, to exercise such outstanding Options as to all or any part of the
shares of Common Stock covered thereby, including shares as to which such
outstanding Options would not otherwise be exercisable.
E. Corporate Reorganization. If there is any change in the number of
outstanding shares of Common Stock by reason of merger, consolidation, spinoff
or other corporate reorganization in which the Company is the surviving
corporation, the number of shares of Common Stock available for issuance both in
the aggregate and with respect to each outstanding Option, and the Option Price
per share under each outstanding Option, shall be equitably adjusted by the
Committee, whose determination shall be final, binding and conclusive. In the
event of any merger, consolidation or combination of the Company with or into
another corporation (other than a merger, consolidation or combination in which
the Company is the surviving corporation and which does not result in any
reclassification or other change in the number of outstanding shares of Common
Stock), the Optionee shall have the right thereafter and during the term of each
such Option to receive, after such Option is duly exercised in accordance with
the terms of the related Option Agreement and this Plan for each share of Common
Stock as to which the Option shall be exercised, the kind and amount of shares
of the surviving or new corporation, cash, securities, evidence of indebtedness,
other property or any combination thereof which would have been received upon
such merger, consolidation or combination by the holder of one share of Common
Stock immediately prior to such merger, consolidation or combination.
F. Change in Common Stock. In the event of a change in the Common
Stock as presently constituted, which is limited to a change of all of its
authorized shares with par value into the same number of shares with a different
par value or without par value, the shares resulting from any such change shall
be deemed to be Common Stock within the meaning of this Plan.
G. Adjustments by Committee. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Committee, whose determination in that respect shall be final,
binding and conclusive; provided however, that each Option granted under this
Plan and designated an Incentive Stock Option shall not be adjusted in a manner
that causes the Option to fail to continue to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code.
H. No Other Rights. Except as expressly provided in this Section 5,
the Optionee shall have no rights by reason of any subdivision or consolidation
of shares of stock of
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any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any dissolution,
liquidation, merger, or consolidation, and any issue by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number of shares of Common Stock subject to an Option. The grant of
Options under this Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of or
in its capital or business structure, to merge or consolidate, to dissolve or
liquidate or to sell or transfer all or any part of its business or assets.
6. RIGHTS AS A SHAREHOLDER. The Optionee or a permitted transferee of an
Option shall have no rights as a shareholder with respect to any shares covered
by the Option until the date of the issuance of a stock certificate to the
Optionee or permitted transferee for such shares. No adjustments shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Section 5
above.
7. TERMS AND CONDITIONS OF OPTIONS. Each Option granted shall be evidenced
by an Option Agreement in such form as the Committee may from time to time
approve. By executing an Option Agreement, an Optionee thereby agrees that the
Option shall be subject to the provisions of such Option Agreement and this
Plan. Options shall comply with and be subject to the following terms and
conditions:
A. Option Price. The purchase price (the "Option Price") shall be
stated in the Option Agreement and shall be (i) $9.77 for Options granted under
this Plan prior to July 28, 1995 and (ii) not less than the Fair Market Value of
the Common Stock on the date of grant of the Option for all Options granted
under this Plan on or after July 28, 1995.
B. Incentive Stock Options - Value of Common Stock. Options may be
granted to any Eligible Employee; provided however, that the aggregate fair
market value (determined at the time the Option is granted) of the Common Stock
with respect to which Options that qualify as Incentive Stock Options are
exercisable by the Optionee for the first time during any calendar year (under
all the plans of the Company and its parent, if any, and subsidiaries) may not
exceed One Hundred Thousand Dollars ($100,000).
C. Medium and Time of Payment. The Option Price shall be paid in
full, at the time of exercise, in cash or, with the prior approval of the
Company, in Common Stock held by the Optionee having a Fair Market Value in the
aggregate equal to such Option Price or in a combination of cash and shares of
Common Stock.
D. Number of Option Shares. The number of shares of Common Stock
covered by an Option and available to be purchased by an Optionee ("Option
Shares") shall be as set forth in such Optionee's Option Agreement. No Option
may be exercised at any one (1) time for less than one hundred (100) shares of
Common Stock, unless the number of Option Shares remaining to be purchased is
fewer than one hundred (100), in which case the last Option shall be to purchase
all of the remaining Option Shares.
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E. Term and Exercise of Options. Each Option shall become vested and
exercisable in accordance with the terms set forth in the Optionee's Option
Agreement. Once exercisable, an Option may thereafter be exercised at any time
or from time to time prior to the close of business on the day before the eighth
anniversary after the Option is granted.
8. TERMINATION OF EMPLOYMENT. The effect of the termination of an
Optionee's employment shall be as set forth in such Optionee's Option Agreement
with the Company.
9. NO GRANT OF OTHER RIGHTS. Nothing in this Plan shall confer upon the
Optionee any right to continue in the employ of CRIIMI MAE Management, Inc.
("CRIIMI Management"), the Company or any of its other subsidiaries, or
interfere in any way with the right of CRIIMI Management, the Company or any of
its other subsidiaries to terminate such employment at any time.
10. RESTRICTIONS.
A. Non-Transferability of Options. The Options shall not be
transferable other than by will or by the laws of descent and distribution, and,
during an Optionee's lifetime, each Option may be exercised only by the
Optionee, or upon adjudication of the Optionee's mental incapacity, by the
Optionee's legally appointed representative.
B. Consent to Plan Action. If the Committee shall at any time
determine that any "Consent" (as such term is defined below) is necessary or
desirable as a condition of, or in connection with, the granting of any Option,
the issuance or purchase of Common Stock or other rights thereunder, or the
taking of any other action thereunder (each such action being a "Plan Action"),
then such Plan Action shall not be taken, in whole or in part, unless and until
such Consent shall have been effected or obtained to the Committee's full
satisfaction.
C. Definition of Consent. The term "Consent" as used in this Plan
with respect to any Plan Action means (i) any and all listings, registrations or
qualifications in respect thereof upon any inter-dealer quotation system of a
registered national securities association or any national securities exchange
or under any federal, state or local law, rule or regulation, (ii) any and all
written agreements and representations by the Optionee with respect to the
disposition of Common Stock, or with respect to any other matter, which the
Committee shall deem necessary or desirable to comply with the terms of any such
listing, registration or qualification, or to obtain an exemption from the
requirement that any such listing, qualification or registration be made, and
(iii) any and all consents, clearances and approvals in respect of a Plan Action
by any governmental or other regulatory bodies.
D. Additional Requirements Regarding Intent. In furtherance of the
foregoing, at the time of any exercise of an Option, the Committee may, if it
shall determine it is required by law, require the Optionee as a condition to
the exercise thereof, to deliver to the Committee a written representation of
the Optionee's present intention to purchase the Common Stock for investment and
not for distribution or resale. If such representation is required to be
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delivered, an appropriate legend may be placed upon each certificate delivered
to the Optionee upon the Optionee's exercise of part or all of an Option and a
stop transfer order may be placed with the transfer agent. Each such Option
shall also be subject to the requirement that, if at any time the Committee
determines, in its discretion, that either (i) the listing, registration or
qualification of Common Stock subject to an Option upon any securities exchange
or under any state, federal or foreign law, or (ii) the consent or approval of
any governmental regulatory body is necessary or desirable as a condition of, or
in connection with, the issue or purchase of Common Stock thereunder, the Option
may not be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee. The Committee shall not have the
power to require or oblige the Company to register any Common Stock subject to
an Option and any requirement imposed by the Committee relating to the
registration of Common Stock shall not bind the Company to cause the
registration of such Common Stock.
11. NATURE OF PAYMENTS. All Options granted shall be in consideration of
services performed for the Company or subsidiary thereof by the Optionee.
12. NON-UNIFORM DETERMINATIONS. The Committee's determinations under this
Plan need not be uniform and may be made by it selectively among Eligible
Employees (whether or not such Eligible Employees are similarly situated).
Without limiting the generality of the foregoing, the Committee shall be
entitled, among other things, to make non-uniform and selective determinations
which may, inter alia, reflect the specific terms of individual employment
agreements, and to enter into non-uniform and selective Option Agreements, as to
(a) the persons to receive Options and (b) the terms and conditions of Options.
13. OTHER PAYMENTS OR OPTIONS. Nothing contained in this Plan shall be
deemed in any way to limit or restrict the Company from granting any option to
purchase Common Stock or payment to any person under any other plan, arrangement
or understanding, whether now existing or hereafter in effect.
14. AMENDMENT AND TERMINATION.
A. Amendment of Plan. The Board may from time to time suspend,
discontinue, revise or amend this Plan in any respect whatsoever provided that
no amendment shall be made without shareholder approval if such approval is
necessary to comply with any applicable law, regulation or stock exchange rule.
In addition, no such amendment shall materially impair any rights or materially
increase any obligations under any outstanding Option without the consent of the
Optionee (or, upon the Optionee's death or adjudication of mental incapacity,
the Optionee's legally appointed representative).
B. Cancellation and Issuance of New Options. The Committee may
cancel any outstanding Option and issue a new Option in substitution therefor.
The Committee also may amend any outstanding Option Agreement, including any
amendment which would: (i) accelerate the time or times at which the Option
becomes vested or may be exercised; (ii) waive or amend any goals, restrictions
or conditions set forth in the Option Agreement; or (iii) waive or amend the
operation of the provisions of an Optionee's Option Agreement governing the
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<PAGE>
treatment of Options upon termination of employment. However, any such
cancellation or amendment that materially impairs the rights or materially
increases the obligations of an Optionee under an outstanding Option shall be
made only with the consent of the Optionee (or, upon the Optionee's death or
mental incapacity, the person having the right to exercise the Option).
15. SAVINGS CLAUSE. Notwithstanding any other provision hereof, this Plan
is intended to qualify as a plan pursuant to which Incentive Stock Options may
be granted under Section 422 of the Code. If this Plan or any provision of this
Plan shall be held to be invalid or to fail to meet the requirements of Section
422 of the Code or the regulations promulgated thereunder, such invalidity or
failure shall not affect the remaining parts of this Plan, but rather it shall
be construed and enforced as if the Plan or the affected provision thereof, as
the case may be, complied in all respects with the requirements of Section 422
of the Code.
16. SECTION HEADINGS. The section headings contained in this Plan are for
the purpose of convenience only and are not intended to define or limit the
contents of such sections.
Adopted as amended and restated by the Board of Directors of the Company to be
effective as of the effective date of the Plan of Reorganization.
Attest:
_____________________________
Corporate Secretary
Date: , 2000
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Exhibit 99.2
Susan B. Railey
For shareholders and securities brokers
(301) 468-3120
Andrew P. Blocher
For institutional investors
(301) 231-0371
James T. Pastore FOR IMMEDIATE RELEASE
For news media
(202) 546-6451
JUDGE REQUESTS ADDITIONAL LEGAL BRIEFS DURING CRIIMI MAE HEARING;
BRIEFS DUE FROM PARTIES BY MAY 9
ROCKVILLE, MD, April 26, 2000 - (NYSE:CMM) -During a hearing yesterday on the
approval of a disclosure statement filed by CRIIMI MAE Inc. and two affiliates
with respect to their joint plan of reorganization, Bankruptcy Judge Duncan W.
Keir requested the filing of additional legal briefs by May 9, 2000 on two
issues raised at the hearing.
The issues raised relate to an objection to the disclosure statement filed by
Salomon Smith Barney Inc. and Citicorp Real Estate, Inc. (together "SSB"). The
SSB objection is the only objection to CRIIMI MAE's disclosure statement pending
before the Bankruptcy Court.
On April 25, 2000, CRIIMI MAE filed a Third Amended Plan of Reorganization and a
proposed Second Amended Disclosure Statement in connection with yesterday's
hearing. The Company is filing a Current Report on Form 8-K with the Securities
and Exchange Commission, which will include the plan and disclosure statement as
exhibits.
On October 5, 1998, CRIIMI MAE Inc. and two affiliates filed for protection
under Chapter 11 of the U.S. Bankruptcy Code. Before filing for reorganization,
the Company had been actively involved in acquiring, originating, securitizing
and servicing multi-family and commercial mortgages and mortgage related assets
throughout the United States. Since filing for Chapter 11 protection, CRIIMI MAE
has suspended its loan origination, loan securitization and CMBS acquisition
businesses. The Company continues to hold 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>
More information on CRIIMI MAE is available on its web site -
WWW.CRIIMIMAEINC.COM - or for investors, call Susan Railey, 301-468-3120, for
institutional investors, call Andy Blocher 301-231-0371 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 instability of the capital markets, the
ability of the Company to obtain reorganization 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 outcome of the issues raised in connection
with the SSB objection and the ability of the Company to successfully address
any outcome that negatively impacts its plan, 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, 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 report on Form 10-K for the year ended
December 31, 1999.
###
