<PAGE>
Exhibit 99.1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE 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)
)
-----------------------------------------
PRAECIPE FILING SUBSTITUTED PAGES TO THE DEBTORS'
SECOND AMENDED JOINT DISCLOSURE STATEMENT
In connection with the hearing on approval of the Debtors' Second
Amended Joint Disclosure Statement held on April 25, 2000, CRIIMI MAE Inc.
("CMI"), CRIIMI MAE Holdings II, L.P. ("Holdings") and CRIIMI MAE Management,
Inc. ("Management") (collectively, the "Debtors") and the Official Committee of
Equity Security Holders of CMI (the "Equity Committee"), by and through their
undersigned counsel, hereby file this Praecipe Filing Substituted Pages to the
Debtors' Second Amended Disclosure Statement (the "Disclosure Statement").
<PAGE>
Attached hereto as Exhibit 1 are replacement pages to be
substituted into the Disclosure Statement filed on April 25, 2000. Approval of
the Disclosure Statement including the replacement pages filed herewith is
hereby requested.
Dated: July 12, 2000
VENABLE, BAETJER AND AKIN, GUMP, STRAUSS,
HOWARD, LLP HAUER & FELD, L.L.P.
By: /s/ By: /s/
-------------------------- ---------------------------
Richard L. Wasserman Stanley J. Samorajczyk
Federal Bar No. 02784 Federal Bar No. 03113
Carrie B. Weinfeld 1333 New Hampshire Ave., NW
Federal Bar No. 25365 Washington, D.C. 20036
1800 Mercantile Bank and (202) 887-4000
Trust Building
Two Hopkins Plaza
Baltimore, Maryland 21201 Co-Counsel for CRIIMI MAE Inc.
(410) 244-7400 and CRIIMI MAE Holdings II, L.P.,
Debtors-in-Possession
Co-Counsel for CRIIMI MAE Inc.
and CRIIMI MAE Holdings II, L.P.,
Debtors-in-Possession
SHULMAN, ROGERS, GANDAL, COVINGTON & BURLING
PORDY & ECKER, P.A.
By: /s/ By: /s/
-------------------------- ---------------------------
Morton A. Faller Michael St. Patrick Baxter
Federal Bar No. 01488 Federal Bar No. 09694
11921 Rockville Pike Dennis B. Auerbach
Third Floor Federal Bar No. 09290
Rockville, MD 20852-2753 1201 Pennsylvania Avenue, N.W.
(301) 231-0928 Washington, D.C. 20044
(202) 662-6000
Counsel for CRIIMI MAE
Management, Inc., Counsel for the Official Committee
Debtor-in-Possession of Equity Security Holders of
CRIIMI MAE Inc.
-2-
<PAGE>
SUBSTITUTED PAGES TO
DEBTORS' SECOND AMENDED JOINT DISCLOSURE STATEMENT
<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, LLP
Richard L. Wasserman Stanley J. Samorajczyk
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: July , 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
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
I. INTRODUCTION ........................................................ 2
II. PLAN SUMMARY AND KEY CONSIDERATIONS ................................. 4
A. Plan Summary ..................................................... 5
B. Recommendation ................................................... 18
C. Voting Instructions .............................................. 18
III. GENERAL INFORMATION.................................................. 20
A. The Debtors and Chapter 11 Filing and Other Chapter 11 Events..... 21
B. Business.......................................................... 26
C. The Portfolio..................................................... 35
D. Legal Proceedings................................................. 38
E. Selected Historical Consolidated Financial Data................... 47
F. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 49
G. Quantitative and Qualitative Disclosures About Market Risk........ 62
H. Market and Trading Information.................................... 64
I. Management........................................................ 65
IV. BUSINESS PLAN........................................................ 73
V. PLAN OF REORGANIZATION .............................................. 75
A. Overview of the Plan ............................................. 75
B. Treatment of Claims and Interests Under the Plan ................ 80
C. Confirmation and Effective Date Conditions ....................... 90
D. The Reorganized Debtors .......................................... 92
E. Recapitalization Financing Including Issuance of New Securities... 94
F. Sale of the CMBS Portfolio........................................ 94
G. Affiliate Reorganization.......................................... 94
H. Potential New Equity Investment and Rights Offering .............. 94
I. Distributions Under the Plan ..................................... 97
J. General Information Concerning the Plan .......................... 101
VI. CONFIRMATION AND CONSUMMATION PROCEDURES ............................ 108
A. Solicitation of Acceptances ...................................... 108
B. Confirmation Hearing ............................................. 109
C. Confirmation ..................................................... 110
D. Consummation ..................................................... 113
E. Conditions to Effective Date ..................................... 113
VII. CERTAIN RISK FACTORS................................................. 114
VIII. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS ........................... 123
IX. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN ........... 127
A. Alternative Chapter 11 Plans ..................................... 127
B. Liquidation Under Chapter 7 ...................................... 127
X. CONCLUSION AND RECOMMENDATION ....................................... 128
</TABLE>
ii
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
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 from Form 10-K for the Year
Ended December 31, 1999..................................... D-1
Exhibit E Reorganized CMI Amended and 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
Exhibit H Quarterly Report on Form 10-Q for the Quarter ended
March 31, 2000.............................................. H-1
</TABLE>
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
SECOND AMENDED JOINT DISCLOSURE STATEMENT (TOGETHER WITH ALL EXHIBITS HERETO,
THE "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 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
SECTION 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
<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.
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING THE
INFORMATION UNDER THE HEADINGS III. GENERAL INFORMATION, IV. BUSINESS PLAN AND
VII. CERTAIN RISK FACTORS, IS UPDATED, MODIFIED AND SUPPLEMENTED BY THE
INFORMATION CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 2000, A COPY OF WHICH IS ATTACHED HERETO AS EXHIBIT H
AND MADE A PART HEREOF.
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 "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.
-4-
<PAGE>
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 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 "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.
----------------------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
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 "PLAN OF REORGANIZATION"
discussion hereinbelow), with monthly
amortization of said note based on the
schedule set forth on page 80 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, each 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
----------------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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,
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 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
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 (and, as amended, to be part of the
Reorganized CMI Amended and Restated
Articles of Incorporation) to permit the
payment of dividends on Series B Preferred
Stock, including accrued and unpaid
dividends, in CMI Common Stock or Cash (or
a combination thereof) 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
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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, as such Articles
Supplementary shall be amended as of the
Effective Date, expected to be
substantially in the form of Exhibit B
(Series E Preferred Stock Articles) to
Exhibit E (Reorganized CMI Amended and
Restated Articles of Incorporation) to the
Disclosure Statement. 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. 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
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 to the Plan and as set forth in
the Articles Supplementary relating to the
Series E Preferred Stock, as such Articles
Supplementary shall be amended as of the
Effective Date, expected to be
substantially in the form of Exhibit B
(Series E Preferred Stock Articles) to
Exhibit E (Reorganized CMI Amended and
Restated Articles of Incorporation) to the
Disclosure Statement. 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. 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
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 (and, as
amended, to be part of the Reorganized CMI
Amended and Restated Articles of
Incorporation) to permit the payment of
dividends on Series F Dividend Preferred
Stock, including any accrued and unpaid
dividends, in CMI Common Stock or Cash (or
a combination thereof), 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.
----------------------------------------------------------------------------------------------------------------------
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
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 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 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.
----------------------------------------------------------------------------------------------------------------------
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
-15-
<PAGE>
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."
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, Eastern 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,
-18-
<PAGE>
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., Eastern 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 described in the Plan and "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., EASTERN
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.
-20-
<PAGE>
The information contained in this part III. "GENERAL INFORMATION," is
updated, modified and supplemented by the information contained in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, a copy of
which is attached hereto as Exhibit H.
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 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
-21-
<PAGE>
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
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.
Counsel:
Arnold & Porter
Financial Advisors:
The Blackstone Group
Accountants:
PricewaterhouseCoopers LLP
CMI Equity Committee:
Charles Koehler
Michael Wurst
Elliot Kapstein
Howard Landis
-22-
<PAGE>
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.
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 and on March 30, 2000 CMI filed an objection to Claim
Number 330. On April 27, 2000 the District Court withdrew the reference of the
contested matter relating to Claim Number 330. The shareholder litigation was
dismissed on March 30, 2000 by the District Court. See "GENERAL INFORMATION -
Legal Proceedings - Shareholder "Litigation" for background information related
to the shareholder litigation. The dismissal of the shareholder litigation was
appealed by the plaintiffs on May 1, 2000.
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.
-24-
<PAGE>
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.
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, in cash, when and if
declared at a rate of 12% per annum, with the first dividend payable no earlier
than the end of the calendar quarter in which the 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 "PLAN OF REORGANIZATION" and
Exhibit C (Series F Preferred Stock Articles) to Exhibit E to this Disclosure
Statement regarding amended dividend treatment contemplated by the Plan. See
"BUSINESS - Effect of Chapter 11 Filing on REIT Status and Other Tax Matters -
The Company's 1998 Taxable Income."
EXCHANGE OF SERIES D PREFERRED STOCK FOR SERIES E PREFERRED STOCK
Prior to July 31, 2000, it is anticipated that 100,000 shares of Series D
Preferred Stock (representing all outstanding shares of Series D Preferred
Stock) will be exchanged for 100,000 shares of Series of Series E Preferred
Stock. The principal purpose of such exchange will be to effect an extension of
the July 31, 2000 mandatory conversion date, upon which the Series D Preferred
Stock will convert into common stock. The relative rights and preferences of the
Series E Preferred Stock differ from those of the Series D Preferred Stock in
certain material respects relating primarily to dividend and conversion matters.
See Exhibit B (Series E Preferred Stock Articles) to Exhibit E to this
Disclosure Statement.
EMPLOYMENT AGREEMENT EXTENSIONS
-25-
<PAGE>
The Company's employment agreements with Messrs, Dockser and Willoughby
expired on June 30, 2000, Subject to Bankruptcy Court approval, the Company has
approved the extension of such employment agreements until the earlier of the
Effective Date of the Plan of Fegruary 1, 2001, with such extensions to be
effective as of June 29, 2000. A motion seeking Bankruptcy Court approval of the
foregoing was filed with the Court on July 11, 2000.
B. BUSINESS
The information contained in this Section B of Part III, without limitation, is
updated, modified, and supplemented by the information contained in the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, a
copy of which is attached hereto as Exhibit H.
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.
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".
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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.
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. 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."
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<PAGE>
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 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
The information contained in this Section C of Part III, without
limitation, is updated, modified, and supplemented by the information contained
in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000, a copy of which is attached hereto as Exhibit H.
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
</TABLE>
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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
The information contained in this Section D of Part III, without
limitation, is updated, modified, and supplemented by the information contained
in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000, a copy of which is attached hereto as Exhibit H.
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.
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
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<PAGE>
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 Unsecured Creditors'
Committee are together presenting the Debtors' Plan for approval by all Holders
of Claims and Interests in Impaired Classes.
Following approval of the Disclosure Statement by the Bankruptcy Court the
Debtors' Plan, accompanied by the Disclosure Statement, has been sent to members
of all classes of impaired creditors and equity security holders for acceptance
or rejection. After receiving the votes of impaired classes of creditors and
equity security holders, the Bankruptcy Court, will hold a hearing, at which it
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
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<PAGE>
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
"Dismissal Order"). 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 elsewhere in this Disclosure Statement. See "GENERAL INFORMATION --
The Debtors and Chapter 11 Filing and Other Chapter 11 Events -- Deadline to
File Proofs of Claim."
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.
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<PAGE>
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 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
The information contained in this Section E of Part III, without
limitation, is updated, modified, and supplemented by the information contained
in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000, a copy of which is attached hereto as Exhibit H.
<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)
</TABLE>
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<PAGE>
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
The information contained in this Section F of Part III, without
limitation, is updated, modified, and supplemented by the information contained
in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000, a copy of which is attached hereto as Exhibit H.
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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 information contained in this Section G of Part III, without
limitation, is updated, modified, and supplemented by the information contained
in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000, a copy of which is attached hereto as Exhibit H.
The Company's principal market risk is exposure to changes in interest
rates related to the US Treasury market as well as the LIBOR market. The Company
will have an increase in the amount of interest expense paid on its variable
rate obligations primarily due to increases in One-Month LIBOR. The Company will
also experience fluctuations in the market value of its assets related to
changes in the interest rates of US Treasury bonds as well as increases in the
spread between US Treasury bonds and CMBS.
CRIIMI MAE has entered into interest rate protection agreements to
mitigate the adverse effects of rising interest rates on 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.
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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 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).
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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auditors; and (5) consult with the independent auditors and management with
regard to the adequacy of internal controls.
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
"GENERAL INFORMATION" - 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>
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<PAGE>
*Less than 1%.
(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 information contained under this part IV. "BUSINESS PLAN" is
supplemented by the information contained in the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000, a copy of which is attached
hereto as Exhibit H.
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
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<PAGE>
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 "PLAN
OF REORGANIZATION -- The Reorganized Debtors -- Business of Reorganized Debtors"
and "CERTAIN RISK FACTORS."
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/or 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 Chapter 11
filing, 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
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<PAGE>
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 Subordinated CMBS or other real estate assets; expanding its
originations into other higher yielding financings such as mezzanine loans and
equity investments and consulting or other fee-based opportunities in countries
where CMBS markets are currently developing. 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
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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>
Except for Disputed Claims, distributions will be made on the Effective
Date or as soon as practicable thereafter. See "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 "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.
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).
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<PAGE>
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 "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, each 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.
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.
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<PAGE>
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 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 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 (and, as amended, to be part of the
Reorganized CMI Amended and Restated Articles of Incorporation) to permit the
payment of dividends on Series B Preferred Stock, including accrued and unpaid
dividends, in CMI Common Stock or Cash, (or a combination thereof), 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
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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.
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, as such Articles Supplementary shall be amended as of the
Effective Date, expected to be substantially in the form of Exhibit B (Series E
Preferred Stock Articles) to Exhibit E (Reorganized CMI Amended and Restated
Articles of Incorporation) to the Disclosure Statement. 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
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shall have the terms, rights and preferences summarized in Exhibit 3 the Plan
and as set forth in the Articles Supplementary relating to the Series E
Preferred Stock, as such Articles Supplementary shall be amended as of the
Effective Date, expected to be substantially in the form of Exhibit B (Series E
Preferred Stock Articles) to Exhibit E (Reorganized CMI Amended and Restated
Articles of Incorporation) to the Disclosure Statement. 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.
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 (and,
as amended, to be part of the Reorganized CMI Amended and Restated Articles of
Incorporation) to permit the payment of dividends on Series F Dividend Preferred
Stock, including any accrued and unpaid dividends, in CMI Common Stock or Cash
(or a combination thereof), 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.
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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. 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
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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 (a) removal of directors, (b) amendments to
Article XI (excess share provisions), and (c) amendments to Article XIII
(conflict with terms of class or series of preferred stock), 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.
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 the Articles of Incorporation and Bylaws of
CMM, unless Reorganized CMM is required to amend such Articles of
Incorporation and Bylaws to prohibit the issuance of non-voting equity
securities and then such Articles of Incorporation and Bylaws shall be
amended and filed with the Maryland Department of Assessments and Taxation on
the Effective Date.
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.
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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
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 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
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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 OFFENSE.
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 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.
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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 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 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
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entitled to accept or reject the Plan is __________ ___, 2000.
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 _________ __, 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
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.
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"--Voting and Confirmation of the Plan" for a discussion of such matters. Prior
to deciding whether and how to vote on 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.
The information contained under this part VII, "CERTAIN RISK FACTORS" is
supplemented by the information contained in the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000, a copy of which is attached
hereto as Exhibit H.
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 "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.
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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 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 "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.
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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.
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 "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 "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 "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.
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
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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 Part VII of this 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.
C-1
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 13TH day of July, 2000, copies of
the Praecipe Filing Substituted Pages to the Debtors' Second Amended Joint
Disclosure Statement were sent via first-class mail, postage prepaid (except as
otherwise indicated), to the persons on the attached service list.
/s/
---------------------------
Richard L. Wasserman
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