<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1997
REGISTRATION NO. 333-21315
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
--------------------
ASSET SECURITIZATION CORPORATION
(Exact name of registrant as specified in governing instruments)
--------------------
2 WORLD FINANCIAL CENTER
BUILDING B, 21ST FLOOR
NEW YORK, NEW YORK 10281-1198
(Address of principal executive offices)
ROBERT K. ROTTMANN
CHIEF FINANCIAL OFFICER AND TREASURER
ASSET SECURITIZATION CORPORATION
2 WORLD FINANCIAL CENTER
BUILDING B, 21ST FLOOR
NEW YORK, NEW YORK 10281-1198
(Name and address of agent for service)
--------------------
Copies to:
ANNA H. GLICK, ESQ.
CADWALADER, WICKERSHAM & TAFT
100 MAIDEN LANE
NEW YORK, NEW YORK 10038
BARRY M. FUNT, ESQ.
ASSET SECURITIZATION CORPORATION
2 WORLD FINANCIAL CENTER
BUILDING B, 21ST FLOOR
NEW YORK, NEW YORK 10281-1198
FAITH GROSSNICKLE, ESQ.
SHEARMAN & STERLING
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
Approximate date of commencement of proposed sale to
the public: As soon as practicable after this Registration Statement becomes
effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _____
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of securities being registered Amount being Proposed maximum Proposed maximum Amount of registration fee
registered offering aggregate
price per unit (1) offering price (1)
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<S> <C> <C> <C> <C>
Subordinated Units
Commercial Mortgage Pass-Through
Certificates, Series 1997-D4, Class B-1,
Class B-2, Class B-3, Class B-4, Class B-5
and Class B-6 Certificates $1,000,000 100% $1,000,000 $303.03
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee.
(2) Each Subordinated Unit consists of $[ ] (approximate) of Class B-1, $[ ]
(approximate) of Class B-2, $[ ] (approximate) of Class B-3, $[ ]
(approximate) of Class B-4, $[ ] (approximate) of Class B-5 and $[ ]
(approximate) of Class B-6 Commercial Mortgage Pass-
Through Certificates.
<PAGE>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM CAPTION IN PROSPECTUS
---- ---------------------
<S> <C> <C>
Item 1. Forepart of the Registration Statement Outside Front Cover Page
and Outside Front Cover Page of
Prospectus.
Item 2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back
of Prospectus. Cover Pages
Item 3. Summary Information, Risk Factors and Executive Summary; Summary of Prospectus;
Ratio of Earnings to Fixed Charges. Risk Factors and Other Special
Considerations
Item 4. Determination of Offering Price. *
Item 5. Dilution. *
Item 6. Selling Security Holders. *
Item 7. Plan of Distribution. Method of Distribution
Item 8. Use of Proceeds. Use of Proceeds
Item 9. Selected Financial Data. *
Item 10. Management's Discussion and *
Analysis of Financial
Condition and Results of Operations.
Item 11. General Information as to Registrant. The Depositor
Item 12. Policy with Respect to Certain Outside Front Cover Page; Description of the Subordinated Certificates
Activities.
Item 13. Investment Policies of Registrant. Outside Front Cover Page; Description of the Subordinated Certificates;
Description of the Mortgage Pool
Item 14. Description of Real Estate. Description of the Mortgage Pool
Item 15. Operating Data. *
Item 16. Tax Treatment of Registrant and Certain Federal Income Tax Consequences
Its Security Holders.
Item 17. Market Price of and Dividends on the *
Registrant's Common Equity and Related
Stockholder Matters.
Item 18. Description of Registrant's Securities. Outside Front Cover Page; Risk Factors and Other Special Considerations;
Description of the Subordinated Units; Description of the Subordinated
Certificates; Description of the Mortgage Pool; Certain Federal Income Tax
Consequences
Item 19. Legal Proceedings. *
Item 20. Security Ownership of Certain *
Beneficial Owners and Management.
Item 21. Directors and Executive Officers. *
Item 22. Executive Compensation. *
Item 23. Certain Relationships and Related *
Transactions.
Item 24. Selection, Management and Custody of Description of the Subordinated Certificates; Description of the Mortgage
Registrant's Investments. Pool; The Pooling and Servicing Agreement-Servicing of the Mortgage Loans
Item 25. Policies with Respect to *
Certain Transactions.
Item 26. Limitations of Liability. The Pooling and Servicing Agreement-Certain Matters Regarding the
Depositor, the Servicer and the Special Servicer
Item 27. Financial Statements and Information. Financial Information
Item 28. Interests of Named Experts and Counsel. *
Item 29. Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities.
- --------
* Not applicable or answer is in the negative.
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THIS
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED [ ], 1997
$[ ] (APPROXIMATE)
ASSET SECURITIZATION CORPORATION, DEPOSITOR
NOMURA ASSET CAPITAL CORPORATION, MORTGAGE LOAN SELLER
AMRESCO MANAGEMENT, INC., SERVICER AND SPECIAL SERVICER
LASALLE NATIONAL BANK, TRUSTEE
SUBORDINATED UNITS CONSISTING OF
$[ ] (APPROXIMATE) CLASS B-1,
$[ ] (APPROXIMATE) CLASS B-2,
$[ ] (APPROXIMATE) CLASS B-3,
$[ ] (APPROXIMATE) CLASS B-4,
$[ ] (APPROXIMATE) CLASS B-5, AND
$[ ] (APPROXIMATE) CLASS B-6
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1997-D4
The Commercial Mortgage Pass-Through Certificates, Series 1997-D4,
Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6
Certificates, together with the Senior Certificates, the Junior Subordinated
Certificates the Class V-1, Class V-2, Class R and Class LR Certificates (each
as defined herein, and collectively, the "Certificates"), will represent
beneficial ownership interests in a trust fund (the "Trust Fund") to be
created by Asset Securitization Corporation (the "Depositor"). The Trust Fund
will consist primarily of a pool (the "Mortgage Pool") of [140] fixed-rate
mortgage loans, with original terms to maturity of generally not more than
thirty years (the "Mortgage Loans"), secured by first liens on [271]
commercial and multifamily residential properties (the "Mortgaged
Properties"). The Mortgaged Properties consist of anchored and unanchored
retail properties, office buildings, full and limited service hotels,
multifamily residential housing, nursing homes, industrial properties, factory
outlet centers, mobile home and recreational vehicle parks and an assisted
living facility. The characteristics of the Mortgage Loans and the Mortgaged
Properties are more fully described herein under "Description of the Mortgage
Pool." The Mortgage Loans were either purchased or originated by the Mortgage
Loan Seller and will be sold to the Depositor on or prior to the date of
initial issuance of the Certificates.
(cover page continued)
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER
THE CAPTIONS "RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS" HEREIN COMMENCING
ON PAGE [ ].
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
PASS-THROUGH PRICE TO UNDERWRITING PROCEEDS TO
RATE(1) PUBLIC(2) DISCOUNT(3) DEPOSITOR(4)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Subordinated Unit(5)
Total.................... $ $ $
- ---------------------------------------------------------------------------------------
</TABLE>
(1) The Pass-Through Rate shown on the table above for the Subordinated Units
is a rate for the Distribution Date occurring in __________, 1997. The
Pass- Through Rates for the Subordinated Units for each subsequent
Distribution Date will be the weighted average Pass-Through Rate of the
Subordinated Certificates.
(2) Plus accrued interest, if any, from the date of issuance.
(3) The Depositor [and the Mortgage Loan Seller] have each agreed to
indemnify the Underwriters against, and provide contribution with respect
to, certain liabilities, including civil liabilities under the Securities
Act of 1933, as amended (the "Act"). See "Plan of Distribution."
(4) Before deducting expenses payable by the Depositor estimated at
$__________.
(5) No Class of Subordinated Certificates will be separately tradable unless
and until such Class of Subordinated Certificates is rated investment
grade by __________ or __________, and only such investment grade Class
shall be separately tradable.
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
THE DEPOSITOR, THE MORTGAGE LOAN SELLER, THE ORIGINATORS, THE SERVICER,
THE SPECIAL SERVICER, THE TRUSTEE, THE FISCAL AGENT OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR THE
UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
There is currently no secondary market for the Subordinated Units or
the Subordinated Certificates. Each of the Underwriters currently expects to
make a secondary market in the Subordinated Units and, if separately traded,
the Subordinated Certificates, but has no obligation to do so. There can be no
assurance that an active secondary market for the Subordinated Units or, if
separately traded, the Subordinated Certificates will develop or that any such
market, if established, will continue. See "Plan of Distribution" herein.
The Subordinated Units are offered by the Underwriters subject to
prior sale, when, as and if issued, delivered to and accepted by the
Underwriters and subject to the right to reject orders in whole or in part. It
is expected that delivery of the Subordinated Units will be made through the
facilities of The Depository Trust Company ("DTC") in the United States and
Centrale de Livraison de Valeurs Mobiliers S.A. ("CEDEL") and The Euroclear
System ("Euroclear") in Europe, on or about [ ], 1997.
BEAR, STEARNS & CO. INC. NOMURA SECURITIES INTERNATIONAL, INC.
The Date of this Prospectus is [ ], 1997
----------------------------------------
<PAGE>
(continuation of cover page)
- ----------------------------
The Certificates will consist of twenty-two classes (each, a
"Class"), designated as the Class A-1A Certificates, Class A-1B Certificates,
Class A-1C Certificates, Class A- CS1 Certificates, Class A-CS2 Certificates,
Class A-1D Certificates, Class A-2 Certificates, Class A-3 Certificates, Class
A-4 Certificates, Class A-5 Certificates (collectively, the "Senior
Certificates"), Class B-1 Certificates, Class B-2 Certificates, Class B-3
Certificates, Class B-4 Certificates, Class B-5 Certificates, Class B-6
Certificates, Class B-7 Certificates, Class B-7H Certificates, Class V-1
Certificates, Class V-2 Certificates, Class LR Certificates and Class R
Certificates. Only the Class B-1 Certificates, Class B-2 Certificates, Class
B-3 Certificates, Class B-4 Certificates, Class B-5 Certificates and Class B-6
Certificates (collectively, the "Subordinated Certificates") are being offered
hereby in the form of Subordinated Units (the "Subordinated Units"); the
Senior Certificates are being offered concurrently with the Subordinated
Certificates under a separate prospectus and are not offered hereby; and the
Class B-7, Class B-7H (collectively, the "Junior Subordinated Certificates"),
Class V-1, Class V-2, Class R and Class LR Certificates are not offered
hereby.
Distributions on the Subordinated Certificates will be made, to the
extent of Available Funds, on the Distribution Date; provided, however, the
Distribution Date will be no earlier than the second business day following
the 11th day of each month and, provided, further, that if the 11th day of any
month is not a business day, the Distribution Date will be the third business
day following the 11th day of such month. Distributions allocable to interest
on the Subordinated Certificates on each Distribution Date will be based on
the Pass-Through Rate for the respective Class as described herein and the
aggregate principal balance (the "Certificate Balance") of such Class
outstanding immediately prior to such Distribution Date. Distributions in
respect of principal of the Subordinated Certificates will be made as
described herein under "Description of the Subordinated Certificates--
Distributions--Priorities."
THE YIELD TO INVESTORS WILL BE SENSITIVE TO THE TIMING AND MAGNITUDE
OF LOSSES ON THE MORTGAGE LOANS DUE TO LIQUIDATIONS. IN ADDITION, TO THE
EXTENT LOSSES ON THE MORTGAGE LOANS EXCEED THE PRINCIPAL BALANCE OF ALL
CLASSES OF CERTIFICATES SUBORDINATE TO EITHER CLASS OF SUBORDINATED
CERTIFICATES, SUCH CLASS WILL BEAR A LOSS EQUAL TO THE AMOUNT OF SUCH EXCESS
UP TO AN AMOUNT EQUAL TO THE REMAINING PRINCIPAL BALANCE THEREOF. NO
REPRESENTATION IS MADE AS TO THE RATE OF PREPAYMENTS ON, OR RATE OR AMOUNT OF
LIQUIDATIONS OF, THE MORTGAGE LOANS OR AS TO THE ANTICIPATED YIELD TO MATURITY
OF ANY SUBORDINATED CERTIFICATE. THE YIELD TO MATURITY ON EACH CLASS OF THE
SUBORDINATED CERTIFICATES WILL BE SENSITIVE TO THE RATE AND TIMING OF
PRINCIPAL PAYMENTS (INCLUDING BOTH VOLUNTARY AND INVOLUNTARY PREPAYMENTS,
DEFAULTS AND LIQUIDATIONS) ON THE MORTGAGE LOANS AND PAYMENTS WITH RESPECT TO
REPURCHASES THEREOF THAT ARE APPLIED IN REDUCTION OF THE CERTIFICATE BALANCE
OF SUCH CLASS. SEE "PREPAYMENT AND YIELD CONSIDERATIONS" HEREIN.
AMRESCO Management, Inc. will act as Servicer of the Mortgage Loans.
The obligations of the Servicer with respect to the Certificates will be
limited to its contractual servicing obligations and the obligation under
certain circumstances to make Advances in respect of the Mortgage Loans. In
certain limited circumstances AMRESCO Management, Inc., in its capacity as the
initial Special Servicer may be required to make Property Advances. If the
Servicer is not the Special Servicer and the Special Servicer fails to make
the required Advance, the Servicer, subject to a recoverability determination,
will be required to make the Advance. The Servicer will not act as an insurer
or credit enhancer of the Mortgage Pool. If the Servicer fails to make a
required Advance, the Trustee, subject to a recoverability determination, will
be required to make such Advance. If the Trustee fails to make a required
Advance, the Fiscal Agent, subject to a recoverability determination, will be
required to make the Advance. See "The Pooling and Servicing Agreement--
Advances" herein.
It is a condition to the issuance of the Subordinated Certificates
that (i) the Senior Certificates are issued and offered and (ii) the Class B-1
Certificates be rated "____" by ________, the Class B-2 Certificates be rated
"___" by ________, the Class B-3 Certificates be rated "___" by ________, the
Class B-4 Certificates be rated "_____" by ________, the Class B-5
Certificates be rated "____" by ________ and the Class B-6 Certificates be
rated "___" by ________. For a description of the limitations of the ratings
of the Subordinated Certificates, see "Rating" herein. The Rated Final
Distribution Date of each Class of Subordinated Certificates is [ ].
Elections will be made to treat designated portions of the Trust
Fund, exclusive of the Reserve Accounts, Lock Box Accounts, Cash Collateral
Accounts, the Excess Interest and the Default Interest as two separate "real
estate mortgage investment conduits" (each a "REMIC" or, alternatively, the
"Upper-Tier REMIC" and the "Lower-Tier REMIC," respectively) for federal
income tax purposes. The Senior Certificates, Subordinated Certificates and
Junior Subordinated Certificates will constitute "regular interests" in the
Upper-Tier REMIC, and the Class R and Class LR Certificates will constitute
the sole Class of "residual interests" in the Upper-Tier REMIC and Lower-Tier
REMIC, respectively. The Subordinated Certificates, together with the Senior
Certificates and Junior Subordinated Certificates, are sometimes collectively
referred to herein as the "Regular Certificates." The Class V-1 Certificates
will represent the right to receive Default Interest and the Class V-2
Certificates will represent the right to receive Excess Interest, which
portions of the Trust Fund will be treated as a grantor trust for federal
income tax purposes. See "Certain Federal Income Tax Consequences" herein.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SUBORDINATED UNITS OR, IF SEPARATELY TRADED, THE
SUBORDINATED CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A COPY OF THIS PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
The distribution of this Prospectus dated [ ], 1997, and the offer or
sale of the Subordinated Units and Subordinated Certificates may be restricted
by law in certain jurisdictions. Persons into whose possession this Prospectus
or any Subordinated Units or Subordinated Certificates come must inform
themselves about, and observe, any such restrictions. In particular, there are
restrictions on the distribution of this Prospectus and the offer or sale of
the Subordinated Units and Subordinated Certificates in the United Kingdom
(see "Method of Distribution" herein).
The Depositor does not intend to register the Subordinated Units and
Subordinated Certificates under the Securities and Exchange Law of Japan (the
"SEL"). Accordingly, the Subordinated Units and Subordinated Certificates may
not be offered or sold directly or indirectly in Japan, and this Prospectus
may not be distributed or circulated in Japan, except in circumstances that do
not constitute an offer to the public within the meaning of the SEL.
-8-
<PAGE>
The transferability of the Subordinated Units and Subordinated
Certificates is subject to certain limitations. See "Description of the
Subordinated Certificates--Transfer Restrictions."
All capitalized terms herein have the meanings described herein. See
"Index of Significant Definitions" herein.
-9-
<PAGE>
PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Prospectus........................................................12
Risk Factors and Other Special Considerations................................26
The Mortgage Loans......................................................26
The Certificates........................................................42
Industry Overview............................................................48
Description of the Mortgage Pool.............................................49
General.................................................................49
Security for the Mortgage Loans.........................................51
The Mortgage Loan Program--Underwriting Standards.......................51
Significant Mortgage Loans..............................................53
Certain Terms and Conditions of the Mortgage Loans......................58
Additional Mortgage Loan Information....................................63
Changes in Mortgage Pool Characteristics................................76
Description of the Subordinate Units.........................................76
Description of the Subordinated Certificates.................................76
General.................................................................76
Subordination...........................................................78
Distributions...........................................................78
Realized Losses.........................................................86
Prepayment Interest Shortfalls..........................................87
Appraisal Reductions....................................................87
Delivery, Form and Denomination.........................................87
Book-Entry Registration.................................................88
Definitive Certificates.................................................91
Transfer Restrictions...................................................91
Prepayment and Yield Considerations..........................................92
Mortgagor Defaults......................................................92
Yield..................................................................114
Rated Final Distribution Date..........................................116
Weighted Average Life of Subordinated Certificates.....................116
The Depositor...............................................................124
The Mortgage Loan Seller....................................................125
The Servicer................................................................126
The Trustee.................................................................126
The Fiscal Agent............................................................126
The Pooling and Servicing Agreement.........................................126
General................................................................126
Assignment of the Mortgage Loans.......................................126
Representations and Warranties; Repurchase.............................127
Servicing of the Mortgage Loans; Collection of Payments................133
Advances...............................................................134
Accounts...............................................................135
Withdrawals from the Collection Account................................137
Enforcement of.........................................................138
Inspections............................................................138
Insurance Policies.....................................................138
-10
<PAGE>
PAGE
----
Evidence as to Compliance..............................................140
Certain Matters Regarding the Depositor,
the Servicer and the Special Servicer..............................140
Events of Default......................................................141
Rights Upon Event of Default...........................................141
Amendment..............................................................142
Voting Rights..........................................................143
Realization Upon Mortgage Loans........................................143
Modifications..........................................................149
Termination............................................................150
Optional Termination...................................................150
The Trustee............................................................151
Duties of the Trustee..................................................152
Duties of the Fiscal Agent.............................................152
Servicing Compensation and Payment of Expenses.........................152
Special Servicing......................................................153
Servicer and Special Servicer Permitted to Buy Certificates............154
Reports to Certificateholders..........................................154
Trustee Reports....................................................154
Servicer Reports...................................................156
Use of Proceeds.............................................................156
Certain Legal Aspects of Mortgage Loans.....................................157
General................................................................157
Types of Mortgage Instruments..........................................157
Leases and Rents.......................................................157
Personalty.............................................................158
Installment Contracts..................................................158
Subordinated Financing.................................................159
Foreclosure............................................................159
Judicial Foreclosure...................................................159
Non-Judicial Foreclosure/Power of Sale.................................159
Limitations on Lender's Rights.........................................160
Rights of Redemption...................................................161
Anti-Deficiency Legislation............................................162
Leasehold Risks........................................................162
Bankruptcy Laws........................................................163
Environmental Legislation..............................................164
Due-on-Sale and Due-on-Encumbrance.....................................165
Acceleration on Default................................................165
Default Interest, Prepayment Charges and Prepayments...................166
Applicability of Usury Laws............................................166
Alternative Mortgage Instruments.......................................166
Soldiers' and Sailors' Civil Relief Act of 1940........................167
Forfeitures in Drug and RICO Proceedings...............................167
Certain Laws and Regulations...........................................167
Type of Mortgaged Property.............................................168
Americans with Disabilities Act........................................168
Certain Federal Income Tax Consequences.....................................168
General................................................................168
Status of Subordinated Certificates....................................169
Qualification as a REMIC...............................................169
Taxation of Subordinated Certificates and Subordinated Units...........171
General............................................................171
Original Issue Discount............................................171
-11-
<PAGE>
PAGE
----
Acquisition Premium................................................173
Market Discount....................................................173
Premium............................................................174
Election to Treat All Interest Under the Constant Yield Method.....174
Treatment of Losses................................................174
Sale or Exchange of Subordinated Units.............................175
Taxes That May Be Imposed on a REMIC...................................176
Liquidation of the REMIC...............................................176
Taxation of Certain Foreign Investors..................................176
Backup Withholding.....................................................177
Reporting Requirements.................................................177
ERISA Considerations........................................................178
Legal Investment............................................................178
Plan of Distribution........................................................180
Legal Matters...............................................................181
Financial Information.......................................................181
Rating......................................................................181
Available Information.......................................................182
Index of Significant Definitions............................................183
Annex A -- Loan Characteristics.............................................A
Annex B -- Global Clearance, Settlement and Tax Documentation Procedures....B
Annex C -- List of Photographs in Electronic Version of Prospectus..........C
Annex D -- Form of Quarterly and Annual Reports.............................D
INDEX OF TABLES
Range of Debt Service Coverage Ratios........................................68
Range of Loan-to-Value Ratios................................................68
Range of Loan-to-Value Ratios at Earlier of Anticipated
Repayment Dates or Maturity.............................................69
Mortgaged Properties By State................................................69
Range of Year Built..........................................................70
Cut-Off Date Loan Amount By Property Type....................................71
Types of Mortgaged Properties................................................71
Range of Loan Amounts or Loan Balances.......................................72
Range of Anticipated Remaining Term in Months................................72
Range of Remaining Term in Months............................................73
Anticipated Repayment By Year................................................73
Delinquency Status as of ________ 1, 1997....................................74
Range of Mortgage Rates......................................................74
Mortgaged Properties By Originator...........................................74
Range of Remaining Lock-Out Period In Months.................................75
</TABLE>
-12-
<PAGE>
SUMMARY OF PROSPECTUS
Prospective investors are advised to carefully read, and should rely
solely on, the detailed information appearing elsewhere in this Prospectus
relating to the Subordinated Units and Subordinated Certificates in making
their investment decision. The following Summary of Prospectus does not
include all relevant information relating to the securities and collateral
described herein, particularly with respect to the risks and special
considerations involved with an investment in such securities, and is
qualified in its entirety by reference to the detailed information appearing
elsewhere in this Prospectus. Prior to making an investment decision, a
prospective investor should carefully review this Prospectus. Capitalized
terms used and not otherwise defined herein have the respective meanings
assigned to them in this Prospectus. See "Index of Significant Definitions" in
this Prospectus.
<TABLE>
<CAPTION>
<S> <C>
INDUSTRY OVERVIEW...................... The commercial real estate market is
estimated to be valued at
approximately $3 trillion. While
much of this real estate is owned
free of any mortgage or other debt,
a sizable portion is financed
through commercial mortgages.
Commercial mortgages are
predominantly secured by income
producing properties, including
multifamily residential, office
buildings, retail properties,
industrial properties, mixed use
properties, mobile home parks,
hotels, self-storage facilities,
nursing homes, assisted living
facilities and senior housing
centers. The commercial real estate
mortgage market is estimated to be
valued at approximately $1 trillion.
The traditional holders of
commercial mortgages have been
banks, life insurance companies and
saving and loan institutions.
Recently, however, an increasing
percentage of mortgages are held by
investors, including life insurance
companies and pension funds, holding
beneficial interests in securitized
pools of mortgages. In 1995, banks
held approximately 39% of
outstanding commercial mortgages
followed by life insurance companies
(20%) and savings and loans (12%).
Other major holders include pension
funds and federal agencies.
Commercial mortgaged-backed
securities issuances have grown
significantly since 1990, with over
$100 billion in aggregate issuances
from the beginning of 1990 through
the end of 1996. In 1996 alone, over
$27 billion of commercial
mortgage-backed securities were
issued. See "Industry Overview."
DEPOSITOR.............................. Asset Securitization Corporation, a
Delaware corporation and a wholly
owned subsidiary of Nomura Asset
Capital Corporation (the "Mortgage
Loan Seller"), and an affiliate of
Nomura Securities International,
Inc. ("NSI"). See "The Depositor"
herein.
MORTGAGE LOAN SELLER................... Nomura Asset Capital Corporation, a
Delaware corporation, the parent of
the Depositor and an affiliate of
NSI.
Nomura Asset Capital Corporation,
the Mortgage Loan Seller, was
incorporated in 1992 and has been
engaged in the business of
originating commercial mortgage
loans since its inception. The
Mortgage Loan Seller has been
involved in the origination of
approximately $15.7 billion in
commercial mortgage loans and other
commercial real estate investments
from inception through ____________
1997.
<PAGE>
Affiliates of the Mortgage Loan
Seller have been involved in a total
of 20 offerings of commercial
mortgage-backed securities from 1993
through December 1996 totaling
approximately $7.3 billion in
initial principal amount. These
offerings included nine offerings
totaling approximately $6.2 billion
issued since March 1994 and which
are backed by mortgage loans
predominantly originated directly by
the Mortgage Loan Seller. See "The
Mortgage Loan Seller."
SERVICER AND SPECIAL SERVICER.......... AMRESCO Management, Inc., a Texas
corporation will be the Servicer and
initial Special Servicer (the
"Servicer" and the "Special
Servicer" in such respective
capacities) and in such capacities
will be responsible for servicing
the Mortgage Loans as described
under "The Pooling and Servicing
Agreement." The Servicer will also
be required to make certain Advances
in accordance with the terms of the
Pooling and Servicing Agreement. See
"The Pooling and Servicing
Agreement--Advances." AMRESCO
Management, Inc. ("AMI") is a wholly
owned subsidiary of AMRESCO, INC.
("AMRESCO"), a publicly traded
(NASDAQ) company. The servicing of
all performing loans will be
performed by the AMRESCO Services
Division of AMI.
AMI provides servicing for AMRESCO's
portfolio, which as of September 1,
1996 consisted of approximately
11,127 loans with an aggregate
principal balance of approximately
$14.9 billion, making it the largest
commercial servicer according to the
1996 ranking issued by the Mortgage
Banker Association of America. The
portfolio is significantly
diversified both geographically and
by product type. AMI also provides
servicing for other securitized
transactions under full, primary,
sub and/or master servicing
contracts for both public and
private placement transactions
representing both single and
multi-borrower mortgage pools, which
as of [ ] consisted of [ ]. See "The
Servicer."
The Special Servicer will be
responsible for servicing functions
with respect to Mortgage Loans that,
in general, are in default or as to
which default is imminent and for
administering any REO Property. The
holders of greater than 50% of the
Percentage Interest of the most
subordinate Class of Certificates
(which Class will initially be the
Junior Subordinated Certificates)
will be entitled, at their option,
to remove the Special Servicer with
or without cause, and appoint a
successor Special Servicer, provided
that each Rating Agency confirms in
writing that such removal and
appointment in and of itself, would
not cause a downgrade, qualification
or withdrawal of the then current
ratings assigned to any Class of
Certificates. The Servicer and
Special Servicer will be permitted
to purchase any Class of
Certificates. See "Risk Factors and
Other Special Considerations--The
Certificates--Servicer or Special
Servicer May Purchase Certificates;
Conflict of Interest" and "The
Pooling and Servicing
Agreement--Special Servicing"
herein. It is anticipated that the
Special Servicer or an affiliate of
the Special Servicer will purchase
all or a majority of the Junior
Subordinated Certificates.
<PAGE>
ORIGINATORS............................ The Mortgage Loan Seller and
Bloomfield Acceptance Company, LLC,
a Michigan limited liability company
( "Bloomfield," and together with
the Mortgage Loan Seller, the
"Originators").
All of the Mortgage Loans were
originated by the Mortgage Loan
Seller or Bloomfield as shown in the
following table during the period
commencing [ ] 1996 and ending on
the Cut-off Date:
ORIGINATORS OF THE MORTGAGE LOANS (1)
% OF
INITIAL NUMBER OF
POOL MORTGAGE
ORIGINATOR BALANCE LOANS
--------------------- ------- --------
Nomura Asset Capital
Corporation........ [ ]%
Bloomfield Acceptance
Company, LLC [ ]%
------------------------
(1) All statistical information set forth in this
and the following tables in the Summary
regarding the "% of Initial Pool Balance" is
based on the Cut-off Date Principal Balance of
the related Mortgage Loan or Loans.
THE MORTGAGE POOL
-----------------
MORTGAGE LOAN POOL CHARACTERISTICS..... The mortgage loan pool will consist
of approximately [140] fixed rate
mortgage loans secured by
approximately [271] commercial and
multifamily properties with an
aggregate principal balance of
approximately [$1.6] billion. Each
mortgage loan is generally
non-recourse and is secured by one
or more first mortgage liens
encumbering the related borrower's
interest in the related property or
properties. The mortgage loan pool
includes the following three types
of loans: balloon, anticipated
repayment date ("ARD") and fully
amortizing. The majority of the
mortgage loans are ARD Loans, which
provide for application of the
properties' excess cash flows to
amortize the principal if the loan
is not repaid on an anticipated
date, usually 10-15 years after
origination.
The mortgage loan pool is
diversified with mortgage loans in
[39] different states. The largest
concentration by principal amount is
in California with approximately 18%
of the pool. The mortgage loan pool
is also diversified by property
type. The largest concentrations by
principal amount are in shopping
centers (31%), office (24%) and
hotel (20%) properties. The other
property types included in the
Mortgage Pool include multifamily
residential housing, nursing homes,
industrial properties, factory
outlet centers, mobile home parks
and an assisted living facility. The
mortgage loan pool includes 20 loans
over $20 million which make up
approximately 42% of the total
principal balance. The mortgage pool
has a weighted average debt service
coverage ratio of [1.45] times and a
weighted average loan to current
appraised value ratio of [70%].
<PAGE>
GENERAL CHARACTERISTICS (AS OF
CUT-OFF DATE, UNLESS OTHERWISE
INDICATED)
Initial Pool
Balance (1).............. $
Number of Mortgage Loans..
Number of Mortgaged
Properties...............
Average Mortgage Loan
Balance.................. $
Weighted Average Months
Since Loan Origination... %
Weighted Average Mortgage
Rate .................... [8.63]%
Range of Mortgage Rates... [7.58-
10.11%]
Weighted Average Remaining
Term to Maturity or
Anticipated Repayment
Date .................... [143 Mos]
Range of Remaining Term to
Maturity or Anticipated
Repayment Date .......... [82-
240 Mos]
Weighted Average Remaining
Amortization Term (2).... [308 Mos]
Range of Remaining
Amortization............. [180-
360 Mos]
Weighted Average
DSCR (3)................. [1.48]
Range of DCCR (3).........[1.23-2.05]
Weighted Average DSCR (3)
at Earlier of Anticipated
Repayment Date or
Maturity (4)............. %
Weighted Average LTV...... [65]%
Range of LTV ............. [36]%-
[79]%
Weighted Average LTV at
Earlier of Anticipated
Repayment Date or
Maturity (5)
ARD Loans (6)............. [90]%
Fully Amortizing Loans
(other than ARD Loans)... [6]%
Balloon Loans............. [4]%
Delinquency as of
Cut-off Date.............
------------------------------
(1) Subject to a permitted variance
of plus or minus 5%.
(2) "Weighted Average Remaining
Amortization Term" reflects the
fact that certain Mortgage Loans
provide for Monthly Payments based
on amortization schedules at least
60 months longer than the remaining
stated terms of such Mortgage
Loans. See "Description of the
Mortgage Pool--Certain Terms and
Conditions of the Mortgage
Loans--Amortization of Principal"
herein.
(3) Debt Service Coverage Ratio
("DSCR") for any Mortgage Loan is
equal to the Net Cash Flow from the
related Mortgaged Property divided
by the Annual Debt Service for such
Mortgaged Property (as such terms
are defined under "Description of
the Mortgage Pool--Additional
Mortgage Loan Information").
(4) "Weighted Average DSCR at
Earlier of Anticipated Repayment
Date or Maturity" is calculated in
the same manner as DSCR, except
that (i) Annual Debt Service, in
the case of ARD Loans, is assumed
to be the annual debt service
payable during the 12 months
preceding the Anticipated Repayment
Date, and in the case of all other
Mortgage Loans is the annual debt
service payable during the 12
months preceding the maturity date
and not including any principal not
attributable to a constant monthly
payment and (ii) Net Cash Flow is
assumed to be the same as Net Cash
Flow used for determining DSCR as
of the Cut-off Date. Such
calculation thus assumes that Net
Cash Flow as of the Maturity Date
or Anticipated Repayment Date, as
applicable, is the same as Net Cash
Flow as of the Cut-off Date. There
can be no assurance that net Cash
Flow will not have declined from
Cut-off Date levels.
(5) "Maturity Date/Anticipated
Repayment Date LTV" for any
Mortgage Loan is calculated in the
same manner as Cut-off Date LTV,
except that the Mortgage Loan
Cut-off Date principal balance used
to calculate the Cut-off Date LTV
has been adjusted to give effect to
the amortization of the applicable
Mortgage Loan as of its maturity
date or, in the case of a Mortgage
Loan that has an Anticipated
Repayment Date, as of its
Anticipated Repayment Date. Such
calculation thus assumes that the
appraised value of the Mortgaged
Property or Properties securing a
Mortgage Loan on the maturity date
or Anticipated Repayment Date, as
applicable, is the same as the
Appraised Value as of the Cut-off
Date. There can be no assurance
that the value of any particular
Mortgaged Property will not have
declined from the Appraised Value.
(6) "ARD Loans" are Mortgage Loans
that substantially fully amortize
by their respective maturity dates
but provide for an Anticipated
Repayment Date on which a
substantial amount of principal
will be due if the borrower elects
to prepay the Mortgage Loan in full
on such date. Such Mortgage Loans
provide for an increased interest
rate after the Anticipated
Repayment Date and require the
application of all Excess Cash Flow
to amortize principal after the
Anticipated Repayment Date. See
"Description of the Mortgage
Pool--Certain Terms and Conditions
of the Mortgage Loans" herein.
NSI HAS MADE AVAILABLE AN
ELECTRONIC VERSION OF THIS
PROSPECTUS ON THE WORLD WIDE WEB AT
"HTTP:// WWW.NOMURANY.COM". THE
PASSWORD FOR ACCESS TO SUCH WEB
SITE IS "CMBS". CERTAIN STATISTICAL
INFORMATION INCLUDED IN THIS
PROSPECTUS CAN BE DOWNLOADED FROM
SUCH WEB SITE. THE ELECTRONIC
VERSION OF THIS PROSPECTUS WILL
ALSO CONTAIN PHOTOGRAPHS OF CERTAIN
OF THE MORTGAGED PROPERTIES. A LIST
OF THE PHOTOGRAPHS AVAILABLE ON THE
ELECTRONIC VERSION OF THIS
PROSPECTUS IS CONTAINED ON ANNEX C
HERETO.
REPRESENTATIONS AND WARRANTIES............ The Mortgage Loan Seller will
sell the Mortgage Loans to the
Depositor and, in connection
therewith, will make certain
representations and warranties, as
more fully described herein. The
Depositor will assign the Mortgage
Loans, together with its rights and
remedies in respect of breaches of
the Mortgage Loan Seller's
representations and warranties to
the Trustee for the benefit of
Certificateholders. With respect to
Mortgage Loans acquired by the
Mortgage Loan Seller from a third
party, the Mortgage Loan Seller
will also assign to the Depositor
and the Depositor will assign to
the Trustee for the benefit of the
Certificateholders, any rights and
remedies in respect of breaches of
representations or warranties made
by such third party. See "The
Pooling and Servicing
Agreement--Representations and
Warranties; Repurchase."
THE OFFERING
SUBORDINATED UNITS........................ $[ ] (approximate) Subordinated
Units, each Subordinated Unit
consisting of $[ ] (approximate)
Class B-1 Certificates, $[ ]
(approximate) Class B-2
Certificates, $[ ] (approximate)
Class B-3 Certificates, $[ ]
(approximate) Class B-4
Certificates, $[ ] (approximate)
Class B-5 Certificates, and $[ ]
(approximate) Class B-6
Certificates. No Class of
Subordinated Certificates will be
separately tradable unless and
until such Class of Subordinated
Certificates is rated investment
grade by either ________________ or
_________________, and only such
investment grade Class shall be
separately tradable. All references
herein to the Subordinated Units
are deemed to include the
Subordinated Certificates.
TITLE OF CERTIFICATES..................... Asset Securitization Corporation,
Commercial Mortgage Pass-Through
Certificates, Series 1997-D4. The
Subordinated Certificates, together
with the other Classes of
Certificates will represent
beneficial ownership interests in
the Trust Fund to be created by the
Depositor. The Trust Fund will
consist primarily of a Mortgage
Pool of [140] Mortgage Loans, with
original terms to maturity of
generally not more than thirty
years, secured by first liens on
[271] commercial and multifamily
Mortgaged Properties.
SUBORDINATION............................. As a means of providing protection
to the holders of the Senior
Certificates against losses
associated with delinquent and
defaulted Mortgage Loans, the
rights of the holders of the
Subordinated Certificates to
receive distributions of interest
and principal with respect to the
Mortgage Loans will be subordinated
to the corresponding rights of the
holders of the Senior Certificates.
The rights of the holders of the
Class B-1 Certificates to receive
distributions of interest and
principal will be subordinate to
those of the Senior Certificates;
the rights of the holders of the
Class B-2 Certificates to receive
distributions of interest and
principal will be subordinate to
those of the Senior Certificates
and Class B-1 Certificates; the
rights of the holders of the Class
B-3 Certificates to receive
distributions of interest and
principal will be subordinate to
those of the Senior Certificates,
Class B-1 and Class B-2
Certificates; the rights of the
holders of the Class B-4
Certificates to receive
distributions of interest and
principal will be subordinate to
those of the Senior Certificates,
Class B-1, Class B-2 and Class B-3
Certificates; the rights of the
holders of the Class B-5
Certificates to receive
distributions of interest and
principal will be subordinate to
those of the Senior Certificates,
Class B-1, Class B-2, Class B-3 and
Class B-4 Certificates; and the
rights of the holders of the Class
B-6 Certificates to receive
distributions of interest and
principal will be subordinate to
those of the Senior Certificates,
Class B-1, Class B-2, Class B-3,
Class B-4, and Class B-5
Certificates. The rights of the
Junior Subordinated Certificates to
receive distributions of interest
and principal will be subordinate
to those of the Senior Certificates
and the Subordinated Certificates.
This subordination will be effected
in two ways: (i) by the
preferential right of holders of a
Class of Certificates to receive on
any Distribution Date the amounts
of interest and principal
distributable in respect of such
Certificates on such Distribution
Date prior to any distribution
being made on such Distribution
Date in respect of any Classes (or
components) of Certificates
subordinate thereto and (ii) by the
allocation of Realized Losses,
first, to the Junior Subordinated
Certificates, second, to the Class
B-6 Certificates, third, to the
Class B-5 Certificates, fourth, to
the Class B-4 Certificates, fifth,
to the Class B-3 Certificates,
sixth, to the Class B-2
Certificates, seventh, to the Class
B-1 Certificates, and finally, to
the Senior Certificates in
accordance with the terms of the
Pooling and Servicing Agreement. No
other form of credit enhancement
will be available for the benefit
of the holders of the Subordinated
Certificates. See "Description of
the Subordinated Certificates" and
"Description of the Subordinated
Certificates--Distributions--Priorities"
herein.
CERTIFICATE SUMMARY....................... Each Class of Certificates has the
approximate aggregate initial
Certificate Balance, subject to a
permitted variance of plus or minus
5%, and other characteristics set
forth below. The Subordinated
Certificates, together with the
Senior Certificates, the Junior
Subordinated Certificates, the
Class V-1, Class V-2, Class R and
Class LR Certificates will be
issued pursuant to the Pooling and
Servicing Agreement.
<CAPTION>
WEIGHTED
AVERAGE PASS- WEIGHTED AVG.
INITIAL AGGREGATE % OF THROUGH LIFE* (YRS.)
CERTIFICATE PRINCIPAL OR % OF CREDIT RATE AS PRINCIPAL
CLASS RATINGS NOTIONAL AMOUNT TOTAL SUPPORT DESCRIPTION OF CUT-OFF DATE WINDOW*
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Senior Certificates**
A-1A, A-1B, A-1C
and A-1D $ % [Fixed Rate] %
A-2, A-3,
A-4 and A-5 $ % [Weighted Average
Coupon] %
A-CS1 and
A-CS2 $ n/a [Interest Only:
Weighted
Average Coupon] % n/a
Subordinated Certificates
B-1 $ [ ]% [Fixed Rate]
B-2 $ [ ]% [Fixed Rate]
B-3 $ [ ]% [Fixed Rate]
B-4 $ [ ]% [Fixed Rate]
B-5 $ [ ]% [Fixed Rate]
B-6 $ [ ]% [Fixed Rate]
Junior Subordinated Certificates**
B-7 and B-7H Unrated $
(approx.) [ ]% [Weighted Average
Coupon]
Rating Agencies ( )
* Based on 0% CPR with all ARD Loans prepaying on the related Anticipated
Repayment Date. See "Prepayment and Yield Considerations" herein.
** Not offered hereby.
<PAGE>
CUT-OFF DATE ............................. [March] ___, 1997.
CLOSING DATE.............................. On or about [ ] 1997.
DISTRIBUTION DATE......................... The 13th day of each month, or if
such 13th day is not a business
day, the business day immediately
following such 13th day, commencing
on [April] ___, 1997; provided,
however, that the Distribution Date
will be no earlier than the second
business day following the 11th day
of each month; provided, further,
that if the 11th day of any month
is not a business day, the
Distribution Date will be the third
business day following the 11th day
of such month. A business day is
any day other than a Saturday, a
Sunday or any day on which banking
institutions in the States of
Georgia, Illinois or New York are
authorized or obligated by law,
executive order or governmental
decree to close.
TRUSTEE................................... LaSalle National Bank, a nationally
chartered bank (the "Trustee"). See
"The Pooling and Servicing
Agreement--The Trustee" herein.
FISCAL AGENT.............................. ABN AMRO Bank N.V., a Netherlands
banking corporation (the "Fiscal
Agent") and the corporate parent of
the Trustee.
REPORTS TO CERTIFICATEHOLDERS............. On each Distribution Date, the
Trustee will furnish to each
Certificateholder, to the
Depositor, the paying agent
appointed by the Trustee pursuant
to the Pooling and Servicing
Agreement (the "Paying Agent"), the
Servicer, the Special Servicer,
each Underwriter and the Rating
Agencies certain information as
described under "The Pooling and
Servicing Agreement--Reports to
Certificate Holders--Trustee
Reports." The Servicer will prepare
quarterly reports and annual
reports in the form set forth in
Annex D hereto with respect to the
borrowers and Mortgaged Properties,
which reports shall be delivered to
the Depositor, each Underwriter
(including through access to the
Servicer's Web site) and the
Trustee. The Trustee will forward a
copy of each such report to each
Rating Agency and Certificateholder
upon request, limited to one
request per month and at such
Certificateholder's expense. The
Servicer and the Special Servicer
will also make available at its
offices during normal business
hours, or send to the requesting
party at the expense of each such
requesting party (other than the
Rating Agencies) for review by the
Depositor, the Trustee, the Rating
Agencies, any Certificateholder,
among other things, the following
items: financial statements,
occupancy information, rent rolls,
average daily room rates,
inspection reports and all
modifications, waivers and
amendments of the terms of a
Mortgage Loan entered into by the
Servicer or the Special Servicer.
See "The Pooling and Servicing
Agreement."
A Current Report on Form 8-K (the
"Form 8-K") will be available to
purchasers of the Subordinated
Certificates and will be filed by
the Depositor, together with the
Pooling and Servicing Agreement
with the Securities and Exchange
Commission within fifteen days
after the initial issuance of the
Subordinated Certificates. In the
event Mortgage Loans are removed
from the Mortgage Pool as set forth
in the preceding paragraph, such
removal will be noted in the Form
8-K.
INTEREST PAYMENTS......................... Interest on the Subordinated
Certificates will accrue at the
applicable Pass-Through Rate on the
outstanding Certificate Balance
thereof. On each Distribution Date,
each Class of Subordinated
Certificates will be entitled to
receive interest distributions in
an amount equal to the Interest
Distribution Amount (subject to the
priorities described under
"Description of the Subordinated
Certificates--Distributions") for
such Class and Distribution Date,
together with any Interest
Shortfalls remaining from prior
Distribution Dates, in each case to
the extent of Available Funds, if
any, remaining after (i) payment of
the Interest Distribution Amounts
and unreimbursed Interest
Shortfalls for the Senior
Certificates and (ii), if
applicable, payment of the
Principal Distribution Amount for
such Distribution Date and an
amount equal to the aggregate
unreimbursed Realized Losses
previously allocated to any Senior
Certificates.
The Trust Fund will include two
separate REMICs. Collections on the
Mortgage Loans will be used to make
payments of principal and interest
on interests (the "Lower-Tier
Interests") in the Lower-Tier
REMIC. Those payments in turn will
be used to make distributions on
the Certificates (other than the
Class R, Class V-1 and Class V-2
Certificates), which represent
interests in the Upper-Tier REMIC.
For purposes of
<PAGE>
simplicity, distributions will
generally be described herein as if
made directly from collections on
the Mortgage Loans to the holders
of the Certificates.
The "Interest Distribution Amount"
with respect to any Distribution
Date and either Class of
Subordinate Certificates is equal
to interest accrued during the
related Interest Accrual Period at
the Pass-Through Rate on such Class
on the Certificate Balance of such
Class.
PRINCIPAL PAYMENTS........................ The Principal Distribution Amount
for each Distribution Date will be
distributed to the Senior
Certificates (other than the Class
A-CS1 and Class A-CS2 Certificates)
until the Certificate Balances of
all the Classes of Senior
Certificates (other than the Class
A-CS1 and Class A-CS2 Certificates)
have been reduced to zero before
being applied in reduction of the
Certificate Balances of first, the
Class B-1 Certificates, second, the
Class B-2 Certificates, third, the
Class B-3 Certificates, fourth, the
Class B-4 Certificates, fifth, the
Class B-5 Certificates, and sixth,
the Class B-6 Certificates until
the Certificate Balance of each is
reduced to zero, in each case to
the extent of Available Funds
remaining after required
distributions of interest to such
Class and after making interest and
principal distributions and
distributions for any unreimbursed
Realized Losses to any more senior
Class of Certificates.
The "Principal Distribution Amount"
for any Distribution Date is equal
to the sum, for all Mortgage Loans,
of (i) the principal component of
all scheduled Monthly Payments
(other than Balloon Payments) which
become due (if received or
advanced, including by virtue of a
Subordinate Class Advance Amount)
on the Mortgage Loans on the
related Due Date; (ii) the
principal component of all Assumed
Scheduled Payments or Minimum
Defaulted Monthly Payments, as
applicable, deemed to become due
(if received or advanced,
including, by virtue of a
Subordinate Class Advance Amount on
the related Due Date with respect
to any Mortgage Loan that is
delinquent in respect of its
Balloon Payment; (iii) the Stated
Principal Balance of each Mortgage
Loan that was, during the related
Collection Period, repurchased from
the Trust Fund in connection with
the breach of a representation or
warranty or purchased from the
Trust Fund as described herein
under "The Pooling and Servicing
Agreement--Optional Termination";
(iv) the portion of Unscheduled
Payments allocable to principal of
any Mortgage Loan that was
liquidated during the related
Collection Period; (v) all Balloon
Payments and, to the extent not
included in the preceding clauses,
any other principal payment on any
Mortgage Loan received on or after
the Maturity Date thereof, to the
extent received during the related
Collection Period; (vi) to the
extent not included in the
preceding clauses (iii) or (iv),
all other Principal Prepayments
received in the related Collection
Period; and (vii) to the extent not
included in the preceding clauses,
any other full or partial
recoveries in respect of principal,
including Insurance Proceeds,
Liquidation Proceeds and Net REO
Proceeds.
Amounts received on any Mortgage
Loan that represent recoveries of
any Subordinate Class Advance
Amount will not be included in the
calculation of "Principal
Distribution Amount."
RECORD DATE............................... With respect to each Distribution
Date, the close of business on the
10th day of the month in which such
Distribution Date occurs, or if
such day is not a business day, the
preceding business day; the Record
Date for the Distribution Date
occurring in [ ] 1997 for all
purposes other than the receipt of
distributions is the Closing Date.
INTEREST ACCRUAL PERIOD................... With respect to any Distribution
Date other than the Distribution
Date occurring in [ ] 1997, the
period commencing on and including
the 11th day of the month preceding
the month in which such
Distribution Date occurs and ending
on and including the 10th day of
the month in which such
Distribution Date occurs; the
Interest Accrual Period with
respect to the Distribution Date
occurring in [ ] 1997 is assumed to
consist of [ ] days. Each Interest
Accrual Period other than the
Interest Accrual Period with
respect to the Distribution Date
occurring in [ ] 1997 is assumed to
consist of 30 days.
SCHEDULED FINAL DISTRIBUTION DATE......... As to each Class of Subordinated
Certificates, [ ], the next
Distribution Date occurring after
the latest maturity date of any
Mortgage Loan.
RATED FINAL DISTRIBUTION DATE............. As to each Class of Subordinated
Certificates, [ ], the next
Distribution Date occurring after
the latest Assumed Maturity Date of
any of the Mortgage Loans. The
"Assumed Maturity Date" of (a) any
Mortgage Loan that is not a Balloon
Loan is the
<PAGE>
maturity date of such Mortgage Loan
and (b) any Balloon Loan is the
date on which such Mortgage Loan
would be deemed to mature in
accordance with its original
amortization schedule absent its
Balloon Payment.
COLLECTION PERIOD......................... With respect to a Distribution
Date, the period beginning on the
day after the Due Date in the month
preceding the month in which such
Distribution Date occurs and ending
at the close of business on the Due
Date in the month in which such
Distribution Date occurs.
DUE DATE.................................. With respect to any Distribution
Date and/or any Mortgage Loan, as
the case may be, the 11th (or in
the case of certain of the Mortgage
Loans, if the 11th day is not a
business day, either the next
business day or the first preceding
business day) of the month in which
such Distribution Date occurs.
VOTING RIGHTS............................. Holders of the Subordinated
Certificates will have Voting
Rights under the Pooling and
Servicing Agreement, which Voting
Rights may be exercised, among
other things, to direct certain
actions of the Special Servicer
after a default on a Mortgage Loan
or to replace the Special Servicer.
Following a default on a Balloon
Loan at the maturity thereof and
upon the satisfaction of certain
conditions contained in the Pooling
and Servicing Agreement the holders
(including, if applicable, Special
Servicer or an affiliate thereof)
of greater than 50% of the
Percentage Interests of the most
subordinate Class or Classes of
Certificates then outstanding
representing a minimum of [1.5]% of
the aggregate initial Certificate
Balance of all Classes of
Certificates (which Class initially
will be the Junior Subordinated
Certificates) may at their sole
discretion, elect to provide the
Special Servicer with Instructions
to extend such Mortgage Loan. If
the Certificate Balance of such
Class or Classes of Certificates
has been reduced to less than 40%
of the initial Certificate Balances
thereof, the holders of such Class
together with the holders of the
next most subordinate class will be
treated as a single Class for
purposes of such Voting Rights. It
is anticipated that the Special
Servicer will own a majority of the
Junior Subordinated Certificates
and, therefore, will be able to
control the vote with respect to
such matters.
PASS-THROUGH RATES........................ The per annum rate at which
interest accrues (the "Pass-Through
Rate") on the Class B-1, Class B-2,
Class B-3, Class B-4, Class B-5 and
Class B-6 Certificates will be
equal to [ ]%, [ ]%, [ ]%, [ ]%,
and [ ]%, respectively. See
"Description of Subordinated
Certificates--Distributions."
The Pass-Through Rates of the other
Classes of Certificates are set
forth herein under "Description of
the Subordinated
Certificates--Distributions."
ADVANCES.................................. The Servicer is required to make
advances ("P&I Advances") in
respect of delinquent Monthly
Payments on the Mortgage Loans,
subject to the limitations
described herein, and provided that
the Servicer will make only one P&I
Advance with respect to each
Mortgage Loan for the benefit of
the most subordinate Class of
Certificates then outstanding
(unless the related defaulted
Monthly Payment is received prior
to the following Due Date). See
"Description of the Pooling and
Servicing Agreement-- Advances"
herein.
OPTIONAL TERMINATION...................... The Depositor, and if the Depositor
does not exercise the option, the
Servicer and, if neither the
Servicer nor the Depositor
exercises the option, the holders
of the Class LR Certificates
representing greater than a 50%
Percentage Interest of the Class LR
Certificates, will have the option
to purchase at the purchase price
specified herein, all of the
Mortgage Loans, and all property
acquired through exercise of
remedies in respect of any Mortgage
Loan, remaining in the Trust Fund,
and thereby effect termination of
the Trust Fund and early retirement
of the then outstanding
Certificates, on any Distribution
Date on which the aggregate Stated
Principal Balance of the Mortgage
Loans remaining in the Trust Fund
is less than 1% of the Initial Pool
Balance. Additionally, the holders
of the Class LR Certificates
representing greater than a 50%
Percentage Interest of the Class LR
Certificates will have the option
to purchase at the purchase price
specified herein any Mortgage Loan
on its Anticipated Repayment Date.
See "The Pooling and Servicing
Agreement--Optional Termination"
herein.
DENOMINATIONS............................. The Class B-1, Class B-2, Class
B-3, Class B-4, Class B-5 and Class
B-6 Certificates will be issuable
in registered form, in minimum
denominations of Certificate
Balance of $[________],
$[________], $[________],
$[________], $[________] and
$[________], respectively and
multiples of $[__] in excess
thereof.
<PAGE>
CLEARANCE AND SETTLEMENT.................. Holders of Subordinated
Certificates may elect to hold
their Certificates through any of
DTC (in the United States) or CEDEL
or Euroclear (in Europe). Transfers
within DTC, CEDEL or Euroclear, as
the case may be, will be in
accordance with the usual rules and
operating procedures of the
relevant system. Crossmarket
transfers between persons holding
directly or indirectly through DTC,
on the one hand, and counterparties
holding directly or indirectly
through CEDEL or Euroclear, on the
other, will be effected in DTC
through the relevant Depositaries
of CEDEL or Euroclear. The
Depositor may elect to terminate
the book-entry system through DTC
with respect to all or any portion
of any Class of the Subordinated
Certificates. See "Description of
the Subordinated
Certificates--Delivery, Form and
Denomination," "--Book-Entry
Registration" and "-- Definitive
Certificates" herein.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............................ Elections will be made to treat the
Trust REMICs, and the Trust REMICs
will qualify, as two separate
REMICs for federal income tax
purposes. The Senior Certificates,
the Subordinated Certificates and
the Junior Subordinated
Certificates will constitute
"regular interests" in the
Upper-Tier REMIC, and the Class R
and Class LR Certificates
(collectively the "Residual
Certificates"") will be designated
as the sole Classes of "residual
interests" in the Upper-Tier REMIC
and Lower-Tier REMIC, respectively.
The Class V-1 Certificates will
represent the right to receive
Default Interest and the Class V-2
Certificates will represent the
right to receive Excess Interest,
which portions of the Trust Fund
will be treated as a grantor trust
for federal income tax purposes.
See "Certain Federal Income Tax
Consequences" herein.
The Subordinated Certificates will
be treated as newly originated debt
instruments for federal income tax
purposes. Beneficial owners of the
Subordinated Certificates will be
required to report income thereon
in accordance with the accrual
method of accounting. Although not
free from doubt, it is anticipated
that for purposes of computing and
accruing original issue discount
the Subordinated Certificates will
be aggregated and that the
Subordinated Units will be treated
as issued with original issue
discount in an amount equal to the
excess of their aggregate initial
Certificate Balances [(plus--days
of interest at the Pass-Through
Rates thereon)] over their issue
price. See "Certain Federal Income
Tax Consequences" herein.
ERISA CONSIDERATIONS ......................Because the Subordinated
Certificates are subordinate to one
or more other Classes of
Certificates, the purchase and
holding of the Subordinated
Certificates by or on behalf of (i)
an employee benefit plan or other
retirement arrangement subject to
Title I of the Employee Retirement
Income Security Act of 1974, as
amended ("ERISA"), or Section 4975
of the Internal Revenue Code of
1986, as amended (the "Code"), or
(ii) a governmental plan (as
defined in Section 3(32) of ERISA)
subject to any federal, state or
local law ("Similar Law") which is,
to a material extent, similar to
the foregoing provisions of ERISA
or the Code (each, a "Plan"), may
result in prohibited transactions
within the meaning of ERISA, the
Code or any Similar Law.
No transfer of a Subordinated
Certificate that is a Definitive
Certificate shall be made unless
the prospective transferee has (a)
delivered to the Depositor, the
Certificate Registrar and the
Trustee a representation letter
stating that that the transferee is
not a Plan or a person acting on
behalf of or investing the assets
of a Plan, other than an insurance
company investing the assets of its
general account under circumstances
whereby the purchase and subsequent
holding of the Subordinated
Certificate would be exempt from
the prohibited transaction
restrictions of ERISA and the Code
under Sections I and III of
Prohibited Transaction Class
Exemption ("PTE") 95-60 or (b)
provides an opinion of counsel and
such other documentation as
described under "ERISA
Considerations". The transferee of
a beneficial interest in a
Subordinated Certificate that is
not a Definitive Certificate shall
be deemed to represent that it is
not a person described in clause
(a) above. See "Description of the
Subordinated Certificates--Transfer
Restrictions" and "ERISA
Considerations" herein.
RATINGS................................... It is a condition to the issuance
of the Subordinated Certificates
that (i) the Senior Certificates be
issued and offered, (ii) the Class
B-1 Certificates be rated "____" by
________, the Class B-2
Certificates be rated "____" by
________, the Class B-3
<PAGE>
Certificates be rated "____" by
________, the Class B-4
Certificates be rated "_____" by
________, the Class B-5
Certificates be rated "BBB" by
________ and the Class B-6
Certificates be rated "____" by
________. A security rating is not
a recommendation to buy, sell or
hold securities and may be subject
to revision or withdrawal at any
time by the assigning rating
organization. The Rating Agencies
ratings on the Subordinated
Certificates address the likelihood
of the timely payment of interest
and the ultimate repayment of
principal by the Rated Final
Distribution Date. A security
rating does not address the
frequency of prepayments (both
voluntary and involuntary) or the
possibility that Certificateholders
might suffer a lower than
anticipated yield, nor does a
security rating address the
likelihood of receipt of Prepayment
Premiums, Net Default Interest or
Excess Interest. A security rating
does not represent any assessment
of the yield to maturity that
investors may experience. See "Risk
Factors and Other Special
Considerations" and "Rating"
herein.
LEGAL INVESTMENT.......................... The appropriate characterization of
the Subordinated Certificates under
various legal investment
restrictions, and thus the ability
of investors subject to these
restrictions to purchase the
Subordinated Certificates, may be
subject to significant
interpretative uncertainties. The
Subordinated Certificates will not
constitute "mortgage related
securities" within the meaning of
the Secondary Mortgage Market
Enhancement Act of 1984, as
amended. Accordingly, investors
should consult their own legal
advisors to determine whether and
to what extent the Subordinated
Certificates constitute legal
investments for them. See "Legal
Investment" herein.
USE OF PROCEEDS........................... The net proceeds from the sale of
Subordinated Units, together with
the net proceeds from the sale of
the Senior Certificates and Junior
Subordinated Certificates, will be
used by the Depositor to pay the
purchase price of the Mortgage
Loans.
RISK FACTORS.............................. See "Risk Factors and Other Special
Considerations" immediately
following this Summary for a
discussion of certain factors that
should be considered in connection
with the purchase of the
Subordinated Units.
</TABLE>
<PAGE>
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS
Prospective holders of Subordinated Units should consider, among other
things, the following factors in connection with the purchase of the
Subordinated Units.
THE MORTGAGE LOANS
Risks Associated with Commercial and Multifamily Lending Generally. The
Mortgage Loans are secured by anchored and unanchored retail properties,
office buildings, full and limited service hotels, multifamily residential
housing, nursing homes, industrial properties, factory outlet centers, mobile
home and recreational vehicle parks and an assisted living facility. Mortgage
Loans secured by commercial and multifamily properties are markedly different
from one-to-four family mortgage loans. Commercial and multifamily lending is
generally viewed as exposing a lender to a greater risk of loss than
one-to-four-family residential lending. The repayment of loans secured by
commercial or multifamily properties is typically dependent upon the
successful operation of the related real estate project, the businesses
operated by the tenants and the creditworthiness of such tenants, i.e., the
ability of the applicable property to produce cash flow. Even the liquidation
value of a commercial or multifamily residential property is determined more
by capitalization of the property's cash flow than any absolute value of
buildings and improvements thereon. Lenders typically look to the debt service
coverage ratio (that is the ratio of net cash flow to debt service) of a loan
secured by income-producing property as an important measure of the risk of
default on such a loan. Commercial and multifamily lending also typically
involves larger loans to a single obligor than one-to-four-family residential
lending.
Cash Flow Volatility. Commercial and multifamily property values and cash
flows are subject to volatility and may be sufficient or insufficient to cover
debt service on the related Mortgage Loan at any given time. The volatility of
property values and cash flows depends upon a number of factors, including (i)
the volatility of property revenue, determined primarily by (a) the length of
tenant lease commitments, (b) the creditworthiness of tenants, (c) in the case
of retail properties characterized by rentals based all or in part on tenant
sales, the volume of those sales and (d) the variability of other property
revenue sources; and (ii) the property's "operating leverage," which generally
refers to (a) the percentage of total property operating expenses in relation
to property revenue, (b) the breakdown of property operating expenses between
those that are fixed and those that vary with revenue and (c) the level of
capital expenditures required to maintain the property and retain or replace
tenants. The net operating income and value of the Mortgaged Properties may be
adversely affected by a number of factors, including but not limited to the
national, regional and local economic conditions (which may be adversely
impacted by plant closings, industry slowdowns and other factors); local real
estate conditions (such as an oversupply of housing, retail space, office
space or hotel rooms); changes or continued weakness in specific industry
segments; changes in applicable healthcare regulations, including
reimbursement requirements; perceptions by prospective tenants and, in the
case of retail properties, retailers and shoppers, of the safety, convenience,
services and attractiveness of the property; the willingness and ability of
the property's owner to provide capable management and adequate maintenance;
demographic factors; retroactive changes to building or similar codes;
increases in operating expenses (such as energy costs); the number of tenants
or, if applicable, the diversity of types of business operated by such
tenants; and laws regulating the maximum rental permitted to be charged to a
residential tenant. Properties with short-term, less creditworthy revenue
sources and/or relatively high operating leverage, such as health care related
facilities, hotels and motels can be expected to have more volatile cash flows
than properties with medium to long-term tenant commitments from creditworthy
tenants and/or relatively low operating leverage. A decline in the real estate
market, in the financial condition of a major tenant or a general decline in
the local or national economy will tend to have a more immediate effect on the
net operating income of such properties and may lead to higher rates of
delinquency or defaults. Historical operating results of the Mortgaged
Properties may not be comparable to future operating results. In addition,
other factors may adversely affect the Mortgaged Properties' value without
affecting their current net operating income, including changes in
governmental regulations, zoning or tax laws; potential environmental or other
legal liabilities; the availability of refinancing; and changes in interest
rate levels.
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<PAGE>
The age, construction quality and design of a particular property may
affect the occupancy level as well as the rents that may be charged for
individual leases. The effects of poor construction quality or design will
increase over time in the form of increased maintenance and capital
improvements. Even good construction will deteriorate over time if the
property managers do not schedule and perform adequate maintenance in a timely
fashion. If, during the terms of the Mortgage Loans, properties of a similar
type are built in the areas where the Mortgaged Properties of such type are
located or other similar properties in such areas are substantially updated
and refurbished, the value and net operating income of such Mortgaged
Properties could be reduced. There is no assurance that the value of any
Mortgaged Property during the term of the related Mortgage Loan will equal or
exceed its appraised value at the date of origination of such Mortgage Loan.
Additionally, some of the Mortgaged Properties may not readily be
converted to alternative uses if such Mortgaged Properties were to become
unprofitable due to competition, age of the improvements, decreased demand or
other factors. The conversion of nursing homes or hotels to alternative uses
would generally require substantial capital expenditures. Thus, if the
operation of any such Mortgaged Properties becomes unprofitable such that the
borrower becomes unable to meet its obligations on the related loan, the
liquidation value of any such property may be substantially less, relative to
the amount owing on the related loan, than would be the case if such property
were readily adaptable to other uses.
Other multifamily residences, hotels, retail properties, office
buildings, mobile home parks, nursing homes and industrial properties located
in the areas of the Mortgaged Properties compete with the Mortgaged Properties
of such types to attract residents, retailers, customers, patients and
tenants. Increased competition frequently leads to lowering of rents in a
market and could adversely affect income from and market value of the
Mortgaged Properties.
Borrower Default; Nonrecourse Mortgage Loans. The Mortgage Loans are not
insured or guaranteed by any governmental entity, by any private mortgage
insurer, or by the Depositor, the Mortgage Loan Seller, the Servicer, the
Special Servicer, any Originator, the Trustee, the Fiscal Agent or any of
their respective affiliates.
Each Mortgage Loan is a nonrecourse loan as to which, in the event of a
default under such Mortgage Loan, recourse generally may be had only against
the specific properties and other assets that have been pledged to secure the
Mortgage Loan. Consequently, payment on each Mortgage Loan prior to maturity
is dependent primarily on the sufficiency of the net operating income of the
related Mortgaged Property, and at maturity (whether at scheduled maturity or,
in the event of a default under the related Mortgage Loan, upon the
acceleration of such maturity) upon the then market value of the related
Mortgaged Property or the ability of the related borrower to refinance the
Mortgaged Property.
Property Management. The successful operation of a real estate project is
also dependent on the performance and viability of the property manager of
such project. Different property types vary in the extent to which the
property manager is involved in property marketing, leasing and operations on
a daily basis. Properties deriving revenues primarily from short-term sources
(such as hotels) are generally more management intensive than properties
leased to creditworthy tenants under long-term leases. The property manager is
responsible for responding to changes in the local market, planning and
implementing the rental structure, including establishing levels of rent
payments, operating the properties and providing building services, managing
operating expenses and advising the borrowers so that maintenance and capital
improvements can be carried out in a timely fashion. In addition, all of the
property managers are operating companies and unlike limited purpose entities,
may not be restricted from incurring debt and other liabilities in the
ordinary course of business or otherwise. There can be no assurance that the
property managers will at all times be in a financial condition to continue to
fulfill their management responsibilities under the related management
agreements throughout the terms thereof. Moreover, certain of the properties
secured by the Mortgage Loans are managed by affiliates of the applicable
borrower. Such relationship could raise additional difficulties for a mortgage
in a default or work-out scenario. However, [all][most] of the Mortgage Loans
permit the lender to remove the manager upon the occurrence of an event of
default or other specified triggers.
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<PAGE>
Retail Properties. ________% of the Mortgage Loans, based on principal
balance, are secured by retail properties (other than factory outlet centers).
See "Description of the Mortgage Pool--Additional Mortgage Loan
Information--Types of Mortgaged Property" herein. The critical factors
determining the value of retail properties are the quality of the tenant
roster as well as fundamental aspects of real estate such as location and
market demographics. The linkage between the success of tenant businesses and
property value is more direct with respect to retail properties than other
types of commercial property because a significant component of the total rent
paid by retail tenants is often tied to a percentage of gross sales. Whether a
retail property is "anchored" or "unanchored" is also an important
distinction. Retail properties that are anchored have traditionally been
perceived to be less risky. While there is no strict definition of an anchor,
it is generally understood that a retail anchor tenant is proportionately
large in size and is vital in attracting customers to the property. _____%,
based on principal balance, of the Mortgage Loans secured by retail properties
(not including factory outlet centers), are "anchored" and _____% are
"unanchored.".
Unlike office or hotel properties, retail properties also face
competition from sources outside a given real estate market. Catalog
retailers, home shopping networks, telemarketing and outlet centers all
compete with more traditional retail properties for consumer dollars.
Continued growth of these alternative retail outlets (which are often
characterized by lower operating costs) could adversely affect the rents
collectible at retail properties within the Mortgage Pool.
Factory Outlet Properties. _____% of the Mortgage Loans, based on
principal balance, are secured by factory outlet centers. See "Description of
the Mortgage Pool--Additional Mortgage Loan Information--Types of Mortgaged
Property" herein. The factory outlet center business depends, in part, on the
pricing differential between goods sold in the factory outlet centers and
similar or identical goods sold in a traditional department store or retailer.
While this pricing differential results, in part, because of lower operating
costs resulting from the elimination of distribution layers and the reduced
rent and overhead at factory outlet centers, there can be no assurance that
traditional retailers will not compete aggressively to regain sales nor can
there be any assurance that the factory outlet center business will not be
adversely affected by other changes in the distribution and sale of retail
goods.
Further, newer outlet centers are being constructed closer to
metropolitan and suburban areas, thereby decreasing the economic viability of
older centers that are located farther away. Numerous factory outlet centers
have been developed in recent years and are currently being developed. As a
result of this rapid growth, there exists a risk of overdevelopment, and
increased competition for tenants. The terms of leases of stores in factory
outlet centers typically are shorter than those in traditional malls or
shopping centers, thereby increasing the risks of tenants relocating to
competing centers.
Office Properties. [24]% of the Mortgage Loans, based on principal
balance, are secured by office properties. See "Description of the Mortgage
Pool--Additional Mortgage Loan Information--Types of Mortgaged Property"
herein. The critical factors determining the value of office properties are
the quality of the tenants in the building, the physical attributes of the
building in relation to competing buildings and the strength and stability of
the market area as a desirable business location. Office properties may be
adversely affected if there is an economic decline in the business operated by
the tenants. The risk of such an adverse effect is increased if revenue is
dependent on a single tenant or if there is a significant concentration of
tenants in a particular business or industry.
Office properties are also subject to competition with other office
properties in the same market. Competition is affected by a property's age,
condition, design (e.g. floor sizes and layout), access to transportation and
ability or inability to offer certain amenities to its tenants, including
sophisticated building systems (such as fiber optic cables, satellite
communications or other base building technological features).
The success of an office property also depends on the local economy. A
company's decision to locate office headquarters in a given area, for example,
may be affected by such factors as labor cost and quality, tax environment and
quality of life issues such as schools and cultural amenities. A central
business district may have
-29-
<PAGE>
an economy which is markedly different from that of a suburb. The local economy
will impact on an office property's ability to attract stable tenants on a
consistent basis.
Industrial Properties. [5]% of the Mortgage Loans, based on principal
balance, are secured by industrial properties. See "Description of the
Mortgage Pool--Additional Mortgage Loan Information--Types of Mortgaged
Property" herein. The critical factors determining the value of industrial
properties are the quality of tenants, building design and adaptability and
the location of the property. Concerns about the quality of tenants,
particularly major tenants, are similar in both office properties and
industrial properties, although industrial properties are more frequently
dependent on a single tenant.
Aspects of building site design and adaptability affect the value of an
industrial property. Site characteristics which are valuable to an industrial
property include clear heights, column spacing, number of bays and bay depths,
divisibility, truck turning radius and overall functionality and
accessibility.
Location is also critical because an industrial property requires the
availability of labor sources, proximity to supply sources and customers and
accessibility to rail lines, major roadways and other distribution channels.
Hotel Properties. [18]% of the Mortgage Loans, based on principal
balance, are secured by full service hotels, limited service hotels, hotels
associated with national franchise chains, hotels associated with regional
franchise chains and hotels that are not affiliated with any franchise chain
but may have their own brand identity. See "Description of the Mortgage
Pool--Additional Mortgage Loan Information--Types of Mortgaged Property"
herein for certain statistical information on the Hotel Properties and Hotel
Loans.
Various factors, including location, quality and franchise affiliation
affect the economic performance of a hotel. Adverse economic conditions,
either local, regional or national, may limit the amount that can be charged
for a room and may result in a reduction in occupancy levels. The construction
of competing hotels can have similar effects. To meet competition in the
industry and to maintain economic values, continuing expenditures must be made
for modernizing, refurbishing, and maintaining existing facilities prior to
the expiration of their anticipated useful lives. Because hotel rooms
generally are rented for short periods of time, hotels tend to respond more
quickly to adverse economic conditions and competition than do other
commercial properties. Furthermore, the financial strength and capabilities of
the owner and operator of a hotel may have a substantial impact on such
hotel's quality of service and economic performance. Additionally, the hotel
and lodging industry is generally seasonal in nature and this seasonality can
be expected to cause periodic fluctuations in room and other revenues,
occupancy levels, room rates and operating expenses. The demand for particular
accommodations may also be affected by changes in travel patterns caused by
changes in energy prices, strikes, relocation of highways, the construction of
additional highways and other factors.
Certain of the Hotel Properties are franchisees of national or regional
hotel chains. The viability of any such Hotel Property depends in part on the
continued existence and financial strength of the franchisor, the public
perception of the franchise service mark and the duration of the franchise
licensing agreements. The transferability of franchise license agreements may
be restricted and, in the event of a foreclosure on any such Hotel Property,
the mortgagee may not have the right to use the franchise license without the
franchisor's consent. Conversely, a lender may be unable to remove a
franchisor that it desires to replace following a foreclosure. Further, in the
event of a foreclosure on a Hotel Property, it is unlikely that the Trustee
(or Servicer or Special Servicer) or purchaser of such Hotel Property would be
entitled to the rights under any liquor license for such Hotel Property and
such party would be required to apply in its own right for such license or
licenses. There can be no assurance that a new license could be obtained or
that it could be obtained promptly.
Multifamily Properties. [15]% of the Mortgage Loans, based on principal
balance, are secured by multifamily apartment buildings. See "Description of
the Mortgage Pool--Additional Mortgage Loan Information--Types of Mortgaged
Property" herein.
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<PAGE>
The critical factors determining the value of a multifamily property are
the number of competing residential developments in the local market, the
physical attributes of the multifamily apartment building and state and local
regulations affecting such property. Loans secured by liens on properties of
these types pose risks not associated with loans secured by liens on other
types of income-producing real estate. The successful operation of an
apartment building will generally depend upon the number of competing
residential developments in the local market (such as apartment buildings,
other manufactured housing communities and site-built single family homes), as
well as upon other factors such as its age, appearance, reputation, the
ability of management to provide adequate maintenance and insurance, and the
types of services it provides.
Certain states regulate the relationship of an owner and its tenants.
Commonly, these laws require a written lease, good cause for eviction,
disclosure of fees, and notification to residents of changed land use, while
prohibiting unreasonable rules, retaliatory evictions, and restrictions on a
resident's choice of unit vendors. Apartment building owners have been the
subject of suits under state "Unfair and Deceptive Practices Acts" and other
general consumer protection statutes for coercive, abusive or unconscionable
leasing and sales practices. A few states offer more significant protection.
For example, there are provisions that limit the basis on which a landlord may
terminate a tenancy or increase its rent or prohibit a landlord from
terminating a tenancy solely by reason of the sale of the owner's building.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control on apartment
buildings. These ordinances may limit rent increases to fixed percentages, to
percentages of increases in the consumer price index, to increases set or
approved by a governmental agency, or to increases determined through
mediation or binding arbitration. In many cases, the rent control laws do not
permit vacancy decontrol, or permit vacancy decontrol only in the relatively
rare event that the mobile home is removed from the homesite. Local authority
to impose rent control is pre-empted by state law in certain states, and rent
control is not imposed at the state level in those states. In some states,
however, local rent control ordinances are not pre-empted for tenants having
short-term or month-to-month leases, and properties there may be subject to
various forms of rent control with respect to those tenants. Any limitations
on a borrower's ability to raise property rents may impair such borrower's
ability to repay its Mortgage Loan from its net operating income or the
proceeds of a sale or refinancing of the related Mortgaged Property.
Adverse economic conditions, either local or national, may limit the
amount of rent that can be charged and may result in a reduction in timely
rent payments or a reduction in occupancy levels. Occupancy and rent levels
may also be affected by construction of additional housing units, local
military base closings and national and local politics, including current or
future rent stabilization and rent control laws and agreements. In addition,
the level of mortgage interest rates may encourage tenants to purchase
single-family housing. The location and construction quality of a particular
building may affect the occupancy level as well as the rents that may be
charged for individual units. The characteristics of a neighborhood may change
over time or in relation to newer developments.
Mobile Home Park Properties. [4]% of the Mortgaged Properties, based on
principal balance, are operated as mobile home parks, recreational vehicle
parks or combinations thereof. See "Description of the Mortgage
Pool--Additional Mortgage Loan Information--Types of Mortgaged Property" for
certain statistical information on such loans.
The critical factors determining the value of mobile home park properties
are generally similar to the factors affecting the value of multi-family
residential properties. In addition, the mobile home park properties are
"special purpose" properties that could not be readily converted to general
residential, retail or office use. In fact, certain states also regulate
changes in mobile home park use and require that the landlord give written
notice to its tenants a substantial period of time prior to the projected
change. Consequently, if the operation of any of the mobile home park
properties becomes unprofitable due to competition, age of the improvement or
other factors such that the borrower becomes unable to meet its obligation on
the related Mortgage Loan, the liquidation value of that mobile home park
property may be substantially less, relative to the amount owing on the
Mortgage Loan, than would be the case if the mobile home park property were
readily adaptable to other uses.
-31-
Senior Housing/Healthcare Properties. ____% of the Mortgaged Properties,
based on principal balance, are operated as nursing homes. See "Description of
the Mortgage Pool--Additional Mortgage Loan Information--Types of Mortgaged
Property" herein for certain statistical information on such loans. Critical
factors determining the value of senior housing and healthcare properties
include federal and state laws, competition with similar properties on a local
and regional basis and the continued availability of revenue from government
reimbursement programs, primarily Medicaid and Medicare. Loans secured by
liens on nursing homes pose risks not associated with loans secured by liens
on other types of income-producing real estate.
Providers of long-term nursing care and other medical services are
subject to federal and state laws that relate to the adequacy of medical care,
distribution of pharmaceuticals, rate setting, equipment, personnel, operating
policies and additions to facilities and services and, to the extent dependent
on patients whose fees are reimbursed by private insurers, to the
reimbursement policies of such insurers. In addition, facilities where such
care or other medical services are provided are subject to periodic inspection
by governmental authorities to determine compliance with various standards
necessary for continued licensing under state law and continued participation
in the Medicaid and Medicare reimbursement programs. The failure of any of
such borrowers to maintain or renew any required license or regulatory
approval could prevent it from continuing operations at a Mortgaged Property
(in which case no revenues would be received from such property or portion
thereof requiring licensing) or, if applicable, bar it from participation in
government reimbursement programs. Furthermore, in the event of foreclosure,
there can be no assurance that the Trustee (or Servicer or Special Servicer)
or purchaser in a foreclosure sale would be entitled to the rights under such
licenses and such party may have to apply in its own right for such a license.
There can be no assurance that a new license could be obtained.
Under applicable federal and state laws and regulations, Medicare and
Medicaid, only the provider who actually furnished the related medical goods
and services generally may sue for or enforce its rights to reimbursement.
Accordingly, in the event of foreclosure, none of the Trustee, the Servicer,
the Special Servicer or a subsequent lessee or operator of the property would
generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at the
respective properties prior to such foreclosure.
The operators of such nursing homes are likely to compete on a local and
regional basis with others that operate similar facilities, some of which
competitors may be better capitalized, may offer services not offered by such
operators or may be owned by non-profit organizations or government agencies
supported by endowments, charitable contributions, tax revenues and other
sources not available to such operators. The successful operation of a
Mortgaged Property that is a nursing home will generally depend upon the
number of competing facilities in the local market, as well as upon other
factors such as its age, appearance, reputation and management, the types of
services it provides and, where applicable, the quality of care and the cost
of that care.
Nursing home facilities may receive a substantial portion of their
revenues from government reimbursement programs, primarily Medicaid and
Medicare. Medicaid and Medicare are subject to statutory and regulatory
changes, retroactive rate adjustments, administrative rulings, policy
interpretations, delays by fiscal intermediaries and government funding
restrictions. Moreover, governmental payors have employed cost-containment
measures that limit payments to health care providers, and there are currently
under consideration various proposals for national health care reform that
could further limit those payments. Accordingly, there can be no assurance
that payments under government reimbursement programs will, in the future, be
sufficient to fully reimburse the cost of caring for program beneficiaries. If
not, net operating income of the Mortgaged Properties that receive revenues
from those sources, and consequently the ability of the related borrowers to
meet their Mortgage Loan obligations, could be adversely affected.
Tenant Credit Risk. Income from and the market value of retail, factory
outlet, office and industrial Mortgaged Properties would be adversely affected
if space in the Mortgaged Properties could not be leased, if tenants were
unable to meet their lease obligations, if a significant tenant were to become
a debtor in a bankruptcy case under the United States Bankruptcy Code or if
for any other reason rental payments could not be collected. If tenant sales
in the Mortgaged Properties that contain retail space were to decline, rents
based upon such sales would decline and tenants may be unable to pay their
rent or other occupancy costs. Upon the occurrence of an event of default by a
tenant, delays and costs in enforcing the lessor's rights could be
experienced. Repayment of the Mortgage Loans will be affected by the
expiration of space leases and the ability of the respective borrowers to
renew the leases or relet the space on comparable terms. Even if vacated space
is successfully relet, the costs associated with reletting, including tenant
improvements, leasing commissions and free rent, could be substantial and
could reduce cash flow from the Mortgaged Properties.
In the case of retail properties, the failure of an anchor tenant to
renew its lease, the termination of an anchor tenant's lease, the bankruptcy
or economic decline of an anchor tenant, or the cessation of the business of
an anchor (notwithstanding its continued payment of rent) can have a
particularly negative effect on the economic performance of a shopping center
property given the importance of anchor tenants in attracting traffic to other
stores. In addition, the failure of any anchor tenant to operate from its
premises may give certain tenants the right to terminate or reduce rents under
their Leases.
Concentration of Mortgage Loans; Borrowers. Several of the Mortgage Loans
have Cut-off Date Principal Balances that are substantially higher than the
4average Cut-off Date Principal Balance. The largest Mortgage Loan is secured
by the Kendall Square Pool Properties, located in East Cambridge,
Massachusetts, which has a Cut-off Date Principal Balance that represents
approximately [ ]% of the Initial Pool Balance. The ten largest Mortgage Loans
have Cut-off Date Principal Balances that represent, in the aggregate,
approximately [ ]% of the Initial Pool Balance.
[ ] of the Mortgage Loans are Pool Loans secured by more than one
Mortgaged Property. The [ ] largest Pool Loans are set forth in the following
table:
MORTGAGE LOANS MADE TO ONE BORROWER AND SECURED BY MORE THAN ONE MORTGAGED
PROPERTY
PROPERTY NAME BORROWER % OF INITIAL POOL BALANCE
- ----------------------------------- -------- -------------------------
%
%
%
%
%
TOTAL: %
Seagate Hotel and Beach Club Hudson Hotels Borrower %
Brookwood Inn Hudson Hotels Borrower %
Comfort Inn (Greece) Hudson Hotels Borrower %
Comfort Inn(Jamestown) Hudson Hotels Borrower %
Econo Lodge (Canandaigua) Hudson Hotels Borrower %
Fairfield Inn (Albany, GA) Hudson Hotels Borrower %
Fairfield Inn(Cary, NC) Hudson Hotels Borrower %
Fairfield Inn (Charleston, SC) Hudson Hotels Borrower %
Fairfield Inn (Columbia, SC) Hudson Hotels Borrower %
Fairfield Inn (Durham -
Research Triangle Park, NC) Hudson Hotels Borrower %
Fairfield Inn (Richmond, VA) Hudson Hotels Borrower %
Fairfield Inn(Statesville, NC) Hudson Hotels Borrower %
Fairfield Inn (Wilmington, NC) Hudson Hotels Borrower %
Cricket Inn (Charlotte {I-85}, NC) Hudson Hotels Borrower %
Cricket Inn (Durham - Duke, NC) Hudson Hotels Borrower %
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Cricket Inn (Raleigh, NC) Hudson Hotels Borrower %
%
---
TOTAL: %
%
%
%
%
%
---
TOTAL: %
%
%
%
%
%
---
TOTAL: %
The following table sets forth certain information with respect to those
Mortgage Loans made to affiliated borrowers and that represent more than [ ]%
of the Initial Pool Balance. Except as set forth below, none of the groups of
Mortgage Loans made to affiliated borrowers represent, in the aggregate by
group, more than [ ]% of the Initial Pool Balance.
MORTGAGE LOANS MADE TO AFFILIATED BORROWERS (1)
% OF
INITIAL
PROPERTY NAME LOAN POOL BALANCE
%
%
%
%
%
---
TOTAL: %
- -----------------------------------
(1) See "--Limitations on the Enforceability of Cross-Collateralization"
below and "Description of the Mortgage Pool--Cross-Collateralization and
Cross-Default of Certain Mortgage Loans" herein.
In general, concentrations in a mortgage pool in which one or more loans
that have outstanding principal balances that are substantially larger than
the other mortgage loans in such pool can result in losses that are more
severe, relative to the size of the pool, than would be the case if the
aggregate balance of such pool were more evenly distributed among the mortgage
loans in such pool. Concentrations of Mortgage Loans with the same borrower or
related borrowers can also pose increased risks. For example, if a person that
owns or controls several Mortgaged Properties experiences financial difficulty
at one Mortgaged Property, or at another income-producing property that it
owns or controls, it could defer maintenance at one Mortgaged Property in
order to satisfy current expenses with respect to another Mortgaged Property
or other income-producing property that it owns or controls, or it could
attempt to avert foreclosure by filing a bankruptcy petition that might have
the effect of interrupting Monthly Payments (subject to the Servicer's
obligation to make Advances) for an indefinite period on all of the related
Mortgage Loans.
Limitations on Enforceability of Cross-Collateralization. [19] of the
Mortgage Loans representing approximately [37]% of the Initial Pool Balance
and having Cut-off Date Principal Balances ranging from $[5,600,000] to
$[69,700,00] are secured by more than one Mortgaged Property. These
arrangements seek to
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<PAGE>
reduce the risk that the inability of a Mortgaged Property securing each such
Mortgage Loan to generate net operating income sufficient to pay debt service
will result in defaults and ultimate losses. See "--Concentration of Mortgage
Loans, Borrowers" above.
Cross-collateralization arrangements involving more than one borrower,
however, could be challenged as fraudulent conveyances by creditors of a
borrower or by the representative of the bankruptcy estate of a borrower, if a
borrower were to become a debtor in a bankruptcy case. Generally, under
federal and most state fraudulent conveyance statutes, the incurring of an
obligation or the transfer of property by a person will be subject to
avoidance under certain circumstances if the person did not receive fair
consideration or reasonably equivalent value in exchange for such obligation
or transfer and (i) was insolvent or was rendered insolvent by such obligation
or transfer, (ii) was engaged in business or a transaction, or was about to
engage in business or a transaction, for which any property remaining with the
person was an unreasonably small capital or (iii) intended to, or believed
that it would, incur debts that would be beyond the person's ability to pay as
such debts matured. Accordingly, a lien granted by a borrower to secure
repayment of another borrower's Mortgage Loan could be avoided if a court were
to determine that (i) such borrower was insolvent at the time of granting the
lien, was rendered insolvent by the granting of the lien, or was left with
inadequate capital, or was not able to pay its debts as they matured and (ii)
the borrower did not, when it allowed its Mortgaged Property to be encumbered
by a lien securing the entire indebtedness represented by the other Mortgage
Loan, receive fair consideration or reasonably equivalent value for pledging
such Mortgaged Property for the equal benefit of the other borrower.
Other Financing. The Mortgage Loans generally prohibit incurring any debt
that is secured by the related Mortgaged Property. The Mortgage Loans do,
however, generally permit the related borrower to incur indebtedness in
limited circumstances for the purchase of certain items used in the ordinary
course of business, such as equipment. The existence of such other
indebtedness could adversely affect the financial viability of the related
borrowers or the security interest of the lender in the equipment or other
assets acquired through such financings. See "Certain Legal Aspects of the
Mortgage Loans--Subordinate Financing" herein. Additionally, (i) the Mortgage
Loan Seller has made loans to affiliates of certain of the borrowers secured
by the partnership, membership or other ownership interests in the borrowers
or affiliates of the borrowers ("Mezzanine Debt") and (ii) an affiliate of the
Mortgage Loan Seller (the "Preferred Interest Holder") has acquired a
preferred equity interest in certain of the borrowers or affiliates, each as
set forth on the following tables:
MEZZANINE DEBT
PRINCIPAL
MORTGAGE LOAN BALANCE (1) COMBINED LTV (2)
- ------------- ----------- ----------------
$ $
$ $
$ $
$ $
$ $
$ $
$ $
- --------------------------------
(1) As of the Cut-off Date.
(2) "Combined LTV" means LTV as defined herein but adding the principal
balance of the Mezzanine Debt to the numerator.
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<PAGE>
PREFERRED EQUITY INVESTMENTS IN BORROWERS AND AFFILIATES
APPROXIMATE AMOUNT OF
PREFERRED EQUITY
MORTGAGE LOAN INVESTMENT(1)
------------- -------------
$
$
$
$
$
$
$
$
- --------------------------------
(1) As of the Cut-off Date and assuming that only minimum required payments
are made to the Preferred Interest Holder.
The Preferred Interest Holder is not obligated to make any further
capital contributions to any such borrower. In general, with respect to each
such borrower, the Preferred Interest Holder is entitled to receive certain
preferred distributions prior to distributions being made to the other
partners or members. No monthly distribution to the Preferred Interest Holder
is permitted to be made until all required monthly debt service payments,
reserve payments and other payments under the related Mortgage Loan ("Monthly
Mortgage Loan Payments") have been made when due and all monthly operating
expenses with respect to the related Mortgaged Property ("Monthly Operating
Expenses") have been paid. After payment of such amounts, the Preferred
Interest Holder is entitled to receive a distribution of a preferred yield and
a monthly return of capital equal to the greater of a scheduled minimum
payment and specified percentage (if certain breaches have occurred, 100%) of
cash flow from the Mortgaged Property or Properties, after payment of Monthly
Mortgage Loan Payments, Monthly Operating Expenses and the monthly preferred
yield to the Preferred Interest Holder.
Under the related partnership agreement, operating agreement or similar
arrangement, the Preferred Interest Holder has certain specified rights,
including the right to terminate and replace the manager of the related
Mortgaged Property or Properties upon the occurrence of certain specified
breaches or if the Debt Service Coverage Ratio as of certain dates falls below
certain levels generally equal to the Debt Service Coverage Ratio at the time
of the origination of the related Mortgage Loan. However, the right of the
Preferred Interest Holder to terminate any manager is expressly subordinate to
the right of the Servicer to terminate and replace such manager. If the
Preferred Interest Holder is entitled to terminate a manager at a time when
the Servicer does not have such a right, then prior to termination, the
Preferred Interest Holder must receive confirmation from each of the Rating
Agencies that such termination would not cause any Rating Agency to withdraw,
qualify or downgrade any of its then-current ratings on the Certificates.
Other than the increase in the percentage of the cash flow used to calculate
the monthly return of capital and the right to terminate the manager as
described above, the Preferred Interest Holder has no further remedies under
the relevant partnership, operating or similar agreement in the event of
nonpayment of its monthly preferred yield and return of capital.
In general, the Preferred Interest Holder has the right to approve the
annual budget for the Mortgaged Properties, which right is subject to any
right that the Servicer may have to approve such budgets. The Preferred
Interest Holder also has the right to approve certain actions of the related
borrowers, including certain transactions with affiliates, prepayment or
refinancing of the related Mortgage Loan, transfer of the related Mortgaged
Property, entry into or modification of substantial leases or improvement of
the related Mortgaged Properties to a materially higher standard than
comparable properties in the vicinity of such Mortgaged Properties (unless
approved by the Servicer as described below), and the dissolution, liquidation
or the taking of certain bankruptcy actions with respect to the borrower. With
respect to the entry into or modification of substantial leases or the making
of any capital improvements in addition to those reserved for under the
related Mortgage Loan, the Servicer alone may approve such leases and
improvements without the consent of the Preferred Interest Holder. In
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<PAGE>
such event, the expenditure of amounts to make such additional capital
improvements, rather than to make the monthly distribution to the Preferred
Interest Holder, will not cause a breach which gives rise to a right to
terminate the related manager.
Tax Considerations Related to Foreclosure. If the Trust Fund were to
acquire a Mortgaged Property subsequent to a default on the related Mortgage
Loan pursuant to a foreclosure or deed in lieu of foreclosure, the Special
Servicer would be required to retain an independent contractor to operate and
manage the Mortgaged Property. Any net income from such operation and
management, other than qualifying "rents from real property," or any rental
income based on the net profits of a tenant or sub-tenant or allocable to a
service that is non-customary in the area and for the type of building
involved, will subject the Trust REMIC to federal (and possibly state or
local) tax on such income at the highest marginal corporate tax rate
(currently 35%), thereby reducing net proceeds available for distribution to
Certificateholders. See "Certain Federal Income Tax Consequences--Taxes That
May Be Imposed on a REMIC--Net Income From Foreclosure Property" herein.
Risk of Different Timing of Mortgage Loan Amortization. As set forth on
the table below, the different types of Mortgaged Properties securing the
Mortgage Loans have varying weighted average terms to maturity. If and as
principal payments or prepayments are made on a Mortgage Loan, the remaining
Mortgage Pool will be subject to more concentrated risk with respect to the
diversity of properties, types of properties, geographic concentration (see
"--Geographic Concentration" below) and with respect to the number of
borrowers. Because principal on the Certificates is payable in sequential
order, and no Class receives principal until the Certificate Balance of the
preceding Class or Classes has been reduced to zero, Classes that have a later
sequential designation are more likely to be exposed to the risk of
concentration discussed in the preceding sentence than Classes with higher
sequential priority.
WEIGHTED AVERAGE TERMS TO MATURITY FOR VARIOUS PROPERTY TYPES
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING TERM TO
MATURITY OR
ANTICIPATED
% OF INITIAL POOL REPAYMENT DATE (IF
PROPERTY TYPE BALANCE APPLICABLE )
<S> <C> <C>
Retail (Anchored)................................ %
Retail (Unanchored)..............................
Total Retail/Factory Outlet................... [29]
Office........................................... [24]
Hotel (Full Service).............................
Hotel (Limited Service)..........................
Total Hotel................................... [18]
Multifamily...................................... [15]
Nursing Home.....................................
Industrial Park.................................. [5]
Factory Outlet...................................
Mobile Home/RV Park.............................. [4]
Assisted Living..................................
TOTAL: %
</TABLE>
Geographic Concentration. The Mortgaged Properties are located in [ ]
states. The tables below set forth the states in which a significant
percentage of the Mortgaged Properties are located and the concentration of
property types within those states. See the table entitled "Geographic
Distribution of the Mortgaged Properties" for a description of geographic
location of the Mortgaged Properties. Except as set forth below, no state
contains more than 4% (by Cut-off Date Principal Balance or Allocated Loan
Amount) of the Mortgaged Properties.
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<PAGE>
<TABLE>
SIGNIFICANT GEOGRAPHIC CONCENTRATION OF MORTGAGED PROPERTIES
STATE
% OF INITIAL NUMBER OF MORTGAGED
POOL BALANCE PROPERTIES
<S> <C> <C>
California 19]%
Massachusetts 11]
New York [7]
Indiana [5]
Maryland [5]
New Jersey [5]
Colorado [4]
North Carolina [4]
Florida [4]
Michigan [3]
Virginia [3]
Arizona [2]
Connecticut [2]
Georgia [2]
Texas [2]
Illinois [1]
Nebraska [1]
Ohio [1]
Pennsylvania [1]
West Virginia [1]
Alabama *
Kentucky *
Tennessee *
Mississippi *
South Carolina *
Louisiana *
Missouri *
Minnesota *
Oklahoma *
Washington *
Oregon *
Wisconsin *
Idaho *
Nevada *
Utah *
Rhode Island *
Maine *
New Hampshire *
Iowa *
* Less than 1%.
</TABLE>
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<PAGE>
[INSERT MAP OF UNITED STATES WITH PROPERTY CONCENTRATIONS]
GEOGRAPHIC CONCENTRATION OF PROPERTY TYPES (1)
PROPERTY TYPE CALIFORNIA
- ------------- ---------- ------- ------- -------
Retail (Anchored)....................... % % % %
Retail (Unanchored).....................
Office..................................
Hotel (Full Service)....................
Hotel (Limited Service).................
Multifamily.............................
Nursing Home............................
Industrial Park.........................
Factory Outlet..........................
Mobile Home/RV Park.....................
Assisted Living.........................
TOTAL:
(1) Based on principal balance.
Repayments by borrowers and the market value of the Mortgaged Properties
could be adversely affected by economic conditions generally or in regions
where the borrowers and the Mortgaged Properties are located, conditions in
the real estate markets where the Mortgaged Properties are located, changes in
governmental rules and fiscal policies, acts of nature (which may result in
uninsured losses), and other factors which are beyond the control of the
borrowers.
The economy of any state or region in which a Mortgaged Property is
located may be adversely affected to a greater degree than that of other areas
of the country by certain developments affecting industries concentrated in
such state or region. Moreover, in recent periods, several regions of the
United States have experienced significant downturns in the market value of
real estate. To the extent that general economic or other relevant conditions
in states or regions in which concentrations of Mortgaged Properties securing
significant portions of the aggregate principal balance of the Mortgage Loans
are located decline and result in a decrease in commercial property, housing
or consumer demand in the region, the income from and market value of the
Mortgaged Properties may be adversely affected.
Exercise of Remedies. The Mortgages generally contain a due-on-sale
clause, which permits the lender to accelerate the maturity of the Mortgage
Loan if the mortgagor sells, transfers or conveys the related Mortgaged
Property or its interest in the Mortgaged Property. All of the Mortgages also
include a debt-acceleration clause, which permits the lender to accelerate the
debt upon specified monetary or non-monetary defaults of the mortgagor. The
courts of all states will enforce clauses providing for acceleration in the
event of a material payment default. The equity courts of any state, however,
may refuse the foreclosure of a mortgage or deed of trust or permit the
acceleration of the indebtedness as a result of a default deemed to be
immaterial or if the exercise of such remedies would be inequitable or unjust
or the circumstances would render the acceleration unconscionable.
In addition, each of the Mortgage Loans is secured by an assignment of
leases and rents pursuant to which the related mortgagor assigned its right,
title and interest as landlord under the leases on the related Mortgaged
Property and the income derived therefrom to the lender as further security
for the related Mortgage Loan, while retaining a license to collect rents for
so long as there is no default. In the event the mortgagor
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<PAGE>
defaults, the license terminates and the lender is entitled to collect rents.
In some cases, such assignments may not be perfected as security interests
prior to actual possession of the cash flow. In some cases, state law may
require that the lender take possession of the Mortgaged Property and obtain a
judicial appointment of a receiver before becoming entitled to collect the
rents. In addition, if bankruptcy or similar proceedings are commenced by or
in respect of the mortgagor, the lender's ability to collect the rents may be
adversely affected. See "Certain Legal Aspects of Mortgage Loans--Leases and
Rents."
Environmental Law Considerations. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or
remediation of hazardous or toxic substances on, under, adjacent to, or in
such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The cost of any required remediation and the owner's
liability therefor as to any property is generally not limited under such
enactments and could exceed the value of the property and/or the aggregate
assets of the owner. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the costs of
cleanup. In some such states this lien has priority over the lien of an
existing mortgage against such property. In addition, the presence of
hazardous or toxic substances, or the failure to properly remediate such
property, may adversely affect the owner's or operator's ability to refinance
using such property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic substances may also be liable for the costs of
removal or remediation of such substances at the disposal or treatment
facility. Certain laws impose liability for release of asbestos containing
materials ("ACMs") into the air or require the removal or containment of ACMs
and third parties may seek recovery from owners or operators of real
properties for personal injury associated with ACMs or other exposure to
chemicals or other hazardous substances. For all of these reasons the presence
of, or strong potential for contamination by, hazardous substances at, on,
under, adjacent to, or in a property can materially adversely affect the value
of the property.
Under some environmental laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), as well as certain state laws, a secured lender (such as the Trust
Fund) may be liable, as an "owner" or "operator," for the costs of responding
to a release or threat of a release of hazardous substances on or from a
borrower's property, if (i) agents or employees of a lender are deemed to have
participated in the management of the borrower or (ii) the Trust Fund actually
takes possession of a borrower's property or control of its day-to-day
operations, as for example, through the appointment of a receiver, in either
case, regardless of whether a previous owner caused the environmental damage.
The Trust Fund's potential exposure to liability for cleanup costs pursuant to
CERCLA may increase if the Trust Fund actually takes possession of a
borrower's property, or control of its day-to-day operations, as for example
through the appointment of a receiver.
All of the Mortgaged Properties have been subject to environmental site
assessments within the eighteen months preceding the Cut-off Date. No
assessment revealed any environmental condition or circumstance that the
Depositor believes will have a material adverse impact on the value of the
related Mortgaged Property or the borrower's ability to pay its debt. [Insert
the findings of any Environmental Assessments]. There can be no assurance that
all environmental conditions and risks have been identified in such
environment assessments or studies, as applicable.
Federal law requires owners of residential housing constructed prior to
1978 to disclose to potential residents or purchasers any condition on the
property that causes exposure to lead-based paint. In addition, every contract
for the purchase and sale of any interest in residential housing constructed
prior to 1978 must contain a "Lead Warning Statement" that informs the
purchaser of the potential hazards to pregnant women and young children
associated with exposure to lead-based paint. The ingestion of lead-based
paint chips and/or the inhalation of dust particles from lead-based paint by
children can cause permanent injury, even at low levels of exposure. Property
owners can be held liable for injuries to their tenants resulting from
exposure to lead-based paint under various state and local laws and
regulations that impose affirmative obligations on property owners of
residential housing containing lead-based paint. The environmental assessments
revealed the existence of lead- based paint at certain of the multifamily
residential properties. In these cases the borrowers have either implemented
operations and maintenance programs or are in the process of removing the
lead-based paint. The Depositor believes that the
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<PAGE>
presence of lead-based paint at these Mortgaged Properties will not have a
material adverse effect on the value of the related Mortgaged Property or
ability of the related borrowers to repay their loans.
The Pooling and Servicing Agreement requires that the Special Servicer
obtain an environmental site assessment of a Mortgaged Property prior to
acquiring title thereto on behalf of the Trust Fund or assuming its operation.
Such requirement may effectively preclude enforcement of the security for the
related Note until a satisfactory environmental site assessment is obtained
(or until any required remedial action is thereafter taken), but will decrease
the likelihood that the Trust Fund will become liable under any environmental
law. However, there can be no assurance that the requirements of the Pooling
and Servicing Agreement will effectively insulate the Trust Fund from
potential liability under environmental laws. See "The Pooling and Servicing
Agreement--Servicing of the Mortgage Loans; Collection of Payments" and
"Certain Legal Aspects of Mortgage Loans--Environmental Legislation" herein.
Balloon Payments. [ ] of the Mortgage Loans are Balloon Loans which will
have substantial payments of principal ("Balloon Payments") due at their
stated maturities unless previously prepaid. [ ] of the Mortgage Loans have
Anticipated Repayment Dates, and which have substantial scheduled principal
balances as of such date. Loans that require Balloon Payments involve a
greater risk to the lender than fully-amortizing loans because the ability of
a borrower to make a Balloon Payment typically will depend upon its ability
either to refinance the loan or to sell the related Mortgaged Property at a
price sufficient to permit the borrower to make the Balloon Payment.
Similarly, the ability of a borrower to repay a loan on the Anticipated
Repayment Date will depend on its ability to either refinance the loan or to
sell the related Mortgaged Property. The ability of a borrower to accomplish
either of these goals will be affected by all of the factors described above
affecting property value and cash flow, as well as a number of other factors
at the time of attempted sale or refinancing, including the level of available
mortgage rates, prevailing economic conditions and the availability of credit
for multifamily or commercial properties (as the case may be) generally.
AMORTIZATION CHARACTERISTICS OF THE MORTGAGE LOANS
% OF INITIAL NUMBER OF
TYPE OF LOAN POOL BALANCE MORTGAGE LOANS
- ---------------------------------- ------------ --------------
ARD Loans............................. 90%
Fully Amortizing Loans
(other than the ARD Loans).......... 6%
Balloon Mortgage Loans................ 4%
One Action Considerations. Several states (including California) have
laws that prohibit more than one "judicial action" to enforce a mortgage
obligation, and some courts have construed the term "judicial action" broadly.
Accordingly, the Pooling and Servicing Agreement will require the Servicer to
obtain advice of counsel prior to enforcing any of the Trust Fund's rights
under any of the Mortgage Loans that include properties where the rule could
be applicable. In addition, in the case of a Pool Loan secured by Mortgaged
Properties located in multiple states, the Servicer may be required to
foreclose first on properties located in states where such "one action" rules
apply (and where non-judicial foreclosure is permitted) before foreclosing on
properties located in states where judicial foreclosure is the only permitted
method of foreclosure. See "Certain Legal Aspects of Mortgage
Loans--Foreclosure" herein.
Limitations of Appraisals. In general, appraisals represent the analysis
and opinion of qualified experts and are not guarantees of present or future
value. Moreover, appraisals seek to establish the amount a typically motivated
buyer would pay a typically motivated seller. Such amount could be
significantly higher than the amount obtained from the sale of a Mortgaged
Property under a distress or liquidation sale. Information regarding the
values of the Mortgaged Properties as of the Cut-off Date is presented under
"Description of the Mortgage Pool" herein for illustrative purposes only.
Ground Leases. [ ] of the Mortgaged Properties, representing security for
approximately [ ]% of the Initial Pool Balance, are leasehold interests. [ ]
of the Mortgaged Properties, the Allocated Loan Amounts of which represent
approximately [ ]% of the Initial Pool Balance, are leasehold estates in a
portion of the related
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properties and fee simple interests in the remainder of the related
properties. Of those, [ ] of the ground leases cover portions of the related
properties that are not material to the successful ongoing operations of such
properties.
Each of the Mortgage Loans secured by mortgages on leasehold estates were
underwritten taking into account payment of the ground lease rent. On the
bankruptcy of a lessor or a lessee under a ground lease, the debtor entity has
the right to assume (continue) or reject (terminate) the ground lease.
Pursuant to Section 365(h) of the Bankruptcy Code, as it is presently in
effect, a ground lessee whose ground lease is rejected by a debtor ground
lessor has the right to remain in possession of its leased premises under the
rent reserved in the lease for the term (including renewals) of the ground
lease but is not entitled to enforce the obligation of the ground lessor to
provide any services required under the ground lease. In the event a ground
lessee/borrower in bankruptcy rejects any or all of its ground leases, the
leasehold mortgagee would have the right to succeed to the ground
lessee/borrower's position under the lease only if the ground lessor had
specifically granted the mortgagee such right. In the event of concurrent
bankruptcy proceedings involving the ground lessor and the ground
lessee/borrower, the Trustee may be unable to enforce the bankrupt ground
lessee/borrower's obligation to refuse to treat a ground lease rejected by a
bankrupt ground lessor as terminated. In such circumstances, a ground lease
could be terminated notwithstanding lender protection provisions contained
therein or in the mortgage.
Zoning Compliance; Inspections. Due to changes in applicable building and
zoning ordinances and codes ("Zoning Laws") affecting certain of the Mortgaged
Properties which have come into effect after the construction of improvements
on such Mortgaged Properties and to other reasons, certain improvements may
not comply fully with current Zoning Laws, including density, use, parking and
set back requirements, but qualify as permitted non-conforming uses. Such
changes may limit the ability of the borrower to rebuild the premises "as is"
in the event of a substantial casualty loss with respect thereto and may
adversely affect the ability of the borrower to meet its Mortgage Loan
obligations from cash flow. Such Mortgaged Property, as rebuilt to conform to
revised zoning ordinances and building codes, may have a lesser value than the
value prior to the casualty.
Inspections of the Mortgaged Properties were conducted by licensed
engineers to assess the structure, exterior walls, roofing interior
construction, mechanical and electrical systems and general condition of the
site, buildings and other improvements located on the Mortgaged Properties.
There can be no assurance that all property conditions have been identified in
such inspections.
Costs of Compliance with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public accommodations
are required to meet certain federal requirements related to access and use by
disabled persons. To the extent the Mortgaged Properties do not comply with
the ADA, the borrowers may incur costs of complying with the ADA. In addition,
noncompliance could result in the imposition of fines by the federal
government or an award of damages to private litigants.
Litigation. There may be legal proceedings pending and, from time to
time, threatened against the borrowers and their affiliates relating to the
business of or arising out of the ordinary course of business of the borrowers
and their affiliates. There can be no assurance that such litigation will not
have a material adverse effect on the distributions to Certificateholders.
Obligor Default. In order to maximize recoveries on defaulted Mortgage
Loans, the Special Servicer may, under certain limited circumstances, extend
and/or modify Mortgage Loans that are in default or as to which a payment
default is reasonably foreseeable, including in particular with respect to
balloon payments. While the Special Servicer generally will be required to
determine that any such extension or modification is likely to produce a
greater recovery on a present value basis than liquidation, there can be no
assurance that such flexibility with respect to extensions or modifications
will increase the present value of receipts from or proceeds of Mortgage Loans
that are in default or as to which a default is reasonably foreseeable.
Mortgagor Type. Mortgage Loans made to partnerships, corporations or
other entities may entail risks of loss from delinquency and foreclosure that
are greater than those of Mortgage Loans made to individuals. The
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mortgagor's sophistication and form of organization may increase the
likelihood of protracted litigation or bankruptcy in default situations.
THE CERTIFICATES
Limited Assets. If the Trust Fund is insufficient to make payments on the
Subordinated Certificates, no other assets will be available for payment of
the deficiency.
Subordination in Right of Payment. As and to the extent described below
under "Description of the Subordinated Certificates-- Subordination," the
Subordinated Certificates are subordinate in right of payment to the Senior
Certificates. The rights of the holders of the Class B-1 Certificates to
receive distributions of interest and principal will be subordinate to those
of the Senior Certificates; the rights of the holders of the Class B-2
Certificates to receive distributions of interest and principal will be
subordinate to those of the Senior Certificates and Class B-1 Certificates;
the rights of the holders of the Class B-3 Certificates to receive
distributions of interest and principal will be subordinate to those of the
Senior Certificates, Class B-1 and Class B-2 Certificates; the rights of the
holders of the Class B-4 Certificates to receive distributions of interest and
principal will be subordinate to those of the Senior Certificates, Class B-1,
Class B-2 and Class B-3 Certificates; the rights of the holders of the Class
B-5 Certificates to receive distributions of interest and principal will be
subordinate to those of the Senior Certificates, Class B-1, Class B-2, Class
B-3 and Class B-4 Certificates; and the rights of the holders of the Class B-6
Certificates to receive distributions of interest and principal will be
subordinate to those of the Senior Certificates, Class B-1, Class B-2, Class
B-3, Class B-4, and Class B-5 Certificates, in each case to the extent
described herein under "Description of the Subordinated
Certificates--Subordination" and "-- Distributions."
Allocation of Realized Losses on the Mortgage Loans. All Realized Losses
and other shortfalls in collections on the Mortgage Loans and all
extraordinary expenses that may be incurred by the Trust Fund will be
allocated in the following order of priority, first, pro rata to the Class B-7
and Class B-7H Certificates until the Certificate Balances of such Classes
have been reduced to zero, second, to the Class B-6 Certificates until the
Certificate Balance of such Class has been reduced to zero, third, to the
Class B-5 Certificates until the Certificate Balance of such Class has been
reduced to zero, fourth, to the Class B-4 Certificates until the Certificate
Balance of such Class has been reduced to zero, fifth, to the Class B-3
Certificates until the Certificate Balance of such Class has been reduced to
zero, sixth, to the Class B-2 Certificates until the Certificate Balance of
such Class has been reduced to zero, seventh, to the Class B-1 Certificates
until the Certificate Balance of such Class has been reduced to zero and
eighth, to the Senior Certificates as described under "Description of the
Subordinated Certificates--Distributions." INVESTORS IN THE SUBORDINATED
CERTIFICATES SHOULD CONSIDER THE RISK THAT LOSSES ON THE MORTGAGE LOANS COULD
RESULT IN THE FAILURE OF SUCH INVESTORS TO FULLY RECOVER THEIR INITIAL
INVESTMENTS. NO REPRESENTATION IS MADE AS TO THE FREQUENCY OF DELINQUENCIES,
DEFAULTS AND/OR LIQUIDATIONS THAT MAY OCCUR WITH RESPECT TO THE MORTGAGE
LOANS, OR THE MAGNITUDE OF ANY LOSSES THAT MAY OCCUR WITH RESPECT TO THE
MORTGAGE LOANS OR THE LIKELIHOOD OR MAGNITUDE OF ANY EXTRAORDINARY EXPENSES
THAT MAY BE INCURRED WITH RESPECT TO THE TRUST FUND.
Effect of Mortgagor Defaults. The aggregate amount of distributions on
the Subordinated Certificates, the yield to maturity of the Subordinated
Certificates, the rate of principal payments on the Subordinated Certificates
and the weighted average life of the Subordinated Certificates will be
affected by the rate and the timing of delinquencies and defaults on the
Mortgage Loans. Delinquencies of payments on the Mortgage Loans, unless
advanced, may result in shortfalls in distributions of interest and/or
principal to the Subordinated Certificates for the current month. See
"--Limitations on Advancing" below. Any late payments received on or in
respect of the Mortgage Loans will be distributed to the Certificates in the
priorities described more fully herein, but no interest will accrue on such
shortfall during the period of time such payment is delinquent. Thus, because
the Subordinated Certificates will not accrue interest on shortfalls,
delinquencies may result in losses and shortfalls being allocated to the
Subordinated Certificates, which will reduce the amounts distributable to the
Subordinated Certificates and thereby adversely affect the yield to maturity
of such Certificates.
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If a purchaser of a Subordinated Certificate of any Class calculates its
anticipated yield based on an assumed rate of default and amount of losses on
the Mortgage Loans that is lower than the default rate and amount of losses
actually experienced and such additional losses are allocable to such Class of
Certificates, such purchaser's actual yield to maturity will be lower than
that so calculated and could, under certain scenarios, be negative. The timing
of any loss on a liquidated Mortgage Loan will also affect the actual yield to
maturity of the Subordinated Certificates to which a portion of such loss is
allocable, even if the rate of defaults and severity of losses are consistent
with an investor's expectations. In general, the earlier a loss borne by an
investor occurs, the greater is the effect on such investor's yield to
maturity. See "Yield and Prepayment Considerations--Mortgagor Defaults."
As and to the extent described herein, the Servicer, the Special
Servicer, the Trustee or the Fiscal Agent, as applicable, will be entitled to
receive interest on unreimbursed Advances and unreimbursed servicing expenses
that (a) are recovered out of amounts received on the Mortgage Loan as to
which such Advances were made or such servicing expenses were incurred, which
amounts are in the form of reimbursement from the related borrower,
liquidation proceeds, insurance proceeds, condemnation proceeds or amounts
paid in connection with the purchase of such Mortgage Loan out of the Trust
Fund or (b) are determined to be nonrecoverable Advances. Such interest will
accrue from (and including) the date on which the related Advance is made or
the related expense incurred to (but excluding) the first Servicer Remittance
Date after (x) in the case of clause (a) above, such amounts are recovered and
(y) in the case of clause (b) above, a determination of non- recoverability is
made to the extent that there are funds available in the Collection Account
for reimbursement of such Advance. The Servicer's, the Special Servicer's, the
Trustee's or the Fiscal Agent's right, as applicable, to receive such payments
of interest is prior to the rights of Certificateholders to receive
distributions on the Subordinated Certificates and, consequently, may result
in losses being allocated to the Subordinated Certificates that would not
otherwise have resulted absent the accrual of such interest. In addition,
certain circumstances, including delinquencies in the payment of principal and
interest, may result in a Mortgage Loan being specially serviced. The Special
Servicer is entitled to additional compensation for special servicing
activities which may result in losses being allocated to the Subordinated
Certificates that would not otherwise have resulted absent such compensation.
See "The Pooling and Servicing Agreement--Special Servicing" herein.
Even if losses on the Mortgage Loans are not borne by an investor in a
particular Class of Subordinated Certificates, such losses may affect the
weighted average life and yield to maturity of such investor's Certificates.
Losses on the Mortgage Loans, to the extent not allocated to such Class of
Subordinated Certificates, may result in a higher percentage ownership
interest evidenced by such Certificates than would otherwise have resulted
absent such loss. The consequent effect on the weighted average life and yield
to maturity of the Subordinated Certificates will depend upon the
characteristics of the remaining Mortgage Loans.
Regardless of whether losses ultimately result, delinquencies and
defaults on the Mortgage Loans may significantly delay the receipt of payments
by the holder of a Subordinated Certificate, to the extent that Advances or
the subordination of another Class of Certificates does not fully offset the
effects of any such delinquency or default. The Available Funds generally
consist of, as more fully described herein, principal and interest on the
Mortgage Loans actually collected or advanced.
Limitations on Advancing. Upon the occurrence of each Appraisal Reduction
Event, the Special Servicer will calculate and report to the Servicer, the
Paying Agent and the Trustee the Appraisal Reduction occurring in connection
with such Appraisal Reduction Event as described herein under "Description of
the Subordinated Certificates--Appraisal Reductions." As a result of
calculating one or more Appraisal Reductions, the amount of any required P&I
Advance on the related Mortgage Loans will be reduced to an amount equal to
the product of (a) the amount that would be required to be advanced without
giving effect to such Appraisal Reduction Event and (b) a fraction, the
numerator of which is the Stated Principal Balance of such Mortgage Loan less
any Appraisal Reduction Amounts thereof and the denominator of which is such
Stated Principal Balance. The Servicer, Special Servicer, Trustee or Fiscal
Agent will make only one P&I Advance in respect of each Mortgage Loan for the
benefit of the most subordinate Class of Certificates then outstanding, unless
the related defaulted Monthly Payment is cured prior to the next Due Date on
such Mortgage Loan. See "The Pooling and Servicing Agreement--Advances." The
amount to be advanced by the Servicer, Special Servicer, Trustee or Fiscal
Agent in
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respect of any Mortgage Loan on any Distribution Date will be reduced
by the greater of the reduction in respect of any Appraisal Reduction and the
reduction described in the preceding sentence.
The amount of any reduction in a P&I Advance pursuant to the preceding
paragraph will reduce the amount distributable to the Class B-6 Certificates
unless the subordination of the Class B-7 and Class B-7H Certificates, and in
the case of any other of the Subordinated Certificates, the subordination of
those Classes with a lower priority (i.e., higher numeric suffix), does not
fully offset the effects of such unadvanced delinquency or default. The amount
of any reduction in the P&I Advance pursuant to the preceding paragraph will
reduce the amount distributable to either Class of Subordinated Certificates
to the extent that the principal balance of each Class of Certificates that is
subordinate to such Class has been previously reduced by Realized Losses.
In addition, the Servicer's, the Special Servicer's, the Trustee's or the
Fiscal Agent's obligation, as applicable, to make Advances in respect of a
Mortgage Loan that is delinquent as to its Balloon Payment is limited to the
extent described under "The Pooling and Servicing Agreement--Advances" herein.
Limited Liquidity and Market Value. There is currently no secondary
market for the Subordinated Certificates. While the Underwriters have advised
that they currently intend to make a secondary market in the Subordinated
Certificates, they are under no obligation to do so. Accordingly, there can be
no assurance that a secondary market for the Subordinated Certificates will
develop. Moreover, if a secondary market does develop, there can be no
assurance that it will provide holders of Subordinated Certificates with
liquidity of investment or that it will continue for the life of the
Subordinated Certificates. The Subordinated Certificates will not be listed on
any securities exchange.
In addition, the Subordinated Certificates may not be purchased by a Plan
or a person acting on behalf of a Plan or using the assets of a Plan unless
certain criteria set forth under "Description of the Subordinated
Certificates--Transfer Restrictions" have been met.
Lack of liquidity could result in a precipitous drop in the market value
of the Subordinated Certificates. In addition, market value of the
Subordinated Certificates at any time may be affected by many factors,
including then prevailing interest rates, and no representation is made by any
person or entity as to the market value of any Subordinated Certificate at any
time.
Limited Nature of Ratings. Any rating assigned by a Rating Agency to a
Class of Certificates will reflect such Rating Agency's assessment solely of
the likelihood that holders of Certificates of such Class will receive
payments to which such Certificateholders are entitled under the Pooling and
Servicing Agreement. Such rating will not constitute an assessment of the
likelihood that principal prepayments on the related Mortgage Loans will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
Certificates. Such rating will not address the possibility that prepayment at
lower rates than anticipated by an investor may cause such investor to
experience a lower than anticipated yield.
The amount, type and nature of credit support, if any, established with
respect to the Certificates will be determined on the basis of criteria
established by each Rating Agency rating such Certificates. Such criteria are
sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit support required with respect to each
such Class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency, foreclosure or loss experience of the Mortgage
Loans. No assurance can be given that values of any Mortgaged Properties have
remained or will remain at their levels on the respective dates of origination
of the related Mortgage Loans. Moreover, there is no assurance that
appreciation of real estate values generally will limit loss experiences on
the Mortgaged Properties. If the commercial or multifamily residential real
estate markets should experience an overall decline in property values such
that the outstanding principal balances of the Mortgage Loans comprising the
Mortgage Loans in the Trust Fund and any secondary financing on the related
Mortgaged Properties become equal to or greater than the value of the
Mortgaged
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Properties, the rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced by institutional lenders.
In addition, adverse economic conditions (which may or may not affect real
property values) may affect the timely payment by mortgagors of scheduled
payments of principal and interest on the Mortgage Loans and, accordingly, the
rates of delinquencies, foreclosures and losses with respect to the Trust
Fund. See "Ratings" herein.
Special Prepayment and Yield Considerations. The yield to maturity on the
Subordinated Certificates will depend on, among other things, the rate and
timing of principal payments (including both voluntary prepayments, in the
case of the Mortgage Loans that permit voluntary prepayment, and involuntary
prepayments, such as prepayments resulting from casualty or condemnation,
defaults and liquidations) on the Mortgage Loans and the allocation thereof to
reduce the Certificate Balances of the Subordinated Certificates. See
"Prepayment and Yield Considerations" herein.
BECAUSE SUBSTANTIALLY ALL PRINCIPAL RECEIVED ON THE MORTGAGE LOANS IS
FIRST ALLOCATED TO THE SENIOR CERTIFICATES UNTIL THEIR RESPECTIVE CERTIFICATE
BALANCES ARE REDUCED TO ZERO, BEFORE PRINCIPAL IS ALLOCATED TO THE
SUBORDINATED CERTIFICATES, THE SUBORDINATED CERTIFICATES MAY NOT RECEIVE ANY
PRINCIPAL FOR A SUBSTANTIAL PERIOD OF TIME.
In general, if a Subordinated Certificate is purchased at a discount and
principal distributions thereon occur at a rate slower than that assumed at
the time of purchase, the investor's actual yield to maturity will be lower
than assumed at the time of purchase.
The investment performance of the Subordinated Certificates may vary
materially and adversely from the investment expectations of investors due to
prepayments on the Mortgage Loans that are lower than anticipated by
investors. The actual yield to the holder of a Subordinated Certificate may
not be equal to the yield anticipated at the time of purchase of the
Subordinated Certificate or, notwithstanding that the actual yield is equal to
the yield anticipated at that time, the total return on investment expected by
the investor or the expected weighted average life of the Subordinated
Certificate may not be realized. IN DECIDING WHETHER TO PURCHASE ANY
SUBORDINATED CERTIFICATES, AN INVESTOR SHOULD MAKE AN INDEPENDENT DECISION AS
TO THE APPROPRIATE PREPAYMENT ASSUMPTIONS TO BE USED. See "Prepayment and
Yield Considerations" herein.
All of the Mortgage Loans provide for a Lock-out Period during which
voluntary prepayment is prohibited. The table below sets forth certain
information regarding the Lock-out Periods. For further statistical
information on a loan-by-loan basis, see Annex A hereto.
OVERVIEW OF LOCK-OUT PERIODS
Minimum Lock-out Period at origination...................... months
Minimum Remaining Lock-out Period........................... months
Maximum Remaining Lock-out Period........................... months
Weighted Remaining Average Lock-out Period.................. months
The following table sets forth the number of, and percentages of the
Initial Pool Balance represented by, Mortgage Loans with respect to which the
related Lock-out Period expires (i) on or three or six months prior to their
respective Anticipated Repayment Dates or (ii) no earlier than the last three
or six months of their loan term. See "Description of the Mortgage
Pool--Certain Terms and Conditions of the Mortgage Loans--Prepayment
Provisions" and "--Defeasance Provisions" herein.
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LOCK-OUT PERIOD CHARACTERISTICS OF THE MORTGAGE LOANS
% OF INITIAL NUMBER OF
POOL MORTGAGE
TYPE OF LOAN BALANCE LOANS
------------------------------------------ ------- -----
Lock-out Period Ending on/or close to
Anticipate Repayment Date............... %
Lock-out Period Ending on/or close to
Maturity Date...........................
TOTAL: [98]%
The rate at which voluntary prepayments occur on the Mortgage Pool will
be affected by a variety of factors, including, without limitation, the terms
of the Mortgage Loans, the level of prevailing interest rates as compared to
the applicable Mortgage Rate, the availability of mortgage credit and
economic, demographic, tax, legal and other factors. In general, however, if
prevailing interest rates remain at or above the rates borne by such Mortgage
Loans, such Mortgage Loans are likely to be the subject of lower principal
prepayments than if prevailing rates fall significantly below the Mortgage
Rates on the Mortgage Loans. The rate of principal payments on the
Subordinated Certificates will correspond to the rate of principal payments on
the Mortgage Loans and is likely to be affected by the Lock-out Periods and
Prepayment Premium provisions applicable to the Mortgage Loans and by the
extent to which a Servicer is able to enforce such provisions. Mortgage Loans
with a Lock-out Period or Prepayment Premium provision, to the extent
enforceable, generally would be expected to experience a lower rate of
principal prepayments than otherwise identical mortgage loans without such
provisions, with shorter Lock-out Periods or with lower Prepayment Premiums.
All of the Mortgage Loans provide that after the applicable Defeasance
Lock-out Period, the borrower may obtain the release of the related Mortgaged
Property from the lien of the related Mortgage upon the delivery and pledge to
the Trustee of noncallable U.S. Treasury or other noncallable U.S. government
obligations which provide payments on or prior to all successive payment dates
through maturity (or, in the case of the ARD Loans, through the Anticipated
Repayment Date) and the amount of principal that would be due on the maturity
date (or, in the case of the ARD Loans, on the Anticipated Repayment Date as
if such date was the maturity date), and upon which interest and principal
payments are due on and prior to the maturity date (or the related Anticipated
Repayment Date, as applicable) under the related Note in the amounts due on
such dates, and upon the satisfaction of certain other conditions. See
"Description of the Mortgage Pool--Property Releases."
See "Prepayment and Yield Considerations" and "Certain Federal Income Tax
Consequences" herein.
Certain Federal Tax Considerations Regarding Original Issue Discount. The
Subordinated Certificates will be issued with "original issue discount" for
federal income tax purposes, which generally will result in recognition of
some taxable income in advance of the receipt of cash attributable to such
income. See "Federal Income Tax Consequences--Taxation of Subordinated
Certificates and Subordinated Units."
ERISA Considerations. Generally, ERISA applies to investments made by
employee benefit plans and transactions involving the assets of such plans.
The Subordinated Certificates may not be purchased by a Plan or a person
acting on behalf of a Plan or using assets of a Plan unless certain criteria
described under "Description of the Subordinated Certificates--Transfer
Restrictions" have been met. Due to the complexity of regulations which govern
such plans, prospective investors that are subject to ERISA are urged to
consult their own counsel regarding consequences under ERISA of acquisition,
ownership and disposition of the Subordinated Certificates. See "ERISA
Considerations."
Servicer or Special Servicer May Purchase Certificates; Conflict of
Interest. The Servicer, the Special Servicer or an affiliate thereof will be
permitted to purchase any Class of Certificates. [It is anticipated that the
Special Servicer or an affiliate of the Special Servicer will purchase all or a
majority of the Junior Subordinated Certificates. Following any such purchase
of Certificates, the Servicer or Special Servicer will have rights as a
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holder of Certificates, including certain Voting Rights, which are in
addition to, such entity's rights as Servicer or Special Servicer under the
Pooling and Servicing Agreement. Consequently, any purchase of Certificates by
the Servicer or Special Servicer, as the case may be, could cause a conflict
between such entity's duties pursuant to the Pooling and Servicing Agreement
and its interest as a holder of a Certificate, especially to the extent that
certain actions or events have a disproportionate effect on one or more
Classes of Certificates. Following a default on a Mortgage Loan at the
maturity thereof and upon the satisfaction of certain conditions contained in
the Pooling and Servicing Agreement, the Special Servicer may, if directed to
do so by the holders (including Special Servicer or an affiliate thereof) of
greater than 50% of the Percentage Interests of the most subordinate Class or
Classes of Certificates then outstanding (which Class will initially be the
Junior Subordinated Certificates) having an aggregate initial Certificate
Balance representing a minimum of [1.5]% of the aggregate initial Certificate
Balances of all Classes of Certificates (or if the Certificate Balance of such
Class or Classes has been reduced to less than 40% of the initial Certificate
Balances thereof, the holders of such Class or Classes together with the
holders of the next most subordinate Class), elect to extend such Mortgage
Loan. See "The Pooling and Servicing Agreement--Realization Upon Mortgage
Loans--Foreclosure Proceedings; Action of Directing Holders." In addition to
the foregoing, the holders of greater than 50% of the Percentage Interests of
the most subordinate Class of Certificates then outstanding (initially the
Junior Subordinated Certificates) will be entitled, at their option, to remove
the Special Servicer with or without cause, and appoint a successor Special
Servicer, provided that each Rating Agency confirms in writing that such
removal and appointment in and of itself, would not cause a downgrade,
qualification or withdrawal of the then current ratings assigned to any Class
of Certificates. The Pooling and Servicing Agreement provides that the
Mortgage Loans shall be administered in accordance with the servicing standard
set forth therein without regard to ownership of any Certificate by the
Servicer, Special Servicer, or any affiliate thereof. See also "The Pooling
and Servicing Agreement--Amendment."
Consents. Under certain circumstances, the consent or approval of the
holders of specified percentage of the aggregate Certificate Balance of the
outstanding Certificates will be required to direct and will be sufficient to
bind all Certificateholders to, certain actions, including amending the
Pooling and Servicing Agreement in certain circumstances. See "The Pooling and
Servicing Agreement -- Amendment."
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INDUSTRY OVERVIEW
The commercial real estate market is estimated to be valued at
approximately $3 trillion. While much of this real estate is owned free of any
mortgage or other debt, a sizable portion is financed through commercial
mortgages. Commercial mortgages are predominantly secured by income producing
properties, including multifamily, office buildings, retail properties,
industrial properties, mixed use properties, mobile home parks, hotels,
self-storage facilities, nursing homes, assisted living facilities and senior
housing centers. The commercial real estate mortgage market is estimated to be
valued at approximately $1 trillion. The traditional holders of commercial
mortgages have been banks, life insurance companies and saving and loan
institutions. Recently, however, an increasing percentage of mortgages are
held by investors, including life insurance companies and pension funds,
holding beneficial interests in securitized pools of mortgages. In 1995, banks
held approximately 39% of outstanding commercial mortgages followed by life
insurance companies (20%) and savings and loans (12%). Other major holders
include pension funds and federal agencies.
Commercial mortgaged-backed securities issuances have grown significantly
since 1990, with over $100 billion in aggregate issuances from the beginning
of 1990 through the end of 1996. In 1996 alone, over $27 billion of commercial
mortgage-backed securities were issued.
Fundamentally, the evaluation of a particular commercial mortgage-backed
security involves two separate but interdependent types of analysis. First,
the value of commercial mortgage-backed securities is ultimately dependent on
the value of the underlying pool of mortgage loans. Also important, are the
terms of the commercial mortgage-backed securities, particularly with respect
to subordination, which ultimately determine a holder's rights to payments.
The key to valuing any commercial mortgage loan is to evaluate both the
collateral value of the mortgaged property (usually measured by loan to value
ratio) as well as the ability to the property to generate sufficient cash flow
to make timely mortgage payments to the lender (usually measured by debt
service coverage ratio). Because of the unavoidable level of subjectivity
inherent in valuing real property (even a valuation method based on
capitalization of cash flows required selection of a capitalization rate),
debt service coverage ratio may be a more reliable indicator of the credit
quality and default risk of a commercial mortgage. For commercial mortgages,
as debt service coverage ratio starts to rise substantially over 1.0, defaults
should be less likely and should only be expected to result from unanticipated
risks or severe and prolonged economic downturns.
Because commercial mortgage-backed securities issuances are often
effected in multiple tranches with various levels of subordination, it is
important to evaluate the terms affecting the payment rights of any particular
security. Once a pool of mortgage loans has been evaluated and conclusions
reached about the probable defaults and losses to be experienced by the pool
as a whole, a critical factor in evaluating any particular class of commercial
mortgage-backed securities secured by such pool is where such class stands in
terms of priority of payment and whether the aggregate size of the classes
subordinate to such class is sufficiently large to absorb any losses in the
pool without principal loss to such class. Losses in the pool occur (and are
allocated to the commercial mortgage-backed securities classes in inverse
order of priority) when, following a borrower default on a mortgage loan, less
than the full amount of unpaid principal and accrued interest is recovered
through the workout of the loan or liquidation of the mortgaged property.
Losses can also occur through the incurrence of greater than anticipated
servicing costs and expenses (e.g. bankruptcy and foreclosure costs and costs
of operating REO Property) that cannot be recovered from property proceeds.
Based on the comfort level derived from the support provided by the
subordinate classes, one can then assess the risk of principal loss to the
class being considered and compare that risk to the price/interest rate being
offered for that security. A similar determination forms a portion of the
analysis performed by rating agencies assigning ratings to various tranches of
commercial mortgage-backed securities, focusing on, among other things, given
benchmarks of loan to value ratio and debt service coverage ratio for each
ratings classification.
Commercial and multifamily mortgage loans have experienced varying degrees
of delinquencies and defaults over time and by property type. A November 6,
1995 report by Fitch entitled "Commercial Mortgage Default Study" (the "Fitch
Study") evaluated nine securitizations occurring prior to 1994, each
comprising at least 100 loans with an aggregate principal balance of
approximately $6.5 billion. These securitizations represented, in the
aggregate, 12,313 mortgage loans with an average seasoning of 2.9 years. The
Fitch Study defined a default as a mortgage loan that was 60+ days past due on
a scheduled debt service payment or a matured balloon payment. The Fitch Study
indicated, among other things, that (i) debt service coverage ratio has a
dramatic effect on the default rate and is one of the factors that most
significantly affects default rates, (ii) the average annual default rate for
warehouses, multifamily, industrial, office, retail and lodging properties was
2%, 3.5%, 3.8%, 4.3%, 4.5% and 5.1%, respectively and (iii) states in the
Pacific Northwest had the lowest default rates and states in the Northeast had
the highest default rates. The loans comprising the data base for the Fitch
Study were predominantly thrift-originated and securitized by the Resolution
Trust Corporation. The results of the analysis are reflective of the portfolio
of mortgage loans included in the Fitch Study and the demographic and regional
trends of the time period covered by the Fitch Study and cannot be viewed as
being indicative of the performance of the Mortgage Pool. However, the Fitch
Study does indicate the critical role debt service coverage ratio plays in
defaults as compared to other loan characteristics and the relative
differences based on property types and geographic region, as well as certain
other loan characteristics.
The American Council of Life Insurance Company issues quarterly reports
on commercial loans owned by its members ("ACLI Reports"), which show
delinquencies (including loans in foreclosure) by property type and region.
For the quarters ending June 30, 1985 to 1995, the ACLI Reports indicated
delinquencies ranging from approximately 1% to as high as 7.5% (occurring in
1992). During this period, the worst delinquencies were experienced with
respect to hotel loans, with default rates ranging from __% to __%, and with a
rate of __% as of June 30, 1995. The rates for other property types, as of
June 30, 1995 were as follows: multifamily: __%, industrial: __%, retail: __%
and office: __%. The loans comprising the data in the ACLI Reports are loans
originated or acquired by life insurance companies. The results of the
analysis are reflective of the portfolio of mortgage loans included in the
ACLI Reports and the demographic and regional trends of the time period
covered by the ACLI Reports and cannot be viewed as being indicative of the
performance of the Mortgage Pool.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of [140] fixed rate Mortgage Loans secured
by [271] multifamily and commercial properties with an aggregate Cut-off Date
Principal Balance of approximately $[1.6 billion] (the "Initial Pool
Balance"), subject to a variance of plus or minus 5%. All numerical
information provided herein with respect to the Mortgage Loans is provided on
an approximate basis. All percentages of the Mortgage Pool, or of any
specified sub-group thereof, referred to herein without further description
are approximate percentages by aggregate Cut-off Date Principal Balance.
Descriptions of the terms and provisions of the Mortgage Loans are generalized
descriptions of the terms and provisions of the Mortgage Loans in the
aggregate. Many of the individual Mortgage Loans have specific terms and
provisions that deviate from the general description.
Each Mortgage Loan is evidenced by one or more promissory notes (each, a
"Note") and secured by one or more mortgages, deeds of trust or other similar
security instruments (a "Mortgage"). Each of the Mortgages create a first lien
on the interests of the related borrower in the related Mortgaged Property, as
set forth on the following table: SECURITY FOR THE MORTGAGE LOANS
% OF NUMBER OF
INITIAL POOL MORTGAGE
INTEREST OF BORROWER ENCUMBERED BALANCE (1) PROPERTIES
- ------------------------------- ----------- ----------
Fee Simple Estate % [242]
Leasehold [8]
Fee Simple and Leasehold Estate(2)
TOTAL 100% [250]
________________________________
(1) Based on the Allocated Loan Amount of the related Mortgaged Property.
(2) "Fee Simple and Leasehold Estate" means that the borrower owns a fee
interest in a portion of the Mortgaged Property and a leasehold interest
in the remaining portion.
Each Mortgaged Property consists of land improved by (i) a retail
property (a "Retail Property," and any Mortgage Loan secured thereby, a
"Retail Loan"), (ii) an office building (an "Office Property," and any
Mortgage Loan secured thereby, an "Office Loan"), (iii) a full or limited
service hotel property (a "Hotel Property," and any Mortgage Loan secured
thereby, a "Hotel Loan"), (iv) an apartment building or complex consisting of
five or more rental units (a "Multifamily Property," and any Mortgage Loan
secured thereby, a "Multifamily Loan"), (v) a nursing home (each, a "Senior
Housing/Healthcare Property," and any Mortgage Loan secured thereby, a "Senior
Housing/Healthcare Loan"), (vi) an industrial property (an "Industrial
Property," and any Mortgage Loan secured thereby, an "Industrial Loan"), (vii)
a factory outlet center (a "Factory Outlet Property," and any Mortgage Loan
secured thereby, a "Factory Outlet Loan"), (viii) a mobile home community or
recreational vehicle park or a combination thereof (a "Mobile Home Property,"
and any Mortgage Loan secured thereby, a "Mobile Home Loan") [or (ix) an
assisted living facility (an "Assisted Living Property," and any Mortgage Loan
secured thereby, an "Assisted Living Loan.")] Certain statistical information
relating to the various types of Mortgaged Properties is set forth under
"--Additional Mortgage Information--Types of Mortgaged Property" herein.
[19] of the Mortgage Loans are secured by two or more Mortgaged
Properties, either pursuant to cross-collateralization with other Mortgage
Loans in the Mortgage Pool or pursuant to a single Note by a single borrower
secured by multiple Mortgaged Properties, or both. See "Risk Factors and Other
Special Considerations--Concentration of Mortgage Loans; Borrower and
Managers" herein.
None of the Mortgage Loans are insured or guaranteed by the United
States, any governmental agency or instrumentality, any private mortgage
insurer or by the Depositor, the Mortgage Loan Seller, Bloomfield, the
Servicer, the Special Servicer, the Trustee or the Fiscal Agent or any of
their respective affiliates. All of the Mortgage Loans are non-recourse loans
so that, in the event of a borrower default on any Mortgage Loan, recourse may
generally be had only against the specific Mortgaged Property or Mortgaged
Properties securing such Mortgage Loan and such limited other assets as have
been pledged to secure such Mortgage Loan, and not against the borrower's
other assets. However, generally, the Mortgage Loans may become recourse upon
the occurrence of certain events of default under the Mortgage Loans,
including, in most cases, the transfer or voluntary encumbrance of the
Mortgaged Property without the consent of the mortgagee.
The Mortgage Loans were generally underwritten in accordance with the
underwriting criteria described under "The Mortgage Loan Program--Underwriting
Standards; Representations." The Depositor will purchase the Mortgage Loans to
be included in the Mortgage Pool on or before the Closing Date from the
Mortgage Loan Seller pursuant to a Mortgage Loan Purchase and Sale Agreement
(the "Mortgage Loan Purchase and Sale Agreement") to be dated as of the
Cut-off Date between the Mortgage Loan Seller and the Depositor. The Mortgage
Loan Seller will be obligated under the Mortgage Loan Purchase and Sale
Agreement to repurchase a Mortgage Loan in the event of a breach of a
representation or warranty of the Mortgage Loan Seller with respect to such
Mortgage Loan as described under "The Pooling and Servicing
Agreement--Representations and Warranties--Repurchase" herein. The Depositor
will assign the Mortgage Loans in the Mortgage Pool, together
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with the Depositor's rights and remedies against the Mortgage Loan Seller in
respect of breaches of representations or warranties regarding the Mortgage
Loans, to LaSalle National Bank, as Trustee, for the benefit of the
Certificateholders, pursuant to the Pooling and Servicing Agreement. AMRESCO
Management, Inc., in its capacity as Servicer, will service the Mortgage Loans
pursuant to the Pooling and Servicing Agreement. The Depositor will make no
representations or warranties with respect to the Mortgage Loans and will have
no obligation to repurchase or substitute for Mortgage Loans with deficient
documentation or which are otherwise defective. The Mortgage Loan Seller, as
seller of the Mortgage Loans to the Depositor, is selling such Mortgage Loans
without recourse, and, accordingly, in such capacity, will have no obligations
with respect to the Certificates other than pursuant to the limited
representations, warranties and covenants made by it to the Depositor and
assigned by the Depositor to the Trustee for the benefit of the
Certificateholders. See "The Pooling and Servicing Agreement-- Assignment of
the Mortgage Loans."
The Mortgage Loan Seller or an affiliate has acquired a preferred equity
interest in [ ] borrowers or groups of borrowers, which are the borrowers with
respect to Mortgage Loans representing approximately [ ]% of the Initial Pool
Balance. See "Risk Factors and Other Special Considerations--Other Financing"
herein.
SECURITY FOR THE MORTGAGE LOANS
Each Mortgage Loan is generally non-recourse and is secured by one or
more Mortgages encumbering the related borrower's interest in the applicable
Mortgaged Property or Properties. Each Mortgage Loan is also secured by an
assignment of the related borrower's interest in the leases, rents, issues and
profits of the related Mortgaged Properties. In certain instances, additional
collateral exists in the nature of partial indemnities or guaranties, or the
establishment and pledge of one or more reserve or escrow accounts for
necessary repairs, replacements and environmental remediation, real estate
taxes and insurance premiums, deferred maintenance and/or scheduled capital
improvements, re-leasing reserves and seasonal working capital reserves (such
accounts, "Reserve Accounts"). All of the Mortgage Loans provide for the
indemnification of the mortgagee by the borrower for the presence of any
hazardous substances affecting the Mortgaged Property. Each Mortgage
constitutes a first lien on a Mortgaged Property, subject generally only to
(i) liens for real estate and other taxes and special assessments, (ii)
covenants, conditions, restrictions, rights of way, easements and other
encumbrances whether or not of public record as of the date of recording of
the related Mortgage, such exceptions having been acceptable to the Mortgage
Loan Seller in connection with the purchase or origination of the related
Mortgage Loan, and (iii) such other exceptions and encumbrances on Mortgaged
Properties as are reflected in the related title insurance policies.
THE MORTGAGE LOAN PROGRAM--UNDERWRITING STANDARDS
Each Mortgage Loan was originated by the Mortgage Loan Seller or
Bloomfield, as set forth below under "--Additional Mortgage Loan
Information--Mortgaged Properties by Originator", and is generally consistent
with the underwriting standards applied by the Mortgage Loan Seller in
connection with the purchase or origination of each of the Mortgage Loans.
The Mortgage Loan Seller purchased the Mortgage Loans that it did not
originate pursuant to the purchase and sale agreements with Bloomfield during
a period commencing on [ ] and ending on the Cut-off Date.
The Mortgage Loan Seller's underwriting guidelines generally consist of
the following standards:
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UNDERWRITING STANDARDS(1) BY PROPERTY TYPE:
MULTIFAMILY PROPERTIES
Minimum Occupancy Rate............................................ 85%
Maximum Loan to Value Ratio........................................80%
Minimum DSCR ....................................................1.20
HOTEL
Maximum Annual Occupancy ..........................................80%
Minimum Annual Occupancy Rate......................................55%
Maximum Loan to Value Ratio........................................70%
Minimum DSCR.....................................................1.40
NURSING HOME/ASSISTED LIVING
Min. Amount of Time in Operation ..................................12 mo
Minimum Occupancy Rate ............................................85%
Maximum Loan to Value Ratio .......................................75%
Minimum DSCR ....................................................1.30
MOBILE HOME PARK
Minimum Occupancy Rate.............................................85%
Maximum % of Homes for Sale .......................................15%
Maximum % of Homes Rented by Residents .............................5%
Maximum Loan to Value Ratio .......................................80%
Minimum DSCR ....................................................1.20
OFFICE
Minimum Occupancy Rate ............................................80%
Maximum Loan to Value Ratio .......................................70%
Minimum DSCR ....................................................1.25
RETAIL
Minimum Occupancy Rate ............................................85%
Maximum Loan to Value Ratio .......................................75%
Minimum DSCR ....................................................1.25
INDUSTRIAL
Minimum Occupancy Rate ............................................85%
Maximum Loan to Value Ratio .......................................70%
Minimum DSCR ....................................................1.25
FACTORY OUTLET
Minimum Occupancy Rate .............................................
Maximum Loan to Value Ratio ........................................
Minimum DSCR .......................................................
-----------------------------
(1) The underwriting guidelines described herein were generally followed but
were not satisfied in every case. See Annex A hereto for the specific
characteristics of the Mortgage Loans and Mortgaged Properties.
In underwriting each Mortgage Loan in connection with the origination
or acquisition thereof, income information provided by the related borrower
was examined by the Mortgage Loan Seller. In addition, the operating history
of the property, industry data regarding the local real estate market and the
appraiser's analysis were reviewed and, if conditions warranted, net operating
income with respect to the related Mortgaged Property was adjusted for
purposes of determining whether the Mortgaged Property satisfied the debt
service coverage ratio required by the Mortgage Loan Seller's underwriting
guidelines. In accordance with the underwriting guidelines, net operating
income of any Mortgaged Property may have been adjusted by, among other
things, the adjustments listed in the definition of "Net Cash Flow" described
under "-- Additional Loan Information." In connection with the underwriting,
net operating income was based upon information provided by the borrower and
neither the Depositor nor the Mortgage Loan Seller makes any representation as
to the accuracy of such information; provided, however, that, with respect to
certain of the Mortgage Loans, the Mortgage Loan Seller or
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the borrower engaged independent accountants to review or perform certain
procedures to verify such information.
Each Originator was required to cause each Mortgaged Property to be
inspected to determine whether it was in acceptable physical condition. The
inspection included a review of ongoing maintenance programs, common area
upkeep, mechanical systems and grounds maintenance. In addition, an
engineering study and an environmental review were prepared by appropriate
consultants. With respect to environmental matters, a Phase I environmental
assessment (and, where appropriate, a Phase II environmental assessment) was
conducted for each Mortgaged Property. A credit investigation was completed
for all prospective borrowers, in connection with which a credit report not
more than 30 days old as of the date of the loan application and current
financial statements were obtained. The borrowers with respect to [ ] of the
Mortgaged Properties representing, in the aggregate, [ ]% of the Initial Pool
Balance, provided audited financial statements, agreed upon procedures or
statements certified by an independent accountant. The cash flow and NOI
information presented in Annex A may not correspond to the comparable
information included in the accountants' reports because of adjustments made
by the Mortgage Loan Seller as part of its underwriting procedures.
SIGNIFICANT MORTGAGE LOANS
Kendall Square Pool Loan and Properties
The Loan. The largest Mortgage Loan in the Mortgage Pool is the Mortgage
Loan secured by the Mortgaged Properties known as the Kendall Square
Properties (the "Kendall Square Pool Loan"). The Kendall Square Pool Loan was
originated by the Mortgage Loan Seller on December 27, 1996, has a principal
balance as of the Cut-off Date of [$69,700,000], which represents
approximately [4.75]% of the Initial Pool Balance, and is secured by a fee and
leasehold Mortgage encumbering office, biotech lab space and retail space in
East Cambridge, Massachusetts (the "Kendall Square Pool Properties").
The Kendall Square Pool Loan was made to Athenaeum Property LLC, Old
Kendall Property LLC, Old Cambridge Property LLC and JONA Property LLC (each,
a "Kendall Borrower," collectively, the "Kendall Borrowers"). Each Kendall
Borrower is a Massachusetts special purpose limited liability company. Each of
the Kendall Borrowers is controlled by a limited partnership or limited
liability company (the "Upper Level Owners") that is in turn controlled by the
principals of The Athenaeum Group ("TAG"). Boston Capital Institutional
Investors ("BCIA"), through its affiliate, STB Corp., provided mezzanine
financing in the amount of $14,300,000 to the Upper Level Owners on December
27, 1996 (the "BCIA Mezzanine Financing"). STB Corp. will continue to occupy
its control position until the BCIA Mezzanine Financing is repaid in full. The
obligations of the Upper Level Owners to BCIA are secured by a pledge of the
partnership or membership interests, as applicable, in the [Upper Level
Owners]; however, enforcement of these pledges is not permitted before
repayment in full of the Kendall Square Pool Loan. The Mortgage Loan Seller
has a $2,300,000 participation in the BCIA Mezzanine Financing.
The Kendall Borrowers have entered into a Lock Box agreement whereby all
revenue is deposited directly into a Lock Box account controlled by the
Servicer. See "The Pooling and Servicing Agreement--Accounts--Lock Box
Accounts."
Payment, prepayment, defeasance terms and reserves for the Kendall Pool
Loan are as set forth on Annex A.
The Properties. The Kendall Square Properties consist of Phases I and II
of One Kendall Square, 215 First Street, 66 Binney Street and 195 First
Street, all located in Cambridge, Massachusetts. The Kendall Square Properties
are managed by The Athenaeum Group, an affiliate of the Kendall Borrowers. See
"Certain Terms and Conditions of the Mortgage Loans --Mortgage Provisions
Relating to Servicer's Right to Termination of Management Agreement".
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One Kendall Square - Phases I and II. One Kendall Square is a planned
900,000 square foot of GLA mixed use development, situated on a 10.25 acre
campus in East Cambridge, within walking distance of the MIT campus and public
transportation. To date, nearly 630,000 square feet of GLA of office,
laboratory and retail space, a 9 screen movie theater (not subject to the lien
of the related Mortgage) and a 1,530 car garage (not subject to the lien of
the related Mortgage) have been completed at the complex. In addition, [Old
Kendall Property LLC and Old Cambridge Property LLC] entered into a lease for
over 650 parking spaces located at 66 Binney Street. Such lease expires on
December 31, 2088. The property includes the buildings of the former Boston
Woven Hose Factory which, beginning in 1984, were rehabilitated. The largest
tenants are The Whitehead Institute, Repligen Corp., Digital Equipment Corp.,
Genzyme, and Shriners Hospital for Crippled Children, which occupy ___%, ___%,
___%, ___% and ___%, of One Kendall Square's GLA, respectively. As of December
1996, Phase I of One Kendall Square was approximately 91.6% occupied, and
Phase II of One Kendall Square was approximately 100% occupied as of December
1996, the combined appraised value was $69,500,000.
215 First Street. 215 First Street, also known as "Athenaeum House", was
built in stages beginning in 1895 as the original headquarters for The
Athenaeum Press. The property was rehabilitated in 1981 and occupies a full
city block, housing approximately 310,649 square feet of GLA of office,
laboratory and service retail space including the largest full service health
club in Cambridge, on six levels overlooking the Charles River and the Kendall
Square area of Cambridge. An affiliate of the Kendall Square Borrowers leases
approximately 300 parking spaces in adjacent lots (such parking is not subject
to the lien of the related Mortgage). In addition the tenants at 215 First
Street have access to parking at 195 First Street, a property which is owned
in fee by one of the Kendall Square Borrowers and which is subject to the lien
of the related Mortgage. As of [March __, 1997], the property was
approximately [ ]% occupied, and as of [August 1996], the appraised value was
$________.
195 First Street. This property is a surface parking lost owned in fee.
See description of 215 First Street, above.
66 Binney Street. This property is a surface parking lot for which one of
the Kendall Square Borrowers holds a leasehold interest. See description of
One Kendall Square, above.
See "Risk Factors and Other Special Considerations--Commercial Lending
Generally" "--Retail Properties" and "--Office Properties" for a discussion of
certain matters associated with retail and office properties.
The Saracen Pool Loan and Properties
The Loan. The second largest Mortgage Loan in the Mortgage Pool is the
Mortgage Loan secured by the Mortgaged Properties known as the Saracen Pool
Properties (the "Saracen Pool Loan"). The Saracen Pool Loan was originated by
the Mortgage Loan Seller on December 31, 1996, has a principal balance as of
the Cut-off Date of $[69,000,000], which represents approximately [4.7]% of
the Initial Pool Balance, and is secured by fee Mortgages encumbering six
office building properties located in suburban Boston (each, a "Saracen Pool
Property", and, collectively, the "Saracen Pool Properties"). The Saracen Pool
Mortgages are cross-collateralized and cross-defaulted.
The Saracen Pool Loan was made to Wells Avenue Senior Holdings LLC (the
"Saracen Borrower"), a special purpose Massachusetts limited liability company
owned by Wells Avenue Senior Holdings Inc. and Wells Avenue Holdings LLC
("Wells Holdings"). Saracen Holding Trust General Partnership ("Saracen G.P.")
owns a [99]% membership interest in Wells Holdings. Pacific Preferred LLC, an
affiliate of Lazard, holds a [1]% membership interest in Wells Holdings and
will continue to occupy this position until a mezzanine financing made on
December 31, 1996 from Lazard to Wells Holdings in the amount of $21,387,000
(the "Lazard Mezzanine Financing") is repaid in full [and a $______ capital
contribution of Pacific Preferred LLC has been returned in accordance with the
Wells Holdings membership agreement]. The obligations of Wells Holdings under
the Lazard Mezzanine Financing are secured by a pledge by Saraceno G.P. of its
99% membership interest in Wells Holdings. Additionally, an affiliate of the
Mortgage Loan Seller has made a capital contribution to Wells Holdings in the
amount of $5,500,000 and is the special member of Wells Holdings. See "Risk
Factors and Other Special
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Considerations--Other Financings" for a discussion of capital contributions by
affiliates of the Mortgage Loan Seller and "Description of the Mortgage Pool."
[The Saracen Borrower has entered into a Lock Box agreement whereby all
revenue is deposited directly into a Lock Box account controlled by the
Servicer. See "The Pooling and Servicing Agreement--Accounts--Lock Box
Accounts."]
Payment, prepayment, defeasance terms and reserves for the Saracen Pool
Loan are as set forth on Annex A hereto [and as described above under
"--Certain Terms and Conditions of the Mortgage Loans--Excess Interest,"
"--Property Releases" and "--Escrows."]
The Properties. The Saracen Pool Properties consist of six office
building complexes located in the Route 128 Corridor of suburban Boston. The
properties have a mix of high-tech, financial and other service tenants. The
Saracen Pool Properties are managed by Saracen Companies, Inc., an affiliate
of the Saracen Borrower. See "Certain Terms and Conditions of the Mortgage
Loans--Mortgage Provisions Relating to Servicer's Right to Termination of
Management Agreement".
128 Tech Center, Waltham. This office building complex, constructed in
1986, is a four-building [217,500] square feet GLA office complex located on
10.64 acres in Waltham, Massachusetts. The largest tenant, which occupies
approximately ___ % of 128 Tech Center's GLA, is Parametric Technology. As of
[March ___, 1997], the property was approximately [ ]% occupied, and as of
[August 1996], the appraised value was $_____________.
7/57 Wells Avenue, Newton. This office building, constructed in ____,
contains [90,000] square feet of GLA and is located on 10.64 acres in Newton,
Massachusetts. The largest tenants are Geo Centers, Tower Group and Churchill
Forge which occupy ___%, ___% and ___% of 7/57 Wells Avenue's GLA,
respectively. As of [March __, 1996], the property was approximately [ ]%
occupied, and as of [August 1996], the appraised value was $___________.
75/85/95 Wells Avenue, Newton. This office building, known as Wells
Research Center and constructed in _____, contains [238,000] square feet of
GLA and is located on 21.4 acres. The largest tenants are Marcam, owned in
part by IBM, Thomson Financial and HQ Business Centers which occupy ___%, ___%
and ___% of 75/85/95 Wells Avenue's GLA, respectively. As of [March __, 1997],
the property was approximately [ ]% occupied, and as of [August 1996], the
appraised value was $____________.
201 University Avenue, Westwood. This office building complex, converted
from an industrial building to corporate office space in 1982 by the
Borrower's principals, contains [82,000] square feet of GLA including a health
club and an auditorium. Computer Associates leases the entire property. As of
[March ___, 1997], the property was [100%] occupied, and as of [August 1996],
the appraised value of the property was $________.
Dedham Place, Dedham. This office building, constructed in _____,
contains [160,000] square feet of GLA, is located on 15.18 acres and is
attached to a Hilton Hotel. The largest tenants are ________, __________ and
_____________ which occupy ___%, ___% and ___% of Dedham Place's GLA,
respectively. As of [March __, 1997], the property was approximately [ ]%
occupied and as of [August 1996] the appraised value was $ .
333 Elm Street, Dedham. This office building, constructed in 1983 and
known as Norfork Place, contains 48,000 square feet of GLA and is situated on
2.01 acres. The largest tenant is Lo-Jack which occupies ___% of 333 Elm
Street's GLA. As of [March __, 1997], the property was approximately [ ]%
occupied and of [August 1996] the appraised value was $ .
See "Risk Factors and Other Special Considerations--Commercial Lending
Generally" and "--Office Properties" for a discussion of certain matters
associated with office properties.
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The Hudson Hotels Pool Loan and Properties
The Loan. The [third] largest Mortgage Loan in the Mortgage Pool is the
Mortgage Loan secured by the Mortgaged Properties known as Hudson Hotels (the
"Hudson Hotels Pool Loan"). The Hudson Hotels Pool Loan was originated by the
Mortgage Loan Seller on November 27, 1996, had an original principal balance
of $56,000,000 and is secured by fee Mortgages encumbering fifteen hotel
properties and by a Mortgage encumbering a ground leasehold interest in a
hotel property. The fee Mortgages and ground leasehold Mortgage are
collectively referred to as the "Hudson Hotels Mortgages" and the fee
interests and ground leasehold interest encumbered by the Hudson Hotels
Mortgages are referred to individually as a "Hudson Hotels Property" and
collectively as the "Hudson Hotels Properties." The Hudson Hotels Mortgages
are cross-collateralized and cross-defaulted.
The Hudson Hotels Pool Loan was made to HH Properties-I, Inc., which
is a special purpose New York corporation (the "Hudson Hotels Borrower").
[insert description of owners of Hudson Hotels Borrower and preferred equity]
Payment, prepayment, defeasance terms and reserves are as set forth on
Annex A and as described below under "--Certain Terms and Conditions of the
Mortgage Loans--Excess Interest," "--Property Releases" and "--Escrows."
Lock Box. The Hudson Hotels Borrower has established a Lock Box Account
with respect to each Hudson Hotels Property and shall cause each of the credit
card companies with whom such Hudson Hotels Property is affiliated to pay all
amounts payable to the Hudson Hotels Borrower directly into the related Lock
Box Account. The Hudson Hotels Borrower is also required to deposit, within
one business day after receipt thereof, all receipts and income with respect
to each Hudson Hotels Property into its related Lock Box Account. See "The
Pooling and Servicing Agreement--Accounts--Lock Box Accounts."
The Properties. The Hudson Hotels Properties consist of sixteen hotel
properties located in six states. Three of the hotel properties are full
service hotels offering food, beverages and other amenities consistent with
those offered by a full service hotel, while the remaining thirteen hotel
properties are limited service hotels. The Hudson Hotel Properties are managed
by Hudson Hotels Corporation, a New York corporation (the "Hudson Hotels
Manager") and an affiliate of the Hudson Hotels Borrower, pursuant to sixteen
management agreements between the Hudson Hotels Manager and the Hudson Hotels
Borrower. See "Certain Terms and Conditions of the Mortgage Loans--Mortgage
Provisions Relating to Servicer's Right to Termination of Management
Agreement." The aggregate appraised value of the Hudson Hotels Properties was
$90,700,000. The average occupancy rate for the Hudson Hotels Properties in
the aggregate for the twelve months ending September 30, 1996 was 75%. The
average daily room rate for all of the Hudson Hotels Properties for the 12
months ended ________________, 1997, was $___________. The Hudson Hotels
Properties are located in: North Carolina (7 properties), New York (4
properties), South Carolina (2 properties), Florida, Georgia, and Virginia.
See "Risk Factors and Other Special Considerations--Commercial Lending
Generally" and "--Hotels" for a discussion of certain matters relating to
hotel properties.
The Marina Harbor Loan and Property
The Loan. The fourth largest Mortgage Loan in the Mortgage Pool is the
Mortgage Loan secured by the Mortgaged Property known as Marina Harbor
Apartments and Anchorage (the "Marina Harbor Loan"). The Marina Harbor Loan
was originated by the Mortgage Loan Seller on September 25, 1996, had an
original principal balance of $51,000,000 and is secured by a Mortgage
encumbering a ground leasehold interest in an apartment complex comprised of
sixteen two and three story buildings in Marina del Rey, California (the
"Marina Harbor Property"). The Marina Harbor Loan has an amortization schedule
of 240 months and a term of 198 months with the result that a balloon payment
is due on its maturity date of March 11, 2013 (the "Marina Harbor Maturity
Date").
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The Marina Harbor Loan was made to Marina Pacific Associates (the "Marina
Harbor Borrower"), which is a special purpose California limited partnership.
The general partners of the Marina Harbor Borrower are the Epstein Family
Trust and CMR, Inc., a California corporation, whose common stock is owned by
James H. Ring, Jacqueline Morgan and Suzanne Caplan.
The payment, prepayment, defeasance terms and reserve requirements of the
Marina Harbor Loan are as set forth in Annex A hereto and as described below
under "--Certain Terms and Conditions of the Mortgage Loans--Property
Releases" and "--Escrows."
Lock Box. The Marina Harbor Borrower has established a Lock Box Account
with respect to the Marina Harbor Property and shall pay or cause to be paid
all rents and income of any nature arising from the ownership, possession or
use of the Marina Harbor Property within one business day after receipt
thereof into the Lock Box Account. See "The Pooling and Servicing
Agreement--Accounts--Lock Box Accounts."
The Property. The Marina Harbor Property, located in Marina del Rey,
California, is an 846 unit apartment complex constructed in 1962 and 1968. The
complex consists of sixteen buildings, containing studio, 1-, 2-, and
3-bedroom apartments. The apartments at the complex had an occupancy rate as
of October 31, 1996, of approximately 97.4%. The complex also contains 671
boat slips, which had an occupancy rate as of October 31, 1996, of 82% [and
accounted for 14% of total income for the Marina Harbor Property]. The Marina
Harbor Property is managed by EJ Management, Inc., a California corporation
(the "Marina Harbor Manager") [and an affiliate of the Marina Harbor
Borrower], and submanaged by E&S Ring Management Corp., a California
corporation (the "Marina Harbor Submanager") [and an affiliate of the Marina
Harbor Borrower].
The borrower's interest in the Marina Harbor Property was created under a
ground lease with the County of Los Angeles, as ground lessor, which expires
on April 1, 2023. The ground lease provides for the payment of annual base
rent plus various percentages of rent with respect to rental of apartments,
boat slips, miscellaneous sales and other items.
[The ground lease and related documents contain provisions for the
protection of lender's rights such as the right to notice and cure defaults.
However, under the ground lease, the ground lessor has retained certain
controls with respect to the Marina Harbor Property, including the approval of
subleases of apartments in excess of one year, the right to approve any
modification of the Marina Harbor Loan to the extent the modification could be
viewed as a "replacement" or "renewal" thereof and approval of any future
loans secured by the Mariner's Village Property. In addition, the ground lease
provides that the proceeds of all property insurance policies will be used to
restore and rebuild the property and will be held by the ground lessor for
distribution to the ground lease in reimbursement of restoration and
rebuilding costs. The lender may only apply such proceeds to pay the Marina
Harbor Loan to the extent proceeds remain after application to restore and
repair the Marina Harbor Property.]
See "Risk Factors and Other Special Considerations--Commercial Lending
Generally" and "--Ground Leases" for a discussion of certain matters
associated with ground leases.
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<PAGE>
Other Significant Mortgage Loans.
The next six largest Mortgage Loans are as follows:
<TABLE>
<CAPTION>
Cut-off Date
Principal Anchor/
Mortgage Balance/ Major
Loan/ Allocated Appraised Tenant/ Ground
Property City State Loan Amount DSCR Value LTV Occupancy Franchise ADR Lockbox Lease
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
Significant Single Asset Loans. [9] Mortgage Loans secured by a single
Mortgaged Property have a Cut-off Date Principal Balance in excess of
$25,000,000, and total, in the aggregate, $[383,000,000] (or [24]% of the
Mortgage Pool by Cut-off Date Principal Balance). The properties securing
such Mortgage Loans include two Multifamily Properties ($[76] million),
two Retail Properties ($[51] million), two Hotel Properties ($[113] million)
and three Office Properties ($[133] million).
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Annex A. For a detailed presentation of the characteristics of the
Mortgage Loans, on a loan-by-loan basis, see Annex A hereto.
Due Dates. All of the Mortgage Loans provide for scheduled payments
of principal and/or interest ("Monthly Payments") to be due on the eleventh
day of each month or, in the case of certain of the Mortgage Loans, if the
eleventh day is not a business day, the next business day or the first
preceding business day.
Mortgage Rates; Calculations of Interest. Each of the Mortgage Loans
accrue interest on the basis of a 360-day year consisting of twelve 30-day
months or on the basis of the actual number of days elapsed and a 360 day
year. Each of the Mortgage Loans accrues interest at the Mortgage Rate, which
is fixed for the entire remaining term of such Mortgage Loan; provided,
however, as described below under "--Excess Interest", certain of the Mortgage
Loans accrue interest at a higher rate (the difference between such higher
rate and the Mortgage Rate, the "Excess Rate") after their respective
Anticipated Repayment Dates. As used herein, the term "Mortgage Rate" does not
include the Excess Rate.
Excess Interest. [ ] of the Mortgage Loans, representing approximately [
]% of the Initial Pool Balance, bear interest at their respective Mortgage
Rates until an Anticipated Repayment Date. Commencing on the respective
Anticipated Repayment Date, except as described below, each such Mortgage Loan
generally will bear interest at a fixed rate per annum (the "Revised Rate")
equal to the greater of (a) the Mortgage Rate plus a specified percentage (of
no more than 2%) and (b) the Treasury Rate plus a specified percentage (of no
more than 2%). "Treasury Rate" means, as of the related Anticipated Repayment
Date, the yield on noncallable U.S. Treasury obligations with terms most
nearly approximating the related stated Maturity Date. Until the principal
balance of each such Mortgage Loan has been reduced to zero, such Mortgage
Loan will only be required to pay interest at the Mortgage Rate and the
interest accrued at the excess of the related Revised Rate over the related
Mortgage Rate will be deferred (such accrued and deferred interest and
interest thereon, if any, is "Excess Interest"). Except where limited by
applicable law, Excess Interest so accrued will earn interest at the Revised
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Rate. Prior to the Anticipated Repayment Date, borrowers under such ARD Loans
will be required to enter into a Lock Box agreement whereby all revenue will
be deposited directly into a Lock Box Account controlled by the Servicer. From
and after the Anticipated Repayment Date, in addition to paying interest (at
the Mortgage Rate) and principal (based on the amortization schedule)
(together, the "Monthly Debt Service Payment"), the related borrower generally
will be required to apply all monthly cash flow from the related Mortgaged
Property or Properties to pay the following amounts in the following order of
priority: (i) required payments to the tax and insurance escrow fund and any
ground lease escrow fund, (ii) payment of Monthly Debt Service, (iii) payments
to any other required escrow funds, (iv) payment of operating expenses
pursuant to the terms of an annual budget approved by the Servicer, (v)
payment of approved extraordinary operating expenses or capital expenses not
set forth in the approved annual budget or allotted for in any escrow fund,
(vi) principal on the Mortgage Loan until such principal is paid in full and
(vii) to Excess Interest. The cash flow from the Mortgaged Property or
Properties securing an ARD Loan after payments of items (i) through (v) above
is referred to herein as "Excess Cash Flow". As described below, ARD Loans
generally provide that the related borrower is prohibited from prepaying the
Mortgage Loan until the three month period prior to the Anticipated Prepayment
Date but, upon the commencement of such period, may prepay the loan, in whole
or in part, without payment of a Prepayment Premium. The Anticipated Repayment
Date, if any, for each ARD Loan is listed in Annex A.
The holders of a majority of the Percentage Interests in the Class LR
Certificates will have the option for up to two months after the Anticipated
Repayment Date for any ARD Loan to purchase such ARD Loan at a price equal to
its outstanding principal balance plus accrued and unpaid interest and
unreimbursed Advances with interest thereon. As a condition to such purchase,
such holders will be required to deliver an opinion of counsel to the effect
that such purchase would not (i) result in a gain which would be subject to
the tax on net income derived from prohibited transactions imposed by Code
Section 860F(a)(1) or otherwise result in the imposition of any other tax on
the Lower-Tier REMIC or Upper-Tier REMIC under the REMIC provisions of the
Code or (ii) cause either of the Lower-Tier REMIC or Upper-Tier REMIC to fail
to qualify as a REMIC.
Amortization of Principal. As set forth in the following table, certain
Mortgage Loans (the "Balloon Loans") provide for monthly payments of principal
based on amortization schedules at least 60 months longer than their original
terms thereby leaving substantial principal amounts due and payable (each such
payment, a "Balloon Payment") on their respective maturity dates, unless
previously prepaid. The remaining Mortgage Loans have remaining amortization
terms that are the same as their respective remaining terms to maturity.
AMORTIZATION CHARACTERISTICS OF THE MORTGAGE LOANS
NUMBER OF
TYPE OF LOAN % OF INITIAL MORTGAGE
POOL BALANCE LOANS
------------ -----
ARD Loans................... %
Fully Amortizing Loans......... %
(other than ARD Loans)
Balloon Mortgage Loan........ %
Prepayment Provisions. All of the Mortgage Loans prohibit voluntary
prepayment during a period (each, a "Lock-out Period") from the date of
origination ranging from approximately [ ] months to [ ] months. The weighted
average Lock-out Period from the date of origination for the Mortgage Loans is
approximately [ ] months and the weighted average remaining Lock-out Period
from the Cut-off Date is approximately [ ] months. None of the Mortgage Loans
require the payment of a premium or fee (a "Prepayment Premium") upon the
voluntary prepayment of such Mortgage Loans on or after the expiration of the
related Lock-out Period. The Lock-out Periods for the ARD Loans all expire on
or three or six months prior to their respective Anticipated Repayment Dates
and the Lock-out Periods for the Balloon and fully amortizing Mortgage Loans
(other than ARD Loans) all expire no earlier than the last three or six months
prior to their respective maturities. Certain of the prepayment terms of each
of the Mortgage Loans are more particularly described in Annex A.
60
<PAGE>
OVERVIEW OF LOCK-OUT PERIODS
----------------------------
Minimum Lock-out Period at Origination...................................months
Minimum Remaining Lock-out Period........................................months
Maximum Remaining Lock-out Period........................................months
Weighted Average Remaining Lock-out Period...............................months
LOCK-OUT PERIOD CHARACTERISTICS OF THE MORTGAGE LOANS
-----------------------------------------------------
% OF
INITIAL NUMBER OF
POOL MORTGAGE
TYPE OF LOAN BALANCE LOANS
------------ ------- -----
Lock-out Period Ending on/close to
Anticipated Prepayment Date...................... %
Lock-out Period Ending on/close to
Maturity Date................................... %
[98]%
The Mortgage Loans provide generally that in the event of a condemnation
or casualty, the mortgagee may apply the condemnation award or insurance
proceeds to the repayment of debt, which, in the case of some of the Mortgage
Loans, will require payment of any applicable Prepayment Premium. However, in
the case of most of the Mortgage Loans, if the award or loss is less than a
specified percentage of the original principal balance of the Mortgage Loan
and if in the reasonable judgment of the mortgagee (i) the Mortgaged Property
can be restored within six months prior to the maturity of the related Note to
a property no less valuable or useful than it was prior to the condemnation or
casualty, (ii) after a restoration the Mortgaged Property would adequately
secure the outstanding balance of the Note and (iii) no event of default has
occurred or is continuing, the proceeds or award may be applied by the
borrower to the costs of repairing or replacing the Mortgaged Property. The
Pooling and Servicing Agreement provides that if a Mortgage Loan provides that
the mortgagee may in its discretion apply certain amounts to a prepayment of
principal (e.g., by applying casualty or condemnation proceeds or funds
escrowed for improvements not completed by the required date) prior to the
expiration of the related Lock-out Period, the Special Servicer cannot consent
to such a prepayment unless the Special Servicer has first received the
consent of the Servicer or the holders of 66 2/3% of the Voting Rights of the
Certificates responding within 20 business days to a solicitation of their
consent.
Neither the Depositor nor the Mortgage Loan Seller makes any
representation as to the enforceability of the provision of any Mortgage Loan
requiring the payment of a Prepayment Premium, or of the collectability of any
Prepayment Premium. See "Risk Factors and Other Special Considerations--The
Certificates--Special Prepayment and Yield Considerations" herein and "Certain
Legal Aspects of Mortgage Loans--Default Interest, Prepayment Charges and
Prepayments" herein.
Property Releases. All of the Mortgage Loans permit the applicable
borrower at any time after a specified period (the "Defeasance Lock-out
Period"), which is generally the greater of approximately three years from the
date of origination and two years from the Closing Date, provided no event of
default exists, to obtain a release of a Mortgaged Property from the related
Mortgage (a "Defeasance Option"), provided that, among other conditions, the
borrower (a) pays on any Due Date (the "Release Date") (i) all interest
accrued and unpaid on the principal balance of the Note to and including the
Release Date, (ii) all other sums, excluding scheduled interest or principal
payments, due under the Mortgage Loan and all other loan documents executed in
connection therewith, (iii) an amount (the "Collateral Substitution Deposit")
equal to the sum of (x) the remaining principal amount of the Mortgage Loan
or, if applicable, 125% (generally) of the Allocated Loan Amount of the
related Mortgaged Property or Properties sought to be released, (y) the
amount, if any, which, when added to such amount, will be sufficient to
purchase direct non-callable obligations of the United States of America
providing payments (1) on or prior to, but as close as possible to, all
successive scheduled payment dates
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<PAGE>
from the Release Date to the related maturity date, assuming, in the case of
an ARD Loan, that such loan prepays on the related Anticipated Repayment Date
and (2) in amounts equal to the scheduled payments due on such Due Dates under
the Mortgage Loan, and (z) any costs and expenses incurred in connection with
the purchase of such U.S. government obligations and (b) delivers a security
agreement granting the Trust Fund a first priority lien on the Collateral
Substitution Deposit and the U.S. government obligations purchased with the
Collateral Substitution Deposit and an opinion of counsel to such effect. The
Pool Loans generally require that (i) prior to the release of a related
Mortgaged Property, a specified percentage (generally 125%) of the Allocated
Loan Amount for such Mortgaged Property be defeased and (ii) that the Debt
Service Coverage Ratio with respect to the remaining Mortgaged Properties
after the defeasance be no less than the greater of (x) the DSCR at
origination and (y) the DSCR immediately prior to such defeasance. The
Servicer will be responsible for purchasing the U.S. government obligations on
behalf of the borrower at the borrower's expense. Any amount in excess of the
amount necessary to purchase such U.S. government obligations will be returned
to the borrower. Simultaneously with such actions, the related Mortgaged
Property will be released from the lien of the Mortgage Loan and the pledged
U.S. government obligations (together with any Mortgaged Property not
released, in the case of a partial defeasance) will be substituted as the
collateral securing the Mortgage Loan.
In general, a successor borrower established or designated by the
Mortgage Loan Seller will assume all of the defeased obligations of a borrower
exercising a Defeasance Option under a Mortgage Loan and the borrower will be
relieved of all of the defeased obligations thereunder. If a Mortgage Loan is
partially defeased, the related Note will be split and only the defeased
portion of the borrower's obligations will be transferred to the successor
borrower.
The Depositor makes no representation as to the enforceability of the
defeasance provisions of any Mortgage Loan. See "Risk Factors and Other
Special Considerations--The Certificates--Special Prepayment and Yield
Considerations."
Escrows. All of the Mortgage Loans provide for monthly escrows to cover
property taxes and insurance premiums on the Mortgaged Properties (except in
cases where a full year of insurance premiums are escrowed). All of the
Mortgage Loans secured by leasehold interests also provide for escrows to make
ground lease payments. [ ] of the Mortgage Loans, which represent
approximately [ ]% of the Initial Pool Balance [(which includes all Mortgage
Loans other than Mobile Home Loans)] also require monthly escrows to cover
ongoing replacements and capital repairs. [ ] of the 35 Hotel Loans provide
for monthly escrows to fund seasonality reserves to cover periodic decreases
in revenues.] [ ] of the thirty-one Retail, Office and Industrial Loans
provide for monthly escrows to cover the costs of reletting retail space.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. The Mortgages
generally contain "due-on-sale" and "due-on-encumbrance" clauses that in each
case permit the holder of the Mortgage to accelerate the maturity of the
related Mortgage Loan if the borrower sells or otherwise transfers or
encumbers the related Mortgaged Property without the consent of the mortgagee.
The Special Servicer will determine, in a manner consistent with the Servicing
Standard, whether to exercise any right the mortgagee may have under any such
clause to accelerate payment of the related Mortgage Loan upon, or to withhold
its consent to, any transfer or further encumbrance of the related Mortgaged
Property. The Mortgages generally provide that the mortgagee may condition an
assumption of the loan on the receipt of an assumption fee, which is in some
cases equal to one percent of the then unpaid principal balance of the
applicable Note, in addition to the payment of all costs and expenses incurred
in connection with such assumption. Certain of the Mortgages provide that such
consent may not be unreasonably withheld provided that (i) no event of default
has occurred, (ii) the proposed transferee is creditworthy and has sufficient
experience in the ownership and management of properties similar to the
Mortgaged Property, (iii) the Rating Agencies have confirmed in writing that
such transfer will not result in a qualification, reduction or withdrawal of
any rating of the Certificates, (iv) the transferee has executed and delivered
an assumption agreement evidencing its agreement to abide by the terms of the
Mortgage Loan together with legal opinions and title insurance endorsements
and (v) the assumption fee has been received (which assumption fee will be
paid to the Special Servicer and will not be paid to the Certificateholders).
See "Certain Legal Aspects of Mortgage
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<PAGE>
Loans--Due-on-Sale and Due-on-Encumbrance" herein. The Depositor makes no
representation as to the enforceability of any due-on-sale or
due-on-encumbrance provision in any Mortgage Loan.
Mortgage Provisions Relating to Servicer's Right to Terminate Management
Agreements. Certain of the Mortgage Loans permit the Special Servicer to cause
the related borrowers to terminate the related management agreements upon the
occurrence of certain events. Generally, each Mortgage Loan where an affiliate
of the borrower manages the related Mortgaged Property or Properties provides
that if the Debt Service Coverage Ratio for such Mortgage Loan falls below a
certain level, the Special Servicer will have the right to cause the
termination of the related management agreement and replace the manager with a
manager acceptable to the Special Servicer. All of the Mortgage Loans
generally allow the Special Servicer to terminate the related management
agreements upon the occurrence of certain events of default under the related
loan agreements or mortgage documents. In addition, the Special Servicer is
generally permitted to cause the termination of a management agreement if the
manager breaches certain provisions of the management agreement which would
permit the termination of such agreement thereunder.
Cross-Collateralization and Cross-Default of Certain Mortgage Loans.
[19] of the Mortgage Loans (the "Pool Loans") with Cut-off Date Principal
Balances ranging from $[5.6] million to $[69.7] million and comprising [37]%
of the Mortgage Pool by Cut-off Date Principal Balance are secured by more
than one Mortgaged Property. [However, because certain states (including
Florida) require the payment of an indebtedness, mortgage recording or
documentary stamp tax based upon the principal amount of debt secured by a
mortgage, the Mortgaged Property identified as [ ] on Annex A secures only [
]% of the Allocated Loan Amount of such Mortgaged Property (rather than the
entire initial principal balance of the related Note).] See "Risk Factors and
Other Special Considerations--Limitations on Enforceability of Cross-
Collateralization" and "Loan Characteristics" on Annex A.
Hazard, Liability and Other Insurance. The Mortgage Loans generally
require that each Mortgaged Property be insured by a hazard insurance policy
in an amount equal to the greatest of (i) the full replacement cost of the
improvements and equipment without deduction for physical depreciation, (ii)
the outstanding principal balance of the Mortgage Loan (or, with respect to
certain Mortgage Loans, the full insurable value of the Mortgaged Property)
and (iii) such amount that the insurer would not deem the borrower a
co-insurer, or in an amount satisfying other similar standards and by a flood
insurance policy if any part of the Mortgaged Property is located in an area
identified by the Federal Emergency Management Agency as an area having
special flood hazards and for which flood insurance has been made available
under the National Flood Insurance Program in an amount at least equal to the
outstanding principal amount of the Mortgage Loan (or with respect to Mortgage
Loans, the full insurable value of the Mortgaged Property) or the maximum
limit of coverage available, whichever is less, or in an amount satisfying
other similar standards. With respect to Mortgaged Properties located in
earthquake risk areas, certain of the related Mortgaged Properties are insured
by earthquake insurance in amounts less than the outstanding principal balance
of such Mortgage Loans. With respect to Mortgaged Properties located in areas
having special hurricane hazards, certain of the related Mortgaged Properties
are insured by hurricane insurance in amounts less than the outstanding
principal balance of such Mortgage Loans. The hazard insurance policy is
required to cover loss or damage by fire and lightning or other risks and
hazards covered by a standard extended coverage insurance policy including,
but not limited to, riot and civil commotion, vandalism, malicious mischief,
burglary and theft. Mobile Home Properties located in earthquake risk areas or
areas having special hurricane hazards are not insured against earthquake or
hurricane damage.
The Mortgage Loans also generally require that the borrower obtain and
maintain during the entire term of the Mortgage Loan (i) comprehensive public
liability insurance, including broad form property damage, blanket contractual
and personal injuries coverages and containing minimum limits per occurrence
as specified in the related Mortgage, (ii) rent loss and/or business
interruption insurance in an amount equal to the greater of (x) estimated
annual (or a specified longer period) gross revenues from the operations of
the Mortgaged Property and (y) projected annual (or a specified longer period)
operating expense (including debt service) for the maintenance and operation
of the Mortgaged Property, or in an amount satisfying other similar standards,
(iii) except with respect to certain of the Mobile Home Loans, insurance
against loss or damage from leakage of sprinkler systems
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<PAGE>
and explosion of steam boilers, air conditioning equipment, high pressure
piping, machinery and equipment, and pressure vessels, (iv) if the Mortgaged
Property is a commercial property, worker's compensation insurance, (v) during
any period of repair or restoration, builders "all risk" insurance, and (vi)
such other insurance as may from time to time be reasonably required by the
mortgagee in order to protect its interests. In the case of certain of the
Mortgage Loans, hurricane and earthquake insurance was obtained in an amount
less than the principal balance of such Mortgage Loans.
ADDITIONAL MORTGAGE LOAN INFORMATION
GENERAL CHARACTERISTICS (AS OF CUT-OFF DATE, UNLESS OTHERWISE INDICATED)
Initial Pool Balance (1) ..................................... $
Number of Mortgage Loans
Number of Mortgaged Properties ...............................
Average Mortgage Loan Balance ................................ $
Weighted Average Months Since Loan Origination ............... %
Weighted Average Mortgage Rate ............................... [8.63]%
Range of Mortgage Rates ...................................... [7.58-10.1]
Weighted Average Remaining Term to Maturity
or Anticipated Repayment Date .............................. [143 Mos]
Range of Remaining Term to Maturity or
Anticipated Repayment Date ................................. [82-240]
Mos]Weighted Average Remaining Amortization Term (2) ......... [308 Mos]
Range of Remaining Amortization .............................. [180-360 Mos]
Weighted Average DSCR (3) .................................... [1.48]
Range of DCCR (3) ............................................ [1.23-2.05]
Weighted Average DSCR (3) at Earlier of Anticipated
Repayment Date or Maturity (4) %Weighted Average LTV ....... [65]%
Range of LTV ................................................. [36]%-[79]%
Weighted Average LTV at Earlier of
Anticipated Repayment Date or Maturity (5) ARD Loans (6) ... [90]%
Fully Amortizing Loans (other than ARD Loans) ................ [6]%
Balloon Loans ................................................ [4]%
Delinquency as of Cut-off Date ...............................
- --------------
(1) Subject to a permitted variance of plus or minus 5%.
(2) "Weighted Average Remaining Amortization Term" reflects the fact that
certain Mortgage Loans provide for Monthly Payments based on amortization
schedules at least 60 months longer than the remaining stated terms of
such Mortgage Loans. See "Description of the Mortgage Pool--Certain Terms
and Conditions of the Mortgage Loans--Amortization of Principal" herein.
(3) Debt Service Coverage Ratio ("DSCR") for any Mortgage Loan is equal
to the Net Cash Flow from the related Mortgaged Property divided by
the Annual Debt Service for such Mortgaged Property (as such terms
are defined under "Description of the Mortgage Pool--Additional
Mortgage Loan Information").
(4) "Weighted Average DSCR at Earlier of Anticipated Repayment Date or
Maturity" is calculated in the same manner as DSCR, except that (i)
Annual Debt Service, in the case of ARD Loans, is assumed to be the
annual debt service payable during the 12 months preceding the
Anticipated Repayment Date, and in the case of all other Mortgage
Loans is the annual debt service payable during the 12 months
preceding the maturity date and not including any principal not
attributable to a constant monthly payment and (ii) Net Cash Flow is
assumed to be the same as Net Cash Flow used for determining DSCR as
of the Cut-off Date. Such calculation thus assumes that Net Cash
Flow as of the Maturity Date or Anticipated Repayment Date, as
applicable, is the same as Net Cash Flow as of the Cut-off Date.
There can be no assurance that net Cash Flow will not have declined
from Cut-off Date levels.
(5) "Maturity Date/Anticipated Repayment Date LTV" for any Mortgage Loan
is calculated in the same manner as Cut-off Date LTV, except that
the Mortgage Loan Cut-off Date principal balance used to calculate
the Cut-off Date LTV has been adjusted to give effect to the
amortization of the applicable Mortgage Loan as of its maturity date
or, in the case of a Mortgage Loan that has an Anticipated
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Repayment Date, as of its Anticipated Repayment Date. Such
calculation thus assumes that the appraised value of the Mortgaged
Property or Properties securing a Mortgage Loan on the maturity date
or Anticipated Repayment Date, as applicable, is the same as the
Appraised Value as of the Cut-off Date. There can be no assurance
that the value of any particular Mortgaged Property will not have
declined from the Appraised Value.
(6) "ARD Loans" are Mortgage Loans that substantially fully amortize by
their respective maturity dates but provide for an Anticipated
Repayment Date on which a substantial amount of principal will be
due if the borrower elects to prepay the Mortgage Loan in full on
such date. Such Mortgage Loans provide for an increased interest
rate after the Anticipated Repayment Date and require the
application of all Excess Cash Flow to amortize principal after the
Anticipated Repayment Date. See "Description of the Mortgage
Pool--Certain Terms and Conditions of the Mortgage Loans" herein.
The following tables and Annex A set forth certain information with
respect to the Mortgage Loans and Mortgaged Properties. The statistics in the
following tables and Annex A were primarily derived from information provided
to the Depositor by Bloomfield or the Mortgage Loan Seller, which information
may have been obtained from the borrowers without independent verification
except as noted. For purposes of the tables and Annex A:
(1) "Net Cash Flow" as used herein with respect to a given Mortgage Loan
or Mortgaged Property means cash flow available for debt service, as
determined by the Mortgage Loan Seller based upon borrower supplied
information for a recent period that is generally the twelve months prior to
the origination of such Mortgage Loan, adjusted for stabilization and, in the
case of certain Mortgage Loans, may have been updated to reflect a more recent
operating period. Net Cash Flow does not reflect debt service, non-cash items
such as depreciation or amortization, and does not reflect actual capital
expenditures and may have been adjusted by, among other things, (i) assuming
the occupancy rate for the Mortgaged Property was less than the actual
occupancy rate, (ii) subtracting from net operating income replacement or
capital expenditure reserves, (iii) assuming that a 4% to 5% management fee
and a 4% to 8% franchise fee (for Hotel Properties only) was payable with
respect to the Mortgaged Property, (iv) in certain cases, assuming that
operating and/or capital expenses with respect to the Mortgaged Property were
greater than actual expenses, (v) in the case of the Retail Properties,
excluding certain percentage rent, (vi) in the case of the Retail Properties
and Office Properties, subtracting from net operating income an assumed
allowance for tenant improvements and leasing commissions, (vii) in the case
of the Multifamily Properties and Mobile Home Properties, rental revenue shown
on a recent rent roll was annualized before applying a vacancy factor without
further regard to the terms (including expiration dates) of the leases shown
thereon, (viii) excluding certain non-recurring income and/or expenses, (ix)
in the case of certain Office Properties, Industrial Properties and Retail
Properties, determining current revenues from leases in place, (x) in the case
of certain of the Hotel Properties, assuming the occupancy rate was less than
the actual occupancy rate to account for a high occupancy rate or to reflect
new construction in the market and (xi) to take into account new tax
assessments and utility savings from the installation of new energy efficient
equipment.
"Net Cash Flow" reflects the calculations and adjustments used by the
Mortgage Loan Seller for its underwriting process and may or may not reflect
the amounts calculated and adjusted by the Rating Agencies for their own
analysis. In addition, "Net Cash Flow" and the Debt Service Coverage Ratios
derived therefrom are not a substitute for cash flow as determined in
accordance with generally accepted accounting principles as a measure of the
results of the property's operations or a substitute for cash flows from
operating activities determined in accordance with generally accepted
accounting principles as a measure of liquidity.
Reletting costs and capital expenditures are crucial to the operation of
commercial and multifamily properties. Each investor should make its own
assessment of the level of reletting costs and capital expenditures of the
Mortgaged Properties, and the consequent effect of such costs and expenditures
on the actual net operating income, Net Cash Flow and debt service coverage
ratios of the Mortgage Loans.
No representation is made as to the future net cash flow of the
properties, nor is "Net Cash Flow" set forth herein intended to represent such
future net cash flow.
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<PAGE>
(2) ["1993 NOI,"] "1994 NOI", "1995 NOI" and "1996 NOI" (which is for the
period ending as of the date specified in Annex A) is the net operating income
for a Mortgaged Property as established by information provided by the
borrowers, except that in certain cases such net operating income has been
adjusted by removing certain non-recurring expenses and revenue or by certain
other normalizations. [1993 NOI,] 1994 NOI, 1995 NOI and 1996 NOI do not
necessarily reflect accrual of certain costs such as taxes and capital
expenditures and do not reflect non-cash items such as depreciation or
amortization. In some cases, capital expenditures may have been treated by a
borrower as an expense or expenses treated as capital expenditures. The
Depositor has not made any attempt to verify the accuracy of any information
provided by each borrower or to reflect changes in net operating income that
may have occurred since the date of the information provided by each borrower
for the related Mortgaged Property. [1993 NOI,] 1994 NOI, 1995 NOI and 1996
NOI were not necessarily determined in accordance with generally accepted
accounting principles. Moreover, [1993 NOI,] 1994 NOI, 1995 NOI and 1996 NOI
are not a substitute for net income determined in accordance with generally
accepted accounting principles as a measure of the results of a property's
operations or a substitute for cash flows from operating activities determined
in accordance with generally accepted accounting principles as a measure of
liquidity and in certain cases may reflect partial-year annualizations.
For purposes of determining 1996 NOI as set forth on Annex A:
"YE" means for the twelve-month period ended December 31, 1996;
"YTD" means for the period commencing on January 1, 1996 and ending on
date indicated;
"Ann." means an annualized NOI which reflects the number of months
in the period that was annualized, generally beginning on January 1,
1996;
"T-11" means NOI calculated for the trailing eleven months ending on
the date indicated; and
"TTM" means NOI calculated for the trailing twelve months ending on
the date indicated.
(2) "Allocated Loan Amount" " means, for each Mortgaged Property, the
portion of the principal amount of the related Mortgage Loan allocated to such
Mortgaged Property for certain purposes (including, without limitation,
determining the release prices of properties, if the Mortgage Loan permits
such releases) under such Mortgage Loan. The Allocated Loan Amount for each
Mortgaged Property securing a Mortgage Loan was determined generally based on
the ratio of the Net Cash Flow or net operating income (calculated as provided
in the related Mortgage Loan) or appraised value, or some combination thereof,
of such Mortgaged Property to the aggregate Net Cash Flow or appraised value,
or some combination thereof, of all the Mortgaged Properties securing such
Mortgage Loan. The Allocated Loan Amount for each Mortgaged Property may be
adjusted upon the payment of principal of the related Mortgage Loan, whether
upon amortization, prepayment, or otherwise. "Cut-off Date Allocated Loan
Amount" means for each Mortgaged Property the Allocated Loan Amount of such
property as of the Cut-off Date.
(3) "Original Principal Loan Balance" means the principal balance of the
Mortgage Loan as of the date of origination.
(4) "Cut-off Date Principal Balance/Unit" means the principal balance per
unit of measure as of the Cut-off Date.
(5) "Annual Debt Service" means for any Mortgage Loan the current annual
debt service payable during the twelve month period commencing on [ ], 1996 on
the related Mortgage Loan.
(6) "DSCR" or "Debt Service Coverage Ratio" means, with respect to any
Mortgage Loan, (a) the Net Cash Flow for the related Mortgaged Property,
divided by (b) the Annual Debt Service for such Mortgaged
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<PAGE>
Property. The calculation of "DSCR" may differ from the calculation of the
debt service coverage ratios referred to under "--The Mortgage Loan
Program--Underwriting Standards; Representations."
(7) "Stated Maturity Date" means the maturity date of the Mortgage Loan
as stated in the related Note or Loan Agreement.
(8) "Anticipated Repayment Date" means for ARD Loans, the date on which
interest begins accruing at the Revised Rate and excess cash flow is retained
pursuant to the related Lock-box Agreements to application to payment of
principal and Excess Interest.
(9) "Anticipated Remaining Term" means the term of the Mortgage Loan from
the Cut-off Date to the earlier of the Anticipated Repayment Date, if
applicable, and the stated maturity date.
(10) "Remaining Lock-out" means the period of the term of the related
Mortgage Loan from the Cut-off Date during which the Mortgage Loan may not be
prepaid.
(11) "Value" means for each of the Mortgaged Properties, the appraised
value of such property as determined by an appraisal thereof and in accordance
with MAI standards made not more than 18 months prior to the origination date
of the related Mortgage Loan.
(12) "Loan-to-Value Ratio" or "LTV" means, with respect to any Mortgage
Loan, the principal balance of such Mortgage Loan as of the Cut-off Date
divided by the Appraised Value of the Mortgaged Property or Properties
securing such Mortgage Loan.
(13) "Maturity Date/Anticipated Repayment Date LTV" for any Mortgage Loan
is calculated in the same manner as Cut-off Date LTV, except that the Mortgage
Loan Cut-off Date principal balance used to calculate the Cut-off Date LTV has
been adjusted to give effect to the amortization of the applicable Mortgage
Loan as of its maturity date or, in the case of a Mortgage Loan that has an
Anticipated Repayment Date, as of its Anticipated Repayment Date. Such
calculation thus assumes that the appraised value of the Mortgaged Property or
Properties securing a Mortgage Loan on the maturity date or Anticipated
Repayment Date, as applicable, is the same as the Appraised Value as of the
Cut-off Date. There can be no assurance that the value of any particular
Mortgaged Property will not have declined from the Appraised Value.
(14) "Amortization""" means the number of months, based on the constant
Monthly Payment as stated in the related Note or Loan Agreement, that would be
necessary to reduce the principal balance of the related Note to zero if
interest on such Note was calculated based on twelve 30-day months and a
360-day year.
(15) "Year Built/Renovated" means the year in which the respective
Mortgaged Property was built and/or renovated.
(16) "Unit" and "Unit of Measure" mean the number of units in the
respective Mortgaged Property.
(17) "Occupancy" means the percentage of gross leaseable area, rooms,
units, beds or sites of the property that are leased. Occupancy rates are
calculated within a recent period and in certain cases reflect the average
occupancy rate over a period of time.
(18) "Anchor" means, with respect to the Retail Properties, the largest
and second largest anchors, if any.
(19) "Major Tenants" mean the largest tenants for office, industrial and
unanchored retail properties.
(20) "Franchise" means the regional or national franchise affiliation of
a Hotel Property.
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<PAGE>
(21) "Audit/Agreed Upon Procedures/Review" indicates Mortgaged Properties
for which independent accountants performed audits, reviews or specified
procedures upon financial information provided by the borrower at the request
of the Mortgage Loan Seller or the borrower. The cash flow and NOI information
presented in Annex A may not correspond to the comparable information included
in the accountants' reports because of adjustments made by the Mortgage Loan
Seller as part of its underwriting procedures.
(22) "Identified Deferred Maintenance" is the estimated amount of
deferred maintenance in the respective Mortgaged Property's structural
engineering report.
(23) "Reserve for Deferred Maintenance" is the actual dollars escrowed at
the loan origination for deferred maintenance repairs.
(24) "Actual On-going Capital Reserves" means the annual reserves, as
indicated, per unit of measure or as a percentage of gross revenue and
escrowed on a monthly basis.
(25) "GLA" means the square footage of the gross leaseable area.
Due to rounding, percentages may not add to 100% and amounts may not
add to indicated total or subtotal.
Mortgaged Properties secured, or partially secured, by a leasehold estate
are indicated on Annex A under the heading "Property Name" with an asterisk.
Mortgage Loans accruing interest on the basis of the actual number of days
elapsed and a 360-day year are indicated on Annex A under the heading
"Mortgage Rate" with an asterisk. The borrowers under the Mortgage Loans
having a capital letter under the column "Asset #" on Annex A are related to
borrowers under the Mortgage Loans with the same letter designation, but such
Mortgage Loans are not cross-collateralized with each other.
The tables below set forth certain summary information regarding the
Mortgage Loans. See Annex A hereto for certain characteristics of Mortgage
Loans on a loan-by-loan basis. All percentages of Initial Pool Balances used
herein and in Annex A are based upon the Cut-off Date Principal Balance of the
related Mortgage Loan or, with respect to Mortgage Loans secured by more than
one Mortgaged Property (each, a "Pool Loan"), are based upon the Allocated
Loan Amount of the related Mortgaged Property. All weighted average
information regarding the Mortgage Loans reflects weighting of the Mortgage
Loans by their Cut-off Date Principal Balances or, with respect to Pool Loans,
Allocated Loan Amounts. The "Cut-off Date Principal Balance" of each Mortgage
Loan is equal to the unpaid principal balance thereof as of the Cut-off Date,
after application of all payments of principal due on or before such date,
whether or not received. All numerical information provided herein and in
Annex A with respect to the Mortgage Loans is provided on an approximate
basis. Certain statistical information set forth herein may change prior to
the date of issuance of the Certificates due to changes in the composition of
the Mortgage Pool prior to the Closing Date. [No Mortgage Loan represents more
than 5% of the entire pool of Mortgage Loans.] See "--Changes in Mortgage Pool
Characteristics" herein.
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<PAGE>
RANGE OF DEBT SERVICE COVERAGE RATIOS
<TABLE>
<CAPTION>
PERCENT BY
CUT-OFF NUMBER AGGREGATE WEIGHTED WEIGHTED
DATE DEBT OF CUT-OFF WEIGHTED AVERAGE AVERAGE
SERVICE LOANS/ CUT-OFF DATE DATE AVERAGE REMAINING REMAINING WEIGHTED WEIGHTED
COVERAGE NUMBER OF LOAN PRINCIPAL PRINCIPAL MORTGAGE TERM AMORT. AVERAGE AVERAGE
RATIO PROPERTIES POOLS BALANCE BALANCE RATE (MONTHS) TERM DSCR LTV
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.2-1.299 6.1% % %
1.3-1.399 28.8
1.4-1.499 29.0
1.5-1.599 15.6
1.6-1.699 5.3
1.7-1.799 4.7
1.8-1.899 6.0
1.9-1.999 3.5
2.0-2.099 1.0
Total... $ 100.00% % %
</TABLE>
RANGE OF LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
PERCENT BY
NUMBER AGGREGATE WEIGHTED
OF CUT-OFF WEIGHTED WEIGHTED AVERAGE
LOANS/ CUT-OFF DATE DATE AVERAGE AVERAGE REMAINING WEIGHTED WEIGHTED
LOAN TO NUMBER OF LOAN PRINCIPAL PRINCIPAL MORTGAGE REMAINING AMORT. MINIMUM MAXIMUM AVERAGE AVERAGE
VALUE RATIO PROPERTIES POOLS BALANCE BALANCE RATE TERM TERM DSCR DSCR DSCR LTV
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
49.9% 3.9%
50%-54.9% 8.5
55%-59.9% 10.1
60%-64.9% 24.6
65%-69.9% 18.4
70%-74.9% 29.6
75%-79.9% 4.7
Total.. $ % %
</TABLE>
69
<PAGE>
RANGE OF MATURITY DATE/ ANTICIPATED REPAYMENT DATE LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
PERCENT BY
NUMBER AGGREGATE WEIGHTED
LOAN TO OF CUT-OFF WEIGHTED WEIGHTED AVERAGE WEIGHTED WEIGHTED
VALUE RATIO LOANS/ CUT-OFF DATE DATE AVERAGE AVERAGE REMAINING AVERAGE AVERAGE
AT ARD OR NUMBER OF LOAN PRINCIPAL PRINCIPAL MORTGAGE REMAINING AMORT. MINIMUM MAXIMUM CUT-OFF CUT-OFF
MATURITY PROPERTIES POOLS BALANCE BALANCE RATE TERM TERM DSCR DSCR DATE DSCR DATE LTV
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0%-9.9%.. $ % % %
10%-19.9%..
20%-29.9%..
30%-39.9%..
40%-49.9%..
50%-59.9%..
60%-69.9%..
Total.. $ 100% % %
</TABLE>
MORTGAGED PROPERTIES BY STATE
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE PERCENT BY
CUT-OFF AGGREGATE
CUT-OFF DATE DATE SUM OF WEIGHTED WEIGHTED
NUMBER OF PRINCIPAL PRINCIPAL SUM OF APPRAISED AVERAGE AVERAGE
STATE PROPERTIES BALANCE BALANCE APPRAISED VALUE VALUE LTV DSCR
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[ ]...................... $ % $ %
Total.................... $ 100% $ 100%
</TABLE>
70
<PAGE>
DISTRIBUTION OF MORTGAGED PROPERTIES IN TOP FIVE METROPOLITAN AREAS
<TABLE>
<CAPTION>
PERCENTAGE
OF WEIGHTED
AGGREGATE MINIMUM MAXIMUM AVERAGE AVERAGE
NUMBER OF SCHEDULED SCHEDULED SCHEDULED SCHEDULED SCHEDULED WEIGHTED MORTGAGE
MORTGAGE PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL MINIMUM MAXIMUM AVERAGE INTEREST
LOANS BALANCE BALANCE BALANCE BALANCE BALANCE DSCR DSCR DSCR RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ % %
Total...... $ 100% %
</TABLE>
RANGE OF YEAR BUILT
<TABLE>
<CAPTION>
PERCENT BY WEIGHTED PERCENT BY
AGGREGATE WEIGHTED AVERAGE AGGREGATE
CUT-OFF DATE CUT-OFF AVERAGE REMAINING SUM OF SUM OF WEIGHTED WEIGHTED
RANGE OF NUMBER OF PRINCIPAL PRINCIPAL REMAINING AMORT. APPRAISED APPRAISED AVERAGE AVERAGE
YEAR BUILT PROPERTIES BALANCE BALANCE TERM TERM VALUE VALUE LTV DSCR
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1919-1928............ $ % $ %
1939-1948............
1949-1958............
1959-1968............
1969-1978............
1979-1988............
1989-1996............
Total.............. $ 100% $ 100%
</TABLE>
71
<PAGE>
CUT-OFF DATE LOAN AMOUNT BY PROPERTY TYPE
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENT BY WTD.
AGGREGATE WTD. WTD. AVG.
CUT-OFF CUT-OFF AVG. AVG. REMAIN-
DATE DATE MORT- REMAIN- ING
NUMBER OF PRINCIPAL PRINCIPAL GAGE ING AMORT. MIN. MAX.
PROPERTY TYPE PROPERTIES BALANCE BALANCE RATE TERM TERM DSCR DSCR
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Anchored Retail $ % %
Unanchored Retail
Hotel-Full Service
Hotel-Limited Service
Office..................
Multifamily.............
Nursing.................
Industrial..............
Factory Outlet
Mobile Home Park
Assisted Living
Total................. $ 100% %
</TABLE>
[Restubbed from above]
<TABLE>
<CAPTION>
WTD.
AVG. WTD. WTD.
BAL WTD. AVG. AVG.
LOON/ WTD. AVG. LOAN YEAR
WTD. WTD. REPAY AVG. # PER BUILT/
AVG. AVG. MENT OCCU- UNITS/ UNIT/ RENO-
DSCR LTV LTV PANCY SF SF VATED
<S> <C> <C> <C> <C> <C> <C> <C>
Anchored Retail % %
Unanchored Retail
Hotel-Full Service
Hotel-Limited Service
Office..................
Multifamily.............
Nursing.................
Industrial..............
Factory Outlet
Mobile Home Park
Assisted Living
Total................. % %
</TABLE>
72
<PAGE>
RANGE OF LOAN AMOUNTS OR LOAN BALANCES
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE WEIGHTED
NUMBER CUT-OFF CUT-OFF WEIGHTED WEIGHTED AVERAGE
OF LOANS/ DATE DATE AVERAGE AVERAGE REMAINING WEIGHTED WEIGHTED
RANGE OF CUT-OFF LOAN PRINCIPAL PRINCIPAL MORTGAGE REMAINING AMORT. AVERAGE AVERAGE
DATE LOAN AMOUNTS POOLS BALANCE BALANCE RATE TERM TERM DSCR LTV
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-4,999,999...... $ % % %
5,000,000-9,999,999......
10,000,000-14,999,999......
15,000,000-19,999,999......
20,000,000-24,999,999......
25,000,000-29,999,999......
50,000,000-54,999,999......
65,000,000-69,999,999......
70,000,000-74,999,999......
Total...................... $ 100% % %
</TABLE>
RANGE OF ANTICIPATED REMAINING TERM IN MONTHS
<TABLE>
<CAPTION>
NUMBER PERCENT BY WEIGHTED
OF CUT-OFF AGGREGATE WTD. AVG. AVERAGE WEIGHTED
RANGE OF LOANS/ DATE CUT-OFF TERM TO REMAINING AVERAGE WEIGHTED WEIGHTED
ANTICIPATED LOAN PRINCIPAL PRINCIPAL ANT. REPAY/ AMORT. MORTGAGE AVERAGE AVERAGE
REMAINING TERM POOLS BALANCE BALANCE MATURITY TERM RATE DSCR LTV
<S> <C> <C> <C> <C> <C> <C> <C> <C>
72-83................. $ % % %
84-95.................
108-119...............
120-131...............
132-143...............
144-155...............
168-179...............
180-191...............
192-203...............
228-239...............
288-300...............
Total............... $ 100% % %
</TABLE>
73
<PAGE>
RANGE OF REMAINING TERM IN MONTHS
<TABLE>
<CAPTION>
NUMBER PERCENT BY WEIGHTED
OF CUT-OFF AGGREGATE WEIGHTED AVERAGE WEIGHTED
LOANS/ DATE CUT-OFF AVERAGE REMAINING AVERAGE WEIGHTED WEIGHTED
RANGE OF LOAN PRINCIPAL PRINCIPAL REMAINING AMORT. MORTGAGE AVERAGE AVERAGE
REMAINING TERM POOLS BALANCE BALANCE TERM TERM RATE DSCR LTV
<S> <C> <C> <C> <C> <C> <C> <C> <C>
72-83................. $ % % %
108-119...............
168-179...............
192-203...............
228-239...............
252-263...............
264-275...............
288-299...............
300-311...............
324-335...............
348-359...............
Total............... $ 100% % %
</TABLE>
ANTICIPATED REPAYMENT BY YEAR
<TABLE>
<CAPTION>
PERCENT BY
NUMBER AGGREGATE WEIGHTED
OF CUT-OFF CUT-OFF WEIGHTED AVERAGE
LOANS/ DATE DATE AVERAGE REMAINING WEIGHTED WEIGHTED
NUMBER OF LOAN PRINCIPAL PRINCIPAL MORTGAGE AMORT. AVERAGE AVERAGE
YEAR PROPERTIES POOLS BALANCE BALANCE RATE TERM DSCR LTV
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2003.................. $ % % %
2005..................
2006..................
2008..................
2009..................
2010..................
2011..................
2013..................
2015..................
2016..................
2021..................
Total............... $ 100% % %
</TABLE>
74
<PAGE>
DELINQUENCY STATUS AS OF ________ 1, 1997
<TABLE>
<CAPTION>
NUMBER OF
% OF INITIAL MORTGAGE
STATUS POOL BALANCE LOANS
<S> <C> <C>
No Delinquencies........................... %
</TABLE>
RANGE OF MORTGAGE RATES
<TABLE>
<CAPTION>
PERCENT BY
NUMBER AGGREGATE
OF CUT-OFF CUT-OFF WEIGHTED
LOANS/ DATE DATE AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER OF LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
MORTGAGE RATES PROPERTIES POOLS BALANCE BALANCE RATE DSCR LTV
<S> <C> <C> <C> <C> <C> <C> <C>
7.50%-7.999%.......... $ % % %
8.00%-8.4999%
8.50%-8.999%..........
9.00%-9.499%..........
9.50%-9.999%..........
10.00%-10.499%
10.50%-10.999%
Total............... $ 100% % %
</TABLE>
MORTGAGED PROPERTIES BY ORIGINATOR
<TABLE>
<CAPTION>
PERCENT BY
NUMBER AGGREGATE
OF CUT-OFF CUT-OFF WEIGHTED
LOANS/ DATE DATE AVERAGE WEIGHTED WEIGHTED
NUMBER OF LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
ORIGINATOR PROPERTIES POOLS BALANCE BALANCE RATE DSCR LTV
<S> <C> <C> <C> <C> <C> <C> <C>
Nomura Asset Capital
Corporation...........
$ % % %
Bloomfield
Acceptance
Company, LLC
Total.............. $ 100% % %
</TABLE>
75
<PAGE>
RANGE OF REMAINING LOCK-OUT PERIOD IN MONTHS
<TABLE>
<CAPTION>
PERCENT
NUMBER BY AGGRE
NUMBER OF CUT-OFF GATE CUT- WEIGHTED WEIGHTED
LOCK-OUT OF LOANS/ DATE OFF DATE AVERAGE WEIGHTED WEIGHTED AVERAGE
PERIOD IN PROPER- LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE REMAINING
MONTHS TIES POOLS BALANCE BALANCE RATE DSCR LTV LOCKOUT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
72-83........ $ % % %
108-119......
132-143......
144-155......
168-179......
192-203......
216-227......
228-239......
288-299......
Total...... $ 100% % %
</TABLE>
76
<PAGE>
CHANGES IN MORTGAGE POOL CHARACTERISTICS
The description in this Prospectus of the Mortgage Pool and the Mortgaged
Properties is based upon the Mortgage Pool as expected to be constituted at
the close of business on the Cut-off Date, as adjusted for the scheduled
principal payments due on the Mortgage Loans on or before the Cut-off Date.
Prior to the issuance of the Subordinated Certificates, a Mortgage Loan may be
removed from the Mortgage Pool if the Depositor deems such removal necessary
or appropriate or if it is prepaid. This may cause the range of Mortgage Rates
and maturities as well as the other characteristics of the Mortgage Loans to
vary from those described herein.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Subordinated Certificates and will be filed by the
Depositor, together with the Pooling and Servicing Agreement with the
Securities and Exchange Commission within fifteen days after the initial
issuance of the Subordinated Certificates. In the event Mortgage Loans are
removed from the Mortgage Pool as set forth in the preceding paragraph, such
removal will be noted in the Form 8-K.
DESCRIPTION OF THE SUBORDINATED UNITS
Each Subordinated Unit consists of $[ ] (approximate) Class B-1
Certificates, $[ ] (approximate) Class B-2 Certificates, $[ ] (approximate)
Class B-3 Certificates, $[ ] (approximate) Class B-4 Certificates, $[ ]
(approximate) Class B-5 Certificates, and $[ ] (approximate) Class B-6
Certificates. No Class of Subordinated Certificates will be separately
tradable unless and until a Class of Subordinated Certificates is rated
investment grade by either ________________ or _____________, and only such
investment grade Class shall be separately tradable. See "Description of the
Subordinated Certificates" for further information concerning the Subordinated
Certificates. All references herein to the Subordinated Units are deemed to
include the Class B-1 Certificates, Class B-2 Certificates, Class B-3
Certificates, Class B-4 Certificates, Class B-5 Certificates, and the Class
B-6 Certificates which comprise the Subordinated Units.
DESCRIPTION OF THE SUBORDINATED CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will consist of twenty-two Classes to be designated as the Class
A-1A Certificates, the Class A-1B Certificates, the Class A-1C Certificates,
the Class A-1D Certificates, the Class A-CS1 Certificates, the Class A-CS2
Certificates, the Class A-2 Certificates, the Class A-3 Certificates, the
Class A-4 Certificates, the Class A-5 Certificates, the Class B-1
Certificates, the Class B-2 Certificates, the Class B-3 Certificates, the
Class B-4 Certificates, the Class B-5 Certificates, the Class B-6
Certificates, the Class B-7 Certificates, the Class B-7H Certificates, the
Class V-1 Certificates, the Class V-2 Certificates, the Class R Certificates
and the Class LR Certificates. Only the Subordinated Certificates are offered
hereby in the form of Subordinated Units. The Senior Certificates are being
offered concurrently with the Subordinated Certificates under a separate
prospectus and are not offered hereby. The Junior Subordinated Certificates,
Class V-1, Class V-2, Class R and Class LR Certificates are not offered
hereby. The Class A-CS1 and Class A-CS2 Certificates are sometimes referred to
herein as the "Coupon Strip Certificates."
The Certificates represent in the aggregate the entire beneficial
ownership interest in a Trust Fund consisting of: (i) the Mortgage Loans and
all payments under and proceeds of the Mortgage Loans due after the Cut-off
Date; (ii) any Mortgaged Property acquired by the Special Servicer on behalf
of the Trust Fund through foreclosure or deed in lieu of foreclosure (upon
acquisition, an "REO Property") such funds or assets as from time to time are
deposited in the Collection Account, the Distribution Account, the Upper-Tier
Distribution Account, the Interest Reserve Account, the Excess Interest
Distribution Account, the Default Interest Distribution Account and any
account established in connection with REO Properties (an "REO Account"); (iv)
the rights of the mortgagee under all insurance policies with respect to the
Mortgage Loans; (v) the Depositor's rights and
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<PAGE>
remedies under the Mortgage Loan Purchase and Sale Agreement and Bloomfield
Purchase Agreement; and (vi) all of the mortgagee's right, title and interest
in the Reserve Accounts, the Cash Collateral Accounts and Lock Box Accounts.
The Class B-1 Certificates will have an initial Certificate Balance of
$[]. The Class B-2 Certificates will have an initial Certificate Balance of
$[]. The Class B-3 Certificates will have an initial Certificate Balance of
$[]. The Class B-4 Certificates will have an initial Certificate Balance of
$[]. The Class B-5 Certificates will have an initial Certificate Balance of
$[]. The Class B-6 Certificates will have an initial Certificate Balance of
$[].
The Class A-1A, Class A-1B, Class A-1C, Class A-1D, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificates will have initial Certificate Balances of
$[ ], $[ ], $[ ], $[ ], $[ ], $[ ], $[ ] and $[ ], respectively. The Class B-7
and Class B-7H Certificates will have initial Certificate Balances, in the
aggregate, of approximately $[ ]. The Class A-CS1 Certificates will have an
initial Notional Balance equal to the initial Component Balance of the Class
A-1A Component, which is equal to the Certificate Balance of the Class A-1A
Certificates. The Class A-CS2 Certificates are comprised of thirteen
components: the Class A-1B Component, the Class A-1C Component, the Class A-1D
Component, the Class A-2 Component, the Class A-3 Component, the Class A-4
Component, the Class A-5 Component, the Class B-1 Component, the Class B-2
Component, the Class B-3 Component, the Class B-4 Component, the Class B-5
Component and the Class B-6 Component, and will have an initial Notional
Balance equal to $[ ], the sum of the initial Component Balances of the Class
A-1B, Class A-1C, Class A-1D, Class A-2, Class A-3, Class A-4, Class A-5,
Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6
Components. Each of the Class A-1A Component, Class A-1B Component, Class A-1C
Component, Class A-1D Component, Class A-2 Component, Class A-3 Component,
Class A-4 Component, Class A-5 Component, Class B-1 Component, Class B-2
Component, Class B-3 Component, Class B-4 Component, Class B-5 Component and
Class B-6 Component is sometimes referred to herein as a "component".
The initial Certificate Balance of each of the Class R, Class LR, Class
V-1 and Class V-2 Certificates will be zero. Additionally, the Class R, Class
LR, Class V-1 and Class V-2 Certificates will not have a Notional Balance.
The Certificate Balance of any Class of Certificates outstanding at any
time represents the maximum amount which the holders thereof are entitled to
receive as distributions allocable to principal from the cash flow on the
Mortgage Loans and the other assets in the Trust Fund; provided, however, that
in the event that amounts previously allocated to a Class of Certificates in
reduction of the Certificate Balance thereof are recovered subsequent to the
reduction of the Certificate Balance of such Class to zero, such Class may
receive distributions in respect of such recoveries in accordance with the
priorities set forth under "--Distributions--Priorities" herein.
The respective Certificate Balance of each Class of Certificates (other
than the Coupon Strip Certificates, the Class V-1, Class V-2, Class R and
Class LR Certificates) will in each case be reduced by amounts actually
distributed thereon that are allocable to principal and by any Realized Losses
allocated to such Class of Certificates. The Notional Balance of the Class
A-CS1 Certificates will at all times equal the Component Balance of the Class
A-1A Component. The Notional Balance of the Class A-CS2 Certificates will at
all times equal the sum of the Component Balances of the Class A-1B Component,
the Class A-1C Component, the Class A-1D Component, the Class A-2 Component,
the Class A-3 Component, the Class A-4 Component, the Class A-5 Component, the
Class B-1 Component, the Class B-2 Component, the Class B-3 Component, the
Class B-4 Component, the Class B-5 Component and the Class B-6 Component. The
Component Balances of the Class A-1A Component, Class A-1B Component and Class
A-1C Component will at all times equal the Certificate Balances of the Class
A-1A, Class A-1B and Class A-1C Certificates, respectively. The Component
Balances of the Class A-1D Component, the Class A-2 Component, the Class A-3
Component, the Class A-4 Component, the Class A-5 Component, the Class B-1
Component, the Class B-2 Component, the Class B-3 Component, the Class B-4
Component, the Class B-5 Component and the Class B-6 Component will generally
equal the Certificate
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Balances of the Class A-1D, Class A-2, Class A-3, Class
A-4, Class A-5, Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and
Class B-6 Certificates, respectively.
SUBORDINATION
As a means of providing a certain amount of protection to the holders of
the Senior Certificates against losses associated with delinquent and
defaulted Mortgage Loans, the rights of the holders of the Subordinated
Certificates and the Junior Subordinated Certificates to receive distributions
of interest and principal with respect to the Mortgage Loans, as applicable,
will be subordinated to the corresponding rights of the holders of the Senior
Certificates. The rights of the holders of the Class B-1 Certificates to
receive distributions of interest and principal will be subordinate to those
of the Senior Certificates; the rights of the holders of the Class B-2
Certificates to receive distributions of interest and principal will be
subordinate to those of the Senior Certificates and Class B-1 Certificates;
the rights of the holders of the Class B-3 Certificates to receive
distributions of interest and principal will be subordinate to those of the
Senior Certificates, Class B-1 and Class B-2 Certificates; the rights of the
holders of the Class B-4 Certificates to receive distributions of interest and
principal will be subordinate to those of the Senior Certificates, Class B-1,
Class B-2 and Class B-3 Certificates; the rights of the holders of the Class
B-5 Certificates to receive distributions of interest and principal will be
subordinate to those of the Senior Certificates, Class B-1, Class B-2, Class
B-3 and Class B-4 Certificates; and the rights of the holders of the Class B-6
Certificates to receive distributions of interest and principal will be
subordinate to those of the Senior Certificates, Class B-1, Class B-2, Class
B-3, Class B-4, and Class B-5 Certificates. The rights of the Junior
Subordinated Certificates to receive distributions of interest and principal
will be subordinate to those of the Senior Certificates and the Subordinated
Certificates. This subordination will be effected in two ways: (i) by the
preferential right of the holders of a Class of Certificates to receive on any
Distribution Date the amounts of interest and principal, distributable in
respect of such Certificates on such date prior to any distribution being made
on such Distribution Date in respect of any Classes of Certificates
subordinate thereto, as described below under "--Distributions," and (ii) by
the allocation of Realized Losses, first, to the Junior Subordinated
Certificates, second, to the Class B-6 Certificates, third, to the Class B-5
Certificates, fourth, to the Class B-4 Certificates, fifth, to the Class B-3
Certificates, sixth, to the Class B-2 Certificates, seventh, to the Class B-1
Certificates, and finally, to the Senior Certificates in accordance with the
terms of the Pooling and Servicing Agreement, as described below under
"--Realized Losses." No other form of credit enhancement will be available for
the benefit of the holders of the Subordinated Certificates. BECAUSE OF THE
SUBORDINATION OF THE SUBORDINATED CERTIFICATES, THE YIELD OF THE SUBORDINATED
CERTIFICATES WILL BE EXTREMELY SENSITIVE AND THE TIMING AND MAGNITUDE OF
UNADVANCED DELINQUENCIES AND LOSSES ON THE MORTGAGE LOANS DUE TO LIQUIDATIONS.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be made
on the 13th day of each month or, if such 13th day is not a business day, then
on the next succeeding business day, commencing in [ ] 1997 (each, a
"Distribution Date"); provided, however, that in any month, the Distribution
Date will be no earlier than the second business day following the 11th day of
each month; provided, further, that if the 11th day of a month is not a
business day, then the Distribution Date shall be the third business day
following such 11th day. All distributions (other than the final distribution
on any Certificate) will be made by the Trustee to the persons in whose names
the Certificates are registered at the close of business on the 10th day of
the month in which the related Distribution Date occurs, or if such day is not
a business day, the preceding business day (the "Record Date"); the Record
Date for the Distribution Date occurring in [________] 1997 for all purposes
other than the receipt of distributions is the Closing Date. Such
distributions will be made (a) by wire transfer in immediately available funds
to the account specified by the Certificateholder at a bank or other entity
having appropriate facilities therefor, if such Certificateholder provides the
Trustee with wiring instructions no less than five business days prior to the
related Record Date and is the registered owner of Certificates the aggregate
Certificate Balance of which is at least $5,000,000, or otherwise (b) by check
mailed to such Certificateholder. The final distribution on any
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Subordinated Certificates will be made in like manner, but only upon
presentment or surrender (for notation that the Certificate Balance thereof
has been reduced to zero) of such Certificate at the location specified in the
notice to the holder thereof of such final distribution. All distributions
made with respect to a Class of Certificates on each Distribution Date will be
allocated pro rata among the outstanding Certificates of such Class based on
their respective Percentage Interests. The "Percentage Interest" evidenced by
any Subordinated Certificate is equal to the initial denomination thereof as
of the Closing Date divided by the initial Certificate Balance or Notional
Balance, as applicable, of the related Class.
The aggregate distribution to be made with respect to the
Certificates on any Distribution Date will equal the Available Funds. The
"Available Funds" for a Distribution Date will be the sum of all previously
undistributed Monthly Payments or other receipts on account of principal and
interest on or in respect of the Mortgage Loans (including Unscheduled
Payments and Net REO Proceeds, if any) received by the Servicer in the related
Collection Period, plus (i) all P&I Advances (except Subordinate Class Advance
Amounts) made by the Servicer, the Trustee or the Fiscal Agent, as applicable,
in respect of such Distribution Date, (ii) for the Distribution Date occurring
in each March, the "Withheld Amounts" as described under "--The Pooling and
Servicing Agreement--Accounts--Interest Reserve Account" and required to be
deposited in the Distribution Account pursuant to the Pooling and Servicing
Agreement and (iii) all other amounts required to be deposited in the
Collection Account by the Servicer pursuant to the Pooling and Servicing
Agreement allocable to the Mortgage Loans, but excluding the following:
(a) amounts permitted to be used to reimburse the Servicer, the
Special Servicer, the Trustee or the Fiscal Agent, as applicable, for
previously unreimbursed Advances and interest thereon as described
herein under "The Pooling and Servicing Agreement-- Advances";
(b) the aggregate amount of the Servicing Fee (which includes the
fees for both the Trustee and the Servicer) and the other Servicing
Compensation (e.g., late fees, loan modification fees, extension fees,
loan service transaction fees, demand fees, beneficiary statement
charges, and similar fees) payable to the Servicer and the Special
Servicing Fee and other amounts payable to the Special Servicer
described under "The Pooling and Servicing Agreement--Special Servicing"
herein), and reinvestment earnings on payments received with respect to
the Mortgage Loans which the Servicer or Special Servicer is entitled to
receive as additional servicing compensation, in each case in respect of
such Distribution Date;
(c) all amounts representing scheduled Monthly Payments due after
the related Due Date;
(d) to the extent permitted by the Pooling and Servicing
Agreement, that portion of liquidation proceeds, insurance proceeds and
condemnation proceeds with respect to a Mortgage Loan which represents
any unpaid Servicing Compensation together with interest thereon as
described herein, to which the Servicer, the Special Servicer or the
Trustee is entitled;
(e) all amounts representing certain expenses reimbursable or
payable to the Servicer, the Special Servicer, the Trustee or the Fiscal
Agent and other amounts permitted to be retained by the Servicer or
withdrawn pursuant to the Pooling and Servicing Agreement in respect of
various items, including interest thereon as provided in the Pooling and
Servicing Agreement;
(f) Prepayment Premiums;
(g) Default Interest;
(h) Excess Interest;
(i) with respect to the ___________________ Loan any Distribution
Date relating to each Interest Accrual Period ending in
each February or any January occurring in a year immediately preceding a
year which is not a leap year, an amount equal to one day of interest on
the Stated Principal Balance of each such Mortgage Loan as of the Due
Date occurring in the month preceding the month in which such
Distribution Date occurs at the related Mortgage Rate to the extent such
amounts are to be deposited in the Interest Reserve Account and held for
future distribution;
(j) all amounts received with respect to each Mortgage Loan
previously purchased or repurchased pursuant to the Pooling and
Servicing Agreement during the related Collection Period and subsequent
to the date as of which the amount required to effect such purchase or
repurchase was determined; and
(k) the amount reasonably determined by the Trustee to be
necessary to pay any applicable federal, state or local taxes imposed on
the Upper-Tier REMIC or the Lower-Tier REMIC under the circumstances and
to the extent described in the Pooling and Servicing Agreement.
The "Monthly Payment" with respect to any Mortgage Loan (other than
any REO Mortgage Loan) and any Due Date is the scheduled monthly payment of
principal (if any) and interest at the Net Mortgage Rate, excluding any
Balloon Payment (but not excluding any constant Monthly Payment), which is
payable by the related borrower on the related Due Date. The Monthly Payment
with respect to an REO Mortgage Loan for any Distribution Date is the monthly
payment that would otherwise have been payable on the related Due Date had the
related Note not been discharged, determined as set forth in the Pooling and
Servicing Agreement.
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"Unscheduled Payments" are all net liquidation proceeds, net insurance
proceeds and net condemnation proceeds payable under the Mortgage Loans, the
repurchase price of any Mortgage Loan repurchased by the Mortgage Loan Seller
or Bloomfield due to a breach of a representation or warranty made by them or
the purchase price paid by the parties described under "The Pooling and
Servicing Agreement-- Optional Termination", and any other payments under or
with respect to the Mortgage Loans not scheduled to be made, including
Principal Prepayments, but excluding Prepayment Premiums.
"Net REO Proceeds" with respect to any REO Property and any related
REO Mortgage Loan are all revenues received by the Special Servicer with
respect to such REO Property or REO Mortgage Loan net of any insurance
premiums, taxes, assessments and other costs and expenses permitted to be paid
therefrom pursuant to the Pooling and Servicing Agreement.
"Principal Prepayments" are payments of principal made by a borrower
on a Mortgage Loan which are received in advance of the scheduled Due Date for
such payments and which are not accompanied by an amount of interest
representing the full amount of scheduled interest due on any date or dates in
any month or months subsequent to the month of prepayment, other than any
amount paid in connection with the release of the related Mortgaged Property
through defeasance.
The "Collection Period" with respect to a Distribution Date is the
period beginning on the day after the Due Date in the month preceding the
month in which such Distribution Date occurs and ending on the Due Date in the
month in which such Distribution Date occurs.
"Net Default Interest" with respect to any Mortgage Loan is any
Default Interest accrued on such Mortgage Loan less amounts required to pay
the Servicer, the Trustee or Fiscal Agent, as applicable, interest on Advances
at the Advance Rate.
"Default Interest" with respect to any Mortgage Loan is interest
accrued on such Mortgage Loan at the excess of (i) the Default Rate over (ii)
the Mortgage Rate (plus the Excess Rate if required by the applicable Mortgage
Loan).
The "Default Rate" with respect to any Mortgage Loan is the per annum
rate at which interest accrues on such Mortgage Loan following any event of
default on such Mortgage Loan including a default in the payment of a Monthly
Payment or a Balloon Payment.
"Excess Interest" with respect to each of the Mortgage Loans that has
a Revised Rate, interest accrued on such Mortgage Loan allocable to the Excess
Rate.
"Excess Rate" with respect to each of the Mortgage Loans that has a
Revised Rate, the difference between (a) the applicable Revised Rate and (b)
the applicable Mortgage Rate.
Priorities. As used below in describing the priorities of
distribution of Available Funds for each Distribution Date, the terms set
forth below will have the following meanings.
The "Interest Accrual Amount" with respect to any Distribution Date
and any Class of Certificates (other than the Class A-CS2, Class V-1, Class
V-2, Class R and Class LR Certificates), is equal to interest for the related
Interest Accrual Period at the Pass-Through Rate for such Class on the related
Certificate Balance or Notional Balance, as applicable (provided, that for
interest accrual purposes any distributions in reduction of Certificate
Balance or reductions in Certificate Balance as a result of allocations of
Realized Losses on the Distribution Date occurring in an Interest Accrual
Period will be deemed to have been made on the first day of such Interest
Accrual Period). The "Interest Accrual Amount" with respect to any
Distribution Date and the Class A-CS2 Certificates is equal to the sum of the
Interest Accrual Amount of its components. The "Interest Accrual Amount" with
respect to any Distribution Date and each of the Class A-1A, Class A-1B and
Class A-1C Components is equal to interest for the related Interest Accrual
Period at the Pass-Through Rate for such component for such Interest Accrual
Period on the Component Balance of such component (provided, that any
reductions in Component Balances of the Class A-1A, Class A-1B and Class A-1C
Components as a result of distributions in reduction of the Certificate
Balance of the Class A-1A Certificate, Class A-1B Certificates or Class A-1C
Certificates, respectively, or otherwise on the Distribution Date occurring in
an Interest Accrual Period, will be deemed to have occurred on the first day
of such Interest Accrual Period). The "Interest Accrual Amount" with respect
to any Distribution Date and each of the Class A-1D, Class A-2, Class A-3,
Class A-4, Class A-5, Class B-1, Class B-2, Class B-3, Class B-4, Class B-5
and Class B-6 Components is equal to interest for the related Interest Accrual
Period at the Pass-Through Rate for such component for such Interest Accrual
Period on the Component Balance of such component (provided, that any
reductions in Component Balance as a result of distributions of principal to
the related Class of Certificates will be deemed to have occurred on the first
day of such Interest Accrual Period).
The "Interest Distribution Amount" with respect to any Distribution
Date and any Class of Certificates (other than the Class A-CS2, Class V-1,
Class V-2, Class R and Class LR Certificates) is equal to the Interest Accrual
Amount thereof.
The "Interest Accrual Period" with respect to any Distribution Date
commences on the eleventh day of the month preceding the month in which such
Distribution Date occurs and ends on the tenth day of the month in which such
Distribution Date occurs provided that the first Interest Accrual Period is
assumed to consist of [ ] days. Except for the first Interest Accrual Period,
each Interest Accrual Period is assumed to consist of 30 days.
An "Interest Shortfall" with respect to any Distribution Date for any
Class of Subordinated Certificates is any shortfall in the amount of interest
required to be distributed on such Class on such Distribution Date.
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The "Prepayment Interest Shortfall" with respect to any Distribution
Date is equal to the amount of any shortfall in collections of interest
(adjusted to the applicable Net Mortgage Pass-Through Rate) resulting from a
Principal Prepayment on such Mortgage Loan during the related Collection
Period and prior to the related Due Date. Such shortfall may result because
interest on a Principal Prepayment in full is paid by the related borrower
only to the date of prepayment.
The "Pass-Through Rate" for any Class of Certificates or Component is
the per annum rate at which interest accrues on the Certificates of such Class
or component during any Interest Accrual Period.
The Pass-Through Rate on the Class B-1, Class B-2, Class B-3, Class
B-4, Class B-5 and Class B-6 Certificates is a per annum rate equal to [ ]%, [
]%, [ ]%, [ ]%, [ ]%, and [ ]%, respectively.
The Pass-Through Rate on the Class A-1A, Class A-1B, Class A-1C and Class
A-1D Certificates is a per annum rate equal to [__], [__], [__] and [__],
respectively. The Pass-Through Rate on the A-1A Component is a per annum rate
equal to the Weighted Average Net Mortgage Pass-Through Rate minus [ ]. The
Pass-Through Rate on the Class A-CS1 Certificates is a per annum rate equal to
the Pass-Through Rate on the Class A-1A Component. The Pass-Through Rate on
the Class A-1B Component is a per annum rate equal to the Weighted Average Net
Mortgage Pass-Through Rate minus [ ]. The Pass-Through Rate on the Class A-1C
Component is a per annum rate equal to the Weighted Average Net Mortgage
Pass-Through Rate minus [ ]. The Pass-Through Rate on the Class A-1D Component
is a per annum rate equal to the Weighted Average Net Mortgage Pass-Through
Rate minus [ ]. The Pass-Through Rate on the Class A-2 Component is a per
annum rate equal to [ ]. The Pass-Through Rate on the Class A-3 Component is a
per annum rate equal to [ ]. The Pass-Through Rate on the Class A-4 Component
is a per annum rate equal to [ ]. The Pass-Through Rate on the Class A-5
Component is a per annum rate equal to [ ]. The Pass- Through Rate on the
Class B-1 Component is a per annum rate equal to the Weighted Average Net
Mortgage Pass-Through Rate minus [ ]. The Pass-Through Rate on the Class B-2
Component is a per annum rate equal to the Weighted Average Net Mortgage
Pass-Through Rate minus [ ]. The Pass-Through Rate on the Class B-3 Component
is a per annum rate equal to the Weighted Average Net Mortgage Pass-Through
Rate minus [ ]. The Pass-Through Rate on the Class B-4 Component is a per
annum rate equal to the Weighted Average Net Mortgage Pass-Through Rate minus
[ ]. The Pass-Through Rate on the Class B-5 Component is a per annum rate
equal to the Weighted Average Net Mortgage Pass- Through Rate minus [ ]. The
Pass-Through Rate on the Class B-6 Component is a per annum rate equal to the
Weighted Average Net Mortgage Pass-Through Rate minus [ ]. The Pass-Through
Rate on the Class A-CS2 Certificates is a per annum rate equal to the weighted
average of the Pass-Through Rates on the Class A-1B Component, Class A-1C
Component, Class A-1D Component, Class A-2 Component, Class A-3 Component,
Class A-4 Component, Class A-5 Component, Class B-1 Component, Class B-2
Component, Class B-3 Component, Class B-4 Component, Class B-5 Component and
Class B-6 Component, weighted on the basis of the Component Balances of such
components. The Pass- Through Rate on the Class A-2 Certificates is a per
annum rate equal to the Weighted Average Net Mortgage Pass-Through Rate minus
[ ]. The Pass-Through Rate on the Class A-3 Certificates is a per annum rate
equal to the Weighted Average Net Mortgage Pass-Through Rate minus [ ]. The
Pass-Through Rate on the Class A-4 Certificates is a per annum rate equal to
the Weighted Average Net Mortgage Pass-Through Rate minus [ ]. The
Pass-Through Rate on the Class A-5 Certificates is a per annum rate equal to
the Weighted Average Net Mortgage Pass-Through Rate minus [ ].
The Pass-Through Rate on the Class B-7 and the Class B-7H
Certificates is a per annum rate equal to the Weighted Average Net Mortgage
Pass-Through Rate.
With respect to any Distribution Date, the "Weighted Average Net
Mortgage Pass-Through Rate" is the fraction (expressed as a percentage) the
numerator of which is the sum of the products of (i) the Net Mortgage
Pass-Through Rate and (ii) the Stated Principal Balance of each Mortgage Loan
and the denominator of which is the sum of the Stated Principal Balances of
each Mortgage Loan as of the Due Date occurring in the month preceding the
month in which such Distribution Date occurs.
The "Net Mortgage Pass-Through Rate" with respect to any Mortgage
Loan and any Distribution Date is the Mortgage Pass-Through Rate for such
Mortgage Loan for the related Interest Accrual Period minus the aggregate of
the applicable Servicing Fee Rate.
The "Mortgage Pass-Through Rate" with respect to the Mortgage Loans
that provide for calculations of interest based on twelve months of 30 days
each, is equal to the Mortgage Rate thereof.
The "Mortgage Pass-Through Rate" with respect to the Mortgage Loans
that provide for interest based on a 360-day year and the actual number of
days elapsed for any Interest Accrual Period, is equal to the Mortgage Rate
thereof multiplied by a fraction the numerator of which is the actual number
of days in such Interest Accrual Period and the denominator of which is 30.
The "Mortgage Pass-Through Rate" with respect to the Mortgage Loan
known as the ___________________ loan for (a) any Interest Accrual Period
commencing in any January, February, April, June, September and November and
in any December occurring in a year immediately preceding any year which is
not a leap year, is the Mortgage Rate thereof, and (b) any Interest Accrual
Period commencing in any March, May, July, August and October and in any
December occurring in a year immediately preceding a year which is a leap
year, is equal to the Mortgage Rate thereof multiplied by a fraction the
numerator of which is the actual number of days in such Interest Accrual
Period and the denominator of which is 30.
Notwithstanding the foregoing, the Mortgage Pass-Through Rate with
respect to each Mortgage Loan for the first Interest Accrual Period is the
Mortgage Rate thereof.
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The "Mortgage Rate" with respect to each Mortgage Loan is the annual rate,
not including any Excess Rate, at which interest accrues on such Mortgage Loan
(in the absence of a default), as set forth in the related Note and on Annex A.
The Mortgage Rate for purposes of calculating the Weighted Average Net
Mortgage Pass-Through Rate will be the Mortgage Rate of such Mortgage Loan
without taking into account any reduction in the interest rate by a bankruptcy
court pursuant to a plan of reorganization or pursuant to any of its equitable
powers or a reduction on interest or principal due to a modification as
described under "The Pooling and Servicing Agreement--Modifications".
The "Principal Distribution Amount" for any Distribution Date will be
equal to the sum of:
(i) the principal component of all scheduled Monthly
Payments (other than Balloon Payments) which become due (if received or
advanced, including by virtue of a Subordinate Class Advance Amount) on the
Mortgage Loans on the related Due Date;
(ii) the principal component of all Assumed Scheduled
Payments or Minimum Defaulted Monthly Payments, as applicable, deemed to
become due (if received or advanced, including, by virtue of a Subordinate
Class Advance Amount on the related Due Date with respect to any Mortgage Loan
that is delinquent in respect of its Balloon Payment;
(iii) the Stated Principal Balance of each Mortgage Loan
that was, during the related Collection Period, repurchased from the Trust
Fund in connection with the breach of a representation or warranty or
purchased from the Trust Fund as described herein under "The Pooling and
Servicing Agreement--Optional Termination";
(iv) the portion of Unscheduled Payments allocable to
principal of any Mortgage Loan that was liquidated during the related
Collection Period;
(v) all Balloon Payments and, to the extent not included in
the preceding clauses, any other principal payment on any Mortgage Loan
received on or after the Maturity Date thereof, to the extent received during
the related Collection Period;
(vi) to the extent not included in the preceding
clauses (iii) or (iv), all other Principal Prepayments received in the
related Collection Period; and
(vii) to the extent not included in the preceding clauses,
any other full or partial recoveries in respect of principal, including
Insurance Proceeds, Liquidation Proceeds and Net REO Proceeds.
Amounts received on any Mortgage Loan that represent recoveries of
any Subordinate Class Advance Amount will not be included in the calculation
of "Principal Distribution Amount."
The "Assumed Scheduled Payment" with respect to any Mortgage Loan
that is delinquent in respect of its Balloon Payment (including any REO
Mortgage Loan as to which the Balloon Payment would have been past due) is an
amount equal to the sum of (a) the principal portion of the Monthly Payment
that would have been due on such Mortgage Loan on the related Due Date based
on the constant payment required by the related Note or the original
amortization schedule thereof (as calculated with interest at the related
Mortgage Rate), if applicable, assuming such Balloon Payment has not become
due after giving effect to any modification, and (b) interest at the
applicable Net Mortgage Pass-Through Rate.
An "REO Mortgage Loan" is any Mortgage Loan as to which the related
Mortgaged Property has become an REO Property.
On each Distribution Date, the Available Funds for such Distribution
Date will be distributed in the following amounts and order of priority:
(i) First, to all Classes of Senior Certificates in an aggregate
amount equal to the sum of (a) the aggregate of the Interest Distribution
Amounts of all such Classes; (b) the aggregate of all Unpaid Interest
Shortfalls previously allocated to any Class of Senior Certificates; (c) the
Principal Distribution Amount (which amount will be allocated to one or more
Classes of Senior Certificates until the Certificate Balances of all Classes
thereof have been reduced to zero); and (d) the amount of any unreimbursed
Realized Losses previously allocated to any Class of Senior Certificates;
(ii) Second, to the Class B-1 Certificates, in respect of interest,
up to an amount equal to the aggregate Interest Distribution Amount of such
Class;
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(iii) Third, to the Class B-1 Certificates, in respect of interest,
up to an amount equal to the aggregate unpaid Interest Shortfalls previously
allocated to such Class;
(iv) Fourth, to the Class B-1 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed to the Senior
Certificates, until the Certificate Balance of such Class is reduced to zero;
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(v) Fifth, to the Class B-1 Certificates, for the unreimbursed amounts of
Realized Losses, if any, up to an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, an amount equal to the aggregate of such unreimbursed
Realized Losses previously allocated to such Class;
(vi) Sixth, to the Class B-2 Certificates, in respect of interest, up
to an amount equal to the aggregate Interest Distribution Amount of such
Class;
(vii) Seventh, to the Class B-2 Certificates, in respect of interest,
up to an amount equal to the aggregate unpaid Interest Shortfalls previously
allocated to such Class;
(viii) Eighth, to the Class B-2 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
prior clauses, until the Certificate Balance of such Class is reduced to zero;
(ix) Ninth, to the Class B-2 Certificates, for the unreimbursed
amounts of Realized Losses, if any, up to an amount equal to the Principal
Distribution Amount less amounts of Principal Distribution Amount distributed
pursuant to all prior clauses, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
(x) Tenth, to the Class B-3 Certificates, in respect of interest,
up to an amount equal to the aggregate Interest Distribution Amount of
such Class;
(xi) Eleventh, to the Class B-3 Certificates, in respect of interest,
up to an amount equal to the aggregate unpaid Interest Shortfalls previously
allocated to such Class;
(xii) Twelfth, to the Class B-3 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(xiii) Thirteenth, to the Class B-3 Certificates, for the
unreimbursed amounts of Realized Losses, if any, up to an amount equal to the
Principal Distribution Amount less amounts of Principal Distribution Amount
distributed pursuant to all prior clauses, an amount equal to the aggregate of
such unreimbursed Realized Losses previously allocated to such Class;
(xiv) Fourteenth, to the Class B-4 Certificates, in respect of
interest, up to an amount equal to the aggregate Interest Distribution Amount
of such Class;
(xv) Fifteenth, to the Class B-4 Certificates, in respect of
interest, up to an amount equal to the aggregate unpaid Interest Shortfalls
previously allocated to such Class;
(xvi) Sixteenth, to the Class B-4 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(xvii) Seventeenth, to the Class B-4 Certificates, for the
unreimbursed amounts of Realized Losses, if any, up to an amount equal to the
Principal Distribution Amount less amounts of Principal Distribution Amount
distributed pursuant to all prior clauses, an amount equal to the aggregate of
such unreimbursed Realized Losses previously allocated to such Class;
(xviii) Eighteenth, to the Class B-5 Certificates, in respect of
interest, up to an amount equal to the aggregate Interest Distribution Amount
of such Class;
(xix) Nineteenth, to the Class B-5 Certificates, in respect of
interest, up to an amount equal to the aggregate unpaid Interest Shortfalls
previously allocated to such Class;
(xx) Twentieth, to the Class B-5 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(xxi Twenty-first, to the Class B-5 Certificates, for the
unreimbursed amounts of Realized Losses, if any, up to an amount equal to the
Principal Distribution Amount less amounts of Principal Distribution Amount
distributed pursuant to all prior clauses, an amount equal to the aggregate of
such unreimbursed Realized Losses previously allocated to such Class;
(xxii) Twenty-second, to the Class B-6 Certificates, in respect of
interest, up to an amount equal to the aggregate Interest Distribution Amount
of such Class;
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(xxiii) Twenty-third, to the Class B-6 Certificates, in respect of interest,
up to an amount equal to the aggregate unpaid Interest Shortfalls previously
allocated to such Class;
(xxiv) Twenty-fourth, to the Class B-6 Certificates, in reduction of
the Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(xxv) Twenty-fifth, to the Class B-6 Certificates, for the
unreimbursed amounts of Realized Losses, if any, up to an amount equal to the
Principal Distribution Amount less amounts of Principal Distribution Amount
distributed pursuant to all prior clauses, an amount equal to the aggregate of
such unreimbursed Realized Losses previously allocated to such Class;
(xxvi) Twenty-sixth, to the Junior Subordinated Certificates, in
accordance with the priorities set forth in the Pooling and Servicing
Agreement; and
(xxvii) Twenty-seventh, to the Class R and Class LR Certificates, in
accordance with the priorities set forth in the Pooling and Servicing
Agreement.
Prepayment Premiums. On each Distribution Date, Prepayment Premiums
with respect to any Unscheduled Payments (including voluntary and involuntary
prepayments) received in the related Collection Period shall be distributed to
the holders of the Senior Certificates outstanding on such Distribution Date,
but will not be applied to reduce the outstanding Certificate Balance of any
such Class. Prepayment Premiums will not be distributed to holders of the
Subordinated Certificates.
Default Interest and Excess Interest. On each Distribution Date, Net
Default Interest and Excess Interest received in the related Collection Period
with respect to a default on a Mortgage Loan will be distributed solely to the
Class V-1 and Class V-2 Certificates, respectively, to the extent set forth in
the Pooling and Servicing Agreement, and will not be available for
distribution to holders of the Subordinated Certificates. The Class V-1 and
Class V-2 Certificates are not entitled to any other distributions of
interest, principal or Prepayment Premiums.
REALIZED LOSSES
The Certificate Balance of the Certificates will be reduced without
distribution on any Distribution Date as a write-off to the extent of any
Realized Loss allocated to the applicable Class of Certificates on the related
Distribution Date. As referred to herein, the "Realized Loss" with respect to
any Distribution Date shall mean the amount, if any, by which the aggregate
Certificate Balance of the Certificates after giving effect to distributions
made on such Distribution Date exceeds the aggregate Stated Principal Balance
of the Mortgage Loans as of the Due Date occurring in the month in which such
Distribution Date occurs. Except as described in the next sentence, any
Realized Losses will be applied to the Classes of Certificates in the
following order, until the Certificate Balance of each is reduced to zero:
first, to the Junior Subordinated Certificates, second, to the Class B-6
Certificates, third, to the Class B-5 Certificates, fourth, to the Class B-4
Certificates, fifth, to the Class B-3 Certificates, sixth, to the Class B-2
Certificates, seventh, to the Class B-1 Certificates and finally, to certain
Classes of the Senior Certificates in accordance with the priorities set forth
in the Pooling and Servicing Agreement. Any amounts recovered in respect of
any amounts previously written-off as Realized Losses will be distributed to
the Classes of Certificates in reverse order of allocation of Realized Losses
thereto. Shortfalls in Available Funds resulting from Servicing Compensation
other than the Servicing Fee, interest on Advances (to the extent not covered
by Default Interest), Prepayment Interest Shortfalls in excess of the
Servicing Fee together with investment income on the related Principal
Prepayment for the period such amount is held in the Collection Account during
the related Interest Accrual Period, extraordinary expenses of the Trust Fund
(other than indemnification expenses), a reduction on the interest rate of a
Mortgage Loan by a bankruptcy court pursuant to a plan of reorganization or
pursuant to any of its equitable powers, a reduction in interest rate or a
forgiveness of principal of a Mortgage Loan as described under "The Pooling
and Servicing Agreement--Modifications" or otherwise will be allocated in the
same manner as Realized Losses. Shortfalls in Available Funds resulting from
indemnification expenses of the Trust Fund required to be paid pursuant to the
Pooling and Servicing Agreement will be allocated to, and be deemed
distributed to, each Class of Certificates, pro rata, based upon amounts
distributable to each such Class and will be allocated, first, in respect of
interest and, second, in respect of principal. See "Description of the
Subordinated Certificates--Distributions--Priorities" herein.
The "Stated Principal Balance" of any Mortgage Loan at any date of
determination will equal (a) the principal balance as of the Cutoff Date of
such Mortgage Loan, minus (b) the sum of (i) the principal portion of each
Monthly Payment due on such Mortgage Loan after the Cut-off Date up to such
date of determination, if received from the borrower or advanced by the
Servicer, Trustee or Fiscal Agent (including any Subordinate Class Advance
Amount), (ii) all voluntary and involuntary principal prepayments and other
unscheduled collections of principal received with respect to such Mortgage
Loan, to the extent distributed to holders of the Certificates before such
date of determination and (iii) any principal forgiven by the Special Servicer
or Interest Shortfalls resulting from reductions or deferrals of interest,
each as described herein under "The Pooling and Servicing
Agreement--Modifications." The Stated Principal Balance of a Mortgage Loan
with respect to which title to the related Mortgaged Property has been
acquired is equal to the principal balance thereof outstanding on the date on
which such title is acquired less any Net REO Proceeds allocated to principal
on such Mortgage Loan. The Stated Principal Balance of a Specially Serviced
Mortgage Loan with respect to which the Servicer or Special Servicer has
determined that it has received all payments and recoveries which the Servicer
or the Special Servicer, as applicable, expects to be finally recoverable on
such Mortgage Loan is zero.
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PREPAYMENT INTEREST SHORTFALLS
The Servicer will deposit from its own funds any Prepayment Interest
Shortfalls into the Collection Account on the Servicer Remittance Date to the
extent such Prepayment Interest Shortfalls do not exceed the aggregate of the
Servicing Fee due the Servicer and the investment income accruing on the
related Principal Prepayment for the related Due Period. Any Prepayment
Interest Shortfall in excess of the Servicing Compensation due to the Servicer
for such period will be allocated as Realized Losses as provided above under
"--Realized Losses." Any interest that accrues on a prepayment of a Mortgage
Loan after the Due Date and before the following Servicer Remittance Date will
be paid to the Servicer.
APPRAISAL REDUCTIONS
On the earliest of (i) the third anniversary of the date on which an
extension of the maturity date of a Mortgage Loan becomes effective as a
result of a modification of such Mortgage Loan by the Special Servicer, which
extension does not change the amount of Monthly Payments on the Mortgage Loan,
(ii) 90 days after an uncured delinquency occurs in respect of a Mortgage
Loan, (iii) immediately after the date on which a reduction in the amount of
Monthly Payments on a Mortgage Loan, or a change in any other material
economic term of the Mortgage Loan, becomes effective as a result of a
modification of such Mortgage Loan by the Special Servicer, (iv) immediately
after a receiver has been appointed, (v) immediately after a borrower declares
bankruptcy, (vi) immediately after a Mortgage Loan becomes an REO Mortgage
Loan, (vii) immediately after the occurrence of an event, which in the
Servicer's judgment, would materially and adversely affect or impair the
security of a Mortgage Loan and (viii) upon a default in the payment of a
Balloon Payment (any of (i), (ii), (iii), (iv), (v), (vi), (vii) and (viii),
an "Appraisal Reduction Event"), an Appraisal Reduction Amount will be
calculated. The "Appraisal Reduction Amount" for any Distribution Date and for
any Mortgage Loan as to which any Appraisal Reduction Event has occurred will
be an amount equal to the excess of (a) the outstanding Stated Principal
Balance of such Mortgage Loan over (b) the excess of (i) 90% of the sum of the
appraised values of the related Mortgaged Properties as determined by
independent MAI appraisals (the costs of which shall be paid by the Servicer
as an Advance) over (ii) the sum of (A) to the extent not previously advanced
by the Servicer, the Trustee or the Fiscal Agent, all unpaid interest on such
Mortgage Loan at a per annum rate equal to the Mortgage Rate, (B) all
unreimbursed Advances and interest thereon at the Advance Rate in respect of
such Mortgage Loan and (C) all currently due and unpaid real estate taxes,
ground rents and assessments and insurance premiums and all other amounts due
and unpaid under the Mortgage Loan (which tax, premiums and other amounts have
not been the subject of an Advance by the Servicer). If no independent MAI
appraisal has been obtained within twelve months prior to the first
Distribution Date on or after an Appraisal Reduction Event has occurred, the
Servicer will be required to estimate the value of the related Mortgaged
Properties (the "Servicer's Appraisal Estimate") and such estimate will be
used for purposes of the Appraisal Reduction Amount. Within 30 days after the
Appraisal Reduction Event, the Servicer will be required to obtain an
independent MAI appraisal. On the first Distribution Date occurring on or
after the delivery of such independent MAI appraisal, the Servicer will be
required to adjust the Appraisal Reduction Amount to take into account such
appraisal (regardless of whether the independent MAI Appraisal is higher or
lower than the Servicer's Appraisal Estimate). Appraisal Reduction Amounts
will be recalculated annually based on Updated Appraisals.
DELIVERY, FORM AND DENOMINATION
The Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class
B-6 Certificates will be issued, maintained and transferred in book-entry form
only, in denominations of
[$_________],[$_________],[$_________],[$_________],[$_________] and
[$_________] initial Certificate Balances, respectively and in multiples of
$[__] in excess thereof. All references herein to Subordinated Certificates
and Definitive Certificates are deemed to include Subordinated Certificates
and Definitive Certificates comprising global and definitive Subordinated
Units.
The Subordinated Certificates will initially be represented by one or
more global Certificates for each such Class registered in the name of the
nominee of DTC. The Depositor has been informed by DTC that DTC's nominee will
be Cede & Co. No holder of a Subordinated Certificate will be entitled to
receive a certificate issued in fully registered, certificated form (each, a
"Definitive Certificate") representing its interest in such Class, except
under the limited circumstances described under "--Definitive Certificates."
Unless and until Definitive Certificates are issued, all references to actions
by holders of the Subordinated Certificates will refer to actions taken by DTC
upon instructions received from holders of Subordinated Certificates through
its participating organizations (together with CEDEL and Euroclear
participating organizations, the "Participants", and all references herein to
payments, notices, reports, statements and other information to holders of
Subordinated Certificates will refer to payments, notices, reports and
statements to DTC or Cede & Co., as the registered holder of the Subordinated
Certificates, for distribution to holders of Subordinated Certificates through
its Participants in accordance with DTC procedures; provided, however, that to
the extent that the party responsible for distributing any report, statement
or other information has been provided with the name of the beneficial owner
of a Certificate (or the prospective transferee of such beneficial owner),
such report, statement or other information will be provided to such
beneficial owner (or prospective transferee).
Until Definitive Certificates are issued in respect of the
Subordinated Certificates, interests in the Subordinated Certificates will be
transferred on the book-entry records of DTC and its Participants. The Trustee
will initially serve as certificate registrar (in such capacity, the
"Certificate Registrar") for purposes of recording and otherwise providing for
the registration of the Subordinated Certificates.
A "Certificateholder" under the Pooling and Servicing Agreement will
be the person in whose name a Certificate is registered in the certificate
register maintained pursuant to the Pooling and Servicing Agreement, except
that solely for the purpose of giving any consent or taking any action
pursuant to the Pooling and Servicing Agreement, any Certificate registered in
the name of the Depositor, the Servicer, the Special Servicer, the Trustee, a
manager of a Mortgaged Property, a Mortgagor or any person affiliated with the
Depositor, the Servicer, the Special Servicer, the Trustee, such manager or a
Mortgagor will be deemed not to be outstanding and the Voting Rights to which
it is entitled will
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not be taken into account in determining whether the requisite percentage of
Voting Rights necessary to effect any such consent or take any such action has
been obtained; provided, however, that for purposes of obtaining the consent
of Certificateholders to an amendment to the Pooling and Servicing Agreement,
any Certificates beneficially owned by the Servicer or Special Servicer or an
affiliate will be deemed to be outstanding, provided that such amendment does
not relate to compensation of the Servicer or Special Servicer or otherwise
benefit the Servicer or the Special Servicer in any material respect; and,
provided, further, that for purposes of obtaining the consent of
Certificateholders to any action proposed to be taken by the Special Servicer
with respect to a Specially Serviced Mortgage Loan, any Certificates
beneficially owned by the Servicer or an affiliate will be deemed to be
outstanding, provided that, the Special Servicer is not the Servicer.
Notwithstanding the foregoing, solely for purposes of providing or
distributing any reports, statements or other information pursuant to the
Pooling and Servicing Agreement, a Certificateholder will include any
beneficial owner (or prospective transferee of a beneficial owner) to the
extent that the party required or permitted to provide or distribute such
report, statement or other information has been provided with the name of such
beneficial owner (or prospective transferee). The Percentage Interest of any
Class of Subordinated Certificate will be equal to the percentage obtained by
dividing the denomination of such Certificate by the aggregate initial
Certificate Balance of such Class of Certificates. See "--Book-Entry
Registration" and "--Definitive Certificates" herein.
BOOK-ENTRY REGISTRATION
Holders of Subordinated Certificates may hold their Certificates
through DTC (in the United States) or CEDEL or Euroclear (in Europe) if they
are Participants of such system, or indirectly through organizations that are
participants in such systems. CEDEL and Euroclear will hold omnibus positions
on behalf of the CEDEL Participants and the Euroclear Participants,
respectively, through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries (collectively,
the "Depositaries") which in turn will hold such positions in customers'
securities accounts in the Depositaries' names on the books of DTC. DTC is a
limited purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. DTC was created to hold securities for its Participants and to
facilitate the clearance and settlement of securities transactions between
Participants through electronic computerized book-entries, thereby eliminating
the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly through CEDEL Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing
system by its Depositary; however, such cross-market transactions will require
delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures
for same-day funds settlement applicable to DTC. CEDEL Participants and
Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the
relevant CEDEL Participant or Euroclear Participant on such business day. Cash
received in CEDEL or Euroclear as a result of sales of securities by or
through a CEDEL Participant or a Euroclear Participant to a DTC Participant
will be received with value on the DTC settlement date but will be available
in the relevant CEDEL or Euroclear cash account only as of the business day
following settlement in DTC. For additional information regarding clearance
and settlement procedures for the Subordinated Certificates and for
information with respect to tax documentation procedures relating to the
Subordinated Certificates, see Annex B hereto.
The holders of Subordinated Certificates that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, Subordinated Certificates may do so only
through Participants and Indirect Participants. In addition, holders of
Subordinated Certificates will receive all distributions of principal and
interest from the Trustee through the Participants who in turn will receive
them from DTC. Similarly, reports distributed to Certificateholders pursuant
to the Pooling and Servicing Agreement and requests for the consent of
Certificateholders will be delivered to beneficial owners only through DTC,
Euroclear, CEDEL and their respective participants. Under a book-entry format,
holders of Subordinated Certificates may experience some delay in their
receipt of payments, reports and notices, since such payments, reports and
notices will be forwarded by the Trustee to Cede & Co., as nominee for DTC.
DTC will forward such payments, reports and notices to its Participants, which
thereafter will forward them to Indirect Participants, CEDEL, Euroclear or
holders of Subordinated Certificates, as applicable.
Under the rules, regulations and procedures creating and affecting
DTC and its operations (the "Rules"), DTC is required to make book-entry
transfers of Subordinated Certificates among Participants on whose behalf it
acts with respect to the Subordinated Certificates and to receive and transmit
distributions of principal of, and interest on, the Subordinated Certificates.
Participants and Indirect Participants with which the holders of Subordinated
Certificates have accounts with respect to the Subordinated Certificates
similarly are required to make book-entry
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transfers and receive and transmit such payments on behalf of their respective
holders of Subordinated Certificates. Accordingly, although the holders of
Subordinated Certificates will not possess the Subordinated Certificates, the
Rules provide a mechanism by which Participants will receive payments on
Subordinated Certificates and will be able to transfer their interest.
Because DTC can only act on behalf of Participants, who in turn act
on behalf of Indirect Participants and certain banks, the ability of a holder
of Subordinated Certificates to pledge such Certificates to persons or
entities that do not participate in the DTC system, or to otherwise act with
respect to such Certificates, may be limited due to the lack of a physical
certificate for such Certificates.
DTC has advised the Depositor that it will take any action permitted
to be taken by a holder of a Subordinated Certificate under the Pooling and
Servicing Agreement only at the direction of one or more Participants to whose
accounts with DTC the Subordinated Certificates are credited. DTC may take
conflicting actions with respect to other undivided interests to the extent
that such actions are taken on behalf of Participants whose holdings include
such undivided interests.
Except as required by law, neither the Depositor, the Servicer, the
Fiscal Agent nor the Trustee will have any liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the Subordinated Certificates held by Cede & Co., as nominee for
DTC, or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriters. Indirect access to CEDEL is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a CEDEL
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
the Euroclear system ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 27 currencies,
including United States dollars. The Euroclear system includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements
for cross-market transfers with DTC described above. Euroclear is operated by
Morgan Guaranty Trust Company of New York, Brussels, Belgium office (the
"Euroclear Operator"), under contract with Euroclear Clearance System, S.C., a
Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for the Euroclear
system on behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries and may include the Underwriters.
Indirect access to the Euroclear system is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within the Euroclear
system, withdrawal of securities and cash from the Euroclear system, and
receipts of payments with respect to securities in the Euroclear system. All
securities in the Euroclear system are held on a fungible basis without
attribution of specific certificates to specific securities clearance
accounts. The Euroclear Operator acts under the Terms and Conditions only on
behalf of Euroclear Participants and has no record of or relationship with
persons holding through Euroclear Participants.
The information herein concerning DTC, CEDEL and Euroclear and their
book-entry systems has been obtained from sources believed to be reliable, but
the Depositor takes no responsibility for the accuracy or completeness
thereof.
DEFINITIVE CERTIFICATES
Subordinated Certificates issued in fully registered, certificated
form ("Definitive Certificates" will be delivered to Certificate Owners (or
their nominees) only if (i) DTC is no longer willing or able to properly
discharge its responsibilities as depository with respect to the Book- Entry
Certificates, and the Trustee is unable to locate a qualified successor, (ii)
the Depositor or the Trustee, at its sole option, elects to terminate the
book-entry system through DTC with respect to some or all of any Class or
Classes of Certificates, or (iii) after the occurrence of an Event of Default
under the Pooling and Servicing Agreement, Certificate Owners representing a
majority in principal amount of the Book-Entry
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Certificates then outstanding advise DTC through DTC Participants in writing
that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interest of Certificate Owners.
Upon the occurrence of any of the events described in clauses (i)
through (iii) in the immediately preceding paragraph, the Trustee is required
to notify all affected Certificateholders (through DTC and related DTC
Participants) of the availability through DTC of Definitive Certificates. Upon
delivery of Definitive Certificates, the Trustee, Certificate Registrar, and
Servicer will recognize the holders of such Definitive Certificates as holders
under the Pooling and Servicing Agreement ("Holders"). Distributions of
principal and interest on the Definitive Certificates will be made by the
Trustee directly to Holders of Definitive Certificates in accordance with the
procedures set forth herein and in the Pooling and Servicing Agreement.
Upon the occurrence of any of the events described in clauses (i)
through (iii) of the second preceding paragraph, requests for transfer of
Definitive Certificates will be required to be submitted directly to the
Certificate Registrar in a form acceptable to the Certificate Registrar (such
as the forms which will appear on the back of the certificate representing a
Definitive Certificate), signed by the Holder or such Holder's legal
representative and accompanied by the Definitive Certificate or Certificates
for which transfer is being requested. The Trustee will be appointed as the
initial Certificate Registrar.
TRANSFER RESTRICTIONS
In the event that holders of the Subordinated Certificates become
entitled to receive Definitive Certificates under the circumstances described
under "--Definitive Certificates", each prospective transferee of a
Subordinated Certificate that is a Definitive Certificate will be required to
(a) deliver to the Depositor, the Certificate Registrar and the Trustee a
representation letter substantially in the form set forth as an exhibit to the
Pooling and Servicing Agreement stating that such transferee is not a Plan or
a person acting on behalf of or investing the assets of a Plan, other than an
insurance company investing the assets of its general account under
circumstances whereby the purchase and subsequent holding of the Subordinated
Certificate would be exempt from the prohibited transaction restrictions of
ERISA and the Code under Sections I and III of PTE 95-60, or (b) provide an
opinion of counsel and such other documentation as described under "ERISA
Considerations" herein. The purchaser or transferee of any interest in a
Subordinated Certificate that is not a Definitive Certificate shall be deemed
to represent that it is not a person described in clause (a) above.
The Subordinated Certificates will contain a legend describing such
restrictions on transfer and the Pooling and Servicing Agreement will provide
that any attempted or purported transfer in violation of these transfer
restrictions will be null and void.
PREPAYMENT AND YIELD CONSIDERATIONS
MORTGAGOR DEFAULTS
Effect on Subordinated Certificates. The aggregate amount of
distributions on the Subordinated Certificates offered hereby, the yield to
maturity of such Subordinated Certificates, the rate of principal payments on
such Subordinated Certificates and the weighted average life of such
Subordinated Certificates will be affected by the rate and the timing of
delinquencies and defaults on the Mortgage Loans. If a purchaser of a
Subordinated Certificate of any Class calculates its anticipated yield based
on an assumed rate of default and amount of losses on the Mortgage Loans that
is lower than the default rate and amount of losses actually experienced and
such additional losses are allocable to such Class of Certificates, such
purchaser's actual yield to maturity will be lower than that so calculated and
could be negative. The timing of any loss on a liquidated Mortgage Loan will
also affect the actual yield to maturity of the Subordinated Certificates to
which a portion of such loss is allocable, even if the rate of defaults and
severity of losses are consistent with an investor's expectations. In general,
the earlier a loss borne by an investor occurs, the greater is the effect on
such investor's yield to maturity.
<PAGE>
The yield to investors in the Subordinated Certificates will be very
sensitive to the timing and magnitude of losses on the Mortgage Loans due to
liquidations following a default, and will also be very sensitive to
delinquencies in payment. MOREOVER, BECAUSE THE SUBORDINATE CERTIFICATES AND
THE JUNIOR SUBORDINATE CERTIFICATES ARE SUBORDINATED TO THE SENIOR
CERTIFICATES, REALIZED LOSSES WILL BE ALLOCATED, FIRST, TO THE CLASS B-7 AND
CLASS B-7H CERTIFICATES, PRO RATA, UNTIL THEIR CERTIFICATE BALANCES ARE
REDUCED TO ZERO, SECOND, TO THE CLASS B-6 CERTIFICATES, UNTIL THEIR
CERTIFICATE BALANCE IS REDUCED TO ZERO, THIRD, TO THE CLASS B-5 CERTIFICATES,
UNTIL THEIR CERTIFICATE BALANCE IS REDUCED TO ZERO, FOURTH, TO THE CLASS B-4
CERTIFICATES, UNTIL THEIR CERTIFICATE BALANCE IS REDUCED TO ZERO, FIFTH, TO
THE CLASS B-3 CERTIFICATES, UNTIL THEIR CERTIFICATE BALANCE IS REDUCED TO
ZERO, SIXTH, TO THE CLASS B-2 CERTIFICATES, UNTIL THEIR CERTIFICATE BALANCE IS
REDUCED TO ZERO, SEVENTH, TO THE CLASS B-1 CERTIFICATES, UNTIL THEIR
CERTIFICATE BALANCE IS REDUCED TO ZERO, AND EIGHTH, TO THE SENIOR CERTIFICATES
IN THE ORDER SET FORTH IN THE POOLING AND SERVICING AGREEMENT. AS A RESULT,
LOSSES ON THE MORTGAGE LOANS COULD RESULT IN A SIGNIFICANT LOSS, OR IN SOME
CASES A COMPLETE LOSS, OF AN INVESTOR'S INVESTMENT IN THE SUBORDINATE
CERTIFICATES. CONSEQUENTLY, PROSPECTIVE INVESTORS SHOULD PERFORM THEIR OWN
ANALYSIS OF THE EXPECTED TIMING AND SEVERITY OF REALIZED LOSSES PRIOR TO
INVESTING IN THE SUBORDINATE CERTIFICATES.
89
<PAGE>
As and to the extent described herein, the Servicer and Special Servicer, as
applicable, will be entitled to receive (a) interest on unreimbursed Advances
and unreimbursed servicing expenses that (i) are recovered out of amounts
received on the Mortgage Loan as to which such Advances were made or such
servicing expenses were incurred, which amounts are in the form of liquidation
proceeds, insurance proceeds, condemnation proceeds or amounts paid in
connection with the purchase of such Mortgage Loan out of the Trust Fund or
(ii) are determined to be nonrecoverable Advances and (b) special servicing
compensation for Specially Serviced Loans and REO Mortgage Loans. The
Servicer's right to receive such payments of interest or additional
compensation are prior to the rights of Certificateholders to receive
distributions on the Certificates and, consequently, may result in losses
being allocated to the Subordinated Certificates that would not otherwise have
resulted absent the accrual of such interest or such additional compensation.
Regardless of whether losses ultimately result, delinquencies and
defaults on the Mortgage Loans may significantly delay the receipt of payments
by the holder of a Subordinated Certificate, to the extent that Advances or
another Class of Certificates does not fully offset the effects of any such
delinquency or default. INVESTORS IN THE SUBORDINATED CERTIFICATES SHOULD
CONSIDER THE RISK THAT LOSSES ON THE MORTGAGE LOANS COULD RESULT IN THE
FAILURE OF SUCH INVESTORS TO FULLY RECOVER THEIR INITIAL INVESTMENTS. NO
REPRESENTATION IS MADE AS TO THE FREQUENCY OF DELINQUENCIES, DEFAULTS AND/OR
LIQUIDATIONS THAT MAY OCCUR WITH RESPECT TO THE MORTGAGE LOANS, OR THE
MAGNITUDE OF ANY LOSSES THAT MAY OCCUR WITH RESPECT TO THE MORTGAGE LOANS OR
THE LIKELIHOOD OR MAGNITUDE OF ANY EXTRAORDINARY EXPENSES THAT MAY BE INCURRED
WITH RESPECT TO THE TRUST FUND.
YIELD TABLES
The following Yield Tables assume that: (i) there is no prepayment
prior to the earlier of the Anticipated Repayment date or the Maturity Date
(the Mortgage Loans generally provide that prepayments are prohibited until
the Maturity Date or Anticipated Repayment Date (or in the case of certain
Mortgage loans, three or six months prior to the Anticipated Repayment Date or
Maturity Date), and prior to such dates a Mortgaged Property can be released
only upon defeasance through the substitution of U.S. Treasury obligations),
(ii) all ARD Loans are repaid on their Anticipated Repayment Date, (iii) no
defaults occur during the first [2] years with respect to any Mortgage Loans,
(iv) defaults are calculated in monthly amounts equal to the annualized
percentages specified of the then outstanding unpaid principal balance of the
Mortgage Pool, giving effect to (a) scheduled principal payments, including
balloon payments, previously received and (b) elimination of the cumulative
principal balance assumed to have previously defaulted, (v) losses on
defaulted Mortgage Loans are recognized and applied to the Certificates
immediately, (vi) the assumed loss percentages are the net loss (including
lost interest, (if any), loss of principal and reimbursement of certain
expenses) and (vii) yields are calculated as monthly discount rates equating
the loss-adjusted stream of cash flows in each scenario to the assumed
Certificate purchase prices and converting such monthly discount rates to
corporate bond equivalent yields.
The information provided below is subject to the following
qualifications and, therefore, actual yields on the Subordinated Certificates
and the performance of the Mortgage Pool as a whole may vary based on the
performance of the Mortgage Loans: (i) defaults and losses will occur based on
individual Mortgage Loans, not as fixed percentages of the Mortgage Pool
balance; (ii) certain individual loans and groups of loans with related
borrowers exceed the maximum percentage of the Mortgage Pool assumed to
default in any year; (iii) defaults and loss levels will depend upon the
specific property type and geographical and borrower concentrations in the
Mortgage Pool and may not relate to the historical experience of the Mortgage
Loan Seller or other industry participants with other mortgage loans; (iv)
failure of ARD Loans to prepay in full on the Anticipated Repayment Date may
increase the average life and duration of the Certificates, lowering yields to
maturity on any Certificates purchased at a discount and lengthening the
period of time during which such Certificates are exposed to potential losses;
and (v) delays between the timing of Mortgage Loan defaults and recognition of
losses on the related Mortgage Loans may result in the incurrence of
additional expenses (including reimbursement of Servicer Advances together
with interest thereon, servicing and special servicing fees and servicing and
loan workout expenses) which, like interest and principal of the Senior
Certificates, must be paid prior to payments of principal on the Subordinated
Certificates. While the indicated loss percentages employed in these tables
are assumed to include such additional expenses, protracted delays in the
Mortgage Loan workout process could increase such additional expenses
considerably. Many of the additional expenses represent fees or reimbursement
of expenses to the Special Servicer, who may be an affiliate of the holder of
the Junior Subordinated Certificates. See "Risk Factors and Special
Considerations--Servicer or Special Servicer May Purchase Certificates;
Conflict of Interest".
90
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
ALL CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Certificates ($mm)
As a percentage of Certificates
Weighted average life (years)
First principal payment date
Last principal payment date
Price (%)............................................. Yield to maturity (%)
Duration
Price (%)............................................. Yield to maturity (%)
Duration
Price (%)............................................. Yield to maturity (%)
Duration
Price (%)............................................. Yield to maturity (%)
Duration
Price (%)............................................. Yield to maturity (%)
Duration
</TABLE>
91
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
ALL CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Certificates ($mm)
As a percentage of Certificates
Weighted average life (years)
First principal payment date
Last principal payment date
Price (%)............................................. Yield to maturity (%)
Duration
Price (%)............................................. Yield to maturity (%)
Duration
Price (%)............................................. Yield to maturity (%)
Duration
Price (%)............................................. Yield to maturity (%)
Duration
Price (%)............................................. Yield to maturity (%)
Duration
</TABLE>
92
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENTDATE, YIELD AND
DURATION OF ALL CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Certificates ($mm)
As a percentage of Certificates
Weighted average life (years)
First principal payment date
Last principal payment date
Price (%)............................................. Yield to maturity (%)
Duration
Price (%)............................................. Yield to maturity (%)
Duration
Price (%)............................................. Yield to maturity (%)
Duration
Price (%)............................................. Yield to maturity (%)
Duration
Price (%)............................................. Yield to maturity (%)
Duration
</TABLE>
93
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-1 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-1 Certificates ($mm)
As a percentage of Class B-1 Certificates
</TABLE>
94
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-1 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-1 Certificates ($mm)
As a percentage of Class B-1 Certificates
</TABLE>
95
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-1 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-1 Certificates ($mm)
As a percentage of Class B-1 Certificates
</TABLE>
96
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-2 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-2 Certificates ($mm)
As a percentage of Class B-2 Certificates
</TABLE>
96
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-2 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-2 Certificates ($mm)
As a percentage of Class B-2 Certificates
</TABLE>
97
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-2 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-2 Certificates ($mm)
As a percentage of Class B-2 Certificates
</TABLE>
98
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-3 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-3 Certificates ($mm)
As a percentage of Class B-3 Certificates
</TABLE>
99
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-3 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-3 Certificates ($mm)
As a percentage of Class B-3 Certificates
</TABLE>
100
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-3 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-3 Certificates ($mm)
As a percentage of Class B-3 Certificates
</TABLE>
101
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-4 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-4 Certificates ($mm)
As a percentage of Class B-4 Certificates
</TABLE>
102
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-4 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-4 Certificates ($mm)
As a percentage of Class B-4 Certificates
</TABLE>
103
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-4 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-4 Certificates ($mm)
As a percentage of Class B-4 Certificates
</TABLE>
104
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-5 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-5 Certificates ($mm)
As a percentage of Class B-5 Certificates
</TABLE>
105
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-5 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-5 Certificates ($mm)
As a percentage of Class B-5 Certificates
</TABLE>
106
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-5 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-5 Certificates ($mm)
As a percentage of Class B-5 Certificates
</TABLE>
107
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-6 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-6 Certificates ($mm)
As a percentage of Class B-6 Certificates
</TABLE>
108
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-6 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-6 Certificates ($mm)
As a percentage of Class B-6 Certificates
</TABLE>
109
<PAGE>
WEIGHTED AVERAGE LIFE, FIRST AND LAST PRINCIPAL PAYMENT
DATE, YIELD AND DURATION OF
CLASS B-6 CERTIFICATES
AT VARIOUS ASSUMED PRICES AND MORTGAGE LOAN
DEFAULT RATES ASSUMING [ ]% LOSSES ON DEFAULTED MORTGAGE LOANS
<TABLE>
<CAPTION>
SCENARIO 1 2 3 4 5
<S> <C> <C> <C> <C> <C>
ANNUAL DEFAULT PERCENTAGE:
Years ___-___
Years ___-___
Years ___-___
CUMULATIVE LOSSES REALIZED
YEARS 1-__:
Aggregate ($mm)
As a percentage of Initial Pool Balance
Applied to Class B-6 Certificates ($mm)
As a percentage of Class B-6 Certificates
</TABLE>
YIELD
The yield to maturity on the Subordinated Certificates will depend
upon the price paid by the Certificateholder, the rate and timing of the
distributions in reduction of Certificate Balance of such Certificates and the
rate, timing and severity of Realized Losses on the Mortgage Loans and the
extent to which such losses are allocable in reduction of the Certificate
Balance of such Certificates, as well as prevailing interest rates at the time
of payment or loss realization.
The rate of distributions in reduction of the Certificate Balance of
either Class of Subordinated Certificates, the aggregate amount of
distributions on either Class of Subordinated Certificates and the yield to
maturity of either Class of Subordinated Certificates will be directly related
to the rate of payments of principal (both scheduled and unscheduled) on the
Mortgage Loans and the amount and timing of borrower defaults. In addition,
such distributions in reduction of Certificate Balance may result from
repurchases by the Mortgage Loan Seller due to breaches of representations and
warranties with respect to the Mortgage Loans as described herein under "The
Pooling and Servicing Agreement--Representations and Warranties; Repurchase,"
purchases of the Mortgage Loans in the manner described under "The Pooling and
Servicing Agreement--Optional Termination" or purchases of ARD Loans by Class
LR Certificateholders as described under "Description of the Mortgage
Pool--Certain Terms and Conditions of the Mortgage Loans."
BECAUSE SUBSTANTIALLY ALL PRINCIPAL RECEIVED ON THE MORTGAGE LOANS IS
FIRST ALLOCATED TO THE SENIOR CERTIFICATES UNTIL THEIR RESPECTIVE CERTIFICATE
BALANCES ARE REDUCED TO ZERO, BEFORE PRINCIPAL IS ALLOCATED TO THE
SUBORDINATED CERTIFICATES, THE SUBORDINATED CERTIFICATES MAY NOT RECEIVE ANY
PRINCIPAL FOR A SUBSTANTIAL PERIOD OF TIME.
The Certificate Balance of either Class of Subordinated Certificates
may be reduced without distributions thereon as a result of the allocation of
Realized Losses to such Class, reducing the maximum amount distributable to
such Class in respect of Certificate Balance, as well as the amount of
interest that would have accrued thereon in the absence of such reduction. In
general, a Realized Loss occurs when the aggregate principal balance of a
Mortgage Loan is reduced without an equal distribution to Certificateholders
in reduction of the Certificate Balances of the Certificates. Realized Losses
are likely to occur only in connection with a default on a Mortgage Loan and
the liquidation of the related Mortgaged Properties or a reduction in the
principal balance of a Mortgage Loan by a bankruptcy court.
Because the ability of a borrower to make a Balloon Payment will
depend upon its ability either to refinance the Mortgage Loan or to sell the
related Mortgaged Properties, there is a risk that a borrower may default at
the maturity date. In connection with a default on the Balloon Payment, the
Servicer may agree to extend the maturity date thereof as described under "The
Pooling and Servicing Agreement--Realization Upon Mortgage Loans". In the case
of any such default, recovery of proceeds may be delayed by and until, among
other things, work-outs are negotiated, foreclosures are completed or
bankruptcy proceedings are resolved. In addition, the Directing Holders may
instruct to delay the commencement of any foreclosure proceedings under
certain conditions described herein. Certificateholders are not entitled to
receive
110
<PAGE>
distributions of Monthly Payments or the Balloon Payment when due except to
the extent they are either covered by an Advance or actually received.
Consequently, any defaulted Monthly Payment for which no such Advance is made
and a defaulted Balloon Payment will tend to extend the weighted average lives
of the Certificates, whether or not a permitted extension of the due date of
the related Mortgage Loan has been effected.
The rate of payments (including voluntary and involuntary
prepayments) on pools of Mortgage Loans is influenced by a variety of
economic, demographic, geographic, social, tax, legal and other factors,
including the level of mortgage interest rates and the rate at which borrowers
default on their mortgage loans.
If the purchaser of a Certificate offered at a discount calculates
its anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Mortgage Loans,
the actual yield to maturity will be lower than that so calculated. The effect
of voluntary and involuntary prepayments of the Mortgage Loans on the yield of
each Class of Subordinated Certificates will be diminished by the distribution
of all principal first to the Senior Certificates, until the Certificate
Balances thereof have been reduced to zero, before any distributions in
respect of principal are made on either Class of Subordinated Certificates.
The timing of changes in the rate of prepayment on the Mortgage Loans
may significantly affect the actual yield to maturity experienced by an
investor even if the average rate of principal payments experienced over time
is consistent with such investor's expectation. In general, the earlier a
prepayment of principal on the Mortgage Loans is applied in reduction of the
Certificate Balance of a Class of Subordinated Certificates, the greater the
effect on such investor's yield to maturity.
The rate of principal payments on the Mortgage Loans is affected by
the existence of Lock-out Periods and Prepayment Premium provisions of the
Mortgage Loans, and by the extent to which the Servicer is able to enforce
such provisions. Mortgage Loans with a Lock-out Period or a Prepayment Premium
provision, to the extent enforceable, generally would be expected to
experience a lower rate of principal prepayments than otherwise identical
Mortgage Loans without such provisions, with shorter Lock-out Periods or with
lower Prepayment Premiums. All of the Mortgage Loans have Lock-out Periods
ranging from [ ] months to [ ] months following origination. The weighted
average Lock-out Period for the Mortgage Loans is approximately [ ] months.
All Mortgage Loans are locked out until no earlier than three or six months
preceding their Anticipated Repayment Date or maturity date, as applicable.
See "Description of the Mortgage Pool--Certain Terms and Conditions of the
Mortgage Loans--Prepayment Provisions" herein.
No representation is made as to the rate of principal payments on the
Mortgage Loans or as to the yield to maturity of either Class of Subordinated
Certificates. In addition, although Excess Cash Flow is applied to reduce the
principal of the ARD Loans after their respective Anticipated Repayment Dates,
there can be no assurance that any of such Mortgage Loans will be prepaid on
that date or any date prior to maturity. An investor is urged to make an
investment decision with respect to any Class of Subordinated Certificates
based on the anticipated yield to maturity of such Class of Subordinated
Certificates resulting from its purchase price and such investor's own
determination as to anticipated Mortgage Loan prepayment rates under a variety
of scenarios. The extent to which any Class of Subordinated Certificates is
purchased at a discount or a premium and the degree to which the timing of
payments on such Class of Subordinated Certificates is sensitive to
prepayments will determine the extent to which the yield to maturity of such
Class of Subordinated Certificates may vary from the anticipated yield. An
investor should carefully consider the associated risks, including, in the
case of any Subordinated Certificates purchased at a discount, the risk that a
slower than anticipated rate of principal payments on the Mortgage Loans could
result in an actual yield to such investor that is lower than the anticipated
yield and, in the case of any Subordinated Certificates purchased at a
premium, the risk that a faster than anticipated rate of principal payments
could result in an actual yield to such investor that is lower than the
anticipated yield.
An investor should consider the risk that rapid rates of prepayments
on the Mortgage Loans, and therefore of amounts distributable in reduction of
principal balance of the Subordinated Certificates may coincide with periods
of low prevailing interest rates. During such periods, the effective interest
rates on securities in which an investor may choose to reinvest amounts
distributed in reduction of the principal balance of such investor's
Subordinated Certificate may be lower than the Pass-Through Rate. Conversely,
slower rates of prepayments on the Mortgage Loans, and therefore of amounts
distributable in reduction of principal balance of the Subordinated
Certificates, may coincide with periods of high prevailing interest rates.
During such periods, the amount of principal distributions available to an
investor for reinvestment at such high prevailing interest rates may be
relatively small.
The effective yield to holders of Subordinated Certificates will be
lower than the yield otherwise produced by the Pass-Through Rate and
applicable purchase prices because while interest will accrue from the
eleventh day of each month, the distribution of such interest will not be made
until the Distribution Date occurring in such month, and principal paid on any
Distribution Date will not bear interest during the period after the interest
is paid and before the Distribution Date occurs. Additionally, as described
under "Description of the Subordinated Certificates-- Distributions" herein,
if the portion of the Available Funds distributable in respect of interest on
any Class of Subordinated Certificates on any Distribution Date is less than
the amount of interest required to be paid to the holders of such Class, the
shortfall will be distributable to holders of such Class of Certificates on
subsequent Distribution Dates, to the extent of Available Funds on such
Distribution Dates. Any such shortfall will not bear interest, however, and
will therefore negatively affect the yield to maturity of such Class of
Certificates for so long as it is outstanding.
RATED FINAL DISTRIBUTION DATE
The "Rated Final Distribution Date," [____ 13, ___], is the
Distribution Date after the latest Assumed Maturity Date of any of the
Mortgage Loans. Because certain of the Mortgage Loans have maturity dates that
occur earlier than the latest maturity date, and because certain
111
<PAGE>
of the Mortgage Loans may be prepaid prior to maturity, it is possible that
the Certificate Balance of each Class of Subordinated Certificates will be
reduced to zero significantly earlier than the Rated Final Distribution Date.
WEIGHTED AVERAGE LIFE OF SUBORDINATED CERTIFICATES
Weighted average life refers to the average amount of time that will
elapse from the date of determination to the date of distribution to the
investor of each dollar in reduction of Certificate Balance that is
distributed or allocated, respectively. The weighted average lives of the
Subordinated Certificates will be influenced by, among other things, the rate
at which principal of the Mortgage Loans is paid, which may be in the form of
scheduled amortization, Balloon Payments, voluntary or involuntary prepayments
or liquidations.
Other Factors Affecting Weighted Average Life. The weighted average
lives of the Subordinated Certificates may also be affected to the extent that
additional distributions in reduction of the Certificate Balance of such
Certificates occur as a result of the repurchase or purchase of Mortgage Loans
from the Trust Fund as described under "The Pooling and Servicing
Agreement--Representations and Warranties; Repurchase" or "--Optional
Termination" herein. Such a repurchase or purchase from the Trust Fund will
have the same effect on distributions to the holders of Certificates as if the
related Mortgage Loans had prepaid in full, except that no Prepayment Premiums
are made in respect thereof.
A number of Mortgage Loans have Balloon Payments due at maturity, and
because the ability of a mortgagor to make a Balloon Payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
Balloon Payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the mortgagor or adverse conditions in the market where the
property is located. Any defaulted Balloon Payment or modification that
extends the maturity of a Mortgage Loan will tend to extend the weighted
average life of the Certificates, thereby lengthening the period of time
elapsed from the date of issuance of a Certificate until it is retired.
The number of foreclosures and the principal amount of the Mortgage
Loans that are foreclosed in relation to the number of Mortgage Loans that are
repaid in accordance with their terms will affect the weighted average life of
the Mortgage Loans and that of the Certificates. Servicing decisions made with
respect to the Mortgage Loans, including the use of payment plans prior to a
demand for acceleration and the restructuring of Mortgage Loans in bankruptcy
proceedings, may also have an effect upon the payment patterns of particular
Mortgage Loans and thus the weighted average life of the Certificates.
Acceleration of mortgage payments as a result of certain transfers of
or the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates. A number of the Mortgage Loans may include
"due-on-sale" clauses or "due-on-encumbrance" clauses that allow the holder of
the Mortgage Loans to demand payment in full of the remaining principal
balance of the Mortgage Loans upon sale or certain other transfers of or the
creation of encumbrances upon the related Mortgaged Property. See "Certain
Legal Aspects of Mortgage Loans--Due-on-Sale and Due-on-Encumbrance" and
"Description of the Agreements--Due-on-Sale and Due-on-Encumbrance
Provisions".
Prepayments on mortgage loans may be measured by a prepayment
standard or model. The model used in this Prospectus is the "Constant
Prepayment Rate" or "CPR" model. The CPR model represents an assumed constant
annual rate of prepayment each month, expressed as a per annum percentage of
the then-scheduled principal balance of the pool of mortgage loans. As used in
the following tables, the columns headed "0% CPR" assume that none of the
Mortgage Loans is prepaid before the related Anticipated Repayment Date or
maturity date, as applicable. The columns headed "10% CPR", "25% CPR", "50%
CPR" and "100% CPR" assume that prepayments on the Mortgage Loans are made at
those levels of CPR following the expiration of any Lock-out Period until the
related Anticipated Repayment Date or maturity date, as applicable. All
columns in the following table assume that all of the ARD Loans are fully
prepaid on their related Anticipated Repayment Date and all of the other
Mortgage Loans are paid in full on their maturity date. There is no assurance,
however, that prepayments of the Mortgage Loans will conform to any level of
CPR, and no representation is made that the Mortgage Loans will prepay at the
levels of CPR shown or at any other prepayment rate. The foregoing assumptions
are referred to herein as the "Prepayment Assumptions".
The tables of "Percentages of Initial Certificate Balance
Outstanding" set forth below indicate the weighted average life of each Class
of Subordinated Certificates and set forth the percentage of the initial
Certificate Balance of such Subordinated Certificates that would be
outstanding after each of the dates shown at the various CPRs and based on the
Prepayment Assumptions. For purposes of preparing the tables, it was assumed
that each of the Mortgage Loans has the following characteristics: (i) each
Mortgage Loan will pay principal and interest in accordance with its terms and
scheduled payments will be timely received on the 11th day of each month; (ii)
the Mortgage Loan Seller does not repurchase any Mortgage Loan as described
under "The Pooling and Servicing Agreement--Representations and
Warranties--Repurchase"; (iii) none of the Depositor, Servicer, or the Class
LR Certificateholders exercise the right to cause early termination of the
Trust Fund; (iv) the Servicing Fee Rate for each Distribution Date is an
amount equal to a per annum rate of [ ]% on the Stated Principal Balance of
the Mortgage Loans as of the preceding Due Date; and (v) the date of
determination of weighted average life is [ ]. These assumptions are
collectively referred to as the "Mortgage Loan Assumptions." The Mortgage Loan
Assumptions made in preparing the following tables are expected to vary from
the actual performance of the Mortgage Loans. It is highly unlikely that
principal of the Mortgage Loans will be repaid consistent with assumptions
underlying any one of the scenarios. Investors are urged to conduct their own
analysis concerning the likelihood that the Mortgage Loans may pay or prepay
on any particular date.
112
<PAGE>
Based on the Mortgage Loan Assumptions, the Prepayment Assumptions and
the various CPRs, the tables indicate the weighted average life of the
Subordinated Certificates and set forth the percentages of the initial
Certificate Balance of the Subordinated Certificates that would be outstanding
after the Distribution Date in [ ] of each of the years indicated, at the
indicated CPRs.
113
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS B-1
-------------------------------------------------------
DISTRIBUTION DATE (1) 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage........ 100% 100% 100% 100% 100%
[ ] 13, 1997...
[ ] 13, 1998...
[ ] 13, 1999...
[ ] 13, 2000...
[ ] 13, 2001...
[ ] 13, 2002...
[ ] 13, 2003...
[ ] 13, 2004...
[ ] 13, 2005...
[ ] 13, 2006...
[ ] 13, 2007...
[ ] 13, 2008...
[ ] 13, 2009...
[ ] 13, 2010...
[ ] 13, 2011...
[ ] 13, 2012...
[ ] 13, 2013...
[ ] 13, 2014...
[ ] 13, 2015...
[ ] 13, 2016...
[ ] 13, 2017...
[ ] 13, 2018...
[ ] 13, 2019...
[ ] 13, 2020...
[ ] 13, 2021...
[ ] 13, 2022...
[ ] 13, 2023...
[ ] 13, 2024...
[ ] 13, 2025...
[ ] 13, 2026...
Weighted Average Life (years) (2)
</TABLE>
- --------------------------------
(1) Assuming that the 13th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class B-1 Certificates is determined
by (i) multiplying the amount of each distribution in reduction of Certificate
Balance of such Class by the number of years from the date of determination to
the related Distribution Date, (ii) adding the results and (iii) dividing the
sum by the aggregate distributions in reduction of Certificate Balance
referred to in clause (i).
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS B-2
-------------------------------------------------------
DISTRIBUTION DATE (1) 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage........ 100% 100% 100% 100% 100%
[ ] 13, 1997...
[ ] 13, 1998...
[ ] 13, 1999...
[ ] 13, 2000...
[ ] 13, 2001...
[ ] 13, 2002...
[ ] 13, 2003...
[ ] 13, 2004...
[ ] 13, 2005...
[ ] 13, 2006...
[ ] 13, 2007...
[ ] 13, 2008...
[ ] 13, 2009...
[ ] 13, 2010...
[ ] 13, 2011...
[ ] 13, 2012...
[ ] 13, 2013...
[ ] 13, 2014...
[ ] 13, 2015...
[ ] 13, 2016...
[ ] 13, 2017...
[ ] 13, 2018...
[ ] 13, 2019...
[ ] 13, 2020...
[ ] 13, 2021...
[ ] 13, 2022...
[ ] 13, 2023...
[ ] 13, 2024...
[ ] 13, 2025...
[ ] 13, 2026...
Weighted Average Life (years) (2)
</TABLE>
- --------------------------------
(1) Assuming that the 13th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class B-2 Certificates is determined
by (i) multiplying the amount of each distribution in reduction of Certificate
Balance of such Class by the number of years from the date of determination to
the related Distribution Date, (ii) adding the results and (iii) dividing the
sum by the aggregate distributions in reduction of Certificate Balance
referred to in clause (i).
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS B-3
-------------------------------------------------------
DISTRIBUTION DATE (1) 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage........ 100% 100% 100% 100% 100%
[ ] 13, 1997...
[ ] 13, 1998...
[ ] 13, 1999...
[ ] 13, 2000...
[ ] 13, 2001...
[ ] 13, 2002...
[ ] 13, 2003...
[ ] 13, 2004...
[ ] 13, 2005...
[ ] 13, 2006...
[ ] 13, 2007...
[ ] 13, 2008...
[ ] 13, 2009...
[ ] 13, 2010...
[ ] 13, 2011...
[ ] 13, 2012...
[ ] 13, 2013...
[ ] 13, 2014...
[ ] 13, 2015...
[ ] 13, 2016...
[ ] 13, 2017...
[ ] 13, 2018...
[ ] 13, 2019...
[ ] 13, 2020...
[ ] 13, 2021...
[ ] 13, 2022...
[ ] 13, 2023...
[ ] 13, 2024...
[ ] 13, 2025...
[ ] 13, 2026...
Weighted Average Life (years) (2)
</TABLE>
- --------------------------------
(1) Assuming that the 13th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class B-3 Certificates is determined
by (i) multiplying the amount of each distribution in reduction of Certificate
Balance of such Class by the number of years from the date of determination to
the related Distribution Date, (ii) adding the results and (iii) dividing the
sum by the aggregate distributions in reduction of Certificate Balance
referred to in clause (i).
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS B-4
-------------------------------------------------------
DISTRIBUTION DATE (1) 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage........ 100% 100% 100% 100% 100%
[ ] 13, 1997...
[ ] 13, 1998...
[ ] 13, 1999...
[ ] 13, 2000...
[ ] 13, 2001...
[ ] 13, 2002...
[ ] 13, 2003...
[ ] 13, 2004...
[ ] 13, 2005...
[ ] 13, 2006...
[ ] 13, 2007...
[ ] 13, 2008...
[ ] 13, 2009...
[ ] 13, 2010...
[ ] 13, 2011...
[ ] 13, 2012...
[ ] 13, 2013...
[ ] 13, 2014...
[ ] 13, 2015...
[ ] 13, 2016...
[ ] 13, 2017...
[ ] 13, 2018...
[ ] 13, 2019...
[ ] 13, 2020...
[ ] 13, 2021...
[ ] 13, 2022...
[ ] 13, 2023...
[ ] 13, 2024...
[ ] 13, 2025...
[ ] 13, 2026...
Weighted Average Life (years) (2)
</TABLE>
- --------------------------------
(1) Assuming that the 13th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class B-4 Certificates is determined
by (i) multiplying the amount of each distribution in reduction of Certificate
Balance of such Class by the number of years from the date of determination to
the related Distribution Date, (ii) adding the results and (iii) dividing the
sum by the aggregate distributions in reduction of Certificate Balance
referred to in clause (i).
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS B-5
-------------------------------------------------------
DISTRIBUTION DATE (1) 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage........ 100% 100% 100% 100% 100%
[ ] 13, 1997...
[ ] 13, 1998...
[ ] 13, 1999...
[ ] 13, 2000...
[ ] 13, 2001...
[ ] 13, 2002...
[ ] 13, 2003...
[ ] 13, 2004...
[ ] 13, 2005...
[ ] 13, 2006...
[ ] 13, 2007...
[ ] 13, 2008...
[ ] 13, 2009...
[ ] 13, 2010...
[ ] 13, 2011...
[ ] 13, 2012...
[ ] 13, 2013...
[ ] 13, 2014...
[ ] 13, 2015...
[ ] 13, 2016...
[ ] 13, 2017...
[ ] 13, 2018...
[ ] 13, 2019...
[ ] 13, 2020...
[ ] 13, 2021...
[ ] 13, 2022...
[ ] 13, 2023...
[ ] 13, 2024...
[ ] 13, 2025...
[ ] 13, 2026...
Weighted Average Life (years) (2)
</TABLE>
- --------------------------------
(1) Assuming that the 13th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class B-5 Certificates is determined
by (i) multiplying the amount of each distribution in reduction of Certificate
Balance of such Class by the number of years from the date of determination to
the related Distribution Date, (ii) adding the results and (iii) dividing the
sum by the aggregate distributions in reduction of Certificate Balance
referred to in clause (i).
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS B-6
-------------------------------------------------------
DISTRIBUTION DATE (1) 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial Percentage........ 100% 100% 100% 100% 100%
[ ] 13, 1997...
[ ] 13, 1998...
[ ] 13, 1999...
[ ] 13, 2000...
[ ] 13, 2001...
[ ] 13, 2002...
[ ] 13, 2003...
[ ] 13, 2004...
[ ] 13, 2005...
[ ] 13, 2006...
[ ] 13, 2007...
[ ] 13, 2008...
[ ] 13, 2009...
[ ] 13, 2010...
[ ] 13, 2011...
[ ] 13, 2012...
[ ] 13, 2013...
[ ] 13, 2014...
[ ] 13, 2015...
[ ] 13, 2016...
[ ] 13, 2017...
[ ] 13, 2018...
[ ] 13, 2019...
[ ] 13, 2020...
[ ] 13, 2021...
[ ] 13, 2022...
[ ] 13, 2023...
[ ] 13, 2024...
[ ] 13, 2025...
[ ] 13, 2026...
Weighted Average Life (years) (2)
</TABLE>
- --------------------------------
(1) Assuming that the 13th day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class B-6 Certificates is determined
by (i) multiplying the amount of each distribution in reduction of Certificate
Balance of such Class by the number of years from the date of determination to
the related Distribution Date, (ii) adding the results and (iii) dividing the
sum by the aggregate distributions in reduction of Certificate Balance
referred to in clause (i).
THE DEPOSITOR
Asset Securitization Corporation, the Depositor, is a Delaware
corporation organized on June 23, 1992 for the purpose of acquiring Mortgage
Loans and selling interests therein or bonds secured thereby. It is a wholly
owned subsidiary of Nomura Asset Capital Corporation, which is in turn a
wholly owned subsidiary of Nomura Holding America Inc., a United States-based
holding company, incorporated in Delaware, which is wholly owned by The Nomura
Securities Co., Ltd., a Japanese corporation. The Nomura Securities Co., Ltd.
is engaged in the domestic and international securities business. The
Depositor maintains its principal office at Two World Financial
Center--Building B, 21st Floor, New York, New York 10281-1198. Its telephone
number is (212) 667-9300.
The Depositor does not have, nor is it expected in the future to
have, any significant assets.
THE MORTGAGE LOAN SELLER
Nomura Asset Capital Corporation, a Delaware corporation, the parent of
the Depositor and an affiliate of NSI.
Nomura Asset Capital Corporation, the Mortgage Loan Seller, was
incorporated in 1992 and has been engaged in the business of originating
commercial mortgage loans since its inception. The Mortgage Loan Seller has
been involved in the origination of approximately $15.7 billion in commercial
mortgage loans and other commercial real estate investments from inception
through ____________ 1997.
The Mortgage Loan Seller's principal offices are located at 2 World Financial
Center, Building B, 21st Floor, New York, New York 10281-1198, and it
maintains regional offices in Chicago and Los Angeles, employing a total of
___ professionals involved in the origination, underwriting, closing and
securitization of commercial mortgage loans.
Affiliates of the Mortgage Loan Seller have been involved in a total
of 20 offerings of commercial mortgage-backed securities from 1993 through
December 1996 totaling approximately $7.3 billion in initial principal amount.
These offerings included nine offerings totaling approximately $6.2 billion
issued since March 1994 and which are backed by mortgage loans predominantly
originated directly by the Mortgage Loan Seller.
The ___ mortgage loans originated by the Mortgage Loan Seller and
included in all previous public commercial mortgage-backed securities
offerings of Asset Securitization Corporation and Nomura Asset Securities
Corporation have an aggregate initial principal balance of $_______. These
loans have experienced the following average annual delinquency rate as of
________, 1997:
30+ day delinquent: ____%;
60+ day delinquent: ____%;
90+ day delinquent: ____%;
In foreclosure: ____%;
The average annual delinquency rate, calculated as described above,
for all ___ mortgage loans included in all previous public commercial
mortgage-backed securities offerings of Asset Securitization Corporation and
Nomura Asset Securities Corporation (including mortgage loans originated by
the Mortgage Loan Seller and unaffiliated originators), which have an
aggregate initial principal balance of $______, was the following:
30+ day delinquent: ____%;
60+ day delinquent: ____%;
90+ day delinquent: ____%;
In foreclosure: ____%;
These mortgage loans are not necessarily representative of the
Mortgage Loans included in the Mortgage Pool. There are many factors which
could affect delinquency and default rates for any particular pool of mortgage
loans. See "Risk Factors and Other Special Considerations" and "Industry
Overview." The delinquency/default statistics presented herein do not purport
to be a prediction of the future performance of the Mortgage Loans.
The delinquency information set forth above has been taken from the
servicer remittance reports prepared in connection with previous public
commercial mortgage-backed securities offerings of Asset Securitization
Corporation and Nomura Asset Securities Corporation and none of the Depositor,
Mortgage Loan Seller, Servicer, Special Servicer, Trustee, Fiscal Agent or the
Underwriters makes any representation or warranty as to the accuracy thereof.
The Mortgage Loan Seller is a wholly-owned subsidiary of Nomura Holding
America Inc., a Delaware corporation wholly-owned by The Nomura Securities
Co., Ltd., a Japanese corporation.
THE SERVICER
AMI will be the Servicer and initial Special Servicer and in such
capacities will be responsible for servicing the Mortgage Loans as described
under "The Pooling and Servicing Agreement." AMI is a wholly owned subsidiary
of AMRESCO, a publicly traded (NASDAQ) company. The principal offices of AMI
are located at 235 Peachtree Street, NE, Suite 900, Atlanta, Georgia 30303.
The servicing of all performing loans will be performed by the AMRESCO
Services Division of AMI.
AMI services AMRESCO's portfolio, which as of September 1, 1996
consisted of approximately 11,127 loans with an aggregate principal balance of
approximately $14.9 billion, making it the largest commercial servicer
according to the 1996 ranking issued by the Mortgage Banker Association of
America. The portfolio is significantly diversified both geographically and by
product type. AMI also provides servicing for other securitized transactions
under full, primary, sub and master servicing contracts for both public and
private placement transactions representing both single and multi-borrower
mortgage pools, which as of [____] consisted of [____].
The information concerning AMI set forth herein has been provided by
AMRESCO, and none of the Mortgage Loan Seller, the Depositor, the Trustee, the
Fiscal Agent or the Underwriters makes any representation or warranty as to
the accuracy thereof.
THE TRUSTEE
LaSalle National Bank, a nationally chartered bank with its principal
offices in Chicago, Illinois, will act as Trustee pursuant to the Pooling and
Servicing Agreement. The Trustee's corporate trust office is located at 135
South LaSalle Street, Suite 1740, Chicago, Illinois 60603, Attention: Asset
Backed Securities Trust Services, Nomura-D4.
THE FISCAL AGENT
ABN AMRO Bank N.V., a banking corporation organized under the laws of
The Netherlands, will act as Fiscal Agent pursuant to the Pooling and
Servicing Agreement. The Fiscal Agent's office is located at 135 South LaSalle
Street, Chicago, Illinois 60603. The Fiscal Agent will be deemed to have been
removed in the event of the resignation or removal of the Trustee.
THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of [ ] 1, 1997 (the "Pooling and Servicing
Agreement"), by and among the Depositor, the Servicer, the Special Servicer,
the Trustee and the Fiscal Agent.
The Depositor will provide to a prospective or actual holder of any
Subordinated Certificate without charge, upon written request, a copy (without
exhibits) of the Pooling and Servicing Agreement. Requests should be addressed
to Asset Securitization Corporation, 2 World Financial Center, Building B, New
York, New York 10281-1198.
ASSIGNMENT OF THE MORTGAGE LOANS
On the Closing Date, the Depositor will sell, transfer or otherwise
convey, assign or cause the assignment of the Mortgage Loans, without
recourse, to the Trustee for the benefit of the holders of Certificates. On or
prior to the Closing Date, the Depositor will deliver to the Trustee, with
respect to each Mortgage Loan (i) the original Mortgage Note endorsed without
recourse to the order of the Trustee, as trustee; (ii) the original mortgage
or counterpart thereof; (iii) the assignment of the mortgage in recordable
form in favor of the Trustee; (iv) if applicable, preceding assignments of
mortgages; (v) to the extent not contained in the Mortgages, the original
assignments of leases and rents or counterpart thereof; (vi) if applicable,
the original assignments of assignments of leases and rents to the Trustee;
(vii) if applicable, preceding assignments of assignments of leases and rents;
(viii) where applicable, a certified copy of the UCC-1 Financing Statements,
if any, including UCC-3 continuation statements and UCC-3 assignments; and
(ix) the original lender's title insurance policy (or marked commitments to
insure). The Trustee will hold such documents in trust for the benefit of the
holders of Certificates. The Depositor will promptly cause the assignment of
each Mortgage Loan to be recorded in the appropriate public office for real
property records, except in the State of California or in other states where,
in the opinion of counsel acceptable to the Trustee, such recording is not
required to protect the Trustee's interest in the Mortgage Loan against the
claim of any subsequent transferee or any successor to or creditor of the
Depositor, the Servicer, the relevant Mortgage Loan Seller or any other prior
holder of the Mortgage Loan.
The Trustee is obligated to review such documents for each Mortgage
Loan within 45 days after the later of delivery or the Cut-off Date and report
any missing documents or certain types of defects therein to the Depositor. If
any such document is found to be missing or defective in any material respect,
the Trustee (or such custodian) shall take such action as required in the
Pooling and Servicing Agreement, which may include immediately notifying the
Servicer and the Depositor. If the Mortgage Loan Seller, upon notification,
cannot cure the omission or defect within a specified number of days after
receipt of such notice, the Mortgage Loan Seller will be obligated, within a
specified number of days of receipt of such notice, to repurchase the related
Mortgage Loan from the Trustee at the Purchase Price or substitute for such
Mortgage Loan. There can be no assurance that a Mortgage Loan Seller will
fulfill this repurchase or substitution obligation. Although the Servicer is
obligated to use its best efforts to enforce such obligation, neither the
Servicer nor the Depositor will be obligated to repurchase or substitute for
such Mortgage Loan if the Mortgage Loan Seller defaults on its obligation.
This repurchase or substitution obligation may constitute the sole remedy
available to the Certificateholders or the Trustee for omission of, or a
material defect in, a constituent document.
REPRESENTATIONS AND WARRANTIES; REPURCHASE
In the Pooling and Servicing Agreement, the Depositor will assign the
representations and warranties made by the Mortgage Loan Seller to the
Depositor in the Mortgage Loan Purchase and Sale Agreement to the Trustee for
the benefit of Certificateholders. In the Mortgage Loan Purchase and Sale
Agreement, the Mortgage Loan Seller will represent and warrant, among other
things, that (subject to certain exceptions specified in the Mortgage Loan
Purchase and Sale Agreement), as of the Closing Date (unless otherwise
specified):
(i) immediately prior to the sale, transfer and assignment to the
Depositor, each related Note and Mortgage were not subject to an
assignment or pledge, and the Mortgage Loan Seller has good title to,
and is the sole owner of, each Mortgage Loan;
(ii) the Mortgage Loan Seller has full right and the authority
to sell, assign and transfer such Mortgage Loan;
(iii) the Mortgage Loan Seller is transferring such Mortgage Loan
free and clear of any and all liens, pledges, charges or security
interests of any nature encumbering such Mortgage Loan;
(iv) each related Note, Mortgage, Assignment of Leases and Rents
(if any) and other agreement executed in connection with such Mortgage
Loan are legal, valid and binding obligations of the related borrower,
enforceable in accordance with their terms, except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of
creditors rights generally, or by general principles of equity
(regardless of whether such enforceability is considered in a proceeding
in equity or at law);
(v) each related Assignment of Leases and Rents, if any, creates a
valid, collateral or first priority assignment of, or a valid first
priority security interest in, certain rights under the related leases,
subject only to a license granted to the related borrower to exercise
certain rights and to perform certain obligations of the lessor under
such leases, including the right to operate the related Mortgaged
Property; no person other than the related borrower owns any interest in
any payments due under such leases that is superior to or of equal
priority with the mortgagee's interest therein;
(vi) each related assignment of Mortgage from the Mortgage Loan
Seller to the Depositor, and any related Reassignment of Assignment of
Leases and Rents, if any, or assignment of any other agreement executed
in connection with such Mortgage Loan, from the Mortgage Loan Seller to
the Depositor constitutes the legal, valid and binding assignment from
the Mortgage Loan Seller to the Depositor except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, liquidation,
receivership, moratorium or other laws relating to or affecting
creditor's rights generally, or by general principles or equity
(regardless of whether such enforcement is considered in a proceeding in
equity or law);
(vii) since origination, and except as set forth in the related
mortgage file, such Mortgage Loan has not been waived, modified,
altered, satisfied, canceled, subordinated or rescinded and, each
related Mortgaged Property has not been released from the lien of the
related Mortgage in any manner which materially interferes with the
security intended to be provided by such Mortgage;
(viii) each related Mortgage is a valid and enforceable first lien
on the related Mortgaged Property, and such Mortgaged Property (subject
to the matters discussed in clause (xi) below) is free and clear of any
mechanics' and materialmen's liens which are prior to or equal with the
lien of the related Mortgage, except those which are insured against by
a lender's title insurance policy (as set forth in the Mortgage Loan
Purchase and Sale Agreement);
(ix) the Mortgage Loan Seller has not taken any action that would
cause the representations and warranties made by each related borrower
in the Mortgage Loan not to be true;
(x) the Mortgage Loan Seller has no knowledge that the
representations and warranties made by each related borrower in such
Mortgage Loan are not true in any material respect;
(xi) the lien of each related Mortgage is insured by an ALTA
lender's title insurance policy (or a binding commitment therefor), or
its equivalent as adopted in the applicable jurisdiction, insuring the
Mortgage Loan Seller, its successors and assigns, as to a valid and
perfected first priority security interest in the related Mortgaged
Property and the first priority lien of the Mortgage in the original
principal of such Mortgage Loan (as set forth on the Mortgage Loan
Schedule which is an exhibit to the Pooling and Servicing Agreement)
after all advances of principal, subject only to (a) the lien of current
real property taxes, ground rents, water charges, sewer rents and
assessments not yet due and payable, (b) covenants, conditions and
restrictions, rights of way, easements and other matters of public
record, none of which, individually or in the aggregate, materially
interferes with the current use of the Mortgaged Property or the
security intended to be provided by such Mortgage or with the borrower's
ability to pay its obligations when they become due or the value of the
Mortgaged Property and (c) the exceptions (general and specific) set
forth in such policy, none of which, individually or in the aggregate,
materially interferes with the security intended to be provided by such
Mortgage or with the borrower's ability to pay its obligations when they
become due or the value of the Mortgaged Property; the Mortgage Loan
Seller or its successors or assigns is the sole named insured of such
policy; such policy is assignable to the Depositor without the consent
of or any notification to the insurer, and is in full force and effect
upon the consummation of the transactions contemplated by the Mortgage
Loan Purchase and Sale Agreement; no claims have been made under such
policy and the Mortgage Loan Seller has not done anything, by act or
omission, and the Mortgage Loan Seller has no knowledge of any matter,
which would impair or diminish the coverage of such policy; to the
extent required by applicable law the insurer issuing such policy is
qualified to do business in the jurisdiction in which the related
Mortgaged Properties are located;
(xii) the proceeds of such Mortgage Loan have been fully disbursed
and there is no requirement for future advances thereunder and it
covenants that it will not make any future advances under the Mortgage
Loan to the related borrower;
(xiii) each related Mortgaged Property is free of any material
damage that would affect materially and adversely the value of such
Mortgaged Property as security for the Mortgage Loan and is in good
repair and there is no proceeding pending for the total or partial
condemnation of such Mortgaged Property;
(xiv) each of the related borrowers (and in the case of certain
loans, each of the operators of the senior housing/healthcare facility)
is in possession of all material licenses, permits and other
authorizations necessary and required by all applicable laws for the
conduct of its business; all such licenses, permits and authorizations
are valid and in full force and effect; and if a related Mortgaged
Property is improved by a senior housing or healthcare facility, the
most recent inspection or survey by governmental authorities having
jurisdiction in connection with such licenses, permits and
authorizations did not cite such Mortgaged Property for material
violations (which shall include only "Level A" violations, in the case
of skilled nursing facilities, that have not been cured);
(xv) the Mortgage Loan Seller or Bloomfield has inspected or caused
to be inspected each related Mortgaged Property within the past twelve
months preceding the Cut-off Date or within one month of origination of
the Mortgage Loan;
(xvi) such Mortgage Loan does not have a shared appreciation
feature, other contingent interest feature or negative amortization;
(xvii) such Mortgage Loan is a whole loan and no other party
holds a participation interest in the Mortgage Loan;
(xviii) (A) the Mortgage Rate (exclusive of any default interest
or yield maintenance charges) of such Mortgage Loan complied as of the
date of origination with, or is exempt from, applicable state or federal
laws, regulations and other requirements pertaining to usury; any and
all other requirements of any federal, state or local laws, including,
without limitation, truth-in-lending, real estate settlement procedures,
equal credit opportunity or disclosure laws, applicable to such Mortgage
Loan have been complied with as of the date of origination of such
Mortgage Loan or (B) the Mortgage Loan Seller has received an opinion to
such effect;
(xix) no fraudulent acts were committed by the Mortgage Loan
Seller or Bloomfield during the origination process of such Mortgage
Loan;
(xx) all taxes and governmental assessments that prior to the
Closing Date became due and owing in respect of each related Mortgaged
Property have been paid, or an escrow of funds in an amount sufficient
to cover such payments has been established;
(xxi) all escrow deposits and payments required pursuant to the
Mortgage Loan are in the possession, or under the control, of the
Mortgage Loan Seller or its agent and there are no deficiencies in
connection therewith;
(xxii) to the extent required under applicable law, as of the
Cut-off Date, the Mortgage Loan Seller was authorized to transact and do
business in the jurisdiction in which each related Mortgaged Property is
located at all times when it held the Mortgage Loan;
(xxiii) each related Mortgaged Property is insured by a fire and
extended perils insurance policy, issued by an insurer meeting the
requirements of the Mortgage Loans, in an amount not less than the
replacement cost and the amount necessary to avoid the operation of any
co-insurance provisions with respect to the Mortgaged Property; each
related Mortgaged Property is also covered by business interruption
insurance and comprehensive general liability insurance in amounts
generally required by institutional lenders for similar properties; all
premiums on such insurance policies required to be paid as of the date
hereof have been paid; such insurance policies require prior notice to
the insured of termination or cancellation, and no such notice has been
received; each related Mortgage obligates the related borrower to
maintain all such insurance and, at such borrower's failure to do so,
authorizes the mortgagee to maintain such insurance at the borrower's
cost and expense and to seek reimbursement therefor from such borrower;
(xxiv) there is no default, breach, violation or event of
acceleration existing under the related Mortgage or the related Note and
no event (other than payments due but not yet 30 days delinquent) which,
with the passage of time or with notice and the expiration of any grace
or cure period, would and does constitute a default, breach, violation
or event of acceleration;
(xxv) such Mortgage Loan has not been 30 or more days delinquent
since origination and as of the Cut-off Date was not 30 or more days
delinquent;
(xxvi) each related Mortgage contains customary and enforceable
provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Mortgaged Property of
the benefits of the security, including realization by judicial or, if
applicable, non-judicial foreclosure, and there is no exemption
available to the borrower which would interfere with such right to
foreclose;
(xxvii) in each related Mortgage or Loan Agreement, the related
borrower represents and warrants that it has not used, caused or
permitted to exist and will not use, cause or permit to exist on the
related Mortgaged Property any Hazardous Materials in any manner which
violates federal, state or local laws, ordinances, regulations, orders,
directives or policies governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or
disposal of Hazardous Materials; the related borrower agrees to
indemnify, defend and hold the mortgagee and its successors and assigns
harmless from and against any and all losses, liabilities, damages,
injuries, penalties, fines, expenses, and claims of any kind whatsoever
(including attorneys' fees and costs) paid, incurred or suffered by, or
asserted against, any such party resulting from a breach of any
representation, warranty or covenant given by the borrower in such
Mortgage or Loan Agreement. A Phase I environmental report was conducted
by a reputable environmental engineer in connection with such Mortgage
Loan, which report, except as otherwise disclosed herein did not
indicate any material non-compliance or material existence of Hazardous
Materials. To the best of the Mortgage Loan Seller's knowledge, each
related Mortgaged Property is in material compliance with all applicable
federal, state and local laws pertaining to environmental hazards, and
no notice of violation of such laws has been issued by any governmental
agency or authority; the Mortgage Loan Seller has not taken any action
which would cause the related Mortgaged Property not to be in compliance
with all federal, state and local laws pertaining to environmental
hazards;
(xxviii) each related Mortgage or Loan Agreement contains
provisions for the acceleration of the payment of the unpaid principal
balance of such Mortgage Loan if, without the prior written consent of
the mortgagee or the satisfaction of certain conditions, the
related Mortgaged Property, or any interest therein, is directly or
indirectly transferred or sold, or encumbered in connection with
subordinate financing;
(xxix) (1) the Mortgage Loan is directly secured by a Mortgage on
a commercial property or multifamily residential property, and (2) the
fair market value of such real property, as evidenced by an MAI
appraisal conducted within 12 months of the origination of the Mortgage
Loan, was at least equal to 80% of the principal amount of the Mortgage
Loan (a) at origination (or if the Mortgage Loan has been modified in a
manner that constituted a deemed exchange under Section 1001 of the Code
at a time when the Mortgage Loan was not in default or default with
respect thereto was not reasonably foreseeable, the date of the last
such modification) or (b) at the Closing Date; provided that the fair
market value of the real property interest must first be reduced by (A)
the amount of any lien on the real property interest that is senior to
the Mortgage Loan (unless such senior lien also secures a Mortgage Loan,
in which event the computation described in (a) and (b) shall be made on
an aggregated basis) and (B) a proportionate amount of any lien that is
in parity with the Mortgage Loan (unless such other lien secures a
Mortgage Loan that is cross-collateralized with such Mortgage Loan, in
which event the computation described in (a) and (b) shall be made on an
aggregate basis);
(xxx) neither the Mortgage Loan Seller nor any affiliate thereof
has any obligation or right to make any capital contribution to any
borrower under a Mortgage Loan, other than contributions made on or
prior to the Closing Date; and
(xxxi) with respect to each Mortgaged Property where the entire
estate of the related borrower therein is a leasehold estate, that
(A) The ground lease or a memorandum regarding it has been
duly recorded. The ground lease permits the interest of the lessee
to be encumbered by the related Mortgage and does not restrict the
use of the related Mortgaged Property by such lessee, its
successors or assigns in a manner that would adversely affect the
security provided by the related Mortgage. There has been no
material change in the terms of such ground lease since its
recordation, except by written instruments, all of which are
included in the related Mortgage File;
(B) The lessor under such ground lease has agreed in
writing and included in the related Mortgage File that the ground
lease may not be amended, modified, canceled or terminated without
the prior written consent of the mortgagee and that any such action
without such consent is not binding on the mortgagee, its
successors or assigns;
(C) The ground lease has an original term (or an original
term plus one or more optional renewal terms, which, under all
circumstances, may be exercised, and will be enforceable, by the
mortgagee) that extends not less than 10 years beyond the stated
maturity of the related Mortgage Loan;
(D) The ground lease is not subject to any liens or
encumbrances superior to, or of equal priority with, the Mortgage.
The ground lease is, and provides that it shall remain prior to any
Mortgage or other lien upon the related fee interest;
(E) The ground lease is assignable to the mortgagee under
the lease hold estate and its assigns without the consent of the
lessor thereunder;
(F) As of the date of execution and delivery, the ground
lease is in full force and effect and no default has occurred, nor
is there any existing condition which, but for the passage of time
or giving of notice, would result in a default under the terms of
the ground lease;
(G) The ground lease or ancillary agreement between the
lessor and the lessee requires the lessor to give notice of any
default by the lessee to the mortgagee. The ground lease or
ancillary agreement further provides that no notice given is
effective against the mortgagee unless a copy has been given to the
mortgagee in a manner described in the ground lease or ancillary
agreement;
(H) A mortgagee is permitted a reasonable opportunity
(including, where necessary, sufficient time to gain possession of
the interest of the lessee under the ground lease through legal
proceedings, or to take other action so long as the mortgagee is
proceeding diligently) to cure any default under the ground lease
which is curable after the receipt of notice of any default before
the lessor may terminate the ground lease. All rights of the
mortgagee under the ground lease and the related Mortgage (insofar
as it relates to the ground lease) may be exercised by or on behalf
of the mortgagee;
(I) The ground lease does not impose any restrictions on
subletting that would be viewed as commercially unreasonable
by an institutional investor. The lessor is not permitted to
disturb the possession, interest or quiet enjoyment of any
subtenant of the lessee in the relevant portion of the Mortgaged
Property subject to the ground lease for any reason, or in any
manner, which would adversely affect the security provided by the
related Mortgage;
(J) Any related insurance proceeds or condemnation award
(other than in respect of a total or substantially total loss or
taking) will be applied either to the repair or restoration of all
or part of the related Mortgaged Property, with the mortgagee or a
trustee appointed by it having the right to hold and disburse such
proceeds as repair or restoration progresses, or to the payment of
the outstanding principal balance of the Mortgage Loan, together
with any accrued interest; and
(K) Under the terms of the ground lease and the related
Mortgage, any related insurance proceeds, or condemnation
award in respect of a total or substantially total loss or taking
of the related Mortgaged Property will be applied first to the
payment of the outstanding principal balance of the Mortgage Loan,
together with any accrued interest (except where contrary to
applicable law or in cases where a different allocation would not
be viewed as commercially unreasonable by any institutional
investor, taking into account the relative duration of the ground
lease and the related Mortgage and the ratio of the market value of
the related Mortgage property to the outstanding principal balance
of such Mortgage Loan). Until the principal balance and accrued
interest rate are paid in full, neither the lessee nor the lessor
under the ground lease will have the option to terminate or modify
the ground lease without prior written consent of the mortgagee as
a result of any casualty or partial condemnation, except to provide
for an abatement of the rent.
The Pooling and Servicing Agreement requires that the Servicer, the
Special Servicer or the Trustee notify the Mortgage Loan Seller and the
Depositor upon its becoming aware of (a) any breach of any representation or
warranty contained in clauses (i), (ii), (iii), (iv), (v), (vi), (vii),
(viii), (ix), (xi), (xii), (xv), (xvi), (xvii), (xviii), (xix), (xx), (xxiv)
or (xxix) and (b) any breach of any representation or warranty contained in
clauses (x), (xiii), (xiv), (xxi), (xxii), (xxiii), (xxv), (xxvi), (xxvii),
(xxviii), (xxx) or (xxxi) that materially and adversely affects the value of
such Mortgage Loan or the interests of the holders of the Certificates
therein. The Mortgage Loan Purchase and Sale Agreement provides that, with
respect to any such Mortgage Loan, within 90 days after notice from the
Servicer, the Special Servicer or the Trustee, the Mortgage Loan Seller shall
either (a) repurchase such Mortgage Loan at an amount equal to (i) the
outstanding principal balance of the Mortgage Loan as of the Due Date as to
which a payment was last made by the borrower (less any P&I Advances
previously made on account of principal), (ii) accrued interest up to the Due
Date in the month following the month in which such repurchase occurs (less
P&I Advances previously made on account of interest), (iii) the amount of any
unreimbursed Advances (with interest thereon) and any unreimbursed servicing
compensation relating to such Mortgage Loan and (iv) any expenses reasonably
incurred or to be incurred by the Servicer, the Special Servicer or the
Trustee in respect of the breach or defect giving rise to the repurchase
obligation, including any expenses arising out of the enforcement of the
repurchase obligation (such price the "Repurchase Price") or (b) promptly cure
such breach in all material respects, provided, however, that in the event
that such breach is capable of being cured but not within such 90-day period
and the Mortgage Loan Seller as determined by the Servicer has commenced and
is diligently proceeding with the cure of such breach, the Mortgage Loan
Seller will have an additional 90 days to complete such cure; provided,
further, that with respect to such additional 90-day period the Mortgage Loan
Seller shall have delivered an officer's certificate to the Trustee and the
Servicer setting forth the reason such breach is not capable of being cured
within the initial 90-day period and what actions the Mortgage Loan Seller is
pursuing in connection with the cure thereof and stating that the Mortgage
Loan Seller anticipates that such breach will be cured within the additional
90-day period; and, provided, further, that in the event the Mortgage Loan
Seller fails to cure such breach within such additional 90-day period, the
Repurchase Price shall include interest on any Advances made in respect of the
related Mortgage Loan during such period.
Notwithstanding the foregoing, upon discovery by the Trustee, the
Custodian, the Servicer or Special Servicer of a breach of a representation or
warranty that causes any Mortgage Loan not to be a "qualified mortgage" within
the meaning of the REMIC provisions of the Code, such person shall give prompt
notice thereof to the Depositor and within 90 days after such discovery, if
such breach cannot be cured within such period, the Depositor shall purchase,
or cause the Mortgage Loan Seller to purchase, such Mortgage Loan from the
Trust Fund at the Repurchase Price.
The obligations of the Mortgage Loan Seller to repurchase or cure
constitute the sole remedies available to holders of Certificates or the
Trustee for a breach of a representation or warranty by the Mortgage Loan
Seller. None of the Depositor (except as described in the previous paragraph),
the Servicer, the Special Servicer, the Trustee or the Fiscal Agent will be
obligated to purchase a Mortgage Loan if the Mortgage Loan Seller defaults on
its obligation to repurchase or cure, and no assurance can be given that the
Mortgage Loan Seller will fulfill such obligations. If such obligation is not
met, as to a Mortgage Loan that is not a "qualified mortgage," the Upper-Tier
REMIC and Lower-Tier REMIC may be disqualified. However, with respect to the
Mortgage Loans acquired by the Mortgage Loan Seller from Bloomfield, the
Mortgage Loan Seller will also assign to the Depositor, and the Depositor will
further assign to the Trustee, the Mortgage Loan Seller's rights and remedies
against Bloomfield in respect of the representations and warranties made by
Bloomfield in its purchase and sale agreement with the Mortgage Loan Seller
(the "Bloomfield Purchase Agreement"), except that the Trustee will be
required to reassign such rights and remedies to the Mortgage Loan Seller as
to individual Mortgage Loans repurchased by the Mortgage Loan Seller.
SERVICING OF THE MORTGAGE LOANS; COLLECTION OF PAYMENTS
The Pooling and Servicing Agreement requires the Servicer and Special
Servicer to service and administer the Mortgage Loans on behalf of the Trust
Fund solely in the best interests of and for the benefit of all of the holders
of Certificates (as determined by the Servicer or Special Servicer in the
exercise of its reasonable judgment) in accordance with applicable law, the
terms of the Pooling and Servicing Agreement and the Mortgage Loans and to the
extent not inconsistent with the foregoing, in the same manner in which, and
with the same care, skill, prudence and diligence with which, it (a) services
and administers similar mortgage loans comparable to the Mortgage Loans and
held for other third party portfolios or (b) administers mortgage loans for
its own account, whichever standard is higher, but without regard to (i) any
other relationship that the Servicer or Special Servicer, or an affiliate of
the Servicer or Special Servicer, may have with the borrowers; (ii) the
ownership of any Certificate by the Servicer or Special Servicer or any
affiliate of the Servicer or Special Servicer, as applicable; (iii) the
Servicer's or Special Servicer's obligation to make Advances or to incur
servicing expenses with respect to the Mortgage Loans; (iv) the Servicer's or
Special Servicer's right to receive compensation for its services under the
Pooling and Servicing Agreement or with respect to any particular transaction;
or (v) the ownership, or servicing or management for others, by the Servicer
or Special Servicer of any other mortgage loans or property (the "Servicing
Standard"). The Servicer and the Special Servicer are permitted, at their own
expense, to employ subservicers, agents or attorneys in performing any of
their respective obligations under the Pooling and Servicing Agreement, but
will not thereby be relieved of any such obligation, and will be responsible
for the acts and omissions of any such subservicers, agents or attorneys. The
Pooling and Servicing Agreement provides, however, that neither the Servicer,
the Special Servicer nor any of their respective directors, officers,
employees or agents shall have any liability to the Trust Fund or the
Certificateholders for taking any action or refraining from taking an action
in good faith, or for errors in judgment. The foregoing provision would not
protect the Servicer or the Special Servicer for the breach of its
representations or warranties in the Pooling and Servicing Agreement, the
breach of certain specified covenants therein or any liability by reason of
willful misfeasance, bad faith, fraud, negligence or a breach of the Servicing
Standard in the performance of its duties or by reason of its reckless
disregard of obligations or duties under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement requires the Servicer or the
Special Servicer, as applicable, to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
to the extent such procedures shall be consistent with the Servicing Standard.
Consistent with the above, the Servicer or Special Servicer may, in its
discretion, waive any late payment charge in connection with any delinquent
Monthly Payment or Balloon Payment with respect to any Mortgage Loan. With
respect to the ARD Loans, the Servicer and Special Servicer will be directed
in the Pooling and Servicing Agreement not to take any enforcement action with
respect to payment of Excess Interest or principal in excess of the principal
component of the constant Monthly Payment prior to the final maturity date.
The Pooling and Servicing Agreement provides that if a Mortgage Loan provides
that the lender may in its direction apply certain amounts to a prepayment of
principal (e.g., by applying casualty or condemnation proceeds or funds
escrowed improvements not completed by the required date) prior to the
expiration of the related Lock-out Period, the Special Servicer cannot consent
to such a prepayment unless the Special Servicer has first received the
consent of the Servicer or the holders of 66 2/3% of the Voting Rights of the
Certificates responding to a solicitation of their consent. With respect to
any Specially Serviced Mortgage Loan, subject to the restrictions set forth
below under "--Realization Upon Mortgage Loans," the Special Servicer will be
entitled to pursue any of the remedies set forth in the related Mortgage,
including the right to acquire, through foreclosure, all or any of the
Mortgaged Properties securing such Mortgage Loan. The Servicer or Special
Servicer may elect to extend a Mortgage Loan (subject to conditions described
herein) notwithstanding its decision to foreclose on certain of the Mortgaged
Properties.
ADVANCES
The Servicer will be obligated to advance, on the business day
immediately preceding a Distribution Date (the "Servicer Remittance Date") an
amount (each such amount, a "P&I Advance") equal to the total or any portion
of the Monthly Payment or Minimum Defaulted Monthly Payment on a Mortgage Loan
(with interest at the Mortgage Pass-Through Rate) not received that was
delinquent as of the close of business on the immediately preceding Due Date
(and which delinquent payment has not been cured as of the Servicer Remittance
Date), or, in the event of a default in the payment of amounts due on the
maturity date of a Mortgage Loan, the amount equal to the Monthly Payment or
portion thereof not received that was due prior to the maturity date provided,
however, the Servicer will not be required to make an Advance to the extent it
determines that such advance would not be ultimately recoverable from
subsequent payment, liquidation proceeds or Net REO Proceeds. Advances are
intended to maintain a regular flow of scheduled interest and principal
payments to holders of the Certificates entitled thereto, rather than to
guarantee or insure against losses. The Servicer will not be required or
permitted to make a P&I Advance for Excess Interest or Default Interest. The
amount required to be advanced in respect of delinquent Monthly Payments,
Assumed Scheduled Payments or Minimum Defaulted Monthly Payments on a Mortgage
Loan that has been subject to an Appraisal Reduction Event will equal the
product of (a) the amount that would be required to be advanced by the
Servicer without giving effect to such Appraisal Reduction Event and (b) a
fraction, the numerator of which is the Stated Principal Balance of the
Mortgage Loan less any Appraisal Reduction Amounts thereof and the denominator
of which is the Stated Principal Balance. In addition, and without
duplication, the Servicer will make only one P&I Advance in respect of each
Mortgage Loan for the benefit of the most subordinate Class of Certificates
then outstanding unless the related defaulted Monthly Payment is cured prior
to following Due Date. The amount to be advanced by the Servicer, Special
Servicer, Trustee or Fiscal Agent in respect of any Mortgage Loan on any
Distribution Date will be reduced by the greater of the reduction in respect
of any Appraisal Reduction and the reduction described in the preceding
sentence. On any Servicer Remittance Date on which the Servicer is not
required to make a P&I Advance to the most subordinate Class of Certificates
(as described above), the Servicer will initially make such P&I Advance (for
accounting purposes only) but will be required, immediately subsequent to the
making of such P&I Advance, to reimburse itself (without interest) for such
P&I Advance from and up to all amounts with respect to such Mortgage Loan that
would be distributed to the most subordinate Class on the related Distribution
Date then outstanding if such Mortgage Loan was not in default (such amount of
reimbursement, the "Subordinate Class Advance Amount"). No interest will
accrue on, or be payable with respect to, any outstanding Subordinate Class
Advance Amount.
The obligation of the Servicer, the Special Servicer, the Trustee or
the Fiscal Agent, as applicable, to make Advances with respect to any Mortgage
Loan pursuant to the Pooling and Servicing Agreement continues through the
foreclosure of such Mortgage Loan and until the liquidation of the Mortgage
Loan or related Mortgaged Properties. Advances are intended to provide a
limited amount of liquidity, not to guarantee or insure against losses. None
of the Servicer, the Special Servicer, the Trustee or the Fiscal Agent will be
required to make any Advance that it determines in its good faith business
judgment will not be recoverable by the Servicer, the Special Servicer, the
Trustee or the Fiscal Agent, as applicable, out of related late payments, net
insurance proceeds, net condemnation proceeds, net liquidation proceeds and
certain other collections with respect to the Mortgage Loan as to which such
Advances were made. In addition, if the Servicer, the Special Servicer, the
Trustee or the Fiscal Agent, as applicable, determines in its good faith
business judgment that any Advance previously made will not be recoverable
from the foregoing sources, then the Servicer, the Special Servicer, the
Trustee or the Fiscal Agent, as applicable, will be entitled to reimburse
itself for such Advance, plus interest thereon, out of amounts payable on or
in respect of all of the Mortgage Loans prior to distributions on the
Certificates. Any such judgment or determination with respect to the
recoverability of Advances must be evidenced by an officers' certificate
delivered to the Trustee, in the case of the Servicer, the Servicer, in the
case of the Special Servicer, and the Depositor, in the case of the Trustee or
the Fiscal Agent, setting forth such judgment or determination of
nonrecoverability and the considerations of the Servicer, the Special
Servicer, the Trustee or the Fiscal Agent, as applicable, forming the basis of
such determination (including but not limited to information selected by the
person making such determination in its good faith discretion such as related
income and expense statements, rent rolls, occupancy status, property
inspections, inquiries by the Servicer, the Special Servicer, the Trustee
or the Fiscal Agent, as applicable, and an independent appraisal performed
in accordance with MAI standards conducted within the past twelve months
on the applicable Mortgaged Property).
The Trustee will provide to the Servicer written statements prior to
the Servicer Remittance Date listing, among other things, the distribution due
to the Holders of the most subordinate Class of Certificates. For purposes of
determining the most subordinate Class, (i) the Class A-1A, Class A-1B, Class
A-1C, Class A-CS1 and Class A-CS2 Certificates collectively and (ii) the Class
B-7 and Class B-7H Certificates together will, in each case, be treated as one
Class.
In addition to P&I Advances, the Servicer (and in limited
circumstances, the Special Servicer) will also be obligated (subject to the
limitations described herein) to make cash advances ("Property Advances," and
together with P&I Advances, "Advances") to pay delinquent real estate taxes,
assessments and hazard insurance premiums and to cover other similar costs and
expenses necessary to preserve the priority of the related Mortgage, enforce
the terms of any Mortgage Loan or to maintain such Mortgaged Property.
To the extent the Servicer fails to make an Advance it is required to
make under the Pooling and Servicing Agreement, the Trustee, subject to a
determination of recoverability, will make such required Advance or, in the
event the Trustee fails to make such Advance, the Fiscal Agent, subject to a
determination of recoverability, will make such Advance, in each case pursuant
to the terms of the Pooling and Servicing Agreement. To the extent the Special
Servicer fails to make an Advance it is required to make under the Pooling and
Servicing Agreement, the Servicer, subject to a determination of
recoverability, will make such an Advance. Both the Trustee and the Fiscal
Agent will be entitled to rely conclusively on any non-recoverability
determination of the Servicer or the Special Servicer, as the case may be. See
"--Trustee" and "--Fiscal Agent" below.
The Servicer, the Special Servicer, the Trustee or the Fiscal Agent,
as applicable, will be entitled to reimbursement for any Advance made by it in
an amount equal to the amount of such Advance and interest accrued thereon at
the Advance Rate (i) from late payments on the Mortgage Loan by the Mortgagor,
(ii) from insurance proceeds, condemnation proceeds, liquidation proceeds from
the sale of the Specially Serviced Mortgage Loan or the related Mortgaged
Property or other collections relating to the Mortgage Loan or (iii) upon
determining in good faith that such Advance or interest is not recoverable in
the manner described in the preceding two clauses, from any other amounts from
time to time on deposit in the Collection Account.
The Servicer, the Special Servicer, the Trustee and the Fiscal Agent
will each be entitled to receive interest on Advances at a per annum rate
equal to the sum of (i) the Prime Rate plus (ii) 1% (the "Advance Rate"),
compounded monthly, as of each Servicer Remittance Date and the Servicer will
be authorized to pay itself, the Special Servicer, the Trustee or the Fiscal
Agent, as applicable, such interest monthly from general collections with
respect to all of the Mortgage Loans prior to any payment to holders of
Certificates. To the extent that the payment of such interest at the Advance
Rate results in a shortfall in amounts otherwise payable on one or more
Classes of Certificates on the next Distribution Date, the Servicer, the
Trustee or the Fiscal Agent, as applicable, will be obligated to make a cash
advance to cover such shortfall, but only to the extent the Servicer, the
Trustee or the Fiscal Agent, as applicable, concludes that, with respect to
each such Advance, such Advance can be recovered from amounts payable on or in
respect of the Mortgage Loan to which the Advance is related. If the interest
on such Advance is not recovered from Default Interest on such Mortgage Loan,
a shortfall will result which will have the same effect as a Realized Loss.
The "Prime Rate""" is the rate, for any day, set forth as such in the "Money
Rates" section of The Wall Street Journal, Eastern Edition.
ACCOUNTS
Lock Box Accounts. With respect to [ ] Mortgage Loans, which
represent in the aggregate [ ]% of the Initial Pool Balance, one or more
accounts in the name of the related borrower (the "Lock Box Accounts") have
been established into which rents or other revenues from the related Mortgaged
Properties are deposited by the related tenants or manager. Any Lock Box which
does not require the related borrower to instruct tenants to deposit rents
directly into such account will instead require the borrower or the related
property manager to deposit rents and other revenues in the related Lock Box
Account. Agreements governing the Lock Box Accounts provide that the borrower
has no withdrawal or transfer rights with respect thereto and that all funds
on deposit in the Lock Box Accounts are periodically swept into the Cash
Collateral Accounts. Additionally, the Mortgage Loans that have Anticipated
Repayment Dates require that a Lock Box Account be established prior to their
respective Anticipated Repayment Dates. The Lock Box Accounts will not be an
asset of the Trust REMICs.
Cash Collateral Accounts. With respect to each Mortgage Loan that has
a Lock Box Account, one or more accounts in the name of the Servicer (the
"Cash Collateral Accounts") have been established into which funds in the
related Lock Box Accounts will be swept on a regular basis. The Reserve
Accounts will be sub-accounts of the Cash Collateral Accounts. Any excess over
the amount necessary to fund the Monthly Payment, the Reserve Accounts and any
other amounts due under the Mortgage Loans will be returned to or retained by
the related borrower provided no event of default of which the Servicer is
aware of has occurred and is continuing with respect to such Mortgage Loan.
However, as described under "Description of the Mortgage Pool--Certain Terms
and Conditions of the Mortgage Loans--Excess Interest," after the respective
Anticipated Repayment Date, if applicable, all amounts in the related Cash
Collateral Account in excess of the amount necessary to fund the Monthly
Payment and Reserve Accounts will be applied to (i) operating and capital
expenses, (ii) the reduction of the principal balance of the related Mortgage
Loan until such principal is paid in full and (iii) Excess Interest, in that
order. The Cash Collateral Accounts will not be an asset of the Trust REMICs.
Collection Account. The Servicer will, on each Due Date withdraw from
each Cash Collateral Account an amount equal to the Monthly Payment on the
related Mortgage Loan and deposit such amount into a segregated account (the
"Collection Account") established pursuant to the Pooling and Servicing
Agreement for application towards the Monthly Payment (including servicing
fees) due on the related Mortgage Loan. The Servicer shall also deposit into
the Collection Account within one business day of receipt all other payments
in respect of the Mortgage Loans, other than amounts to be deposited into any
Reserve Account.
Distribution Accounts. The Trustee will establish and maintain one or
more segregated accounts (the "Distribution Account") in the name of the
Trustee for the benefit of the holders of Certificates. With respect to each
Distribution Date, the Servicer will deposit in the Distribution Account, to
the extent of funds on deposit in the Collection Account, on the Servicer
Remittance Date an aggregate amount of immediately available funds equal to
the sum of (i) the Available Funds and (ii) the portion of the Servicing
Compensation representing the Trustee's Fee. The Servicer will deposit all P&I
Advances into the Distribution Account on the related Servicer Remittance
Date. To the extent the Servicer fails to do so, the Trustee or the Fiscal
Agent will deposit all P&I Advances into the Distribution Account as described
herein. See "Description of the Subordinated Certificates--Distributions"
herein.
[Interest Reserve Account. The Trustee will establish and maintain an
Interest Reserve Account ("Interest Reserve Account") in the name of the
Trustee for the benefit of the holders of the Certificates. On each Servicer
Remittance Date occurring in January and on any Servicer Remittance Date
occurring in any December which occurs in a year immediately preceding a year
which is not a leap year, the Servicer will be required to deposit, in respect
of the Mortgage Loan known as the [_____________] loan, into the Interest
Reserve Account, an amount equal to one day's interest collected on the Stated
Principal Balance of such Mortgage Loan as of the Due Date occurring in the
month preceding the month in which such Servicer Remittance Date occurs at the
related Mortgage Rate, to the extent a full Monthly Payment or P&I Advance is
made in respect thereof (all amounts so deposited in any consecutive January
and February, "Withheld Amounts"). On each Servicer Remittance Date occurring
in March, the Servicer will be required to withdraw from the Interest Reserve
Account an amount equal to the Withheld Amounts from the preceding January and
December, if any, and deposit such amount into the Distribution Account.]
The Trustee will also establish and maintain one or more segregated
accounts for each of the "Upper-Tier Distribution Account", the "Default
Interest Distribution Account" and the "Excess Interest Distribution Account",
each in the name of the Trustee for the benefit of the holders of the
Certificates.
The Cash Collateral Accounts, Collection Account, the Distribution
Account, the Upper-Tier Distribution Account, the Interest Reserve Account,
the Excess Interest Distribution Account and the Default Interest Distribution
Account will be held in the name of the Trustee (or the Servicer on behalf of
the Trustee) on behalf of the holders of Certificates and the Servicer will be
authorized to make withdrawals from the Cash Collateral Accounts and the
Collection Account. Each of the Cash Collateral Account, Collection Account,
any REO Account, the Distribution Account, the Upper-Tier Distribution
Account, the Interest Reserve Account, the Excess Interest Distribution
Account and the Default Interest Distribution Account will be either (i) (A)
an account maintained with either a federal or state chartered depository
institution or trust company the long term unsecured debt obligations or
commercial paper of which are rated by each of the Rating Agencies in its
highest rating category at all times (or in the case of the REO Account,
Collection Account, Interest Reserve Account and Escrow Account, the long term
unsecured debt obligations of which are rated at least "AA" by Fitch and DCR
and "Aa2" by Moody's) or (B) as to which the Trustee has received written
confirmation from each of the Rating Agencies that holding funds in such
account would not cause any Rating Agency to requalify, withdraw or downgrade
any of its ratings on the Certificates, or (ii) a segregated trust account or
accounts maintained with a federal or state chartered depository institution
or trust company acting in its fiduciary capacity (an "Eligible Bank").
Amounts on deposit in the Collection Account, Cash Collateral Account, any REO
Account and the Interest Reserve Account may be invested in certain United
States government securities and other high-quality investments specified in
the Pooling and Servicing Agreement ("Permitted Investments"). Interest or
other income earned on funds in the Collection Account and Cash Collateral
Accounts will be paid to the Servicer (except to the extent required to be
paid to the related borrower) as additional servicing compensation and
interest or other income earned on funds in any REO Account will be payable to
the Special Servicer. Interest or other income earned on funds in the Interest
Reserve Account will be paid to NSI as compensation for arranging for on-going
monitoring and surveillance of the Subordinated Certificates by the Rating
Agencies.
WITHDRAWALS FROM THE COLLECTION ACCOUNT
The Servicer may make withdrawals from the Collection Account for the
following purposes, to the extent permitted and in the priorities provided in
the Pooling and Servicing Agreement: (i) to remit on or before each Servicer
Remittance Date (A) to the Distribution Account an amount equal to the sum of
(I) Available Funds and any Prepayment Premiums and (II) the Trustee Fee for
such Distribution Date, (B) to the Default Interest Distribution Account an
amount equal to the Net Default Interest received in the related Collection
Period, [and] (C) to the Excess Interest Distribution Account an amount equal
to the Excess Interest received in the related Collection Period, if any[, and
(D) to the Interest Reserve Account an amount required to be withheld as
described under "--Accounts--Interest Reserve Account"]; (ii) to pay or
reimburse the Servicer, the Special Servicer, the Trustee, the Fiscal Agent or
the holders of the most subordinate Class of Certificates, as applicable, for
Advances made by any of them and, if applicable, interest on Advances
(provided, that the Trustee and Fiscal Agent will have priority with respect
to such payment or reimbursement), the Servicer and the most subordinate
Certificateholder's right to reimbursement for items described in this clause
(ii) being limited as described herein under "--Advances"; (iii) to pay on or
before each Servicer Remittance Date to the Servicer and the Special Servicer
as compensation, the aggregate unpaid Servicing Compensation (not including
the portion of the Servicing Fee representing the Trustee's Fee) in respect of
the immediately preceding calendar month; (iv) to pay on or before each
Distribution Date to the Depositor, Mortgage Loan Seller or Bloomfield with
respect to each Mortgage Loan or REO Property that has previously been
purchased or repurchased by it pursuant to the Pooling and Servicing
Agreement, all amounts received thereon during the related Collection Period
and subsequent to the date as of which the amount required to effect such
purchase or repurchase was determined; (v) to the extent not reimbursed or
paid pursuant to any of the above clauses, to reimburse or pay the Servicer,
the Special Servicer, the Trustee, the Fiscal Agent and/or the Depositor for
unpaid Servicing Compensation (in the case of the Servicer, the Special
Servicer or the Trustee) and certain other unreimbursed expenses incurred by
such person pursuant to and to the extent reimbursable under the Pooling and
Servicing Agreement and to satisfy any indemnification obligations of the
Trust Fund under the Pooling and Servicing Agreement; (vi) to pay to the
Trustee amounts requested by it to pay taxes on certain net income with
respect to REO Properties; (vii) to withdraw any amount deposited into the
Collection Account that was not required to be deposited therein; and (viii)
to clear and terminate the Collection Account pursuant to a plan for
termination and liquidation of the Trust Fund.
ENFORCEMENT OF "DUE-ON-SALE" AND "DUE-ON-ENCUMBRANCE" CLAUSES
The Mortgage Loans contain provisions in the nature of
"due-on-sale" clauses, which by their terms (a) provide that the Mortgage
Loans shall (or may at the mortgagee's option) become due and payable upon the
sale or other transfer of an interest in the related Mortgaged Property or (b)
provide that the Mortgage Loans may not be assumed without the consent of the
related mortgagee in connection with any such sale or other transfer. The
Servicer or the Special Servicer, as applicable, will not be required to
enforce such due-on-sale clauses and in connection therewith will not be
required to (i) accelerate payments thereon or (ii) withhold its consent to
such an assumption if (x) such provision is not exercisable under applicable
law or such provision is reasonably likely to result in meritorious legal
action by the borrower or (y) the Servicer or the Special Servicer, as
applicable, determines, in accordance with the Servicing Standard, that
granting such consent would be likely to result in a greater recovery, on a
present value basis (discounting at the related Mortgage Rate), than would
enforcement of such clause. If the Servicer or the Special Servicer, as
applicable, determines that granting such consent would be likely to result in
a greater recovery, the Servicer or the Special Servicer, as applicable, is
authorized to take or enter into an assumption agreement from or with the
proposed transferee as obligor thereon provided that (a) the credit status of
the prospective transferee is in compliance with the Servicer's or Special
Servicer's, as applicable, regular commercial mortgage origination or
servicing standards and criteria and the terms of the related Mortgage and (b)
the Servicer or the Special Servicer, as applicable, has received written
confirmation from each Rating Agency that such assumption or substitution
would not, in and of itself, cause a downgrade, qualification or withdrawal of
the then current ratings assigned to the Certificates.
The Mortgage Loans contain provisions in the nature of a
"due-on-encumbrance" clause which by their terms (a) provide that the Mortgage
Loans shall (or may at the mortgagee's option) become due and payable upon the
creation of any lien or other encumbrance on the related Mortgaged Property,
or (b) require the consent of the related mortgagee to the creation of any
such lien or other encumbrance on the related Mortgaged Property. The Servicer
or the Special Servicer, as applicable, will not be required to enforce such
due-on-encumbrance clauses and in connection therewith will not be required to
(i) accelerate payments thereon or (ii) withhold its consent to such lien or
encumbrance if the Servicer or the Special Servicer, as applicable, (x)
determines, in accordance with the Servicing Standard, that such enforcement
would not be in the best interests of the Trust Fund and (y) receives prior
written confirmation from each Rating Agency that granting such consent would
not, in and of itself, cause a downgrade, qualification or withdrawal of any
of the then current ratings assigned to the Certificates. See "Certain Legal
Aspects of the Mortgage Loans--Due-on-Sale and Due-on-Encumbrance."
INSPECTIONS
The Servicer (or with respect to any Specially Serviced Mortgage
Loan, the Special Servicer) is required to inspect each Mortgaged Property at
such times and in such manner as are consistent with the Servicing Standards
described herein, but in any event (i) is required to inspect each Mortgaged
Property securing a Note, with a Stated Principal Balance (or in the case of a
Note secured by more than one Mortgaged Property, having an Allocated Loan
Amount) of (a) $2,000,000 or more at least once every twelve months and (b)
less than $2,000,000 at least once every 24 months, in each case commencing in
April 1997 (or at such lesser frequency, provided each Rating Agency has
confirmed in writing to the Servicer that such schedule will not result in the
withdrawal, downgrading or qualification of the then-current ratings assigned
to the Certificates) and (ii) if the Mortgage Loan (a) becomes a "Specially
Serviced Mortgage Loan," (b) is delinquent for 60 days or (c) has a debt
service coverage ratio of less than 1.0, the Special Servicer is required to
inspect the related Mortgaged Properties as soon as practicable and thereafter
at least every twelve months.
INSURANCE POLICIES
The Pooling and Servicing Agreement requires the Servicer (or the
Special Servicer in the case of an REO Property) to obtain or cause the
mortgagor on each Mortgage Loan to maintain fire and hazard insurance with
extended coverage on the related Mortgaged Property in an amount which is at
least equal to the lesser of (A) one hundred percent (100%) of the then "full
replacement cost" of the improvements and equipment without deduction for
physical appreciation, and (B) the outstanding principal balance of the
related Mortgage Loan, or such greater amount as is necessary to prevent any
reduction, by reason of the application of co-insurance and to prevent the
Trustee thereunder from being deemed to be a co-insurer and provided such
policy shall include a "replacement cost" rider. The Pooling and Servicing
Agreement also requires the Servicer (or the Special Servicer in the case of
an REO Property) to obtain or cause the mortgagor on each Mortgaged Property
to maintain insurance providing coverage against at least 12 months of rent
interruptions (24 months with respect to an REO Property) and any other
insurance as is required in the related Mortgage Loan. In the case of an REO
Property, if the Special Servicer fails to maintain fire and hazard insurance
as described above or flood insurance as described below, the Servicer shall
maintain such insurance, and if the Servicer does not maintain such insurance,
the Trustee shall maintain such insurance and if the Trustee does not maintain
such insurance, the Fiscal Agent shall do so, subject to the provisions
concerning nonrecoverable Advances. Any cost incurred by the Servicer or the
Special Servicer in maintaining any such insurance shall not, for the purpose
of calculating distributions to Certificateholders, be added to the unpaid
principal balance of the related Mortgage Loan, notwithstanding that the terms
of such Mortgage Loan so permit.
In general, the standard form of fire and hazard extended coverage
policy covers physical damage to or destruction of the improvements of the
property by fire, lightning, explosion, smoke windstorm, hail, riot, strike
and civil commotion, subject to certain conditions and exclusions in each
policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers in different states and therefore will not
contain identical terms and conditions, most such policies will not cover any
physical damage resulting from war, revolution, governmental actions, floods
and other water-related causes, earth movement (including earthquakes,
landslides and mudflows), wet or dry rot, vermin, domestic animals and certain
other kinds of uninsured risks. Nonetheless, certain of the Mortgage Loans
require insurance coverage for floods and other water-related causes and earth
movement. When a Mortgaged Property is located in a federally designated flood
area, the Pooling and Servicing Agreement requires the Servicer to use its
best efforts to cause the related borrower to maintain, or if not maintained,
to itself obtain (subject to the issues concerning nonrecoverable Advances)
flood insurance. Such flood insurance shall be in an amount equal to the
lesser of (i) the unpaid principal balance of the related Mortgage Loan and
(ii) the maximum amount of such insurance required by the terms of the related
Mortgage and as is available for the related property under the national flood
insurance program, if available. If an REO Property (i) is located in a
federally designated special flood hazard area or (ii) is related to a
Mortgage Loan pursuant to which earthquake insurance was in place at the time
of origination and continues to be available at commercially reasonable rates,
the Pooling and Servicing Agreement requires that the Special Servicer obtain
(subject to the issues concerning nonrecoverable Advances) flood insurance
and/or earthquake insurance. If a recovery due to a flood or earthquake is not
available for an REO Property but would have been available if such insurance
were maintained, the Special Servicer will be required (subject to issues
concerning nonrecoverable Advances) to (i) immediately deposit into the
Collection Account from its own funds the amount that would have been
recovered or (ii) apply to the restoration and repair of the property from its
own funds the amount that would have been recovered, if such application is
consistent with the Servicing Standard; provided, however, that the Special
Servicer shall not be responsible for any shortfall in insurance proceeds
resulting from an insurer's refusal or inability to pay a claim.
The Servicer or the Special Servicer may obtain and maintain a
blanket insurance policy insuring against fire and hazard losses on all of the
Mortgaged Properties (other than REO Properties) as to which the related
borrower has not maintained insurance to satisfy its obligations concerning
the maintenance of insurance coverage. Any such blanket insurance policy shall
be maintained with an insurer qualified under the terms of the Pooling and
Servicing Agreement. Additionally, the Servicer or the Special Servicer may
obtain a master force placed insurance policy, as long as such policy is
issued by an insurer qualified under the terms of the Pooling and Servicing
Agreement and provides no less coverage in scope and amount than otherwise
required to be maintained as described in the preceding paragraphs.
Under the terms of the Mortgage Loans, the borrowers will be required
to present claims to insurers under hazard insurance policies maintained on
the related Mortgaged Properties. The Servicer or Special Servicer, as
applicable, on behalf of itself, the Trustee and Certificateholders, is
obligated to present or cause to be presented claims under any blanket
insurance policy insuring against hazard losses on Mortgaged Properties
securing the Mortgage Loans. However, the ability of the Servicer or Special
Servicer, as applicable, to present or cause to be presented such claims is
dependent upon the extent to which information in this regard is furnished to
the Servicer or Special Servicer, as applicable, by the borrowers.
All insurance policies required shall name the Trustee or the
Servicer or the Special Servicer, on behalf of the Trustee as the mortgagee,
as loss payee.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement requires the Servicer to cause a
nationally recognized firm of independent public accountants, which is a
member of the American Institute of Certified Public Accountants, to furnish
to the Trustee on or before March 15 of each year, beginning March 15, 1998, a
statement to the effect that such firm has examined certain documents and
records relating to the servicing of similar mortgage loans for the preceding
twelve months and that their examination, conducted substantially in
compliance with generally accepted auditing standards and the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for Mortgages
serviced for FHLMC, disclosed no exceptions or errors in records relating to
the servicing of similar mortgage loans in accordance with the terms of the
Pooling and Servicing Agreement that in their opinion are material, except for
such exceptions as are set forth in their statement.
The Pooling and Servicing Agreement also requires the Servicer to
deliver to the Trustee, on or before March 15 of each year, beginning March
15, 1998, an officer's certificate of the Servicer stating that, to the best
of such officer's knowledge, the Servicer has fulfilled its obligations under
the Pooling and Servicing Agreement throughout the preceding year or, if there
has been a default, specifying each default known to such officer.
CERTAIN MATTERS REGARDING THE DEPOSITOR, THE SERVICER AND THE SPECIAL SERVICER
The Servicer may assign its rights and delegate its duties and
obligations under the Pooling and Servicing Agreement in connection with the
sale or transfer of a substantial portion of its mortgage servicing or asset
management portfolio, provided that certain conditions are satisfied including
obtaining the consent of the Trustee and written confirmation of each Rating
Agencies that such assignment or delegation will not cause a qualification,
withdrawal or downgrading of the then-current ratings assigned to the
Certificates. The Pooling and Servicing Agreement provides that the Servicer
may not otherwise resign from its obligations and duties as Servicer
thereunder, except upon the determination that performance of its duties is no
longer permissible under applicable law and provided that such determination
is evidenced by an opinion of counsel delivered to the Trustee. No such
resignation may become effective until a successor Servicer has assumed the
obligations of the Servicer under the Pooling and Servicing Agreement. The
Trustee or any other successor Servicer assuming the obligations of the
Servicer under the Pooling and Servicing Agreement will be entitled to the
compensation to which the Servicer would have been entitled. If no successor
Servicer can be obtained to perform such obligations for such compensation,
additional amounts payable to such successor Servicer will be treated as
Realized Losses.
The Pooling and Servicing Agreement also provides that neither the
Depositor, the Servicer, the Special Servicer, nor any director, officer,
employee or agent of the Depositor, the Servicer or the Special Servicer will
be under any liability to the Trust Fund or the holders of Certificates for
any action taken or for refraining from the taking of any action in good faith
pursuant to the Pooling and Servicing Agreement, or for errors in judgment;
provided, however, that neither the Depositor, the Servicer, the Special
Servicer nor any such person will be protected against any liability which
would otherwise be imposed by reason of willful misconduct, bad faith, fraud
or negligence (or in the case of the Servicer, by reason of any specific
liability imposed for a breach of the Servicing Standard) in the performance
of duties thereunder or by reason of reckless disregard of obligations and
duties thereunder. The Pooling and Servicing Agreement further provides that
the Depositor, the Servicer, the Special Servicer and any director, officer,
employee or agent of the Depositor, the Servicer and the Special Servicer will
be entitled to indemnification by the Trust Fund for any loss, liability or
expense incurred in connection with any legal action relating to the Pooling
and Servicing Agreement or the Certificates, other than any loss, liability or
expense incurred by reason of willful misconduct, bad faith, fraud or
negligence (or in the case of the Servicer, by reason of any specific
liability imposed for a breach of the Servicing Standard) in the performance
of duties thereunder or by reason of reckless disregard of obligations and
duties thereunder.
In addition, the Pooling and Servicing Agreement provides that
neither the Depositor, the Servicer, nor the Special Servicer will be under
any obligation to appear in, prosecute or defend any legal action unless such
action is related to its duties under the Pooling and Servicing Agreement and
which in its opinion does not expose it to any expense or liability. The
Depositor, the Servicer or the Special Servicer may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Pooling and Servicing Agreement and the rights and duties
of the parties thereto and the interests of the holders of Certificates
thereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom will be expenses, costs and liabilities of the
Trust Fund, and the Depositor, the Servicer and the Special Servicer will be
entitled to be reimbursed therefor and to charge the Collection Account.
The Depositor is not obligated to monitor or supervise the
performance of the Servicer, the Special Servicer or the Trustee under the
Pooling and Servicing Agreement. The Depositor may, but is not obligated to,
enforce the obligations of the Servicer or the Special Servicer under the
Pooling and Servicing Agreement and may, but is not obligated to, perform or
cause a designee to perform any defaulted obligation of the Servicer or the
Special Servicer or exercise any right of the Servicer or the Special Servicer
under the Pooling and Servicing Agreement. In the event the Depositor
undertakes any such action, it will be reimbursed by the Trust Fund in
accordance with the standard set forth above. Any such action by the Depositor
will not relieve the Servicer or the Special Servicer of its obligations under
the Pooling and Servicing Agreement.
Any person into which the Servicer may be merged or consolidated, or
any person resulting from any merger or consolidation to which the Servicer is
a party, or any person succeeding to the business of the Servicer, will be the
successor of the Servicer under the Pooling and Servicing Agreement, and shall
be deemed to have assumed all of the liabilities and obligations of the
Servicer under the Pooling and Servicing Agreement.
EVENTS OF DEFAULT
Events of default of the Servicer (each, an "Event of Default") under
the Pooling and Servicing Agreement consist, among other things, of (i) any
failure by the Servicer to remit to the Collection Account or any failure by
the Servicer to remit to the Trustee for deposit into the Upper-Tier
Distribution Account, Distribution Account, Excess Interest Distribution
Account, Interest Reserve Account or Default Interest Distribution Account any
amount required to be so remitted pursuant to the Pooling and Servicing
Agreement or (ii) any failure by the Servicer duly to observe or perform in
any material respect any of its other covenants or agreements or the breach of
its representations or warranties under the Pooling and Servicing Agreement
which continues unremedied for thirty (30) days after the giving of written
notice of such failure to the Servicer by the Depositor or the Trustee, or to
the Servicer and to the Depositor and the Trustee by the holders of
Certificates evidencing Percentage Interests of at least 25% of any affected
Class; or (iii) any failure by the Servicer to make any Advances as required
pursuant to the Pooling and Servicing Agreement; or (iv) confirmation in
writing by any Rating Agency that not terminating the Servicer would, in and
of itself, cause the then-current rating assigned to any Class of Certificates
to be qualified, withdrawn or downgraded; (v) certain events of insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings and certain actions by, on behalf of or against the Servicer
indicating its insolvency or inability to pay its obligations or (vi) the
Servicer shall no longer be an "approved" servicer by each of the Rating
Agencies for mortgage pools similar to the Trust Fund.
Events of Default of the Special Servicer under the Pooling and
Servicing Agreement include the items specified in clauses (i) through (vi)
above with respect to, and to the extent applicable to, the Special Servicer.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default with respect to the Servicer occurs, then the
Trustee may, and at the direction of the holders of Certificates evidencing at
least 25% of the aggregate Voting Rights of all Certificateholders, the
Trustee will, terminate all of the rights and obligations of the Servicer as
servicer under the Pooling and Servicing Agreement and in and to the Trust
Fund. Notwithstanding the foregoing, upon any termination of the Servicer
under the Pooling and Servicing Agreement the Servicer will continue to be
entitled to receive all accrued and unpaid servicing compensation through the
date of termination plus all Advances and interest thereon as provided in the
Pooling and Servicing Agreement. In the event that the Servicer is also the
Special Servicer and the Servicer is terminated, the Servicer will also be
terminated as Special Servicer.
On and after the date of termination following an Event of Default by
the Servicer, the Trustee will succeed to all authority and power of the
Servicer (and the Special Servicer if the Special Servicer is also the
Servicer) under the Pooling and Servicing Agreement and will be entitled to
the compensation arrangements to which the Servicer (and the Special Servicer
if the Servicer is also the Special Servicer) would have been entitled. If the
Trustee is unwilling or unable so to act, or if the holders of Certificates
evidencing at least 25% of the aggregate Voting Rights of all
Certificateholders so request, or if the long-term unsecured debt rating of
the Trustee or the Fiscal Agent is not at least "AA" by S&P, DCR and Fitch and
"Aa2" by Moody's or if the Rating Agencies do not provide written confirmation
that the succession of the Trustee as Servicer, will not cause a
qualification, withdrawal or downgrading of the then-current ratings assigned
to the Certificates, the Trustee must appoint, or petition a court of
competent jurisdiction for the appointment of, a mortgage loan servicing
institution the appointment of which will not result in the downgrading,
qualification or withdrawal of the rating or ratings then assigned to any
Class of Certificates as evidenced in writing by each Rating Agency to act as
successor to the Servicer under the Pooling and Servicing Agreement. Pending
such appointment, the Trustee is obligated to act in such capacity. The
Trustee and any such successor may agree upon the servicing compensation to be
paid.
If the Special Servicer is not the Servicer and an Event of Default
with respect to the Special Servicer occurs, the Trustee will terminate the
Special Servicer and the Servicer will succeed to all the power and authority
of the Special Servicer under the Pooling and Servicing Agreement (provided
that such termination would not result in the downgrading, qualification or
withdrawal of the rating or ratings assigned to any Class of Certificates as
evidenced in writing by each Rating Agency) and will be entitled to the
compensation to which the Special Servicer would have been entitled.
No Certificateholder will have any right under the Pooling and
Servicing Agreement to institute any proceeding with respect to the Pooling
and Servicing Agreement or the Mortgage Loans, unless, with respect to the
Pooling and Servicing Agreement, such holder previously shall have given to
the Trustee a written notice of a default under the Pooling and Servicing
Agreement, and of the continuance thereof, and unless also the holders of
Certificates of any Class affected thereby evidencing Percentage Interests of
at least 25% of such Class shall have made written request of the Trustee to
institute such proceeding in its own name as Trustee under the Pooling and
Servicing Agreement and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee, for 60 days after its receipt of
such notice, request and offer of indemnity, shall have neglected or refused
to institute such proceeding.
The Trustee will have no obligation to make any investigation of
matters arising under the Pooling and Servicing Agreement or to institute,
conduct or defend any litigation thereunder or in relation thereto at the
request, order or direction of any of the holders of Certificates, unless such
holders of Certificates shall have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
AMENDMENT
The Pooling and Servicing Agreement may be amended at any time by the
Depositor, the Servicer, the Special Servicer, the Trustee and the Fiscal
Agent without the consent of any of the holders of Certificates (i) to cure
any ambiguity; (ii) to correct or supplement any provisions therein which may
be defective or inconsistent with any other provisions therein; (iii) to amend
any provision thereof to the extent necessary or desirable to maintain the
status of each of the Upper-Tier REMIC and Lower-Tier REMIC as a REMIC; (iv)
to amend or supplement a provision which will not adversely affect in any
material respect the interests of any Certificateholder not consenting
thereto, as evidenced in writing by an opinion of counsel or confirmation in
writing from each Rating Agency that such amendment will not result in a
qualification, withdrawal or downgrading of the then-current ratings assigned
to the Certificates; and (v) to amend or supplement any provisions therein to
the extent necessary or desirable to maintain the rating assigned to each of
the Classes of Certificates by each Rating Agency. No such amendment shall
cause either of the Upper-Tier REMIC or Lower-Tier REMIC to fail to qualify as
a REMIC or shall adversely affect in any material respect the interests of any
holder of the Certificates, and, if requested by the Servicer or the Trustee,
as evidenced by an opinion of counsel.
The Pooling and Servicing Agreement may also be amended from time to
time by the Depositor, the Servicer, the Special Servicer, the Trustee and the
Fiscal Agent with the consent of the holders of Certificates evidencing at
least 66 2/3% of the Percentage Interests of each Class of Certificates
affected thereby for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Pooling and Servicing
Agreement or modifying in any manner the rights of the holders of
Certificates; provided, however, that no such amendment may (i) reduce in any
manner the amount of, or delay the timing of, payments received on the
Mortgage Loans which are required to be distributed on any Certificate without
the consent of each holder of such Certificate; (ii) alter the obligations of
the Servicer, the Special Servicer, the Trustee or the Fiscal Agent to make a
P&I Advance or Property Advance or alter the servicing standards set forth in
the Pooling and Servicing Agreement; (iii) change the percentages of Voting
Rights of holders of Certificates which are required to consent to any action
or inaction under the Pooling and Servicing Agreement; or (iv) amend the
section in the Pooling and Servicing Agreement relating to the amendment of
the Pooling and Servicing Agreement, in each without the consent of the
holders of all Certificates representing all the Percentage Interests of the
Class or Classes affected thereby.
VOTING RIGHTS
The "Voting Rights" assigned to each Class shall be (a) 0% in the
case of the Class V-1, Class V-2, Class R and Class LR Certificates, (b)
[___]% in the case of the Class A-CS1 Certificates and [___]% in the case of
the Class A-CS2 Certificates (the sum of such percentages for each such Class
outstanding is the "Fixed Voting Rights Percentage"), (c) in the case of the
Class A-1A, Class A-1B, Class A-1C, Class A-1D, Class A-2, Class A-3, Class
A-4, Class A-5, Class B-1, Class B-2, Class B-3, Class B-4, Class B-5, Class
B-6, Class B-7 and Class B-7H Certificates, a percentage equal to the product
of (i) 100% minus the Fixed Voting Rights Percentage multiplied by (ii) a
fraction, the numerator of which is equal to the aggregate outstanding
Certificate Balance of any such Class and the denominator of which is equal to
the aggregate outstanding Certificate Balances of all Classes of Certificates.
The Coupon Strip Certificates will not be entitled to vote with respect to
proposed extensions of a Specially Serviced Mortgage Loan. The Voting Rights
of any Class of Certificates shall be allocated among holders of Certificates
of such Class in proportion to their respective Percentage Interests, except
that any Certificate beneficially owned by the Depositor, the Servicer, the
Special Servicer, any mortgagor, the Trustee, a manager, or any of their
respective affiliates will be deemed not to be outstanding; provided, however,
that for purposes of obtaining the consent of Certificateholders to an
amendment to the Pooling and Servicing Agreement, any Certificates
beneficially owned by the Servicer or Special Servicer or an affiliate thereof
will be deemed to be outstanding, provided that such amendment does not relate
to compensation of the Servicer, Special Servicer or otherwise benefit such
entity or an affiliate; and, provided, further, that for purposes of obtaining
the consent of Certificateholders to any action proposed to be taken by the
Special Servicer with respect to a Specially Serviced Mortgage Loan, any
Certificates beneficially owned by the Servicer or an affiliate will be deemed
to be outstanding if the Special Servicer is not the Servicer or any affiliate.
The Certificates beneficially owned by the Special Servicer or an affiliate
thereof shall be deemed outstanding for purposes of determining who the
Directing Holders are and for purposes of issuing Instructions. The Voting
Rights of each Class of Certificates will be deemed to be reduced on any day
on which an Appraisal Reduction Amount is allocated to such Class. The Fixed
Voting Right Percentage of the Class A-CS1 and Class A-CS2 Certificates will
be proportionally reduced upon the allocation of Appraisal Reduction Amounts
with respect to any component of such Classes based on the amount of such
reduction.
REALIZATION UPON MORTGAGE LOANS
Specially Serviced Mortgage Loans; Appraisals; Extensions.
Contemporaneously with the earliest of (i) the effective date of any
modification of the Mortgage Rate, principal balance or amortization terms of
any Mortgage Loan, any extension of the Maturity Date of a Mortgage Loan or
consent to the release of any Mortgaged Property from the lien of the related
Mortgage or (ii) the occurrence of an Appraisal Reduction Event, the Servicer
(after consultation with the Special Servicer) will obtain an appraisal (or a
letter update from an existing appraisal which is less than three years old)
of the Mortgaged Property from an independent appraiser who is a member of the
American Institute of Real Estate Appraisers (an "Updated Appraisal")
provided, that, the Servicer will not be required to obtain an Updated
Appraisal of any Mortgaged Property with respect to which there exists an
appraisal which is less than twelve months old.
Following a default on a Mortgage Loan at maturity, the Special
Servicer may either foreclose or elect to grant a one-year extension of the
Specially Serviced Mortgage Loan; provided that the Special Servicer may only
extend such Mortgage Loan if (i) immediately prior to the default on the
Balloon Payment the related borrower had made twelve consecutive Monthly
Payments on or prior to their Due Dates, (ii) the Special Servicer determines
in its reasonable judgment that such borrower has attempted in good faith to
refinance such Mortgage Loan or Mortgaged Property, (iii) the Special Servicer
determines that (A) extension of such Mortgage Loan is consistent with the
Servicing Standard and (B) extension of such Mortgage Loan is likely to result
in a recovery which on a net present value basis would be greater than the
recovery that would result from a foreclosure, (iv) such extension requires
that all cash flow on all related Mortgage Properties in excess of amounts
required to operate and maintain such Mortgaged Properties be applied to
payments of principal and interest on such Mortgage Loan and (v) the Special
Servicer terminates the related Manager unless the Special Servicer determines
that retaining such Manager is conducive to maintaining the value of such
Mortgaged Properties; provided, further, that, if, after notice to all
Certificateholders, holders of Certificates evidencing at least 66 2/3% of the
Voting Rights of each Class of Certificates entitled to vote direct the
Special Servicer not to extend, the Special Servicer will not extend;
provided, further, that, if the Special Servicer is not the Servicer and the
Servicer would not elect to extend, holders of Certificates evidencing greater
than (a) 50% of the aggregate Voting Rights of all Certificateholders entitled
to vote and (b) 66 2/3% of the aggregate Voting Rights of all
Certificateholders entitled to vote who respond to such notice, may direct the
Special Servicer not to extend. Notwithstanding the foregoing, the Special
Servicer may extend pursuant to the Instructions of the Directing Holders (as
described and defined below). The holders of the Class A-CS1 and Class A-CS2
Certificates will not be entitled to vote with respect to proposed extensions
of a Specially Serviced Mortgage Loan.
The Special Servicer may, after presenting a proposal to and
consulting with the Servicer (if the Special Servicer is not the Servicer),
and taking into account the LTV of a Specially Serviced Mortgage Loan as
indicated in the Updated Appraisal, grant subsequent one-year extensions of
such Specially Serviced Mortgage Loan if (i) the related borrower has made
twelve consecutive monthly payments in an amount equal to or greater than the
Minimum Defaulted Monthly Payments and (ii) the requirements set forth in
clauses (ii)--(iv) of the preceding paragraph are satisfied; provided,
however, that, if, after notice to all Certificateholders, holders of
Certificates evidencing at least 66 2/3% of the aggregate Percentage Interests
of each Class of Certificates direct the Special Servicer not to extend, the
Special Servicer will not extend; provided, further, that, if the Special
Servicer is not the Servicer and the Servicer would not elect to extend,
holders of Certificates evidencing greater than (a) 50% of the aggregate
Voting Rights of all Certificateholders and (b) 66 2/3% of the aggregate
Voting Rights of all Certificateholders who respond to such notice, may direct
the Special Servicer not to extend. Notwithstanding the foregoing, the Special
Servicer may extend pursuant to the Instructions of the Directing Holders. The
Special Servicer will not agree to any extension of a Mortgage Loan beyond the
Rated Final Distribution Date. If such borrower fails to make a Minimum
Defaulted Monthly Payment more than once during an extension period, no
further extensions will be granted (provided, however, that the Special
Servicer may grant such extension if the borrower has been delinquent on
no more than one such Minimum Defaulted Monthly Payment
within a 24-month period and the requirements set forth in clauses (ii)
through (iv) of the preceding paragraph are satisfied).
Any extension pursuant to the two preceding paragraphs will require
monthly payments in an amount equal to or greater than the Minimum Defaulted
Monthly Payment.
The "Minimum Defaulted Monthly Payment" with respect to any extension
of a Mortgage Loan that is delinquent in respect of its Balloon Payment, is
equal to (a) the principal portion of the Monthly Payment that would have been
due on such Mortgage Loan on the related Due Date based on the original
amortization schedule thereof (or, if there is no amortization schedule, the
principal portion of the constant Monthly Payment that would have been due),
assuming such Balloon Payment had not become due, after giving effect to any
modification, and (b) interest at the applicable Default Rate; provided,
however, that the Special Servicer may agree that the Minimum Defaulted
Monthly Payments may include interest at a rate lower than the related Default
Rate (but in no event lower than the related Mortgage Rate) (the "Lower Rate")
provided that if, after notice to all Certificateholders, holders of
Certificates evidencing at least 66 2/3% of the Voting Rights of each Class
direct (or, in the event that the Special Servicer is not the Servicer and the
Servicer would not agree to the Lower Rate, Certificateholders representing
greater than (a) 50% of the aggregate Voting Rights of all Certificateholders
and (b) 66 2/3% of the aggregate Voting Rights of all Certificateholders who
respond to such notice) the Special Servicer not to agree to permit payments
to include interest at the Lower Rate, the Special Servicer shall not agree to
payments with interest at the Lower Rate; provided, further, that if the
Minimum Defaulted Monthly Payment is to include interest at the Lower Rate,
the Special Servicer may agree that interest on such Mortgage Loan accrues at
the Lower Rate; and provided that if, after notice to all Certificateholders,
holders of Certificates evidencing at least 66 2/3% of the Voting Rights of
each Class direct the Special Servicer that such Mortgage Loan shall accrue
interest at the related Default Rate, then such Mortgage Loan will continue to
accrue interest at the Default Rate thereof and the excess of interest accrued
on such Mortgage Loan over the amount included in the Minimum
Defaulted Monthly Payments (i.e., interest at the Lower Rate) will be added to
the outstanding principal balance of such Mortgage Loan. Notwithstanding the
foregoing, if the Directing Holders have given Instructions to the Special
Servicer to extend, the Special Servicer will be required to follow the
Directing Holders' Instructions with respect to interest so long as the
Minimum Defaulted Monthly Payment is at least equal to the Lower Rate.
The Special Servicer will only be permitted to extend pursuant to the
preceding paragraphs or pursuant to instructions from Directing Holders.
Under certain circumstances the Special Servicer may modify the terms
of Specially Serviced Mortgage Loans as described below under
"--Modifications."
Foreclosure Proceedings; Action of Directing Holders. The Special
Servicer may be given revocable instructions ("Instructions") to extend a
Specially Serviced Mortgage Loan serviced by it that has defaulted on the
Balloon Payment (which extension will be restricted to the actions that the
Special Servicer could have otherwise taken with respect to such Mortgage Loan
except that (a) the actions of the Directing Holders will not be subject to
the rejection of the holders of the Certificates and (b) the related borrower
will not have had to make twelve consecutive Monthly Payments on or prior to
their Due Dates) by the holders of a majority in Percentage Interest of the
most subordinate Class of Certificates then outstanding (determined as
provided below) having an aggregate initial Certificate Balance representing a
minimum of [1.5]% of the aggregate initial Certificate Balances of all Classes
of Certificates (or if the Certificate Balance of such Class or Classes has
been reduced to less than 40% of the initial Certificate Balances thereof, the
holders of such Class or Classes together with the holders of the next most
subordinate Class) (the "Directing Holders") under the following circumstance:
if the Special Servicer has determined to commence foreclosure or acquisition
proceedings, the Special Servicer will notify the Trustee (who will, in turn,
notify the Directing Holders), the Servicer and the Depositor of its proposed
action. If the Special Servicer receives contrary Instructions within seven
days from the Directing Holders, the Special Servicer will delay such
proceedings, and the procedures described below shall apply to the servicing
of such Mortgage Loan. In the event that the Special Servicer does not receive
such Instructions within such seven-day period, the Special Servicer may
proceed with the foreclosure or acquisition. If the Directing Holders revoke
their Instructions to extend the Mortgage Loan, the Special Servicer will
service the Mortgage Loan without regard to such original Instructions;
provided, however, that the Directing Holders will be required to maintain the
Collateral Account (as described below) unless and until the Mortgage Loan is
no longer a Specially Serviced Mortgage Loan for nine consecutive months or
has been liquidated. For purposes of determining the Directing Holders with
respect to any Mortgage Loan, the Class A-1A, Class A-1B, Class A-1C, Class
A-CS1 and Class A-CS2 Certificates collectively, and the Class B-7 and Class
B-7H Certificates together, will, in each case, be treated as one class.
Deposits by Directing Holders. If the Special Servicer receives
Instructions and the Servicer has not otherwise been required to obtain an
Updated Appraisal as described above, the Servicer (after consultation with
the Special Servicer) will obtain an Updated Appraisal as soon as reasonably
practicable to determine the fair market value of each related Mortgaged
Property, after accounting for the estimated liquidation and carrying costs
(the "Fair Market Value" of such Mortgaged Property). Within two Business Days
after the Special Servicer's receipt of Instructions, the Directing Holders
are required to deposit (in proportion to their respective Percentage
Interests) into a segregated account (the "Collateral Account") established by
the Servicer an amount equal to the lesser of (a) 125% of the Fair Market
Value of the related Mortgaged Property and (b) the outstanding principal
balance of the Mortgage Loan plus unreimbursed Advances (with interest
thereon) and unpaid accrued interest (the "Deposit"). If no Updated Appraisal
has yet been obtained, the amount of the Deposit will be determined based on
the Special Servicer's (or if the Special Servicer is a Directing Holder, the
Servicer's) estimate of the Fair Market Value of the Mortgaged Property, in
which case, upon the Special Servicer's receipt of such Updated Appraisal, the
Special Servicer (or if the Special Servicer is a Directing Holder, the
Servicer) will remit any excess deposit to the Directing Holders, or the
Directing Holders will deposit in the Collateral Account any shortfall, as the
case may be. In the event that the Directing Holders do not make the required
deposit within two business days of the Special Servicer's
receipt of Instructions, the Special Servicer will disregard such
Instructions. The Directing Holders will be deemed to have granted to the
Special Servicer (or the Servicer, if applicable) for the benefit of
Certificateholders a first priority security interest in the Collateral
Account, as security for the obligations of the Directing Holders.
If the Special Servicer is acting pursuant to Instructions, the
Special Servicer or the Servicer, as applicable, shall withdraw from the
Collateral Account and remit to the Servicer for deposit into the Collection
Account on or prior to the Business Day preceding each Servicer Remittance
Date a sum equal to the P&I Advances and Property Advances for the related
Mortgage Loan which in the absence of Instructions would be made by the
Servicer (and the obligation to make such advances shall not be subject to a
non-recoverability standard) and the Directing Holders shall, upon request
therefor by the Special Servicer (or if the Special Servicer is a Directing
Holder, the Servicer), deposit from their own funds into the Collateral
Account the amount of such P&I Advances or Property Advances. If the Directing
Holders fail to make such Deposit within one Business Day after receipt of the
Special Servicer's or Servicer's, as applicable, request, the Special Servicer
will no longer be required to follow such Instructions and will specially
service such Mortgage Loan as though no Instructions had been given; provided,
however, that the Directing Holders will be required to maintain the
Collateral Account unless and until the related Mortgage Loan is no longer a
Specially Serviced Mortgage Loan for nine consecutive months or has been
liquidated. The Special Servicer or Servicer, as applicable, will invest
amounts on deposit in the Collateral Account in Permitted Investments upon
direction by the Directing Holders. Directing Holders will be entitled to
reinvestment income as received, and will reimburse the Collateral Account for
any losses incurred.
Settlement. If a Balloon Loan or the related Mortgaged Property which
is subject to Instructions is liquidated or disposed of, the Servicer will
withdraw from the Collateral Account, and deposit into the Collection Account
as additional liquidation proceeds for distribution to Certificateholders in
accordance with the priorities described herein, the lesser of (a) the amount
by which 125% of the Fair Market Value (determined at the time of the Deposit)
exceeds the net sales proceeds, and (b) the amount by which the outstanding
principal balance of the related Mortgage Loan plus unreimbursed Advances
(with interest thereon) and unpaid accrued interest exceeds the net sales
proceeds, provided that in no event may such additional liquidation proceeds
exceed the unpaid principal balance, accrued and unpaid interest (including
Default Interest), unpaid advances made by the Servicer, Special Servicer,
Trustee or Fiscal Agent and interest thereon, and any expenses paid by the
Trust Fund with respect to such Mortgage loan.
If the amount realized upon disposition of the Mortgage Loan or
Mortgaged Property exceeds 125% of the Fair Market Value, the Servicer shall
deposit the excess in the Collection Account to the extent not required by
applicable law to be paid to the related borrower. If the Mortgage Loan has
not been realized upon on or before the third anniversary of the Instructions
(or such earlier date so that the Trust Fund owns the Mortgaged Property for
no more than two years), the Directing Holders will be required to purchase
the Mortgage Loan for a purchase price equal to the Fair Market Value
(determined at the time of the Deposit). Amounts on deposit in the Collateral
Account will be applied toward the purchase price.
If at any time following the establishment of a Collateral Account
and prior to the disposition of a Specially Serviced Mortgage Loan or
Mortgaged Property, the Mortgaged Property suffers a hazard loss that results
in the Mortgaged Property not being rebuilt and payments to the Trustee under
the related hazard insurance policy, the Special Servicer or Servicer, as
applicable, will pay all amounts on deposit in the Collateral Account to the
Directing Holders. In addition, after amounts required to be deposited in the
Collection Account have been withdrawn from the Collateral Account, as
described above, following foreclosure, liquidation, disposition, purchase by
Directing Holders or, if the related Mortgage Loan is no longer a Specially
Serviced Mortgage Loan for nine consecutive months, any related remaining
amounts in the Collateral Account will be released to the Directing Holders.
No Advances. Until the disposition of the Specially Serviced Mortgage
Loan or Mortgaged Property, as to which Directing Holders have provided
Instructions, or the cure of such default, no P&I Advances will be made in
respect of amounts distributable to the Class of the Directing Holders in
respect of such Mortgage Loan.
Standards for Conduct Generally in Effecting Foreclosure or the Sale
of Defaulted Loans. In connection with any foreclosure or other acquisition,
the cost and expenses of any such proceeding shall be paid by the Special
Servicer as a Property Advance.
If the Special Servicer elects to proceed with a non-judicial
foreclosure in accordance with the laws of the state where the Mortgaged
Property is located, the Special Servicer shall not be required to pursue a
deficiency judgment against the related Mortgagor, if available, or any other
liable party if the laws of the state do not permit such a deficiency judgment
after a non-judicial foreclosure or if the Special Servicer determines, in its
best judgment, that the likely recovery if a deficiency judgment is obtained
will not be sufficient to warrant the cost, time, expense and/or exposure of
pursuing the deficiency judgment and such determination is evidenced by an
officers' certificate delivered to the Trustee.
Notwithstanding any provision to the contrary, the Special Servicer
shall not, on behalf of the Trust Fund, obtain title to a Mortgaged Property
as a result of or in lieu of foreclosure or otherwise, and shall not otherwise
acquire possession of, or take any other action with respect to, any Mortgaged
Property if, as a result of any such action, the Trustee, for the Trust Fund
or the holders of Certificates, would be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of, such
Mortgaged Property within the meaning of CERCLA or any comparable law, unless
the Special Servicer has previously determined, based on an environmental
assessment report prepared by an independent person who regularly conducts
environmental audits, that: (i) such Mortgaged Property is in compliance with
applicable environmental laws or, if not, after consultation with an
environmental consultant that it would be in the best economic interest of the
Trust Fund to take such actions as are necessary to bring such Mortgaged
Property in compliance therewith and (ii) there are no circumstances present
at such Mortgaged Property relating to the use, management or disposal of any
hazardous materials for which investigation, testing, monitoring,
containment, clean-up or remediation could be required under any currently
effective federal, state or local law or regulation, or that, if any such
hazardous materials are present for which such action could be required, after
consultation with an environmental consultant it would be in the best economic
interest of the Trust Fund to take such actions with respect to the affected
Mortgaged Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Trustee, or to its nominee, on behalf of holders of
Certificates. Notwithstanding any such acquisition of title and cancellation
of the related Mortgage Loan, such Mortgage Loan shall be considered to be an
REO Mortgage Loan held in the Trust Fund until such time as the related REO
Property shall be sold by the Trust Fund and shall be reduced only by
collections net of expenses.
If the Trust Fund acquires a Mortgaged Property by foreclosure or
deed-in-lieu of foreclosure upon a default of a Mortgage Loan, the Pooling and
Servicing Agreement provides that the Trustee (or the Special Servicer, on
behalf of the Trustee), must administer such Mortgaged Property so that it
qualifies at all times as "foreclosure property" within the meaning of Code
Section 860G(a)(8). The Pooling and Servicing Agreement also requires that any
such Mortgaged Property be managed and operated by an "independent
contractor," within the meaning of applicable Treasury regulations, who
furnishes or renders services to the tenants of such Mortgaged Property.
Generally, the Trust REMICs will not be taxable on income received with
respect to the Mortgaged Property to the extent that it constitutes "rents
from real property," within the meaning of Code Section 856(c)(3)(A) and
Treasury regulations thereunder. "Rents from real property" do not include the
portion of any rental based on the net income or gain of any tenant or
sub-tenant. No determination has been made whether rent on any of the
Mortgaged Properties meets this requirement. "Rents from real property"
include charges for services customarily furnished or rendered in connection
with the rental of real property, whether or not the charges are separately
stated. Services furnished to the tenants of a particular building will be
considered as customary if, in the geographic market in which the building is
located, tenants in buildings which are of similar Class are customarily
provided with the service. No determination has been made whether the services
furnished to the tenants of the Mortgaged Properties are "customary" within
the meaning of applicable regulations. It is therefore possible that a portion
of the rental income with respect to a Mortgaged Property owned by the Trust
Fund, presumably allocated based on the value of any non-qualifying services,
would not constitute "rents from real property." In addition to the foregoing,
any net income from a trade or business operated or managed by an independent
contractor on a Mortgaged Property owned by the Lower-Tier REMIC, including
but not limited to a hotel or skilled nursing care business, will not
constitute "rents from real property." Any of the foregoing types of income
may instead constitute "net income from foreclosure property," which would be
taxable to the Lower-Tier REMIC at the highest marginal federal corporate rate
(currently 35%) and may also be subject to state or local taxes. Any such
taxes would be chargeable against the related income for purposes of
determining the Net REO Proceeds available for distribution to holders of
Certificates. See "Certain Federal Income Tax Consequences--Taxes That May Be
Imposed on a REMIC--Net Income from Foreclosure Property."
If title to any Mortgaged Property is acquired by the Trust Fund, the
Special Servicer, pursuant to the Pooling and Servicing Agreement and on
behalf of the Trust Fund, will be required to sell the Mortgaged Property
within two years of acquisition, unless the Trustee receives (i) an opinion of
independent counsel to the effect that the holding of the property by the
Trust Fund subsequent to two years after its acquisition will not result in
the imposition of a tax on the Trust REMICs or cause the Trust Fund to fail to
qualify as REMICs under the Code at any time that any Certificate is
outstanding or (ii) an extension from the Internal Revenue Service.
The limitations imposed by the Pooling and Servicing Agreement and
the REMIC provisions of the Code on the operations and ownership of any
Mortgaged Property acquired on behalf of the Trust Fund may result in the
recovery of an amount less than the amount that would otherwise be recovered.
See "Certain Legal Aspects of Mortgage Loans--Foreclosure."
The Special Servicer may offer to sell to any person any Specially
Serviced Mortgage Loan or any REO Property, or may offer to purchase any
Specially Serviced Mortgage Loan or any REO Property (in each case at the
repurchase price set forth in the Pooling and Servicing Agreement, which
includes unpaid principal and interest thereon), if and when the Special
Servicer determines, consistent with the Servicing Standard set forth in the
Pooling and Servicing Agreement, that no satisfactory arrangements can be made
for collection of delinquent payments thereon and such a sale would be in the
best economic interests of the Trust Fund, but shall, in any event, so offer
to sell any REO Property no later than the time determined by the Special
Servicer to be sufficient to result in the sale of such REO Property within
the period specified in the Pooling and Servicing Agreement, including
extensions thereof. The Special Servicer shall give the Trustee not less than
ten days' prior written notice of its intention to sell any Specially Serviced
Mortgage Loan or REO Property, in which case the Special Servicer shall accept
the highest offer received from any person for any Specially Serviced Mortgage
Loan or any REO Property in an amount at least equal to the Repurchase Price
or, at its option, if it has received no offer at least equal to the
Repurchase Price therefor, purchase the Specially Serviced Mortgage Loan or
REO Property at such Repurchase Price.
In the absence of any such offer (or purchase by the Special
Servicer), the Special Servicer shall accept the highest offer received from
any person that is determined by the Special Servicer to be a fair price for
such Specially Serviced Mortgage Loan or REO Property, if the highest offeror
is a person not affiliated with the Special Servicer, the Servicer or the
Depositor or is determined to be a fair price by the Trustee (after
consultation with an independent appraiser if the highest offeror is an
interested party). Notwithstanding anything to the contrary herein, neither
the Trustee, in its individual capacity, nor any of its affiliates may make an
offer for or purchase any Specially Serviced Mortgage Loan or any REO
Property.
The Special Servicer shall not be obligated by either of the
foregoing paragraphs or otherwise to accept the highest offer if the Special
Servicer determines, in accordance with the Servicing Standard, that rejection
of such offer would be in the best interests of the holders of Certificates.
In addition, the Special Servicer may accept a lower offer if it determines,
in accordance with the Servicing Standard, that acceptance of such offer would
be in the best interests of the holders of Certificates (for example, if the
prospective buyer making the lower offer is more likely to perform its
obligations, or the terms offered by the prospective buyer making the lower
offer are more favorable), provided that the offeror is not a person affiliated
with the Special Servicer. The Special Servicer is required to use its best
efforts to sell all Specially Serviced Mortgage Loans and REO Property prior to
the Rated Final Distribution Date.
MODIFICATIONS
The Special Servicer may, consistent with the Servicing Standard,
agree to any modification, waiver or amendment of any term of, forgive or
defer interest on and principal of, and/or add collateral for, any Mortgage
Loan with the consent of Certificateholders representing 100% of the
Percentage Interests of the most subordinate Class of Certificates then
outstanding determined as provided below, subject, however, to each of the
following limitations, conditions and restrictions: (i) a material default on
such Mortgage Loan has occurred or, in the Special Servicer's reasonable and
good faith judgment, a default in respect of payment on such Mortgage Loan is
reasonably foreseeable, and such modification, waiver, amendment or other
action is reasonably likely to produce a greater recovery to
Certificateholders on a present value basis (the relevant discounting of
anticipated collections that will be distributable to Certificateholders will
be done at the related Mortgage Rate), than would liquidation; (ii) the
Special Servicer may not extend the date on which any Balloon Payment is
scheduled to be due on any Specially Serviced Mortgage Loan except as
described under "Realization Upon Mortgage Loans"; (iii) no reduction of any
scheduled monthly payment of principal and/or interest on any Specially
Serviced Mortgage Loan may result in a debt service coverage ratio for such
Mortgage Loan of greater than 1.10 to 1, and the Special Servicer may only
agree to reductions lasting a period of no more than twelve months and, in the
aggregate, no more than three consecutive reductions of twelve months or less
each; (iv) the Special Servicer may not release or substitute collateral or
release mortgagors or guarantors except in accordance with the provisions of
the related Loan Documents; (v) the Special Servicer may not reduce any
Prepayment Premium or Lock-out Period unless the Special Servicer has received
the prior consent of the Servicer; (vi) the Special Servicer may not forgive
an aggregate amount of principal of the Mortgage Loans in excess of the
Certificate Balance of most the subordinate Class of Certificates; (vii) the
Special Servicer will not permit any borrower to add any collateral unless the
Special Servicer has first determined in accordance with the Servicing
Standard, based upon an environmental assessment prepared by an independent
person who regularly conducts environmental assessments, at the expense of the
borrower, that such additional collateral is in compliance with applicable
environmental laws and regulations and that there are no circumstances or
conditions present with respect to such new collateral relating to the use,
management or disposal of any hazardous materials for which investigation,
testing, monitoring, containment, clean-up or remediation would be required
under any then applicable environmental laws and/or regulations; and (viii)
the Special Servicer may waive or reduce a Lock-out Period or any Prepayment
Premiums only if the commencement of a foreclosure proceeding with respect to
the related Mortgage Loan is imminent and the Special Servicer first receives
written notification from the Servicer that such action in the opinion of the
Servicer, consistent with the Servicing Standard and based solely upon
information furnished by the Special Servicer without independent
investigation of the Servicer thereof, is likely to produce a greater
recovery, on a present value basis, than would a foreclosure. For purposes of
obtaining the consent of the most subordinate Class of Certificates
outstanding to any modification described above, (i) the Class A-1A. Class
A-1B, Class A-1C, Class A-CS1, and Class A-CS2 Certificates collectively and
(ii) the Class B-7 and Class B-7H Certificates together, will, in each case,
be treated as one class. For purposes of determining the amount of principal
which the Special Servicer may forgive pursuant to clause (vi) above, the most
subordinate Class will include the next subordinate Class (determined as
provided in the preceding sentence) provided that Certificateholders
evidencing 100% of the Percentage Interests of such Class consent to such
forgiveness. Notwithstanding the foregoing, the Special Servicer will not be
required to oppose the confirmation of a plan in any bankruptcy or similar
proceeding involving a borrower if in its reasonable and good faith judgment
such opposition would not ultimately prevent the confirmation of such plan or
one substantially similar.
Any payment of interest, which is deferred as described herein will
not, for purposes, including, without limitation, calculating monthly
distributions to Certificateholders, be added to the unpaid principal balance
of the related Mortgage Loan, notwithstanding that the terms of such Mortgage
Loan so permit or that such interest may actually be capitalized.
Following the execution of any modification, waiver or amendment
agreed to by the Special Servicer pursuant to clause (i) above, the Special
Servicer must deliver to the Trustee an officer's certificate setting forth in
reasonable detail the basis of the determination made by it pursuant to clause
(i) above.
Except as otherwise provided above under "Realization Upon Mortgage
Loans" and "Modifications", the Special Servicer or the Servicer may not
modify any term of a Mortgage Loan unless such modification (i) would not be
"significant" as such term is defined in Code Section 1001 or Treasury
Regulation Section 1.860G-2(b)(3) and (ii) would be in accordance with the
servicing standard set forth in the Pooling and Servicing Agreement. The
Pooling and Servicing Agreement will require the Servicer or Special Servicer,
as applicable, to provide copies of any modifications or extensions to each
Rating Agency.
TERMINATION
The obligations created by the Pooling and Servicing Agreement for
the Certificates will terminate upon the payment to Certificateholders of all
amounts held in the Collection Account or by the Servicer, if any, or the
Trustee and required to be paid to them pursuant to the Pooling and Servicing
Agreement following the later to occur of (i) the receipt or collection of the
last payment due on any Mortgage Loan included in the Trust Fund or (ii) the
liquidation or disposition of the last asset held by the Trust Fund. In no
event, however, will the trust created by the Pooling and Servicing Agreement
continue beyond the expiration of twenty-one years from the death of the last
survivor of the descendants of Joseph P. Kennedy, the late ambassador of the
United States to the United Kingdom, living on the date hereof. Written notice
of termination of the Pooling and Servicing Agreement will be given to each
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Certificates at an office or agency appointed by the
Trustee, which will be specified in the notice of termination.
OPTIONAL TERMINATION
The Depositor or the Servicer and, if neither the Depositor nor the
Servicer exercises its option, the holders of the Class LR Certificates
representing greater than a 50% Percentage Interest of the Class LR
Certificates will have the option to purchase all of the Mortgage Loans and
all property acquired in respect of any Mortgage Loan remaining in the Trust
Fund, and thereby effect termination of the Trust Fund and early retirement of
the then outstanding Certificates, on any Distribution Date on which the
aggregate Stated Principal Balance of the Mortgage Loans remaining in the
Trust Fund is less than 1% of the aggregate principal balance of such Mortgage
Loans as of the Cut-off Date. The purchase price payable upon the exercise of
such option on such a Distribution Date will be an amount equal to the greater
of (i) the sum of (A) 100% of the outstanding principal balance of each
Mortgage Loan included in the Trust Fund as of the last day of the month
preceding such Distribution Date; (B) the fair market value of all other
property included in the Trust Fund as of the last day of the month preceding
such Distribution Date, as determined by an independent appraiser as of a date
not more than 30 days prior to the last day of the month preceding such
Distribution Date; (C) all unpaid interest accrued on such principal balance
of each such Mortgage Loan (including any Mortgage Loans as to which title to
the related Mortgaged Property has been acquired) at the Mortgage Rate (plus
the Excess Rate, to the extent applicable) to the last day of the month
preceding such Distribution Date, and (D) unreimbursed Advances (with interest
thereon) and unpaid Trust Fund expenses and (ii) the aggregate fair market
value of the Mortgage Loans and all other property acquired in respect of any
Mortgage Loan in the Trust Fund, on the last day of the month preceding such
Distribution Date, as determined by an independent appraiser acceptable to the
Servicer, together with one month's interest thereon at the Mortgage Rate. The
holders of greater than a 50% Percentage Interest in the Class LR Certificates
may purchase any Mortgage Loan on its Anticipated Repayment Date at a price
equal to the sum of the following: (i) 100% of the outstanding principal
balance of such Mortgage Loan on such Anticipated Repayment Date; (ii) all
unpaid interest accrued on such principal balance of such Mortgage Loan at the
Mortgage Rate thereof, to the last day of the Interest Accrual Period
preceding such Anticipated Repayment Date; (iii) the aggregate amount of
unreimbursed Advances with respect to such Mortgage Loan, with interest
thereon at the Advance Rate, and unpaid special servicing compensation,
servicing compensation, Trustee Fees and Trust Fund expenses; and (iv) the
amount of any liquidation expenses incurred by the Trust Fund in connection
with such purchase.
THE TRUSTEE
The Trustee may resign at any time by giving written notice to the
Depositor, the Servicer and the Rating Agencies, provided that no such
resignation shall be effective until a successor has been appointed. Upon such
notice, the Servicer will appoint a successor trustee. If no successor trustee
is appointed within one month after the giving of such notice of resignation,
the resigning Trustee may petition the court for appointment of a successor
trustee.
The Servicer or the Depositor may remove the Trustee and the Fiscal
Agent if, among other things, the Trustee ceases to be eligible to continue as
such under the Pooling and Servicing Agreement or if at any time the Trustee
becomes incapable of acting, or is adjudged bankrupt or insolvent, or a
receiver of the Trustee or its property is appointed or any public officer
takes charge or control of the Trustee or of its property. The holders of
Certificates evidencing aggregate Voting Rights of at least 50% of all
Certificateholders may remove the Trustee and the Fiscal Agent upon written
notice to the Depositor, the Servicer, the Trustee and the Fiscal Agent. Any
resignation or removal of the Trustee and the Fiscal Agent and appointment of
a successor trustee and, if such trustee is not rated at least "AA" by each
Rating Agency, fiscal agent, will not become effective until acceptance of the
appointment by the successor trustee and, if necessary, fiscal agent.
Notwithstanding the foregoing, upon any termination of the Trustee and Fiscal
Agent under the Pooling and Servicing Agreement, the Trustee and Fiscal Agent
will continue to be entitled to receive all accrued and unpaid compensation
through the date of termination plus all Advances and interest thereon as
provided in the Pooling and Servicing Agreement. Any successor trustee must
have a combined capital and surplus of at least $50,000,000 and such
appointment must not result in the downgrade, qualification or withdrawal of
the then-current ratings assigned to the Certificates, as evidenced in writing
by the Rating Agencies.
Pursuant to the Pooling and Servicing Agreement, the Trustee will be
entitled to withdraw from the Distribution Account a monthly fee (the "Trustee
Fee"), which constitutes a portion of the Servicing Fee.
The Trust Fund will indemnify the Trustee and the Fiscal Agent
against any and all losses, liabilities, damages, claims or unanticipated
expenses (including reasonable attorneys' fees) arising in respect of the
Pooling and Servicing Agreement or the Certificates other than those resulting
from the negligence, bad faith or willful misconduct of the Trustee or the
Fiscal Agent, as applicable. Neither the Trustee nor the Fiscal Agent will be
required to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties under the Pooling and
Servicing Agreement, or in the exercise of any of its rights or powers, if in
the Trustee's or the Fiscal Agent's opinion, as applicable, the repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it. Each of the Servicer, the Special Servicer, the
Depositor, the Paying Agent, the Certificate Registrar and the Custodian will
indemnify the Trustee, the Fiscal Agent, and certain related parties for
similar losses incurred related to the willful misconduct, bad faith, fraud
and/or negligence in the performance of each such party's respective duties
under the Pooling and Servicing Agreement or by reason of reckless disregard
of its obligations and duties under the Pooling and Servicing Agreement.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or property securing the same
is located, the Depositor and the Trustee acting jointly will have the power
to appoint one or more persons or entities approved by the Trustee to act (at
the expense of the Trustee) as co-trustee or co-trustees, jointly with the
Trustee, or separate trustee or separate trustees, of all or any part of the
Trust Fund, and to vest in such co-trustee or separate trustee such powers,
duties, obligations, rights and trusts as the Depositor and the Trustee may
consider necessary or desirable. Except as required by applicable law, the
appointment of a co-trustee or separate trustee will not relieve the Trustee
of its responsibilities, obligations and liabilities under the Pooling and
Servicing Agreement.
DUTIES OF THE TRUSTEE
The Trustee (except for the information under the first paragraph of
"--The Trustee") and Servicer (except for the information under "--The
Servicer") will make no representation as to the validity or sufficiency of
the Pooling and Servicing Agreement, the Certificates or the Mortgage Loans,
this Prospectus or related documents. The Trustee will not be accountable for
the use or application by the Depositor, the Servicer or the Special Servicer
of any Certificates issued to it or of the proceeds of such Certificates, or
for the use of or application of any funds paid to the Depositor, the Servicer
or the Special Servicer in respect of the assignment of the Mortgage Loans to
the Trust Fund, or any funds deposited in or withdrawn from the Lock Box
Accounts, Cash Collateral Accounts, Reserve Accounts, Collection Account,
Upper-Tier Distribution Account, Distribution Account, Excess Interest
Distribution Account, Interest Reserve Account and Default Interest
Distribution Account or any other account maintained by or on behalf of the
Servicer or Special Servicer, nor will the Trustee be required to perform, or
be responsible for the manner of performance of, any of the obligations of the
Servicer or Special Servicer under the Pooling and Servicing Agreement.
In the event that the Servicer fails to make a required Advance, the
Trustee will make such Advance, provided that the Trustee shall not be
obligated to make any Advance it deems to be nonrecoverable. The Trustee shall
be entitled to rely conclusively on any determination by the Servicer or the
Special Servicer that an Advance, if made, would not be recoverable. The
Trustee will be entitled to reimbursement for each Advance made by it in the
same manner and to same extent as the Servicer or the Special Servicer.
If no Event of Default has occurred, and after the curing of all
Events of Default which may have occurred, the Trustee is required to perform
only those duties specifically required under the Pooling and Servicing
Agreement. Upon receipt of the various certificates, reports or other
instruments required to be furnished to it, the Trustee is required to examine
such documents and to determine whether they conform on their face to the
requirements of the Pooling and Servicing Agreement.
DUTIES OF THE FISCAL AGENT
The Fiscal Agent will make no representation as to the validity or
sufficiency of the Pooling and Servicing Agreement, the Certificates, the
Mortgage Loan, this Prospectus (except for the information above, see "--The
Fiscal Agent") or related documents. The duties and obligations of the Fiscal
Agent consist only of making Advances as described below and in "--Advances"
above; the Fiscal Agent shall not be liable except for the performance of such
duties and obligations.
In the event that the Servicer and the Trustee fail to make a
required Advance, the Fiscal Agent will make such Advance, provided that the
Fiscal Agent will not be obligated to make any Advance that it deems to be
nonrecoverable. The Fiscal Agent shall be entitled to rely conclusively on any
determination by the Servicer or the Trustee, as applicable, that an Advance,
if made, would not be recoverable. The Fiscal Agent will be entitled to
reimbursement for each Advance made by it in the same manner and to the same
extent as the Trustee and the Servicer.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Pursuant to the Pooling and Servicing Agreement, the Servicer will be
entitled to withdraw monthly from the Collection Account its portion of the
Servicing Fee. The monthly servicing fee (the "Servicing Fee") for any
Distribution Date is an amount per Interest Accrual Period equal to the
product of (i) a per annum rate of [ ]% (the "Servicing Fee Rate") and (ii)
the Stated Principal Balance of such Mortgage Loan as of the Due Date and
includes the compensation payable to the Servicer and the Trustee Fee. The
Servicer's portion of the Servicing Fee relating to each Mortgage Loan will be
retained by the Servicer from payments and collections (including insurance
proceeds, condemnation proceeds and liquidation proceeds) in respect of such
Mortgage Loan. The Servicer will also be entitled to retain as additional
servicing compensation (together with the Servicer's portion of the Servicing
Fee, "Servicing Compensation") (i) all investment income earned on amounts on
deposit in the Collection Account and certain Reserve Accounts (to the extent
consistent with the related Mortgage Loan) and (ii) to the extent permitted by
applicable law and the related Mortgage Loans, any late payment charges,
one-half of any loan modification or extension fees (payable in connection
with a modification for which review by the Servicer is required), loan
service transaction fees, beneficiary statement changes, or similar items (but
not including Prepayment Premiums). If a review by the Servicer is not
required, the Special Servicer will be entitled to the full amount of any
modification or extension fees.
If the Servicer accepts a voluntary prepayment on a Mortgage Loan
after the related Lock-out Period with respect to such loan which results in a
Prepayment Interest Shortfall, the Servicer will be obligated to reduce its
Servicing Compensation as provided above under "Description of the
Subordinated Certificates--Distributions--Prepayment Interest Shortfalls."
The Servicer will pay all expenses incurred in connection with its
responsibilities under the Pooling and Servicing Agreement (subject to
reimbursement as described herein), including all fees of any subservicers
retained by it. The Trustee will withdraw monthly from the Distribution
Account the portion of the Servicing Fee representing the Trustee Fee.
SPECIAL SERVICING
AMI will initially be appointed as Special Servicer to, among other
things, oversee the resolution of non-performing Mortgage Loans and act as
disposition manager of REO Properties. The Pooling and Servicing Agreement
will provide that more than one Special Servicer may be appointed, but only
one Special Servicer may specially service any Mortgage Loan.
The Pooling and Servicing Agreement provides that holders of Certificates
evidencing greater than 50% of the Percentage Interests of the most
subordinate Class of Certificates then outstanding (provided, however, that
for purposes of determining the most subordinate Class, the Class A-1A, Class
A-1B, Class A-1C, Class A-CS1 and Class A-CS2 Certificates collectively, and
the Class B-7 and Class B-7H Certificates together, will, in each case, be
treated as one Class) may replace the Special Servicer, provided that each
Rating Agency confirms to the Trustee in writing that such replacement, in and
of itself, will not cause a qualification, withdrawal or downgrading of the
then-current ratings assigned to any Class of Certificates. In the event that
a Mortgage Loan secured by a senior housing/healthcare facility or a hotel or
motel becomes a Specially Serviced Mortgage Loan, the Special Servicer will be
required to hire a consultant which is experienced in the operation of such
facilities.
The duties of the Special Servicer relate to Specially Serviced
Mortgage Loans and to any REO Property. The Pooling and Servicing Agreement
will define a "Specially Serviced Mortgage Loan"""" to include any Mortgage
Loan with respect to which: (i) the related borrower has not made two
consecutive Monthly Payments (and has not cured at least one such delinquency
by the next due date under the related Mortgage Loan) or (ii) the Servicer,
the Trustee and/or the Fiscal Agent has made four consecutive P&I Advances
(regardless of whether such P&I Advances have been reimbursed); (iii) the
borrower has expressed to the Servicer an inability to pay or a hardship in
paying the Mortgage Loan in accordance with its terms; (iv) the Servicer has
received notice that the borrower has become the subject of any bankruptcy,
insolvency or similar proceeding, admitted in writing the inability to pay its
debts as they come due or made an assignment for the benefit of creditors; (v)
the Servicer has received notice of a foreclosure or threatened foreclosure of
any lien on the Mortgaged Property securing the Mortgage Loan; (vi) a default
of which the Servicer has notice (other than a failure by the borrower to pay
principal or interest) and which materially and adversely affects the
interests of the Certificateholders has occurred and remained unremedied for
the applicable grace period specified in the Mortgage Loan (or, if no grace
period is specified, 60 days); provided, that a default requiring a Property
Advance will be deemed to materially and adversely affect the interests of
Certificateholders; (vii) the Special Servicer proposes to commence
foreclosure or other workout arrangements; or (viii) such borrower has failed
to make a Balloon Payment as and when due; provided, however, that a Mortgage
Loan will cease to be a Specially Serviced Mortgage Loan (i) with respect to
the circumstances described in clauses (i), (ii), and (viii) above, when the
borrower thereunder has brought the Mortgage Loan current (or, with respect to
the circumstances described in clause (viii), pursuant to a work-out
implemented by the Special Servicer) and thereafter made three consecutive
full and timely monthly payments, including pursuant to any workout of the
Mortgage Loan, (ii) with respect to the circumstances described in clause
(iii), (iv), (v) and (vii) above, when such circumstances cease to exist in
the good faith judgment of the Servicer, or (iii) with respect to the
circumstances described in clause (vi) above, when such default is cured;
provided, in either case, that at that time no circumstance exists (as
described above) that would cause the Mortgage Loan to continue to be
characterized as a Specially Serviced Mortgage Loan.
Pursuant to the Pooling and Servicing Agreement, the Special Servicer
will be entitled to certain fees including a special servicing fee, payable
with respect to each Interest Accrual Period, equal to 1/12 of 0.50% of the
Stated Principal Balance of each related Specially Serviced Mortgage Loan (the
"Special Servicing Fee"). The Special Servicer will be entitled, in addition
to the Special Servicing Fee, to a "Principal Recovery Fee" with respect to
each Specially Serviced Mortgage Loan or REO Property which Principal Recovery
Fee generally will be in an amount equal to [1]% of all amounts received in
respect thereof and allocable as a recovery of principal which will be payable
when the Mortgage Loan or REO Property is sold or liquidated or when the
Specially Serviced Mortgage Loan ceases to be a Specially Serviced Mortgage
Loan. However, no Principal Recovery Fee will be payable in connection with,
or out of Liquidation Proceeds resulting from, the purchase of any Specially
Serviced Mortgage Loan or REO Property (i) by the Mortgage Loan Seller or
Bloomfield as described herein under "The Pooling and Servicing
Agreement--Representations and Warranties; Repurchase"; (ii) by the Servicer,
the Depositor or the Certificateholders as described herein under "The Pooling
and Servicing Agreement--Optional Termination" or (iii) in certain other
limited circumstances. In addition, the Special Servicer will be entitled to
receive (i) any assumption fees and certain loan modification fees related to
the Specially Serviced Mortgage Loans and (ii) any income earned on deposits
in the REO Accounts. Notwithstanding the foregoing, in the event that the
Special Servicer is, or is an affiliate of, the holder of Certificates
representing greater than 50% of the Percentage Interests of the most
subordinate Class of Certificates then outstanding (determined as provided
below), the Special Servicer will be entitled to receive a Special Servicing
Fee equal to 1/12 of [0.25]% of the Stated Principal Balance of each Specially
Serviced Mortgage Loan and one-half of the Principal Recovery Fee it would
otherwise be entitled to.
For purposes of determining whether the Special Servicer is entitled
to full compensation, with respect to any Mortgage Loan, the Class A-1A, Class
A-1B, Class A-1C, Class A-CS1 and Class A-CS2 Certificates collectively, and
the Class B-7 and Class B-7H Certificates together, will in each case, be
treated as one class.
SERVICER AND SPECIAL SERVICER PERMITTED TO BUY CERTIFICATES
The Servicer and Special Servicer will be permitted to purchase any
Class of Certificates. Such a purchase by the Servicer or Special Servicer
could cause a conflict relating to the Servicer's or Special Servicer's duties
pursuant to the Pooling and Servicing Agreement and the Servicer's or Special
Servicer's interest as a holder of Certificates, especially to the extent that
certain actions or events have a disproportionate effect on one or more
Classes of Certificates. The Pooling and Servicing Agreement provides that the
Servicer or Special Servicer shall administer the Mortgage Loans in accordance
with the servicing standard set forth therein without regard to ownership of
any Certificate by the Servicer or Special Servicer or any affiliate thereof.
REPORTS TO CERTIFICATEHOLDERS
TRUSTEE REPORTS
On each Distribution Date, the Trustee is obligated to furnish to each
Certificateholder, to the Depositor, the Paying Agent, the Servicer, the
Special Servicer, each Underwriter and the Rating Agencies a statement setting
forth certain information as to such distribution setting forth for each
Class, in each case to the extent applicable and available, including among
other things:
(i) The Principal Distribution Amount and the
amount of Available Funds allocable to principal included therein;
(ii) The Interest Distribution Amount distributable
on such Class and any related component and the amount of Available
Funds allocable thereto, together with any Interest Shortfall
allocable to such Class and any related component;
(iii) The amount of any P&I Advances by the Servicer,
the Trustee or the Fiscal Agent included in the amounts distributed
to Certificateholders not reimbursed since the last Distribution
Date;
(iv) The Certificate Balance or Notional Balance, as
applicable, of each Class or component after giving effect to the
distribution of amounts in respect of the Principal Distribution
Amount on such Distribution Date;
(v) Realized Losses (for such month and on a
cumulative basis) and their allocation to the Certificate Balance
of any Class of Certificates;
(vi) The Stated Principal Balance of the Mortgage
Loans as of the Due Date preceding such Distribution Date;
(vii) The number and aggregate principal balance of
Mortgage Loans (and the identity of each related borrower) (A)
delinquent one month, (B) delinquent two months, (C) delinquent three
or more months, (D) as to which foreclosure proceedings have been
commenced and (E) that otherwise constitute Specially Serviced
Mortgage Loans, and, with respect to each Specially Serviced Mortgage
Loan, the amount of Property Advances made during the related
Collection Period, the amount of the P&I Advance made on such
Distribution Date, the aggregate amount of Property Advances
theretofore made that remain unreimbursed and the aggregate amount of
P&I Advances theretofore made that remain unreimbursed;
(viii) With respect to any Mortgage Loan that became
an REO Property during the preceding calendar month, the principal
balance and appraised value (based on the most recent Updated
Appraisal) of such Mortgage Loan as of the date it became an REO
Mortgage Loan;
(ix) As of the Due Date preceding such Distribution
Date (A) for any REO Property sold during the related Collection
Period, the amount of the proceeds of such sale deposited into the
Collection Account and (B) the aggregate amount of other revenues
collected by the Special Servicer with respect to each REO Property
during the related Collection Period and credited to the Collection
Account, in each case identifying such REO Property by name;
(x) The appraised value as determined by the most
recent Updated Appraisal (or annual letter update thereof) of any
REO Property;
(xi) The amount of the Servicing Fee, Trustee Fee
and special servicing compensation paid with respect to such
Distribution Date, and the amount of the additional servicing
compensation that was received during the related Collection Period;
(xii) (A) The amount of Prepayment Premiums, if any,
received during the related Collection Period, (B) the amount of
Default Interest received during the related Collection Period and
the Net Default Interest for such Distribution Date and (C) the
amount of Excess Interest, if any, received during the related
Collection Period;
(xiii) The outstanding principal balance and
repurchase price of any Mortgage Loan purchased or repurchased in
accordance with the terms of the Pooling and Servicing Agreement;
(xiv) The amount of Prepayment Interest Shortfalls
with respect to such Distribution Date; and
(xv) The account balance contained in the Reserve
Accounts as of the related Due Date relating to the preceding
Distribution Date for each Mortgage Loan.
In the case of information furnished pursuant to subclauses (i),
(ii), (iii), (iv), (v) and (xiii) above, the amounts shall be expressed as a
dollar amount in the aggregate for all Certificates of each applicable Class
and for each Class of Certificates with a denomination of $1,000 initial
Certificate Balance.
Certain information made available on the monthly reports to
Certificateholders can be retrieved via facsimile through LaSalle National
Bank's ASAP System by calling (312) 904-2200, and requesting statement No. [
]. In addition, to the extent provided to it by the Servicer and the Special
Servicer, the Trustee shall provide to each Certificateholder and Rating
Agency a quarterly report and an annual reports setting forth the information
with respect to the borrowers and the Mortgaged Properties substantially in
the form of Annex D hereto. Such quarterly reports and annual reports will be
prepared by the Servicer, solely from information provided to the Servicer by
the Special Servicer and to the Special Servicer pursuant to the Mortgage
Loans, without modification, interpretation or analysis (except that the
Special Servicer will use its best efforts to isolate management fees and
funded reserves from borrower reported expenses, if necessary) and the
Servicer and Special Servicer will not be responsible for the completeness or
accuracy of such information. Such monthly and quarterly reports and annual
summaries as well as certain other loan level information may also be obtained
electronically for a fee by calling the Trustee.
SERVICER REPORTS
The Servicer, on behalf of the Trust Fund, will (i) deliver to the
Depositor, each Underwriter (including through access to the Servicer's Web
site) and the Trustee (who will copy each Certificateholder upon written
request (provided that each Certificateholder may only make one request per
month and will be required to pay any expenses incurred by the Trustee in
connection with the provision of such information)) and (ii) prepare, sign and
file with the Securities and Exchange Commission as a Current Report on Form
8-K, copies of all quarterly and annual summaries, in the form set forth in
Annex D hereto, as well as notice of certain events with respect to the
Mortgage Loans which may affect Certificateholders, such as amendments,
modifications and waivers, imminent or actual defaults and proposed
prepayments.
The Servicer and the Special Servicer will also make
available at its offices during normal business hours, or send to the
requesting party at the expense of each such requesting party (other than the
Rating Agencies) for review by the Depositor, the Trustee, the Rating
Agencies, any Certificateholder, any person identified to the Servicer or the
Special Servicer, as applicable, by a Certificateholder as a prospective
transferee of a Certificate and any other persons to whom the Servicer or the
Special Servicer, as applicable, believes such disclosure to be appropriate
the following items: (i) all financial statements, occupancy information, rent
rolls, average daily room rates and similar information received by the
Servicer or the Special Servicer, as applicable, from each borrower, (ii) the
inspection reports prepared by or on behalf of the Servicer or the Special
Servicer, as applicable, in connection with the property inspections required
by the Pooling and Servicing Agreement, (iii) any and all modifications,
waivers and amendments of the terms of a Mortgage Loan entered into by the
Servicer or the Special Servicer, as applicable and (iv) any and all officer's
certificates and other evidence delivered to the Trustee and the Depositor to
support the Servicer's determination that any Advance was, or if made would
be, a nonrecoverable Advance. Copies of any and all of the foregoing items
will be available from the Servicer or the Special Servicer, as applicable, or
the Trustee, as applicable, upon request.
USE OF PROCEEDS
The net proceeds from the sale of Subordinated Units will be used by
the Depositor to pay the purchase price of the Mortgage Loans.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do
not purport to be complete nor to reflect the laws of any particular state,
nor to encompass the laws of all states in which the security for the Mortgage
Loans is situated. The summaries are qualified in their entirety by reference
to the applicable federal and state laws governing the Mortgage Loans.
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property which may
be mortgages, deeds of trust, or deeds to secure debt, depending upon the
prevailing practice and law in the state in which the Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages". Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security instrument, as well as separate, recorded, contractual arrangements
with others holding interests in the mortgaged property, the knowledge of the
parties to such instrument as well as the order of recordation of the
instrument in the appropriate public recording office. However, recording does
not generally establish priority over governmental claims for real estate
taxes and assessments and other charges imposed under governmental police
powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance
of real property between two parties--a mortgagor (the borrower and usually
the owner of the subject property) and a mortgagee (the lender). In contrast,
a deed of trust is a three-party instrument, among a trustor (the equivalent
of a mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "mortgagor" includes
the trustor under a deed of trust and a grantor under a deed to secure debt.
Under a deed of trust, the mortgagor grants the property, irrevocably until
the debt is paid, in trust, generally with a power of sale as security for the
indebtedness evidenced by the related note. A deed to secure debt typically
has two parties. By executing a deed to secure debt, the grantor conveys title
to, as opposed to merely creating a lien upon, the subject property to the
grantee until such time as the underlying debt is repaid, generally with a
power of sale as security for the indebtedness evidenced by the related
mortgage note. As used in this Prospectus, unless the context
otherwise requires, the term "mortgagee" means the lender and,
in the case of the deed of trust, the trustee thereunder in
certain cases. In case the mortgagor under a mortgage is a
land trust, there would be an additional party because legal title to the
property is held by a land trustee under a land trust agreement for the
benefit of the mortgagor. At origination of a mortgage loan involving a land
trust, the mortgagor executes a separate undertaking to make payments on the
mortgage note. The mortgagee's authority under a mortgage, the trustee's
authority under a deed of trust and the grantee's authority under a deed to
secure debt are governed by the express provisions of the mortgage, the law of
the state in which the real property is located, certain federal laws
(including, without limitation, the Soldiers' and Sailor's Civil Relief Act of
1940) and, in some cases, in deed of trust transactions, the directions of the
beneficiary.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the mortgagor retains a revocable license to
collect the rents for so long as there is no unremedied default. If the
mortgagor defaults and such default is not remedied by the mortgagor within
the cure period, if any, the license terminates and the lender is entitled to
collect the rents. Local law may require that the lender take possession of
the property and/or obtain a court-appointed receiver before becoming entitled
to collect the rents. In most States, hotel and motel room rates are
considered accounts receivable under the Uniform Commercial Code ("UCC");
generally these rates are either assigned by the mortgagor, which remains
entitled to collect such rates absent a default, or pledged by the mortgagor,
as security for the loans. In general, the lender must file financing
statements in order to perfect its security interest in the rates and must
file continuation statements, generally every five years, to maintain
perfection of such security interest. Even if the lender's security interest
in room rates is perfected under the UCC, the lender will generally be
required to commence a foreclosure or otherwise take possession of the
property in order to collect the room rates after a default.
Even after a foreclosure, the potential rent payments from the
property may be less than the periodic payments that had been due under the
mortgage. For instance, the net income that would otherwise be generated from
the property may be less than the amount that would have been needed to
service the mortgage debt if the leases on the property are at below-market
rents, or as the result of excessive maintenance, repair or other obligations
which a lender succeeds to as landlord.
PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law, and hence, would not be subject to the lien of a mortgage.
Such property is generally pledged or assigned as security to the lender under
the UCC. In order to perfect its security interest therein, the lender
generally must file UCC financing statements and, to maintain perfection of
such security interest, file continuation statements generally every five
years.
INSTALLMENT CONTRACTS
The Mortgage Loans included in a Trust Fund may also consist of
Installment Contracts. Under an Installment Contract the seller (hereinafter
referred to in this Section as the "lender") retains legal title to the
property and enters into an agreement with the purchaser (hereinafter referred
to in this Section as the "borrower") for the payment of the purchase price,
plus interest, over the term of such contract. Only after full performance by
the borrower of the contract is the lender obligated to convey title to the
real estate to the borrower. As with mortgage or deed of trust financing,
during the effective period of the Installment Contract, the borrower is
generally responsible for maintaining the property in good condition and for
paying real estate taxes, assessments and hazard insurance premiums associated
with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his
or her right to occupy the property, the entire indebtedness is accelerated,
and the buyer's equitable interest in the property is forfeited. The lender in
such a situation does not have to foreclose in order to obtain title to the
property, although in some cases a quiet title action is in order if the
borrower has filed the Installment Contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Contract, the courts will permit ejectment of the buyer and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the lender may be required to give notice of default and the
borrower may be granted some grace period during which the contract may be
reinstated upon full payment of the default amount and the borrower may have a
post-foreclosure statutory redemption right. In other states, courts in equity
may permit a borrower with significant investment in the property under an
Installment Contract for the sale of real estate to share in the proceeds of
sale of the property after the indebtedness is repaid or may otherwise refuse
to enforce the forfeiture clause. Nevertheless, generally speaking, the
lender's procedures for obtaining possession and clear title under an
Installment Contract for the sale of real estate in a given state are simpler
and less time-consuming and costly than are the procedures for foreclosing and
obtaining clear title to a mortgaged property.
SUBORDINATE FINANCING
Where the mortgagor encumbers mortgaged property with one or more
junior liens, the senior lender is subjected to additional risk. First, the
mortgagor may have difficulty servicing and repaying multiple loans. In
addition, if the junior loan permits recourse to the mortgagor (as junior
loans often do) and the senior loan does not, a mortgagor may be more likely
to repay sums due on the junior loan than those on the senior loan. Second,
acts of the senior lender that prejudice the junior lender or impair the
junior lender's security may create a superior equity in favor of the junior
lender. For example, if the mortgagor and the senior lender agree to an
increase in the principal amount of or the interest rate payable on the senior
loan, the senior lender may lose its priority to the extent any existing
junior lender is harmed or the mortgagor is additionally burdened. Third, if
the mortgagor defaults on the senior loan and/or any junior loan or loans, the
existence of junior loans and actions taken by junior lenders can impair the
security available to the senior lender and can interfere with or delay the
taking of action by the senior lender. Moreover, the bankruptcy of a junior
lender may operate to stay foreclosure or similar proceedings by the senior
lender.
FORECLOSURE
Foreclosure is a legal procedure that allows the mortgagee to recover
its mortgage debt by enforcing its rights and available legal remedies under
the mortgage. If the mortgagor defaults in payment or performance of its
obligations under the note or mortgage and, by reason thereof, the
indebtedness has been accelerated, the mortgagee has the right to institute
foreclosure proceedings to sell the mortgaged property at public auction to
satisfy the indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage
vary from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are other foreclosure procedures
available in some states that are either infrequently used or available only
in certain limited circumstances, such as strict foreclosure.
JUDICIAL FORECLOSURE
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated
by the service of legal pleadings upon all parties having a subordinate
interest of record in the real property and all parties in possession of the
property, under leases or otherwise, whose interests are subordinate to the
mortgage. Delays in completion of the foreclosure may occasionally result from
difficulties in locating defendants. When the lender's right to foreclosure is
contested, the legal proceedings can be costly and time-consuming. Upon
successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct a public sale of the mortgaged property, the proceeds of
which are used to satisfy the judgment. Such sales are made in accordance with
procedures that vary from state to state.
NON-JUDICIAL FORECLOSURE/POWER OF SALE
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale pursuant to the power of sale granted in the deed
of trust. A power of sale is typically granted in a deed of trust. It may also
be contained in any other type of mortgage instrument. A power of sale allows
a non-judicial public sale to be conducted generally following a request from
the beneficiary/lender to the trustee to sell the property upon any default by
the mortgagor under the terms of the mortgage note or the mortgage instrument
and after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such
sale, the trustee under a deed of trust must record a notice of default and
notice of sale and send a copy to the mortgagor and to any other party who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, in some states the trustee must provide notice to any other party
having an interest of record in the real property, including junior
lienholders. A notice of sale must be posted in a public place and, in most
states, published for a specified period of time in one or more newspapers.
The mortgagor or junior lienholder may then have the right, during a
reinstatement period required in some states, to cure the default by paying
the entire actual amount in arrears (without acceleration) plus the expenses
incurred in enforcing the obligation. In other states, the mortgagor or the
junior lienholder is not provided a period to reinstate the loan, but has only
the right to pay off the entire debt to prevent the foreclosure sale.
Generally, the procedure for public sale, the parties entitled to notice, the
method of giving notice and the applicable time periods are governed by state
law and vary among the states. Foreclosure of a deed to secure debt is also
generally accomplished by a non-judicial sale similar to that required by a
deed of trust, except that the lender or its agent, rather than a trustee, is
typically empowered to perform the sale in accordance with the terms of the
deed to secure debt and applicable law.
LIMITATIONS ON LENDER'S RIGHTS
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court
may alter the specific terms of a loan to the extent it considers necessary to
prevent an injustice, undue oppression or overreaching, or may require the
lender to undertake affirmative and expensive actions to determine the cause
of the mortgagor's default and the likelihood that the mortgagor will be able
to reinstate the loan. In some cases, courts have substituted their judgment
for the lender's and have required that lenders reinstate loans or recast
payment schedules in order to accommodate mortgagors who are suffering from a
temporary financial disability. In other cases, courts have limited the right
of the lender to foreclose if the default under the mortgage is not monetary,
e.g., the mortgagor failed to maintain the mortgaged property adequately or
the mortgagor executed a junior mortgage on the mortgaged property. The
exercise by the court of its equity powers will depend on the individual
circumstances of each case presented to it. Finally, some courts have been
faced with the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that a mortgagor
receive notice in addition to statutorily-prescribed minimum notice. For the
most part, these cases have upheld the reasonableness of the notice provisions
or have found that a public sale under a mortgage providing for a power of
sale does not involve sufficient state action to afford constitutional
protections to the mortgagor.
A foreclosure action is subject to most of the delays and expenses
of other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete.
Also, a third party may be unwilling to purchase a mortgaged property
at a public sale because of the difficulty in determining the value of such
property at the time of sale, due to, among other things, redemption rights
which may exist and the possibility of physical deterioration of the property
during the foreclosure proceedings. Potential buyers may be reluctant to
purchase property at a foreclosure sale as a result of the 1980 decision of
the United States Court of Appeals for the Fifth Circuit in Durrett v.
Washington National Insurance Company and other decisions that have followed
its reasoning. The court in Durrett held that even a non-collusive, regularly
conducted foreclosure sale was a fraudulent transfer under the federal
Bankruptcy Code, as amended from time to time (11 U.S.C.) and, therefore,
could be rescinded in favor of the bankrupt's estate, if (i) the foreclosure
sale was held while the debtor was insolvent and not more than one year prior
to the filing of the bankruptcy petition and (ii) the price paid for the
foreclosed property did not represent "fair consideration" ("reasonably
equivalent value" under the Bankruptcy Code). Although the reasoning and
result of Durrett in respect of the Bankruptcy Code was rejected by the United
States Supreme Court in May 1994, the case could nonetheless be persuasive to
a court applying a state fraudulent conveyance law which has provisions
similar to those construed in Durrett. For these reasons, it is common for the
lender to purchase the mortgaged property for an amount equal to the lesser of
fair market value and the underlying debt and accrued and unpaid interest plus
the expenses of foreclosure. Generally, state law controls the amount of
foreclosure costs and expenses which may be recovered by a lender. Thereafter,
subject to the mortgagor's right in some states to remain in possession during
a redemption period, if applicable, the lender will become the owner of the
property and have both the benefits and burdens of ownership of the mortgaged
property. For example, the lender will have the obligation to pay debt service
on any senior mortgages, to pay taxes, obtain casualty insurance and to make
such repairs at its own expense as are necessary to render the property
suitable for sale. Frequently, the lender employs a third party management
company to manage and operate the property. The costs of operating and
maintaining a commercial or multifamily residential property may be
significant and may be greater than the income derived from that property. The
costs of management and operation of those mortgaged properties which are
hotels, motels or restaurants or nursing or convalescent homes or hospitals
may be particularly significant because of the expertise, knowledge and, with
respect to nursing or convalescent homes or hospitals, regulatory compliance,
required to run such operations and the effect which foreclosure and a change
in ownership may have on the public's and the industry's (including
franchisors') perception of the quality of such operations. The lender will
commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal
the lender's investment in the property. Moreover, a lender commonly incurs
substantial legal fees and court costs in acquiring a mortgaged property
through contested foreclosure and/or bankruptcy proceedings. Furthermore, a
few states require that any environmental contamination at certain types of
properties be cleaned up before a property may be resold. In addition, a
lender may be responsible under federal or state law for the cost of cleaning
up a mortgaged property that is environmentally contaminated. See "--
Environmental Legislation". Generally state law controls the amount of
foreclosure expenses and costs, including attorneys' fees, that may be
recovered by a lender.
A junior mortgagee may not foreclose on the property securing the
junior mortgage unless it forecloses subject to senior mortgages and any other
prior liens, in which case it may be obliged to make payments on the senior
mortgages to avoid their foreclosure. In addition, in the event that the
foreclosure of a junior mortgage triggers the enforcement of a "due-on-sale"
clause contained in a senior mortgage, the junior mortgagee may be required to
pay the full amount of the senior mortgage to avoid its foreclosure.
Accordingly, with respect to those Mortgage Loans which are junior mortgage
loans, if the lender purchases the property the lender's title will be subject
to all senior mortgages, prior liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are
generally applied first to the costs, fees and expenses of sale, to unpaid
real estate taxes and assessments and then in satisfaction of the indebtedness
secured by the mortgage under which the sale was conducted. Any proceeds
remaining after satisfaction of senior mortgage debt are generally payable to
the holders of junior mortgages and other liens and claims in order of their
priority, whether or not the mortgagor is in default. Any additional proceeds
are generally payable to the mortgagor. The payment of the proceeds to the
holders of junior mortgages may occur in the foreclosure action of the senior
mortgage or a subsequent ancillary proceeding or may require the institution
of separate legal proceedings by such holders.
RIGHTS OF REDEMPTION
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the mortgagor, and all persons who have
an interest in the property which is subordinate to the mortgage being
foreclosed, from exercise of their "equity of redemption". The doctrine of
equity of redemption provides that, until the property covered by a mortgage
has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having an interest which is subordinate to that of the
foreclosing mortgagee have an equity of redemption and may redeem the property
by paying the entire debt with interest. In addition, in some states, when a
foreclosure action has been commenced, the redeeming party must pay certain
costs of such action. Those having an equity of redemption must generally be
made parties and joined in the foreclosure proceeding in order for their
equity of redemption to be cut off and terminated.
The equity of redemption is generally a common-law (non-statutory)
right which exists prior to completion of the foreclosure, is not waivable by
the mortgagor, must be exercised prior to foreclosure sale and should be
distinguished from the post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the mortgagor and foreclosed junior lienors are given a statutory period in
which to redeem the property from the foreclosure sale. In some states,
statutory redemption may occur only upon payment of the foreclosure sale
price. In other states, redemption may be authorized if the former mortgagor
pays only a portion of the sums due. The effect of a statutory right of
redemption is to diminish the ability of the lender to sell the foreclosed
property. The exercise of a right of redemption would defeat the title of any
purchaser from a foreclosure sale or sale under a deed of trust. Consequently,
the practical effect of the redemption right is to force the lender to
maintain the property and pay the expenses of ownership until the redemption
period has expired. In some states, a post-sale statutory right of redemption
may exist following a judicial foreclosure, but not following a trustee's sale
under a deed of trust.
Under the REMIC Regulations currently in effect, property acquired by
foreclosure generally must not be held for more than two years. The Pooling
and Servicing Agreement will permit foreclosed property to be held for more
than two years if the Trustee receives (i) an extension from the Internal
Revenue Service or (ii) an opinion of counsel to the effect that holding such
property for such period is permissible under the REMIC provisions of the
Code.
ANTI-DEFICIENCY LEGISLATION
Some or all of the Mortgage Loans may be nonrecourse loans, as to
which recourse may be had only against the specific property securing the
related Mortgage Loan and a personal money judgment may not be obtained
against the mortgagor. Even if a mortgage loan by its terms provides for
recourse to the mortgagor, some states impose prohibitions or limitations on
such recourse. For example, statutes in some states limit the right of the
lender to obtain a deficiency judgment against the mortgagor following
foreclosure or sale under a deed of trust. A deficiency judgment would be a
personal judgment against the former mortgagor equal to the difference between
the net amount realized upon the public sale of the real property and the
amount due to the lender. Some states require the lender to exhaust the
security afforded under a mortgage by foreclosure in an attempt to satisfy the
full debt before bringing a personal action against the mortgagor. In certain
other states, the lender has the option of bringing a personal action against
the mortgagor on the debt without first exhausting such security; however, in
some of these states, the lender, following judgment on such personal action,
may be deemed to have elected a remedy and may be precluded from exercising
remedies with respect to the security. In some cases, a lender will be
precluded from exercising any additional rights under the note or mortgage if
it has taken any prior enforcement action. Consequently, the practical effect
of the election requirement, in those states permitting such election, is that
lenders will usually proceed against the security first rather than bringing a
personal action against the mortgagor. Finally, other statutory provisions
limit any deficiency judgment against the former mortgagor following a
judicial sale to the excess of the outstanding debt over the fair market value
of the property at the time of the public sale. The purpose of these statutes
is generally to prevent a lender from obtaining a large deficiency judgment
against the former mortgagor as a result of low or no bids at the judicial
sale.
LEASEHOLD RISKS
Mortgage Loans may be secured by a mortgage on a ground lease.
Leasehold mortgages are subject to certain risks not associated with mortgage
loans secured by the fee estate of the mortgagor. The most significant of
these risks is that the ground lease creating the leasehold estate could
terminate, leaving the leasehold mortgagee without its security. The ground
lease may terminate if, among other reasons, the ground lessee breaches or
defaults in its obligations under the ground lease or there is a bankruptcy of
the ground lessee or the ground lessor. This risk may be minimized if the
ground lease contains certain provisions protective of the mortgagee, but the
ground leases that secure Mortgage Loans may not contain some of these
protective provisions, and mortgages may not contain the other protections
discussed in the next paragraph. Protective ground lease provisions include
the right of the leasehold mortgagee to receive notices from the ground lessor
of any defaults by the mortgagor; the right to cure such defaults, with
adequate cure periods; if a default is not susceptible of cure by the
leasehold mortgagee, the right to acquire the leasehold estate through
foreclosure or otherwise; the ability of the ground lease to be assigned to
and by the leasehold mortgagee or purchaser at a foreclosure sale and for the
concomitant release of the ground lessee's liabilities thereunder; and the
right of the leasehold mortgagee to enter into a new ground lease with the
ground lessor on the same terms and conditions as the old ground lease in the
event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may
require that the ground lease or leasehold mortgage prohibit the ground lessee
from treating the ground lease as terminated in the event of the ground
lessor's bankruptcy and rejection of the ground lease by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (11
U.S.C.) (the "Bankruptcy Code"), although the enforceability of such clause
has not been established. Without the protections described in the foregoing
paragraph, a leasehold mortgagee may lose the collateral securing its
leasehold mortgage. In addition, terms and conditions of a leasehold mortgage
are subject to the terms and
conditions of the ground lease. Although certain rights given to a ground
lessee can be limited by the terms of a leasehold mortgage, the rights of a
ground lessee or a leasehold mortgagee with respect to, among other things,
insurance, casualty and condemnation will be governed by the provisions of the
ground lease.
BANKRUPTCY LAWS
The Bankruptcy Code and related state laws may interfere with or
affect the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings)
are automatically stayed upon the filing of the bankruptcy petition, and,
usually, no interest or principal payments are made during the course of the
bankruptcy case. The delay and the consequences thereof caused by such
automatic stay can be significant. Also, under the Bankruptcy Code, the filing
of a petition in bankruptcy by or on behalf of a junior lienor may stay the
senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and
procedural safeguards for the lender are met, the amount and terms of a
mortgage secured by property of the debtor may be modified under certain
circumstances. The outstanding amount of the loan secured by the real property
may be reduced to the then-current value of the property (with a corresponding
partial reduction of the amount of lender's security interest) pursuant to a
confirmed plan or lien avoidance proceeding, thus leaving the lender a general
unsecured creditor for the difference between such value and the outstanding
balance of the loan. Other modifications may include the reduction in the
amount of each scheduled payment, which reduction may result from a reduction
in the rate of interest and/or the alteration of the repayment schedule (with
or without affecting the unpaid principal balance of the loan), and/or an
extension (or reduction) of the final maturity date. Some courts with federal
bankruptcy jurisdiction have approved plans, based on the particular facts of
the reorganization case, that effected the curing of a mortgage loan default
by paying arrearages over a number of years. Also, under federal bankruptcy
law, a bankruptcy court may permit a debtor through its rehabilitative plan to
de-accelerate a secured loan and to reinstate the loan even though the lender
accelerated the mortgage loan and final judgment of foreclosure had been
entered in state court (provided no sale of the property had yet occurred)
prior to the filing of the debtor's petition. This may be done even if the
full amount due under the original loan is never repaid.
The Bankruptcy Code has been amended to provide that a lender's
perfected pre-petition security interest in leases, rents and hotel revenues
continues in the post-petition leases, rents and hotel revenues, unless a
bankruptcy court orders to the contrary "based on the equities of the case."
Thus, unless a court orders otherwise, revenues from a Mortgaged Property
generated after the date the bankruptcy petition is filed will constitute
"cash collateral" under the Bankruptcy Code. Debtors may only use cash
collateral upon obtaining the lender's consent or a prior court order finding
that the lender's interest in the Mortgaged Properties and the cash collateral
is "adequately protected" as such term is defined and interpreted under the
Bankruptcy Code. It should be noted, however, that the court may find that the
lender has no security interest in either prepetition or post-petition
revenues if the court finds that the loan documents do not contain language
covering accounts, room rents, or other forms of personalty necessary for a
security interest to attach to hotel revenues.
To the extent that a mortgagor's ability to make payment on a
mortgage loan is dependent on its receipt of payments of rent under a lease of
the related property, such ability may be impaired by the commencement of a
bankruptcy proceeding relating to a lessee under such lease. Under the
Bankruptcy Code, the filing of a petition in bankruptcy by or on behalf of a
lessee results in a stay in bankruptcy against the commencement or
continuation of any state court proceeding for past due rent, for accelerated
rent, for damages or for a summary eviction order with respect to a default
under the lease that occurred prior to the filing of the lessee's petition.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the
lease and retain it or assign it to a third party or (b) reject the lease. If
the lease is assumed, the trustee or debtor in possession (or assignee, if
applicable) must cure any defaults under the lease, compensate the lessor for
its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, however, as the lessor may be
forced to continue under the lease with a lessee that is a poor credit risk or
an unfamiliar tenant if the lease was assigned, and any assurances provided to
the lessor may, in fact, be inadequate. If the lease is rejected, the lessor
will be treated as an unsecured credit or with respect to its claim for
damages for termination of the lease. In addition, pursuant to Section
502(b)(6) of the Bankruptcy Code, a lessor's damages for lease rejection in
respect of future rent installments are limited to the rent reserved by the
lease, without acceleration, for the greater of one year, or 15%, not to
exceed three years, of the remaining term of the lease.
In a bankruptcy or similar proceeding, action may be taken seeking
the recovery as a preferential transfer of any payments made by the mortgagor
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect
its costs and expenses in preserving or selling the mortgaged property ahead
of payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
Moreover, the laws of certain states also give priority to certain tax liens
over the lien of a mortgage or deed of trust. Under the Bankruptcy Code, if
the court finds that actions of the mortgagee have been unreasonable, the lien
of the related mortgage may be subordinated to the claims of unsecured
creditors.
Pursuant to the federal doctrine of "substantive consolidation" or to
the (predominantly state law) doctrine of "piercing the corporate veil", a
bankruptcy court, in the exercise of its equitable powers, also has the
authority to order that the assets and liabilities of a related entity be
consolidated with those of an entity before it. Thus, property ostensibly the
property of one entity may be determined to be the property of a different
entity in bankruptcy, the automatic stay applicable to the second entity
extended to the first and the rights of creditors of the first entity impaired
in the fashion set forth above in the discussion of ordinary bankruptcy
principles. Depending on facts and circumstances not wholly in existence at
the time a loan is originated or transferred to the Trust Fund, the
application of any of these doctrines to one or more of the mortgagors in the
context of the bankruptcy of one or more of their affiliates could result in
material impairment of the rights of the Certificateholders.
For each mortgagor that is described as a "special purpose entity",
"single purpose entity" or "bankruptcy-remote entity" in this Prospectus, the
activities that may be conducted by such mortgagor and its ability to incur
debt are restricted by the applicable Mortgage or the
organizational documents of such mortgagor in such manner as is intended to
make the likelihood of a bankruptcy proceeding being commenced by or against
such mortgagor remote, and such mortgagor has been organized and is designed
to operate in a manner such that its separate existence should be respected
notwithstanding a bankruptcy proceeding in respect of one or more affiliated
entities of such mortgagor. However, the Depositor makes no representation as
to the likelihood of the institution of a bankruptcy proceeding by or in
respect of any mortgagor or the likelihood that the separate existence of any
mortgagor would be respected if there were to be a bankruptcy proceeding in
respect of any affiliated entity of a mortgagor.
ENVIRONMENTAL LEGISLATION
A lender may be subject to unforeseen environmental risks when taking
a security interest in real or personal property.
Under the laws of many states, contamination on a property may give
rise to a lien on the property for cleanup costs. In several states, such a
lien has priority over all existing liens (a "superlien") including those of
existing mortgages; in those states, the lien of a mortgage contemplated by
this transaction may lose its priority to such a superlien.
CERCLA imposes strict, as well as joint and several, liability on
several classes of potentially responsible parties, including current owners
and operators of the property, regardless of whether they caused or
contributed to the contamination. Many states have laws similar to CERCLA.
CERCLA excludes from the definition of "owner or operator" any person "who,
without participating in the management of . . . [the] facility, holds indicia
of ownership primarily to protect his security interest" ("secured-creditor
exemption").
A lender may lose its secured-creditor exemption and be held liable
under CERCLA as an owner or operator, if such lender or its employees or
agents participate in management of the property. Also, if the lender takes
title to or possession of the property, the secured-creditor exemption may be
deemed to be unavailable, and the lender may be liable to the government or
private parties for clean-up or other remedial costs pursuant to CERCLA.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly
construed the CERCLA secured-creditor exemption. The Court held that a
mortgagee need not have involved itself in the day-to-day operations of the
mortgaged property or in decisions relating to hazardous waste in order to be
liable under CERCLA; rather, liability could attach to a mortgagee if its
involvement in the management of the property is sufficiently broad to support
the inference that it had the capacity to influence the mortgagor's treatment
of hazardous waste. Such capacity to influence could be inferred from the
extent of the mortgagee's involvement in the mortgagor's financial management.
A subsequent decision by the United States Court of Appeals for the Ninth
Circuit in In re Bergsoe Metal Corp. disagreed with the Fleet Factors opinion,
ruling that a secured lender had no liability absent "some actual management
of the facility" on the part of the lender. The scope of the secured-creditor
exemption is thus unclear.
If a lender is or becomes liable, it may bring an action for
contribution against the owner or operator who created the environmental
contamination, but that person or entity may be bankrupt or otherwise judgment
proof. It is possible that cleanup costs could become a liability of the Trust
Fund and occasion a loss to Certificateholders in certain circumstances
described above if such remedial costs were incurred.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain due-on-sale and
due-on-encumbrance clauses. These clauses generally provide that the lender
may accelerate the maturity of the loan if the mortgagor sells or otherwise
transfers or encumbers the mortgaged property. Certain of these clauses may
provide that, upon an attempted breach thereof by the mortgagor of an
otherwise non-recourse loan, the mortgagor becomes personally liable for the
mortgage debt. The enforceability of due-on-sale clauses has been the subject
of legislation or litigation in many states and, in some cases, the
enforceability of these clauses was limited or denied. However, with respect
to certain loans the Garn-St Germain Depository Institutions Act of 1982
preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these
clauses in accordance with their terms subject to certain limited exceptions.
The Servicer, on behalf of the Trust Fund, will determine whether to exercise
any right the Trustee may have as mortgagee to accelerate payment of any such
Mortgage Loan or to withhold its consent to any transfer or further
encumbrance in accordance with the general Servicing Standard described
herein.
ACCELERATION ON DEFAULT
Some of the Mortgage Loans included in a Trust Fund will include a
"debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the borrower. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of any state, however, may refuse to foreclose a mortgage or
deed of trust when an acceleration of the indebtedness would be inequitable or
unjust or the circumstances would render the acceleration unconscionable.
Furthermore, in some states, the borrower may avoid foreclosure and reinstate
an accelerated loan by paying only the defaulted amounts and the costs and
attorneys' fees incurred by the lender in collecting such defaulted payments.
State courts also are known to apply various legal and equitable
principles to avoid enforcement of the forfeiture provisions of Installment
Contracts. For example, a lender's practice of accepting late payments from
the borrower may be deemed a waiver of the forfeiture clause. State courts
also may impose equitable grace periods for payment of arrearages or otherwise
permit reinstatement of the contract following a default. Not infrequently, if
a borrower under an Installment Contract has significant equity in the
property, equitable principles will be applied to reform or reinstate the
contract or to permit the borrower to share the proceeds upon a foreclosure
sale of the property if the sale price exceeds the debt.
DEFAULT INTEREST, PREPAYMENT CHARGES AND PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if
payments are not timely made, and in some circumstances may provide for
prepayment fees or yield maintenance penalties if the obligation is paid prior
to maturity or prohibit such prepayment for a specified period. In certain
states, there are or may be specific limitations upon the late charges which a
lender may collect from a mortgagor for delinquent payments. Certain states
also limit the amounts that a lender may collect from a mortgagor as an
additional charge if the loan is prepaid. The enforceability, under the laws
of a number of states of provisions providing for prepayment fees or penalties
upon, or prohibition of, an involuntary prepayment is unclear, and no
assurance can be given that, at the time a Prepayment Premium is required to
be made on a Mortgage Loan in connection with an involuntary prepayment, the
obligation to make such payment, or the provisions of any such prohibition,
will be enforceable under applicable state law. The absence of a restraint on
prepayment, particularly with respect to Mortgage Loans having higher Mortgage
Rates, may increase the likelihood of refinancing or other early retirements
of the Mortgage Loans.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by
certain lenders after March 31, 1980. A similar federal statute was in effect
with respect to mortgage loans made during the first three months of 1980. The
statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision that expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The Depositor has been advised by counsel that a court interpreting
Title V would hold that first mortgage loans secured by primarily residential
properties that are originated on or after January 1, 1980 are subject to
federal preemption. Therefore, in a state that has not taken the requisite
action to reject application of Title V or to adopt a provision limiting
discount points or other charges prior to origination of such mortgage loans,
any such limitation under such state's usury law would not apply to such
mortgage loans.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage
loans, originated by non-federally chartered lenders have historically been
subjected to a variety of restrictions. Such restrictions differed from state
to state, resulting in difficulties in determining whether a particular
alternative mortgage instrument originated by a state-chartered lender was in
compliance with applicable law. These difficulties were alleviated
substantially as a result of the enactment of Title VIII of the Garn-St
Germain Act ("Title VIII"). Title VIII provides that, notwithstanding any
state law to the contrary, state-chartered banks may originate alternative
mortgage instruments in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of alternative
mortgage instruments by national banks, state-chartered credit unions may
originate alternative mortgage instruments in accordance with regulations
promulgated by the National Credit Union Administration (the "NCUA") with
respect to origination of alternative mortgage instruments by federal credit
unions, and all other non- federally chartered housing creditors, including
state-chartered savings and loan associations, state-chartered savings banks
and mortgage banking companies, may originate alternative mortgage instruments
in accordance with the regulations promulgated by the Federal Home Loan Bank
Board (now the Office of Thrift Supervision) with respect to origination of
alternative mortgage instruments by federal savings and loan associations.
Title VIII provides that any state may reject applicability of the provision
of Title VIII by adopting, prior to October 15, 1985, a law or constitutional
provision expressly rejecting the applicability of such provisions. Certain
states have taken such action.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), a mortgagor who enters military service
after the origination of such mortgagor's Mortgage Loan (including a mortgagor
who was in reserve status and is called to active duty after origination of
the Mortgage Loan), may not be charged interest (including fees and charges)
above an annual rate of 6% during the period of such mortgagor's active duty
status, unless a court orders otherwise upon application of the lender. The
Relief Act applies to mortgagors who are members of the Army, Navy, Air Force,
Marines, National Guard, Reserves, Coast Guard and officers of the U.S. Public
Health Service assigned to duty with the military. Because the Relief Act
applies to mortgagors who enter military service (including reservists who are
called to active duty) after origination of the related Mortgage Loan, no
information can be provided as to the number of loans that may be affected by
the Relief Act. Application of the Relief Act would adversely affect, for an
indeterminate period of time, the ability of any servicer to collect full
amounts of interest on certain of the Mortgage Loans. Any shortfalls in
interest collections resulting from the application of the Relief Act would
result in a reduction of the amounts distributable to the holders of the
Certificates and would not be covered by advances or any form of Credit
Support (if any) provided in connection with such Certificates. In addition,
the Relief Act imposes limitations that would impair the ability of the
servicer to foreclose on an affected Mortgage Loan during the mortgagor's
period of active duty status, and, under certain circumstances, during an
additional three month period thereafter. Thus, in the event that such a
Mortgage Loan goes into default, there may be delays and losses occasioned
thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the
"Crime Control Act"), the government may seize the property even before
conviction. The government must publish notice of the forfeiture proceeding
and may give notice to all parties "known to have an alleged interest in the
property", including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
CERTAIN LAWS AND REGULATIONS
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgaged Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(i.e., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type
and use of the Mortgaged Property in question. For instance, Mortgaged
Properties which are hospitals, nursing homes or convalescent homes may
present special risks to lenders in large part due to significant governmental
regulation of the operation, maintenance, control and financing of health care
institutions. Mortgages on Mortgaged Properties which are owned by the
borrower under a condominium form of ownership are subject to the declaration,
by-laws and other rules and regulations of the condominium association.
Mortgaged Properties which are hotels or motels may present additional risk to
the lender in that: (i) hotels and motels are typically operated pursuant to
franchise, management and operating agreements which may be terminable by the
operator and (ii) the transferability of the hotel's operating, liquor and
other licenses to the entity acquiring the hotel either through purchase or
foreclosure is subject to the vagaries of local law requirements. In addition,
Mortgaged Properties which are multifamily residential properties or
cooperatively owned multifamily properties may be subject to rent control
laws, which could impact the future cash flows of such properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and
rules promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the
extent "readily achievable." In addition, under the ADA, alterations to a
place of public accommodation or a commercial facility are to be made so that,
to the maximum extent feasible, such altered portions are readily accessible
to and usable by disabled individuals. The "readily achievable" standard takes
into account, among other factors, the financial resources of the affected
site, owner, landlord or other applicable person. In addition to imposing a
possible financial burden on the borrower in its capacity as owner or
landlord, the ADA may also impose such requirements on a foreclosing lender
who succeeds to the interest of the borrower as owner or landlord.
Furthermore, since the "readily achievable" standard may vary depending on the
financial condition of the owner or landlord, a foreclosing lender who is
financially more capable than the borrower of complying with the requirements
of the ADA may be subject to more stringent requirements than those to which
the borrower is subject.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the anticipated material
federal income tax consequences of the purchase, ownership and disposition of
the Subordinated Certificates and is based on the advice of Cadwalader,
Wickersham & Taft. The discussion below does not purport to address all
federal income tax consequences that may be applicable to particular
categories of investors, some of which may be subject to special rules. In
addition, this discussion does not address state, local or foreign tax issues
with respect to the acquisition, ownership or disposition of the Subordinated
Certificates. The authorities on which this discussion is based are subject to
change or differing interpretations, and any such change or interpretation
could apply retroactively. This discussion reflects the applicable provisions
of the Code, as well as regulations (the "REMIC Regulations") promulgated by
the U.S. Department of the Treasury. Investors should consult their own tax
advisors in determining the federal, state, local, foreign or any other tax
consequences to them of the purchase, ownership and disposition of
Certificates.
Elections will be made to treat the Trust Fund, exclusive of the
Reserve Accounts, the Lock Box Accounts, the Cash Collateral Accounts, the
Excess Interest and the Default Interest in respect of the Mortgage Loans
(such portion of the Trust Fund, the "Trust REMICs"), as two separate REMICs
(the "Upper-Tier REMIC" and the "Lower-Tier REMIC," respectively) within the
meaning of Code Section 860D. The Lower-Tier REMIC will hold the Mortgage
Loans, proceeds therefrom, the Collection Account, the Distribution Account
and any REO Property, and will issue (i) certain uncertificated classes of
regular interests (the "Lower-Tier Regular Interests" ) to the Upper-Tier
REMIC and (ii) the Class LR Certificates, which will represent the sole class
of residual interests in the Lower-Tier REMIC. The Upper-Tier REMIC will hold
the Lower-Tier Regular Interests and the Upper-Tier Distribution Account in
which distributions thereon will be deposited, and will issue the Class A-1A,
Class A-1B, Class A-1C, Class A-CS1, Class A-CS2, Class A-1D, Class A-2, Class
A-3, Class A-4, Class A-5, Class B-1, Class B-2, Class B-3, Class B-4, Class
B-5, Class B-6, Class B-7 and Class B-7H Certificates (the "Regular
Certificates"), as classes of regular interests and the Class R Certificates
as the sole class of residual interests in the Upper-Tier REMIC. Qualification
as a REMIC requires ongoing compliance with certain conditions. Assuming (i)
the making of appropriate elections, (ii) compliance with the Pooling and
Servicing Agreement and (iii) compliance with any changes in the law,
including any amendments to the Code or applicable temporary or final
regulations of the United States Department of the Treasury ("Treasury
Regulations") thereunder, in the opinion of Cadwalader, Wickersham & Taft, the
Trust Fund will qualify as two separate REMICs. References in this discussion
to the "REMIC" will, unless the context dictates otherwise, refer to each of
the Upper-Tier REMIC and the Lower-Tier REMIC. The Class V-1 and Class V-2
Certificates will represent pro rata undivided beneficial interests in the
portion of the Trust Fund consisting of Excess Interest and Default Interest
in respect of the Mortgage Loans, respectively, and such portions will be
treated as a grantor trust for federal income tax purposes.
STATUS OF SUBORDINATED CERTIFICATES
Subordinated Certificates held by a real estate investment trust will
constitute "real estate assets" within the meaning of Code Sections
856(c)(5)(A) and 856(c)(6) and interest on the Subordinated Certificates will
be considered "interest on obligations secured by mortgages on real property
or on interests in real property" within the meaning of Code Section
856(c)(3)(B) in the same proportion that, for both purposes, the assets of the
related REMIC and the income thereon would be so treated. Subordinated
Certificates held by a domestic building and loan association will be treated
as "regular or residual interests in a REMIC" under Code Section
7701(a)(19)(C)(xi), but only in the proportion that the REMIC holds "loans . .
. secured by an interest in real property which is . . . residential real
property" within the meaning of Code Section 7701(a)(19)(C)(v). Mortgage Loans
constitute loans described in Code Section 7701(a)(19)(C)(v) if a sufficiently
limited portion of the real property securing the Mortgage Loans is devoted to
commercial use. If at all times 95% or more of the assets of the related REMIC
or the income thereon qualify for the foregoing treatments, the Subordinated
Certificates will qualify for the corresponding status in their entirety. For
purposes of Code Section 856(c)(5)(A), payments of principal and interest on a
Mortgage Loan that are reinvested pending distribution to holders of
Subordinated Certificates qualify for such treatment. Subordinated
Certificates held by a regulated investment company will not constitute
"government securities" within the meaning of Code Section 851(b)(4)(A)(i).
Subordinated Certificates held by certain financial institutions will
constitute an "evidence of indebtedness" within the meaning of Code Section
582(c)(1).
QUALIFICATION AS A REMIC
In order for each of the Upper-Tier REMIC and the Lower-Tier REMIC to
qualify as a REMIC, there must be ongoing compliance on the part of the
applicable portions of the Trust Fund with the requirements set forth in the
Code. Each of the Upper-Tier REMIC and the Lower- Tier REMIC must fulfill an
asset test, which requires that no more than a de minimis portion of the
assets of each REMIC, as of the close of the third calendar month beginning
after the "Startup Day" (which for purposes of this discussion is the date of
the issuance of the Certificates) and at all times thereafter, may consist of
assets other than "qualified mortgages" and "permitted investments." The REMIC
Regulations provide a safe harbor pursuant to which the de minimis
requirements will be met if at all times the aggregate adjusted basis of the
nonqualified assets is less than one percent of the aggregate adjusted basis
of all the REMIC's assets. Each REMIC also must provide "reasonable
arrangements" to prevent its residual interests from being held by
"disqualified organizations" or agents thereof and must furnish applicable tax
information to transferors or agents that violate this requirement. The
Pooling and Servicing Agreement will provide that no legal or beneficial
interest in the Class R or Class LR Certificate may be transferred or
registered unless certain conditions, designed to prevent violation of this
requirement, are met.
A qualified mortgage is any obligation that is principally secured by
an interest in real property and that is either transferred to the REMIC on
the Startup Day or is purchased by the REMIC within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the Mortgage Loans,
and regular interests in another REMIC, such as the Lower-Tier Regular
Interests that will be held by the Upper-Tier REMIC, provided, in general, (i)
the fair market value of the real property security (including buildings and
structural components thereof) is at least 80% of the principal balance of the
related Mortgage Loan either at origination or as of the Startup Day (an
original loan-to-value ratio of not more than 125% with respect to the real
property security) or (ii) substantially all the proceeds of the Mortgage Loan
or the underlying mortgage were used to acquire, improve or protect an
interest in real property that, at the origination date, was the only security
for the Mortgage Loan. If the Mortgage Loan has been substantially modified
other than in connection with a default or reasonably foreseeable default, it
must meet the loan-to-value test in (i) of the preceding sentence as of the
date of the last such modification. A mortgage loan that was not in fact
principally secured by real property or is otherwise not a qualified mortgage
must be disposed of within 90 days of discovery of such defect, or otherwise
ceases to be a qualified mortgage after such 90-day period.
Permitted investments include cash flow investments, qualified
reserve assets and foreclosure property. A cash flow investment is an
investment, earning a return in the nature of interest, of amounts received on
or with respect to qualified mortgages for a temporary period, not exceeding
13 months, until the next scheduled distribution to holders of interests in
the REMIC. The Upper-Tier REMIC and Lower-Tier REMIC will not hold any reserve
funds. Foreclosure property is real property acquired by the Lower-Tier REMIC
in connection with the default or imminent default of a qualified mortgage,
provided the Depositor had no knowledge or reason to know as of the Startup
Day that such a default had occurred or would occur. Foreclosure property may
generally be held for not more than two years, with extensions granted by the
Internal Revenue Service.
In addition to the foregoing requirements, the various interests in a
REMIC also must meet certain requirements. All of the interests in a REMIC
must be either of the following: (i) one or more classes of regular interests
or (ii) a single class of residual interests on which distributions, if any,
are made pro rata. A regular interest is an interest in a REMIC that is issued
on the Startup Day with fixed terms, is designated as a regular interest, and
unconditionally entitles the holder to receive a specified principal amount
(or other similar amount), and provides that interest payments (or other
similar amounts), if any, at or before maturity either are payable based on a
fixed rate or a qualified variable rate, or consist of a specified, nonvarying
portion of the interest payments on the qualified mortgages. Such a specified
portion may consist, among other things, of a fixed or qualified variable rate
on some or all of the qualified mortgages in excess of a different fixed or
qualified variable rate on some or all of the qualified mortgages. The
specified principal amount of a regular interest that provides for interest
payments consisting of a specified, nonvarying portion of interest payments on
qualified mortgages may be zero. A residual interest is an interest in a REMIC
other than a regular interest that is issued on the Startup Day that is
designated as a residual interest. An interest in a REMIC may be treated as a
regular interest even if payments of principal with respect to such interest
are subordinated to payments on other regular interests or the residual
interest in the REMIC, and are dependent on the absence of defaults or
delinquencies on qualified mortgages or permitted investments, lower than
reasonably expected returns on permitted investments, expenses incurred by the
REMIC or prepayment interest shortfalls. Accordingly, in the opinion of
Cadwalader, Wickersham & Taft, the Regular Certificates will constitute
classes of regular interests in the Upper-Tier REMIC, the Lower-Tier Regular
Interests will constitute classes of regular interests in the Lower-Tier REMIC
and the Class R Certificates and Class LR Certificates will represent the sole
classes of residual interests in the Upper-Tier REMIC and Lower-Tier REMIC,
respectively.
If an entity fails to comply with one or more of the ongoing
requirements of the Code for status as one or more REMICs during any taxable
year, the Code provides that the entity or applicable portion thereof will not
be treated as a REMIC for such year and thereafter. In this event, any entity
that is the obligor with respect to debt obligations with two or more
maturities, such as the Trust Fund, may be treated as a separate association
taxable as a corporation under Treasury Regulations, and the Subordinated
Certificates may be treated as equity interests therein. The Code, however,
authorizes the Treasury Department to issue regulations that address
situations where failure to meet one or more of the requirements for REMIC
status occurs inadvertently and in good faith. Investors should be aware,
however, that the Conference Committee Report to the Tax Reform Act of 1986
(the "1986 Act") indicates that the relief may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the Trust
Fund's income for the period of time in which the requirements for REMIC
status are not satisfied.
TAXATION OF SUBORDINATED CERTIFICATES AND SUBORDINATED UNITS
GENERAL
The Subordinated Certificates generally will be treated for federal
income tax purposes as newly-originated debt instruments. In general,
interest, original issue discount ("OID") and market discount on a
Subordinated Certificate will be treated as ordinary income to the holder of a
Subordinated Certificate, and principal payments (other than principal
payments that do not exceed accrued market discount) on a Subordinated
Certificate will be treated as a return of capital to the extent of the
Certificateholder's basis allocable thereto. Certificateholders must use the
accrual method of accounting with respect to Subordinated Certificates,
regardless of the method of accounting otherwise used by such
Certificateholders.
ORIGINAL ISSUE DISCOUNT
Holders of debt instruments issued with OID generally must include
original issue discount in ordinary income for federal income tax purposes as
it accrues, in accordance with a constant interest method that takes into
account the compounding of interest, in advance of receipt of the cash
attributable to such income. The following discussion is based in part on
Treasury Regulations issued on February 2, 1994, and amended on June 14, 1996,
under Code Sections 1271 through 1273 and 1275 (the "OID Regulations") and in
part on the provisions of the 1986 Act. Holders of the Subordinated
Certificates should be aware, however, that the OID Regulations do not
adequately address certain issues relevant to prepayable securities, such as
the Subordinated Certificates. To the extent such issues are not addressed in
such Regulations, the [Trustee] will apply the principles of such regulations
and the methodology described in the Conference Committee Report to the 1986
Act. No assurance can be provided that the Internal Revenue Service will not
take a different position as to those matters not currently addressed by the
OID Regulations. Moreover, the OID Regulations include an anti-abuse rule
allowing the Internal Revenue Service to apply or depart from the OID
Regulations where necessary or appropriate to ensure a reasonable tax result
in light of the applicable statutory provisions. A tax result will not be
considered unreasonable under the anti-abuse rule in the absence of a
substantial effect on the present value of a taxpayer's tax liability.
Investors are advised to consult their own tax advisors as to the discussion
herein and the appropriate method for reporting interest and original issue
discount with respect to the Subordinated Certificates.
Under an aggregation rule in the OID Regulations, because the
Subordinated Certificates will be sold as Subordinated Units, they may be
treated as a single debt instrument for purposes of determining issue price,
stated redemption price at maturity and original yield to maturity (each as
defined below), for accruing original issue discount, and for certain other
purposes. This rule would not apply, however, if, among other things, the
Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 or Class B-6
Certificates were "part of an issue a substantial portion of which is traded
on an established market." Under applicable Treasury regulations, a debt
instrument is traded on an established market if, among other things, price
quotations are available from dealers, brokers or traders. It is not certain
whether this requirement will be met. Accordingly, the Depositor believes that
the Subordinated Certificates should be treated as a single debt instrument
for OID purposes. If the aggregation rule applies, it should have no major
effect on the holder of a Subordinated Unit. Upon a sale of one or more
classes of Subordinated Certificates the holder should allocate its adjusted
basis in the Subordinated Unit between the sold and retained portions for
purposes of computing gain or loss. See "Sale or Exchange of Subordinated
Units." It is not clear how a subsequent purchaser of a single class of
Subordinated Certificates would compute original discount with respect to such
Class. The balance of this discussion assumes that the aggregation rule will
apply.
The total amount of OID on a Subordinated Unit is the excess of the
"stated redemption price at maturity" of the Subordinated Unit over its "issue
price." The issue price of a Subordinated Unit is the price at which a
substantial amount of such Subordinated Units is first sold to investors
(other than bond houses, brokers or underwriters). The issue price will also
include any accrued interest attributable to the period prior to the issue
date of the Subordinated Units, unless the holder elects on its federal income
tax return to exclude such amounts from the issue price and to recover it on
the first Distribution Date. The stated redemption price at maturity of a
Subordinated Unit is the sum of all payments provided by the debt instrument
other than qualified stated interest payments. Under the OID Regulations,
qualified stated interest generally includes interest payable at a single
fixed rate if such interest payments are unconditionally payable at intervals
of one year or less during the entire term of the obligation. Qualified stated
interest does not include the portion of interest payable on the first
Distribution Date that exceeds interest for the number of days between the
Startup Day and the first Distribution Date. Accordingly, because the
Subordinate Certificates will all bear the same fixed rate of interest, it is
anticipated that the Trustee will treat all payments of interest on the
Subordinated Units [(other than ___ days of interest payable at the
Pass-Through Rates thereon payable on the first Distribution Date)] as
qualified stated interest and consequently as not includible in the stated
redemption price at maturity of such Classes. Based on the foregoing, it is
anticipated that the Subordinated Units will be issued with OID in an amount
equal to the excess of their aggregate initial Certificate Balance [(plus ___
days of interest at the Pass-Through Rate thereon)] over their issue price
(including accrued interest).
Under a de minimis rule, OID on a Subordinated Unit will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the Subordinated Unit multiplied by the weighted average
maturity of the Subordinated Unit. For this purpose, the weighted average
maturity of the Subordinated Unit is computed as the sum of the amounts
determined by multiplying the number of full years (i.e., rounding down
partial years) from the issue date until each distribution in reduction of
stated redemption price at maturity is scheduled to be made by a fraction, the
numerator of which is the amount of each distribution included in the stated
redemption price at maturity of the Subordinated Unit and the denominator of
which is the stated redemption price at maturity of the Subordinated Unit. The
Conference Committee Report to the 1986 Act provides that the schedule of such
distributions should be determined in accordance with the Prepayment
Assumptions (defined above under "Prepayment and Yield
Considerations--Weighted Average Life of Subordinated Units") and the
anticipated reinvestment rate, if any, relating to the Subordinated Units. The
Prepayment Assumptions with respect to the Subordinated Units is [a ___%
constant prepayment rate] [based on Scenario __ set forth above under
"Prepayment and Yield Considerations."] No representation is made that the
Mortgage Loans will prepay at such rate or any other rate. Holders generally
must report de minimis OID pro rata as principal payments are received, and
such income will be capital gain if the Subordinated Unit is held as a capital
asset. Under the OID Regulations, however, holders of Subordinated Units may
elect to accrue all de minimis OID, as well as market discount and market
premium, under the constant yield method. See "Election to Treat All Interest
Under the Constant Yield Method." Based on the foregoing, it is anticipated
that the Subordinated Units will not be issued with de minimis OID.
A Certificateholder of a Subordinated Unit issued with OID generally
must include in gross income for any taxable year the sum of the "daily
portions," as defined below, of the OID, if any, on the Subordinated Unit
accrued during an accrual period for each day on which it holds the
Subordinated Unit, including the date of purchase but excluding the date of
disposition. With respect to a Subordinated Unit determined to be issued with
OID, a calculation will be made of the OID that accrues during each successive
full accrual period (or shorter period from the date of original issue). Each
accrual period with respect to the Subordinated Units will begin on each
Distribution Date (or the Startup Day in the case of the first accrual period)
and end on the day preceding the next Distribution Date. Under Code Section
1272(a)(6), OID is to be calculated initially based on a principal payment
schedule that takes into account expected prepayment behavior and an
anticipated reinvestment rate in the manner to be specified in Treasury
Regulations. The Conference Committee Report to the 1986 Act indicates that
such schedule is intended to be based on the Prepayment Assumptions with no
assumed reinvestment rate. The OID accruing in a full accrual period will be
the excess, if any, of (i) the sum of (a) the present value of all of the
remaining distributions to be made on the Subordinated Unit as of the end of
that accrual period and (b) the distributions made on the Subordinated Unit
during the accrual period that are included in the Subordinated Unit's stated
redemption price at maturity over (ii) the adjusted issue price of the
Subordinated Unit at the beginning of the accrual period. The present value of
the remaining distributions referred to in the preceding sentence is
calculated based on (i) the yield to maturity of the Subordinated Unit as of
the Startup Day, (ii) events (including actual prepayments, if any) that have
occurred prior to the end of the accrual period, (iii) the Prepayment
Assumptions and (iv) a schedule of interest payments based on the Mortgage
Rates and the maturities of the Mortgage Loans based on the Prepayment
Assumptions. For these purposes, the adjusted issue price of a Subordinated
Unit at the beginning of any accrual period equals the issue price of the
Subordinated Unit, increased by the aggregate amount of original issue
discount with respect to the Subordinated Unit that accrued in all prior
accrual periods and reduced by the amount of distributions included in the
Subordinated Unit's stated redemption price at maturity that were made on the
Subordinated Unit that were attributable to such prior periods. In addition,
the original yield to maturity of a Subordinated Unit should be calculated
based on its issue price, assuming that the Unit will be paid in all periods
in accordance with the Prepayment Assumptions, and with compounding at the end
of each accrual period used in the formula. The OID accruing during any
accrual period (as determined in this paragraph) will be divided by the number
of days in the period to determine the daily portion of OID for each day in
the period. [OID for the first short accrual period between the Startup Day
and the first Distribution Date will be determined using the exact method.]
ACQUISITION PREMIUM
A purchaser of a Subordinated Unit issued with OID at a price greater
than its adjusted issue price and less than its remaining stated redemption
price at maturity will be required to include in gross income the daily
portions of the OID on the Subordinated Unit reduced pro rata by a fraction,
the numerator of which is the excess of its purchase price over such adjusted
issue price and the denominator of which is the excess of the remaining stated
redemption price at maturity over the adjusted issue price. Alternatively,
such a subsequent purchaser may elect to treat all such acquisition premium
under the constant yield method, as described below under the heading
"Election to Treat All Interest Under the Constant Yield Method."
MARKET DISCOUNT
A purchaser of a Subordinated Unit may be subject to the market
discount rules of Code Sections 1276 through 1278. Under these Code sections
and the principles applied by the OID Regulations in the context of OID,
"market discount" is the amount by which the purchaser's original basis in the
Subordinated Unit is exceeded by the adjusted issue price of such Subordinated
Unit at the time of purchase. Such purchaser generally will be required to
recognize ordinary income to the extent of accrued market discount on such
Subordinated Unit as distributions includible in the stated redemption price
at maturity thereof are received, in an amount not exceeding any such
distribution. Such market discount would accrue in a manner to be provided in
Treasury Regulations and should take into account the Prepayment Assumptions.
The Conference Committee Report to the 1986 Act provides that until such
regulations are issued, such market discount would accrue either (i) on the
basis of a constant interest rate or (ii) either in the ratio of interest
accrued for the relevant period to the sum of interest accrued for such period
plus the remaining interest as of the end of such period or in the ratio of
OID accrued for the relevant period to the sum of the OID accrued for such
period plus the remaining OID as of the end of such period. Such purchaser
also generally will be required to treat a portion of any gain on a sale or
exchange of the Subordinated Unit as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income as partial distributions in reduction of the stated redemption price at
maturity were received. Such purchaser will be required to defer deduction of
a portion of the excess of the interest paid or accrued on indebtedness
incurred to purchase or carry the Subordinated Unit over the interest
(including OID) distributable thereon. The deferred portion of such interest
expense in any taxable year generally will not exceed the accrued market
discount on the Subordinated Unit for such year. Any such deferred interest
expense is, in general, allowed as a deduction not later than the year in
which the related market discount income is recognized or the Subordinated
Unit is disposed of. As an alternative to the inclusion of market discount in
income on the foregoing basis, the Certificateholder may elect to include
market discount in income currently as it accrues on all market discount
instruments acquired by such Certificateholder in that taxable year or
thereafter, in which case the interest deferral rule will not apply.
See "Election to Treat All Interest Under the Constant Yield Method" below
regarding an alternative manner in which such election may be deemed to
be made.
Market discount with respect to a Subordinated Unit will be
considered to be zero if such market discount is less than 0.25% of the
remaining stated redemption price at maturity of such Subordinated Unit
multiplied by the weighted average maturity of the Subordinated Unit remaining
after the date of purchase, rounding down the date each payment included in
the stated redemption price at maturity is expected to be made to the next
lowest number of whole years. Such de minimis market discount should be
reportable in the same manner as de minimis OID as determined above under
"Original Issue Discount." Treasury Regulations implementing the market
discount rules have not yet been issued, and investors should therefore
consult their own tax advisors regarding the application of these rules as
well as the advisability of making any of the elections with respect thereto.
Investors should also consult Revenue Procedure 92-67 concerning the elections
to include market discount in income currently and to accrue market discount
on the basis of a constant interest rate.
PREMIUM
Subordinated Units may be purchased at a premium, i.e., at a cost
greater than their remaining stated redemption price at maturity. If the
Certificateholder holds such a Subordinated Unit as a "capital asset" within
the meaning of Code Section 1221, the Certificateholder may elect under Code
Section 171 to amortize such premium under the constant interest method. Such
election applies to all debt instruments held by the Certificateholders at the
beginning of the taxable year as to which the election is made or acquired
thereafter and is irrevocable except with the consent of the Internal Revenue
Service. The Conference Committee Report to the 1986 Act indicates a
Congressional intent that the same rules that will apply to the accrual of
market discount on installment obligations will also apply to amortizing bond
premium under Code Section 171 on installment obligations such as the
Subordinated Units, although it is unclear whether the alternatives to the
constant interest method described above under "Market Discount" are
available. Amortizable bond premium will be treated as an offset to interest
income on a Subordinated Unit rather than as a separate deduction item. See
"Election to Treat All Interest Under the Constant Yield Method" below
regarding an alternative manner in which the Code Section 171 election may be
deemed to be made.
ELECTION TO TREAT ALL INTEREST UNDER THE CONSTANT YIELD METHOD
A holder of a debt instrument such as a Subordinated Unit may elect
to treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument
subject to such an election, (i) "interest" includes stated interest, original
issue discount, de minimis OID, market discount and de minimis market
discount, as adjusted by any amortizable bond premium or acquisition premium
and (ii) the debt instrument is treated as if the instrument were issued on
the holder's acquisition date in the amount of the holder's adjusted basis
immediately after acquisition. A holder generally may make such an election on
an instrument by instrument basis or for a class or group of debt instruments.
However, if the holder makes such an election with respect to a debt
instrument with amortizable bond premium or with market discount, the holder
is deemed to have made elections to amortize bond premium or to report market
discount income currently as it accrues under the constant yield method,
respectively, for all debt instruments acquired by the holder in the same
taxable year or thereafter. The election is made on the holder's federal
income tax return for the year in which the debt instrument is acquired and is
irrevocable except with the approval of the Internal Revenue Service.
Investors should consult their own tax advisors regarding the advisability of
making such an election.
TREATMENT OF LOSSES
Certificateholders will be required to report income with respect to
the Subordinated Units on the accrual method of accounting, without giving
effect to delays or reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans, except to the extent it can be
established that such losses are uncollectible. Accordingly, the holder of a
Subordinated Unit may have income, or may incur a diminution in cash flow as a
result of a default or delinquency, but may not be able to take a deduction
(subject to the discussion below) for the corresponding loss until a
subsequent taxable year. In this regard, investors are cautioned that while
they may generally cease to accrue interest income if it reasonably appears
that the interest will be uncollectible, the Internal Revenue Service may take
the position that original issue discount must continue to be accrued in spite
of its uncollectability until the debt instrument is disposed of in a taxable
transaction or becomes worthless in accordance with the rules of Code Section
166.
To the extent the rules of Code Section 166 regarding bad debts are
applicable, it appears that Certificateholders that are corporations or that
otherwise hold the Subordinated Units in connection with a trade or business
should in general be allowed to deduct as an ordinary loss such loss with
respect to principal sustained during the taxable year on account of any such
Subordinated Units becoming wholly or partially worthless, and that, in
general, Certificateholders that are not corporations and that do not hold the
Subordinated Units in connection with a trade or business will be allowed to
deduct as a loss, which may be a short-term capital loss, any loss sustained
during the taxable year on account of any such Subordinated Units becoming
wholly worthless. The Internal Revenue Service could assert, however, that
losses on the Subordinated Units are deductible based on some other method
that may defer such deductions for all holders, such as reducing future cash
flow for purposes of computing original issue discount. This may have the
effect of creating "negative" OID which would be deductible only against
future positive OID or otherwise upon termination of the Class.
Certificateholders are urged to consult their own tax advisors regarding the
appropriate timing, amount and character of any loss sustained with respect to
such Subordinated Units. While losses attributable to interest previously
reported as income should be deductible as ordinary losses by both corporate
and non-corporate holders, the Internal Revenue Service may take the position
that losses attributable to accrued original issue discount may only be
deducted as short-term capital losses by non-corporate holders not engaged in
a trade or business. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such taxpayers
are advised to consult their tax advisors regarding the treatment of losses on
Subordinated Units.
SALE OR EXCHANGE OF SUBORDINATED UNITS
If a Certificateholder sells or exchanges a Subordinated Unit, the
Certificateholder will recognize gain or loss equal to the difference, if any,
between the amount received and its adjusted basis in the Subordinated Unit.
The adjusted basis of a Subordinated Unit generally will equal the cost of the
Subordinated Unit to the seller, increased by any OID or market discount
previously included in the seller's gross income with respect to the
Subordinated Unit and reduced by amounts included in the stated redemption
price at maturity of the Subordinated Unit that were previously received by
the seller, by any amortized premium, and by any recognized losses.
Except as described above with respect to market discount, and except
as provided in this paragraph, any gain or loss on the sale or exchange of a
Subordinated Unit realized by an investor who holds the Subordinated Unit as a
capital asset will be capital gain or loss and will be long-term or short-term
depending on whether the Subordinated Unit has been held for the long-term
capital gain holding period (more than one year). Such gain will be treated as
ordinary income (i) if a Subordinated Unit is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the holder's net investment in the conversion
transaction at 120% of the appropriate applicable Federal rate under Code
Section 1274(d) in effect at the time the holder entered into the transaction
minus any amount previously treated as ordinary income with respect to any
prior disposition of property that was held as a part of such transaction,
(ii) in the case of an non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d)(4) to have net capital gains taxed
as investment income at ordinary income rates, or (iii) to the extent that
such gain does not exceed the excess, if any, of (a) the amount that would
have been includible in the gross income of the holder if its yield on such
Subordinated Unit were 110% of the applicable Federal rate as of the date of
purchase, over (b) the amount of income actually includible in the gross
income of such holder with respect to such Subordinated Unit. In addition,
gain or loss recognized from the sale of a Subordinated Unit by certain banks
or thrift institutions will be treated as ordinary income or loss pursuant to
Code Section 582(c). Capital gains of certain non-corporate taxpayers are
subject to a lower tax rate than ordinary income of such taxpayers. The
maximum tax rate for corporations is the same with respect to both ordinary
income and capital gains.
TAXES THAT MAY BE IMPOSED ON A REMIC
Prohibited Transactions. Income from certain transactions by a REMIC,
called prohibited transactions, will not be part of the calculation of income
or loss includible in the federal income tax returns of holders of Class R and
Class LR Certificates, but rather will be taxed directly to the related REMIC
at a 100% rate. Prohibited transactions generally include (i) the disposition
of a qualified mortgage other than for (a) substitution within two years of
the Startup Day for a defective (including a defaulted) obligation (or
repurchase in lieu of substitution of a defective (including a defaulted)
obligation at any time) or for any qualified mortgage within three months of
the Startup Day, (b) foreclosure, default, or imminent default of a qualified
mortgage, (c) bankruptcy or insolvency of the REMIC, or (d) a qualified
(complete) liquidation, (ii) the receipt of income from assets that are not
the type of mortgages or investments that the REMIC is permitted to hold,
(iii) the receipt of compensation for services, or (iv) the receipt of gain
from disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding (i) and (iv), it is not a prohibited transaction
to sell REMIC property to prevent a default on regular interests as a result
of a default on qualified mortgages or to facilitate a qualified liquidation
or a clean-up call. The REMIC Regulations indicate that the modification of a
Mortgage Loan generally will not be treated as a disposition if it is
occasioned by a default or reasonably foreseeable default, an assumption of
the Mortgage Loan, or the waiver of a due-on-sale or due-on encumbrance
clause. It is not anticipated that either REMIC will engage in any prohibited
transaction.
Contributions to a REMIC After the Startup Day. In general, a REMIC
will be subject to a tax at a 100% rate on the value of any property
contributed to the REMIC after the Startup Day. Exceptions are provided for
cash contributions to the REMIC (i) during the three months following the
Startup Day, (ii) made to a qualified reserve fund by a holder of a Residual
Certificate, (iii) in the nature of a guarantee, (iv)
made to facilitate a qualified liquidation or clean-up call, and (v) as
otherwise permitted in Treasury Regulations yet to be issued. It is not
anticipated that there will be any taxable contributions to either REMIC.
Net Income from Foreclosure Property. The Lower-Tier REMIC will be
subject to federal income tax at the highest corporate rate on "net income
from foreclosure property," determined by reference to the rules applicable to
real estate investment trusts. Generally, property acquired by foreclosure or
deed in lieu of foreclosure would be treated as "foreclosure property" for a
period of two years, with possible extensions. Net income from foreclosure
property generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment
trust. Examples of taxable net income from foreclosure property include net
income received as a result of the operation and management of a trade or
business on the foreclosure property (within the meaning of the rules
applicable to real estate investment trusts), income from the furnishing or
rendering of services to the tenants of such foreclosure property by an
independent contractor, to the extent that such services are not customarily
furnished to tenants in properties of a similar class in the geographic market
in which the property is located, and rental income based on the net profits
of a tenant.
LIQUIDATION OF THE REMIC
If a REMIC adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC's final tax return a date on which such adoption is deemed to occur,
and sells all of its assets (other than cash) within a 90-day period beginning
on such date, the REMIC will not be taxable on any gain on the sale of its
assets, provided that the REMIC credits or distributes in liquidation all of
the sale proceeds plus its cash (other than amounts retained to meet claims)
to holders of regular and residual interests within the 90-day period.
TAXATION OF CERTAIN FOREIGN INVESTORS
Interest, including OID, distributable to holders of Subordinated
Units or Subordinated Certificates who are non-resident aliens, foreign
corporations, or other Non-U.S. Persons (i.e., any person who is not a "U.S.
Person"), will be considered "portfolio interest" and, therefore, generally
will not be subject to a 30% United States withholding tax, provided that such
Non-U.S. Person (i) is not a "10-percent shareholder" within the meaning of
Code Section 871(h)(3)(B) or a controlled foreign corporation described in
Code Section 881(c)(3)(C) and (ii) provides the Trustee, or the person who
would otherwise be required to withhold tax from such distributions under Code
Section 1441 or 1442, with an appropriate statement, signed under penalties of
perjury, identifying the beneficial owner and stating, among other things,
that the beneficial owner of the Subordinated Unit or Subordinated Certificate
is a Non-U.S. Person. If such statement, or any other required statement, is
not provided, 30% withholding will apply unless reduced or eliminated pursuant
to an applicable tax treaty or unless the interest on the Subordinated Unit or
Subordinated Certificate is effectively connected with the conduct of a trade
or business within the United States by such Non-U.S. Person. In the latter
case, such Non-U.S. Person will be subject to United States federal income tax
at regular rates. Investors who are Non-U.S. Persons should consult their own
tax advisors regarding the specific tax consequences to them of owning a
Certificate. The term "U.S. Person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, an
estate that is subject to U.S. federal income tax regardless of the source of
its income or a trust if (A) for taxable years beginning after December 31,
1996 (or for taxable years ending after August 20, 1996, if the trustee has
made an applicable election) a court within the United States is able to
exercise primary supervision over the administration of such trust, and one or
more United States fiduciaries have the authority to control all substantial
decisions of such trust, or (B) for all other taxable years, such trust is
subject to United States federal income tax regardless of the source of its
income.
BACKUP WITHHOLDING
Distributions made on the Subordinated Units or Subordinated
Certificates, and proceeds from the sale of the Subordinated Units or
Subordinated Certificates to or through certain brokers, may be subject to a
"backup" withholding tax under Code Section 3406 at the rate of 31% on
"reportable payments" (including interest distributions, original issue
discount, and, under certain circumstances, principal distributions) unless
the Certificateholder complies with certain reporting and/or certification
procedures, including the provision of its taxpayer identification number to
the Trustee, its agent or the broker who effected the sale of the Subordinated
Unit or Subordinated Certificate, or such Certificateholder is otherwise an
exempt recipient under applicable provisions of the Code. Any amounts to be
withheld from distribution on the Subordinated Units or Subordinated
Certificates would be refunded by the Internal Revenue Service or allowed as a
credit against the Certificateholder's federal income tax liability.
REPORTING REQUIREMENTS
Each of the Upper-Tier REMIC and the Lower-Tier REMIC will be
required to maintain its books on a calendar year basis and to file federal
income tax returns in a manner similar to a partnership. The form for such
returns is Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax
Return. The Trustee will be required to sign each REMIC's returns. It is
anticipated that the REMIC's books and the Trustee's reports to investors will
reflect the aggregate treatment of the Subordinated Units as a single debt
instrument, without regard to whether the Subordinated Certificates become
separately tradable.
Reports of accrued interest, original issue discount, if any, and
information necessary to compute the accrual of any market discount on the
Subordinated Units will be made annually to the Internal Revenue Service and
to individuals, estates, non-exempt and non-charitable trusts, and
partnerships who are either holders of record of Subordinated Units or
beneficial owners who own Subordinated Units through a broker or middleman as
nominee. All brokers, nominees and all other non-exempt holders of record of
Subordinated Units (including corporations, non-calendar year taxpayers,
securities or commodities dealers, real estate investment trusts, investment
companies, common trust funds, thrift institutions and charitable trusts) may
request such information for any calendar quarter by telephone or in writing
by contacting the person designated in Internal Revenue Service Publication
938 with respect to the Upper-Tier REMIC and Lower-Tier REMIC. Holders through
nominees must request such information from the nominee.
Treasury Regulations require that, in addition to the foregoing
requirements, information must be furnished annually to holders of
Subordinated Units and filed annually with the Internal Revenue Service
concerning the percentage of each REMIC's assets meeting the qualified asset
tests described above under "Status of Certificates."
DUE TO THE COMPLEXITY OF THESE RULES AND THE CURRENT UNCERTAINTY AS
TO THE MANNER TO THEIR APPLICATION TO THE TRUST FUND AND CERTIFICATEHOLDERS,
IT IS PARTICULARLY IMPORTANT THAT POTENTIAL INVESTORS CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX TREATMENT OF THEIR ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE SUBORDINATE CERTIFICATES.
ERISA CONSIDERATIONS
Because the Subordinated Certificates are subordinate to one or more
Classes of Certificates, the purchase and holding of the Subordinated
Certificates by or on behalf of a Plan may result in "prohibited transactions"
within the meaning of ERISA, Section 4975 of the Code or any Similar Law.
Accordingly, each prospective transferee of a Subordinated Certificate that is
a Definitive Certificate will be required to (a) deliver to the Depositor, the
Certificate Registrar and the Trustee a representation letter substantially in
the form set forth as an exhibit to the Pooling and Servicing Agreement
stating that such transferee is not a Plan or a person acting on behalf of or
investing the assets of a Plan, other than an insurance company investing the
assets of its general account under circumstances whereby the purchase and
subsequent holding of the Subordinated Certificate would be exempt from the
prohibited transaction restrictions of ERISA and the Code under Sections I and
III of PTE 95-60, or (b) provide (i) an opinion of counsel in form and
substance satisfactory to the Certificate Registrar that the purchase of the
Subordinated Certificate will not result in the assets of the Trust Fund being
deemed to be "plan assets" and subject to the prohibited transaction
restrictions of ERISA, the Code or any Similar Law and will not subject the
Depositor, the Servicer, the Special Servicer, the Trustee, or the Fiscal
Agent to any obligation in addition to those undertaken in the Pooling and
Servicing Agreement and (ii) such other opinions of counsel, officers'
certificates and agreements as the Certificate Registrar may require in
connection with such transfer. The purchaser or transferee of any interest in
a Subordinated Certificate that is not a Definitive Certificate shall be
deemed to represent that it is not a person described in clause (a) above. The
Subordinated Certificates will contain a legend describing such restrictions
on transfer and the Pooling and Servicing Agreement will provide that any
attempted or purported transfer in violation of these transfer restrictions
will be null and void.
The sale of Certificates to a Plan is in no respect a representation
by the Depositor or Underwriters that this investment meets all relevant legal
requirements with respect to investments by Plans generally or any particular
Plan, or that this investment is appropriate for Plans generally or any
particular Plan.
LEGAL INVESTMENT
The Subordinated Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended ("SMMEA"). The appropriate characterization of the
Subordinated Certificates under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase the
Subordinated Certificates, may be subject to significant interpretive
uncertainties.
All depository institutions considering an investment in the
Subordinated Certificates should review the "Supervisory Policy Statement on
Securities Activities" dated January 28, 1992, as revised April 15, 1994 (the
"Policy Statement") of the Federal Financial Institutions Examination Council.
The Policy Statement, which has been adopted by the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance Corporation, the Office
of the Comptroller of the Currency and the Office of Thrift Supervision, and
by the National Credit Union Administration (with certain modifications),
prohibits depository institutions from investing in certain "high-risk
mortgage securities," except under limited circumstances, and sets forth
certain investment practices deemed to be unsuitable for regulated
institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Subordinated Certificates, as they may be deemed unsuitable investments, or
may otherwise be restricted, under such rules, policies or guidelines.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits,
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying," and provisions which may restrict
or prohibit investments in securities which are issued in book-entry form.
No representation is made as to the proper characterization of the
Subordinated Certificates for legal investment purposes, financial institution
regulatory purposes, or other purposes, or as to the ability of particular
investors to purchase the Subordinated Certificates under applicable legal
investment restrictions. The uncertainties described above (and any
unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Subordinated Certificates) may
adversely affect the liquidity of the Subordinated Certificates. Accordingly,
all institutions whose investment activities are subject to legal investment
laws and regulations, regulatory capital requirements or review by regulatory
authorities should consult with their own legal advisors in determining
whether and to what extent the Subordinated Certificates constitute a legal
investment or are subject to investment, capital or other restrictions.
Investors should consult their own legal advisors in determining
whether and to what extent the Subordinated Certificates constitute legal
investments for such investors.
<PAGE>
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement (the "Underwriting Agreement") between the Depositor and Bear,
Stearns & Co. Inc. and Nomura Securities International, Inc. (the
"Underwriters"), each of the Underwriters has severally agreed to purchase
from the Depositor, and the Depositor has agreed to sell to each of the
Underwriters, the respective principal balance of Subordinated Units set forth
opposite its name at the price to the public set forth on the cover page of
this Prospectus, less underwriting discount:
PRINCIPAL BALANCE OF
UNDERWRITERS SUBORDINATED UNITS(1)
Bear, Stearns & Co. Inc.......................... $
Nomura Securities International, Inc.
$
__________________
(1) Subject to a permitted variance of plus or minus 5%.
The Underwriting Agreement provides that the obligations of the
several Underwriters are subject to the approval of certain legal matters by
counsel, and to certain other conditions. The nature of the Underwriters'
obligations is such that the Underwriters are committed to purchase all of the
Subordinated Units, if any are purchased, at a purchase price of [ ]% of the
initial principal balance thereof as of the Cutoff Date, plus accrued interest
from the Cut-off Date, before deducting expenses payable by the Depositor. In
the event of default by any Underwriter, the Underwriting Agreement provides
that, in certain circumstances, the purchase commitment of the non-defaulting
Underwriter may be increased or the Underwriting Agreement may be terminated.
After the initial public offering of the Subordinated Units, the offering
price and other selling terms may be changed by the Underwriters.
The Depositor [and the Mortgage Loan Seller] will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Act or will contribute to payments that the Underwriters may be required
to make in respect thereof in accordance with the terms and provisions of the
Underwriting Agreement.
Since the Trust Fund is a "direct participation program" as defined
in NASD Conduct Rule 2810, the Underwriters believe that the provisions of the
NASD's Conduct Rule 2720 do not apply to the offering. Rule 2720 imposes
certain conditions on offerings by issuers affiliated, or which have conflicts
of interest, with the underwriters, including a requirement that the public
offering price can be no lower than that recommended by a "qualified
independent underwriter," which must (i) be an NASD member experienced in the
securities or investment banking business, (ii) not be an affiliate of the
issuer of the securities, and (iii) agree to undertake the responsibilities
and liabilities of an underwriter under the Act. Notwithstanding the
inapplicability of Rule 2720, Bear, Stearns & Co. Inc. ("Bear Stearns") is
serving in such role, and the public offering price of the Subordinated Units
offered hereby is not lower than Bear Stearns' recommended public offering
price. Bear Stearns also participated in the preparation of the registration
statement of which this prospectus is a part and has performed due diligence
with respect thereto.
Pursuant to the provisions of NASD Conduct Rule 2810(b)(2)(C), NASD
members may not execute transaction in the Subordinated Units for any accounts
over which they exercise discretionary authority without prior written
approval of the customer.
There is currently no secondary market for the Subordinated Units or
the Subordinated Certificates. Each of the Underwriters currently expects to
make a secondary market in the Subordinated Units and, if separately traded,
the Subordinated Certificates, but has no obligation to do so. There can be no
assurance that an active secondary market for the Subordinated Units or, if
separately traded, Subordinated Certificates will develop or that any such
market, if established, will continue.
This Prospectus dated [ ], 1997 may only be issued or passed on in
the United Kingdom to a person who is of a kind described in Article 9(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1988 or is a person to whom this Prospectus may otherwise lawfully be issued
or passed on.
The Trust Fund described in this Prospectus may only be promoted
(whether by the issuing or passing on of documents as referred to in the
foregoing restriction or otherwise) by an authorized person under Chapter III
of the Financial Services Act 1986 of the United Kingdom ("FSA") to a person
in the United Kingdom if that person is of a kind described in section 76(2)
of the FSA or as permitted by the Financial Services (Promotion of Unregulated
Schemes) Regulations 1991.
The Mortgage Loan Seller and NSI are wholly owned subsidiaries of
Nomura Holding America Inc. The Depositor is a wholly owned subsidiary of the
Mortgage Loan Seller. The Mortgage Loan Seller or an affiliate has acquired a
preferred equity interest in [ ] of the borrowers, which are the borrowers
with respect to Mortgage Loans representing approximately [ ]% of the Initial
Pool Balance. The Mortgage Loan Seller or its affiliates have other financing
relationships with affiliates of certain borrowers, and may enter into other
such relationships in the future. Certain officers and directors of the
Depositor and its affiliates own publicly traded equity interests in
affiliates of the borrowers.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by
Cadwalader, Wickersham & Taft, New York, New York. Certain legal matters will
be passed upon for the Underwriters by Shearman & Sterling, New York, New
York.
FINANCIAL INFORMATION
A new Trust Fund is being formed with respect to the Certificates and
the Trust Fund will not engage in any business activities or have any assets
or obligations prior to the issuance of the Certificates. Accordingly, no
financial statements with respect to the Trust Fund will be included in this
Prospectus.
RATING
It is a condition to the issuance of the Subordinated Certificates
that (i) the Senior Certificates be issued and offered, (ii) the Class B-1
Certificates be rated "___" by ________, the Class B-2 Certificates be rated
"___" by ________, the Class B-3 Certificates be rated "___" by ________, the
Class B-4 Certificates be rated "____" by ________, the Class B-5 Certificates
be rated "____" by ________ and the Class B-6 Certificates be rated "____" by
________.
The Rating Agencies' ratings on mortgage pass-through certificates
address the likelihood of the timely payment of interest and the ultimate
repayment of principal by the Rated Final Distribution Date. The Rating
Agencies' ratings take into consideration the credit quality of the Mortgage
Pool, structural and legal aspects associated with the Certificates, and the
extent to which the payment stream in the Mortgage Pool is adequate to make
payments required under the Certificates. Ratings on mortgage pass-through
certificates do not, however, represent an assessment of the likelihood,
timing or frequency of principal prepayments (both voluntary and involuntary)
by mortgagors, or the degree to which such prepayments might differ from those
originally anticipated. The security ratings do not address the possibility
that Certificateholders might suffer a lower than anticipated yield. In
addition, ratings on mortgage pass-through certificates do not address the
likelihood of receipt of Prepayment Premiums, Net Default Interest or Excess
Interest or the timing or frequency of the receipt thereof. In general, the
ratings thus address credit risk and not prepayment risk. Also, a security
rating does not represent any assessment of the yield to maturity that
investors may experience.
There can be no assurance as to whether any rating agency not
requested to rate the Subordinated Certificates will nonetheless issue a
rating and, if so, what such rating would be. A rating assigned to the
Subordinated Certificates by a rating agency that has not been requested by
the Depositor to do so may be lower than the rating assigned by the Rating
Agencies pursuant to the Depositor's request.
The rating of the Subordinated Certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement (of which this Prospectus forms a
part) under the Act with respect to the Subordinated Certificates. This
Prospectus contains summaries of the material terms of the documents referred
to herein, but does not contain all of the information set forth in the
Registration Statement pursuant to the rules and regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits
can be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at its Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549, and at its Regional Offices
located as follows: Chicago Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and New York Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048. The
Commission also maintains a site on the World Wide Web (the "Web") at
"http://www.sec.gov" at which users can view and download copies of reports,
proxy and information statements and other information filed electronically
through the Electronic Data Gathering, Analysis and Retrieval ("EDGAR")
system.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any securities other than the Subordinated Certificates or an offer of
the Subordinated Certificates to any person in any state or other jurisdiction
in which such offer would be unlawful. The delivery of this Prospectus at any
time does not imply that information herein is correct as of any time
subsequent to its date; however, if any material change occurs while this
Prospectus is required by law to be delivered, this Prospectus will be amended
or supplemented accordingly.
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
- --A--
<S> <C>
ACLI Reports.....................................................................................................49
ACMs.............................................................................................................39
ADA..............................................................................................................41
Advance Rate....................................................................................................135
Advances........................................................................................................135
Allocated Loan Amount............................................................................................65
AMI..............................................................................................................13
Amortization.....................................................................................................66
AMRESCO..........................................................................................................13
Annual Debt Service..............................................................................................65
Anticipated Repayment Date.......................................................................................66
Appraisal Reduction Event........................................................................................87
ARD..............................................................................................................14
ARD Loan.........................................................................................................64
Assumed Maturity Date............................................................................................21
Assumed Scheduled Payment........................................................................................83
Available Funds..................................................................................................79
- --B--
Balloon Loans....................................................................................................59
Balloon Payment..................................................................................................59
Bloomfield.......................................................................................................14
Bloomfield Purchase Agreement...................................................................................133
- --C--
Cash Collateral Accounts........................................................................................136
CEDEL.............................................................................................................6
CEDEL Participants...............................................................................................90
CERCLA...........................................................................................................39
Certificate Balance...............................................................................................7
Certificate Registrar............................................................................................88
Certificateholder................................................................................................88
Class.............................................................................................................7
Code.............................................................................................................23
Collateral Account..............................................................................................146
Collateral Substitution Deposit..................................................................................60
Collection Account..............................................................................................136
Collection Period................................................................................................80
Cooperative......................................................................................................90
Coupon Strip Certificates........................................................................................76
Cut-off Date Allocated Loan Amount...............................................................................65
Cut-off Date Principal Balance...................................................................................67
- --D--
Debt Service Coverage Ratio......................................................................................65
Default Interest.................................................................................................80
Default Interest Distribution Account...........................................................................136
Default Rate.....................................................................................................80
Defeasance Lock-out Period.......................................................................................60
Defeasance Option................................................................................................60
Definitive Certificate...........................................................................................88
Deposit.........................................................................................................146
Depositaries.....................................................................................................88
Depositor.........................................................................................................6
Directing Holders...............................................................................................145
Distribution Account............................................................................................136
Distribution Date................................................................................................78
DSCR.............................................................................................................65
DTC...............................................................................................................6
- --E--
Eligible Bank...................................................................................................137
Euroclear.........................................................................................................6
Euroclear Operator...............................................................................................90
Euroclear Participants...........................................................................................90
Event of Default................................................................................................141
Excess Cash Flow.................................................................................................59
Excess Interest..................................................................................................80
Excess Interest Distribution Account............................................................................136
Excess Rate......................................................................................................58
- --F--
Fair Market Value...............................................................................................145
Fiscal Agent.....................................................................................................18
Fitch Study......................................................................................................49
Fixed Voting Rights Percentage..................................................................................143
Form 8-K.........................................................................................................19
Franchise........................................................................................................66
FSA.............................................................................................................181
- --G--
GLA..............................................................................................................67
Global Securities...............................................................................................189
- --H--
Holders..........................................................................................................91
Hotel Loan.......................................................................................................50
Hotel Property...................................................................................................50
Hudson Hotels Borrower...........................................................................................56
Hudson Hotels Manager............................................................................................56
Hudson Hotels Pool Loan..........................................................................................56
Hudson Hotels Property...........................................................................................56
- --I--
Indirect Participants............................................................................................89
Industrial Loan..................................................................................................50
Industrial Property..............................................................................................50
Initial Pool Balance.............................................................................................49
Instructions....................................................................................................145
Interest Accrual Amount..........................................................................................81
Interest Accrual Period..........................................................................................81
Interest Reserve Account........................................................................................136
Interest Shortfall...............................................................................................81
- --K--
Kendall Borrower.................................................................................................53
Kendall Square Pool Loan.........................................................................................53
Kendall Square Pool Properties...................................................................................53
- --L--
Loan-to-Value Ratio..............................................................................................66
Lock Box Accounts...............................................................................................135
Lock-out Period..................................................................................................59
Lower Rate......................................................................................................145
Lower-Tier Interests.............................................................................................19
Lower-Tier Regular Interests....................................................................................169
Lower-Tier REMIC................................................................................................168
LTV..............................................................................................................66
- --M--
Marina Harbor Borrower...........................................................................................57
Marina Harbor Loan...............................................................................................56
Marina Harbor Maturity Date......................................................................................56
Marina Harbor Property...........................................................................................56
Mezzanine Debt...................................................................................................34
Minimum Defaulted Monthly Payment...............................................................................144
Mobile Home Loan.................................................................................................50
Mobile Home Property.............................................................................................50
Monthly Debt Service Payment.....................................................................................59
Monthly Mortgage Loan Payments...................................................................................35
Monthly Operating Expenses.......................................................................................35
Monthly Payments.................................................................................................58
Mortgage.........................................................................................................49
Mortgage Loan Assumptions.......................................................................................118
Mortgage Loan Purchase and Sale Agreement........................................................................50
Mortgage Loan Seller.............................................................................................12
Mortgage Loans....................................................................................................6
Mortgage Pass-Through Rate.......................................................................................82
Mortgage Pool.....................................................................................................6
Mortgage Rate....................................................................................................83
Mortgaged Properties..............................................................................................6
Multifamily Loan.................................................................................................50
Multifamily Property.............................................................................................50
- --N--
Net Cash Flow....................................................................................................64
Net Default Interest.............................................................................................80
Net Mortgage Pass-Through Rate...................................................................................82
Net REO Proceeds.................................................................................................80
Note.............................................................................................................49
NSI..............................................................................................................12
- --O--
Occupancy........................................................................................................66
Office Loan......................................................................................................50
Office Property..................................................................................................50
OID.............................................................................................................171
Original Principal Loan Balance..................................................................................65
Originators......................................................................................................14
- --P--
P&I Advance.....................................................................................................134
Participants.....................................................................................................88
Pass-Through Rate................................................................................................22
Paying Agent.....................................................................................................19
Percentage Interest..............................................................................................78
Permitted Investments...........................................................................................137
Pool Loan........................................................................................................67
Pooling and Servicing Agreement.................................................................................126
Preferred Interest Holder........................................................................................34
Prepayment Assumptions..........................................................................................117
Prepayment Premium...............................................................................................59
Prime Rate......................................................................................................135
Principal Distribution Amount....................................................................................20
Principal Prepayments............................................................................................80
Principal Recovery Fee..........................................................................................154
Property Advances...............................................................................................135
- --R--
Rated Final Distribution Date...................................................................................116
Realized Loss.................................................................................................86
Record Date......................................................................................................78
Regular Certificates............................................................................................169
Release Date.....................................................................................................60
Remaining Lock-out...............................................................................................66
REMIC.............................................................................................................7
REMIC Regulations...............................................................................................168
REO Account......................................................................................................76
REO Mortgage Loan................................................................................................84
REO Property.....................................................................................................76
Repurchase Price................................................................................................132
Reserve Accounts.................................................................................................51
Residual Certificates............................................................................................23
Retail Loan......................................................................................................50
Retail Property..................................................................................................50
Revised Rate.....................................................................................................58
Rules............................................................................................................89
- --S--
Saracen Borrower.................................................................................................54
Saracen Pool Loan................................................................................................54
Saracen Pool Property............................................................................................54
SEL...............................................................................................................7
Senior Housing/Healthcare Loan...................................................................................50
Senior Housing/Healthcare Property...............................................................................50
Servicer.........................................................................................................13
Servicer's Appraisal Estimate....................................................................................87
Servicer Remittance Date........................................................................................134
Servicing Compensation..........................................................................................152
Servicing Fee...................................................................................................152
Servicing Fee Rate..............................................................................................152
Servicing Standard..............................................................................................133
SMMEA...........................................................................................................178
Special Servicer.................................................................................................13
Special Servicing Fee...........................................................................................154
Specially Serviced Mortgage Loan................................................................................153
Stated Maturity Date.............................................................................................65
Subordinated Units................................................................................................7
- --T--
Terms and Conditions.............................................................................................91
Treasury Rate....................................................................................................58
Treasury Regulations............................................................................................169
Trust Fund........................................................................................................6
Trust REMIC.....................................................................................................168
Trustee..........................................................................................................18
Trustee Fee.....................................................................................................151
- --U--
U.S. Person.....................................................................................................192
Underwriters....................................................................................................180
Underwriting Agreement..........................................................................................180
Unscheduled Payments.............................................................................................80
Updated Appraisal...............................................................................................144
Upper-Tier Distribution Account.................................................................................136
Upper-Tier REMIC................................................................................................168
- --V--
Voting Rights...................................................................................................143
- --W--
Weighted Average Net Mortgage Pass-Through Rate..................................................................82
Wells Holdings...................................................................................................54
Withheld Amounts................................................................................................136
- --Z--
Zoning Laws......................................................................................................41
</TABLE>
<PAGE>
ANNEX A
LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
Loan Name Property Name Property Typ
<S> <C> <C>
Woodland Park Investments Co. Woodland Park Retirement ASLV
Prime Retail II Oak Creek Factory Outlets FACT
Prime Retail II Bed Factory Outlets FACT
Prime Retail II Coeur D'Alene Factory Outlets FACT
Best Western-Jacksonville Best Western - Jacksonville HOTL
Comfort Inn - Castaic Comfort Inn - Castaic HOTL
Country Hearth Inn - Orlando Country Hearth Inn - Orlando HOTL
Diamond Inn Diamond Inn HOTL
Econolodge Arizona Econolodge Arizona HOTL
Holiday Inn - Alexandria Holiday Inn - Alexandria HOTL
Holiday Inn Express Hotel - East Haven Holiday Inn Express Hotel - East Haven HOTL
Holiday Inn New Orleans Holiday Inn New Orleans HOTL
Hudson Hotels Fairfield Inn - Albany HOTL
Hudson Hotels EconoLodge - Canandaigua HOTL
Hudson Hotels Fairfield Inn - Cary HOTL
Hudson Hotels Fairfield Inn - Charleston HOTL
Hudson Hotels Cricket Inn - Charlotte HOTL
Hudson Hotels Fairfield Inn - Columbia HOTL
Hudson Hotels Seagate Hotel HOTL
Hudson Hotels Cricket Inn - Durham-Duke HOTL
Hudson Hotels Fairfield Inn - Durham RTP HOTL
Hudson Hotels Comfort Inn - Jamestown HOTL
Hudson Hotels Brookwood Inn - Pittsford HOTL
Hudson Hotels Cricket Inn - Raleigh HOTL
Hudson Hotels Fairfield Inn - Richmond HOTL
Hudson Hotels Comfort Inn - Rochester HOTL
Hudson Hotels Fairfield Inn - Wilmington HOTL
Hudson Hotels Fairfield Inn - Statesville HOTL
Inn at Manchester Clarion Suites Inn HOTL
Knights Inn-Maumee Knights Inn-Maumee HOTL
Ramada Inn - Nashville Ramada Inn - Nashville HOTL
Ramada Inn Bossier Ramada Inn Bossier HOTL
Residence Inn-Gainesville Residence Inn - Gainsville HOTL
Residence Inn-Herndon Residence Inn - Herndon HOTL
Tramz Holiday Inn - Carrier Circle HOTL
Tramz Holiday Inn - Airport HOTL
Cleveland Industrial Portfolio Berea Road IND
Cleveland Industrial Portfolio 6200 Harvard IND
Cleveland Industrial Portfolio Babbitt Road IND
Cleveland Industrial Portfolio Stones Levee IND
Cleveland Industrial Portfolio Eddy Road IND
Cleveland Industrial Portfolio East 34th Street IND
Cleveland Industrial Portfolio Grant IND
Cleveland Industrial Portfolio Industrial Parkway WARE
2 St. Marks/Greystone Greystone MF
2 St. Marks/Greystone St. Marks MF
Candlelite Apartments Candlelite Apartments MF
Decker Building Decker Building MF
El Camino Apts. El Camino Real Apartments MF
Emory Arms Apartments Emory Arms Apartments MF
Fairdale Apartments Fairdale Apartments MF
</TABLE>
<TABLE>
<CAPTION>
Loan Name Address City State Zip of Units
<S> <C> <C> <C> <C> <C>
Woodland Park Investments Co. 21200 Ventura Blvd. Woodland Hills CA 91634 250
Prime Retail II 6601-6657 Hwy. 179 Sedona AZ 86351 82,062
Prime Retail II 61330 Highway 97 Bend OR 97702 96,895
Prime Retail II 3900 Riverbend Ave Post Falls ID 83854 179,125
Best Western-Jacksonville 300 N. Park Avenue Orange Park FL 32073 201
Comfort Inn - Castaic 31558 Castaic Rd Castaic CA 91384 120
Country Hearth Inn - Orlando 9861 International Drive Orlando FL 32819 150
Diamond Inn 1009 South Main Street Salt Lake City UT 84111 62
Econolodge Arizona 121 S. Lake Powell Blvd. Page AZ 86040 63
Holiday Inn - Alexandria 480 King Street Alexandria VA 22314 227
Holiday Inn Express Hotel - East Haven 30 Frontage Road East Haven CT 06511
Holiday Inn New Orleans 100 West Bank Expressway Gretna LA 70053 308
Hudson Hotels 2586 N. Slappey Blvd. Albany GA 31701 122
Hudson Hotels 170 Eastern Blvd Canandaigua NY 14424 65
Hudson Hotels 1716 Walnut St. Cary NC 27511 125
Hudson Hotels 7415 Northside Dr Charleston NC 29420 119
Hudson Hotels 1200 W Sugar Creek Rd. Charlotte NC 28213 132
Hudson Hotels 8104 Two Notch Rd. Columbia SC 29223 129
Hudson Hotels 400 So. Ocean Blvd Delray Beach FL 33483 70
Hudson Hotels 2306 Elba St. Durham NC 27705 150
Hudson Hotels 4507 NC Highway 55 Durham NC 27713 96
Hudson Hotels 2800 N. Main St. Ext Jamestown NY 14701 101
Hudson Hotels 800 Pittsford-Victor Rd Pittsford NY 14534 108
Hudson Hotels 3201 Wake Forest Rd Raleigh NC 27609 149
Hudson Hotels 7300 W Broad St Richmond VA 23294 124
Hudson Hotels 1501 Ridge Rd West Rochester NY 14615 83
Hudson Hotels 4926 Market St. Wilmington NC 28403 120
Hudson Hotels 1503 E. Broad St Statesville NC 28677 118
Inn at Manchester 191 Spencer Street Manchester CT 06040 104
Knights Inn-Maumee 1520 South Hollan/Sylvania Road Maumee OH 43537 161
Ramada Inn - Nashville 837 Briley Parkway Nashville TN 37217 144
Ramada Inn Bossier 750 Isle of Capri Blvd. Bossier LA 71111 244
Residence Inn-Gainesville 4001 SW 13th St Gainesville FL 32608 80
Residence Inn-Herndon 315 Elden Street Herndon VA 22070 168
Tramz 6501 College Drive East Syracuse NY 13057 203
Tramz 6701 Buckley Road North Syracuse NY 13212 187
Cleveland Industrial Portfolio 10408-10750 Berea Road Lakewood OH 44102 236,066
Cleveland Industrial Portfolio 6200 Harvard Avenue Cleveland OH 44105 123,095
Cleveland Industrial Portfolio 1261-1267 Babbitt Road Euclid OH 44132 103,412
Cleveland Industrial Portfolio 401-607 Stones Levee Cleveland OH 44113 81,790
Cleveland Industrial Portfolio 341-353 Eddy Road Cleveland OH 142,026
Cleveland Industrial Portfolio 2912-2972 East 34th Street Cleveland OH 44115 141,287
Cleveland Industrial Portfolio 5207-5215 Grant Avenue Cleveland OH 44125 76,000
Cleveland Industrial Portfolio 1261 Industrial Parkway Brunswick OH 44212 84,636
2 St. Marks/Greystone 7585 Ingram Road San Antonio TX 78232 572
2 St. Marks/Greystone 37 St. Marks Place New York NY 10003 19,243
Candlelite Apartments 700 Candelite Ct. Fort Wayne IN 46807 130
Decker Building 33 Union Square West New York NY 10003 18
El Camino Apts. 1600 Tamarack McAllen TX 78501 135
Emory Arms Apartments 1295 E. Rock Spr. Rd. Atlanta GA 30306 60
Fairdale Apartments 6600 Fairdale San Antonio TX 78218 220
</TABLE>
<TABLE>
<CAPTION>
Loan Name Unit Type DSCR Loan Amount Appr Value Year Built
<S> <C> <C> <C> <C> <C>
Woodland Park Investments Co. beds 1.69 $2,712,000.00 7,500,000.00 1974
Prime Retail II sf 1.40 $7,100,000.00 12,300,000.00
Prime Retail II sf 1.40 $8,000,000.00 13,000,000.00
Prime Retail II sf 1.40 $11,900,000.00 18,700,000.00 1991
Best Western-Jacksonville rooms 1.41 $4,100,000.00 6,500,000.00 1974
Comfort Inn - Castaic rooms 1.45 $3,000,000.00 4,725,000.00 1988
Country Hearth Inn - Orlando rooms 1.50 $4,600,000.00 7,700,000.00 1985
Diamond Inn rooms 1.62 $2,100,000.00 3,600,000.00 1995
Econolodge Arizona rooms $1,200,000.00 2,000,000.00
Holiday Inn - Alexandria rooms 1.80 $15,000,000.00 30,000,000.00 1974
Holiday Inn Express Hotel - East Haven 1.67 $1,500,000.00 3,300,000.00 1963
Holiday Inn New Orleans rooms 1.45 $11,990,000.00 16,300,000.00 1972
Hudson Hotels rooms 1.50 $2,215,000.00 4,100,000.00 1982
Hudson Hotels rooms 1.50 $1,350,000.00 2,200,000.00 1984
Hudson Hotels rooms 1.50 $3,935,000.00 6,200,000.00 1986
Hudson Hotels rooms 1.50 $3,185,000.00 5,500,000.00 1985
Hudson Hotels rooms 1.50 $2,340,000.00 4,700,000.00 1989
Hudson Hotels rooms 1.50 $3,365,000.00 5,100,000.00 1988
Hudson Hotels rooms 1.50 $7,395,000.00 10,700,000.00 1948
Hudson Hotels rooms 1.50 $6,090,000.00 8,700,000.00 1985
Hudson Hotels rooms 1.50 $3,130,000.00 5,100,000.00 1986
Hudson Hotels rooms 1.50 $3,000,000.00 5,000,000.00 1985
Hudson Hotels rooms 1.50 $4,510,000.00 7,900,000.00 1987
Hudson Hotels rooms 1.50 $2,775,000.00 4,700,000.00 1984
Hudson Hotels rooms 1.50 $4,375,000.00 6,400,000.00 1987
Hudson Hotels rooms 1.50 $2,275,000.00 3,800,000.00 1987
Hudson Hotels rooms 1.50 $3,545,000.00 6,100,000.00 1985
Hudson Hotels rooms 1.50 $2,515,000.00 4,500,000.00 1985
Inn at Manchester rooms 1.47 $5,100,000.00 7,500,000.00 1991
Knights Inn-Maumee rooms 1.82 $1,925,000.00 3,100,000.00 1986
Ramada Inn - Nashville rooms 1.54 $2,300,000.00 4,300,000.00 1978
Ramada Inn Bossier rooms 2.05 $3,800,000.00 6,810,000.00 1968
Residence Inn-Gainesville rooms 1.46 $3,925,000.00 5,500,000.00 1986
Residence Inn-Herndon rooms 1.46 $13,500,000.00 20,000,000.00 1988
Tramz rooms 1.48 $6,640,500.00 12,000,000.00 1967
Tramz rooms 1.48 $5,009,500.00 9,300,000.00 1967
Cleveland Industrial Portfolio sf 1.49 $1,681,513.44 2,335,000.00 1905
Cleveland Industrial Portfolio sf 1.49 $1,753,525.38 2,080,000.00 1925
Cleveland Industrial Portfolio sf 1.49 $482,825.61 825,000.00 1917
Cleveland Industrial Portfolio sf 1.49 $604,236.24 1,055,000.00 1905
Cleveland Industrial Portfolio sf 1.49 $1,106,787.27 1,595,000.00 1918
Cleveland Industrial Portfolio sf 1.49 $1,599,085.34 2,380,000.00 1939
Cleveland Industrial Portfolio sf 1.49 $953,631.50 1,035,000.00 1930
Cleveland Industrial Portfolio sf 1.49 $518,395.22 1,640,000.00 1976
2 St. Marks/Greystone 1.33 $11,967,093.20 16,000,000.00 1984
2 St. Marks/Greystone sf 1.33 $3,420,815.43 5,350,000.00 1912
Candlelite Apartments units 1.46 $2,800,000.00 3,750,000.00 1972
Decker Building units 1.49 $6,500,000.00 10,000,000.00 1893
El Camino Apts. units 1.60 $1,775,000.00 2,800,000.00 1972
Emory Arms Apartments units 1.49 $1,500,000.00 2,300,000.00 1968
Fairdale Apartments units 1.82 $1,500,000.00 3,000,000.00 1968
</TABLE>
Prospective Investors are advised to carefully read, and should rely solely on,
the final prospectus supplement (the "Final Prospectus") relating to the
securities referred to herein in making their investment decision. This
Structural and Collateral Term Sheet does not include all relevant Information
relating to the securities and collateral described herein, particularly with
respect to the risks and special consideration associated with an investment in
such securities. All structure and collateral information contained herein is
preliminary and it is anticipated that such information will change. Any
information contained herein will be fully described in, and will be fully
superseded by the description of the collateral and structure in the prospectus
supplement and Final Prospectus. Although the information contained in this
Structural and Collateral Term Sheet is based on sources which Nomura
Securities International Inc. ("Nomura") believes to be reliable, Nomura makes
no representation or warranty that such information is accurate or complete.
Such information should not be viewed as projections, forecasts, predictions or
opinions with respect to value, the actual rate or timing of principal payments
or prepayments on the underlying assets or the performance characteristic of
the securities. Nomura and its affiliates may in the future have a position in
the securities discussed herein and may purchase or sell the same on a
principal basis or as an agent for another person. In addition, Nomura may act
as an underwriter of such securities, and Nomura and certain of its affiliates
may currently be providing investment banking and other services to the Issuer
of such securities and the borrowers described herein and their affiliates.
Prior to making any investment decision, a prospective investor shall receive
and fully review the Final Prospectus. NOTHING HEREIN SHOULD BE CONSIDERED AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
<PAGE>
<TABLE>
<CAPTION>
Loan Name Property Name Property Typ
<S> <C> <C>
Hidden Meadow Hidden Meadows Apartments MF
Kessler Garden Apartments Kessler Garden Apartments MF
Knollwood Village Apartments Knollwood Village Apartments MF
Lakeside Village Lakeside Village MF
Marina Marina Harbor Apts and Anchorage MF
Park Isle Club Apartments Park Isle Club Apartments MF
Senate/Virginian Apartments Senate House and Virginian MF
Slauson Apts. Slauson Apartments MF
Tiffany Bay Apartments Tiffany Bay Clear Lake MF
Bakerview MHP Bakerview MHP MHP
Key RV Park Key RV Park MHP
Lincoln MHP Lincoln MHP MHP
Michigan Trailer Park Michigan Trailer Park MHP
North Acres Mobile Home Park North Acres Mobile Home Park MHP
Trainer Hill MHP Trainer Hill MHP MHP
Village Park MHP Village Park MHP MHP
Western Palms Western Palms MHP
Alden Terrace Investments LP Alden Terrace NURS
Aspen Care Center Aspen Care Center NURS
Buena/Leisure Nursing Buena Ventura Care Center NURS
Buena/Leisure Nursing Leisure Glen NURS
Hamilton Park Health Care Center Hamilton Park Health Care Center NURS
Longwood Manor Investments LP Longwood Manor NURS
Madison House Madison House NURS
Magnolia-Western Investments, LP Magnolia Gardens NURS
Magnolia-Western Investments, LP Western Convalescent NURS
View Park View Park NURS
14 Walkup Drive 14 Walkup Drive OFFC
140 Allen 140 Allen OFFC
5 & 7 East 17th Street 5 & 7 East 17th Street OFFC
6000 Metro Drive 6000 Metro Drive OFFC
Airport Commerce Center Airport Commerce Center OFFC
Alzina Office Complex Alzina Office Complex OFFC
Anza Corporate Center Anza Corporate Center OFFC
Creekside Business Mall Office Bldg Creekside Business Mall Office Bldg OFFC
Durham-One Ethel Rd Durham Center Condominium III (aka One Ethel Road) OFFC
Equitable of Iowa Building Equitable of Iowa Building OFFC
First National Bank Building First National Bank Building OFFC
Heritage Bank Blding Heritage Bank Blding OFFC
Kendall Square Athenaeum House OFFC
Kendall Square Phase I OFFC
Kendall Square Phase II OFFC
Montague Park Tech Center Montague Park Tech Center (Bullock) OFFC
National Bank of California National Bank of California OFFC
Planet Pacific Building Planet Pacific Building OFFC
Saracen Norfolk OFFC
Saracen Dedham Place OFFC
Saracen 128 Technology Center OFFC
Saracen 201 University OFFC
Saracen 7-57 Wells Avenue OFFC
Saracen Wells Research OFFC
</TABLE>
<TABLE>
<CAPTION>
Loan Name Address City State Zip of Units
<S> <C> <C> <C> <C> <C>
Hidden Meadow 5959 Wurzbach San Antonio TX 78238 159
Kessler Garden Apartments 5480 N. Michigan Rd. Indianapolis IN 46228
Knollwood Village Apartments 2130 E. Hill Grand Blanc MI 48439 648
Lakeside Village 4170 Spring Lake Drive San Leandro CA 94578 608
Marina 4500 Via Marina Marina del Rey CA 90292 846
Park Isle Club Apartments 790 73rd Street Miami Beach FL 33141 100
Senate/Virginian Apartments 935 & 965 Cottage Grove Las Vegas NV 89119 130
Slauson Apts. 4707-41 Slauson Ave Los Angeles CA 90001 72
Tiffany Bay Apartments 1605 Tiffany Court Houston TX 77058 46
Bakerview MHP 505 West Bakerview Bellingham WA 98226 125
Key RV Park 6099 Overseas Highway Marathon FL 33050 217
Lincoln MHP 10301 And 10315 W. Greenfield West Allis WI 53214 200
Michigan Trailer Park 3140 W. Osborne Phoenix AZ 85017 151
North Acres Mobile Home Park 302 E. "N" Street Yakima WA 98901 114
Trainer Hill MHP 4300 West Ninth Street Trainer PA 19013 102
Village Park MHP 724 Creek Ridge Road Greensboro NC 27406 241
Western Palms 500 North 67th Ave. Phoenix AZ 85043 305
Alden Terrace Investments LP 1240 Hoover Street Los Angeles CA 90006 210
Aspen Care Center 2325 Madison Avenue Ogden UT 84401 72
Buena/Leisure Nursing 1016 S. Record Ave Los Angeles CA 90023
Buena/Leisure Nursing 1505 Colby Drive Glendale CA
Hamilton Park Health Care Center 525 Monmouth Street Jersey City NJ 07302 250
Longwood Manor Investments LP 4853 W. Washington Blvd. Los Angeles CA 90016 198
Madison House 34 Wildwood Avenue Madison CT 06443 90
Magnolia-Western Investments, LP 17922 San Fernando Mission Granada Hills CA 91604 99
Magnolia-Western Investments, LP 2190 W. Adams Blvd. Los Angeles CA 90018 129
View Park 3737 Don Felipe Drive Los Angeles CA 90008 99
14 Walkup Drive 14 Walkup Drive Westborough MA
140 Allen 140 Allen Road Bernards Township NJ 07936 62,250
5 & 7 East 17th Street 5-7 East 17th Street New York NY 10017
6000 Metro Drive 6000 Metro Drive Baltimore MD 21215 78,971
Airport Commerce Center 16126 Sherman Way Van Nuys CA 91406 41,330
Alzina Office Complex 100 North First St. Springfield IL 62705 256,513
Anza Corporate Center 433 Airport Blvd. Burlingame CA 94010 65,553
Creekside Business Mall Office Bldg 1475 Bascom Avenue Campbell CA 95008 49,965
Durham-One Ethel Rd One Ethel Road Edison NJ 08817
Equitable of Iowa Building 604 Locust Street Des Moines IA 50309 217,638
First National Bank Building 107 St. Francis Street Mobile AL
Heritage Bank Blding 1313 Dolley Madison McLean VA 22101 52,992
Kendall Square 215 1st Street Cambridge MA 02142 310,887
Kendall Square One Kendall Square Cambridge MA 21412 221,360
Kendall Square 1 Kendall Sq. Phase 2 Cambridge MA 21412 238,648
Montague Park Tech Center Junction Avenue San Jose CA 95134 417,532
National Bank of California 145 S. Fairfax Ave. Los Angeles CA 90036 54,669
Planet Pacific Building 27405 Puerta Real Mission Viejo CA 92691
Saracen 333 Elm Street Dedham MA 02026 48,068
Saracen East St & Allied Dr Dedham MA 02026 162,300
Saracen 125 Roberts Road Waltham MA 02154 217,500
Saracen 201 University Ave. Westwood MA 02090 82,000
Saracen 7-57 Wells Avenue Newton MA 02159 88,400
Saracen 75-85-95 Wells Ave. Newton MA 02159 238,911
</TABLE>
<TABLE>
<CAPTION>
Loan Name Unit Type DSCR Loan Amount Appr Value Year Built
<S> <C> <C> <C> <C> <C>
Hidden Meadow units 1.71 $1,350,000.00 2,600,000.00 1975
Kessler Garden Apartments 1.27 $1,950,000.00 2,700,000.00 1966
Knollwood Village Apartments units 1.39 $20,000,000.00 25,250,000.00 1970
Lakeside Village units 1.39 $25,000,000.00 33,690,000.00 1972
Marina units 1.34 $51,000,000.00 70,000,000.00 1962
Park Isle Club Apartments units 1.29 $1,700,000.00 2,250,000.00 1958
Senate/Virginian Apartments units 1.45 $2,200,000.00 3,390,000.00 1972
Slauson Apts. units 1.35 $1,777,000.00 2,250,000.00 1964
Tiffany Bay Apartments units 1.28 $1,900,000.00 2,400,000.00 1981
Bakerview MHP pads $1,800,000.00 2,800,000.00 1975
Key RV Park pads 1.56 $2,500,000.00 3,670,000.00 1976
Lincoln MHP pads $4,150,000.00 5,300,000.00 1952
Michigan Trailer Park pads 1.29 $1,385,000.00 1,860,000.00 1950
North Acres Mobile Home Park pads 1.54 $1,012,000.00 1,750,000.00 1961
Trainer Hill MHP pads $1,000,000.00 1,700,000.00 1951
Village Park MHP pads $2,800,000.00 4,400,000.00 1972
Western Palms pads $4,820,000.00 6,500,000.00 1973
Alden Terrace Investments LP beds 2.05 $4,747,000.00 8,000,000.00 1961
Aspen Care Center beds 1.53 $2,200,000.00 3,500,000.00 1963
Buena/Leisure Nursing 1.66 $2,886,252.70 4,300,000.00 1967
Buena/Leisure Nursing 1.66 $2,733,747.30 4,100,000.00
Hamilton Park Health Care Center beds 1.50 $14,700,000.00 21,000,000.00 1989
Longwood Manor Investments LP beds 1.71 $4,578,000.00 6,500,000.00 1965
Madison House beds 1.63 $6,750,000.00 11,000,000.00 1994
Magnolia-Western Investments, LP beds 1.82 $3,300,000.00 4,800,000.00 1963
Magnolia-Western Investments, LP beds 1.82 $2,500,000.00 5,000,000.00 1969
View Park beds 1.71 $2,675,000.00 4,800,000.00 1964
14 Walkup Drive $3,480,000.00 5,300,000.00
140 Allen sf 1.37 $6,000,000.00 11,250,000.00 1983
5 & 7 East 17th Street 1.51 $4,725,000.00 7,400,000.00 1920
6000 Metro Drive sf 1.43 $4,717,500.00 7,500,000.00 1987
Airport Commerce Center 1.24 $1,870,000.00 2,800,000.00 1990
Alzina Office Complex 1.35 $14,066,000.00 20,700,000.00 1974
Anza Corporate Center sf 1.25 $3,500,000.00 6,500,000.00 1972
Creekside Business Mall Office Bldg sf 1.36 $3,100,000.00 4,445,000.00 1979
Durham-One Ethel Rd 1.70 $2,175,000.00 4,100,000.00 1975
Equitable of Iowa Building sf 1.49 $5,200,000.00 7,300,000.00 1924
First National Bank Building 1.51 $8,407,000.00 12,557,000.00 1966
Heritage Bank Blding sf 1.34 $2,922,000.00 4,700,000.00 1976
Kendall Square sf 1.40 $69,700,000.00 29,000,000.00 1895
Kendall Square sf 1.40 27,700,000.00 1900
Kendall Square sf 1.40 41,800,000.00 1930
Montague Park Tech Center sf 1.27 $33,000,000.00 54,000,000.00 1985
National Bank of California 1.27 $4,125,000.00 5,500,000.00 1984
Planet Pacific Building 1.70 $1,700,000.00 3,050,000.00 1983
Saracen sf 1.42 $3,093,152.00 5,100,000.00 1984
Saracen sf 1.42 $14,148,837.00 25,400,000.00 1987
Saracen sf 1.42 $17,666,917.00 32,800,000.00 1986
Saracen sf 1.42 $7,656,783.00 12,200,000.00 1970
Saracen sf 1.42 $6,937,010.00 11,300,000.00 1982
Saracen sf 1.42 $19,497,301.00 35,600,000.00 1970
</TABLE>
Prospective Investors are advised to carefully read, and should rely solely on,
the final prospectus supplement (the "Final Prospectus") relating to the
securities referred to herein in making their investment decision. This
Structural and Collateral Term Sheet does not include all relevant Information
relating to the securities and collateral described herein, particularly with
respect to the risks and special consideration associated with an investment in
such securities. All structure and collateral information contained herein is
preliminary and it is anticipated that such information will change. Any
information contained herein will be fully described in, and will be fully
superseded by the description of the collateral and structure in the prospectus
supplement and Final Prospectus. Although the information contained in this
Structural and Collateral Term Sheet is based on sources which Nomura
Securities International Inc. ("Nomura") believes to be reliable, Nomura makes
no representation or warranty that such information is accurate or complete.
Such information should not be viewed as projections, forecasts, predictions or
opinions with respect to value, the actual rate or timing of principal payments
or prepayments on the underlying assets or the performance characteristic of
the securities. Nomura and its affiliates may in the future have a position in
the securities discussed herein and may purchase or sell the same on a
principal basis or as an agent for another person. In addition, Nomura may act
as an underwriter of such securities, and Nomura and certain of its affiliates
may currently be providing investment banking and other services to the Issuer
of such securities and the borrowers described herein and their affiliates.
Prior to making any investment decision, a prospective investor shall receive
and fully review the Final Prospectus. NOTHING HEREIN SHOULD BE CONSIDERED AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
<PAGE>
<TABLE>
<CAPTION>
Loan Name Property Name Property Typ
<S> <C> <C>
Tech Center 29 Tech Center 29 OFFC
The Diamondhead Building The Diamondhead Building OFFC
Two Gateway Center Two Gateway Center OFFC
American Plaza Shopping Center American Plaza Shopping Center RETL
Arvada Plaza Arvada Plaza RETL
Asian Gardens Asian Gardens RETL
Barstow Plaza Barstow Plaza RETL
Burlington Square Burlington Square RETL
Burnham Pacific Valley Central RETL
Burnham Pacific1 Puente Hills RETL
Clematis Corridor Portfolio Clematis Corridor Portfolio RETL
Danvers Crossing Shopping Center Danvers Crossing Shopping Center RETL
Davol Square Jewelry Mart Davol Square Jewelry Mart RETL
Del Mar Delmar Retail Center RETL
Englar Shopping Center Englar Shopping Center RETL
Hocking Mall Shopping Center Hocking Mall Shopping Center RETL
Lincoln Park Center Barstow RETL
M & H How 'Bout Arden RETL
M & H Bethard Square RETL
M & H LaHabra Marketplace RETL
Old Town Square Old Town Square RETL
Outlets Limited Mall The Lab RETL
Plaza Reyes Adobe Retail Center Plaza Reyes Adobe Retail Center RETL
Plymouth Mall Plymouth Mall RETL
Pocono Green Shopping Center Pocono Green Shopping Center RETL
Saunders Plaza Saunders Plaza RETL
South Dekalb Mall South Dekalb Mall RETL
Sunwest Sunwest 1-80 RETL
Tampa Plaza Shopping Plaza Tampa Plaza Shopping Plaza RETL
The Lab The Lab RETL
The Plaza Burr Corners I & II Plaza at Burr Corners I&II RETL
Washington Square Shopping Center Washington Square Shopping Center RETL
Winston Village Winston Village RETL
CC
HOTL
HOTL
HOTL
HOTL
HOTL
HOTL
HOTL
HOTL
HOTL
HOTL
HOTL
HOTL
HOTL
HOTL
IND
IND
</TABLE>
<TABLE>
<CAPTION>
Loan Name Address City State Zip of Units
<S> <C> <C> <C> <C> <C>
Tech Center 29 12200 Tech Road Silver Spring MD 20904 55,797
The Diamondhead Building 200 Sheffield Street Mountainside NJ 07092 100,750
Two Gateway Center 283-299 Market St. Newark NJ 07102 738,201
American Plaza Shopping Center 701 Galvin Road Bellevue NE 68005 45,265
Arvada Plaza 9212-9588 West 58th Ave. Arvada CO 85704 152,621
Asian Gardens 9200 Bolsa Av Westminster CA 92683 111,824
Barstow Plaza 901 Armory Road Barstow CA 92311 39,412
Burlington Square Middlesex Turnpike Burlington MA 01803 86,290
Burnham Pacific 44655 Vly Cntral Wy Lancaster CA 93536 480,092
Burnham Pacific1 17525-18271 Gale City of Industry CA 91748 516,538
Clematis Corridor Portfolio 218-230 & 330 Clematis Rd. Palm Beach FL 33401 64,662
Danvers Crossing Shopping Center 8-10 Newbury St Danvers MA 01923 175,733
Davol Square Jewelry Mart 3 Davol Square Providence RI 81,284
Del Mar 7154 Beracasa Way Boca Raton FL 153,525
Englar Shopping Center MD Rte 140/Englar Road Westminster MD 21157 123,909
Hocking Mall Shopping Center County Road 33A & S.R. 664 Logan OH 43138
Lincoln Park Center 3600 Fort Street Lincoln Park MI 48146 175,679
M & H 2100 Arden Way Sacramento CA 95825 164,909
M & H 301-342 West Olive Avenue Madera CA 93638 92,988
M & H 1500-1900 Imperial Hwy La Habra CA 90631 392,443
Old Town Square Mountain & College Fort Collins CO 80524 106,665
Outlets Limited Mall 3750 Venture Drive Duluth GA 30136 170,886
Plaza Reyes Adobe Retail Center 30313 Canwood St Agoura Hills CA 91301
Plymouth Mall 2700 Plymouth Rd. Ann Arbor MI 48104 86,038
Pocono Green Shopping Center Midlothian Turnpike Richmond VA 23235 44,005
Saunders Plaza 4533 MacArthur Blvd Newport Beach CA 92660 34,122
South Dekalb Mall 2801 Candler Road Decatur GA 30034 328,078
Sunwest Various
Tampa Plaza Shopping Plaza 8951 Tampa Avenue Los Angeles CA 91311
The Lab 2930 Bristol Street Costa Mesa CA 92626 31,165
The Plaza Burr Corners I & II 1129 Tolland Tpk. Manchester CT 06040 271,134
Washington Square Shopping Center 1111 E. Washington Ave. Escondido CA 92025 56,845
Winston Village 2055 N. Perris Blvd. Perris CA 92571
Riverview MI
Needles CA
Providence RI
Bluefield WV
Woodbridge VA
Chesapeake VA
Richmond VA
Wytheville VA
Fredericksburg VA
South Kingstown RI
Bennetsville SC
Columbus OH
Livermore CA
Grand Cayman Island
Indianapolis IN
Mishawaka IN
South Bend IN
</TABLE>
<TABLE>
<CAPTION>
Loan Name Unit Type DSCR Loan Amount Appr Value Year Built
<S> <C> <C> <C> <C> <C>
Tech Center 29 sf 1.43 $4,550,000.00 6,900,000.00 1988
The Diamondhead Building sf 1.37 $3,500,000.00 6,600,000.00 1971
Two Gateway Center sf 1.84 $34,500,000.00 53,650,000.00 1972
American Plaza Shopping Center sf 1.27 $2,150,000.00 3,400,000.00 1986
Arvada Plaza sf 1.38 $2,900,000.00 5,500,000.00 1964
Asian Gardens sf 1.31 $24,375,000.00 36,900,000.00 1987
Barstow Plaza sf 1.52 $2,223,000.00 3,600,000.00 1982
Burlington Square sf 1.32 $14,664,000.00 21,300,000.00 1992
Burnham Pacific sf 1.65 $25,400,000.00 42,200,000.00 1988
Burnham Pacific1 sf 1.72 $33,100,000.00 61,000,000.00 1986
Clematis Corridor Portfolio sf 1.32 $3,510,000.00 5,800,000.00 1920
Danvers Crossing Shopping Center sf 1.40 $13,670,000.00 19,300,000.00 1989
Davol Square Jewelry Mart sf 1.60 $4,500,000.00 6,800,000.00 1875
Del Mar sf 1.33 $12,500,000.00 16,400,000.00 1982
Englar Shopping Center sf 1.39 $5,535,000.00 7,700,000.00 1987
Hocking Mall Shopping Center 1.27 $1,963,000.00 3,400,000.00 1978
Lincoln Park Center sf 1.30 $5,900,000.00 8,200,000.00 1955
M & H sf 1.91 $11,465,239.00 21,000,000.00 1988
M & H sf 1.91 $1,400,585.00 4,500,000.00 1968
M & H sf 1.91 $15,884,176.00 33,900,000.00 1960
Old Town Square 1.37 $3,750,000.00 6,100,000.00 1984
Outlets Limited Mall sf 1.97 $5,000,000.00 11,000,000.00 1986
Plaza Reyes Adobe Retail Center 1.35 $3,350,000.00 4,550,000.00 1987
Plymouth Mall sf 1.37 $3,950,000.00 6,000,000.00 1966
Pocono Green Shopping Center sf 1.32 $3,000,000.00 4,100,000.00 1986
Saunders Plaza sf 1.34 $2,980,000.00 4,250,000.00 1966
South Dekalb Mall sf 1.41 $21,845,301.00 30,000,000.00 1970
Sunwest $49,500,000.00
Tampa Plaza Shopping Plaza 1.41 $12,000,000.00 19,000,000.00 1975
The Lab sf 1.37 $4,075,000.00 5,750,000.00 1955
The Plaza Burr Corners I & II sf 1.32 $12,305,000.00 17,000,000.00 1966
Washington Square Shopping Center sf 1.23 $3,476,000.00 5,000,000.00 1978
Winston Village 1.34 $3,375,000.00 4,700,000.00 1990
beds $3,500,000.00
rooms $1,800,000.00
$3,955,000.00
rooms $586,388.00
rooms $2,116,322.00
rooms $636,597.00
rooms $274,536.00
rooms $1,207,509.00
rooms $1,518,792.00
$1,200,000.00
rooms $1,430,000.00
rooms $9,600,000.00
$6,060,000.00
rooms $70,000,000.00
rooms $43,700,000.00
sf $3,083,251.62
sf $2,290,794.76
</TABLE>
Prospective Investors are advised to carefully read, and should rely solely on,
the final prospectus supplement (the "Final Prospectus") relating to the
securities referred to herein in making their investment decision. This
Structural and Collateral Term Sheet does not include all relevant Information
relating to the securities and collateral described herein, particularly with
respect to the risks and special consideration associated with an investment in
such securities. All structure and collateral information contained herein is
preliminary and it is anticipated that such information will change. Any
information contained herein will be fully described in, and will be fully
superseded by the description of the collateral and structure in the prospectus
supplement and Final Prospectus. Although the information contained in this
Structural and Collateral Term Sheet is based on sources which Nomura
Securities International Inc. ("Nomura") believes to be reliable, Nomura makes
no representation or warranty that such information is accurate or complete.
Such information should not be viewed as projections, forecasts, predictions or
opinions with respect to value, the actual rate or timing of principal payments
or prepayments on the underlying assets or the performance characteristic of
the securities. Nomura and its affiliates may in the future have a position in
the securities discussed herein and may purchase or sell the same on a
principal basis or as an agent for another person. In addition, Nomura may act
as an underwriter of such securities, and Nomura and certain of its affiliates
may currently be providing investment banking and other services to the Issuer
of such securities and the borrowers described herein and their affiliates.
Prior to making any investment decision, a prospective investor shall receive
and fully review the Final Prospectus. NOTHING HEREIN SHOULD BE CONSIDERED AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
<PAGE>
<TABLE>
<CAPTION>
Loan Name Property Name Property Typ
<S> <C> <C>
IND
IND
MF
MF
MF
MF
MF
MF
MF
MF
MF
MF
MHP
MHP
MHP
MHP
MHP
MHP
OFFC
OFFC
OFFC
OFFC
OFFC
OFFC
OFFC
OFFC
OFFC
RETL
RETL
RETL
RETL
RETL
RETL
RETL
RETL
RETL
RETL
RETL
RETL
RETL
RETL
RETL
RETL
RETL
RETL
WARE
WARE
</TABLE>
<TABLE>
<CAPTION>
Loan Name Address City State Zip of Units
<S> <C> <C> <C> <C> <C>
South Bend IN
Nashville TN
Greeley CO
Fort Collins CO
East Hartford CT
Brooklyn NY
Nashville TN
Rolling Meadows IL
Mishawaka IN
Columbus OH
Bellingham WA
Suitland MD
Cedar Springs MI
Winter Haven FL
Margate FL
Ft. Lauderdale FL
Blaine MN
Novia MI
New York NY
West Mifflin PA
South Bend IN
South Bend IN
South Bend IN
South Bend IN
South Bend IN
South Bend IN
New York NY
Bel Air MD
Moreno Valley CA
Santa Rosa CA
Derry NH
Asheboro NC
Grand Island NE
Houston TX
Houston TX
Milford MA
Princeton NJ
Arvada CO
Tallahasse FL
Baltimore MD
Livingston NJ
Detroit MI
Kirkland WA
Tucson AZ
Warwick RI
Greensboro NC
Brighton CO
</TABLE>
<TABLE>
<CAPTION>
Loan Name Unit Type DSCR Loan Amount Appr Value Year Built
<S> <C> <C> <C> <C> <C>
sf $2,250,174.20
sf $1,742,468.02
units $11,500,000.00
units $10,000,000.00
units $5,900,000.00
$1,650,000.00
units $1,939,000.00
$8,300,000.00
units $1,496,421.46
$4,000,000.00
$8,600,000.00
units $10,500,000.00
pads $1,400,000.00
$2,550,000.00
pads $12,000,000.00
pads $5,850,000.00
pads $10,650,000.00
pads $6,500,000.00
$9,000,000.00
sf $21,500,000.00
sf $386,798.80
sf $1,456,184.18
sf $2,669,732.27
sf $1,652,544.28
sf $1,245,384.35
sf $1,735,200.00
sf $70,000,000.00
$9,850,000.00
$8,065,000.00
$2,850,000.00
sf $9,025,000.00
sf $11,340,023.67
sf $18,659,976.33
sf $3,150,000.00
sf $6,000,000.00
sf $2,800,000.00
sf $25,000,000.00
$1,663,000.00
sf $23,000,000.00
sf $36,000,000.00
$3,116,000.00
sf $2,800,000.00
$5,425,000.00
sf $17,325,000.00
sf $5,000,000.00
sf $31,125,000.00
sf $31,125,000.00
</TABLE>
Prospective Investors are advised to carefully read, and should rely solely on,
the final prospectus supplement (the "Final Prospectus") relating to the
securities referred to herein in making their investment decision. This
Structural and Collateral Term Sheet does not include all relevant Information
relating to the securities and collateral described herein, particularly with
respect to the risks and special consideration associated with an investment in
such securities. All structure and collateral information contained herein is
preliminary and it is anticipated that such information will change. Any
information contained herein will be fully described in, and will be fully
superseded by the description of the collateral and structure in the prospectus
supplement and Final Prospectus. Although the information contained in this
Structural and Collateral Term Sheet is based on sources which Nomura
Securities International Inc. ("Nomura") believes to be reliable, Nomura makes
no representation or warranty that such information is accurate or complete.
Such information should not be viewed as projections, forecasts, predictions or
opinions with respect to value, the actual rate or timing of principal payments
or prepayments on the underlying assets or the performance characteristic of
the securities. Nomura and its affiliates may in the future have a position in
the securities discussed herein and may purchase or sell the same on a
principal basis or as an agent for another person. In addition, Nomura may act
as an underwriter of such securities, and Nomura and certain of its affiliates
may currently be providing investment banking and other services to the Issuer
of such securities and the borrowers described herein and their affiliates.
Prior to making any investment decision, a prospective investor shall receive
and fully review the Final Prospectus. NOTHING HEREIN SHOULD BE CONSIDERED AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
<PAGE>
ANNEX B
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Asset
Securitization Corporation, Commercial Mortgage Pass-Through Certificates,
Series 1997-D4 (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities
through any of The Depository Trust Company ("DTC"), CEDEL or Euroclear. The
Global Securities will be tradable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary
trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional Eurobond practice (i.e., seven calendar days settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Subordinated Certificates will be effected on a delivery
against payment basis through the respective Depositaries of CEDEL and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations of their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of CEDE & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional Eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between
DTC Participants will be settled in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional Eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant
to the account of a CEDEL Participant or a Euroclear Participant, the
purchaser will send instructions to CEDEL or Euroclear through a CEDEL
Participant or Euroclear Participant at least one business day prior to
settlement. CEDEL or Euroclear will instruct the respective Depositary, as the
case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date, calculated on the
basis of a year of 360 days consisting of twelve 30-day months. Payment will
then be made by the respective Depositary to the DTC Participant's account
against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the CEDEL Participant's or Euroclear Participant's account. The securities
credit will appear the next day (European time) and the cash debit will be
back-valued to, and the interest on the Global Securities will accrue from,
the value date (which would be the preceding day when settlement occurred in
New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the CEDEL or Euroclear cash debit will be valued instead as
of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to
pre-position funds for settlement, either from cash on hand or existing lines
of credit, as they would for any settlement occurring within CEDEL or
Euroclear. Under this approach, they may take on credit exposure to CEDEL or
Euroclear until the Global Securities are credited to their accounts one day
later.
As an alternative, if CEDEL or Euroclear has extended a line of
credit to them, CEDEL Participants can elect not to pre-position funds and
allow that credit line to be drawn upon to finance settlement. Under this
procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared
the overdraft when the Global Securities were credited to their accounts.
However, interest on the Global Securities would accrue from the value date.
Therefore, in many cases the investment income on the Global Securities earned
during that one day period may substantially reduce or offset the amount of
such overdraft charges, although this result will depend on each CEDEL
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global
Securities to the respective Depositary for the benefit of CEDEL Participants
or Euroclear Participants. The sale proceeds will be available to the DTC
seller on the settlement date. Thus, to the DTC Participant a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct the respective Depositary, as appropriate, to
deliver the bonds to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date, calculated on
the basis of a year of 360 days consisting of 12 30-day months. The payment
will then be reflected in the account of the CEDEL Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the CEDEL
Participant's or Euroclear Participant's account would be back- valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the CEDEL Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft charges incurred over the one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails) receipt of the cash proceeds in the CEDEL Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken.
At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business in the chain or intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate.
Exceptions for non-U.S. Persons (Form W-8): Beneficial owners of
Certificates that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must be
filed within 30 days of such change.
Exception for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank with
a U.S. branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are beneficial owners of a
Certificate and reside in a country that has a tax treaty with the United
States can obtain an exemption or reduced tax rate (depending on the
treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding tax
will be imposed at that rate unless the filer alternatively files Form W-8.
Form 1001 may be filed by the holder of a Certificate or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The holder of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of
the United States or any political subdivision thereof, (iii) an estate the
income of which is includible in gross income for United States tax purposes,
regardless of its source or (iv) a trust if (A) for taxable years beginning
after December 31, 1996 (or for taxable years ending after August 20, 1996, if
the trustee has made an applicable election) a court within the United States
is able to exercise primary supervision over the administration of such trust,
and one or more United states fiduciaries have the authority to control all
substantial decisions of such trust, or (B) for all other taxable years, such
trust is subject to United States federal income tax regardless of the source
of its income. This summary does not deal with all aspects of U.S. federal
income tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities.
<PAGE>
ANNEX C
LIST OF PHOTOGRAPHS IN ELECTRONIC VERSION OF PROSPECTUS
<PAGE>
ANNEX D
FORM OF QUARTERLY AND ANNUAL REPORTS
FORM OF ASC 1997-D4 QUARTERLY AND ANNUAL COLLATERAL SUMMARY
<TABLE>
<CAPTION>
Scheduled
Property Current NOI Current Maturity Beginning Interest Principal
Property Type City State NOI* DSCR NOI As of DSR Date Balance Payments Payments
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property Name (if applicable)
Property Name
Property Name
Property Name
Property Name
Property Name
Total for Pool
Property Name
Property Name
Property Name
<CAPTION>
Ending Days Current Occ 199_ ADR
Property Prepayments Balance Delinquent Occupancy* Occupancy As of ADR AS OF
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property Name (if applicable)
Property Name
Property Name
Property Name
Property Name
Property Name
Total for Pool
Property Name
Property Name
Property Name
- ---------------
* Use most recent year end NOI, Occupancy and ADR
</TABLE>
<PAGE>
<TABLE>
SERVICER REPORT
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1997-D4
SPECIAL SERVICED MORTGAGE LOANS
Ending
Delinquent Loan City/ Property Paid to Actual Total P&I Total Other Total Monthly Interest
Status Number State Type Date Balance Advances Expenses Advances Exposure P&I Rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
Actions
Appraisal/ Projected Foreclosure of
Maturity NOI NOI/ Appraisal Other Loss Date Special
Date Date DSCR Date Value Servicer
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES OFFERED HEREBY NOR AN OFFER OF SUCH SECURITIES TO ANY
PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH AN OFFER WOULD
BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS
PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE AMENDED
OR SUPPLEMENTED ACCORDINGLY.
--------------------------
TABLE OF CONTENTS
PAGE
Summary of Prospectus................................................ 12
Risk Factors and Other Special Considerations........................ 26
Industry Overview.................................................... 48
Description of the Mortgage Pool..................................... 49
Description of the Subordinated Certificates......................... 76
Prepayment and Yield Considerations.................................. 92
The Depositor........................................................ 124
The Trustee.......................................................... 126
The Fiscal Agent..................................................... 126
The Pooling and Servicing Agreement.................................. 126
Use of Proceeds...................................................... 156
Certain Legal Aspects of Mortgage Loans.............................. 157
Certain Federal Income Tax Consequences.............................. 168
ERISA Considerations................................................. 178
Legal Investment..................................................... 178
Plan of Distribution................................................. 180
Legal Matters........................................................ 181
Rating............................................................... 181
Annex A -- Loan Characteristics...................................... A
Annex B -- Global Clearance, Settlement and Tax
Documentation Procedures B
Annex C -- List of Photographs in Electronic Version of Prospectus C
Annex D -- Form of Quarterly and Annual Reports D
<PAGE>
$[ ]
(APPROXIMATE)
ASSET SECURITIZATION CORPORATION,
DEPOSITOR
SUBORDINATED UNITS CONSISTING OF
$[ ] (APPROXIMATE) CLASS B-1,
$[ ] (APPROXIMATE) CLASS B-2,
$[ ] (APPROXIMATE) CLASS B-3,
$[ ] (APPROXIMATE) CLASS B-4,
$[ ] (APPROXIMATE) CLASS B-5, AND
$[ ] (APPROXIMATE) CLASS B-6
COMMERCIAL MORTGAGE
PASS-THROUGH CERTIFICATES,
SERIES 1997-D4
PROSPECTUS
BEAR, STEARNS & CO. INC.
NOMURA SECURITIES
INTERNATIONAL, INC.
[ ], 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance
and distribution of the securities being registered, other than underwriting
compensation, are set forth below. All such expenses, except for the filing
fee, are estimated.
ITEM AMOUNT
SEC Registration Fee $303.03
Blue Sky Fees and Expenses $ *
Legal Fees and Expenses $ *
Accounting Fees and Expenses $ *
Trustee's Fees and Expenses $ *
Printing and Engraving Fees $ *
Rating Agency Fees $ *
Miscellaneous $ *
====
-----------
* To be provided by amendment.
ITEM 31. SALES TO SPECIAL PARTIES.
Not applicable.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
To be provided by amendment.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the form of Underwriting Agreement included in the Registration
Statement, the Underwriters are obligated under certain circumstances to
indemnify certain controlling persons of the Depositor against certain
liabilities, including liabilities under the Act.
The Depositor's By-laws and Certificate of Incorporation provide for
indemnification of directors and officers of the Depositor to the full extent
permitted by Delaware law and the power to purchase and maintain insurance on
behalf of directors and officers against any liability asserted against them
and incurred by them in such capacities. The Certificate of Incorporation
further provides that no director of the Depositor shall be personally liable
to the Depositor or to its stockholders for monetary damages for any breach of
such director's fiduciary duty as a director of the Depositor, provided that
such limitation on a director's liability shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty
to the Depositor or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of Delaware, or (iv)
for any transaction from which the director derived an improper personal
benefit.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they are
or were such directors, officers, employees or agents, against expenses
incurred in any such action, suit or proceeding.
The Pooling and Servicing Agreement provides that no director,
officer, employee or agent of the Depositor is liable to the Trust Fund or the
Certificateholders, except for such person's own willful misfeasance, bad
faith or gross negligence in the performance of duties or reckless
II-1
<PAGE>
disregard of obligations and duties. The Pooling and Servicing Agreement
provides further than, with the exceptions stated above, a director, officer,
employee or agent of the Depositor is entitled to be indemnified against any
loss, liability or expenses incurred in connection with legal actions relating
to the Pooling and Servicing Agreement and the Certificates, other than such
expenses relating to particular Mortgage Loans.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement
3.1** Certificate of Incorporation of Asset Securitization
Corporation as currently in effect
3.2*** Bylaws of Asset Securitization Corporation as currently
in effect
4.1* Form of Pooling and Servicing Agreement
5.1* Opinion of Cadwalader, Wickersham & Taft as to legality (including the consent of such firm)
8.1* Opinion of Cadwalader, Wickersham & Taft as to certain tax matters (included in Exhibit 5.1)
24.1 Consent of Cadwalader, Wickersham & Taft (included as part of Exhibits 5.1 and 8.1)
25.1 Power of Attorney (located on the signature page of the initial filing of this Registration Statement)
- --------
* To be provided by amendment.
** Previously filed.
*** Previously filed in connection with Registration Statement No. 33-89494
and incorporated by reference herein.
</TABLE>
II-2
<PAGE>
ITEM 36. UNDERTAKINGS.
A. Undertaking in Respect of Indemnification
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant, pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant, as
the case may be, will, unless in the opinion of its counsel that the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the act and will be governed by the final
adjudication of such issue.
B. Undertaking pursuant to Rule 430A.
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-11 and has duly caused this
Pre-effective Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York, on March 6, 1997.
ASSET SECURITIZATION CORPORATION
By: /s/ Ethan Penner
Name: Ethan Penner
________________________
Title: President
________________________
Pursuant to the requirements of the Securities Act of 1933, this
Pre-effective Amendment No. 1 to the Registration Statement has beeo signed by
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE POSITION
<S> <C>
/s/ Ethan Penner President and Director
Ethan Penner
* Chief Executive Officer and Director
Michael Berman
* Chief Financial Officer and Treasurer
Robert Rottmann (Principal Accounting Officer)
* Director
William Wraith
* Director
Richard Ader
* Director
Hiroshi Tsujimura
* Chairman and Director
Max C. Chapman, Jr.
* Director
Mark W. McGauley
* By :/s/ Ethan Penner
Name: Ethan Penner
_____________________________
Attorney-in-fact
</TABLE>
II-4
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
<S> <C> <C>
1.1* Form of Underwriting Agreement
3.1** Certificate of Incorporation of Asset Securitization
Corporation as currently in effect
3.2*** Bylaws of Asset Securitization Corporation as currently
in effect
4.1* Form of Pooling and Servicing Agreement
5.1* Opinion of Cadwalader, Wickersham & Taft as to legality
(including the consent of such firm)
8.1* Opinion of Cadwalader, Wickersham & Taft as to certain
tax matters (included in Exhibit 5.1)
24.1 Consent of Cadwalader, Wickersham & Taft
(included as part of Exhibits 5.1 and 8.1)
25.1 Power of Attorney
(located on the signature page of the initial filing of this Registration Statement)
- --------
* To be provided by amendment.
** Previously filed.
*** Previously filed in connection with Registration Statement No. 33-89494 and incorporated by reference
herein.
</TABLE>
