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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: (Date of Earliest Event Reported):
April 10, 2000 (March 31, 2000)
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CRIIMI MAE INC.
(Exact name of registrant as specified in its charter)
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Maryland 1-10360 52-1622022
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
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11200 Rockville Pike
Rockville, Maryland 20852
(Address of principal executive offices, including zip code, of Registrant)
(301) 816-2300
(Registrant's telephone number, including area code)
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Item 5. Other Events
Attached as exhibits to this Current Report on Form 8-K are (1) a Debtors'
Second Amended Joint Plan of Reorganization filed by the Company and its
affiliates CRIIMI MAE Holdings II, L.P. and CRIIMI MAE Management, Inc. with the
United States Bankruptcy Court, District of Maryland, Greenbelt Division (the
"Bankruptcy Court") on March 31, 2000; (2) a Debtors' Amended Joint Disclosure
Statement [Proposed] filed by the Company and its affiliates CRIIMI MAE Holdings
II, L.P. and CRIIMI MAE Management, Inc. with the Bankruptcy Court on March 31,
2000; and (3) a press release issued by the Company on March 31, 2000 announcing
the filing of the Debtors' Second Amended Joint Plan of Reorganization and the
Debtor's Amended Joint Disclosure Statement [Proposed]. Each of the above
referenced documents is hereby incorporated by reference herein.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
The following exhibits are filed as a part of this Current Report on Form
8-K:
(c) Exhibit
2 Debtors' Second Amended Joint Plan of Reorganization filed by
CRIIMI MAE Inc. and its affiliates CRIIMI MAE Holdings II,
L.P. and CRIIMI MAE Management, Inc. on March 31, 2000.
99.1 Debtor's Amended Joint Disclosure Statement [Proposed] filed
by CRIIMI MAE Inc. and its affiliates CRIIMI MAE Holdings II,
L.P. and CRIIMI MAE Management, Inc. on March 31, 2000.
99.2 Press Release issued by CRIIMI MAE Inc. on March 31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CRIIMI MAE Inc.
Dated: April 10, 2000 /s/ William B. Dockser
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William B. Dockser, Chairman of the Board
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EXHIBIT INDEX
Exhibit
No. Description
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*2 Debtors' Second Amended Joint Plan of Reorganization filed by CRIIMI
MAE Inc. and its affiliates CRIIMI MAE Holdings II, L.P. and CRIIMI
MAE Management, Inc. on March 31, 2000.
*99.1 Debtors' Amended Joint Disclosure Statement [Proposed] filed by
CRIIMI MAE Inc. and its affiliates CRIIMI MAE Holdings II, L.P. and
CRIIMI MAE Management, Inc. on March 31, 2000.
*99.2 Press Release issued by CRIIMI MAE Inc. on March 31, 2000.
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*Filed herewith.
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UNITED STATES BANKRUPTCY COURT
DISTRICT OF MARYLAND
Greenbelt Division
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)
)
In re )
)
CRIIMI MAE Inc., et al., ) Chapter 11
) Case Nos. 98-2-3115(DK)
Debtors. ) through 98-2-3117(DK)
) (Jointly Administered)
)
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DEBTORS' SECOND AMENDED JOINT PLAN OF REORGANIZATION
VENABLE, BAETJER AND HOWARD, LLP AKIN, GUMP, STRAUSS, HAUER
Richard L. Wasserman & FELD, L.L.P.
Gregory A. Cross Stanley J. Samorajczyk, P.C.
1800 Mercantile Bank and Trust Building Michael S. Stamer
Two Hopkins Plaza 1333 New Hampshire Avenue, N.W.
Baltimore, Maryland 21201 Washington, D.C. 20036
(410) 244-7400 (202) 887-4000
Co-Counsel to CRIIMI MAE Inc. Co-Counsel to CRIIMI MAE Inc.
and CRIIMI MAE Holdings II, L.P. and CRIIMI MAE Holdings II, L.P.
SHULMAN, ROGERS, GANDAL, COVINGTON & BURLING
PORDY & ECKER, P.A. Michael St. Patrick Baxter
Morton A. Faller Dennis B. Auerbach
11921 Rockville Pike 1201 Pennsylvania Avenue, N.W.
Third Floor Washington, D.C. 20044
Rockville, MD 20852-2753 (202) 662-6000
(301) 231-0928
Counsel to CRIIMI MAE Management, Inc. Counsel to the Official Committee of
Equity Security Holders of CRIIMI MAE
Inc., Co-Proponents of the Plan
Dated: Rockville, Maryland
March 31, 2000
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TABLE OF CONTENTS
Page
I. INTRODUCTION ...................................................... 2
II. DEFINITIONS, INTERPRETATION AND RULES OF CONSTRUCTION ............. 2
A. Definitions ................................................... 2
1. Administrative Claim ....................................... 2
2. Allowed Claim or Allowed Interest .......................... 2
3. Allowed Class...Claim ...................................... 3
4. Allowed Class...Interest ................................... 3
5. Allowed Class A1 CMO-IV Claim .............................. 3
6. Bankruptcy Code ............................................ 3
7. Bankruptcy Court ........................................... 3
8. Bankruptcy Rules ........................................... 3
9. Business Day ............................................... 3
10.Cash ....................................................... 4
11.Claim....................................................... 4
12.Class ...................................................... 4
13.Class A1 Cash Payment ...................................... 4
14.Class A9/A10 Cash Payment .................................. 4
15.Class A9/A10 Note A ........................................ 4
16.Class A9/A10 Note B ........................................ 4
17.Class A9/A10 Notes ......................................... 4
18.Clearing Systems ........................................... 4
19.Clerk ...................................................... 4
20.CMBS Sale Portfolio ........................................ 4
21.CMI ........................................................ 4
22.CMI Common Stock ........................................... 4
23.CMI Creditors' Committee ................................... 4
24.CMI Equity Committee ....................................... 4
25.CMI General Unsecured Claims ............................... 5
26.CMM ........................................................ 5
27.CMM General Unsecured Claims ............................... 5
28.CMO-IV Additional Collateral ............................... 5
29.CMO-IV Bonds ............................................... 5
30.CMSLP ...................................................... 5
31.Committees ................................................. 5
32.Company .................................................... 5
33.Confirmation ............................................... 5
34.Confirmation Date .......................................... 5
35.Confirmation Hearing ....................................... 5
36.Confirmation Order ......................................... 5
37.Co-Proponent ............................................... 5
38.Debtor Releasees ........................................... 5
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39.Debtors .................................................... 5
40.Debtors in Possession ...................................... 6
41.Disbursing Agent ........................................... 6
42.Disclosure Statement ....................................... 6
43.Disputed Claim ............................................. 6
44.Disputed Interest .......................................... 6
45.Distribution Record Date ................................... 6
46.Docket ..................................................... 6
47.DTC ........................................................ 6
48.Effective Date ............................................. 6
49.Eligible Institution ....................................... 6
50.Employee Claims ............................................ 6
51.Estates .................................................... 6
52.File, Filed or Filing ...................................... 6
53.Final Order ................................................ 7
54.Former Series C Preferred Stock............................. 7
55.Freddie Mac ................................................ 7
56.Freddie Mac Agreement ...................................... 7
57.GACC ....................................................... 7
58.Guarantee Claims ........................................... 7
59.Holder ..................................................... 7
60.Holdings ................................................... 7
61.Holdings General Unsecured Claims .......................... 7
62.Impaired ................................................... 7
63.Indemnitees ................................................ 7
64.Indenture Trustee .......................................... 7
65.Instrument ................................................. 8
66.Insurance Proceeds ......................................... 8
67.Intercompany Claims ........................................ 8
68.Interest ................................................... 8
69 Letter of Transmittal ...................................... 8
70.LIBOR ...................................................... 8
71.Local Bankruptcy Rules ..................................... 8
72.Merrill .................................................... 8
73.New Debt ................................................... 8
74.New Equity ................................................. 8
75.New Securities ............................................. 8
76.Old CMI Preferred Stock .................................... 8
77.Old Securities ............................................. 8
78.Old Senior Note Claims ..................................... 8
79.Old Senior Notes ........................................... 8
80.Old Series D Preferred Stock ............................... 8
81.Order ...................................................... 9
82.Other Secured Claim ........................................ 9
83.Person ..................................................... 9
84.Petition Date .............................................. 9
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85.Plan ....................................................... 9
86.Plan Interest .............................................. 9
87.Plan Rate .................................................. 9
88.Post-Petition Tax Claims ................................... 9
89.Priority Claim ............................................. 9
90.Priority Tax Claim ......................................... 9
91.Pro Rata ................................................... 9
92.Recapitalization Financing ................................. 10
93.Reorganization Cases ....................................... 10
94.Reorganized CMI ............................................ 10
95.Reorganized CMI Articles of Incorporation .................. 10
96.Reorganized CMI Bylaws ..................................... 10
97.Reorganized CMM ............................................ 10
98.Reorganized CMM Articles of Incorporation .................. 10
99.Reorganized CMM Bylaws ..................................... 10
100.Reorganized Debtors ........................................ 10
101.Reorganized Holdings ....................................... 10
102.Second Amended and Restated Stock Option Plan .............. 10
103.Secured Claim .............................................. 10
104.Securities Claim ........................................... 11
105.Series B Prefererred Stock ................................. 11
106.Series E Prefererred Stock ................................. 11
107.Series F Dividend Preferred Stock .......................... 11
108.Stock Options .............................................. 11
109.Tendered Certificates ...................................... 11
110.Tort Claim ................................................. 11
111.UCC ........................................................ 11
112.Unimpaired ................................................. 11
113.Unsecured Claim ............................................ 11
114.Voting Record Date ......................................... 11
B. Interpretation and Computation of Time ........................ 12
1. Defined Terms .............................................. 12
2. Rules of Interpretation .................................... 12
3. Time Periods ............................................... 12
III. DESIGNATION OF CLASSES OF CLAIMS AND INTERESTS .................... 12
A. CMI Classes ................................................... 13
B. CMM Classes ................................................... 16
C. Holdings Classes .............................................. 16
IV. GENERAL PROVISIONS FOR TREATMENT OF CLAIMS AND INTERESTS .......... 17
A. Unclassified Claims ........................................... 17
1. Administrative Claims ...................................... 17
a. General ................................................ 17
b. Payment of Statutory Fees .............................. 18
2. Priority Tax Claims ........................................ 18
3. Bar Date for Administrative Claims ......................... 18
a. General Provisions ..................................... 18
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b. Professionals .......................................... 19
c. Ordinary Course Liabilities ............................ 19
d. Tax Claims ............................................. 19
B. Identification of Classes of Claims and Interests Impaired
and Not Impaired by the Plan .................................. 20
1. Claims Against and Interests in CMI ........................ 20
2. Claims Against and Interests in CMM ........................ 20
3. Claims Against and Interests in Holdings ................... 20
C. Treatment of Claims Against and Interests in CMI .............. 20
1. Class A1 (Citicorp Secured Claims) ......................... 20
2. Class A2 (First Union Secured Claim) ....................... 21
3. Class A3 (GACC Secured Claim) .............................. 21
4. Class A4 (Lehman Secured Claim) ............................ 21
5. Class A5 (Merrill Secured Claim) ........................... 21
6. Class A6 (Morgan Stanley Secured Claim) .................... 21
7. Class A7 (Other Secured Claims) ............................ 21
8. Class A8 (Priority Claims) ................................. 21
9. Class A9 (Old Senior Note Claims) .......................... 22
10.Class A10 (CMI General Unsecured Claims) ................... 22
11.Class A11 (Guarantee Claims) ............................... 22
12.Class A12 (Freddie Mac Claims) ............................. 22
13.Class A13 (Intercompany Claims) ............................ 22
14.Class A14 (Series B Preferred Stock) ....................... 23
15.Class A15 (Series B Preferred Stock Securities Claims) ..... 23
16.Class A16 (Old Series C Preferred Stock) ................... 23
17.Class A17 (Old Series C Preferred Stock Securities Claims) . 23
18.Class A18 (Old Series D Preferred Stock) ................... 23
19.Class A19 (Old Series D Preferred Stock Securities Claim) .. 24
20.Class A20 (Series F Dividend Preferred Stock) .............. 24
21.Class A21 (CMI Common Stock) ............................... 24
22.Class A22 (Stock Options) .................................. 24
23.Class A23 (CMI Common Stock Securities Claims) ............. 24
D. Treatment of Claims Against and Interests in CMM .............. 25
1. Class B1 (First Union Secured Claims) ...................... 25
2. Class B2 (Other Secured Claims) ............................ 25
3. Class B3 (Priority Claims) ................................. 25
4. Class B4 (Guarantee Claims) ................................ 25
5. Class B5 (CMM General Unsecured Claims) .................... 25
6. Class B6 (Intercompany Claims) ............................. 25
7. Class B7 (CMI's Interests in CMM) .......................... 26
E. Treatment of Claims Against and Interests in Holdings ......... 26
1. Class C1 (Citicorp Secured Claims) ......................... 26
2. Class C2 (Other Secured Claims) ............................ 26
3. Class C3 (Priority Claims) ................................. 26
4. Class C4 (Guarantee Claims) ................................ 26
5. Class C5 (Holdings General Unsecured Claims) ............... 26
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6. Class C6 (Intercompany Claims) ............................. 26
7. Class C7 (Interests in Holdings) ........................... 27
F. Modification of Treatment of Claims ........................... 27
V. DISTRIBUTIONS UNDER THE PLAN ...................................... 27
A. Disbursing Agent .............................................. 27
B. Timing of Distributions ....................................... 27
C. Methods of Distributions ...................................... 27
1. Cash Payments .............................................. 27
2. Compliance with Tax Requirements ........................... 28
D. Distribution Record Date ...................................... 28
E. Surrender of Cancelled Old Securities and Exchange of
Exchanged Securities for New Securities ....................... 28
1. Tender of Old Securities ................................... 28
a. Old Securities Held in Book-Entry Form .................. 28
b. Old Securities in Physical, Registered,
Certificated Form ....................................... 29
2. Delivery of New Securities in Exchange for Old Securities .. 29
3. Special Procedures for Lost, Stolen, Mutiliated or
Destroyed Instruments ...................................... 30
4. Failure to Surrender Cancelled Instrument .................. 30
F. Release of Security Interests in or Other Claims to or
against Assets or Property of the Reorganized Debtors by
Creditors Paid Pursuant to the Plan ........................... 30
G. Delivery of Distributions; Undeliverable or Unclaimed
Distributions ................................................. 31
H. Procedures for Treating Disputed Claims Under Plan of
Reorganization ................................................ 32
1. Disputed Claims ............................................ 32
a. Process ................................................. 32
b. Tort Claims ............................................. 32
2. Objections to Claims and Interests ......................... 32
3. Professional Claims ........................................ 33
4. No Distributions Pending Allowance ......................... 33
5. Distributions on Account of Disputed Claims and Interests
Once They are Allowed ...................................... 33
I. Setoffs ....................................................... 33
VI. INDIVIDUAL HOLDER PROOFS OF INTEREST .............................. 34
VII. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES ............. 34
A. Assumptions ................................................... 34
B. Cure of Defaults in Connection with Assumption ................ 34
C. Rejections .................................................... 34
D. Bar Date for Rejection Damages ................................ 35
VIII. ACCEPTANCE OR REJECTION OF THE PLAN ........................... 35
A. Voting Classes ................................................ 35
B. Presumed Acceptances of Plan .................................. 35
C. Confirmability of Plan and Cramdown ........................... 35
IX. MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN ................ 35
A. Corporate Structure ........................................... 35
B. Corporate Action .............................................. 36
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1. Cancellation of Old Securities and Related Agreements ...... 36
2. Articles of Incorporation and Bylaws for Reorganized CMI ... 36
3. Articles of Incorporation and Bylaws for Reorganized CMM ... 36
4. Directors and Management of Reorganized CMI ................ 37
5. Directors and Management of Reorganized CMM and
Reorganized Holdings ....................................... 37
6. No Further Corporate Action ................................ 37
C. Implementation ................................................ 38
D. Effectuating Documents and Actions ............................ 38
E. Term of Injunctions or Stays .................................. 38
F. No Interest; Disallowance of Penalties and Premiums ........... 38
G. Retiree Benefits .............................................. 38
H. Recapitalization Financing Including Issuance of New
Securities .................................................... 39
I. Sale of the CMBS Sale Portfolio ............................... 39
J. Potential New Equity Investment and Rights Offering ........... 39
K. Second Amended and Restated Stock Option Plan ................. 40
L. Affiliate Reorganization....................................... 40
X. CONFIRMATION AND EFFECTIVE DATE CONDITIONS ........................ 41
A. Conditions to Confirmation .................................... 41
B. Conditions to Effective Date .................................. 41
XI. EFFECTS OF PLAN CONFIRMATION ...................................... 42
A. Discharge of Debtors and Injunction ........................... 42
B. Limitation of Liability ....................................... 42
C. Releases ...................................................... 43
D. Indemnification ............................................... 43
E. Vesting of Assets ............................................. 44
F. Preservation of Causes of Action .............................. 45
G. Retention of Bankruptcy Court Jurisdiction .................... 45
H. Failure of Bankruptcy Court to Exercise Jurisdiction .......... 47
I. Committees .................................................... 47
XII. MISCELLANEOUS PROVISIONS .......................................... 47
A. Final Order ................................................... 47
B. Modification of the Plan ...................................... 47
C. Revocation of the Plan ........................................ 48
D. Application of Section 1145 of the Bankruptcy Code and
Federal Securities Laws ....................................... 48
E. Application of Section 1146(c) of the Bankruptcy Code ......... 48
F. Successors and Assigns ........................................ 49
G. Saturday, Sunday or Legal Holiday ............................. 49
H. Committee Action .............................................. 49
I. Post-Effective Date Effect of Evidences of Claims or Interests 49
J. Governing Law ................................................. 49
K. No Liability for Solicitation or Participation ................ 49
L. Severability of CMM Provisions ................................ 50
M. No Admissions or Waiver of Objections.......................... 50
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I. INTRODUCTION
CRIIMI MAE Inc. (defined herein as "CMI") and its affiliates CRIIMI MAE
Holdings II L.P. (defined herein as "Holdings") and CRIIMI MAE Management, Inc.
(defined herein as "CMM", and collectively with CMI and Holdings, the "Debtors")
hereby propose the following Second Amended Joint Plan of Reorganization
(defined herein as the "Plan") for the resolution of the Debtors' outstanding
creditor claims and equity interests and request confirmation of the Plan
pursuant to Section 1129 of the Bankruptcy Code. The Official Committee of
Equity Security Holders of CMI (defined herein as the "CMI Equity Committee")
joins the Debtors as a Co-Proponent of this Plan.
All Holders of Claims and Interests are encouraged to read the Plan and
the accompanying Disclosure Statement.
No materials, other than the accompanying Disclosure Statement and any
exhibits and schedules attached thereto or referenced therein, have been
approved by the Debtors for use in soliciting acceptances or rejections of the
Plan.
II. DEFINITIONS, INTERPRETATION AND RULES OF CONSTRUCTION
A. Definitions.
In addition to such other terms as are defined in other sections of the
Plan, the following terms (which appear in the Plan as capitalized terms) have
the following meanings as used in the Plan:
1. "ADMINISTRATIVE CLAIM" means a Claim for payment of an administrative
expense of a kind specified in Section 503(b) of the Bankruptcy Code and
referred to in Section 507 (a) (1) of the Bankruptcy Code, including, without
limitation, the actual and necessary costs and expenses incurred after the
commencement of the Chapter 11 Cases of preserving the estate or operating the
business of any of the Debtors (including wages, salaries and commissions for
services), loans and advances to any of the Debtors made after the Petition
Date, compensation for legal and other services and reimbursement of expenses
awarded or allowed under Section 330(a) or 331 of the Bankruptcy Code, and all
fees and charges against the estate under Section 1930 of title 28, United
States Code.
2. "ALLOWED CLAIM" or "ALLOWED INTEREST" means a Claim against or Interest
in the Debtors:
(1) to the extent that a proof of such Claim or Interest was timely
Filed and served upon the Debtors and no objection to the Claim or
Interest, or motion to estimate the Claim or Interest for purposes of
allowance (as used hereinafter, the word "objection" shall include a
motion to estimate for purposes of allowance), is Filed within the time
fixed by the Bankruptcy Court for such objections; or
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(2) to the extent that a proof of such Claim or Interest is deemed
Filed under applicable law or pursuant to a Final Order of the Bankruptcy
Court (including, but not limited to, any Claim or Interest listed on the
Debtors' schedules, not scheduled as contingent, unliquidated or disputed,
and not superseded by a timely-filed proof of Claim or Interest) and no
objection to the Claim or Interest is Filed within the time fixed by the
Bankruptcy Court for such objections; or
(3) that is allowed pursuant to this Plan; or
(4) to the extent that a proof of such Claim or Interest is allowed
pursuant to the following sentence of this definition.
If an objection to a proof of Claim or Interest is Filed within the time
fixed by the Bankruptcy Court, the Claim or Interest shall be Allowed to the
extent of:
(1) any amount of such Claim or Interest to which no objection was
Filed; and
(2) any amount otherwise authorized by Final Order or the Plan.
"ALLOWED ADMINISTRATIVE CLAIM," "ALLOWED PRIORITY TAX CLAIM," "ALLOWED SECURED
CLAIM" and "ALLOWED UNSECURED CLAIM" have correlative meanings.
3. "ALLOWED CLASS ... CLAIM" means an Allowed Claim in the particular
Class described.
4. "ALLOWED CLASS ... INTEREST" means an Allowed Interest in the
particular Class described.
5. "ALLOWED CLASS A1 CMO-IV CLAIM" means the Allowed Secured Claim of the
Holder of the Allowed Class A1 Claim with respect to the CMO-IV Bonds.
6. "BANKRUPTCY CODE" means title 11 of the United States Code, as now in
effect or hereafter amended if such amendments are made applicable to the
Reorganization Cases.
7. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the
District of Maryland, at Greenbelt, or such other court or adjunct thereof that
exercises jurisdiction over the Reorganization Cases.
8. "BANKRUPTCY RULES" means the Federal Rules of Bankruptcy Procedure, as
applicable from time to time in the Reorganization Cases.
9. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a
"legal holiday" (as defined in Bankruptcy Rule 9006(a)).
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10. "CASH" means lawful currency of the United States, a certified check,
a cashier's check or a wire transfer of immediately available funds from any
source, or a check drawn on a domestic bank from Reorganized CMI, Reorganized
CMM, Reorganized Holdings or other Person making any distribution under the
Plan.
11. "CLAIM" means a claim against any of the Debtors, whether or not
asserted or allowed, as defined in Section 101(5) of the Bankruptcy Code,
including, without limitation, Administrative Claims.
12. "CLASS" means a class of Claims or Interests designated pursuant to
the Plan.
13. "CLASS A1 CASH PAYMENT" means a payment in Cash on the Effective Date
to the Holder of the Allowed Class A1 Claim with respect to the CMO-IV Bonds in
the amount of $4.5 million.
14. "CLASS A9/A10 CASH PAYMENT" means the Cash payment to be made on the
Effective Date by CMI to Holders of Allowed Class A9 and A10 Claims.
15. "CLASS A9/A10 NOTE A" means one or more promissory notes of CMI issued
to or for the benefit of Holders of Note A as described in Exhibit 2 hereto.
16. "CLASS A9/A10 NOTE B" means one or more promissory notes of CMI issued
to or for the benefit of Holders of Note B as described in Exhibit 2 hereto.
17. "CLASS A9/A10 NOTES" means all Class A9/A10 Note A's and Class A9/A10
Note B's.
18. "CLEARING SYSTEMS" means DTC or any similar clearing system.
19. "CLERK" means the Clerk of the Bankruptcy Court.
20. "CMBS SALE PORTFOLIO" means those commercial mortgage-backed
securities and any other assets identified on a schedule to be provided to the
Bankruptcy Court at or before the Confirmation Hearing setting forth those
commercial mortgage-backed securities and other assets to be sold as part of
funding this Plan.
21. "CMI" means CRIIMI MAE Inc., a Maryland corporation.
22. "CMI COMMON STOCK" means the common stock of CMI, par value $.01 per
share.
23. "CMI CREDITORS' COMMITTEE" means the Official Committee of Unsecured
Creditors of CMI appointed by the United States Trustee.
24. "CMI EQUITY COMMITTEE" means the Official Committee of Equity Security
Holders of CMI appointed by the United States Trustee.
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25. "CMI GENERAL UNSECURED CLAIMS" means all Allowed Unsecured Claims
against CMI other than Claims against CMI of Holders of Old Senior Notes,
Unsecured Claims (if any) in Classes A8, A9, A11, A12, A13, A15, A17, A19 and
A23 as provided hereinafter, Administrative Claims against CMI and Priority Tax
Claims against CMI.
26. "CMM" means CRIIMI MAE Management, Inc., a Maryland corporation and
wholly-owned subsidiary of CMI.
27. "CMM GENERAL UNSECURED CLAIMS" means all Allowed Unsecured Claims
against CMM other than Unsecured Claims (if any) in Classes B3, B4 and B6 as
provided hereinafter, Administrative Claims against CMM and Priority Tax Claims
against CMM.
28. "CMO-IV ADDITIONAL COLLATERAL" means the following bonds and owner
trust certificates owned by the Company: CMM 1998-1, Classes K, P, XS and R.
29. "CMO-IV BONDS" means the following bonds owned by the Company: CMM
1998-1, Classes X/IO, F, G, H and J.
30. "CMSLP" means CRIIMI MAE Services Limited Partnership, a Maryland
limited partnership.
31. "COMMITTEES" means any statutory committees of creditors or equity
interest holders of the Debtors appointed by the United States Trustee pursuant
to Section 1102 of the Bankruptcy Code.
32. "COMPANY" means CMI and its consolidated subsidiaries.
33. "CONFIRMATION" means the entry by the Bankruptcy Court of the
Confirmation Order.
34. "CONFIRMATION DATE" means the date on which the Clerk enters the
Confirmation Order on the Docket.
35. "CONFIRMATION HEARING" means the hearing on confirmation of the Plan.
36. "CONFIRMATION ORDER" means the Order of the Bankruptcy Court
confirming the Plan under Section 1129 of the Bankruptcy Code.
37. "CO-PROPONENT" means the CMI Equity Committee as a Co-Proponent of
this Plan with the Debtors.
38. "DEBTOR RELEASEES" shall have the meaning ascribed to such term in
Section XI.C of the Plan.
39. "DEBTORS" means CMI, Holdings and CMM, collectively and individually
as appropriate from the context, as debtors and debtors in possession.
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40. "DEBTORS IN POSSESSION" means the Debtors, when acting in the capacity
of representatives of the Estates in the Reorganization Cases.
41. "DISBURSING AGENT" means, collectively, one or more Persons
responsible for making distributions under the Plan. The Reorganized Debtors or
such Person(s) as the Debtors may employ in their sole discretion will serve as
Disbursing Agent.
42. "DISCLOSURE STATEMENT" means the disclosure statement pursuant to
Section 1125 or Section 1126(b) of the Bankruptcy Code with respect to the Plan
(and all exhibits and schedules annexed thereto or referred to therein), as it
may be amended or supplemented from time to time.
43. "DISPUTED CLAIM" means a Claim, to the extent such Claim is not an
Allowed Claim or disallowed by a Final Order.
44. "DISPUTED INTEREST" means an Interest to the extent such Interest is
not an Allowed Interest.
45. "DISTRIBUTION RECORD DATE" means the date fixed by the Bankruptcy
Court as the record date for determining the Holders of Allowed Claims or
Allowed Interests who are entitled to receive distributions under this Plan,
which date shall not be prior to five Business Days after the Confirmation Date
and, if no such date is fixed, means five Business Days after the Confirmation
Date.
46. "DOCKET" means the docket or dockets in the Reorganization Cases
maintained by the Clerk.
47. "DTC" means The Depository Trust Company.
48. "EFFECTIVE DATE" means the first Business Day that is not less than
eleven (11) days after the Confirmation Date on which, as determined by the
Debtors, (i) all conditions to the Effective Date set forth herein have been
satisfied or waived by the Debtors, and (ii) no stay of the Confirmation Order
is in effect.
49. "ELIGIBLE INSTITUTION" shall have the meaning ascribed to such term in
Section V.E.l.b of the Plan.
50. "EMPLOYEE CLAIMS" means Claims which are asserted by employees of the
Debtors in connection with their employment, including, without limitation,
Claims arising from or relating to salaries or wages, accrued paid vacation,
health-related benefits, severance benefits, field management and
executive/administrative management incentive plans and similar employee
benefits.
51. "ESTATES" means the estates created in the Debtors' Reorganization
Cases under Section 541 of the Bankruptcy Code.
52. "FILE," "FILED" or "FILING" means file, filed or filing with the
Bankruptcy Court in the Reorganization Cases.
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53. "FINAL ORDER" means an order or judgment of the Bankruptcy Court, as
entered on the Docket in the Reorganization Cases, which has not been reversed,
stayed, modified or amended, and as to which (a) the time to appeal, seek
certiorari or request reargument or further review or rehearing has expired and
no appeal, petition for certiorari or request for reargument or further review
or rehearing has been timely filed, or (b) any appeal that has been or may be
taken or any petition for certiorari or request for reargument or further review
or rehearing that has been or may be filed has been resolved by the highest
court to which the order or judgment was appealed, from which certiorari was
sought or to which the request was made and no further appeal or petition for
certiorari has been or can be taken or granted.
54. "FORMER SERIES C PREFERRED STOCK" means CMI's former Series C
Cumulative Convertible Preferred Stock, with a liquidation preference of $100
per share.
55. "FREDDIE MAC" means the Federal Home Loan Mortgage Corporation.
56. "FREDDIE MAC AGREEMENT" means that certain Funding Note Purchase and
Security Agreement dated as of September 22, 1995, among Freddie Mac, CMI and
CRIIMI MAE Financial Corporation II.
57. "GACC" means German American Capital Corporation.
58. "GUARANTEE CLAIMS" means any Claim against any of the Debtors arising
from or under any agreement of the Debtors guaranteeing the obligations of
another Debtor.
59. "HOLDER" means a Person who holds a Claim or Interest in such Person's
capacity as the holder of such Claim or Interest. Where the identity of the
Holder of a Claim or Interest is set forth on a register or other record
maintained by or at the direction of the Debtors, the Holder of such Claim or
Interest shall be deemed to be the Holder as identified on such register or
record unless the Debtors are otherwise notified in a writing authorized by such
Holder.
60. "HOLDINGS" means CRIIMI MAE Holdings II, L.P., a Delaware limited
partnership.
61. "HOLDINGS GENERAL UNSECURED CLAIMS" means all Allowed Unsecured Claims
against Holdings other than Unsecured Claims (if any) in Classes C3, C4 and C6
as provided hereinafter, Administrative Claims against Holdings and Priority Tax
Claims against Holdings.
62. "IMPAIRED" shall have the meaning ascribed to it in Section 1124 of
the Bankruptcy Code.
63. "INDEMNITEES" shall have the meaning ascribed to such term in Section
XI.D of the Plan.
64. "INDENTURE TRUSTEE" means State Street Bank, as indenture trustee for
the Old Senior Notes or any successor thereto.
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65. "INSTRUMENT" means any share of stock, security, promissory note or
other "INSTRUMENT," within the meaning of that term, as defined in Section 9-105
(1) (i) of the UCC.
66. "INSURANCE PROCEEDS" means the insurance proceeds payable to or on
behalf of CMI with respect to an Allowed Securities Claim.
67. "INTERCOMPANY CLAIMS" means any and all Claims and causes of action
which any of the Debtors holds against any other Debtor.
68. "INTEREST" means the interest of any equity security Holder of the
Debtors, whether or not asserted, as defined in Section 101 (17) of the
Bankruptcy Code.
69. "LETTER OF TRANSMITTAL" shall have the meaning ascribed to such term
in Section V.E.l.b of the Plan.
70. "LIBOR" means the London Interbank Offered Rate for one-month United
States dollars deposits as set forth on page 3750 of Telerate as of 8:00 a.m.,
New York City time, on the date of determination.
71. "LOCAL BANKRUPTCY RULES" means the local rules of the Bankruptcy
Court, as applicable from time to time in the Reorganization Cases.
72. "MERRILL" means Merrill Lynch Mortgage Capital Inc.
73. "NEW DEBT" means the new secured and unsecured debt to be borrowed by,
or issued pursuant to the Plan to creditors of, the Reorganized Debtors as part
of funding the Plan and the Reorganized Debtors.
74. "NEW EQUITY" means the new equity capital (if applicable) raised by
Reorganized CMI in accordance with Section IX.J of this Plan.
75. "NEW SECURITIES" means the Class A9/A10 Notes and the Series E
Preferred Stock (to be issued in exchange for the Old Series D Preferred Stock).
76. "OLD CMI PREFERRED STOCK" means the Old Series D Preferred Stock.
77. "OLD SECURITIES" means the Old Senior Notes and the Old CMI Preferred
Stock.
78. "OLD SENIOR NOTE CLAIMS" means Claims arising from the Old Senior
Notes (including all Claims and causes of action arising therefrom or in
connection therewith).
79. "OLD SENIOR NOTES" means CMI's 91/8% Senior Notes due 2002 in the
aggregate, original, principal amount of $100 million.
80. "OLD SERIES D PREFERRED STOCK" means CMI's Series D Cumulative
Convertible Preferred Stock, with a liquidation preference of $100 per share.
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81. "ORDER" means an order or judgment of the Bankruptcy Court as entered
on the Docket.
82. "OTHER SECURED CLAIM" means any Allowed Secured Claim in Class A7,
Class B2 or Class C2.
83. "PERSON" means any individual, corporation, general partnership,
limited partnership, limited liability partnership, limited liability company,
association, joint stock company, joint venture, government or political
subdivision, official committee appointed by the United States Trustee,
unofficial committee of creditors or equity holders, or other "entity" (as
defined in the Bankruptcy Code).
84. "PETITION DATE" means October 5, 1998, the date on which the
Reorganization Cases were Filed.
85. "PLAN" means this plan of reorganization for the Debtors in the
Reorganization Cases and all exhibits and schedules hereto, as such may be
amended, modified or supplemented from time to time.
86. "PLAN INTEREST" means interest at the legal rate, which shall mean the
federal judgment rate pursuant to 28 U.S.C. ss.1961(a) in effect as of the
Confirmation Date unless the Holder of a Claim objects thereto on or before the
Confirmation Date, in which event the applicable rate for such objector will be
the federal rate as determined by the Bankruptcy Court for such objector if such
objector is determined to be the Holder of an Allowed Claim.
87. "PLAN RATE" means interest at the non-default contract interest rate
provided for in the documents applicable to the Claim of the creditor for whom
the term Plan Rate is applicable. If a creditor has more than one Allowed Claim
with different documents providing for different non-default contract interest
rates for each such Allowed Claim, then the Plan Rate shall be calculated at the
non-default contract interest rate applicable to each separate component of such
creditor's Allowed Claim.
88. "POST-PETITION TAX CLAIMS" means Administrative Claims and other
Claims by a governmental unit for taxes (and for interest and/or penalties
related to such taxes) for any tax year or period, to the extent such Claim
accrues within the period from and including the Petition Date through and
including the Effective Date.
89. "PRIORITY CLAIM" means an Allowed Claim entitled to priority under any
of Sections 507 (a) (3) through 507 (a) (7) or 507 (a) (9) of the Bankruptcy
Code, but excludes Priority Tax Claims.
90. "PRIORITY TAX CLAIM" means an Allowed Claim entitled to priority under
Section 507 (a) (8) of the Bankruptcy Code.
91. "PRO RATA" means proportionately so that, with respect to any Class or
Classes, the ratio of (a) the amount of consideration distributed on account of
a particular Allowed Claim to (b) the amount of such particular Allowed Claim,
is the same as the ratio of (x) the amount of consideration distributed on
account of all Allowed Claims of the Class or Classes in which the
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particular Allowed Claim is included to (y) the aggregate amount of all Allowed
Claims of that Class or Classes. Until a Disputed Claim is disallowed by a Final
Order or otherwise resolved, it will be treated in all Pro Rata calculations at
the lesser of the amount requested by the claimant and such amount as may be
capped by the Bankruptcy Court upon motion requesting such a cap.
92. "RECAPITALIZATION FINANCING" means the total New Debt and New Equity
(if applicable) to be used in connection with funding the Plan and the
Reorganized Debtors.
93. "REORGANIZATION CASES" means the Debtors' cases under chapter 11 of
the Bankruptcy Code.
94. "REORGANIZED CMI" means CMI, as it will be reorganized as of the
Effective Date in accordance with this Plan.
95. "REORGANIZED CMI ARTICLES OF INCORPORATION" means the amended and
restated articles of incorporation of Reorganized CMI that will be effective on
the Effective Date.
96. "REORGANIZED CMI BYLAWS" means the amended and restated bylaws of
Reorganized CMI that will be effective on the Effective Date.
97. "REORGANIZED CMM" means CMM as it will be reorganized as of the
Effective Date in accordance with this Plan.
98. "REORGANIZED CMM ARTICLES OF INCORPORATION" means the amended and
restated articles of incorporation of Reorganized CMM that will be effective on
the Effective Date if the CMM articles of incorporation are amended; otherwise,
it means the CMM articles of incorporation in existence as of the Effective
Date.
99. "REORGANIZED CMM BYLAWS" means the amended and restated bylaws of
Reorganized CMM that will be effective on the Effective Date if the CMM bylaws
are restated; otherwise, it means the CMM bylaws in existence as of the
Effective Date.
100. "REORGANIZED DEBTORS" means Reorganized CMI, Reorganized CMM and
Reorganized Holdings, collectively and individually, as appropriate from the
context.
101. "REORGANIZED HOLDINGS" means Holdings as it will be reorganized as of
the Effective Date in accordance with this Plan.
102. "SECOND AMENDED AND RESTATED STOCK OPTION PLAN" means the Second
Amended and Restated Stock Option Plan for Key Employees to be effective on the
Effective Date.
103. "SECURED CLAIM" means any Claim that is secured by a lien on property
in which the Estates have an interest or that is subject to setoff under Section
553 of the Bankruptcy Code, to the extent of the value of the Claim Holder's
interest in the Estates' interest in such property or to the extent of the
amount subject to setoff, as applicable, as determined pursuant to Section 506
(a) or Section 1111 (b) of the Bankruptcy Code and any repurchase agreement
Claim based
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upon the repurchase price thereunder but only to the extent of the value of the
Claim Holder's interest in the property that is the subject of the repurchase
agreement.
104. "SECURITIES CLAIM" means (a) any Claim arising from a claim for
rescission of a purchase or sale of any Old Securities or for damages arising
from the purchase or sale of any Old Securities or (b) any Claim for indemnity,
reimbursement or contribution on account of any such Claim.
105. "SERIES B PREFERRED STOCK" means CMI's Series B Cumulative
Convertible Preferred Stock.
106. "SERIES E PREFERRED STOCK" means CMI's Series E Cumulative
Convertible Preferred Stock into which shares of Former Series C Preferred Stock
and Old Series D Preferred Stock have been or will be exchanged and which have
the terms, rights and preferences summarized in Exhibit 3 hereto and as set
forth in the Articles Supplementary relating to the Series E Preferred Stock.
107. "SERIES F DIVIDEND PREFERRED STOCK" means CMI's Series F Redeemable
Cumulative Dividend Preferred Stock.
108. "STOCK OPTIONS" means the stock options to acquire CMI Common Stock
outstanding as of the Effective Date.
109. "TENDERED CERTIFICATES" shall have the meaning ascribed to such term
in Section V.E.l.b of the Plan.
110. "TORT CLAIM" means any Claim related to personal injury, property
damage or loss, products liability or other similar Claims against any Debtor,
and shall not include Securities Claims or Claims arising under, based upon or
related to Stock Options.
111. "UCC" means the Maryland Uniform Commercial Code, as in effect at any
relevant time.
112. "UNIMPAIRED" means with respect to any Claim or Interest that such
Claim or Interest is not Impaired.
113. "UNSECURED CLAIM" means any Claim that is not a Secured Claim.
114. "VOTING RECORD DATE" means the date set by the Bankruptcy Court for
determining the Holders of Old Senior Notes, Class A10 Claims, Series B
Preferred Stock, Former Series C Preferred Stock, Old CMI Preferred Stock,
Series F Dividend Preferred Stock and CMI Common Stock entitled to vote to
accept or reject the Plan.
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B. Interpretation and Computation of Time.
1. Defined Terms.
Any term used in the Plan that is not defined in the Plan, in Article II
(Definitions) or elsewhere, but that is defined in the Bankruptcy Code, the
Bankruptcy Rules or the Local Bankruptcy Rules, shall have the meaning ascribed
to that term in the Bankruptcy Code, the Bankruptcy Rules or the Local
Bankruptcy Rules, as the case may be.
2. Rules of Interpretation.
For purposes of the Plan: (a) whenever it appears appropriate from the
context, each term, whether stated in the singular or the plural, shall include
both the singular and the plural; (b) any reference in the Plan to a contract,
instrument, release or other agreement or document being in a particular form or
on particular terms and conditions means that such document shall be
substantially in such form or substantially on such terms and conditions;
provided, however, that any change to such form, terms, or conditions which is
material to a party to such document shall not be made without such party's
consent; (c) any reference in the Plan to an existing document or exhibit Filed
or to be Filed means such document or exhibit, as it may have been or may be
amended, modified or supplemented from time to time; (d) unless otherwise
specified in a particular reference, all references in the Plan to paragraphs,
sections, articles and exhibits are references to paragraphs, sections, articles
and exhibits of or to the Plan; (e) the words "herein," "hereof," "hereto,"
"hereunder" and others of similar import refer to the Plan in its entirety
rather than to a particular portion of the Plan only; (f) captions and headings
to articles and paragraphs are inserted for convenience of reference only and
are not intended to be a part of or to affect the interpretations of the Plan;
and (g) the rules of construction set forth in Section 102 of the Bankruptcy
Code shall apply.
3. Time Periods.
In computing any period of time prescribed or allowed by the Plan, the
provisions of Bankruptcy Rule 9006(a) shall apply.
III. DESIGNATION OF CLASSES OF CLAIMS AND INTERESTS
The following is a designation of the Classes of Claims and Interests
under the Plan. In accordance with Section 1123(a)(1) of the Bankruptcy Code,
Administrative Claims and Priority Tax Claims have not been classified and are
excluded from the following Classes. A Claim or Interest is classified in a
particular Class only to the extent that the Claim or Interest qualifies within
the description of that Class, and is classified in another Class or Classes to
the extent that any remainder of the Claim or Interest qualifies within the
description of such other Class or Classes. A Claim or Interest is classified in
a particular Class only to the extent that the Claim or Interest is an Allowed
Claim or Allowed Interest in that Class and has not been paid, released or
otherwise satisfied before the Effective Date; a Claim or Interest which is not
an Allowed Claim or Allowed Interest is not in any Class. A Disputed Claim or
Disputed Interest, to the extent that it subsequently becomes an Allowed Claim
or Allowed Interest, shall be included in the Class for
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which it would have qualified had it not been disputed. Notwithstanding anything
to the contrary contained in the Plan, no distribution shall be made on account
of any Claim or Interest to the extent such Claim or Interest is not an Allowed
Claim or an Allowed Interest. In addition, for purposes of the classification
and treatment of Secured Claims under this Plan, any transfers of Claims
occurring after the Petition Date shall not impact the classification or
treatment of Secured Claims as provided in the Plan or the status of an
Unsecured Claim as of the Petition Date to continue to be treated under this
Plan as an Unsecured Claim.
A. CMI Classes
Class A1 - Citicorp Secured Claims Class A1 consists of all Allowed
Secured Claims against CMI of
Citicorp Securities, Inc., Salomon
Smith Barney Inc., Citicorp Real
Estate, Inc. and/or CitiBank N.A. or
any other Holder of a Secured Claim
against CMI under, arising from or
related to that certain Master
Repurchase Agreement between CMI and
Citicorp Securities, Inc. dated as of
August 1, 1997 or any documents
executed in connection therewith or
related thereto.
Class A2 - First Union Secured Claim Class A2 consists of all Allowed
Secured Claims against CMI of First
Union National Bank or any other
Holder of a Secured Claim against CMI
under, arising from or related to (i)
that certain Master Assignment
Agreement between First Union
National Bank and CMI dated as of
June 30, 1998 or any documents
executed in connection therewith or
related thereto or (ii) that certain
Guaranty by CMI in favor of and for
the benefit of Signet Bank/Virginia
entered into as of June 30, 1995 or
that certain Collateral Assignment of
Partnership Interests from CMI in
favor of Signet Bank/Virginia dated
as of June 30, 1995 or that certain
Stock Pledge Agreement by CMI in
favor of Signet Bank/Virginia dated
as of June 30, 1995 or that certain
Credit Agreement between CMM and
Signet Bank/Virginia dated as of June
30, 1995 or any documents executed in
connection with or related to any of
the foregoing.
Class A3 - GACC Secured Claim Class A3 consists of all Allowed
Secured Claims against CMI of German
American Capital Corp. or any other
Holder of a Secured Claim against CMI
under, arising from or related to
that certain Master Loan and Security
Agreement between
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CMI and German American Capital Corp.
dated as of March 31, 1998 or any
documents executed in connection
therewith or related thereto.
Class A4 - Lehman Secured Claim Class A4 consists of all Allowed
Secured Claims against CMI of Lehman
Ali Inc. or any other Holder of a
Secured Claim against CMI under,
arising from or related to that
certain Master Assignment Agreement
between CMI and Lehman Ali Inc. dated
as of May 29, 1998 or any documents
executed in connection therewith or
related thereto.
Class A5 - Merrill Secured Claim Class A5 consists of all Allowed
Secured Claims against CMI of Merrill
Lynch Mortgage Capital Inc. or any
other Holder of a Secured Claim
against CMI under, arising from or
related to that certain Master
Assignment Agreement between CMI and
Merrill Lynch Mortgage Capital Inc.
dated as of September 25, 1997 or any
documents executed in connection
therewith or related thereto.
Class A6 - Morgan Stanley Secured Claim Class A6 consists of any Allowed
Secured Claims against CMI of Morgan
Stanley & Co. International Ltd. or
any other Holder of a Secured Claim
against CMI under, arising from or
related to that certain Master
Repurchase Agreement between Morgan
Stanley & Co. International Limited
and CMI dated as of May 8, 1998 or
any documents executed in connection
therewith or related thereto.
Class A7 - Other Secured Claims Class A7 consists of any Allowed
Secured Claims against CMI other than
the Secured Claims specified in
Classes A1 through A6.
Class A8 - Priority Claims Class A8 consists of all Allowed
Priority Claims against CMI.
Class A9 - Old Senior Note Claims Class A9 consists of all Allowed
Claims against CMI of Holders of Old
Senior Notes.
Class A10 - CMI General Unsecured Claims Class A10 consists of all Allowed
Unsecured Claims against CMI other
than the Unsecured Claims (if any) in
Classes A8, A9, A11, A12,
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A13, A15, A17, A19 and A23 and other
than Administrative Claims and
Priority Tax Claims.
Class A11 - Guarantee Claims Class A11 consists of all Allowed
Claims against CMI of Holders of
Guarantee Claims based upon CMI's
guarantee of obligations of CMM or
Holdings, as the case may be.
Class A12 - Freddie Mac Claims Class A12 consists of Claims against
CMI of Freddie Mac numbered 335 and
497, on the July 20, 1999 claims
register, in the amount of
$230,448,487.24 each.
Class A13 - Intercompany Claims Class A13 consists of all Allowed
Claims against CMI of CMM or
Holdings.
Class A14 - Series B Preferred Stock Class A14 consists of all Allowed
Series B Preferred Stock Interests in
CMI.
Class A15 - Series B Preferred Stock Class A15 consists of all Allowed
Securities Claims Securities Claims
on account of Series B Preferred
Stock against CMI.
Class A16 - Former Series C Preferred Class A16 consists of all Allowed
Former Stock Series C Preferred Stock
Interests in CMI.
Class A17 - Former Series C Preferred Class A17 consists of all Allowed
Stock Securities Claims Securities
Claims on account of Former Series C
Preferred Stock against CMI.
Class A18 - Old Series D Preferred Stock Class A18 consists of all Allowed Old
Series D Preferred Stock Interests in
CMI.
Class A19 - Old Series D Preferred Stock Class A19 consists of all Allowed
Securities Claim Securities Claims on account of Old
Series D Preferred Stock against CMI.
Class A20 - Series F Dividend Preferred Class A20 consists of all Allowed
Stock Series F Dividend Preferred Stock
Interests in CMI.
Class A21 - CMI Common Stock Class A21 consists of all Allowed CMI
Common Stock Interests in CMI.
Class A22 - Stock Options Class A22 consists of all Allowed
Stock Option Interests in CMI.
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Class A23 - CMI Common Stock Securities Class A23 consists of all Allowed
Claims Securities Claims on account of CMI
Common Stock against CMI.
B. CMM Classes
Class B1 - First Union Secured Claims Class B1 consists of all Allowed
Secured Claims against CMM of First
Union National Bank or any other
Holder of a Secured Claim against CMM
under, arising from or related to
that certain Credit Agreement between
CMM and Signet Bank/Virginia dated as
of June 30, 1995 or any documents
executed in connection therewith or
related thereto.
Class B2 - Other Secured Claims Class B2 consists of any Allowed
Secured Claims against CMM other than
the Secured Claims specified in Class
B1.
Class B3 - Priority Claims Class B3 consists of all Allowed
Priority Claims against CMM.
Class B4 - Guarantee Claims Class B4 consists of all Allowed
Claims against CMM of Holders of
Guarantee Claims based upon CMM's
guarantee of obligations of CMI or
Holdings, as the case may be.
Class B5 - CMM General Unsecured Claims Class B5 consists of all Allowed
Unsecured Claims against CMM other
than the Unsecured Claims (if any) in
Classes B3, B4 and B6 and other than
Administrative Claims and Priority
Tax Claims.
Class B6 - Intercompany Claims Class B6 consists of all Allowed
Claims against CMM of CMI or
Holdings.
Class B7 - CMI's Interests in CMM Class B7 consists of all Allowed
Interests in CMM of CMI.
C. Holdings Classes
Class C1 - Citicorp Secured Claims Class C1 consists of all remaining
Allowed
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<PAGE>
Secured Claims (if any) against
Holdings of Citicorp Securities, Inc.
and/or Salomon Smith Barney Inc.
Class C2 - Other Secured Claims Class C2 consists of any Allowed
Secured Claims against Holdings other
than the Secured Claims specified in
Class C1.
Class C3 - Priority Claims Class C3 consists of all Allowed
Priority Claims against Holdings.
Class C4 - Guarantee Claims Class C4 consists of all Allowed
Claims against Holdings of Holders of
Guarantee Claims based upon Holdings'
guarantee of obligations of CMI or
CMM, as the case may be.
Class C5 - Holdings General Unsecured Class C5 consists of all Allowed
Claims Unsecured Claims against Holdings
other than the Unsecured Claims (if
any) in Classes C3, C4 and C6 and
other than Administrative Claims and
Priority Tax Claims.
Class C6 - Intercompany Claims Class C6 consists of all Allowed
Claims against Holdings of CMI or
CMM.
Class C7 - Interests in Holdings Class C7 consists of all Allowed
Interests in Holdings of CMI and
CMSLP.
IV. GENERAL PROVISIONS FOR TREATMENT OF CLAIMS AND INTERESTS
A. Unclassified Claims.
1. Administrative Claims.
a. General.
Subject to certain additional requirements for professionals and certain
other entities set forth below, Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, shall pay to each Holder of an Allowed
Administrative Claim, on account of its Administrative Claim and in full
satisfaction thereof, Cash equal to the amount of such Allowed Administrative
Claim on the later of the Effective Date or the day on which such Claim becomes
an Allowed Claim, unless the Holder and Reorganized CMI, Reorganized CMM or
Reorganized Holdings, as the case may be, shall have agreed to other treatment
of such Claim, or an order of the Bankruptcy Court provides for other terms, in
which case such Allowed Administrative Claim shall be paid in accordance with
such agreement or Bankruptcy Court order, as applicable;
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provided, that if incurred in the ordinary course of business or otherwise
assumed by the Debtors pursuant to the Plan (including Administrative Claims of
governmental units for taxes), an Allowed Administrative Claim will be assumed
on the Effective Date and paid, performed or settled by Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, when due in
accordance with the terms and conditions of the particular agreement(s)
governing the obligation in the absence of the Reorganization Cases.
b. Payment of Statutory Fees.
All fees payable pursuant to 28 U.S.C. ss. 1930(a)(6) (U.S. Trustee Fees)
shall be paid by the Debtors or the Reorganized Debtors, as applicable, when
such fees are due and owing.
2. Priority Tax Claims.
Unless otherwise agreed to by the Debtors or Reorganized CMI, Reorganized
CMM or Reorganized Holdings, as the case may be, and a Holder of a Priority Tax
Claim, each Holder of an Allowed Priority Tax Claim shall receive, at the sole
option of Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case
may be, (i) Cash equal to the unpaid portion of such Allowed Priority Tax Claim
on the later of the Effective Date and the date on which such Claim becomes an
Allowed Priority Tax Claim, or as soon thereafter as is practicable, or (ii)
equal quarterly Cash payments in an aggregate amount equal to such Allowed
Priority Tax Claim, together with interest at a fixed annual rate to be
determined by the Bankruptcy Court or otherwise agreed to by Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, and such Holder,
over a period through the sixth anniversary of the date of assessment of such
Allowed Priority Tax Claim, or upon such other terms determined by the
Bankruptcy Court to provide the Holder of such Allowed Priority Tax Claim
deferred Cash payments having a value, as of the Effective Date, equal to such
Allowed Priority Tax Claim. The Holders of Allowed Priority Tax Claims are not
entitled to vote on the Plan. Pursuant to Section 1123(a)(1) of the Bankruptcy
Code, Priority Tax Claims are not designated a Class of Claims for purposes of
voting on the Plan.
3. Bar Date for Administrative Claims.
a. General Provisions.
Except as provided below for (i) non-tax liabilities incurred in the
ordinary course of business by the Debtors in Possession and (ii) Post-Petition
Tax Claims, requests for payment of Administrative Claims must be Filed and
served on counsel for the Debtors and Reorganized CMI, Reorganized CMM or
Reorganized Holdings, as the case may be, no later than (x) sixty (60) days
after the Effective Date, or (y) such later date, if any, as the Bankruptcy
Court shall order upon application made prior to the end of such 60-day period.
Holders of Administrative Claims (including, without limitation, professionals
requesting compensation or reimbursement of expenses and the Holders of any
Claims for federal, state or local taxes) that are required to File a request
for payment of such Claims and that do not File such requests by the applicable
bar date shall be forever barred from asserting such Claims against the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings, or any of their
respective properties.
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b. Professionals.
All professionals or other Persons requesting compensation or
reimbursement of expenses pursuant to Sections 327, 328, 330, 331, 503(b),
506(b) or 1103 of the Bankruptcy Code for services rendered on or before the
Effective Date (including, without limitation, any compensation requested by any
professional or any other Person for making a substantial contribution in the
Reorganization Cases) shall File and serve on Reorganized CMI, Reorganized CMM
or Reorganized Holdings, as the case may be, and counsel for Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, an application for
final allowance of compensation and reimbursement of expenses no later than
sixty (60) days after the Effective Date. Objections to applications of
professionals or other Persons for compensation or reimbursement of expenses
must be Filed and served on the Reorganized Debtors, counsel for the Reorganized
Debtors and the requesting professional or other Person not later than ninety
(90) days after the Effective Date.
On or as soon as reasonably practicable after the Effective Date,
Reorganized CMI shall pay the contractual claims of the Indenture Trustee for
its fees and expenses including its reasonable attorneys' fees and expenses. To
the extent, after being furnished with supporting documents for such fees and
expenses, Reorganized CMI disputes the reasonableness of any such fees and
expenses, Reorganized CMI shall negotiate in good faith to resolve such dispute.
To the extent that Reorganized CMI and the Indenture Trustee are unable to
resolve any dispute, the dispute shall be resolved by the Bankruptcy Court. The
Indenture Trustee shall not attach or set off any of its fees and expenses
against distributions to Holders of Old Senior Notes and shall not otherwise
withhold or delay any such distributions.
c. Ordinary Course Liabilities.
Except as provided herein, holders of Administrative Claims based on
liabilities incurred in the ordinary course of the Debtors' businesses (other
than Claims of governmental units for taxes or Claims and/or penalties related
to such taxes) shall not be required to File any request for payment of such
Claims. Such Administrative Claims shall be assumed and paid by Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, pursuant to the
terms and conditions of the particular transactions giving rise to such
Administrative Claims, without any further action by the Holders of such Claims.
Any dispute with respect to ordinary course liabilities shall be submitted to
the Bankruptcy Court for resolution unless resolved by agreement of the parties.
d. Tax Claims.
All requests for payment of Post-Petition Tax Claims, for which no bar
date has otherwise been previously established, must be Filed on or before the
later of (i) sixty (60) days following the Effective Date, and (ii) 120 days
following the filing of the tax return for such taxes for such tax year or
period with the applicable governmental unit. Any Holder of any Post-Petition
Tax Claim that is required to File a request for payment of such taxes and that
does not File such a Claim by the applicable bar date shall be forever barred
from asserting any such Post-Petition Tax Claim against the Debtors, Reorganized
CMI, Reorganized CMM or
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Reorganized Holdings, or any of their respective properties, whether any such
Post-Petition Tax Claim is deemed to arise prior to, on or subsequent to the
Effective Date.
B. Identification of Classes of Claims and Interests Impaired and Not Impaired
by the Plan.
1. Claims Against and Interests in CMI.
Classes A8, A12, A15, A17, A19, A22 and A23 are not Impaired by the Plan.
Classes A1, A2, A3, A4, A5, A6, A7, A9, A10, A11, A13, A14, A16, A18, A20 and
A21 are Impaired Classes under the Plan.
2. Claims Against and Interests in CMM.
Classes B3, B4 and B7 are not Impaired by the Plan. Classes B1, B2, B5 and
B6 are Impaired Classes under the Plan.
3. Claims Against and Interests in Holdings.
Classes C3, C4 and C7 are not Impaired by the Plan. Classes C1, C2, C5 and
C6 are Impaired Classes under the Plan.
C. Treatment of Claims Against and Interests in CMI.
1. Class A1 (Citicorp Secured Claims).
The Holder of the Allowed Class A1 Claim shall receive on the Effective
Date with respect to its Allowed Class A1 CMO-IV Claim the following: (i) the
Class A1 Cash Payment; (ii) with respect to the balance of its Allowed Class A1
CMO-IV Claim (with interest on the principal balance of such Allowed Claim
calculated at the Plan Rate), a 4-year promissory note of Reorganized CMI
bearing interest, payable monthly, at the per annum rate of LIBOR plus 3.25%,
secured directly or indirectly by a first priority lien on the CMO-IV Bonds and
the CMO-IV Additional Collateral, with monthly amortization of said note based
on the following schedule, in year one .833% of the original balance of said
note would be amortized each month, in year two .666% of the original balance of
said note would be amortized each month, and in the third and fourth years, the
remaining principal balance of said note as of the second anniversary of the
Effective Date would be amortized in monthly installments based upon a 13-year
amortization schedule, with a balloon payment of the then-outstanding principal
balance of the note coming due on the fourth anniversary of the Effective Date;
and (iii) loan extension fees payable in Cash on the 2-year, 2 1/2-year, 3-year
and 3 1/2-year anniversaries of the Effective Date, if said note has not been
paid off in full prior to such dates, equal to 1.5% of the then outstanding
principal balance of said note. It is contemplated that the CMO-IV Bonds and the
CMO-IV Additional Collateral will be, as of the Effective Date, held by a REIT
subsidiary of Reorganized CMI or a qualified REIT subsidiary of a REIT
subsidiary of Reorganized CMI. In addition, the Holder of the Allowed Class A1
Claim shall 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
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Holder's Allowed Class A1 CMO-IV Claim referenced in the first sentence of this
paragraph, with interest on the principal balance of such Allowed Claim
calculated at the Plan Rate.
2. Class A2 (First Union Secured Claim).
The Holder of the Allowed Class A2 Claim shall receive on the Effective
Date payment in full in Cash of any remaining balance of its Allowed Class A2
Claim with interest on the principal balance of such Allowed Claim calculated at
the Plan Rate.
3. Class A3 (GACC Secured Claim).
The Holder of the Allowed Class A3 Claim shall receive on the Effective
Date the treatment of its Allowed Secured Claim set forth on Exhibit 1 hereto,
or such other treatment as may be agreed to by CMI and the Holder of the Allowed
Class A3 Claim.
4. Class A4 (Lehman Secured Claim).
The Holder of the Allowed Class A4 Claim shall receive on the Effective
Date payment in full in Cash of any remaining balance of its Allowed Class A4
Claim with interest on the principal balance of such Allowed Claim calculated at
the Plan Rate.
5. Class A5 (Merrill Secured Claim).
The Holder of the Allowed Class A5 Claim shall receive on the Effective
Date the treatment of its Allowed Secured Claim set forth on Exhibit 1 hereto,
or such other treatment as may be agreed to by CMI and the Holder of the Allowed
Class A5 Claim.
6. Class A6 (Morgan Stanley Secured Claim).
The Holder of the Allowed Class A6 Claim shall receive on the Effective
Date payment in full in Cash of any remaining balance of its Allowed Class A6
Claim with interest on the principal balance of such Allowed Claim calculated at
the Plan Rate.
7. Class A7 (Other Secured Claims).
The Holder of an Allowed Class A7 Claim (if any) shall receive on the
Effective Date either (i) payment in full in Cash of the Allowed Class A7 Claim
with interest on the principal balance of any such Allowed Claim calculated at
the Plan Rate, (ii) if CMI so elects, the collateral securing the Allowed Class
A7 Claim (if any) in full satisfaction of such Claim, or (iii) such other
treatment as may be agreed to by CMI and the Holder(s), if any, of Allowed Class
A7 Claim(s).
8. Class A8 (Priority Claims).
The Holders of Allowed Class A8 Claims shall receive on the Effective Date
payment in full in Cash of Allowed Class A8 Claims including Plan Interest
thereon.
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<PAGE>
9. Class A9 (Old Senior Note Claims)
The Holders of Allowed Class A9 Claims shall receive on the Effective Date
the treatment of their Allowed Claims set forth on Exhibit 2 hereto.
10. Class A10 (CMI General Unsecured Claims).
The Holders of Allowed Class A10 Claims shall receive on the Effective
Date the treatment of their Allowed Claims as set forth on Exhibit 2 hereto.
With respect to the Class A10 convenience class referred to in Exhibit 2 hereto,
as part of the treatment of Allowed Class A10 Claims, there shall be a
convenience class option as follows: any Holder of an Allowed Class A10 Claim
(or whose Allowed Claim is treated within this Class) whose Allowed Claim is for
$150,000 or less and elects the convenience class treatment on its ballot, or
whose Allowed Claim is for an amount in excess of $150,000 and elects in writing
on its ballot to reduce its claim to $150,000 and accept convenience class
treatment thereof, shall be entitled to receive payment in Cash on the Effective
Date of the allowed amount of such Holder's Allowed Class A10 Claim in full
satisfaction of said Claim, with accrued and unpaid pre-petition interest
thereon (if any) 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 an interest rate applicable to such
Holder's Allowed Claim and any accrued and unpaid post-petition interest thereon
calculated at the Plan Interest rate. The total amount to be paid by CMI with
respect to the foregoing convenience class option shall be paid from the funds
in the Class A9/A10 Cash Payment.
11. Class A11 (Guarantee Claims).
If, and only to the extent that, an Allowed Class A11 Claim is not fully
treated with respect to such Holder's underlying Allowed Claim under the Plan
treatment for Claims against CMM or Holdings, as the case may be, any remaining
Allowed Class A11 Claim (if any) shall be included as part of the CMI General
Unsecured Claims and treated for all purposes as part of Class A10.
12. Class A12 (Freddie Mac Claims).
CMI's obligation under the Freddie Mac Agreement shall be deemed
reaffirmed on the Effective Date, and the Claims of Freddie Mac numbered 335 and
497 on the July 2, 1999 claims register, each in the amount of $230,448,487.24,
shall be deemed withdrawn and thereby disallowed as of the Effective Date.
13. Class A13 (Intercompany Claims).
No payment shall be made under the Plan to Holders of Class A13 Claims on
account of such Claims.
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<PAGE>
14. Class A14 (Series B Preferred Stock).
Each Holder of Series B Preferred Stock as of the Effective Date shall
retain its Series B Preferred Stock; provided that if the Holders of Series B
Preferred Stock as of the Voting Record Date vote as a Class by the requisite
amount to accept the Plan, the Articles Supplementary relating to the Series B
Preferred Stock will be deemed amended to permit the payment of dividends on
Series B Preferred Stock, including accrued and unpaid dividends, in CMI Common
Stock or Cash, at the election of Reorganized CMI.
15. Class A15 (Series B Preferred Stock Securities Claims).
Each Holder of an Allowed Class A15 Claim (if any) shall, if, as and when
any such Claim is Allowed by Final Order, receive in full satisfaction of any
such Allowed Class A15 Claim its share of any Insurance Proceeds applicable
thereto plus, if such Allowed Class A15 Claim (if any) is not paid in full from
such Insurance Proceeds, CMI Common Stock in an amount equal in value, as of the
date of issuance thereof, to the balance (if any) of such Allowed Class A15
Claim, provided that any such Claim not timely filed (and in any event not filed
before the Confirmation Date) shall be released and discharged under the Plan
and the Confirmation Order.
16. Class A16 (Former Series C Preferred Stock).
Former Series C Preferred Stock has been exchanged for Series E Preferred
Stock. Each Holder of Series E Preferred Stock as of the Distribution Record
Date shall retain its Series E Preferred Stock and such Series E Preferred Stock
shall have the terms, rights and preferences summarized in Exhibit 3 hereto and
as set forth in the Articles Supplementary relating to the Series E Preferred
Stock. All accrued and past due dividends on Former Series C Preferred Stock
shall be paid on the Effective Date, at the election of Reorganized CMI, in CMI
Common Stock or Cash.
17. Class A17 (Former Series C Preferred Stock Securities Claims).
Each Holder of an Allowed Class A17 Claim (if any) shall, if, as and when
any such Claim is Allowed by Final Order, receive in full satisfaction of any
such Allowed Class A17 Claim its share of any Insurance Proceeds applicable
thereto plus, if such Allowed Class A17 Claim (if any) is not paid in full from
such Insurance Proceeds, CMI Common Stock in an amount equal in value, as of the
date of issuance thereof, to the balance (if any) of such Allowed Class A17
Claim, provided that any such Claim not timely filed (and in any event not filed
before the Confirmation Date) shall be released and discharged under the Plan
and the Confirmation Order.
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
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<PAGE>
the Effective Date, and such Series E Preferred Stock shall have the terms,
rights and preferences summarized in Exhibit 3 hereto and as set forth in the
Articles Supplementary relating to the Series E Preferred Stock. All shares of
Old Series D Preferred Stock, if not previously exchanged and cancelled, shall
be deemed cancelled as of the Effective Date. All accrued and past due dividends
on Old Series D Preferred Stock shall be paid on the Effective Date, at the
election of Reorganized CMI, in CMI Common Stock or Cash.
19. Class A19 (Old Series D Preferred Stock Securities Claim).
Each Holder of an Allowed Class A19 Claim (if any) shall, if, as and when
any such Claim is Allowed by Final Order, receive in full satisfaction of any
such Allowed Class A19 Claim its share of any Insurance Proceeds applicable
thereto plus, if such Allowed Class A19 Claim (if any) is not paid in full from
such Insurance Proceeds, CMI Common Stock in an amount equal in value, as of the
date of issuance thereof, to the balance (if any) of such Allowed Class A19
Claim, provided that any such Claim not timely filed (and in any event not filed
before the Confirmation Date) shall be released and discharged under the Plan
and the Confirmation Order.
20. Class A20 (Series F Dividend Preferred Stock).
Each Holder of Series F Dividend Preferred Stock as of the Effective Date
shall retain its Series F Dividend Preferred Stock; provided that if the Holders
of Series F Dividend Preferred Stock as of the Voting Record Date vote as a
Class by the requisite amount to accept the Plan, the Articles Supplementary
relating to the Series F Dividend Preferred Stock will be deemed amended to
permit the payment of dividends on Series F Dividend Preferred Stock, including
any accrued and unpaid dividends, in CMI Common Stock or Cash, at the election
of Reorganized CMI.
21. Class A21 (CMI Common Stock).
Each Holder of CMI Common Stock as of the Effective Date shall retain its
CMI Common Stock.
22. Class A22 (Stock Options).
Each Holder of a Stock Option as of the Effective Date shall retain its
Stock Option.
23. Class A23 (CMI Common Stock Securities Claims).
All Holders of Allowed Class A23 Claims (if any) as of the Effective Date
shall receive in full satisfaction of any such Allowed Class A23 Claims their
share of any Insurance Proceeds applicable thereto plus, if such Allowed Class
A23 Claims (if any) are not paid in full from such Insurance Proceeds, CMI
Common Stock in an amount equal in value, as of the date of issuance thereof, to
the balance (if any) of such Allowed Class A23 Claims.
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<PAGE>
D. Treatment of Claims Against and Interests in CMM.
1. Class B1 (First Union Secured Claims).
The Holder of the Allowed Class B1 Claim shall receive on the Effective
Date payment in full in Cash of any remaining balance of its Allowed Class B1
Claim with interest on the principal balance of such Allowed Claim calculated at
the Plan Rate.
2. Class B2 (Other Secured Claims)
The Holder of an Allowed Class B2 Claim (if any) shall receive on the
Effective Date either (i) payment in full in Cash of the Allowed Class B2 Claim
with interest on the principal balance of any such Allowed Claim calculated at
the Plan Rate, (ii) if CMI so elects, the collateral securing the Allowed Class
B2 Claim (if any) in full satisfaction of such Claim, or (iii) such other
treatment as may be agreed to by CMI and the Holder(s), if any, of Allowed Class
B2 Claim(s).
3. Class B3 (Priority Claims).
The Holders of Allowed Class B3 Claims shall receive on the Effective Date
payment in full in Cash of Allowed Class B3 Claims including Plan Interest
thereon.
4. Class B4 (Guarantee Claims).
The Holders of Allowed Class B4 Claims (if any) shall be paid, if, as and
when any such Claim is allowed by Final Order, in Cash in full by CMM or
Reorganized CMM including Plan Interest thereon if, and only to the extent, not
fully treated with respect to such Holder's underlying Allowed Claim under the
Plan treatment for Claims against CMI or Holdings, as the case may be.
5. Class B5 (CMM General Unsecured Claims).
The Holders of Allowed Class B5 Claims shall receive on the Effective Date
payment in full in Cash of Allowed Class B5 Claims, with accrued and unpaid
pre-petition interest thereon (if any) calculated at the non-default contract
rate of interest in such Holder's documents for those Holders of Allowed Class
B5 Claims who have an interest rate applicable to such Holder's Allowed Class B5
Claim and any accrued and unpaid post-petition interest thereon calculated at
the Plan Interest rate.
6. Class B6 (Intercompany Claims).
No payment shall be made under the Plan to Holders of Class B6 Claims on
account of such Claims.
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<PAGE>
7. Class B7 (CMI's Interests in CMM).
The Holder of the Class B7 Interest shall retain its Interest under the
Plan.
E. Treatment of Claims Against and Interests in Holdings.
1. Class C1 (Citicorp Secured Claims).
The Holder of any remaining Allowed Class C1 Claim (if any) shall receive
on the Effective Date payment in full in Cash of the Allowed Class C1 Claim with
interest on the principal balance of any such Allowed Claim calculated at the
Plan Rate.
2. Class C2 (Other Secured Claims).
The Holder of an Allowed Class C2 Claim (if any) shall receive on the
Effective Date either (i) payment in full in Cash of the Allowed Class C2 Claim
with interest on the principal balance of any such Allowed Claim calculated at
the Plan Rate, (ii) if CMI so elects, the collateral securing the Allowed Class
C2 Claim (if any) in full satisfaction of such Claim, or (iii) such other
treatment as may be agreed to by CMI and the Holder(s), if any, of Allowed Class
C2 Claim(s).
3. Class C3 (Priority Claims).
The Holders of Allowed Class C3 Claims shall receive on the Effective Date
payment in full in Cash of Allowed Class C3 Claims including Plan Interest
thereon.
4. Class C4 (Guarantee Claims).
The Holders of Allowed Class C4 Claims (if any) shall receive if, as and
when any such Claim is allowed by Final Order payment in Cash in full including
Plan Interest thereon if, and only to the extent, not fully treated with respect
to such Holder's underlying Allowed Claim under the Plan treatment for Claims
against CMI or CMM, as the case may be.
5. Class C5 (Holdings General Unsecured Claims).
The Holders of Allowed Class C5 Claims (if any) shall, if, as and when any
such Claim is allowed by Final Order, be included as part of the CMI General
Unsecured Claims and included for all purposes in the treatment provided in
Class A10 hereinabove.
6. Class C6 (Intercompany Claims).
No payment shall be made under the Plan to Holders of Class C6 Claims on
account of such Claims.
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<PAGE>
7. Class C7 (Interests in Holdings).
The Holders of the Class C7 Interests shall retain their Interests under
the Plan.
F. Modification of Treatment of Claims.
The Debtors and the CMI Equity Committee reserve for themselves and the
Reorganized Debtors the right to modify the treatment of any Allowed Claim or
Interest in any manner adverse only to the Holder of such Claim or Interest at
any time after the Effective Date upon the consent of the creditor or interest
holder whose Allowed Claim or Interest, as applicable, is being adversely
affected.
V. DISTRIBUTIONS UNDER THE PLAN
A. Disbursing Agent.
The Reorganized Debtors, or such Person(s) as the Debtors may employ in
their sole discretion, will act as Disbursing Agent under the Plan. The
Disbursing Agent shall make all distributions of Cash required to be distributed
under the applicable provisions of the Plan and any documents executed in
connection therewith. The Disbursing Agent may employ or contract with other
entities to assist in or make the distributions required by the Plan and any
documents executed in connection therewith. Each Disbursing Agent will serve
without bond, and each Disbursing Agent, without further Bankruptcy Court
approval, will receive reasonable compensation for distribution services
rendered pursuant to 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.
B. Timing of Distributions.
Except as otherwise provided in this Plan with respect to any particular
Claim or Interest, property to be distributed hereunder on account of Allowed
Claims and Allowed Interests (a) shall be distributed on the date provided for
distribution with respect to that Class or as soon as practicable thereafter to
each Holder of an Allowed Claim or an Allowed Interest in that Class that is an
Allowed Claim or an Allowed Interest as of said distribution date, and (b) shall
be distributed to each Holder of an Allowed Claim or an Allowed Interest of that
Class that becomes an Allowed Claim or Allowed Interest after the distribution
date as soon as practicable after the Order of the Bankruptcy Court allowing
such Claim or Interest becomes a Final Order.
C. Methods of Distributions.
1. 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 Reorganized Debtors
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<PAGE>
shall be null and void if not cashed within 90 days of the date of the issuance
thereof. Requests for reissuance of any check shall be made directly to the
Disbursing Agent as set forth in Section V.G below. Cash payments may, at the
option of the Debtors or Reorganized Debtors, be made by wire transfer.
2. Compliance with Tax Requirements.
In connection with the distributions set forth herein, to the extent
applicable, the Disbursing Agent shall comply with all tax withholding and
reporting requirements imposed on it by any governmental unit, and all
distributions pursuant to this Plan shall be subject to such withholding and
reporting requirements. The Disbursing Agent shall be authorized to take any and
all actions that may be necessary or appropriate to comply with such withholding
and reporting requirements.
Notwithstanding any other provision contained herein: (i) each Holder of
an Allowed Claim or Allowed Interest that is to receive a distribution of Cash
pursuant to the Plan shall have sole and exclusive responsibility for the
satisfaction and payment of any tax obligations imposed by any governmental
unit, including income, withholding and other tax obligations, on account of
such distribution; and (ii) no distribution shall be made to or on behalf of
such Holder pursuant to the Plan unless and until such Holder has made
arrangements reasonably satisfactory to the Disbursing Agent for the payment and
satisfaction of such tax obligations. Any distributions pursuant to the Plan
will, pending the implementation of such arrangements, be treated as an
undeliverable distribution pursuant to Section V.G of the Plan.
D. Distribution Record Date.
As of the close of business on the Distribution Record Date, the transfer
registers for the Old Securities maintained by the Debtors, or their respective
agents, will be closed. The Disbursing Agent and its respective agents and the
Indenture Trustee will have no obligation to recognize the transfer of any Old
Securities occurring after the Distribution Record Date, and will be entitled
for all purposes relating to this Plan to recognize and deal only with those
Holders of record as of the close of business on the Distribution Record Date.
E. Surrender of Cancelled Old Securities and Exchange of Old Securities for New
Securities.
1. Tender of Old Securities.
The mechanism by which Holders of Allowed Claims and Allowed Interests
surrender their Old Securities in order to receive Cash, if and as applicable
under this Plan, and to exchange such Old Securities for New Securities (as
applicable), shall be determined based upon the manner in which the Old
Securities were issued and the mode in which they are held, as set forth below.
a. Old Securities Held in Book-Entry Form
Old Securities held in book-entry form through bank and broker nominee
accounts shall be mandatorily cancelled and (i) Cash distributed, if and as
applicable under this Plan, and (ii)
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<PAGE>
mandatorily exchanged for New Securities (as applicable) through the facilities
of such nominees and the systems of the applicable securities depository or
Clearing System holding such Old Securities on behalf of the brokers or banks.
b. Old Securities in Physical, Registered, Certificated Form
Each Holder of Old Securities in physical, registered, certificated form
will be required, on or before the Effective Date, to deliver its physical notes
or certificates (the "Tendered Certificates") to the Disbursing Agent,
accompanied by a properly executed letter of transmittal, to be distributed by
the Disbursing Agent after the Confirmation Date and containing such
representations and warranties as are described in the Disclosure Statement (a
"Letter of Transmittal").
Any Cash or New Securities to be distributed pursuant to this Plan on
account of any Allowed Claim or Allowed Interest represented by an Old Security
held in physical, registered, certificated form shall, pending such surrender,
be treated as an undeliverable distribution pursuant to Section V.G below.
Signatures on a Letter of Transmittal must be guaranteed by an Eligible
Institution (as defined below), unless the Old Securities tendered pursuant
thereto are tendered for the account of an Eligible Institution. If signatures
on a Letter of Transmittal are required to be guaranteed, such guarantees must
be by a member firm of a registered national securities exchange in the United
States, a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or a correspondent in the
United States (each of which is an "Eligible Institution"). If Old Securities
are registered in the name of a Person other than the Person signing the Letter
of Transmittal, the Old Securities, in order to be tendered validly, must be
endorsed or accompanied by a properly completed power of authority, with
signature guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Letters of Transmittal and Tendered Certificates will
be resolved by the applicable Disbursing Agent, whose determination shall be
final and binding, subject only to review by the Bankruptcy Court upon
application with due notice to any affected parties in interest. CMI reserves
the right, on behalf of itself and the Disbursing Agent, to reject any and all
Letters of Transmittal and Tendered Certificates not in proper form, or Letters
of Transmittal and Tendered Certificates, the Disbursing Agent's acceptance of
which would, in the opinion of the Disbursing Agent or its counsel, be unlawful.
2. Delivery of New Securities in Exchange for Old Securities.
On the Effective Date, Reorganized CMI or the Disbursing Agent shall issue
and authenticate the New Securities and shall apply to DTC to make the New
Securities eligible for deposit at DTC. With respect to Holders of Old
Securities who hold such Old Securities through nominee accounts at bank and
broker participants in DTC or any similar clearing system, the Disbursing Agent
shall deliver the New Securities to DTC or to the registered address specified
by the Clearing System. The Clearing System (or its depositary) shall return the
applicable Old Securities to the Disbursing Agent for cancellation.
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The Disbursing Agent will request that DTC effect a mandatory exchange of
the applicable Old Securities for the applicable New Securities by crediting the
accounts of its participants with the applicable New Securities in exchange for
the Old Securities. On the effective date of such exchange, each DTC participant
will effect a similar exchange for accounts of the beneficial owners holding Old
Securities through such firms. Neither the Debtors, Reorganized Debtors nor the
Disbursing Agent shall have any responsibility or liability in connection with
the Clearing Systems' or such participants' effecting, or failure to effect,
such exchanges.
Holders of Old Securities holding such Old Securities outside a Clearing
System will be required to surrender their Old Securities by delivering them to
the Disbursing Agent, along with properly executed Letters of Transmittal (as
described above in Section V.E.1.b). The Disbursing Agent shall forward the New
Securities on account of such Old Securities to such Holders.
3. Special Procedures for Lost, Stolen, Mutilated or Destroyed
Instruments.
Any Holder of a Claim or an Interest evidenced by an Instrument that has
been lost, stolen, mutilated or destroyed will, in lieu of surrendering such
Instrument, deliver to the Disbursing Agent: (a) an affidavit of loss or other
evidence reasonably satisfactory to the Disbursing Agent of the loss, theft,
mutilation or destruction; and (b) such security or indemnity as may reasonably
be required by the Disbursing Agent to hold the Disbursing Agent harmless from
any damages, liabilities or costs incurred in treating such individual as a
Holder of an Instrument. Upon compliance with this Section, the Holder of a
Claim or Interest evidenced by any such lost, stolen, mutilated or destroyed
Instrument shall, for all purposes under the Plan and notwithstanding anything
to the contrary contained herein, be deemed to have surrendered such Instrument.
4. Failure to Surrender Cancelled Instrument.
Any Holder of Old Securities holding such Old Securities in physical,
registered or certificated form who has not properly completed and returned to
the Disbursing Agent a Letter of Transmittal, together with the applicable
Tendered Certificates, within two years after the Effective Date shall have its
claim for a distribution pursuant to the Plan on account of such Instrument
discharged and shall be forever barred from asserting any such claim against
Reorganized CMI, Reorganized CMM or Reorganized Holdings or their properties. In
such cases, any Cash or New Securities held for distribution on account of such
claim shall be disposed of pursuant to the provisions of Section V.G hereof.
F. Release of Security Interests in or Other Claims to or against Assets or
Property of the Reorganized Debtors by Creditors Paid Pursuant to the Plan.
Any Holder of a Secured Claim whose Secured Claim is being paid in full in
accordance with Section IV.C, IV.D or IV.E of the Plan shall cooperate in all
respects with the Reorganized Debtors and shall execute such documents and
release and return to the Reorganized Debtors such assets or property of the
Debtors or Reorganized Debtors, as applicable, that such creditor is holding,
directly or indirectly, as collateral or in custody, and release and return all
escrows
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created or existing in respect to any such Claim, and, if applicable, unwind any
alleged repurchase agreements or claims to assets or property subject to such
alleged repurchase agreements. Furthermore, any and all Holders of such Secured
Claims shall execute such documents and take such actions as may be reasonably
required by the Reorganized Debtors to effectuate the transfer or retransfer
back to the Reorganized Debtors of all collateral security, or assets or
property held subject to alleged repurchase agreements, free and clear of all
liens, security interests, claims or interests in or to such collateral, assets
or property by such Holder, and shall confirm the foregoing in writing if
requested by the Reorganized Debtors.
G. Delivery of Distributions; Undeliverable or Unclaimed Distributions.
Any Person that is entitled to receive a Cash distribution under this Plan
but that fails to cash a check within 90 days of its issuance shall be entitled
to receive a reissued check from Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, for the amount of the original check, without any
interest, if such Person requests the Disbursing Agent to reissue such check and
provides the Disbursing Agent with such documentation as the Disbursing Agent
reasonably requests to verify that such Person is entitled to such check, prior
to the second anniversary of the Effective Date. If a Person fails to cash a
check within 90 days of its issuance and fails to request reissuance of such
check prior to the second anniversary of the Effective Date, such Person shall
not be entitled to receive any distribution under this Plan.
Subject to Bankruptcy Rule 9010, all distributions to any Holder of an
Allowed Claim or an Allowed Interest shall be made to the address of such Holder
on the books and records of the Debtors or their agents, unless Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as applicable, has been notified in
writing of a change of address. If the distribution to any Holder of an Allowed
Claim or Allowed Interest is returned to a Disbursing Agent as undeliverable,
such Disbursing Agent shall use reasonable efforts to determine the current
address of such Holder, but no distribution shall be made to such Holder unless
and until the applicable Disbursing Agent has determined or is notified in
writing of such Holder's then-current address, at which time such distribution
shall be made to such Holder without any additional interest on such
distribution after the Effective Date. Undeliverable distributions shall remain
in the possession of the applicable Disbursing Agent pursuant to Section V.A of
the Plan until such time as a distribution becomes deliverable. Undeliverable
Cash or New Securities shall be held in trust by the applicable Disbursing Agent
for the benefit of the potential claimants of such funds or securities, and will
be accounted for separately. Any Disbursing Agent holding undeliverable Cash
shall invest such Cash in a manner consistent with the Debtors' investment and
deposit guidelines. Any interest paid, and any other amounts earned, with
respect to such undeliverable Cash pending its distribution in accordance with
this Plan shall be property of Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be. Any unclaimed or undeliverable distributions
(including Cash and New Securities) shall be deemed unclaimed property under
Section 347 (b) of the Bankruptcy Code at the expiration of two years after the
Effective Date and, after such date, all such unclaimed property shall revert to
Reorganized CMI, Reorganized CMM, or Reorganized Holdings, as the case may be,
and the Claim or Interest of any Holder with respect to such property shall be
discharged and forever barred.
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H. Procedures for Treating Disputed Claims Under Plan of Reorganization.
1. Disputed Claims.
a. Process.
If any of the Debtors or Reorganized Debtors disputes any Claim, such
dispute shall be determined, resolved or adjudicated, as the case may be, under
applicable law. Among other things, any Debtor or Reorganized Debtors may elect,
at its sole option, to object or seek estimation under Section 502 of the
Bankruptcy Code with respect to any proof of Claim filed by or on behalf of a
Holder of a Claim or any proof of Interest filed by or on behalf of a Holder of
an Interest.
b. Tort Claims.
All Tort Claims are Disputed Claims. Any unliquidated Tort Claim that is
not otherwise settled or resolved pursuant to Section V.H.l.a above shall be
determined and liquidated under applicable law in the Bankruptcy Court or the
administrative or judicial tribunal in which it is pending on the Confirmation
Date or, if no such action was pending on the Confirmation Date, in the
Bankruptcy Court or any administrative or judicial tribunal of appropriate
jurisdiction. Pursuant to Section IX.E hereof, the automatic stay arising
pursuant to Section 362 of the Bankruptcy Code shall be vacated as of the
Effective Date as to all Tort Claims. Any Tort Claim determined and liquidated
pursuant to a judgment obtained in accordance with this Section V.H. l.b and
applicable non-bankruptcy law that is no longer subject to appeal or other
review and that is not paid by applicable insurance coverage shall be deemed to
be an Allowed Claim in Class A10, B5 or C5, as applicable, in such liquidated
amount and satisfied in accordance with this Plan. Nothing contained in this
Section V.H.l.b shall constitute or be deemed a waiver of any claim, right or
cause of action that the Debtors or the Reorganized Debtors may have against any
Person in connection with or arising out of any Tort Claim, including, without
limitation, any rights under Section 157(b) of title 28, United States Code.
2. Objections to Claims and Interests.
Except insofar as a Claim or Interest is allowed hereunder, Reorganized
CMI, Reorganized CMM and Reorganized Holdings shall be entitled and reserve the
right to object to Claims and Interests. Except as otherwise provided in Section
V.H.3 below and except as otherwise ordered by the Bankruptcy Court, objections
to any Claim or Interest, including, without limitation, Administrative Claims,
shall be Filed and served upon the Holder of such Claim or Interest no later
than 90 days after the Effective Date, unless such period, is, extended by the
Bankruptcy Court, which extension may be granted on an ex parte basis without
notice or hearing. After the Confirmation Date, only the Debtors, Reorganized
CMI, Reorganized CMM or Reorganized Holdings shall have the authority to File,
settle, compromise, withdraw or litigate to judgment objections to Claims and
Interests. From and after the Confirmation Date, the Debtors, Reorganized CMI,
Reorganized CMM or Reorganized Holdings may settle or compromise any Disputed
Claim or Disputed Interest without approval of the Bankruptcy Court. Except as
(i) specified otherwise herein, or (ii) ordered by the Bankruptcy Court, all
Disputed Claims or Disputed Interests shall be resolved by the Bankruptcy Court.
The failure of the
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Debtors to object to any Claim or Interest for voting purposes shall not be
deemed to be a waiver of the Debtors' or Reorganized Debtors right to object to
any Claim or Interest in whole or in part thereafter.
3. Professional Claims.
Except as otherwise ordered by the Bankruptcy Court, objections to Claims
of professionals shall be governed by the provisions of Section IV.A.3.b hereof.
4. No Distributions Pending Allowance.
Notwithstanding any other provisions of this Plan, no payments or
distributions will be made on account of a Disputed Claim or a Disputed Interest
until such Claim or Interest becomes an Allowed Claim or Allowed Interest. If an
interest-bearing reserve account is established for a Disputed Claim, interest
accruing on such Claim after the establishment of such reserve account (if it is
ultimately Allowed by Final Order or settlement between such Holder and the
applicable Reorganized Debtor) shall be limited to interest actually earned on
the reserve account for such Claim.
5. Distributions on Account of Disputed Claims and Interests Once They are
Allowed.
Within 30 days after the end of each calendar quarter following the
Effective Date, the applicable Disbursing Agent will make all distributions on
account of any Disputed Claim or Disputed Interest that has become an Allowed
Claim or Allowed Interest during the preceding calendar quarter. Such
distributions will be made pursuant to the provisions of the Plan governing the
applicable Class. Holders of Disputed Claims or Disputed Interests that are
ultimately allowed will also be entitled to receive, on the basis of the amount
ultimately allowed, any interest payments, dividends or other payments made to
the Class to which such Claim or Interest belongs, but held pending
distribution.
I. Setoffs.
Except with respect to any contract, instrument, release, indenture or
other agreement or document created in connection with the Plan, the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may be,
may, pursuant to Section 553 or Section 502(d) of the Bankruptcy Code or
applicable nonbankruptcy law, set off against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim (before
any distribution is made on account of such Claim), the claims, rights and
causes of action of any nature that the Debtors, Reorganized CMI, Reorganized
CMM or Reorganized Holdings may hold against the Holder of such Allowed Claim;
provided, however, that neither the failure to effect such a setoff nor the
allowance of any Claim hereunder shall constitute a waiver or release by the
Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings of any such
claims, rights and causes of action that the Debtors, Reorganized CMI,
Reorganized CMM or Reorganized Holdings may possess against such Holder.
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VI. INDIVIDUAL HOLDER PROOFS OF INTEREST
Holders of Interests in Classes A14, A16, A18, A20, A21, A22, B7 and C7
are not required to File proofs of Interests unless they disagree with the
number of shares set forth on the applicable stock register.
VII. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. Assumptions.
Except as otherwise provided herein, on the Effective Date, pursuant to
Section 365 of the Bankruptcy Code, the Debtors will assume each executory
contract and unexpired lease entered into by the Debtors prior to the Petition
Date that has not previously (a) expired or terminated pursuant to its own terms
or (b) been assumed or rejected pursuant to Section 365 of the Bankruptcy Code.
The Confirmation Order will constitute an Order of the Bankruptcy Court
approving the assumptions described in this Article VII, pursuant to Section 365
of the Bankruptcy Code, as of the Effective Date.
B. Cure of Defaults in Connection with Assumption.
Any monetary amounts by which each executory contract or unexpired lease
to be assumed pursuant to the Plan is in default will be satisfied, pursuant to
Section 365 (b) (1) of the Bankruptcy Code, at the option of the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may be:
(a) by payment of the default amount in Cash on the Effective Date or as soon as
practicable thereafter; or (b) on such other terms as are agreed to by the
parties to such executory contract or unexpired lease.
If there is a dispute regarding: (i) the amount of any cure payments; (ii)
the ability of Reorganized CMI, Reorganized CMM or Reorganized Holdings to
provide "adequate assurance of future performance" (within the meaning of
Section 365 of the Bankruptcy Code) under the contract or lease to be assumed;
or (iii) any other matter pertaining to assumption, the cure payments required
by Section 365 (b) (1) of the Bankruptcy Code will be made following the entry
of a Final Order resolving the dispute and approving the assumption.
C. Rejections.
Except as otherwise provided herein, on the Effective Date, pursuant to
Section 365 of the Bankruptcy Code, the Debtors will reject each of the
executory contracts and unexpired leases listed on a schedule to be filed prior
to the Confirmation Hearing (the "Contract Rejection Schedule"); provided,
however, that the Debtors reserve the right, at any time prior to the Effective
Date, to amend such schedule to delete any executory contract or unexpired lease
listed therein, thus providing for its assumption pursuant to Sections VII.A and
B above. Each contract and lease listed on the Contract Rejection Schedule will
be rejected only to the extent that any such contract or lease constitutes an
executory contract or unexpired lease. Listing a contract or lease on the
Contract Rejection Schedule does not constitute an admission by the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings that such contract or
lease is an executory contract or unexpired lease or that the Debtors,
Reorganized CMI, Reorganized CMM
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or Reorganized Holdings has any liability thereunder. The Confirmation Order
shall constitute an Order of the Bankruptcy Court approving such rejections,
pursuant to Section 365 of the Bankruptcy Code, as of the Effective Date.
D. Bar Date for Rejection Damages.
If the rejection of an executory contract or unexpired lease pursuant to
the preceding Section VII.C gives rise to a Claim by the other party or parties
to such contract or lease, such Claim shall be forever barred and shall not be
enforceable against the Debtors, Reorganized CMI, Reorganized CMM or Reorganized
Holdings, their successors or properties unless (a) a stipulation with respect
to the amount and nature of such Claim has been entered into by either of the
Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings, as
applicable, and the Holder of such Claim in connection with the rejection of
such executory contract or unexpired lease, or (b) a Proof of Claim is Filed and
served on Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case
may be, and counsel for Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, within 30 days after the Effective Date or such
earlier date as established by the Bankruptcy Court. Unless otherwise ordered by
the Bankruptcy Court. all Allowed Claims arising from the rejection of executory
contracts or unexpired leases shall be treated as Claims in Class A10, B5 or C5,
as applicable.
VIII. ACCEPTANCE OR REJECTION OF THE PLAN
A. Voting Classes.
The Holders of Allowed Claims and Interests in Classes A1, A2, A3, A4, A5,
A6, A7, A9, A10, A11, A13, A14, A16, A18, A20, A21, B1, B2, B5, B6, C1, C2, C5
and C6 are Impaired and shall be entitled to vote to accept or reject the Plan.
B. Presumed Acceptances of Plan.
The Holders of Allowed Claims and Interests in Classes A8, A12, A15, A17,
A19, A22, A23, B3, B4, B7, C3, C4 and C7 are not Impaired under the Plan and,
therefore, are conclusively presumed to accept the Plan.
C. Confirmability of Plan and Cramdown
To the extent that any Impaired Class votes to reject the Plan or is
deemed to have rejected the Plan, the Debtors and the CMI Equity Committee will
request that the Bankruptcy Court confirm the Plan under the "cramdown"
provisions of Section 1129(b) of the Bankruptcy Code.
IX. MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN
A. Corporate Structure.
On the Effective Date, CMI will become Reorganized CMI, CMM will become
Reorganized CMM, and Holdings will became Reorganized Holdings. Reorganized CMM
will
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be a wholly-owned subsidiary of Reorganized CMI, and Reorganized CMI will be the
general partner of Reorganized Holdings.
B. Corporate Action.
1. Cancellation of Old Securities and Related Agreements.
On the Effective Date, except as otherwise provided by the Plan the Old
Securities and all instruments, indentures and agreements evidencing or
governing such Old Securities shall be deemed terminated, canceled, extinguished
and of no further force or effect without any further action on the part of the
Bankruptcy Court, or any person or any government entity or agency, and except
as otherwise provided herein, the Debtors and the Reorganized Debtors shall be
released from any and all obligations under such securities, instruments,
indentures and agreements. Holders of cancelled Old Securities will have no
rights arising from or relating to such Old Securities or the cancellation
thereof, except the rights provided pursuant to this Plan.
2. Articles of Incorporation and Bylaws for Reorganized CMI.
On the Effective Date, Reorganized CMI shall be deemed to have adopted the
Reorganized CMI Articles of Incorporation and the Reorganized CMI Bylaws
pursuant to applicable nonbankruptcy law and Section 1123(a)(5)(I) of the
Bankruptcy Code. The Reorganized CMI Articles of Incorporation contain
amendments providing for, among other matters, an increase in authorized shares
from 120 million to 375 million, (consisting of 300 million shares of common
stock and 75 million shares of preferred stock); authority for the Board to
increase authorized shares without action by stockholders; new provisions
relating to the transfer, acquisition and redemption of capital stock addressing
ownership limitations for CMI and the treatment of excess stock, in each case
consistent with the Internal Revenue Code of 1986; deletion of certain
antitakeover provisions (however CMI will remain subject to the Maryland
business combination statute); change in vote required for removal of directors
from a majority to 66 2/3; 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 Articles of Incorporation and the Reorganized CMI Bylaws
will become effective, without any requirement of further action by stockholders
of CMI or Reorganized CMI, on the Effective Date. The Reorganized CMI Articles
of Incorporation shall be filed with the Maryland Department of Assessments and
Taxation on the Effective Date.
3. Articles of Incorporation and Bylaws for Reorganized CMM.
On the Effective Date, Reorganized CMM shall be deemed to have adopted the
Reorganized CMM Articles of Incorporation and the Reorganized CMM Bylaws
pursuant to applicable non-bankruptcy law and Section 1123(a)(5)(I) of the
Bankruptcy Code. The Reorganized CMM Articles of Incorporation will, among other
provisions, prohibit the issuance of nonvoting equity securities to the extent
required by Section 1123 (a) (6) of the Bankruptcy Code. The Reorganized CMM
Articles of Incorporation and the Reorganized CMM Bylaws will become effective,
without any requirement of further action by the stockholder of CMM or
Reorganized CMM, on the Effective Date. The Reorganized CMM Articles of
Incorporation (if
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applicable) shall be filed with the Maryland Department of Assessments and
Taxation on the Effective Date.
4. Directors and Management of Reorganized CMI.
As of the Effective Date, the Persons identified at or before the
Confirmation Hearing in a schedule to be filed by CMI with the Bankruptcy Court
will serve as the initial members of the Board of Directors of Reorganized CMI.
Such Persons shall be deemed elected to the Board of Directors of CMI, and such
elections shall be deemed effective as of the Effective Date, without any
requirement of further action by stockholders of CMI or Reorganized CMI. The
initial officers of Reorganized CMI shall be selected by the Board of Directors
of Reorganized CMI and their names will be disclosed in a schedule to be Filed
with the Bankruptcy Court at or before the Confirmation Hearing. Subject to any
requirement of Bankruptcy Court approval under Section 1129(a)(5) of the
Bankruptcy Code, those persons identified or designated as directors and
officers of Reorganized CMI in the schedule to be Filed with the Bankruptcy
Court at or before the Confirmation Hearing shall assume their offices as of the
Effective Date and shall continue to serve in such capacities thereafter,
pending further action of the Board of Directors or stockholders of Reorganized
CMI in accordance with the Reorganized CMI Bylaws, Reorganized CMI Articles of
Incorporation and applicable state law.
5. Directors and Management of Reorganized CMM and Reorganized Holdings.
As of the Effective Date, the Persons identified at or before the
Confirmation Hearing in a schedule to be filed by CMM with the Bankruptcy Court
will serve as the initial members of the Board of Directors of Reorganized CMM.
Such Persons shall be deemed elected to the Board of Directors of CMM, and such
elections shall be deemed effective as of the Effective Date, without any
requirement of further action by stockholders of CMM or Reorganized CMM. The
initial officers of Reorganized CMM shall be selected by the Board of Directors
of Reorganized CMM and their names will be disclosed in a schedule to be Filed
with the Bankruptcy Court at or before the Confirmation Hearing. Subject to any
requirement of Bankruptcy Court approval under Section 1129(a)(5) of the
Bankruptcy Code, those persons identified or designated as directors and
officers of Reorganized CMM in the schedule to be Filed with the Bankruptcy
Court at or before the Confirmation Hearing shall assume their offices as of the
Effective Date and shall continue to serve in such capacities thereafter,
pending further action of the Board of Directors or the stockholder of
Reorganized CMM in accordance with the Reorganized CMM Bylaws, Reorganized CMM
Articles of Incorporation and applicable state law.
As of the Effective Date, Reorganized CMI shall remain the sole general
partner of Reorganized Holdings and CMSLP shall remain the sole limited partner
in Reorganized Holdings. It is contemplated that at some time after the
Effective Date, Reorganized Holdings will be dissolved unless the partners in
Reorganized Holdings otherwise determine.
6. No Further Corporate Action.
Each of the matters provided for under this Plan involving the corporate
structure of any Debtor or Reorganized Debtor or corporate action to be taken by
or required of any Debtor or Reorganized Debtor shall, as of the Effective Date,
be deemed to have occurred and be effective
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as provided herein, and shall be authorized and approved in all respects without
any requirement of further action by stockholders or directors of any of the
Debtors or Reorganized Debtors.
C. Implementation.
The Debtors, Reorganized CMI, Reorganized CMM and Reorganized Holdings are
hereby authorized and directed to take all necessary steps, and perform all
necessary acts, to consummate the terms and conditions of 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 this
Plan and the other agreements referred to herein or contemplated hereby.
D. Effectuating Documents and Actions.
The Debtors, Reorganized CMI, Reorganized CMM and Reorganized Holdings, as
the case may be, and each of their respective appropriate officers shall be
authorized to execute and deliver such contracts, instruments, releases, and
other agreements or documents and take such other actions as may be necessary or
appropriate to effectuate and further evidence the terms and conditions of this
Plan, the transactions provided for in the Plan and all other actions in
connection herewith.
E. Term of Injunctions or Stays.
Unless provided in the Confirmation Order or otherwise, all injunctions or
stays imposed in the Reorganization Cases pursuant to Sections 105 and 362 of
the Bankruptcy Code or otherwise in effect on the Confirmation Date shall remain
in full force and effect until the Effective Date.
F. No Interest; Disallowance of Penalties and Premiums.
Except as expressly provided herein, no Holder of an Allowed Claim or
Allowed Interest shall receive interest on the distribution to which such Holder
is entitled hereunder, regardless of whether such distribution is made on the
Effective Date or thereafter. Any and all Claims for or in the nature of
penalties or premiums allegedly owing shall be disallowed including, but not
limited to, prepayment penalties, penalty interest, makewhole premiums or
prepayment premiums.
G. Retiree Benefits.
On and after the Effective Date, to the extent required by Section
1129(a)(13) of the Bankruptcy Code, Reorganized CMI, Reorganized CMM or
Reorganized Holdings, as the case may be, shall continue to pay all retiree
benefits (if any), as the term "retiree benefits" is defined in Section 1114(a)
of the Bankruptcy Code, maintained or established by the Debtors prior to the
Confirmation Date.
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H. Recapitalization Financing Including Issuance of New Securities.
On the Effective Date, the Recapitalization Financing shall be funded and
become effective and the CMBS Sale Portfolio, if not already sold, shall be sold
as parts of effectuating consummation of the Plan. On the Effective Date,
Reorganized CMI will issue the New Securities in accordance with the Plan. The
issuance of the New Securities and all securities issuable upon conversion of
the New Securities is hereby authorized pursuant to Section 1145 of the
Bankruptcy Code, without further action under applicable law. In addition, on
the Effective Date, the Reorganized Debtors will implement and, to the extent
applicable, receive the proceeds of the New Debt in accordance with the terms of
the applicable documents with respect thereto. On the Effective Date, all
securities, instruments, corporate documents, and agreements entered into
pursuant to or contemplated by the Plan, including, without limitation, the New
Securities, any other security and any instrument, corporate document, or
agreement entered into in connection with any of the transactions referenced in
this Section or Section IX.I, shall become effective, binding and enforceable in
accordance with their respective terms and conditions upon the parties thereto
without further act or action under applicable law, regulation, order or rule,
and shall be deemed to become effective simultaneously.
I. Sale of the CMBS Sale Portfolio.
On or before the Effective Date, the commercial mortgage-backed securities
and any other assets in the CMBS Sale Portfolio shall be sold in accordance with
the terms of this Plan and any Orders with respect thereto entered by the
Bankruptcy Court. The net proceeds thereof shall be used to pay Allowed Secured
Claims in accordance with any Orders entered by the Bankruptcy Court with
respect thereto and otherwise used as part of the funding of the Plan.
J. Potential New Equity Investment and Rights Offering.
Although not required to fund this Plan, the Debtors, in consultation with
the CMI Equity Committee, may seek new equity capital from one or more investors
to partially fund the Reorganized Debtors and this Plan as Recapitalization
Financing. In such event, this Plan will be amended to appropriately reflect
such new equity capital transaction. If new equity capital is sought, it is
likely to take the form of a private issuance of preferred stock with such
relative rights and preferences as may be agreed to consistent with the terms of
this Plan.
In the event new equity capital is sought from an investor, it is also
anticipated that an offering of rights to purchase common stock or a new series
of preferred stock, with rights and preferences similar to the preferred stock
likely to be issued to the new equity capital investor but with limited voting
rights, would be made to Holders of CMI Common Stock. Such rights offering would
be developed in consultation with the CMI Equity Committee. Such rights offering
would commence on the Effective Date and would be for a percentage of the
aggregate face value of the securities issued to the new equity capital
investor. All or a portion of the proceeds of the rights offering may be used to
redeem at face value the securities issued to the new equity investor.
Even if CMI does not seek new equity from an investor, an offering of
rights to purchase CMI Common Stock may be made to Holders of CMI Common Stock
in connection with the Plan. Such rights offering would be developed in
consultation with the CMI Equity Committee.
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In the event new equity capital is sought from an investor and a rights
offering is made to Holders of CMI Common Stock or a rights offering is made to
Holders of CMI Common Stock independent of any new equity investment by an
investor, the CMI Common Stock will be exchanged for new CMI Common Stock (on a
one share per one share basis) and rights (one right per share) structured to
ensure that the value of the CMI Common Stock exchanged exceeds the value of the
fresh capital raised in the rights offering, thereby making the exchange
principally in exchange for an interest and only partly for cash and rendering
applicable the limited transactional exemption from securities law registration
afforded by Section 1145 of the Bankruptcy Code. If a rights offering is made
and an exchange of CMI Common Stock, consistent with the foregoing, is effected,
then CMI's existing Series B Preferred Stock, Old Series D Preferred Stock,
Series E Preferred Stock and Stock Options would be exchanged for new Series B
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Stock
Options, as applicable.
K. Second Amended and Restated Stock Option Plan.
On or prior to the Effective Date, the Second Amended and Restated Stock
Option Plan will be adopted by CMI to be effective on the Effective Date and, by
voting to accept this Plan, all Holders of Class A21 Interests shall be deemed
to have ratified and approved the Second Amended and Restated Stock Option Plan.
Additionally, upon entry of a Confirmation Order, the Bankruptcy Court shall,
consistent with Maryland and federal law, be deemed to have approved the Second
Amended and Restated Stock Option Plan (including the increase in the number of
shares of CMI Common Stock with respect to which options may be granted and
extension of the time in which options may be granted) on behalf of CMI's
shareholders and in satisfaction of Section 422 of the Internal Revenue Code.
Following the Effective Date, the Board of Directors of Reorganized CMI may
further amend or modify the Second Amended and Restated Stock Option Plan in
accordance with the terms thereof and any such further amendment or modification
shall not require amendment of this Plan. The Second Amended and Restated Stock
Option Plan amends CMI's Amended and Restated Stock Option Plan for Key
Employees to, among other matters, provide for an increase in the number of
shares of CMI Common Stock with respect to which options may be granted from
2,068,031 (as adjusted in February 2000 from 2 million, in accordance with the
terms and provisions of the Second Amended Employee Stock Option, in connection
with the junior preferred stock dividend) 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.
All other option plans in place prior to the Effective Date shall remain
in place after the Effective Date and Reorganized CMI shall continue to honor
such option plans.
L. Affiliate Reorganization.
In order to secure certain financing contemplated under the Plan with the
commercial mortgage backed securities representing the equity interests in
CBO-1, CBO-2 and CMO-IV (the
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"Equity Interests"), CMI anticipates that, as a part of this Plan, either (i) a
reorganization of certain CMI affiliated entities will be effected resulting in
REIT subsidiaries holding the Equity Interests or owning the stock in the
qualified REIT subsidiaries holding the Equity Interests, or (ii) the qualified
REIT subsidiaries holding the Equity Interests or the trusts holding the
underlying assets will elect REIT status (and other actions will be taken as
necessary to effect such election); with the intent to secure such financing
with a pledge of stock in the REITs, in lieu of a direct pledge of the Equity
Interests. In addition, certain other actions may be taken as necessary to
implement the foregoing.
X. CONFIRMATION AND EFFECTIVE DATE CONDITIONS
A. Conditions to Confirmation.
Confirmation of this Plan is conditioned upon satisfaction of the
applicable provisions of Section 1129 of the Bankruptcy Code and entry of a
Confirmation Order by the Bankruptcy Court in form and substance satisfactory to
the Debtors and the CMI Equity Committee. Among other things, the Confirmation
Order shall authorize and direct that the Debtors, Reorganized CMI, Reorganized
CMM and Reorganized Holdings take all actions necessary or appropriate to enter
into, implement and consummate the contracts, instruments, releases, leases,
indentures and other agreements or documents created in connection with or
contemplated by the Plan, including, but not limited to, those actions
contemplated by the provisions of this Plan set forth in Section XII hereof, and
shall provide that all New Securities to be issued to Holders of Claims and
Interests pursuant to the Plan and all securities issuable upon the conversion
of the New Securities are exempt from registration under federal and state
securities laws pursuant to Section 1145 of the Bankruptcy Code and that the
solicitation of Holders of CMI Common Stock, Series B Preferred Stock and Old
Senior Notes is exempt under Rule 14a-2(a)(4) of the proxy regulations under the
Securities Exchange Act of 1934.
B. Conditions to Effective Date.
The Effective Date will not occur and the Plan will not be consummated
unless and until each of the following conditions has been satisfied or waived
by the Debtors and the CMI Equity Committee:
1. The Confirmation Order in form and substance satisfactory to the
Debtors and the CMI Equity Committee and entered by the Bankruptcy Court shall
not have been modified in any respect.
2. The Recapitalization Financing shall be funded in accordance with the
terms of this Plan and the sale of the CMBS Sale Portfolio shall have been
completed.
3. All other actions and documents necessary to implement the transactions
contemplated by this Plan on or before the Effective Date shall have been
effected or executed.
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XI. EFFECTS OF PLAN CONFIRMATION
A. Discharge of Debtors and Injunction.
Except as otherwise provided in the Plan or the Confirmation Order: (i) on
the Effective Date, the Debtors shall be deemed discharged and released to the
fullest extent permitted by Section 1141 of the Bankruptcy Code from all Claims
and Interests, including, but not limited to, demands, liabilities, Claims and
Interests that arose before the Effective Date and all debts of the kind
specified in Sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether
or not (a) a proof of Claim or proof of Interest based on such Claim, debt or
Interest is Filed or deemed Filed pursuant to Section 501 of the Bankruptcy
Code, (b) a Claim or Interest based on such Claim, debt or Interest is allowed
pursuant to Section 502 of the Bankruptcy Code, or (c) the Holder of a Claim or
Interest based on such Claim, debt or Interest has accepted the Plan; and (ii)
all Persons shall be precluded from asserting against Reorganized CMI,
Reorganized CMM and Reorganized Holdings, their respective successors, or their
respective assets or properties any other or further Claims or Interests based
upon any act or omission, transaction, or other activity of any kind or nature
that occurred prior to the Effective Date. Except as otherwise provided in the
Plan, the Confirmation Order shall act as a discharge of any and all Claims
against and all debts and liabilities of the Debtors, as provided in Sections
524 and 1141 of the Bankruptcy Code, and such discharge shall void any judgment
against the Debtors at any time obtained to the extent that it relates to a
Claim discharged.
Except as otherwise provided in the Plan or the Confirmation Order, on and
after the Effective Date, all Persons who have held, currently hold or may hold
a debt, Claim or Interest discharged pursuant to the terms of the Plan are
permanently enjoined from taking any of the following actions on account of any
such discharged debt, Claim or Interest: (i) commencing or continuing in any
manner any action or other proceeding against the Debtors, Reorganized CMI,
Reorganized CMM or Reorganized Holdings, or their respective successors or their
respective properties; (ii) enforcing, attaching, collecting or recovering in
any manner any judgment, award, decree or order against the Debtors, Reorganized
CMI, Reorganized CMM or Reorganized Holdings, or their respective successors or
their respective properties; (iii) creating, perfecting or enforcing any lien or
encumbrance against the Debtors, Reorganized CMI, Reorganized CMM or Reorganized
Holdings, or their respective successors or their respective properties; and
(iv) commencing or continuing any action, in any manner, in any place that does
not comply with or is inconsistent with the provisions of the Plan or the
Confirmation Order. Any Person, including but not limited to the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings, injured by any willful
violation of such injunction shall recover actual damages, including costs and
attorneys' fees, and, in appropriate circumstances, may recover punitive
damages, from the willful violator.
B. Limitation of Liability.
None of the Debtors, Reorganized CMI, Reorganized CMM or Reorganized
Holdings, the members of the Committees, the Indenture Trustee, or any of their
respective employees, officers, directors, agents, or representatives, or any
professional persons employed by any of them (including, without limitation,
their respective Designated Professionals), shall have any responsibility, or
have or incur any liability, to any Person whatsoever (i) for any matter
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expressly approved or directed by the Confirmation Order or (ii) under any
theory of liability (except for any claim based upon willful misconduct or gross
negligence) for any act taken or omission made in good faith directly related to
formulating, implementing, confirming, or consummating the Plan, the Disclosure
Statement, or any contract, instrument, release or other agreement or document
created in connection with or contemplated by the Plan; provided, that nothing
in this Section XI.B shall limit the liability of any Person for breach of any
express obligation it has under the terms of this Plan, or any documents
executed in connection therewith or pursuant thereto, or under any other
agreement or document entered into by such Person in accordance with or pursuant
to the terms of this Plan (except to the extent expressly provided in the
Confirmation Order) or for any breach of a duty of care owed to any other Person
occurring after the Effective Date.
C. Releases.
On the Effective Date, each of the Debtors shall release unconditionally,
and hereby is deemed to release unconditionally (i) each of the Debtors'
then-current and former officers, directors, shareholders, employees,
consultants, attorneys, accountants, financial advisors and other
representatives (solely in their capacities as such) (collectively, the "Debtor
Releasees") and (ii) the Committees and, solely in their capacity as members or
representatives of the Committees, each member, consultant, attorney,
accountant, financial advisor or other representative of the Committees
(collectively, the "Committee Releasees") from any and all claims, obligations,
suits, judgments, damages, rights, causes of action and liabilities whatsoever,
whether known or unknown, foreseen or unforeseen, existing or hereafter arising,
in law, equity or otherwise, based in whole or in part upon any act or omission,
transaction, event or other occurrence taking place on or prior to the Effective
Date in any way relating to the Reorganization Cases, the Plan or the Disclosure
Statement.
On the Effective Date, each Holder of a Claim or Interest shall be deemed
to have unconditionally released the Debtor Releasees and the Committee
Releasees from any and all claims, obligations, suits, judgments, damages,
rights, causes of action and liabilities whatsoever which any such holder may be
entitled to assert, whether known or unknown, foreseen or unforeseen, existing
or hereafter arising, in law, equity or otherwise, based in whole or in part
upon any act or omission, transaction, event or other occurrence taking place on
or prior to the Effective Date in any way relating to CMI, CMM and/or Holdings,
the Debtors, the Reorganization Cases, the Plan or the Disclosure Statement,
excepting, however, from such release any obligation owing to a Holder of an
Allowed Claim or Allowed Interest provided for in this Plan or the Confirmation
Order.
D. Indemnification.
The obligations of the Debtors as of the Petition Date to indemnify their
present and former directors or officers, respectively, against any obligations
pursuant to the Debtors' articles of incorporation, by-laws, applicable state
law or specific agreement or resolution, or any combination of the foregoing,
shall survive confirmation of the Plan, remain unaffected thereby, be assumed by
Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may be,
and not be discharged. The Debtors shall fully indemnify, and Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, shall assume the
Debtors'
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obligations to indemnify, any person by reason of the fact that he or she is or
was serving as a director, officer, employee, agent, professional, member, or
other authorized representative (in each case, as applicable) of any of the
Debtors (collectively, the "Indemnitees") against any claims, liabilities,
actions, suits, damages, fines, judgments or expenses (including reasonable
attorneys' fees and expenses), arising during the course of, or otherwise in
connection with or in any way related to, the negotiation, preparation,
formulation, solicitation, dissemination, implementation, confirmation and
consummation of the Plan and the transactions contemplated thereby and the
Disclosure Statement in support thereof, provided, however, that the foregoing
indemnification shall not apply to any liabilities arising from the gross
negligence or willful misconduct of any Indemnitee. If any claim, action or
proceeding is brought or asserted against an Indemnitee in respect of which
indemnity may be sought from Reorganized CMI, Reorganized CMM or Reorganized
Holdings, the Indemnitee shall promptly notify Reorganized CMI, in writing and,
in any such event, Reorganized CMI shall assume the defense thereof including
the employment of counsel reasonably satisfactory to the Indemnitee, and the
payment of all expenses of such Indemnitee. The Indemnitee shall have the right
to employ separate counsel in any such claim, action or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnitee unless (a) Reorganized CMI has agreed
to pay the fees and expenses of such counsel, or (b) Reorganized CMI shall have
failed to assume promptly the defense of such claim, action or proceeding or to
employ counsel reasonably satisfactory to the Indemnitee in any such claim
action or proceeding, or (c) the named parties in any such claim, action or
proceeding (including any impleaded parties) include both the Indemnitee and
Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may be,
and the Indemnitee believes, in the exercise of its business judgment and in the
opinion of its legal counsel, reasonably satisfactory to Reorganized CMI, that
the joint representation of Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, and the Indemnitee will likely result in a
conflict of interest (in which case, if the Indemnitee notifies Reorganized CMI
in writing that it elects to employ separate counsel at the expense of
Reorganized CMI, Reorganized CMI shall not have the right to assume the defense
of such action or proceeding on behalf of the Indemnitee). In addition, neither
Reorganized CMI, nor Reorganized CMM nor Reorganized Holdings shall effect any
settlement or release from liability in connection with any matter for which the
Indemnitee would have the right to indemnification from Reorganized CMI,
Reorganized CMM or Reorganized Holdings unless such settlement contains a full
and unconditional release of the Indemnitee, or a release of the Indemnitee
reasonably satisfactory in form and substance to the Indemnitee.
E. Vesting of Assets.
Except as otherwise provided in the Plan or the Confirmation Order, on the
Effective Date, all property of CMI's Estate shall vest in Reorganized CMI and
all property of CMM's Estate shall vest in Reorganized CMM and all property of
Holdings' estate shall vest in Reorganized Holdings, all free and clear of all
Claims, liens, encumbrances and Interests of Holders of Claims and Holders of
Old Securities. From and after the Effective Date, Reorganized CMI, Reorganized
CMM and Reorganized Holdings may operate their business and use, acquire and
dispose of property and settle and compromise claims or interests arising on or
after the Effective Date without supervision by the Bankruptcy Court and free of
any restrictions of the Bankruptcy Code, the Bankruptcy Rules or the Local
Bankruptcy Rules, other than those restrictions expressly imposed by the Plan or
the Confirmation Order.
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F. Preservation of Causes of Action.
Except as otherwise provided herein, or in any contract, instrument,
release or other agreement entered into in connection with or pursuant to the
Plan, Reorganized CMI, Reorganized CMM and Reorganized Holdings shall retain
(and may enforce) any claims, rights and causes of action that the Debtors or
the Estates may hold against any Person, including, but not limited to, any
claims, rights or causes of action under Sections 544 through 550 of the
Bankruptcy Code or any similar provisions of state law, or any other statute or
legal theory.
G. Retention of Bankruptcy Court Jurisdiction.
To the maximum extent permitted by the Bankruptcy Code and other
applicable law, the Bankruptcy Court shall have jurisdiction of all matters
arising out of, and related to, the Reorganization Cases and the Plan pursuant
to, and for the purpose of, Sections 105(a) and 1142 of the Bankruptcy Code,
including, without limitation, jurisdiction to:
1. Allow, disallow, determine, liquidate, classify, estimate or establish
the priority or secured or unsecured status of any Claim or Interest, including
the resolution of any request for payment of any Administrative Claim, the
resolution of any objections to the allowance or priority of Claims or Interests
and the resolution of any dispute as to the treatment necessary to Reinstate a
Claim pursuant to the Plan;
2. Grant or deny any applications for allowance of compensation or
reimbursement of expenses authorized pursuant to the Bankruptcy Code or the
Plan, for periods ending before the Effective Date;
3. Resolve any matters related to the assumption or rejection of any
executory contract or unexpired lease to which any of the Debtors is a party or
with respect to which any of the Debtors may be liable, and to hear, determine
and, if necessary, liquidate any Claims arising therefrom;
4. Ensure that distributions to Holders of Allowed Claims or Allowed
Interests are accomplished pursuant to the provisions of the Plan;
5. Decide or resolve any motions, adversary proceedings, contested or
litigated matters and any other matters and grant or deny any applications
involving the Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings
that may be pending on the Effective Date;
6. Enter such Orders as may be necessary or appropriate to implement or
consummate the provisions of the Plan and all contracts, instruments, releases,
indentures and other agreements or documents created in connection with or
pursuant to the Plan, the Disclosure Statement or the Confirmation Order, except
as otherwise provided herein;
7. Resolve any cases, controversies, suits or disputes that may arise in
connection with the consummation, interpretation or enforcement of the Plan or
the Confirmation Order, including the release and injunction provisions set
forth in and contemplated by the Plan and the
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Confirmation Order, or any entity's rights arising under or obligations incurred
in connection with this Plan or the Confirmation Order;
8. Enter such Orders as may be necessary or appropriate to correct any
defect, cure any omission, or reconcile any inconsistency in this Plan or the
Confirmation Order as may be necessary to carry out the purposes and intent of
this Plan;
9. Enter such Orders as may be necessary or appropriate to enforce,
implement or interpret the terms and conditions of this Plan and resolve any
objections filed with respect to any actions proposed to be taken in connection
with or pursuant to the provisions of this Plan;
10. Enter such Orders as may be necessary or appropriate to approve
agreements, settlements or compromises in connection with matters pending on the
Effective Date or arising thereafter in connection with implementation of
provisions of the Plan;
11. Determine all adversary proceedings and contested matters to recover
or enforce rights with respect to property of any of the Debtors or their
Estates or to obtain other relief relating to causes of actions or claims under
the Bankruptcy Code or other applicable law including, but not limited to, any
actions brought under Sections 541 through 553 of the Bankruptcy Code;
12. Determine matters concerning state, local or federal taxes pursuant to
Sections 346, 505, 525, 1146 and any other tax-related provisions of the
Bankruptcy Code;
13. Enter such Orders as may be necessary or appropriate to enforce and
interpret the provisions of the Confirmation Order;
14. Subject to any restrictions on modifications provided herein or in any
contract, instrument, release, indenture or other agreement or document created
in connection with the Plan, modify this Plan before or after the Effective Date
pursuant to Section 1127 of the Bankruptcy Code or modify the Disclosure
Statement, the Confirmation Order or any contract, instrument, release,
indenture or other agreement or document created in connection with or pursuant
to the Plan, the Disclosure Statement or the Confirmation Order, or remedy any
defect or omission or reconcile any inconsistency in any Bankruptcy Court Order,
this Plan, the Disclosure Statement, the Confirmation Order or any contract,
instrument, release, indenture or other agreement or document created in
connection with or pursuant to the Plan, the Disclosure Statement or the
Confirmation Order, in such manner as may be necessary or appropriate to
consummate this Plan, to the extent authorized by the Bankruptcy Code;
15. Issue injunctions, enter and implement other Orders or take such other
actions as may be necessary or appropriate to restrain interference by any
entity with consummation, implementation or enforcement of the Plan or the
Confirmation Order;
16. Enter and implement such Orders as are necessary or appropriate if the
Confirmation Order is for any reason modified, stayed, reversed, revoked or
vacated;
17. Except as otherwise provided in this Plan, or with respect to specific
matters, in the Confirmation Order or any other Order entered in connection with
the Reorganization Cases,
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determine any other matters that may arise in connection with or relating to the
Plan, the Disclosure Statement, the Confirmation Order or any contract,
instrument, release, indenture or other agreement or document created in
connection with or pursuant to this Plan, the Disclosure Statement or the
Confirmation Order; and
18. Enter an Order or Orders closing the Reorganization Cases.
H. Failure of Bankruptcy Court to Exercise Jurisdiction.
If the Bankruptcy Court abstains from exercising or declines to exercise
jurisdiction, or is otherwise without jurisdiction over any matter arising out
of the Reorganization Cases, including the matters set forth in Section XI.G
above, Section XI.G shall not prohibit or limit the exercise of jurisdiction by
any other court having competent jurisdiction with respect to such matter.
I. Committees.
On the Effective Date, all Committees, shall be dissolved and the members
of such Committees and their professionals shall be released and discharged from
all further rights and duties arising from or related to the Reorganization
Cases. The professionals retained by such Committees and the members thereof
shall not be entitled to compensation or reimbursement of expenses incurred for
services rendered after the Effective Date other than for services rendered in
connection with any application for allowance of compensation and reimbursement
of expenses pending as of, or timely Filed after, the Effective Date.
XII. MISCELLANEOUS PROVISIONS
A. Final Order.
Any requirement in this Plan that an Order be a Final Order may be waived
by the Debtors (or Reorganized Debtors, if applicable); provided, that nothing
contained herein or elsewhere in this Plan shall prejudice the right of any
party in interest to seek a stay pending appeal with respect to such order.
B. Modification of the Plan.
The Debtors and the CMI Equity Committee reserve the right to modify the
Plan at any time prior to the Confirmation Date as provided for by Section 1127
of the Bankruptcy Code or as otherwise permitted by law without additional
disclosure pursuant to Section 1125 of the Bankruptcy Code, except as the
Bankruptcy Court may otherwise order.
If, after receiving sufficient acceptances but prior to Confirmation of
the Plan, the Debtors and the CMI Equity Committee seek to modify the Plan, the
Debtors and the CMI Equity Committee can use such previously solicited
acceptances only to the extent permitted by applicable law.
The Debtors and the CMI Equity Committee reserve the right after the
Confirmation Date and before the Effective Date to modify the terms of the Plan
or waive any conditions to the
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effectiveness thereof if and to the extent the Debtors and the CMI Equity
Committee determine that such modifications or waivers are necessary or
desirable to consummate the Plan. The Debtors will give such Holders of Claims
and Interests notice of such modifications or waivers as may be required by
applicable law and the Bankruptcy Court, and any such modifications shall be
subject to the approval of the Bankruptcy Court to the extent required by, and
in accordance with, Section 1127 of the Bankruptcy Code.
The CMI Equity Committee will join in modifications proposed by the
Debtors in accordance with the foregoing in the exercise of such Committee's
reasonable discretion.
Anything in this Section XII.B. to the contrary notwithstanding, any
modifications of or amendments to, or waivers of any conditions to the
effectiveness of, this Plan prior to the Effective Date that materially affect
the treatment or recovery of the Holders of Class A9 or A10 Allowed Claims
require the consent of the CMI Creditors' Committee; provided, however, that it
is hereby agreed that any change in the amount of payments, timing of payments,
term of the New Debt as defined in Exhibit 2 hereto, Collateral as defined in
Exhibit 2 hereto, liens, rights or default remedies available to the Holders of
Class A9/A10 Note A's or Class A9/A10 Note B's or of any other specific
provisions of Exhibit 2 hereto shall be deemed material for purposes of this
paragraph.
C. Revocation of the Plan.
The Debtors reserve the right to revoke or withdraw the Plan prior to the
Confirmation Date. If the Debtors revoke or withdraw the Plan, or if
Confirmation does not occur, then the Plan shall be null and void, and all of
the Debtors' respective obligations with respect to the Claims and Interests
shall remain unchanged and nothing contained herein or in the Disclosure
Statement shall be deemed an admission or statement against interest or to
constitute a waiver or release of any claims by or against either Debtor or any
other Person or to prejudice in any manner the rights of either Debtor or any
Person in any further proceedings involving either Debtor or any Person.
D. Application of Section 1145 of the Bankruptcy Code and Federal Securities
Laws.
All New Securities to be issued to Holders of Claims and Interests
pursuant to the Plan, and all securities issuable upon the conversion of any of
the New Securities shall be exempt from registration under federal and state
securities laws pursuant to Section 1145 of the Bankruptcy Code. The
solicitation of Holders of CMI Common Stock, Series B Preferred Stock and Old
Senior Notes shall be exempt under Rule 14a-2(a)(4) of the proxy regulations
under the Securities Exchange Act of 1934.
E. Application of Section 1146(c) of the Bankruptcy Code.
The implementation and enforcement of any provisions of the Plan
transferring assets or property, including but not limited to sales of the
commercial mortgage-backed securities and any other property in the CMBS Sale
Portfolio, and the making, delivery or recording of any "instrument of transfer"
in connection with or pursuant to the Plan, shall not be taxed under any
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law imposing a stamp tax, transfer tax or a similar tax pursuant to Section
1146(c) of the Bankruptcy Code.
F. Successors and Assigns.
The rights, benefits and obligations of any Person named or referred to in
the Plan shall be binding on, and shall inure to the benefit of, any heir,
executor, trustee, administrator, successor or assign of such Person.
G. Saturday, Sunday or Legal Holiday.
If any payment or act under the Plan is required to be made or performed
on a date that is not a Business Day, then the making of such payment or the
performance of such act may be completed on the next succeeding Business Day,
but shall be deemed to have been completed as of the required date.
H. Committee Action.
With respect to the action of any of the Committees under this Plan, any
such action shall be duly authorized by majority vote of committee members at a
meeting, in person or by telephone, at which a quorum of such committee is
present or by majority consent of the members of such committee then serving.
I. Post-Effective Date Effect of Evidences of Claims or Interests.
Except as otherwise specified herein, notes, bonds, stock certificates and
other evidences of Claims against or Interests in the Debtors, and all
Instruments of the Debtors (in either case, other than those executed and
delivered as contemplated hereby in connection with the consummation of the
Plan), shall, effective upon the Effective Date, represent only the right to
participate in the distributions contemplated by the Plan.
J. Governing Law.
Unless a rule of law or procedure is supplied by (i) federal law
(including the Bankruptcy Code, the Bankruptcy Rules or the Local Bankruptcy
Rules), (ii) an express choice of law provision in any agreement, contract,
instrument, or document provided for, or executed in connection with, the Plan,
or (iii) applicable non-bankruptcy law, the rights and obligations arising under
the Plan and any agreements, contracts, documents, and instruments executed in
connection with or pursuant to the Plan shall be governed by, and construed and
enforced in accordance with, the laws of the State of Maryland without giving
effect to the principles of conflict of laws thereof.
K. No Liability for Solicitation or Participation.
As specified in Section 1125 (e) of the Bankruptcy Code, Persons that
solicit acceptances or rejections of the Plan and/or that participate in the
offer, issuance, sale, or purchase of securities offered or sold under or in
connection with the Plan, in good faith and in compliance
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with the applicable provisions of the Bankruptcy Code, shall not be liable, on
account of such solicitation or participation, for violation of any applicable
law, rule, or regulation governing the solicitation of acceptances or rejections
of the Plan or the offer, issuance, sale, or purchase of securities.
L. Severability of CMM Provisions.
If so ordered by the Bankruptcy Court at the Confirmation Hearing, the
Plan provisions herein for CMM may be confirmed independently of confirmation of
the Plan provisions for CMI and Holdings.
M. No Admissions or Waiver of Objections.
Notwithstanding anything herein to the contrary, if the Effective Date
does not occur, nothing contained in the Plan shall be deemed as an admission by
the Debtors, the CMI Equity Committee or any other party with respect to any
matter set forth herein, including, without limitation, liability on any Claim
or the propriety of any Claims classification. Neither the Debtors nor the CMI
Equity Committee are bound by any statements herein or in the Disclosure
Statement as judicial admissions.
DATED: March 31, 2000
CRIIMI MAE Inc.
a Maryland corporation
By: __________________________________
Name: Cynthia O. Azzara
Title: Senior Vice President
CRIIMI MAE Management, Inc.
a Maryland corporation
By: __________________________________
Name: Cynthia O. Azzara
Title: Senior Vice President
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CRIIMI MAE Holdings II, L.P.
a Delaware Limited Partnership
By: CRIIMI MAE Inc.
its General Partner
By: __________________________________
Name: Cynthia O. Azzara
Title: Senior Vice President
VENABLE, BAETJER AND HOWARD, LLP AKIN, GUMP, STRAUSS HAUER
& FELD L.L.P.
By:_______________________________ By: __________________________________
Richard L. Wasserman Stanley J. Samorajczyk
Gregory A. Cross Michael S. Stamer
1800 Mercantile Bank and Trust Building 1333 New Hampshire Ave., NW
Two Hopkins Plaza Washington, D.C. 20036
Baltimore, Maryland 21201 (202) 887-4000
(410) 244-7400
SHULMAN, ROGERS, GANDAL,
PORDY & ECKER, P.A.
By:_______________________________
Morton A. Faller
11921 Rockville Pike
Third Floor
Rockville, MD 20852-2753
(301) 231-0928
CO-PROPONENT:
Official Committee of Equity Security Holders
of CRIIMI MAE Inc.
By:_______________________________
Name: Michael F. Wurst
Title: Co-Chairman
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<PAGE>
COVINGTON & BURLING
By:_______________________________
Michael St. Patrick Baxter
Dennis B. Auerbach
1201 Pennsylvania Ave., NW
Washington, D.C. 20044
(202) 662-6000
Attorneys for the Official Committee
of Equity Security Holders of CRIIMI MAE Inc.
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<PAGE>
EXHIBIT 1
<PAGE>
EXHIBIT 1
TERMS OF CHAPTER 11 PLAN
TREATMENT OF MERRILL LYNCH
MORTGAGE CAPITAL INC. AND
GERMAN AMERICAN CAPITAL CORPORATION
CRIIMI MAE Inc. ("CMI") and Merrill Lynch Mortgage Capital Inc. and German
American Capital Corporation ("MLMCI/GACC"), agree to the following terms and
conditions to be included in an Amended Plan of Reorganization to be filed by
CMI. This Term Sheet is subject to the filing of a plan of reorganization and
disclosure statement consistent with the terms and conditions set forth herein
and to agreement upon the form and substance of the New Secured Debt Documents
(as hereinafter defined).
OVERVIEW: Subject to the conditions outlined in this Term
Sheet, MLMCI/GACC and CMI will jointly support an
Amended Plan of Reorganization filed by CMI, CRIIMI
MAE Management, Inc., CRIIMI MAE Holdings II, L.P.
(together, the Debtors) (the "Amended Plan")
providing for MLMCI/GACC to receive, in respect of
the Class A3 (GACC) and Class A5 (MLMCI) Claims (the
"Claims"), (a) an up-front cash payment in reduction
of the Claims on the effective date of the Amended
Plan (the "Effective Date"), as described in the
section of this Term Sheet captioned "Initial
Paydown"; (b) treatment of the Claims as described in
this Term Sheet; and (c) the receipt by MLMCI/GACC,
on the Effective Date, of new secured debt of CMI
(the "New Secured Debt") on the terms and conditions
described in this Term Sheet. The Secured Notes and
other documents that will evidence and secure the New
Secured Debt are sometimes referred to in this Term
Sheet, collectively, as the "New Secured Debt
Documents."
INITIAL PAYDOWN: $100 million in immediately available funds, payable
to MLMCI and GACC on the Effective Date in reduction
of the Claims, PARI PASSU in proportion to the
respective allowed amounts of such Claims plus any
accrued but unpaid interest owing to MLMCI/GACC
(accruing at the contract non-default rate) (the
"Initial Paydown"). [Assumes that GACC will have been
paid in full on its non-CBO Claim at the specified
allocated debt amount (accruing interest at the
contract non-default rate).]
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<PAGE>
BORROWER: CMI or a subsidiary thereof reasonably acceptable to
MLMCI/GACC. The New Secured Debt will be a full
recourse obligation of CMI.
PRINCIPAL The original principal amount of the New Secured
AMOUNT: Debt will be equal to (a) the allowed secured Claims
of MLMCI and GACC, which will be equal to the
aggregate outstanding principal amount of the MLMCI
and GACC debt, plus any accrued and unpaid interest
thereon, as of the date immediately preceding the
Effective Date, without offset or reduction for any
reason (including, without limitation, post-petition
interest), MINUS (b) $100 million, MINUS (c) any
additional principal paydown paid on the Effective
Date in accordance with the Amended Plan.
COLLATERAL: The New Secured Debt will be secured by
first-priority liens and security interests in the
assets listed on the attached Schedule A which shall
include the CCC-rated and unrated classes of "CBO
II". The assets identified on Schedule A are
sometimes referred to in this Term Sheet,
collectively, as the "Collateral". The Collateral
will not be encumbered by or otherwise subject to
liens or security interests in favor of any creditor
other than MLMCI/GACC.
In addition, the Amended Plan will provide, in a
manner acceptable to MLMCI/GACC and their respective
counsel, that in the event MLMCI/GACC become entitled
under the terms of the New Secured Debt Documents to
foreclose upon, sell or otherwise realize upon the
Collateral or any portion thereof upon the occurrence
of the scheduled Maturity Date or any accelerated
maturity following an Event of Default (as such term
is defined in the New Secured Debt Documents), MLMCI
and GACC will also be entitled to sell or transfer
the assets listed on Schedule B (CBO I and Nomura
Bonds) (collectively the "CBO I/Nomura Assets");
provided, however, that any net sales price realized
from the sale of the CBO I/Nomura Assets shall be
remitted to CMI or its designee. The New Secured Debt
Documents will also contain provisions acceptable to
MLMCI/GACC and their respective counsel prohibiting
CMI, prior to the New Secured Debt having been paid
in full from selling or pledging
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<PAGE>
the CBO I/Nomura Assets if the sale or pledge would
result in (i) an adverse change to the tax treatment
of, or otherwise materially and adversely affect, the
Collateral or the CBO I/Nomura Assets or (ii) a
transfer to anyone other than MLMCI/GACC or their
designee of the special servicing rights in
connection with the Collateral.
MATURITY DATE: Business Day immediately preceding the fourth (4th)
anniversary of the Effective Date.
FACILITY FEE: One and one-half percent (1 1/2%) of the original
principal amount of the New SecurED Debt, such
Facility Fee to be paid on the Effective Date of the
Amended Plan.
INTEREST RATE: 30-day LIBOR, plus 325 basis points (3.25%), payable
monthly in arrears. The New Secured Debt Documents
will also contain customary "default rate", "late
charge" and "LIBOR breakage" provisions.
SCHEDULED In addition to interest on the New Secured Debt
PRINCIPAL at the floating rate specified in the section of this
PAYDOWN: Term Sheet captioned "Interest Rate" (the
"Interest"), MLMCI/GACC will also be entitled to
receive, concurrently with each monthly payment of
interest required under the New Secured Debt
Documents, a principal amortization payment in an
amount sufficient, as of the date of such payment, to
amortize the principal amount of the New Secured Debt
then outstanding over the period commencing on the
date of such payment and ending on the fifteenth
anniversary of the Effective Date (the "Scheduled
Principal Paydown"). The combined payment of
Scheduled Principal Paydown and Interest required to
be made on each monthly payment date under the New
Secured Debt Documents is sometimes referred to in
this Term Sheet as the "Required Payment."
CASH A cash management account, in the name of CMI (the
MANAGEMENT "Cash Management Account"), will be established on
ACCOUNT: the Effective Date at a bank mutually acceptable to
MLMCI/GACC and CMI. Other than as set forth in this
Section, all payments received by CMI after the
Effective Date relating to any assets owned by
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<PAGE>
CMI on the Effective Date ("Monthly Cash Flow") will
be deposited directly into the Cash Management
Account; PROVIDED, HOWEVER, that the income, expenses
and assets of CRIIMI MAE Services Limited Partnership
("CMSLP") shall be retained by CMSLP. All payments
relating to the CMM 1998-1 Bonds (CMO IV) shall, if
so required by the secured creditor to whom such
Bonds are pledged as collateral, be excluded from
Monthly Cash Flow and will not be deposited into the
Cash Management Account. Except as otherwise provided
in the section of this Term Sheet entitled
"Transition Events," CMI may pay from the Cash
Management Account (i) all general operating and
administrative expenses for CMI, including
affiliates, to the extent such expenses do not exceed
the total as set forth in an operating budget
approved annually (or as otherwise modified with the
consent of MLMCI/GACC) by MLMCI/GACC with respect to
the fiscal year in question, such approval not to be
unreasonably withheld (PROVIDED, HOWEVER, that all
income retained by CMSLP shall be applied toward
payment of CMSLP expenses before any of such expenses
are charged to the Cash Management Account, and
PROVIDED FURTHER, that the New Secured Debt Documents
will contain provisions acceptable to MLMCI/GACC
prohibiting income and assets of CMI from being
redirected to CMSLP); (ii) interest owing on notes
issued to CMI Unsecured Creditors (the "Unsecured
Creditors") pursuant to the Amended Plan; (iii) cash
dividends on Class B, C, D, and F Preferred Stock;
(iv) cash dividends on any Preferred Stock issued to
satisfy REIT distribution requirements (the "PIK
Dividend"); (v) cash dividends owing to any new
equity investor; (vi) cash dividends on all
outstanding shares of CMI Common Stock (PROVIDED,
HOWEVER, that the amount of such cash dividends paid
in any taxable year of CMI will not exceed 10% of the
amount of the cash dividends that would otherwise be
payable by CMI to its Common stockholders in the
absence of this limitation); and (vii) payments such
as excise taxes necessary to maintain CMI's REIT
status (collectively, the "Monthly Cash Payments").
The total amount of the Monthly Cash Payments during
the first 24 months after the Effective Date will be
limited to the extent necessary to permit CMI to pay
MLMCI/GACC from the Cash Management Account (x) an
Accelerated
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<PAGE>
Principal Paydown (as defined herein) equivalent to
at least $25 million in the first 12 months after the
Effective Date, and (y) a total Accelerated Principal
Paydown of $50 million by the end of the
twenty-fourth (24th) month after the Effective Date.
The total amount of the Monthly Cash Payments during
the 25th through 48th months after the Effective Date
will be limited to the extent necessary to permit CMI
to pay MLMCI/GACC from the CMI Collection Account and
the Cash Management Account monthly principal
amortization payments in amounts sufficient to
amortize the remaining principal amount of the New
Secured Debt on the schedule contemplated by the last
paragraph of the section of this Term Sheet captioned
"Transition Events". The limitations on Monthly Cash
Payments set forth in the preceding two sentences are
referred to hereinafter as the "Payment Cap".
A cash collateral account, in the name of CMI but
under the dominion and control of MLMCI/GACC (the
"CMI Collection Account"), will be established on the
Effective Date at a bank mutually acceptable to CMI
and MLMCI/GACC. All cash flow received in respect of
the Collateral (including, without limitation,
principal and interest payments on the CMBS assets
included in the Collateral) will be deposited by the
party receiving such cash flow into the CMI
Collection Account. Pursuant to the Amended Plan,
MLMCI/GACC will be granted a perfected first priority
security interest in the CMI Collection Account.
MLMCI/GAAC shall be paid the Required Payment from
the CMI Collection Account. In the event the funds
available in the Cash Management Account are
insufficient to enable CMI to make all Monthly Cash
Payments permitted or required to be made by CMI in
respect of any month, subject to the Payment Cap, and
to maintain a minimum balance in the Cash Management
Account as provided in the section of this Term Sheet
labeled "Cash Sweep", MLMCI/GACC will cause funds in
the amount of the shortfall to be transferred from
the CMI Collection Account to the Cash Management
Account. CMI will earn interest on all monies
deposited into the CMI Collection Account.
Notwithstanding anything appearing to the contrary in
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<PAGE>
either of the two preceding paragraphs of this
section, (i) only those funds, if any, remaining in
the CMI Collection Account after payment of the
Required Payment due on the monthly payment date
occurring at the end of the related collection period
will be transferred from the CMI Collection Account
to the Cash Management Account; (ii) no cash
dividends will be paid on any Preferred or Common
Stock at any time when the funds available in the CMI
Collection Account (taking account of any funds
transferred from the Cash Management Account to the
CMI Collection Account in accordance with clause
(iii) below) are insufficient to pay MLMCI/GACC the
Required Payment next becoming due; (iii) if the
amount of funds available in the CMI Collection
Account on the monthly payment date at the end of the
related collection period is less than the amount of
the Required Payment due on such monthly payment
date, funds in the amount of the shortfall which
would otherwise have been available to pay cash
dividends to Preferred or Common Stockholders will be
transferred from the Cash Management Account to the
CMI Collection Account and applied toward such
Required Payment; and (iv) nothing in this paragraph
or elsewhere in this Term Sheet shall be interpreted
to limit CMI's obligation to pay any Required Payment
on the date when due, to subordinate MLMCI/GACC's
right to receive any Required Payment to any other
CMI creditor's right to receive any payment owing to
such creditor, or to limit CMI's right or ability to
transfer additional funds from the Cash Management
Account, if necessary, to pay the Required Payment.
CASH SWEEP: After the Effective Date of the Amended Plan,
MLMCI/GACC may begin making cash sweeps of the Cash
Management Account and the CMI Collection Account on
the last day of each calendar month (the "Cash
Sweep"); PROVIDED, HOWEVER, that so long as no Event
of Default under the New Secured Debt Documents shall
have occurred and be continuing, the Cash Sweep shall
not reduce the amount remaining in the Cash
Management Account below the sum of (a) $10 million
(subject to downward revision, but not below $5
million, based on MLMCI/GACC financial due
diligence), plus (b) the amount determined by
MLMCI/GACC in the exercise of their good faith
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<PAGE>
business judgment to be the amount by which (i) the
Monthly Cash Payments to be made by CMI over the next
succeeding month, subject to the Payment Cap, will
exceed (ii) the funds that will be deposited in the
Cash Management Account over the same month. The net
proceeds of the Cash Sweep shall be paid to
MLMCI/GACC and applied to reduce the principal amount
of the New Secured Debt (the "Accelerated Principal
Paydown").
Subject to the provisions set forth in the section of
this Term Sheet captioned "Transition Events", when
MLMCI/GACC have received a paydown of the original
principal amount of the New Secured Debt totalling
$150 million (including the $100 million initial
principal paydown and any other principal paydowns
referred to in the section of this Term Sheet
captioned "Principal Amount") (the "Required
Principal Paydown"), the Cash Sweep will terminate
and all monies in the CMI Collection Account will be
paid to CMI on a monthly basis, but only if and to
the extent that MLMCI/GACC have received the full
Revised Payment (and the full Required Payment) for
the month in question.
TRANSITION EVENTS: If MLMCI/GACC have not been paid the Required
Principal Paydown prior to the end of the
twenty-fourth (24th) month after the Effective Date,
then, notwithstanding anything appearing to the
contrary in the section of this Term Sheet captioned
"Cash Management Account", CMI may not pay any
Preferred or Common Stock cash dividends (other than
to a new equity investor, to the extent of the lesser
of 12% per annum and $5 million, or the PIK Dividend,
subject in each case to the Payment Cap), until
MLMCI/GACC have received the Required Principal
Paydown.
If at any time realized losses on the Collateral
(including losses by reason of appraisal reduction,
as such term is defined in the underlying pooling and
servicing agreement or trust indenture with respect
to the affected CMBS asset or, if no such definition
is provided, as such term is defined in the New
Secured Debt Documents) exceed a loss threshold to be
specified in the New Secured Debt Documents (the
"Loss Threshold Amount"), then, notwithstanding
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<PAGE>
anything appearing to the contrary in the section of
this Term Sheet captioned "Cash Management Account",
CMI may not pay any Preferred or Common Stock cash
dividends (other than the PIK Dividend, subject to
the Payment Cap) until (i) realized losses (including
losses by reason of appraisal reduction) no longer
exceed the Loss Threshold Amount, or (ii) MLMCI/GACC
have been paid from extrinsic sources (I.E., from
outside equity investment or from funds CMI would
otherwise be entitled under the New Secured Debt
Documents to dividend or distribute to its equity
securityholders, but not from the income from the
Collateral or other operating cash flow of CMI,
except to the extent that CMI would otherwise be
entitled to dividend or distribute such income or
cash flow to its equity securityholders) cash in the
amount by which realized losses (including losses by
reason of appraisal reduction, defined as aforesaid)
exceed the Loss Threshold Amount.
In the event the payment of cash dividends on the
Preferred and/or Common Stock is suspended in
accordance with the provisions of either of the two
preceding paragraphs, the applicable Payment Cap will
be deemed to have been reduced by the amount of such
cash dividends CMI would otherwise have been entitled
to pay until MLMCI/GACC have received the payment
provided for in those paragraphs.
If on any monthly payment date MLMCI/GACC do not
receive a payment at least equivalent to the Required
Payment due on such monthly payment date, an Event of
Default will occur under the New Secured Debt
Documents, in which case MLMCI/GACC, in addition to
any other contractual, legal and equitable remedies
they are entitled to exercise, will be entitled, at
their option, to resume or continue (as applicable)
the Cash Sweep (PROVIDED, HOWEVER, that the exercise
by MLMCI/GACC of their right to resume or continue
the Cash Sweep shall not constitute a waiver or cure
of the Event of Default).
After MLMCI/GACC have been paid the Required
Principal Paydown, MLMCI/GACC shall be paid, on each
monthly payment date during the remainder of the New
Secured Debt term, (i) Interest at the
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<PAGE>
applicable rate required under the New Secured Debt
Documents, plus (ii) a principal amortization payment
in an amount sufficient, as of the date of such
payment, to amortize the principal amount of the New
Secured Debt then outstanding over the period
commencing on the date of such payment and ending on
the thirteenth (13th) anniversary of the Effective
Date (the interest payment specified in clause (i)
and the principal payment described in clause (ii)
being referred to hereinafter, collectively, as the
"Revised Payment"), and if at any time MLMCI/GACC do
not receive the Revised Payment, the Cash Sweep will
resume until MLMCI/GACC have received payments
aggregating the same amounts that would have been
paid if all Revised Payments had been made in
accordance with this Term Sheet. Resumption of the
Cash Sweep by MLMCI/GACC upon their failure to
receive the Revised Payment will be in addition to,
and not in lieu of, the exercise by MLMCI/GACC of any
other contractual, legal or equitable remedies in the
event any Required Payment is not received when due.
LOAN EXTENSION: If CMI has not paid MLMCI/GACC the entire amount of
the New Secured Debt (i) within 24 months of the
Effective Date, CMI shall pay MLMCI/GACC an Extension
Fee equivalent to 1.5% of the remaining principal
balance of the New Secured Debt at the end of the
24th month after the Effective Date; (ii) within 30
months of the Effective Date, CMI shall pay
MLMCI/GACC an Extension Fee equivalent to 1.5% of the
remaining principal balance of the New Secured Debt
at the end of the 30th month after the Effective
Date; (iii) within 36 months of the Effective Date,
CMI shall pay MLMCI/GACC an Extension Fee equivalent
to 1.5% of the principal balance of the New Secured
Debt remaining at the end of the 36th month after the
Effective Date; and (iv) within 42 months of the
Effective Date, CMI shall pay MLMCI/GACC an Extension
Fee equivalent to 1.5% of the remaining principal
balance of the New Secured Debt at the end of the
42nd month after the Effective Date. Failure to pay
any Extension Fee on the date when due will
constitute an Event of Default under the New Secured
Debt Documents.
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<PAGE>
EQUITY INVESTMENT: Subject to the provisions of this paragraph, CMI
shall be entitled to utilize the proceeds of any
equity investments (including proceeds of sale of
assets purchased with proceeds of equity investments)
without restriction. If, however, there are realized
losses on the Collateral (including losses resulting
from appraisal reductions, as described in the second
paragraph of the section of this Term Sheet captioned
"Transition Events") in excess of the Loss Threshold
Amount and MLMCI/GAAC are not otherwise compensated
for such losses in the manner specified in the
section of this Term Sheet captioned "Transition
Events", CMI shall pay (i) 50% of the proceeds it
subsequently receives from any equity investment of
less than $50 million (including proceeds of sale of
assets purchased with the proceeds of such equity
investment) to reduce indebtedness and (ii) 75% of
the portion of any aggregate equity investment it
subsequently receives that exceeds $50 million
(including proceeds of sale of assets purchased with
the proceeds of such equity investment) to reduce
indebtedness. In addition, if CMI elects to use any
portion of the proceeds of an equity investment (or
any portion of the proceeds of sale of assets
purchased with the proceeds of such equity
investment) to reduce the principal amount of any
indebtedness, then the portion of the proceeds of
such equity investment that is used to reduce
indebtedness shall be allocated in a ratio no less
favorable to MLMCI/GACC than 67% to MLMCI/GACC and
33% to the Unsecured Creditors; PROVIDED, HOWEVER,
that CMI may use the first $27 million of proceeds of
any equity investment received prior to or concurrent
with the Effective Date to reduce its indebtedness to
any creditor without the restrictions set forth in
this Equity Investment paragraph (but subject,
nevertheless, to the restriction set forth in the
section of this Term Sheet captioned "Unsecured
Paydown"). The amounts paid to MLMCI/GACC and the
Unsecured Creditors shall be applied to reduce the
amount of outstanding principal of and accrued
interest on their respective indebtednesses.
UNSECURED Notwithstanding any other provision of this Term
PAYDOWN: Sheet permitting or authorizing CMI to utilize
certain funds to reduce the amount of principal
indebtedness
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<PAGE>
owing to the Unsecured Creditors, and in addition to
any other provision of this Term Sheet restricting
payments to the Unsecured Creditors, the New Secured
Debt Documents will require that, at such time as the
outstanding principal indebtedness owing to the
Unsecured Creditors has been reduced (from whatever
source of funds, including, by way of example only
and not by way of limitation, proceeds of equity
investments, proceeds of asset sales and cash flow
from operations) to or below $100 million, any funds
which CMI would otherwise have been permitted or
authorized to use to reduce the amount of principal
indebtedness owing to the Unsecured Creditors, and
which CMI in fact uses to reduce indebtedness, will
be allocated in a ratio no less favorable to
MLMCI/GACC than 67% to MLMCI/GACC and 33% to the
Unsecured Creditors.
BOARD: A majority of the Board of Directors of CMI, as of
the Effective Date, shall be newly-appointed
independent directors approved by MLMCI/GACC and the
Official Committee of Equity Security Holders if the
class(es) of CMI common stockholders vote, or are
deemed to have voted, in favor of the Amended Plan
and the Official Committee of Unsecured Creditors if
the class(es) of Unsecured Creditors vote in favor of
the Amended Plan (MLMCI/GACC and the Committee(s)
having approval rights as aforesaid being referred to
hereinafter as the "Approval Parties"); PROVIDED,
HOWEVER, that the Approval Parties' approval will not
be required with respect to those (and only those)
directors, if any, of the aforesaid majority who are
appointed by a new equity investor approved by
MLMCI/GACC.
OPTIONAL Prior to the Maturity Date, CMI may prepay the New
REDEMPTION: Secured Debt in whole or in part, without any penalty
or premium, except for payment of actual costs, if
any of breaking any LIBOR contracts.
MISCELLANEOUS: The New Secured Debt Documents will not contain any
mark to market provisions other than as set forth in
this Term Sheet.
CMI will be required under the New Secured Debt
Documents to deliver to MLMCI/GACC all publicly
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<PAGE>
filed financial information when and to the extent
same is available to the general public. In addition
to such public financial information, CMI will also
be required to provide financial information
including monthly reconciliation of balances,
principal and interest with respect to each CMBS
asset included in the Collateral, any servicing,
remittance and delinquency reports (in a format
reasonably acceptable to CMI), and such other
information as MLMCI/GACC may reasonably require.
MLMCI/GACC agrees to keep any non-public information
confidential.
CMI and MLMCI/GAAC will cooperate in good faith to
develop a fair and reasonable hedging program.
The New Secured Debt Documents will require CMI to
submit annual operating budgets, in form and level of
detail reasonably acceptable to MLMCI/GACC, to
MLMCI/GACC for review and approval.
The New Secured Debt Documents will provide for
events of default (including grace or cure periods,
where appropriate) customary for transactions of this
type.
The New Secured Debt Documents will contain
provisions intended to ensure that MLMCI/GACC will
obtain the substantive benefits of this Term Sheet by
prohibiting technical circumvention of the
requirement that certain cash flow and payments be
deposited in the Cash Management Account or the CMI
Collection Account (for example, by selling an asset
owned by CMI on the Effective Date and using the
proceeds to purchase a new asset the cash flow from
which would not otherwise be required to be deposited
into the Cash Management Account), and the
requirement that proceeds of equity investments be
applied in the prescribed manner (for example, by
using the proceeds of an equity investment to
purchase a new asset, reselling such asset and
applying the proceeds of such resale in a manner that
the proceeds of the equity investment itself could
not have been applied).
The scheduled maturity of any new notes issued to the
Unsecured Creditors will not be earlier than the
sixth (6th) anniversary of the Effective Date. The
New
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<PAGE>
Secured Debt Documents will require CMI to obtain the
approval of MLMCI/GACC of any modification of such
notes that would change the scheduled maturity
thereof to any earlier date.
If requested by MLMCI/GACC, the New Secured Debt may
be structured as a "repurchase agreement" consistent
with the provisions of this Term Sheet between CMI,
as seller, and MLMCI/GACC, as purchaser, with respect
to the CMBS that would otherwise constitute
Collateral, unless counsel for CMI and counsel for
MLMCI/GACC, acting reasonably and in good faith,
collectively determine that such structure would
materially and adversely affect CMI's REIT status or
have material and adverse consequences for CMI under
the Investment Company Act of 1940, as amended.
The MLMCI/GACC indebtedness shall be allowed pursuant
to the Amended Plan based upon the contract
(non-default) rate of interest.
Pursuant to the Amended Plan, the Debtors and
MLMCI/GACC will exchange mutual releases in customary
form on the Effective Date.
This Term Sheet does not constitute a vote or
agreement to vote for the Amended Plan, and no such
vote or agreement to vote has been solicited by CMI
or anyone acting on its behalf. MLMCI/GAAC's
acceptance or rejection of the Amended Plan is
conditioned upon their review and approval of all
aspects of the Amended Plan and Disclosure Statement.
The Effective Date of the Amended Plan must occur no
later than May 1, 2000; PROVIDED, HOWEVER, that if
the Effective Date has not occurred by that date but
the Debtors demonstrate to MLMCI/GACC's reasonable
satisfaction that the Effective Date is likely to
occur not later than June 1, 2000, the May 1, 2000
deadline will be extended to June 1, 2000.
CRIIMI MAE Inc.
By:
----------------------------
German American Capital Corporation
By:
----------------------------
By:
----------------------------
Merrill Lynch Mortgage Capital Inc.
By:
----------------------------
13
<PAGE>
EXHIBIT 2
<PAGE>
EXHIBIT 2
TERMS OF CHAPTER 11 PLAN
TREATMENT OF CLASS A9 AND
CLASS A10 CLAIMS BY THE DEBTORS'
SECOND AMENDED JOINT PLAN OF REORGANIZATION
CRIIMI MAE Inc. ("CMI"), the Official Committee of Equity Security Holders
of CRIIMI MAE Inc. (the "Equity Committee") and the Official Committee of
Unsecured Creditors of CRIIMI MAE Inc. (the "Unsecured Committee") agree to the
following terms and conditions for treatment of Class A9 and Class A10 Claims in
a Debtors' Second Amended Joint Plan of Reorganization to be filed by CMI and
the Equity Committee. This Term Sheet is subject to the filing of a Plan of
Reorganization and Disclosure Statement consistent with the terms and conditions
set forth herein and to agreement upon the form and substance of the New Debt
Documents (as hereinafter defined).
Overview: Subject to the conditions outlined in this Term Sheet,
the Unsecured Committee, the Equity Committee and CMI
will jointly support a Second Amended Plan of
Reorganization filed by CMI, CRIIMI MAE Management,
Inc., CRIIMI MAE Holdings II L.P. (together, the
"Debtors") (the "Second Amended Plan") and the Equity
Committee providing for the Unsecured Creditors of CMI
to receive in respect of the Class A9 (old senior note
claims) and Class A10 (CMI general unsecured claims)
(collectively, the "Claims"), (a) an initial cash
payment in reduction of the Claims on the effective date
of the Second Amended Plan (the "Effective Date"), as
described in the section of this Term Sheet captioned
"Initial Paydown"; (b) treatment of the Claims as
described in this Term Sheet; and (c) the receipt by
holders of the Claims on the Effective Date, of new
secured debt of CMI on the terms and conditions
described in this Term Sheet (the "New Debt"). The notes
and other documents that will evidence and secure the
New Debt are sometimes referred to in this Term Sheet,
collectively, as the "New Debt Documents." The Debtors'
Plan, including the Merrill/GACC term sheet attached
thereto, shall be modified to make them consistent with
the terms set forth in this Term Sheet.
Initial Paydown: $75 million in immediately available funds, payable on
the Effective Date (i) first, to pay in full all Allowed
Claims in the Class A10 Convenience Class and (ii)
second, in reduction of the Claims, pari passu to all
remaining Class A9 and A10 claimants, in proportion to
the respective allowed amount of such Claims. The
allowed amount of Class A9 and A10 Unsecured
<PAGE>
Claims shall be calculated to include prepetition and
postpetition interest (through the Effective Date) using
the contractual non-default rate of interest for those
creditors who have a contract; the invoice rate (capped
at 9-1/8%) for those creditors with an invoice rate; and
6% for all others (the Allowed Claims, including
prepetition and postpetition interest as described
above, is referred to hereinafter as the "Allowed
Unsecured Claims"). The allowed claims of CRIIMI MAE
Management, Inc. shall not be paid out of the proceeds
of the Initial Paydown and the holders of those claims
shall not receive any of the New Debt.
Borrower: The New Debt will be a full recourse obligation of CMI.
Principal The original principal amount of the New Debt will
Amount: be divided into two notes. The first note shall be in
the amount of $105 million (hereinafter referred to as
"Note A"). The second note (hereinafter referred to as
"Note B") shall be equal to the Allowed Unsecured Claims
minus (b) $75 million, minus (c) $105 million which is
the amount of Note A.
Collateral: Consistent with the terms described on Schedule I hereto
(the "Collateral Schedule"), as previously agreed to
between the Unsecured Committee and CMI, Note A will be
secured by first priority liens and security interests
in the "Miscellaneous Collateral" listed on the attached
Collateral Schedule, which includes, inter alia, the AIM
Fund Proceeds, Insured Mortgage Proceeds (CMO I-III) and
Mezzanine Loans, and Brick Church (if not sold prior to
the Effective Date) (collectively referred to
hereinafter as the "Miscellaneous Collateral").
Note A shall also be secured by a first priority lien
and security interest in the CBO I and Nomura unrated
("CBOI/Nomura Assets"), as set forth on the Collateral
Schedule, pursuant to a collateral trust or similar
arrangement acceptable to CMI, MLMCI/GACC, the Equity
Committee and the Unsecured Committee, which shall
provide, inter alia, that a designee, assignee or
successor of Merrill Lynch Mortgage Capital Inc.
("MLMCI" or "Merrill") and German American Capital
Corporation ("GACC") will serve as collateral trustees
for the benefit of holders of Note A providing for
payment of the proceeds of any sale of the CBOI/Nomura
Assets to the holders of Note A and, after Note A has
been fully repaid, Note B. The Collateral Trust
documents shall provide that the
<PAGE>
holders of Note A and the holders of Note B will not be
permitted to take actions (i) adverse to MLMCI/GACC in
any state court enforcement proceeding with respect to
the CBOI/Nomura Assets or (ii) for the specific purpose
of delaying or impeding the sale of the CBOI/Nomura
Assets by MCMCI/GACC, so long as MLMCI/GACC are acting
in accordance with their obligations under the Plan, the
Collateral Trust documents, and applicable law. The
holders of Note A and Note B shall also not have the
right to foreclose or otherwise enforce their liens
against the CBO I/Nomura Assets without the consent of
MLMCI/GACC. As set forth on the Collateral Schedule, the
holders of Note A shall also receive a "soft second
lien" against the assets listed on Schedule A to the
MLMCI/GACC Term Sheet ("MLMCI/GACC Assets") and (if
possible) a second lien against the CMO IV Assets, which
are also listed on the attached Collateral Schedule. The
"soft second lien" means that the holder shall not be
permitted to take any action (including the right to
foreclose or otherwise enforce its lien unless the
holder obtains the consent of the holder of the first
priority lien) (i) adverse to MLMCI/GACC in any state
court enforcement proceeding with respect to the
MLMCI/GACC Assets or (ii) for the specific purpose of
delaying or interfering with the rights of MLMCI/GACC
with respect to the MLMCI/GACC Assets, so long as
MLMCI/GACC are acting in accordance with their
obligations under the Plan, the Collateral Trust
documents, and applicable law. The rights of the holders
of the soft second lien shall include the right to
credit bid in the event of a foreclosure sale by the
holders of the first lien.
The Collateral Trust or similar arrangement for the
CBOI/Nomura Assets shall terminate if and when (a)
Merrill/GACC have been repaid their debt in full or such
debt is otherwise satisfied (provided, however, the
Collateral Trust shall continue if the Merrill/GACC debt
is refinanced until the refinance lender's debt is fully
satisfied), or (b) Merrill/GACC sell, take for its own
account or otherwise disposes of the MLMCI/GACC Assets
and are not selling the CBOI/Nomura Assets in accordance
with the Collateral Trust documents. In such event, the
CBOI/Nomura Assets will be treated for all purposes
except for purposes of amortization as Miscellaneous
Assets. There will be no other junior liens on the
CBOI/Nomura Assets; provided, however that MLMCI/GACC
may hold a subordinate beneficial
<PAGE>
interest in the Collateral Trust with rights similar to
a soft second lien.
The holders of Note A shall not have the right to
liquidate the MLMCI/GACC Assets or the CBOI/Nomura
Assets without the consent of the holder of the
MLMCI/GACC note, but (a) if the CBOI/Nomura Assets are
sold for any reason, the holders of Note A (and, once
Note A has been repaid, Note B) shall receive all
proceeds (net of costs of sale) thereof, until the A and
B Notes are fully repaid, and (b) if the MLMCI/GACC
Assets are sold to a third party for any reason, the
holders of Note A (and, once Note A has been repaid,
Note B) shall receive all proceeds, net of costs of sale
and amounts necessary to repay the claims of Merrill and
GACC secured by the MLMCI/GACC Assets, until Note A and
Note B are fully repaid, and (c) the holders of Note A
and Note B shall be entitled to credit bid at any
foreclosure sale of assets in which they have a security
interest.
If Merrill/GACC take back the MLMCI/GACC Assets (in any
form) or such assets are sold to an affiliate of Merrill
or GACC, the Holders of Note A (and once Note A has been
repaid, Note B) shall receive the difference between (a)
the value of such assets net of costs of sales, if any,
at the time they are sold or taken back (as determined
by a third-party valuation, if there is no agreement as
to such value), and (b) the outstanding amount of the
principal and interest owed by CMI to Merrill and GACC
under the Plan and secured by such assets.
If the Merrill/GACC claims and their interest in the
MLMCI/GACC Assets is documented as a repurchase
agreement pursuant to the Plan, then Note A and Note B,
and the related documentation, shall assure that in the
event Merrill and/or GACC exercise their rights under
the repurchase agreements, the holders of Note A and
Note B, as applicable, receive the full difference
between the value, net of costs of sale, if any, of the
MLMCI/GACC Assets (as determined by a third-party
valuation) and the outstanding amount of the principal
and interest owed by CMI to MLMCI/GACC under the Plan
and shall provide the holders of Note A and Note B with
rights equivalent to soft second and third liens on the
Merrill/GACC Assets had the Merrill/GACC claims been
documented as a secured loan transaction. If the
relevant Repurchase Agreement is deemed to be a secured
loan transaction, the interest
<PAGE>
of holders of Note A and Note B in the Merrill/GACC
Assets shall be treated as soft second and third liens,
respectively. In the event that CMI exercises its right
to repurchase the MLMCI/GACC Assets, and the MLMCI/GACC
debt is not refinanced, the holders of Note A and Note B
shall have respectively first and second priority liens
on such assets, with such assets thereafter treated for
all purposes except for purposes of amortization as
Miscellaneous Assets.
Any sale or other disposition of the CBOI/Nomura Assets
and/or the MLMCI/GACC Assets shall be on commercially
reasonable terms. If the CBOI/Nomura Assets (or any of
them) are sold along with the MLMCI/GACC Assets (or any
of them), there shall be a fair allocation of the net
proceeds from such sale, which shall be based either
upon an agreement by the holders of Note A or Note B (or
their agent) and Merrill and GACC, or, if there is no
such agreement, then by a third-party valuation of the
value of the CBOI/Nomura Assets.
If the debt owing to MLMCI/GACC is refinanced, the
holders of Note A and Note B will continue to have
second and third liens respectively on the MLMCI/GACC
Assets junior to a first lien held by the refinance
lender, a similar collateral trust or similar
arrangement on the CBOI/Nomura Assets with the refinance
lender and the same rights that they have vis-a-vis
MLMCI/GACC under the Plan. The amount of such first lien
will not be greater than the outstanding balance of the
debt owing to MLMCI/GACC at the time of the refinance
unless such greater amount is paid to the holders of
Note A or Note B.
The holders of Note B shall receive a lien and security
interest on all assets pledged to the holders of Note A
subordinate to the prior liens and security interests of
Note A, provided that the holders of Note B shall be
prohibited from exercising their lien rights until Note
A has been paid in full and an Event of Default has
occurred.
Maturity Date: Note A - business day immediately preceding the fifth
(5th) anniversary of the Effective Date.
Note B - business day immediately preceding the sixth
(6th) anniversary of the Effective Date.
<PAGE>
Interest Rate: Note A - 11.75% cash coupon paid quarterly in arrears.
Note B - 13% cash coupon paid semi-annually in arrears
plus a 7% accreting coupon accreting semi-annually in
arrears paid on the Maturity Date.
Scheduled In addition to interest on the New Debt specified in the
Principal section of this Term Sheet captioned "Interest Rate"
Paydown: (the "Interest"), the holders of Note A will also be
entitled to receive all cash flow received directly or
indirectly by CMI (provided however that the income,
expenses and assets of CRIIMI MAE Services Limited
Partnership ("CMSLP") shall stay with CMSLP) including
interest, return of principal, fees, and all other
payments payable on or arising from the Miscellaneous
Collateral, which shall be paid to the holders of Note A
quarterly in arrears. In addition, the holders of Note A
shall receive scheduled amortization of $5 million
payable on or before 24 months from the Effective Date
of the Plan, $15 million payable on or before 36 months
from the Effective Date of the Plan, and $15 million
payable on or before 48 months from the Effective Date
of the Plan. CMI must pay as much of each scheduled
amortization payment as it has the ability to pay after
CMI pays the other obligations established by this Term
Sheet and Plan, including maintenance of CMI's $7.5
million working capital reserve.
The holders of Note B shall not receive any scheduled
amortization payments.
Loan Fees: If CMI has not paid the entire amount of the New Debt
(i) within 48 months of the Effective Date, CMI shall
pay the holders of Note A and Note B a Loan Fee
equivalent to 1.5% of their respective portions of the
remaining principal balance of the New Debt at the end
of the 48th month after the Effective Date; (ii) within
54 months of the Effective Date, CMI shall pay the
holders of Note A and Note B a Loan Fee equivalent to
1.5% of their respective portions of the remaining
principal balance of the New Debt at the end of the 54th
month after the Effective Date; (iii) within 60 months
of the Effective Date, CMI shall pay the holders of Note
A and Note B a Loan Fee equivalent to 1.5% of their
respective portion of the remaining principal balance of
the New Debt at the end of the 60th month after the
Effective Date; and
<PAGE>
(iv) within 66 months of the Effective Date, CMI shall
pay the holders of Note B a Loan Fee equivalent to 1.5%
of their respective portion of the remaining principal
balance of the New Debt at the end of the 66th month
after the Effective Date. Failure to make a loan fee
payment shall result in the amount of that payment being
proportionally added to the principal balance of Note A
and Note B and shall not otherwise constitute a default
under Note A or Note B, provided that CMI must make the
loan fee payments on time if after paying the other
obligations permitted by this Term Sheet and the Plan,
including CMI's $7.5 million working capital reserve CMI
has the ability to do so. At the option of the Unsecured
Committee made prior to the Effective Date, the loan
fees for Note B may be converted to an increase in the
interest rate on Note B, which would be effective on the
same dates as the loan fees would become due and in an
amount such that the increase in interest rate would
have no economic consequences when compared to the
alternative of paying the loan fee.
Equity Subject to the provisions of this paragraph and the
Investment: other provisions of this Term Sheet CMI shall be
entitled to utilize the proceeds of any equity
investments (including the proceeds from the sale of
assets purchased with proceeds of equity investments)
without restriction provided, however, that the first
$10 million of net proceeds from any new equity
investment will be paid promptly upon its receipt by CMI
to the holders of Note A (or Note B, if Note A has been
fully repaid) as an additional principal paydown.
Optional Prior to the respective Maturity Dates for the A Note
Prepayment: and the B Note, CMI may prepay the New Debt in whole or
in part without any penalty or premium.
Events of Default: Failure to pay the holders of Note A any of the
Scheduled Principal Paydown shall be an event of default
which, if not cured within 30 days, shall entitle the
holders of Note A to foreclose upon and sell the
Miscellaneous Collateral with the net proceeds of such
sale being credited by the holders of Note A or B, as
applicable (i) first, to payment of any accrued and
unpaid interest on the A Note, (ii) second, to all
outstanding but unpaid Scheduled Principal Paydown
payments, (iii) third, to future payments of Scheduled
Principal Paydown, (iv) fourth, to the outstanding
principal balance of Note A, (v) fifth, to accrued and
<PAGE>
unpaid interest on the Note B, (vi) sixth, to the
holders of Note B to reduce the then outstanding
principal balance of Note B and (vii) seventh, after all
amounts owed by CMI to the holders of Notes A and B have
been fully paid, to CMI.
The following defaults shall entitle the holders of the
Note A and Note B, as applicable, to exercise the
remedies described in the immediately preceding
paragraph and take any other actions available to the
holder of a full recourse obligation (except remedies
specifically excluded in this Term Sheet or the Loan
Documents) (A) failure to pay interest on the Note A and
Note B within 30 days of the date, as required herein
and in those notes, (B) any default and expiration of
applicable cure periods under the debt obligations of
CMI to Merrill/GACC provided MLMCI/GACC have taken or
are taking action to enforce default remedies or have
improved any rights granted to them under the Plan or
their loan documents with the consent of CMI, (C)
failure to remedy a breach of a Covenant (as defined
herein) within 60 days, and (D) other defaults
reasonably agreed to by CMI, the Equity Committee, and
the Unsecured Committee.
Covenants: The Note A and Note B loan documents will contain
covenants substantially in the form attached as Schedule
II.
Miscellaneous: If the holders of Note A do not receive all or any
portion of a Scheduled Principal Paydown in any year and
the Miscellaneous Collateral has not been sold, the
holders of Note A shall receive additional interest of
200 basis points on any unpaid amortization amount until
such time as the amount is paid.
CMI will not pay any cash dividends or redeem preferred
stock on or prior to the Effective Date and, until the
holders of Note A and Note B are paid in full, the
Company will not be permitted to redeem preferred stock
or pay dividends other than (i) to pay $4.1 million
annually in preferred dividends and (ii) to pay cash
dividends in an amount not to exceed 13% per annum to a
new equity investor pursuant to the terms of this Term
Sheet and the MLMCI/GACC Term Sheet (provided, however,
CMI shall be permitted to use the net proceeds of any new
equity investment above $10 million for any purpose
except paying dividends in excess of those permitted by
this Term Sheet or
<PAGE>
redemption of preferred stock other than redemption of
preferred stock as part of an exchange for new preferred
stock). CMI will not use dividend(s) or distributions
received from CMSLP to pay dividends on CMI stock or for
the redemption of preferred stock. In the Event of a
Default under the Note A or Note B that remains uncured
during any applicable cure periods, cash dividends will
be suspended on CMI stock unless dividends must be paid
on the Series F and Series [G] PIK preferred stock to
maintain CMI's REIT status.
Any declared default under the MLMCI/GACC debt which
remains uncured after the expiration of any applicable
cure period and as to which MLMCI/GACC have taken or are
taking action to enforce default remedies or as a
consequence of which MLMCI/GACC have improved any rights
granted to them under the Plan or their loan documents
with the consent of CMI shall constitute a default under
Note A and Note B.
Any change in ownership such that 51 percent of the
common stock of CMI is or becomes held by any one
entity, individual or related group of entities or
individuals shall require the consent of the holders of
51 percent of the outstanding Note A and Note B debt,
voting for these purposes as a single class.
Any amendments to the Debtors' Plan that materially
affect the treatment or recovery of the unsecured
creditors require the consent of the Unsecured
Committee; provided, however, that the parties agree
that any change in the amount of payments, timing of
payments, term of New Debt, Collateral, liens, rights,
or default remedies available to the holders of Note A
and Note B or other specific provisions in the Term
Sheet shall be deemed material.
If CMI needs to pay a deficiency dividend, CMI will have
the option to satisfy any required deficiency dividend
payment with a PIK or cash, provided that cash shall be
paid only to the extent that CMI reasonably determines
that cash payments are necessary to preserve its REIT
status. If CMI chooses to satisfy the deficiency
dividend in whole or in part in cash, the holders of
Note A and/or Note B shall have a right to convert the
principal amount of such note, in whole or in part, to
an equal amount of par value of voting preferred stock.
Such preferred stock would be senior to all other
preferred stock and would have a dividend yield equal to
the interest rate on the note
<PAGE>
converted. Such preferred stock would be the recipient
of all cash distributions (including redemption
distributions) to be made in order to preserve CMI's
REIT status. The preferred stock would have sufficient
voting power (which would not decline as redemptions
occur) to cause redemptions of such preferred stock to
be treated as dividends for federal income tax purposes.
If cash distributions and/or PIK distributions were not
sufficient to preserve REIT status, CMI would use such
other mechanism or mechanisms that CMI and the holders
of Note A and Note B may agree upon at the time in order
to attempt to preserve REIT status.
The holders of Note A shall receive a negative pledge of
all assets acquired by CMI after the Effective Date. No
liens or security interests may be granted on any such
assets other than purchase money security interests.
If plan projections for real estate losses are exceeded
(the applicable threshold may be the same as the "Loss
Threshold" referenced in the MLMCI/GACC Term Sheet, if
that threshold is agreed to by MLMCI, GACC, CMI, the
Unsecured Committee and the Equity Committee), then CMI
may not use its cash to purchase B pieces or for any
other expense except (a) payment of debt under the Plan,
(b) payment of dividends legally required to preserve
CMI's REIT status, and (c) ordinary course operating
expenses until the default is cured.
CRIIMI MAE Inc.
By:
------------------------------
Cynthia Azzara
Senior Vice President
Official Committee of Unsecured Creditors
of CRIIMI MAE Inc.
By:
------------------------------
Paul Meiring
Chairman
<PAGE>
Official Committee of Equity Security
Holders of CRIIMI MAE Inc.
By:
------------------------------
Michael St. Patrick Baxter
Dennis Auerbach
Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington, DC 20044
Attorney for the Official Committee
of Equity Security Holders of
CRIIMI MAE Inc.
<PAGE>
SCHEDULE I
COLLATERAL SCHEDULE
Note A will be secured by the following:
I. MISCELLANEOUS COLLATERAL
The Miscellaneous Collateral, as defined in the Term Sheet, and the liens
on such collateral, shall be as follows:
A. Insured Mortgage Proceeds. A valid and perfected first priority
collateral assignment of all right, title and interest of CMI, through its three
wholly-owned subsidiaries referenced below, in and to the Insured Mortgage
Proceeds which consist of the CMO-I Excess Payments, CMO-II Excess Payments and
CMO-III Excess Payments (in each case as defined below).
"CMO-I EXCESS PAYMENTS" means payments of excess interest and
prepayment penalties and distributions of any mortgage assets
(pledged to the trust and remaining after discharge of the trust)
and any proceeds therefrom (remaining after discharge of the trust)
that CMI receives directly or from CRIIMI MAE Financial Corp., a
wholly-owned subsidiary, by virtue of and attributable to the FHA
insured mortgage loans and GNMA mortgage-backed securities that are
pledged, as of the date of the Plan, by CRIIMI MAE Financial Corp.
to secure CRIIMI MAE Financial Corporation's 7% Collateralized
Mortgage Obligations.
"CMO-II EXCESS PAYMENTS" means payments of excess interest and
prepayment penalties and distributions of any mortgage assets
(pledged to the trust and remaining after discharge of the trust)
and any proceeds therefrom (remaining after discharge of the trust)
that CMI receives directly or from CRIIMI MAE Financial Corporation
II, a wholly-owned subsidiary, by virtue of and attributable to the
Freddie Mac Giant GNMA-backed securities that are pledged, as of the
date of the Plan, by CRIIMI MAE Financial Corporation II, to secure
Freddie Mac's Structured Pass-Through Securities (Guaranteed),
Series C007.
"CMO-III EXCESS PAYMENTS" means payments of excess interest and
prepayment penalties and distributions of any mortgage assets
(pledged to the trust and remaining after discharge of the trust)
and any proceeds therefrom (remaining after discharge of the trust)
that CMI receives directly or from CRIIMI MAE Financial Corporation
III, a wholly-owned subsidiary, by virtue of and attributable to
certain GNMA mortgage-backed securities that are pledged, as of the
date of the Plan, by CRIIMI MAE Financial Corporation III, to secure
Fannie Mae's Guaranteed Grantor Trust
<PAGE>
Pass-Through Certificates issued by Fannie Mae Grantor Trust
1995-T5.
B. Aim Fund Proceeds. A valid and perfected first priority collateral
assignment of all right, title and interest of CMI, through CRIIMI, Inc., and of
CMI and CMM, through CRI-Aim Investment L.P., in and to the Aim Fund Proceeds
(as defined below).
"AIM FUND PROCEEDS" means all proceeds received by CMI from CRIIMI,
Inc., a wholly-owned subsidiary of CMI, by virtue of and
attributable to the partnership interests held by CRIIMI, Inc. in
the four publicly traded AIM Fund Partnerships, (i) American Insured
Mortgage Investors Partnership, (ii) American Insured Mortgage
Investors - Series 85, L.P., (iii) American Insured Mortgage
Investors L.P. - Series 86, and (iv) American Insurance Mortgage
Investors L.P. - Series 88, and all proceeds received by CMI and CMM
from CRI-AIM Investment L.P. by virtue of their ownership interests
in CRI-AIM Investment L.P. and attributable to the partnership
interest held by CRI-AIM Investment L.P. in the advisor to the AIM
Fund Partnerships.
C. Mezzanine Notes. A valid and perfected first priority collateral
assignment of all right, title and interest of CMI and CM Mallers Building,
Inc., respectively, in and to the Mezzanine Notes (as defined below) and the
partnership interests securing such Mezzanine Notes.
"MEZZANINE NOTES" means those six notes identified below evidencing
six loans secured by certain partnership interests made to various
borrowers by CMI and CM Mallers Building, Inc.
1. Lender- CRIIMI MAE Inc.
Borrower- Jemal's CM Limited Partnrship
Original Principal Amount- $2,260,000.00
Date- June 29, 1998
2. Lender- CRIIMI MAE Inc.
Borrower- MBSCO Limited Partnership
Original Principal Amount- $500,000.00
Date- September 16, 1998
3. Lender- CRIIMI MAE Inc.
Borrower- MDR Shoppes Limited Partnership
Original Principal Amount- $955,000.00
Date- April 6, 1998
<PAGE>
4. Lender- CM Mallers Building, Inc.
Borrower- Mallers Building Limited Partnership
Original Principal Amount- $2,070,000.00
Date- February 20, 1998
5. Lender- CRIIMI MAE Inc.
Borrower- Mission Falls Corporation
Original Principal Amount- $600,000.00
Date- September 14, 1998
6. Lender- CRIIMI MAE Inc.
Borrower- MDR Plaza Limited Partnership
Original Principal Amount- $700,000.00
Date- September 29, 1997
D. Brick Church Property. A valid and perfected first priority collateral
assignment of any (a) net cash flow (after debt service and operating expenses)
attributable to the Brick Church Property (defined below) and (b) net proceeds
from the sale or other disposition of the Brick Church Property received, in
each case, by CMI, through CRIIMI MAE Brick Church, Inc.
"BRICK CHURCH PROPERTY" means the Holiday Inn Express hotel located
in Nashville, Tennessee owned by CMI's wholly-owned subsidiary
CRIIMI MAE Brick Church, Inc.
II. CBO-I BONDS AND NOMURA BOND
The lien on the CBO-1 Bonds and the Nomura Bond shall be as set forth
below, and pursuant to and consistent with a collateral trust or similar
arrangement acceptable to CMI, Merrill/GACC and the Unsecured Committee and as
more specifically set forth in and subject to the terms of the Plan.
A. CBO-1 Bonds. Subject to the terms of the collateral trust referenced
above, a valid and perfected first priority lien on the CBO-1 Bonds (as defined
below), securing the payment to holders of Note A or Note B, as appropriate, of
any net proceeds received by CMI, through CRIIMI MAE QRS 1, Inc., upon any sale
of the CBO-1 Bonds, subject to II.C. and II.D. below.
"CBO-1 BONDS" means the following bonds and owner trust certificates
owned by the Company; CMM 1996-C1, Classes F, P, R and XS.
B. Nomura Bond. Subject to the terms of the collateral trust referenced
above, a valid and perfected first priority lien on the Nomura Bond securing the
payment
<PAGE>
to holders of Note A or Note B, as appropriate, of any net proceeds received by
CMI upon the sale of the Nomura Bond, subject to II.C. below.
C. Termination of Collateral Trust or Similar Arrangement. If and when (a)
Merrill/GACC have been repaid their debt in full or such debt is otherwise
satisfied (provided, however, the collateral trust shall continue if the
Merrill/GACC debt is refinanced until the refinance lender's debt is fully
satisfied), or (b) Merrill/GACC sells, takes for its own account or otherwise
disposes of the CBO-2 Bonds and are not acting to sell the CBO-1 Bonds and
Nomura Bond, then the collateral trust or similar arrangement shall terminate
and the liens on the CBO-1 Bonds and Nomura Bond shall become valid and
perfected first priority liens on the CBO-1 Bonds and the Nomura Bond securing
the indebtedness evidenced by Note A or Note B, as appropriate, subject to and
in accordance with the terms of the Term Sheet and the Plan, and further subject
to II.D. below.
D. Affiliate Reorganization. The first priority liens on the CBO-1 Bonds
referenced in both II.A and II.C. above shall be structured so as to be direct
or, if necessary in connection with an affiliate reorganization referenced in
the Plan, indirect (with such structure to be reasonably acceptable to the
Unsecured Committee), which affiliate reorganization shall be reasonably
acceptable to CMI, Merrill/GACC and the Unsecured Committee.
III. CBO-2 BONDS
The lien on the CBO-2 Bonds shall be as set forth below, and shall be
subject to terms and conditions acceptable to CMI, Merrill/GACC and the
Unsecured Committee, as more specifically set forth in the Plan, such that (i)
the liens shall constitute "direct or indirect soft second liens" and (ii) in
the event that the Merrill and GACC claims are documented as repurchase
agreements pursuant to the Plan, the holders of Note A and Note B shall receive
the full difference between the value of the CBO-2 Bonds (as determined by a
third party valuation) and the outstanding amount of the debt owed by CMI to
Merrill/GACC under the Plan.
CBO-2 Bonds. A valid and perfected soft second priority lien on the
CBO-2 Bonds (as defined below), which lien shall be structured so as to be
direct or, if necessary in connection with an affiliate reorganization
referenced in the Plan, indirect (with such structure to be reasonably
acceptable to the Unsecured Committee), which affiliate reorganization
shall be reasonably acceptable to CMI, Merrill/GACC and the Unsecured
Committee.
"CBO-2 BONDS" means the bonds and owner trust certificates owned by
the Company referenced on Schedule A hereto.
<PAGE>
IV. CMO-IV BONDS AND CMO-IV ADDITIONAL COLLATERAL
CMO-IV Bonds. If permitted by Citi, a valid and perfected soft second
priority lien on the CMO-IV Bonds and the CMO-IV Additional Collateral (in each
case as defined below), which lien shall be structured so as to be direct or, if
necessary in connection with an affiliate reorganization referenced in the Plan,
indirect (with such structure to be reasonably acceptable to the Unsecured
Committee), which affiliate reorganization shall be reasonably acceptable to
CMI, Merrill/GACC and the Unsecured Committee.
1. "CMO-IV BONDS" means the following bonds owned by the Company:
CMM 1998-1, Classes X/IO, F, G, H and J.
2. "CMO-IV ADDITIONAL COLLATERAL" means the following bonds and
owner trust certificates owned by the Company: CMM 1998-1, Classes K, P,
XS and R.
CMI and the Unsecured Committee acknowledge that, with respect to the
Miscellaneous Collateral described in I. above, all cash proceeds and
distributions attributable to such Miscellaneous Collateral are intended to be
made available to the Unsecured Committee (provided, however, that as
acknowledged and agreed to by the Unsecured Committee, the sub advisor fee paid
to CMSLP in connection with the Aim Fund Partnerships shall not be made
available to the Unsecured Committee) and agree to take all reasonable action,
including the execution of all reasonable documents, to effect such intent.
The foregoing collateral descriptions will be modified if it is determined
that a better lien can be granted consistent with the Term Sheet, Plan and any
and all applicable constituent and operative documents, after review of such
constituent and operative documents by the Unsecured Committee.
References herein to the Unsecured Committee shall include any successor
thereto.
<PAGE>
SCHEDULE A
CBO-2
Transaction Tranches Rating Face Amount
CMM 1998-C1 D1 BB+ 159,500,000
CMM 1998-C1 D2 BB+ 159,501,000
CMM 1998-C1 E BB 70,889,000
CMM 1998-C1 F BB- 35,444,000
CMM 1998-C1 G B+ 88,612,000
CMM 1998-C1 H1 B 88,611,000
CMM 1998-C1 H2 B 88,611,000
CMM 1998-C1 J B- 106,334,000
CMM 1998-C1 IE CCC 70,889,000
CMM 1998-C1 IE NR 230,389,951
-------------
1,098,780,951
<PAGE>
SCHEDULE II
COVENANTS FOR SERIES A AND SERIES B NOTES
Minimum Operating As of the end of the first full fiscal quarter following
Cash Flow the Effective Date, the Company's Minimum Cash Flow will
not be less than (to be determined *):
The Minimum Cash Flow covenant will be designed to
ensure that CMI has sufficient cash flow to pay (1) all
general operating and administrative expenses for CMI,
including affiliates as set forth in the MLMCI/GACC Term
Sheet, (ii) cash interest payable to the holders of Note
A and B, (iii) cash dividends on any Preferred Stock
issued to satisfy REIT distribution requirements, (iv)
payments such as excise taxes necessary to maintain
CMI's REIT status, (v) cash interest owing to the
lender, if any, secured by the CMO IV bonds so long as
the CMO IV Bonds have not been sold, and (vi) cash
interest owing to MLMCI/GACC pursuant to the MLMCI/GACC
Term Sheet, plus principal owing to MLMCI/GACC based on
a 15-year mortgage amortization schedule.
[* It is understood that the levels will be set for the
first three, six, nine and twelve month periods on a
cumulative basis. Subsequently, all tests will be
quarterly (fiscal qtr) and will include the trailing
twelve-month period. Quarterly test levels will be set
to provide a reasonable cushion to be mutually agreed
upon.]
Gross Cash Income shall include (i) cash payments
received and accruals on securities held as long as
payment on such accruals are not delinquent by more than
[ ] days from scheduled receipt and (ii) all other cash
income. Gross Cash Income will not include cash
distributions, if any from CMSLP. [Match funded debt
shall be removed from this calculation]
Dividends Dividends will be limited to:
o Preferred Stock Dividends required to retain REIT
status, not to exceed $4.1mm per year and
o Preferred dividends in connection with an equity
investment before or after the Effective Date as
long as: (i) the cash dividend rate does not
exceed 13% per year, (ii) the Company has
sufficient liquidity on a projected basis to make
interest and mandatory amortization payments
during the upcoming 12-month period and (iii) the
Company is in compliance with all other covenants.
Asset Sales Proceeds from the sale of assets, after repayment of
debt having a lien on such assets, will be used only to:
(i) reinvest in income-producing assets (including
securities trading assets) within a 180-day reinvestment
period or (ii) repay, on a pro rata basis: (1)
Merrill/GAAC, (2) the Series A and B Notes and (3)
Citibank's debt, if any, related to CMO IV.
Transactions with Any transaction with an affiliate must be on an
Affiliates arms-length basis. To the extent that the proposed
transaction exceeds $2.0 million, a board resolution
(excluding the respective affiliate, if applicable) is
required. To the extent that the proposed transaction
exceeds $25 million, the opinion of a nationally
recognized investment bank is required.
<PAGE>
Purchase of Assets The Company will not be permitted to purchase CMBS
upon a Default Assets rated "B" or lower if any event of default occurs
(including a cross-default to other debt).
Limitation on Debt The Company and its subsidiaries will not be permitted
to incur additional debt other than: (i) Refinancing
Debt, (ii) Non-Recourse Repo Debt, (iii) senior bank
debt not to exceed $[ ] million, (iv) capital lease
obligations not to exceed $[ ] million and (v) debt
permitted under the Interest Coverage Ratio provision
below.
Refinancing Debt includes: (1) the extension of existing
debt or (2) debt incurred solely to refinance existing
debt as long as such new debt incurred: (i) has an
average weighted life no shorter than the debt being
refinanced, (ii) has lower annual amortization
requirements (prior to the maturity of the Series A and
Series B Notes) than the debt being refinanced and (iii)
has interest expense that is not materially greater than
the debt being refinanced.
Non-Recourse Repo Debt includes debt under repurchase
obligations or similar types of financings, regardless
of title, as long as: (i) the Company is in compliance
with all other terms and covenants and (ii) the only
recourse of the lender in the repo debt in the event of
a default is the underlying collateral/securities
purchased with such debt.
The Company cannot incur debt that is senior to the
Series A and Series B Notes.
Interest Coverage In addition to the debt described in clauses (i-iv)
Ratio above, the Company and its subsidiaries may incur
additional debt if, pro forma for incurring such debt,
the Company's Interest Coverage Ratio for the trailing
twelve-month period (or for such shorter time period if
fewer than twelve months have expired post Effective
Date) is greater than [ ]X.
The Company cannot issue debt pursuant to the Interest
Coverage Ratio that: (i) matures prior to the maturity
of the Series B Notes or (ii) is callable prior to the
maturity of the Series A and B Notes. The preceding
sentence will not apply to non-amortizing purchase money
repo debt (recourse) used to acquire CMBS Assets and
having a maturity of less than 2 years.
Interest Coverage Ratio shall be calculated as: (1) (i)
Gross Cash Income, less (ii) cash income from the
Miscellaneous Collateral, less (iii) G&A and other cash
operating expenses divided by (2) cash interest expense
including cash loan extension fees.
Default; Exercise of 60-day notice and cure for all covenants. A waiver of
Remedies default for any of the above covenants or acceleration
or exercise of any remedies will require a vote of a
majority in principal amount of the holders of the A and
B Notes voting as a single class.
<PAGE>
EXHIBIT 3
<PAGE>
EXHIBIT 3
SERIES E CONVERTIBLE PREFERRED STOCK TERM SHEET
Issuer: CRIIMI MAE Inc. ("CRIIMI MAE", "CMI" or "the Company")
Holder: MeesPierson Investments Inc. ("MeesPierson" or "MPII")
Issue Amount: $10.3 million (103,000 Preferred Shares (defined
below)). If the Subsequent Exchange (defined below)
occurs, then the Corporation shall issue another $10.0
million of Preferred Shares to MeesPierson. "Subsequent
Exchange" shall mean the exchange of 100,000 shares of
the Company's Series D Cumulative Convertible Preferred
Stock, par value $0.01 (the "Series D Preferred Stock")
by MeesPierson for 100,000 shares of the Preferred
Shares on or prior to July 31, 2000.
Liquidation Value: $100 per share
Securities: Series E Cumulative Convertible Preferred Shares
("Preferred Shares")
Dividend: 1. From the date of issuance of the relevant share(s)
of Preferred Shares to MPII through the Effective
Date of the Company's Reorganization Plan ("the
Effective Date"), cumulative, floating-rate
dividends based upon 3-month LIBOR plus 75 basis
points, accruing quarterly, and payable, on the
Effective Date, in common stock, which will not
require registration to trade ("Dividend
Securities").
2. After the Effective Date, cumulative, floating
rate dividends based upon 3-month LIBOR plus 250
basis points, payable quarterly in cash or
Dividend Securities at CMI's option.
3. Unpaid dividends shall compound quarterly.
Dividend Share The amount of shares received as Dividend Securities
Amount: will be equal to the dividend dollar amount divided by
the average of the five (5) closing trade prices of the
common stock for the five (5) previous trading days
prior to the dividend payment date.
<PAGE>
Conversion The Preferred Shares will become convertible into CRIIMI
Feature: MAE common stock at the option of MPII beginning three
months after the Effective Date in accordance with the
following schedule:
1. Up to 25,750 (to be increased to 50,750, if the
Subsequent Exchange Occurs) Preferred Shares may
be converted beginning at the end of 3 months, 9
months, 12 months and 15 months after the
Effective Date without regard to the price of
CRIIMI MAE's common stock.
2. Beginning 4 months after the Effective Date and
ending 8 months after the Effective Date, MPII may
convert up to 7,500 (to be increased to 15,000, if
the Subsequent Exchange occurs) additional
Preferred Shares in any 21 trading day period so
long as the price of the common stock remained
above $3.00 per share for each of the previous 21
trading days.
3. Beginning 10 months after the Effective Date, MPII
may convert up to 5,000 (to be increased to
10,000, if the Subsequent Exchange occurs)
additional Preferred Shares in any 21 trading day
period so long as the price of the common stock
remained above $3.00 per share for each of the
previous 21 trading days.
4. In no event may MPII convert (i) more than 25,750
(to be increased to 50, 750, if the Subsequent
Exchange occurs) Preferred Shares in any 21
trading day period, or (ii) Preferred Shares
resulting in MPII owning 5% or more of CMI's then
outstanding common stock.
Conversion Prior to the Effective Date. In the event
that the Effective Date does not occur on or before
December 31, 2000, then 5,000 (to be increased to
10,000, if the Subsequent Exchange occurs) Preferred
Shares shall become convertible at the option of MPII
into fully paid and non-assessable shares of CMI common
stock in January 2001 and in each month thereafter until
the Effective Date. In no event may MPII convert (i)
more than 5,000 (to be increased to 10,000, if the
Subsequent Exchange occurs) Preferred Shares (or less
than 1,000 Preferred Shares at any one time) during any
calendar month or (ii) any Preferred Shares into CMI
common stock if such conversion would result in MPII
owning 5% or more of CMI's then outstanding common
stock.
Conversion Upon conversion, MPII shall receive the common shares
Settlement: and accrued and unpaid dividends on the Series E
Preferred Shares within five business days following
completion of the Conversion Pricing Period.
Conversion Price: MPII may convert its Preferred Shares into common stock,
which will not
<PAGE>
require registration to trade, at a price per share
equal to the Closing Trade Price for a Valid Trading Day
within the Conversion Pricing Period mutually acceptable
to CMI and MPII or, if no Closing Trade Price is
mutually acceptable to CMI and MPII, the Average Closing
Trade Price of CMI common stock over the applicable
Conversion Pricing Period.
Closing Trade The last trade price for CMI common shares (a) as
Price: reported on the NYSE or American Stock Exchange or any
successor thereto, or (b) the last reported bid
quotation for the common stock or the survivor common
stock as the case may be, as reported by the NASDAQ
National Market System or any successor thereto, for
that Trading Day.
Average Closing Calculated by dividing (i) the sum of the closing trade
Trade Price: prices on the NYSE for CMI common stock on each Valid
Trading Day during the applicable Conversion Pricing
Period, by (ii) the total number of Valid Trading Days
in such Conversion Pricing Period.
Conversion 21 trading days commencing on the first Valid Trading
Pricing Day prior to notice of conversion, subject to earlier
Period: termination as agreed upon by CMI and MPII.
Valid An Exchange Business Day during a Conversion Pricing
Trading Day: Period in which either (i) the Minimum Daily Price has
been exceeded, or (ii) the Minimum Daily Price has not
been exceeded and MPII and CMI agree to include such day
as an Exchange Business Day in such Conversion Pricing
Period.
Minimum Either (i) 75% of the Closing Trade Price for the
Daily trading day immediately Price: preceding either the date
of delivery of the Holder Conversion Notice to the
Company or the Mandatory Conversion Date, as the case
may be, or (ii) an amount agreed upon by MPII and CMI at
the beginning of any Conversion Pricing Period, that
shall be applicable for every Exchange Business Day
during a Conversion Pricing Period.
Mandatory Any outstanding Preferred Shares will be converted on
Conversion: the second anniversary of the Effective Date.
Optional Upon thirty (30) days prior written notice to MPII, the
Redemption: Preferred Shares will be redeemable, in whole or in
part, at anytime at CRIIMI MAE's discretion at 106% plus
accrued and unpaid dividends.
<PAGE>
THIS IS NOT A SOLICITATION OF ACCEPTANCE OR REJECTION OF THE SECOND 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 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' AMENDED JOINT DISCLOSURE STATEMENT [PROPOSED]
VENABLE, BAETJER AND HOWARD, LLP AKIN, GUMP, STRAUSS, HAUER & FELD, LLP
Richard L. Wasserman Stanley J. Samorajczyk, P.C.
Gregory A. Cross Michael S. Stamer
1800 Mercantile Bank &Trust Building 1333 New Hampshire Avenue, N.W.
Two Hopkins Plaza Washington, D.C. 20036
Baltimore, Maryland 21201 (202) 887-4000
(410) 244-7400
Co-Counsel to CRIIMI MAE Inc. and CRIIMI MAE Holdings II, L.P.
SHULMAN, ROGERS, GANDAL, PORDY & ECKER, P.A. COVINGTON & BURLING
Morton A. Faller Michael St. Patrick Baxter
11921 Rockville Pike Dennis B. Auerbach
Third Floor 1201 Pennsylvania Avenue, N.W.
Rockville, MD 20852-2753 Washington, D.C. 20044
(301) 231-0928 (202) 662-6000
Counsel to CRIIMI MAE Management, Inc. Counsel to the Official
Committee of Equity Security
Holders of CRIIMI MAE Inc.
Dated: March 31, 2000
IMPORTANT: THIS AMENDED JOINT DISCLOSURE STATEMENT CONTAINS INFORMATION THAT MAY
BEAR UPON YOUR DECISION TO ACCEPT OR REJECT THE DEBTORS' SECOND AMENDED JOINT
PLAN OF REORGANIZATION. PLEASE READ THIS DOCUMENT WITH CARE.
<PAGE>
TABLE OF CONTENTS
Page
----
I. INTRODUCTION ............................................................2
II. PLAN SUMMARY AND KEY CONSIDERATIONS .....................................4
A. Plan Summary ......................................................4
B. Recommendation ...................................................16
C. Voting Instructions ..............................................17
III. GENERAL INFORMATION.....................................................19
A. The Debtors and Chapter 11 Filing and Other Chapter 11 Events.....19
B. Business..........................................................24
C. The Portfolio.....................................................32
D. Legal Proceedings.................................................36
E. Selected Historical Consolidated Financial Data...................45
F. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................47
G. Quantitative and Qualitative Disclosures About Market Risk........58
H. Market and Trading Information....................................60
I. Management........................................................61
IV. BUSINESS PLAN...........................................................69
V. THE PLAN OF REORGANIZATION .............................................70
A. Overview of the Plan .............................................70
B. Treatment of Claims and Interests Under the Plan ................75
C. Confirmation and Effective Date Conditions .......................85
D. The Reorganized Debtors ..........................................87
E. Recapitalization Financing Including Issuance of New Securities...89
F. Sale of the CMBS Portfolio........................................89
G. Affiliate Reorganization..........................................89
H. Potential New Equity Investment and Rights Offering ..............89
I. Distributions Under the Plan .....................................92
J. General Information Concerning the Plan ..........................95
VI. CONFIRMATION AND CONSUMMATION PROCEDURES ..............................103
A. Solicitation of Acceptances .....................................103
B. Confirmation Hearing ............................................103
C. Confirmation ....................................................104
D. Consummation ....................................................108
E. Conditions to Effective Date ....................................108
VII. CERTAIN RISK FACTORS...................................................108
VIII. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS .............................117
IX. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN .............121
A. Alternative Chapter 11 Plans ....................................121
B. Liquidation Under Chapter 7 .....................................122
X. CONCLUSION AND RECOMMENDATION .........................................122
EXHIBITS
Page
----
Exhibit A Second Amended Joint Plan of Reorganization of CRIIMI MAE
Inc., CRIIMI MAE Management, Inc. and CRIIMI MAE Holdings II,
L.P. Under Chapter 11 of the Bankruptcy Code.....................A-1
Exhibit B Unaudited Pro Forma Consolidated Financial Statements and
Projected Financial Information..........,.......................B-1
Exhibit C Liquidation Analysis ............................................C-1
Exhibit D CRIIMI MAE Financial Statements..................................D-1
<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' SECOND
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 FULLY SUPPORTS THE PLAN AND ENCOURAGES ALL HOLDERS OF CLAIMS AND INTERESTS
IN IMPAIRED CLASSES TO VOTE IN SUPPORT OF THE PLAN.
THIS AMENDED JOINT DISCLOSURE STATEMENT (THE "DISCLOSURE STATEMENT") IS
DESIGNED TO PROVIDE ADEQUATE INFORMATION TO ENABLE HOLDERS OF CLAIMS AGAINST AND
INTERESTS IN THE DEBTORS TO MAKE AN INFORMED JUDGMENT ON WHETHER TO ACCEPT OR
REJECT THE DEBTORS' PLAN. ALL HOLDERS OF CLAIMS AND INTERESTS ARE HEREBY ADVISED
AND ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY
BEFORE VOTING TO ACCEPT OR REJECT THE PLAN. THE PLAN SUMMARY AND STATEMENTS MADE
IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE
PLAN, WHICH IS INCLUDED HEREWITH AS EXHIBIT A, OTHER EXHIBITS TO THIS DISCLOSURE
STATEMENT, EXHIBITS TO THE PLAN AND OTHER DOCUMENTS REFERENCED AS FILED WITH THE
BANKRUPTCY COURT. FURTHERMORE, THE PRO FORMA FINANCIAL STATEMENTS AND PROJECTED
FINANCIAL INFORMATION CONTAINED HEREIN ARE UNAUDITED. THERE CAN BE NO ASSURANCE
THAT THE INFORMATION AND STATEMENTS CONTAINED HEREIN WILL CONTINUE TO BE
ACCURATE SUBSEQUENT TO THE DATE HEREOF OR THAT THIS DISCLOSURE STATEMENT
CONTAINS ALL MATERIAL INFORMATION.
ALTHOUGH THE CMI EQUITY COMMITTEE IS A CO-PROPONENT OF THE DEBTORS' PLAN,
THIS DISCLOSURE STATEMENT WAS PREPARED BY THE DEBTORS. NEITHER THE CMI EQUITY
COMMITTEE NOR ANY OF ITS PROFESSIONALS WARRANT THE ACCURACY OR COMPLETENESS OF
ANY INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING, WITHOUT
LIMITATION, ANY INFORMATION ABOUT THE DEBTORS, THE DEBTORS' BUSINESSES, RISK
FACTORS, TAX CONSEQUENCES OR THE APPLICABILITY OF SECURITIES LAWS.
ALL HOLDERS OF IMPAIRED CLAIMS AND INTERESTS SHOULD READ AND CONSIDER THE
MATTERS DESCRIBED IN THIS DISCLOSURE STATEMENT AS A WHOLE, INCLUDING THE SECTION
ENTITLED "RISK FACTORS", PRIOR TO VOTING ON THE PLAN. IN MAKING A DECISION TO
ACCEPT OR REJECT THE PLAN, EACH CLAIM AND INTEREST HOLDER MUST RELY ON ITS OWN
EXAMINATION OF THE DEBTORS AS DESCRIBED IN THIS DISCLOSURE STATEMENT AND THE
PLAN.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH ss.1125 OF
THE BANKRUPTCY CODE AND RULE 3016(b) OF THE FEDERAL RULES OF BANKRUPCY PROCEDURE
AND NOT IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS. THIS DISCLOSURE
STATEMENT HAS NEITHER BEEN APPROVED NOR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC"). NOR HAS THE SEC PASSED UPON THE ACCURACY OR
ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. THIS DISCLOSURE STATEMENT WAS
PREPARED TO PROVIDE HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE DEBTORS WITH
"ADEQUATE INFORMATION" (AS DEFINED IN THE BANKRUPTCY CODE) SO THAT THEY CAN MAKE
AN INFORMED JUDGMENT ABOUT THE PLAN. PERSONS OR ENTITIES TRADING IN, OR
OTHERWISE PURCHASING, SELLING, OR TRANSFERRING, CLAIMS AGAINST OR SECURITIES OF
THE DEBTORS SHOULD NOT RELY UPON THIS DISCLOSURE STATEMENT FOR SUCH PURPOSES AND
SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THE PLAN IN LIGHT OF THE PURPOSE
FOR WHICH THEY WERE PREPARED.
<PAGE>
AS TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER PENDING OR
THREATENED ACTIONS, THIS DISCLOSURE STATEMENT AND THE INFORMATION CONTAINED
HEREIN SHALL NOT BE CONSTRUED AS AN ADMISSION OF ANY FACT, CLAIM OR LIABILITY,
AS A STIPULATION OR AS A WAIVER, BUT RATHER AS STATEMENTS MADE IN SETTLEMENT
NEGOTIATIONS. NOR SHALL THE STATEMENTS SET FORTH HEREIN BE USED AS EVIDENCE OR
BIND ANY PARTY IN CONNECTION WITH ANY SECURITIES CLAIMS (AS THAT TERM IS DEFINED
IN THE PLAN).
THIS DISCLOSURE STATEMENT SHALL NOT BE ADMISSIBLE IN ANY NON-BANKRUPTCY
PROCEEDING INVOLVING THE DEBTORS OR ANY OTHER PARTY NOR SHALL IT BE CONSTRUED TO
BE CONCLUSIVE ADVICE ON THE TAX, SECURITIES OR OTHER LEGAL EFFECTS OF THE PLAN
AS TO HOLDERS OF CLAIMS AGAINST OR INTERESTS IN THE DEBTORS.
I. INTRODUCTION
On October 5, 1998, CRIIMI MAE Inc. ("CMI"), CRIIMI MAE Management, Inc.
("CMM") and CRIIMI MAE Holdings II, L.P. ("Holdings") (together with CMI and
CMM, the "Debtors") filed voluntary petitions for relief under Chapter 11 of
title 11 of the United States Code (the "Bankruptcy Code"). The Debtors and the
Official Committee of Equity Security Holders of CMI (the "CMI Equity
Committee") hereby submit this Amended Joint Disclosure Statement pursuant to
Section 1125 of the Bankruptcy Code (this "Disclosure Statement") in connection
with their solicitation of acceptances of their Second Amended Joint Plan of
Reorganization (the "Plan"), a copy of which is annexed hereto as Exhibit A. The
purpose of this Disclosure Statement, in accordance with the requirements of
Section 1125 of the Bankruptcy Code, is to provide "adequate information"
concerning the Plan, of a kind and in sufficient detail to enable a
hypothetical, reasonable investor, typical of holders of the classes of claims
or interests being solicited, to make an informed judgment whether to accept or
reject the Plan. This Disclosure Statement should be read in conjunction with
the Plan and the other exhibits to this Disclosure Statement and to the Plan.
All capitalized terms contained in this Disclosure Statement shall, unless
otherwise defined herein, have the meanings ascribed to such capitalized terms
in the Plan. References herein to the "Company" or "CRIIMI MAE" refer to CRIIMI
MAE Inc. and its consolidated subsidiaries, unless the context otherwise
indicates. References herein to Notes to Consolidated Financial Statements refer
to the Notes to Consolidated Financial Statements constituting a part of CRIIMI
MAE's financial statements for the quarter ended September 30, 1999.
The Plan is being distributed, with Ballots, to holders of Claims and
Interests in Classes A1, A2, A3, A4, A5, A6, A7, A9, A10, A11, A13, A14, A16,
A18, A20, A21, B1, B2, B5, B6, C1, C2, C5 and C6, the Classes of Claims and
Interests that are Impaired and entitled to vote under the Plan, in order to
solicit their acceptance of the Plan. Holders of Claims and Interests in Classes
A8, A12, A15, A17, A19, A22, A23, B3, B4, B7, C3, C4 and C7 are deemed to have
accepted the Plan because their respective Claims are not Impaired, and such
Holders are therefore not entitled to vote on the Plan. Accordingly, the votes
of Holders of Claims and Interests in such Classes are not being solicited. For
a description of the Classes of Claims and Interests and their treatment under
the Plan, see "THE PLAN OF REORGANIZATION -- Treatment of Claims and Interests
Under the Plan."
The Debtors and the CMI Equity Committee are seeking the acceptance of the
Plan by Holders of Claims and Interests in Classes A1, A2, A3, A4, A5, A6, A7,
A9, A10, A11, A13, A14, A16, A18, A20, A21, B1, B2, B5, B6, C1, C2, C5 and C6.
The Debtors and the CMI Equity Committee have prepared this Disclosure Statement
in connection with their solicitation of acceptances of the Plan. The United
States Bankruptcy Court for the District of Maryland, Greenbelt Division,
Maryland ("the "Bankruptcy Court") has entered an order dated ____ ___, 2000
approving this Disclosure Statement as containing information of a kind and in
sufficient detail to enable a hypothetical, reasonable investor, typical of each
of the holders of the Classes of Claims and Interests being solicited, to make
an informed judgment whether to accept the Plan. Such approval by the Bankruptcy
Court does not constitute a recommendation of the Plan by the Bankruptcy Court.
-2-
<PAGE>
Section 1129(a) of the Bankruptcy Code allows the Bankruptcy Court to
confirm a plan if certain conditions have been met and if each class of claims
and interests that is impaired under the plan has voted to accept the plan.
Under Section 1126(c) of the Bankruptcy Code, a class of claims has accepted a
plan if such plan has been accepted by creditors in that class that hold at
least two-thirds in dollar amount and more than one-half in number of the
allowed claims of such class held by creditors that have voted to accept or
reject such plan, excluding holders whose acceptances or rejections were found
not to be in good faith. Under Section 1126(d) of the Bankruptcy Code, a class
of equity interests has accepted a plan if such plan has been accepted by
holders of such interests that hold at least two-thirds in amount of the allowed
interests of such class held by holders of such interests that have voted to
accept or reject such plan, excluding holders whose acceptances or rejections
were found not to be in good faith.
Under the Bankruptcy Code, only those Claims, the holders of which vote to
accept or reject the Plan, will be counted for purposes of determining
acceptance or rejection by any Impaired Class of Claims. Therefore, the Plan
could be approved by any Impaired Class of Claims with the affirmative vote of
significantly less than two-thirds in total dollar amount and one-half in total
number of such Claims. However, even if the Holders of all Claims in Impaired
Classes and entitled to vote under the Plan accept or are deemed to have
accepted the Plan, the Plan is subject to certain requirements under the
Bankruptcy Code and might not be confirmed by the Bankruptcy Court.
Section 1129(b) of the Bankruptcy Code permits the confirmation of a plan
notwithstanding the non-acceptance of such plan by one or more of the classes of
claims or interests impaired thereunder if (i) at least one impaired class of
claims accepts the plan (such acceptance to be determined without giving effect
to any acceptances of "insiders," as such term is defined in Section 101 of the
Bankruptcy Code) and (ii) the Bankruptcy Court finds that, with respect to the
non-accepting class or classes, the plan does not discriminate unfairly and is
fair and equitable. The Debtors and the CMI Equity Committee reserve the right
to seek confirmation of the Plan under Section 1129(b) of the Bankruptcy Code if
any class of Claims entitled to vote on the Plan votes to reject the Plan.
If more than one plan is submitted to creditors and equity security
holders for voting, the Bankruptcy Court may confirm only one such plan. If the
confirmation requirements set forth in the Bankruptcy Code are met with respect
to more than one plan, the Bankruptcy Court will consider the preferences of
creditors and equity security holders in determining which plan to confirm. The
Debtors and the CMI Equity Committee urge all creditors and equity security
holders to vote in favor of the Plan. The Unsecured Creditors' Committee also
recommends that all creditors and equity security holders vote in favor of the
Plan. The Debtors and the CMI Equity Committee believe that confirmation of the
Debtors' Plan is in the best interest of all creditors and equity security
holders. As set forth in more detail in the Plan and this Disclosure Statement,
the Debtors' Plan provides for the payment in full of all creditors,
preservation of value for equity security holders and a reorganization of the
Debtors and continuation of the business of CRIIMI MAE as a going concern.
The Debtors and the CMI Equity Committee are soliciting votes for the
acceptance of the Plan from the Holders of Claims and Interests in Classes A1,
A2, A3, A4, A5, A6, A7, A9, A10, A11, A13, A14, A16, A18, A20, A21, B1, B2, B5,
B6, C1, C2, C5 and C6. The Debtors and the CMI Equity Committee believe that the
Plan provides the best possible result for all Holders of Claims and Interests.
The Debtors and the CMI Equity Committee believe further that, under the Plan,
Holders of Claims and Interests will receive a greater recovery than such
Holders would receive if the Debtors' Chapter 11 cases were converted to cases
under Chapter 7 of the Bankruptcy Code or an alternative plan were confirmed by
the Bankruptcy Court.
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 [___].
-3-
<PAGE>
THE DEBTORS BELIEVE THAT THE PLAN PROVIDES THE BEST POSSIBLE RESULT FOR
ALL HOLDERS OF CLAIMS AND INTERESTS.
THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN
ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED.
THIS DISCLOSURE STATEMENT IS PROVIDED FOR USE SOLELY BY HOLDERS OF CLAIMS
AND INTERESTS, AND THEIR ADVISORS, IN CONNECTION WITH THEIR DETERMINATION TO
ACCEPT OR REJECT THE PLAN.
HOLDERS OF CLAIMS AND INTERESTS SHOULD NOT CONSTRUE THE CONTENTS OF THIS
DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL, BUSINESS, FINANCIAL OR TAX ADVICE.
EACH SUCH HOLDER SHOULD, THEREFORE, CONSULT WITH HIS, HER OR ITS OWN LEGAL,
BUSINESS, FINANCIAL AND/OR TAX ADVISORS AS TO ANY SUCH MATTERS CONCERNING THE
PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY.
THE SUMMARY OF THE PLAN CONTAINED HEREIN DOES NOT PURPORT TO BE COMPLETE
AND IS SUBJECT, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE PROVISIONS OF
THE PLAN, WHICH IS ATTACHED HERETO AS EXHIBIT A.
II. PLAN SUMMARY AND KEY CONSIDERATIONS
The following summary is qualified in its entirety by reference to the
more detailed information appearing elsewhere in this Disclosure Statement, to
the Plan and to the exhibits to this Disclosure Statement and to the Plan. This
summary does not purport to be complete and should not be relied upon for voting
purposes. Terms not otherwise defined herein shall have the meanings ascribed to
them in the Plan. A more complete description of the Plan is provided in "THE
PLAN OF REORGANIZATION."
All Holders of Claims and Interests whose votes are being solicited are
hereby advised and encouraged to read this Disclosure Statement, the Plan and
the exhibits to this Disclosure Statement and to the Plan in their entirety
before voting to accept or reject the Plan.
A. Plan Summary
The Plan contemplates the payment in full of all of the Allowed Claims of
CMI, CMM and Holdings primarily through recapitalization financing aggregating
at least $856 million (the "Recapitalization Financing"). The majority of such
Recapitalization Financing is expected to consist of debt financing from
existing debtholders (the "New Debt") and the balance is expected to result from
the sale of selected CMBS (the "CMBS Sale"). In particular, CMI has agreed to
restructure its secured debt with two of its largest creditors, Merrill Lynch
Mortgage Capital Inc. ("Merrill") and German American Capital Corporation
("GACC"), in accordance with the term sheet attached as Exhibit 1 to the Plan
(the "Merrill/GACC Term Sheet"). In addition, CMI has agreed with the Unsecured
Creditors' Committee to restructure its unsecured debt including its Old Senior
Notes in accordance with the term sheet attached as Exhibit 2 to the Plan (the
"Unsecured Creditors' Term Sheet"). The Merrill/GACC and Unsecured Creditors
restructurings set forth in Exhibits 1 and 2 to the Plan are the cornerstones of
CMI's New Debt financing as it emerges from Chapter 11 under the Debtors' Plan.
Although not required to fund the Plan, the Debtors may seek new equity capital
from one or more investors to partially fund the Plan. Any such new equity will
constitute Recapitalization Financing. See "THE PLAN OF REORGANIZATION" for a
further discussion of potential new equity capital.
The Plan provides for distributions to creditors as summarized below:
-4-
<PAGE>
CLAIMS AGAINST AND INTERESTS IN CMI
- --------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- --------------------------------------------------------------------------------
N/A Administrative Claims Each Holder will be paid Cash equal 100%
(Unclassified) to the 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 Each Holder will receive, at the 100%
(Unclassified) sole option of Reorganized CMI,
Reorganized CMM or Reorganized
Holdings, as the case may be, (i)
Cash equal to the unpaid portion of
such Claim on the later of the
Effective Date and the date on
which such Claim becomes an Allowed
Priority Tax Claim, or (ii) equal
quarterly Cash payments in an
aggregate amount equal to such
Claim, together with interest at a
fixed annual rate to be determined
by the Bankruptcy Court or
otherwise agreed to by Reorganized
CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, and
such Holder over a period through
the sixth anniversary of the date
of assessment of such Claim, or
upon such other terms determined by
the Bankruptcy Court.
- --------------------------------------------------------------------------------
A1 Citicorp Secured Claims Impaired. The Holder of the Allowed 100%
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; (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 directly or indirectly by a
first priority lien on the CMO-IV
Bonds and the CMO-IV Additional
Collateral, with monthly
amortization of said note based on
the schedule set forth on page 76
herein; and (iii) loan extension
fees payable in Cash on
- --------------------------------------------------------------------------------
-5-
<PAGE>
- --------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- --------------------------------------------------------------------------------
the 2-year, 2 1/2-year,
3-year and 3 1/2-year
anniversaries of the
Effective Date, if said note
has not been paid off in full
prior to such dates, equal to
1.5% of the then outstanding
principal balance of said
note. It is contemplated that
the CMO-IV Bonds and the
CMO-IV Additional Collateral
will be, as of the Effective
Date, held by a REIT
subsidiary of Reorganized CMI
or a qualified REIT
subsidiary of a REIT
subsidiary of Reorganized
CMI. In addition, the Holder
of the Allowed Class A1 Claim
will receive on the Effective
Date payment in full in Cash
of any remaining balance of
its Allowed Class A1 Claim,
after the refinancing of such
Holder's Allowed Class A1
CMO-IV Claim referenced
above, with interest on the
principal balance of such
Allowed Claim calculated at
the Plan Rate. Class A1 is
Impaired and, accordingly,
the Holder of such Claims
will be entitled to vote on
the Plan.
- --------------------------------------------------------------------------------
A2 First Union Secured Claim Impaired. The Holder of the Allowed 100%
Class A2 Claim will receive on the
Effective Date payment in full in
Cash of any remaining balance of
such Claim with interest on the
principal balance of such Allowed
Claim calculated at the Plan Rate.
Class A2 is Impaired and,
accordingly, the Holder of such
Claim will be entitled to vote on
the Plan.
- --------------------------------------------------------------------------------
A3 GACC Secured Claim Impaired. The Holder of the Allowed 100%
Class A3 Claim will receive on the
Effective Date the treatment of its
Allowed Secured Claim set forth on
Exhibit 1 to the Plan, or such
other treatment as may be agreed to
by CMI and the Holder. Class A3 is
Impaired and, accordingly, the
Holder of such Claim will be
entitled to vote on the Plan.
- --------------------------------------------------------------------------------
A4 Lehman Secured Claim Impaired. The Holder of the Allowed 100%
Class A4 Claim will receive on the
Effective Date payment in full in
Cash of any remaining balance of
such Claim with interest on the
principal balance of such Allowed
Claim calculated at the Plan Rate.
Class A4 is Impaired and,
accordingly, the Holder of such
Claim will be entitled to
- --------------------------------------------------------------------------------
-6-
<PAGE>
- --------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- --------------------------------------------------------------------------------
vote on the Plan.
- --------------------------------------------------------------------------------
A5 Merrill Secured Claim Impaired. The Holder of the Allowed 100%
Class A5 Claim will receive on the
Effective Date the treatment of its
Allowed Secured Claim set forth on
Exhibit 1 of the Plan, or such
other treatment as may be agreed to
by CMI and the Holder. Class A5 is
Impaired and, accordingly, the
Holder of such Claim will be
entitled to vote on the Plan.
- --------------------------------------------------------------------------------
A6 Morgan Stanley Secured Impaired. The Holder of the Allowed 100%
Claim Class A6 Claim will receive on the
Effective Date payment in full in
Cash of any remaining balance of
such Claim with interest on the
principal balance of such Allowed
Claim calculated at the Plan Rate.
Class A6 is Impaired and,
accordingly, the Holder of such
Claim will be entitled to vote on
the Plan.
- --------------------------------------------------------------------------------
A7 Other Secured Claims \Impaired. Each Holder (if any) of 100%
an Allowed Class A7 Claim will
receive on the Effective Date
either (i) payment in full in Cash
of any such Claim with interest on
the principal balance of any such
Allowed Claim calculated at the
Plan Rate; (ii) if CMI so elects,
the collateral securing the Allowed
Class A7 Claim (if any) in full
satisfaction of such Claim; or
(iii) such other treatment as may
be agreed to by CMI and the Holder
(if any). Class A7 is Impaired and,
accordingly, Holders of such Claims
(if any) will be entitled to vote
on the Plan.
- --------------------------------------------------------------------------------
A8 Priority Claims Unimpaired. Each Holder of an 100%
Allowed 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 100%
Class 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.
- --------------------------------------------------------------------------------
-7-
<PAGE>
- --------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- --------------------------------------------------------------------------------
A10 CMI General Unsecured Impaired. Each Holder of an Allowed 100%
Claims Class A10 Claim will receive on the
Effective Date the treatment of its
Allowed Claim as set forth on
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 (or whose
Allowed Claim is treated within
this Class) whose Allowed Claim is
for $150,000 or less and elects the
convenience class treatment on its
ballot, or whose Allowed Claim is
for an amount in excess of $150,000
and elects in writing on its ballot
to reduce its claim to $150,000 and
accept convenience class treatment
thereof, shall be entitled to
receive payment in Cash on the
Effective Date of the allowed
amount of such Holders' Allowed
Class A10 Claim in full
satisfaction of said Claim, with
accrued and unpaid pre-petition
interest thereon (if any)
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 an interest rate
applicable to such Holder's Allowed
Claim and any accrued and unpaid
post-petition interest thereon
calculated at the Plan Interest
rate. Class A10 is Impaired and,
accordingly, Holders of such Claims
will be entitled to vote on the
Plan.
- --------------------------------------------------------------------------------
A11 Guarantee Claims Impaired. If, and only to the 100%
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. Class A11 is
Impaired and, accordingly, is
entitled to vote on the Plan.
- --------------------------------------------------------------------------------
A12 Freddie Mac Claims Unimpaired. CMI's obligation under 100%
the Freddie Mac Agreement shall be
deemed reaffirmed on the Effective
Date, and the Claims of Freddie Mac
numbered 335 and
- --------------------------------------------------------------------------------
-8-
<PAGE>
- --------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- --------------------------------------------------------------------------------
497 on the July 2, 1999
claims register, each in the
amount of $230,448,487.24,
shall be deemed withdrawn and
thereby disallowed as of the
Effective Date. Class A12 is
Unimpaired and, accordingly,
is not entitled to vote on
the Plan.
- --------------------------------------------------------------------------------
A13 Intercompany Claims Impaired. Holders of Class A13 No
Claims will not receive any payment payment
under the Plan on account of such shall be
Claims. Class A13 is Impaired and, made
accordingly, Holders of such under the
Claims will be entitled to vote on Plan but
the Plan. the claim
amounts
will
remain on
the
financial
books of
the re-
spective
Debtors.
- --------------------------------------------------------------------------------
A14 Series B Preferred Stock Impaired. Each Holder of an Allowed 100%
Class A14 Interest as of the
Effective Date will retain its
Series B Preferred Stock; provided
that if the Holders of Series B
Preferred Stock as of the Voting
Record Date vote as a Class by the
requisite amount to accept the
Plan, the Articles Supplementary
relating to the Series B Preferred
Stock will be deemed amended to
permit the payment of dividends on
Series B Preferred Stock, including
accrued and unpaid dividends, in
CMI Common Stock or Cash, at the
election of Reorganized CMI.
Holders of Series B Preferred Stock
may sell in the open market any 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 Unimpaired. Each Holder (if any) of 100%
Securities Claims 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
- --------------------------------------------------------------------------------
-9-
<PAGE>
- --------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- --------------------------------------------------------------------------------
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 Impaired. Former Series C Preferred 100%
Preferred Stock Stock has been exchanged for Series
E Preferred Stock. Each Holder of
Series E Preferred Stock as of the
Distribution Record Date shall
retain its Series E Preferred Stock
and such Series E Preferred Stock
shall have the terms, rights and
preferences summarized in Exhibit 3
to the Plan and as set forth in the
Articles Supplementary relating to
the Series E Preferred Stock. All
accrued and past due dividends from
February 23, 2000 through the
Effective Date on Series E
Preferred Stock will be paid on the
Effective Date in CMI Common Stock.
All other accrued and past due
dividends on Former Series C
Preferred Stock (prior to February
23, 2000) shall be paid on the
Effective Date, at the election of
Reorganized CMI, in CMI Common
Stock or Cash. Class A16 is
Impaired and, accordingly, Holders
of such Interests will be entitled
to vote on the Plan.
- --------------------------------------------------------------------------------
A17 Former Series C Preferred Unimpaired. Each Holder (if any) of 100%
Stock Securities Claims 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
- --------------------------------------------------------------------------------
-10-
<PAGE>
- --------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- --------------------------------------------------------------------------------
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 Impaired. Each Holder of an Allowed 100%
Stock Class A18 Interest as of the
Distribution Record Date, if not
previously exchanged, will receive
on the Effective Date in exchange
for its Old Series D Preferred
Stock an identical number of shares
of Series E Preferred Stock issued
effective as of the Effective Date,
and such Series E Preferred Stock
shall have the terms, rights and
preferences summarized in Exhibit 3
of the Plan and as set forth in the
Articles Supplementary relating to
the Series E Preferred Stock. All
shares of Old Series D Preferred
Stock, if not previously exchanged
and cancelled, shall be deemed
cancelled as of the Effective Date.
All accrued and past due dividends
on Old Series D Preferred Stock
shall be paid on the Effective
Date, at the election of
Reorganized CMI, in CMI Common
Stock or Cash. Class A18 is
Impaired and, accordingly, Holders
of such Interests will be entitled
to vote on the Plan.
- --------------------------------------------------------------------------------
A19 Old Series D Preferred Unimpaired. Each Holder (if any) of 100%
Stock Securities Claims 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.
Class A19 is Unimpaired and,
accordingly, is not entitled to
vote on the Plan.
- --------------------------------------------------------------------------------
-11-
<PAGE>
- --------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- --------------------------------------------------------------------------------
A20 Series F Dividend Impaired. Each Holder of an Allowed 100%
Preferred Stock Class A20 Interest as of the
Effective Date shall retain its
Series F Dividend Preferred Stock;
provided that if the Holders of
Series F Dividend Preferred Stock
as of the Voting Record Date vote
as a Class by the requisite amount
to accept the Plan, the Articles
Supplementary relating to the
Series F Dividend Preferred Stock
will be deemed amended to permit
the payment of dividends on Series
F Dividend Preferred Stock,
including any accrued and unpaid
dividends, in CMI Common Stock or
Cash, at the election of
Reorganized CMI. Holders of Series
F Dividend Preferred Stock may sell
in the open market any 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 Unimpaired. All Holders (if any) of 100%
Securities Claims Allowed Class A23 Claims will
receive in full satisfaction of any
such Allowed Class A23 Claims their
share of any Insurance Proceeds
applicable thereto plus, if such
Allowed Class A23 Claims (if any)
are not paid in full from such
Insurance Proceeds, CMI Common
Stock in an amount equal in value,
as of the date of issuance thereof,
to the balance (if any) of such
Allowed Class A23 Claims. Class A23
is Unimpaired and, accordingly, is
not entitled to vote on the Plan.
- --------------------------------------------------------------------------------
-12-
<PAGE>
- --------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- --------------------------------------------------------------------------------
B1 First Union Secured Impaired. The Holder of the Allowed 100%
Claims Class B1 Claim will receive on the
Effective Date payment in full in
Cash of any remaining balance of
such Claim with interest on the
principal balance of such Allowed
Claim calculated at the Plan Rate.
Class B1 is Impaired and,
accordingly, the Holder of such
Claims will be entitled to vote on
the Plan.
- --------------------------------------------------------------------------------
B2 Other Secured Claims Impaired. Each Holder (if any) of 100%
an Allowed Class B2 Claim will
receive on the Effective Date
either (i) payment in full in Cash
of such Claim with interest on the
principal balance of any such
Allowed Claim calculated at the
Plan Rate; (ii) if CMI so elects,
the collateral securing the Allowed
Class B2 Claim (if any) in full
satisfaction of such Claim; or
(iii) such other treatment as may
be agreed to by CMI and the
Holder(s) (if any) of Allowed Class
B2 Claim(s). Class B2 is Impaired
and, accordingly, Holders of such
Claims will be entitled to vote on
the Plan.
- --------------------------------------------------------------------------------
B3 Priority Claims Unimpaired. Each Holder of an 100%
Allowed Class B3 Claim will receive
on the Effective Date payment in
full in Cash of such Claim
including Plan Interest thereon.
Class B3 is Unimpaired and,
accordingly, is not entitled to
vote on the Plan.
- --------------------------------------------------------------------------------
B4 Guarantee Claims Unimpaired. Each Holder (if any) of 100%
an Allowed Class B4 Claim shall be
paid, if, as and when any such
Claim is allowed by Final Order, in
Cash in full by CMM or Reorganized
CMM including Plan Interest thereon
if, and only to the extent not
fully treated with respect to such
Holder's underlying Allowed Claim
under the Plan treatment for Claims
against CMI or Holdings, as the
case may be. Class B4 is Unimpaired
and, accordingly, is not entitled
to vote on the Plan.
- --------------------------------------------------------------------------------
-13-
<PAGE>
- --------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- --------------------------------------------------------------------------------
B5 CMM General Unsecured Impaired. Each Holder of an Allowed 100%
Claims Class B5 Claim will receive on the
Effective Date payment in full in
Cash of such Claims, with accrued
and unpaid pre-petition interest
thereon (if any) calculated at the
non-default contract rate of
interest in such Holder's documents
for those Holders of Allowed Class
B5 Claims who have an interest rate
applicable to such Holder's Allowed
Class B5 Claim and any accrued and
unpaid post-petition interest
thereon calculated at the Plan
Interest rate. 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
Claim will not receive any payment payment
under the Plan on account of such shall be
Claim. Class B6 is Impaired and, made
accordingly, Holders of such under the
Claims will be entitled to vote on Plan but
the Plan. the claim
amounts
will
remain on
the
financial
books of
the re-
spective
Debtors.
- --------------------------------------------------------------------------------
B7 CMI's Interests in CMM Unimpaired. The Holder will retain 100%
its Interest. Class B7 is
Unimpaired and, accordingly, is not
entitled to vote on the Plan.
- --------------------------------------------------------------------------------
CLAIMS AGAINST AND INTERESTS IN HOLDINGS
-14-
<PAGE>
- --------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- --------------------------------------------------------------------------------
C1 Citicorp Secured Claims Impaired. Each Holder (if any) of 100%
an Allowed Class C1 Claim will
receive on the Effective Date
payment in full in Cash of such
Claim with interest on the
principal balance of any such
Allowed Claim calculated at the
Plan Rate. Class C1 is Impaired
and, accordingly, the Holder of
such Claim will be entitled to vote
on the Plan.
- --------------------------------------------------------------------------------
C2 Other Secured Claims Impaired. Each Holder (if any) of 100%
an Allowed Class C2 Claim will
receive on the Effective Date
either (i) payment in full in Cash
of such Claim with interest on the
principal balance of any such
Allowed Claim calculated at the
Plan Rate; (ii) if CMI so elects,
the collateral securing the Allowed
Class C2 Claim (if any) in full
satisfaction of such Claim; or
(iii) such other treatment as may
be agreed to by CMI and the
Holder(s) (if any) of Allowed Class
C2 Claim(s). Class C2 is Impaired
and, accordingly, Holders of such
Claims will be entitled to vote on
the Plan.
- --------------------------------------------------------------------------------
C3 Priority Claims Unimpaired. Each Holder of an 100%
Allowed Class C3 Claim will receive
on the Effective Date payment in
full in Cash of such Claim
including Plan Interest thereon.
Class C3 is Unimpaired and,
accordingly, is not entitled to
vote on the Plan.
- --------------------------------------------------------------------------------
C4 Guarantee Claims Unimpaired. Each Holder (if any) of 100%
an Allowed Class C4 Claim will
receive if, as and when any such
Claim is allowed by Final Order
payment in Cash in full including
Plan Interest thereon if, and only
to the extent not fully treated
with respect to such Holder's
underlying Allowed Claim under the
Plan treatment for Claims against
CMI or CMM, as the case may be.
Class C4 is Unimpaired and,
accordingly, is not entitled to
vote on the Plan.
- --------------------------------------------------------------------------------
-15-
<PAGE>
- --------------------------------------------------------------------------------
Class Description Treatment Estimated
Recovery
- --------------------------------------------------------------------------------
C5 Holdings General Impaired. Each Holder (if any) of 100%
Unsecured Claims an Allowed Class C5 Claim will if,
as and when any such Claim is
allowed by Final Order, be included
as part of the CMI General
Unsecured Claims and included for
all purposes in the treatment
provided to Class A10. Class C5 is
Impaired and, accordingly, Holders
of such Claims will be entitled to
vote on the Plan.
- --------------------------------------------------------------------------------
C6 Intercompany Claims Impaired. Each Holder of a Class C6 No
Claim will not receive any payment payment
under the Plan on account of such shall be
Claim. Class C6 is Impaired and, made
accordingly, Holders of such Claims under the
will be entitled to vote on the Plan but
Plan. the claim
amounts
will
remain on
the
financial
books of
the re-
spective
Debtors.
- --------------------------------------------------------------------------------
C7 Interests in Holdings Unimpaired. The Holder will retain 100%
its Interest. Class C7 is
Unimpaired and, accordingly, is not
entitled to vote on the Plan.
- --------------------------------------------------------------------------------
The Debtors and the CMI Equity Committee presently intend to seek to
consummate the Plan and to cause the Effective Date to occur on or about
_________________. There can be no assurance, however, as to when the Effective
Date actually will occur.
In making investment decisions, Holders of Claims and Interests in
solicited Classes must rely on their own examination of the Debtors and the
terms of the reorganization, including the merits and risks involved. Each
Holder in a solicited Class should consult with its own legal, business,
financial and tax advisors with respect to any such matters concerning this
Disclosure Statement, the Plan and the transactions contemplated hereby and
thereby.
B. Recommendation
The Debtors, the CMI Equity Committee and the Unsecured Creditors'
Committee, strongly 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;
-16-
<PAGE>
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, the CMI Equity Committee and the Unsecured Creditors'
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 _____ as their voting and tabulation agent in
connection with the Plan (the "Voting Agent").
Consistent with the provisions of Rule 3018 of the Bankruptcy Rules, the
Court has fixed the Voting Record Date (the close of business, Daylight Savings
Time, on ____ _, 2000) as the time and date for the determination of Holders of
record of Interests in Classes A9, A14, A16, A18, A20 and A21 who are entitled
to vote on the Plan. If the Holder of record of any solicited Interest is not
also the beneficial owner of such Interest, the vote to accept or reject the
Plan must be cast by the beneficial owner of such Interest.
For purposes of voting by Classes A9, A14, A16, A18, A20 and A21 to accept
or reject the Plan, the term "Holder" means a beneficial owner of Common Stock,
Old Senior Notes, Series B Preferred Stock, Former Series C Preferred Stock, Old
Series D Preferred Stock, Series F Dividend Preferred Stock (the "Securities")
on the Voting Record Date. A "beneficial owner" is the person who enjoys the
benefits of ownership of the securities (i.e., has a pecuniary interest in the
securities) even though title of the securities may be in another name. The term
"Holder" with respect to other Claims and Interests means the person who holds
such Claim or Interest in such Person's capacity as the holder of such Claim or
Interest. Only beneficial owners (or their authorized signatories) of the
Securities and Holders of Classes A1, A2, A3, A4, A5, A6, A7, A9, A10, A11, A13,
A14, A16, A18, A20, A21, B1, B2, B5, B6, C1, C2, C5 and C6 Claims as of the
Petition Date (or transferees thereof) are eligible to vote on the Plan.
All votes to accept or reject the Plan must be cast by using a Ballot.
Votes which are cast in any manner other than by using a Ballot will not be
counted.
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<PAGE>
Procedures for Classes A9, A14, A16, A18, A20 and A21:
For purposes of voting to accept or reject the Plan, if you hold Exchanged
Securities in physical certificated form that are registered in your own name,
you can vote on the Plan by completing the information requested on the ballot,
signing, dating, and indicating your vote on the ballot, and returning the
completed original ballot in the enclosed, pre-addressed, postage-paid envelope
so that it is actually received by the Voting Agent before the Voting Deadline.
Any beneficial owner holding Exchanged Securities in "street name" can vote on
the Plan in one of the two following ways:
If your ballot has already been signed (or "prevalidated") by your nominee
(your broker, banker, bank, other nominee or their agent): You can vote on the
Plan by completing the information requested on the ballot, indicating your vote
on the ballot, and returning the completed original ballot in the enclosed,
preaddressed, postage-paid envelope so that it is actually received by the
Voting Agent before the Voting Deadline.
If your ballot has NOT been signed (or "prevalidated") by your nominee
(broker, bank, other nominee, or their agent): You can vote on the Plan by
completing the information requested on the ballot, signing, dating and
indicating your vote on the ballot, and returning the completed original ballot
to your nominee in sufficient time for your nominee then to forward your vote to
the Voting Agent so that it is actually received by the Voting Agent before the
Voting Deadline.
If you are a brokerage firm, commercial bank, trust company or other
nominee which is the registered holder of Exchanged Securities, please forward a
copy of this Disclosure Statement, the appropriate ballot or ballots, and any
other enclosed materials to each beneficial owner, AND;
If you have signed (or "prevalidated") the ballot, the ballot should be
completed by the beneficial owner and returned by the beneficial owner directly
to the Voting Agent so that such ballot is actually received by the Voting Agent
before the Voting Deadline.
If you have NOT signed (or "prevalidated") the ballot, you must collect
the ballot and complete the master ballot, and deliver the completed original
master ballot to the Voting Agent so that it is actually received by the Voting
Agent before the Voting Deadline.
Clearing Systems should arrange for their respective participants to vote
by executing an omnibus proxy, assignment letter form, or similar document, in
such participants' favor.
If your Ballot is damaged or lost, or if you do not receive a Ballot, you
may request a replacement by contacting:
[CONTACT INFORMATION FOR VOTING AGENT TO BE INSERTED]
General Instructions for Classes A1, A2, A3, A4, A5, A6, A7, A9, A10, A11,
A13, A14, A16, A18, A20, A21, B1, B2, B5, B6, C1, C2, C5 and C6:
After carefully reviewing the Plan, including all exhibits thereto, and
this Disclosure Statement and its exhibits, please indicate your vote on the
enclosed Ballot and return it in the envelope provided. In voting to accept or
reject the Plan, please use only the Ballot sent to you with this Disclosure
Statement. Please complete and sign your Ballot in accordance with the
instructions set forth on the Ballot and return it in the enclosed envelope.
Any Ballot received which does not indicate either an acceptance or
rejection of the Plan or which indicates both an acceptance and rejection of the
Plan shall be deemed to be an acceptance of the Plan.
This Disclosure Statement has been approved by order of the Bankruptcy
Court dated _______ ___, 2000, as containing information of a kind and in
sufficient detail to enable a hypothetical, reasonable investor, typical of a
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holder of an Interest, to make an informed judgment whether to accept or reject
the Plan. Approval of this Disclosure Statement by the Bankruptcy Court does not
constitute a ruling as to the fairness or merits of the Plan.
NO STATEMENTS OR INFORMATION CONCERNING THE DEBTORS OR REORGANIZED DEBTORS
OR ANY OF THE ASSETS OR THE BUSINESS OF THE DEBTORS MAY BE MADE OR SHOULD BE
RELIED UPON, OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT OR AS MAY
HEREAFTER BE AUTHORIZED BY THE BANKRUPTCY COURT. THE STATEMENTS AND INFORMATION
ABOUT THE DEBTORS AND THEIR BUSINESSES IN THIS DISCLOSURE STATEMENT, INCLUDING,
WITHOUT LIMITATION, THE DISCUSSION OF SECURITIES LAWS, RISK FACTORS, FEDERAL
INCOME TAX CONSIDERATIONS AND OTHER TAX-RELATED MATTERS HAVE BEEN PREPARED BY
THE DEBTORS. THE CMI EQUITY COMMITTEE HAS NOT PARTICIPATED IN THE PREPARATION OF
SUCH STATEMENTS AND INFORMATION AND, AS A RESULT, DOES NOT MAKE OR JOIN IN SUCH
STATEMENTS AND INFORMATION.
The Bankruptcy Court will hold a confirmation hearing at which the
Bankruptcy Court will consider objections to confirmation, if any, commencing at
__ __.m., Daylight Savings Time, on ______ __, 2000, United States Bankruptcy
Court, District of Maryland, Greenbelt Division (the "Confirmation Hearing").
The Confirmation Hearing may be adjourned from time to time without notice other
than the announcement of an adjourned date at the Confirmation Hearing.
Objections to Confirmation of the Plan, if any, must be in writing and served
and filed as described in the Plan and "THE PLAN OF REORGANIZATION --
Confirmation And Consummation Procedures -- Confirmation Hearing."
IN ORDER FOR YOUR BALLOT TO BE COUNTED, YOUR BALLOT MUST BE COMPLETED AS
SET FORTH ABOVE AND RECEIVED BY THE VOTING DEADLINE (5:00 P.M., DAYLIGHT SAVINGS
TIME, ON _____ __, 2000). BALLOTS SHOULD BE MAILED TO:
[______]
OR IF DELIVERED BY COURIER OR BY HAND, TO:
[______]
THE FOREGOING IS A SUMMARY. THIS DISCLOSURE STATEMENT AND THE EXHIBITS
HERETO SHOULD BE READ IN THEIR ENTIRETY BY ALL HOLDERS OF CLAIMS AND INTERESTS
IN CLASSES A1, A2, A3, A4, A5, A6, A7, A9, A10, A13, A14, A16, A18, A20, A21,
B1, B2, B5, B6, C1, C2, C5 and C6 IN DETERMINING WHETHER TO ACCEPT OR REJECT THE
PLAN.
III. GENERAL INFORMATION
FORWARD-LOOKING STATEMENTS. When used in this Disclosure Statement, the words
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. Such statements are subject to certain
risks and uncertainties, which could cause actual results to differ materially,
including, but not limited to, the risk factors contained under the headings
"Certain Risk Factors," "Business," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Business Plan" and in
Exhibits B (Unaudited Pro Forma Consolidated Financial Statements and Projected
Financial Information) and C (Liquidation Analysis) set forth in this Disclosure
Statement. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect events or circumstances occurring after the date hereof or to reflect
the occurrence of unanticipated events.
The Debtors have prepared this Disclosure Statement in connection with the
solicitation by the Debtors and the CMI Equity Committee of acceptances of the
Plan. No statements or information concerning the Debtors or the
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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
The Debtors have retained the following professionals to represent and
advise them in connection with their Chapter 11 cases:
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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.
Attorney:
Arnold & Porter
Financial Advisors:
The Blackstone Group
Accountants:
PricewaterhouseCoopers LLP
CMI Equity Committee:
Charles Koehler
Michael Wurst
Elliot Kapstein
Howard Landis
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Saul Yarmak
Attorney:
Covington & Burling
Financial Advisor:
Ernst & Young LLP
Ernst & Young Restructuring LLC (subject to Court approval)
AMJ Advisors LLC (subject to Court approval)
The Official Committee of Unsecured Creditors of CMM (the "CMM Creditors'
Committee"):
Dunn and Bradstreet
Andrews Office Products
Ad Solution
Attorney:
Whiteford, Taylor & Preston
Financial Advisor:
Penta Advisory Services, LLC
Other Relief Granted
In addition to obtaining Bankruptcy Court orders in connection with
proceedings involving creditors and an employee retention plan (also addressing
assumption of certain employment agreements) as discussed in "GENERAL
INFORMATION - Legal Proceedings," "GENERAL INFORMATION - Business - Employee
Retention Plan," and "GENERAL INFORMATION - Management - Executive
Compensation," the Debtors, in conjunction with filing their petitions, filed
various other motions seeking orders that were entered by the Bankruptcy Court.
The relief sought included:
Application for Authority to Pay Prepetition Trade Creditors in the
Ordinary Course. The Debtors obtained authority from the Bankruptcy Court to pay
trade claims in the ordinary course of their business with respect to those
vendors that continued to ship goods on customary trade terms.
Assumption and Rejection of Executory Contracts and Unexpired Leases.
Since the Petition Date, the Debtors have undertaken a comprehensive review and
evaluation of their various unexpired real property leases and various executory
contracts. Based on this review and because of the substantial downsizing of the
Debtors' business, the Debtors have rejected five leases of real property and 21
equipment leases and equipment maintenance and service contracts. In the event
the Debtors determine, in their business judgment, that they no longer need
other leases and contracts, the Debtors will file the appropriate motion(s) to
reject such leases or contracts with the Bankruptcy Court, or such leases or
contracts will be deemed rejected in the Plan.
Deadline to File Proofs of Claim
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<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.
More than 850 claims with a face amount of approximately $2.5 billion have
been filed in these 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 $19 million (the "CCA Claim"); and (3) the claim of GP
Properties Group, Inc., for approximately $882,000 (the "GP Properties Claim").
Claim Number 330 relates to shareholder litigation against CMI's officers
and directors. On March 20, 2000 CMI moved to withdraw reference of the
litigation relating to Claim Number 330 to the United States District Court for
the District of Maryland. See the discussion in "GENERAL INFORMATION - Legal
Proceedings - Shareholder Litigation."
The CCA Claim relates to an August 14, 1998 letter of intent between CMI
and CCA for the purchase of subordinated CMBS. The letter of intent included
financing and due diligence contingencies. CMI's position is that neither of
these contingencies was fulfilled. After preliminary due diligence, CMI
expressed concern regarding the quality of the mortgage loans underlying the
CMBS. CMI's further due diligence confirmed this preliminary view, and CMI
exercised its right not to go forward with the purchase because of its due
diligence concerns. CCA refused to withdraw its claim, and on August 31, 1999,
CMI filed an objection to the CCA Claim. The CCA Claim was filed for an amount
in excess of $17 million on February 11, 1999. On October 9, 1999, CCA responded
to the objection. By letter dated January 7, 2000, CCA indicated that the amount
of its claim was $18.8 million. The matter is now pending before the Bankruptcy
Court.
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.
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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
convertible preferred stock with a face value of $10 per share. The Company paid
the junior preferred stock dividend on November 5, 1999. Dividends are payable,
at a rate of 12% per annum, in cash except to the extent that continued
qualification as a real estate investment trust requires payment of dividends in
shares. The payment of the first dividend will be paid no earlier than the end
of the calendar quarter (March 31, June 30, September 30, December 31) in which
the Company's Plan becomes effective and thereafter not more than quarterly, as
determined by the Board of Directors of CMI (the "Board of Directors" or
"Board"). See "Effect of Chapter 11 Filing on REIT Status and Other Tax Matters
- -- The Company's 1998 Taxable Income."
B. Business
General
CRIIMI MAE is a fully integrated commercial mortgage company structured as
a self-administered real estate investment trust ("REIT"). Prior to the filing
by CRIIMI MAE Inc. (unconsolidated) and two of its operating subsidiaries for
relief under Chapter 11 of the U.S. Bankruptcy Code on the Petition Date as
described below, CRIIMI MAE's primary activities included (i) acquiring
non-investment grade securities (rated below BBB- or unrated) backed by pools of
commercial mortgage loans on multifamily, retail and other commercial real
estate ("Subordinated CMBS"), (ii) originating and underwriting commercial
mortgage loans, (iii) securitizing pools of commercial mortgage loans and
resecuritizing pools of Subordinated CMBS, and (iv) through the Company's
servicing affiliate, CRIIMI MAE Services Limited Partnership ("CMSLP"),
performing servicing functions with respect to the mortgage loans underlying the
Company's Subordinated CMBS.
Since filing for Chapter 11 protection, CRIIMI MAE has suspended its
Subordinated CMBS acquisition, origination and securitization programs. The
Company continues to hold a substantial portfolio of Subordinated CMBS,
originated loans and mortgage securities and, through CMSLP, acts as a servicer
for its own as well as third party securitized mortgage loan pools.
In addition to the two operating subsidiaries which filed for Chapter 11
protection with the Company, the Company owns 100% of multiple financing and
operating subsidiaries as well as various interests in other entities (including
CMSLP) which either own or service mortgage and mortgage-related assets (the
"Non-Debtor Affiliates"). See Note 3 to Notes to Consolidated Financial
Statements. None of the Non-Debtor Affiliates has filed for bankruptcy
protection.
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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" that
normally occurs when a corporation earns income and distributes that income to
shareholders in the form of dividends. The Company, however, still must pay
corporate level tax on any 1999 taxable income not distributed to shareholders.
Unlike the 95% distribution requirement, the calculation of the Company's
federal income tax liability does not exclude excess noncash income such as OID.
Should CRIIMI MAE terminate or fail to maintain its REIT status during the year
ended December 31, 1999, the tax liability on the taxable income for the nine
months ended September 30, 1999 of approximately $13.7 million would be
approximately $5.5 million.
In determining the Company's taxable income for 1999, distributions
declared by the Company on or before September 15, 2000 and actually paid by the
Company on or before December 31, 2000 will be considered as dividends paid for
the 1999 year. The Company anticipates distributing all or a substantial portion
of its 1999 taxable income in the form of non-cash taxable dividends. There can
be no assurance that the Company will be able to make distributions with respect
to its 1999 taxable income.
1999 Excise Tax Liability. Apart from the requirement that the Company
distribute at least 95% of its REIT taxable income to maintain REIT status,
CRIIMI MAE is also required each calendar year to distribute an amount at least
equal to the sum of 85% of its "REIT ordinary income" and 95% of its "REIT
capital gain income" to avoid incurring a nondeductible excise tax. Unlike the
95% distribution requirement, the 85% distribution requirement is not reduced by
excess noncash income items such as OID. In addition, in determining the
Company's excise tax liability, only dividends actually paid in 1999 will reduce
the amount of income subject to this excise tax. The Company has accrued
approximately $1.1 million for the excise tax payable for the year 1999 in
anticipation that 1999 taxable income will not be distributed to shareholders
until 2000.
The Company's 1998 Taxable Income. On September 14, 1999, the Company
declared a dividend payable to common shareholders of approximately 1.61 million
shares of a new series of junior convertible preferred stock with a face value
of $10 per share. The purpose of the dividend was to distribute approximately
$15.7 million in undistributed 1998 taxable income. To the extent that it is
determined that such amount is not distributed, the Company would bear a
corporate level income tax on the undistributed amount. There can be no
assurance that all of the Company's tax liability will be eliminated by payment
of such junior preferred stock dividend. The Company paid the junior preferred
stock dividend on November 5, 1999. The junior preferred stock dividend is
taxable to common shareholder recipients.
The CMBS Market
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Historically, traditional lenders, including commercial banks, insurance
companies and savings and loans, have been the primary holders of commercial
mortgages. The real estate market of the late 1980s and early 1990s created
business and regulatory pressure to reduce the real estate assets held on the
books of these institutions. As a result, there has been significant movement of
commercial real estate debt from private institutional holders to the public
markets. Consequently, the supply of private sector multifamily and other CMBS
has increased dramatically over recent years. According to Commercial Mortgage
Alert, total CMBS issuances equaled approximately $78.3 billion in 1998, $44.3
billion in 1997, $30.0 billion in 1996 and $19.0 billion in 1995.
CMBS are generally created by pooling commercial mortgage loans and
directing the cash flow from such mortgage loans to various tranches of
securities. The tranches consist of investment grade (AAA to BBB-),
non-investment grade (BB+ to CCC) and unrated. The first step in the process of
creating CMBS is loan origination. Loan origination occurs when a financial
institution lends money to a borrower to refinance or to purchase a commercial
real estate property, and secures the loan with a mortgage on the property that
the borrower owns or purchases. Commercial mortgage loans are typically
non-recourse to the borrower. A pool of these commercial real estate-backed
mortgage loans is then accumulated, often by a large commercial bank or other
financial institution. One or more rating agencies then analyze the loans and
the underlying real estate to determine their credit quality. The mortgage loans
are then deposited into an entity that is not subject to taxation, often a real
estate mortgage investment conduit ("REMIC") or, in the case of the Company, a
TMP. The investment vehicle then issues securities backed by the commercial
mortgage loans, or CMBS.
The CMBS are divided into tranches, which are afforded certain priority
rights to the cash flow from the underlying mortgage loans. Interest payments
typically flow first to the most senior tranche until it receives all of its
accrued interest and then to the junior tranches in order of seniority until all
available interest is exhausted. Principal payments typically flow first to the
most senior tranche until it is retired. Tranches are then retired in order of
seniority, based on available principal. Losses, if any, are generally first
applied against the principal balance of the lowest rated or unrated tranche.
Losses are then applied in reverse order of seniority. Each tranche is assigned
a credit rating by one or more rating agencies based on the agencies' assessment
of the likelihood of the tranche receiving its stated right to payment of
principal. The CMBS are then sold to investors through either a public offering
or a private placement. The Company has primarily focused on acquiring or
retaining non-investment grade and unrated tranches, issued by mortgage
conduits, where the Company believes its market knowledge and real estate
expertise allow it to earn attractive risk-adjusted returns.
At the time of a securitization, one or more entities are appointed as
"servicers" for the pool of mortgage loans, and are responsible for performing
servicing duties which include collecting payments and monitoring performance
(master or direct servicing), and working out or foreclosing on defaulted loans
(special servicing). Each servicer receives a fee and other financial incentives
based on the type and extent of servicing duties.
The CMBS market was adversely affected by the turmoil which occurred in
the capital markets commencing in late summer of 1998 that caused spreads
between CMBS yields and the yields on U.S. Treasury securities with comparable
weighted average lives to widen, resulting in a decrease in the value of CMBS.
As a result, the creation of new CMBS and the trading of existing CMBS came to a
near standstill. In late November 1998, buying and trading activity in the CMBS
market began to improve, increasing liquidity in the CMBS market; however, these
improvements mostly related to investment grade CMBS. New issuances of CMBS also
returned in late November 1998 and continued throughout 1999. The market for
Subordinated CMBS has, however, been slower to recover. It is difficult, if not
impossible, to predict when or if the CMBS market and, in particular, the
Subordinated CMBS market, will continue to improve. Even if the market for
subordinated CMBS continues to improve, the liquidity of such market has
historically been limited. Additionally, during adverse market conditions, the
liquidity of such market has been severely limited. Therefore, management's
estimate of the value of the Company's CMBS could vary significantly from the
value that could be realized in a current transaction between a willing buyer
and a willing seller in other than a forced sale or liquidation.
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<PAGE>
Subordinated CMBS Acquisitions
As of December 31, 1998 and September 30, 1999, the Company's $2.4 billion
portfolio of assets included $1.3 billion and $1.2 billion, respectively, of
Subordinated CMBS (each representing approximately 52% of the Company's total
consolidated assets). See CRIIMI MAE Financial Statements to be attached hereto
as Exhibit D.
In 1998, CRIIMI MAE acquired Subordinated CMBS from offerings with a total
face amount of $13.5 billion. These offerings comprised 17.2% of the total
($78.3 billion face amount according to Commercial Mortgage Alert) CMBS market
for 1998. For the year ended December 31, 1998, the Company acquired
Subordinated CMBS with an aggregate face amount of approximately $1.2 billion,
making the Company a leading purchaser of Subordinated CMBS in 1998. As of
December 31, 1998, approximately 44% of the Company's CMBS (based on fair value)
were rated BB+, BB or BB-, 27% were B+, B, B- or CCC and 9% were unrated. The
remaining approximately 20% represents investment grade securities that the
Company reflects on its balance sheet as a result of CBO-2 (herein defined). See
"THE PORTFOLIO - CMBS."
The Company generally acquired Subordinated CMBS in privately negotiated
transactions, which allowed it to perform due diligence on a substantial portion
of the mortgage loans underlying the Subordinated CMBS as well as the underlying
real estate prior to consummating the purchase. In connection with its
Subordinated CMBS acquisitions, the Company targeted diversified mortgage loan
pools with a mix of property types, geographic locations and borrowers. CRIIMI
MAE financed a substantial portion of its Subordinated CMBS acquisitions with
short-term, variable-rate financing facilities secured by the Company's CMBS.
The Company's business strategy was to periodically refinance a substantial
portion of the Subordinated CMBS in its portfolio through a resecuritization of
such Subordinated CMBS primarily to attain a better matching of the maturities
of its liabilities and assets through the refinancing of short-term,
variable-rate, recourse financing with long-term, fixed-rate, non-recourse
financing. See "BUSINESS - Resecuritizations," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and Notes 5 and 9 to
Notes to Consolidated Financial Statements.
The Company generally enters into interest rate protection agreements to
mitigate the adverse effects of rising short-term interest rates on the interest
payments due on its variable-rate financing facilities. It is the Company's
policy to hedge at least 75% of the principal balance of its variable-rate debt
with interest rate protection agreements. As of December 31, 1998 and September
30, 1999, approximately 79% and 91%, respectively, of the Company's
variable-rate debt was hedged with interest rate caps, a form of interest rate
protection agreement. Interest rate caps provide protection to CRIIMI MAE to the
extent interest rates, based on a readily determinable interest rate index,
increase above the stated interest rate cap, in which case CRIIMI MAE would
receive payments based on the difference between the index and the cap. The
payments would serve to reduce the interest payments due under the variable-rate
secured financing agreements. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and Notes 9 and 10 to Notes to
Consolidated Financial Statements for a further discussion of the Company's
short-term, variable-rate, secured financing facilities and interest rate
protection agreements.
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<PAGE>
Resecuritizations
The Company initially funded a substantial portion of its Subordinated
CMBS acquisitions with short-term, variable-rate secured financing facilities.
To mitigate the Company's exposure to interest rate risk, among other things,
the Company's business strategy was to periodically refinance a significant
portion of this short-term debt with fixed-rate, non-recourse debt having
maturities that matched those of the Company's mortgage assets securing such
debt ("match-funded"). The Company effected such refinancing by pooling
Subordinated CMBS once a sufficient number of Subordinated CMBS had been
accumulated, and issuing newly created CMBS backed by the pooled Subordinated
CMBS. The CMBS issued in such resecuritizations were fixed-rate obligations with
maturities that matched the maturities of the Subordinated CMBS backing the new
CMBS. These resecuritizations also increased the amount of borrowings available
to the Company due to the increased collateral value of the new CMBS relative to
the pooled Subordinated CMBS. The increase in collateral value was principally
attributable to the seasoning of the underlying mortgage loans, and the
diversification that occurred when such Subordinated CMBS were pooled. The
Company generally used the cash proceeds from the investment-grade CMBS that
were sold in the resecuritization to reduce the amount of its short-term,
variable-rate secured borrowings. The Company then used the net excess borrowing
capacity created by the resecuritization to obtain new short-term, variable-rate
secured borrowings which were used with additional new short-term, variable-rate
secured borrowings typically provided by the Subordinated CMBS seller and, to a
lesser extent, cash, to purchase additional Subordinated CMBS. Although the
Company's resecuritizations have mitigated the Company's exposure to interest
rate risk through match-funding, the Company's short-term, variable-rate secured
borrowings increased from December 31, 1996 to December 31, 1998, as a result of
the Company's continued acquisitions of Subordinated CMBS.
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, 1998 and September 30, 1999, the Company's total debt
was approximately $2.1 billion and $2.0 billion, respectively, of which
approximately 46% and 53%, respectively, was fixed-rate, match-funded debt and
approximately 54% and 47%, respectively, was short-term, variable-rate or
fixed-rate debt that was not match-funded and recourse to the Company. For the
year and nine months ended December 31, 1998 and September 30, 1999, the
Company's weighted average cost of borrowing (including amortization of
discounts and deferred financing fees of approximately $6.5 million and $6.7
million, respectively) was approximately 7.37% and 7.39%, respectively. See
"BUSINESS - Subordinated CMBS Acquisitions," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and Notes 5, 9 and 10
to Notes to Consolidated Financial Statements for further information regarding
the Company's resecuritizations, short-term variable-rate secured financings,
and caps.
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<PAGE>
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 predetermined prepayment penalty. Since the inception of these
origination programs, the Company has originated over $900 million in aggregate
principal amount of loans and securitized approximately $496 million in
aggregate principal amount of mortgage loans.
In June 1998, the Company securitized approximately $496 million of the
commercial mortgage loans originated or acquired through a mortgage loan conduit
program with 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
remaining tranches were not sold until 1999. See "GENERAL INFORMATION - Legal
Proceedings" regarding the sale of additional CMO-IV securities. CRIIMI MAE has
call rights on each of the issued securities and therefore has not surrendered
control of the bonds, thus requiring the transaction to be accounted for as a
financing of the mortgage loans collateralizing the investment-grade CMBS sold
in the securitization. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-Liquidity and Capital Resources" and Notes 6
and 9 to Notes to Consolidated Financial Statements for additional information
regarding this securitization, including the 1999 sales of the remaining
investment grade tranches.
At the time it filed for bankruptcy, the Company had a second mortgage
loan conduit program with Citibank (the "Citibank Program") as well as a loan
conduit program with Prudential Securities Incorporated and Prudential
Securities Credit Company (the "Prudential Program").
The Citibank Program provided for CRIIMI MAE to pay to Citibank the face
value of the loans originated through the Program, which were funded by Citibank
and not otherwise securitized, plus or minus any hedging loss or gain, on
December 31, 1998. To secure this obligation, CRIIMI MAE was required to deposit
a portion of the principal amount of each originated loan in a reserve account.
On October 5, 1998, Citibank sent the Company a letter alleging that the
Company was in default under the Citibank Program and that it was terminating
the Citibank Program. The Company and Citibank negotiated a Stipulation and
Consent Order (the "Order"), entered by the Bankruptcy Court on April 5, 1999,
regarding the Citibank Program. The Order provided that Citibank would, with
CRIIMI MAE's cooperation, sell the loans originated under the Citibank Program,
pursuant to certain specified terms and conditions. All of the commercial loans
originated under the Citibank Program were sold in 1999 at a loss to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and Notes 6 and 16 to
Notes to Consolidated Financial Statements for a further discussion of these
commercial loan sales.
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<PAGE>
Under the Prudential Program, the Company had an option to pay to
Prudential Securities Incorporated and Prudential Securities Credit Company
(collectively, "Prudential") the face value of the loan, plus or minus any
hedging loss or gain, at the earlier of June 30, 1999 or the date by which a
stated quantity of loans for securitization has been made. Under the Prudential
Program, the Company was required to fund a reserve account, which was
approximately $2 million. Since the Company was unable to exercise its option
under the Prudential Program, the Company forfeited the amount of the reserve
account. CRIIMI MAE is still in discussions with Prudential to sell the loan
originated under the Prudential Program. There can be no assurance that an
agreement will be reached with Prudential or, if reached, that such agreement
would be approved by the Bankruptcy Court.
Servicing
CRIIMI MAE conducts its mortgage loan servicing and advisory operations
through its affiliate, CMSLP. At the time of the Chapter 11 filing, CMSLP was
responsible for certain servicing functions on a mortgage loan portfolio of
approximately $32 billion, as compared to approximately $16.5 billion as of
December 31, 1997. Prior to the Petition Date, CRIIMI MAE increased its mortgage
loan servicing and advisory operations primarily through its purchases of
Subordinated CMBS by acquiring certain servicing rights for the mortgage loans
collateralizing the Subordinated CMBS, as well as providing servicing on the
loans originated through the CRIIMI MAE loan origination programs. At the time
of the Chapter 11 filing, CRIIMI MAE, through CMSLP, master serviced five CMBS
portfolios totaling $3.6 billion, as well as loans originated, but not yet
securitized, under its loan origination programs.
CMSLP did not file for protection under Chapter 11. However, because of
the related party nature of its relationship with CRIIMI MAE, CMSLP has been
under a high degree of scrutiny from servicing rating agencies. As a result of
CRIIMI MAE's Chapter 11 filing, CMSLP was declared in default under certain
credit agreements with First Union National Bank ("First Union"). In order to
repay all such credit agreement obligations and to increase its liquidity, CMSLP
arranged for ORIX Real Estate Capital Markets, LLC ("ORIX"), formerly known as
Banc One Mortgage Capital Markets, LLC ("BOMCM") to succeed it as master
servicer on two commercial mortgage pools on October 30, 1998. In addition, in
order to allay rating agency concerns stemming from CRIIMI MAE's Chapter 11
filing, in November 1998, CRIIMI MAE designated ORIX as special servicer on 33
separate CMBS securitizations totaling approximately $29 billion, subject to
certain requirements contained in the respective servicing agreements. CMSLP
will continue to perform special servicing as special sub-servicer for ORIX on
all but five of these securitizations. CRIIMI MAE remains the owner of the
lowest rated tranche of the related Subordinated CMBS and, as such, retains
rights pertaining to ownership, including the right to replace the special
servicer. CMSLP lost the right to specially service the DLJ MAC 95 CF-2
securitization when the majority holder of the lowest rated tranches replaced
CMSLP as special servicer. As of September 30, 1999, CMSLP's remaining servicing
portfolio was $29.4 billion.
CMSLP's principal servicing activities are described below.
Special Servicing. A special servicer typically provides asset management
and resolution services with respect to nonperforming or underperforming loans
within a pool of mortgage loans. When acquiring Subordinated CMBS, CRIIMI MAE
typically required that it retain the right to appoint the special servicer for
the related mortgage pools. When acting as special servicer of a CMBS pool,
CMSLP has the authority to deal directly with any borrower that fails to perform
under certain terms of its mortgage loan, including the failure to make
payments, and to manage any loan workouts and foreclosures. As special servicer,
CMSLP earns fee income on services provided in connection with any loan
servicing function transferred to it from the master servicer. CRIIMI MAE
believes that because it owns the lowest rated or unrated tranche (first loss
position) of the Subordinated CMBS, CMSLP has an incentive to quickly resolve
any loan workouts. During the year and nine months ended December 31, 1998 and
September 30, 1999, CMSLP successfully resolved $138.7 and $175 million,
respectively, of CMBS loan workouts. As of December 31, 1998 and September 30,
1999, CMSLP was designated as the special servicer (or sub-special servicer) for
approximately 5,000 and 4,971 commercial mortgage loans, respectively,
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<PAGE>
representing an aggregate principal amount of approximately $27.4 and $27.0
billion, respectively. Such commercial mortgage loans represent substantially
all of the mortgage loans underlying CRIIMI MAE's Subordinated CMBS portfolio.
As of September 30, 1999, CMSLP had a special servicer rating of "above
average" from Fitch IBCA and had been approved on a transactional basis by
Moody's Investors Service, Inc. ("Moody's") and Duff & Phelps Credit Rating Co.
However, CMSLP lost an "acceptable" special servicer rating by Standard & Poor's
("S&P") in October 1998 as a result of the Chapter 11 filing of CRIIMI MAE.
Also, as a result of the Chapter 11 filing, Fitch IBCA placed CMSLP's special
servicing rating on "rating watch."
Master Servicing. A master servicer typically provides administrative and
reporting services to the trustee with respect to a particular issuance of CMBS.
Mortgage loans underlying CMBS generally are serviced by a number of primary
servicers. Under most master servicing arrangements, the primary servicers
retain primary responsibility for administering the mortgage loans and the
master servicer acts as an intermediary in overseeing the work of the primary
servicers, monitoring their compliance with the standards of the issuer of the
related CMBS and consolidating the servicers' respective periodic accounting
reports for transmission to the trustee. When acting as master servicer of a
CMBS pool, CMSLP has greater control over the mortgage assets underlying its
Subordinated CMBS, including the authority to (i) collect monthly principal and
interest payments (either from a direct servicer or directly from borrowers) on
loans comprising a CMBS pool and remit such amounts to the pool trustee, (ii)
oversee the performance of sub-servicers and (iii) report to trustees. As master
servicer, CMSLP is usually paid a fee and can earn float income on the deposits
it holds. In addition to this float and fee income, the master servicer
typically has more direct and regular contact with borrowers than the special
servicer. As of December 31, 1998 and September 30, 1999, CMSLP remained master
servicer on three CMBS portfolios representing commercial mortgage loans with an
aggregate principal amount of approximately $2.3 billion.
As of September 30, 1999, CMSLP had a master servicer rating of
"acceptable" from Fitch IBCA and had been approved on a transactional basis by
Moody's. However, CMSLP lost an acceptable master servicer rating from S&P in
October 1998 as a result of the Chapter 11 filing of CRIIMI MAE. Also, as a
result of the Chapter 11 filing, Fitch IBCA placed CMSLP's Master Servicer
rating on "rating watch".
Direct (or Primary) Servicing. Direct (or primary) servicers typically
perform certain functions for the master servicer. Direct serviced loans are
those loans for which CMSLP collects loan payments directly from the borrower
(including tax and insurance escrows and replacement reserves). The loan
payments are remitted to the master servicer for the loan (which may be the same
entity as the direct servicer), usually on a fixed date each month. The direct
servicer is usually paid a fee to perform these services, and is eligible to
earn float income on the deposits held. In addition to this fee and float
income, the direct servicer, like the master servicer, typically has more direct
and regular contact with borrowers than the special servicer. As of December 31,
1998 and September 30, 1999, CMSLP was designated direct servicer for
approximately 374 and 219 commercial mortgage loans, respectively, representing
an aggregate principal amount of approximately $2.1 billion and $920.8 million,
respectively. This number excludes loans that are both direct and master
serviced, which are included in the master servicing figures above.
Loan Management. In certain cases, CMSLP acts as loan manager and monitors
the ongoing performance of properties securing the mortgage loans underlying its
Subordinated CMBS portfolio by continuously reviewing the property level
operating data and regular site inspections. For many of these loans, CMSLP
performs these duties directly; for the remaining loans, as part of its routine
asset monitoring process, it reviews the analysis performed by other servicers.
This allows CMSLP to identify and resolve potential issues that could result in
losses. As of December 31, 1998 and September 30, 1999, CMSLP served as loan
manager for approximately 4,800 and 4,760 commercial mortgage loans,
respectively, representing an aggregate principal amount of approximately $26.6
and $26.2 billion, respectively. This number excludes loans that are both direct
and master serviced which are included in the master servicing figures above.
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<PAGE>
Underwriting Procedures
CRIIMI MAE believes that its experience in underwriting has enabled it to
maintain the overall quality of assets underlying its CMBS portfolio and to
properly manage certain of the risks associated with mortgage loans underlying
acquired Subordinated CMBS and loan originations. Since the Company generally
acquired CMBS through privately negotiated transactions and originated
commercial mortgage loans through its regional offices, it was able to perform
extensive due diligence on each mortgage loan as well as the underlying real
estate prior to consummating any purchase or origination. The Company underwrote
every loan it originated and re-underwrote a substantial portion of the loans
underlying the Subordinated CMBS it acquired. Furthermore, the Company's credit
committee, composed of members of senior management, reviewed originated loans
and Subordinated CMBS acquisitions. The Company also placed underwriting
personnel in its regional origination offices, not only to provide a timely
response to the originators but also to achieve a thorough understanding of
local markets and demographic trends.
CRIIMI MAE's underwriting guidelines were designed to assess the adequacy
of the real property as collateral for the loan and the borrower's
creditworthiness. The underwriting process entailed a full independent review of
the operating records, appraisals, environmental studies, market studies and
architectural and engineering reports, as well as site visits to properties
representing a majority of the CMBS portfolio. The Company then tested the
historical and projected financial performance of the properties to determine
their resiliency to a market downturn and applied varying capitalization rates
to assess collateral value. To assess the borrower's creditworthiness, the
Company reviewed the borrower's financial statements, credit history, bank
references and managerial experience. The Company purchased Subordinated CMBS
when the loans it believed to be problematic (i.e., that did not meet its
underwriting criteria) were excluded from the CMBS pool and when satisfactory
arrangements existed that enabled the Company to closely monitor the underlying
mortgage loans and provided the Company with appropriate workout and foreclosure
rights.
Employees
As of September 30, 1999, the Company had 58 full-time employees, and
CMSLP had 103 full-time employees. Prior to the Petition Date on September 30,
1998, the Company had 170 full-time employees, and CMSLP had 113 full-time
employees.
Employee Retention Plan
Upon commencement of the Chapter 11 cases, the Company believed it was
essential to both the efficient operation of the Company's business and the
reorganization effort that the Company maintain the support, cooperation and
morale of its employees. The Company obtained Bankruptcy Court approval to pay
certain pre-petition employee obligations in the nature of wages, salaries and
other compensation and to continue to honor and pay all employee benefit plans
and policies.
In addition, to ensure the Company's continued retention of its executives
and other employees and to provide meaningful incentives for these employees to
work toward the Company's financial recovery and reorganization, the Company's
management and Board of Directors developed a comprehensive and integrated
program to retain its executives and other employees throughout the
reorganization. On December 18, 1998, the Company obtained Bankruptcy Court
approval to adopt and implement an employee retention program (the "Employee
Retention Plan") with respect to all employees of the Company other than certain
key executives. On February 28, 1999, the Company received Bankruptcy Court
approval authorizing it to extend the Employee Retention Plan to the key
executives initially excluded, including modifying existing employment
agreements and entering into new employment agreements with such key executives.
The Employee Retention Plan permitted the Company to approve ordinary course
employee salary increases 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 $3.5 million, including payments to certain executives. Retention payments
are payable semiannually over a two-year period. The first retention payment
vested on April 5, 1999,
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and was paid on April 15, 1999. The second retention payment vested on October
5, 1999 and was paid on October 15, 1999. The entire unpaid portion of the
retention payments will become due and payable (i) upon the effective date of a
plan of reorganization of the Company and, with respect to certain key
executives, court approval or (ii) upon termination without cause. William B.
Dockser, Chairman of the Board of 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 "EXECUTIVE
COMPENSATION - Employment Agreements."
C. The Portfolio
CMBS
Fair Value. As of September 30, 1999, the Company owned CMBS rated from A
to CCC and Unrated with a total fair value amount of approximately $1.2 billion
(representing approximately 52% of the Company's total consolidated assets) and
an aggregate amortized cost of approximately $1.5 billion.
<TABLE>
<CAPTION>
Amortized Amortized
Face Amount Fair Value Cost Cost
as of Weighted as of Range of Discount as of as of
September 30, Averages Weighted September 30, Rates Used to September December
Security 1999 Pass- Average 1999 Calculate 30, 1999 31, 1998
Rating (in millions) Through Rate Life(1) (in millions)(2) Fair Value (2) (in millions) (in millions)
- ----------- ------------- ------------ -------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
A(3) $ 62.6 7.0% 7 years $ 54.2 9.8% $ 57.3 $ 57.0
BBB(3) 150.6 7.0% 12 years 116.8 10.4% 127.5 126.9
BBB-(3) 115.2 7.0% 13 years 82.8 11.3% 93.3 92.8
BB+ 394.6 7.0% 13 years 260.9 10.6% - 12.9% 319.7 317.9
BB 278.2 6.9% 14 years 200.7 11.2% - 13.4% 261.2 259.1
BB- 89.1 6.8% 14 years 54.4 11.7% - 14.6% 73.0 72.6
B+ 128.7 6.7% 16 years 65.9 13.0% - 15.9% 93.4 93.0
B 300.2 6.6% 16 years 151.3 14.0% - 16.3% 210.4 208.9
B- 198.7 6.7% 17 years 86.5 15.2% - 19.0% 107.6 106.7
CCC 92.0 6.8% 19 years 24.0 24.0% - 29.0% 36.1 36.0
Unrated(4) 477.4 6.2% 20 years 118.5 25.0% - 30.0% 151.0 159.0
----- ---- -------- ----- --------- ----------
Total(5)(6) $ 2,287.3 6.7% 16 years $ 1,216.0 $1,530.5 $1,529.9
============= ==== ======== ========== ========= ==========
</TABLE>
- ----------
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<PAGE>
(1) Weighted average life represents the weighted average expected life of the
Subordinated CMBS prior to consideration of losses, extensions or prepayments
other than those factored in the assumed prepayment rate used at the time of
acquisition.
(2) The estimated fair values of Subordinated CMBS represent the carrying value
of these assets. Due to the Chapter 11 filing, the Company's lenders were not
willing to provide fair value quotes for the portfolio as of September 30, 1999
and December 31, 1998. As a result, the Company calculated the estimated fair
market value of its Subordinated CMBS portfolio as of September 30, 1999 and
December 31, 1998. The Company used a discounted cash flow methodology to
estimate the fair value of its Subordinated CMBS portfolio. The cash flows were
then discounted using a discount rate that, in the Company's view, was
commensurate with the market's perception of risk and value. The Company used a
variety of sources to determine its discount rate including:
institutionally-available research reports, and communications with dealers and
active Subordinated CMBS investors regarding the valuation of comparable
securities. Since the Company calculated the estimated fair market value of its
Subordinated CMBS portfolio as of September 30, 1999 and December 31, 1998, it
has disclosed in the table the range of discount rates by rating category used
in determining these fair market values.
The CMBS market was adversely affected by the turmoil which occurred in the
capital markets commencing in late summer of 1998 that caused spreads between
CMBS yields and the yields on U.S. Treasury securities with comparable weighted
average lives to widen, resulting in a decrease in the value of CMBS. As a
result, the creation of new CMBS and the trading of existing CMBS came to a near
standstill. In late November 1998, buying and trading activity in the CMBS
market began to recover, increasing liquidity in the CMBS market; however, these
improvements mostly related to investment grade CMBS. New issuances of CMBS also
returned in late November 1998 and continued throughout 1999. The market for
Subordinated CMBS has, however, been slower to recover. It is difficult, if not
impossible, to predict when or if the CMBS market and, in particular, the
Subordinated CMBS market, will fully recover. Even if the market for
Subordinated CMBS fully recovers, the liquidity of such market has historically
been limited. Additionally, during adverse market conditions the liquidity of
such market has been severely limited. Therefore management's estimate of the
value of its securities could vary significantly from the value that could be
realized in a current transaction between a willing buyer and a willing seller
in other than a forced sale or liquidation.
(3) In connection with CBO-2, $62.6 million (A rated) and $60.0 million (BBB
rated) face amount of investment grade securities were issued with call options
and $345 million (A rated) face amount were issued without call options. Since
the Company retained call options on certain sold bonds, the Company did not
surrender control of those assets pursuant to the requirements of FAS 125 and
thus these securities are accounted for as a financing and not a sale. Since the
transaction is recorded as a partial financing and a partial sale, CRIIMI MAE
has retained the securities with call options in its Subordinated CMBS portfolio
reflected on its balance sheet. In connection with CBO-2, in May 1998 the
Company initially retained $90.6 million (BBB rated) and $115.2 million (BBB-
rated) face amount of securities, with the intention to sell the securities at a
later date. Such sale occurred March 5, 1999. See "Legal Proceedings" for
further discussion.
(4) The unrated bond from CBO-1 experienced an approximately $737,000 principal
write down due to a loss on the foreclosure of an underlying loan. Management
believes that the current loss estimates used to recognize income related to
this bond remain adequate to cover losses.
(5) Refer to Note 8 to Notes to Consolidated Financial Statements for additional
information regarding the total face amount and purchase price of Subordinated
CMBS for tax purposes.
(6) Similar to the Company's other sponsored CMOs, CMO-IV, as described in
"BUSINESS - Loan Originations and Securitizations" and Note 6 to Notes to the
Consolidated Financial Statements, resulted in the creation of CMBS, of which
the Company sold certain tranches. Since the Company retained call options on
the sold bonds, the Company did not surrender control of the assets for purposes
of FAS 125 and thus the entire transaction is accounted for as a financing and
not as a sale. Since the entire transaction is recorded as a financing, the
Subordinated CMBS are not reflected in the Company's Subordinated CMBS
portfolio. Instead the mortgage assets are reflected in Investment in Originated
Loans on the balance sheet.
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Type and Geographic Location of Loans
As of September 30, 1999 and December 31, 1998, the mortgage loans
underlying CRIIMI MAE's Subordinated CMBS portfolio were secured by properties
of the types and at the locations identified below:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 September 30, 1999 December 31, 1998
Property Type Percentage(1) Percentage(1) Geographic Location(2) Percentage(1) Percentage(1)
- ------------- ------------- ------------- ------------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Multifamily ..... 32% 31% California ................ 17% 16%
Retail .......... 29% 28% Texas ..................... 14% 12%
Office .......... 12% 15% Florida ................... 8% 7%
Hotel ........... 14% 13% Other(3) .................. 61% 65%
Other ........... 13% 13% ---- ----
---- ---- Total .................. 100% 100%
Total ....... 100% 100% ==== ====
==== ====
</TABLE>
(1) Based on a percentage of the total unpaid principal balance of the
underlying loans.
(2) No significant concentration by region.
(3) No other individual state makes up more than 5% of the total.
CMBS Pools. The following table summarizes information relating to the
Company's CMBS on an aggregate basis by pool as of September 30, 1999. See also
Note 5 to Notes to Consolidated Financial Statements.
Original September 30, 1999
Anticipated Anticipated
Unleveraged Unleveraged
Yield to Yield to
Pool (3) Maturity(1) Maturity(1)(2)
-------- ----------- ---------------
Retained Securities from
CRIIMI 1996 C1 (CBO-1) 19.5% 20.7%(3)
DLJ Mortgage Acceptance Corp.
Series 1997 CF2 Tranche B-30C 8.2% 8.2%
Nomura Asset Securities Corp.
Series 1998-D6 Tranche B7 12.0% 12.0%
Retained Securities from
CRIIMI 1998 C1 (CBO-2) 10.3% 10.1%(4)
Mortgage Capital Funding, Inc.
Series 1998-MC1 8.9% 9.0%
Chase Commercial Mortgage Securities
Series 1998-1 8.8% 8.8%
First Union/Lehman Brothers
Series 1998 C2 8.9% 9.0%
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Morgan Stanley Capital Inc.
Series 1998-WF2 8.5% 8.6%(4)
Mortgage Capital Funding, Inc.
Series 1998-MC2 8.7% 8.7%
Weighted Average 9.7%(5) 10.1%(5)
- ----------
(1) Represents the anticipated weighted average unleveraged yield over the
expected average life of the Company's Subordinated CMBS portfolio as of the
date of acquisition and September 30, 1999, respectively, based on management's
estimate of the timing and amount of future credit losses and prepayments. As
discussed in footnote (4) below, these yields may decrease as a result of
certain adversarial actions taken by the Company's lenders.
(2) Unless otherwise noted, changes in the September 30, 1999 anticipated yield
to maturity from that originally anticipated are primarily the result of changes
in prepayment assumptions relating to mortgage collateral.
(3) The increase in the anticipated yield resulted from the reallocation of
CBO-1 asset basis in conjunction with the CBO-2 resecuritization.
(4) On October 6, 1998, Morgan Stanley and Co. International Limited ("Morgan
Stanley") advised CRIIMI MAE that it was exercising alleged ownership rights
over certain classes of CMBS it held as collateral. In the first quarter of
1999, the Company agreed to cooperate in selling two classes of investment grade
CMBS issued by CRIIMI MAE Commercial Mortgage Trust Series 1998-C1 (CBO-2 BBB
Bonds) and to suspend litigation with Morgan Stanley with respect to these CMBS.
On March 5, 1999, the CBO-2 BBB Bonds with $205.8 million face amount and with a
coupon rate of 7% were sold in a transaction that is accounted for as a
financing by the Company rather than a sale. Of the $159 million in proceeds,
$141.2 million was used to repay amounts due under the agreement with Morgan
Stanley, and $17.8 million was paid to CRIIMI MAE. CRIIMI MAE and Morgan Stanley
also agreed to a standstill period, regarding seven classes of subordinated CMBS
issued by Morgan Stanley Capital I Inc. Series 1998-WF2 (the "Wells Fargo
Bonds"). The Company and Morgan Stanley reached an agreement to sell the Wells
Fargo Bonds (the "Morgan Stanley Agreement"). CRIIMI MAE filed a motion with the
Bankruptcy Court to approve the Morgan Stanley Agreement on February 1, 2000.
The motion was approved by the Bankruptcy Court on February 24, 2000. On
February 29, 2000 the Wells Fargo Bonds were sold. Of the approximately $45.9
million in net sale proceeds, $37.5 million was used to pay off all outstanding
borrowings owed to Morgan Stanley, and the remaining proceeds of approximately
$8.4 million will be used primarily to help fund CRIIM MAE's Plan. Pursuant to
the terms of the Morgan Stanley Agreement, the Company and Morgan Stanley
mutually released any claims that they may have against each other and filed a
stipulation of dismissal with prejudice of the October 20, 1998 adversary
proceeding.
(5) CRIIMI MAE, through CMSLP, performs servicing functions on a total CMBS pool
of approximately $ 29.4 billion. Of the $29.4 billion of mortgage loans,
approximately $260.6 million are being specially serviced as of November 1,
1999, of which approximately $121.1 million are being specially serviced due to
payment default and the remainder are being specially serviced due to
nonfinancial covenant default. Through September 30, 1999, CMSLP has resolved
and transferred out of special servicing approximately $422.3 million of the
approximately $682.9 million that has been transferred into special servicing.
Through September 30, 1999, actual losses on mortgage loans underlying the CMBS
transactions were lower than the Company's original loss estimates.
Insured Mortgage Securities
As of September 30, 1999, the Company had $410.4 million (at fair value)
invested in mortgage securities and insured loans, consisting of GNMA
Mortgage-Backed Securities and FHA-Insured Loans, as well as Federal Home Loan
Mortgage Corporation ("Freddie Mac") participation certificates that are
collateralized by GNMA Mortgage-Backed Securities. As of September 30, 1999,
approximately 15% of CRIIMI MAE's investment in mortgage securities were
FHA-Insured Certificates and 85% were GNMA Mortgage-Backed Securities (including
certificates that collateralize Freddie Mac participation certificates). See
Notes 1 and 7 to Notes to Consolidated Financial Statements.
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Investment in Originated Loans
As of September 30, 1999, the Company had $481.5 million (at amortized
cost) invested in commercial mortgage loans primarily originated through the
Company's mortgage loan conduit programs and subsequently securitized in CMO-IV.
Because the bonds sold in CMO-IV are subject to certain call options, under FAS
125, the entire transaction is accounted for as a financing instead of a sale
and the mortgage loans are reflected on the Company's balance sheet. See
"BUSINESS-Loan Originations and Securitizations" and Notes 1 and 6 to Notes to
Consolidated Financial Statements.
As of September 30, 1999 and December 31, 1998, the originated mortgage
loans were secured by properties of the types and at the locations identified
below:
<TABLE>
<CAPTION>
September 30, 1999 December, 31, 1998 September 30, 1999 December 31, 1998
Property Type Percentage(1) Percentage(1) Geographic Location(2) Percentage(1) Percentage(1)
- ------------- ------------- ------------- ---------------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Multifamily......... 38% 38% Michigan...................... 20% 20%
Hotel............... 26% 26% Texas......................... 8% 8%
Retail.............. 20% 20% Illinois...................... 7% 7%
Office.............. 11% 11% California.................... 6% 6%
Other............... 5% 5% Maryland...................... 6% 6%
---- -------- Connecticut................... 6% 6%
Total.......... 100% 100% Florida 5% 5%
==== ======== Other(3)...................... 42% 42%
--- ---
Total...................... 100% 100%
==== ====
</TABLE>
- ----------
(1) Based on a percentage of the total unpaid principal balance of the related
loans.
(2) No significant concentration by region.
(3) No other state makes up more than 5% of the total.
Equity Investments
As of September 30, 1999, the Company had approximately $37.4 million in
investments accounted for under the equity method of accounting. Included in
equity investments are (a) CRIIMI, Inc., a wholly owned subsidiary of CRIIMI
MAE, which owns all of the general partnership interests in American Insured
Mortgage Investors L.P., American Insured Mortgage Investors Series 85 L.P.-
American Insured Mortgage Investors L.P.-Series 86 and American Insured Mortgage
Investors L.P.-Series 88 (collectively the "AIM Funds"), (b) CRIIMI MAE and CMM
each own 50% of the limited partnership interest that owns a 20% limited
partnership interest in the adviser to the AIM Funds, (c) CRIIMI MAE's interest
in CRIIMI MAE Services Inc., and (d) CRIIMI MAE's interest in CMSLP. See Note 1
to Notes to Consolidated Financial Statements.
Properties
CRIIMI MAE leases its corporate offices at 11200 Rockville Pike,
Rockville, Maryland. As of March 24, 2000, these offices occupy approximately
68,500 square feet.
D. Legal Proceedings
Bankruptcy Proceedings
On the Petition Date, the Debtors each filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. These
cases are being jointly administered for procedural purposes. None of the cases
has been substantively consolidated. Under the Bankruptcy Code, the Debtors are
authorized to
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<PAGE>
manage their respective affairs and operate their businesses as
debtors-in-possession while they attempt to confirm and consummate their Plan
that will restructure their financial affairs and allow them to emerge from
bankruptcy. As a debtor-in-possession under the Bankruptcy Code, no Debtor may
engage in any transaction outside the ordinary course of business without the
approval of the Bankruptcy Court. The following discussion describes certain
aspects of the Chapter 11 cases of the Debtors (the "Chapter 11 Cases"), but it
is not intended to be a complete summary.
Pursuant to the Bankruptcy Code, the commencement of the Chapter 11 Cases
created an automatic stay, applicable generally to creditors and other parties
in interest, but subject to certain limited exceptions, of: (i) the commencement
or continuation of judicial, administrative or other actions or proceedings
against the Debtors that were or could have been commenced prior to the
commencement of the Chapter 11 Cases; (ii) the enforcement against the Debtors
or their property of any judgments obtained prior to the commencement of the
Chapter 11 Cases; (iii) the taking of any action to obtain possession of
property of the Debtors or to exercise control over such property; (iv) the
creation, perfection or enforcement of any lien against the property of the
bankruptcy estates of the Debtors; (v) any act to create, perfect or enforce
against the property of the Debtors any lien that secures a claim that arose
prior to the commencement of the Chapter 11 Cases; (vi) the taking of any action
to collect, assess or recover claims against the Debtors that arose before the
commencement of the Chapter 11 Cases; (vii) the set-off of any debt owing to the
Debtors that arose prior to the commencement of the Chapter 11 Cases against any
claim against the Debtors; or (viii) the commencement or continuation of a
proceeding before the United States Tax Court concerning the Debtors. Any entity
may apply to the Bankruptcy Court, upon appropriate showing of cause, for relief
from the automatic stay.
As noted above, the Debtors are authorized to manage their respective
properties and operate their respective businesses pursuant to the Bankruptcy
Code. During the course of the Chapter 11 Cases, the Debtors will be subject to
the jurisdiction and supervision of the Bankruptcy Court. The United States
Trustee has appointed (i) the Unsecured Creditors Committee, (ii) the CMM
Creditors' Committee and (iii) the CMI Equity Committee (collectively, the
"Committees"). The Committees are expected to participate in the formulation of
the plans of reorganization for the respective Debtors. The Debtors are required
to pay certain expenses of the Committees, including professional fees, to the
extent allowed by the Bankruptcy Court.
Under the Bankruptcy Code, for 120 days following the Petition Date, only
the debtor-in-possession has the right to propose and file a plan of
reorganization with the Bankruptcy Court. If a debtor-in-possession files a plan
of reorganization during this exclusivity period, no other party may file a plan
of reorganization until 180 days following the Petition Date, during which
period the debtor-in-possession has the exclusive right to solicit acceptances
of the plan. If a debtor-in-possession fails to file a plan during the
exclusivity period or such additional exclusivity period as may be ordered by
the Bankruptcy Court or, after such plan has been filed, fails to obtain
acceptance of such plan from impaired classes of creditors and equity security
holders during the exclusive solicitation period, any party in interest,
including a creditors' committee, an equity security holders' committee, a
creditor or an equity security holder may file a plan of reorganization for such
debtor. Additionally, if the Bankruptcy Court were to appoint a trustee, the
exclusivity period, if not previously terminated, would terminate.
The Debtors' initial exclusivity period to file a plan of reorganization
ended on February 2, 1999. The Bankruptcy Court extended this period through
August 2, 1999 and again through September 10, 1999. The Debtors sought a third
extension of exclusivity through November 10, 1999 and on September 20, 1999,
the Bankruptcy Court entered an order (i) extending the Debtors' right to file a
plan of reorganization through October 16, 1999, (ii) providing the Unsecured
Creditors' Committee and the CMI Equity Committee the right to jointly file a
plan of reorganization through October 16, 1999 and (iii) providing that any
party in interest may file a plan of reorganization after October 16, 1999. The
Debtors filed (i) a Joint Plan of Reorganization on September 22, 1999, and (ii)
an Amended Joint Plan of Reorganization and proposed Joint Disclosure Statement
on December 23, 1999. The filing of the Debtors' Amended Joint Plan of
Reorganization and proposed Joint Disclosure Statement on December 23, 1999 was
filed with the full support of the CMI Equity Committee, which is a co-proponent
of the Amended Joint Plan of Reorganization.
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<PAGE>
On December 20, 1999, the Unsecured Creditors' Committee filed its 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 fully supporting
confirmation of the Debtors' Plan, and its own Plans are no longer before the
Court for consideration. Accordingly, the Debtors, the CMI Equity Committee and
the Unsecured Creditors' Committee are together presenting a consensual Plan for
approval by all Holders of Claims and Interests in Impaired Classes.
At the conclusion of the hearing on approval of this Disclosure Statement
on April 25 [and 26], 2000, the Bankruptcy Court approved the Disclosure
Statement. Thereafter, the Debtors' Plan, accompanied by this Disclosure
Statement, has been sent to members of all classes of impaired creditors and
equity security holders for acceptance or rejection. Following voting on the
Plan by impaired classes of creditors and equity security holders, the
Bankruptcy Court, after notice and a hearing, will consider whether to confirm
the Plan before it. To confirm a plan, the Bankruptcy Court is required to find
among other things: (i) with respect to each class of impaired creditors and
equity security holders, that each holder of a claim or interest of such class
either (A) will, pursuant to the plan, receive or retain property of a value as
of the effective date of the plan, that is at least as much as such holder would
have received in a liquidation on such date of the Debtors or (B) has accepted
the plan, (ii) with respect to each class of claims or equity security holders,
that such class has accepted the plan or is not impaired under the plan, and
(iii) confirmation of the plan is not likely to be followed by the liquidation
or need for further financial reorganization of the Debtors or any successor
unless such liquidation or reorganization is proposed in the plan. The
Bankruptcy Court has set ______________________ as the date for a confirmation
hearing on the Debtors' Plan.
If any impaired class of creditors or equity security holders does not
accept a plan, the proponent of the plan may invoke the so-called "cramdown"
provisions of the Bankruptcy Code. Under these provisions, the Bankruptcy Court
may confirm a plan, notwithstanding the non-acceptance of the plan by an
impaired class of creditors or equity security holders, if certain requirements
of the Bankruptcy Code are met. These requirements include: (i) the plan does
not discriminate unfairly and (ii) the plan is fair and equitable, with respect
to each class of claims or interests that is impaired under, and has not
accepted, the plan. As used in the Bankruptcy Code, the phrases "discriminate"
and "fair and equitable" have narrow and specific meanings and their use herein
is qualified in its entirety by reference to the Bankruptcy Code.
Bankruptcy Related Litigation
The following is a summary of material litigation matters between the
Company and certain of its secured creditors since the Petition Date. The
Company has reached agreement with certain of these creditors, as set forth in
greater specificity below. See "GENERAL INFORMATION - The Debtors and Chapter 11
Filing and Other Chapter 11 Events - Deadline to File Proofs of Claims" for
information regarding claims filed in the Debtors' Chapter 11 proceeding.
Merrill
As of the Petition Date, the Company owed Merrill approximately $274.8
million with respect to advances to the Company under an assignment agreement
pursuant to which the Company pledged Subordinated CMBS. Borrowings under this
assignment agreement are secured by a first priority security interest in
certain CMBS issued by CBO-2, together with all proceeds, distributions and
amounts realized therefrom (the "Distributions") (the CMBS pledged to Merrill
and the Distributions are hereafter referred to collectively as the "Merrill
Collateral").
On October 16, 1998, Merrill filed a motion with the Bankruptcy Court for
relief from the automatic stay or, in the alternative, for entry of an order
directing the Company to provide adequate protection for its interest in
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<PAGE>
the Merrill Collateral. On October 21, 1998, the Company filed a complaint
against Merrill for turnover of Distributions remitted to Merrill on October 2,
1998 by LaSalle National Bank, as well as other relief.
On December 4, 1998, the Bankruptcy Court approved a consent order entered
into between the Company and Merrill. Among other things, pursuant to the
consent order, the pending litigation with Merrill was dismissed without
prejudice. The consent order also preserved the portfolio of CMBS pledged as
collateral to Merrill and provided for the Company to receive distributions of
50 percent of the monthly cash flow from those CMBS net of interest payable to
Merrill (the "Company's Distribution Share"). The 50 percent of distributions
received by Merrill is to be applied to reduce principal. Such arrangement will
remain in effect until the earlier of a further order of the Bankruptcy Court
affecting the arrangement or the effective date of a plan of reorganization of
the Company.
On September 7, 1999, the Company filed a Motion to Approve Stipulation
and Consent Order Providing for Adequate Protection. On or about September 27,
1999 the Unsecured Creditors' Committee and the CMI Equity Committee filed a
joint objection to the Motion. On December 3, 1999, the Bankruptcy Court entered
the Stipulation and Consent Order Providing for Adequate Protection (the
"Adequate Protection Order"), certain provisions of which were effective
retroactively. Pursuant to the Adequate Protection Order, a segregated interest
bearing debtor-in-possession account was created (the "Cash Collateral Account")
into which the Company's Distribution Share was deposited during the months of
August through December 1999. An additional 50% of the Company's Distribution
Share was deposited in said account between January and March 2000. The Adequate
Protection Order provides Merrill with a first priority lien on the Cash
Collateral Account. Subject to certain material adverse changes defined in the
Adequate Protection Order, Merrill agreed not to seek further adequate
protection or relief from the Automatic Stay before March 31, 2000.
Morgan Stanley
As of the Petition Date, the Company owed Morgan Stanley approximately
$182.4 million with respect to advances to the Company under an agreement
pursuant to which the Company pledged CMBS. The borrowings under this agreement
were secured by certain CMBS, including (i) CRIIMI MAE Commercial Mortgage
Trust, Series 1998-C1, Class B and C Certificates (collectively or any portion
thereof, the "CBO-2 BBB Bonds") and (ii) Morgan Stanley Capital I Inc., Series
1998-W2, Class F, G, H, J, K, L and M Certificates (collectively or any portion
thereof, the "Wells Fargo Bonds" and, together with the CBO-2 BBB Bonds, the
"Morgan Collateral").
On October 6, 1998, Morgan Stanley advised the Company that it was
exercising alleged ownership rights over the Morgan Collateral. On October 20,
1998, the Company filed an adversary proceeding against Morgan Stanley alleging,
among other things, that Morgan Stanley violated the automatic stay, and seeking
turnover of the Morgan Collateral.
On January 12, 1999, the Company and Morgan Stanley agreed upon and filed
with the Bankruptcy Court a stipulation and consent order, which was approved by
the Bankruptcy Court and entered on January 26, 1999. The consent order
provided, among other things, for the following: (i) an agreed sale procedure
for the CBO-2 BBB Bonds during a specified sale period; (ii) the payment of a
portion of the sale proceeds of the CBO-2 BBB Bonds to the Company; (iii) a
standstill period relating to the Wells Fargo Bonds through March 31, 1999
unless otherwise extended by the Company and Morgan Stanley, during which time
Morgan Stanley may not sell, pledge, encumber or otherwise transfer the Wells
Fargo Bonds and (iv) the postponement of the litigation with Morgan Stanley
while the parties seek a permanent resolution of their disputes. On March 5,
1999, the CBO-2 BBB Bonds were sold. Of the $159 million in net sale proceeds,
$141.2 million was used to repay the Company's borrowings under the agreement
with Morgan Stanley, and $17.8 million was remitted to CRIIMI MAE. As a result
of the transaction, CRIIMI MAE's litigation against Morgan Stanley has been
resolved with respect to the CBO-2 BBB Bonds to the satisfaction of both
parties.
The Company and Morgan Stanley reached an agreement to sell the Wells
Fargo Bonds (the "Morgan Stanley Agreement"). CRIIMI MAE filed a motion with the
Bankruptcy Court to approve the Morgan Stanley
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<PAGE>
Agreement on February 1, 2000. The motion was approved by the Bankruptcy Court
on February 24, 2000. On February 29, 2000 the Wells Fargo Bonds were sold. Of
the approximately $45.9 million in net sale proceeds, $37.5 million was used to
pay off all outstanding borrowings owed to Morgan Stanley, and the remaining
proceeds of approximately $8.4 million will be used primarily to help fund
CRIIMI MAE's Plan. Pursuant to the terms of the Morgan Stanley Agreement, the
Company and Morgan Stanley mutually released any claims that they may have
against each other and filed a stipulation of dismissal with prejudice of the
October 20, 1998 adversary proceeding.
Citicorp and Citibank
In addition to the Citibank Program pursuant to which the Company
originated loans, as previously discussed, the Company also has a financing
arrangement with Citicorp pursuant to which the Company pledged CMBS.
On October 13, 1998, Citicorp demanded from Norwest Bank Minnesota, N.A.
("Norwest") the immediate transfer of certain CMBS (the "Retained Bonds") issued
pursuant to CMO-IV. Norwest served as indenture trustee. The Retained Bonds are
collateral for amounts advanced to the Company by Citicorp under the financing
arrangement. As of the Petition Date, the Company owed Citicorp $79.1 million
under the facility.
On October 15, 1998, the Company filed an emergency motion to enforce the
automatic stay against Norwest and Citicorp. Pursuant to an Order dated October
23, 1998, the Bankruptcy Court prohibited Citicorp from selling the Retained
Bonds without further order of the Bankruptcy Court. On October 23, 1998,
Citicorp requested an emergency hearing regarding the October 23 Order, and on
November 2, 1998, the Company filed a complaint against Citicorp seeking, among
other things, a declaratory judgment as to whether the automatic stay applies to
actions taken by Citicorp with respect to the Retained Bonds.
On March 11, 1999, the Company finalized agreements with Citicorp and
Citibank, pursuant to which the parties agreed to adjourn the pending litigation
for a four-month period. The Bankruptcy Court agreed to a request by CRIIMI MAE,
Citibank and the Unsecured Creditors' Committee to further postpone the pending
litigation on July 7, 1999, and again on September 10, 1999. The trial has not
yet been rescheduled.
The agreements reached by the Company with Citicorp and Citibank on March
11, 1999 were approved by the Bankruptcy Court through stipulations and consent
orders entered on April 5, 1999. One of the agreements also provided that
Salomon Smith Barney, in cooperation with CRIIMI MAE, agreed to sell two classes
of investment grade CMBS from CMO-IV constituting a portion of the collateral
securing advances under the Citicorp financing arrangement. In May 1999, Salomon
Smith Barney sold $20 million of the CMO-IV securities held by Holdings. This
sale reduced the amounts owed from Holdings to Citicorp by approximately $17
million. On October 8, 1999, the remaining CMO-IV securities held by Holdings
were sold. This sale reduced the amounts owed from Holdings to Citicorp by
approximately $22 million and Holdings received net proceeds of approximately
$315,000. In addition, Citibank, in cooperation with CRIIMI MAE, agreed to sell
commercial mortgages originated in 1998 under the Citibank Program, provided
that the sale resulted in CRIIMI MAE receiving minimum net proceeds of not less
than $3.5 million, after satisfying certain amounts due to Citibank, from the
amount held in the reserve account. On August 5, 1999, all but three of the
commercial loans originated under the Citibank Agreement in 1998, with an
aggregate unpaid principal balance of approximately $339 million, were sold for
gross proceeds of approximately $308 million. On September 16, 1999, Citibank
sold the remaining three loans, with an aggregate unpaid principal balance of
approximately $32.7 million, for gross proceeds of approximately $27.2 million.
In the case of each sale of the commercial loans, the minimum net proceeds
provision was waived by agreement of the Company, the Unsecured Creditors'
Committee and the CMI Equity Committee.
A related interpleader action between Norwest, the Company and Citicorp,
which was initiated on October 20, 1998 by Norwest to determine whether the
Company or Citicorp is the rightful owner of funds that were to have been paid
by Norwest, as indenture trustee, remains pending before the Bankruptcy Court.
During the pendency of this matter, certain payments on the retained bonds are
held in an account controlled by the Bankruptcy Court. No trial date has been
set for this matter.
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First Union
First Union National Bank ("First Union"), a creditor of both the Company
and CMM, is asserting substantial secured and unsecured claims. On or about
March 23, 1999, First Union filed in each of the Company's and CMM's Chapter 11
Case a motion for relief from the automatic stay pursuant to section 362(d) of
the United States Bankruptcy Code. On or about March 26, 1999, First Union
requested that the Court dismiss without prejudice both motions. On April 20,
1999, First Union refiled its motions for relief from the Automatic Stay. The
hearing was originally scheduled for May 14, 1999, but has been adjourned by
consent.
On or about July 1, 1999, the Company entered into an agreement with First
Union resolving its motion for relief from the automatic stay and authorizing
use of First Union's cash collateral. The agreement provides for the following:
(i) First Union has a valid, perfected, first priority security interest
in certain assignment securities and the assignment securities
income constitutes First Union's cash collateral;
(ii) First Union shall receive adequate protection payments of
post-petition interest at the non-default contract rate plus
payments to be applied to principal equal to 50% of the difference
between the assignment income and the Company's non-default contract
interest obligation. First Union has the option of using a portion
of the assignment income earmarked for principal to purchase a
hedging program;
(iii) The Company shall be entitled to use the assignment income not paid
to First Union in the ordinary course of its business subject to
certain limitations; and
(iv) First Union shall not seek relief from the automatic stay in the
Company's Chapter 11 Case to foreclose upon the assignment
securities and/or the assignment income and none of the Company, the
Unsecured Creditors' Committee, the CMI Equity Committee or First
Union shall seek modification of the adequate protection
arrangements set forth in the agreement for a period commencing upon
which the Bankruptcy Court approves the agreement and terminating on
December 31, 1999, subject to certain exceptions.
The agreement was approved and entered by the Bankruptcy Court on August
5, 1999. The Company's Unsecured Creditors' Committee has agreed to the
arrangement with First Union.
In addition, on or about July 1, 1999, CMM and First Union entered into an
agreement resolving its motion for relief from the automatic stay. On July 1,
1999, CMM filed a motion for approval of the agreement resolving First Union's
motion for relief from the automatic stay. Based upon an objection filed by the
CMM Creditors' Committee, the parties are discussing a possible modification to
the agreement and continue to negotiate accordingly. On October 22, 1999, to
provide the parties with more time to negotiate a modification to the agreement,
CMM, with the consent of First Union and the CMM Creditors' Committee, advised
the Bankruptcy Court that it would be withdrawing the motion for approval of the
agreement, without prejudice to CMM's right to refile once an agreement has been
reached with First Union and the CMM Creditors' Committee.
On or about February 18, 2000, the Company, the Unsecured Creditors'
Committee and First Union entered into a Second Stipulation and Agreed Order:
(i) Authorizing Use of Cash Collateral and (ii) Granting Other Relief (the
"Second Stipulation"). The Second Stipulation provides for, among other things,
the following:
(i) the reaffirmation of all terms contained in the July 1, 1999
agreement except as expressly provided in the Second Stipulation;
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(ii) the extension from January 1, 2000 through March 31, 2000 of the
provisions in the July 1, 1999 agreement relating to use of the
assignment securities income;
(iii) the extension from December 31, 1999 to March 31, 2000 of the
provisions in the July 1, 1999 agreement relating to (i) First
Union's agreement not to seek relief from the automatic stay to
foreclose on the assignment securities or the assignment securities
income and (ii) the agreement by First Union, the Company and the
Unsecured Creditors' Committee not to seek modification of the
adequate protection arrangements contained in the July 1, 1999
agreement; and
(iv) the consummation of the Stipulation and Consent Order Selling the
Wells Fargo Bonds to Morgan Stanley, which occurred in February
2000. See "Legal Proceedings - Morgan Stanley."
On February 22, 2000, the Company filed a motion with the Bankruptcy Court
for approval of the Second Stipulation.
Arrangements with Other Creditors
In addition to the foregoing, the Company has had discussions with other
secured creditors against whom the Company was not engaged in litigation. One
such creditor is GACC. On February 3, 1999, the Bankruptcy Court approved an
Amended Consent Order between the Company and GACC that provides for the
following: (a) acknowledgement that GACC has a valid perfected security interest
in its collateral; (b) authority for GACC to hedge its loan, subject to a hedge
cost cap; and (c) as adequate protection, sharing of cash collateral on a 50/50
basis, after payment of interest expense, with the percentage received by GACC
to be applied to reduce principal and pay certain hedge costs, if any. In
addition, the Company is prohibited from using GACC's cash collateral for
certain purposes, including loan originations and Subordinated CMBS
acquisitions. The Amended Consent Order expired April 28, 1999. The Company and
GACC agreed to extend the Amended Consent Order until August 2, 1999, and a
stipulation to that effect was signed by the Company and GACC and approved by
the Bankruptcy Court on May 11,1999. The Company and GACC had negotiated a
further extension of the stipulation through September 10, 1999, which extension
has now expired. On September 9, 1999, GACC contacted the Company and requested
similar provisions afforded to Merrill in its most recent stipulation. See
"Legal Proceedings - Bankruptcy Related Litigation - Merrill."
Shareholder Litigation
The Company is aware that certain plaintiffs filed 20 separate class
action civil lawsuits (the "Complaints") in the United States District Court for
the District of Maryland, Southern Division (the "District Court") against
certain officers and directors of the Company between October 7, 1998 and
November 30, 1998. On March 9, 1999, the District Court ordered the
consolidation of the Complaints into a single action entitled "In Re CRIIMI MAE,
Inc. Securities Litigation." On April 23, 1999, a group of thirteen putative
members of the class of individuals who allegedly suffered damages during the
class period between February 20, 1998 and October 5, 1998 (collectively, the
"Plaintiffs") filed an Amended and Consolidated class action Complaint alleging
violations of federal securities laws (the "Consolidated Amended Complaint").
The Consolidated Amended Complaint names as defendants William B. Dockser, as
Chairman of the Board of Directors, H. William Willoughby as a member of the
Board of Directors and/or an officer of CRIIMI MAE, and Cynthia O. Azzara as an
officer of CRIIMI MAE (collectively, the "Defendants"). Although CRIIMI MAE, CMM
and Holdings have not been named as defendants, each company is subject to
indemnity obligations to the Defendants under the provisions of their respective
constituent documents, the Defendants' employment contracts and applicable state
law. CRIIMI MAE has directors and officers liability insurance policies that
have a combined coverage limit of $20 million.
The Consolidated Amended Complaint alleges generally that the Defendants
violated Section 10(b) of the Securities and Exchange Act of 1934 as amended
(the "Exchange Act") by, among other things, making false
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statements of material fact and failing to disclose certain material facts
concerning, among other things, CRIIMI MAE's business strategy and its ability
to meet collateral calls from lenders. The Consolidated Amended Complaint also
generally alleges that the Defendants violated Section 20(a) of the Exchange Act
because each Defendant was allegedly a "controlling person" as that term is
defined under Section 20(a).
The relief sought in the Consolidated Amended Complaint includes all or
substantially all of the following: (i) certification of a class under Rule 23
of the Federal Rules of Civil Procedure; (ii) certification of the Plaintiffs as
class representatives and as lead plaintiffs and their counsel as lead counsel;
(iii) award of monetary damages, including compensatory and rescissionary
damages and interest thereon; (iv) a judgment awarding the Plaintiffs and the
Class their counsel fees, experts' fee and other costs of suit; (v) award to the
Plaintiffs such other relief as the District Court deems just and proper or as
the District Court otherwise requires; and (vi) trial by jury.
On July 9, 1999, the Defendants filed a Motion to Dismiss, with prejudice,
the Consolidated Amended Complaint. The Defendants filed the motion under Rule
12(b)(6) of the Federal Rules of Civil Procedure on the grounds that the
Plaintiffs have failed to plead sufficient facts with the requisite
particularity to establish a claim for securities fraud under the Reform Act.
Plaintiffs filed their Opposition to Defendants' Motion to Dismiss on September
24, 1999.
On September 13, 1999, the Court denied Plaintiffs' motions for
appointment of lead plaintiffs and for approval of selected counsel. The Court
also ordered Plaintiffs' counsel to provide notice of the putative claims to
institutional investors identified by Defendants. Finally, the Court ordered
that Plaintiffs nominate no more than three persons to serve as lead plaintiffs,
and that any potential lead plaintiff nominate only one attorney or law firm to
serve as lead counsel.
Plaintiffs filed their Opposition to the Defendants' Motion to Dismiss on
September 24, 1999.
On October 19, 1999, the Court approved the form of the renewed Notice to
potential class members that the Plaintiffs submitted to the Court. The Court
also ordered the Defendants to provide a list of certain institutional investors
who had invested in the Company to the Plaintiffs to whom the renewed Notice is
to be sent.
On December 10, 1999, the Defendants filed their Reply Brief to the
Plaintiffs' Opposition to the Motion to Dismiss.
On December 20, 1999, the Plaintiffs sent a notice of the Consolidated
Amended Complaint to certain institutional investors of their right to move the
Court to serve as lead plaintiffs of the class within sixty (60) days of the
notice. On March 9, 2000, the Plaintiffs filed a motion to approve the
nomination of three (3) plaintiffs and one (1) law firm to serve as lead
counsel.
CRIIMI MAE cannot predict with any certainty the ultimate outcome of this
litigation.
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.
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<PAGE>
Count I of the Derivative Complaint alleged violations of Section 14(a) of
the Exchange Act for issuing a materially false and misleading proxy in
connection with the Merger and alleged derivatively on behalf of CRIIMI MAE a
breach of fiduciary duty owed to CRIIMI MAE and its shareholders. Edge Partners
sought, among other relief, that unspecified damages be accounted to CRIIMI MAE,
that the shareholder vote in connection with the Merger be null and void and
that certain salaries and other remuneration paid to the directors be returned
to the Company.
On June 16, 1998, the District Court approved a settlement agreement (the
"Settlement Agreement"). Under the terms of the Settlement Agreement, the
Company agreed to make certain disclosures relating to alleged conflicts between
two directors and the Company in connection with the Merger transaction and
adopted a non-binding policy relating generally to the approval of certain
interested transactions. Among other things, the non-binding policy adopted by
the Board of Directors imposes certain conditions on the Board's approval of
transactions between the Company and any director, officer or employee who owns
greater than 1% of the outstanding common shares of the Company. Such conditions
generally include: (1) approval by written resolution of any transaction
involving an amount in excess of $5 million in any year adopted by a majority of
the members of the Board having no personal stake in the transaction; and (2) in
the case of any such transaction in excess of $15 million in any year,
consideration by the Board as to the formation of a special committee of the
Board, to be comprised of at least two directors having no personal stake in
such transaction.
Other Litigation
The Company is aware that an alleged shareholder, on behalf of himself and
all others similarly situated, who purchased common stock in a registered common
stock offering made by the Company in January 1998, filed a class action lawsuit
against Prudential Securities Incorporated ("Prudential") and the Company's
independent public accountants (the "Recupito Complaint") in the United States
District Court for the District of Maryland. Neither the Company nor any officer
or director of the Company was named as a defendant in this lawsuit.
The Recupito Complaint alleges generally that the registration statement
dated October 21, 1997, including a prospectus dated January 20, 1998 and
supplemented on January 23, 1998, contained materially false and misleading
statements about the Company and its condition.
The Company may be subject to potential exposure to Prudential under
contractual provisions and to both defendants under applicable law. Prudential
may assert that it is entitled to indemnification from the Company based upon an
indemnification provision contained in the underwriting agreement entered into
with the Company in connection with the common stock offering. Certain courts
have held and it is the position of the SEC that indemnification for liabilities
arising under the Securities Act of 1933 (the "Securities Act") is against
public policy and unenforceable.
The Company cannot predict with any certainty the ultimate outcome of this
litigation.
Claims
More than 850 claims with a face amount of approximately $2.5 billion have
been filed in these Chapter 11 cases, including $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
claim pool, by means of objections, negotiated settlements and
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<PAGE>
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.
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<PAGE>
E. Selected Historical Consolidated Financial Data
<TABLE>
<CAPTION>
Nine months
Ended Year ended December 31,
September
30,
1999 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
(Unaudited) (In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
TAX BASIS ACCOUNTING
Interest Income:
Subordinated CMBS $ 157,806 $ 184,947 $ 86,166 $ 43,632 $ 11,846 $ 1,163
Insured Mortgage 25,424 43,063 49,342 54,827 62,020 60,622
Securities
Originated Loans 26,104 20,570 -- -- -- --
--------- --------- --------- --------- --------- ---------
Total interest income 209,334 248,580 135,508 98,459 73,866 61,785
--------- --------- --------- --------- --------- ---------
Interest and related expenses 139,548 161,890 79,574 64,503 52,231 39,077
--------- --------- --------- --------- --------- ---------
Net interest margin 69,786 86,690 55,934 33,956 21,635 22,708
--------- --------- --------- --------- --------- ---------
Capital gains 2,679 1,746 7,815 9,618 5,442 11,023
Other income 2,927 12,309 6,256 6,410 4,938 3,160
Other operating expenses (9,323) (14,440) (9,464) (7,451) (6,727) (7,285)
Realized loss on reverse
repurchase obligation -- (4,503) -- -- -- --
Loss on warehouse
obligation (36,328) -- -- -- -- --
Write-off of capitalized
origination costs -- (3,284) -- -- -- --
Reorganization items (11,892) (4,816) -- -- -- --
--------- --------- --------- --------- --------- ---------
(51,937) (12,988) 4,607 8,577 3,653 6,898
--------- --------- --------- --------- --------- ---------
Tax basis income before $ 17,849 $ 73,702 $ 60,541 $ 42,533 $ 25,288 $ 29,606
preferred dividends
Dividends accrued or paid on (4,183) (6,998) (6,473) (3,526) -- --
preferred shares
--------- --------- --------- --------- --------- ---------
Tax basis income available to common
Shareholders $ 13,666 $ 66,704 $ 54,068 $ 39,007 $ 25,288 $ 29,606
========= ========= ========= ========= ========= =========
Tax basis income per share:
Income before gains
from CRI Liquidating $ 0.26 $ 1.38 $ 1.24 $ 1.00 $ 0.70 $ 0.76
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Capital gains from CRI
Liquidating -- -- 0.21 0.27 0.19 0.41
--------- --------- --------- --------- --------- ---------
Total tax basis income per $ 0.26 $ 1.38 $ 1.45 $ 1.27 $ 0.89 $ 1.17
share
========= ========= ========= ========= ========= =========
Tax basis shares 53,553 48,503 37,334 30,774 28,537 25,310
========= ========= ========= ========= ========= =========
Dividends paid on common $ -- $ 1.17* $ 1.42 $ 1.22 $ 0.92 $ 1.16
shares
--------- --------- --------- --------- --------- ---------
</TABLE>
* Excludes junior preferred stock dividend paid on November 5, 1999 for the
1998 tax year.
<TABLE>
<CAPTION>
Nine months Year ended December 31,
Ended September
30, 1999 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
(unaudited) (In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
ACCOUNTING UNDER GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
Statement of Income Data:
Interest Income:
Subordinated CMBS $ 115,690 $ 143,656 $ 79,670 $ 41,713 $ 11,105 $ 976
Insured Mortgage Securities 25,424 43,063 49,425 56,912 66,115 67,043
Originated Loans 26,104 20,588 -- -- -- --
--------- --------- --------- --------- --------- ---------
Total interest income 167,218 207,307 129,095 98,625 77,220 68,019
--------- --------- --------- --------- --------- ---------
Interest and related expenses 111,620 136,268 77,919 63,079 49,853 39,245
--------- --------- --------- --------- --------- ---------
Net interest margin 55,598 71,039 51,176 35,546 27,367 28,774
Gain on sale of CMBS -- 28,800 -- -- -- --
Other income 647 6,897 6,222 7,330 5,504 3,980
Gain on mortgage securities
dispositions 2,086 1,196 17,343 9,601 1,502 12,999
Other operating expenses (8,953) (14,623) (9,610) (7,970) (9,583) (8,040)
Amortization of assets acquired in
the Merger (2,158) (2,878) (2,878) (2,882) (1,435) --
Realized loss on reverse repurchase
obligation -- (4,503) -- -- -- --
Unrealized losses on warehouse
obligations (8,000) (30,378) -- -- -- --
Write-off of capitalized origination
costs -- (3,284)
Reorganization Items (15,553) (9,857) -- -- -- --
--------- --------- --------- --------- --------- ---------
(31,931) (28,630) 11,077 6,079 (4,012) 8,939
--------- --------- --------- --------- --------- ---------
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net income before minority
interest 23,667 42,409 62,253 41,625 23,355 37,713
Minority interest in net income
of consolidated subsidiary -- (40) (8,065) (6,386) (4,821) (11,703)
Dividends accrued or paid on
preferred shares (4,183) (6,998) (6,473) (3,526) -- --
--------- --------- --------- --------- --------- ---------
Net income available to common
shareholders $ 19,484 $ 35,371 $ 47,715 $ 31,713 $ 18,534 $ 26,010
--------- --------- --------- --------- --------- ---------
GAAP basis income per
share - basic $ 0.37 $ 0.75 $ 1.29 $ 1.03 $ 0.65 $ 1.07
========= ========= ========= ========= ========= =========
GAAP basis income per
share - diluted $ 0.33 $ 0.74 $ 1.25 $ 1.03 $ 0.65 $ 1.07
========= ========= ========= ========= ========= =========
Weighted average shares
outstanding 53,374 47,280 36,993 30,665 28,414 24,249
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
As of
September As of December 31,
30, 1999 1998 1997 1996 1995 1994
-------- ---- ---- ---- ---- ----
Balance Sheet Data: (unaudited) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage Assets:
Subordinated CMBS $1,216,003 $1,274,186 $1,114,480 $ 564,335 $ 278,401 $ 38,858
Insured Mortgage Securities 410,357 488,095 605,114 691,110 807,113 857,589
Investment in Originated Loans 481,500 499,076 -- -- -- --
Total assets 2,347,148 2,437,918 1,873,305 1,367,245 1,203,303 955,050
Total debt 2,088,600 2,085,722 1,414,932 982,258 854,436 627,248
Shareholders' equity 258,548 307,877 444,981 346,671 285,704 250,042
</TABLE>
The selected consolidated statement of income data presented above for the nine
months ended September 30, 1999 and the selected consolidated balance sheet data
as of September 30, 1999 and as of December 31, 1998 were derived from and are
qualified by reference to CRIIMI MAE's consolidated financial statements, which
have been included elsewhere in this Disclosure Statement. The selected
consolidated statement of income data presented above for the years ended
December 31, 1998, 1997, 1996, 1995 and 1994 and the selected consolidated
balance sheet data as of December 31, 1998, 1997, 1996, 1995 and 1994 were
derived from audited financial statements, not included as part of this
Disclosure Statement (except for the balance sheet data as of December 31,
1998). 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
Introduction
The following discussion and analysis contains statements that may be
considered forward looking. These statements contain a number of risks and
uncertainties as discussed herein, in Certain Risk Factors and elsewhere in this
Disclosure Statement that could cause actual results to differ materially.
Three and Nine Months Ended September 30, 1999 versus 1998
Interest Income - Subordinated CMBS
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<PAGE>
The decrease in income from Subordinated CMBS was immaterial for the three
months ended September 30, 1999 as compared to the corresponding period in 1998.
Interest income from subordinated CMBS increased by approximately $10.4 million
or 10% to approximately $115.7 million for the nine months ended September 30,
1999 from $105.3 million for the corresponding period in 1998. During the nine
months ended September 30, 1998, the Company increased its CMBS portfolio by
acquiring Subordinated CMBS at purchase prices aggregating approximately $853
million. This overall increase in income from Subordinated CMBS was partially
offset by a reduction in income from Subordinated CMBS due to the de-recognition
of $132 million face amount of CMBS from CBO-1 in connection with CBO-2 and also
the de-recognition of $345 million face amount of CMBS in connection with CBO-2.
See Note 5 to Notes to Consolidated Financial Statements.
Generally accepted accounting principles ("GAAP") require that interest
income generated by Subordinated CMBS be recorded based on the effective
interest method using the anticipated yield over the expected life of the
Subordinated CMBS. This currently results in income which is lower for financial
statement purposes than for tax purposes. Based upon the timing and amount of
future credit losses and certain other assumptions estimated by management, as
discussed below, the estimated weighted average anticipated unleveraged yield
for CRIIMI MAE's Subordinated CMBS for financial statement purposes as of
September 30, 1999 was approximately 10.1%. These returns were determined based
on the anticipated yield over the expected weighted average life of the
Subordinated CMBS, which considers, among other things, anticipated losses.
Interest Income-Insured Mortgage Securities
Interest income from Insured Mortgage Securities decreased by
approximately $2.6 million or 25% to approximately $8.0 million for the three
months ended September 30, 1999 from $10.7 million for the corresponding period
in 1998. Interest income from Insured Mortgage Securities decreased by
approximately $8.1 million or 24% to approximately $25.4 million for the nine
months ended September 30, 1999 from approximately $33.5 million for the
corresponding period in 1998. This decrease was principally due to the
prepayment of mortgage securities during the first three quarters of 1999, and
due to the sale or prepayment of mortgage securities held by CRIIMI MAE and
certain of its wholly owned subsidiaries during the year ended 1998. The
prepayment aggregated approximately $66.4 million and $104.6 million in proceeds
for the nine months ended September 30, 1999 and 1998, respectively.
Interest Income-Originated Loans
Interest income from originated loans decreased by approximately $255,000
or 3% to approximately $8.6 million for the three months ended September 30,
1999 as compared to $8.9 million for the corresponding period in 1998. Interest
income from originated loans increased by approximately $14.5 million to
approximately $26.1 million for the nine months ended September 30, 1999 as
compared to approximately $11.6 million for the corresponding period in 1998.
The interest income from originated loans was derived from originated loans
included in the CMO-IV securitization which closed in June 1998. The CMO-IV
securitization, where loans were simultaneously acquired and securitized,
totaled $496 million face value of conduit loans, a majority of which were
no-lock loans. During the first three quarters of 1999, four properties and the
related mortgage loans prepaid resulting in net proceeds of approximately $10.6
million.
Interest Expense
Total interest expense decreased by approximately $1.8 million or 5% to
approximately $37.9 million for the three months ended September 30, 1999 from
approximately $39.7 million for the corresponding period in 1998. The decrease
was primarily due to prepayments in the Insured Mortgage portfolio and an
overall decrease in CMBS interest expense for the quarter due to principal
payments on the secured debt. The decrease was partially offset by an increase
in interest expense on unsecured borrowings due to the timing of the borrowings
during the third quarter of 1998. Total interest expense increased by
approximately $12.5 million or 13% to approximately $111.6 million for the nine
months ended September 30, 1999 compared to approximately $99.1 million for the
corresponding period in 1998. This increase was principally a result of
increased borrowings in connection with the acquisition of Subordinated CMBS
during 1998. Additionally, CRIIMI MAE incurred interest expense in connection
with the issuance of collateralized mortgage obligations in connection with
CMO-IV. These increases were partially offset by the impact of $477 million face
amount of debt de-recognized from the financial statements
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<PAGE>
in conjunction with CBO-2 in May 1998. Due to the Chapter 11 filing, certain
lenders declared defaults or otherwise took action against the Company with
respect to a number of CRIIMI MAE's financing facilities. See Note 16 to
Consolidated Financial Statements for a discussion of material litigation
between the Company and various creditors and agreements the Company has reached
with certain of these creditors.
Net Interest Margin
Net interest margin decreased by approximately $1.2 million or 6% to
approximately $17.6 million for the three months ended September 30, 1999 from
approximately $18.7 million for the corresponding period in 1998. The decrease
was primarily due to the increase in interest expense on unsecured borrowings
due to the timing of the borrowings during the third quarter of 1998. For the
nine months ended September 30, 1999, net interest margin increased by
approximately $4.3 million or 8.3% to approximately $55.6 million from
approximately $51.3 million for the corresponding period in 1998. The net
interest margin increase was due primarily to the increase in Subordinated CMBS
and, to a lesser extent, income from originated loans, as previously discussed.
Gain on Sale of CMBS
In May 1998, CRIIMI MAE completed CBO-2 pursuant to which it sold $468
million of investment grade securities created through the resecuritization of
approximately $1.8 billion of its Subordinated CMBS. CRIIMI MAE recognized a
gain of approximately $29 million on the sale of $345 million face amount
investment grade securities sold without call provisions, recognizing CRIIMI
MAE's transfer of control on those securities. The sale of $123 million face
amount investment grade securities with significant call provisions was treated
as a financing and resulted in an unrealized gain of approximately $26 million.
These securities and certain other securities in the transaction included call
provisions to enable CRIIMI MAE to 1) repurchase bonds if market conditions
warrant, and 2) call bonds when it is no longer cost effective to service them.
The sold investment grade securities treated as a financing, as well as
approximately $1.3 billion face amount of investment grade and non-investment
grade securities retained by CRIIMI MAE, are now required to be reflected on
CRIIMI MAE's balance sheet at their fair market value. Additionally, due to the
sale treatment under FAS 125, all remaining Subordinated CMBS and insured
mortgage securities are required to be carried at fair market value.
Additionally, as part of CBO-2, in May 1998, CMSLP sold trustee servicing
rights for $4.2 million, resulting in a gain of $4.2 million for tax purposes,
and approximately $400,000 for financial reporting purposes.
Equity in Earnings from Investments
Equity in earnings increased to approximately $260,000 during the third
quarter of 1999 as compared to equity in earnings of $58,000 for the third
quarter of 1998. Equity in earnings decreased by approximately $3.4 million
during the nine months ended September 30, 1999 due to a net loss of
approximately $1.2 million as compared to equity in earnings of $2.2 million for
the corresponding period in 1998. This decrease included an $860,000 expense for
a prepayment penalty shortfall during the first quarter of 1999 and an increase
in general and administrative expenses due to the growth of CMSLP during 1998
and personnel costs related to a retention program as well as impairment on
certain servicing rights due to the increase in Treasury rates as discussed in
Note 5 to Notes to Consolidated Financial Statements. In addition, as stated in
the Company's 1998 Annual Report on Form 110-K, during the fourth quarter of
1998, due to CRIIMI MAE's Chapter 11 filing and its relationship with CRIIMI
MAE, CMSLP arranged for ORIX to succeed CMSLP as master servicer on two
commercial mortgage pools. The remaining servicing portfolio was approximately
$29.4 billion as of September 30, 1999 as compared to approximately $32.0
billion as of September 30, 1998.
Other Income
Other income decreased by approximately $612,000 or 58% to $449,000 during
the third quarter of 1999 as compared to approximately $1.1 million for the
corresponding period in 1998. Other income decreased by approximately $2.0
million or 52% to $1.9 million during the nine months ended September 30, 1999
as compared to approximately $3.9 million for the corresponding period in 1998.
This decrease was primarily attributable to a decrease in short-term interest
and other income earned during the first three quarters of 1999 on the amounts
deposited in the loan origination reserve account due to suspending the
origination loan program in 1998.
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<PAGE>
Approximately $498,000 and $1.9 million of short-term interest income and
net-carry income were earned on these deposits for the three and nine months
ended September 30, 1998, respectively.
Net Gains on Mortgage Securities Dispositions
During the third quarter of 1999 and 1998, net gains on mortgage
dispositions were approximately $266,000 and $967,000, respectively. For the
nine months ended September 30, 1999 and 1998, net gains on mortgage
dispositions were approximately $1.9 million and $921,000, respectively. For the
nine months ended September 30, 1999, the prepayments of insured mortgage
securities represented approximately 13% of CRIIMI MAE's beginning of the year
portfolio balance. For any period, gains or losses on mortgage dispositions are
based on the number, carrying amounts and proceeds of mortgages disposed of
during the period. The proceeds realized from the disposition of mortgage assets
are based on the net coupon rates of the specific mortgages disposed of in
relation to prevailing long-term interest rates at the date of disposition.
Gains on Originated Loan Mortgage Disposition
During the third quarter of 1999, net gains on originated loan
dispositions were approximately $75,000, which was a result of prepayments in
the originated loan portfolio. During the nine months ended September 30, 1999,
net gains on originated loan dispositions were approximately $235,000.
General and Administrative Expenses
General and administrative expenses decreased by approximately $1.9
million, or 42%, to approximately $2.7 million for the third quarter of 1999 as
compared to approximately $4.6 million for the third quarter of 1998. General
and administrative expenses decreased by approximately $1.7 million or 16% to
approximately $9.0 million for the nine months ended September 30, 1999 as
compared to approximately $10.7 million for the corresponding period in 1998.
This decrease is primarily due to the suspension of certain business activities
and the dismissal of employees following the Chapter 11 filing in the fourth
quarter of 1998.
Unrealized Loss on Reverse Repurchase Obligations
As part of CMO-IV, the Company intended to sell certain of the security
tranches that were not initially sold to the public (the "CMO-IV BBB bonds"). In
anticipation of this sale, the Company entered into a transaction to hedge the
value of those securities in June 1998. As a result, CRIIMI MAE borrowed and
then sold a 10-year treasury note in the amount of $44 million. This transaction
did not qualify for hedge accounting purposes because it involved the purchase
and sale of a cash instrument and therefore was required to be recorded at
market ("marked to market"). Because Treasury rates declined in the third
quarter of 1998, the Company recorded a $4.1 million unrealized loss as of
September 30, 1998. The position was closed and the loss was realized in the
fourth quarter of 1998.
Loss on Warehouse Obligation
During the three and nine months ended September 30, 1999, the Company
recorded losses of approximately $1.1 million and $8.0 million, respectively,
primarily due to a decrease in the selling price of the loans in the Company's
warehouse line with Citibank, when the loans were sold in the third quarter of
1999. The Company recorded, in total, an approximately $36.3 million loss for
this transaction for both GAAP and tax purposes. (See "Tax Basis Income"
discussion which follows).
During the three and nine months ended September 30, 1998, unrealized
losses of $17.6 million were recorded, respectively. At September 30, 1998, the
unrealized loss consisted of the obligation under the Citibank program was
estimated to be $15.6 million (based primarily on information provided by
Citibank) in excess of the fair market value of the loans and the Company's loss
exposure under the Prudential Program (approximately $2 million).
Reorganization Items
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During the three and nine months ended September 30, 1999, the Company
recorded approximately $4.6 million and $15.6 million, respectively, in
reorganization items due to the Chapter 11 filings of CRIIMI MAE, CMM and
Holdings.
For the three For the nine
months ended months ended
Reorganization Item September 30, September 30,
- ------------------- ------------- -------------
1999 1999
---- ----
Short-term interest income $ (852,600) $ (1,322,000)
Professional fees 2,896,771 13,010,926
Employee Retention Program accrued costs 426,353 1,171,855
Excise Tax 475,000 475,000
Other 1,660,478 2,217,002
------------ ------------
Total $ 4,606,002 $ 15,552,783
============ ============
Financial Statement Net Income
As a result of the foregoing, net income available to common shareholders
for financial statement purposes was approximately $8.1 million for the three
months ended September 30, 1999 as compared to a net loss of approximately $8.7
million as of September 30, 1998. On a per basis share basis, financial
statement net income increased to $0.15 per basic share for the third quarter of
1999 as compared to a net loss of $0.18 per basic share for the third quarter of
1998. Net income available to common shareholders for financial statement was
approximately $19.5 million for the nine months ended September 30, 1999, as
compared to approximately $47.0 million for the nine months ended September 30,
1998.
Tax Basis Income
CRIIMI MAE recorded a tax basis loss to common shareholders of
approximately $17.8 million or $0.33 per share during the third quarter of 1999
as compared to tax basis income available to common shareholders of
approximately $19.9 million or $0.41 per share for the third quarter of 1998.
CRIIMI MAE earned approximately $13.7 million or $0.26 per share for the nine
months ended September 30, 1999, compared to approximately $57.3 or $1.22 per
share for the nine months ended September 30, 1998.
The primary factor in the decrease during the third quarter 1999 was due
to the approximately $36.3 million tax basis loss realized on the loans sold in
the third quarter from the warehouse line with Citibank. Other factors
contributing to the decline in tax basis income were the deduction of
reorganization costs and net decreases in earnings from equity investments. In
the second quarter of 1998, as part of CBO-2, CMSLP sold servicing rights for
$4.2 million resulting in a gain of $4.2 million for tax purposes which was
included in equity in earnings in 1998. Partially offsetting the decreases was
an increase in net interest margin due to the growth of CRIIMI MAE's portfolio
of Subordinated CMBS and, to a lesser extent, earnings from CMO-IV.
Cash Flow
Nine Months ended September 30, 1999 Versus 1998
Net cash provided by operating activities increased for the nine months
ended September 30, 1999 as compared to the nine months ended September 30,
1998. The increase was primarily due to an increase in payables incurred due to
the reorganization of the Company and a decrease in receivables due to
stipulations and agreements with secured lenders that have resulted in the
Company receiving past due CMBS payments.
Net cash provided by investing activities increased for the nine months
ended September 30, 1999 as compared to the nine months ended September 30,
1998. The increase was primarily due to the suspension of the Company's
Subordinated CMBS acquisition and origination programs as a result of the
Chapter 11 filing in October 1998.
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Net cash used in financing activities increased for the nine months ended
September 30, 1999 as compared to the nine months ended September 30, 1998. The
increase was primarily due to the suspension of the Company's Subordinated CMBS
acquisition activities, suspension of equity and debt offerings, payment of
principal paydowns per the stipulation agreements with secured lenders and, to a
lesser extent, the suspension of cash dividends paid as a result of the Chapter
11 filing in October 1998.
Results of Operations
Year Ended December 31, 1998 versus 1997
Interest Income - Subordinated CMBS
Income from Subordinated CMBS increased by approximately $64 million, or
80%, to $143.7 million during 1998 as compared to $79.7 million during 1997.
During 1998, the Company increased its CMBS portfolio by acquiring Subordinated
CMBS at purchase prices aggregating approximately $853 million during 1998 as
compared to the $554 million during 1997. This increase was partially offset by
a reduction in income from Subordinated CMBS due to the de-recognition of $132
million face amount of CMBS from CBO-1 in connection with CBO-2 and also the
de-recognition of $345 million face amount of CMBS in connection with CBO-2. See
Note 5 to Notes to Consolidated Financial Statements.
GAAP requires that interest income generated by Subordinated CMBS be
recorded based on the effective interest method using the anticipated yield over
the expected life of the Subordinated CMBS. This currently results in income
which is lower for financial statement purposes than for tax purposes. Based
upon the timing and amount of future credit losses and certain other assumptions
estimated by management, as discussed below, the estimated weighted average
anticipated unleveraged yield for CRIIMI MAE's Subordinated CMBS for financial
statement purposes as of December 31, 1998 and 1997, was approximately 10% and
11%, respectively. The decrease in anticipated unleveraged yield is primarily
due to five Subordinated CMBS acquisitions in 1998 with anticipated unleveraged
yields between 8.5% and 8.9% which reduced the overall average of the CMBS
portfolio. These returns were determined based on the anticipated yield over the
expected weighted average life of the Subordinated CMBS, which considers, among
other things, anticipated losses and interest expense attributable to the
financing of the rated tranches at current interest rates and current borrowing
amounts.
Interest Income-Insured Mortgage Securities
Interest income from insured mortgage securities decreased by
approximately $6.3 million or 13% to $43.1 million for 1998 from $49.4 million
for 1997. This decrease was principally due to the prepayment of 22 mortgage
securities held by CRIIMI MAE and its wholly owned subsidiaries for net proceeds
aggregating approximately $104.0 million and the sale of four mortgage
securities and a portion of a fifth mortgage security for net proceeds
aggregating approximately $13.4 million during 1998.
Interest Income-Originated Loans
Interest income from originated loans of approximately $20.6 million for
1998 was derived from originated loans included in the CMO-IV securitization.
The CMO-IV securitization totaled $496 million face value of conduit loans, a
majority of which were "No Lock".
Interest Expense
Interest expense increased by approximately $58.4 million or 75% to
approximately $136.3 million for 1998 from approximately $77.9 million for 1997.
This increase was principally a result of increased borrowings in connection
with the acquisition of Subordinated CMBS during 1998. Additionally, CRIIMI MAE
incurred interest expense in connection with $100 million aggregate principal
amount of senior unsecured notes issued during the fourth quarter of 1997 and
the issuance of collateralized mortgage obligations in connection with CMO-IV.
These increases were partially offset by the impact of $477 million face amount
of debt de-recognized from the financial statements in conjunction with CBO-2 in
May 1998 and the decrease in the Company's weighted average cost of borrowing to
7.37% in 1998 from 7.68% in 1997, primarily due to a decrease in one-month
LIBOR, based on the average, for the year 1997 as compared to the year 1998. Due
to the Chapter 11 filing, certain lenders declared defaults
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or otherwise took action against the Company with respect to a number of CRIIMI
MAE's financing facilities. See "LEGAL PROCEEDINGS" for a discussion of material
litigation between the Company and various creditors and agreements the Company
has reached with certain of these creditors.
Net Interest Margin
Net interest margin increased by approximately $19.8 million or 39% for
1998 to approximately $71.0 million from approximately $51.2 million for 1997.
The net interest margin increase was due primarily to the increase in
Subordinated CMBS and, to a lesser extent, income from originated loans, as
previously discussed.
Gain on Sale of CMBS
In May 1998, CRIIMI MAE completed CBO-2 pursuant to which it sold $468
million of investment grade securities created through the resecuritization of
approximately $1.8 billion of its Subordinated CMBS. CRIIMI MAE recognized a
gain of approximately $28.8 million on the sale of $345 million face amount
investment grade securities sold without call provisions, recognizing CRIIMI
MAE's transfer of control on those securities. The sale of $123 million face
amount investment grade securities with significant call provisions was treated
as a financing and resulted in an unrealized gain of approximately $26 million.
Certain of these securities included call provisions to enable CRIIMI MAE to (1)
repurchase bonds if market conditions warrant, and (2) call bonds when it is no
longer cost effective to service them. The sold investment grade securities
treated as a financing, as well as approximately $1.3 billion face amount of
investment grade and non-investment grade securities retained by CRIIMI MAE, are
now required to be reflected on CRIIMI MAE's balance sheet at their fair market
value. Additionally, due to the sale treatment under FAS 125, all remaining
Subordinated CMBS and insured mortgage securities are required to be carried at
fair market value. This reclassification currently results in a cumulative net
decrease to shareholders' equity of approximately $251.3 million (a $174.0
million decrease from September 30, 1998).
Additionally, as part of CBO-2, CMSLP sold trustee servicing rights for
$4.2 million, resulting in a gain of $4.2 million for tax purposes, and
approximately $400,000 for financial reporting purposes.
Equity in Earnings from Investments
Equity in earnings from investments decreased by approximately $1.0
million or 28% to $2.6 million during 1998 as compared to $3.6 million during
1997. This decrease included impairment losses on purchased mortgage servicing
rights recorded by CMSLP since their fair value was less than their amortized
cost at December 31, 1998. The general market turmoil commencing in late summer
of 1998 resulted in the use of higher yields in determining the servicing
rights' fair value which caused the fair value to be less than the amortized
cost. At September 30, 1998, CMSLP was responsible for certain servicing
functions on a mortgage loan portfolio of approximately $32 billion. However,
due to CRIIMI MAE's Chapter 11 filing and its relationship with CRIIMI MAE,
CMSLP arranged for BOMCM (now ORIX) to succeed it as master servicer on two
commercial mortgage pools during the fourth quarter of 1998, which resulted in a
loss of approximately $1.4 million for the recorded value of the rights, of
which substantially all of the loss flowed through to CRIIMI MAE. These
decreases were partially offset by increases in servicing fee streams and float
income earned on escrow balances derived from the remaining servicing portfolio,
which grew to approximately $31.0 billion as of December 31, 1998 as compared to
approximately $16.5 billion as of December 31, 1997.
Other Income
Other income increased by approximately $1.7 million or 65% to $4.3
million during 1998 as compared to $2.6 million during 1997. This increase was
primarily attributable to an increase in short-term interest and other income
earned during 1998 on the amounts deposited in the loan origination reserve
account, which had an average balance of approximately $38 million for the year
ended December 31, 1998. Approximately $1.9 million of short-term interest
income and net-carry income were earned on these deposits for the year ended
December 31, 1998. Amounts earned on the origination reserve account for the
year ended December 31, 1997 were immaterial.
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Gains on Mortgage Dispositions
During 1998, net gains on mortgage dispositions were approximately $1.2
million, of which approximately $666,000 was a result of 22 prepayments of
mortgage securities held by CRIIMI MAE's subsidiaries, or approximately 17% of
its portfolio. In addition, CRIIMI MAE sold four unencumbered mortgage
securities and a portion of a fifth mortgage security, which resulted in a
financial statement gain of $531,000. During 1997, CRI Liquidating's disposition
of its remaining 11 mortgage assets and its interest in three limited
partnership participation agreements resulted in net gains of approximately
$17.4 million (before minority interests) for financial statement purposes.
These 1997 net gains were partially offset by nine prepayments of mortgage
assets held by CRIIMI MAE's subsidiaries which resulted in financial statement
losses of $52,000. For any year, gains or losses on mortgage dispositions are
based on the number, carrying amounts and proceeds of mortgages disposed of
during the period. The proceeds realized from the disposition of mortgage assets
are based on the net coupon rates of the specific mortgages disposed of in
relation to prevailing long-term interest rates at the date of disposition.
General and Administrative Expenses
General and administrative expenses increased by approximately $5.0
million, or 52%, to $14.6 million for 1998 as compared to $9.6 million for 1997.
The increase in general and administrative expenses during these periods was
primarily the result of the significant growth of CRIIMI MAE's commercial
mortgage operations during the first nine months of 1998. This increase was
partially offset in the fourth quarter due to the closing of regional offices,
the suspension of certain business activities and the dismissal of employees
involved in suspended activities following the Chapter 11 filing.
Realized Loss on Reverse Repurchase Obligation and Unrealized Losses on
Warehouse Obligations
During 1998, the Company recorded realized and unrealized losses
aggregating $4.5 million and $30.4 million, respectively, primarily due to the
impact of financial market volatility on losses on hedge positions and
commitments related to commercial mortgage loans in the Company's securitization
pipeline.
As part of CMO-IV, the Company intended to sell certain of the security
tranches that were not initially sold to the public (the "CMO-IV BBB bonds"). In
anticipation of this sale, the Company entered into a transaction to hedge the
value of those securities. As a result, CRIIMI MAE borrowed and then sold a
10-year Treasury Note in the amount of $44 million. The Company was informed by
Citibank that the position was closed on October 8, 1998. This transaction did
not qualify for hedge accounting purposes because it involved the purchase and
sale of a cash instrument and therefore is required to be recorded at market
("marked to market"). Because Treasury rates declined from the date of the
transaction to the liquidation of the position, the Company recorded a realized
loss of approximately $4.5 million, of which approximately $4.1 million was
recognized as of September 30, 1998 with the remaining $400,000 loss recognized
in the fourth quarter.
The parties who fund the Company's loan originations are required under
the relevant agreements to hedge the related loans and to provide timely written
hedge position reporting. As of December 31, 1998, the Company's obligation
under the Citibank Program was $28.4 million (based primarily on information
provided by Citibank) in excess of the fair value of the loans and the Company's
loss exposure under the Prudential Program was $2 million if the Company does
not exercise its option. As a result, CRIIMI MAE recorded an aggregate $30.4
million unrealized loss on its obligations as of December 31, 1998. The
unrealized loss of $28.4 million relating to the Citibank Program as of December
31, 1998, was based on the estimated fair value of the loans offset by the
unpaid principal balance of the loans at December 31, 1998, hedge losses and
certain estimated fees and other costs. Depending on market conditions,
including interest rate movements, these losses could materially increase or
decrease in subsequent reporting periods. The Company calculated the Prudential
loss based upon the assumption that the Company would not exercise its option
with Prudential.
Write-Off of Capitalized Origination Costs
Since the Company no longer has the intention to securitize the remaining
loans in warehouse that were originated through the Citibank and Prudential
Programs, the net deferred costs of $3.3 million associated with the warehoused
loans were written off in 1998.
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Reorganization Items
During the fourth quarter of 1998, the Company recorded $9.9 million in
reorganization items due to the Chapter 11 filings of CRIIMI MAE, CMM and
Holdings.
Reorganization Item Amount
Professional fees $ 5,219,000
Write-off of debt discounts and deferred
costs 2,835,210
Employee Retention Program accrued costs 612,885
Lease Cancellation Fees 621,902
Excise Tax 300,000
Other 267,950
-----------
Total $ 9,856,947
===========
Financial Statement Net Income
As a result of the foregoing, net income available to common shareholders
for financial statement purposes was approximately $35.4 million for 1998, a 26%
decrease from approximately $47.7 million for 1997. On a per basic share basis,
financial statement net income decreased to $0.75 per basic share for 1998 from
$1.29 per basic share in 1997.
Tax Basis Income
CRIIMI MAE earned approximately $66.7 million in tax basis income
available to common shareholders in 1998 or $1.38 per share, compared to
approximately $54.1 million or $1.45 per share in 1997.
The primary factors resulting in the $14.7 million increase in tax basis
income from 1997 to 1998 was due to the growth of CRIIMI MAE's portfolio of
Subordinated CMBS and, to a lesser extent, earnings from CMO-IV. Also
contributing to the increase in tax basis income was a $4.2 million gain on the
sale of the trustee servicing rights associated with CBO-2. (See Note 5 to Notes
to Consolidated Financial Statements). Partially offsetting the increases in the
foregoing were increases in interest expense, general and administrative
expenses, reorganization items and the write-off of certain net deferred costs
related to the Citibank and Prudential Programs. Although, in absolute dollars,
tax basis income increased from 1997 to 1998, tax basis income per share
decreased due to the increase in the average number of shares outstanding from
37,334,034 in 1997 to 48,502,522 in 1998. Total tax basis income per share for
1997 included $0.21 of non-recurring income from the mortgage dispositions of a
subsidiary, CRI Liquidating, that completed its scheduled liquidation in late
1997.
Cash Flow
Year Ended 1998 versus 1997
Net cash provided by operating activities increased for 1998 as compared
to 1997 primarily due to the increase in the net interest margin resulting from
the Company's acquisitions of Subordinated CMBS and, to a lesser extent, CMO-IV
(as previously discussed in Results of Operations). This increase in net
interest margin was partially offset primarily by an increase in net receivables
associated with the Chapter 11 filing.
Net cash used in investing activities increased for 1998 as compared to
1997. The increase was primarily a result of increased purchases of Subordinated
CMBS. Also contributing to the increase in cash used in investing activities was
the purchase of $496 million of commercial loans in connection with CMO-IV.
These increases were partially offset by approximately $335 million of proceeds
received from the sale of collateral bond obligations in connection with CBO-2
and from mortgage securities disposition proceeds.
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Net cash provided by financing activities increased for 1998 as compared
to 1997 primarily due to proceeds from debt issuances related to the sale of the
collateralized mortgage obligations in connection with CMO-IV, collateralized
bond obligations in connection with CBO-2, and variable-rate secured borrowings,
net of principal payments, and increased proceeds from equity offerings. These
increases were partially offset by payments made in connection with collateral
calls made by lenders primarily in the latter part of the third quarter.
Liquidity and Capital Resources
Prior to the Petition Date, CRIIMI MAE used proceeds from long-term,
fixed-rate match-funded debt refinancings, short-term, variable-rate, secured
borrowings, unsecured and other borrowings, securitizations and issuances of
common and preferred shares to meet the capital requirements of its business
plan. Since the Chapter 11 filing, the Company has suspended its Subordinated
CMBS acquisition, origination and securitization operations, but continues to
service mortgage loans through CMSLP.
Prior to the Petition Date, CRIIMI MAE financed a substantial portion of
its Subordinated CMBS acquisitions with short-term, variable rate borrowings
secured by the Company's Subordinated CMBS. The agreements governing these
financing arrangements typically required the Company to maintain loan-to-value
ratios. The agreements further provided that the lenders could require the
Company to post cash or additional collateral if the value of the existing
collateral fell below this minimum amount.
In order to refinance a portion of its short-term, variable rate secured
borrowings with long-term, fixed rate debt, the Company entered into
resecuritization transactions. In May 1998, CRIIMI MAE completed CBO-2, its
second resecuritization of its Subordinated CMBS portfolio, which under FAS 125,
qualified for both sale and financing accounting. Through CBO-2, CRIIMI MAE
refinanced $468 million of its variable rate debt with fixed-rate, match-funded
debt. The debt is considered match-funded because the maturities and principal
requirements of the debt match those of the related collateral. The transaction
also generated additional borrowing capacity of approximately $160 million,
which was used primarily to fund additional Subordinated CMBS purchases. In June
1998, CRIIMI MAE securitized $496 million of originated and acquired commercial
mortgage loans by selling $397 million face amount of fixed-rate investment
grade securities. The tranches not sold to the public were partially financed
with variable-rate, secured financing agreements.
After the above structured finance transactions, the Company continued to
have a substantial amount of short-term, variable rate, secured financing
facilities which were subject to the previously discussed collateral
requirements based on CMBS security prices. As a result of the turmoil in the
capital markets commencing in late summer of 1998, the spreads between CMBS
yields and the yields on Treasury securities with comparable maturities began to
increase substantially and rapidly. CRIIMI MAE's short-term secured creditors
perceived that the value of the Subordinated CMBS securing their facilities with
the Company had fallen below the minimum loan-to-value ratio and, consequently,
made demand upon the Company to provide cash or additional collateral with
sufficient value to cure the perceived value deficiency. In August and September
of 1998, the Company received and met collateral calls from its secured
creditors. At the same time, CRIIMI MAE was in negotiations with various third
parties in an effort to obtain additional debt and equity financing that would
provide the Company with additional liquidity.
On Friday afternoon, October 2, 1998, the Company was in the closing
negotiations of a refinancing with one of its unsecured creditors that would
have provided the Company with additional borrowings, when it received a
significant collateral call from Merrill. The basis for this collateral call, in
the Company's view, was unreasonable. After giving consideration to, among other
things, this collateral call and the Company's concern that its failure to
satisfy this collateral call would cause the Company to be in default under a
substantial portion of its financing arrangements, the Company reluctantly
concluded on Sunday, October 4, 1998 that it was in the best interests of
creditors, equity holders and other parties in interest to seek Chapter 11
protection. Accordingly, the Company filed for relief under Chapter 11 on
Monday, October 5, 1998.
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As of September 30, 1999, CRIIMI MAE had secured financing agreements with
GACC, Lehman ALI, Inc., First Union, Merrill, Morgan Stanley, and Citicorp.
Certain of these lenders have registered the pledged securities in their own
names. As a result, the trustee makes payments on such securities to the
registered holder. During the fourth quarter of 1998 and first half of 1999,
certain registered holders withheld payments related to securities not
registered to CRIIMI MAE. As of September 30, 1999 the Company had negotiated
and finalized agreements with five of its lenders. CRIIMI MAE Inc.'s cash
position has increased from approximately $7 million on October 5, 1998 to
approximately $84 million as of November 10, 1999. Due to the uncertainty of the
effects of the Chapter 11 filing on the business of the Company, pending
litigation, material reorganization items to be incurred during the pendency of
the bankruptcy and numerous other factors beyond the Company's control, no
assurance can be given that the Company's cash flow will be sufficient to fund
operations for any specified period while the Company is in bankruptcy.
The value of the Company's portfolio is based upon the combined yield of
current treasury rates and the current spread above treasury rates that an
investor would be willing to pay in a purchase transaction. During the nine
months ended September 30, 1999, the required weighted average spread above
treasury rates was substantially unchanged on a total portfolio basis. However,
treasury rates increased significantly from December 31, 1998 which, when
combined with the required spreads, resulted in an aggregate $68.8 million
decrease in the value of the Company's portfolio of CMBS and FHA's and GNMA's
from December 31, 1998 to September 30, 1999. For the period from September 30,
1999 to November 12, 1999, treasury rates have increased. If treasury rates
increase and/or spreads widen from September 30, 1999 levels, the value of the
Company's portfolio of securities would decrease.
In addition, on March 5, 1999, Morgan Stanley sold the CBO-2 BBB Bonds
which have a face amount of $205.8 million and a coupon of 7%. The proceeds of
$159 million were used to pay off $141.2 million of the related short-term,
variable-rate debt due Morgan Stanley and the remaining net proceeds of $17.8
million were remitted to CRIIMI MAE. CRIIMI MAE retained the right to call each
CMBS when the outstanding principal balance amortizes to 15% of its original
face balance. The 15% call option prevents CRIIMI MAE from surrendering control
of the assets pursuant to the requirements of FAS 125 and thus the transaction
is accounted for as a secured borrowing and not a sale. This resulted in CRIIMI
MAE recognizing a fixed-rate liability for these bonds in the amount of the
gross proceeds, which was approximately $159 million.
On April 5, 1999, the Company finalized an agreement by which, Salomon
Smith Barney, in cooperation with CRIIMI MAE, agreed to sell two classes of
investment grade CMBS from CMO-IV with a face amount of $45.9 million and an
average coupon rate of 6.96% constituting a portion of the collateral security
advances under financing agreements with Citicorp. CRIIMI MAE would retain the
right to call each CMBS when the principal balance amortizes to 15% of its
original face balance. The 15% call option would prevent CRIIMI MAE from
surrendering control of the assets pursuant to the requirements of FAS 125 and
thus the transaction would be accounted for as a secured borrowing and not a
sale. A minimum sales price was established in order to sell the bonds. Proceeds
from the sale would be used to pay off $39.6 million of secured debt, certain
costs, and the remainder, if any, remitted to CRIIMI MAE. This would result in
CRIIMI MAE recognizing a fixed-rate liability for these bonds, when they are
sold, in the amount of the gross proceeds. During May 1999, the Company sold $20
million face amount of investment grade CMBS from CMO-IV in accordance with the
agreement noted above. Accordingly, the proceeds from the sale of these CMBS
were used to pay off a portion of the secured debt owed under the Citicorp
financing agreements and the Company recognized fixed rate debt in the amount of
the gross proceeds received. Therefore, the total realized less the variable
rate secured borrowings associated with these investment grade securities were
proportionally reduced (approximately $17 million) on the balance sheet to
reflect the partial sale. The remaining $25.9 million face amount of the
investment grade CMBS from CMO-IV were sold on October 8, 1999, and therefore
that transaction will be reflected in the fourth quarter as described above.
On August 5, 1999, all but three of the commercial loans originated under
the Citibank Program in 1998, were sold for gross proceeds of approximately $308
million. The loans sold had an aggregate unpaid principal balance of $339
million. As a result of the valuation received in the sale, the Company recorded
an additional $10.9 million unrealized loss in the second quarter bringing its
unrealized losses through June 30, 1999 to $35.3 million.
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The unrealized losses recorded through June 30, 1999 also included an estimate
of losses (approximately $2 million) related to the three loans in the Citibank
warehouse program (unpaid principal balance of $32.7 million) not sold on August
5, 1999. On September 16, 1999, the remaining three loans were sold resulting in
approximately $1.1 million in additional losses due to a decrease in the actual
proceeds received as compared to the estimated proceeds anticipated on June 30,
1999. The loans sold had an aggregate principal balance of approximately $32.7
million. Therefore, the total realized loss incurred in connection with the
Citibank Program was $36.3 million. Prior to the actual sale of these loans the
Company had recorded its unrealized losses based on pricing data received from
Citibank.
The Company's ability to resume the acquisition of Subordinated CMBS, as
well as its loan origination and securitization programs, depends first on its
ability to obtain the requisite recapitalization financing, obtain confirmation
and approval of a plan reorganization and emerge from bankruptcy as a
successfully reorganized company and second, on its ability to access additional
capital once it has successfully emerged from bankruptcy. Factors which could
affect the Company's ability to access additional capital include, among other
things, the cost and availability of such capital, changes in interest rates and
interest rate spreads, changes in the commercial mortgage industry and the
commercial real estate market, general economic conditions, perceptions in the
capital markets of the Company's business, covenants under the Company's debt
securities and credit facilities, results of operations, leverage, financial
condition, and business prospects. The Company can give no assurance as to
whether it will be able to obtain additional capital or the terms of any such
capital.
Dividends
During the pendency of the Chapter 11 proceedings, the Company is
prohibited from paying cash dividends without first obtaining Bankruptcy Court
approval. Among the other factors which impact CRIIMI MAE's dividends are (i)
the level of income earned on uninsured mortgage assets, such as Subordinated
CMBS (including, but not limited to, the amount of OID income and losses, if
any, on Subordinated CMBS), and, to the extent applicable, originated loans,
which varies depending on prepayments, defaults, etc., (ii) the level of income
earned on CRIIMI MAE's or its subsidiaries' insured mortgage security collateral
depending on prepayments, defaults, etc., (iii) the fluctuating yields on
short-term, variable rate, debt and the rate at which CRIIMI MAE's LIBOR-based
debt is priced, as well as the rate CRIIMI MAE pays on its other borrowings,
(iv) the rate at which cash flows from mortgage assets, mortgage dispositions,
and, to the extent applicable, loan origination reserves, escrow deposits and
distributions from its subsidiaries can be reinvested, (v) changes in operating
expenses (including those related to the Chapter 11 filing), (vi) to the extent
applicable, cash dividends paid on preferred shares, (vii) to the extent
applicable, whether the Company's taxable mortgage pools continue to be exempt
from corporate level taxes, (viii) the timing and amounts of cash flows
attributable to its other lines of business - mortgage servicing, advisory, to
the extent applicable, origination services and, (ix) to the extent applicable,
realized losses on certain transactions. See "GENERAL INFORMATION - Business and
CMBS Portfolio - Effect of Chapter 11 Filing on REIT Status and Other Tax
Matters" regarding the payment of a junior preferred stock dividend with respect
to 1998 taxable income and the anticipated distribution of all or a substantial
portion of its 1999 taxable income in the form of non-cash taxable dividends.
See also "PLAN SUMMARY AND KEY CONSIDERATIONS - Plan Summary - Claims Against
and Interests in CMI," "BUSINESS PLAN," and "PLAN OF REORGANIZATION - Treatment
of Claims and Interests Under the Plan" regarding matters contemplated by the
Plan and otherwise, which may impact CRIIMI MAE's dividends.
Due to the Chapter 11 filing on October 5, 1998, dividends were not paid
during the first nine months of 1999 on common or preferred shares. However,
since dividends on the Company's Series B, C and D Preferred Shares are
cumulative, the dividends payable at September 30, 1999 were accrued in the
financial statements. For the three and nine months ended September 30, 1998,
dividends paid on Series B were approximately $1.5 million and approximately
$4.3 million or $0.915 and $2.675 per share, respectively, dividends paid on
Series C Preferred Shares were approximately $357,000 and $1.1 million,
respectively, and dividends paid on Series D Preferred Shares were approximately
$109,000, respectively.
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<PAGE>
REIT Status
CRIIMI MAE has elected to qualify as a REIT for tax purposes under
Sections 856-860 of the Internal Revenue Code and has maintained REIT status
through the 1998 tax year. To qualify for tax treatment as a REIT under the
Internal Revenue Code, CRIIMI MAE must satisfy certain criteria, including
certain requirements regarding the nature of its ownership, assets, income and
distributions of taxable income. For a discussion of the effect of the Chapter
11 filing on REIT status and related risks see "BUSINESS - Effect of Chapter 11
Filing on REIT Status and Certain Tax Matters."
Investment Company Act
For a discussion of the Investment Company Act and the risk to the Company
if it were required to register as an Investment Company, see "CERTAIN RISK
FACTORS-Investment Company Act Risk."
G. Quantitative and Qualitative Disclosures About Market Risk
The Company's principal market risk is exposure to changes in interest
rates related to the US Treasury market as well as the LIBOR market. The Company
will 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. The Company will also have an
increase in the amount of interest expense paid on its variable rate obligations
primarily due to increases in One-Month LIBOR.
CRIIMI MAE has entered into interest rate protection agreements to
mitigate the adverse effects of rising interest rates on the interest payments
due 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 which will serve to off-set the increase in interest
payments due under the related variable rate borrowing arrangements. The term of
the cap as well as the stated interest rate of the cap, which in most cases is
currently above the current rate of the index, will limit to some degree the
amount of protection that the caps offer.
Prior to the Petition Date, CRIIMI MAE financed a substantial portion of
its Subordinated CMBS acquisitions with short-term, variable rate borrowings
secured by the Company's CMBS. The agreements governing these financing
arrangements typically required the Company to maintain collateral at all times
with a market value not less than a specified percentage of the outstanding
indebtedness. The agreements further provided that the lenders could require the
Company to post cash or additional collateral if the value of the existing
collateral fell below this threshold amount. These financing arrangements were
used by CRIIMI MAE to provide financing during the period of time from the
acquisition or creation of the Subordinated CMBS to the date when CRIIMI MAE
would resecuritize the portfolio in order to match-fund a significant portion of
the portfolio with fixed rate debt, thereby eliminating interest rate risk on
this portion of the CMBS.
The value of the Company's portfolio is based upon the combined yield of
current treasury rates and the current spread above treasury rates that an
investor would be willing to accept in a purchase transaction. During the nine
months ended September 30, 1999, the required weighted average spread above
treasury rates was substantially unchanged on a total portfolio basis. However,
treasury rates increased significantly from December 31, 1998 which, when
combined with the required spreads, resulted in an aggregate $68.8 million
decrease in the value of the Company's portfolio of CMBS and FHA's and GNMA's
from December 31, 1998 to September 30, 1999. For the period from September 30,
1999 to November 12, 1999, treasury rates have increased. If treasury rates
increase and/or spreads widen from the September 30, 1999 levels, the value of
the Company's portfolio of securities would decrease.
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<PAGE>
H. Market and Trading Information
Market Data
CRIIMI MAE's common stock is listed on the New York Stock Exchange (symbol
CMM). As of September 30, 1999, there were approximately 2,130 holders of record
of the Company's common stock. The following table sets forth the high and low
closing sales prices and the dividends per share for CRIIMI MAE's common stock
during the periods indicated:
1999
---------------------
Sales Price
Quarter Ended High Low Dividends per Share
------------- ----------- --------- -------------------
March 31 $3-7/8 $2-9/16 $--(1)
June 30 2-3/4 1-15/16 --(1)
September 30 3-3/16 1-15/16 --(1)
========
1998
---------------------
Sales Price
Quarter Ended High Low Dividends per Share
------------- ----------- --------- -------------------
March 31 $16-1/16 $14-7/8 $0.37
June 30 15-3/4 13-7/8 0.40
September 30 14-15/16 8-5/8 0.40
December 31 7-1/8 1-1/4 --(1)(2)
========
$1.17
(1) During the pendency of the Chapter 11 proceedings, the Company is
prohibited from paying cash dividends without first obtaining Bankruptcy
Court approval.
(2) The Company declared a dividend payable in junior preferred stock on
September 14, 1999 for the 1998 tax year. Such dividend was paid on
November 5, 1999
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<PAGE>
I. Management
Directors And Executive Officers Of CRIIMI MAE
The following table sets forth certain information concerning the
executive officers and directors of the Company as of September 30, 1999.
Name Age Position
---- --- --------
William B. Dockser (1)............ 62 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................ 38 Senior Vice President and General Counsel
Donald R. Drew (5)................ 42 Senior Vice President/Originations
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)....... 54 Director
Robert E. Woods (2)(3)(4)......... 51 Director
- ----------
(1) Member of the Transactional Committee
(2) Member of the Audit Committee
(3) Member of the Compensation and Stock Option Committee
(4) Member of the Special Reorganization Committee
(5) Mr. Drew resigned effective January 3, 2000.
Mr. William B. Dockser has been Chairman of the Board of CRIIMI MAE since
1989. Mr. Dockser also serves as Chairman of the Board of CRI, Inc., the former
advisor to CRIIMI MAE, which currently oversees a $3 billion real estate
portfolio. Prior to forming CRI in 1974, he served as President of Kaufman Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed a
number of publicly held limited partnerships created to invest in low and
moderate income multifamily apartment complexes. For a period of 2 1/2 years
prior to joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was responsible
for a federally insured housing production program. Before coming to Washington,
Mr. Dockser was a practicing attorney in Boston and also was a special Assistant
Attorney General for the Commonwealth of Massachusetts. He holds a Bachelor of
Laws degree from Yale University Law School and a Bachelor of Arts degree from
Harvard University.
Mr. H. William Willoughby has been President of CRIIMI MAE since 1990. Mr.
Willoughby was a co-founder of CRI and has served as its President since its
inception in 1974. Mr. Willoughby is principally responsible for the structuring
and oversight of investment vehicles and acquisition programs. Prior to joining
CRI in 1974, he was Vice President of Shelter Company of America and a number of
its subsidiaries, dealing principally with real estate development and equity
financing. Before joining Shelter Company, he was a senior tax accountant with
Arthur Andersen & Company. He holds a Juris Doctorate degree, a Master of
Business Administration degree and a Bachelor of Science degree in Business
Administration from the University of South Dakota.
Ms. Cynthia O. Azzara has been Chief Financial Officer since 1994, a
Senior Vice President since 1995 and Treasurer since 1997. Ms. Azzara is
responsible for accounting, financial and treasury matters of CRIIMI MAE as well
as equity and debt placements in the capital markets. From 1989 to 1994, she
served as Vice President/Controller of CRI public funds. From 1985 to 1989, she
held positions at CRI as manager of financial
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<PAGE>
reporting and assistant controller. Before joining CRI in 1985, Ms. Azzara was
controller for a consulting company and was a staff accountant for a regional
CPA firm in Virginia. Ms. Azzara is a certified public accountant and holds a
B.B.A. in accounting from James Madison University, magna cum laude.
Mr. David B. Iannarone is Senior Vice President and General Counsel of
CRIIMI MAE. Mr. Iannarone joined CRIIMI MAE Inc. during 1996, and is responsible
for all corporate legal affairs. From 1991 to 1996, he served with the Federal
Deposit Insurance Company/Resolution Trust Company as Counsel-Securities and
Finance. From 1989 to 1991, Mr. Iannarone served with Citibank, N.A. as
assistant vice president and counsel, serving the World Corporate Group and the
Corporate Banking Department. He was with Kaye, Scholer, Fierman, Hays & Handler
as an associate in the Corporate and Banking Department from 1986 to 1989. Mr.
Iannarone received an LLM from the Georgetown University Law Center, a JD from
the University of Villanova School of Law, and a BA from Trinity College.
Mr. Donald R. Drew, who served as a Senior Vice President of the Company
since April 1997, resigned effective January 3, 2000.
Mr. Brian L. Hanson has been a Senior Vice President of the Company since
March 1998. From March 1996 to March 1998, he served as Group Vice President of
the Company. Prior to joining the Company, from May 1991 to February 1996, Mr.
Hanson was with the Lanham, Maryland based company of JCF Partners, where he
served as Chief Operating Officer and Director of Asset Operations and Portfolio
Director.
Mr. Garrett G. Carlson, Sr. has served as a Director of the Company since
1989. Mr. Carlson has served as President of Can-American Realty Corp. and the
Canadian Financial Corp. since 1979 and 1974, respectively, and President of
Garrett Real Estate Development since 1982. Since 1996, Mr. Carlson has served
as a director of Satellite Broadcasting Company. From 1985 to 1995, he served as
Chairman of the Board of SCA Realty Holdings Inc; from 1983 to 1995, he served
as Vice Chairman of the Shelter Development Company Ltd. and from 1992 to 1994,
he served as a director of Bank Windsor.
Mr. G. Richard Dunnells has served as a Director of the Company since
1991. Since 1995, Mr. Dunnells has served as the Hiring Partner of the law firm
Holland & Knight. He was Chairman of the Washington, D.C. law firm of Dunnells &
Duvall from 1989 to 1993 and was the firm's Senior Partner from 1973 to 1993.
Mr. Dunnells served on the President's Commission on Housing from 1981 to 1982
and thereafter served in various roles at the U.S. Department of Housing and
Urban Development from 1969 to 1973, including Special Assistant to the
Under-Secretary, Deputy Assistant Secretary for Housing and Urban Renewal and
Deputy Assistant Secretary for Housing Management.
Mr. Robert J. Merrick has served as a Director of the Company since 1997.
Since February 1998, Mr. Merrick has served as the Chief Credit Officer and
Director of MCG Credit Company. From 1985 to 1997, he served as Executive Vice
President and Chief Credit Officer of Signet Banking Company. In addition, while
at Signet, Mr. Merrick also served as Chairman of the Credit Policy Committee
and was a member of the Asset and Liability Committee, as well as the Management
Committee. Prior to joining Signet, Mr. Merrick was a Credit Officer of the
Virginia Banking Company from 1980 to 1984. He also served as Senior Vice
President of the Bank of Virginia from 1976 to 1980.
Mr. Robert Woods has served as a Director of the Company since 1998. He is
currently the Managing Director and head of loan syndications for the Americas
at Societe Generale in New York where he has served in that position since 1997.
Prior to that, Mr. Woods had been Managing Director and Head of the Real Estate
Capital Markets and Mortgage-Backed Securities division at Citicorp since 1991.
Mr. Woods also served as Head of Citicorp's syndications, private placements,
money markets and asset-backed businesses from 1985 to 1990.
Mr. Douglas L. Cooper, who had served as a Senior Vice President of the
Company since March 1998, resigned in October 1999.
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<PAGE>
Compensation of Directors
Directors who are also employees of the Company receive no additional
compensation for their services as directors. Each independent Director receives
(i) an aggregate annual fee of $12,000, (ii) 500 common shares annually, (iii)
options to purchase 500 common shares annually and (iv) a fee of $750 (for
telephonic meetings) or $1,500 (for in-person meetings) per day for each meeting
in which such director participates, including committee meetings held on days
when the Board of Directors is not meeting. In addition, the Company reimburses
directors (including those employed by the Company as executive officers) for
travel and other expenses incurred in connection with their duties as directors
of the Company. The independent directors, in addition to the foregoing
compensation have received additional compensation for their service on the
Special Reorganization Committee. Messrs. Carlson, Dunnells and Merrick each
received $25,000.00 and Mr. Woods, as lead director, received $35,000.00. See
"The Debtors and Chapter 11 Filing and other Chapter 11 Events" for a further
description of the Special Reorganization Committee.
Committees of the Board of Directors
The Board of Directors has an Audit Committee, a Compensation and Stock
Option Committee, a Transactional Committee and a Special Reorganization
Committee. The Company has no nominating or similar committee.
Audit Committee. The Board of Directors has an Audit Committee currently
comprised of Messrs. Carlson, Dunnells, Merrick and Woods, each of whom is an
independent director. The functions performed by the Audit Committee are to: (1)
recommend independent auditors to the Company; (2) review the scope of the
audit, audit fees, the audit report and the management letter with the Company's
independent auditors; (3) review the financial statements of the Company; (4)
review and approve non-audit services provided by the independent auditors; and
(5) consult with the independent auditors and management with regard to the
adequacy of internal controls.
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 independent director. The
Compensation and Stock Option Committee was formed to establish, review and
modify the compensation (including salaries and bonuses) of the Company's
executive officers, to administer the Employee Stock Option Plan and to perform
such other duties as may be delegated to it by the Board of Directors.
Transactional Committee. The Board of Directors has a Transactional
Committee currently comprised of Messrs. Dockser and Willoughby. The
Transactional Committee was formed to review and approve certain debt and equity
financings, and securitizations and resecuritizations of assets, with certain of
the foregoing subject to specific limitations.
Special Reorganization Committee. The Board of Directors has a Special
Reorganization Committee comprised of Messrs. Carlson, Dunnells, Merrick and
Woods established in connection with the Company's Chapter 11 proceeding. See
"The Debtors and Chapter 11 Filing and other Chapter 11 Events" for a further
description of the Special Reorganization Committee.
Executive Compensation
The following table sets forth certain information concerning compensation
earned during the last three years by the Chairman of the Board of Directors and
each of the other four most highly compensated executive officers of the Company
whose income exceeded $100,000 during the year ended December 31, 1998
(collectively, the "Named Executive Officers").
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(1) Long Term Compensation
---------------------- ----------------------
Restricted Securities
Stock Underlying All Other
Year Salary ($) Bonus ($) Awards Options (#) Compensation ($)
---- ---------- --------- ------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
William B. Dockser 1998 $285,600 $ 59,000 -0- 225,000 $334,916(2)
Chairman of 1997 $230,000 $215,000 -0- 150,000 $467,424(2)
the 1996 $167,500 -0- -0- -0- $494,672(2)
Board of
Directors
H. William 1998 $285,600 $ 59,000 -0- 225,000 $334,916(2)
Willoughby 1997 $230,000 $215,000 -0- 150,000 $467,424(2)
President and 1996 $167,500 -0- -0- -0- $494,672(2)
Secretary
Frederick J. 1998 $233,150 $ 48,000 -0- 25,000 -0-
Burchill 1997 $191,875 $200,000 -0- 45,000 -0-
Executive 1996 $179,375 $125,000 -0- 20,000 -0-
Vice
President (3)
Cynthia O. Azzara 1998 $185,150 $ 45,000 -0- 20,000 -0-
Senior Vice 1997 $147,500 $ 77,500 -0- 25,000 -0-
President, 1996 $135,000 $ 50,000 -0- 10,000 -0-
Chief
Financial
Officer and
Treasurer
Donald R. Drew 1998 $525,500(4) $ 30,000 -0- 10,000 -0-
Senior Vice 1997 $166,596(5) -0- -0- -0- -0-
President (6)
</TABLE>
- ----------
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary; however, the aggregate amounts of such personal benefits do
not exceed the lesser of $50,000 or 10% of annual salary and bonus reported for
any Named Executive Officer.
(2) These amounts represent deferred compensation which the Company has agreed
to pay for services performed in connection with the Merger. These amounts were
paid solely from principal and interest received by the Company from CRI in
connection with a note receivable acquired by the Company in the Merger.
(3) Mr. Burchill resigned as Executive Vice President of the Company effective
February 8, 1999.
(4) This amount includes commissions paid of $416,125 but does not include
$144,579 owed to Mr. Drew for commissions accrued, but not paid, prior to the
Petition Date, with respect to which Mr. Drew has an unsecured claim.
(5) This amount relates to the period from April 7, 1997 (commencement of
employment) through December 31, 1997 and includes commissions paid of $55,216.
(6) Mr. Drew resigned effective January 3, 2000.
Employment Agreements
On June 30, 1995, in connection with the Merger, the Company, through its
wholly-owned operating subsidiary CMM, entered into employment agreements with
each of Messrs. Dockser and Willoughby. In connection with the adoption of the
Employee Retention Plan, such employment agreements were assumed by CMM and were
amended as of October 5, 1998 (together and as amended, the "Employment
Agreements"). The Employment Agreements each expire June 30, 2000 and provide
that Messrs. Dockser and Willoughby salaries will be adjusted at
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<PAGE>
least annually by the Compensation and Stock Option Committee of the Board of
Directors. Each of Mr. Dockser and Mr. Willoughby currently receive a base
salary of $324,500. The Employment Agreements require each of Messrs. Dockser
and Willoughby to devote a substantial portion of his time to the affairs of the
Company and its affiliated entities, except that each of them may devote time to
other existing business activities; provided that the time devoted to such other
existing business activities does not interfere with the performance of his
duties to the Company and its affiliated entities. The agreements define the
phrase "substantial portion" to mean all of the time required to perform the
services necessary and appropriate for the conduct of the businesses of the
Company and its affiliated entities.
In the event of a change of control, as defined in the Employment
Agreements, Messrs. Dockser and Willoughby reserve the right to voluntarily
terminate their employment with the Company. Messrs. Dockser and Willoughby are
entitled to severance payments in an amount equal to 18 months' base salary upon
termination without cause and upon an involuntary resignation for any of the
reasons set forth in the Employment Agreements, including a change of control.
Messrs. Dockser and Willoughby are not currently entitled to receive any
retention payments under the Employment Retention Plan. The Bankruptcy Court
may, at its discretion, upon request, authorize the payment of certain retention
payments to Messrs. Dockser and Willoughby in connection with services rendered
during the Chapter 11 cases.
The Employment Agreements provide for indemnification of Messrs. Dockser
and Willoughby to the extent provided for in the bylaws of the Company and/or
CMM up to and including amounts totaling a maximum of $250,000 for all covered
persons, constituting the aggregate deductible under applicable Director and
Officer insurance policies, the application of any available portion of proceeds
of applicable Director and Officer insurance policies, up to $20 million in the
aggregate for all covered persons, and the payment of all uninsured
indemnification arising under the post-petition actions of the executives for
which they are otherwise entitled to indemnification under the Bylaws of the
Company and/or CMM.
In July 1998, the Company entered into a new employment agreement with
Cynthia O. Azzara that, in connection with the adoption of the Employee
Retention Plan, was assumed by CMM and was amended as of October 5, 1998 (as
amended, the "Azzara Employment Agreement"). The Azzara Employment Agreement has
a three year term and provides for minimum base annual compensation of $225,000.
The Azzara Employment Agreement contains provisions that prohibit Ms. Azzara
from competing with the Company and certain of its affiliates for a period not
to extend beyond October 5, 2000, subject to certain limited exceptions. In
addition, Ms. Azzara is entitled to receive retention payments, under the
Employee Retention Plan, equal to two times her base salary semiannually over a
two year period, subject to certain conditions. The first retention plan payment
to Ms. Azzara was paid on April 15, 1999 and the second was paid on October 15,
1999. The fourth retention plan payment to Ms. Azzara is subject to Bankruptcy
Court approval. The entire unpaid portion of the retention payments owed to Ms.
Azzara will become immediately due and payable upon the effective date of a plan
of reorganization of the Company, only upon receipt of Bankruptcy Court
approval, or upon the termination of Ms. Azzara other than for cause.
Ms. Azzara is entitled to severance payments in an amount equal to 24
months' base salary upon termination without cause. In addition, upon
termination following a change of control, all options to acquire shares of the
Company's common stock held by Ms. Azzara, to the extent not then exercisable,
will become immediately exercisable. The Azzara Employment Agreement provides
for indemnification of Ms. Azzara to the extent provided for in the bylaws of
the Company and/or CMM up to and including amounts totaling a maximum of
$250,000 for all covered persons, constituting the aggregate deductible under
applicable Officer and Director insurance policies, the application of any
available portion of proceeds of applicable Officer and Director insurance
policies, up to $20 million in the aggregate for all covered persons, and the
payment of all uninsured indemnification arising under the post-petition actions
of the executive for which she is otherwise entitled to indemnification under
the bylaws of the Company and/or CMM.
Pursuant to the Employee Retention Plan, options granted by the Company
after October 5, 1998 will, subject to Bankruptcy Court approval, become
exercisable upon a change of control.
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<PAGE>
Employee Stock Option Plan
The purpose of the Employee Stock Option Plan is to enhance the long-term
profitability of the Company and shareholder value by offering incentives and
rewards to those officers and other employees of the Company and its
subsidiaries who are important to the Company's growth and success, and to
encourage such officers and employees to remain in the service of the Company
and its subsidiaries and to acquire and maintain stock ownership in the Company.
See "PLAN OF REORGANIZATION - The Reorganized Debtors" regarding amendments to
the Employee Stock Option Plan proposed in connection with the Debtors' Plan.
At September 30, 1999, the Employee Stock Option Plan provided for the
grant of stock options to purchase up to 2,000,000 shares of Company common
stock. As of September 30, 1999, options to purchase a total of 1,701,521 common
shares were outstanding under the Employee Stock Option Plan. Options granted
under the Employee Stock Option Plan may be designated as either "nonqualified
stock options" or "incentive stock options." The exercise price for options
granted under the Employee Stock Option Plan may not be less than the fair
market value of a share of common stock on the date of grant.
Any executive officer or other employee of the Company or any subsidiary
of the Company is eligible to be granted options, subject to certain
limitations. The Compensation and Stock Option Committee is authorized to select
from among eligible employees the individuals to whom options are to be granted
and to determine the number of shares subject to each option, whether such
options are to be incentive stock options or nonqualified stock options, and the
terms and conditions of the options consistent with terms and provisions of the
Employee Stock Option Plan.
The Employee Stock Option Plan is administered by the Compensation and
Stock Option Committee. Currently, the Compensation and Stock Option Committee
consists of Messrs. Carlson, Dunnells, Merrick and Woods, each of whom is an
independent director and a "non employee director" within the meaning of Rule
16b-3, as promulgated under Section 16 of the Exchange Act. Except as permitted
by Rule 16b-3(c)(2) under the Exchange Act, options may not be granted under the
Employee Stock Option Plan to any member of the Compensation and Stock Option
Committee during the term of his or her membership on the Compensation and Stock
Option Committee.
Pursuant to the Employee Retention Plan, options granted by the Company
after October 5, 1998 will, subject to Bankruptcy Court approval, become
exercisable upon a change of control.
The following table sets forth certain information concerning options
granted to the Named Executive Officers during the year ended December 31, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% of Total Options
Common Shares Granted to
Underlying Employees Exercise Price Expiration Grant Date
Name Options Granted in Fiscal Year ($/sh) Date Present Value
- ---- --------------- -------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
William B. Dockser 225,000(1) 28.99% $15.7500 16-Mar-2006 $299,363(2)
H. William Willoughby 225,000(1) 28.99% $15.7500 16-Mar-2006 $299,363(2)
Frederick J. Burchill (3) 25,000(1) 3.22% $15.7500 08-Feb-1999 $33,263(2)
Cynthia O. Azzara 20,000(1) 2.58% $15.7500 16-Mar-2006 $26,610(2)
Donald R. Drew (4) 10,000(1) 1.29% $15.7500 16-Mar-2006 $13,305(2)
</TABLE>
- ----------
(1) These options were granted on March 16, 1998 and will vest in equal annual
installments commencing on the first anniversary of the date of grant.
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<PAGE>
(2) These values are estimated on the date of grant using the Black-Scholes
option pricing model, which produces a per option share value as of March 16,
1998, the grant date, of $1.3305 using the following principal assumptions:
expected stock price volatility of 26.6%, risk free rate of return of 4.95%,
dividend yield of 9.4% and expected life of 8 years. No adjustments have been
made for forfeitures or nontransferability. The actual value, if any, that the
executive officer will realize from these options will depend solely on the
increase in the stock price over the option price when the options are
exercised.
(3) Mr. Burchill resigned as Executive Vice President of the Company effective
February 8, 1999.
(4) Mr. Drew resigned effective January 3, 2000.
The following table provides information concerning the exercise of
options during the year ended December 31, 1998 for each of the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END 1998 OPTION VALUES
<TABLE>
<CAPTION>
Number of Common Shares Value of Unexercised
Common Shares Acquired Underlying Unexercised in-the-money Options
on Exercise Value Realized Options at FY-end (#) at FY-end ($)
Name During 1998(#) ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable(2)
- ---- ---------------------- -------------- --------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
William B. Dockser 12,698 $52,125 $677,302 $975,000 $0 $0
H. William Willoughby 2,000 $10,710 $841,905 $975,000 $0 $0
Frederick J. Burchill (3) 20,000 $77,100 $ 73,332 $ 61,668 $0 $0
Cynthia O. Azzara 6,600 $27,505 $ 33,399 $ 40,001 $0 $0
Donald R. Drew (4) -0- -0- -0- $ 10,000 $0 $0
</TABLE>
- ----------
(1) The value realized on the exercise of stock options was determined by taking
the difference between the option price and the fair market value of the common
shares on the date of exercise.
(2) Options have been granted at exercise prices from $9.77 to $15.9375. The
closing price of a share of common stock was $3.50 on December 31, 1998. The
exercise price of the option shares exceeded the market value of such options at
fiscal year end and, accordingly, such options were not "in the money" as of
December 31, 1998.
(3) Mr. Burchill resigned as Executive Vice President of the Company effective
February 8, 1999.
(4) Mr. Drew resigned effective January 3, 2000.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock as of February 29, 2000 by
(i) each person known by the Company to be the beneficial owner of more than 5%
of its common stock, (ii) each director of the Company, (iii) each Named
Executive Officer, and (iv) all directors and executive officers of the Company
as a group. Unless otherwise indicated, each stockholder has sole voting and
investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
Amount and Nature of Common Percentage of Common
Name Shares Beneficially Owned Shares Outstanding
- ---- ------------------------- ------------------
<S> <C> <C>
William B. Dockser 3,679,949 (1)(2) 5.6%
H. William Willoughby 3,459,827 (1)(3) 5.0%
Garrett G. Carlson, Sr. 18,910 (4) *
G. Richard Dunnells 17,130 (5) *
Robert J. Merrick 5,246 (6) *
Robert E. Woods 2,164 (7) *
Cynthia O. Azzara 101,079 (8) *
Brian L. Hanson 37,595 (9) *
David B. Iannarone 34,929(10) *
All Directors and Executive
Officers as a Group (9 persons) 7,353,358(11) 11.2%
Gotham Partners L.P.
Gotham Partners III
Gotham International Advisors LLC 6,009,000(12) 9.2%
110 East 42nd Street 18th Floor
New York, NY 10017
</TABLE>
* 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) Includes 3,171,584 shares exercisable upon exercise of presently
exercisable options or those exercisable within 60 days.
(12) 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.
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<PAGE>
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 $352,471 for the year ended
December 31, 1998.
In June 1997, a subsidiary of the Company acquired a Holiday Inn Express
hotel in Nashville, Tennessee in a foreclosure sale from a commercial
mortgage-backed security trust. In connection with such purchase, the
subsidiary-owner of the hotel entered into a hotel management agreement (the
"Hotel Management Agreement") with Capitol Hotel Group International, Inc.
("CHGI"), a Maryland company partially owned by Messrs. Dockser and Willoughby.
The Hotel Management Agreement provides that in exchange for the hotel
management and operating duties set forth in the agreement, CHGI will receive an
annual management fee in an amount equal to four percent of the total annual
revenues of the hotel plus twenty percent of the annual net profit of the hotel.
For the year ended December 31, 1998, the Company paid a total of $ 4,691 to
CHGI pursuant to the Hotel Management Agreement. Prior to entering into the
Hotel Management Agreement, the Company received a written opinion from an
independent hotel consulting and appraisal company that the terms of the Hotel
Management Agreement were reasonable and within industry standards. Criimi Mae
Brick Church, Inc. has entered into a contract to sell the property which is
subject to bankruptcy court approval.
IV. BUSINESS PLAN
The Company's post-bankruptcy business strategy is designed to capitalize
on its core strengths in real estate and mortgage finance. The key components of
the Company's business strategy are initially, upon emergence from Chapter 11,
the continued ownership and management of the Company's remaining portfolio of
mortgage-related assets, the continuation and, as appropriate, expansion of its
servicing business, the reduction of outstanding indebtedness consistent with
the terms agreed to with Merrill and GACC and the Unsecured Creditors' Committee
as set forth in the Plan, and to invest and trade in CMBS and other
mortgage-related assets. 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.
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 $___ million (face
amount) of CMBS, the Company's June 30, 2000 balance sheet would include $___
billion (face amount) of CMBS, $___ million (face amount) of insured mortgage
securities, and $___ million (face amount) of commercial mortgage loans that
were originated and securitized by the Company. The Company will continue to
actively monitor and manage the credit risks and performance of its portfolio in
an effort to maximize returns.
Following the reorganization and rating agency approval, the Company
expects to exercise its right, as owner of the controlling bond class, to
re-name CMSLP as special servicer for transactions in its portfolio currently
being specially-serviced by ORIX with CMSLP serving as their special
sub-servicer. In addition, the Company intends for CMSLP to pursue direct,
master and special servicing assignments, as well as expand its fee based
services, for a variety of participants in the mortgage and asset finance
arenas.
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<PAGE>
Access to Capital. The Company intends to internally generate capital from
operating and investing activities and expected reductions in REIT distribution
requirements to shareholders due to expected net operating losses for tax
purposes. Such capital will be used (subject to and consistent with the terms
agreed to with Merrill and GACC and the Unsecured Creditors' Committee) in order
to fund the initial key components of its business plan referenced above.
In order to fund the resumption of CMBS acquisitions and loan originations
and securitizations, discussed in more detail below, the business plan
contemplates that the Company will be required to access the capital markets
(with the use of such capital to be subject to and consistent with the terms
agreed to with Merrill and GACC and the Unsecured Creditors' Committee, as set
forth in the Plan) through public or private issuances of equity and/or debt
securities and/or through secured or unsecured credit facilities. In addition,
it is contemplated that the Company would continue to use long-term, fixed rate
debt refinancings, short-term borrowing agreements (but to a lesser extent than
utilized prior to the Chapter 11 filing and in accordance with the terms agreed
to with Merrill and GACC and the Unsecured Creditors' Committee) and other
borrowings to fund a portion of any mortgage asset acquisitions.
Resumption of Subordinated CMBS Acquisitions. Prior to the filing of
Chapter 11, the Company had historically been a leading purchaser of
Subordinated CMBS. The Company believes that its servicing and underwriting
capabilities are competitive advantages that allow the Company to compete
against other investors who may have greater access to capital (or the ability
to obtain capital at a lower cost) for the acquisition of Subordinated CMBS. The
Company's ability to resume the acquisition of Subordinated CMBS will depend
upon, among other matters, market conditions and the Company's ability to access
capital to fund such acquisitions. The Company has not at this time arranged for
any post-reorganization financing for the acquisition of Subordinated CMBS and
there can be no assurance that the Company will be able to obtain any such
acquisition financing or that if acquisition financing is available it will be
on favorable terms.
Resumption of Loan Originations and Securitizations. The Company's ability
to resume mortgage loan originations, principally through mortgage loan conduit
programs with major financial institutions for the primary purpose of pooling
such loans for securitization, will depend upon, among other matters, market
conditions, the Company's ability to retain personnel with the requisite
expertise, and the Company's ability to enter into suitable agreements with
financial institutions and to obtain any financing required by such agreements.
To the extent the Company is able to resume its origination program, it intends
to securitize originated mortgage loans, retaining the subordinated bonds for
its portfolio, and providing loan management and servicing functions for the
underlying mortgage pool. The Company has not at this time arranged for any
post-reorganization mortgage loan origination financing and there can be no
assurance that the Company will be able to enter into suitable agreements with
major financial institutions or obtain any financing required by such
agreements.
New Opportunities. The Company intends to explore the possibility of
additional business activities including, but not limited to, expanding the
scope of servicing efforts to include asset-backed and franchise loan servicing;
the further development of fee-based servicing businesses; joint ventures for
the acquisition of Subordinated CMBS or other real estate assets; and expanding
its originations into other higher yielding financings such as mezzanine loans
and equity investments. The ability to pursue any new opportunity will depend
upon, among other matters, market conditions and the availability of capital and
other resources.
V. PLAN OF REORGANIZATION
A. Overview of the Plan
Brief Explanation of Chapter 11
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under Chapter 11 of the Bankruptcy Code, a debtor is authorized
to reorganize its business for the benefit of itself and its creditors and
stockholders. In addition to permitting rehabilitation of the debtor, another
goal of Chapter 11 is to promote equality
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<PAGE>
of treatment of creditors and equity security holders, respectively, who hold
substantially similar claims or interests with respect to the distribution of
the value of a debtor's assets. In furtherance of these two goals, upon the
filing of a petition for relief under Chapter 11, Section 362 of the Bankruptcy
Code generally provides for an automatic stay of substantially all acts and
proceedings against the debtor and its property, including all attempts to
collect claims or enforce liens that arose prior to the commencement of the
debtor's Chapter 11 case.
The consummation of a plan of reorganization is the principal objective of
a Chapter 11 case. A plan of reorganization sets forth the means for satisfying
claims against and interests in a debtor. Confirmation of a plan of
reorganization by the Bankruptcy Court makes the plan binding upon the debtor,
any issuer of securities under the plan, any person or entity acquiring property
under the plan and any creditor of or equity security holder in the debtor,
whether or not such creditor or equity security holder (i) is impaired under or
has accepted the plan or (ii) receives or retains any property under the plan.
Subject to certain limited exceptions and other than as provided in the plan
itself or the confirmation order, the confirmation order discharges the debtor
from any debt that arose prior to the date of confirmation of the plan and
substitutes therefor the obligations specified under the confirmed plan.
The following is an overview of certain material provisions of the Plan of
the Debtors, which is attached hereto as Exhibit A. The following summaries of
the material provisions of the Plan do not purport to be complete and are
qualified in their entirety by reference to all the provisions of the Plan,
including all exhibits thereto, all documents described therein and the
definitions therein of certain terms used below. Wherever defined terms of the
Plan not otherwise defined in this Disclosure Statement are used, such defined
terms shall have the meanings ascribed to them in the Plan.
Solicitation of Acceptances of the Plan
Under the Plan, all Claims and Interests have been separated into classes
according to the applicable Debtor, and each Class has been determined to be
either Impaired or Unimpaired by the Plan's terms. Except as discussed below
under "CONFIRMATION AND CONSUMMATION PROCEDURES -- Confirmation," as a condition
to confirmation, Section 1129(a) of the Bankruptcy Code requires that (i) each
impaired class of claims and interests that receives or retains property under a
plan of reorganization vote to accept the plan and (ii) the plan meets the other
requirements of Section 1129(a). Classes of claims and interests that do not
receive or retain any property under a plan on account of such claims and
interests are deemed to have rejected the plan and are not entitled to vote, and
classes of claims and interests that are not impaired under a plan are deemed to
have accepted the plan and are not entitled to vote. Therefore, acceptances of
the Plan are being solicited only from those who hold Claims and Interests in an
Impaired Class. An Impaired Class of Claims will be deemed to have accepted the
Plan if it is accepted by Holders of at least two-thirds in dollar amount and a
majority in number of Claims of such Class held by Holders who cast timely votes
with respect to the Plan. An Impaired Class of Interests will be deemed to have
accepted the Plan if it is accepted by Holders of at least two-thirds in the
amount of the allowed Interests of such Class held by Holders of such Interests
that have voted to accept or reject the Plan. Holders of Claims or Interests who
fail to vote or who abstain from voting on the Plan are not counted for purposes
of determining either acceptance or rejection of the Plan by any Impaired Class
of Claims or Interests.
If at least one Impaired Class of Claims votes to accept a plan of
reorganization (not counting the votes of insiders), the Plan may be confirmed
despite rejection by the other impaired Classes if the "cramdown" provisions of
Section 1129(b) of the Bankruptcy Code are satisfied. The "cramdown" provisions
of Section 1129(b) essentially provide that a plan may be confirmed over the
rejection of an impaired class of claims or interests if the plan "does not
discriminate unfairly" and is "fair and equitable" with respect to such
rejecting impaired class.
General Information Concerning Treatment of Claims and Interests
In general, the Plan provides that Holders of Allowed Claims or Interests
in Classes: A8, A12, A15, A17, A19, A22, A23, B3, B4, B7, C3, C4 and C7 are
Unimpaired.
Holders of Allowed Claims or Interests in Classes: A1, A2, A3, A4, A5, A6,
A7, A9, A10, A11, A13, A14,
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<PAGE>
A16, A18, A20, A21, B1, B2, B5, B6, C1, C2, C5 and C6 are Impaired.
Summary of Classes and Treatment of Claims and Interests
Section 1123 of the Bankruptcy Code provides that a plan of reorganization
shall classify the claims and interests of a debtor's creditors and equity
interest holders. In compliance therewith, the Plan divides Claims and Interests
into Classes and sets forth the treatment for each Class. In accordance with
Section 1123(a)(1), Administrative Claims and Priority Tax Claims have not been
classified. The Debtors also are required, under Section 1122 of the Bankruptcy
Code, to classify Claims against and Interests in CMI, CMM and Holdings into
Classes that contain Claims and Interests that are substantially similar to the
other Claims and Interests in such Classes.
The classification of Claims and Interests and the nature of distributions
to Holders of Impaired Claims or Impaired Interests in each Class are summarized
below.
CMI Classes
Class A1 - Citicorp Secured Claims Class A1 consists of all
Allowed Secured Claims against
CMI of Citicorp Securities,
Inc., Salomon Smith Barney
Inc., Citicorp Real Estate,
Inc. and/or CitiBank N.A. or
any other Holder of a Secured
Claim against CMI under,
arising from or related to
that certain Master Repurchase
Agreement between CMI and
Citicorp Securities, Inc.
dated as of August 1, 1997 or
any documents executed in
connection therewith or
related thereto.
Class A2 - First Union Secured Claim Class A2 consists of all
Allowed Secured Claims against
CMI of First Union National
Bank or any other Holder of a
Secured Claim against CMI
under, arising from or related
to (i) that certain Master
Assignment Agreement between
First Union National Bank and
CMI dated as of June 30, 1998
or any documents executed in
connection therewith or
related thereto or (ii) that
certain Guaranty by CMI in
favor of and for the benefit
of Signet Bank/Virginia
entered into as of June 30,
1995 or that certain
Collateral Assignment of
Partnership Interests from CMI
in favor of Signet
Bank/Virginia dated as of June
30, 1995 or that certain Stock
Pledge Agreement by CMI in
favor of Signet Bank/Virginia
dated as of June 30, 1995 or
that certain Credit Agreement
between CMM and Signet
Bank/Virginia dated as of June
30, 1995 or any documents
executed in connection with or
related to any of the
foregoing.
Class A3 - GACC Secured Claim Class A3 consists of all
Allowed Secured Claims against
CMI of German American Capital
Corp. or any other Holder of a
Secured Claim against CMI
under, arising from or related
to that certain Master Loan
and Security Agreement between
CMI and German American
Capital Corp. dated as of
March 31, 1998 or any
documents executed in
connection therewith or
related thereto.
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<PAGE>
Class A4 - Lehman Secured Claim Class A4 consists of all
Allowed Secured Claims against
CMI of Lehman Ali Inc. or any
other Holder of a Secured
Claim against CMI under,
arising from or related to
that certain Master Assignment
Agreement between CMI and
Lehman Ali Inc. dated as of
May 29, 1998 or any documents
executed in connection
therewith or related thereto.
Class A5 - Merrill Secured Claim Class A5 consists of all
Allowed Secured Claims against
CMI of Merrill Mortgage
Capital Inc. or any other
Holder of a Secured Claim
against CMI under, arising
from or related to that
certain Master Assignment
Agreement between CMI and
Merrill Mortgage Capital Inc.
dated as of September 25, 1997
or any documents executed in
connection therewith or
related thereto.
Class A6 - Morgan Stanley Secured Claim Class A6 consists of any
Allowed Secured Claims against
CMI of Morgan Stanley & Co.
International Ltd. or any
other Holder of a Secured
Claim against CMI under,
arising from or related to
that certain Master Repurchase
Agreement between Morgan
Stanley & Co. International
Limited and CMI dated as of
May 8, 1998 or any documents
executed in connection
therewith or related thereto.
Class A7 - Other Secured Claims Class A7 consists of any
Allowed Secured Claims against
CMI other than the Secured
Claims specified in Classes A1
through A6.
Class A8 - Priority Claims Class A8 consists of all
Allowed Priority Claims
against CMI.
Class A9 - Old Senior Note Claims Class A9 consists of all
Allowed Claims against CMI of
Holders of Old Senior Notes.
Class A10 - CMI General Unsecured Claims Class A10 consists of all
Allowed Unsecured Claims
against CMI other than the
Unsecured Claims (if any) in
Classes A8, A9, A11, A12, A13,
A15, A17, A19, and A23 and
other than Administrative
Claims and Priority Tax
Claims.
Class A11 - Guarantee Claims Class A11 consists of all
Allowed Claims against CMI of
Holders of Guarantee Claims
based upon CMI's guarantee of
obligations of CMM or
Holdings, as the case may be.
Class A12 - Freddie Mac Claims Class A12 consists of Claims
against CMI of Freddie Mac
numbered 335 and 497, on the
July 20, 1999 claims register,
in the amount of
$230,448,487.24 each.
Class A13 - Intercompany Claims Class A13 consists of all
Allowed Claims against CMI of
CMM or Holdings.
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<PAGE>
Class A14 - Series B Preferred Stock Class A14 consists of all
Allowed Series B Preferred
Stock Interests in CMI.
Class A15 - Series BPreferred Stock Class A15 consists of all
Securities Claims Allowed Securities Claims on
account of Series B Preferred
Stock against CMI.
Class A16 - Former Series C Preferred Stock Class A16 consists of all
Allowed Former Series C
Preferred Stock Interests in
CMI.
Class A17 - Former Series C Preferred Stock Class A17 consists of all
Securities Claims Allowed Securities Claims on
account of Former Series C
Preferred Stock against CMI.
Class A18 - Old Series D Preferred Stock Class A18 consists of all
Allowed Old Series D Preferred
Stock Interests in CMI.
Class A19 - Old Series D Preferred Stock Class A19 consists of all
Securities Claim Allowed Securities Claims on
account of Old Series D
Preferred Stock against CMI.
Class A20 - Series F Dividend Preferred Stock Class A20 consists of all
Allowed Series F Dividend
Preferred Stock Interests in
CMI.
Class A21 - CMI Common Stock Class A21 consists of all
Allowed CMI Common Stock
Interests in CMI.
Class A22 - Stock Options Class A22 consists of all
Allowed Stock Option Interests
in CMI.
Class A23 - CMI Common Stock Securities Claims Class A23 consists of all
Allowed Securities Claims on
account of CMI Common Stock
against CMI.
CMM Classes
Class B1 - First Union Secured Claims Class B1 consists of all
Allowed Secured Claims against
CMM of First Union National
Bank or any other Holder of a
Secured Claim against CMM
under, arising from or related
to that certain Credit
Agreement between CMM and
Signet Bank/Virginia dated as
of June 30, 1995 or any
documents executed in
connection therewith or
related thereto.
Class B2 - Other Secured Claims Class B2 consists of any
Allowed Secured Claims against
CMM other than the Secured
Claims specified in Class B1.
Class B3 - Priority Claims Class B3 consists of all
Allowed Priority Claims
against CMM.
Class B4 - Guarantee Claims Class B4 consists of all
Allowed Claims against CMM of
Holders of Guarantee Claims
based upon CMM's guarantee of
obligations of CMI or
Holdings, as the case may be.
Class B5 - CMM General Unsecured Claims Class B5 consists of all
Allowed Unsecured Claims
against CMM other than the
Unsecured Claims (if any) in
Classes B3, B4 and B6 and
other than Administrative
Claims and
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<PAGE>
Priority Tax Claims.
Class B6 - Intercompany Claims Class B6 consists of all
Allowed Claims against CMM of
CMI or Holdings.
Class B7 - CMI's Interests in CMM Class B7 consists of all
Allowed Interests in CMM of
CMI.
Holdings Classes
Class C1 - Citicorp Secured Claims Class C1 consists of all
remaining Allowed Secured
Claims (if any) against
Holdings of Citicorp
Securities, Inc. and/or
Salomon Smith Barney Inc..
Class C2 - Other Secured Claims Class C2 consists of any
Allowed Secured Claims against
Holdings other than the
Secured Claims specified in
Class C1.
Class C3 - Priority Claims Class C3 consists of all
Allowed Priority Claims
against Holdings.
Class C4 - Guarantee Claims Class C4 consists of all
Allowed Claims against
Holdings of Holders of
Guarantee Claims based upon
Holdings' guarantee of
obligations of CMI or CMM, as
the case may be.
Class C5 - Holdings General Unsecured Claims Class C5 consists of all
Allowed Unsecured Claims
against Holdings other than
the Unsecured Claims (if any)
in Classes C3, C4 and C6 and
other than Administrative
Claims and Priority Tax
Claims.
Class C6 - Intercompany Claims Class C6 consists of all
Allowed Claims against
Holdings of CMI or CMM.
Class C7 - Interests in Holdings Class C7 consists of all
Allowed Interests in Holdings
of CMI and CMSLP.
Except for Disputed Claims, distributions will be made on the Effective
Date or as soon as practicable thereafter. See "THE PLAN OF REORGANIZATION --
Distributions Under the Plan" for a discussion of Plan provisions that may
affect the timing of distributions under the Plan. Distributions on account of
Claims that become Allowed Claims after the Effective Date will be made pursuant
to Section VI.B of the Plan (relating to timing and calculation of amounts to be
distributed under the Plan) and Section VI.H of the Plan (relating to
distributions on account of Disputed Claims once they are allowed). See "THE
PLAN OF REORGANIZATION -- Distributions Under the Plan --Timing and Methods of
Distribution."
The treatment of Claims and Interests described below is subject to the
Plan provisions described in Section IV of the Plan.
B. Treatment of Claims and Interests Under the Plan
Description of Claims and Interests
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<PAGE>
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 the liquidation
analysis set forth in Exhibit C hereto and of estimating recoveries for
creditors under the Plan, they have assumed that the aggregate amount of such
Claims will not exceed $__,000,000.
Treatment of Claims Against and Interests In CMI
1. Class A1 (Citicorp Secured Claims).
The Holder of the Allowed Class A1 Claim will receive on the Effective
Date with respect to its Allowed Class A1 CMO-IV Claim (i) the Class A1 Cash
Payment, which is expected to be $4.5 million; (ii) with respect to the balance
of its Allowed Class A1 CMO-IV Claim (with interest on the principal balance of
such Allowed Claim calculated at the Plan Rate), a 4-year promissory note of
Reorganized CMI bearing interest, payable monthly, at the per annum rate of
LIBOR plus 3.25%, secured directly or indirectly by a first priority lien on the
CMO-IV Bonds and the CMO-IV Additional Collateral, with monthly amortization of
said note based on the following schedule: in year one .833% of the original
balance of said note would be amortized each month, in year two .666% of the
original balance of said note would be amortized each month, and in the third
and fourth years, the remaining principal balance of said note as of the second
anniversary of the Effective Date would be amortized in monthly installments
based upon a 13-year amortization schedule, with a balloon payment of the
then-outstanding principal balance of the note coming due on the fourth
anniversary of the Effective Date; and (iii) loan extension fees payable in Cash
on the 2-year, 2 1/2-year, 3-year and 3 1/2-year anniversaries of the Effective
Date, if said note has not been paid off in full prior to such dates, equal to
1.5% of the then outstanding principal balance of said note. It is contemplated
that the CMO-IV Bonds and the CMO-IV Additional Collateral will be held as of
the Effective Date by a REIT subsidiary of Reorganized CMI or a qualified REIT
subsidiary of a REIT subsidiary of Reorganized CMI. 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
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The Debtors expect that there will be $____ Allowed Class A1 Claims
against the Debtors as of 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 $____ Allowed Class A2 Claims
against the Debtors as of 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 $____ Allowed Class A3 Claims
against the Debtors as of the Effective Date.
4. Class A4 (Lehman Secured Claim).
The Holder of the Allowed Class A4 Claim will receive on the Effective
Date payment in full in Cash of any remaining balance of the Allowed Class A4
Claim with interest on the principal balance of such Allowed Claim calculated at
the Plan Rate.
The Debtors expect that there will be $____ Allowed Class A4 Claims
against the Debtors as of the Effective Date.
5. Class A5 (Merrill Secured Claim).
The Holder of the Allowed Class A5 Claim will receive on the Effective
Date the treatment of its Allowed Secured Claim set forth on Exhibit 1 of the
Plan, or such other treatment as may be agreed to by CMI and the Holder.
The Debtors expect that there will be $____ Allowed Class A5 Claims
against the Debtors as of the Effective Date.
6. Class A6 (Morgan Stanley Secured Claim).
The Holder of the Allowed Class A6 Claim will receive on the Effective
Date payment in full in Cash of any remaining balance of the Allowed Class A6
Claim with interest on the principal balance of such Allowed Claim calculated at
the Plan Rate.
The Debtors expect that there will be $____ Allowed Class A6 Claims
against the Debtors as of the Effective Date.
7. Class A7 (Other Secured Claims).
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Each Holder (if any) of an Allowed Class A7 Claim will receive on the
Effective Date either (i) payment in full in Cash of the Allowed Class A7 Claim
with interest on the principal balance of any such Allowed Claim calculated at
the Plan Rate; (ii) if CMI so elects, the collateral securing the Allowed Class
A7 Claim (if any) in full satisfaction of such Claim; or (iii) such other
treatment as may be agreed to by CMI and the Holder (if any).
The Debtors expect that there will be $____ Allowed Class A7 Claims
against the Debtors as of the Effective Date.
8. Class A8 (Priority Claims).
Each Holder of the Allowed Class A8 Claim will receive on the Effective
Date payment in full in Cash of the Allowed Class A8 Claim including Plan
Interest thereon.
The Debtors expect that there will be $____ Allowed Class A8 Claims
against the Debtors as of the Effective Date.
9. Class A9 (Old Senior Note Claims).
Each Holder of an Allowed Class A9 Claim will receive on the Effective
Date the treatment of its Allowed Claim as set forth on Exhibit 2 to the Plan.
The Debtors expect that there will be $____ Allowed Class A9 Claims
against the Debtors as of the Effective Date.
10. Class A10 (CMI General Unsecured Claims).
Each Holder of an Allowed Class A10 Claim will receive on the Effective
Date the treatment of its Allowed Claim as set forth on 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 (or whose Allowed Claim is treated within this Class)
whose Allowed Claim is for $150,000 or less and elects the convenience class
treatment on its ballot, or whose Allowed Claim is for an amount in excess of
$150,000 and elects in writing on its ballot to reduce its claim to $150,000 and
accept convenience class treatment thereof, shall be entitled to receive payment
in Cash on the Effective Date of the allowed amount of such Holders' Allowed
Class A10 Claim in full satisfaction of said claim, with accrued and unpaid
pre-petition interest thereon (if any) calculated at the non-default contract
rate of interest in such Holders' documents for those Holders of A10 Claim in
full satisfaction of said Claim, with accrued and unpaid pre-petition interest
thereon (if any) 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 an interest rate applicable to such
Holder's Allowed Claim and any accrued and unpaid post-petition interest thereon
calculated at the Plan Interest rate.
The Debtors expect that there will be $____ Allowed Class A10 Claims
against the Debtors as of 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 $____ Allowed Class A11 Claims
against the Debtors as of the Effective Date.
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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 $____ 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.
The Debtors expect that there will be $____ Allowed Class A13 Claims
against the Debtors as of the Effective Date.
14. Class A14 (Series B Preferred Stock).
Each Holder of Series B Preferred Stock as of the Effective Date will
retain its Series B Preferred Stock; provided that if the Holders of Series B
Preferred Stock as of the Voting Record Date vote as a Class by the requisite
amount to accept the Plan, the Articles Supplementary relating to the Series B
Preferred Stock will be deemed amended to permit the payment of dividends on
Series B Preferred Stock, including accrued and unpaid dividends, in CMI Common
Stock or Cash, at the election of Reorganized CMI. Holders of Series B Preferred
Stock may sell in the open market any CMI Common Stock received as payment for
dividends accrued and payable.
The Debtors expect that there will be $____ Allowed Class A14 Interests in
the Debtors as of the Effective Date.
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 $____ 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. 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, at the election of Reorganized CMI, in CMI Common Stock or
Cash.
The Debtors expect that there will be $____ Allowed Class A16 Interests in
the Debtors as of the Effective Date.
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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 $____ Allowed Class A17 Claims
against the Debtors as of the Effective Date.
18. Class A18 (Old Series D Preferred Stock).
Each Holder of Old Series D Preferred Stock as of the Distribution Record
Date, if not previously exchanged, shall receive on the Effective Date in
exchange for its Old Series D Preferred Stock an identical number of shares of
Series E Preferred Stock issued effective as of the Effective Date, and such
Series E Preferred Stock shall have the terms, rights and preferences summarized
in Exhibit 3 of the Plan and as set forth in the Articles Supplementary relating
to the Series E Preferred Stock. All shares of Old Series D Preferred Stock, if
not previously exchanged and cancelled, shall be deemed cancelled as of the
Effective Date. All accrued and past due dividends on Old Series D Preferred
Stock shall be paid on the Effective Date, at the election of Reorganized CMI,
in CMI Common Stock or Cash.
The Debtors expect that there will be $____ Allowed Class A18 Interests in
the Debtors as of the Effective Date.
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 $____ Allowed Class A19 Claims
against the Debtors as of the Effective Date.
20. Class A20 (Series F Dividend Preferred Stock).
Each Holder of Series F Dividend Preferred Stock as of the Effective Date
shall retain its Series F Dividend Preferred Stock; provided that if the Holders
of Series F Dividend Preferred Stock as of the Voting Record Date vote as a
Class by the requisite amount to accept the Plan, the Articles Supplementary
relating to the Series F Dividend Preferred Stock will be deemed amended to
permit the payment of dividends on Series F Dividend Preferred Stock, including
any accrued and unpaid dividends, in CMI Common Stock or Cash, at the election
of Reorganized CMI. Holders of Series F Dividend Preferred Stock may sell in the
open market any CMI Common Stock received as payment for dividends accrued and
payable.
The Debtors expect that there will be $____ Allowed Class A20 Interests in
the Debtors as of the Effective Date.
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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.
The Debtors expect that there will be $____ Allowed Class A21 Interests in
the Debtors as of the Effective Date.
22. Class A22 (Stock Options).
Each Holder of a Stock Option as of the Effective Date will retain its
Stock Option.
The Debtors expect that there will be $____ Allowed Class A22 Claims
against the Debtors as of the Effective Date.
23. Class A23 (CMI Common Stock Securities Claims).
All Holders (if any) of Allowed Class A23 Claims will receive in full
satisfaction of any such Allowed Class A23 Claims their share of any Insurance
Proceeds applicable thereto plus, if such Allowed Class A23 Claims (if any) are
not paid in full from such Insurance Proceeds, CMI Common Stock in an amount
equal in value, as of the date of issuance thereof, to the balance (if any) of
such Allowed Class A23 Claims.
The Debtors expect that there will be $____ Allowed Class A23 Interests in
the Debtors as of the Effective Date.
Treatment of Claims Against and Interests in CMM
1. Class B1 (First Union Secured Claims).
The Holder of the Allowed Class B1 Claim will receive on the Effective
Date payment in full in Cash of any remaining balance of the Allowed Class B1
Claims with interest on the principal balance of such Allowed Claim calculated
at the Plan Rate.
The Debtors expect that there will be $____ Allowed Class B1 Claims
against the Debtors as of the Effective Date.
2. Class B2 (Other Secured Claims).
Each Holder (if any) of an Allowed Class B2 Claim will receive on the
Effective Date either (i) payment in full in Cash of the Allowed Class B2 Claims
with interest on the principal balance of any such Allowed Claim calculated at
the Plan Rate; (ii) if CMI so elects, the collateral securing the Allowed Class
B2 Claims (if any) in full satisfaction of such Claims; or (iii) such other
treatment as may be agreed to by CMI and the Holder(s) (if any) of Allowed Class
B2 Claims.
The Debtors expect that there will be $____ Allowed Class B2 Claims
against the Debtors as of the Effective Date.
3. Class B3 (Priority Claims).
Each Holder of an Allowed Class B3 Claim will receive on the Effective
Date payment in full in Cash of the Allowed Class B3 Claims including Plan
Interest thereon.
The Debtors expect that there will be $____ Allowed Class B3 Claims
against the Debtors as of the Effective Date.
4. Class B4 (Guarantee Claims).
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Each Holder (if any) of an Allowed Class B4 Claim shall be paid, if, as
and when any such Claim is allowed by Final Order, in Cash in full by CMM or
Reorganized CMM including Plan Interest thereon if, and only to the extent not
fully treated with respect to such Holder's underlying Allowed Claim under the
Plan treatment for Claims against CMI or Holdings, as the case may be.
The Debtors expect that there will be $____ Allowed Class B4 Claims
against the Debtors as of the Effective Date.
5. Class B5 (CMM General Unsecured Claims).
Each Holder of an Allowed Class B5 Claim will receive on the Effective
Date payment in full in Cash of Allowed Class B5 Claims, with accrued and unpaid
pre-petition interest thereon (if any) calculated at the non-default contract
rate of interest in such Holder's documents for those Holders of Allowed Class
B5 Claims who have an interest rate applicable to such Holder's Allowed Class B5
Claim and any accrued and unpaid post-petition interest thereon calculated at
the Plan Interest rate.
The Debtors expect that there will be $____ Allowed Class B5 Claims
against the Debtors as of the Effective Date.
6. Class B6 (Intercompany Claims).
Holders of Class B6 Claims will not receive any payment under the Plan on
account of such Claims.
The Debtors expect that there will be $____ Allowed Class B6 Claims
against the Debtors as of the Effective Date.
7. Class B7 (CMI's Interests in CMM).
The Holder will retain its Interest under the Plan.
The Debtors expect that there will be $____ Allowed Class B7 Interests in
the Debtors as of the Effective Date.
Treatment of Claims Against and Interests in Holdings
1. Class C1 (Citicorp Secured Claims).
Each Holder (if any) of an Allowed Class C1 Claim will receive on the
Effective Date payment in full in Cash of the Allowed Class C1 Claim with
interest on the principal balance of any such Allowed Claim calculated at the
Plan Rate.
The Debtors expect that there will be $____ Allowed Class C1 Claims
against the Debtors as of the Effective Date.
2. Class C2 (Other Secured Claims).
Each Holder (if any) of an Allowed Class C2 Claim will receive on the
Effective Date either (i) payment in full in Cash of the Allowed Class C2 Claim
with interest on the principal balance of any such Allowed Claim calculated at
the Plan Rate; (ii) if CMI so elects, the collateral securing the Allowed Class
C2 Claim (if any) in full satisfaction of such Claim; or (iii) such other
treatment as may be agreed to by CMI and the Holder(s) (if any) of Allowed Class
C2 Claim(s).
The Debtors expect that there will be $____ Allowed Class C2 Claims
against the Debtors as of the Effective Date.
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3. Class C3 (Priority Claims).
Each Holder of an Allowed Class C3 Claim will receive on the Effective
Date payment in full in Cash of the Allowed Class C3 Claim including Plan
Interest thereon.
The Debtors expect that there will be $____ Allowed Class C3 Claims
against the Debtors as of the Effective Date.
4. Class C4 (Guarantee Claims).
Each Holder (if any) of an Allowed Class C4 Claim will receive if, as and
when any such Claim is allowed by Final Order payment in Cash in full including
Plan Interest thereon if, and only to the extent not fully treated with respect
to such Holder's underlying Allowed Claim under the Plan treatment for Claims
against CMI or CMM, as the case may be.
The Debtors expect that there will be $____ Allowed Class C4 Claims
against the Debtors as of the Effective Date.
5. Class C5 (Holdings General Unsecured Claims)
Each Holder (if any) of an Allowed Class C5 Claim will if, as and when any
such Claim is allowed by Final Order, will be included as part of the CMI
General Unsecured Claims and included for all purposes in the treatment provided
to Class A10.
The Debtors expect that there will be $____ Allowed Class C5 Claims
against the Debtors as of the Effective Date.
6. Class C6 (Intercompany Claims).
Holders of Class C6 Claims will not receive any payment under the Plan on
account of such Claims.
The Debtors expect that there will be $____ Allowed Class C6 Claims
against the Debtors as of the Effective Date.
7. Class C7 (Interests in Holdings).
The Holder will retain its Interest under the Plan.
The Debtors expect that there will be $____ Allowed Class C7 Interests in
the Debtors as of the Effective Date.
Treatment of Unclassified Claims
The Bankruptcy Code does not require classification of certain priority
claims against a debtor. In this case, these unclassified claims include
Administrative Claims and Priority Tax Claims. All distributions referred to
below that are scheduled for the Effective Date will be made on the Effective
Date or as soon as practicable thereafter.
Administrative Claims. An "Administrative Claim" is a claim for payment of
an administrative expense of a kind specified in Section 503(b) of the
Bankruptcy Code and referred to in Section 507(a)(1) of the Bankruptcy Code,
including, without limitation, the actual and necessary costs and expenses
incurred after the commencement of a Chapter 11 Case of preserving the estate or
operating the business of the company (including wages, salaries and commissions
for services), loans and advances to the company made after the petition date,
compensation for legal and other services and reimbursement of expenses awarded
or allowed under Section 330(a) or 331 of the Bankruptcy Code, certain retiree
benefits, certain reclamation claims, and all fees and charges against the
estate under Section 1930 of title 28, United States Code.
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Subject to certain additional requirements for professionals and certain
other entities set forth below, Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, shall pay to each Holder of an Allowed
Administrative Claim, on account of its Administrative Claim and in full
satisfaction thereof, Cash equal to the amount of such Allowed Administrative
Claim on the later of the Effective Date or the day on which such Claim becomes
an Allowed Claim, unless the Holder and Reorganized CMI, Reorganized CMM or
Reorganized Holdings, as the case may be, shall have agreed to other treatment
of such Claim, or an order of the Bankruptcy Court provides for other terms, in
which case such Allowed Administrative Claim shall be paid in accordance with
such agreement or Bankruptcy Court order, as applicable; provided, that if
incurred in the ordinary course of business or otherwise assumed by the Debtors
pursuant to the Plan (including Administrative Claims of governmental units for
taxes), an Allowed Administrative Claim will be assumed on the Effective Date
and paid, performed or settled by Reorganized CMI, Reorganized CMM or
Reorganized Holdings, as the case may be, when due in accordance with the terms
and conditions of the particular agreement(s) governing the obligation in the
absence of the Reorganization Cases.
Payment of Statutory Fees
All fees payable pursuant to 28 U.S.C. ss. 1930(a)(6) (U.S. Trustee Fees)
shall be paid by the Debtors or the Reorganized Debtors, as applicable, when
such fees are due and owing.
Priority Tax Claims
Unless otherwise agreed to by the Debtors or Reorganized CMI, Reorganized
CMM or Reorganized Holdings, as the case may be, and a Holder of a Priority Tax
Claim, each Holder of an Allowed Priority Tax Claim shall receive, at the sole
option of Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case
may be, (i) Cash equal to the unpaid portion of such Allowed Priority Tax Claim
on the later of the Effective Date and the date on which such Claim becomes an
Allowed Priority Tax Claim, or as soon thereafter as is practicable, or (ii)
equal quarterly Cash payments in an aggregate amount equal to such Allowed
Priority Tax Claim, together with interest at a fixed annual rate to be
determined by the Bankruptcy Court or otherwise agreed to by Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, and such Holder,
over a period through the sixth anniversary of the date of assessment of such
Allowed Priority Tax Claim, or upon such other terms determined by the
Bankruptcy Court to provide the Holder of such Allowed Priority Tax Claim
deferred Cash payments having a value, as of the Effective Date, equal to such
Allowed Priority Tax Claim. The Holders of Allowed Priority Tax Claims are not
entitled to vote on the Plan. Pursuant to Section 1123(a)(1) of the Bankruptcy
Code, Priority Tax Claims are not designated a Class of Claims for purposes of
voting on the Plan.
Bar Date for Administrative Claims.
General Provisions. Except as provided below for (i) non-tax liabilities
incurred in the ordinary course of business by the Debtors in Possession and
(ii) Post-Petition Tax Claims, requests for payment of Administrative Claims
must be Filed and served on counsel for the Debtors and Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as the case may be, no later than (x)
sixty (60) days after the Effective Date, or (y) such later date, if any, as the
Bankruptcy Court shall order upon application made prior to the end of such
60-day period. Holders of Administrative Claims (including, without limitation,
professionals requesting compensation or reimbursement of expenses and the
Holders of any Claims for federal, state or local taxes) that are required to
File a request for payment of such Claims and that do not File such requests by
the applicable bar date shall be forever barred from asserting such Claims
against the Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings,
or any of their respective properties.
Professionals. All professionals or other Persons requesting compensation
or reimbursement of expenses pursuant to Sections 327, 328, 330, 331, 503(b),
506(b) or 1103 of the Bankruptcy Code for services rendered on or before the
Effective Date (including, without limitation, any compensation requested by any
professional or any other Person for making a substantial contribution in the
Reorganization Cases) shall File and serve on Reorganized
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CMI, Reorganized CMM or Reorganized Holdings, as the case may be, and counsel
for Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may
be, an application for final allowance of compensation and reimbursement of
expenses no later than sixty (60) days after the Effective Date. Objections to
applications of professionals or other Persons for compensation or reimbursement
of expenses must be Filed and served on the Reorganized Debtors, counsel for the
Reorganized Debtors and the requesting professional or other Person not later
than ninety (90) days after the Effective Date.
On or as soon as reasonably practicable after the Effective Date,
Reorganized CMI shall pay the contractual claims of the Indenture Trustee for
its fees and expenses including its reasonable attorneys' fees and expenses. To
the extent, after being furnished with normal supporting documents for such fees
and expenses, Reorganized CMI disputes the reasonableness of any such fees and
expenses, Reorganized CMI shall pay such fees and expenses as are not disputed,
and shall submit to the Indenture Trustee a written list of specific fees and
expenses viewed by Reorganized CMI as not being reasonable. To the extent that
Reorganized CMI and the Indenture Trustee are unable to resolve any dispute, the
dispute shall be resolved by the Bankruptcy Court. The Indenture Trustee shall
not attach or set off any of its fees and expenses against distributions to
Holders of Old Senior Notes and shall not otherwise withhold or delay any such
distributions.
Ordinary Course Liabilities. Except as provided herein, holders of
Administrative Claims based on liabilities incurred in the ordinary course of
the Debtors' businesses (other than Claims of governmental units for taxes or
Claims and/or penalties related to such taxes) shall not be required to File any
request for payment of such Claims. Such Administrative Claims shall be assumed
and paid by Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the
case may be, pursuant to the terms and conditions of the particular transactions
giving rise to such Administrative Claims, without any further action by the
Holders of such Claims. Any dispute with respect to ordinary course liabilities
shall be submitted to the Bankruptcy Court for resolution unless resolved by
agreement of the parties.
Tax Claims. All requests for payment of Post-Petition Tax Claims, for
which no bar date has otherwise been previously established, must be Filed on or
before the later of (i) sixty (60) days following the Effective Date, and (ii)
120 days following the filing of the tax return for such taxes for such tax year
or period with the applicable governmental unit. Any Holder of any Post-Petition
Tax Claim that is required to File a request for payment of such taxes and that
does not File such a Claim by the applicable bar date shall be forever barred
from asserting any such Post-Petition Tax Claim against the Debtors, Reorganized
CMI, Reorganized CMM or Reorganized Holdings, or any of their respective
properties, whether any such Post-Petition Tax Claim is deemed to arise prior
to, on or subsequent to the Effective Date.
Cramdown. The so-called "cramdown" provisions of Section 1129(b) of the
Bankruptcy Code permit confirmation of a Chapter 11 plan of reorganization in
certain circumstances even if the plan is not accepted by all impaired classes
of claims and interests. In the event that at least one impaired Class of Claims
votes to accept the Plan (and at least one impaired Class either votes to reject
the Plan or is deemed to have rejected the Plan), the Debtors and the CMI Equity
Committee reserve the right to request that the Bankruptcy Court confirm the
Plan under the cramdown provisions of the Bankruptcy Code. In that event, the
Debtors and the CMI Equity Committee have reserved the right to modify the Plan
to the extent, if any, that Confirmation pursuant to Section 1129(b) of the
Bankruptcy Code requires or permits modification of the Plan.
As set forth in the Plan, to the extent that any Impaired Class votes to
reject the Plan or is deemed to have rejected the Plan, the Debtors and the CMI
Equity Committee will request that the Bankruptcy Court confirm the Plan under
the "cramdown" provisions of Section 1129(b) of the Bankruptcy Code.
Sources of Cash to Make Plan Distributions
Except as otherwise provided in the Plan or the Confirmation Order, all
cash necessary for the Reorganized Debtors to make the payments pursuant to the
Plan will be obtained from the Recapitalization Financing, Reorganized Debtors'
cash balances or the operations of the Debtors or the Reorganized Debtors.
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C. Confirmation and Effective Date Conditions
Conditions to Confirmation
Confirmation of the Plan is conditioned upon satisfaction of the
applicable provisions of Section 1129 of the Bankruptcy Code and entry of a
Confirmation Order by the Bankruptcy Court in form and substance satisfactory to
the Debtors and the CMI Equity Committee. Among other things, the Confirmation
Order shall authorize and direct that the Debtors, Reorganized CMI, Reorganized
CMM and Reorganized Holdings take all actions necessary or appropriate to enter
into, implement and consummate the contracts, instruments, releases, leases,
indentures and other agreements or documents created in connection with or
contemplated by the Plan, including, but not limited to, those actions
contemplated by the provisions of the Plan, and shall provide that all New
Securities to be issued to Holders of Claims and Interests pursuant to the Plan,
and all securities issuable upon the conversion of the New Securities are exempt
from registration under federal and state securities laws pursuant to Section
1145 of the Bankruptcy Code and that the solicitation of Holders of CMI Common
Stock, Series B Preferred Stock and Old Senior Notes is exempt under Rule
14a-2(a)(4) of the proxy regulations under the Securities Exchange Act of 1934.
Conditions to Effective Date
The Effective Date will not occur and the Plan will not be consummated
unless and until each of the following conditions has been satisfied or waived
by the Debtors and the CMI Equity Committee:
The Confirmation Order in form and substance satisfactory to the Debtors
and the CMI Equity Committee and entered by the Bankruptcy Court shall not have
been modified in any respect.
The Recapitalization Financing shall be funded in accordance with the
terms of the Plan and the respective governing documents for each component of
the Recapitalization Financing.
All other actions and documents necessary to implement the transactions
contemplated to be effected under this Plan on or before the Effective Date
shall have been effected or executed or, if waivable, waived by the Person or
Persons entitled to the benefit thereof.
Waiver of Conditions to Effective Date
Each of the conditions to the Effective Date may be waived in whole or in
part by the Debtors and the CMI Equity Committee at any time, without notice or
an Order of the Bankruptcy Court.
Modification or Revocation of the Plan; Severability
The Debtors and the CMI Equity Committee reserve the right to modify the
Plan at any time prior to the Confirmation Date as provided for by Section 1127
of the Bankruptcy Code or as otherwise permitted by law without additional
disclosure pursuant to Section 1125 of the Bankruptcy Code, except as the
Bankruptcy Court may otherwise order. The potential impact of any such amendment
or modification on the Holders of Interests cannot presently be foreseen, but
may include a change in the economic impact of the Plan on some or all of the
Classes or a change in the relative rights of such Classes.
If after receiving sufficient acceptances but prior to Confirmation of the
Plan, the Debtors and the CMI Equity Committee seek to modify the Plan, the
Debtors and the CMI Equity Committee can use such previously solicited
acceptances only to the extent permitted by applicable law.
The Debtors and the CMI Equity Committee reserve the right after the
Confirmation Date and before the Effective Date to modify the terms of the Plan
or waive any conditions to the effectiveness thereof if and to the extent the
Debtors and the CMI Equity Committee determine that such modifications or
waivers are necessary or
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desirable in order to consummate the Plan. The Debtors will give such Holders of
Claims and Interests notice of such modifications or waivers as may be required
by applicable law and the Bankruptcy Court, and any such modifications will be
subject to the approval of the Bankruptcy Court to the extent required by, and
in accordance with, Section 1127 of the Bankruptcy Code.
The CMI Equity Committee will join in modifications proposed by the
Debtors in accordance with the foregoing in the exercise of such Committee's
reasonable discretion.
Notwithstanding the foregoing, any modifications of or amendments to, or
waivers of any conditions to the effectiveness of the Plan prior to the
Effective Date that materially affect the treatment or recovery of the Holders
of Class A9 or A10 Allowed Claims require the consent of the Unsecured
Creditors' Committee, provided, however, that it is hereby agreed that any
change in the amount of payments, timing of payments, term of the New Debt as
defined in Exhibit 2 to the Plan, Collateral as defined in Exhibit 2 to the
Plan, liens, rights or default remedies available to the Holders of Class A9/A10
Note A's or Class A9/A10 Note B's or of any other specific provisions of Exhibit
2 to the Plan shall be deemed material for purposes of this paragraph.
The Debtors reserve the right to revoke or withdraw the Plan prior to the
Confirmation Date. If the Debtors revoke or withdraw the Plan, or if
Confirmation does not occur, then the Plan will be null and void, and all of the
Debtors' respective obligations with respect to the Claims and Interests will
remain unchanged and nothing contained in the Plan or in this Disclosure
Statement will be deemed an admission or statement against interest or
constitute a waiver or release of any claims by or against any Debtor or any
other Person or to prejudice in any manner the rights of any Debtor or any
Person in any further proceedings involving any Debtor or any Person.
If, prior to Confirmation, any term or provision of the Plan is held by
the Bankruptcy Court to be invalid, void or unenforceable, the Bankruptcy Court
will have the power, upon the request of the Debtors, to alter and interpret
such term or provision to make it valid or enforceable to the maximum extent
practicable, consistent with the original purpose of the term or provision held
to be invalid, void or unenforceable, and such term or provision will then be
applicable as altered or interpreted. Notwithstanding any such holding,
alteration or interpretation, the remainder of the terms and provisions of the
Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The
Confirmation Order will constitute a judicial determination and will provide
that each term and provision of the Plan, as it may have been altered or
interpreted in accordance with the foregoing, is valid and enforceable pursuant
to its terms.
If so ordered by the Bankruptcy Court at the Confirmation Hearing, the
Plan provisions for CMM may be confirmed independently of confirmation of the
Plan provisions for CMI and Holdings.
D. The Reorganized Debtors
A description of various matters relating to the Reorganized Debtors
including (i) information relating to the business to be conducted by
Reorganized CMI, CMM and Holdings following the Effective Date, (ii) the
proposed management of Reorganized CMI, CMM and Holdings and proposed
compensation and other arrangements relating thereto, and (iii) certain
corporate governance matters, is set forth or referenced below.
Corporate Structure
On the Effective Date, CMI will become Reorganized CMI, CMM will become
Reorganized CMM, and Holdings will become Reorganized Holdings with no change in
their respective structural relationships.
Business of the Company including the Reorganized Debtors
Following the Effective Date, the Debtors estimate that the Reorganized
Debtors will have net assets with an approximate value of $__ million. Subject
to restrictions contained in the documents governing the New Debt or New
Securities, the use of such assets (including the possibility of resuming the
acquisition of Subordinated CMBS
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and the origination and securitization of commercial mortgage loans) will be
left to the discretion of the Board of Directors of Reorganized CMI.
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.
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 forms of the Reorganized CMI
Amended and Restated Articles of Incorporation and the Reorganized CMI Amended
and Restated Bylaws will be filed with the Bankruptcy Court at or before the
Disclosure Statement Hearing and, upon filing with the Bankruptcy Court, will be
deemed Exhibits to the Plan. 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 to increase authorized shares without action by stockholders; new
provisions relating to the transfer, acquisition and redemption of capital stock
addressing ownership limitations for CMI and the treatment of excess stock, in
each case consistent with the Internal Revenue Code of 1986 (such ownership
limitations may also have the effect of precluding acquisition of control of
Reorganized CMI, even through 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);
change in vote required for removal of directors from a majority to 66 2/3; and
prohibition of the issuance of nonvoting equity securities to the extent
required by Section 1123(a)(6) of the Bankruptcy Code.
Reorganized CMM Articles of Incorporation and Reorganized CMM Bylaws. The
forms of the Reorganized CMM Articles of Incorporation and the Reorganized CMM
Bylaws will be filed with the Bankruptcy Court at or before the Disclosure
Statement Hearing.
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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") 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 a Confirmation Order, 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 shareholders 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, in accordance with the terms and
provisions of the Second Amended Employee Stock Option, in connection with the
junior preferred stock dividend) 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.
The Second Amended Employee Stock Option Plan will be filed with the
Bankruptcy Court at or before the Disclosure Statement Hearing and, upon filing
with the Bankruptcy Court, will be deemed an Exhibit to the 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. See "GENERAL INFORMATION -
Management" for a description of the Amended and Restated Stock Option Plan for
Key Employees.
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E. Recapitalization Financing Including Issuance of New Securities
On the Effective Date, the Recapitalization Financing shall be funded and
become effective and the CMBS Sale Portfolio, if not already sold, shall be sold
as parts of effectuating consummation of the Plan. On the Effective Date,
Reorganized CMI will issue the New Securities in accordance with the Plan. The
Plan provides that the issuance of the New Securities, and all securities
issuable upon conversion of the New Securities, is thereby authorized pursuant
to Section 1145 of the Bankruptcy Code, without further action under applicable
law. In addition, on the Effective Date, the Reorganized Debtors will implement
and, to the extent applicable, receive the proceeds of the New Debt in
accordance with the terms of the applicable documents with respect thereto. On
the Effective Date, all securities, instruments, corporate documents, and
agreements entered into pursuant to or contemplated by the Plan, including,
without limitation, the New Securities, any other security and any instrument,
corporate document, or agreement entered into in connection with any of the
transactions referenced in Section V or Section X.H of the Plan, shall become
effective, binding and enforceable in accordance with their respective terms and
conditions upon the parties thereon without further act or action under
applicable law, regulation, order or rule, and shall be deemed to become
effective simultaneously.
F. Sale of the CMBS Sale Portfolio
On or before the Effective Date, the commercial mortgage-backed securities
and any other assets in the CMBS Sale Portfolio shall be sold in accordance with
the terms of the Plan and any Orders with respect thereto entered by the
Bankruptcy Court. The proceeds thereof shall be used to pay Allowed Secured
Claims in accordance with any Orders entered by the Bankruptcy Court with
respect thereto and otherwise used as part of the funding of the Plan.
G. Affiliate Reorganization
In order to secure certain financing contemplated under the Plan with the
commercial mortgage backed securities representing the equity interests in
CBO-1, CBO-2 and CMO-IV (the "Equity Interests"), CMI anticipates that, as a
part of the Plan, either (i) a reorganization of certain CMI affiliated entities
will be effected resulting in REIT subsidiaries holding the Equity Interests or
owning the stock in the qualified REIT subsidiaries holding the Equity
Interests, or (ii) the qualified REIT subsidiaries holding the Equity Interests
or the trusts holding the underlying assets will elect REIT status (and other
actions will be taken as necessary to effect such election), with the intent to
secure such financing with a pledge of stock in the REITs, in lieu of a direct
pledge of the Equity Interests, which is restricted under certain operative and
constituent documents and could result in adverse tax consequences and a
negative impact on collateral values. This affiliate reorganization is designed
to address concerns of creditors who will provide financing under the Plan
contemplated to be secured by the Equity Interests. In addition, certain other
action may be taken as necessary to implement the foregoing.
H. Potential New Equity Investment and Rights Offering
Although not required to fund the Plan, the Debtors, in consultation with
the CMI Equity Committee, may seek new equity capital from one or more investors
to partially fund the Reorganized Debtors and the Plan as Recapitalization
Financing. In such event, the Plan will be amended to appropriately reflect such
new equity capital transaction. If new equity capital is sought, it is likely to
take the form of a private issuance of preferred stock with such relative rights
and preferences as may be agreed to consistent with the terms of the Plan.
In the event new equity capital is sought from an investor, it is also
anticipated that an offering of rights to purchase common stock or a new series
of preferred stock, with rights and preferences similar to the preferred stock
likely to be issued to the new equity capital investor but with limited voting
rights, would be made to Holders of CMI Common Stock. Such rights offering would
be developed in consultation with the CMI Equity Committee. Such rights offering
would commence on the Effective Date and would be for a percentage of the
aggregate face value of the securities issued to the new equity capital
investor. All or a portion of the proceeds of the rights offering may be used to
redeem at face value the securities issued to the new equity investor.
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Even if CMI does not seek new equity from an investor, an offering of
rights to purchase CMI Common Stock may be made to Holders of CMI Common Stock
in connection with the Plan. Such rights offering would be developed in
consultation with the CMI Equity Committee.
In the event new equity capital is sought from an investor and a rights
offering is made to Holders of CMI Common Stock or a rights offering is made to
Holders of CMI Common Stock independent of any new equity investment by an
investor, the CMI Common Stock will be exchanged for new CMI Common Stock (on a
one share per one share basis) and rights (one right per share) structured to
ensure that the value of the CMI Common Stock exchanged exceeds the value of the
fresh capital raised in the rights offering, thereby making the exchange
principally in exchange for an interest and only partly for cash and rendering
applicable the limited transactional exemption from securities law registration
afforded by Section 1145 of the Bankruptcy Code. If a rights offering is made
and an exchange of CMI Common Stock, consistent with the foregoing, is effected,
then CMI's existing Series B Preferred Stock, Old Series D Preferred Stock,
Series E Preferred Stock and Stock Options would be exchanged for new Series B
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Stock
Options, as applicable.
Applicability of Federal and Other Securities Laws
In reliance upon the exemption provided by Section 1145(a)(1) of the
Bankruptcy Code, the Debtors have not filed a registration statement under the
Securities Act or any other federal or state securities laws with respect to the
New Securities that will be offered pursuant to the Plan or any other securities
issuable upon conversion of certain of the New Securities.
Section 1145(a)(1). Section 1145(a)(1) exempts the offer or sale of securities
pursuant to a plan of reorganization from the registration requirements of
Section 5 of the Securities Act and from registration under state and local
securities laws if the following conditions are satisfied: (i) the securities
are issued by a debtor (or its affiliate or successor) under a plan of
reorganization; (ii) the recipients of the securities hold claims against,
interests in, or claims for administrative expenses against the debtor; and
(iii) the securities are issued in exchange for the recipients' claims against
or interests in the debtor, or principally in such exchange and partly for cash
or property.
The New Securities, and all other securities issuable upon conversion of
certain of the New Securities issued pursuant to the Plan will not be
"restricted securities" within the meaning of Rule 144 under the Securities Act
and may, subject to the limitations discussed below, be freely transferred by
Holders of Allowed Class A9, A10 and A18 Claims and Interests under the
Securities Act and their successors and assigns. Accordingly, all resales and
subsequent transactions in the New Securities, and any other securities issuable
upon conversion of certain of the New Securities are exempt from registration
under the Securities Act pursuant to Section 4(1) of the Securities Act, unless
the Holder is deemed to be an "underwriter" with respect to such securities or
an "affiliate" of an issuer. Section 1145(b) of the Bankruptcy Code defines four
types of "underwriters":
(i) persons who purchase a claim against, an interest in, or a claim
for administrative expense against the debtor with a view to distributing
any security received in exchange for such a claim or interest;
(ii) persons who offer to sell securities offered under a plan for
the holders of such securities;
(iii) persons who offer to buy securities from the holders of such
securities, if the offer to buy is (a) with a view to distributing such
securities and (b) made under a distribution agreement; and
(iv) a person who is an "issuer" with respect to the securities, as
the term "issuer" is defined in Section 2(11) of the Securities Act.
Under Section 2(11) of the Securities Act, an "issuer" includes any
"affiliate" of the issuer, which means any person directly or indirectly through
one or more intermediaries, controlling, controlled by or under common
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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 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 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.
THE NEW SECURITIES TO BE ISSUED ON THE EFFECTIVE DATE, AND THE SECURITIES
ISSUABLE UPON CONVERSION OF THE NEW SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SEC OR BY ANY STATE SECURITIES COMMISSION OR SIMILAR PUBLIC,
GOVERNMENTAL OR REGULATORY AUTHORITY AND NEITHER THE SEC NOR SUCH AUTHORITY HAS
PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DISCLOSURE STATEMENT OR UPON THE MERITS OF THE PLAN. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENCE.
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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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Notwithstanding any other provision contained herein: (i) each Holder of
an Allowed Claim or Interest that is to receive a distribution of Cash pursuant
to the Plan shall have sole and exclusive responsibility for the satisfaction
and payment of any tax obligations imposed by any governmental unit, including
income, withholding and other tax obligations, on account of such distribution;
and (ii) no distribution shall be made to or on behalf of such Holder pursuant
to the Plan unless and until such Holder has made arrangements reasonably
satisfactory to the Disbursing Agent for the payment and satisfaction of such
tax obligations. Any distributions pursuant to the Plan will, pending the
implementation of such arrangements, be treated as an undeliverable distribution
pursuant to Section V.G of the Plan.
Distribution Record Date. As of the close of business on the Distribution
Record Date, the transfer registers for the Old Securities, maintained by the
Debtors, or their respective agents, will be closed. The Disbursing Agent and
its respective agents and the Indenture Trustee will have no obligation to
recognize the transfer of any Old Securities occurring after the Distribution
Record Date, and will be entitled for all purposes relating to this Plan to
recognize and deal only with those Holders of Record as of the close of business
on the Distribution Record Date.
Surrender of Cancelled Old Securities and Exchange of Old Securities for New
Securities
Tender of Old Securities. The mechanism by which Holders of Allowed Claims
and Allowed Interests surrender their Old Securities in order to receive Cash,
if and as applicable under the Plan, and to exchange such Old Securities for New
Securities (as applicable), shall be determined based upon the manner in which
the Old Securities were issued and the mode in which they are held, as set forth
below.
Old Securities Held in Book-Entry Form. Old Securities held in book-entry
form through bank and broker nominee accounts shall be mandatorily cancelled and
(i) Cash distributed, if and as applicable under the Plan, and (ii) mandatorily
exchanged for New Securities (as applicable) through the facilities of such
nominees and the systems of the applicable securities depository or Clearing
System holding such Old Securities on behalf of the brokers or banks.
Old Securities in Physical, Registered, Certificated Form. Each Holder of
Old Securities in physical, registered, certificated form will be required, on
or before the Effective Date, to deliver its physical notes or certificates (the
"Tendered Certificates") to the Disbursing Agent, accompanied by a properly
executed letter of transmittal, to be distributed by the Disbursing Agent after
the Confirmation Date and containing such representations and warranties as are
described in this Disclosure Statement (a "Letter of Transmittal").
Any Cash or New Securities to be distributed pursuant to the Plan on
account of any Allowed Claim or Allowed Interest represented by an Old Security
held in physical, registered, certificated form shall, pending such surrender,
be treated as an undeliverable distribution pursuant to Section V.G of the Plan.
Signatures on a Letter of Transmittal must be guaranteed by an Eligible
Institution (as defined below), unless the Old Securities tendered pursuant
thereto are tendered for the account of an Eligible Institution. If signatures
on a Letter of Transmittal are required to be guaranteed, such guarantees must
be by a member firm of a registered national securities exchange in the United
States, a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or a correspondent in the
United States (each of which is an "Eligible Institution"). If Old Securities
are registered in the name of a Person other than the Person signing the Letter
of Transmittal, the Old Securities, in order to be tendered validly, must be
endorsed or accompanied by a properly completed power of authority, with
signature guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Letters of Transmittal and Tendered Certificates will
be resolved by the applicable Disbursing Agent, whose determination shall be
final and binding, subject only to review by the Bankruptcy Court upon
application with due notice to any affected parties in interest. CMI reserves
the right, on behalf of itself and the Disbursing Agent, to reject any and all
Letters of Transmittal and Tendered Certificates not in proper form, or Letters
of Transmittal and Tendered
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Certificates, the Disbursing Agent's acceptance of which would, in the opinion
of the Disbursing Agent or its counsel, be unlawful.
Delivery of New Securities in Exchange for Old Securities. On the
Effective Date, Reorganized CMI or the Disbursing Agent shall issue and
authenticate the New Securities, and shall apply to DTC to make such New
Securities eligible for deposit at DTC. With respect to Holders of Old
Securities who hold such Old Securities through nominee accounts at bank and
broker participants in DTC or any similar clearing system, the Disbursing Agent
shall deliver such New Securities to DTC or to the registered address specified
by the Clearing System. The Clearing System (or its depositary) shall return the
applicable Old Securities to the Disbursing Agent for cancellation.
The Disbursing Agent will request that DTC effect a mandatory exchange of
the applicable Old Securities for the applicable New Securities by crediting the
accounts of its participants with the applicable New Securities in exchange for
the Old Securities. On the effective date of such exchange, each DTC participant
will effect a similar exchange for accounts of the beneficial owners holding Old
Securities through such firms. Neither the Debtors, Reorganized Debtors nor the
Disbursing Agent shall have any responsibility or liability in connection with
the Clearing Systems' or such participants' effecting, or failure to effect,
such exchanges.
Holders of Old Securities holding such Old Securities outside a Clearing
System will be required to surrender their Old Securities by delivering them to
the Disbursing Agent, along with properly executed Letters of Transmittal (as
described above). The Disbursing Agent shall forward the New Securities on
account of such Old Securities to such Holders.
Other Matters with Respect to the Surrender of Old Securities. By
participating in any of the above procedures, each Holder of the Old Securities
will be representing and warranting (and the Letters of Transmittal will so
provide) that among other things, the Holder has full power and authority to
tender, exchange, sell, assign and transfer the Old Securities and that when
such Old Securities are accepted for exchange by the Debtors or the Reorganized
Debtors, the Debtors or the Reorganized Debtors will acquire good, marketable
and unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances and that the Old Securities are not subject to any
adverse claims or proxies. The Holder also agrees that it will, upon request,
execute and deliver any additional documents deemed by the Disbursing Agent, the
Debtors or the Reorganized Debtors to be necessary or desirable to complete the
exchange, sale, assignment and transfer of the Old Securities Old. All authority
conferred by participating in the above procedures will survive the death or
incapacity of the Holder, and all obligations of the Holder will be binding upon
the heirs, personal representatives, successors and assigns of the Holder.
The surrender of the Old Securities pursuant to any one of the procedures
described in this Disclosure Statement, upon the Debtors' or the Reorganized
Debtors' acceptance for exchange of such Old Securities, constitutes a binding
agreement between the Holder and the Debtors or the Reorganized Debtors upon the
terms, and subject to the conditions, of the Plan.
Special Procedures for Lost, Stolen, Mutilated or Destroyed Instruments.
Any Holder of a Claim or an Interest evidenced by an Instrument that has been
lost, stolen, mutilated or destroyed will, in lieu of surrendering such
Instrument, deliver to the Disbursing Agent: (a) an affidavit of loss or other
evidence reasonably satisfactory to the Disbursing Agent of the loss, theft,
mutilation or destruction; and (b) such security or indemnity as may reasonably
be required by the Disbursing Agent to hold the Disbursing Agent harmless from
any damages, liabilities or costs incurred in treating such individual as a
Holder of an Instrument. Upon compliance with the Plan, the Holder of a Claim or
Interest evidenced by any such lost, stolen, mutilated or destroyed Instrument
shall, for all purposes under the Plan and notwithstanding anything to the
contrary contained herein, be deemed to have surrendered such Instrument.
Failure to Surrender Cancelled Instrument. Any Holder of Old Securities
holding such Old Securities in physical, registered or certificated form who has
not properly completed and returned to the Disbursing Agent a Letter of
Transmittal, together with the applicable Tendered Certificates, within two
years after the Effective Date
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shall have its claim for a distribution pursuant to the Plan on account of such
Instrument discharged and shall be forever barred from asserting any such claim
against Reorganized CMI, Reorganized CMM or Reorganized Holdings or their
properties. In such cases, any Cash or New Securities held for distribution on
account of such claim shall be disposed of pursuant to the provisions of Section
V.G of the Plan.
Release of Security Interests in or Other Claims to or against Assets or
Property of the Reorganized Debtors by Creditors Paid Pursuant to the Plan
Any Holder of a Secured Claim whose Secured Claim is being paid in full in
accordance with Section IV.C, IV.D or IV.E of the Plan shall cooperate in all
respects with the Reorganized Debtors and shall execute such documents and
release and return to the Reorganized Debtors such assets or property of the
Debtors or Reorganized Debtors, as applicable, that such creditor is holding,
directly or indirectly, as collateral and, if applicable, unwind any alleged
repurchase agreements or claims to assets or property subject to such alleged
repurchase agreements. Furthermore, any and all Holders of such Secured Claims
shall execute such documents and take such actions as may be reasonably required
by the Reorganized Debtors to effectuate the transfer or retransfer back to the
Reorganized Debtors of all collateral security, or assets or property held
subject to alleged repurchase agreements, free and clear of all liens, security
interests, claims or interests in or to such collateral, assets or property by
such Holder, and shall confirm the foregoing in writing if requested by the
Reorganized Debtors.
Delivery of Distributions; Undeliverable or Unclaimed Distributions
Any Person that is entitled to receive a Cash distribution under the Plan
but that fails to cash a check within 90 days of its issuance shall be entitled
to receive a reissued check from Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, for the amount of the original check, without any
interest, if such Person requests the Disbursing Agent to reissue such check and
provides the Disbursing Agent with such documentation as the Disbursing Agent
reasonably requests to verify that such Person is entitled to such check, prior
to the second anniversary of the Effective Date. If a Person fails to cash a
check within 90 days of its issuance and fails to request reissuance of such
check prior to the second anniversary of the Effective Date, such Person shall
not be entitled to receive any distribution under the Plan.
Subject to Bankruptcy Rule 9010, all distributions to any Holder of an
Allowed Claim or an Allowed Interest shall be made to the address of such Holder
on the books and records of the Debtors or their agents, unless Reorganized CMI,
Reorganized CMM or Reorganized Holdings, as applicable, has been notified in
writing of a change of address. If the distribution to any Holder of an Allowed
Claim or Allowed Interest is returned to a Disbursing Agent as undeliverable,
such Disbursing Agent shall use reasonable efforts to determine the current
address of such Holder, but no distribution shall be made to such Holder unless
and until the applicable Disbursing Agent has determined or is notified in
writing of such Holder's then-current address, at which time such distribution
shall be made to such Holder without any additional interest on such
distribution after the Effective Date. Undeliverable distributions shall remain
in the possession of the applicable Disbursing Agent pursuant to Section VI.A of
the Plan until such time as a distribution becomes deliverable. Undeliverable
Cash or New Securities shall be held in trust by the applicable Disbursing Agent
for the benefit of the potential claimants of such funds or securities, and will
be accounted for separately. Any Disbursing Agent holding undeliverable Cash
shall invest such Cash in a manner consistent with the Debtors' investment and
deposit guidelines. Any interest paid, and any other amounts earned, with
respect to such undeliverable Cash pending its distribution in accordance with
this Plan shall be property of Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be. Undeliverable New Securities will be held in trust
for the benefit of the potential claimants of such securities by the Disbursing
Agent in principal amounts or numbers of shares sufficient to fund the unclaimed
amounts of such New Securities and will be accounted for separately. Any
unclaimed or undeliverable distributions (including Cash and New Securities)
shall be deemed unclaimed property under Section 347(b) of the Bankruptcy Code
at the expiration of two years after the Effective Date and, after such date,
all such unclaimed property shall revert to Reorganized CMI, Reorganized CMM, or
Reorganized Holdings, as the case may be, and the Claim or Interest of any
Holder with respect to such property shall be discharged and forever barred.
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The Plan provides that the Disbursing Agent will make all distributions
required under the applicable provisions of the Plan, subject to the terms of
the Plan.
J. General Information Concerning the Plan
Procedures for Treating Disputed Claims Under Plan of Reorganization
Process. If any of the Debtors disputes any Claim, such dispute shall be
determined, resolved or adjudicated, as the case may be, under applicable law,
and such Claim shall survive the Effective Date to the extent that such Claim
has not been allowed and has not received the treatment afforded the Class of
Claims in which such Claim is classified under this Plan on or before the
Effective Date. Among other things, any Debtor may elect, at its sole option, to
object or seek estimation under Section 502 of the Bankruptcy Code with respect
to any proof of claim filed by or on behalf of a Holder of a Claim or any proof
of interest filed by or on behalf of a Holder of an Interest.
Tort Claims. All Tort Claims are Disputed Claims. Any unliquidated Tort
Claim that is not otherwise settled or resolved pursuant to Section V.H.l.a of
the Plan shall be determined and liquidated under applicable law in the
Bankruptcy Court or the administrative or judicial tribunal in which it is
pending on the Confirmation Date or, if no such action was pending on the
Confirmation Date, in the Bankruptcy Court or any administrative or judicial
tribunal of appropriate jurisdiction. Pursuant to Section IX.E of the Plan, the
automatic stay arising pursuant to Section 362 of the Bankruptcy Code shall be
vacated as of the Effective Date as to all Tort Claims. Any Tort Claim
determined and liquidated pursuant to a judgment obtained in accordance with
Section V.H. l.b of the Plan and applicable non-bankruptcy law that is no longer
subject to appeal or other review shall be deemed to be an Allowed Claim in
Class A10, B5 or C5, as applicable, in such liquidated amount and satisfied in
accordance with the Plan. Nothing contained in Section V.H.l.b of the Plan shall
constitute or be deemed a waiver of any claim, right or cause of action that the
Debtors or the Reorganized Debtors may have against any Person in connection
with or arising out of any Tort Claim, including, without limitation, any rights
under Section 157(b) of title 28, United States Code.
Objections to Claims and Interests. Except insofar as a Claim or Interest
is allowed hereunder, Reorganized CMI, Reorganized CMM and Reorganized Holdings
shall be entitled and reserve the right to object to Claims and Interests.
Except as otherwise provided in Section V.H.3 of the Plan and except as
otherwise ordered by the Bankruptcy Court, objections to any Claim or Interest,
including, without limitation, Administrative Claims, shall be Filed and served
upon the Holder of such Claim or Interest no later than 90 days after the
Effective Date, unless such period, is, extended by the Bankruptcy Court, which
extension may be granted on an ex parte basis without notice or hearing. After
the Confirmation Date, only the Debtors, Reorganized CMI, Reorganized CMM or
Reorganized Holdings shall have the authority to File, settle, compromise,
withdraw, or litigate to judgment objections to Claims and Interests. From and
after the Confirmation Date, the Debtors, Reorganized CMI, Reorganized CMM or
Reorganized Holdings may settle or compromise any Disputed Claim or Disputed
Interest without approval of the Bankruptcy Court. Except as (i) specified
otherwise herein, or (ii) ordered by the Bankruptcy Court, all Disputed Claims
or Disputed Interests shall be resolved by the Bankruptcy Court. The failure of
the Debtors to object to any Claim or Interest for voting purposes shall not be
deemed to be a waiver of the Debtors' or Reorganized Debtors' right to object to
any Claim or Interest in whole or in part thereafter.
Professionals, Claims. Except as otherwise ordered by the Bankruptcy
Court, objections to Claims of professionals shall be governed by the provisions
of Section IV.A.3.b of the Plan.
No Distributions Pending Allowance. Notwithstanding any other provisions
of the Plan, no payments or distributions will be made on account of a Disputed
Claim or a Disputed Interest until such Claim or Interest becomes an Allowed
Claim or Allowed Interest.
Distributions on Account of Disputed Claims and Interests Once They are
Allowed. Within 30 days after the end of each calendar quarter following the
Effective Date, the applicable Disbursing Agent will make all distributions on
account of any Disputed Claim or Disputed Interest that has become an Allowed
Claim or Allowed
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Interest during the preceding calendar quarter. Such distributions will be made
pursuant to the provisions of the Plan governing the applicable Class. Holders
of Disputed Claims or Disputed Interests that are ultimately allowed will also
be entitled to receive, on the basis of the amount ultimately allowed: (i)
matured and payable interest, if any, at the rate provided for the Class to
which such Claim belongs; and (ii) any interest payments, dividends or other
payments made to the Class to which such Claim or Interest belongs, but held
pending distribution.
Setoffs
Except with respect to any contract, instrument, release, indenture or
other agreement or document created in connection with the Plan, the Debtors,
Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may be,
may, pursuant to Section 553 or section 502(d) of the Bankruptcy Code or
applicable nonbankruptcy law, set off against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim (before
any distribution is made on account of such Claim), the claims, rights and
causes of action of any nature that the Debtors, Reorganized CMI, Reorganized
CMM or Reorganized Holdings may hold against the Holder of such Allowed Claim;
provided, however, that neither the failure to effect such a setoff nor the
allowance of any Claim hereunder shall constitute a waiver or release by the
Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings of any such
claims, rights and causes of action that the Debtors, Reorganized CMI,
Reorganized CMM or Reorganized Holdings may possess against such Holder.
Termination of Subordination
The classification and manner of satisfying all Claims and Interests under
the Plan and the distributions thereunder take into consideration all
contractual, legal and equitable subordination rights, whether arising under any
agreement, general principles of equitable subordination, Section 510 of the
Bankruptcy Code or otherwise, that a Holder of a Claim or Interest may have
against other Claim or Interest Holders with respect to any distribution made
pursuant to the Plan. On the Effective Date, all contractual, legal or equitable
subordination rights that such Holder may have with respect to any distribution
to be made pursuant to the Plan shall be deemed to be waived, discharged and
terminated, and all actions related to the enforcement of such subordination
rights will be permanently enjoined. Accordingly, distributions pursuant to the
Plan to Holders of Allowed Claims and Allowed Interests shall not be subject to
payment to a beneficiary of such terminated subordination rights, or to levy,
garnishment, attachment or other legal process by any beneficiary of such
terminated subordination rights.
Individual Holder Proofs Of Interest
Individual Holders of Interests in Classes A14, A16, A18, A20, A21, A22,
B7 and C7 are not required to File proofs of Interests unless they disagree with
the number of shares set forth on the applicable stock register.
Treatment Of Executory Contracts And Unexpired Leases
Assumptions. Except as otherwise provided herein, on the Effective Date,
pursuant to Section 365 of the Bankruptcy Code, the Debtors will assume each
executory contract and unexpired lease entered into by the Debtors prior to the
Petition Date that has not previously (a) expired or terminated pursuant to its
own terms or (b) been assumed or rejected pursuant to Section 365 of the
Bankruptcy Code. The Confirmation Order will constitute an Order of the
Bankruptcy Court approving the assumptions described in Section VII.A of the
Plan, pursuant to Section 365 of the Bankruptcy Code, as of the Effective Date.
Cure of Defaults in Connection with Assumption. Any monetary amounts by
which each executory contract and unexpired lease to be assumed pursuant to the
Plan is in default will be satisfied, pursuant to Section 365(b)(1) of the
Bankruptcy Code, at the option of the Debtors, Reorganized CMI, Reorganized CMM
or Reorganized Holdings, as the case may be: (a) by payment of the default
amount in Cash on the Effective Date or as soon as practicable thereafter; or
(b) on such other terms as are agreed to by the parties to such executory
contract or unexpired lease.
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If there is a dispute regarding: (i) the amount of any cure payments; (ii)
the ability of Reorganized CMI, Reorganized CMM or Reorganized Holdings to
provide "adequate assurance of future performance" (within the meaning of
Section 365 of the Bankruptcy Code) under the contract or lease to be assumed;
or (iii) any other matter pertaining to assumption, the cure payments required
by Section 365(b)(1) of the Bankruptcy Code will be made following the entry of
a Final Order resolving the dispute and approving the assumption.
Rejections. Except as otherwise provided in the Plan on the Effective
Date, pursuant to Section 365 of the Bankruptcy Code, the Debtors will reject
each of the executory contracts and unexpired leases listed on a schedule to be
filed prior to the Confirmation Hearing (the "Contract Rejection Schedule")
provided, however, that the Debtors reserve the right, at any time prior to the
Effective Date, to amend such schedule to delete any executory contract or
unexpired lease listed therein, thus providing for its assumption pursuant to
Sections VII.A and B of the Plan. Each contract and lease listed on the Contract
Rejection Schedule will be rejected only to the extent that any such contract or
lease constitutes an executory contract or unexpired lease. Listing a contract
or lease on the Contract Rejection Schedule does not constitute an admission by
the Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings that such
contract or lease is an executory contract or unexpired lease or that the
Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings has any
liability thereunder. The Confirmation Order shall constitute an Order of the
Bankruptcy Court approving such rejections, pursuant to Section 365 of the
Bankruptcy Code, as of the Effective Date.
Bar Date for Rejection Damages. If the rejection of an executory contract
or unexpired lease pursuant to Section VII.C of the Plan gives rise to a Claim
by the other party or parties to such contract or lease, such Claim shall be
forever barred and shall not be enforceable against the Debtors, Reorganized
CMI, Reorganized CMM or Reorganized Holdings, their successors or properties
unless (a) a stipulation with respect to the amount and nature of such Claim has
been entered into by either of the Debtors, Reorganized CMI, Reorganized CMM or
Reorganized Holdings, as applicable, and the Holder of such Claim in connection
with the rejection of such executory contract or unexpired lease, or (b) a Proof
of Claim is Filed and served on Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, and counsel for Reorganized CMI, Reorganized CMM
or Reorganized Holdings, as the case may be, within 30 days after the Effective
Date or such earlier date as established by the Bankruptcy Court. Unless
otherwise ordered by the Bankruptcy Court, all Allowed Claims arising from the
rejection of executory contracts and unexpired leases shall be treated as Claims
in Class A10, B5 or C5 as applicable.
Continuation of Certain Retirement and Other Benefits. All employment,
retirement and other related agreements and incentive compensation plans and
programs to which CMI, CMM or Holdings is a party are treated as executory
contracts under the Plan and will be assumed or rejected pursuant to Section VII
of the Plan and Sections 365 and 1123 of the Bankruptcy Code.
Executory Contracts and Unexpired Leases Entered Into and Other
Obligations Incurred After the Petition Date. Executory contracts and unexpired
leases entered into and other obligations incurred after the Petition Date by
the Debtors will be performed by the Debtors or the Reorganized Debtors, in the
ordinary course of their businesses. Accordingly, such executory contracts,
unexpired leases and other obligations will, except as provided in such
contracts, leases or other obligations, survive and remain unaffected by entry
of the Confirmation Order.
Legal Effects of the Plan
Continued Corporate Existence; Vesting of Assets in Reorganized CMI, CMM
and Holdings. Reorganized CMI will exist after the Effective Date as a separate
corporate entity, with all the powers of a corporation under the general
corporate law of Maryland. Reorganized CMM will exist after the Effective Date
as a separate corporate entity, with all the powers of a corporation under the
general corporate law of Maryland. Reorganized Holdings will exist after the
Effective Date as a separate limited partnership entity with all the powers of a
limited partnership under the applicable partnership law of Delaware. Except as
otherwise provided in the Plan or the Confirmation Order, on the Effective Date,
all property of CMI's Estate will vest in Reorganized CMI, all property of CMM's
Estate will vest in Reorganized CMM, and all property of Holdings Estate will
vest in Reorganized Holdings, all free and clear of all Claims, liens,
encumbrances and Interests of Holders of Claims and
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Holders of Old Securities. From and after the Effective Date, Reorganized CMI,
CMM and Holdings may operate their business and use, acquire, and dispose of
property and settle and compromise claims or interests arising on or after the
Effective Date without supervision by the Bankruptcy Court and free of any
restrictions of the Bankruptcy Code, the Bankruptcy Rules or the Local
Bankruptcy Rules, other than those restrictions expressly imposed by the Plan or
the Confirmation Order.
Cancellation of Old Securities and Related Agreements. On the Effective
Date except as otherwise provided by the Plan the Old Securities and all
instruments, indentures and agreements evidencing or governing such Old
Securities will be deemed terminated, cancelled, extinguished and of no further
force or effect without any further action on the part of the Bankruptcy Court,
or any person or any government entity or agency, and except as otherwise
provided in the Plan, CMI, CMM and Holdings, will be released from any and all
obligations under such securities, instruments, indentures and agreements.
Holders of cancelled Old Securities will have no rights arising from or relating
to such Old Securities or the cancellation thereof, except the rights provided
pursuant to the Plan.
No Further Corporate Action. Each of the matters provided for under the
Plan involving the corporate structure of any Debtor or Reorganized Debtor or
corporate action to be taken by or required of any Debtor or Reorganized Debtor
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 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,
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Reorganized CMI, Reorganized CMM or Reorganized Holdings, or their respective
successors or their respective properties; (ii) enforcing, attaching, collecting
or recovering in any manner any judgment, award, decree or order against the
Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings, or their
respective successors or their respective properties; (iii) creating, perfecting
or enforcing any lien or encumbrance against the Debtors, Reorganized CMI,
Reorganized CMM or Reorganized Holdings, or their respective successors or their
respective properties; and (iv) commencing or continuing any action, in any
manner, in any place that does not comply with or is inconsistent with the
provisions of the Plan or the Confirmation Order. Any Person, including but not
limited to the Debtors, Reorganized CMI, Reorganized CMM or Reorganized
Holdings, injured by any willful violation of such injunction shall recover
actual damages, including costs and attorneys' fees, and, in appropriate
circumstances, may recover punitive damages, from the willful violator.
Limitation of Liability. None of the Debtors, Reorganized CMI, Reorganized
CMM or Reorganized Holdings, the members of the Committees, the Indenture
Trustee, or any of their respective employees, officers, directors, agents, or
representatives, or any professional persons employed by any of them (including,
without limitation, their respective Designated Professionals), shall have any
responsibility, or have or incur any liability, to any Person whatsoever (i) for
any matter expressly approved or directed by the Confirmation Order or (ii)
under any theory of liability (except for any claim based upon willful
misconduct or gross negligence) for any act taken or omission made in good faith
directly related to formulating, implementing, confirming, or consummating the
Plan, the Disclosure Statement, or any contract, instrument, release or other
agreement or document created in connection with or contemplated by the Plan;
provided, that nothing in Section XI.B of the Plan shall limit the liability of
any Person for breach of any express obligation it has under the terms of this
Plan or any documents executed in connection therewith or pursuant thereto or
under any other agreement other document entered into by such Person in
accordance with or pursuant to the terms of this Plan (except to the extent
expressly provided in the Confirmation Order) or for any breach of a duty of
care owed to any other Person occurring after the Effective Date.
Releases. On the Effective Date, each of the Debtors shall release
unconditionally, and hereby is deemed to release unconditionally (i) each of the
Debtors' then-current and former officers, directors, shareholders, employees,
consultants, attorneys, accountants, financial advisors and other
representatives (solely in their capacities as such) (collectively, the "Debtor
Releasees") and (ii) the Committees and, solely in their capacity as members or
representatives of the Committees, each member, consultant, attorney,
accountant, financial advisor or other representative of the Committees
(collectively the "Committee Releasees") from any and all claims, obligations,
suits, judgments, damages, rights, causes of action and liabilities whatsoever,
whether known or unknown, foreseen or unforeseen, existing or hereafter arising,
in law, equity or otherwise, based in whole or in part upon any act or omission,
transaction, event or other occurrence taking place on or prior to the Effective
Date in any way relating to the Reorganization Cases, the Plan or this
Disclosure Statement.
On the Effective Date, each Holder of a Claim or Interest shall be deemed
to have unconditionally released the Debtor Releasees, the Committee Releasees
and each of their then-current and former officers, directors, shareholders,
employees, consultants, attorneys, accountants, financial advisors and other
representatives (solely in their capacities as such) from any and all claims,
obligations, suits, judgments, damages, rights, causes of action and liabilities
whatsoever which any such holder may be entitled to assert, whether known or
unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity
or otherwise, based in whole or in part upon any act or omission, transaction,
event or other occurrence taking place on or prior to the Effective Date in any
way relating to CMI, CMM and/or Holdings, the Debtors, the Reorganization Cases,
the Plan or the Disclosure Statement, excepting, however, from such release any
obligation owing to a Holder of an Allowed Claim or Allowed Interest provided
for in this Plan or the Confirmation Order.
Indemnification. The obligations of the Debtors as of the Petition Date to
indemnify their present and former directors or officers, respectively, against
any obligations pursuant to the Debtors' articles of incorporation, by-laws,
applicable state law or specific agreement or resolution, or any combination of
the foregoing, shall survive confirmation of the Plan, remain unaffected
thereby, be assumed by Reorganized CMI, Reorganized CMM or Reorganized Holdings,
as the case may be, and not be discharged. The Debtors shall fully indemnify,
and Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may
be, shall assume the Debtors'
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obligations to indemnify, any person by reason of the fact that he or she is or
was serving as a director, officer, employee, agent, professional, member, or
other authorized representative (in each case, as applicable) of any of the
Debtors (collectively, the "Indemnitees") against any claims, liabilities,
actions, suits, damages, fines, judgments or expenses (including reasonable
attorneys' fees and expenses), arising during the course of, or otherwise in
connection with or in any way related to, the negotiation, preparation,
formulation, solicitation, dissemination, implementation, confirmation and
consummation of the Plan and the transactions contemplated thereby and the
Disclosure Statement in support thereof, provided, however, that the foregoing
indemnification shall not apply to any liabilities arising from the gross
negligence or willful misconduct of any Indemnitee. If any claim, action or
proceeding is brought or asserted against an Indemnitee in respect of which
indemnity may be sought from Reorganized CMI, Reorganized CMM or Reorganized
Holdings, the Indemnitee shall promptly notify Reorganized CMI, in writing and,
in any such event, Reorganized CMI shall assume the defense thereof including
the employment of counsel reasonably satisfactory to the Indemnitee, and the
payment of all expenses of such Indemnitee. The Indemnitee shall have the right
to employ separate counsel in any such claim, action or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnitee unless (a) Reorganized CMI has agreed
to pay the fees and expenses of such counsel, or (b) Reorganized CMI shall have
failed to assume promptly the defense of such claim, action or proceeding or to
employ counsel reasonably satisfactory to the Indemnitee in any such claim
action or proceeding, or (c) the named parties in any such claim, action or
proceeding (including any impleaded parties) include both the Indemnitee and
Reorganized CMI, Reorganized CMM or Reorganized Holdings, as the case may be,
and the Indemnitee believes, in the exercise of its business judgment and in the
opinion of its legal counsel, reasonably satisfactory to Reorganized CMI, that
the joint representation of Reorganized CMI, Reorganized CMM or Reorganized
Holdings, as the case may be, and the Indemnitee will likely result in a
conflict of interest (in which case, if the Indemnitee notifies Reorganized CMI
in writing that it elects to employ separate counsel at the expense of
Reorganized CMI, Reorganized CMI shall not have the right to assume the defense
of such action or proceeding on behalf of the Indemnitee). In addition, neither
Reorganized CMI, nor Reorganized CMM nor Reorganized Holdings shall effect any
settlement or release from liability in connection with any matter for which the
Indemnitee would have the right to indemnification from Reorganized CMI,
Reorganized CMM or Reorganized Holdings unless such settlement contains a full
and unconditional release of the Indemnitee, or a release of the Indemnitee
reasonably satisfactory in form and substance to the Indemnitee.
Vesting of Assets. Except as otherwise provided in the Plan or the
Confirmation Order, on the Effective Date, all property of CMI's Estate shall
vest in Reorganized CMI and all property of CMM's Estate shall vest in
Reorganized CMM and all property of Holdings' estate shall vest in Reorganized
Holdings, all free and clear of all Claims, liens, encumbrances and Interests of
Holders of Claims and Holders of Old Securities. From and after the Effective
Date, Reorganized CMI, Reorganized CMM and Reorganized Holdings may operate
their business and use, acquire and dispose of property and settle and
compromise claims or interests arising on or after the Effective Date without
supervision by the Bankruptcy Court and free of any restrictions of the
Bankruptcy Code, the Bankruptcy Rules or the Local Bankruptcy Rules, other than
those restrictions expressly imposed by the Plan or the Confirmation Order.
Preservation of Causes of Action. Except as otherwise provided herein, or
in any contract, instrument, release or other agreement entered into in
connection with or pursuant to the Plan, Reorganized CMI, Reorganized CMM and
Reorganized Holdings shall retain (and may enforce) any claims, rights and
causes of action that the Debtors or the Estates may hold against any Person,
including, but not limited to, any claims, rights or causes of action under
Sections 544 through 550 of the Bankruptcy Code or any similar provisions of
state law, or any other statute or legal theory.
Retention of Bankruptcy Court Jurisdiction. To the maximum extent
permitted by the Bankruptcy Code and other applicable law, the Bankruptcy Court
shall have jurisdiction of all matters arising out of, and related to, the
Reorganization Cases and the Plan pursuant to, and for the purpose of, Sections
105(a) and 1142 of the Bankruptcy Code, including, without limitation,
jurisdiction to:
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1. Allow, disallow, determine, liquidate, classify, estimate or establish the
priority or secured or unsecured status of any Claim or Interest, including the
resolution of any request for payment of any Administrative Claim, the
resolution of any objections to the allowance or priority of Claims or Interests
and the resolution of any dispute as to the treatment necessary to Reinstate a
Claim pursuant to the Plan;
2. Grant or deny any applications for allowance of compensation or reimbursement
of expenses authorized pursuant to the Bankruptcy Code or the Plan, for periods
ending before the Effective Date;
3. Resolve any matters related to the assumption or rejection of any executory
contract or unexpired lease to which any of the Debtors is a party or with
respect to which any of the Debtors may be liable, and to hear, determine and,
if necessary, liquidate any Claims arising therefrom;
4. Ensure that distributions to Holders of Allowed Claims or Allowed Interests
are accomplished pursuant to the provisions of the Plan;
5. Decide or resolve any motions, adversary proceedings, contested or litigated
matters and any other matters and grant or deny any applications involving the
Debtors, Reorganized CMI, Reorganized CMM or Reorganized Holdings that may be
pending on the Effective Date;
6. Enter such Orders as may be necessary or appropriate to implement or
consummate the provisions of the Plan and all contracts, instruments, releases,
indentures and other agreements or documents created in connection with or
pursuant to the Plan, the Disclosure Statement or the Confirmation Order, except
as otherwise provided herein;
7. Resolve any cases, controversies, suits or disputes that may arise in
connection with the consummation, interpretation or enforcement of the Plan or
the Confirmation Order, including the release and injunction provisions set
forth in and contemplated by the Plan and the Confirmation Order, or any
entity's rights arising under or obligations incurred in connection with the
Plan or the Confirmation Order;
8. Enter such Orders as may be necessary or appropriate to correct any defect,
cure any omission, or reconcile any inconsistency in this Plan or the
Confirmation Order as may be necessary to carry out the purposes and intent of
the Plan;
9. Enter such Orders as may be necessary or appropriate to enforce, implement or
interpret the terms and conditions of this Plan and resolve any objections filed
with respect to any actions proposed to be taken in connection with or pursuant
to the provisions of the Plan;
10. Enter such Orders as may be necessary or appropriate to approve agreements,
settlements or compromises in connection with matters pending on the Effective
Date or arising thereafter in connection with implementation of provisions of
the Plan;
11. Determine all adversary proceedings and contested matters to recover or
enforce rights with respect to property of any of the Debtors or their Estates
or to obtain other relief relating to causes of actions or claims under the
Bankruptcy Code or other applicable law including, but not limited to, any
actions brought under Sections 541 through 553 of the Bankruptcy Code;
12. Determine matters concerning state, local or federal taxes pursuant to
Sections 346, 505, 525, 1146 and any other tax-related provisions of the
Bankruptcy Code;
13. Enter such Orders as may be necessary or appropriate to enforce and
interpret the provisions of the Confirmation Order;
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14. Subject to any restrictions on modifications provided herein or in any
contract, instrument, release, indenture or other agreement or document created
in connection with the Plan, modify this Plan before or after the Effective Date
pursuant to Section 1127 of the Bankruptcy Code or modify the Disclosure
Statement, the Confirmation Order or any contract, instrument, release,
indenture or other agreement or document created in connection with or pursuant
to the Plan, the Disclosure Statement or the Confirmation Order, or remedy any
defect or omission or reconcile any inconsistency in any Bankruptcy Court Order,
the Plan, the Disclosure Statement, the Confirmation Order or any contract,
instrument, release, indenture or other agreement or document created in
connection with or pursuant to the Plan, the Disclosure Statement or the
Confirmation Order, in such manner as may be necessary or appropriate to
consummate the Plan, to the extent authorized by the Bankruptcy Code;
15. Issue injunctions, enter and implement other Orders or take such other
actions as may be necessary or appropriate to restrain interference by any
entity with consummation, implementation or enforcement of the Plan or the
Confirmation Order;
16. Enter and implement such Orders as are necessary or appropriate if the
Confirmation Order is for any reason modified, stayed, reversed, revoked or
vacated;
17. Except as otherwise provided in the Plan, or with respect to specific
matters, in the Confirmation Order or any other Order entered in connection with
the Reorganization Cases, determine any other matters that may arise in
connection with or relating to the Plan, this Disclosure Statement, the
Confirmation Order or any contract, instrument, release, indenture or other
agreement or document created in connection with or pursuant to the Plan, this
Disclosure Statement or the Confirmation Order; and
18. Enter an Order or Orders closing the Reorganization Cases.
Failure of Bankruptcy Court to Exercise Jurisdiction. If the Bankruptcy
Court abstains from exercising or declines to exercise jurisdiction, or is
otherwise without jurisdiction over any matter arising out of the Reorganization
Cases, including the matters set forth in Section XI.G of the Plan, Section XI.G
of the Plan shall not prohibit or limit the exercise of jurisdiction by any
other court having competent jurisdiction with respect to such matter.
Committees. On the Effective Date, all Committees, shall be dissolved and
the members of such Committees and their professionals shall be released and
discharged from all further rights and duties arising from or related to the
Reorganization Cases. The professionals retained by such Committees and the
members thereof shall not be entitled to compensation or reimbursement of
expenses incurred for services rendered after the Effective Date other than for
services rendered in connection with any application for allowance of
compensation and reimbursement of expenses pending as of, or timely Filed after,
the Effective Date.
VI. CONFIRMATION AND CONSUMMATION PROCEDURES
A. Solicitation of Acceptances
As permitted by the Bankruptcy Code, the Debtors and the CMI Equity
Committee are soliciting, in good faith and in compliance with the applicable
provisions of the Bankruptcy Code, the acceptance of the Plan by all Classes of
Claims and Interests that are "Impaired" under the Plan and that are entitled to
vote on the Plan. The solicitation of acceptances from Holders of Claims or
Interests in unimpaired Classes is not required under the Bankruptcy Code. The
following Classes are Impaired and are entitled to vote on the Plan:
Classes A1, A2, A3, A4, A5, A6, A7, A9, A10, A11, A13, A14, A16, A18, A20, A21,
B1, B2, B5, B6, C1, C2, C5 and C6.
A plan is accepted by an impaired class of claims if holders of at least
two-thirds in dollar amount and more than one-half in number of claims of that
class vote to accept the plan. A plan is accepted by an impaired
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class of interests if holders of at least two-thirds in amount vote to accept
the plan. Only those holders of claims or interests who actually vote count in
these tabulations.
In addition to this voting requirement, Section 1129 of the Bankruptcy
Code requires that a plan be accepted by each holder of a claim or interest in
an impaired class or that the plan otherwise be found by the bankruptcy court to
be in the best interests of each holder of a claim or interest in such class. In
addition, each impaired class must accept the plan for the plan to be confirmed
without application of the "fair and equitable" and "unfair discrimination"
tests in Section 1129(b) of the Bankruptcy Code discussed below.
Any Holder of an Impaired Claim or Interest is entitled to accept or
reject the Plan (unless such claim or Interest has been disallowed by the
Bankruptcy Court for purposes of accepting or rejecting the Plan). The Voting
Record Date for determining which Holders of Interests in Classes A9, A16 and
A18 are entitled to accept or reject the Plan is __________ ___, 2000, which is
the date that the order approving this Disclosure Statement was entered.
B. Confirmation Hearing
The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a
hearing on the Confirmation of the Plan. The Confirmation Hearing has been
scheduled for __:__ __, Eastern Daylight Savings Time, on _________ __, 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:
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VENABLE, BAETJER AND HOWARD, LLP AKIN, GUMP, STRAUSS, HAUER
Richard L. Wasserman & FELD, L.L.P.
1800 Mercantile Bank and Trust Building Stanley J. Samorajczyk, P.C.
Two Hopkins Plaza Michael S. Stamer
Baltimore, Maryland 21201 1333 New Hampshire Avenue, N.W.
(410) 244-7400 Washington, D.C. 20036
(202) 887-4000
Co-Counsel to CRIIMI MAE Inc.
and CRIIMI MAE Holdings II, L.P.
SHULMAN, ROGERS, GANDAL, PORDY COVINGTON & BURLING
& ECKER, P.A. Michael St. Patrick Baxter
Morton A. Faller Dennis B. Auerbach
11921 Rockville Pike 1201 Pennsylvania Avenue, NW
Third Floor Washington, D.C. 20044
Rockville, MD 20852-2753 (202) 662-6000
(301) 231-0928
Counsel to CRIIMI MAE Management, Inc. Counsel to the Official Committee of
Equity Security Holders of CRIIMI
MAE Inc.
C. Confirmation
At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan
only if the Plan satisfies all of the requirements of Section 1129 of the
Bankruptcy Code. The requirements, in relevant part, are the following:
a) The Plan and the Debtors must comply with the applicable provisions of
the Bankruptcy Code.
b) The Plan must have been proposed in good faith and not by any means
forbidden by law.
c) Any payment made or to be made by the Debtors, or by an entity issuing
securities, or acquiring property under the Plan, for services or for costs and
expenses in, or in connection with, the Chapter 11 Cases or in connection with
the Plan and incident to the Chapter 11 Cases must have been approved by or be
subject to, the approval of the Bankruptcy Court as reasonable.
d) The Debtors must have disclosed the identity and affiliations of any
individual proposed to serve, after the Confirmation of the Plan, as a director
or officer of the Debtors under the Plan, and the appointment to or continuance
in such office by such individual must be consistent with the interests of
creditors and equity security holders and with public policy. The Debtors must
have disclosed the identity of any "insider" (as defined in Section 101 of the
Bankruptcy Code) who will be employed or retained by Reorganized CMI, CMM and
Holdings and the nature of any compensation for such insider.
e) Any government regulatory commission with jurisdiction, after the
Confirmation Date, over the rates of the Debtors has approved any rate change
provided for in the Plan, or such rate change is expressly conditioned upon such
approval.
f) With respect to each Impaired Class of Claims or Interests, each Holder
of a Claim or Interest in such class must either accept the Plan or receive or
retain under the Plan on account of such Claim or Interest, property of a value,
as of the Effective Date that is not less than the amount that such Holder would
receive or retain if the Debtors were liquidated on the Effective Date under
Chapter 7 of the Bankruptcy Code.
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g) Each Class of Claims or Interests must either accept the Plan or not be
Impaired under the Plan. If this requirement is not met, the Plan may still be
confirmed pursuant to Section 1129(b) of the Bankruptcy Code.
h) Except to the extent that the Holder of a particular Claim has agreed
to a different treatment of such Claim, the Plan must provide that (i)
Administrative Expenses will be paid in full in Cash on the Effective Date, (ii)
Priority Claims will be paid in full in Cash on the Effective Date, or if the
Class of Priority Claims accepts the Plan, the Plan may provide for deferred
Cash payments, of a value, as of the Effective Date, equal to the Allowed amount
of such Priority Claims, and (iii) the Holder of a Priority Tax Claim will
receive on account of such Claim deferred Cash payments over a period not
exceeding six (6) years after the date of assessment of such Claim, of a value
as of the Effective Date, equal to the Allowed amount of such Claim.
i) If a class of Claims is Impaired under the Plan, at least one Class of
Claims that is Impaired by the Plan must accept the Plan, such acceptance to be
determined without giving effect to any acceptance of the Plan by an "insider."
j) Confirmation of the Plan must not be likely to be followed by the
liquidation, or the need for further financial reorganization, of the Debtors or
any successor of the Debtors under the Plan.
k) All fees payable under Section 1930 of title 28, United States Code, as
determined by the Bankruptcy Court at the Confirmation Hearing, must have been
paid or the Plan must provide for the payment of all such fees on the Effective
Date.
l) The Plan provides for the continuation after the Effective Date of
payment of all retiree benefits, as that term is defined in Section 1114 of the
Bankruptcy Code, and at the level established pursuant to Section 1114, at any
time prior to the Confirmation Date, for the duration of the period the Debtors
have obligated themselves to provide such benefits.
The Debtors believe that the Plan satisfies all of the statutory
requirements of Chapter 11 of the Bankruptcy Code. Certain of these requirements
are discussed in greater detail below.
Best Interests Test
In order to the meet the "best interests" test of Section 1129(a)(7) of
the Bankruptcy Code, the Debtors must establish that each holder of a Claim or
Interest in an Impaired class either (i) has accepted the Plan or (ii) will
receive or retain under the Plan in respect of its Claim or Interest, property
of a value, as of the Effective Date, that is not less than the amount such
holder would receive or retain if the Debtors were liquidated under Chapter 7 of
the Bankruptcy Code.
To determine the recovery that Creditors and Holders of Interests would
receive if the Debtors were to be liquidated, the Bankruptcy Court must
determine the amount of cash that would be generated from the liquidation of the
assets and properties of the Debtors in a Chapter 7 liquidation case. The dollar
amount that would be available for satisfaction of Claims and Interests would
consist of the proceeds resulting from the disposition of the assets of the
Debtors in a liquidation case plus the cash held by the Debtors at the time of
the commencement of the liquidation case and any interest earned on the
investment thereof minus the costs and expenses of the liquidation and any
additional administrative and priority claims that may result from the
termination of the Debtors' business and the completion of its liquidation under
Chapter 7.
The Debtors' costs of liquidation under Chapter 7 of the Bankruptcy Code
would include the fees payable to a trustee (or trustees) in bankruptcy and to
any additional attorneys and other professionals engaged by such trustee (or
trustees), operating costs to effectuate the liquidation of the Debtors' assets
plus any unpaid expenses incurred by the Debtors during the Chapter 11 Cases
including compensation to and reimbursement of expenses of, attorneys, financial
advisors and accountants and costs and expenses of members of the Committees
that are allowed. The foregoing types of Claims and such other Claims as may
arise in the liquidation case or result from the
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Chapter 11 Cases would be paid in full from the liquidation proceeds before the
balance of those proceeds would be available to pay Unsecured Claims. In
addition, additional Claims would arise by reason of the rejection of unexpired
leases and executory contracts.
Under the "best interest" test, all entities holding Unsecured Claims in a
particular class having the same rights upon liquidation would be treated as a
single class for purposes of determining the potential distribution of the
proceeds from the liquidation of the assets of the Debtors under Chapter 7. The
distributions payable to each of the creditors in a Class from the liquidation
proceeds would be calculated pro rata according to the amount of the Claim in
such Class held by each Creditor. The Debtors believe that the most likely
outcome of liquidation proceeding under Chapter 7 would be the application of
the rule of absolute priority of distributions. Under this rule, (i) no holders
of Unsecured Claims would receive any distribution until all holders of
Administrative Expenses, Priority Claims and Priority Tax Claims were paid in
full with interest and (ii) no holder of an Interest would receive any
distribution until all Holders of General Unsecured Claims were paid in full
with interest.
The Debtors have carefully considered the probable effects of liquidation
under Chapter 7 of the Bankruptcy Code on the ultimate proceeds available for
distribution to creditors and holders of Interests, including the following:
a) the probable costs and expenses of such liquidation;
b) the possible adverse effect of liquidation under Chapter 7 on the
realizable values of the Debtors' assets and properties;
c) the possible adverse effect of liquidation under Chapter 7 on the
salability of the Debtors' business on a going-concern basis as a result of the
possible loss of key employees, the goodwill of customers, vendors and suppliers
and the negative effect on the Debtors' reputation; and
d) the possible substantial increase in Claims which would rank prior to
or on a parity with those of unsecured creditors. After considering these
factors, among others, the Debtors have prepared a liquidation analysis (the
"Liquidation Analysis") (set forth in Exhibit C attached hereto), of the
projected proceeds of a hypothetical Chapter 7 liquidation and the resulting
distributions of such proceeds to the various Classes of Claims and Holders of
Interests. The Liquidation Analysis demonstrates that the value of the
distributions to each Class of Claims and Interests pursuant to the Plan is
equal to or greater than the value of the distributions to such Class in a
Chapter 7 liquidation.
Although the Liquidation Analysis assumes that full distributions to
creditors of the liquidation proceeds would occur within six months of the
commencement of the hypothetical Chapter 7 case, the Debtors also believe that
distributions of the proceeds of the liquidation could be delayed for a
significantly greater period, because of the time necessary to complete the
liquidation, the possibility of litigation among the Holders of various Classes
of Claims of Interests and the additional time required thereafter to litigate
and resolve Disputed Claims and prepare for distributions. If such further delay
were to occur, the present value of future distributions to creditors under
Chapter 7 would be further reduced.
Feasibility
In order to meet the "feasibility" test under Section 1129(a)(11) of the
Bankruptcy Code, the Debtors must establish that Confirmation of the Plan is not
likely to be followed by the liquidation, or the need for further financial
reorganization, of the Debtors. To determine whether the Plan meets this
requirement, the Debtor has prepared projected financial statements for
Reorganized CMI, CMM and Holdings through fiscal year ____ . See Exhibit B.
Although the Projections are based upon the Debtors' best estimates, no
representations are made with respect to the accuracy thereof or the ability of
Reorganized CMI, CMM and Holdings to achieve the Projections.
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The Projections are based upon a number of assumptions, many of which are
subject to substantial uncertainty. Some assumptions inevitably will not
materialize and unanticipated events and circumstances occurring subsequent to
the date of preparation of the Projections may affect actual results. Therefore,
actual operating results may vary materially from the projected operating
results set forth in the Projections.
Based upon the Projections, the Debtors and the CMI Equity Committee
believe the Plan is feasible and will be prepared to so demonstrate at the
Confirmation Hearing.
Each party in interest is urged to carefully examine the Projections and
the related assumptions in evaluating the feasibility of the Plan.
Confirmation Over a Dissenting Class
The Bankruptcy Code contains provisions authorizing the confirmation of a
plan even if it is not accepted by all impaired classes, as long as at least one
impaired class of claims (without including any acceptance of the plan by an
insider) has accepted it. These so-called "cramdown" provisions are set forth in
Section 1129(b) of the Bankruptcy Code. As indicated above, a plan may be
confirmed under the cramdown provisions if, in addition to satisfying the other
requirements of Section 1129 of the Bankruptcy Code, it (i) is "fair and
equitable" and (ii) "does not discriminate unfairly" with respect to each class
of claims or interests that is impaired under, and has not accepted, the plan.
The "fair and equitable" standard, also known as the "absolute priority rule,"
requires, among other things, that unless a dissenting class of claims or a
class of interests receives full compensation for its allowed claims or allowed
interests, no holder of claims or interests in any junior class may receive or
retain any property on account of such claims. The Bankruptcy Code establishes
different "fair and equitable" tests for secured creditors, unsecured creditors
and equity holders, as follows:
Secured Creditors: either (i) each impaired secured creditor retains its
liens securing its secured claim and receives on account of its secured claim
deferred cash payments having a present value equal to the amount of its allowed
secured claim, (ii) each impaired secured creditor realizes the "indubitable
equivalent" of its allowed secured claim, or (iii) the property securing the
claim is sold free and clear of liens with such liens to attach to the proceeds,
and the liens against such proceeds are treated in accordance with clause (i) or
(ii) of this paragraph.
Unsecured Creditors: either (i) each impaired unsecured creditor receives
or retains under the plan of reorganization property of a value equal to the
amount of its allowed claim, or (ii) the holders of claims and equity interests
that are junior to the claims of the nonaccepting class do not receive any
property under the plan of reorganization on account of such claims and equity
interests.
Equity Holders: either (i) each equity holder will receive or retain under
the plan of reorganization property of a value equal to the greater of (a) the
fixed liquidation preference or redemption price, if any, of such stock or (b)
the value of the stock, or (ii) the holders of interests that are junior to the
nonaccepting class will not receive any property under the plan of
reorganization.
The "fair and equitable" standard has also been interpreted to prohibit
any class senior to a dissenting class from receiving under a plan more than
100% of its allowed claims. The requirement that a plan not "discriminate
unfairly" means, among other things, that a dissenting class must be treated
substantially equally with respect to other classes of equal rank.
The Debtors and the CMI Equity Committee believe that, if necessary, the
Plan may be crammed down over the dissent of Classes of certain Claims and
Interests, in view of the treatment proposed for such Classes. See "THE PLAN OF
REORGANIZATION -- Treatment of Claims and Interests Under the Plan" for
information concerning the treatment of various Classes depending on which
Classes vote to accept or reject the Plan. If necessary and appropriate, the
Debtors and the CMI Equity Committee intend to amend the Plan to permit cramdown
of dissenting Classes of Claims or Interests. There can be no assurance,
however, that the requirements
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of Section 1129(b) of the Bankruptcy Code would be satisfied even if the Plan
treatment provisions were amended or withdrawn as to one or more Classes.
In addition, the Debtors and the CMI Equity Committee do not believe that
the Plan unfairly discriminates against any Class that may not accept or
otherwise consent to the Plan. A plan of reorganization "does not discriminate
unfairly" if (i) the legal rights of a nonaccepting class are treated in a
manner that is consistent with the treatment of other classes whose legal rights
are similarly situated to those of the nonaccepting class, and (ii) no class
receives payments in excess of that which it is legally entitled to receive for
its claims or equity interests. The Debtors and the CMI Equity Committee believe
the Plan does not discriminate unfairly.
THE DEBTORS AND THE CMI EQUITY COMMITTEE RESERVE THE ABSOLUTE RIGHT TO
SEEK CONFIRMATION OF THE PLAN UNDER SECTION 1129(b) OF THE BANKRUPTCY CODE IN
THE EVENT THE PLAN IS NOT ACCEPTED BY ALL IMPAIRED CLASSES.
Subject to the conditions set forth in the Plan, a determination by the
Bankruptcy Court that the Plan is not confirmable, pursuant to Section 1129 of
the Bankruptcy Code, will not limit or affect the Debtors' ability to modify the
Plan to satisfy the Confirmation requirements of Section 1129 of the Bankruptcy
Code.
D. Consummation
If the Plan is confirmed, the Plan will be consummated and distributions
will be made on or shortly after the Effective Date, except as otherwise
provided in the Plan.
E. Conditions to Effective Date
The Effective Date will not occur and the Plan will not be consummated
unless and until each of the following conditions has been satisfied or waived
by the Debtors and the CMI Equity Committee:
1. The Confirmation Order in form and substance satisfactory to the
Debtors and the CMI Equity Committee and entered by the Bankruptcy Court shall
not have been modified in any respect.
2. The Recapitalization Financing shall be funded in accordance with the
Plan and the respective governing documents for each component of the
Recapitalization Financing, and the sale of the CMBS Sale Portfolio shall have
been completed.
3. All other actions and documents necessary to implement the transactions
contemplated to be effected under this Plan on or before the Effective Date
shall have been effected or executed or, if waivable, waived by the Person
entitled to the benefit thereof.
VII. CERTAIN RISK FACTORS
The risk factors enumerated below (other than those described in "-- Risks
Relating to the Necessary Recapitalization Financing" and "-- Certain Risks of
Non-Confirmation"), generally assume the confirmation and consummation of the
Plan and all transactions contemplated thereby, and, except as indicated, do not
generally include matters that could prevent or delay confirmation. See "THE
PLAN OF REORGANIZATION -- Treatment of Claims and Interests Under the Plan --
Conditions Precedent to Confirmation and Consummation of the Plan" and "--
Voting and Confirmation of the Plan" for a discussion of such matters. Prior to
deciding whether and how to vote on the Plan, each Holder of a Claim or Interest
in a solicited Class should carefully consider all of the information contained
in this Disclosure Statement, especially the factors mentioned in the following
paragraphs.
Substantial Indebtedness; Leverage
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The Company is now highly leveraged and will continue to be highly
leveraged after giving effect to the reorganization. At September 30, 1999, the
Company had total consolidated indebtedness of $2.1 billion (of which $951
million was recourse debt to the Company (i.e., not match-funded)) and
stockholders' equity of $259 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 $____ billion (of which approximately
$____ million would be recourse debt to the Company (i.e., not match-funded) and
stockholders' equity would be approximately $____ 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 through non-cash taxable dividends consistent with the terms agreed
to with Merrill and GACC as set forth in the Plan. There can be no assurance
that targeted levels of cash flow will actually be achieved, that non-cash
taxable dividends will satisfy the Company's taxable distribution requirements,
or that 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
financing, reduces income available for distributions, restricts the Company's
ability to react quickly to changes in its business and makes the Company more
vulnerable to economic downturns. In addition, the agreements governing the
Reorganized Debtors' debt may impose significant operating and financial
restrictions on the Company. See "THE PLAN OF REORGANIZATION."
Risks Relating to Necessary Recapitalization Financing
Consummation of the Plan is conditioned upon, among other matters, the
Company obtaining New Debt and completing the CMBS Sale. See "PLAN OF
REORGANIZATION." Although the Company is engaged in negotiating commitments for
the CMBS Sale and has agreed to terms with respect to a majority 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.
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
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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 Financial Statements and Projected Financial Information" and "THE
PLAN OF REORGANIZATION -- The Reorganized Debtors-- Projected Financial
Information."
Risks of Loss of REIT Status
It is anticipated that the Company will continue to operate in such a
manner as to qualify as a REIT for federal income tax purposes. If the Company
were to fail to qualify as a REIT in any taxable year, it would be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates, and distributions to stockholders
would not be deductible by the Company in computing its taxable income. Any such
corporate tax liability could be substantial and would reduce the amount of cash
available for distribution to stockholders, which in turn could have an adverse
impact on the value of, and trading prices for, the Common Stock. Unless
entitled to relief under certain Code provisions, the Company also would be
disqualified from taxation as a REIT for the four taxable years following the
year during which the Company ceased to qualify as a REIT.
The Company must distribute at least 95% of its net taxable income each
year (excluding any net capital gain and certain non-cash income) in order to
maintain its status as a REIT for federal income tax purposes (the "95%
Distribution Requirement"). As a REIT, the Company is also subject to a 4%
non-deductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of (i) 85% of
its ordinary income for that year, (ii) 95% of its capital gain net income for
that year, and (iii) 100% of its undistributed taxable income from prior years.
The Company intends to make distributions to its stockholders to comply
with the 95% Distribution Requirement. It is anticipated that, for the
foreseeable future the Company will not have REIT distribution requirements,
however, if the Company does have a REIT distribution requirement, a substantial
portion of the Company's distributions to meet its tax distribution requirements
will be in the form of non-cash taxable dividends. To the extent such
distributions are paid in cash, differences in timing between the recognition of
taxable income and the actual receipt of cash could require the Company to
borrow funds or sell assets on a short-term basis to satisfy the 95%
Distribution Requirement or to avoid the non-deductible excise tax. There can be
no assurance that the Company would be able to borrow funds or sell assets on a
timely basis. The requirement to distribute a substantial portion of the
Company's net taxable income could cause the Company (i) to sell assets in
adverse market conditions, (ii) to distribute amounts that represent a return of
capital, (iii) to distribute amounts that would otherwise be spent on future
investments or repayment of debt, or (iv) to distribute non-cash dividends in
lieu of cash. There can be no assurance that non-cash taxable dividends will
satisfy the Company's taxable distribution requirements to maintain its status
as a REIT.
See "Business-Effect of Chapter 11 Filing on REIT Status and Other Tax
Matters" for a discussion of further risks of loss of REIT status, the
distribution of non-cash taxable dividends with respect to the Company's 1998
taxable income and distributions with respect to the Company's 1999 taxable
income.
Taxable Mortgage Pool Risks
An entity that constitutes a "taxable mortgage pool" as defined in the Tax
Code ("TMP") is treated as a separate corporate level taxpayer for federal
income tax purposes. In general, for an entity to be treated as a TMP (i)
substantially all of the assets must consist of debt obligations and a majority
of those debt obligations must consist of mortgages; (ii) the entity must have
more than one class of debt securities outstanding with separate maturities and
(iii) the payments on the debt securities must bear a relationship to the
payments received from the mortgages. The Company currently owns all of the
equity interests in three trusts that constitute TMPs (CBO-1, CBO-2 and CMO-IV,
collectively the "Trusts"). See Notes 5 and 6 to Notes to Consolidated Financial
Statements
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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.
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.
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
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the spread compression. In an effort to mitigate this risk, the Company as a
matter of policy generally hedges at least 75% of the principal amount of its
variable-rate debt with interest-rate protection agreements to protect interest
cash flow against a significant rise in interest rates.
Certain Risks Of Non-Confirmation
Even if the requisite acceptances are received, there can be no assurance
that the Bankruptcy Court will confirm the Plan. The Bankruptcy Court could
decline to confirm the Plan if it were to find that any of the statutory
conditions to confirmation had not been met. Section 1129 of the Bankruptcy Code
sets forth the requirements for confirmation and requires, among other things, a
finding by the Bankruptcy Court that the confirmation of the Plan is not likely
to be followed by a liquidation or a need for further financial reorganization
and that the value of distributions to non-accepting Holders of Claims and
Interests will not be less than the value of distributions such Holders of
Claims and Interests would receive if the Company were liquidated under Chapter
7 of the Bankruptcy Code. While there can be no assurance that the Bankruptcy
Court will conclude that these requirements have been met, the Company believes
that the Plan will not be followed by a need for further financial
reorganization and that non-accepting Holders of Claims and Interests will
receive distributions at least as great as would be received in a liquidation
pursuant to Chapter 7 of the Bankruptcy Code. See "THE PLAN OF REORGANIZATION --
Chapter 7 Liquidation Analysis" and "Exhibit C - Liquidation Analysis."
The confirmation and consummation of the Plan also are subject to certain
other conditions. See "THE PLAN OF REORGANIZATION -- Treatment of Claims and
Interests Under the Plan -- Conditions Precedent to Confirmation and
Consummation of the Plan."
If the Plan is not confirmed, it is unclear whether a reorganization could
be implemented and what Holders of Claims and Interests would ultimately receive
with respect to their Claims and Interests. If an alternative reorganization
could not be agreed to, it is possible that CRIIMI MAE would have to liquidate
its assets, in which case it is likely that Holders of Claims and Interests
would receive less than they would have received pursuant to the Plan. See "THE
PLAN OF REORGANIZATION -- Chapter 7 Liquidation Analysis" and "Exhibit C -
Liquidation Analysis."
Noncomparability of Historical Financial Information
As a result of the consummation of the Plan and the transactions
contemplated thereby, the financial condition and results of operations of the
Company from and after the Effective Date may not be comparable to the financial
condition or results of operations reflected in the historical financial
statements of the Company set forth elsewhere herein.
Risks of Owning Subordinated CMBS
As an owner of the most subordinate tranches of CMBS, the Company will be
the first to bear any loss and the last to have a priority right to the cash
flow of the related mortgage pool. For example, if the Company owns a $10
million subordinated interest in an issuance of CMBS consisting of $100 million
of mortgage loan collateral, a 7% loss on the underlying mortgage loans will
result in a 70% loss on the subordinated interest.
The Company's Subordinated CMBS can change in value due to a number of
economic factors. These factors include changes in the underlying real estate,
fluctuations in Treasury rates, and supply/demand mismatches which are reflected
in CMBS pricing spreads. For instance, changes in the credit quality of the
properties securing the underlying mortgage loans can result in interest payment
shortfalls, to the extent there are mortgage payment delinquencies, and
principal losses, to the extent that there are payment defaults and the amounts
are not fully recovered. These losses may result in a permanent decline in the
value of the CMBS, and the losses may change the Company's anticipated yield to
maturity if the losses are in excess of those previously estimated. CMBS are
priced at a spread above the current Treasury security with a maturity that most
closely matches the CMBS' weighted average life. The value of CMBS can be
affected by changes in Treasury rates, as well as changes in the spread
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between such CMBS and the Treasury security with a comparable maturity. For
example, the spread to Treasury of a CMBS may have increased from 400 basis
points to 500 basis points. If the Treasury security with a comparable maturity
had a constant yield of 5% then, in this example, the yield on the CMBS would
have changed from 9% to 10% and accordingly, the value of such CMBS would have
declined. Generally, increases and decreases in both Treasury rates or spreads
will result in temporary changes in the value of the Subordinated CMBS assuming
that the Company has the ability and intent to hold its CMBS investments until
their maturity. However, such temporary changes in the value of Subordinated
CMBS become permanent changes realized through the income statement when the
Company no longer intends or fails to have the ability to hold such Subordinated
CMBS to maturity. The Company has historically been unable to obtain financing
at the time of acquisition that matches the maturity of the related investments,
resulting in a periodic need to obtain short-term financing secured by the
Company's CMBS. The inability to refinance this short-term, floating-rate
financing with long-term, fixed-rate financing or a decline in the value of the
collateral securing such short-term, floating-rate indebtedness could result in
a situation where the Company is required to sell CMBS or provide additional
collateral, which could have and has had an adverse effect on the Company and
its financial position and results of operations. The Company's ability to
borrow amounts in the future may be impacted by, among other things, the credit
performance of the underlying pools of commercial mortgage loans, and other
factors affecting the Subordinated CMBS that it owns.
Limited Protection from Hedging Transactions
To minimize the risk of interest rate increases on interest expense as it
relates to its short-term, variable-rate debt, the Company follows a policy to
hedge at least 75% of the principal amounts of its variable-rate debt with
interest-rate protection agreements in order to provide a ceiling on the amount
of interest expense payable by the Company. As of September 30, 1999, 91% of the
Company's outstanding variable-rate debt was hedged with interest-rate
protection agreements that partially limit the impact of rising interest rates
above a certain defined threshold, or strike price. When these interest-rate
protection agreements expire, the Company will have increased interest rate risk
unless it is able to enter into replacement interest-rate protection agreements.
As of September 30, 1999, the weighted average remaining term for the interest
rate protection agreements was approximately 1.3 years with a weighted average
strike price of 6.7%. There can be no assurance that the Company will be able to
maintain interest-rate protection agreements to meet its hedge policy on
satisfactory terms or to adequately protect against rising interest rates on the
Company's debt. In addition, the Company does not currently hedge against all
interest rate risks, including increases in interest rate spreads and increases
in Treasury rates, which adversely affect the value of its CMBS. Moreover,
hedging involves risk and typically involves costs, including transaction costs.
Such costs increase dramatically as the period covered by the hedging increases
and during periods of rising and volatile interest rates. The Company may
increase its hedging activity and, thus, increase its hedging costs, during such
periods when interest rates are volatile or rising and hedging costs have
increased.
Limited Liquidity of Subordinated CMBS Market
There is currently no active secondary trading market for Subordinated
CMBS. This limited liquidity results in uncertainty in the valuation of the
Company's portfolio of Subordinated CMBS. In addition, even if the market for
Subordinated CMBS fully recovers, the liquidity of such market has historically
been limited; and furthermore, during adverse market conditions, the liquidity
of such market has been severely limited, which would impair the amount the
Company could realize if it were required to sell a portion of its Subordinated
CMBS.
Pending Litigation
The Company is involved in material litigation. See "GENERAL INFORMATION
- -- Legal Proceedings" for descriptions of the foregoing and other legal
proceedings.
Investment Company Act Risk
Under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), an investment company is required to register with the SEC and is
subject to extensive restrictive and potentially adverse
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regulation relating to, among other things, operating methods, management,
capital structure, dividends and transactions with affiliates. However, as
described below, companies that are primarily engaged in the business of
acquiring mortgages and other liens on and interests in real estate ("Qualifying
Interests") are excluded from the requirements of the Investment Company Act.
To qualify for the Investment Company Act exclusion, CRIIMI MAE, among
other things, must maintain at least 55% of its assets in Qualifying Interests
(the "55% Requirement") and is also required to maintain an additional 25% in
Qualifying Interests or other real estate-related assets ("Other Real Estate
Interests" and such requirement, the "25% Requirement"). According to current
SEC staff interpretations, CRIIMI MAE believes that its government insured
mortgage securities and originated loans constitute Qualifying Interests. In
accordance with current SEC staff interpretations, the Company believes that all
of its Subordinated CMBS constitute Other Real Estate Interests and that certain
of its Subordinated CMBS also constitute Qualifying Interests. On certain of the
Company's Subordinated CMBS, the Company, along with other rights, has the
unilateral right to direct foreclosure with respect to the underlying mortgage
loans. Based on such rights and its economic interest in the underlying mortgage
loans, the Company believes that the related Subordinated CMBS constitute
Qualifying Interests. As of September 30, 1999, the Company believes that it was
in compliance with both the 55% Requirement and the 25% Requirement.
If the SEC or its staff were to take a different position with respect to
whether such Subordinated CMBS constitute Qualifying Interests, the Company
could, among other things, be required either (i) to change the manner in which
it conducts its operations to avoid being required to register as an investment
company or (ii) to register as an investment company, either of which could have
a material adverse effect on the Company. If the Company were required to change
the manner in which it conducts its business, it would likely have to dispose of
a significant portion of its Subordinated CMBS or acquire significant additional
assets that are Qualifying Interests. Alternatively, if the Company were
required to register as an investment company, it expects that its operating
expenses would significantly increase and that the Company would have to reduce
significantly its indebtedness, which could also require it to sell a
significant portion of its assets. No assurances can be given that any such
dispositions or acquisitions of assets, or deleveraging, could be accomplished
on favorable terms.
Further, if the Company were deemed an unregistered investment company,
the Company could be subject to monetary penalties and injunctive relief. The
Company would be unable to enforce contracts with third parties and third
parties could seek to obtain rescission of transactions undertaken during the
period the Company was deemed an unregistered investment company.
Effect of Economic Recession on Losses and Defaults
Economic recession may increase the risk of default on commercial mortgage
loans and correspondingly increase the risk of losses on the Subordinated CMBS
backed by such loans. Economic recession may also cause reduced demand for
commercial mortgage loans. This in turn may cause declining values of commercial
real estate securing the outstanding mortgage loans, weakening collateral
coverage and increasing the possibility of losses in the event of a default.
Assumption Regarding Business of the Company and Resumption of Business
Activities
For the purpose of the Plan and this Disclosure Statement and the
information contained therein and herein including, but not limited to, the
projected financial information, the Company has defined its business
principally as owning and managing mortgage-related assets, and, prior to the
Chapter 11 filing, acquiring Subordinated CMBS and mortgage originations and
securitizations. Although it is anticipated that the Company will resume
Subordinated CMBS acquisitions and its mortgage origination and securitization
programs at some time in the future based on the Company's ability to access
capital, prevailing industry conditions and the general business climate, there
can be no assurance of such resumption. All decisions concerning resumption of
business activities will be made by the Board of Directors of the Company, as
determined to be in the best interests of the Company. Consequently, there can
be no certainty as to the business decisions that will be made by the Board of
Directors of
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the Company. Failure to resume Subordinated CMBS acquisitions, mortgage
originations and/or securitizations could adversely impact the Company's results
of operations.
The Company's ability to access additional capital will be affected by a
number of factors, many of which are not in the Company's control. These include
the cost and availability of such capital, changes in interest rates and
interest rate spreads, changes in the commercial mortgage industry and the
commercial real estate market, general economic conditions, perceptions in the
capital markets of the Company's business, covenants under the Company's debt
securities and credit facilities, results of operations, leverage, financial
condition and business prospects.
Results Of Operations Adversely Affected By Factors Beyond Company's Control
The Company's results of operations can be adversely affected by various
factors, many of which are beyond the control of the Company, and will depend
on, among other things, the level of net interest income generated by, and the
market value of, the Company's CMBS portfolio. The Company's net interest income
and results of operations will vary primarily as a result of fluctuations in
interest rates, CMBS pricing, and borrowing costs. The Company's results of
operations also will depend upon the Company's ability to protect against the
adverse effects of such fluctuations as well as credit risks. Interest rates,
credit risks, borrowing costs and credit losses depend upon the nature and terms
of the CMBS, conditions in financial markets, the fiscal and monetary policies
of the U.S. government, international economic and financial conditions and
competition, none of which can be predicted with any certainty. Because changes
in interest rates may significantly affect the Company's CMBS and other assets,
the operating results of the Company will depend, in large part, upon the
ability of the Company to manage its interest rate and credit risks effectively
while maintaining its status as a REIT. See " -- Limited Protection from Hedging
Transactions."
Borrowing Risks
A substantial portion of the Company's borrowings are and are expected to
continue to be in the form of collateralized borrowings. The terms of the New
Debt contemplated to be provided by Merrill and GACC and the Company's unsecured
creditors are set forth in the term sheets which are attached as Exhibits 1 and
2 to the Plan. Holders of Claims and Interests should refer to those Exhibits
for a description of the terms of the Merrill and GACC and unsecured creditor
New Debt. The Merrill and GACC New Debt will be collateralized by first-priority
liens and security interests in certain assets, and will be subject to a number
of terms, conditions and restrictions which are set forth in the term sheet
including, without limitation, scheduled principal and interest payments,
accelerated principal payments, restrictions and requirements with respect to
the collection, management, use and application of funds, and certain approval
rights with respect to Reorganized CMI's Board of Directors. Certain events,
including, without limitation, the failure to satisfy certain payment
obligations will result in further restrictions on the ability of the Company to
take certain actions including, without limitation, to pay cash dividends to
preferred or common shareholders. The unsecured creditor New Debt will be
collateralized by first or second priority liens or security interests in
certain assets or proceeds, and will be subject to a number of terms, conditions
and restrictions which are set forth in the term sheet including, without
limitation, scheduled principal and interest payments, and restrictions and
requirements with respect to the use of funds.
A substantial portion of the Company's borrowings are and a limited
portion of the Company's borrowings in the future, if CMBS acquisitions are
resumed, may be in the form of collateralized, short-term, floating-rate secured
borrowings. The amount borrowed under such agreements is typically based on the
market value of the CMBS pledged to secure specific borrowings. Under adverse
market conditions, the value of pledged CMBS would decline, and lenders could
initiate margin calls (in which case the Company could be required to post
additional collateral or to reduce the amount borrowed to restore the ratio of
the amount of the borrowing to the value of the collateral). The Company may be
required to sell CMBS to reduce the amount borrowed. If these sales were made at
prices lower than the carrying value of the CMBS, the Company would experience
losses.
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A default by the Company under its collateralized borrowings could result
in a liquidation of the collateral. If the Company is forced to liquidate CMBS
that qualify as qualified real estate assets (under the REIT Provisions of the
Code) to repay borrowings, there can be no assurance that it will be able to
maintain compliance with the REIT Provisions of the Code regarding asset and
source of income requirements.
Shape of the Yield Curve Adversely Affects Income
The relationship between short-term and long-term interest rates is often
referred to as the "yield curve." Ordinarily, short-term interest rates are
lower than long-term interest rates. If short-term interest rates rise
disproportionately relative to long-term interest rates (a flattening of the
yield curve), the borrowing costs of the Company may increase more rapidly than
the interest income earned on its assets. Because borrowings will likely bear
interest at short-term rates (such as LIBOR) and CMBS will likely bear interest
at medium-term to long-term rates (such as those calculated based on the
Ten-Year U.S. Treasury Rate), a flattening of the yield curve will tend to
decrease the Company's net income, assuming the Company's short-term borrowing
rates bear a strong relationship to short-term Treasury rates. Additionally, to
the extent cash flows from long-term assets are reinvested in other long-term
assets, the spread between the coupon rates of long-term assets and short-term
borrowing rates may decline and also may tend to decrease the net income and
mark-to-market value of the Company's net assets. It is also possible that
short-term interest rates may adjust relative to long-term interest rates such
that the level of short-term rates exceeds the level of long-term rates (a yield
curve inversion). In this case, as well as in a positively sloped yield curve
environment, borrowing costs could exceed the interest income and operating
losses would be incurred.
Failure To Manage Mismatch Between Long-Term Assets And Short-Term Funding
The Company's operating results will depend in large part on differences
between the income from its CMBS and its borrowing costs. The Company
anticipates that all of its CMBS, on a pro forma basis, will have interest
payment rates (i.e., coupon rates) which remain fixed until their maturity. If
the Company resumes the acquisition of Subordinated CMBS, the Company intends to
fund a significant portion of its CMBS with borrowings having interest rates
(i.e., borrowing rates) that reset more frequently, usually monthly or
quarterly. If interest rates rise, borrowing rates (and borrowing costs) of the
Company are expected to rise more quickly than coupon rates (and investment
income) on the Company's CMBS. This would decrease both the Company's net
income, potentially resulting in a net loss, and the mark-to-market value of the
Company's net assets, and would be expected to decrease the market price of the
Company's Common Stock and to slow future acquisitions of assets. Although the
Company intends to invest primarily in fixed-rate CMBS, the Company also may own
adjustable rate CMBS. The coupon rates of adjustable rate CMBS normally
fluctuate with reference to specific rate indices. The Company may fund these
adjustable rate CMBS with borrowings having borrowing rates which reset monthly
or quarterly. To the extent that there is a difference between (i) the interest
rate index used to determine the coupon rate of the adjustable rate CMBS (asset
index) and (ii) the interest rate index used to determine the borrowing rate for
the Company's related financing (borrowing index), the Company will bear a
"basis" interest rate risk. Typically, if the borrowing index rises more than
the asset index, the net income of the Company would be decreased all other
things being constant. Additionally, the Company's adjustable rate CMBS may be
subject to periodic rate adjustment limitations and periodic and lifetime rate
caps which limit the amount that the coupon rate can change during any given
period. No assurance can be given as to the amount or timing of changes in
interest rates or their effect on the Company's CMBS, their valuation or income
derived therefrom. During periods of changing interest rates, coupon rate and
borrowing rate mismatches could negatively impact the Company's net income,
distributions and the market price of the Common Stock.
Competition
If the Company resumes the acquisition of Subordinated CMBS following its
reorganization, the Company would compete with mortgage REITs, specialty finance
companies, banks, hedge funds, investment banking firms, other lenders, and
other entities purchasing Subordinated CMBS. Many of the Company's competitors
for
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Subordinated CMBS may have greater access to capital and other resources (or
the ability to obtain capital at a lower cost) and may have other advantages
over the Company.
There can be no assurance that the Company would be able to obtain
financing at borrowing rates below the asset yields of its Subordinated CMBS. In
such event, the Company may incur losses or may be forced to further reduce the
size of its Subordinated CMBS portfolio. The Company would face competition for
financing sources which may limit the availability of, and affect the cost of,
funds to the Company.
Risks Associated with Trader Election
The recently issued Revenue Procedure 99-17 provides securities and
commodities traders with the ability to elect mark-to-market treatment for 2000
by including an election with their timely filed 1999 federal tax extension. The
election applies to all future years as well unless revoked with the consent of
the Internal Revenue Service. The Company determined to elect mark-to-market
treatment as a securities trader for 2000 and, accordingly, will recognize gains
and losses prior to the actual disposition of its securities. Moreover, some if
not all of those gains and losses, as well as some if not all gains or losses
from actual dispositions of securities, will be treated as ordinary in nature
and not capital, as they would be in the absence of the elections.
There is no assurance, however, that the Company's election will not be
challenged on the ground that it is not in fact a trader in securities, or that
it is only a trader with respect to some, but not all, of its securities. As
such, there is a risk that the Company will be limited in its ability to
recognize certain losses if it is not be able to mark-to-market its securities.
The election to be treated as a dealer will result in net operating losses
("NOLs") that generally may be carried forward for 20 years. The Company
believes that it may experience an "ownership change" within the meaning of
Section 382 of the Tax Code. Consequently, its use of NOLs generated before the
ownership change to reduce taxable income after the ownership change may be
subject to limitation under Section 382. Generally, the use of NOLs in any year
is limited to the value of the Company's stock on the date of the ownership
change multiplied by the long-term tax exempt rate (published by the IRS) with
respect to that date.
Taxable income (loss) requires an annual calculation. For the year ended
December 31, 2000, taxable income (loss) may be different from net income (loss)
as calculated according to generally accepted accounting principles ("GAAP
income (loss)") as a result of differing treatment of the unrealized gains and
losses on securities transactions as well as other timing differences. For the
Company's tax purposes, unrealized gains (losses) will be recognized at the end
of the year and will be aggregated with operating gains (losses) to produce
total taxable income (loss) for the year.
VIII. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
consequences expected to result from the consummation of the Plan. This
discussion is based on current provisions of the Internal Revenue Code of 1986,
as amended (the "Tax Code"), applicable Treasury Regulations, judicial authority
and current administrative rulings and pronouncements of the Internal Revenue
Service (the "Service"). There can be no assurance that the Service will not
take a contrary view, and no ruling from the Service has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to Holders, the Company and the Reorganized
Debtors. It cannot be predicted at this time whether any tax legislation will be
enacted or, if enacted, whether any tax law changes contained therein would
affect the tax consequences to the Holders, the Company and the Reorganized
Debtors.
The following summary is for general information only. The tax treatment
of a Holder may vary depending upon such Holder's particular situation. This
discussion assumes that Holders of Old Securities have held such
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property as "capital assets" within the meaning of Section 1221 of the Tax Code
(generally, property held for investment). This summary does not address all of
the tax consequences that may be relevant to a Holder, nor does it address the
federal income tax consequences to Holders subject to special treatment under
the federal income tax laws, such as brokers or dealers in securities or
currencies, certain securities traders, tax-exempt entities, financial
institutions, insurance companies, foreign corporations, Holders who are not
citizens or residents of the United States, Holders that hold the Old Securities
as a position in a "straddle" or as part of a "synthetic security," "hedging,"
"conversion" or other integrated instrument, Holders that have a "functional
currency" other than the United States dollar and Holders that have acquired Old
Securities in connection with the performance of services. EACH HOLDER SHOULD
CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO IT OF THE PLAN,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Tax Effects to the Debtors. The Debtors generally will each realize
cancellation of indebtedness ("COI") income to the extent that the fair market
value of any property received by Holders of their indebtedness is less than the
adjusted issue price (plus the amount of any accrued but unpaid interest) of
such indebtedness discharged thereby. Under Section 108 of the Tax Code,
however, COI income will not be recognized if the COI income occurs in a case
brought under the Bankruptcy Code, provided the taxpayer is under the
jurisdiction of a court in such case and the cancellation of indebtedness is
granted by the court or is pursuant to a plan approved by the court.
Accordingly, because the cancellation of the indebtedness of the Debtors will
occur in a case brought under the Bankruptcy Code, the Debtors will each be
under the jurisdiction of the court in such case and the cancellation of the
indebtedness will be pursuant to the Plan, the Debtors should not be required to
recognize any COI income realized as a result of the implementation of the Plan.
Under Section 108(b) of the Tax Code, the Debtors will be required to
reduce certain tax attributes including certain losses, credits and
carryforwards, if any including tax basis in assets (but not below the amount of
liabilities remaining immediately after the discharge of indebtedness), in an
amount equal to the amount of COI income excluded from income as described in
the preceding paragraph (subject to certain modifications).
Tax Effects to the Holders of Claims. Pursuant to the Plan, in exchange
for their Claims, the Holders thereof will receive a portion of their Allowed
Claim in cash and/or in other property (the "Exchange"). The tax effect to the
Holder of a Claim will depend upon (a) whether the Claim is treated as a
"security" solely for federal income tax purposes, and (b) whether any non-cash
property received in the Exchange is treated as a "security" solely for federal
income tax purposes, which may include Warrants. An exchange of each Holder's
Claim for cash and/or other property should be treated as a "recapitalization"
and, therefore, a reorganization within the meaning of Section 368(a) of the Tax
Code if the Holder of the Claim is treated as holding a "security" for federal
income tax purposes and receives property in the Exchange which is also treated
as a "security" for federal income tax purposes. Generally for federal income
tax purposes, only debt instruments and any Warrants issued will qualify as a
"security." The test as to whether a debt instrument is a "security" involves an
overall evaluation of the nature of the debt instrument, with the term of the
debt instrument usually regarded as one of the most significant factors.
Generally, debt instruments with a term of five years or less have not qualified
as "securities" whereas debt instruments with a term of ten years or more
generally have qualified as "securities." Accordingly, whether a Claim and the
property, if any, received in the Exchange constitute "securities" and,
therefore, qualify the Exchange as a recapitalization will depend on the terms
of that particular debt instrument. Each Holder of a Claim is urged to consult
with its own personal tax advisor as to the tax consequences of the Exchange to
such Holder.
To the extent a Holder's Claim and a portion of such Holder's property
received constitute "securities" for federal income tax purposes, the Exchange
should be treated as a "reorganization" for federal income tax purposes. As a
result, such exchanging Holders generally should not recognize any gain or loss
(except to the extent the cash and/or other property received are attributable
to accrued but unpaid interest on the Claim, in which event the Holder would
generally be required to treat such amounts as payment of interest includible in
income in accordance with the Holder's method of accounting for tax purposes
(see "Accrued Interest" below)). A Holder of a Claim will recognize any gain
realized on the Exchange to the extent of the cash received in the Exchange
(other than any cash received which is attributable to accrued but unpaid
interest on the Claim). Any such gain would generally be long-term capital gain
(subject to the market discount rules discussed below) if the Claim had been
held for more than
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one year. A Holder's adjusted tax basis in its property received will be equal
to the Holder's adjusted tax basis in its Claim plus any gain recognized
(including income attributable to accrued but unpaid interest on the Claim),
less the amount of cash received pursuant to the Exchange. The Holder's tax
basis will be allocated among the non-cash property received in proportion to
the relative fair market value of each item of non-cash property received. A
Holder's holding period for the property received will generally include the
Holder's holding period for its Claim.
To the extent a Holder's Claim does not constitute, and/or no portion of
such Holder's property received constitutes "securities" for federal income tax
purposes, then an exchanging Holder would recognize gain or loss equal to the
difference between the fair market value of the property received and the
Holder's adjusted tax basis in the Claim exchanged therefor. Any such gain or
loss would generally be long-term capital gain or loss (subject to the market
discount rules discussed below) if the Claim is a capital asset and had been
held for more than one year. In this event, a Holder's tax basis in the property
received would be equal to its fair market value on the Effective Date, and the
holding period for the property received would begin on the day immediately
after the Effective Date.
A Holder of a Claim not discussed above should generally recognize gain or
loss equal to the amount of any cash plus the fair market value of any other
property received, with respect to its Claim (other than for accrued but unpaid
interest) less its adjusted basis in its Claim (other than for accrued but
unpaid interest). The character of such gain or loss as long-term or short-term
capital gain or loss or as ordinary income or loss will be determined by a
number of factors, including the tax status of the Holder, whether the Claim
constitutes a capital asset in the hands of the Holder, whether the Claim has
been held for more than one year, whether the Claim was purchased at a discount,
and whether and to what extent the Holder had previously claimed a bad-debt
deduction or a worthless-security deduction.
Accrued Interest. Holders will be treated as receiving a payment of
interest (includible in income in accordance with the Holder's method of
accounting for tax purposes) to the extent that any cash or other property
received pursuant to the Plan is attributable to accrued but unpaid interest, if
any, on such Claims. The extent to which the receipt of cash or other property
should be attributable to accrued but unpaid interest is unclear. The Debtors
intend to take the position that such cash or property distributed pursuant to
the Plan will first be allocable to the principal amount of a Claim and then, to
the extent necessary, to any accrued but unpaid interest thereon. Each Holder
should consult its own tax advisor regarding the determination of the amount of
consideration received under the Plan that is attributable to interest (if any).
A Holder generally will be entitled to recognize a loss to the extent any
accrued interest was previously included in its gross income and is not paid in
full.
If any property received pursuant to the Plan is considered attributable
to accrued but unpaid interest, a Holder's basis in such property should be
equal to the amount of interest income treated as satisfied by the receipt of
such property. The holding period in such property should begin on the day
immediately after the Effective Date.
Stated Interest. A holder of a debt instrument issued in the Exchange will
generally be required to report as ordinary income for federal income tax
purposes interest received or accrued on the debt instrument in accordance with
the Holder's method of tax accounting.
Original Issue Discount. Because the Notes are being offered as a part of
a unit, which may include Warrants, the issue price of any debt instrument
issued may be less than such debt instrument's principal amount. As a result,
the debt instrument will be issued at a discount from its face amount. If the
discount exceeds a statutory de minimis amount (1/4 of 1% of an obligation's
stated redemption price at maturity multiplied by the number of complete years
to its maturity), the debt instrument will be considered to be issued with
original issue discount. A Holder will be required to include a portion of any
such original issue discount as ordinary income for federal income tax purposes
each year over the term of its debt instrument so as to provide a constant yield
to maturity, in addition ot the amount of stated interest received or accrued.
The total amount of original issue discount with respect to each debt
instrument would be the difference between its "issue price" and its "stated
redemption price at maturity." The "issue price" of a debt instrument will
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generally be determined by allocating a portion of the fair market value of the
Holder's Claim to the debt instrument.
The "stated redemption price at maturity" of a debt instrument is the sum
of all payments provided by the debt instrument other than "qualified stated
interest" payments. Stated interest payable on the debt instrument should equal
the principal amount of the debt instrument.
Except as provided below, in "Premium and Market Discount," the amount of
original issue discount required to be included in a Holder's income in any tax
year is determined by allocating to each day during such tax year in which a
Holder holds a debt instrument a pro rata portion (the "daily portion") of the
total amount of original issue discount with respect ot such debt instrument
attributable to the "accrual period" in which such day is included. The amount
of original issue discount on the debt instrument attributable to an accrual
period is equal to the product of (i) the "adjusted issue price" at the
beginning of the accrual period (the issue price plus previous accruals of
original issue discount, reduced by all payments made on the debt instrument
other than a payment of qualified stated interest) and (ii) the yield to
maturity of the debt instrument, adjusted appropriately for the length of the
accrual period, less the amount of any qualified stated interest allocable to
the accrual period. The "yield to maturity" of a debt instrument is the interest
rate that will produce an amount equal to the issue price of the debt instrument
used in comparing the present value of all payments to be made pursuant to the
debt instrument.
CRIIMI MAE or its agent will report to Holders and to the Internal Revenue
Service ("IRS") the amount of original issue discount that accrues each year.
Holders should consult their own tax advisors regarding an election to
include all interest that accures on the debt instruments by using the constant
yield method.
Premium and Market Discount. If a Holder pays an amount (exclusive of
accrued and unpaid interest through the acquisition date) in excess of the debt
instrment's stated redemption price at maturity at the time of its acquisition
("Bond Premium"), the Holder will not be required to include original issue
discount in its income and may elect to amortize the Bond Premium. If the Bond
Premium is amortized, the amount of interest which must be included in the
Holder's income from each period ending on an interest-payment date or stated
maturity, as the case may be, will be reduced by the portion of the premium
allocable to such period based on the debt instrument's yield to maturity. This
election applies to all debt instruments acquired by the Holder during the year
of election and thereafter.
If a Holder pays an amount (exclusive of accrued and unpaid interest
through the acquisition date) in excess of the debt instruments adjusted issue
price at the time of its acquisition ("Acquisition Premium) but less that its
stated redemption price at maturity, the Holder may be entitled to a reduction
in the amount of any original issue discount includable in such Holder's income
for such Acquisition Premium. The reduction will be an amount equal to the daily
portion of original issue discount for that day multiplied by a fraction, the
numerator of which is equal to the Acquisition Premium, and the denominator of
which is the excess of the stated redemption price at maturity over the adjusted
issue price of the debt instrument on the date of purchase.
Market Discount. Generally, a Holder of a Claim represented by a debt
instrument who purchased its Claim at a "market discount" (i.e., at a price
below the Claim's adjusted issue price) must treat gain recognized on the
disposition of its property received as ordinary income to the extent market
discount accrued while the debt instrument was held by the Holder, unless the
Holder made an election to include such market discount in income as it accrued.
Holders of Claims should consult their own tax advisors regarding the
amount of any market discount that accrued with respect to their property
received in the Exchange.
The Tax Code provides that "under regulations" (which have not yet been
issued), accrued market discount on a market discount bond is not recognized as
ordinary income at the time of the bond's disposition if the
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disposition occurs in a "nonrecognition transaction," including a
recapitalization. Instead, accrued market discount on a market discount bond
disposed of in a nonrecognition transaction is converted into accrued market
discount on property received in the transaction if that property is a market
discount bond. If the property received (other than cash) is not a market
discount bond, accrued market discount on the old market discount bond is
treated as ordinary income on the disposition of the property received in
exchange therefor, limited to the extent of the gain thereon.
A Holder of a Claim that has accrued market discount should not be
required to recognize that accrued market discount as ordinary income when the
Holder exchanges that instrument for property received in the Exchange except to
the extent of any realized gain which is recognized from the receipt of cash
(other than cash received which is attributable to accrued but unpaid interest
with respect to the Claim); rather the unrecognized portion of any accrued
market discount should be allocated to the property received in the Exchange
(this conclusion may depend on the issuance of as-yet unissued implementing
regulations). Although no regulations or rules have been provided to determine
how such accrued market discount should be allocated, the accrued market
discount should be allocated in the same manner as tax basis is allocated. The
portion of the accrued market discount allocated to property received in the
Exchange will be treated as ordinary income at the disposition of such new
property, but not in excess of the total gain recognized.
Under the market discount rules, holders of Claims with accrued market
discount may have been required to defer the deduction of a portion of the
interest on any indebtedness incurred or maintained to purchase or carry their
Claims. Any interest expense which has been deferred by Holders of claims who
participate in the Exchange will continue to be deferred and will be deductible
only on disposition of any new debt instruments and Warrants received in the
Exchange. The market discount rules may also provide that any Holder of new debt
instruments acquired at a market discount may be required to defer the deduction
of a portion of the interest on any indebtedness incurred or maintained to
purchase or carry the new debt instruments until the new debt instruments are
disposed of in a taxable transaction. This rule will not apply if the Holder
elects to include accrued market discount in income currently.
Prospective participants in the Exchange should be aware that the market
discount rules could affect the price at which a subsequent purchaser would be
willing to purchase new debt instruments.
Holders should consult their own tax advisors regarding the amount of any
market discount, if any, accrued with respect to their Claims or that may be
treated as carried over from their Claims and the limitation on interest
deductions attributable to the new debt instruments.
Tax Effects to the Holders of Series B Preferred Stock. Pursuant to the
Plan, the Holders of the Series B Preferred Stock will receive cash or other
property equal to the unpaid dividends which have accrued with respect to the
Series B Preferred Stock. The amount of cash or other property received in
satisfaction of the accrued but unpaid dividends will be treated as ordinary
income to the Holders of Series B Preferred Stock to the extent of the Company's
earnings and profits.
Tax Effects to Holders of Series E and Old Series D Preferred Stock.
Pursuant to the Plan, the Holder of the Old Series D Preferred Stock will
receive Series E Preferred Stock in exchange for its Old Series D Preferred
Stock, plus an amount of cash or other property equal to the unpaid dividends
which have accrued with respect to the Old Series D Preferred Stock. As a result
of the exchange, the Holder of the Old Series D Preferred Stock should not
recognize any gain or loss on the exchange except for the cash or other property
received which is attributable to the accrued but unpaid dividends. The amount
of cash or other property received in satisfaction of the accrued but unpaid
dividends with respect to the Former Series C Preferred Stock and Old Series D
Preferred Stock will be treated as ordinary income to the Holder of the Series E
and the Old Series D Preferred Stock to the extent of the Company's earnings and
profits.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS IS
FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH
HOLDER SHOULD CONSULT ITS TAX ADVISOR WITH RESPECT TO THE TAX
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<PAGE>
CONSEQUENCES OF THE PLAN DESCRIBED HEREIN AND THE APPLICATION OF STATE, LOCAL
AND FOREIGN TAX LAWS. NEITHER THE PROPONENTS NOR THEIR PROFESSIONALS SHALL HAVE
ANY LIABILITY TO ANY PERSON OR HOLDER ARISING FROM OR RELATED TO THE FEDERAL,
STATE OR LOCAL TAX CONSEQUENCES OF THE PLAN OR THE FOREGOING DISCUSSION.
IX. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
If the Plan is not confirmed and consummated, the alternatives include (a)
confirmation of some other alternative Chapter 11 plan or (b) conversion of the
Chapter 11 Case to a liquidation under Chapter 7 of the Bankruptcy Code.
A. Alternative Chapter 11 Plans
On December 20, 1999, the Unsecured Creditors' Committee filed its
proposed Plan of Reorganization and related proposed Disclosure Statement.
Thereafter, the Unsecured Creditors' Committee amended its Plan and proposed
Disclosure Statement with respect thereto. However, as previously stated, the
Unsecured Creditors' Committee now fully supports the Debtors' Plan and
encourages all creditors to vote in favor of the Plan. The Unsecured Creditors'
Committee has withdrawn from consideration its Plan and consequently, the Court
will not be considering that Plan.
Although no other plan is before the Court at this time, if such a plan
and proposed disclosure statement with respect thereto were to be filed, the
Court could consider such plan and proposed disclosure statement or could choose
to defer consideration thereof. In formulating and developing the Debtors' Plan,
the Debtors and the CMI Equity Committee have explored numerous other
alternatives and engaged in negotiations with various parties holding disparate
interests. As noted above, the Debtors' Plan has the full support of not only
the CMI Equity Committee but also the Unsecured Creditors' Committee. The
Debtors and the CMI Equity Committee, together with the Unsecured Creditors'
Committee, believe that the Plan deals fairly with the rights of Holders of the
various classes of Claims and Interests and enables creditors and stockholders
to realize the greatest recovery possible under the circumstances. They further
believe that alternative methods of restructuring the Claims and Interests of
the various classes will not result in a better recovery for any Class, will
diminish value and will require, at the very least, an extensive, time-consuming
and expensive negotiation and/or litigation process.
B. Liquidation Under Chapter 7
Another alternative to confirmation and consummation of the Plan is
liquidation of the Debtors under Chapter 7 of the Bankruptcy Code. Section
1129(a) of the Bankruptcy Code provides that the Bankruptcy Court may confirm a
plan only if the requirements contained in such section are met. One of these
requirements is that each non-accepting holder of an allowed claim or an allowed
interest in an impaired class must receive or retain under the plan on account
of such claim or interest property having a value as of the effective date of
the plan at least equal to the value that such holder would receive if the
debtor were liquidated under Chapter 7 of the Bankruptcy Code on the effective
date of the Plan. The Debtors have prepared the Liquidation Analysis attached
hereto as Exhibit C. Based upon such Liquidation Analysis and after taking into
account the settlements and compromises contained in the Plan, the Debtors and
the CMI Equity Committee do not believe that Holders of Claims and Interests
would receive greater recoveries if the Debtor were to be liquidated under
Chapter 7 of the Bankruptcy Code.
X. CONCLUSION AND RECOMMENDATION
The Debtors and the Official Committee of Equity Security Holders believe
that confirmation and implementation of the Plan is in the best interests of all
creditors and equity security holders and is clearly preferable to liquidation
of CMI, CMM and Holdings because the Plan will provide the greatest recoveries
to Holders of Claims and Interests. The Debtors' Plan will provide the best
possible recoveries to Holders of Allowed
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<PAGE>
Claims and Interests in the most feasible and expeditious manner, without
additional protracted litigation The Unsecured Creditors' Committee agrees and
has joined the Debtors and the CMI Equity Committee in supporting the Plan. In
addition, other alternatives would involve significant delay, uncertainty and
substantial additional administrative costs. For all of these reasons, the
Debtors, the CMI Equity Committee and the Unsecured Creditors' Committee urge
you to return your ballot accepting the Debtors' Amended Plan.
Dated: March 31, 2000. Respectfully submitted,
[SIGNATURES TO FOLLOW ON THE NEXT PAGE]
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<PAGE>
CRIIMI MAE INC.,
a Maryland Corporation
By:
------------------------------
Name: Cynthia O. Azzara
Title: Senior Vice President
CRIIMI MAE MANAGEMENT, INC.,
a Maryland Corporation
By:
------------------------------
Name: Cynthia O. Azzara
Title: Senior Vice President
CRIIMI MAE HOLDINGS II, L.P. ,
a Delaware Limited Partnership
By: CRIIMI MAE INC.
------------------------------
Its General Partner
By:
---------------------------
Name: Cynthia O. Azzara
Title: Senior Vice President
VENABLE, BAETJER AND HOWARD, LLP
By:
------------------------------
Richard L. Wasserman
1800 Mercantile Bank & Trust Building
Two Hopkins Plaza
Baltimore, Maryland 21201
(410) 244-7400
Co-Counsel for CRIIMI MAE Inc. and
CRIIMI MAE Holdings II, L.P.
AKIN GUMP STRAUSS HAUER & FELD LLP
By:
------------------------------
Stanley J. Samorajczyk
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
(202) 887-4000
Co-Counsel for CRIIMI MAE Inc. and
CRIIMI MAE Holdings II, L.P.
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<PAGE>
SHULMAN, ROGERS, GANDAL, PORDY & ECKER, P.A.
By:
------------------------------
Morton A. Faller
11921 Rockville Pike
Third Floor
Rockville, MD 20852-2753
(301) 231-0928
Counsel for CRIIMI MAE Management, Inc.
CO-PROPONENT:
OFFICIAL COMMITTEE OF EQUITY SECURITY HOLDERS OF
CRIIMI MAE INC.
By:
--------------------------------
Name: Michael F. Wurst
Title: Co-Chairman
COVINGTON & BURLING
By:
---------------------------
Michael St. Patrick Baxter
Dennis B. Auerbach
1201 Pennsylvania Ave., NW
Washington, D.C. 20044
(202) 662-6000
Counsel for the Official Committee of
Equity Security Holders of CRIIMI
MAE Inc.
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<PAGE>
EXHIBIT A
SECOND AMENDED JOINT PLAN OF REORGANIZATION
A-1
<PAGE>
EXHIBIT B
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
[To be supplied before Disclosure Statement hearing based upon then available
financial information.]
PROJECTED FINANCIAL INFORMATION
[To be supplied before Disclosure Statement hearing based upon assumptions
specified therein.]
B-1
<PAGE>
EXHIBIT C
LIQUIDATION ANALYSIS
Section 1129(a) of the U.S. Bankruptcy Code states that the court shall confirm
a plan of reorganization only if certain requirements are met. One of these
requirements (Section 1129(a) (7) (A) (ii)) is that with respect to each
impaired class of claims or interests, each holder of a claim or interest of
such class must accept the plan or receive or retain property of a value, as of
the Effective Date of the plan, that is not less than the amount that holders of
such claims or interests would receive or retain if the Debtors were liquidated
under Chapter 7 on such date.
As previously disclosed in Section VII of the Disclosure Statement, Certain Risk
Factors, the value of the Company's Subordinated CMBS and other mortgage assets
can change due to a number of economic factors. These factors include changes in
the underlying real estate, fluctuations in U.S. Treasury rates, and changes in
risk premiums (commonly referred to in industry practice as "spreads") for
purchasing Subordinated CMBS and other mortgage assets. The Company's management
believes that only a limited number of investors currently exist with the real
estate expertise, infrastructure, and available capital required to evaluate and
execute an acquisition of the Company's Subordinated CMBS and other mortgage
assets. Furthermore, there is currently no active secondary market for the
Company's Subordinated CMBS and other mortgage assets. The size of the Company's
portfolio, the unprecedented nature of a liquidation of such portfolio, and the
limited liquidity of the secondary CMBS market results in uncertainty in the
valuation of the Company's portfolio of Subordinated CMBS and other mortgage
assets. The Company's management has prepared its liquidation analysis (the
"Liquidation Analysis") assuming the Company is unable to preserve its REIT
status and a court appointed trustee liquidates the assets of the Debtors'
estate not in a "firesale", but over a period of approximately six months (see
Significant Assumptions in the Notes to Liquidation Analysis).
Underlying the Liquidation Analysis are a number of estimates and assumptions
that, although formulated and considered reasonable by the Debtors, are
inherently subject to significant economic, competitive, and other uncertainties
and contingencies beyond the control of the Debtors. The Liquidation Analysis is
also based on assumptions with regard to liquidation decisions that are subject
to change. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE VALUES REFLECTED IN
THIS LIQUIDATION ANALYSIS WOULD BE REALIZED IN A CHAPTER 7 CASE. ACTUAL RESULTS
COULD VARY MATERIALLY FROM THOSE SHOWN HEREIN.
The Liquidation Analysis has been prepared solely for the purpose of estimating
the distributable liquidation proceeds available in a hypothetical Chapter 7
case and does not necessarily represent values that may be appropriate for any
other purpose. Nothing contained in these valuations is intended nor shall it be
construed to be an admission by the Company for any other purpose. The
independent public accountants of the Company have neither examined nor compiled
or provided any assurance report on the Liquidation Analysis thereon in
accordance with Generally Accepted Auditing Standards.
<PAGE>
CRIIMI MAE Inc.
Liquidation Analysis
See Accompanying Notes to Liquidation Analysis
<TABLE>
<CAPTION>
Liquidation Estimated Recovery
Proceeds Allowed Claims Recovery Percentage
-------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash (1) $ 259,042,470
Sale of Investments (2) 387,245,722
Other Assets (3) 72,817,321
-------------
Liquidation Value of Assets $ 719,105,512
-------------
Chapter 7 Administrative Expenses:
Tax Liabilities (4) $ (87,200,000) $ (87,200,000) 100%
Professionals (5) (6,000,000) (6,000,000) 100%
Trustee Fees (6) (6,820,000) (6,820,000) 100%
Operating Expenses (7) (2,500,000 (2,500,000) 100%
Chapter 11 Administrative and Priority Claims:
Professionals (8) (18,911,077) (18,911,077 100%
Other (9) (11,381,896) (11,381,896) 100%
Secured Debt (10) (450,410,727) (450,410,727) 100%
Unsecured Claims (11) (201,788,589) (135,881,812) 67%
------------
Total Estimated Cash Available for Equity
Distribution $ 0
-------------
Equity:
Preferred Stock: (12)
Series B $ 0 0%
Series D $ 0 0%
Series E $ 0 0%
Series F (Dividend Preferred) $ 0 0%
Available Cash for Distribution to Common
Shareholders $ 0
--------------
Common Shares Outstanding (13) 62,353,170
--------------
Cash Distribution per Common Share $ 0 0%
--------------
</TABLE>
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<PAGE>
Notes to Liquidation Analysis
Significant Assumptions
The following notes describe the significant assumptions that are reflected in
the Liquidation Analysis:
Loss of REIT Status through Chapter 7 Liquidation Significantly Reduces
Recoverability to Creditors and Shareholders
The Liquidation Analysis assumes that CRIIMI MAE is not able to distribute
sufficient taxable dividends for either its 1999 or 2000 tax years to satisfy
REIT distribution requirements and, therefore, is unable to preserve its REIT
status. In addition, due to the loss of REIT status, the Company's taxable
mortgage pools ("TMPs") are assumed to lose their qualified REIT subsidiary
("QRS") exemptions and are treated as separate tax-paying entities. As a result
of the loss of REIT status and the QRS exemptions, the aggregate liquidating
distribution, as reflected herein, has been significantly diminished by
corporate federal and state income tax liabilities (excluding penalties and
interest) and a reduction in liquidation proceeds resulting from the sale of
CBO-1, CBO-2 and CMO-IV (collectively referred to herein as the "Trusts") as
TMPs. The liquidating distribution may be further reduced by penalties and
interest associated with the potential late payment of 1999 and 2000 corporate
federal and state tax liabilities.
The amount of cash available for distribution for 1999 and 2000 could be
increased in total by approximately $254 million if the Company's REIT status
were preserved. The Company's ability to maintain its REIT status through the
adequate distribution of dividends (among other requirements) could increase the
ultimate recovery by preserving the QRS exemptions of the TMPs currently owned
by the Company. Based upon management's assumptions, it is currently estimated
that the loss of the Company's REIT status results in a reduction in the
liquidation proceeds by approximately $167 million from the sale of the Trusts
as TMPs and an additional $87 million due to corporate federal and state income
tax liabilities (excluding penalties and interest). These reductions result in a
decrease in the ultimate recovery of the unsecured creditors' allowed claims by
approximately $66 million as reflected in the Liquidation Analysis set forth
above. The following paragraphs describe the risks associated with the Company's
loss of its REIT status:
Devaluation of the CMBS assets due to TMP risk. An entity that constitutes
a "taxable mortgage pool" as defined in the Tax Code is treated as a
separate corporate level taxpayer for federal income tax purposes. In
general, for an entity to be treated as a TMP: (i) substantially all of
the assets must consist of debt obligations and a majority of those debt
obligations must consist of mortgages; (ii) the entity must have more than
one class of debt securities outstanding with separate maturities, and
(iii) the payments on the debt securities must bear a relationship to the
payments received by the TMPs. Based on this definition, CBO-1, CBO-2 and
CMO-IV (collectively the "Trusts") are TMPs. The statutory provisions and
regulations governing the tax treatment of TMPs (the "TMP Rules") provide
an exemption for TMPs whose equity interests are wholly owned by a REIT
(or a qualified REIT subsidiary or "QRS"). Since it is assumed that the
Company's REIT status is not maintained for 1999 or 2000, the Trusts would
no longer qualify for the exemption granted to a QRS and the Trusts would
be required to pay a separate corporate level tax on income derived from
their underlying mortgage assets. As a result of the tax on the TMPs,
available funds from the underlying mortgage assets that would ordinarily
be used by the Trusts to make payments on certain securities issued by the
Trust (including the equity interests) would instead be applied to satisfy
corporate federal and state income tax liabilities. Since the equity
interests and bonds owned by the Company are the most subordinated
securities of the Trusts and are the first to absorb payment shortfalls,
the loss of the QRS exemption under the TMP rules would have a material
adverse effect on the payments received on these securities and the
liquidation value of the Trusts.
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<PAGE>
The Company's aggregate estimated tax liability (i) has been calculated on a
consolidated basis, (ii) assumes the Company loses its REIT status, and (iii)
assumes that the TMPs lose their QRS exemptions and are taxed as separate
taxpaying entities. Under this scenario, CRIIMI MAE would likely recognize a
taxable loss, while each TMP would have positive taxable income as a separate
corporation. The taxable income associated with CBO-1, CBO-2, and CMO-IV is
estimated at $110 million for 1999 and $108 million for 2000. The $218 million
of taxable income, which cannot be offset by CRIIMI MAE's taxable losses, would
give rise to an aggregate tax liability of approximately $87 million (excluding
penalties and interest) through liquidation, thereby reducing cash available for
distribution to unsecured creditors and shareholders. The liquidating
distribution may be further reduced by penalties and interest associated with
the potential late payment of 1999 and 2000 corporate federal and state tax
liabilities.
The Liquidation Period
This Liquidation Analysis assumes a conversion of the Company's Chapter 11
reorganization to a Chapter 7 liquidation effective July 1, 2000 and involves a
six-month liquidation of all remaining assets through December 31, 2000 (the
"Liquidation Period"). Cash proceeds from the sale of each asset are used to
retire, to the extent of available funds, any related secured debt at the time
the assets are sold, with excess cash accumulated in an interest bearing account
for the payment of the remaining liabilities in December 2000.
Liquidation Analysis Prepared on a Consolidated Basis for the Debtor Entities
The Liquidation Analysis assumes the liquidation of CRIIMI MAE Inc. and its
consolidated subsidiaries (which includes the debtor entities CRIIMI MAE
Management, Inc. and CRIIMI MAE Holdings II, L.P. and certain non-debtor
entities). With respect to CRIIMI MAE Management, Inc. and CRIIMI MAE Holdings
II, L.P., the following summarizes the results of an assumed Chapter 7
liquidation of those entities:
CRIIMI MAE Management, Inc. ("CRIIMI MAE Management")
The total pre- and post-petition liabilities of CRIIMI MAE Management as of
December 31, 1999 were approximately $9.1 million. The total estimated
liquidation value of the assets of CRIIMI MAE Management as of December 31, 1999
was in excess of $13 million. Accordingly, in a Chapter 7 liquidation of CRIIMI
MAE Management, it is estimated that all pre- and post-petition creditors and
all administrative expenses in the Chapter 7 case would be paid in full, with a
net residual value available to the estate of CRIIMI MAE Inc. as the sole
shareholder of CRIIMI MAE Management.
CRIIMI MAE Holdings II, L.P. ("CRIIMI MAE Holdings")
The assets of CRIIMI MAE Holdings (the retained investment grade securities
("BBB/BBB-") from CMO-IV) were sold in October 1999 under the terms of a
Stipulation and Order entered by the Bankruptcy Court, with the proceeds thereof
used to retire the outstanding indebtedness of CRIIMI MAE Holdings with respect
thereto. Accordingly, the Debtor believes that there are no remaining creditors
of CRIIMI MAE Holdings or assets to be liquidated in a Chapter 7 case.
Notes
The following are the footnote explanations related to the Liquidation Analysis:
1. The cash balance represents the Company's consolidated cash balance of
approximately $91.6 million as of December 31, 1999, approximately $88.3
million of additional net investment income the Company expects to earn
from January 1, 2000 through the end of the Liquidation Period, and the
net proceeds of approximately $79 million from the sale of the CMBS Sale
Portfolio which was assumed
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<PAGE>
to occur in the first and second quarter of 2000. The net investment
income is comprised of the Company's net interest margin on its mortgage
assets and earnings from its equity investments. This amount also includes
short-term interest income related to cash on hand, at an assumed rate of
5%. The net investment income does not include any administrative
expenses, which are accounted for below, or the payment of any
post-petition interest expense associated with the unsecured claims.
Furthermore, the corporate federal and state income tax liabilities
(excluding penalties and interest) of approximately $87 million and the
reduction of liquidation proceeds resulting from the sale of the Trusts as
TMPs of approximately $167 million have been reflected in the Liquidation
Analysis attached hereto under Chapter 7 Administrative Expenses - Tax
Liabilities and Assets - Sale of Investments. As of February 29, 2000, the
Company's estimated consolidated cash balance totaled approximately $107
million.
2. Sale of investments represents the Company's estimate of the proceeds it
would receive related to the sale of its investments under this
Liquidation Analysis. The following details the assumptions used to
calculate proceeds from the sale of these investments:
(a) Subordinated CMBS: The Company's management used the same discounted
cash flow methodology as used in its Form 10-K filing as of December
31, 1999 in determining the sale proceeds for its Subordinated CMBS
during the Liquidation Period. The cash flows were discounted using
a discount rate that, in the Company's view, was commensurate with
the market's perception of risk of comparable assets under a
comparable liquidation scenario, and included an estimate for the
market effect associated with the Company's portfolio liquidation.
The Company used a variety of sources to determine its discount rate
including institutionally-available research reports, discussions
with the Company's secured lenders, and communications with dealers
and active Subordinated CMBS investors regarding the valuation of
comparable securities. The proceeds from the sale of such CMBS were
derived using the following assumptions:
(i) The proceeds were calculated for those CMBS investments in
which the Company had an economic interest as of December 31,
1999, except for the CMBS Sale Portfolio which was assumed to
be sold in the first and second quarters of 2000. The net
proceeds (gross sale proceeds net of the corresponding secured
debt) totaling approximately $79 million were derived using
the assumptions described in 2.(a) above, 2.(a)(iii) below,
and the required rates of return as negotiated between the
Company and one of its secured lenders under the terms of a
Stipulation and Order approved by the Bankruptcy Court and
settled by the Company and its secured lender on February 29,
2000. The aggregate net proceeds have been included herein
under Assets - Cash. Any match-funded CMBS assets and
corresponding match-funded liabilities were excluded from this
Liquidation Analysis.
(ii) The CMBS and related servicing rights for each issuance were
assumed to be sold jointly and in their entirety, and are net
of a broker's fee equal to 62.5 basis points of the gross sale
proceeds.
(iii) All non-CRIIMI MAE issued CMBS assets were priced assuming a
0% CPR (Constant Prepayment Rate) and 0% CDR (Constant Default
Rate) since the inherent risks associated with defaults and
losses are accounted for in the spreads and discount rates
used to determine the gross sale proceeds. These assumptions
are consistent with the valuation methodology used for
quarterly SEC reporting and market convention for the sale of
such securities.
(iv) The retained securities from CBO-1, CBO-2 and CMO-IV were
priced assuming the Company loses its REIT status retroactive
to January 1, 1999. Accordingly, these Trusts become subject
to corporate federal and state
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<PAGE>
income tax liabilities as a result of the loss of the QRS
exemptions for the TMPs. The gross taxable earnings for each
Trust were computed using the original pricing speeds and
current tax yields on the underlying collateral. The
deductible payments from each Trust were computed based upon
the original pricing speeds and current tax yields of the
securities that were issued by each Trust. Any excess taxable
income over the deductible payment from each Trust represents
the net taxable income of that Trust. It was further assumed
that each Trust would pay corporate federal and state income
taxes at an aggregate effective tax rate of 40%. The gross
cash flow for each Trust was reduced by the associated tax
liability and all remaining cash flow was allocated to each
security in accordance with the payment priorities as detailed
in the respective pooling and servicing agreements. The
resulting cash flows on securities held by the Company were
then discounted using yields derived as discussed in 2.(a)(v),
(vi), and (vii) below.
(v) The Company's management projected the U.S. Treasury curve for
the assumed future sale dates using a forward rate curve
extracted from Bloomberg. An appropriate U.S. Treasury rate
was then interpolated based on the projected U.S. Treasury
curve and weighted-average life of each CMBS.
(vi) Credit spreads for comparably rated CMBS were derived from the
sources cited in 2.(a) above and adjusted based on qualitative
and quantitative factors, such as the market's perception of
the issuers and the credit fundamentals of the commercial real
estate underlying each pool of commercial mortgage loans.
(vii) Credit spread adjustments, ranging from 150 to 600 basis
points, were added to credit spreads determined in 2.(a)(vi)
above in determining the appropriate discount rate for the
CRIIMI MAE issued CMBS retained by the Company. These
incremental adjustments reflect yield premiums that would
likely occur if a portfolio of this size were sold in the
secondary market during the third and fourth quarters of 2000.
(b) Insured Mortgage Securities: For each of the residual economic
interests in CMO-I, CMO-II, and CMO-III, CRIIMI MAE used pricing
assumptions consistent with those used by typical buyers of Interest
Only securities. Accordingly, the sale proceeds were computed
assuming a pricing speed of 100% CPR after the expiration of any
lockout and yield maintenance period on the underlying mortgage
securities. The projected cash flows were discounted at a credit
spread of 600 basis points over the interpolated U.S. Treasury rate
as of the assumed sale date. The sale proceeds for the residual
interests are net of a broker's fee equal to 62.5 basis points of
the gross sale proceeds.
The Company's only non-securitized GNMA MBS was priced to sell at 97% of
its face amount and is net of a broker's fee equal to 62.5 basis points of
the gross sale proceeds.
(c) Equity Method Investees:
The value of the AIM general partner ("GP") investment was
determined by dividing the value of the publicly traded Limited
Partnership ("LP") units, as extracted from Bloomberg, by the LPs'
interest and multiplying the result by each GP's interest (ranging
from 2.9% to 4.9%). The assumed value of each GP's interest was
compared to its indirect ownership interest in the mortgage loans
underlying each fund and further reduced based on an assumed 20% per
annum run-off rate of the underlying mortgage assets. An additional
discount of 25% was applied to reflect the liquidity premium that
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<PAGE>
may be associated with the liquidation of the Company and the risk
of owning a GP interest.
CRIIMI MAE Services, L.P. ("CMSLP")(CRIIMI MAE's servicing
affiliate) is assumed to continue to operate through December 2000.
(It should be noted, however, that this assumption may not be
achievable due to the potential loss of key personnel in a Chapter 7
scenario. The loss of such key personnel coupled with the Chapter 7
liquidation of the Company is likely to adversely impact the rating
of CMSLP as servicer, lead to the replacement of CMSLP as servicer
on then-existing CMBS transactions and may result in an adverse
impact on bond ratings, a negative impact on the value of the
Company's remaining CMBS and the incurring of additional costs and
other potential defaults and claims by the Company.) Notwithstanding
the foregoing qualifications, for purposes of this analysis,
servicing assets, consisting primarily of direct and master
servicing contracts, were assumed to be sold in connection with the
sale of the related CMBS using pricing assumptions consistent with
those used by typical buyers of such securities. Accordingly, the
sale proceeds were computed assuming a pricing speed of 1% CPR
during any lockout period, 2% CPR during any yield maintenance
period, 5% CPR during any prepayment penalty period, and 15% CPR
after the expiration of any yield maintenance or prepayment penalty
period on the underlying mortgage securities. The projected cash
flows were discounted at a credit spread of 800 basis points over
the interpolated U.S. Treasury rate as of the assumed sale date. The
sale proceeds for the residual interests are net of a broker's fee
equal to 62.5 basis points of the gross sale proceeds. Furthermore,
proceeds from the sale of the special servicing rights have been
included in the sale proceeds of the related CMBS, as the purchaser
of the controlling class has the right to appoint the special
servicer.
3. Other Assets include the following:
(a) The Company's mezzanine loans were assumed to be sold at 70% of
their face amount to reflect the credit risk associated with owning
these assets. As of December 31, 1999, the Company owned
approximately $7.5 million (face amount) of mezzanine loans. The
proceeds are net of a broker's fee equal to 62.5 basis points of the
gross sale proceeds.
(b) Brick Church (REO) was assumed to be sold for a net amount equal to
the associated secured obligation of the property, and is net of a
3% broker's fee based on the gross sale proceeds.
(c) All fixed assets were assumed to be sold at 10% of their carrying
value.
(d) The Company has assumed the collection of certain receivables.
4. The aggregate taxable income associated with CBO-1, CBO-2, and CMO IV,
estimated at $110 million for 1999 and $108 million for 2000, would give
rise to corporate federal and state tax liabilities (excluding penalties
and interest) of approximately $44 million for 1999 and $43 million for
2000. Furthermore, the Company may be subject to penalties and interest
associated with the potential late payment of 1999 and 2000 corporate
federal and state tax liabilities.
5. This amount, estimated at approximately $1 million per month, includes the
professional expenses required to liquidate the Company and perform other
functions for the Trustee during the Chapter 7 case.
6. This amount represents the fees of the Chapter 7 Trustee. Although the
Chapter 7 Trustee could receive up to 3% of the estate proceeds
distributed to creditors, Chapter 7 Trustee fees have been estimated at 1%
of payments made to creditors due to the large size of the Debtors'
estate.
7. Unlike most Chapter 7 scenarios, the nature of the Debtor's assets will
require that the Chapter 7 Trustee retain critical employees and operate
the Company, on a reduced basis, during the Liquidation
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<PAGE>
Period. Operating expenses are assumed to be reduced by 50% during the
period of liquidation as compared to the level of operating expenses
assumed while the Company is in Chapter 11 as discussed in Note 9 below.
This is primarily a result of the reduction of the workforce in a Chapter
7 liquidation.
8. This amount includes the professional fees incurred during the Debtors'
Chapter 11 cases that have not been paid, as well as estimated
professional fees to be incurred by the Company through June 30, 2000.
9. This amount includes the following: (1) payment of post-petition trade
payables, (2) estimated payment of the retention bonus payable to
remaining employees in April 2000 and severance paid to employees
terminated upon liquidation, and (3) other ongoing operating costs through
June 30, 2000. The estimated operating costs are assumed to be $2.5
million per quarter.
10. Secured debt includes variable rate secured borrowings (excluding the
secured debt associated with the CMBS Sale Portfolio which was assumed to
be retired using the proceeds from the sales assumed to occur in the first
and second quarters of 2000), other secured financing facilities and
accrued and unpaid interest as of December 31, 1999, at contractual,
non-default rates. From January 1, 2000 through December 31, 2000, it is
assumed that interest is paid on a current basis at contractual,
non-default rates.
11. Unsecured claims include senior unsecured notes, other unsecured financing
facilities, trade payables, and other unsecured claims (excluding any
post-petition accrual of interest thereon). The total presented does not
include any amounts for the allowance of any disputed claims or any
rejection damage claims in a Chapter 7 liquidation of the Debtors.
12. The Liquidation Analysis references the Series F Preferred Stock (Dividend
Preferred) distributed in the fourth quarter of 1999 for the distribution
of the remaining 1998 taxable income, of which 756,453 shares were
converted into common stock in November 1999 and 263,788 shares were
converted into common stock in February 2000. Furthermore, the Company
also entered into a Preferred Stock Exchange Agreement on February 22,
2000 pursuant to which it exchanged 103,000 shares of Series C Cumulative
Convertible Preferred Stock for 103,000 shares of Series E Cumulative
Convertible Preferred Stock. In addition, no dividends are assumed to be
paid on any outstanding preferred or common shares and no options are
assumed to be converted into common stock. The number of shares of Series
B, D, E, and F outstanding as of February 29, 2000 was 1,593,982, 100,000,
103,000 and 586,354, respectively.
13. The number of shares of common stock outstanding as of February 29, 2000
was 62,353,170.
C-8
<PAGE>
EXHIBIT D
INDEX TO FINANCIAL STATEMENTS
PAGE
CRIIMI MAE Financial Statements:
<TABLE>
<S> <C>
Annual Report on Form 10-K
Report of Independent Public Accountants..........................................
Consolidated Balance Sheets as of December 31, 1999 and 1998......................
Consolidated Statements of Income for the years ended December 31, 1999,.......
1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997...............................................
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.............................................
Notes to Consolidated Financial Statements........................................
</TABLE>
[To be provided at or before the Disclosure Statement hearing.]
<PAGE>
EXHIBIT 99.2
<PAGE>
Susan B. Railey
For shareholders and securities brokers
(301) 468-3120
Andrew P. Blocher
For institutional investors
(301) 231-0371
James T. Pastore FOR IMMEDIATE RELEASE
For news media
(202) 546-6451
CRIIMI MAE FILES SECOND AMENDED PLAN AND DISCLOSURE STATEMENT
Unsecured Creditors' Committee Agrees to Support Amended Plan
ROCKVILLE, MD, March 31, 2000 - CRIIMI MAE Inc. (NYSE:CMM) and two of its
affiliates, CRIIMI MAE Holdings II, L.P. and CRIIMI MAE Management, Inc.
(collectively "CRIIMI MAE" or the "Company"), today filed their Second Amended
Joint Plan of Reorganization (the "Plan") and proposed Amended Disclosure
Statement (the "Disclosure Statement") with the United States Bankruptcy Court
for the District of Maryland in Greenbelt, Maryland (the "Bankruptcy Court").
The Plan was filed with the full support of the Official Committee of Equity
Security Holders (the "Equity Committee"), which is a co-proponent of the Plan.
The Company's Plan also has the support of the Official Committee of Unsecured
Creditors of CRIIMI MAE (the "Unsecured Creditors' Committee"), which was
previously pursuing its own plan. The Company, the Equity Committee and the
Unsecured Creditors' Committee are now all proceeding jointly in support of the
new Plan filed today.
In addition, as previously announced, Merrill Lynch Mortgage Capital Inc.
("Merrill Lynch") and German American Capital Corporation ("GACC"), two of the
Company's largest secured creditors, would provide exit financing under the Plan
as part of the recapitalization of the Company.
The Bankruptcy Court has scheduled a hearing for April 25 and 26, 2000 on
approval of the Disclosure Statement. Once the Disclosure Statement has been
approved by the Bankruptcy Court, the Plan, together with the Disclosure
Statement and appropriate ballots, will be sent to all impaired creditors and
equity security holders for acceptance or rejection.
<PAGE>
The Plan contemplates approximately $856 million of recapitalization financing.
To support the Plan, approximately $275 million of recapitalization financing
will be provided by Merrill Lynch and GACC through a secured financing facility,
and approximately $155 million would be provided through new secured notes
issued to a portion of the Company's unsecured creditors. Another $35 million of
recapitalization financing would be obtained from another existing creditor in
the form of additional secured financing. The sale of certain of the Company's
non-resecuritized CMBS assets, as previously contemplated in the Amended Joint
Plan of Reorganization filed by the Company on December 23, 1999, is expected to
provide the remaining balance of the recapitalization proceeds. The Company may
seek new equity capital from one or more investors, although new equity is not
required to fund the Plan.
The Plan further contemplates that the holders of the Company's common stock
will retain their stock. Subject to approval by the holders of the Company's
Series B Preferred Stock and the Series F Preferred Stock, the Plan contemplates
an amendment to their relative rights and preferences to permit the payment of
accrued and unpaid dividends in cash or common stock at the Company's election.
The Plan contemplates amendments to the relative rights and preferences of the
Series D Preferred Stock, through an exchange of Series D Preferred Stock for
Series E Preferred Stock, similar to those amendments effected in connection
with the recent exchange of the former Series C Preferred Stock for Series E
Preferred Stock.
Reference is made to the Plan and Disclosure Statement for a description of the
financing to be obtained from the respective existing debtholders including,
without limitation, payment terms, restrictive covenants and collateral, and a
more detailed description of the treatment of the preferred stockholders. The
Company is filing a Form-8K with the Securities and Exchange Commission, which
will include the Plan and Disclosure Statement as exhibits.
CRIIMI MAE also announced that on March 29, 2000, the Company filed a Form
12b-25 with the Securities and Exchange Commission to extend the filing of its
Annual Report on Form 10-K to no later than April 14, 2000.
On October 5, 1998, CRIIMI MAE Inc. and two affiliates filed for protection
under Chapter 11 of the U.S. Bankruptcy Code. Before filing for reorganization,
the Company had been actively involved in acquiring, originating, securitizing
and servicing multi-family and commercial mortgages and mortgage related assets
throughout the United States. Since filing for Chapter 11 protection, CRIIMI MAE
has suspended its loan origination, loan securitization and CMBS acquisition
businesses. The Company continues to hold a substantial portfolio of
subordinated CMBS and, through its servicing affiliate, acts as a servicer for
its own as well as third party securitizations.
<PAGE>
More information on CRIIMI MAE is available on its web site -
www.criimimaeinc.com - or for investors, call Susan Railey, 301-468-3120, for
institutional investors, call Andy Blocher 301-231-0371 or for news media, call
Jim Pastore, 202-546-6451.
Note: Except for historical information, forward-looking statements contained in
this release involve a variety of risks and uncertainties. These risks and
uncertainties include the continued instability of the capital markets, the
ability of the Company to obtain and complete reorganization financing,
including but not limited to a completion of the restructuring of certain of its
debt and the sale of selected CMBS to a party or parties for sufficient
proceeds, the ability of relevant parties to finalize and execute constituent
and operative documents called for by the Plan, the ability to obtain Bankruptcy
Court approval of the Disclosure Statement and confirmation, effectiveness and
consummation of the Plan, the possible confirmation of an alternative plan, the
trends in the CMBS market, competitive pressures, the Company's ability to
obtain funding post-bankruptcy to resume its suspended business operations and
pursue new opportunities, the ability of the Company to effectively obtain the
benefits of its operating strategy, the effect of future losses on the Company's
need for liquidity, the effects of the bankruptcy proceeding on the Company's
ongoing business, the actions of CRIIMI MAE's creditors and equity security
holders, and the outcome of litigation to which the Company is a party, as well
as the risks and uncertainties that are set forth in the Disclosure Statement,
and from time to time in the Company's SEC reports, including its report on Form
10-K for the year ended December 31, 1998 and its Form 10-Q for the quarter
ended September 30, 1999.
